Opposition Brief — Kahn v. Smith Barney, Harris Upham & Co.

tes

o-

No. 98-143

IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

>

DORIS KAHN,

Petitioner,

—_V.—

SMITH BARNEY, HARRIS UPHAM & CO., INCORPORATED,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

SUPREME COURT OF THE STATE OF NEW YORK,

APPELLATE DIVISION, FIRST DEPARTMENT

BRIEF IN OPPOSITION

Lawrence E. Fenster

Counsel of Record

Francis S. Chlapowski

BROBECK PHLEGER & HARRISON LLP

1633 Broadway, 47th Floor

New York, New York 10019

(212) 581-1600

Attorneys for Respondent

PMERINS

QUESTIONS PRESENTED

l. Whether this Court has jurisdiction of an

appeal from the judgment of an intermediate state

appellate court when discretionary review by the highest

court of the state in which a decision could be had has not

been sought?

3 Whether this Court has jurisdiction of an

appeal from the judgment of an intermediate state

appellate court, on remand from the highest court of the

state, that seeks review of so-called “federal” issues that

were finally resolved in 1995, should have been raised in a

petition for a writ of certiorari in 1995, and are now

untimely?

3. Whether this Court has jurisdiction of an

appeal seeking review of a decision construing the

unambiguous terms of an arbitration agreement in

accordance with general state law principles of contract

construction?

4. Assuming this Court reaches the issue,

whether the parties agreed to allow pre-arbitration judicial

determination of limitations defenses?

ii

PARTIES TO THE PROCEEDINGS BELOW

AND RULE 29 DISCLOSURE

Pursuant to Rule 14.1(b), the parties to the

proceedings below include:

Doris Kahn, petitioner

Smith Barney, Harris Upham & Co. Incorporated

(now known as Smith Barney Inc.), respondent

American Arbitration Association

Charlie Luckie Jr.

Barbara C. Luckie

Henry C. Satterfield, III

John S. Moshie

Jere A. Hughes

Pursuant to Rule 29.6, the following is a list of all

parent and subsidiary corporations of respondent Smith

Barney, Harris Upham & Co. Incorporated, which is now

known as Smith Barney Inc.:

Travelers Group Inc.

Salomon Smith Barney Holdings Inc.

Smith Barney Inc.

Robinson-Humphrey Insurance Services

Inc.

Robinson-Humphrey Insurance

Services of Alabama, Inc.

SBHU Life Agency of Arizona, Inc.

SBHU Life Agency of Indiana, Inc.

SBHU Life Agency of Ohio, Inc.

SBHU Life Agency of Oklahoma, Inc.

SBHU Life Agency of Texas, Inc.

SBHU Life Agency of Utah, Inc.

ili

SBHU Life Insurance Agency of

Massachusetts, Inc.

SBS Insurance Agency of Hawaii, nc.

SBS Insurance Agency of Idaho, Inc.

SBS Insurance Agency of Maine, Inc.

SBS Insurance Agency of Montana, Inc.

SBS Insurance Agency of Nevada, Inc.

SBS Insurance Agency of Ohio, Inc.

SBS Insurance Agency of South Dakota,

Inc.

SBS Insurance Agency of Wyoming,

Inc.

SBS Insurance Brokerage Agency of

Arkansas, Inc.

SBS Insurance Brokers of Kentucky,

Inc.

SBS Insurance Brokers of New

Hampshire, Inc.

SBS Insurance Brokers of North Dakota,

Inc.

SBS Life Insurance Agency of Puerto

Rico, Inc.

SLB Insurance Agency of Maryland,

Inc.

Smith Barney Life Agency Inc.

Smith Barney (Hong Kong) Limited

Smith Barney (Netherlands) Inc.

Smith Barney International Incorporated

Smith Barney (Singapore) Pte Ltd.

Smith Barney Pacific Holdings, Inc.

Smith Barney (Singapore) Pte Ltd.

Smith Barney Pacific Holdings, Inc.

Smith Barney (Asia) Limited

iv

Smith Barney Pacific Holdings, Inc.

Smith Barney Securities Pte Ltd.

Smith Barney Puerto Rico Inc.

The Robinson-Humphrey Company, LLC

RESTO Ne a

Vv

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED............-.-cesessesessesesstessseceseenenees i

PARTIES TO THE PROCEEDINGS BELOW

AND RULE 29 DISCLOSURE..........::cssccssssesessesseeeesseeees ii

TABLE OF AUTHORITIES ...............:ccssessessossssressesoenees Vii

OPINIONS BELOW. ....0:-c:c0.csscecccsecsscccsenccenesnesennssnssesnseess |

JURISDICTION OF THIS COURT............::cccssesseeeeeseeees 2

REASONS FOR DENYING PETITION .............:::eseee 3

COUNTER-STATEMENT OF THE CASE ..............::00+ 3

I. THIS COURT LACKS JURISDICTION

BECAUSE THE PETITION DOES NOT SEEK

REVIEW FROM THE HIGHEST COURT OF

THE STATE OF NEW YORK IN WHICH A

DECISION COULD BE HAD..........:.:ceseeseeeseeesees 4

Il. THIS COURT LACKS JURISDICTION

BECAUSE PETITIONER SEEKS REVIEW OF A

“FINAL” DECISION RENDERED MORE THAN

Il. THIS COURT LACKS JURISDICTION

BECAUSE THE PETITION DOES NOT RAISE

A SUBSTANTIAL FEDERAL QUESTION.......... 8

vi

IV. THE COURT OF APPEALS' CONSTRUCTION

OF THE AGREEMENT WAS CORRECT ......... 12

CTI AEs erin icasceniess nan sindcesiotcanbiscasbuukainetpwacirnbaoliagiale 15

vii

TABLE OF AUTHORITIES

Page

Cases

Arkansas Louisiana Gas Co. v. Hall,

Oe BE alent cd ceri cesacanbsacisaatabenbitsenctdneapiess 9

Banks v. California,

395 U.S. 708, reh’g denied, 396 U.S. 869 (1969)......... 5

Benz v. New York State Thruway Auth.,

re BE cha ietisicritchitisanethiivnineceesnisnenienniteniacks 8

Bunn v. State of North Carolina,

336 U.S. 942, reh’g denied, 336 U.S. 971 (1949)......... 9

Cox Broadcasting Corp. v. Cohn,

Ae et I Fisk chsstinnecdmnabidseientnrranenkoeieabebad 6-7, 8

First Options of Chicago v. Kaplan,

reeks Ee a aaresitns ts becbbinesntiicchesaccseneesisnsnncteaiesaneones 9

Freedman v. Chemical Constr. Corp.,

43 N.Y.2d 260, 401 N.Y.S.2d 176, 372 N.E.2d 12

OIE isn iecigiesel has basen cgincidleiniipmeabenbbeapoenennbsccinctnnssting 12

Gorman v. Washington University,

316 U.S. 98, reh'g denied, 316 U.S. 711 (1942)........... 5

Great Western Tel. Co. v. Burnham,

Be oF er a Raniictienss isk iabusdanacnosemmcuntbacisesoiccvcanantcicns 5

Vili

Kahn v. Smith Barney Shearson Inc.,

115 F.3d 930 (11th Cir.), reh’g and sugg. for reh’g en

banc denied, 124 F.3d 930 (11th Cir. 1997)... 4

Manhard v. Merrill Lynch, Pierce, Fenner & Smith Inc,

Oe Te 8 Oe ics daaaccissaracoswseaai pliers somisnacin hadbieions l

Mastrobuono v. Shearson Lehman Hutton Inc.,

FE ek ee Be co ivsancensdicctachs palaces scanning 9,10, 11, 14

McComb v. County Commissioners,

Oe Reeth BC Ree a ikcseschokiea nn ipecinshticaheiaadasshancindee veiltoodibcintonn 5

Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

Re IE Bias siisescrenind chsctpscaasttenscealtimmian iiusiatbcaaibias 3

Slatt v. Slatt,

64 N.Y.2d 966, 488 N.Y.S.2d 645, 477 N.E.2d 1099,

rearg. denied, 65 N.Y.2d 785, 492 N.Y.S.2d 1026, 482

DE ae Fee CED neikicsessassrciavnivvdanaskinvevpaintdoneckwnpnnies 13

Smith Barney, Harris, Upham & Co. v. Luckie,

198 A.D.2d 87, 605 N.Y.S.2d 838 (App. Div., 1st Dep't

1993), rev'd, 85 N.Y.2d 193, 623 N.Y.S.2d 800, 647

N.E.2d 1308 , rearg. denied, 85 N.Y.2d 1033, 631

N.Y.S.2d 291, 655 N.E.2d 404 (1995), on remittitur,

665 N.Y.S.2d 74 (Apn Div., Ist Dep't

TDS, hc egiidavebenchianbinyonncicauniednationate hy hg Mi Boy Ady AD

Stratton v. Stratton,

Bee Gh tS Ge ETE oe iicsdaciciacnuns satnecktoabepibnieddninenassilancuatoubinies 5

ix

United Commodities-Greece v. Fidelity Int'l Bank,

64 N.Y.2d 449, 489 N.Y.S.2d 31, 478 N.E.2d 172,

rearg. denied, 65 N.Y.2d 923, 493 N.Y.S.2d 1030, 483

PE BE IO tidbacicsaihinasccsiusintiinnstntsienninevecitahanevsits 7

Volt Info Sciences, Inc. v. Board of Trustees of Leland

Stanford Jr. Univ.,

A iy I I Ric daiitucisicssnccincisancdestessansidianicacee-tvakbsnnen 9

Weiss v. Weiss,

52 N.Y.2d 170, 436 N.Y.S.2d 862, 418 N.E.2d 377

GUIS Diccustatsnaasbianebsiacoiinadtoaihabteneiibcesdikianeveichsnvciete 13

Statutes and Rules

28 U.S.C.

Mi TMI debs dahric bossa lctyVaiemsagiaeipissinatasainigibieooinine 2, 4,8

I TINIE <sscainsichhis asvclndaiebis-cncdaciennnsatasdestianinadideuiaaanacaciais 8

N.Y. Civ. Prac. L. & R

2h SRA See NC RN car TRI Naps ant Stel Ae SBIR RARIO ly Sted es 5

RE ATT RARE ED NGA DD NEO ne MAS MS TPs ee rR 5

cg. REE SRR ERR SC Bel RRS OAL OTN I 4

fj RRRSEA PSE SRE PERE IA CN nvm tre BED ODES Tyee y OT 4

ea Se, NG Bike SPER ep iccinsnnsibtssecindenshavinianionstonanaiiens 12

SUA, AR Tis: Baad souks ecceneneieviatendinliniigcialianpdiingetavsinnininnaeeades 8

Other Authorities

Restatement (Second) of Conflict of Laws § 187............ 12

ROBERT C. STERN, EUGENE GRESSMAN, STEPHEN M.

SHAPIRO, KENNETH S. GELLER, SUPREME COURT

PRACTICE, GR S62 CFR OG, TIPS D oc cevnenssninccesersenenssanenkian 5

A Ci, AES. St DPB ibis

abit RE AAD ALR LG Pe Te AG EME A IGA SONG AGEN

a btote

l

OPINIONS BELOW

The decision and order of the New York Appellate

Division, First Department from which petitioner

purportedly seeks certiorari is set forth in an opinion

reported at Smith Barney, Harris Upham & Co. v. Luckie,

665 N.Y.S.2d 74 (App. Div., Ist Dep't Dec. 4, 1997). In

that decision, the Appellate Division determined that

petitioner's arbitral claims against respondent were barred

by the limitations periods applicable to those claims.

Reargument was denied by an order of the Appellate

Division, First Department, dated April 16, 1998 that is

not yet reported.

The Appellate Division's decision was issued after

the case was remitted to it from the New York Court of

Appeals pursuant to a 1995 New York Court of Appeals

decision reported at 85 N.Y.2d 193, 623 N.Y.S.2d 800,

647 N.E.2d 1308, reargument denied, 85 N.Y.2d 1033,

631 N.Y.S.2d 291, 655 N.E.2d 404 (1995), which is the

decision that petitioner actually seeks to review here.'! The

Court of Appeals’ decision held that, based on the terms of

the parties’ arbitration agreement, courts were empowered

to resolve respondent's limitations defenses to petitioner’s

arbitral claims. The 1995 decision of the New York Court

of Appeals followed a grant of leave to appeal from a

! This 1995 decision applied to a companion case as well,

entitled Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manhard.

By contrast with petitioner here, the losing party in that decision

timely petitioned this Court for certiorari in 1995 making many of

the same arguments petitioner raises here. That petition was

denied by this Court. See Manhard v. Merrill Lynch, Pierce,

Fenner & Smith Inc, 516 U.S. 811 (1995).

2

1993 decision of the Appellate Division, First Department,

reported at 198 A.D.2d 87, 605 N.Y.S.2d 838 (App. Div.,

lst Dep't 1993), which held that respondent’s limitations

defenses were subject to arbitral determination under the

Federal Arbitration Act ("FAA"). The original opinion of

the New York Supreme Court, New York County, dated

October 14, 1992, was not officially reported. In that

decision, the court held that petitioner's arbitral claims

were timely. |

JURISDICTION OF THIS COURT

The order and decision of the Appellate Division,

First Department, as to which petitioner purports to seek a

writ of certiorari, was entered on December 4, 1997 and

petitioner’s motion for reargument of that decision was

denied on April 16, 1998. The Appellate Division’s

December 4, 1997 decision was issued after the case was

remitted to the Appellate Division from the New York

Court of Appeals, pursuant to its February 21, 1995

decision. The New York Court of Appeals’ 1995 decision

is the decree that actually forms the basis of the petition.

As explained below, this Court lacks jurisdiction of this

appeal for several reasons.

First, although petitioner purports to rely on 28

U.S.C. § 1257 as the basis for jurisdiction, this appeal is

not sought from "the highest court . . . in which a decision

could be had... ." See 28 U.S.C. § 1257(a). Specifically,

petitioner seeks certiorari from an intermediate appellate

court, without first having sought leave to appeal to the

New York Court of Appeals.

Second, the petition is untimely. Petitioner seeks a

writ of certiorari to review a 1995 New York Court of

*

Appeals decision that ultimately decided the only arguably

"federal" issues in her petition. Since the 1995 remittitur

from the New York Court of Appeals to the Appellate

Division was for the limited purpose of resolving

respondent's statute of limitations defenses to petitioner's

claims, and the federal issues raised in this petition would

not have been revisited by the New York Court of

Appeals, petitioner should have sought a writ of certiorari

in 1995.

Third, this appeal does not involve any substantial

federal question. The only issue petitioner seeks to appeal

to this Court is the New York Court of Appeals’ 1995

construction of a contract in accordance with New York

law and its conclusion that the agreement was

unambiguous under New York law.

REASONS FOR DENYING PETITION

COUNTER-STATEMENT OF THE CASE

This is an action to permanently stay an arbitration

commenced by petitioner against respondent on the

grounds that her arbitral claims are barred by the

applicable statutes of limitations. Petitioner commenced

the arbitration that is the subject of this lawsuit in 1989,

despite the fact that she removed her account, in which

transactions that form the basis of her claims were made,

from respondent in 1984. Respondent submits that courts

are empowered to resolve this issue based on a New York

choice of law clause that governs petitioner's arbitration

agreement and its enforcement. New York arbitration law,

a manifestly pro-arbitration statute upon which the FAA

was actually modeled, see Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395, 405 n.13 (1967),

4

specifically allows pre-arbitration judicial resolution of

limitations defenses. See N.Y. Civ. Prac. L. & R. 7502,

7503.

The procedural history of this case is long and

complex, primarily due to the existence of several

collateral proceedings commenced by petitioner in Florida

state and federal courts. These proceedings had the effect

of significantly prolonging the resolution of the issues

squarely presented to the New York Court by respondent

in 1989. The procedural history is set out in a variety of

reported decisions in this matter, the most exhaustive of

which is contained in Kahn v. Smith Barney Shearson Inc.,

115 F.3d 930, 931-32 (11th Cir.), reh’g and sugg. for

reh'g en banc denied, 124 F.3d 930 (11th Cir. 1997). See

also Smith Barney, Harris, Upham & Co. v. Luckie, 85

N.Y.2d 193, 623 N.Y.S.2d 800, 647 N.E.2d 1308 (1995),

on remittitur, 665 N.Y.S.2d 74 (App. Div., Ist Dep't

1997). In the interest of brevity, respondent will not

reiterate the procedural history of this case here, but in so

doing in no way accepts or admits petitioner's Statement

of the Case.

I. THIS COURT LACKS JURISDICTION

BECAUSE THE PETITION DOES NOT SEEK

REVIEW FROM THE HIGHEST COURT OF

THE STATE OF NEW YORK IN WHICH A

DECISION COULD BE HAD

The United States Code allows this Court to review

by writ of certiorari final decisions rendered by "the

highest court of a State in which a decision could be had . .

.." 28 U.S.C. § 1257. If the highest court of a State

ooo oe oo | ea ee

"one reo. es

2

on | as

Rs BS the Crinkle du llet ie ee ele ne

5

provides for discretionary review of lower court orders,

such review must be sought and denied before review of

an intermediate appellate court decision may be sought in

this Court. See Banks v. California, 395 U.S. 708, reh'g

denied, 396 U.S. 869 (1969); Stratton v. Stratton, 239 U.S.

55 (1915).

Here, petitioner seeks review of a final decision of

an intermediate New York appellate court. New York law

specifically allows review of such decisions by the New

York Court of Appeals with the permission of the

Appellate Division or the Court of Appeals, upon motion

made within 30 days after service of notice of entry of the

Appellate Division order. See N.Y. Civ. Prac. L. & R.

5513, 5602. Petitioner elected not to seek such review.

Petitioner argues in her petition that such an appeal

would have been "futile" because the Court of Appeals’

earlier decision was the "law of the case", had

subsequently been "reaffirmed" by the Court of Appeals,

and would not have been addressed again by the Court of

Appeals. The law, however, requires petitioner to at least

seek such review and does not contain a "futility"

exception. See Gorman v. Washington University, 316

U.S. 98, 100-01, reh'g denied, 316 U.S. 711 (1942); Great

Western Tel. Co. v. Burnham, 162 U.S. 339 (1896);

McComb v. County Commissioners, 91 U.S. 1 (1875); see

also ROBERT C. STERN, EUGENE GRESSMAN, STEPHEN M.

SHAPIRO, KENNETH S. GELLER, SUPREME COURT

PRACTICE, ch 3.11, at 112 (7th ed. 1993) (“Even though

the appellate court considers itself bound on the second

appeal by its decision on the first appeal, making the

second appeal a mere formality, the second appeal is a

prerequisite to Supreme Court review.”). Accordingly,

6

this Court lacks jurisdiction to consider petitioner’s

proposed appeal.

Il. THIS COURT LACKS JURISDICTION

BECAUSE PETITIONER SEEKS REVIEW

OF A “FINAL” DECISION RENDERED

MORE THAN 3 YEARS AGO

Section 1257 allows review by writ of certiorari of

"final" decisions of the highest state court in which review

may be had. The "finality" requirement of § 1257 is

satisfied in several categories of cases in which the

decision on the federal issues is considered "final" for

purposes of § 1257, even though additional substantive

proceedings remain to be completed in the lower state

courts. See Cox Broadcasting Corp. v. Cohn, 420 U.S.

469, 477 (1975).

One of those categories in which a decision is

deemed "final" and hence ripe for potential review by this

Court is:

where the federal issue has been finally

decided in the state courts with further

proceedings pending in which the party

seeking review here might prevail on the

merits on nonfederal grounds, thus

rendering unnecessary review of the federal

issue by this Court, and where reversal of

the state court on the federal issue would be

preclusive of any further litigation on the

relevant causes of action rather than merely

controlling the nature and character of, or

determining the admissibility of evidence

in, the state proceedings still to come. In

7

these circumstances, if a_ refusal

immediately to review the state court

decision might seriously erode federal

policy, the Court has entertained and

decided the federal issue, which itself has

been finally determined by the state courts

for purposes of the state litigation.

Id. at 482-83.

The Court of Appeals' 1995 decision here falls

within this category of "final" for purposes of § 1257. The

"federal" issue, to the extent there is one, was resolved in

the 1995 decision and would not be revisited by the Court

of Appeals on a subsequent appeal under New York law.

See United Commodities-Greece v. Fidelity Int'l Bank, 64

N.Y.2d 449, 454, 489 N.Y.S.2d 31, 32, 478 N.E.2d 172,

173, rearg. denied, 65 N.Y.2d 923, 493 N.Y.S.2d 1030,

483 N.E.2d 136 (19835).

Further, resolution of the "federal" issue in

petitioner's favor (i.e., a reversal by this Court) would

have resulted in an end to the litigation, because it would

have meant that respondent's limitations defenses were to

be resolved by the arbitrators, not courts.

Finally, although respondent respectfully submits

that no federal question is raised by the Court of Appeals’

1995 decision, if petitioner's FAA arguments here (and

those she previously made before the New York Court of

Appeals) are correct, then the Court of Appeals’ decision

did implicate federal policy and, according to petitioner,

seriously eroded that policy. As such, the Court of

Appeals’ 1995 decision that respondent's limitations

defenses were for courts, not arbitrators, to resolve was

8

"final" for purposes of 28 U.S.C. § 1257 and the instant

petition. Cox, 420 U.S. at 482-83.

Since the Court of Appeals’ 1995 decision is the

"final" order sought to be reviewed herein, and petitioner

moved for reargument of that decision in 1995, which was

denied, the petition for certiorari is untimely. Under 28

U.S.C. § 2101(c), a petition for wrt of certiorari must be

sought within 90 days after entry of the judgment or

decree sought to be reviewed. The 90 day time period

under § 2101(c) may only be extended an additional 60

days. Jd. This Court lacks jurisdiction to consider

petitions that that are not timely filed. See Sup. Ct. R.

13.2.

The petition for a writ of certiorari here, filed more

than three years after the final decision that petitioner

seeks to reverse is untimely and, therefore, beyond the

jurisdiction of this Court.

Iii, THIS COURT LACKS JURISDICTION

BECAUSE THE PETITION DOES NOT

RAISE A SUBSTANTIAL FEDERAL

QUESTION

Even assuming petitioner can overcome the

technical defects to her petition, she must face a more

fundamental problem. In order for this Court to review

the 1995 decision of the New York Court of Appeals, that

decision must involve a substantial federal question. See

Benz v. New York State Thruway Auth., 369 U.S. 147

(1962); Bunn v. State of North Carolina, 336 U.S. 942,

reh'g denied, 336 U.S. 971 (1949). It does not.

This Court has repeatedly stated that arbitration

agreements simply are private contracts and ordinary state

St heer Rit tee Labbe st

9

law principles of contract construction apply to their

interpretation. First Options of Chicago v. Kaplan, 514

U.S. 938, 944 (1995); Mastrobuono v. Shearson Lehman

Hutton Inc., 514 U.S. 52, 58-64 (1995) (applying state law

contract construction principles); Volt Info Sciences, Inc.

v. Board of Trustees of Leland Stanford Jr. Univ., 489

U.S. 468, 474 (1989). It is similarly well-settled that this

Court ordinarily does not sit to review questions of

contract construction under state law, including the

construction of arbitration agreements. Volt, 489 U.S. at

474; Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571,

579 n.9 (1981).

The FAA is implicated in this analysis, but not

substantially when the agreement is found to be

unambiguous, like the agreement here. That is, once the

terms of a contract are determined in accordance with

ordinary state law principles of contract construction, and

no ambiguity is found to exist, the FAA simply requires

enforcement of that agreement according to its terms,

unless such enforcement would directly conflict with

overriding goals and policies of the FAA. Volt, 489 U.S.

at 476-77. Since the FAA allows parties to arbitration

agreements to control in large part the rules and

procedures under which they will arbitrate, agreeing to

arbitrate in accordance with state arbitration law that

simply allows pre-arbitration judicial determination of

limitations defenses does not undermine any goals and

policies of the FAA. See Mastrobuono, 514 U.S. at 57;

Volt, 489 U.S. at 479.

This Court's decision in Mastrobuono does not

alter this analysis. In Mastrobuono, this Court did not

address enforcement of an unambiguous agreement

10

allowing judicial determination of limitations defenses.

The Court simply reviewed the agreement there to

determine whether it precluded the arbitral award of

punitive damages, in the absence of a definitive ruling by

the highest court of the state whose law was to be applied.

Mastrobuono, 514 U.S. at 58 ("the case before us comes

down to what the contract has to say about the arbitrability

of petitioners’ claim for punitive damages").

According to the Court, the agreement at issue in

Mastrobuono, because it was ambiguous on the issue and

was drafted by the securities firm, allowed punitive

damages demands to be arbitrated. Jd. at 58-64. Since the

agreement here has been determined by the New York

Court of Appeals to clearly require judicial resolution of

limitations issues, this Court's construction of a different

agreement concerning a different issue in Mastrobuono is

inapposite.

This Court in Mastrobuono reviewed a decision of

a federal court whose sole basis for subject matter

jurisdiction was diversity. The Court distinguished its

earlier decision in Volt on this ground and declared that it

was simply reviewing "a federal court's interpretation of

this contract" and could therefore review that

interpretation de novo. Mastrobuono, 514 U.S. at 60 n.4.;

see id. at 71-72 (Thomas, J., dissenting) ("This case

amounts to nothing more than a federal court applying

Illinois and New York contract law to an agreement

between parties in Illinois . . . . [T]he majority's

interpretation of the contract represents only the

understanding of a single federal court regarding the

requirements imposed by state law.")

11

Here, the New York Court of Appeals construed

the agreement in accordance with normal principles of

contract construction and held that it unambiguously

required judicial determination of limitations defenses

prior to the arbitration. According to the Court of

Appeals:

Although the parties broadly agreed to

arbitrate "any controversy" arising from the

customer agreements, that clause -- like all

other provisions in the contract -- was

subject to the parties' additional

qualification that New York State law

provides the basis of decision for questions

concerning not only the agreement, but

more critically, its enforcement.

Accordingly, we conclude that under this

agreement the parties agreed to refer

questions of timeliness to the courts by

incorporating New York law.

Luckie, 85 N.Y.2d at 202, 623 N.Y.S.2d at 805, 647

N.E.2d at 1313. This determination should not be

reviewed by this Court. Mastrobuono, 514 U.S. at 60 n.4;

Volt, 489 U.S. at 474. Since the Court of Appeals here

found that the parties had clearly agreed to this procedure

as a matter of state law contract construction, it found that

enforcement of that agreement would not be inimical to

the policies underlying the FAA; indeed, such

enforcement was required by the FAA. /d. at 206, 623

N.Y.S.2d at 807, 647 N.E.2d at 1315.

Accordingly, respondent respectfully submits that

the issue presented on this appeal, which is primarily one

of contract construction under state law principles, does

12

not involve a substantial federal question and therefore

does not invoke the jurisdiction of this Court.

IV. THE COURT OF APPEALS'

CONSTRUCTION OF THE

AGREEMENT WAS CORRECT

Even if this Court could review the 1995 New

York Court of Appeals' determination that the agreement

requires application of New York law allowing judicial

determination of limitations defenses, the same result

would obtain. Specifically, with respect to contractual

choice of law clauses, the New York Court of Appeals has

held, prior to its decision herein, that "the parties’

manifested intentions to have an agreement governed by

the law of a particular jurisdiction are honored . . . it is as

though the law of the selected jurisdiction were

incorporated into the agreement by reference." Freedman

v. Chemical Constr. Corp., 43 N.Y.2d 260, 265 n.*, 401

N.Y.S.2d 176, 179-80 n.*, 372 N.E.2d 12, 15 n.* (1977)

(emphasis added) (citing Restatement (Second) of Conflict

of Laws § 187); cf N.Y. Gen. Oblig. L. § 5-1401.

Accordingly, the New York Court of Appeals here was

correct in determining that "under this agreement the

parties agreed to refer questions of timeliness to the courts

by incorporating New York law." Luckie, 85 N.Y.2d. at

202, 623 N.Y.S.2d at 805, 647 N.E.2d at 1313 (emphasis

added). Thus, under New York law, no ambiguity can be

found to exist here.

Moreover, there is no reason tc distinguish an

arbitration provision from any other provision in a

contract; as the New York Court of Appeals »roperly held,

as a matter of New York law, the arbitration clause -- "Jike

all other provisions in the contract -- was subject to the

13

parties’ additional qualification that New York State law

provides the basis of decision for questions concerning . . .

its enforcement." Jd. (emphasis added).

Similarly, the agreement must be construed as a

whole -- there is no room here to interpret the choice of

New York law to include only the "substantive" rules New

York courts would apply unrelated to arbitration.

Logically, a choice of law clause in an arbitration

agreement must require application of New York

arbitration law. See Slatt v. Slatt, 64 N.Y.2d 966, 967,

488 N.Y.S.2d 645, 646, 477 N.E.2d 1099, 1100 (in

construing contracts, "effect must be given to the [parties']

intent as indicated by the language used"), rearg. denied,

65 N.Y.2d 785, 492 N.Y.S.2d 1026, 482 N.E.2d 568

(1985). Otherwise, the choice of law clause would have

absolutely no meaning with respect to the enforcement of

the arbitration provision, which the agreement clearly

requires. Indeed, such a determination would violate the

settled principle of contract construction that a contract

should be interpreted to give effect to all of its provisions.

Weiss v. Weiss, 52 N.Y.2d 170, 174, 436 N.Y.S.2d 862,

864, 418 N.E.2d 377, 379 (1981). Accordingly, under the

plain meaning of the agreement, the New York Court of

Appeals correctly held that under New York law -- the law

the New York Court of Appeals is charged with

developing and interpreting -- New York arbitration law

must govern.

In addition, because this case involves statutes of

limitations, not punitive damages, this case does not

implicate the concern expressed by the Court in

Mastrobuono that the arbitration claimant unwittingly

waived a right to relief that would be available under

14

"New York law" in a non-arbitral context. In fact, the

Court found the Mastrobuono agreement ambiguous, in

part, because New York law allowed punitive damages in

court, but not in arbitration, and the agreement contained

no such distinction on its face. Mastrobuono, 514 U.S. at

59-60.

Here, however, there is no such potential ambiguity

-- New York law, like every other state's law, limits the

time within which claims may be brought pursuant to

express statutory limitations periods, and these rules are

applicable in both forums. Thus, New York's statutory

arbitration law (CPLR 7501-14), which affords arbitration

respondents the option of having courts rather than

arbitrators determine statute of limitations defenses, does

not preclude arbitral determination of limitations defenses

if a respondent chooses not to seek such a judicial

determination, nor does it amount to a waiver of the right

to seek a remedy that is otherwise available in Court

without explicitly stating so; it merely authorizes judicial

determination of these threshold procedural defenses.

Thus, under ordinary ules of contract

interpretation, as applied by the New York Court of

Appeals, no "ambiguity" arises; the New York statutory

provision allowing judicial determination of limitations

defenses must therefore apply to the enforcement of the

arbitration agreement pursuant to the clear and

unambiguous choice of law clause therein.

15

CONCLUSION

For the foregoing reasons, respondent respectfully

submits that petition should be demed.

Dated: New York, New York

August 21, 1998

Respectfully submitted,

LAWRENCE E. FENSTER

Counsel of Record

FRANCIS S. CHLAPOWSKI

BROBECK, PHLEGER & HARRISON LLP

1633 Broadway, 47th Floor

New York, New York 10019

(212) 581-1600

ee tt ee ee nae Le m

Attorneys for Respondent