Opinion
No. CV 04 4006038 S
February 4, 2005
MEMORANDUM OF DECISION
The plaintiffs, ING Financial Advisors, Inc., ("ING") and two individuals associated with ING, Daniel J. Eastman and Jeffrey L. Stein, seek a temporary injunction prohibiting the defendant National Association of Security Dealers, Inc. ("NASD") from proceeding with an arbitration in Minneapolis, Minnesota. The defendant Joshua Kohen is a former employee of ING who sought arbitration with NASD pursuant to an arbitration clause in an employment agreement. The parties, appearing at the special proceedings calendar on January 31, 2005, represented that the question of whether a temporary injunction should be issued could be decided on the briefs and documents submitted with the briefs. The parties briefly and responsibly argued the points orally at that time. For reasons soon to be stated, I hold that the requested temporary injunction shall enter.
The background of the dispute may be briefly stated. Kohen began working with the defendant Stein's group at ING in early 2000. His duties apparently included the marketing of deferred compensation plans. His job changed in 2001, and on September 28, 2001, Kohen executed an Account Representative Agreement. The agreement outlined a different compensation plan. The agreement included an arbitration clause, Article 4.05, which reads as follows:
[The agreement] shall be construed in accordance with and governed by the law of the State of Connecticut (without regard to principles of conflict of laws). All claims relating to the Agreement shall be submitted to binding arbitration in Hartford, Connecticut in accordance with the Code of Arbitration procedure of the NASD, if the NASD accepts jurisdiction, and, if not, by a panel of three neutral arbitrators under the Commercial Arbitration Rules of the American Arbitration Association.
The employment arrangement apparently did not work out well and Kohen resigned in November 2001. In August 2004, Kohen requested the NASD office in New York City to proceed with arbitration. NASD processed the demand for arbitration and preliminarily scheduled the matter for Minneapolis, Minnesota, which is where much of the activity took place and where a number, perhaps all, of the principal witnesses reside. The plaintiffs consistently urged that the venue should be Hartford, Connecticut, pursuant to the agreement, but NASD, through an internal appeal process, denied the plaintiffs' requests regarding venue. Not having persuaded the administrators, the plaintiffs now seek an injunction from this court to the effect that arbitration in Minnesota be prohibited and that arbitration in Hartford be compelled.
It may be well to state initially what is not being decided. In preliminary papers, Kohen, acting pro se, appeared to state that the contract was one of adhesion and ought not be enforced. No evidence has been introduced to that effect, and the parties have not adopted that position in their briefs or in oral argument. I shall assume, then, that this position is not being pressed and I do not consider it further. Similarly, there is no claim that the contract was, in the continuing employment context, without additional consideration. I note that the agreement was executed in the course of, at the very least, a substantial modification of the employment arrangement, so that additional consideration may not have been necessary. In any event it may behoove no one in the circumstances presented to urge that the arbitration clause is entirely unenforceable.
The standards for granting a temporary injunction are a matter of black letter law and are not in dispute. In order for a temporary injunction to issue, the proponent must show (1) a reasonable degree of the probability of success on the merits of the injunction; (2) irreparable harm with no adequate remedy at law; (3) a favorable balancing of the equities involved. See, e.g., Griffin Hospital v. Commission on Hospitals and Health Care, 196 Conn. 451, 457-58 (1985); Waterbury Teachers Ass'n. v. Freedom of Information Commission, 230 Conn. 441, 446 (1994). The parties have devoted their efforts primarily to the question of likelihood of success on the merits.
The dispute focuses first on the question of who decides the question of venue in the circumstances presented. The plaintiffs urge that because the specification of venue is expressly agreed to in the arbitration clause itself, it is more than a procedural nicety to be decided by the arbitration board or the arbitrators themselves. Rather, it is an integral and express term of the agreement to arbitrate. The defendants argue that venue is a procedural matter incident to the arbitration, which has been entrusted to the arbitration panel to decide. In the circumstances presented, I agree with the plaintiffs.
If an arbitration agreement makes no express reference to venue, then venue generally is a matter to be decided in arbitration. See, e.g., Aerojet-General Corporation v. American Arbitration Association, 478 F.2d 248, 251 (9th Cir. 1973). The issue falls within the procedural processes to be decided by arbitrators, and ordinarily courts ought not indulge in interlocutory intervention. Id., see also Howsam v. Dean Witter Reynolds, 537 U.S. 79 (2002); New England Pipe Corporation v. Northeast Corridor Foundation, 271 Conn. 329 (2004).
Where venue is a specific term of the agreement to arbitrate, the situation is different. The issue of arbitrability itself is, in the first instance, a matter for the court to decide, unless, according to principles of contract interpretation, it is more reasonable to find that the parties intended that the issue of venue be decided by arbitrators. See, e.g., Howsam v. Dean Witter Reynolds, supra, 83-84. If the agreement is to resolve disputes by arbitration expressly in Place X, then the parties have not agreed to arbitrate in any place other than Place X.
The issue of arbitrability is, in such instances, an initial matter for courts to decide:
It is well established that "[a]rbitration is a creature of contract . . . It is designed to avoid litigation and secure prompt settlement of disputes . . . [A] person can be compelled to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed so to do . . . No one can be forced to arbitrate a contract dispute who has not previously agreed to do so." (Citations omitted; internal quotation marks omitted.) A. Dubreuil Sons, Inc. v. Lisbon, 215 Conn. 604, 608, 577 A.2d 709 (1990); see also Hottle v. BDO Seidman, LLP, 268 Conn. 694, 701, 846 A.2d 862 (2004); Levine v. Advest, Inc., 244 Conn. 732, 744, 714 A.2d 649 (1998). Moreover, "[i]t is the province of the parties to set the limits of the authority of the arbitrators, and the parties will be bound by the limits they have fixed . . . The arbitration provision in an agreement is, in effect, a separate and distinct agreement. Courts of law can enforce only such agreements as the parties actually make." (Internal quotation marks omitted.) Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 772, 613 A.2d 1320 (1992); accord Connecticut Union of Telephone Workers, Inc. v. Southern New England Telephone Co., 148 Conn. 192, 197, 169 A.2d 646 (1961). Accordingly, "because an arbitrator's jurisdiction is rooted in the agreement of the parties . . . a party who contests the making of a contract containing an arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate. Only a court can make that decision." (Citations omitted; emphasis in original; internal quotation marks omitted.) Three Valleys Municipal Water District v. E.F. Hutton Co., 925 F.2d 1136, 1140-41 (9th Cir. 1991); see also I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d 396, 400 (8th Cir. 1986) ("the enforceability of an arbitration clause is a question for the court when one party denies the existence of a contract with the other").
Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 72-73 (2004).
The only reasonable reading of the clause in question is that the parties did not agree to arbitrate in any location other than Hartford; as it is a condition of arbitration, it is a matter to be decided by the court. Indeed, the precise question has been decided by several courts.
In Bear, Stearns Co., Inc. v. Bennett, 938 F.2d 31 (2d Cir. 1991), the Second Circuit held that the forum selection clause was valid and that the court properly ought to intervene in order to effectuate the intent of the parties at the time of the execution of the arbitration clause. In Merrill Lynch v. Georgiadis, 903 F.2d 109 (2d Cir. 1990), the Second Circuit held that venue clauses in customer agreements are presumptively valid and enforceable by the court. In Sterling Financial Investment Group v. Hammer, 2004 U.S. App. LEXIS 26131 (11th Cir. 2004), the court held that the trial court had properly intervened in the arbitration proceedings to enforce a venue provision in the arbitration agreement.
The defendant NASD has argued that because ING is a member of NASD, and the NASD Code of Arbitration apparently vests the power to determine venue in the administration of arbitration, then the individual employee agreement may not be enforced. It is clear, however, that the parties to the arbitration clause in issue clearly agreed as to venue. It has been held by several courts that a specific agreement regarding venue supersedes the more general agreement that an entity may have with an arbitration provider. Merrill Lynch v. Georgiadis, supra, 112-13; Creative Securities Corp. v. Bear Stearns Co., 671 F.Sup. 961, 967-68 (S.D.N.Y. 1987).
On the materials presented, then, I find it far more likely than not that the plaintiffs will prevail on the merits of the dispute.
The remaining issues may be discussed more perfunctorily. NASD claims that there is no showing of irreparable harm or lack of an adequate remedy at law, because, presumably, even if ING is correct on the merits, should the arbitration panel hear the issue in Minnesota and decide the matter in a way aggrieving ING, then ING can raise the issue in a motion to vacate the award and no harm is done. This position has not been endorsed by the courts. In Policemen's and Firemen's Retirement Board of New Haven v. Sullivan, 173 Conn. 1, 12 (1977), our Supreme Court held that proceeding with arbitration, in circumstances in which arbitration should not proceed, constitutes irreparable harm itself without an adequate legal remedy. See also Scinto v. Sosin, 51 Conn.App. 222, 245-47 (1998).
The final issue is the balancing of the equities. While in the absence of an express venue clause the equities might favor a Minnesota forum, given the residence of the parties, the balance tilts when the outcome of the issue on the merits is so clearly portended. It makes no sense for either party to proceed in Minnesota when to do so would violate the authorizing agreement.
In the circumstances, then, the motion for the temporary injunction is granted and the defendants are ordered, pursuant to § 52-422 of the General Statutes, not to proceed with the arbitration in Minnesota. To be consistent with the terms of the submission to arbitration, the arbitration shall proceed in the NASD tribunal if NASD accepts the arbitration in Hartford; if not, resort shall be made to the American Arbitration Association.
So ordered.
Beach, J.