Reed & Martin, Inc. v. Westinghouse Electric Corp.

Decision Date12 March 1971
Docket NumberDocket 34677.,No. 316,316
Citation439 F.2d 1268
PartiesIn the Matter of the Arbitration between REED & MARTIN, INC., d/b/a International Constructors, Appellant-Respondent, and WESTINGHOUSE ELECTRIC CORPORATION, Appellee-Petitioner.
CourtU.S. Court of Appeals — Second Circuit

COPYRIGHT MATERIAL OMITTED

Donald McL. Davidson, Seattle, Wash. (Ferguson & Burdell, William B. Moore, Seattle, Wash. on the brief), for appellant-respondent.

William Sondericker, New York City (Olwine, Connelly, Chase, O'Donnell & Weyher, Francis H. Dunne, New York City on the brief), for appellee-petitioner.

Before LUMBARD, Chief Judge, FEINBERG, Circuit Judge, and CLARIE, District Judge.*

CLARIE, District Judge:

This is an appeal from a decision and order of the Southern District of New York, 310 F.Supp. 653, confirming an arbitration award in favor of Westinghouse Electric Corporation (Westinghouse), against the appellant, Reed & Martin, Inc. (Reed & Martin), which judgment we affirm.

FACTS

In July of 1963, Reed & Martin, an Alaskan corporation with its principal place of business in Hawaii, entered into a contract with Westinghouse, a Pennsylvania corporation having its home office in Pittsburgh, with an export division office in New York City. Westinghouse contracted to manufacture and deliver to Reed & Martin certain electrical equipment. The latter was under a prime contract with Ryukyu Electric Power Corporation to construct a power plant in Okinawa. Their agreement contained an arbitration clause which incorporated the Rules of the American Arbitration Association.1 Article XVI(A) of said contract also contained the provision: "The rights and obligations of the parties under this contract shall be governed in all respects by the laws of the State of Washington, U.S.A."

At the conclusion of the job, a dispute arose between the parties when Reed & Martin had refused to make the final contract payment of $81,457.53. The latter claimed that Westinghouse had not made timely delivery of certain materials and as a result of the delays, it had suffered damages. These issues were first raised by Reed & Martin in a third party action in the United States District Court of Hawaii wherein it was then being sued by the General Electric Corporation. Westinghouse moved for a dismissal, because the contract specifically provided that all such disputes (except one involving a nuclear incident), should be decided by arbitration and the Court granted the motion.

In September, 1967, Westinghouse formally requested arbitration pursuant to the contract and asked that the hearings be held in New York City. At the outset of the matter, the record reflects a proposal by Reed & Martin that it be consolidated with another arbitration case which was already pending in New York City with the Babcock and Wilcox Company, arising out of the same work project. However, such a consolidation could not be carried out except with the consent of all parties; and in letters dated March 5 and March 29, 1968, the Association notified the litigants that New York City would be the hearing locale. Prior to said notice and at all times subsequent thereto, Reed & Martin objected to the New York site in numerous communications to the tribunal administrator, not only because it was inconvenient, but also because it had been improperly designated.

Westinghouse selected as its arbitrator, McDonald Flinn, of the New York law firm of White & Case and Reed & Martin selected George W. Martin, a Seattle, Washington attorney, as its representative. The chairman of the panel, Thomas S. Duff, Jr., was ultimately selected by the arbitration tribunal itself, after the parties' nominees failed to make a selection from the second submitted list. § 14 AAA Rules. Reed & Martin objected to the selection process used in the naming of the third arbitrator (Duff), because his name was drawn from a list consisting exclusively of New York City area residents and it continued to resist that location as the hearing situs.

A pre-trial hearing was held by the panel of arbitrators in New York City on October 4, 1958, to acquaint them with the nature of the dispute and establish rules governing the procedures and issues on which the evidentiary hearing would go forward. These issues of law and fact were determined at this meeting and a ruling issued accordingly. The controversial Ruling No. 2 provided:

"The July 16, 1963 agreement between the parties precludes recovery of damages by Reed & Martin for delay in delivery of the insulators or any other equipment covered by that agreement unless Reed & Martin can prove as required by Article IV-E that such delay was inexcusable and directly resulted in delay in the completion of the plant and that Reed & Martin made corresponding liquidated damage payments to the owner, in which event the damages shall be assessed subject to the limitations set forth in Article IV" (App. 140).

Reed & Martin objected to the aforesaid ruling as eliminating any practical need for any hearing and making the costs of attending such a hearing exceed any possible recovery for Reed & Martin on the remaining issues.

The hearing was held in New York City on February 25, 1969; but the arbitrator designated by Reed & Martin chose not to attend because of other pressing court matters and the appellant offered no evidence. The reasons advanced for this inaction were the pretrial ruling of October 4, 1968 and the location of the hearing.

The hearing site had in fact been administratively determined by the Arbitration Association's Executive Vice-President, after the parties had failed to agree upon the selection of the impartial arbitrator. His decision was subsequently confirmed by the chairman of the Panel and then ratified by the joint action of two panel members. A transcript copy of the evidentiary hearing was provided for the arbitrator chosen by Reed & Martin and their attorneys and before a decision was reached they were given an opportunity to review it. On May 13, 1969, the Panel awarded Westinghouse $79,819.59 with interest from September 1, 1965, plus administrative costs in the amount of $1,214.27. A dissenting opinion was filed by Reed & Martin's appointee.

After the arbitration panel's work had been concluded, Reed & Martin moved on June 3, 1969, in the State Superior Court of Washington, to set aside the arbitration award under the laws of that State, on the ground that the parties had agreed that the law of the State of Washington would govern the contract. Three days later Westinghouse moved in the United States District Court for the Southern District of New York to confirm the award. Non-resident service of the federal action was effected on respondent in Hawaii on June 10, 1969, giving notice of the court hearing on the motion to be held in New York City on June 24, 1969. On June 13, 1969, Reed & Martin requested a temporary restraining order in the State Court of Washington and an order to show cause why Westinghouse should not be enjoined from proceeding in New York. A temporary restraining order issued on June 19, 1969, and the New York proceedings were continued until July 1, 1969. On June 27, 1969, the Washington State Court made a finding that it had concurrent jurisdiction with the district court for the Southern District of New York of both the subject matter and the parties; but "in the proper exercise of judicial restraint and for reasons of comity," it would not interfere with the proceedings pending in the New York court. It dissolved the temporary restraining order and denied Reed & Martin's application for a permanent injunction against the prosecution of the motion, without prejudice to any possible remand.

On January 15, 1970, the district court found that jurisdiction existed in the Southern District of New York and that no impropriety existed in the arbitration proceedings. Pursuant to Rule 9(m) of the General Rules of the United States District Courts for the Southern and Eastern Districts of New York, a subsequent motion to reargue was made and denied on February 10, 1970 and final judgment was entered confirming the arbitration award.

DISCUSSION OF ISSUES

Reed & Martin challenges the legality of the arbitration process, because it claims a "functionary" acting for the Association wrongfully selected New York as the place for the hearing and the procedures followed were not in conformity with the contract. Article XIV(B) thereof stated that disputes "Shall be finally settled under the Arbitration Rules of the American Arbitration Association * * *. Arbitration proceedings shall be conducted at such time and place as the Court of Arbitration shall decide." Section 20 of these Rules provides in part: "The arbitrators shall fix the time and place for each hearing." Reed & Martin argues that the Court of Arbitration alone may set the site for the hearing and in this respect the action of the Association was ultra vires.

The appellant reads the contract and the Commercial Arbitration rules too narrowly. Section 1 of said Rules provides that the contracting parties shall be deemed to have made all the Commercial Arbitration rules a part of the agreement; and, this same language is substantially reiterated in the contract itself. The fixing of the hearing locale is determined pursuant to Section 10 of said Rules, which provides:

"FIXING OF LOCALE — The parties may mutually agree on the locale where the arbitration is to be held. If the locale is not designated within seven days from the date of filing the Demand or Submission the AAA shall have power to determine the locale. Its decision shall be final and binding. If any party requests that the hearing be held in a specific locale and the other party files no objection thereto within seven days after notice of the request, the locale shall be the one requested."

The Association has the power under these Rules to name the site for the...

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