Empire Asset Management Company v. Best
- Paul Crotty
- 1:21-cv-04542
- U.S. District Court · Southern District of New York
- 9
In Empire Asset Management v. Best, Judge Crotty dismissed Empire’s case with prejudice, ruling that the arbitrator—not the court—must decide Empire’s statute-of-limitations defense.
Empire Asset Management Company and Joseph Best; the federal case was dismissed with prejudice, and Empire’s statute-of-limitations defense was left for the FINRA arbitrator rather than the court.
What happened
In Empire Asset Management Company v. Best, Joseph Best brought arbitration claims against Empire Asset Management Company, alleging fraud and fiduciary-duty violations involving his brokerage account. Empire asked a New York state court to stop the arbitration and dismiss Best’s claims as untimely; the state court temporarily stopped the arbitration, and Best later moved the case to federal court.
Best argued that the parties’ agreement required an arbitrator, rather than the court, to decide whether his claims were filed too late. Empire argued that the court should decide that defense because the agreement’s New York choice-of-law and temporary-relief provisions showed that the parties did not agree to arbitrate it. The court rejected Empire’s arguments, finding that the agreement broadly covered disputes arising from the parties’ relationship and required arbitration of the timeliness defense.
Judge Crotty granted Best’s motion to dismiss. Because neither party asked the federal court to stay the federal case while arbitration proceeded, Judge Crotty dismissed the case with prejudice and directed the Clerk of Court to close it.
The detailed version
- Empire Asset Management Company v. Best · No. 1:21-cv-04542
- Paul Crotty
- June 28, 2021
Background
In April 2021, Joseph Best began arbitration before the Financial Industry Regulatory Authority (FINRA), alleging that Empire Asset Management Company and its representatives engaged in excessive trading, churning, and fraudulent activity that caused him more than $2.8 million in losses. Empire responded by filing a state-court petition seeking a temporary restraining order stopping the arbitration and dismissal of Best’s claims as barred by the applicable statute of limitations.
The state court temporarily stayed the FINRA arbitration. Best removed the case to federal court based on diversity jurisdiction. The district court later determined that removal was proper and that the state-court temporary restraining order had expired after removal. Best then moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the parties’ arbitration agreement assigned the timeliness defense to the arbitrator.
Arbitrability of the Timeliness Defense
The parties’ customer agreement contained a broad arbitration clause covering “controversies arising under or relating to any activity or this agreement.” It also provided that FINRA’s rules would govern the arbitration and allowed either party to seek temporary or provisional relief in federal or state court. The agreement separately stated that New York law governed disputes arising under or related to the agreement and the interpretation and enforcement of the parties’ rights and duties.
The court held that the statute-of-limitations defense was a question for the arbitrator, not the court. It reasoned that the arbitration clause’s broad wording showed an intent to arbitrate all issues arising from the parties’ contractual relationship, including timeliness defenses. The reference to FINRA’s procedural rules also supported arbitration. Applying federal arbitration law, the court construed any ambiguity in favor of arbitration.
The court rejected Empire’s reliance on the New York choice-of-law provision. It concluded that federal arbitration precedent required the provision to be read narrowly and did not remove the timeliness defense from arbitration. The court also rejected Empire’s reliance on the provisional-remedy clause because Empire sought permanent dismissal of Best’s claims, not temporary or provisional relief.
Disposition
The court granted Best’s motion to dismiss. It explained that a federal court must stay judicial proceedings when all claims have been referred to arbitration and a stay is requested, but neither party requested a stay of the federal case. Empire requested only a stay of the underlying arbitration. The court therefore dismissed this case with prejudice and directed the Clerk of Court to terminate it.
Read the full 9-page opinion on CourtListener, the free public archive maintained by the Free Law Project.