United States District Court, S.D. New York
May 17, 2004.
HENRY CAMFERDAM, JR., JEFFREY M. ADAMS, JAY MICHENER, CAROL TRIGILIO, BAMC INC., CARMEL PARTNERS, HNC DITCH INVESTMENTS LLC, JMA SEDGEMOOR INVESTMENTS LLC, JM WALNUT INVESTMENTS, and CT OAK TREE INVESTMENTS LLC, Plaintiffs,
ERNST & YOUNG INTERNATIONAL, INC., ERNST & YOUNG LLP, BRIAN UPCHURCH, CARL RHODES, WAYNE T. HOEING, JENKINS & GILCHRIST, P. C., PAUL M. DAUGERDAS, SIDLEY AUSTIN BROWN & WOOD LLP, R. J. RUBLE, Defendants
The opinion of the court was delivered by: BARBARA JONES, District Judge
In an Opinion dated February 12, 2004, this Court granted Defendants'
motion to stay certain counts in this action pending arbitration.*fn1
However, because there was a factual dispute whether the Attachment
(which set forth the arbitral forum and procedures) was actually attached
to the parties' Letter Agreements and because the Attachment was not
incorporated into the Letter Agreements by reference, the Court was
unable to determine which arbitral forum or which procedures should control
The Court directed the parties to submit briefs addressing who should
resolve this issue of fact e. g., the Court, a jury or
an arbitrator. In these submissions, which the Court has received and
reviewed, Plaintiffs argue that a jury must make the factual finding;
Defendants argue that this issue should be left to the arbitrator. For
the reasons set forth below, the Court concludes that: (1) whether the
Attachment was attached is an issue that does not fall within the scope
of the parties' arbitration agreement; and (2) although this issue must
be resolved by the Court, there is no right to a jury trial.
A. The Scope of the Arbitration Agreement
Although Plaintiffs attempt to characterize the present issue before
the Court as determinative of whether there was an agreement to
arbitrate,*fn2 this Court's previous opinion held that the parties in
this action agreed to arbitrate the claims in Plaintiffs' Complaint, even
assuming that no Attachment had been attached to the Letter Agreements.
The Court declines to revisit this issue. The only question before the
Court is whether the factual dispute about the Attachment falls within the
scope of the parties' arbitration agreement. It does not.
At the outset of any arbitration scope inquiry, a court must decide
"whether the arbitration agreement is broad or narrow. " Collins
& Aikman Prods. Co. v. Building Sys., 58 F.3d 16, 20 (2d Cir.
1995) (internal quotations and alterations omitted). "Broad" clauses
purport to refer all disputes to arbitration; "narrow" clauses limit
arbitration. to specific types of disputes. McDonnell Douglas Fin.
Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 832 (2d
Cir. 1988). If the arbitration clause is broad, then the dispute is
presumptively reserved for the arbitrator. In contrast, when dealing with
a narrow arbitration clause, the court must consider whether the disputed
issue is, on its face, within the purview of the clause, and the court
"must be careful to carry out the specific and limited intent of the
parties. " Id.; Prudential Lines, Inc. v. Exxon
Corp., 704 F.2d 59, 63-64 (2d Cir. 1983).
As the Second Circuit explained in Prudential Lines v. Exxon,
arbitration clauses that contain "words of limitation" are narrow
clauses. 704 F.2d at 64. The Prudential Court found that an
agreement to arbitrate "disputes regarding `responsibility for repairs,
renewals or replacements, or as to the condition of the vessel at the
time of redelivery'" was a narrow arbitration clause. Id. at
n. 5. In contrast, the prototypical broad arbitration provision is one in which the
parties agree to arbitrate any dispute, controversy or claim arising
under or in connection with the parties' agreement. Oldroyd v.
Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998).
The arbitration clause in this action provides that the parties agree
to arbitrate "[a]ny controversy or claim arising out of or relating to
tax and tax related services" rendered by the Ernst & Young
Defendants to the Individual Plaintiffs. The Court reads this language as
constituting a narrow arbitration clause. Rather than embodying an
agreement to arbitrate any claim arising out of the parties' agreement,
the clause limits arbitration to disputes relating to the tax services
Defendants were to provide to Plaintiffs. Although the present dispute
regarding which arbitration forum and procedures shall apply could easily
be categorized as a dispute arising out of the parties' agreement, it
does not relate to the tax services Defendants were to provide to
Plaintiffs.*fn3 Had the parties intended to submit these types of
contract interpretation issues to an arbitrator, they should have
included a broader arbitration clause. Compare Green Tree Financial Corp. v.
Bazzle, 123 S.Ct. 2402 (2003) (finding that an agreement to submit
to arbitration "all disputes, claims or controversies arising from or
relating to this contract or the relationship which results from this
contract" constituted an agreement to submit to the arbitrator questions
regarding what kind of arbitration proceedings the parties agreed to).
B. No Right to a Jury Trial
Because the factual dispute regarding the Attachment does not fall
within the scope of the parties `agreement to arbitrate, whether the
purported Attachment was attached to the Letter Agreements must be
decided by the Court. In order to make that determination, the Court will
conduct a hearing at which both parties shall have the opportunity to
call witnesses and present evidence. If the Court finds that the
Attachment was, in fact, attached to the Letter Agreement, then its terms
shall cover any arbitration proceedings. If the Court finds that the
Attachment was not attached to the Letter Agreements, then the Court will
designate an arbitral forum and arbitration will proceed according to the
procedures of that forum. Contrary to Plaintiffs' assertions, they have
neither a constitutional nor a statutory entitlement to a jury trial on
the issue whether the Attachment was attached to the Letter Agreements.
There, is no constitutional right to a jury trial because a motion to stay is an equitable defense; there is no
statutory right to a jury because the Federal Arbitration Act provides
for a jury trial only in actions to compel arbitration.
1. No Constitutional Right to a Jury
The Seventh Amendment guarantees the right to a jury trial "in suits at
common law, where the value in controversy shall exceed twenty dollars. "
This language has been interpreted to entitle a plaintiff to a jury if
his claims "involve rights and remedies of the sort traditionally
enforced in an action at law, rather than in an action in equity. "
SEC v. Commonwealth Chemical Secur., Inc., 574 F.2d 90, 95
(2d Cir. 1978). If the relief sought is equitable in nature, a jury trial
is not warranted. See Chauffeurs, Teamsters and Helpers, Local No.
391 v. Terry, 494 U.S. 558, 565 (1990).
A motion to stay an action pending arbitration is an equitable remedy.
As the Supreme Court explained in Shanferoke Coal & Supply Corp.
v. Westchester Service Corp., when a defendant moves to stay an
action at law under Section 3 of the FAA he is essentially interposing
the arbitration agreement as a defense, and "a defense setting up the
arbitration agreement is an equitable defense. " 293 U.S. 449, 452
(1935). The Shanferoke Court characterized a motion for a stay
as "an application for an interlocutory injunction. " Id.
Injunctions have long been classified as equitable relief for which no
party is entitled to a jury. See United States v. State of
Louisiana, 339 U.S. 699, 706 (1950) (denying motion for a jury
trial in an equity action for an injunction).
2. No Statutory Right to a Jury
Even where parties are not entitled to a jury trial under the Seventh
Amendment, they may nonetheless have a statutory right to a jury.
However, "[a] statute will not be read as having created a right to jury
trial on a claim for an injunction unless Congress has expressly so
provided. " 9 Wright & Miller, Federal Practice & Procedure 2d
Section 4 of the Federal Arbitration Act provides for a jury trial when
a party seeks to compel arbitration and where "the making of the
arbitration agreement or the failure, neglect, or refusal to perform the
same be in issue, the court shall proceed summarily to the trial thereof.
" 9 U.S.C. § 4. Plaintiffs argue that the dispute regarding the
Attachment goes to "the making of the arbitration agreement", and thus
this Court must proceed to a trial. (Pl. Mem. at 3). However, Defendants
have brought a motion to stay under Section 3 rather than a motion to
compel pursuant to Section 4. Section 3 of the FAA does not contain any
language regarding jury trials; therefore, it cannot be read to create a
right to jury trial.
The question whether there is a right to a jury trial under Section 3
of the FAA (as opposed to Section 4), was identified by Judge Posner in Matterhorn v. NCR Corporation,
763 F.2d 866, 873-74 (7th Cir. 1985). In Matterhorn, the trial court
empanelled a jury to decide whether an agreement by the parties had
successfully incorporated the arbitration clause found in a prior
agreement. Judge Posner noted that "it is not at all clear that the issue
[before the trial court] should be determined by a jury when, as also in
this case, it arises in the course of deciding whether court proceedings
should be stayed. " Id. at 873. Judge Posner noted that
decisions regarding the staying and compelling of arbitration are
equitable in nature and that, although Section 4 of the FAA creates an
explicit right to a trial by jury in cases to compel arbitration, it is
not clear whether that right exists when Section 3 "is in play. "
Although Judge Posner did not have to reach the issue whether a jury
trial was proper, that issue is presently before this Court. Because the
right to a jury trial is included in Section 4 but omitted from Section
3, the Court concludes that there is no statutory right to a jury trial
in this action.*fn4 "[Where] Congress includes particular language in one section of a
statute but omits it in another section of the same Act, it is generally
presumed that Congress acts intentionally and purposely in the disparate
inclusion or exclusion. " Russello v. United States, 464 U.S. 16,
23 (1983) (alteration in original).
The Court has determined that the remaining issue in Defendants' motion
to stay does not fall within the parties' narrow arbitration clause.
Thus, the issue of whether the Attachment was attached to the Letter
Agreements shall be decided by the Court after a hearing. The parties are
directed to appear before the Court on Wednesday, June 2, 2004 at 10:30
a.m., at which time the Court will hear evidence on the narrow issue of
whether the Attachment was attached to the Letter Agreements at the time
the agreements were signed.
The Court is aware that the Plaintiffs' motion for an interlocutory
appeal is sub judice. The Court reserves decision on that
motion until after the hearing. SO ORDERED.