In re the Arbitration between Teschner & Livingston

Botein, J. Petitioner, an individual engaged in a small business, whose only employee was a shipping clerk, entered into a collective bargaining agreement with respondent union containing a sweeping arbitration clause, as well as the following provision: “ The Employer shall have the absolute right to go out of business at any time during the term of this agreement and such right shall not be questioned by the Union. Upon such event, all employees employed more than six months, shall receive two weeks pay.” Two months later, allegedly because of poor business conditions, petitioner surrendered his store lease, disposed of his stock, discharged his one employee and gave him three weeks’ severance pay. The union contends he really has not gone out of business but has continued or resumed business through the device of a newly formed corporation. It asserts, among other things, that petitioner is not, as he claims, an employee of the new corporation but dominates it; and that the corporation deals with the same suppliers and customers as did petitioner, has the same stock in trade, machines and office equipment. The agreement provides for arbitration of “ all complaints, controversies, disputes, and grievances arising between the Employer and the Union concerning the interpretation, operation, application or performance of the terms of this agreement, or any complaint, controversy, dispute or grievance involving a claimed breach of any of the terms or conditions of this agreement ”. The union has served a demand for arbitration of the “ Failure to employ Sol Schor, in violation of clause No. 5 of the said agreement.” The demand, at least on its face, therefore encompasses the submission to arbitration of the question as to whether petitioner has in fact gone out of business, as that circumstance bears directly on whether he has violated clause No. 5 in failing to continue the employment of Schor. It is, of course, not disputed that the parties entered into an agreement containing an arbitration clause. The only question is whether the contract is still operative as between the parties; and this question hinges on whether or not petitioner really went out of business, as contemplated in the above-quoted clause of the agreement. The issue is not whether petitioner had the [437] right to go out of business, a right he clearly enjoyed, but whether he did in fact go out of business. If the corporation was formed in furtherance of a scheme to avoid petitioner’s obligations under the contract, it could follow that the petitioner is still in business within the contemplation of the parties and that he should be held to the provisions of clause No. 5. In this respect the instant case can be distinguished from Matter of Kosoff (“ Jones ”) (276 App. Div. 621), relied on by petitioner, as there the petitioner employer was a corporation which had been legally dissolved; and irrespective of whether it had dissolved in good or had faith, it no longer survived to be accountable in arbitration proceedings under the contract. Furthermore, as Justice Callahan aptly said (p. 623): “ In this connection it may be noted that the present proceeding is not against an officer or stockholder, and that the employer’s business was the manufacture of knitted polo shirts for women and children, whereas the new business in which the president-stockholder of the employer corporation proposed to engage was the manufacture of woven sport shirts for the men’s trade.” In Matter of Shapiro (Rosenblatt) (282 App. Div. 245), also cited hy petitioner, there was a preliminary issue as to whether the petitioner partnership ‘ ‘ was, in fact and in law, dissolved ’ ’ (p. 247). In the instant case, however, there is no question but what the individual petitioner is very much alive. There cannot be, as in the Kosoff and Shapiro cases, any question of the survival of the party to the arbitration agreement. Nor does analysis of Matter of Binger (Thatcher) (279 App. Div. 650, affd. 304 N. Y. 627) and Matter of Minkin (Halperin) (279 App. Div. 226, affd. 304 N. Y. 617) give any comfort to petitioner. In the Binger case the court found on undisputed facts that the contract had been “ liquidated ” by a full and final accord and satisfaction agreement. In the Minkin case (p. 228) the court, again relying on those facts which for the purposes of its decision were undisputed, held that the issue submitted for arbitration was not a “ controversy or claim arising out of, nor does it have relation to,” the parties’ agreement. An element common to all of these cases relied upon by petitioner is that the contract under which arbitration was sought had been completely and incontrovertibly destroyed. In the afore-mentioned cases, therefore, no working issues of fact or law were presented for submission to the arbitrators. Here a sharply disputed issue exists as to whether the petitioner has gone out of business. The question as to whether the con [438] tract was operative on the date of the demand is on its face a bona fide dispute and not a claim “ so unconscionable or a defense so frivolous as to justify the court in refusing to order the parties to proceed to arbitration ” (Matter of Wenger & Co. v. Propper Silk Hosiery Mills, 239 N. Y. 199, 202). In Matter of Lipman (Haeuser Shellac Co.) (289 N. Y. 76) the party opposing arbitration contended that the contract of arbitration had been cancelled and terminated by agreement of the parties. Certainly a cancelled contract is as inoperative as a contract in which one of the parties has gone out of business pursuant to an express right given to him in the contract. There might even be some question as to whether a valid exercise of the right to go out of business worked something akin to a suspension, rather than a cancellation of the contract. Yet the Court of Appeals held that the parties were not entitled to a trial of that issue by jury, saying (p. 80): “ While it must ever be borne in mind that a court has no power to grant a motion to compel arbitration unless the subject-matter is comprised within the agreement to arbitrate made by the parties, yet when once an agreement to arbitrate has been made, such an agreement must be considered in the light of the broad language used in the above arbitration statute. (Civ. Prac. Act, § 1450.) This language seems to imply that all acts of the parties subsequent to the making of the contract which raise issues of fact or law, lie exclusively witMn the jurisdiction of the arbitrators. It is to be noted that, contrary to the contention of appellant, the statute only requires the contract to have been made and does not require that it shall continue to be in existence. The language of the agreement to arbitrate of course, must be sufficiently broad so as to permit of the application of the general principle that all issues subsequent to the making of the contract are not for the court but for the arbitrators. Where, however, as here, the language of the provision providing for arbitration uses not only the phrase ‘ any and all controversies arising out of the contract ’ but also ‘ any and all controversies in connection with the contract,’ this language would appear sufficiently broad to express the intention of the parties to include within the exclusive jurisdiction of the arbitrators as a general rule all acts by the parties giving rise to issues in relation to the contract, except the making thereof. ’ ’ (Emphasis supplied.) This court cited the Lipman case in Matter of Compagnie Francaise des Petroles (Pantepec Oil Co., C. A.) (279 App. Div. 851, affd. 305 N. Y. 588) for the proposition that a question [439] of whether a sales agreement had been terminated should be left to the arbitrators. The scope of the arbitration clause in the Lipmcm case is no greater than in the contract under consideration here, particularly since the arbitration clause is implemented by the following provisions in subdivision (D) of clause 15: “ (D) The arbitration procedure herein set forth is the sole and exclusive remedy of the parties hereto and the workers covered hereby, for any claimed violations of this contract, and for any and all acts or omissions claimed to have been committed by either party during the term of this agreement, and such arbitration procedure shall be (except to enforce* vacate, or modify awards) in lieu of any and all other remedies, forums at law, in equity or otherwise which will or may be available to either of the parties. ’ ’ Since the question of whether petitioner has in fact gone out of business bears directly on the subject matter of the demand, and since it arises from an act of a party performed subsequent to the making of the contract, there is presented an issue which lies exclusively within the jurisdiction of the arbitrators. The other points raised by appellant were decided correctly at Special Term and do not require further discussion. The order of Special Term, denying the application of petitioner for a stay of the arbitration proceeding, should be affirmed.