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HATZLACHH SUPPLY v. MOISHE'S ELECS. INC.

February 28, 1994

HATZLACHH SUPPLY, INC., Petitioner,
v.
MOISHE'S ELECTRONICS INC., Respondent.



The opinion of the court was delivered by: KEVIN THOMAS DUFFY

 KEVIN THOMAS DUFFY, D.J.:

 Moishe's Electronic Inc. ("Moishe's") moves to amend or alter a Memorandum and Order issued on March 4, 1993, pursuant to Rule 59(e) and/or Rule 60(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, Moishe's motion is granted, and the Memorandum and Order of March 4, 1993, is hereby vacated.

 Background

 The history of this case presents a classic example of form trumping substance. The substantive dispute is whether risk of loss passed from Petitioner, Hatzlachh Supply, Inc. ("Hatzlachh") to Moishe's prior to the theft of goods that were sold to Moishe's by Hatzlachh. The formalistic issue presented is which forum is the proper one to adjudicate this substantive dispute.

 On March 4, 1993, I ruled that the proper forum to resolve this dispute was the American Arbitration Association in New York City, and I enjoined Moishe's from pursuing an action it instituted in Texas (the "Arbitration Decision"). Unbeknownst to me when I made this decision, the District Court of Cameron County Texas had already adjudicated the matter on February 8, 1993. The Texas court held that Moishe's never actually possessed the stolen goods; so that, the risk of loss never passed to Moishe's (the "Texas State Judgment").

 In late 1991, Moishe's ordered electrical equipment from Hatzlachh. These goods were stolen prior to their delivery to Moishe's, and a dispute arose as to Moishe's obligation to pay for the stolen goods. On February 24, 1992, Moishe's commenced an action in the Judicial District Court of Cameron County, Texas (the "Texas Action"), seeking a declaratory judgment to determine Moishe's rights and obligations regarding the stolen goods.

 In March 1992, Hatzlachh answered by generally denying Moishe's allegations. *fn1" Hatzlachh specifically raised the affirmative defense that the dispute belonged in arbitration pursuant to an arbitration clause in the contractual arrangements between the parties. Additionally, Hatzlachh also filed a plea in abatement, which is a procedure in Texas used to defeat a suit as having been improperly brought. As with the affirmative defense, the plea in abatement was based on the arbitration clause entered into between the parties.

 In April 1992, Hatzlachh obtained an Order to Show Cause in this Court requiring Moishe's to show cause why an order should not be granted compelling arbitration before the American Arbitration Association in New York City, and permanently enjoining and staying the Texas Action. The parties agreed to stay the Texas Action until the return date of the Order to Show Cause, which was May 11, 1992. Thus, after May 11, 1992, there was no stay of the Texas Action. As a result, the Texas Action proceeded through discovery, trial and judgment.

 William Best, who was Hatzlachh's local counsel in Texas, was granted permission to withdraw from the Texas Action on October 1, 1992. Two weeks prior to this, Mr. Best was notified by the Texas Court that the trial had been scheduled for February 8, 1993. Apparently, neither party advised the Texas court of the pending motion before me, regarding the issue of arbitration.

 At trial on February 8, 1993, Moishe's and Caballero appeared and participated but Hatzlachh did not, having never replaced Mr. Best with other local counsel. Immediately following the trial, judgment was rendered in favor of Moishe's and Caballero. The Texas State Judgment specifically found that:

 
(1) Moishe's and Hatzlachh entered into a contract in which Moishe's agreed to purchase and Hatzlachh agreed to sell certain items of consumer electronic equipment valued at $ 216,643.50;
 
(2) Hatzlachh breached the contract by failing to deliver the goods;
 
(3) Hatzlachh failed to perform all conditions precedent which would ...

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