Champion Auto Sales, LLC v. Polaris Sales Inc.

• Decision Date: 27 March 2013
• Docket Number: No. 12–CV–1842 (JS)(ARL).,12–CV–1842 (JS)(ARL).
• Citation: 943 F.Supp.2d 346
• Parties: CHAMPION AUTO SALES, LLC, and Robert A. Lee, Jr., Plaintiffs, v. POLARIS SALES INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

943 F.Supp.2d 346

CHAMPION AUTO SALES, LLC, and Robert A. Lee, Jr., Plaintiffs,

v.POLARIS SALES INC., Defendant.

No. 12–CV–1842 (JS)(ARL).

United States District Court, E.D. New York.

March 27, 2013.

Seth L. Dobbs, Esq., The Margolis Law Firm LLC, New York, NY, for Plaintiffs.

James M. Wicks, Esq., Farrell Fritz, P.C., Uniondale, NY, James J. Long, Esq., Jay W. Schlosser, Esq., Briggs and Morgan, P.A., Minneapolis, MN, For Defendant.

MEMORANDUM & ORDER

SEYBERT, District Judge.

PlaintiffsChampion Auto Sales, LLC(“Champion”) and Robert A. Lee, Jr.(together, “Plaintiffs”) commenced this breach of contract action against Polaris Sales Inc.(“Polaris”) on April 5, 2012.Pending before the Court is Polaris's motion to compel arbitration and/or stay the action pursuant to the Federal Arbitration Act(“FAA”), 9 U.S.C. § 1 et seq.For the following reasons, Polaris's motion is GRANTED IN PART and DENIED IN PART.

BACKGROUND

On or around July 21, 2011, Champion and Polaris entered into an agreement (the “Dealer Agreement” or “Agreement”), pursuant to which Champion was authorized to sell and service the following Polaris-brand vehicles: snowmobiles, all-terrain vehicles (“ATVs”), Ranger™ vehicles, low-speed vehicles (“LSVs”), and Victory Motorcycles (collectively, the “Products”).(Peterson Decl., Docket Entry 16, Ex. A, Dealer Agreementat 1.)Although there was only one Dealer Agreement, it “[was] independently and separately enforceable for each Product designated, and the use of [a] common Agreement [was] intended to simplify the execution of the Agreement[s].”(Peterson Decl. Ex. A, Dealer Agreementat 1.)The Agreement was signed by a representative of Polaris and by Plaintiff Lee on behalf of Champion.¹

There are three provisions of the Dealer Agreement that are relevant to the pending motion: Section 19's arbitration provision, Section 20's choice-of-law provision, and Section 18's attorneys' fees provision.The arbitration provision (the “Arbitration Provision”) provided, in relevant part, that:

All disputes, controversies, and claims arising out of, or in connection with, the execution, interpretation, performance, nonperformance, or breach of this Agreement (including without limitation the validity, scope, enforceability, and voidability under any statute, regulation, ordinance, or ruling), or termination or non-renewal of this Agreement, or of any provision of this Agreement (including without limitation this arbitration provision, the arbitrability of any issue, and the jurisdiction of the arbitrator), or arising out of or in connection with any claimed duty, right, or remedy (whether arising under this Agreement or any statute, regulation, ordinance, or other rule of law or otherwise) relating to any of the foregoing, shall be solely and finally settled by arbitration in Minneapolis, Minnesota, in accordance with the United States Arbitration Act(9 U.S.C. § 1 et seq.), and the rules of the American Arbitration Association relating to commercial arbitration.

(Peterson Decl. Ex. A, Dealer Agreement§ 19(a).)²The choice-of-law provision provided for the application of Minnesota law.(Peterson Decl. Ex. A, Dealer Agreement§ 20(k).)And the attorneys' fees provision provided, in relevant part, that:

In any action or proceeding relating to or arising out of this Agreement brought by either Party, whether such action or proceeding be founded upon contract, tort, statute, regulation, or otherwise, Polaris shall be entitled to recover from [Champion] its costs and expenses (including, but not limited to, reasonable attorneys' fees) of prosecuting and/or defending any such action or proceeding in which Polaris has substantially prevailed.For purposes of this Agreement, Polaris shall be considered to have “substantially prevailed” in such action or proceeding if: ...(3) Polaris successfully moves to compel arbitration pursuant to Section 19 of this Agreement.

(Polaris Decl. Ex. A, Dealer Agreement§ 18.)

On or around January 12, 2012, Polaris sent Plaintiffs a Notice of Termination, accusing Plaintiffs of breaching the Dealer Agreement and stating its intention to terminate the Agreement in fifteen days.(Peterson Decl. Ex. B.)

On April 5, 2012, Plaintiffs commenced this action in New York State Supreme Court, Suffolk County, asserting the claims for: (1) specific performance of the Dealer Agreement; (2) promissory estoppel; (3) preliminary and permanent injunctive relief; (4) breach of the Agreement; (5) breach of the New York Franchised Motor Vehicle Act, N.Y. Veh. & Traf. LawW§ 463;(6) breach of the Automobile Dealer's Day in Court Act, 15 U.S.C. § 1221 et seq.; and (7) breach of covenant of good faith and fair dealing.Polaris removed the action to this Court on April 13, 2012 and on June 15, 2012 filed the pending motion to compel arbitration and/or stay and for attorneys' fees and costs.

DISCUSSION

Polaris is seeking to compel arbitration of Champion's claims and to stay Lee's claims, which it concedes for the purpose of this motion are not arbitrable.The Court will first discuss the standard of review on motions to compel arbitration, before addressing the merits of Polaris's motion to compel arbitration and/or stay the proceedings.Finally, the Court will address Polaris's request for attorneys' fees and costs.

I.Standard of Review under the FAA

When reviewing a motion to compel arbitration or stay an action pursuant to the FAA, “the court applies a standard similar to that applicable for a motion for summary judgment.”Bensadoun v. Jobe–Riat,316 F.3d 171, 175(2d Cir.2003);Teah v. Macy's Inc.,No. 11–CV–1356, 2011 WL 6838151, at *4(E.D.N.Y.Dec. 29, 2011).Where there exists “an issue of fact as to the making of the agreement for arbitration, then a trial is necessary.”Bensadoun,316 F.3d at 175;Teah,2011 WL 6838151, at *4.But where “the party seeking arbitration has substantiated the entitlement [to arbitration] by a showing of evidentiary facts, the party opposing may not rest on a denial but must submit evidentiary facts showing that there is a dispute to be tried.”Oppenheimer & Co. v. Neidhardt,56 F.3d 352, 358(2d Cir.1995);cf.Manning v. Energy Conversion Devices, Inc.,833 F.2d 1096, 1103(2d Cir.1987)(“Arbitration is intended to be a process for the swift resolution of disputes, and parties endeavoring to resist arbitration must alert district courts promptly and finally to whatever claims they may have in opposition to arbitration and the evidentiary basis of such claims.”).

II.Arbitrability of Plaintiffs' Claims

The FAA expresses a strong federal policy favoring arbitration.Ragone v. Atl. Video at Manhattan Ctr.,595 F.3d 115, 121(2d Cir.2010).The FAA states that arbitration agreements are valid, enforceable and irrevocable, unless such grounds exist for the revocation of the contract.9 U.S.C. § 2;see alsoRagone,595 F.3d at 121.In keeping with this policy, the Court resolves doubts in favor of arbitration and enforces privately-negotiated arbitration agreements in accordance with their terms.SeeCollins & Aikman Prods. Co. v. Bldg. Sys., Inc.,58 F.3d 16, 19–20(2d Cir.1995).

Courts generally resolve four inquiries in determining a cause of action's arbitrability: (1) whether the parties agreed to arbitrate; (2) the scope of the agreement; (3) if federal statutory claims are asserted, whether Congress intended that certain claims be nonarbitrable; and (4) if some, but not all, of the claims are arbitrable, whether to stay the balance of the proceeding pending arbitration.JLM Indus., Inc. v. Stolt–Nielsen SA,387 F.3d 163, 169(2d Cir.2004)(quotingOldroyd v. Elmira Sav. Bank, FSB,134 F.3d 72, 75–76(2d Cir.1998));see alsoFollman v. World Fin. Network Nat'l Bank,721 F.Supp.2d 158, 161(E.D.N.Y.2010).The Court will address each inquiry in turn.

A.Agreement to Arbitrate

Whether the parties agreed to arbitrate is a question of state law, Bell v. Cendant Corp.,293 F.3d 563, 566(2d Cir.2002), and, as the Agreement contains a Minnesota choice-of-law provision, the Court looks to Minnesota law to determine whether there is a valid agreement to arbitrate, seeHartford Fire Ins. Co. v. Orient Overseas Containers Lines (UK) Ltd.,230 F.3d 549, 556(2d Cir.2000)(“New York law is clear in cases involving a contract with an express choice-of-law provision: Absent fraud or violation of public policy, a court is to apply the law selected in the contract as long as the state selected has sufficient contacts with the transaction.”);³see alsoFin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 332(2d Cir.2005)(“The validity of a contractual choice-of-law clause is a threshold questionthat must be decided not under the law specified in the clause, but under the relevant forum's choice-of-law rules governing the effectiveness of such clauses.”).

Under Minnesota law, “[t]he formation of a contract requires communication of a specific and definite offer, acceptance, and consideration.”Commercial Assocs., Inc. v. Work Connection, Inc.,712 N.W.2d 772, 782(Minn.Ct.App.2006).The parties do not dispute the validity of the Agreement in total; in fact, the parties conducted business together for several years before this dispute arose and Plaintiffs seek specific performance under the Agreement ( seeCompl.¶¶ 9–14, 25).Rather, Plaintiffs argue that the Arbitration Provision is not enforceable because (1) it is unconscionable and (2) it is barred by New York's Franchised Motor Vehicle Dealer Act.The Court will address each argument separately.

1.Unconscionability

Under Minnesota law, a contract “is unconscionable if it is such as no man in his senses and not under delusion would make on one hand, and no honest and fair man would accept on the other.”Overholt Crop Ins. Serv. Co. v. Bredeson,437 N.W.2d 698, 702(Minn.Ct.App.1989).In determining whether an arbitration clause is unconscionable, a court should “examine[ ] the sophistication...