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Trafelet v. Cipolla & Co.

Supreme Court, New York County
Jan 3, 2019
62 Misc. 3d 1205 (N.Y. Sup. Ct. 2019)




In the Matter of Lara S. TRAFELET, for a Judgment Pursuant to C.P.L.R. §§ 7503 (B) Staying Arbitration, Petitioner, v. CIPOLLA & CO., LLC, Respondent.

Laurie McPherson, Esq., Deepti Shenoy, Esq., Georgia Baker, Esq., The McPherson Firm PC Charles F. Kellett, Esq., Kenneth B. Danielsen, Esq., Emily H. Kornfeld, Esq., Kaufman, Dolowich & Voluck, LLP, Attorneys for Respondent

Laurie McPherson, Esq., Deepti Shenoy, Esq., Georgia Baker, Esq., The McPherson Firm PC

Charles F. Kellett, Esq., Kenneth B. Danielsen, Esq., Emily H. Kornfeld, Esq., Kaufman, Dolowich & Voluck, LLP, Attorneys for Respondent

Douglas E. Hoffman, J.

Petitioner Lara S. Trafelet commenced this proceeding, and filed the instant motion, pursuant to C.P.L.R. § 7503(a) to stay the arbitration commenced before the American Arbitration Association (AAA) by respondent Cipolla & Co, LLC. Respondent opposes the application.


The following is a recitation of material undisputed facts from the parties' submissions, unless otherwise stated. Petitioner Ms. Trafelet was the plaintiff in a contested matrimonial action, Trafelet v. Trafelet , Index No. 312168/2015, that was pending before the undersigned when the instant motion was filed. That matrimonial action was recently concluded by settlement at the commencement of trial and the judgment of divorce was signed in December 2018. The Cipolla firm is an accounting and litigation-consulting firm (although it consults as accountants in litigation, it is not a litigation firm, and it does not employ attorneys).

On November 23, 2016, petitioner retained the law firm of Buchanan Ingersoll & Rooney, P.C. (Buchanan) to represent her in the matrimonial action (Petition ¶ 26). According to Buchanan's written retainer agreement, petitioner agreed to pay "all out-of-pocket costs, fees and other expenses incurred in connection with" the divorce action (Petition, Ex. A at 2). The Buchanan retainer also provided that in the event petitioner approved the hiring of experts, such as accountants, appraisers and investigators, she would "pay such outside providers directly" (id. ).

Buchanan subsequently retained respondent pursuant to a "Kovel Retainer" for purposes of providing confidential forensic accounting services in the matrimonial action (Petition ¶ 3, Ex. B at 1). Buchanan and Ms. Trafelet (together with her father and her attorney) received, and Buchanan and Ms. Trafelet eventually signed, two separate engagement letters with Cipolla (the November 2016 agreement, Cipolla Aff., Ex. E and the August 2017 second agreement, Cipolla Aff., Ex. B). In each letter that Ms. Trafelet signed, there was an agreement to arbitrate any disputes. Specifically, in November 16, 2016, Joseph Cipolla, managing member of the respondent, met with Ms. Trafelet, her father Ted Schmidt, who is an experienced business person, and her then-attorney Stuart Slotnick from Buchanan. Cipolla associate Albert Manzo emailed the First Engagement Letter to Mr. Slotnick on November 18, 2016. On November 22, 2016, Mr. Slotnick forwarded that proposed engagement letter to Ms. Trafelet and her father. The following day, Ms. Trafelet met with Mr. Cipolla, accompanied by her attorney, Mr. Slotnick. According to Mr. Cipolla, she inquired about a specific term in the letter (allegedly, interest on unpaid balances), and then, Ms. Trafelet signed the engagement letter, as "Financially Responsible Party" (Cipolla Aff. at 8, Ex. E). That November 2016 Cipolla retainer agreement also referred to petitioner as the "Client" and Buchanan as "Counsel" (id. ). It also set forth the terms for payment of respondent's fees and the procedure for resolving disputes. Significantly, the document stated that the "Client shall be solely responsible for the payment of our fees and related expenses" (id. at 3).

In his opposition to the instant motion, Mr. Cipolla detailed his firm's extensive work on behalf of Ms. Trafelet in the months after that first engagement letter was signed. Mr. Cipolla also cited Ms. Trafelet's apparently active participation and awareness of at least some of that work: there was a dedicated conference room for this matter, and Ms. Trafelet often worked there with her advisors; she was a party to numerous emails, questions, and requests. The Cipolla firm also participated in numerous court appearances before a prior Presiding Justice in Ms. Trafelet's matrimonial case. Throughout, the Cipolla firm apparently provided Ms. Trafelet with weekly invoices. (Cipolla Aff. at 8), and according to Mr. Cipolla, Ms. Trafelet even printed out these invoices into a binder (id.). In March 2017, Mr. Cipolla filed an affidavit in the matrimonial action (Cipolla Aff., Ex. F), in support of Ms. Trafelet's application for attorney and expert fees against her then-husband, which application was eventually granted, and upheld on appeal.

It also appears that in August 2017, Ms. Trafelet agreed to execute a confession of judgment for a certain sum of then-outstanding unpaid fees. Nevertheless, Ms. Trafelet eventually told Mr. Cipolla that she had been advised not to sign the affidavit of confession of judgment (Cipolla Aff.), eventually leading to the end of the relationship, the start of fee-collection in arbitration, and the instant motion permanently to stay that arbitration.

By August 2017, the Cipolla firm had apparently billed over $2 million for its work, with a large balance due. According to Mr. Cipolla, in mid-August 2017, his firm's associate Mr. Manzo emailed Ms. Trafelet about the outstanding fees, and attached a new engagement letter for her signature, as well as a revised Kovel Retainer with respondent (the 2017 Agreement) (Petition, Ex. C at 7). Mr. Manzo also attached a "confession of judgment" for Ms. Trafelet's signature. (Cipolla Aff., Ex. H, filed without cited attachments). On August 22, 2017, Ms. Trafelet's then-attorney Mr. Slotnick signed the 2017 Agreement. (Cipolla Aff., Ex. E). Two days later, on August 24, 2017, Mr. Manzo emailed Ms. Trafelet, again asking her about the 2017 Agreement and confession of judgment (Cipolla Aff., Ex. C, filed with cited attachments). That day, August 24, 2017, Ms. Trafelet signed the 2017 Agreement (Cipolla Aff., Ex. E), but she did not at that time (or at any subsequent time), sign the confession of judgment.

The terms were largely identical to those in the initial Kovel Retainer, with the 2017 Agreement once again identifying petitioner as the "Client" and Buchanan as "Counsel" (Cipolla Aff., Ex. E at 1). However, the 2017 Agreement amended the sections pertaining to fees and payment. Importantly, the relevant portions of the 2017 Agreement discussing fees and payments now read:

"Professional Fees

1. Client shall be solely responsible for professional fees ... Client shall be solely responsible for the payment of our fees and related expenses ... [and] in no event shall Counsel be financially responsible for our fees and expenses ....

2. Cipolla has rendered weekly invoices via email to you and Client since the inception of this engagement without objection, written or otherwise, from you or Client, the financially responsible person pursuant to this agreement. Through August 21, 2017 Cipolla is owed $2,641,590.65 as memorialized by the weekly invoice dated August 22, 2017 as amended/corrected (copy attached); Client specifically warrants and represents that Client remains liable for and irrevocably intends to pay all of Cipolla's unpaid fees, past and future , and that there exist no claims or potential claims by Client with respect to our unpaid fees or services rendered to date. In recognition of same Client agrees to execute the attached Promissory Note (Confessed Judgment) in the amount of $2,641,590.65 plus all interest and/or service charges accruing pursuant to this agreement ..."

(id. at 3) (emphasis added). The 2017 Agreement included a provision for resolving disputes that reads:

"4. Dispute Resolution. If a dispute or claim arises out of or relates to the engagement described herein, Counsel and the parties agree to settle such dispute or claim by arbitration administered by the American Arbitration Association (‘AAA’) under its Arbitration Rules for Professional Accounting and Related Services Disputes (‘Arbitration Rules’) with all AAA fees and costs chargeable to and payable by Client. Cipolla and Counsel agree to this exclusive remedy, and to be bound by the results of arbitration. The parties acknowledge they had the right to consult independent counsel regarding this provision and expressly acknowledge and agree that by this provision each is waiving and relinquishing its respective right to a jury trial in any and all disputes, including with respect to fees, between the parties related to this agreement or the professional services to be rendered hereunder . The arbitration hearing shall be heard in New York City. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

In the event a party fails to proceed with arbitration, unsuccessfully challenges the arbitrator's award, or fails to comply with the arbitrator's award, the other party is entitled to costs of suit, including a [sic] reasonable attorney fees, for having to compel arbitration or defend or enforce the award"

(id. at 5) (emphasis added).

A provision on the signature page of the 2017 Agreement further states, just above the signature blocks for Mr. Slotnick and Ms. Trafelet:

"I have read, understand and agree to the scope and terms of Cipolla's engagement as set forth hereinabove. This agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to any choice of law or conflict of law rules or provisions of any other jurisdiction that would cause the application of the laws of any other jurisdiction other than the State of New York. Should a dispute arise with respect to this agreement, it is agreed that such dispute shall be resolved in accordance with the Dispute Resolution provisions contained herein, in accordance with the laws of the State of New York, and any rights that may exist to pursue any other remedies, at law or in equity, or in any other venue, are waived "

(id. at 7) (emphasis added) (italics in original, underline emphasis added). Notably, the pre-printed text directly beneath petitioner's signature reads, "Lara S. Trafelet (Financially Responsible Party)." (Id. )

Petitioner alleges that respondent has billed her more than $4.2 million for its services, of which $1.5 million has been paid after the trial court's award of $3.5 million to petitioner in the matrimonial action for interim counsel and expert fees was affirmed ( Trafelet v. Trafelet , 162 AD3d 518, 518, 79 N.Y.S.3d 129 [1st Dept. 2018] ; Petition ¶¶ 3, 38). In November 2017, Mr. Cipolla submitted a second affidavit in support of Ms. Trafelet's fee application in her then-pending matrimonial action (Cipolla Aff., Ex. J). On or about December 11, 2017, petitioner discharged Buchanan allegedly for cause (id. , ¶ 70), and petitioner and her new counsel terminated respondent's services (id. , ¶ 71). Respondent submits that it resigned its services to the new attorney, in part because Ms. Trafelet had not signed the confession of judgment (Cipolla Aff., ¶ 17). On or about June 26, 2018, respondent brought an arbitration proceeding to recover its allegedly unpaid fees (id. , ¶ 74; Ex. F at 1). Petition then filed the instant proceeding and motion.


Petitioner asserts that arbitration should be stayed on several bases. First, petitioner argues that she never agreed to arbitrate respondent's claim because the agreements bound only respondent and Buchanan to arbitration. The first sentence of the 2017 Agreement refers to an "agreement ... between Cipolla & Co, LLC (‘Cipolla,’ ‘us,’ ‘we,’ or ‘our’) and Buchanan Ingersoll & Rooney, PC (‘Counsel’) regarding the terms which Cipolla has been requested to perform" (Petition, Ex. C at 1). The sentence did not include petitioner as a party to the Agreement.

Second, Ms. Trafelet argues that even if she is bound to the 2017 Agreement, the dispute resolution provision is unclear and ambiguous, because the 2017 Agreement contains conflicting language. The fee payment provision of the agreement indicates that petitioner would be liable for reasonable costs "[i]f it becomes necessary to initiate collection or legal action to collect our fees" (id. at 5). If the parties had intended to designate arbitration as the sole mechanism by which respondent could recover its fees, then the agreement should not have included a provision discussing the payment of court costs and fees.

Third, petitioner contends that the 2017 Agreement is unenforceable because of fraudulent, unconscionable or overreaching conduct by Buchanan or respondent. Petitioner alleges that her former attorneys at Buchanan urged her to retain respondent (Petition ¶ 23), and that respondent drafted and Buchanan executed the agreement without any negotiation (id. , ¶ 27). Petitioner further claims that Buchanan owed her a duty to provide her with legal advice concerning the agreement's terms (id. , ¶ 34), and that Buchanan ignored this duty when it failed to inform her that confessions of judgment are apparently not permitted under 22 N.YC.R.R. 1400.5. Likewise, Ms. Trafelet alleges that 22 N.Y.C.R.R. 1400.4 prohibits the use of non-refundable retainer agreements in domestic relations matters (id. , ¶ 69). Although the agreement states that petitioner had the right to consult with independent counsel, Buchanan never told her of this provision (id. , ¶¶ 55-56). Petitioner also alleges that the arbitration provision violates the Rules of the Chief Administrator of the Courts (22 N.Y.C.R.R.) § 137 et seq. , which establishes a fee dispute resolution program within the courts, because the dispute at issue involves more than $50,000 (see 22 N.Y.C.R.R. 137 [b] [2] ).

Additionally, petitioner alleges that Buchanan breached the fiduciary duty owed to her by failing properly to supervise respondent's services that petitioner claims were of little use in the matrimonial action (Petition ¶¶ 3, 8). Petitioner asserts that her new forensic accounting firm performed the same tasks as respondent for far less, billing $150,000 to replicate and repeat respondent's work (id. , ¶ 73). Petitioner, an inexperienced layperson (id. , ¶ 5), claims that she was coerced into executing the Agreement because Buchanan told her that it would immediately withdraw its representation if petitioner did not agree to retain respondent's services (id. , ¶¶ 58-59). Although she signed the 2017 Agreement, she refused to execute the confession of judgment despite respondent's repeated requests that she do so (id. , ¶ 64).

Lastly, plaintiff contends that a determination of the amount of respondent's fees is within the providence of the court (see Domestic Relations Law § 237 ); hence, the reasonableness of respondent's fees and the allocation of those fees between petitioner, as the non-monied spouse, and her husband, the monied spouse, should await the then-upcoming trial in the matrimonial action.

In response, respondent argues that petitioner is precluded from maintaining the petition because she participated in the arbitration proceeding. Respondent tenders affidavits from its managing member, Mr. Cipolla, and junior accountant, Albert Manzo. Mr. Cipolla avers that petitioner has received advice from her father, Ted Schmidt, who is a "financially astute businessman," and her Ohio attorney, Robert Meyers (Cipolla Aff., ¶ 3), throughout the matrimonial action. Mr. Cipolla states that he, petitioner, Mr. Schmidt, and Mr. Meyers met to discuss respondent assisting Buchanan in the matrimonial action (id. , ¶ 12). Following that meeting, Mr. Manzo forwarded the initial engagement letter by email to petitioner and Mr. Schmidt for their review, and petitioner executed the document on November 23, 2016 (id. ). Respondent also alleges that Mr. Schmidt and Mr. Meyers have assisted Ms. Trafelet in her matrimonial action by attending a mediation session with her in New York (id. , ¶ 10), and by directing respondent to undertake a more aggressive approach in the litigation and to perform additional forensic accounting work, even after they had been cautioned that "tracing work would be extremely expensive," in numerous emails that copied both Mr. Cipolla and Ms. Trafelet (id. , ¶ 16). Furthermore, Cipolla told Ms. Trafelet, Mr. Schmidt, and Mr. Meyers that respondent's fees had not been paid, sending detailed invoices (id. , ¶ 20). Petitioner, Mr. Schmidt and respondent discussed a loan that petitioner had apparently agreed to obtain in order to pay respondent's fees, and Mr. Schmidt asked specific, particularized questions about that loan (id. , ¶ 29).

In reply, petitioner contends that respondent's papers are procedurally defective because it never answered the petition (see C.P.L.R. § 402 ). Petitioner also avers that she has amended the original petition to "correct certain typographical errors, remove the fourth cause of action, and clarify my request for relief" (Trafelet Aff. in Further Support, ¶ 2).


C.P.L.R. § 7501 provides that "[a] written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable without regard to the justiciable character of the controversy ...." A party "may apply for a stay of 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" ( C.P.L.R. § 7503[a] ). Thus, on an application to stay arbitration, the court must determine three issues: "whether the parties made a valid agreement to arbitrate, whether if such an agreement was made it has been complied with, and whether the claim sought to be arbitrated would be barred by limitation of time had it been asserted in a court of the State" ( Matter of County of Rockland [Primiano Constr. Co.] , 51 NY2d 1, 6-7, 409 N.E.2d 951 [1980] ; accord Matter of Nationwide Gen. Ins. Co. v. Investors Ins. Co. of Am. , 37 NY2d 91, 95, 332 N.E.2d 333 [1975] ). An application to stay arbitration must be brought by commencing a special proceeding (see C.P.L.R. § 7502[a] ).

As an initial matter, a special proceeding is governed by Article 4 of the C.P.L.R.. Thus, petitioner is correct in her assertion that respondent was required to submit an answer to the petition (see C.P.L.R. § 402 ), or move for relief before the petition was heard (see C.P.L.R. § 406 ). Nevertheless, the court will disregard this procedural defect (see Matter of Caceres v. Motor Veh. Acc. Indem. Corp. , 37 AD3d 215, 215, 829 N.Y.S.2d 487 [1st Dept. 2007] (disregarding the respondent's pleading omission); Board of Educ. Of Rushford Cent. School v. Civil Serv. Empls. Assn. , 78 AD2d 999, 1000, 433 N.Y.S.2d 916 [4th Dept. 1980] (granting a stay of arbitration even though respondent did not file an answer), as respondent "clearly intended to respond to the allegations via their Affirmation in Opposition" ( Russo v. Locust Valley Library , 2012 NY Slip Op 32461[U], *5, 2012 WL 4485663 [Sup. Ct. Nassau Co. 2012] ; Cuomo v. Daniels , 25 Misc 3d 1226[A], 2009 NY Slip Op 52304[U], *2-3 (Sup. Ct. Sullivan Co. 2009) (considering respondent's affidavit and his attorney's affirmation as an answer); cf. Matter of State Farm Mut. Auto. Ins. Co. v. Perruc , 2011 NY Slip Op 33535[U], *6, 2011 WL 7031148 [Sup. Ct. Nassau Co. 2011] ).

The court also holds that petitioner has not waived her right to seek a stay by participating in the arbitration, as respondent suggests. C.P.L.R. § 7502(b) prohibits a party who has actively participated in the arbitration from pursuing a stay (see Matter of Commerce & Indus. Ins. Co. v. Nestor , 90 NY2d 255, 263, 682 N.E.2d 967 [1997] (stating that "a party seeking to avoid arbitration on the ground of no agreement to arbitrate can raise such objection only when it has not participated in the arbitration"); Matter of Jewish Ctr. Of Forest Hills W., Inc v. Goldberg , 160 AD3d 644, 645-646, 74 N.Y.S.3d 582 [2d Dept. 2018] [stating that C.P.L.R. § 7503(b) "requires that a party raise these threshold issues before participating in arbitration"] ). Therefore, "as long as a party's actions are consistent with the right to litigate arbitrability, there is no waiver" ( Kidder, Peabody & Co. v. Marvin , 161 Misc 2d 12, 16, 613 N.Y.S.2d 1011 [Sup. Ct. NY Co. 1994] ).

The level of participation contemplated under C.P.L.R. § 7503(b) involves something more than merely requesting an extension of time (Matter of De Laurentiis [Cinematografica De Las Americas, S. A.] , 9 NY2d 503, 509, 174 N.E.2d 736 [1961] ; Matter of Dana Realty Corp. [Consolidated Elec. Constr. Co.] , 21 AD2d 769, 771, 250 N.Y.S.2d 784 [1st Dept. 1964] (finding the petitioner's request for an extension of time to select an arbitrator was not a voluntary submission of the dispute to arbitration) ). In order to waive its right to seek a stay, a party must actively participate "in the arbitration on the merits" ( Sherrill v. Grayco Bldrs. , 64 NY2d 261, 273 n.3, 475 N.E.2d 772 [1985] ). Such actions include selecting the arbitrator (see Binghamton Civ. Serv. Forum v. City of Binghamton , 44 NY2d 23, 28 n*, 403 N.Y.S.2d 482 [1978] ), and taking part in preliminary proceedings (see Matter of Flintlock Constr. Servs., LLC v. Weiss , 122 AD3d 51, 55, 991 N.Y.S.2d 408 [1st Dept. 2014], appeal dismissed 24 NY3d 1209 [2015] ). Petitioner's communication to the AAA requesting an adjournment so that she could retain counsel and counsel's request for an adjournment of the date on which a list of arbitrators must be exchanged fall well below the active participation required under C.P.L.R. § 7503(b).

As to the merits of the petition, "arbitration agreements are contracts and must be interpreted under the accepted rules of contract law" (Matter of Salvano v. Merrill Lynch, Pierce, Fenner & Smith , 85 NY2d 173, 182, 647 N.E.2d 1298 [1995] ). As such, "[a]n arbitration clause, as a component of a contractual agreement, must be enforced according to its terms" ( Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. v. Torino Jewelers, Ltd. , 44 AD3d 581, 582, 844 N.Y.S.2d 242 [1st Dept. 2007] ). "Where there is no substantial question whether a valid agreement was made or complied with ... [then] the court shall direct the parties to arbitrate" ( C.P.L.R. § 7503[a] ). But, if the parties dispute "whether an obligation to arbitrate exists, the general presumption in favor of arbitration does not apply" (Matter of TBA Global, LLC v. Fidus Partners, LLC , 132 AD3d 195, 202, 15 N.Y.S.3d 769 [1st Dept. 2015] (internal quotation marks and citation omitted). The burden rests with the proponent of arbitration to show that the parties agreed to arbitrate their dispute ( Eiseman Levine , 44 AD3d at 582 ).

Contrary to petitioner's position, the 2017 Agreement petitioner executed advised her that any dispute between the parties would be resolved by arbitration (see Thies v. Bryan Cave LLP , 35 AD3d 252, 252-253, 826 N.Y.S.2d 54 [1st Dept. 2006] (finding that the defendant law firm's engagement letters contained a binding arbitration provision); Matter of Berdon LLP v. Stenger , 2018 NY Slip Op 31947[U], *2-3, 2018 WL 3838323 [Sup. Ct. NY Co. 2018] (granting a petition to compel mediation brought by an accounting firm that had been hired to assist the respondent in a separate matrimonial action) ). In addition, the contested language in the Agreement concerning arbitration is "clear, explicit and unequivocal" ( Matter of Waldron [Goddess] , 61 NY2d 181, 183, 461 N.E.2d 273473 [1984] ). Petitioner relies on select excerpts from the Agreement that state the "agreement" pertained solely to respondent and Buchanan, but she ignores other statements elsewhere in the Agreement that clearly set forth her obligations, including her consent to "settle such dispute or claim by arbitration" (Petition, Ex. C at 5).

Petitioner's contention that the arbitration clause in the 2017 Agreement is unconscionable is not supported. "An unconscionable contract has been defined as one which ‘is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be [unenforceable] according to its literal terms’ " ( Gillman v. Chase Manhattan Bank , 73 NY2d 1, 10, 534 N.E.2d 824537 [1988] (internal quotation marks and citation omitted) ). The objecting party must demonstrate that "the contract was both procedurally and substantively unconscionable when made" (id. ). Procedural unconscionability requires the court to look at one party's lack of "meaningful choice in entering into the contract, taking into consideration such factors as the setting of the transaction, the experience and education of the party claiming unconscionability, whether the contract contained ‘fine print,’ whether the seller used ‘high-pressured tactics’ and any disparity in the parties' bargaining power" ( Brower v. Gateway 2000 , 246 AD2d 246, 253, 676 N.Y.S.2d 569 [1st Dept. 1998] (citation omitted) ). As to substantive unconscionability, the court must determine whether the contract's terms unreasonably favor one party over the other (id. ). Whether a contract is unconscionable must be decided "against the background of the contract's commercial setting, purpose and effect" ( Sablosky v. Gordon Co. , 73 NY2d 133, 138, 535 N.E.2d 643 [1989] ).

Here, the arbitration provision is neither procedurally nor substantively unconscionable ( Friedman v. Hebrew Home for the Aged at Riverdale , 131 AD3d 421, 422, 13 N.Y.S.3d 896 (Mem) [1st Dept. 2015]; Thies , 35 AD3d at 252 ; Matter of Koeppel , 32 Misc 3d 1245[A], 2011 NY Slip Op 51709[U], *8 [Sur. Ct. NY Co. 2011] (finding that the retainer agreement resulted from "weeks-long discussion with (the client) and his accountant"), affd 95 AD3d 453 [1st Dept. 2012] ). Emails submitted by respondent show that petitioner's initial retention of its services was the product of a reasoned choice, including significant supportive input from Mr. Schmidt (Cipolla aff, Ex. D at 1-5). In one email, copying Ms. Trafelet, Mr. Schmidt thanked Mr. Cipolla and Buchanan's Mr. Slotnick for their "initial thoughts related to an ‘expedited plan of action’ and for ‘forensic accounting priorities’ " ( id. at 1 ). He further wrote about Ms. Trafelet that "[s]he/we have a number of additional questions/comments" that he wished to resolve in a "conference call [with Ms. Trafelet and Cipolla] in which I can participate" (id. ). In another email days later, again copying Ms. Trafelet, Mr. Schmidt wrote that Ms. Trafelet and he "are delighted, relieved, gratified and excited" for Buchanan and Mr. Cipolla to represent Ms. Trafelet in the matrimonial action ( id. at 3 ).

Cipolla emailed with Ms. Trafelet, Mr. Schmidt and Mr. Meyers about the matrimonial action (Cipolla Aff., Ex. D at 19-20). On August 7, 2017, Cipolla forwarded the Agreement, promissory note, and a revised invoice to Ms. Trafelet and Mr. Schmidt by email (Cipolla Aff., Ex. C at 1). The text of the email referenced a meeting between Cipolla, Ms. Trafelet, and Mr. Meyers during which Mr. Meyers "suggested another $2 million of fees would be appropriate under the circumstances" (id. ). Cipolla also referenced petitioner's plan to obtain financing from Peapack so that she could pay respondent's fees (id. ). In an email message to Cipolla dated July 11, 2017, again copying Ms. Trafelet, Mr. Schmidt posed detailed questions concerning the Peapack proposal, including how the proceeds from the loan would be used, closing costs, and other issues (Cipolla Aff., Ex. D at 10). And while petitioner alleges that she had "no real prior experience ... with a forensic accountant" and that she was "a layperson and inexperienced" (petition, ¶¶ 5, 24), the court observes that Mr. Schmidt's signature line at the bottom of each of his emails identified him as a senior vice president at a real estate capital group (id. at 1). Ms. Trafelet is also a college graduate with prior work experience (id. ). At no point in this or the matrimonial litigation has it been alleged that Ms. Trafelet could not understand the documents. More significantly, the sections in the initial November 2016 agreement and the August 2017 Agreement discussing petitioner's right to consult with independent counsel on the dispute resolution provisions remained unchanged. Having had previously engaged multiple attorneys (both New York matrimonial attorneys and Ohio attorney Mr. Meyers), Ms. Trafelet was capable of seeking outside counsel.

Petitioner does not cite law or facts sufficient to demonstrate that the arbitration provisions in the two agreements are not clearly stated in a legible font, are stated in such a manner to not be understood by a college-educated lay person, are hidden in the document, or are actually contradicted by another provision. Likewise, petitioner has not alleged facts sufficient to show that the entire Agreement "was permeated either by fraud or duress so as to invalid the arbitration agreement" ( Tong v. S.A.C. Capital Mgt., LLC , 52 AD3d 386, 387, 860 N.Y.S.2d 84 [1st Dept. 2008] ). As stated by the trial court in Tong , in upholding an arbitration agreement:

[Petitioner] has not alleged [respondent] falsely represented a material fact about the Agreement with scienter, and that [petitioner] was deceived and injured by that misrepresentation. [Petitioner] has not alleged that [petitioner] was under any threat or compulsion by physical force or other unlawful restraint to sign the Agreement. [Petitioner] has not alleged that [petitioner] was unable to understand the Agreement or that [petitioner] did not read it. [Petitioner] has not alleged that [petitioner] had unequal bargaining power in comparison with [respondent], or that [petitioner] was deprived of [petitioner's] right to refuse to sign the documents. [Petitioner] always had the option to walk away from the [ ] offer. In summary, notwithstanding the strong language of his written submissions, [petitioner] has not alleged specific conduct that substantiates [the] characterizations of fraud, duress, coercion, or adhesion in the execution of the Agreement.

Tong v. S.A.C. Capital Mgmt., LLC , 16 Misc 3d 401, 411—12, 835 N.Y.S.2d 881, 890 [Sup. Ct. NY Co. 2007], aff'd, modified on other grounds , 52 AD3d 386, 860 N.Y.S.2d 84 [1st Dept. 2008].

Here, as in Tong , Ms. Trafelet did not allege sufficient specific facts to show that Cipolla falsely represented a material fact about the Agreement with scienter, and that she was deceived and injured by that misrepresentation. Ms. Trafelet does not allege any threat or compulsion by physical force or other unlawful restraint to sign the Agreement. She alleges only that her then-attorney apparently told her that if she did not sign the retainer agreement with the Cipolla firm, her attorney would not represent her. The exercise of a legal right (to choose not to represent a matrimonial client) is not an inappropriate threat. Ms. Trafelet has not specifically alleged that she either could not understand the Agreement or that she had not read it. Ms. Trafelet has not alleged that she had unequal bargaining power in comparison with Cipolla, or that Cipolla somehow deprived her of the right to refuse to sign the documents. Indeed, the fact that Ms. Trafelet never signed the confession of judgment (presented to her at the same time as the August 2017 Agreement) tends to show that she exercised independent judgment to sign some documents and not sign others.

Petitioner claims that Buchanan breached the fiduciary duty owed to her and that Buchanan purportedly engaged in fraud by failing to disclose that she could have consulted independent counsel. The retainer letter itself, however, states that she may consult independent counsel. As discussed earlier, petitioner (perhaps together with her father Mr. Schmidt, who is frequently on emails and was present in at least some of the meetings) selected Buchanan and Cipolla after significant deliberation, and reviewed the written retainer with Buchanan and the initial November 2016 agreement and the August 2017 Agreement with respondent prior to Ms. Trafelet signing each one. Ms. Trafelet also signed the Buchanan retainer. The retainer documents placed the burden of paying respondent's fees upon petitioner, and petitioner appears never to have objected to the weekly invoices she received from respondent. Moreover, petitioner cannot show that she had no choice but to retain Buchanan and respondent because she had already changed attorneys and experts in the matrimonial action, and she eventually changed to another attorney in December 2017, and hired another forensic accounting firm shortly thereafter.

Additionally, the arbitration provision is not in violation of 22 N.Y.C.R.R. 1400 et seq , as alleged by petitioner. Those rules are directed to "address abuses in the practice of matrimonial law and to protect the public" ( Julien v. Machson , 245 AD2d 122, 122, 666 N.Y.S.2d 147 [1st Dept. 1997] ), but respondent is an accountant, not an attorney. Likewise, 22 N.Y.C.R.R. 137.1 concerns the arbitration of fee disputes between attorneys and their clients. Again, respondent is not an attorney, and the rule does not apply to "disputes where the request for arbitration is made by a person who is not the client of the attorney or the legal representative of the client" ( 22 N.Y.C.R.R. 137.1 [b][8] ). In view of the foregoing, the court need not address the new allegations in petitioner's amended petition, which was not filed with leave of court. In any event, Domestic Relations Law § 237 relates to applications before the court for the payment of "counsel fees and fees and expenses of experts directly to the attorney of the other spouse to enable the other party to carry on or defend the action or proceeding." Consequently, the statute does not concern the amount of fees to be awarded in an arbitration proceeding.

Accordingly, it is

ADJUDGED that the petition and motion to stay the subject arbitration is denied in all respects, and the petition is dismissed; and it is further

ADJUDGED that the parties shall proceed to arbitration forthwith and respondent's counsel shall serve a copy of this judgment upon the arbitral tribunal.

Summaries of

Trafelet v. Cipolla & Co.

Supreme Court, New York County
Jan 3, 2019
62 Misc. 3d 1205 (N.Y. Sup. Ct. 2019)
Case details for

Trafelet v. Cipolla & Co.

Case Details

Full title:In the Matter of Lara S. Trafelet, for a Judgment Pursuant to C.P.L.R. § …

Court:Supreme Court, New York County

Date published: Jan 3, 2019


62 Misc. 3d 1205 (N.Y. Sup. Ct. 2019)
2019 N.Y. Slip Op. 50006
112 N.Y.S.3d 872