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BLUE TEE CORP. v. KOEHRING CO.

December 9, 1992

BLUE TEE CORP., Plaintiff,
v.
KOEHRING COMPANY and UNITED DOMINION INDUSTRIES, INC. (formerly AMCA INTERNATIONAL CORPORATION), Defendants.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

O P I N I O N

Sweet, D.J.

 Plaintiff Blue Tee Corp. ("Blue Tee") has moved to set aside an arbitration award in favor of defendant Koehring Company and United Dominion Industries Inc. (formerly AMCA INTERNATIONAL CORPORATION) (hereinafter "AMCA") which has cross-moved to enforce the award. The cross motion is granted, and judgment will be entered enforcing the award.

 Prior Proceedings

 The underlying transaction between these parties pertained to a May 26, 1986 Asset Purchase Agreement (the "Agreement") between AMCA and Blue Tee whereby Blue Tee agreed to purchase all of the inventory -- principally drilling rig inventory -- owned by AMCA's Speedstar Division, as well as other categories of assets such as leases, computer software, business know-how and the goodwill of the Speedstar business. Blue Tee also agreed to assume certain of Speedstar's liabilities.

 What was atypical about this transaction, as this Court observed in Blue Tee Corp. v. Koehring Co., 754 F. Supp. 26 (S.D.N.Y. 1990) ("Blue Tee I"), was the presence of two separate arbitration clauses in the Agreement -- one "general" for contract interpretation disputes and one "specific" for valuation purposes:

 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 Agreement.

 Id., 754 F. Supp. at 30.

 The "general clause" by its literal terms purported to reach "any dispute" relating to the Agreement, as follows:

 Any dispute, controversy or claim arising out of or in connection with or relating to this Purchase Agreement or any breach or alleged breach hereof, 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.

 Agreement, § 12.15. See Blue Tee Pet., Ex. A.

 Accordingly, in the event that the parties could not agree upon computation of the final adjustments, § 3.3 mandated that the resulting computation dispute would be resolved through arbitration before an accounting firm, notwithstanding the existence of the "general" arbitration clause which was not intended for resolution of the technical accounting issues reserved for accountant-arbitrators. Compare § 12.15 with § 3.3; see Blue Tee Pet., Ex. A at 4-5 for the full text of those clauses.

 In submitting their items of disagreement to Arthur Andersen in 1989, each side explicitly reserved its right to pursue any other claims in an appropriate forum. Arthur Andersen found in favor of AMCA on several specific accounting issues and also determined that under a "literal interpretation" of Section 3.1.1.1 of the Agreement, AMCA was required to pay Blue Tee $ 878,000 plus interest. But Arthur Andersen also expressly disclaimed any competence or authority to decide whether, as argued by AMCA, the parties, by their "actions or closing schedules," had evidenced an intention to adopt a valuation procedure other than one which would be dictated by Blue Tee's view of the meaning of the literal language of Section 3.1.1.1. More specifically, Arthur Andersen stated:

 Our decision relating to the inventory issue 1(a) in the Blue Tee objections was based on our reading of Section 3.1.1.1 of the Asset Purchase Agreement. The evidence of both parties on this matter provided arguments regarding whether this Section should be interpreted as written or whether other actions of the parties provided evidence that there was a different intent of the parties for valuing the inventory. We have expressed our opinion on this issue based on a literal interpretation of the explicit wording of the Agreement and the accounting information. We were neither qualified nor engaged to interpret whether actions or closing schedules will result in a change contract.

 In Blue Tee I, this Court concluded that it was compelled to confirm the Arthur Andersen "findings" because they constituted a "final and definite" award within the meaning of the Federal ...


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