Frankel v. Citicorp Ins. Serv., Inc.

• Decision Date: 30 November 2010
• Citation: 80 A.D.3d 280,913 N.Y.S.2d 254
• Parties: In the Matter of Mark FRANKEL, etc., appellant, v. CITICORP INSURANCE SERVICES, INC., et al., respondents, et al., defendants.
• Court: New York Supreme Court — Appellate Division

913 N.Y.S.2d 254

80 A.D.3d 280

In the Matter of Mark FRANKEL, etc., appellant,

v.CITICORP INSURANCE SERVICES, INC., et al., respondents, et al., defendants.

Supreme Court, Appellate Division, Second Department, New York.

Nov. 30, 2010.

Harry I Katz, P.C. (Shayne, Dachs, Corker, Sauer & Dachs, LLP, Mineola, N.Y. [Norman H. Dachs], of counsel), for appellant.

Stroock & Stroock & Lavan LLP, New York, N.Y. (Julia B. Strickland [pro hac vice] and Joseph E. Strauss of counsel), for respondents.

PETER B. SKELOS, J.P., CHERYL E. CHAMBERS, L. PRISCILLA HALL, and PLUMMER E. LOTT, JJ.

HALL, J.

In 1987, the plaintiff, Mark Frankel (hereinafter the plaintiff), opened a credit card account with the defendant Citibank (South Dakota) N.A. (hereinafter Citibank), subject to a written agreement which provided, among other things, that Citibank could unilaterally change any of the terms of the agreement at any time. About 14 years later, Citibank allegedly mailed the plaintiff a notice that it was changing the terms of the agreement by adding terms which provided that any dispute between the parties would be subject to mandatory, binding arbitrationon an individual (non-class, non-representative) basis. These new terms (hereinafter the arbitration change-in-terms) dictated that if the plaintiff did not agree to the new terms, his account would be closed.

The plaintiff enrolled in a "Voluntary Flight Insurance Program" which automatically billed him the sum of $13 for flight insurance whenever he purchased airplane tickets with his credit card. Thereafter, he was consistently billed for flight insurance whenever he made any type of travel-related transaction (e.g., cancelled trips, ticket upgrades, and travel agent fees). The plaintiff was erroneously billed in this manner on about 10 occasions, and the record indicates that Citibank continued to impose these erroneous charges despite having knowledge of their impropriety.

The plaintiff commenced this putative class action on behalf of himself and all others who have been erroneously charged for flight insurance. The plaintiff alleged that this pattern of erroneous billing was calculated to elicit small sums of money from a large number of consumers, amounting to significant aggregate revenue for the defendants.

Approximately two months after service of the summons and verified complaint, the defendants Citicorp Insurance Services, Inc., and Citibank (hereinafter together the respondents) moved to compel arbitration and stay the action pending arbitration on the ground that the plaintiff's claims were subject to arbitration under the arbitration change-in-terms. The plaintiff opposed the motion and cross-moved to permanently stay arbitration or, in effect, in the alternative, to temporarily stay arbitration pending a framed-issue hearing. The plaintiff contended, among other things, that (1) the respondents failed to demonstrate that they had given him notice of the arbitration change-in-terms; (2) the alleged agreement to arbitrate was unconscionable and exculpatory; (3) the South Dakota choice-of-law provision in the subject contract was unenforceable; and (4) the motion was premature as discovery was needed.

The Supreme Court determined that the respondents had demonstrated that the action was subject to a valid agreement to arbitrate and that there was no basis to order discovery. Accordingly, the Supreme Court granted the motion, denied the cross motion, and directed the parties to proceed to arbitration of the plaintiff's claims on an individual (non-class) basis. The plaintiff appeals, contending, among other things, that the respondents failed to demonstratethat he agreed to the arbitration change-in-terms, that the South Dakota choice-of-law provision is unenforceable, and that the arbitration change-in-terms are unconscionable. We modify.

Pursuant to CPLR article 75, "[a] party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration" (CPLR 7503[a] ). "If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action" (id.).

"In order to compel a party to arbitrate pursuant to a contractual agreement there must be 'no substantial question [as to] whether a valid agreement was made or complied with' " ( Manos v. Interbank of N.Y., 202 A.D.2d 403, 403, 608 N.Y.S.2d 691, quoting CPLR 7503[a]; see Matter of Cassone, 63 N.Y.2d 756, 758, 480 N.Y.S.2d 317, 469 N.E.2d 835). "In the event such question is raised, it is for the court to adjudicate" ( Manos v. Interbank of N.Y., 202 A.D.2d at 403, 608 N.Y.S.2d 691; see Matter of Schreiber v. K-Sea Transp. Corp., 9 N.Y.3d 331, 340, 849 N.Y.S.2d 194, 879 N.E.2d 733; Matter of Eagle Ins. Co. v. Lucia, 33 A.D.3d 552, 555, 824 N.Y.S.2d 9; O'Brien v. Bache Halsey Stuart Shields, 80 A.D.2d 846, 846, 444 N.Y.S.2d 469; Rose v. Merrill Lynch, Pierce, Fenner & Smith, 57 A.D.2d 553, 553, 393 N.Y.S.2d 72). In some cases, it may be appropriate to afford discovery or require disclosure in order to resolve the questions raised ( see Matter of Brady v. Williams Capital Group, L.P., 14 N.Y.3d 459, 902 N.Y.S.2d 1, 928 N.E.2d 383; Hayes v. County Bank, 286 A.D.2d 371, 371, 728 N.Y.S.2d 709; Matter of Welton Becket Assoc. v. LLJV Dev. Corp., 193 A.D.2d 478, 478, 598 N.Y.S.2d 710).

In this case, the respondents failed to demonstrate that the parties agreed to arbitrate because the evidence was insufficient to establish that the respondents "deliver[ed] or mail[ed]" the arbitration change-in-terms to the plaintiff (Personal Property Law § 413[11][e] ). The affidavit of the senior vice-president of the respondents' servicing company was insufficient to demonstrate personal knowledge of actual mailing ( see Mid City Constr. Co., Inc. v. Sirius Am. Ins. Co., 70 A.D.3d 789, 790, 894 N.Y.S.2d 113; New York & Presbyt. Hosp. v. Allstate Ins. Co., 29 A.D.3d 547, 547-548, 814 N.Y.S.2d 687). Moreover, her claims that Citibank "caused to be mailed" the arbitration change-in-terms and that Citibank's records "reflected" that the 2002 credit card agreement had been mailed to the plaintiff were conclusory and otherwise insufficient to establish "office practice ... geared so as to ensure the likelihood that [the documents were] always properly addressed and mailed" ( Nassau Ins. Co. v. Murray, 46 N.Y.2d 828, 830, 414 N.Y.S.2d 117, 386 N.E.2d 1085; see Lenchner v. Chasin, 57 A.D.3d 623, 624, 869 N.Y.S.2d 196; Hospital for Joint Diseases v. Nationwide Mut. Ins. Co., 284 A.D.2d 374, 375, 726 N.Y.S.2d 443; Tracy v. William Penn Life Ins. Co. of N.Y., 234 A.D.2d 745, 748, 650 N.Y.S.2d 907; Matter of Merendino v. Village of Pawling, 152 A.D.2d 762, 763, 543 N.Y.S.2d 541; Anzalone v. State Farm Mut. Ins. Co., 92 A.D.2d 238, 240, 459 N.Y.S.2d 850; cf. Schmiemann v. State Farm Fire & Cas. Co., 13 A.D.3d 514, 515, 786 N.Y.S.2d 572; Badio v. Liberty Mut. Fire Ins. Co., 12 A.D.3d 229, 230, 785 N.Y.S.2d 52). Accordingly, there is a "substantial question" as to whether the parties ever made a valid arbitration agreement (CPLR 7503[a] ).

The respondents similarly failed to establish the existence of the alleged choice-of-law provision. Assuming, however, that the existence of a binding choice-of-law provision is established by sufficient proof of mailing ( see Personal Property Law § 413[11][e] ), New York choice-of-law principles must be used to determine whether and to what extent the South Dakota choice-of-law provision should be applied to this controversy ( see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629, 825 N.Y.S.2d 692, 859 N.E.2d 498; Tanges v. Heidelberg N. Am., 93 N.Y.2d 48, 54, 687 N.Y.S.2d 604, 710 N.E.2d 250; Padula v. Lilarn Props. Corp., 84 N.Y.2d 519, 520, 620 N.Y.S.2d 310, 644 N.E.2d 1001;Matter of Istim, Inc. v. Chemical Bank, 78 N.Y.2d 342, 346-347, 575 N.Y.S.2d 796, 581 N.E.2d 1042; Education Resources Inst., Inc. v. Piazza, 17 A.D.3d 513, 513-514, 794 N.Y.S.2d 65; see also Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477, cert. denied 316 U.S. 685, 62 S.Ct. 1284, 86 L.Ed. 1757; 2004 Stuart Moldaw Trust v. XE L.I.F.E., LLC, 374 Fed.Appx. 78, 80 [2d Cir.] ).

We note that New York courts will generally enforce a clear and unambiguous choice-of-law clause contained in an agreement so as to give effect to the parties' intent ( see Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d at 629, 825 N.Y.S.2d 692, 859 N.E.2d 498; Millennium Falcon Corp. v. WRD Sales, Inc., 46 A.D.3d 862, 863, 848 N.Y.S.2d 707; see generally Greenfield v. Philles Records, 98 N.Y.2d 562, 569, 750 N.Y.S.2d 565, 780 N.E.2d 166; 19A N.Y. Jur. Conflict of Laws § 33).

However, "under common-law rules matters of procedure are governed by the law of the forum" ( Martin v. Dierck Equip. Co., 43 N.Y.2d 583, 588, 403 N.Y.S.2d 185, 374 N.E.2d 97; see Tanges v. Heidelberg N. Am., 93 N.Y.2d at 53, 687 N.Y.S.2d 604, 710 N.E.2d 250; Kilberg v. Northeast Airlines, 9 N.Y.2d 34, 41, 211 N.Y.S.2d 133, 172 N.E.2d 526; Education Resources Inst., Inc. v. Piazza, 17 A.D.3d 513, 513, 794 N.Y.S.2d 65; see also Restatement [Second] of Conflict of Laws § 122). "On the other hand, matters of substantive law fall within the course charted by choice of law analysis" ( Tanges v. Heidelberg N. Am., 93 N.Y.2d at 53, 687 N.Y.S.2d 604, 710 N.E.2d 250; see Oltarsh v. Aetna Ins. Co., 15 N.Y.2d 111, 115, 256 N.Y.S.2d 577, 204 N.E.2d 622; Millennium Falcon Corp. v. WRD Sales, Inc., 46 A.D.3d at 863, 848 N.Y.S.2d 707).

"New York courts therefore apply contractual choice of law clauses only to substantive issues" ( Education Resources Inst., Inc. v. Piazza, 17 A.D.3d at 513, 794 N.Y.S.2d 65; see Sears, Roebuck & Co. v. Enco Assoc., 43 N.Y.2d 389, 397, 401 N.Y.S.2d 767, 372 N.E.2d 555; Melcher v. Apollo Med. Fund Mgt. L.L.C., 25 A.D.3d 482, 483, 808 N.Y.S.2d 207). Significantly, "the law of the forum...