Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ohnuma

• Citation: 630 N.Y.S.2d 724,218 A.D.2d 572
• Parties: MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner-Respondent, v. Sumi OHNUMA, Respondent-Appellant.
• Decision Date: 17 August 1995
• Court: New York Supreme Court — Appellate Division

Page 724

630 N.Y.S.2d 724

218 A.D.2d 572

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Petitioner-Respondent, v. Sumi OHNUMA, Respondent-Appellant.

Supreme Court, Appellate Division,

First Department.

Aug. 17, 1995.

L.E. Fenster, for petitioner-respondent.

J.H. Daichman, for respondent-appellant.

Before ROSENBERGER, J.P., and ELLERIN, ROSS, WILLIAMS and TOM, JJ.

MEMORANDUM DECISION.

Judgment, Supreme Court, New York County (Jane S. Solomon, J.), entered on or about May 24, 1994, which granted the petitions in consolidated arbitration proceedings commenced before the National Association of Securities Dealers (NASD), permanently stayed the arbitrations, and dismissed the cross motions to compel arbitration, unanimously reversed, on the law, the petitions to stay arbitration denied, and the cross motions to compel arbitration granted, with costs.

The petitioner sold interests in a limited partnership for the purpose of acquiring and developing real estate to the sixteen respondents. On what the parties refer to as the "trade date", each respondent placed an order for an interest, and pursuant to the terms of the offering, subscribed thereto. Several days later, on the "settlement date", funds were debited from each of the respondents' accounts; Merrill Lynch also recorded this date as the purchase date on monthly account statements sent to each respondent. The customer agreement form governing the sale provided that disputes were to be arbitrated pursuant to the rules of the New York Stock Exchange, or the NASD. It also provided that New York law shall govern "[t]his agreement and its enforcement". Just over six years after the trade date, but just under six years after the settlement date, each respondent commenced arbitration pursuant to the Code of Arbitration Procedure of the NASD. Section 15 of that Code provides:

No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.

The petitioner moved to stay the arbitrations permanently as untimely, arguing that the trade date was the operative event giving rise to this controversy. In opposition, respondents argued that the claims were timely because they were within six years of the settlement date, and that the unappealed judgment in a related case barred this petitioner from arguing otherwise. The trial court accepted the petitioner's position, granted a permanent stay of the arbitrations, and this appeal ensued.

The initial question presented on appeal is whether the court is the proper forum for resolution of the issue of the timeliness of respondents' claims, or whether the issue is within the sole province of the arbitrators. The law is settled in New York that Section 15 of the NASD Code of Arbitration Procedure, placing a six year limitation upon arbitrable claims, is a substantive eligibility requirement limiting the range of disputes that the parties have agreed to arbitrate, and that the timeliness of a demand for arbitration under this section is an issue for the court (see, Merrill Lynch, Pierce, Fenner & Smith v. DeChaine, 194 A.D.2d 472, 600 N.Y.S.2d 459, lv. denied, 82 N.Y.2d 657, 604 N.Y.S.2d 556, 624 N.E.2d 694; Mtr. of Smith Barney v. Luckie, 85 N.Y.2d 193, 623 N.Y.S.2d 800, 647 N.E.2d 1308; see also, Smith Barney, Inc. v. Schell, 53 F.3d 807 [7th Cir.1995] [applying New York law]; PaineWebber v. Richardson, 1995 WL 236722 [S.D.N....