Court Opinion

ID: 5897200
Source: CourtListenerOpinion
Date Created: 2022-01-13 03:08:33.784593+00
Date Added: 2024-06-11T08:45:32.536038
License: Public Domain

Smith, J. (dissenting).
Respondents-appellants (respondents), 50% shareholders of Daisy Sportswear, Inc., appeal from an order, entered March 12, 1987, Supreme Court, New York County, which denied their motion seeking to compel arbitration and to stay the dissolution proceeding of Daisy Sportswear, Inc.
Petitioners-respondents (petitioners) and respondents-appellants represent, respectively, two groups, each owning 50% of the shares of Daisy, a manufacturer of ladies sportswear. Daisy is comprised of a Discount Division conducted primarily by respondents and a Department Store Division conducted primarily by petitioners. Following conflicts between the two groups, the parties, on or about October 21, 1986, entered into two agreements, a tri-corporate agreement and a shareholders agreement. The agreements noted the formation of two new corporations—Daisy Industries, Inc. (Industries), solely owned by respondents and The Daisy Group, Ltd. (Group) solely owned by petitioners. Industries was to operate a business substantially similar to the Discount Division of Daisy and Group was to operate a business substantially similar to the Department Store Division. Daisy would retain its corporate existence but would be stripped of all business and policy decision-making.
The purpose of the tri-corporate agreement was to allow the two groups to cooperate for the duration of the office and warehouse leases. Conflicts continued and despite a provision in the tri-corporate agreement providing for arbitration, the respondents, by order to show cause, commenced the underlying action. The order to show cause sought a temporary restraining order and a preliminary injunction enjoining petitioners from (1) violating the two agreements; (2) committing any acts to frustrate, jeopardize or interfere with respondents’ business relations with Manufacturer’s Hanover Trust Company; (3) engaging in any actions which disrupt or interfere *14with respondents’ conduct of business in the showroom, office and warehouse of Daisy Sportswear, Inc. and (4) taking any action to terminate, dissolve or liquidate Daisy Sportswear, Inc.
The complaint which accompanied the order to show cause contained three causes of action. The first two causes of action sought injunctive relief, the first alleging that petitioners had breached the tri-corporate agreement by taking action which jeopardized Daisy Sportswear’s $6,000,000 credit line with Manufacturer’s Hanover Trust Company, and the second alleging that petitioners had, without authorization, contacted and solicited respondents’ customers. The third cause of action sought unspecified money damages flowing from the first two causes of action.
Petitioners cross-moved for leave to file a petition for dissolution of Daisy Sportswear, Inc. pursuant to Business Corporation Law § 1104 (a) (3), alleging irreconcilable internal dissension between the parties. The petition was accompanied by an affidavit alleging that respondents breached the agreements, misappropriated funds, engaged in misbehavior, wrongfully solicited employees and wrongfully refused to cosign checks for Daisy. On February 11, 1987, the motion court granted the cross motion. On February 13, 1987, the parties were enjoined from violating the provisions of the two agreements pending determination of the underlying action.
On March 3, 1987 respondents moved to stay the dissolution proceeding and to compel arbitration, based on the arbitration clause in the tri-corporate agreement. The motion court denied this relief based on its determination that respondents had waived their right to arbitration by their commencement of the underlying action for injunctive relief and monetary damages.
On appeal, respondents challenge the motion court’s determination that they waived their right to arbitration by their prior commencement of the underlying action for injunctive relief and monetary damages. Specifically, respondents contend that under a contract containing provisions for arbitration and injunctive relief as alternative remedies, the obtaining of a preliminary injunction does not constitute a waiver of the right to arbitrate the issues on which the injunctive relief is based.
It is well settled that a party who commences an action in court thereby waives his right to subsequently arbitrate the *15issues raised in that action (Sherrill v Grayco Bldrs., 64 NY2d 261 [1985]; De Sapio v Kohlmeyer, 35 NY2d 402 [1974]; Esquire Indus. v East Bay Textiles, 68 AD2d 845 [1st Dept 1979], appeal dismissed 47 NY2d 800). The claim for which arbitration is belatedly sought need not be identical to the claim first raised in litigation, since a waiver will be found to have occurred unless it can be said that the claims involved in both the litigation and the requested arbitration are "entirely separate” (see, Sherrill v Grayco Bldrs., supra). "Once the right to arbitrate a particular dispute has been lost by an election to litigate it cannot be recaptured.” (Sherrill v Grayco Bldrs., supra, at 274.)
In the case at bar the issues of harassment, misappropriation of funds, breaches of the tri-corporate agreement, wrongful solicitation of employees, and wrongful refusal to cosign checks were raised in both the litigation commenced by the respondents and in the dissolution proceeding which the respondents now seek to have arbitrated. In fact, the issue of petitioner’s right to dissolve Daisy was first raised by respondents in their order to show cause. Respondent Jerome Assael’s affidavit supporting the order to show cause and petitioner Bernard Assael’s affidavit in opposition and in support of the cross motion and the petition for dissolution, both allege breaches of the tri-corporate agreement, harassment, refusal to sign checks, wrongful solicitation of employees and misappropriation of funds. These affidavits clearly indicate that the underlying action and proposed arbitration are based on the same issues. Further, respondents’ demand for injunctive relief restraining petitioner from seeking to dissolve and the demand for money damages are inconsistent with respondents’ right to arbitrate the issues raised in the dissolution petition.
The Court of Appeals noted in Sherrill v Grayco Bldrs. (supra, at 273) that "waiver will not occur where plaintiff 'moves in court for protective relief in order to preserve the status quo while at the same time exercising its right under the contract to demand arbitration’ ”. In the case at bar, however, respondents did not demand arbitration "at the same time” that they commenced the underlying action. In fact, the complaint makes no reference to the arbitration clause.
Respondents’ argument, that paragraphs 9 and 11 of the tricorporate agreement and paragraph 14 of the shareholders agreement protect them from waiving their right to arbitrate, is meritless. Respondents exceeded the limited injunctive re*16lief granted in paragraphs 9 (C) and 11 of the tri-corporate agreement, since they failed to limit the action to a request for injunctive relief, enjoining petitioners from jeopardizing the Daisy "credit line” or using "customer lists”. Paragraph 14 of the shareholders agreement protected respondents from waiver only if they sought an injunction restraining "any sale or disposition” of Daisy stock. This remedy was neither sought nor obtained.
Finally, respondents’ argument that a finding of waiver is inconsistent with CPLR 7502 (c) also lacks merit. That section permits the Supreme Court to "entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitrable controversy, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” There is no showing here that an injunction is necessary to prevent an arbitration result from being rendered ineffectual.
For the foregoing reasons, I dissent.
Kupferman, J. P., Sullivan and Kassal, JJ., concur with Sandler, J.; Smith, J., dissents in an opinion.
Order, Supreme Court, New York County, entered on March 12, 1987, reversed,. on the law, and the motion to compel arbitration and to stay further proceedings on the petition for dissolution pending arbitration granted. Appellants shall recover of petitioners-respondents $50 costs and disbursements of this appeal.