Académique Documents
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2d 1222
Alexander R. Sussman, New York City (Fried, Frank, Harris, Shriver &
Jacobson, New York City, of counsel and assisted by Jonathan S.
Margolis, New York City (not yet admitted to the Bar)), for respondentappellant.
Thomas A. Dubbs, New York City (Chadbourne, Parke, Whiteside &
Wolff, New York City, Daniel J. O'Neill, Steven S. Weiss, New York
City, of counsel), for petitioner-appellee.
Before SMITH, FEINBERG and TIMBERS, Circuit Judges.
FEINBERG, Circuit Judge:
The issue in this case is whether a court or an arbitrator should decide the
timeliness of a demand for arbitration. Philipp & Lion (Philipp), the party
seeking arbitration, appeals from an order of the United States District Court
for the Southern District of New York, Kevin T. Duffy, J., that granted the
petition of appellee Conticommodity Services Inc. (Conti) to stay Philipp's
demand for arbitration and denied Philipp's cross-motion to compel arbitration
under section 4 of the Federal Arbitration Act, 9 U.S.C. 4. The judge held that
it was proper for the district court to decide the issue and that Philipp's demand
for arbitration was time-barred. For reasons stated below, we reverse the
judgment of the district court and grant Philipp's cross-motion to compel
arbitration.
Several months after the parties entered into their agreement, a dispute arose
over Conti's handling of Philipp's account, and, as a result, Conti ceased acting
as Philipp's broker in late 1974. The parties attempted to settle their
disagreement, but in September 1978 Philipp, claiming it was owed $750,000,
served Conti with a demand for arbitration before COMEX. Conti applied in
the Supreme Court, New York County, for an order staying arbitration on the
ground that Philipp's demand was untimely under their agreement. Philipp
removed the action to the federal district court, and then cross-moved under
section 4 of the Federal Arbitration Act, 9 U.S.C. 4, for an order compelling
arbitration.
In the district court, Conti argued that Philipp's demand for arbitration was
untimely under the one-year limitation incorporated into the parties' agreement.
Philipp responded that the timeliness of its demand for arbitration was an issue
that should be determined by an arbitrator rather than by the court. Phillip also
argued that even if the issue was properly before the court, the demand for
arbitration was nonetheless timely under the agreement and the COMEX rule.
As already indicated, Judge Duffy rejected Philipp's arguments and held that
the issue of timeliness was properly before the court and that Philipp's demand
for arbitration was untimely. The judge recognized that the key question before
him was whether a court, rather than an arbitrator, could properly decide that
"the period of limitation contained in an arbitration clause had run." The judge
was also "of the opinion," in the words of 28 U.S.C. 1292(b), that his order
involved "a controlling question of law as to which there is substantial ground
for difference of opinion and that an immediate appeal" from his order might
"materially advance the ultimate termination of the litigation." Accordingly, the
When one party to a dispute seeks to stay the other party's demand for
arbitration by raising various defenses to arbitration before a district court,
there is a considerable temptation for the court to pass on the validity of such
defenses rather than to refer their resolution to an arbitrator. Determining the
merits of such defenses may often appear to be a simple task that should not be
delayed or deferred, and judges are, by training and temperament, prepared to
decide the issues that come before them. Furthermore, there is inevitably some
judicial hostility toward the view that a court is deprived of jurisdiction over
procedural questions simply because the parties have agreed to arbitrate
disputes.
In the present case, the existence of an arbitration agreement and Conti's refusal
to arbitrate its controversy with Philipp are both undisputed. Accordingly, it
would appear that the district court was required under section 4 to send the
dispute to arbitration, regardless of the validity of any procedural defenses, such
as untimeliness, that Conti might assert against Philipp's demand for arbitration.
The district court nonetheless denied Philipp's cross-motion under section 4 to
compel arbitration. The court did not address the express terms of that section,
but reasoned that it need not compel arbitration if it found that the agreement
was no longer "viable" due to the untimeliness of Philipp's demand for
arbitration. In support of its authority to determine the validity of Conti's timebar defense to arbitration, the district court cited our prior decision in
Reconstruction Finance Corp. v. Harrisons & Crosfield, 204 F.2d 366 (2d Cir.),
cert. denied, 346 U.S. 854, 74 S.Ct. 69, 98 L.Ed. 368 (1953), and distinguished
our later holding in Trafalgar Shipping Co. v. International Milling Co., 401
F.2d 568 (2d Cir. 1968). In his subsequent certification to this court, however,
Judge Duffy noted that there was substantial uncertainty concerning the
interpretation of these decisions. We agree that some ambiguity exists, but find
that Reconstruction Finance and Trafalgar Shipping, when read in light of the
language of section 4 and the policy considerations underlying the Federal
Arbitration Act, support the view that the validity of time-bar defenses to the
enforcement of arbitration agreements should generally be determined by the
arbitrator rather than by the court.
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arbitrator. Cf. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 555-59, 84
S.Ct. 909, 11 L.Ed.2d 898 (1964). This does not mean that the one-year
limitation period in the contract is meaningless, since there is no reason to
assume that an arbitrator will ignore any provision of the agreements that bind
the parties. It does mean that the arbitrator, not the court, should determine the
effect of the one-year limitation, including the validity of Philipp's arguments
that it does not bar arbitration on these facts.5
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Conti also contends that the express time limitation embodied in its private
agreement specifically reserved the question of timeliness for the court and
cites our decisions in Reconstruction Finance and Trafalgar Shipping for
support. It is true that both decisions noted that parties could avoid the
arbitration of disputes occurring long before by inserting an "express time
limitation" within the arbitration agreement. Neither opinion, however,
suggested that the running of such a limitation was to be determined by the
court. In the absence of express language in the contract referring to a court
questions concerning the timeliness of a demand for arbitration, the effect of a
time limitation embodied in the agreement is to be determined by the arbitrator.
In the present case, neither the private agreement nor the COMEX rule
embodies any such express language. As indicated above, the one-year time
limitation retains vitality even though its interpretation and enforcement occur
in the arbitral, rather than in the judicial, forum.6
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We also cited with approval Lowry & Co. v. S.S. LeMoyne D'Iberville, 253
F.Supp. 396 (S.D.N.Y.1966), appeal dismissed, 372 F.2d 123 (2d Cir. 1967)
As Philipp's briefs on appeal make clear, determining whether its demand for
arbitration was timely is not a simple task. First, it is far from certain whether
the COMEX rule or the Customer's Agreement governs the issue of timeliness.
Furthermore, if the COMEX rule applies, it is unclear whether the one-year
limitation incorporated into the rule in 1977 is applicable to a demand for
arbitration of a dispute that arose before that date. Finally, regardless of which
provision governs the issue of timeliness, factual determinations must be made
before the question can fairly be decided; e. g., when "the cause of action . . .
accrued." We note these issues only to emphasize the appropriateness of
referring such matters to "the expertise of the arbitrators" when the parties have
broadly agreed to arbitrate their disputes
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