[*1]
Nath v Merrill Lynch, Pierce, Fenner & Smith Inc.
2014 NY Slip Op 50827(U) [43 Misc 3d 1227(A)]
Decided on May 21, 2014
Supreme Court, Nassau County
Destefano, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on May 21, 2014
Supreme Court, Nassau County


Ilona Nath, Petitioner,

against

Merrill Lynch, Pierce, Fenner & Smith Incorporated, BARTHOLOMEW SWEENEY, LORI FASS and BERNARD FUCHS, Respondents ESTHER WEISS, a/k/a ESTER WEISS FRIEDMAN, a/k/a ESTTE WEISS, Additional-Respondent/Necessary Party




603493-13



Plaintiff's Attorney:



Rosenberg, Calica & Birney



Judah Serfaty, Esq.



100 Garden City Plaza



Garden City, NY 11554



Defendant's Attorney:



Bressler, Amery & Ross, P.C.



Nikolas Komyati, Esq.



325 Columbia Turnpike



Florham Park, NJ 07932


Vito M. Destefano, J.

In a proceeding pursuant to CPLR 7503(b), the petitioner seeks a judgment "permanently staying the third-party claims asserted against Ilona Nath in the matter pending before the Financial Industry Regulatory Authority ("FINRA") entitled Esther Weiss v Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bartholomew Sweeney, Lori Fass and Bernard Fuchs, FINRA Case No. 13-02146, and any other claims in that proceeding asserted against Mrs. Nath."

The respondents "cross-move", separately, inter alia, for an order dismissing the petition. In addition, respondents Merrill Lynch, Pierce, Fenner & Smith Inc. and Bartholomew Sweeney, Lori Fass and Bernard Fuchs (their employees) (collectively "Merrill Lynch") also seek an order "[c]ompelling Petitioner Ilona Nath * * * to arbitrate Respondents' Third Party Claim in the Weiss FINRA Arbitration".

For the reasons that follow, it is ordered that the branches of the "cross motions" to dismiss the petition are granted and the petition is dismissed, and the cross motions are otherwise denied.



Procedural and Factual Background

The underlying claims of the parties concern, inter alia, the rights to monies deposited in an account established by petitioner and Merrill Lynch for the benefit of Esther Weiss under the Uniform Gift to Minors Act ("UGMA"). In approximately 1996 [FN1] , petitioner deposited funds into [*2]the UGMA, the value of which in 2008 exceeded $100,000.

Upon reaching the age of majority, Weiss attempted to withdraw the funds from the account at Merrill Lynch. According to Merrill Lynch, upon being advised of Weiss' attempted withdrawal of funds, petitioner requested the funds in the account which Merrill Lynch paid in two checks (the combined value of which exceeded $100,000).

At some point thereafter, Weiss commenced an action in Kings County Supreme Court seeking damages against Merrill Lynch and petitioner. Petitioner counterclaimed against Weiss and brought a third-party action against Weiss' father. Merrill Lynch demanded arbitration of Weiss' claims pursuant to a Cash Management Account Agreement with petitioner. Merrill Lynch later moved to compel arbitration of those claims; petitioner moved, inter alia, to sever the non-arbitrable causes of action, counterclaims, and third-party causes of action asserted by her, and asserted against her by the plaintiff and the third-party defendant.

The motion and cross motion were decided in two orders of the Supreme Court, Kings County (Martin, J.). Following an appeal to the Second Department, that Court concluded that "the causes of action asserted by Nath against the plaintiff, and certain of the third-party causes of action asserted by Nath against Rafael directly concern the creation and management of the UGMA account, and are, therefore, inextricably interwoven with the arbitrable causes of action" and, thus, were properly stayed (by the trial court) pending the arbitration. "However, the first through ninth third-party causes of action asserted by Nath against Rafael are unrelated to any of the arbitrable claims" and should not have been stayed (Weiss v Nath, 97 AD3d 661 [2d Dept 2012]).

In the arbitration proceeding between Weiss and Merrill Lynch, Merrill Lynch served third party claims against petitioner seeking indemnification and contribution (Exhibit "H" to Petition: Letter dated September 17, 2013).

The petitioner brought the instant proceeding to stay the third-party arbitration, primarily on the grounds that she allegedly cannot be compelled to arbitrate with Weiss or arbitrate with Merrill Lynch in a proceeding in which Weiss is a party.

The Court's Determination

Assuming that the petition could properly be brought in this court, the application would be otherwise improper and unavailing. CPLR 7503(b) provides that "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".

"Upon an application to stay arbitration, the court may concern itself with only three threshold issues: whether a valid arbitration agreement has been made by the parties, whether the agreement has been complied with and, if so, whether the claim sought to be arbitrated is time barred" (Avon Products, Inc. v Solow, 150 AD2d 236 [1st Dept 1989]).

The instant application, which seeks to permanently stay the third-party arbitration commenced by Merrill Lynch, does not fall within the parameters of the permanent stay provision set forth in CPLR 7503[b]. The petitioner, failing to apprehend the appropriate relief to seek, to wit, severance, and the appropriate forum in which to seek it—the FINRA arbitration, has, by bringing this proceeding, ignored applicable law and rules and attempted to contort CPLR 7503(c) in a manner wholly inconsistent with its plain language and purpose. Significantly, there is no dispute that controversies concerning the agreement between petitioner and Merrill Lynch are subject to arbitration; nor is there any contention that the agreement has not been complied with or that the claim sought to be arbitrated was barred by limitation. In short, there is simply no basis for the court to permanently stay arbitration.

The court notes that the petitioner was made a third party to the court-ordered arbitration between Weiss and Merrill Lynch by service of Merrill Lynch's demand and third-party claim. Since the submission of the within petition and "cross motions", the court has been apprised by the parties that they have executed stipulations extending petitioner's time to answer in that proceeding pending the within determination.

Any issue regarding the propriety of third-party practice in that arbitration proceeding should be heard by the arbitrator presiding thereat. Notably, regarding the severance of two arbitrable claims brought under the same arbitration agreement, "the arbitrator can address the issues of procedural arbitrability in the management process. In light of the policy that courts should not become involved in the arbitration process until the conclusion of the proceeding * * * and the fact that the severance issue can be properly addressed by the arbitrator" (Schenectady v. Schenectady Patrolmen's Benevolent Assoc., 138 AD2d 882 [3d Dept 1988]).[FN2]

Nothing contained in the cases cited by the petitioner concerning agreements (such as the instant one, which the parties agree, is) governed by the Federal Arbitration Act, alters the [*3]foregoing analysis. At most, those cases stand for the proposition that courts may not order consolidation of arbitrations arising from separate agreements to arbitrate where the parties have not expressly agreed to consolidation (see eg, Government of United Kingdom of Great Britain v. Boeing Co., 998 F.2d 68, 74 [2d Cir. 1993]). The issue before the court, however, is limited to determining whether the requirements for a permanent stay of arbitration have been met. They have not. And, even assuming that the relief of severance had been requested in this forum, it would be improper for the court to order it given that joinder of the third-party claim has already been accomplished and the petitioner, as noted, may challenge the propriety of joinder before the arbitrator (see generally Imptex Int'l Corp. v Rosewood Fabrics, Inc., 169 AD2d 580 [1991] [After noting that the Supreme Court properly denied consolidation, the First Department stated that "[t]his disposition is without prejudice to an application to consolidate made before the arbitrator] Susquehanna Val. Cent. School Dist. v Susquehanna Val. Teachers' Assn., 101 AD2d 933 [3d Dept 1984] Allstate Ins. Co. v Global Reinsurance Corp., 2006 U.S. Dist. LEXIS 56701 [SDNY 2006] [question of consolidation to be decided by arbitrator] Rice Co. v Precious Flowers LTD, 2012 U.S. Dist. LEXIS 78269 [SDNY 2012] [same]).

The U.S. District Court's holding in Rice Co. v Precious Flowers LTD (supra) is instructive on this point:



In light of this policy, the role of a court is limited when there is an arbitration clause at issue. The "question of arbitrability" — that is, whether the matter is subject to arbitration at all — "is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002) (internal citations and quotation marks omitted). But "the phrase 'question of arbitrability'" has a "limited scope" and does not apply to every "gateway question," even if "potentially dispositive." Id. Indeed, the phrase applies only in "narrow circumstance[s]," such as when the dispute concerns "whether the parties are bound by a given arbitration clause" or whether "a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy." Id. at 83-84. By contrast, "'procedural' questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide." Id. at 84 (emphasis in original) (internal citation and quotation marks omitted); see also id. at 85 ("'[I]n the absence of an agreement to the contrary, . . . issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.'") (quoting the Revised Uniform Arbitration Act of 2000, § 6, cmt. 2, 7 U.L.A. at 13).



Applying these principles, courts have uniformly held that, HN5Go to the description of this Headnote.absent a clear agreement [*12] to the contrary, the [*4]question of whether arbitration proceedings should (or should not) be consolidated is a procedural matter to be decided by the arbitrators, not by a court. See, e.g., Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., 671 F.3d 635, 638 (7th Cir. 2011); Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580, 582 (3d Cir. 2007); Shaw's Supermarkets, Inc. v. United Food & Commercial Workers Union, Local 791, 321 F.3d 251, 254 (1st Cir. 2003); Avon Prods. Inc. v. UAW, Local 710, 386 F.2d 651, 658-59 (8th Cir. 1967); Safra Nat. Bank of New York v. Penfold Inv. Trading, Ltd., No. 10 Civ. 8255 (RWS), 2011 U.S. Dist. LEXIS 51687, 2011 WL 1672467, at *5 (S.D.NY Apr. 20, 2011); Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 462, 477 (S.D.NY 2010); In re Allstate Ins. Co. and Global Reinsurance Corp., 06 Civ. 4419 (DAB), 2006 U.S. Dist. LEXIS 56701, 2006 WL 2289999, at *1 (S.D.NY Aug. 8, 2006); Blimpie Int'l Inc. v. Blimpie of the Keys, 371 F. Supp. 2d 469, 473-74 (S.D.NY 2005). As the Court explained in Blimpie International:

Consolidation does not fall within the narrow exception reserved for gateway matters that the parties would likely have expected a court to resolve. . . . [T]he question of consolidated arbitration . . . concerns the nature of the arbitration proceeding agreed to, not whether the parties agreed to arbitrate. Indeed, consolidation is a procedural issue, which grows out of the parties' dispute, and therefore, presumptively falls to the arbitrator. Blimpie Int'l Inc., 371 F. Supp. 2d at 473-74 (internal quotation marks, citations, and brackets omitted).

Similarly, in JetBlue Airways Corp. v Stephenson (88 AD3d 567, 573 [1st Dept 2011]), the First Department stated the following:



Who should decide whether the employment agreements permitted collective, or joint, arbitration, depends on whether it is a procedural or "gateway" issue. If it is a procedural issue, the arbitrator should decide. On the other hand, if it is a "gateway" question, going to arbitrability, a court should decide (see Howsam v Dean Witter Reynolds, Inc., 537 US 79, 83-84, 123 S Ct 588, 154 L Ed 2d 491 [2002]).

* * *



While there is no binding precedent from the United States Supreme Court holding that an arbitrator should decide whether collective arbitration is permissible, there is likewise no authority requiring a court to decide the question as a "gateway" issue. As noted above, the category of gateway issues is a narrow one limited to questions that involve the enforceability of an arbitration agreement, its applicability to a particular dispute, the parties' compliance with the agreement and the timeliness of a claim (Matter of County of Rockland [Primiano Constr. Co.], 51 NY2d 1, 6, 409 NE2d 951, 431 NYS2d 478 [1980], supra). No [*5]such threshold question is involved in this dispute. Instead, the issue here is a procedural one that has "grow[n] out of the dispute" (Stolt-Nielsen, 559 US at, 130 S Ct at 1775 [internal quotation marks omitted]), since it concerns not whether the parties agreed to arbitrate the dispute in question, but the manner in which the arbitration should proceed. (Emphasis added)

Based on the foregoing, the petition must be dismissed.Regarding the branch of the "cross motion" of Merrill Lynch seeking an order to compel the petitioner to arbitrate, again, the court notes that the petitioner has already been joined to the arbitration as a third party and that the parties have stipulated to extend petitioner's time to answer the third-party claim. In addition, Merrill Lynch, cannot, in any event, avail itself of CPLR 7503(a) under the circumstances herein, where it is not "aggrieved by the failure of another party to arbitrate" within the intendment of the statute. Therefore, the relief sought by Merrill Lynch is improper. For that reason and for the reasons cited above with respect to severance, the court will not treat this branch of the "cross motion" as seeking "consolidation".



This constitutes the decision and order of the court.

Dated: May 21, 2014



_____________________________





Vito M. DeStefano, J.S.C.

Footnotes


Footnote 1:The precise date(s) of deposit(s) cannot be determined as different dates are set forth in the parties' submissions (compare Ex. "H" to Petition: Letter dated September 17, 2013 at p.2 and Exhibit "A" to Cross Motion of Weiss: Amended Verified Complaint at ¶¶ 22, 24).

Footnote 2:Whether a "particular procedure falls within the jurisdiction of the courts or the arbitrators depends upon whether it is in essence a prerequisite to entry into the arbitration process or a procedural prescription for the management of that process' * * *. It is clear that courts have power to order consolidation of grievances * * * and to sever arbitrable causes of action from nonarbitrable causes of action * * *. With respect to the court's power to consolidate arbitration claims, a court is the only practical forum in which to effect a consolidation with arbitration disputes [that] are commenced by separate demands and placed before separate arbitrators. * * * On this appeal, there is no claim that either of the grievances are nonarbitrable. Where, as here, two grievances are presented to one arbitrator in a joint demand, the arbitrator can address the issues of procedural arbitrability in the management of the arbitration process" (Schenectady v. Schenectady Patrolmen's Benevolent Assoc., supra, at 883).