Petition for Writ of Certiorari — Life Settlement Corp. v. Goshawk Syndicate 102 at Lloyd's
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Supreme Court. 1's
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\y 10-168 UG C2?
No. 10-
OFFICE OF THE CLERK
IN THE
Supreme Court of the Anited States
LIFE SETTLEMENT CORPORATION
Vb/a PEACHTREE LIFE SETTLEMENTS,
Petitioner
GOSHAWK DEDICATED LIMITED AND KITE
DEDICATED LIMITED F/K/A GOSHAWK DEDICATED
(NO. 2), AS MEMBERS OF SYNDICATE 102
AT LLOYD'S,
Respondents.
On PETITION FOR A WRIT OF CERTIORARI TO THE
Court OF APPEALS OF NEW YORK
PETITION FOR A WRIT OF CERTIORARI
Jesus E. Cuza ELLIOT H. SCHERKER
INA M. BERLINGERI Counsel of Record
GREENBERG TRAURIG, PA. JULISSA RODRIGUEZ
401 East Las Olas Blvd. GREENBERG TRAURIG, PA.
Suite 2000 1221 Brickell Avenue
Fort Lauderdale, FL 33301 Miami, FL 33131
(954) 765-0500 (305) 579-0500
ScherkerE@egtlaw.com
Counsel for Petitioner
QUESTIONS PRESENTED
1. Who determines whether an arbitration
agreement is valid and enforceable when, as a result of
Hall Street Associates, LLC v. Mattel, Inc., 552 U.S.
576 (2008), a party has been deprived of its right to
judicial review for errors of law under a contractual
provision without which that party would not have
assented to arbitration, the courts or the arbitrators?
2. Who decides, in light of Sections 2 and 4 of the
Federal Arbitration Act, if a party has failed to comply
with an obligation that the parties agreed was a
condition precedent to arbitration, the courts or the
arbitrators?
PARTIES TO THE PROCEEDING
Petitioner, who was the appellant below, is Life
Settlement Corporation d/b/a Peachtree Life
Settlements.
Respondents, who were the appellees below, are
Goshawk Dedicated Limited and Kite Dedicated
Limited f/k/a Goshawk Dedicated (No. 2), as Members
of Syndicate 102 at Lloyd's.
Life Settlement Corporation is wholly owned by
Peach Holdings, LLC, which in turn is wholly owned by
Peach Holdings, Inc., which in turn is wholly owned by
Orchard Acquisition Company, which in turn is wholly
owned by Peach Group Holdings, Ine.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ................
PARTIES TO THE PROCEEDING .......... i
TABU OF COR TGINEO: cic viersu sees ssuenas lil
TABLE OF APPENUSUES oes ses ees cses ese vil
TABLE OF AUTHORITIES ................. Viil
PETITION FOR A WRIT OF CERTIORARI .... I
OPINIONS Bila on < acc iscnvstossaeeees l
FEIT SET Ty EN, bk ewe ee as 2
CONSTITUTIONAL, STATUTORY AND
REGULATORY PROVISIONS ............ 2
STATEMENT OF THE CASE ............... 3
A, THE COl CONTRACTS ssissctles 3
B. LLOYD'S FAILS TO COMPLY WITH
THE CONDITION PRECEDENT TO
ACE ECE: 600 a eR ooo ee eee
C. PEACHTREE CHALLENGES THE
VALIDITY AND ENFORCEABILITY
OF THE ARBITRATION PROVISION
S22 )e ss SS 6. Owe OSS Ole S64 S 6 ee ee eee es ef OS ee eS ee
COoOnrents
REASONS FOR GRANTING THE PETITION
REVIEW IS WARRANTED BECAUSE
THE NEW YORK COURT OF
APPEALS’ DECISION ESTABLISHES
PRECEDENT THAT CONFLICTS
WITH THIS COURT’S DECISIONS
AND MISINTERPRETS FEDERAL
PSR ER a Pont i TR he ss Aare
A. SUBSTANTIVE FEDERAL
Mid tg 29 l )e P. || Seeee
1. ARBITRATION IS A MATTER
ee Ree ee i an ve eae
2. UNDER THE FAA, IT IS FOR
THE COURTS TO
DETERMINE WHETHER AN
ARBITRATION AGREEMENT
ORL TP | 0 Spee ea ea
B. PEACHTREE HAS CHALL
ENGED THE VALIDITY AND
KENFORCEABILITY OF THE
ARBITRATION PROVISION
CONTAINED IN THE CCl
CNae SPR Bee es ae ee eens eee
Page
LS
Contents
C. THE DECISION OF THE NEW
YORK COURT OF APPEALS IS
CONTRARY TO THE FAA AND
THIS COURT’S PRECEDENTS ..
l.
THE COURT OF APPEALS’
EIU UPREERIE Co-ed os abso eee e es
BECAUSE PEACHTREE HAS
CHALLENGED THE
VALIDITY AND ENFORCE-
ABILITY OF THE PARTI-
CULAR ARBITRATION
PROVISION AT ISSUE, IT IS
FOR THE COURTS TO
DECIDE THAT THRESHOLD
QUESTION 6.06.05 ccxcideesss
THE PARTIES DID NOT
COMMIT THE THRESHOLD
QUESTION OF VALIDITY
AND ENFORCEABILITY TO
Pik ogo. 4g mere
CONCLUDING STATEMENTS
REGARDING THE DECISION
Ol THE COURT OF
Be eee oi a wee
Page
20
vi
Contents
REVIEW IS WARRANTED BECAUSE
THERE IS A QUESTION OF
FEDERAL LAW THAT HAS NOT
BEEN, BUT SHOULD BE, SETTLED
OY THe COUNT ooo. esccccecciesaec,
A. UNDER HALL STREET, PARTIES
ARE PRECLUDED FROM
CONTRACTING OUT OF THE
EXPRESS TERMS OF THE FAA ..
B. IT IS UNSETTLED BY THIS
COURT WHETHER ISSUES
INVOLVING COMPLIANCE WITH
A CONDITION PRECEDENT CAN
BE DECIDED BY THE
ARBITRATORS IN LIGHT OF THE
CLEAR TEXT OF SECTIONS 2
Pi ty 0) ge tog YT,
C. UNDER SECTIONS 2 AND 4 OF
THE FAA, THE DETERMINATION
OF WHETHER LLOYD’S HAS
COMPLIED WITH A CONDITION
PRECEDENT TO ARBITRATION
iS POR 6G COURIS ..ccuscears
NEDO 5.0544 sG 64k Gane a ee edd Odea ees
Page
23
TABLE OF APPENDICES
Appendix A — Opinion Of The Court Of Appeals
Of New York Dated May 4, 2010 ............
Appendix B — Opinion Of The Supreme Court,
Appellate Division, First Department, New
York Dated October 13, 2009 ...............
Appendix C — Order Of The Supreme Court,
Appellate Division, First Department, New
York Dated December 22, 2009 .............
Appendix D Opinion Of The
Supreme Court Of The State Of New York,
County Of New York, Commercial Division
Dated September 19, 2008 And Filed
COIOT BO, Be o.vc cs uc sive vs un vdewine
Appendix FE — Order Of The Court Of Appeals
Of New York Dated July 1, 2010 ............
Appendix F — Relevant Statutes .............
3a
17a
ola
Vill
TABLE OF AUTHORITIES
Page
Federal Cases
3M Co. v. Amtex Sec., Inc.,
542 F.3d 1193 (8th Cir. 2008) ............... 26
Cap Gemini Ernst & Young, US, LLC v. Nackel,
346 F.3d 360 (2d Cir. 2008) ................. 9,10
Contec Corp. v. Remote Solution Co., Lid.,
398 F.3d 205 (2d Cir. 2005) ................. 9,10
Cox Broadcasting Corp. v. Cohn,
SED UB BD CIP | odin Ci oes ease sane 2
Granite Rock Co.
v. Int'l Brotherhood of Teamsters,
__§. Ct. , 2010 WL 2518518 (June 24, 2010)
PP er Se ee ere en Pee: 14, 21, 22
Hall Street Associates, LLC v. Mattel, Inc.,
GRE 1.8. Be Ge) oss oven devas passim
HIM Portland, LLC v. DeVito Builders, Inc.,
SIT F.36 AF 12" Cle Bee) oss dienes eee 26
Howsam v. Dean Witter Reynolds, Inc.,
Bae 3.5. Fe CD oh cs oboe ee ee eee 27, 28
John Wiley & Sons, Inc. v. Livingston,
576 U.S. GOS GGG) cs ck cave dsetesosnseeeees 27
LX
Authorities
Kemiron Atl., Inc. v. Aguakem Int'l Inc.,
Be Wed BO? CAE” CAP, JOUR) onc scccccccess 26
Mastrobuono v. Shearson Lehman Hutton, Inc.,
ccc c cc ce cece ccccce 14, 22, 26
Moses H. Cone Mem’ Hosp.
v. Mercury Constr. Corp.,
EE ss case nscceseseccecccces 14
Nichols v. Washington Mut. Bank,
2007 U.S. Dist. LEXIS 85936
Ss § rr 10
Perdue Farms, Inc.
v. Design Build Contracting Corp.,
263 Fed. Appx. 380, 2008 WL 345430
ieee cece wc cc scsccccsee 26
Prima Paint Corp. v. Flood & Conklin Mfg.,
ES passim
Rent-A-Center, West, Inc. v. Jackson,
__§.Ct. _, 2010 WL 2471058
ctw ca cc sss cece nce PASSiM
Southland Corp. v. Keating,
465 U.S. 1 (1984) 2
Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp.,
er 14, 22
Authorities
State Cases
Life Receivables Trust
v. Goshawk Syndicate 102 at Lloyd’s,
14 N.Y.3d 850, = N.E.2d_,_
N.Y.S.2d (N.Y. May 4, 2010) ..............
Life Receivables Trust
v. Goshawk Syndicate 102 at Lloyd’s,
2008 WL 4461446, 2008 N.Y. Slip Op. 32626(U)
(N.Y. Sup. Sept. 30, 2008) ..................
Life Receivables Trust
v. Goshawk Syndicate 102 at Lloyd’s,
66 A.D.3d 495, 888 N.Y.S.2d 458
(IN, Rodacks. BUG GOUG, D 6 vc cscs eteuansaens
Matter of Arbitration Between County of
Rockland and Primiano Construction Co.,
Si We. Gee © CRD 6. 020 ba sie cckcet crete
Federal Statutes
SER Re 2 | ee rer re Ae
Page
)
Ka
BR tee > Greer Tree ee re re NS passim
BP ae y ee rere ee rer rey war passim
PETITION FOR A WRIT OF CERTIORARI
Petitioner Life Settlement Corporation d/b/a
Peachtree Life Settlements (Peachtree) respectfully
requests the Court to grant its Petition for a Writ of
Certiorari to review the decision of the New York Court
of Appeals.
OPINIONS BELOW
‘The Memorandum Decision of the New York Court
of Appeals, issued on May 4, 2010, appears at Appendix
(“App.”) A to this Petition at la to 2a and is reported at
Life Receivables Trust v. Goshawk Syndicate 102 at
Lloyd’s, 14 N.Y.8d 850, N.i.2d _ , N.Y.S.2d _
(N.Y. May 4, 2010). The New York Court of Appeals’
denial of reargument, which is unpublished, appears at
App. IE at 29a to 30a.
The October 13, 2009 order of the New York
Supreme Court, Appellate Division, First Department,
affirming the trial court’s denial of a stay of arbitration,
appears at App. B at 3a to 16a and is reported at Life
Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s,
66 A.D.3d 495, 88% N.Y.S.2d 458 (N.Y.A.D. Ist Dept.
2009). The Appellate Division’s December 22, 2009 order
granting Peachtree leave to appeal is unpublished and
appears at App. C at 17a to 18a. The September 30,
2008 order of the New York Supreme Court, County of
New York, Commercial Division appears at App. D at
19a to 28a and is reported in Life Receivables Trust v.
Goshawk Syndicate 102 at Lloyd’s, 2008 WI. 4461446,
2008 N.Y. Slip Op. 32626(U) (N.Y. Sup. Sept. 30, 2008).
JURISDICTION
The New York Court of Appeals affirmed the
supreme Court of New York, Appellate Division, First
Department's order denying a request to stay
arbitration on May 4, 2010, App. A. On July 1, 2010, the
Court of Appeals denied Peachtree’s request for
reargument. App. Kk. This Court has jurisdiction
pursuant to 28 U.S.C. § 1257(a)
CONSTIPUTIONAL, STATUTORY AND
REGULATORY PROVISIONS
ection Z of the kederal Arbitration Act, 9 |
2, provide
\ written provision in any maritime
Lransaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising
out of such contract or transaction, or the
refusal to perform the whole or any part
thereof, or an ayreement in writing to submit
Lo arbitration an existing controversy arising
out of such a contract, transaction, or refusal
hall be valid, irrevocable, and enforceabl
ave upon such vrounds as exist at law or in
equity for the revocation of any contract
Aithe vn Une I r} { il ( [>] i te on |
ntemplates further proceeding this Court ha Irisdictior
Lo review the court judgement ee, @.Q outhland Corp
Keating 165 | | 6-¢ (1 ORA): Cr Broadcasting Cor ('y)/
120 | 169 1ib-? i)
3
oO
Section 4 of the Federal Arbitration Act, 9 U.S.C.
§ 4, provides in pertinent part:
The court shall hear the parties, and upon
being satisfied that the making of the
agreement for arbitration or the failure to
comply therewith is not in issue, the court shall
make an order directing the parties to proceed
to arbitration in accordance with the terms of
the agreement... . If the making of the
arbitration agreement or the failure, neglect,
or refusal to perform the same be in issue, the
eourt shall proceed summarily to the trial
thereof.
App. F at 32a-33a.
STATEMENT OF THE CASE
A. THE CCI CONTRACTS
This case concerns a request to enjoin certain
arbitrations, involving disputes relating to four
contingency cost insurance policies (the “CCI
Contracts”). Respondents Goshawk Dedicated Limited
and Kite Dedicated Limited f/k/a Goshawk Dedicated
(No. 2), as Members of Syndicate 102 at Lloyd’s
(collectively, “Lloyd’s”),? submitted the disputes to
* In the complaint, Lloyd’s was originally named “Goshawk
Syndicate 102 at Lloyd’s.” Recently, the New York Supreme
Court amended the caption to reflect Lloyd’s name as “Goshawk
Dedicated Limited and Kite Dedicated Limited f/k/a Goshawk
Dedicated (No. 2), as Members of Syndicate 102 at Lloyd’s.”
arbitration, pursuant to an arbitration provision
included in the CCI Contracts. (A-333)3 Under the CCI
Contracts, Life Receivables Trust (“LRT”), the original
plaintiff in the underlying state-court proceedings,‘ is
the assured, Lloyd’s is the insurance underwriter, and
Peachtree is the originator and servicer of the life
insurance policies covered by the CCI Contracts. (A-377,
407-487)
The CCI Contracts contains one (and enly one)
arbitration provision,” which submits “all disputes and
differences arising under or in connection with [the CCI
* The briefs and letters filed before the Court of Appeals
and the briefs filed before the Appellate Division make
reference to the documents included in the joint appendix that
the parties submitted with the Appellate Division, as “A-__.” To
be consistent, this brief includes the same designations that
were used below.
* LRT was the original plaintiff in the underlying state
case and one of two appellants in the appeal filed before the
Appellate Division. LRT, however, did ne? appeal to the Court
of Appeals. Shortly after Peachtree appealed before the Court
of Appeals, LRT and Lloyd’s entered into a settlement
agreement, as a result of which LRT was removed as a party to
this action. The case now continues between Peachtree and
Lloyd’s sub nom Life Settlement Corporation v. Goshawk
Dedicated Limited and Kite Dedicated Limited f/k/a Goshawk
Dedicated (No. 2), as Members of Syndicate 102 at Lloyd’s.
® In another section of the CCI Contracts, the parties are
instructed to refer claims in dispute to arbitration. Under that
section, claims must be resolved pursuant to the arbitration
provision that is the subject matter of this petition. (A-382, 411,
456, and 492) That section also imposes a condition precedent
to arbitration, as discussed in more detail below. /d.
5
Contracts] to arbitration under the American
Arbitration Association Rules.” (A-399, 428, 473, 509)
The parties further agreed that “[t]he Arbitration
Tribunal may in its sole discretion make such orders and
directions as it considers to be necessary for the final
determination of the matters in dispute,” conditioned
on the parties retaining “the right to appeal errors of
law to a court of law.” (A-399, 428, 473, 509) Importantly,
nowhere in the CCI Contracts do the parties include a
provision submitting to arbitration disputes regarding
the determination of the validity or enforceability of the
agreement to arbitrate.
As shown by the following language, Lloyd’s “sole
and exclusive remedy” under the CCI Contracts is to
seek indemnification against Peachtree after (and only
after) Lloyd’s has paid a claim to LRT:
Sole Remedy. Paragraph 3 of this section sets
forth the sole and exclusive remedy of
| Lloyd’s] for losses arising out of, in relation
to or in connection with any and all (i) breaches
of or inaccuracies in any representations,
warranties, certifications or statements made
by [LRT], [Peachtree] or the Back-Up
Servicer or their respective affiliates or their
respective directors, members, agents,
employees or representatives in this
[Insurance or in any Coverage Certification,
monthly bordereaux, Claim Certification or
other notice, certificate, report or other
document delivered pursuant to or in
connection with this Insurance, (ii) instances
of fraud or misrepresentation committed by
>
{
)
[LRT], [Peachtree] or the Bacn- Up § ervicer
or their respective affiliates or their respective
directors, members, agents, employees or
representatives in connection with this
Insurance, (iii) breaches of any covenants or
agreements of [LRT], [Peachtree], the Back-
Up Servicer or any other person or entity in
this Insurance or the Servicing Agreement
or any other agreement or instrument or of
any legal requirement, or (iv) any other
matter covered in paragraph 2 of this section.
(A-394, 423, 468 and 504) (Emphasis added.)
The mentioned paragraph 3
states that:
[Peachtree] agree[s] to indemnify [Lloyd’s]}
against losses in respect of any Qualified Life
Insurance Policy as to which [Lloyd’s/]
make[s] payment to the extent such losses
result from the breach by [Peachtree] of
specified representations, warranties,
covenants or provisions herein that materially
and adversely affect the amounts realized as
proceeds of the Qualified Life Insurance
Policy.
(A-393, 422, 467 and 503) (Emphasis added.)
circumstances .
establishing Lloyd’s
“sole and exclusive remedy” under the CCI Contracts—
Significantly, Lloyd’s agreed “that under no
. shall [Lloyd’s] be entitled to submit
any dispute as to [Lloyd’s] obligation to pay a Claim
7
under [the CCI Contracts] to arbitration prior to
payment of such Claim.” (A-882, 411, 456, and 492)
(Emphasis added.)°
B. LLOYD’S FAILS TO COMPLY WITH THE
CONDITION PRECEDENT TO ARBITRATION
Even though the parties limited the disputes that
Lloyd’s could arbitrate and expressly agreed “that
under no circumstances” Lloyd’s could arbitrate those
disputes unless Lloyd’s first paid a claim to LRT, Lloyd’s
failed to pay any claim under the CCI Contracts. (A-375
1 24) By doing so, Lloyd’s failed to satisfy a condition
precedent to arbitration under the CCI Contracts, in
essence foreing arbitration to which the parties
categorically did not agree.
C. PEACHTREE CHALLENGES THE VALIDITY
AND ENFORCEABILITY OF THE
ARBITRATION PROVISION
Peachtree claims that the arbitration provision in
the CCI Contracts was rendered invalid and
unenforceable as a matter of law, in light of this Court’s
decision in Hall Street Associates, LLC v. Mattel, Inc.,
552 U.S. 576 (2008), which holds that the Federal
Arbitration Act (FAA) prohibits parties to expand by
agreement the scope of judicial review beyond that
authorized by the FAA.’ Specifically, Peachtree argues
* There are some exceptions to that provision, none of which
are pertinent to these proceedings. (A-382, 411, 456, and 492)
’ See, e.g., appellate brief filed by Peachtree before the
Appellate Division, at pp. 19-29, reply brief filed by Peachtree
before the same court, at pp. 14-26. It is noteworthy that,
(Cont'd)
8
that, because in the arbitration agreement the parties
expanded the seope of review beyond the grounds
enumerated in the FAA, and because that standard-of-
review provision cannot be severed from the rest of the
arbitration provision as a matter of state law, the
arbitration agreement is not valid. /d.°
On April 24, 2008, LRT moved to enjoin the pending
arbitration proceedings to which LRT was a party.
Peachtree filed a response on May 21, 2008, also
requesting a stay of the arbitrations. In a supporting
affidavit, Peachtree’s Chief Executive Officer attested
that Peachtree had initially rejected a proposed
arbitration clause because that clause did not provide
for the right to judicial review of legal errors in an
arbitral decision. Peachtree’s Chief Executive Officer
also declared that, but for the ultimate inclusion of the
judicial review provision, Peachtree would not have
agreed to arbitration. (A-565-6) No one with knowledge
refuted that declaration, which remained undisputed in
the record. (A-757-8)
The trial court issued an order on September 19,
2008, denying the request to enjoin the arbitrations.
(App. D) The court ruled that the validity and
enforceability of the arbitration agreement are for the
(Cont'd)
pursuant to Rule 500.11 of the Rules of Practice of the New
York Court of Appeals, Peachtree’s appeal to that court was
decided on the submissions made with the Appellate Division.
(App. A, at 2a)
5’ Among other things, Peachtree also argued that Lloyd’s
had failed to comply with a condition precedent to arbitration.
9
arbitrators to decide, because the CCI Contracts
provide that disputes arising out from contracts are to
be referred to arbitration under the AAA Rules—under
which rules arbitrators have the power to determine “the
existence, scope or validity” of arbitration agreements.
(App. D, at 24a) Relying on Contec Corp. v. Remote
Solution Co., Ltd., 398 F.3d 205 (2d Cir. 2005), the court
concluded that “[w]here, as here, the parties explicitly
incorporate rules that empower an arbitrator to decide
issues of arbitrability, that incorporation constitutes
clear and unmistakable evidence that arbitrability is to
be decided by the arbitrators.” (App. D, at 24a)
Relying on Prima Paint Corp. v. Flood & Conklin
Mfg., 388 U.S. 395, 403-04 (1967), and Cap Gemini Ernst
& Young, US, LLC v. Nackel, 346 F.3d 360, 365 (2d Cir.
2003), Peachtree appealed the trial court’s order,
reiterating that the threshold questions of the
arbitration agreement’s validity and enforceability is for
the court, not the arbitrators, to decide. See Peachtree’s
Appellate Brief and Peachtree’s Motion for Reargument
or for Leave to Appeal.’ On October 30, 2008, the
* In its briefs below, Peachtree argued how the courts
confused the question of the validity of the arbitration
agreement with the issue of arbitrability. See, e.g., motion for
reargument filed before the Appellate Division, at pp. 12-13;
and motion for reargument filed before the Court of Appeals,
at pp. 5-12. As noted by Peachtree below, in Cap Gemini, the
Second Circuit makes an unequivocal distinction between the
questions of validity and arbitrability as follows:
It may well be true... that ‘the plain language of the
arbitration clause at issue... evidences a clear and
unmistakable intent to refer the issue of
(Cont'd)
10
Appellate Division First Department granted a stay of
the arbitration proceedings pending resolution of the
appeal.
(Cont’d)
arbitrability to the arbitrators.’ However, before
proceeding to determine the scope of the arbitration
agreement, the court must first confirm that the
agreement is valid and enforceable.
346 F.3d at 366. Peachtree also cited to Nichols v. Washington
Mut. Bank, 2007 U.S. Dist. LEXIS 85936, at *19-20 (E.D.N_-Y.
Nov. 21, 2007), where the Eastern District of New York court
held that “[wJhen a party challenges ...the existence or validity
of the arbitration clause itself, courts must determine whether
the arbitration clause itself exists, and whether it is valid.” Jd.
at 23 (emphasis added). Rejecting that the case involved the
issue of arbitrability (as in Contec), the court further explained:
{T]he particular challenges Nichols makes must be
decided by a court. When a party challenges not the
validity of the entire contract, see Prima Paint...
(noting that challenges to the validity of a[n entire]
contract are for the arbitrator), or the application of
a valid arbitration clause to the particular dispute
at issue, but rather the existence or validity of the
arbitration clause itself, courts must determine
whether the arbitration clause itself exists, and
whether it is valid. Cap Gemini [346 F.3d at 366)
(noting that inquiry into enforceability of
arbitration clause preceded question of whether
that clause could refer the issue of arbitrability to
the arbitrators). Nichols’s challenges are to the
existence and validity of the arbitration clause, and
so {the court] must decide them.
2007 U.S. Dist. LEXIS 85936, at *22-23.
1]
The Appellate Division affirmed the trial court’s
order on October 13, 2009, with one justice especially
concurring. (App. B) The majority held that “the scope
and validity of the arbitration agreement, necessarily
including issues of arbitrability, are for the arbitration
tribunal to determine.” (App. B, at 4a). Although
acknowledging, in light of Hall Street, that the parties’
agreement to subject the arbitrators’ decisions to
judicial review for legal errors could not be enforced,
the court declined to hear the parties in order to
determine whether the standard of review provision
could be severed to avoid invalidating the entire
arbitration agreement, ruling as follows: “that issue is
necessarily included among the arbitrability issues that
the parties’ agreement reflects would be decided by the
arbitrators.” (App. B, at 5a)
On December 22, 2009, the Appellate Division
granted leave to appeal. (App. C, at 17a-18a) The New
York Court of Appeals affirmed the Appellate Division’s
order on May 4, 2010. (App. A)
Although the Court of Appeals recognized that,
under Hall Street, parties are prohibited “from
expanding, by their own agreement, the scope of judicial
review beyond that authorized by the [FAA],” the court
held that “clear and unmistakable evidence exists in this
case that the parties agreed to arbitrate questions of
arbitrability, including whether the parties’ arbitration
agreement is invalid under Hall St. Assoc. or whether
the apparently offending provision could be severed
from the remainder of the agreement.” (App. A, at 2a)
12
Peachtree moved for reargument, asserting that the
Court of Appeals had overlooked this Court’s controlling
precedent in Prima Paint in holding that the question
of the arbitration agreement’s validity and enforceability
should be decided by the arbitrators in the first instance.
Peachtree thereafter submitted this Court’s decision in
Rent-A-Center, West, Inc. v. Jackson, _ S.Ct. __, 2010
WL 2471058 (June 21, 2010), as supplemental authority.
The Court of Appeals denied the reargument motion
on July 1, 2010. (App. E, at 29a-30a)
None of the courts below addressed Peachtree’s
challenge to the enforceability of the arbitration
provision in light of Lloyd’s failure to comply with a
condition precedent to arbitration.”
0 Ina concurring opinion of the Appellate Division, Justice
McGuire did address the challenge, noting that although it
appeared that Lloyd’s had not complied with the condition
precedent, that was a “question regarding arbitrability that...
must be decided by the arbitrators.” (App. B, at 16a)
13
REASONS FOR GRANTING THE PETITION
REVIEW IS WARRANTED BECAUSE
THE NEW YORK COURT OF APPEALS’
DECISION ESTABLISHES PRECEDENT
THAT CONFLICTS WITH THIS COURT’S
DECISIONS AND MISINTERPRETS
FEDERAL LAW.
A. SUBSTANTIVE FEDERAL ARBITRATION LAW
l. ARBITRATION IS A MATTER OF
CONTRACT
Section 2 of the FAA provides:
A written provision in... a contract
evidencing a transaction involving commerce
to settle by arbitration a controversy
thereafter arising out of such contract or
transaction, or the refusal to perform the
whole or any part thereof, or an agreement in
writing to submit to arbitration an existing
controversy arising out of such a contract,
transaction, or refusal, shall be valid,
irrevocable, and enforceable, save wpon such
grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 2 (emphasis added). This Court recently held
that this section, which is “the primary substantive
provision” of the act, “requires courts to enforce
[written provisions to settle by arbitration] according
14
to their terms.” Rent-A-Center, 2010 WL 2471058, at *3-
4, “Like other contracts, however, [these provisions] may
be invalidated by ‘generally applicable contract
defenses.” Jd. at *4.
While this Court has recognized a pro-arbitration
presumption under the FAA, it has only applied it
where it reflects, and derives its legitimacy
from, a judicial conclusion that arbitration
of a particular dispute is what the parties
intended because their express agreement to
arbitrate was validly formed and (absent a
provision clearly and validly committing such
issues to an arbitrator) is legally enforceable
and best construed to encompass the dispute.
Granite Rock Co. v. Int’l Brotherhood of Teamsters,
— §. Ct. __, 2010 WL 2518518, *9 (June 24, 2010)
(citations omitted; emphasis added).
Thus, although “doubts concerning the scope of
arbitrable issues should be resolved in favor of
arbitration,” Moses H. Cone Mem’! Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25 (1983), the FAA's pro
arbitration policy must yield to the parties’ contractual
rights and expectations. See e.g., Stolt-Nielsen S.A. v.
Animalfeeds Int'l Corp., 13808. Ct. 1758, 1773-74 (2010);
Mastrobuono v. Shearson Lehman Hutton, Inc., 514
U.S. 52, 57 (1995).
15
2. UNDER THE FAA, IT IS FOR THE COURTS
TO DETERMINE WHETHER AN
ARBITRATION AGREEMENT IS VALID
As per the preceding section, the fundamental
principle that underpins the FAA and this Court's
precedents is that arbitration is a matter of contract
and that parties can only be forced to arbitrate disputes
they validly agreed to arbitrate.
Consistent with this principle, Section 4 of the FAA
provides that “(t]he court shall hear the parties, and
upon being satisfied that the making of the agreement
for arbitration or the failure to comply therewith is not
in issue, the court shall make an order directing the
parties to proceed to arbitration in accordance with the
terms of the agreement.” 9 U.S.C. § 4 (emphasis added).
The section further provides that “li]f the making of
the arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court shall
proceed summurily to the trial thereof.” 1d. (emphasis
added),
In light of the clear and unambiguous language of
the FAA, this Court has reiterated that it is for the courts
to decide the question of the validity of an arbitration
agreement. In /tent-A-Center, for example, the Court
stated that
lilf a party challenges the validity under § 2
fof the FAA] of the precise agreement to
arbitrate at issue, the federal court must
consider the challenge before ordering
compliance with that ayreement under § 4 [of
lb
the AA] ‘To LVILVILUELILAEZE Oe arbitration
agreement from judicial challenge would
he to elevate rt over other forms of contract
2010 WL 2471058, at *7 (emphasis added); accord, e.¢.,
Prima Paint Corp. v. Flood & Conklin Mfg., 388% U.S
395, 403-04 (1967) (courts may compel arbitration under
section 4 of the FAA only when satisfied that the making
of the ayreement to arbitrate is not at issue)
As recognized further by the Court in Granite lock
our precedents hold that court hould ordet
arbitration of a dispute only where the court
is satisfied that neither the formation of th
parties’ arbitration ayreement nor (absent a
valid provision specifically committing such
disputes to an arbitrator) its enforceability o:
applicability to the dispute is in issue, Where
a party contests either or both matters, “th
court” must resolve the di agreement
‘ 10) W # Z Re 1x, "Cy (¢ Triporia ] clade (])}
Bb. PEACHTREE HAS CHALLENGED THE
VALIDITY AND ENFORCEABILITY OF TIE
ARBITRATION PROVISION CONTAINED EN
THE CCECONTRACTS
A tated previou ly, the Ce | Contracts contain one
(and only one) arbitration provision, which submits to
arbitration under the AAA Rules “alll disputes and
differences arising under or in connection with’ the Ce ]
Contracts. The parts yrreed that the arbitrators have
17
the power to rule and reach a final determination in any
such arbitration “provided that the parties shall each
retain the right to appeal errors of law to a court of law.”
(A-399, 428, 473, 509) (Emphasis added.) Nowhere in the
CCI Contracts do the parties include any other
arbitration provision delegating to the arbitrators any
other disputes, including those relating to the question
of the validity or enforceability of the agreement to
arbitrate. Id.; see also generally A-377-406, 407-451, 452-
486, 487-560.
Peachtree has raised before the courts of New York
that, because there is no possibility of judicial review of
the arbitrators’ errors of law post-Hall Street and
because the clause providing for such review cannot be
severed from the arbitration agreement as a matter of
law, the parties’ arbitration agreement has been
rendered invalid and unenforceable.!! Simply put,
Peachtree has challenged the validity and enforceability
of the arbitration provision in the CCI Contracts.
See Rent-A-Center, 2010 WL 2471058, *4 n.1, *8&."*
ll See supra note 7 and accompanying text.
'? Peachtree raises an argument which is similar to one
that was made in Rent-A-Center. In Rent-A-Center, the petitioner
argued (albeit belatedly) that the provision delegating certain
disputes to the arbitrator was
substantively unconscionable because the quid pro
quo he was supposed to receive for it—that “in
exchange for initially allowing an arbitrator to
decide certain gateway questions,” he would receive
“plenary post-arbitration judicial review”—was
eliminated by the Court’s subsequent holding in Hall
Street[], that the nonplenary grounds for judicial
review in §10 of the FAA are exclusive.
(Cont'd)
18
As such, under the clear mandate of the FAA, Peachtree
cannot be foreed to arbitrate unless and until a court
has determined whether the arbitration provision is in
fact valid and enforceable. See id. at *7.
C. THE DECISION OF THE NEW YORK COURT
OF APPEALS IS CONTRARY TO THE FAA AND
THIS COURT’S PRECEDENTS
1. THE COURT OF APPEALS’ DECISION
Despite the unambiguous language of the FAA and
this Court’s clear precedents, the trial court in New York
refused to address Peachtree’s challenge to the validity
(Cont'd)
Rent-A-Center, 2010 WL 2471058, *7,8 & n. 5. However, the Court
did not decide this question in that case because the petitioner
had not raised it in the court below. The Court now has the
opportunity to answer this question, as Peachtree timely raised
it below.
The Court should also consider the fact that in Hall Street
it also left undecided whether the judicial review provision that
the Court held therein to be unenforceable is severable from
the rest of the arbitration agreement. In footnote 6 of the
opinion, the Court noted that the petitioner was suggesting
that the agreement predicated entry of judgment on adherence
to the judicial-review standard; 2.e., that beeause the judicial
review provision at issue there could not be severed, the district
court had no authority to confirm the arbitration award without
conducting judicial review. However, the Court did not address
the merits of that argument, noting that the petitioner had not
sought certiorari review of the Ninth Circuit’s severability
analysis. 552 U.S. at 587. Peachtree has argued in this case that
the judicial review proviso is not severable, but the courts below
have refused to address that issue.
19
of the arbitration provision at issue, holding that the
matter is for the arbitrators to decide. The New York
Court of Appeals agreed.
While recognizing that the parties’ agreed-upon
standard of review cannot survive Hall Street, the New
York Court of Appeals held that the threshold question
of the arbitration agreement’s validity is nonetheless
for the arbitrators to decide, based on what it
understood to be “clear and unmistakable evidence ...
that the parties agreed to arbitrate questions of
arbitrability, including whether the parties’ arbitration
agreement is invalid under Hall St. Assoc. or whether
the apparently offending provisions could be severed
from the remainder of the agreement.” (App. A, at 2a)
2. BECAUSE PEACHTREE HAS
CHALLENGED THE VALIDITY AND
ENFORCEABILITY OF THE PARTICULAR
ARBITRATION PROVISION AT ISSUE, IT
IS FOR THE COURTS TO DECIDE THAT
THRESHOLD QUESTION
Here, Peachtree has challenged the validity of the
one and only provision in the CCI Contracts which
submits to arbitration under the AAA Rules
“all disputes” arising under or relating to the CCI
Contracts. Thus, not only has Peachtree challenged the
only provision that submits every single dispute to
arbitration, but Peachtree has challenged the validity
and enforceability of the particular provision that
submits the resolution of disputes under the AAA Rules.
As such, the FAA and this Court’s precedents command
judicial determination of Peachtree’s challenge,
20
something the New York Court of Appeals simply
overlooked. See Rent-A-Center, 2010 WL 2471058, at *7;
Prima Paint, 388 U.S. at 403-04.
3. THE PARTIES DID NOT COMMIT THE
THRESHOLD QUESTION OF VALIDITY
AND ENFORCEABILITY TO ARBITRATION
The same conclusion would be reached even if
Peachtree is not considered to have challenged the
particular arbitration provision at issue (which it did)
because, contrary to what Lloyd’s suggested before the
New York Court of Appeals, the parties did not commit
to arbitration the threshold question of the validity and
enforceability of the agreement to arbitrate. As noted
above, there is absolutely no provision in the CCl
Contracts submitting to arbitration the threshold
questions. The CCI Contracts do not contain anything
even remotely similar to the so-called “delegation
provision” in Rent-A-Center, where the parties expressly
agreed to submit to arbitration “disputes relating to the
.. enforceability ... of this Agreement including . . .
any claim that all or part of this Agreement is void or
voidable.” 2010 WL 2471058, at *4.}8
'S Indeed, the arbitration provision in the CCI Contracts
is almost identical to the one that was at issue in Prima Paint,
where the parties submitted to arbitration “[a]ny controversy
or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in the City of
New York, in accordance with the rules then obtaining of the
American Arbitration Association.” Prima Paint, 388 U.S. at
398. The Court held therein that where parties challenge the
arbitration provision, Section 4 of the FAA compelled the courts
(Cont'd)
21
Furthermore, the AAA Rules do not commit the
resolution of the threshold questions to the arbitrators.
To be sure, the AAA rule to which the Court of Appeals
referred does not state that the arbitrators “shall rule”
on the threshold question, but simply that the
arbitrators have “the power to rule” on such questions.
AAA Rule 7(a). Before the arbitrators can act upon such
authority, however, a court must first determine whether
(i) the parties committed that particular dispute to
arbitration and, of course, (ii) whether such agreement
was valid and is legally enforceable. Granite Rock, 2010
WL 2518518, *10 (Court will only compel arbitration of
a dispute only after the Court is “persuaded that [1.]
the parties’ arbitration agreement was validly formed
and that (2.][a.] it covered the dispute in question and
[b.] was legally enforceable.”).
(Cont’d)
to first resolve the threshold question regarding the making of
an arbitration agreement before ordering arbitration. The fact
that the AAA rules were involved in Prima Paint did not affect
this decision.
Yet, the Court of Appeal’s precedent in essence stands for
the proposition that, notwithstanding the mandatory language
of Section 4 of the FAA, in all AAA arbitrations, the
arbitrators— and not the courts— must resolve issues of validity
and enforceability of arbitration agreement. This is not only at
odds with Prima Paint and Section 4 of the FAA, it also appears
to be in conflict with the teachings of Hall Street, in that this
Court made clear that no one can contract out of the language
of the FAA. The Court of Appeals’ precedent necessarily raises
a number of questions, including whether the AAA now has the
power to 27 essence change sections of the FAA by simply
incorporating in its rules language that goes against the FAA.
22
‘4, CONCLUDING STATEMENTS REGARDING
THE DECISION OF THE COURT OF
APPEALS
n Granite Rock, the Court held that
a court may order arbitration of a particular
dispute only where the court is satisfied that
the parties agreed to arbitrate that dispute.
To satisfy itself that such agreement exists,
the court must resolve any issue that calls into
question the formation or applicability of the
specific arbitration clause that a party seeks
to have the court enforce.
2010 WL 2518518, *8 (internal citations omitted;
emphasis added). Here, as a result of Hall Street,
Peachtree challenges the validity and enforceability of
the particular arbitration provision at issue—which
includes the reference to the AAA Rules. Peachtree
further contends that no provision (valid or invalid)
commits the resolution of such challenge to arbitration.
Therefore, it is the duty of the courts to decide the issue
before Peachtree is coerced into arbitrating an issue
against its contractual rights and expectations. See e.g.,
Stolt-Nielsen, 130 S. Ct. at 1773-74; Mastrobuono, 514
U.S. at 57.
By refusing to address this issue, the decision of the
Court of Appeals conflicts with the decisions of this Court
and misinterprets federal law, to the detriment of
parties’ substantive rights under the FAA. This case
provides the Court the opportunity to do away with this
dangerous precedent in the State of New York.
9
23
Moreover, the case gives the Court the opportunity to
address the question it left unanswered in Rent-A-
Center, which is whether a challenge by a party to the
enforceability of an agreement after this Court’s
decision in Hall Street is a question to be determined
by the courts or the arbitrators. See supra note 12.
REVIEW IS WARRANTED BECAUSE
THERE IS A QUESTION OF FEDERAL
LAW THAT HAS NOT BEEN, BUT
SHOULD BE, SETTLED BY THE COURT
A. UNDER HALL STREET, PARTIES ARE
PRECLUDED FROM CONTRACTING OUT OF
THE EXPRESS TERMS OF THE FAA
In Hall Street, the plaintiff argued that the
agreement to allow for judicial review of the arbitration
award for legal error—which is beyond what the FAA
provides—had to prevail because the parties had agreed
as much and “arbitration is a creature of contract.”
552 U.S. at 587. In response, the Court acknowledged
that parties are able to contract for certain aspects of
the arbitration, including the set of procedural rules to
be applied. Jd. (“Hall Street is certainly right that the
FAA lets parties tailor some, even many features of
arbitration by contract, including the way arbitrators
are chosen, what their qualifications should be, which
issues are arbitrable, along with procedure and choice
of substantive law.”). The Court added, however, that
having the ability to agree on certain aspects of the
arbitration did not mean that parties could agree to
24
arbitration under terms that are inconsistent with the
text of the FAA:
to rest this case on the general policy of
treating arbitration agreements as
enforceable as such would be to beg the
question, which is whether the FAA has textual
features at odds with enforcing a contract to
expand judicial review following the
arbitration. To that particular question we
think the answer is yes.
Id. The Court then explained that, as per Section 9 of
the FAA, on application for an order to confirm the
arbitration award, the court “must grant” the order
“unless the award is vacated, modified, or corrected”
on the grounds prescribed in the FAA. Jd. The Court
concluded that the judicial review provision at issue
there (similar to the one involved here) was
unenforceable, as it went beyond the grounds
prescribed in the FAA.
Consequently, per this Court’s decision in Hall
Street, an arbitration agreement cannot be enforced in
a manner that is at odds with the “textual features” of
the FAA, which necessarily includes Section 4 of the FAA.
Moreover, it also means that parties may not contract
out of the express terms of the FAA, as a matter of law.
25
B. IT IS UNSETTLED BY THIS COURT
WHETHER ISSUES INVOLVING
COMPLIANCE WITH A _ CONDITION
PRECEDENT CAN BE DECIDED BY THE
ARBITRATORS IN LIGHT OF THE CLEAR
TEXT OF SECTIONS 2 AND 4 OF THE FAA
This Court has not explained who, in light of Sections
2 and 4 of the FAA, decides if a party to an arbitration
agreement has complied with a condition precedent to
arbitration. However, as noted above, the Court has
held that Section 2 of the FAA “requires courts to
enforce [written provisions to settle by arbitration]
according to their terms.” Rent-A-Center, 2010 Wi
2471058, at *8-4 (emphasis added).
Furthermore, the mandate in Section 4 of the FAA
is straightforward: “[t]he court shall hear the parties,
and ... [iJf the making of the arbitration agreement or
the failure, neglect, or refusal to perform the same be
in issue, the court shall proceed summarily to the trial
thereof.” 9 U.S.C. § 4 (2008) (emphasis added). Just like
with the “must grant” language of Section 9 at issue in
Hall Street, “there is nothing malleable about [the terms
‘the court shall,’ in Section 4} which unequivocally tells
courts” to decide the issue of a party’s “failure, neglect
or refusal” to comply with its obligations under an
arbitration agreement. Hall Street, 552 U.S. at 587.
Therefore, as a matter of federal substantive law
and this Court’s decisions in Rent-A-Center and Hall
Street, it is for the ecourts—not the arbitrators—to
determine the threshold questions of whether, as a
matter of contract, a party has failed or refused to abide
by a condition precedent to arbitration.
26
At least three Circuit Courts of Appeal have had
the opportunity to address this issue, and have ruled
that a party may not be forced to arbitrate unless there
has been compliance with such a condition. The Fourth
Circuit, for example, recently held that where a condition
precedent to arbitration is not met, there is no right to
arbitration, because the FAA “does not mandate the
arbitration of all [contract] claims, but merely the
enforcement ... of privately negotiated arbitration
agreements.” Perdue Farms, Inc. v. Design Build
Contracting Corp., 263 Fed. Appx. 380, 383, 2008 WL
345430, *38 (4 Cir. 2008) (parties agreed to submit
dispute to mediation prior to initiating arbitration).
Similarly, the First Circuit held that an arbitration
provision is not triggered until the condition precedent
to arbitration is met, because “Congress did not enact
the FAA to ‘operate without regard to the wishes of the
contracting parties.” HIM Portland, LLC v. DeVito
Builders, Inc., 317 F.3d 41, 44 (1* Cir. 2003) (quoting
Mastrobuono, 514 U.S. at 57); see also Kemiron ALtL.,
Inc. v. Aguakem Int’l Inc., 290 F.3d 1287, 1291 (11" Cir.
2002). Under these decisions, therefore, the question
of compliance with a condition precedent to the
arbitration process could never be answered by an
arbitrator. Indeed, to coerce a party to arbitrate the
threshold question of compliance with a condition
precedent to that very process would essentially
eviscerate that party’s contractual rights and
expectations of not arbitrating unless the other party
has complied with its obligations prior to arbitration.
However, at least one other Circuit Court of Appeal
has reached the opposite conclusion. See 8M Co. v. Amtex
Sec., Inc., 542 F.3d 1193, 1200 (8th Cir. 2008) (where party
27
claimed that other party did not comply with a condition
precedent to arbitration by failing to conduct quarterly
expense reviews was a matter to be decided by the
arbitrator).
4 In Howsam v. Dean Witter Reynolds, Inc., 5387 U.S. 79
(2002), the Court held that “the applicability of the NASD time
limit rule is a matter presumptively for the arbitrator, not for
the judge,” because “in the absence of an agreement to the
contrary, issues of substantive arbitrability ... are for a court to
decide and issues of procedural arbitrability, i.e., whether
prerequisites such as time limits, notice, laches, estoppel, and
other conditions precedent to an obligation to arbitrate have
been met, are for the arbitrators to decide.” 537 U.S. at &5
(emphasis added). However, the holding in Howsam is
inapposite. First of all, the parties herein clearly and
unambiguously agreed “that under no circumstances” would
Lloyd’s be allowed to submit any dispute to arbitration without
first complying with the condition precedent. See supra.
Therefore, there is “an agreement to the contrary” of
arbitrating any question prior to compliance of the condition
precedent. Moreover, the condition precedent at issue here is
not of a procedural nature, as it does not “grow out of the dispute
and bear on its final disposition.” John Wiley & Sons, Ince. v.
Livingston, 376 U.S. 548, 557-558 (1964). Instead, it is a
substantive condition precedent dealing with the right to
institute an arbitration process at all. As explained by the New
York Court of Appeals:
Whether [a particular condition] falls within the
jurisdiction of the courts or of the arbitrators
depends on its substance and the function it is
properly perceived as playing—whether it is in
essence a prerequisite to entry into the arbitration
process or a procedural prescription for the
management of that process. Under the first
heading [the prerequisite to entry into the
arbitration process] will come provisions which in
(Cont'd)
28
This case gives this Court the opportunity to settle
these conflicting decisions, and hold that it is for the
courts, not the arbitrators, to rule on issues bearing on
a party’s “failure, neglect, or refusal” to comply with a
condition necessary to commence an arbitration
agreement.
(Cont'd)
point of time are intended to be preliminary to the
institution of any arbitration proceeding and in a
precise sense are unrelated to it, e.g., a requirement
that before any demand for arbitration can be made
the dispute between the parties be referred to the
architect or to the partnership—“conditions
precedent” in the literal meaning of that term.
Under the second heading [the procedural
conditions] will come provisions relating to the
conduct of the arbitration proceeding itself...
Matter of Arbitration Between County of Rockland and
Primiano Construction Co., 51 N.Y.2d 1, 8-9 (1980) (emphasis
added). The court went on to explain that where, as here,
“contractual limitations are expressly made conditions
precedent to arbitration by the terms of the arbitration
agreement,” a party may be forced to arbitrate “only if the court
determines that this portion of the agreement to arbitrate has
been complied with.” 51 N.Y. 2d at & (citations omitted;
emphasis added).
It should be noted that Howsum did not consider Section 4
of the FAA and that it was decided before Hall Street. As
explained here, under //all Street, the resolution of a condition
precedent could not be submitted to arbitration if doing so
would be at odds with the mandatory language of the FAA (in
this case Section 4).
7 AS
C. UNDER SECTIONS 2 AND 4 OF THE FAA, THE
DETERMINATION OF WHETHER LLOYD'S
HAS COMPLIED WITH A CONDITION
PRECEDENT TO ARBITRATION IS FOR THE
COURTS
Lloyd’s agreed that it could only raise disputes as
to claims on “which [Lloyd’s] makel[s] payment” and
“that under no circumstances” it would be entitled to
submit any such dispute “prior to payment of such
[cllaim.” (A-882, 411, 456, and 492) (I]amphasis added.)
However, by submitting to arbitration disputes it
categorically agreed not to submit “prior to payment of
such [ejlaim,” Lloyd’s failed to comply with a condition
precedent to arbitration. Because the “failure, neglect,
or refusal to perform” its obligations under the
arbitration agreement is therefore at issue, the courts
are commanded by Section 4 of the FAA to “proceed
summarily to the trial thereof.” 9 U.S.C. § 4 (2008),
Thus, in light of the languaye of the FAA and the
fundamental principles of arbitration law, this Court
should hold that it is for courts—and not the
arbitrators—to decide whether Lloyd’s has failed to
comply with conditions precedent to arbitration.
30
CONCLUSION
THIS COURT SHOULD INTERCEDE IN
THIS MATTER OF COMPELLING
FEDERAL ISSUE, AS THE NEW YORK
COURT OF APPEALS PUBLISHED
DISPOSITION HAS CREATED
PRECEDENT THAT ALLOWS PARTIES
IN NEW YORK TO CIRCUMVENT THE
FAA AND THIS COURT'S DECISIONS
In the CCI Contracts, Peachtree baryvained for
expanded review of arbitral awards, with the expectation
of meaningful judicial review of the arbitrators’ legal
errors, without the constraints of the FAA’s narrow
review standards. If the parties’ expanded standard of
review cannot be enforced after //all Strect (which it
cannot), neither can the AAA Rules provision, even if
that provision properly delegates to the arbitrators the
threshold issue of an arbitration ayreement’s validity
and enforceability. This is so because, to the extent the
parties agreed to arbitrate their disputes under the
AAA Rules, it was with the understanding and
expectation that they would have the ability to review
all of the arbitrators’ rulings for leyal errors. Indeed,
Peachtree specifically rejected a proposed arbitration
agreement that did not include the expanded judicial
review provision and it is undisputed that, but for the
inclusion of that provision, Peachtree would not have
agreed to arbitrate the parties’ disputes in the first
instance
Hall Street fundamentally chanyed the parties’
bargain and the Court of Appeals was wrony in
enforcing the remainder of that baryain by oblivating
3]
Peachtree to proceed with arbitration to the detriment
of Peachtree’s expectations. This is more so, considering
that the parties agreed in the CCI Contracts “that under
no circumstances” would Lloyd’s be allowed to arbitrate
any dispute unless it first complied with a certain
condition—a condition which Lloyd’s failed to comply
prior to coercing Peachtree into arbitration.
Thus, unless the Court reverses the decision below,
Peachtree’s contractual rights and expectations will be
trampled. Indeed, unless the Court reverses the
decision below, any party in New York who follows this
precedent will be allowed to circumvent Sections 2 and
4 of the FAA and trump the federal legal framework
established by this Court’s decisions. That would have
the result of “elevating” agreements that refer to the
AAA Rules “over other forms of contract,” something
this Court expressly rejected as contrary to substantive
arbitration law. Rent-A-Center, 2010 WL 2471058, at *7.
32
For the foregoing reasons, the petition for a writ of
certiorari should be granted.
Respectfully submitted,
ELLIot H. SCHERKER
Counsel of Record
JULISSA RODRIGUEZ
GREENBERG TRAURIG, PA.
1221 Brickell Avenue
Miami, FL 33131
(305) 579-0500
ScherkerE @gegtlaw.com
JESUS E. CuzAa
INA M. BERLINGERI
GFREENBERG TRAURIG, PA.
401 East Las Olas Blvd.
Suite 2000
Fort Lauderdale, FL 33301
(954) 765-0500
Counsel for Petitioner
August 2, 2010
la
APPENDIX A — OPINION OF THE
COURT OF APPEALS OF NEW YORK
DATED MAY 4, 2010
COURT OF APPEALS OF NEW YORK
No. 1388 SSM 12
LIFE RECEIVABLES TRUST,
Plaintiff,
v.
GOSHAWK SYNDICATE 102 AT LLOYD'S,
Respondent,
Life Settlement Corporation, Doing Business as
Peach Tree Life Settlements,
Appellant.
May 4, 2010
MEMORANDUM:
The order of the Appellate Division should be
affirmed with costs. The certified question should not
be answered as unnecessary.
The Appellate Division properly concluded that the
scope and validity of the parties’ arbitration agreement,
including issues of arbitrability, are for the arbitration
tribunal to determine (see Matter of Smith Barney
Shearson v Sacharow, 91 NY2d 39, 45-47, 689 N.E.2d
2a
Appendix A
884, 666 N.Y.S.2d 990 [1997]; Contec Corp. v Remote
Solution, Co., Ltd., 398 F3d 205, 211 [2d Cir 2005]).
Although Hall St. Assocs., L.L.C. v. Mattel, Inc. (552
U.S. 576, 128 S. Ct. 13896, 170 L. Ed. 2d 254 [2008})
prohibits parties from expanding, by their own
agreement, the scope of judicial review beyond that
authorized by the Federal Arbitration Act, clear and
unmistakable evidence exists in this case that the parties
agreed to arbitrate questions of arbitrability, including
whether the parties’ arbitration agreement is invalid
under Hall St. Assoc. or whether the apparently
offending provision could be severed from the remainder
of the agreement.
On review of submissions pursuant to section 500.11
of the Rules, order affirmed, with costs, and certified
question not answered upon the ground that it is
unnecessary, in a memorandum.
Chief Judge Lippman and Judges Ciparick, Graffeo,
Read, Smith, Pigott and Jones concur.
3a
APPENDIX B — OPINION OF THE
SUPREME COURT, APPELLATE DIVISION,
FIRST DEPARTMENT, NEW YORK
DATED OCTOBER 13, 2009
SUPREME COURT OF NEW YORK,
APPELLATE DIVISION,
FIRST DEPARTMENT
194N, 601244/08
LIFE RECEIVABLES TRUST,
Plaintiff-Appellant,
V.
GOSHAWK SYNDICATE 102 AT LLOYD?’s,
Defendant-Respondent,
Life Settlement Corporation, doing business as
Peach Tree Life Settlements,
Defendant-Appellant.
Oct. 13, 2009
SAXE, J.P, BUCKLEY, McGUIRE, DeGRASSE,
FREEDMAN, JJ.
Order, Supreme Court, New York County (Charles
kK. Ramos, J.), entered September 30, 2008, which
denied plaintiff’s motion to stay or enjoin arbitrations
pending before the American Arbitration Association
(AAA), affirmed, without costs.
4a
Appendix B
The arbitration agreement at issue requires that
“{a]ll disputes and differences arising under or in
connection with this [contract] ... be referred to
arbitration under the American Arbitration Association
Rules.” The AAA rules authorize the arbitration
tribunal to rule on its own jurisdiction, including
objections with respect to the existence, scope or validity
of the arbitration agreement. Although the question of
arbitrability is generally an issue for judicial
determination, when the parties’ agreement specifically
incorporates by reference the AAA rules, which provide
that “[t]he tribunal shall have the power to rule on its
own jurisdiction, including objections with respect to the
existence, scope or validity of the arbitration
agreement,” and employs language referring “all
disputes” to arbitration, courts will “leave the question
of arbitrability to the arbitrators” (see Matter of Smith
Barney Shearson v Sacharow, 91 NY2d 39, 47, 689
N.E.2d 884, 666 N.Y.S.2d 990 [1997] [internal quotation
marks omitted]). Thus, the motion court was correct in
finding that the scope and validity of the arbitration
agreement, necessarily including issues of arbitrability,
are for the arbitration tribunal to determine.
The stay and injunctive relief sought by plaintiff are
not warranted by the inclusion in the arbitration
agreement of a provision that gives the parties the right
to challenge the arbitrators’ determination on the
ground that the panel made an error of law. Although
the United States Supreme Court recently held that
the Federal Arbitration Act does not permit parties to
expand, by their own agreement, the scope of judicial
Sa
Appendix B
review beyond that authorized by the Act (see Hall St.
Assoc., L.L.C. v Mattel, Inc., 552 U.S. 576, 128 S. Ct.
1396, 170 L. Ed. 2d 254 [2008]), this Court need not reach
the issue of whether that portion of the parties’
arbitration provision is severable from the remainder
of the arbitration provision, since that issue is
necessarily included among the arbitrability issues that
the parties’ agreement reflects would be decided by the
arbitrators (see Contec Corp. v Remote Solution Co.,
Ltd., 398 F3d 205, 211 (2d Cir 2005)).
The policy of this State, like the federal policy
discussed in Hall Street Associates, favors arbitration
“with just the limited review needed to maintain
arbitration’s essential virtue of resolving disputes
straightaway,” and therefore seeks to avoid “the full-
bore legal and evidentiary appeals that can render
informal arbitration merely a prelude to a more
cumbersome and time-consuming judicial review process
. and bring arbitration theory to grief in post-
arbitration process” (id. at 1405 [internal citations,
quotation marks and brackets omitted]). “|TJhis State
favors and encourages arbitration as a means of
conserving the time and resources of the courts and the
contracting parties ... Therefore New York courts
interfere as little as possible with the freedom of
consenting parties to submit disputes to arbitration”
(Smith Barney, 91 NY2d at 49-50 [internal citation and
quotation marks omitted]). Permitting the arbitration
to proceed at this juncture fully comports with that
policy.
6a
Appendix B
All concur except McGUIRE, J. who concurs in a
separate memorandum as follows: McGUIRE, J.
(concurring)
The parties agree that their arbitration agreement
is subject to the Federal Arbitration Act (FAA) (9 USC
§ 10[a]). The agreement provides in relevant part that
“the parties shall each retain the rights to appeal errors
of law to a court of law having jurisdiction in the matters
addressed herein .. .” In Hall Street Assocs. v Mattel,
Inc. (552 U.S. 576, 128 S Ct 1396, 170 L. Ed. 2d 254
[2008]), an arbitration agreement contained a similar
provision, purporting to authorize judicial review of any
erroneous conclusions of law by the arbitrator; and the
Supreme Court held that the grounds for judicial review
specified in the FAA cannot be supplemented by
contract. Thus, Hall Street renders unenforceable the
provision in the arbitration agreement providing for
judicial review of errors of law by the arbitrator. The
principal issue on this appeal is whether a court or the
arbitration panel should decide if the arbitration
agreement is invalid because of the unenforceability of
the provision providing for judicial review of errors of
law.
To resolve that issue, the principles set forth in
First Options of Chicago, Inc. v Kaplan (514 U.S. 938,
115 8. Ct. 1920, 181 L. Ed. 2d 985 [1995]) should be
reviewed. As the Supreme Court reiterated, “[w]hen
deciding whether the parties agreed to arbitrate a
certain matter (including arbitrability), courts generally
. Should apply ordinary state-law principles that
Ta
Appendix B
govern formation of contracts” (id. at 944). Here, as in
First Options, “(t]he relevant state law ... would require
the court to see whether the parties objectively revealed
an intent to submit the arbitrability issue to arbitration”
(id.). The Court stressed, however, that “[c]ourts should
not assume that the parties agreed to arbitrate
arbitrability unless there is clear and unmistakable
evidence that they did so” (2d. [brackets and internal
quotation marks omitted]). As the Court explained, “{iJn
this manner the law treats silence or ambiguity about
the question who (primarily) should decide arbitrability’
differently from the way it treats silence or ambiguity
about the question whether a particular merits-related
dispute is arbitrable because it is within the scope of a
valid arbitration agreement” (2d. at 944-945 [emphasis
in original)).
Although a presumption in favor of arbitrability
applies when the latter question is at issue, the Court
provided two reasons supporting a presumption against
arbitration when the former question is at issue. First,
because the question of “ who (primarily) should decide
arbitrability’...is rather arcane,” “[a] party often might
not focus upon that question or upon the significance of
having arbitrators decide the scope of their own powers”
(2d. at 945 [internal quotation marks omitted]). Second,
“given the principle that a party can be forced to
arbitrate only those issues it specifically has agreed to
submit to arbitration,” courts are hesitant “to interpret
silence or ambiguity on the who should decide
arbitrability’ point as giving the arbitrators that power”
(.d.). After all, so to interpret silence or ambiguity “might
8a
Appendix B
too often force unwilling parties to arbitrate a matter
they reasonably would have thought a judge, not an
arbitrator, would decide” (id.).
In this case, there is “clear and unmistakable”
evidence that the parties’ dispute about the validity of
the arbitration agreement in light of the Supreme
Court’s decision in Hall Street is one they agreed to
arbitrate. Putting aside the breadth of their agreement
to arbitrate “{a]ll disputes and differences arising under
or in connection with this Insurance” (even though the
current dispute about the validity of the arbitration
agreement is one that “arises” both “under” and “in
connection with” the Contingent Cost Insurance
contracts of which the arbitration agreement is a part),
the parties also agreed in each of the four CCI contracts
that all such disputes and differences would be referred
to arbitration under the rules of the American
Arbitration Association (AAA). Article 15.1 of the AAA
rules specifies that “[tJhe tribunal shall have the power
to rule on its own jurisdiction, including objections with
respect to the existence, scope or validity of the
arbitration agreement.”
Appellants, commercially sophisticated entities, do
not claim they were unaware of the content of the AAA
rules to which they expressly agreed to be bound. Thus,
far from being silent or ambiguous about the question
of who should decide arbitrability, the arbitration
agreement provides objective and unequivocal proof
that the parties did “focus upon that question [and]
upon the significance of having arbitrators decide the
Ya
Appendix B
scope of their own powers” (First Options, 514 U.S. at
945, supra). Indeed, the Second Circuit has held that
“when... parties explicitly incorporate rules that
empower an arbitrator to decide issues of arbitrability,
the incorporation serves as clear and unmistakable
evidence of the parties’ intent to delegate such issues
to an arbitrator” (Contec Corp. v Remote Solution, Co.,
Ltd. (398 F3d 205, 208 [2005]). Thus, in Contec, where
the arbitration agreement incorporated a rule identical
in relevant part to article 15.1, the Second Circuit
rejected the claim of Remote Solution, a signatory to
the arbitration agreement, that it could not be compelled
to arbitrate with a non-signatory, i.e., the corporate
successor to the agreement’s other signatory. Agreeing
with the “virtually indistinguishable” (id. at 210) decision
of the First Circuit in Apollo Computer, Inc. v Berg (886
I'2d 469 [1989]), the Second Circuit concluded that
because Remote Solution “agreed to be bound by
provisions that clearly and unmistakably allow the
arbitrator to determine her own jurisdiction over an
agreement to arbitrate whose continued existence and
validity is being questioned, it is the province of the
arbitrator to decide whether a valid arbitration
ayreement exists” (Contec, 398 F3d at 211 [internal
quotation marks omitted]).'
l. Similarly, in Matter of Smith Barney Shearson 1
Sacharow (91 NY2d 39, 689 N.I¢.2d 884, 666 N.Y.S.2d 990 [1997 ])
the arbitration agreement incorporated the rules of the NASD
Code, including a provision that arbitrators are “ empowered
to interpret and determine the applicability of all provision:
under this Code and to take all appropriate action to obtain
(Cont'd)
Oa
Appendix B
Relying principally on Cap Gemini L'rnst & Young,
US, LLC v Nackel (346 F3d 360 [2003]) and Nichols v
Washington Mut. Bank (2007 WL 4198252, 2007 U.S.
Dist. LEXIS 85936 [ED NY 2007]), appellants advance
a formidable argument in support of their position that
judicial resolution of their challenge to the validity of
the arbitration agreement is necessary. In Cap Gemini,
the employment agreement between the parties
contained an arbitration clause that broadly provided
for arbitration of, inter alia, “|a|ny dispute, controversy
or claim... arising out of [the] employment,” and
incorporated the “commercial arbitration rules then
obtaining of the [AAA]” (346 F3d at 364 n3. It appear:
(id. at 364 n3, 366), and we are informed by appellants,
that those rules included a provision identical in
relevant part to article 15.1. The employee argued he
could not be compelled to arbitrate his claims against
Cap Gemini because the arbitration agreement was
invalid as unconscionable under California law (7d, at
364). Although the Second Circuit remanded to the
District Court to determine, inter alia, whether New
York or California law governed the validity of the
(Cont'd)
compliance with any ruling by the arbitrator(s)'” Gd. at 46.47)
Although that provision is surely less unequivocal on the
question of who should decide arbitrability than the AAA rule
at issue in this case and in Contec, the Court of Appeals noted
with apparent approval that “[cjourts have interpreted the
incorporation of this provision in the agreements of parties a
a clear and unmistakable expression of their intent to leave the
question of arbitrability to the arbitrators” (d. at 47 [internal
quotation marks omitted ])
12a
Appendix B
courts must determine whether the arbitration clause
exists, and whether it is valid” (WL 7d., LEXIS 7d. at
*22-23).
Cap Gemini does not purport to hold that all issues
concerning the validity of an arbitration agreement are
invariably for the courts. To the contrary, the Second
Circuit limited its holding to validity questions “relating
to the unconscionability of the underlying arbitration
agreement” (346 F3d at 365). Moreover, a sweeping rule
that all questions relating to the validity of an arbitration
agreement must be resolved by the courts would entail
a startling proposition: parties to an arbitration
agreement lack the power (freedom of contract) to agree
that any issues relating to the validity of the agreement
should be submitted to arbitration. That this proposition
is contrary to settled law is apparent when one considers
a hypothetical arbitration agreement that both envisions
the possibility the Supreme Court might rule as it did
in Hall Street and expressly provides that in the event
of such a holding the question of the validity of the
arbitration agreement would be submitted to
arbitration. Such an agreement surely would be
enforceable, given that “it is settled that the validity of
an arbitration agreement is to be determined by the
law applicable to contracts generally” (Sablosky v
Gordon Co., 73 NY2d 1338, 137, 5385 N.E.2d 648, 538
N.Y.S.2d 513 [1989]), public policy strongly favors
arbitration (Smith Barney, 91 NY2d at 49) and “New
York courts interfere as little as possible with the
freedom of consenting parties to submit disputes to
arbitration” (id. at 49-50 [internal quotation marks
omitted ]).
I3a
Appendix B
In light of the holding in Hall Street, the conclusion
that the issue of the validity of the arbitration agreement
is one the parties agreed to arbitrate is not as
indisputable in this case as it is in the hypothetical case.
But it nonetheless is supported by clear and
unmistakable evidence (Contec, 398 F3d at 208, supra)
and should be enforced. The effect of the agreement to
arbitrate under the rules of the AAA was to adopt and
incorporate article 15.1 into each of the CCI contracts
(Matter of Level Export Corp. |Wolz, Aiken & Co.], 305
NY 82, 86, 111 N.E.2d 218 [1953]). Under settled
principles of contract law, the contract language stating
that disputes about the validity of the arbitration
agreement are to be arbitrated cannot be disregarded
(Bretton v Mutual of Omaha Ins. Co., 110 AD2d 46, 49,
492 N.Y.S.2d 760 [1985], affd for reasons stated 66 NY2d
1020, 489 N.E..2d 1299, 499 N.Y.S.2d 397 [1985] [stating
that courts should not disregard provisions of contract
that are clear and unequivocal]). Rather, as appeliants
do not even claim that they failed to read article 15.1,
they are conclusively bound by its terms (Arnav Indus.,
Inc. Retirement Trust v Brown, Raysman, Millstein,
Felder & Steiner, 96 NY2d 300, 304, 751 N.E.2d 936,
727 N.Y.S.2d 688 [2001] [“‘a party who signs a document
is conclusively bound by its terms absent a valid excuse
for having failed to read it”).
On the other hand, not all questions relating to the
validity of an arbitration agreement are for the
arbitrator when an arbitration agreement expressly
provides for arbitration of questions relating to its
validity. Rather, judicial resolution of some such
l4a
Appendix B
questions is appropriate. If, for example, a signatory to
the agreement did not knowingly agree to arbitration
at all (or to arbitration of disputes about its validity) as
a result of fraudulent conduct by the other signatory,
the assent necessary to enforcement of a contract would
be lacking (Joseph Martin, Jr, Delicatessen v
Schumacher, 52 NY2d 105, 109, 417 N.E.2d 541, 436
N.Y.S.2d 247 [1981] [“before one may secure redress in
our courts because another has failed to honor a promise,
it must appear that the promisee assented to the
obligation in question”]).* A claim that an arbitration
agreement is unconscionable similarly calls into question
the fundamental matter of its enforceability (Matter of
State of New York v Avco Fin. Serv. of N.Y., 50 NY2d
383, 390, 406 N.E.2d 1075, 429 N.Y.S.2d 181 [1980]
[noting that claim of uneonscionability of contract clause
encompasses “deception ... as to the clause’s content
or existence or the presence of language difficulties or
illiteracy affecting its execution, or any other reasons
that would have made it unlikely that consent was freely
and knowingly given”) [emphasis added; citations
2. Thus, in Nichols, Nichols also claimed that she was
unaware of the arbitration clause in the contract and the District
Court reviewed (and rejected) that claim (2007 WL 4198252 at
*7, 2007 US Dist LEXIS 859386, *24-25). The District Court also
reviewed and rejected Nichols’ claim that the arbitration clause
was invalid under General Business Law § 399-c, which
prohibits mandatory arbitration clauses in contracts for the sale
or purchase of consumer goods (WL id. at *9, LEXIS 7d. At
*29-30). We need not determine whether we agree that such a
challenge to an arbitration agreement is one that courts must
resolve when the parties agree to arbitrate questions relating
to its validity.
[Sa
Appendix B
omitted]; see also King v Fox, 7 NY3d 181, 191, 851
N.E.2d 1184, 818 N.Y.S.2d 833 [2006]).
To be sure, appellants contend that the arbitration
agreement is entirely unenforceable because they would
not have agreed to arbitration if they had known, as
Hall Street subsequently held, that the provision
authorizing appeals of errors of law to a court of law
was invalid. That contention, however, is inconsistent
with the parties’ agreement to arbitrate questions
relating to the validity of the agreement. The parties
did not agree to arbitrate only meritless challenges to
the validity of the arbitration agreement. Rather, they
clearly contemplated the possibility that the arbitrators
might determine to invalidate the arbitration
agreement. It makes no sense to suppose that the
parties contemplated that such a determination itself
would be invalid.
It may be that appellants would not have agreed to
arbitration if they had known the parties could not obtain
judicial review of errors of law. And it also may be that
for this reason they cannot be compelled to arbitrate
any substantive disputes with respondent. But it does
not follow that the specific agreement to arbitrate
disputes over the validity of the arbitration agreement
is unenforceable. To the contrary, that agreement
should be regarded as a distinct agreement that is
enforceable unless a specific challenge to its validity is
raised. Because appellants do not contend that they did
not freely and knowingly consent to arbitrate questions
relating to the validity of the arbitration agreement,
16a
Appendix B
their challenge to the validity of the agreement is one
for the arbitrators to determine.
Appellants’ additional arguments in support of a
stay of the arbitration proceeding are similarly not
subject to judicial review. Although respondent
apparently commenced the arbitration prior to paying
the claims in violation of the contract’s “pay first”
provision,’ the effect of such a violation raises a question
regarding arbitrability that, as discussed above, must
be decided by the arbitrators.
3. The contract provided that indemnification from
appellant Peachtree is respondent Lloyd’s “sole and exclusive
remedy” and that “under no circumstances . . . shall [Lloyd's]
be entitled to submit any dispute” regarding its obligation to
pay a claim to arbitration “prior to payment of such claim...”
l7a
APPENDIX C— ORDER OF THE SUPREME COURT,
APPELLATE DIVISION, FIRST DEPARTMENT,
NEW YORK DATED DECEMBER 22, 2009
At a Term of the Appellate Division of the Supreme
Court held in and for the First Judicial Department in
the County of New York on December 22, 2009.
PRESENT: Hon. David B. Saxe, Justice Presiding,
John T. Buckley
James M. McGuire
Leland G. DeGrasse
Helen E. Freedman, Justices.
M-5179
Index No. 601244/08
Life Receivables Trust,
Plaintiff-Appellant,
-against-
Goshawk Syndicate i102 at Lloyd’s,
Defendant-Respondent,
Life Settlement Corporation, doing business as
Peach Tree Life, Settlements,
Defendant-Appellant.
8a
Appendix C
Defendant-appellant having moved for reargument
of, or leave to appeal to the Court of Appeals from, the
decision and order of this Court entered on October 13,
2009 (Appeal No. 194N),
Now, upon reading and filing the papers with respect
to the motion, and due deliberation having been had
thereon,
It is ordered that the motion, insofar as it seeks
reargument, is denied.
It is further ordered that the motion, to the extent
it seeks leave to appeal to the Court of Appeals, is
granted and this Court, pursuant to CPLR 5713,
certifies that the following question of law decisive of
the correctness of its determination, has arisen, which
in its opinion ought to be reviewed by the Court of
Appeals:
“Was the order of this Court, which affirmed
the order of the Supreme Court, properly
made?”
This Court further certifies that its determination
was made zs a matter of law and not in the exercise of
diseretion.
ENTER:
s/ [illegible]
DEPUTY CLERK
19a
APPENDIX D — OPINION OF THE
SUPREME COURT OF THE STATE OF NEW YORK,
COUNTY OF NEW YORK, COMMERCIAL
DIVISION DATED SEPTEMBER 19, 2008
AND FILED SEPTEMBER 30, 2008
SUPREME COURT OF THE
STATE OF NEW YORK
COUNTY OF NEW YORK:
COMMERCIAL DIVISION
Index No.
601244/08
LIFE RECEIVABLES TRUST,
Plaintiff,
-against
GOSHAWK SYNDICATE 102 at LLOYD'S,
Defendant
Charles Edward Ramos, J.S.C.:
Motion sequence number 001 and 002 are
consolidated for disposition.
In motion sequence 001, plaintiff Life Receivables
Trust (LRT) moves to stay the arbitration before the
American Arbitration Association’s (AAA) International
Center for Dispute Resolution (ICDR) arising out of a
20a
Appendix D
rescission agreement’ (Rescission Arbitration) pursuant
to 9 USC § 1 of the Federal Arbitration Act (FAA), and
to enjoin the arbitration before the ICDR, entitled the
Wang Arbitration.’
In motion sequence 002, defendant Goshawk
Syndicate 102 at Lloyd’s (Syndicate 102) moves to join
non-party Life Settlement Corporation d/b/a Peachtree
Life Settlements pursuant to CPLR 1001.
Background ®
LRT is a special purpose business trust that owns a
portfolio of life insurance policies originally purchased
by non-party Peachtree, a life settlement provider. As
the owner and beneficiary of the policies, LRT funds
payment of the premiums and becomes entitled to the
insurance proceeds when the policies mature.
1. This arbitration is entitled Goshawk Dedicated Ltd., as
the sole Member of Syndicate 102 at Llioyd’s for the 2000
Underwriting Year of Account, and Kite Dedicated Ltd., f/k/a
Goshawk Dedicated (No. 2) Ltd., as the sole Member of
Syndicate 102 at Lloyd’s for the 2001-2003 Underwriting Years
of Account v. Life Receivables Trust, and Life Settlement
Corporation, d/b/a Peachtree Life Settlements.
2. This arbitration is entitled Life Receivables Trust v.
Goshawk Syndicate 102 at Lloyd's. There is an additional
arbitration proceeding involving the parties, referred to in their
papers as the Omnibus Arbitration.
3. The facts set forth herein are taken from the pleadings,
or the Affidavit of Dale Christensen, Esq., unless otherwise
noted.
2la
Appendix D
A life settlement provider may purchase insurance
policies and sell them to investors. Contingency cost
insurance (CCI) is used as a financial guarantee against
the risk that the seller of the life insurance policy will
live beyond a specified period.
Beginning in 2000, Syndicate 102 issued CCI
agreements to LRT, pursuant to which it charged and
collected nearly $8 million to hedge LRT’s risk that a
life insured might live beyond the specified life
expectancy. Non-party Peachtree was the servicer and
originator under the CCI agreements. LRT alleges that
Syndicate 102 has not paid a single claim to date under
the CCI agreements.
The CCI agreements contain identical arbitration
provisions in section 30 (Arbitration Agreement), that
state,
1. All disputes and differences arising under
or in connection with this Insurance shall be
referred to arbitration under the American
Arbitration Association Rules.
3. The Arbitration Tribunal may in its sole
discretion make such orders and directions as
it considers to be necessary for the final
determination of the matters in dispute
provided that the parties shall each retain the
right to appeal errors of law to a court of law
having jurisdiction of the matters addressed
herein (emphasis added).
2):
Appendix D
The CCI agreements additionally contain identical
provisions entitled “Recourse,” (Recourse Provision)
that state that Syndicate 102’s obligation to pay is
absolute, and not subject to any set-off or counterclaim.
Further, the Recourse Provision requires Peachtree
to indemnify Syndicate 102 against any losses as to which
Syndicate 102 make payment to LRT, if the losses result
from breach by Peachtree of certain representations and
warranties.
In September 2005, LRT commenced the Wang
Arbitration to recover damages under certain CC]
agreement for two claims denied by Syndicate 102 in
July 2005.
In March 2008, defendant Syndicate 102 commenced
the Rescission Arbitration against both LRT and
Peachtree, seeking to rescind its obligations under the
CCI agreements to which LRT and Syndicate 102 are
parties, based on alleged fraudulent life expectancies
that Peachtree supplied for a number of life insured
(Smoak Affidavit, Exhibit 1).
When syndicate 102 sought an order from the AAA
directing the parties to name arbitrators, LRT filed a
federal action seeking to stay both the arbitrations,
which was dismissed for lack of subject matter
jurisdiction. Thereafter, LRT commenced this action.
23a
Appendix D
Discussion
LRT seeks a stay of the Arbitrations on the ground
that the U.S. Supreme Court’s recent decision in //all
Street Assocs. L.L.C. v Mattel, Inc. 128 US 1396 [2008 ])
renders the parties’ Arbitration Agreement a nullity,
because it expands the scope of judicial review of
arbitration awards beyond the grounds explicitly set
forth in the FAA.
Moreover, LRT contends that Syndicate 102’s
obligation to pay its claims are absolute, and that the
Recourse Provision in the CCI agreements precludes
Syndicate 102 from asserting any defense to coverage
against LRT or any of its beneficiaries. LRT argues that
Syndicate 102’s sole and exclusive remedy involving
losses relating to wrongdoing on the part of Peachtree
is against Peachtree only, under the Recourse Provision.
In opposition, Syndicate 102 and Peachtree assert
that in the Arbitration Agreement, the parties
unequivocally agreed that arbitrators, and not the
Court, would determine issues of arbitrability, and that
the issues decided by the Supreme Court in //all Street
Assocs. (128 US 1396) are inapplicable to this action.
This Court agrees, and for the reasons set forth below,
the motion to stay arbitration is denied.
The Federal Arbitration Act (IAA) applies to the
determination of whether the parties made a valid
agreement to arbitrate their disputes, because the CCI
agreements affect interstate commerce (Gerling Global
4a
{fppendix D
Reinsurance Corp. 4 Hlome lis. Co., 8302 AD2d 118, 124
(I Dept 2002], lv denred 302 AD2d 11% [2003]))
The plain and expansive language employed in
section 30 of the Arbitration Agreement unequivocally
establishes that the parties agreed to arbitrate their
disputes arising out of the CCI agreements, by use of
the phrase “all disputes and differences arising under
or in connection with this Insurance shall be referred
to arbitration under the [AAA] (Louis Dreyfus Neqgoce
S.A. v Blystad Shipping & Trading Inc., 252 3d 218,
226 [2d Cir], cert denied 534 US 1020 [2001] | terms such
as “any dispute, “relating to” and “arising under”
indicate a broad arbitration clause ])
Moreover, the Arbitration Ayreement Incorporale
by reference all of the AAA rules. Under Article 15.1 of
the IDPR rules of the AAA, arbitrators, not the court,
decide the “existence, scope, or validity” of an
arbitration agreement (IDRP Article 15.1)
Where, as here, the parties explicitly incorporate
rules that empower an arbitrator to decide issues of
arbitrability, that incorporation constitutes clear and
unmistakable evidence that arbitrability is to be decided
by the arbitrators (Contec Corp. v Remote Solution Co
Ltd., 398 IF 38d 205, 208 |2d Cir. 2005])
LRT challenges the scope of the Arbitration
Agreement, and contends that the dispute over payment
of claims is not subject to arbitration because of the
Kecourse Provision. Additionally, LRT challenyves the
26a
Appendix D
§§ 9-11. The Supreme Court concluded that the grounds
set forth in the FAA for vacating or modifying an
arbitration award constitute the exclusive grounds for
vacatur and modification, and that parties cannot, by
contract, expand upon these grounds (id. at 1405).
Ultimately, the Supreme Court remanded the case for
determination of issues independent of the grounds for
judicial enforcement of arbitration awards (7d. at 1399).
There is no basis to conclude that the holding in
Hall Street Assocs. (128 US 1396) mandates the
invalidation of the parties’ agreement to arbitrate by
this Court, simply because the Arbitration Agreement
contains a provision expanding the availability of judicial
review of an award beyond those exclusive grounds set
forth in the FAA. Undoubtedly, such an application of
Hall Street Assocs. (id.) would conflict with the strong
federal policy favoring arbitration that seeks to “place
arbitration agreements on equal footing with ali other
contracts” (Hall Street Assocs., 128 US at 1402).
Additionally, it is not a basis upon which to stay
arbitration (see generally Kyocera Corp. v Prudential
-Bache Trade Services, Inc., 341 F 3d 987 [9" Cir 2003],
cert dismissed 540 US 1098 [2004]).
Nonetheless, the issue that arises is whether the
holding in Hall Street Assocs. requires severability of
that portion of the Arbitration Agreement that runs
afoul of the FAA.°
5. The Supreme Court chose not to address the issue of
severability, because it was not a basis for certiorari (Hal/ Street
Assocs., 128 US at 1405, fn 6).
te
Appendix D
The issue of whether an agreement’s provisions are
severable is ordinarily a question of the parties’ intent
for the Court to determine (Atlantic Mut. Ins. Co. v.
Balfour MacaLaine Intl. Ltd., 85 F 3d 68, 81 [2™4 Cir
1996]). However, determining the severability of an
expanded judicial review clause in the context of
arbitration agreements subject to the FAA has not been
addressed by a New York court subsequent to Hall
Street Assocs.
In light of the parties’ explicit agreement that the
existence, scope, or validity of the Arbitration
Agreement is to be determined by the arbitrators, and
the strong federal policy favoring arbitration that
dictates that any doubts concerning the seope of
arbitrable issues should be resolved in favor of
arbitration (//all Street Assocs., 128 US at 1402; Bank
Jultus Baer & Co. v Waxfield Ltd., 424 F3d 278, 281 [2d
Cir 2005]), the severability of the expanded judicial
review clause is for the arbitrators to determine. In any
event, severability prior te an application to confirm,
vacate or modify an arbitration award is premature.
Therefore, LRT’s motion to stay arbitration is denied.
Finally, Syndicate 102’s motion to join Peachtree as
a necessary party is granted without opposition (June
25, 2008 Transcript, 41:3-12).
Accordingly, it is
ORDERED that plaintiff’s Life Receivables Trust’s
motion to stay arbitration is denied; and it is further
28a
Appendix D
ORDERED that defendant’s motion to join non-
party Life Settlement Corporation d/b/a Peachtree Life
Settlements is granted.
Dated: September 19, 2008
ENTER:
s/ Charles E. Ramos
HON. CHARLES E. RAMOS
J.C.
29a
APPENDIX E — ORDER OF THE COURT OF
APPEALS OF NEW YORK DATED JULY 1, 2010
STATE OF NEW YORK
COURT OF APPEALS
At a session of the Court, held at Court of
Appeals Hall in the City of Albany
on the first day of July, 2010
Present, Hon. JONATHAN LIPPMAN, Chief Judge, presiding.
Mo. No. 2010-708
Life Receivables Trust.
Plaintiff,
"
Goshawk Syndicate 102 at Lloyd's,
Respondent
Life Settlement Corporation,
Doing Business as Peach Tree Life Settlements,
Appellant.
A motion for reargument to the Court of Appeals
and for a stay in the above cause having heretofore been
made upon the part of the appellant herein, papers
having been submitted thereon and due deliberation
having been thereupon had, it is
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Appendix E
ORDERED, that the said motion for reargument be
and the same hereby is denied with one hundred dollars
costs and necessary reproduction disbursements; and it is
ORDERED, that the said motion for a stay be and the
same hereby is dismissed as academic.
s/ Stuart M. Cohen
Stuart M. Cohen
Clerk of the Court
3la
APPENDIX F — RELEVANT STATUTES
§ 2. Validity, irrevocability, and enforcement of
agreements to arbitrate
A written provision in any maritime
transaction or a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy thereafter arising
out of such contract or transaction, or the
refusal to perform the whole or any part
thereof, or an agreement in writing to submit
to arbitration an existing controversy arising
out of such a contract, transaction, or refusal,
shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in
equity for the revocation of any contract.
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Appendix F
S.C. § 4
§ 4. Failure to arbitrate under agreement; petition
to United States court having jurisdiction for order
to compel arbitration; notice and service thereof;
hearing and determination
A party aggrieved by the alleged failure,
neglect, or refusal of another to arbitrate
under a written agreement for arbitration
may petition any United States district court
which, save for such agreement, would have
jurisdiction under Title 28, in a civil action or
in admiralty of the subject matter of a suit
arising out of the controversy between the
parties, for an order directing that such
arbitration proceed in the manner provided
for in such agreement. Five days’ notice in
writing of such application shall be served
upon the party in default. Service thereof
shall be made in the manner provided by the
Federal Rules of Civil Procedure. The court
shall hear the parties, and upon being satisfied
that the making of the agreement for
arbitration or the failure to comply therewith
is not in issue, the court shall make an order
directing the parties to proceed to arbitration
in accordance with the terms of the
agreement. The hearing and proceedings,
under such agreement, shall be within the
district in which the petition for an order
directing such arbitration is filed. If the
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Appendix F
making of the arbitration agreement or the
failure, neglect, or refusal to perform the same
be in issue, the court shall proceed summarily
to the trial thereof. If no jury trial be
demanded by the party alleged to be in
default, or if the matter in dispute is within
admiralty jurisdiction, the court shall hear and
determine such issue. Where such an issue is
raised, the party alleged to be in default may,
except in cases of admiralty, on or before the
return day of the notice of application,
demand a jury trial of such issue, and upon
such demand the court shall make an order
referring the issue or issues to a jury in the
manner provided by the Federal Rules of Civil
Procedure, or may specially call a jury for that
purpose. If the jury find that no agreement
in writing for arbitration was made or that
there is no default in proceeding thereunder,
the proceeding shall be dismissed. If the jury
find that an agreement for arbitration was
made in writing and that there is a default in
proceeding thereunder, the court shall make
an order summarily directing the parties to
proceed with the arbitration in accordance
with the terms thereof.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.