United States District Court, Southern District of New York
April 25, 2003
NANCY MASSEN, PLAINTIFF, AGAINST PATRICIA WARBURG CLIFF, CORCOPAN GROUP AND CORCORAN GROUP EASTSIDE, INC., DEFENDANTS
The opinion of the court was delivered by: Henry Pitman, United States Magistrate Judge
OPINION AND ORDER
Defendants move to dismiss plaintiff's first claim and to stay the remaining claims pending the arbitration of plaintiff's first claim. The parties have consented to my exercising jurisdiction for all purposes pursuant to 28 U.S.C. § 636 (c). For the reasons set forth below, defendants' motion is denied in all respects.
The precise nature of plaintiff's claims in this matter is somewhat unclear because the statement of plaintiff's claims set forth in her opposition to the present motion is inconsistent with the claims set forth in the complaint.
A. Claims Set Forth in the Complaint
This action was commenced in the Civil Court of the City of New York, County of New York, by way of a summons with "indorsed complaint"*fn1 and subsequently removed to this Court.
The summons named all three defendants, directed them to appear and answer within either twenty or thirty days and provided "upon your failure to answer, judgment will be taken against you for the sum of $75,000.00 with interest thereon from the 22nd day of June, 2001, together with attorney's fees and costs of this action."
Annexed to the summons was an indorsed complaint which alleged the following:
First Cause of Action
Action for commissions and/or fees, compensation
and/or salary and wages, all in the amount of
$25,000.00 due plaintiff for services performed,
rendered and completed, pursuant to a contract,
agreement, usual practice and law, together with
attorney's fees pursuant to statutory authority of the
Labor Law of New York and the costs of this action.
Second Cause of Action
Action for damages in the amount of $25,000.00 due
plaintiff all as a result of defendants' failure to
take and pay appropriate payroll deductions from
plaintiff's payroll checks, causing plaintiff to incur
additional expenses and causing plaintiff to be denied
access to statutory benefits, together with attorney's
fees pursuant to statutory authority of the Labor Law
of New York and the costs of this action.
Third Cause of Action
Action for damages in the amount of $25,000.00 due
plaintiff all as a result of defendants' failure to
inform and allow plaintiff to participate in employee
benefit programs at Corcoran Group, including, but not
limited to health and disability benefits and
programs, together with attorney's fees pursuant to
statutory authority of the Labor Law of New York and
the costs of this action.
Since the summons had a single ad damnum clause, advising the defendants that, in the event of default, a judgment will be taken against "you" in the amount of $75,000.00, the aggregate of the three claims, the indorsed complaint appears to allege all three claims against all three defendants.
B. Claims Set Forth in the Parties' Motion Papers
The motion papers set forth facts that are somewhat different from those alleged in the indorsed complaint.
Defendant Corcoran Group is a real estate brokerage company licensed by the State of New York. All parties agree that plaintiff started working at Corcoran Group in February 2001. According to defendants, prior to that time, plaintiff, a licensed real estate sales person, worked with defendant Cliff at a different broker (Affidavit of Patricia Warburg Cliff, sworn to March 4, 2003 ("Cliff Aff."), ¶¶ 4-5). In early 2001, Cliff left her former broker to work at Corcoran Group, and plaintiff went with her as an assistant (Cliff Aff. ¶¶ 5-6); Affidavit of Nancy Massen, sworn to April 7, 2003 ("Massen Aff."), ¶ 4). Defendants claim plaintiff was an independent contractor with Corcoran Group (Cliff Aff. ¶ 6). Plaintiff claims she was an employee (Massen Aff. ¶ 2).
According to plaintiff, she had a separate agreement with Cliff to provide for compensation in addition to what plaintiff claims was her salary: "In addition to my bi-weekly salary from the Corcoran Group, Defendant Cliff, as an incentive and additional stipend to my salary and for working directly for her, agreed to pay me 10% of her commissions that Cliff received as a real estate broker and salesperson for real estate transactions" (Massen Aff. ¶ 5). Thus, in her opposition to the present motion, plaintiff claims that she had one compensation agreement with Corcoran Group and a separate compensation agreement directly with Cliff. Based on the allegations set forth in plaintiff's affidavit, it appears that only Cliff could be liable to plaintiff for commissions.
Finally, all parties agree that plaintiff signed a document entitled "Independent Contractors Agreement of Association Between the Corcoran Group (Broker) And Nancy Massen (Agent)" ("ICA") (Cliff Aff. ¶ Ex. A). Among other things, the ICA provides that "[a]ny commission dispute between Broker and Agent shall be subject to settlement solely by binding arbitration under the rules and jurisdiction of the Real Estate Board of New York" (Cliff Aff., Ex. A., ¶ 12). Although this document has signature lines for both the broker and the agent it is signed only by Massen. Massen claims that this document is not enforceable for a variety of reasons.
A. Nature of Relief Available to Defendants
A threshold issue is whether defendants can appropriately seek dismissal or whether the motion should be deemed to be a motion for a stay. This is not merely a matter of academic interest since the materials that can be considered on a motion to dismiss are limited to the complaint, the exhibits annexed thereto, and documents that are "integral" to the claims asserted by plaintiff. San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808-09 (2d Cir. 1996); Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991); I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 762 (2d Cir. 1991).
Section 3 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 3, provides:
If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable
to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under
such an agreement, shall on application of one of the
parties stay the trial of the action until such
arbitration has been had in accordance with the terms
of the agreement, providing the applicant for the stay
is not in default in proceeding with such
(Emphasis added). Thus, the relevant statutory language indicates that a stay, rather than dismissal, is the appropriate remedy.
Second, the nature of an arbitration award is such that further judicial action is inevitably necessary in order for the award to be enforceable. Arbitration awards are not self-executing. Grubb & Ellis Co. v. First Colonial Trust Co., 94 C 3706, 1995 WL 549131 at *3 (N.D. Ill. Sept. 8, 1995) Accordingly, the FAA, 9 U.S.C. § 1-16, sets forth a procedure by which the arbitrator's award can be "confirmed" and reduced to a judgment. See 9 U.S.C. § 9, 13. It is confirmation that gives an arbitrator's award the effect of a judgment. Fotochrome, Inc. v. Copal Co., 517 F.2d 512, 516 (2d Cir. 1975) ("The [arbitrator's] award itself is inchoate until enforced by judgment."); Valentine Sugars, Inc. v. Sudan, No. Civ. A. 93-3054, 1998 WL 283303 at *4 (E.D. La. May 27, 1998) ("Once the Judgment had been entered confirming the Arbitration Award, the Award had the same status as any other federal court judgment."); Higgins v. United States Postal Serv., 655 F. Supp. 739, 742 (D. Me. 1987) (Confirmation "gives the award the full force and effect of a judgment of the court."). Thus, the need for further judicial action in the event that arbitration is appropriate here, also implies that a stay, rather than dismissal, is the appropriate remedy here.
Defendants cite only one case in support of the remedy of dismissal, Smith v. Professional Sec. Bureau, 225 F. Supp.2d 395 (S.D.N.Y. 2002). Although the Court in that case did dismiss the complaint pending arbitration, it offered no explanation why a departure from the express statutory language was appropriate. Given the express language of Section 3 of the FAA, 9 U.S.C. § 3, which indicates that a stay is appropriate, I respectfully decline to follow Smith.
Accordingly, I conclude that the present motion should be deemed to be a motion for a stay and that I may consider all the materials submitted in connection with the motion, including the affidavits. Considering all those materials, particularly the more detailed statement of plaintiff's claim for commissions as set forth in plaintiff's affidavit, I also conclude that plaintiff's claim for commissions is being asserted against defendant Cliff only and that plaintiff is not seeking commissions of any sort from any of the other defendants.
B. The Merits of Defendants' Motion
Four factors are relevant to a motion to stay an action pending arbitration:
A court asked to stay proceedings pending
arbitration must resolve four issues: first, it must
determine whether the parties agreed to arbitrate;
second, it must determine the scope of that
agreement; third, if federal statutory claims are
asserted, it must consider whether Congress intended
those claims to be nonarbitrable; and fourth, if the
court concludes that some, but not all, of the claims
in the case are arbitrable, it must then decide
whether to stay the balance of the proceedings pending
Oldroyd v. Elmira Sav. Bank, 134 F.3d 72, 75-76 (2d Cir. 1998), citing Genesco Inc. v. T. Kakiuchi & Co., 815 F.2d 840
, 844 (2d Cir. 1987); accord E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., 97 Civ. 7102 (LAK), 1998 WL 314767 at *2 (S.D.N.Y. June 15, 1998). See also Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114
, 121 (2d Cir. 1991); Bird v. Shearson Lehman/American Express, Inc., 926 F.2d 116
, 118 (2d Cir. 1991).
1. Existence of an Agreement to Arbitrate
The first issue to be resolved is whether there is an agreement to arbitrate between plaintiff and Cliff.
Neither party claims that any express agreement to arbitrate exists between plaintiff and Cliff, and none of the parties' submissions suggest such an agreement. Cliff is not covered by the ICA because the ICA expressly states that it is "[b]etween The Corcoran Group (Broker) And Nancy Massen (Agent)" (Cliff Aff., Ex. A at 1), and there is no provision in the ICA extending Massen's putative agreement to arbitrate to parties other than Corcoran Group.
Nevertheless, the absence of an express agreement between plaintiff and Cliff does not necessarily end the analysis. In certain circumstances, even a nonsignatory to an arbitration agreement, such as Cliff, can enforce the agreement to arbitrate against a signatory. The Second Circuit has recognized five theories under which a nonsignatory can be deemed to be a party to an agreement to arbitrate: "1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel." Fluor Daniel Intercontinental, Inc. v. General Elec. Corp., 98 Civ. 7181 (WHP), 1999 WL 637236 at *5 (S.D.N.Y. Aug. 20, 1999), citing Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995); see also Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l. Inc., 198 F.3d 88, 97 (2d Cir. 1999); The Orange Chicken, L.L.C. v. Nambe Mills, Inc., 00 Civ. 4730 (AGS), 2000 WL 1858556 at *5 (S.D.N.Y. Dec. 19, 2000).
In this case, it appears that only the "estoppel" theory has any possible application; there is no evidence that even remotely suggests the applicability of any of the alternative theories.*fn2 The estoppel theory has two branches. Smith/Enron Cogeneration Ltd. P'ship. Inc. v. Smith Cogeneration Int'l, Inc., supra, 198 F.3d at 97; The Orange Chicken, L.L.C. v. Nambe Mills, Inc., supra, 2000 WL 1858556 at *5; Fluor Daniel Intercontinental, Inc. v. General Elec. Corp., supra, 1999 WL 637236 at *5. The first branch of the estoppel theory permits a signatory of an agreement containing an arbitration clause to compel a nonsignatory to arbitrate "when [the nonsignatory] has derived other benefits under the agreement containing the arbitration clause." Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., supra, 198 F.3d at 98; accord The Orange Chicken, L.L.C. v. Nambe Mills, Inc., supra, 2000 WL 1858556 at *5. Since the present case involves an attempt by a nonsignatory — Cliff — to bind a signatory — plaintiff — the first branch of the estoppel theory is inapplicable here.
Under the second branch of the estoppel theory, a nonsignatory to an agreement containing an arbitration clause may be able to compel arbitration by a signatory. Under this branch, "[a] signatory will be estopped `to avoid arbitration with a non-signatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed.'" Chase Mortgage Co.-West v. Bankers Trust Co., 00 Civ. 8150 (MBM), 2001 WL 547224 at *2 (S.D.N.Y. May 23, 2001), quoting Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., supra, 198 F.3d at 98. See also Thomson-CSF, S.A. v. American Arbitration Ass'n, supra, 64 F.3d at 779; The Orange Chicken, L.L.C. v. Nambe Mills, Inc., supra, 2000 WL 1858556 at *5; Fluor Daniel Intercontinental, Inc. v. General Elec. Corp., supra, 1999 WL 637236 at *6.
The Honorable Michael B. Mukasey, United States District Judge, has suggested a two-part test to determine whether claims are intertwined for the purpose of applying this alternative estoppel theory:
In Smith/Enron, the Second Circuit clarified that the
test is whether the signatory's claims arise under the
"subject matter" of the underlying agreement.
Smith/Enron, 198 F.3d at 98. . . .
The second factor in determining whether the
signatory's claims were "intertwined with the
underlying contract obligations" is whether there was
a "close relationship" between defendant signatory and
defendant non-signatory. . . .
Chase Mortgage Co.-West v. Bankers Trust Co., supra, 2001 WL 547224 at *2-*3.
Judged by the foregoing, I conclude that plaintiff's claim against Cliff for commissions is not "intertwined" with the ICA such that Cliff can enforce the arbitration clause set forth therein. The arbitration clause in the ICA applies to disputes concerning commissions owed to plaintiff by Corcoran Group. These commissions are, presumably, based on a percentage of the real estate transactions arranged by plaintiff. Plaintiff, however, is not seeking commissions from Corcoran Group based on a percentage of real estate transactions. Rather, plaintiff is seeking commissions solely from Cliff based on an alleged agreement between plaintiff and Cliff under which plaintiff was to receive a percentage of the commissions paid to Cliff, regardless of plaintiff's role in arranging or facilitating the transaction. Thus, whether plaintiff has any right to commissions under the alleged agreement with Cliff is independent of the ICA. Even if the ICA were found to be invalid or unenforceable, it would not affect plaintiff's right to recover under the agreement she has alleged. Thus, although the arbitration clause of the ICA uses the word "commissions," the commissions plaintiff is seeking to recover here have a different source than the commissions to which the ICA applies and the commissions at issue her are conditioned on events different from those which would give rise to an obligation by Corcoran Group to pay commissions. Thus, the subject matter of plaintiff's commission claim here is distinct from the subject matter of the ICA.
As to the second aspect of the test suggested by Judge Mukasey, there does appear to be a close relationship between Cliff and Corcoran Group. Cliff is a Senior Vice President of Corcoran Group and is the head of European Sales (Cliff Aff. ¶ 1; Certification of Adrienne C. Rogove, dated April 11, 2003, Ex. A). However, given the fact that the subject matter of plaintiff's commission claim is different from the subject matter of the commission claims covered by the ICA, I conclude that the relation between Cliff and Corcoran Group is insufficient to give rise to an obligation on plaintiff's part to arbitrate her claims against Cliff.
Accordingly, I conclude that there is no agreement to arbitrate between plaintiff and Cliff, nor is the arbitration agreement set forth in the ICA enforceable by Cliff against plaintiff. In light of this conclusion, I need not address the other issues raised by plaintiff in opposition to the motion.
Since I find that plaintiff's claim for commissions is directed solely against defendant Cliff and that there is no agreement to arbitrate between plaintiff and Cliff, defendants' motion is denied in all respects. Since the absence of any commission claims against Corcoran Group is central my decision, and since it would be unfair to permit plaintiff to resist arbitration by contending that her commission claim is against Cliff but later seek to recover commissions against Corcoran Group, if plaintiff is seeking to recover any type of commissions against Corcoran Group, she is directed to move to amend her complaint within ten (10) days of the date of this Order. Plaintiff's failure to move with that time limit will preclude her from later seeking to assert any type of claim for commissions against Corcoran Group in this action.