Saucy Susan Products, Inc. v. Allied Oil English, Inc.

• Decision Date: 21 December 1961
• Citation: 200 F. Supp. 724
• Parties: SAUCY SUSAN PRODUCTS, INC., Plaintiff, v. ALLIED OLD ENGLISH, INC., and Harold Ross, Defendants.
• Court: U.S. District Court — Southern District of New York

200 F. Supp. 724

SAUCY SUSAN PRODUCTS, INC., Plaintiff, v. ALLIED OLD ENGLISH, INC., and Harold Ross, Defendants.

United States District Court S. D. New York.

December 21, 1961.

Hays, St. John, Abramson & Heilbron, New York City, for plaintiff; Elias Messing, New York City, of counsel.

Irving C. Nachbar, New York City, for defendants; David Advocate, New York City, of counsel.

FEINBERG, District Judge.

Defendants Allied Old English, Inc. ("Allied") and Harold Ross have brought a motion under Title 9, U.S.C. § 3 for an order staying an action brought against them by plaintiff Saucy Susan Products, Inc. ("Saucy Susan") and directing plaintiff to arbitrate the issues between them. Saucy Susan's action against defendants is for trademark infringement and unfair competition with jurisdiction based upon 28 U.S.C. § 1338.

Allied is a manufacturer of food sauces and Ross is its president and apparent owner. In November 1958, Allied entered into a business transaction with Emanuel Adelman. One part of the transaction was a sale by Allied of its rights to certain trademarks and trade names and a grant to Adelman of a nonexclusive right to use certain formulae in producing the products using these trademarks and trade names. This transaction was evidenced by a bill of sale.

A simultaneous part of the transaction called for Allied to manufacture the food sauces to be sold under these trademarks and trade names with Allied supplying and Adelman purchasing his entire requirements of such food sauces for a ten-year period. This transaction was embodied in an agreement ("the manufacturing agreement") between the parties which contained the following arbitration clause:

"12. 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, and judgment upon the award rendered may be entered in any Court having jurisdiction thereof."

Another paragraph of the manufacturing agreement tied together the provisions of the bill of sale with the manufacturing agreement as "the entire agreement of the parties." This provision stated:

"15. ENTIRE AGREEMENT. This instrument and the bill of sale from ALLIED to ADELMAN executed and delivered simultaneously herewith contains the entire agreement of the parties. It may not be modified or discharged orally. This agreement shall be construed against neither party. The paragraph headings are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this agreement, nor in any way affect this agreement."

On the same day, Adelman also entered into an employment agreement ("the employment agreement") with Ross, hiring Ross as a consultant for ten years to assist in the manufacture and promotion of the sauces to be sold by Adelman at a compensation set forth in the employment agreement. Part of Ross' compensation was a percentage on all net sales above a minimum gross on sales of products under the trade names and trademarks transferred. The employment agreement contained an arbitration clause identical to the clause in the manufacturing agreement.

On December 1, 1958, Adelman assigned all his rights under the bill of sale, the manufacturing agreement and the employment agreement to plaintiff corporation of which he is president. Plaintiff assumed in writing and agreed to perform all the terms and conditions of these instruments and agreements. Thereafter, plaintiff and defendants apparently operated under these instruments and agreements for almost three years. At that point, some serious differences arose between the parties. On September 25, 1961, defendants commenced arbitration proceedings against plaintiff. On October 2, 1961, plaintiff began its action in this Court against defendants for trademark infringement and unfair competition. Defendants thereafter brought their motion for a stay and to compel arbitration.

Plaintiff argues in opposition to defendants' motion that: (1) it was never intended that issues arising out of the sale of defendants' trademarks and trade names would be the subject of arbitration; (2) one of the trademarks which forms the basis of plaintiff's action was not the subject of the 1958 transactions and, therefore, cannot be covered by an arbitration clause contained in the agreements made at that time; and (3) certain of the relief sought by plaintiff cannot be obtained in an arbitration proceeding.

Plaintiff's first contention regarding the intention of the parties appears to contain two bases. First, plaintiff argues that the transaction evidenced by the bill of sale was completed by the payment of the consideration for the trademarks and trade names, so that there was nothing executory in nature which the parties could regard as a possible subject of future arbitration. This contention, however, is not borne out by the terms of the bill of sale or the contemporaneous agreements. The bill of sale clearly contemplates executory obligations and rights in both parties and the manufacturing agreement refers to the bill of sale and states that the two instruments together contain the entire agreement of the parties. Since the manufacturing agreement contains an arbitration clause, it is clear that the parties contemplated that controversies under either the bill of sale or the manufacturing agreement could be the subject of arbitration.

However, plaintiff's second basis for its argument regarding the intention of the parties poses more difficulty. Its contention here is that the issues involved in its suit for trademark infringement and unfair competition "are much broader and of different character than those contemplated by the parties for submission to arbitration." Plaintiff's memorandum points out that the complaint "sounds in tort and seeks to enjoin unfair competition by defendants as well as relief stemming from the infringement by defendants of plaintiff's trademarks. The contracts, on the other hand, cover a simple commercial transaction." Simply stated, it is plaintiff's argument that the parties did not agree to arbitrate "tortious or perhaps even criminal acts committed by the defendants."

Before dealing with this contention, it should be noted that no question has been raised as to whether in this proceeding under Title 9, U.S.C. § 3, the contract relied upon as requiring arbitration is one evidencing a transaction involving commerce. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 409 (2 Cir. 1959); Metro Industrial Painting Corp. v. Terminal Const. Co., 287 F.2d 382, 384 (2 Cir., cert. denied 368 U.S. 817, 82 S.Ct. 31, 7 L.Ed. 2d 24 (1961). This requirement, however, is apparently met since it appears from the papers that plaintiff's principal place of business is in New York, while Allied's principal place of business as a manufacturer is in New Jersey, so that presumably the products were shipped interstate, that plaintiff's products are sold in interstate commerce and that defendants' products allegedly bearing the same names are also sold in interstate commerce.

Defendants have urged that in determining the issues presented, federal law is controlling. Here, too, plaintiff has not raised an issue and it appears that, under the Lawrence case, the applicable law is federal. Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80 at footnote 5 (2 Cir. 1961).

On the merits of plaintiff's argument, there are a number of considerations suggesting that the disputes now existing between the parties are completely arbitrable. First, there is what the Court of Appeals for this Circuit referred to in the Metro Industrial case as (287 F.2d at 385):

"* * * the federal policy to construe liberally arbitration clauses, to find that they cover disputes reasonably contemplated by this language, and to resolve doubts in favor of arbitration."

Similarly, the broad nature of the standard American Arbitration Association clause used in this case was referred to by the Court of Appeals in In re Kinoshita & Co., 287 F.2d 951, 953 (2 Cir. 1961).

Second, the sale of the trademarks and trade names by defendants was clearly part of a single business transaction that contemplated a continuing relationship which might lead to disputes. The manufacturing agreement incorporates the instrument evidencing that sale into one agreement of the parties. That agreement did have a broad arbitration clause. The present disputes involve various aspects of the entire business transaction. Thus, defendants' claims in the arbitration proceedings are for $75,000 for breach of the employment agreement and $159,299.68 for breach of the manufacturing agreement, including the value of goods sold and delivered. Plaintiff's claims in this action are that defendants have been using the trademarks previously sold to plaintiff since November 1958. If true, this would be a clear breach of the various agreements between the parties and, depending on the facts, would appear to be at least a partial defense to defendants' claims in the arbitration for breach of contract by plaintiff, as well as a possible counterclaim.

Third, the fact that plaintiff's complaint "sounds in tort" would not appear to be controlling. Thus, the complaint in the Lawrence case apparently "sounded" in tort.¹ The plaintiff in that case sought damages for allegedly fraudulent misrepresentations and characterized its action in the District Court "as an action in tort not contract"² and in the Court of Appeals as "an action in deceit based on the fraud of defendant."³ Nevertheless, the Court of Appeals reversed the lower court and granted a stay of proceedings on plaintiff's complaint, pending arbitration pursuant to 9 U.S.C. § 3. In the course of its opinion, the Court of Appeals said (271 F.2d at 410):

"It would seem to be beyond dispute that the parties

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