Opinion
No. 80167/2010.
2010-09-30
MANFREDI CHEVROLET, LLC, Petitioner, v. Ronald M. LAND, H–L Motors, Inc., d/b/a, HL Chevrolet and Island Chevrolet, Inc., Respondent(s).
The original Asset Purchase Agreement between Land, H–L Motors and Island Chevrolet clearly delineates the signatories to the agreement; It is well settled that arbitration is favored by New York Courts, as a matter of public policy ( TNS Holdings, Inc. v. MKI Securities Corp., 92 N.Y.2d 335, 339 [1998]; In the Matter of the Estate of Arthur Miller, 40 AD3d 861, 861–862 [2d Dept., 2007] ). However,
JUDITH N. McMAHON, J.
Petitioner brought this Order to Show Cause seeking a temporary restraining order and to permanently stay the arbitration between petitioner and respondents on the ground that it was not a party to the arbitration agreement. Respondents, in opposition, cross move to compel the petitioner to submit to arbitration on the ground that petitioner is a successor-in-interest and intent to arbitrate should be imputed. At present, a temporary restraining order has stayed arbitration until resolution of the issues.
The underlying arbitration proceeding was commenced by respondents Ronald M. Land and H–L Motors, Inc.
, seeking to enforce a “Non–Compete, Non–Solicitation and Confidentiality Agreement” in a contract entered into between H–L Motors, Inc. d/b/a HL Chevrolet [hereinafter known as “H–L Motors”] and respondent, Island Chevrolet, Inc., on May 25, 2004. The contract culminated after respondents were approached by non-party GMC who expressed interest in purchasing H–L Motors. The Asset Purchase Agreement which was reached between Island Chevrolet
The underlying arbitration was also commenced by non-party to this action, Richard Land.
and Richard Land/H–L Motors contained a “Non–Compete, Non–Solicitation and Confidentiality Agreement” [hereinafter known as the “Non–Compete clause”], which required Island Chevrolet to make eight annual payments of $31,500 to respondents Ronald Land and H–L Motors. It also contained an arbitration provision requiring resolution of most disputes by arbitration. The respondents Land and H–L Motors commenced the underlying arbitration against Island Chevrolet after it allegedly failed to make an annual payment under the Non–Compete clause.
Island Chevrolet was a corporation allegedly formed by non-party GMC to facilitate the sale.
It is undisputed that petitioner, Manfredi Chevrolet, LLC, [hereinafter known as “Manfredi”] was not a signatory to the Asset Purchase Agreement between Land, H–L Motors and Island Chevrolet. However, subsequent to the aforementioned sale, the petitioner purchased some of Island Chevrolet's assets and thereafter operated the same type of business out of the same location as respondent Island Chevrolet. As a result, respondents contend that petitioner is bound by the Non–Compete clause as a successor-in-interest to respondent Island Chevrolet and was listed on the “Rider to Demand for Arbitration” as follows;
The successors of the Respondent, Island Chevrolet, Inc. are the following business entities:
Argonaut Holdings, Inc.;
General Motors Corporation, Chevrolet Motor Division;
Manfredi Chevrolet, LLC
The original Asset Purchase Agreement between Land, H–L Motors and Island Chevrolet clearly delineates the signatories to the agreement;
This Asset Purchase Agreement (this “ Agreement ”) is made this 25th day of May, 2004 (the “ Effective Date ”) between ISLAND CHEVROLET, INC., a Delaware corporation (“ Buyer ”), and H–L MOTORS, INC., a New York corporation, d/b/a HL Chevrolet (“ Seller ”). In this Agreement, Buyer and Seller are sometimes referred to individually as a “ Party ” and together as “ Parties ”.
The arbitration provision of the aforementioned agreement provides:
10.13Arbitration
(a)Subject to the following provisions of this section, the Parties agree to submit to final and binding arbitration, upon either Party's written notice, any and all claims, disputes, and controversies (other than claims for specific performance, or other equitable remedies, which may be adjudicated in a court of appropriate jurisdiction) between them arising under or relating to this Agreement and its negotiation, execution, administration, modification, extension or enforcement (collectively, “ Claims ”). Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“ AAA ”) in Staten Island, New York, which shall be the exclusive venue for any and all actions relating to this Agreement.
(b)The Parties agree that the dispute resolution process outlined in this section shall be the exclusive mechanism for resolving any Claims. All arbitration awards are binding and non-appealable except as otherwise provided in the United States Arbitration Act (9 U.S.C. § 1, et seq.). Any court with jurisdiction may enter judgment upon the award rendered by the arbitrator, and the Parties agree to be bound by such award.
(c)Arbitration hereunder shall take place before one (1) arbitrator. The arbitrator shall be neutral and an attorney actively engaged in the practice of business law for at least ten (10) years or a retired judge of a state appellate court or a federal district or appellate court. The AAA shall submit a list of persons meeting the criteria outlined above for such arbitrator, and the Parties mutually shall agree upon the arbitrator in the manner established by the AAA. If the Parties are unable or fail to agree upon the arbitrator, the AAA shall select the arbitrator.
(d)The arbitrator shall have the discretion to order a prehearing exchange of information by the Parties, including, without limitation, production of requested documents, an exchange of summaries of proposed witness testimony, and depositions of parties, all of which shall occur within sixty (60) days after the appointment of the arbitrator.
(e)The arbitrator may award costs and expenses of the arbitration proceeding (including, without limitation, reasonable attorneys' fees) to the prevailing Party.
It is well settled that arbitration is favored by New York Courts, as a matter of public policy (TNS Holdings, Inc. v. MKI Securities Corp., 92 N.Y.2d 335, 339 [1998];In the Matter of the Estate of Arthur Miller, 40 AD3d 861, 861–862 [2d Dept., 2007] ). However,
equally important is the policy that seeks to avoid the unintentional waiver of the benefits and safeguards which a court of law may provide in resolving disputes. Indeed, unless the parties have subscribed to an arbitration agreement it would be unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent' (TNS Holdings, Inc. v. MKI Securities Corp., 92 N.Y.2d at 339).
As a result, the courts will not compel a party to arbitrate “and, thereby, to surrender the right to resort to the courts, absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes” ( In the Matter of the Estate of Arthur Miller, 40 AD3d at 862).
With respect to the instant motion to permanently stay arbitration/cross motion to compel arbitration, in New York, courts “may address three threshold questions on a motion to compel or to stay arbitration: (1) whether the parties made a valid agreement to arbitrate; (2) if so, whether the agreement has been complied with; and (3) whether the claim sought to be arbitrated would be time-barred if it were asserted in State court” (Smith Barney et. al. v. Luckie, 85 N.Y.2d at 201;In the Matter of AT & S Trans., LLC. v. Odyssey Logistics & Technology, 22 AD3d 750, 752 [2d Dept., 2005] ). Here, the crux of the dispute arises from the first threshold question, namely, whether petitioner Manfredi and the respondents entered into a valid agreement to arbitrate.
Considering all parties agree that petitioner Manfredi was a non-signatory to the Asset Purchase Agreement where the Non–Compete clause and arbitration provision are located, the question hinges on whether, as a “successor-in-interest” to respondent Island Chevrolet, Inc., the intent to arbitrate should be imputed to Manfredi. The Court of Appeals “has recognized in certain limited circumstances the need to impute the intent to arbitrate to a non-signatory” (TNS Holdings Inc. v. MKI Securities Corp., 92 N.Y.2d at 339). Courts have used the “alter-ego [test] ... in determining whether a nonsignatory to an arbitration agreement should be bound by it” and the “inextricable interwoven' “ theory ( id.). Additionally applicable here is that generally, “the buyer is not liable for the liabilities of the seller unless: (1) [the buyer] expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently” ( In the Matter of AT & S Trans., Inc. v. Odyssey Logistics & Technology, 22 AD3d at 752).
Here, it is undisputed that petitioner was a nonsignatory to the Non–Compete clause. In assessing whether intent should be imputed to petitioner, there has been insufficient evidence to establish that Manfredi Chevrolet was the “alter ego” of respondent Island Chevrolet; or that petitioner should be liable under any of the four exceptions to the general law the buyers do not assume liabilities of the seller. There has been no evidence presented that Manfredi Chevrolet impliedly assumed respondent Island Chevrolet's tort liability; that a consolidation of the two businesses (one a Limited Liability Company and the other a Corporation) occurred; that petitioner Manfredi was a mere continuation of respondent Island Chevrolet; or that the transaction was fraudulently entered into between the parties. In fact, petitioner Manfredi did not purchase all of respondent Island Chevrolet's assets and it is in fact still listed as an active foreign business corporation as recorded by the New York Department of State. Respondents arguments that the use of the same closing attorney, physical location and general business alone are insufficient to establish a de facto merger has occurred whereby petitioner would be bound, as a successor-in-interest, by the arbitration clause.
There is also no evidence that petitioner and respondent Island Chevrolet were inextricably interwoven so as to give the clear intent that petitioner, Manfredi, should be bound by the terms of the Asset Purchase Agreement. Clearly, petitioner provided no clear intent to any respondent that it would be bound by the arbitration agreement and further that it meets any requirements to impute intent to arbitrate. Under the circumstances of this case, petitioner Manfredi is not bound by the Non–Compete or arbitration clause in the Asset Purchase Agreement to which it was not a signatory. As a result, petitioner Manfredi Chevrolet, LLC's Order to Show Cause is granted. A permanent injunction staying the arbitration as between petitioner and respondents only, is granted. The respondent's cross motion to compel petitioner to submit to arbitration is denied.
Accordingly, it is
ORDERED that the petitioner's motion to permanently stay arbitration as between petitioner and respondents only is hereby granted, and it is further
ORDERED that respondents cross motion to compel arbitration is hereby denied.
THIS IS THE DECISION AND ORDER OF THE COURT.