SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK EURUS INVESTMENTS LIMITED, EF (USA) LLC, ECHEMUS GROUP LP, and ECHEMUS INVESTMENT MANAGEMENT LIMITED, Index No. Petitioners, v. MARTIN KENNEY & CO. SOLICITORS, Respondent. MEMORANDUM OF LAW IN SUPPORT OF PETITION TO COMPEL ARBITRATION 1 of 15
TABLE OF CONTENTS PRELIMINARY STATEMENT... 1 BACKGROUND... 2 ARGUMENT... 4 I. THE COURT SHOULD COMPEL ARBITRATION PURSUANT TO THE FAA... 4 A. The FAA Applies to the Parties Arbitration Agreement... 5 B. There is a Valid Arbitration Agreement... 6 C. Respondent s Claims Fall within the Scope of the Arbitration Agreement... 7 II. THE COURT SHOULD ENJOIN THE BVI ARBITRATION PROCEEDINGS... 8 III. THE COURT SHOULD AWARD PETITIONERS THEIR COSTS AND ATTORNEYS FEES IN CONNECTION WITH THIS PROCEEDING AND THE BVI ARBITRATION... 9 CONCLUSION... 10 i 2 of 15
TABLE OF AUTHORITIES Page CASES American Express Fin. Advisors Sec. Litig., In re, 672 F.3d 113 (2d Cir. 2011)...5, 8 AT & T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)...4 Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003)....5 Curtis, Mallet-Prevost, Colt & Mosle, LLP v. Garza-Morales, 308 A.D.2d 261 (1st Dep t 2003)...5, 9 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985)...5 Fletcher v. Kidder, Peabody & Co., 81 N.Y.2d 623 (1993)...6 Foster v. Turley, 808 F.2d 38 (10th Cir. 1986)....6 GAF Corp. v. Werner, 66 N.Y.2d 97 (1985)...9 Int l Minerals & Res., S.A. v. Pappas, 96 F.3d 586 (2d Cir. 1996)...7 J.J. s Mae, Inc. v. H. Warshow & Sons, Inc., 277 A.D.2d 128 (1st Dep t 2000)...7 Lamkin v. Morinda Props. Weight Parcel, LLC, 440 F. App x 604 (10th Cir. 2011)...10 Menke v. Monchecourt, 17 F.3d 1007 (7th Cir. 1994)...9 Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)...6, 8 New Castle Cty. v. U.S. Fire Ins. Co., 728 F. Supp. 318 (D. Del. 1989)...6 Newbridge Acquisition I, L.L.C. v. Grupo Corvi, S.A. de D.V., No. 02 Civ. 9839 (JSR), 2003 WL 42007 (S.D.N.Y. Jan. 6, 2003)...9 Preston v. Ferrer, 552 U.S. 346 (2008)...6 Singer v. Jefferies & Co., 78 N.Y.2d 76 (1991)...4 Southland Corp. v. Keating, 465 U.S. 1 (1984)...6 Thomas James Assocs. v. Jameson, 102 F.3d 60 (2d Cir. 1996)...8 ii 3 of 15
STATUTES Federal Arbitration Act, 9 U.S.C. 1 et seq.... passim 9 U.S.C. 2...4, 5 RULES AND REGULATIONS N.Y. C.P.L.R. 7503(a)...1, 2, 9 iii 4 of 15
Pursuant to the Federal Arbitration Act, 9 U.S.C. 1 et seq. ( FAA ), and New York Civil Practice Law and Rules ( CPLR ) 7503(a), Petitioners Eurus Investments Limited ( Eurus ), EF (USA) LLC ( EF USA ), Echemus Group LP ( EGLP ), and Echemus Investment Management Limited ( EIML and together with EGLP, Echemus ) hereby seek an order compelling arbitration in New York under the terms of the December 1, 2015 Settlement and Release Agreement ( Settlement Agreement ) between Petitioners and Respondent Martin Kenney & Co., Solicitors ( MKS ); enjoining Respondent from arbitrating its claims against Petitioners in a manner inconsistent with the Settlement Agreement; and awarding Petitioners contractual attorneys fees and costs. PRELIMINARY STATEMENT Echemus, an investment fund, has invested millions of dollars of investment capital in, among other things, three Brazilian litigation matters in which MKS, the law firm owned by Echemus s former director, Martin Kenney, previously has acted as counsel. MKS s fee arrangements in those cases known as the G-3 matters are hybrid arrangements wherein MKS receives a reduced percentage of its regular hourly rates, plus a success fee if the litigation matter generates proceeds. In connection with contempt proceedings in the U.S. District Court for the Eastern District of Pennsylvania ( EDPA ) as the result of which Kenney has been held in civil contempt, is currently awaiting trial on felony criminal contempt charges, and has a pending warrant out for his arrest it came to light that MKS and Kenney engaged in illegal conduct in connection with Echemus matters. As the result of this misconduct and the EDPA contempt proceedings, Echemus has engaged in years-long efforts to unwind its business dealings with MKS and Kenney, culminating in the parties 2015 Settlement Agreement. As part of that settlement, the parties agreed that they would arbitrate any future disputes with MKS and 5 of 15
Kenney in New York City under the Arbitration Rules of the London Court of International Arbitration ( LCIA ). Of course, Kenney is no longer enthusiastic about appearing in New York given the EDPA s warrant for his arrest. Thus, despite the clear terms of the Settlement Agreement, MKS of which Kenney is sole proprietor has unlawfully commenced a shakedown arbitration against Echemus on its home turf in the British Virgin Islands ( BVI ). MKS s flouting of its arbitration obligations in the Settlement Agreement is yet another example of Kenney and MKS s efforts to avoid the authority of United States tribunals. Under the strong policy favoring enforcement of arbitration agreements codified in the FAA and New York law, the arbitration agreement between the parties should be enforced. Accordingly, Petitioners now seek an order compelling arbitration under the terms of the Settlement Agreement pursuant to the FAA and CPLR 7503(a); enjoining Respondent from arbitrating its claims against Petitioners in a manner inconsistent with the Settlement Agreement; and awarding Petitioners contractual attorneys fees and costs in connection with this proceeding and with the ultra vires BVI proceedings. BACKGROUND In an attempt to resolve certain outstanding disagreements that had arisen between them during the course of their troubled business relationship, the parties entered into the Settlement Agreement in December 2015. Pet. to Compel 14 (May 16, 2017) ( Pet. ). Despite these efforts, certain disputes remained unresolved, including MKS s entitlement to success fees in connection with the G-3 matters. See, e.g., id. & Pet. Ex. A (Settlement Agreement), 2 (releasing Petitioners 2 6 of 15
from all claims, including any claims related to... the G-3 Engagement Letters except the entitlements of MKS to receive success fees, if any, pursuant to the G-3 Engagement Letters ). As to those outstanding dispute[s], claim[s] or controvers[ies] arising out of, under, or in relation to th[e] Agreement or the existence, breach, termination, enforcement, interpretation or validity of th[e] Agreement, the parties agreed to binding arbitration in New York City before a single arbitrator, who had to be a resident of New York City or its environs: This Agreement shall be governed by the laws of England, without regard to the conflicts of laws rules thereof to the extent they would require the application of the law of another jurisdiction. Any dispute, claim or controversy arising out of, under, or in relation to this Agreement or the existence, breach, termination, enforcement, interpretation or validity of this Agreement, including the determination of the scope or applicability of this agreement to arbitrate, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the London Court of International Arbitration, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be one, and the sole arbitrator shall be a resident of New York City (or environs). The seat, or legal place, of arbitration shall be London. Proceedings shall occur in New York City or at such other locations agreed by the parties. The language to be used in the arbitral proceedings shall be English. The arbitrator may, in the award, allocate all or part of the costs of the arbitration to the losing party, including the fees of the arbitrator and the reasonable attorneys fees of the prevailing party. Judgment on the arbitration award may be entered in any court having jurisdiction thereover, and nothing in this Section 17 shall preclude the parties from seeking provisional remedies in aid of arbitration from any court of competent jurisdiction. Pet. Ex. A 17 & Pet. 15. Pursuant to the Settlement Agreement, the parties also agreed to the reimbursement of costs, including but not limited to reasonable attorneys fees. Pet. Ex. A 7 & Pet. 16. In clear violation of the arbitration agreement contained in the parties Settlement Agreement, MKS filed a Notice of Arbitration and Statement of Case against Echemus in the BVI on April 6, 2017. Pet. 17 & Pet. Ex. B. By that arbitration, MKS claims entitlement to success fees in connection with its work on one of the G-3 matters. Pet. 17 & Pet. Ex. B. 3 7 of 15
In response to MKS s institution of ultra vires arbitration proceedings in the BVI, and in accordance with the terms of the Settlement Agreement, on May 3, 2017, Petitioners submitted a Request for Arbitration against MKS and Kenney in New York under Article 1 of the LCIA Rules. Pet. 18. By that arbitration, Petitioners seek to resolve, in the proper forum, the parties disputes relating to MKS s entitlement to success fees in connection with the G-3 matters. Specifically, Petitioners have requested that the LCIA Tribunal: (1) declare that MKS and Kenney s entitlement to any success fees is legally governed by EGLP s Articles of Partnership; (2) enjoin MKS and Kenney from taking any steps to demand or otherwise seek to obtain payment on terms inconsistent with those Articles; (3) declare that MKS and Kenney s claims to success fees are barred because of their unlawful and inequitable conduct; (4) declare that the BVI arbitration is unlawful; and (5) enjoin MKS and Kenney from pursuing the BVI arbitration. Id. ARGUMENT I. THE COURT SHOULD COMPEL ARBITRATION PURSUANT TO THE FAA The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements. AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). The Act establishes an emphatic national policy favoring arbitration which is binding on all courts, State and Federal. Singer v. Jefferies & Co., 78 N.Y.2d 76, 81 (1991) (citations omitted). Under Section 2 of the FAA, a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable. 9 U.S.C. 2 (emphasis added). Thus, [b]y its terms, the [FAA] leaves no room for the exercise of [the court s] discretion, and instead mandates courts to direct the parties to proceed to arbitration on issues as to which an arbitration agreement has 4 8 of 15
been signed. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). This Court should compel MKS to arbitrate its claims concerning its entitlement to success fees in New York, consistent with the terms of the Settlement Agreement, because the FAA governs the arbitration agreement in the Settlement Agreement, and because that agreement constitutes a valid and enforceable agreement to arbitrate between the parties that encompasses the dispute between Petitioners and MKS. See In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113, 128 (2d Cir. 2011) ( In deciding whether claims are subject to arbitration, a court must consider (1) whether the parties have entered into a valid agreement to arbitrate, and, if so, (2) whether the dispute at issue comes within the scope of the arbitration agreement. ); see also Curtis, Mallet- Prevost, Colt & Mosle, LLP v. Garza-Morales, 308 A.D.2d 261, 263 (1st Dep t 2003) (ordering defendant who had instituted proceedings in Mexico concerning matters within the scope of a valid arbitration agreement to submit to arbitration in New York pursuant to the venue provision of that agreement). A. The FAA Applies to the Parties Arbitration Agreement By its terms, the FAA applies to arbitration provisions contained in all contracts that evidenc[e] a transaction involving commerce. 9 U.S.C. 2. The term involving commerce in the FAA ordinarily signal[s] the broadest permissible exercise of Congress Commerce Clause power. Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). The Settlement Agreement containing the arbitration agreement at issue here is a contract involving commerce because it anticipates interstate payments between the parties. See Foster v. Turley, 808 F.2d 38, 40-41 (10th Cir. 1986); see also New Castle Cty. v. U.S. Fire Ins. Co., 728 F. Supp. 318, 320 (D. Del. 1989) (settlement agreement between companies involves commerce because it was entered into by citizens of different states). 5 9 of 15
Moreover, the FAA applies to actions in both federal and state court. Southland Corp. v. Keating, 465 U.S. 1, 12 (1984); see also Moses H. Cone Mem l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 (1983) ( [T]he federal courts jurisdiction to enforce the [FAA] is concurrent with that of the state courts. ). The Act supplies not simply a procedural framework applicable in federal courts but also calls for the application, in state as well as federal courts, of federal substantive law regarding arbitration. Preston v. Ferrer, 552 U.S. 346, 349 (2008). Accordingly, where as here a contract containing an arbitration agreement involves interstate commerce, this Court must apply federal arbitration law to the question whether the arbitration agreement at issue here must be enforced. See Fletcher v. Kidder, Peabody & Co., 81 N.Y.2d 623, 630 (1993) (stating that the FAA preempts State law on the subject of the enforceability of arbitration clauses ). B. There is a Valid Arbitration Agreement There can be no legitimate dispute regarding the existence of an agreement to arbitrate disputes between Petitioners and MKS under LCIA Rules in New York. Although, as set forth above, the FAA preempts inconsistent State law as to an arbitration agreement s enforceability, it preempts only those provisions of State law that actually conflict with provisions of the Federal statute, and does not preempt underlying principles of the governing contract law as rules of decision on whether the parties have entered into an agreement to arbitrate. J.J. s Mae, Inc. v. H. Warshow & Sons, Inc., 277 A.D.2d 128, 128 (1st Dep t 2000) (citation omitted). It is therefore appropriate for this Court to look to English law, which governs the terms of the Settlement Agreement, see Pet. Ex. A (Settlement Agreement), 17 ( This Agreement shall be governed by the laws of England.... ), to 6 10 of 15
determine whether there is a valid arbitration agreement amongst the parties to the Settlement Agreement. Under English law, a contract is formed when all of the contracting parties express an intent to be bound and where all of the essential terms of the agreement have been spelled out. Int l Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 593 (2d Cir. 1996). The Settlement Agreement expressly designates EGLP, EIML, and MKS as parties to that Agreement, see Pet. Ex. A (Settlement Agreement), at 1, and all three are signatories thereto, see id. at 11-13. In consideration of the promises contained in the Settlement Agreement, Petitioners and MKS agreed to the express provisions of that Agreement, including the parties agreement to arbitrate [a]ny dispute, claim or controversy arising out of, under, or in relation to [the] Agreement or the existence, breach, termination, enforcement, interpretation or validity of [the] Agreement under LCIA Rules in New York City. See id. 17. C. Respondent s Claims Fall within the Scope of the Arbitration Agreement In addition, the arbitration agreement clearly encompasses the current dispute between Petitioners and MKS, which concerns MKS s entitlement to success fees in connection with its work on one of the G-3 claims. See, e.g., id. 2 (releasing Petitioners from all claims, including any claims related to... the G-3 Engagement Letters except the entitlements of MKS to receive success fees, if any, pursuant to the G-3 Engagement Letters ); id. 3 (releasing MKS from any claims related to... the G-3 Engagement Letters except EIML s rights pursuant to the G-3 Engagement Letters ); id. 9 (agreeing to confirmed balances of at-risk time of MKS for the purpose of calculating MKS s entitlement to success fees, if any, with respect to the G-3 matters). Thus, there is no question that the dispute between the parties falls within the scope of the arbitration agreement. But even if there were and there is not doubts as to the 7 11 of 15
arbitrability of a claim are resolved in favor of arbitrability, and arbitration must be ordered unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Thomas James Assocs. v. Jameson, 102 F.3d 60, 65 (2d Cir. 1996) (emphasis added); see also Moses H. Cone, 460 U.S. at 24-25 ( [A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. ). II. THE COURT SHOULD ENJOIN THE BVI ARBITRATION PROCEEDINGS In contravention of the valid agreement between Petitioners and MKS to arbitrate any disputes concerning MKS s entitlement to success fees in connection with the G-3 matters in New York, MKS wrongfully commenced arbitration proceedings involving that very dispute in the BVI. That dispute is not properly before the BVI Tribunal. Instead, in accordance with the terms of the Settlement Agreement, that dispute must be resolved by the LCIA arbitral tribunal in New York, as anticipated by the Request for Arbitration filed with that Tribunal by EGLP and EIML on May 3, 2017. Pursuant to the FAA, this Court has authority not only to compel MKS to arbitrate the instant dispute in accordance with the terms of the arbitration agreement in the Settlement Agreement, but also to enjoin MKS from continuing to violate its obligations under that arbitration agreement. See American Express, 672 F.3d at 141 (holding that courts have authority under the FAA to order the cessation of an arbitration by parties within its jurisdiction where such authority appears necessary in order for a court to enforce the terms of the parties own agreement ); see also Newbridge Acquisition I, L.L.C. v. Grupo Corvi, S.A. de D.V., No. 02 Civ. 9839 (JSR), 2003 WL 42007, at *3 (S.D.N.Y. Jan. 6, 2003) (granting motion to compel arbitration and enjoining respondents from proceeding with a foreign lawsuit because the exercise of such discretion is 8 12 of 15
virtually mandated... where the interested parties before this Court and the foreign court are the same and where the resolution of the claims in arbitration will dispose of the enjoined action ). Similar relief is also available under CPLR 7503(a), which can be relied upon to furnish suitable remedies with respect to petitions arising under the FAA. See GAF Corp. v. Werner, 66 N.Y.2d 97, 105 (1985) (holding that the necessary effect of requiring that state courts enforce the FAA is that New York s statutory procedure for compelling arbitration, CPLR 7503(a), can be relied upon to furnish remedies where the FAA s requirements are met). Indeed, it is a longsettled principle that a party seeking to enforce a valid agreement to arbitrate in New York under CPLR 7503 (a) is entitled, as a matter of course, to injunctive relief against further prosecution of proceedings in tribunals of other jurisdictions concerning matters within the scope of the arbitration agreement. Curtis, 308 A.D.2d at 263 (enjoining Mexican legal proceedings instituted by party to a valid arbitration agreement calling for arbitration in New York). As the court in Curtis emphasized, [p]articularly in contracts between individuals or firms of different nationalities, parties stipulate to arbitration in New York largely for the purpose of controlling the risks of doing business, and therefore consistent enforcement of arbitration agreements calling for arbitration in New York is necessary to maintain[ing] New York s central role in the economy of the nation and the world. Id. at 269-70. This Court should not permit MKS to haul Petitioners into arbitration in a foreign country in which the parties agreed not to litigate. Id. at 270. III. THE COURT SHOULD AWARD PETITIONERS THEIR COSTS AND ATTORNEYS FEES IN CONNECTION WITH THIS PROCEEDING AND THE BVI ARBITRATION Although the FAA does not independently authorize attorneys fees, the court should award attorneys fees where it is authorized by the parties contractual agreement. See Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir. 1994). Accordingly, where the contract at issue 9 13 of 15
provides for an award of attorneys fees in the event of litigation to enforce an arbitration agreement, an award of attorneys fees is proper. See Lamkin v. Morinda Props. Weight Parcel, LLC, 440 F. App x 604, 610 (10th Cir. 2011). As noted above, section 7 of the Settlement Agreement sets forth the parties agreement to the reimbursement of costs, including but not limited to reasonable attorneys fees. Pet. Ex. A 7 & Pet. 16. Accordingly, in conjunction with ordering Respondent to submit to arbitration in New York and enjoining the BVI proceedings, this Court should also award Petitioners their attorneys fees and costs in connection with this proceeding and the ultra vires BVI arbitration. CONCLUSION For the foregoing reasons, Petitioners respectfully request that the Court issue an order compelling the parties to arbitrate their dispute in New York, New York under LCIA Rules; enjoining Respondent from pursuing the BVI arbitration proceedings; awarding Petitioners their costs and attorneys fees incurred in connection with this proceeding and the BVI Arbitration; and granting such other and further relief as the Court deems just and proper. 10 14 of 15
May 16, 2017 Respectfully submitted, /s/ M. Todd Parker M. Todd Parker PARKER POHL LLP 420 Lexington Avenue, Suite 2440 New York, NY 10170 Tel.: (212) 203-8915 Fax: (646) 924-3100 todd.parker@parkerpohl.com Derek T. Ho KELLOGG, HANSEN, TODD, FIGEL & FREDERICK, P.L.L.C. 1615 M Street, NW, Suite 400 Washington, DC 20036 Tel.: (202) 326-7900 Fax: (202) 326-7999 dho@kellogghansen.com Attorneys for Petitioners 11 15 of 15