W.J. Deutsch & Sons Ltd. v. Diego Zamora, S.A.

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W.J. DEUTSCH & SONS LTD., Petitioner, v. DIEGO ZAMORA, S.A., et al., Respondents.

No. 1:21-cv-11003-LTS

United States District Court, S.D. New York

August 30, 2023

MEMORANDUM OPINION AND ORDER

LAURA TAYLOR SWAIN CHIEF UNITED STATES DISTRICT JUDGE

Petitioner W.J. Deutsch & Sons Ltd. d/b/a Deutsch Family Wines &amp Spirits (“Petitioner” or “Deutsch”) seeks an order vacating an international arbitration award issued in 2021 in favor of Respondents Diego Zamora, S.A. and Bodegas Ramon Bilbao, S.A. (“Respondents” or “Zamora”), alleging that the award was issued in manifest disregard of the law. (Docket entry no. 4 (the “Petition”).) Two motions are now before the Court: Zamora's motion to dismiss the Petition (docket entry no. 47); and Deutsch's cross-motion for alternative service nunc pro tunc (docket entry no. 46). The Court has jurisdiction of this action pursuant to 9 U.S.C. section 203. The Court has considered carefully the parties' submissions and arguments and, for the following reasons, the Court grants Deutsch's cross-motion for retroactive authorization of alternative service, and grants Zamora's motion to dismiss the Petition on the merits.

Background

The following factual recitation is drawn from the Amended Petition and from findings of fact underlying the prior arbitration awards. (See docket entry nos. 31-1 31-4, and 44-8.)

Deutsch is an American company that imports, distributes, and markets wine products; Zamora is a Spanish wine manufacturer. From 2009 through 2018, Deutsch distributed Zamora's wines throughout the United States. This business relationship was governed by two contracts-a Distribution Agreement and an LLC Agreement. Under the Distribution Agreement, the parties agreed to certain “purchase objectives” under which Deutsch agreed to purchase from Zamora a certain quantity of wines annually. (Docket entry no. 31-1 ¶ 14, Deutsch's Amended Petition (“Am. Pet.”).) In early 2018, Zamora alleged that Deutsch had failed to meet its contractual purchase objectives and sent Deutsch a termination notice indicating that it planned to end the parties' distribution relationship. (Am. Pet. ¶ 18.) As justification, Zamora cited a portion of the Distribution Agreement that would give Zamora the right to terminate the contract if Deutsch failed to meet at least 90% of the purchase objectives for two consecutive years-Zamora asserted that Deutsch had failed to meet the objectives during fiscal years 2017 and 2018. (Id. ¶ 19.) Deutsch disputed Zamora's allegation of insufficient purchases. The dispute centered on how purchases of one particular wine brand, Ramon Bilbao, should be quantified for purposes of the purchase objectives. (Id. ¶ 25.) Deutsch also contended that Zamora's failure to transfer a certain trademark to Deutsch in 2018 constituted a breach of the LLC Agreement. (Id. ¶ 20; docket entry no. 31-4 at 10.) While these disputes were ongoing, the parties continued to perform their other contractual obligations as normal. (Am. Pet. ¶ 21.)

In April 2018, Deutsch commenced an arbitration proceeding against Zamora before the American Arbitration Association (“AAA”), seeking to resolve the disputes regarding the purchase objectives and the transfer of the trademark, and contending that Zamora was in breach of contract. (Am. Pet. ¶ 22.) Zamora asserted counterclaims, arguing that it had no obligation to transfer the trademark, and that it had rightfully terminated the contract due to Deutsch's failure to meet purchase objectives. (Id. ¶¶ 22-23.) In June 2019, after the arbitration hearing had concluded (but before the panel had rendered any decision), Zamora issued a second termination notice to Deutsch, asserting that Deutsch had failed to meet its purchase objectives during fiscal years 2018 and 2019 as to the Ramon Bilbao wines. (Id. ¶¶ 26-28.) This time, Zamora ceased all shipments of wines to Deutsch. (Id.)

On December 19, 2019, the arbitration panel issued a decision (docket entry no. 31-4 (the “2019 Award”)) which concluded, based on Deutsch's evidence of the quantities of wine it had purchased, that Deutsch had not failed to meet its purchase objectives during 2017 and 2018. (Id. at 29.) The panel further concluded that Zamora had breached the LLC Agreement by failing to transfer the trademark, and that Zamora was not relieved of its obligations under the contract. (Id. at 36-40.) The panel ordered Zamora to transfer the trademark but denied Deutsch's request for damages. (Id.)

In August 2020, Deutsch initiated a second arbitration proceeding against Zamora (also before the AAA), requesting that the panel (1) affirm that Zamora's 2018 termination notice was invalid; (2) adjudicate the validity of Zamora's 2019 termination notice; (3) require Zamora to buy out Deutsch's membership interest in the trademark holding company (pursuant to the LLC Agreement); and (4) award damages to Deutsch. (Am. Pet. ¶¶ 49-50; docket entry no. 44-8 (“2021 Award”) at 1-2.) Zamora opposed the motions and moved to dismiss. (Id.) The panel issued a decision on September 23, 2021 (the “2021 Award”), which denied Deutsch's motions and granted in part Zamora's motion. (Id.) The 2021 panel concluded that: (1) although Zamora had issued an invalid termination notice in 2018, the breach did not entitle Deutsch to any damages because the breach was cured by the prior panel's order of specific performance and because the parties continued to perform under the contract; and (2) Zamora's 2018 termination notice did not trigger Zamora's contractual obligation to buy out Deutsch's membership interest in the trademark holding company (pursuant to the LLC Agreement). (2021 Award at 1-3.) The 2021 panel also rejected Deutsch's argument that Zamora's 2019 termination notice should be declared invalid on res judicata grounds, holding that the prior panel had not made a determination about the 2019 termination notice. (Id. at 3-4.) Because certain “[i]ssues of fact” still remained “as to the validity of” Zamora's 2019 termination notice-such as how the sale of the Roman Bilbao wine should be quantified towards the purchase objectives-the panel concluded that further proceedings were necessary. (Id. at 4-5).

On October 8, 2021, Deutsch wrote to the second panel to seek clarification of certain findings made in the 2021 Award. (Am. Pet. ¶¶ 60-61; docket entry no. 44-9.) The panel denied Deutsch's request (which it treated as a motion for re-argument), stating that its decision had been “sufficiently clear,” but nevertheless provided some additional explanation of which matters had been already determined in the 2021 Award and which matters “the tribunal expects to try at the upcoming hearings.” (Am. Pet. ¶¶ 60-63; docket entry no. 66 (“Related Order”).) The arbitration proceeding between Deutsch and Zamora remained ongoing as of the time this civil action was commenced. (Am. Pet. ¶ 1.)

The instant action was commenced on December 22, 2021, when Deutsch filed with this Court a Petition to Vacate, contending that the second arbitration panel acted in manifest disregard of the law when it issued the 2021 Award in favor of Zamora. (Docket entry nos. 4 and 6.) Zamora subsequently filed a motion to dismiss (docket entry no. 47), contending that the Petition should be dismissed under Federal Rule of Civil Procedure 12(b)(6) because (1) Deutsch failed to timely serve the Petition upon Zamora;^[1] and (2) the 2021 Award was legally and procedurally proper. Deutsch opposes the motion to dismiss (docket entry no. 45) and has also filed a cross-motion for service, requesting that the court approve alternative service on Zamora nunc pro tunc (docket entry no. 46). This Opinion addresses both the motion to dismiss and the cross motion concerning service.

Discussion

Motion to Dismiss for Lack of Personal Jurisdiction

The primary basis of Zamora's dismissal motion is allegedly insufficient service of process. Although Zamora articulates its motion as one brought under Federal Rule of Civil Procedure 12(b)(6), the Court interprets Zamora's service arguments as seeking dismissal under Rule 12(b)(5)-which is the proper vehicle for “challenging the sufficiency of service of process.” Koulkina v. City of New York, 559 F.Supp.2d 300, 310 n. 9 (S.D.N.Y. 2008); see also Dickson v. Schenectady Police Dep't No. 121-CV-0825-LEK-DJS, 2022 WL 1091615, at *7 n. 6 (N.D.N.Y. Apr. 12, 2022) (treating motion to dismiss as Rule 12(b)(5) motion because Rule 12(b)(5) is “the proper method for challenging the mode of delivery of a summons and complaint”). When a defendant moves to dismiss for insufficient service of process under Rule 12(b)(5) “the plaintiff bears the burden of establishing that service was sufficient.” Khan v. Khan, 360 Fed.Appx. 202, 203 (2d Cir. 2010). “In considering a motion to dismiss pursuant to Rule 12(b)(5), the Court may look beyond the pleadings, including to affidavits and supporting materials, to determine whether service was proper.” Vega v. Hastens Beds, Inc., 339 F.R.D. 210, 215 (S.D.N.Y. 2021).

The Court has jurisdiction of the Petition pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”), which is implemented in United States law under Chapter 2 of the Federal Arbitration Act (“FAA”). See 9 U.S.C. §§ 201-208. A petition to confirm or vacate an arbitration award is covered by the Convention if four requirements are met: “(1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope.” Dumitru v. Princess Cruise Lines, Ltd., 732 F.Supp.2d 328, 335 (S.D.N.Y. 2010) (citation omitted). The parties here provide no...