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Protostorm, LLC v. Antonelli

May 28, 2010

PROTOSTORM, LLC AND PETER FAULISI, PLAINTIFFS,
v.
ANTONELLI, TERRY, STOUT & KRAUS, LLP, DALE HOGUE, FREDERICK D. BAILEY, CARL I. BRUNDRIDGE, ALAN E. SCHIAVELLI, AND JOHN DOES 1-10, DEFENDANTS.



The opinion of the court was delivered by: Nicholas G. Garaufis United States District Judge

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge.

In a Memorandum & Order dated March 8, 2010 ("Order" (Docket Entry # 205)), the court stayed Plaintiffs' claims against Defendant Dale Hogue ("Hogue") under section 3 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 3. Plaintiffs now move, under Local Civil Rule 6.3, for reconsideration and reargument of that Order. (Docket Entry # 213.) As set forth below, Plaintiffs' motion is DENIED.

I. STANDARD FOR RECONSIDERATION

A motion for reconsideration will only be granted if the moving party can establish: "(1) that the court overlooked controlling decisions or data; (2) that there has been a change in controlling law; (3) that new evidence has become available; or (4) that reconsideration is necessary to correct a clear error or prevent manifest injustice." Hughes v. McWilliams, No. 04-CV-7030 (KMW), 2009 U.S. Dist. LEXIS 84687, at *1 (S.D.N.Y. Sept. 16, 2009) (citing Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). Courts narrowly construe and strictly apply the Rule in order to avoid "repetitive arguments on issues that have already been considered fully by the court." Caleb & Co. v. E.I. Du Pont De Nemours & Co., 624 F. Supp. 747, 748 (S.D.N.Y. 1985).

II. THE ORDER AT ISSUE

As discussed in greater detail in the court's previous Order, Protostorm and Hogue signed a Retainer Agreement (the "Retainer") in May 2001. (Decl. of Arthur M. Handler (Docket Entry #80), Ex. 31.) The Retainer contains a California choice-of-law clause.*fn1 (Id. at 3.) It further provides that "[a]ny dispute arising out of this agreement shall be settled by arbitration in California administered by the American Arbitration Association under its Commercial Arbitration Rules." (Id.)

In its previous Order, the court construed Hogue's motion for "an [o]rder enforcing the arbitration provision between the parties and referring this matter to arbitration" as a request to stay Plaintiffs' claims against him under section 3 of the FAA. (Order 6.) The court identified its role when faced with such a motion as determining (1) whether there is a binding agreement to arbitrate and, (2) if so, whether the claims asserted fall within its scope. See ACE Capital Re Overseas Ltd. v. Central United Life Ins. Co., 307 F.3d 24, 28 (2d Cir. 2002). Under this standard, the court concluded that Plaintiffs' claims against Hogue were subject to a binding arbitration agreement. (Order 7-10.)

The parties do not challenge these portions of the Order. Plaintiffs argue, however, that the court erred in concluding that the Retainer's choice-of-law clause did not incorporate section 1281.2(c) of the California Arbitration Act ("CAA"). Cal. Civ. Proc. Code § 1281.2(c). Section 1281.2(c) authorizes courts to deny a motion to compel arbitration where a "party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact." Id.

Plaintiffs further assert that the court should have exercised its discretion under that section to deny Hogue's motion because there is a risk that conflicting rulings might arise between this court and an arbitral tribunal. Plaintiffs claim that the court overlooked two controlling holdings: Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468 (1989), and Security Insurance Co. v. Trustmark Insurance Co., 360 F.3d 322 (2d Cir. 2004).

The court considered both Volt and Security Insurance in ruling on Hogue's motion; the Order specifically cites both cases. In light of Plaintiffs' instant motion, however, the court revisits the difficult issues that arise when federal arbitration law and contractual interpretation intersect. Although these issues are complex and unsettled, the question presented here is straightforward: To what extent does Volt govern the interpretation of the Retainer? The court finds that, after the Supreme Court's decision in Preston v. Ferrer, 552 U.S. 346 (2008), Volt is not determinative of the issues presented by Hogue's motion. To explain why, the court discusses the evolution of the law in this area, beginning with Volt itself.

III. DISCUSSION

A. Volt

Volt involved a construction contract between Volt Information Sciences and Leland Stanford Junior University ("Stanford"). Volt, 489 U.S. at 470. The contract provided for arbitration of all disputes "arising out of or relating to [the] contract or the breach thereof" under the Construction Industry Arbitration Rules of the American Arbitration Association ("AAA"). Id. It also contained a choice-of-law clause specifying that the agreement would be governed by the law of the place where the project was located. Id. After a dispute arose, Stanford filed an action against Volt in California Superior Court, alleging fraud and breach of contract. Id. at 471. Stanford also sought indemnity from two other companies involved in the construction project that had not agreed to arbitrate disputes. Id. Volt petitioned the Superior Court to compel arbitration of its dispute with Stanford. Id. Stanford in turn moved to stay arbitration pursuant to section 1281.2(c) -- ...


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