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PMC, INC. v. ATOMERGIC CHEMETALS CORP.

February 23, 1994

PMC, INC., Plaintiff,
v.
ATOMERGIC CHEMETALS CORPORATION, Defendant.


Sand


The opinion of the court was delivered by: LEONARD B. SAND

SAND, J.

 This case concerns the arbitrability of a dispute arising out of an aborted 1989 chemicals sale. In December of 1989, plaintiff PMC, Inc. ("PMC") executed a "blanket purchase order" for approximately $ 15 million worth of chemicals from defendant Atomergic Chemetals Corporation ("Atomergic"). The following month, a PMC representative signed a "confirmation of sale" form which contained a clause obliging the parties to submit subsequent disputes to arbitration. Further negotiations over a marketing agreement stalled, and only a very small amount of the chemicals was ever purchased. Three years later, pursuant to the arbitration clause, Atomergic served PMC with a Demand for Arbitration before the American Arbitration Association, demanding payment of $ 6.6 million for the unsold chemicals. PMC responded by bringing this action, seeking a permanent stay of the arbitration and a declaratory judgment that no arbitration agreement exists between the parties. The case presents us with a significant issue: whether a party that signs papers which appear on their face to be binding and which contain an arbitration clause, may be entitled, under the Federal Arbitration Act, U.S.C. Title 9, to a judicial determination of the contractual nature of the documents before it is required to submit to arbitration of the dispute.

 Atomergic has moved to dismiss the complaint, for summary judgment, and for a stay of this action pending arbitration. PMC cross-moved for a preliminary stay of arbitration. By Order dated July 26, 1993, we granted PMC's motion, staying arbitration pending further order of this Court. For the reasons set forth below, we now deny Atomergic's motion and determine that the matter will proceed to trial.

 BACKGROUND

 PMC is a Delaware corporation with its principal place of business in California. Atomergic is a New York corporation with its principal place of business in New York. Both corporations are primarily engaged in the chemical business.

 Although no market existed for DNS at the time, McCullough was nevertheless interested in the product for two reasons. McCullough Aff. P 3. First, DNS contains saccharin, of which PMC is the only American manufacturer. Also, McCullough had learned that legislation was pending in Congress and in several states which would require the engine coolant industry to incorporate aversive agents into their products. If this legislation were to pass, a huge potential market for the product could be created.

 A series of meetings ensued in the summer and fall of 1989 between McCullough and Melvin Blum ("Blum"), a vice president of Atomergic, to discuss the possibility that Atomergic could manufacture, and PMC could market, DNS. During these meetings, the parties attempted to estimate the potential market for DNS if the entire engine coolant industry were to incorporate DNS into their product. The parties agreed that Atomergic did not have the capacity to manufacture that large an amount of DNS -- estimated at 60,000 pounds a year -- and that it would need to line up "toll manufacturers" to meet this figure if the market ever developed. Id. PP 5-6.

 Following these meetings, PMC and Atomergic attempted to negotiate a marketing agreement pursuant to which PMC would market, and Atomergic would manufacture and arrange for others to manufacture, DNS. Several drafts of a proposed agreement were exchanged in early 1990. See id. Exhs. A, B, C (January 4, March 2, and April 6 drafts).

 It was during this period, in the course of negotiations over the marketing agreement, that the documents at issue in this litigation were executed. Atomergic claims that these documents -- a "blanket purchase order" for 60,000 pounds of DNS (the "Purchase Order") and a "confirmation of sale" form (the "Confirmation of Sale"; collectively, the "Documents") -- were binding contractual documents, which it now seeks to enforce; PMC claims that they were mere forms which the parties did not intend to have binding effect.

 McCullough forwarded the Purchase Order to Blum in December of 1989. The Purchase Order, on a PMC preprinted form, was signed by Diana Grabo, PMC's purchasing agent. See id. Exh. D. It lists the quantity of purchase as "approx." 25,000 pounds "First Campaign," and 35,000 pounds "Second Campaign." Price is also listed as "approximate," and in the "DATE REQUIRED" box, "As released" has been filled in.

 Blum responded by sending McCullough the Confirmation of Sale. This document, which is dated January 31, 1990 and signed by Blum, is a one-page order form preprinted by Atomergic, with boxes for order number, delivery date, F.O.B. location, terms, date, quantity, commodity, and price. See id. Exh. E. In the "QUANTITY" box is typed "60,000 lbs Annual contract," and in the "Delivery" box, "90 days after release." In the oversized box labelled "COMMODITY" is the arbitration clause under which Atomergic now demands arbitration. *fn1" Below the boxes describing the order of DNS, a box is checked next to the statement, "We accept order as described above." McCullough signed the Confirmation of Sale and returned it to Atomergic.

 Following execution of these two documents, the parties continued to exchange letters and documents, and PMC applied for a trademark for DNS ("ReJeX-iT") and made a small (22-pound) purchase of DNS. See McCullough Aff. PP 7-12, 26; Blum Aff. PP 14-20. The expected legislation, however, stalled, the market for DNS never developed as anticipated, and the proposed marketing agreement was never executed. McCullough Aff. PP 13. Three years later, in February 1993, Atomergic served PMC with a Demand for Arbitration, claiming that PMC had breached its ...


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