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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1998
- **Citation:** 525 U.S. 874

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_1303%3A2. Public record. Not legal advice.