OPINION OF THE COURT
This appeal requires us to decide whether the various challenges by petitioner to arbitration clauses contained in agreements between petitioner and respondents should be determined by Supreme Court of by the arbitrator. We are also presented with the novel question whether a $204,000 arbitration filing fee required by talóse clauses is unconscionable and against public poliсy anc| thus unenforceable. We conclude that the challenges to the ^arbitration clauses are for the court to determine and that, as matter of law, the filing
I
In July 1993 petitioner, Teleserve Systems, Inc., a company located in Syracuse, entered into an agreemént with respondent MCI Telecommunications Corporation (MCI) (conducting business as Souther nNet, Inc.). By its terms, and as modified in April 1994, the July 1993 agreement called for petitioner to serve as agent in the marketing of operator services and long distance termination sеrvices to be provided by MCI. Upon entering into that agreement, petitioner expended considerable capital assembling an internal sales force, administrative and support staff, and Fielding a nationwide network of sales agents, some of which, in turn, fielded their own sales agents. Within that structure, petitioner marketed MCI’s services and procured new customers for MCI. The April 1994 agreemеnt, like the July 1993 agreement, contained a "Controlling Law/ Disputes” clause providing that questions regarding the validity, construction, performance, and enforcement of the agreement would be governed by the laws of New York and that "[a]ll disputes arising under this Agreement shall be submitted to arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association [AAA].”
By letter dated August 15, 1994, petitioner raised numerous complaints concerning MCI’s difficulties in managing the volume of new business procured by petitioner and its subagents. Petitioner complained that MCI’s service failures were prompting customers to switch to other carriers, resulting in a loss of commissions and severe financial distress to petitioner and its subagents. In subsequent communications, petitioner complаined that MCI had failed to credit and pay commissions in a timely manner; that petitioner had spent one year and $1,300,000 building a sales network to market MCI’s services; and that, as a result, petitioner had exhausted its capital, was $300,000 in debt, was losing money at the rate of $30,000 per month, and was under intense pressure from creditors.
At the conclusion of a meeting on September 13, 1994, petitioner believed that it had reached an agreement in principle with MCI whereby MCI would make settlement payments of $300,000 plus $30,000 per month pending correction of the service problems. In reliance on MCI’s assurances,
Betweеn late September and early November 1994, petitioner continually expressed concern over MCI’s delays. Petitioner informed MCI that petitioner was in severe financial straits, that its employees’ health insurance had been canceled, that it was borrowing to meet payroll, and that it was under intense pressure from creditors, including Federal and State taxing authorities, some of whiсh were threatening to force petitioner into bankruptcy. Nonetheless, MCI continued to delay drafting new agreements and making the promised settlement payment. Petitioner alleges that MCI’s delay was a scheme to exploit petitioner’s desperation in order to extract other concessions in the negotiation of new agreements.
MCI finally delivered the proposed new agreements to petitioner until November 17, 1994. Those agreements named petitioner as agent for the sale of operator services and long distance termination services to be provided by MCI and its subsidiary, Teleconnect Long Distance Services and Systems Company (collectively respondents or MCI). The new agreements were not accompanied by the prоmised payment. Further, upon review of the proposed agreements, petitioner discovered that respondents had unilaterally inserted new arbitration provisions in place of those contained in the former agreements. The new agreements provided in pertinent part:
"Any dispute arising out of or related to this Agreement, which cannot be resolved by negotiation, shall be sеttled by binding arbitration in accordance with the rules contained in [MCI or Telecom] Tariff FCC No. 1 ('Arbitration Rules’) * * *
"Either [party] may initiate arbitration by providing written demand for arbitration, a copy of this Agreement, and the*589 administrative fee required by the Arbitration Rules to the Endispute office located in Washington, D.C.”
Although the MCI Tariff is incorporated by reference into the arbitration agreements, it is allegedly unрublished and apparently was not physically made part of the new agreements. It is not clear whether the MCI Tariff was furnished to petitioner prior to this proceeding. Further, while petitioner apparently has abandoned the contention that the MCI Tariff is inapplicable to disputes arising under the parties’ agency agreements, we note that, by its terms, the MCI Tariff applies only to disputes between respondents and their telephone service customers.
The issue of applicability aside, petitioner complains that the arbitration clauses in the new agreements are so favorable to MCI that they are unconscionable. Whereas the former agreements allowed petitioner to commence arbitration before the AAA in Syracuse, the new agreements require it to commence arbitration before Endispute in Washington, D.C. The new agreements do not permit petitioner to participate in selecting the arbitrator, to recoup attorneys’ fees and costs, or to recover punitive damages. Most significantly, whereas the AAA requires a flat filing fee of $4,000, the new agreements, by incorporating the MCI Tariff, require a filing fee of $4,000 plus .5% of the amount claimed. Petitioner would thus be required to pay a filing fee of $204,000 based on its present claim, which seeks $40,000,000 in compensatory damages.
Upon reviewing the new agreements, petitioner immediately protested that the new provision was "never discussed — much less agreed upon” by the parties. Petitioner informed MCI that, as a result of the prolonged delay, petitioner had lost all credibility with its creditors, that its bank had declared it in default on a note, and that the telephone company was threatening to cut off petitioner’s service the next day. Petitioner nonetheless stated that, "at this point we have no option but to sign the contracts as presented!!” Petitioner signed the agreements that day and returned them to MCI by overnight mail. Although MCI had promised to remit the $300,000 payment as soon as the agreements were signed, it did not send a check until December 7, 1994.
Petitioner continued to market MCI’s services pursuant to the new agreements. Problems persisted with MCI’s provision of services to customers recruited by petitioner and its subagents, and in connection with MCI’s crediting and payment of commissions to petitioner. By August 1995, petitioner
II
Petitioner instituted this proceeding, which is a hybrid of a proceeding to compel arbitration pursuant to CPLR article 75 and a suit in equity to rescind or refоrm the arbitration clauses of the agency agreements. Petitioner alleges that the arbitration clauses are unconscionable on their face, especially with respect to the filing fee, and were procured by MCI’s overreaching, unconscionable conduct, and economic coercion. Petitioner asked the court to delete the clauses in their entirety and replace them with the arbitration clauses contained in the parties’ former agreements, then direct the parties to arbitrate before the AAA. Alternatively, petitioner asked the court to delete the clauses and direct the parties to proceed to arbitration before an arbitrator appointed by the court pursuant to CPLR article 75.
Prior to answering, respondents moved, pursuant to CPLR 7503 (a), for an order "staying this litigation and compelling arbitration based on clear and unambiguous arbitration provisions.” Alternatively, respondents sought an order dismissing the petition for failure to state a cause of action or converting the proceeding to a plenary action.
In response to that motion, petitioner moved for summary judgment, which rеspondents opposed on the grounds that a summary judgment motion was premature and that respondents needed to engage in discovery in order to respond to the motion.
The court granted respondents’ motion for a stay of the proceeding pursuant to CPLR 7503 (a). Petitioner appeals, contending that the court erred in apparently concluding that it had no authority to consider petitioner’s challenges to the arbitration clauses and in referring the issues of unconscionability and duress to the arbitrator.
Petitioner’s challenges to the arbitration clauses, which seek reformation on the grounds of unconscionability and duress, are for the court to determine. There is some uncertainty whether the issues of arbitrability are governed by Federal or State law. The аgreements involve a transaction in interstate commerce, thus making the arbitration clauses subject to the Federal Arbitration Act (see, 9 USC §§ 1, 2; Southland Corp. v Keating,
CPLR 7503 (a) provides in pertinent part: "A party aggrieved by the failure of another to arbitrate may apply for an order compelling arbitration. Where there is no substantial question whether a valid agreement was made * * .* the court shall direct the parties to arbitratе. Where any such question is raised, it shall be tried forthwith in said court.” Similarly, the Federal Arbitration Act, specifically 9 USC § 2, provides in pertinent part: "[A] contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 USC § 4 provides in pertinent part: "A party aggrieved by the alleged failure * * * of another to arbitrate under a written agreement for arbitration may petition * * * [the] court * * * for an order directing that such arbitration proceed * * * The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration * * * is not in issue, the court shall make an order directing the parties to proceed to arbitration * * * If the making of the arbitration agreement * * * be
It is well established under both CPLR 7503 and 9 USC § 4 that a party may resist enforcement of an agreement to arbitrate on any basis that could provide a defense to or grounds for the revocation of any cоntract, including fraud, unconscionability, duress, overreaching conduct, violation of public policy, or lack of contractual capacity (see generally, Mitsubishi Motors v Soler Chrysler-Plymouth,
Again, we need not concern ourselves with the apparent conflict because, under either Federal or New York law, to the extent that petitioner challenges the arbitration clauses themselves or their inclusion in the agreements, those challenges are for the court to determine (see, Prima Paint v Flood
The parties agree in their reading of the Federal and State cases, аnd differ only with respect to whether petitioner is challenging the making of the arbitration clauses themselves or the agreements as a whole. There is no merit to MCI’s contention that petitioner is challenging the validity of the agreements as a whole. The petition seeks reformation of the "MCI Arbitration Clauses” on the grounds that they are "completely advantageous to MCI, and comрletely disadvantageous to” petitioner. Petitioner claims that "respondents secured the MCI arbitration clauses under such patently coercive circumstances as to constitute 'gross overreaching’ * * * 'bad faith’ ” and "economic duress”. The petition seeks an order directing the parties to arbitrate pursuant to such "reformed” arbitration clauses. Further, petitioner’s underlying сlaim alleges that MCI breached a series of agency agreements, among them the November 17, 1994 agreements containing the objectionable arbitration clauses. The claim therefore depends on the validity of those agreements and cannot be construed as a challenge to the agreements as a whole. Under both Federal and State law, the challenges to the making of the arbitration clauses are for the court to determine. Thus, Supreme Court erred in granting MCI’s motion to stay the proceeding.
IV
Turning to the substance of the challenges to the arbitration clauses, we conclude that, as a matter of law, the filing fee requirement is unreasonable, unjust, and unconscionable on its face and may not be enforced. As an initial matter, there is no mеrit to MCI’s contention that petitioner has erroneously calculated the size of the filing fee based on an improper demand for punitive damages. Also lacking in merit is MCI’s contention that the filing fee is not imposed by the MCI Tariff, but by Endispute. Those assertions are conclusively refuted by the express terms of the MCI Tariff, which imposes a filing fee of $4,000 plus .5% of the amount claimed. The MCI Tariff thus requires petitiоner to pay a filing fee of $204,000 based on its claim for approximately $40,000,000 in compensatory damages.
V
Petitioner seeks to reform or rescind other provisions of the arbitration clauses on the grounds that they are unconscionable or were wrongfully procured through overrеaching and economic duress. Those challenges cannot be resolved on this record, which contains only petitioner’s account of the events leading up to the execution of the new agreements. Respondents must be given the opportunity to answer the petition and to refute petitioner’s version of events. Because the challenges are to the making of the arbitration clauses themselves or to their inclusion in the agreements, as opposed to the validity of the agreements as a whole, those challenges are for the court to determine, by trial if necessary.
Accordingly, the order should be reversed and the petition should be granted to the extent of striking the filing fee requirement of the arbitration clauses on the ground that it is unconscionable on its face and as a matter of law.