Color-Web, Inc et al v. Mitsubishi Heavy Industries Printing & Packaging Machinery, Ltd. et al
Filing
75
OPINION AND ORDER.....The defendants July 8 and October 3 motions to compel arbitration are granted. This action is stayed pending the outcome of arbitration proceedings. (Signed by Judge Denise L. Cote on 11/21/2016) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
COLOR-WEB, INC., DAVID MOYAL and
:
1 800 POSTCARDS, INC.,
:
:
Plaintiffs,
:
:
-v:
:
MITSUBISHI HEAVY INDUSTRIES PRINTING & :
PACKAGING MACHINERY, LTD., MITSUBISHI :
HEAVY INDUSTRIES, LTD., MITSUBISHI
:
HEAVY INDUSTRIES AMERICA, INC., RM
:
MACHINERY INC., MLP U.S.A., INC., AND :
MARKE BAKER,
:
:
Defendants.
:
:
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APPEARANCES
For the plaintiffs:
Michael J. Kapin
Michael J. Kapin, P.C.
305 Broadway, Suite 1004
New York, New York 10007
For the defendants:
Nancy E. Sasamoto
David J. Stein
Masuda, Funai, Eifert & Mitchell, Ltd.
203 N. LaSalle Street, Suite 2500
Chicago, Illinois 60601
Jean Claude Mazzola
Ruofei Xiang
Messner Reeves LLP
733 Third Avenue, 15th Floor
New York, New York 10017
16cv1435(DLC)
OPINION AND ORDER
DENISE COTE, District Judge:
Plaintiff Color-Web, Inc. (“Color-Web”) ordered a printing
press from defendant MLP U.S.A., Inc. (“MLP”).
The printing
press was never delivered and Color-Web subsequently went out of
business.
In their first amended complaint (“FAC”) the
plaintiffs raise claims under the Racketeer Influenced and
Corrupt Organizations Act (“RICO”) as well as state law fraud.
The defendants have moved to compel arbitration.
For the
following reasons, the defendants’ motion is granted.
Background
The following facts are taken from the FAC and documents
attached to or integral to the FAC.
I.
The Parties
The plaintiffs in this action are David Moyal (“Moyal”) and
two printing companies controlled by Moyal: Color-Web and 1 800
Postcards, Inc. (“Postcards”).
The defendants include five
corporate entities associated with Mitsubishi: (1) Mitsubishi
Heavy Industries, Ltd. (“MHI”), a Japanese corporation and the
corporate parent; (2) Mitsubishi Heavy Industries Printing &
Packaging Machinery, Ltd. (“MHIPPM”), a Japanese corporation
that builds Mitsubishi’s printing presses; (3) Mitsubishi Heavy
Industries America, Inc. (“MHIA”), a Delaware corporation that
is in charge of Mitsubishi’s U.S. operations; (4) MLP, a
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Delaware corporation responsible for Mitsubishi’s U.S. sales;
and (5) RM Machinery Inc. (“RM Machinery”), a Delaware
corporation and successor to MLP.
Defendant Marke Baker
(“Baker”) is an individual alleged to be or to have been an
employee and agent of MLP and RM Machinery.
II.
Purchase of the Printing Press
A. The Sales Agreement
On November 14, 2007, Color-Web entered into a sales
agreement (the “Sales Agreement”) with MLP for the purchase of a
Mitsubishi Diamond color printing press (the “Printing Press”).
The purchase price of the Printing Press was $3,695,000, which
included $200,000 due upon execution of the Sales Agreement as a
down payment plus $3,495,000 due 485 days following delivery of
the Printing Press.
The Sales Agreement was contingent on
Color-Web obtaining financing for the purchase through the
financing company Peoples Capital and Leasing Corp. (“Peoples”).
The Printing Press was scheduled to be delivered in September
2008.
The Sales Agreement included an arbitration clause that
provides:
Except for Seller’s right to seek collection of
payments due or replevin of the Equipment referenced
herein in accordance with its security interest in the
event of Purchaser’s failure to provide for return of
the same in violation of this Agreement, all disputes
and claims arising out of or in any way related to
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this Agreement, or arising in connection with this
Agreement and all disputes and claims regarding any
alleged defects in the Equipment shall be resolved
exclusively by final and binding arbitration conducted
in Chicago, Illinois, pursuant to the American
Arbitration Association’s Model Commercial Arbitration
Rules. The arbitration shall be before a panel of
three (3) arbitrators. The arbitration opinion and
award shall be final and binding upon the parties and
enforceable by any court of competent jurisdiction.
Seller and Purchaser shall share equally all costs of
arbitration (except their own attorneys’ fees).
(Emphasis added.)
B. Financing Agreement & Promissory Note
To finance the purchase of the Printing Press, Color-Webb
sought a loan from Peoples, a finance company with which Moyal
had previously worked in purchasing other equipment for his
businesses.
On or about November 13, 2007, Peoples sent Moyal a
proposed financing agreement, which Moyal accepted.
The
agreement contemplated that Color-Web would utilize a tax-exempt
New Jersey industrial revenue bond (the “IRB”).
On July 24,
2008, Color-Web and Peoples entered into a promissory note (the
“Promissory Note”) for $200,000, to be used to make the down
payment on the Printing Press.
Under the terms of the
Promissory Note, upon delivery of the Printing Press, the
Promissory Note would convert into a loan with a term of 84
months.
It also stated that in the event Color-Web failed to
close on the IRB by August 31, 2009, Peoples agreed to provide a
conventional term loan until such time as the IRB was approved.
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In exchange for the Promissory Note, Peoples paid $200,000 to
MLP as a down payment on the Printing Press
C. The Transaction Was Never Completed.
In 2009, during the recession caused by the financial
crisis, Color-Web desired to cancel the purchase of the Printing
Press.
On March 6, 2009, Color-Web entered into an extension
agreement with MLP (the “Extension Agreement”).
The Extension
Agreement states:
You have informed MLP that Color-Web’s business has
declined dramatically during the past few months as a
result of the ongoing recession. You have also
advised us that Color-Web is seeking to delay its
obligation to accept delivery of the Press at its
plant pursuant to the Sales Agreement. Meanwhile, as
you know, Color-Web’s counsel forwarded to MLP a
letter dated February 12, 2009 advising MLP that
Color-Web was canceling the Sales Agreement. As we
discussed, there exists no basis for cancellation and
MLP cannot accept a cancellation of the Sales
Agreement. However, MLP is willing to provide a
reasonable alternative to Color-Web to allow Color-Web
to delay delivery of the Press as set forth in this
letter agreement.
The Extension Agreement deferred delivery of the Printing
Press until December 31, 2009.
MLP agreed to hold the Printing
Press in storage at its own expense until the time of delivery.
The Extension Agreement also provided that “MLP and Color-Web
agree that it would be in the best interests of both parties to
have MLP attempt to sell the Press.”
Color-Web never finalized financing for the purchase of the
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Printing Press.
Color-Web did not close on the IRB by August
31, 2009, and Peoples refused to provide a conventional loan to
finance the purchase of the Printing Press.
The Printing Press
was never delivered to Color-Web.
III.
People’s Efforts to Collect on the Promissory Note
In 2011, Peoples took steps to collect on the Promissory
Note.
In September 2011, Peoples brought an action against
Color-Web, Postcards, and Moyal in New York state court to
collect on the Promissory Note (the “Promissory Note Action”).1
Color-Web filed counterclaims against Peoples alleging that
Peoples (1) breached its contract with Color-Web when it refused
to offer a conventional loan to finance the purchase of the
Printing Press, and (2) defrauded Color-Web by falsely
representing that it would provide financing for the Printing
Press.
The Promissory Note Action is still pending.
Color-Web, unable to pay its debts, went out of business
and liquidated its assets in April, 2012.
As a result, Moyal
alleges that he nearly went bankrupt.
IV.
The Plaintiffs’ Allegations
Because all of the plaintiffs’ claims must be submitted to
arbitration, the allegations in the FAC will be only briefly
described.
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The plaintiffs allege that Peoples and the
Postcards and Moyal were sued as guarantors of Color-Web.
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Mitsubishi defendants conspired to defraud their customers,
including Color-Web.
They allege that MLP and Peoples had a
“recourse agreement,” in which MLP agreed to indemnify Peoples,
up to a certain amount, in the event a purchaser failed to make
required payments to Peoples.
The plaintiffs contend that this
arrangement is fraudulent because it allows Peoples to engage in
collection activity and allows the Mitsubishi entities to
protect their reputation by avoiding collection activities even
though they bear a portion of the default risk.
The plaintiffs also allege that, under the recourse
arrangement, Peoples sought to collect money from Color-Web that
it was not entitled to.
After Color-Web failed to repay the
$200,000 it owed to Peoples pursuant to the Promissory Note, MLP
allegedly paid $200,000 to Peoples on January 10, 2011, pursuant
to the recourse agreement.
According to the plaintiffs’ theory,
once MLP paid $200,000 to Peoples under the recourse agreement,
Peoples no longer had any right to pursue collection of the
$200,000 owed by Color-Web to Peoples pursuant to the Promissory
Note.
V.
Procedural History
The plaintiffs filed this action on February 24, 2016.2
On
The plaintiffs originally filed their complaint on February 24,
2016. The complaint was marked as deficient by the Clerk of
Court due to a formatting error. The plaintiff filed a
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2
May 13, MHIA, MLP, RM Machinery, and Baker (the “American
Defendants”) filed a motion to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6).
On June
10, the plaintiffs filed the FAC, and by Order of June 13, the
Court denied the American Defendants’ May 13 motion to dismiss
as moot.
On July 8, the American Defendants filed a renewed motion
to dismiss the FAC, or in the alternative to compel arbitration.
The motion became fully submitted on September 2.
Defendants
MHI and MHIPPM (the “Japanese Defendants”) did not initially
join in this motion due to a delay in service of those
defendants.
By Order of September 22, the Court held that the
defendants could not simultaneously seek to dismiss the FAC on
the merits and also seek to compel arbitration of any surviving
claims.
The Court required the American Defendants to elect
either to pursue a motion to compel arbitration or proceed only
on their Rule 12(b)(6) arguments.
On September 29, the American
Defendants submitted a letter stating that they wished to compel
arbitration of all claims.
On October 3, the Japanese Defendants filed a motion to
dismiss under Rule 12(b), or in the alternative, they joined in
corrected complaint on February 25.
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the American Defendants’ July 8 motion to compel arbitration.
The Japanese Defendants also joined in the American Defendants’
September 29 submission stating that they wish to compel
arbitration should the Court refuse to address the Rule 12(b)
arguments first.
By Order of October 4, the Court ruled that it
would address the Japanese Defendants’ motion to compel
arbitration first, and would only address their arguments under
Rule 12(b) if any claims were not compelled to arbitration.
The
Japanese Defendants’ motion to compel arbitration became fully
submitted on October 21.
Discussion3
Under Section 2 of the Federal Arbitration Act (“FAA”)
a written provision in . . . a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising out of
such contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any
contract.
The Court has jurisdiction over this matter pursuant to 28
U.S.C. § 1331 because the plaintiffs’ claims arise under a
federal statute -- 18 U.S.C. § 1961 et seq. A plaintiff raising
a claim under a federal statute may invoke federal jurisdiction
unless “the cause of action alleged is so patently without merit
as to justify the court’s dismissal for want of jurisdiction.”
Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 137 (2d Cir. 2002)
(citation omitted). Without deciding whether the plaintiffs’
claims satisfy the more demanding standard for dismissal under
Rule 12(b)(6), and in light of the allegations described above,
the plaintiffs’ claims are not “so patently without merit,” that
they must be dismissed for lack of federal jurisdiction.
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3
9 U.S.C. § 2.
The FAA was enacted to counteract “widespread
judicial hostility to arbitration agreements.”
LLC v. Concepcion, 563 U.S. 333, 339 (2011).
AT&T Mobility
The Supreme Court
and Second Circuit have emphasized that the FAA “declares a
national policy favoring arbitration.”
See, e.g., Nitro–Lift
Techs., L.L.C. v. Howard, 133 S. Ct. 500, 503 (2012) (citation
omitted); Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776 F.3d 126,
129 (2d Cir. 2015).
For convenience, the arbitration clause in the Sales
Agreement is quoted once again.
It provides:
Except for Seller’s right to seek collection of
payments due or replevin of the Equipment referenced
herein in accordance with its security interest in the
event of Purchaser’s failure to provide for return of
the same in violation of this Agreement, all disputes
and claims arising out of or in any way related to
this Agreement, or arising in connection with this
Agreement and all disputes and claims regarding any
alleged defects in the Equipment shall be resolved
exclusively by final and binding arbitration conducted
in Chicago, Illinois, pursuant to the American
Arbitration Association's Model Commercial Arbitration
Rules.
(Emphasis added.)
The plaintiffs do not dispute that all of their claims fall
within the ambit of the arbitration clause as they agree that
Color-Web is obligated to arbitrate its claims against MLP.4
The
In the plaintiffs’ opposition brief, Color-Web “acknowledges
its obligation to arbitrate its disputes with MLP.” Color-Web
states that it has initiated arbitration against MLP with the
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4
only issue in dispute is whether the other plaintiffs and
defendants, who are not parties to the Sales Agreement, are
covered by the arbitration clause such that those claims must
also be submitted to arbitration.
Resolving this question
involves two separate inquiries: (1) whether the non-signatory
defendants –- MHI, MHIPPM, MHIA, RM Machinery, and Baker (the
“Non-Signatory Defendants”) –- may invoke the arbitration clause
even though they are not signatories to the Sales Agreement, and
(2) whether the non-signatory plaintiffs –- Postcards and Moyal
(the “Non-Signatory Plaintiffs”) –- are subject to the
arbitration clause even though they are not signatories to the
Sales Agreement.
I.
Non-Signatory Defendants
Under principles of estoppel, a non-signatory to an
arbitration agreement may compel a signatory to that
agreement to arbitrate a dispute where a careful
review of the relationship among the parties, the
contracts they signed, and the issues that had arisen
among them discloses that the issues the nonsignatory
is seeking to resolve in arbitration are intertwined
with the agreement that the estopped party has signed.
Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 126–27 (2d
Cir. 2010) (citation omitted).
In addition, there must be “a
relationship among the parties of a nature that justifies a
American Arbitration Association. The plaintiffs request that
Color-Web’s claims against MLP be stayed pending the outcome of
that arbitration.
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conclusion that the party which agreed to arbitrate with another
entity should be estopped from denying an obligation to
arbitrate a similar dispute with the adversary which is not a
party to the arbitration agreement.”
omitted).
Id. at 127 (citation
For example, in Ragone, the plaintiff sued two of her
co-employers for employment discrimination.
The plaintiff had
executed an arbitration agreement with one employer but not the
other.
The Second Circuit held that since both co-employers
supervised the plaintiff, and because the employee’s claims
against the two co-employers were “in fact, the same dispute,”
the non-signatory employer could compel arbitration despite not
being a signatory to the arbitration agreement.
Id. at 128.
The Non-Signatory Defendants are alleged to be the
corporate parents of MLP, an agent of MLP, and the successor to
MLP.
In the FAC, the plaintiffs describe the specific conduct
of MLP.
The Non-Signatory Defendants’ involvement in this case
is limited to their relationship to MLP.
The FAC contains no
allegations that the Non-Signatory Defendants engaged in any
fraud distinct from that allegedly committed by MLP.
The claims
against the Non-Signatory Defendants are identical to those
asserted against MLP and involve the “same dispute” as the
claims against MLP.
Accordingly, the Non-Signatory Defendants
may invoke the arbitration clause in the Sales Agreement with
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respect to each of the claims asserted by the plaintiffs.
The plaintiffs’ argument to the contrary is without merit.
They argue that the Second Circuit, in Sokol Holdings, Inc. v.
BMB Munai, Inc., 542 F.3d 354, 361 (2d Cir. 2008), narrowed the
circumstances in which a non-signatory may invoke an arbitration
agreement.
Specifically, the plaintiffs contend that estoppel
applies only when the party resisting arbitration is deemed to
have consented to arbitration with the non-signatory.
Sokol
predates Ragone, but in any event does not aid the plaintiffs.
The non-signatory defendants in Sokol were not corporate
affiliates with the signatory party, and the plaintiff asserted
a claim against the non-signatory defendants that was distinct
from the contractual dispute itself.
The plaintiff in Sokol
asserted that those defendants tortuously interfered with its
contract with the remaining defendant.
II.
Id. at 362.
Non-Signatory Plaintiffs
Each of the plaintiffs is also bound by the arbitration
clause in the Sales Agreement.
Among the grounds that may bind
a non-signatory to an arbitration agreement is estoppel.
v. BDO Seidman, L.L.P., 412 F.3d 58, 71 (2d Cir. 2005).
Denney
The
doctrine of estoppel requires a party to arbitrate when that
party “receives a direct benefit from a contract containing an
arbitration clause.”
Am. Bureau of Shipping v. Tencara Shipyard
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S.P.A., 170 F.3d 349, 353 (2d Cir. 1999) (citation omitted).
Postcard’s and Moyal’s claims in this action arise from
benefits they anticipated receiving if Color-Web had received
the Printing Press.
In fact, the plaintiffs allege that
Postcards was to purchase the Printing Press, but that Color-Web
executed the Sales Agreement instead in order to take advantage
of the IRB.
The acquisition of the Printing Press by Color-Web
was to benefit Postcards by allowing it to send “larger printing
jobs to Color-Web to be completed at a much more competitive
cost.”
In anticipation of Color-Web’s purchase of the Printing
Press, Postcards changed its staffing, re-tooled its facilities,
and made changes to its business.
Moyal’s involvement in this action stems directly from his
status as the principal of both Color-Web and Postcards.
He was
personally involved with the negotiation and execution of the
Sales Agreement on behalf of Color-Web.
Because of Color-Web’s
collapse, Moyal’s personal savings were depleted and he was
threatened with bankruptcy.
Because the claims of these two
plaintiffs relate to the direct benefits they would have
obtained from Color-Web’s purchase of the Printing Press under
the Sales Agreement, they must arbitrate their claims.
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Conclusion
The defendants’ July 8 and October 3 motions to compel
arbitration are granted.
This action is stayed pending the
outcome of arbitration proceedings.
Dated:
New York, New York
November 21, 2016
__________________________________
DENISE COTE
United States District Judge
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