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NORCOM ELECTRONICS CORP. v. CIM USA INC.

June 5, 2000

NORCOM ELECTRONICS CORPORATION, PLAINTIFF,
V.
CIM USA INC. AND CIM S.P.A., DEFENDANTS.



The opinion of the court was delivered by: Stein, District Judge.

    OPINION

In late 1996, plaintiff Norcom Electronics Corporation ("Norcom") and defendant CIM S.p.A. entered into a distributor agreement (hereafter, the "Distributor Agreement," or the "Agreement") pursuant to which Norcom was to be the exclusive distributor, throughout most of North America, of machines and supplies manufactured by CIM S.p.A. for use in embossing plastic cards and metal plates. After relations between these parties disintegrated and the agreement expired, Norcom brought this action against CIM S.p.A. and its subsidiary CIM USA Inc. (collectively, "CIM"), alleging tortious interference with Norcom's contractual relations with its dealers and customers, violations of the Lanham Act and the New York General Business Law, and a number of common law claims.

Subsequently, CIM moved to compel arbitration of these claims and to stay litigation pending the arbitration, and Norcom cross-moved for a preliminary injunction requiring specific performance of certain duties and obligations pursuant to the Distributor Agreement pending a resolution of the merits. For the reasons set forth below, CIM's motion to compel arbitration is granted in part and denied in part, CIM's motion for a stay is granted in full, and Norcom's motion for a preliminary injunction is granted in part and denied in part.

BACKGROUND

Since 1988, Norcom Electronics Corporation has been engaged in the business of designing, marketing, selling, and distributing plastic card and metal plate embossing machines throughout the United States and elsewhere. CIM S.p.A. is an Italian company engaged in the business of manufacturing and distributing embossing machines throughout the world, and CIM USA, Inc. is a subsidiary of CIM S.p.A. Plastic card embossing machines are widely used in the hospital industry for creating patient identification tags, while metal embossing machines are commonly used in the automotive industry and the military for producing license plates and dog tags, respectively.

On or about December 31, 1996, Norcom and CIM S.p.A. entered into a Distributor Agreement that designated Norcom as the exclusive distributor throughout the United States and most of North America of embossing products manufactured by CIM S.p.A. See Aff. of W. Bruce Hansen Ex. B (the Agreement). The initial term of the Agreement was two years, with automatic renewal for additional terms of one year, absent notice of termination from one of the parties at least 180 days before the end of the current term. See id. at 2, ¶ 3.1. In June 1998, CIM S.p.A. notified Norcom of its intent to terminate the Agreement and to negotiate a new relationship between the parties, including the possible acquisition of Norcom's business. Those negotiations were unsuccessful, however, and the Agreement terminated on February 28, 1999.

Eight months later, Norcom brought this action against CIM S.p.A. and CIM USA Inc., alleging that these defendants engaged in an illegal course of conduct designed to frustrate Norcom's conduct of its own business and to permit defendants to usurp Norcom's role in the embossing machine market. These allegations are set forth in the following eight causes of action, each of which is asserted to implicate compensatory damages of not less than $5 million:

(1) tortious interference with Norcom's contractual relations with dealers and end-users of the embossing machines;
(2) false designation of origin and description, through illegal use of Norcom's trademark, in violation of the Lanham Act, 15 U.S.C. § 1125(a);
(3) dilution of Norcom's "famous" trademark in violation of the Lanham Act, 15 U.S.C. § 1125(c);
(4) deceptive acts and practices in violation of New York General Business Law § 349;
(5) violation of New York General Business Law § 360-1;
(6) unfair competition in violation of New York common law;
(7) conspiracy in violation of New York common law; and
(8) breach of contract in violation of New York common law.

Prior to discovery, CIM moved to compel arbitration and to stay this action pending arbitration. Norcom then cross-moved for preliminary injunctive relief requiring CIM to perform certain duties and obligations pursuant to the Distributor Agreement.

DISCUSSION

I. CIM's motion to compel arbitration and to stay litigation

The Federal Arbitration Act ("FAA") provides that "an agreement in writing to submit to arbitration an existing controversy . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Since the passage of the FAA federal courts have recognized a "strong federal policy favoring alternative means of dispute resolution," Oldroyd v. Elmira Sav. Bank. FSB, 134 F.3d 72, 76 (2d Cir. 1998), and, in light of that policy, "[a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); accord Ahing v. Lehman Bros., Inc., 1997 WL 634290, at *1 (S.D.N.Y. Oct. 14, 1997). "This `emphatic federal policy in favor of arbitral dispute resolution' `applies with special force in the field of international commerce.'" Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 847 (2d Cir. 1987) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 630-34, 105 S.Ct. 3346, 3356-57, 87 L.Ed.2d 444 (1985)).

Four factors must be considered in determining whether to compel arbitration pursuant to the FAA: first, did the parties agree to arbitrate; second, what is the scope of the arbitration agreement; third, did Congress intend the federal statutory claims asserted by the plaintiff to be nonarbitrable; and fourth, if only certain of the claims are arbitrable, should the court stay the balance of the proceedings pending arbitration. See id. at 844; see generally Arakawa v. Japan Network Group, 56 F. Supp.2d 349, 352 (S.D.N.Y. 1999).

A. Existence of an agreement to arbitrate

There is no dispute that Norcom and CIM S.p.A. agreed to arbitrate. In pertinent part, Article 22.7 of the Distributor Agreement provides as follows:

Any controversy or claim arising out of or relating to this Agreement or breach thereof, shall be settled by arbitration in accordance with the CONCILIATION and ARBITRATION rules of the INTERNATIONAL CHAMBER OF COMMERCE OF ZURICH, SWITZERLAND, without recourse to the ordinary Courts, by one or more arbitrators appointed according to the said rules, whose judgment shall be binding. Aff. of Hansen Ex. B at 15, ¶ 22.7 (emphasis in original).

Norcom contends that this arbitration clause is not binding with respect to its disputes with CIM USA Inc., which was not a signatory to the Agreement and, in fact, was incorporated only after CIM S.p.A. and Norcom entered into it. However, the U.S. Court of Appeals for the Second Circuit and other 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.'" Smith/Enron Cogeneration Ltd. Partnership v. Smith Cogeneration ...


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