Court of Appeals September Session: Arguments of Interest for September 12, 2017

The Court of Appeals returns for the second week of argument in the September session on Tuesday, September 12, 2017.  There are three cases on the docket today (the Court’s case summaries can be found here), which involve the following issues: (1) whether agreements between an investment company and its financial advisors contained an enforceable arbitration provision requiring claims between the parties to be arbitrated in London that overrode a forum selection clause that designated US law and the courts of the US as the exclusive forum for disputes arising under the agreements; (2) whether a criminal defendant in a rape, sex trafficking, and prostitution trial was denied effective assistance of counsel where the defense attorney did not remind the trial judge that a potential juror had expressed reservations about her impartiality because she had been previously raped or challenge the juror’s service; and (3) whether a criminal defendant was deprived a fair trial on tax evasion charges where she claims the prosecutor repeatedly misstated the testimony of a tax attorney during summations.

No. 99      Garthon Business Inc. v Stein

Garthon Business Inc., a business owned by Kazakh billionaire Patokh Chodiev, retained Kirill Ace Stein and his company, Aurdeley Enterprises Limited, for financial advice.  After three unsecured loans totaling $16 million were never repaid, Garthon sued Stein in New York for breach of contract, fraud, and negligence.  Seems like a straightforward case.

But here’s the thing, the retainer agreements between the parties—there were three, two entered in 2000 and one in 2009—had conflicting provisions governing where disputes between the parties were supposed to be brought.  The first agreement in 2000, between Chodiev’s Quennington Investments Limited and Stein, contained a forum selection clause that said it would be governed by U.S. law and “the Courts of the United States of America shall have exclusive jurisdiction to settle any claim, dispute, or matter of difference, which may arise out of or in connection with this Agreement . . . or the legal relationship established by this Agreement.”  The second, also in 2000 between Chodiev and Aurdeley, was substantially similar, but was governed by English law and provided for a forum in the English Courts.  The 2009 agreement, again between Chodiev and Aurdeley, terminated the first Aurdeley agreement from 2000 and provided that it superseded all prior agreements between the parties.  The 2009 agreement also changed the forum for resolution of disputes, providing this time that all disputes would be resolved in binding arbitration in London.  Quennington and Stein also entered a new agreement that contained the arbitration provision.

So, in response to Garthon’s breach of contract and fraud suit, Stein and Aurdeley moved to compel arbitration in London under the arbitration provisions of the 2009 agreements.  Supreme Court granted the motion to compel.

the Appellate Division, First Department, on a three-two vote, reversed and held that the claims must be litigated in court.  The First Department reasoned that the 2009 arbitration clauses were not a clear manifestation of intent to abandon the 2000 forum selection clause in the Quennington agreement, because at best they showed only the intention to arbitrate disputes that arose after July 1, 2009.  And Garthon’s claims involved allegations from the Spring of 2009 before the 2009 agreements went into effect.  The dissenters countered that the 2009 arbitration clauses reserved to the arbitrators’ the right to determine whether the disputes were arbitrable, and so they believed that arbitration was properly compelled.

Now the Court of Appeals will try to untangle the messy web of which agreements applied and where the disputes should be heard.  The Appellate Division, First Department’s order can be found here.