Opinion
95 Civ. 7900 (RLE)
May 10, 2002
Lewis H. Eslinger, Garden City, New York; Plaintiff's Counsel
Michael D. Lesh, New York, New York; Defense's Counsel
OPINION AND ORDER
I. INTRODUCTION
On January 17, 2001, plaintiff Rocket Jewelry Box, Inc. ("Rocket"), moved this Court to confirm an arbitration award concerning the subject matter of this case. In response, defendant Quality International Packaging, Ltd. ("Quality"), cross-moved for partial vacatur of the arbitration award pursuant to 9 U.S.C. § 10, on the grounds that the arbitration panel ("the Panel") exceeded its powers and manifestly disregarded the law. The portion of the Panel's award that is at issue involves the infringement of Rocket's United States Patent No. 333,264 ("the '264 patent") by Quality's "Marseille" line of jewelry boxes. According to Rocket, the infringement of the '264 patent by the Marseille line was properly included as a subject of the arbitration. Quality contends, however, that the Panel exceeded its authority when it included the Marseille line as part of the '264 patent issue, and that the Court — not the Panel — should decide the arbitrability of the issue. For the reasons stated below, Rocket's motion to confirm the arbitration award is GRANTED, and Quality's motion for partial vacatur of the award is DENIED.
II. BACKGROUND
A. Quality as a Defendant
During the past ten years, Rocket has litigated a series of patent infringement matters with Quality, Noble Gift Packaging, Inc. ("Noble"), and Noble's owner, Ralph Herzog ("Herzog"), related to the sale of jewelry boxes. See Rocket Jewelry Box Inc. v. Noble Gift Packaging. Inc., 986 F. Supp. 231, 233 (S.D.N.Y. 1997). The instant motion stems from a complaint filed against Noble and Herzog on September 15, 1995. In an order dated December 8, 1998, Quality was added as a party to the litigation.
On February 15, 2000, defendants filed a motion for partial summary judgment. Defendants argued that the causes of action concerning the infringement of Rocket's design patents 316,036 ("'036") and 306,973 ("'973") were barred under the doctrines of res judicata and collateral estoppel, because of a stipulation of dismissal with prejudice that had been ordered by Judge Kimba M. Wood on May 17, 1995, in a prior matter commenced in 1994. Memorandum of Law in Support of Defendants' Motion for Summary Judgment Dismissing Plaintiff's First and Second Causes of Action Based on Patent Infringement at 3. In an opinion dated January 16, 2001, Chief Judge Mukasey granted partial summary judgment with respect to the claims against defendants Noble and Herzog, and denied the motion with respect to the claims against defendant Quality. Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc ., 2001 WL 38285, at *1 (S.D.N.Y. Jan. 16, 2001). In granting the motion with respect to Noble and Herzog, Judge Mukasey concluded that the claims involving the '036 and '973 patents were barred by the doctrine of claim preclusion because the same claims were dismissed with prejudice in Rocket's 1994 suit against them. Id . at *2. In denying the motion with respect to Quality, Judge Mukasey concluded that the defendants had failed to produce any evidence indicating that "the parties to the settlement agreement in the first suit, Rocket, Noble, and Herzog, [had] intended to release Quality." Id .
B. The Arbitration Agreement
On March 29, 1999, the parties signed a stipulation stating, inter alia, that "[a]ll of the issues in the . . . litigation will be submitted for arbitration under the rules of the American Arbitration Association." Defendants' Exhibits One Through Nine in Opposition to Plaintiffs' Motion to Confirm Arbitration Award and in Support of Crossmotion to Partially Vacate Award ("Def. Exh.") 2 at 1. In a scheduling order dated December 15, 1999 ("December 15 Order"), the Panel stated that its jurisdiction was determined by the March 29, 1999 stipulation ("March 29 Stipulation"), and that "[h]earings shall be held on all issues pertaining to U.S. Patent No. Des. 333,264. . . ." Def. Exh. 3. A stipulation signed by the parties and dated January 18, 2000 ("January 18 Stipulation"), stated that the "arbitration [would] proceed based on all of the issues related to the validity and infringement of U.S. Patent Des 333,264 ("Florence Line Patent"). . . ." Id . 4 at ¶ 8.
In a letter to the Panel dated February 16, 2000, Rocket requested that the Panel's rulings include a determination of both the Florence and Marseille lines of jewelry boxes. Id . 5 at 1. According to Rocket, the third cause of action set forth a cause of action for the infringement of the '264 patent without enumerating any specific products that were infringed. Id . Rocket argued that both lines of jewelry boxes were included in the Panel's jurisdiction because (1) the March 29 Stipulation covered "all of the issues in the above entitled litigation"; (2) the December 15 Order stated that the Panel's hearings cover all issues pertaining to the '264 patent; and (3) because "[t]he Florence and Marseille line[s] of jewelry boxes are identical except for the covering applied to the boxes." Id . In response to Rocket's letter application, Quality filed an affirmation arguing that Rocket was seeking to expand the scope of the arbitration "in blatant disregard" of the January 18 Stipulation, and that the Panel did not have the authority to expand the scope of the hearing absent the parties' agreement because such disputes involving the scope of the arbitration are not arbitrable, but rather within the District Court's jurisdiction. Id . 6 at 2.
Following another set of submissions by the parties on this issue, the Panel issued an order on March 10, 2000, indicating, inter alia, that the hearing would include "all issues of(a) validity of the '264 Patent . . . and (b) infringement of the '264 Patent by any product or products, including without limitation, the Marseille line, as well as the Florence line of products." Id . 9. Thereafter, on January 8, 2001, the Panel issued its award stating, inter alia, that Quality's Florence and Marseille lines of products infringed Rocket's '264 patent, with certain exceptions, and that the infringement had been willful since February 5, 1999. Id . 1 at ¶ A.
On January 17, 2001, Rocket filed the instant motion for an order confirming the Panel's award. In response, Quality filed opposition papers as well as a motion for partial vacatur of the award pursuant to 9 U.S.C. § 10 on the grounds that the Panel exceeded its power and acted "in manifest disregard of the law" when it allowed Rocket to include "an additional infringement claim in the arbitration with respect to [Quality's] `Marseille Line' of jewelry boxes." Defendant's Motion Pursuant to 9 U.S.C. § 10 for Partial Vacatur of Arbitration Award at 2. According to Quality, the two issues before the Court are the following: (I) whether the Marseille line was subject to arbitration; and (2) whether the Panel or the Court should have determined that first question. Defense Attorney's Affirmation in Opposition to Motion to Confirm Arbitration Award and in Support of Crossmotion to Partially Vacate Arbitration Award at ("Def. Aff.") ¶ 12; Defendant's Memorandum of Law in Opposition to Plaintiff's Motion to Confirm Arbitration Award and in Support of Crossmotion to Partially Vacate Award ("Def. Mem.") at 5. Quality argues that scrutiny of the Marseille line was beyond the scope of arbitration, and that any disputes arising under it were subject to the district court's — not the Panel's — jurisdiction. Id . In reply, Rocket argues that the arbitration proceeded appropriately on all issues related to the '264 patent, including whether Quality's Marseille line of jewelry boxes infringed it. Reply Memorandum of Plaintiff in Support of Its Motion to Confirm the Award of Arbitrators Dated January 9, 2001 ("Pl. Rep.") at 1. On September 13, 2001, Quality filed a reply construing Rocket's February 16, 2000 letter submission as a Rule 15 amendment, and arguing that the Panel acted in "manifest disregard" of Rule 15 of the Federal Rules of Civil Procedure. Defendants' Reply Memorandum of Law in Further Support of Their Cross Motion to Vacate the Award of Arbitrators Dated January 9, 2001 ("Def. Rep.") at 6. After both parties' reply papers were filed, the matter was referred to the undersigned on November 29, 2001, for trial pursuant to 28 U.S.C. § 636 (c).
III. DISCUSSION
A. Standard of Review
"`The showing required to avoid summary confirmation of an arbitration award is high, and a party moving to vacate the award has the burden of proof.'" Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc ., 157 F.3d 174, 175 (2d Cir. 1998) (quoting Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997). Unless an arbitration award is vacated, modified, or corrected, a court must confirm an arbitration award upon application. 9 U.S.C. § 9 (West 1999). Pursuant to 9 U.S.C. § 10, a court may vacate an award only in a limited number of circumstances, including where "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4) (West 1999). Arbitral awards may also be vacated "based on the judicially-created doctrine of manifest disregard of the law." Goldstein v. Visconti, 2001 WL 585633, at *3 (S.D.N.Y. May 30, 2001) (citing Merrill Lynch, Pierce Fenner Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). This doctrine has been applied in only limited circumstances where the arbitrator's error was "obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator," and the "arbitrator appreciates the existence of a clearly governing legal principle but decides to ignore or pay no attention to it." Id . at *3-4. These tenets are strictly adhered to in order to preserve the basic purpose of arbitration — "avoiding the expense and delay of litigation." Abram Landau Real Estate v. Bevona, 1996 WL 668858, at *1 (S.D.N.Y. 1996), aff'd, 123 F.3d 69 (2d Cir. 1997).
B. Arbitrability
"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 submit." ATT Techs., Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (citations omitted). "The arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (emphasis in original) (citations omitted). Therefore, if a party resists the arbitration of a dispute, arbitrability is decided by asking: (1) is there an agreement to arbitrate, and (2) does the dispute fall within that agreement? United States Fire Ins. Co. v. Nat'l Gypsum Co., 101 F.3d 813, 816 (2d Cir. 1996), cert. denied, United States Fire Ins. Co. v. Asbestos Claims Mgmt. Corp ., 521 U.S. 1120 (1997).
"Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." ATT Techs., 475 U.S. at 649; see also First Options 514 U.S. at 944-45; Painewebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996) (quoting ATT Techs., 475 U.S. at 649) (absent "clear and unmistakable" evidence that the parties agreed to arbitrate arbitrability, it is the role of the courts, not the arbitrator, to decide arbitrability). However, "once a court finds that there is an agreement to arbitrate some issues, . . . ambiguity as to whether an issue is within the scope of an arbitration agreement is resolved in favor of arbitrability." Nat'l Gypsum Co., 101 F.3d at 817 ( citing First Options, 115 S.Ct. at 1924). Therefore, once a valid arbitration agreement is found to exist between uncontested parties to that agreement, broadly sweeping provisions such as those providing that "any and all controversies . . . shall be determined by arbitration[,]" have led courts to the conclusion that the parties intended to arbitrate issues of arbitrability. Bybyk, 81 F.3d at 1199; see also Abram Landau Real Estate v. Bevona, 123 F.3d 69, 73-74 (2d Cir. 1997) (general arbitration clause covering all issues of interpretation was sufficiently clear and unmistakable, even in the absence of specific language that issues of arbitrability should be arbitrated); Zimring v. Coinmach Corp., 2000 WL 1855115, at *2 (S.D.N.Y. Dec. 19, 2000) ( Bybyk distinguished, as case involved a dispute as to whether the plaintiff was a party to the arbitration clause).
In support of its motion for partial vacatur of the arbitration award, Quality argues that the Panel exceeded its authority and acted in manifest disregard of the law when it determined that the Marseille line was subject to arbitration. In support of its argument, Quality relies on the Supreme Court's ruling in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), arguing that there is nothing in the record to suggest that the parties intended to submit the issue of arbitrability to the Panel, and that there was no agreement to arbitrate disputes arising under the January 18 Stipulation. Quality further argues that, as evidenced by the January 18 Stipulation, Rocket's infringement claim was limited to the Florence Line.
With respect to the first argument, the Court finds Quality's reliance on First Options misplaced. First Options involved parties who argued that no valid arbitration agreement existed as to their individual rights and liabilities because the arbitration clause they had signed was signed only in their representative capacities as owners of the company. In First Options , therefore, in contrast to the instant case, the actual parties to the agreement were in dispute. Quality would have this Court extend First Options to all questions of arbitrability, requiring courts to decide all issues of arbitrability, absent clear and unmistakable evidence that the parties agreed to submit the question to arbitration. This Court, however, takes guidance from the Second Circuit's reading of First Options in Abram Landau Real Estate v. Bevona, 123 F.3d 69 (2d Cir. 1997), "as a clarification of the type of evidence needed to submit to arbitration a dispute regarding whether parties ever entered into a valid arbitration agreement at all. The appellants in First Options argued that they were not bound by the arbitration clause because they never signed the agreement as individuals." Abram Landau Real Estate, 123 F.3d at 73-74.
In this case, Rocket and Quality do not dispute that they were both parties to a valid arbitration agreement. Rather, the dispute is whether the Marseille line was included in Rocket's infringement claim, and thus subject to the arbitration. The record indicates, however, that the original arbitration agreement signed by the parties, the March 29 Stipulation entitled "Stipulation to Arbitrate All Issues in Dispute," contained a broad arbitration clause stating that "[a]ll of the issues in the above-entitled litigation will be submitted for arbitration. . . ." March 29 Stipulation at ¶ 1. The January 18 Stipulation, also signed by both of the parties, indicates that it is "supplemental" to the March 29 Stipulation, and states that the March 29 Stipulation "shall remain in full force and effect except as modified below." January 18 Stipulation at ¶ 1. The Court holds that the phrase, "all of the issues, manifested and preserved in both of these broad arbitration clauses exhibit Rocket's and Quality's "clear and unmistakable" intent to arbitrate all issues, including arbitrability. See Bybyk, 81 F.3d at 1199; see also Abram Landau Real Estate, 123 F.3d at 73-74; Goldstein, 2001 WL 585633, at *6 (court held that issue of arbitrability was subsumed under clause "any dispute, claim or controversy" because the clause remained "unqualified by any language excluding any category of disputes"). Consequently, the Court finds that since the Panel correctly exercised jurisdiction over the question of arbitrability, the Panel did not exceed its authority, much less act in "manifest disregard" when it decided that Quality's Marseille line was included within the scope of arbitration.
In its reply papers dated September 13, 2001, Quality construes Rocket's February 16, 2000 letter submission as a Rule 15 amendment, and argues that in issuing its March 10 Order, the Panel acted in "manifest disregard" of Rule 15 of the Federal Rules of Civil Procedure. The Court, however, disagrees with Quality's interpretation of Rocket's February 16, 2000 letter, and construes the letter as a clarification of terms, rather than as an amendment as argued by Quality.
IV. CONCLUSION
Because Quality has failed in its burden to prove that the Panel exceeded its authority pursuant to 9 U.S.C. § 10, or that it acted in "manifest disregard of the law," Quality's motion for partial vacatur of the arbitration award is hereby DENIED, and Rocket's motion to confirm the award is hereby GRANTED.