Shasha v. Malkin
| Decision Date | 06 September 2018 |
| Docket Number | 14-cv-9989 (AT) (RWL) |
| Parties | EMIL SHASHA, TRUSTEE FOR THE VIOLET SHUKER SHASHA LIVING TRUST, et al., Plaintiffs, v. PETER L. MALKIN, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
MEMORANDUM AND ORDER DENYING STAY
This case has been stayed pending the outcome of an arbitration (the "Arbitration"). The Arbitration recently completed extensive hearings over two years. Plaintiffs - some of who are counterclaim-respondents in the Arbitration - now move to stay the Arbitration from further consideration of the remaining counterclaim. For the reasons set forth below, Plaintiffs' request for a stay is DENIED.
Familiarity with the facts of this case from earlier decisions is presumed. For present purposes, the following background is relevant.
This action arises out of the consolidation of multiple properties, including the Empire State Building, into a real estate investment trust called the Empire State Realty Trust, Inc.1 Empire State Realty Trust had its initial public offering on October 1, 2013, and is publicly traded on the New York Stock Exchange.2 On October 14, 2014, PlaintiffHoward Edelman "in his capacity as Trustee" of the Edelman Family Decedent's Trust and certain other parties who invested in the Empire State Realty Trust commenced the Arbitration before the American Arbitration Association (the "AAA") in New York City against several defendants collectively referred to herein as the Malkin parties.3 Plaintiffs' claims in the Arbitration include violations of securities laws, common law fraud and misrepresentation, breach of fiduciary duty, and breach of contract.4
On December 18, 2014, Howard Edelman, as trustee of the Edelman Trust, and other claimants from the Arbitration filed the present action asserting the same claims against the same Malkin parties who are respondents in the Arbitration. Plaintiffs did so to toll the statute of limitations in the event that certain claims in the Arbitration were determined to be non-arbitrable.5 At the request of the parties, this action was stayed pending determination of the Arbitration.6
In response to the Arbitration claims against them, the Malkin parties asserted several counterclaims. The only surviving counterclaim at this juncture is a defamation claim asserted against "Howard Edelman, as trustee" of the Edelman Trust, based on statements made by Richard Edelman, a beneficiary of the Edelman Trust (the"Counterclaim").7 The arbitrators earlier dismissed a direct counterclaim for defamation against Richard Edelman as not arbitrable for the reason that "the counterclaims arising out of Richard Edelman's alleged defamatory statements . . . 'do not aris[e] out of or regard[s] th[e] [Participation] agreement or The Property.'"8 On March 21, 2016, the Arbitration claimants moved to dismiss the Counterclaim against trustee Howard Edelman, arguing, among other reasons, that it too was outside the scope of the parties' arbitration agreement.9 The Arbitrators denied that motion a month later.10
Howard Edelman died on September 18, 2017.11 A few days later, counsel for the Arbitration claimants notified the arbitrators of Howard Edelman's death by email, and, on October 30, 2017, counsel filed a formal "Suggestion of Death Upon the Record" naming Robert Paul Edelman as the successor trustee of the Edelman Trust.12 Also on October 30, 2017, Plaintiffs filed a motion to dismiss the Counterclaim based on the death ofHoward Edelman, making arguments similar to those raised on the present motion.13 Following responsive briefing, the arbitrators denied the motion on November 17, 2017.14 Plaintiffs attempted to reargue the motion during a telephonic hearing on November 28, 2017, to no avail.15
On May 25, 2018, Plaintiffs made a formal motion in the Arbitration to substitute Robert Paul Edelman "in [his] representative capacity and not in [his] personal or individual capacity" as trustee in place of Howard Edelman.16 The arbitrators granted the motion a few days later on May 29, 2018.17
On July 7, 2018, Plaintiffs filed a notice-motion in the Arbitration replacing Robert Paul Edelman with Danielle P. Barger, Esq., "in her representative capacity and not in her personal or individual capacity" as trustee of the Edelman Trust.18 The parties agree that Howard Edelman, Robert Paul Edelman, and Danielle P. Barger were named as counterclaim-respondents in the Arbitration solely in their representative capacity as trustees of the Edelman Trust.19
The Arbitration hearings began on May 24, 2016, and took place over a period of more than two years. The last hearing session was held on August 8, 2018, and the Arbitration panel recently set a schedule for post-hearing briefs.20 A month earlier, on July 9, 2018, Plaintiffs moved this Court to stay any further proceedings in the Arbitration Counterclaim. Plaintiffs argue that, because of the death of Howard Edelman, the arbitrators lack jurisdiction over the Counterclaim. According to Plaintiffs, Howard Edelman's death "temporarily deprived[ed] the arbitrators of jurisdiction" because the death of a party divests a court of jurisdiction until proper substitution of the party has been made.21 Since the formal substitution of Robert Paul Edelman for Howard Edelman did not occur until May 2018, so the argument goes, the Arbitration panel was powerless to act during the interim period, and its November 17, 2017 Order denying dismissal of the Counterclaim was unlawful. Plaintiffs further argue that a defamation claim can only be asserted against an individual personally and that because Howard Edelman's successor trustees are named solely in their representative capacity, there can be no claim for defamation against them. The motion was fully briefed as of August 15, 2018.
As a threshold issue, this Court must determine if it has jurisdiction to address the issue raised by Plaintiffs' motion. That issue is one of arbitrability: whether the death of Howard Edelman deprives the Arbitration panel of jurisdiction over arbitration of theCounterclaim. The issue of arbitrability, however, is for the Arbitration panel to decide. This Court does not have jurisdiction to address that question.
The Arbitration is governed by the Federal Arbitration Act ("FAA"), which applies to transactions within the scope of Congress' power under the Commerce Clause of the United States Constitution. Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). The transaction in dispute here involves a multi-state real estate investment trust listed on a national stock exchange, thus bringing it within the scope of the FAA. See 9 U.S.C. § 1 (defining "commerce"); Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 273-74 (1995) ().
The FAA "establishes a 'federal policy favoring arbitration,'" which requires courts to "rigorously enforce agreements to arbitrate." Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (); see also AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 345 (2011) (). Arbitration "is a matter of contract," AT&T Mobility LLC, 563 U.S. at 339 (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)), and "the central or 'primary' purpose of the FAA is to ensure that 'private agreements to arbitrate are enforced according to their terms,'" Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 682 (2010) (quoting Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989)).
"Under the FAA, there is a general presumption that the issue of arbitrability should be resolved by the courts." Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 208 (2d Cir. 2005) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45 (1995)). In light of that presumption, "the issue of arbitrability may only be referred to the arbitrator if there is clear and unmistakable evidence from the arbitration agreement, as construed by the relevant state law, that the parties intended that the question of arbitrability shall be decided by the arbitrator." Id. (emphasis in original) (quoting Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002)).
The arbitration agreement governing the parties' dispute does precisely that; it demonstrates clearly and unmistakably that the parties intended questions of arbitrability to be decided by the Arbitration panel. The relevant governing language reads: "Any dispute arising out of or regarding this agreement or The Property shall be determined by arbitration in the City of New York, in accordance with the rules of the American Arbitration Association then in effect, and such decision shall be binding upon all of the parties."22
The arbitration provision expressly invokes and requires application of the AAA Rules. Rule 7(a) of the AAA Rules addresses the question of the extent to which the arbitrator may decides questions of arbitrability: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence,scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 7(a) (amended and effective Oct. 1, 2013).
Taken together, the governing arbitration agreement and AAA Rule 7(a) place arbitrability of claims - including any counterclaim - squarely with the arbitrators, not the courts. In Contec Corp., the Second Circuit was presented with a...
To continue reading
Request your trial