Hatzlachh Supply Inc. v. Moishe's Electronics, Inc.

• Decision Date: 04 March 1993
• Docket Number: 90 Civ. 2537 (KTD).
• Citation: 828 F. Supp. 178
• Parties: HATZLACHH SUPPLY INC., Petitioner, v. MOISHE'S ELECTRONICS, INC., Respondent.
• Court: U.S. District Court — Southern District of New York

828 F. Supp. 178

HATZLACHH SUPPLY INC., Petitioner, v. MOISHE'S ELECTRONICS, INC., Respondent.

90 Civ. 2537 (KTD).

United States District Court, S.D. New York.

March 4, 1993.

Sol Mermelstein, Brooklyn, NY (Sol Mermelstein, of counsel), for petitioner.

Fulbright & Jaworski, New York City (K. Jane Frankhanel, of counsel), for respondent.

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, District Judge:

Hatzlachh Supply Inc. ("Hatzlachh") petitions this court under the Federal Arbitration Act, 9 U.S.C. § 4, to compel arbitration with respondent Moishe's Electronics Inc. ("Moishe's"). Petitioner also seeks an order or judgment, pursuant to 28 U.S.C. § 2283, enjoining and staying the Texas state court action commenced by the respondent. Upon the affidavits and memoranda submitted by the parties, the petition to compel arbitration is granted.

Background

Petitioner Hatzlachh is a New York corporation engaged in the manufacturing, importing and selling of electronic merchandise, with its principal place of business in New York. Respondent Moishe's is a Texas corporation in the business of exporting electronic merchandise to Mexico, with its principal place of business in Texas. The respondent began purchasing goods from petitioner approximately two years ago. Prior to this proceeding, respondent and petitioner entered into approximately 42 transactions for a total dollar amount of approximately $1.85 million.

All of the business transactions between the parties involve the respondent telephoning the petitioner in New York to purchase electronic merchandise. The petitioner would then prepare an invoice and send it by facsimile transmission to the respondent in Texas on the day or the day after the oral purchase order. Each invoice set forth the prices and quantities of the merchandise ordered, and included an arbitration provision on the face of the invoice, located at the bottom set forth in capital letters. In connection with the facsimile transmission sent to the respondent, petitioner would also send a facsimile transmission to the warehouse where the goods were stored, authorizing the release of the merchandise to the respondent.¹ The respondent would then arrange to pick up the merchandise at the warehouse via tractor-trailer.

In each of the forty-two transactions that preceded the transactions at bar, the invoices sent to the respondent by facsimile transmission included an arbitration clause on the face of the invoice. Prior to this petition, the respondent never objected to any of the terms of the invoices.

The instant dispute arises out of two transactions occurring on or about January 29, 1992, and January 30, 1992. The sequence of events outlined above also occurred with respect to the two transactions at bar. Focusing on the first transaction, the respondent telephoned the petitioner on or about January 29, 1992 to order 535 video cassette recorders; 300 13-inch remote color televisions; 1,000 5-inch black and white televisions am/fm radio combination; and, 152 19-inch remote color televisions in the total amount of $200,253.50. Petitioner prepared invoice number 10222 dated January 29, 1992 and sent it by facsimile transmission from petitioner's New York office to respondent in Texas on January 29, 1992.

With respect to the second transaction, the respondent telephoned petitioner on or about January 30, 1992, and ordered an additional 95 13-inch remote color televisions in the amount of $15,290. Similarly, petitioner prepared invoice number 10241 dated January 31, 1992 and sent it by facsimile transmission to respondent in Texas on February 3, 1992.

The invoices in question each contained an arbitration provision on the face of the invoice, located at the bottom in capital letters. The arbitration provision provided as follows: "ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS SHIPMENT OR ANY ORDER UNDER WHICH GOODS WERE SHIPPED SHALL BE SETTLED BY ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK."

On or about January 29, 1992, respondent dispatched an empty tractor-trailer to the warehouse to pick up the merchandise for export to Mexico. The merchandise was loaded onto the respondent's trailer on or about January 30, 1992. However, the respondent determined that it was too late to export the merchandise to Mexico and decided to transport the merchandise at a later time.

In the interim, the trailer, loaded with the electronic merchandise, remained in a parking lot outside of the warehouse. On or about February 6, 1992, the respondent was notified that the trailer, along with the merchandise, was the subject of a theft. The trailer was subsequently discovered on some side road completely empty. Thereafter, the respondent failed to pay the petitioner for the merchandise that was stolen out of the trailer.

The respondent did not object to the terms of the invoices in question until February 24, 1992.² By letter, dated February 24, 1992, respondent rejected petitioner's right to arbitrate, claiming that arbitration was not discussed when the order was placed. Additionally, on February 24, 1992, the respondent commenced a lawsuit against Hatzlachh in the 138th District Court of Cameron County Texas under Cause Number 92-02-1064-B (the "Texas State Court Action").³

On or about March 24, 1992, Hatzlachh interposed an answer in the Texas State Court Action generally denying the allegations and raising the affirmative defense that the complained of controversy is governed by an arbitration provision. Also on or about March 24, 1992, Hatzlachh filed a Plea in Abatement in the Texas State Court Action, requesting that the Texas action be abated pending arbitration in New York, or in the alternative, seeking a motion to dismiss. On or about March 26, 1992, Hatzlachh withdrew its motion to dismiss in the Texas State Court Action. Thereafter, on or about April 8, 1992, petitioner Hatzlachh commenced this action seeking to compel arbitration in New York and to stay the Texas State Court Action.

Discussion

The Federal Arbitration Act (the "Act"), 9 U.S.C. §§ 1-16, applies in federal diversity actions where the arbitration provision being construed is in writing and the action relates to a contract evidencing a transaction involving interstate commerce. 9 U.S.C. §§ 1, 2; see Threlkeld v. Metallgesellschaft, 923 F.2d 245, 249 (2d Cir.), cert. dismissed, ___ U.S. ___, 112 S.Ct. 17, 115 L.Ed.2d 1094 (1991).

Clearly, the case at bar is cognizable under the Federal Arbitration Act: (1) the sale of the merchandise over interstate lines constitutes interstate commerce; (2) the arbitration provision at issue is in writing; and, (3) diversity of citizenship exists between the parties, pursuant to 28 U.S.C. § 1332(a)(1).⁴

The petitioner bases its motion to compel arbitration upon section 4 of the Act. Section 4 provides, in pertinent part, that:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided by such agreement.

9 U.S.C. § 4.

In deciding a motion to compel arbitration, the court must determine: (1) whether there is an agreement to arbitrate; (2) whether the claim falls within the scope of the agreement; and, (3) whether the right to arbitrate has been waived. See Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987) (citing Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985)); Brener v. Becker Paribas, Inc., 628 F.Supp. 442, 447 (S.D.N.Y.1985).

Although the Act "creates a body of federal substantive law of arbitrability," see Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), the Act "contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." See Volt Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 477, 109 S.Ct. 1248, 1255, 103 L.Ed.2d 488 (1989) (citing Bernhardt v. Polygraphic Co., 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199 (1956)). Instead, section 2 of the Act "preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate." See Cook Chocolate Co. v. Salomon, Inc., 684 F.Supp. 1177, 1182 (S.D.N.Y.1988). "Thus, state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." Perry v. Thomas, 482 U.S. 483, 492-93 n. 9, 107 S.Ct. 2520, 2527 n. 9, 96 L.Ed.2d 426 (1987). Accordingly, I will apply state law principles to the issue of whether these parties actually agreed to arbitrate their disputes.

It should be noted, however, that section 2 of the Act also operates to preempt state statutory and case law "to the extent that it actually conflicts with federal law — that is, to the extent that it `stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Volt, 489 U.S. at 477, 109 S.Ct. at 1255 (citing Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941)).

The case before this court is based upon diversity of citizenship, pursuant to 28 U.S.C. § 1332(a)(1). A federal court sitting in diversity must apply the choice of law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Therefore, I must look to New York's conflict of law rules to determine which body of state law contract principles applies. The transactions at issue in the instant case involve the sale of goods. Both New York and Texas have adopted Article 2 of the Uniform...