Winter Investors, LLC et al v. Panzer et al
Filing
73
OPINION AND ORDER re: 50 MOTION to Dismiss for Lack of Jurisdiction filed by Etre Financial, LLC, Scott Panzer, Paul Frischer, Frischer Kranz Inc., Etre Financial Holdings, LLC, SMP Realty NM, LLC, Jesse Stein, JS3 Alternative Investments, LLC, 66 MOTION to Dismiss Amended Complaint filed by LH Financial, 48 MOTION to Compel Arbitration filed by Eve, LLC, Sol Mayer, Eli Verschleiser, Etr Investors Holdings LLC: For the foregoing reasons, Defendants' motion to compel arbitration is GRANTED IN PART and DENIED IN PART. The motions to compel arbitration of the Signatory Claims and the Employment Agreement Claim are GRANTED; the motion to compel arbitration of the Non-Signatory Claims is DENIED. The Signatory Claims, the Employment Agreement Claims, the Non-Signatory Claims, and the LH Claims are hereby STAYED pending resolution of arbitration proceedings. In light of the stay, LH's motion to dism iss the Amended Complaint is DENIED WITHOUT PREJUDICE. The parties shall submit a joint letter to the Court by January 8, 2016, and every six months thereafter, updating the Court on the status of the arbitration proceedings. By September 9, 2015, th e Verschleiser-Mayer Defendants shall inform the Court if they wish to file a pre-answer motion with respect to the 500 Lincoln Claims. The Court will either set a briefing schedule (which, the Court cautions, will be expedited), or a schedule for De fendant Verschleiser's responsive pleading and discovery limited to the 500 Lincoln Claims, upon receipt of the Verschleiser-Mayer Defendants' letter. The Clerk of Court is directed to terminate Docket Entries 48, 50, and 56. (Signed by Judge Katherine Polk Failla on 8/27/2015) Copies Mailed By Chambers. (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------X
:
WINTER INVESTORS, LLC, et al.,
:
:
Plaintiffs,
:
:
:
v.
:
SCOTT PANZER, et al.,
:
:
Defendants. :
:
----------------------------------------------------- X
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 27, 2015
______________
14 Civ. 6852 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
This action was precipitated by an intracompany squabble and eventual
corporate reorganization of ETRE Financial, LLC (“Old ETRE”) that occurred in
July 2014. Specifically, Plaintiff Jacob Frydman, an Old ETRE board member,
alleges that in July 2014, Defendants Scott Panzer, Paul Frischer, and Jesse
Stein, the other Old ETRE board members, sought an investment from
Defendant Sol Mayer in order to keep Old ETRE afloat. Old ETRE’s 2012
Limited Liability Company Agreement (the “Operating Agreement”), however,
required unanimous consent of the board to accept such an investment, and
Frydman’s opposition prevented, at least temporarily, Old ETRE from getting
into business with Mayer. To circumvent Frydman’s inherent veto power and
obtain the funding they desired, Defendants engineered a merger of Old ETRE
into a company bankrolled by Mayer — ETRE Financial Holdings, LLC — which
Defendants promptly renamed ETRE Financial, LLC (“New ETRE”).
Significant to the instant motions, the Operating Agreement contains an
arbitration clause requiring that “any controversy or claim arising out of or
relating to” the Operating Agreement “be settled by arbitration.” Defendants
have moved pursuant to the Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 114, to compel Plaintiffs to arbitrate this dispute, which includes claims for
breach of contract, common law fraud, conversion, breach of fiduciary duty,
intentional interference with contractual rights, tortious interference with
prospective business relations, and securities fraud under Section 10(b) of the
Securities Exchange Act of 1934 (the “Exchange Act”), Pub. L. 73-291, 48 Stat.
881. Plaintiffs counter that the arbitration clause is not binding because Old
ETRE, and by extension its Operating Agreement, ceased to exist or have any
legal force when the merger was completed; because Defendants have
repudiated or waived their right to arbitrate under the Operating Agreement;
and because performance under the Operating Agreement has been rendered
impossible as a result of Defendants’ conduct. For the reasons set forth in the
remainder of this Opinion, Defendants’ motion to compel is granted in part and
denied in part.
2
BACKGROUND1
A.
Factual Background
1.
The Formation of Old ETRE
In August 2012, Plaintiff Frydman and Defendants Panzer, Frischer,
Stein, and Eli Verschleiser (collectively, the “Principals”) formed Old ETRE, with
the goal of creating a “Real Estate Liquidity Exchange.” (Am. Compl. ¶¶ 44,
49). Specifically, the Principals hoped to create “an efficient liquid marketplace
where large institutional investors as well as small retail investors [could]
purchase partial ownership interests in a particular property (the ‘shares’),
which shares [would be] trade[d] on the exchange[.]” (Id. at ¶ 45). Plaintiffs
allege that “[t]he platform would be the first to allow investors to invest in
1
The facts contained in this Opinion are drawn from the Complaint (“Am. Compl.” (Dkt.
#40)) and the Operating Agreement attached thereto (id., Ex. C), and are taken as true
for purposes of the pending motions.
Courts generally construe pro se pleadings broadly, and interpret them to raise the
strongest arguments that they suggest. See Cruz v. Gomez, 202 F.3d 593, 597 (2d Cir.
2000). “Here, however, Plaintiff [Frydman] is an attorney, and is thus not entitled to
liberal construction of his pleadings.” McNaughton v. de Blasio, No. 14 Civ. 221 (KPF),
2015 WL 468890, at *4 (S.D.N.Y. Feb. 4, 2015) (citing Erickson v. Pardus, 551 U.S. 89,
94 (2007); Tracy v. Freshwater, 623 F.3d 90, 101-02 (2d Cir. 2010); Holtz v. Rockefeller
& Co., 258 F.3d 62, 82 n.4 (2d Cir. 2001)). Moreover, Plaintiff Frydman’s company,
Winter Investors, LLC, is represented by counsel in this litigation, and the Court
therefore has even less reason to construe liberally the pleadings and briefs submitted
jointly by Plaintiffs.
Motions to compel arbitration have been filed by two groups of Defendants:
Verschleiser, Mayer, and their respective companies (collectively, the “VerschleiserMayer Defendants”) (Dkt. #48-49); and Old ETRE, New ETRE, Frischer, Stein, Panzer,
and their respective companies (collectively, the “Frischer-Stein Defendants”) (Dkt. #5051). Separately, Defendant LH Financial (“LH”) has filed a motion to dismiss for failure
to state a claim. (Dkt. #66-67). For convenience, the memoranda of law in support of
the respective motions to dismiss will be referred to as “Verschleiser-Mayer Br.” (Dkt.
#49); “Frischer-Stein Br.” (Dkt. #51); and “LH Br.” (Dkt. #67). Plaintiffs’ opposition to
the motions to compel arbitration will be referred to as “Pl. Opp.” (Dkt. #59), and their
opposition to the motion to dismiss will be referred to as “Pl. Opp. MTD” (Dkt. #70).
Reply briefs will be referred to as “Verschleiser-Mayer Reply” (Dkt. #62); “Frischer-Stein
Reply” (Dkt. #63); and “LH Reply” (Dkt. #71).
3
individual commercial real estate assets (e.g., a particular office building) by
purchasing shares of those assets on a national stock exchange.” (Id. at ¶ 49).
On August 15, 2012, the Principals executed the Operating Agreement, which
set forth the rights and responsibilities of Old ETRE’s Members, Managers, and
Officers. (Id. at ¶ 50). Pursuant to the Operating Agreement, each of these five
Principals contributed capital through his respective company in return for
membership units of Old ETRE; their five companies — Winter Investors, LLC
(“Winter Investors”); EVE, LLC (“EVE”); Frischer Kranz, Inc. (“Frischer Kranz”);
JS3 Alternative Investments, LLC (“JS3”); and SMP Realty NM, LLC
(“SMP”) — became the sole Members of Old ETRE. (Id. at ¶ 52).2 Frydman,
Panzer, Frischer, and Stein were established as the four Managers and board
members of Old ETRE, and Frischer was also named the Chief Executive
Officer of Old ETRE. (Id. at ¶¶ 19, 47, 51, 63).
2.
The Operating Agreement
The Operating Agreement requires the unanimous consent of the four
board members before Old ETRE could “incur[] … any debt obligations,”
“issu[e] … any Units or other equity securities,” “admi[t] [any] additional
Members,” or make any “modification or amendment” to the Operating
Agreement. (Am. Compl. ¶ 64 (citing Section 6.12 of the Operating
Agreement)). In contrast, with respect to a merger transaction, the Operating
Agreement requires unanimous consent only where, as a result of the merger,
2
The individuals contributed through their corporate entities as follows: Frydman
through Winter Investors; Verschleiser through EVE; Frischer through Frischer Kranz;
Panzer through SMP; and Stein through JS3. (See Am. Compl. ¶¶ 17-24, 52).
4
the Principals “hold in the aggregate less than a majority of the outstanding
voting equity securities of the surviving entity immediately after” the merger
takes place. (Id.).
Section 14.15 of the Operating Agreement, entitled “Termination of
Agreement,” provides in relevant part: “Upon the consummation of ... a merger
or consolidation in which the Members of the Company immediately prior to
such merger or consolidation do not own at least a majority of the Capital
Securities of the surviving entity . . . (each a ‘Termination Event’), ... all rights
and Obligation of the parties under this Agreement shall terminate immediately
and be of no further effect.” (Am. Compl. ¶ 211).
The Operating Agreement also includes a broadly-worded agreement to
arbitrate any disputes that might arise:
In the event of any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, the
parties to such controversy or claim shall first use their
reasonable best efforts in good faith to resolve such
dispute among themselves. If they are unable to resolve
the dispute within thirty (30) days after any party has
first notified the others of the dispute, then the
controversy or claim shall be settled by arbitration
administered by JAMS [Judicial Arbitration and
Mediation Services, Inc.] and judgment on the award
rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
(Operating Agreement § 14.13 (emphasis added)).
3.
Frischer’s Employment Agreement
In addition to alleging various breaches of the Operating Agreement,
Plaintiffs also allege that Frischer breached his employment agreement with
5
Old ETRE. (Am. Compl. ¶¶ 396-98).3 As with the Operating Agreement,
Frischer’s employment agreement contains a broadly-worded arbitration
clause:
In the event of any dispute or claim relating to or arising
out of this Agreement or any other agreement between
the parties, or your employment or termination of
employment with the Company, all parties to this
Agreement agree that all such disputes shall be fully
and finally resolved by binding arbitration conducted by
the American Arbitration Association in New York, New
York under its Commercial Arbitration Rules.
(Am. Compl., Ex. B at 5 (emphasis added)).
4.
The Merger and Formation of New ETRE
By early 2014, Old ETRE was facing financial difficulties, which Plaintiffs
ascribe to “Frischer and Stein’s negligence and/or ineptitude.” (Am. Compl.
¶ 161; see generally id. at ¶¶ 162-74). On June 11, 2014, Stein visited
Frydman’s office and informed him for the first time that Old ETRE had
received an offer from Sol Mayer and his company, LH Financial (“LH”), to
invest $1.6 million into Old ETRE. (Id. at ¶ 175). Stein also informed Frydman
that Old ETRE had incurred a series of debts in favor of Defendants Panzer and
Frischer — debts the company planned to convert into equity securities. (Id.).
During this same time, Frischer proposed various amendments to the
Operating Agreement. (Am. Compl. ¶¶ 184-88). Specifically, Frischer proposed
amendments that would have removed board member unanimity requirements
3
Frischer’s June 1, 2012 employment agreement was actually with United Realty
Partners, LLC, a joint venture between Frydman and Verschleiser; a copy of the
agreement is included as an exhibit to the Amended Complaint. (Am. Compl., Ex. B).
6
for particular transactions, added Mayer as a Manager and board member of
Old ETRE, and added Mayer’s corporate entity, ETR Investor Holdings, LLC
(“ETR”) as a Member of Old ETRE. (Id.). These proposed changes, Plaintiffs
allege, would have diluted their interest in Old ETRE by $3,238,269.00. (Id. at
¶ 185). Plaintiffs also allege that Verschleiser was the driving force behind the
proposed Mayer investment and the other changes made or proposed by Stein
and Frischer. (See id. at ¶¶ 1-6, 183-84). According to Plaintiffs, Verschleiser
was motivated by both a specific desire to dilute Plaintiffs’ ownership interest
in Old ETRE, and a more general desire to cause harm to Frydman’s business
ventures wherever possible. (See id.).
Plaintiffs allege that all of the proposed changes would have required
Frydman’s consent under the Operating Agreement. (Am. Compl. ¶ 190). On
June 17, 2015, Frydman voted against the proposals, and expressed his
dissent from those actions (such as the assumption of debt) that had already
taken place without his consent. (Id.). That same day, Stein “ma[d]e clear” to
Frydman that “the alternative to bringing capital into the business would be
shutting down the company on Monday[, with] no liquidation value.” (Id. at
¶ 191). Frydman was unmoved.
To circumvent Frydman’s veto power, on July 24, 2015, Defendants
relied on a different provision of the Operating Agreement to merge Old ETRE
with ETRE Financial Holdings, LLC — a company funded by Mayer. (See Am.
Compl. ¶ 198). The goal of this merger was clear: to effect essentially all of the
actions (including the receipt of Mayer’s cash infusion, and the addition of
7
Mayer as board member) that Defendants originally sought to effect through
the amendment of the Operating Agreement and through approval by Old
ETRE’s board. (See id. at ¶¶ 197, 204). Defendants would later reclaim Old
ETRE’s moniker, ETRE Financial LLC, as the formal name of the post-merger
company referred to here as New ETRE. (Id. at ¶ 233).
On August 4, 2014, Frydman attempted to call a meeting of the board of
Old ETRE, but was informed by Frischer that Old ETRE no longer existed and
that no one would be attending Frydman’s meeting. (Am. Compl. ¶ 210).
Similarly, when Frydman attempted to exercise other powers that he believed
to be available under the auspices of Old ETRE, he was informed by counsel for
Defendants that, “[a]s part of the merger, ETRE Financial Holdings, LLC
changed its name to ETRE Financial, LLC …, adopted a new Operating
Agreement, and [O]ld ETRE ceased to exist.” (Id. at ¶ 232).
Plaintiffs assert that the merger that transformed Old ETRE into New
ETRE was ultra vires because it occurred without Frydman’s approval. (Am.
Compl. ¶ 203). Plaintiffs also allege that the merger constitutes a “Termination
Event” under the terms of the Operating Agreement, such that its provisions,
including the arbitration clause, cease to have any effect. (See id. at ¶ 214 (“As
a result of the purported merger, and pursuant to Section 14.[1]5 of the …
Operating Agreement, all rights and Obligation of the parties to the …
Operating Agreement terminated immediately upon the filing of the certificate
of merger with the Delaware Secretary of State.”)). Somewhat in tension with
this allegation, Frydman maintains that “[Old] ETRE continues to exist, and
8
the … Operating Agreement continues to govern the [parties’] rights, … but
Defendants … specifically waived their right to seek enforcement of the
arbitration agreement (or any other agreement) made in the … Operating
Agreement.” (Id. at ¶ 114).
B.
Procedural Background
Plaintiffs initiated this action on August 22, 2014. (Dkt. #1). On
September 29, 2014, the Verschleiser-Mayer Defendants and the FrischerStein Defendants each submitted a letter requesting a pre-motion conference in
anticipation of moving the Court to compel arbitration. (Dkt. #15, 16). After
receiving responsive letters from Plaintiffs (Dkt. #18, 19), the Court held a premotion conference on October 15, 2014. On the same day, the Court issued a
scheduling order requiring Defendants to file their motions on November 17,
2014. (Dkt. #28).
Counsel for the Verschleiser-Mayer Defendants originally filed a notice of
appearance on behalf of LH (Dkt. #25), and appeared on its behalf at the premotion conference. Several weeks later, however, counsel moved to withdraw
from representing LH, explaining that his firm did not, in fact, represent LH in
this action. (Dkt. #46). Service of LH thereafter proved impracticable, and the
Court granted Plaintiffs’ request to effect service by alternate means. (Dkt.
#53).
On November 3, 2014, Plaintiffs filed an Amended Complaint, which
added an additional 131 paragraphs and four new counts against Defendant
Verschleiser. (Am. Compl. ¶¶ 460-71). The new allegations relate to
9
Verschleiser’s involvement with a wholly separate business venture of
Frydman’s called 500 Lincoln LLC. Plaintiffs allege that, as part of an
overarching campaign of harassment, Verschleiser conspired with Scott and
Warren Diamond (non-parties to the instant action) to extort and then
eventually to file a baseless lawsuit against Frydman. (Id. at ¶¶ 236-345).
Plaintiffs also allege that the “500 Lincoln Operating Agreement … includes an
arbitration agreement, [which] was not signed by any of the parties to [the
instant] action.” (Id. at ¶ 340 (emphasis in original)). Notably, on the same day
Plaintiffs filed their Amended Complaint in this action, they filed a separate
action in this Court against the Diamonds focusing entirely on alleged
misconduct relating to the 500 Lincoln venture. See Frydman v. Diamond,
No. 14 Civ. 8741 (GHW).
After receiving an extension to file their papers (based on Plaintiffs’
unexpected amendment), Defendants filed their motions to compel arbitration
on December 17, 2014. (Dkt. #48-51). Plaintiffs filed their opposition on
January 23, 2015 (Dkt. #59), and Defendants submitted their replies on
February 6, 2015 (Dkt. #62-63).
As the briefing of the motions to compel was drawing to a close,
Defendant LH appeared through counsel and indicated its intent to file a
motion to dismiss for failure to state a claim. (Dkt. #61, 64). Pursuant to a
scheduling order issued by the Court, LH filed its motion to dismiss on
March 13, 2015 (Dkt. #66-67); Plaintiffs filed their opposition on April 10, 2015
10
(Dkt. #70); and LH filed its reply on April 21, 2015 (Dkt. #71). All motions are
now fully briefed.
DISCUSSION
A.
Applicable Law
The FAA “‘creates a body of federal substantive law of arbitrability
applicable to arbitration agreements … affecting interstate commerce.’” Ragone
v. Atl. Video of Manhattan Ctr., 595 F.3d 115, 121 (2d Cir. 2010) (quoting All.
Bernstein Inc. Research & Mgmt., Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir.
2006)). “[E]nacted in 1925[,] in response to widespread judicial hostility to
arbitration agreements,” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740,
1745 (2011), the FAA provides, in relevant part:
A written provision in any … contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or
transaction … shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.
9 U.S.C. § 2.
The Supreme Court and the Second Circuit have consistently recognized
that the FAA embodies a “liberal federal policy favoring arbitration
agreements.” CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669 (2012); see
also AT&T Mobility LLC, 131 S. Ct. at 1750 (“[O]ur cases place it beyond
dispute that the FAA was designed to promote arbitration”; noting that the Act
“embod[ies] a national policy favoring arbitration, and a liberal federal policy
favoring arbitration agreements, notwithstanding any state substantive or
procedural policies to the contrary” (internal citations and quotation marks
11
omitted)); Sutherland v. Ernst & Young LLP, 726 F.3d 290, 295 (2d Cir. 2013)
(“In analyzing this provision of the FAA, the Supreme Court has remarked on
several occasions that it establishes a liberal federal policy favoring arbitration
agreements.” (internal quotation marks omitted)). Central to this policy is the
tenet that “any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration.” Citigroup, Inc. v. Abu Dhabi Inv. Auth., 776
F.3d 126, 130 (2d Cir. 2015) (citation omitted). This tenet remains true “even
when the claims at issue are federal statutory claims, unless the FAA’s
mandate has been ‘overridden by a contrary congressional command.’”
CompuCredit Corp., 132 S. Ct. at 669 (quoting Shearson/Am. Express Inc. v.
McMahon, 482 U.S. 220, 226 (1987)).
It is settled law that “arbitration is a matter of contract and a party
cannot be required to submit to arbitration any dispute which he has not
agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83
(2002) (citation omitted). “The question whether the parties have submitted a
particular dispute to arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue
for judicial determination [u]nless the parties clearly and unmistakably provide
otherwise.’” Schneider v. Kingdom of Thailand, 688 F.3d 68, 71 (2d Cir. 2012)
(quoting Howsam, 537 U.S. at 83) (emphasis in original). To that end, Section
4 of the FAA allows “a party to an arbitration agreement [to] petition a United
States district court for an order directing that ‘arbitration proceed in the
manner provided for in such agreement.’” Stolt-Nielsen S.A. v. AnimalFeeds Int’l
Corp., 559 U.S. 662, 682 (2010) (quoting 9 U.S.C. § 4).
12
In order to determine whether all or part of an action should be sent to
arbitration, a court must conduct the following inquiries:
[F]irst, it must determine whether the parties agreed to
arbitrate; second, it must determine the scope of that
agreement; third, if federal statutory claims are
asserted, it must consider whether Congress intended
those claims to be nonarbitrable; and fourth, if the court
concludes that some, but not all, of the claims in the
case are arbitrable, it must then decide whether to stay
the balance of the proceedings pending arbitration.
JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 169 (2d Cir. 2004) (citation
omitted). With respect to the first inquiry, the Second Circuit has recognized a
number of theories under which non-signatories may be bound to the
arbitration agreements of other parties: “[i] incorporation by reference;
[ii] assumption; [iii] agency; [iv] veil-piercing/alter ego; and [v] estoppel.”
Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995);
accord Magi XXI, Inc. v. Stato della Citta del Vaticano, 714 F.3d 714, 723 n.9
(2d Cir. 2013).
Under principles of estoppel, a non-signatory to an arbitration agreement
may compel a signatory to that agreement to arbitrate a dispute where a
careful review of “the relationship among the parties, the contracts they
signed ..., and the issues that had arisen” among them discloses that “the
issues the nonsignatory is seeking to resolve in arbitration are intertwined with
the agreement that the estopped party has signed.” Choctaw Generation Ltd.
P’ship v. Am. Home Assurance Co., 271 F.3d 403, 406 (2d Cir. 2001) (internal
quotation marks and citation omitted). Additionally, “there must be a
13
relationship among the parties of a nature that justifies a conclusion that the
party which agreed to arbitrate with another entity should be estopped from
denying an obligation to arbitrate a similar dispute with the adversary which is
not a party to the arbitration agreement.” Sokol Holdings, Inc. v. BMB Munai,
Inc., 542 F.3d 354, 359 (2d Cir. 2008).
“In the context of motions to compel arbitration … the court applies a
standard similar to that applicable for a motion for summary judgment.”
Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003); accord Hines v.
Overstock.com, Inc., 380 F. App’x 22, 24 (2d Cir. 2010) (summary order). “The
party seeking to stay the case in favor of arbitration bears an initial burden of
demonstrating that an agreement to arbitrate was made.” Hines, 380 F. App’x
at 24. Conversely, “[a] party to an arbitration agreement seeking to avoid
arbitration generally bears the burden of showing the agreement to be
inapplicable or invalid.” Harrington v. Atl. Sounding, Co., Inc., 602 F.3d 113,
124 (2d Cir. 2010).
B.
Analysis
To resolve the instant motions in an orderly manner, it is necessary to
uncouple and regroup Plaintiffs’ claims as follows: (i) Counts 1 through 7 and 9
through 22, which relate to the Operating Agreement and/or the merger with
Old ETRE, brought against the Defendant Principals and Members of Old
ETRE, will be referred to as the “Signatory Claims”;4 (ii) Counts 11 through 17,
4
Defendants Verschleiser, Frischer, Stein, and Panzer are Principals of Old ETRE;
Defendants EVE, Frischer Kranz, SMP, and JS3 are Members.
14
a subset of the counts that relate to the Operating Agreement and/or the
merger with Old ETRE, brought against Defendants Mayer and ETR, will be
referred to as the “Non-Signatory Claims”; (iii) Count 8 against Frischer,
alleging a violation of his employment agreement, will be referred to as the
“Employment Agreement Claim”; (iv) Counts 23 through 26, which are brought
against Verschleiser alone and relate to 500 Lincoln, will be referred to as the
“500 Lincoln Claims”; and, finally, (v) Counts 11 through 17, brought against
Defendant LH, will be referred to as the “LH Claims.” (See Am. Compl. ¶¶ 365471).
1.
The Motions to Compel Arbitration
The Verschleiser-Mayer Defendants and the Frischer-Stein Defendants
argue that the Signatory Claims should be dismissed in favor of arbitration
because: (i) the parties’ agreement to arbitrate disputes relating to the
Operating Agreement was broad and unequivocal; (ii) the Signatory Claims all
“arise out of” or “relate to” the Operating Agreement; and (iii) each of the
Signatory Claims, including the single federal cause of action, is arbitrable.
(Verschleiser-Mayer Br. 9-12; Frischer-Stein Br. 12-13).
With respect to the Employment Agreement Claim, the Frischer-Stein
Defendants argue that this claim must be arbitrated based on a similarly
unequivocal arbitration clause contained within Frischer’s employment
agreement, or alternatively, if the Operating Agreement supersedes his
employment agreement, based on the Operating Agreement’s arbitration
clause. (Frischer-Stein Br. 11-12; Frischer-Stein Reply 2).
15
As to the Non-Signatory Claims, the Verschleiser-Mayer Defendants
argue that these claims too should be dismissed in favor of arbitration because
they are “intertwined” with claims that are subject to mandatory arbitration.
(Verschleiser-Mayer Br. 13-17). Additionally, in the event the Court were to
determine that some claims were arbitrable and some were not, the
Verschleiser-Mayer Defendants contend that this Court should stay the
litigation pending disposition of the arbitrable claims. (Id. at 17-18). Finally,
the Verschleiser-Mayer Defendants argue that the 500 Lincoln Claims are
“unrelated,” and thus do not impact the arbitrability of the Signatory and NonSignatory Claims; that they are impermissibly duplicative of claims brought in
another lawsuit; and that they are subject to a separate arbitration clause. (Id.
at 6-8, 12-13).
Plaintiffs do not directly contest these arguments. (See generally Pl.
Opp.; see also Verschleiser-Mayer Reply 1). Instead, Plaintiffs argue that the
Court cannot compel arbitration because the arbitration clauses in the
Operating Agreement and in Frischer’s employment agreement are
unenforceable. Specifically, Plaintiffs argue that (i) there is no enforceable
arbitration agreement with respect to Frischer’s employment agreement
because this agreement was superseded upon execution of the Operating
Agreement (Pl. Opp. 11-12); (ii) there is no enforceable arbitration agreement
with respect to any of the other claims because all obligations under the
Operating Agreement extinguished upon the occurrence of a “Termination
Event,” i.e., the merger (id. at 7-11); (iii) Defendants cannot rely upon the
16
arbitration clause in the Operating Agreement because they have repudiated it
(id. at 12-14); and (iv) somewhat relatedly, performance under the Operating
Agreement, including arbitration of any disputes that arise, has been rendered
“impossible” based on Defendants’ repudiation of the agreement (id. at 14-16).
The Verschleiser-Mayer Defendants and the Frischer-Stein Defendants
challenge Plaintiffs’ arguments on their merits. They also contend that an
arbitrator, and not this Court, must determine whether the agreement to
arbitrate has been terminated, repudiated, or otherwise rendered
unenforceable. (Verschleiser-Mayer Reply 2-6; Frischer-Stein Reply 4).5
a.
The Motion to Compel Arbitration Is Granted as to the
Signatory Claims
Beginning with the Signatory Claims, the Court agrees with the
Verschleiser-Mayer Defendants and the Frischer-Stein Defendants that the
Signatory Claims are subject to the mandatory arbitration clause contained in
the Operating Agreement.
First, there is no dispute that the parties involved in the Signatory
Claims — the Principals who signed the Operating Agreement and the related
corporate Members — agreed to arbitrate. Second, the Signatory Claims,
which boil down to assorted allegations of contractual breaches and tortious
5
Defendants do not argue — and the Court therefore does not consider — whether, by
incorporating the JAMS arbitration rules into the Operating Agreement, “the parties …
committed gateway questions of arbitrability to the arbitrator.” Emilio v. Sprint
Spectrum L.P., 508 F. App’x 3, 5 (2d Cir. 2013) (summary order) (finding that “the
parties clearly and unmistakably delegated questions of arbitrability to the arbitrator”
by referencing the JAMS rules); see Contec Corp. v. Remote Solution Co., 398 F.3d 205,
208 (2d Cir. 2005) (“[W]hen, as here, parties explicitly incorporate rules that empower
an arbitrator to decide issues of arbitrability, the incorporation serves as clear and
unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator.”).
17
conduct involving Old ETRE’s management and corporate restructuring, are,
unquestionably, “controvers[ies] … arising out of or relating to” the Operating
Agreement. There is simply no way to adjudicate any of the Signatory Claims
without interpreting the Operating Agreement. The interpretation of Section
6.12 of the Operating Agreement, which requires unanimous consent of the
board for certain transactions, is integral to each of the Signatory Claims, and
very much in dispute; the interpretation of Section 14.15, which determines
the effect of a merger on the terms of the Operating Agreement, is equally
significant and similarly controverted. Third, turning to the sole federal claim
asserted, the Court agrees with Defendants that Plaintiffs’ claim under Section
10(b) of the Exchange Act, is arbitrable. Shearson/American Express, 482 U.S.
at 225-26; Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1214 (2d Cir.
1972); First Eagle Sogen Funds, Inc. v. Bank for Int’l Settlements, No. 01 Civ.
0087 (RO), 2001 WL 1150323, at *2 (S.D.N.Y. Sept. 28, 2001) (“[I]t is wellsettled that Exchange Act claims are arbitrable[.]”). Accordingly, the Court
finds that each of the Signatory Claims must be arbitrated.
The Court takes no position on the merits of Plaintiffs’ arguments that
the Operating Agreement has been terminated, repudiated, or rendered
impossible to perform, nor on Defendants’ arguments in opposition: These are
issues for the arbitrator to resolve. See, e.g., ACEquip Ltd. v. Am. Eng’g Corp.,
315 F.3d 151, 155 (2d Cir. 2003) (“[T]he arbitrator decides issues like
expiration or termination, which involve the interpretation of other contractual
provisions[.]”); Mulvaney Mech., Inc. v. Sheet Metal Workers Int’l Ass’n, Local 38,
18
351 F.3d 43, 46 (2d Cir. 2003) (“[T]he issue of repudiation most closely
resembles the defenses to arbitrability … that the Supreme Court listed as
questions properly decided by arbitrators.”); Island Territory of Curacao v.
Solitron Devices, Inc., 489 F.2d 1313, 1320 (2d Cir. 1973) (“[The] argument …
that the contract terminated as a matter of law by reason of impossibility of
performance …. was, under the broad arbitration clause, initially a question for
the arbitrators.”); Philippe v. Red Lobster Restaurants LLC, No. 15 Civ. 2080
(VEC), 2015 WL 4617247, at *3 (S.D.N.Y. Aug. 3, 2015) (refusing to address
argument that the defendants’ “non-compliance … rendered [the parties’]
agreement [to arbitrate] void,” because “[t]he question of whether Defendants
have complied … is a question for the arbitrator in the first instance”); Carpet
et Cetera, Inc. v. Forde, No. 06 Civ. 6993 (BSJ), 2006 WL 2959063, at *4
(S.D.N.Y. Oct. 16, 2006) (“[T]he means by which an agreement was repudiated
does not transform the issue from one which is properly decided by the
arbitrators to one reserved for the courts.”).
Additionally, if the Court were to delve into any of these issues, it would
be passing judgment on the central issues of this case: the propriety of
Defendants’ actions as measured by their obligations under Section 6.12 of the
Operating Agreement, the validity of the merger under the same provision, and
the effect of the merger under Section 14.15 of the Operating Agreement.
These “questions which grow out of the dispute and bear on its final disposition
are presumptively not for the judge, but for an arbitrator, to decide.” Howsam,
537 U.S. at 84 (internal quotation marks and citation omitted, emphasis in
19
original). Moreover, Plaintiffs’ arguments do not call into question whether this
particular dispute is arbitrable; rather, they probe whether Defendants, by
virtue of their obligations under Operating Agreement and their alleged conduct
in contravention of that Agreement, have waived their right to arbitrate.
Plaintiffs are, in other words, asserting a defense against what otherwise is a
facially arbitrable dispute. By compelling arbitration here, the Court heeds the
Supreme Court’s instruction that “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
Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983); see also
Benihana of Tokyo, LLC v. Benihana Inc., 73 F. Supp. 3d 238, 248 (S.D.N.Y.
2014) (“[W]aiver is presumptively an issue for the arbitrator to decide[.]”).6
b.
The Motion to Compel Arbitration Is Granted as to the
Employment Agreement Claim
The Court next turns to Plaintiffs’ Employment Agreement Claim, in
which they allege that Frischer’s conduct constituted a breach of his
6
There is an exception to the rule that waiver is to be decided by the arbitrator: “[A]
district court may reach the question of waiver whenever a party seeking arbitration has
engaged in any prior litigation” regarding the dispute. Doctor’s Assocs., Inc. v. Distajo,
66 F.3d 438, 456 n.12 (2d Cir. 1995); accord Bell v. Cendant Corp., 293 F.3d 563, 569
(2d Cir. 2002); see also LG Electronics, Inc. v. Wi-LAN USA, Inc., No. 13 Civ. 2237 (RA),
2014 WL 3610796, at *3 (S.D.N.Y. July 21, 2014) (“Traditionally, courts, not
arbitrators, have decided claims of waiver of the right to arbitrate based on participation
in protracted litigation.”). This exception does not come into play here because this
action “was in its nascent phase when [Defendants] moved to compel arbitration.”
Krantz & Berman, LLP v. Dalal, No. 09 Civ. 9339 (DLC), 2010 WL 2674590, at *4
(S.D.N.Y. July 2, 2010), aff’d, 472 F. App’x 76 (2d Cir. 2012) (summary order).
20
employment agreement. The employment agreement provides, in sweeping
fashion, that “any dispute or claim relating to or arising out of this Agreement
or any other agreement between the parties, or your employment … shall be
fully and finally resolved by binding arbitration conducted by the American
Arbitration Association[.]” (Am. Compl., Ex. B at 5). The alleged breach of the
employment agreement by Frischer, without doubt, fits comfortably within this
broad framework. Plaintiffs do not contest this. The potential difficulty then is
not whether the claim is arbitrable, but rather whether this particular
arbitration clause controls in lieu of the clause found in the Operating
Agreement. This is perhaps significant, although no party to this action voices
this specific concern, because the employment agreement calls for arbitration
before the AAA, while the Operating Agreement calls for arbitration before
JAMS.
Plaintiffs argue that the arbitration clause in Frischer’s employment
agreement cannot be invoked because the Operating Agreement supersedes all
other agreements between the parties. (Pl. Opp. 12). Of course, this line of
argument creates somewhat of a paradox: On the one hand, Plaintiffs have
attached to their Amended Complaint the employment agreement and allege
that it has been breached; on the other hand, they argue that the employment
agreement itself has been rendered a nullity by virtue of the execution of the
Operating Agreement.
This tension need not detain the Court. For the same reasons as those
discussed supra, the Court declines to reach the issue of whether the
21
Operating Agreement functions to supersede or terminate Frischer’s
employment agreement. This is an issue that should be decided (if necessary)
by an arbitrator. Nor will this Court decide whether the Employment
Agreement Claim should be brought before the AAA or JAMS. “[T]he question
to be resolved is not ‘whether to proceed by arbitration, but which arbitration
panel should decide certain issues.’” UBS Fin. Servs., Inc. v. W. Va. Univ.
Hospitals, Inc., 660 F.3d 643, 655 (2d Cir. 2011) (quoting Cent. W. Va. Energy,
Inc. v. Bayer Cropscience LP, 645 F.3d 267, 274 (4th Cir. 2011) (emphases in
Cent. W. Va. Energy)). Any dispute on this issue that might arise “is far more
akin to a venue dispute than a question of arbitrability, and, as such, it is
appropriate for arbitral resolution.” Cent. W. Va. Energy, 645 F.3d at 274.
Accordingly, the Employment Agreement Claim must be arbitrated.
c.
The Motion to Compel Arbitration Is Denied as to the
Non-Signatory Claims
The Court next turns to the Non-Signatory Claims against Mayer and
ETR. The Verschleiser-Mayer Defendants argue that, while Mayer and ETR
were not parties to the Operating Agreement, Plaintiffs must nonetheless
arbitrate the Non-Signatory Claims because the issues raised therein are
“intertwined” with the arbitrable Signatory Claims. (Verschleiser-Mayer Br. 1315). More accurately, the Verschleiser-Mayer Defendants contend that
Plaintiffs should be estopped from refusing to arbitrate. (Id.). The Court
disagrees.
Although the Verschleiser-Mayer Defendants are correct that the issues
raised in the Non-Signatory Claims are intertwined with those raised in the
22
Signatory Claims, this fact is not dispositive of the issue. As the Second
Circuit explained in Sokol Holdings, estoppel is not warranted simply because
“a relationship … may be found among the parties to a dispute and their
dispute deals with the subject matter of an arbitration contract made by one of
them.” 542 F.3d at 359.7 Significantly, under Sokol Holdings, in order to find
the Non-Signatory Claims arbitrable, the Court would need to conclude that
the promise to arbitrate by [Plaintiffs], the [parties]
opposing arbitration, was reasonably seen on the basis
of the relationships among the parties as extending not
only to [the Principals and Members], [the] contractual
counterpart[ies], but also to [Mayer and ETR], [parties]
that [were], or would predictably become, with
[Plaintiffs’] knowledge and consent, affiliated or
associated with [the Principals and Members] in such a
manner as to make it unfair to allow [Plaintiffs] to avoid
[their] commitment to arbitrate on the ground that
[Mayer and ETR were] not the very [parties] with which
[Plaintiffs] had a contract.
Id. at 361.
7
The Court is aware that whether Defendants can invoke a “theory of estoppel … is a
question governed by … state law[.]” Laumann v. Nat’l Hockey League, 989 F. Supp. 2d
329, 339 (S.D.N.Y. 2013) (citing, inter alia, Arthur Andersen LLP v. Carlisle, 556 U.S.
624, 630-32 (2009)); accord The Republic of Iraq v. BNP Paribas USA, 472 F. App’x 11,
13-14 (2d Cir. 2012) (summary order). The Operating Agreement is governed by New
York law (Am. Compl. ¶ 105), which recognizes estoppel as a theory that can be invoked
to compel arbitration with parties who are non-signatories. See Belzberg v. Verus Invs.
Holdings Inc., 21 N.Y.3d 626, 630 (2013); Gabriel Capital, L.P. v. Caib Investmentbank
Aktiengesellschaft, 814 N.Y.S.2d 66, 68 (1st Dep’t 2006) (“The agreement is enforceable
by [defendant] against plaintiffs, despite the fact that [defendant] itself was not a
signatory.” (citing, inter alia, JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 177-78
(2d Cir. 2004))). Significantly, the Second Circuit’s case law on this issue, as expressed
most fully in Sokol Holdings, is consistent with the contours of the estoppel theory
under New York law. See TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 340
(1998) (holding that “interrelatedness, standing alone, is not enough to subject a
nonsignatory to arbitration”).
23
Here, nothing in the Amended Complaint (or in the Verschleiser-Mayer
Defendants’ briefing) suggests the inevitable or predictable intervention of
Mayer and ETR into Old ETRE’s operations. As in Sokol Holdings, therefore,
“there would be no unfairness in allowing [Plaintiffs], the victim[s] of tortious
interference, to insist that, while [they] agreed to arbitrate with [the]
contractual counterpart[ies] …, [they] in no way consented to extend that
agreement to [Mayer and ETR,] which tortiously subverted [their] rights under
the [Operating] [A]greement.” 542 F.3d at 362; see also The Republic of Iraq v.
BNP Paribas USA, 472 F. App’x 11, 14 (2d Cir. 2012) (summary order) (finding
that “even if the contract between the [signatories] [could] give rise to thirdparty claims, there [was] no evidentiary basis for concluding that the
[signatories] bound themselves to resolve such claims through arbitration”).
Although there may be practical expediencies to having the Signatory and NonSignatory Claims arbitrated together, this is a strategic concern for Plaintiffs;
the Court will not estop Plaintiffs from refusing to arbitrate the Non-Signatory
Claims if they elect to do so.
2.
The Court Will Enter a Partial Stay
a.
The Signatory Claims and Employment Agreement
Claims Are Stayed
Where the Court diverges most from Defendants is in their assertion that
this case should be dismissed in favor of arbitration. To begin with, even if the
Court concluded that all of Plaintiffs’ claims were subject to mandatory
arbitration (and they are not, as explained supra), the Second Circuit has
recently held that the proper course would be to enter a stay. Katz v. Cellco
24
P’ship, — F.3d —, No. 14-138-cv, 2015 WL 4528658, at *3 (2d Cir. July 28,
2015); see also Arnold v. D’Amato, No. 14 Civ. 6457 (PAE), 2015 WL 4503533,
at *10 (S.D.N.Y. July 23, 2015) (“[C]ourts in this District that have compelled
arbitration … have commonly chosen to stay district court proceedings, even
where urged to dismiss them.” (collecting cases)). The Court therefore has no
difficulty concluding that the arbitrable Signatory and Employment Agreement
claims must be stayed.
b.
The Non-Signatory Claims and LH Claims Are Stayed
Here, of course, the Court is also faced with the decision of whether to
stay the balance of claims that Plaintiffs are not compelled to arbitrate. The
remaining claims are the Non-Signatory Claims, the 500 Lincoln Claims, and
the LH Claims. “The decision to stay the balance of the proceedings pending
arbitration is a matter largely within the district court’s discretion to control its
docket.” Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 856 (2d Cir.
1987) (quoting Moses H. Cone Mem’l Hosp., 460 U.S. at 20 n.23); see also White
v. Fitzgerald, 393 F. App’x 804, 808 (2d Cir. 2010) (summary order) (“[T]he
district court is not required to stay the litigation of the nonarbitrable claims
before it on remand pending the outcome of any arbitrated claims.” (collecting
cases)).
A discretionary stay is particularly appropriate where there is significant
factual overlap between the remaining claims and the arbitrated claims. See,
e.g., Maritima de Ecologia, S.A. de C.V. v. Sealion Shipping Ltd., No. 10 Civ.
8134 (DLC), 2011 WL 1465744, at *5 (S.D.N.Y. Apr. 15, 2011) (finding that,
25
even though arbitration would not prove “controlling of the action before the
court,” a stay was appropriate because the arbitration “will have a significant
bearing on this case” (internal citations omitted)); Moore v. Interacciones Global,
Inc., No. 94 Civ. 4789 (RWS), 1995 WL 33650, at *7 (S.D.N.Y. Jan. 27, 1995)
(“It is well-settled that claims are appropriately stayed when they involve
common issues of fact and law with those subject to arbitration or when the
arbitration is likely to dispose of issues common to claims against both
arbitrating and non-arbitrating defendants.”); Midland Walwyn Capital Inc. v.
Spear, Leeds & Kellogg, No. 92 Civ. 2236 (LLM), 1992 WL 249914, at *2
(S.D.N.Y. Sept. 22, 1992) (“The courts in this district have consistently granted
stays pending arbitration where the nonarbitrable issues overlap the arbitrable
issues, thus minimizing inconsistent results and conserving judicial
resources.”); Hikers Indus., Inc. v. William Stuart Indus. (Far East) Ltd., 640 F.
Supp. 175, 178-79 (S.D.N.Y. 1986) (“[T]he arbitration will provide the court
with insight into the issues of law and fact” and prevent “any decisions by this
court on the merits of the claims ... [from] thwart[ing] the federal policy in favor
of arbitration of disputes by rendering the arbitrator’s interpretation ...
meaningless.”). In such cases, a stay is warranted in part because the prior
litigation or arbitration is likely to have preclusive effect over some or all of the
claims not subject to arbitration. See Bear, Stearns & Co. v. 1109580 Ont.,
Inc., 409 F.3d 87, 91 (2d Cir. 2005) (finding it established that, under certain
conditions, “[a]n arbitration decision may effect collateral estoppel in a later
26
litigation or arbitration if the proponent can show with clarity and certainty
that the same issues were resolved” (internal quotation marks omitted)).
With this framework in mind, the decision to stay the Non-Signatory
Claims is straightforward. Each of these claims against Mayer and ETR is
brought as part and parcel of one of the Signatory Claims against the
Principals and Members; in consequence, the issues that the arbitration panel
will decide in resolving the Signatory Claims overlap significantly (if not
entirely) with the issues that this Court would need to reach to adjudicate the
Non-Signatory Claims. The Non-Signatory Claims will accordingly be stayed.
The Court reaches the same conclusion with respect to the LH Claims,
despite the fact that LH has not sought to compel arbitration of these claims.
To begin with, taking the allegations in the Amended Complain as true, it
would be illogical to stay claims against Mayer, and not against what is alleged
to be Mayer’s company, LH. After all, to the extent that LH is alleged to have
committed fraud, conversion, and other assorted economic torts, it is alleged to
have done so because of Mayer’s actions. Insofar as the Amended Complaint
alleges, LH has no role separate and apart from being Mayer’s investment
vehicle. The LH Claims, therefore, overlap with the Signatory Claims in the
precise manner that the Non-Signatory Claims against Mayer and ETR do;
there is no reason to stay one set of claims and not the other.
The Court appreciates that LH believes it has strong arguments to
dismiss the LH Claims. (See generally LH Br.). These arguments may be
renewed promptly for the Court’s consideration, either verbatim or in modified
27
fashion, following the arbitration proceedings. In the meantime, LH’s Claims
are stayed, and its motion to dismiss the Amended Complaint is denied without
prejudice. See Syncora Guarantee Inc. v. HSBC Mex., S.A., 861 F. Supp. 2d
252, 261 (S.D.N.Y. 2012) (denying without prejudice dispositive motions where
stay of claims pending arbitration had been entered).
3.
The 500 Lincoln Claims Are Not Stayed
The Court cannot extend the reasoning behind stays of the other claims
to the 500 Lincoln Claims. As the Verschleiser-Mayer Defendants note, the
500 Lincoln claims against Verschleiser relate to an entirely separate business
venture. (Verschleiser-Mayer Br. 13). Indeed, these claims appear to have
been tacked on to the original Complaint in order to stymie anticipated motions
to compel, or to convince the Court to accept as related Frydman’s action
against Scott and Warren Diamond. Regardless of the genesis of the 500
Lincoln Claims, the fact is that they were brought before this Court, and —
absent some reason to the contrary — they need to be resolved.
Almost certainly because of the eleventh-hour introduction of the 500
Lincoln Claims, the Verschleiser-Mayer Defendants do not fully address the
claims in their moving papers. For instance, while the Verschleiser-Mayer
Defendants assert that the separate dispute constituting the 500 Lincoln
Claims is also subject to an operating agreement with an arbitration provision,
they have not provided the Court with any of the requisite information to
evaluate this assertion. (Verschleiser-Mayer Br. 13 n.8 (“these allegations …
are subject to an arbitration clause”)). The Verschleiser-Mayer Defendants
28
have not established that the relevant parties to the 500 Lincoln Claims (i.e.,
Frydman and Verschleiser) actually agreed to arbitrate a dispute arising out of
that business venture, and they have not provided enough information to
permit this Court to make a threshold arbitrability determination. (Cf. Am.
Compl. ¶ 340 (alleging that the 500 Lincoln Operating Agreement “includes an
arbitration agreement, [which] was not signed by any of the parties to [the
instant] action” (emphasis in original)). In the interests of judicial economy —
and, again, recognizing the disruption to the original briefing schedule
occasioned by the inclusion of the 500 Lincoln Claims — the Court will
consider a properly supported motion to compel arbitration of the 500 Lincoln
Claims, should the Verschleiser-Mayer Defendants wish to file it.
In this same vein, Defendants allude to the impropriety of Plaintiffs’
amendment to include the 500 Lincoln Claims, and, more specifically, suggest
that these claims are improperly before the Court while a parallel action
proceeds against non-parties Scott and Warren Diamond. (See VerschleiserMayer Br. 13 n.8; see also Frischer-Stein Br. 6 n.3). But, to date, the
Verschleiser-Mayer Defendants have not moved the Court to dismiss or stay
these claims as duplicative. In sum, because the 500 Lincoln Claims do not
overlap with the issues raised in the arbitrable claims, and because the
Verschleiser-Mayer Defendants have not provided the Court with a basis at this
juncture to stay or dismiss the 500 Lincoln Claims, these claims will not be
stayed.
29
CONCLUSION
For the foregoing reasons, Defendants’ motion to compel arbitration is
GRANTED IN PART and DENIED IN PART.
The motions to compel arbitration of the Signatory Claims and the
Employment Agreement Claim are GRANTED; the motion to compel arbitration
of the Non-Signatory Claims is DENIED.
The Signatory Claims, the Employment Agreement Claims, the NonSignatory Claims, and the LH Claims are hereby STAYED pending resolution of
arbitration proceedings. In light of the stay, LH’s motion to dismiss the
Amended Complaint is DENIED WITHOUT PREJUDICE. The parties shall
submit a joint letter to the Court by January 8, 2016, and every six months
thereafter, updating the Court on the status of the arbitration proceedings.
By September 9, 2015, the Verschleiser-Mayer Defendants shall inform
the Court if they wish to file a pre-answer motion with respect to the 500
Lincoln Claims. The Court will either set a briefing schedule (which, the Court
cautions, will be expedited), or a schedule for Defendant Verschleiser’s
responsive pleading and discovery limited to the 500 Lincoln Claims, upon
receipt of the Verschleiser-Mayer Defendants’ letter.
The Clerk of Court is directed to terminate Docket Entries 48, 50, and
56.
SO ORDERED.
Dated:
August 27, 2015
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
30
A copy of this Order was mailed by Chambers to:
Jacob Frydman
60 Broad Street
34th Floor
New York, NY 10004
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?