ELECTRONIC DATA SYSTEMS CORPORATION v. REDDY

LEONARD DAVIS, United States District Judge

Defendant Michael T. Reddy ("Reddy") has filed a Motion to Compel Arbitration and Stay Proceedings Pending Arbitration of the disputes raised in this matter pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (Docket No. 8). Having considered the parties' written submissions and the applicable law, the court grants Defendant's Motion to Compel Arbitration and Stay Proceedings Pending Arbitration.

This dispute concerns Reddy's conduct during the course of his employment with the Plaintiff, Electronic Data Systems Corporation ("EDS"). In 1995, EDS, which is headquartered in Plano, Texas, acquired a business located in New York, New York, known as FCI, Inc. ("FCI"). Defendant owned a majority interest in FCI and ran the business. After the acquisition, FCI became a division of EDS operating in New York as the Global Security Industries Group, and finally known as the Global Financial Markets Group. In connection with the acquisition, Reddy and EDS entered into an Employment Agreement dated May 1, 1995; an Incentive Compensation Agreement dated May 1, 1995 (which was later amended in part by an Incentive Compensation Agreement dated January 1, 1996); an Escrow Agreement dated May 5, 1995, and an Agreement of Amendment dated March 1, 1998, which amended, in part, both the Employment Agreement and the Incentive Compensation Agreements (collectively "Agreements"). On December 21, 1999, Reddy was informed of EDS's decision to terminate his employment for cause.

In its Complaint, EDS asserts four broad areas of alleged misconduct that are related to or arise out Reddy's employment with EDS: (i) claims relating to the booking of certain accounts receivable at year-end 1995; (ii) claims relating to the alleged "substitution" of certain receivables in 1998; (iii) claims relating to the booking of certain"bad receivables" in 1997 and their alleged replacement with other receivables in 1998; and (iv) claims relating to the alleged "re-direction" of monies. Based on these allegations, EDS has brought claims against Reddy for negligence, gross negligence, fraud, and breach of contract.

In his Motion to Compel Arbitration, Reddy argues that under the Agreements, EDS is required to arbitrate any dispute or controversy arising out the agreements. EDS acknowledges that its damages sustained as a result of Reddy's alleged negligence, gross negligence, fraud, and breach of contract all arise from and are related to Reddy's contractual right to payments under the Employment Agreement and other related agreements. Moreover, EDS concedes that a valid agreement to arbitrate existed between Reddy and EDS and it does not challenge the scope of the arbitration agreement. Instead, without citation to any authority, EDS argues that Reddy waived his right to compel arbitration of EDS's claims in this lawsuit by failing to submit a notice of intent to arbitrate within 120 days of the termination of his employment. EDS further states that based on the 120 day time limitation, "the extent any of EDS' claims in this case were in fact arbitrable, the deadline to initiate arbitration expired on June 19, 2000, and therefore, litigation in this Court of all EDS' claims is completely appropriate." See Pl.'s Resp. at 13.

Article 9.4 of the Employment Agreement between EDS and Reddy provides that "[a]ny dispute or controversy arising out of or related to this Agreement shall be resolved in accordance with the dispute resolution and arbitration procedures set forth in Addendum 1 to this agreement." Article 2.8 of the Incentive Compensation Agreement similarly requires that "[a]ny dispute or controversy arising out of this Agreement that the parties are unable to resolve through informal discussions or negotiations shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association." Further, article 4(c) of the Escrow Agreement requires the submission to arbitration of "any dispute" with respect to the payment of monies held in escrow.

All of the Agreements are interrelated and specifically refer back to the Employment Agreement. See May 1, 1995 Incentive Compensation Agreement, p. 1, ¶ 2 under "Recitals"; January 1, 1996 Incentive Compensation Agreement, p. 5, ¶ 6.2, specifically incorporating the May 1, 1995 Incentive Compensation Agreement; and the March 1, 1998 Agreement of Amendment, p. 1, ¶ 1 under "Witnesseth." Paragraph 9 of the Employment Agreement provides:

This agreement together with Addendum 1 hereto, the Incentive Compensation Agreement and the Stock Purchase Agreement constitutes the entire agreement with respect to the subject matter hereof and the complete and exclusive statement thereof.

Although all of these Agreements mention arbitration as a remedy, the Employment Agreement is the only one to provide the specific procedures to be followed in connection therewith. Addendum 1 to the Employment Agreement, entitled "Dispute Resolution and Arbitration Procedures," grants an aggrieved employee certain rights in the event of his or her termination. The Addendum permits a terminated employee to dispute his or her termination by initiating an internal grievance proceeding with EDS. Section II and III of the Addendum states:

If the Employee disagrees with the final written decision [on his or her grievance], within 120 days of the date of the decision, the Employee may submit the Dispute in writing to final and binding arbitration. . . . Failure to demand arbitration within the 120 day submission limitation set forth in the Dispute Resolution Procedure is intended to, and shall to the greatest extent permitted by law, act as a waiver and release with respect to all of the Employee's Disputes. In addition, absent a timely submission to arbitration, an arbitrator has no authority to resolve the Disputes or render an award. (emphasis added).

After he was terminated by EDS, Reddy failed to initiate arbitration proceedings within 120 days after his termination.

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., creates "a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hosp. v. Mercury Const., 460 U.S. 1, 25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Section 2 of the FAA provides that a written arbitration agreement in any contract involving interstate commerce is valid, irrevocable, and enforceable except on grounds that would permit the revocation of a contract in law or equity. Moses H. Cone Memorial Hosp., 460 U.S. at 25. "The Supreme Court has made it clear that the [FAA], establishes a `liberal policy favoring arbitration' and a `strong federal policy in favor of enforcing arbitration agreements.'" Personal Security Safety Systems, Inc. v. Motorola, Inc., 297 F.3d 388, 392 (5th Cir. 2002) (quoting Texaco Exploration and Prod. Co. v. Am-Clyde Engineered Prod. Co., Inc., 243 F.3d 906, 909 (5th Cir. 2001) (citations omitted)). Section 4 of the FAA allows a party to seek an order compelling arbitration if the other party has failed to arbitrate under a written arbitration agreement.

By its terms, the time limitation in the Addendum to the Employment Agreement is applicable to disputes initiated by the employee concerning the termination of his employment. The fact that Reddy did not seek to initiate arbitration before the 120 day deadline does not lead to the conclusion that he waived the right to compel arbitration of EDS's claims against him in this lawsuit, which EDS admits arise from and are related to the Agreements. In the Agreements, the parties agreed to arbitrate any dispute or controversy that arose out of the Agreements. Thus, the court finds that all of EDS's claims are covered by the arbitration provisions contained in the Agreements and these claims shall be submitted to arbitration in accordance with the terms of the parties' Agreements.

Accordingly, Defendant's Motion to Compel Arbitration is GRANTED.

It is further ORDERED in accordance with Section 3 of the FAA that this proceeding is stayed pending the completion of arbitration.