Two Sisters, Inc. v. Gosch & Co.

• Decision Date: 31 August 1976
• Citation: 370 A.2d 1020,171 Conn. 493
• Court: Connecticut Supreme Court
• Parties: TWO SISTERS, INC., et al. v. GOSCH AND COMPANY.

Page 1020

370 A.2d 1020

171 Conn. 493

TWO SISTERS, INC., et al. v. GOSCH AND COMPANY.

Supreme Court of Connecticut.

Aug. 31, 1976.

John J. Graubard, Stamford, for appellants (plaintiffs).

Jay H. Sandak, Stamford, with whom, on the brief, was Robert A. Epstein, Stamford, for appellee (defendant).

Before HOUSE, C.J., and COTTER, LOISELLE, BOGDANSKI and LONGO, JJ.

COTTER, Associate Justice.

The plaintiffs appeal from a judgment (1) denying their application to vacate an arbitration award brought under § 52-418 of the General Statutes, and (2) the granting of the defendant's application to confirm that award. The principal issues raised by the assignment of errors which we must resolve are whether the plaintiffs were required to arbitrate a claim of fraud affecting the execution of their contract, and whether the trial court erred in concluding that the arbitrator was innocent of misconduct in refusing to postpone the arbitration hearing because an action seeking a temporary and permanent injunction and rescission of the contract was pending in the Connecticut Superior Court even though no order restraining the holding of that arbitration hearing had been entered at that time.

I

The finding, which is not subject to material correction, discloses the following facts: On December 8, 1972, the parties entered into a contract whereby the defendant agreed to install and maintain cigarette vending machines on the plaintiff's premises in New Canaan.

On February 20, 1974, after a dispute arose, the defendant involed the arbitration clause and served upon the plaintiffs a demand for arbitration in accordance with the rules of the American Arbitration Association (hereinafter referred to as 'the Association'). On March 6, 1974, the plaintiffs' counsel wrote the defendant's counsel objecting to holding such proceedings. Thereafter, the parties then attempted to resolve the matter by negotiations. When attempts to settle the dispute failed, the defendant forwarded its demand for arbitration to the Association on June 3, 1974. The plaintiffs were given notice of the filing the next day and were allowed until June 17, 1974, to reply.

On July 16, 1974, during the course of correspondence between the Association and the parties, the plaintiffs' counsel informed the Association that his clients contested their obligation to arbitrate the claim on the ground that the contract was induced by fraud and stated: 'Should the American Arbitration Association wish to proceed . . ., we will see to it that appropriate action is taken to have the proceedings enjoined.' On July 22, 1974, the defendant denied the claim of fraud and requested the Association to proceed toward arbitration. The Association reviewed the parties' contentions and notified them on August 21, 1974, that it had determined to proceed with the arbitration.

On October 4, 1974, the parties were given notice of the arbitration hearing to be held in New York City on November 7, 1974.

On October 15, 1974, the plaintiffs signed a writ, summons and complaint in the Superior Court seeking rescission of the contract and a temporary and permanent injunction against the maintenance of the arbitration hearing. ¹

The plaintiffs notified the defendant and the Association of this pending action and requested a postponement of the November 7 hearing. On October 25, 1974, the Association acknowledged receipt of the plaintiffs' request, sought comment from the defendant's counsel, and determined on October 30 that the November 7 hearing should proceed as scheduled. The plaintiffs did not appear or participate in this hearing, and on November 11, 1974, a written award was rendered against them. After a hearing, the Superior Court denied the application to vacate and confirmed the award in favor of the defendant in all respects.

II

The plaintiffs argue that since they have raised the issue of fraud in the obtaining of the contract, the question of its validity was for the Superior Court to determine before arbitration could proceed.

'The language of the contract determines whether the arbitrability of a dispute is a question for the court or for the arbitrators. The parties are free to set the limits of the arbitrators' authority, but, once having agreed upon those limits, they cannot, except by mutual consent, vary them. Connecticut Union of Telephone Workers v. Southern New England Telephone Co., 148 Conn. 192, 197, 169 A.2d 646.' A. Sangivanni & Sons v. F.M. Floryan & Co., 158 Conn. 467, 471, 262 A.2d 159, 162; 5 Am.Jur.2d, Arbitration and Award, § 14.

The contract contained a broadly worded arbitration clause, providing for arbitration of all disputes arising out of the provisions of the contract, the breach of the contract, the making or validity of the contract, or the circumstances of the execution of the contract. ² This arbitration clause clearly reflects the parties' general desire to settle any disputes relating to their contract speedily and finally through arbitration, including claims of fraudulent inducement. See A. Sangivanni & Sons, supra, 473, 262 A.2d 159.

Since the parties have selected their tribunal, the plaintiffs' claim of fraud must be settled there unless General Statutes § 52-408 permits the plaintiffs to rescind that selection. ³ While the plaintiffs' signing of this contract 'in blank' may have led the plaintiffs to enter unwillingly into their undertaking with the defendant, examination of the contract, particularly the arbitration clause, fails to disclose any basis for the plaintiffs to claim that they were fraudulently induced to agree to arbitrate any disputes under this contract. The plaintiffs do not deny that they executed the contract, as was claimed in Matter of Princeton Rayon Corporation v. Gayley Mill Corporation, 309 N.Y. 13, 127 N.E.2d 729, nor do they assert that the arbitration clause was an essential part of the alleged fraud, as claimed in Moseley v. Electronic Facilities, 374 U.S. 167, 83 S.Ct. 1815, 10 L.Ed.2d 818. Cf. Frankle v. Petzold, Ltd. Fur Dyeing Corporation, 180 Misc. 88, 40 N.Y.S.2d 566; 6 C.J.S. Arbitration § 42, n. 61. Since the plaintiffs failed to allege fraud which materially affected their decision to resolve any disputes under this contract through arbitration, there was no error in the court's conclusion that the plaintiffs' claim of fraudulent inducement was for the arbitrator. See Prima Paint Corporation v. Flood & Conklin, 388 U.S. 395, 402-404, 87 S.Ct. 1801, 18 L.Ed.2d 1270; Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir.), cert. dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37; Matter v. Weinrott v. Carp, 32 N.Y.2d 190, 197-98, 344 N.Y.S.2d 848, 298 N.E.2d 42; 6 C.J.S. Arbitration § 32; cf. Atcas v. Credit Clearing Corporation of America, 292 Minn. 334, 197 N.W.2d 448; Security Construction Co. v. Maietta, 25 Md.App. 303, 334 A.2d 133; note, 91 A.L.R.2d 936, and Later Case Service.

III

The plaintiffs' remaining claim is that the court erred in its ruling that the arbitrator was not guilty of misconduct in declining to postpone the November 7 arbitration hearing pending resolution of the plaintiffs' action for rescission of the contract and injunctive relief against the hearing.

' Every reasonable presumption and intendment will be made in favor of (an arbitration) award and of the arbitrators' acts and proceedings. Hence, the burden rests on the party attacking the award to produce evidence sufficient to invalidate or avoid it. 6 C.J.S. Arbitration and Award § 130, p. 281; Sturges, Commercial Arbitrations and Awards, p. 549.' Von Langendorff v. Riordan, 147...