Masthead Mac Drilling Corp. v. Fleck

• Decision Date: 26 October 1982
• Docket Number: No. 82 Civ. 5620 (MEL).,82 Civ. 5620 (MEL).
• Citation: 549 F. Supp. 854
• Parties: MASTHEAD MAC DRILLING CORP., Masthead Mac Land Corp., Masthead Associates, Inc., David Head, individually and as President of Masthead Mac Drilling and Masthead Mac Land Corp., Plaintiffs, v. Edwin FLECK, Arthur Fleck, Howard Zukerman, Baskin & Sears, P.C., MAC Resources, Inc., MKBE Associates, Ltd., and Sun Securities Corp., Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

549 F. Supp. 854

MASTHEAD MAC DRILLING CORP., Masthead Mac Land Corp., Masthead Associates, Inc., David Head, individually and as President of Masthead Mac Drilling and Masthead Mac Land Corp., Plaintiffs, v. Edwin FLECK, Arthur Fleck, Howard Zukerman, Baskin & Sears, P.C., MAC Resources, Inc., MKBE Associates, Ltd., and Sun Securities Corp., Inc., Defendants.

No. 82 Civ. 5620 (MEL).

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

October 26, 1982.

Philips & Mushkin, P.C., New York City, for plaintiffs; Lawrence M. Philips, Victor J. DiGioia, New York City, of counsel.

Shea & Gould, New York City, for defendants Edwin Fleck, Arthur Fleck, MAC Resources, Inc., MKBE Associates, Ltd., and Sun Securities Corp.; Martin I. Shelton, John B. Grant, Jr., New York City, of counsel.

Baskin & Sears, P.C., pro se; Lawrence A. Mandelker, New York City, of counsel.

LASKER, District Judge.

Plaintiff David Head moves for a temporary restraining order and preliminary injunction. Defendants Edwin Fleck, Arthur Fleck, MAC Resources, Inc., MKBE Associates, Ltd., and Sun Securities Corp. move for a stay pending arbitration in accordance with the terms of the written agreements between the parties. The motion for a stay is granted, subject to the appointment of a neutral arbitrator. Because the instant matter is arbitrable, plaintiff's motion for a temporary restraining order and preliminary injunction is moot.

The joint venture agreement signed by Head and Arthur Fleck contains an arbitration clause which provides:

"12. Arbitration. It is agreed that disputes arising under this Agreement or any other agreement between the parties or under any instruments made to carry out the terms of this Agreement shall be submitted within fifteen days to Bernard Wollens, 117 Court Street, Brooklyn, New York, who shall act as arbiter. If Mr. Wollens is unable or unwilling to act as the arbiter, due to a conflict of interests or otherwise, it is agreed that the dispute shall be submitted to ______ who shall act as substitute arbiter. The parties agree that any decision of the arbiter shall be final and binding upon the parties."

A similar clause is included in the shareholder agreement between Head, Arthur Fleck, and Masthead Mac Drilling Corp.:

"9. Arbitration. In the event that a dispute arises under this Agreement or in the event that there is a stalemate among the members of the Board of Directors with respect to any management decision, such dispute shall be submitted within fifteen days of the occurrence sic thereof to Bernard Wollens, 117 Court Street, Brooklyn, New York, who shall act as arbiter. If Mr. Wollens is unable or unwilling to act as arbiter due to a conflict of interest or otherwise, it is agreed that the dispute shall be submitted to Samuel Kisin, 117 Court Street, Brooklyn, New York, who shall act as substitute arbiter. Decision of the arbiter shall be final and binding on the parties."

In light of the parties' clear agreement to submit disputes to arbitration, and the "overriding federal policy favoring arbitration," Carcich v. Rederi A/B Nordic, 389 F.2d 692, 696 (2d Cir. 1968), plaintiffs' arguments opposing arbitration of the instant disputes are without force. Plaintiffs first contend that this court has no jurisdiction to issue a stay pending arbitration because the business of the corporations formed pursuant to the parties' agreements took place wholly in Texas, and the agreements therefore do not involve interstate commerce as required under 9 U.S.C. § 1. However, while the actual drilling operations are to take place only in Texas, the joint venture agreement involves other matters of an interstate nature; for example, money-raising functions are to be performed in New York, and a limited partnership interest has in fact been sold to members of the law firm of Baskin & Sears in New York. The joint venture is thus a "transaction involving commerce" within the meaning of 9 U.S.C. § 2. See Metro Industrial Painting Co. v. Terminal Construction Co., 287 F.2d 382, 384 (2d Cir.), cert. denied, 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed.2d 24 (1961); Garfield & Co. v. Wiest, 308 F.Supp. 1107 (S.D.N.Y.) aff'd., 432 F.2d 849 (2d Cir. 1970), cert. denied, 401 U.S. 940, 91 S.Ct. 939, 28 L.Ed.2d 220 (1971). Nor is the applicability of the Federal Arbitration Act affected or diluted by the fact that the agreements between the parties specify that they are controlled by New York law. "Even though the ... agreement provides that it be governed by New York law, New York courts, in dealing with arbitration disputes where the contract involves interstate commerce, apply federal, and not state, arbitration law." Rothberg v. Loeb, Rhoades, & Co., 445 F.Supp. 1336 (S.D.N.Y.1978) (Pierce, J.); see also Becker Autoradio v. Becker Autoradiowerk GmbH., 585 F.2d 39, 43 n. 8 (3rd Cir. 1978).

Plaintiffs argue that the defendants, by previously bringing an action in the Supreme Court of New York, have waived their contractual right to arbitration. Under federal arbitration law, however, the commencement of litigation in a judicial forum does not, by itself, constitute a waiver of that right. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lecopulos, 553 F.2d 842, 845 (2d Cir.1977). In the instant case, defendants commenced the state court action on July 19, 1982, by serving plaintiff Head with a summons, but failed to serve the complaint after Head agreed to repeated extensions of time for doing so. Plaintiffs contend that defendants should not now be heard to argue that the state court action did not proceed far enough to constitute a waiver of arbitration, because the defendants themselves were responsible for the delay in the state proceedings, and plaintiffs have already incurred expenses in bringing this action in federal court. While the plaintiffs' argument is not without force, a waiver of arbitration under federal arbitration law cannot be found without a showing of substantial prejudice to the party asserting...