Opinion
No. 03 Civ. 0674 (MGC).
September 14, 2004
MEMORANDUM OPINION AND ORDER
Plaintiffs Greta Rothstein and Konstantinos Karetsos, husband and wife, filed this action against Merrill Lynch, Pierce, Fenner Smith, Inc., and four of its employees. Plaintiffs, who are proceeding pro se, allege fraudulent handling of their joint investment accounts and assert claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) 78t, and the rules promulgated thereunder. Defendants move to compel arbitration and to dismiss the complaint. For the reasons that follow, the motion to compel arbitration is granted.
BACKGROUND
In support of their motion to compel arbitration, defendants have presented two written agreements containing arbitration clauses which appear to bind plaintiffs. Karetsos admits that he signed these Merrill Lynch Client Relationship Agreements during a meeting in New York on February 8, 2000, with Kuosen Fung, a Merrill Lynch broker. However, plaintiffs oppose the motion on the ground that Rothstein was not present at that meeting and never authorized Karetsos to sign her name to the agreements. Plaintiffs represented that Rothstein had given Karetsos a limited power of attorney which did not authorize him to sign these agreements on her behalf. By order of October 17, 2003, plaintiffs were directed to submit a copy of the power of attorney document on which they rely. Plaintiffs were unable to locate the document and, instead, submitted the affidavit of Spyro Karetsos, plaintiffs' nephew, who attended the February 8, 2000 meeting with plaintiff Karetsos. In his affidavit, Spyro Karetsos states that plaintiff Karetsos had the power of attorney document in his possession on February 8, 2000, that he showed it to Fung at the meeting that day, and had "genuinely missed" the document after leaving Merrill Lynch's offices.Under § 4 of the Federal Arbitration Act, compliance with a written arbitration agreement may be compelled. 9 U.S.C. § 4. However, the section also provides that, "[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof." Id. Thus, as discussed in the Memorandum Opinion and Order of May 24, 2004, because plaintiffs unequivocally denied that Karetsos was authorized to sign these agreements on behalf of Rothstein and neither side submitted the power of attorney, I concluded that plaintiffs had raised a "substantial issue" as to whether the arbitration agreements bind Rothstein. Rothstein v. Fung, No. 03 Civ. 0674, 2004 WL 1151568 (S.D.N.Y. May 24, 2004). A summary jury trial was scheduled to settle that one issue. Id.
On June 22, 2004, defendants sent the court and plaintiffs a copy of a document signed by Greta Rothstein on October 29, 1997, which grants her husband, Konstantinos Karetsos, a durable general power of attorney. According to their submission, defendants first became aware that they possessed the document in mid-June. Defendants argue that an examination of this General Power of Attorney document proves that Karetsos had authority to sign the Merrill Lynch arbitration agreements on behalf of Rothstein, and obviates the need for the summary jury trial currently scheduled for October 5, 2004. Plaintiffs were given an opportunity to respond to defendants' submission.
In their response, plaintiffs first allege that defendants "stole" and "hid" the power of attorney document from Karetsos on February 8, 2000, and assert that it should be stricken from the record. Secondly, plaintiffs submit Rothstein's affidavit of February 8, 2000, in which she revokes the power of attorney given to Karetsos in the 1997 document. In her affidavit she explains that the revocation was prompted by a telephone call she received from Karetsos in New York, informing her that the power of attorney document had been misplaced that day.
DISCUSSION
The Federal Arbitration Act provides that any contract involving commerce which contains an agreement to arbitrate, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. On application of one of the parties, a suit brought in federal court that is referable to arbitration should be stayed pending arbitration. Id. § 3. Upon such an application, "[t]he court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." Id. § 4. When considering a motion to compel arbitration, a court must first determine whether the parties agreed to arbitrate. New Zealand Ins. Co., Ltd. v. S/S Greenland Rex, No. 89 Civ. 6803, 1990 WL 129180 (S.D.N.Y. Aug. 31, 1990) (citing McDonnell Douglas Finance v. Pennsylvania Power Light Co., 858 F.2d 825 (2d Cir. 1988)).
The General Power of Attorney document submitted by the defendants shows that Rothstein gave her husband Karetsos a broad, durable power to act as her agent. She specifically granted Karetsos authority to act for her in all: "bond, share and commodity transactions"; "banking" and "business operating transactions"; as well as "all other matters." Plaintiffs admit that Karetsos showed Fung the General Power of Attorney document during the meeting at which Karetsos signed the contracts containing the arbitration agreements. Although plaintiffs accuse defendants of "stealing" the power of attorney document, whether or not defendants were entitled to keep the document after Karetsos had shown it to Fung is irrelevant to whether the power of attorney was in effect when Karetsos signed the arbitration agreement in behalf of his wife.
Moreover, the fact that Rothstein revoked the power of attorney later that day, after Karetsos had presented it to Fung and had misplaced it, is immaterial. At the time the arbitration agreements were signed, Karetsos presented the General Power of Attorney document appointing him as his wife's attorney in fact, and signed her name as well as his own to both agreements. The general durable power of attorney was in effect at the time the arbitration agreements were signed, and both Karetsos and Rothstein are bound by those agreements.
Plaintiffs' claims all fall within the broad scope of the arbitration agreements. There is no longer a genuine issue of fact with respect to the enforceability of the arbitration agreements. Accordingly, the trial scheduled for October 5, 2004 is unnecessary and will not go forward.
CONCLUSION
For the foregoing reasons, defendants' motion to compel arbitration pursuant to 9 U.S.C. § 4 is granted. The parties are ordered to proceed to arbitration in accordance with the terms of paragraph 11 of the agreements.
SO ORDERED.