FINN v. THE EXECUTOR/EXECUTRIX/ADMINISTRATOR OF THE ESTATE OF GENNARO ("JERRY") R. SCHIAVO, JR., et al

Filing 20

OPINION. Signed by Judge Noel L. Hillman on 4/27/2017. (TH, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
THOMAS P. FINN,
HONORABLE NOEL L. HILLMAN
Plaintiff,

CIVIL ACTION NO. 15-2409

v.

OPINION

ESTATE OF GENNARO R. SCHIAVO,
JR. and SHARON SCHIAVO,
Defendants.
APPEARANCES:
LAW OFFICE OF JEREMY SPIEGEL
By: Jeremy S. Spiegel, Esq.
1 South Broad Street, Suite 1500
Philadelphia, Pennsylvania 19107
Counsel for Plaintiff
COHEN SEGLIAS PALLAS GREENHALL & FURMAN, P.C.
By: Jonathan A. Cass, Esq.
United Plaza 19th Floor
30 South 17th Street
Philadelphia, Pennsylvania 19103
Counsel for Defendants

HILLMAN, United States District Judge:
Plaintiff Thomas Finn alleges that his former business
partner, now-deceased Gennaro “Jerry” Schiavo, Jr., stole from
their limited liability company, Temp-Rite.

Plaintiff further

alleges that Defendant Sharon Schiavo - Jerry’s wife, and TempRite’s Operations Manager / bookkeeper - aided and abetted Jerry
Schiavo’s misappropriations.

The Court previously granted

Defendants’ Motion to Dismiss the claims against Jerry Schiavo’s
estate, holding that those claims are subject to arbitration. Finn
1

v. Schiavo, 2016 U.S. Dist. LEXIS 16622 (D.N.J. Feb. 11, 2016).
The Court also stayed the claims against Defendant Sharon Schiavo
pending the resolution, in arbitration, of the claims against the
estate. Id.

The case was administratively terminated pending the

disposition of the arbitration.
Since the Court’s decision, Plaintiff has filed with the
American Arbitration Association (“AAA”) an arbitration demand
which includes both the claims against the Defendant estate and
the claims against Defendant Schiavo.

The arbitration is

scheduled for October, 2017.
Schiavo asks this Court to: (A) enjoin Plaintiff and the AAA
from proceeding with the arbitration against her; and (B) impose
sanctions against Plaintiff’s counsel pursuant to 28 U.S.C. §
1927. 1

For the reasons stated herein, the Court will grant the

motion to the extent that it seeks to enjoin only Plaintiff (not
the AAA) from pursuing arbitration of the claims asserted against
Schiavo.

The Motion will be denied in all other respects.
I.

It is undisputed that Sharon Schiavo is not a signatory to
the arbitration agreement at issue, which is contained in TempRite’s Operating Agreement.

Indeed, in the previous briefing on

the Motion to Dismiss the parties seemed, at least implicitly, to

The Court has diversity of citizenship subject matter
jurisdiction pursuant to 28 U.S.C. § 1332.
2
1

assume that the claims against Sharon Schiavo were not arbitrable
under any legal theory.
Here, in opposition to the instant motion, Plaintiff asserts
that the claims against Schiavo are subject to arbitration.
Plaintiff relies upon a single footnote in Defendant Schiavo’s
brief in support of her previous motion to dismiss wherein she
stated she “is willing to consent to the jurisdiction of the
arbitrator,” and that she “is willing to stipulate as such.”
(Docket #9, Moving Brief, p. 12 n.3)(emphasis added).

However,

nothing in the papers before this Court indicates that Defendant
Schiavo ever signed anything consenting to arbitrate the claims
against her.

Indeed, all of her other actions in this litigation

and the arbitration suggest that she has not, and does not,
consent to arbitration.
II.
A.
Pursuant to Fed. R. Civ. P. 65(a), the Court may issue
preliminary injunctions.

It is well established that a court is

“obliged to enjoin an arbitration” where it is determined “that a
valid arbitration agreement does not exist or that the matter at
issue clearly falls outside the substantive scope of the agreement
. . . .” PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.
1990), abrogated on other grounds by Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79 (2002).
3

B.
“An attorney or other person admitted to conduct cases in any
court of the United States . . . who so multiplies the proceedings
in any case unreasonably and vexatiously may be required by the
court to satisfy personally the excess costs, expenses and
attorneys’ fees reasonably incurred because of such conduct.” 28
U.S.C. § 1927.
III.
A.
Defendant Sharon Schiavo asks this Court to enjoin both
Plaintiff Finn and the AAA from proceeding with the arbitration of
the claims against her.

The basic question is: did Schiavo agree

to arbitrate the claims against her?

The answer is clearly no.

It is undisputed that Schiavo stated that she would be
willing to consent to arbitrate.

But she stated so in a single

footnote in a brief in support of her own motion to dismiss this
suit on other grounds. 2

This is insufficient evidence to support a

finding that Schiavo agreed to arbitrate the claims at issue. See
generally Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d
Cir. 2014)(“The presumption in favor of arbitration does not
extend, however, to non-signatories to an agreement; it applies

Schiavo argued that the Second Amended Complaint failed to state
a claim against her under Fed. R. Civ. P. 12(b)(6).
4
2

only when both parties have consented to and are bound by the
arbitration clause.”).
Indeed, rather than arguing that Schiavo consented to
arbitrate the claims, Plaintiff argues that Schiavo should be
judicially and equitably estopped from arguing that she did not
consent.

Both arguments fail.

“Though there is no rigid test for judicial estoppel, three
factors inform a federal court’s decision whether to apply it:
there must be (1) irreconcilably inconsistent positions; (2)
adopted in bad faith; and (3) a showing that estoppel addresses
the harm and no lesser sanction is sufficient.” G-I Holdings, Inc.
v. Reliance Ins. Co., 586 F.3d 247, 262 (3d Cir. 2009).
Schiavo’s counsel explains the purpose of the footnote was
“to communicate to Plaintiff that if he agreed to resolve the
Motion to Dismiss by submitting to arbitration against the Estate,
then Sharon would follow.” (Reply Brief p. 5)
There is nothing inconsistent with that position, taken
before the Motion to Dismiss was decided - indeed, even prior to
Plaintiff filing opposition to the motion - and Schiavo’s current
position, which she takes now that Plaintiff opposed the motion
and the Court has decided it. 3

Additionally, it is not clear that Schiavo, by merely asserting
in a footnote that she would be willing to consent to arbitration,
took a position at all. As stated supra, whether Schiavo agreed
5

3

Moreover, nothing about the course of these proceedings
suggests any bad faith on Schiavo’s part.

To the contrary, the

record before the Court supports a finding that Schiavo acted with
a spirit of compromise when she offered to arbitrate issues that
she had not consented to arbitrate.

The fact that Schiavo has

now, under changed circumstances, decided her offer to arbitrate
is no longer open does not evidence bad faith.
Similarly, Plaintiff’s equitable estoppel argument fails.
“[T]he doctrine recognizes that a party may be estopped from
asserting that the lack of his signature on a written contract
precludes enforcement of the contract’s arbitration clause when he
has consistently maintained that other provisions of the same
contract should be enforced to benefit him.

To allow a [party] to

claim the benefit of the contract and simultaneously avoid its
burdens would both disregard equity and contravene the purposes
underlying enactment of the Arbitration Act.’” E.I. DuPont de
Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates,
S.A.S., 269 F.3d 187, 200 (3d Cir. 2001)(internal citation and
quotation omitted).
Nothing before the Court suggests that Schiavo has
“consistently maintained” that any provision of the Operating

to arbitrate the claims against her was not at issue in the Motion
to Dismiss.
6

Agreement “should be enforced” to her benefit. See E.I. DuPont de
Nemours & Co., 269 F.3d at 200 (“Generally, these [equitable
estoppel] cases involve non-signatories who, during the life of
the contract, have embraced the contract despite their nonsignatory status but then, during litigation, attempt to repudiate
the arbitration clause in the contract.”).

Plaintiff’s general

assertions that Schiavo “benefitted substantially” from the
Operating Agreement by allegedly: (1) issuing false financial
reports “pursuant to” the Operating Agreement; and (2) “abus[ing]
the terms of § 4 of the Operating Agreement” by issuing fraudulent
reimbursements (Opposition Brief, p. 13-14), cannot support a
conclusion that Schiavo “embraced” the Operating Agreement, nor
sought to “enforce” it such that the doctrine of equitable
estoppel would apply. E.I. DuPont de Nemours & Co., 269 F.3d at
200.
Moreover, to the extent that both estoppel doctrines are
based on considerations of equity, the Court observes that it
would be inequitable under these circumstances to allow Plaintiff
to use Schiavo’s offer of compromise as a sword to compel
arbitration.
Thus, the Court holds that Defendant Schiavo did not consent
to arbitrate the claims asserted against her, and therefore she is
entitled to an injunction preventing the arbitration of those
claims.
7

However, the Court declines to include the AAA in the
injunction.

Aside from the fact that the AAA is not a party to

this suit 4, and likely could not be held to be acting “in concert
or participation with” Plaintiff, see Fed. R. Civ. P. 65(d)(2),
the Court fails to see why enjoining the AAA is necessary.

The

Court presumes that Plaintiff will obey this Court’s order
restraining him from further pursuing his claims against Schiavo
in arbitration, thereby providing Schiavo complete relief.
Accordingly, Schiavo’s Motion to Enjoin the Arbitration will
be granted as to Plaintiff Finn and denied as to the AAA. 5

Simply naming the AAA as an “additional party” in the caption of
Schiavo’s Motion and “serving” the AAA with a “copy of [the]
motion” (Moving Brief, p. 1) does not make the AAA a party to this
suit. No return of service has been filed and no attorney has
entered an appearance on behalf of the AAA.
4

The parties’ submissions do not address the issue of security,
which is mandatory under Fed. R. Civ. P. 65(c). As a matter of
law, the injunction against Plaintiff cannot take effect until
Defendant Schiavo posts an appropriate bond. See Scanvec Amiable,
Ltd. v. Chang, 80 Fed. Appx. 171, 176 (3d Cir. 2003)(“We have long
held that the posting of adequate security is a ‘condition
precedent’ to injunctive relief.”)(quoting Hopkins v. Wallin, 179
F.2d 136 (3d Cir. 1949)); see generally Sprint Communs. Co. L.P.
v. CAT Communs. Int'l, Inc., 335 F.3d 235, 239-40 (3d Cir.
2003)(“Generally, a bond is a condition of preliminary injunctive
relief. Fed. R. Civ. P. 65(c) requires a successful applicant for
a preliminary injunction to post a bond, in such sum as the
district court deems proper, for the payment of such costs and
damages as may be incurred or suffered by any party who is found
to have been wrongfully enjoined. Thus, the injunction bond
provides a fund to use to compensate incorrectly enjoined
defendants.”)(internal citations and quotations omitted).
Therefore, the Court will direct Defendant Schiavo and
Plaintiff Finn to meet and confer within seven days of the date of
the Court’s Order to determine whether an appropriate bond may be
8
5

B.
The Court has discretion whether to award sanctions under §
1927. In re Prudential Ins. Co. Am. Sales Practice Litig. Actions,
278 F.3d 175 (3d Cir. 2002).

“[A] finding of willful bad faith on

the part of the offending lawyer is a prerequisite for imposing
sanctions under 28 U.S.C. § 1927.” Id. at 181 (internal citation
and quotation omitted).
There is no evidence before the Court that Plaintiff’s
counsel acted with willful bad faith when he filed the arbitration
demand which included Plaintiff’s claims against Schiavo.

The

fact that Plaintiff’s counsel asserted a position that this Court
has held unmeritorious, without more, is insufficient to support a
conclusion of willful bad faith.
Accordingly, the Court declines to award sanctions.
IV.
For the reasons set forth above, the Court will grant
Schiavo’s motion to the extent that it seeks to enjoin only
Plaintiff from pursuing arbitration of the claims asserted against
Schiavo.

The Motion will be denied in all other respects.

An

appropriate Order accompanies this Opinion.

At Camden, New Jersey
Dated: April 27, 2017

__s/ Noel L. Hillman ___
Noel L. Hillman, U.S.D.J.

set by stipulation. Absent such stipulation, the Court will
promptly schedule a hearing to set an appropriate bond.
9