Applied Energetics, Inc. v. NewOak Capital Markets, LLC
2011 U.S. App. LEXIS 14295
| 2d Cir. | 2011Background
- Applied Energetics, Inc. engaged NewOak Capital Markets, LLC in Sep. 2005 as exclusive placement agent for a private securities offering aimed at funding a field-deployable vehicle.
- The Engagement Agreement contained a binding arbitration clause mandating arbitration before NASD/FINRA in New York City for disputes arising from the letter and related transactions.
- A subsequent Placement Agreement signed Oct. 24, 2005 governed by New York law provided that disputes would be adjudicated in New York courts and included a merger clause listing related documents, but did not reference arbitration.
- NewOak filed a FINRA arbitration against Applied in Jan. 2010; Applied moved to stay arbitration, arguing the Placement Agreement superseded the arbitration clause.
- District court granted arbitration, ruling the agreements could be read as complementary and that arbitration should proceed; the district court’s order was appealed.
- The Second Circuit held that the Placement Agreement superseded the Engagement Agreement and displaced the arbitration clause, requiring litigation in the specified courts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Placement Agreement supersedes the Engagement Agreement | Applied argued the Engagement Agreement arbitration clause remained in effect. | NewOak contends the Placement Agreement precludes arbitration and governs disputes in court. | Placement Agreement supersedes Engagement Agreement; arbitration not required. |
| Whether the dispute is subject to arbitration or court adjudication | Disputes should be arbitrated under the initial arbitration clause. | Disputes must be adjudicated in New York courts per the Placement Agreement. | Disputes must be heard in New York courts; arbitration clause displaced. |
| Whether the presumption in favor of arbitrability applies | Doubts about scope should be resolved in favor of arbitration. | Presumption does not apply when the question is whether an agreement to arbitrate exists. | Presumption does not apply; clear preclusion by the Placement Agreement. |
Key Cases Cited
- Bank Julius Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278 (2d Cir. 2005) (complements vs. supersedes analysis for arbitration and forum clauses)
- Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (Supreme Court 2010) (presumption in favor of arbitrability limited to ambiguous arbitration agreements)
- Vera v. Saks & Co., 335 F.3d 109 (2d Cir. 2003) (presumption cannot force submission to arbitration where contract to arbitrate was not formed)
- Phillips v. Audio Active Ltd., 494 F.3d 378 (2d Cir. 2007) (forum selection clauses with mandatory language preclude non-designated forums)