FIA Card Servs., N.A. v DiLorenzo

[*1] FIA Card Servs., N.A. v DiLorenzo 2009 NY Slip Op 50305(U) [22 Misc 3d 1127(A)] Decided on February 20, 2009 District Court Of Nassau County, First District Hirsh, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 20, 2009
District Court of Nassau County, First District

FIA Card Services, N.A., FORMERLY KNOWN AS BANK OF AMERICA CORP., Petitioner(s)

against

Cheryl A. DiLorenzo, Respondent(s)



30647/08



Forster & Garbus, Esqs. for petitioner

Cheryl A. DiLorenzo - respondent

Fred J. Hirsh, J.

Petitioner, FIA Card Services, N.A. f/k/a Bank of America Corp. ("FIA")

commenced this special proceedings seeking to confirm and arbitration award.

BACKGROUND

This appears to be a straightforward application to confirm an arbitration award.

Bank of America issued a credit card to Cheryl A. DiLorenzo ("DiLorenzo"). DiLorenzo defaulted in the payment of her credit card.

The credit care agreement contained a provision that permitted either party to submit any claim between them to arbitration before J.A.M.S/Endispute ("JAMS"). If JAMS was unwilling or unable to serve as arbitrator, FIA was authorized to substitute another national arbitration organization with similar procedures.

FIA submitted the claim regarding DiLorenzo's default to arbitration before National Arbitration Forum ("NAF") FIA does not indicate that JAMS was unable or unwilling to serve as arbitrator in this action..

The arbitrator issued an award in favor of FIA in the sum of $13,344.83.

A copy of the award was mailed to FIA and DiLorenzo.

DiLorenzo did not pay the award.

FIA commenced a special proceeding to confirm the arbitrator's award so that a judgment could be entered on the arbitrator's award.

Upon a more thorough reading of the agreement and the petition, several issue emerge.

FIA alleges it is a foreign limited liability company with an office in Atlanta, Georgia. FIA does not allege in which state it was formed or that it is authorized to do business in New York.

The caption of the action FIA alleges is formerly known as Bank of America Corp. However, in the petition, FIA alleges that it took assignment of all of Bank of America Corp.'s right title and interest to receive monies due in accordance with the credit card agreement between Bank of America and DiLorenzo. FIA alleges it is the legal assignee of the original creditor. [*2]

The credit card agreement between Bank of America and DiLorenzo provides:

"Arbitration, including selection of an arbitrator, shall be conducted

in accordance with the rules for financial service disputes of

J.A.M.S./Endispute ("JAMS")."

Despite this provision in the credit card agreement, FIA submitted the matter to arbitration before NAF. FIA offers no explanation regarding why it submitted the matter to arbitration before an arbitration forum other than the one designated in the credit card agreement.

The application to confirm the award was made pursuant to CPLR 7510. The credit card agreement contains a provision that the agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §§1-16. This raises issues regarding the jurisdiction and authority of the Nassau County District Court to hear this proceeding and confirm the award.

DISCUSSION

There are significant distinctions between being "formerly known as" and being an assignee.

The term "formerly known as" does not have a formal legal meaning. When the term "formerly known as" is used in a caption, it denotes that the named party had previously been known by another name or had transacted business under another name.[FN1] The term "formerly known as" is used to indicate the named party and the "formerly known as" party are for practical purposes the same entity.

As "assignee" is one to whom rights have been transmitted by sale, gift, devise or conveyance. 6A NY Jur2d Assignments §1. An assignment is the transfer or conveyance of property or some right or interest in property from one party to another. Id.

While pleadings may be conformed to the proof, in the absence of a motion to amend the pleadings, a party is bound by the allegations made in the pleadings. Milton Weinstein Assocs. v. Nynex Corp., 266 AD2d 138 (1st Dept. 1999). The initial pleading in a special proceedings is a petition. CPLR 402. A party may correct errors in the petition by moving for leave to cure a defect or omission within the time allowed for serving a responsive pleading. CPLR 405.

FIA plead in its petition that it took by assignment all of Bank of America's rights to money due in accordance with the charge card agreement. FIA did not move to amend the petition. FIA offered no evidence establishing that Bank of America Corp. changed its name to FIA.

Therefore, the purposes of this application, FIA will be treated as the assignee of Bank of America's rights against DiLorenzo.

The party bringing an action on an assignment must prove the assignment and that it has standing to sue on the debt. 6A NY Jur2d Assignments §86. FIA pleads it [*3]was proceeding as the assignee of Bank of America. FIA did not offer any evidence to this Court that establishes that Bank of America had assigned its rights against DiLorenzo to FIA. The arbitrator's award does not indicate the evidence the arbitrator considered or whether FIA established before the arbitrator through competent evidence the assignment of the claim or its standing to maintain this action.

The caption of the action and the allegations in the pleadings contain another unexplained contradiction. The caption names the petitioner as "FIA Card Services, N.A.". The use of the letters "N.A." or National Association in a financial institution's name indicates FIA Card Services is either a nationally chartered bank or the subsidiary of a nationally chartered bank. See, 12 U.S.C. Chapter 2. If FIA is an "N.A.", then the petition should allege its status as a nationally chartered banking institution or a subsidiary of a nationally chartered banking institution.

The petition alleges FIA is a foreign limited liability company with an office in Atlanta, Georgia. The petition does not alleged in which state FIA was organized or where its principal office is located. The petition does not allege that FIA is authorized to do business in New York. If FIA is a limited liability company organized and existing pursuant to the laws of Georgia, then its business name must included the words "Limited Liability Company", "Limited Company" or "LLC", "L.L.C.", "L.C." or "LC". O.C.G.A. §14-11-207(a)(1).[FN2]

The distinction between being a national bank or a subsidiary of a national bank and being a foreign limited liability company impacts the right of FIA to maintain an action in the courts of New York and the ability of New York to regulate FIA's activities.

If FIA is a national association or a subsidiary of a national association, it is subject to regulation by the Comptroller of the Currency. 12 U.S.C. § 24 (Seventh). Congress has expressly delegated to the Office of the Controller of the Currency the oversight, supervision and regulation of national banks. See, 12 U.S.C. 481.

The Courts have long and consistently held that states may limit or restrict the activities of national banks only to the extent that Congress permits. See, Beneficial National Bank v. Anderson, 539 U.S. 1 (2003); Easton v. State of Iowa, 188 U.S. 220 (1903); Farmers' & Mechanics National Bank v. Dearing, 91 U.S. 29 (1875); and Tiffany v. National Bank of Missouri, 85 U.S. 409 (1873).

One of the primary functions of the National Banking Act is to "... prevent inconsistent or intrusive state regulation" of national banks. Wachovia Bank, N.A. v. Burke, 414 F.3d 305, 311 (2nd Cir. 2005); and Office of the Comptroller of the Currency v. Spitzer, 395 F. Supp. 2d 383 (S.D.NY 2005).

National banks may conduct their business through operating subsidiaries.

12 U.S.C. §24a(g)(3); and 12 C.F.R. §5.34(3). The operating subsidiaries of a national bank are subject to the same regulations as is the parent bank. 12 C.F.R. §5.34(3)(e). State laws apply to the operating subsidiaries of a national bank to the extent that state law would apply to the parent national bank. [*4]

If FIA is a national bank or a subsidiary of a national bank, it may commence and maintain an action in the court of this state without obtaining authority to do business in New York.

If FIA is a foreign limited liability company doing business in this state without receiving authority to do business in this state it may not bring an action or special proceeding in any of the courts of this state until it has received a certificate of authority in this state. Limited Liability Company Law §808(a). FIA alleges it is a foreign limited liability company. FIA does not allege that it is authorized to do business in New York. It makes no allegations regarding the nature and extent of its business in New York.

A foreign business entity is doing business in New York if it is present in New York "not occasionally or casually, but with a fair measure of permanence and continuity." Tauza v. Susquehanna Coal Co., 220 NY2d 259, 267 (1919). The foreign limited liability company will be found to be doing business in New York if its activities are permanent and continuous. See, Laufer v. Ostrow, 55 NY2d 305 (1982) and Jurilique, Inc. v. Austral Biolab Pty, Ltd., 187 AD2d 637 (2nd Dept., 1992).

The petition in this case is bare bones. The petition pleads few facts regarding FIA's status other than it is a foreign limited liability company. This Court finds an entity issuing and servicing credit cards issued to New York residents or seeking to recover the money due on credits cards issued to New York residents has a permanent and continuous presence in New York. Since FIA is a foreign limited liability company, it must obtain authority to do business in New York before this court can hear this application. In order to meet the requirements of Limited Liability Company Law §808(a),FIA must plead its authority to do business in New York or must plead facts establishing that it is not doing business in New York.

An action brought by a foreign limited liability company doing business in New York without having been authorized to do business in New York should be stayed to permit the foreign limited liability company to become authorized to do business in New York. See, McIntosh Builders, Inc. v. Ball, 247 AD2d 103 (3rd Dept. 1998). If the foreign limited liability company doing business in New York fails to obtain authorization to do business in New York, the action should be dismissed. See, Matter of United Environmental Techniques, Inc. v. State of New York Department of Health, 88 NY2d 824 (1996).

While this would ordinarily be enough for the court to direct the action be stayed, the papers raise other even more fundamental issues relating to arbitration which the court must address.

FIA moves to confirm the award pursuant to CPLR 7510. The arbitration agreement under which FIA proceeded to arbitration states the agreement is to governed by the Federal Arbitration Act. 9 U.S.C. §§1-16. New York will enforce contractual choice of law provisions provided that the law of the jurisdiction selected bears a reasonable relationship to the agreement and the law selected does not violate fundamental public policy of the State of New York. Welsbach Electric Corp. v. Mastec North America, Inc., 23 AD3d 639 (2nd Dept. 2005); and Culbert v. Rols Capital Co., 184 AD2d 612 (2nd Dept. 1992). Federal statutes cannot possibly violate New York public policy. The choice of law provision bears a reasonable relationship to the action.

Even if the credit card agreement did not contain a provision making this matter [*5]subject to the Federal Arbitration Act, an application to confirm an arbitration award between an out of state limited liability company and a New York resident involves interstate commerce and is subject to the Federal Arbitration Act. Matter of Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 NY3d 247 (2005):and Carlton Hobbs Real Estate, LLC v. Sweeney & Conroy, Inc., 41 AD3d 214 (1st Dept. 2007); and ImClone Systems, Inc. v. Waksal, 22 AD3d 387 (1st Dept. 2005).

"The Federal Arbitration Act creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the act (Citation Omitted)." State of New York v. Oneida Indian Nation of New York, 90 F.3d 58, 61 (2nd Cir.1996).

The FAA applies expansively and applies to any transaction affecting interstate commerce. Allied-Bruce Terminex Cos., Inc. v. Dobson, 513 U.S. 265 (1995). The FAA expresses Congressional intent to exercise its Commerce Clause powers to their full extent. Id.; and Perry v. Thomas, 482 U.S. 483 (1987).

The question of whether the parties entered into an agreement to arbitrate is decided under state law. Perry v. Thomas, supra;and Progressive Casualty Ins. Co. v. C.A. Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2nd Cir. 1993).

A party will not be compelled to arbitrate unless the evidence establishes a clear, explicit and unequivocal agreement to resolve disputes through arbitration. God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Assocs., LLP, 6 NY3d 371 (2006); and Riverside Capital Advisors, Inc. v. Winchester Global Trust Co., Ltd., 21 AD3d 887 (2nd Dept. 2005).

The relationship between the issuer of a credit card and the holder and user of the credit card is contractual. Citibank (South Dakota) N.A. v. Sablic, 55 AD3d 651 (2nd Dept 2008). The issuance of a credit card constitutes an offer of credit. The use of the card constitutes acceptance of the offer. Feder v. Fortunoff, Inc., 114 AD2d 399 (2nd Dept. 1985); and Empire National Bank v. Monahan, 82 Misc 2d 808 (Co.Ct. Rockland Co. 1975). The terms of the contract are the credit card agreement. Brower v. Gateway 2000, Inc.,246 AD2d 246 (1st Dept. 1998).

Paragraph 7:19 of the credit card agreement provides that any dispute or claim between the issuer of the credit card and the cardholder may, at the option of either party, be resolved by binding arbitration. This provision establishes a clear, explicit, unequivocal option to either party to have disputes arising between them resolved through arbitration. FIA exercised its contractual right to have the dispute resolved by arbitration.

Even though the proceeding is subject to the Federal Arbitration Act, the Nassau County District Court has subject matter jurisdiction to hear this matter.

The Federal Arbitration Act does not grant the federal district courts subject matter jurisdiction to hear application to confirm arbitration awards in the absence of an independent ground for federal jurisdiction. Perpetual Securities, Inc. v. Tang, 290 F.3d 132 (2nd cir. 2002); and 9 U.S.C. §9. The only basis for federal jurisdiction in this case is diversity. Diversity jurisdiction exists if the parties reside in different states and the amount in controversy is over $75,000 exclusive of costs and interest. 28 U.S.C. §1332. While FIA and DiLorenzo are residents fo different states, the amount in controversy is less than $75,000. [*6]

Uniform District Court Act §206(b) grants the court jurisdiction to confirm, vacate or modify an award if the controversy has been duly arbitrated if relief awarded by the arbitrator is within the jurisdiction of the court. In this case, the arbitrator awarded FIA money in an amount less than $15,000. The District Court has jurisdiction over claims for the recovery of money where the amount sought to be recovered does not exceed $15,000. Uniform District Court Act §202. This court has personal jurisdiction over Dilorenzo who resides in Nassau County. Siegel, New York Practice §20.

The District Court has limited equitable jurisdiction. Id: and Uniform District Court Act §209. By granting the District Court authority to hear actions to confirm, vacate or modify arbitration awards [Uniform District Court Act §206(b)], this court has been granted the same equitable authority that has been granted to any other court that would have jurisdiction to hear an application to confirm, vacate or modify an arbitration award.

In deciding an application to confirm an arbitrator's award, the court is not simply a rubber stamp. Matter of Carty, 149 AD2d 328 (1st Dept. 1989); and MBNA America, N.A. v. Coe, 2 Misc 3d 355 (White Plains city Ct., 2003). When hearing a application to confirm an arbitrator's award, the court sits as a court in equity and enjoys certain discretion. Lipschutz v. Gutwirth, 304 NY 58 (1952); and Belanger v. State Farm Mutual Automobile Ins. Co., 74 AD2d 938 (3rd Dept. 1980).

An arbitrator's award may be confirmed and a judgment entered thereon if the application to confirm the award is made within one year after the award is made provided the award is not vacated, modified or corrected.. 9 U.S.C. §9. An arbitration award may be vacated where the arbitrator exceeds his or her power. 9 U.S.C. §10(4).

An arbitrator's authority to hear and decide a matter arise from the agreement of the parties. Life Receivables Trust v. Syndicate 102 at Lloyd's of London, 549 F.3d 210 (2nd Cir. 2008).

The agreement between the parties provides for arbitration before JAMS. If JAMS is unable or unwilling to provide the arbitration, FIA may substitute another nation arbitration organization with similar procedures. FIA does not plead or argue that JAMS was unwilling or unable to provide for the arbitration provided for by the credit card agreement. FIA made a unilateral decision to submit the dispute to arbitration before NAF.

FIA had the option of submitting the dispute with DiLorenzo to arbitration. It did not have the option to submit the dispute to arbitration before NAF unless JAMS was unwilling or unable to provide for the arbitration.

The arbitrator who issued the award clearly exceeded his authority since he never had authority to hear this action in the first instance. Where an arbitrator exceeds his or her authority, the award must be vacated. 187 Concourse Associates v. Fishman, 399 F.3d 524 (2nd Cir. 2005).

Therefore, the application to confirm the award of the arbitrator is denied. The award is vacated. The special proceeding is dismissed.

SO ORDERED:

Hon. Fred J. Hirsh [*7]

District Court Judge

Dated: February 20, 2009

cc:Forster & Garbus, Esqs.

Cheryl A. Dilorenzo Footnotes

Footnote 1:In the case of a corporation or other business entity, the "formerly known as" designation indicates the corporation has changed its name. In the case of an individual, it usually reflects the person has legally changed his or her name.

Footnote 2:The court recognizes that many national businesses are organized in Delaware. If FIA was organized in Delaware, then its name must contain the words "Limited Liability Company" or the abbreviation "L.L.C." or "LLC." 6 Delaware C. §18-102(1).