Opinion
No. 03 Civ. 3010 (CBM).
January 28, 2005
MEMORANDUM OPINION AND ORDER
Before the court are objections by plaintiff to the Report and Recommendation of United States Magistrate Judge Theodore H. Katz, in which Magistrate Judge Katz recommended that defendants' motion to compel arbitration and to dismiss the action without prejudice be granted. For the reasons set forth below, plaintiff's objections are OVERRULED. The court adopts Magistrate Judge Katz's Report and Recommendation as an order of this court, and hereby grants defendants' motion to compel arbitration. The court dismisses the action without prejudice to reinstatement, in the event that further proceedings are necessary.
I. Background
This case was filed on April 30, 2003, and was transferred to the undersigned from the docket of Judge Laura Taylor Swain on November 14, 2003. Plaintiff Mohammad Najib has brought claims against defendants Pharmacon International, Inc., Renee J.G. Arnold, and Diana J. Kaniecki under federal and state law for negligence, breach of contract, tortious interference with contract, and unpaid wages. The matter involves the parties' obligations under two agreements: an employment contract dated June 21, 1999, and a business arrangement dated May 8, 2002.
On August 27, 2003, Judge Swain referred the case to Magistrate Judge Katz pursuant to 28 U.S.C. § 636(b)(1)(B). On May 4, 2004, Magistrate Judge Katz issued a Report and Recommendation, in which he recommended that the court grant defendants' motion to compel arbitration and to dismiss the action without prejudice. He included in his Report a long and thorough discussion of the Federal Arbitration Act and its broad presumption of arbitrability, as well as a discussion of the broad scope of the arbitration clause found in the June 21, 1999 contract. He found that all of plaintiff's claims fall within the scope of the arbitration clause contained in the June 21, 1999 employment contract.
Plaintiff subsequently submitted objections to the Report and Recommendation, requesting that defendants' motion to compel arbitration be denied. Plaintiff makes several arguments: 1.) New York State, not federal, law should determine whether an agreement to arbitrate exists; 2.) defendants have not established by a preponderance of evidence, per New York State law, that an arbitration agreement existed in regard to claims that arose after June 20, 2001; 3.) any agreement to arbitrate does not extend to defendants Arnold and Kaniecki as guarantors under the second agreement, and; 4.) plaintiff's claims against Arnold and Kaniecki arising out of the second agreement cannot be subject to arbitration under the first contract. Defendants responded to these objections, but did not raise any objections on behalf of the defense. At plaintiff's request, this court heard oral arguments on plaintiff's objections on October 26, 2004.
II. Standard of Review
Where no objections to a magistrate's Report and Recommendation have been made by either party, the court may accept the Report provided that "there is no clear error on the face of the record." Nelson v. Smith, 618 F.Supp 1186, 1189 (S.D.N.Y. 1985). See also Hotchkiss v. Walsh, 2004 WL 2721943, at *1 (S.D.N.Y. Nov. 29, 2004); Pizarro v. Bartlett, 776 F.Supp 815, 817 (S.D.N.Y. 1991). The court must undertake a a de novo review of those portions of a magistrate's Report to which objections have been made. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b). The court may then accept, reject, or modify in whole or in part the recommendations of the magistrate judge. Id. See also Rodriguez v. Greiner, 2004 WL 2781720, at *4 (S.D.N.Y. Dec. 3, 2004).
III. Discussion
Since the Report and Recommendation relates the factual background of this case as well as Magistrate Judge Katz's legal conclusions, it is not necessary for the court to do so here. Familiarity with Magistrate Judge Katz's Report and Recommendation is presumed. After conducting a de novo review of the record, the Report and Recommendation, plaintiff's objections, defendants' response, and applicable legal authorities, this court concludes that Magistrate Judge Katz arrived at the appropriate conclusions. All of Judge Katz's legal and factual determinations are supported by the record and the law in all material respects, and plaintiff's objections do not provide a basis for departing from the Report's recommendations.
Plaintiff's objections can be grouped into two categories. In plaintiff's first objection, he argues that New York State law, not federal law, should be applied to determine whether an agreement to arbitrate exists between the parties. Specifically, he argues that Magistrate Judge Katz incorrectly presumes at the outset of the Report that federal law, not New York State law, determines whether an agreement to arbitrate between the parties exists. In his second, third, and fourth objections, plaintiff argues that his claims fall outside the scope of any existing arbitration agreement.
Magistrate Judge Katz's thorough and thoughtful Report sets forth the law on the expansive reach of broad arbitration clauses of the kind contained in the June 21, 1999 employment contract. The legal analysis contained therein clearly addresses plaintiff's second, third, and fourth objections to the Report, which are summarized above, and provides strong legal support for the conclusion that under the FAA's broad presumption of arbitrability, plaintiff's claims fall within the scope of the arbitration clause contained in the June 21, 1999 contract. This court now addresses the antecedent issue, raised by plaintiff's first objection, of whether state or federal law determines whether an agreement to arbitrate exists between the parties.
Plaintiff's first objection raises two different legal issues. Plaintiff argues that because the court's jurisdiction over this case is based on diversity, the court should apply state law in determining issues relating to arbitration. Additionally, plaintiff argues that the New York choice of law provision contained in the June 21, 1999 contract mandates that arbitration proceed in accordance with New York State law.
Plaintiff's first argument — that because this court has diversity jurisdiction over this case it is obliged to apply state law — is without merit. Plaintiff does not dispute that the June 21, 1999 contract contains an arbitration clause. (Pl.'s Objection to Report and Recommendation of Magistrate Judge Katz at 3). Yet the case that plaintiff relies on heavily for the assertion that state law should be applied, Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993), holds only that state law should be applied when determining whether an arbitration agreement exists. InProgressive Casualty, the Second Circuit held that "we apply state law in determining whether the parties have agreed to arbitrate. . . . [W]hile § 2 of the Arbitration Act preempts state law which treats arbitration agreements differently from any other contracts, it also preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate." Id. at 45-46 (internal quotations omitted) (emphasis added). Given plaintiff's admission that the parties entered an agreement to arbitrate in the June 21, 1999 contract, which contains an arbitration clause,Progressive Casualty in inapposite.
Plaintiff admits that his claim under the Fair Labor Standards Act is subject to federal question jurisdiction, but argues that that claim is de minimis and represents less than 5% of the monetary total of plaintiff's claims. Because the court finds that federal law applies regardless of whether this court has diversity or federal question jurisdiction, this point need not be addressed.
Further, the Supreme Court has explicitly held that the FAA is to be applied by federal courts with diversity jurisdiction where arbitration agreements exist. In Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983) the Supreme Court stated:
The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question under 28 U.S.C. § 1331 or otherwise. Section 4 provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue.Id. at 26, n. 32 (emphasis added). The Supreme Court affirmed the proposition that the FAA applies to disputes that are in federal court on diversity grounds in Allied-Bruce Terminix Co. Inc., v. Dobson et al., 513 U.S. 265 (1995). There the court affirmed Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395 (1967), which held, in response to an argument that federal courts must not apply the FAA in diversity cases, that the FAA applied in diversity cases because it was clear that Congress had so intended.Allied-Bruce at 271.
Because plaintiff admits that an agreement to arbitrate already exists, and because this court has diversity jurisdiction over the current dispute, it is clear that the FAA, not state law, should be applied.
Plaintiff's second argument — that because the June 21, 1999 employment contract states that New York State law shall govern the contract, arbitration should proceed in accordance with New York, not federal, law — is also without merit. In Mastrobuono v. Shearson Lehman Hutton, Inc., et al., 514 U.S. 52 (1995), the Supreme Court interpreted a contract that contained both a choice of law provision and an arbitration provision in exactly the opposite manner that plaintiff asks the court to interpret the contract in the present dispute. There, the court reconciled the choice of law provision with the arbitration provision by finding that the choice of law provision covered "the rights and duties of the parties, while the arbitration clause cover[ed] arbitration." Id. at 64. See also Nat'l Union Fire Ins. Co. of Pittsburgh, P.A., v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996) (holding that the choice of law clause, on its own, was insufficient to incorporate New York decisional law on the allocation of powers between the court and the arbitrator).
Similarly, in Merrill Lynch, Pierce, Fenner Smith, Inc., v. Shaddock et al., 822 F.Supp. 125 (S.D.N.Y. 1993), the court held that:
[T]he federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate. Interpreting a choice-of-law clause to make applicable state rules governing the conduct of arbitration . . . simply does not offend the rule of liberal construction set forth in Moses H. Cone, nor does it offend any other policy embodied in the FAA. . . . It seems to me beyond dispute that the normal purpose of such choice-of-law clauses is to determine that the law of one State rather than that of another State will be applicable; they simply do not speak to any interaction between state and federal law.Id. at 133-34. Thus, while New York decisional law governs substantive principles of the dispute, federal law governs the interpretation of the arbitration agreement. There is no reason not to harmonize the arbitration and choice of law clauses in the present dispute just as the Supreme Court did in Mastrobuono.
It having been established that the FAA applies to the arbitration agreement contained in the June 21, 1999 agreement, the broad presumption of arbitrability established by the Supreme Court in Moses H. Cone, ("any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration") ( 460 U.S. at 24-25), applies to the remainder of plaintiff's objections. Because Magistrate Judge Katz discusses the scope of arbitrability as it pertains to plaintiff's claims, the court need not discuss it here. The court adopts the reasoning and conclusions contained in Magistrate Judge Katz's Report and finds that the same reasoning applies with equal force to the remainder of plaintiff's objections.
IV. Conclusion:
For the foregoing reasons, plaintiff's objections to the Report and Recommendation of Magistrate Judge Katz are overruled. This court hereby adopts Magistrate Judge Katz's Report and Recommendation as an order of this court, grants defendants' motion to compel arbitration, and dismisses the action without prejudice to reinstatement, in the event that further proceedings are necessary.
SO ORDERED.