Stateside Machinery Co., Ltd. v. Alperin

• Decision Date: 15 January 1979
• Docket Number: No. 78-1263,78-1263
• Citation: 591 F.2d 234
• Parties: STATESIDE MACHINERY COMPANY, LTD., a corporation organized under the laws of Great Britain and Armin Speigel, Appellants, v. Joel M. ALPERIN, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 234

591 F.2d 234

STATESIDE MACHINERY COMPANY, LTD., a corporation organized

under the laws of Great Britain and Armin Speigel, Appellants, v. Joel M. ALPERIN, Appellee.

No. 78-1263.

United States Court of Appeals, Third Circuit.

Argued Sept. 28, 1978.

Decided Jan. 15, 1979.

Steven E. Pollan, Pollan & Pollan, Passaic, N. J., for appellants.

Paul A. Barrett, Nogi, O'Malley & Harris, P. C., Scranton, Pa., for appellee.

Before SEITZ, Chief Judge, HUNTER, Circuit Judge, and LACEY, ^* District Judge.

OPINION OF THE COURT

JAMES HUNTER, III, Circuit Judge:

This appeal represents perhaps the final skirmish in an ongoing conflict between Stateside Machinery Co. (Stateside) and Joel Alperin over the arbitrability of a dispute between the two parties. In Stateside Machinery Co. v. Alperin, 526 F.2d 480 (3d Cir. 1975), we upheld a district court order denying Stateside's motion for a preliminary injunction against arbitration proceedings initiated by Alperin. ¹ Id. at 483-84. After our decision, the arbitrators awarded Alperin damages against both Stateside and its president, Armin Speigel. In this appeal, we are asked to reverse a district court order confirming the arbitration award against Stateside and Speigel on the theory that the arbitration clause of a contract among the parties did not contemplate arbitration of the particular dispute in question. In the alternative, we are requested to hold that Speigel was never properly served with the petition to confirm the award and, thus, to reverse the lower court's order of confirmation as to him.

FACTS

The procedural and factual history leading to this appeal is convoluted. On September 8, 1973, Stateside, a corporation organized under the laws of Great Britain, entered into a contract with Alperin, a Pennsylvania citizen, for the purchase by Stateside of all foreign patent rights to a machine known as a "Bad Loop Detector" (Detector). The Detector, which was invented by Alperin, was apparently designed to cut belt loops to the proper size and to discard imperfectly cut loops automatically. Stateside's president, Speigel, was explicitly made a party to the contract. ²

The contract provided that the purchase price for the foreign patent rights would be $50,000, less $2,500 that had previously been paid by Stateside to Alperin. ³ Approximately $7,500 was to be paid on September 8, 1973, the date the contract was signed. The rest was to be paid in three equal installments due in March and September, 1974 and March, 1975.

Shortly after the contract was signed, Stateside evidently became dissatisfied with the Detector's performance and stopped payment on the $7,500 check, on the theory that Alperin's representations about the Detector were fraudulent. Alperin, considering This agreement here will be considered binding notwithstanding other agreements And in a case of any unresolved issues will be subject to binding arbitration by the American Board of Arbitration (emphasis added).

Stateside to be in breach of contract for stopping payment, filed on April 30, 1974 a demand for binding arbitration with the American Board of Arbitration, pursuant to a provision in the contract which stated:

At approximately the same time that Alperin sought arbitration for Stateside's alleged breach of contract, he sued Stateside in Great Britain's High Court of Justice, Queen's Bench Division, for non-payment of the $7,500 check. A judgment in Alperin's favor was obtained in the British action on July 29, 1974. The British court agreed to postpone entering the judgment until September 10, 1974, evidently because Stateside persuaded it that the dispute was to be arbitrated in the United States and that the result of the arbitration should govern whether Alperin was entitled to the $7,500. See 526 F.2d at 481.

No steps were taken toward completing the arbitration by September 10 and judgment was ultimately entered on that date. Subsequently, however, the arbitration proceeding was scheduled for December 11, 1974. Until as late as October, 1974 Stateside attempted to have the British judgment stayed or vacated because of the pending arbitration. But, despite its seeming desire to have the dispute arbitrated, Stateside brought suit against Alperin in the Middle District of Pennsylvania on November 4, 1974. Speigel was not a party to this suit. Stateside alleged that Alperin had fraudulently induced it into entering the contract, asked for a return of the $2,500 it had advanced to Alperin, and requested a judgment declaring that it was not under the obligation to pay to Alperin any additional money because the contract was void on account of fraud.

While Stateside's suit was pending, it sought to enjoin the arbitration proceedings initiated by Alperin. The district court refused to issue a temporary restraining order to halt the arbitration, which took place in December, 1974 as planned. On January 21, 1975, the district court issued a memorandum opinion and order, in which it denied Stateside's attempt to obtain a preliminary injunction. Stateside then appealed the district court's order. The arbitration panel had not yet announced its decision when we dismissed Stateside's appeal on procedural grounds. ⁴ Stateside Machinery Co. v. Alperin, 526 F.2d 480 (3d Cir. 1975). Subsequently, the arbitration panel ruled in Alperin's favor. The award was set at $92,378.58. Both Stateside and Speigel were held liable for the amount of the award.

After the arbitrator's decision was announced, Alperin filed documents in the district court entitled "Petition to Confirm Award" and "Notice of Application for Confirmation of Award." These matters were consolidated by order of the district court and will be referred to collectively as the petition. Service of the petition on both Stateside and Speigel was made by sending a copy of the petition to Stateside's attorney. Stateside and Speigel moved to dismiss or modify the petition, alleging, Inter alia, that service of the petition was deficient as to both parties and that the controversy was not arbitrable because the arbitration clause did not cover claims of fraudulent inducement to enter the contract. The district court ruled on July 30, 1976 that service to Stateside through its attorney was proper but that service to Speigel through Stateside's attorney was not. ⁵ The court concluded that service instead In order to comply with the district court's ruling regarding service on Speigel and with the Pennsylvania long-arm statute, Alperin's counsel directed the United States marshal to:

                should be made directly to Speigel in accordance with the Pennsylvania "long-arm" statute.  6  Because the court considered that it lacked in personam jurisdiction over Speigel, it deferred consideration of the merits of Speigel's and Stateside's contention that the dispute was not arbitrable
                

Send by registered or certified mail, postage prepaid, a true and attested copy of within Petition to Confirm Award, with fee required by law, to Department of State, Harrisburg, Pennsylvania, as service in accordance with the provisions of the Pennsylvania Long-Arm Statute, 42 P.S. 8304 et seq. and send to defendant, Armin Speigel, by registered or certified mail, postage prepaid, a true and attested copy thereof, with endorsement thereon upon the Department of State, addressed to Mr. Speigel at his last known address, to wit, 23 Goodge St., London W.1, England.

The United States marshal's Service Process Receipt and Return Document (Document) indicates that the marshal served the Secretary of the Commonwealth of Pennsylvania with the petition by certified and registered mail and served Speigel by registered mail. The Secretary accepted service on August 20, 1976. The Document indicates that "(s)ervice upon Armin Speigel (was) returned unclaimed."

Subsequently, the district court ⁷ heard argument during June and July of 1977. On December 23, 1977 the court held that service to Speigel was proper under the Pennsylvania long-arm statute, and that the dispute between the parties was governed by the contract's arbitration clause.

The court then ordered that judgment be entered against Stateside and Speigel in the amount of the arbitration award. Stateside and Speigel brought this appeal. We affirm.

DISCUSSION

On appeal, Stateside and Speigel raise two distinct issues. First, they contend that the arbitration clause of the contract, which states that the contract "in a case of any unresolved issues will be subject to binding arbitration", did not contemplate arbitration of claims of fraud in the inducement of the entire contract. Since in determining whether appellants breached the contract the arbitration panel was required to decide whether Alperin fraudulently induced them into entering the contract, appellants insist that the entire controversy was outside of the panel's jurisdiction. Second, they claim that even if the arbitration provision did govern the dispute, Speigel was not properly served with Alperin's petition under 42 Pa.Cons.Stat.Ann. § 8307. ⁸

A. Arbitrability

Our inquiry into the arbitrability of a dispute involving fraud in the inducement of an entire contract begins with two cases, Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission, 387 F.2d 768 (3d Cir. 1967). Prima Paint involved a petition by a defendant in a rescission of contract suit brought in district court to stay the district court action pending arbitration of the dispute between the parties. The plaintiff contended that the suit should proceed in district court on the ground that the controversy whether defendant had fraudulently induced it to enter the contract was not arbitrable. The Supreme Court, however, rejected the plaintiff's assertion. The Court noted that plaintiff did not claim that it was fraudulently induced into agreeing to the arbitration clause...