Profilati Italia S.r.1 v. Painewebber Inc.

Citations: 941 F. Supp. 431; 1996 WL 559975Docket: No. 95 Civ. 7729 (DAB)

Court: District Court, S.D. New York; September 30, 1996; Federal District Court

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Plaintiff Profilati Italia S.r.l. is pursuing damages against Defendant PaineWebber Incorporated for breach of contract, breach of fiduciary duty, intentional misrepresentation, and securities fraud under the Securities Exchange Act of 1934. Defendant's motion to dismiss is based on an existing arbitration agreement. In December 1992, Profilati agreed to pay $7,379,940.00 for an option to purchase 150,000 metric tons of aluminum over a specified period. Before the transaction, Profilati signed two agreements with PaineWebber: the Counterparty Agreement and the PWIFL Agreement. The Counterparty Agreement does not include an arbitration clause, while the PWIFL Agreement mandates arbitration for disputes arising under it. However, the PWIFL Agreement clarifies that it does not govern the relationship between Profilati and PaineWebber, as that relationship is defined by the separate agreement. An Agreement Letter from PWIFL to Profilati confirmed the terms of the aluminum transaction, detailing delivery and payment conditions, and was signed by Dr. Leonardo Rossetto, a director of Profilati. Subsequently, in June 1993, Profilati and PWIFL agreed to extend the exercise period for the aluminum option to December 1995, with Profilati agreeing to an additional payment of $435,000.00 by December 15, 1993, as documented in an Amended Agreement Letter.

The Amended Agreement Letter serves as a replacement for the original December 23, 1992 Agreement Letter and mandates that disputes be resolved through arbitration in accordance with LME rules. On August 26, 1993, the Plaintiff was notified of a requirement for margin payments, irrespective of the Amended Agreement's terms, to avoid losing their option. The Plaintiff made a partial payment of $82,443.00 out of a total outstanding amount of $435,000.00, claiming it was made under duress. Subsequent margin payment demands from PaineWebber International (UK) Ltd. (PWUK) totaled $193,671.00 on September 20, 1993, and additional calls of $246,558.00 and $276,072.00 were made on September 27 and 30, 1993, respectively. Despite the Plaintiff's request for account information and a meeting, they received no direct response. On October 1, 1993, the Plaintiff was warned that failure to confirm full payment by October 4 would lead to liquidation of their account, alongside further margin demands of $298,934.00 and $302,674.00. 

The Federal Arbitration Act promotes the enforcement of arbitration agreements in contracts involving commerce, declaring such agreements as valid and enforceable. The Defendant seeks dismissal or a stay of the Plaintiff's claims based on an existing arbitration agreement. The Court must first ascertain whether an arbitration agreement exists. The Plaintiff does not contest the validity of the Agreement and Amended Agreement Letters but claims they are contracts with PWIFL, not with Defendant PaineWebber. However, the Agreement Letter explicitly names PaineWebber Inc. as a party, and the signature of Dr. Rossetto indicates intent to be bound by its terms, including the arbitration clause. Additionally, PWIFL acted as an agent for the Defendant, establishing that PaineWebber is a party to the Agreement under agency principles.

An agreement to arbitrate exists between the Plaintiff and Defendant, as evidenced by the Agreement Letter and the Amended Agreement Letter, which contains identical arbitration language. Although the Amended Agreement Letter lacks a header identifying the parties, its purpose was to extend the option period for the Plaintiff and document the extension price, with no indication it involved different parties. The arbitration clause specifies that disputes will be settled under LME Rules, which the Court interprets broadly to encompass all disputes arising from the Agreement Letters. Given the federal policy favoring arbitration, the Court concludes the current dispute is arbitrable and grants Defendant’s motion, staying the action pending arbitration rather than dismissing the Complaint. The LME rules, which the Defendant claims mandate arbitration for all disputes, had a critical clause removed following a relevant Second Circuit ruling, which had previously established the existence of an arbitration agreement based on the contract's subject to LME rules.

SFA refers to the Securities and Futures Authority Limited. The agreement requires users to enter into an agreement with Painewebber and to sign documentation and risk disclosure statements that govern their relationship with Painewebber. PWIFL stopped operations in March 1993, with its business transferred to PaineWebber International UK Ltd. It remains unclear who informed the Plaintiff about margin payments, with the Complaint alleging that PWIFL conveyed this information, despite its cessation of business in March 1993. The Plaintiff claims unawareness of PWIFL's operational status at that time. The Court has not received communications regarding the margin call between the parties. The Plaintiff consistently asserts that PWIFL acted on behalf of the Defendant and claims the Defendant is liable for actions resulting from the Letter agreements. The Plaintiff cannot pursue a lawsuit against the Defendant based on the Letters while simultaneously contending that the Defendant is not a party to those agreements.