Opinion
20-CV-2239 (AMD) (PK)
2021-01-05
HOBBY LOBBY STORES, INC., Plaintiff, v. CHRISTIE'S INC. and John Doe #1, Defendants.
Anju Uchima, Michael Joseph McCullough, Pearlstein & McCullough LLP, Duncan Patrick Levin, New York, NY, for Plaintiff. Andrew McCutcheon Lankler, Eric R. DuPont, Sarah Reeves, Baker Botts L.L.P., Jessica F. Rosenbaum, U.S. Attorney's Office, New York, NY, for Defendant Christie's Inc. William L. Charron, Pryor Cashman LLP, New York, NY, for Defendant Joseph David Hackmey.
Anju Uchima, Michael Joseph McCullough, Pearlstein & McCullough LLP, Duncan Patrick Levin, New York, NY, for Plaintiff.
Andrew McCutcheon Lankler, Eric R. DuPont, Sarah Reeves, Baker Botts L.L.P., Jessica F. Rosenbaum, U.S. Attorney's Office, New York, NY, for Defendant Christie's Inc.
William L. Charron, Pryor Cashman LLP, New York, NY, for Defendant Joseph David Hackmey.
MEMORANDUM DECISION AND ORDER
ANN M. DONNELLY, United States District Judge:
The plaintiff filed this diversity action on May 19, 2020, alleging that the defendants committed fraud and breached both implied and express warranties, in violation of the New York Uniform Commercial Code, in connection with the 2014 sale of an ancient Mesopotamian tablet (the "Tablet") on which a portion of the Epic of Gilgamesh is written in cuneiform. The plaintiff purchased the Tablet from Christie's pursuant to a Private Sale Agreement dated July 14, 2014. The Agreement lists John Doe #1 as the seller and Christie's as the seller's agent. Before the Court is Christie's motion to stay this action and compel arbitration under the Federal Arbitration Act ("FAA"), pursuant to the Agreement's arbitration clause. (ECF No. 17.) For the reasons stated below, Christie's motion is denied.
The Agreement does not identify John Doe #1.
BACKGROUND
I take the facts from the complaint and the documents attached to the parties’ motion briefs and draw all reasonable inferences in the plaintiff's favor. See Faggiano v. CVS Pharm., Inc. , 283 F.Supp.3d 33, 34 n.1 (E.D.N.Y. 2017) (citing BS Sun Shipping Monrovia v. Citgo Petroleum Corp. , No. 06-CV-839, 2006 WL 2265041, at *3 n.6 (S.D.N.Y. Aug. 8, 2006) ) ("While it is generally improper to consider documents not appended to the initial pleading or incorporated in that pleading by reference in the context of a Rule 12(b)(6) motion to dismiss, it is proper (and in fact necessary) to consider such extrinsic evidence when faced with a motion to compel arbitration"); see also Nicosia v. Amazon.com , 834 F.3d 220, 229 (2d Cir. 2016). I also take judicial notice of the government's complaint in the related civil forfeiture action, United States of America v. One Cuneiform Tablet Known as the "Gilgamesh Dream Tablet" , No. 20-CV-2222 (AMD) (PK) (E.D.N. Y filed May 18, 2020) and statements made on the record in that proceeding.
I. Factual Background
The United States banned the importation of Iraqi cultural property, including ancient cuneiform tablets, after it entered the First Gulf War in 1990; that ban is still in effect. (ECF No. 1 ¶ 11.) Therefore, in order to obtain lawful ownership and transferable title to any Iraqi-origin antiquities, a collector must have a provenance—a record of ownership and custody—that demonstrates the object was removed from Iraq before 1990 and that it was not stolen. (Id. ¶ 12.) In 2014, the plaintiff purchased the Tablet, which was created around 1600 B.C. in what is present-day Iraq, from Christie's in London for $1,674,000. (ECF No. 1 ¶¶ 16, 27.) At the time of the purchase, the plaintiff was building a collection of biblical antiquities to serve as the foundation for the Museum of the Bible ("MOTB") in Washington, D.C. (Id. ¶ 22.)
Before it sold the Tablet to the plaintiff, Christie's provided the plaintiff with a provenance that contained two entries: "Butterfield and Butterfield, San Francisco, 20 August 1981, lot 1503 with Michael Sharpe Rare and Antiquarian Books, Pasadena, California," implying (1) that the Tablet was imported to the United States no later than 1981 when there were no restrictions on the importation of Iraqi cultural property; (2) that it was sold at an auction in 1981; and (3) that Michael Sharpe, an American bookseller, owned or possessed the Tablet after 1981. (ECF No. 1 ¶¶ 23-24.) After the plaintiff requested more information, Christie's allegedly confirmed from the Butterfield's buyer that the Tablet was part of Lot 1503, and reportedly was deaccessioned by a small museum prior to that auction. (Id. ¶ 26.) This provenance led the plaintiff to believe that the Tablet had been in the United States well before 1981. (Id. )
Deaccessioning is the process by which a museum sells a work in its collection. Ardis E. Strong, Note, Deaccessioning: A Pragmatic Approach , 24 J.L. & Pol'y 241, 243 (2015).
The Private Sale Agreement between the plaintiff and the defendants contains various seller's warranties, including that the seller:
(a) is the owner of the Property or a joint owner of the Property acting with the permission of the owner or co-owners or, if the Seller is not the owner of the Property, the Seller has the permission of the owner(s) to sell the Property;
(b) has the right to transfer ownership of the Property to you without any restrictions or claims by anyone else; and
(c) at the time of the handing over the Property to us, has met all requirements relating to exporting or importing the Property and is not aware that anyone else has failed to meet these requirements.
(ECF No. 1 ¶ 28; ECF No. 17-3 § 2.) The Agreement also contains an arbitration provision that requires the parties to mediate and then arbitrate any dispute arising from the Agreement "except in the limited circumstances where the dispute, controversy or claim is related to a lawsuit brought by a third party and this dispute could be joined to that proceeding." (ECF No. 17-3 § 12.)
After the sale to the plaintiff, Christie's shipped the Tablet from London to the United States, and hand-delivered it to the plaintiff's headquarters in Oklahoma City, Oklahoma. (ECF No. 1 ¶ 30.) The plaintiff later transferred the Tablet to the MOTB in Washington, D.C. to be part of the museum's opening collection in 2017. (Id. ¶ 31.) In preparation for the opening, an MOTB representative contacted Christie's Antiquities Department in London to confirm the Tablet's provenance. (Id. ) Christie's provided some additional but incomplete information about the Butterfield provenance, and represented that they had confirmed the provenance's accuracy in 2014. (Id. ¶ 32.)
In the meantime, agents from the Department of Homeland Security were investigating the Tablet's origin, and the circumstances of its importation into the United States. On September 19, 2019, agents seized the Tablet from the MOTB. (ECF No. 1 ¶ 33.) On May 18, 2020, the government commenced a civil forfeiture action naming the Tablet as the defendant in rem . See United States of America v. One Cuneiform Tablet Known as the "Gilgamesh Dream Tablet" , No. 20-CV-2222 (E.D.N.Y). The complaint in that action alleges that the Tablet was imported to the United States illegally in violation of the National Stolen Property Act, 18 U.S.C. § 2314. (ECF. No. 18-3 ¶¶ 11-12, 54.)
According to the government, an unnamed American antiquities dealer (the "Antiquities Dealer") first saw the Tablet in 2001 in the London apartment of a Jordanian antiquities dealer named Ghassan Rihani. (ECF No. 18-3 ¶ 15.) In 2003, after Rihani's death, the Antiquities Dealer purchased the Tablet from Rihani's family and imported it to the United States where a cuneiform expert restored the Tablet and interpreted the writing as part of the Epic of Gilgamesh. (Id. ¶¶ 16-17.) The cuneiform expert then sent the Tablet to a professor in Princeton, New Jersey for further study. (Id. ¶ 18.)
The government alleges that in 2007, the Antiquities Dealer sold the Tablet to two antiquities buyers, one of whom requested the Tablet's provenance. (ECF No. 18-3 ¶ 19.) The Antiquities Dealer then created a false provenance, representing that the Tablet had been purchased at the 1981 Butterfield's auction as part of Lot 1503, which contained "miscellaneous objects including several other antiquities, none of them completely described." (Id. ¶ 20.) The Butterfield's auction catalogue described Lot 1503 as a "box of miscellaneous ancient bronze fragments." (Id. ) After the 2007 sale, the Tablet appeared in the buyers’ catalogue; its provenance was listed as "clean." (Id. ¶ 21.) It also appeared in the 2007 Michael Sharpe catalogue, also with "a clear provenance." (Id. ¶ 22.)
The government alleges that in December of 2013, a new owner of the Tablet contacted Christie's London office seeking to consign the Tablet for a private sale. (ECF No. 18-3 ¶ 24.) Christie's contacted the Antiquities Dealer to confirm the Tablet's provenance; the Antiquities Dealer told Christie's that the provenance was "not verifiable" and "would not hold up to scrutiny in a public auction." (Id. ¶¶ 25-26.) Despite the uncertainty around the Tablet's provenance, Christie's offered the Tablet to a representative of the MOTB in March of 2014, and the plaintiff purchased the Tablet in July of that year. (Id. ¶¶ 27-28.) Christie's then shipped the Tablet from London to its New York office, and hand-delivered the Tablet to the plaintiff's headquarters in Oklahoma. (Id. ¶ 28.)
The government contends that both the 2003 and the 2014 importations of the Tablet violated federal law prohibiting the import of Iraqi cultural property. (See ECF No. 18-3 ("July 24 Conf. Tr.") at 6:4-7.) The 2003 importation by the American Antiquities Dealer was unlawful because the Dealer likely knew that the Tablet had been looted from Iraq. (Id. at 5:2-7.) The 2014 importation by Christie's was unlawful because it was aware, based on its communications with the Antiquities Dealer, that the Tablet's provenance was "not verifiable." (Id. at 5:19-23.)
II. Procedural History
The government commenced its civil forfeiture action on May 18, 2020, and I signed the warrant for arrest of article in rem the next day. See One Cuneiform Tablet , No. 20-CV-2222, ECF Nos. 1, 3. Hobby Lobby filed this action on May 19, 2020, along with a notice of a related case that listed the in rem action. (ECF Nos. 1, 3.) On May 21, 2020, the Court designated the cases related and reassigned this case to me. Hobby Lobby filed a claim for the Tablet in the in rem action on June 23, 2020, see One Cuneiform Tablet , No. 20-CV-2222, ECF No. 4, and the parties appeared at an initial conference before Magistrate Judge Peggy Kuo on July 24, 2020. The government represented that it was seeking expedited discovery on the 2003 importation, which it believed could be resolved in a dispositive motion, or would provide the information that the parties in this action needed to reach a settlement. (July 24 Conf. Tr. at 6:20-21, 11:17-12:2.) The government observed that the parties might need additional discovery on the 2003 importation as well as discovery on the 2014 importation after this first phase of discovery. (Id. at 12:3-5.) Hobby Lobby represented that it would be willing to consent to the forfeiture of the Tablet if the Tablet was stolen, and if it could reach an agreement with Christie's over the return of the purchase price of the Tablet. (Id. at 10:1-6.) The government agreed to make certain discovery available to Hobby Lobby and Christie's to aid in those negotiations. (Id. at 6:20-7:7.)
On August 18, 2020, Christie's moved to stay this action and compel arbitration of the plaintiff's claims against it. (ECF No. 17.) Christie's argues that the plaintiff consented to mediate and arbitrate all claims arising from the sale of the Tablet by entering into the Private Sale Agreement. (ECF No. 17-1 at 10.) Christie's further argues that the exception in the Agreement's arbitration clause—"the dispute, controversy or claim is related to a lawsuit brought by a third party and this dispute could be joined to that proceeding"—does not apply to this case because the plaintiff's claims against Christie's "cannot be ‘joined’ to the in rem action, under any reasonable interpretation of the Sale Agreement's use of ‘joined.’ " (Id. at 11.) Christie's contends that the use of "joined" limits the exception to claims that "call[ ] into operation" the procedurals rules by which "one party's claims may be brought together with another party's claims under the banner of a single ‘lawsuit.’ " (Id. ) According to Christie's, "court rules do not allow the Sale Agreement claim to be heard under the umbrella of the third-party action," because "[a]mong the array of circumstances where New York's state and federal courts allow one party to carry claims it has against another party into a third-party action, none applies to Hobby Lobby or the claims it would bring here." (Id. at 11-12.)
The plaintiff responds that the exception to the Agreement's arbitration clause applies because the claims in this action are related to the in rem action, and it could have joined its claims against Christie's to the in rem action by bringing a third-party complaint pursuant to Rule 14(a) of the Federal Rules of Civil Procedure or a consolidation motion pursuant to Rule 42. (ECF No. 18 at 12-16.)
On October 12, 2020, Christie's moved for an expedited decision on its motion to compel arbitration citing the plaintiff's request to depose three Christie's London employees as part of its defense of the in rem action. (ECF No. 20.) Hobby Lobby asserts that the government's forfeiture case is based largely on an affidavit by the Antiquities Dealer involved in the 2003 importation, and that it needs to take the depositions of the Christie's employees that had contact with the Antiquities Dealer—regardless of the outcome of this motion—to assess the veracity of his claims about the Tablet's provenance. (ECF No. 20-2 ("Oct. 2 Conf. Tr.") at 4:3-16.)
STANDARD OF REVIEW
A court deciding a motion to compel arbitration applies a standard "similar to that applicable for a motion for summary judgment." Meyer v. Uber Techs., Inc. , 868 F.3d 66, 74 (2d Cir. 2017) (citation omitted). The Court "consider[s] all relevant, admissible evidence submitted by the parties and contained in ‘pleadings, depositions, answers to interrogatories, and admissions on file, together with ... affidavits,’ " Chambers v. Time Warner, Inc. , 282 F.3d 147, 155 (2d Cir. 2002) (quoting Fed. R. Civ. P. 56(c) ) (second alteration in original), and draws all reasonable inferences in favor of the non-moving party. Nicosia v. Amazon.com , 834 F.3d 220, 229 (2d Cir. 2016).
"Whether parties have agreed to arbitrate a matter is fundamentally a question of contractual interpretation." Safra Sec., LLC v. Gonzalez , 764 F. App'x 125, 125 (2d Cir. 2019) (summary order) (citing John Hancock Life Ins. Co. v. Wilson , 254 F.3d 48, 58 (2d Cir. 2001) ). Accordingly, courts look to general state law contract principles to interpret the scope of an arbitration provision. Nicosia , 834 F.3d at 229 ; Chelsea Square Textiles v. Bombay Dyeing & Mfg. Co. , 189 F.3d 289, 296 (2d Cir. 1999). New York law governs the Agreement and requires courts to "give effect to the parties’ intent as expressed by the plain language of the provision." Bensadoun v. Jobe-Riat , 316 F.3d 171, 176 (2d Cir. 2003) (quoting John Hancock , 254 F.3d at 58 ).
However, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," John Hancock , 254 F.3d at 58 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ), because of national policy favoring arbitration, see AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). "[A]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." AT & T Techs. , 475 U.S. at 650, 106 S.Ct. 1415 (internal quotations omitted). Other than an "express provision excluding a particular grievance from arbitration, ... only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail." Id. (internal quotations omitted).
DISCUSSION
The parties dispute whether the exception included in the Agreement's arbitration clause applies to this action. The arbitration clause states, in relevant part:
Before either of us starts any court proceedings (except in the limited circumstances where the dispute, controversy or claim is related to a lawsuit brought by a third party and this dispute could be joined to that proceeding) we shall consent to the mediation of any dispute following the mediation procedure of JAMS with a mediator affiliated with JAMS and mutually acceptable to each of us. Consent to mediation shall not be unreasonably withheld. (ii) If the dispute is not settled by mediation within 60 days from the date when mediation is initiated by either of us, then the dispute shall be referred to and finally resolved by arbitration in New York in accordance with the International Arbitration Rules of the International Center for Dispute Resolution ("ICDR") by one arbitrator appointed by the ICDR within 90 days after the initiation of the arbitration, who may order the production of documents only for good cause shown.
(ECF No. 17-3 ¶ 12 (emphasis added).) Thus, the question is whether the plaintiff's claims in this case are related to the in rem action and could be joined to that proceeding. As there is little doubt that the claims in the two actions share underlying facts and are therefore "related" under any plain reading of that word, I must determine whether the claims against the defendants in this action could be joined to the in rem action. That does not end the analysis, however; the law governing the scope of arbitration agreements requires "positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." AT & T Techs. , 475 U.S. at 650, 106 S.Ct. 1415. I find that the exception to the Agreement's arbitration clause unambiguously applies to this action.
Christie's asserts in its reply that "this action is unrelated to the federal government's forfeiture action," but does not elaborate on this argument, choosing instead to focus its attention on the "could be joined" language of the exception. (ECF No. 19.) Christie's seems to interpret the government's request for expedited discovery on the 2003 importation as evidence that the 2014 importation is not also a subject of the in rem action. (Id. at 12.) The government's adoption of a discovery strategy aimed at resolving the action efficiently does not mean that the government has abandoned its claim that Christie's 2014 importation of the Tablet was unlawful; it has not. (See July 24 Conf. Tr. at 6:4-7, 12:3-5.) The legality of Christie's importation of the Tablet is a central question in both actions, so the cases are unquestionably related.
I. The Claims in This Action "Could Be Joined" to a Third-Party Lawsuit
The claims in this action could be joined to the in rem action pursuant to Rule 14 of the Fed. R. Civ. P., which states: "A defending party may, as third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable to it for all or part of the claim against it." Fed. R. Civ. P. 14(a). Courts have held that a claimant in a civil forfeiture action is a "defending party" for the purpose of Rule 14(a). See United States v. $343,726.60 in U.S. Currency , No. 05-CV-20513, 2005 WL 8165387, at *2 (S.D. Fla. Oct. 11, 2005) ; United States v. All Meat & Poultry Prod. Stored at LaGrou Cold Storage , No. 02-CV-5145, 2003 WL 21780963, at *2 (N.D. Ill. July 30, 2003) ; United States v. Paraffin Wax, 2255 Bags , 141 F. Supp. 402, 403-04 (E.D.N.Y. 1956) ; see also United States v. $100,000 in U.S. Currency , 602 F. Supp. 712, 714 (S.D.N.Y. 1985) ("Although the res itself is the nominal defendant, claimants are the real party in interest ....").
To constitute a third-party claim under Rule 14(a), the claim must be "in some way dependent on the outcome of the main claim and the third party's liability is secondary or derivative." United States v. One 1977 Mercedes Benz, 450 SEL, VIN 11603302064538 , 708 F.2d 444, 452 (9th Cir. 1983). In other words, "[t]hird-party practice or impleader is permitted under the Federal Rules of Civil Procedure only where the defendant can show that if he is found liable to the plaintiff then the third-party defendant will be liable to him." Stratagem Dev. Corp. v. Heron Int'l N.V. , 153 F.R.D. 535, 549 (S.D.N.Y. 1994) (internal quotations omitted); see also Wright & Miller, 6 Fed. Prac. & Proc. Civ. § 1446 (3d ed.) ("The secondary or derivative liability notion is central and thus impleader has been successfully utilized when the basis of the third-party claim is indemnity, subrogation, contribution, express or implied warranty, or some other theory."). New York law applies a similar standard for impleading claims pursuant to New York Civil Practice Law and Rules § 1007. See Krause v. Am. Guarantee & Liab. Ins. Co. , 22 N.Y.2d 147, 152, 292 N.Y.S.2d 67, 239 N.E.2d 175 (1968) ("The language of CPLR 1007 permits the defendant to implead any person ‘who is or may be liable to him.’ "); see also Holloway v. Brooklyn Union Gas Co. , 50 A.D.2d 603, 604, 375 N.Y.S.2d 396 (2d Dep't 1975) ("the true test is simply whether the third-party defendant may be liable to defendant-third-party plaintiff, for whatever reason, for the damages for which the latter may be liable to plaintiff").
In this case, Hobby Lobby's claims—that Christie's and the seller broke both express and implied warranties and committed fraud to procure the sale of the Tablet—are entirely dependent on the outcome of the government's forfeiture action. If the government proves that the Tablet was stolen, Hobby Lobby can seek to recover the purchase price from Christie's. See N.Y. U.C.C. Law § 2-312 cmt. 1 (New York law provides "for a buyer's basic needs in respect to a title which he in good faith expects to acquire by his purchase, namely, that he receive a good, clean title transferred to him also in a rightful manner so that he will not be exposed to a lawsuit in order to protect it."). Conversely, if the government cannot prove that the Tablet was illegally imported in 2003 or 2014, it has no basis to seize the Tablet and Hobby Lobby has no action against Christie's. Therefore, it is clear that Christie's liability in this action is secondary or derivative to the government's claim in the in rem action. See, e.g. , $343,726.60 in U.S. Currency , 2005 WL 8165387, at *2 ; All Meat & Poultry Prod. , 2003 WL 21780963, at *2 ; Paraffin Wax , 141 F. Supp. at 404. In short, the plaintiff "could join" the claims in this action with the claims in the third-party in rem action.
II. This Action is not Subject to the Agreement's Arbitration Clause
As discussed above, this does not end the analysis. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Bensadoun , 316 F.3d at 176. Courts must therefore have "positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." AT & T Techs. , 475 U.S. at 650, 106 S.Ct. 1415.
Christie's argues that "[t]o overcome the federal presumption in favor of arbitration, the exception's language must unambiguously apply to Hobby Lobby's claims, and with no other plausible contract interpretation yielding a different result." (ECF 17-1 at 9-10.) According to Christie's, "[w]hen courtroom procedure allows a third-party lawsuit to entangle all parties to a Sale Agreement dispute, the Sale Agreement parties will sideline their agreement to arbitrate and proceed under the umbrella of the third-party's action; when the Sale Agreement claim cannot be joined—i.e., when court rules do not allow the Sale Agreement claim to be heard under the umbrella of the third-party action—the default mediation and arbitration provision will remain in force." (Id. at 11.) Christie's further asserts that the term "join" invokes Rules 14, 18, 19 and 20 of the Federal Rules of Civil Procedure (and their New York law counterparts), but does not apply to the consolidation of cases under Fed. R. Civ. P. 42. (Id. at 12-13.)
If Rule 42(a) —which allows a court to consolidate issues or actions that "involve a common question of law or fact"—were the only mechanism by which the claims in the two actions could be joined, the policy favoring arbitration could support a finding that the exception to arbitration does not apply. However, Rule 42 is not the only mechanism by which Hobby Lobby "could join" the claims in this action to the in rem action. As discussed above, Hobby Lobby could bring a third-party complaint against the defendants under Fed. R. Civ. P. 14. "[T]he FAA ‘does not require parties to arbitrate when they have not agreed to do so.’ " Nicosia , 834 F.3d at 228-29 (quoting Schnabel v. Trilegiant Corp. , 697 F.3d 110, 118 (2d Cir. 2012) ). According to Christie's own interpretation of the arbitration clause, this action falls squarely within the exception to arbitration stated in the Agreement. Therefore, Christie's motion to compel arbitration is denied.
CONCLUSION
Christie's motion to compel arbitration is denied. The defendants are directed to file their answer or otherwise respond to the complaint no later than January 26, 2021. The motion to expedite this decision is denied as moot.
If the defendants decide to move to dismiss the complaint, they are directed to file their brief in support of the motion on January 26, 2021. No additional pre-motion conference is necessary. To the extent that the defendants intend to dismiss based on statute of limitations (see ECF No. 10), the parties’ briefs should focus on whether equitable tolling applies to the plaintiff's claims. The defendants are advised to review the standard of proof required to survive a motion to dismiss the pleadings and judge whether their arguments would be more appropriate on summary judgment.