Celltrace Commc'ns Ltd. v. Acacia Research Corp.

• Decision Date: 16 June 2016
• Docket Number: 15-CV-4746 (AJN)
• Parties: Celltrace Communications Ltd. et al., Plaintiffs, v. Acacia Research Corp. et al., Defendants.
• Court: U.S. District Court — Southern District of New York

Celltrace Communications Ltd. et al., Plaintiffs, v. Acacia Research Corp. et al., Defendants.

15-CV-4746 (AJN)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

June 16, 2016

MEMORANDUM AND ORDER

ALISON J. NATHAN, District Judge:

Celltrace Communications Ltd. and Wayne Michaels ("Plaintiffs") filed the above-captioned action against Acacia Research Corp. and Acacia Research Group, LLC ("Defendants") on June 17, 2015. Dkt. No. 1. Before the Court is Defendants' motion to compel arbitration. Dkt. No. 48. For the reasons articulated below, Defendants' motion is granted.

I. BACKGROUND

On November 1, 2007, Plaintiffs entered into a contract with Defendants' predecessor-in-interest for the assignment of certain patent rights. Dkt. No. 50 ¶ 3. This contract provides that the parties "irrevocably consent to the exclusive jurisdiction of any New York state or federal court over any suit, action or proceeding arising out of or relating to this Agreement." Id. Ex. A ("Agreement") § 7.1. Section 7.2 of the contract further provides:

In the event of any dispute and if the Parties cannot resolve the dispute through negotiation, the Parties agree first to try in good faith to settle the dispute by formal arbitration under the Rules of Arbitration of the International Chamber of Commerce ["ICC Rules"] before submitting the matter to litigation pursuant to Section 7.1 above.

Id. § 7.2.

In 2015, Plaintiffs brought breach of contract, unjust enrichment, and fraud claims against Defendants related to the 2007 contract. Dkt. No. 1 ("Comp.") ¶¶ 43-68. Defendants responded by moving to compel arbitration based on Section 7.2 of the Agreement and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq. Dkt. Nos. 48, 49.

II. LEGAL STANDARD

The FAA "requires courts to enforce privately negotiated agreements to arbitrate . . . in accordance with their terms." Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989). Because "[a]rbitration is a matter of contract . . . a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit." Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 126 (2d Cir. 2010) (quoting JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F .3d 163, 171 (2d Cir. 2004)). As a result, when a court evaluates a motion to compel arbitration pursuant to the FAA, it "must answer two questions: (1) whether the parties agreed to arbitrate, and, if so, (2) whether the scope of that agreement encompasses the claims at issue." Holick v. Cellular Sales of New York, LLC, 802 F.3d 391, 394 (2d Cir. 2015) (quoting Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 281 (2d Cir. 2005)). If the Court finds that arbitration is required, the Court may issue "an order directing that such arbitration proceed in the manner provided for in such agreement" provided that the arbitration occur "within the district in which the petition for an order directing such arbitration is filed." 9 U.S.C. § 4. Upon ordering arbitration, the Court may stay the case, see 9 U.S.C. § 3, or exercise its discretion to dismiss the case without prejudice if "all of the disputes raised in the plaintiff's complaint in this case are subject to arbitration." Nulife Entm't, Inc. v. Torres, 698 F. Supp. 2d 409, 414 (S.D.N.Y. 2010).

III. DISCUSSION

Plaintiffs oppose Defendants' efforts to compel arbitration. In doing so, Plaintiffs do not argue that their claims are outside of the scope of the arbitration agreement; instead, they argue that there is no agreement to submit claims to mandatory, binding arbitration. Dkt. No. 55 ("Opp. Br.") at 1-2, 6. In support of this argument, Plaintiffs point to the Agreement's repeated references to litigation and its "good faith" clause. The Court must first consider whether Plaintiffs' arguments should be resolved by the Court or by an arbitrator. If these arguments are properly for the Court, the Court will consider them in turn.

A. The Court Will Decide Arbitrability

"Under the FAA, there is a general presumption that the issue of arbitrability," which includes the "existence, validity and scope" of an arbitration agreement, "should be resolved by the courts." Contec Corp. v. Remote Sol., Co., 398 F.3d 205, 208, 211 (2d Cir. 2005) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995)). In certain circumstances, however, arbitrability may be resolved by the arbitrator. The Second Circuit has explained that the relevant inquiry is whether the parties' arbitration agreement reveals an intent to arbitrate arbitrability. See id. at 211 (courts should evaluate whether "there is clear and unmistakable evidence from the arbitration agreement . . . that the parties intended that the question of arbitrability shall be decided by the arbitrator."); see also Shaw Grp. Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 122 (2d Cir. 2003) (courts must consider "the parties' intent to arbitrate arbitrability").

There is some amount of circularity inherent in this standard, particularly when the relevant arbitrability question is the existence of an arbitration agreement. After all, in order to evaluate whether "there is clear and unmistakable evidence from the arbitration agreement . . .that the parties intended that the question of arbitrability shall be decided by the arbitrator," Contec, 398 F.3d at 211 (emphasis omitted), the Court must conclude that there was an agreement to arbitrate. Similarly, it is impossible to evaluate "the parties' intent to arbitrate [the specific issue of] arbitrability" without resolving the bigger question of whether there was an intent to arbitrate at all. Shaw, 322 F.3d at 122. Perhaps unsurprisingly, then, evaluating intent to arbitrate arbitrability overlaps considerably with evaluating the existence of an arbitration agreement. See id. (identifying "certain principles of New York contract law relevant to determining whether an arbitration agreement clearly and unmistakably demonstrates that arbitrators rather than the courts are to resolve questions of arbitrability"). Using this framework, courts frequently find questions of arbitrability delegated to an arbitrator in disputes involving the scope of an admittedly valid arbitration agreement, see PRL USA Holdings, Inc. v. United States Polo Ass'n, Inc., No. 14-CV-764 (RJS), 2015 WL 1442487, at *3-*4 (S.D.N.Y. Mar. 27, 2015); Offshore Expl. & Prod. LLC v. Morgan Stanley Private Bank, N.A., 986 F. Supp. 2d 308, 315-16 (S.D.N.Y. 2013), aff'd, 626 F. App'x 303 (2d Cir. 2015), or disputes as to whether successors-in-interest are bound by admittedly valid arbitration agreements signed by their predecessors. See Contec, 398 F.3d at 209, 211; Shaw, 322 F.3d at 118, 122. In cases factually similar to this case, however, where one party argues that there is no valid arbitration agreement, courts have decided the question of arbitrability. See Applied Energetics, Inc. v. NewOak Capital Markets, LLC, 645 F.3d 522, 524-25 (2d Cir. 2011); Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278, 281-82 (2d Cir. 2005), abrogated on other grounds by Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (2010). Because the Court cannot evaluate intent to arbitrate arbitrability without resolving whether the parties have agreed to engage inbinding arbitration, the Court will follow the latter line of cases and independently evaluate arbitrability.

B. The Agreement Evidences an Intent to Initiate Binding Arbitration To Resolve Disputes

As noted above, Section 7.2 of the Agreement provides that "[i]n the event of any dispute and if the Parties cannot resolve the dispute through negotiation, the Parties agree first to try in good faith to settle the dispute by formal arbitration under the [ICC Rules] before submitting the matter to litigation pursuant to Section 7.1 above." Defendants, invoking the presumption in favor of arbitration, focus on the first part of this provision and argue that the Agreement's clear invocation of formal ICC arbitration demonstrates the parties' intent to submit to binding arbitration. Dkt. No. 49 ("Br.") at 14-19. Plaintiffs raise two arguments in response. First, they argue that they have no obligation to actually engage in arbitration, but are instead only obligated to "try in good faith" to arbitrate. Opp. Br. at 13-15. Second, Plaintiffs argue that "if an arbitration occurred, it would be non-binding." Id. at 2. These two specific claims serve Plaintiffs' overarching argument that "the Agreement contemplates non-binding arbitration as a settlement mechanism." Opp. Br. at 18; see also Opp. Br. at 4 (describing their obligation under the Agreement as one to "try to settle to avoid litigation through a good-faith effort at non-binding ADR steps") (internal quotations omitted). The Court will first address Plaintiffs' argument that the parties' Agreement calls for non-binding arbitration and will then resolve the question of what it means to "try in good faith" to arbitrate.

1. The Agreement contemplates binding arbitration despite some references to litigation

Plaintiffs argue that the Agreement's forum selection clause and references to the possibility of subsequent litigation illustrate that the parties did not intend to engage in bindingarbitration.¹ Opp. Br. at 6-13. This position is unpersuasive. As a threshold matter, Plaintiffs are correct that the presumption in favor of arbitration does not apply here, as this dispute concerns "whether an agreement to arbitrate has been made" rather than the scope of an admittedly valid arbitration agreement. Applied Energetics, 645 F.3d at 526. This fact, however, does not end the inquiry; the Court must still apply state contract law principles to determine "whether a contractual obligation to arbitrate exists." Id. New York contract law requires that "[a] contract . . . be construed so as to give full meaning and effect to all of its provisions." Shaw Grp. Inc. v. Triplefine Int'l Corp., 322...