United States District Court, E.D. New York
August 25, 2005.
MECOS, S.r.L., Plaintiff,
GEORAL INTERNATIONAL, LTD. dba GEORAL INTERNATIONAL aka GEORAL INTERNATIONAL OF CALIFORNIA, GEORAL INTERNATION OF NEW YORK, INC. dba GEORAL INTERNATIONAL aka GEORAL INTERNATIONAL OF CALIFORNIA, GEORAL INTERNATIONAL OF CALIFORNIA dba GEORAL INTERNATIONAL, Defendant.
The opinion of the court was delivered by: FREDERIC BLOCK, District Judge
MEMORANDUM & ORDER
Plaintiff Mecos, S.r.L. ("Mecos") brought a breach-of-contract
action against defendants Georal International, Ltd., Georal
International of New York, Inc. and Georal International of
California (collectively, "defendants"). Defendants move to
compel arbitration. For the following reasons, the Court grants
the motion. BACKGROUND
This dispute arose after the defendants failed to tender
payment to Mecos for forty specially-ordered security portals.
The following facts are not in dispute.
A. Distributorship Agreement
In December 1995, "Mecos S.p.A., of Bologna, Italy" and "Georal
International of Whitestone, New York, U.S.A." entered into a
Distributorship Agreement ("Agreement").*fn1 See Agreement
at 1, att'd as Ex. A to Defs.' Notice of Mot. to Compel
Arbitration ("Defs.' Notice").
1. Parties to Agreement
Mecos argues that none of the defendants have standing to
enforce the Agreement because they were not signatories to the
The Agreement stated that it was "between Mecos S.p.A., of
Bologna, Italy (`Mecos') and Georal International of Whitestone,
New York, U.S.A. (`Georal')." See Agreement at 1. With two
exceptions, the Agreement, thereafter, referred to the parties as
"Mecos" and "Georal": (1) Article XII provided that "notices . . .
shall be sent . . . to: Mecos S.p.A. . . . [and] Georal
International"; and (2) the Agreement was executed by Piero
Zambuto ("Zambuto"), who was listed as the president of "Mecos
S.p.A." and Alan J. Risi ("Risi"), who was listed as the
president of "Georal International." See id. at 6-7.
2. Terms of the Agreement
The Agreement appointed Georal as a distributor of Mecos's
products in the United States and Canada and set forth the terms
of sales for those products. See id., arts. I, VIII. The
Agreement contained an arbitration provision, which provided:
Should any problems, disagreements or disputes arise
between Mecos and Georal in connection with this
Agreement, the parties shall attempt to resolve all
such matters on a friendly and business-like basis.
If they should be unsuccessful they will each appoint
a representative, familiar with their business to act
as arbitrators. The two representatives will review
the circumstances of the dispute and apply business
principles to arrive at a resolution. The decision of
the representatives will be binding.
Id., art. XIII.
The Agreement set an initial term of three years, which expired
well before the instant dispute occurred; however, it was
renewable for additional two-year terms "upon agreement on the
`sales goals' for the new term, and unless either party decides
not to renew, pursuant to the terms of ARTICLE IV[,]" which
The sole grounds for not renewing this Agreement
shall be the failure of performance of the other
part. The innocent party must give the non-performing
party 90-days written notice of its failure to
perform and a demand for proper performance. If the
failure is not cured within the 90-day period, the
innocent party may terminate the Agreement.
See id., arts. III, IV. Although the parties never engaged in
further negotiations of sales goals, see Aff. of Zambuto ¶ 9,
the Agreement was never formally terminated by sending written
notice of a party's non-performance. See Aff. of Pryor (Oct.
17, 2004) ¶ 16, att'd to Defs.' Notice.
B. Georal Entities
Risi is the sole shareholder and president of each of the
defendants. See Aff. of Risi (Oct. 17, 2004) ¶ 1, attached to
Defs.' Notice. Georal International, Ltd. was formed on October
24, 1995 for the express purpose of doing business with Mecos and
engages in the sale of security portals. See Aff. of Pryor ¶
Georal International of New York, Inc. and Georal International
California were formed in November 1999 and September 1999
respectively, subsequent to the date of the Agreement. See Aff.
of Pryor ¶ 15.
C. Litigation That Transpired Between the Filing of the
Complaint and the Defendants' Notification of their Intent to
Move to Compel Arbitration
Mecos filed the Complaint against the defendants on December
11, 2003 and served it on them on December 21, 2003. See Docket
No. 1, 3-5. When the defendants failed to answer in a timely
manner, Mecos filed a request with the Clerk of the Court to
enter a default. See Aff. of David W. Berenthal (Nov. 17, 2004)
¶ 6. Thereafter, on January 26, 2004, the defendants filed an
Answer and a Counterclaim. See Docket No. 6. On March 3, 2004,
Mecos provided initial discovery in accordance with Fed.R. Civ.
Pro. 26(a)(1). See Aff. of David W. Berenthal ¶ 7. On April 7,
2004, less than five months after the Complaint was filed, the
defendants notified Mecos and the Court of their intention to
move to compel arbitration. See id. ¶ 10. This motion ensued.
In addition to Mecos's argument that the defendants were not
signatories to the Agreement and thus do not have standing to enforce the
arbitration clause, Mecos argues that it is not subject to the
clause because (1) the Agreement was abandoned; and (2) the
defendants waived their right to invoke the clause because of
their delay in invoking it.
The Court need not resolve whether the defendants were parties
to the Agreement because even assuming arguendo that they were
not, they may still compel arbitration pursuant to the Agreement.
"[U]nder principles of estoppel, a non-signatory to an
arbitration agreement may compel a signatory to that agreement to
arbitrate a dispute where a careful review of the relationship
among the parties, the contracts they signed . . ., and the
issues that had arisen among them discloses that the issues the
nonsignatory is seeking to resolve in arbitration are intertwined
with the agreement that the estopped party has signed." JLM
Industries, Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 177 (2d Cir.
2004) (internal citations and quotations omitted); see also
Astra Oil Co., v. Rover Navigation, Ltd., 344 F.3d 276, 279 (2d
Cir. 2003); Choctaw Generation Ltd. P'ship v. Am. Home Assurance
Co., 271 F.3d 403, 406 (2d Cir. 2001); Smith/Enron Cogeneration
Ltd. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 98 (2d Cir.
As the Second Circuit recently explained in JLM Industries,
[I]n Choctaw, we found that where the merits of an
issue between the parties was bound up with a
contract binding one party and containing an
arbitration clause, the tight relatedness of the
parties, contracts and controversies was sufficient
to estop the bound party from avoiding arbitration.
Similarly, in Smith/Enron Cogeneration Ltd. Partnership, Inc., we held that the party
attempting to resist arbitration was estopped from
doing so because it had treated arguably
non-signatory companies and their signatory assignees
as a single unit in its complaint in a related
lawsuit. Most recently, in Astra Oil Co., we found
that petitioner Astra could hold respondent Rover to
an arbitration clause to which Astra's affiliate AOT
was also a signatory because of the close corporate
and operational relationship between Astra and AOT,
because the claims Astra brought against Rover arose
under the agreement binding AOT and Rover to
arbitration, and because in various respects Rover
had treated Astra as a party to the agreement.
JLM Industries, Inc., 387 F.3d at 177-78 (internal citations
and quotations omitted).
Even assuming arguendo that Georal International, Ltd. and
the Georal in the Agreement are separate entities, they certainly
are very closely related, as both have the same president and
sole shareholder, engage in the sale of security portals and do
business with Mecos; also, as in Choctaw, Mecos's claims
against Georal International, Ltd. to recover payment owed as a
result of the sale of security portals are closely intertwined
with the Agreement, which covered the distribution of Mecos's
security portals. Therefore, Mecos is estopped from avoiding
arbitration with Georal International, Ltd. even if it was not a
signatory to the Agreement.
Similarly, Mecos is estopped from avoiding arbitration with the
remaining defendants even though they were not in existence as of
the date of the Agreement. The remaining defendants are closely
intertwined with defendant Georal International, Ltd., as they
all share the same president and sole shareholder. Furthermore,
as in Smith/Enron Cogeneration Ltd. Partnership, Inc., Mecos
has treated them as a single unit in its Complaint, alleging that each of the defendants failed to pay
for the forty specially-ordered security portals and listing each
of the defendants in the caption of the Complaint as doing
business as the others.
The Court also need not resolve whether the parties have
abandoned the Agreement because that is a matter for arbitration.
Where, as here, "the arbitration clause is broad and arguably
covers disputes concerning contract termination, arbitration
should be compelled and the arbitrator should decide any claim
that the arbitration agreement, because of substantive or
temporal limitations, does not cover the underlying dispute."
McAllister Brothers, Inc. v. A&S Transportation Co.,
621 F.2d 519, 522 (2d Cir. 1980). Arbitration need not be compelled only
where, unlike here, it "cannot be reasonably construed to cover
disputes over whether the contract was in force during the
relevant period[.]" Id.
Lastly, even though the defendants did not immediately move to
compel arbitration, they have not waived their right to do so.
The Second Circuit has explained:
[W]aiver of the right to compel arbitration due to
participation in litigation may be found only when
prejudice to the other party is demonstrated. This
Court has recognized two types of prejudice:
substantive prejudice and prejudice due to excessive
cost and time delay. Prejudice can be substantive,
such as when a party loses a motion on the merits and
then attempts, in effect, to relitigate the issue by
invoking arbitration, or it can be found when a party
too long postpones his invocation of his contractual
right to arbitration, and thereby causes his
adversary to incur unnecessary delay or expense.
Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102
105 (2d Cir. 2002). Mecos has not suffered any substantive
prejudice; thus, at issue is only whether the defendants have
waived their rights to compel arbitration by virtue of any
prejudice to Mecos due to excessive cost and time delay.
In regard to time delay, the Second Circuit "has refused to
find waiver in a number of cases where delay in trial proceedings
was not accompanied by substantial motion practice or discovery."
Thyssen, Inc., 310 F.3d at 105. Furthermore, "[i]ncurring legal
expenses inherent in litigation, without more, is insufficient
evidence of prejudice to justify a finding of waiver." PPG
Industries, Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107
(2d Cir. 1997). Here, Mecos has not established sufficient
prejudice based either expense or temporal delay because only
five months elapsed between the time the Complaint was filed and
the time the defendants notified Mecos and the Court of their
intention to move to compel arbitration, and during that time,
motion practice was limited to a single request to the Clerk of
the Court to enter default, and discovery was very limited in
scope. See Thyssen, Inc., 310 F.3d at 105 (no prejudice even
though more than a year and a half elapsed between the filing of
the complaint and defendant's assertion of its right to
arbitrate, and despite expense incurred by plaintiff's moving for
summary judgment); Shearson Lehman Hutton, Inc. v. Wagoner,
944 F.2d 114, 122 (2d Cir. 1991) (no waiver despite three-year
delay); PPG Industries, Inc., 128 F.3d at 108 ("five-month delay, by itself, is not enough to infer waiver of
The defendants' motion to compel arbitration is granted.
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