Sibley v. Tandy Corp.

Decision Date03 December 1976
Docket NumberNo. 75-1243,75-1243
Citation543 F.2d 540
PartiesHarper SIBLEY, Jr., Plaintiff-Appellant, Cross Appellee, v. TANDY CORPORATION et al., Defendants, Tandy Corporation, Defendant-Appellee, Cross Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Robert L. Blumenthal, Rod Phelan, Earl F. Hale, Jr., Dallas, Tex., for plaintiff-appellant, cross appellee.

Warren W. Shipman, III, Donald H. Ray, Charles L. Stephens, Cecil E. Munn, Sloan B. Blair, Fort Worth, Tex., for Tandy Corp.

R. F. Snakard, Fort Worth, Tex., for Ft. Worth Nat'l Bank.

Appeals from the United States District Court for the Northern District of Texas.

Before GEWIN, GODBOLD and SIMPSON, Circuit Judges.

GODBOLD, Circuit Judge:

This case originates from a corporate merger agreement containing a provision for arbitration of differences arising from the agreement. Differences arose between the parties to the agreement, and one party sued asserting breach of contract claims, federal and state securities law claims, aad common law fraud claims. We hold that the district court erred in refusing to require arbitration of the contract claims and to stay the securities and fraud claims pending arbitration.

The merger agreement was between Tandy Corporation and P. J. Parker, Inc., a holding company. Parker's primary asset was ownership of Hickok Manufacturing Company. Hickok and Parker were experiencing serious financial difficulties. The management of Parker began negotiating with the Tandy management with the object of merging Parker into a specially-formed Tandy subsidiary. After several months of intense negotiations, Tandy and Parker entered into a written agreement calling for a statutory merger between Parker and a newly created Tandy subsidiary.

Parker shareholders were to be paid in Tandy stock, two thirds upon surrender of the Parker shares and the remaining third to be held by Fort Worth National Bank as escrow agent pending verification of Parker's representation of its net worth. Tandy was to obtain an audit by its accountants to confirm the Parker net worth. The audit and all other accounting matters were to "be handled in accordance with generally accepted accounting principles applied on a basis consistent with those applied with respect to the certified consolidated financial statements of Parker as of December 31, 1970." The agreement provided for arbitration of all disputes arising from the agreement.

According to the audit by Tandy's accountants, Parker's net worth was substantially less than represented. The primary reasons for the difference in figures were: (a) a write-down of $331,492 in the value of Hickok's inventory; (b) a charge of $93,721 against Parker's net worth, incurred as a result of Tandy's cancellation of a computer software contract held by Parker; (c) the inclusion of a liability of $486,016 for the cost of a single premium life and medical insurance policy to cover insurance benefits allegedly owed by Hickok to retired employees; and (d) the inclusion of a liability of $65,000 for accrued management vacation pay. After receiving the audit Tandy ordered the bank to impound the escrowed stock.

Harper Sibley, the person designated in the agreement as the representative of Parker shareholders, brought suit against Tandy. (For convenience we refer to the plaintiff as "Parker.") The original complaint was in six counts, characterized by the district court in this manner Plaintiff's complaint may be analysed as follows: (1) Count IV alleges a violation of rule 10b-5 of section 10b of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b) (1970); (2) Counts I, II, III, V and VI allege claims grounded in the contract of merger relating to defaults on the part of defendants or reformation of the merger agreement. 1

By a timely motion Tandy moved to have the contract claims submitted to arbitration and to have the federal securities law claims stayed pending arbitration. The parties and the district judge recognized that under § 29 of the Act, 15 U.S.C. § 78cc (1970), Count IV was not subject to arbitration. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). The court declined, however, to sever the contract counts and to submit them to arbitration, on the ground that they were so intertwined with the securities law claim that submitting them to arbitration would violate § 78cc, saying:

This is especially true when one considers that Counts I, II, III, V and VI involve intricate questions of law and findings of fact that when rendered, would likely resolve the issues presented in Count IV.

Trial was held in October 1974 and consumed 14 days, 22 witnesses and more than 100 documentary exhibits. The jury verdict consisted of answers to special interrogatories consisting of 34 specific questions. 2 The bulk of the interrogatories related to matters of accounting, i. e., the application of "generally accepted accounting procedures" and the interpretation of corporate financial statements, with particular reference to the four areas of primary controversy valuation of inventory and inclusion as liabilities of a charge for cancellation of a computer software contract, life insurance premiums, and vacation pay. These were the areas from which arose the differences in valuation of Parker's net worth as represented by it and as reflected by Tandy's audit. Several interrogatories related to pre-agreement representations made by Tandy concerning accounting principles and the treatment of the four specific accounting items in particular controversy.

The court entered judgment awarding $463,853.93 damages to Parker plus delivery of the escrowed shares. Parker appealed on the issue of damages. Tandy cross-appealed on the issues of liability and the refusal to submit to arbitration. We hold that the court erred when it denied Tandy's motion to submit the contract claims to arbitration and refused to stay the securities fraud claims pending the outcome of that arbitration. We, therefore, reach neither the issue of Tandy's liability nor the issue of damages.

We find no merit in plaintiff's contention that Tandy waived its right to arbitration. The burden on one seeking to prove a waiver of arbitration is a heavy one. General Guaranty Ins. Co. v. New Orleans General Agency, Inc., 427 F.2d 924 (CA5, 1970); Hilti, Inc. v. Oldach, 392 F.2d 368 (CA1, 1968). The plaintiff has failed to carry this burden. Tandy filed its motion to stay the very day it filed its answer to Parker's complaint, and it took no actions which could be viewed as being inconsistent with its right of arbitration. Tandy did not waive its right by failing to press an interlocutory appeal of the district judge's denial of its motion to stay arbitration. General Guaranty, supra.

The present case squarely raises the problem of what a court should do where arbitrable claims are joined with claims not subject to arbitration. On the one hand, Section Two of the United States Arbitration Act, 9 U.S.C. § 2, makes arbitration clauses in contracts involving commerce "valid, irrevocable and enforceable." Parker's contract claims against Tandy fall within the ambit of the arbitration clause of their agreement, and are thus arbitrable. Their subject matter is peculiarly adapted to arbitration. On the other hand, claims under the Federal Securities Acts, such as Parker's 10b-5 claim, are generally not subject to arbitration under a preexisting arbitration clause. Wilko v. Swan, supra ; Newman v. Shearson, Hammill & Co., Inc., 383 F.Supp. 265 (W.D.Tex.1974). 3

Here, the district judge ordered all issues tried on the ground that the arbitrable issues were inextricably intertwined with the federally cognizable 10b-5 issues. We agree with the district judge that when it is impractical if not impossible to separate out non-arbitrable federal securities law claims from arbitrable contract claims, a court should deny arbitration in order to preserve its exclusive jurisdiction over the federal securities act claims. Shapiro v. Jaslow, 320 F.Supp. 598 (S.D.N.Y.1970). However, in this case, the claims were not "intertwined" in the legal sense. Instead we view the 10b-5 claim as being "dependent" upon the contract claims. The difference is subtle yet significant. A comparison of the claims in Shapiro v. Jaslow, supra, with Parker's claims illustrates the difference. In Shapiro, one of the defendants alleged in a cross-complaint that one of his codefendants committed acts giving rise to rights under both the common law (arbitrable) and under the federal securities law (non-arbitrable). The two claims in Shapiro were not factually severable. An arbitrator making a decision on the common law claims would have been impelled to review the same facts needed to establish the plaintiff's securities law claim. 4

Parker's suit against Tandy is a horse of a...

To continue reading

Request your trial
113 cases
  • Hartford Fin. Systems v. Fla. Software Serv., Inc.
    • United States
    • U.S. District Court — District of Maine
    • November 2, 1982
    ...quoting Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 165, 81 L.Ed. 153 (1936). See also Sibley v. Tandy Corp., 543 F.2d 540, 544 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); Janmort Leasing Inc. v. Econo-Car International, Inc., 475 F.Supp......
  • Jacobson v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
    • United States
    • U.S. Court of Appeals — Third Circuit
    • April 14, 1986
    ...F.2d 823 (Dec. 78); Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 558 F.2d 831, 833-35 (7th Cir.1977); Sibley v. Tandy Corp., 543 F.2d 540, 543 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 53......
  • Preston v. Kruezer
    • United States
    • U.S. District Court — Northern District of Illinois
    • August 1, 1986
    ...& Smith, 693 F.2d 1023, 1025 (11th Cir.1982); Delancie v. Birr, Wilson & Co., 648 F.2d 1255, 1257-59 (9th Cir.1981); Sibley v. Tandy, 543 F.2d 540, 543 & n. 3 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); Ayres v. Merrill Lynch, Pierce, Fenner & Smith, 538 F......
  • Shotto v. Laub
    • United States
    • U.S. District Court — District of Maryland
    • April 7, 1986
    ...v. Perot, 548 F.2d 432, 437 (2d Cir.), cert. denied, 432 U.S. 910, 97 S.Ct. 2959, 53 L.Ed.2d 1084 (1977); Sibley v. Tandy Corp., 543 F.2d 540, 543 and n. 3 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); Ayres v. Merrill Lynch, Pierce, Fenner & Smith, 538 F.2d......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT