Dapuzzo v. Globalvest Management Co., L.P.

• Decision Date: 11 June 2003
• Docket Number: No.02 Civ. 8594.,02 Civ. 8594.
• Citation: 263 F.Supp.2d 714
• Parties: Peter J. DAPUZZO, Plaintiff, v. GLOBAL VEST MANAGEMENT COPANY, L.P. and Utilitivest II, L.L.C., and Utilitivest II, L.P., Defendants.
• Court: U.S. District Court — Southern District of New York

263 F.Supp.2d 714

Peter J. DAPUZZO, Plaintiff, v. GLOBAL VEST MANAGEMENT COPANY, L.P. and Utilitivest II, L.L.C., and Utilitivest II, L.P., Defendants.

No.02 Civ. 8594.

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

June 11, 2003.

COPYRIGHT MATERIAL OMITTED

Stephanie B. Adwar, Levi, Lubasky & Feigenbaum, L.L.P., New York, NY, for Peter J. DaPuzzo.

DECISION AND AMENDED ORDER

MARRERO, District Judge.

Plaintiff Peter J. DaPuzzo ("DaPuzzo") brought this action against defendants Globalvest Management Company, L.P. ("Globalvest"), Utilitivest II, L.L.C. ("Utilitivest LLC") and Utilitivest II, L.P. ("Utilitivest LP" or the "Fund") (collectively, "Defendants"), alleging fraudulent inducement in connection with an investment DaPuzzo made in the Fund. Defendants moved, pursuant to the Federal Arbitration Act (the "FAA" or the "Act"),¹ 9 U.S.C. § 1 et seq., to stay this action and compel arbitration in the Bahamas pursuant to a provision of the partnership agreement governing the Fund. Alternatively, Defendants seek to dismiss the complaint for lack of subject matter or personal jurisdiction as to some or all of the Defendants, or for failure to state a claim. DaPuzzo cross-moved to compel arbitration in New York. On May 31, 2003 the Court issued a Decision and Order granting Defendants' motion to stay this action and indicated that its findings, reasoning and conclusions would be set forth in a separate Decision and Order to be made available to the parties. Accordingly, for the reasons discussed below, Defendants motion to stay this action is granted and DaPuzzo's motion to compel arbitration is denied.

I. FACTS

DaPuzzo alleges that in May of 1998 he met on two occasions with Harold Lindenthai ("Lindenthal"), of Berkeley Global Associates, Inc., and Peter Gruber ("Gruber"), a principal of Utilitivest LLC and Chair and President of Globalvest.² The meetings took place in DaPuzzo's office at Cantor Fitzgerald & Co. in New York, where he served as a co-president of institutional equity sales and trading. On those occasions, Lindenthal and Gruber sought DaPuzzo's investment in Utilitivest LP, a venture capital fund.

On May 26, 1998, DaPuzzo agreed to purchase a limited partnership interest in the Fund in the amount of $1 million, with an initial capital contribution of $400,000 upon subscription and two subsequent installments of $300,000 each, to be paid on November 24, 1998 and March 1, 1999, respectively. In this connection, DaPuzzo signed a Subscription Agreement (the "Subscription Agreement") committing him to make the capital payments as scheduled. (See Subscription Agreement, attached as Exhibit 2 to the Notice of Motion dated January 8, 2003.) DaPuzzo acknowledges having received on that occasion a copy of a Confidential Information Memorandum detailing the terms and conditions governing the Fund. (See Confidential Information Memorandum Dated March 9, 1998 (the "CIM"), attached as Exhibit 1 to the Notice of Motion.) In signing the Subscription Agreement, DaPuzzo represented that he had received and read a copy of both the CIM and the Fund's partnership agreement. (See Amended and Limited Restated Partnership Agreement for Utilitivest II, L.P. (the "Partnership Agreement"), attached as Exhibit 3 to the Notice of Motion.) At the same time, by his execution of the Subscription Agreement, DaPuzzo appointed the President and Director of Utilitivest LLC as his attorney-in-fact to sign the Partnership Agreement on his behalf.

DaPuzzo made the capital contributions called for by the Subscription Agreement by the dates specified. He acknowledges that he was provided a copy of the Partnership Agreement on March 22, 2001, and personally executed it soon thereafter. (See Notice of Motion, Ex. 4, at 32.)

The CIM includes a paragraph, under a heading of "Disputes" in a section entitled "Summary of the Partnership Agreement," that states: "The Partnership will be governed under the laws of the Cayman Islands. Any disputes will be settled by binding arbitration according to the rules and regulations of the American Arbitration Association." (Notice of Motion, Ex. 1, at 43.)

The Partnership Agreement, however, contains an arbitration clause, stating in relevant part that:

Any controversy between the Partners involving the construction or application of any of the terms, covenants, or conditions of this Agreement will be submitted to arbitration in the Bahamas on the request of the Partnership or any Partner, and the arbitration will comply with and be governed by the rules and procedures of the International Chamber of Commerce, as amended from time to time; provided, however, that nothing in this Section will constitute a waiver of any right any party to this Agreement may have to choose a judicial forum to the extent such a waiver would violate applicable law.

(Id. Ex.3 ¶ 13.12, at 31.) In another paragraph, the agreement stipulates that it is governed by the laws of the Cayman Islands. (Id. 113.10, at 30.)

DaPuzzo alleges that at each of his two meetings with them, Lindenthal and Gruber represented and he understood that an investment in the Fund was subject to a three-year "lockup" period, after which investors would be free to redeem some or all of their capital contributions. This representation, according to DaPuzzo, was also made in summary materials prepared by Globalvest for promotion of the Fund that were handed to him by Lindenthal and Grubner prior to his subscription. (See Utilitivest II, L.P., attached as Exhibit A to the Affidavit of Peter J. DaPuzzo dated January 23, 2003 ("DaPuzzo Aff."), attached as Exhibit 2 to the Affidavit of Steven B. Feigenbaum dated January 30, 2003, at 3, 5.)

In June of 2001 DaPuzzo, through the Ayco Company ("Ayco"), his investment advisor, requested a full redemption of his $1 million investment. He alleges that Globalvest informed Ayco that the funds could not be returned at that time but that the request should be renewed toward the end of the year.

Globalvest responded to DaPuzzo in November 2001 that his capital could not be withdrawn after three years, but remained committed at the discretion of Utilitivest LLC, in accordance with the terms of the parties' agreements, for a period of between five and fifteen years. In support, Defendants cite and interpret a provision of the Partnership Agreement specifying that investments in the Fund were subject to a two-year commitment period (the "Commitment Period"), during which partners could be called upon to make additional capital contributions, and that liquidation of the Fund's assets was anticipated to commence three years after the Commitment Period, thus—at the earliest—five years following the limited partner's initial investment. (See Notice of Motion, Ex. 3, ¶¶ 2.6 and 3.2, at 7 and 9.)

Asserting that he was fraudulently induced to invest in the Fund by misrepresentations made to him by Lindenthal and Gruber prior to his execution of the relevant documents, DaPuzzo then commenced this action, allegedly after Defendants declined his request to arbitrate before the AAA. Defendants contend that the pertinent provisions of the parties' contract do not allow withdrawals until the period specified in the Partnership Agreement; and that DaPuzzo's claim therefore entails the construction and application of the terms and conditions of the Partnership Agreement and is subject to arbitration under the relevant provision of that document. Hence, Defendants move to stay this action and compel arbitration in the Bahamas, or to dismiss the complaint on jurisdictional grounds or for failure to state a claim.

Relying on the arbitration language contained in the CIM, DaPuzzo cross-moves to compel arbitration in New York under the rules of the American Arbitration Association (the "AAA").

II. DISCUSSION

A. THE FEDERAL ARBITRATION ACT

As a threshold matter, the Court notes that federal policy unequivocally encourages arbitration as an alternative means of dispute resolution. See David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 248 (2d Cir.1991) (citing Rodriguez de Quijas v. Shear son!American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917 104 L.Ed.2d 526 (1989)); see also Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 76 (2d Cir.1998). This "liberal federal policy favoring arbitration agreements" is manifested in the FAA, which requires courts to compel arbitration where the parties have contractually committed to resolve by arbitration matters within the scope of their agreement. Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Dean Witter Reynolds Inc. v. Byrd 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) ("By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." (citing 9 U.S.C. §§ 3, 4) (emphasis in original)); Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 844 (2d Cir.1987).

Reinforcing the FAA's mandate, the Supreme Court has instructed that courts apply the statute in accordance with ordinary contract principles, "with a healthy regard" for the Act's underlying policy, to this end resolving any doubts concerning the scope of arbitrable issues in favor of arbitration, whether the issue at hand is a construction of the language of the agreement itself, or a defense to arbitrability. See Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. 927; see also Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg. Co., Ltd., 189 F.3d 289, 294 (2d Cir.1999). This bias in favor of arbitration "is even stronger in the context of international business transactions." Threlkeld 923 F.2d at 248 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 629-31, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)); see also WorldCrisa Corp. v....