United States District Court, S.D. New York
OPINION AND ORDER
JESSE M. FURMAN, District Judge.
Plaintiff SOHC, Inc. ("SOHC") brings this suit against Defendant Zentis Sweet Ovations Holding LLC ("Zentis") to compel arbitration in front of an accounting firm. (Docket No. 2). The question presented is who should decide whether SOHC complied with the notice requirements for triggering such arbitration. In cross-motions, SOHC argues that the accounting firm should decide for itself, while Zentis argues that a different arbitrator should decide. For the reasons stated below, the Court agrees with SOHC. Accordingly, it grants SOHC's motion to compel arbitration, and denies Zentis's motion to dismiss. In addition, the Court grants SOHC's motion for leave to file certain exhibits in redacted form, and denies Zentis's request to strike allegations in the Complaint and several exhibits and to redact other exhibits.
The following facts are taken from the pleadings, as well as the declarations submitted in support of, and opposition to, the instant motions. See, e.g., Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) ("In the context of motions to compel arbitration..., the court applies a standard similar to that applicable for a motion for summary judgment."). The facts are undisputed except where noted, and all inferences are drawn in Defendant's favor. See, e.g., Russell v. Mimeo, Inc., No. 08-CV-5354 (RJS), 2008 WL 6559743, at *1 (S.D.N.Y. Oct. 29, 2008) (noting that, where a motion to compel arbitration is opposed on the ground that the parties did not agree to arbitrate, "should give the opposing party the benefit of all reasonable doubts and inferences that may arise." (internal quotation marks omitted)).
On October 1, 2012, SOHC and Zentis entered into a purchase agreement (the "Agreement") governing the sale of SOHC's food processing business to Zentis. (Second Amended Complaint ("SAC") (Docket No. 19) ¶ 6). The Agreement provided that SOHC would receive an up-front payment, subject to two adjustments to be made at a later date - a "Working Capital Adjustment, " based on the amount of working capital that SOHC had at the time of closing, and an "Earnout Amount, " based on earnings before interest, taxes, depreciation, and amortization ("EBITDA"). ( Id. ¶¶ 7-9, 26-34). Under the Agreement, Zentis was to provide SOHC "Reviewed Statements" within forty days describing what it believed to be the Working Capital as of the closing date. ( Id. ¶ 11). SOHC then had thirty days to review the Statements and to object by "specifying in reasonable detail the names and extent of such disagreement (as well as the disputed items or amounts in the Reviewed Statements)." ( Id. ¶ 12; Decl. Judith A. Archer Supp. Defs.' Mot. To Dismiss (Docket No. 25) ("Archer Decl."), Ex. A at 2). Similarly, Zentis was to provide SOHC with an Earnout Statement within ten business days following Zentis's receipt of its annual audit. (SAC ¶ 29; Archer Decl., Ex. A at 3). SOHC then had thirty days to object by "specifying in reasonable detail the basis for the objection." (SAC ¶ 30; Archer Decl., Ex. A at 3). If SOHC did not object, the Reviewed Statements with regard to Working Capital and the Earnout Statement became final. (Archer Decl., Ex. A at 3-4).
Complicating matters, the Agreement contains three separate arbitration clauses. With regard to the Reviewed Statements in connection with the Working Capital Adjustment, Section 2.6(c) of the Agreement (the "Working Capital Arbitration Clause") provides that "[a]ny disputed amounts or items which cannot be settled in accordance with" the process described above "shall be determined by the New York office of the Accounting Firm, " which the agreement defines as Deloitte. (SAC ¶ 13; Archer Decl., Ex. A at 2). With regard to the Earnout Statements, Section 2.8(b) of the Agreement (the "Earnout Arbitration Clause" and, together with the "Working Capital Arbitration Clause, " the "Accountant Arbitration Clauses") states that any dispute "may be submitted by either Party for resolution to the Accounting Firm." (SAC ¶ 31; Archer Decl., Ex. A at 3). Finally, the Agreement contains a third arbitration clause, Section 14.9(a) (the "ICC Arbitration Clause"), providing that "any dispute or controversy arising out of or in connection with this Agreement or the subject matter hereof... shall be settled by arbitration conducted in the Borough of Manhattan, New York, New York, pursuant to the arbitration rules of the International Chamber of Commerce." (Archer Decl., Ex. A at 5).
On January 8, 2013, Zentis's accounting firm sent SOHC its "Independent Accountants' Review Report, " which stated that SOHC owed Zentis money with regard to the Working Capital Adjustment. (SAC ¶ 15). On February 20, 2013, Zentis sent SOHC its Earnout Statement. ( Id. ¶ 35). SOHC objected to both. ( Id. ¶¶ 16, 38; Archer Decl., Ex. B. at 1, Ex. C. at 1). In response, Zentis asserted that SOHC's notice of its objections was inadequate. (SAC ¶¶ 50-51). Thereafter, SOHC filed this lawsuit to compel arbitration. (Docket No. 2).
A. The Arbitrator Dispute
The parties' ultimate disagreement is whether their price dispute is subject to arbitration before Deloitte under the Accounting Arbitration Clauses. Zentis argues that SOHC did not provide adequate notice of its objections and thus failed to satisfy a necessary precondition for arbitration under those clauses. (Def.'s Mem. Law Supp. Mot. To Dismiss (Docket No. 24) ("Def.'s Mem. Law") 19-21). SOHC contends that its notices were sufficient - or, more to the point, as sufficient as they could be given the information Zentis provided. (Mem. Law Pl. Opp'n Def.'s Mot. To Dismiss Supp. Pl.'s Cross-Mot. Order Compelling Arbitration (Docket No. 28) ("Pl.'s Mem. Law") 20-22). The precise question before the Court, however, is not whether SOHC satisfied the precondition, but rather the logically prior question of who should even decide that question. Zentis argues that whether SOHC provided adequate notice is a "question of arbitrability" and that, under the broad language of the ICC Arbitration Clause, it should be submitted to the ICC to decide. (Def.'s Mem. Law 11-16). By contrast, SOHC contends that the procedures set forth in the Accountant Arbitration Clauses encompass all disputes concerning the purchase price, including the parties' dispute over the sufficiency of SOHC's objections, and that the adequacy of the objections is thus a question for Deloitte, not for the ICC. (Pl.'s Mem. Law 11-16).
The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., creates a "body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act, " Bank Julius Baer & Co. v. Waxfield, Ltd., 424 F.3d 278, 281 (2d Cir. 2005) (internal quotation marks omitted), as the Agreement here is. The FAA expresses "a liberal federal policy favoring arbitration agreements, " Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), which requires courts to "construe arbitration clauses as broadly as possible, " S.A. Mineracao da Trindade-Samitri v. Utah Int'l, Inc., 745 F.2d 190, 194 (2d Cir. 1984). In light of that policy, the role of a court is limited when there is an arbitration clause at issue. There is, however, an "exception" to this "long[-]recognized and enforced" policy favoring arbitration agreements: "The question whether the parties have submitted a particular dispute to arbitration, i.e., the question of arbitrability, ' is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2000) (internal citation, quotation marks and emphasis omitted).
Significantly, however, "the phrase question of arbitrability'" has a "limited scope" and does not apply to every "gateway question, " even if "potentially dispositive." Id. Indeed, the phrase applies only in "narrow circumstance[s], " such as when the dispute concerns "whether the parties are bound by a given arbitration clause" or whether "a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy." Id. at 83-84. By contrast, "procedural' questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide." Id. at 84 (emphasis in original) (internal quotation marks omitted); see also id. at 85 ("[I]n the absence of an agreement to the contrary, ... issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.'") (quoting the Revised Uniform Arbitration Act of 2000, § 6, cmt. 2, 7 U.L.A. at 13) (emphasis omitted)); UBS Fin. Servs., Inc. v. West Virginia Univ. Hosps., Inc., 660 F.3d 643, 655 (2d Cir. 2011) (holding that disputes over the interpretation of forum selection clauses in arbitration agreements are "presumptively arbitrable procedural questions").
The question at issue here - whether SOHC satisfied a necessary precondition for arbitration before Deloitte by providing adequate notice of its objections - falls on the procedural side of this divide. As the Seventh Circuit held in Lumbermens Mutual Casualty Co. v. Broadspire Management Services Inc., 623 F.3d 476 (7th Cir. 2010), a case involving the very same issue (yet not cited by either party here), the parties' conflict "grow[s] out of the dispute between the parties [over the purchase price] and bear[s] directly on the arbitrator's final disposition of what the purchase price should be." Id. at 481. Moreover, "there is no dispute as to the existence of an agreement to arbitrate itself, " or whether that agreement extends to the parties' dispute over purchase price. Id. at 483. "Instead, this is a procedural dispute over preconditions to that arbitration." Id. at 483 (emphasis in original); see also JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 392-93 (6th Cir. 2008) (holding that the question of whether a party had properly documented its calculation of EBITDA, which was a condition precedent to arbitration before an accountant, was "exactly the type of condition [ ] precedent to an obligation to arbitrate' that Howsam presumptively allocated to the arbitrator. It is a procedural question[ ]... grow[ing] out of the dispute [that] bear[s] on its final disposition, '" and thus a question for the arbitrator (quoting Howsam, 537 U.S. at 84-85) (citation omitted))). The question of whether SOHC triggered the Accountant Arbitration Clauses is thus for the arbitrator to decide.
The next question, however, is which arbitrator: the ICC (as Zentis contends) or Deloitte (as SOHC contends)? When an agreement, such as the one at issue here, "includes two dispute resolution provisions, one specific (a valuation provision) and one general (a broad arbitration clause), the specific provision will govern those claims that fall within it." Katz v. Feinberg, 290 F.3d 95, 97 (2d Cir. 2002). Zentis concedes as much, but argues that the question of whether SOHC's notice was adequate does not fall within the Accountant Arbitration Clauses. (Def.'s Reply 11-12). To determine whether that is the case, the Court must conduct a three-part inquiry. See, e.g., Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading, Inc., 252 F.3d 218, 224 (2d Cir. 2001). First, the Court must determine whether the clause is broad or narrow. See id. Second, if reviewing a narrow clause, it must determine whether the dispute "is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that ...