United States District Court, Southern District of New York
June 9, 2003
SHIRLEY LIPFORD, PLAINTIFF, AGAINST NEW YORK LIFE INSURANCE CO., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Laura Taylor Swain, District Judge
REPORT AND RECOMMENDATION
On April 1, 2003, Magistrate Judge Henry Pitman issued a Report and Recommendation ("Report") recommending that the Court reject defendant New York Life Insurance Company's contention that it is no longer a party to this action and that the cross-claims of defendants New York Life Insurance Company and Kelly Services, Inc. be stayed pending arbitration. No objections to the Report have been filed.
In reviewing the Report and Recommendation, the Court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C.A. § 636(b)(1)(C) (West 2002). "To accept the report and recommendation of a magistrate to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the record." Nelson v. Smith, 618 F. Supp. 1186, 1189 (S.D.N.Y. 1985) (citations omitted); see also Pizarro v. Bartlet, 776 F. Supp. 815, 817 (S.D.N.Y. 1991 (court may accept report if it is "not facially erroneous"). The Court is required to make a de novo determination as to the aspects of the Report to which objections are made. United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997).
The Court has thoroughly reviewed Magistrate Judge Pitman's comprehensive and well-reasoned Report and has determined that there is no clear error on the face of the record.
The Court adopts the Report for the reasons stated therein.
Magistrate Judge Pitman's Report follows.
TO THE HONORABLE LAURA TAYLOR SWAIN, United States District Judge,
Defendants New York Life Insurance Co., Inc. ("NY Life") and Kelly Services, Inc. ("Kelly") have raised an issue concerning whether N.Y. Life is still a party in this action and, if so whether the action should be stayed as to N.Y. Life pending arbitration. For the reasons set forth below, I respectfully recommend that the your Honor find that N.Y. Life is still a party in this action, but that the cross-claims of both defendants be stayed pending arbitration. Because the issue of N.Y. Life's status is potentially dispositive, I believe that the dispute is most appropriately resolved by way of Report and Recommendation.
Although the merits of plaintiff's claims are hotly contested, the facts that give rise to the current dispute concerning N.Y. Life's current status are undisputed.
On March 22, 1999, Kelly entered into a contract (the "Contract") with NYLTEMPS, Inc. ("NYLTEMPS") under which Kelly was to provide temporary personnel services to NYLTEMPS and to manage such temporary personnel for NYLTEMPS. According to the Contract, NYLTEMPS was in the business of providing temporary personnel services to N.Y. Life, its subsidiaries and affiliates.
In paragraph 4(b) of the Contract, Kelly agreed "not to discriminate against any employee or applicant for employment because of race, sex, religion, color, national origin, age, disability, status as a qualified disabled veteran or veteran of the Vietnam era." In paragraph 5(b), NYLTEMPS made similar promises, agreeing that "[i]n connection with the performance of this Agreement, NYLTEMPS will comply with all applicable laws, regulations and orders, including, but not limited to, equal opportunity employment and occupational safety and health laws and regulations." In paragraph 16 of the Contract, Kelly agreed to indemnify NYLTEMPS for certain potential losses. In paragraph 17, NYLTEMPS agreed to indemnify Kelly for certain potential losses. Specifically, paragraph 17 provided:
NYLTEMPS will indemnify, defend and hold harmless
Kelly and its directors, officers, employees and
agents from and against all Damages imposed upon or
incurred by Kelly . . . to the extent arising out of
any of the following:
(i) NYLTEMPS' failure to comply with applicable laws,
regulations or orders;
(iii) Breach of any obligation of NYLTEMPS contained
in this Agreement;
NYLTEMPS' obligation to indemnify, defend and hold
harmless will not apply (i) to indirect, special or
consequential Damages or (ii) to an amount equal to
the proportionate liability for any negligence or
willful misconduct of Kelly, its officers, employees
or agents, as determined by a court of law or by
arbitration as provided for herein.
Finally, paragraph 24 of the Contract contained an arbitration clause that provided, in pertinent part:
Except for any controversy or claim under Sections
4(b), 4(h), 15, 21, 23 and 25, controversies or claims
arising out of or relating to this Agreement, or the
breach thereof shall be resolved by arbitration
administered by the American Arbitration Association
("AAA") under its commercial Arbitration Rules, to the
extent such rules are not inconsistent with the
provisions of this Agreement, and judgment on the
award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. . . .
Plaintiff commenced this action on January 1, 2002. In pertinent part, plaintiff alleges in her amended complaint that she and Kelly entered into an employment agreement in November 1999 pursuant to which she was placed as a secretary in N.Y. Life's Licensing Department (Amended Complaint ("Am. Compl.") ¶ 28). This was a temporary position and was expected to end in November 2000 (Am. Compl. ¶ 29). At some point prior to November 2000, plaintiff learned that a permanent position was available in N.Y. Life's Annuity Department and expressed an interest in the position to N.Y. Life personnel (Am. Compl. ¶¶ 31-34). Plaintiff alleges that she "was promised by Myra Diaz and Kimberly Weichert that after six (6) months of employment as a temporary employee in the Annuity Department, she would be hired on as a permanent employee" (Am. Compl. ¶ 36).
Plaintiff goes on to allege that although she was transferred to the Annuity Department, she was treated less favorably than younger employees and that she was terminated in April 2001, shortly before her term of "permanent" employment was scheduled to commence (Am. Compl. ¶¶ 40-42). Plaintiff alleges that she is over 40 years of age and that her mistreatment and termination were the result of discrimination on the basis of age.
Kelly filed an answer and cross-claim against N.Y. Life on June 21, 2002. In addition to denying all the material allegations of the amended complaint and asserting various affirmative defenses, Kelly asserted two cross-claims against N.Y. Life seeking indemnity or contribution. Although the cross-claims expressly allege that Kelly's contract was with NYLTEMPS,*fn1 Kelly alleged that in paragraph 17 of the contract "NY Life agreed, inter alia, to indemnify Kelly and to hold Kelly harmless from any damages arising out of N.Y. Life's `failure to comply with applicable laws, regulations of orders . . .'" (Docket Item 21, ¶ 53). N.Y. Life also answered the amended complaint and asserted cross-claims against Kelly for indemnity and contribution.
N.Y. Life filed an answer to Kelly's cross-claim on July 2, 2002. N.Y. Life, did not, however, assert the arbitration clause as an affirmative defense.
Sometime in the summer of 2002, plaintiff and N.Y. Life reached a settlement. Plaintiff and N.Y. Life subsequently submitted a Stipulation and Order of dismissal with prejudice that provided:
It is hereby stipulated and agreed by and between
counsel for Plaintiff Shirley Lipford and Defendant
New York Life Insurance Company, that the within
action be and the same hereby is dismissed with
prejudice and without costs against New York Life
(Docket Item 23). The stipulation was "So Ordered" by your Honor on August 6, 2002. There is no evidence in the record that the stipulation was circulated to counsel for Kelly prior to its execution.
N.Y. Life claims that as a result of this Stipulation and Order, it is out of the case entirely and is now a non-party. In the alternative, N.Y. Life claims that the cross-claims against it should be stayed pending arbitration.
The effect of the dismissal of a plaintiff's claim against a defendant on a previously asserted cross-claim against that defendant was examined by the Honorable William C. Conner, United States District Judge, in Slotkin v. Brookdale Hosp. Ctr., 377 F. Supp. 275 (S.D.N.Y. 1974). The plaintiff in Slotkin had asserted claims against multiple defendants. On January 17, 1972, several of the defendants had filed answers and cross-claims against defendant Brookdale Hospital Center ("Brookdale"). Nine days later, a Stipulation and Order of dismissal with respect to Brookdale was "So Ordered" by the late Honorable Lloyd F. MacMahon, United States District Judge, without prior notice to the other defendants.
Judge Conner held that the Stipulation and Order of dismissal had no effect on the previously asserted cross-claims and that Brookdale remained a party with respect to those cross-claims:
It is clear that dismissal of an action with prejudice
pursuant to Rule 41(a)(2) is a final adjudication of
the issues presented by the pleadings and normally
bars further suit between the parties on the same
cause of action. Glick v. Ballentine Produce, Inc.,
397 F.2d 590 (8th Cir. 1968); Cleveland v. Higgins,
148 F.2d 722, (2d Cir.), cert. denied, 326 U.S. 722,
66 S.Ct. 27, 90 L.Ed. 428 (1945). However, the
stipulation of dismissal with prejudice of plaintiff's
action against Brookdale, endorsed `so ordered' by
Judge MacMahon, did not operate to dismiss the
cross-claim asserted by American Mutual Insurance
Company of Boston which was filed prior to entry of
the order of dismissal. Barker v. Louisiana &
Arkansas Ry. Co., 57 F.R.D. 489 (D. La. 1972); Aetna
Insurance Co. v. Newton, 398 F.2d 729, 734 (3d Cir.
1968); Frommeyer v. L. & R. Construction Co.,
139 F. Supp. 579 (D.N.J. 1956), aff'd, 261 F.2d 879
(3rd Cir. 1958). Since this Court has retained
jurisdiction over Brookdale by virtue of that
cross-claim, Brookdale remains a co-defendant in this
action and the movants may assert cross-claims
pursuant to Rule 13(g), F.R.Civ.P. by amending their
answers if leave of the Court is granted pursuant to
Rule 15, F.R.Civ.P.
377 F. Supp. at 277-78 (footnotes omitted). See also Shaps v. D. F.D.S. A/F Copenhagen, 83 Civ. 8091 (CBM), 1985 WL 269 at *3 (S.D.N.Y. Feb. 13, 1985) ("A cross-claim, once properly made, does not cease to be proper because the defendant to whom [it was] addressed ceased to be a defendant."); Moll v. Southern Charters, Inc., 81 F.R.D. 77, 80-81 (E.D.N.Y 1979) ("[I]t is settled that the voluntary dismissal of an action as against fewer than all defendants will not operate to dismiss previously asserted cross-claims against those defendants, who remain subject to the court's jurisdiction for purposes of those and any other cross-claims that might subsequently be filed."); Land v. Highway Constr. Co., 64 Haw. 545
, 548, 645 P.2d 295, 298 (1982) (applying state procedural rules identical to Federal Rules of Civil Procedure and concluding that dismissal of plaintiff's claims against one defendant did not affect previously asserted cross-claims).
Thus, the settlement of plaintiff's claims against N.Y. Life has no effect on Kelly's cross-claims against N.Y. Life and N.Y. Life remains a party in this action with respect to Kelly's cross-claims.
Turning to N.Y. Life's application for a stay pending arbitration, the Federal Arbitration Act, 9 U.S.C. § 1 et seq., requires federal courts to enforce arbitration agreements.
Section 3 of the Federal Arbitration Act ("FAA") [,
9 U.S.C. § 3,] directs district courts to "stay
proceedings if satisfied that the parties have agreed
in writing to arbitrate an issue or issues underlying
the district court proceeding." [McMahan Sec. Co. v.
Forum Capital Mkts. L.P., 35 F.3d 82, 85 (2d Cir.
1994). The FAA "leaves no place for the exercise of
discretion by a district court, but instead mandates
that district courts shall direct the parties to
proceed to arbitration on issues as to which an
arbitration agreement has been signed." [Dean Witter
Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)
(emphasis in original).]
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) (footnotes omitted).
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 arbitration.
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). 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).
A threshold issue here is the existence of an agreement to arbitrate. As noted above, the Contract in issue was signed by Kelly and NYLTEMPS, and N.Y. Life itself is not, by the express terms of the Contract, a party to the Contract. Nevertheless, both sides take the position that N.Y. Life is bound by the Contract. Kelly's cross-claims cite paragraph 17 of the Contract as the basis for its right to contribution or indemnity from N.Y. Life, and N.Y. Life describes the Contract as a "March 29, 1999 written agreement between NYLTEMPS, Inc., its affiliates, subsidiaries and managed entities and Kelly . . ." (Letter of B. Michael Thrope, Esq., dated September 30, 2002, at 1). Since both N.Y. Life and Kelly take the position that N.Y. Life is bound by the Contract as if it were a party, I shall deem this fact to be established.*fn2
The next relevant factor is whether the dispute is within the scope of the arbitration agreement. There is a strong federal policy in favor of arbitration. Oldroyd v. Elmira Sav. Bank, supra, 134 F.3d at 76. Accordingly, "any 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 (1983). "`[T]he existence of a broad agreement to arbitrate creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that [it] covers the asserted dispute.'" Oldroyd v. Elmira Sav. Bank, supra, 134 F.3d at 76 (emphasis in original), quoting WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997).
In this case, Paragraph 24 of the Contract provides that "Except for any controversy or claim under Sections 4(b), 4(h), 15, 21, 23 and 25, controversies or claims arising out of or relating to this Agreement, or the breach thereof shall be resolved by arbitration. . . ." This type of arbitration clause, which provides generally for arbitration but identifies certain, enumerated exceptions, has routinely been found to be a "broad" arbitration clause. See Associated Brick Mason Contractors, Inc. v. Harrington, 820 F.2d 31, 35 (2d Cir. 1987); RosoLino Beverage Distribs., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 126 (2d Cir. 1984) (per curiam); Cleveland Wrecking Co. v. Iron Workers Local Union 40, 947 F. Supp. 745, 748-49 (S.D.N.Y. 1996). Thus, Kelly bears the burden of demonstrating that "the arbitration clause is not susceptible of an interpretation that [it] covers the asserted dispute." Oldroyd v. Elmira Sav. Bank, supra, 134 F.3d at 76 (emphasis omitted).
Kelly contends that the arbitration clause's exception for disputes arising out of paragraph 4(b) takes its cross-claims outside the scope of the arbitration clause. This argument is unconvincing. Paragraph 4(b) of the Contract regulates only Kelly's conduct, not N.Y. Life's, and the dispute to be resolved on the cross-claim necessarily arises out of N.Y. Life's conduct. The provisions most applicable to Kelly's cross-claims are paragraphs 5(b) and 17. The former prohibits N.Y. Life from violating applicable anti-discrimination laws, while the latter is the express basis for Kelly's claims for indemnity or contribution. Since Kelly has not demonstrated how these two provisions are outside of the arbitration clause, I conclude that the dispute in issue here is within the scope of the arbitration agreement.
With respect to the third factor enumerated at page 8 above, there can be no dispute arbitration will not violate congressional intent underlying the anti-discrimination laws. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123-24 (2001).
Finally, the stay here should extend to the cross-claims of both Kelly and N.Y. Life. The central issue raised by the cross-claims is, assuming that plaintiff was the victim of illegal discrimination, what proportion of responsibility does each defendant bear. This issue must be litigated in one proceeding in order to avoid the risk of inconsistent determinations. There is no reason to stay plaintiff's claim pending arbitration because Kelly's claim for contribution or indemnity is contingent and will become operative only if plaintiff first prevails on her claims against Kelly.
Accordingly, for all the foregoing reasons, I respectfully recommend that N.Y. Life's contention that it is no longer a party to this action be rejected, and that the cross-claims of both Kelly and N.Y. Life be stayed pending arbitration. Since N.Y. Life remains a party to this action, any discovery sought from it with respect to plaintiff's claim against Kelly may be taken as party discovery.
Pursuant to 28 U.S.C. § 636(b)(1)(C) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from the date of this Report to file written objections. See also Fed.R.Civ.P. 6(a) and 6(e). Such objections (and responses thereto) shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Laura Taylor Swain, United States District Judge, 40 Centre Street, Room 426, New York, New York 10007, and to the chambers of the undersigned, 500 Pearl Street, Room 750, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Swain. FAILURE TO OBJECT WITHIN TEN (10) DAYS WILL RESULT IN a WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. v. Arn, 474 U.S. 140 (1985); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).