United States District Court, S.D. New York
July 5, 2005.
SAMYAK VEERA, Plaintiff,
KATHLEEN JANSSEN and DEAN JANSSEN, Defendants. ANDREW D. BEER, Plaintiff, v. KATHLEEN JANSSEN and DEAN JANSSEN, Defendants. ANDREW D. BEER, Plaintiff, v. ALAN GREEN; HANNA GREEN; and WHITE BUFFALO, L.L.C., Defendants. SAMYAK VEERA, Plaintiff, v. ALAN GREEN; HANNA GREEN; and WHITE BUFFALO, L.L.C., Defendants.
The opinion of the court was delivered by: SIDNEY STEIN, District Judge
In these related actions, plaintiffs Samyak Veera and Andrew D.
Beer move to stay arbitration proceedings initiated by
defendants. Because plaintiffs signed the agreements containing
the arbitration clause solely as agents acting on behalf of
disclosed principals, and because plaintiffs did not knowingly
exploit the agreements and receive benefits directly from the
agreements, the motion is granted.
Plaintiffs were both managing directors of Equilibrium Currency
Trading, LLC. (Decl. of Samyak Veera filed in case no. 05 Civ.
2145 ("First Veera Decl.") ¶ 3; V. Pet. of Andrew D. Beer dated
Feb. 28, 2005 ¶ 1, Ex. 8 to Pl. Beer's Mem. of Law in Supp. of
His Mot. to Stay Arb.). Beer also was president of Bricolage
Capital, LLC. (V. Pet. of Andrew D. Beer dated Mar. 1, 2005 ¶ 1,
Ex. 7 to Pl. Beer's Mem. of Law).
Both Equilibrium and Bricolage (collectively, the "Investment
Companies") engaged in investment management for clients, (Veera
Decl. dated Apr. 23, 2005 ¶ 1; Beer Pet. dated Mar. 1, 2005 ¶ 1,
Ex. 7 to Pl. Beer's Mem. of Law), and defendants entered into two
"Currency Management and Trading Authorization Agreements" and
one "Investment Management Agreement" (collectively, the
"agreements") with the Investment Companies. One agreement
identified Equilibrium as the manager and Dean and Kathleen
Janssen as the "client." Kathleen Janssen signed on behalf of
herself; Veera signed the agreement under the signature line for
Equilibrium, writing "Managing Director" in the line set forth as
"Title." (Currency Management and Trading Authorization
Agreement, Ex. A to First Veera Decl.).
The second agreement identified Equilibrium as the Manager and
White Buffalo, LLC as the "client," and was signed by defendant
Allan Green. (Currency Management and Trading Authorization
Agreement dated June 2, 2000, Ex. A to Decl. of Samyak Veera
filed in case no. 05 Civ. 3788 ("Second Veera Decl.")). However, Veera did not sign
this agreement at all; instead, plaintiff Beer signed on behalf
of Equilibrium as a managing director. (Id.).
The third agreement was between Kathleen Janssen and Bricolage.
Bricolage was the Manager. This agreement does not identify any
person or entity as the client and bears only Kathleen Janssen's
signature; neither Veera nor Beer signed the document. (Investment
Management Agreement, Ex. 1 to Pl. Beer's Mem. of Law).
Thus, in each document, the Investment Company that was a party
to the agreement was identified as "the Manager." Each agreement
expressly specified that it was "entered into by and between" the
relevant Investment Company as "Manager" on one hand and the
"client" on the other. Plaintiffs signed the agreements as
"Managing Director" of the relevant Investment Company. In
particular, each signature line specified that the Investment
Company was the signatory, and was being represented "By"
plaintiffs, who also set forth their "Title" in the Investment
Company. The agreements never referred to plaintiffs
individually. (See Currency Management and Trading
Authorization Agreement, Ex. A to First Veera Decl.; Currency
Management and Trading Authorization Agreement dated June 2,
2000, Ex. A to Second Veera Decl.; Investment Management
Agreement, Ex. 1 to Pl. Beer's Mem. of Law).
The agreements contained another important provision
paragraph 5, titled "Liabilities of the Manager." As noted above,
each contract defines the relevant Investment Company to be the
"Manager." Paragraph 5 states in relevant part as follows:
Positions, assets, contracts, and transactions
conducted by the Manager for the Client's Account are
for the account and risk of the Client and are not
guaranteed by the Manager. Neither the Manager nor
any of its officers, directors, employees or agents
shall be liable for any loss, expense, cost or
liability arising out of any error in judgment or any
action or omission hereunder, including any
instruction given to the Custodian by anyone other
than an officer, director, employee or agent of the
Manager, unless arising out of their negligence,
malfeasance or bad faith. The Manager may rely on any
notice or communication (written or oral) reasonably
believed by it to be genuine. These limitations shall
not act to relieve the Manager from any
responsibility or liability for any responsibility,
obligation or duty that the Manager may have under
state or federal law that is not waivable by
(Currency Management and Trading Authorization Agreement, Ex. A
to First Veera Decl.; Currency Management and Trading
Authorization Agreement dated June 2, 2000, Ex. A to Second Veera
Decl.; Investment Management Agreement, Ex. 1 to Pl. Beer's Mem.
After entering into the agreements, the clients allegedly
suffered substantial losses in connection with a tax strategy
they claim that plaintiffs and the Investment Companies devised
and effectuated. (Statement of Claim dated Dec. 23, 2004, Ex. C
to First Veera Decl.). The clients then served Veera and Beer,
among others, with demands for arbitration and statements of
claim alleging breach of fiduciary duty, fraud, negligent
misrepresentation, malpractice, breach of contract, conspiracy
and other wrongs. (Id.; Demand for Arbitration dated Dec. 23,
2004, Ex. B to First Veera Decl.; Demand for Arbitration dated
Dec. 28, 2004, Ex. B to Second Veera Decl.). Specifically, the
Janssens, the Greens, and White Buffalo served demands for
arbitration upon Veera and Beer.
In response, Veera filed two litigations in this Court: one
against the Janssens and one against the Greens and White
Buffalo. Both suits seek a declaration that the agreements did
not bind Veera personally to arbitration, as well as prohibiting
the arbitrations from proceeding.
Beer filed two petitions in New York State Supreme Court: one
against the Janssens and one against the Greens and White
Buffalo. Both petitions sought judgments staying the
arbitrations. Defendants then removed the two Beer actions to
federal court on the basis of diversity jurisdiction. All four
actions are now before this Court as related actions. Since the
relevant facts are identical with respect to each agreement and
all parties, this Opinion sets forth the reasoning applicable to
the motions to stay arbitration in all four actions. II. Legal Standard
"[T]he summary judgment standard is appropriate in cases where
the District Court is required to determine arbitrability,
regardless of whether the relief sought is an order to compel
arbitration or to prevent arbitration." Bensadoun v. Jobe-Riat,
316 F.3d 171, 175 (2d Cir. 2003); see also 9 U.S.C. § 4 (1999).
The summary judgment standard, set forth in Fed.R.Civ.P.
56(c), provides that summary judgment is appropriate when "there
is no genuine issue as to any material fact" and "the moving
party is entitled to judgment as a matter of law." Fed.R. Civ.
P. 56(c); see also Bensadoun, 316 F.3d at 175-78; Oppenheimer
& Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995). If
the moving party has "substantiated the entitlement [to stay
arbitration] by a showing of evidentiary facts, the party
opposing may not rest on a denial but must submit evidentiary
facts showing that there is a dispute of fact to be tried."
Oppenheimer, 56 F.3d at 358; see also Bensadoun,
316 F.3d at 175-78.
III. The Law Applicable to Arbitration Agreements
Because "arbitration is contractual by nature," the Court
cannot compel a party to arbitrate unless that party previously
agreed to arbitrate. Thomson-CSF, S.A. v. Amer. Arbitration
Assoc., 64 F.3d 773, 776 (2d Cir. 1995). Arbitration agreements
"must not be so broadly construed as to encompass claims and
parties that were not intended by the original contract." Id.
Therefore, nonsignatories to arbitration agreements "[can] not
ordinarily be compelled under the [Federal Arbitration Act] to
participate in [an] arbitration proceeding." Arhontisa Maritime
Ltd. v. Twinbrook Corp., No. 01 Cv. 5044, 2001 WL 1142136
(S.D.N.Y. Sept. 27, 2001); see also Thomson, 64 F.3d at 776
("[A] party cannot be required to submit to arbitration any dispute which he has not agreed to submit.")
(quotation marks and citations omitted).
However, there are five limited exceptions pursuant to which a
nonsignatory may be bound to an arbitration agreement. See MAG
Portfolio Consult, GMBH v. Merlin Biomed Group LLC, 268 F.3d 58,
61 (2d Cir. 2001); Amer. Bureau of Shipping v. Tencara Shipyard
S.P.A., 170 F.3d 349, 352 (2d Cir. 1999); Thomson,
64 F.3d at 776. Those exceptions are (1) incorporation by reference; (2)
assumption; (3) agency; (4) veil-piercing/alter ego; and (5)
estoppel. Thomson, 64 F.3d at 776; Denney v. BDO Seidman,
LLP, ___ F.3d ___, No. 04 Civ. 2654, 2005 WL 1389911 at * 10
(June 14, 2005 2d Cir.).
In these litigations, defendants the clients of the
Investment Companies claim that Veera and Beer the managing
directors of the Investment Companies are bound to arbitrate
these disputes under the theories of agency and estoppel. An
agreement to arbitrate does not bind an agent acting on behalf of
a disclosed principal "unless there is clear and explicit
evidence of the agent's intention to substitute or superadd his
personal liability for, or to, that of his principal." Lerner v.
Amalgam. Clothing & Textile Workers Union, 938 F.2d 2, 5 (2d
Cir. 1991) (internal quotation marks omitted); see also
Interocean Shipping Co. v. Nat'l Shipping & Trading Corp.,
462 F.2d 673, 678 (2d Cir. 1972); Usina Costa Pinto S.A. v. Louis
Dreyfus Sugar Co., 933 F.Supp. 1170, 1178 (S.D.N.Y. 1996).
In order for a party to be estopped from avoiding arbitration,
that party must have knowingly exploited the agreement containing
the arbitration clause. See MAG Portfolio Consult, GMBH,
268 F.3d at 61; Deloitte Noraudit A/S v. Deloitte Haskins & Sells,
U.S., 9 F.3d 1060, 1063-64 (2d Cir. 1993). The party must
knowingly accept benefits from the agreement and those "benefits must be direct which is to say,
flowing directly from the agreement" itself. MAG Portfolio
Consult, GMBH, 268 F.3d at 61.
The clients first urge that Veera and Beer are bound to the
agreements as agents of the Investment Companies. However, Veera
and Beer executed the agreements solely as agents acting on
behalf of disclosed principals. The very first sentence of each
agreement sets forth that the agreements were "entered into by
and between" the Investment Companies on one hand and the clients
on the other. The agreements never refer to Veera or Beer
personally. In addition, the signature lines of the agreements
make plain that the parties to the contract are the Investment
Companies and the clients, and that plaintiffs were merely
signing on the companies' behalves as managing directors of the
The clients have not come forward with any evidence
contradicting those facts; nor have the clients produced any
evidence that it was the intention of Veera or Beer "to
substitute or superadd [their] personal liability for, or to,
that of [their] principal." Lerner, 938 F.2d at 5 (internal
quotation marks omitted). Accordingly, the Court concludes that
Veera and Beer signed the agreements only as agents on behalf of
disclosed principals i.e., only as managing directors of the
Investment Companies and, as such, Veera and Beer cannot be
compelled to arbitrate pursuant to the agency exception to the
rule that nonsignatories cannot be compelled to arbitrate their
The clients next assert that Veera and Beer are estopped from
avoiding arbitration because Veera and Beer knowingly received a
benefit directly from the agreements, namely, the limited
liability clause in Paragraph 5. As an initial matter, it is
unclear whether a provision precluding liability for "error[s] in judgment" but allowing
liability for "negligence, malfeasance or bad faith" provides any
benefit at all.
In any event, the limitation on liability is contained in a
provision titled, "Liabilities of the Manager," i.e., liabilities
of the Investment Companies, not liabilities of the managing
directors of the Investment Companies. The provision is aimed
directly at limiting the Investment Companies' liability; the
benefit of that provision was secured principally for, and inured
principally to, the Investment Companies. Any application of that
provision to Veera and Beer is incidental to their agency
relationship with the Investment Companies. See Arhontisa,
No. 01 Cv. 5044, 2001 WL 1142136 at *4 & n. 1 & 2.
The agreements at issue here also differ markedly from the
direct benefits that the Second Circuit has found sufficient for
the purposes of estopping someone from denying they are bound by
an arbitration agreement they did not sign. For example, in
Deloitte Noraudit A/S, 9 F.3d at 1064 (2d Cir. 1993), the
accounting firm Noraudit received the "valuable asset" of being
able to call itself Deloitte Noraudit A/S and use the Deloitte
name in connection with rendering accounting services, and "the
parties clearly intended to bind" Noraudit in the agreement at
issue, which "specifically preserv[ed] Noraudit's right to use
the name" Deloitte. Id. When asked to adopt and approve the
agreement, Noraudit did not object. Id.
Here, in contrast, the parties did not intend to bind
plaintiffs personally, but rather intended to bind only the
clients and the Investment Companies, as the agreements set
forth. In addition, even if the clause purporting to limit
plaintiffs' liability could be considered a "valuable asset" in
the same sense as the Deloitte name, there is no evidence that
plaintiffs invoked the limited liability provision, while
Noraudit used the Deloitte name for at least one year pursuant to the agreement in that case. Finally, Veera and
Beer, unlike Noraudit, were not asked to adopt and approve the
American Bureau of Shipping, 170 F.3d at 351, is also
inapposite. In that case, the owners of a yacht received "two
major benefits" from their ship's classification, namely, "much"
lower insurance rates and the ability to sail under the French
flag, which allowed them to compete in the very race for which
they had specifically commissioned the vessel. Id. In addition,
the owners themselves acting on their own behalves expressly
contracted with the shipbuilder to acquire a particular
classification, and the shipbuilder in turn contracted with the
classification society in order to obtain that classification on
behalf of the yacht owners. Id.
Plaintiffs here never entered into any contract personally, but
rather only as agents acting on behalf of disclosed principals;
quite differently, the yacht owners in American Bureau of
Shipping were the true principals in interest to whose benefit
the contracts inured. See also Arhontisa, No. 01 Cv. 5044,
2001 WL 1142136 at *4 & n. 1 & 2. Moreover, while the yacht
owners actually derived tangible benefits from the contracts
providing for classification, plaintiffs here, as noted, have
never invoked the limited liability clause of paragraph 5.
In addition, district court cases holding that nonsignatories
may be bound to arbitration agreements on the ground of estoppel
illustrate the concepts that the nonsignatories must be more than
mere agents acting on behalf of disclosed principals, and they
must receive clear benefits because of a relationship greater
than their agency. See HD Brous & Co., Inc. v. Mrzyglocki,
No. 03 Cv. 8385, 2004 WL 376555 at *7 (S.D.N.Y. Feb. 26, 2004)
(nonsignatory must arbitrate when agreement named it as intended
beneficiary and "establish[ed] and define[d] the working
relationship" between the parties); Hickox v. Friedland, No. 01
Cv. 2025, 2001 WL 1490696 (S.D.N.Y. Nov. 21, 2001) (nonsignatory must
arbitrate when he signed agreement as "partner" of signatory
Veera and Beer signed the agreements only as agents on behalf
of disclosed principals and neither exploited the agreements nor
received benefits directly from them. Thus, these actions fall
within the rule that nonsignatories to an arbitration agreement
cannot be compelled to arbitrate their disputes. The actions do
not fall within any of the exceptions to that rule. Accordingly,
the motions to stay the arbitrations are granted.
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