Opinion ID: 766976
Heading Depth: 2
Heading Rank: 2

Heading: Do the Enron Petitioners Have the Right to Compel SCI to Arbitrate?

Text: 30 SCI's second principal argument on appeal is that there is no valid and enforceable agreement to arbitrate between the parties to this proceeding. SCI argues that (1) the only valid agreement respecting SECLP currently in effect is the 1994 Agreement, because it superseded the earlier Agreements; 6 . (2) the only Enron signatories to the 1994 Agreement, ACF and ER, have assigned their rights under that Agreement to EDR and EDRO (who are not petitioners here); (3) therefore, none of the Enron petitioners have the right to enforce a contract to arbitrate to which they are not now parties. 31 In considering whether a particular dispute is arbitrable, a court must first decide whether the parties agreed to arbitrate. Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d 289, 294 (2d Cir. 1999); see also Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1063 (2d Cir. 1993). We have held that whether an entity is a party to the arbitration agreement also is included within the broader issue of whether the parties agreed to arbitrate. Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673, 677 (2d Cir. 1972); McAllister Bros., Inc. v. A&S Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980). 32 Unquestionably, there were a number of enforceable contracts between SCI (and its affiliate, SCD) and various Enron entities, each of which contained an agreement to arbitrate. The assignments of rights under the 1994 Agreement from one set of affiliates to another set of affiliates do not negate the prior existence of a contract to arbitrate between the parties, and thus do not fall comfortably within the inquiry into the making of an agreement. The question before us is not whether SCI and the Enron petitioners entered into an agreement to arbitrate -- they did (and more than once) -- but whether subsequent events deprived all of the Enron petitioners of the right to compel SCI to live up to that agreement.
33 Before we turn to that question, we must first resolve a threshold issue concerning applicable law. SCI argues that state contract law principles generally apply in an inquiry into the making of the agreement. See Doctor's Assocs. Inc. v. Casarotto, 517 U.S. 681, 686-87, 116 S.Ct. 1652, 1656 (1996); Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). SCI suggests that we must use New York's choice of law to determine the applicable body of contract law, and that New York's choice of law points to the Turks and Caicos Islands. Alternatively, SCI argues that the 1994 Agreement itself provides that matters relating to the formation and organization of the Partnership shall be governed by the [Turks and Caicos] Act. However, neither approach has merit on this record. First, as this is a federal question case under 9 U.S.C. 203 and not a diversity case, we see no persuasive reason to apply the law of New York simply because it is the forum of this litigation. See Corporacion Venezolana de Fomento v. Vintero Sales Corp. et al., 629 F.2d 786, 795 (2d Cir. 1980); Filanto, S.p.A v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1235-37 (S.D.N.Y. 1992)(applying federal law to the question of whether a contract is enforceable in a case arising under the Convention); cf. Pescatore v. Pan Am. World Airways, 97 F.3d 1, 12 (2d Cir. 1996)(noting that the law is unsettled when it comes to applying federal common law or state common law in non-diversity cases). Second, the contractual provision on which SCI relies relates to the formation and organization of the Partnership. But the partnership here - SECLP -- was formed and organized well before the assignments, so that language does not apply. Rather, the primary question before us relates to the effect of the assignments on rights and duties flowing from the arbitration clause in the 1994 Agreement. 34 When we exercise jurisdiction under Chapter Two of the FAA, we have compelling reasons to apply federal law, which is already well-developed, to the question of whether an agreement to arbitrate is enforceable. See David L. Threlkeld & Co., 923 F.2d at 249-50 (holding Convention and FAA preempt Vermont statute); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845-46 (2d Cir. 1987)(applying federal common law in case arising under the Convention); Borsack v. Chalk & Vermilion Fine Arts, Ltd., 974 F. Supp. 293, 299 n.5 (S.D.N.Y. 1997)([W]here jurisdiction is alleged under chapter 2 of the Federal Arbitration Act the issue of enforceability and validity of the arbitration clause is governed by federal law.) Under the circumstances here, where there is little connection to the forum and the Agreements between the parties state an intention to be governed by the FAA, proceeding otherwise would introduce a degree of parochialism and uncertainty into international arbitration that would subvert the goal of simplifying and unifying international arbitration law. 35 In this case, the 1994 Agreement's dispute resolution provision provided that arbitration shall for all purposes be governed by, and construed and enforced in accordance with, the Federal Arbitration Act (FAA), and matters of interpretation of the provisions of this Agreement shall be governed by Texas law in any such arbitration. It is thus clear that neither party intended New York law, procedural or otherwise, to govern any aspect of their dispute. As no party is domiciled in New York, and no transactions have taken place here, New York has no connection to this litigation other than it is the location of the arbitration. While the language quoted immediately above might justify looking to Texas law on assignments, neither party argued that it applied. Thus, we will apply the body of federal law under the FAA. 7 36
37 Having determined that federal law applies, we turn now to the effect of the assignments on the right of the Enron petitioners to compel arbitration under the 1994 Agreement. Even if we accept arguendo SCI's claim that the Enron petitioners are not signatories to the 1994 Agreement, that does not end the matter. 8 In this circuit, we have repeatedly found that non-signatories to an arbitration agreement may nevertheless be bound according to ordinary principles of contract and agency. McAllister Bros., 621 F.2d at 524; Delloitte Noraudit A/S, 9 F.3d at 1064. These principles include (1) incorporation by reference; (2) assumption; (3) agency; (4)veil-piercing/alter ego; and (5) estoppel. Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995). We believe that a number of these concepts justify allowing the Enron petitioners to compel SCI to arbitrate its claims asserted against them in the Dominican Lawsuit. 38 In applying these concepts, we note, as we did in Thomson-CSF with respect to veil-piercing, that such determinations are often fact specific and differ with the circumstances of each case. 64 F.3d at 777-78 (citation omitted). More importantly, while a court should be wary of imposing a contractual obligation to arbitrate on a non-contracting party, we do not face that concern here. SCI is the party trying to escape its obligation to arbitrate, but it (and/or its affiliate SCD) was a signatory to all three arbitration Agreements with Enron -- that is, the Project Agreement, the 1993 Agreement and, most importantly, the 1994 Agreement. 9 Normally, it is the signatory to an arbitration agreement that urges us to apply a veil-piercing doctrine, see, e.g., Thomson-CSF, 64 F.3d at 777-78, to require the non-signatory to arbitrate because of the special circumstances that apply. In this case, however, it is the Enron petitioners (the alleged non-signatories to the contract) that invite us to pierce their own corporate veil because of claimed special circumstances. 39 Enron argues that the corporate relationship among the various Enron affiliates justifies allowing the Enron petitioners to invoke the arbitration clause in the 1994 Agreement. The identity of interests between petitioners and the current Enron signatories to the 1994 Agreement (EDR and EDRO) is nowhere more apparent than on the assignment instruments themselves: the signatures of the assignors in the assignments from ACF and ER to EDR and EDRO are the same as the signatures for the assignees. Similarly, virtually all the correspondence between SCI and the various Enron petitioners is mailed to the same address in Texas, c/o Enron Development Corp. Perhaps most telling is SCI's own reference to the various Enron companies in its complaint in the Dominican Lawsuit as the Enron Group, affiliates, and Enron. In the Dominican Lawsuit, SCI treated a group of related companies as though they were interchangeable, but now it asks for strict adherence to the corporate form in its opposition to arbitration. On this record, that is not called for. We believe that all the circumstances here justify piercing the corporate veil. 40 In addition, Enron's claim that SCI should be estopped from resisting arbitration is equally, if not more, compelling. In Thomson-CSF we set forth two types of estoppel cases. 64 F.3d at 778-79. The more typical case, as we have already noted, arises when a signatory to an arbitration agreement seeks to bind a non-signatory to it. We have held that the non-signatory may be compelled to arbitrate when it has derived other benefits under the agreement containing the arbitration clause. See American Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999); Deloitte Noraudit A/S, 9 F.3d at 1064. But even when a non-signatory seeks to compel arbitration with a signatory, we pointed out that the Fourth and Eleventh Circuits have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed. Thomson-CSF, 64 F.3d at 779 (referring to Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757-58 (11th Cir. 1993); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 320-21 (4th Cir. 1988)). We find that this case falls within the latter category. 41 In the Dominican Lawsuit, SCI asked for the nullification or rescission of all of the agreements entered into between [SCI] and its related companies and persons related to [Enron] and any other entity or person of the Enron Group, and sued all the Enron signatories to the Project Agreement, 1993 Agreement and the 1994 Agreement except for EDR and EDRO, the most recent signatories to the 1994 Agreement. It is clear that the Enron defendants in the Dominican Lawsuit are the ones entitled to relief, as the subject matter of that lawsuit arises under all of those Agreements, particularly the 1994 Agreement. Further, as already stated, by treating the Enron entities as a single unit in its complaint in the Dominican Lawsuit, SCI is estopped from claiming that the current signatories to the 1994 Agreement are distinct from the defendants in the Dominican Lawsuit. Therefore, we conclude that SCI cannot now shield itself from arbitration by arguing that only the 1994 Agreement contains an enforceable arbitration clause, and that only EDR and EDRO -- the parties SCI intentionally did not sue in the Dominican Lawsuit -- would have the right to invoke it. Cf. IDS Life Ins. Co. v. Sunamerica, Inc., 103 F.3d 524, 530 (7th Cir. 1996)(Posner, C.J.)(where a party to an arbitration agreement attempts to avoid that agreement by suing a related party with which it has no arbitration agreement, in the hope that the claim against the other party will be adjudicated first and have preclusive effect in the arbitration. Such a maneuver should not be allowed to succeed . . . .). 42 For these reasons, we affirm the district court's ruling that the Enron petitioners have the right to compel SCI to arbitrate. 43 C. Are SCI's Claims in the Dominican Lawsuit within the Scope of the 1994 Arbitration Agreement? 44 Finally, SCI argues that the claims it asserted against Enron in the Dominican Lawsuit are not arbitrable because they are not covered by the arbitration provision in the 1994 Agreement. These claims are that SCI was coerced into the SECLP partnership by Enron, that all of SCI's Agreements with Enron were fraudulently induced, and that Enron tortiously interfered with SCI's negotiations with CDE. 45 The 1994 Agreement provides in relevant part: 46 11.14 Dispute Resolution (a) In the event of any dispute, disagreement, controversy or claim arising under or relating to any obligation or claimed obligation under the provisions of this Agreement (a Dispute which term shall include any tort claim relating to or in connection with this Agreement ...), the party seeing resolution of such Dispute shall give notice to the other party . . . . 47 (c) Any Dispute that is not resolved by the parties shall be finally settled by arbitration. 48 Despite this broad language and the explicit reference to any tort claim, SCI contends that its claims in the Dominican Lawsuit fall outside the scope of this language. SCI argues that because Enron's alleged improper actions took place in 1993, prior to the signing of the 1994 Agreement, the arbitration provision does not cover them. 49 We have stated previously that in light of the strong federal policy in favor of arbitration, the 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 dispute. Doubts should be resolved in favor of coverage. Worldcrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997)(citations and internal quotation marks omitted). We stated in Genesco that when we consider whether a particular claim falls within the scope of the parties' arbitration agreement, we focus on the factual allegations in the complaint rather than the legal causes of action asserted. If the allegations underlying the claims 'touch matters' covered by the parties' . . . agreements, then those claims must be arbitrated, whatever the legal labels attached to them. 815 F.2d at 846 (citation omitted). 50 SCI's argument that its claims against Enron concern events that predate the 1994 Agreement does not persuade us that the district court erred here in ordering arbitration. In Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1212 (2d Cir. 1972), we held that arbitration under the New York Stock Exchange Rules applied to actions predating the signing of the contract by the petitioner because the contract stated that it governed any controversy between the parties. As the arbitration clause here similarly does not contain any temporal limitation, the relevant inquiry is whether SCI's claims relat[e] to any obligation or claimed obligation under the 1994 Agreement, not when they arose. We think it is evident that SCI's claims in the Dominican Lawsuit fall within this broad language. Further, as fraudulent inducement claims necessarily involve actions that predate the signing of a contract, taking SCI's argument to its logical extreme would mean that such claims are generally non-arbitrable. Yet, the Supreme Court in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967), held that claims of fraudulent inducement of a contract generally, as opposed to fraudulent inducement of the arbitration clause specifically, are arbitrable. SCI's claims in the Dominican Lawsuit relate to the inducement of the 1994 Agreement as a whole. Thus, resolving any doubt with respect to the scope of the arbitration clause in favor of arbitration, we find that SCI's claims in the Dominican Lawsuit are arbitrable.