Opinion
Index No. 517827/2023
07-14-2023
C.W. Home Solutions, LLC DBA C.W. Home Solutions, LLC and Brian Stacey, Petitioner For an Order Pursuant to Article 75 of the CPLR, Permanently staying arbitration demanded by The LCF Group, Respondent.
Unpublished Opinion
AARON D. MASLOW, Justice of the Supreme Court.
The following numbered papers were read on this motion:
NYSCEF Document No. 1: Petition
NYSCEF Document No. 2: Order to Show Cause (Proposed)
NYSCEF Document No. 3: Emergency Affirmation of Dominick Dale
NYSCEF Document No. 4: Exhibit A - Agreement
NYSCEF Document No. 5: Exhibit B - Arbitration Demand
NYSCEF Document No. 6: Exhibit C - Affidavit of Robert Kleiber
NYSCEF Document No. 7: Discovery Requests
NYSCEF Document No. 8: Request for Judicial Intervention
NYSCEF Document No. 9: Order to Show Caused - Signed
NYSCEF Document No. 10: Notice of Filing of Notice of Removal
NYSCEF Document No. 11: Notice of Removal
Background
This matter came before the Court based on a merchant cash advance contract in which Petitioner C.W. Home Solutions, LLC sold $89,700.00 in future receivables to Respondent LCF Group, Inc. for $65,000.00. Claiming that Petitioner breached the contract by frustrating Respondent's access to draw receivables from Petitioner's designated bank account on or about May 26, 2023, Respondent filed for arbitration around June 1, 2023, seeking $79,239.93 in damages from Petitioner. This amount was the sum of $55,528.80 owed in receivables together with default fees of $5,000.00 and counsel fees of 33% of the original balance in the amount of $18,711.13. The arbitration was to take place before RapidRuling, as per the contract. (See NYSCEF Doc Nos. 1, 3-6.) Petitioner responded by commencing this special proceeding pursuant to Article 75, seeking a stay of the arbitration and court direction of discovery in aid of the arbitration in accordance with CPLR 3102 (c). The portion of the proposed order to show cause bringing on the petition for determination included a stay of the arbitration but it was crossed out by the Justice who signed it. That left the issue of pre-arbitration discovery. (See NYSCEF Doc Nos. 1, 9.)
While the caption on the order to show cause denoted the parties as "plaintiff" and "Defendant" (see NYSCEF Doc No. 9), the petition denoted them as "Petitioner" and Respondent" (see NYSCEF Doc No. 1).
Determination
On June 23, 2023, Respondent removed this special proceeding to federal court in the Eastern District of New York pursuant to 28 U.S.C §§ 1441 and 1446, asserting that the within action involves a dispute under the Federal Arbitration Act (see NYSCEF Doc Nos. 10-11). The matter was assigned Docket No.23-cv-04702 by the clerk of said court.
28 U.S.C §§ 1446 (d) provides: "Notice to adverse parties and State court.-Promptly after the filing of such notice of removal of a civil action the defendant or defendants shall give written notice thereof to all adverse parties and shall file a copy of the notice with the clerk of such State court, which shall effect the removal and the State court shall proceed no further unless and until the case is remanded."
Because removal was effected, this court no longer has the jurisdiction necessary to hear this case. Case law has held this to be so in the context of motions made within actions (e.g., Financial Freedom Acquisition, LLC v Braunsberg, 201 A.D.3d 788 [2d Dept 2022]; Lipin v Danske Bank, 130 A.D.3d 470 [1st Dept 2015]); see also Fire Ass'n of Phila. v General Handkerchief Corp., 304 NY 382 [1952] (holding that where a party's action was properly removed to federal court said party may not plead his cause of action as a counterclaim in an action subsequently brought against him in a state court).
In the aforecited cases of Financial Freedom Acquisition, LLC v Braunsberg and Lipin v Danske Bank, the respective Appellate Divisions affirmed the denials of motions in actions which had been removed to federal court. "The Supreme Court also properly denied, as academic, the defendants' motion pursuant to CPLR 6513 to dismiss the complaint insofar as asserted against them, and their separate motion to cancel the notice of pendency, because at that time, the action had been removed to federal court, leaving the court without jurisdiction to entertain those motions [citation omitted]" (Financial Freedom Acquisition, LLC, 201 A.D.3d at 792 [emphasis added]). "In these two related actions, the motion court properly denied plaintiff's motions for default judgments on the basis of lack of jurisdiction. Once the underlying actions were removed to the United States District Court for the Southern District of New York by the filing of the notice of removal with the state court, the state court no longer had jurisdiction to rule on plaintiff's motions (see 28 USC § 1446; Clayton v American Fedn. of Musicians, 243 A.D.2d 347 [1st Dept 1997])" (Lipin, 130 A.D.3d at 471 [emphasis added]).
A special proceeding, such as one commenced pursuant to Article 75 with respect to an arbitration, "is a civil judicial proceeding in which a right can be established or an obligation enforced in summary fashion. Like an action, it ends in a judgment (CPLR 411), but the procedure is similar to that on a motion (CPLR 403, 409). Speed, economy and efficiency are the hallmarks of this procedure." (Vincent C. Alexander, Prac Commentaries, McKinney's Cons Laws of NY, CPLR C401:01.)
Nonetheless, this Court finds that the within petition commencing the special proceeding cannot be denied due to lack of jurisdiction as would a motion in an action under these circumstances. To deny the petition would effectuate a resolution of the underlying dispute - whether there should be pre-arbitration discovery. Now that the special proceeding was removed to the federal court, it is the latter who must make such determination. This special proceeding must be treated as an action would under the circumstances (see Byrne v Lathrop, Shea & Henwood, 60 Misc. 350 [Sup Ct, Albany County 1908]), and no determination of the petition can be made other than to direct the Clerk of this Court to mark this matter as "Removed to United States District Court for the Eastern District of New York, Docket No. 23-cv-04702."