Metro Industrial Painting Corp. v. Terminal Const. Co.

• Decision Date: 16 February 1961
• Docket Number: Docket 26178.,No. 48,48
• Citation: 287 F.2d 382
• Parties: METRO INDUSTRIAL PAINTING CORP. and Max Gerben, Joan Gerben and Leo Gerben, doing business as Gerben Contracting Company, Petitioners-Appellees, v. TERMINAL CONSTRUCTION CO., Inc., and Frouge Construction Co., Inc., Respondents-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

287 F.2d 382 (1961)

METRO INDUSTRIAL PAINTING CORP. and Max Gerben, Joan Gerben and Leo Gerben, doing business as Gerben Contracting Company, Petitioners-Appellees, v. TERMINAL CONSTRUCTION CO., Inc., and Frouge Construction Co., Inc., Respondents-Appellants.

No. 48, Docket 26178.

United States Court of Appeals Second Circuit.

Submitted December 12, 1960.

Decided February 16, 1961.

M. Carl Levine, Morgulas & Foreman, New York City (David Morgulas and Jerrold Morgulas, of Counsel), New York City, for petitioners-appellees.

Raphael, Searles, Levin & Vischi, New York City (Sidney O. Raphael and Leo M. Drachsler, New York City, of Counsel), for respondents-appellants.

Before LUMBARD, Chief Judge, and SWAN and MOORE, Circuit Judges.

LEONARD P. MOORE, Circuit Judge.

This is an appeal from an order granting petitioners-appellees' motion to compel arbitration pursuant to Section 4 of the United States, Arbitration Act, 9 U.S.C. § 4 (the Act), and denying respondents-appellants' cross-motion to stay arbitration and to dismiss the petition.

Prior to May 26, 1958, respondents Frouge Construction Co., Inc. (Frouge), a Connecticut corporation, and Terminal Construction Corp. (Terminal), a New Jersey corporation, both authorized to do business within the State of New York, and both doing business under the joint venture name of Terminal-Frouge, entered into a contract with the United States of America for the construction of a housing project at the Homestead Air Force Base, Homestead, Florida. On May 26, 1958, Terminal-Frouge entered into a subcontract in New York City with petitioners Metro Industrial Planning Corp. (Metro), a New York corporation, and Max Gerben, Joan Gerben and Leo Gerben, a co-partnership doing business under the name of Gerben Contracting Company, all of whose members are citizens and residents of New York. Under this subcontract petitioners were to perform certain painting work at the Homestead construction site. Included in the agreement was the arbitration clause in issue.¹

Petitioners allege that they fully performed all terms and conditions of the agreement but that they were required to incur expenses in excess of $200,000 because of respondents' delay in providing the number of units to be painted and because they were compelled to do certain painting work in addition to that required by the contract. Respondents refused to arbitrate these claims. Petitioners thereupon moved for relief under Section 4 of the Act.

On appeal from the order compelling arbitration, respondents argue that the court below erred in holding (1) that there was diversity of citizenship between petitioners and Frouge; (2) that the contract between the parties "evidenced a transaction involving commerce"; (3) that federal law was controlling on the issue of arbitrability; and (4) that the disputes over delays and extras were arbitrable under the contract.

(1) As the court below correctly recognized, the federal courts do not have jurisdiction under Section 4 of the Act unless there exists, apart from the Act, an independent basis of federal jurisdiction. See Krauss Bros. Lumber Co. v. Louis Bossert & Sons, Inc., 2 Cir., 1933, 62 F.2d 1004; Robert Lawrence Co. v. Devonshire Fabrics, Inc., 2 Cir., 1959, 271 F.2d 402, certiorari granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, certiorari dismissed pursuant to stipulation, 1960, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed. 2d 37. Respondents contend that the court below erred in finding the requisite diversity of citizenship since petitioners are all New York citizens and respondent Frouge, although a Connecticut corporation, has its principal place of business in New York, and is therefore, by virtue of 28 U.S.C. § 1332(c), deemed to be a citizen of New York. We find sufficient evidence, however, to support the finding below that petitioners met their burden of establishing that Frouge's principal place of business was Connecticut and not New York. The affidavits filed by the parties establish, inter alia, that Frouge owned a two-story building in Connecticut; that clerical, bookkeeping and administrative work was done in Connecticut; and that Frouge's own letterhead referred to the Connecticut building as its "main office."

(2) Respondents correctly assert that diversity of citizenship alone was not enough to empower the court below to compel arbitration under Section 4 of the Act, and that, in addition, the contract in which the arbitration clause is included must be one "evidencing a transaction involving commerce" within the meaning of Sections 1 and 2 of the Act. Robert Lawrence Co. v. Devonshire Fabrics Inc., supra; see Bernhardt v. polygraphic Co. of America, 1956, 350 U. S. 198, 76 S.Ct. 273, 100 L.Ed. 199. Irrespective of whether Congress intended the coverage of the Act to be as broad as the constitutional dimensions of the commerce power, the facts found by the judge below are sufficient to support a finding that the transaction evidenced by the contract was within the statutory requirements of the Arbitration Act. It is true that the actual painting work was to be done within the confines of one state (Florida). However, as the trial judge correctly found, many other interstate elements were involved in the performance of this contract. For example, twenty per cent of Metro's work force at the Florida site, as well as a substantial number of supervisory personnel, were transported from New York City to Florida; and materials used by Metro's employees were purchased from other states, as were materials used by other subcontractors, many of whom were also from out of state. The transaction evidenced by the contract thus clearly involved commerce. See International Broth. of Elec. Workers v. N. L. R. B., 1951, 341 U.S. 694, 699, 71 S.Ct. 954, 95 L.Ed. 1299; Del E. Webb Const. Co. v. N. L. R. B., 8 Cir., 1952, 196 F.2d 841, 843.

(3) Respondents next argue (a) that the Act does not apply because, according to Bernhardt, supra, it can never be applied in diversity cases, and (b) that even if the Act does apply, local law is controlling on the issue of arbitrability. Both of these contentions flow from respondents' apparent misunderstanding of our decision in Robert T. Lawrence v. Devonshire Fabrics, Inc., supra. In that case this court noted that the constitutional problems raised by applying the Act in diversity cases only become operative if the Act is regarded as procedural in scope, and that since Congress, drawing upon its commerce powers, created in Section 2 of the Act a rule of substantive law declaring certain arbitration agreements "valid, irrevocable, and enforceable," the Act could constitutionally be applied in diversity cases when the requisite commerce elements are present. Moreover, contrary to respondents' contention, Devonshire held that federal rather than local law governs "questions of interpretation and construction as well as questions of validity, revocability and enforceability of arbitration agreements affecting interstate commerce * * * since these two types of legal questions are inextricably intertwined." 271 F.2d 402, at page 409. The issue of arbitrability, i. e., whether a particular dispute is covered by an arbitration clause, being a question of "interpretation and construction," the court below was correct in not considering state cases as being binding authority, and in determining the issue according to the "liberal" policy recognized in Devonshire.

(4) Finally, we find no error in the trial court's conclusion that the disputes are appropriate for arbitration under the contract. The arbitration clause therein requires the parties to submit "any question with respect to performance, non-performance, default, compliance or non-compliance, whether on behalf of the Contractor or Subcontractor" to arbitration. The grievance asserted by petitioners is that respondents failed to meet time schedules, insisted upon performance of duties not required of petitioners under the contract and failed to supply materials for petitioners. In view of the federal policy to construe liberally arbitration clauses, to find that they cover disputes reasonably contemplated by this language, and to resolve doubts in favor of arbitration (see Devonshire, supra, 271 F.2d at page 410; Shanferoke Coal & Supply Corp. v. Westchester Service Corp., 1934, 293 U.S. 449, 453, 55 S.Ct. 313, 79 L.Ed. 583), it is clear that these disputes can reasonably be said to fall within the category of compliance or non-compliance.

Affirmed.

LUMBARD, Chief Judge (concurring).

This case once again raises the difficult issues recently considered by this court in Robert Lawrence Co. v. Devonshire Fabrics, Inc., 2d Cir., 1959, 271 F.2d 402, certiorari granted, 362 U.S. 909, 80 S. Ct. 682, 4 L.Ed.2d 618, certiorari dismissed pursuant to stipulation, 1960, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37. I concur fully in the disposition which the majority makes of this case, but state my reasons separately since one of the issues involves the significant question as to the scope of federal law and its effect on state courts.

We decided in the Lawrence case that the Arbitration Act passed in 1925 by a Congress which had no reason to foresee the decisions of the Supreme Court in Erie R. R. Co. v. Tompkins, 1938, 304 U. S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, and Bernhardt v. Polygraphic Co., 1956, 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199, involved an exercise not only of the constitutional power to control procedures in the federal courts but also of the authority constitutionally delegated to Congress to regulate interstate commerce and maritime transactions. This decision was not prompted merely by a desire to salvage the Arbitration Act so that it might apply in diversity cases when the Erie doctrine would usually compel recourse to state law; it was based on a conclusion regarding the intent of Congress as culled from the legislative history of the Arbitration Act. The report...