Alfa Laval U.S. Treasury Inc. et al v. National Union Fire Insurance Company of Pittsburgh, PA
Filing
30
MEMORANDUM OPINION AND ORDER: Defendants' motion to compel arbitration 9 is GRANTED in its entirety. The Clerk of the Court is directed to close this case. (Signed by Judge Richard J. Holwell on 1/25/2012) (ft)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ALFA LAVAL U.S. TREASURY INC. f/k/a
TETRA LAVAL U.S. TREASURY, INC., f/k/a
TETRA LAVAL U.S. HOLDINGS AND
FINANCE, INC. et al.,
Plaintiffs,
11 Civ. 01872 (RJH)
-againstMEMORANDUM OPINION
AND ORDER
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA,
Defendant.
Richard J. Holwell, District Judge:
Before the Court is Defendant Nation Union Fire Insurance Company of Pittsburg, PA’s
(“National Union”) motion, pursuant to sections 3 and 4 of the Federal Arbitration Act (“FAA”),
9 U.S.C. § 2, et seq., to stay this action and compel arbitration of its claims for unpaid
reimbursements allegedly owed to it by the plaintiffs, an affiliated group of multinational
companies. National Union provided insurance coverage to the plaintiffs pursuant to a series of
agreements with plaintiff Tetra Laval U.S. Treasury Inc. (“Tetra Laval”).1 In exchange, Tetra
Laval agreed, in a series of Indemnity Agreements with National Union, to pay premiums and to
reimburse National Union for certain claims National Union paid on Tetra Laval’s and the other
plaintiffs’ behalves. The Indemnity Agreements contained an arbitration provision. On
September 7, 2010, after Tetra Laval refused to make certain payments to National Union,
National Union served a demand for arbitration on the plaintiffs. The plaintiffs subsequently
1
As the caption indicates, Tetra Laval at various times has been known as Tetra Laval U.S. Treasury, Inc. and Tetra
Laval U.S. Holdings and Finance, Inc., and currently is known as Alfa Laval U.S. Treasury Inc. All references to
“Tetra Laval” in this Opinion refer to that entity.
1
brought this action seeking a declaratory judgment that National Union’s claims are not subject
to arbitration. For the reasons below, National Union’s motion to stay this action and compel
arbitration is GRANTED.
BACKGROUND
The plaintiffs are an affiliated group of multinational companies. (Decl. of Harrington
Williams in Supp. of Def.’s Mot. to Stay this Action and Compel Arbitration (“Williams Decl.”)
¶ 1.) Beginning in 1988, defendant National Union began providing the plaintiffs with various
types of insurance coverage, including workers compensation insurance, commercial general
liability insurance, and commercial automobile coverage. (Id. ¶ 2.) The insurance was provided
over the course of six policy periods between 1988 and 1998. (Id.) For each policy period,
National Union and plaintiff Tetra Laval signed three documents: (1) a “Policy and Funding
Schedule-Retrospective,” (2) a “Policy and Funding Schedule-Loss Reimbursement,” and (3) an
“Indemnity Agreement (Adjustable).” (See id. ¶ 4.) The first two of these documents set forth
some of the terms of each of the insurance policies issued, including policy numbers, coverage
limits, and deductible amounts, among other things. (See id. Exs. 3, 4, 6, 7, 9, 10, 12, 13, 14, 15.)
The third document—the Indemnity Agreement (Adjustable) (“Indemnity Agreement”)—
governed Tetra Laval’s obligation to make payments to National Union and National Union’s
obligation to issue the insurance policies. (See id. Exs. 2, 5, 8, 11, at 1-2.) Specifically, the
Indemnity Agreements provided for a “premium deferral program” and set forth the formula by
which the parties would calculate the amounts owed to National Union. (See id. Exs. 2, 5, 8, 11.)
Under the Indemnity Agreements, Tetra Laval was obligated to pay National Union a certain
calculated premium amount and to reimburse National Union for certain expenses incurred in
connection with National Union’s efforts to settle claims on Tetra Laval’s (and the other
2
plaintiffs’) behalf. (Id. ¶ 7.) Tetra Laval, for example, was responsible for reimbursing National
Union for attorney’s fees and for the actual amounts paid to settle claims, up to a specified limit.
National Union, for its part, was obligated to “invoice (with appropriate backup documentation)
Client [Tetra Laval] for all Paid Losses paid by Company [National Union] during any calendar
quarter within sixty days of the end of that quarter.” (See, e.g., id. Ex. 2, at 8.) Although Tetra
Laval was the only plaintiff to sign any of these documents, it is undisputed that all of the
plaintiffs received insurance coverage from National Union pursuant to the policies at issue here.
(See id. ¶ 13.)
The Indemnity Agreements provide, “This Agreement, together with the Policy Funding
Schedule(s) and Policy(ies), constitute the Program. The Program is a uniquely negotiated,
single contract and no part of the Program would have been issued without the other parts being
in force.” (E.g., id. Exs. 2, 5, 8, 11, at 2.) Similarly, the Policy and Funding SchedulesRetrospective and the Policy and Funding Schedules-Loss Reimbursement provide, respectively,
that they are “[a]ttached to and a part of the Indemnity Agreement,” and “[a]ttached to and a part
of the Deductible Loss Reimbursement INDEMNITY AGREEMENT (Adjustable).” (Id. Exs. 3,
4, 6, 7, 9, 10, 12, 13, 14, 15, at 1.) In addition, Article I of the Indemnity Agreements provides,
“The Company will issue the insurance policies listed in the Policy Funding Schedule(s).” (E.g.,
id. Ex. 2, at 1.)
The Indemnity Agreements also provide a procedure to be followed in the event that
Tetra Laval (the “Client”) disputes National Union’s calculation of amounts owed under the
Agreement. Article II, Section J of the Indemnity Agreements, entitled “Payments in Dispute,”
provides that, in the event of a dispute, the Client must (1) notify National Union in writing of
the items in dispute, and (2) pay any undisputed portion of the amount due. National Union, in
3
turn, must “promptly review such items.” (Id. Ex. 2, at 7.) Once the dispute has been resolved,
the Client then must pay the disputed items within thirty days. (E.g., id. Ex. 2, at 6-7.)
The Indemnity Agreements also contain an arbitration provision, which provides, “All
disputes or differences arising out of the interpretation of this Agreement shall be submitted to
the decision of two (2) Arbitrators, one to be chosen by each party, and in the event the
Arbitrators fail to agree, to the decision of an Umpire to be chosen by the Arbitrators.” (E.g., id.
Ex. 2, at 11.)
In 2006, National Union submitted an invoice to the plaintiffs for amounts allegedly due
under the Indemnity Agreements. (Aff. of Heather Taylor (“Taylor Aff.”) ¶ 7.) A representative
of the plaintiffs’ insurance broker analyzed the invoice and determined that many of the claims
for which National Union sought reimbursement could not be verified with underlying
documentation. (Id. ¶¶ 8-9.) Nonetheless, on December 21, 2006, Tetra Laval wired
$1,017,619.83 to National Union, an amount representing a portion of the total amount allegedly
due. (Williams Decl. ¶ 14; see id. Ex. 16.) Then, in March 2007, plaintiffs’ insurance broker
prepared a chart detailing the amounts the plaintiffs allegedly owed, the amounts the plaintiffs
already had paid, and the discrepancy amount. (See id. Ex. 17.) The chart divided the amounts
allegedly owed based on the entity by whom the disputed loss was incurred. Specifically, the
chart described amounts owed based on coverage provided to plaintiffs Tetra Pak, Inc. (“Tetra
Pak”), DeLaval, Inc. (“DeLaval”), and Alfa Laval Inc. (“Alfa Laval”). (See id.) The disputed
amounts appear to relate primarily to three claims paid by National Union on the plaintiffs’
behalf in favor of three individual claimants, Marvin Frost, Robert Beatty, and Edward Trubich.
(See Reply Decl. of Alex J. Kaplan in Further Supp. of Def.’s Mot. to Stay This Action and
Compel Arbitration (“Kaplan Reply Decl.”), Ex. F.)
4
In 2009, National Union sent another invoice to the plaintiffs requesting reimbursement
for the disputed losses and for additional premiums also allegedly due. As in 2006, the
plaintiffs’ insurance broker requested additional back-up information to verify the amounts.
(Taylor Aff. ¶¶ 12-13.) In 2010, the plaintiffs’ broker again requested back-up documentation.
(Id. ¶ 15.) Throughout this time, National Union participated in conference calls with
representatives of plaintiffs Tetra Pak, DeLaval, and Alfa Laval in an effort to resolve the
dispute. (Williams Decl. ¶ 15.)
On September 7, 2010, after those efforts proved unsuccessful, Nation Union served a
demand for arbitration on each of the plaintiffs. The demand asserted “a claim for all amounts
owed to it [National Union] as premiums, expenses, fees, reimbursement, damages or as security
pursuant to the Agreements.” (Id. Ex. 1.) On October 1, 2010, plaintiff Alfa Laval requested a
thirty day extension of its time to select an arbitrator. (Decl. of Alex J. Kaplan in Supp. of Def.’s
Mot. to Stay This Action and Compel Arbitration (“Kaplan Decl.”) ¶ 4.) The other plaintiffs
subsequently joined in this request. (Id. ¶ 5.) On October 29, 2010, the parties agreed to adjourn
the arbitration until forty-five days after National Union provided information to the plaintiffs
relating to the disputed invoice amounts. (Id. ¶ 6.) On February 2, 2011, National Union
produced some documents that purportedly supported the amounts set forth in the 2009 invoice,
but the plaintiffs’ broker again concluded that the documentation did not support the claims. (Id.
¶ 7; see Taylor Decl. ¶ 16.) On March 17, 2011, the plaintiffs filed this action, seeking a
declaratory judgment to determine (1) whether National Union’s claims are arbitrable, (2)
whether the plaintiffs who did not sign the Indemnity Agreements can be compelled to arbitrate,
and (3) whether any of National Union’s claims for payment are barred by the applicable statute
of limitations. (See Compl. ¶¶ 21-32.)
5
DISCUSSION
In opposing National Union’s motion to compel arbitration, the plaintiffs make three
arguments. First, they argue that the dispute between the plaintiffs and National Union is not
arbitrable because it does not “aris[e] out of the interpretation of this [Indemnity] Agreement,” as
the arbitration clause requires. Second, the plaintiffs argue that, even if the dispute falls within
the scope of the arbitration clause, the plaintiffs who did not sign the Indemnity Agreements (the
“non-signatory plaintiffs”) cannot be compelled to arbitrate. Third, the plaintiffs argue that, in
any event, the threshold issue of whether National Union’s claims are untimely must be decided
by the Court, rather than by the arbitrators.
I.
Whether National Union’s Claims are Subject to Arbitration
To determine whether a dispute is arbitrable under the FAA, a court must determine “(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 Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246
F.3d 219, 226 (2d Cir. 2001). Where a valid agreement to arbitrate exists, “doubts as to whether
a claim falls within the scope of that agreement should be resolved in favor of arbitrability.” Ace
Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 28 (2d Cir. 2002) (citing
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). Indeed,
where a valid agreement exists, “[a]n order to arbitrate the particular grievance should not be
denied unless it may be said with positive assurance that the arbitration clause is not susceptible
of an interpretation that covers the asserted dispute.” AT&T Tech., Inc. v. Commc’ns Workers of
Am., 475 U.S. 643, 650 (1986). Nonetheless, arbitration ultimately is a “creature of contract,”
and a party cannot be forced to arbitrate a claim he or she did not agree to arbitrate. Louis
6
Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001). To
that end, in determining whether a dispute falls within the scope of an arbitration agreement,
courts in the Second Circuit undertake a three-part inquiry:
First, recognizing there is some range in the breadth of arbitration clauses,
a court should classify the particular clause as either broad or narrow.
Next, if reviewing a narrow clause, the court must determine whether the
dispute is over an issue that is on its face within the purview of the clause,
or over a collateral issue that is somehow connected to the main agreement
that contains the arbitration clause. Where the arbitration clause is
narrow, a collateral matter will generally be ruled beyond its purview.
Where the arbitration clause is broad, there arises a presumption of
arbitrability and arbitration of even a collateral matter will be ordered if
the claim alleged implicates issues of contract construction or the parties’
rights and obligations under it.
Id. (internal citations and quotations omitted).
Here, there is no dispute that a valid agreement to arbitrate exists, at least as between
National Union and Tetra Laval, who is the only plaintiff to have signed the Indemnity
Agreements. Accordingly, the issue is whether the parties’ dispute falls within the scope of the
Indemnity Agreements’ arbitration clause requiring “[a]ll disputes or differences arising out of
the interpretation of this agreement” to be submitted to arbitration. (E.g., Williams Decl. Ex. 2, at
11.)
The first question for the Court on this point is whether the arbitration clause is broad or
narrow. The arbitration clause in the Indemnity Agreements is expressly limited to disputes
arising out of the interpretation of the Indemnity Agreement. It thus lacks the “very expansive
language” typical of broad arbitration agreements. Louis Dreyfus, 252 F.3d at 225 (finding a
broad clause where the agreement provided that “[a]ny dispute arising from the making,
performance or termination of this Charter Party” is subject to arbitration); see also Ace Capital,
307 F.3d at 26 (finding the language “any dispute [that] shall arise between the parties hereto
7
with reference to the interpretation of this Agreement or their rights with respect to any
transaction involved” to indicate a broad clause). Other courts have found arbitration clauses
similar to this one to be narrow, see, e.g., AXA Versicherung AG v. N.H. Ins. Co., 708 F. Supp.
2d 423, 428 (S.D.N.Y. 2010); N.H. Ins. Co. v. Canali Reinsurance Co., No. 03 Civ. 889, 2004
WL 769775, at *2 (S.D.N.Y. Apr. 12, 2004); Farm Bureau Mut. Ins. Co. v. Am. Int’l Group,
Inc., 03 Civ. 10050, 2003 WL 21976034, at *2 (S.D. Iowa May 28, 2003), and National Union’s
conclusory statements to the contrary do little to distinguish this case from those.
The next question is whether “the dispute is over an issue that is on its face within the
purview of the clause, or over a collateral issue.” Louis Dreyfus, 252 F.3d at 224. In that regard,
“arbitration clauses limited to interpretive disputes are widely understood to cover only those
disputes that can be resolved by reference to the terms of the contract.” AXA Versicherung, 708
F. Supp. 2d at 428-29 (S.D.N.Y. 2010) (citing United Offshore Co. v. S. Deepwater Pipeline Co.,
899 F.2d 405, 409-10 (5th Cir. 1990); Washburn v. Societe Commerciale de Reassurance, 831
F.2d 149, 150-52 (7th Cir. 1987)). The parties here dispute the source of their underlying
dispute. National Union contends that the dispute is over the proper calculation of the amounts
owed. As such, National Union argues that the dispute “aris[es] out of the interpretation” of the
Indemnity Agreements because the Indemnity Agreements set forth the formula(s) by which the
plaintiffs’ payment obligations are calculated. Accordingly, in National Union’s view, the
resolution of the dispute will turn on the interpretation and application of those formulas.
National Union cites at least one case that has found that a dispute relating to the calculation of
an amount due fell within the scope of an arbitration clause that, like the one here, was limited to
disputes arising out of the interpretation of the agreement. See In re Fruehauf Trailer Corp., No.
98-514, 2007 WL 676248, at *6 (Bankr. D. Del. Mar. 2, 2007) (finding dispute arbitrable where
8
plaintiff and defendant disagreed about the calculation of the cash collateral plaintiff was
required to deposit); see also Farm Bureau Mut. Ins. Co., 2003 WL 21976034, at *4 (finding a
dispute arbitrable where plaintiff sought “a declaration setting forth what amount, if any, it owes
defendants under the terms of the Reinsurance Facilities”). National Union also cites another
case that has found a dispute not to fall within the scope of a similar arbitration agreement where
“there [was] no indication that there is any dispute over the calculation of the amounts due.”
Canali Reinsurance Co., 2004 WL 769775, at *2 (emphasis added).
Plaintiffs, on the other hand, contend that the dispute is not about the calculation of
amounts due, but instead is about whether any amounts are due at all. At oral argument, counsel
for plaintiffs suggested that the disputed claims for which National Union invoiced plaintiffs
never were incurred by National Union to begin with, in part because National Union never sent
any documentation to plaintiffs to support those claims. Plaintiffs further contend that National
Union has failed to identify any terms in the Indemnity Agreement that require interpretation,
and plaintiffs have cited cases that have denied motions to compel arbitration pursuant to similar
arbitration clauses under such circumstances. See Magellan Reinsurance Co. v. N.H. Ins. Co.,
No. 1017890/05, 2005 WL 1173903, at *2-3 (N.Y. Sup. Ct. Mar. 15, 2005) (finding dispute not
subject to arbitration where “Petitioner, in a vague, conclusory statement, merely asserts, without
further elaboration, that the dispute is one of interpretation”); Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. GE Betz, Inc., No. 105991/03, 2003 WL 25668854, at *3-4 (N.Y. Sup. Ct. July
1, 2003) (finding dispute not arbitrable where petitioner identified terms to be interpreted but did
not “set out what the dispute is that requires these provisions to be interpreted” and where
respondent explained that the dispute related to which of a number of insurance policies would
cover a certain claim).
9
The cases cited by both parties suggest that for a dispute to fall within an arbitration
clause limited to disputes arising out of the interpretation of the agreement, the party seeking
arbitration must identify some term or provision requiring interpretation, and there also must be
some indication as to how the interpretation of that term or provision will be relevant to the
resolution of the dispute. See Century Indem. Co. v. Clearwater Ins. Co., 06 Civ. 0424, 2007 WL
1599157, at *3 (S.D.N.Y. June 4, 2007) (where dispute centered on reinsurer’s failure to pay
claims based on insurer’s alleged failure to meet conditions precedent to coverage, dispute
required interpretation of the agreement to determine whether insurer failed to comply “with
Paragraph 9 [of the agreement] because it has not provided Clearwater with ‘full and complete
access to all of Century’s records’; Paragraph 10 because it has not provided Clearwater with
‘prompt notice of the occurrence and claim’; and Paragraph 12 because it has not provided
Clearwater with ‘sufficient proof of loss’”); In re Fruehauf Trailer Corp., 2007 WL 676248, at
*6 (where dispute centered on the amount of cash collateral due, and adequacy of cash collateral
was determined by defendant’s “actuarial review,” dispute arose out of interpretation of that
term); Farm Bureau Mut. Ins. Co., 2003 WL 21976034, at *4 (where dispute centered on amount
owed, interpretation of the term “Construction risks” to mean “construction risks originally
underwritten by AIG” would limit the amount due under the agreement); NECA Ins. Ltd. v. Nat’l
Union Fire Ins. Co. of Pittsburgh, Pa., 595 F. Supp. 955, 958 (S.D.N.Y. 1984) (dispute arose out
of interpretation of the agreement where liability would be determined by “[w]hether the
payment in excess of $500,000 was in settlement of a claim within the meaning of Article IX,
was an element of National Union’s net loss within the meaning of Article IV(c), was within
Article V’s 100% reinsurance clause, and is encompassed by Article XV’s ‘follow the fortunes’
clause”); Magellan Reinsurance Co., 2005 WL 1173903, at *2-3 (where petitioner did not
10
explain how interpretation of any particular term would be relevant in resolving dispute, dispute
did not arise out of the interpretation of the agreement); GE Betz, Inc., 2003 WL 25668854, at
*3-4 (same).
From the present record, the Court can identify a dispute over claims allegedly paid by
National Union on behalf of three individuals, Marvin Frost, Robert Beatty, and Edward
Trubich. The discrepancy is explained in three charts and an email prepared by Steve Harris, a
Managing Director of plaintiff Alfa Laval Agri, Inc. (See Kaplan Reply Decl. Ex. F (emails from
March 2007).) The charts reveal the following:
National Union billed plaintiffs for “Indemnity” and “Allocated Expense” amounts for
each claimant. The charts divide the total amount billed into two time periods: Indemnity and
Allocated Expenses for the period through December 31, 1999, and Indemnity and Allocated
Expenses for the period December 31, 1999 through June 30, 2003.2 According to Harris’s
calculations in the charts, however, plaintiffs were not responsible for the full amounts billed.
Instead, an email prepared by Harris explains, “[U]nder the policies in question, Tetra Laval was
responsible for up to $250,000 in indemnity payments, plus a proportional share of the allocated
expense.” (Id.) The email further explains that Tetra Laval’s proportional share of the allocated
expenses would be 100% if the indemnity payment was less than $250,000, and, if the indemnity
payment was greater than $250,000, then Tetra Laval’s proportional share would be equal to
$250,000 divided by the total indemnity payment. (Id.; see Williams Decl. Ex. 2 (a provision of
the Indemnity Agreement providing, “[A]ll Allocated Loss Expenses shall be the shared
responsibility of the Company and Client on a pro-rata basis in the same relationship as
2
The total figures invoiced by National Union for each of the three claimants are as follows: (1) Marvin Frost:
$358,643.66 in Indemnity and $59,943.00 in Allocated Expenses, (2) Robert Beatty: $364,664.83 in Indemnity and
$43,501.10 in Allocated Expenses, and (3) Edward Trubich: $418,055.90 in Indemnity and $76,065.10 in Allocated
Expenses. (See Kaplan Reply Decl. Ex. F, 4-6.)
11
indemnity paid subject to the Maximum Insurance Cost set out in paragraph D”).) Harris’s
charts determine that for each claimant, Tetral Laval was obligated to pay $250,000 in Indemnity
plus a percentage of the Allocated Expenses. Harris determined the appropriate percentage by
dividing $250,000 by the total Indemnity, as billed by National Union. According to an email
from Heather Taylor, an employee of the plaintiffs’ insurance broker, Harris’s calculations
revealed a total discrepancy of $454,688 with respect to the claims paid to Frost, Beatty, and
Trubich. (See Kaplan Reply Decl. Ex. F, at 2.)
Harris’s actions do not appear consistent with the plaintiffs’ explanation of their failure to
pay. The actions taken by Harris with respect to the disputed claims are not the acts of a person
who flat out disputes the existence of the charges in the first instance. Indeed, Harris’s
calculations conclude that plaintiffs do in fact owe a portion of the amount billed for each of the
claimants and for both of the timeframes referenced in the charts. In short, it appears that
National Union sent an invoice to plaintiffs for amounts allegedly due, that Harris then used
those figures to calculate a different amount due, and that Harris explained his calculations with
reference to his understanding of the Indemnity Agreements. Such conduct suggests that the
discrepancy arises out of Harris’s competing interpretation of the proper manner in which to
calculate amounts owed under the Indemnity Agreement.
With respect to specific provisions of the Indemnity Agreement that may require
interpretation to resolve the dispute, at least two appear relevant. First, the clause providing that
“all Allocated Loss Expenses shall be the shared responsibility of the Company and Client on a
pro-rata basis in the same relationship as indemnity paid subject to the Maximum Insurance Cost
set out in paragraph D,” (E.g., Williams Decl. Ex. 2, at 4), likely will be relevant in determining
whether Harris’s calculations reflect the proper attribution of Allocated Expenses to Tetra Laval.
12
Second, to the extent Harris’s calculations reveal a dispute over whether the Indemnity paid to
each claimant over the different time periods is subject to a single deductible, the definition
provided in Article IV, Section K of the Indemnity Agreements may be relevant. That section
provides, “The ‘Loss Limit’ and/or ‘Deductible’ for the Policies are the amounts shown in the
Policy Funding Schedule(s) and are applied separately: . . . (iii) to each claim for personal injury
or advertising injury or any other injury or damage.” (E.g., id. at 10.)
On the other hand, additional evidence in the record suggests that the parties may not
dispute the calculation of the amounts, but instead whether the amounts are owed at all. On
September 29, 2009, Jason Goldy, an attorney, wrote a letter to Tetra Laval on behalf of National
Union that provides some detail on the dispute. Like the emails between Harris and Taylor,
Goldy’s letter indicates that the dispute revolves around the Frost, Beatty, and Trubich claims.
The letter sets forth the amount National Union believes is owed with respect to each of those
claims. Notably, the amounts in the Goldy letter purportedly owed by Tetra Laval with respect
to the Frost and Trubich claims ($291,784.51 and $297,281.42, respectively) are exactly the
same as the amounts in Harris’s charts in the row labeled “Total Payable by TL.” (Compare
Williams Decl. Ex. 18 (figures labeled “Billable to Tetra Laval”) with Kaplan Reply Decl. Ex. F,
4, 6 (figures labeled “Total” under “Total Payable by TL”).)3 With respect to the Beatty claim,
Goldy’s letter indicates that Tetra Laval owes $283,267.10, while Harris’s figures indicate that
Tetra Laval owes $279,822.66, a difference of less than $3500.00. The fact that the amounts
allegedly due as calculated by National Union match the amounts admittedly due as calculated
by one of plaintiffs’ Managing Directors certainly undermines National Union’s contention that
3
That these figures match seems a little strange because Harris’s 2007 numbers indicate that Tetra Laval already
had paid a portion of the total owed. (See Kaplan Reply Decl. Ex F, 4-6 (rows labeled “Paid by TL”).) This, of
course, may indicate that the parties dispute whether payment of amounts admittedly due was made at all. Such a
dispute would not implicate the interpretation of the Indemnity Agreement.
13
the dispute revolves around the proper calculation of the amounts due pursuant to the terms of
the Indemnity Agreement. In addition, plaintiffs have submitted an affidavit from Heather
Taylor that states that there was never any dispute between the parties about how to interpret any
terms of the Indemnity Agreement. (Taylor Aff. ¶ 9.) Instead, Taylor asserts that the reason for
plaintiffs’ non-payment was that National Union had not submitted any documentation to
support the amounts allegedly due. (Id.)4
In the end, the parties surely dispute whether and how much money plaintiffs owe
National Union. The current record, however, provides only a murky picture of the reason(s) for
that dispute. The present record reveals that the parties’ dispute might arise out of the
interpretation of the Indemnity Agreement. In that regard, to the extent that Harris’s calculations
reveal an admission that some amount is due with respect to the Frost, Beatty, and Trubich
claims, and to the extent that Harris (on behalf of the plaintiffs) calculated the amount owed
differently than National Union while using the same figures, the resolution of the dispute likely
will require the decision-maker to interpret the terms of the Indemnity Agreement. Given that
the record provides some support for this conclusion, and in light of the strong federal policy
requiring “‘any doubts concerning the scope of arbitrable issues [to] be resolved in favor of
arbitration,’” Louis Dreyfus, 252 F.3d at 223 (quoting Moses H. Cone Mem’l Hosp., 460 U.S. at
24-25), National Union has shown enough to permit the Court to conclude that the dispute is
“over an issue that is on its face within the purview of the clause,” as required in the case of a
4
While the Indemnity Agreements contain a provision that requires National Union to provide “appropriate”
documentation to support its invoices of “Paid Losses,” (E.g. Williams Decl. Ex 2, at 8.), there surely is a difference
between a situation where National Union provides some arguably “appropriate” documentation and a situation
where it provides none at all. The latter appears to be what plaintiffs contend happened here, in the sense that
plaintiffs seem to dispute whether National Union made certain payments on plaintiffs’ behalves at all. This
question appears to be a largely factual inquiry that does not require interpretation of the parties’ agreement.
However, to the extent that plaintiffs have refused to pay because of inadequate (rather than non-existent)
documentation, the dispute certainly would arise out of the interpretation of the term “appropriate backup
documentation,” (id.), and therefore would be subject to arbitration.
14
narrow arbitration clause. Id. at 224. Accordingly, the parties’ dispute falls within the scope of
the arbitration clause.
II.
Whether the Non-Signatory Plaintiffs May Be Compelled to Arbitrate
Although arbitration, as a creature of contract, generally may not be forced upon a person
who did not agree to it, the Second Circuit Court of Appeals “has made clear that a nonsignatory
party may be bound to an arbitration agreement if so dictated by the ‘ordinary principles of
contract and agency.’” Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir.
1995) (quoting McAllister Bros., Inc. v. A&S Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980))
(citing A/S Custodia v. Lessin Int'l, Inc., 503 F.2d 318, 320 (2d Cir. 1974)). Accordingly, the
Court of Appeals recognizes “five theories for binding nonsignatories to arbitration agreements:
1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5)
estoppel.” Id. at 777.
National Union contends that the non-signatory plaintiffs must arbitrate under an estoppel
theory. “‘A nonsignatory may be estopped from avoiding arbitration where it knowingly
accepted the benefits of an agreement with an arbitration clause.’” Bank of Am. Natl. Assn. v.
Sopher, 10 Civ. 8870, 2011 WL 2419872, at *3 (S.D.N.Y. June 8, 2011) (quoting MAG Portfolio
Consult, GMBH v. Merlin Biomed Grp. LLC, 268 F.3d 58, 61 (2d Cir. 2001)); see also Deloitte
Noraudit A/S v. Deloitte Haskins Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993). “The benefits
must be direct—which is to say, flowing directly from the agreement.” Oppenheimer Co. Inc. v.
Deutsche Bank AG, No. 09 Civ. 8154, 2010 WL 743915, at *2 (S.D.N.Y. Mar. 2, 2010) (quoting
MAG Portfolio, 268 F.3d at 61); see also Am. Bureau of Shipping v. Tencara Shipyard S.P.A.,
170 F.3d 349, 353 (2d Cir. 1999). By contrast, “the benefit derived from an agreement is
indirect,” and is therefore insufficient to support estoppel, “where the nonsignatory exploits the
15
contractual relation of parties to an agreement, but does not exploit (and thereby assume) the
agreement itself.” Republic of Ecuador v. ChevronTexaco Corp., 499 F. Supp. 2d 452, 458
(S.D.N.Y. 2007); see also MAG Portfolio, 268 F.3d at 61. Likewise, “the mere fact of a
nonsignatory’s affiliation with a signatory will not suffice to estop the nonsignatory from
avoiding arbitration, no matter how close the affiliation is.” Oppenheimer Co., 2010 WL 743915,
at *2.
The plaintiffs here acknowledge that all of the non-signatory plaintiffs received “direct
benefits from the insurance policies, in the form of insurance coverage.” (Pl.’s Mem. of Law in
Opp’n to Def.’s Mot. to Stay This Action and Compel Arbitration (“Pl.’s Mem.”), 17.)
Nonetheless, the plaintiffs argue that the non-signatory plaintiffs cannot be forced to arbitrate
because they received no direct benefits from the Indemnity Agreements, which contain the
arbitration clauses. What the plaintiffs fail to recognize, however, is that the Indemnity
Agreements are the source of National Union’s obligation to issue the insurance policies through
which the non-signatory plaintiffs obtained coverage. Indeed, Article I of each Indemnity
Agreement provides: “The Company [National Union] will issue the insurance policies listed in
the Policy Funding Schedule(s).” (Williams Decl. Exs. 2, 5, 8, 11, at 2.) The Indemnity
Agreements thus require National Union to issue the insurance policies, and the non-signatory
plaintiffs received insurance coverage from those policies. Accordingly, the non-signatory
plaintiffs have received a direct benefit from the Indemnity Agreements and are estopped from
denying their obligation to arbitrate as the Agreements require. Compare Tencara Shipyard, 170
F.3d at 351–53 (finding estoppel where a shipyard’s contract with a classification society for
classification of a ship lowered the non-signatory owners’ insurance rates and allowed the
owners to fly national colors) and Deloitte Noraudit, 9 F.3d at 1061–64 (finding estoppel where
16
a company’s settlement with its litigation opponent permitted the company’s non-signatory
affiliates to use a trade name, and where the non-signatory affiliates had knowledge of the
settlement and actually used the trade name), with Thomson–CSF, 64 F.3d at 778–79 (refusing to
find estoppel where a non-signatory competitor was able to squeeze out its rival because of the
rival’s prior entry into an exclusive dealing agreement with a company bought by the nonsignatory competitor, which agreement the competitor never intended to invoke).5
III.
Whether the Court or the Arbitrators Decide the Threshold Issue of
Timeliness
The plaintiffs argue that the Court—and not the arbitrators—should decide whether
National Union’s claims are barred by New York’s six-year statute of limitations for actions
alleging breach of contract. (See Compl. ¶¶ 30-31 (citing N.Y. C.P.L.R. § 213(2)).) The
plaintiffs point out that National Union would be barred from recovering damages for any
breaches of the Indemnity Agreements that occurred before September 7, 2004 (six years before
National Union filed its demand for arbitration). The plaintiffs contend that most, if not all, of
their alleged breaches occurred prior to that date. (See id. ¶ 32.)
While the Supreme Court has held that it is a question for the court “whether an
arbitration clause in a concededly binding contract applies to a particular type of controversy,” it
also has held that “‘“procedural” questions which grow out of the dispute and bear on its final
disposition’ are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v.
Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (quoting John Wiley & Sons, Inc. v.
Livingston, 376 U.S. 543, 557 (1968)) (citing AT&T Techs., Inc., 475 U.S. at 651-52). The
Supreme Court has indicated that these “procedural” questions include “‘whether prerequisites
5
Because the Court has found that the non-signatory plaintiffs are bound under an estoppel theory, it is unnecessary
to address National Union’s other arguments for requiring the non-signatory plaintiffs to arbitrate, namely,
incorporation by reference and agency.
17
such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to
arbitrate have been met.’” Id. at 85 (quoting Revised Unif. Arbitration Act § 6, cmt. 2 (2000), 7
U.L.A. 13 (Supp. 2002)). Indeed, the Court of Appeals for the Second Circuit has “stated
emphatically that any limitations defense—whether stemming from the arbitration agreement,
arbitration association rule, or state statute—is an issue to be addressed by the arbitrators.”
Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991); see also Trafalgar
Shipping Co. v. Int’l Mill Co., 401 F.2d 568, 571 (2d Cir. 1968) (“[A]ll questions of delay which
relate to issues which the parties have agreed to submit to arbitration [must] be resolved by the
arbitrators, not the court.”). Nonetheless, parties to an arbitration agreement are free to agree to
the contrary and of course may provide that the court, rather than the arbitrator, should decide
issues of timeliness. See Trafalgar, 401 F.2d at 572.
The plaintiffs argue that the Indemnity Agreements here show that the parties in fact
agreed not to arbitrate statute of limitations questions. As evidence, the plaintiffs point to the
limited language of the arbitration clause and the Indemnity Agreements’ choice of law clause,
which provides that “[a]ll matters of interpretation and/or construction of this Agreement are to
be interpreted and construed under the law of the State of New York.” (E.g., Williams Decl. Ex.
2, at 14.) The significance of the choice of law clause, according to the plaintiffs, is that it
suggests that the parties agreed to have a court decide timeliness issues because New York law
permits a party to assert a relevant statute of limitations “as a bar to the arbitration on an
application to the court.” N.Y. C.P.L.R. § 7502(b) (emphasis added). (See Pl.’s Mem. 22.)
In Bechtel do Brasil Construcoes Ltda v. UEG Araucaria Ltda., 638 F.3d 150 (2d Cir.
2011), however, under circumstances that suggested, more strongly than here, that the parties
18
intended to invoke C.P.L.R. § 7502(b), the Second Circuit held that the question of timeliness
was for the arbitrators. In Bechtel, the parties’ arbitration agreement provided
Any dispute, controversy, or claim arising out of or relating to the Contract, or the
breach, termination or validity thereof . . . shall be finally settled by arbitration in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce (the “ICC”) then in effect (the “Rules”), except as these
rules may be modified herein.
Id. at 152 (emphasis added). The agreement also contained a number of choice of law clauses,
which provided that (1) “Any arbitration proceeding or award rendered hereunder and the
validity, effect and interpretation of this agreement to arbitrate shall be governed by the laws of
the state of New York,” and (2) “The law governing the procedure and administration of any
arbitration . . . is the law of the State of New York.” Bechtel, 638 F.3d at 152. The plaintiff in
Bechtel argued that the timeliness question was for the court because, pursuant to the terms of
the arbitration agreement, the choice of law clauses modified the ICC rules to invoke C.P.L.R. §
7502(b). Id. at 155. The court, however, held that the issue was for the arbitrators, stating that
“while we think the modification language could be read to incorporate C.P.L.R. 7502(b), we are
not convinced that it does so without doubt.” Id. at 158. The court continued, “Even if we were
to adopt the broad reading of the exceptions clause that Bechtel advances, it would not follow
that the contracts’ choice-of-law provisions must be understood to permit recourse to C.P.L.R.
7502(b).” Indeed, as the Supreme Court has held, general choice-of-law clauses serve to
incorporate only the chosen state’s “substantive rights and obligations, [but] not the State’s
allocation of power between alternative tribunals.” Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 60 (1995). Accordingly, the Second Circuit found the contract to be
ambiguous with respect to the timeliness issue and thus resolved that ambiguity in favor of
arbitration. Bechtel, 638 F.3d at 158.
19
The plaintiffs argue that here, unlike in Bechtel, the Indemnity Agreements are not
ambiguous with respect to the timeliness issue because the narrow scope of the arbitration
clauses plainly leaves timeliness disputes to the court. To be sure, the arbitration clause at issue
in Bechtel was significantly broader than the arbitration clause at issue here. Nonetheless, the
arbitration clause in the Indemnity Agreements is broad enough to cover the parties’ statute of
limitations dispute. The arbitration clause is limited to “[a]ll disputes arising out of the
interpretation of this Agreement.” The timeliness dispute here centers on when National Union’s
claims accrued. According to National Union, no claim accrued until at the earliest December
21, 2006, when the plaintiffs, pursuant to the terms of the “Payments in Dispute” section of the
Indemnity Agreements, wired the undisputed portion of the amounts allegedly due to National
Union. The plaintiffs suggest that their alleged breaches occurred earlier, at a time well outside
the limitations period. Resolution of this dispute requires an interpretation of the Indemnity
Agreements to determine the time, if any, at which the plaintiffs’ nonpayment amounted to a
breach of their duties under the Agreement. See Ely-Cruikshank Co., v. Bank of Montreal, 615
N.E.2d 985, 986 (N.Y. 1993) (“In New York, a breach of contract cause of action accrues at the
time of the breach.”).
Furthermore, the Indemnity Agreements’ choice of New York law clause does
substantially less than the corresponding clauses in Bechtel to suggest that the parties agreed to
have the court decide statute of limitations issues. In Bechtel, the parties’ agreement provided
(1) “Any arbitration proceeding or award rendered hereunder and the validity, effect and
interpretation of this agreement to arbitrate shall be governed by the laws of the state of New
York,” and (2) “The law governing the procedure and administration of any arbitration . . . is the
law of the State of New York.” Bechtel, 638 F.3d at 152. By contrast, the choice of law clause
20
here merely provides that “matters of interpretation and/or construction . . . are to be interpreted
and construed under” New York law. (Williams Decl. Ex. 2, at 14.) This language, even
combined with the narrow scope of the arbitration clauses in the Indemnity Agreements, is far
from sufficient to overcome the rule that general choice-of-law clauses incorporate only the
chosen state’s “substantive rights and obligations, [but] not the State’s allocation of power
between alternative tribunals.” Mastrobuono, 514 U.S. at 60. Thus, given the strong
presumption that timeliness issues are for the arbitrators, along with the conclusion that the
parties’ timeliness dispute falls within the scope of the arbitration clause, a general choice of law
clause does little to support the plaintiffs’ argument that the statute of limitations question is for
the Court. Accordingly, the question is for the arbitrators.
21
CONCLUSION
For the reasons stated above, defendants' motion to compel arbitration [9] is GRANTED
in its entirety. The Clerk ofthe Court is directed to close this case.
SO ORDERED.
Dated: '\Jew York. New York
January~.
2012
Richard J. Holwell
United States District Judge
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