IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
December 21, 2011
SHABBIR NOMANBHOY, PETITIONER,
ZEHRA VAHANVATY, AYMEN TYEBJEE, NAFEESA MOOSABHOY, AND YUNUS NOMANBHOY, RESPONDENTS.
The opinion of the court was delivered by: Judge Joan H. Lefkow
OPINION AND ORDER
Shabbir Nomanbhoy filed a petition to confirm an arbitration award under the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") and its enabling statute, 9 U.S.C. §§ 201--08. Before the court are Nomanbhoy's motion to confirm the award and respondents' motion to dismiss the petition for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). For the reasons set forth below, respondents' motion to dismiss the petition [#22] will be granted and Nomanbhoy's motion [#16] will be denied.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1)
challenges the court's subject matter jurisdiction. The standard of
review for a Rule 12(b)(1) motion to dismiss depends on the purpose of
the motion. See United Phosphorous, Ltd. v.
Angus Chem. Co. , 322 F.3d 942, 946 (7th Cir. 2003)
( en banc ). If subject matter jurisdiction is not
evident from the face of the complaint, the court analyzes the motion
to dismiss under Rule 12(b)(1) as any other motion to dismiss and
assumes for purposes of the motion that the allegations in the
complaint are true. Id. Where, as here, "the
complaint is formally sufficient but the contention
is that there is in fact no subject matter jurisdiction, the
movant may use affidavits and other materials to support the motion."
Id .; Sapperstein v.
Hager , 188 F.3d 852, 855--56 (7th Cir. 1999);
Long v. Shorebank Dev. Corp. , 182
F.3d 548, 554 (7th Cir. 1999). The court may weigh the evidence to
determine whether jurisdiction has been established. United
Phosphorous , 322 F.3d at 946. The burden
of proof is on the party asserting jurisdiction. Id.
This dispute arises from Shabbir Nomanbhoy's management of and ownership in Dyna Care Health Ventures ("Dyna Care"), a company that provided home nursing services in Illinois, Michigan, Texas, Arizona, and Indiana. Dyna Care was founded in 1984 and its principal place of business was in Tinley Park, Illinois. Dyna Care did not provide any services outside the United States, had no operations outside the United States, and owned no property outside the United States.
Shabbir Nomanbhoy owned and operated Dyna Care with respondents, who are his family members. Respondents Aymen Tyebjee, Nafeesa Moosabhoy, and Yunus Nomanbhoy are his siblings. Zehra Vahanvaty is his niece. All of the parties to this dispute are U.S. citizens.
In 2004, Shabbir Nomanbhoy was a shareholder in Dyna Care as well as its CEO. A dispute arose regarding his management of the company and he was terminated from his management position. Subsequently, in 2005, Shabbir Nomanbhoy met with Tyebjee and one of their religious leaders, Shehzada Qaid Johar Bhaisaheb ("Shehzada Qaid"), in an attempt to work out an agreement. *fn2 The meeting took place in California and was not successful.
In 2006, Shehzada Qaid asked the parties to come to London to attempt to resolve their dispute. *fn3 While the parties were in London, Moosabhoy approached Shehzada Qaid's younger brother, Shehzada Mufaddal BS Saifuddin Saheb ("Shehzada Mufaddal") and asked for assistance in resolving the dispute. With Shehzada Mufaddal's help, the parties negotiated a settlement agreement in London over the course of several days.
On May 28, 2006, Shabbir Nomanbhoy, Yunus Nomanbhoy, Tyebjee, and Moosabhoy entered into a written settlement agreement (the "Settlement Agreement" or the "Agreement") "under the guidance and mediation of Shehzada Mufaddal." (Petition Ex. A at 1). The Settlement Agreement provided, inter alia , that Shabbir Nomanbhoy's ownership in Dyna Care would increase from 31.8% to 38.25% effective July 1, 2004, that Dyna Care would pay him $1 million by June 28, 2006, that Dyna Care's accountant, Kambiz Fallah, would perform a settlement of past accounts due (referred to in the Agreement as " hisab ") by July 9, 2006, and that Yunus Nomanbhoy and Tyebjee would attempt to sell Dyna Care within two years for a minimum sale price of $18 million. The Settlement Agreement includes a non-exhaustive list of financial issues that were to be considered as part of the hisab and provides that Shehzada Mufaddal would "arbitrate in amount and time needed for payments" if the hisab cannot be resolved. The final paragraph of the Settlement Agreement provides: "If there is any disagreement about this 'Settlement Agreement' issues [sic] will be resolved by arbitration of Shehzada Mufaddal BS Saifuddin Saheb." ( Id. at 3.)
The parties continued to have disagreements relating to Dyna Care, particularly concerning the hisab . On February 8, 2007, Shehzada Mufaddal circulated a document titled "Decisions taken by Shahzada Mufaddal Bhaysaheb Saiffudin Saheb on February 8, 2007 . . . in Colombo, Sri Lanka regarding Settlement Agreement done between Nomanbhoy family members on 28th May 2006 in London." (S. Nomanbhoy Supp. Aff. Ex. B.) The document lists additional issues that must be settled as part of the hisab and directs the parties to settle and pay the hisab no later than March 30, 2007. It further provides that " Hisab meetings will be held in Cairo or London . . . for 9 days starting no later than March 17, 2007 and all parties must attend with all documents. . . . If agreement on any issue is not reached by the end of these meetings, I . . . will make decisions on these issues . . . by March 30, 07." ( Id. at 1.)
In May 2007, the parties traveled to London and met with Shehzada Mufaddal, his assistants, and Dyna Care's accountant and attempted to come to an agreement as to the hisab . The accountant prepared a draft hisab that was circulated to the parties for comments. The process lasted for "several days" but failed to resolve the parties' dispute. (S. Nomanbhoy Supp. Aff. ¶ 17.)
In January 2008, the parties commenced arbitration before Shehzada Mufaddal in Colombo, Sri Lanka, where he was then residing. Shabbir Nomanbhoy, Tyebjee, and Moosabhoy were present at the five-day arbitration hearing. Yunus Nomanbhoy did not attend the arbitration. *fn4
On February 3, 2008, Shehzada Mufaddal issued a written arbitration award (the "Award") that names Shabbir Nomanbhoy, Yunus Nomanbhoy, Vahanvaty, Tyebjee, and Moosabhoy as parties. (Petition Ex. B.) The introductory paragraphs of the Award state that the parties were unable to agree on the hisab as to Dyna Care and that, "in accordance with the terms of the Settlement Agreement, the Parties referred their disputes to [Shehzada Mufaddal] for settlement in any manner which [he] consider[s] just and equitable." ( Id. at 1.) The introduction notes that the Settlement Agreement lacks a choice of law provision but concludes that the hisab can be resolved based on "just and equitable principles" and that "the question of applicable law does not arise in this case." ( Id. at 2.) The introduction further provides that Shehzada Mufaddal, "with the consent of all the Parties . . . hereby make[s] the following binding and final Award in full and final settlement of all disputes between the Parties . . . and direct[s] all the parties to fulfill and honour the terms of this Award in good faith and finally settle all their disputes in accordance with the Award." ( Id.
The Award directs the parties to distribute all cash funds held by Dyna Care to its shareholders by February 15, 2008 (minus $700,000 for the payment of rent, taxes and incidental expenses), sets forth deadlines and procedures whereby the hisab will be completed up until the end of 2007 in accordance with the terms of the Settlement Agreement, and reiterates that Shabbir Nomanbhoy shall receive a settlement for the full amount of his 38.25% ownership in Dyna Care. The Award further provides that Tyebjee will receive a two-year severance payment, that Shabbir Nomanbhoy will be reimbursed for his travel expenses if the other parties have also received travel reimbursements, and that a $10,000 penalty will be imposed on any party who fails to meet the deadlines set forth in the Award. Shehzada Mufaddal would determine the amount of any penalty.
On April 13, 2008, Shehzada Mufaddal's agent, Dr. Luvai Dawood, emailed the parties with an amendment to the Award that added the word "not" to the following paragraph: "Severance/non-compete pay will be paid to Sk. Abdaobiturab and Aymen Tyebjee for two (2) years of salary for a maximum of US$4000,00 each, and this will [not] include any salary paid/accrued after sale date of company assets to Amedysis." (Petition Ex. C.)
Nomanbhoy filed his petition to confirm the Award on April 12, 2011.
Respondents argue that this court lacks subject matter jurisdiction over Nomanbhoy's petition because the Award does not fall under the New York Convention and that, even if the court does have jurisdiction, the petition must be dismissed as untimely. *fn5 Because the court concludes that it lacks subject matter jurisdiction over the petition, respondents' motion to dismiss under Rule 12(b)(1) will be granted. *fn6
Article I(1) of the New York Convention provides: "This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought . . . . It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought." The parties do not dispute that the Award was "made in" Sri Lanka. Therefore the Award clearly falls within the scope of the first sentence of Article I(1). *fn7
Recognition and enforcement of an arbitration award must be pursued according to the Convention's implementing legislation, however. See 9 U.S.C. § 201. Pursuant to 9 U.S.C. §§ 203 and 207, district courts have jurisdiction over petitions to confirm arbitration awards that "fall under" the Convention. 9 U.S.C. § 202, titled "Agreement or award falling under the Convention," provides in relevant part:
An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title [9 U.S.C. § 2], falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.
The parties agree that the Award arises out of a commercial relationship and satisfies the requirement of the first sentence of section 202. They dispute whether the Award has a reasonable relation with a foreign state, a requirement imposed by the second sentence of section 202 because the Award is wholly between U.S. citizens.
When Congress passed implementing legislation for the Convention, it added the foreign element requirement in section 202 to prevent the displacement of domestic arbitration laws in disputes that were not truly international. See Certain Underwriters at Lloyd's London v. Argonaut Ins. Co. , 500 F.3d 571, 576--77 (7th Cir. 2007). Richard D. Kearney, the Chairman of the Secretary of State's Advisory Committee on Private International Law, testified before the Senate Committee on Foreign Relations: "We have included in section 202 a requirement that any case concerning an agreement or award solely between U.S. citizens is excluded unless there is some important foreign element involved, such as property located abroad, the performance of a contract in a foreign country, or a similar reasonable relation with one or more foreign states." Foreign Arbitral Awards, S. Rep. No. 91-702, 91st Cong., 2d Sess. 6 (1970) (Appendix; Statement of Richard D. Kearney). Kearney explained that the "reasonable relationship" criterion had been taken from the general provisions of the Uniform Commercial Code section 1-105(1), which "permits the parties to a transaction that bears a reasonable relationship to any other state or nation to specify that the law of that state or nation will govern their rights and duties." Id. *fn8 Kearney stated that the purpose of section 202 was to "modify the definition of commerce" to "make it quite clear that arbitration arising out of relationships in interstate commerce remains under [section 1] of the original [Federal] Arbitration Act and is excluded from the operation of the proposed chapter 2 [implementing the New York Convention]." Id.
In Lander Company, Inc. v. MMP Investments, Inc. , 107 F.3d 476 (7th Cir. 1997), the Seventh Circuit held that an award made in New York in an arbitration between two United States companies had a "reasonable relation" with a foreign state because the contract that gave rise to the dispute concerned the distribution of shampoo in Poland. 107 F.3d at 482. The court of appeals explained, "Chapter 2 of title 9 authorizes the enforcement of arbitration awards in disputes wholly between U.S. citizens if . . . the dispute arose out of a contract involving performance in a foreign country" or has "some other reasonable relation with a foreign country . . . . [T]he relationship between Lander and MPP falls squarely within the inclusion." Id. The Seventh Circuit has not considered section 202 in the context of an agreement or award, like those at issue here, which are between U.S. citizens but were made abroad. *fn9
Other courts have held that the selection of a foreign arbitration
forum and foreign governing law, taken alone, does not create a
reasonable relation with a foreign state. See ENSCO Offshore
Co. v. Titan Marine LLC , 370 F. Supp. 2d
594, 600--01 (S.D. Tex. 2005) (salvage agreement specifying
arbitration in London under English law did not have a reasonable
relation with a foreign state because agreement was between United
States citizens regarding salvage that occurred "just off the Gulf
Coast" and envisioned that salvaged rig would be delivered in Texas);
Jones v. Sea Tow Servs. Freeport NY
Inc. , 30 F.3d 360, 365--66 (2d Cir. 1994) (Lloyd's Standard
Form of Salvage Agreement did not create reasonable relation with
England where agreement was between U.S. citizens and involved salvage
of New York-based
pleasure craft on Atlantic Beach, Long Island);
Reinholtz v. Retriever Marine Towing &
Salvage , No. 92-14141, 1993 WL 414719, at *5 (S.D. Fla. May
21, 1993) (award made in London under English law pursuant to Lloyd's
Standard Form of Salvage Agreement did not fall under Convention
because award was between U.S. citizens and concerned the salvage of
vessel off the Florida coast); Brier v.
Northstar Marine, Inc. , No. 91-597, 1992 WL 350292, at
*7--8 (D.N.J. Apr. 28, 1992) (Lloyd's Standard Form of Salvage
Agreement did not have reasonable relation with England because
agreement was between U.S. citizens and concerned salvage of pleasure
craft that ran aground in New Jersey harbor). *fn10
The leading case is Jones , one of
several to consider the arbitration provision in a standard form
salvage agreement that covered salvage operations performed in or just
outside of U.S. waters. There, the Second Circuit held that "[t]he
reasonable relation requirement necessary to make the arbitration
provision in the [agreement] cognizable under the Convention cannot be
fulfilled by the terms of the [agreement] itself."
30 F.3d at 366.
Courts have also analyzed section 202 in the context of employment
Freudensprung v. Offshore Tech. Servs.,
Inc. , 379 F.3d 327, 341 (5th Cir. 2004) (employment contract
for performance of pipe-fitting on barges in West Africa was
enforceable under the Convention); Matabang v.
Carnival Corp. , 630 F. Supp. 2d 1361, 1365 (S.D.
Fla. 2009) (employment contract for cruise-ship performer did not fall
under Convention where only foreign element was the fact that cruise
ship spent time in Bahamian waters); Wilson v.
Lignotock U.S.A. , 709 F. Supp. 797, 799 (E.D.
Mich. 1989) (employment contract that required
Detroit-based manufacturer's representative to make incidental
business trips to Europe did not have a reasonable relationship to
Switzerland), franchise agreements, Access Info. Mgmt. of
Haw., LLC v. Shred-It Am. , No. 10-00622,
2010 WL 4642045, at *4--6 (D. Haw. Nov. 2, 2010) (franchise agreement
for distribution of products in Hawaii did not fall under Convention
even though it was executed in Canada and one party chose to maintain
corporate office in Canada), and stock purchase agreements,
Amato v. KPMG LLP , 433 F. Supp. 2d
460, 478 (M.D. Pa. 2006) (agreement for the purchase of European
securities on European exchanges fell under Convention),
order vacated in part on reconsideration by 2006 WL
2376245 (M.D. Pa. Aug. 14, 2006). In general, arbitration agreements
or awards fall under the Convention where they result from a contract
or relationship involving performance of a service abroad.
See Lander , 107 F.3d at 482;
Freudensprung , 379 F.3d at 341. But they do not fall
under the Convention if foreign travel is only incidental to the
parties' obligations. See Access Info. , 2010 WL
4642045, at *4; Matabang , 630 F. Supp. 2d at 1365;
Wilson , 709 F. Supp. at 799.
Turning to the facts of this case, Dyna Care is located in the United States and has no property or operations in a foreign state. All of the parties to this dispute live and work in the United States. Dyna Care's accountant, Fallah, maintains an accounting practice in Willowbrook, Illinois. (S. Nomanbhoy Second Supp. Aff. ¶ 5.) The Settlement Agreement and Award do not mention foreign law, performance in a foreign country, or enforcement in a foreign country. All of the instructions in both documents concern the distribution of U.S. property among U.S. citizens. In addition, the Award discusses the calculation of federal income tax, state tax, Medicare, "Texas valuation," capital gains tax, and "severance/non-compete pay," and all of the amounts quoted are in U.S. dollars. (Petition Ex. B ¶¶ 7--12.) These facts suggest that the Award does not arise from a relationship that has a significant foreign element.
Nomanbhoy argues that the parties' negotiation and execution of the Settlement Agreement created new rights and obligations that had a reasonable relation with England. The plain language of section 202, however, directs courts to focus on the "legal relationship" that the arbitration agreement or award "aris[es] out of." See Access Info. , 2010 WL 4642045, at *4 ("The focus of whether a commercial relationship has a reasonable relation to a foreign state is not on the Franchise Agreement alone, but rather the 'legal relationship in which the arbitration or arbitral award arises.'" (quoting ENSCO , 370 F. Supp. 2d at 601)). Therefore the relationship at issue is the parties' ownership and operation of Dyna Care, which is completely domestic.
Of equal significance, the record indicates that the parties chose to negotiate a settlement agreement in London due to Shehzada Mufaddal's travel schedule and not because their dispute had a connection to England or because they sought a neutral foreign arbitral seat. *fn11 Cf. International Arbitration at 150 (suggesting that section 202 should be interpreted to allow sophisticated parties to select a neutral arbitral seat, particularly where the seat has expertise or historical experience with the type of dispute at issue). Indeed, the Settlement Agreement does not state that arbitration before Shehzada Mufaddal would be conducted outside the United States. Tyebjee attests that the parties initially attempted to resolve their dispute in California, with the assistance of Shehzada Qaid. (Tyebjee Decl. ¶ 4.) She further attests that Shehzada Qaid requested that the parties travel to London, where they eventually contacted Shehzada Mufaddal. ( Id. ¶¶ 17-19.) Nomanbhoy refers to this information as "new evidence" that was impermissibly submitted in a reply brief, but he does not contradict Tyebjee's version of events in his surreply. ( See Dkt. #32.) The tenuousness of the parties' connection to England is underscored by the fact that the arbitration was conducted in a different country, Sri Lanka, and that other meetings with Shehzada Mufaddal occurred in Egypt, India, and Sri Lanka. ( See S. Nomanbhoy Supp. Aff. ¶ 24.) *fn12
Nomanbhoy also argues that the parties contemplated that part of
the hisab would be performed abroad and that this
satisfies the requirements of section 202. In support, he attests that
when the parties drafted the Settlement Agreement they "expected that
[the hisab ] would be performed abroad, either in
London or in another foreign location where Shehzada Mufaddal would be
present to guide us." (S. Nomanbhoy Supp. Aff. ¶ 15.) Tyebjee, on the
other hand, attests, "Contrary to Shabbir's assertions in his
Supplemental Affidavit, the parties to the Dyna Care dispute did not
expect Mr. Fallah to perform, much less complete, the
hisab anywhere other than in the United States, where
Mr. Fallah lives and where Dyna Care's records were kept." (Tyebjee
Decl. ¶ 22.) Even if one assumes that Nomanbhoy's testimony is true,
it does not establish that performance of the hisab
had an important foreign element. Rather, as Nomanbhoy's
testimony shows, the hisab would be performed
"where Shehzada Mufaddal would be present to guide us." The portion of
the hisab that was performed in London was done so
at the request of Shehzada Mufaddal, who could easily have chosen
another foreign location or a location in the United States. (
See S. Nomanbhoy Supp. Aff. Ex. B (Shehzada Mufaddal's
directive that the hisab meetings "will be held
in Cairo or London " for nine days).) Under these
unique factual circumstances, the court cannot conclude that the Award
"arise[s] out of" a relationship that has some reasonable relation
with England, where the Settlement Agreement was made, or Sri Lanka,
where the Award was made. See 9 U.S.C. § 202.
Nomanbhoy's petition must be dismissed for lack of jurisdiction.
For the reasons stated above, respondents' motion to dismiss the petition for lack of subject matter jurisdiction [#22] is granted. Nomanbhoy's motion to confirm the Award [#16] is denied. This case is terminated.
JOAN HUMPHREY LEFKOW
United States District Judge