Rio Algom Inc. v. Sammi Steel Co., Ltd.

• Decision Date: 06 December 1990
• Citation: 562 N.Y.S.2d 486,168 A.D.2d 250
• Parties: RIO ALGOM INC. and Rio Algom Limited, Plaintiffs-Respondents, v. SAMMI STEEL CO., LTD. and Sammi Steel America, Inc., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 486

562 N.Y.S.2d 486

168 A.D.2d 250

RIO ALGOM INC. and Rio Algom Limited, Plaintiffs-Respondents, v.SAMMI STEEL CO., LTD. and Sammi Steel America, Inc.Defendants-Appellants.

Supreme Court, Appellate Division First Department.

Dec. 6, 1990.

Before KUPFERMAN, J.P., and SULLIVAN, MILONAS, ELLERIN and RUBIN, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Irma Santaella, J.), entered May 25, 1990, which granted plaintiffs' motion to stay arbitration and denied defendants' cross-motion to compel arbitration and stay the underlying action(CPLR 7503), unanimously reversed, on the law, the motion denied and the cross-motion granted, without costs.

Defendants entered into a contract to acquire two steel mills owned by plaintiffs and operated as a subsidiary, Al Tech Specialty Steel Corporation.The contract of sale provides for adjustment of the purchase price on the basis of the net income to Al Tech for the period from January 1, 1989 through the date of the closing, August 1, 1989.The adjustment is to be calculated from financial statements furnished to defendants by Deloitte Haskins and Sells based upon its independent audit of the subsidiary.

Following submission of the financial statements, a dispute arose concerning the inclusion of an estimated accrual for environmental liabilities in the amount of $18.7 million which Al Tech believed to be required under Generally Accepted Accounting Principles, Statement of Financial Accounting StandardNo. 5 and which plaintiffs sought to have removed.In response to notice that plaintiffs were preparing their own financial statements, defendants advised them that the submitted statements were in conformity with their agreement and that, pursuant to Section 2.5(d) thereof, plaintiffs had 15 days to serve a "Notice of Dispute" with respect to any challenged item.After several extensions at plaintiffs' request, the Notice of Dispute was received.Defendants then informed plaintiffs that, pursuant to Section 2.5(e) of the agreement, any dispute which cannot be resolved within 15 days is to be submitted to a third-party auditor whose decision is final and binding upon the parties.Again, at plaintiffs' request, defendants extended the time in which to comply with this provision at the end of which plaintiffs, instead of referring the dispute to the third-party auditor, commenced the underlying action.

It is evident that plaintiffs' action seeks to remove from the designated arbitrator the issue of whether the $18.7 million accrual was properly included in the financial statements in accordance with generally accepted accounting principles.This dispute falls squarely...