National Union Fire Insurance Company of Pittsburgh, P.A. v. Diaz Construction Company, Inc.
Filing
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MEMORANDUM & ORDER denying 11 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part 18 Motion to Compel Arbitration (Signed by Judge Paul A. Crotty on March 25, 2013) (mov)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA.,
Plaintiff,
v.
DIAZ CONSTRUCTION COMPANY, INC.,
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: March 25, 2013
12 Civ. 973 (PAC)
MEMORANDUM & ORDER
Defendant.
HONORABLE PAUL A. CROTTY, United States District Judge:
Plaintiff National Union Fire Insurance Company of Pittsburgh, PA (“National Union”)
seeks enforcement of an arbitration provision in a “Payment Agreement for Insurance and Risk
Management Services” (the “Payment Agreement”) executed by Defendant Diaz Construction
Company, Inc. (“Diaz”). In the alternative, National Union moves to have the Court find Diaz in
breach of the Payment Agreement. (Compl., ECF No. 1.) Diaz moves to dismiss the Complaint
for want of personal jurisdiction and because New York is an improper venue for resolving the
parties’ dispute. (ECF No. 11.) For the reasons set forth below, the Court DENIES Diaz’s
motion to dismiss, and GRANTS IN PART and DENIES IN PART National Union’s petition to
compel arbitration.
BACKGROUND
A.
Relevant Factual Allegations
Pursuant to the Payment Agreement between the parties, National Union, a corporation
organized under the laws of Pennsylvania with a principal place of business in New York,
provided Diaz, a California corporation, with commercial, general liability insurance and other
services for losses arising out of Diaz’s construction business. (Compl. ¶¶ 1–2, 5–6.) Under the
Payment Agreement, National Union agreed to, inter alia, provide Diaz with insurance coverage
and defer demand for full payment of the entire amount of Diaz’s payment obligations, if Diaz
made partial payments according to the agreement; Diaz agreed to, inter alia, pay its payment
obligations and provide collateral. (Amato Decl. Ex. 2 at 3, ECF No. 18-2; Compl. ¶¶ 5–12.)
During the period covered by the insurance policy, a dispute arose between the parties as to
certain deductibles, billings, payments, and reimbursements owed. (Compl. ¶¶ 13–14.)
B.
The Arbitration Provisions
The Payment Agreement contains a section entitled “How Will Disagreements Be
Resolved?,” which states that as to disputes “about any amount of your payment obligation that
we have asked you to pay . . . [a]ny disputed items not resolved within 60 days after our response
to your written particulars must immediately be submitted to arbitration as set forth below.” (Ex.
2 at 8 (alterations omitted).) The Payment Agreement further provides that “[a]ny other
unresolved dispute arising out of this Agreement must be submitted to arbitration.” (Id.)
In this same section, the Payment Agreement sets forth the procedures by which any
arbitration must take place, including how the arbitrators are chosen:
You must choose one arbitrator and we must choose another. They will choose
the third. If you or we refuse or neglect to appoint an arbitrator within 30 days
after written notice from the other party requesting it to do so . . . either party may
make an application to a Justice of the Supreme Court of the State of New York,
County of New York and the Court will appoint the additional arbitrator or
arbitrators. (Id. (alterations omitted).)
In addition, the Payment Agreement provides that “[t]he arbitrators shall determine where
the arbitration will take place. The arbitration must be governed by the United States Arbitration
Act, Title 9 U.S.C. Section 1, et seq.” (Id. at 9.)
C.
National Union’s Demand for Arbitration
On August 9, 2011, National Union served Diaz with a demand for arbitration, seeking to
recover the amounts National Union claims Diaz owes under the Payment Agreement, as well as
other costs and expenses. (Compl. ¶¶ 20–24.) Diaz has not responded to National Union’s
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demand and has not complied with National Union’s demand to arbitrate their dispute. (Id. ¶¶
25–30.)
DISCUSSION
I.
THE COURT HAS PERSONAL JURISDICTION OVER DIAZ
Diaz argues that since the Payment Agreement did not specify that the arbitration itself
take place in New York, Diaz did not consent to personal jurisdiction in New York and the Court
lacks jurisdiction over it. National Union responds that under the express terms of the Payment
Agreement, should either party fail to appoint an arbitrator, the other party may seek judicial
redress for the appointment of an arbitrator from the Supreme Court of the State of New York,
and that this provision constitutes a forum-selection clause by which Diaz consented to personal
jurisdiction in New York.
There is no dispute that under settled precedent, “[p]arties can consent to personal
jurisdiction through forum-selection clauses in contractual agreements.” D.H. Blair & Co. v.
Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006) (citations omitted). In addition, the parties agree
that a forum-selection clause providing for the jurisdiction of New York courts obviates the need
to analyze jurisdiction in light of New York’s long-arm jurisdiction statute and the parties’
contacts with New York. See U.S. Bank Nat’l Ass’n v. Ables & Hall Builders, 582 F. Supp. 2d
605, 615 (S.D.N.Y. 2008) (Chin, J.); Sterling Nat’l Bank as Assignee of Norvergence, Inc. v.
Eastern Shipping Worldwide, Inc., 826 N.Y.S.2d 235, 237 (1st Dep’t 2006).
Diaz attempts to distinguish the Payment Agreement from a long line of cases holding
that agreement to arbitrate in New York constitutes consent to personal jurisdiction by arguing
that the Payment Agreement’s provision that if a party fails to appoint an arbitrator, either party
may move the New York Supreme Court to so appoint an arbitrator, does not confer personal
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jurisdiction over Diaz because the Payment Agreement did not contain an explicit agreement to
arbitrate in New York. This argument is meritless. The Supreme Court has repeatedly
recognized that “because the personal jurisdiction requirement is a waivable right, there are a
‘variety of legal arrangements’ by which a litigant may give ‘express or implied consent to the
personal jurisdiction of the court.’” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n.14
(1985) (quoting Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694,
703 (1982)). “[P]articularly in the commercial context, parties frequently stipulate in advance to
submit their controversies for resolution within a particular jurisdiction,” id., and by agreeing to
New York Supreme Court as the forum for enforcement of the agreement’s provisions regarding
the selection of arbitrators, the parties clearly consented to the jurisdiction of New York courts.
See D.H. Blair, 462 F.3d at 104 (broadly construing jurisdictional consent clause).
Given Diaz’s consent to personal jurisdiction in New York pursuant to the Payment
Agreement, the Court need not address Diaz’s venue arguments. See 28 U.S.C. § 1391(c)(2)
(“For all venue purposes . . . an entity with the capacity to sue and be sued . . . shall be deemed to
reside, if a defendant, in any judicial district in which such defendant is subject to the court’s
personal jurisdiction with respect to the civil action in question[.]”); Doctors Assoc., Inc. v.
Stuart, 85 F.3d 975, 983 (2d Cir. 1996) (“Because Defendants consented to personal jurisdiction
in the District of Connecticut . . . they also consented to venue there.”).
II.
THIS DISPUTE MUST BE SUBMITTED TO ARBITRATION
To the extent Diaz contends that this matter is not arbitrable, Diaz is wrong. In
determining arbitrability, the Court is to look to the allegations of the party demanding
arbitration; if they fall within the scope of the parties’ agreement, the Court compels arbitration.
Collins & Aikman Prods Co. v. Bldg. Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995). Disputes over the
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scope of arbitration agreements are resolved using ordinary principles of contract interpretation,
id., and in light of the strong public policy in favor of enforcing agreements to arbitrate, any
ambiguities regarding the scope of arbitration should be resolved in favor of arbitration.
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (citations omitted).
While Diaz does not explicitly contest the arbitrability of the instant dispute, it is clear that this
matter must be submitted to arbitration pursuant to the Payment Agreement.
III.
THE COURT LACKS AUTHORITY TO APPOINT AN ARBITRATOR
The only remaining question then is whether the Court may grant the full relief National
Union seeks and name Diaz’s party-appointed arbitrator. National Union argues that reading the
Payment Agreement as authorizing only a Justice of the New York Supreme Court to appoint an
arbitrator leads to an endless cycle in which if National Union seeks such appointment in New
York Supreme Court, Diaz removes the action to federal court, recreating the present dispute
without the possibility of resolution. National Union also argues that in light of the Payment
Agreement’s incorporation of the Federal Arbitration Act (“FAA”) (see Ex. 2 at 9), under
Section 5 of the FAA, the Court has the authority to appoint an arbitrator just as the Payment
Agreement contemplates. Section 5 provides that:
If in the agreement provision be made for a method of naming or appointing an
arbitrator or arbitrators or an umpire, such method shall be followed; but if no
method be provided therein, or if a method be provided and any party thereto
shall fail to avail himself of such method, or if for any other reason there shall be a
lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a
vacancy, then upon the application of either party to the controversy the court
shall designate and appoint an arbitrator or arbitrators or umpire, as the case
may require, who shall act under the said agreement with the same force and
effect as if he or they had been specifically named therein; and unless otherwise
provided in the agreement the arbitration shall be by a single arbitrator.
9 U.S.C. § 5 (emphasis added).
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In a case examining identical language as the Payment Agreement regarding the
appointment of arbitrators (and involving the same plaintiff as here), Judge Lynch found that the
district court lacked authority to appoint an arbitrator and that any such appointment must come
from New York Supreme Court. See Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Younger
Bros., Inc., No. 00 Civ. 3277 (GEL), 2001 WL 669042, at *8 (S.D.N.Y. June 13, 2001). Judge
Lynch determined that under the FAA, “the only relief that this court may provide . . . is an
‘order directing the parties to proceed to arbitration in accordance with the terms of the
agreement.’” Id. (quoting 9 U.S.C. § 4). Judge Lynch further held that “[a]ny authority to
appoint an arbitrator, therefore, must be found in the agreement itself,” and, just as in the instant
action, “the parties endowed the New York Supreme Court, and not this Court, with the authority
to appoint an arbitrator in the event that one of the parties refused to do so.” Id.
National Union argues that Judge Lynch did not consider Section 5 of the FAA and
unnecessarily restricted the federal court’s authority to appoint an arbitrator, but this argument
misses the mark. Judge Lynch merely interpreted and enforced the terms of the agreement itself
as required by the FAA, and as mandated by the United States Supreme Court in the very
caselaw National Union quotes in its memoranda. See Volt Info. Scis., Inc. v. Bd. of Trustees of
Leland Stanford Jr. Univ., 489 U.S. 468, 479 (1989) (noting “the FAA’s primary purpose of
ensuring that private agreements to arbitrate are enforced according to their terms” (emphasis
added)).
The Court further agrees with Judge Lynch’s observation that now that the insured party
has been ordered to submit to arbitration, the selection of arbitrators should proceed apace and
the parade of horribles National Union predicts should be avoided. See Younger Bros., 2001
WL 669042, at *8. The Court also notes that in light of its ruling that Diaz is subject to
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