Anwar et al v. Fairfield Greenwich Limited et al

Filing 333

DECLARATION of Jonathan D. Cogan in Support re: #325 MOTION to Dismiss Second Consolidated Amended Complaint.. Document filed by Gleop Financial Services L.L.P.. (Attachments: #1 Exhibit A, #2 Exhibit B, #3 Exhibit C (Part 1 of 2), #4 Exhibit C (Part 2 of 2), #5 Exhibit D, #6 Exhibit E)(Cogan, Jonathan)

Anwar et al v. Fairfield Greenwich Limited et al

Doc. 333 Att. 5

SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY

Justice

INDEX N O .
MOTION DATE

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-vMOTION SEQ. N O , MOTION CAL. NO.

60I

The followlng papers, numbered 1 to

were read on this motion tolfor
PAPCRS NUMBERED

Notice of Motion/ Order to Show Cause

- Affldavlts - Exhibits

...

Answering Affidavits
Replying Affldavlts

-

Exhibits

Cross-Motion :

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Yes

Upon the foregoing papers, it Is ordered that this motion

n

J. S. C.

Check one:

FINAL DISPOSITION

NON-FINAL DISPOSITION

Check if appropriate:

DO NOT POST
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SUPREME COURT OF T H E STATE OF NEW YORK COIJNTY OF NEW YORK: IAS PART 56 ................................................................... x DAVID I. FERBER SEP IRA, Petitioner,

Index No. 60 125 1/09

FOR AN ORDER PURSUANT TO ARTICLE 75 OF T H E CPLR TO STAY ARBITRATION
-against-

FC
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GLOBEOP FINANCIAL SERVICES LLC, Respondent.
----_1____1_-__1_11__-----___I-------------------------"-~--------------

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Hon. Richard E. Lowe, 111.:

Motion scqucnce numbers 00 1 and 002 are hereby coiisolidatcd for disposition. These motions arise out of a derivative action, entitled David l. Ferher SEP IRA v

Fairfield Greenwich Group, et ul., which was commenced in this court (Index No. 600469/09),
seeking compensation for losses suffcrcd in the wake of the massive Ponzi scheme orchestrated by Bcrnard L. Madoff.'

Ry pctition, datcd April 24,2009, petitioncr David I Ferber SEP J.RA seeks an order and
judgment staying the arbitration demanded by respondent GlobcOp Financial Services LLC (GlobeOp), and declaring said notice null and void (motion 00 1). GlobeOp opposcs the petition

and moves for an ordcr compelling arbitration (motion 002).
BACKGROUND
In December 2008, non party Bernard L. Madoff admittcd to government authorities that

he had been running a multi-billion dollar Ponzi scheme through his firm, Bernard L. Madoff

The undcrlying actjoii was removed to the United States District Court for the Southern District of New York by one ofthe defendants; petitioner has filed a motion sceking remand of the action under 28 USC 5 1447 (c).

'

Investmcnt Sccuritics, LLC (BMIS). Pctitioncr conimenced the underlying derivative action on behalf of nominal defendant Greenwich Sentry, L.P., a Delawarc limited partnership (the Fund) against various defendants, including GlobeOp. GlobeOp, pursuant to an agreeiiient with thc Fund, entitled "Adiniiiistrativc Services Agrcenient," datcd May 1, 2006 (the Agrccrnent), was the administrator of the Fund. According to pctitioncr, GlobeOp invested all or almost all of the Fund's assets with Madoff and

BMIS, and all or nearly all of thosc assets are believed to havc been lost. Petitioner asserts
various claims in contract and tort against GlobeOp, as administrator of the Fund, in connection with thc investiiient of the Fund's assets with Madoff and BMIS, including allegations that GlobeOp breached fiduciary duties owcd to the Fund. In April 2009, GlobeOp served a Noticc of Intention to Arbitratc, pursuant to CPLR 7503, upon petitioner. It is GlobeOp's position that petitioncr's claims are subject to arbitration pursuant to an arbitration provision contained in article 23 of the Agrccmcnt. That provision provides for arbitration of any dispute that "arises out of or relates to this Agreerncnt, or the breach thereof." Thai same provision provides that the arbitration proceedings and rcsolution shall be hcld confidcntial. Article 22 provides that the Agreement shall bc governed by and construed in accordancc with the laws of the Statc of New York. Article 27 provides [or severability ofthe Agreement in the event that any provision of the Agreement is or becomes invalid, illegal or unenforceable. GlobeOp maintains that petitioner is bound by the arbitration provision in thc Agreement bccausc all of petitioner's claims against GlobeOp are derivative in nature.

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DISCUSSION Pctitioncr contcnds that GlobeOp's motion to coinpcl arbitration should bc denied because: (1) petitioner did not sign the Agreeincnt and thereforc cannot be bound by the arbitration provisioii contained therein; (2) GlobeOp has not dcrnonstrated that thc arbitration provision in the Agreement applies to the claims asscrted in the undcrlying action; and (3) arbitration of petitioncr's claims would violate public pol icy. Petitioner's contention that it should not bc bound to arbitrate its claims against GlobeOp because it is not a signatory to the Agreement is without merit. Although petitioncr did not personally sign the Agreement, its claims are derivative in nature. As a derivative plaintiff who purports to assert claims against GlobeOp on bchalf of the Fund, petitioner is considered a represeiitativc of the Fund, bound by the arbitration provision betwccn the Fund and GlobeOp. Petitioner stands in the shoes of the entity on behalf of which it is suing, i.e., the Fund, and, heiice is subjcct to, arid bound by, the arbitration provision that bound thc Fund (see In re
Sulornon Inc. Shareholders' Derivative Litigation, 1994 WL 533595, 1994 US Dist LEXIS

13874 [SD N Y 19941; see also Frederick v First Union Securities, Inc., 100 Cal App 4"'694,

701-702 [Cal Ct App 20021). As such, since thc Fund was a signatory to the Agrcernent,
petitioner is bound by the arbitration clause contained therein. Here, the arbitration provision is broad. By its ternis, the arbitration clause applies to any dispute that "arises out of or relates to" the Agrecments or the brcach thereof. The thrust of the allegations that petitioncr makes against GlobeOp is that it failed to perform its duties as administrator to the Fund in a rcasonable manncr. The allegations clcarly arise out of aiid relate to thc Agreement, and thereforc arc within the realm of the arbitration provision. This is so

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regardless of whether the clainis arc pled as a breach of contract or as a tort (see Szahados v

Pepsi-Cola Bottling

(`0.

?/New York, Inc., 174 AD2d 342, 343 [ l q tDept 19911; see also Poly-

Puk Industries, hit. 17 Collegiate Stores Corp., 269 AD2d 130 (1 `` Dept 2000l).
Pctitioncr maintains that - evcn assuming that thc arbitration provisioii in the Agreement is broad enough to cncompass its claiiiis, and that the arbitration provision is enforceable notwithstanding the fact that petitioncr was not a signatory to the Agreement - compelling it to arbitrate its claims would violate public policy. First, pctitioncr maintains that, sincc the Fund is organized in Delawarc, the law of that state applies. Petitioner further argues that, under controlling law of Delaware, one cannot bc compelled to arbitrate claims for breach of fiduciary duty absent a clear expression that the underlying agreement mandates arbitration of such claims (ParJ; Holding AB v Mirror Image

Internet, Inc., 817 A2d 149 [Del Supr 20021). Petitioner asscrts that, since thc arbitration
provision does not clearly express that a breach of fiduciary duty claim is within its realm, it cannot be compellcd to arbitrate the breach of fiduciary duty claims. While Delaware law might be applicable to a casc involving corporatc governance (see

Hart v General Motors Corp., 129 AD2d I79 [ 1" Dept 1987]), this is not such a case. As such,
New York choice of law applies here. Applying thc "interest analysis" test (see Schultz v Boy

Scouts qfdmerica, 1 ~ 65 NY2d 189, 196-197 [ 1985]), the court concludes that Ncw York state ,.
law applies here since, aiiiong other things: (a) both the Fund and GlobeOp have principal places

of busincss in New York; (b) most of the administrativc services that GlobeOp rendered were
provided in New York; and (c) Madoff s sclicme was perpetrated in New York. In New York, courts look to the plain language of the arbitration clause at ISSUC to

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dctcmiinc whcthcr a dispute is arbitrable. Where, as here, the language of thc arbitration clause is broad, the arbitration will be found to bc required for all disputes logically connectcd with the agrccmcnt containing thc arbitration clause (see e.g., Nationwide Gen. Ins. Co. v Investors Ins.
Co. qf'Arnerica, 37 NY2d 91, 96 [1975]; Blum Folding Paper Box Co. v Friedlander, 27 NY2d

35, 38 [1970]). As such, the court rejects petitioncr's claim that the brcach of fiduciary duty

claims asserted in the underlying action are not encompasscd within the realni of thc arbitration provision in the Agreenientn2 Second, petitioner argues that, since the arbitration provision featurcs a confidentiality provision, requiring that "any and all resolution or arbitration proccdure(s), and any findings or results shall be held strictly confidential,'' the mandated secrecy fundamentally conflicts with statutory law and public policy governing the resolution of derivative litigation. According to petitioner, application of this confidentiality provision would run counter to the public policy in favor of full disclosure of derivativc litigation. What petitioner, however, overlooks is the fact that the Agreement contains a severability clause that provides that "[ilf any provision of this Agreeiiient is or becoines invalid, illegal or unenforceable in any rcspcct, the validity, legality and enforceability of the remaining provisions contaiiicd herein shall not be affected thereby." Under New York law, a decision to scver unenlorceable provisions from an agreernent h a t would othenvisc prevent arbitration, as a matter of public policy, "is consistent with the United States Suprcnie Court's position favoring arbitration" (see Brady v Williams Cupital Group,

Even if Delaware law were applicablc, based on the facts of this case, it is unlikcly that petitioner's reliance upon Pa$ Holding AB is appropriate here or would support the conclusion it urges (see King v Musscy Knakal Realty Holdings LLC, 24 Misc 3d 1242[A], 2009 NY Slip Op 5 185[U] [Supreme Ct, Kings County 2009, Dernarcst, J]). 5

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L.P., 64 AD3d 127 [ l " Dcpt 20091). Thus, cven if petitioner adequately establishcd that it would

violate public policy for a court to honor the coiifidcntiality provision, such a finding would not render the entire arbitration provision void. However, regardlcss of the severability claim, the court rejects petitioner's generalized argurncnt claim that thc confidentiality provision in thc arbitration provision violates public policy (set Guyden v A d n u , /K., 544 F3d 376, 385 [2d Cir 20081 [Court rcjccted claim that coiifidentiality of arbitration in context of "whistleblowcr" claim under the Sarbanes-Oxley Act violated public policy favoring open disclosurc]). As thc Sccond Circuit explained in Guyden: "We agree, however, with the FiRh Circuit's obscrvation that confidentiality clauses are so coinmoii in the arbitration context that Guyden's "attack on the confidentiality provision is, in part, an attack on the character of arbitration itself. Iberia Credit Bureau, Inc. v Cingular W r l s LLC, 379 F 3d 159, 175 (5th Cir iees 2004). The Supreme Court has warned against `[sluch gcneralized attacks on arbitration,' because they `rcst on suspicion of arbitration as a method of weakening the protcctions affordcd in the substantive law to would-be complainants' and consequently are `far out of step with our current strong eiidorscmcnt of the federal statutes favoring this method of rcsolving disputes. ' Gilrner v Interstate/Johnson Lune Corp., 500 US 20, 30 (1991) (internal quotation marks and alterations omitted). Becausc confidentiality is a paradigmatic aspect of arbitration, our determination that SOX whistlcblower clainis are arbitrable prccludes Guyden's challenge to the privacy of thc resulting arbitration." The same rationale holds true here. The court thus rejects petitioner's argument that the coiifidentiality provision violates public policy CONCLUSION

I t is ORDERED that the application by petitioner David I. Ferber SEP IRA to stay the
subject arbitration is denied in all respects, and the petition is dismissed, with costs and disbursements to respondent; and it is further ORDEliED that the motion by respondent GlobeOp Fiiiancial Services LLC to compel

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arbitration is grantcd; and it i s further

ORDERED that parties arc directed to procced to arbitration and to serve a copy of this
decision and order upon the arbitral tribunal.

Dated: Noveiiiber 5 , 2009

L
ENTER:

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