Review of Court Decisions - Dispute Resolution Journal - Vol. 29, No. 2
Originally from Dispute Resolution Journal
FRANCHISE AND LEASE AGREEMENT — VENUE — AAA RULE §39(d) — FEDERAL COURT STAY OF STATE COURT ACTION, 9 U.S.C.A. §1, ET SEQ. FED. R. CIV. P. 4(d), (7), 12 AND 65, 28 U.S.C.A. 1332 (a)
Under the Federal Rules of Civil Procedure, a manner of service of process in an arbitration proceeding, if suitable and authorized by the State of New York, will confer personal jurisdiction over the respondent on the U.S. District Court. Where the dispute in question has been found to be subject to arbitration by a federal court, the federal court may appropriately stay the state court proceeding. Petitioner was an Indiana corporation with its principal place of business in New York. Respondents reside in Michigan. The parties entered into a franchise and lease agreement wherein the parties agreed to arbitration of their disputes under the Rules of the American Arbitration Association. Section 39 (d) of the AAA Rules provides that the parties consenting to arbitration under the rules agree "that any papers, notices or process necessary or proper for the initiation or continuation of an arbitration under these Rules and for any court action in connection therewith or for the entry of judgment on any award made thereunder may be served upon such party by mail addressed to such party or his attorney at his last known address or by personal service, within or without the state wherein the arbitration is to be held (whether such party be within or without the United States of America), provided that reasonable opportunity to be heard with regard thereto has been granted such party." The petitioner commenced arbitration before the AAA in New York. Respondent engaged counsel in New York to raise certain objections to the demand and then started a lawsuit in Michigan seeking to restrain the New York arbitration. Petitioner's attempt to remove that suit to federal court did not succeed. Petitioner then commenced this suit to compel arbitration under 9 U.S.C. §1, et seq. and 28 Fed. R. Civ. P. 65 and to enjoin the Michigan lawsuit. Respondent countered as follows: (1) that under Rule 12, Fed. R. Civ. P. the court lacked jurisdiction over the subject matter and over the person of the respondents (personal service of the order commencing this action was made upon respondent's New York attorney who appeared for respondent in the arbitration); and (2) that venue was improper. The court responded that jurisdiction of the subject matter was based upon diversity and the requisite amount was in controversy. 28 U.S.C.A. §1332(a). The parties' consent to jurisdiction was manifested under the above quoted AAA Rule §39(d) and respondent had authorized the service of process upon their New York attorney. Rule 4(d) (7), Fed. R. Civ. P., Farr & Co. V. CIJ. Intercontinental de Navegacion de Cuba, S.A., 243 F.2d 342 (2d Cir. 1957). Moreover, the Federal Arbitration Act provides that all proceedings on a petition to compel arbitration "shall be within the district in which the petition is filed." The court then addressed itself to the appropriateness of the relief sought. Citing Sterling Foundations, Inc. V. Merritt-Chapman & Scott Corp., 184 F. Supp. 327 (E.D.N.Y. 1955) the court held that "where a plaintiff responds to a demand for arbitration and raises objections thereto and thereafter commences a declaratory judgment, . . . the pending action should be stayed until the controversy has been submitted to arbitration."
Burger Chef Systems, Inc. V. Baldwin Inc. et al., 365 F. Supp. 1229 (1973).