Court stayed the client’s action for legal malpractice pending arbitration.

In Protostorm, Inc. v Foley & Lardner LLP, 193 AD3d 486 [1st Dept 2021], the court stayed the client’s action for legal malpractice pending arbitration between the client and attorney:

“Where there is no substantial question whether a valid agreement [to arbitrate] was made or complied with, … the court shall direct the parties to arbitrate” and its order “shall operate to stay a pending … action” (CPLR 7503[a] [emphasis added]). Once a valid arbitration agreement is identified, an arbitration should only be stayed “when the sole matter sought to be submitted to arbitration is clearly beyond the arbitrator’s power” (Silverman v. Benmor Coats, Inc., 61 N.Y.2d 299, 309, 473 N.Y.S.2d 774, 461 N.E.2d 1261 [1984] [emphasis added]). Further, where “arbitrable and nonarbitrable claims are inextricably interwoven, the proper course is to stay judicial proceedings pending completion of the arbitration, particularly where … the determination of issues in arbitration may well dispose of nonarbitrable matters” (Cohen v. Ark Asset Holdings, Inc., 268 A.D.2d 285, 286, 701 N.Y.S.2d 385 [1st Dept. 2000]; see also Lake Harbor Advisors, LLC v. Settlement Servs. Arbitration and Mediation, Inc., 175 A.D.3d 479, 105 N.Y.S.3d 520 [2d Dept. 2019]; Monotube Pile Corp. v. Pile Foundation Constr. Corp., 269 A.D.2d 531, 703 N.Y.S.2d 234 [2d Dept. 2000]).

There is no dispute that there is a valid agreement between the parties to arbitrate any dispute regarding unpaid fees. Thus, the court must compel arbitration of defendants’ claim for unpaid fees and stay this action pending completion of the arbitration (CPLR 7503[a]). Moreover, because plaintiff’s nonarbitrable malpractice claim is inextricably intertwined with the arbitrable claim for unpaid fees, the proper course is to stay the action pending completion of the arbitration (see Cohen, 268 A.D.2d at 286, 701 N.Y.S.2d 385; Lake Harbor Advisors, LLC, 175 A.D.3d at 479, 105 N.Y.S.3d 520; Monotube Pile Corp., 269 A.D.2d at 531, 703 N.Y.S.2d 234).

To the extent plaintiff argues that it cannot be forced to arbitrate its malpractice claim because it did not explicitly agree to do so, both the First and Second Departments have clearly found that a nonarbitrable issue can be decided in an arbitration when it is inextricably intertwined with an arbitrable issue, particularly where, as here, the determination of the arbitrable unpaid fees claim may dispose of the nonarbitrable malpractice claim (see Cohen, 268 A.D.2d at 286, 701 N.Y.S.2d 385; Lake Harbor Advisors, LLC, 175 A.D.3d at 480, 105 N.Y.S.3d 520; Monotube Pile Corp., 269 A.D.2d at 531–532, 703 N.Y.S.2d 234).


Richard A. Klass, Esq.
Your Court Street Lawyer

#CourtStreetLawyer #LegalMalpractice #arbitrate

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn, New York. He may be reached at (718) COURT●ST or RichKlass@courtstreetlaw.comcreate new email with any questions.

Prior results do not guarantee a similar outcome.

© 2021 Richard A. Klass

Scales of justice

Richard Klass in the news: Read at Law.com: “Tinder, Match.com in $50M Class Action Crosshairs”

Richard Klass in the news:
Published on July 13, 2021, the story reports that…”A South Florida litigator filed a class action seeking over $50 million in damages in New York federal court against the company behind several of the top online dating services.”

It continues:

“Marcus Corwin, the lead attorney and partner at Corwin Law in Boca Raton, represents Neal D’Alessio, a class representative….
“…The class action complaint alleges the defendant, Match Group LLC, which owns Match.com and other dating services, including Tinder, committed fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing….”
The article reports that D’Alessio’s counsel includes Richard Klass, Your Court Street Lawyer:
“D’Alessio’s counsel, which also includes Richard Klass, a New York solo practitioner, stated in the complaint, that…”
Read the article at Law.com.

Richard A. Klass, Esq.
Your Court Street Lawyer

#CourtStreetLawyer #classaction

Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn, New York. He may be reached at (718) COURT●ST or RichKlass@courtstreetlaw.comcreate new email with any questions.

Prior results do not guarantee a similar outcome.

© 2021 Richard A. Klass

Scales of justice

Arbitration: non-arbitrable issue inextricably intertwined with an arbitrable issue

The First Department, in Protostorm, Inc. v Foley & Lardner LLP, 193 AD3d 486, 487 [1st Dept 2021], held that a non-arbitrable issue can be decided in an arbitration when the issue is inextricably intertwined with the arbitrable issue. The court held:

Where there is no substantial question whether a valid agreement [to arbitrate] was made or complied with, . . . the court shall direct the parties to arbitrate” and its order “shall operate to stay a pending . . . action” (CPLR 7503 [a] [emphasis added]). Once a valid arbitration agreement is identified, an arbitration should only be stayed “when the sole matter sought to be submitted to arbitration is clearly beyond the arbitrator’s power” (Matter of Silverman [Benmor Coats], 61 NY2d 299, 309 [1984] [emphasis added]). Further, where “arbitrable and nonarbitrable claims are inextricably interwoven, the proper course is to stay judicial proceedings pending completion of the arbitration, particularly where . . . the determination of issues in arbitration may well dispose of nonarbitrable matters” (Cohen v Ark Asset Holdings, 268 AD2d 285, 286 [1st Dept 2000]; see also Lake Harbor Advisors, LLC v Settlement Servs. Arbitration & Mediation, Inc., 175 AD3d 479 [2d Dept 2019]; Matter of Monotube Pile Corp. v Pile Found. Constr. Corp., 269 AD2d 531 [2d Dept 2000]).

There is no dispute that there is a valid agreement between the parties to arbitrate any dispute regarding unpaid fees. Thus, the court must compel arbitration of defendants’ claim for unpaid fees and stay this action pending completion of the arbitration (CPLR 7503 [a]). Moreover, because plaintiff’s nonarbitrable malpractice claim is inextricably intertwined with the arbitrable claim for unpaid fees, the proper course is to stay the action pending completion of the arbitration (see Cohen, 268 AD2d at 286 **2 ; Lake Harbor Advisors, LLC, 175 AD3d at 479; Monotube Pile Corp., 269 AD2d at 531).

To the extent plaintiff argues that it cannot be forced to arbitrate its malpractice claim because it did not explicitly agree to do so, both the First and Second Departments have clearly found that a nonarbitrable issue can be decided in an arbitration when it is inextricably intertwined with an arbitrable issue, particularly where, as here, the determination of the arbitrable unpaid fees claim may dispose of the nonarbitrable malpractice claim (see Cohen, 268 AD2d at 286; Lake Harbor Advisors, LLC, 175 AD3d at 480; Monotube Pile Corp., 269 AD2d at 531-532).

R. A. Klass
Your Court Street Lawyer

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#CourtStreetLawyer #LegalMalpractice #litigation #arbitration

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Take it Outside: Enforcing an Arbitration Clause and Keeping the Case Out of Court

Referee separating two business men, illustrating article by Richard Klass Esq. about an arbitration clause in a contract

The company is well known for hosting seminars where attendees can learn the ins-and-outs of real estate investing through “ house flipping. ” House flipping involves purchasing a house for a low price, fixing it up and then reselling the house for a profit. The company has all attendees register for its seminars by paying fees and signing its registration agreement.

One of the attendees was dissatisfied with the information she received at the company’s seminar. She decided to sue in New York State Supreme Court for the return of all of her registration fees. The attendee alleged that the minimal “products and services” listed in the materials were “inherently of negligible worth” and “grossly disproportionate” to the money she paid for the seminar.

Arbitration Clause:

Registration Contract Provides for Arbitration

The contract at issue contained terms and conditions which required the resolution of all disputes between the seminar company and its registrants through arbitration. Specifically, the terms and conditions stated “[Seminar Company] and Primary Student all agree to resolve those disputes through binding arbitration or small claims court instead of in courts of general jurisdiction.” Despite the plaintiff’s protestations to the contrary, the complaint alleged a cause of action for breach of contract. Her allegation that there was a failure of consideration because there was negligible value in the seminar services provided by the defendant was in essence an allegation of a contract breach.

The company hired Richard A. Klass, Your Court Street Lawyer, to defend the lawsuit. The company filed a motion to dismiss the action because of the clause in the contract (which the attendee signed in order to register for the seminar) requiring arbitration of any disputes.

Arbitration of Disputes Is Heavily Favored by the Courts

New York State courts heavily favor the resolution of disputes through arbitration where the contracting parties agreed to arbitrate their claims. In this case, the contracts contained terms and conditions requiring the arbitration of disputes between the parties, with a particular process set forth in it.

The Second Department held, in Markowits v. Friedman, 144 AD3d 993, 996-997 [2 Dept. 2016], that “The Supreme Court properly granted that branch of the defendants’ motion which was to stay all remaining proceedings in the action and compel arbitration. Arbitration is a favored method of dispute resolution in New York (see Board of Educ. of Bloomfield Cent. School Dist. v. Christa Constr., 80 N.Y.2d 1031, 593 N.Y.S.2d 178, 608 N.E.2d 755; Matter of Weinrott [Carp], 32 N.Y.2d 190, 199, 344 N.Y.S.2d 848, 298 N.E.2d 42). The threshold issue of whether there is a valid agreement to arbitrate is for the courts (see Matter of Primex Intl. Corp. v. Wal–Mart Stores, 89 N.Y.2d 594, 598, 657 N.Y.S.2d 385, 679 N.E.2d 624; Matter of County of Rockland [Primiano Constr. Co.], 51 N.Y.2d 1, 6–8, 431 N.Y.S.2d 478, 409 N.E.2d 951). Once it is determined that the parties have agreed to arbitrate the subject matter in dispute, the court’s role has ended and it may not address the merits of the particular claims (see Matter of Praetorian Realty Corp. [Presidential Towers Residence], 40 N.Y.2d 897, 389 N.Y.S.2d 351, 357 N.E.2d 1006; Matter of Prinze [Jonas], 38 N.Y.2d 570, 577, 381 N.Y.S.2d 824, 345 N.E.2d 295; Brown v. Bussey, 245 A.D.2d 255, 666 N.Y.S.2d 15).”

Dissatisfaction with the Seminar Doesn’t Equate to Fraud

The complaint did not allege in any way that fraud was involved in inducing the attendee to enter into the contract; rather, she was merely dissatisfied with the information she received from the company at seminars. Even if she was to have alleged fraud, her claims would still have been subject to arbitration under the contract.

In Anderson Street Realty Corp. v. New Rochelle Revitalization LLC, 78 AD3d 972 [2 Dept. 2010], the Second Department held: “On the question of whether the instant dispute should be submitted to arbitration, in Matter of Weinrott (Carp ), 32 N.Y.2d 190, 196, 199, 344 N.Y.S.2d 848, 298 N.E.2d 42, the Court of Appeals ruled that an arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud (id. at 198, 344 N.Y.S.2d 848, 298 N.E.2d 42). Thus, as a general rule, the issue of fraud in the inducement should be determined by the arbitrator, except where the arbitration clause specifically excludes fraud in the inducement from the issues to be determined by arbitration (see GAF Corp. v. Werner, 66 N.Y.2d 97, 105, 495 N.Y.S.2d 312, 485 N.E.2d 977, cert. denied 475 U.S. 1083, 106 S.Ct. 1463, 89 L.Ed.2d 720; Matter of Silverman [Benmor Coats ], 61 N.Y.2d 299, 308, 473 N.Y.S.2d 774, 461 N.E.2d 1261). The court further held in Anderson Street Realty Corp. v. New Rochelle Revitalization LLC, supra, that “The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was “part of a grand scheme that permeated the entire contract” (Matter of Weinrott [Carp ], 32 N.Y.2d at 197, 344 N.Y.S.2d 848, 298 N.E.2d 42; see Jamaica Hosp. Med. Ctr. v. Oxford Health Plans [NY ], Inc., 58 A.D.3d 686, 871 N.Y.S.2d 665; Riverside Capital Advisors, Inc. v. Winchester Global Trust Co. Ltd., 21 A.D.3d 887, 800 N.Y.S.2d 754). To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation (see Nastasi v. Nastasi, 26 A.D.3d 32, 805 N.Y.S.2d 585), or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme (see Utica Mut. Ins. Co. v. Gulf Ins. Co., 306 A.D.2d 877, 880, 762 N.Y.S.2d 730; Oberlander v. Fine Care, 108 A.D.2d 798, 485 N.Y.S.2d 313).”

The New York State Supreme Court justice held that the attendee’s lawsuit had to be dismissed because the arbitration clause of the contract was valid and enforceable. The attendee must now resort to filing a demand for arbitration pursuant to the contract.

Note: It is very common now for contracts between providers of consumer goods and services and consumers to include arbitration clauses. It is important to check for these clauses both before entering into the contract in the first instance and prior to commencement of litigation. While some consumer contract clauses may be stricken by a court as “against public policy,” many times arbitration clauses are upheld.

R. A. Klass
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