United States District Court, Northern District of Illinois, E. D
June 28, 1972
U.S. PLYWOOD-CHAMPION PAPERS, INC., A CORPORATION, PLAINTIFF,
PAN AMERICAN GYRO-TEX COMPANY, LTD., AN ILLINOIS LIMITED PARTNERSHIP, DEFENDANT.
The opinion of the court was delivered by: McLAREN, District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiff here seeks an injunction against a demand for
arbitration filed by the defendant, Pan American Gyro-Tex
Company, Ltd. ("Pan American") on May 7, 1971, and declaratory
judgment. The injunction will be granted. The Court's findings
of fact and conclusions of law are contained in the following
The arbitration sought by defendant concerns disputes
allegedly arising under an agreement between plaintiff, U.S.
Plywood-Champion Papers, Inc. ("USP") and American Gyro-Tex
Company, Inc. ("Gyro-Tex"). Pan American claims to be the
successor and assignee of Gyro-Tex by reason of having
acquired the assets of that corporation, which thereupon
On November 5, 1965, USP and Gyro-Tex entered into a number
of agreements. A sales agreement provided for the purchase by
USP of its requirements of Gyro-Tex's products. It also
contemplated the establishment by Gyro-Tex of a Los Angeles
area plant as a source of supply for USP's West Coast sales
division area. This agreement had a seven year term, and it
was not assignable by either party without the written consent
of the other.
A loan agreement provided for the making of loans totalling
$1,200,000 by USP to Gyro-Tex for use in establishing Los
Angeles and New York production facilities. This agreement
obligated Gryo-Tex to establish a Los Angeles plant as quickly
as possible and to use its best efforts to commence commercial
production therein by June 30, 1966. The sales agreement gave
USP the right to terminate it upon 30 days' written notice in
the event of a default by Gyro-Tex under the loan agreement.
Gyro-Tex did not establish a plant in Los Angeles. In May of
1966 USP terminated its agreements with Gyro-Tex on the basis
of Gyro-Tex's failure to establish a Los Angeles plant and its
admission that it had no intention of doing so in the future.
In July of 1966 USP and Gyro-Tex entered into a new
agreement but agreed that the new agreement would be without
prejudice to any claims either might have under the November
5, 1966 agreements.
On February 28, 1968, the owners of Gyro-Tex, Armand White
and Earl Spiro, entered into an agreement with American
Gyro-Tex Company (now known as Pan American Gyro-Tex Company,
Ltd., defendant herein) pursuant to which they sold all of the
stock in Gyro-Tex to said company.
Neither Spiro nor White has an ownership interest in Pan
American. Both are employed by it and manage its affairs. This
1968 agreement provides that each of the sellers is to receive
35 per cent of the net amount that may be collected by the
buyer (Pan American) on account of any cause of action or
claim that Gyro-Tex may have against USP. Spiro and White
claim the other 30 per cent is a fund from which the
partnership would pay income taxes on any recovery.
On February 29, 1968, Gyro-Tex filed a statement of intent
to dissolve in Wisconsin, its state of incorporation, and
executed an assignment of all its assets to Pan American. USP
did not consent to this assignment. Gyro-Tex's articles of
dissolution were filed on April 1, 1968.
On May 7, 1971 Pan American made its demand for arbitration.
Plaintiff filed this suit to stay arbitration on the grounds
that (1) there is no agreement
to arbitrate between the plaintiff and defendant; or (2) the
agreement was extinguished two years after Gyro-Tex's
dissolution by operation of Wisconsin law; or, if there is an
agreement, it is barred by the (3) applicable statute of
limitations, or (4) laches; or (5) the dispute herein does not
come within the arbitration clause of the sales agreement.
The Court is unable to accept plaintiff's arguments denying
the existence of an agreement to arbitrate and claiming that
the present dispute does not in any event come within the
arbitration clause. However, the Court does find that
defendant's rights were extinguished by operation of Wisconsin
law, and that it has been guilty of laches.
Plaintiff relies on Wis.Stat.Ann. § 180.787 which provides
that actions by or against corporations, their directors,
officers or shareholders on any right or claim existing prior
to dissolution must be commenced within two years of
dissolution. Although the section is titled "survival of
remedies" it has been construed as an abatement statute which
extinguishes rights rather than limiting remedies. United
States for and on Behalf of Small Business Administration v.
Palakow, 438 F.2d 1177, 1179 (7th Cir. 1971). Therefore, this
issue is justiciable, not arbitrable. Halcon International,
Inc. v. Monsanto Australia Ltd., 446 F.2d 156, 159 (7th Cir.
Pan American argues that the abatement statute does not
apply because Gyro-Tex assigned its claim 30 days prior to
filing its articles of dissolution, and there was no claim
belonging to Gyro-Tex for the statute to extinguish. If
accepted, this argument would reduce the statute to a nullity
since Wisconsin requires distribution of corporate property
prior to the filing of articles of dissolution. Wis.Stat.Ann.
§ 180.765(4). A similar argument was rejected in Gordon v.
Loew's, Inc., 147 F. Supp. 398, 407-08 (D.N.J. 1956).
Whatever rights Gyro-Tex had and assigned to Pan American
abated on March 31, 1970. Accordingly, Pan American's demand
for arbitration was made too late and must fail.
Even if Pan American's right to arbitration had not been
extinguished, it would be barred by laches. The Court may
consider the issue of laches here since it is extrinsic to the
contract. See Halcon, supra, at 162-63. The question of
inexcusable, unreasonable and prejudicial delay requires no
fact-finding review of the entire contract and the transactions
occurring under it. Neither Pan American nor White and Spiro
present any excuse for waiting almost five years from the
termination of the November 1965 sales agreement to demand
Furthermore, USP has been prejudiced by this delay, since it
might have asserted a counterclaim under the 1965 loan
agreement; but this was extinguished on March 31, 1970 under
the Wisconsin statute, Section 180.787, since Pan American as
assignee is only subject to the liabilities of its assignor.
Florida Bahamas Lines, Ltd. v. Steel Barge Star 800 of Nassau,
433 F.2d 1243 (5th Cir. 1970); Reese v. Sanitary District of
Chicago, 272 Ill.App. 315 (1933).
Defendant will be permanently enjoined from proceeding with
the arbitration demand it has made. Plaintiff will supply the
Court with a draft order within 15 days of the date of this
opinion. Costs will be taxed to the defendant.
It is so ordered.
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