Opinion
Index No. EF004756-2022
12-08-2022
Barrier Associates Inc, BELVALE GROUP INC, HALLMARK ENTERPRISES LLC PRIMARY HOLDINGS LLC, and JOEL REICH, Plaintiffs, v. Eagle Eye Advance LLC, EVERYDAY FUNDING GROUP LLC, MCA CAPITAL HOLDINGS LLC, BENJAMIN ARYEH, GENE ROSEN, JESSIE ROBERTS, KEVIN BROWN AKA KEVIN SCHWARTZ, ARI EVERYDAY, MICHAEL EMUNAH, JOHN DOES 1-5, Defendants.
Scott C. Levenson, Esq., Levenson Law, Attorney for Plaintiffs Gene W. Rosen, Esq., Attorney for Defendants
Unpublished Opinion
Scott C. Levenson, Esq., Levenson Law, Attorney for Plaintiffs
Gene W. Rosen, Esq., Attorney for Defendants
James L. Hyer, J.
The following papers, numbered 1 to 35, were considered in connection with Plaintiffs' Order to Show Cause (seq. No.1), seeking an Order, (1) pursuant to CPLR § 6301 automatically staying the judgment in the case with Index Number EF004457-2022 identified as NYSCEF Doc. No. 6 in that action until such time that a decision can be rendered based on the Complaint in the above-captioned matter, and (2) granting Defendants such other and further relief as the Court finds necessary and just; and were considered in connection with Plaintiffs' Motion (seq. #2), seeking an Order: (1) issuing sanctions against Gene Rosen, and (2) for such other and further relief as this Court may deem just and proper; and were considered in connection with Defendants' Order to Show Cause (seq. #3), seeking an Order; (1) pursuant to 9 USC § 3, staying this action and pursuant to 9 USC § 4, compelling the parties to arbitrate before Arbitration Services, Inc, and (2) pursuant to 22 NYCRR 130-1.1, imposing sanctions upon such terms as the Court deems just, (3) together with such other and further relief as the Court deems just.
PAPERS NUMBERED
Order to Show Cause (seq. #1)/Affirmation in Support of Scott Levenson/
Affirmation in Support of Joel Reich 1-3
Notice of Motion (seq. #2)/Affirmation in Support of Scott Levenson/
Exhibit A 4-6
Order to Show Cause (seq. #3)/Affidavit of Benjamin Aryeh/
Affirmation of Gene W. Rosen/Emergency Affirmation
Pursuant to 22 NYCRR 202.7(f)/Exhibits A-O/
Memorandum of Law in Support of Defendants Motion 7-26
Memorandum of Law in Response to OTSC (seq. #3) 27
Reply Affirmation of Gene Rosen/Exhs. A-D/Memorandum in Reply 28-34
Notice of Rejection 35
On April 18, 2022, Barrier Associates, Inc. (hereinafter referred to as "Barrier"), Belvale Group Inc. (hereinafter referred to as "Belvale"), Hallmark Enterprises LLC (hereinafter referred to as "Hallmark"), and Primary Holdings LLC (hereinafter referred to as "Primary") (hereinafter collectively referred to as, the "Merchants") signed a Standard Merchant Cash Advance Agreement with Eagle Eye Advance LLC (hereinafter referred to as "Eagle Eye") (hereinafter referred to as "Agreement #1").
On May 9, 2022, Merchants signed a Standard Merchant Cash Advance Agreement with Eagle Eye (hereinafter referred to as "Agreement #2").
Both Agreement #1 and Agreement #2 include a Guarantee signed by Joel Reich (hereinafter referred to as "Reich").
Agreement #1 and Agreement #2 both include the following provision pertaining to arbitration (Exhs. D-E):
"Any action or dispute relating to this Agreement or involving EEA on one side and any Merchant or any Guarantor on the other, including, but not limited to issues of arbitrability, will, at the option of any party to such action or dispute, be determined by arbitration before a single arbitrator. The arbitration will be administered either by Arbitration Services, Inc. under its Commercial Arbitration Rules as are in effect at that time, which rules are available at www.arbitrationservicesinc.com, or by Mediation & Commercial Arbitration, Inc. under its Commercial Arbitration Rules as are in effect at that time, which rules are available at www.mcarbitration.org. Once an arbitration is initiated with one of these arbitral forums, it must be maintained exclusively before that arbitral forum and the other arbitral forum specified herein may not be used. Any arbitration relating to this Agreement must be conducted in the Counties of Nassau, New York, Queens, or Kings in the State of New York. Notwithstanding any provision of any applicable arbitration rules, any witness in an arbitration who does not reside in or have a place for the regular transaction of business located in New York City or the Counties of Nassau, Suffolk, or Westchester in the State of New York will be permitted to appear and testify remotely by telephone or video conferencing. In case any Event of Default occurs and is not waived, each Merchant and each Guarantor consents to EEA making an application to the arbitrator, without notice to any Merchant or any Guarantor, for the issuance of an injunction, restraining order, or other equitable relief in EEA's favor, subject to court or arbitrator approval, restraining each Merchant's accounts and/or receivables up to the amount due to EEA as a result of the Event of Default. Each Merchant acknowledges and agrees that this Agreement is the product of communications conducted by telephone and the Internet, which are instrumentalities of interstate commerce, and that the transactions contemplated under this Agreement will be made by wire transfer and ACH, which are also instrumentalities of interstate commerce, and that this Agreement therefore evidences a transaction affecting interstate commerce. Accordingly, notwithstanding any provision in this Agreement to the contrary, all matters of arbitration relating to this Agreement will be governed by and construed in accordance with the provisions of the Federal Arbitration Act, codified as Title 9 of the United States Code, however any application for injunctive relief in aid of arbitration or to confirm an arbitration award may be made under Article 75 of the New York Civil Practice Law and Rules. The arbitration agreement contained in this Section may also be enforced by any employee, agent, attorney, member, manager, officer, subsidiary, affiliate entity, successor, or assign of EEA."
The Guarantees annexed to both Agreement #1 and Agreement #2 included the following Arbitration provision (Exhs. D-E):
"Any action or dispute relating to this Agreement or this Guarantee or involving EEA on one side and any Merchant or any Guarantor on the other, including, but not limited to issues of arbitrability, will, at the option of any party to such action or dispute, be determined by arbitration before a single arbitrator. The arbitration will be administered either by Arbitration Services, Inc. under its Commercial Arbitration Rules as are in effect at that time, which rules are available at www.arbitrationservicesinc.com, or by Mediation & Commercial Arbitration, Inc. under its Commercial Arbitration Rules as are in effect at that time, which rules are available at www.mcarbitration.org. Once an arbitration is initiated with one of these arbitral forums, it must be maintained exclusively before that arbitral forum and the other arbitral forum specified herein may not be used. Any arbitration relating to this Agreement or this Guarantee must be conducted in the Counties of Nassau, New York, Queens, or Kings in the State of New York. Notwithstanding any provision of any applicable arbitration rules, any witness in an arbitration who does not reside in or have a place for the regular transaction of business located in New York City or the Counties of Nassau, Suffolk, or Westchester in the State of New York will be permitted to appear and testify remotely by telephone or video conferencing. In case any Event of Default occurs and is not waived, each Guarantor consents to EEA making an application to the arbitrator, without notice to any Merchant or any Guarantor, for the issuance of an injunction, restraining order, or other equitable relief in EEA's favor, subject to court or arbitrator approval, restraining each Guarantor's accounts and/or receivables up to the amount due to EEA as a result of the Event of Default. Each Guarantor acknowledges and agrees that the Agreement and this Guarantee are the product of communications conducted by telephone and the Internet, which are instrumentalities of interstate commerce, and that the transactions contemplated under the Agreement and this Guarantee will be made by wire transfer and ACH, which are also instrumentalities of interstate commerce, and that the Agreement and this Guarantee therefore evidence a transaction affecting interstate commerce. Accordingly, notwithstanding any provision in the Agreement or this Guarantee to the contrary, all matters of arbitration relating to the Agreement or this Guarantee will be governed by and construed in accordance with the provisions of the Federal Arbitration Act, codified as Title 9 of the United States Code, however any application for injunctive relief in aid of arbitration or to confirm an arbitration award may be made under Article 75 of the New York Civil Practice Law and Rules. The arbitration agreement contained in this Section may also be enforced by any employee, agent, attorney, member, manager, officer, subsidiary, affiliate entity, successor, or assign of EEA."
Agreement #1 and Agreement #2 both contain the following provision pertaining to "Remedies" (Exhs. D-E):
"In case any Event of Default occurs and is not waived, EEA may proceed to protect and enforce its rights or remedies by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement, or other provision contained herein, or to enforce the discharge of each Merchant's obligations hereunder, or any other legal or equitable right or remedy. All rights, powers, and remedies of EEA in connection with this Agreement, including each Protection listed in Section 17, may be exercised at any time by EEA after the occurrence of an Event of Default, are cumulative and not exclusive, and will be in addition to any other rights, powers, or remedies provided by law or equity. In addition to the foregoing, in case any Event of Default occurs and is not waived, EEA will be entitled to the issuance of an injunction, restraining order, or other equitable relief in EEA's favor, subject to court or arbitrator approval, restraining each Merchant's accounts and/or receivables up to the amount due to EEA as a result of the Event of Default, and each Merchant will be deemed to have consented to the granting of an application for the same to any court or arbitral tribunal of competent jurisdiction without any prior notice to any Merchant or Guarantor and without EEA being required to furnish a bond or other undertaking in connection with the application."
Agreement #1 and Agreement #2 both contain the following provision pertaining to "Forum and Venue Selection" (Exhs. D-E):
"Any litigation relating to this Agreement or involving EEA on one side and any Merchant or any Guarantor on the other must be commenced and maintained in any court located in the Counties of Nassau, New York, or Sullivan in the State of New York (the "Acceptable Forums"). The parties agree that the Acceptable Forums are convenient, submit to the jurisdiction of the Acceptable Forums, and waive any and all objections to the jurisdiction or venue of the Acceptable Forums. If any litigation is initiated in any other venue or forum, the parties waive any right to oppose any motion or application made by any party to transfer such litigation to an Acceptable Forum. The parties agree that this Agreement encompasses the transaction of business within the City of New York and that the Civil Court of the City of New York ("Civil Court") will have jurisdiction over any litigation relating to this Agreement that is within the jurisdictional limit of the Civil Court. In addition to the Acceptable Forums, any action or proceeding to enforce a judgment or arbitration award against any Merchant or Guarantor or to restrain or collect any amount due to EFG may be commenced and maintained in any other court of competent jurisdiction."
Notably, annexed to and part of Agreement #1 and Agreement #2 was a Declaration of Ordinary Course of Business, which included the following declaration by Reich on behalf of the Merchants (Exhs. D-E):
Each undersigned hereby declares the following:
1. I am duly authorized to sign the Standard Merchant Cash Advance Agreement ("Agreement"), dated 4/18/2022 between Eagle Eye Advance LLC ("EEA") and Belvale Group Inc/Hallmark Enterprises LLC/Primary Holdings LLC ("Merchant") on behalf of Merchant.
2. This Declaration incorporates by reference the Agreement and every addendum to it.
3. I acknowledge that I am authorized to sign the Agreement and every addendum to it on behalf of each Merchant.
4. I acknowledge that I had sufficient time to review the Agreement and every addendum to it before signing it.
5. I acknowledge that I had an opportunity to seek legal advice from counsel of my choosing before signing the Agreement and every addendum to it.
6. I acknowledge that each Merchant is entering into the Agreement voluntarily and without any coercion.
7. I acknowledge that each Merchant is entering into the Agreement in the ordinary course of its business.
8. I acknowledge that the payments to be made from any Merchant to EEA under the Agreement are being made in the ordinary course of each Merchant's business.
9. I DECLARE UNDER PENALTY OF PERJURY THAT THE FOREGOING IS TRUE AND CORRECT.
On July 25, 2022, an e-mail was sent from the e-mail of Plaintiffs' counsel Scott Levenson, Esq. (hereinafter referred to as "Levenson") (hereinafter referred to as "Levenson E-Mail #1"), which read in part (Exh. J at 2):
"I will also note that as of today the reconciliation email provided in your clients contracts still does not work and bounce back as undeliverable clearly indicating your clients intent to ignore the only clause in the contract that have allowed the Justices in Orange County who are clearly bribed by loan sharks like your clients, yes you could let them know we think that of them, to make the decision that these loans are not usurious. Without the reconciliation clause, these loans are usurious according to all justices."
On July 12, 2022, a second (prior) e-mail was sent from the e-mail of Levenson (hereinafter referred to as "Levenson E-Mail #2"), which read in part (Exh. K at 2):
"If anything should happen to my client or his family, Gene, I will hold you personally responsible and will exact retribution eye for an eye. That is from me personally, not my client and not the firm."
On August 8, 2022, a Judgment by Confession was entered in favor of Eagle Eye against the Merchants in the office of the Orange County Clerk under Index Number EF004455-2022 (hereinafter referred to as "Judgment #1"), and on August 8, 2022, a Judgment by Confession was entered in favor of Eagle Eye against Reich in the office of the Orange County Clerk under Index Number EF004457-2022 (hereinafter referred to as "Judgment #2") (hereinafter collectively referred to as the "Judgments").
Plaintiffs commenced this action on August 22, 2022, by the filing of a Summons and Complaint, asserting the following causes of action: (1) declaratory relief against Eagle Eye, vacating the Judgments by Confession against Plaintiffs on the basis of usury; (2) declaratory relief against Eagle Eye, vacating the Judgments by Confession against Plaintiffs on the basis of refusal to reconcile; (3) fraud against Eagle Eye; (4) rescission against Eagle Eye on the basis of unsconscionability; (5) intentional infliction of emotional distress against all Defendants; and (6) contempt of court, perjury and sanctions against Benjamin Aryeh and Gene Rosen. Plaintiffs' Complaint at Page 21 includes as the Sixth Cause of Action captioned, "Count Six As To Defendants Gene Rosen And Benjamin Aryeh Contempt of Court, Perjury and Sanctions" (hereinafter referred to as "Count Six").
Defendant Everyday Funding Group LLC (hereinafter referred to as "Everyday"), Defendant MCA Capital Holdings LLC (hereinafter referred to as "MCA"), Defendant Gene Rosen (hereinafter referred to as "Rosen"), Defendant Jessie Roberts (hereinafter referred to as "Roberts"), Defendant Kevin Brown (hereinafter referred to as "Brown"), Defendant Ari Everyday (hereinafter referred to as "Ari"), Defendant Michael Emunah (hereinafter referred to as "Emunah") (hereinafter collectively "Parties Demanding Arbitration") filed a Demand for Arbitration with Arbitration Services, Inc., on September 1, 2022, listing as respondents Merchants and Reich.
A court conference was held wherein Rosen, Levenson and others appeared. The Court addressed Levenson E-Mail #1 and Levenson E-Mail #2, as reflected in the court transcript (NYSCEF Doc. No. 46 [hereinafter referred to as the "Transcript"]). Following Rosen reading the e-mails into the record, Levenson confirmed that both came from his e-mail account but advised the Court that they had been sent by Isaac Stern, a paralegal on his staff. Levenson confirmed he is his firm's managing partner, acknowledged his ethical responsibility for all correspondence from his office, and represented to the Court that he would comport himself with the ethical responsibilities of a lawyer in New York State. Levenson noted, "Yes, you have my representation, and you have my apology, Judge as well."
Thereafter, later that day on August 25, 2022, Rosen sent an e-mail to Levenson, (hereinafter referred to as "Rosen E-Mail"), which included the following message (NYSCEF Doc. No. 33):
I am requesting that you immediately discontinue this action with prejudice as against myself, Everyday Funding Group LLC, MCA Capital Holdings LLC, Benjamin Aryeh, Jessie Roberts, Ari Everyday, and Michael Emunah. You conceded today that my interests are not in conflict with those of my clients. There are two claims against me - intentional infliction of emotional distress and sanctions. There is no cognizable cause of action for sanctions. If you feel I engaged in frivolous conduct, then make a motion for sanctions. Suing me on that basis is improper. Regarding the emotional distress claim, the allegations made against me fall far below the standard required to state a claim for intentional infliction of emotional distress. Benjamin Aryeh is being sued for perjury and intentional infliction of emotional distress. There is no cause of action for perjury. Regarding the emotional distress claim against him, again, none of the allegations made against him come close to the exceptionally high bar for such claims. With respect to the remaining defendants for which discontinuance is requested, they are only being sued for intentional infliction of emotional distress. Setting aside the high burden required to sustain an emotional distress claim, allegations of misconduct are not even made against these defendants. For example, Everyday Funding Group, LLC and MCA Capital Holdings LLC were merely alleged to be affiliates of Eagle Eye. I request that you provide me with a copy of the attached stipulation of discontinuance signed by you by 5 pm on August 29, 2022. Without it, you can expect an action to be filed against you personally for violation of Judiciary Law 487 (attorney deceit), abuse of process, and prima facia tort."
Motion Sequence #1
Plaintiffs seek an Order pursuant to CPLR § 6301 automatically staying the Judgment in the case with Index Number EF004457-2022 identified as NYSCEF Doc. No. 6 in that action until such time that a decision can be rendered based on the Complaint in the above captioned matter, and for such other and further relief as the Court finds necessary and proper.
CPLR § 6301 authorizes the granting of a preliminary injunction, stating the following:
A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, or in any action where the plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff. A temporary restraining order may be granted pending a hearing for a preliminary injunction where it appears that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be had.
"The purpose of CPLR 6301 is to preserve the status quo and to prevent dissipation of property which may make a judgment ineffectual" (Ratner & Assocs. v Sears, Roebuck & Co., 294 A.D.2d 346 [2d Dept 2002] [internal citations omitted]). A preliminary injunction may be granted under CPLR Article 63 when the party seeking such relief demonstrates: (1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor (see Doe v Axelrod, 73 N.Y.2d 748, 750 [1988]). A temporary restraining order may be granted when the movant can demonstrate: (1) the likelihood of success on the merits (2) irreparable injury absent granting the preliminary injunction, and (3) a balancing of the equities (see W. T. Grant Co. v Srogi, 52 N.Y.2d 496, 517 [1981]).
Article 63 of the CPLR governs the issuance of preliminary injunctions and temporary restraining orders. Pursuant to CPLR § 6301, a preliminary injunction may be granted in an action for permanent injunctive relief to restrain the defendant, during the pendency of said action, from doing that which the plaintiff seeks to enjoin permanently, by the final judgment.A preliminary injunction is not a proper remedy where it appears that the movant can be fully recompensed by an award of money damages or by some other adequate remedy at law (see Mar v Liquid Mgt. Partners, LLC, 62 A.D.3d 762, 763 [2d Dept 2009]; Dana Distribs., Inc. v Crown Imports, LLC, 48 A.D.3d 613 [2d Dept 2008]).
Based upon Plaintiffs' submissions, the Court does not find that the basis for a stay is warranted pursuant to CPLR § 6301 as Plaintiffs have failed to provide support that they have met the three factors required by Doe v Axelrod.
Motion Sequence #2
Plaintiffs seek an Order, sanctioning Rosen and for such other and further relief as this Court may deem just and proper. Plaintiffs assert that the Rosen E-mail constituted a violation of DR 7-105(a) which provides that a lawyer "shall not present, participate in presenting or threaten to present criminal charges solely to obtain an advantage in a civil matter" (22 NYCRR §1200.36 (McKinney's 2000). The rationale for the rule is that "the civil adjudicative process is primarily designed for the settlement of disputes between parties, while the criminal process is designed for the protection of society as a whole" (EC 7-21). Threatening to file criminal charges in order to settle a civil claim is said to subvert the criminal process, deter litigants from asserting their legal rights and diminish the public's confidence in the legal system because it has been abused by litigants (see generally ABA/BNA Lawyers' Manual on Professional Conduct, 71:601-606 [1994]; Simon's New York Code of Professional Responsibility Annotated [2000] at 459-463; J. Cohen and S.D. McShea, "Threatening to Contact the Criminal Authorities: A Lawyer's Dilemma," New York Law Journal, 10/26/1999]).
As noted above, the Rosen E-Mail to Levenson requested that a Stipulation of Discontinuance be executed and filed withdrawing causes of action against him and others based on his belief that the certain causes of action he sought to be withdrawn were without merit, which is usual and customary in the practice of law and is often times referred to as a "Good Faith Letter." This e-mail noted, in part, "I request that you provide me with a copy of the attached stipulation of discontinuance signed by you by 5 pm on August 29, 2022. Without it, you can expect an action to be filed against you personally for violation of Judiciary Law 487 (attorney deceit), abuse of process, and prima facia tort."
Notably, nowhere within the Rosen E-Mail did Rosen threaten criminal prosecution, only that if the requested discontinuance was not completed "an action to be filed against you personally for violation of Judiciary Law 487", clearly indicating Rosen's intent to commence a civil litigation against Levenson including a cause of action pursuant to Judiciary Law § 487.
New York courts have long held that an independent cause of action for alleged violation of Judiciary Law § 487 may be maintained (see Hyams v Mehlman, 148 A.D.2d 586, 587 [2d Dept 1989] ["Consequently, a violation of Judiciary Law § 487 may be asserted as a legitimate counterclaim "); see also NYAT. Operating Corp v Jackson, Lewis, Schnitzler & Krupman, 191 Misc.2d 80, 80-81 [Sup Ct, NY County 2002] ("Judiciary Law Section 487(1) allows an injured party to recover treble damages from an attorney, if he or she "[is] guilty of any deception or collusion, with the intent to deceive the Court or any party").
Moreover, the Court's review of the Rosen E-Mail reveals that the request being made appears, at least in part, to have merit as to Count Six. One portion of the e-mail reads, "Benjamin Aryeh is being sued for perjury and intentional infliction of emotional distress. There is no cause of action for perjury." Rosen is correct that there is no independent cause of action for perjury New York State (s ee He v Siemens Energy, Inc., 134 A.D.3d 1310, 1311 [3rd Dept 2015] ["It has been long established 'that there can be no civil action for perjury or subornation of perjury.'"); s ee also Campaign v Esterhay, 61 Misc.3d 662, 85 N.Y.S.3d 687, 667 [Sup Ct, NY County 2018] [granting a motion to dismiss; no civil action for perjury in New York]; Verplanck v Van Buren, 76 NY 247, 261 [1879] [no civil action for perjury]).
The Rosen E-Mail also notes, "There are two claims against me - intentional infliction of emotional distress and sanctions. There is no cognizable cause of action for sanctions." Rosen is further correct that there is no independent cause of action for sanctions in New York State (see Yankee Trails, Inc. v Jardine Ins. Brokers, Inc., 145 Misc.2d 282, 283 [Sup Ct, Rensselaer County 1989] ["The counter-claim sets forth a cause of action for attorney's fees and sanctions. No such separate cause of action is permitted. Defendant has no right to such damages. Attorney's fees and sanctions are permitted by Rule 130.1(d) and CPLR 8303-a to penalize specific frivolous conduct. The court in its discretion may award attorney's fees and sanctions."]).
22 NYCRR § 130-1.1(c) defines the conduct of a party as frivolous if:
"(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;
(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or
(3) it asserts material factual statements that are false."
22 NYCRR § 130-1.1(a) authorizes a Court to impose sanctions against a party engaging in frivolous conduct. The rule provides, in relevant part, as follows:
"The court, in its discretion, may award to any party or attorney in any civil action or proceeding before the court... costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct.."
22 NYCRR § 130-1.1(d) requires a reasonable opportunity to be heard prior to the imposition of sanctions:
"An award of costs or the imposition of sanctions may be made either upon motion in compliance with CPLR 2214 or 2215 or upon the court's own initiative, after a reasonable opportunity to be heard. The form of the hearing shall depend upon the nature of the conduct and the circumstances of the case."
22 NYCRR § 130-1.2 specifies the requirements for a sanctions order:
"The court may award costs or impose sanctions or both only upon a written decision setting forth the conduct on which the award or imposition is based, the reasons why the court found the conduct to be frivolous, and the reasons why the court found the amount awarded or imposed to be appropriate. An award of costs or the imposition of sanctions or both shall be entered as a judgment of the court. In no event shall the amount of sanctions imposed exceed $10,000 for any single occurrence of frivolous conduct."
The purpose of sanction rules is to prevent the waste of judicial resources and to deter vexatious litigation and dilatory or malicious litigation tactics (s ee Matter of Minister, Elders & Deacons of Refm. Prot. Dutch Church of City of NY v 198 Broadway, 76 N.Y.2d 411 [1990]). "Sanctions are retributive, in that they punish past conduct. They also are goal oriented, in that they are useful in deterring future frivolous conduct not only by the particular parties, but also by the bar at large" (See Levy v Carol Mgt. Corp., 260 A.D.2d 27, 34 [1st Dept 1999]). "Courts are required to examine 'whether or not the conduct was continued when its lack of legal or factual basis was apparent [or] should have been apparent.' (22 NYCRR 103-1.1[c])" (s ee Navin v Mosquera, 30 A.D.3d 883 [3d Dept 2006]). The court must look at the broad pattern of conduct by the offending party in determining if sanctions are appropriate (Levy v Carol Mgt. Corp., 260 A.D.2d at 33).
As noted herein, the Rosen E-Mail constituted a good faith letter seeking to advise opposing counsel of his belief that the claims asserted against him and others were without merit, which is a usual and customary practice within the legal profession seeking to avoid unnecessary and improper litigation. Upon examination of Rosen's requests to Levenson pertaining to the sought-after discontinuance of the causes of action for sanctions and perjury, the Court finds such request reasonable as such independent causes of action do not exist within New York State and, accordingly, cannot be asserted in any way other than that which would constitute frivolity.
As to Rosen's threat to assert a civil cause of action against Levenson pursuant to Judiciary Law § 487, such cause of action may be asserted against an attorney, and while there is a criminal component to the statute, nowhere in the Rosen E-Mail was criminal prosecution threatened. Accordingly, this Court finds no basis to determine that Rosen violated DR 7-105(a) or otherwise engaged in any misconduct.
Accordingly, the relief requested in Motion Sequence #2 is denied.
Motion Sequence #3
Motion Sequence #3 seeks an Order staying this action pursuant to 9 USC § 3, compelling the parties to arbitrate before Arbitration Services, Inc. pursuant to 9 USC § 4, and imposing sanctions upon such terms as the Court deems just, together with any such other and further relief as this Court deems just.
Request to Compel Arbitration & Stay Action
Defendants assert that the Federal Arbitration Act is applicable, that this action should be stayed, and arbitration should be compelled because no waiver of arbitration has occurred. Plaintiffs counter that this relief is unwarranted as the forum selection and venue clauses contradict the arbitration clause contained in the subject agreements, or in the alternative that Defendants chose the forum. The applicable law and analysis are set forth below.
The Federal Arbitration Act ("FAA") provides that "[a] written provision in... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or inequity for the revocation of any contract" (9 USC § 2). The FAA is applicable in state court (Southland Corp. v Keating, 465 U.S. 1, 14-15 [1984]). As the Court of Appeals explained in Matter of Monarch Consulting, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA (26 N.Y.3d 659, 665 [2016] [internal citations, quotation marks, and brackets omitted]):
"The FAA was enacted by Congress in response to widespread judicial hostility to arbitration... and it aims to ensure judicial enforcement of privately made agreements to arbitrate... This text reflects the overarching principle that arbitration is a matter of contract and, consistent with that text, courts must rigorously enforce arbitration agreements according to their terms... Typically, the FAA preempts state laws that require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration."
The FAA applies to arbitration provisions in contracts "evidencing a transaction involving commerce." The United States Supreme Court has interpreted the words "involving commerce" as the functional equivalent of the phrase "affecting commerce," which ordinarily signals Congress' intent to exercise its Commerce Clause powers to the fullest extent (see Allied-Bruce Terminix Companies, Inc. v Dobson, 513 U.S. 265, 273-274, 281 [1995]); see also Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 N.Y.3d 247, 252 [2005]). An agreement between corporations from different states is one "involving commerce" and hence subject to the FAA (see Matter of Diamond Waterproofing Sys., Inc. v 55 Liberty Owners Corp., 4 N.Y.3d 247; see also Matter of Bergassi Group LLC v Allied World Ins. Co., 193 A.D.3d 524 [1st Dept 2021]; see also Highland HC, LLC v Scott, 113 A.D.3d 590, 592-593 [2nd Dept 2014]).
Although the FAA's policy favors arbitration, in May 2022, the Supreme Court of the United States clarified that this" does not authorize federal courts to invent special, arbitration-preferring procedural rules" (s ee Morgan v Sundance, Inc., __ U.S. ___, 142 S.Ct. 1708, 1713 [2022]), citing Moses H. Cone Memorial Hosp. v Mercury Constr. Corp., 460 U.S. 1, 24 [1983]). The Court further explained that the "frequent use of that phrase connotes something different. 'Th[e] policy,' we have explained, 'is merely an acknowledgment of the FAA's commitment to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.'" (Morgan v Sundance, Inc., __ U.S. ___, 142 S.Ct. at 1713), citing Granite Rock Co. v International Broth. of Teamsters, 561 U.S. 287, 302 [2010] [internal quotation marks omitted]). "Or in another formulation: The policy is to make "arbitration agreements as enforceable as other contracts, but not more so" (Morgan v Sundance, Inc., __ U.S. ___, 142 S.Ct. at 1713, citing Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12 (1967). The Court therefore stated that courts "must hold a party to its arbitration contract just as the court would to any other kind. But a court may not devise novel rules to favor arbitration over litigation" (Morgan v Sundance, Inc., __ U.S. ___, 142 S.Ct. at 1713, citing Dean Witter Reynolds Inc. v Byrd, 470 U.S. 213, 218-221 [1985]). "If an ordinary procedural rule - whether of waiver or forfeiture or what-have-you - would counsel against enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration" (Morgan v Sundance, Inc., __ U.S. ___, 142 S.Ct. at 1713; see also National Foundation for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 [DC Cir 1987] ["The Supreme Court has made clear" that the FAA's policy "is based upon the enforcement of contract, rather than a preference for arbitration as an alternative dispute resolution mechanism."]).
9 U.S.C. § 3 authorizes a party to an arbitration agreement that is not in default in a court action to make an application to stay the action in favor of arbitration, stating that:
"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."
9 U.S.C. § 4 authorizes a party to make an application to the Court to compel arbitration, stating that:
"A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof."
In Monarch Consulting, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA (26 N.Y.3d at 674-676), the Court of Appeals laid out the analytical framework under the FAA for determining whether the threshold question of arbitrability should be resolved by the arbitrator or by the court:
"'[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit'" (AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 [1986], quoting Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409... [1960]; see First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985... [1995]). As the United States Supreme Court has stated, "[c]hallenges to the validity of arbitration agreements... can be divided into two types," namely, "challenges specifically [to] the validity of the agreement to arbitrate" and "challenges [to] the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid" (Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038 [2006]). "[A]ttacks on the validity of the contract, as distinct from attacks on the validity of the arbitration clause[,] itself, are to be resolved 'by the arbitrator in the first instance, not by a federal or state court'" (Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. 17, 133 S.Ct. 500, 503, 184 L.Ed.2d 328 [2012], quoting Preston, 552 U.S. at 349; see Buckeye Check Cashing, Inc., 546 U.S. at 444; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404, 87 S.Ct. 1801, 18 L.Ed.2d 1270[1967]).
The Supreme Court has also held that arbitration agreements must be enforced according to their terms, and that "parties can agree to arbitrate 'gateway' questions of 'arbitrability'" (Rent-A-Center, West, Inc., 561 U.S. at 68-69; see Nitro-Lift Technologies, L.L.C., 133 S.Ct. at 503; Buckeye Check Cashing, Inc., 546 U.S. at 445). Such "delegation clauses" are enforceable where "there is 'clear and unmistakeable' evidence" that the parties intended to arbitrate arbitrability issues (First Options of Chicago, Inc., 514 U.S. at 944, quoting AT & T Technologies, Inc., 475 U.S. at 649).
Further, "courts treat an arbitration clause as severable from the contract in which it appears and enforce it according to its terms unless the party resisting arbitration specifically challenges the enforceability of the arbitration clause itself" (Granite Rock Co. v. Teamsters, 561 U.S. 287, 301, 130 S.Ct. 2847, 177 L.Ed.2d 567 [2010]; see Nitro-Lift Technologies, L.L.C., 133 S.Ct. at 503; Rent-A-Center, West, Inc., 561 U.S. at 71; Buckeye Check Cashing, Inc., 546 U.S. at 445). The rule of severability extends to delegation clauses, which are severable from larger arbitration provisions (see Rent-A-Center, West, Inc., 561 U.S. at 71-72; Parnell v. CashCall, Inc., 804 F.3d 1142, 1146 [11th Cir. 2015]; Brennan v. Opus Bank, 796 F.3d 1125, 1133 [9th Cir. 2015]). Thus, where a contract contains a valid delegation to the arbitrator of the power to determine arbitrability, such a clause will be enforced absent a specific challenge to the delegation clause by the party resisting arbitrability (see Rent-A-Center, West, Inc., 561 U.S. at 71-72).
In Buckeye Check Cashing, Inc. v Cardegna (546 U.S. 440, 445-449 [2006]), the United States Supreme Court ruled that a claim of usury is effectively a challenge to the validity of the entire contract, and not specifically to the arbitration clause, and must therefore be decided by the arbitrator, not the court. The plaintiff-borrowers therein claimed that the defendant-lender made illegal usurious loans disguised as check cashing transactions in violation of Florida statutes which rendered the parties' agreement criminal on its face. The Florida Supreme Court denied the lender's motion to compel arbitration, reasoning that the enforcement of an arbitration agreement in a contract challenged as usurious would violate state public policy and contract law (id. at 442). The Supreme Court reversed. Relying on its prior decisions in Prima Paint Corp. v Flood & Conklin Mfg. Co., 388 U.S. 395, and Southland Corp. v Keating, 465 U.S. 1, the Supreme Court ruled as follows:
Prima Paint and Southland answer the question presented here by establishing three propositions.
First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.
Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.
Third, this arbitration law applies in state as well as in federal courts Applying them to them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court.
(Buckeye Check Cashing, Inc. v Cardegna, 546 U.S. at 445-446; see Granite Rock Company v International Brotherhood of Teamsters, 561 U.S. 287, 301 [2010]; see also In re Cox Enterprises, Inc. Set-top Cable Television Box Antitrust Litigation, 835 F.3d 1195, 1210-1211 [10th Cir 2016]; Moran v Svete, 366 Fed App'x 624, 631 [6th Cir 2010]; Madura v Countrywide Home Loans, Inc., 344 Fed App'x 509, 515 [11th Cir 2009]; Koch v Compucredit Corp., 543 F.3d 460, 464 [8th Cir 2008]; Sleeper Farms v Agway, Inc., 506 F.3d 98, 103 [1st Cir 2007]).
"Like contract rights generally, a right to arbitration may be modified, waived or abandoned" (Sherill v Grayco Builders, Inc., 64 N.Y.2d 261, 272 [1985] [internal citations omitted]). "Once the right to arbitrate a particular dispute has been lost by an election to litigate it cannot be recaptured" (id. at 274). It has been held that there is no material difference in the New York and FAA standards for determining whether arbitration has been waived (Gramercy Advisors LLC v J.A. Green Development Corp., 2015 NY Slip Op 30538[U], *10 [Sup Ct, NY County] ["the court need not determine whether New York or federal waiver standards govern, as the court holds that there is no material difference in the standards"]), affd 134 A.D.3d 652 [1st Dept 2015]).
In Cusimano v Schnurr (26 N.Y.3d 391, 401, n 3 [2015] [internal citations omitted]), the Court of Appeals noted that "[d]espite our previous statement, in dicta, that waiver is generally one of the issues that should be decided by the arbitrator, courts have held that whether a party has waived arbitration by litigation-related conduct is an issue for the courts." The issue of waiver of arbitration is to be determined by the courts even when the arbitration agreement incorporates by reference rules requiring the arbitrator to determine issues of arbitrability (see 21st Century N. Am. Ins. Co. v Douglas, 105 A.D.3d 463, 463-464 [1st Dept 2013] [deciding whether arbitration was waived even though arbitration agreement expressly incorporated AAA rules providing for arbitrator to determine existence, validity, and scope of arbitration agreement]).
"[W]here the defendant's participation in the lawsuit manifests an affirmative acceptance of the judicial forum... his actions are then inconsistent with a later claim that only the arbitral forum is satisfactory" (DeSapio v Kohlmeyer, 35 N.Y.2d 402, 405 [1974]). "Generally, when addressing waiver, courts should consider the amount of litigation that has occurred, the length of time between the start of the litigation and the arbitration request, and whether prejudice has been established" (Cusimano, 26 N.Y.3d at 400 [internal citation omitted]). "The majority of federal courts have taken the position that waiver cannot be established in the absence of prejudice" (id. [internal citation omitted]).
"While waiver of arbitration is not to be lightly inferred, the issue is fact-specific and there are no bright-line rules" (S & R Co. of Kingston v Latons Trucking, Inc., 159 F.3d 80, 83 [2d Cir 1998] [internal citation omitted]). In declining to fix a precise act triggering a waiver of arbitration, the Court of Appeals stated in Sherrill v. Grayco Builders, Inc., that "it is enough that the totality presented here is so conclusively waiver that it may not be unilaterally recalled" (64 N.Y.2d at 273 [internal quotation marks and citations omitted]). "The factual determinations upon which a district court predicates its findings of waiver... are ordinarily not reversed unless they are clearly erroneous" (Leadertex v Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 [2d Cir 1995] [internal citations omitted]).
A party's delay in moving to compel arbitration may be deemed a waiver of arbitration when the delay results in economic prejudice (see Leadertex v Morganton Dyeing & Finishing Corp., 67 F.3d at 26-27 [finding a waiver of arbitration where the plaintiff's business suffered a substantial fall-off during the defendant's 8-month delay in seeking arbitration]). In Cusimano, the Court of Appeals found that the plaintiffs' behavior was "indicative of blatant forum-shopping" and clearly established prejudice (26 N.Y.3d at 401). A party's failure to assert arbitration as an affirmative defense has been found to be a significant factor in determining whether arbitration is waived (Kramer v Hammond, 943 F.2d 176, 179 [2d Cir 1991] ["More significantly... Kramer's answer raised six affirmative defenses and four counterclaims; but he did not raise the arbitration clause"]).
Numerous courts have found a waiver of arbitration when the delay in seeking arbitration was substantial (see Gabor v Spicyn, 99 A.D.2d 1000, 1000-1001 [1st Dept 1984] [8 months from commencement of action until motion to compel arbitration]; Sullivan v Kisly, 93 A.D.2d 783 [1st Dept 1983] [over 4 months from answer on April 19, 1982 until motion to compel arbitration on August 23, 1982]; Leadertex v Morganton Dyeing & Finishing Corp., 67 F.3d at 26 ; Friedman v CYL Cemetery, Inc., 99 A.D.3d 857, 858 [2d Dept 2012][over 8 months from answer to motion to compel arbitration]; Matter of Guttman v Diamond, 41 Misc.3d 1221[A], *2 [Sup Ct, NY County 2014] [7 months from settlement agreement on April 17, 2013 until demand for arbitration on November 1, 2013]; Lockett v Tuff City Records, 2009 NY Slip Op 32271[U], *4 [Sup Ct, NY County 2009] [8 months from answer in October 2008 until demand for arbitration on June 22, 2009]; Satcom Intern. Group PLC v Orbcomm Intern. Partners, L.P., 49 F.Supp.2d 331, 339 [SD NY 1999] [4 months from filing of action on December 23, 1998 until motion to compel arbitration on March 29, 1999]; Liggett & Myers, Inc. v Bloomfield, 380 F.Supp. 1044, 1047 [SD NY 1974] [nearly 10 months from commencement of action on August 23, 1973 until motion to compel arbitration on June 17, 1974]).
However, courts have held that the mere filing of a Confession of Judgment does not amount to a waiver of the right to arbitrate (s ee Matter of Hasho v Forensic CPA, 292 A.D.2d 386 [2d Dept 2002]). It is well settled law that no contract can come into existence without "a manifestation of mutual assent to [its] essential terms" (s ee Matter of Express Indus. & Term. Corp. v New York State Dept. of Transp., 93 N.Y.2d 584, 590 [1999] [internal quotation marks omitted]; s ee also Galesi v Galesi, 37 A.D.3d 249, 249 [1st Dept 2007]). Pursuant to New York law, a contract is ambiguous when its terms are reasonably susceptible to two or more interpretations (s ee Diodato v Eastchester Dev. Corp., 111 A.D.2d 303 [2d Dept 1985]; s ee also PaineWebber Inc. v Elahi, 87 F.3d 589, 600 [1st Cir 1996]; In re Kam Kuo Seafood Corp., 76 BR 297 [SD NY 1987]). It is well established that, "if [a contract] was ambiguous because it did not state [a term] explicitly, then its terms must be strictly construed against the drafter" (Lai Ling Cheng v Modansky Leasing Co., 73 N.Y.2d 454, 460 [1989]). The New York Court of Appeals explicitly relied on the Restatement of Contracts, which provides: "In choosing among reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds" (Restatement (Second) of Contracts § 206 [1981]; Rentways, Inc. v O'Neill Milk & Cream Co., 308 NY 342, 348 [1955] [relying on the "well-settled maxim that, where there is ambiguity in the terms of a contract prepared by one of the parties, it is consistent with both reason and justice that any fair doubt as to the meaning of its own words should be resolved against such party"] [citations omitted]).
"Forum selection clauses are prima facie valid because of their "certainty and predictability in the resolution of disputes, particularly those involving international business agreements" (s ee Duncan-Watt v Rockefeller, 2018 NY Slip Op 30678[U], *3 [Sup Ct, NY County 2018], citing Brooke Group Ltd. v JCH Syndicate 488, 87 N.Y.2d 530, 534 [1996] [citations omitted]). "To constitute a mandatory forum selection clause, New York courts require language "binding the parties to a particular forum" (i d., citing Brook Group, 87 N.Y.2d at 534 [holding that the clause there "contain[ed] no such mandatory language binding the parties to a particular forum but provide[d] only that the underwriters will submit to the jurisdiction of a United States court"]).
Courts have held that forum selection causes and arbitration clauses may be read as complementary (s ee Applied Energetics, Inc. v NewOak Capital Markets, LLC, 645 F.3d 522 [2d Cir 2011]). It is undisputed that the parties entered into Agreement #1 and Agreement #2. While Plaintiffs, including Reich, now assert that both Agreements are invalid due to a plethora of allegations against Defendants, in addition to numerous provisions set forth in the Agreements, confirming Plaintiffs' rights were protected in entering into the Agreements, the Court takes note of the Declaration of Ordinary Course of Business entered into by Reich annexed to both Agreements. Within this Declaration, Reich unquestionably noted that he "had sufficient time to review the Agreement and every addendum to it before signing it," "had the opportunity to seek legal advice from counsel of my choosing before signing the Agreement and every addendum to it," and was "entering into the Agreement voluntarily and without coercion."
Upon a clear reading of the arbitration provisions and forum selection/venue clauses contained in the Agreements, it is unquestionable that they do not contradict each other and may be read as complementary. Further, the Court finds that both provisions are unambiguous and are not susceptible to two or more interpretations.
Turning first to the arbitration provisions, each state that, "Any action or dispute relating to this Agreement or involving EEA on one side and any Merchant or any Guarantor on the other, including but not limited to issues of arbitrability, will, at the option of any party to such action or dispute, be determined by arbitration before a single arbitrator." Clearly, the provision is not permissive, but requires mandatory arbitration of any action or dispute between the parties to the Agreement at the option of any of the parties, meaning that unless all parties to the action or dispute opted out of the mandatory arbitration requirement to proceed to litigation, arbitration would proceed as set forth in the remainder of the provision.
Next, the provision in the subject agreements pertaining to "Forum and Venue Selection" includes, in part that, "Any litigation relating to this Agreement or involving EEA on one side and any Merchant or any Guarantor on the other must be commenced and maintained in any court located in the Counties of Nassau, New York, or Sullivan in the State of New York (the "Acceptable Forums")," and continues," In addition to the Acceptable Forums, any action or proceeding to enforce a judgment or arbitration award against any Merchant or Guarantor or to restrain or collect any amount due to EEA may be commenced and maintained in any other court of competent jurisdiction." Nothing in this provision requires the parties to engage in litigation to resolve any actions or disputes arising out of the subject agreements. To the contrary, reading this provision together with the aforementioned arbitration provisions merely provides an agreed upon forum and venue in the event that all parties to the Agreement opted out of the mandatory arbitration provision to instead litigate in the courts.
Based upon the foregoing, the Court finds that the Federal Arbitration Act is applicable, that this action should be stayed and arbitration should be compelled as no waiver of arbitration has occurred.
Request for the Imposition of Sanctions
Defendants seek an imposition of sanctions against Levenson based upon what they assert is a broad pattern of misconduct. Defendants are correct that the behavior of Levenson and his firm in this action have constituted a broad pattern of frivolous misconduct, including frivolity on three occasions being: (1) Levenson E-Mail #1; (2) Levenson E-Mail #2, and; (3) Motion Sequence #2. As the applicable law pertaining to sanctions is recited above, the Court will not reiterate same here.
With respect to the two e-mails, the first assails the entire judiciary of Orange County, New York, while the second may be interpreted to constitute a threat of physical harm against the opposing counsel. As noted herein, following the Court being advised of the existence of these e-mails, immediate action was taken to address counsel on the record during which the Court admonished Plaintiffs' counsel. At that time the Court did not impose sanctions upon Plaintiffs' counsel with the hope that Plaintiffs' counsel would refrain from further such communications.
Nonetheless, just days later Levenson filed an application with this Court seeking sanctions against Rosen [Motion Sequence #2] which, as noted above, was denied. While this Court acknowledges that all counsel have the right to seek relief by way of motion practice, including the request for sanctions to be imposed, this Court is troubled that Levenson's motion could itself be considered frivolous for the reasons stated above.
Ironically, the basis of Levenson's request for sanctions against Rosen was e-mail correspondence wherein Rosen was engaging in good faith efforts to prevent Levenson from proceeding with what he considered to be frivolous litigation by asserting causes of action that do not exist within the State of New York. Instead of evaluating the e-mail correspondence with civility and collegiality, Levenson responded by the filing of a motion seeking sanctions against Rosen.
The Court finds the conduct of Levenson troubling as it appears that the underlying request made by Rosen's good faith letter was reasonable at least to the asserted causes of action of sanctions and perjury. Equally as concerning is the lack of any support that Rosen violated any ethical rules by merely noting that he would assert a civil cause of action against Levenson if the request made in his good faith letter was not agreed to by Levenson. As noted in Rosen's submission, while the Judicial Law has both criminal and civil components, Rosen's good faith letter is devoid of any direct or indirect threat of criminal prosecution.
While this Court will not grant sanctions against Levenson at this time, the Court again stresses the need for civility and adherence to the ethical rules that govern attorneys within the State of New York. The Court admonishes Levenson and cautions that future requests for sanctions made to this Court in this action will take into consideration the prior conduct noted herein. Counsel are kindly directed to comply with the New York State Standards of Civility which, in part direct:
"LAWYERS' DUTIES TO OTHER LAWYERS, LITIGANTS AND WITNESSES
I. Lawyers should be courteous and civil in all professional dealings with other persons.
A. Lawyers should act in a civil manner regardless of the ill feelings that their clients may have toward others.
B. Lawyers can disagree without being disagreeable. Effective representation does not require antagonistic or acrimonious behavior. Whether orally or in writing, lawyers should avoid vulgar language, disparaging personal remarks or acrimony toward other counsel, parties or witnesses.
C. Lawyers should require that persons under their supervision conduct themselves with courtesy and civility.
Based upon the Court's review of the submissions and oral argument received, it is hereby
ORDERED that Plaintiffs' motion (seq. #1) is denied; and it is further
ORDERED that Plaintiffs' motion (seq. #2) is denied; and it is further
ORDERED that Defendants' motion (seq. #3) is granted to the extent that this action is stayed pending the issuance of an Arbitration Award and/or Arbitration Decision and/or Arbitration Order either making a determination as to the underlying disputes between the parties, or directing the parties to return to this Court to proceed with litigation of the underlying disputes; and it is further
ORDERED that Defendants' motion (seq. #3) is granted to the extent that the parties are compelled to proceed with the arbitration of the disputes between the parties arising out of the subject Agreements; and it is further
ORDERED that Defendants' motion (seq. #3) is granted to the extent that the Court grants Defendants' request for the imposition of sanctions against Levenson in an amount to be determined by this Court, following the submission by Defendants' counsel an Affirmation of Costs and Attorneys' Fees, which provides a detailed and itemized list of those costs and attorneys' fees incurred by Defendants as a result of Plaintiffs' counsel's frivolous conduct. This Affirmation shall be filed with this Court within thirty days of the entry of this Decision and Order; and it is further
ORDERED that the stay granted by the Court on consent from all parties pertaining to Judgment #1 and Judgment #2 shall remain in full force and effect until further Order of this Court; and it is further
ORDERED that a Status Conference shall be held in person on Wednesday, January 18, 2023 at 3:30 p.m., wherein appearances by parties and counsel shall be required, to schedule a Hearing to determine if the Judgment Debtors have an interest in the Restrained Account; and it is further
ORDERED that any relief requested that has not been addressed directly herein is denied.
The foregoing constitutes the Decision and Order of the Court.