The following papers were read on Petitioners motion to stay arbitration and the motion of Petitioner Paul Carroll for leave to serve an amended petition:

Order to Show Cause dated October 13, 2006;

Petition verified on October 10, 2006; [*2]

Affidavit of Harold Garrecht sworn to on October 10, 2006;

Petitioners' Memorandum of Law;

Notice of motion dated October 27, 2006;

Affirmation of Michael P. Gilmore, Esq. dated October 26, 2006;

Affidavit of Paul Carroll sworn to on October 26, 2006;

Affirmation of James A. Prestiano, Esq. dated October 19, 2006;

Respondent's Memorandum of Law;

Affirmation of James A. Prestiano, Esq. dated November 10, 2006;

Affirmation of Michael P. Gilmore, Esq. dated November 17, 2006;

Petitioners' Memorandum of Law;

Transcript of Oral Argument on November 22, 2006.

Petitioners move to stay arbitration. Petitioner Paul Carroll moves for leave to serve an amended petition.

In or about 1998, Rose Portolano ("Rose") opened a brokerage account with East Shore Partners, Inc. ("East Shore"). Rose used the account to purchase and sell mutual funds. Her account representative was Steven Gatto ("Steven").

Rose was a widow. The money in this account constituted a significant portion of her assets. Rose wanted to use this money to earn income to pay her living expenses.

Steven was made aware of Rose's financial needs and requirements.

In or about August 2000, Rose invested a substantial sum in One Eleven Partners Fund, LLC ("One Eleven"), which was an unregistered hedge fund. Westbrook Capital Partners, LLC ("Westbrook") was the managing member of One Eleven. Steven was the managing member Westbrook and was responsible for all of One Eleven's trading and investment decisions.

One Eleven cleared all or almost all of its securities transactions through East Shore.

Rose alleges she was misinformed about the nature and risks involved in investing of One Eleven. She alleges she invested nearly half of her money in One Eleven. Her investment in One Eleven presently has no value.

Rose also alleges Steven mismanaged her other investments and provided her with bad or improper investment advice. Rose alleges Steven invested her money in mutual funds with high front-end or back-end loads and with large expense ratios. As a result of this and other bad investment advice or strategies, Rose lost over 20% of her capital between 1999 and 2005.

Rose has already filed an demand for arbitration with the National Association of Securities Dealers ("NASD") in which she has named Steven and East Shore as respondents.

Rose has made an application before the NASD arbitration panel to add Petitioners Carl DeLucia ("Carl"), Harold Garrecht ("Harold"), Anton Gerdes ("Anton") and Paul Carroll ( Paul") as respondents in the arbitration proceedings before the NASD.

Rose alleges Carl, Harold, Anton and Paul were Steven's supervisors at East [*3]Shore and failed to properly supervise his activities. As a result, Rose was permitted to invest improper and highly speculative investments.

Carl, Harold, Anton and Paul move to stay arbitration even though they are not presently parties to the arbitration. They assert they have defenses to Rose's demand for arbitration which should be decided by the Court. They claim that if they oppose Rose's application to amend in the arbitration proceeding, they will be entering a general appearance before the NASD and, thus, they will be unable to obtain a stay of arbitration. They further assert that if they do not oppose Rose's application to add them as parties in the NASD arbitration, they may deemed to have consented to the

amendment and waived the opportunity to make an application before the Court to stay the arbitration.

A.Choice of Law - Statute of Limitations

Rose's account agreement with East Shore contains the following provision:

"The undersigned agree...all controversies which may arise between us ...shall be determined by arbitration."

The agreement also provides "...This agreement...shall be governed by the laws

of the State of New York."

The Court must first determine if this application is subject to CPLR Article 75 or the Federal Arbitration Act ("FAA"), 9 U.S.C. §1. et. seq. Under CPLR Article 75, the court decides whether the claim sought to be arbitrated is time barred. Matter of Smith Barney, Harris Upham & Co. v. Luckie, 85 NY2d 193 (1995); and Matter of County of Rockland [Primiano Construction Co.], 51 NY2d 1 (1980). Under the FAA, the determination of whether a claim is barred by the statute of limitation is to be decided by the arbitrator. See, Martens v. Thomann, 273 F.3d 159 (2nd Cir. 2001); Shearson, Lehman Hutton, Inc. v. Wagoner, 994 F.2d 114 (2nd Cir. 1991); and Conticommodity Services Inc. v. Phillipp & Lyon, 613 F.2d 1222 (2nd Cir. 1980).

Arbitration agreements are contracts that will be enforced in accordance with their terms. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985). The parties may have a contractual a choice of law provision in an agreement to arbitrate. Volt Information Sciences, Inc. v. Leland Stanford Jr. Univ., 489 U.S. 468 (1989); and Matter of Diamond Waterproofing System, Inc. v. 55 Liberty Owners Corp., 4 NY3d 247 (2005).

A contract that includes an arbitration provision that New York law governs "the agreement and its enforcement" adopts the New York rule that the statute of limitations is an issue for the court. Matter of Diamond Waterproofing System, Inc. v. 55 Liberty Owners Corp., supra. In the absence of the language indicating the enforcement of the agreement is subject to New York law, the agreement is subject to the FAA so that the statute of limitations defense is for the arbitrator. Id.

The FAA applies expansively and to any transaction affecting interstate commerce. Allied-Bruce Terminex Cos., Inc. v. Dobson, 513 U.S. 265 (1995). It is consistent with, and an expression of, the congressional intent to exercise its Commerce Clause powers to their full extent. Id.; and Perry v. Thomas, 482 U.S. 483 [*4](1987).

Disputes involving investment advice given by brokerage firms to their clients involve interstate commerce. Howsam v. Dean Witter Reynolds, Inc., supra. Arbitration proceedings before the NASD are subject to the FAA. See, Morgan Stanley DW Inc. v. Afridi, 13 AD3d 248 (1st Dept. 2004). Rose's claim is an arbitration proceeding before the NASD.

The aspect of Rose's claim that relates to One Eleven also involves interstate commerce. One Eleven was a limited liability company organized pursuant to the laws of Delaware. A transaction in which a New York resident investing in a Delaware limited liability company involves interstate commerce. Matter of Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., supra.

The arbitration provisions of Rose's brokerage agreement with East Shore are thus subject to the FAA. Accordingly, the defense that the claims are barred by the statute of limitations must be decided by the arbitrator; not the Court. Petitioners' application to stay arbitration on this grounds must be denied.

B.Paul Carroll - Motion to Amend

Paul moves to amend the petition to allege that he is not subject to arbitration of any relating to transaction that occurred prior to April 2003.

Paul commenced his employment with East Shore in April 2003. Prior to April 2003, he was not employed by an NASD member firm. Since he was not employed by East Shore or any other firm that would have subjected him to NASD rules requiring arbitration of disputes between customers and brokers, he asserts he cannot be compelled to arbitrate disputes arising prior to April 2003.

Paul moves for leave to serve an amended petition pursuant to CPLR 3025. This is the wrong statutory provision. Special proceedings are subject to CPLR Article 4. CPLR 405 permits a party to move to cure a defect or omission in the record. An application to cure a defect or omission in the record must be made within the time allowed for the service of a responsive pleading. CPLR 405(b). Although the original return date of the petition was October 27, 2006, the return date was adjourned to November 22, 2006. Thus, the time to serve a responsive pleading was extended to that date. Additionally, although Rose has opposed the application for a stay of arbitration by affidavit and exhibit, she has not filed an answer to the petition.

Paul's application will be treated as a motion to cure a defect or omission in the record. See, CPLR 2001. Rose has failed to establish any prejudice in connection with the application. Therefore, Paul's application to cure a defect or omission in the record should be granted.

Under the FAA, the only issues which the court may consider in an application to stay arbitration are whether the parties have an agreement to arbitrate and whether the dispute falls within the scope of the arbitration agreement. AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986); and Houlihan v. Offerman & Co., Inc., 31 F3d 692 (8th Cir. 1994).

In this case, Paul was not a party to a valid arbitration agreement prior to April 2003. He cannot be compelled to arbitrate disputes pre-dating his association with East Shore.

C.One Eleven Partners Fund, LLC [*5]

Petitioners seek to stay arbitration involving One Eleven on three bases: (1) the claims are barred by the statute of limitations; (2) East Shore had no involvement in One Eleven; and (3) the One Eleven subscription agreement provides for disputes arising out of the agreement to be submitted to arbitration before the American Arbitration Association ("AAA").

1.Statute of Limitations

Any claims relating to the statute of limitations are for the arbitrator. See , e.g. Martens v. Thormann, supra.

2.Merits of the Claim

The One Eleven private placement memorandum states that East Shore will not act as an underwriter of the One Eleven offering and has not determined the adequacy or accuracy of the offering memorandum. It further indicates the East Shore is not acting in supervisory role in regard to One Eleven and will not participate in the management or trading decisions of One Eleven. East Shore's only relationship to One Eleven was that it was providing office space and brokerage services to One Eleven.

East Shore's involvement in One Eleven and its responsibility for any losses sustained by Rose resulting from her investment in One Eleven relate to the merits of Rose's claim. In deciding whether to stay arbitration, the court may not consider or address the merits of claim. AT & T Technologies, Inc. v. Communications Workers of America, supra; and Houlihan v. Offerman & Co., Inc., supra. The only issues the court may consider are whether the parties have an agreement to arbitrate and whether the dispute falls within the ambit of the agreement. Id.

3.American Arbitration Association

Petitioners' final argument is that arbitration of the dispute relating to One Eleven is subject to arbitration, but the arbitration must be before the AAA; not the NASD.

The One Eleven subscription agreement states:

"Any claim for money damages between the parties in connection with this

Subscription Agreement shall be resolved by binding arbitration on an

expedited basis in the City, County and State of New York in accordance

with the then prevailing rules of the American Arbitration Association

and any judgment may be entered into any court having jurisdiction

thereof."

The One Eleven subscription agreement also contains a choice of law provision that indicates that it is to be interpreted in accordance with Delaware law.

New York will enforce contractual choice of law provisions provided that the law of the jurisdiction selected bears a reasonable relationship to the agreement and the law selected does not violate fundamental public policy of the State of New York. Welsbach Electric Corp. v. Mastec North America, Inc., 23 AD3d 639 (2nd Dept. 2005); and Culbert v. Rols Capital Co., 184 AD2d 612 (2nd Dept. 1992).

New York views subscription agreements as contracts to be interpreted in accordance with the usual rules of contract interpretation. See, Pirrera v. Bath & Tennis Marina Corp., 2 AD3d 613 (2nd Dept. 2003); and Cornhusker Farms, Inc. v. Hunts Point Cooperative Market, [*6]Inc., 2 AD3d 201 (1st Dept. 2003).

Contracts are construed to give effect to the intent of the parties. AT&T Corp. v. Faraday Capital Ltd, A. 2D , 2007 wl 329218 (Del. 2007); and Twin City Fire Ins. Co. v. Delaware Racing Assoc., 840 A.2d 624 (Del. 2003). Where the terms of the contract are unambiguous, the intent of the parties is ascertainED by giving the contractual language its ordinary and usual meaning. Id.; and Northwestern National Ins. Co. v. Esmark, Inc., 672 A.2d 41 (Del. 1996).

Since Delaware law is identical to New York law regarding contract interpretation (See, South Road Assocs., LLC v. International Business Machines Corp., 4 NY3d 272 [2005]; Greenfield v. Philles Records, Inc., 98 NY2d 562 [2002]; and W.W.W. Assocs. v. Giancontieri, 77 NY2d 157 [1990]), enforcement of the choice of law provision in the One Eleven subscription agreement would not violate New York public policy. Since One Eleven is a limited liability company organized and existing pursuant to the laws of the State of Delaware, Delaware law bears a reasonable relationship to the transaction.The arbitration provision of the One Eleven subscription agreement provides for arbitration before the AAA for "...claims of money damages between the parties in connection with this Subscription Agreement." Petitioners are not parties TO THAT AGREEMENT. The claims Rose asserts against Petitioners involve claims of aiding and abetting Stephen's fraudulent activities and in failing to supervise Steven's activities. Rose seeks to hold Petitioners liable as control persons at East Shore who were legally obligated to supervise Steven's activities. Their liability is premised upon respondeat superior or as "control persons" under the securities laws.

Carl, Harold, Anton and Paul were not parties to the One Eleven subscription agreement. The One Eleven Private Placement Memorandum specifically states that East Shore will not be acting in a supervisory role with respect to One Eleven and will not participate in any way in the management or trading decisions made by One Eleven.

Rose's claim is not a claim for money damages between the parties to the agreement. Rose's claim against Carl, Harold, Anton and Paul relates to their obligations at Stephen's supervisors at East Shore. Therefore, arbitration before the NASD under the terms of Rose's account agreement is the appropriate method for the resolution of claims between Rose and Carl, Harold, Anton and Paul.

Accordingly, it is,

ORDERED, that the motion of Paul Carroll for leave to correct an omission or defect in the record is granted; and it is further

ORDERED, that Petitioners' application to stay arbitration is granted to the extent of staying the arbitration against Paul Carroll for all transactions occurring prior to April 2003 and is in all other respects denied; and it is further,

ORDERED, that the stay of arbitration filed before the NASD under Arbitration Number 06-00371 is hereby vacated and the parties are directed to proceed to arbitration before the NASD.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

February 8, 2007Hon. LEONARD B. AUSTIN, J.S.C. [*7]