Necchi v. Necchi Sewing Machine Sales Corp.

• Decision Date: 15 July 1965
• Docket Number: 29340.,337,Dockets 29339,No. 336,336
• Citation: 348 F.2d 693
• Parties: NECCHI S.p.A., Plaintiff-Appellant, v. NECCHI SEWING MACHINE SALES CORP., Defendant-Appellee. In the Matter of the Arbitration of Controversies, between NECCHI SEWING MACHINE SALES CORP., Petitioner-Appellee, and NECCHI S.p.A., Respondent-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

348 F.2d 693 (1965)

NECCHI S.p.A., Plaintiff-Appellant, v. NECCHI SEWING MACHINE SALES CORP., Defendant-Appellee.

In the Matter of the Arbitration of Controversies, between

NECCHI SEWING MACHINE SALES CORP., Petitioner-Appellee, and

NECCHI S.p.A., Respondent-Appellant.

Nos. 336, 337, Dockets 29339, 29340.

United States Court of Appeals Second Circuit.

Argued March 15, 1965.

Decided July 15, 1965.

COPYRIGHT MATERIAL OMITTED

David A. Botwinik, New York City (Fink & Pavia, New York City, on the brief) (Murray Mogel, New York City, of counsel), for respondent-appellant.

Samuel B. Herbst, New York City (Herbst & Herbst, New York City, on the brief) (Allan D. Goodridge, New York City, of counsel), for petitioner-appellee.

Before LUMBARD, Chief Judge, and MOORE and MARSHALL, Circuit Judges.

MARSHALL, Circuit Judge:

From 1948 through 1963, Necchi Sewing Machine Sales Corporation (hereinafter "the Sales Corp.") was the exclusive American distributor of sewing machines manufactured by Necchi. This relationship was based on a series of contracts; the one involved in these appeals was executed on July 18, 1961 and amended by a subsequent agreement dated January 18, 1962 whereby the exclusive distributorship was extended until December 31, 1963.

The 1961 agreement provided that "All matters, disputes or disagreements arising out of or in connection with this Agreement shall be finally settled" by arbitration, and this provision was invoked when the relations between Necchi and the Sales Corp. deteriorated at the end of 1963 upon the refusal of Necchi to renew the exclusive distributorship with the Sales Corp.¹ In January and March of 1964 the Sales Corp. demanded that certain disputes be arbitrated, and on May 22 of that year it sent a letter to Necchi, set out in the appendix, detailing its demand for arbitration. The arbitration provision gave the party upon whom a demand to arbitrate was served thirty days to appoint an arbitrator; and this period expired on June 22. On that date, having not yet appointed an arbitrator, Necchi commenced an action in the District Court for the Southern District of New York. Jurisdiction was based on diversity of citizenship, 28 U.S.C. § 1332, and, pursuant to 28 U.S.C. § 2201, Necchi sought a declaratory judgment that the items tendered by the Sales Corp. for arbitration were not arbitrable. On the same day, June 22, the Sales Corp., pursuant to sections 4 and 5 of the Federal Arbitration Act, 9 U.S.C. §§ 4, 5, petitioned the District Court for the Southern District of New York to appoint a second arbitrator and to direct Necchi to proceed to arbitration. The petition alleged diversity jurisdiction and also that the 1961 agreement evidenced transactions in interstate and foreign commerce.

In an order dated September 3, 1964 the District Court dismissed without prejudice Necchi's declaratory judgment action and granted the petition of the Sales Corp. Necchi was ordered to proceed to arbitration and to appoint an arbitrator within twenty days, in default of which an arbitrator would be appointed by the court. Notices of appeal were timely filed and served by Necchi in both proceedings. We affirm the order of the District Court insofar as it dismisses, without prejudice, Necchi's declaratory judgment action, for, as the District Court correctly reasoned, the issues raised in that action can also be determined in the proceeding initiated by the Sales Corp. It was within the discretion of the District Court to dismiss the parallel and duplicative action seeking declaratory judgment, see Dr. Beck & Co. G. M. B. H. v. General Electric Co., 317 F.2d 538, 539 (2 Cir. 1963). But insofar as the order of the District Court directs Necchi to proceed to arbitration, we affirm in part and reverse in part.

The basic flaw in the order compelling Necchi to arbitrate stems from the approach of the District Court. The Court declined to decide whether the nine items listed in the Sales Corp.'s letter were "matters, disputes or disagreements arising out of or in connection with" the agreement. Instead the court took the position that this decision was to be made by the arbitrators, reasoning that "the broad scope of the arbitration provisions precludes us from making the preliminary inquiry as to whether the nine listed items arise `out of or in connection with the agreement.'" This was error, and quite clearly so. An order under the Federal Arbitration Act compelling a party to arbitrate is simply an order granting specific performance of an arbitration provision, Kulukundis Shipping Co., S/A v. Amtorg Trading Corp., 126 F.2d 978, 986 (2 Cir. 1942), and a court must interpret that provision to determine whether it requires arbitration on certain items prior to granting such relief. The court must decide whether the parties had agreed to submit the particular disputes to arbitration. Neither the federal policy in favor of arbitration nor the ostensible broad reach of the arbitration provision in question relieves the District Court of judicial responsibility of determining the question of arbitrability, unless the arbitration provision is so unusually broad that it clearly vests the arbitrators with the power to resolve questions of arbitrability as well as the merits, see United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 583 n. 7, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1963). The arbitration provision here is broad, but not that broad.

The Supreme Court has explicitly and unanimously reserved the question of arbitrability for the courts. "Under our decisions, whether or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties," Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8 L.Ed.2d 462 (1962). "For arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit," United Steelworkers v. Warrior & Gulf Nav. Co., supra, 363 U.S. at 582, 80 S.Ct. at 1353. Accord, John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964). This principle has been annunciated in actions to compel arbitration that were commenced under section 301 of the Labor Management Relations Act, 29 U.S.C. § 185, but we can perceive no reason why this principle should not be equally applicable in proceedings to compel arbitration that are like the instant one, commenced under the Federal Arbitration Act, cf. Engineers Ass'n v. Sperry Gyroscope Co., 251 F.2d 133, 135 (2 Cir. 1957), cert. denied, 356 U.S. 932, 78 S.Ct. 774, 2 L.Ed.2d 762 (1958). In fact this principle has been applied with little need for discussion in proceedings under the Federal Arbitration Act, see, e. g., Metro Industrial Painting Corp. v. Terminal Constr. Co., 287 F.2d 382, 385 (2 Cir.), cert. denied, 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed.2d 24 (1961); Greenwich Marine, Inc. v. S.S. Alexandra, 225 F.Supp. 671, 676 (S.D.N.Y.1964), aff'd, 339 F.2d 901 (2 Cir. 1965); cf. also Reconstruction Fin. Corp. v. Harrisons & Crosfield, Ltd., 204 F.2d 366, 368, 37 A.L.R.2d 1117 (2 Cir.) (dictum), cert. denied, 346 U.S. 854, 74 S.Ct. 69, 98 L.Ed. 368 (1953). The language of section 4 of the Act requires no less: the reluctant party can only be ordered "to proceed to arbitration in accordance with the terms of the agreement."

Hence, the District Court had the responsibility of determining whether each of the nine items listed in the Sales Corp.'s letter demanding arbitration was a matter, dispute or disagreement "arising out of or in connection with" the 1961 agreement. The District Court failed to fulfill this duty and we thus have the alternative of making the determination for ourselves or remanding to the District Court. In respect to all the items, even on the meager record before us, the question of arbitrability seems so clear that no useful purpose would be served by leaving the question to be resolved by the District Court upon further proceedings, and in order to expedite this litigation, we will rule on the arbitrability of each of the items. Cf. Livingston v. John Wiley & Sons, Inc., 313 F.2d 52 (2 Cir.), aff'd, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).

Items 4 and 5 are arbitrable, for they directly relate to certain provisions² in the agreement and the order below insofar as it directs Necchi to proceed to arbitration on those items is affirmed. It seems equally clear that items 1, 2, 3, 6, 7 and 9 are not arbitrable, and the order below insofar as it directs Necchi to proceed to arbitration on those items is reversed. Notwithstanding "the federal policy to construe liberally arbitration clauses," Metro Industrial Painting Corp. v. Terminal Const. Co., 287 F.2d 382, 385, cert. denied, 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed.2d 24 (1961), and the Federal Arbitration Act's "liberal policy of promoting arbitration," Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 410 (2 Cir. 1959), cert. granted 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, cert. dismissed pursuant to stipulation, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960), there is no basis for maintaining that the matters referred to in items 1, 2, 3, 6, 7 and 9 arise out of or in connection with the agreement.

Item 1 seeks to have Necchi "cease and desist" from engaging in certain practices claimed to constitute unfair trade practices and item 2 seeks "damages" and "accounting" for these practices. But there is no plausible claim that any of these practices contravened the agreement, or that Necchi's conduct in these affairs was governed by the agreement. The claim referred to in item 3 relates to services performed by the president of the Sales Corp. in attempting to settle a dispute between Necchi and another manufacturer involving a charge of patent infringement. This dispute has nothing to do with the 1961 exclusive...