Barclays Capital Inc. v Leventhal

[*1] Barclays Capital Inc. v Leventhal 2017 NY Slip Op 51982(U) Decided on July 25, 2017 Supreme Court, New York County Billings, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 25, 2017
Supreme Court, New York County

Barclays Capital Inc., Petitioner

against

Andrew Stuart Leventhal, Respondent.



651527/2016



For Petitioner

David G. Russell Esq.

Parker Hudson Rainer & Dobbs LLP

303 Peachtree Street, N.E., Atlanta, GA 30308

Ashley Hale Esq.

Morgan, Lewis & Bockius LLP

101 Park Avenue, New York, NY 10178

For Respondent

Ethan A. Brecher Esq.

600 3rd Avenue, New York, NY 10016
Lucy Billings, J.

I. BACKGROUND

Nonparty Financial Industry Regulatory Authority, Inc. (FINRA), rendered an arbitration award November 10, 2015, in favor of petitioner and against respondent, its former employee, for breach of a promissory note issued by nonparty Barclay's Bank PLC. Petitioner seeks to confirm the arbitration award and enter a judgment upon the award. 9 U.S.C. §§ 9, 13; C.P.L.R. §§ 7510, 7514(a). For the reasons explained below, the court grants the petition.

II. RESPONDENT'S OPPOSITION

Respondent only has opposed the petition to confirm the arbitration award and never sought to vacate or modify it. Petitioner contends that respondent's failure to seek vacatur or modification of the award mandates that the court confirm the award.

A. Untimeliness of Respondent's Challenge to the Award

A petition to vacate or modify an arbitration award must be made within 90 days of delivery of the award. C.P.L.R. § 7511(a); Case v. Monroe Community Coll., 89 NY2d 438, 441 (1997); Klugerman v. New York City Dept. of Educ., 136 AD3d 600, 600 (1st Dep't 2016); Green v. Manhattan Community Bd. 10, 129 AD3d 588, 588 (1st Dep't 2015); Kunju v. MTA, 94 AD3d 585, 585 (1st Dep't 2012). Under the Federal Arbitration Act (FAA), a motion to vacate an arbitration award must be made within three months of the filing or delivery of the award. 9 U.S.C. § 12; D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 106 (2d Cir. 2006); Wallace v. Buttar, 378 F.3d 182, 197 (2d Cir. 2004).

Petitioner contends that the FAA applies instead of the New York Civil Practice Law and [*2]Rules and that, under the FAA, grounds for vacating an arbitration award may not be raised after expiration of the three months limitations period for vacating the award. Local Union No. 38, Sheet Metal Workers' International Ass'n., AFL-CIO v. Custom Air Systems, Inc., 357 F.3d 266, 267 (2d Cir. 2004); Local 802, Associated Musicians of Greater NY v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998); Florasynth, Inc. v. Pickholz, 750 F.2d 171, 177 (2d Cir. 1984). The FAA does not confer subject matter jurisdiction over this dispute, however, Harry Hoffman Printing, Inc. v. Graphic Communications, Int'l Union, Local 261, 912 F.2d 608, 611 (2d Cir. 1990), but governs arbitration of employment disputes in the securities industry. Salvano v. Merrill Lynch, Pierce, Fenner & Smith, 85 NY2d 173, 180 (1995). See Fletcher v. Kidder, Peabody & Co., 81 NY2d 623, 630 (1993). Here, the arbitrator determined the parties' rights under a promissory note dated July 27, 2011, which provides that: "This Note and the indebtedness evidenced thereby shall be governed by the laws of the State of New York without regard to conflicts principles." Aff. of Ethan Brecher Ex. B, at 2. Respondent thus demonstrates that the FAA does not apply to the parties' dispute here.

Applying New York law, respondent insists that he now, well more than 90 days after delivery of the arbitration award to him, may raise his grounds to vacate the award, because he may challenge it by opposing the petition to confirm the award, regardless of the expiration of the time to petition to vacate the award, citing Brentnall v. Nationwide Mut. Ins. Co., 194 AD2d 537, 538 (2d Dep't 1993). Any such holding, however, contradicts the authority in the Appellate Division, First Department. 1000 Second Ave. Corp. v. Pauline Rose Trust, 171 AD2d 429, 430 (1st Dep't 1991). Insofar as First Department authority suggests support for the Second Department's holding in Brentnall v. Nationwide Mut. Ins. Co., 194 AD2d at 538, that support is only dictum. Pine St. Assoc., L.P. v. Southridge Partners, L.P., 107 AD3d 95, 100 (1st Dep't 2013). Nevertheless, the court need not resolve this issue, because respondent's grounds for vacatur fail on their merits.

B. Lack of an Agreement to Arbitrate

The promissory note further provides that the "Borrower expressly agrees that any and all actions to enforce the terms of this Note shall be litigated only in the state or federal courts sitting in the State and County of New York and in no other, and Borrower hereby consents to the jurisdiction and venue of said courts." Brecher Aff. Ex. B, at 2. Respondent may not be compelled to arbitrate the dispute under the note absent an agreement compelling resolution in such forum. Fiveco, Inc. v. Haber, 11 NY3d 140, 144 (2008); God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Assoc., LLP, 6 NY3d 371, 374 (2006); Pursuit Inv. Mgt., LLC v. Alpha Beta Capital Partners, L.P., 127 AD3d 565, 565-66 (1st Dep't 2015); Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc., 115 AD3d 128, 132 (1st Dep't 2014). Because the submission agreement dated September 12, 2014, upon which petitioner relies to show respondent's consent to arbitration, does not specify the issues before the arbitrator, that agreement fails to demonstrate respondent's consent to arbitrate the dispute under the note. Respondent thus demonstrates that he was not compelled to arbitrate the note's enforceability before FINRA.

C. Respondent's Participation in the Arbitration Waived Vacatur Based on the Lack of an Agreement to Arbitrate.

A party who participate in an arbitration, however, without timely objecting to submission of the dispute to arbitration, waives the right to object to the arbitration. United Fedn. of Teachers, Local 2, AFT, AFL-CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d 72, 79 (2003); Meisels v. Uhr, 79 NY2d 526, 538 (1992); Bortman v. Lucander, 150 AD3d 417, 417 (1st Dep't 2017); Emerald Claims Mgt. for Ullico Cas. Ins. Co. v. A. Cent. Ins. Co., 121 AD3d 481, 482 (1st Dep't 2014). See Opals on Ice Lingerie v. Bodylines Inc., 320 F.3d 362, 368 (2d Cir. 2003); Sololowski v. Metropolitan Transp. Authority, 723 F.3d 187, 191 (2d Cir. 2013). Participation in the arbitration without objection waives even the arbitrator's lack of jurisdiction, as well as the absence of an agreement to arbitrate. Meisels v. Uhr, 79 NY2d at 538; Emerald Claims Mgt. for Ullico Cas. Ins. Co. v. A. Cent. Ins. Co., 121 AD3d at 482; Peters [*3]v. Collazo Florentino & Keil, 117 AD3d 432, 433 (1st Dep't 2014); Sims v. Siegelson, 246 AD2d 374, 377 (1st Dep't 1998). A party challenging the arbitration based on the lack of an agreement to arbitrate must move to stay the arbitration before participating in it. C.P.L.R. § 7503(b); United Fedn. of Teachers, Local 2, AFT, AFL-CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d at 79; Flintlock Constr. Servs., LLC v. Weiss, 122 AD3d 51, 56 (1st Dep't 2014).

Respondent, who participated in the arbitration, now may vacate the award based only on corruption, fraud, misconduct in procuring the award, or the arbitrator's partiality, action in excess of his power, or failure to render a final award. C.P.L.R. § 7511(b)(1); New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, 14 NY3d 119, 123 (2010); Henneberry v. ING Capital Advisors, LLC, 10 NY3d 278, 283 (2008); Matter of Silverman (Benmor Coats), 61 NY2d 299, 307 (1984). While respondent characterizes the arbitrator's actions as exceeding his power, respondent's actual contention is only that the arbitrator lacked authority to arbitrate the dispute absent an agreement. An arbitrator acts in excess of his power in enforcing or interpreting an agreement only when he violates strong public policy, acts irrationally, or exceeds a contractually specified power. Henneberry v. ING Capital Advisors, LLC, 10 NY3d at 284. In fact, an excess of power necessarily presupposes power in the first instance. See New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, 14 NY3d at 123; Wittels v. Sanford, 137 AD3d 657, 658 (1st Dep't 2016); Madison Realty Capital, L.P. v. Scarborough-St. James Corp., 135 AD3d 652, 653 (1st Dep't 2016); Bowery Residents' Comm., Inc. v. Lance Capital, LLC, 121 AD3d 505, 505 (1st Dep't 2014). Respondent's claim, which is simply that the dispute under the promissory note must be litigated in another forum, is not a basis to challenge confirmation of the award. Bortman v. Lucander, 150 AD3d 417, 417 (1st Dep't 2017). See Ingham v. Thompson, 113 AD3d 534, 534 (1st Dep't 2014).

D. Champerty

Respondent further contends that the nonparty bank's assignment of the note to petitioner constituted champerty and thus grounds to deny confirmation of the award based on a violation of public policy. New York Judiciary Law § 489(1)'s prohibition against champerty provides that:

No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly, itself or by or through its officers, agents or employees, shall solicit, buy or take an assignment of, or be in any manner interested in buying or taking an assignment of a bond, promissory note, bill of exchange, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon . . . .

Respondent may raise a violation of public policy in a petition to stay arbitration or to vacate an arbitration award. United Fedn. of Teachers, Local 2, AFT, AFL-CIO v. Board of Educ. of City School Dist. of City of NY, 1 NY3d at 79; Matter of Professional, Clerical, Tech. Empls. Assn. (Buffalo Bd. of Educ.), 90 NY2d 364, 373 (1997). Petitioner's enforcement of its claimed assigned right through litigation, however, does not demonstrate that its sole motive was to commence or even to maintain a proceeding. Icdas Celik Enerji Tersane Ve Ulasim Sanayi A.S. v. Travelers Ins. Co., 81 AD3d 481, 483 (1st Dep't 2011); Red Tulip, LLC v. Neiva, 44 AD3d 204, 213 (1st Dep't 2007). If assignment of a note in default constitutes champerty, every assignment of a note in default would be champertous because every assignee that purchases a promissory note seeks to recover on it when it falls into default.

III. CONCLUSION

In sum, since respondent never moved to stay the arbitration and has failed to demonstrate grounds to vacate or modify the arbitration award, the court must confirm it. C.P.L.R. § 7510; Wiederhorn v. Merkin, 98 AD3d 859, 862 (1st Dep't 2012); Bernstein Family Ltd. Partnership v. Sovereign Partners, L.P., 66 AD3d 1, 5 (1st Dep't 2009). Therefore the court grants the petition and confirms the award rendered in favor of petitioner and against respondent. Petitioner shall recover from respondent $2,673,734.12, plus interest at 9% from November 11, [*4]2015, C.P.L.R. § 5001(a), and shall have execution therefor.

DATED: July 25, 2017

_____________________________

LUCY BILLINGS, J.S.C.