Lawn v. Franklin

• Decision Date: 24 June 1971
• Docket Number: No. 71 Civ. 2434.,71 Civ. 2434.
• Parties: Howard M. LAWN, Plaintiff, v. Leonard L. FRANKLIN et al., Defendants.
• Court: U.S. District Court — Southern District of New York

328 F. Supp. 791

Howard M. LAWN, Plaintiff, v. Leonard L. FRANKLIN et al., Defendants.

No. 71 Civ. 2434.

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

June 24, 1971.

Surrey, Karasik, Greene & Seham, New York City, for plaintiff; Carl F. Goodman, Loyd Starrett, of counsel.

Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, for defendants; Donald J. Cohn, Michael B. Mukasey, New York City, of counsel.

GURFEIN, District Judge.

This is a motion by the plaintiff for an order compelling arbitration under the Federal Arbitration Act (9 U.S.C. Section 4). The defendants oppose the motion on two grounds: (1) that the existence of a prior action in the United States District Court for the Western District of Texas (Leonard Franklin, et al. v. Howard M. Lawn, A 71 Civ. Action No. 52) between the same parties and posing the same issues, requires this Court to deny plaintiff's motion or to stay the Texas action; and (2) that the service of process made upon defendants Louis J. Reicher and The Sacred Heart Parish, Inc. was insufficient to bring them within the jurisdiction of this Court.

The matter involves the entrepreneurship of defendant Bishop Reicher, the Bishop of Austin, Texas. Bishop Reicher on behalf of his Parish engaged in extensive business transactions with the plaintiff Lawn. It appears to be undisputed that Lawn acted as a fiscal agent for Bishop Reicher and that their joint business consisted of the acquisition of a number of enterprises in various parts of the United States. Apparently Lawn would acquire for the Bishop the tangible assets of each enterprise, that is the real estate and/or personal property used in the business, and Lawn would acquire the going business for himself. After a typical acquisition Lawn would own an operating corporation which leased or rented the tangible assets from the Bishop or a corporation (such as defendant The Sacred Heart Parish, Inc.) controlled by him.

In 1967 the Bishop and Lawn came to a parting of the ways, as a result of which a final agreement, the "escrow agreement" dated November 27, 1967, was entered into. Defendant Franklin, a lawyer who for some years advised Bishop Reicher, became escrow agent. It is this agreement which is the subject of the motion to compel arbitration.

The contract of November 27, 1967 contains an arbitration clause which reads as follows:

"7. In the event of any dispute or controversy hereunder the issues involved shall be settled by arbitration by one arbitrator in the City of New York, N.Y. in accordance with the rules and regulations of the American Arbitration Association and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof."

Controversies arose under this contract and in late April 1971 plaintiff Lawn served demands for arbitration upon each of the defendants in the action pursuant to the American Arbitration Association's procedures. The defendants then started two actions seeking to stay arbitration in New York and Texas State courts and obtained ex parte temporary restraining orders against the plaintiff which, however, are no longer in effect. Defendants' principal claim in those actions was that the arbitration clause is invalid under Texas law and that arbitration should be stayed for various alleged reasons of convenience. Lawn removed the defendants' New York action to this Court on May 11 (71 Civ. 2108) on the basis of the diversity of citizenship. 28 U.S.C. Sections 1332, 1441. Thereafter the defendants who were the plaintiffs in the removed action filed a voluntary dismissal of that action. Lawn, appearing specially, on May 28, removed the Texas State Court case which had been commenced on May 5, to the United States District Court for the Western District of Texas. That is the prior action pending. Lawn then started the present proceeding in which he seeks an order under 9 U.S.C. Section 4 compelling the defendants to arbitrate. There is no claim that the defendants did not sign the contract under which arbitration is sought or denial that they have failed to arbitrate pursuant to the demand.

The question arises as to whether the present motion to compel arbitration should be denied or held in abeyance pending the determination of the prior action in the United States District Court for the Western District of Texas. The mere priority of an action in another Federal District does not oust the Court of power to determine which is the better forum. Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200. In this case the Federal Arbitration Act suggests that the proper venue lies in the Southern District. 9 U.S.C. Section 4 provides that when an order compelling arbitration is sought.

"The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration * * * The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed." (emphasis added)

This is the only district in which such a petition has been filed. Moreover, the arbitration clause in suit provides for the arbitration to be held in the City of New York. Although the statute appears to imply that the hearing and proceedings follow the District in which the petition for an order directing such arbitration is filed, the converse would seem to follow as well. The proper District within which the petition for such order should be filed is the District where the "proceedings" by virtue of the contract of the parties are to take place. Necchi Sewing Machine Sales Corp. v. Sewline Co., 194 F.Supp. 602, 604 (S.D.N.Y.1960). See China Union Lines v. Steamship Co., 136 F. Supp. 597 (S.D.N.Y.1955). The arbitration —"the proceeding,"—if it is to take place at all, must take place in New York. The submission to arbitration in New York in itself waives any objection to venue. Farr & Co. v. CIA Intercontinental, 243 F.2d 342 (2d Cir. 1957); Necchi Sewing Machine Sales Corp. v. Sewline Co., supra.

Accordingly, in order for a judicial control of the arbitration to be effective the proper forum appears, in any event, to be the Southern District of New York. For this reason, the Court will order the arbitration in New York to proceed, particularly since the parties themselves in providing for arbitration in New York established that New York was a convenient place.

The second question raised relates to the alleged lack of service of process on the defendants Reicher and Sacred Heart. Defendant Franklin was personally served in Texas with the summons and petition as well as by mail. The Bishop and Sacred...