United States District Court, S.D. New York
January 28, 2015
EDESE DORET INDUSTRIAL DESIGN, INC., Plaintiff,
AVN SOLUTIONS, INC., AVN SOLUTIONS LLC and FRANCIS MICHAEL HOPKINS, Defendants
For Edese Doret Industrial Design, Inc., Plaintiff: Barry J. Yellen, Barry J Yellen, Esq, New York, NY.
For AVN Solutions, Inc., AVN Solutions, L.L.C., Francis Michael Hopkins, Defendant: Brian Alexander Smith, LEAD ATTORNEY, Humes & Wagner, LLP, Locust Valley, NY.
MEMORANDUM AND ORDER
ANALISA TORRES, United States District Judge.
Plaintiff, Edese Doret Industrial Design, Inc., brings this action alleging that Defendants, AVN Solutions, Inc. (" AVN"), AVN Solutions LLC (" AVN LLC"), and Francis Michael Hopkins, breached a contract and fraudulently solicited funds from Plaintiff. Defendants move to dismiss the complaint pursuant to Rules 12(b)(2), 12(b)(3), 12(b)(5), and 12(b)(6) of the Federal Rules of Civil Procedure and request, in the alternative, an order compelling arbitration pursuant to an arbitration agreement between the parties. For the following reasons, this action is stayed pending the outcome of arbitration in accordance with the terms of the parties' agreement.
Plaintiff is a corporation organized under the laws of New York with a principal place of business in New York, New York. Yellen Aff. Ex. B (" Compl.") ¶ 1, ECF No. 21-2. AVN and AVN LLC are businesses organized under the laws of Delaware with a principal place of business in Wilmington, Delaware. Id. ¶ ¶ 2-3, 6. Hopkins, the sole shareholder of AVN and sole member of AVN LLC, is a citizen and resident of Delaware. Id. ¶ 5.
Pursuant to a contract dated October 2013, Defendants agreed to perform electrical work on an aircraft located in Saudi Arabia, id. ¶ 10, and Plaintiff advanced funds in the amount of $533, 552.00 to AVN, id. ¶ 10. Defendants have submitted a copy of the contract and an addendum signed by both parties (collectively, the " Agreement"). Hopkins Decl. Ex A, ECF No. 20. The Agreement contains a mandatory mediation and arbitration clause for any " dispute, claim or controversy arising out of or relating to the workscope." Id. The parties agreed that arbitration would take place in " the jurisdiction or the state and/or federal courts of the state of the [AVN] facility which services the aircraft, " and the addendum, signed by Plaintiff, clarifies that arbitration is to take place in Delaware if the parties are unable to resolve a dispute. Id.
Plaintiff alleges that Defendants breached the Agreement by failing to perform the agreed-upon work despite receiving payment in full from Plaintiff. Compl. ¶ ¶ 11, 14-15. Plaintiff also alleges that Defendants fraudulently solicited money from Plaintiff and were " wanton and willful" in taking Plaintiff's money without the intention of performing their obligations under the Agreement. Id. ¶ ¶ 19-21.
I. Defendants' Request for an Order Directing Arbitration
The Federal Arbitration Act (" FAA") reflects a " liberal federal policy favoring arbitration." Laumann v. Nat'l Hockey League, 989 F.Supp.2d 329, 335 (S.D.N.Y. 2013). " [A]rbitration is a matter of contract, and therefore a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit." Ragone v. Atlantic Video at Manhattan Ctr., 595 F.3d 115, 126 (2d Cir. 2010) (quotation marks and citations omitted). The FAA " leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985).
Whether a dispute is arbitrable under the FAA depends on two questions: " (1) whether there exists a valid agreement to arbitrate at all under the contract in question . . . and if so, (2) whether the particular dispute sought to be arbitrated falls within the scope of the arbitration agreement." Hartford Acc. & Indemn. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001) (quoting National Union Fire Ins. Co. v. Belco Petroleum Corp., 88 F.3d 129, 135 (2d Cir. 1996)). " [U]nder the FAA, 'any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'" JLM Indus., Inc. v. Stolt--Nielsen SA, 387 F.3d 163, 171 (2d Cir. 2004) (citation omitted).
The Agreement's arbitration provision is broad:
In the event resolution by senior management is unsuccessful, the parties agree that any and all claims and disputes which may arise between the parties in regard to the aircraft shall be decided by arbitration in accordance with the rules of the American Arbitration Association, except as otherwise provided herein or otherwise mutually agreed to by the parties in writing. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law.
Hopkins Decl. Ex A. Defendants' alleged failure to perform work on the aircraft in accordance with the terms of the Agreement and alleged fraudulent solicitation, Compl. ¶ ¶ 10-21, are matters which fall squarely within the arbitration clause. Accordingly, the parties' dispute, including any dispute over the scope of the arbitration agreement, must be resolved by arbitration. See Klein v. ATP Flight Sch., LLP, 14 Civ. 1522, 2014 WL 3013294, at *9-10 (E.D.N.Y. July 3, 2014); see also Arciniaga v. Gen. Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006) (" [I]t is difficult to overstate the strong federal policy in favor of arbitration, and it is a policy [the Second Circuit has] 'often and emphatically applied.'" (citation omitted)).
Defendants request an order, pursuant to § 4 of the FAA, compelling arbitration as specified in the Agreement. Section 4 of the FAA provides that " [a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C.A. § 4, Section 4 of the FAA, however, also states that " [t]he hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed." Id. Thus, because the arbitration agreement at issue designates Delaware as the appropriate forum for the resolution of disputes arising under the Agreement, this Court lacks the authority under § 4 to compel arbitration. See Sea Spray Holdings, Ltd. v. Pali Fin. Grp., Inc., 269 F.Supp.2d 356, 363 (S.D.N.Y. 2003) (" This Court . . . lacks the authority to compel the parties to proceed to arbitration in accordance with the terms of the arbitration agreement because that agreement provides for arbitration in Utah, but the Court's authority to compel arbitration under FAA § 4 is restricted to arbitration proceedings that occur within this District." (citing 9 U.S.C. § 4)).
However, notwithstanding a district court's lack of authority to compel arbitration, a stay may, nonetheless, be warranted under § 3 of the FAA. See id. As other district courts within the Second Circuit have recognized,
[w]here a federal court lacks authority pursuant to 9 U.S.C. § 4 to compel arbitration outside its district, the court may still determine that the dispute nonetheless remains " referable to arbitration" elsewhere, if a forum is designated, and must then order a stay [pursuant to § 3] instead, thereby leaving the parties free to pursue their contractual rights and remedies in the appropriate venue.
DaPuzzo v. Globalvest Mgmt. Co., L.P., 263 F.Supp.2d 714, 739 (S.D.N.Y. 2003); accord Champion Auto Sales, LLC v. Polaris Sales Inc., 943 F.Supp.2d 346, 356 (E.D.N.Y. 2013) (" When a contract's forum-selection clause mandates arbitration in a foreign district, district courts in the Second Circuit appear to . . . stay the federal litigation pending conclusion of the arbitration out-of-state.").
As provided in § 3 of the FAA, upon determining " that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, " the court must " stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3; see also McCowan v. Sears, Roebuck and Co., 908 F.2d 1099, 1106 (2d Cir. 1990) (" A commonsense reading of [§ 3] suggests that if there is a federal action 'upon' an 'issue referable to arbitration' by the terms of an arbitration agreement, then the federal court must 'stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.'"); DaPuzzo, 263 F.Supp.2d at 738 (" The language of § 3 itself makes clear that the term 'referable to arbitration' is defined not by reference to whether the court in which the litigation is pending is empowered to compel arbitration of the particular dispute, but to whether the issue before the court involving the terms of an arbitration agreement is referable to arbitration as provided 'under such an agreement.'" (quoting 9 U.S.C. § 3)). Accordingly, having previously determined that the dispute at issue here falls within the terms of the parties' arbitration agreement, the Court finds issues " referable to arbitration under such an agreement" and concludes that this action must be stayed pursuant to § 3 of the FAA.
In addition to the authority provided by § 3, the Court may, in light of its determination that this dispute falls within the scope of an agreed-to arbitration provision, stay this litigation pursuant to its inherent authority to effectively manage its docket. See Sea Spray, 269 F.Supp.2d at 364 (collecting cases); Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936) (" [T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants."). The Court does not reach the remaining issues raised in Defendants' motion.
For the reasons stated above, it is ORDERED that:
(1) this action is stayed pursuant to § 3 of the Federal Arbitration Act and the Court's inherent authority to manage its docket, pending the outcome of arbitration in accordance with the terms of the Agreement; and
(2) Counsel for the parties are directed to file a joint letter with the Court by March 31, 2015, and every sixty days thereafter, advising the Court as to the status of the arbitration.
The Clerk of Court is directed to terminate the motion at ECF No. 17.