Cheng v. David Learner Assocs., Inc.
| Decision Date | 06 June 2012 |
| Docket Number | No. 24375/11.,24375/11. |
| Citation | 2012 N.Y. Slip Op. 51035,954 N.Y.S.2d 758,35 Misc.3d 1238 |
| Parties | David C. CHENG and Amy K. Cheng, Plaintiff, v. DAVID LEARNER ASSOCIATES, INC. and Kyle Corgan, Defendants. |
| Court | New York Supreme Court |
OPINION TEXT STARTS HERE
Vincent S. Wong, Esq, New York, for plaintiff.
Alonso, Andalkar, Toto, Facher & Mac Avoy, P.C., New York.
After oral argument and a review of the submissions herein, the Court finds as follows:
BACKGROUND
Plaintiffs David and Amy Cheng entered into an agreement to open an investment account with Defendant David Lerner Associates (“DLA”) and Kyle Corgan, wherein they agreed to purchase five thousand shares of Apple REIT Seven, Inc. (“Apple REIT Seven”). Plaintiffs also executed a subscription agreement. The Client Agreement and Subscription Agreement shall hereinafter be collectively referred to as the “Agreements.”
Plaintiffs brought this action against defendant DLA and the individual broker for Plaintiff's account, Kyle Corgan, alleging that the arbitration clauses are void and unenforceable because the contract was signed as a result of intentional coercion, fraud, misrepresentations and duress. Defendant DLA demanded Plaintiffs dismiss this action and submit to arbitration with the Financial Industry Regulatory Authority “FINRA” (the regulatory successor to NASD). Plaintiffs replied rejecting DLA's demand. Defendant DLA now moves to compel arbitration.
In their motion to compel arbitration, Defendants David Lerner Associates, Inc. et al asks the court to stay Plaintiffs David and Amy Cheng's action before this court pending completion of the arbitration. Under New York Civil Practice, CPLR § 7503(a), “a party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration.” Defendant DLA demanded Plaintiff submit to arbitration with FINRA, to which Plaintiff refused. DLA's motion before the court to compel arbitration is therefore proper.
To determine whether to grant the motion and direct the parties to arbitrate, the court must decide whether there is a substantial question as to whether a valid agreement was made (CPLR 7503(a)).
There is a clear judicial policy in favor of arbitration. The Appellate Division, Second Department has held that arbitration is considered “an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process.” Maross Const., Inc. v. Cent. New York Reg'l Transp. Auth., 66 N.Y.2d 341, 345, 488 N.E.2d 67 (1985) (internal citations omitted). To establish this policy, Congress enacted the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16. Section two places arbitration agreements on equal footing with all other contracts, “A written provision in ... a contract ... to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Arbitration agreements, however, are not absolute, and may be challenged as invalid and unenforceable.
According to the Supreme Court, challenges to the validity of arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract” can be divided into two types: (1) a challenge to the specific agreement to arbitrate and (2) a challenge to the contract as a whole. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, (2006). Plaintiffs David and Amy Cheng have raised both challenges, both of which are discussed in turn.
Plaintiffs allege that no valid and enforceable arbitration agreement was entered into with defendants due to fraudulent inducement to contract. To determine whether an arbitration agreement is valid and enforceable, this court looks to the plain language of the clause at issue. When the language of the arbitration clause is broad enough to encompass the claims of fraudulent inducement, the Second Department has held that a motion to compel arbitration should be granted. Cologne Reinsurance Co. of Am. v. S. Underwriters, Inc., 218 A.D.2d 680, 681, 630 N.Y.S.2d 548, 549 (1995). The agreements in this case contain identical pre-dispute arbitration clauses, which state in relevant part:
The customer (plaintiffs) agrees to settle by arbitration any controversy between him/her and the broker concerning this agreement, his/her account(s), or account transactions, or in any way arising from his/her relationship with broker whether entered into prior, on, or subsequent to this date. Such arbitration will be conducted before and according to the arbitration rules of the National Association of Securities Dealers, inc (NASD) or any other self-regulatory organization of which broker is a member (emphasis added).
A plain reading of this language, particularly the provisions that apply it to “any controversy ... concerning this agreement, his/her account(s), account transactions” satisfies the broad language requirement. This language is not only sufficiently similar, but even expands upon the language used in Cologne. The Cologne provisions read, “any dispute arising out of or related to the interpretation of this agreement” will be handled through arbitration. Id. The agreements here broaden this to also include disputes “in any way arising from his/her relationship with broker.” Thus, these agreements contemplate the arbitration of all disputes arising out of plaintiff's relationship with DLA. They expressly empower the defendants to seek arbitration for any dispute arising out of this relationship, and this includes the claims for fraudulent inducement. Accordingly, the arbitration clauses are valid and enforceable. The analysis, however, does not end here. The court examines next whether the contract as a whole is rendered invalid because it was fraudulently induced.
Plaintiffs argue that because the entire contract was induced through fraud as part of defendant's scheme to take advantage of them, there exists no valid agreement between the parties on which to compel arbitration. Plaintiffs, citing Matter of Exercycle Corp, further claims that the court must enjoin arbitration “where fraud or duress, practiced against one of the parties, renders the [arbitration] agreement voidable.” 9 N.Y.2d 329, 334, 174 N.E.2d 463, 465 (1961). Additionally, plaintiffs allege that they had no choice in negotiating terms or...
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