NEAL v. ASTA FUNDING, INC. et al
Filing
44
OPINION. Signed by Judge Kevin McNulty on 12/4/2013. (nr, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
DAVID SHAUN NEAL,
Civ. No. 13-3438 (KM) (MAH)
Plaintiff,
OPINION
V.
ASTA FUNDING, INC., GARY STERN,
MARY CURTIN, SETH BERMAN, CYNTHIA
SCHATZMANN (HORVAT), LOUIS
PICCOLO, DAVID CAVILL, and JOHN
DOES 1-10,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
This matter comes before the Court on the Defendants’ motion (Docket
No. 25) to dismiss the Complaint (Docket No. 1 (“Compi.”)) in its entirety
pursuant to Rules 12(b)(6) and 12(b)(1), Fed. R. Civ. P. In addition, the pro se
plaintiff, David Shaun Neal, has filed a motion to stay a pending arbitration
and to impose sanctions pursuant to 28 U.S.C. § 1927 (Docket No. 28). In
response to that motion, the Defendants have cross-moved for sanctions and
for injunctive relief (Docket No. 34). Defendants’ motion to dismiss includes the
contention that Neal is bound by an arbitration agreement and should
in the
therefore “be compelled to pursue any Counts that survive
Arbitration and this action [should be] stayed” pursuant to 9 U.S.C. § 3 and 4
(Docket No. 25-1 at 28).
.
.
.
The essence of Defendants’ position is that these claims should be
pursued, not here, but in an arbitration that is already pending (Docket No.
25-1 at 28). The essence of Neal’s position is that the arbitration should be
1
stayed and his claims should proceed in this action (and others). Neal’s claims
1
In addition to the present action, the Court is aware of the following actions
appear to be arbitrable, but that issue is not for me in the first instance; I refer
those claims to the Arbitrator, to whom the issue of arbitrability is
contractually committed. Whether or not Neal’s claims are arbitrable, however,
I will stay this action pending the resolution of the pending arbitration.
Consequently, I will administratively terminate Defendants’ motion to dismiss
the Complaint, without prejudice.
I. BACKGROUND
The Complaint alleges that Neal was an employee of Defendant ASTA.
Essentially, the Complaint alleges that ASTA wrongfully terminated Neal’s
employment because he blew the whistle on unlawful or unethical conduct of
ASTA and its employees. See Compi. at ¶ 99—100, 338. More specifically, the
Complaint asserts the following claims: (1) Violation of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, 12 U.S.C. § 5567 (“Dodd-Frank”);
(2) Violation of the Sarbanes Oxley Act, 18 U.S.C. § 1514A (“SOX”); (3) Violation
of New Jersey’s Conscientious Employee Protection Act, N.J. Stat. § 34:19-1
(“CEPA”); and (4) Violation of public policy under Pierce v. Ortho
Pharmaceuticals, 84 N.J. 58 (N.J. 1980) (holding that an “employee at will has a
cause of action for wrongful discharge when the discharge is contrary to a clear
mandate of public policy”). The fifth and final count is a general request for
punitive damages.
The corporate Defendant, ASTA, is a debt acquisition and collection
company. Individual Defendants Gary Stern, Mary Curtin, Seth Berman, and
David Cavill are employed by ASTA. Compl. at 1-2; see Docket No. 25-1 at 3.
that Neal has personally filed which arise from his dispute with ASTA: (1): A
whistleblower action in the District of New Jersey that was voluntarily dismissed (New
World Solutions, et al. v. ASTA Funding, Inc. et al, No. 2:12-cv-5307); (2): a
whistleblower complaint with the Department of Labor (No. 2-1750-13-002); (3): a Fair
Debt Collection Practices Action in the Southern District of New York that was
recently dismissed (Vivaudou et al v. ASTA Funding, Inc., 12-cv-9089); (4): a
defamation action in the Southern District of New York (Neal v. ASTA Funding Inc., et
al., No. 7:13-cv-2176); (5): a defamation, malpractice, and intentional infliction of
emotional distress action before this Court (Neal v. ASTA Funding, Inc. et al, No. 2:13cv-4814); (6) a fraud and criminal coercion action before the Supreme Court of New
Jersey, Orange County (Neal v. American Arbitration Association et al., No. 2013-cv7991); and (6): a recently-filed complaint in this Court seeking a declaratory judgment
(Neal v. ASTA Funding, Inc., No. 2: 13-cv-6981). Additionally, NWS, with Neal as its
representative, filed a counterclaim in the original arbitration initiated by ASTA.
2
Defendant Cynthia Schatzmann “is a former employee of ASTA and is believed
to be a current employee of ASTA.” Defendant Louis Piccolo (“Piccolo”) is “a
current independent director of ASTA.” Id.
The Complaint alleges that Neal began his employment with ASTA in
2004 and that his company, New World Solutions (“NWS”), was retained to do
certain Information Technology work for ASTA in 2009. Neal alleges that he
was “a vocal critic of the lackadaisical attitude of senior management regarding
legal compliance,” and that he “repeatedly complained to ASTA that it lacked a
compliance office.” He further alleges that he “informed senior management at
ASTA, including Defendant Stern, of the wrongful, illegal, and/or unethical
activity” committed by ASTA. Compl. at ¶J 99—101. Neal alleges that
Defendants retaliated against him for reporting these activities. Specifically, he
alleges that Stern reduced his salary, set impossible budget goals, terminated
his employment, and commenced a frivolous arbitration action against him. He
also alleges that Curtin, Berman, Schatzmann, Cavill, and Piccolo retaliated
against him by “transmitting false and disparaging statements to various
employees of ASTA,” and that Curtin, Schatzmann, and Cavill also “suggest[ed]
that Neal’s employment be terminated.” Compi. at 321—334.
Defendants deny that ASTA employed Neal. On the contrary, according to
ASTA, it retained NWS, a company co-owned by Neal, as an independent
contractor to perform Information Technology-support (“IT”) services. That
relationship was embodied in a written Information Technology Services
Agreement, dated July 1, 2009. See Docket No. 25-3 (Exhibit A) (“Consulting
Agreement”). That Consulting Agreement had a term of three years. Id. ASTA
states that, on June 27, 2012, it terminated the Consulting Agreement because
NWS had allegedly failed to perform as warranted and inflated its billing.
(Arbitration Case No: 18 117 Y 00925 12; Docket No. 25-1 at 6—7; Compl. ¶[
324, 373).
The Consulting Agreement contains a broad clause providing for
arbitration of disputes under the Commercial Arbitration Rules of the American
Arbitration Association (“AAA”). After terminating the Agreement, on July 26,
2
2
The arbitration clause of the Consulting Agreement reads as follows:
All matters regarding the performance of IT Services under this
Agreement shall be brought to the attention of the IT Services Managers
assigned to ASTA and NWS. IT will be the responsibility of the IT Services
Managers to communicate and develop a resolution for such matters. In
3
2012, ASTA filed a claim in arbitration with AAA alleging that NWS breached
the Consulting Agreement by failing to perform as required under the
Robert E. Bartkus, Esq., was duly
agreement and by inflating its billing.
appointed as arbitrator by the AAA. According to ASTA’s filings, Neal has
moved twice to remove Mr. Bartkus as arbitrator, but the AAA Administrative
Review Counsel has denied those motions. (Docket No. 34-1 at 8). In the
arbitration, NWS filed a counterclaim alleging that ASTA had itself breached
the Consulting Agreement. (Docket 43-1, Exhibit 3 (“Counterclaim”)).
After filing the arbitration case, ASTA learned that Neal had allegedly
accessed confidential information, gained personal access to ASTA employees’
email accounts, and copied certain confidential information. According to
Defendants, Neal thereby violated confidentiality covenants that are contained
in the Consulting Agreement, as well as a confidentiality order issued by the
Arbitrator. Indeed, the Defendants say, the allegations in Neal’s Complaint in
this action are based on those confidential materials.
In the arbitration, the Arbitrator has entered a Turnover Order that, inter
alia, restrained NWS and “its principal Shaun Neal” from disclosing any
confidential information; ordered NWS to return all copies of documents that
related to ASTA other than discovery materials produced during the
arbitration; and restrained NWS and Neal from using any of these materials for
any purpose other than for the arbitration proceedings. See Docket No. 43
(Exhibit 5); Docket No. 34-1 at 10—11. Neal then moved in this Court to vacate
the Arbitrator’s Turnover Order. Magistrate Judge Hammer denied that motion
(Docket No. 35), and Neal recently moved for reconsideration of Judge
Hammer’s order (Docket No. 39).
the even that a dispute, controversy, or claim between the Parties arises
directly or indirectly out of or in connection with this Agreement cannot
be resolved by the IT Services Managers, either Party may elect to have
such dispute, controversy, or claim resolved by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association (“AAA”). Any arbitration shall be conducted by arbitrators
approved by the AAA and mutually acceptable to the Parties. If the
Parties are unable to agree on the arbitrator(s), then the AAA shall select
the arbitrator(s).
Consulting Agreement at § 6.2. The Agreement also provides that it is to be
construed in accordance with New Jersey state law.
4
On August 1, 2013, ASTA moved in the arbitration to supplement its
statement of claim and assert new claims against NWS and Neal for alleged
misappropriation of confidential information. Docket No. 34-1. at 14. At first,
the Arbitrator allowed supplementation of the claims against NWS, but did not
allow the addition of Neal as a party, because the request came too close to the
scheduled hearing date. Id. Therefore, on September 3, 2013, ASTA initiated a
second arbitration against Neal and the former co-owner of NWS, Robert F.
Coyne. In that second arbitration, ASTA alleged claims of consumer fraud,
violations of the Consumer Fraud and Prevention Act, and other New Jersey
computer-related offenses. The original and second arbitration were recently
consolidated. In connection with that consolidation, the Arbitrator, Mr.
Bartkus, examined his own jurisdiction and held that Neal was individually
subject to the arbitration agreement. (Docket No. 42-1 (Exhibit 6)
(“Consolidation Order”)). The arbitration hearing, originally scheduled for
September 18, 2013, has been adjourned, and the arbitration is proceeding on
a consolidated basis.
II. DISCUSSION
A.
Arbitrability Under the Federal Arbitration Act and the Court’s
Power to Stay Litigation Pending Arbitration
The Federal Arbitration Act (“FAA”) reflects a longstanding “liberal federal
Moses H. Cone Memorial Hosp. v.
policy favoring arbitration agreements
Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA is designed to “ensure
judicial enforcement of privately made agreements to arbitrate.” Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Congress’ “clear intent” in
passing the FAA was “to move the parties to an arbitrable dispute out of court
and into arbitration as quickly and easily as possible.” Moses H. Cone Memorial
Hosp., 460 U.S. at 22. To fulfill that goal, courts must “rigorously enforce
Dean Witter Reynolds, Inc., 470 U.S. at 221. The
agreements to arbitrate
FAA established that, “as a matter of federal law, any doubts concerning the
scope of arbitrable issues should be resolved in favor of arbitration, whether
the problem at hand is the construction of the contract language itself or an
allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone
Memorial Hosp., 460 U.S. at 24-25; see also Barrowclough v. Kidder, Peabody &
Co., 752 F.2d 923, 938 (3d Cir. 1985) (ambiguous or unclear cases should be
resolved in favor of arbitration).
.
.
.
.
.“
5
.
.
.“
To implement that federal policy in favor of arbitration, Section 3 of the
FAA provides that issues within the scope of an arbitration agreement shall be
referred to arbitration, and that court proceedings shall be stayed:
If any suit or proceeding be brought in any of the courts of the
the court
United States upon any issue referable to arbitration
in which such suit is pending, upon being satisfied that the issue
involved in such suit or proceedings is referable to arbitration
under such agreement, shall on application of one of the parties
stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement, providing the
application for the stay is not in default in proceeding with such
arbitration.
.
.
.,
FAA, 9 U.S.C. § 33 When the parties and issues significantly overlap between a
court proceeding and an arbitration, a court may stay the entire court action.
That is true even where the overlap is not complete, for example, even if some
of the parties or issues are not subject to arbitration. Crawford v. W. Jersey
Health Sys. (Voorhees Div.), 847 F. Supp. 1232, 1240 (D.N.J. 1994) (citing
Tenneco Resins, Inc. v. Davy Intern., 770 F.2d 416 (5th Cir. 1985); American
Home Assur. Co. v. Vecco Concrete Constr. Co., 629 F.2d 961 (4th Cir. 1980);
Lawson Fabrics, Inc. v. Akzona, Inc., 355 F. Supp. 1146 (S.D.N.Y.), affd, 486
F.2d 1394 (2d Cir. 1973); Harman Elec. Const. Co. v. Consolidated Eng. Co., 347
F. Supp. 392, 397 (D. Del. 1972)).
Setting aside the mandate of the FAA, a district court also possesses the
inherent discretion to control its docket. As a component of that discretion, the
court has the inherent power to stay its own proceedings. See Moses H. Cone
Mem’lHosp., 460 U.S. at 21 (citing Landis v. NorthAmerican Co., 299 U.S. 248,
254—255 (1936)). In Landis, for example, the Court stated:
[T}he power to stay proceedings is incidental to the power inherent
in every court to control the disposition of the causes on its docket
with economy of time and effort for itself, for counsel, and for
litigants. How this can best be done calls for the exercise of
True, the suppliant for
judgment, which must an even balance.
.
.
The contract containing the arbitration clause must “evidence a transaction
involving commerce.” Crawford v. W. Jersey Health Sys., 847 F. Supp. 1232, 1240
(D.N.J. 1994) (quoting 9 U.S.C. § 2). That requirement is met when the contractual
activity affects or facilitates commerce, even tangentially. Id. (citing Prima Paint Corp.
v. Flood & Conklin Mfg. Co., 388 U.S. 395, 40 1—02 n. 7 (1967)). Neither party suggests
that the commerce connection is an issue here.
3
6
a stay must make out a clear case of hardship or inequity in being
required to go forward, if there is even a fair possibility that the
stay for which he prays will work damage to someone else. Only in
rare circumstances will a litigant in one cause be compelled to
stand aside while a litigant in another settles the rule of law that
will define the rights of both.
299 U.S. at 254—55 (citations omitted). In Merritt-Chapman & Scott Corp. V.
Pennsylvania Turnpike Commission, the Third Circuit, citing Landis, reasoned
that a stay of court proceedings pending arbitration is a remedy that is “within
the inherent power of the court and does not require statutory authority.” 387
F.2d 768, 773 (3d Cir. 1967); see also Mason-Dixon Lines, Inc. v. Local Union
No. 560, Int’l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am.,
443 F.2d 807, 809 (3d Cir. 1971) (citing Yale & Towne Mfg. Co. v. Local Lodge
1717, Machinists, 299 F.2d 882 (3d Cir. 1962) (“Certainly, the normal power of
a court to do equity enables it to postpone action on a complaint pending the
outcome of a procedure for resolving such a dispute upon which the parties
have agreed.”); Vespe Contracting Co. v. Anvan Corp., 399 F. Supp. 516, 519
(E.D. Pa. 1975) (holding that the court “need rely neither on the United States
in order to support a
Arbitration Act nor the Pennsylvania Arbitration Act
decision to grant a stay of proceedings pending arbitration”).
.
B.
.
.
A Referral of Claims to Arbitration and a Stay of These
Proceedings Pending Arbitration is Appropriate
Applying the principles set forth above to the facts of this case, I have
determined that the claims in Neal’s Complaint should be referred to the
Arbitrator. I do not definitively hold that they are arbitrable, because that issue
is reserved to the Arbitrator in the first instance. Whether or not these claims
are ultimately found arbitrable, however, I exercise my discretion to stay this
action pending the outcome of the pending arbitration.
1. Referral to arbitration
The Consulting Agreement between ASTA and NWS, a company of which
Neal is a principal and owner, contains a broad arbitration clause. It provides
for arbitration of any “dispute, controversy or claim between the parties” that
arises “directly or indirectly out of or in connection with” the Consulting
Agreement. Consulting Agreement § 6.2. Such language, as a matter of law, is
to be construed broadly. See, e.g., Derbin v. Access Wealth Mgmt., LLC, CIV.A.
1 1-812 FLW, 2011 WL 4751992, at *11 (D.N.J. Oct. 7, 2011) (citing Battaglia v.
McKendry, 233 F.3d 720, 727 (3d Cir. 2000)) (reasoning that a court should
7
give broad construction to phrases in an arbitration agreement such as “arising
under” or “arising out of”).
Neal denies that he is a party to the arbitration agreement. Defendants
respond that Neal is subject to the agreement because he is a principal and
agent of NWS. The U.S. Court of Appeals for the Third Circuit has applied
traditional agency principles to the applicability of arbitration clauses. In
Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, for example, the court stated
that “[b]ecause a principal is bound under the terms of a valid arbitration
clause, its agents, employees, and representatives are also covered under the
terms of such agreements.” 7 F.3d 1110, 1121 (3d Cir. 1999). The United
States District Court for the District of New Jersey has applied general agency
principles to require arbitration of claims against non-signatory officers or
employees of a party to an arbitration contract. Reljic v. Tullett Prebon Americas
*5 (D.N.J. June 21, 2011)
Corp., CIV.A. 11-01323 SRC, 2011 WL 2491342, at
(finding non-signatories who were agents and employees of the principal to be
bound by an arbitration agreement); Mut. Ben. Life Ins. Co. v. Zimmerman, 783
F. Supp. 853, 865 (D.N.J. 1992)(reasoning that nonsignatories of a contract
may compel arbitration or be subject to arbitration “if the nonparty is an agent
of a party or a third party beneficiary to the contract”) affd, 970 F.2d 899 (3d
Cir. 1992). So, too, have other courts held that non-signatories to an
arbitration agreement may be bound under contract and agency principles.
See, e.g., Chase v. Check, 158 F.R.D. 59, 63-64 (E.D. Pa. 1994) (citing
Barrowclough, supra; In re Oil Spill by Amoco Cadiz, 659 F.2d 789, 795—96 (7th
Cir. 1981); Interocean Shipping Co. v. Nat. Shipping & Trading Corp., 523 F.2d
527, 539 (2d Cir. 1975), cert. denied, 423 U.S. 1054 (1976)).
,
Questions of arbitrability are committed in the first instance to the
Arbitrator. The Consulting Agreement between ASTA and NWS states that any
dispute shall be resolved by arbitration “in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (‘AAA’).” Consulting
Agreement § 6.2. Rule 7 of the AAA Commercial Arbitration Rules provides:
“The arbitrator shall have the power to rule on his or her own jurisdiction,
including any objections with respect to the existence, scope, or validity of the
arbitration agreement or to the arbitrability of any claim or counterclaim.” By
incorporating the AAA Rules in an arbitration agreement, the parties have
empowered the arbitrator to determine his or her own jurisdiction. See Bapu
*4
Corp. u. Choice Hotels Int’l, Inc., 07-CV-5938(WJM), 2008 WL 4192056, at
(D.N.J. Sept. 8, 2008) (reasoning that “other courts have uniformly held that
agreements submitting to arbitration under American Arbitration Rules
8
implicitly include agreements to submit the question of arbitrability to the
see
4
arbitrator”), affd, 371 F. App’x 306 (3d Cir. 2010); also Contec Corp. V.
Remote Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005) (citing Rule 7 and
holding that the incorporation of the AAA Commercial Arbitration Rules “serves
as clear and unmistakable evidence of the parties’ intent” to delegate
arbitrability issues to the arbitrator); Terminix Int’l Co., LP v. Palmer Ranch Ltd.
P’ship, 432 F.3d 1327, 1331 (11th Cir. 2005) (reasoning that, by incorporating
the AAA rules, the parties agreed to allow the arbitrator to decide whether the
arbitration clause was valid); Way Servs., Inc. v. Adecco N. Am., LLC, CIV 06CV-2109, 2007 WL 1775393, at *3 (E.D. Pa. June 18, 2007) (“[Tjhe Court is
persuaded that the prevailing rule across jurisdictions is that incorporation by
reference of rules granting the arbitrator the authority to decide questions of
arbitrability-especially the AAA rules-is clear and unmistakable evidence that
the parties agreed to submit arbitrability questions to the arbitrators.”).
A prior ruling of AAA Arbitrator Robert E. Barkus lends weight to the
conclusion that Neal is individually subject to the arbitration clause. As noted
above, the Arbitrator granted ASTA’s motion to consolidate the first arbitration,
brought against NWS only, with the second arbitration, which added claims
and named Neal individually. In his Memorandum Opinion, the Arbitrator
specifically addressed Neal’s objection that NWS, not he, was a party to the
Consulting Agreement that contains the arbitration clause. Arbitrator Bartkus
In Bapu, District Judge Martini reasoned that:
The franchise agreement’s arbitration provision provides that disputes
will be sent to arbitration “in accordance with the Commercial
One of
Arbitration Rules of the American Arbitration Association.”
these Commercial Arbitration Rules, specifically Rule R-7, provides that
“[t]he arbitrator shall have the power to rule on his or her own
jurisdiction, including any objections with respect to the existence, scope
or validity of the arbitration agreement.” The parties’ agreement to
arbitrate any contract disputes under these Commercial Arbitration
Rules thus includes an agreement to submit the question of arbitrability
to the arbitrator. Accordingly, it was improper for the Court to substitute
its judgment for the arbitrator’s judgment with respect to whether the
parties had agreed to arbitrate disputes more than three years old.
.
.
.
2008 WL 4192056, at *4 J was, therefore, improper for the court to substitute its
judgment for that of the arbitrator with respect to whether the parties agreed to
arbitrate the dispute in question. Id.
9
ntative
considered the broad language of the clause, Neal’s position as represe
(that
and principal of NWS, the circumstances surrounding the new claims
of access
Neal misused confidential information that he acquired as a result
ing the
authorized by the Consulting Agreement), and case law regard
In light
applicability of arbitration clauses to company principals and officers.
to the
of all those factors, the Arbitrator found that Neal was subject
5
arbitration clause, and consolidated the two arbitrations.
is
That reasoning suggests that the Arbitrator might also find that Neal
d in the
subject to the arbitration agreement with respect to the claims asserte
of the
Complaint here. Neal was a co-owner of NWS at the time of the execution
NWS
agreement. (Compi. ¶ 87). “Upon inception of the ASTA Contract, the
a co
Point of Contact was Neal. . . .“ (Compi. ¶ 356). Neal was unquestionably
t.
owner and agent of NWS, as well as a third party beneficiary of the contrac
ent. In
The claims arise out of the relationship that was created by that Agreem
yment
the Complaint, Neal recharacterizes the relationship as an emplo
ory
relationship, and recasts the termination of the Agreement as a retaliat
firing, but he is referring to the same chain of events.
not
The Arbitrator’s order consolidating the two arbitrations does
before this
specifically address the question whether Neal’s retaliation claims
called
Court would also be subject to the arbitration agreement. He was not
in that
upon to do so, because those retaliation claims had not been asserted
to that
arbitration. The logic of the Arbitrator’ s decision, however, points
conclusion.
6
5 In ruling to consolidate all claims, the Arbitrator found that the “factual
edge of the
allegations are the same, the parties are related and have intimate knowl
) that
events concerning the matters, and I believe (based on the current record
interest of
duplicative discovery and fact-finding proceedings would not be in the best
serving as
anyone.” Consolidation Order at 2. He also noted that “Mr. Neal is not only
claims and
New World’s representative, but that he also is principal and that the
counterclaims are, in the final result, inherently connected with him.” Id.
note one issue that, if meritorious, would pose a threshold legal bar to the
which
arbitrability of one of Neal’s claims. In 2010, Congress passed Dodd-Frank,
18 U.S.C.
amended Section 15 14(c) of SOX to prohibit arbitration of SOX claims.
Frank
§15 14A(c)(2). The courts have “nearly uniformly” held, however, that the Doddble at the
arbitration bar does not apply to SOX whistleblower claims that were arbitra
4882758
time the law was enacted. See Weller v. HSBC Mort. Services, Inc., 2013 WL
(D. Col. Sept. 11, 2013); Blackwell v. Bank of Am. Corp., No. 7:1 1—cv—02475--JMC,
6
10
Facially, the claims in the Complaint appear to be arbitrable. It is for the
Arbitrator, however, to determine the issue of arbitrability (subject of course to
a Court’s ultimate review, if and when a party moves to confirm, vacate, or
modify an award, pursuant to 9 U.S.C. § 9, 10 and 11). I therefore refer the
claims asserted in Neal’s Complaint to the Arbitrator for such a determination
and, if they are found arbitrable, for decision.
2. Stay of this case pending arbitration
The substantive issues that either are being decided or are subject to
being decided in arbitration are intertwined with the claims asserted in the
Complaint, and may affect their resolution. Even if some or all of the claims in
the Complaint were found non—arbitrable, a stay of this action would be
appropriate. A stay serves the interests of judicial efficiency and the broad
federal policy in favor of free arbitration of the disputes that are currently
before the Arbitrator. Under Section 3 of the FAA and this Court’s broader
discretionary powers, this action will be stayed pending the outcome of
arbitration.
First, a stay is appropriate under Section 3 of the FAA. At least one issue
(and possibly all) “involved in [this] suit or proceedings is referable to
2012 WL 1229675 (D.S.C. April 12, 2012); Taylor u. Fannie Mae, 839 F. Supp. 2d 259
(D.D.C. 2012); Holmes v. Air Liquide USA LLC, No. H—l1—2580, 2012 WL 267194
(S.D.Tex. Jan. 30, 2012); Henderson v. Masco Framing Corp., No. 3:1 1—CV—00088—
LRH, 2011 WL 3022535 (D. Nev. July 22, 2011); Ruhe v. Masimo Corp., SACV 1100734-CJC, 2011 WL 4442790 (C.D. Cal. Sept. 16, 2011);. It must be noted, however,
that at least two courts have applied the prohibition retroactively. See Wong ii. CKX,
Inc., 890 F. Supp. 2d 411, 423 (S.D.N.Y. 2012); Pezza v. Investors Capital Corp., 767 F.
Supp. 2d 225 (D. Mass. 2011).
Here, the Consulting Agreement was signed in June 2009, before the enactment
of the Dodd-Frank amendments. I agree with the majority, non-retroactivity rule,
which preserves the arbitrability of claims as of the date of the arbitration agreement.
That rule best respects settled expectations and the federal policy in favor of
arbitration freely agreed upon by the parties. I note also that retroactivity is generally
not “favored in the law.” Lczndgraf v. USI Film Prods, 511 U.S. 244, 264, 271 (1994).
Under the majority view, which I accept, the amendments would not bar arbitration of
the SOX claims. In any event, however, I would stay this proceeding. See infra.
11
arbitration” under the Consulting Agreement’s arbitration clause. 9 U.S.C. § 3.
As discussed above, the claims asserted in the Complaint appear to be
arbitrable, and the Arbitrator may well so find. Under such circumstances, a
stay is warranted. See id.; authorities cited at pp. 5-6, supra. Any doubts as to
whether a particular party or sub-issue is subject to arbitration need not
preclude a stay. At the very least, “significant overlap exists between parties
Crawford 847 F. Supp. at 1240. Under such circumstances, a
and issues.
Section 3 stay of court proceedings is appropriate.
.
.
.“
Second, this Court has the inherent power to stay proceedings pending
arbitration. I find that a stay is appropriate, taking into account all competing
interests. See generally Landis v. N. Am. Co., 299 U.S. at 254—55; authorities
cited at pp. 6-7, supra. In particular, a court may stay proceedings in the
interest of efficiency where the issues in arbitration are related to (if not strictly
dispositive of) the issues before the court. Thus, in Leyva v. Certified Grocers of
California, Ltd., the Ninth Circuit held that that, even where Section 3 of the
FAA does not apply, a trial court may properly stay a proceeding pending
arbitration where “it is efficient for its own docket and the fairest course for the
parties to enter a stay of an action before it, pending resolution of independent
proceedings which bear upon the case.” 593 F.2d 857, 863—64 (9th Cir. 1979).
The court reasoned that “[tjhis rule applies whether the separate proceedings
are judicial, administrative, or arbitral in character, and does not require that
the issues in such proceedings are necessarily controlling of the action before
the court.” Id; see also Nederlandse Erts-Tankersmaatschappij, N. V. v.
Isbrandtsen Co., 339 F.2d 440, 441—42 (2d Cir. 1964) (reasoning that the
district court had the inherent power to stay proceedings pending an
arbitration where defendants were not party to the arbitration agreement, but
the issues involved in the case may be determined in arbitration).
The resolution of the arbitration will involve issues overlapping and
bearing upon disputes raised in this action. The retaliation-based claims that
Neal brings before this Court involve factual and legal issues closely related to
those in the arbitration. Neal of course is identified with NWS. All of the
opposing parties are either ASTA employees or are otherwise implicated as a
result of their association with ASTA. In the arbitration, ASTA has argued that
it terminated the Consulting Agreement for a legitimate reason: because NWS
inflated billing and did not perform as required under the Agreement. A
determination that ASTA had a legitimate reason for terminating the
relationship with NWS would be highly relevant to Neal’s claim, for example,
that he was fired on a retaliatory basis, even assuming that he could establish
12
that his relationship with ASTA was that of employee and employer. I agree
with the Defendants that the claims in this action “are inextricably intertwined
with the services provided by NWS pursuant to the Consulting Agreement.”
Docket No. 25-1 at 27. And it would be inadvisable to have these intertwined
claims proceed simultaneously in court and in arbitration; such a procedure
would be rife with opportunities for mutual interference, inconsistent rulings,
and general procedural confusion.
ASTA initiated arbitration on July 26, 2012, well over a year ago. (Docket
No. 25-1 at 26). NWS and ASTA remain embroiled in the ongoing arbitration.
The Arbitrator has now determined that Neal is individually subject to the
arbitration agreement, and has consolidated ASTA’s claims against Neal with
the other claims. Consolidation Order. Neal acknowledges that, as of July 26,
2013, “tens of thousands of pages of discovery ha[d] been exchanged by the
parties as well as several hundred thousand emails and four depositions have
occurred.” Docket No. 11-1 at 4. Neal has fully participated in the arbitrations
as NWS’s representative. See, e.g., Docket No 42-1 (Exhibit 8) (“Respondent’s
7
Motion for Omnibus Relief”). That process should be permitted to proceed to
an orderly conclusion without the interference of this Court.
In balancing the interests of the parties, I do not find that Neal will be
unduly harmed by a stay of this proceeding pending the arbitration. Neal is free
to bring his claims within the arbitration, and indeed that is probably the
proper forum for them. But in the event that any of Neal’s claims are not
arbitrable and are not addressed in the arbitration, he may be able to pursue
them in court. It is likely that the Arbitrator’s resolution of the arbitrable
claims would narrow and focus the nonarbitrable claims, if any, that might
remain.
For all of the foregoing reasons, I will stay this action pending the
resolution of the arbitration.
On August 8, 2013, before the Consolidation Order was issued, Neal signed a
Motion for Omnibus Relief, filed as part of the arbitration between ASTA and NWS:
David Shaun Neal, Managing Partner, New World Solutions, for the Respondent
Counterclaimant, New World Solutions, Inc. Respondent’s Motion for Omnibus Relief.
7
13
C. The Remaining Motions
i. Plaintiff’s Motion for Sanctions
C. 1927 and the
Neal has moved for sanctions pursuant to 28 U.S.
and their counsel have
Court’s inherent powers, arguing that Defendants
. . .“ Docket No. 28-1 at
engaged in “numerous instances of frivolous conduct .
ration agreement and
5. Neal argues, inter alia, that he is not party to an arbit
lous conduct, such as
that Defendants and their counsel have engaged in frivo
ing knowingly false
evasion of service, unauthorized practice of law, mak
arbitration demand”
statements to the Court, and filing an “utterly meritless
against Neal. Id. at 2—6.
Section 1927 provides:
cases in any
Any attorney or other person admitted to conduct
of who so
court of the United States or any Territory there
ably and
multiplies the proceedings in any case unreason
nally the
vexatiously may be required by the court to satisfy perso
y incurred
excess costs, expenses, and attorneys fees reasonabl
because of such conduct.
d discretion in managing
28 U.S.C. § 1927. “Although a trial court has broa
sanctions under 28 U.S.C.
litigation before it, the principal purpose of imposing
unnecessary delay in the
§ 1927 is the ‘deterrence of intentional and
ic Institute, 103 F.3d 294,
proceedings.” Zuk v. Eastern Pennsylvania Psychiatr
England Printing, 899 F.2d
297 (3d Cir. 1996) (quoting Beatrice Foods v. New
court to find an attorney
1171, 1177 (Fed. Cir. 1990)). Section 1927 “requires a
and vexatious manner;
has (1) multiplied proceedings; (2) in an unreasonable
(4) doing so in bad faith
(3) thereby increasing the cost of the proceedings; and
Am. Sales Practice Litig.
or by intentional misconduct.” In re Prudential Ins. Co.
g Williams v. Giant Eagle
Agent Actions, 278 F.3d 175, 188 (3d Cir. 2002) (citin
Additionally, a court has
Markets, Inc., 883 F.2d 1184, 1191(3rd Cir. 1989)).
nces that may justify
the inherent power to issue sanctions. Such circumsta
e a party has acted in
sanctions pursuant to this power include “cases wher
reasons . . . .“ Id. at 189
bad faith, vexatiously, wantonly, or for oppressive
(1991)).
(quoting Chambers v. NASCO, Inc., 501 U.S. 32, 45—46
’s taking positions
The claimed abuses consist substantially of ASTA
that in some cases have
contrary to Neal in arbitration or litigation, positions
14
ants have
been held to be substantially justified. Nor can I find that Defend
find that
vexatiously multiplied proceedings. In light of the case record, I do not
Court are
sanctions pursuant to Section 1927 or the inherent power of the
ns.
appropriate here. I exercise my discretion to deny Neal’s motion for sanctio
ii. Defendants’ Cross Motion for Sanctions arid for Injunctive Relief
tive
Defendants have filed a cross motion for sanctions and for injunc
actions to
relief. Defendants argue that Neal has filed a multitude of frivolous
resources
harass and burden ASTA and its representatives, draining judicial
ign to
and abusing the judicial process in an attempt to further his campa
in that
8
harass and abuse ASTA. Docket No. 34-3 at 19—20. They also mainta
on
Neal failed to disclose certain information and failed to effect service
Defendants as to various motions. Id.
while
The motion for sanctions is denied. Neal’s litigation conduct,
not yet, rise
perhaps vexatious in the ordinary sense, does not, or at least does
the All Writs
to the level of requiring sanctions pursuant to 28 U.S.C. § 1927,
by my
Act, 8 U.S.C. § 1651(a), or the Court’s inherent power. Influenced
s pro se, I
consideration that sanctions are a last resort, and that Neal appear
All parties,
will exercise my discretion to deny sanctions at the present time.
of Court
however, whether pro se or represented, are cautioned that the rules
be asserted
must be complied with, and that related claims should not
piecemeal in multiple actions.
t that
The motion for an injunction is likewise denied. Defendants reques
s with
the Court restrain Neal from filing any further complaints or motion
of court,
respect to ASTA and any of its representatives or agents without leave
Circuit has
pursuant to the All Writs Act. (Docket No. 34-1 at 2). The Third
court the
held that, “while the All Writs Act, 28 U.S.C. § 1651, gives the district
gs, it is an
power to issue an injunction to restrict the filing of meritless pleadin
used.” Abdul
extreme remedy which must ‘be narrowly tailored and sparingly
of Packer
Akbar v. Watson, 901 F.2d 329, 332 (3d Cir. 1990) (quoting Matter
preference
Ave. Associates, 884 F.2d 745, 747 (3d Cir. 1989)). There is a strong
their filing
for dealing with actions on the merits, rather than precluding
necessary
altogether. 1 do not find that the extreme remedy of an injunction is
be stayed
here, particularly in light of the fact that this case, at least, will now
pending the outcome of arbitration.
8
See list of other actions and proceedings filed by Neal at n. 1, supra.
15
iii. Other pending matters
Neal has moved for this Court to stay the arbitration pending the
resolution of his claims in this Court. As explained above, I have stayed this
action in order to permit arbitration to proceed. In light of my resolution of
those issues, Neal’s application is denied.
As noted above, Magistrate Judge Hammer denied Neal’s motion to
vacate the Arbitrator’s Turnover Order (Docket No. 35). Neal recently moved for
reconsideration of Judge Hammer’s order (Docket No. 39). That reconsideration
motion will be denied in light of my stay of this action. The Court does not find
it appropriate to interfere with such interlocutory rulings in the arbitration.
CONCLUSION
Defendants’ motion to dismiss Neal’s claims for failure to state a claim is
DENIED as presented and administratively terminated without prejudice.
Instead, the claims asserted in the Complaint are REFERRED to the
Arbitrator. Meanwhile, this entire action is STAYED pending the outcome of
the ongoing arbitration. Plaintiff’s motion for sanctions is DENIED. Defendants’
cross motion for sanctions and injunctive relief is DENIED. Plaintiff’s motion to
stay the arbitration is DENIED. Plaintiffs motion for reconsideration of
Magistrate Judge Hammer’s order declining to vacate the Arbitrator’s Turnover
Order is DENIED.
An appropriate order follows.
KEVIN MCNULT
United States District Judge
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?