Court Opinion

ID: 5750248
Source: CourtListenerOpinion
Date Created: 2022-01-12 16:56:00.812598+00
Date Added: 2024-06-11T08:41:15.985201
License: Public Domain

Valente, J. (dissenting).
I dissent and would affirm the order compelling appellant to arbitrate.
The result reached by the majority may fairly be considered as a subtle revenant of the Cutler-Hammer doctrine (Matter of International Assn. of Machinists [Cutler-Hammer], 271 App. Div. 917, affd. 297 N. Y. 519) which, presumably, was thoroughly and effectively exorcized by former section 1448-a of the Civil Practice Act and the present 7501 Civil Practice Law and Rules. These sections specifically preclude the court from considering ‘ ‘ whether the claim with respect to which arbitration is sought is tenable, or otherwise pass upon the merits of the dispute
The majority opinion succinctly traces the growth and development of the corporate empire and the concomitant equal division of control between the Uddos and the Taorminas. From a simple partnership between petitioner and his son-in-law, Frank Gr. Taormina, the business burgeoned into a complex of nine corporations. Initially, a stockholders’ agreement of April 25, 1958, provided for joint control by the two family factions. That agreement was subsequently amended and modified by two agreements, dated July 17, 1958 and May 10, 1960.
The specific arbitration clause of the modification agreement of May 10, 1960 (par. 5), in its first sentence, reiterates the primary intent of the parties, viz: “It is intended that control of all nine corporations be vested in Frank J. Uddo and Frank *408G-. Taormina jointly”. There follows the provision for arbitration “ If the Board of Directors is unable to take effective action on any issue ’ ’.
As already noted, the May 10, 1960 agreement was a modification, in a limited area, of the two prior agreements of April 25, 1958 and July 17, 1958. Except as modified, the provisions of the antecedent agreements remained unaffected. The agreement of April 25, 1958 contained a broad arbitration clause. It provided (par. 24) that “ All disputes arising out of, under, in connection with or in relation to this agreement, as any alleged breach thereof, shall be submitted to arbitration”. The majority opinion recognizes that under such a broad clause “ any question beyond the physical execution of the contract would by its terms be one for the arbitrators ”. Yet, completely ignoring this broad arbitration clause, the majority trenches on the function of arbitrators in imposing its interpretation of the specific clause of the modification contract of May 10, 1960, as being “ confined to issues before the board of directors ”. But even if it were assumed that such interpretation were sound, is not this process of construction of a term of the contract an invasion of the province of arbitrators under the general arbitration clause of the April 25,1958 contract?
The main thrust of the majority opinion is that “ when the original demand was made there were no issues before any of the boards of these corporations ”, that there was no showing of any inability of the boards to take effective action, and that in fact the boards did take effective action, and, by a majority vote, 1 ‘ resolved all of the questions upon which arbitration is sought ”. I completely disagree with these conclusions.
In the first place, the record shows (Pet. Exh. D) that the demand for arbitration was dated July 10, 1963—which antedated the meeting of the boards of directors — and it states that it is made pursuant to all three agreements. Respondent-appellant’s affidavits in opposition to the motion to compel arbitration avers: “ As of July 30,1963 the Boards of Directors of the nine corporations were deadlocked and, therefore, were unable to take effective action on the issues as outlined in petitioner’s Exhibit c D ’.” The admissions in the record refute a major premise of the majority’s opinion. Thus, it uncontrovertibly appears that when the demand for arbitration was made, there was a deadlock in the boards of directors and that they were unable to take effective action.
Finally, whether “ effective action ” was taken by the meetings of the boards of directors in August, 1963 is not for the court to determine, but for the arbitrators. The contracts among *409the stockholders, expressly and impliedly, provided for joint control of the corporations by two family groups. Since there was equal division of control, provision was made for arbitration to settle differences which might arise where neither group could prevail. Whether upon the occurrence of a deadlock, either side may, through action not contemplated by the agreement, and in fact contrary to the underlying purposes of the agreement, take any effective action is a matter of the interpretation of the contracts which must be left to arbitration. Considering the entire background of the agreements, I cannot agree with the majority that a claim by petitioner that no effective action under the contract was taken by the boards of directors in August, 1963, after the demand for arbitration was served, is ‘ ‘ specious ’ ’. I would hold that the claim is substantial and must be decided by arbitration, not only under the modification agreement of May 10, 1960, but also pursuant to the original agreement of April 25, 1958. The modification agreement covered only disputes between the chiefs of the two family groups in the event of a deadlock in the board of directors. The arbitration clause of the original agreement survived to confer jurisdiction over all other disputes inclusive of the interpretation and effect of the modification agreement.
Stevens and Eager, JJ., concur with Stetjer, J.; Várente, J., dissents and votes to affirm in opinion, in which Breeder, J.P., concurs.
Orders, entered on October 1, 1963 and January 3, 1964, reversed on the law and on the facts, with $20 costs and disbursements to appellant, the motion to direct arbitration denied, and the petition dismissed. Order, entered on January 3, 1964, unanimously affirmed, with $20 costs and disbursements to respondent.