In re Paul, Bankruptcy No. 05-22881-WCH.
| Decision Date | 04 November 2008 |
| Docket Number | Adversary No. 08-1069.,Bankruptcy No. 03-18371-WCH.,Adversary No. 08-1070.,Bankruptcy No. 05-22881-WCH. |
| Parties | In re Martin Barry PAUL, Debtor. Jeffrey D. Sternklar, Chapter 7 Trustee, Plaintiff, v. Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants. In re The Rarities Group, Inc., Debtor. Jeffrey D. Sternklar, Chapter 7 Trustee, Plaintiff, v. Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
Jeffrey D. Sternklar, Duane Morris, LLP, Boston, MA, Ronald M. Jacobs, Conn Kavanaugh Rosenthal Peisch & Ford, Boston, MA, for Plaintiff.
Connor G. Sheehan, Deirdre B. Ruckman, William D. Dunn, Gardere Wynne Sewell LLP, Dallas, TX, for Defendants.
The matters before the Court are the Motions to Dismiss or Stay and Compel Arbitration and Alternative Motion to Dismiss Fraud Claims Pursuant to Rule 9(b) (the "Motion to Compel") filed by Heritage Auction Galleries, Inc.,1 Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc. (collectively, "Heritage"), Steven Ivy ("Ivy"), and James Halperin ("Halperin") (collectively, the "Defendants") in two identical adversary proceedings brought by Jeffrey D. Sternklar, Chapter 7 trustee (the "Trustee") for the estates of Martin Barry Paul ("Paul") and the Rarities Group, Inc. ("RGI") (collectively, the "Debtors"), and Paul (collectively, the "Plaintiffs") asserting various counts arising from a prior business relationship between Paul and Heritage.2 Through the Motion to Compel, the Defendants seek to enforce arbitration clauses contained within various documents Paul executed, both as an individual and as an officer and director of RGI, while participating in Heritage's coin auctions and stay or dismiss these adversary proceedings. In the alternative, the Defendants seek to dismiss the Plaintiffs' fraud claims under Fed.R.Civ.P. 9(b). For the reasons set forth below, I will enter an order denying the Motion to Compel.
From the outset, I note that the Trustee's allegations as set forth in the Complaint span thousands of individual transactions involving both Debtors over the course of many years. As such, the allegations with respect to these transactions are generalized and somewhat vague. The parties have further complicated this matter by submitting numerous documents which may or may not relate to some or all of these transactions. With this in mind, the relevant background of the dispute is as follows.
Paul is a buyer and curator of rare coins.3 For many years, Paul operated RGI as a vehicle for buying and selling coins, as well as sports and entertainment memorabilia.4 Heritage is a collections auctioneer based in Dallas, Texas, and is purportedly the world's largest rare coin firm.5 Upon information and belief, Ivy and Halperin are co-chairmen of Heritage.6 Since the early 1980's, Paul, or companies in which he held an ownership interest, have conducted business with Heritage encompassing thousands of individual transactions.7
In the Complaint, the Trustee alleges that these transactions fall roughly into four categories: consignments, purchases of memorabilia, split coin deals, and loans.8 In consignment transactions, Paul or RGI would consign individual coins or memorabilia to Heritage, and pursuant to consignment agreements, Heritage would, from time to time, advance funds to be applied against the sale price.9 Commissions, interest rates, auction sale placements, and other terms would be negotiated.10 In memorabilia purchase transactions, Paul or RGI would purchase individual memorabilia items at Heritage Auctions on credit, which Heritage would deliver.11 Split coin deals were transactions where Heritage and Paul or RGI purchased coins together with the intention of Heritage reselling them for profit.12 At times, Paul or RGI might curate the coins to increase their grade and value.13 Profits from split coin deals would be split between Heritage and Paul or RGI according to agreed formulae, taking into account the funds advanced by Heritage, an implied rate of interest, expenses incurred in curating the coins, the grading, and the ultimate disposition of the coin.14 From time to time, Heritage might also compensate Paul for curating services by an hourly rate or a commission.15 In loan transactions, Heritage would advance money to Paul, purporting to reserve a right to offset against Paul's share of future profits.16
Over the course of their business relationship, the parties entered into numerous agreements to govern these transactions. The Defendants assert that its standard Terms and Conditions of Auction (the "Standard Auction Terms") are applicable to all auction participants and transactions. The Standard Auction Terms provide in relevant part:
Dispute Resolution and Arbitration Provision
45. By placing a bid or otherwise participating in the auction, Bidder accepts these Terms and Conditions of Auction, and specifically agrees to the alternative dispute resolution provided herein. Arbitration replaces the right to go to court, including the right to a jury trial.
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48. Arbitration Clause: All controversies or claims under this Agreement or arising from or pertaining to: this Agreement or related documents or to the Properties consigned hereunder, or the enforcement or interpretation hereof of this or any related agreements, or damage to Properties, payment, or any other matter, or because of an alleged breach, default or misrepresentation under the provisions hereof or otherwise, that cannot be settled amicably within one (1) month from the date of notification of either party to the other of such dispute or question, which notice shall specify the details of such dispute or question, shall be settled by final and binding arbitration by one arbitrator appointed by the American Arbitration Association ("AAA"). The arbitration shall be conducted in Dallas, Dallas County, Texas in accordance with the then existing Commercial Arbitration Rules of the AAA. The arbitration shall be brought within two (2) years of the alleged breach, default or misrepresentation or the claim is waived. The prevailing party (a party that is awarded substantial and material relief on its claim or defense) may be awarded reasonable attorney's fees and costs. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; provided, however, that the law applicable to any controversy shall be the law of the State of Texas, regardless of its or any other jurisdiction's choice of law principles and under the provisions of the Federal Arbitration Act.
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50. In consideration of their participation or application for the Auction, a person or entity (whether the successful Bidder, a Bidder, a purchaser and/or other Auction Participant or registrant) agrees that all disputes in any way relating to, arising under, connected with, or incidental to these Terms and Conditions and purchases, or default in payment thereof, shall be arbitrated pursuant to the arbitration provision. In the event that any matter including actions to compel arbitration, construe this agreement, actions in aid or arbitration or otherwise needs to be litigated, such litigation shall be exclusively in the Courts of the State of Texas, in Dallas Country, Texas, and if necessary, the corresponding appellate courts. The successful Bidder, purchaser, or Auction participant also expressly submits himself to the personal jurisdiction of the State of Texas.17
Paul and/or RGI purportedly agreed to the Standard Auction Terms, including the arbitration clause, by placing bids and otherwise participating in Heritage's auction and by registering online at Heritage's internet auction site.18
Additionally, the Defendants attached other documents with arbitration clauses to the Motion to Compel. One was a document titled "Extended Payment Terms for Dealers with Preapproved Credit" (the "Extended Payment Terms") for Heritage's 2001 February Long Beach Signature Sale. Paul executed the Extended Payment Terms on February 23, 2001.19 Paragraph 10 of the Extended Payment Terms provides:
10. All disputes in any way arising relating to, arising under, connected with, or incident to this agreement, shall be submitted to binding arbitration under the commercial rules of the American Arbitration Association (heard at Dallas, Texas) or if applicable, the Professional Numismatists Guild.20
The next attached document was an Auction Consignment Agreement (the "Consignment Agreement") executed by Paul on behalf of RGI on March, 19, 2002 for a Signature Sale to be held on or about April 25-27, 2002.21 There are several notable things about the Consignment Agreement. First, a schedule of coins to be consigned is not attached to the agreement despite a reference to one in the first paragraph.22 Second, the following notice appears before the signature block: "Important notice: Further items and conditions of this agreement appear on the reverse side."23 The document, as submitted to the Court, does not have a reverse side. There is, however, a second page titled "General Consignment Terms and Conditions Auction Consignment Agreement" (the "Consignment Terms").24 The Consignment Terms state as follows:
The sale will be conducted in accordance with the Terms and Conditions of Sale that are printed in the Sale catalog, a copy of which you will receive approximately two weeks before a Signature SaleTM, one week before a Bullet...
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In Re The Rarities Group Inc.
...by the appellees, the Trustee and Paul, and it is not necessary here to repeat them in full. Sternklar v. Heritage Auction Galleries, Inc. (In re Paul), 399 B.R. 81, 86-97 (Bankr.D.Mass.2008). A brief summary of facts pertinent to issues raised in this appeal, particularly as they relate to......
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In re Roberson, Case No. 08-12415 NVA (Bankr.Md. 3/29/2010)
...interests in bankruptcy, the basic federal rule is that state law governs.") (internal citations omitted); ling; In re Paul, 399 B.R. 81, 104 (Bankr. D. Mass. 2008) (adopting view of In re Nat'l Gypsum Co., 118 F.3d 1056 (5th Cir. 1997) that where cause of action is not derived from pre-pet......