Hatemi v. M&T Bank Corporation

Filing 103

-CLERK TO FOLLOW UP-DECISION AND ORDER staying case pending arbitration and directing administrative closing. Signed by Hon. Hugh B. Scott on 4/6/2016. (GAI)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
Lachin Hatemi, individually, and on behalf of
all others similarly situated,
Plaintiff,

DECISION AND ORDER
13-CV-1103S

v.
M & T Bank Corporation,
Defendant.

I.

INTRODUCTION AND BACKGROUND
Without rehashing case history available elsewhere in the docket, this case has concerned
allegations that M & T Bank Corporation (“M & T”) charged overdraft fees against Lachin
Hatemi’s (“Hatemi”) checking account even though Hatemi never requested overdraft services.
On April 11, 2014, M & T filed a motion to dismiss and to compel arbitration under the Federal
Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16. (Dkt. No. 15.) The Court recommended denying the
motion (Dkt. No. 33), and Judge Skretny adopted the recommendation (Dkt. No. 43). M & T
appealed; in the meantime, some discovery began in the case, Hatemi retained counsel and ended
his pro se status, and new counsel filed an amended complaint (Dkt. No. 89) with an eye toward a
class action.
On March 4, 2016, the Second Circuit issued a summary order vacating the denial of
arbitration. (Dkt. No. 99.) The formal mandate issued on March 30, 2016. (Dkt. No. 102.)
Among other analysis, and important for reasons explained below, the Second Circuit decided
that “[b]ecause the issues of overdraft protection and accompanying fees are indisputably related to
Hatemi’s account and to a service provided in connection with his account, which results in a fee

obligation connected to the account, the Account Agreement’s arbitration clause extends to the
instant dispute regardless of whether the disputed overdraft protection agreement is incorporated
into the Account Agreement or even exists.” (Id. at 4); see also 2016 WL 852818 at *1. The
Second Circuit decided further that “in such arbitration, factual disputes as to the existence or
terms of any overdraft protection and fee obligations can be raised and resolved.” 2016 WL
852818, at *1 (citation omitted).
Two other important events occurred between the Second Circuit’s announcement of its
decision and its issuance of the formal mandate. First, the Court invited the parties to file brief
statements “addressing whether there is any reason to avoid staying this case immediately pending
arbitration.” (Dkt. No. 99.) M & T requested an order requiring arbitration to start within 60
days and a stay of the case, but not dismissal. “[T]he only reason the action should not be
dismissed is to provide a forum to confirm any eventual arbitration award.” (Dkt. No. 100.)
Hatemi asked the Court not to order arbitration until after the United States Supreme Court
decides whether to grant further review of the case. (See Dkt. No. 101.) Second, a review of the
Second Circuit docket shows that Hatemi made no application to that court for any sort of
rehearing under Rules 35 or 40 of the Federal Rules of Appellate Procedure (“FRAP”) or for a stay
of the mandate under FRAP 41(d).
Since the Second Circuit effectively has ordered the case to go to arbitration, there are only
three issues left before the Court: whether to stay the case pending arbitration and how quickly
that stay should occur; whether to require that arbitration begin within any particular timeframe;
and what to do about certain other issues in the case that currently are unresolved.
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II.

DISCUSSION

A. Standard of review
As an initial matter, the Court will address an issue that might be smaller than the more
substantive issues pending but still is important to treat correctly. Is an order staying a case
pending the outcome of arbitration dispositive or non-dispositive? When this Court addressed
arbitration previously, it did so through a Report and Recommendation because M & T’s
corresponding motion had a request for dismissal intertwined with it. (See, e.g., Dkt. No. 15 at 1.)
The Report and Recommendation was a more cautious way to address the combined issues. Now,
the Second Circuit has mandated that all issues related to Hatemi’s account go to arbitration. The
most significant issue left is the propriety of a stay and what the scope of that stay might be.
“Although the Second Circuit has not yet addressed the issue, the prevailing view among
District Courts in this Circuit is that decisions to compel arbitration are non-dispositive. Further,
the only two Courts of Appeals that appear to have addressed the issue—the First and Third
Circuits—have recently held that decisions to compel arbitration are non-dispositive.” Cumming v.
Indep. Health Ass’n, Inc., No. 13-CV-969-A F, 2014 WL 3533460, at *1 (W.D.N.Y. July 16, 2014)
(Arcara, J.) (citations omitted). The First Circuit’s rationale is instructive:
Motions to stay litigation pending the resolution of parallel arbitration
proceedings are not among the motions enumerated in 28 U.S.C. § 636(b)(1)(A).
Nor are they of the same character as the listed motions. A federal court’s ruling
on a motion to stay litigation pending arbitration is not dispositive of either the
case or any claim or defense within it. Although granting or denying a stay may be
an important step in the life of a case (lawyers are keenly aware that there are
substantive consequences to whether or not a stay is granted), in the last analysis a
stay order is merely suspensory. Even if such a motion is granted, the court still
retains authority to dissolve the stay or, after the arbitration has run its course, to
make orders with respect to the arbitral award. See Federal Arbitration Act, 9
U.S.C. § 9 (permitting parties to apply to the court for an order confirming the
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award); id. § 10 (providing district courts with authority to vacate an arbitral award);
id. § 11 (providing district courts with authority to modify an arbitral award). We
acknowledge that the scope of judicial review of arbitral awards is very narrow, but
that does not extinguish such review. See Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st
Cir. 1990). Thus, there is no final exercise of Article III power at the time the
court acts on the motion to stay.
PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 14 (1st Cir. 2010). The Third Circuit’s rationale is
similar:
We agree with the First Circuit. A ruling on a motion to compel arbitration does
not dispose of the case, or any claim or defense found therein. Instead, orders
granting this type of motion merely suspend the litigation while orders denying it
continue the underlying litigation. And, even where motions to compel
arbitration are granted, federal courts continue to retain the authority to dissolve
any stay or make any orders effectuating arbitration awards. Given this, we see no
exercise of Article III power when a Magistrate Judge rules on a motion to compel
arbitration. Therefore, the District Court incorrectly concluded that Magistrate
Judges lack the authority to rule on such requests.
Virgin Islands Water & Power Auth. v. Gen. Elec. Int’l Inc., 561 F. App’x 131, 134 (3d Cir. 2014)
(unpublished decision).
This Court sees no reason to deviate from the above reasoning under the circumstances
now before it. The Second Circuit’s mandate is broad enough to send all pending substantive and
procedural issues to the arbitrator. Sending all issues to the arbitrator will not extinguish or
prejudice the parties’ rights in any way that would resemble an exercise of Article III power.
Under the FAA, the parties would have to return to the Court anyway for formal closure of their
claims, through either a confirmation or a vacation of any eventual arbitration decision. The
Court thus is comfortable adjudicating the issue of a stay through a non-dispositive Decision and
Order, and will proceed accordingly.

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B. Stay pending arbitration
The Second Circuit’s mandate simplified the procedural posture of this case. The plain
text of the FAA, combined with another Second Circuit decision from less than a year ago, make
the issue of a stay simple as well. “If any suit or proceeding be brought in any of the courts of the
United States upon any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration under such an agreement, shall on application of
one of the parties stay the trial of the action until such arbitration has been had in accordance with
the terms of the agreement, providing the applicant for the stay is not in default in proceeding
with such arbitration.” 9 U.S.C. § 3 (emphasis added). Until last year, some courts in the Circuit
interpreted Section 3 of the FAA to require a stay when part of a case needed to go to arbitration;
those courts then pondered what to do if an entire case needed to go to arbitration. See, e.g., Glover
v. Colliers Int’l NY, LLC, No. 13-CV-8843 JMF, 2014 WL 5410016, at *5 (S.D.N.Y. Oct. 24, 2014)
(“Although Section 3 of the FAA requires a district court to stay proceedings where an issue before
it requires arbitration, see 9 U.S.C. § 3, a court has discretion to dismiss, rather than stay, an
action when all of the issues in it must be arbitrated, because no useful purpose will be served by
granting a stay of the proceedings.”) (internal quotation and editorial marks omitted), citing Salim
Oleochemicals v. M/V Shropshire, 278 F.3d 90, 92–93 (2d Cir. 2002). Last year, the Second Circuit
abrogated Salim and interpreted Section 3 to cover cases that are subject to arbitration in their
entirety. “We join those Circuits that consider a stay of proceedings necessary after all claims have
been referred to arbitration and a stay requested. The FAA’s text, structure, and underlying policy
command this result . . . . The plain language specifies that the court ‘shall’ stay proceedings
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pending arbitration, provided an application is made and certain conditions are met.” Katz v.
Cellco P’ship, 794 F.3d 341, 345 (2d Cir.), cert. denied, 136 S. Ct. 596 (2015).
This case meets all the prerequisites for Section 3 of the FAA. The Second Circuit
mandate addresses the first half of Section 3 and resolves that the entire case must proceed to
arbitration. As for the second half of Section 3, nothing in the record indicates that any party is in
default with respect to its obligation to arbitrate. The Court thus will apply Section 3 and will stay
the case until arbitration proceedings run their course. The Court will direct the Clerk of the
Court to arrange for an administrative closing 1 of the case. This course of action will address
M & T’s concern from its recent letter about having a forum later to confirm any eventual
arbitration award.
The next issue is how quickly to stay the case. In his recent letter, Hatemi urged the Court
to give him time to seek review of the Second Circuit mandate before the United States Supreme
Court. Two factors counsel against allowing that long of a wait. First, the Account Agreement
allows a dispute to go to arbitration anytime, once 60 days pass from the time when M & T
becomes aware of a dispute. (See Dkt. No. 15-2 at 19.) This provision coincides with another
provision setting forth that arbitration here will proceed under the Consumer Arbitration Rules of
the American Arbitration Association (“AAA”) (see id. at 18); the Consumer Arbitration Rules do
not appear to have any language restricting when arbitration can begin. See Rule R-2, “Starting
Arbitration under an Arbitration Agreement in a Contract,” available at
https://www.adr.org/aaa/ShowProperty?nodeId=/UCM/ADRSTAGE2021425
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By “administrative closing,” the Court means that the case will be placed on its internal administrative list
of closed cases. Legally, any motions pending as of this writing will remain pending, with a full preservation
of the parties’ positions and rights.

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&revision=latestreleased (last visited Apr. 6, 2016). Second, Hatemi’s decision not to seek relief
from the Second Circuit suggests that his need to delay arbitration and a stay of the case is not
urgent. Under FRAP 41(d)(1), “[t]he timely filing of a petition for panel rehearing, petition for
rehearing en banc, or motion for stay of mandate, stays the mandate until disposition of the
petition or motion, unless the court orders otherwise.” Hatemi did not seek a rehearing of the
decision or a stay of the mandate. Under FRAP 41(d)(2), Hatemi could have asked the Second
Circuit “to stay the mandate pending the filing of a petition for a writ of certiorari in the Supreme
Court.” Hatemi did not make this request either. The decision not to stay or otherwise to move
against the mandate effectively cut off Hatemi’s chances of seeking a stay directly from the
Supreme Court. An individual Justice of the Supreme Court can grant a stay of enforcement of
any judgment, but “[a]n application for a stay shall set out with particularity why the relief sought
is not available from any other court or judge. Except in the most extraordinary circumstances, an
application for a stay will not be entertained unless the relief requested was first sought in the
appropriate court or courts below or from a judge or judges thereof.” U.S. Sup. Ct. R. 23(3). The
Court sees no reason to give Hatemi greater consideration than he gave himself before the Second
Circuit with respect to a stay. Accordingly, the Court will issue a stay effective immediately.
As for compelling arbitration, the Court will formally order the parties to arbitration to the
extent that the Second Circuit mandate did not do so already, but the Court sees no need to set a
timeframe. The Account Agreement between the parties and the rules of the AAA appear to allow
arbitration to begin as soon as one side makes the appropriate filing with the AAA. In the unlikely
event of a delay from both sides that raises questions about breach of the Account Agreement or
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default under 9 U.S.C. § 3, the Court would address the problem as needed. Cf. Van Buren v.
Cargill, Inc., No. 10-CV-701, Dkt. Nos. 16–17 (W.D.N.Y.) (Skretny, J.) (staying a case pending the
outcome of arbitration without requiring arbitration to begin within a particular time).

C. Unresolved pending matters
To ensure compliance with the broad nature of the Second Circuit’s mandate, the Court is
leaving for the arbitrator two major issues that require some attention. One issue is M & T’s
pending motion to dismiss the third cause of action for conversion. (Dkt. No. 96.) As stated
above, the motion will be legally preserved through the administrative closing of the case; any
dispute about the viability of a conversion claim will have to go to the arbitrator. A broader issue,
though, is the viability of the entire Amended Complaint in the wake of the Second Circuit’s
mandate. The Account Agreement between the parties contains the following provision:
There will be no class Claim (i.e., Claims by or on behalf of other persons will not
be considered in or consolidated with the arbitration proceedings between you and
us). The arbitrator may not consolidate your Claims with any other person’s claims
(except for persons who are joint account holders on your account) and may not
otherwise preside over any form of a representative or class proceeding.
(Dkt. No. 15-2 at 18; see also id. at 19 (extending the prohibition on class claims to “other legal
proceedings” besides arbitration).) The Second Circuit’s mandate does not address directly the
Account Agreement’s prohibition on class actions. That said, the rationale by which the Second
Circuit extended the arbitration provision to all the claims and factual disputes in this case easily
can apply to the provision prohibiting class actions. To the extent that Hatemi’s desire for a class
action becomes an issue going forward, the arbitrator will have to look at the issue in the first
instance.

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III.

CONCLUSION
For all of the foregoing reasons, the Court stays this case immediately pending the outcome
of arbitration proceedings. The parties are directed to arbitration in accordance with the Second
Circuit’s mandate. The Clerk of the Court will arrange for an administrative closing of the case.
SO ORDERED.

__/s Hugh B. Scott________
HONORABLE HUGH B. SCOTT
UNITED STATES MAGISTRATE JUDGE

DATED: April 6, 2016

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