Adam Developers Enterprises, Inc. v. Arizon Structures Worldwide, LLC

Filing 38

ORDER denying 28 Motion to Dismiss -- For the reasons set forth in the ATTACHED WRITTEN MEMORANDUM AND ORDER, defendant's motion to dismiss is denied. However, defendant's motion to stay the action pending arbitration is granted. Accord ingly, this action is administratively closed without prejudice to its reinstatement, should plaintiff desire to litigate the validity of the mechanics lien at the conclusion of the arbitration. The Clerk of the Court is directed to close this case. SO ORDERED by Judge Dora Lizette Irizarry on 9/29/2014. (Irizarry, Dora)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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ADAM DEVELOPERS ENTERPRISES, INC.,
:
:
Petitioner,
:
: MEMORANDUM AND ORDER
-against:
13-CV-261 (DLI)(RML)
:
ARIZON STRUCTURES WORLDWIDE, LLC,
:
:
Respondent.
:
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DORA L. IRIZARRY, United States District Judge:
On January 8, 2013, Petitioner Adam Developers Enterprises, Inc. (“Adam”) initiated a
suit against Respondent Arizon Structures Worldwide, LLC (“Arizon”) in New York State
Supreme Court, Queens County, by filing a “Petition for Stay” of arbitration proceedings
between Adam and Arizon and to challenge the validity of a mechanic’s lien Arizon obtained
against Adam. (See Petition for Stay, Index No. 385-13, (“Petition” or “Pet.”), Dkt. Entry No. 12.) On January 15, 2013, Arizon removed the action to this Court, which removal this Court
previously ruled was proper. (See Sept. 30, 2013 Memo. & Or., Dkt. Entry No 27.)
Arizon now moves for dismissal, or, alternatively, to stay this action pending resolution
of the parties’ dispute before the arbitrators. (See Mem. of Law in Supp. of Arizon’s Mot. to
Dismiss (“Arizon’s Mem.”), Dkt, Entry No. 30.) Adam opposes dismissal, contending that the
validity of the mechanic’s lien is outside the scope of the arbitrators’ authority and, thus, is
properly before this Court. (See Adam’s Mem. of Law in Opp’n to Arizon’s Mot. To Dismiss
(“Adam’s Opp’n”), Dkt. Entry No. 32.) For the reasons set forth below, Arizon’s motion to
dismiss is denied. Arizon’s motion to stay this action during the arbitration is granted. This
action is closed without prejudice to its reinstatement at the conclusion of the arbitration, should
Adam desire to litigate the validity of the mechanic’s lien at that time.

BACKGROUND
Unless otherwise noted, the facts are taken from the pleadings and are assumed true for
purposes of resolution of Arizon’s motion. On November 2, 2011, Adam contracted with the
Dormitory Authority of the State of New York (“DASNY”) to renovate the Queens College
Tennis Facility. (Pet. ¶ 3.) Adam subcontracted with Arizon to manufacture fabric material for
the enclosure around the Tennis Facility. (Pet. ¶¶ 6-8.) At the conclusion of Arizon’s work,
Adam withheld a portion of the payment Arizon was due under the contract. Shortly thereafter,
Arizon obtained a mechanic’s lien against Adam for the unpaid balance. (Pet. ¶ 25.)
Arizon then commenced an arbitration proceeding against Adam through the American
Arbitration Association (“AAA”) pursuant to the arbitration provision in the parties’ contract.
(Pet. ¶ 15.) Adam sought a stay of the arbitration and a discharge of the mechanic’s lien imposed
against it in the New York State Supreme Court, Queens County. (See generally Pet.) Because
Adam alleged that the payment and performance bonds that Arizon was contractually required to
procure were fraudulent, the court ordered Arizon to provide more information on the bonds and
the company through which they were issued. (Declaration of Gary Rosen (“Rosen Decl.”), Dkt.
Entry No. 31 ¶ 12.) Additionally, the court granted a temporary restraining order staying the
arbitration and scheduled a hearing on an Order to Show Cause. (Pet. ¶ 11.) A few days later,
Arizon removed the action to this Court. Arizon’s motion to dismiss or to stay this litigation is
before this Court.

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DISCUSSION
I.

Legal Standards for Dismissal
A.

Rule 12(b)(1)

Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a defendant may move, in
lieu of an answer, for dismissal of a complaint for “lack of subject-matter jurisdiction.” In
evaluating a motion to dismiss under Rule 12(b)(1), the court accepts as true all factual
allegations in the complaint; however, it should not draw inferences favorable to the party
asserting jurisdiction. J.S. ex rel. N.S. v. Attica Cent. Sch., 386 F. 3d 107, 110 (2d Cir. 2004)
(citation omitted).

“A case is properly dismissed for lack of subject matter jurisdiction

under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to
adjudicate it.” Makarova v. United States, 201 F. 3d 110, 113 (2d Cir. 2000). “The plaintiff
bears the burden of proving subject matter jurisdiction by a preponderance of the
evidence.” Aurecchione v. Schoolman Transp. Sys., Inc., 426 F. 3d 635, 638 (2d Cir. 2005). In
determining the existence of subject matter jurisdiction, a district court may consider evidence
outside the pleadings. Arar v. Ashcroft, 532 F. 3d 157, 168 (2d Cir. 2008) (citing Makarova, 201
F. 3d at 113).
B.

Rule 12(b)(6)

Under Rule 8(a) of the Federal Rules of Civil Procedure, pleadings must contain a “short
and plain statement of the claim showing that the pleader is entitled to relief.” Pleadings are to
give the defendant “fair notice of what the claim is and the grounds upon which it rests.” Dura
Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005) (quoting Conley v. Gibson, 355 U.S. 41, 47
(1957), overruled in part on other grounds by Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).
“[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it
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demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “A pleading that offers
‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not
do.’” Id. (quoting Twombly, 550 U.S. at 555).
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant may move, in
lieu of an answer, for dismissal of a complaint for “failure to state a claim upon which relief can
be granted.” To resolve such a motion, courts “must accept as true all [factual] allegations
contained in a complaint,” but need not accept “legal conclusions.” Iqbal, 556 U.S. at 678. For
this reason, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice” to insulate a claim against dismissal. Id. “[A] complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Id. (quoting Twombly, 550 U.S. at 570). Notably, courts may only consider the
complaint itself, documents that are attached to or referenced in the complaint, documents that
the plaintiff relied on in bringing suit and that are either in the plaintiff’s possession or that the
plaintiff knew of when bringing suit, and matters of which judicial notice may be taken. See,
e.g., Roth v. Jennings, 489 F. 3d 499, 509 (2d Cir. 2007).
II.

Federal Arbitration Act (“FAA”)
“The FAA creates a ‘body of federal substantive law of arbitrability, applicable to any

arbitration agreement within the coverage of the [FAA].’” Mehler v. Terminix Int’l Co. L.P., 205
F. 3d 44, 47 (2d Cir. 2000) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983)). “The FAA is an expression of ‘a strong federal policy favoring arbitration as
an alternative means of dispute resolution.’” Ross v. American Exp. Co., 547 F. 3d 137, 142 (2d
Cir. 2008) (quoting Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F. 3d
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219, 226 (2d Cir. 2001)). Indeed, “it 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.”
Arciniaga v. General Motors Corp., 460 F. 3d 231, 234 (2d Cir.2006) (quotation marks omitted).
However, the Circuit has clarified that a “party may be compelled to arbitrate a dispute only to
the extent he or she has agreed to do so.” Bimota Spa v. Rousseau, 628 F. Supp. 2d 500, 503
(S.D.N.Y. 2009) (citing Bell v. Cendant Corp., 293 F. 3d 563, 566-67 (2d Cir. 2002)).
The FAA provides that “an agreement in writing to submit to arbitration an existing
controversy arising out of . . . a contract, transaction, or refusal [to perform the whole or any part
thereof], shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in
equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA authorizes the Court to
compel arbitration, if the parties have entered into an agreement to arbitrate and one party refuses
to honor that agreement. See id. § 4. When a party moves to dismiss or to stay proceedings and
compel arbitration, courts must determine whether: (1) the parties agreed to arbitrate; (2) the
dispute falls within the scope of the arbitration agreement; (3) Congress intended the federal
statutory claims asserted by plaintiff, if any, to be nonarbitrable; and (4) the court should stay the
balance of the proceedings pending arbitration, if not all claims are arbitrable. JLM Indus., Inc.
v. Stolt-Nielsen SA, 387 F. 3d 163, 169 (2d Cir. 2004) (quoting Oldroyd v. Elmira Sav. Bank,
FSB, 134 F. 3d 72, 75-76 (2d Cir. 1998)).
It does not appear that the first factor—whether the parties agreed to arbitrate—is in
dispute. Although Adam initially contended that the contract lacked an arbitration provision
(Pet. at ¶¶ 9-11, 14), since then, Adam has conceded that the parties are obligated to arbitrate
issues arising out of their contract (see Adam’s Opp’n at 4).

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Any residual argument to the contrary is unfounded.

The “Terms and Conditions”

included an arbitration clause (see Arizon Quote, attached as Exh. A. to the Affidavit of Peter L.
Altieri (“Altieri Aff.”), Dkt. Entry No. 29), and the contract incorporated the “Terms and
Conditions” by reference (see Adam-Arizon Contract, attached as Exh. B. to the Altieri Aff.) To
incorporate a document by reference, New York law requires that the document be referenced
beyond all reasonable doubt. See Chiacchia v. Nat’l Westminster Bank USA, 124 A.D. 2d 626,
628 (2d Dep’t 1986) (citation omitted). When a contract clearly identifies a single document, it
eliminates all reasonable doubt and, thus, qualifies as an effective incorporation.

See

Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F. 2d 42, 47
n.8 (2d Cir. 1993). “[A] party’s failure to read a duly incorporated document will not excuse the
obligation to be bound by its terms.” PaineWebber Inc. v. Bybyk, 81 F. 3d 1193, 1201 (2d Cir.
1996) (citation omitted).

Notably, the parties’ contract stated that “[a]ll other Terms and

Conditions of [Arizon’s] Quote . . . are incorporated herein by reference . . . .” (Adam-Arizon
Contract at 5.) Arizon’s Terms and Conditions included the arbitration clause. (Arizon Quote at
3.) Under these circumstances, the Court concludes that the arbitration clause is valid and
binding. See Serrano v. Cablevision Sys. Corp., 863 F. Supp. 2d 157, 164-65 (E.D.N.Y. 2012)
(finding that the “Terms of Service” were part of a contract as the contract specifically stated that
the “Terms of Service” were incorporated by reference). Thus, the first factor weighs in favor of
arbitration.
However, the gist of Adam’s current argument is that the validity of the mechanic’s lien
falls outside the scope of the arbitration provision, and thus, should be litigated before this Court
and not the arbitrators. (See Adam’s Opp’n at 4.) Accordingly, the Court will focus on the
second factor—whether the dispute falls within the scope of the arbitration clause.
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The parties’ contract contains the following term:
Any controversy or claim arising out of or relating to payment, or
to Seller’s Submittal, Buyer and Seller’s Contract, including these
Terms and Conditions of Sale, or any other matter, shall be settled
exclusively by arbitration administered by the American
Arbitration Association (AAA) under its Construction Industry
Arbitration Rules in St. Louis County, Missouri, and Buyer and
Seller hereby waive any appeal from the arbitration award and
consent to the confirmation and entry of judgment thereon with or
without notice in any court having jurisdiction over either Buyer or
Seller.
(Arizon Quote at 3.) It is not clear whether the validity of a mechanic’s lien falls within the
scope of this arbitration provision. Moreover, neither party has provided the Court with any
authority as to whether such a standard arbitration provision provides arbitrators with the
authority to determine the validity of a mechanic’s lien, and the Court has been unable to locate
any such authority. Thus, the second factor weighs in favor of staying this action as there is no
precedent indicating that the arbitrators would have the authority to determine the validity of the
mechanic’s lien.
Adam’s Petition does not assert any federal claims. Thus, the third factor has no bearing
on the Court’s analysis.
Finally, the fourth factor directs the Court to stay its proceeding if the Court determines,
as it has, that not all claims are arbitrable. Indeed, as Arizon noted, and the Court has confirmed,
“numerous New York [courts] . . . have recognized that proceedings seeking to discharge or
foreclose a mechanic’s lien should be stayed pending the outcome of an arbitration to determine
contractual issues such as the amount due and owing under a construction contract.” (Arizon’s
Reply Mem. of Law (“Arizon’s Repl. Mem.”), Dkt. Entry No. 35 at 2-3.) The cases that have
addressed this issue imply that granting a stay is the proper course of action. Cf. Orchard Hotel,
LLC v. D.A.B. Group, LLC, 2014 WL 1190198, at *11 (Sup. Ct. N.Y. Cnty. Mar. 21, 2014)
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(explaining that an “arbitrator’s decision as to the value of labor is conclusive as to all parties to
the arbitration” in any subsequent proceeding to foreclose the mechanic’s lien); A. Burgart, Inc.
v. Foster-Lipkins Corp., 63 Misc. 2d 930, 931 (Sup. Ct. Monroe Cnty. 1970) (granting motion to
stay a lien proceeding while the parties arbitrate their underlying dispute as the parties were
required to arbitrate under the “all-inclusive arbitration clause” contained in the contract).
Accordingly, this action is stayed pending the parties’ arbitration of the contractual dispute. This
action is closed without prejudice to its reinstatement, should Adam desire to litigate the validity
of the mechanic’s lien at the conclusion of the arbitration.
CONCLUSION
For the reasons set forth above, Arizon’s motion to dismiss is denied. Arizon’s motion to
stay this action pending arbitration is granted. This action is closed without prejudice to its
reinstatement, should Adam desire to litigate the validity of the mechanic’s lien at the conclusion
of the arbitration.
SO ORDERED.
Dated: Brooklyn, New York
September 29, 2014
______________/s/______________
DORA L. IRIZARRY
United States District Judge

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