United States District Court, Southern District of New York
December 18, 1990
IN THE MATTER OF THE ARBITRATION BETWEEN HALLEY OPTICAL CORP., PETITIONER,
JAGAR INTERNATIONAL MARKETING CORP., AND JOHN DEGRANDPRE, INDIVIDUALLY, RESPONDENTS.
The opinion of the court was delivered by: Edelstein, District Judge:
MEMORANDUM & ORDER
Petitioner Halley moves to confirm an arbitration award dated
July 17, 1990, for interest, and for costs. Respondent
DeGrandpre cross-moves to vacate the same arbitration award.
For reasons to be discussed, petitioner's motion is granted.
Petitioner Halley is a seller of optical equipment.
Respondent Jagar is a marketing company. Respondent DeGrandpre
is the president of Jagar. On February 15, 1983, Halley entered
into an agreement with Jagar where Jagar would "use its best
efforts to locate suppliers for the production, manufacturing
and assembly" of the Halley product the "Halleyscope" telescope
(the "telescope"). In addition, Halley agreed to use Jagar as
its exclusive agent in marketing its telescopes. The agreement
contained clauses obligating Jagar to engage suppliers for
telescopes at the lowest possible price. Further, Jagar and
DeGrandpre agreed not import the telescope for anyone else, or
to market the telescope to anyone else without the approval of
Halley. Halley agreed to pay Jagar a 3% commission on all
telescopes supplied to Halley, and a 5% commission on all
telescopes marketed by Jagar. Jagar's performance under the
contract was to be personally performed or supervised by
DeGrandpre. Finally, the contract provided that all disputes
would be submitted to arbitration.
The instant dispute arose when Halley discovered that
DeGrandpre was accepting an additional 5% commission on all
telescopes supplied to Halley from Tokyo Trading Company, the
Japanese manufacturer of the telescopes ("TTC"). This
commission was above and beyond the commission paid to Jagar by
Halley. In addition, TTC offered DeGrandpre a 10% discount on
the price of telescopes to be supplied to Halley in exchange
for a 2% reduction in the commission it paid to DeGrandpre.
DeGrandpre declined the TTC's offer. Finally, Halley eventually
learned that DeGrandpre had negotiated with TTC to purchase
telescopes and market them on his own.
On May 15, 1986, Halley filed for Bankruptcy under Chapter 11
of the United States Bankruptcy code. On February 21, 1989, the
bankruptcy judge approved a plan or reorganization and Halley
emerged from bankruptcy.
On October 1, 1989, Halley served its Demand for Arbitration
pursuant to the American Arbitration Association's (AAA) rules.
After extensive pre-hearing activity, the arbitration was held
on April 4, 1990. Both Jagar and DeGrandpre were represented by
counsel at the arbitration pending judicial determination of
this issue. After the hearing, both sides submitted extensive
post-hearing briefs. On July 17, 1990, the arbitrators rendered
their award, directing Jagar and DeGrandpre, individually and
severally, to pay Halley the amount of $258,373.10, to be
distributed according the order of the bankruptcy judge. The
instant motions followed.
In its cross-motion to vacate the arbitration award,
DeGrandpre argues he was not subject to the jurisdiction of the
arbitration because the contract was between Jagar and Halley,
not him personally. Halley argues that DeGrandpre waived his
right to make this objection since this issue was submitted to
Under 9 U.S.C. § 4, the proper procedure for a party to
challenge whether it is subject to an arbitration agreement is
to move the district court for a stay of arbitration. Smiga v.
Dean Witter Reynolds, Inc., 766 F.2d 698 (2d Cir. 1985). In the
instant case, DeGrandpre contested whether the arbitration
clause was in existence with respect to him before the
arbitrators, but never sought a stay of arbitration. For this
reason, DeGrandpre has waived this objection for the purpose of
the instant appeal. To find otherwise would allow a party to
participate in an arbitration, with the assurance that if it
loses it may later challenge whether it had ever agreed to
arbitration. Such a result is contrary to
the clear policy favoring arbitration. Peters Fabrics, Inc. v.
Jantzen, 582 F. Supp. 1287, 1291-92 (S.D.N.Y. 1984).
Even if DeGrandpre could challenge the determination of the
arbitrators that he was subject to arbitration, he has not
demonstrated that this Court should vacate the arbitration
award. Pursuant to 9 U.S.C. § 10(d), this Court should only
vacate an award when "the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual, final and definite
award upon the subject matter was not made." In this circuit, a
court must confirm an arbitration award if there is "even a
barely colorable justification for th[e] decision . . ." United
States Steel and Carnegie Pension Fund v. Dickinson,
753 F.2d 250, 252 (2d Cir. 1985); see Advance Publications Inc. v.
Newspaper Guild, 616 F.2d 614, 617 (2d Cir. 1980); Andros
Compania Maritima v. Marc Rich & Co., A.G., 579 F.2d 691, 704
(2d Cir. 1978). This standard is directly applicable to an
arbitrator's interpretation of a contract's terms, United
States Steel and Carnegie Pension Fund v. Dickinson, supra, 753
F.2d at 252, if the question was properly before the
arbitrators, Andros Compania Maritima v. Marc Rich & Co., A.G.,
supra, 579 F.2d at 704.
In this situation, the arbitrators through their award
determined that DeGrandpre was subject to arbitration by the
terms of the contract. This question was properly submitted to
the arbitrators for a determination, as evidenced by
DeGrandpre's admission that he appeared before the arbitrators
to contest this issue. It is more than a barely colorable
rationale for the arbitrator's decision to determine that as
president of Jagar, DeGrandpre owed Halley a duty of loyalty
and to personally oversee the contract's terms. As a result,
DeGrandpre's motion to vacate the arbitration award must be
denied, and Halley's motion to confirm the award must be
Finally, Halley moves this Court for post-arbitration award
interest, and for costs associated with the instant motion
practice. First, the facts do not appear to warrant the
imposition of pre-judgment interest. Further, While
DeGrandpre's arguments have not been successful, they cannot be
characterized as "frivolous, unreasonable and groundless"
opposition to Halley's motion to confirm the arbitration.
Smiga v. Dean Witter Reynolds, supra, 766 F.2d at 708.
Accordingly, Halley's application for interest and costs is
IT IS HEREBY ORDERED that Halley's motion to confirm the
arbitration is granted. Halley's application for interest and
costs is hereby denied. IT IS FURTHER ORDERED that DeGrandpre's
cross-motion to vacate the arbitration award is denied.
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