Opinion ID: 716729
Heading Depth: 2
Heading Rank: 2

Heading: The Parties' Intent as Evidenced in the Agreement.

Text: 37 The Agreement specifically states that it is to be construed in accordance with New York law. New York follows the common law rule that, [i]n interpreting a contract, the intent of the parties governs, and therefore [a] contract should be construed so as to give full meaning and effect to all of its provisions. American Express Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 277, 562 N.Y.S.2d 613, 614 (1st Dep't 1990), appeal denied, 77 N.Y.2d 807, 569 N.Y.S.2d 611, 572 N.E.2d 52 (1991); see also Tigue v. Commercial Life Ins. Co., 631 N.Y.S.2d 974, 975 (4th Dep't 1995) ([T]he court must ascertain the intent of the parties from the plain meaning of the language employed.). In interpreting a contract, [w]ords and phrases are given their plain meaning. Rather than rewrite an unambiguous agreement, a court should enforce the plain meaning of that agreement. American Express, 164 A.D.2d at 277, 562 N.Y.S.2d at 614 (citations omitted); see also Heller v. Pope, 250 N.Y. 132, 135, 164 N.E. 881 (1928). Furthermore, where the intent of the parties can be determined from the face of the agreement, interpretation is a matter of law, and a claim turning on that interpretation may thus be determined by summary judgment or by dismissal. American Express, 164 A.D.2d at 277, 562 N.Y.S.2d at 614; see also Tigue, 631 N.Y.S.2d at 974. 38 As Mastrobuono makes clear, the common-law rule of contract interpretation that a court should construe ambiguous language against the interest of the party that drafted it applies in interpreting arbitration agreements. 514 U.S. at ----, 115 S.Ct. at 1219; see also Graff v. Billet, 64 N.Y.2d 899, 902, 487 N.Y.S.2d 733, 734-35, 477 N.E.2d 212 (1984). The purpose of this rule is to protect the party who did not choose the language from an unintended or unfair result. Mastrobuono, 514 U.S. at ----, 115 S.Ct. at 1219. This rule applies here: the Bybyks did not draft, edit or alter the Agreement; nor did they have the opportunity to influence the specific provision of the NASD Code (purportedly incorporated into the contract by reference) that now governs their claim in arbitration. Therefore, to the extent that PaineWebber drafted an ambiguous document ... they cannot now claim the benefit of the doubt in construing any ambiguities. Id. With these principles in mind, we look to the language of the Agreement in order to discern the parties' intent. 39 Several provisions in the Agreement evidence the parties' intent to arbitrate all issues, including arbitrability: 40 (a) [A]ny and all controversies ... concerning any account, transaction, dispute or the construction, performance, or breach of this or any other agreement ... shall be determined by arbitration.... 41 (b) [T]he parties are waiving their right to seek remedies in court.... 42 (c) [A]ny arbitration under this agreement shall be held under and pursuant to and be governed by the Federal Arbitration Act.... 43 (d) [A]rbitration shall be governed by the rules of the organization convening the panel.... 44 The meaning of the first of these provisions is plain indeed: any and all controversies are to be determined by arbitration. The wording is inclusive, categorical, unconditional and unlimited. The words any and all are elastic enough to encompass disputes over whether a claim is timely and whether a claim is within the scope of arbitration. That provision expressly includes the category of disputes regarding the construction of the Agreement--such as whether it incorporates the NASD Code. The Bybyks invite us to construe the second listed provision as an express waiver of the parties' right to contest arbitrability in court or to seek remedies preventing an untimely claim from being submitted to arbitration; at the very least, that provision is a missed opportunity for a draftsman seeking to avoid such a waiver. We read the succeeding two provisions together as specifying that the rules of the organization convening the arbitration panel shall govern the arbitration itself to the extent that those rules are consistent with the Federal Arbitration Act. 45 The parties' broad grant of power to the arbitrators is unqualified by any language carving out substantive eligibility issues (with or without specific reference to timeliness) for resolution by the courts. PaineWebber is thus unable to overcome the presumption established in the first of the above-listed provisions that [a]ny and all controversies are to be arbitrated. An objective reading of the Agreement, therefore, leads us to conclude that the parties intended to arbitrate issues of arbitrability. Put another way, no draftsman seeking a six-year limitation on the scope of arbitrability would craft this language to accomplish that objective. If the Bybyks' claim is untimely, PaineWebber's remedy is to defend the arbitration action on timeliness grounds, not to enjoin arbitration altogether. 46 PaineWebber argues for an altogether different reading of the Agreement. It contends that the contractual choice of New York law signifies the parties' intent to be bound by substantive limitations imposed by the New York courts on the power of an arbitrator to determine issues of arbitrability. In so arguing, PaineWebber relies on Smith Barney, Harris Upham & Co. v. Luckie, 85 N.Y.2d 193, 202, 623 N.Y.S.2d 800, 805, 647 N.E.2d 1308, cert. denied, 516 U.S. 811, 116 S.Ct. 59, 133 L.Ed.2d 23 (1995), in which the New York Court of Appeals held that the New York choice of law provision in a similar client agreement effectively incorporated substantive limitations of New York law on the arbitrability of punitive damages. Since New York law generally reserves issues of timeliness and arbitrability for the courts, see County of Rockland v. Primiano Constr. Co., 51 N.Y.2d 1, 6-7, 431 N.Y.S.2d 478, 480-81, 409 N.E.2d 951 (1980), PaineWebber argues that the parties' choice of New York law means that all such issues of arbitrability must be settled by the court. See Volt Info. Sciences v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476-77, 109 S.Ct. 1248, 1254-55, 103 L.Ed.2d 488 (1989) (Federal Arbitration Act does not preempt choice-of-law provision signifying parties' intent to be bound by state rules governing arbitration). 47 PaineWebber's reliance on Luckie is self-defeating. In deciding Luckie, the New York Court of Appeals relied on the Seventh Circuit's decision in Mastrobuono, which was subsequently overturned by the Supreme Court. See Luckie, 85 N.Y.2d at 202, 623 N.Y.S.2d at 805, 647 N.E.2d 1308. In Mastrobuono, the Supreme Court rejected the argument that PaineWebber makes here and the argument that the New York Court of Appeals advanced in Luckie. 514 U.S. at ----, 115 S.Ct. at 1219. The client agreement in Mastrobuono, like the one at issue here, included a choice-of-law provision that specified that the entire agreement was to be governed by New York law, and an arbitration provision that specified that any controversy was to be arbitrated in accordance with the rules of the NASD. Id. at ---- - ----, 115 S.Ct. at 1216-17. The brokerage house contended that the choice of law provision evidenced the parties' intent to exclude punitive damages from arbitration, because arbitrators may not award punitive damages under New York law. The Supreme Court disagreed, and held that a choice of law provision, without more, cannot impute a specific intent of the parties to exclude punitive damages. Id. at ----, 115 S.Ct. at 1219. Instead, a choice-of-law provision may reasonably be read as merely a substitute for the conflict-of-laws analysis that otherwise would determine what law to apply to disputes arising out of the contractual relationship. Id. at ----, 115 S.Ct. at 1217. Therefore, a choice-of-law provision, when accompanied by an arbitration provision such as in the Agreement, encompass[es] substantive principles that New York courts would apply, but not ... special rules limiting the authority of the arbitrators. Id. at ----, 115 S.Ct. at 1219 (emphasis added). Mastrobuono, squarely on point, supports the Bybyks' contentions that, under the Federal Arbitration Act, they are not prevented by the New York choice of law provision from arbitrating issues of timeliness and attorneys' fees. 48 PaineWebber next contends that the forum-rules provision--arbitration shall be governed by the rules of the organization convening the panel--incorporates the NASD Code by reference, including section 15 of the NASD Code. That section is cast in the language of eligibility and is thus arguably a substantive limitation. Since, under the Federal Arbitration Act, the court decides whether substantive limitations are met before directing a claim to arbitration, PaineWebber contends that the court must determine whether the Bybyks' claim is time-barred under section 15. 49 We conclude, however, that the NASD Code is not incorporated into the Agreement. Under New York law, a paper referred to in a written instrument and sufficiently described may be made a part of the instrument as if incorporated into the body of it. Jones v. Cunard S.S. Co., 238 A.D. 172, 173, 263 N.Y.S. 769, 771 (2d Dep't 1933). At common law, [i]n order to uphold the validity of terms incorporated by reference it must be clear that the parties to the agreement had knowledge of and assented to the incorporated terms. Lamb v. Emhart Corp., 47 F.3d 551, 558 (2d Cir.1995). New York follows that common law rule by requir[ing] that the paper to be incorporated into a written instrument by reference must be so referred to and described in the instrument that the paper may be identified beyond all reasonable doubt. Chiacchia v. National Westminster Bank USA, 124 A.D.2d 626, 628, 507 N.Y.S.2d 888, 889-90 (2d Dep't 1986) (emphasis added). While a party's failure to read a duly incorporated document will not excuse the obligation to be bound by its terms, see Level Export Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 87, 111 N.E.2d 218 (1953), a party will not be bound to the terms of any document unless it is clearly identified in the agreement. Chiacchia, 124 A.D.2d at 628, 507 N.Y.S.2d at 890 (agreement with no direct reference to second document did not incorporate that document); see also Weiner v. Mercury Artists Corp., 284 A.D. 108, 109, 130 N.Y.S.2d 570, 571 (1st Dep't 1954) (one-page contract did not validly incorporate arbitration provision buried in 207-page booklet). 50 The Agreement does not meet this standard. While the Agreement contemplates that any arbitration may be conducted before an NASD panel, subject to NASD arbitration rules, the Agreement requires no such thing. Under the Agreement, the parties may choose to arbitrate a dispute before the NYSE, the NASD, or (at the Bybyks' election) any other national securities exchange's arbitration forum upon which PaineWebber is legally required to arbitrate. The Agreement presumes that each of these organizations has its own set of rules. Some of those rules may be couched in terms of eligibility requirements or limitations periods. But the Agreement cannot be deemed to incorporate all these limitations rules by reference, because there is no basis for assuming that they are consistent in casting limitations in terms of eligibility, in fixing the limitations period, or in applying principles of tolling and accrual. 51 The only reason PaineWebber can point to the eligibility language of section 15 of the NASD Code is that the NASD has already been designated as the arbitral forum. Looking at the Agreement ex ante--as it was when the Bybyks signed it--no one could tell with certainty which forum would be designated or which set of rules would govern in the event of a dispute. Indeed, there is no reason why two disputes arising under the Agreement could not become the subject of two statements of claim lodged in two different forums. Certainly, the NASD Code may govern a dispute once it is actually in arbitration before an NASD arbitration panel. But since the NASD Code is not a part of the Agreement, we will not look to it in determining the Agreement's scope. In short, it cannot be that these parties formed the objective intent to incorporate any one body of rules into the agreement itself. PaineWebber has thus not shown that the NASD Code (in particular) is incorporated into the Agreement beyond all reasonable doubt. See Chiacchia, 124 A.D.2d at 628, 507 N.Y.S.2d at 890. We need not determine, therefore, whether section 15 of the NASD Code is a substantive or procedural limitation on claims; the Code is not incorporated by reference, and thus does not affect our above conclusion that the parties intended to arbitrate issues of arbitrability. 52 Even if the NASD Code were incorporated into the Agreement, we would still conclude that the parties intended to arbitrate the issue of arbitrability, because the NASD Code itself grants to the arbitrators the power to interpret and apply section 15. Section 35 of the NASD Code provides as follows: 53 The arbitrators shall be empowered to interpret and determine the applicability of all provisions under this Code and to take appropriate action to obtain compliance with any ruling by the arbitrator(s). 54 National Association of Securities Dealers, Inc., Code of Arbitration Procedure, NASD Manual p 3735 (1994) (emphasis added). Nothing in the NASD Code removes section 15 from the ambit of section 35. As the Eighth Circuit recently held after examining a client agreement that expressly incorporated the NASD Code: 55 [T]he parties' adoption of this provision [section 35] is a clear and unmistakable expression of their intent to leave the question of arbitrability to the arbitrators. In no uncertain terms, section 35 commits interpretation of all provisions of the NASD Code to the arbitrators. Reading the NASD Code ... as a whole, we see no reason not to apply section 35 to the arbitrators' decision regarding the application of section 15. 56 FSC Securities Corp. v. Freel, 14 F.3d 1310, 1312-13 (8th Cir.1994). Thus, the Eighth Circuit concluded that by adopting the NASD Code of Arbitration Procedure as the rules governing their dispute, appellants agreed to give the arbitrators discretion via section 35 ... to interpret section 15's time limitation. Id. at 1313. We agree. The language of the Code itself commits all issues, including issues of arbitrability and timeliness, to the arbitrators. 57