constitute the single Member. As such by the terms of Rules 62 prior to the 1989 amendment they are bound to arbitrate.
Even if plaintiffs were not Joint Members, they would be obligated by the arbitration clause under contract principles because their rights derive from the application for insurance submitted by General Marine and accepted by the Association.
When a plaintiff "bases its right to sue on the contract itself, not upon a statute or some other basis outside the contract, the provision requiring arbitration as a condition precedent to recovery must be observed." Wells Fargo Bank International Corp. v. London Steam-ship Owners' Mutual Insurance Assoc., 408 F. Supp. 626, 630 n. 10 (S.D.N.Y. 1976). This is true whether a plaintiff acquired rights under the contract as agent, third-party beneficiary, or assignee. In Re Oil Spill by the "Amoco Cadiz", 659 F.2d 789, 794 (7th Cir. 1981) (finding signatory's agent bound by arbitration agreement); Interpool Ltd. v. Through Transport Mut. Ins., 635 F. Supp. 1503, 1504-05 (S.D. Fla. 1985) (non-signatory third-party beneficiary bound by arbitration agreement); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F. Supp. 1464, 1466 (S.D.N.Y. 1983) (assignee bound by assignor's agreement to arbitrate absent notice to the contrary).
Plaintiffs also say they have no obligation to arbitrate because General Marine had no notice of the arbitration clause. They submit an affidavit from the officer, Peter Frank, who signed the application for membership on General Marine's behalf, swearing that he was not advised of the arbitration agreement and did not see a copy of the Rules until after 1990.
This argument is frivolous. In a separate paragraph directly above Frank's signature the application states, "if this application for insurance is accepted by the Association the applicant Owner will be bound by the Constitution and the Rules of the Association. . . ."
Presumably Frank reads and understands English. Even if he does not, failure to read or investigate the terms of the contract one signs is not a defense to enforcement of the contract. See Paper Express Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753 (7th Cir. 1992) (plaintiff bound by forum selection clause to litigate in Germany despite his ignorance of the provision, incorporated by reference and written in German); E. Allen Farnsworth, Contracts, § 3.7, at 116 (1982).
An agreement to arbitrate is enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 614, 627, 105 S. Ct. 3346, 3354, 87 L. Ed. 2d 444 (party may avoid arbitration agreement resulting from "the sort of fraud or overwhelming economic power that could provide grounds 'for the revocation of any contract'") (citations omitted).
Plaintiffs have presented no grounds sufficient to avoid their contractual obligations. Even if plaintiffs were to claim that General Marine was induced by fraud to sign the application, that claim would be arbitrable. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87 S. Ct. 1801, 1807, 18 L. Ed. 2d 1270 (1967); Manning v. Energy Conversion Devices, Inc., 833 F.2d 1096, 1103 (2d Cir. 1987).
Plaintiffs in addition contend that their rights stem from an investment contract represented by a prospectus and oral communications. But plaintiffs submit no exhibits identified as an investment contract or prospectus. There is no factual support for a source of plaintiffs' insurance rights other than the Constitution and Rules.
Plaintiffs contend that even if bound to arbitrate any dispute covered by Rule 62, their dispute is not so covered. The contention is meritless.
On its face the provision in Rule 62 applies to "any difference or dispute" between the Association and a Member arising "out of or in connection with these Rules or arising out of any contract . . . or as to the rights or obligations of the Association" or any Member, or "in connection therewith or as to any other matter whatsoever." It is hard to conceive of an arbitration clause with broader scope.
Plaintiffs' breach of contract claim clearly fails within this clause.
So too do plaintiffs' securities claims. As the Second Circuit has stated, even with respect to a less encompassing arbitration clause, "if the allegations underlying the claims 'touch matters' covered by the [contract at issue] then those matters must be arbitrated, whatever the legal labels attached to them." Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (citations omitted).
The complaint's allegations of facts underlying plaintiffs' three securities claims say that defendants asserted a right under the contract, which plaintiffs dispute, to cancel plaintiffs' insurance retroactively because "a corporation" (presumably General Marine) failed to pay amounts owed.
Plaintiffs' allegations of "untrue statement of material fact and omissions" in violation § 12(2) of the Securities Exchange Act 1933 (the 1933 Act), 15 U.S.C. § 771(2), and § 10(b) of the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j(b), amount to no more than statements that defendants violated their obligations under the Constitution and Rules. Specifically, plaintiffs contest the authority asserted by defendants to 1) terminate plaintiffs' right to insurance because of another corporation's failure to pay amounts demanded by defendants, 2) alter the terms of plaintiffs' insurance at will, 3) apply those alterations retroactively, 4) cancel plaintiffs' insurance retroactively, and 5) lawfully sell insurance. Plaintiffs repeat these allegations in support of their claim for fraud.
In support of their claim under § 17 of the Investment Company Act, 15 U.S.C. § 80a-8, plaintiffs allege that they were harmed by defendants' attempt to avoid liability under the contract.
Resolution of all these claims requires a determination of defendants' underlying obligations under the Constitution and Rules.
Even if there were doubt as to whether plaintiffs' claims are within the scope Rule 62, such a doubt would be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983).
The arbitration clause covers the disputes asserted in the complaint.
Plaintiffs argue that even if the arbitration clause is broad enough to cover the disputes, the claims under the 1933 Act, the 1934 Act, and the Investment Act are not arbitrable as a matter of United States public policy.
Plaintiffs say that to submit the securities claims to an arbitrator in London would "undermine the enforcement of federal securities laws." The court assumes solely for the purpose of this discussion that the plaintiffs' interest in insurance under the Constitution and Rules constitutes a "security."
The Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985), rejected Soler Chrysler-Plymouth's argument that the public interest in enforcement of federal antitrust laws made its agreement to arbitrate all disputes in Japan unenforceable as to antitrust claims. The Court found that despite the important deterrent and remedial functions of the antitrust laws,
concerns of international comity, respect for the capacities of foreign and international tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement.
473 U.S. at 629, 105 S. Ct. at 3355.
The presumption in favor of arbitration applies equally to plaintiffs' securities claims. In Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S. Ct. 2449, 41 L. Ed. 2d 270 (1974), the Court held that an agreement to arbitrate disputes before the International Chamber of Commerce in Paris covered the American plaintiff's claims against a German defendant under the 1934 Act. See also Rodriguez de Quijas v. Shearson/American Express Inc., 490 U.S. 477, 109 S. Ct. 1917, 104 L. Ed. 2d 526 (1989) (arbitration agreement between United States citizens covered claims under § 12(2) of the 1933 Act); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987) (arbitration agreement between United States citizens covered claims under § 10(b) of the 1934 Act).
On the basis of these decisions this court will enforce the arbitration agreement as to the claims framed in terms of the securities laws.
If plaintiffs have rights under the securities laws, a matter which this court does not address, and if the arbitration award fails adequately to protect those rights, plaintitfs may challenge enforcement of the award. Under the Convention, a court may refuse to enforce an award that "would be contrary to the public policy of that country." Convention, Art. V(2)(b). See Mitsubishi, 473 U.S. at 637 n. 19, 105 S. Ct. at 3359 n. 19 (should arbitration award fail to address claimant's federal statutory rights, award would be "against public policy").
Defendants' motion for summary judgment is granted, and the complaint is dismissed in favor of arbitration.
Dated: Brooklyn, New York
March 5, 1993
Eugene H. Nickerson, U.S.D.J.
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