Opinion
No. 113492/2010.
2011-03-18
Kenneth D. WEISER and Peter Nussbaum, Petitioners v. ROBERT K. FUTTERMAN & ASSOCIATES, LLC, Respondent.
Nicole Liebman Esq., Wilson, Elser, Moskowitz, Edelman & Dicker LLP, White Plains, for Petitioners. Jeffrey Taub Esq., New York City, for Respondent.
Nicole Liebman Esq., Wilson, Elser, Moskowitz, Edelman & Dicker LLP, White Plains, for Petitioners. Jeffrey Taub Esq., New York City, for Respondent.
LUCY BILLINGS, J.
Petitioners seek to stay an arbitration demanded by respondent real estate brokerage firm, against petitioners as well as Mereof, LLC, to enforce an exclusive sales agreement that designates respondent the exclusive broker to sell Mereof's property and includes an arbitration provision. C.P.L.R. § 7503(b). Petitioner Weiser was a manager of Mereof from September 2003 to November 2009. Since then, petitioner Nussbaum has been a manager of Mereof. Petitioners claim they are neither subject to the arbitration provision nor liable for Mereof's breach of its obligations to respondent.
I. THE EXCLUSIVE SALES AGREEMENT
Respondent's written agreement with Mereof dated November 29, 2007, and signed by Weiser for Mereof conferred on respondent the exclusive right to sell, net lease, or otherwise dispose of Mereof's property at 75 Greenwich Avenue, Greenwich, Connecticut. Petitioners maintain that they are neither parties to nor beneficiaries of this agreement; they owned no interest in either Mereof or the 75 Greenwich Avenue property.
Most importantly for purposes of this proceeding, ¶ 8 of the agreement provides:
Any and all disputes arising out of or with respect to this Agreement shall be settled by arbitration before the American Arbitration Association in the County, City and State of New York. Arbitration shall be conclusive, final, and binding, with no right to appeal.
Pet. Ex. 2, at 2.
II. RESPONDENT'S DEMAND FOR ARBITRATION
On July 28, 2010, respondent filed with the American Arbitration Association (AAA) a demand for arbitration of respondent's claim against petitioners under the Exclusive Sales Agreement. Id., Ex. 2. Respondent also served petitioners with the demand, which they do not deny.
The parties' agreement does not set forth any requirements for service of a demand for arbitration. C.P.L.R. § 7503(b), which petitioners have invoked and which governs this proceeding, provides that: “Subject to the provisions of subdivision (c), a party who has not participated in the arbitration ... may apply to stay arbitration on the ground that a valid agreement was not made or has not been complied with....” C.P.L.R. § 7503(c) provides that:
A party may serve upon another party a demand for arbitration ... stating that unless the party served applies to stay the arbitration within twenty days after such service he shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with.... Such notice or demand shall be served in the same manner as a summons or by registered or certified mail, return receipt requested. An application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand, or he shall be so precluded.
Thus § 7503(c)'s requirements for service of an arbitration demand apply only where the party demanding arbitration seeks to impose a limitation of 20 days on the parties served to commence a proceeding to stay arbitration. Fiveco, Inc. v. Haber, 11 NY3d 140, 144 (2008); Matter of State Farm Mut. Auto. Ins. Co., 3 AD3d 418, 419 (1st Dep't 2004). See Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d 255, 262 (1997); Arc Elec. & Mech. Contrs. Corp. v. Invensys Bldg. Sys., 2 AD3d 314, 316–17 (1st Dep't 2003).
Absent respondent's opposition to the petition on those statute of limitations grounds, nothing dictates that respondent serve petitioners with their arbitration demand by any means. C.P.L.R. § 7503(b) allows petitioners, on the other hand, to seek “to stay arbitration on the ground that a valid agreement was not made or has not been complied with” free of any time limitation.
III. THE ARBITRATION
Petitioners mailed to the AAA a letter dated August 16, 2010, answering respondent's demand and maintaining that:
claims by RKF against the Individual Respondents [petitioners in this proceeding] are not subject to arbitration because the Individual Respondents did not sign the Exclusive Sales Agreement and, even if arbitrable, are without merit because the Individual Respondents are not personally responsible for any amount Mereof may owe RFK
....
Pet. Ex. 3, at 1. Petitioners' letter proceeds for another quarter of a page with a paragraph setting forth their position that petitioners did not sign an arbitration agreement. Their letter continues for a further page with two further paragraphs expounding on their position that petitioners are not liable as managers of Mereof, LLC, for respondent's claim. After petitioners answered respondent's demand, they advised respondent of arbitrators acceptable to petitioners, participated in selecting the arbitrator, and participated in multiple telephone conferences with the AAA's case manager.
On October 7, 2010, the AAA's arbitrator conducted a preliminary hearing via a telephone conference, in which petitioners again presented the defense set forth in their answer that they were not subject to arbitration. On this basis, they sought a ruling by the arbitrator on the arbitrability of respondent's claim against petitioners. The arbitrator ruled that he would decide the arbitrability issue as part of his final award, rather than as a preliminary issue. After petitioners were unsuccessful in obtaining a ruling from the arbitrator on the arbitrability of respondent's claim against them, they commenced this proceeding.
IV. PETITIONERS' PARTICIPATION IN THE ARBITRATION PRECLUDES THIS PROCEEDING.
Significantly, C.P.L.R. § 7503(b), as set forth above, entitles “only a party who has not participated in the arbitration” to “apply to stay arbitration on the ground that a valid agreement was not made.” Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 263. Therefore, when parties to arbitration of a claim, including parties who never executed an agreement to arbitrate, participate in the arbitration, they waive their right to a judicial determination of the arbitrability of the claim. United Fedn. of Teachers, Local 2, AFT, AFL–CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d 72, 78–79 (2003); Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 261, 264;Sims v. Siegelson, 246 A.D.2d 374, 377 (1st Dep't 1998); Matter of Smullyen, 201 A.D.2d 335, 336 (1st Dep't 1994). See Bevona v. Roxanne Mgt., 280 A.D.2d 254, 256 (1st Dep't 2001). Once they have taken part in the arbitration proceeding by serving and filing an answer to an arbitration demand and participated in selecting the arbitrator, they no longer are entitled to stay further progress of the arbitration proceeding, even if they are not subject to any arbitration agreement. Nachmani v. By Design, 74 AD3d 478, 479 (1st Dep't 2010); Matter of Smullyen, 201 A.D.2d at 336.See Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 261–62, 264;Matter of North Riv. Ins. Co., 291 A.D.2d 230, 233 (1st Dep't 2002); Lindenhurst Fabricators v. Iron Workers Local 580, 206 A.D.2d 282, 283 (1st Dep't 1994).
While petitioners have maintained the same position in the arbitration that they maintain here, that they never agreed to arbitrate respondent's claim under the exclusive sales agreement, they pressed forward with that defense in the arbitration. If they sought to stay the arbitration, the time to commence a judicial proceeding to that end would have been before filing their answer to the arbitration demand, or before selecting an arbitrator, or before participating in telephone conferences conducted by the AAA, or at least before raising their defense before the arbitrator and soliciting his ruling on it. See United Fedn. of Teachers, Local 2, AFT, AFL–CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d at 83;Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 262, 264;Arc Elec. & Mech. Contrs. Corp. v. Invensys Bldg. Sys., 2 AD3d at 317. They certainly did not need to wait for the arbitrator to point to their judicial remedy to take full advantage of their rights pursuant to C.P.L.R. § 7503(b).
Instead of acting promptly to pursue their judicial option, petitioners made a knowing, strategic decision to proceed with their selection of an arbitrator and their defenses before that arbitrator in the arbitral forum and ran the risk that he would not rule in their favor. United Fedn. of Teachers, Local 2, AFT, AFL–CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d at 83. Had petitioners prevailed via the preliminary hearing there, they never would have commenced the judicial proceeding. Their “calculated risk having backfired,” petitioners now seek to play a “trump card and cancel the outcome” of the very arbitration in which they participated voluntarily and fully, until it did not proceed their way. Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 264. “To encourage such unilateral advantage and forum-hedging would undermine arbitration principles and policies,” id., and amount to second-guessing the arbitrator. SeeC.P.L.R. § 7501; Sims v. Siegelson, 246 A.D.2d at 376.
In fact, petitioners are not without a remedy. By virtue of their participation in the arbitration, they are entitled to and may expect the arbitrator to consider their defense of nonarbitrability fully and, even if that defense is not meritorious, then their defense of nonliability that they have presented to the court as well. Had petitioners promptly sought a stay of the arbitration, they would have preserved their opportunity to litigate their position on the merits and perhaps accelerated it in the judicial forum, were petitioners also to prevail in relegating respondent to a judicial action for enforcement of the exclusive sales agreement against them. Commerce & Indus. Ins. Co. v. Nester, 90 N.Y.2d at 265. Having risked or at least acquiesced in the arbitration through their forum leveraging that brought them to the current stage in the arbitration and ultimately to court, they now are bereft of grounds to stay or vacate the arbitration proceeding. E .g., Sims v. Siegelson, 246 A.D.2d at 376.
V. CONCLUSION
For all the reasons discussed above, the court denies the petition for a permanent or temporary stay of arbitration and dismisses this proceeding. C.P.L.R. §§ 409(b), 7502(c), 7503(b). This decision constitutes the court's order and judgment denying the petition and dismissing the proceeding.