Opinion
4010-04.
Decided September 13, 2004.
Steven A. Sternlicht, Esq., East Islip, New York, Counsel for Plaintiff.
Fogel Wachs, PC, New York, New York, Counsel for Defendant.
INTRODUCTION
On this motion, Plaintiff Charles Albanese ("Charles") seeks to review the books and records of Defendant corporations, Sal's Tire Tube Corp. ("Sal's Tire") and Charlie's Car Care Center, Inc. ("Charlie's Car Care") including but not limited to corporate tax returns for the period from January 1, 1998 to and including December 31, 2003; reinstate Plaintiff as an employee of said corporations pursuant to a long term consultation agreement dated December 27, 1997; and reinstate various insurance policies contemplated in various agreements between Charles and his son, Defendant Adam Albanese ("Adam").
By way of cross-motion and opposition to the motion presented herein, Defendants seek to compel arbitration pursuant to various agreements between the parties.
As a threshold issue, the Court must address whether an application via cross-motion to compel arbitration is proper. The appropriate vehicle for seeking redress with regard to either compelling or staying arbitration is via a special proceeding. CPLR 7502 (a). Here, Defendants seek to compel arbitration via a notice of cross-motion in this plenary action. This approach is procedurally improper. Nevertheless, CPLR 103 (c) permits this Court, having jurisdiction over the matter, in the interest of justice to convert the motion into a special proceeding. See, Application of Empire Mutual Ins. Co. v. Palladino, 54 A.D. 2d 863 (1st Dept. 1976), where the court permitted the papers submitted for arbitration to be deemed a special proceeding inasmuch as that which was submitted in support of the application, in appropriate form, would constitute a notice of motion and a petition making a prima facie claim for the relief sought. Indeed, this Court has broad power, at any stage of a litigation, to correct a mistake, omission, defect or irregularity where a substantial right of the party is not prejudiced.
Here, the question of arbitrability has been fully briefed and discussed by both parties. No prejudice can be shown in deeming the cross-motion to be a notice of petition and the papers submitted in support to be deemed the petition on the question of arbitrability. For these parties, the issues are best determined sooner than later. To exult form over substance would be a greater prejudice to these parties.
Accordingly, the notice of cross-motion and papers submitted in support thereof are deemed, for the purposes of this decision, to be a notice of petition and petition in support of arbitration.
BACKGROUND
Both Sal's Tire and Charlie's Car Care are family owned businesses dating back for several decades. Charles' father transferred his interest in Sal's Tire to Charles and his brother, Santo Albanese, in 1978. Charles became the sole owner in June 1989.
Upon their father's passing, Charles and his brothers, Ronald, Santo and Jeffrey, became the owners of real property located at 3008 Atlantic Avenue and 3012 Atlantic Avenue as well as an adjoining lot in Brooklyn, New York. In 1994, Charles and his brothers transferred their interest in the real property to Charlie's Car Care which is solely owned by Charles.
On December 27, 1997, Charles and Adam entered into a series of agreements whereby Charles transferred seventy-five percent of his interest in Sal's Tire and Charlie's Car Care to Adam through two stock purchase agreements. In addition, Charles and Adam entered into shareholders agreements for each of the corporations as well as a long term consultation agreement. Each of the two stock purchase agreements provides, in ¶ 14, as follows:
"Arbitration: any dispute between the parties arising out of this Agreement shall be submitted to arbitration by a panel of three (3) arbitrators in Kings County or New York City, ( sic), New York in accordance with the rules of the American Arbitration Association. These arbitrators may, in their discretion, award legal fees and expenses to the prevailing party. Any award of the arbitrators shall constitute a final, non-appealable judgment and may be entered as such by the clerk of any court having jurisdiction."
In recognition of the various agreements being entered into on December 27, 1997, the parties included ¶ 15 relating to default. That paragraph provides:
"Mutually Dependant Default Provisions: In the event that there shall be a default under any of the provisions of this Agreement it shall be deemed to be a material default under the terms and conditions of the Stockholder Agreement and Consultation Agreement of even date herewith for THE CORPORATION and the stock purchase agreement and shareholder agreement of even date of CHARLIE'S CAR CARE CENTER, Inc.[/SAL'S TIRE TUBE CORP.], the Non-Competition Agreement and the Lease Agreement for the upstairs apartment at 3008 Atlantic Avenue, Brooklyn, New York. CHARLES shall be entitled to exercise all remedies available under this Agreement and the other mutually dependant Agreements" (Emphasis added.)
The Stock Purchase Agreements also provide that the Agreement is to be construed in accordance with the laws of the State of New York. The Shareholders Agreement for each of Sal's Tire and Charlie's Car Care contain virtually identical arbitration clauses (¶ 10) and mutually dependent default provisions (¶ 11)."
In addition to the Stock Purchase Agreements and Shareholders Agreements, a long term consultation agreement was entered into between Charles and Adam on December 27, 1997. The Agreement provided, in part, for a salary to be paid to Charles until age sixty-five (65). He was to be available to provide consulting services throughout the term of the Agreement. The corporations also agreed to maintain certain insurance on behalf of Charles during the term of the agreement.
The allegations in the complaint allege various defaults in the provisions of this agreement. Significantly, there is no arbitration agreement in the long term consultation agreement. Instead, in ¶ 22, the parties consent to the jurisdiction of this Court and the United States District Court of the Eastern District "for all purposes in connection with any legal proceeding between them relating to or arising out of this Agreement . . ." However, ¶ 23 of this agreement contains similar language with regard to mutual default of the various other agreements entered into by the parties on that date.
Charles now alleges that Adam has violated various terms and conditions of the long term consultation agreement and resists arbitration on the grounds that that agreement contains no arbitration clause.
DISCUSSION
A. Arbitrability
The question of arbitrability, in the first instance must be determined by the court. See, Matter of Smith Barney Shearson, Inc. v. Sacharow, 91 N.Y. 2d 39 (1997).
At the outset, two questions are presented for this Courts' determination. First, did the parties intend to include the long term consultation agreement in their agreement to arbitrate. If so, is the dispute now before the court subject to arbitration.
In order for the court to compel arbitration, the agreement to arbitrate between the parties must be clear, explicit and unequivocal. See, Marek v. Alexander Laufer Son, Inc., 257 A.D. 2d 363 (1st Dept. 1999); and M.I.F. Securities Co. v. R.C. Stamins Co., 94 A.D. 2d 211 (1st Dept.) affd., 60 N.Y. 2d 936 (1983). See also, Exercycle Corp. v. Maratta, 9 N.Y. 329 (1961). Defendants argue that based upon the cross-default provisions in the stock purchase agreement and shareholder agreements explicitly referencing the long term complication agreement necessarily encompasses arbitration under the long term consultation. Indeed, there is also a cross-default provision in the long term consultation agreement. (¶ 23).
Charles urges that it was not intended to arbitrate based upon the absence of an arbitration provision. In support of this view, he points to the provision providing for jurisdiction over issues arising from violation of the agreement in this Court or the United States District Court.
Primarily, both parties rely upon Matter of Primex Intn'l Corp. v. Walmart Stores, Inc., 89 N.Y. 2d 594 (1997). In Primex, successive agreements between the parties executed in 1990 and 1993 provided for arbitration, among other things. Upon the expiration of the 1993 agreement, a third agreement was entered into between the parties. Although the third agreement, when drafted, contained a similar arbitration clause, the arbitration clause was stricken before the 1995 agreement was executed. Thereafter, a dispute arose and Walmart commenced an action in the Circuit Court in Arkansas. Upon commencement of the Arkansas litigation, Primex served a demand for arbitration pursuant to the arbitration clauses in the 1990 and 1993 agreements which had expired. A proceeding to compel arbitration pursuant to CPLR Article 75 was commenced in New York seeking to stay the Arkansas action.
Walmart contended that the 1995 agreement which contained a general merger clause had the effect of superceding the 1990 and 1993 agreements and thereby eliminating any obligation to arbitrate. The Supreme Court agreed with Walmart and rejected Primex's petition to stay the Arkansas action. The Appellate Division affirmed.
While the Court of Appeals agreed with the lower courts with regard to issues arising solely under the 1995 agreement, it modified the determination of the lower courts holding that the language of the merger clause was insufficient to establish that the parties intended to revoke their previously stated contractual obligation to submit disputes arising thereunder to arbitration. Thus, any disputes arising under the 1990 and 1993 agreements was determined to be arbitrable even though they otherwise expired. That is, the merger clause in the 1995 agreement, in the absence of a specific indication of the intent to abandon the contractual rights provided under the earlier agreements, is insufficient, as a matter of law, to bar the application of the arbitration clauses in the earlier agreements. In addition, the Court of Appeals noted:
"[T]he prevailing general rule of both New York and Federal common law of contracts is that absence a clear manifestation of contrary intent, it is presumed that the parties intended that the arbitration forum for dispute resolution provided an agreement will survive termination of the agreement as to subsequent dispute arising thereunder, whether its cessation was the result of the expiration of its term, exercise of a unilateral termination option, or breach (citations omitted)." Id. at 601-2. (Emphasis in original)
Next, Charles urges that the long term consultation agreement must be read separately and independent of the other agreements that provide for arbitration as to any dispute arising between the parties. Such a position cannot be sustained. In circumstances where a transaction involves more than one writing, they must be read together as a single document. See, e.g., Nau v. Vulcan Rail Construction Co., 286 N.Y. 188 (1941). See also, Sea Spray Holdings, Ltd. v. Pali Financial Grp., Inc., 269 F.Supp. 2d 356 (SDNY 2003); This is Me, Inc. v. Tailor, 157 F. Supp. 3d 139 (2nd Cir. 1998).
This approach holds true even where the documents are not simultaneously executed. That is, where the documents are intended to be part of a single transaction and they are designed to effectuate the same purpose the fact that they are executed on different dates is irrelevant. See, Gordon v. Vincent Youmans, Inc., 250 F. 2d 261 (2nd Cir. 1965). Thus, where two agreements are executed as part of the same transaction and one provides for arbitration and the other does not, the arbitration clause will be enforced. Matter of Michael Stone v. Cruiser, 280 App. Div. 103 (1st Dept. 1952). Such is the case as is presented here. Five different agreements with regard to the two corporations and their two shareholders were executed simultaneously. Four of the agreements contained arbitration clauses. The fifth, like the other agreements, has a cross-default provision which provides that a default under any of the agreements is a default under that agreement as well.
It is significant to remember that the principal agreements which underlie the transactions between Charles and Adam are the shareholder agreements and the stock purchase agreements. The long term consultation agreement is ancillary to those agreements. Further, the five agreements before the court are inextricably woven so as to warrant arbitration of all claims presented. See, Matter of Monotube Pile Corp. v. Pile Foundation Construction Corp., 269 A.D. 2d 531 (2nd Dept. 2000).
Accordingly, Defendants' application to compel arbitration, as amended herein, must be granted.
B. Plaintiff's Motion for Injunctive Relief
Having determined that all of the issues presented in this litigation are subject to arbitration, Plaintiff's application for injunctive relief must be denied and respectfully referred to the arbitrator.
CPLR 7502 (c) provides that injunctive relief in an arbitrable controversy can only be had on the ground that the ultimate arbitration award would be rendered ineffectual without such relief. See, Matter of Kal Data Inc. v. AMC Computer Corp., 268 A.D. 589 (2nd Dept. 2000). The analysis to be utilized regarding a preliminary injunction application pursuant to CPLR 7502 (c) has been held to include the standards required for a preliminary injunction under CPLR 6301. In re Collman Ventures, Inc. v. Conk, 252 A.D. 222 (1st Dept. 1998). See also, Erber v. Catalyst Trading, LLC, 303 A.D. 2nd 165 (1st Dept. 2003), where the First Department affirmed the denial of an injunction in aid of arbitration where the movant had failed to establish likelihood of success on the merits.
Here, the relief sought by Plaintiff relates to the ultimate relief to be realized if Plaintiff prevails in the arbitration herein. The conflicting affidavits of Charles and Adam create a strong doubt as to the likelihood of Charles' success on the merits. In addition, it is unclear as to how a money judgment would not fully and completely satisfy Charles' claims which negates any arguments which he can make that he sufferes irreparable injury in the absence of the injunctive relief he seeks.
Thus, Charles' application for injunctive relief must be denied.
C. Review of the Corporate Books
It is not disputed that, pursuant to Business Corporation Law § 324, a shareholder has the right to examine certain records of the corporation. The application for such relief, at this time, must be denied. A review of the various documents which are the subject of this litigation casts a doubt as to Charles' status with the corporation. Even were that not to be the case, the relief sought by Charles is so broad and all encompassing that it borders on the intrusive.
It is clear that discovery of various records of the corporation will be necessary to permit Plaintiff to prosecute his claim and prove his damages, if any. Accordingly, the question of such discovery and inspection of the books and records of the corporation is respectfully referred to the arbitration panel to oversee and direct such appropriate discovery and inspection as in its discretion is deemed appropriate.
Accordingly, it is,
ORDERED, that, on the Courts' own motion, pursuant to CPLR 103 (c) Defendant's cross-motion is hereby converted to a proceeding under CPLR Article 75 to compel arbitration and, as such, the application is granted, provided that in accordance with the Shareholders Agreement and Stock Purchases Agreements an arbitration is duly noticed and all fees paid within forty-five days of the date of this Order and if Defendants fail to proceed with arbitration then the application is denied and counsel for Plaintiff shall promptly notify this Court for the purpose of scheduling a Preliminary Conference; and it is further,
ORDERED, that Plaintiff's motion for injunctive relief is denied without prejudice and respectfully referred to the arbitration panel to determine the ultimate relief to which Plaintiff is entitled; and it is further,
ORDERED, that Plaintiff's motion to inspect the books and records of the Defendant corporations is denied without prejudice and respectfully referred to the arbitration panel.
This constitutes the decision and Order of the Court.