On May 24, 2011, the Ayco Company, L.P. ("Ayco" or "Plaintiff") filed a Complaint (Dkt. No. 1) seeking monetary and injunctive relief against Wolfgang Frisch ("Defendant Frisch") and Stefan Oglevee ("Defendant Oglevee") (collectively, "Defendants"). Defendants are former employees of Ayco and resigned in May 2011 to work for UBS, an Ayco competitor. Id. ¶ 1. Ayco alleges that Defendants: (1) breached the non-compete clauses of employment contracts ("Agreements"), and confidentiality agreements, that they entered into with Ayco; (2) misappropriated confidential information and trade secrets; (3) engaged in unfair competition; and (4) breached their fiduciary duties to Ayco. Id. ¶¶ 32-34, 69-70, 75-78, 81, 85.
On May 25, 2011, the Court granted Plaintiff's request for a temporary restraining order ("TRO") enforcing the non-compete clauses. Dkt. No. 7. After conducting a hearing on June 7, 2011, the Court issued a Decision and Order on June 10, 2011, granting a preliminary injunction through August 10, 2011, for Defendant Oglevee, and August 17, 2011, for Defendant Frisch.*fn1 Dkt. No. 29 ("June 2011 Order").
On August 16, 2011, Defendants moved to stay this action and compel arbitration of Plaintiff's claims against them pursuant to sections 3 and 4 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., or, alternatively, to dismiss the action for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. Dkt. No. 38 ("Motion"). Defendants filed an additional Motion on October 19, 2011, construed by the Court as a Motion to strike (Dkt. No. 61) ("Motion to strike"), requesting that the Court "refuse to consider" what Defendants claim is impermissible legal argument in an affidavit submitted by Plaintiff's general counsel, Mae Cavoli, in support of Plaintiff's Response to Defendants' Motion. Dkt. Nos. 46-1 ("Cavoli Declaration"); 61. Ayco has filed Responses in opposition to both the initial Motion to dismiss and the Motion to strike. Dkt. Nos. 46; 62 ("Responses"). For the reasons stated below, Defendants' Motions are denied.
The Court assumes the parties' familiarity with the underlying facts of this matter, and summarizes only the facts most relevant to the determination of the present Motion to compel arbitration. For a more complete statement of facts and procedural history, reference is made to the June 2011 Order. See June 2011 Order at 2-10.
Ayco is a financial services company that provides comprehensive financial counseling and education services for corporate executives and employees and wealthy individuals. Cavoli Decl. ¶ 6. Ayco provides a broad range of services including tax and estate planning, wealth transfer, insurance planning, investment management, benefits and compensation strategies, and retirement planning. Id. ¶ 7. Ayco is registered with the Securities and Exchange Commission, but it is not a broker dealer and is not registered with the Financial Industry Regulatory Authority ("FINRA"). Id. ¶ 9.
Because FINRA does not require individuals to obtain a securities license in order to provide financial counseling, tax return preparation, or investment management services to clients, Ayco provides these services directly to its clients. Id. Ayco account managers, however, offer other services to Ayco clients, and these services are provided by the appropriately licensed Ayco affiliate offering them. Id.
Ayco's affiliates include other investment advisors, insurance agencies, real estate brokerages, securities broker-dealers, commodities and future advisors, and banks. Id. ¶ 8. One affiliate, Mercer, is a broker-dealer and member of FINRA, and its "authority to do business is based on its own independent license with FINRA." Id. ¶¶ 12-13. Both Ayco and Mercer are wholly owned subsidiaries of The Goldman Sachs Group, Inc. Id. ¶ 12. Ayco is the sole limited partner of Mercer; Mercer's general partner, GS Ayco Holding LLC, is the sole limited partner of Ayco. Id. n.4. Ayco's and Mercer's corporate headquarters are located at the same address -- 321 Broadway, Saratoga Springs, New York, 12866 -- and both companies' listed telephone number is (518)-336-4000. Louis M. Lagalante Declation Ex. 3 (Dkt. No. 38-18); Defendants' Memorandum of law in support of motion to compel arbitration (Dkt. No. 38-1) ("Defs.' Mem.") at 16. There is also some overlap in management between Mercer and Ayco: Mercer's president, Timothy O'Hara, serves as Ayco's executive vice president; Mercer's chief financial officer, John Collins, serves as Ayco's senior vice president and chief operating officer; and Mae Cavoli is the general counsel for both Ayco and Mercer. See Defs.' Mem. at 21. At the same time, Mercer is required by law to have a certain level of independent capitalization, and is prohibited from intermingling its corporate funds with Ayco's. Cavoli Decl. ¶ 17. Securities regulations also require that any business expenses that Mercer shares with its affiliates be apportioned on an arms-length basis to ensure an accurate calculation of Mercer's capital. Id. ¶ 18.
Because Mercer's FINRA license restricts Mercer's business to transacting in specific financial products, Mercer's business primarily involves the sale of variable life insurance products and variable annuities -- transactions that Ayco is legally prohibited from conducting. Cavoli Decl. ¶ 14; see also Lagalante Decl. Ex. 3 at 6. Pursuant to contract between Mercer and the insurance carrier whose variable products are sold to Ayco clients, any revenue generated by Mercer is paid to Mercer by the insurance carrier. Cavoli Decl. ¶ 16. When a client purchases a product sold by Mercer, the Ayco account manager signed to service that client receives a commission, and those funds flow from Mercer to Ayco to the account manager via Ayco's payroll. Id.
Both Defendants were initially hired by Ayco as staff attorneys and later became account managers for Ayco. Id. ¶¶ 20-21. Upon being hired, Defendants signed the Agreements, which were revised in 2010 and which Defendants again signed. Cavoli Decl. Ex. C (Dkt. No. 46-4). The Agreements contained the following clause:
The Employee acknowledges that the headquarters of Ayco is in Saratoga Springs, New York, that the business of Ayco is operated and coordinated from New York, that activities of Employee are ultimately governed by and the Employee ultimately reports to Ayco executives resident in New York, and that Employee will receive training and orientation from Ayco in New York. Accordingly, Employee hereby irrevocably submits to the jurisdiction of any New York court or federal court sitting in the Northern District of New York over any suit, action, or proceeding arising out of or relating to this Agreement and hereby waives to the fullest extent permitted by law, any objection that the Employee may now or hereafter have to such jurisdiction or to the venue of any suit, action or proceeding brought in such court and any claim that such suit, action or proceeding has been brought in any inconvenient forum. Employee covenants and agrees that he or she will not file any action against Ayco except in the courts of the State of New York or the federal court sitting in the Northern District of New York.
Id. II.E.7. Ayco trained the Defendants as account managers, and, over the years, Defendants serviced many clients for Ayco. See Cavoli Decl. ¶¶ 23-26.
As account managers, Defendants applied to become registered FINRA representatives in order to obtain securities licenses, which they claim -- and Plaintiff does not appear to dispute -- they were directed to do by Ayco. Wolfgang K. Frish Declaration (Dkt. No. 38-8) ¶¶ 4, 7-8; Stefan W. Oglevee Declaration (Dkt. No. 38-11) ¶¶ 3-4. As part of their applications, Defendants signed a FINRA Form U-4 Application for Securities Industry Registration ("Form U-4 Agreement"), which contains a provision stating that each Defendant agrees to arbitrate "any dispute, claim or controversy that may arise between me and my firm*fn2 . . . or any other person . . . that is required to be arbitrated under the [FINRA] rules." Louis B. Lagalante Decl. Ex. 1 (Dkt. No. 38-16) ("Form U-4"); Frisch Decl. (Dkt. No. 38-8) ¶ 8; Oglevee Decl. (Dkt. No. 38-11) ¶ 8. In addition to signing the Form U-4 Agreement, Defendants were also required to pass an examination, for which they prepared by reviewing training materials paid for by Ayco. Frisch Decl. ¶ 9; Oglevee Decl. ¶ 9. Defendants obtained their respective securities licenses in or about 2002, and maintained these licenses through Mercer until their departures from Ayco in 2011. Frisch Decl. ¶ 4; Oglevee Decl. ¶ 4.
A. Motion to Compel Arbitration
The standard of review for a motion to compel arbitration under § 4 of the FAA "is essentially the same standard that the Court applies when it reviews a motion for summary judgment." D'Antuono v. Serv. Road Corp., 789 F. Supp. 2d 308, 319 (D. Conn. 2011) (citing DuBois v. Macy's East, Inc., 338 F. App'x. 32, 33 (2d Cir. 2009) (summary order); Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003)). "The party seeking an order compelling arbitration must 'substantiate [its] entitlement [to arbitration] by a showing of evidentiary facts that support its claim that the other party agreed to arbitration.'" D'Antuono, 789 F. Supp. 2d at 319 (quoting Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995)) (alterations in original). If the party seeking arbitration meets this burden, "the party opposing [arbitration] may not rest on a denial but must submit evidentiary facts showing that there is a dispute of fact to be tried." Oppenheimer, 56 F.3d at 358. The same standard applies to motions to stay judicial proceedings pending arbitration under § 3 of the FAA. Barbieri v. K-Sea Transp. Corp., No. 1:05-cv-4950, 2006 WL 3751215, at *3 (E.D.N.Y. Dec. 19, 2006).*fn3
1. Lack of Subject Matter ...