In Re The Rarities Group Inc.

• Decision Date: 31 March 2010
• Docket Number: 08-01069.,Adversary No. 08-01070,08-11989-GAO.,Bankruptcy No. 03-11731,05-22881.,Civil Action No. 08-11987-GAO
• Citation: 434 B.R. 1
• Parties: In re the RARITIES GROUP, INC., Debtor.Jeffrey D. Sternklar, Chapter 7 Trustee of Rarities Group, Inc., Jeffrey D. Sternklar, Chapter 7 Trustee of Martin B. Paul, and Martin B. Paul, Plaintiffs-Appellees,v.Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants-Appellants.In re Martin Paul, Debtor.Jeffrey D. Sternklar, Chapter 7 Trustee of Rarities Group, Inc., Jeffrey D. Sternklar, Chapter 7 Trustee of Martin B. Paul, and Martin B. Paul, Plaintiffs-Appellees,v.Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants-Appellants.
• Court: U.S. District Court — District of Massachusetts

434 B.R. 1

In re the RARITIES GROUP, INC., Debtor.

Jeffrey D. Sternklar, Chapter 7 Trustee of Rarities Group, Inc., Jeffrey D. Sternklar, Chapter 7 Trustee of Martin B. Paul, and Martin B. Paul, Plaintiffs-Appellees,

v.Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants-Appellants.

In re Martin Paul, Debtor.

Jeffrey D. Sternklar, Chapter 7 Trustee of Rarities Group, Inc., Jeffrey D. Sternklar, Chapter 7 Trustee of Martin B. Paul, and Martin B. Paul, Plaintiffs-Appellees,

v.Heritage Auction Galleries, Inc., Heritage Galleries and Auctioneers, Heritage Capital Corporation, Heritage Auctions, Inc., Steven Ivy, and James Halperin, Defendants-Appellants.

Civil Action Nos. 08-11987-GAO, 08-11989-GAO.

Bankruptcy Nos. 03-11731, 05-22881.

Adversary Nos. 08-01070, 08-01069.

United States District Court D. Massachusetts.

March 31, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Ronald M. Jacobs, Conn, Kavanaugh, Rosenthal, Peisch & Ford, LLP, Boston, MA, for Plaintiffs-Appellees.

OPINION AND ORDER

O'TOOLE, District Judge.

The appellants, Heritage Capital Corporation, Heritage Auctions, Inc., d/b/a Heritage Galleries and Auctioneers (“Heritage”), Steven Ivy, and James Halperin, appeal from a denial of their motion to dismiss or stay the adversary proceedings in bankruptcy court in favor of arbitration. The proceedings before the bankruptcy court are identical actions brought by Jeffrey D. Sternklar (the “Trustee”), Chapter 7 Trustee for the bankruptcy estates of Martin B. Paul, a buyer and seller of rare coins and sports and entertainment memorabilia, and his company, The Rarities Group, Inc. (“RGI”). The Trustee asserts twenty-five claims of relief arising from a prior business relationship between Paul and Heritage, a collectibles auctioneer. Through its motion, the appellants seek to enforce arbitration clauses contained within various documents and to stay or dismiss the adversary proceedings. After careful review of the parties' briefs and accompanying exhibits, and after oral argument, the bankruptcy court's denial of the motion is affirmed in part and reversed in part.

I. Summary of Pertinent Facts

The bankruptcy judge's memorandum of decision sets forth in careful detail the facts describing the long relationship between the parties, at least as alleged 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 the content of a number of agreements executed by the parties, is sufficient.

Since the early 1980s, Paul and/or RGI participated as a buyer and/or seller in many transactions with Heritage, commonly in the context of auctions run by Heritage. Over their course of dealing, the parties agreed to numerous terms that would govern their relationship in a variety of writings, some more or less broad in scope, some limited to particular occasions. From the record, however, it appears that it was the parties' invariable practice, whatever the transaction or the writing, to agree that any disputes arising between them would be settled by arbitration. The record contains many examples of such agreements:

Standard Auction Terms: Heritage's standard Terms and Conditions of Auction (the “Standard Auction Terms”) applied to any participant in Heritage auctions, including Paul and RGI, as they acknowledged their assent to the Standard Auction Terms by participating in an auction or by registering online at Heritage's website. The Standard Auction Terms contained a broad arbitration clause requiring all disputes arising from or relating to any auction transactions, or auction-related property or agreement, to be resolved by arbitration in Dallas, Texas.

Extended Payment Terms: On February 23, 2001, Paul executed a document entitled “Extended Payment Terms for Dealers with Preapproved Credit” (the “Extended Payment Terms”). This was in connection with Heritage's 2001 February Long Beach Signature Sale, and it contained a similar arbitration clause.

Consignment Agreement and Consignment Terms: On March 19, 2002, Paul executed an agreement on behalf of RGI entitled “Auction Consignment Agreement” (the “Consignment Agreement”). This agreement specifically covered a Signature Sale on April 25-27, 2002. It included “General Consignment Terms and Conditions Auction Consignment Agreement” (the “Consignment Terms”) that provided that “[t]he sale will be conducted in accordance with the Terms and Conditions of Sale that are printed in the Sale catalogue.” (Decl. Paul Minshull Ex. A-5.)

Invoices: Four invoices with dates ranging between October 25, 2004 to May 28, 2005 were attached to the complaint and the motion to compel. Each indicates that the “Terms and Conditions of Sale as they appear in the catalogue” apply to the transaction. ( Id. Ex. A-4.) The standard terms included an arbitration provision.

Terms of Sale: A document titled “Terms & Conditions of Sale” (“Terms of Sale”) is attached to an executed document titled “Central States Signature Sale & Internet Bullet Auction, April 25-28, 2002” (the “Bullet Auction Document”). The Terms of Sale includes an arbitration clause. ( Id. Ex. A-7.) In signing the Bullet Auction Document, Paul acknowledged that he had agreed to the Terms of Sale.

Participation Agreement: On May 1, 2003, Heritage, Paul, and RGI executed a Participation Agreement, pursuant to which RGI, through Paul, would serve Heritage as an independent contractor. The agreement provided for a six-month term with automatic renewal. The agreement superseded “[a]ny and all prior agreements of the parties with respect to the subject matter thereof, whether oral or in writing,” and it contained an arbitration clause agreeing that “any dispute arising pertaining [sic] to this Agreement or its termination, shall be resolved in Dallas, Texas, by final and binding arbitration....” ( Id. Ex. A-1, ¶¶ 18, 24.) It further provided that the agreement could not be modified or rescinded “except by an instrument in writing signed by the parties hereto or, in the case of an asserted waiver, by the party against whom the waiver is sought to be enforced.” ( Id. ¶¶ 4-5.) Finally, the agreement provided that all rights and obligations under it should cease upon its termination, “except as otherwise provided in ... the [a]rbitration section” of the agreement. ( Id. ¶ 4.)

Oral Employment Agreement and Written Draft Agreement: The Trustee claims that on February 7, 2005, Heritage and Paul reached an oral agreement whereby Paul would become an employee of Heritage, rather than an independent contractor under the Participation Agreement. The appellants dispute that a final agreement was reached. In any case, in early April 2005, Heritage sent Paul a written draft of an employment agreement. This draft agreement was never executed. For present purposes, as evidence of the parties' practice and course of dealing, it is noteworthy that the draft contained an arbitration clause.

Bill of Sale: On September 30, 2005, Heritage and Paul executed an agreement titled “Bill of Sale.” The parties disagree about the purposes of this agreement, and the Trustee claims that the Bill of Sale as produced by Heritage is incomplete and has been manipulated. In any event, regarding the parties' practices concerning arbitration, while the Bill of Sale as it appears in the record does not include a separate arbitration clause, it does refer to Paul's being bound by the terms of sale “to which [Paul] as an auction purchaser has agreed.” ( Id. Ex. A-3.)

The two bankruptcy cases involved here were filed about two years apart. On October 7, 2003, RGI filed a voluntary Chapter 11 petition, listing Heritage as the holder of unsecured debt. Heritage did not file a proof of claim. On February 14, 2005, the bankruptcy judge confirmed a plan of reorganization. On October 14, 2005, Paul filed an individual bankruptcy case under Chapter 7. In November 2005, Paul was terminated by Heritage. Heritage filed two proofs of claim in his personal bankruptcy case.

After his termination by Heritage, Paul found employment as a buyer for Rare Coin Wholesalers (“RCW”). At RCW, he made coin purchases at auctions, including those run by Heritage. In January 2006, RGI moved to convert its case to a liquidation under Chapter 7 because, according to Paul, he was unable to continue RGI's business in light of his full-time employment with RCW. The motion was granted on February 1, 2006.

On December 29, 2006, the Trustee filed motions in both bankruptcy cases seeking to retain special counsel to prosecute claims against Heritage on behalf of both debtors' estates. The Trustee claims that defendant Ivy forwarded a message to RCW that indicated that Paul would not be permitted to participate in Heritage auctions as a result of the ongoing dispute between Heritage and Paul. Two days later, Paul was purportedly told by RCW that he was terminated because he was substantially less profitable to RCW if he could not participate in Heritage auctions.

On March 27, 2008, the Trustee commenced the present adversary proceedings by filing an identical twenty-five count complaint in each of the cases. The complaints allege tortious interference (Count I), promissory estoppel (Count II), negligent misrepresentation/employment agreement (Count III), deceit/employment agreement (Count IV), breach of contract/employment agreement (Count V), breach of contract/bill of sale (Count VI), breach of contract of various other agreements related to the consignments, auction purchases, split coin deals, and loans (Count VII), breach of the implied covenant and fair dealing (Count VIII), breach of fiduciary duty (Count IX), conversion (Count X), unjust enrichment ...