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Bank of Madison v. Graber

November 27, 1946

BANK OF MADISON
v.
GRABER, ET AL. (TWO CASES)



Author: Major

Before SPARKS, MAJOR, and KERNER, Circuit Judges.

MAJOR, Circuit Judge.

These appeals are from two separate orders entered in an interpleader suit instituted by the Bank of Madison, plaintiff-appellee, against John N. Graber, defendant-appellee (hereinafter referred to as Graber), and Oliver Bodor, defendant-appellant (hereinafter referred to as Bodor). Inasmuch as the orders appealed from were entered in the same suit and involve controversies resulting from a single contract entered into between Graber and Bodor, they may, so we think, be appropriately disposed of in a single opinion.

The appeal in No. 9096 is from an order entered April 12, 1946, denying Bodor's motion for a stay of all proceedings pending the submission to arbitration of the controversies between the parties. The court in its order denying said motion determined that Bodor was not entitled to such arbitration.

The contract giving rise to the instant controversies was made by Graber and Bodor on the 13th day of March, 1945, and provided for the manufacture by Bodor for and on behalf of Graber 7,800 gross of Badger cranes (a device for the hanging of curtains and draperies at doors and windows) for the sum of $57.60 per gross set of two cranes. The contract provided that Graber should pay the agreed price for each order shipped within thirty days from the date of invoice and that he would deposit in escrow with a bank in New York the sum of $20,000 for the faithful performance of the agreement by him. On May 22, 1945, this contract was altered to the extent of providing that Graber should make the escrow deposit required of him, with the Bank of Madison located at Madison, Wisconsin, as escrow agent. It also provided that if Graber failed to pay Bodor within thirty days from the date of shipment of any of said cranes manufactured and delivered by Bodor in accordance with said agreement, the escrow agent upon demand should pay him. The sum of $20,000 was deposited by Graber with the Bank of Madison, which the latter agreed to hold and disburse pursuant to the agreement between the parties.

The appeal in No. 9096, which we shall first consider, involves the following provision of the contract: "Any controversy arising in connection with either the interpretation of this agreement or the performance or non-performance thereof, shall be settled by arbitration in accordance with the laws of the State of New York by three arbitrators, one of whom shall be selected by each of the parties hereto and the third by the two so selected."

Bodor promptly entered upon the manufacture of the cranes pursuant to the contract aforesaid, which he delivered at the direction of Graber to a warehouse in New York City, from which they were shipped to Graber at Middleton, Wisconsin, and to his various customers in that and other states. Graber made payment of all invoices for cranes manufactured and delivered up to August 23, 1945 in the amount of $12,902.40, but refused to make payment of invoices for cranes thereafter shipped in the amount of $22,325.26. On October 1, 1945, Graber gave notice that he elected to cancel the contract forthwith.

On November 23, 1945, Bodor commenced an action against the Bank of Madison in the Supreme Court of the County and State of New York, and caused a writ of attachment to be issued, and funds of the Bank of Madison on deposit in the Chemical Bank and Trust Company of New York City in the amount of $20,000 to be attached under the writ. No steps were taken in that action other than service of process upon the Chemical Bank. At the time of the entry of the order appealed from (April 12, 1946), the New York action was still pending, although the record in No. 9149 indicates that it was subsequently dismissed by Bodor.

On December 11, 1945, the Bank of Madison commenced the instant interpleader action in the District Court for the Western District of Wisconsin, praying that Graber and Bodor be required to interplead and settle between themselves their right to the escrow money. A temporary restraining order was entered restraining Bodor from proceeding with the New York action.

Summons was served on Bodor in the interpleader action December 13, 1945, and on December 19, 1945, he made a written demand upon Graber for arbitration in accordance with the provision contained in the contract of March 13, 1945, to which demand Graber made no response. On January 30, 1946, Bodor filed his motion for a stay of proceedings in the interpleader action pending final completion of arbitration, and on April 12, 1946, the District Court entered an order denying such motion, from which order the instant appeal comes.

The question for decision is whether Bodor was entitled to arbitration. If so, he was entitled to a stay of proceedings in the instant action pending such arbitration; otherwise, the motion to stay was properly denied.

There is an express provision in the contract that it shall be construed and any controversies arising thereunder governed by the laws of the State of New York. Both parties cite New York cases in support of their respective contentions, none of which are conclusive but rather indicate that a decision must turn largely upon the facts of each case. It must be conceded, so we think, that the arbitration provision of the contract was controlling unless waived by Bodor by reason of his commencement of an action in the State Court of New York.

No good purpose could be served in any extended discussion of the New York cases. The main case relied upon by Bodor is that of Newburger v. Lubell, 257 N.Y. 383, 385-387, 178 N.E. 669, which held that the mere commencement of an action at law did not constitute a waiver of an arbitration provision in the absence of notice that a controversy existed between the parties.Graber, in order to escape the effect of this holding contends that a controversy existed and relies upon certain facts disclosed by the pleadings. In the complaint which Bodor "demanded York, it is alleged that Bodor "demanded that the Defendant pay to him the sum of $20,000.00, which the Defendant refused and still refuses." It is also disclosed that before the commencement of that action Graber notified Bodor "that he, the said Graber, elected to cancel said contract forthwith," and that the Bank of Madison had refused upon Bodor's demand to make payment to him of the escrow funds. It also appears that the New York suit called for a construction and interpretation of the contract. We agree with Graber that there existed a controversy referable to arbitration under the contract, prior to and at the commencement of the New York action. Another New York case relied upon by Bodor is that of La Hay, Inc., v. Pathe Exchange, Inc., 237 App.Div. 468, 470, 261 N.Y.S. 495, 497, wherein the court said: "We agree with the learned trial court that plaintiff did not waive any rights under the arbitration clause by bringing the equity action, particularly since that action was discontinued with the consent of both parties prior to the institution of this proceeding."

That statement is of little benefit to Bodor since his New York action was not dismissed until long after the institution of the instant interpleader action, in fact was still pending ...


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