This action was commenced by plaintiff alleging consumer fraud and common law fraud against defendants on or about October 16, 2007. The facts as alleged in the complaint state that plaintiff received a significant sum of money from the "September 11th Victim's Compensation Fund" [hereinafter "the Fund"] after the tragic passing of her husband, Christopher Amoroso, in the terrorist attacks on this nation on September 11, 2001. Plaintiff contends that defendants knew of her fragile mental/emotional/physical state and fraudulently induced plaintiff into purchasing several different accounts/investments from defendants and in the course of doing so was defrauded money. Further, plaintiff alleges that defendant Kevin Dunn, forged signatures, made false representations, procured fraudulent accounts and transactions and overall attempted to defraud the plaintiff out of the money she received from the Fund.

Defendants, in lieu of an answer, made this motion to compel arbitration pursuant to the arbitration provision contained in the MetLife Securities, Investment Account Application & Agreement [hereinafter "the agreement"] that plaintiff purportedly signed. Plaintiff has cross moved to the stay arbitration and for leave to amend the complaint.

The arbitration provision in the agreement provides:

I agree that any controversy concerning this or any other account maintained with you, whether arising before, on, or after the date this account is opened and arising out of or relating to this agreement or any transactions between me and MSI or Pershing, their employees, directors, agents, officers or affiliates shall be determined by arbitration before the NASD Dispute Resolution, Inc. Judgment upon the award of the arbitrators may be entered in any federal or state court having jurisdiction. I further understand that:

(i)Arbitration is final and binding on the parties.

(ii)The parties are waiving their right to seek remedies in court, including the right to jury trial.

(iii)Pre-arbitration discovery is generally more limited than and different from court proceedings.

(iv)The arbitrators' award is not required to include factual findings or legal reasoning and any party's right to appeal or to seek modification of rulings by the arbitrator is strictly [*2]limited.

(v)The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

(vi)No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who had initiated in court a putative class action; or who is a member of putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any right under this agreement except to the extent stated herein.

This agreement and any arbitration hereunder shall be governed and construed in accordance with the law of the State of New York without giving effect to conflict of law principles.

The Federal Arbitration Act [hereinafter "FAA"] was established to enforce and uphold agreements to arbitrate that were traditionally not enforced by United States Courts (9 USC §§ 1-16; Smith Barney, et. al. v. Luckie, 85 NY2d 193, 200-201 [1995]). Where a contract that contains an arbitration provision "affects interstate commerce", the arbitration will be subject to the FAA (Diamond Waterproofing Systems, Inc. v. Liberty Owners Corp., 4 NY3d 247, 252 [2005][finding that where various out-of-state entities or transactions occurred the agreement affects interstate commerce and therefore the arbitration provision was governed by the FAA]).

However, while the FAA strongly favors resolving disputes in favor of arbitration, the parties are still free to add qualifications to arbitration clauses that state law govern the arbitration agreement and its enforcement (Smith Barney et. al. v. Luckie, 85 NY2d at 201; Diamond Waterproofing Systems, Inc. v. Liberty Owners Corp., 4 NY3d 247, 253 [2005]). In fact, "the FAA requires only that arbitration proceed in the manner provided for in [the parties'] agreement . . . [and a]lthough we will construe ambiguities concerning the scope of arbitrability in favor of arbitration, we remain mindful that as with any other contract, the parties' intentions control'" (Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 66 [1995]).

Here, the Court finds that the parties intentions were to have New York law govern this agreement, including the arbitration provision. The provision, at issue, was entered into by two New York domiciliaries, with transactions occurring within the State of New York and with a provision in the arbitration clause that selects New York Law as governing any dispute (Smith Barney et. al. v. Luckie, 85 NY2d at 201; Diamond Waterproofing Systems, Inc. v. Liberty Owners Corp., 4 NY3d 247, 253 [2005]). Further, no transactions have occurred outside the State of New York and therefore, the defendants have failed to provide any evidence establishing that the contract at issue "affects interstate commerce" (id.). Therefore, this Court finds that the New York law will govern.

In New York, courts "may address three threshold questions on a motion to compel or to stay arbitration: (1) whether the parties made a valid agreement to arbitrate; (2) if so, whether the agreement has been complied with; and (3) whether the claim sought to be arbitrated would be time-barred if it were asserted in State court" (Smith Barney et. al. v. Luckie, 85 NY2d at 201). [*3]Therefore, a party challenging the validity of the arbitration agreement, alleging fraud in the inducement, is an issue properly before this court (Housekeeper v. Lourie, 39 AD2d 280, 284 [1st Dept., 1972]).

Interestingly, both federal and New York law agree on the interpretation of whether allegations of fraud in the inducement of the contract require the parties to submit to arbitration. Specifically, "[u]nder both New York and federal law, the courts are required to treat an agreement containing an arbitration clause as if there were two separate agreements the substantive agreement between the parties, and the agreement to arbitrate" (O'Neill v. Krebs Communications Corp., 16 AD3d 144, 144 [2d Dept., 2005]; Riverside Capital Advisors, Inc. v. Winchester Global Trust Co., 21 AD3d 887, 889 [2d Dept., 2005]; Stellamack Air Conditioning & Refrigeration Corp. v. Contractors Management Systems of NH, Inc., 293 AD2d 956, 957 [3d Dept., 2002]). Further, in considering the two separate agreements , "it is settled that unless it can be established that there was a grand scheme to defraud which permeated the entire agreement, including the arbitration provision", the arbitration provision may still be valid despite a underlying allegation of fraud on the substantive contract (Riverside Capital Advisors, Inc. v. Winchester Global Trust Co., 21 AD3d at 889; Oberlander v. Fine Care, 108 Ad2d 798, 798-799 [2d Dept., 1985]).

In considering whether the plaintiff established a "grand scheme" to defraud, courts have taken into account whether the agreement resulted from "arm's length negotiations" where the parties dominant intention was to resolve the dispute by arbitration (Housekeeper v. Lourie, 39 AD2d at 285-286), or whether the wording of the arbitration clause is broad enough to encompass claims of fraudulent inducement (Cologne Reinsurance Co v. So. Underwriters, 218 AD2d 680, 681 [2d Dept., 1995]). Here, as in several cases, plaintiff Jaime Amoroso has pleaded allegations, which, if true, would invalidate the entire agreement including the arbitration clause (Kennelly v. Mobius Realty Holdings, 33 AD3d 380, 382-383 [1st Dept., 2006]; Housekeeper v. Lourie, 39 AD2d at 285-286; Oberlander v. Fine Care, 108 AD2d at 799). Defendants, in objecting to the petition outright, have yet to even answer the complaint and present a defense to plaintiff's allegations of fraud and they shall be given an opportunity to do so (Housekeeper v. Lourie, 30 AD2d at 285-286; Oberlander v. Fine Care, 108 AD2d at 799).

Lastly, plaintiff's cross motion to amend the complaint to include misrepresentations against defendant Dunn regarding forms that the plaintiff allegedly signed, is granted. CPLR 3025(b) provides that leave to amend a pleading is freely granted.

Accordingly, it is

ORDERED that defendant's motion to compel arbitration is hereby denied, with leave to renew following discovery, and it is further

ORDERED that plaintiffs cross motion to amend the complaint is granted, and it is further,

ORDERED that the plaintiff serves the amended complaint within 20 (twenty) days, and it is further

ORDERED that the defendants answer the amended complaint within 30 days after receipt thereof, and it is further

ORDERED that the parties appear for a preliminary conference on June 17, 2008 at 9:30 am.

THIS IS THE DECISION AND ORDER OF THE COURT.

Dated: April 14, 2008E N T E R,

______________________________

Hon. Judith N. McMahon

Justice of the Supreme Court