Bruce A. Schoenberg, Esq. SCHRADER & SCHOENBERG, LLP New York, New York, Attorneys for Petitioner Ramy Lakah.
Ronald C. Minkoff, Esq., Jeremy S. Goldman, Esq., FRANKFURT KURNIT KLEIN & SELZ, P.C. New York, New York, Attorneys for Petitioner Michel Lakah.
Gilbert A. Samberg, Esq., David L. Barres, Esq., Kevin N. Ainsworth, Esq., MINTZ, LEVIN, COHN, FERRIS, GLOVSKY & POPEO, P.C. New York, New York, Attorneys for Respondents.
MIRIAM GOLDMAN CEDARBAUM, District Judge.
This action to stay arbitration was commenced in the Supreme Court of New York County on March 20, 2007. Movants UBS AG, Exporters Insurance Co., Ltd., Arab Banking Corp., National Bank of Abu Dhabi, and National Bank of Oman removed the case to this court on April 6, 2007. For almost five-and-a-half years, the movants have pursued discovery across the world in an effort to show that the guarantors on a bond issued by Lakah Funding Limited are alter egos of petitioners Ramy and Michel Lakah, and that the arbitration clauses, signed only on behalf of Lakah Funding Limited and those guarantors, bind Michel and Ramy Lakah as if they were signatories in their own behalf. Now, after years of extensive discovery, the movants seek to dismiss this action, filed in 2007, on the ground that it is barred by a statute of limitations. For the reasons that follow, that motion is denied.
On June 8, 2006, the movants commenced an arbitration against Lakah Funding Limited. Ramy and Michel Lakah were also named as parties to the arbitration although Michel did not sign the arbitration agreements and Ramy signed only on behalf of Lakah Funding Limited and guarantors, not in his personal capacity.
Michel received notice of the arbitration demand on June 12, 2006. Ramy was served on July 20, 2006 although he disputes that he received actual notice at that time. On March 20, 2007, the Lakahs petitioned the Supreme Court of the State of New York County to stay the arbitration against them on the ground that they were not parties to the arbitration agreements. The movants removed the case to this court under the Federal Arbitration Act, 9 U.S.C. § 205.
In their lengthy memorandum of law opposing the petition to stay arbitration (filed April 17, 2007), the movants included a short section stating that the petition was time-barred for failure to comply with § 7503(c). They did not, however, assert this affirmative defense in their answer to the petition. Since that time, movants have pursued extensive discovery in an effort to establish that Lakah Funding Limited is an alter ego of Ramy and Michel Lakah. The movants have engaged in extensive litigation and have spent large sums of money litigating on veil-piercing theories. Although neither party has informed this court of how many depositions have been taken, in a prior motion to compel arbitration, the movants attached excerpts from five separate days of depositions for Ramy Lakah and two for Michel, as well as excerpts from the depositions of nine other individuals. For almost five-and-a-half years, between April 18, 2007 and September 25, 2012, the movants did not inform this court or their opponents of their belief that the extensive rounds of discovery and related litigation the parties had been pursuing were completely unnecessary because the Lakahs were time-barred from seeking to stay arbitration on any ground. For the first time, on September 25, 2012, after discovery had ended, the movants asserted this defense in a motion to dismiss the Lakahs' petition.
N.Y. C.P.L.R. § 7503(c) provides that:
A party may serve upon another party a demand for arbitration or a notice of intention to arbitrate, ... stating that unless the party served applies to stay the arbitration within twenty days after such service he shall thereafter be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time.... An application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand, or he shall be so precluded....
It is undisputed that more than twenty days passed between the time the Lakahs were served with notice of the demand for arbitration and the time they moved to stay arbitration. For that reason, movants argue that the Lakahs are barred from moving to stay arbitration. The Lakahs argue that they are not barred by the statute, arguing primarily: (1) that N.Y. C.P.L.R. § 7503(c) does not apply because this proceeding is governed by the Federal Arbitration Act; (2) that the twenty day time limit does not apply to those, like the Lakahs, who are not parties to the arbitration agreements; and (3) that movants have waived any right to apply § 7503(c) to them by failing to assert this affirmative defense in their answer.
Courts in this circuit have disagreed on the close question of whether N.Y. C.P.L.R. § 7503(c) applies to actions governed by the Federal Arbitration Act. It is also a close question whether movants' motion fails under Matter of Matarasso (Continental Casualty Co.) , 56 N.Y.2d 264 (1982), in which the New ...