Newark Bay Cogeneration P'ship, LP v. ETS Power Grp., Civil Action 11-2441 (ES) (CLW)

CourtUnited States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
Docket NumberCivil Action 11-2441 (ES) (CLW)
Decision Date28 September 2012


Civil Action 11-2441 (ES) (CLW)


Dated: September 28, 2012




On June 29, 2012, Magistrate Judge Cathy Waldor issued a Report and Recommendation (the "R&R"), (D.E. No. 43), recommending that this Court grant Defendant ETS Power Group's ("Defendant" or "ETS") motion to compel arbitration. (D.E. No. 27). On July 13, 2012, Plaintiff Newark Bay Cogeneration Partnership, LP ("Plaintiff" or "Newark Bay") filed a timely objection to the R&R. (D.E. No. 45). On July 27, 2012, ETS filed its response. (D.E. No. 46). Having carefully reviewed the Report and Recommendation and the submissions by the parties de novo, the Court hereby ADOPTS the R&R in part. In addition to adopting the facts, the procedural history, the summary of the parties' arguments, the legal standard, and the legal conclusion to compel arbitration, the Court declines to adopt Judge Waldor's extraneous findings as to the merits of the contract formation and the incorporation of the Terms and Conditions beyond the arbitration provision.

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Plaintiff first objects to the R&R stating that issues of fact preclude a determination on whether: (1) the arbitration provision should be incorporated into the relevant contracts, and (2) the agreement to arbitrate encompasses all of Plaintiff's allegations. (See D.E. No. 45, Pl.'s Objections to Magistrate Judge's Report & Recommendation ("Pl. Obj.") 2). Nonetheless, Plaintiff states that it agrees to arbitrate this matter in its entirety so long as the Court declines to adopt the R&R's analysis related to contract formation. (Id.). In response and in support of the R&R, ETS argues that: (1) the Court must determine the issues of contract formation; (2) Judge Waldor did not determine whether the Terms and Conditions were incorporated into the December 15, 2006 and February 16, 2007 purchase orders; and (3) the R&R does not preclude Plaintiff from advancing substantive defenses to the Terms and Conditions during the arbitration. (See D.E. No. 46, ETS Power Group's Resp. to Pl.'s Objections to Magistrate Judge's Report & Recommendation ("ETS Response") 1-2).

As an initial matter, Plaintiff's objection is conflicting and a bit confusing. On one hand, Newark Bay appears to object to arbitration when it states that "material issues of fact exist regarding the incorporation of the arbitration provision into the relevant contracts." (Pl. Obj. 2). In furtherance of its objection, Plaintiff appears to argue that two prior contracts that it claims did not incorporate the Terms and Conditions would not be subject Plaintiff to arbitration. (Id.). On the other hand, however, Plaintiff states that it has always agreed to arbitrate this matter. (Id.). Notwithstanding, the substance of Plaintiff's objection relates, in large part, to whether Judge Waldor properly determined that the parties formed a contract. (Id.). After fully reviewing Plaintiff's objection, Newark Bay does not cite to any support in the record for its argument that issues of fact exist regarding the incorporation of the arbitration provisions. In fact, Plaintiff

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does not point this Court to a single disputed fact. Despite its assertion that the two prior contracts did not incorporate the arbitration provision, Plaintiff fails to cite any support for its argument. Without evidence of disputed material facts, the Court is unable to analyze Plaintiff's arguments as they relate to objections to Judge Waldor's determination that a valid arbitration clause existed.

The Court will now turn to the R&R to determine whether Plaintiff's objection that Judge Waldor went beyond her authority by focusing on the formation of the contract as a whole, rather than just the formation of the agreement to arbitrate, is valid. To determine whether the parties have agreed to arbitrate, the Court will apply "ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1955). Therefore, before the Court may compel arbitration, the Court must determine "(1) whether a valid agreement to arbitrate exists; and (2) whether the particular dispute falls within the scope of that agreement." Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005) (internal citations omitted).

As Defendant correctly points out, the Court must determine the existence and the scope of an agreement to arbitrate. Granite Rock Co. v. Int'l Bhd. of Teamsters, 130 S. Ct. 2847, 2855-56 (2010). Notably, the Court is limited to determining whether there is a valid agreement to arbitrate. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006) (stating "unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance"). It then follows that "a challenge to the validity of the contract as a whole, as opposed to the arbitration clause in particular, does not present a question of arbitrability." Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221,

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229 (3d Cir. 2012) (internal quotations & citations omitted). In fact, the arbitration clause is severable from the rest of the contract, and the Court may separately enforce and determine an arbitration clause's validity. Id.

In Buckeye, the plaintiffs alleged that the contract as a whole was illegal, but did not specifically challenge the arbitration provision. 546 U.S. at 446. The Court found that the arbitrator should determine the issues of the illegality of the contract. Id. The Court explained that, "because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract." Id. "The flip side of this rule, however, is that when a party specifically challenges the validity of arbitration provisions within a larger contract, apart from the validity of the contract as a whole, a court decides the threshold question of the enforceability of the arbitration provisions." Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 180 n.4 (3d Cir. 2010) (internal quotations & citations omitted).

Here, Judge Waldor first set forth the standard by which a Court must determine whether the parties agreed to arbitration. (R&R 9-10). The Court agrees with Judge Waldor's recitation of the law. Judge Waldor then analyzed whether there is a valid contract, in its entirety, between Newark Bay and ETS. (Id. at 10-12). It is at this stage in the analysis where the Court declines to adopt Judge Waldor's R&R in full. Judge Waldor should have only considered the existence and scope of an agreement to arbitrate, not the existence and scope of the contract in its entirety between the parties.

Under New Jersey law, a valid contract exists where there is an offer, acceptance and consideration. MK Strategies, LLC v. Ann Taylor Stores Corp., 567 F. Supp. 2d 729, 735 (D.N.J.

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2008) (internal citations omitted). Accordingly, Judge Waldor considered the parties' course of dealing and found that Defendant's March 30, 2007 proposal was a valid offer (the "Offer") and Plaintiff's April 2, 2007 purchase order was its acceptance (the "Acceptance"). (Id. at 11). Importantly, neither the Offer nor the Acceptance explicitly contained an arbitration clause. (Id. at 12). Instead, the Offer provided that Defendant's "standard terms and conditions of sale" applied. (D.E. No. 27-2 Declaration of Barry J. Muller, Esq. ("Muller Cert."), Ex. B). The Terms and Conditions contain 22 clauses, one of which is an arbitration clause, providing for arbitration in Zurich. (Muller Cert., Ex. E).

Accordingly, Judge Waldor then considered whether the Terms and Conditions were incorporated by reference by the language in the Offer referencing them. (R&R 12-17). Judge Waldor determined that the Terms and Conditions were valid because the Offer "clearly and unambiguously" referred to them. (Id. at 14). Judge Waldor relied upon the plain language of the Offer and testimony from one of Plaintiff's representatives. (Id. at 14-15).

The Court agrees with Judge Waldor's analysis and determination that the parties agreed to arbitrate. Judge Waldor's analysis about the Offer and Acceptance and the incorporation of the Terms and Conditions is adopted, however, the Court will only adopt this analysis as it relates to the arbitration clause found in the Terms and Conditions. The Court declines to determine whether the parties formed a contract outside of the agreement to arbitrate. All other issues of contract formation will be determined by the arbitrator. The parties have not objected to Judge Waldor's analysis as it relates to the agreement to arbitrate, nor do they object to the analysis of the scope of the arbitration clause.

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For the above reasons, as well as the reasons set forth by Magistrate Judge Waldor adopted by this Opinion, the Court grants ETS's motion to compel arbitration.


IT IS on this 28th day of September 2012 ORDERED as follows:

1. The Report and Recommendation of Magistrate Judge Waldor is hereby adopted in part—as explained in the above Opinion—as the opinion of this Court; and it is further...

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