Schachter v. Lester Witte & Co.

• Decision Date: 11 May 1976
• Citation: 52 A.D.2d 121,383 N.Y.S.2d 316
• Parties: Application of Alan A. SCHACHTER and Daniel M. Horan, Petitioners-Respondents, For a Judgment Restraining Arbitration Attempted to be Had by LESTER WITTE & COMPANY, Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 316

383 N.Y.S.2d 316

52 A.D.2d 121

Application of Alan A. SCHACHTER and Daniel M. Horan Petitioners-Respondents, For a Judgment Restraining Arbitration Attempted to be Had by LESTER WITTE & COMPANY Respondent-Appellant.

Supreme Court, Appellate Division, First Department.

May 11, 1976.

Arnold Buffum Lovell, New York City, of counsel (Arnold Chase, Edward Matthew Kabak and Richard H. Altabef, New York City, with him on the brief, Botein, Hays, Sklar & Herzberg, New York City, attys.), for respondent-appellant.

Franz S. Leichter, New York City, of counsel (Stephen P. H. Rachlis, New York City, with him on the brief, Wachtell, Manheim & Grouf, New York City, attys.), for petitioners-respondents.

Before STEVENS, P.J., and MARKEWICH, KUPFERMAN, LUPIANO and NUNEZ, JJ.

NUNEZ, Justice.

Petitioners-respondents Alan A. Schachter and Daniel M. Horan ('Schachter and Horan') were partners in respondent-appellant Lester Witte & Company, an accounting firm ('Witte', 'the firm'). Following termination of their partnership agreement containing an arbitration clause, Witte instituted an arbitration proceeding against Schachter and Horan seeking recovery for alleged violations of the partnership agreement. Schachter and Horan petitioned for a stay of arbitration pending a trial as to whether the agreement containing the arbitration clause is void for fraud, duress, lack of mutuality or in restraint of trade and, therefore, in violation of public policy. Special Term held that the arbitration clause is not the kind of 'broad' arbitration provision involved in Matter of Weinrott (Carp), 32 N.Y.2d 190, 344 N.Y.S.2d 848, 298 N.E.2d 42, and that therefore the issues relating to the inception of the agreement and its validity are to be determined by the court. We disagree. The clause reads:

'21. Arbitration

'If any disagreement arises, under this agreement, the controversy shall be settled by arbitration. . . .'

The clause in Weinrott, supra (p. 196, 344 N.Y.S.2d p. 853, 298 N.E.2d p. 45) recites:

'All disputes, controversies or claims arising hereunder, the interpretation of any of the provisions or the performance called for thereunder shall be settled by arbitration . . ..'

The words 'disputes', 'controversies' and 'claims' are synonymous with the word 'disagreement'. See Webster's Third New International Dictionary. And in the context employed, 'hereunder' is synonymous with 'under this agreement'. In Nationwide General Insurance Co. v. Investors Insurance Co., 37 N.Y.2d 91, at page 95, 371 N.Y.S.2d 463, at page 466, 332 N.E.2d 333, at page 335 (June 1975) the Court of Appeals stated: 'More typically the parties adopt a 'broad' arbitration clause agreeing generally to submit to arbitration all disputes arising out of the contract, or any dispute relating to the meaning and interpretation of the underlying agreement.' As noted, here the parties agreed to arbitration '(i)f any disagreement arises under this agreement'--language almost identical with the phrase 'all disputes arising out of the contract' quoted in Nationwide, supra. We conclude, therefore, that the within clause is 'broad' within the holdings of Weinrott and Nationwide, supra and, consequently, and issue of fraud in the inducement is to be determined by the arbitrator. The court is only required to resolve the claim that the arbitration clause itself (as differentiated from the validity of the underlying agreement) was fraudulently induced. 8 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 7501.25, 1975 Supp. at 75.26.

Likewise, the question whether the agreement is void for lack of mutuality is for the arbitrator, not the court. Matter of DeLaurentiis (Cinematografica), 9 N.Y.2d 503, 509, 215 N.Y.S.2d 60, 63, 174 N.E.2d 736, 738; Matter of Weinrott (Carp), supra; Matter of Exercycle Corp. (Maratta), 9 N.Y.2d 329, 214 N.Y.S.2d 353, 174 N.E.2d 463 (1961); 8 Weinstein-Korn-Miller, N.Y. Civil Practice, 7501.23, p. 75--23.3.5. As to the claim of duress in the inducement of a contract, we have most recently held that we perceive little, if any, difference between fraud and duress and that duress should be treated the same as a claim of fraud and is to be decided by the arbitrator. Candid Productions, Inc. v. SMF Media Service Corp., 51 A.D.2d 943, 381 N.Y.S.2d 280 (1976). 'Fraud, undue influence, and duress would seem all to be of the same species' (Encyclopedi 7 N.Y. Contracts Law, section 1901. See also Restatement of Contracts, sec. 499). Accordingly, the issues of fraud, duress and lack of mutuality are, in view of the broad arbitration clause, for the arbitrator.

Remaining is the claim that the partnership agreement's provisions constitute an illegal restraint of trade. And while the enforcement of our State's antitrust policy cannot be left to commercial arbitration (Matter of Aimcee Wholesale Corp., 21 N.Y.2d 621, 289 N.Y.S.2d 968, 237 N.E.2d 223), it is incumbent upon a party to demonstrate a Prima facie showing that the restrictions are unreasonable under all the circumstances when the agreement, on its face, cannot be held as a matter of law to be violative of the public policy (General Business Law, § 340) of this State. Matter of Riccardi (Modern Linen Supply), 45 A.D.2d 191, 356 N.Y.S.2d 872, Aff'd 36 N.Y.2d 945, 373 N.Y.S.2d 551, 335 N.E.2d 856 (1975). We examine, therefore, the allegedly offending provisions. Schachter and Horan were members of a national accounting firm. Schachter, upon becoming a partner brought several accounts to the firm; Horan did not. Accordingly, each was to be compensated differently. Schachter was to receive both 'income points,' reflecting services rendered, and 'equity points,' reflecting the value of the clientele he contributed to the firm. Horan was to receive only 'income points.' Upon withdrawal or removal from the firm, a partner is entitled to receive five annual payments in settlement of his former interest in the firm. And those payments reflect, if appropriate, 'equity points'.

The agreement further provides, in the case of a withdrawing 'equity point' partner, that if he renders professional services to any of the firm's clients, the annual payments due him shall be reduced according to a formula. And if the final computation exceeds the payments...