Morgan v. Nikko Securities Co. Intern., Inc.

Decision Date29 July 1988
Docket NumberNo. 87 CIV. 4868 (KC).,87 CIV. 4868 (KC).
Citation691 F. Supp. 792
PartiesJoyce MORGAN, as executrix of the Estate of Dennis T. Morgan, deceased, Plaintiff, v. The NIKKO SECURITIES CO. INTERNATIONAL, INC., Defendant.
CourtU.S. District Court — Southern District of New York

Michael Devine, Kieffer & Hahn, New York City, for plaintiff.

Philip Potter, Jr., Davis, Polk & Wardwell, New York City, for defendant.


CONBOY, District Judge.

The decedent was hired by the defendant, a registered securities firm, on or about November 1, 1985. He reported for work in New York on November 4, 1985. On that day the decedent filled out some employment forms and attended an orientation session. However, the department the decedent was to work in, Nikko's Government Securities Department, was still in the process of being organized. For that reason, the decedent was allowed to leave early on the fourth, and told that it was not necessary to return to work until the office was ready to begin operations. The decedent returned to his home in Phoenixville, Pennsylvania. Two days later, the decedent died in Phoenixville, without having returned to work.

In January 1986, the plaintiff, then one of at least two executors of the decedent's estate (the "Estate"), commenced an action in the United States District Court, Eastern District of Pennsylvania, against the defendant and The Pacific Guardian Life Insurance Company, Ltd., complaining that the Estate is entitled to insurance and any other benefits recoverable under Mr. Morgan's contract with Nikko. The plaintiff commenced the action in her individual capacity. Therefore, the defendant could not move to compel arbitration, which it believes is the proper forum for resolution of any dispute with the Estate, in the first Pennsylvania action.

On March 31, 1986, Nikko served a Notice of Intent to Arbitrate the dispute with the Estate. Both the Estate's Executrix, the plaintiff here, and Pennsylvania counsel for the Estate acknowledged receipt of the Notice on April 3, 1986. The Estate responded by serving Nikko's Pennsylvania counsel with a motion for an injunction restraining Nikko from going forward with arbitration in New York. The motion papers refer explicitly to New York Civil Practice Law & Rules ("CPLR") section 7503(c), which requires that any application to stay arbitration be made within twenty days from service of the notice.

At oral argument before the district court, held April 17, 1986, the defendant raised the issue that the Estate was not a party to the action. See Transcript of Oral Argument at 13-17 (Apr. 17, 1986), Ex. C to Affidavit of Robert F. D'Emilia in Opposition to Application to Stay Arbitration and in Support of Cross-Motion to Dismiss Petition and Complaint, executed June 25, 1987. The court stated that at an initial meeting with the parties, there was a discussion concerning whether Joyce Morgan was the proper plaintiff in the action. See id. at 16. The court stated:

It's my impression that there was an informal agreement that there was going to be a substitution for the Plaintiff by the administrator or executor of the Estate of the he sic decedent and that she was probably the same person, the same individual and that would be done promptly.
I am going to say that unless Mrs. Morgan is appointed an executor sic or administratrix of the Estate by the first of May or — and the complaint is amended by the first of May, I am going to withdraw my stay of arbitration.

Transcript of Oral Argument at 16. Plaintiff's counsel informed the court that the reason for the delay in substituting the Estate was the fact the plaintiff was in the process of applying for "letters," which would grant her the power to act on behalf of the Estate. See id. at 15. Defendant's counsel reserved their client's rights regarding the arbitration issue. See id. at 25-26.

Apparently the plaintiff cured the defect, because the district court, on June 18, 1986, dismissed the suit for lack of personal jurisdiction over the defendant. See Ex. D to D'Emilia June 25, 1987 Aff. In August 1986, the plaintiff commenced a second action in the same court. In this action, the plaintiff was named in her capacity as Executrix. This action was dismissed as well; the court held that collateral estoppel barred relitigation of the personal jurisdiction issue, in a Memorandum and Order dated December 23, 1986. See Ex. E to D'Emilia June 25, 1987 Aff.

The New York Stock Exchange ("NYSE") mailed the plaintiff a copy of Nikko's April 10, 1986 Demand For Arbitration on or about March 30, 1987. Plaintiff's counsel responded, in a letter dated April 15, 1987, that the plaintiff refused to submit to arbitration "inasmuch as she believes that the NYSE lacks jurisdiction over the subject matter." See Ex. F to D'Emilia June 25, 1987 Aff. In a letter dated April 30, 1987, the NYSE advised plaintiff's counsel that the NYSE concluded that it had jurisdiction over the matter, and that "absent a court order enjoining the arbitration, the case will proceed to an arbitration hearing pursuant to Exchange Rules." See id.

On June 19, 1987, the plaintiff commenced a New York CPLR Article 4 special proceeding to stay the arbitration Nikko had initiated by service of its March 31, 1986 Notice of Intent to Arbitrate, submitting to the New York Supreme Court a complaint, a petition, and an order to show cause. Nikko answered the petition and cross-moved to compel arbitration on June 25, 1987. On June 26, 1987, defendant's counsel appeared in Supreme Court and stated that they were ready to argue the motions. Plaintiff's counsel asked for, and received, an adjournment until July 10, 1987 to prepare a response to the cross-motion.

On July 9, 1987, defendant's counsel served a reply to the plaintiff's opposition to the cross-motion to compel arbitration. The next day, defendant's counsel appeared and submitted their motion papers. At that time, defendant's counsel informed the clerk that Nikko was in the process of removing the action to this court. Justice Tyler noted the removal to federal court in a decision dated July 10, 1987. See Ex. C to Affidavit of Robert F. D'Emilia, executed Aug. 24, 1987.

The action is before the court on plaintiff's motion to remand this action to New York Supreme Court, and on defendant's cross-motion to dismiss the petition and to dismiss or stay the complaint; to deny plaintiff's application for a stay of arbitration; and to compel arbitration. On September 11, 1987, the late Honorable Edward Weinfeld, U.S.D.J., held an evidentiary hearing on this matter.

A. Motion to Remand

The plaintiff contends that the defendant waived its right to remove this action from state court by its conduct in responding to plaintiff's order to show cause in state court. The plaintiff relies on two cases, Bolivar Sand Company v. Allied Equipment, Inc., 631 F.Supp. 171, 173 (W.D. Tenn.1986) and Harris v. Brooklyn Dressing Corp., 560 F.Supp. 940, 942 (S.D.N.Y. 1983).

In turn, the defendant argues that the plaintiff is precluded from having the issue addressed, because the plaintiff failed to comply with New York CPLR section 7503(c) (McKinney 1980), which requires a party receiving an appropriate notice of intention to arbitrate, or demand to arbitrate, to apply to a court to stay arbitration within twenty days from receipt of the notice, or demand.1 "The courts have no discretion to extend this time period to permit consideration of an untimely application." Matarasso v. Continental Casualty Co., 56 N.Y.2d 264, 267, 436 N.E.2d 1305, 1306, 451 N.Y.S.2d 703, 704 (1982). If the twenty-day period is applicable, the plaintiff's application to the New York Supreme Court was untimely and would have had to have been dismissed. The plaintiff would not have been able to claim an estoppel in New York Supreme Court, based on her filings in the district court in Pennsylvania, because the Pennsylvania court lacked personal jurisdiction over the defendant. See Ben Miller, Inc. v. Marcus Bros. Textiles, Inc., 59 A.D.2d 850, 850-51, 399 N.Y.S.2d 112, 112-13 (1st Dep't 1977) (mem.).

In Matarasso, supra, the New York Court of Appeals held that there is an exception to the twenty-day limitation period contained in section 7503(c). Specifically, the court held the limitation period inapplicable when the basis of the motion to stay arbitration "is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with." Id. at 266, 436 N.E.2d at 1305, 451 N.Y.S.2d at 704.

The defendant argues that Matarasso is inapposite, citing Lane v. Abel-Bey, 50 N.Y.2d 864, 407 N.E.2d 1337, 430 N.Y.S.2d 41 (1980)(mem.), John W. Cowper Co. v. Clintstone Properties, Inc., 120 A.D.2d 976, 503 N.Y.S.2d 205 (4th Dep't 1986)(mem.), Woodcrest Fabrics, Inc. v. Taritex, Inc., 98 A.D.2d 52, 469 N.Y.S.2d 728 (1st Dep't 1983), and Gold Mills, Inc. v. Pleasure Sports, Inc., 85 A.D.2d 527, 444 N.Y.S.2d 656 (1st Dep't 1981)(mem.). While in two of those cases a party who had not signed a written agreement containing an arbitration clause was held barred from seeking a stay of arbitration due to failure to comply with CPLR section 7503(c)'s limitations period, see Lane, 50 N.Y.2d at 865-66, 407 N.E.2d at 1338, 430 N.Y.S.2d at 42; Gold Mills, Inc., 85 A.D.2d at 527-28, 444 N.Y.S.2d at 656-57, the cases defendant cites are inapposite.

In Lane, a corporation was held bound where the individuals holding all the outstanding shares of stock signed a stockholders' agreement containing a broad arbitration clause and reciting that the corporation was a party to the agreement. See Lane, 50 N.Y.2d at 865-66, 407 N.E.2d at 1338, 430 N.Y.S.2d at 41-42; see also Matarasso, 56 N.Y.2d at 267 n.*, 436 N.E.2d at 1306 n.*, 451 N.Y.S.2d at 705 n.* (explaining that Matarasso is not contrary to Lane...

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