Battle v. General Cellulose Co.

• Decision Date: 11 March 1957
• Docket Number: No. A--72,A--72
• Parties: Charles W. BATTLE, Plaintiff-Respondent, v. The GENERAL CELLULOSE COMPANY, Inc., a Corporation of New Jersey, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 538

23 N.J. 538

129 A.2d 865

Charles W. BATTLE, Plaintiff-Respondent, v. The GENERAL CELLULOSE COMPANY, Inc., a Corporation of New Jersey, Defendant-Appellant.

No. A--72.

Supreme Court of New Jersey.

Argued Jan. 28, 1957.

Decided March 11, 1957.

Harry A. Margolis, Newark, argued the cause for defendant-appellant (Max L. Rosenstein, Newark, attorney; Harry A. Margolis, Newark, on the brief).

Robert Schur, New York City, argued the cause for plaintiff-respondent (Leavitt, Talley & Krevsky, Elizabeth, attorneys; Fayette N. Talley, Elizabeth, of counsel; Robert Schur, New York City, on the brief).

The opinion of the court was delivered by

WEINTRAUB, J.

Plaintiff obtained an arbitration award against defendant in New York City and a judgment thereon in the Supreme Court of New York. He then sued here upon the New York judgment and prevailed on a motion for summary judgment. Defendant appealed to the Appellate Division and we certified on our own motion.

The controversy arose out of an agreement of employment. Plaintiff commenced work on November 2, 1952, as defendant's vice-president and general manager. The terms of employment had not yet been fixed and discussions continued for some period. On January 8, 1953 defendant sent to plaintiff its letter of that date outlining the terms of employment for a year beginning November 1, 1952.

Defendant discharged plaintiff on July 10, 1953. Plaintiff instituted the arbitration proceedings under the following provision of the letter of January 8, 1953:

'Any controversy or claim arising out of or relating to this agreement or breach thereof, shall be settled by arbitration according to the rules of the American Arbitration Association.'

The employment was contracted in New Jersey and was to be performed here. Plaintiff lived in this State when he was employed and continued to live here until after his discharge when he moved to Indiana, and was a resident of that State when he instituted the arbitration proceedings. Defendant is a corporation of the State of New Jersey and was not subject to service of process within the State of New York.

Defendant declined to participate in the arbitration proceedings or to respond to notice by mail of the application to enter judgment upon the award. In fact, defendant denied the existence of the contract and advised the American Arbitration Association at once that it disputed its authority to proceed with arbitration until the existence of the alleged contract was first determined in judicial proceedings in New Jersey. Neither party sought to litigate that question before arbitration. Plaintiff acted on his thesis that he was entitled to proceed under the rules of the Association, while defendant rested on its conviction that the award and judgment would be nullities.

I

Defendant claims a triable issue of fact was raised with respect to the existence of the contract. With this we agree for reasons set forth in II below. But defendant contends further that even if there was a contract to arbitrate, yet (a) the award was a nullity because the arbitration proceeded in the face of defendant's denial of an agreement to arbitrate and without a prior judicial determination that there was such an agreement, and (b) the New York judgment is not entitled to full faith and credit because the New York court lacked jurisdiction of the person. Upon the hypothesis that the contract in question was made, neither contention is valid.

A

The rules of the American Arbitration Association, by which on the stated hypothesis the parties agreed to abide, provide complete machinery for the designation of arbitrators and the place of arbitration if the parties fail to express their preferences. Defendant having declined to participate, the arbitrators were selected and the Administrator of the Association designated New York City as the place for the arbitration. The rules provide for notice by mail with respect to all steps from commencement of the proceeding through the award, and the record establishes clearly that defendant received the prescribed notices.

Defendant contends that under the law of New Jersey arbitration may not be had if the existence of the contract is denied, unless there is a judicial determination that the arbitration proceed. We need not consider whether the law of New Jersey or of New York controls (see Sonotone Corporation v. Hayes, 4 N.J.Super. 326, 67 A.2d 184 (App.Div.1949)) since the same result must be reached upon either approach.

N.J.S. 2A:24--1, N.J.S.A., provides that 'A provision in a written contract to settle by arbitration a controversy that may arise therefrom or a refusal to perform the whole or a part thereof * * * shall be valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of a contract.'

The New York statute, from which our act was substantially taken, is to the same effect. New York Civil Practice Act, §§ 1448--9; Helen Whiting Inc., v. Trojan Textile Corp., 307 N.Y. 360, 121 N.E.2d 367 (Ct.App.1954). Hence a mere denial of the agreement cannot operate to terminate it. Defendant urges, however, that N.J.S. 2A:24--3, N.J.S.A., requires an order to arbitrate where the existence of a contract is disputed. It reads:

'Where a party is aggrieved by the failure, neglect or refusal of another to perform under a written agreement providing for arbitration, the superior court, or the county court of the county where either party resides, may in a summary action direct that the arbitration proceed in the manner provided for in the agreement. The party alleged to be in default may demand a jury trial as to the issue that there has been no agreement in writing for an arbitration or that there has been no failure to comply therewith.'

This section will not stand the construction defendant suggests. It is designed to afford a remedy where the terms of the arbitration agreement are such that its performance may be frustrated by the refusal of a party to proceed under it, as for example where a party refuses to designate an arbitrator and the agreement fails to provide machinery for going forward in that situation. In the words of the section, it is available 'where a party is aggrieved by the failure, neglect or refusal of another to perform under a written agreement.' It affords a remedy if one is needed. But when, as here, the agreement provides for the arbitration to proceed notwithstanding the refusal of a party to participate, nothing in our law requires the demandant in the arbitration to seek preliminarily an adjudication that he has the contractual right. The one who denies the existence of the contract may seek a judicial determination upon an application to stay the arbitration or upon a proceeding to enforce the award. If he chooses to ignore the arbitration and await an action upon the award, he takes the risk of a determination that he was obligated to arbitrate and hence is bound by the award.

Defendant claims support in California Lima Bean Growers Association v. Mankowitz, 9 N.J.Misc. 362, 154 A. 532 (Cir.Ct.1931), and Stein v. Local 680 of the Milk Drivers and Dairy Employees of New Jersey, 141 N.J.Eq. 226, 56 A.2d 715 (Ch.1948). In California Lima Bean Growers Association (9 N.J.Misc. 362, 154 A. 533) the claimed agreement provided "All disputes arising hereunder shall be arbitrated before the Dried Fruit Ass'n. of N.Y." Plaintiff presumably needed the assistance of the court because of the defendant's refusal to arbitrate, and hence made the application. The court held only that since defendant raised an issue of fact as to the existence of the contract, the issue would be triable under the provision of the statute quoted above. There was no intimation that plaintiff could not have proceeded without a court order if the contract had provided the necessary technique.

In Stein the award was declared void because the arbitrator and defendant proceeded in the face of an injunction enjoining the arbitration and also because of an unwarranted refusal by the arbitrator to postpone the hearing, a ground for vacating an award under N.J.S. 2A:24--8, subd. c, N.J.S.A. There is some language in the opinion which might be read to further defendant's position here, but if such was its intended purport, it is without support in the statute or sound decisional law.

A similar provision of the Federal Arbitration Act (9 U.S.C.A., § 4) has likewise been construed to permit, but not to require, a party demanding arbitration to seek an order in these circumstances. Kentucky River Mills v. Jackson, 206 F.2d 111, 47 A.L.R.2d 1331 (6 Cir., 1953), certiorari denied, 346 U.S. 887, 74 S.Ct. 144, 98 L.Ed. 392 (1953); Kanmak Mills, Inc., v. Society Brand Hat Co., 236 F.2d 240 (8 Cir., 1956). See also International Brotherhood of Teamsters, etc. v. Shapiro, 138 Conn. 57, 82 A.2d 345 (Sup.Ct.Err.1951).

The New York statute is explicit. Section 1458 of the Civil Practice Act provides an award shall be valid and enforceable 'without previous adjudication of the existence of a * * * contract to arbitrate,' and authorizes a party who denies the existence of the contract to raise the issue either by a motion to stay the arbitration or on opposition to the confirmation of the award. See Finsilver, Still & Moss, Inc., v. Goldberg, Maas & Co., Inc., 253 N.Y. 382, 171 N.E. 579, 69 A.L.R. 809 (Ct.App.1930), and Gantt v. Felipe Y. Carlos Hurtado & Cia., 297 N.Y. 433, 79 N.E.2d 815 (Ct.App.1948).

B

Assuming the award was binding, defendant says that nonetheless the judgment of the New York court is not enforceable here because service of the notice was made by mail addressed to defendant in New Jersey. We need not consider whether under the New York statute or under controlling principles of constitutional law New York could thus obtain jurisdiction In personam on the basis of an agreement to arbitrate in New York, without more. See Weiss, 'Arbitration Award and...