Chelsea Square Textiles v. Bombay Dyeing & Mfg.

• Decision Date: 23 August 1999
• Docket Number: Docket No. 98-9106
• Parties: (2nd Cir. 1999) CHELSEA SQUARE TEXTILES, INC., KENNETH LAZAR, LESTER GRIBETZ, Plaintiffs-Appellees, v. BOMBAY DYEING AND MANUFACTURING COMPANY, LTD., Defendant-Appellant. August Term 1998
• Court: U.S. Court of Appeals — Second Circuit

Page 289

189 F.3d 289 (2nd Cir. 1999)

CHELSEA SQUARE TEXTILES, INC., KENNETH LAZAR, LESTER GRIBETZ, Plaintiffs-Appellees, v. BOMBAY DYEING AND MANUFACTURING COMPANY, LTD., Defendant-Appellant.

Docket No. 98-9106

August Term 1998

UNITED STATES COURT OF APPEALS SECOND CIRCUIT

Argued May 28, 1999

Decided Aug. 23, 1999

Defendant-appellant Bombay Dyeing and Manufacturing Company, Ltd. brings this interlocutory appeal pursuant to §16(a) of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., from the July 23, 1998 order of the district court (Brieant, District Judge), denying Bombay Dyeing's motion to dismiss or stay the action and to compel arbitration in India and granting plaintiffs-appellees' cross-motion to enjoin the arbitration initiated in India by Bombay Dyeing.

Vacated in part and reversed in part.

DOUGLAS E. EDLIN, Friedman Siegelbaum LLP, Roseland, NJ (Marc S. Friedman, Friedman Siegelbaum LLP, Roseland, NJ, of counsel), for Plaintiffs-Appellees.

PAUL F. DOYLE, Kelley Drye & Warren LLP, New York, NY (Kathleen E. Groom, Kelley Drye & Warren LLP, New York, NY, on the brief), for Defendant-Appellant.

Before: KEARSE, WALKER, and POOLER, Circuit Judges.

JOHN M.WALKER, JR., Circuit Judge:

Defendant-appellant Bombay Dyeing and Manufacturing Company, Ltd. brings this interlocutory appeal pursuant to §16(a) of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., from a July 23, 1998 order of the district court (Charles L. Brieant, District Judge). In its order, the district court denied Bombay Dyeing's motion to dismiss or stay the action and to compel arbitration in India and granted the cross-motion of plaintiffs-appellees Chelsea Square Textiles, Inc. ("Chelsea"), Kenneth Lazar, and Lester Gribetz (collectively, "the Chelsea Square plaintiffs") to enjoin the arbitration initiated by Bombay Dyeing in India. For the reasons that follow, we vacate the district court's stay of arbitration, reverse its decision denying Bombay Dyeing's motion to stay this action and compel arbitration, and direct the parties to proceed to arbitration pursuant to the rules of the Cotton Textile Export Promotion Council ("Texprocil") in Bombay, India.

I. BACKGROUND

This case concerns the enforceability of an arbitration clause that appears on standardized sales confirmation forms used by an Indian textile manufacturer, Bombay Dyeing, in its trade with an American textile importer, producer, and re-seller, Chelsea Square Textiles, Inc. This appeal would present few difficulties if not for the fact that the arbitration clause at issue is so faint as to be nearly illegible and is so garbled as to be almost unintelligible. Some much-needed background follows.

A. Prior Business Dealings

Defendant-appellant Bombay Dyeing is an Indian corporation that manufactures and sells textiles throughout the world. Pursuant to Indian government regulations, all Indian textile companies, before they can export textiles, must obtain a Registration Cum Membership Certificate ("RCMC") from Texprocil, an agency sponsored by the Indian government. To obtain an RCMC, a company must agree to abide by a code of conduct and to use standard contract terms prescribed by Texprocil with respect to sales to overseas buyers. Among the standard terms and conditions required to be used by the exporting companies are those providing for the arbitration of all disputes arising from such contracts in accordance with the rules of arbitration set forth by Texprocil. It is not surprising, then, that arbitration has become a standard and customary trade practice for resolving disputes arising out of Indian textile exports.

Bombay Dyeing has used a standard "Confirmation of Cloth Sales" form (the "Confirmation") for all of its textile sales to overseas buyers for over twenty years. Typically, contracts for sale are consummated when Bombay Dyeing receives a purchase order from an overseas buyer and issues a Confirmation in response. The Confirmation bears the following legend: "We hereby confirm having sold to you goods as detailed below on the terms and conditions as stated herein and as printed overleaf." As suggested by the legend, printed on the back of the Confirmation are twenty-two paragraphs detailing the terms and conditions of the sale. These terms and conditions have remained largely unchanged over time, though the precise wording (and, in some instances, spelling or grammar) has varied. In English, paragraph 13 of the standard Confirmation's terms and conditions provides (all errors in original):

All dispute and questions whatsoever which shall arise between the parties hereto out of or in connection with this contract of as to the construction of application thereof or the respective rights and obligation of the parties hereunder clause of thing herein contain or any account of valuation be made hereunder or as to any other matter in any way relating to these presents shall be referred to arbitration in accordance with rules for the time being in force as applicable to piece goods for export and which will be framed by The Cotton Textile Export Promotion Council in consultation with the Mills & Exporter Representatives selected in accordance with the provision therein. Nothing in the rules or arbitration or any implication thereof which runs counter to the terms and conditions of the contract shall be applied thereto. ¹

Beginning sometime in the late 1980s or early 1990s, Bombay Dyeing began doing business with James Pitts, who headed the North American division of a Japanese company called Kosen, Inc. While Pitts was employed at Kosen, Bombay Dyeing negotiated more than a thousand contracts with the company. In an evidentiary hearing held by the district court, Pitts testified that, on occasion, he saw Confirmation forms Bombay Dyeing sent in response to purchase orders submitted by Kosen.

In late 1991, Pitts left Kosen to found and become Chief Executive Officer of Rose Hill Linen Corporation. Pitts's wife, Nancy Pitts, was the Chief Operating Officer of Rose Hill. James Pitts testified that in its five years of existence, Rose Hill negotiated hundreds of contracts with Bombay Dyeing and a company he thought was Bombay Dyeing's corporate parent, Nowrosjee Wadia & Sons Ltd. ("Wadia"),² and that he personally saw Bombay Dyeing's Confirmations during that time. Pitts also acknowledged that he had signed at least one Confirmation from Wadia.³

Rose Hill subsequently filed for bankruptcy sometime in 1995. In early 1996, Pitts approached Bombay Dyeing's overseas sales agent to ascertain Bombay Dyeing's capacity for selling large quantities of textiles (250,000 to 500,000 yards) within a short time-frame to a new purchaser. Shortly thereafter, Pitts, along with plaintiffs Kenneth Lazar and Lester Gribetz, formed Chelsea Square Textiles, Inc., with substantial capital contributions from Lazar and Gribetz.⁴ Although there is some dispute in the record, it appears that Nancy Pitts also worked for Chelsea as an "officer manager" of sorts.

Based on Bombay Dyeing's representations to James Pitts regarding its capacity, Chelsea in turn entered into an exclusive sales agreement with a retailer, Bed, Bath & Beyond ("BB&B"), under which Chelsea agreed to provide finished linen textile products, such as sheets, pillowcases and shams, to BB&B. These were to be supplied by Bombay Dyeing. The Chelsea Square plaintiffs contend that BB&B projected linen sales of between $3,500,000 to $7,000,000, stemming from the agreement.

B. The Sales Confirmations and Arbitration Clauses at Issue

After extensive negotiations between James Pitts and Bombay Dyeing, Chelsea sent purchase orders during the months of May, June, July and August of 1996 for goods with a total value of $458,055. According to plaintiffs' complaint, Bombay Dyeing accepted the orders in one of three ways: (1) by providing a formal, written Confirmation, (2) by providing informal, written confirmation through a responsive letter or fax transmission, or (3) by orally confirming its acceptance of the order. Bombay Dyeing contends that it responded to each purchase order by sending its standard Confirmation to Chelsea, several of which were received into evidence in original form at an evidentiary hearing held by the district court. The district court aptly described these Confirmations and the arbitration clause contained therein:

Each of the Chelsea Confirmations is printed on translucent tissue style paper and bears a legend on the top of its face page which is identical to that found on the Wadia Confirmation . . . The Chelsea Confirmations also bear on the back page what appear to be twenty-two numbered paragraphs entitled "Conditions," including at Condition 13 an arbitration clause similar to that found in the Wadia Confirmation. The presentation of this clause . . . is obscured by several printing defects. First, and most confusingly, the Conditions are arranged in columns juxtaposed in reverse order so that Conditions 1-12 are printed in the second of the two columns, with Conditions 14 through 22 appearing in the first. Condition 13 straddles both columns in reverse order, so that it begins in the lower right hand corner of the page, and concludes in the upper left hand corner. Second, the majority of the Chelsea Confirmations submitted by Bombay bear a first column which is printed partially off the page. Third, the Conditions are printed in type which is so faint as to border on the ephemeral, a condition which is compounded by the translucent nature of the tissue paper itself. Fourth, the details of the particular articles ordered by Chelsea are typewritten in heavy capitalized characters on the thin tissue of each Chelsea Confirmation's face page, effectively obliterating in places the faintly written Conditions on the reverse side.

Notwithstanding the foregoing disparaging comments regarding the Confirmation's legibility, the district court was able to reproduce the text of ...