Opinion
03 Civ. 1128 (RWS)
April 27, 2004
CARMINE A. IANNACCONE, ESQ., JATINDER K. SHARMA, ESQ., PATRICK LUCIGNANI, ESQ., EPSTEIN BECKER GREEN, New York, NY, Of Counsel for Plaintiff
DENIS A. ENGEL, ESQ., COLLERAN, O'KARA MILLS, Garden City, NY, Of Counsel, for Defendants
OPINION
The respondents Iron Workers Locals 40, 361 and 417 Union Security Funds (the "Funds") and Iron Workers Local 417 (the "Union") (collectively, the "Respondents") have moved under Rule 56, Fed.R.Civ.P., to dismiss the petition of petitioner Coast to Coast Installations, Inc. ("Coast to Coast") to stay an arbitration. For the reasons set forth below, the motion is granted.
Prior Proceedings
The Funds and the Union requested arbitration on January 16, 2003, relying upon a collective bargaining agreement signed on January 10, 2001 by Michael Kares, the president of Coast to Coast ("Kares"). By order to show cause of February 11, 2003, issued in the Supreme Court of the State of New York, County of New York, Coast to Coast obtained a stay of the arbitration.
On February 20, 2003, the Funds and the Union removed the petition to stay to this Court. Discovery proceedings were undertaken, the deposition of Gary Gaydos, a business manager and financial secretary-treasurer of the Union, was noticed by Coast to Coast on November 5, 2003, and adjourned, and the instant motion was marked fully argued and submitted on January 30, 2004. The Facts
The following facts are gleaned from the parties' Local Rule 56.1 Statements and submissions and are undisputed except as noted below.
Coast to Coast is a New York corporation and has its principal place of business at 250 Moonachie Road, Moonachie, New Jersey.
Kares is the owner and president of Coast to Coast. Coast to Coast is a non-union employer that installs conveyors and racking systems.
The Funds, located at 451 Park Avenue South, New York, New York, are a group of Taft-Hartley employee benefit funds governed by trust agreements and operating under the laws of the United States, including, without limitation, the Labor Management Relations Act ("LMRA") and the Employee Retirement Income Security Act ("ERISA").
The Union is a labor organization representing workers governed by, inter alia, the National Labor Relations Act ("NLRA"), LMRA and ERISA.
In August 2000, a Project Labor Agreement (" PLA") was entered into between The Gap, Inc. ("The Gap") as owner, Clayco Construction Company, Inc. ("Clayco") as contractor, and unions affiliated with the Dutchess County Building Trades Council, including the Union, relating to the construction of a store in Fishkill, New York, to be operated by Old Navy, a subsidiary of The Gap (the "Fishkill Project").
On September 11, 2000, The Gap faxed the PLA to Coast to Coast. The PLA had already been signed by other subcontractors working on the Fishkill Project. The PLA provided that: (1) a composite work crew of union and non-union workers would be used, and (2) the agreement was specific to the particular job, that it applies as a "single project agreement" and "not to any other work at any other site" and that the "terms and conditions of this Agreement shall be extended to include all Subcontractors" on the Project. The PLA stated further that where "conflicts exist between various Local Collective Bargaining Agreements and this Agreement, this Agreement shall prevail." The PLA was executed by Gary Gaydos on behalf of the Union.
On September 14, 2000, Coast to Coast, as a subcontractor, faxed a bid proposal for the installation of the storage system to the company providing certain equipment for the Fishkill Project. The bid proposal listed the Fishkill Project as non-union, but also confirmed that Coast to Coast would use a composite crew of union and non-union workers on this specific project.
On November 21, 2000, Coast to Coast was awarded the contract for the unloading, erecting and installing of all the storage systems in the Fishkill Project.
On January 10, 2001, after a tour of the job site, Kares attended a breakfast meeting at a Fishkill-area Holiday Inn with the representatives of all the involved unions to discuss how the work would be performed for Coast to Coast's portion of the Fishkill Project. Representatives from the operating engineers, the millwrights, the carpenters, and the Union were present. Gaydos attended the meeting on behalf of the Union.
The parties discussed what work would be performed by which particular union and agreed that the members of the millwrights and the iron workers unions would both be responsible for the installation of the racks which was the bulk of the project awarded to Coast to Coast. The parties also discussed the start date for work, the work schedule, what the expectations were of Coast to Coast and the various unions regarding the number of union and non-union workers needed, and other work-related details.
At the January 10, 2001 meeting, Kares described Coast to Coast's business and the fact that it was generally a non-union company and that it would be using non-union workers on the project. The unions assured Kares that they did not object to Coast to Coast using non-union workers and that they (the unions) had executed the PLA with The Gap. Kares advised all parties in attendance, including the Union representative Gary Gaydos, that since Coast to Coast was generally a non-union company, the union agreements Coast to Coast would enter into would only apply until the completion of the Fishkill Project.
Toward the end of the meeting, after the parties had agreed to the ratio of non-union and union workers that Coast to Coast would use on the project, Gaydos presented Kares with a booklet and told him that he needed to sign it. In the belief that the agreement was site-specific, Kares executed the collective bargaining agreement (the "CBA") Gaydos had placed in front of him. Kares was later informed, however, that the CBA was a general jurisdictional agreement and not site-specific to the Fishkill Project. He believes that the agreement discussed by the parties was therefore switched by Gaydos and replaced with a jurisdictional agreement without his knowledge or consent.
The CBA contained provisions relating to wages, benefits, craft jurisdiction, territorial jurisdiction and an arbitration clause. Kares on the same occasion also signed agreements with other unions. The submissions do not establish whether or not those agreements were site-specific. A later agreement signed by Coast to Coast on October 29, 2001 was site-specific.
Coast to Coast submitted reports to the Union covering the work performed on the Fishkill Project ending in August 2001. The reports on Union forms contained the following legend:
The contributions shall constitute acceptance and adoption by the employer of the collective bargaining agreements of the Iron Workers Local Numbers 40, 361 and 417. The employer further agrees to be bound by the trust fund agreements of said local unions and accepts all the terms and conditions and provisions thereof.
Coast to Coast submitted to an audit demanded by the Union and the Funds. The audit dated November 27, 2002 showed $357,395.90 of additional contributions owing to the Funds for Coast to Coast work performed within the Union's jurisdictional area, and on January 13, 2003, the Union and the Funds demanded that arbitration be commenced before the Impartial Arbitrator, Eric J. Schmertz, a well known and highly regarded arbitrator.
Coast to Coast sent the Union a notice terminating the CBA on February 7, 2003.
Kares as president of Rack-it Systems, 2050 Center Avenue, Fort Lee, New Jersey, on November 7, 1996, had signed a collective bargaining agreement with similar terms to the CBA. Rack-it Systems ceased operations sometime in 2002.
Kares has maintained that the CBA was not the agreement he had discussed with Gaydos.
The Summary Judgment Standard
Summary judgment is granted only if there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); SCS Communications, Inc. v. Herrick Co., Inc., 350 F.3d 329, 338 (2d Cir. 2004); see generally 11 James Wm. Moore, et al., Moore's Federal Practice ¶ 56.11 (3d ed. 1997 Supp. 2004). The court will not try issues of fact on a motion for summary judgment, but, rather, will determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).
"The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish her right to judgment as a matter of law."Rodricruez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir. 1995). In determining whether a genuine issue of material fact exists, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Gibbs-Alfano v. Burton, 281 F.3d 12, 18 (2d Cir. 2002). Thus, "[s]ummary judgment may be granted if, upon reviewing the evidence in the light most favorable to the nonmovant, the court determines that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." Richardson v. Selsky, 5 F.3d 616, 621 (2d Cir. 1993).
A material fact is one that would "affect the outcome of the suit under the governing law," and a dispute about a genuine issue of material fact occurs if the evidence is such that "a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248;see also R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 57 (2d Cir. 1997).
The Respondents Must Establish An Agreement to Arbitrate
In order to compel arbitration, the Union and the Funds must establish an agreement to arbitrate. See, e.g., Garten v. Kurth, 265 F.3d 136, 142 (2d Cir. 2001) ("[B]efore the court compels arbitration of a claim, the court must find that a valid agreement to arbitrate exists."); Mehler v. Terminix Int'l Co. L.P., 205 F.3d 44, 49 (2d Cir. 2000).
Here, the Union and the Funds rely upon the CBA signed by Kares on January 10, 2001, which contains an appropriate arbitration clause. The Respondents also rely on the language in the reports submitted by Coast to Coast, quoted above, the termination notice, and Hetchkop v. Woodlawn at Grassmere, Inc., 116 F.3d 28, 34 (2d Cir. 1997) (holding that "[a] party is bound by a contract it has signed unless it can show special circumstances that relieve it of the contractual obligation"). Coast to Coast has not challenged the existence of an agreement to arbitrate but has asserted that the CBA differed from the PLA, which was controlling, and failed to express the understanding that the agreement would be site-specific. CBA was materially different from the agreement that Kares had made clear he would execute. On this basis, Coast to Coast claims that it is not bound by the CBA to jobs other than the Fishkill Project, notwithstanding Kares' execution of the contract.
Summary Judgment is Granted
Coast to Coast has first sought denial of summary judgment under Rule 56(f), based upon the failure of the Union to agree to a date for Gaydos' deposition.
Courts have interpreted Rule 56(f) to provide that when a party facing an adversary's motion for summary judgment reasonably advises the court that it needs discovery to be able to present facts needed to defend the motion, the court should defer decision of the motion until the party has had the opportunity to take discovery and rebut the motion.Commercial Cleaning Servs., L.L.C. v. Colin Serv. Systems, Inc., 271 F.3d 374, 386 (2d Cir. 2001) (citing Meloff v. New York Life Ins. Co., 51 F.3d 372, 375 (2d Cir. 1995); Hellstrom v. United States Pep't of Veteran's Affairs, 201 F.3d 94, 97 (2d Cir. 2000)). The Second Circuit has established a four-part test to determine whether an affidavit or declaration submitted pursuant to Rule 56(f) is sufficient to warrant deferring a decision on a motion for summary judgment. According to that test,
The affidavit or declaration must detail: (1) the nature of the uncompleted discovery; (2) how the facts sought are reasonably expected to create a genuine issue of material fact; (3) what efforts the affiant has made to obtain those facts; and (4) why those efforts were unsuccessful. Paddington Partners v. Bouchard, 34 F.3d 1132, 1138 (2d Cir. 1994); Hudson River Sloop Clearwater, Inc. v. Dep't of the Navy, 891 F.2d 414, 422 (2d Cir. 1989). See also Demery v. Extebank Deferred Comp., 216 F.3d 283, 286 (2d Cir. 2000) (discovery should be denied where the requested discovery will not create a genuine dispute of material fact); Contemporary Mission Inc. v. United States Postal Serv., 648 F.2d 97, 102 (2d Cir. 1981) ("An opposing party's mere hope that further evidence may develop prior to trial is an insufficient basis on which to justify the denial of the motion.").G-I Holdings, Inc. v. Baron Budd, No. 01 Civ. 216 (RWS), 2002 WL 31251702, at *4 (S.D.N.Y. Oct. 8, 2002).
Coast to Coast has submitted an affidavit here addressing the requisite factors outlined above and asserting that the deposition testimony of Gaydos is critical to support Coast to Coast's defense of fraud in the execution. Coast to Coast has not established, however, that any of the information sought would create a genuine issue of material fact. Moreover, Coast to Coast only requested the Court's assistance in securing the deposition of Gaydos by letter application dated February 25, 2004, nearly a month after the submission of this motion. In the absence of any application to compel the deposition prior to the submission of the instant motion and given the prolonged difficulty of counsel for both parties to find an acceptable date prior to that time, a Rule 56(f) defense to the motion for summary judgment is unavailing.
Coast to Coast also has sought to defeat summary judgment on the grounds of fraud in the execution of the CBA, the same grounds alleged inHetchkop. "Fraud in the execution occurs where there is a `misrepresentation as to the character or essential terms of a proposed contract,' and a party signs without knowing or having a `reasonable opportunity to know of its character or essential terms.'"Hetchkop, 116 F.3d at 31-32 (quoting Restatement (Second) of Contracts § 163 comment a (1981) ("Restatement")). "Proof that a party secretly substituted one type of document for another is evidence of fraud in the execution." Hetchkop, 116 F.3d at 32 (citing Operating Engineers Pension Trust v. Gilliam, 737 F.2d 1501, 1504 (9th Cir. 1984)). A fraud in the execution defense may also apply to "the substitution of a document of the same kind where the new document introduced important terms that were materially different from those to which the party had agreed." Hetchkop, 116 F.3d at 32 (citing Connors v. Fawn Mining Corp., 30 F.3d 483, 493 (3d Cir. 1994); Restatement § 163 illustration 2).
There is no allegation here of a false statement as to the nature of the proposed contract and no substantiated assertion that one agreement was switched for another. However, there have been allegations of "`excusable ignorance of the contents of the writing signed,'" a showing of which is required to prevail on a defense of fraud in the execution.Hetchkop, 116 F.3d at 32 (quoting Agathos v. Starlite Motel, 977 F.2d 1500, 1505 (3d Cir. 1992) (internal quotation marks omitted)). Nonetheless, even construing the facts in Coast to Coast's favor, the elements of fraud in the execution have not been set forth.
Although Coast to Coast argues that "it can be reasonably inferred that [the Union] surreptitiously substituted a site specific contract with a jurisdictional agreement" (Pl. Opp. Mem., at 12), the record does not support the suggestion of any such substitution of one agreement for another. Coast to Coast itself only indicates that Kares was presented with the CBA, that he was told he needed to sign it, and that he did sign it in the belief that it was "consistent with" preceding discussions and negotiations which were site-specific. (Id. at 8.)
An issue of fact has been presented as to whether Kares was fraudulently induced to sign the CBA, Coast to Coast's remaining defense to summary judgment. On the side of the Funds and the Union are the fact of signature and the other agreements signed on January 10. On the side of Coast to Coast are Kares' account of the conversations and events of January 10, the terms of the PLA which governed the job, Coast to Coast's reported status as a non-union employer, and the absence of any discussion concerning the jurisdictional effect of the CBA.
These observations are not to be construed as removing the issue of fraud in the inducement of the contract generally from the arbitrator (s) or as constituting any finding relative to the matters to be presented in an arbitration.
Notwithstanding this factual dispute, however, it is well settled that,
[A] claim or defense of fraudulent inducement, when it challenges generally the enforceability of a contract containing an arbitration clause rather than specifically the arbitration clause itself, may be subject to arbitration. See Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) ("[I]f the claim is fraud in the inducement of the arbitration clause itself — an issue which goes to the `making' of the agreement to arbitrate — the federal court may proceed to adjudicate it. But the statutory language [of the FAA] does not permit the federal court to consider claims of fraud in the inducement of the contract generally."). This is true because "arbitration clauses as a matter of federal law are `separable' from the contracts in which they are embedded, and . . . where no claim is made that fraud was directed to the arbitra-tion clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud." Id. at 402, 87 S.Ct. 1801.ACE Capital Re Overseas Ltd. v. Central United Life Ins. Co., 307 F.3d 24, 29 (2d Cir. 2002); see also Campaniello Imports, Ltd. v. Saporiti Italia S.P.A., 117 F.3d 655, 666-68 (2d Cir. 1997). Put somewhat differently, an allegation of fraud in the inducement is a defense that "renders contracts voidable, but not void. And, under Prima Paint, a party is not entitled to a trial on the arbitrability of a voidable contract unless the party alleges that the arbitration clause itself is voidable and provides some evidence in support of its allegation." Sphere Drake Ins. Ltd. v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 31-32 (2d Cir. 2001) (internal citation omitted).
There is no claim by Coast to Coast of any misrepresentation or fraud related to the arbitration clause of the CBA itself, and no allegation that fraud was "an issue which goes to the `making' of the agreement to arbitrate." Prima Paint Corp. v. Flood Conklin Mgf. Co., 388 U.S. 395, 403-04 (1967); see also ACE Capital Re Overseas, 307 F.3d at 30 ("Moreover, ACE has never contended that CUL's alleged fraud was directed specifically to the arbitration clause, but instead has argued that the entire Agreement was fraudulently induced. Thus, ACE's claim of fraudulent inducement is not on its face precluded from arbitration.") The claim of Coast to Coast is that the CBA failed to express the agreement of the parties that it would be site-specific.
According to the arbitration provision contained in the CBA,
Any dispute as to the proper interpretation, application or breach of this Agreement shall be handled in the first instance by a representative of the Union and the Employer and if they fail to reach a settlement within five (5) days, such dispute should be referred to the Joint Trade Arbitration Board for decision.
This clause is of sufficient scope "to encompass . . . claims of fraud in the inducement and there is no evidence of an intent to withhold such issues from the arbitrators and reserve them for judicial resolution," Sigety v. Axelrod, 535 F. Supp. 1169, 1172(S.D.N.Y. 1982), particularly when read in light of the strong presumption in favor of arbitrability. See Hartford Accident Indemnity Co. v. Swiss Reinsurance America Corp., 246 F.3d 219, 226(2d Cir. 2001). Accordingly, there is no further requirement to stay the arbitration and Coast to Coast's claims may be presented to the arbitrator.
Conclusion
The motion of the Respondents for summary judgment dismissing the petition for a stay is granted.
It is so ordered.