The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge
Before the Court for consideration and disposition is the MOTION TO DISMISS, MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Document No. 12) filed by defendant Etkin & Company, Inc. ("Defendant" or "ECI"). The issues have been fully briefed (Document Nos. 13, 14, 15), and the motion is ripe for disposition.Also pending is WINNER STEEL'S MOTION TO STRIKE ETKIN & COMPANY, INC.'S REPLY BRIEF IN FURTHER SUPPORT OF ITS MOTION TO DISMISS, MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Document No. 16).
Factual and Procedural Background
This case arises out of a contract in which ECI agreed to assist in efforts to find a suitable business opportunity for Winner Steel, including acquisition, merger, purchase of stock, purchase of assets, or other form of combination. The parties entered into a Letter Agreement on May 17, 2005 (the "Agreement") which contains an arbitration clause. The parties are scheduled to commence a hearing before the American Arbitration Association ("AAA") on February 9, 2009 in an action brought by ECI to recover a "success fee." ECI and James E. Winner, Jr. were parties to a related civil action in this Court, Civil Action No. 07-903.
In this case, Plaintiff WS Liquidation, Inc. f/k/a Winner Steel, Inc. ("Plaintiff" or "Winner Steel") seeks a determination by this Court that ECI was a broker of securities who was required to register with the Securities and Exchange Commission ("SEC") and a declaration that because ECI "engaged in the activites of a broker to Winner Steel while unregistered with the SEC, the May 17, 2005 Letter Agreement between ECI and Winner Steel ("Agreement") is null, void, and unenforceable." Complaint ¶¶ 6-7. Winner Steel contends that the arbitration provision of the Agreement is also null, void and unenforceable.
On December 31, 2008, Winner Steel filed a Motion for Preliminary Injunction and Stay. On January 6, 2009, Winner Steel filed a Motion for Expedited Discovery. In essence, Winner Steel asks the Court to stay, terminate or dismiss the February 9, 2009 arbitration proceeding. ECI's Motion to Dismiss raises a threshold issue, which must be resolved before considering the motions filed by Winner Steel. Nevertheless, the Court has ordered ECI to file responses to Winner Steel's pending motions in recognition of the exigency of the situation.
Motion to Strike Reply Brief
Winner Steel is correct that ECI's Reply Brief fails to comply with the Court's policies and practices. Reply briefs are limited to five pages and ECI did not seek leave to exceed that page limit. Accordingly, WINNER STEEL'S MOTION TO STRIKE ETKIN & COMPANY, INC.'S REPLY BRIEF IN FURTHER SUPPORT OF ITS MOTION TO DISMISS, MOTION TO COMPEL ARBITRATION AND MOTION FOR STAY (Document No. 16) is GRANTED IN PART, in that the Court will consider only the first five pages of ECI's Reply Brief.
ECI contends that the Complaint must be dismissed because the parties agreed to submit "any controversy or claim arising out of or relating to" their Agreement to arbitration. Essentially, Plaintiff responds that the alleged failure of ECI and/or William Etkin to have been registered as a licensed "broker or dealer" under §15 and §29 of the Securities Exchange Act of 1934 bars ECI from agreeing to provide to the Plaintiff the services set forth in the May 17, 2005 Agreement, thus rendering the Agreement void ab initio, and also voiding the arbitration clause contained therein. See, e.g. Complaint ¶ 78 ("Because ECI engaged in activities that rendered the Letter Agreement void as regards the rights of ECI, the Letter Agreement and, specifically, its arbitration provision is void and unenforceable as regards the rights of ECI."). Defendant argues that such challenges to the contract as a whole, as opposed to the arbitration provision itself, must be presented to the arbitrators in the first instance and not this Court.
Under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-10, in order to determine whether there is an enforceable arbitration agreement between the parties which would compel arbitration and dismissal of the present action, a court must consider: (1) whether a valid agreement to arbitrate exists between the parties and (2) whether the specific dispute falls within the substance and scope of that agreement. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.2005) (citations omitted). The parties do not dispute that they entered into an Agreement on May 17, 2005 that contains a broad arbitration clause:
Any controversy or claim arising out of or relating to this Agreement, the services performed hereunder, or the breach thereof shall be submitted to and settled by arbitration before the American Arbitration Association (the "AAA") in accordance with the Commercial Arbitration Rules of the AAA, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
Winner Steel contends that the Agreement is void because ECI failed to register with the Securities and Exchange Commission. This contention falls squarely within the substance and scope of the language "Any controversy or claim arising out of or relating to this Agreement . . . ." (Emphasis added). Thus, the prerequisites to arbitration set forth in Trippe are fulfilled.
The FAA establishes a policy "favoring arbitration, requiring that courts rigorously enforce arbitration agreements." Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226 (1987). The duty of a court to give effect to an arbitration clause "is not diminished when a party bound by an agreement raises a claim founded on statutory rights." Id. Thus, the mere fact that Winner Steel ...