The opinion of the court was delivered by: Sprizzo, District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiff in the above-captioned action moves for a preliminary
injunction staying an arbitration proceeding initiated by the defendant.
The defendant cross-moves to stay the action in favor of arbitration. For
the reasons that follow, the plaintiff's motion is denied and the
defendant's cross-motion is granted.
From 1976 to 1982, Sandvik, Inc. ("Sandvik") owned a manufacturing
plant in Danville, Virginia (the "Danville Plant"). See Affidavit of
Robert R. Salman at ¶ 25 ("Salman Affid."). The Danville Plant was
operated by Disston, Inc., a wholly owned subsidiary of Sandvik. Id. On
July 28, 1980, Henry G. Libby ("Libby") was hired by Sandvik to be the
Chief Executive Officer of the Disston Division. Id. On November 12,
1982, pursuant to a Sale of Assets Agreement (the "Sales Agreement"),
Disston Inc. sold the Danville Plant to the Disston Company, a
corporation wholly owned by Libby, for $5,162,500. See Salman Affid. at
¶ 11-12. The Sales Agreement was signed by Donald E. Debacher for
Disston, Inc. and Sandvik, as well as by Libby, for the Disston Company
and in his own behalf. See Salman Affid. at Exhibit B, p. 41. Pursuant to
Section 13 of the Sales Agreement, Libby unconditionally guaranteed five
obligations of the Disston Company. These obligations include: (1)
payment of the cash portion of the purchase price; (2) payment of money to
Sandvik under the Deed of Trust; (3) payment of money to Sandvik under
the Installment Note; (4) any post-closing adjustments to the purchase
price; and (5) the time, date, and place of the closing. Id. at 36.
Additionally, Section 14 of the Sales Agreement contains an arbitration
clause which provides that "any controversy or claim arising out of or
relating to [the] Agreement or the breach hereof shall be settled and
finally determined by arbitration in New York."*fn1 Id. ar 37,
On November 29, 1982, the Disston Company executed a Promissory Note
(the "Note") promising to pay Sandvik the purchase price of the Danville
Plant plus interest. See Salman Affid. at ¶ 12. The Note was signed
by Libby as President of the Disston Company and individually, id. at
Exhibit C, p. 7, and was unconditionally guaranteed by him. Id. at p. 5.
This Note is secured by a Deed of Trust which was guaranteed by Libby in
the Sales Agreement. See Salman Affid. at ¶ 28.
In 1985, the Disston Company was in default on its obligation and,
consequently, modification agreements were entered into in 1985 and 1987
which rescheduled the principal payments. Id. at ¶ 13.
Subsequently, on December 30, 1987, Libby signed a letter (the "Letter
Agreement") in which he agreed that if a majority of the Disston
Company's stock or substantially all of its assets were sold, Libby or
the purchaser would repay to Sandvik all money owed under the Note within
ninety days after such a sale. Id. at ¶ 14.
Upon learning of these environmental problems, the Disston Company
instituted two actions in the United States District Court for the
Western District of Virginia against Sandvik alleging: 1) violations of
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, 42 U.S.C. § 9601 et seq. (1988), and the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.
(1988); 2) breach of the Sales Agreement; and 3) negligence by Sandvik in
causing the environmental problems. See Salman Affid. at 45 & 49. Sandvik
moved to stay these actions and to compel arbitration claiming that all
of the Disston Company's claims arose out of or related to the Sales
Agreement. Id. at 46. The court granted Sandvik's motions and directed
arbitration. Id. at 51.
On September 18, 1990, the Disston Company and Libby served Sandvik
with a Demand for Arbitration asserting various claims which allegedly
arose out of or related to the Sales Agreement. Kreindler Affid. at 25.
Subsequently, Sandvik instituted this action against Libby asking for:
(1) the amount of $3.9 million allegedly owed to Sandvik under the Note;
*fn2 (2) a declaration that Libby's guarantee under the Note is valid
and enforceable; and (3) an injunction against the arbitration instituted
by Libby. See Salman Affid. at ¶ 9 & Exhibit A.
"[A]rbitration should be compelled `unless it may be said with positive
assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute.'" McAllister Bros.,
Inc. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980) (quoting
United Steelworkers of Am. v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409(1960)).
Moreover, federal arbitration policy requires courts to "construe
arbitration clauses as broadly as possible," David L. Threlkeld & Co., v.
Metallgesellschaft Ltd. (London), 923 F.2d 245, 250 (2d Cir. 1991)
(quoting S.A. Mineracao da Trindade-Samitri v. Utah Int'l, Inc.,
745 F.2d 190, 194 (2d Cir. 1984)), and "any doubts concerning the scope
of arbitrable issues should be resolved in favor of arbitration." Moses
H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103
S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).
Tested by that standard, this case must be stayed in favor of
arbitration. All of the claims at issue here relate to matters arguably
encompassed by the broad arbitration clause set forth in the original
purchase agreement to which Libby, contrary to the assertions made by
Sandvik, was unquestionably a party. See Michele Amoruso E Figli v.
Fisheries Dev. Corp., 499 F. Supp. 1074, 1080 (S.D.N.Y. 1980) (citing
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87
S.Ct. 1801, 1807, 18 L.Ed.2d 1270(1967)) (the language "arising out of or
relating to this agreement" has been labeled a "broad arbitration
clause"). Sandvik's attempt to treat the extension agreements as separate
and distinct from the underlying obligations initially incurred ignores
the reality of what was obviously a connected series of transactions.
Indeed, strong evidence supporting this view is Sandvik's own successful
attempt to stay Disston Company's Virginia action based upon breaches of
the purchase agreement in favor of arbitration. In any event, it cannot
be said with any positive assurance that the disputes at issue are not
subject to arbitration, and the Court must, therefore, consistent with
authorities referred to above, resolve any dispute as to arbitrability in
favor of arbitration.
The Court rejects Libby's argument that Sandvik is barred under New
York law from contesting the arbitrability of Libby's claims because
Sandvik failed to move to stay arbitration within twenty days after
service of Libby's Demand for Arbitration, as required by New York's
Civil Practice Law and Rules § 7503(c) (McKinney 1980). Aetna Life &
Casualty Co. v. Stekardis, 34 N.Y.2d 182, 185, 313 N.E.2d 53,
356 N.Y.S.2d 587(1974); See In re Arbitration between Daniel Matarasso
and Contimental Casualty Co., 56 N.Y.2d 264, 267, 436 N.E.2d 1305,
451 N.Y.S.2d 703(1982). Where, as here, a case arises under the Federal
Arbitration Act*fn3, federal, and not state, arbitration law applies.
That requirement is therefore not applicable. See Rothberg v. Loeb,
Rhoades & Co., 445 F. Supp. 1336, 1339 (S.D.N.Y. 1978) (holding that
since there is no comparable time limitation in the Federal Arbitration
Act, federal law applies and plaintiffs are not barred by any time limits
set forth in CPLR section 7503(c)); accord ...