Opinion
No. 506012/2013.
06-12-2014
Jonathan T. WACHTEL, individually and derivatively as a member 205 N7 Holdings LLC, Plaintiffs, v. 205 N7 HOLDINGS LLC sued herein as a nominal, defendant, North 7 Acquisition LLC, Two 05 North Seven Note LLC, Sam Sprei, Robert Wolf, Howard Baum, Howard Wasserman and Harry Miller, Defendants.
David Bolton, Esq., Garden City, Attorney for Plaintiff. Adam Kessler, Esq., David Kessler & Associates, LLC, Clifton, NJ, Attorney for Defendants Robert Wolf and 205 N7 Holdings LLC.
David Bolton, Esq., Garden City, Attorney for Plaintiff.
Adam Kessler, Esq., David Kessler & Associates, LLC, Clifton, NJ, Attorney for Defendants Robert Wolf and 205 N7 Holdings LLC.
Opinion
CAROLYN E. DEMAREST, J.
Defendants 205 N7 Holdings LLC, sued as a nominal defendant (“205 Holdings”) and individual defendant, Robert Wolf (“Wolf”), move pursuant to CPLR 7503 to compel arbitration and for a stay of all claims pending the outcome of arbitration. In the alternative, the defendants move pursuant to CPLR 2004 to extend their time to answer.
BACKGROUND
Plaintiff is a member and owner of 100% of the class B membership interests of 205 Holdings. Individual defendants Sam Sprei (“Sprei”), Howard Baum (“Baum”), and Wolf are the other members of 205 Holdings and hold class A membership interests. It is undisputed that, 205 Holdings was formed for the purpose of purchasing real property located at 205 North 7th Street in Brooklyn (the “Property”), which was owned by defendants North 7 Acquisition LLC (“North 7”) and Two 05 North Seventh Note LLC (“Note LLC”). According to the affidavit of plaintiff Jonathan Wachtel (“Wachtel”), the obligation of North 7 and Note LLC to sell the Property was set forth in a written sale agreement (the “Sale Agreement”). The Property was not transferred to 205 Holdings pursuant to the Sale Agreement. In April 2012, 205 Holdings commenced a lawsuit against North 7 and Note LLC alleging breach of the Sale Agreement and seeking monetary damages and specific performance (the “Prior Action”). The parties to the Prior Action settled the lawsuit (the “Settlement Agreement”) .
Parties to the Prior Action were 205 N7 Holdings against defendants Howard Wasserman, Two 05 North Seventh Note LLC, and North 7 Acquisition LLC.
Plaintiff now alleges that all consideration due to 205 Holdings pursuant to the Settlement bypassed 205 Holdings and was instead paid directly to Sprei, Wolf, and Baum. Plaintiff alleges that defendants structured the Settlement in such a manner so as to ensure that plaintiff would not share in the consideration as a member of 205 Holdings. Plaintiff further claims that, in connection with the Settlement Agreement, defendant Harry Miller (“Miller”) was granted an option to purchase the Property at a substantially below market value, which was granted in consideration for Miller's participation in this transaction that deprived the plaintiff of the beneficial interest of his membership in 205 Holdings. Plaintiff seeks to invalidate the Settlement Agreement and to have the Property transferred to 205 Holdings. Plaintiff also brings claims against the defendants for unjust enrichment and for an accounting of 205 Holdings.
Wachtel, Sprei, Wolf, and Baum entered into an amended and restated operating agreement on May 9, 2011 (the “Operating Agreement”), which contains an arbitration clause. The clause provides:
The Members shall consult with an agreed upon person in order to resolve any dispute, controversy, claim or question arising with respect to this Agreement. In the event that after such consultation, the dispute, controversy, claim or question arising with respect to this Agreement is still unresolved, then the Members shall submit such dispute or question to arbitration before a panel consisting of The Beis Din of Tratikov of Boro Park which will enforce the provisions of this Agreement and give any party the rights he is entitled to under New York law. The panel will have the authority to file their decision with the Court under the New York Arbitration Law. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court of competent jurisdiction.
Pursuant to this arbitration clause, defendants seek to compel arbitration of plaintiff's claims and plaintiff opposes.
DISCUSSION
New York public policy favors arbitration as a means of conserving judicial resources and courts should interfere as little as possible with agreements to arbitrate (see Matter of Nationwide General Ins. Co. v. Investors Ins. Co., 37 N.Y.2d 91 [1975];see also Shah v. Monpat Construction, Inc., 65 AD3d 541 [2d Dept 2009] ). “Generally it is for the courts to make the initial determination as to whether the dispute is arbitrable, that is whether the parties have agreed to arbitrate the particular dispute' “ (id. at 95, quoting Steelworkers v. American Mfg. Co., 363 U.S. 564, 570–571 [1960] ). The countervailing consideration is that by agreeing to arbitrate, a party waives many of its normal rights under the procedural and substantive law of the state, and for that reason, a party will not be compelled to arbitrate absent evidence that affirmatively establishes that the parties expressly agreed to arbitrate their disputes (see Shah v. Monpat Construction, Inc., 65 AD3d at 543).
Moving defendants argue that the arbitration clause contained in the Operating Agreement is a “broad” arbitration clause, which creates a “presumption of arbitrability” (Collins & Aikman Products Co. v. Building Systems, Inc., 58 F3d 16, 23 [2d Cir1995] ). An arbitration clause that covers all disputes “arising out of” or “relating to” the underlying agreement is considered a “broad” arbitration clause (see Matter of Nationwide General Ins. Co., 37 N.Y.2d at 95;State of New York v. Philip Morris Inc., 30 AD3d 26, 31 [1st Dept 2006] ). The arbitration clause of the instant Operating Agreement covers “any dispute, controversy, claim, or question arising with respect to this Agreement.” Plaintiff's position is that the arbitration clause is “narrow” and does not encompass the subject matter of the instant dispute, in which case the plaintiff cannot be compelled to forego the right to seek judicial relief (see Bowmer v. Bowmer, 50 N.Y.2d 288 [1980];see also Computer Associates v. Com–Tech Associates, 239 A.D.2d 379 [2d Dept 1997] ).
“In resolving this issue, it must be determined whether there is a reasonable relationship between the subject matter of the dispute and the general subject matter of the underlying contract' “ (Dazco Heating and Air Conditioning Corp. v. CBC Industries, Inc., 225 A.D.2d 578, 579 [2d Dept 1996], quoting Matter of Nationwide General Ins. Co., 37 N.Y.2d at 96). Although the language of the arbitration clause in the Operating Agreement is broad with respect to matters that arise with respect to the Operating Agreement, the dispute in the instant action arises from the Settlement Agreement that the parties entered into as a result of the Prior Action. This separate Settlement Agreement is not provided as an exhibit to the defendants' moving papers, nor is it annexed to plaintiffs' opposition papers, and so the Court is unable to determine whether the subject matter of the dispute arising from the Settlement Agreement bears a reasonable relationship to the Operating Agreement.
In their reply papers, moving defendants argue that because Wachtel does not challenge the validity of the Settlement Agreement and only alleges that the settlement proceeds were not properly disbursed, the current dispute is covered by that portion of the Operating Agreement which defines how distributions are to be made to members of 205 Holdings. The Operating Agreement provides that distributions are to be made to members of 205 Holdings pro rata in proportion to their capital contribution, and defendants contend that Wachtel did not receive a distribution in connection with the Settlement Agreement because of his status as a Class B member of 205 Holdings and because he was not entitled to a distribution based on his nominal capital contribution. Defendants argue that resolution of plaintiff's claim that he was cut out of the proceeds pursuant to the Settlement Agreement arises with respect to the distribution section of the Operating Agreement and is thereby an arbitrable issue. However, the complaint does not only allege that Wachtel was deprived of his beneficial interest as a member 205 Holdings, but also that the consideration pursuant to the Settlement Agreement improperly bypassed 205 Holdings. It is noted that only 205 Holdings and Wolf have moved for arbitration, and the other named defendants, some of whom are not parties to the Operating Agreement, have not responded to the motion. As previously discussed, the dispute in the instant action arises mainly from the Settlement Agreement, as opposed to the Operating Agreement, and the Court must deny the motion to compel arbitration absent evidence demonstrating the terms of the Settlement Agreement and their relationship to the Operating Agreement.
CONCLUSION
Defendants' motion to compel arbitration is denied. Defendants' time to answer is extended to 20 days from the date of this Order pursuant to CPLR 2004 in light of this motion to compel arbitration.
This constitutes the decision and order of the Court.