Arbitration Clauses – Are They Enforceable?

February 10, 2023by Jeffrey Davis

I’ve been actively following the Frank Tufano Saga in Frank Tufano v. Adam Starowicz, Index No. 50710/2022, as Frank Tufano was a former client who I fired because he wouldn’t accept my legal advice and wouldn’t pay his legal fees. Pretty simple and logical. My interest however is not in highlighting Frank Tufano’s shortcomings or engaging in any general bashing of Frank Tufano. He does a great job of highlighting his faults all on his own and there are plenty of other YouTubers out there that  enjoy taking the time to pick apart Frank Tufano at every turn. That’s not the intention here.

My goal here is to use this case as a learning opportunity for other small businesses and business owners who are facing issues pertaining to LLCs, arbitration, breach of fiduciary duties, and so on.

Quick Background: Adam Starowicz commenced an arbitration against Frank Tufano based on numerous allegations of fraud, breach of fiduciary duty, and so on arising out of their joint ownership in Frankie’s Free Range Meats LLC. Pretty run-of-the-mill stuff in a partnership dispute or business divorce case.  Frank also asserted counterclaims pertaining to fraud, breach of contract, and breach of fiduciary duty. Thereafter, Frank did not want to submit to arbitration after he realized that the arbitration fees would cost him $30,000 not including attorney’s fees. He then conjured up this argument that was ultimately completely meritless and baseless. He argued that the LLC operating agreement was entered based on Adam’s alleged fraudulent representations and the LLC operating agreement should be deemed null and void including the ironclad arbitration provision in the LLC Operating Agreement.

Recently, Adam’s attorneys filed a motion to dismiss which it doesn’t seem Frank has opposed (which ultimately will be his demise). In that motion they argue that the lawsuit pending in Westchester Supreme Court must be dismissed because there is an ironclad arbitration provision and the parties already submitted to arbitration. In short, they are correct on the facts and they are correct on the law.

The arbitration clause is as follows, and it’s very broad and 100% enforceable:

“To the fullest extent permitted by applicable law, any and all controversies or disputes that may arise between or among any of the Company, the Managers, the Members and/or one or more other persons under this Agreement, or with respect to the validity, interpretation or enforceability of this Agreement, that are not resolved by negotiation shall be submitted to mediation and/or binding confidential arbitration under the rules of the American Arbitration Association.”

Well after Frank engaged in arbitration, and after our relationship terminated, he attempted to stay the arbitration, and made requests and motions to the arbitrator directly. The arbitrator made the following ruling:

By e-mail on or about April 5, 2022, I ruled on Respondent’s prior request to “pause” or stay this proceeding. Specifically, I noted that Respondent is a signatory to the operating agreement governing Frankie’s Free-Range Meat, LLC, which I presume is the “LLC” in question. Under Section 9.02 of that agreement, Respondent agreed that “any and all controversies or disputes that may arise between or among any of the Company, the Managers, the Members and/or one or more other persons under this Agreement, or with respect to the validity, interpretation or enforceability of this Agreement, that are not resolved by negotiation shall be submitted to mediation and/or binding confidential arbitration under the rules of the American Arbitration Association.” At the preliminary hearing in this matter held on October 25, 2021, Respondent was competently represented by counsel, and that counsel confirmed the jurisdiction and appropriateness of this proceeding, which I later memorialized in an order. See Procedural Order No. 1, ¶ 1.

Thereafter, Mr. Tufano retained a new attorney to represent him in the Arbitration, Farrukh Nuridinov, Esq., of Law Offices of Farrukh Nuridinov P.C. Why this guy chose to represent Frank Tufano, I’ll never understand. But it’s clear that his new counsel tried to proceed with arbitration, probably explained to Frank that arbitration is not an option, it’s a requirement but Frank would not hear it. There was no way he was going to pay the AAA’s fees (he said so in his YouTube videos) and viewed it all to be one big conspiracy by the Freemasons and Illuminati designed to hurt poor little Frank. Pause for laughter. You can see his videos and judge for yourself. I can’t make this up.

Fast forward almost a year: Adam Starowicz on January 9th filed a motion to dismiss Frank’s lawsuit because there is a pending arbitration and because quite frankly (pun intended) Frank Tufano has attempted to circumvent arbitration and the negative rulings that he has received in arbitration thus far because of his lack of cooperation and failure to pay the AAA’s fees.

Adam quite correctly argues that New York law has a long standing policy on enforcing arbitration provisions: 

“New York law [] has a long and strong public policy favoring the enforcement of arbitration agreements.” Lobel v. CCAP Auto Lease, Ltd., 74 Misc 3d 1230[A], 2022 NY Slip Op 50256[U], *5-6 [Sup Ct, Westchester County 2022]) (citing American Intl. Specialty Lines Ins. Co. v. Allied Capital Corp., 35 NY3d 64, 70, 125 N.Y.S.3d 340, 149 N.E.3d 33 [2020];

Maross Constr., Inc. v Central New York Regional Transp. Auth., 66 NY2d 341, 345, 488 N.E.2d 67, 497 N.Y.S.2d 321 [1985] [stating that arbitration “is now well recognized as an effective and expeditious means of resolving disputes between willing parties desirous of avoiding the expense and delay frequently attendant to the judicial process”];

Wilson v. PBM, LLC, 193 AD3d 22, 25, 140 N.Y.S.3d 276 [2d Dept 2021] [citations omitted] [citing New York’s “‘longstanding public policy favoring the arbitration of disputes, particularly with respect to broad arbitration clauses . . . .'”];

Matter of New Brunswick Theol. Seminary v Van Dyke, 184 AD3d 176, 178, 125 N.Y.S.3d 153 [2d Dept 2020] lv dismissed 36 N.Y.3d 937, 135 N.Y.S.3d 667, 160 N.E.3d 326 [2020] [citations omitted] [stating that “‘arbitration is a creature of contract'” and “‘is a favored method of dispute resolution in New York'”];

Ferrarella v Godt, 131 AD3d 563, 565, 15 N.Y.S.3d 180 [2d Dept 2015], lv denied 26 N.Y.3d 913, 23 N.Y.S.3d 639, 44 N.E.3d 937 [2015] [citations omitted] [noting that “‘the announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties'”]);

Wildfire Prods., L.P. v. Team Lemieux LLC, 2022 Del. Ch. LEXIS 152, at *9 [Ch June 29, 2022, No. 2021-1072-PAF]) (citing Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 689 N.E.2d 884, 666 N.Y.S.2d 990 [N.Y. 1997]) (“[T]he public policy of [Delaware likewise] favor[] the resolution of disputes through arbitration.”)

They also correctly argue that Frank Tufano waived his right to stay arbitration by participating in the arbitration for over 16 months without objection. Not that his consent was required (because the LLC operating agreement was ironclad as was the arbitration provision in the LLC operating agreement) but in the course of at least a year, he had two attorneys representing him and not once filed a motion to stay the arbitration:

In re Interboro Mut. Indem. v. Johnson, 273 AD2d 238, 238 [2d Dept 2000]) (holding that “[b]y participating in the arbitration proceeding instead of moving to temporarily stay it, the petitioner waived its right to seek a permanent stay of arbitration”)

Finally, as to Frank’s arguments that LLC operating agreement is void because of false representations made by Adam prior to entering into the LLC operating agreement, that argument fails because there was a merger clause in the LLC operating agreement:

The LLC Operating Agreement merger clause is pretty standard. It states: “[the] Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.”

Quantlab Group GP, LLC v. Eames, 2019 Del. Ch. LEXIS 93, at *9, n 30 [Ch Mar. 19, 2019]) (citing Inc. v. Lesh, 114 A.3d 527, 533 (Del. 2014) (holding where an agreement contains an integration clause, that agreement “supersede[s] all prior agreements and understandings between the parties, except for those contained in the [current agreement]”); (see also Kefalas v. Valiotis, 197 AD3d 698, 702 [2d Dep’t2021]) (holding that “[w]here the parties have clearly expressed or manifested their intention that a subsequent agreement supersede or substitute for an old agreement, the subsequent agreement extinguishes the old one and the remedy for any breach thereof is to sue on the superseding agreement”).

Long story short, broad arbitration agreements or provisions are going to be enforced by the Court. I’ve litigated these issues a number of times quite extensively and there’s really no way around it. 

UPDATE: the case was settled and all claims were voluntarily dismissed with prejudice.