United States District Court, S.D. New York
May 24, 2004.
GRETA ROTHSTEIN and KONSTANTINOS KARETSOS, Plaintiffs, -against- KUOSEN FUNG; MICHAEL PAUL FIX; PETER BON VISO; DANIEL GLATTER; MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., and UNKNOWN AIDERS AND ABETTORS, Defendants
The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs Greta Rothstein and Konstantinos Karetsos, husband and
wife, bring this action against Merrill Lynch, Pierce, Fenner &
Smith, Inc., and four of its employees. Plaintiffs, who are proceeding
pro se, allege fraudulent handling of their joint investment
accounts and assert claims under Sections 10(b) and 20 of the Securities
and Exchange Act of 1934, 15 U.S.C. § 78j (b) & 78t, and the
rules promulgated thereunder. All defendants have moved pursuant to the
Federal Arbitration Act, 9 U.S.C. § 1-4, for an order compelling
arbitration of plaintiffs' claims and staying this proceeding in the
Defendants have presented two written agreements containing arbitration
clauses, which they argue are binding on plaintiffs. The issue is whether Greta Rothstein is a party to these
arbitration agreements. Konstantinos Karetsos concedes that he signed
these agreements. However, in opposition to the motion to compel,
plaintiffs have submitted affidavits which state that Rothstein did not
sign the agreements, but that Karetsos signed them on her behalf.
Plaintiffs claim that Karetsos' power of attorney was limited and did not
authorize him to sign these agreements for his wife. By order of October
17, 2003, plaintiffs were directed to submit a copy of the power of
attorney document on which they rely. However, plaintiffs were unable to
locate the document.
Under § 4 of the Federal Arbitration Act compliance with a written
arbitration agreement may be compelled. The section also provides that,
"[i]f the making of the arbitration agreement or the failure, neglect, or
refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereof." 9 U.S.C. § 4. As the moving party,
defendants bear the burden of proving written agreements obligating both
plaintiffs to arbitrate. They have made a prima facie showing by
submitting signed Merrill Lynch Client Relationship agreements.
Plaintiffs then have the burden of demonstrating a "substantial issue" of
fact as to whether these are binding agreements to arbitrate. Blatt
& Blatt v. Shearson Lehman/American Express Inc., No. 84 Civ.
7715, 1985 WL 2029, *2 (S.D.N.Y. July 16, 1985) (citing Almacenes Fernandez, S.A. v. Golodetz, 148 F.2d 625, 628
(2d Cir. 1945)); Scone Investments, L.P. v. American Third Market
Corp., 992 F. Supp. 378, 381 (S.D.N.Y. 1998).
Since plaintiffs unequivocally deny that Karetsos was authorized to
sign these agreements on behalf of Rothstein, plaintiffs have raised a
"substantial issue" as to whether the arbitration agreements are binding
as to Rothstein. Accordingly, the issue will be resolved by summary trial
before a jury pursuant to 9 U.S.C. § 4. All parties are directed to
appear and present their evidence on the question on Wednesday, June 30,
2004 at 10:00am in courtroom 14A, United States Courthouse, 500 Pearl
Street, New York, N.Y. 10007. The merits of defendants' motion to compel
arbitration will be resolved when it is determined whether both
plaintiffs are parties to agreements to arbitrate.
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