841 F. Supp. 2d 722
E.D.N.Y.2012Background
- Optimus and MPG entered a September 10, 2006 agreement governing Verizon product sales and commissions (Optimus to receive 80% of gross commissions since April 2005).
- The contract includes a mediation-and-arbitration clause mandating mediation and then arbitration for unresolved disputes and designates arbitration as the exclusive remedy.
- Optimus filed suit on May 23, 2011 seeking commission damages and alleging breach, unjust enrichment, and related conduct by MPG (total claimed: $242,875.09 plus fees).
- MPG moved to dismiss under Rule 12(b)(6) and sought Rule 11 sanctions on July 18, 2011, arguing the dispute should have proceeded to arbitration under the contract.
- Optimus argued the arbitration clause was permissive or non-mandatory and that the case could proceed in court pending discovery, including third-party discovery.
- The court granted MPG’s 12(b)(6) dismissal, finding the arbitration clause broad, mandatory, and encompassing the asserted claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAA requires dismissal or stay due to arbitration. | Optimus claims the clause is permissive and not strictly mandatory. | MPG contends the clause is broad, mandatory, and exclusive for arbitration. | Arbitration clause broad and exclusive; dismissal granted. |
| Whether the arbitration clause encompasses Optimus' claims. | Claims arise under the contract and are not limited to arbitration. | All claims fall within the dispute-resolution clause's scope. | Clause covers the plaintiff's claims; arbitration applies. |
| Whether Optimus' interpretation of the clause as permissive is warranted. | Language about fees, discovery, and legal action implies permissive arbitration. | Language clearly points to arbitration as exclusive and mandatory. | Plaintiff's interpretation rejected; clause deemed unambiguous and mandatory. |
| Whether Rule 11 sanctions are warranted for the complaint. | N/A (not presented as a formal argument in this section of the record). | The claims lack warrant and the filing is groundless; sanctions may be appropriate. | Sanctions denied; two-step arbitration applicability did not rise to sanctionable conduct. |
Key Cases Cited
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (strong federal policy in favor of arbitration; doubts resolved in favor of arbitration)
- Arciniaga v. General Motors Corp., 460 F.3d 231 (2d Cir. 2006) (emphasizes the policy in favor of arbitration)
- United Steelworkers of Am. v. Warrior & Gulf, 363 U.S. 574 (U.S. 1960) (courts must submit matters to arbitration unless the clause is not susceptible of coverage)
- Spray Holdings, Ltd. v. Pali Fin. Group, Inc., 269 F. Supp. 2d 356 (S.D.N.Y. 2003) (when issues lie within arbitration scope, courts may dismiss rather than stay)
- ATSI Communs., Inc. v. Shaar Fund, Ltd., 579 F.3d 143 (2d Cir. 2009) (sanctions require objective unreasonableness; discretion on whether to impose sanctions)
- Calloway v. Marvel Entm’t Group, 854 F.2d 1452 (2d Cir. 1988) (sanctions framework; safe harbor and withdrawal considerations)
- Perez v. Posse Comitatus, 373 F.3d 321 (2d Cir. 2004) (sanctions discretion under Rule 11; not mandatory)