Matter of Edward D. Jones & Co. (American Stock Exchange, LLC)
Annotate this CaseDecided on June 10, 2005
Supreme Court, New York County
The Application of EDWARD D. JONES & COMPANY, Petitioner,
For a Judgment staying the Arbitration
Commenced by THE AMERICAN STOCK EXCHANGE, LLC, on behalf of itself and other Network B Participants in the CTA Plan and the CQ Plan, Respondent.
117031/04
Marilyn Shafer, J.
Petitioner, Edward D. Jones & Co. (EDJC) is a securities broker-dealer which has been doing business with respondent The American Stock Exchange (Amex) since 1988. EDJC brings this proceeding, pursuant to CPLR 7503 (c), to stay an arbitration proceeding brought against it by Amex before the American Arbitration Association (AAA).
As relevant, Amex is required to sell consolidated securities market trade data to various customers, on behalf of itself and other nationally registered stock exchanges. This data is often re-disseminated by Amex's customers, both to customers unaffiliated to the recipients, and to the recipients' own personnel.
Pursuant to agreements dated 1988, 1992, and 2004, EDJC agreed to purchase two types of Amex's market data: (1) "last sale price data," which indicates the prices at which buyers and sellers of stock actually exchange stock, and (2) "bid/ask data," which indicates the prices at which buyers and sellers of stock are willing to exchange the stock. Purchasers of such data, such as EDJC, often re-disseminate this market data throughout the country and Canada, and are expected to pay Amex for the re-dissemination. Thus, EDJC was to pay both for the receipt of the two types of market data, and for its re-dissemination.
In order to account for the re-dissemination of market data to Amex, EDJC agreed to regularly report to Amex each user that EDJC had authorized to receive the re-disseminated data. Amex maintains that it had to rely on EDJC's reporting in order to invoice EDJC for the correct [*2]amount to which Amex was due.
Amex claims that EDJC failed to report to it that EDJC had authorized the use of Amex's bid/ask data to numerous users, and so, had failed to inform Amex as to the true amount Amex was owed. As a result, Amex claims, among other things, that EDJC had breached its contracts with Amex.
On November 16, 2004, Amex served EDJC with a Demand for Arbitration before the AAA, dated November 12, 2004. Amex's demand for restitution, seeking $18,000,000 in damages, covers the entire period from the first contract in 1988 up to 2004. EDJC responded with the present petition for a permanent stay of the arbitration, pursuant to CPLR 7503 (c), on the grounds that there was no agreement to arbitrate claims prior to the 1992 agreement, and that many of Amex's claims are barred by the statute of limitations.[FN1]
The agreements dated 1992 and 2004 (the agreements) contain broad arbitration clauses, which each provide for arbitration of "any controversy or claim arising out of or relating to this Agreement, or to its breach or alleged breach." Notice of Petition, Ex. 2, Arbitration Agreement dated 1992, ¶ 20; Arbitration Agreement dated 2004, ¶ 16. The agreements also provide that each will be governed by the laws of the State of New York. Ex. 2, Arbitration Agreement dated 1992, ¶ 22 (f); Arbitration Agreement dated 2004, ¶ 19 (f).
In the arbitration, Amex brings claims against EDJC for breach of contract, conversion, unjust enrichment, and fraud. EDJC maintains that all of the claims governed by a six-year statute of limitations (breach of contract, unjust enrichment and fraud), are time-barred, to the extent that they arose before November 16, 1998, and that the claim for conversion, governed by a three-year statute, is also time-barred, to the extent that the claim is based on acts occurring prior to November 16, 2001. As for the issue of arbitrability, EDJC argues that no claim arising out of the 1988 agreement is subject to arbitration, as that agreement contains no provision to arbitrate.
Amex correctly argues that the present arbitration is governed by the Federal Arbitration Act (FAA), 9 UCS § 1 et seq., as the entities in question are both involved in commerce. 9 USC § 2. The import of this fact is that, under CPLR 7502 (b) and 7503 (b), the threshold issues of timeliness and arbitrability are for the court to decide (see e.g. Matter of Smith Barney, Harris Upham & Co. v Luckie, 85 NY2d 193, cert denied sub nom. Manhard v Merrill Lynch, Pierce, Fenner & Smith, Inc., 516 US 811 [1995][Luckie]; Matter of County of Rockland v Primiano Construction Company, Inc., 51 NY2d 1 [1980]), while, under the FAA, the question of the timeliness of the claims is generally left to the arbitrator. Matter of Diamond Waterproofing Systems, Inc. v 55 Liberty Owners Corp., 4 NY3d 247 (2005)(Diamond).
In Diamond, the Court of Appeals has resolved, in general, under what circumstances the timeliness of a claim raised in an FAA arbitration will be decided by arbitration, instead of by the court. The Court held that "[q]uestions concerning whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are [generally] for the arbitrators to decide [internal quotation marks omitted][emphasis in original]." Id. at 252, quoting Howsam v Dean Witter Reynolds, Inc., 537 US 79, 84 (2002). [*3]However, the Diamond Court noted prior decisions in which it had made note of an exception to this rule, where the parties had included a choice of law provision in their agreement, explicitly expressing their intent to have the court decide issues of timeliness. Such an occasion arises where the agreement calls for the application of New York law to the agreement "'and its enforcement'[emphasis in original]." Diamond, at 253, quoting Luckie, 85 NY2d at 202. As the Court noted in Diamond, "[i]n the absence of more critical language concerning enforcement, ... all controversies, including issues of timeliness, are subjects for arbitration." Id.
The critical issue raised in the present proceeding is whether the choice of law provisions in the agreements apply to the enforcement of each agreement. Clearly, they do not. The agreements merely say that they shall be governed by New York law. As such, they do "not express an intent to have New York law govern their agreement[s'] enforcement [emphasis added]," and "the timeliness issue should be determined by the arbitrator." Id. As a result, all issues regarding the application of the statutes of limitations with regard to Amex's claims will be determined in arbitration.[FN2]
In its reply, EDJC argues that, if the caselaw requires the arbitrator, and not the court, to determine issues of timeliness, Amex intended to waive its right to rely on the rules of the FAA, and instead, "elected its remedy" to rely on New York State law when it brought the present proceeding under the notice provisions contained in CPLR 7503 (c)[FN3]. There is no merit to this argument. Arbitrations must commence with the language contained in CPLR 7503 (c), due to the "critical" notice provision contained therein. Matter of Blamowski (Munson Transportation, Inc.), 91 NY2d 190, 195 (1997). Unlike the issue of an arbitration's timeliness, the FAA does not contain requirements which conflict with the procedural requirements of the CPLR, and so, there is no barrier to the application of CPLR 7503 (c). See Capitol Records, Inc. v Naxos of America, Inc., ___ NY3d ___, 2005 WL 756591 (2005)(conflict of state and federal law); Bantum v American Stock Exchange, LLC, 7 AD3d 551 (2d Dept 2004)(same). Therefore, since Amex did not have two "co-existing remedies" from which choose, it did not "elect its remedy" when it commenced this proceeding under CPLR 7503 (c). See 331 East 14th St, LLC v 331 East Corp., 293 AD2d 361 (1st Dept 2002)(election of remedies). Nor does the concept of judicial estoppel apply, which refers to positions taken in separate law suits. See Warnecke v Warnecke, 12 AD3d 502 (2d Dept 2004). No waiver or estoppel bars Amex from reliance on Diamond.
EDJC is correct when it argues that claims arising before 1992 are not arbitrable, because the 1988 agreement contains no provision for the arbitration of disputes. Parties will not be compelled to arbitrate claims in the absence of "evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes [internal quotation marks and citations [*4]omitted]." Matter of Howell v Corastor Holding Company, Inc., 16 AD3d 585, 585 (2d Dept 2005); see also TMP Worldwide Inc. v Franzino, 269 AD2d 332 (1st Dept 2000). Amex's argument that its claims pre-dating the 1992 agreement arose in some manner from the subsequent agreements is unconvincing. Arbitration as to the pre-1992 claims will be stayed.
Accordingly, it is
ORDERED and ADJUDGED that petitioner Edward D. Jones & Company's petition to stay the arbitration between it and
respondent The American Stock Exchange is granted solely as to
The American Stock Exchange's claims pre-dating the 1992 agreement, and is otherwise denied.
Dated: _________________________
ENTER:
__________________________
J.S.C.
Footnotes
Footnote 1:In a stipulation so-ordered by this court, it was decided that only the pre-1998 claims would be stayed, and that the arbitration would otherwise proceed.
Footnote 2:See Namura Securities International, Inc. v CIBC World Market Corp., Index No. 117661/04 (Sup Ct, NY County [NYLJ 5/16/05, at 18]), in which Justice Beeler, under similar circumstances, reached the same determination.
Footnote 3:Pursuant to CPLR 7503 (c), a party may serve a demand for arbitration, stating that, if the party to whom the demand is made fails to move to stay the arbitration within 20 days after service of the demand, it "shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time."
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