Cosmotek Mumessillik Ve Ticaret v. Cosmotek Usa, Civ. No. 3:95CV1390(PCD).

• Decision Date: 02 August 1996
• Docket Number: Civ. No. 3:95CV1390(PCD).
• Court: U.S. District Court — District of Connecticut
• Parties: COSMOTEK MUMESSILLIK VE TICARET LIMITED SIRKKETI v. COSMOTEK USA, INC., and Advanced Power Systems International, Inc.

942 F.Supp. 757

COSMOTEK MUMESSILLIK VE TICARET LIMITED SIRKKETI v. COSMOTEK USA, INC., and Advanced Power Systems International, Inc.

Civ. No. 3:95CV1390(PCD).

United States District Court, D. Connecticut.

August 2, 1996.

Francis A. Miniter, Miniter & Associates, Hartford, CT, for Plaintiff.

William O. Riiska, Winsted, CT, for Defendants.

RULING ON MOTION TO STAY

DORSEY, Chief Judge.

Defendants move to stay this proceeding pursuant to the Federal Arbitration Act (FAA) 9 U.S.C. § 3. Defendants claim that their contract requires the parties to arbitrate. Plaintiff opposes, asserting that Advanced Power Systems International, Inc. (APSI) cannot be compelled to arbitrate because it was not a party to the contract.

I. BACKGROUND

Cosmotek USA (USA), and Cosmotek Mumessillik ve Ticaret Limited Sirkketi (Turkey), entered into an agreement (contract) whereby Turkey became USA's distributor and sales representative for the sale of Fitch Catalyst units (units). The units were manufactured by APSI who was neither a signatory nor a party to the contract.

The contract provides that it shall be construed in accordance with the laws of New York and any dispute arising under the contract shall be resolved by final and binding arbitration. (Def.'s Ex. A at 7).

II. DISCUSSION

A. Federal Arbitration Act

Defendants assert that the FAA governs enforceability of the arbitration clause. Plaintiff argues that APSI's presence, as non-party to the contract, mandates deference to the choice of state law provision.

Enforceability of an arbitration agreement is determined pursuant to the FAA if "(1) the parties have entered into a written arbitration agreement,¹ (2) there exists an independent basis for federal jurisdiction, and (3) the underlying transaction involves interstate commerce."² In re Chung, 943 F.2d 225, 229 (2d Cir.1991); General Textile Printing v. Expromtorg Int'l Corp., 891 F.Supp. 946, 954 (S.D.N.Y.1995). A contract choice of law clause defines the rights and duties of the parties in accordance with the chosen state law. However, the arbitration clause subjects the duty to arbitrate to the FAA. See Mastrobuono v. Shearson Lehman Hutton, Inc., ___ U.S. ___, ___, 115 S.Ct. 1212, 1219, 131 L.Ed.2d 76 (1995).

The FAA governs enforcement of the arbitration clause as to USA as the conditions precedent to FAA applicability are all present. See Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117, 120 (2d Cir.1991); Merrill Lynch, Pierce, Fenner & Smith v. Shaddock, 822 F.Supp. 125, 132 (S.D.N.Y. 1993).

Plaintiff argues that its claims are against both defendants and should be heard together, in federal court, notwithstanding the applicability of the FAA to its claims against USA, because APSI cannot be forced to arbitrate.

Arbitration agreements are "valid, irrevocable, and enforceable" absent any grounds for revocation. 9 U.S.C. § 2. District courts have no discretion to excuse a party from arbitration regarding issues covered by a written arbitration agreement. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985). An arbitration agreement must be enforced "notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement." Moses H. Cone Memorial Hosp. v. Mercury Constr., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983). Plaintiffs cannot avoid the arbitration for which they had contracted simply by adding a nonsignatory defendant, lest the efficacy of contracts and the federal policy favoring arbitration be defeated. Lawson Fabrics, Inc. v. Akzona, Inc., 355 F.Supp. 1146, 1151 (S.D.N.Y.1973) (quoting Hilti, Inc. v. Oldach, 392 F.2d 368, 369 n. 2 (1st Cir.1968)). Defendants' motion to stay is granted as to USA.

APSI, on the other hand, is not a party to the contract and is mentioned in it only as the manufacturer. The failure to satisfy the first prong of the Chung test precludes application of the FAA to plaintiff's claims against APSI.

B. Binding a Nonsignatory to an Arbitration Agreement

While a party cannot be forced to arbitrate a dispute, absent an agreement to do so, five circumstances have been delineated in which a nonsignatory may be bound to an arbitration agreement: incorporation by reference, assumption, veil-piercing alter ego, estoppel, and agency. Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir.1995). Neither alleged facts nor presented evidence to support the first four.³

However, plaintiff asserts that USA contracted as APSI's agent holding itself out as APSI's fully disclosed agent. Defendants neither concede this assertion, nor do they expressly contest it. There is no mention in the contract of any agency relationship between USA and APSI, and USA executed the contract in its own name with no indication it was acting as APSI's agent. In fact, APSI is not mentioned in the contract other than being identified as the manufacturer/marketer of the Units.

A nonsignatory to an arbitration agreement may be bound by an agreement under principles of agency law. Thomson-CSF, S.A., 64 F.3d at 777. An agent who signs a contract on behalf of a disclosed principal will not be individually bound absent explicit evidence of the agent's intention to bind himself instead of or as well as the principal. Lerner v. Amalgamated Clothing & Textile Workers Union, 938 F.2d 2, 5 (2d Cir.1991). When an agent signs a contract and does not indicate in the contract that he is signing on behalf of a disclosed principal, as its agent, "the agent is deemed to be acting on his own behalf." Beck v. Suro Textiles, Ltd., 612 F.Supp. 1193, 1194 (S.D.N.Y.1985) (citing Unger v. Travel Arrangements, Inc., 25 A.D.2d 40, 266 N.Y.S.2d 715 (1966); Special Sections, Inc. v. Rappaport Co., 25 A.D.2d 896, 269 N.Y.S.2d 319 (1966)). Additionally, "an agent whose agency is not disclosed in the instrument cannot introduce evidence to show that he is not a party [to the instrument], except for the purpose of reformation." Restatement (Second) of Agency § 155, comment d (1958).

C. APSI's Motion to Stay

Since APSI is not bound by the arbitration agreement, its requested stay does not fall within the purview of the FAA. It is governed by the court's inherent power to "control the disposition of the causes on its docket." Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 165-66, 81 L.Ed. 153 (1936); Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2nd Cir.1991). Such a decision is left to the court's discretion. Moses H. Cone Memorial Hosp., 460 U.S. at 19-21, 103 S.Ct. at 939. A stay may be appropriate where issues involved may be determined in arbitration. Id. (quoting Nederlandse Erts-Tankersmaatschappij, N.V. v. Isbrandtsen Co., 339 F.2d 440, 441 (2d Cir.1964)).

Accordingly, the primary questions are (1) whether there are common issues in the arbitration and the court proceeding, and (2) if so, whether those issues will be finally determined by the arbitration. American Shipping Line v. Massan Shipping Indus., 885 F.Supp. 499, 502 (S.D.N.Y.1995). If the answer to both questions is in the affirmative, the movant must then bear the heavy burden of showing that "the nonarbitrating party will not hinder the arbitration, that the arbitration will be resolved within a reasonable time, and that such delay that may occur will not cause undue hardship to the parties." American Shipping Line, 885 F.Supp. at 502 (citing Sierra Rutile Ltd., 937 F.2d at 750); Nederlandse, 339 F.2d at 442. A stay may not be granted, despite the existence of compelling reasons to grant it, if defendants have not shown that plaintiff would not undergo undue hardship from the resultant delay.⁴ See Sierra Rutile Ltd., 937 F.2d at 750; American Shipping Line, 885 F.Supp. at 503.

Plaintiff's complaint alleges breach of purchase order, breach of express warranty, and breach of implied warranty against both defendants. There will undoubtedly be multiple common issues in the arbitration and the court proceedings. Pursuant to paragraph 11 of the Contract, the decision of the arbitrator "shall be final and binding" on Turkey and USA. The arbitration will inevitably determine whether defective Units were delivered and no replacements proffered, and "thus will at least partially determine the issues which form the basis of the claim" against APSI. See Lawson Fabrics, Inc., 355 F.Supp. at 1151.

The heavy burden on defendants to show the necessity for the stay, Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir.1991), has not clearly been met. Though the deficiency would normally result in the denial of a stay, it would appear that hindrance of the arbitration is unlikely and no undue, prejudicial delay will be caused plaintiff.

It is noted that APSI has moved for the stay for the purpose of permitting the dispute to be resolved by arbitration. It has thus put its imprimatur on arbitration and assuming its good faith in the promotion of arbitration as the resolving forum, it is also assumed that APSI is committed to the expeditious resolution of the matter as intended by arbitration. Additionally, APSI is represented by the same attorney who...