remedy is non-enforcement, not reformation. Morris, 84 N.Y.2d at 30, 614 N.Y.S.2d at 365.
This case does not fit neatly into either a contract-of-adhesion or an arms-length-transaction paradigm. Aviall does not contend that Ryder used high-pressure tactics or deceptive language to overpower it in the negotiating process. Rather, Aviall argues that Ryder dictated the terms of the agreement, and that there was no negotiation at all. Specifically, Aviall complains that Ryder did not provide it with independent counsel, that Ryder's counsel drafted the entire Agreement and that a Ryder officer signed the Agreement on Aviall's behalf. (Compl. P 7)
It is true that at the time of the spin-off Aviall's interests were represented by Ryder management, some of whom still work for Ryder, others of whom now work for Aviall. It is also true that Ryder's counsel, the law firm Wachtell, Lipton, Rosen & Katz, drafted the agreement, and that Ryder's current Chief Financial Officer, Edwin Huston, signed the agreement on behalf of Aviall. At that time, however, Huston also was a Vice-President of and member of the Board of Directors of Aviall, and signed the Agreement only after Aviall's Board unanimously consented to the deal. (Huston Dep. pp. 78-79)
The spin-off procedure that Aviall decries as oppressive, however, is entirely consistent with traditional principles of corporate governance. When one company wholly owns another, the directors of the parent and the subsidiary are obligated to manage the affairs of the subsidiary in the best interests only of the parent and its shareholders. Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171, 1174 (Del. 1988) (dismissing subsidiary's claim against parent corporation and three former directors of the subsidiary for breach of fiduciary duty by modifying contracts between subsidiary and parent); Resolution Trust Corp. v. Bonner, No. 92 Civ. 430, 1993 U.S. Dist. LEXIS 11107, *7, 1993 WL 414679, *3 (S.D.Tex. June 3, 1993) (dismissing derivative suit against corporation because "a parent corporation owes no duties to its wholly-owned subsidiary"); Dennis J. Block, Nancy E. Barton & Stephen A. Radin, The Business Judgment Rule: Fiduciary Duties of Corporate Directors 185 (4th ed. 1993). In other words, those who operate the parent company owe no fiduciary duties to the wholly owned subsidiary, and even when the parent company announces a proposed spin-off of the subsidiary, the directors of the parent and the directors of the subsidiary owe no fiduciary duties to the soon-to-be-independent subsidiary's prospective stockholders. Anadarko, 545 A.2d at 1174.
Because the officers and directors of a parent company owe allegiance only to that company and not to a wholly owned subsidiary, it is reasonable to conclude that a parent corporation itself is under no obligation to provide the subsidiary with independent representation during the spin-off process. It would be anomalous to impose a duty upon the corporation, an artificial person, when all the natural persons who are its officers and directors have no such duty, and there is no natural person to take up the duty. Aviall has not cited, and I have not found any case imposing more exacting duties on a parent, or holding that the form or content of a particular spin-off agreement constitutes a breach of the fiduciary duties owed to the shareholders of either the parent or the subsidiary.
Just before the spin-off and at the moment it occurs, shareholder ownership of the subsidiary is identical to that of the parent. Consequently, the only people who could have represented Aviall were necessarily people affiliated with Ryder as well, because those affiliations were one and the same. The Agreement is less like a contract between two different parties in which one party may have the opportunity and ability to overwhelm the other, and more like a charter document that creates the subsidiary as an independent entity, somewhat similar to the way in which Congress creates federal agencies by enacting their organic statutes. Just as Congress is responsible to the electorate and not to the agency, so the parent corporation is accountable to its shareholders rather than to the subsidiary company. This accountability to the electorate and the shareholders is the mechanism by which Congress and the parent company are prevented, albeit indirectly, from trampling on the interests of the entities they create. In essence, the shareholders of Ryder authorized that company's officers and directors to effect the spin-off of Aviall in the manner they thought fit, just as the electorate authorizes its representatives to govern. The result Aviall seeks in this case would establish a principle that would render every clause of every spin-off agreement potentially voidable.
Even if the Agreement, and consequently the agreement to arbitrate, were the product of procedural unfairness it would not be unenforceable because it is not unduly oppressive, unconscionable, contrary to public policy, or outside the realm of Aviall's reasonable expectations. Aviall states boldly that "as the case law . . . demonstrates, the [arbitration clause] offends public policy and is indeed oppressive." (Pl. Mem. in Opp'n to Mot. to Dismiss pp. 16-17) Yet Aviall cites no cases for that proposition, and offers no reasons to support its conclusion. Aviall does not say what public policy is offended by the selection of an arbitrator who is an expert in the relevant field, is familiar with the highly technical facts of the case, and has a prior affiliation with both parties to the dispute. In fact, arbitrators with those very qualifications are frequently selected by contracting parties, to be either sole arbitrators or members of an arbitration panel, and courts routinely uphold those selections. See, e.g., Westinghouse Elec. Corp. v. New York City Transit Auth., 82 N.Y.2d 47, 54-55, 603 N.Y.S.2d 404, 407-08, 623 N.E.2d 531 (1993); Astoria Med. Group v. Health Ins.Plan of Greater New York, 11 N.Y.2d 128, 136, 227 N.Y.S.2d 401, 403, 182 N.E.2d 85 (1962).
If an agreement is not a contract of adhesion, a court may reform it only when it is the product of: (1) "mutual mistake," or (2) unilateral mistake coupled with fraudulent concealment by the knowing party. Chimart, 66 N.Y.2d at 573, 498 N.Y.S.2d at 346-47. Reformation will not be granted "for the purpose of alleviating a hard or oppressive bargain," but only to restore the intent of the parties. George Backer Management Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219, 413 N.Y.S.2d 135, 139, 385 N.E.2d 1062 (1978). Aviall has not alleged in any of its papers that the present case fits within either of the above described categories, and the facts before the court do not show that it does.
Aviall argues also that federal arbitration law permits a court to remove an arbitrator prior to the arbitration when that arbitrator is biased or evidently partial. But arbitration is a creature of contract, and when parties have validly contracted to have a particular arbitrator resolve their disputes, federal courts are loath to alter that selection, especially before the arbitration. See, e.g., Florasynth, Inc. v. Pickholz, 750 F.2d 171, 174 (2d Cir. 1984); Michaels v. Mariforum Shipping, 624 F.2d 411, 414 n.4 (2d Cir. 1980); Folse v. Richard Wolf Med. Instruments Corp., 56 F.3d 603, 605 (5th Cir. 1995); Corporate Printing Co. v. New York Typographical Union No. 6, 601 F. Supp. 323, 328 (S.D.N.Y. 1984).
The Federal Arbitration Act, 9 U.S.C. § 1 et. seq., gives courts only limited powers to modify the method of dispute resolution chosen by the parties. Section 10 of the FAA empowers federal courts to
make an order vacating the award upon the application of any party to the arbitration --
(2) Where there was evident partiality or corruption in the arbitrators, or either of them.