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Posts Tagged ‘UBS Securities LLC v. Voegeli’

Second Circuit Arbitration Roundup 2011: January 1, 2011 – January 14, 2011

January 15th, 2011 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Existence of Arbitration Agreement, United States Court of Appeals for the Second Circuit, United States District Court for the Southern District of New York Comments Off on Second Circuit Arbitration Roundup 2011: January 1, 2011 – January 14, 2011

In the first two weeks of the New Year the United States Court of Appeals for the Second Circuit decided two Federal Arbitration Act cases:  UBS Securities, LLC v. Voegeli, No. 10-0690-cv, slip op. (2d Cir. Jan. 4, 2011) (summary order), and Dedon GmbH v. Janus et Cie, No. 10-4331-cv, slip op. (2d Cir. Jan. 6, 2011) (summary order).  Both cases are summary orders, which under Second Circuit Local Rule 32.1.1, “do not have precedential effect.”  Second Circuit Local Rule 32.1.1(a). 

Each involved a dispute about the existence of an arbitration agreement.  In UBS Securities United States District Judge Denise L. Cote of the United States District Court for the Southern District of New York entered a declaratory judgment that certain Swiss investors could not compel UBS to arbitrate their securities fraud claims, and permanently enjoined the Swiss investors from pursuing their claims in arbitration.  Affirming the district court, the Second Circuit held that UBS satisfied the three requisites of permanent injunctive relief:  1) success on the merits; 2) lack of an adequate remedy at law; and 3) irreparable harm.

As respects success on the merits, the Court held that UBS was not obligated to arbitrate with the Swiss investors, and therefore had succeeded on the merits.  Financial Industry Regulatory Authority (“FINRA”) Code Rule 12200 provides that members can be compelled to arbitrate only 1) pursuant to a written agreement; or 2) where a customer requests arbitration.  FINRA R. 12200.  There was no written agreement to arbitrate between UBS and any of the Swiss investors and the Swiss investors were not customers of UBS.  See UBS Securities, slip op. at 3. 

As respects the lack of an adequate remedy at law and irreparable harm, the Court explained that under  Merrill Lynch Inv. v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003), “[b]eing forced to arbitrate a claim one did not agree to arbitrate constitutes an irreparable harm for which there is no remedy at law.”  Slip op. at 3.  Because UBS was not legally obligated to arbitrate, and because “the lack of an injunction would result in UBS effectively being required to do so, UBS satisfie[d] the ‘irreparable harm’ and ‘lack of an adequate remedy at law’ requirements for an injunction.”  Slip op. at 3.

Dedon concerned the familiar rule that disputes about the existence of a contract containing an arbitration agreement must be decided by the court (absent a clear and unmistakable post-dispute submission of that issue to arbitration).  Janus sought to compel arbitration before the International Chamber of Commerce (“ICC”) of an exclusive-distribution-agreement dispute, contending 1) the parties had agreed to arbitrate “as evidenced by a draft exclusive distribution agreement or the standard terms and conditions that accompanied each purchase;” and 2) Dedon had “waived its right to arbitrate through its conduct before the ICC” in London.  Slip op. at 2.  United States District Judge Colleen McMahon of the United States District Court for the Southern District of New York denied the motion to compel and declined to stay the proceedings pending an ICC determination of the contract formation issue, holding that the dispute concerned the existence of an arbitration agreement and that Dedon had not unreservedly submitted the contract formation issue to ICC arbitration. 

The Second Circuit affirmed.  It said the United States Supreme Court in Granite Rock Co. v. Int’l Bhd. of Teamsters, ___ U.S. ___, 130 S. Ct. 2847, 2857-58 (2010), had “reconfirm[ed]” the Second Circuit’s “well-established precedent that where a party challenges the very existence of a contract containing an arbitration clause, a court cannot compel arbitration without first resolving the issue of the contract’s existence.”  Slip op. at 3 (citing Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir. 1972); Sphere Drake Ins. Ltd v. Clarendon Nat’l Ins. Co., 263 F.3d 26, 30 (2d Cir. 2001); Denny v. BDO Seidman LLP, 412 F.3d 58, 68 (2d Cir. 2005); Opals on Ice Lingerie v. Body Lines Inc., 320 F.3d 362, 369 (2d Cir. 2003); Sprecht v. Netscape Commc’ns Corp., 306 F.3d 17, 26 (2d Cir. 2002)).  Because Janus sought to compel arbitration based on a draft agreement containing an arbitration clause, the district court had to decide whether the parties had agreed to arbitrate. 

The Court held that Dedon had not waived its right to court determination of the contract formation issue.  The Court said that “Dedon’s submissions to the ICC were replete with statements that Dedon disputed the ICC’s jurisdiction; such repeated objections to ICC jurisdiction prevent a finding of waiver.  .  .  .”  Slip op. at 5 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 946 (1995); Opals on Ice, 320 F.3d at 368).   

The Court also rejected Janus’ argument that an agreement to arbitrate “may be found in the terms and conditions that accompanied each purchase order between Dedon and Janus.”  Slip op. at 5:

On their face, the terms and conditions in those purchase orders govern the particular exchange of goods occurring with that purchase order — “[a]ll contractual and extra-contractual disputes arising out of or in connection with contracts to which these International Terms and Conditions apply, shall be finally resolved by arbitration” (emphasis added) — and do not purport to create or refer to any exclusive distribution relationship between the parties, which is the sole focus of the present suit. 

Janus also argues that the exclusive distribution agreement should be encompassed within the meaning of ‘pre-contractual and collateral obligations’ to the purchase orders.  Janus would thus have this court find that “any dispute related to any obligation arising prior to or outside of the contract formed by each shipment of goods” is governed by the purchase orders’ terms and conditions.  (emphasis in original)  We decline to adopt Janus’s broad reading of that contractual language, as it ignores the plain language of the purchase order, and we agree with the district court that the terms and conditions do not provide an alternative basis for compelling arbitration.

Slip op. at 5-6 (emphasis in original).

Dedon — the party who prevailed in the district court — argued that the district court should have denied the motion to compel with prejudice.  Dedon relied on Kahn Lucas Lancaster, Inc. v. Lark Int’l Ltd., 186 F.3d 210, 218 (2d Cir. 1999), partially abrogated on other grounds by Sarhank Group v. Oracle Corp., 404 F.3d 657, 660 n.2 (2d Cir. 2005), which held that under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, arbitration agreements, to be enforceable, “must be signed by the parties or contained within an exchange of letters or telegrams.”   186 F.3d at 218) (quoting Article II of the Convention).  But Dedon did not raise that argument before the district court, and so the Court said “the parties will have the opportunity to argue this issue at the trial on the existence of a contact.”  Slip op. at 6-7.  The Court also noted that the district court may “consider what effect, if any, [the Court’s] holding in Kahn Lucas has on any renewed motion to compel.”  Slip op. at 7.

 

[EDITOR’S NOTE:  (Summary orders “filed on or after January 1, 2007 may be cited in a document filed” with the Second Circuit, subject to Rule 32.1 of the Federal Rules of Appellate Procedure and Local Rule 32.1.1.  See Second Circuit Local Rule 32.1.1(b)(1) ; Fed. R. App. P. 32.1.  “[A] party must cite either the Federal Appendix or an electronic database (with the notation ‘summary order)[,]” and “must serve a copy of it on every party not represented by counsel.”    Second Circuit Local Rule 32.1.1(c) & (d).]