Do you know what I mean when I refer to prima paint? Hint: it doesn’t come in a can.
If you are using a salvage contract, whether it is a BOAT/US Open form, a MARSALV form, or some other contract, it likely has an arbitration clause. Arbitration clauses are very useful, as they can greatly reduce your costs, and the time involved with fighting for a salvage award in Federal Court.
So, what has paint got to do with all that?
Prima Paint is legal short hand that refers to a famous US Supreme Court case brought by the Prima Paint Corp. against the Flood & Conklin Mfg. Co. in 1967. What they were fighting about isn’t so interesting, but how they were fighting is very important to arbitration clauses. Prima Paint and F&C Co had a contract that went sour, and that contract very specifically stated that
“[a]ny controversy . . . arising out of this agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules . . . of the American Arbitration Association.”
F&CM Co. had acted so badly (and they really did) that Prima Paint attempted to avoid arbitration and sued to have the entire contract tossed by the Second Circuit Court. Their claim was that F&CM had entered into the entire contract fraudulently from the get-go, so that even the arbitration clause wasn’t enforceable. The argument goes like this: if the contract was entered into due to fraud, then it should be declared unenforceable; null and void. If the arbitration clause is part of that contract, then it too is void and gets tossed with the contract – which a federal court can do.
This is where the plot thickens. In an earlier case, the 2nd Circuit ruled that an arbitration clause could actually be separated from the rest of a contract, based on their interpretation of The United States Arbitration Act of 1925, so in the Prima Paint case, the 2nd Circuit Court upheld its own reasoning and denied Prima Paint’s request to toss the whole contract, and ordered the parties back to arbitration. That pissed the Paint guys off so much that they took their case all the way to the US Supreme Court, who had this to say:
“The view of the Court of Appeals for the Second Circuit, as expressed in this case and in others, is that — except where the parties otherwise intend — arbitration clauses, as a matter of federal law, are “separable” from the contracts in which they are embedded, and that, where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud”
The Supreme Court made a few minor edits of their own, but they basically agreed with the Circuit Court and upheld their ruling that arbitration clauses are separable from contracts. What the court ruled is that the fraud must go specifically to the arbitration clause itself. In other words, if you had concealed the existence of the arbitration clause from the other party, intentionally misrepresented the arbitration clause itself, or attempted to add or alter that clause after the contract was signed, then the court would have reason to step in; but if both parties agreed to arbitration for disputes arising from the rest of the contract, then the proper venue for resolution is arbitration – even if the remainder of the contract is junk. Whether or not the remainder is junk is up to the arbitrators.
With all the recent hubbub about trillion dollar CEO office re-decorations, I surmise that they are sticking to stained panel walls rather than paint. Those insurance companies are sure wasting a boatload of money on lawyers who waste our time in federal courts learning what Prima Paint is all about…
