Kirby McInerney LLP et al v. Lee Medical, Inc.

Filing 30

OPINION & ORDER re: 9 MOTION to Dismiss the Petition to Compel Arbitration. MOTION to Stay re: 1 Petition to Compel/Confirm/Modify/Stay/Vacate Arbitration filed by Lee Medical, Inc. For the reasons set fort h above, the petition to compel arbitration is GRANTED, the petition for an injunction is DENIED, and the motion to dismiss is DENIED. The Clerk of Court is directed to terminate the motion at ECF No. 9 and to terminate this case. (Signed by Judge Katherine B. Forrest on 10/16/2017) (mro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
KIRBY MCINERNEY LLP and BL FUNDING :
3 LLC,
:
Plaintiffs,
:
-v:
:
LEE MEDICAL, INC.,
:
Defendant.
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: October 16, 2017

17-cv-4760 (KBF)
OPINION & ORDER

KATHERINE B. FORREST, District Judge:
On June 22, 2017, plaintiffs Kirby McInerney LLP (“KM”) and BL Funding 3
LLC (“BL”) filed a complaint and petition to (1) compel arbitration pursuant to
Section 4 of Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, and (2) enjoin LMI from
pursuing its claims in state court. (ECF No. 1.) Also pending before the Court is
defendant Lee Medical, Inc.’s (“LMI”) motion to dismiss, or in the alternative, to
stay proceedings. (ECF No. 9.)1 For the reasons set forth below, defendant’s motion
is DENIED; plaintiffs’ petition to compel arbitration is GRANTED; and plaintiffs’
motion for an injunction is DENIED.
I.

BACKGROUND & PROCEDURAL HISTORY
In February 2007, LMI became involved in litigation against Bard Access

Systems, Inc. and other defendants (“Bard Litigation”). (Compl. ¶ 14; Mem. in
Supp. of Mot. to Dismiss, or in the Alternative, to Stay (“Mem. in Supp.”) at 3.) LMI
retained North Pursell & Ramos PLC (“NPR”) to represent it in those proceedings,
but in January 2015 replaced NPR with KM. (Petitioners’ Mem. of Law in Opp. to

1

This case was transferred to the undersigned on September 11, 2017.

LMI’s Mot. to Dismiss, or in the Alternative, to Stay (“Mem. in Opp.”) at 1.) KM
and LMI agreed to a contingency fee arrangement, outlined in a retainer agreement
(“Retainer Agreement”) that also contained an arbitration provision, which stated:
Any dispute between KM and Lee Medical will be subject to the laws of
the State of New York, United States, and resolved in New York City
via arbitration according to American Arbitration Association rules
and procedures. Neither KM nor any of its members or employees
agree to submit to the jurisdiction of any court outside of the State of
New York for any reason.
(Decl. of Daniel Hume in Opp. to LMI’s Mot. to Dismiss, or in the Alternative to
Stay, Ex. A (“Retainer Agreement”) at 2; see also Mem. in Opp. at 1.)
BL funded the litigation pursuant to an agreement with LMI (“Funding
Agreement”) that similarly contained an arbitration provision stating:
Any dispute, claim or disagreement arising out of, in connection with
or in any way related to this Agreement or the breach thereof, . . . will
be settled by arbitration . . . . The arbitration will take place in New
York, New York, unless another venue is mutually agreed to by the
parties in writing. . . . Except as provided herein, the procedure for the
arbitration will be in accordance with the Commercial Arbitration
Rules of the American Arbitration Association . . . .
(Decl. of Daniel Hume in Opp. to LMI’s Mot. to Dismiss, or in the Alternative to
Stay, Ex. B (“Funding Agreement”) at 2; see also Mem. in Opp. at 1.) In June/July
2015, KM obtained a settlement for LMI with some of the Bard Litigation
defendants, (Compl. ¶ 20); afterward, KM’s representation ended and LMI
voluntarily dismissed its claims against the remaining defendants, (id. ¶ 22).
Meanwhile, in January 2015, NPR had filed a lawsuit in Tennessee state
court against LMI seeking: (1) a declaratory judgment as to whether LMI must
compensate NPR for its work in the Bard Litigation on a contingency fee or
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quantum meruit basis; and (2) enforcement of its statutory charging lien on the
settlement proceeds of the Bard Litigation. (Id. ¶ 23.) On September 22, 2016,
NPR added KM and BL as defendants to that litigation. (Id. ¶ 27.) On June 7,
2017, LMI asserted cross-claims against KM and BL challenging the amounts to
which they are entitled under the Retainer and Funding Agreements, and claiming
KM mismanaged the settlement fund. (Id. ¶¶ 31-32.) (LMI filed amended crossclaims—adding several allegations but no new claims—on June 16, 2017. (Id. ¶
34.))
Seeking to compel arbitration of those cross-claims, KM and BL filed the
instant petition in the Southern District of New York on June 22, 2017, to which
LMI responded with a motion to dismiss, or in the alternative to stay, on August 3,
2017. (Id. ¶¶ 36-52; ECF No. 9.) On July 6, 2017, KM and BL filed a joint motion in
state court to stay the Tennessee proceedings, or to strike or dismiss LMI’s claims
against KM and BL. (Mem. in Opp. at 6.) On August 18, 2017, the Tennessee court
held a hearing, and on August 31, 2017, that court granted the motion in part, (1)
striking LMI’s cross-claims for failure to seek leave to amend its answer; (2)
granting LMI’s oral motion to amend its answer to assert the cross claims (which
the court deemed filed as of August 31, 2017); (3) staying all matters related to
those cross claims and other claims against BL and KM until further notice; and (4)
setting a trial date for NPR’s claims against LMI. (Id. at 6-7; Hume Decl. Ex. C at
2-3.)

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II.

ABSTENTION
LMI’s motion to dismiss argues that the federal court should decline to

exercise jurisdiction under Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976).
A. Legal Principles
Typically, a federal court abstains from exercising jurisdiction in one of three
situations: (1) when the federal constitutional issue presented could be mooted by a
state court determination on a relevant question of state law, see Cnty. of Allegheny
v. Frank Mashuda Co., 360 U.S. 185 (1959); Railroad Comm’n of Texas v. Pullman
Co., 312 U.S. 496 (1941); (2) when difficult questions of state law are presented and
bear on “policy problems of substantial public import whose importance transcends
the result in the case at bar,” Telesco v. Telesco Fuel & Masons’ Materials, Inc., 765
F.2d 356, 360 (2d Cir. 1985) (citing La. Power & Light Co. v. City of Thibodaux, 360
U.S. 25 (1959)); and (3) when federal jurisdiction was invoked to restrain state
criminal or tax proceedings, Younger v. Harris, 401 U.S. 37 (1971).
But under “exceptional circumstances,” a federal court may choose to abstain
from hearing a case—even when it does not fall into one of those three categories—
if “a countervailing interest would be served by permitting the state court to
adjudicate the controversy.” Telesco, 765 F.2d at 360 (2d Cir. 1985); see also Col.
River, 424 U.S. at 813 (“‘Abdication of the obligation to decide cases can be justified
under this doctrine only in the exceptional circumstances where the order to the
parties to repair to the state court would clearly serve an important countervailing
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interest.’” (quoting Cnty. of Allegheny, 360 U.S. at 188-189)). Colorado River
abstention is thus “an extraordinary and narrow exception to the duty of a District
Court to adjudicate a controversy properly before it’”—it is “the exception, not the
rule.” Col. River, 424 U.S. at 813 (quoting Cnty. of Allegheny, 360 U.S. at 188-189.
Under Colorado River, abstention may be proper based on “considerations of
wise judicial administration, giving regard to conservation of judicial resources and
comprehensive disposition of litigation.” Id. at 817. The first determination for the
Court is whether there are proceedings in state court that are “parallel” to the
federal proceedings. Dittmer v. Cnty. of Suffolk, 146 F.3d 113, 117-18 (2d Cir. 1998)
(“The principles of Colorado River are to be applied only in situations ‘involving the
contemporaneous exercise of concurrent jurisdictions.’” (quoting Kirkbride v. Cont’l
Cas. Co., 933 F.2d 729, 734 (9th Cir. 1991))). For proceedings to be “parallel,” the
parties, issues, and relief sought must be the same. Dalzell Mgmt. Co. v. Bardonia
Plaza, LLC, 923 F. Supp. 2d 590, 597 (S.D.N.Y. 2013) (quoting Shields v. Murdoch,
891 F. Supp. 2d 567, 577 (S.D.N.Y. 2012)).
If the proceedings are in fact parallel, then the Court applies a six-factor test
to determine whether Colorado River abstention is appropriate:
(1) whether the controversy involves a res over which one of the courts
has assumed jurisdiction; (2) whether the federal forum is less
inconvenient than the other for the parties; (3) whether staying or
dismissing the federal action will avoid piecemeal litigation; (4) the
order in which the actions were filed, and whether proceedings have
advanced more in one forum than in the other; (5) whether federal law
provides the rule of decision; and (6) whether the state procedures are
adequate to protect the plaintiff's federal rights.

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Niagara Mohawk Power Corp. v. Hudson River-Black River Regulating Dist., 673
F.3d 84, 100-01 (2d Cir. 2012); see also Woodford v. Cmty. Action Agency, 239 F.3d
517, 522 (2d Cir. 2001) (describing the same test).
The Supreme Court has noted that the test should “be applied in a pragmatic,
flexible manner with a view to the realities of the case at hand” and that the
balance tips “heavily . . . in favor of the exercise of jurisdiction.” Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 17 (1983) (applying the Colorado
River six-factor test to a petition for an order to compel arbitration); see also
Woodford, 239 F.3d at 522 (“‘No one factor is necessarily determinative; a carefully
considered judgment taking into account both the obligation to exercise jurisdiction
and the combination of factors counselling against that exercise is required.’”
(quoting Moses H. Cone, 460 U.S. at 15-16)). “Although federal courts are not
bound to give weight to each factor—indeed, we are warned by Cone to avoid
applying a ‘mechanical checklist,’” a district court cannot fail to “consider factors
weighing against dismissal” such that “the presumption in favor of exercising
jurisdiction [turns] on its head.” Bethlehem Contracting Co. v. Lehrer/McGovern,
Inc., 800 F.2d 325, 328 (2d Cir. 1986). And on a motion to dismiss or stay federal
proceedings based on Colorado River abstention, “the burden of persuasion rest[s]
on the party opposing the exercise of federal jurisdiction.” Arkwright-Boston Mfrs.
Mut. Ins. Co. v. City of New York, 762 F.2d 205, 210 (2d Cir. 1985).

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B. Analysis
LMI argues that the Court should dismiss or stay this litigation under
Colorado River. However, Colorado River abstention is not appropriate here—the
proceedings are not parallel, and even if they were, application of the six Colorado
River factors counsels against abstention.
1. Parallel Proceedings
The ongoing litigation in Tennessee is not “parallel” to this case simply
because some of the parties are the same and the claims arise out of the same set of
facts. In Tennessee, the litigation was initiated by NPR, which remains a plaintiff
with claims that comprise a large portion of that litigation—the only portion, in
fact, that is not currently stayed. LMI has asserted cross-claims against KM and
BL, the parties here, but those claims are for a declaratory judgment that KM and
BL are not entitled to payment; for breach of fiduciary duty by KM; for various torts
against BL and KM; and for declaratory judgment that the Funding Agreement is
unenforceable. (Mem. in Supp., Ex. A ¶¶ 44-82.) In the litigation before this Court,
KM and BL bring a petition to compel arbitration. (ECF No. 1.) There is a different
set of parties, a different set of issues, and different relief sought in the federal case.
While one of KM and BL’s stated grounds for dismissal in the Tennessee litigation
is the existence of the arbitration agreements, that is not enough—if the parties,
issues, and relief sought are not the same, the proceedings are not parallel. Dalzell
Mgmt. Co., 923 F. Supp. 2d at 597.

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2. Colorado River Factors
Even if the two proceedings were parallel, the six Colorado River factors
weigh heavily against this Court abdicating jurisdiction over this case.
First is the “paramount” consideration: whether there is a risk of piecemeal
litigation if this Court exercises jurisdiction over the KM and BL’s petition. See
Moses H. Cone, 460 U.S. at 19. “The classic example arises where all of the
potentially liable defendants are parties in one lawsuit, but in the other lawsuit,
one defendant seeks a declaration of nonliability and the other potentially liable
defendants are not parties.” Woodford, 239 F.3d at 524. There is no such risk
here. The Tennessee court has stayed LMI’s claims against KM and BL indefinitely
to “see what [the federal court] has to say before [the state court] does anything.”
(Reply Mem. in Supp. of Mot. to Dismiss, or in the Alternative, to Stay (“Reply
Mem.”), Ex. A (“Aug. 18 Tr.”) at 50:12-21). It seems unlikely that those claims will
be addressed in the state forum before this litigation is resolved. There is no “risk
of inconsistent outcomes not preventable by principles of res judicata and collateral
estoppel.” Woodford, 239 F.3d at 524.2

LMI argues that the Tennessee judge made the decision to stay based on KM and BL’s
“misrepresentation that this Court would decide the Motion [to Compel Arbitration] at the case
management conference on September 8, 2017.” (Reply Mem. in Supp. at 7.) This Court perceives
no such misrepresentation. BL’s attorney, Michael Harmon, told the Tennessee court that the
conference was “not an initial case management conference” and “also not a trial if you will.” (Aug.
18 Tr. at 16:5-7.) He said only that he understood it to be a “special type of conference set when you
have . . . arbitration issues brought before a court.” (Aug. 18 Tr. at 15:22-24.) As such, there is no
reason for this Court to believe that the reasoning of the Tennessee judge in granting the stay was
based on false information.
2

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And even if that were not the case, the “relevant federal law requires
piecemeal resolution when necessary to give effect to an arbitration agreement”—
the issue before the Court here. Moses H. Cone, 460 U.S. at 20 (“Under the
Arbitration Act, an arbitration agreement must be enforced notwithstanding the
presence of other persons who are parties to the underlying dispute but not to the
arbitration agreement.”). A decision that allows the question of arbitrability “to be
decided in federal rather than state court does not cause piecemeal resolution of the
parties’ underlying disputes.” Id. Either way, this factor weighs in favor of federal
jurisdiction.
The second factor for the Court to consider is whether federal law provides
the rule of decision. When resolving a petition to compel arbitration, the FAA
provides the rule of decision and “questions of arbitrability must be addressed with
a healthy regard for the federal policy favoring arbitration.” Id. at 24. LMI argues
that state and federal courts have concurrent jurisdiction under the FAA, and that
a Tennessee statute might invalidate the Funding Agreement. (Reply Mem. at 8-9.)
But neither of these arguments provides the “‘clearest of justifications’” that will
suffice under Colorado River to “justify the surrender of that jurisdiction.” Moses H.
Cone, 460 U.S. at 25-26 (quoting Col. River, 424 U.S. at 818-19). The Court need
not find that federal law is the only consideration in the case—it must only
“ascertain whether there exist ‘exceptional’ circumstances” that warrant the
abdication of federal jurisdiction. Neither the existence of concurrent jurisdiction

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nor the possible application of a state law to one of the arbitration agreements at
issue is a “substantial reason” for this Court to abstain. See id. at 24-26.
The third factor compares the order in which jurisdiction was obtained and
how far litigation has advanced in each court. The litigation in Tennessee was
initiated several years ago, but the cross-claims against KM and BL were filed on
June 7, 2017 (and the amended cross-claims were filed on June 16, 2017). On June
22—fifteen days later—KM and BL brought this petition to compel arbitration.3
This suit was not ripe until the cross-claims were filed, and KM and BL did not
delay in seeking to compel arbitration. Furthermore, LMI’s cross-claims are stayed,
while here, the petition is at the motion to dismiss stage. This indicates that the
litigation before this Court has advanced further than litigation on the cross-claims
before the Tennessee court.
Next the Court considers whether the state procedures are adequate to
protect plaintiff’s federal rights. The Supreme Court noted in Moses H. Cone that it
is not clear whether state courts, as much as federal courts, are obliged to compel
arbitration under § 4 of the FAA. 420 U.S. at 26. But even assuming that the state
court would have to compel arbitration under § 4, “when the state court is adequate,
. . . the factor carries little weight.” Ryan v. Johnson, 115 F.3d 193, 200 (3d Cir.
1997) (“[T]he mere fact that the state forum is adequate does not counsel in favor of

The Court notes that the Tennessee court struck LMI’s cross-claims for failure to comply with the
Tennessee Rules of Civil Procedure, and granted LMI’s motion to assert the amended cross-claim on
August 31, 2017. (See Hume Decl., Ex. 3 ¶¶ 1-2; Aug. 18 Tr. at 49:11-16.) As such, there is a
plausible argument that the instant litigation commenced before the Tennessee claims were
asserted. But since this factor weighs in favor of federal jurisdiction even if they had been properly
filed in June 2017, the Court need not base its decision on the August hearing.
3

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abstention, given the heavy presumption the Supreme Court has enunciated in
favor of exercising federal jurisdiction. Instead, this factor is normally relevant only
when the state forum is inadequate. For example, in Cone, the federal plaintiff
sought an order compelling arbitration. It was questionable whether the state court
had the power to grant such an order, and the Supreme Court weighed this factor
against abstention.”). As such, this factor is likely neutral, and weighs neither
against nor for the exercise of federal jurisdiction.4
The fifth factor—whether the federal forum is less inconvenient than the
state forum—also weighs in favor of federal jurisdiction. LMI argues that it has “no
connection to the State of New York,” (Mem. in Supp. at 15), but in the Funding and
Retainer Agreements, LMI explicitly consented to New York jurisdiction, (Funding
Agreement at 14; Retainer Agreement at 2). “A party who agrees to arbitrate in a
particular jurisdiction consents not only to personal jurisdiction but also to venue of
the courts within that jurisdiction.” Doctor’s Assocs., Inc. v. Stuart, 85 F.3d 975,
983 (2d Cir. 1996); see also Victory Transp. Inc. v. Comisaria Gen. de
Abastecimientos y Transportes, 336 F.2d 354, 363 (2d Cir. 1964) (“By agreeing to
arbitrate in New York, . . . the [defendant] must be deemed to have consented to the
jurisdiction of the court that could compel the arbitration proceeding in New
York.”). Thus, LMI cannot now claim that New York is inconvenient, having
consented to the state’s jurisdiction in the arbitration agreements.

Of course, if state courts are not required to compel arbitration under § 4, then this factor would
weigh in favor of this Court exercising jurisdiction.
4

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Finally, the Court considers whether the Tennessee state court has assumed
jurisdiction over any res in controversy. The action before the Court is not a
controversy over property—it is a question of contract (i.e., whether arbitration
must be compelled). See Moses H. Cone, 420 U.S. at 938-39 (noting that a petition
to compel arbitration presented no dispute over “res or property”). Additionally, a
number of the claims by LMI in the Tennessee litigation have little to do with the
distribution of the settlement fund. Rather, they are claims of breach of fiduciary
duty, unlawful conversion, and unjust enrichment. And even if the underlying
settlement funds sufficed to make this a property action—which the Court does not
concede—this factor is not dispositive. The factors discussed previously weigh too
heavily in favor of federal jurisdiction.
Thus, the Colorado River factors clearly counsel against abstention, and the
motion to dismiss is DENIED.
III.

PETITION TO COMPEL ARBITRATION
A. Legal Principles
“[T]he FAA was designed to promote arbitration.” AT&T Mobility LLC v.

Concepción, 563 U.S. 333, 345 (2011). It embodies a “national policy favoring
arbitration,” and “a liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to the contrary.”
Concepción, 563 U.S. at 346 (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 443 (2006); Moses H. Cone, 460 U.S. at 24). Under the Act, “an agreement
in writing to submit to arbitration an existing controversy . . . shall be valid,
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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, including “generally applicable
contract defenses, such as fraud, duress, or unconscionability,” Doctor’s Assocs., Inc.
v. Casarotto, 517 U.S. 681, 687 (1996).
The FAA applies to a petition to compel arbitration where, as here, a “written
provision in . . . a contract evidencing a transaction involving commerce” states that
the parties will “settle by arbitration.” 9 U.S.C. § 2. A party “aggrieved by the
alleged failure, neglect, or refusal of another to arbitrate under a written agreement
for arbitration may petition any United States district court which, save for such
agreement, would have jurisdiction . . . in a civil action . . . of the subject matter of a
suit arising out of the controversy between the parties . . . .” 9 U.S.C. § 4. The
FAA’s applicability can be based on federal question jurisdiction, in which case the
Court must apply the “look-through” approach outlined in Vaden v. Discover Bank,
556 U.S. 49 (2009), or on diversity jurisdiction. Hermes of Paris, Inc. v. Swain, 867
F.3d 321, 326 (2d Cir. 2017) (“[C]omplete diversity is measured by reference to the
parties to the petition to compel arbitration.”).
Once the threshold question of the FAA’s applicability has been answered,
the moving party must show that (1) there is a valid agreement between the parties
to arbitrate disputes, and (2) the instant dispute falls within the scope of the
arbitration agreement. See Hartford & Indem. Co. v. Swiss Rein-Am. Corp., 246
F.3d 219, 226 (2d Cir. 2001). “Whether or not the parties have agreed to arbitrate is
a question of state contract law.” Schnabel v. Trilegiant Corp., 697 F.3d 110, 119
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(2d Cir. 2012); see also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d
Cir. 1987) (“[W]hile the [FAA] requires a writing, it does not require that the
writing be signed by the parties.”).
Courts review motions to compel arbitration under a summary judgment
standard. Thomas v. Pub. Storage, Inc., 957 F. Supp. 2d 496, 499 (S.D.N.Y. 2013).
Such a motion may be granted “‘when the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that movant is entitled to judgment as a matter of law.’” Id.
(citing Cohen v. UBS Fin. Servs., Inc., No. 12-cv-2147, 2012 WL 6041634, at *1
(S.D.N.Y. Dec. 4, 2012)).
B. Analysis5
The first issue before the Court is whether it has subject matter jurisdiction
over the underlying dispute, as required by the FAA. Here, diversity jurisdiction
exists under 28 U.S.C. § 1332(a)(1). LMI is an S corporation organized under
Tennessee law with its principal place of business in Tennessee; KM is a limited
liability partnership with its principal place in New York (and no partners that are
Tennessee citizens); and BL is a limited liability company with its principal place of
business in Connecticut (and no members in Tennessee). (Compl. ¶¶ 7-9.) As such,
there is complete diversity. Additionally, more than $75,000 is in controversy. (Id.

On September 19, 2017, this Court notified the parties that it planned to resolve the motion to
dismiss and the petition to compel arbitration simultaneously, and directed the parties to submit
“additional materials in support of either motion” by September 29, 2017 if they so chose. (ECF No.
23.) LMI did not submit a brief or other document to this Court arguing for or against the merits of
the instant petition to compel arbitration. LMI’s supporting materials for its motion to dismiss did
not discuss the subject.
5

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¶ 10.) Because this dispute would otherwise satisfy the requirements for
jurisdiction under 28 U.S.C. § 1332, this Court has subject matter jurisdiction.
Turning to the factors which indicate whether the Court must compel
arbitration, the Court finds that the parties entered into a written agreement to
arbitrate. The Retainer Agreement requires that “[a]ny dispute between KM and
Lee Medical will be . . . resolved in New York City via arbitration according to
American Arbitration Association rules and procedures.” (Retainer Agreement at
2.) And the Funding Agreement has a similar mandate: “Any dispute, claim or
disagreement arising out of, in connection with or in any way related to this
Agreement or the breach thereof, . . . will be settled by arbitration . . . .” (Funding
Agreement at 14.) The language of both agreements plainly requires arbitration,
and LMI has provided no information to dispute their validity.6
Finally, the Court considers whether the dispute between the parties falls
within the scope of the Retainer and Funding Agreements. Based on the language
cited above, it is clear that disputes over fee arrangements are within the scope of
those broad agreements, and nowhere does LMI dispute this. As such, the Court
compels arbitration under the FAA.

In arguing for abstention, LMI notes that a Tennessee statute, the Tennessee Litigation Financing
Consumer Protection Act, could “render BL Funding’s arbitration agreement unenforceable.” (Mem.
in Supp. at 10.) But this Court was not briefed on this question of state law, even after providing an
opportunity for LMI to submit materials on the question. At the very least, this is an open question
of state law, as “there are no published decisions in Tennessee wherein the courts have weighed in
on whether business entities” are covered by this state statute. (Id.; see also Tenn. Code Ann. § 4716-102 (“‘Consumer’ means any natural person who resides, is present or is domiciled in this state, or
who is or may become a plaintiff or complainant in a dispute in this state.”); id. § 47-16-105 (“A
litigation financier shall not . . . [a]ttempt to effect mandatory arbitration or otherwise effect waiver
of a consumer's right to a trial by jury.”).) This Court will not wade into the state law arena on this
question, and chooses to compel arbitration based on the facts presented by the parties.
6

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IV.

MOTION TO ENJOIN LMI FROM PURSUING CLAIMS AGAINST KM
AND BL IN STATE COURT
The Anti-Injunction Act, 28 U.S.C. § 2283, provides that “[a] court of the

United States may not grant an injunction to stay proceedings in a State court
except as expressly authorized by Act of Congress, or where necessary in aid of its
jurisdiction, or to protect or effectuate its judgments.” However, the Supreme Court
has identified three exceptions to this rule: “(i) the express provisions of another act
of Congress authorizing such an order; (ii) necessity in aid of the federal court’s
jurisdiction and (iii) the need to protect or effectuate the federal court’s judgments.”
Standard Microsystems Corp. v. Texas Instruments Inc., 916 F.2d 58, 60 (2d Cir.
1990) (citing Atlantic Coast Line R.R. Co. v. Brotherhood of Locomotive Engineers,
398 U.S. 281, 287-88 (1970)). A federal court order compelling arbitration falls into
the third category, and an injunction may sometimes be necessary when one party
is seeking a related motion in state court. Emilio v. Sprint Spectrum, L.P., 315 F.
App’x 322, 325 (2d Cir. 2009) (holding that an injunction was proper when
defendant sought a “motion in state court to enjoin Emilio to dismiss his arbitration
claims”). However, the Court need not issue such an injunction.
The Court notes that the Tennessee state court has stayed LMI’s claims
against KM and BL, pending this Court’s resolution of KM and BL’s petition. The
Court expects that the Tennessee court will find this Opinion informative in
resolving the motions before it. As such, the Court sees no need to burden the
parties with an injunction at this time, as there is no indication that they will not

16

comply with its Order compelling arbitration. If in the future the parties have a
reason to seek an injunction, they may renew that application.
V.

CONCLUSION
For the reasons set forth above, the petition to compel arbitration is

GRANTED, the petition for an injunction is DENIED, and the motion to dismiss is
DENIED. The Clerk of Court is directed to terminate the motion at ECF No. 9 and
to terminate this case.
SO ORDERED.
Dated:

New York, New York
October 16, 2017
____________________________________
KATHERINE B. FORREST
United States District Judge

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