Originally from Dispute Resolution Journal

CORPORATE MERGER — CONTRACT AND SECURITIES CLAIMS — ACTION STATED PENDING ARBITRATION WHERE RESOLUTION OF ARBITRABLE CLAIM MAT MOOT NONARBITRABLE CLAIM — TIMELINESS

Where a nonarbitrable claim grounded in securities act violation was dependent upon counterclaims, arbitration pursunt to the contract was complied, and the securities claim stayed. The parties had agreed to merger of the plaintiffs corporation into the defendant in return for stock of the defendant Disputes arising under the agreement were to be arbitrated. One third of the agreed upon stock was placed in escrow, pending an audit of the plaintiffs corporation. The audit showed that the plaintiffs net worth was less than represented and the defendant ordered the escrowed stock impounded. Claiming that the audit was defective, the plaintiff sued for performance, grounding his suit in breach of contract, and securities and common law fraud. The District Court denied the defendant^a motion, under the U.S. Arbitration Art, to stay the action pending arbitration and a jury verdict resulted in judgment for the plaintiffs. On appeal, the court held that the defendant did not waive his right to arbitration by failing to appeal the interlocutory order of the District Court. The court noted, relying on Wilke V. Swan, 846 U.S. 427 (1968), that securities art suits are generally not arbitrable, and that where the securities and contract claims are "intertwined" a court could not order arbitration as it is necessary that the court preserve its jurisdiction. Claims are "intertwined," noted the courts where the arbitrator must necessarily consider the securities question in rendering his award under the contract Here, however, the plaintiffs securities claims were categorized as "dependent as relief band on the securities acts was necessary only if the contract questions were resolved in the defendants flavor. The plaintiff a main and first alternate allegations were grounded in contract, and the securities claim was a second alternate ground for relief. Thus, the court reversed the judgment in the plaintiffs favor and ordered arbitration of the contract question and a stay of the securities action pending arbitration, as the securities claim was "the rather small tall to a much larger dog."

Sibley v. Tandy Corp, 548 F.2d 540 (6th Cir. 1976). Rehearing denied 547 F.2d 286 (5th Cir. 1977).