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Fr 8 Singapore Pte. Ltd v. Albacore Maritime Inc.

April 15, 2011

FR 8 SINGAPORE PTE. LTD., PLAINTIFF,
v.
ALBACORE MARITIME INC., PRIME MARINE CORP., PRIME MARINE MANAGEMENT INC., AND PMC HOLDING INC. D/B/A PRIME MARINE HOLDINGS INC., DEFENDANTS.
FR 8 SINGAPORE PTE. LTD., PLAINTIFF,
v.
ALBACORE MARITIME INC., PRIME MARINE CORP., PRIME MARINE MANAGEMENT INC., AND PMC HOLDING INC. D/B/A PRIME MARINE HOLDINGS INC., DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff FR 8 Singapore Pte. Ltd. ("FR8") commenced the above-captioned actions on March 9, 2010, and October 25, 2010, against defendants Albacore Maritime ("Albacore"), Prime Marine Corp., Prime Marine Management Inc., and PMC Holding Inc. (collectively, the "Prime Defendants") to compel the Prime Defendants to arbitrate FR8's claims in London as alter egos of Albacore. The two actions are based essentially on the same set of facts and assert the same claims; the latter action was commenced primarily to avoid a possible dismissal for lack of subject matter jurisdiction. When defendants previously moved to dismiss, the Court decided that English law applied to the question of whether the Prime Defendants were alter egos of Albacore, but denied the motion with leave to renew because the parties had not briefed the issue of the English law of corporate veil-piercing. Now before the Court are FR8's motions for reconsideration and for a certificate of appealability and defendants' renewed motion to dismiss. For the reasons that follow, FR8's motions are DENIED, and defendants' motion is GRANTED.

BACKGROUND

The Court assumes familiarity with the facts recited in its earlier opinion (the "Opinion") and does not recount them here. See FR 8 Singapore Pte. Ltd. v. Albacore Maritime Inc., --- F. Supp. 2d ----, 2010 WL 5076594 (S.D.N.Y. Dec. 13, 2010).

Previously, the Court, relying on the Second Circuit's decision in Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir. 2004), found that the English choice-of-law clause in the Memorandum of Agreement ("MOA") governed the inquiry of whether the Prime Defendants were alter egos, but denied the motion to dismiss with leave to renew. Defendants timely renewed their motion to dismiss. Before they did so, FR8 brought a motion for reconsideration, contending that the Opinion ignored a line of precedent compelling a conclusion that federal common law, not English law, governs the alter-ego inquiry. In the alternative, FR8 requested certification for immediate appeal. This opinion first addresses FR8's motion for reconsideration and then defendants' renewed motion to dismiss.

DISCUSSION

I.Standard of Review for a Motion for Reconsideration

"A request for reconsideration under Rule 6.3 . . . must demonstrate controlling law or factual matters put before the court in its decision on the underlying matter that the movant believes the court overlooked and that might reasonably be expected to alter the conclusion reached by the court." Hinds County, Miss. v. Wachovia Bank N.A., 708 F. Supp. 2d 348, 369 (S.D.N.Y. 2010). "The standard for granting such a motion is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked-matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995); see also Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) ("The major grounds justifying reconsideration are an intervening change in controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." (internal quotation marks omitted)).

II.FR8's Arguments for Reconsideration

In its motion for reconsideration, FR8 argues that the Court overlooked two lines of precedent that counsel in favor of a finding that federal common law applies: (1) a line indicating that federal common law may only be disregarded in favor of another body of law when the agreement explicitly so provides; and (2) a line indicating that the "federal substantive law of arbitrability" applies to the inquiry of whether the Prime Defendants are alter egos. FR8 also argues that Motorola was wrongly decided. The Court addresses these arguments in turn.

A.Choice-of-law Clauses and Federal Common Law

FR8 argues that federal common law may only be disregarded in favor of another body of law when the agreement explicitly so provides, relying primarily on Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). There, the parties' agreement contained a choice-oflaw clause providing that the agreement "shall be governed by the laws of the State of New York" and an arbitration clause providing that "'any controversy' arising out of the transactions between the parties 'shall be settled by arbitration in accordance with the rules of the National Association of Securities Dealers (NASD), or the Boards of Directors of the New York Stock Exchange and/or the American Stock Exchange.'" Mastrobuono, 514 U.S. at 58-59. The parties submitted their dispute to arbitration where the arbitral panel awarded punitive damages, but under New York law, the power to award punitive damages "is limited to judicial tribunals and may not be exercised by arbitrators." Id. at 54-55 (citing Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793 (N.Y. 1976)). The Supreme Court granted certiorari "because the Courts of Appeals ha[d] expressed differing views on whether a contractual choice-of-law provision may preclude an arbitral award of punitive damages that otherwise would be proper." Id. at 55.

The Court first analyzed the choice-of-law provision in isolation. When viewed as "merely a substitute for the conflict-of-laws analysis," the choice-of-law clause could be analogized to the parties having signed the contract in New York, and nothing about such an act could be viewed as an express intent to exclude punitive damages claims. Accordingly, "in the absence of contractual intent to the contrary, the [Federal Arbitration Act ("FAA")] would preempt the Garrity rule." Id. at 59. Even if viewed as more than a mere substitute for the conflict-of-laws analysis, however, the Court found that the choice-of-law provision "might include only New York's substantive rights and obligations, and not the State's allocation of power between alternative tribunals." Id. at 59-60. Because New York allows its courts (though not its arbitrators) to award punitive damages, under that interpretation the choice-of-law clause would not exclude the punitive damages award. See id.

Turning to the arbitration provision, the Court found that it "strongly implie[d] that an arbitral award of punitive damages is appropriate." Id. at 60. This was because the NASD rules under which arbitration was authorized indicated that arbitrators could consider punitive damages as a remedy. Id. at 60-61.

Reading the two clauses together, then, the Court found that "[a]t most, the choice-of-law clause introduces an ambiguity into an arbitration agreement that would otherwise allow punitive damages awards." Id. at 62. The Court therefore found that "the best way to harmonize the choice-of-law provision with the arbitration provision is to read 'the laws of the State of New York' to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators." Id. at 63-64.

The Second Circuit decided two cases in the wake of Mastrobuono that used that decision's reasoning. First, in Nat'l Union Fire Insurance Co. v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996), the appellants argued that New York law should apply to the question of who should decide the preclusive effect of a prior arbitration based on the choice-of-law clause in the arbitration agreement. Applying Mastrobuono, the court found that it was "not persuaded that the parties here agreed to incorporate into their agreement to arbitrate New York law on which forum decides the preclusive effect of a prior arbitration." 88 F.3d at 134. The court noted that "[a]s in Mastrobuono, we decline to read the choice-of-law clause . . . as referring to 'New York decisional law, including that State's allocation of power between courts and arbitrators, notwithstanding otherwise-applicable federal law.'" Id. at 135 (quoting Mastrobuono, 514 U.S. at 60). The court concluded, "harmoniz[ing] the arbitration and choice-of-law clauses precisely as the Court did in Mastrobuono," that "the choice-of-law clause is not an unequivocal inclusion of a New York rule that requires the preclusive effect of a prior arbitration to be decided by the court because there is another-and we think more persuasive-way to read the clause that adheres closer to the federal policy in favor of arbitration." Id.

Second, in Doctor's Associates, Inc. v. Distajo, 107 F.3d 126 (2d Cir. 1997), certain franchisees argued that either Illinois or Connecticut law should apply to the issue of whether the franchisor waived its right to compel arbitration of their state-court claims based on its conduct in connection with prior litigation proceedings. 107 F.3d at 130. As in Belco, however, the court found that "even the inclusion in the contract of a general choice-of-law clause does not require application of state law to arbitrability issues, unless it is clear that the parties intended state arbitration law to apply on a particular issue." Id. at 131. Applying federal law, including "the strong federal policy of enforcing agreements to resolve disputes through arbitration," the court then found that the franchisor did not waive its right to compel arbitration. Id. at 131-34.

FR8 contends that these cases, particularly Mastrobuono, established a presumption that "federal law applies to the enforceability of an arbitration agreement, including enforcement against non-signatories, unless a choice-of-law provision unambiguously reverses that presumption." (Pl.'s Reconsideration Mem. at 11-12.) But the broad reading of Mastrobuono, Belco, and Distajo, extending the application of federal law to the question of corporate veil-piercing, is not necessarily warranted. Each one of those cases dealt with a conflict between state law constricting the ability of arbitrators to decide certain issues and the federal policy embodied in the FAA favoring dispute resolution in arbitration. Here, the substantive dispute- whether Albacore breached the MOA-is already being resolved in arbitration. Thus, the "conflict," to the extent one exists, between English and federal law is not over law relating to the arbitral panel's authority, such as the scope of issues to be decided in the arbitration or "allocation of power between courts and arbitrators," Mastrobuono, 514 U.S. at 60, but on the more general, substantive contract issue of who is party to the arbitration agreement, a distinction the Supreme Court has found significant. See Arthur Andersen LLP v. Carlisle, 129 S. Ct. 1896, 1902-03 (2009) ("Respondents' final fallback consists of reliance upon dicta in our opinions, such as the statement that 'arbitration . . . is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration,' and the statement that 'it goes without saying that a contract can bind a nonparty.' The former statement pertained to issues parties agreed to arbitrate, and the latter referred to an entity . . . which obviously had no third-party obligations under the contract in question. Neither these nor any of our other cases have presented for decision the question whether arbitration agreements that are otherwise enforceable by (or against) third parties trigger protection under the FAA." (internal citations omitted) (emphasis in ...


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