In Re: Robert A. Cardali

• Decision Date: 18 November 2010
• Docket Number: Case No. 10-11185 (SHL),Adv. Pro. No. 10-3531 (SHL)
• Court: U.S. Bankruptcy Court — Southern District of New York
• Parties: In re: ROBERT A. CARDALI, Debtor. ROBERT A. CARDALI, Plaintiff, v. JOANNE GENTILE, a/k/a JOANNE CARDALI-GENTILE, Defendant.

In re: ROBERT A. CARDALI, Debtor.

ROBERT A. CARDALI, Plaintiff,

v.JOANNE GENTILE, a/k/a JOANNE CARDALI-GENTILE, Defendant.

Case No. 10-11185 (SHL)

Adv. Pro. No. 10-3531 (SHL)

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK.

Filed: November 18, 2010

APPEARANCES:

RATTET, PASTERNAK & GORDON-OLIVER, LLP Attorneys for Debtor/Plaintiff Jonathan S. Pasternak, Esq. Julie A. Cvek, Esq.

HALPERIN BATTAGLIA RAICHT, LLP Attorneys for Movant/Defendant Robert D. Raicht, Esq. Julie D. Dyas, Esq.

MEMORANDUM DECISION AND ORDER

(1) GRANTING MOTION OF JOANNE GENTILE FOR RELIEF FROM

AUTOMATIC STAY TO PROCEED WITH MANDATORY ARBITRATION AND

(2) STAYING ADVERSARY COMPLAINT OF DEBTOR ROBERT A. CARDALI

SEAN H. LANE, Bankruptcy Judge:

Before the Court is the Motion Of Joanne Gentile For Relief From Automatic Stay To Proceed With Mandatory Arbitration dated July 30, 2010 (the "Motion").¹ On August 31, 2010, Debtor Robert A. Cardali (the "Debtor") filed an objection to the Motion (the "Objection") and an adversary complaint (the "Complaint") against Joanne Gentile ("Gentile").² For the reasons set forth below, the automatic stay is lifted to permit arbitration to proceed and the Debtor's Complaint is stayed in its entirety pending the results of arbitration.

BACKGROUND FACTS³

The Debtor and Gentile are siblings who worked together as attorneys in a law firm known as Cardali & Cardali, P.C. ("C&C").⁴ C&C was the successor entity to a law firm founded by their father.⁵ Prior to 2003, the Debtor and Gentile each owned a 50% interest in C&C.⁶

By 2003, the relationship between the Debtor and Gentile had deteriorated.⁷ In the spring of 2003, the Debtor commenced a special proceeding in the Supreme Court of New York County seeking judicial dissolution of C&C as well as certain other injunctive relief.⁸ Thereafter, the Debtor and Gentile engaged in mediation to resolve the issues between them.⁹ That mediation ultimately resulted in a Confidential Referral Fee And Asset Purchase Agreement, dated May 9, 2003 (the "APA").¹⁰ Pursuant to the APA, the Debtor agreed to transfer certain monies, including a referral fee for pending cases, to Gentile in connection with the Debtor's acquisition of C&C's business.¹¹

The APA contains the following arbitration clause:

Unless otherwise stated herein, any claim or controversy (together, the "Issue") arising out of or relating to this [APA1 shall be submitted first to non-binding mediation.... If good faith attempts by the Parties to resolve any such claim or controversy through confidential non-binding mediation as described do not result in resolution or if, after completion of a minimum of one five-hour session with a JAMS mediator, either Party provides written notice to the other that it wishes to submit the Issue immediately to arbitration, then any such Issue shall be submitted to confidential binding arbitration in accordance with the Commercial Rules of the American Arbitration Association; provided, however, that this clause shall not be construed to limit or to preclude either party from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate.... Any award or determination by at least two of the arbitration tribunal shall be final, non-appealable, and conclusive upon the parties, and judgment thereon may be entered by any court of competent jurisdiction.¹²

The APA also contains the following provision regarding closing statements:

Any disputes with respect to closing statements will be submitted to JAMS for prompt confidential binding arbitration....¹³

In May of 2009, Gentile commenced an arbitration (the "Arbitration") to enforce her rights under the APA, including payment of the referral fee.¹⁴ In December of 2009, Gentile filed a statement in the Arbitration specifying her claims against the Debtor (the "Statement of Claim").¹⁵ In response, the Debtor filed a statement of counter-claims, "which alleged, inter alia, that the Debtor was fraudulently induced to enter into the [APA], that [Gentile] materially breached the terms of the [APA] and further made material misrepresentations and breached the warranties contained therein, and, further, that [Gentile] misappropriated substantial monies from C&C to the Debtor's direct pecuniary detriment. The Debtor therefore sought, inter alia, rights of offset, recoupment and damages" in the Arbitration.¹⁶

On March 9, 2010, the Debtor filed a voluntary petition for relief (the "BankruptcyCase")¹⁷ under chapter 11 of title 11 of the United States Code, 11 U.S.C. section 101, et seq. (the "Bankruptcy Code").¹⁸ The Debtor initiated this Bankruptcy Case in large part to stay, inter alia, the Arbitration.¹⁹ A creditor meeting in accordance with section 341(a) of the Bankruptcy Code was scheduled for April 9, 2010 (the "341 Meeting"). Gentile appeared at and participated in the 341 Meeting.²⁰

On April 21, 2010, upon a motion of the Debtor, an order was entered in this BankruptcyCase setting June 7, 2010 as a deadline for the filing of proofs of claim.²¹ On May 28, 2010, Gentile filed a proof of claim against the Debtor (the "Proof of Claim").²² In support of the Proof of Claim, Gentile attached a one page calculation of damages and the Statement of Claim that Gentile had filed in the Arbitration.

In this Bankruptcy Case, the Debtor and Gentile have obtained orders pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the "2004 Orders"), providing for certain discovery in this Bankruptcy Case.²³ According to the Debtor, the 2004 Orders involve the APAand issues raised in the Arbitration.²⁴

On July 30, 2010, Gentile filed the instant Motion, arguing that the arbitration clause in the APA is broad and, therefore, that the bankruptcy automatic stay should be lifted to permit the pending Arbitration to proceed. On August 31, 2010, the Debtor filed its opposition to the Motion and his Complaint, which consists of claims against Gentile "hav[ing] their genesis in the various acts, conduct, and ensuing litigation between Debtor and [Gentile] which culminated inthe execution of the [APA]."²⁵ The Debtor argues that the counts in his Complaint are non-arbitrable core proceedings under the Bankruptcy Code and that Gentile has consented to proceeding in the bankruptcy court—rather than arbitration—by, among other things, filing the Proof of Claim.

On September 24, 2010, this Court held a hearing on this matter (the "Hearing").

DISCUSSION

A. The Federal Arbitration Act

The Federal Arbitration Act (the "FAA") establishes a "federal policy favoring arbitration agreements," and mandates the enforcement of contractual arbitration provisions. MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 107 (2d Cir. 2006) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).²⁶ Courts have observed that this federal policy is both "liberal" and "strong." See, e.g., Brownstone Inv. Group v. Levey, 514 F. Supp. 2d 536, 549 (S.D.N.Y. 2007) ("Through the [FAA], Congress has declared a strong federal policy favoring arbitration as an alternative means of dispute resolution.") (citing Arciniaga v. Gen. Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006); MBNA Am. Bank, 436 F.3d at 107; Denney v. BDO Seidman, 412 F.3d 58, 68-69 (2d Cir. 2005); Bank Julius Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278, 281 (2d Cir. 2005)); Stevenson v. Tyco Int'l (US) Inc., 2006 WL 2827635, 2006 U.S. Dist. LEXIS 71852, at *15 (S.D.N.Y. 2006) ("There is a strong federal policy favoring arbitration.") (citations omitted); Kittay v. Landegger (In re Hagerstown Fiber Ltd. P'ship), 277 B.R. 181, 197 (Bankr. S.D.N.Y. 2002) ("Hagerstown") ("The FAA signifies a congressional declaration of a liberal federal policy favoring arbitration agreements.") (citing Moses H. Cone, 460 U.S. at 24-25). See also Barnes v. Ont. Drive & Gear Ltd., 2010 WL 311648, 2010 U.S. Dist. LEXIS 4390, at *5 (D. Md. 2010) ("Barnes") ("Thus, when deciding whether to give effect to an arbitration agreement, the Court must bear in mind the 'liberal federal policy favoring arbitration agreements.'") (citing Moses H. Cone, 460 U.S. at 24); Cibro Petroleum Prods. v City of Albany (In re Winimo Realty Corp.), 270 B.R. 108, 117 (S.D.N.Y. 2001) ("Winimo Realty") ("The FAA thus establishes a 'federal policy favoring arbitration' and requiring that federal courts 'rigorously enforce agreements to arbitrate.'"); Pardo v. Akai Elec. Co. Ltd. (In re Singer Co., N.V.), 2001 U.S. Dist. LEXIS 12902, 2001 WL 984678, at *2 (S.D.N.Y. 2001) ("Singer").

The FAA provides that written agreements 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." MBNA Am. Bank, 436 F.3d at 107-08 (quoting 9 U.S.C. § 2). It is well-settled that even "statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA." Winimo Realty, 270 B.R. at 117 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24-25 (1991); Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 77 (2d Cir. 1998)). A court has a duty to stay its proceedings if it is satisfied that the issue before it is arbitrable, and "this duty... is not diminished when a party bound by an agreement raises a claim founded on statutory rights." MBNA Am. Bank, 436 F.3d at 108 (quoting Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226, reh'g denied, 483 U.S. 1056 (1987)); Winimo Realty, 270 B.R. at 117; Hagerstown, 277 B.R. at 197 (citations omitted).

Consistent with this policy, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Brownstone, 514 F. Supp. 2d at 549 (citations omitted). Accord O'Neil v. Hilton Head Hosp., 115 F.3d 272, 273-74 (4th Cir. 1997) (quoting Moses H....