United States District Court, S.D. New York
June 9, 2005.
HUGHES, HOOKER & CO. AND HUGHES, HOOKER (CORRESPONDENTS) S.A., Plaintiffs,
AMERICAN STEAMSHIP OWNERS MUTUAL PROTECTION AND INDEMNITY ASSOCIATION, INC., SHIPOWNERS CLAIMS BUREAU, JOSEPH E.M. HUGHES, THOMAS J. McGOWAN, AND VINCENT J. SOLARINO, Defendants.
The opinion of the court was delivered by: SIDNEY STEIN, District Judge
OPINION & ORDER
Hughes, Hooker & Co. and Hughes, Hooker (Correspondents) S.A.
(collectively, "Hughes Hooker") bring this action against the
American Steamship Owners Mutual Protection and Indemnity
Association (the "American Club"); its managing company, the
Shipowners Claims Bureau (the "Claims Bureau"); and its current
and former corporate officers, Joseph E.M. Hughes, Thomas J.
McGowan and Vincent J. Solarino, for damages for breach of
contract, fraud, tortious interference with contractual
relationship, and for an accounting. The gravamen of Hughes
Hooker's complaint is that the American Club failed to compensate
Hughes Hooker pursuant to a contract entered into in 1996 between
Hughes Hooker and the American Club, (the "Agreement"), and that
the American Club wrongfully terminated the Agreement in
The American Club moves for a stay of this action pending
arbitration in London, claiming a right to arbitration pursuant
to the arbitration clause in the Agreement. The remaining
defendants claim not to be parties to the Agreement, and also
move for a stay of the action pending arbitration. While Hughes
Hooker concedes the validity of the arbitration clause and the arbitrability of its claims against the American
Club, it nonetheless opposes the entry of a stay, arguing that
interests of justice and judicial economy require that this
litigation not be stayed. Hughes Hooker's primary objections are
to the American Club's choice of England as the forum for
arbitration, and to the stay of the action against the remaining
defendants. Hughes Hooker cross moves for limited pre-arbitration
discovery in the event that a stay is granted.
Because this Court finds that the arbitration clause is valid
and the claims asserted against the American Club are within the
scope of the arbitration clause, this proceeding must be stayed
as against the American Club. Also, because the arbitration
clause at issue unambiguously gives the American Club the right
to select the forum for the arbitration, the Court will enforce
the American Club's choice of forum. Moreover, the stay will
extend to the remaining defendants in the interests of fairness
and judicial economy. Finally, because Hughes Hooker has not
demonstrated that the requested pre-arbitration discovery is
necessary, Hughes Hooker's cross motion is denied.
Hughes, Hooker & Co was a specialist marine law and claims
handling firm based in London and in Piraeus, Greece; in Greece
it was known as Hughes, Hooker (Correspondents) S.A. (Am. Compl.
¶ 3). The American Club is a non-profit mutual insurance
association, which provides marine indemnity insurance to owners
and operators of merchant vessels.*fn1 (Affidavit of
Lawrence J. Bowles in Support of Defs.' Renewed Mots. for Orders
Staying this Action Pending Arb. in London, at ¶ 5). The American
Club is managed by the Shipowners Claims Bureau. (Id. ¶ 5).
Joseph Hughes is the Secretary of the American Club, and the Chairman and Chief Executive Officer of the Claims Bureau.
(Id.). Vincent Solarino serves as the President and Chief
Operating Officer of the Claims Bureau. (Id.). Thomas McGowan
was formerly the Chief Executive of the Claims Bureau and
Secretary of the American Club. (Id.).
According to Hughes Hooker, in 1995, the American Club sought
to expand internationally by enrolling new members among
shipowners in Greece. (Am. Compl. ¶ 9). To further that goal, the
American Club retained Jacek Bielecki, the original plaintiff in
this action, and his firm, Hughes Hooker, as its exclusive
representative in Greece. (Id. ¶¶ 3,9). In March 1996, Hughes
Hooker and the American Club entered a written agreement pursuant
to which Hughes Hooker would provide marketing services and act
as the American Club's general correspondent in Greece. (Id. ¶
11). The written agreement, dated March 25, 1996, is entitled an
"Agreement" between the Claims Bureau and the American Club on
one side and Hughes, Hooker & Co. and Hughes, Hooker
(Correspondents) S.A. on the other. (Agreement, at 2, attached at
pp. 1-3 of Ex. A to Original Compl., incorporated into Am. Compl.
at ¶ 11). The Agreement is signed only on behalf of the American
Club, Hughes, Hooker & Co., and Hughes, Hooker (Correspondents)
S.A. (Id.). The Agreement also sets forth a formula for
calculating Hughes Hooker's compensation, the duration of the
Agreement, and the procedure for its termination. (Id. ¶¶ 1,
3-4). Finally, the clause at issue here Clause 5 sets forth
the parties' agreement regarding dispute resolution as follows:
This Agreement is subject to American or English law
and jurisdiction either in arbitration, before a
single arbitrator, or before the regular courts, at
the option of the defending party.
(Id. ¶ 5). Pursuant to the Agreement, Hughes Hooker represented
the American Club in Greece from 1996 until late 1999. A number
of disputes arose during that period over the adequacy of the
American Club's disclosures on the premiums paid by new members
enrolled through Hughes Hooker's efforts and its commission
payments. The disputes culminated in the American Club's giving notice in September 1999
of its intention to terminate the Agreement as of December 1999.
That termination notice did not put an end to the parties'
disagreements. Instead, it triggered several rounds of disputes
over how to settle disputes relating to the parties' obligations
under the Agreement, as well as disputes over the American Club's
outstanding obligations to Hughes Hooker. After several
unsuccessful endeavors to settle their disputes, Bielecki
commenced an action against the American Club and the remaining
defendants on March 8, 2004 in this district. Approximately six
weeks thereafter, the American Club made its arbitration demand.
Hughes Hooker subsequently filed an amended complaint,
substituting Hughes, Hooker & Co. and Hughes, Hooker
(Correspondents) S.A. as plaintiffs, and the American Club again
moved for a stay of the action pending arbitration.
The pending cross motions present this Court with four
questions: first, whether the American Club is entitled to a stay
of this action; second, whether the Court should enforce the
American Club's selection of the forum for arbitration; third,
whether such a stay should extend to the other defendants; and
finally, whether this Court should grant Hughes Hooker's request
for pre-arbitration discovery. The Court addresses each in turn.
A. Staying an Action Pending Arbitration Pursuant to the
Federal Arbitration Act
In reviewing defendants' motion for a stay pending arbitration,
the Court is guided by a "federal policy [that] strongly favors
arbitration as an alternative dispute resolution process." David
L. Threlkeld & Co. v. Metallgesellschaft, Ltd., 923 F.2d 245,
248 (2d Cir. 1991) (citing Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477, 109 S. Ct. 1917,
104 L. Ed. 2d 526 (1989) and Genesco, Inc. v. T. Kakiuchi &
Co., 815 F.2d 840, 844 (2d Cir. 1987)). Where there is a
question as to whether claims are arbitrable, federal arbitration policy requires that "any doubts . . . be resolved in
favor of arbitration." Moses H. Cone Memorial Hospital v.
Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927,
74 L. Ed. 2d 765 (1983); see also Louis Dreyfus Negoce, S.A.
v. Blystad Shipping & Trading Inc., 252 F.3d 218, 223 (2d Cir.
2001). This policy favoring arbitration "is even stronger in the
context of international business transactions." Threlkeld &
Co., 923 F.2d at 248 (citing Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614, 629-31, 105 S. Ct. 3346,
87 L. Ed. 2d 444 (1985)).
The American Club contends that a stay should be imposed
pursuant to section 3 of the Federal Arbitration Act, (the
"FAA"), 9 U.S.C. § 3, and alternatively that a stay is warranted
and its choice of arbitration forum should be enforced pursuant
to section 206 of the FAA, which implements the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards,
9 U.S.C. §§ 201 et seq. (the "Convention").
1. The Agreement Is Subject to the Convention
An agreement is subject to enforcement pursuant to the
Convention and the implementing provisions of the FAA if it meets
the following four requirements: "(1) there must be a written
agreement; (2) it must provide for arbitration in the territory
of a signatory of the convention; (3) the subject matter must be
commercial; and (4) it cannot be entirely domestic in scope."
Smith/Enron Cogeneration Ltd. P'ship v. Smith Cogeneration
Int'l, Inc., 198 F.3d 88, 92 (2d Cir. 1999); Credit Suisse
First Boston, LLC. v. Padilla, 326 F.Supp.2d 508, 511 (S.D.N.Y.
2004); see also 9 U.S.C. § 202. The Agreement at issue here
meets each of these four requirements: it is in writing, it
provides for arbitration in the territory of England or the
United States, both of which are signatories to the Convention,
and it involves an international commercial relationship. Where
an agreement meets each of these requirements, "a federal court
must compel arbitration of any dispute falling within the scope of the agreement pursuant to the terms of the agreement." U.S.
Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., Ltd.,
241 F.3d 135, 146 (2d Cir. 2001).
2. A Stay of Hughes Hooker's Claims Against the American Club
As noted, the American Club first contends that a stay pending
arbitration must be granted pursuant to Section 3 of the
FAA.*fn2 Section 3 of the Federal Arbitration Act provides
that where a court is satisfied that "any issue referable to
arbitration under an agreement in writing for such arbitration"
is before the court, the court:
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 arbitration.
9. U.S.C. § 3. Thus, pursuant to section 3 of the FAA, where a
party has not waived its right to arbitration, a district court
has no discretion to deny a stay if a valid agreement to
arbitrate exists and the claims at issue come within the scope of
that agreement. See ACE Capital Re. Overseas, Ltd. v. Central
United Life Ins' Co., 307 F.3d 24
, 28-29 (2d Cir. 2002); see
also Milgrim v. Backroads, Inc., 142 F. Supp. 2d 471, 476
(S.D.N.Y. 2001) (holding that a court "must stay proceedings and
order parties to proceed to an arbitration" if a dispute is
Hughes Hooker does not dispute that it has agreed to arbitrate
upon demand by the "defending party,"*fn3 and Hughes Hooker
also does not argue nor could it that its claims against the American Club fall outside the scope of that
agreement.*fn4 Although Hughes Hooker suggests that the
American Club has delayed the commencement of arbitration in this
matter, the evidence does not support that contention, and
regardless, delay does not result in waiver, unless there is
resulting prejudice. See Leadertex v. Morganton Dyeing &
Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995).
Clause 5 of the Agreement is plainly a "broad" arbitration
provision, expressing the parties' "intent to have arbitration
serve as the primary recourse for disputes connected to the
agreement," Louis DreyfusNegoce, S.A. v. Blystad Shipping &
Trading Inc., 252 F.3d 218, 225 (2d Cir. 2001), and it is broad
enough to encompass all claims asserted against the American
Club. See ACE Capital Re Overseas Ltd., 307 F.3d at 34.
Clause 5 states simply that the Agreement "is subject to American
or English law . . . either in arbitration, before a single
arbitrator, or before the regular courts." It contains no words
of limitation; nor does its text evince any intent by Hughes
Hooker or the American Club to limit its application.
Because each of Hughes Hooker's claims rests on Hughes Hooker's
interpretation of the Agreement and its allegation that pursuant
to the Agreement it was an exclusive representative for the
American Club, those claims clearly "touch matters" covered by
that Agreement, and are therefore subject to arbitration.
Genesco, 815 F.2d at 846 (internal citations omitted). Id.
("[W]hether a particular claim falls within the scope of the
parties' arbitration agreement," depends upon "the factual
allegations in the complaint rather than the legal causes of
action asserted.") (citing Mitsubishi, 473 U.S. at 625, n. 13).
Moreover, the American Club correctly contends that Hughes
Hooker's fraud claim does not preclude the Court from enforcing
the arbitration clause because Hughes Hooker has not claimed that
Clause 5 the agreement to arbitrate was induced by fraud.
See Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 402, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967). Because there is a valid agreement to arbitrate, and because it
is broad enough to encompass the claims asserted against the
American Club, a stay of this action as against the American Club
B. The American Club's Choice of Forum Is Enforceable
The American Club contends that this action should be stayed
pending arbitration in London pursuant to the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards,
9 U.S.C. §§ 201 et seq. Unlike Chapter 1 of the FAA, which grants a
district court the authority only to compel arbitration in a
location within its jurisdiction, see 9 U.S.C. § 4, Chapter 2
of the FAA, which implements the Convention and governs
international arbitration agreements like the one at issue here,
grants a district court the authority to direct that arbitration
be held in accordance with the parties' agreement at a location
"within or without the United States." See 9 U.S.C. § 206;
see also Oil Basins, Ltd. v. Broken Hill Proprietary Co.,
613 F. Supp. 483, 486 (S.D.N.Y. 1985) (citing cases). This
provision does not, however, give a district court the authority
to direct arbitration in a particular location outside its
jurisdiction where no location is provided by the parties'
agreement. See 9 U.S.C. § 206;*fn5 see also Oil
Basins, Ltd., 613 F. Supp. at 486. Thus, the Court must
determine whether Clause 5 evinces an agreement by the parties as
to the location for arbitration of this dispute.
In construing this provision, this Court must first look to the
plain language of Clause 5. Where the "`language admits of only
one reasonable interpretation, the court need not look to
extrinsic evidence of the parties' intent or to rules of
construction to ascertain the contract's meaning.'" Bear, Stearns & Co. v. Bennett,
938 F.2d 31, 32 (2d Cir. 1991) (quoting American Home Prods. Corp. v.
Liberty Mut. Ins. Co., 748 F.2d 760, 765 (2d Cir. 1984)).
Ambiguity in a contractual clause "does not exist simply because
the parties urge different interpretations." Hugo Boss Fashions,
Inc. v. Federal Ins. Co., 252 F.3d 608, 616 (2d Cir. 2001).
While Clause 5 does not dictate a single location for
arbitration in the event of a dispute, it does speak to which
party can choose where the arbitration shall take place. Hughes
Hooker strenuously argues that Clause 5 grants to the defending
party here the American Club only the choice of arbitration
or the courts, leaving the choice of the location to the party
instituting the adversary proceeding. However, the American Club
contends, and the Court agrees, that Clause 5 allows both the
choice between arbitration and the courts and the choice of the
location between England and the United States to be made by the
A plain reading of the clause shows that it entitles a party
defending a suit arising from the Agreement to choose both
arbitration and the forum for the arbitration. Because the term
"defending party" has no definitive meaning except in the context
of a litigation or an arbitration, the only plausible
construction of the forum selection provision is that the party
defending an adversary proceeding involving the Agreement
either before a court or an arbitration panel has the right to
choose whether the dispute will be resolved in England or the
United States. It is clear that the American Club as the party
defending the litigation instituted by Hughes Hooker is the
"defending party" for purposes of Clause 5. Thus, the American
Club's choice of England as the forum for arbitration is
enforceable. See U.S. Titan, 241 F.3d at 146. C. A Stay of this Action Against the Remaining Defendants
Pending Arbitration Is Warranted
A stay of proceedings as to one defendant pending arbitration
between that defendant and the plaintiffs may be extended to the
remaining defendants pursuant to a district court's inherent
power to control its docket.*fn6 See WorldCrisa Corp. v.
Armstrong, 129 F.3d 71, 76 (2d Cir. 1997); see also
Nederlandse Erts-Tankersmaatschappij v. Isbrandtsen Company,
339 F.2d 440, 441 (2d Cir. 1964); Sea Spray Holdings Ltd. v.
Pali Financial Group, Inc., 269 F. Supp. 2d 356, 366 (S.D.N.Y.
2003). To be entitled to a stay, defendants who were not party to
the Agreement bear the burden of showing that Hughes Hooker will
not be prejudiced by an extension of the stay to them, and that
the balance of hardships and interests of judicial economy favor
an extension. See Nederlandse, 339 F.2d at 441; WorldCrisa,
129 F.3d at 76; Danisco A/S v. Novo Nordisk A/S, 01 Civ. 10557,
2003 WL 282391 at *4 (S.D.N.Y. Feb. 10, 2003).
Hughes Hooker contends that extending the stay to the remaining
defendants would prejudice its ability to secure timely relief.
However, contrary to Hughes Hooker's allegations, there is no
indication that defendants have hampered the progress of any
attempt at arbitration. The defendants' previous refusal to
produce discovery as requested by Hughes Hooker does not indicate
an attempt by defendants to delay arbitration of this matter, and
does not weigh against granting a stay of this matter pending
arbitration. Plaintiffs have not shown that the information they
seek is necessary to enable them to institute arbitration
proceedings, and defendants have indicated that all defendants
including those not parties to the Agreement would comply with the discovery orders of a
London arbitrator as though they were residents of London.
(Proposed Stipulation and Order ¶ 1(b), attached as Ex. 7 to
Moreover, because Hughes Hooker's claims against the individual
defendants center around and depend upon Hughes Hooker's
interpretation of the contractual agreement that is subject to
arbitration, judicial economy favors a stay of this action
pending the resolution of Hughes Hooker's central breach of
contract claim against the American Club. The likelihood that a
failure to extend a stay against the remaining defendants would
result in duplicative discovery and create the possibility of
inconsistent outcomes further weighs in favor of a stay. See
Sea Spray Holdings, 269 F. Supp. 2d at 365.
In sum, because defendants have demonstrated that extending a
stay is unlikely to prejudice Hughes Hooker and is likely to
further the interests of judicial economy and fairness, a stay of
this action as to all defendants pending arbitration in England
D. Hughes Hooker Has Not Demonstrated that Pre-Arbitration
Discovery Is Necessary
Hughes Hooker has cross moved for pre-arbitration discovery of
information relating to defendants' registry of members and
premiums that would allow Hughes Hooker to calculate outstanding
commissions allegedly owed to Hughes Hooker. Hughes Hooker
contends that information is necessary in order to enable it to
evaluate the monetary value of its claim with greater precision.
Hughes Hooker contends that this Court should order that
discovery because it is not clear whether the documents sought
are under the control of the American Club or the Claims Bureau,
and if they are within the control of the Claims Bureau, Hughes
Hooker apparently fears that the London arbitrator would lack the
authority to compel the production of those documents. However, "discovery on the subject matter of a dispute to be
arbitrated should be denied in the absence of extraordinary
circumstances," Falcone Bros. Partnership v. Bear Stearns &
Co., 699 F. Supp. 32, 35 (S.D.N.Y. 1988) (denying motion because
no extraordinary circumstances had been shown); see also
Cotter v. Shearson Lehman Hutton, Inc., 126 F.R.D. 19, 21
(S.D.N.Y. 1989). Plaintiffs have demonstrated no reason why the
requested discovery must be had immediately. Defendants correctly
contend that Hughes Hooker is seeking discovery that relates to
potential damages, and plaintiffs have not shown that they will
be unable to formulate a claim for purposes of arbitration in
England without that discovery. Hughes Hooker also has not shown
that time is of the essence, as it seeks only documents, not
depositions of persons who may be unavailable in the future.
See e.g., Bergen Shipping Co. v. Japan Marine Servs. Ltd.,
386 F. Supp. 430, 435, n. 8 (S.D.N.Y. 1974) (pre-arbitration
depositions appropriate where crew members were about to leave
port and there was no expected date of return). Moreover, Hughes
Hooker's contention that documents in the hands of the Claims
Bureau may be unavailable in the arbitration proceeding is belied
by the defendants' undertaking to submit to discovery requests as
set forth above. Because Hughes Hooker has not demonstrated the
sort of extraordinary circumstances that would warrant discovery
prior to arbitration, Hughes Hooker's cross motion is denied.
Finally, defendants have requested that the Court award them
their costs in responding to what they characterize as a patently
vexatious lawsuit and redundant motion practice. A court may
require an attorney to pay costs if he "so multiplies the
proceedings in any case unreasonably and vexatiously." See
28 U.S.C. § 1927. A court may also impose attorney's fees pursuant
to its own "inherent power." See Revson v. Cinque & Cinque,
221 F.3d 71, 79 (2d Cir. 2000). However, "`[t]o impose sanctions
under either authority, the trial court must find clear evidence
that (1) the offending party's claims were entirely meritless and
(2) the party acted for improper purposes." Id. (quoting Agee
v. Paramount Communications Inc., 114 F.3d 395, 398 (2d Cir.
1997)). Neither the institution of the lawsuit in this Court nor
the filing of the amended complaint pursuant to the Court's order
merits the imposition of costs on plaintiffs or their attorneys.
For the reasons set forth above, the motion by all the
defendants to stay the proceedings before this Court is granted;
plaintiffs are directed to proceed with arbitration against the
American Club in England; and plaintiffs' cross motion for
discovery is denied. This action shall be placed on the suspense
calendar pending the conclusion of the arbitration in England.