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Court Calls Arbitration Clause Too Confined to Count in the Case: Pictet Funds (Europe) S.A. vs. Emerging Managers Group, L.P.
Posted on Categories Court Decisions, Securities ArbitrationTags ,

By Pete S. Michaels

When a contract contains both a broad dispute resolution provision permitting lawsuits and also an arbitration requirement set forth in one narrow context, courts should limit the arbitration requirement to disputes arising squarely in that narrow context.

Pictet Funds (Europe) S.A. vs. Emerging Managers Group, L.P., No. 14-cv-6854 (S.D. N.Y., 12/1/14).

A Tale of Two Clauses

Pictet Funds (Europe) S.A. (“PFE”) and Pictet Overseas Inc. (“Pictet Overseas”) bring this action to enjoin a FINRA arbitration brought against them by Emerging Managers Group, L.P. (“EMG”) and EMG Capital, LLC (“EMG Capital”). The arbitration claim arises out of an Agreement between PFE and nonparty Atlantic Financial Partners LLC (“AFP”), which was later acquired by EMG. Under the Agreement, AFP (and later EMG) was paid fees and commissions to provide sales and support services to PFE. The Agreement contained a general dispute resolution clause requiring that all matters related to the Agreement’s construction, performance and enforcement be governed by Swiss law, with Geneva as the exclusive place of jurisdiction, but also contained a provision permitting FINRA arbitration for disputes initiated by AFP that were related solely to fees payable. Four years later, PFE terminated the Agreement, citing, in part, AFP’s and EMG’s poor performance, prompting the arbitration.

The Parties' Positions

Plaintiffs contend that the arbitration cannot proceed against Pictet Overseas because it is not party to the Agreement, nor can it proceed against PFE because the claim is beyond the limited scope of the Agreement’s arbitration clause. Defendants move to dismiss the case for failure to state a claim or, alternatively, to compel arbitration under the FAA, arguing that the arbitrator—not this Court—must resolve the issues raised by Plaintiffs, including the scope of the arbitration clause, and that Plaintiffs’ action is time-barred under the statute of limitations set forth in §7503(c) of New York's Civil Practice Law and Rules.

The Court Calls It

After determining that the question of arbitrability is properly before it, the Court next concludes that §7503(c) does not bar Plaintiffs’ suit for injunctive relief. That provision, the Court holds, would apply if Plaintiffs objected to enforcement of the arbitration agreement or to a failure to meet conditions precedent, but not when, as here, the objection is that no arbitration agreement exists (as to Pictet Overseas) or is of too limited scope.

Turning to Plaintiffs’ objection, the Court finds it meritorious. When a contract contains both a broad dispute resolution provision permitting lawsuits and an arbitration requirement set forth in one narrow context, courts routinely limit the arbitration requirement to disputes arising squarely in that narrow context. Defendants tried to circumvent the parties’ broad dispute resolution provision by naming Pictet Overseas, a FINRA member, as respondent, even though it does not appear to have any relationship to the dispute between PFE and EMG. The Court cannot treat the parties’ narrow carve-out for disputes related to fees payable as governing the present dispute, which relates to the validity of the cancellation of the container agreement and the performance of AFP and EMG, nor can the Court compel the arbitration of issues the parties did not agree to arbitrate. The Court concludes that Plaintiffs have established the elements necessary for a preliminary injunction of the FINRA arbitration, grants that motion and denies Defendants’ motion to dismiss.

(P. Michaels)

(SLC Ref. No. 2015-03-02)

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