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Sefmat v. Shrinkit, Inc.

97-1765 (U.S. Dist. Ct. D. N.J. 1997) (Unpublished)

ARBITRATION—A party does not waive its objection to arbitration by participating in the arbitration. Even though the award is confirmed, the losing party’s deferred counterclaims can still be heard in a subsequent arbitration.

A distribution agreement between a manufacturer and a distributor provided for arbitration of certain disputes. A dispute arose and the manufacturer requested arbitration. The distributor commenced a lawsuit in which he set forth numerous counterclaims, which had not been asserted in the arbitration, and further asserted that the manufacturer’s claim was not within the scope of arbitrable claims. The manufacturer was awarded damages by the arbitrator and then filed a motion for confirmation of the award. The distributor counterclaimed that the issues in dispute were not arbitrable.

The United States District Court first determined that the distributor did not waive its objection to arbitration by participating in the arbitration. The Court then determined whether the issues were arbitrable. The Court found that all the issues concerned either interpretation or application of the distribution agreement and were not only arbitrable by the terms of the agreement, but, pursuant to the agreement, the arbitration award was binding on both parties. The Court also stated a strong policy in favor of arbitration such that any uncertainty or doubt concerning arbitrability should be resolved in favor of arbitration. After finding the disputes arbitrable, the District Court sought to determine whether the arbitrator’s ruling should be confirmed. Under 9 U.S.C.A. Sections 201-208, the Convention on the Recognition and Enforcement of Arbitral Awards, arbitration awards are enforceable within three years after the award and are to be confirmed unless a court finds certain limited statutory grounds for refusal or deferral of confirmation. In this case, the District Court found no reason not to recognize and enforce the award as final and binding. As to the distributor’s counterclaims, the Court held that the distributor should not be able to hold up confirmation of the award on the basis of claims that could have been arbitrated during the initial arbitration. Although the Court refused to analyze the merits of the distributor’s counterclaims, it did state that these claims could still be brought in an arbitration setting, in accordance with the distribution agreement.


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