## Facts

- Robert Lawrence Co., Inc. (buyer) ordered 36 pieces of woolen fabric from Devonshire Fabrics, Inc. (seller) through its New York office.
- The parties exchanged an order and a confirmation with differing terms, but both contained a broad arbitration clause requiring arbitration of “any complaint, controversy, or question” arising with respect to the contract, with quality disputes routed to an industry bureau and other disputes to the AAA.
- Delivery was postponed at the buyer’s request; shipment was made to Boston in June 1956, and the buyer paid $9,062.43 in July 1956.
- The buyer later alleged latent defects and that the goods were not “first quality,” and sued for damages based on alleged fraudulent misrepresentations inducing purchase and payment.
- In federal district court (diversity), the seller moved to stay the action pending arbitration under 9 U.S.C. § 3; the motion was denied on the view that the court must first determine whether a valid agreement to arbitrate existed.
- The seller appealed the denial of a stay.

## Issues

1. Whether the Federal Arbitration Act supplies federal substantive law governing validity and enforceability of arbitration clauses in contracts involving interstate commerce, including in diversity cases.
2. Whether the arbitration clause is separable from the rest of the contract so that fraud in the inducement of the contract as a whole is for the arbitrator absent a specific challenge to the arbitration clause.
3. Whether a broadly worded clause covering any controversy “with respect to” the contract encompasses a claim for fraud in the inducement.
4. Whether the seller waived its right to arbitrate by litigation conduct.

## Decision

- The Second Circuit reversed the order denying a stay and directed that the dispute proceed in accordance with the arbitration clause and the FAA.
- The court held that the FAA creates federal substantive law of arbitrability for covered contracts, applicable in diversity cases.
- The court held the arbitration clause is separable from the remainder of the contract; fraud allegations aimed at the contract generally do not defeat the arbitration agreement.
- The court held the fraud-in-the-inducement dispute fell within the broad arbitration clause.
- The court found no waiver because the seller timely sought a stay and did not act inconsistently with arbitration.

## Legal Principles

- For contracts within the FAA’s coverage (interstate commerce or maritime transactions), federal substantive law governs the validity, revocability, and enforceability of written arbitration provisions.
- An arbitration clause is treated as a distinct agreement; a general claim that the overall contract was fraudulently induced is ordinarily for the arbitrator, not the court.
- Courts decide only threshold challenges directed specifically to the arbitration agreement itself (e.g., that the clause was not agreed to or was itself fraudulently induced).
- Broad arbitration language covering any controversy “with respect to” a contract is construed to include fraud-in-the-inducement claims tied to the contractual relationship.
- A party does not waive arbitration absent conduct clearly inconsistent with the intent to arbitrate; a prompt request for a stay supports preservation of the right.

## Conclusion

The court required arbitration because the FAA supplies controlling federal law, the arbitration clause is separable from the sales contract, and a broad clause reaches fraud-in-the-inducement claims unless the arbitration agreement itself is specifically challenged, with no waiver shown by the party seeking arbitration.


Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959)