United States District Court, Southern District of New York
May 13, 1991
BLUE TEE CORP., PETITIONER,
KOEHRING COMPANY AND AMCA INTERNATIONAL CORPORATION, RESPONDENTS. BLUE TEE CORP., PLAINTIFF, V. KOEHRING COMPANY AND AMCA INTERNATIONAL CORPORATION, DEFENDANTS.
The opinion of the court was delivered by: Sweet, District Judge.
Defendants/respondents Koehring Company and AMCA
International Corporation (collectively "AMCA") have moved
pursuant to Rules 12(b)(6), 56(b), 60(b)(6), and 62(b) of the
Federal Rules of Civil Procedure and Sections 3 and 4 of the
Federal Arbitration Act, 9 U.S.C. § 1-14 (1970) to dismiss the
complaint of plaintiff Blue Tee Corporation ("Blue Tee") in 90
Civ. 2701 (the "Injunction Action"), to compel Blue Tee to
proceed to arbitration before the AAA pursuant to the parties'
written agreement to arbitrate, and to stay all proceedings in
90 Civ. 2654 (the "Confirmation Proceeding") in which Blue Tee
seeks to confirm the findings of Arthur Andersen & Co. ("Arthur
Andersen") dated March 30, 1990, or alternatively to stay the
entry and/or the enforcement as a money judgment or any
judgment confirming Arthur Andersen's findings. Blue Tee has
moved to clarify the judgment entered by the court on January
14, 1991 (the "Judgment"). The motions of AMCA are granted
except with respect to a stay, and the motion of Blue Tee is
granted as set forth below.
On April 20, 1990 Blue Tee filed its petition to confirm the
arbitration award issued by Arthur Andersen on March 30, 1990
(the "Petition") and its complaint seeking (1) to enjoin the
arbitration commenced by AMCA before the AAA in Charlotte,
North Carolina (the "Charlotte Arbitration") in violation of
the express terms of the Purchase Agreement, and (2) indemnity
and reimbursement from AMCA for Blue Tee's attorneys' fees,
costs and disbursements incurred in the litigation and in
enforcing the Award, pursuant to the terms of the Purchase
Agreement. On June 1, 1990, AMCA served its motion to vacate
On December 21, 1990, the court issued its opinion (the
"Opinion") granting Blue Tee's petition to confirm, denying
AMCA's motion to vacate, and denying Blue Tee's motion for
sanctions, 754 F. Supp. 26. On January 14, 1991, the court
signed the Judgment entered upon the Opinion.
On January 23, 1991, in response to Blue Tee's letter to the
court of January 18, AMCA submitted an extensive letter
setting forth its objections to the Judgment and enclosed its
counter-proposal and an additional complete set of its motion
papers on January 14. The counter-proposal recites "that the
respective parties had no obligation to pay any sums to each
other until further order of this Court." On January 24, 1991,
Blue Tee submitted its letter response to the arguments set
forth in AMCA's January 23 letter.
On January 30, after being advised by AMCA's counsel that
the letters exchanged between the parties would be treated by
the court as motions and that the motions would be heard by
the court on February 11, Blue Tee consented to stay
enforcement of the Judgment pending the disposition of the
pending motions and AMCA agreed to place the amount currently
owing to Blue Tee in an interest-bearing escrow account as
security for the Judgment.
The Motion To Compel Arbitration Is Granted
Section 12.15 of the Asset Purchase Agreement of May 26,
1989 (the "Purchase Agreement") provides in relevant part:
Arbitration. Any dispute, controversy or claim
arising out of or in connection with or relating to
this Agreement . . . shall be determined and
settled by arbitration in the City of New York
pursuant to the rules then in effect of the
American Arbitration Association . . .
The dispute between the parties concerns the proper
interpretation and performance of their contract, including
their last minute understandings.
The disagreements between AMCA and Blue Tee concerning the
nature and intended effect of various last minute
understandings pertaining to inventory valuations (the
"Understandings") is a "controversy . . . arising out of or in
connection with or relating to" the Purchase Agreement though
not part of the Section 18.104.22.168 arbitration conducted by
Arthur Andersen. Similarly, AMCA's claim that Blue Tee
committed fraud by purporting to agree to the Understandings
with the intent to disown the Understandings when it came time
to determine the final purchase price is clearly a "claim
arising out of" the Purchase Agreement. Blue Tee, therefore,
is bound by virtue of Section 12.15 of the Purchase Agreement
to proceed to arbitration before the AAA.
The Injunction Action Is Dismissed
It is well-settled that where a defendant (such as AMCA in
the Injunction Action) can establish that no relief can be
granted to a plaintiff (such as Blue Tee) under any set of
facts that could be proved consistent with the allegations of
the complaint, defendant is entitled to dismissal of the
complaint. H.J. Inc. v. Northwestern Bell Telephone Co.,
492 U.S. 229, 109 S.Ct. 2893, 2906, 106 L.Ed.2d 195 (1989); Scheuer
v. Rhodes, 416 U.S. 232, 237, 94 S.Ct. 1683, 1687, 40 L.Ed.2d
90 (1974); Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir. 1984),
cert. denied, 470 U.S. 1084, 105 S.Ct. 1845, 85 L.Ed.2d 144
(1985); Branko International, Inc. v. Saudi Arabian Airlines,
704 F. Supp. 386, 389 (S.D.N.Y. 1989), aff'd, 880 F.2d 1318 (2d
Cir. 1989). Since AMCA is entitled to proceed to arbitration,
this court should grant AMCA's motion to dismiss the complaint
in the Injunction Action.
Where, as here, with Section 12.15 of the Purchase
Agreement, an arbitration clause is a "broad" one, a court
should compel arbitration and permit the arbitrator to decide
whether the dispute falls within the clause. Prudential Lines,
Inc. v. Exxon Corp., 704 F.2d 59, 63-64 (N.Y. 1983); McAllister
Brothers v. A & S Transportation Co., 621 F.2d 519, 523 (2d
Cir. 1980). Nor had an AAA arbitration concerning the final
asset purchase been decided either by Arthur Andersen or by
this court except as to issues resolved in the Arthur Andersen
As the Opinion noted:
The parties' situation in relation to the Arthur
Andersen arbitration is unique in that the
agreement contains two arbitration clauses,
Section 12.15 and Section 3.3. Section 3.3 is the
more specific clause, relating only to the
valuation of certain inventory items as required
pursuant to Sections 3.3 and 3.1 of the
[Purchase] Agreement. As the parties in their
Engagement Proposal agreed to arbitrate under
Section 3.3, this opinion will consider the
Arthur Andersen award only as it related to that
section, without expressing any opinion on other
issues that might fall under the arbitration
clause contained in Section 12.15 of the
The question remaining is whether the literal terms of
Section 22.214.171.124 standing alone constitute the complete
agreement of the parties and should govern, or whether a
dispute exists with respect to contract interpretation that
involves determining the intention of the parties as evidenced
by their words and deeds at the time they entered into their
contract in the light of the parties' conduct in setting the
preliminary price and amending the Preliminary Statement of
the Purchase Agreement. See Concourse Beauty School, Inc. v.
Polakov, 685 F. Supp. 1311, 1316 (S.D.N.Y. 1988) ("whether the
parties could orally modify their contract notwithstanding the
clause providing only for written modification is a dispute . .
. arising out of or relating to the Contract and is therefore
arbitrable"); Klein Sleep Products v. Hillside Bedding Co.,
563 F. Supp. 904, 905 (S.D.N.Y. 1982) ("interpretation of the
agreement [is] an exercise that should be left for the
arbitrator"), citing Bressette v. International Talc Co.,
527 F.2d 211
, 215 (2d Cir. 1975); PAS-EBS v. Group Health Inc.,
442 F. Supp. 937, 941 (S.D.N.Y. 1977) (staying action and compelling
arbitration; question whether amendment was merely a
negotiating document or became part of
the parties' agreement was a legal issue that could properly
be decided by the arbitrator). Cf., McDonnell Douglas Finance
Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825
(2d Cir. 1988) (selection of tax counsel as arbitrator
indicative of parties' intention to submit only a narrow range
of tax-related issues to arbitration).
Under Count II of the complaint in the Injunction Action
Blue Tee sought indemnity pursuant to Section 11, the
indemnity provision of the Purchase Agreement for its
attorneys' fees, costs and disbursements incurred in both the
Injunction Action and in 90 Civ. 2654, again a dispute which
falls under the Purchase Agreement's general arbitration
clause. Therefore, the Injunction Action will be dismissed.
Enforcement Of The Judgment Will Not Be Stayed
AMCA has sought under Rule 60(b)(6) FRCP to justify a stay
of enforcement of the Judgment pursuant to Rule 62(b). Rule
60(b)(6) provides, in part, that "the Court may relieve a
party . . . from a final judgment, order, or proceeding for .
. . (6) any other reason justifying relief from the operation
of the judgment." As the Court stated in Competex, S.A. v.
LaBow, 783 F.2d 333, 335 (2d Cir. 1986), "[t]he rationale
underlying the use of rule 60(b) is to permit the District
Court to correct an erroneous judgment and thereby avoid the
necessity of an appeal." Freschi v. Grand Coal Venture, 103
F.R.D. 606, 608 (S.D.N.Y. 1984) (citation omitted).
AMCA has failed to demonstrate any extraordinary
circumstances justifying a stay or any undue hardship it will
suffer if relief is not granted.
The essence of AMCA's claim is that the parties based the
transaction not on discounted book value but on "good" and
"bad" inventory. The existence of this issue, determined here
to be arbitrable, does not bar the enforcement of the Arthur
Andersen final Award and the Judgment.
The parties agreed when they engaged Arthur Andersen as
arbitrator that "Arthur Andersen's decision will be final and
binding." Such language constitutes consent to the entry of a
judgment. See, e.g., Milwaukee Typographical Union v.
Newspapers, Inc., 639 F.2d 386, 389-90 (7th Cir.), cert.
denied, 454 U.S. 838, 102 S.Ct. 144, 70 L.Ed.2d 119 (1981);
Kallen v. District 1199, 574 F.2d 723, 726 (2d Cir. 1978). The
Judgment submitted by Blue Tee, signed by the court and entered
on its docket reflects the rulings set forth in the Opinion,
and the relief sought in the Petition.
An Amended Judgment Will Be Entered
Consistent with the court's rulings as set forth in the
Opinion (at 757), the Judgment states that interest runs from
May 31, 1989, in other words, not including May 31. No
modification is required in this regard, but calculations of
the daily rate of interest under the "Citibank 1%" formula
have been challenged and should be recalculated.
No further amendment concerning the effect of the Opinion is
required in view of what has already been set forth.
The motions of AMCA to compel arbitration and to dismiss the
Injunction Action are granted, its motion to stay the Judgment
is denied, and Blue Tee's motion to clarify the Judgment is
granted as set forth above.
Settle an Amended Judgment on notice.
It is so ordered.
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