Opinion
January 28, 1971
Order, Supreme Court, New York County, entered on October 15, 1970, modified, on the law and the facts, to the extent of (1) granting the motion of defendant Pro-Tech Programs, Inc., to dismiss the complaint and to stay any arbitration as against said defendant with respect to any claim for damages; (2) granting the motion of the other defendant (to dismiss the action on the ground that arbitration is the sole remedy) to the extent of staying prosecution of the action pending a hearing of the issue of the legality of the restrictive covenants and a determination as to whether the claims of violation of the restrictive covenants are subject to arbitration and whether the restrictive covenants, if determined to be unenforceable as an illegal restraint of trade, are separable from the remainder of the agreements; (3) staying arbitration as to the claims for damages pending determination of the issue of the legality of the restrictive covenants; and (4) dismissing the complaint as to defendant Pro-Tech Programs, Inc.; and as so modified the order is affirmed, without costs and without disbursements. The four plaintiffs sued to recover damages for breach of their employment contracts with the defendant Vigilant Protective Systems, Inc. (hereinafter "Vigilant"). In an attempt to pierce the corporate veil, they joined Pro-Tech Programs, Inc. as a codefendant because it owns all of the stock of Vigilant, and because it signed the employment agreement, limited, however, to the portion thereof covering indemnification against certain claims that might be made against the employee. Plaintiffs also allege a cause of action to declare a restrictive covenant in the employment agreement a nullity on the ground of restraint of trade. Defendants-appellants moved for dismissal of the complaint upon the ground that the employment agreements (all of which are similar) contained arbitration clauses and, in addition, the defendant-appellant Pro-Tech Programs, Inc., moved to dismiss on the ground that it was not a party to the contracts in question. The court below determined that the matter of damages for breach of the employment agreements should be arbitrated (which determination the plaintiffs have accepted), but that the question of the legality of the restrictive covenant was for the court. We agree that the issue of the restraint of trade contention with respect to the restrictive covenants should be tried first by the court and the arbitration stayed, pending such determination. ( City Trade Inds. v. New Cent. Jute Mills Co., 25 N.Y.2d 49; Matter of Aimcee Wholesale Corp. [ Tomar Prods.], 21 N.Y.2d 621; Durst v. Abrash, 22 A.D.2d 39, affd. 17 N.Y.2d 445; but see Domke, Commercial Arbitration, § 13.06, restrictive covenants.) The court should also determine whether any illegality is severable or permeates the entire contract. (See, in general, Kelly v. Kosuga, 358 U.S. 516; Bruce's Juices v. American Can Co., 330 U.S. 743; American Mfrs. Mut. Ins. v. American Broadcasting-Paramount Theatres, 17 L.Ed.2d 37, 39 [granting stay].) The motion to dismiss as to Pro-Tech Programs, Inc., should have been granted and arbitration as to damages should not have been directed against that corporation. It is not a party to the contract except as to a portion irrelevant to the claims and no special circumstances are shown to warrant disregarding the corporate form. ( Thomashefsky v. Edelstein, 192 App. Div. 368.) Hence, it is not subject to the arbitration clause. Whether it may be sued for inducing a breach of contract is not now before the court.
Concur — McGivern, J.P., Markewich, Nunez, Kupferman and Macken, JJ.