Greater Continental Corporation v. Schechter

• Decision Date: 03 March 1970
• Docket Number: Docket 34390.,No. 522,522
• Citation: 422 F.2d 1100
• Parties: GREATER CONTINENTAL CORPORATION, Appellant, v. Marvin SCHECHTER, Appellee, and Hugo Spatenga, Sea-Land Dredging Corp., Goldfeld, Charak, Brown, Tolins & Lowenfels, National Bank of North America, Fort Neck Landing Development Corp. and David Hawkins, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

422 F.2d 1100 (1970)

GREATER CONTINENTAL CORPORATION, Appellant, v. Marvin SCHECHTER, Appellee, and Hugo Spatenga, Sea-Land Dredging Corp., Goldfeld, Charak, Brown, Tolins & Lowenfels, National Bank of North America, Fort Neck Landing Development Corp. and David Hawkins, Defendants.

No. 522, Docket 34390.

United States Court of Appeals, Second Circuit.

Argued January 13, 1970.

Decided March 3, 1970.

William Schurtman, New York City (Shea, Gallop, Climenko & Gold, New York City, Peter P. Smith, III, New York City, on the brief), for appellant.

Richard H. Tunstead, New York City (Spencer & Tunstead, New York City), for appellee.

Before MEDINA, WATERMAN and SMITH, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

Appellant, Greater Continental Corporation ("Continental") appeals from an order of the United States District Court for the Southern District of New York, Marvin E. Frankel, Judge, denying a preliminary injunction to stay arbitration proceedings about to commence, which were initiated by the appellee (Schechter). Continental claims that the refusal of stay of the arbitration proceeding in this case fails to give effect to the intent of Congress expressed in the 1933 and 1934 securities acts, as recognized in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). Although appellant may be correct on the merits, we find that this court lacks jurisdiction over the appeal and dismiss the appeal.

Since we dismiss for lack of jurisdiction, only a brief synopsis of the facts is necessary. The two parties executed an agreement for Continental's purchase of Sea-Land Dredging Corporation ("Sea-Land") on April 3, 1969 under which Continental was to purchase Sea-Land's stock, 2/3 of which was owned by Schechter and 1/3 owned by Spatenga. In exchange, Continental was to give the two sellers stock in Continental; Continental was also to pay Schechter cash and additional shares of Continental stock for Sea-Land's indebtedness to him. As part of the interrelated transactions involving this purchase, Continental and Schechter executed an employment contract on April 14, 1969 (the day of the closing of the stock purchase deal). Under this contract Schechter was to be an employee of Continental and was to manage Sea-Land (although not limited to that necessarily); Schechter was to devote full time to this employment, but it was agreed he would have six months to close out his existing law practice. By a supplemental letter made part of the employment contract, it was provided that any disputes arising under that contract would be settled by arbitration. The employment and purchase contracts each contained its own integration clause stating that the contract was the entire agreement of the parties for that subject.

Shortly after consummation of the purchase, Continental investigated the propriety of the financial statements and warranties given it by Sea-Land and Schechter, since it appeared that Sea-Land was having difficulties; as a result of this investigation, Continental subsequently determined to its own satisfaction that Schechter's representations as to Sea-Land's financial condition were fraudulent and decided to rescind the purchase contract. An attempt at settlement having failed, Schechter instituted arbitration proceedings pursuant to the employment contract to get his unpaid salary and what he claimed he was owed as a prospective bonus from Continental. Continental then commenced this suit under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 (17 C.F.R. § 240.10b-5) alleging fraudulent misrepresentation by Schechter and Sea-Land and others and seeking rescission of the purchase.¹ In its motion for a stay of arbitration, Continental claimed the arbitration clause was meant to apply solely to employment disputes and that any disputes over Schechter's employment in this situation were entirely subsidiary to the question of whether the purchase contract was valid or void for fraud; Continental contended it should be permitted to try the fraud issue in the federal courts rather than have it a part of the arbitration hearing with probable res judicata effects. Judge Frankel's order, in which the facts were set forth in more detail, denied the stay of arbitration.

The order is not appealable as a final order under 28 U.S.C. § 1291, and it does not fall within the narrow limits of orders found appealable under that section even though not final. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). This order is not a final disposition of any claimed right other than of the right to stay arbitration; moreover, since the arbitration findings are reviewable and not enforceable until confirmed, see New York's Civil Practice Law and Rules §§ 7510 and 7514, this order does not finally determine any issue which would foreclose Continental from any substantive right unless reviewed now. Compare, Cohen v. Beneficial Industrial Loan Corp., supra. Nor is the order appealable under 28 U.S.C. § 1292(a) (1), which permits appeal of an interlocutory order if it is the grant or refusal of an injunction. We have long followed the well-established rule that an order granting or denying a stay in a court action pending arbitration is appealable, as being analogous to an injunctive order, only when the action which is sought to be stayed is one which would have been an action at law before the fusion of law and equity. Armstrong-Norwalk Rubber Corp. v. Local Union No. 283, 269 F.2d 618, 621 (2d Cir.1959), Council of Western Electric Technical Employees-National v. Western Electric Co., 238 F.2d 892 (2d Cir. 1956); see also, Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2d Cir.1968).

Where the order concerns granting or refusing a stay of arbitration proceedings, however, it is not a grant or denial of an "injunction" within section 1292(a) (1), Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80 (2d Cir.1961), cert. denied sub nom. Dawson v. Lummus Co., 368 U.S. 986, 82 S. Ct. 601, 7 L.Ed.2d 524 (1962), see Greenstein v. National Skirt & Sportswear Ass'n, Inc., 274 F.2d 430 (2d Cir. 1960); contra: A. & E. Plastik Pak Co., Inc. v. Monsanto Co., 396 F.2d 710 (9 Cir.1968); the nonappealability of orders granting or denying a stay of arbitration does not depend upon the old distinction between law and equity, and the order is not appealable even where the arbitration claim, as here, is a legal claim for damages. The reason for the different approach to stays of arbitration as compared to stays of other court proceedings is...