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In re Coudert Brothers LLP

United States District Court, S.D. New York

May 9, 2017

RUPERT X. LI, Defendant. DEVELOPMENT SPECIALISTS, INC., in its capacity as Plan Administrator for Coudert Brothers LLP, Plaintiff,

          David J. Adler, Esq. McCarter & English LLP Newark, N.J. Counsel for Plaintiff.

          John G. McCarthy, Sr. Smith, Gambrell & Russell, LLP New York, NY Counsel for Plaintiff.

          Rupert X. Li Hong Kong Pro Se Defendant.

          OPINION & ORDER

          KENNETH M. KARAS, District Judge.

         Plaintiff Development Specialists, Inc. (“Plaintiff”) brings this Action in its capacity as the Plan Administrator for Coudert Brothers LLP, seeking confirmation of an arbitration award rendered against Defendant Rupert X. Li (“Defendant”). United States Bankruptcy Judge Robert D. Drain issued proposed findings of fact and conclusions of law on October 21, 2016, recommending that the Court confirm the arbitration award. (See Dkt. No. 1.) For the reasons to follow, the Court declines to adopt the proposed findings and conclusions of the bankruptcy court.

         I. Background

         A. Factual Background

         The following facts are taken from the sworn declaration of John G. McCarthy, submitted in support of Plaintiff's Motion To Confirm Arbitration Award. (See Decl. of John G. McCarthy in Supp. of Mot. To Confirm Arbitration Award (“McCarthy Decl.”) (Dkt. No. 14, 08-AP-1475 Dkt.).)

         Coudert Brothers LLP (“Coudert”) was an international law firm headquartered in New York and organized as a New York limited liability partnership. (See Id. ¶ 2.) Coudert dissolved on August 16, 2005, (see id.), and on September 22, 2006, Coudert filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code in the bankruptcy court of the Southern District of New York, (see Id. ¶ 4). On August 27, 2008, the bankruptcy court confirmed the First Amended Plan of Liquidation (the “Plan”). (See id.) Pursuant to the Plan, any former partner in Coudert could execute a Participating Settlement Agreement with the Plan Administrator, Plaintiff, to fulfill his or her obligations to Coudert with respect to any outstanding amounts owed. (See Id. ¶ 5.) Defendant, a former partner in Coudert, (see Id. ¶ 3), did not execute a Participating Settlement Agreement or otherwise participate in the Plan, (see Id. ¶ 8).

         Shortly after the effective date of the Plan, Plaintiff commenced adversary proceedings against several partners in Coudert, including Defendant, who had not participated in the Plan. (See Id. ¶ 9.) The complaint against Defendant stated claims for breach of contract, avoidance and recovery of fraudulent transfers, and unfinished business. (See id.) The complaint sought damages in the amount of $98, 583.70. (See Id. ¶ 10.) The claim for unfinished business was thereafter withdrawn. (See Id. ¶ 11.)[1]

         On June 17, 2013, Plaintiff moved to compel arbitration of the claims in the adversary proceedings relating to breach of contract for any partner domiciled in foreign countries, including Defendant, who resides in Hong Kong. (See Id. ¶ 14.) The motion was brought pursuant to a Partnership Agreement, executed in May 11, 2001, wherein Defendant and other partners agreed to arbitrate in New York City any disputes related to the Partnership Agreement. (See Id. ¶ 13; see also McCarthy Decl. Ex. B, at 34.) On July 19, 2013, the bankruptcy court granted Plaintiff's motion and compelled arbitration of the contract-related disputes. (See McCarthy Decl. ¶ 15.) Prior to the commencement of arbitration, several partners, though not Defendant, settled with Plaintiff. (See Id. ¶ 16.)

         On or about September 6, 2013, Plaintiff commenced arbitration against 10 foreign partners (“Respondents”), including Defendant, before the International Centre for Dispute Resolution (the “ICDR”) of the American Arbitration Association (the “AAA”). (See Id. ¶ 17.) The arbitrator conducted a preliminary conference call on April 10, 2014, notice of which was served on all parties by the ICDR. (See Id. ¶ 19.) The arbitrator ultimately decided to conduct all proceedings telephonically to accommodate the various foreign partners. (See Id. ¶ 23.) Hearings were held telephonically on July 15, 2014 and August 1, 2014. (See Id. ¶ 24.) Though notice was delivered to all Respondents, no Respondent appeared or otherwise participated in those hearings. (See id.) The arbitrator solicited additional material from Plaintiff to ensure that Respondents had been given adequate notice and conducted another conference call on October 30, 2014. (See Id. ¶ 25.) Notice was again provided to each Respondent, none of whom offered objections to the proceedings. (See id.) After the close of the hearings, the arbitrator invited Plaintiff and Respondents to submit additional evidence, but only Plaintiff took advantage of that opportunity. (See Id. ¶ 26.)

         At one point in the proceedings, one Respondent, Jeremy Joseph Bartlett, challenged the venue of the arbitration, but that challenge was denied. (See Id. ¶ 22.) Other than an email to the ICDR joining Bartlett's challenge, (see Mot. To Confirm an Arbitration Award Pursuant to 9 U.S.C. § 9 (“Mot. To Confirm”) Ex. A (“Final Award”), at Schedule D-3 (Dkt. No. 13, 08-AP-1475 Dkt.)), Defendant did not participate in the arbitration, (see McCarthy Decl. ¶ 20).

         On September 30, 2015, the arbitrator issued a Final Award. (See Id. ¶ 28.) The Final Award resolved the claims against each Respondent. (See id.) After determining that Defendant had received adequate notice of the proceedings, (see Id. ¶ 30; see also Final Award at Schedule D-3), the arbitrator determined that Plaintiff had adequately proven that Defendant owed $98, 583.70 in damages, pre-award interest in the amount of $63, 590.54, and costs for the arbitration proceeding in the amount of $8, 717.00, (see Id. ¶ 32).[2] Defendant has not paid any portion of the amount owed. (See Id. ¶ 33.)

         B. Procedural History

         Plaintiff filed the original complaint in the adversary proceeding on September 21, 2008. (See Dkt. No. 1, 08-AP-1475 Dkt.) Service of the complaint on Defendant via FedEx was verified by way of a Certificate of Service filed February 6, 2009. (See Certificate of Service (Dkt. No. 4, 08-AP-1475 Dkt).) After the Final Award was rendered, Plaintiff moved in the bankruptcy court to confirm the Final Award. (See Mot. To Confirm.) Defendant did not oppose the motion. Because the adversary proceeding is a non-core proceeding, on October 21, 2016, Judge Drain issued his Proposed Findings of Fact and Conclusions of Law to this Court. (See Dkt. No. 1.) Defendant offered no objection to the proposed findings and conclusions. Defendant has, in fact, not participated or otherwise appeared in the adversary proceeding.

         II. Discussion

         A. Standard of Review

         The bankruptcy code provides that bankruptcy judges are empowered to hear non-core proceedings that are otherwise related to a bankruptcy case. 28 U.S.C. § 157(c)(1). In such cases, and absent consent by the parties to final adjudication by the bankruptcy court, the bankruptcy judge must submit proposed findings of fact and conclusions of law to the district court. Id. Final judgment may then be entered in such a case only after the district court has “consider[ed] the bankruptcy judge's proposed findings and conclusions and . . . review[ed] de novo those matters to which any party has timely and specifically objected.” Id. Although the text of the statute mandates de novo review only with respect to those matters to which a party has timely and specifically objected, the Supreme Court has nonetheless instructed that “[t]he district court must . . . review those proposed findings and conclusions de novo and enter any final orders or judgments.” Exec. Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2172 (2014) (italics omitted) (citing 28 U.S.C. § 157(c)(1)); see also Id. (“Put simply: . . . . [i]f a matter is non-core, and the parties have not consented to final adjudication by the bankruptcy court, the bankruptcy judge must propose findings of fact and conclusions of law. Then, the district court must review the proceeding de novo and enter final judgment.” (italics omitted)).

         Although the Complaint claims that the adversary proceeding is a “core proceeding” pursuant to 28 U.S.C. § 157(b)(2)(H), Plaintiff in its Proposed Findings of Fact and Conclusions of Law has changed course and argues that a proceeding seeking damages for a prepetition breach of contract is a non-core proceeding. (See Proposed Findings of Fact and Conclusions of Law 6 (Dkt. No. 13-1, 08-AP-1475 Dkt.).) Plaintiff is correct that the instant proceeding is non-core. See In re Orion Pictures Corp., 4 F.3d 1095, 1102 (2d Cir. 1993) (“[A] breach-of-contract action by a debtor against a party to a pre-petition contract . . . is non-core.”). Thus, notwithstanding that Defendant has interposed no objections to the proposed findings and conclusions, the Court is obliged to undertake a de novo review of the record.

         B. Analysis

         1. Subject Matter Jurisdiction

         “The [Federal Arbitration Act (the “FAA”)] creates a body of federal substantive law establishing and governing the duty to honor agreements to arbitrate disputes.” Glencore Ltd. v. Degussa Engineered Carbons L.P., 848 F.Supp.2d 410, 420 (S.D.N.Y. 2012); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26 (1985) (“‘[T]he preeminent concern of Congress in passing the [FAA] was to enforce private agreements into which parties had entered, ' a concern which ‘requires that we rigorously enforce agreements to arbitrate.'” (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985)). The FAA applies to contracts “evidencing a transaction involving commerce.” 9 U.S.C. § 2; see also Adams v. Suozzi, 433 F.3d 220, 225 (2d Cir. 2005). Among other things, the FAA stipulates:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in [§§] 10 and 11 of this title.

9 U.S.C. § 9. “If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.” Id.

         As the Second Circuit has observed, “[i]t does not follow . . . that simply because the contract in issue involves interstate commerce, a federal court has jurisdiction to confirm the [arbitration] award and enter judgment.” Varley v. Tarrytown Assocs., Inc., 477 F.2d 208, 210 (2d Cir. 1973). For a court to have jurisdiction over confirmation of an arbitration award, the FAA makes clear that the parties must have “agreed that a judgment of the court shall be entered upon the award.” Id. (quoting 9 U.S.C. § 9). However, even where there is no explicit agreement in the contract providing for entry of judgment upon the award, if the arbitration clause provides for arbitration pursuant to a specific set of arbitration rules, that language “is sufficient to incorporate the rules into the agreement.” Id. (citing Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268 (2d Cir. 1971)); see also Idea Nuova, Inc. v. GM Licensing Grp., Inc., 617 F.3d 177, 181 (2d Cir. 2010) (“We thus conclude that when . . . parties expressly agree to submit their commercial disputes to AAA arbitration for resolution, such language is reasonably understood, without more, to agree to arbitration pursuant to AAA rules and to the incorporation of those rules into the parties' agreement.” (citation and internal quotation marks omitted)); cf. Phoenix Aktiengesellschaft v. Ecoplas, Inc., 391 F.3d 433, 436 n.2 (2d Cir. 2004) (“[O]ur cases have not required that consent be explicit in order to satisfy § 9.”). The AAA rules for arbitration provide that “[p]arties to an arbitration under these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.” American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures R-52(c) (July 1, 2016), ed. Thus, if an arbitration agreement provides that the arbitration will be conducted pursuant to the AAA rules, or that disputes will be submitted to the AAA for arbitration, that language is sufficient to confer jurisdiction pursuant to § 9 of the FAA. See Idea Nuova, 617 F.3d at 182 (“[P]arties to AAA arbitration consent to judicial confirmation of final arbitral awards.”); Noble Ams. Corp. v. Iroquois Bio-Energy Co., LLC, No. 12-CV-3236, 2012 WL 5278505, at *2 (S.D.N.Y. Oct. 25, 2012) (“[W]here, as in this case, an agreement incorporates the AAA [r]ules, the FAA's ‘consent to confirmation' requirement is met and a court has jurisdiction to confirm the award.”).

         Here, the arbitration agreement provides that “[a]ny dispute or controversy arising under or in connection with this Agreement among the parties subject hereto shall be determined by arbitration pursuant to the rules of the American Arbitration Association.” (McCarthy Decl. Ex. B, Art. 13(a).) The law in the Second Circuit is clear that this clause is sufficient to vest the Court with jurisdiction, pursuant to 9 U.S.C. § 9, to enter a judgment confirming the arbitration award.

         2. Personal Jurisdiction

         a. Amenability to Jurisdiction

         Although Defendant has not appeared in this action, the Court is nonetheless obliged to determine whether it has personal jurisdiction over Defendant. See, e.g., In re Arbitration Between Trs. of N.Y. Joint Bd. Scholarship Fund & Morrison Mfg. Co., No. 95-CV-9494, 1996 WL 22980, at *1 (S.D.N.Y. Jan. 23, 1996) (considering whether the court had personal jurisdiction over nonappearing defendant before confirming an arbitration award); Trs. of Amalgamated Ins. Fund v. Halltex Clothing Co., No. 85-CV-2283, 1985 WL 1621, at *1 (S.D.N.Y. June 12, 1985) (same); see also Mwani v. bin Laden, 417 F.3d 1, 6 (D.C. Cir. 2005) (“[A] court should satisfy itself that it has personal jurisdiction before entering judgment against an absent defendant.”); cf. Sinoying Logistics Pte Ltd. v. Yi Da Xin Trading Corp., 619 F.3d 207, 213 (2d Cir. 2010) (“[B]efore a court grants a motion for default judgment, it may first assure itself that it has personal jurisdiction over the defendant.” (citations omitted)). By consenting to arbitration in New York, Defendant has agreed to be amenable to the personal jurisdiction of this Court. See Doctor's Assocs. v. Stuart, 85 F.3d 975, 983 (2d Cir. 1996) (“A party who agrees to arbitrate in a particular jurisdiction consents not only to personal jurisdiction but also to venue of the courts within that jurisdiction.”); see also Hermés of Paris, Inc. v. Swain, No. 16-CV-6255, 2016 WL 4990340, at *2 (S.D.N.Y. Sept. 13, 2016) (“A party who agrees to arbitrate in a particular jurisdiction consents to both personal jurisdiction and venue of the courts within ...

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