| Anderson St. Realty Corp. v New Rochelle Revitalization,LLC |
| 2010 NY Slip Op 08685 [78 AD3d 972] |
| November 23, 2010 |
| Appellate Division, Second Department |
| Anderson Street Realty Corp., Respondent, v NewRochelle Revitalization, LLC, Appellant, et al., Defendants. |
—[*1] Finger & Finger, White Plains, N.Y. (Kenneth J. Finger of counsel), for respondent.
In an action, inter alia, to recover damages for breach of contract, the defendant NewRochelle Revitalization, LLC, appeals, as limited by its brief, from so much of an order of theSupreme Court, Westchester County (Rudolph, J.), entered June 9, 2009, as granted thosebranches of the plaintiff's motion which were for leave to serve and file a second amendedverified complaint adding as defendants the City of New Rochelle and Noam Bramson, as Mayorof the City of New Rochelle, and for leave to renew its opposition to the prior motion of thedefendant New Rochelle Revitalization, LLC, to compel arbitration, which had been determinedin an order of the same court entered December 15, 2008, and, upon renewal, in effect, vacatedthe prior order and thereupon denied its motion to compel arbitration.
Ordered that the order entered June 9, 2009, is modified, on the law, by deleting theprovision thereof, upon renewal, denying the defendant's motion to compel arbitration, andsubstituting therefor a provision adhering to the original determination, directing the plaintiff andthe defendant New Rochelle Revitalization, LLC, to proceed to arbitration, and stayingprosecution of the action pending a determination in the arbitration; as so modified, the order isaffirmed insofar as appealed from, without costs or disbursements.
On June 13, 2006, the plaintiff and the defendant, New Rochelle Revitalization, LLC(hereinafter NRR), entered into an "Exchange Agreement" which contained an arbitration clauseproviding for arbitration of "any disagreement, deadlock, interpretation or dispute [which] shallarise under any provision of this Agreement." Pursuant to that agreement, the plaintiff agreed tosell its property to NRR: the closing was to take place once NRR secured site plan approval fromthe City of New Rochelle. The contract gave the plaintiff the right to select one of three optionsin exchange for its property, which included either sharing space in a "Loft Building" to beconstructed on the site, or the payment of $5,000,000 by NRR to the plaintiff outright.
When the City failed to approve a site plan, allegedly because NRR changed the proposedsite plan numerous times, the plaintiff commenced this action against NRR, contending it wasacting in bad faith, and committed fraud in the inducement. NRR moved pursuant to thearbitration clause to compel arbitration, and its motion was granted in an order entered December15, 2008.[*2]
Meanwhile, according to the plaintiff, in December 2008,the Mayor of the City informed one of the plaintiff's principals that site plan approval would notbe granted unless NRR purchased and made part of the site plan certain property owned by theUnited States Postal Service (hereinafter USPS) and occupied by a post office. The plaintiffclaims that as a result of this disclosure, it moved, inter alia, for leave to serve and file a secondamended verified complaint adding the City and its Mayor, Noam Bramson, as defendants, andfor leave to renew its opposition to NRR's prior motion to compel arbitration, on the ground thatthe dispute now involved two parties who were not signatories to the agreement to arbitrate.
In the order appealed from, the Supreme Court granted those branches of the plaintiff'smotion which were for leave to serve and file a second amended verified complaint and for leaveto renew and, upon renewal, denied NRR's motion to compel arbitration.
Leave to amend pleadings shall be freely given in the absence of prejudice or surprise to theopposing parties (see CPLR 3025 [b]; Public Adm'r of Kings County v Hossain Constr. Corp., 27 AD3d714, 716 [2006]). No prejudice or surprise is asserted in the instant case. Nor can it be saidthat the amendment was palpably insufficient or patently devoid of merit (see Efstathiou v Cuzco, LLC, 51 AD3d712, 715 [2008]; Lucido vMancuso, 49 AD3d 220, 229 [2008]). Accordingly, the Supreme Court properly grantedthat branch of the plaintiff's motion which was for leave to serve and file a second amendedverified complaint, adding the City and its Mayor as defendants to the action.
In support of that branch of its motion which was for leave to renew, the plaintiff allegednew facts not offered on the prior motion, i.e., that the Mayor informed it that no site planapproval would issue until NRR purchased the property owned by the USPS and included it in itssite plan, and that the plaintiff was seeking leave to amend its complaint to add the Mayor andthe City as defendants (see CPLR 2221 [e] [2]).
On the question of whether the instant dispute should be submitted to arbitration, inMatter of Weinrott (Carp) (32 NY2d 190, 196, 199 [1973]), the Court of Appeals ruledthat an arbitration clause is generally separable from substantive provisions of a contract, so thatan agreement to arbitrate is valid even if the substantive provisions of the contract are induced byfraud (id. at 198). Thus, as a general rule, the issue of fraud in the inducement should bedetermined by the arbitrator, except where the arbitration clause specifically excludes fraud in theinducement from the issues to be determined by arbitration (see GAF Corp. v Werner, 66NY2d 97, 105 [1985], after remand 115 AD3d 1021 [1986], cert denied 475 US1083 [1986]; Matter of Silverman [Benmor Coats], 61 NY2d 299, 308 [1984]).
The issue of fraud in the inducement affects the validity of the arbitration clause only whenthe fraud relates to the arbitration provision itself, or was "part of a grand scheme that permeatedthe entire contract" (Matter of Weinrott [Carp], 32 NY2d at 197; see Jamaica Hosp. Med. Ctr., Inc. v OxfordHealth Plans [NY], Inc., 58 AD3d 686 [2009]; Riverside Capital Advisors, Inc. v Winchester Global Trust Co. Ltd., 21AD3d 887 [2005]). To demonstrate that fraud permeated the entire contract, it must beestablished that the agreement was not the result of an arm's length negotiation (see Nastasi v Nastasi, 26 AD3d 32[2005]), or the arbitration clause was inserted into the contract to accomplish a fraudulentscheme (see Utica Mut. Ins. Co. v Gulf Ins. Co., 306 AD2d 877, 880 [2003];Oberlander v Fine Care, 108 AD2d 798 [1985]).
Here, the arbitration clause was broad, since it applied if "any disagreement, deadlock,interpretation or dispute shall arise" under the exchange agreement—terms similar to theagreement in issue in Matter of Weinrott (Carp) (32 NY2d at 196). There was noevidence that the parties owed a fiduciary duty to one another, nor was there any evidence thatthe arbitration clause was inserted into the contract to accomplish a fraudulent scheme.
With respect to the second ground for forgoing arbitration—that the City and itsMayor are parties to the action but not signatories to the arbitration agreement—the Cityand its Mayor cannot be compelled to participate in the arbitration (see Mionis v Bank JuliusBaer & Co., 301 AD2d 104 [2002]). However, "where arbitrable and nonarbitrable claimsare inextricably interwoven, the proper course is to stay judicial proceedings pending completionof the arbitration, particularly where the determination of issues in arbitration may well disposeof nonarbitrable matters" (4-24 NY Practice Guide: Business and Commercial § 24.09 [4][Matthew Bender 2009]; see CountyGlass[*3]& Metal Installers, Inc. v Pavarini McGovern, LLC,65 AD3d 940 [2009]; Estate ofCastellone v JP Morgan Chase Bank, N.A., 60 AD3d 621, 624 [2009]; Matter of Colonial Coop. Ins. Co.[Muehlbauer], 46 AD3d 1012 [2007]; RAD Ventures Corp. v Gotthilf, 6 AD3d 415 [2004]; Cohen vArk Asset Holdings, 268 AD2d 285 [2000]; Dot's Blvd. Corp. v Rosenfeld, 285 AppDiv 425 [1955]).
NRR's remaining contentions are without merit.
Accordingly, the Supreme Court, upon granting renewal, should have adhered to the originaldetermination directing the plaintiff and NRR to proceed to arbitration, and thereupon stayedprosecution of the action pending a determination in the arbitration. Santucci, J.P., Angiolillo,Leventhal and Lott, JJ., concur.