The opinion of the court was delivered by: RICHARD CASEY, District Judge
JSC Surgutneftegaz ("Petitioner") brought a petition to stay
arbitration against the President and Fellows of Harvard College
("Respondent") in New York State court. Respondent removed the
petition to this Court. The Court finds all of Petitioner's
arguments against arbitration to be without merit. For the
reasons that follow, the petition to stay arbitration is
DENIED.
Petitioner is an oil and gas company organized under the laws
of the Russian Federation. Petitioner's common and preferred
stock is publicly traded in Russia, and since 1996 its stock has
been available for purchase by investors in the United States
under an arrangement between Petitioner and The Bank of New York.
Under this arrangement, ING Eurasia holds shares of Petitioner's
stock in Moscow as custodian for The Bank of New York, which
issues what are called American Depositary Shares ("ADRs") to
investors in the United States. Respondent is one of those
investors, owning over three million ADRs that represent
preferred shares in Petitioner.
Respondent claims that as an owner of ADRs, it is entitled to
an annual fixed dividend guaranteed in Petitioner's company
charter and prospectus. Respondent maintains that Petitioner has been paying insufficient dividends. The sale of ADRs
representing preferred shares is governed by a deposit agreement
of March 19, 1998 among Respondent, The Bank of New York, and
owners of ADRs.
*fn1 Section 7.06 of that agreement is an
arbitration clause that states:
(a) Any controversy, claim or cause of action brought
by any party hereto against the Company arising out
of or relating to the Shares or other Deposited
Securities, the American Depositary Shares, the
Receipts or this Agreement, or the breach hereof or
thereof, shall be finally settled by arbitration in
accordance with the rules of the American Arbitration
Association, which rules are deemed to be
incorporated by reference into this Section 7.06, . . .
and provided further that any such controversy,
claim or cause of action relating to or based upon
the provisions of the Federal securities laws of the
United States or the rules and regulations
promulgated thereunder may, but need not, be
submitted to arbitration as provided in this Section
7.06.
The place of arbitration shall be New York, New York,
and the language of the arbitration shall be English.
. . . .
(b) Any controversy, claim or cause of action arising
out of or relating to the Shares or other Deposited
Securities, the American Depositary Shares, the
Receipts or this Deposit Agreement not subject to
arbitration shall be litigated in the Federal and
state courts in the Borough of Manhattan.
(JSC Surgutneftegaz and The Bank of New York as Depositary and
Owners and Beneficial Owners of American Depositary Receipts
Deposit Agreement, Mar. 19, 1998 ("Deposit Agreement") § 7.06.)
Pursuant to the arbitration clause in the Deposit Agreement,
Respondent sought to compel arbitration against Petitioner before
the American Arbitration Association ("AAA") in New York by
filing a notice of arbitration. Respondent asserts three
substantive claims: (1) breach of the Deposit Agreement, (2)
violation of Petitioner's company charter by failing to declare
and pay the required dividends, and (3) securities fraud under the U.S.
securities laws.*fn2 Petitioner, in response, filed a motion
to stay arbitration in New York State Supreme Court. Respondent
removed the petition to this Court pursuant to 9 U.S.C. § 205,
which provides for removal of cases relating to arbitration
agreements that fall under the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards ("New York
Convention"), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3.
In support of its petition to stay arbitration, Petitioner
argues that: (1) the arbitration agreement is invalid on the
public-policy grounds of comity, the internal-affairs doctrine
for corporations, and forum non conveniens; (2) the agreement
does not encompass Respondent's claims; and (3) the
securities-fraud claim is barred by the statute of limitations.
Petitioner also argues that, if the dispute is arbitrable at all,
it must be arbitrated in London under the rules of the London
Court of International Arbitration pursuant to a provision of the
ADRs themselves.
A. Federal Not State Law of Arbitrability Applies
As an initial matter, Petitioner argues that the Court must
decide whether arbitration should be stayed as a matter of New
York State law. But the question is governed by federal, not
state, law. Chapter 2 of the Federal Arbitration Act ("FAA")
incorporates the New York Convention. See 9 U.S.C. § 201.
Section 202 of the FAA explains:
An arbitration agreement . . . arising out of a legal
relationship, whether contractual or not, which is
considered as commercial, including a transaction,
contract, or agreement described in section 2 of this
title, falls under the [New York] Convention. An
agreement . . . arising out of such a relationship
which is entirely between citizens of the United States shall be deemed not to fall
under the [New York] Convention unless that
relationship involves property located abroad,
envisages performance or enforcement abroad, or has
some other reasonable relation with one or more
foreign states.
Id. § 202. For the New York Convention to apply to this
dispute, there must be a written arbitration agreement that
provides for arbitration in the territory of a signatory to the
Convention, the subject matter of the relationship between the
parties must be commercial, and the dispute 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). These
requirements are all undisputedly met here: The Deposit Agreement
contains a written arbitration clause providing for arbitration
in the United States regarding the purchase and sale of
securities in a foreign corporation. As such, it is governed by
the New York Convention through the FAA.
*fn3
The Court must apply the "federal substantive law of
arbitrability" in determining whether the disputes are arbitrable
under the FAA. Moses H. Cone Mem. Hosp. v. Mercury Const.
Corp., 460 U.S. 1, 24 (1983) (holding that the FAA section 2
creates a federal substantive law of arbitrability applicable to any arbitration agreement that falls
within the FAA).*fn4 That substantive law includes a
presumption in favor of arbitration, which requires that "any
doubts concerning the scope of arbitrable issues" shall be
resolved in favor of arbitration, id. at 24-25, but a
presumption that the Court, rather than the arbitrator, is to
decide whether matters are subject to arbitration, First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995).
In deciding whether the matters raised in Respondent's notice
of arbitration are properly arbitrable under the FAA, the Court's
role is limited to determining whether a valid and enforceable
arbitration agreement exists between the parties and whether one
party has improperly failed, neglected, or refused to arbitrate.
Shaw Group Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 120
(2d Cir. 2003). Petitioner's arguments as to the first question
(that the arbitration agreement is unenforceable on grounds of
public policy) are without merit. As to the second question, the
Court finds that the parties have committed the decision on
whether their disputes are arbitrable to arbitration.
B. The Arbitration Agreement is Not Unenforceable on
Public-Policy Grounds
Petitioner maintains that the arbitration agreement should not
be enforced on the public-policy grounds of international comity,
the internal-affairs doctrine for corporations, and forum non
conveniens. None of these is a valid reason for refusing to
enforce the arbitration agreement. Article II(1) of the New York
Convention provides:
Each Contracting State shall recognize an agreement
in writing under which the parties undertake to
submit to arbitration all or any differences which
have arisen or which may arise between them in respect of a defined
legal relationship, whether contractual or not,
concerning a subject matter capable of settlement by
arbitration.
330 U.N.T.S. at 38 (emphasis added). The Convention also permits
refusal to enforce arbitration agreements on the grounds that
they are "null and void, inoperative or incapable of being
performed." Id., art. II(3), 330 U.N.T.S. at 38. The Court need
not wade very far into the murky waters of Article II to reject
Petitioner's arguments.
*fn5 It has been suggested that the
public policy of the enforcing jurisdiction may provide a means
to refuse enforcement of an arbitration agreement under Article
II. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc.,
473 U.S. 614, 639 n. 21 (1985) ("We do not quarrel with
the Court of Appeals' conclusion that Art. II(1) of the
Convention . . . contemplates exceptions to arbitrability
grounded in domestic law."). If that is so, then it must be
public policy as a matter of federal, not state, law. See
Smith/Enron Cogeneration Ltd., 198 F.3d at 96 ("When we
exercise jurisdiction under Chapter Two of the FAA, we have
compelling reasons to apply federal law, which is already
well-developed, to the question of ...