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Stateside Machinery Co. v. Alperin

decided: December 1, 1975.

STATESIDE MACHINERY COMPANY, LTD., A CORPORATION ORGANIZED UNDER THE LAWS OF GREAT BRITAIN, PETITIONER,
v.
JOEL M. ALPERIN, RESPONDENT V. MICHAEL H. SHERIDAN, UNITED STATES DISTRICT JUDGE FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, NOMINAL RESPONDENT, STATESIDE MACHINERY COMPANY, LTD., A CORPORATION ORGANIZED UNDER THE LAWS OF GREAT BRITAIN, APPELLANT, V. JOEL M. ALPERIN



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA AND ON PETITION FOR A WRIT OF MANDAMUS (D.C. Civil Action No. 74-944)

Gibbons, Biggs and Weis, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge.

We have before us in No. 75-1216 a petition by Stateside Machinery Company, Ltd., a corporation of Great Britain (Stateside), for a writ of mandamus, and in No. 75-1300 an appeal by Stateside. The nominal respondent to the mandamus is a judge of the Middle District of Pennsylvania. The actual respondent, and the appellee in the appeal, is Joel Alperin. Both the petition for mandamus and the appeal seek to prevent completion of a pending arbitration proceeding. Alperin filed a motion to dismiss the appeal for lack of jurisdiction, which has been referred to this panel. Another panel denied relief pending appeal and ordered that the mandamus petition and the appeal be consolidated. Thus we must determine (1) whether the district court made an order which is appealable, (2) if so, whether the court erred, and (3) if the order is not appealable whether mandamus relief is appropriate.

I. THE PROCEDURAL POSTURE

The underlying dispute, which has already engaged the talents of judges on both sides of the Atlantic Ocean, grows out of a September 8, 1973 contract by which Stateside agreed to purchase from Alperin "all foreign rights of the Triple A Trouser Mfg. Company, Inc., Bad Loop Detector owned by Joel M. Alperin outside the continental United States" for $50,000. Payment was to be by means of a $2500 pre-contractual credit, a $7500 down-payment upon execution of the agreement, and three equal installments of $16,161. One clause of the contract provided:

"This agreement here will be considered binding notwithstanding other agreements and in case of any unresolved issues will be subject to binding arbitration by the American Board of Arbitration."

Stateside delivered its check for $7500 to Alperin on September 8. Shortly thereafter Stateside's representative observed the bad loop detector*fn1 in action and concluded that the company had been defrauded by misrepresentations regarding its performance. Stateside stopped payment on its September 8 check. On April 30, 1974 Alperin, believing Stateside to be in breach of contract, filed a demand for binding arbitration with the American Board of Arbitration. He also sued Stateside on the check in the High Court of Justice, Queen's Bench Division. According to the affidavits on file it is the law of Great Britain that fraudulent inducement is not a defense to the action on a check. Alperin obtained a judgment on July 29, 1974.

In resisting the British lawsuit Stateside filed an affidavit in the Queen's Bench Division averring that it had submitted the issue of fraudulent inducement to arbitration. The court provided in the judgment that it would not be entered before September 10, 1974. The purpose of delay, apparently, was to permit Stateside to submit the claim to arbitration and on the basis of the award have the judgment vacated. No steps were taken to complete the arbitration which Alperin had demanded, and on September 10, 1974 the British judgment became final. Meanwhile, the American Arbitration Association was in touch with David H. Hammer, Esq., attorney for Stateside. On September 16, 1974 he wrote to the Association "my clients will be available for a hearing in this matter on December 18, 1974. Please advise." Thereafter the date for commencement of the arbitration was changed to December 11, 1974.

Although as late as October 22, 1974 Stateside, in an effort to have the British judgment set aside or stayed, represented that it was submitting the dispute to arbitration, on November 4, 1974 it filed a complaint in the Middle District of Pennsylvania. Defendant Alperin moved for a stay of the district court action pending arbitration. Stateside filed a cross-motion for an order enjoining the arbitration proceedings, which were still scheduled for December 11. The district court declined to issue a temporary restraining order halting the arbitration, which went forward as contemplated. On January 21, 1975 the district court filed a memorandum, setting forth findings of fact and conclusions of law, in which it denied Stateside's motion for a preliminary injunction prohibiting arbitration, but did not rule on Alperin's motion to stay the district court action. Thus the only order actually entered by the district court was an order denying Stateside's motion for a preliminary injunction staying the arbitration proceeding.*fn2 The arbitration hearings have since been concluded, but so far as the record discloses no decision has been rendered by the arbitration panel.

II. THE DISTRICT COURT DECISION

Stateside contends that the contract was induced by fraud, and that this fraud vitiates the arbitration clause, which in any event is not broad enough to encompass such a claim. Alperin, relying on Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967) and Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission, 387 F.2d 768 (3d Cir. 1967), contends that the issue of fraud in the inducement is, under the arbitration clause quoted above, a matter for the arbitrators. These cases hold that only where a claim of fraud in the inducement goes specifically to the arbitration clause itself rather than to the contract as a whole may the court substitute its adjudication of a fraud claim for that of the arbitrators. Without deciding the matter finally, the district court held that ...


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