Gould v. Japan Pulp and Paper (U.S.A), Corporation
Filing
18
OPINION re: 11 MOTION to Compel Arbitration filed by Japan Pulp and Paper (U.S.A), Corporation. Based on the conclusions set forth above, the motion of JP-USA is granted. Gould is directed to arbitrate his claims and this action is dismissed with leave granted to renew without additional fees at the conclusion of the arbitration. It is so ordered. (Signed by Judge Robert W. Sweet on 2/11/2015) (ajs)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------x
HARRY E. GOULD, JR.,
Plaintiff,
14 Civ. 7905
-against-
OPINION
JAPAN PULP AND PAPER (U.S.A.),
Defendant.
--------------------------------------x
A P P E A RA N C E S:
r
----·---·--·-·-···---·
~---···~--------;
'-'DC c.. . : : n H " .\ ~.
,_,1 ;."" J.
U ._')
-noCU1vtENT
\
. ·LECT1-i e~-·11-- /1.' ..• y, 1::-~11 A-" 1·.
"" . .('.. J, ~ ·' ~_., '·' 1
I ..... t:;n \
\E
,\DOC #: ___ __i._~ l
1
Attorneys for Plaintiff
--- ~F1LEJ5:4~~~f
·- ____...
-·------·- -~---~"'
\\DATE
\..::
DLA Piper LLP
1251 Avenue of the Americas
New York, NY 10020-1104
By:
Jonathan D. Siegfried, Esq.
Attorneys for Defendant
BRYAN CAVE LLP
1290 Avenue of the Americas
New York, NY 10104
By:
Chris LaRocco, Esq.
Steve Stimell, Esq.
BUSINESS LEGAL PARTNERS
135 W. Green Street, Suite 100
Pasadena, CA 91105
By:
Mark S. Shipow, Esq.
----::...:-..
.
...
-
... -·
Sweet, D.J.
Defendant Japan Pulp & Paper
(U.S.A.) Corporation
("JP-USA" or the "Defendant") has moved under the Federal
Arbitration Act,
9 U.S.C.
§§
1-16, to dismiss the Complaint in
this action and to compel Plaintiff Harry E. Gould, Jr.
("Gould"
or "Plaintiff") to arbitrate his claims, or to stay the action
pending arbitration.
Based upon the conclusions set forth
below, the motion of JP-USA is granted and Gould is directed to
submit his claims to arbitration.
In this action, Gould seeks to recover damages for the
breach of his Consulting Agreement which does not contain an
arbitration clause.
However,
for the reasons set forth below,
the Consulting Agreement is connected and collateral to the
Stock Purchase Agreement
("SPA") which contains a broad
arbitration clause.
Prior Proceedings
JP-USA is a paper supply and processing company
headquartered in California.
Compl.
~
3.
Gould is the
President and Chief Executive Officer of Gould Paper Corporation
1
("GPC"), a paper supply and processing company with its
headquarters in New York.
Id. ':ll':ll 3, 8.
On April 15, 2010, JP-
USA, GPC, and Gould individually, among others, entered into the
SPA whereby JP-USA purchased 51% of GPC's common stock.
':ll':ll 3,
Id.
9; see also Declaration of Akihiko Watanabe, dated October
31, 2014
("Watanabe Deel."), Ex. 2, excerpts from SPA.
The SPA, contains a "Mediation and Arbitration"
section and outlines the parties' agreed-upon forum for
resolving disputes.
First, the parties must attempt to mediate
any disputes between them, which they have done.
':TI
6, Ex. 2, SPA,
§
11.14.1.
If mediation fails,
Watanabe Deel.
the SPA states:
The Parties agree to submit any dispute,
controversy or claim ("Dispute") arising out of,
relating to or in any way connection [sic] with
this Agreement to final and binding arbitration
under the [JAMS] Commercial Arbitration
Rules .
Id.§ 11.14.1.1.
In addition to the SPA, the transaction included the
execution of other agreements as well, among them are a
shareholder's agreement, an employment agreement, and a credit
agreement with accompanying loan documents.
2
Watanabe Deel.
':TI
4.
JP-USA and Gould subsequently signed the Consulting
Agreement as of July 1, 2012, whereby Gould agreed to "consult
with and advise the senior management of JP-USA on all aspects
of strategic, management and operational matters for the benefit
of JP-USA."
Compl., Ex. A., Consulting Agreement,
§
1.
As
Gould explains, the Consulting Agreement flowed directly from
the relationship created between himself and JP-USA as a result
of the SPA.
Id.
'l['l[
11-13.
The Consulting Agreement references the SPA to define
the term of the Consulting Agreement.
Section 3 outlines the
terms and conditions of Gould's compensation under the
Consulting Agreement:
3.
Compensation: In consideration of his
rendering the Services to JP-USA, HEG shall be
paid on an annual basis by JP-USA a sum equal to
forty-nine percent (49%) of the Net Profit (as
defined in this Section 3) . . . .
For purposes
of this Section 3, the term "Net Profit" shall be
defined as the net operating income of JP-USA, as
determined on an annual calendar year basis by
its internal audit in the calculation format
attached hereto as Exhibit "A" and incorporated
herein by reference.
Notwithstanding any
contrary provision of this Agreement, (1) HEG
shall not be entitled to any HEG Compensation if
the Net Profit is negative; (2) the calculation
of the HEG Share Price (as defined in the SPA)
shall not include any consideration of the
financial condition of JP-USA or any of the HEG
Compensation, HEG's compensation hereunder being
paid by JP-USA separate from and independent of
3
the compensation that HEG is entitled to receive
under the SPA upon the Stock Purchase Closing;
and (3) nothing herein shall be construed as
modifying or deemed to be a modification of the
SPA or any agreement executed in connection with
therewith, including, without limitation the HEG
Employment Agreement.
Id., Ex. A, Consulting Agreement, § 3.
The Consulting Agreement
contains no arbitration claims.
As a result of a number of disputes under the SPA and
related agreements after the failure of mediation, on September
18, 2014,
JP-USA filed the California Arbitration against Gould,
pursuant to§ 11.14.1.1 of the SPA.
Watanabe Deel.
~~
6-7.
Among the claims asserted by JP-USA in the California
Arbitration are claims
(i)
connection with the SPA,
related to Gould's compensation in
including that the "HEG Share Price"
calculation, as that term is defined in the SPA, be strictly
applied, and
(ii)
related to the amount of interest due from GPC
to JP-USA pursuant to the credit agreement executed in
connection with the transaction between Gould and JP-USA.
7.
Id.
Prior to responding to the arbitration demand in California,
Gould filed his Complaint in this action on September 30, 2014.
Id.
~
~
8.
Gould has since filed his response and counterclaims
in the California Arbitration.
Id.
4
In the instant Complaint, Gould alleges that JP-USA
breached the Consulting Agreement by failing to pay him the full
amount of "Net Profits" owed to him under the Consulting
Agreement.
Compl. ! ! 22-23.
He acknowledges that JP-USA paid
him $57,747 under the Consulting Agreement but argues that he
was not paid "Net Profits" for "the partial calendar year of
2012 or the full calendar year of 2013."
asserted two claims:
(i)
Id. ! 19.
Gould has
for breach of the Consulting Agreement,
and (ii) for attorneys' fees pursuant to the terms of the
Consulting Agreement.
The instant motion was heard and marked fully
submitted on December 1, 2014.
The Applicable Standard
The arbitration provisions in the SPA are governed by
the Federal Arbitration Act
("FAA"),
9 U.S.C.
§§
1-16.
Section
2 of the FAA provides that a "contract evidencing a transaction
involving commerce .
. 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.
Indisputably, the SPA concerns a transaction involving commerce,
See Watanabe Deel., Ex. 2,
and, therefore, the FAA applies.
5
SPA.
Section 2 of the FAA further "requires courts to enforce
[arbitration] agreements .
. according to their terms."
CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 699 (2012)
(citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221
(1985)); see 9 U.S.C. § 2.
It "is a congressional declaration
of a liberal federal policy favoring arbitration agreements."
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
24
(1983).
460 U.S. 1,
The Second Circuit likewise recognizes the strong
federal and state policy favoring arbitration.
Ragone v.
Atlantic Video at Manhattan Ctr., 595 F.3d 115, 121 (2d Cir.
2010) .
Section 2 creates "a presumption of arbitrability" and
a rule that all "[d]oubts should be resolved in favor of
[arbitration]."
See AT&T Techs., Inc. v. Communications Workers
of Am., 475 U.S. 643,
U.S. at 24-25.
650 (1986); Moses H. Cone Mem'l Hosp., 460
"The presumption in favor of arbitrability is
greater when the arbitration clause,
[as here], is broad."
CPR
v . Spray, No . 9 7 Ci v . 6 4 7 7 ( RP P) , 19 9 8 WL 2 8 3 2 8 5 , at * 1
(S.D.N.Y. June 1, 1998), aff'd sub nom., CPR (USA)
Inc. v.
Spray, 187 F.3d 245 (2d Cir. 1999), abrogated on other grounds
by, Accenture LLP v. Spreng,
647 F.3d 72
(2d Cir. 2011).
presumption can only be overcome "if it may be said with
positive assurance that the arbitration clause is not
6
This
susceptible of an interpretation that covers the asserted
dispute."
CPR (USA), 187 F.3d at 254.
The United States Supreme Court has held that the FAA
"leaves no place for the exercise of discretion by a district
court, but instead mandates that district courts shall direct
the parties to proceed to arbitration."
Inc., 470 U.S. at 218.
Dean Witter Reynolds,
At the same time, "arbitration is a
matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to
arbitrate."
Steelworkers, 363 U.S. at 582; Howsam v. Dean
Witter Reynolds, 537 U.S. 79, 83
(2002); First Options of
Chicago, Inc. v. Kaplan, 514 U.S.
938, 942-943 (1995).
As the
Second Circuit held in Sole Resort, S.A. de C.V. v. Allure
Resorts Mgmt., LLC, 450 F.3d 100, 104
(2d Cir. 2006), "which
disputes are subject to arbitration are determined entirely by
an agreement between the parties," and "[w]ithout the contract,
the arbitration .
. never could exist."
The party resisting arbitration bears the burden of
showing that the arbitration provision is invalid or does not
encompass the claims at issue.
Randolph, 531 U.S. 79, 92
Green Tree Fin. Corp.-Ala v.
(2000).
In determining this motion to
compel arbitration, the Court must look at:
7
(1) whether the
parties agreed to arbitrate; and (2) whether the scope of the
arbitration provision covers Gould's claims.
Young, U.S., L.L.C. v. Nackel,
Cap Gemini Ernst &
346 F.3d 360, 365
(2d Cir. 2003).
The Consulting Agreement is Collateral to the SPA Arbitration Clause
"'[A] collateral agreement is a separate, side
agreement, connected with the principal contract which contains
the arbitration clause.'"
Beer Corp.,
10-CV-6100, 2010 U.S. Dist. LEXIS 56601, at *25
(W.D.N.Y. June 8, 2010)
omitted).
High Falls Brewing Co., LLC v. Boston
(internal quotations and citations
When determining whether a particular dispute over a
matter in a collateral agreement is covered by another
agreement's arbitration clause, courts:
arbitration clause is broad or narrow;
(1)
(2)
classify whether the
if the clause is
narrow, determine whether the dispute is over an issue obviously
within the purview of the clause; and,
(3)
if the clause is
broad, determine whether the claims alleged regarding the
separate agreement "'implicate[] issues of contract construction
or the parties'
rights and obligations under [the agreement with
the arbitration clause].'"
See Louis Dreyfus Negroce S.A. v.
Blystad Shipping & Trading Inc., 252 F.3d 218, 224, 228-29
Cir. 2001)
(2d
(quoting Collins & Aikman Prods. Co. v. Bldg. Sys.
8
Inc., 58 F.3d16, 23
(2dCir. 1995)).
Generally, where the
arbitration clause is broad, "'there arises a presumption of
arbitrability.'"
Id.
A clause referring to arbitration "any claim or
controversy arising out of or relating to the agreement" is "the
paradigm of a broad [arbitration] clause."
Prods. Co., 58 F.3d at 18, 20.
Collins & Aikman
The SPA's arbitration clause is
almost identical to the arbitration clause in Collins.
Watanabe
Deel., Ex. 2, SPA, § 11.14.1.1 ("The Parties agree to submit any
dispute, controversy or claim ("Dispute") arising out of,
relating to or in any way connection [sic] with this Agreement
to final and binding arbitration").
Accordingly, the SPA's
arbitration clause is broad, and the presumption of
arbitrability applies.
"'When parties use expansive language in drafting an
arbitration clause, presumably they intend all issues that
'touch matters' within the main agreement to be arbitrated.'"
Dreyfus, 252 F.3d at 225
&
(quoting Geneseco,
Inc. v. T. Kakiuchi
Co., 815 F.2d 840, 846 (2d Cir. 1987)).
Under the Dreyfus test, Gould's claims under the
Consulting Agreement "touch" the SPA and implicate issues of
9
contract construction and the parties' rights thereunder.
Paragraph 3 of the Consulting Agreement, which along with
Exhibit A to the Consulting Agreement is at the heart of the
current dispute, provides that his payment under the Consulting
Agreement will not be included within the calculation of the
Id. § 3.
"HEG Share Price," as otherwise defined in the SPA.
The calculation and application of the HEG Share Price
under the SPA accounts for and excludes payments under the
Consulting Agreement.
Id.; Watanabe Deel., Ex. 2, SPA, § 6.01.
In one claim in the California Arbitration, JP-USA seeks an
order from the arbitrator directing that the HEG Share Price
calculation be strictly applied.
Watanabe Deel.
~
7.
A second claim in the California Arbitration is
related to the amount of interest due from GPC to JP-USA
pursuant to a credit agreement executed pursuant to the terms of
the SPA,
in connection with the transaction between Gould and
JP-USA.
Id.
Gould contends in this action that he has not been
fully compensated under the Consulting Agreement based,
on the fact that certain income of JP-USA,
in part,
received in the form
of interest from GPC pursuant to the credit agreement, was not
included in the calculation of net profits setting Gould's
compensation under the Consulting Agreement.
10
Id.
~
5.
Thus, a
determination in the California Arbitration of the correct
amount of interest due will directly impact the determination of
the correct amount of Gould's compensation under the Consulting
Agreement.
Gould's characterization of the facts in his Complaint
also supports the conclusion that the arbitration provision of
the SPA should control.
Specifically, Gould acknowledges that
the Consulting Agreement grew out of the SPA.
13.
See Compl.
~~
11-
Because the Consulting Agreement fundamentally "touch[es]
matters" within the SPA, its arbitration clause covers Gould's
claims regarding the Consulting Agreement.
Dreyfus, 252 F.3d at
225; High Falls Brewing Co., 2010 U.S. Dist. LEXIS 56601, at
*24-25 (holding that agreements, if collateral, specifically
implicated aspects of the main agreement and were arbitrable)
Finally, although the Consulting Agreement
contemplates the possibility of "litigation or other
proceedings," the "Miscellaneous" section does not preclude
arbitration of Gould's claims.
That section references
"litigation or other proceedings" and deals with the
distribution of attorneys'
fees and costs, but does not address
the appropriate forum or venue for resolving a dispute between
the parties.
Compl., Ex. A., Consulting Agreement,
11
§
6.
Where
there are two related agreements, one with an arbitration clause
and the other with a different dispute resolution clause, the
arbitration clause generally prevails over the other dispute
resolution clause unless that clause precludes or prohibits
arbitration.
See High Falls Brewing Co., 2010 U.S. Dist. LEXIS
56601, at *26-29 (citing Bank Julius Baer & Co. v. Waxfield,
Ltd.,
424 F.3d 278, 283-284
(2d Cir. 2005)).
As the
"Miscellaneous" dispute resolution clause in the Consulting
Agreement does not bar arbitration or designate a specific forum
or venue for the resolution of disputes under the Consulting
Agreement, Gould's claims will be arbitrated.
Gould has contended that his claims do not implicate
any issues of construction of - or "touch" - the SPA (Pl.'s
Opp'n 10), and that the Consulting Agreement's exclusionary
reference to the SPA and the HEG Share Price, as defined in the
SPA, means that his claim under the Consulting Agreement does
not rely upon or require construction of the SPA.
Id.
However,
there is an explicit reference to the SPA's terms in Section 3
of the Consulting Agreement, outlining what does and what does
not constitute compensation for the purposed of the Consulting
Agreement.
See
Compl., Ex. A., Consulting Agreement, § 2.
This fact favors Defendant's motion.
12
Gould's claim in this action is also based, in part,
on his contention that certain income of JP-USA, received in the
form of interest from GPC pursuant to a collateral credit
agreement, was not included in the calculation of Gould's
compensation under the Consulting Agreement.
5.
~
Watanabe Deel.
As a result, proper calculation of Gould's compensation
under the Consulting Agreement will impact and require
interpretation of not only the SPA, but additional collateral
agreements as well, all of which are already currently at issue
in the California Arbitration because Gould's claim touches upon
the SPA.
Gould relies on the holding in Rosen v. Mega Bloks,
Inc., 06 Civ. 3474, 2007 WL 1958968
(S.D.N.Y. July 6, 2007).
In
Rosen, the court held ancillary employment agreements, which
each contained arbitration provisions and were exhibits to a
central stock purchase agreement, did not require arbitration of
the plaintiff's claims under the stock purchase agreement.
at *6.
Id.
The court noted that when determining whether a claim
falls within the scope of an arbitration agreement, the court is
to:
[F]ocus on the factual allegations in the
complaint rather than the legal causes of action
asserted.
If the allegations underlying the
13
claims 'touch matters' covered by the
parties'. . . agreements, then those claims must
be arbitrated, whatever the legal labels attached
to them.
Id. at *8
(internal citations omitted).
The Rosen court found that the section of the
employment agreements that was allegedly implicated by the
plaintiff's claims, which referenced a section of the stock
purchase agreement at issue, were not substantive, nor did they
require the interpretation of the parties' rights and
obligations under them.
Id. at *9, 12.
The Court explained
that if the relevant section of the employment agreements made
no mention of the stock purchase agreement, the parties' rights
under the employment agreements would not need to be determined
to decide the claims under the stock purchase agreement.
Id. at
*10.
Here, however, Consulting Agreement depends on
contractual terms defined in the SPA, which are subject to
interpretation and shape the calculation of compensation owed to
Gould under the Consulting Agreement.
Therefore, Gould's claims
concerning that compensation must be arbitrated under the SPA's
arbitration provision.
Id.
14
Gould has also pointed to the broad arbitration
provision in Bank Julius Baer & Co., Ltd. v. Waxfield Ltd.,
F.3d 278
424
(2d Cir. 2005), as distinguished from the arbitration
provision in the SPA.
Rather than relating merely to "disputes
arising out of this Agreement," as Gould suggests, the
arbitration provision of the SPA applies to any dispute,
controversy or claim arising out of,
connected to the SPA.
relating to or in any way
Watanabe Aff., Ex. 2, § 11.14.1.1.
As
set forth above, Gould's claims here are connected to the SPA.
Likewise, Gould seeks to distinguish Louis Dreyfus
Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218
Cir. 2001)
(2d
and High Falls Brewing Co., LLC v. Boston Beer Corp.,
No. 10-CV-6100, 2010 WL 2389168
(W.D.N.Y. June 9, 2010), by
claiming that those cases dealt with contract construction of an
agreement containing an arbitration clause.
Pl.'s Opp'n 12-13.
However, as set forth above, Gould's claims require construction
of the SPA to define the scope of his compensation under the
Consulting Agreement.
15
Conclusion
Based on the conclusions set forth above, the motion
of JP-USA is granted. Gould is directed to arbitrate his claims
and this action is dismissed with leave granted to renew without
additional fees at the conclusion of the arbitration.
It is so ordered.
New York, NY
February
rI '
2015
U.S.D.J.
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?