HBC Solutions Inc. v. Harris Corp, No. 13-CV-6327 (S.D.N.Y. July 18, 2014) [click for opinion]
HBC Solutions Inc. brought a petition to compel arbitration under Chapter 2 of the Federal Arbitration Act (“FAA”), asserting that the parties had agreed to arbitrate a dispute arising under a sale agreement. Harris Cop. moved to dismiss for lack of subject matter jurisdiction, asserting that the dispute was not subject to Chapter 2 of the FAA because (1) the dispute was not international; and (2) the agreed dispute resolution procedure was not an "arbitration." The Court rejected both assertions and thus denied the motion.
The Court first noted that, given an absence of diversity of citizenship, and because a petition to compel arbitration does not independently constitute a federal question, it would only have subject matter jurisdiction if the petition to compel concerned an international arbitration governed by the New York Convention on the Recognition and Enforcement of Arbitral Awards, codified as Chapter 2 of the FAA.
It then addressed Harris Corp.'s argument that the legal relationship between the parties was "entirely domestic in scope" and therefore not subject to Chapter 2 of the FAA. The Court noted that, although both parties were U.S. citizens, the sale agreement involved property located abroad and envisaged performance abroad; indeed the agreement dealt with fifteen foreign companies and involved the transfer of assets in twenty-three foreign jurisdictions. Therefore, the Court found that the relationship between the parties was not "entirely domestic in scope" and that, therefore, Chapter 2 of the FAA applied.
The Court then addressed the question whether the parties had agreed to arbitrate their disputes. The procedure set forth in the sale agreement was not a standard arbitration; it did not involve any arbitral institution or even arbitrators. Rather, the parties had agreed that, in case of a dispute over the final sale price, certain information would be submitted to an independent accountant, who would determine the final sale price according to a formula contained in the sale agreement. The accountant would then "conduct such hearings or hear such presentations by the parties as the Accountant in its sole discretion deems necessary,” and render a decision within thirty days. The agreement stated that this decision would "be final and binding on the parties, absent arithmetical error, and shall be deemed a final arbitration award that is enforceable against each of the parties hereto in any court of competent jurisdiction."
The Court held that, based on Second Circuit precedent, this was adequate to qualify as arbitration. Notably, the Court did not base its decision on the fact that the Parties had agreed that the accountant's decision would be deemed a final arbitration award. Rather, it held that the Second Circuit considered that "[i]f the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration." It therefore held that the dispute resolution procedure agreed by the parties was an arbitration, and Chapter 2 of the FAA applied, giving the Court subject matter jurisdiction over HBC Solutions' petition to compel.