American E Group LLC v. LiveWire Ergogenics Inc.
Filing
223
MEMORANDUM OPINION AND ORDER: re: 104 SECOND MOTION to Dismiss the Third-Party Amended Complaint filed by Elana Hirsch, 140 SECOND LETTER MOTION to Compel addressed to Judge Gregory H. Woods from Joseph Paukman dated 07/17/19 filed by JS Barkats PLLC. For the foregoing reasons, the Barkats Defendants' motion to compel arbitration is GRANTED. The Court has determined that it should dismiss the third-party claims against the Barkats Defendants. "[W]hen all the claims in a n action have been referred to arbitration and a stay [is] requested" the "text, structure, and underlying policy of the FAA mandate a stay of proceedings." Katz v. Cellco P'ship, 794 F.3d 341, 343, 347 (2d Cir. 2015) (emphasis ad ded). However, no party has requested a stay if the Court compels arbitration of the third-party claims the Barkats Defendants. Therefore, the Court need not stay the case and may instead dismiss the third-party claims against the Barkats Defendants. The Court has considered the Second Circuit's instruction that "[d]istrict courts should continue to be mindful of this liberal federal policy favoring arbitration agreements, when deciding whether to dismiss an action or instead to grant a stay." Salim Oleochemicals v. M/V SHROPSHIRE, 278 F.3d 90, 93 (2d Cir. 2002). As the Circuit has explained, "a dismissal renders an order appealable under [9 U.S.C.] § 16(a)(3), while the granting of a stay is an unappealable interlo cutory order under [9 U.S.C.] § 16(b)[.]" Because "[u]nnecessary delay of the arbitral process through appellate review is disfavored[,]" often a stayrather than dismissalwill be the proper outcome. In this case, however the Court finds that the interests of judicial economy weigh in favor of dismissing the third-party claims outright. This litigation has been protracted and complex and continues to include claims, counterclaims, and third-party claims against Ms. Hirsch. The dismissal of the third-party claims against JSB and Mr. Barkats may streamline these proceedings considerably. Accordingly, the Court dismisses the third-party claims against JSB and Mr. Barkats. SO ORDERED. (Signed by Judge Gregory H. Woods on 1/13/2020) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
AMERICAN E GROUP LLC,
:
:
Plaintiff,
:
:
-against:
:
LIVEWIRE ERGOGENICS INC.,
:
:
Defendant. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 1/13/2020
1:18-cv-3969-GHW
MEMORANDUM OPINION AND
ORDER
GREGORY H. WOODS, United States District Judge:
Third-Party Plaintiff Livewire Ergogenics Inc. executed an engagement letter (the
“Engagement Letter) for Third-Party Defendant JS Barkats PLLC (“JSB”) (and together with ThirdParty Defendant Sunny Joseph Barkats, the “Barkats Defendants”) to represent it as legal counsel.
The Engagement Letter contained a provision compelling arbitration of “any dispute.” In the early
stages of this case, counsel for JSB agreed to waive all “jurisdictional defenses” in exchange for an
extension of time to file an answer to Livewire’s third-party claims. The Barkats Defendants now
move to compel arbitration of the third-party claims against them. Because the Engagement Letter
contains an arbitration provision that subjects this dispute to arbitration and JSB’s agreement to
waive “jurisdictional defenses” does not override the parties’ agreement to arbitrate in the
Engagement Letter, the Barkats Defendants’ motion to compel is GRANTED.
I. BACKGROUND 1
A. Facts 2
On November 3, 2015, Livewire entered into an agreement with JSB for JSB to represent
Livewire as legal counsel. TPC ¶ 17. The relationship between JSB and Livewire was memorialized
in an engagement letter. See Engagement Letter, Dkt No. 140-1. The Engagement Letter states that
Livewire is retaining JSB in connection with its reporting obligations under the Securities Exchange
Act of 1934, “general corporate governance[,]” and assistance with financing. Id. at 1. 3 The
Engagement Letter contains an arbitration provision concerning disputes between JSB and Livewire.
This provision states:
Any dispute, shall be resolved by confidential arbitration as follows: (1) If and to the
extent that the New York Fee Dispute Resolution Program (Part 137 of 22 NYCRR)
providing for the information and expeditious resolution of fee disputes between
attorneys and clients is applicable. (2) If such Fee Dispute Resolution Program is
not applicable to any such dispute, controversy or claim, then the arbitration shall be
conducted in New York City in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and any award issued in such arbitration
shall be enforceable in any court with jurisdiction. A copy of the New York Fee
Dispute Resolution Program is available upon request.
Id. at 4.
Soon after JSB and Livewire executed the Engagement Letter, Livewire executed a note (the
“Note”) with Plaintiff American E Group LLC (AEG) that has been the subject of extensive
litigation in this action. TPC ¶ 24. AEG sued Livewire to enforce the Note. Dkt No. 1. Livewire,
in turn, filed counterclaims against AEG and a third-party action against the Barkats Defendants,
who had represented them in in connection with the negotiation and execution of the Note. Dkt
The Court has previously issued two opinions in this case that provide further background. See Am. E Group LLC v.
Livewire Ergogenics Inc., 1:18-CV-3969-GHW, 2018 WL 5447541 (S.D.N.Y. Oct. 29, 2018); Am. E Group LLC v. Livewire
Ergogenics Inc., 1:18-CV-3969-GHW, 2019 WL 3553293 (S.D.N.Y. Aug. 5, 2019).
2 Except as otherwise noted, the following facts are drawn from the exhibits to the Affirmation of Ryan J. Whalen in
Opposition to Motion to Compel (“Whalen Aff.”), Dkt No. 154, and are undisputed. Some background facts are drawn
from the third-party claim and counterclaim portion of Livewire’s Answer to Amended Complaint with Third-Party
Claims and Counterclaims (“TPC”), Dkt No. 107.
3 Citations to ECF documents in this opinion refer to the ECF pagination.
1
2
No. 54. The third-party complaint was served on the Barkats Defendants on January 25, 2019. Dkt
No. 73.
As a result, on February 19, 2019, Jerome Noll—acting as counsel for JSB—emailed counsel
for Livewire Ryan Whalen to request “an extension of time through March 11, 2019 to respond to
the Counterclaim and Third-Party Complaint[.]” February 19, 2019 Emails, Ex. C to Whalen Aff.,
Dkt No. 154-3, at 3. On the same day, Whalen responded that “Livewire will consent to this
request on the condition that JS Barkats, PLLC waives all jurisdictional defenses, including, but not
limited [to], improper or defective service of the summons and complaint on JS Barkats PLLC.” Id.
at 2. Noll then responded, again on February 19, 2019, that “JS Barkats, PLLC waives all
jurisdictional defenses, including, but not limited to, improper or defective service of the summons
and complaint on JS Barkats, PLLC[.]” Id.
B. Procedural History
Livewire filed an amended answer with counterclaims and third-party claims on April 10,
2019. TPC, Dkt No. 107. As against the Barkats Defendants, the TPC raises claims for
constructive fraud, id. ¶¶ 68-72, breach of fiduciary duty, id. ¶¶ 73-79, breach of the implied
covenant of good faith and fair dealing, id. ¶¶ 94-99, legal malpractice, id. ¶¶ 108-115, and civil
conspiracy, id. ¶¶ 116-127. On July 17, 2019, the Barkats Defendants filed a motion to compel
arbitration under section 4 of the Federal Arbitration Act (“FAA”). Motion to Compel Arbitration
(“Mot.”), Dkt No. 140. On August 6, 2019, Livewire filed a memorandum of law in opposition to
the motion to compel arbitration and an affirmation of Ryan J. Whalen in support of its opposition.
Dkt Nos. 153-54; Whalen Aff., Dkt No. 154.
In its opposition, Livewire makes three arguments. First, it argues that Livewire’s claims
against the Barkats Defendants are not arbitrable under the terms of the Engagement Letter.
Memorandum of Law in Opposition to Motion To Compel Arbitration (“Opp.”) at 9 (capitalization
3
altered). Second, it argues that the Barkats Defendants waived their right to arbitrate by agreeing to
waive its jurisdictional defenses. Opp. at 7. Third, Livewire seems to argue that waiver should be
inferred because it would suffer prejudice if the Barkats Defendants are allowed to compel
arbitration. Opp. at 8-9. The Barkats Defendants filed their reply on August 13, 2019. Reply
Memorandum of Law in Support of Motion to Compel Arbitration (“Rep.”), Dkt No. 159.
II. LEGAL STANDARD
Under Section 2 of the FAA, as a general matter, arbitration agreements “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 FAA also provides that parties can petition the district court for
an order compelling arbitration under 9 U.S.C. § 4. Section 4 of the FAA provides:
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 under title 28, in a
civil action or in admiralty of the subject matter of a suit arising out of the
controversy between the parties, for an order directing that such arbitration proceed
in the manner provided for in such agreement . . . .
9 U.S.C. § 4. A party has “refused to arbitrate” within the meaning of Section 4 if it “commences
litigation or is ordered to arbitrate the dispute by the relevant arbitral authority and fails to do so.”
LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194, 198 (2d Cir. 2004) (citation and brackets
omitted); see also Jacobs v. USA Track & Field, 374 F.3d 85, 89 (2d Cir. 2004) (finding no refusal to
arbitrate where respondents had not commenced litigation nor failed to comply with an order to
arbitrate).
“The role of federal courts, in ruling on a petition to compel arbitration under the FAA, is
‘limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and
ii) whether one party to the agreement has failed, neglected, or refused to arbitrate.’” Isaacs v. OCE
Bus. Servs., Inc., 968 F. Supp. 2d 564, 566-67 (S.D.N.Y. 2013) (quoting Shaw Grp. Inc. v. Triplefine Int’l
Corp., 322 F.3d 115, 120 (2d Cir. 2003) (quotation omitted)). “It has long been settled that
4
arbitration is a matter of contract and that, therefore, a party cannot be compelled to arbitrate issues
that a party has not agreed to arbitrate.” Isaacs, 968 F. Supp. 2d at 567. If the Court determines
“that an arbitration agreement is valid and the claim before it is arbitrable, it must stay or dismiss
further judicial proceedings and order the parties to arbitrate.” Patterson v. Raymours Furniture Co., 96
F. Supp. 3d 71, 75 (S.D.N.Y. 2015) (quoting Nunez v. Citibank, N.A., No. 08-cv-5398 -BSJ, 2009 WL
256107, *2 (S.D.N.Y. Feb. 3, 2009)).
“The Supreme Court has interpreted the FAA broadly, finding a ‘liberal federal policy
favoring arbitration agreements.’” Bynum v. Maplebear Inc., 160 F. Supp. 3d 527, 533 (E.D.N.Y. 2016)
(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)) (brackets omitted).
“The question of whether the parties have agreed to arbitrate, i.e., the ‘question of arbitrability,’ is an
issue for judicial determination unless the parties clearly and unmistakably provide otherwise.”
Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229 (2d Cir. 2016) (quoting Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83 (2002)). “This principle flows inexorably from the fact that arbitration is simply
a matter of contract between the parties.” Id. (quotation and brackets omitted); see also AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (holding that “arbitration is a matter of
contract”) (quotation omitted); Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010)
(holding that, with respect to an arbitration agreement, “as with any other contract, the parties’
intentions control”). Hence, “[t]he threshold question of whether the parties indeed agreed to
arbitrate is determined by state contract law principles.” Nicosia, 834 F.3d at 229 (citation omitted).
However, “[t]he Arbitration Act establishes 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 Mem’l Hosp., 460 U.S. at 24-25.
In resolving a motion to compel arbitration under Section 4 of the FAA, “courts apply a
5
standard similar to that applicable for a motion for summary judgment.” Nicosia, 834 F.3d at 229
(quotation omitted). That standard “requires a court to consider all relevant, admissible evidence
submitted by the parties and contained in pleadings, depositions, answers to interrogatories, and
admissions on file, together with affidavits.” Id. (quotation and ellipsis omitted). Thus, “it is proper
(and in fact necessary) to consider . . . extrinsic evidence when faced with a motion to compel
arbitration,” BS Sun Shipping Monrovia v. Citgo Petroleum Corp., No. 06 CIV. 839 (HB), 2006 WL
2265041, at *3 n.6 (S.D.N.Y. Aug. 8, 2006) (citing Sphere Drake Ins. Ltd. v. Clarendon Nat. Ins. Co., 263
F.3d 26, 32 (2d Cir. 2001)), and “[i]f the party seeking arbitration has substantiated the entitlement
by a showing of evidentiary facts, the party opposing may not rest on a denial but must submit
evidentiary facts showing that there is a dispute of fact to be tried.” Oppenheimer & Co. v. Neidhardt,
56 F.3d 352, 358 (2d Cir. 1995); accord Nicosia, 834 F.3d at 229 (“If there is an issue of fact as to the
making of the agreement for arbitration, then a trial is necessary.”) (quotation omitted). “But where
the undisputed facts in the record require the matter of arbitrability to be decided against one side or
the other as a matter of law, [a court] may rule on the basis of that legal issue and avoid the need for
further court proceedings.” Nicosia, 834 F.3d at 229 (quotations omitted). In deciding a motion to
compel, “the court must draw all reasonable inferences in favor of the non-moving party.” Id.
(citation omitted).
“[T]he party resisting arbitration bears the burden of proving that the claims at issue are
unsuitable for arbitration.” Green Tree Fin. Corp. Alabama v. Randolph, 531 U.S. 79, 91 (2000); see also
Application of Whitehaven S.F., LLC v. Spangler, 45 F. Supp. 3d 333, 342-43 (S.D.N.Y. 2014) (“Whether
it argues that arbitration is improper because the arbitration agreement is invalid under a defense to
contract formation, or asserts that the arbitration contract does not encompass the claims at issue,
either way, the resisting party shoulders the burden of proving its defense.”) (quotation marks
omitted). Courts in this Circuit engage in the following inquiry:
6
[F]irst, [the court] 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) (quoting Oldroyd v. Elmira Sav.
Bank, FSB, 134 F.3d 72, 75-76 (2d Cir. 1998)).
III. DISCUSSION
A. Arbitration Under the Engagement Letter
By its terms, the Engagement Letter compels arbitration of the present dispute between
Livewire and the Barkats Defendants. The Engagement Letter does not contain a choice-of-law
provision, and the parties did not brief what state’s law should govern the Court’s analysis of its
provisions. However, both parties cite to New York law in the briefing on this motion. If “the
parties’ briefs assume that New York substantive law governs the issues . . . such implied consent is,
of course, sufficient to establish the applicable choice of law.” Arch Ins. Co. v. Precision Stone, Inc., 584
F.3d 33, 39 (2d Cir. 2009) (quoting Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 514 n.4 (2d Cir.
2001)).
Under New York law, the initial interpretation of a contract by the court includes “the
threshold question of whether the terms of the contract are ambiguous.” Alexander & Alexander
Servs. v. These Certain Underwriters at Lloyd’s, 136 F.3d 82, 86 (2d Cir. 1998) (quotations omitted); accord,
e.g., W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162 (1990) (“Whether or not a writing is
ambiguous is a question of law to be resolved by the courts.”). Contract language is ambiguous if it
is “capable of more than one meaning when viewed objectively by a reasonably intelligent person
who has examined the context of the entire integrated agreement.” Sayers v. Rochester Tel. Corp.
Supplemental Management Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993); see also Breed v. Insurance Co. of
North Am., 46 N.Y.2d 351, 355 (1978) (noting that no ambiguity exists when contract language has
7
“a definite and precise meaning” about which “there is no reasonable basis for a difference of
opinion”). “Language whose meaning is otherwise plain does not become ambiguous merely
because the parties urge different interpretations in the litigation.” Hunt, Ltd. v. Lifschultz Fast Freight,
Inc., 889 F.2d 1274, 1277 (2d Cir. 1989).
A court applying New York law “may neither rewrite, under the guise of interpretation, a
term of the contract when the term is clear and unambiguous, nor redraft a contract to accord with
its instinct for the dispensation of equity upon the facts of a given case.” Bank of New York Mellon v.
WMC Mortg., LLC, 12CV7096 DLC, 2015 WL 2449313, at *2 (S.D.N.Y. May 22, 2015) (quoting
Cruden v. Bank of New York, 957 F.2d 961, 976 (2d Cir. 1992)). Rather, “a written agreement that is
complete, clear and unambiguous on its face must be enforced according to the plain meaning of its
terms.” MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009) (quotation omitted).
The arbitration provision of the contract is unambiguous, and it requires the arbitration of
this dispute. The first sentence of the arbitration provision in the Engagement Letter states that
“[a]ny dispute, shall be resolved by confidential arbitration[.]” Engagement Letter at 4 (emphasis
added). This dispute surely qualifies as “any dispute.” Thus, by its plain terms, the arbitration
provision requires arbitration of this dispute. 4
Livewire’s argument that the arbitration provision applies only to attorney-client fee disputes
founders on the plain language of the Engagement Letter. Subsection one of the arbitration
provision states that “[i]f and to the extent that New York Fee Dispute Resolution Program (Part 137
of NYCRR) providing for the informal and expeditious resolution of fee disputes between attorneys
and clients is applicable, then the rules and procedures of such Fee Dispute Resolution Program
Although Mr. Barkats is not a party to the Engagement Letter, Livewire has not argued that the Court might grant the
motion to compel arbitration only as to JSB and allow third-party claims to proceed against Mr. Barkats individually.
Moreover, it would frustrate the purpose of the arbitration provision to allow Livewire to litigate claims that would
otherwise be subject to arbitration by framing those claims as being against Mr. Barkats in his individual capacity. For
those reasons, the Court construes the arbitration provision as applying to the third-party claims against both JSB and
Mr. Barkats.
4
8
shall apply.” Engagement Letter at 4 (emphasis added). Subsection two states that “[i]f such Fee
Dispute Resolution Program is not applicable to any such dispute, controversy, or claim, then the
arbitration shall be conducted in New York City in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and any award issued in such arbitration shall be
enforceable in any court with jurisdiction.” Id. (emphasis added).
The meaning of these provisions is clear. All disputes are subject to arbitration. The New
York Fee Dispute Resolution Program supplies the rules for arbitration of a subset of attorney-client
fee disputes, but that does not alter the underlying rule that all disputes are subject to arbitration. 5
Accordingly, this dispute is subject to arbitration. 6
B. Waiver of Right to Arbitrate
1. Waiver of “Jurisdictional Defenses”
The Barkats Defendants did not waive their right to move to compel arbitration when their
counsel agreed to waive their jurisdictional defenses. As an initial matter, the Barkats Defendants do
not dispute that Jerome Noll’s February 19, 2019 email constituted a valid waiver of jurisdictional
defenses. Hence, the Court assumes, without deciding, that Mr. Noll’s waiver of jurisdictional
defenses was valid and effective. It is also true, as Livewire argues, that “[p]arties to an arbitration
agreement can waive their rights to arbitrate.” Opp. at 8 (citing In re American Express Financial
Advisors Securities Litigation, 672 F.3d 113, 132 (2d Cir. 2011); Zhang v. Wang, 317 F. App’x 26, 28 (2d
Cir. 2008)). However, the Barkats Defendants argue that a motion to compel arbitration is not a
“jurisdictional defense” and thus is not precluded by its waiver of jurisdictional defenses.
Only fee disputes between $1,000 to $50,000 are subject to the procedures outlined in 22 N.Y.C.R.R. 137(b)(2).
Although Livewire raises a fraud claim, it does not argue that fraud invalidates the Engagement Letter; to the contrary,
Livewire alleges in its TPC that “[t]he Engagement Letter is a valid contract entered into by Livewire and JSB.” TPC
¶ 95. Therefore, the fraud claim is properly subject to arbitration. Livewire’s breach of fiduciary duty, breach of the
implied covenant of good faith and fair dealing, legal malpractice, and civil conspiracy claims flow either from the
execution of the Note or the Engagement Letter itself. Because JSB and Mr. Barkats advised Livewire to execute the
Note in their role as legal counsel for Livewire—which is governed by the Engagement Letter—those claims are also
subject to arbitration.
5
6
9
The linchpin of Livewire’s argument that the Barkats Defendants waived their right to
compel arbitration is that “[i]n the Second Circuit motions to compel arbitration are considered
motions to dismiss under Fed. R. Civ. P. 12(b)(1) because the motion is premised on the allegation
that the Court does not have subject matter jurisdiction over the dispute due to the agreement to
arbitrate.” Opp. at 6. Therefore, according to Livewire, when the Barkats Defendants waived “all
jurisdictional defenses against the TPC,” this “necessarily include[d] all subject matter jurisdiction
defenses.” Id. at 7.
The Court is not persuaded that the Barkats Defendants’ agreement to waive “jurisdictional”
defenses included a waiver of their right to bring a motion to compel arbitration. “The FAA does
not independently confer subject-matter jurisdiction on the federal courts[.]” Bakoss v. Certain
Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140, 142 n.4 (2d Cir. 2013)
(citation omitted). Rather, an agreement to arbitrate is a type of forum-selection clause. See
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 628 (1985) (analyzing arbitration
agreement as a forum selection clause); see also Grasty v. Colo. Tech. Univ., 599 F. App’x 596, 597 (7th
Cir. 2015) (“[A]n agreement to arbitrate does not affect a district court’s subject-matter jurisdiction.
An arbitration clause is a type of forum-selection clause.”). Because enforcement of a forum
selection clause is not jurisdictional, enforcement of a provision compelling arbitration does not
implicate the Court’s subject matter jurisdiction. See Automobile Mech. Loc. 701 Welfare and Pension
Funds v. Vanguard Car Rental USA, Inc., 502 F.3d 740, 743 (7th Cir. 2007) (“Enforcement of a forum
selection clause (including an arbitration clause) is not jurisdictional[.]”); City of Benkelman v. Baseline
Eng’g Corp., 867 F.3d 875, 880-81 (8th Cir. 2017) (holding that “an arbitration agreement alone” does
not “divest[] the federal courts of subject matter jurisdiction”); cf. Palcko v. Airborne Express, Inc., 372
F.3d 588, 597 (3d Cir. 2004) (“Our prior decisions support the traditional practice of treating a
motion to compel arbitration as a motion to dismiss for failure to state a claim upon which relief can
10
be granted.”). 7 As a motion to compel arbitration is not an attack on the subject matter jurisdiction
of the Court, the Barkats Defendants’ agreement to waive jurisdictional defenses did not override
their right to compel arbitration under the Engagement Letter in this case.
2. Waiver by Participation
The Barkats Defendants did not implicitly waive their right to move to compel arbitration by
participating in this action. The Second Circuit has “emphasized that there is a strong presumption
in favor of arbitration and that waiver of the right to arbitration is not to be lightly inferred.” Cotton
v. Slone, 4 F.3d 176, 179 (2d Cir. 1993) (quotation and citation omitted). “Waiver will be inferred
when a party engages in protracted litigation that results in prejudice to the opposing party.” Id.
The parties have not engaged in “protracted litigation” regarding the third-party claims
against the Barkats Defendants. Indeed, as the Barkats Defendants note, “almost no activity has
occurred relating to the dispute between Livewire and the Barkats Defendants” between when the
Barkats Defendants filed their answer to the TPC—which expressly reserved the Barkats
Defendants’ right to move to compel arbitration—and their motion to compel arbitration. Rep at 4.
In addition, the Barkats Defendants have not made a motion related to the merits of their claim in
that same period. Therefore, Livewire has not demonstrated that it will suffer the prejudice
contemplated by Slone if the motion to compel arbitration is granted. Accordingly, the Court will
not infer that the Barkats Defendants waived their right to compel arbitration under the
The Court acknowledges that some courts in this district and elsewhere have held that motions to compel arbitration
are properly brought under Rule 12(b)(1), which permits a court to dismiss a case for “lack of subject-matter
jurisdiction.” Fed. R. Civ. P. 12(b)(1); see NYP Holdings, Inc. v. Newsp. and Mail Deliverers’ Union of New York and Vicinity,
01 CIV. 4451 (SAS), 2002 WL 1603145, at *1 n.2 (S.D.N.Y. July 18, 2002) (“The Union’s assertion that arbitration is the
proper forum for the Post’s claims is considered a motion under Rule 12(b)(1) that this Court lacks subject matter
jurisdiction over the action.”) (citing Brennan v. Bally Total Fitness, 198 F.Supp.2d 377, 381 (S.D.N.Y. 2002)); Gilbert v.
Donahoe, 751 F.3d 303, 306 (5th Cir. 2014) (“[A] district court lacks subject matter jurisdiction over a case and should
dismiss it pursuant to Federal Rule of Civil Procedure 12(b)(1) when the parties’ dispute is subject to binding
arbitration.”). However, none of these decisions considered the argument that because the FAA does not confer
jurisdiction, a motion to compel is not proper under Rule 12(b)(1). Accordingly, the Court does not find these decisions
persuasive.
7
11
Engagement Letter.
IV. CONCLUSION
For the foregoing reasons, the Barkats Defendants’ motion to compel arbitration is
GRANTED. The Court has determined that it should dismiss the third-party claims against the
Barkats Defendants. “[W]hen all the claims in an action have been referred to arbitration and a stay
[is] requested” the “text, structure, and underlying policy of the FAA mandate a stay of proceedings.”
Katz v. Cellco P’ship, 794 F.3d 341, 343, 347 (2d Cir. 2015) (emphasis added). However, no party has
requested a stay if the Court compels arbitration of the third-party claims the Barkats Defendants.
Therefore, the Court need not stay the case and may instead dismiss the third-party claims against
the Barkats Defendants.
The Court has considered the Second Circuit’s instruction that “[d]istrict courts should
continue to be mindful of this liberal federal policy favoring arbitration agreements, when deciding
whether to dismiss an action or instead to grant a stay.” Salim Oleochemicals v. M/V SHROPSHIRE,
278 F.3d 90, 93 (2d Cir. 2002). As the Circuit has explained, “a dismissal renders an order
appealable under [9 U.S.C.] § 16(a)(3), while the granting of a stay is an unappealable interlocutory
order under [9 U.S.C.] § 16(b)[.]” Because “[u]nnecessary delay of the arbitral process through
appellate review is disfavored[,]” often a stay—rather than dismissal—will be the proper outcome.
In this case, however the Court finds that the interests of judicial economy weigh in favor of
dismissing the third-party claims outright. This litigation has been protracted and complex and
continues to include claims, counterclaims, and third-party claims against Ms. Hirsch. The dismissal
12
of the third-party claims against JSB and Mr. Barkats may streamline these proceedings considerably.
Accordingly, the Court dismisses the third-party claims against JSB and Mr. Barkats.
SO ORDERED.
Dated: January 13, 2020
New York, New York
__________________________________
GREGORY H. WOODS
United States District Judge
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