Litchfield Fabrics, Inc. v. Rosewood Fabrics, Inc.

• Decision Date: 08 January 1981
• Citation: 438 N.Y.S.2d 239,79 A.D.2d 910
• Parties: In re Application for Stay of Arbitration between LITCHFIELD FABRICS, INC., Petitioner-Respondent, v. ROSEWOOD FABRICS, INC., Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 239

438 N.Y.S.2d 239

79 A.D.2d 910

In re Application for Stay of Arbitration between LITCHFIELD

FABRICS, INC., Petitioner-Respondent, v. ROSEWOOD FABRICS, INC., Respondent-Appellant.

Supreme Court of New York, Appellate Division,

First Department.

January 8, 1981

S. S. Korzenik, New York City, for respondent. J. H. Einstein, New York City, for appellant.

Judgment, Supreme Court, New York County (Gabel, J.), entered on June 13, 1980, affirmed on the decision of Gabel, J., at Special Term. Petitioner-respondent shall recover of respondent-appellant $50 costs and disbursements of this appeal.

All concur except FEIN, J., who dissents in a memorandum as follows:

This is a proceeding to stay arbitration of asserted claims arising out of a contractual relationship. Special Term granted the stay "forever". I would reverse that judgment and deny the petition to stay arbitration.

Four contracts between the parties for the procurement and supply of knitted fabrics contained broad arbitration clauses providing for settlement by arbitration of "controversy or claim arising out of or relating to this contract, any interpretation thereof or breach thereof". In its amended demand for arbitration, respondent Rosewood Fabrics asserted that its confidential price lists, customer lists and special customer requirements, to which petitioner, as supplier, had become privy by reason of the contractual relationship, were used by petitioner, over Rosewood's protest, to compete unfairly with Rosewood for the continued business of those customers. In making these competitive overtures to Rosewood's customers, petitioner allegedly slandered Rosewood by falsely depicting the latter's financial situation and ability to continue supplying merchandise. Rosewood further alleged petitioner's misappropriation of the proprietary color range and proprietary color names and style numbers for its own use, and subsequent sale of products incorporating this data directly to Rosewood's customers, among others.

The majority, affirming on the decision of Justice Gabel at Special Term, agrees with petitioner that notwithstanding the broad arbitration agreement, it never agreed to arbitrate claims of tort which bear no nexus to the subject matter of the contracts. But this ignores the expressed intention of the parties to arbitrate all claims and controversies stemming from the contractual relationship. The nature of the alleged actions by petitioner is particularly derived from the contractual relationship between the parties. Indeed, without the contracts there would have been no such relationship. The information and material allegedly utilized by petitioner to damage Rosewood were obtained by virtue of the contracts. Since the contracts formed the basis of the relationship, a claim founded upon that relationship should normally be arbitrable (Petroleum Helicopters v. Boeing-Vertol Co., D.C., 478 F.Supp. 84, 86, affd. 5 Cir., 606 F.2d 114).

Where parties have generally agreed to submit their disputes to arbitration, any given controversy will fall within the scope of the arbitration clause, absent a manifest intent to exclude a particular subject therefrom (Matter of St. Regis Nursing Home and Health Related Facility 72 A.D.2d 864, 421 N.Y.S.2d 724). Regardless of the nature of the action, if the dispute arises out of or is related in any manner to the agreement providing for arbitration, it is referable to arbitration (Joyce Research and Development Corp. v. Equi-Flow Division of Vibro Manufacturing Co., 31 Misc.2d 952, 221 N.Y.S.2d 164, affd. 15 A.D.2d 821, 226 N.Y.S.2d 675, mot. for lv. to app. dsmd. 11 N.Y.2d 1011, 229 N.Y.S.2d 755, 183 N.E.2d 765). In that case the claim was in tort for replevin of books and records of corporations not parties to the agreement, but to which the parties were privy.

Liability for tort is not usually an arbitrable issue, since event of a tortious character are usually unforeseen, and thus cannot have been contemplated at the time of the drafting of the agreement to arbitrate.

"However, tort issues may arise in connection with the performance of obligations under a contract providing for arbitration, and not from conduct independent of the contract.... In New York the tort liability of a contractor for alleged conversion of building materials from his subcontractor has been held arbitrable". (Domke, Law & Practice of Commercial Arbitration, § 13.08, citing Kreisler-Borg Construction Co. v. Walsh, 13 Misc.2d 306, 178 N.Y.S.2d 366.)

Thus this court has held arbitrable a contractor's claim for "damage to reputation" where the usual broad arbitration clause was contained in a construction contract (Matter of American Airlines 56 A.D.2d 774, 392 N.Y.S.2d 451.) Damage to reputation is a tort claim. The arbitration clause was similar to our...