October 9, 2013
JEFFREY DEVERS, Plaintiff,
IMPERIUM PARTNERS GROUP, LLC, Defendant. Index No. 158208/12
JOAN A. MADDEN, J.
Defendant Imperium Partners Group, LLC ("Imperium") moves pursuant to CPLR 7503(a) to compel arbitration and to dismiss this action or to stay it pending the completion of arbitration. Plaintiff Jeffrey Devers ("Devers") opposes the motion, which is granted as set forth below.
In this action, Devers, who is a former managing member of Imperium, seeks to be indemnified for $18, 000 of attorneys' fees that he allegedly incurred in connection with responding to a subpoena in a lawsuit concerning certain patents, ("the Patent Lawsuit"). The Patent Lawsuit was commenced on March 30, 2011, by Imperium Holdings, an entity set up by Imperium to control patents that it purchased from non-party ESS Technologies, Inc. ("ESS")
Imperium acquired a controlling interest in ESS through its subsidiary, called Imperium Master Fund, in February 2008. Following the acquisition of ESS in 2008, Devers and his former business partner, John Michaelson ("Michaelson), who is a current managing member of Imperium, engaged in a heated litigation regarding Michaelson's handling of the ESS investment. The dispute was settled in accordance with a Settlement Agreement dated January 18, 2010 ("the Settlement Agreement"). Under the Settlement Agreement, Devers resigned and voluntarily withdrew "as a Member, Managing member, partner, agent and/or employee" of the Imperium entities. Paragraph 6 of the Settlement Agreement provides that Devers releases and discharges Michaelson and Imperium and certain other individual defendants. However, it also provides that it does not "release or discharge any and all rights [of Devers] under 5.4 [of Imperium's] Amended Operating Agreement that Devers would otherwise be entitled to had he not entered into this Agreement." See Settlement Agreement, ¶ 6A. Section 5.4 of the Amended Operating Agreement requires, inter alia, for Imperium to indemnify its Members and Terminated Members for attorneys' fees incurred in connection with their involvement with Imperium.
Imperium now moves to compel arbitration, asserting that Devers' right to indemnification must be arbitrated under the Settlement Agreement which provides, in relevant part, that "[a]ll disputes, claims or controversies between the parties arising out of, relating to or in connection with this Agreement, or the breach, termination or validity thereof ...will be referred to and finally resolved on an expedited basis exclusively by arbitration referred to the American Arbitration Association ("AAA")." See Settlement Agreement, ¶ 17B. Imperium argues that any right Devers may have to be indemnified for attorneys' fees incurred in the Patent Lawsuit is subject to arbitration as his right to indemnification arises from paragraph 6 of the Settlement Agreement.
As further support for its argument that the parties intended to arbitrate Devers' right to indemnification, Imperium points to the last clause of the Settlement Agreement's arbitration provision which specifically provides that "[i]f a significant issue in dispute involved the rights to indemnification or advancement, then the arbitrator shall be familiar with Delaware law concerning indemnification and advancement " and argues that such knowledge was required since Imperium is a company formed under Delaware law.
Devers opposes the motion, asserting that this dispute does not arise under the Settlement Agreement as it concerns his right to indemnification for attorneys' fees under Section 5.4 of the Amended Operating Agreement, which the Settlement Agreement specifically states survives the settlement. Moreover, Devers argues that the indemnification provisions in the Settlement Agreement, do not apply to the instant dispute as they govern only claims by, or on behalf of, or against, certain entities defined in paragraph 4, and only if the claims are "Prior Claims" i.e. claims that result from acts up to, and including, the date of the Settlement Agreement. Devers argues that his right to indemnification for the Patent Lawsuit cannot be considered a "Prior Claim" as it arose after the Settlement Agreement since the Patent Lawsuit was commenced almost two months after the Settlement Agreement was executed, and the subpoena in the Patent Action was served 20 months later.
Accordingly, Devers asserts his right to indemnification for attorneys' fees he incurred in connection with the Patent Lawsuit is governed exclusively by section 5.4 of the Amended Operating Agreement and is not subject to arbitration.
CPLR 7503(a) provides that a "party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration." On a motion to compel arbitration, the court addresses three threshold questions: (1) whether the parties have made a valid agreement to arbitrate, (2) if so, whether the particular dispute falls within the arbitration clause, and (3) whether a condition precedent to arbitration has been complied with. See Rockland County v. Primiano Construction Co. Inc., 51 N.Y.2d 1, 7 (1980); Grossman v. Laurence Handprints-N.J., Inc., 90 A.D.2d 95, 99 (2d Dept 1982). In this case, there is no dispute that the parties entered into a valid agreement to arbitrate, and the third requirement is inapplicable since there is no condition precedent in the Agreement.
Accordingly, the only issue is whether this dispute over Devers' right to indemnification falls within the arbitration clause of the Settlement Agreement. As arbitration is contractual by nature, a party cannot be required to arbitrate any dispute that he has not agreed to arbitrate.
Waldron v Goddess, 61 N.Y.2d 181, 183 (1984); see also, Thomson-CSF. S.A. v American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir 1995); Clarendon Natl. Ins. Co. v Lan, 152 F.Supp.2d 506, 519 (SD NY 2001). An agreement to arbitrate must be clear, explicit, and unequivocal and must not depend upon implication or subtlety. Waldron v Goddess, 61 N.Y.2d at 183-184; The Harriman Group. Inc. v. Napolitano, 213 A.D.2d 159, 163 (1st Dept 1995).
At the same time, however, when, as here, the arbitration clause is broadly worded any restrictions on arbitration must be contained in the arbitration clause itself. Silverman v Benmore Coats. Inc.. 61 N.Y.2d 306, 307-308 (1984); see generally. Book 7B, McKinney's Consol. Laws of N.Y., CPLR 7501, C7501:4. In the instant case, there are no such restrictions, so that the court's inquiry focuses on whether there is a "reasonable relationship" between the contract containing the broad arbitration provision, in this case the Settlement Agreement, and the underlying dispute. Sisters of Saint John the Baptist v. Phillips R. Geraghtv Constructor. Inc., 67 N.Y.2d 997, 998 (1986); Nationwide General Ins. Co. v Investors Ins Co. of America, 37 N.Y.2d 91, 96 (1975); State v. Phillip Morris Inc., 30 A.D.3d 26, 31 (1st Dept 2006).
Here, there is a reasonable relationship between the broad arbitration clause in the Settlement Agreement requiring that "all disputes, claims or controversies between the Parties arising out of, relating to, or in connection with this Agreement" be arbitrated, and Devers' claims in this action for indemnification of attorneys' fees incurred in the Patent Lawsuit. Such a relationship exists as Devers' right to indemnification derives from paragraph 5.4 of the Amended Operating Agreement and the preservation of that right under paragraph 6 of the Settlement Agreement.
Finally, while paragraph 4 of the Settlement Agreement contains an indemnification provision which apparently does not cover the indemnification claim asserted by Devers in this action, Devers' claims are nonetheless arbitrable as they are addressed under Paragraph 6 of the Settlement Agreement.
Accordingly, the motion to compel arbitration and to dismiss the complaint is granted.
In view of the above, it is
ORDERED that the motion to compel arbitration and to dismiss the complaint is granted and it is further
ORDERED that the complaint is dismissed; and it is further
ORDERED that plaintiff Jeffrey Devers shall arbitrate his claims against defendant Imperium Partners Group, LLC in accordance with paragraph VJB of the Settlement Agreement.