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Laws-info.com » Cases » New York » Civ Ct, NY County » 2005 » Cambridge v Allen
Cambridge v Allen
State: New York
Court: New York Northern District Court
Docket No: 2005 NY Slip Op 51781(U)
Case Date: 11/01/2005
Plaintiff: Cambridge
Defendant: Allen
Preview:[*1]


Decided on November 1, 2005
Civil Court, New York County

16084 CVN 2005
Diane A. Lebedeff, J.
Defendants move, as to second named defendant Studia, Ltd. ("Studia"), to stay the action and compel arbitration of the claims CPLR 7303 (a), and for associated relief. Notwithstanding that the parties' agreement contains an arbitration clause requiring arbitration by the American Arbitration Association ("AAA"), plaintiffs urge that the arbitration clause should be invalidated because of allegedly onerous arbitration fees plaintiffs would be required to pay.
As to underlying facts, plaintiffs retained Studia to provide architectural services and contractor bid analysis related to the renovation of their home and signed a Service & Fee Agreement ("Agreement"). The parties' relationship soured after the general contractor "ran off" with a contract deposit of approximately $30,000, and defendants subsequently discovered that as of the time the contractor was engaged the contractor had been convicted of a felony and was awaiting sentence. Almost one-half of that deposit was recovered. Plaintiffs, claiming that Studia approved the contractor for hiring, thereafter commenced this action, asserting causes of action for fraudulent inducement of contract, breach of contract and professional malpractice.
Plaintiffs present two primary arguments as grounds for resisting arbitration. First, they
urge that defendants have waived their right to request arbitration, arguing that defendants' affirmative participation in this litigation is a waiver (De Sapio v. Kohlmeyer, 35 NY2d 402, 405 [1974]; compare, Sullivan v. Kisley, 93 AD2d 783, 783 [1st Dept. 1983], affirmative participation present). Here, the actions taken by defendants are their demand that all claims be submitted to arbitration and the instant motion to compel arbitration and dismiss the claims against the individual defendant (Terminal Auxiliar Maritima, S.A. v. Winkler Credit Corp., 6 NY2d 294, 299 [1954], motion to dismiss generally not considered affirmative participation), particularly when accompanied by an application to compel arbitration (Jade Press, Inc. v. Packard, 91 Misc 2d 820, 822-823 [Civ. Ct. NY Co. 1977, Sklar, J.]). Defendants' minimal participation is not found to have waived a right to move to compel arbitration. [*2]
Second, plaintiffs object that the payment of filing fees, and possible arbitrator's fees, would pose a hardship raises a plethora of issues and observations. They assert that the arbitration fees and expenses will include a filing fee of six per cent of their claim (i.e., $1,050), plus compensation of an arbitrator at approximately $300 per hour.
The objection raised fails to take into account available remedies. Some administrative relief may be sought under the rules for the arbitration panel designated in their contract, i.e. the American Arbitration Association Construction Industry Arbitration Rules and Mediation Procedures (Including Procedures for Large, Complex Construction Disputes) (Amended and Effective July 1, 2003), Rule R-4, available at http://www.adr.org/sp.asp. Specifically, Rule R-50, governing filing and other administrative fees and service charges, makes the filing fee "subject to final apportionment by the arbitrator in the award" and provides "The AAA may, in the event of extreme hardship on the part of any party, defer or reduce the administrative fees." Further, a second bite at the fee issue arises at the time of court review of an arbitral award, in that courts can "reduce or disallow any fee or expense it finds excessive or allocate it as justice requires" during the course of a judicial review of an arbitration award upon proper application (CPLR 7513).
And, looking for a basis for the objection to the cost of arbitration, the plaintiffs must meet the burden of making a real demonstration of financial difficulty (Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 90-91 [2002], naked and unsupported argument litigant "will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement"). No detailed hardship showing has been made here. Such a showing is critical, for one possible remedy to financial difficulties can take place by cost-shifting, as is well-illustrated by the sole New York case addressing this issue of arbitration costs, Res v. Masterworks Development Corp., 5 Misc 3d 1003(A), 2004 WL 2309269, * 2, 2004 NY Slip Op. 51169(U) (Sup. Ct. NY Co. 2004, Schlessinger, J.), in which the claimant made an especially convincing showing of hardship and thereafter the defendants agreed to pay all arbitration costs above a financial threshold agreeable to the claimant.
Such a financial showing should include not only the financial standing of the party objecting to arbitration, but also some projection of comparative costs. It cannot be assumed that arbitration costs are higher than traditional litigation costs, which is a practical factor which cannot be resolved upon the basis of contrary quotations. It proves nothing one way or the other that the United States Supreme Court remarked in Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 90-91 (2002), that "the existence of large arbitration costs could preclude a litigant from effectively vindicating ... rights in the arbitrable forum", for many contrary quotations can be advanced, such as the recent statement of the New York Court of Appeals that arbitration can be an "integrated, relatively speedier and less costly alternative dispute resolution modalit[y]" (Smith Barney Shearson Inc. v. Sacharow, 91 NY2d 39, 50 [1997]).
There is also a need to define the statutory authority upon which plaintiffs urge that this court void the arbitration agreement on the ground of the excessive cost of arbitration. CPLR 7503, governing an application to stay arbitration, has three "threshold" considerations to be raised by a party seeking to avoid arbitration: (1) was a valid agreement made to arbitrate; (2) was the agreement complied with; (3) is the claim barred by the Statute of Limitations (In re County of Rockland [Primiano Construction Co.], 51 NY2d 1, 6 [1980]). Generally, New York [*3]courts decline to reach issues regarding the arbitration which are not embraced by the statute, terming them "beyond our reach" (Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 4 NY3d 247, 253 [2005]). It may be that plaintiffs would be better advised to request a stay of this action so that they may make application to the AAA for any available hardship relief (CPLR 2201; if a stay is not "prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just").
The need for a firm procedural basis is underscored by the fact that, as far as can be discerned, arguments about the burdensome amount of arbitration fees are raised almost exclusively in federal cases involving an employee asserting statutory rights against an employer in federal court. Federal courts, operating under a different set of statutory guidelines, do treat this hardship issue as a potential challenge to arbitrability of a dispute (Ball v. SFX Broadcasting, Inc., 165 F. Supp.2d 230, 238-239 [N.D.NY 2001], "it is sufficient for an employee seeking to avoid arbitration to show a likelihood that he or she will be responsible for significant arbitrator's fees, or other costs which would not be incurred in a judicial forum. Such a showing is sufficient to demonstrate that the challenged arbitration agreement does not provide an effective mechanism for the vindication of statutory rights"). It is observed that some employee claims which require arbitration are subject to a pre-existing industry understanding that costs imposed on an employee will be waived or minimized (Cole v. Burns Intern. Security Services, 105 F.3d 1465, 1483-84 [D.C. Cir. 1997], "under NYSE Rules and NASD Rules, it is standard practice in the securities industry for employers to pay all of the arbitrators' fees. Employees may be required to pay a filing fee, expenses, or an administrative fee, but these expenses are routinely waived in the event of financial hardship").
As a final observation, there is a difficulty in attempting to research this issue for the federal courts often utilize a "gateway" terminology. However, there are different understandings as to the meaning of the "gateway" term in federal and state courts (compare, Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, [2002], "[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a 'question of arbitrability' for a court to decide", with Hawkeye Funding, Ltd. Partnership v. Duke/Fluor Daniel, 307 AD2d 828, [1st Dept. 2003], issues for the court to determine are "to be contrasted with procedural 'threshold' or 'gateway' issues that are properly determined by the arbitrator").
Based on the foregoing, the court determines that the branch of the motion asserting that arbitration would impose excessive fees upon the plaintiffs is insufficiently supported and it is denied. The court, however, does not conclude that such application is barred by applicable state law, for as demonstrated by numerous federal court decisions claims of a pressing need for an affordable forum and that arbitration would impose a special, identifiable financial hardship can be documented in some instances. A determination of whether or not New York would recognize an assertion that high arbitration costs precludes access to justice must await the presentation of a proper case calling for such relief.
Under applicable law and the facts presented, the court finds the arbitration agreement enforceable. Any other substantive arguments of the plaintiffs involving consideration of the merits of this action against the corporate defendant cannot be reached (CPLR
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