In re Kelley

• Decision Date: 31 March 1925
• Parties: In re KELLEY et al.
• Court: New York Court of Appeals Court of Appeals

240 N.Y. 74

147 N.E. 363

In re KELLEY et al.

Court of Appeals of New York.

March 31, 1925.

Petition by Don M. Kelley and others for an order directing that an arbitration proceed, opposed by Frederick R. Bauer and others. From an order of the Appellate Division (209 App. Div. 870, 205 N. Y. S. 931), affirming an order of the Special Term, denying a motion to proceed to arbitration, petitioners appeal.

Orders reversed, and motion for arbitration granted.

McLaughlin and Crane, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First Department.

Stephen P. Anderton and Alvin Devereux, both of New York City, for appellants.

Samuel Seabury, D. Basil O'Connor and George Trosk, all of New York City, for respondents.

ANDREWS, J.

D. M. Kelley, E. M. Drayton, F. R. Bauer, and R. L. Pond were partners engaged in the business of investment bankers and brokers. In October, [240 N.Y. 77]1923, they decided to dissolved the firm. Accordingly an elaborate dissolution agreement was executed, which, with later amendments, provided that the partnership should be terminated on December 31. All partnership assets should be divided in certain proportions among the partners. Kelley and Bauer were named as liquidating partners and immediately after December 31 they were to collect claims and demands due or which might become due to the firm and distribute the net proceeds of the liquidation among the partners, having regard to certain specific allocations of assets made by the agreement itself. Except as so allocated, all other contracts of the partnership are to be liquidated by them ‘by carrying out and performing the same and maintaining all the rights of partners so far as possible.’ In the event ‘of any difference or dispute of any nature whatsoever in any manner relating to the partnership or liquidation of the partnership as between any of the partners or as between the liquidating partners and any of the partners or as between the liquidating partners themselves,’ then this dispute shall be submitted to arbitration.

A dispute did arise between the former partners. After December 31, Bauer and Pond received or became entitled to profits resulting from contracts for the financing and reorganization of certain Cuban sugar corporations and interests. Kelley and Drayton claim that these profits resulted as the culmination of transactions begun by the original firm and carried on with the understanding that the firm was interested therein and that they were in part at least financed by it. This Bauer and Pond deny. They say the whole matter represents new business belonging to them as individuals begun by them after the dissolution agreement was executed which expressly gave them the right to initiate such business. Therefore this dispute involves, as the respondents expressly concede, the decision of a question of fact. Resting upon the determination of this question is the ultimate go to Bauer and Pond as individuals or to to Bauer and Pond as individuals or should they go to the firm?

Their demand for arbitration being refused, Kelley and Drayton sought relief from the court. This they have hitherto been denied. The position taken is that the agreement to arbitrate is confined to matters relating to the partnership or to the liquidation of its assets. It does not cover a dispute as to whether a certain asset belongs to it or to one or more of its members. If the latter, it is something with which the partnership has nothing to do. Taking this view, and resolving the facts in favor of Bauer and Pond, the Special Term refused to order arbitration. In other words, unless the claim of Kelley and Dayton was conceded, they might not compel arbitration as a matter of right. It is that question we are called upon to review.

A provision in a written contract to settle by arbitration a controversy thereafter arising between the parties to the contract is now enforceable. The contract, however, must be to arbitrate the precise matter as to which arbitration is sought. Upon this depends both the jurisdiction of the arbitrator and the power of the court. If, however, such a contract exists and there is a dispute which comes within its provisions, it is the duty of the court or judge in all ordinary cases to enforce it and a refusal to do so is error. Here, it being unquestioned that there is a dispute, we have only to construe the contract to determine whether it is such a controversy as the parties have agreed to arbitrate. As to the merits between them, neither we nor the courts below are concerned. That is solely for the arbitrator to determine, if arbitration there should be.

As we have said arbitration is agreed upon here as to a dispute between partners of any nature whatsoever in any way relating to the partnership or its liquidation. This provision, broad in its terms, is contained in an agreement where the liquidating partners are not only to collect and distribute all firm assets, including all claims and demands which might become due to it, but are to liquidate all partnership contracts and maintain all partnership rights therein. Clearly it seems to us that the dispute comes within the precise language of the contract. It is between the partners. It relates to the partnership and the obligations of the partners thereto. Certainly it concerns the liquidation of the firm. The continuance of that process and the amount which each partner is to receive depend upon success or failure in adjusting this claim. If it was, in fact, a firm contract, it was the duty of the liquidating partners in the course of liquidation to collect anything which might become due thereon and to maintain all partnership rights therein. Under the circumstances we must hold that this dispute related to the partnership and to its liquidation and is therefore to be arbitrated. We are told that the arbitrator may not determine whether or not he has jurisdiction. That may or may not be true. It all depends upon the language of the agreement. The intention may be to submit that question to him. Then he may pass upon it. Willesford v. Watson, 8 L. R. Chan. App. Cas. (1872, 1873) 473.

Both the appellants and the respondents have referred to Piercy v. Young (L. R. [1880] 14 Chan. Div. 200) as supporting their respective positions. That case, however, but interprets the...