United States District Court, S.D. New York
March 23, 2004.
CAP GEMINI ERNST & YOUNG U.S. LLC, Plaintiff
JOHN NACKEL, Defendant
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
Cap Gemini Ernst & Young U.S. LLC ("Cap Gemini") filed this diversity
action on August 28, 2002, to enforce an arbitration clause in an
employment agreement with former employee John Nackel ("Nackel"). Nackel
originally brought suit against Cap Gemini in California state court,
alleging violations of that state's statutory prohibitions against
employment discrimination and retaliation for complaints of such
discrimination. Cap Gemini commenced an arbitration proceeding before the
American Arbitration Association ("AAA") in New York and sought to compel
Nackel to submit any claims of employment discrimination or retaliation
to the New York arbitration.
On November 21, 2002, this Court issued an Opinion and Order
("Opinion"), No. 02 Civ. 8672 (DLC), 2002 WL 31626703 (Nov. 21,
2002), compelling arbitration of Nackel's claims and staying the pursuit
of those claims through judicial proceedings in California. The Opinion
concluded that the written employment agreement between Cap Gemini and
Nackel ("Employment Agreement") was governed by New York law and that the
Agreement's provision requiring arbitration of Nackel's claims of
employment discrimination and retaliation was enforceable. Id. at *2. The
Employment Agreement contains a New York choice-of-law provision. Nackel
appealed the decision.
The Court of Appeals issued an Opinion on October 14, 2003 ("Appellate
Opinion"), 346 F.3d 360 (2d Cir. 2003), vacating the Opinion and remanding
this action. The Appellate Opinion holds that it is necessary to conduct
a choice-of-law analysis to determine whether New York or California law
governs the threshold issue of whether the parties entered into a
contractually valid arbitration agreement. The Appellate Opinion states
. . . While it is undisputed that Nackel's employment
agreement contains a choice-of-law clause providing
that the agreement shall be construed in accordance
with New York law, the parties' contract does not
automatically settle the choice-of-law question. For
although, "New York courts generally defer to the
choice of law made by the parties to a contract . . .
New York law allows a court to disregard the parties'
choice when `the most significant contacts' with the
matter in dispute are in another state." Cargill,
Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d
Cir. 1991); see also Hartford Fire Ins. Co. v. Orient
Overseas Containers Lines, 230 F.3d 549, 556 (2d Cir.
2000) ("New York law is clear [that] in cases
involving a contract with an express choice-of-law
provision . . . a court is to apply the law selected
in the contract as long as the state selected has
sufficient contacts with the transaction.") (emphasis
While the choice of New York law would be
reasonable, and hence enforceable, if Cap Gemini's
principal place of business were in New York,
significant contacts to the state, see, e.g., Woodlinq
v. Garrett Corp., 813 F.2d 543
, 552 (2d Cir. 1987);
Finucane v. Interior Constr. Corp., 695 N.Y.S.2d 322,
325 (1st Dep't 1999) (mem.), the record merely reveals
that Cap Gemini's "headquarters" are in New York . .
. .[W]e must vacate the District Court's order and
remand for further findings on the choice-of-law
Id. at 365-66. Following remand, the parties briefed the remanded legal
issues and submitted additional evidence concerning New York's contacts
with this matter.
The following facts are undisputed unless otherwise noted. Cap Gemini
is incorporated in Delaware but maintains its headquarters and a separate
location housing the Office of General Counsel in New York, New York. Cap
Gemini's essential records are principally maintained in its
headquarters, which also houses Board Resolutions enacted by its Board of
Directors Cap Gemini conducts official correspondence from New York and
lists New York as its principle place of business on its income tax
returns and on annual statements filed with the states in which it does
In April 2000, Nackel accepted the position of Vice-President at Cap
Gemini and voluntarily executed an Employment Agreement providing in
[A]ny dispute, controversy or claim . . . arising out
of or relating to or concerning the provisions of this
Agreement, any agreement between you and the Firm
relating to or arising out of your employment with us
or otherwise concerning any rights, obligations or
other aspects of your employment relationship,
including, without limitation, discrimination claims,
or your relationship in respect of the firm . . .
shall be finally settled by arbitration in the City of
New York . . . in accordance with the arbitration
procedures set forth in the attached Annex 4, and the
commercial arbitration rules then obtaining of
the American Arbitration Association (the "AAA").
* * *
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York
without regard to its conflict of laws provisions.
(Emphasis supplied.) Annex 4 to the Employment Agreement states that
discovery will be permitted "if authorized by the arbitration panel" and
that the arbitrators have no power to award punitive damages "except such
damages as may be provided for by statute and which may not be waived by
Nackel's employment with Cap Gemini became effective May 23, 2000.
Throughout his employment, he maintained his office in Los Angeles,
California. He acted as Managing Director for the New Ventures division
until February 1, 2001, when he was named to serve as the CEO of the
Extended Workforces Businesses Division. In June, he became CEO of the
North American Operations of the Local Professional Services Division and
began reporting to a superior in the Netherlands. Nackel supervised
California employees and spent the majority of his time in California,
but spent approximately 15 to 18 days in New York on business during the
course of his employment with Cap Gemini, which was terminated on
November 4, 2001. *fn1 Nackel alleges that he was dismissed in
retaliation for comments he made concerning the discriminatory behavior
of a senior executive. Nackel claims that the discriminatory behavior
occurred at meetings in
California, but also asserts that interactions at a meeting in New
York provide evidence of the retaliation against him.
Title 28, United States Code, Section 2106 provides that a court of
appeals may vacate "any judgment, decree, or order of a court lawfully
brought before it for review, and may remand the cause and direct the
entry of such appropriate judgment, decree, or order, or require such
further proceedings to be had as may be just under the circumstances."
28 U.S.C. § 2106 (emphasis supplied). A court of appeals may remand an
action for a district court to supplement the factual record in
accordance with the court of appeals' ruling. United States v. Jacobsen,
15 F.3d 19, 22 (2d Cir. 1994).
In a diversity action, a district court is required to apply the
choice-of-law rules of the state in which it sits. Hartford Fire Ins.
Co. v. Orient Overseas Container Lines, 230 F.3d 549, 556 (2d Cir.
2000). "New York law is clear in cases involving a contract with an
express choice-of-law provision: Absent fraud or violation of public
policy, a court is to apply the law selected in the contract so long as
the state selected has sufficient contacts with the transaction." Id. See
also Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir.
2001); International Minerals and Resources, S.A. v. Pappas, 96 F.3d 586,
592 (2d Cir. 1996); Finucane v. Interior Constr. Corp., 695 N.Y.S.2d 322,
324-35 (1st Dep't 1999).
When the parties have agreed on the law that will govern their
contract, therefore, New York courts will enforce that choice provided
that "(a) the law of the State selected has a
reasonable relationship to the agreement and (b) the law chosen does not
violate a fundamental public policy of New York." Finucane, 695 N.Y.S.2d
at 324-25 (citation omitted) (emphasis supplied). The location of a
corporation's principal place of business in the state whose law is
selected satisfies the requirement of a reasonable relationship to the
agreement. Cap Gemini, 346 F.3d at 366; Woodling v. Garrett Corp.,
813 F.2d 543, 552; Finucane, 695 N.Y.S.2d at 325. New York public policy
is considered when determining whether to enforce a contractual
choice-of-law provision that would apply non-New York law. Cooney v.
Oscrood Machinery, Inc., 81 N.Y.2d 66, 78 (1993); Schultz v. Boy Scouts of
America, Inc., 65 N.Y.2d 189, 202 (1985); Finucane, 695 N.Y.S.2d at
324-25; Eastern Artificial Insemination Coop. v. La Bare, 619 N.Y.S.2d 858,
859 (3d Dep't 1994). See also Barkanic v. General Admin. of CAAC,
923 F.2d 957, 964 n.7 (2d Cir. 1991); Woodling, 813 F.2d at 551.
There is a strong federal policy favoring arbitration as an alternative
means of dispute resolution. ACE Capital Re Overseas Ltd, v. Cent. United
Life Ins. Co., 307 F.3d 24, 29 (2d Cir. 2002). The party resisting
arbitration bears the burden of proving that the claims at issue are
unsuitable for arbitration or that the arbitration would be prohibitively
expensive. Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 92
The Federal Arbitration Act ("FAA") provides that a written arbitration
provision in a contract involving interstate commerce "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. In
evaluating whether the parties have
entered into a valid arbitration agreement, a court looks to the
applicable state law principles and defenses, such as fraud, duress and
unconscionability. Cap Gemini, 346 F.3d at 364. Under New York law, a
contract is unconscionable only if it is "so grossly unreasonable or
unconscionable in light of the mores and business practices of the time
and place as to be unenforceable according to its literal terms." Gillman
v. Chase Manhattan Bank, 73 N.Y.2d 1, 10 (1988); see McNally Wellman Co.
v. New York State Elec. & Gas Co., 63 F.3d 1188, 1198 (2d Cir. 1995). A
determination of unconscionability generally requires a showing of both
substantive and procedural unconscionability. Gillman, 73 N.Y.2d at 10.
The Employment Agreement between Nackel and Cap Gemini contains a
choice-of-law provision expressly selecting New York law. This Court has
jurisdiction to supplement the factual record concerning the contacts
between the state of New York and the Employment Agreement between Nackel
and Cap Gemini pursuant to the remand order of the Court of Appeals.*fn2
28 U.S.C. § 2106; Cap Gemini, 346 F.3d at 366.
It is undisputed that Cap Gemini's headquarters and principal place of
business are in New York. This fact alone is sufficient to establish a
reasonable relationship between the law of New York and the Employment
Agreement. It is also undisputed that Nackel made several trips to New
York to conduct Cap Gemini business and that events at a meeting held in
New York are
significant to his claim of retaliation, which provide additional
contacts to support the choice of New York law. Under New York's
choice-of-law principles, New York law therefore determines whether the
Employment Agreement as well its arbitration provision are valid and
enforceable. Nackel does not argue that the Employment Agreement is
unenforceable as a result of fraud or duress or that it is unconscionable
under New York law.
Nackel's primary argument is that New York's choice-of-law principles
permit the Court to disregard the parties' choice of New York law and
instead select California law when assessing the enforceability of the
Employment Agreement if it is shown that the "most significant contacts
with the matter in dispute are with another state." Cap Gemini, 346 F.3d
at 365 (citing Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51,
55 (2d Cir. 1991)). It would be inappropriate to judge which state has
the most significant contacts with this dispute and perhaps as a result
of that analysis to disregard the choice-of-law provision in the
Employment Agreement, since the choice of New York law satisfies the
standard described above, which is the more recent standard articulated
by the New York courts and applied by the Second Circuit where a contract
contains a choice-of-law provision. The analysis of which state has the
most significant contacts with the dispute remains relevant in those
circumstances in which the contract does not contain a choice-of-law
clause. See Fieger, 251 F.3d at 394.
In the alternative, Nackel argues that the enforcement of the
arbitration agreement would violate the public policy of California.
Nackel asserts that New York courts have adopted the principle embodied
in the Section 187 of the Restatement (Second) of Conflict of Laws that a
choice-of-law provision should not be enforced if "application of the law
of the chosen state would be contrary to a fundamental policy of a state
which has a materially greater interest than the chosen state in the
determination of the particular issue" and which would otherwise be the
state of applicable law. Restatement (Second) of Conflict of Laws § 187
(2003). A choice-of-law provision will be enforced absent a violation of
New York public policy, not that of another state. This public policy
doctrine is considered "only after the court has determined that the
applicable substantive law under relevant choice-of-law principles is not
the forum's law." Schultz, 65 N.Y.2d at 202. The doctrine addresses
whether that foreign law should be disregarded "because it is contrary or
repugnant" to the forum state's own public policy. Id.
The remanded issue is hereby decided in aid of the pending appeal. New
York law governs the enforceability of the
Employment Agreement. The parties entered into a contractually valid