Summary
In Lowengrub v. Meislin, 376 Pa. 463, 103 A.2d 405 (1954), we pointed out that the J. M. Davis Company case had been "limited" by later cases.
Summary of this case from J. A. Robbins Co., Inc. v. Airportels, Inc.Opinion
November 23, 1953.
March 22, 1954.
Contracts — Arbitration — Partnership disputes — Effect on granting equitable relief.
In a proceeding in equity for an accounting and for dissolution of a partnership, in which it appeared that the partnership agreement provided for arbitration of disputes among the partners, it was Held that the court below properly granted defendants' petition to stay proceedings pending submission of the disputes to arbitration.
Argued November 23, 1953. Before STERN, C. J., STEARNE, JONES, CHIDSEY, MUSMANNO and ARNOLD, JJ.
Appeals, Nos. 320 to 326, inclusive, Jan. T., 1953, from decree of Court of Common Pleas of Lehigh County, April T., 1953, No. 9, in case of Beatrice Minoff Lowengrub, Louis Greenblatt and Sarah Minoff, Exrs., Estate of Meyer Minoff, deceased, et al. v. Paul Meislin et al. Decree affirmed.
Bill in equity.
The facts are stated in the opinion by HENNINGER, P.J., of the court below, as follows:
Plaintiff, Harry Liberman, is a general partner in Fountain Hill Underwear Mills and the other plaintiffs named are limited partners. While only Liberman has signed any pleading we assume that counsel represents the other named plaintiffs in the absence of a demand for proof of authority. Defendants, Paul Meislin, Nathan Meislin and Albert R. Thoens are the other general partners and defendant, Adele Meislin, is a limited partner.
The plaintiff complains in his bill in equity (1) that because of differences between him and the other general partners it is impossible to make decisions concerning the conduct of the partnership (2) that the Meislins have since December 1, 1950 violated the terms of the partnership agreement (3) that they have excluded plaintiff from a voice in the management of the business (4) that they have increased their own salaries and traveling and entertainment expenses (5) that they have discontinued plaintiff's salary and (6) that they have changed the nature of the business.
The complaint asks for an accounting discovery, dissolution, receivership, injunction and distribution, with a request for a rule to show cause to be heard forthwith.
Defendants thereupon filed a petition to stay proceedings pending submission of the disputed points to arbitration in accordance with Article 19 of the Partnership Agreement which reads as follows: "In the event any dispute should arise concerning any of the terms, covenants or conditions of this agreement, or with respect to the enforcement thereof, or with respect to any dissolution or liquidation of the partnership, or with respect to any matter affecting the operation and conduct of the business of the co-partnership, such dispute shall be disposed of by arbitration by submitting the same to the American Arbitration Association in accordance with the rules and regulations of the said American Arbitration Association then obtaining, and in accordance with the laws of the State of New York."
This petition was heard by the Court and held under advisement. At the hearing, plaintiff requested the Court in the event of an adverse finding to enter an order from which an appeal would lie, rather than a merely interlocutory order.
Certainly all of plaintiff's complaints against defendants excepting the first, concern matters affecting the operation and conduct of the business and the parties have agreed to submit such matters to arbitration. If the arbitrator decides that defendants' acts were not in violation of the covenants of the partnership agreement, then they cannot be used as causes for dissolution of the partnership.
Plaintiff raises two interesting questions in relation to his first complaint. The first one is that according to Article 14 of the partnership agreement, no matter concerning the operation and conduct of the business can be determined without the unanimous consent of two units of partners, that each unit shall vote by majority vote and that plaintiff and one of the defendants constitute one of the units making disagreement and a stalemate inevitable.
The other point is one of interpretation. Plaintiff maintains that Article 19 would refer matters arising out of a dissolution to arbitration but not matters relating to the existence or nonexistence of causes for dissolution.
Taking the last point first and isolating the words "In the event any dispute should arise . . . with respect to any dissolution," it must be conceded that Article 19 of the partnership agreement is capable of the interpretation pressed upon us by plaintiffs. When we consider, however, that any dispute "concerning any of the terms, covenants or conditions of this agreement," "or with respect to any matter affecting the operation and conduct of the business" shall be subject to arbitration, clearly the parties contemplated that any disputes whether actions of any party constituted a dissolution were to be submitted to arbitration. Even without these broader terms, the precise language quoted by plaintiffs is just as capable of the interpretation that a dispute with respect to any dissolution would include a dispute as to whether a dissolution had been effected.
We find, then, either because the present dispute relates to the covenants of the agreement or is with respect to any dissolution or is with respect to any matters affecting the operation and conduct of the business, that the present dispute between the parties has been made by them the subject of arbitration.
There is also merit in plaintiff's contention that the dispute must inevitably lead to an impasse. It is not for us to question why the parties apparently agreed to an arrangement whereby a partner with 1/30 of the investment could prevent any positive action by the partnership. It is sufficient for us that they were sui juris and saw fit to do so.
We cannot say, however, that plaintiff's dissatisfaction with defendants' actions makes dissolution inevitable and arbitration futile. It is for the very purpose of resolving such disputes without resort to the drastic step of dissolution, that arbitration of disputes was agreed upon. Furthermore, if plaintiff Liberman is himself the obstinate one — and this we cannot tell until the merits of his complaints against his partners are arbitrated — he ought not be heard in equity. Nor can we say what, if any, decisions need be made affecting the business.
We find then that the parties themselves have entered into a solemn covenant with one another prescribing how such disputes shall be settled. Recognizing their superior right to enter into an agreement, we look to see if cause exists why their covenants should be disregarded and their intentions frustrated. Kaisha, Ltd. v. Ewing-Thomas Corp., 313 Pa. 442, 448 and 452.
All parties agree that the case of Goldstein v. I. L. G. W. U., 328 Pa. 385, is the leading case upon this subject. When we study that case we find that the case arose on two actions before the Court of Common Pleas of Philadelphia County, the one by the Union to enforce an arbitration award that Goldstein et al. should return their industrial plant to Philadelphia and a petition by Goldstein to vacate the award and to determine whether Goldstein was a party to the agreement providing for arbitration.
It appears from the facts in the case that the Union had first invoked the authority of the Court of Common Pleas under the contractual Arbitration Act of 1927, P. L. 381, 5 P.S. 161 to 179 inclusive, to enforce the above mentioned award of the arbitrator under Section 9 of the said Act, 5 P.S. 169. Justice STERN, now Chief Justice STERN, held that this action of the Union placed the proceedings squarely under the Act of 1927 (p. 388) and that the Act of 1927 was not adaptable to a mandatory decree (p. 393).
One of the main points in the Goldstein case with which we are not now concerned, excepting that it rendered other points relatively unimportant, is the statement of the fundamental proposition that while an arbitrator is the judge of the law and facts, only a Court can declare whether or not the parties have entered into an arbitration agreement (p. 391) and therefore can be compelled to arbitrate an existing dispute. In our case, plaintiffs themselves have brought the agreement containing the arbitration clause upon the record as the agreement controlling the parties' relations.
That the decision may not mislead the Bench and Bar, it ends with a caveat (p. 394), that the Arbitration Act of 1927 did not displace arbitration at common law and that a remedy lies in equity for the specific performance of an award.
The arbitration agreement in question contains the elements of a common law arbitration agreement. Bashford v. West Miami Land Co., 295 Pa. 560, 568; Sukonik v. Shapiro, 333 Pa. 289, 290; Rosenbaum v. Drucker, 346 Pa. 434, 436. Three of these elements are, a named arbitrator, agreed submissions of disputes which are not subject to a money judgment, and application of New York law rather than the Act of 1927.
Plaintiff cites Davis v. Shaler Township, 332 Pa. 134, 138, for the proposition that when parties enter into an arbitration agreement after 1927, they ipso facto embody in the agreement the provisions of that Act.
There are several answers to that proposition: (1) Defendants have not invoked the powers of this Court to enforce the arbitration agreement, they have simply asked postponement of a decision in our Courts in equity until the arbitration procedure has been used; (2) the agreement in question cannot have embodied in it the Act of 1927, because it was made in New York State and specifies New York law rather than the Act of 1927 as controlling the regulation of arbitration (see Kaisha v. Ewing-Thomas Corp., supra); (3) the Act of 1927 was not intended to restrict existing rights of arbitration but to provide a more effective remedy ( Isaac v. D. C. Mutual Fire Insurance Co., 301 Pa. 351, 357); (4) later cases, above cited, would seem to limit the broad language of the case of Davis v. Shaler Township, if that is interpreted to mean that after 1927, no common law arbitration agreements could exist in Pennsylvania.
It is evident that the parties did not intend to limit the scope of their agreement to remedies provided by the Act of 1927. It must be remembered that this agreement concerns solely the relations between partners in a going concern and that many disputes may arise concerning its terms, conditions and covenants or with respect to the character and conduct of the business whose solution cannot become the subject of a judgment at law. The parties must, therefore, have contemplated situations which might call for the aid of a court in equity if any party remained recalcitrant after an award had been made.
Such an award seems to have been recognized in Rosenbaum v. Drucker, supra (p. 436), where an award of arbitrators was brought into a court in equity for enforcement.
Defendants' use of the petition to stay proceedings pending arbitration, while similar to that prescribed by Section 2 of the Act of 1927, 5 P.S. 162, does not limit defendants' remedy to such as can be given under the Act of 1927. It has been held that preliminary objections are not the proper method to question one's right to proceed at law in face of an agreement to arbitrate. Layne v. Phillips, 67 Pa. D. C. 40, 42.
Since plaintiffs may have to resort to this Court to enforce an award, should the arbitrator decide in their favor, defendants are not entitled to a present dismissal of the bill and a petition for stay of proceedings was their appropriate procedural step, whether under the Act of 1927 or under general equity procedure.
On the other hand, there is nothing for us to hear in equity. The bill and the petition it evoked are conclusive that the parties are disputing concerning the terms, covenants or conditions of the agreement, with respect to the enforcement thereof, with respect to any dissolution and with respect to the operation and conduct of the business. The very existence of such disputes calls for arbitration by the terms of the agreement plaintiffs seek to enforce. Mack Mfg. Corp. v. International UAW, 368 Pa. 37, 43; Couzens v. Wachtel, 64 Pa. D. C. 459, 461.
Plaintiffs appealed.
Harry Shapiro, with him Butz, Hudders, Tallman Rupp, for appellants.
E. G. Scoblionko, with him Scoblionko Frank, for appellees.
The decree is affirmed on the opinion of President Judge HENNINGER. Costs to be paid by appellants.