Prospect Funding Holdings (NY), LLC v. Ronald J. Palagi, P.C., L.L.C. et al

Filing 93

ORDER TO SHOW CAUSE Prospect Funding shall show cause, on or before June 1, 2021, why Palagi's motion to vacate (filing 91 ) should not be granted and the arbitration award of March 10, 2021 should not be vacated. Should Prospect Funding respon d, Palagi may reply in support of the motion to vacate on or before June 15, 2021. The Clerk of the Court shall set a response deadline for the motion to vacate (filing 91 ) of June 1, 2021 and a reply deadline of June 15, 2021. Ordered by Chief Judge John M. Gerrard. (Copies mailed as directed)(LRM)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PROSPECT FUNDING HOLDINGS
(NY) LLC,
Plaintiff and
counterclaim
defendant,
vs.

8:18-CV-15

RONALD J. PALAGI, P.C., LLC and
CHE STUBBLEFIELD,

ORDER TO SHOW CAUSE

Defendants and
counterclaimants,
and
RONALD J. PALAGI,
Defendant.
This matter is before the Court on the motion filed by Ronald J. Palagi
and his eponymous law firm (collectively, Palagi) to vacate an arbitration
award entered against them in favor of the plaintiff, Prospect Funding. Filing
91. The Court will order Prospect Funding to show cause why the motion
should not be granted and the arbitration award vacated.
BACKGROUND
This case began with Prospect Funding's motion to confirm two
arbitration awards entered in 2017. Filing 1. Palagi opposed confirmation and
sought to vacate the award against his law firm. Filing 11. After a fair amount
of procedural wrangling, the Court ultimately granted Palagi relief. Filing 89.

In particular, the Court found that the arbitration respondents, including
Palagi, hadn't been given proper notice of the either the arbitration
proceedings or entry of the arbitration awards. Filing 89 at 7-12. And so, the
Court concluded, the arbitrators were guilty of misconduct prejudicial to the
respondents' rights, warranting vacation of the awards. Filing 89 at 12. No
appeal was taken from that decision.
Allegedly, instead of appealing, Prospect Funding decided to simply
begin anew: Palagi has provided the Court with a copy of an arbitration award
entered March 10, 2021 that, according to Palagi, is premised on the same
contract that had been the subject of the previous awards at issue in this case.
Filing 91 at 3; filing 92 at 1. Palagi alleges that the award was made, again,
"without prior notice" to the respondents. Filing 91 at 1; see filing 92 at 1.
So, Palagi seeks to have the new award vacated pursuant to the Federal
Arbitration Act, 9 U.S.C. § 10. Filing 91. Palagi represents that a copy of its
motion was served on Prospect Funding by certified mail, filing 91 at 2, but
Prospect Funding has not responded.
DISCUSSION
Procedurally, this case is unusual, but so is the Federal Arbitration Act.
Applications to the Court made under the Federal Arbitration Act, Congress
has instructed, "shall be made and heard in the manner provided by law for
the making and hearing of motions[.]" 9 U.S.C. § 6. In other words, a filing
asking the Court to confirm or vacate an arbitration award is treated like a
motion, not a pleading. See Process & Indus. Devs. Ltd. v. Fed. Republic of
Nigeria, 962 F.3d 576, 585 (D.C. Cir. 2020); IFC Interconsult, AG v. Safeguard
Int'l Partners, LLC., 438 F.3d 298, 308 (3d Cir. 2006); Health Servs. Mgmt.
Corp. v. Hughes, 975 F.2d 1253, 1258 (7th Cir. 1992); see also Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 103 S. Ct. 927, 940 n.26 (1983).
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It is peculiar that Palagi brought this matter to the Court in a motion
filed in a long-closed case. But it's no more peculiar than the existence of a case
that technically doesn't contain a "pleading" at all. See id. So the Court has
considered whether the procedure initiated by Palagi is appropriate…but the
Court can't find anything saying it's inappropriate, and short of gouging Palagi
out of a filing fee, there's no practical difference between deciding this motion
as filed or demanding that Palagi refile it on a fresh docket. Because that's just
a matter of form over substance, the Court might as well get to the merits.
And the Court's position on the merits—at least, if Palagi's allegations
are true—is already clear: if the award was entered without actual notice of
the arbitration proceeding in the form prescribed by the arbitration agreement
and New York law, then the award is void and unenforceable. Filing 89 at 7-9.
And that's the law of the case as far as these parties are concerned. See United
States v. Simpson, 932 F.3d 1154, 1156 (8th Cir. 2019), cert. denied, 140 S. Ct.
826 (2020); In re Tri-State Fin., LLC, 885 F.3d 528, 533 (8th Cir. 2018). The
Court also previously expressed doubts about whether Palagi could be bound
to the underlying agreement and thus to its arbitration clause. Filing 32 at 15.
That issue proved unnecessary to resolve before, given the lack of notice, but
it's still a concern—and someone who hasn't agreed to arbitrate a dispute can't
be forced to do so. See Howsam v. Dean Witter Reynolds, Inc., 123 S. Ct. 588,
591 (2002); Northport Health Servs. of Ark., LLC v. Posey, 930 F.3d 1027, 1030
(8th Cir. 2019); Simmons Foods, Inc. v. H. Mahmood J. Al-Bunnia & Sons Co.,
634 F.3d 466, 469 (8th Cir. 2011).
In sum, the facts asserted by Palagi, if true, warrant vacating the
arbitration award. Of course, at this point, Palagi has only filed a motion and
brief, and hasn't submitted any actual evidence in support. See NECivR
7.1(a)(2). There's no sworn statement or other competent evidence proving that

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notice wasn't given or received. Nor, even, is there anything in the record
demonstrating that this arbitration award was actually premised on the same
agreement as the previous awards—Palagi has, after all, engaged with
Prospect Funding in other cases. See Ronald J. Palagi, P.C., LLC v. Prospect
Funding Holdings (NY), LLC, 925 N.W.2d 344 (Neb. 2019).1
On the other hand, at this point, Prospect Funding hasn't opposed
Palagi's motion—and while that doesn't confess the motion, it may preclude
contesting Palagi's statement of facts. See NECivR 7.1(b)(1)(C). But given the
unusual procedural posture of this case, the Court will go an extra lap in
permitting Prospect Funding to respond. Prospect Funding will have three
weeks to show cause, given the facts alleged and the Court's reasoning above,
why Palagi's motion shouldn't be granted and the arbitration award vacated.
Should Prospect Funding appear to contest the motion, Palagi may then have
two weeks to reply in support of the motion (and to provide evidentiary support
for any contested facts).
IT IS ORDERED:
1.

Prospect Funding shall show cause, on or before June 1,
2021, why Palagi's motion to vacate (filing 91) should not be
granted and the arbitration award of March 10, 2021 should
not be vacated.

1

That said, it's entirely possible that an arbitration award premised on a different agreement

can still be tested here. After all, this would be an appropriate venue regardless. See 28 U.S.C.
§ 1391(b)(2); Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 120 S. Ct. 1331, 1335 (2000).

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2.

Should Prospect Funding respond, Palagi may reply in
support of the motion to vacate on or before June 15, 2021.

3.

The Clerk of the Court shall set a response deadline for the
motion to vacate (filing 91) of June 1, 2021 and a reply
deadline of June 15, 2021.

4.

The Clerk of the Court shall send a copy of this order by
certified mail to each of the following addresses:
Prospect Funding Holdings (NY) LLC
276 Fifth Ave, Ste 704
New York, NY 10001
Prospect Funding Holdings (NY) LLC
13911 Ridgedale Dr, Ste 230
Minnetonka, MN 55305
Prospect Funding Holdings (NY) LLC
c/o Mark Larsen
355 Bleeker St, Ste 3
New York, NY 10014

Dated this 7th day of May, 2021.
BY THE COURT:

John M. Gerrard
Chief United States District Judge

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