On March 17, 2023, Justice Gomez of the Bronx County Commercial Division issued a decision in Worbes Corp. v. Sebrow, 2023 NY Slip Op. 50205(U), holding that a plaintiff waived its right to demand arbitration by litigating, explaining:
Plaintiffs submit the agreement, which to the extent relevant, in paragraph 9 states that “[a]ny controversy arising out of or relating to this Agreement shall be resolved by Arbitration before a panel of three (3) arbitrators who shall consist of an orthodox rabbi, a lawyer and a layman.”
While the foregoing, would, by itself provide a colorable basis to compel arbitration, the record – which plaintiffs conveniently fail to discuss, which defendants do discuss, and about which this Court is well aware – evinces that plaintiffs have so significantly availed themselves of the litigation process in this action, so as to constitute waiver of the right to arbitration.
To be sure, the record in this action evinces that on January 14, 2022, plaintiffs initiated this action by filing a complaint, which as noted above contained causes of action sounding in declaratory judgment, tortious interference with prospective business relations, abuse of process, malicious prosecution, and breach of fiduciary duty. Significantly, the lion’s share of the complaint premised the relief sought on the very agreement, which contains the arbitration clause on which this motion is premised. On January 14, 2022, plaintiffs also moved by Order to Show Cause (first motion), seeking a mandatory preliminary injunction allowing them to sell 815, arguing, inter alia, that the likelihood of success on the merits rested on the language in the agreement. On May 10, 2022, after this Court granted plaintiffs’ application for a preliminary injunction, plaintiff’s moved seeking an order canceling the lis pendens encumbering 815 (second motion). On June 27, 2022, plaintiffs moved seeking an order granting them summary judgment in this action (third motion). On August 5, 2022, plaintiff’s made an application (fourth motion) seeking to quash subpoenas served upon third-parties by defendants. On August 11, 2022, plaintiffs, having withdrawn the prior motion, made a motion (fifth motion) seeking to quash the foregoing subpoenas and to stay discovery in this action. On January 3, 2023, plaintiffs made the instant motion (sixth motion) seeking an order compelling arbitration.
As noted above, the issue here is not whether the agreement contains an arbitration clause requiring arbitration, but rather, whether on this record, plaintiffs have, by purposeful conduct, waived the right thereunder.
As noted above, the relevant inquiry with respect to waiver is whether there is evidence of the relinquishment of a known right and/or an intent to abandon the right to arbitrate. Specifically, the inquiry is whether the proponent of arbitration, by his actions, has elected to proceed and/or resolve the otherwise arbitral dispute between the parties in the judicial arena. In addressing waiver, the courts consider the amount of litigation that has occurred, the length of time between the start of the litigation and the arbitration request, and whether prejudice has been established. Additionally, the mere fact that a party who would otherwise be entitled to arbitration participates in a judicial action or avails itself of a remedy accorded to it by a court is not, in and of itself, a waiver. This is particularly true when a party’s participation in a judicial proceeding is due to an urgent need to preserve the status quo ,which requires some immediate action which cannot await the appointment of arbitrators. Significantly, under the foregoing under such circumstances, there is no waiver of the right to arbitration.
Here, upon this record, it is clear that plaintiffs have, in fact, waived the right to compel arbitration. Notably, this Court agrees, as urged by plaintiffs, that under the circumstances then existing – the existence of a tax lien, which in order to forestall a foreclosure thereunder – judicial intervention authorizing the sale of 815 was necessary. Accordingly, here waiver is not premised on plaintiffs’ initiation of the instant action, which was required to make the application for a preliminary injunction. Similarly, the second motion, seeking to lift the lis pendens filed by BS in the related action, was also, as urged, necessary in order to sell 815, which this Court authorized by its grant of a mandatory preliminary injunction.
Had plaintiffs sought arbitration at that point, it is likely that the instant motion would have been granted. However, instead of requesting and/or moving to compel arbitration at that time, plaintiffs decided to avail themselves of this Court’s ability to decide this action on papers and made a motion, their third, seeking summary judgment. Moreover, in conjunction therewith, and in an effort to prevent defendants from obtaining any discovery made a fourth motion to quash subpoena and a fifth for identical relief and to stay discovery pending a decision on their motion for summary judgment. Accordingly, plaintiffs’ actions, at a point when they could have sought arbitration are clearly inconsistent with their current claim that the parties were obligated to settle their differences by arbitration. Indeed, plaintiffs’ conduct here is not unlike the plaintiff in (Hart v Tri-State Consumer, Inc., 18 AD3d 610 [2d Dept 2005]), where the court declined to compel arbitration, noting that the plaintiff did not seek arbitration until after he had commenced the instant action and settlement negotiations were unsuccessful. Further, the plaintiff did more than seek protective relief to preserve the status quo pending arbitration. He commenced an action seeking a judicial determination of the controversy and only sought arbitration after efforts at settlement failed. He alleged the same wrongs in the arbitration and in the action, inter alia, that Penny Hart breached her fiduciary duty to TSC, and he sought the same relief.
Plaintiff’s assertion that the foregoing motion was brought on very narrow, procedural grounds, is a very feeble attempt to split hairs. With regard to the timing of the foregoing motion, the fact that rather than one for arbitration, plaintiffs have for months charted a course of litigation instead, is what matters, not why such course, even after there was no longer a need for it, was charted.
While plaintiffs’ scant papers are bereft of any indication of what issues they seek to arbitrate, this Court will assume that they are the very issues asserted in the complaint. To that end, since generally, when the claims sought to be arbitrated have been asserted, affirmatively or defensively in a plenary action, arbitration proceedings will be stayed, here, the identity of issues sought to be arbitrated warrant denial of the instant motion.
With regard to prejudice, if any, related to an order compelling arbitration, defendants aver that as of December 31, 2022, the litigation costs incurred by them with respect to this action total $136,416.60. Since it is well settled that with respect to waiver, prejudice is a factor in determining whether arbitration has been waived, and that procedural prejudice exists where the opponent of arbitration, has by litigation in the judicial forum, incurred unnecessary delay or expense, here, the existence of procedural prejudice militates against compelling arbitration.
Lastly, here, plaintiffs’ delay in seeking to compel arbitration militates against arbitration. Specifically, plaintiffs waited almost a year from the time they were granted the exigent relief that they could not get via arbitration to seek arbitration. As noted above, generally, the longer the delay in seeking arbitration, the more it militates towards a finding of waiver. Here, by May 26, 2022, plaintiffs had finalized the sale of 815 and arguably, the time was ripe to proceed to arbitration. However, instead of seeking arbitration, plaintiffs’ sought dispositive and tactical relief related thereto from this Court. It was not until the filing of the instant motion on January 3, 2023, approximately seven months after the sale of 815 was finalized, that plaintiffs first sought arbitration. This delay, when viewed against the procedural history is egregious and militates in favor of the conclusion urged by defendants, namely, that when it became apparent that the litigation in this action would be protracted, plaintiffs’ moved to abandon it and avail themselves of arbitration. This cavalier attitude, where plaintiffs, by seeking dispositive judicial relief, sought to have their cake, and when it became clear that things were not going to go their way, now seek to eat their cake as well, is exactly what the prevailing applicable law seeks to proscribe.(Internal quotations and citations omitted).