Opinion
Index No. 800583/22E
03-17-2023
Worbes Corporation and ZVI SEBROW, Plaintiff(s), v. Betty Sebrow AND BETTY SEBROW AS ADMINISTRATOR OF THE ESTATE OF DAVID SEBROW, Defendant(s).
Counsel for Plaintiffs: Law Office of Jan Meyer & Associates, PC Counsel for Defendants: Farrell fritz, PC
Unpublished Opinion
Counsel for Plaintiffs: Law Office of Jan Meyer & Associates, PC
Counsel for Defendants: Farrell fritz, PC
Fidel E. Gomez, J.
In this action for, inter alia, declaratory judgment, arising from the death of DAVID SEBROW (DS), who prior to his death owned 50 percent of the common stock of plaintiff WORBES CORPORATION (Worbes), plaintiffs move seeking an order pursuant to CPLR § 7503(a), compelling defendants to participate in arbitration, pursuant the Worbes' Stockholders Agreement. Plaintiffs aver that because paragraph 9 of the foregoing agreement contains an arbitration clause, the ambit of which the instant action falls, compelling arbitration is warranted. Defendants oppose the instant motion, asserting that by initiating and then extensively litigating the instant action before this Court, plaintiffs have waived the right to arbitration.
For the reasons that follow hereinafter, plaintiffs' motion is denied.
The instant action is for declaratory judgment, tortious interference with prospective business relations, abuse of process, malicious prosecution, and breach of fiduciary duty. The complaint alleges that plaintiff ZVI SEBROW (ZS) owns 50 percent of the stocks in Worbes, a corporation, whose sole asset is real property located at 815 East 135 Street, Bronx, NY (815), and whose exclusive business is to own, hold, and operate 815. Worbes is governed by a Stockholder's Agreement (the agreement), dated January 2, 1997. When the agreement was executed, the shares in Worbes were equally owned by Abraham Sebrow (AS), Joseph Sebrow (JS), ZS, and DS, who each held 25 percent of the shares. Pursuant to the agreement, absent a testamentary disposition, the transfer of any of the shares in Worbes is prohibited unless agreed upon by all other stockholders. Upon AS' death in 2000, per AS's previous testamentary disposition, ZS became owner of 50 percent of the shares in Worbes. Similarly, upon JS' death, per JS' previous testamentary disposition, DS became 50 percent owner of the shares in Worbes. In 2017, DS, who was by then married to defendant BETTY SEBROW (BS), died and his shares in Worbes reverted back to Worbes. Moreover, in 2018, ZS determined that Worbes could no longer operate profitably and seeking to wind up its affairs, arranged for the sale of 815. Because Worbes lacked the funds to pay taxes for 815, ZS personally paid at least $437,138.78 to prevent a tax lien foreclosure. In 2019, BS filed an action seeking a declaration that upon DS's death she and DS' estate became owners of 50 percent of the shares in Worbes. The foregoing action was dismissed, BS filed an appeal, moved to reargue the Court's decision, and both the appeal and the motion are still pending. Because defendants' actions have clouded 815's title, attempts to procure defendants' consent to sell 815 have proved fruitless and defendants continue to interfere with plaintiffs' efforts to sell 815. In 2021, a tax lien foreclosure action was initiated against Worbes and BS and is currently pending. ZS currently lacks the funds to pay the taxes due by 815, which continue to accrue interest. On January 5, 2022, ZS entered into a contract on behalf of Worbes to sell 815 to Maujer, LLC (Maujer) for $5,500,000. The foregoing contract discloses the existence of this action and the prior action, which, if decided against plaintiffs, would impact plaintiffs' ability to consummate the transaction.
On April 8, 2022, this Court granted plaintiffs' application for a mandatory preliminary injunction, authorizing the sale of 815. On June 14, 2022, after the sale, per the Court's directive, $4,056,969.77, which plaintiffs represented were the net proceeds of the sale, was deposited with the court.
On May 19, 2022, the Appellate Division, First Department affirmed dismissal of the related action.
On May 19, 2022, the Court (Brigantti, J.) denied BS' motion seeking to reargue the order dismissing the related action.
Based on the foregoing, plaintiffs seek a declaratory judgment declaring that defendants do not own any of shares in Worbes.
Plaintiffs also interpose a cause of action for tortious interference with prospective business relations premised on defendants' conduct - namely the initiation of the prior action - which conduct has prevented plaintiffs from selling 815. Based on the foregoing, plaintiffs also interpose claims for abuse of process and malicious prosecution, adding that the prior action was baseless and lacked probable cause. Lastly, plaintiffs interpose a claim for breach of fiduciary duty, asserting that if it is found that defendants own any shares in Worbes, the refusal to consent to the sale of 815 unless their demands are met constitutes a breach of the duty of loyalty to Worbes, solely for financial gain.
On December 5, 2022, defendants interposed an answer, containing several counterclaims, including one for a declaratory judgment. Significantly, defendants seek declaration that irrespective of the language in the agreement, defendant BETTY SEBROW, AS EXECUTOR OF THE ESTATE OF DAVID SEBROW (EEDS), owns DS' Worbes' stock, which she acquired by operation of the law of intestacy.
Plaintiffs' motion seeking to compel arbitration is denied. Significantly, the record establishes that plaintiffs' significant litigation in this action, specifically, a motion seeking summary judgment, is tantamount to a waiver of their right to arbitrate the issues between the parties authorized by the agreement.
Pursuant to CPLR § 7503(a), a party can seek leave from a court to compel arbitration. Significantly, [a] party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate. Where any such question is raised, it shall be tried forthwith in said court. If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action. If the application is granted, the order shall operate to stay a pending or subsequent action, or so much of it as is referable to arbitration.
Conversely, pursuant to CPLR § 7503(b), a party against who arbitration has been initiated, may ask a court to stay arbitration. Significantly, a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration, may apply to stay arbitration on the ground that a valid agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502.
While not an enumerated basis under the CPLR, it is well settled that the right to arbitrate promulgated by an agreement between the parties can be waived. Significantly, "[a]n arbitration provision can be modified by a subsequent agreement based upon a consideration, or waived or abandoned by the agreement or action of the parties" (Zimmerman v Cohen, 236 NY 15, 19 [1923]; see Cusimano v Schnurr, 26 N.Y.3d 391, 400 [2015] ["Like contract rights generally, a right to arbitration may be modified, waived or abandoned" [internal quotation marks omitted].; Stark v Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 [2007]; Sherrill v Grayco Builders, Inc., 64 N.Y.2d 261, 272 [1985]; City of Yonkers v Cassidy, 44 N.Y.2d 784, 785 [1978]; Great N. Assoc., Inc. v Cont. Cas. Co., 192 A.D.2d 976, 978 [3d Dept 1993]; Flynn v Labor Ready, Inc., 6 A.D.3d 492, 493 [2d Dept 2004]; Zuber v Commodore Pharm., Inc., 24 A.D.2d 649, 650 [2d Dept 1965]). Indeed, "the right to arbitrate is not unfettered and irrevocable" (Spirs Trading Co., Ltd. v Occidental Yarns, Inc., 73 A.D.2d 542, 543 [1st Dept 1979]; United Paper Mach. Corp. v DiCarlo, 19 A.D.2d 143, 144 [4th Dept 1963], affd sub nom. United Paper Mach. Corp. v Di Carlo, 14 N.Y.2d 814 [1964]), and a party, by his conduct, can waive the right to arbitrate granted by an agreement between the parties (Esquire Indus., Inc. v E. Bay Textiles, Inc., 68 A.D.2d 845, 846 [1st Dept 1979] ["Indeed by reason of its conduct in obtaining a judgment staying arbitration on the ground that plaintiff had waived the right to arbitration by bringing an action at law, defendant should be deemed estopped from claiming that plaintiff is barred by the arbitration clause from suing at law."]; In re Redmond, 39 A.D.2d 527, 527 [1st Dept 1972], affd sub nom. Redmond v Redmond, 32 N.Y.2d 644 [1973]; Zuber at 650; United Paper Mach. Corp. at 144 ["Both of the parties may abandon this method of settling their differences, and under a variety of circumstances one party may waive or destroy by his conduct his right to insist upon arbitration."]).
The relevant inquiry with respect to waiver is whether there is evidence of the relinquishment of a known right and/or an intent to abandon the right to arbitrate (Spirs Trading Co., Ltd. at 543). As it relates to arbitration and the waiver thereof by conduct, the specific inquiry is whether the proponent of arbitration, by his actions, has elected to proceed and/or resolve the otherwise arbitral dispute between the parties in a "judicial arena" (id. at 543; see Zimmerman at 19 ["Upon these facts, whatever right the defendant may have had under his contract and the Arbitration Law to enforce arbitration he deliberately waived; he chose and elected to proceed by an action in court for the determination of the respective claims."]; Flynn at 493; Great N. Assoc., Inc. at 978-979; Esquire Indus., Inc. at 846 ["Indeed by reason of its conduct in obtaining a judgment staying arbitration on the ground that plaintiff had waived the right to arbitration by bringing an action at law, defendant should be deemed estopped from claiming that plaintiff is barred by the arbitration clause from suing at law."]). In addressing waiver, courts usually consider "the amount of litigation that has occurred, the length of time between the start of the litigation and the arbitration request, and whether prejudice has been established" (Cusimano at 400; NBC Universal Media, LLC v Strauser, 190 A.D.3d 461, 461 [1st Dept 2021]).
Generally, the initiation of a plenary action by a party who would otherwise be entitled to arbitration results in the waiver of the right to then seek arbitration (Cusimano at 400; Spirs Trading Co., Ltd. at 543; Hadjioannou v Avramides, 40 N.Y.2d 929, 931 [1976]; Esquire Indus., Inc. at 846; Solow at 786; In re Redmond at 527; Great N. Assoc., Inc. at 979). However, the mere fact that a party, who would otherwise be entitled to arbitration participates in a judicial action or avails itself of a remedy accorded to it by a court is not, in and of itself, a waiver (Stark at 67; Sherril at 273). This is particularly true with respect to a defendant, who seeks arbitration, but against whom a plenary action is brought. As the court in De Sapio noted [t]he crucial question, of course, is what degree of participation by the defendant in the action will create a waiver of a right to stay the action. In the absence of unreasonable delay, so long as the defendant's actions are consistent with an assertion of the right to arbitrate, there is no waiver. However, where the defendant's participation in the lawsuit manifests an affirmative acceptance of the judicial forum, with whatever advantages it may offer in the particular case, his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory (id. at 405). In other words, the lynchpin of waiver as it relates to otherwise arbitral claims, is a party's use of the judicial process to the extent which is "clearly inconsistent with its later claim that the parties were obligated to settle their differences by arbitration" (Cusimano at 400 [internal quotation marks omitted]). Thus, in De Sapio, where the defendant, when sued, interposed a cross-claim and demanded to depose the plaintiff, the court denied defendant's motion to stay the plenary action so that the parties could proceed to arbitration (id. at 406). In Zimmerman, the court denied defendant's application to stay the trial of the plenary action and enforce arbitration when the defendant interposed an answer to the complaint, raised a substantive defense, interposed a counterclaim demanding money damages, served a notice of trial and also moved to depose a witness (id. at 19). In Sherril, the court granted plaintiff's motion to stay arbitration because the defendant filed an answer, amended its answer after it sought arbitration asserting, by cross claims and counterclaims, all the claims sought in the arbitration, subpoenaed a witness, and then deposed him (id. at 270-271). The court in Sherril held that defendant's litigation activity manifested a preference "clearly inconsistent with his later claim that the parties were obligated to settle their differences by arbitration" (id. at 272 [internal quotation marks omitted]), such that defendant waived its right to arbitration (id. at 271). By contrast, in Stark, the court granted defendants' application to compel arbitration despite a lengthy litigation history in court. Significantly, the court essentially held that because all of the defendants' actions were defensive in nature, they had not waived the right to arbitrate the claims asserted by plaintiff in the plenary action (id. at 67). Specifically, the court stated that [h]ere, the [defendants] opposed plaintiff's June 2003 application and cross-moved for affirmative relief related solely to its fees and disbursements in enumerated personal injury lawsuits that plaintiff sought to retain. In June 2003, the [defendants] entered into a stipulation resolving disputes over substitution of counsel in these lawsuits, the transfer of files, and the timing of its reimbursement for disbursements. The [defendants] specifically reserved its right to attorneys' fees, and later moved in the trial courts to recover attorneys' fees and disbursements in lawsuits covered by the stipulation and litigated to conclusion by plaintiff. Additionally, the [defendants] at one point moved to enforce the stipulation. We conclude that these forays into the courthouse, cumulatively, do not as a matter of law manifest an affirmative acceptance of the judicial forum such that the [defendant's ] actions were then inconsistent with its later claim that only the arbitral forum was satisfactory for resolving the employment-related claims subsequently advanced by plaintiff.
(id. at 67 [internal citations and quotation marks omitted]). In Two Cent. Tower Food, Inc. v Pelligrino (212 A.D.2d 441 [1st Dept 1995]), the court granted defendants' motion to stay the plenary action and refer the claims therein to arbitration holding that "defendants' limited participation in the action did not constitute a waiver of their right to compel arbitration" (id. at 442). Significantly, the court noted that while defendants interposed an answer, the same was bereft of affirmative defenses or counterclaims (id. at 442). The court also noted that defendant did not engage in any discovery (id. at 442). In Stoianoff v New Am. Lib. (148 A.D.2d 600 [2d Dept 1989]), the court granted defendant's motion to stay the plenary action and compel arbitration when defendant's participation in the plenary action was limited to moving to dismiss the action for lack of capacity or alternatively seeking a stay to compel arbitration (id. at 601). The court held that the foregoing "cannot be said to manifest a preference to litigate inconsistent with [defendant's] present claim that the parties are obligated to settle their differences by arbitration" (id. at 601). In NBC Universal Media, LLC, the court denied petitioner's application to stay arbitration, holding that beyond the service of amended pleadings, there had been no motion practice nor discovery in a related plenary action so as to constitute a waiver (id. at 461).
Significantly, the foregoing - that a party who either affirmatively seeks to have a court resolve otherwise arbitral claims or who in defending a claim avails itself of the remedies available in such forum ought not be allowed to proceed to arbitration - is premised on the notion that "[i]f the parties wish the procedures available for their protection in a court of law, they ought not to provide for the arbitration of the dispute" (De Sapio at 406). In other words, "[t]he courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration" (id. at 406).
Notably, a party's participation in a judicial proceeding is mitigated if and when its use of the judicial forum is due to an "urgent need to preserve the status quo[,which] requires some immediate action which cannot await the appointment of arbitrators" (Sherril at 273; see Stark at 67; Preiss/Breismeister v Westin Hotel Co.-Plaza Hotel Div., 56 N.Y.2d 787, 789 [1982] ["We agree that the motion to compel arbitration was properly granted. There is neither waiver nor an election of remedies where, as here, plaintiff moves in court for protective relief in order to preserve the status quo while at the same time exercising its right under the contract to demand arbitration."]). Thus, under such circumstances, there is no waiver of the right to arbitration (Stark at 67; Preiss/Breismeister at 789; Sherril at 273).
In addition to the extent to which a party who seeks to arbitrate claims participates in judicial proceedings, another factor is whether the claims before the court are the same as those sought to arbitrated (Sherrill at 272 ["There can be no doubt on this record that the pivotal issue in the litigations as well as the arbitrations - made all the more evident upon consolidation - is the purported modification of the underlying agreements by Sherrill's attempted termination, resignation or retirement, an issue arising out of or in connection with the partnerships and therefore under the agreements subject to arbitration."]; Denihan v Denihan, 34 N.Y.2d 307, 310 [1974] ["As to the claims sought to be redressed in judicial proceedings, there can be no question but that the respondent has waived his right to arbitrate."]; Hosiery Mfrs.' Corp. v Goldston, 238 NY 22, 27-28 [1924] ["It is now urged that the agreement for arbitration provided only for controversies arising out of the principal contracts and that the accounts and trade acceptances sued on are independent causes of action as to which there was no agreement to arbitrate and that a stay of the trial of those actions was, therefore, unauthorized under Arbitration Law, section 5, which in terms applies only to issues referable to arbitration. But the principal contracts which provided for arbitration were entire. The actions on the acceptances and for the goods sold and delivered were, therefore, subject to the defense that there had been no full performance and no obligation to pay until performance was complete."]; Empire Core Group, LLC at 1033 [Respondent's claim to compel arbitration was denied because, inter alia, "[t]he issues at the heart of the PPA counterclaim and the demanded arbitration are intertwined."]). Thus, generally, when the claims sought to be arbitrated have been asserted, affirmatively or defensively in a plenary action, arbitration proceedings will be stayed. Where, however, the claims asserted in court are distinct from those sought to arbitrated, arbitration should be allowed to proceed (Radzievsky v Macmillan, Inc., 170 A.D.2d 400, 400 [1st Dept 1991]). In Sherrill, which concerned two separate actions seeking to both rescind agreements and declare the rights of the parties pursuant thereto, defendant's application to stay arbitration was denied (id. at 272-275). Significantly, in rejecting defendant's assertion that the issues sought to be arbitrated and those before the court were unrelated, the court held that the issues sought to be arbitrated, namely plaintiff's position within the parties' partnership were, if not identical, then substantially related (id. at 273 ["This is not a case where two agreements with different signatories, though related in overall subject matter, impose independent obligations, so that provision for arbitration in the first may not, without incorporation, carry into the second. Here, the same parties were signatories, the later agreements referred back to and modified the earlier ones, and the focal issue of the litigation was a question fundamental to the partnership and thus under the earlier agreements subject to arbitration" [internal citations omitted].).
The length of any delay in seeking to arbitrate claims subject to arbitration after the initiation of a plenary action is also a factor relevant to the issue of waiver (id. at 273 ["If Gray had meant to preserve for arbitration the issue of Sherrill's status in the two ventures, it was incumbent on him to do so instead of singly pursuing the litigation over an extended period."]; De Sapio at 405 ["In the absence of unreasonable delay, so long as the defendant's actions are consistent with an assertion of the right to arbitrate, there is no waiver."]; Spatz v Ridge Lea Assoc., LLC., 309 A.D.2d 1248, 1249 [4th Dept 2003][Court held that defendants did not waive the right to arbitration when they made a motion to compel arbitration approximately 28 months after the initiation of the plenary action. ]; Two Cent. Tower Food, Inc. at 442 [Court held that defendants did not waive right to arbitration when issue was joined on June 15, 1994, they substituted attorneys two months later, and less than a month later they sought to stay the proceedings and compel arbitration."]). Generally, the longer the delay, the more it militates towards a finding of waiver. However, the length of time between the start of the litigation and the time arbitration is sought, by itself, is generally insufficient to constitute a waiver (NBC Universal Media, LLC at 461 ["Although the length of time between the start of the litigation and the demand for arbitration (in this case 26 months) is an element to be reviewed when considering waiver, it is not, alone, enough to effectuate a waiver."]).
Lastly, prejudice is also a factor in determining whether arbitration has been waived (id. at 461; Cusimano at 400 ["The majority of federal courts have taken the position that waiver cannot be established in the absence of prejudice."]). Specifically, when arbitration would result in prejudice, the same should be stayed (Louisiana Stadium & Exposition Dist. v Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 [2d Cir 2010] ["[T]he key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated" [internal quotation marks omitted].). With respect to waiver there two types of prejudice - substantive prejudice and procedural prejudice - the former is the loss of some substantive advantage accorded by the judicial forum if arbitration is allowed to proceed (Cusimano at 401 ["As to substantive prejudice, the court pointed out that granting the motion to arbitrate would allow the plaintiff to avoid the motion to dismiss, the substance of which had been related in the deficiency letter."]; Louisiana Stadium & Exposition Dist at 159 ["MLPFS would also be substantively prejudiced if it were compelled to arbitrate. If LSED succeeds in compelling arbitration, it would be able to preempt consideration of the defendants' inevitable motion for judgment on the pleadings which was plainly foreshadowed by the detailed deficiency letter the defendants had sent to LSED."]). The latter, is where the opponent of arbitration, has by litigation in the judicial forum, incurred "unnecessary delay or expense" (Kramer v Hammond, 943 F.2d 176, 179 [2d Cir 1991]), and any "other surrounding circumstances beyond the burdens and expenses that would result from a grant of arbitration" (Louisiana Stadium & Exposition Dist. at 160 [internal quotation marks omitted].; see NBC Universal Media, LLC at 461-462 ["[Plaintiff] has not expended excessive costs litigating the N.J. Action since that action has not proceeded against it and its position that it will not be able to properly defend the arbitration due to the passage of time is conclusory."]).
In support of its application, plaintiffs submit a motion they made in a related action titled Sebrow v Sebrow, et al., Index No. 33784/19E, wherein plaintiff ZS, then a defendant, moved to dismiss the complaint or compel arbitration.
Plaintiffs submit the Court's (Rosado, J.) order in the foregoing action, wherein the Court stated that inasmuch as the Court held that BS did not own any of Worbes' stock, it would not "consider the defendant's arguments regarding the arbitration clause [in the agreement.]"
Plaintiffs submit the agreement, which to the extent relevant, in paragraph 9 states that "[a]ny controversy arising out of or relating to this Agreement shall be resolved by Arbitration before a panel of three (3) arbitrators who shall consist of an orthodox rabbi, a lawyer and a layman."
While the foregoing, would, by itself provide a colorable basis to compel arbitration, the record - which plaintiffs conveniently fail to discuss, which defendants do discuss, and about which this Court is well aware - evinces that plaintiffs have so significantly availed themselves of the litigation process in this action, so as to constitute waiver of the right to arbitration.
To be sure, the record in this action evinces that on January 14, 2022, plaintiffs initiated this action by filing a complaint, which as noted above contained causes of action sounding in declaratory judgment, tortious interference with prospective business relations, abuse of process, malicious prosecution, and breach of fiduciary duty. Significantly, the lion's share of the complaint premised the relief sought on the very agreement, which contains the arbitration clause on which this motion is premised. On January 14, 2022, plaintiffs also moved by Order to Show Cause (first motion), seeking a mandatory preliminary injunction allowing them to sell 815, arguing, inter alia, that the likelihood of success on the merits rested on the language in the agreement. On May 10, 2022, after this Court granted plaintiffs' application for a preliminary injunction, plaintiff's moved seeking an order canceling the lis pendens encumbering 815 (second motion). On June 27, 2022, plaintiffs moved seeking an order granting them summary judgment in this action (third motion). On August 5, 2022, plaintiff's made an application (fourth motion) seeking to quash subpoenas served upon third-parties by defendants. On August 11, 2022, plaintiffs, having withdrawn the prior motion, made a motion (fifth motion) seeking to quash the foregoing subpoenas and to stay discovery in this action. On January 3, 2023, plaintiffs made the instant motion (sixth motion) seeking an order compelling arbitration.
As noted above, the issue here is not whether the agreement contains an arbitration clause requiring arbitration, but rather, whether on this record, plaintiffs have, by purposeful conduct, waived the right thereunder.
As noted above, the relevant inquiry with respect to waiver is whether there is evidence of the relinquishment of a known right and/or an intent to abandon the right to arbitrate (Spirs Trading Co., Ltd. at 543). Specifically, the inquiry is whether the proponent of arbitration, by his actions, has elected to proceed and/or resolve the otherwise arbitral dispute between the parties in the "judicial arena" (id. at 543; see Zimmerman at 19; Flynn at 493; Great N. Assoc., Inc. at 978-979; Esquire Indus., Inc. at 846). In addressing waiver, the courts consider "the amount of litigation that has occurred, the length of time between the start of the litigation and the arbitration request, and whether prejudice has been established" (Cusimano at 400; NBC Universal Media, LLC at 461). Additionally, the mere fact that a party who would otherwise be entitled to arbitration participates in a judicial action or avails itself of a remedy accorded to it by a court is not, in and of itself, a waiver (Stark at 67; Sherril at 273). This is particularly true when a party's participation in a judicial proceeding is due to an "urgent need to preserve the status quo[,which] requires some immediate action which cannot await the appointment of arbitrators" (Sherril at 273; see Stark at 67; Preiss/Breismeister at 789. Significantly, under the foregoing under such circumstances, there is no waiver of the right to arbitration (Stark at67; Preiss/Breismeister at 789; Sherril at 273).
Here, upon this record, it is clear that plaintiffs have, in fact, waived the right to compel arbitration. Notably, this Court agrees, as urged by plaintiffs, that under the circumstances then existing - the existence of a tax lien, which in order to forestall a foreclosure thereunder - judicial intervention authorizing the sale of 815 was necessary . Accordingly, here waiver is not premised on plaintiffs' initiation of the instant action, which was required to make the application for a preliminary injunction . Similarly, the second motion, seeking to lift the lis pendens filed by BS in the related action, was also, as urged, necessary in order to sell 815, which this Court authorized by its grant of a mandatory preliminary injunction.
While defendants urge that the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association grant an arbitrator the right to issue injunctive relief, as discussed below, resort to this Court for injunctive and exigent relief is not tantamount to waiver of the right to seek arbitration.
"[A] preliminary injunction may be granted only upon notice to the defendant...[and] [n]otice of the motion may be served with the summons or at any time thereafter and prior to judgment." (CPLR § 6311[1] [emphasis added]). Thus, absent the existence of, at the very least, a summons and/or petition initiating an action, a court cannot grant a preliminary injunction (Jou-Jou Designs, Inc. v Intl. Ladies' Garment Workers' Union, Local 23-25, 94 A.D.2d 395, 400 [1st Dept 1983], affd, 60 N.Y.2d 1011 [1983] ["a preliminary injunction is only a provisional remedy, there can be no doubt that the granting of the motion to dismiss the complaint would serve to dissolve the injunction at the same time."]). Stated differently, "unless there is an underlying action which confers statutory authority on the court to grant a preliminary injunction, the court has no jurisdiction to award such relief" (Matter of Hart Is. Comm. v Koch, 150 A.D.2d 269 [1st Dept 1989]; Caruso v Ward, 146 A.D.2d 486, 487 [1st Dept 1989]).
Had plaintiffs sought arbitration at that point, it is likely that the instant motion would have been granted. However, instead of requesting and/or moving to compel arbitration at that time, plaintiffs decided to avail themselves of this Court's ability to decide this action on papers and made a motion, their third, seeking summary judgment. Moreover, in conjunction therewith, and in an effort to prevent defendants from obtaining any discovery made a fourth motion to quash subpoena and a fifth for identical relief and to stay discovery pending a decision on their motion for summary judgment. Accordingly, plaintiffs' actions, at a point when they could have sought arbitration are "clearly inconsistent with [their current] claim that the parties were obligated to settle their differences by arbitration" (Cusimano at 400 [internal quotation marks omitted]). Indeed, plaintiffs' conduct here is not unlike the plaintiff in (Hart v Tri-State Consumer, Inc., 18 A.D.3d 610 [2d Dept 2005]), where the court declined to compel arbitration, noting that [t]he plaintiff did not seek arbitration until after he had commenced the instant action and settlement negotiations were unsuccessful. Further, the plaintiff did more than seek protective relief to preserve the status quo pending arbitration. He commenced an action seeking a judicial determination of the controversy and only sought arbitration after efforts at settlement failed. He alleged the same wrongs in the arbitration and in the action, inter alia, that Penny Hart breached her fiduciary duty to TSC, and he sought the same relief (id. at 612; see also Sherril at 270-271 ["Court granted plaintiff's motion to stay arbitration because the defendant filed an answer, amended its answer after it sought arbitration asserting, by cross claims and counterclaims, all the claims sought in the arbitration, subpoenaed a witness, and then deposed him."]; Johnson v Brooklake Assoc., 271 A.D.2d 382 [1st Dept 2000] ["Defendant waived any right to arbitrate the claim by affirmatively participating in this lawsuit," including moving for summary judgment.]; Digitronics Inventioneering Corp. v Jameson, 52 A.D.3d 1099, 1100-1101 [3d Dept 2008] ["Here, it is significant that plaintiff not only failed to request arbitration when it commenced the action in 2003, instead waiting until 2006 to do so, it also actively participated in the litigation in the interim. While plaintiff correctly points out that it is not considered a waiver to utilize the judicial process merely to preserve the status quo while awaiting arbitration, in this case, plaintiff did not simply commence this litigation for the purpose of obtaining an injunction. Plaintiff also sought monetary damages and other affirmative relief. Furthermore, as indicated above, after injunctive relief was denied, plaintiff waited a lengthy period before seeking arbitration in 2006. Additionally, plaintiff took further actions inconsistent with an intent to seek arbitration by, among other things, submitting affidavits opposing defendant's motion for summary judgment. Given these and other circumstances demonstrating that plaintiff waived the right to demand arbitration, we agree with Supreme Court's determination to deny the motion to compel arbitration." (internal citations omitted)]; Bucci v McDermott, 156 A.D.2d 328, 328-329 [2d Dept 1989]) ["We find that the defendants' conduct herein sufficiently manifested their intention to pursue litigation with respect to the claims regarding both the employment contract and the stock purchase agreement. This conduct effected a waiver of the arbitration clause set forth in the employment contract. Indeed, the defendants, inter alia, interposed an answer to the original complaint containing 11 affirmative defenses and counterclaims, served a notice to take oral depositions of the plaintiff, served a bill of particulars, opposed the plaintiff's motion to preclude discovery, and made a motion for partial summary judgment. These actions reflect an affirmative acceptance of the judicial forum constituting a waiver of the right to arbitration."]).
Plaintiff's assertion that the foregoing motion "was brought on very narrow, procedural grounds" (NY St Cts Elec Filing [NYSCEF] Doc No. 222 at 5), is a very feeble attempt to split hairs. With regard to the timing of the foregoing motion, the fact that rather than one for arbitration, plaintiffs have for months charted a course of litigation instead, is what matters, not why such course, even after there was no longer a need for it, was charted.
While plaintiffs' scant papers are bereft of any indication of what issues they seek to arbitrate, this Court will assume that they are the very issues asserted in the complaint. To that end, since generally, when the claims sought to be arbitrated have been asserted, affirmatively or defensively in a plenary action, arbitration proceedings will be stayed (Denihan at 310 ["As to the claims sought to be redressed in judicial proceedings, there can be no question but that the respondent has waived his right to arbitrate."]), here, the identity of issues sought to be arbitrated warrant denial of the instant motion.
With regard to prejudice, if any, related to an order compelling arbitration, defendants aver that as of December 31, 2022, the litigation costs incurred by them with respect to this action total $136,416.60. Since it is well settled that with respect to waiver, prejudice is a factor in determining whether arbitration has been waived (NBC Universal Media, LLC at 461; Cusimano at 400), and that procedural prejudice exists where the opponent of arbitration, has by litigation in the judicial forum, incurred "unnecessary delay or expense" (Kramer at 179), here, the existence of procedural prejudice militates against compelling arbitration.
Lastly, here, plaintiffs' delay in seeking to compel arbitration militates against arbitration. Specifically, plaintiffs waited almost a year from the time they were granted the exigent relief that they could not get via arbitration to seek arbitration. As noted above, generally, the longer the delay in seeking arbitration, the more it militates towards a finding of waiver (NBC Universal Media, LLC at 461 ["Although the length of time between the start of the litigation and the demand for arbitration (in this case 26 months) is an element to be reviewed when considering waiver, it is not, alone, enough to effectuate a waiver."]). Here, by May 26, 2022, plaintiffs had finalized the sale of 815 and arguably, the time was ripe to proceed to arbitration. However, instead of seeking arbitration, plaintiffs' sought dispositive and tactical relief related thereto from this Court. It was not until the filing of the instant motion on January 3, 2023, approximately seven months after the sale of 815 was finalized, that plaintiffs first sought arbitration. This delay, when viewed against the procedural history is egregious and militates in favor of the conclusion urged by defendants, namely, that when it became apparent that the litigation in this action would be protracted, plaintiffs' moved to abandon it and avail themselves of arbitration. This cavalier attitude, where plaintiffs, by seeking dispositive judicial relief, sought to have their cake, and when it became clear that things were not going to go their way, now seek to eat their cake as well, is exactly what the prevailing applicable law seeks to proscribe (De Sapio at 406 ["The courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration."]). Accordingly, the instant motion is denied. It is hereby
ORDERED that defendants serve a copy of this Order with Notice of Entry upon plaintiffs within thirty days (30) hereof. It is further
ORDERED that all parties appear for a Preliminary Conference on May 8, 2023 at 10am.
This constitutes this Court's decision and Order.