PRIMA PAINT CORPORATION v. Flood & Conklin Mfg. Co.

• Decision Date: 10 February 1966
• Docket Number: No. 65-Civ. 3416.,65-Civ. 3416.
• Citation: 262 F. Supp. 605
• Parties: PRIMA PAINT CORPORATION, Plaintiff, v. FLOOD & CONKLIN MFG. CO., Defendant.
• Court: U.S. District Court — Southern District of New York

262 F. Supp. 605

PRIMA PAINT CORPORATION, Plaintiff, v. FLOOD & CONKLIN MFG. CO., Defendant.

No. 65-Civ. 3416.

United States District Court S. D. New York.

February 10, 1966.

Robert P. Herzog, New York City, for plaintiff.

Wachtel & Michaelson, New York City, for defendant.

CROAKE, District Judge.

MEMORANDUM

These are motions: (a) by the plaintiff, pursuant to Rule 65, Fed.R.Civ.P., to stay arbitration, and (b) by the defendant, pursuant to Rule 7(b), Fed.R. Civ.P., and 9 U.S.C.A. § 1 et seq., to stay this action pending arbitration. Both motions will be decided in the instant opinion.

This action arises out of a Consulting Agreement entered into on October 7, 1964 whereby the defendant agreed to serve the plaintiff "in an advisory and consultative capacity," not to compete with Prima, and to turn over to the plaintiff certain customer lists. Prima agreed to make payments to Flood & Conklin, commencing September 1, 1965, based upon sales to former customers of the defendant.

Paragraph 8 of the Consulting Agreement states:

"8. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York, in accordance with the rules then obtaining of the American Arbitration Association, by three arbitrators, one of whom shall be an attorney-at-law and one of whom shall be a certified public accountant, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof. The costs of arbitration shall be shared equally by Prima and F&C."

On or about October 14, 1964, the defendant filed a voluntary petition under Chapter XI of the Bankruptcy Act. An Amended Plan of Arrangement was confirmed and the debtor was revested with its assets on March 16, 1965.

In a letter to the attorneys for the defendant dated September 17, 1965, the plaintiff alleged certain "breaches" of the agreement by F&C. On October 25, 1965 the defendant served a Notice of Intention to Arbitrate on the plaintiff; and, on November 12, 1965, three days before the expiration of the plaintiff's time to appear, answer or otherwise move with regard to the demand for arbitration, Prima instituted this action seeking to rescind the Consulting Agreement on the grounds of fraud in the inducement.

In an affidavit dated November 20, 1965, one Albert A. Shuger, the President of the plaintiff, alleges that "the parties hereto had originally agreed to execute the agreement on October 21, 1964. However, upon the urging and pleas of Jerome K. Jellin, principal of the defendant corporation, because of the need of the proceeds of the sale for another business investment, the date was accelerated and the agreement executed earlier and on October 7, 1964 * * *. If the true facts had been known to the plaintiff, i. e., the defendant intended to file bankruptcy proceeding and immediately avail itself of the insolvency act, no agreement would have been entered into between the parties because such action would have and did damage, frustrate, impede and breach the agreement of the parties and was contrary to the very intention of the parties to the agreement * * *." No fraud is specifically alleged with regard to the arbitration provision.

The court has read the extensive memoranda of law submitted...