Forms, Inc. v. American Standard, Inc.

• Decision Date: 04 November 1982
• Docket Number: Civ. A. No. 81-4933.
• Citation: 550 F. Supp. 556
• Parties: FORMS, INC. v. AMERICAN STANDARD, INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

550 F. Supp. 556

FORMS, INC. v. AMERICAN STANDARD, INC.

Civ. A. No. 81-4933.

United States District Court, E.D. Pennsylvania.

November 4, 1982.

J.D. Barsky, Sharlyn Cohen, Philadelphia, Pa., for plaintiff.

Steven Friedman, Daniel Ryan, III, Philadelphia, Pa., for defendant.

MEMORANDUM

NEWCOMER, District Judge.

This is a contract action over which the Court has diversity jurisdiction. The Court has before it cross-motions for summary judgment on American Standard's counterclaim against Forms.

The contract in question concerns the sale of an unincorporated division of American Standard to Forms. Under the agreement the purchase price was to be adjusted after the closing date of the contract. This adjustment resulted from the fact that the sale of the division was effective on December 31, 1979 but the actual operation of the division was not to be taken over by Forms until March 12, 1980. American Standard, therefore, was to operate the division on Forms' behalf between these two dates. The price adjustment provided for in the agreement basically insured that Forms would be reimbursed by American Standard for the amount by which the income of the division exceeded its expenses during the period January 1, 1980 through March 12, 1980; and that American Standard was to be reimbursed by Forms for the amount by which expenses incurred exceeded income.

American Standard has submitted with its motion the affidavit of Henry J. Wohlfort, who is the Vice-President for finance of another division of American Standard. In his affidavit he states that he has calculated the Post-Closing Adjustment and has determined that it should result in the reimbursement of $40,831.08 to American Standard.

Forms, in its cross-motion, argues that this Court has no jurisdiction over American Standard's counterclaim because the contract calls for arbitration of any dispute as to the amount of the Post-Closing Adjustment. American Standard replies that Forms has waived any defense of arbitration by failing to raise the defense in its answer to American Standard's counterclaim. See F.R.Civ.P. 8(c). American Standard further asserts that it is entitled to summary judgment because Forms has raised no specific facts to contradict Mr. Wohlfort's affidavit. See F.R.Civ.P. 56(e).

Forms' contention that this Court has been divested of jurisdiction over American Standard's counterclaim is incorrect. The jurisdiction of this Court is established under 28 U.S.C. § 1332(a) as a result of the amount in controversy and the diversity of the parties. An agreement between the parties to arbitrate disputes arising out of a contract does not impair that jurisdiction. See John Ashe Associates, Inc. v. Envirogenics, Inc., 425 F.Supp. 238, 240 (E.D.Pa. 1977).

American Standard also misses the point when it asserts that Forms has waived its right to arbitration by failing to raise this defense in its answer. Rule 8(c) requires that a party plead the defense of "arbitration and award" in his answer to a pleading. The defense presented by Forms, however, is not that there has already been arbitration and an award, but rather that Forms is entitled to such arbitration to determine the amount of the Post-Closing Adjustment. See Demsey & Associates v. S.S. Sea Star, 461 F.2d 1009, 1017 (2d Cir.1972). The issue, therefore, is not whether Forms has waived its right to assert an affirmative defense pursuant to Rule 8(c), but whether it has waived any right to arbitration that existed under the terms of the contract.

Under both federal and Pennsylvania law¹ arbitration is favored and waiver is "not to be lightly inferred." Gavlik Const. Co. v. H.F. Campbell Co., 526 F.2d 777, 783 (3rd Cir.1975...