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Grundstad v. Ritt

February 4, 1997

ODDMUND GRUNDSTAD,

PLAINTIFF-APPELLANT,

v.

JOSEPH RITT AND AMERICAN ARBITRATION ASSOCIATION, INC.,

DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 96 C 1857 Charles P. Kocoras, Judge.

Before ESCHBACH, COFFEY and MANION, Circuit Judges.

COFFEY, Circuit Judge.

ARGUED SEPTEMBER 26, 1996

DECIDED FEBRUARY 4, 1997

Plaintiff-appellant Oddmund Grundstad ("Grundstad") appeals the district court's order denying Grundstad's motion to stay an arbitration proceeding initiated against him by defendant-appellee Joseph Ritt ("Ritt"), and entering summary judgment in favor of Ritt and the American Arbitration Association, Inc. ("AAA"). We reverse.

I. Background

Prior to 1981, Grundstad (a citizen of Norway), Ritt (a citizen of Illinois) and Joel Rahn ("Rahn") were shareholders in a Cayman Islands corporation known as Atlantic Associates, Inc. ("Atlantic Associates"). Atlantic Associates was engaged in the operation of gambling concessions on cruise ships. In 1981, Ritt was also the owner of another Cayman Islands corporation known as Atlantic International Vending and Gaming, Ltd. ("International Vending"), which was also engaged in the operation of gambling concessions on cruise ships. Ritt ended his association with Atlantic Associates in 1981, and on July 10, 1981, Atlantic Associates and International Vending entered into a contract (hereinafter the "Agreement"). The Agreement was entitled a "non-competition agreement," and the district court, after briefing by the parties, found that the purpose of the Agreement was "to facilitate Ritt's departure from Atlantic [Associates]." This finding is not disputed by the parties on appeal.

The district court, in its memorandum opinion, found that the parties entered into a "Non-Competition Agreement," which basically provided that, in exchange for International Vending's promise not to compete with Atlantic Associates in certain geographic areas, Atlantic Associates promised to pay a yearly sum to International Vending over a tento twelve-year period. The Agreement also contained the following arbitration clause:

In the event that any dispute or controversy arises under this Agreement between the parties, then, and in such event, both parties agree to submit the matter to arbitration to be conducted in accordance with the rules of the American Arbitration Association, which arbitration shall be held in Springfield, Massachusetts. *fn1

Atlantic Associates defaulted on its obligation to pay approximately $800,000 under the Agreement, and Ritt, as assignee of International Vending's rights under the Agreement, insisted on arbitration against Atlantic Associates under the above provision. *fn2 Pursuant to this arbitration, Ritt received an arbitration award on February 22, 1993, of slightly over $842,000, which Atlantic Associates refused to pay. Shortly thereafter, Ritt converted this award to judgment in a Massachusetts state court. In spite of the entry of judgment, Atlantic Associates still refused repayment, and to date Atlantic Associates has not paid the judgment.

Ritt next proceeded against Grundstad and Rahn, who had guaranteed Atlantic Associates' performance under the Agreement. The guaranty by Rahn and Grundstad appeared on the final page of the Agreement (page five), immediately beneath the signatures of Ritt and Rahn as signatories to the Agreement on behalf of International Vending and Atlantic Associates, respectively. The guaranty read in sum: "We hereby guarantee all of the provisions of the within Agreement, and especially the performance of Atlantic hereunder. This 10th day of July, 1981."

Paragraph four of the Agreement made reference to this guaranty as follows:

[Atlantic Associates] agrees to obtain the signatures of two of the beneficiaries under a certain trust that holds the shares in [Atlantic Associates], Messers. H. Joel Rahn and Oddmund Grundstad to this Agreement guaranteeing all of the terms, covenants and ...


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