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Pictet Funds Eur. S.A. v. Emerging Managers Group, L.P.

United States District Court, S.D. New York

December 1, 2014

PICTET FUNDS (EUROPE) S.A. and PICTET OVERSEAS INC., Plaintiffs,
v.
EMERGING MANAGERS GROUP, L.P. and EMG CAPITAL, LLC, Defendants

For Plaintiffs: Mark G. Hanchet, Esq., Jeremy D. Schildcrout, Esq., Mayer Brown LLP, New York, NY.

For Defendants: Rishi Bhandari, Esq., Evan Mandel, Esq., Benjamin R. Delson, Esq., Robert Glunt, Esq., Mandel Bhandari LLP, New York, NY.

OPINION AND ORDER

Shira A. Scheindlin, United States District Judge.

I. INTRODUCTION

Pictet Funds (Europe) S.A. (" PFE") and Pictet Overseas Inc. (" Pictet Overseas") bring this action pursuant to the Federal Arbitration Act (" FAA")[1] to enjoin a Financial Industry Regulatory Authority (" FINRA") arbitration in which they were named respondents by Emerging Managers Group, L.P. (" EMG") and EMG Capital, LLC (" EMG Capital"). The arbitration was commenced by the filing of a Statement of Claims and Demand for Arbitration (" SOC") in which EMG and EMG Capital bring a single claim for breach of contract against PFE and Pictet Overseas.[2] The Claim arises out of a contract entered into by PFE and non-party Atlantic Financial Partners LLC (" AFP").[3] The Agreement contains a general dispute resolution clause, as well as a provision permitting FINRA arbitration for disputes initiated by AFP " related solely to fees payable." [4]

Plaintiffs move to preliminarily enjoin the arbitration pursuant to Federal Rule of Civil Procedure 65(a). They contend that the arbitration cannot proceed against Pictet Overseas because it is not party to the Agreement, or against PFE, as the Claim is beyond the limited scope of the Agreement's arbitration clause.[5]

Defendants now move to dismiss this case for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) or, alternatively, to compel arbitration under the FAA. They argue that the arbitrator -- not this Court -- must resolve the issues raised by plaintiffs, including the scope of the arbitration clause.[6] Moreover, they assert that plaintiffs' action is time-barred under the statute of limitations set forth in section 7503(c) of New York's Civil Practice Law and Rules (" section 7503(c)").

During a telephone conference held on October 28, 2014, the parties agreed that an evidentiary hearing on the request for a preliminary injunction was not required. They contend that there are two dispositive issues that can be decided as a matter of law. For plaintiffs, this issue is whether the Claim is arbitrable; for defendants, whether the suit is time-barred by section 7503(c).

For the reasons discussed below, I conclude that the question of arbitrability is properly before this Court and that section 7503(c) does not bar plaintiffs' suit for injunctive relief. Based on the parties' submissions, I further conclude that plaintiffs are entitled to a preliminary injunction. Accordingly, plaintiffs' motion is GRANTED, and defendants' motion is DENIED.

II. BACKGROUND AND FINDINGS OF FACT

A. The Parties

PFE is a Luxembourg corporation based in Luxembourg. Among other things, PFE manages certain investment funds outside of the United States.[7] It entered into the Agreement -- with non-party AFP -- in June 2010.[8] PFE is not a member of FINRA.[9]

Pictet Overseas is a Canadian corporation based in Montreal, Canada.[10] It is a member of FINRA, but it is not a party to the Agreement.[11]

EMG is a Delaware limited partnership with its principal place of business in New York.[12] It is not a member of FINRA.[13] AFP's members transferred their ownership interests to EMG in April 2012.[14]

EMG Capital is a Florida limited liability corporation with its principal place of business in Miami, Florida.[15] It is a FINRA member.[16]

B. The Agreement

Under the Agreement, AFP agreed to provide sales and support services to PFE, which included introducing and promoting PFE funds to broker-dealer networks -- such as Merrill Lynch's Global Private Client Group -- in the United States.[17] AFP was paid fees and commissions for its services. [18]

The Agreement states that " [a]ny party may terminate this Agreement by the giving of no less than three months written notice to the other ." [19] However, PFE could terminate the Agreement with " immediate effect" if AFP failed to " observe or perform [its] obligations" under the " Investment Acquisition" and " Supporting Services" provisions of the Agreement.[20] Likewise, AFP could terminate the agreement without notice if PFE failed to perform its obligations under the " Remuneration" provision.[21]

The Agreement further provides that:

In the case of termination of this Agreement by [PFE] due to AFP having breached any of its material obligations under this Agreement or otherwise materially jeopardizes [sic] the interests of [PFE], the latter shall be entitled to retain any earned but unpaid commissions.
In the event of termination of this Agreement by [PFE] which is not due to AFP's material breach of this Agreement, [PFE] shall continue to pay the remuneration for a period of 12 (twelve) months following the effective date of termination, based on the assets still held by the Distributors during that period.[22]

Thus, under the Agreement, termination based on material breach under section 8(b)(ii), as opposed to termination with notice under section 8(a), results in fifteen fewer monthly payments to AFP -- three months for the notice period, and twelve ...


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