Global Commodities Group, LLC et al v. National Union Fire Insurance Company of Pittsburgh, PA

Filing 26

OPINION AND ORDER: For the foregoing reasons, the plaintiffs' motion to stay the arbitration is granted until a final decision on alter ego status is reached. If, after discovery and a consideration of the evidentiary submissions, issues of fact remain, a trial must be held to determine whether Global and Besch are alter egos of Access. Defendant's cross motion to compel arbitration is denied with leave to renew. The Clerk of the Court is directed to close the instant motions (Docket Nos. 2 and 15). A conference to set a discovery schedule is set for September 24, 2013 at 4:30 p.m. So Ordered (Signed by Judge Shira A. Scheindlin on 8/29/2013) (js)

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'.­

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-------------------------------------------------------)(
GLOBAL COMMODITIES GROUP, LLC
and JAMES BESCH,
Plaintiffs,
- against-

,

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. . ':':_"~~~~:,' . ",' . _~_~~qfql ~(/~~_.

OPINION AND ORDER
13 Civ. 2063 (SAS)

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA,
Defendant.

-------------------------------------------------------)(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

t:::,

INTRODUCTION!

This action to stay an arbitration demand arises out of a credit
insurance policy (the "Policy") issued by defendant National Union Fire Insurance
("National Union") to Novel Commodities S.A. (''Novel'') - a Swiss commodities
trading company - and Access Global Capital, LLC ("Access"), a New Jersey
limited liability company that acts as a financier for the sale of agricultural
commodities in Latin America. The Policy insured against the risk of loss in
transactions involving Nova's purchase and sale of agricultural commodities.

Subject matter jurisdiction exists over this action, as the parties are of
diverse citizenship and the amount in controversy exceeds $75,000. See Complaint
("Compl.") ~ 4. The background facts recited in this section are drawn from the
Complaint, presumed true for purposes of these motions, and are not in dispute.
See id. ~~ 6, 9.

Novel- financed by Access - undertook two transactions in which a
First Purchaser was to purchase agricultural commodities from Cia Arrocera
Covadonga, S.A. de CV ("Covadonga") - a Mexican food producer and wholesaler
- and sell them to Novel, which was then to sell them back to Covadonga.
However, Covadonga allegedly failed to pay Novel when it repurchased the rice
and beans.
Novel submitted two claims to National Union under the Policy, but
National Union refused to pay. Novel then initiated arbitration proceedings against
National Union to recover under the policy. Novel was later joined in these
proceedings by Access.
On March 9, 2013, National Union served a demand to arbitrate upon
Global Commodities Group, LLC ("Global") - the First Purchaser under the Policy
for the transactions at issue - and James Besch

on the grounds that they are alter

egos of Access. Besch and Global in tum brought this a.;tion seeking a stay of the
arbitration demand and a declaratory judgment that they are not obliged to
participate in the arbitration. National Union has cross moved to compel Global
and Besch to arbitrate.
For the following reasons, plaintiffs' motion to stay arbitration is
granted and defendant's motion to compel arbitration is denied with leave to re-file
after limited discovery.

II.

BACKGROUND 2
A.

The Policy
National Union issued the Policy to Novel and Access (together, the

"Insureds"Y on June 24,2010. 4 The Policy insured, with some restrictions, a
triangular sales arrangement from Covadonga to a First Purchaser, which would
sell the goods to Novel, who would then sell them back to Covadonga.
A condition of the Policy was that Novel could not purchase the
product directly from Covadonga or any related entities. s Specifically,
Endorsement 15 of the Policy provides that "[t]rade credit insurance will not be
provided in situations where Access Global [Capital, LLC] and/or Novel have
purchased product directly from either Agroindustrias Covadonga, S.A. de C.Y., its
subsidiaries, or its affiliates and subsequently on-sells the product to either
Agroindustrias Covadonga, S.A. de C.Y., its subsidiaries, or its affiliates.,,6

Except where otherwise stated, the following facts are drawn from the
Complaint and are presumed to be true for purposes of this motion.
2

Access is wholly owned by Besch. See Plaintiffs' Memorandum of
Law in Support of Motion to Stay Arbitration ("PI. Mem.") at 2.
3

4

See CompI.

~

6.

See id. ,-r 9. Plaintiffs maintain that National Union never requested
information about the identity of the First Purchaser. See PI. Mem. at 2.
5

6

Compl. ,-r 10.

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B.

The Disputed Transactions
The underlying dispute relates to two triangular transactions in which

Global was the First Purchaser. 7 After an alleged payment default by Covadonga,
the Insureds filed two claims under the Policy, relating to: (l) their alleged sale of
paddy rice to Covadonga (the "Paddy Rice Claim"); and (2) their alleged sale of
mayocoba beans to Covadonga (the "Mayocoba Beans Claim"). Together, these
claims totaled $9,862,189.84. 8 In November 2011, National Union denied both
claims, and disclaimed Novel and Access' coverage under the Policy.9

1.

The Paddy Rice Claim

The Insureds' first claim relates to the alleged sale of paddy rice to
Covadonga on July 28,2010. On June 16, 2010, Covadonga entered into a
contract to sell 12,346.447 rr:etric tons of paddy rice to Global
Covadonga's warehouses

to be stored in

for roughly $4,000,000. 10 In its Answer in the

Covadonga sold rice and beans to Global, who sold it to Novel, who
then sold it back to Covadonga. See id. ~ 9. Global was originally owned 99% by
Besch and 1% by his father. In 2010, Besch's sister, Teresa Flynn, became 50%
owner and Besch remained a 500/0 owner. Besch is the managing member and has
sole management control of Global. See Affidavit of James Besch ("Besch Aff."),
in support of Plaintiffs' Motion to Stay Arbitration ("PI. Mot.") ~ 17.
7

8

See CompI. ~ 13.

9

See id.

See 11/30112 National Union's Statement of Defense and
Counterclaims to the Arbitration (''NU Arb. Stmt."), Ex. 4 to Plaintiffs' Motion to
10

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arbitration, National Union alleges that title to the paddy rice did not pass from
Covadonga to Global, because the Certificates of Deposit issued by Covadonga in
connection with the transaction were invalid.!!
On July 26, 2010, Global contracted to sell the rice to Novel, allegedly
transferring title to the rice by endorsing to Novel the Certificates of Deposit that it
had received from Covadonga. 12 Two days later, on July 28,2010, Novel sold the
rice back to Covadonga for a $822,174.91 profit. 13 National Union alleges that,
because the Certificates of Deposit were invalid, this transfer of title was also
ineffective. Further, National Union alleges that this transfer of title was invalid
because the rice "never existed in the stated quantities and never moved from
Covadonga's warehouses and silos."14

2.

The Mayocoba Beans Claim

On September 10, 2010, Covadonga entered into another contract
with Global to sell 5,278,009 metric tons of mayo cob a beans for roughly

Stay Arbitration ("PI. Mem."),-r 39.
II

See id.

12

See id. ,-r 40.

13

See id.

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42.

14
Memorandum of Law in Support of Defendant's Cross-Motion to
Compel Arbitration and in Opposition to rvt>tion to Stay Arbitration ("Def. Mem.")
at 9.
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$4,000,000. 15 On the same day, Global sold the beans to Novel, though the beans
remained in Covadonga's warehouses. Novel then sold the beans back to
Covadonga for a purported $894,094.72 profit.
As with the paddy-rice transaction, National Union alleges that: (1)
Covadonga did not pass title to the beans to Global- and therefore Global did not
pass title to Nove1- because the Certificate of Deposit issued by Covadonga was
invalid; 16 and (2) the beans "allegedly involved never existed in the stated

quantities and never moved from Covadonga's warehouses and silos."l7

C.

The Pending Arbitration Proceeding
On November 16, 2012, Access and Novel jointly demanded

arbitration against National Union. 18 Subsequently, Novel, Access, and National
Union entered into an Agreed Arbitration Protocol. I9 On March 7, 2013, National
Union served a demand to arbitrate upon Global and Besch as CounterRespondents, claiming that they were the alter egos of Access. Besch and Global

15

See NU Arb. Stmt. ~ 44.

16

See id.

17

Def. Mem. at 9.

~ 45.

In June 2012, Novel served a demand for arbitration on National
Union. See Compl. ~ 14.
18

19

See id.
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maintain they are not parties to the Policy or the Agreed Arbitration Protocol and
did not agree to arbitrate any dispute with National Union. 20

III.

APPLICABLE LAW
A.

Arbitration
Arbitration clauses are subject to the Federal Arbitration Act

(HFAA").21 Under the FAA, '" any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration. ",22 "A court should not stay arbitration
'unless it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute. ",23 At the same
time, "[a]rbitration is a matter of contract, and therefore a party cannot be required
to submit to arbitration any dispute which it has not agreed so to submit."24

20

See id.

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16.

See Stolt-Nielson S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662,130

S. Ct. 1758, 1773 (2010).
21

In re American Exp. Fin. Advisors Sec. Litig., 672 F.3d 113,128 (2d
Cir. 2011) (quoting Moses H. Cone Mem 'I Hosp. v. Mercury Constr. Corp., 460
U.S. 1,24-25 (1983)).
22

Bedroc Contracting L.L.c. v. Mason Tenders Dist. Council of
Greater New York and Long Island, No. 06 avo 6399,2006 WL 3057311, at *2
(S.D.N.Y. Oct. 25 2006) (quoting Thomas .lImes Assocs. v. Jameson, 102 F.3d 60,
65 (2d Cir. 1996)).
23

24

Ragone v. Atlantic Video at Manhattan Or., 595 F.3d 115, 126 (2d

Cir.2010).
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However, the Second Circuit has stated that a non-signatory may be bound by
arbitration agreements entered into by others under, inter alia, a "veil-piercing/alter
ego" theory. 25
This Court must follow a three step procedure to determine whether
Global and Besch - both non-signatories

have a duty to arbitrate. First, the

Court must determine whether National Union has pled a prima facie alter ego case
against the plaintiffs. Second, if National Union has adequately pled that Global
and Besch are alter egos of Access, then the Court must consider the evidentiary
submissions of the parties to determine if there are material issues of fact as to
whether they are alter egos. 26 Third, if there is a material issue of fact, the Court
must allow a jury to determine the alter ego issue pursuant to Section 4 of the
FAA.27 "The party seeking an order compelling arbitration must 'substantiate [its]
entitlement [to arbitration] by a showing of evidentiary facts that support its claim

American Bureau ofShipping v. Tencara Shipyard S.P.A., 170 F .3d
349, 352 (2d Cir. 1999). Accord Thomson-CSF, S.A. v. American Arbitration
Ass 'n 64 F.3d 773, 776 (2d Gr. 1995) (recognizing "five theories for binding
nonsignatories to arbitration agreements: 1) incorporation by reference; 2)
assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.").
25

When a district court is required to determine arbitrability, the
standard for summary judgment applies. See Bensadoun v. Jobe-Riat, 316 F.3d
171, 175 (2d Cir. 2003).
26

See 9 U.S.C. § 4 ("If the making of the arbitration agreement or the
failure, neglect, or refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereof.").
27

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that the other party agreed to arbitration. ",28 "If the party seeking arbitration meets
this burden, 'the party opposing [arbitration] may not rest on a denial but must
submit evidentiary facts showing that there is a dispute of fact to be tried. ",29

B.

Alter Ego Status
A federal court applies the choice of law rules of the state in which it

sits.30 Under New York's choice-of-Iaw rules, the controlling law with respect to
National Union's claims is the law of the state where each alter ego was
incorporated (Global was incorporated in Delaware and Access was incorporated
in New Jersey).31 Therefore, Delaware law controls whether Access and Global
are alter egos while New Jersey Law detemunes whether Besch is the alter ego of
Access.

Ayco Co., L.p. v. Frisch, No. 11 Civ. 580,2012 WL 42134, at *3
(N.D.N.Y. Jan. 9, 2012) (quoting D'Antuono v. Service Road Corp., 789 F. Supp.
2d 308, 319 (D. Conn. 2011 )).
28

Id. (quoting Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358
(2d Cir. 1995)).
29

See Tri-State Emp 't Servs. v. Mountbatten Sur. Co., 295 F.3d 256,260
(2d Cir. 2002).
30

31
The Parties agree to the choice of law for each plaintiff. Because
Global is accused of being the alter ego of Access, Global's state of incorporation
(Delaware) applies. See Dover Ltd. v. A.B. Watley, Inc., No. 04 Civ. 7366,2006
WL 2987054, at *9 (S.D.N.Y. Oct. 18,2006) (citing Fletcher v. Atex, Inc., 68 F.3d
1451, 1456 (2d Cir. 1995)).
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1.

Delaware

In determining if alter ego status applies to a Delaware corporation,
the Second Circuit applying Delaware law focused on "(1) whether the entities in
question operated as a single economic entity, and (2) whether there was an overall
element of injustice or unfairness."32 Factors relevant to establishing the first
prong include:
whether the corporation was adequately capitalized for the
corporate undertaking; whether the corporation was
solvent; whether dividends were paid, corporate records
kept, officers and directors functioned properly, and other
corporate formalities were observed; whether the dominant
shareholder siphoned corporate funds; and whether, in
general, the corporation simply functioned as a facade for
the dominant shareholder. 33
In establishing the second factor, a p1aintiff"need not prove that the corporation
was created with fraud or unfairness in mind. It is sufficient to prove that it was so
used.,,34
NetJetsAviation, Inc. vLHCCommc'ns,LLC, 537 F.3d 168, 177 (2d
Cir. 2008) (citing Fletcher, 68 F.3d at 1457).
32

33
Id. at 176-77 (quoting Harm Nat 'I Ins. Co. v. Green Farms, Inc., No.
Civ. A. 1331, 1989 \VL 110537, at *4 (DeL Ch. Sept. 19,1989) (quoting Unit«l
States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 (D. Dcl. 1988) ("Golden
Acres "), aff'd, 879 F.2d 857 and 879 F.2d 860 (3d Gr. 1989)).
Id. (citing Martin v. D.B. Martin Co., 10 Del. Ch. 211, 219 (1913)
(corporate form may be disregarded "when used as a shield for fraudulent or other
illegal acts, though it does not appear that the arrangement was originally intended
to perpetrate a fraud").
34

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2.

New Jersey

New Jersey law is substantially similar to Delaware's law in that to
find alter ego status, two conditions must be met: "first, 'there must be such unity
of interest and ownership that the separate personalities of the corporation and the
individual no longer exist,' and second, 'adherence to the fiction of separate
corporate existence would sanction a fraud or promote injustice. ",35
"'[A] sole (individual or corporate) shareholder or multiple
shareholders run the risk of a piercing claim when they (i) make no distinction
between their pocketbooks and the corporate pocketbook; (ii) fail to capitalize the
corporation adequately; and (iii) fail to comply with corporate formalities. ",36The
following factors weigh in favor of piercing the corporate veil of an alter ego:
[G]ross undercapitalization[,] failure to observe corporate
formalities, non-payment of dividends, the insolvency of
the debtor corporation at the time, siphoning of funds ofthe
corporation by the dominant stockholder, non-functioning
of other officers or directors, absence of corporate records,
and [whether] the corporation is merely a facade for the

North Am. Steel Connection, Inc. v. Watson Metal Prods Corp., No.
12 Civ. 2296,2013 WL 1095445 (3d Cir. Mar. 18,2013) (quoting State Capital
Title & Abstract Co. v. Pappas Bus. Servs., 646 F. Supp. 2d 668, 679 (D.N.J.
2009)).
35

Erickson v. Leonard, No. 47-02, 2008 WL 706278, at *7 (N.J. Super.
App. Div. Mar. 18, 2008) (quoting Pa::hman, Title 14A Corporations, Comment
6c(l) on N.J.S.A. 14A:5-30 (2007)).
36

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operations of the dominant stockholder or stockholders. 37
"It is well established that 'a corporation is a separate entity from its shareholders ..

. [and] a primary reason for incorporation is the insulation of shareholders from the
liabilities of the corporate enterprise. ",38 In some circumstances, courts may pierce
the corporate veil by finding that a corporate entity was "a mere instrumentality" of
the individual shareholder. 39 "An individual may be liable for corporate
obligations ifhe was using the corporation as his alter ego and abusing the
corporate form in order to advance his personal interests.,,40

3.

Limited Liability Corporations

"In the alter-ego analysis of an LLC, somewhat less emphasis is
placed on whether the LLC observed internal formalities because fewer such

Horizon Plastics, Inc. v. Constance, No. 00 Civ. 6458, 2004 WL
1234049, at *3 (S.D.N.Y. June 2,2004) (quoting Oaig v. Lake Asbestos of
Quebec, Ltd., 843 F.2d 145, 150 (3d Qr. 1988) (internal citations and quotation
marks omitted)).
37

38

Verni v. Harry M Stevens, Inc., 903 A.2d 475,497 (App. Div. N.J.

39

See Department ofEnvir. Prot. v. Ventron Corp., 94 N.J. 473, 500--01

2006).
(1983).

Sean Wood, LLC. v. Hegarty Group, Inc., 422 N.J. Super. 500, 517
(2011) (citing Tsai v. Buildings byJamie, Inc. (In re Buildings byJamie), 230 B.R.
36,42 (Bankr. D.N.J. 1998)).
40

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formalities are legally required.'~l "Lesser weight should be afforded the element
of domination and control and adherence to corporate formalities, because the
statute authorizing limited liability companies expressly authorizes managers and
members to operate the firm.''''2

IV.

DISCUSSION
A.

Whether Global and/or Besch Are Alter Egos of Access
Plaintiffs argue that a stay of arbitration is warranted because National

Union has not established that Global and Besch are the alter egos of Access.
Specifically, plaintiffs argue that National Union has not adequately pled that there
was either disregard for the corporate form and fraud ,or misuse using the corporate
form.

1.

Did Global and Access Operate as a Single Economic Entity?

National Union's arbitration demand alleges that Global and Besch are
alter egos of Access because: (I) Besch maintains an ownership interest in both
Access and Global; (2) Besch controls both companies; (3) the companies have the
same office address; and (4) the companies operate as a single economic enterprise.
Further, National Union alleges that plaintiffs perpetrated an injustice by "inducing
41

NetJets Aviation, Inc., 537 F.3d at 178.

D.R. Horton Inc.-New Jersey v. Dynastar Dev., LLC, No.

MER-L-1808-00, 2005 WL 1939778, at *20-21 (N.J. Super. Law. Div. 2005).

42

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National Union to issue a policy to cover financing transactions National Union did
not, and never intended to, insure" and then used Global to "circumvent the policy
limitations and to engage in financing transactions prohibited under the policy."'B
To establish that Global is the alter ego of Access, National Union
must first show that Access and Global operated as a single economic unit. 44
National Union argues that the companies are exclusively controlled by a single
owner, who made all business decisions and ran the daily operations of both
companies from his home, used his personal e-mail address to conduct both
businesses, and used the same telephone number for both companies. It is
undisputed that Global has a significant relationship with Access, having the same
owner (Besch) and using the same address and telephone number. Beyond this,
National Union has not provided evidence that Global failed to comply with
corporate formalities, make independent day-to-day operational decisions, or
remain sufficiently capitalized. 45 However, at this preliminary stage, National

43

Def. Mem. at 8.

See NetJets Aviation, Inc., 537 F.3d at 177. See also Leber Assocs.,
LLC. v. Entertainment Grp. Fund, Inc., No. 00 Civ 3759, 2003 WL 21750211, at
*14 (S.D.N.Y. July 29,2003).
44

See Mason v. Network of Wilmington, Inc., Civ.A. No. 19434-NC,
2005 WL 1653954, at *4 (Del. Ch. Ct. July 1, 2005) (''Being the sole shareholder
of two different legal entities, housed in the same office building and possessing
the same phone number at separate (and not sequential) times does not constitute a
45

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Union has no way of knowing whether Access and Global observed such corporate
formalities. 46
It is true that as a limited liability company, Global is exempt from

some corporate form requirements such as paying dividends and having corporate
directors other than Besch. Global presents some evidence that Global only 50% owned by Besch -

which is

is a valid business operation. Specifically, Global

was incorporated for transactions prior to the dealings with National Union,
continues to do business, and has a separate operating agreement. National Union
counters that this is immaterial because Global was acting as an alter ego of Besch
"for purposes of' the transactions.
Plaintiffs rely almost exclusively on Besch's affidavit, without
providing evidence to support any assertions that the companies are adequately
funded or observe the necessary formalities. Although the facts already alleged by
National Union alone may not be sufficient to establish that Global and Access are
alter egos they do suggest a high degree of interrelatedness. At this stage, National
sham that 'exist[s] for no other purpose than as a vehicle for fraud."') (quoting
Wallace ex rei. Cencom Cable Income Partners IL Inc., L.P. v. Wood, 752 A.2d
1175, 1184 (Del. Ch. 1999)).
National Union claims that it has asked plaintiffs and Access to

"provide documents demonstrating whether Global is adequately capitalized, has

ever paid dividends, or siphons off assets, but plaintiffs and Access have thus far

refused." Def. Mem. at 21.

46

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Union has sufficiently established the first prong of the alter ego test.
The second prong of Delaware's alter ego test is adequately alleged
based upon National Union's allegations of unfairness and misconduct (Access
using Global as a means to circumvent the rule restricting Access from acting as a
First Purchaser on the underlying transactions). While the allegations are sufficient
to raise the alter ego issue, Global disputes that it is the alter ego of Access.
Therefore, questions remain as to whether Access used Global to further its plan to
circumvent the restrictions placed on the transactions. National Union has alleged
enough of an interrelationship between Access and Global to show that discovery is
necessary to determine if there are material issues of fact as to whether the
corporations are alter egos. 47

2.

Was Global an Instrumentality or Alter Ego of Besch?

National Union also argues that Global is Access's alter ego because
of their mutual alter ego relationship with Besch. National Union maintains that
Besch exercised exclusive control over Global from his home and using his
personal e-mail address, and was merely a shell corporation used for his own
personal dealings. For the reasons discussed above, there are questions of fact as to
whether Besch used Global to further his plan to circumvent the restrictions placed
See Dover Ltd. v. A.B. Watley, Inc., No. 04 Civ. 7366, 2006 WL

2987054, at *I 0 (S.D.N.Y. Oct. 18,2006).

47

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on the transactions. Accordingly, discovery is required to support or disprove
National Union's claims.

3.

Did Access Act as an Instrumentality or Alter Ego of
Besch?48

Under New Jersey's two-part test to determine alter ego status,
National Union must prove that (1) Access was a mere instrumentality or alter ego
of Besch; and (2) Besch abused the business form to perpetrate a fraud, injustice, or
otherwise circumvent the law.
National Union maintains that the evidence demonstrates that Besch
dominated Access such that the company did not have a separate existence.
National Union argues that Besch was Access's sole owner, that he alone
comprised the company's officers, directors or members, and that he exercised
exclusive control over Access from his personal residence and using his personal email address. The mere fact that all or most of the corporate stock is owned by one
individual or a few individuals will not afford sufficient grounds for disregarding

48
National Union argues that because Access was incorporated in New
Jersey, New Jersey law determines whether Besch and Access are alter egos.
Plaintiffs, who in their original Memorandum of Law only focused on Delaware
law, do not dispute the application of New Jersey law with respect to Access in
their reply brief.
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the corporate form. 49 Allegations that an individual was the sole or primary
shareholder are inadequate as a matter of law to pierce the corporate veil.
However, as discussed above, plaintiffs have not provided National Union with
information regarding whether Access is adequately capitalized, solvent,
maintained complete records or observed other corporate formalities. There is
insufficient information to determine whether Besch overstepped the bounds and
used Access to perpetrate an injustice. Therefore, there are questions as to whether
Besch used Access to further his plan to circumvent the restrictions placed on the
transactions. A period of discovery is required to adduce evidence to support or
disprove National Union's claims.50

B.

The Arbitrator Is Bound By This Court's Finding on Alter Ego
Plaintiffs argue that they should not be compelled to arbitrate because

there is "no controversy requiring declaratory relief against Besch and Global
Commodities," they are not necessary parties to the Arbitration and they cannot
pursue claims against National Union. 51 National Union, in tum, argues that
because plaintiffs are alter egos of Access, joinder is appropriate.
49

See Coppa v. Taxation Div. Director, 8 N.J. Tax 236, 245 (Tax 1986).

See Horizon Plastics, Inc. v. Constance, No. 00 Civ. 6458,2002 WL

398668 at *5 (S.D.N.Y. Mar. 13, 2002).

50

51

PI. Mem. at 10-11.

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---------

-~-~-~- ...

A ruling by this Court that Global and/or Besch are alter egos of
Access would establish that Access and Novel are not entitled to recover under the
Policy because they violated the First Purchaser requirement of Endorsement 15. It
is unfortunate that deciding the threshold question of arbitrability as to these nonsignatories might moot the arbitration. 52 However, it is unavoidable in light of this
Court's mandate to decide questions of arbitrability. But if this Court holds that
Global and Besch are not alter egos of Access, then National Union will still be able
to present the other defenses it has raised in the arbitration proceedings, e.g., that
the Certificates of Deposit effectuating the disputed transactions were invalid.

v.

CONCLUSION
For the foregoing reasons, the plaintiffs' motion to stay the arbitration is

granted until a final decision on alter ego status is reached. If, after discovery and a
consideration ofthe evidentiary submissions, issues offact remain, a trial must be held
to determine whether Global and Besch are alter egos ofAccess. 53 Defendant's cross
motion to compel arbitration is denied with leave to renew. The Clerk of the Court is

This problem could have been avoided if National Union had moved

to compel alter ego discovery from Novel and Access in the arbitration

proceedings. If that discovery revealed that Global was the alter ego of Access,

then National Union would have prevailed in the arbitration proceedings based on

Endorsement 15.

52

53

See 9 U.S.C. § 4.
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directed to close the instant motions (Docket Nos. 2 & 15). A conference to set a
discovery schedule is set for September 24,2013 at 4:30 p.m

Dated:

New York, New York
August 29,2013

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- Appearances ­
For Plaintiffs:
Richard C. Yeskoo, Esq.
Yeskoo, Hogan & Tamlyn LLP
909 Third Avenue, 28th Floor
New York, NY 10022
[phone]

For Defendant:
Michael Anderson, Esq.
Rosanna M. Neil, Esq.
Joseph R. Profaizer, Esq.
Paul Hastings LLP
875 15th Street, N.W.
Washington, DC 20005
[phone]

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