Opinion
02 Civ. 10100 (BSJ)
May 17, 2004
Opinion
In an Opinion dated February 12, 2004, this Court granted Defendants' motion to stay certain counts in this action pending arbitration. However, because there was a factual dispute whether the Attachment (which set forth the arbitral forum and procedures) was actually attached to the parties' Letter Agreements and because the Attachment was not incorporated into the Letter Agreements by reference, the Court was unable to determine which arbitral forum or which procedures should control the arbitration.
Camferdam v. Ernst Young Int'l, Inc., 02 Civ. 10100, 2004 WL 307292, 2004 U.S. Dist. LEXIS 2284 (S.D. N.Y. Feb. 13, 2004). Familiarity with the Court's previous opinion is presumed.
The Court directed the parties to submit briefs addressing who should resolve this issue of fact — e. g., the Court, a jury or an arbitrator. In these submissions, which the Court has received and reviewed, Plaintiffs argue that a jury must make the factual finding; Defendants argue that this issue should be left to the arbitrator. For the reasons set forth below, the Court concludes that: (1) whether the Attachment was attached is an issue that does not fall within the scope of the parties' arbitration agreement; and (2) although this issue must be resolved by the Court, there is no right to a jury trial.
A. The Scope of the Arbitration Agreement
Although Plaintiffs attempt to characterize the present issue before the Court as determinative of whether there was an agreement to arbitrate, this Court's previous opinion held that the parties in this action agreed to arbitrate the claims in Plaintiffs' Complaint, even assuming that no Attachment had been attached to the Letter Agreements. The Court declines to revisit this issue. The only question before the Court is whether the factual dispute about the Attachment falls within the scope of the parties' arbitration agreement. It does not.
Indeed, much of Plaintiffs' Memorandum on how to resolve the Attachment issue consisted of renewed argument that there was no binding agreement to arbitrate at all if the Attachment was not attached to the Letter Agreements, an argument that was addressed at length and rejected in the previous opinion.
At the outset of any arbitration scope inquiry, a court must decide "whether the arbitration agreement is broad or narrow. " Collins Aikman Prods. Co. v. Building Sys., 58 F.3d 16, 20 (2d Cir. 1995) (internal quotations and alterations omitted). "Broad" clauses purport to refer all disputes to arbitration; "narrow" clauses limit arbitration. to specific types of disputes. McDonnell Douglas Fin. Corp. v. Pennsylvania Power Light Co., 858 F.2d 825, 832 (2d Cir. 1988). If the arbitration clause is broad, then the dispute is presumptively reserved for the arbitrator. In contrast, when dealing with a narrow arbitration clause, the court must consider whether the disputed issue is, on its face, within the purview of the clause, and the court "must be careful to carry out the specific and limited intent of the parties. " Id.; Prudential Lines, Inc. v. Exxon Corp., 704 F.2d 59, 63-64 (2d Cir. 1983).
As the Second Circuit explained in Prudential Lines v. Exxon, arbitration clauses that contain "words of limitation" are narrow clauses. 704 F.2d at 64. The Prudential Court found that an agreement to arbitrate "disputes regarding `responsibility for repairs, renewals or replacements, or as to the condition of the vessel at the time of redelivery'" was a narrow arbitration clause. Id. at n. 5. In contrast, the prototypical broad arbitration provision is one in which the parties agree to arbitrate any dispute, controversy or claim arising under or in connection with the parties' agreement. Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir. 1998).
The arbitration clause in this action provides that the parties agree to arbitrate "[a]ny controversy or claim arising out of or relating to tax and tax related services" rendered by the Ernst Young Defendants to the Individual Plaintiffs. The Court reads this language as constituting a narrow arbitration clause. Rather than embodying an agreement to arbitrate any claim arising out of the parties' agreement, the clause limits arbitration to disputes relating to the tax services Defendants were to provide to Plaintiffs. Although the present dispute regarding which arbitration forum and procedures shall apply could easily be categorized as a dispute arising out of the parties' agreement, it does not relate to the tax services Defendants were to provide to Plaintiffs. Had the parties intended to submit these types of contract interpretation issues to an arbitrator, they should have included a broader arbitration clause. Compare Green Tree Financial Corp. v. Bazzle, 123 S.Ct. 2402 (2003) (finding that an agreement to submit to arbitration "all disputes, claims or controversies arising from or relating to this contract or the relationship which results from this contract" constituted an agreement to submit to the arbitrator questions regarding what kind of arbitration proceedings the parties agreed to).
Although the phrase "relating to" is a relatively broad phrase, it must be given its "common-sense meaning" — that is, something "relates to" tax services if it has "a connection with or reference to" the services. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990).
B. No Right to a Jury Trial
Because the factual dispute regarding the Attachment does not fall within the scope of the parties `agreement to arbitrate, whether the purported Attachment was attached to the Letter Agreements must be decided by the Court. In order to make that determination, the Court will conduct a hearing at which both parties shall have the opportunity to call witnesses and present evidence. If the Court finds that the Attachment was, in fact, attached to the Letter Agreement, then its terms shall cover any arbitration proceedings. If the Court finds that the Attachment was not attached to the Letter Agreements, then the Court will designate an arbitral forum and arbitration will proceed according to the procedures of that forum. Contrary to Plaintiffs' assertions, they have neither a constitutional nor a statutory entitlement to a jury trial on the issue whether the Attachment was attached to the Letter Agreements. There, is no constitutional right to a jury trial because a motion to stay is an equitable defense; there is no statutory right to a jury because the Federal Arbitration Act provides for a jury trial only in actions to compel arbitration.
1. No Constitutional Right to a Jury
The Seventh Amendment guarantees the right to a jury trial "in suits at common law, where the value in controversy shall exceed twenty dollars. " This language has been interpreted to entitle a plaintiff to a jury if his claims "involve rights and remedies of the sort traditionally enforced in an action at law, rather than in an action in equity. "SEC v. Commonwealth Chemical Secur., Inc., 574 F.2d 90, 95 (2d Cir. 1978). If the relief sought is equitable in nature, a jury trial is not warranted. See Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990).
A motion to stay an action pending arbitration is an equitable remedy. As the Supreme Court explained in Shanferoke Coal Supply Corp. v. Westchester Service Corp., when a defendant moves to stay an action at law under Section 3 of the FAA he is essentially interposing the arbitration agreement as a defense, and "a defense setting up the arbitration agreement is an equitable defense. " 293 U.S. 449, 452 (1935). The Shanferoke Court characterized a motion for a stay as "an application for an interlocutory injunction. " Id. Injunctions have long been classified as equitable relief for which no party is entitled to a jury. See United States v. State of Louisiana, 339 U.S. 699, 706 (1950) (denying motion for a jury trial in an equity action for an injunction).
2. No Statutory Right to a Jury
Even where parties are not entitled to a jury trial under the Seventh Amendment, they may nonetheless have a statutory right to a jury. However, "[a] statute will not be read as having created a right to jury trial on a claim for an injunction unless Congress has expressly so provided. " 9 Wright Miller, Federal Practice Procedure 2d § 2308.
Section 4 of the Federal Arbitration Act provides for a jury trial when a party seeks to compel arbitration and where "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. " 9 U.S.C. § 4. Plaintiffs argue that the dispute regarding the Attachment goes to "the making of the arbitration agreement", and thus this Court must proceed to a trial. (Pl. Mem. at 3). However, Defendants have brought a motion to stay under Section 3 rather than a motion to compel pursuant to Section 4. Section 3 of the FAA does not contain any language regarding jury trials; therefore, it cannot be read to create a right to jury trial.
The question whether there is a right to a jury trial under Section 3 of the FAA (as opposed to Section 4), was identified by Judge Posner in Matterhorn v. NCR Corporation, 763 F.2d 866, 873-74 (7th Cir. 1985). In Matterhorn, the trial court empanelled a jury to decide whether an agreement by the parties had successfully incorporated the arbitration clause found in a prior agreement. Judge Posner noted that "it is not at all clear that the issue [before the trial court] should be determined by a jury when, as also in this case, it arises in the course of deciding whether court proceedings should be stayed. " Id. at 873. Judge Posner noted that decisions regarding the staying and compelling of arbitration are equitable in nature and that, although Section 4 of the FAA creates an explicit right to a trial by jury in cases to compel arbitration, it is not clear whether that right exists when Section 3 "is in play. "Id.
Although Judge Posner did not have to reach the issue whether a jury trial was proper, that issue is presently before this Court. Because the right to a jury trial is included in Section 4 but omitted from Section 3, the Court concludes that there is no statutory right to a jury trial in this action. "[Where] Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion. " Russello v. United States, 464 U.S. 16, 23 (1983) (alteration in original).
Indeed, Plaintiffs have provided no legal authority for the proposition that a jury trial is appropriate under these circumstances. Two of the three cases Plaintiffs cite in support of their jury demand involve motions under Section 4 to compel arbitration. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co. Ltd, 636 F.2d 51 (3d Cir. 1980); Interocean Shipping Co. v. Nat'l Shipping and Trading Corp., 462 F.2d 673 (2d Cir. 1972). The third case Plaintiffs cite . . . Matterhorn — questions whether a jury is appropriate, but does not reach the issue.
CONCLUSION
The Court has determined that the remaining issue in Defendants' motion to stay does not fall within the parties' narrow arbitration clause. Thus, the issue of whether the Attachment was attached to the Letter Agreements shall be decided by the Court after a hearing. The parties are directed to appear before the Court on Wednesday, June 2, 2004 at 10:30 a.m., at which time the Court will hear evidence on the narrow issue of whether the Attachment was attached to the Letter Agreements at the time the agreements were signed.
The Court is aware that the Plaintiffs' motion for an interlocutory appeal is sub judice. The Court reserves decision on that motion until after the hearing.
SO ORDERED.