Court Opinion

ID: 5847784
Source: CourtListenerOpinion
Date Created: 2022-01-12 23:51:12.646721+00
Date Added: 2024-06-11T08:43:58.985747
License: Public Domain

Sandler, J. (dissenting)
Although tightly reasoned and logically impeccable, the majority opinion does not seem to me to come to grips with the important, difficult problem inherent in this litigation. In fairness, it must be acknowledged that the record on appeal does not include facts important to an understanding of the issue, although these are generally known and not in dispute, and that the arguments presented by appellants are in part misdirected. Some background may be helpful.
The individual plaintiffs would not have been permitted to open an account with the defendant if they did not subscribe to an agreement embodying an arbitration clause. Nor would any of the defendants’ other customers, the proposed class, have been permitted to open accounts without subscribing to such an agreement. As a practical matter no one, whether the plaintiffs, the rest of the class, or anyone else, may open accounts with securities and commodities brokers if they do not agree to surrender their right to litigate in court disputes arising out of such an arrangement. In short, a major area of economic activity is closed to anyone not willing to agree to arbitrate.
I doubt very much that the strong public policy in favor of arbitration referred to in the majority opinion, to which I wholeheartedly subscribe, was shaped with regard to arbitration agreements entered into under such circumstances.
Notwithstanding the above, the law is firmly established that such agreements are enforceable, and I do not disagree with that body of authority. The character of the securities market makes it appropriate for the usual dispute to be resolved by arbitration rather than in the courts.
The facts here present a disturbing complication. As the majority opinion acknowledges, absent the arbitration agreement, “plaintiffs might have a strong case for class action certification, since the institution of an individual lawsuit for the paltry sum at issue would be self-defeating.”
The point may be appropriately phrased much more strongly. Whatever ultimate conclusion may be reached with regard to the merits of the issues sought to be raised, it seems quite evident that a class action is clearly the most *97appropriate means for adjudicating them and remedying whatever wrongs may be established. As already noted, the sum in question is likely to discourage most if not all of the allegedly aggrieved persons from incurring the expense of prosecuting even an arbitration proceeding. The nature of arbitration proceedings makes it unlikely that a successful determination in favor of one person would result in restitution to the others. Indeed there is no assurance that a successful determination in favor of a single complainant would alter the practices here challenged.
In short, not only does a class action appear to be the most suitable means for addressing the issues presented, but there are compelling reasons to believe that individual arbitration proceedings would be wholly ineffective to redress whatever wrongs may be found to have occurred.
As the majority opinion notes, arbitration agreements have not been enforced with regard to various kinds of issues which have been felt to be more appropriately resolved in court. Considerations of public policy in favor of denying enforcement to the arbitration agreement here seems to me no less compelling than in the situations described in the majority opinion.
In the context of an industry-wide practice that excludes effective participation to anyone who does not agree to arbitrate, there is surely a strong public policy for denying enforcement to the arbitration agreement with regard to disputes clearly more appropriately resolved in a class action and as to which individual arbitrations are unlikely to prove an effective remedy even if the wrongs alleged are established.
No doubt there is a risk that the principle here urged may be abused. It is difficult to estimate how serious the risk is, although I doubt that it is substantial. The common run of arbitration litigation involves commercial disputes between business entities of a kind clearly unsuited to class action and adequately addressed in arbitration.
Accordingly, I am in agreement with Justice Bloom to the extent to which he would reverse and deny the motion to compel arbitration, subject to renewal of the application in the event that class action status is denied. I would *98modify that recommendation, however, to remand the instant motion to be determined at Special Term, together with an application for class action status. The issues presented are closely linked. Assuming that it is determined that the instant action is an appropriate one for class action, the critical question with regard to the motion to stay arbitration should be whether or not an arbitration proceeding would provide an effective means for remedying whatever wrongs may be determined to have occurred.
Bloom, J. (dissenting)
This appeal poses the novel and difficult task of balancing countervailing legal policies. Defendant (Shearson) is a brokerage firm. Plaintiffs are its customers. When plaintiffs entered into that relationship with Shearson they executed an agreement which, among other things provided: “Any controversy arising out of or relating to my accounts, to transactions with you for me or to this agreement or the breach thereof, shall" be settled by arbitration in accordance with the rules, then in effect, of the National Association of Security Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within 5 days after demand by you that I make such election, then you may make such election. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof”’.
Thereafter plaintiffs brought this class action under CPLR article 9, alleging that when Shearson held moneys belonging to members of the class it refused, even upon request, “to invest the said funds so as to allow interest to accrue on the same for the benefit of the members of the class. By so doing, Shearson had use of funds but belonging to members of the class for one or more days”. Additionally, the complaint alleges that when Shearson, “as broker for the members of the aforesaid class, held funds which were to be remitted to class members, said funds were intentionally remitted to class members by check drawn on Shearson accounts in banks located' outside of the State of New York and not on its accounts in banks located in the State of New York, and by so doing, Shearson had use *99of funds belonging to members of the class for one or more days longer than it would have, had it issued checks drawn on its accounts in banks located in the State of New York”. In sum, plaintiffs’ complaint, which contains three causes of action, the first two of which are bottomed upon breach of a fiduciary relationship and the third of which seeks injunctive relief, is based upon the thesis that Shearson’s actions are illegal and improper and seek to obtain for Shearson the benefit of the “float”. In so doing it deprived the members of the class of the potential earnings to be derived from use of the funds for the “float” periods.
Based upon the arbitration provision of the contract between the parties Shearson moved, before answer, to compel arbitration and to stay the action pending such arbitration. Special Term, relying on a California case (Vernon v Drexel Burnham & Co., 52 Cal App 3d 706), granted the motion (102 Misc 2d 635). It made (p 636) “no determination as to the maintenance of the class action itself”.
We are thus brought face to face with a conflict between two policies, both of which are favored by the law. It is indisputable that the courts of our State encourage and favor arbitration as a means of conserving time and to husband scarce judicial resources (Matter of Maye [Bluestein], 40 NY2d 113, 117-118; Matter of Nationwide Gen. Ins. Co. v Investors Co. of Amer., 37 NY2d 91, 95). It is equally true that the law looks with favor upon class actions (see Twenty-first Ann Report of NY Judicial Conference, 1976, p 248 et seq.). Indeed, of such consequence was the class action thought to be that, after thoroughgoing study, the law governing it was completely revised. Like arbitration it conserves judicial resources by obviating the possibility of repetitious litigation. It also serves the purpose of providing claimants with a method of obtaining redress for claims which otherwise would be too small to warrant individual litigation (2 Weinstein-Korn-Miller, NY Civ Prac, par 901.01; see, also, Eisen v Carlisle & Jacquelin, 417 US 156; Gilman v Merrill Lynch, Pierce, Fenner & Smith, 93 Misc 2d 941).
When such conflict of policies occurs the law cannot abdicate. A choice must be made or, if feasible, a new policy *100declared which will harmonize the conflict. Chief Judge Cardozo, with his customary felicity, pointed the way, and by illustration, demonstrated that, when choice is to be made, the alleged wrongdoer is not to be favored. “The directive force of logic does not always exert itself, however, along a single and unobstructed path. One principle or precedent, pushed to the limit of its logic, may point to one conclusion; another principle or precedent, followed with like logic, may point with equal certainty to another. In this conflict, we must choose between the two paths, selecting one or other, or perhaps striking out upon a third, which will be the resultant of the two forces in combination, or will represent the mean between extremes. Let me take as an illustration of such conflict the famous case of Riggs v. Palmer, 115 N.Y. 506. That case decided that a legatee who had murdered his testator would not be permitted by a court of equity to enjoy the benefits of the will. Conflicting principles were there in competition for the mastery. One of them prevailed, and vanquished all the others. There was the principle of the binding force of a will disposing of the estate of a testator in conformity with law. That principle, pushed to the limit of its logic, seemed to uphold the title of the murderer. There was the principle that civil courts may not add to the pains and penalties of crimes. That, pushed to the limit of its logic, seemed again to uphold his title. But over against these was another principle, of greater generality, its roots deeply fastened in universal sentiments of justice, the principle that no man should profit from his own * * * wrong. The logic of this principle prevailed over the logic of the others” (Cardozo, The Nature of the Judicial Process, pp 40-41; see, also, as illustrative of the principle, Servido v Superintendent of Ins., 77 AD2d 70).
So, too, in this case the logic of the class action ought prevail over the logic of arbitration. While the loss to the class by reason of Shearson’s actions may aggregate millions of dollars, the loss to each member of the class may well be so miniscule as to make it scarcely practical to resort to arbitration with the expense incident thereto. Indeed, were it not for the class action the practicality of litigation would be substantially nonexistent.
*101It is scarcely an answer to assert that plaintiffs could have sought an agreement which did not contain an arbitration clause. It is a matter of common knowledge that substantially all agreements entered into by brokerage houses contain such clauses. In substance, the alternatives open to plaintiffs were to sign the agreement or to abstain from market trading.
Nor is it an answer to assert that the dispute between plaintiffs and Shearson may be proceeded with as a “class arbitration”. Arbitration does not lend itself to the many subsidiary proceedings incident to an ongoing class action, e.g., determination of whether class action status should be granted, definition of the class, determination of the nature and kind of notice and by whom it should be sent, provision for opting out, etc. In sum, if the matter is to proceed in arbitration it must proceed as an individual claim. Thus the reality is that the effect of decreeing that plaintiffs’ claims proceed by arbitration is to immunize the practice followed by Shearson from scrutiny by anyone. It is to recognize the existence of a right while denying any practical remedy. That is a result to which I cannot subscribe. By consequence, I would reverse the order compelling arbitration.
It is necessary to reiterate that the motion was made before answer. Hence, there has been no determination of whether the action is entitled to class action status. At this point in time, therefore, we cannot know whether a motion for class action status will be granted or denied.
Accordingly, I would reverse and deny the motion to compel arbitration and to stay the action without prejudice, however, to the reservation of the claim of the right to arbitration by way of answer and the right to renew the application to compel arbitration and stay the action in the event that class action status is denied.
Ross and Fein, JJ., concur with Sullivan, J.; Sandler and Bloom, JJ., dissent in separate opinions.
Order, Supreme Court, New York County, entered on February 8, 1980, affirmed, without costs and without disbursements.