Source: https://casetext.com/case/dapuzzo-v-globalvest-management-company
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Matched Legal Cases: ['§ 4', '§ 4', '§ 1', '§ 3', '§ 201', '§ 202', '§ 201', '§ 201', '§ 208', '§ 1', '§ 201', '§ 301', '§ 201', '§ 201', '§ 203', '§ 3', '§ 4', '§ 9', '§ 3', '§ 4', '§ 3', '§ 3', '§ 4', '§ 201', '§ 201', '§ 201', '§ 208', '§ 201', '§ 3', '§ 3', '§ 208', '§ 208', '§ 206', '§ 206', '§ 4', '§ 4', '§ 4', '§ 4', '§ 206', '§ 206', '§ 206', '§ 4', '§ 4', '§ 3', '§ 3', '§ 3', '§ 5302', '§ 4']

Dapuzzo v. Globalvest Management Company, 263 F. Supp. 2d 714 | Casetext
Klein v. ATP Flight Sch., LLP
See 9 U.S.C. § 4. "Thus, § 4 embodies a mandate that in some cases may engender an internal conflict: it…
The Outside Directors respond, and this Court agrees, that the doctrine of contra proferentem requiring…
Full title:PETER J. DAPUZZO, Plaintiff, v. GLOBALVEST MANAGEMENT COMPANY, L.P. and…
263 F. Supp. 2d 714 (S.D.N.Y. 2003)
holding that leaving the parties "free to pursue their contractual arbitration commitment by its terms" would not "conflict with the letter and purposes of the Convention"
Summary of this case from Farrell v. Subway International, B.V.
02 Civ 8594.
Plaintiff Peter J. DaPuzzo ("DaPuzzo") brought this action against defendants Globalvest Management Company, L.P. ("Globalvest"), Utilitivest II, L.L.C. ("Utilitivest LLC") and Utilitivest II, L.P. ("Utilitivest LP" or the "Fund") (collectively, "Defendants"), alleging Fraudulent inducement in connection with an investment DaPuzzo made in the Fund. Defendants moved, pursuant to the Federal Arbitration Act (the "FAA" or the "Act"), 9 U.S.C. § 1 et. seq., to stay this action and compel arbitration in the Bahamas pursuant to a provision of the partnership agreement governing the Fund. Alternatively, Defendants seek to dismiss the complaint for lack of subject matter or personal jurisdiction as to some or all of the Defendants, or for failure to state a claim. DaPuzzo cross-moved to compel arbitration in New York. On May 31, 2003 the Court issued a Decision and Order granting Defendants' motion to stay this action and indicated that its findings, reasoning and conclusions would be set forth in a separate Decision and Order to be made available to the parties. Accordingly, for the reasons discussed below, Defendants motion to stay this action is granted and DaPuzzo's motion to compel arbitration is denied.
See infra note 5 for elaboration and more specific definitions of the Court's references to the FAA.
DaPuzzo alleges that in May of 1998 he met on two occasions with Harold Lindenthal ("Lindenthal"), of Berkeley Global Associates, Inc., and Peter Gruber ("Gruber"), a principal of Utilitivest LLC and Chair and President of Globalvest. The meetings took place in DaPuzzo's office at Cantor Fitzgerald Co. in New York, where he served as a co-president of institutional equity sales and trading. On those occasions, Lindenthal and Gruber sought DaPuzzo's investment in Utilitivest LP, a venture capital fund.
Utilitivest LLC is the Fund's general partner and Globalvest is the Fund's Investment Manager and majority owner of Utilitivest LLC.
Any controversy between the Partners involving the construction or application of any of the terms, covenants, or conditions of this Agreement will be submitted to arbitration in the Bahamas on the request of the Partnership or any Partner, and the arbitration will comply with and be governed by the rules and procedures of the International Chamber of Commerce, as amended from time to time; provided, however, that nothing in this Section will constitute a waiver of any right any party to this Agreement may have to choose a judicial forum to the extent such a waiver would violate applicable law.
As a threshold matter, the Court notes that federal policy unequivocally encourages arbitration as an alternative means of dispute resolution. See David L. Threlkeld Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 248 (2d Cir. 1991) (citing Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989)); see also Oldrovd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998). This "liberal federal policy favoring arbitration agreements" is manifested in the FAA, which requires courts to compel arbitration where the parties have contractually committed to resolve by arbitration matters within the scope of their agreement. Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983); see also Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985) ("By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." (citing 9. U.S.C. § 3, 4) (emphasis in original)); Genesco, Inc. v. T. Kakijchi Co., Ltd., 815 F.2d 840, 844 (2d Cir. 1987).
Reinforcing the FAA's mandate, the Supreme Court has instructed that courts apply the statute in accordance with ordinary contract principles, "with a healthy regard" for the Act's underlying policy, to this end resolving any doubts concerning the scope of arbitrable issues in favor of arbitration, whether the issue at hand is a construction of the language of the agreement itself, or a defense to arbitrability.See Moses H. Cone, 460 U.S. at 24-25; see also Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg. Co., Ltd., 189 F.3d 289, 294 (2d Cir. 1999). This bias in favor of arbitration "is even stronger in the context of international business transactions." Threlkeld; 923 F.2d at 248 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 629-31 (1985)); see also WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997) ("[T]he existence of a broad agreement to arbitrate creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted disputes. Doubts should be resolved in favor of coverage." (citations omitted; internal quotations omitted)); Associated Brick Mason Contrs. of Greater N.Y., Inc. v. Harrington, 820 F.2d 31, 35 (2d Cir. 1987) (quoting ATT Technologies, Inc. v. Communications Wkrs. of Am., 475 U.S. 643, 650 (1986)). In applying this policy, the role of a court reviewing disputes potentially encompassed by arbitration provisions is limited to ascertaining two threshold inquiries: "whether a valid agreement or obligation to arbitrate exists, and . . . whether one party to the agreement has failed, neglected or refused to arbitrate, in whole or in part."PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967)).
DaPuzzo counters that Chapter 1 of the FAA applies only to purely domestic arbitration agreements and that, in the international context involved in the dispute at hand, it is not Chapter 1 of the statute that governs the parties' dispute, but the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "Convention"), 21 U.S.T. 2517, 330 U.N.T.S. 38, June 10, 1958 (codified at Chapter 2 of the FAA, 9 U.S.C. § 201 et seq.). DaPuzzo points out that, in accordance with the Convention's enabling act (the "Enabling Act"), codified in Chapter 2 of the statute, the Court lacks authority to compel arbitration in the Bahamas under Chapter 1 of the FAA because the parties' relationship at issue here is defined in an international agreement within the scope of the Convention and its Enabling Act, 9 U.S.C. § 202. Moreover, DaPuzzo maintains that because the Bahamas is not a signatory to the Convention, the arbitration clause of the Partnership Agreement is unenforceable in this Court and cannot be applied to compel him to arbitrate in the Bahamas or to stay this action.
9 U.S.C. § 201.
A list of the nations that are contracting parties to the Convention is included in 9 U.S.C. § 201 following the text of the Convention.
This case thus implicates the interplay between Chapters 1 and 2 of the FAA and the Convention, enactments whose provisions contain "overlapping coverage" and which may apply in a given case to the extent they do not conflict. Bergesen v. Joseph Muller Corp., 710 F.2d 928, 934 (2d Cir. 1983) ("There is no reason to assume that Congress did not intend to provide overlapping coverage between the Convention and the Federal Arbitration Act."); see 9 U.S.C. § 208 (prescribing that FAA Chapter 1 is incorporated into Chapter 2 to the extent not in conflict with the Convention); see also Yusef Ahmed Alghanim Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 20 (2d Cir. 1997), cert. denied, 522 U.S. 1111 (1998); Oil Basins Ltd. v. Broken Hill Proprietary Co. Ltd., 613 F. Supp. 483, 486 (S.D.N.Y. 1985).
The Court notes that the relevant case law reflects some imprecision and overlapping nomenclature with respect to the exact title used to describe the various enactments and legal instruments embodying federal arbitration policy. The term "FAA" or the "Arbitration Act" is sometimes employed to encompass the entire body of federal law governing the subject of arbitration as now codified in Title 9 of the United States Code. That Title consists of three separate but interrelated chapters. Chapter 1 comprises the original Federal Arbitration Act adopted in 1925 (the "1925 Act") and incorporates §§ 1-16 of Title 9. Chapter 2, which consists of §§ 201-208, contains the Enabling Act passed in 1971 to implement the Convention, as well as the text of the treaty itself and a list of signatories. Chapter 3, enacted in 1990 and comprised of §§ 301-307, gives effect to the Inter-American Convention on International Commercial Arbitration of 1975.
In the interest of optimal clarity, as used in this case, the Court's citations to the "FAA" or the "Act" refer to the federal statute as a whole, in particular, to the contents of Chapters 1 and 2 taken together as manifesting the body of federal law and policy regarding arbitrability. Any specific references to the Convention convey solely the text of the treaty itself as set forth in 9 U.S.C. § 201. Where separate identification is necessary, the Enabling Act that implements the Convention and specifically comprises Chapter 2, 9 U.S.C. § 201-208, is referred to as the "Enabling Act" or "Chapter 2." And to distinguish between the provisions of the 1925 Act and those of the Convention's Enabling Act, the text will specify either Chapter 1 or Chapter 2 or both, as applicable.
The Court notes that this action was brought pursuant to the Court's diversity jurisdiction. If diversity exists, it would constitute a source for the Court's exercise of subject matter jurisdiction independent of the jurisdictional authority conferred by the Enabling Act. See 9 U.S.C. § 203 (providing that an action brought pursuant to the Convention shall be deemed to arise under the laws and treaties of the United States, thus vesting federal courts with original jurisdiction over such proceedings regardless of the amount in controversy). Here, Defendants challenge the existence of complete diversity between DaPuzzo and other limited partners of the Fund who, according to Defendants, reside in DaPuzzo's home state of Connecticut. DaPuzzo responds that his action is not derivative but based solely on the injury to him, and thus may properly proceed against the general partner even if the residence of limited partners destroyed complete diversity. Moreover, DaPuzzo stipulates that if upon review of relevant partnership documents the Court finds that strict diversity does not exist among all limited partners, he would dismiss his claims as against the Fund and proceed with the action only against the other Defendants. (See Plaintiff's Reply Memorandum of Law in Further Support of His Cross-Motion to Compel Arbitration in New York Before the American Arbitration Association, dated February 26, 2003, at n. 1.).
The legislation empowered federal courts to recognize and specifically enforce arbitration agreements within the reach of the statute. Among the courts' primary means to serve these ends, the statute authorized staying litigation that contravenes the parties' contractual obligation to arbitrate, see 9 U.S.C. § 3; directing the parties to arbitrate covered disputes in accordance with the terms of their contract, see 9 U.S.C. § 4; and confirming awards rendered pursuant to valid arbitration,see 9 U.S.C. § 9.
The 1925 Act, however, embodied several anomalies and limitations. Though the statute established a distinct area of federal law fostering arbitration and enforcing the contractual commitment to do so, it did not create an independent source of federal jurisdiction for this purpose. See Moses H. Cone, 460 U.S. at 26 n. 34; Robert Lawrence, 271 F.2d at 408; see generally Donald P. Swisher, International Commercial Arbitration Under the United Nations Convention and the Amended Federal Arbitration Statute, 47 Wash. L. Rev. 441, 451 (1972). Hence, a litigant who seeks to invoke the statute to aid arbitration must satisfy the requirements of jurisdictional amount and diversity of citizenship, or demonstrate the existence of some other independent basis of subject matter jurisdiction, before the court may validly entertain an application for any remedy authorized by the statute. See Moses H. Cone, 460 U.S. at 26 n. 34. While federal courts may stay litigation instituted in violation of an arbitration clause, this relief is available only in the court in which the particular suit has been instituted. See 9. U.S.C. § 3;Provident Bank v. Kabas, 141 F. Supp.2d 310, 315 (E.D.N.Y. 2001); Couleur Int'l., Ltd. v. Saint-Tropez West, 547 F. Supp. 176, 177-78 (S.D.N.Y. 1982). Additionally, the statute confines the federal courts' authority to recognize arbitration agreements and confirm arbitral awards only when such proceedings are to occur, or the awards have been rendered, within the bounds of their own districts. See 9 U.S.C. § 4;Snyder v. Smith, 736 F.2d 409, 418 (7th Cir. 1984),overruled on other grounds, Felzen v. Andreas, 134 F.3d 873, 877 (7th Cir. 1998); Provident Bank, 141 F. Supp.2d at 315; Couleur Int'l, 547 F. Supp. at 177-78.
Prior to Congress's passage of the Enabling Act in 1970, these jurisdictional and venue constraints worked to narrow even more markedly the scope of the federal courts' authority to recognize and enforce arbitration agreements covering international transactions, in particular those calling for arbitration to be held abroad or seeking enforcement of an arbitration agreement entered into, or confirmation of an arbitral award rendered, in a foreign state. See generally Leonard V. Quigley,Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1050, 1057 (1961). The federal courts' competence to recognize and give effect to such arbitration agreements and awards, absent individual bilateral treaties with particular nations, was often lacking. Where the authority existed, its efficacy depended on the substantive rules and procedures of the foreign states involved, the applicable practices of which varied from country to country. See id.
In such cases, litigation instituted with regard to issues subject to arbitration in a foreign state generally prompted either dismissal — if the only relief sought was arbitration and all of the issues in dispute were arbitrable — or more commonly, a stay of judicial proceedings pending foreign arbitration.See id. at 75 (construing the arbitration statute to mean that "[t]he power to grant a stay pending arbitration under Section 3 of the Act was not conditioned upon the existence of a power to compel arbitration under Section 4 and that, acting under Section 3, the court may properly `order a stay even when it cannot compel the arbitration' and even though arbitration must take place beyond the jurisdiction of the court. And this is true, whether the arbitration is to be in the United States or in a foreign county." (quoting Shamferoke Coal Supply Co. v. Westchester Service Corp., 293 U.S. 449, 453 (1935))); see also Scherk v. Alberto-Culver Co., 417 U.S. 506, 519-20 (1974); Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968); Kulukundis, 126 F.2d at 987-88; Mannesman Rohrleitungsbau, G.M.B.H. v. S.S. Bernhard Howaldt, 254 F. Supp. 278, 279 (S.D.N.Y. 1965) ("The circumstance that the arbitration is to take place in a foreign country does not affect the right to a stay under 9 U.S.C. § 3."); see generally Swisher, supra, 47 Wash. L. Rev. at 462 (noting that "it has been generally held that section 4 has no application to arbitration in a foreign county," prompting courts to distinguish between motions under § 3 to stay proceedings and those under § 4 to compel arbitration).
Scherk involved a commercial dispute between a German citizen and an American corporation involving an agreement that called for arbitration in Paris, France. Although at the time in 1971 when the litigation commenced in federal court Congress had ratified the Convention and passed the Enabling Act, for reasons not articulated in the Supreme Court's opinion the case apparently proceeded under the provisions of Chapter 1 rather than Chapter 2. See 417 U.S. at 509-10. In a footnote, the Supreme Court acknowledged the existence of the Convention and the Enabling Act, but nonetheless gave no indication that its decision rested on application of those enactments. See id. at 520 n. 15.
However, not every arbitration agreement that satisfies this definition is necessarily enforceable under the Convention and the Enabling Act. In U.S. Titan, the Second Circuit further elaborated the standards by which "an agreement to arbitrate exists within the meaning of the [Convention] and the [FAA]," requiring four preliminary findings: "(1) there is a written agreement; (2) the writing provides for arbitration in the territory of a signatory of the convention; (3) the subject matter is commercial; and (4) the subject matter is not entirely domestic in scope." 241 F.3d at 146 (citing 9 U.S.C. § 201 andSmith/Enron, 198 F.3d at 92) (emphasis added). If an agreement to arbitrate satisfies these criteria, a court petitioned to recognize the contract must enforce its arbitration terms. See id. ("Arbitration agreements subject to the Convention are enforced in accordance with Chapter 2 of the FAA. . . . [U]pon finding that such an agreement exists, a federal court must compel arbitration of any dispute falling within the scope of the agreement pursuant to the terms of the agreement."); Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1st Cir. 1982) (noting that if the district court resolves in the affirmative the four preliminary findings, then it must order arbitration unless it finds the agreement null and void, inoperative or incapable of performance); see also Chelsea Square, 189 F.3d at 294.
The scope of the Enabling Act is not entirely coextensive with the permissible coverage of the Convention. For instance, the Convention contains no explicit limitation to commercial disputes, but allows each contracting state to define in its national law the non-domestic matters to which the Convention would apply. See Convention, Art. I(3), 9 U.S.C. § 201; Quigley, supra 70 Yale L.J. at 1061. The Convention also permits reservations enabling signatories, on the casis of reciprocity, to confine recognition and enforcement of awards made in other contracting states. See Convention, Art. I(3); Quigley, supra, at 1061. The effect of these reservations, adopted by the United States when it acceded to the Convention, is to preclude application of the Convention and the Enabling Act to recognition of agreements providing for arbitration in a non-contracting state or to enforcement of awards made in such countries. See Swisher, supra, 47 Wash. L. Rev. at 457.
Enforcement of an arbitration agreement requires a court properly "seized of an action," at the request of a party to the agreement, to issue an order directing the parties to honor their contractual obligation and proceed to arbitrate the matter in dispute. Convention, Article II(3), 9 U.S.C. § 201; Jain, 51 F.3d at 691. Although the Convention contains no express provision concerning a stay of the underlying litigation, such authority exists both implicitly, as well as by incorporation of Chapter 1 into Chapter 2 and the Convention through 9 U.S.C. § 208. See Andros Compania Maritima, S.A. v. Andre Cie, S.A., 430 F. Supp. 88, 92 (S.D.N.Y. 1977); see generally Quigley, supra, 70 Yale. L.J. at 1064; van den Berg, at 130.
Such competence would exist implicitly, in particular, because not all issues presented in disputes subject to the Convention are necessarily arbitrable; some matters may fall within the terms of the arbitration agreement while others may not. See Dean Witter, 470 U.S. at 219, 105 S.Ct. 1238 ("The Act, after all, does not mandate the arbitration of all claims, but merely the enforcement — upon the motion of one of the parties — of privately negotiated arbitration agreements.") The court in which the underlying action is pending, assuming it otherwise has jurisdiction over the matter and the parties, may thus stay the litigation solely with respect to the arbitrable aspects of the dispute. In fact, Article II(1) of the Convention clearly recognizes that an arbitration agreement may provide for arbitration of "all or any differences" which arise between the parties. 9 U.S.C. § 201; see generally Quigley, supra 70 Yale L.J. at 1064.
Otherwise, the power to stay an action related to an arbitration agreement encompassed by the Convention could derive from incorporation of § 3 into Chapter 2 and the Convention to the extent application of § 3's provisions in a given case is not incompatible with the requirements of the Convention. See 9 U.S.C. § 208; Sedco Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1146 (5th Cir. 1985) (noting that by reason of the incorporation of Chapter 1 into the Convention pursuant to 9 U.S.C. § 208, both the FAA and the Convention provide that a district court may stay an action upon finding that a dispute in the pending lawsuit is subject to arbitration); see generally John P. McMahon, Implementation of the UN Convention on Foreign Arbitral Awards in the U.S. 2 J. Mar. L. Com. 735, 754 (1971).
The court's authority to compel arbitration of a dispute covered by an agreement subject to the Convention is set forth in Chapter 2 under § 206, which states in pertinent part that: "A court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." 9 U.S.C. § 206.
for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.
Thus, § 4 embodies a mandate that in same cases may engender an internal conflict: it directs both that the court enforce an arbitration agreement in accordance with its terms and that it may direct arbitration only if it is to occur within the court's own district. See Jain, 51 F.3d at 690; National Iranian Oil, 817 F.2d at 330; Snyder, 736 F.2d at 419-20; Oil Basins, 613 F. Supp. at 487. Consequently, in reviewing a petition to enforce an agreement within the scope of Chapter 1, "[a] district court compelling arbitration under § 4 lacks the power to order arbitration to proceed outside its district."Jain, 51 F.3d at 690; see also Provident Bank v. Kabas, 141 F. Supp.2d 310, 319 (E.D.N.Y. 2001); Oil Basins, 613 F. Supp. at 487. Accordingly, this Court lacks authority under § 4 to direct the parties to arbitrate their dispute in the Bahamas.
In some cases to which the Convention and Chapter 2 do apply, a potential conflict may arise between the provisions of Chapter 1 and those of Chapter 2. In endeavoring to harmonize the overlap between § 4 of Chapter 1 and § 206 of Chapter 2, the Seventh Circuit explained:
Finally, DaPuzzo points out that Defendants drafted all the documents pertaining to the parties' relationship and transactions, and that he was not actually provided with a copy of the Partnership Agreement until three years after he signed the Subscription Agreement. Consequently, he asserts that if an ambiguity here exists as to the content of the parties' agreement, it should be construed against the interest of the party that prepared the relevant papers. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63 (1995);PaineWebber, 81 F.3d at 1199; see also Int'l Multifoods Corp. v. Commercial Union Ins., Co., 309 F.3d 76, 88 n. 7 (2d Cir. 2002). The Court finds no merit in these arguments. It does not follow that because this Court cannot direct enforcement of the Partnership Agreement's arbitration clause in the Bahamas, that a sufficient basis exists under the CIM for it to compel arbitration in New York.
Moreover, the Second Circuit has noted that New York law has become increasingly reluctant, except "`as a matter of last resort'", to apply the rule construing ambiguous contract terms against the drafter and that the doctrine is "generally inappropriate if both parties are sophisticated." Int'l Multifoods, 309 F.3d at 88 n. 7 (quoting United States Fire Ins. Co. v. General Reins. Corp., 949 F.2d 569, 573 (2d Cir. 1991)). Rather, the central inquiry under New York law as to whether an ambiguity exists in a contract is whether the terms "could suggest `more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" Morgan Stanley Group Inc. v. New Eng. Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000) (quoting Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir. 1997)). Finally, in construing contractual language, it bears recalling the Second Circuit's admonition that "`rules of interpretation must be taken as a guide, not a dictator. The text should always be read in its context. Indeed, text and context necessarily merge to some extent. . . ." Int'l Multifoods, 309 F.3d at 87 n. 4 (quoting United States v. Lennox Metal Mfg. Co., 225 F.2d 302, 311 (2d Cir. 1955)).
By its terms, the CIM is a summary of general material and underlying documents relating to investment in the Fund that was "prepared solely for the information of the investor to whom it has been delivered. . . ." (Notion of Motion Ex. 1, at ii.) It warns that "a number of factors material to a decision whether to invest in the partnership have been presented in this memorandum in summary or outline form only in reliance on the financial sophistication of all offerees." (Id. (emphasis added).) Indeed, the very first paragraph of the document warns that:
The CIM contains two page "ii"s. For the sake of clarity, the Court will hereinafter refer to the first page ii as the "Cover Page."
This document shall not constitute an offer to sell or a solicitation of an offer to buy any interests. . . . The information contained herein is subject to updating and amendment.
The rights and obligations of Partners will be governed by the Partnership Agreement. The following briefly summarizes certain provisions of the Partnership Agreement. . . . Prospective investors are urged to read the Partnership Agreement in its entirety before subscribing.
In analogous situations, New York courts have rejected attempts to incorporate provisions of collateral understandings or documents into the underlying agreement that gives rise to the parties' relationship or the transaction at issue, when such understandings conflict with the underlying written agreement.See, e.g., Marine Midland Bank-S. v. Thurlow, 425 N.E.2d 805, 807-808 (N.Y. 1981) (evidence of all prior or contemporaneous negotiations between the parties offered to contradict or modify the terms of the writing excluded); Thomas v. Scott, 27 N.E. 961, 963 (N.Y. 1891) (when a written instrument is potentially not the entire agreement between the parties, evidence of additional understandings "must be consistent with and not contradictory of" the underlying agreement); see also Wallace Steel, Inc. v. Ingersoll-Rand Co., 739 F.2d 112, 115 (2d Cir. 1984); Lee v. Joseph E. Seagram Sons, Inc., 552 F.2d 447, 451-53 (2d Cir. 1977).
In the instant case, the parties' legal relationship arose from, and is primarily defined by, the Subscription Agreement and the Partnership Agreement. At best, the CIM, like the alleged collateral agreements in Threlkeld and Pervel, is an adjunct document bearing some relationship to the Partnership Agreement, but necessarily subordinate to, and dependent upon, the Partnership Agreement, without which the CIM has "no starting point, no finishing point and no subject matter."Pervel, 871 F.2d at 9. Therefore, the CIM cannot properly be understood as having been incorporated into the parties' arrangement reflected in the Subscription Agreement and the Partnership Agreement, with which it conflicts.
The Court rejects DaPuzzo's argument that the two arbitration provisions here may be easily accommodated. In fact, the CIM arbitration language is palpably at odds with the parallel provision of the Partnership Agreement. The CIM clause makes reference to settlement of disputes by binding arbitration according to the rules and regulations of the AAA. (See Notice of Motion Ex. 1, at 43.) Moreover, the provision does not designate a forum. By contrast, the Partnership Agreement specifies the Bahamas as the venue and the applicable arbitration rules to be those of the ICC, and disclaims waiver of the right to proceed in a judicial forum insofar as any such waiver would be unlawful. (See id. Ex. 3 ¶ 13.12, at 31.)
The Partnership Agreement's arbitration clause encompassesany such controversy, and is otherwise formulated in broad terms expansive enough to reach the dispute at hand. See ATT Technologies, 475 U.S. at 650 (noting that the presumption of arbitrability of specific issues is particularly applicable where the arbitration clause is broadly worded to embrace "any differences"); WorldCrisa, 129 F.3d at 75; Threlkeld, 923 F.2d at 251. The very essence of DaPuzzo's theory is founded on the meaning of "Term of the Partnership," "Drawdowns," "Commitment Period," and "Dissolution," as those terms are defined in ¶¶ 2.6, 3.2 and 12 of the Partnership Agreement. (Notice of Motion, Ex.3.) These allegations integrally "`touch matters'" squarely covered by the terms of the Partnership Agreement. See Genesco, Inc. v. T. Kakiuchi Co., 815 F.2d 840, 846 (2d Cir. 1987) (quoting Mitsubishi, 473 U.S. at 624 n. 13). In sum, the situation at hand is not one where distinct provisions of separate documents addressing different procedures that could be read and harmoniously accommodated under the framework of the governing contract are incorporated into one integrated agreement. See PaineWebber, 81 F.3d at 1201 ("[T]he Agreement cannot be deemed to incorporate all these limitations rules by reference, because there is no basis for assuming that they are consistent. . . .").
Though DaPuzzo asserts that an actual copy of the Partnership Agreement was not provided to him for personal execution until three years after his subscription to a limited partnership interest in the Fund, nowhere does he challenge the validity of that contract or its arbitration clause, nor does he deny his explicit consent to it. Even if he did not actually receive and execute the Partnership Agreement until that later date, at the time DaPuzzo became legally committed to his investment in the Fund by signing the Subscription Agreement, he acknowledged having received and read the Partnership Agreement, and agreed to be bound "to each and every term of the Partnership Agreement as if my signature were subscribed thereto." (Notice of Motion, Ex. 2, ¶ 3(c), at 4.) See Genesco, 815 F.2d at 845 ("Under general contract principles a party is bound by the provisions of a contract that he signs, unless he can show special circumstances that would relieve him of such an obligation.");Level Export Corp. v. Wolz, Alken Co., 111 N.E.2d 218, 221 (N.Y. 1953) (holding that a party cannot avoid arbitration of a dispute encompassed by a valid arbitration clause contained in a binding contract by claiming that he was unaware of or never read the arbitration provision); see also Berger v. Cantor Fitzgerald Sec., 967 F. Supp. 91, 93 (S.D.N.Y. 1997) ("Under New York law, a person who signs a contract is presumed to know its contents and to assent to them." (quoting Progressive Cas. Ins. Co. v. C.A. Reasequradora Nacional de Venezuela, 991 F.2d 42, 45 (2d Cir. 1993))). In any event, DaPuzzo would be bound by the contractual obligation to arbitrate even if he had not executed the Partnership Agreement. See Genesco, 815 F.2d at 846 ("[A] party may be bound by an agreement to arbitrate even absent a signature. . . . [W]hile the Act requires a writing, it does not require that the writing be signed by the parties." (citations omitted; internal citations omitted)).
Here, DaPuzzo cannot escape the legal consequences of his obligation to fully review the entire contractual document governing his investment before committing to its contents,see id. at 95, and the Court finds no special circumstances sufficient to relieve DaPuzzo of his duty to abide by the binding promises made under the contract that he executed.
At the same time, however, as discussed above, as authorized by Congress in implementing the Convention, courts lack jurisdiction to compel arbitration agreements in non-signatory countries. See National Iranian Oil, 817 F.2d at 331. Moreover, pursuant to the optional protocol contained in Article I(3) of the Convention, which the United States adopted when it ratified the treaty, the Convention may be applied on the basis of reciprocity to the recognition and enforcement of only those awards made in contracting states.See id. at 335. These limitations, as the Fifth Circuit noted in National Iranian Oil, may have been meant
Article I(3) of the Convention provides in relevant part:
Id. at n. 29.
only to allow signatories to partake of the Convention's benefits in U.S. courts and thus to give further incentives to non-signatory nations to adhere to the Convention. . . . Were we to order arbitration in the U.S. in the face of a forum selection clause designating a non-signatory forum, which was unenforceable ab initio, the non-signatory would have little reason to leave the Hobbesian jungle of international chaos for the ordered and more predictable world of international commercial law.
Whatever the intent of these policies, insofar as parties to a contract designate arbitration to occur or seek enforcement of arbitral awards rendered in any of the Convention's non-signatory states, the limitations described above may serve to some degree to circumscribe the universe of arbitration agreements to which federal courts could recognize and give effect. This consequence would work against the FAA's mandate to courts to treat agreements to arbitrate "with a healthy regard for the federal policy favoring arbitration", and to honor the legitimate expectations and commitments manifested by parties to an arbitration clause in accordance with the express terms of their contract. Moses H. Cone, 460 U.S. at 24; see also M/S Bremen, 407 U.S. at 12 ("The choice of [arbitration] forum was made in an arm's-length negotiation by experienced and sophisticated businessmen, and absent some compelling and countervailing reason it should be honored by the parties and enforced by the courts."); Scherk, 417 U.S. at 519-20.
As of May 27, 1999, 147 countries have ratified the Convention. See T.M.C. Asser Institute, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, List of Contracting States as of 27-5-1999, athttp://www.asser.nl/ica/nyca-eng.htm (last visited June 9, 2003).
Of course, Congress has the prerogative to legislate such national policy choices, and to resolve conflicts between statutory ends in favor of the narrower scope of its enactments. Where Congress pronounces itself plainly and clearly concerning such policy options in a matter within its power, courts are duty-bound to enforce that mandate. Here, in the Court's reading of Congress's intent reflected in the United States's acceding to the Convention and legislating the Enabling Act, it is by no means apparent that Congress contemplated narrowing the scope of arbitration agreements that courts could acknowledge, if not enforce, under the FAA, to the extent doing so would not conflict with the Convention. See Smith/Enron, 198 F.3d at 94 (noting that it is "questionable" whether the reciprocity provision found in Article I(3) of the Convention, dealing with enforcement of awards, applies to honoring agreements to arbitrate that are covered by Article II); van den Berg,supra, at 65-66 (noting that the reciprocity principle, in accordance with Article I(3) of the Convention, applies only to the enforcement of arbitral awards).
DaPuzzo's argument embodies several fallacies. The Court has already ruled that the arbitration agreement in this case does not fall within the ambit of the Convention because the forum in which the arbitration is intended to take place is a non-contracting state. Accordingly, the Court cannot compel arbitration in the Bahamas pursuant to Chapter 2. But that determination does not end the inquiry here, as DaPuzzo's hypothesis would suggest, because as already noted, the exercise of the Court's jurisdiction in the instant matter is not founded solely on Chapter 2, but has an independent basis in the parties' diversity of citizenship. In consequence, if the agreement here drops out of the reach of the Court's jurisdiction under Chapter 2, it may still fall into the fold of Chapter 1 for other appropriate relief to the extent that such relief is not inconsistent with any provisions or underlying purposes of the Convention and the Enabling Act. Accordingly, because the Court lacks authority, by operation of either FAA Chapter 1 or Chapter 2, to enforce the arbitration clause at issue here in accordance with its terms, that does not mean that the Court is thereby automatically deprived of jurisdiction to grant any other appropriate remedy applicable under Chapter 1 to the parties' controversy.
Chapter 2 is not an exclusive source of judicial authority even with regard to agreements encompassed by its mandate. As noted above, in some respects there is "overlapping coverage" between the Convention and the FAA. Bergesen, 710 F.2d at 934; see also Jain, 51 F.3d at 690 (noting the absence in 9 U.S.C. § 206 of an explicit congressional statement making § 206 the exclusive method by which courts could order arbitration). On this reasoning, Chapter 2 does not constitute the exclusive source of authority for the court to stay litigation involving an arbitration agreement related to an international commercial transaction. See Scherk, 417 U.S. at 519-20 (reversing a denial of a motion to dismiss or stay the action in favor of arbitration abroad under an application of Chapter 1 rather than pursuant to the Convention and Chapter 2).
This reading is consistent with the language of § 4 and its interpretive jurisprudence. Where an arbitration agreement contains a forum selection clause, a court may not order arbitration to occur beyond its district, but may order a stay.See Oldroyd, 134 F.3d at 75-76 (noting that a court asked to stay proceedings pending arbitration must resolve, among other things, whether the parties agreed to arbitrate and the scope of that agreement; and if that court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration); Provident Bank, 141 F. Supp.2d at 315; Oil Basins, 613 F. Supp. at 487; see also Scherk, 417 U.S. at 519-20; Jain, 51 F.3d at 690; Snyder, 736 F.2d at 420.
Where a federal court lacks authority pursuant to 9 U.S.C. § 4 to compel arbitration outside its district, the court may still determine that the dispute nonetheless remains "referable to arbitration" elsewhere, if a forum is designated, and must then order a stay instead, thereby leaving the parties free to pursue their contractual rights and remedies in the appropriate venue. But in that event the court does so "under such an agreement." 9 U.S.C. § 3. In other words, the court acts to enable referral in accordance with the terms of the arbitration agreement's forum selection provision, albeit potentially by a court in another jurisdiction that is authorized to enforce the agreement, if a particular forum is designated, or by the court where the action is pending if no arbitration venue is specified by the parties.See Snyder, 736 F.2d at 419-20; Oil Basins, 613 F. Supp. at 487. Nothing in 9 U.S.C. § 3 or in Chapter 2 further defines or delimits how a dispute may be referable to arbitration, or suggests that for the purposes of granting a stay of litigation, courts are precluded from deeming a matter "referable to arbitration" under the terms of an arbitration clause on the ground that the designated forum is a non-signatory of the Convention.
On this point, it bears considering that even in cases where the Convention acts as a bar to an order compelling arbitration in a non-signatory country, it generally does so because a court in a signatory state cannot give extraterritorial force to an order the effects of which the non-contracting state has not by treaty bound itself to recognize and enforce. There is no basis in the language of the Convention or the Enabling Act to construe the denial of recognition to an arbitration clause designating a non-signatory as a forum for arbitration as designed to render such an arbitration agreement a nullity for all purposes, as DaPuzzo would have it, or as necessarily proscribing arbitration proceedings under the agreement from being pursued in the designated forum. Nor is there ground to regard the limitations on enforcement of arbitration that are permissible under the Convention as an implicit means to penalize the parties or a non-signatory state selected as a forum for arbitration. In articulating the aims embodied in the Convention, the Supreme Court declared that:
As noted above, the Convention's optional reciprocity provision that DaPuzzo cites in support of his proposition that granting a stay under 9 U.S.C. § 3 in this case would conflict with the Convention's goal of encouraging more states to adhere to it is contained in Article I(3), which specifically applies to enforcement of arbitral awards, and not to recognition of agreements to arbitrate. See Smith/Enron, 198 F.3d at 94;van den Berg, supra, at 65-66.
The more likely intent of the restriction barring federal court orders compelling arbitration abroad is driven by more practical considerations: that the non-contracting state has not agreed to recognize and enforce an order directing arbitration entered by a foreign jurisdiction. For a court to direct otherwise, therefore, potentially may offend principles of international comity, and thus may improvidently commit the court and the parties to an exercise in futility. But while a non-contracting state may not be obligated to honor the orders of a foreign court directing parties to pursue arbitration in the non-signatory forum, that state may still have the legal processes in place mainfesting a public interest in enforcing contractual rights and duties invoked by persons subject to that state's jurisdiction.
Defendants cite to a statute of the Bahamas relating to arbitration that purportedly would provide a forum to address DaPuzzo's claim. (See An Act for Amending and Consolidating the Enactments Relating to Arbitration, Chapter 168, Statute Law of the Bahamas 1987 Revised Edition, reprinted in Notice of Motion, Ex. 1.).
A court's decision to stay litigation has no comparable direct coercive effect. While it may facilitate or usher arbitration, a stay of an action does not necessarily require that outcome.See Kulukundis, 126 F.2d at 987 (noting the difference between an order staying an action and one directing specific performance of a contractual obligation to arbitrate, the Second Circuit declared: "The first merely arrests further action by the court itself in the suit until something outside the suit has occurred; but the court does not order that it shall be done. The second . . . affirmatively orders that someone do (or refrain from doing) some act outside the suit."). To be sure, a stay may accord the parties a sobering cooling-off climate, and the procedural framework and encouragement conducive for arbitration in accordance with their agreement. And it may open doors and clear pathways to other options as well. A stay of an action may offer opportunities for the parties to reassess disagreements over jurisdiction, venue or procedures and accommodate their differences in other ways, or provide the time necessary to readjust their contractual rights and duties so as to resolve the underlying dispute without further litigation, or indeed even without arbitration.
In deciding upon this course, the Court considers first the proper respect that must be accorded to the federal policy favoring arbitration where the parties have manifested a clear intention to adjudicate their underlying dispute through more economical means rather than through the rigors and unmerciful costs of litigation. See Moses H. Cone, 460 U.S. at 24;Chelsea Square, 189 F.3d at 294; Threlkeld, 923 F.2d at 248. Second, this is not a case in which the Court harbors any doubt concerning whether the parties' pertinent agreement contained an arbitration provision, or whether or not, if it did, there is any ambiguity concerning the applicability of the clause to the dispute at hand. In fact, it is undisputed that the parties unequivocally committed to resolve any controversies arising out of their partnership relationship and attendant investment transactions by arbitration; the only points in contention relate to the proper forum and applicable procedures.
Fourth, for the reasons discussed above, the Court is persuaded that the more complete and compelling manifestation of the parties' legitimate expectations and understanding concerning arbitration is that expressed in the text of the Partnership Agreement that DaPuzzo actually signed in 2001. Thus, even if any valid ground existed in 1998 for DaPuzzo to invoke the CIM's arbitration language as creating an ambiguity and expressing his understanding of the operative commitment — because allegedly he had not been provided a copy of the Partnership Agreement — any doubts or uncertainties DaPuzzo may have been laboring under should have been dispelled when he reaffirmed the Partnership Agreement by personally executing it three years later.
DaPuzzo acknowledges having received a copy of the CIM. (See DaPuzzo Aff. ¶ 6, at 2-3.) However, the Subscription Agreement, the same written document by which DaPuzzo admits having received and read the CIM, contains a similar acknowledgment encompassing the Partnership Agreement.
Fifth, in declining to proceed with the instant action at this time, the Court sees no undue prejudice to DaPuzzo. It cannot come as a complete surprise to DaPuzzo, given the Partnership Agreement's arbitration provision he freely accepted, that a court would defer consideration of litigation he commenced in the face of the arbitration clause in order to afford the parties reasonable opportunities to explore dispute resolution alternatives more consistent with their consensual arrangements. The case is still in the very early stages of pretrial proceedings, so that as yet there could not have been an exceptional outlay of resources, nor could inconvenience flow from pausing the hostilities in this forum at this point.
The Court takes into account that, under the terms of the Convention and the Enabling Act, in the event DaPuzzo were to receive an arbitral award in the Bahamas, he would be unable to enforce it in the United States. See National Iranian Oil, 817 F.2d at 335; Swisher, supra, 47 Wash. L.Rev. at 457. But that is a consequence that could prevail in regards to any arbitral award rendered in a dispute not covered by the Convention. It also does not mean that DaPuzzo would not have recourse to enforce the award in the Bahamas. Moreover, if the arbitral award were to be reduced to a final judgment in the Bahamas, arguably that judgment may be entitled to recognition and enforcement not as an arbitral award under the Convention but as a foreign judgment. While the United States is not a party to any international treaties concerning the recognition and enforcement of foreign judgments, see International Judicial Assistance, Notarial Services and Authentication of Documents,http://www.travel.state.gov/judicial_assistance.html (last visited June 9, 2003); Cegric C. Chao and Christine S. Neuhoff,Enforcement and Recognition of Foreign Judgments in United States Courts: A Practical Perspective, 29 Pepp. L. Rev. 147, 148 (2001), and there are no federal statutes governing the enforcement and recognition of foreign judgments, Chao and Neuhoff, supra, at 148, "[u]nder the law of the state of New York, a foreign judgment is enforceable if it is `final, conclusive and enforceable where rendered. . . ." Transport Wiking Trader Schiffarhtsqesellschaft MBH Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 583 (2d Cir. 1993) (quoting N.Y. Civ. Prac. L. P. § 5302 (McKinney 1978)); see Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, ?? (2d Cir. 1987).
Finally, it does not follow that because a court lacks authority to compel arbitration under either Chapter 1 or Chapter 2 of the FAA, the arbitration clause in an otherwise valid agreement is necessarily void for all purposes, and that a litigant in that situation, as DaPuzzo maintains, is then left either entirely without a remedy or with only a choice to litigate in another forum. The unenforceability of an arbitration clause in a federal court does not mean that the agreement cannot be given effect in the designated foreign state, even if it is a non-signatory of the Convention. Such a course was implicitly recognized by the Fifth Circuit inNational Iranian Oil. There, the Circuit Court rejected the plaintiff's claim that by instituting litigation in the United States it had waived its right to arbitrate in the designated forum — a non-signatory of the Convention. 817 F.2d at 332 (noting also that plaintiff in fact had attempted and may still have been attempting to compel arbitration in Iran). Nothing bars DaPuzzo from voluntarily pursuing the arbitration procedure which he freely accepted in the Partnership Agreement, by which he accepted to be bound, and which he formally executed. Nothing precludes the parties, under appropriate circumstances, from engaging in negotiations towards a stipulated resolution of their disagreement over the venue and rules applicable to the arbitration commitment to which they both concede they are committed, including, if necessary, by modifying their agreement or waiving arbitration altogether, or from otherwise amicably settling the merits of their dispute outside of litigation.
Accordingly, the Court concludes that, because all of the disputes raised by DaPuzzo's claims in the action at hand are encompassed by the parties' arbitration agreement, these issues should be adjudicated in accordance with the parties' consensual understandings in whatever form or forum they deem appropriate after considering the Court's ruling. See Milgrim v. Backroads, Inc., 142 F. Supp.2d 471, 476 (S.D.N.Y. 2001) (noting that courts have the discretion to dismiss, rather than stay, an action when all of the issues raised in the litigation are within the scope of an arbitration agreement) (citingEastern Fish Co. v. South Pacific Shipping Co., Ltd., 105 F. Supp.2d 234, 241 (S.D.N.Y. 2000) and Berger v. Cantor Fitzgerald Sec., 967 F. Supp. 91, 96 (S.D.N.Y. 1997)). Should, for example, Defendants refuse to honor their agreement to arbitrate in a timely manner or unreasonably delay or impede such proceedings; should arbitration not resolve all matters in dispute in this action but leave open particular issues subject to adjudication in this Court; should DaPuzzo obtain an enforceable award or final judgment rendered in DaPuzzo's favor in connection with the parties' dispute; or should the parties otherwise reach a settlement of the action that Defendants later refuse to honor, DaPuzzo may return to this Court to seek appropriate relief as permitted by law and consistent with the parties' applicable understandings. The Court shall retain jurisdiction to effectuate these purposes or enforce any such agreement.
noting that a federal court without authority to compel arbitration under § 4 must "order a stay [of the court proceeding] thereby leaving the parties free to pursue their contractual rights and remedies in the appropriate venue"
Summary of this case from Lieving v. Cutter Associates, Inc.