Opinion
Index No. SC91123/HE
09-07-2023
Taylor Lewis, Plaintiff, v. Coral House on Milburn Lake, Defendant.
Marc M. Isaac, Esq Law Office of Marc M. Isaac PLLC
Unpublished Opinion
Marc M. Isaac, Esq Law Office of Marc M. Isaac PLLC
ARI SCHULMAN, JUDGE
Overview
Defendant, a catering hall, made an oral application for an order dismissing an action by plaintiff customer and compelling arbitration. The court found that the arbitration clause in the catering hall's contract sidestepped the customer's right to seek judicial resolution of a dispute through a small claims action. Thus, it fell within the protection of General Business Law § 399-c(2)(a), (b).
Preliminary Statement
On February 6, 2017, the plaintiff, Taylor Lewis, (hereinafter, "Plaintiff"), entered into an agreement with defendant, the Coral House on Milburn Lake, a restaurant (hereinafter, "Defendant"), for it to provide catering services for plaintiff's sweet sixteen party. The agreement between the plaintiff and defendant contained a binding arbitration clause to resolve any claim arising thereunder.
On June 20, 2023, the plaintiff commenced an action against defendant. On the small claims complaint form, plaintiff stated that she sought to recover the sum of $550.00, based on theories of breach of contract.
On August 28, 2023, the return date, defendant moved to dismiss the case. More specifically, defendant asserted that the Court lacked jurisdiction because the contract between the parties contained an arbitration clause. The plaintiff argued that the arbitration rules carve out an exception for small claims cases pursuant to the American Arbitration Association's (hereinafter, "AAA") Consumer Rule No. 9(a). The plaintiff also maintained that the cost of arbitration far exceeded the damages sought under the contract. After a thorough review of the parties' arguments, the Court reaches the following decision.
While no specific provisions were cited, it appears that counsel sought an order directing arbitration pursuant to C.P.L.R. § 7503(a) ("A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration").
The plaintiff sought to provide the Court her cellphone, which contained the applicable rules. Although the Court, due to internal courthouse rules, was unable to accept the plaintiff's cellphone, judicial notice of the AAA's Consumer Rules is appropriate because the contents of the rules were not subject to dispute and can be accurately and readily determined from the AAA's Consumer Rules whose accuracy cannot reasonably be questioned.
The Issue
Whether a clause in the Coral House contract - that "[a]ny dispute under this [a]greement must be brought for resolution to the American Arbitration Association"-is enforceable, or deemed null and void pursuant to General Business Law § 399-c(2)(a), (b). See Defendant's Exhibit A (copy of contract between the parties).
Discussion
The arbitration clause in the contract states that "[a]ny dispute under this Agreement must be brought for resolution to the American Arbitration Association." See Defendant's Exhibit A.
It is well settled that under both federal and state law, the Court must compel arbitration under the appropriate circumstances. Under federal law, the Court is mandated to enforce the arbitration clause pursuant to the Federal Arbitration Act (hereinafter, "FAA"), which was enacted in response to widespread hostility to mandatory arbitration clauses (see Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 581 [2008]); see also Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983) (the FAA expresses a "liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policy to the contrary"). The FAA is intended to cover all transactions "affecting commerce." Citizens Bank v. Alafabco, 539 U.S. 52 (2003).
Under New York law, the Court is required to enforce the arbitration clause "without regard to the justiciable character of the controversy." C.P.L.R. § 7501. Upon application, the Court shall stay the proceeding and grant an order compelling arbitration. Id. at §7503. See Shiffer v. Slomin's, Inc., 2015 N.Y.Misc. Lexis 1084, 2013 NY Slip. Op. 23046 (App. Term. 2d, Mar. 30, 2015) (Court required to enforce arbitration agreement where, among other things, defendant, a multi-state security company that monitored and purchased components of its alarm systems from several states, established sufficient nexus with interstate commerce).
However, there are instances where the Court cannot enforce the arbitration clause in a contract. General Business Law § 399-c prohibits mandatory arbitration clauses in consumer contracts. Indeed, pursuant to that statute, "[n]o written contract for the sale or purchase of consumer goods, entered into on.... shall contain a mandatory arbitration clause." Id. A consumer contract is a contract for the purchase of consumer goods as defined in General Business Law § 399-c(1)(b). That statute defines the term "consumer goods" to mean "goods, wares, paid merchandise or services purchased or paid for by a consumer, the intended use or benefit of which is intended for the personal, family or household purposes of such consumer."
In this case, the parties' contract was a contract for consumer goods. Indeed, the plaintiff, a consumer (see General Business Law § 399-c[1][c]) entered into a contract with the defendant, a catering hall, which agreed to provide services to the plaintiff in connection with her sweet sixteen party. See Defendant's Exhibit A. These services were clearly for the plaintiff's personal and family use. See General Business Law § 399-c(1)(b).
Furthermore, the evidence established that the subject contract contains a mandatory arbitration clause and required binding arbitration. See Defendant's Exhibit A at para. 14. Therefore, absent other considerations, the mandatory arbitration clause contained in the contract at issue would be "null and void" under General Business Law § 399-c (2)(b).
Moreover, even assuming, arguendo, the contract at issue did not fall within the definition of a consumer contract, if the rules governing the arbitration provide for a carveout, the plaintiff may still be able to maintain her small claims action without first filing for arbitration. See Caponera v. Atlantic Bldg. Inspection Serv., 2020 NY Misc. LEXIS 5, 2020 NY Slip. Op 20001 (Cty. Ct. Alb. Cnty. 2020) (consumer can avoid arbitration and go to small claims court where, inter alia, arbitration clause incorporated small claims exception).
Here, the plaintiff maintained that there is an exception in the arbitration rules for small claims cases. Indeed, the contract requires the arbitration to be "brought for resolution to the American Arbitration Association." See Defendant's Exhibit A. The AAA applies a special set of rules - the Consumer Arbitration Rules - in consumer cases. A consumer case is one that arises between a consumer and a business and involves "the purchase of standardized, consumer goods or services [that] are non-negotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices" (Rule 1[a]).
Moreover, because the plaintiff's contract falls within the definition of a consumer contract (see supra), the Consumer Arbitration Rules do apply. See Byrnes v. Castaldi, 72 A.D.3d 718 (2d Dep't 2010) (finding binding arbitration clause void where, among other things, contract for construction of home on land owned by "consumers" was encompassed with definition of "consumer goods") (citation in original).
Since the Arbitration rules are applicable, the Rules are deemed essential terms to the contract. See Rule 1 ([w]hen parties have provided for the [AAA]'s rules... as part of their consumer agreement, they shall be deemed to have agreed that the [Consumer Rules] shall be an essential term of their consumer agreement"). Therefore, either the business or the consumer may file a case in small claims court without having to go through small claims. Indeed, Rule 9(a) provides that "[i]f a party's claim is within the jurisdiction of a small claims court, either party may choose to take the claim to that court instead of arbitration.... without first filing with the [AAA]." See Consumer Rule 9(b) (any part, after a case is filed with the association, but before the arbitrator is formally appointed, to opt out of arbitration and opt into small claims court).
Therefore, upon exercising her right to opt out of arbitration under the rules established by the contract, there is nothing that forces the Court to stay the action. Indeed, this action can proceed to trial in District Court, small claims.
Thus, defendant's oral motion to compel arbitration under C.P.L.R. § 7503 is denied.
This constitutes the order of the Court.
SO ORDERED.