The opinion of the court was delivered by: Marian W. Payson United States Magistrate Judge
Invoking this Court's diversity jurisdiction, plaintiff SDD99, Inc. ("SDD99") has filed suit against defendants ASA International Ltd. ("ASA") and Eastern Bank ("Eastern") seeking, inter alia, a declaratory judgment that it is entitled to the release of funds held in escrow by Eastern under the terms of an agreement SDD99 entered into with ASA. (Docket # 1). SDD99, formerly known as Design Data Systems Corporation, is a dissolved Florida corporation whose sole shareholder is Michael Meli, a resident of Rochester, New York. ASA is a Delaware corporation that has its principal place of business in Framingham, Massachusetts. Eastern is a Massachusetts corporation with its principal place of business in Boston, Massachusetts. (Docket # 1, ¶¶ 1-6).
On November 4, 1999, SDD99 and ASA executed an agreement (the "Agreement") pursuant to which ASA agreed to acquire certain assets and to assume certain liabilities of SDD99, a company engaged in the business of designing, developing, marketing and selling business application software for commercial enterprises. (Docket # 6-4; Docket # 13-12, ¶ 3). The Agreement contained various representations and warranties made by the parties and, as a means of guaranteeing those made by SDD99, SDD99 and Meli agreed jointly and severally to indemnify ASA against losses aggregating in excess of $75,000 that resulted from any warranty breach. (Docket # 6-4 at ¶ 7.2(a)). The Agreement further required ASA to deposit a portion of the purchase price ($250,000) into an escrow account maintained by Eastern to pay any claims for indemnification (the "Fund"). (Id. at ¶ 7.2(b)). Any funds remaining in the Fund following the payment of claims against it were to be delivered by Eastern to SDD99. (Id. at ¶ 7.2(c)).
The parties agreed to the following procedures in the event that ASA identified any claim it believed qualified for indemnification from the Fund. First, ASA was required to deliver to Eastern, with a copy to SDD99, an officer's certificate specifying the claim and the amount of the alleged loss. (Id. at ¶ 7.2(e)). Eastern agreed to pay such claim after the expiration of thirty days provided that SDD99 had not delivered to Eastern a written objection to the claim within the thirty-day period. (Id. at ¶ 7.2(f)). In the event of an objection, the parties were obligated to "attempt in good faith" to resolve the dispute. (Id. at ¶ 7.2(g)(i)). If no agreement could be reached within thirty days of the objection, the Agreement provided that "such dispute . . . be submitted for arbitration" to be conducted in New York City pursuant to the rules of the American Arbitration Association (the "AAA"). (Id. at ¶¶ 7.2(g)(ii) and (iii)). According to the terms of the Agreement:
The decision of the arbitrator or a majority of the three arbitrators, as the case may be, as to the validity and amount of any claim in such Officer's Certificate or claim during the Escrow Period shall be binding and conclusive upon the parties to this Agreement. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator(s). (Id. at ¶ 7.2(g)(ii)).
On June 13, 2000, ASA delivered a demand upon the Escrow Fund. (Docket # 1 at ¶ 16). SDD99 objected to that claim on July 10, 2000 (Docket # 1 at ¶ 18), and ASA filed a demand for arbitration with the AAA by letter dated October 24, 2000. (Docket # 13-12 at ¶ 17; # 13-15). On November 3, 2000, ASA delivered second and third demands to Eastern, which SDD99 objected to on November 15, 2000. (Docket # 13-12 at ¶ 20; # 13-16).
Following the demand for arbitration, the parties attempted to resolve the disputes on their own without arbitration. (Docket # 6-2, ¶¶ 5-7). According to ASA, the arbitration was held in abeyance for this purpose at the joint request of the parties. (Id. at ¶ 7). The AAA file reveals that by letter dated August 15, 2001, the AAA advised the parties of its policy to hold cases in abeyance for up to one year, which could be extended upon payment of an administrative fee. (Id. at ¶ 8; # 6-7). The letter also informed them that a case could be reopened upon a new demand for arbitration, accompanied by payment of an additional fee. (Id.). On March 19, 2002, the AAA reopened its case at the request of ASA. (Docket # 13-12 at ¶ 31; # 13-19). On January 14, 2003, the AAA again wrote to the parties, this time stating that the case would be closed "unless advised by either party on or before January 24, 2003." (Docket # 13-12 at ¶ 32; # 13-20). The letter reiterated that the case could be reopened with a new demand and a filing fee. (Id.). The parties were thereafter notified by letter dated February 19, 2003 that the AAA had closed the file. (Docket # 13-12 at ¶ 34; # 13-21).
In March of 2004, counsel for ASA contacted counsel for SDD99 to reinitiate settlement discussions "so as to avoid any future arbitration and/or litigation concerning this matter." (Docket # 6-2 at ¶ 10; # 6-9). Counsel for SDD99 responded in July 2004 that it was not interested in further discussions. (Docket # 6-2 at ¶ 12). On October 28, 2005, SDD99 made a written demand on Eastern for release and disbursement to it of the Fund, but Eastern refused to release the Fund, indicating its intention to file an interpleader action. (Id. at ¶¶ 12-14; # 6-13). For several months thereafter, the parties again engaged in negotiations, which were ultimately unsuccessful. (Docket # 6-2 at ¶¶ 15-17; # 6-14; # 6-15). On February 14, 2006, SDD99 filed the instant action seeking a declaratory judgment that it is entitled to the Fund, specific performance requiring immediate release of the Fund and monetary damages. (Docket # 1 at ¶¶ 39-57).
Currently before this Court are ASA's motions to stay the pending litigation and to compel SDD99 to arbitrate. (Docket # 6). SDD99 opposes the motions (Docket # 13), and Eastern takes no position on the motions.*fn1 For the following reasons, I determine that a stay should be granted and the parties should be directed to pursue arbitration.*fn2
A. The Scope of the Federal Arbitration Act
The Federal Arbitration Act (the "FAA") provides that a written arbitration provision "in a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. That provision evidences "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). See Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144, 147 (2d Cir.) (the FAA creates a "strong presumption in favor of arbitration"), cert. denied, 543 U.S. 874 (2004). Consistent with that policy, "as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contact language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. at 24-25. See Security Ins. Co. v. TIG Ins. Co., 360 F.3d 322, 325 (2d Cir. 2004), cert. denied, 543 U.S. 871 (2004).
In order to effectuate Congress's "clear intent . . . to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible," the Act authorizes two procedural mechanisms for doing so: an order staying litigation that involves an issue or issues referable to arbitration, 9 U.S.C. § 3; and an order compelling the parties to arbitrate in accordance with the terms of their agreement, 9 U.S.C. § 4. Moses H. Cone Mem'l Hosp., 460 U.S. at 22. The Supreme Court has observed that, like Section 2, these sections "manifest [the] liberal federal policy favoring arbitration agreements." EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (citations omitted). See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995) ("the FAA's primary purpose [is to] ensur[e] that private agreements to arbitrate are enforced according to their terms"); Allied-Bruce Terminex Cos., Inc. v. Dobson, 513 U.S. 265, 270 (1995) ("the basic purpose of the [FAA] is to overcome courts' refusals to enforce agreements to arbitrate"). See also WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997) ("The Act 'leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed'") (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)).
Here, the parties entered into an agreement to arbitrate disputes concerning demands for indemnification from the Fund, and their agreement is reflected in Section 7.2(g) of the Asset Purchase Agreement between SDD99 and ASA. As an initial matter, the parties dispute whether their agreement is subject to the FAA -- SDD99 maintaining that it is; ASA maintaining that it is not. The dispute centers on whether their arbitration agreement is contained in "a contract evidencing a transaction involving commerce." 9 U.S.C. § 2. ASA argues that the Agreement at issue in this case falls outside the reach of the FAA because "(1) the Agreement did not concern employment in commerce, (2) ...