in the Arbitration Proceedings. Obviously, the same showing would be required for Gruntal to obtain the judicial declaration it seeks. Therefore, in order to be granted the relief it seeks on summary judgment, Gruntal must establish there is no genuine issue of material fact that it is not bound to arbitrate with the Steinbergs in the Arbitration Proceedings.
Arbitrability disputes connected with a transaction involving interstate commerce are governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (the "FAA"). PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 510 (3d Cir. 1990); see Moses H. Cone Memorial Hospital v. Mercury Construction Corp, 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983) ("Federal law in the terms of the [FAA] governs [the issue of arbitrability] in either state or Federal court."). The transactions at issue in the Arbitration Proceedings were carried out by telephone between the Steinbergs, residents of Maryland, and the Fort Lee Office, located in New Jersey. See Complaint, P 3; id., Ex. B. Because the instant dispute is connected with transactions involving interstate commerce, the issue of arbitrability is governed by the FAA. See PaineWebber, 921 F.2d at 510.
"In enacting [the FAA], Congress declared a strong national policy favoring arbitration. . . ." Southland Corp. v. Keating, 465 U.S. 1, 10, 79 L. Ed. 2d 1, 104 S. Ct. 852 (1984). "The [FAA] establishes that, as a matter of Federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. . . ." Moses H. Cone Memorial Hospital, 460 U.S. at 24-25.
Notwithstanding this policy favoring arbitration, "the FAA does not require parties to arbitrate when they have not agreed to do so. . . ." Volt Information Sciences v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 478, 103 L. Ed. 2d 488, 109 S. Ct. 1248 (1989). As the Supreme Court has stated: "Arbitration is a matter of contract and a party cannot be required to submit to arbitration [in] any dispute which he has not agreed so to submit." AT&T Technologies v. Communications Workers of America, 475 U.S. 643, 648, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986); see PaineWebber, Inc. v. Hofmann, 984 F.2d 1372, 1381 (3d Cir. 1993) ("Arbitration is a matter of contract, so no party should be forced to arbitrate a claim it never agreed to submit to arbitration."); Morristown Daily Record v. Graphic Communications Union, Local 8N, 832 F.2d 31, 33 (3d Cir. 1987) ("The arbitrators derive their authority from the parties' voluntary agreement.")
"Before compelling an unwilling party to arbitrate, [the FAA] requires the court to engage in a limited review to ensure that the dispute is arbitrable-- i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement. If a court determines that a valid arbitration agreement does not exist . . . it is obliged to enjoin arbitration." PaineWebber, 921 F.2d at 511 (emphasis supplied).
In Gruntal I, it was held that Gruntal had established a reasonable probability that it was free from any obligation to arbitrate in the Arbitration Proceedings. The basis of this holding was the representation by Gruntal that Gruntal was not party to a contract of any nature with the Steinbergs. See Gruntal I, 1993 WL 449259 at *7 (citing Rappaport PI Cert., P 6). Indeed, Gruntal gave no indication it ever conducted business with the Steinbergs. Id. However, since the grant of the Preliminary Injunction in Gruntal I, certain facts have come to light which cast doubt on the representations of Gruntal with respect to its relationship with the Steinbergs.
A successor to or assignee of a contract containing an arbitration clause may be obligated to arbitrate pursuant to that arbitration clause. See Wheat, First Securities, Inc. v. Green, 993 F.2d 814, 821 (11th Cir. 1993) (acknowledging that purchaser of securities trading office may be obligated to arbitrate with customers of seller if purchaser was "successor-in-interest" to seller, but finding no successor relationship); Cheshire Place Associates v. West of England Ship Owners Mutual Insurance Association, 815 F. Supp. 593, 597 (E.D.N.Y. 1993) (insured bound to arbitrate with insurer under insurance contract "whether [insured] acquired rights under [insurance] contract as agent, third-party beneficiary, or assignee"); Cargill B.V. v. S/S Ocean Traveller, 726 F. Supp. 56, 62 (S.D.N.Y. 1989) (assignee of bill of lading obligated to arbitrate under bill of lading's arbitration clause); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F. Supp. 1464, 1466 (S.D.N.Y. 1983) ("Normally, the assignee is bound to arbitrate all disputes, if that is the remedial mechanism agreed upon by the assignor."); cf. I.S. Joseph Co., Inc. v. Michigan Sugar Co., 803 F.2d 396, 400 (8th Cir. 1986) (assuming valid assignment, assignee could enforce arbitration provision in contract entered into by assignor); Hart Planners & Architects v. Evergreen, Ltd., 787 F. Supp. 753, 756 (S.D.Ohio 1992) (assignee could enforce assignor's right to arbitrate under contract).
In Gruntal I, based on Gruntal's representations, the issue of whether Gruntal was a successor to or assignee of the Steinberg-Philips Contract was not addressed. However, based on evidence now submitted by the Steinbergs, there appears to be at least a genuine issue of material fact as to whether Gruntal may be obligated to arbitrate as a successor to or assignee of the Steinberg-Philips Contract.
The Steinbergs maintained the Philips Account through the Closing Date, 19 April 1988. It appears the Steinbergs maintained an account with Gruntal as early as July 1988 and as recently as November 1990. Steinberg Response, Ex. E, F. There is in fact some indication that the Gruntal Account was initiated as early as 20 April 1988, the day after the Closing Date. Steinberg Response, Ex. E ("Through the courtesy of: Philips, Appel & Walden, Inc. eff 4-20-88 thru the courtesy of Gruntal & Co.. . ." (emphasis added)).
While the numbers identifying the two accounts are different, the Gruntal Account and the Philips Account appear to have been handled by the same account executives, Bob Semon and Todd Semon. See Complaint, Ex. B; Steinberg Response, Ex. F. Ronald Steinberg moreover certifies that he was not asked by Gruntal to sign a new contract in connection with the Gruntal Account, and learned of the transfer of the Fort Lee Office "only because a name change appeared on [his] monthly statement." Steinberg Cert., PP 5-6.
Under these facts, it appears the Philips Account may have been transferred or assigned to Gruntal by Philips in connection with the Asset Purchase Agreement, and that the Gruntal Account is merely a continuation of the Philips Account. For the same reasons, it appears the Steinberg-Philips Contract may have been similarly transferred or assigned to Gruntal. If this is so, Gruntal may be compelled to arbitrate with the Steinbergs pursuant to the arbitration clause in the Steinberg-Philips Contract. See Cheshire Place Associates, 815 F. Supp. at 597; Cargill B.V., 726 F. Supp. at 62; Banque de Paris et des Pays-Bas, 573 F. Supp. at 1466.
The possibility that the Philips Account and the Steinberg-Philips Contract were transferred or assigned to Gruntal is, moreover, consistent with the terms of the Asset Purchase Agreement. As stated, the Asset Purchase Agreement contains a provision whereby Philips and Gruntal would cooperate "to cause the retail brokerage customers of those registered representatives at the [Fort Lee] Office who accept employment with [Gruntal] to transfer their accounts to Gruntal as of the Closing Date. . . ." Complaint, Ex. A, P 8(b).
As mentioned, it appears Bob Semon and Todd Semon did accept employment with Gruntal, and that the Gruntal Account was initiated as early as the day after the Closing Date. Steinberg Response, Ex. E, F. Under these facts, there is a distinct possibility that the Gruntal Account was a result of the account transfer provisions of the Asset Purchase Agreement. If this were so, it appears the Steinberg-Philips Contract would control the rights of the parties to the Gruntal Account, and would obligate Gruntal to arbitrate with the Steinbergs pursuant to its arbitration clause. See Cheshire Place Associates, 815 F. Supp. at 597; Cargill B.V., 726 F. Supp. at 62; Banque de Paris et des Pays-Bas, 573 F. Supp. at 1466.
Gruntal does little to rebut the Steinbergs' contention that Gruntal is the successor to or assignee of the Steinberg-Philips Contract. Gruntal first points to the legal proposition "that a mere sale of corporate property by one company to another does not make the purchaser liable for the liabilities of the seller not assumed by it. " Gruntal Brief at 7 (emphasis added). Gruntal appears to accurately state the law in this regard. See Schumacher v. Richards Shear Co. Inc., 59 N.Y.2d 239, 245, 464 N.Y.S.2d 437, 451 N.E.2d 195 (1983). However, under the facts now at bar, it appears Gruntal may in fact have assumed the Steinberg-Philips Contract, and the obligation to arbitrate. Therefore, Gruntal's contention, while legally accurate, is inapposite to the instant facts. See Schumacher, 59 N.Y.2d at 244 (successor corporation may be liable for obligations of predecessor if obligations expressly or impliedly assumed).
Gruntal further points to provisions of the Asset Purchase Agreement limiting its liability for trades and other actions of Philips carried out on or before the Closing Date. See Gruntal Brief at 8, 11 (citing Complaint, Ex. A, PP 2, 8(b)(i)). Again, Gruntal's argument is inapposite. The provisions cited by Gruntal may bear on Gruntal's tort liability for the actions of Philips. That issue, however, is not currently at bar. The sole issue at bar is the existence vel non of an agreement to arbitrate between Gruntal and the Steinbergs. As stated, under the facts at bar, there is at least a genuine issue of material fact as to whether such an agreement exists.
Gruntal's sole argument bearing on whether the Steinberg-Philips Contract was in fact transferred to them is that the Steinbergs "readily admit that they did not initiate any trades with Gruntal."
Gruntal Brief at 11. While this fact may bear on the existence of a contract between Gruntal and the Steinbergs, it by no means conclusively establishes the absence of such a contract. Gruntal does not cite, and there does not appear to be, any reason that the initiation of trades is necessary to a finding that a contract existed between Gruntal and the Steinbergs. This is especially so in light of the documentary evidence that such a contract did in fact exist. Steinberg Response, Ex. E, F.
There exists a genuine issue of material fact as to whether Gruntal is the successor to or assignee of the Steinberg-Philips Contract and its arbitration clause. As such, there is a genuine issue of material fact as to whether Gruntal is obligated to arbitrate with the Steinbergs in the Arbitration Proceedings. Accordingly, Gruntal's motion for summary judgment is denied; a permanent injunction against arbitration will not issue pursuant to Gruntal's instant motion.
B. The Steinbergs' Motion for Summary Judgment
In order to prevail in their motion for summary judgment, the Steinbergs must establish that there exists no genuine issue of material fact that Gruntal is obligated to arbitrate in the Arbitration Proceedings. While the Steinbergs have submitted evidence sufficient to defeat Gruntal's motion, they have not carried their burden on summary judgment.
As stated, the linchpin of any arbitrability issue is the existence of an agreement to arbitrate. See AT&T Technologies, 475 U.S. at 648. The Steinbergs argue that two sources exist for such an agreement: "A specific agreement by virtue of the purchase of the Steinberg-Philips Contract [and] an implied agreement by virtue of the NASD Code of Arbitration Procedure." Steinberg Reply Brief at 3.
1. Purchase of Steinberg-Philips Contract by Gruntal
As stated, the Steinbergs have created a genuine issue of material fact as to whether the Steinberg-Philips Contract was transferred or assigned to Gruntal. However, the Steinbergs have failed to establish, beyond a genuine issue of material fact, that such a transfer or assignment did take place. For example, the Steinbergs point to the existence of the Gruntal Account, but cite no facts which would establish that the account was necessarily a continuation of the Philips Account.
Steinberg Response at 3, 8. Similarly, the Steinbergs point to the provision of the Asset Purchase Agreement under which the Philips Account could have been transferred to Gruntal, but cite no conclusive evidence that the Philips Account was actually so transferred.
Id. at 4.
In arguing Gruntal succeeded to the Steinberg-Philips Contract, the Steinbergs state Gruntal is in possession of the records relating to the Philips Account. See Steinberg Brief at 4; Steinberg Response at 7, Steinberg Cert., P 10. The Steinbergs cite Gruntal's contractual obligation under the Asset Purchase Agreement to keep and preserve Philips' records. See Steinberg Response at 7 (citing P 12(a) of Asset Purchase Agreement, Complaint, Ex. A, P 12(a)). The Steinbergs have not cited any rationale to suggest that Gruntal's mere possession of documents relating to the Philips Account requires a finding that they are bound by Steinberg-Philips Contract.
The Steinbergs have, moreover, failed to refer to any evidence that Gruntal is in possession of documents relating to the Philips Account.
Moreover, Gruntal has certified that, after two recent internal searches, "no documents that relate to the Steinbergs or their claims in the Arbitration Proceedings" were found.
Rappaport Cert., P 4.
The Steinbergs also argue that this court is bound by the doctrine of issue preclusion to find that Gruntal is the successor to Philips' obligations under the Steinberg-Philips Contract. To this end, the Steinbergs point to the Prior Arbitration Award, which held Gruntal liable "as successor to Philips. . . ." Steinberg Response, Ex. A at 2.
The doctrine of issue preclusion
"embodies the principle that 'later courts should honor the first actual decision of a matter that has actually been heard and litigated.'" Rider v. Pennsylvania, 850 F.2d 982, 989 (3d Cir.) (quoting C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4416 at 136 (1981)), cert. denied, 488 U.S. 993, 102 L. Ed. 2d 582, 109 S. Ct. 556 (1988). "By precluding a court from making a second determination as to an issue on which an earlier court has previously rendered a decision, the doctrine of issue preclusion assists in the 'maintenance of the social order' and 'secure[s] the peace and repose of society by the settlement of matters capable of judicial determination.'" Id. (quoting Southern Pacific Railroad v. United States, 168 U.S. 1, 48-49, 42 L. Ed. 355, 18 S. Ct. 18 (1897)).
Issue preclusion "precludes the relitigation of an issue that has been put in issue and directly determined adversely to the party against whom the estoppel is asserted." Melikian v. Corradetti, 791 F.2d 274, 277 (3d Cir. 1986) (citing New Jersey-Philadelphia Presbytery of the Bible Presbyterian Church v. New Jersey State Board of Higher Education, 654 F.2d 868, 876 (3d Cir. 1981)); State v. Gonzalez, 75 N.J. 181, 380 A.2d 1128 (1977)). Issue preclusion does not extend to collateral issues nor to matters inferred from the judgment. Id. The doctrine of issue preclusion may be invoked where:
(1) the identical issue was decided in a prior adjudication;
(2) there was a final judgment on the merits;