Court Opinion

ID: 9822917
Source: CourtListenerOpinion
Date Created: 2023-09-01 09:31:50.706622+00
Date Added: 2024-06-11T15:25:33.083537
License: Public Domain

Manzanet-Daniels and Gische, JJ.,
dissent in a memorandum by Gische, J., as follows: Because I believe that under the parties’ termination agreement, the gateway issue of arbitrability belongs to the arbitrators and not the court, I respectfully dissent and would affirm the motion court’s decision to compel arbitration at this juncture. I neither agree nor disagree with the majority’s conclusion that the later agreements at issue did not negate the effectiveness of the forum selection clause in the earlier Quennington agreement. I only conclude that, under established precedent in our Court, the determination of that issue belongs to the arbitrators (Zachariou v Manios, 68 AD3d 539 [1st Dept 2009]; Life Receivables Trust v Goshawk Syndicate 102 at Lloyd’s, 66 AD3d 495 [1st Dept 2009], affd 14 NY3d 850 [2010], cert denied 562 US 962 [2010]).
Plaintiffs commenced this action alleging breach of contract, breach of fiduciary duty, constructive fraud and negligent misrepresentation in connection with certain consulting agreements in which defendants Kirill Ace Stein and/or Aurdeley Enterprises Limited agreed to provide financial advice to companies owned or controlled by the Chodiev family. Patokh Chodiev is the beneficial owner of plaintiffs and patriarch of the Chodiev family. Stein is an associate of Aurdeley and apparently its sole employee.
Plaintiffs’ claims relate to three loans it made, beginning in June 2009 and totaling $16 million, on defendants’ advice and urging, in connection with a steel plant located in Kazakhstan. Plaintiffs allege that defendants advised them to make personal loans to an individual who is the principal of a company to which the plaintiffs owed money. According to plaintiffs, had they paid that money directly to the company, instead of structuring the transaction as a loan to the company’s owner, they would have partially satisfied their debt to the company. Ultimately, the individual defaulted on the loans, plaintiffs were unable to recover the money that they *595had lent to him because the loans were unsecured, and the company to whom they were indebted would not reduce plaintiffs’ debt to the company by the amount of the personal loans.
Various interrelated agreements are involved. The first agreement (Quennington agreement), effective January 1, 2009, is between Stein and Quennington Investments Limited, another company owned by Patokh Chodiev and affiliated with plaintiffs. The Quennington agreement, which was to have continued indefinitely unless terminated by one of the parties upon three months’ notice, contains a forum selection clause stating that “[t]he courts in the United States of America shall have exclusive jurisdiction to settle any claim, dispute, or matter of difference, which may arise out of or in connection with this Agreement (including without limitation, claims for set-off or counterclaim) or the legal relationship established by this Agreement.”
A second agreement for consulting services, effective January 1, 2009, between Patokh Chodiev, individually, and Aurdeley (agreement 2), also contains a forum selection clause, but it specifies that “[t]he courts of the [sic] England shall have exclusive jurisdiction to settle any claim, dispute, or matter of difference, which may arise out of or in connection with this Agreement (including without limitation, claims for set-off or counterclaim) or the legal relationship established by this Agreement.” The Quennington agreement and agreement 2 each provide for payment of compensation for consulting services, but in the Quennington agreement, payment is directly to Stein, whereas in agreement 2, payment is to Aurdeley.
On September 30, 2009, Mounissa Chodieva (Patokh’s daughter) and Aurdeley entered into another agreement (agreement 3) effective July 1, 2009. Agreement 3 specifies that it continues in effect until March 1, 2010 or until the “Other Agreement” made between Patokh Chodiev and Aurdeley “shall terminate.” Agreement 3 contains multiple references to the Quennington agreement and amends the terms of Stein’s and Aurdeley’s compensation under their respective agreements. Agreement 3’s forum selection clause provides that “[a]ny dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules, which Rules are deemed to be incorporated by reference.”
A fourth agreement, also dated September 30, 2009, between *596Patokh Chodiev and Aurdeley, refers to the Quennington agreement and agreements 2 and 3. The fourth agreement, which provides for a reduction in the total annual amount of compensation to be paid for Stein/Aurdeley’s financial services, includes the following merger clause: “[t]his Agreement contains the entire agreement and understanding of the parties and supersedes all prior arrangements, agreements or understandings (both oral and written) relating to the subject matter of this Agreement.” The fourth agreement also provides that the Quennington agreement “shall be terminated by mutual consent of the parties to it” and that “neither the Client nor the Consultant shall have any further liability to [the] other of whatsoever nature pursuant to or in respect of [the Quennington agreement].” With respect to the governing law and jurisdiction, the fourth agreement states that “[a]ny dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration [LCIA] Rules, which Rules are deemed to be incorporated by reference into this Clause.”
Yet another agreement, also dated September 30, 2009, but between Quennington and Stein, effective July 1, 2009 (termination agreement), purports to terminate the Quennington agreement, providing that “neither of them shall have any further liability to [the] other of whatsoever nature pursuant to or in respect of the [Quennington] Agreement and (for the avoidance of doubt) Quennington Investments Limited shall have no further liability to make any payments of whatsoever nature to . . . Stein pursuant to or in respect of the Agreement.” The termination agreement contains an arbitration clause identical to the fourth agreement.
Former article 23.1 of the LCIA rules, in effect at the time the termination agreement, agreement 3, and the fourth agreement were executed, provide that the “Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objection to the initial or continuing existence, validity or effectiveness of the Arbitration Agreement” (LCIA Arbitration and ADR Worldwide, LCIA Arbitration Rules [eff Jan. 1, 1998], http://www.lcia.org/Dispute_Resolution_Services/ LCIA_Arbitration_Rules.aspx#article 23 [accessed Mar. 10, 2016]).
The core dispute on this appeal concerns forum selection. Defendants contend that the arbitration clause in the termination agreement supersedes all other forum selection clauses in *597the earlier agreements. Plaintiffs argue that the forum for this dispute, which arises out of the Quennington agreement, is the courts of the United States. Before we reach the parties’ forum dispute, however, the gateway issue is who gets to decide the issue about the proper forum, or arbitrability.
Whether a dispute is arbitrable is generally an issue for the court to decide (Hawkeye Funding, Ltd. Partnership v Duke / Fluor Daniel, 307 AD2d 828, 828 [1st Dept 2003], lv denied 1 NY3d 538 [2003]). The general rule, however, does not apply where the parties have clearly and unmistakably provided that this jurisdictional issue is to be decided by an arbitrator (Matter of Monarch Consulting, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 26 NY3d 659 [2016]; Matter of Smith Barney Shearson v Sacharow, 91 NY2d 39, 45-46 [1997]). The recent Court of Appeals case in Monarch directly supports application of the exception to the general rule when a valid arbitration clause reserves to itself gateway issues of arbitrability. In Monarch, the Court of Appeals held that the issue of whether the parties’ underlying dispute, regarding the validity of workers’ compensation payment contracts and their arbitration clauses should be decided by the courts or in arbitration belonged, in the first instance, to the arbitrators (26 NY3d at 675). In so holding, the Court recognized that the parties had agreed that the arbitrators had exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability (id. at 674-675). Relatedly, this Court has previously held that where there is a broad arbitration clause and the parties’ agreement specifically incorporates by reference the American Arbitration Association rules providing that the arbitration panel shall have the power to rule on its own jurisdiction, the gateway issue of arbitrability belongs to the arbitrators (Zachariou v Manios, 68 AD3d 539, 539 [1st Dept 2009]; see Life Receivables Trust v Goshawk Syndicate 102 at Lloyd’s, 66 AD3d 495, 495-496 [1st Dept 2009], affd 14 NY3d 850 [2010], cert denied 562 US 962 [2010]). At bar, the arbitration clause in the termination agreement includes broad language referring to “any dispute arising out of” the termination agreement (State of New York v Philip Morris Inc., 30 AD3d 26, 31 [1st Dept 2006], affd 8 NY3d 574 [2007]). In addition, it incorporates the rules of the LCIA, which like the rules of the AAA, provide that the arbitrators shall rule on the issue of their own jurisdiction. This contractual language and the reference to LCIA rules is sufficiently broad to have the arbitrator decide in the first instance whether the parties’ dispute falls within its jurisdiction. This Court need not go any further at this time. Only if the arbitrator decides that LCIA has no jurisdiction over the *598merits of the parties’ dispute will this Court be in a position to make substantive rulings in this case.
My disagreement with the majority is only that it goes too far. In deciding that the provisions of the later agreements, which contain broad arbitration clauses, do not apply to disputes arising out of the Quennington agreement, it necessarily interprets the meaning of the provisions in those later agreements, which supersede, terminate and release liability under the Quennington agreement, as being prospective only. In doing so, it decides the issue of jurisdiction under the arbitration provisions, even though the arbitration clauses reserved to the arbitrator the right to determine the issue of arbitrability.
I would also affirm the motion court’s denial of discovery, but instead of dismissing the complaint, I would have stayed the litigation pending arbitration.