Opinion
02 CIV. 6872 (DLC)
March 23, 2004
Christoph C. Heisenberg, Winston Strawn, New York, NY, for Plaintiff
John S. West, Allred, Maroko Goldberg, Los Angeles, CA, for Defendant
OPINION AND ORDER
Cap Gemini Ernst Young U.S. LLC ("Cap Gemini") filed this diversity action on August 28, 2002, to enforce an arbitration clause in an employment agreement with former employee John Nackel ("Nackel"). Nackel originally brought suit against Cap Gemini in California state court, alleging violations of that state's statutory prohibitions against employment discrimination and retaliation for complaints of such discrimination. Cap Gemini commenced an arbitration proceeding before the American Arbitration Association ("AAA") in New York and sought to compel Nackel to submit any claims of employment discrimination or retaliation to the New York arbitration.
On November 21, 2002, this Court issued an Opinion and Order ("Opinion"), No. 02 Civ. 8672 (DLC), 2002 WL 31626703 (Nov. 21, 2002), compelling arbitration of Nackel's claims and staying the pursuit of those claims through judicial proceedings in California. The Opinion concluded that the written employment agreement between Cap Gemini and Nackel ("Employment Agreement") was governed by New York law and that the Agreement's provision requiring arbitration of Nackel's claims of employment discrimination and retaliation was enforceable. Id. at *2. The Employment Agreement contains a New York choice-of-law provision. Nackel appealed the decision.
The Court of Appeals issued an Opinion on October 14, 2003 ("Appellate Opinion"), 346 F.3d 360 (2d Cir. 2003), vacating the Opinion and remanding this action. The Appellate Opinion holds that it is necessary to conduct a choice-of-law analysis to determine whether New York or California law governs the threshold issue of whether the parties entered into a contractually valid arbitration agreement. The Appellate Opinion states
. . . While it is undisputed that Nackel's employment agreement contains a choice-of-law clause providing that the agreement shall be construed in accordance with New York law, the parties' contract does not automatically settle the choice-of-law question. For although, "New York courts generally defer to the choice of law made by the parties to a contract . . . New York law allows a court to disregard the parties' choice when `the most significant contacts' with the matter in dispute are in another state." Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991); see also Hartford Fire Ins. Co. v. Orient Overseas Containers Lines, 230 F.3d 549, 556 (2d Cir. 2000) ("New York law is clear [that] in cases involving a contract with an express choice-of-law provision . . . a court is to apply the law selected in the contract as long as the state selected has sufficient contacts with the transaction.") (emphasis added).
While the choice of New York law would be reasonable, and hence enforceable, if Cap Gemini's principal place of business were in New York, creating significant contacts to the state, see, e.g., Woodlinq v. Garrett Corp., 813 F.2d 543, 552 (2d Cir. 1987); Finucane v. Interior Constr. Corp., 695 N.Y.S.2d 322, 325 (1st Dep't 1999) (mem.), the record merely reveals that Cap Gemini's "headquarters" are in New York . . . .[W]e must vacate the District Court's order and remand for further findings on the choice-of-law question.Id. at 365-66. Following remand, the parties briefed the remanded legal issues and submitted additional evidence concerning New York's contacts with this matter.
Background
The following facts are undisputed unless otherwise noted. Cap Gemini is incorporated in Delaware but maintains its headquarters and a separate location housing the Office of General Counsel in New York, New York. Cap Gemini's essential records are principally maintained in its headquarters, which also houses Board Resolutions enacted by its Board of Directors Cap Gemini conducts official correspondence from New York and lists New York as its principle place of business on its income tax returns and on annual statements filed with the states in which it does business.
In April 2000, Nackel accepted the position of Vice-President at Cap Gemini and voluntarily executed an Employment Agreement providing in relevant part:
[A]ny dispute, controversy or claim . . . arising out of or relating to or concerning the provisions of this Agreement, any agreement between you and the Firm relating to or arising out of your employment with us or otherwise concerning any rights, obligations or other aspects of your employment relationship, including, without limitation, discrimination claims, or your relationship in respect of the firm . . . shall be finally settled by arbitration in the City of New York . . . in accordance with the arbitration procedures set forth in the attached Annex 4, and the commercial arbitration rules then obtaining of the American Arbitration Association (the "AAA").
* * *
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflict of laws provisions.
(Emphasis supplied.) Annex 4 to the Employment Agreement states that discovery will be permitted "if authorized by the arbitration panel" and that the arbitrators have no power to award punitive damages "except such damages as may be provided for by statute and which may not be waived by agreement."
Nackel's employment with Cap Gemini became effective May 23, 2000. Throughout his employment, he maintained his office in Los Angeles, California. He acted as Managing Director for the New Ventures division until February 1, 2001, when he was named to serve as the CEO of the Extended Workforces Businesses Division. In June, he became CEO of the North American Operations of the Local Professional Services Division and began reporting to a superior in the Netherlands. Nackel supervised California employees and spent the majority of his time in California, but spent approximately 15 to 18 days in New York on business during the course of his employment with Cap Gemini, which was terminated on November 4, 2001. Nackel alleges that he was dismissed in retaliation for comments he made concerning the discriminatory behavior of a senior executive. Nackel claims that the discriminatory behavior occurred at meetings in California, but also asserts that interactions at a meeting in New York provide evidence of the retaliation against him.
This estimate was provided by Nackel and is restricted to travel after he assumed his duties as Vice-President at Cap Gemini.
Discussion
Title 28, United States Code, Section 2106 provides that a court of appeals may vacate "any judgment, decree, or order of a court lawfully brought before it for review, and may remand the cause and direct the entry of such appropriate judgment, decree, or order, or require such further proceedings to be had as may be just under the circumstances." 28 U.S.C. § 2106 (emphasis supplied). A court of appeals may remand an action for a district court to supplement the factual record in accordance with the court of appeals' ruling. United States v. Jacobsen, 15 F.3d 19, 22 (2d Cir. 1994).
In a diversity action, a district court is required to apply the choice-of-law rules of the state in which it sits. Hartford Fire Ins. Co. v. Orient Overseas Container Lines, 230 F.3d 549, 556 (2d Cir. 2000). "New York law is clear in cases involving a contract with an express choice-of-law provision: Absent fraud or violation of public policy, a court is to apply the law selected in the contract so long as the state selected has sufficient contacts with the transaction." Id. See also Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 (2d Cir. 2001); International Minerals and Resources, S.A. v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996); Finucane v. Interior Constr. Corp., 695 N.Y.S.2d 322, 324-35 (1st Dep't 1999).
When the parties have agreed on the law that will govern their contract, therefore, New York courts will enforce that choice provided that "(a) the law of the State selected has a reasonable relationship to the agreement and (b) the law chosen does not violate a fundamental public policy of New York." Finucane, 695 N.Y.S.2d at 324-25 (citation omitted) (emphasis supplied). The location of a corporation's principal place of business in the state whose law is selected satisfies the requirement of a reasonable relationship to the agreement. Cap Gemini, 346 F.3d at 366;Woodling v. Garrett Corp., 813 F.2d 543, 552;Finucane, 695 N.Y.S.2d at 325. New York public policy is considered when determining whether to enforce a contractual choice-of-law provision that would apply non-New York law.Cooney v. Oscrood Machinery, Inc., 81 N.Y.2d 66, 78 (1993);Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 202 (1985); Finucane, 695 N.Y.S.2d at 324-25;Eastern Artificial Insemination Coop. v. La Bare, 619 N.Y.S.2d 858, 859 (3d Dep't 1994). See also Barkanic v. General Admin. of CAAC, 923 F.2d 957, 964 n. 7 (2d Cir. 1991); Woodling, 813 F.2d at 551.
There is a strong federal policy favoring arbitration as an alternative means of dispute resolution. ACE Capital Re Overseas Ltd, v. Cent. United Life Ins. Co., 307 F.3d 24, 29 (2d Cir. 2002). The party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration or that the arbitration would be prohibitively expensive. Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 92 (2000).
The Federal Arbitration Act ("FAA") provides that a written arbitration provision in a contract involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. In evaluating whether the parties have entered into a valid arbitration agreement, a court looks to the applicable state law principles and defenses, such as fraud, duress and unconscionability. Cap Gemini, 346 F.3d at 364. Under New York law, a contract is unconscionable only if it is "so grossly unreasonable or unconscionable in light of the mores and business practices of the time and place as to be unenforceable according to its literal terms." Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 10 (1988); see McNally Wellman Co. v. New York State Elec. Gas Co., 63 F.3d 1188, 1198 (2d Cir. 1995). A determination of unconscionability generally requires a showing of both substantive and procedural unconscionability. Gillman, 73 N.Y.2d at 10.
The Employment Agreement between Nackel and Cap Gemini contains a choice-of-law provision expressly selecting New York law. This Court has jurisdiction to supplement the factual record concerning the contacts between the state of New York and the Employment Agreement between Nackel and Cap Gemini pursuant to the remand order of the Court of Appeals. 28 U.S.C. § 2106; Cap Gemini, 346 F.3d at 366.
While Nackel argues that the terms of the remand did not permit the parties to supplement the factual record, the remand directed this Court to make further factual findings. Both parties have supplemented the record following the remand.
It is undisputed that Cap Gemini's headquarters and principal place of business are in New York. This fact alone is sufficient to establish a reasonable relationship between the law of New York and the Employment Agreement. It is also undisputed that Nackel made several trips to New York to conduct Cap Gemini business and that events at a meeting held in New York are significant to his claim of retaliation, which provide additional contacts to support the choice of New York law. Under New York's choice-of-law principles, New York law therefore determines whether the Employment Agreement as well its arbitration provision are valid and enforceable. Nackel does not argue that the Employment Agreement is unenforceable as a result of fraud or duress or that it is unconscionable under New York law.
Nackel's primary argument is that New York's choice-of-law principles permit the Court to disregard the parties' choice of New York law and instead select California law when assessing the enforceability of the Employment Agreement if it is shown that the "most significant contacts with the matter in dispute are with another state." Cap Gemini, 346 F.3d at 365 (citing Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991)). It would be inappropriate to judge which state has the most significant contacts with this dispute and perhaps as a result of that analysis to disregard the choice-of-law provision in the Employment Agreement, since the choice of New York law satisfies the standard described above, which is the more recent standard articulated by the New York courts and applied by the Second Circuit where a contract contains a choice-of-law provision. The analysis of which state has the most significant contacts with the dispute remains relevant in those circumstances in which the contract does not contain a choice-of-law clause. See Fieger, 251 F.3d at 394.
In the alternative, Nackel argues that the enforcement of the arbitration agreement would violate the public policy of California. Nackel asserts that New York courts have adopted the principle embodied in the Section 187 of the Restatement (Second) of Conflict of Laws that a choice-of-law provision should not be enforced if "application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue" and which would otherwise be the state of applicable law. Restatement (Second) of Conflict of Laws § 187 (2003). A choice-of-law provision will be enforced absent a violation of New York public policy, not that of another state. This public policy doctrine is considered "only after the court has determined that the applicable substantive law under relevant choice-of-law principles is not the forum's law." Schultz, 65 N.Y.2d at 202. The doctrine addresses whether that foreign law should be disregarded "because it is contrary or repugnant" to the forum state's own public policy. Id.
Conclusion
The remanded issue is hereby decided in aid of the pending appeal. New York law governs the enforceability of the Employment Agreement. The parties entered into a contractually valid arbitration agreement.
SO ORDERED.