Why Was This Case Dismissed?

Menche v Meltzer, Lippe, Goldstein & Breitstone, LLP,

___ AD3d ___, 2015 NY Slip Op 04617 [2d Dept., 2015]

In this legal malpractice case, the letter of engagement contained a broad arbitration clause, broad enough to cover the legal malpractice claim itself, as well as a claim for breach of fiduciary duty. The letter of engagement being indisputably a document within the meaning of CPLR 3211 (a)(1), and the arbitration provision clear, Supreme Court granted the motion to dismiss and the Appellate Division affirmed.

All of which sounds reasonable and plausible, until we ask why dismissal was the appropriate remedy.

Arbitration and its relationship to actions in court are the subject of CPLR Article 75. CPLR 7503 deals, in part, with the situation presented here: A party to an arbitration agreement has attempted to bypass the agreement by commencing an action in court.

CPLR 7503 (a) provides in relevant part:

“A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made or complied with . . . the court shall direct the parties to arbitrate. . . . If an issue claimed to be arbitrable is involved in an action pending in a court having jurisdiction to hear a motion to compel arbitration, the application shall be made by motion in that action. If the application is granted, the order shall operate to stay a pending or subsequent action, or so much of it as is referable to arbitration.”

Note that there is nothing here providing for dismissal of the action. It is to be stayed, in favor of the arbitration.

CPLR 3211 (a)(1), the provision relied on by the court to justify the dismissal, actually provides no support. It allows dismissal where a defense is founded upon documentary evidence. The arbitration clause in the engagement letter does not establish a defense to the plaintiff’s claim, but only provides for a different forum. The Appellate Division cites to two of its prior cases as precedent, but neither of them resulted in a dismissal. In Nasso v Loeb & Loeb, LLP, there was a retainer agreement providing for arbitration, just as here. The client’s claims fell within the scope of the agreement, and the remedy was a stay of the action pending arbitration. A stay, not a dismissal. The other case cited, Stoll Am. Knitting Mach. v Creative Knitwear Corp., was a commercial action for replevin, but the parties’ arbitration agreement relegated the claims to arbitration. Again, the remedy was a stay, not a dismissal.

That an arbitration agreement provides no defense to an action on the arbitrable claim is not a new idea. It was established by the Court of Appeals in Allied Building Inspectors v Office of Labor Relations, 45 N.Y.2d 735 [1978]. In C & M 345 N. Main St., LLC v Nikko Constr. Corp., the Second Department specifically rejected the notion that the arbitration agreement could be raised as a documentary defense. In Matter of Princeton Info. v Marcus, 235 A.D.2d 234 [1^st Dept., 1997] the court explained that the rationale for a stay rather than dismissal is that the parties may need to return to the court for further proceedings. (see also, Birchwood Vill. LP v. Assessor of City of Kingston).

Unless there are facts not stated in the Second Department’s opinion here, it would seem that the dismissal is an anomaly, in line with neither the Court of Appeals nor the Second Department’s own precedents.

h/t: Andrew Lavoott Bluestone, NY Attorney Malpractice Blog