Rizer v Breen

[*1] Rizer v Breen 2005 NY Slip Op 52305(U) [12 Misc 3d 1183(A)] Decided on November 23, 2005 Supreme Court, New York County Cahn, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 November 23, 2005
Supreme Court, New York County

Margaret-Mary McGowan Rizer, Plaintiff,

against

John R. Breen, Jr., HSBC BANK USA, SALOMON SMITH BARNEY, KEGELER'S, INC., TODD L. LAVERE, NORTH COUNTRY TAVERN CORP., JEFFREY E. GRAHAM, GREATER BENEFICIAL UNION OF PITTSBURGH, RBC DAIN RAUSCHER OF NEW YORK INC., THE HARTFORD FINANCIAL SERVICES GROUP, INC., MICHAEL J. ALTERI, and UNITY FINANCIAL LIFE INSURANCE COMPANY, Defendants.



601676/05

Herman Cahn, J.

This action arises out of a claim by plaintiff Margaret-Mary McGowan Rizer, an international supermodel, that her stepfather, defendant John R. Breen, Jr., to whom she entrusted the authority to invest her assets, allegedly converted at least $3,000,000 of her money between 1999 and 2002. Plaintiff has named numerous other defendants, including a bank, businesses, investment firms and other individuals, on the theory that they aided and abetted Breen's conversion.

Defendants RBC Dain Rauscher, Inc. (sued herein as RBC Dain Rauscher of New York, Inc., hereinafter RBC) and Michael J. Alteri now move, pursuant to 9 USC § 4 and CPLR 7503 (a), for an order compelling arbitration of plaintiff's claims against them.

BACKGROUND



In her complaint, plaintiff alleges the following:

In May 1999, plaintiff, a highly successful 21 year-old supermodel from Watertown, New York, gave her mother, Maureen Breen, and her stepfather, defendant Breen, power of attorney over the bank accounts that she had opened at defendant HSBC Bank USA (HSBC) (Complaint, ¶ 2). Plaintiff, whose youth, inexperience in money matters, and travel schedule made it difficult of managing her own financial affairs, chose her mother and stepfather because she trusted them, and they accepted the responsibility of managing her financial affairs (id.). In doing so, plaintiff relied on both her mother and stepfather to pay her bills and manage the assets she was amassing in modeling fees, which was being directly deposited into the [*2]Watertown branch of HSBC (id.).

Unbeknownst to plaintiff, Breen had developed a serious addiction to alcohol and gambling (id., ¶ 4). Plaintiff alleges that, to cover his gambling debts, Breen began to steal from her bank accounts in an elaborate scheme aided and abetted by RBC and Alteri, as well as other banking institutions and members of the small Watertown community (id.). Between 1999 and 2002, when plaintiff's money ran out, and his crimes were exposed, Breen stole at least $3,500,000 of plaintiff's funds by writing hundreds of unauthorized checks to cash, to his own order, and to his personal creditors, as well as by passing forged documents to loot insurance and brokerage accounts maintained in her name (id.).

After his defalcation was revealed in 2002, Breen was criminally prosecuted (id., ¶ 22). On October 22, 2004, Breen pleaded guilty in Supreme Court, Jefferson County, to three counts of grand larceny, scheme to defraud in the first degree, and criminal possession of a forged instrument in the second degree (id., ¶ 23). On March 7, 2005, he was sentenced to a prison term of 16 months to four years, and an amount of restitution to be determined (id.).

DISCUSSION



RBC is a securities brokerage firm, and is the successor corporation to Tucker Anthony, Inc. (id., ¶ 14). Alteri is a registered representative formerly employed by Tucker Anthony (id., ¶ 15).

On May 14, 1999, plaintiff opened a brokerage account with Tucker Anthony by signing a Cash Account Client Agreement (the Client Agreement). The Client Agreement contains an arbitration clause that provides: Client agrees that all controversies that may arise between client and us concerning any transactions or the construction, performance, or breach of this or any other agreement between client and us pertaining to securities and other property, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration. Any arbitration under this agreement shall be conducted pursuant to the Federal Arbitration Act and the laws of the state designated in paragraph 13 (New York).

Client Agreement, ¶ 16 (Aff. of Patrick Howley, Exh 2).

Plaintiff's claims against RBC and Alteri focus primarily on checks issued by Tucker Anthony (eight checks) and RBC (two checks) payable to plaintiff between September 27, 2000 and May 31, 2002 (Complaint, ¶ 31; Exh L). Plaintiff alleges that Breen forged her signature on the checks, and then deposited eight of them in plaintiff's HSBC account, and two of them in his personal account (id.). She further alleges that Breen then converted the money to his own use (id.).

RBC and Alteri assert that, as set forth in the arbitration clause of the Client Agreement, the issuance of the checks payable to plaintiff were clearly transactions between plaintiff and Tucker Anthony (and subsequently RBC), and derive from the securities brokerage account that plaintiff maintained with them. Therefore, they argue, any complaint about them is necessarily within the scope of the arbitration clause, and they are thus entitled to an order directing arbitration of plaintiff's claims in accordance with the Client Agreement, and pursuant [*3]to the Federal Arbitration Act (FAA) and CPLR 7501 and 7503 (a).

The arbitration clause set forth in the Client Agreement provides that the arbitration shall be conducted pursuant to the FAA. Courts have recognized a "strong federal policy favoring arbitration as an alternative means of dispute resolution" (Oldroyd v Elmira Sav. Bank, FSB, 134 F3d 72, 76 [2d Cir 1998]). As such, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration" (Moses H. Cone Mem. Hosp. v Mercury Constr. Corp., 460 US 1, 24-25 [1983]; see also League of American Theatres & Producers, Inc. v Cohen, 270 AD2d 43 [1st Dept 2000]). The factors that must be considered in determining whether to compel arbitration pursuant to the FAA, include whether the parties agreed to arbitrate, and the scope of the arbitration agreement (see Norcom Electronics Corp. v CIM USA, Inc., 104 F Supp 2d 198 [SD NY 2000]).

In determining whether parties have entered into a valid arbitration agreement, courts should apply "ordinary state-law principles that govern the formation of contract" (First Options of Chicago, Inc. v Kaplan, 514 US 938, 944 [1995]). Under New York law, it is for the court, not the arbitrator, to decide whether both parties have made a valid agreement to arbitrate Rockland County v Primiano Constr. Co., Inc., 51 NY2d 1 [1980]; Prinze v Jonas, 38 NY2d 570 [1976]). Thus, CPLR 7503 (a) directs that "[w]here there is no substantial question whether a valid agreement was made or complied with ... the court shall direct the parties to arbitrate." Conversely, if the court determines that the parties have not agreed to arbitrate, the application to compel arbitration should be denied (Sister of Saint John the Baptist v Philips R. Geraghty Constructor Inc., 67 NY2d 997 [1986]).

It is well-established that parties to a commercial transaction "will not be held to have chosen arbitration as the forum for the resolution of their disputes in the absence of an express, unequivocal agreement to that effect" (Acting Supt. of Schools of Liverpool Cent. School Dist. v United Liverpool Faculty Ass'n, 42 NY2d 509, 512 [1977]; accord Primex Intl. Corp. v Wal-Mart Stores, Inc., 89 NY2d 594 [1997]; Primavera Labs, Inc. v Avon Prods., Inc., 297 AD2d 505 [1st Dept 2002]; Calvin Klein Co. v Minnetonka, Inc., 88 AD2d 503 [1st Dept 1982]). Thus, a party will not be compelled to arbitrate absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes (Waldron v. Goddess, 61 NY2d 181 [1984]; God's Battalion of Prayer Pentecostal Church, Inc. v Miele Assocs., LLP, 10 AD3d 671 [2d Dept 2004], lv granted 5 NY3d 707 [2005]).

In opposition to the motion, plaintiff alleges that, on May 17, 1999, Breen, through defendant Alteri, opened a money market account at Tucker Anthony on her behalf, without her knowledge, consent or participation (Rizer Aff., ¶ 2; Complaint, ¶ 31). To open the account, Breen completed the Client Agreement, which contains the arbitration clause in question. However, plaintiff alleges, in doing so, Breen fraudulently endorsed the Agreement with her signature (Rizer Aff., ¶ 2).

Plaintiff further alleges that, between September 27, 2000 and May 31, 2002, Breen made ten withdrawals from the account (id., ¶ 3). For every withdrawal made, Breen forged her signature, without her knowledge, consent or participation (id.). Plaintiff specifically alleges that, at no point did she agree with, give consent to, or authorize Breen to open the account, deposit money in her name into that account, or make any transactions dealing with that account (id., ¶ 4). Plaintiff contends that the motion to compel arbitration must thus be denied, [*4]because RBC and Alteri have failed to affirmatively establish that the parties entered into an agreement to arbitrate any disputes that may have come about under the Client Agreement.

The parties have raised an issue of fact as to whether a valid arbitration agreement was entered into between the parties. In his Reply Affidavit, Alteri alleges that plaintiff's contention denying any knowledge, involvement or authorization in regard to the Client Agreement is incorrect (Alteri Reply Aff., ¶ 2). Alteri asserts that, in May 1999, in connection with the opening of the account, "I spoke with Ms. Rizer on the telephone and confirmed that her stepfather was in fact authorized to act on her behalf and to open a securities brokerage account for her at Tucker Anthony, and that he was handling all her financial interests" (id., ¶ 3). Alteri further alleges that, in the Fall of 2000, he spoke with plaintiff again with respect to two substantial withdrawals by checks drawn on her account, and that "she advised me that she was taking money out to be used in connection with the summer home she was having built at Campbell's Point in Hounsfield, New York and also the purchase of her residence in New York City" (id., ¶ 5).

Pursuant to CPLR 7503 (a), where there is a "substantial question whether a valid agreement [to arbitrate] was made" "it shall be tried forthwith in such court" (CPLR 7503 [a]; see Pharmacia & Upjohn Co. v Elan Pharmaceuticals, Inc., 10 AD3d 331 [1st Dept 2004] [the existence of a valid agreement to arbitrate is a question of fact to be resolved by the courts]; see also Allstate Ins. Co. v Feldman, 65 AD2d 571 [2d Dept 1978], appeal denied 47 NY2d 705 [1979]). Accordingly, the issue of whether an agreement to arbitrate was entered into by the parties or their duly authorized representatives, is referred to a Special Referee to hear and report (see Brookfield Clothes, Inc. v Tandler Textiles, Inc., 78 AD2d 841 [1st Dept 1980] [requiring a hearing where there was a dispute as to whether signature on arbitration agreement was authorized]; Application of Tringali, 91 AD2d 887, 887 [1st Dept 1983] [matter remanded to Supreme Court "for a hearing to determine whether a valid agreement for arbitration of the dispute was made"]).

The Court has considered the remaining claims, and finds them to be without merit.

Accordingly, it is

ORDERED that the issue of whether a valid agreement to arbitrate was entered into between plaintiff or her authorized representative, and defendants RBC and Alteri is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, may determine the aforesaid issues; and it is further

ORDERED that both defendants' motion to compel arbitration is held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judicial Support Office (Room 311) to arrange a date for the reference to a Special Referee.

[*5]Dated: November 23, 2005ENTER:

_________/s/______________

J.S.C.