Opinion
No. 300059/2009.
2010-05-12
In the Matter of The arbitration of Certain Controversies Between PRE–SETTLEMENT FINANCE, LLC, Petitioner, v. Debra L. LIVA; Andrew Toscano; Gene Toscano, Inc., Defendants.
Law Offices of Raul J. Sloezen, Esq, New York, for Plaintiff. Marshall R. Isaacs, New York, for Plaintiff.
Law Offices of Raul J. Sloezen, Esq, New York, for Plaintiff. Marshall R. Isaacs, New York, for Plaintiff.
KATHERINE A. LEVINE, J.
Petitioner Pre–Settlement Finance, LLC (“petitioner” or “PSF”) commenced this proceeding, pursuant to CPLR §§ 7510 and 7514, to confirm an arbitration award rendered against Debra L. Liva (“Liva”), Andrew E. Toscano (“Toscano”) and the law firm of Gene Toscano, Inc (collectively “the Toscanos”). The Toscanos oppose the motion and argue that the arbitration award should be vacated because they were not subject to personal jurisdiction under New York's long-arm jurisdiction and hence, the arbitrator lacked personal jurisdiction over them. They also allege the arbitrator's award should be vacated because they were neither parties nor signatories to any agreements with the petitioner and have never acknowledged the PSF's lien. Finally, they also assert that Liva committed fraud by testifying at the arbitration hearing that she believed the Toscanos were liable to petitioner. Liva does not oppose the motion.
In 2002 Liva, a Texas resident, suffered personal injuries after an accident. In 2003 she retained Jeffrey Waren (“Waren”) to represent her in the lawsuit against Master Craft Plumbing Inc (“Master Craft”) in Texas. Around this time, Liva entered into three agreements (“agreements”) with the petitioner, whereby the petitioner would advance cash to Liva and Liva would pay the petitioner cash proceeds contingent upon a successful settlement, judgment or verdict against Master Craft. The agreements provided that they would be fully valid and binding upon all individuals and entities that became entitled to make decisions concerning the money for the disposition of the lawsuit. The agreements further stated that Liva must instruct her counsel to pay PSF in accordance with the disclosure statements on the agreements. Liva further acknowledged that attorney's fees and case preparation costs were to be paid prior to repayment of the petitioner's lien, and promised to notify petitioner if she ever switched her attorneys. Finally, the agreement provided that any and all disputes arising from the agreement would be determined in a court of competent jurisdiction in New York.
Liva's original attorney was not a signatory to the agreement but signed attorney acknowledgment letters. Liva switched attorneys and transferred her case to the Toscanos in June of 2004. When the Toscanos ultimately settled the case for $350,000, they distributed the money to both Liva and themselves; neither paid off the PSF lien.
On December 21, 2006, PSF filed a demand for arbitration with the American Arbitration Association (“AAA”) against Liva, the Toscanos and Waren, seeking reimbursement based on their alleged breach of contract for failing to pay PSF its assigned share. Waren settled with the petitioner and was removed as the defendant. The Toscanos filed two actions in Texas seeking to enjoin the arbitration on the grounds that they were not subject to the agreement for final and binding arbitration in New York. The Texas U .S. District Court ultimately denied the Toscanos any relief.
In response, PSF, by Order to Show Cause, filed a complaint in Supreme Court, Richmond County seeking to enjoin the Toscanos from litigating any matter arising from this case in Texas and to compel arbitration. The Toscanos failed to appear in Supreme Court, Richmond County or submit an answer or papers in opposition to the Order to Show Cause. By Order dated November 27, 2007, the Richmond County Supreme Court (Gigante, J.S.C.) barred the Toscanos from litigating in Texas and compelled them to participate in the pending arbitration proceeding.
An evidentiary hearing was held before the arbitrator on January 31, 2008, and post hearing briefs were submitted by Liva and PSF. The Toscanos failed to appear or submit any documents after due notice. By decision dated April 2, 2008, the arbitrator first reviewed the underlying agreement which provided that any claim would be settled by final and binding arbitration. He then found that the agreement put the Toscanos, as Liva's attorneys, on notice of their obligation to either pay their full share before releasing any monies to Liva or to set aside disputed funds in escrow pending the resolution of any dispute between Liva and PSF. Additionally, Liva was not to receive any settlement proceeds until PSF had received its entire assigned share.
The arbitrator then found that both Liva and Waren had abrogated their duty to inform PSF that Waren had ceased representing Liva. The arbitrator referred to certain statements Waren made in interrogatories that he delivered Liva's entire file, which contained documents pertaining to cash advances from PSF, to the Toscanos, and thus he told Toscano that Liva had borrowed money from PSF to which Toscano responded that he did not mind since the attorney gets paid first. Waren also asserted that he asked Toscano why he did not pay the PSF lien during the disbursement of Liva's funds and Toscano responded that Liva wanted to pay PSF so he gave her the money. The arbitrator found that these statements were not rebutted in the proceeding.
The arbitrator also memorialized that at the hearing, Liva stated that after retaining the Toscanos, they became aware of the PSF lien. She testified that after receiving “the remainder of the settlement proceeds” from the Toscanos, she did not set aside a sum certain in escrow for PSF because she though it was the obligation of the Toscanos to pay PSF out of monies the law firm received as its compensation for representing Liva.
The arbitrator found that Liva had breached the PSF funding agreement by knowingly receiving net settlement proceeds, which included PSF's share, and failing to remit this amount to PSF. He also found the Toscanos to be jointly and severally liable to PSF for all losses caused by Liva's breach of contract and for their breach of fiduciary duty. Specifically, the arbitrator found that the Toscanos were Liva's attorneys of record on her personal injury case and had copies of funding agreements in Liva's client files, and hence knew of PSF's assigned share of the settlement proceeds and the lien. After they settled Liva's claims and received the settlement proceeds, the Toscanos failed to comply with the agreements to PSF and released PSF's money to Liva in violation of the agreements.
By order dated April 27, 2009, Supreme Court, Richmond County (1) reiterated its previous ruling which bound the Toscanos to arbitrate their claims with PSF; (2) found in personam jurisdiction over the Toscanos based on the agreements' choice of law clause, the arbitration venue provisions and choice of forum, and the defendants status as Liva's attorney-agents as well as the applicability of the Federal Arbitration Act (9 USC xx 1–14) and CPLR Article 75); (3) found that the arbitration award issued on April 2, 2008, fully settled all claims submitted by PSF to the arbitration forum, including the validity of the agreements under the New York State laws, and (4) prohibited the Toscanos from attempting to relitigate any controversies disposed of by the arbitration award based on their failure to move to vacate or modify the arbitration award within the ninety day time period.
Pursuant to CPLR x 7510, a court shall confirm an award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in CPLR x 7511. An arbitrator's award may be vacated only upon the grounds specified in CPLR 7511. Blamowski v. Munson Transportation Inc., 91 N.Y.2d 190 (1997). Subsection (b)(1) of the statute provides, in relevant part, that “the award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate if the court finds that the rights of that party were prejudiced by: (i) ... fraud ... in procuring the award; or ... (iii) an arbitrator making the award exceeded his power. CPLR x 7511.
Here, defendants argue that the arbitration award should be vacated because the arbitrator erred in subjecting the Toscanos to personal jurisdiction and because Liva allegedly committed fraud during the arbitration proceeding. However, the issue of jurisdiction previously was decided by the Supreme Court, Richmond County in its order compelling the Toscanos to arbitrate. In contending that they are not subject to personal jurisdiction in New York, the Toscanos are in essence seeking to relitigate the very issue that was ruled upon by the Supreme Court, Richmond County-namely that the Toscanos are subject to the arbitration award and New York in personam jurisdiction, and are bound by the agreements.
It is well established that a trial court does not have subject matter jurisdiction over a collateral attack on another's court ruling on personal jurisdiction. Weinstock v. Citibank, 289 AD2 326 (2nd Dept.2001), citing Mitchell v. Insurance Co., 40 A.D.2d 873, 874 (2nd Dept.1972); Tormasello Bros. Inc. v. Friedman, 57 Misc.2d 817, 819 (Sup.Ct., Nass.Co.1968). A trial court has no revisory or appellate jurisdiction to correct, amend or change in substance a judgment rendered by another court. Timoney v. Newmark & Co. Real Estate, Inc., 2005 WL 6051374 (S.Ct. Nassau Co.2005), aff'd36 AD3d 686 (2nd Dept.2007); Kology v. Maplewood Homes, Inc., 36 A.D.2d 538 (2nd Dept.1971).
Pursuant to CPLR 5015(a)(4), “when a motion is granted upon default, the defaulting party is statutorily barred from taking an appeal from the resulting order, and its sole remedy is a motion to vacate the order entered upon its default. Lauer v. City of Buffalo, 53 AD3d 213 (4th Dept.2008). See, CPLR 5511; Wohl v. Wohl, 26 AD3d 326, 327 (2d Dept.2006). Therefore, defendants claim that personal jurisdiction was not properly obtained, and they were not subject to the arbitration award, had to be argued in a motion to vacate the default judgment rendered by Supreme Court, Richmond County. See, European Am. Bank & Trust Co. v. Serota, 242 A.D.2d 363 (2nd Dept.1997).
Furthermore, the doctrine of res judicata bars this court from entertaining the Toscanos claim that New York cannot assert personal jurisdiction over them. In New York res judicata bars relitigation of personal jurisdiction as well as other issues. V.I.P. Personnel System Int'l v. Luce & Co., 1983 U.S. Dist. LEXIS 17529 (S.D.NY 1983). See, A. Millner Company v. Noudar, LDA, 24 A.D.2d 326, 327 (1st Dep't 1966). “The doctrine of res judicata holds that a valid final judgment bars future actions between the same parties for the same cause of action.... [T]he judgment in the former action is conclusive in the later [sic], not only as to matters actually litigated therein, but also to any that might have been litigated.” V.I.P. Personnel System, supra, citing Hyman v. Hillelson, 79 A.D.2d 725, 725–726 (3d Dep't), aff'd55 N.Y.2d 624 (1981). The issue of whether personal jurisdiction could be obtained over the Toscanos in New York was fully and fairly litigated in Supreme Court, Richmond County.
Finally, the Toscanos have failed to establish that Liva “committed fraud” in front of the arbitrator. An arbitration award may be vacated when a party can prove that the award “was procured by corruption, fraud or misconduct.” CPLR x 7511 (b)(1) However, “a party seeking to vacate an arbitration award has a heavy burden in establishing that the award violates a strong public policy, is irrational or clearly exceeds a specifically enumerated limitation on an arbitrator's power under CPLR 7511(b)(1).” Scollar v. Cece, 28 AD3d 317 (1st Dept.2006). Arbitrators have broad discretion to decide what evidence should be presented. Engel v. Refco, Inc., 193 Misc.2d 91, 108 (Sup.Ct., N.Y. Co.2002). See, e.g., GFI Securities, LLC v. Labandeira, No.2002 U.S. Dist LEXIS 4932 (SD N.Y.2002). To warrant vacatur of an arbitration award, a ruling must be egregious and deny a party fundamental fairness. Id. See also, Mtr. of New York State Correctional Officers & Police Benevolent Assn. v. State of New York, 94 N.Y.2d 321, 326 (1999). A mere assertion that a party to an arbitration did not testify truthfully does not rise to this level.
Accordingly, the petitioner's motion to confirm the arbitration award is granted.
The foregoing shall constitute the Decision and Order of the Court.