Narayanan v. Sutherland Global Holdings Inc.
Filing
174
DECISION AND ORDER striking Defendant's demand for a jury trial and finding that the Court will conduct a bench trial on all remaining claims in this action. Signed by Hon. Elizabeth A. Wolford on 01/26/2023. (CDH)
Case 6:15-cv-06165-EAW-MWP Document 174 Filed 01/26/23 Page 1 of 13
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
_____________________________________
MUTHU NARAYANAN,
Plaintiff,
DECISION AND ORDER
v.
6:15-CV-06165 EAW
SUTHERLAND GLOBAL HOLDINGS INC.,
Defendant.
_____________________________________
INTRODUCTION
There are two trial-ready claims pending in the instant diversity action: (1) a claim
for breach of contract by plaintiff Muthu Narayanan (“Plaintiff”); and (2) a counterclaim
for breach of fiduciary duty by defendant Sutherland Global Holdings Inc. (“Defendant”).
The parties agree that Plaintiff has waived his right to a jury trial as to his breach of contract
claim. However, there is a dispute as to whether Defendant is entitled to a jury trial on its
breach of fiduciary duty counterclaim. For the reasons discussed below, the Court finds
that Defendant has also waived its right to a jury trial and its demand for the same is
accordingly stricken.
BACKGROUND
This case has an extensive procedural history, familiarity with which is assumed for
purposes of the instant Decision and Order. The Court summarizes the salient facts below.
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Plaintiff commenced the instant action on March 25, 2015. (Dkt. 1). In his
complaint, Plaintiff asserted two claims for breach of contract and two claims for unjust
enrichment. (Id.). One breach of contract claim and one unjust enrichment claim sought
just under $2 million in damages related to Defendant’s alleged refusal to pay Plaintiff the
proceeds for his sale of certain “Option Shares.” (Id. at ¶¶ 39-48). The other breach of
contract and unjust enrichment claims sought approximately $11,290.80 in damages
related to Defendant’s alleged refusal to pay Plaintiff the proceeds for his sale of 1,000
shares of stock under a “Redemption Agreement.” (Id. at ¶¶ 49-56). Plaintiff’s complaint
did not contain a jury demand.
On June 15, 2015, Defendant filed an answer to the complaint. (Dkt. 12). In its
answer, Defendant asserted as an affirmative defense that Plaintiff “owes Sutherland an
amount of money that far exceeds, and will be a complete set-off to, the amount of money
claimed by Plaintiff in this action.” (Id. at ¶ 59). Specifically, Defendant asserted that
Plaintiff had breached his fiduciary duty to Defendant in connection with a land acquisition
project in India while serving as a corporate director. (Id. at ¶¶ 60-86). Relying on the
same facts set forth in its affirmative defense, Defendant also asserted a counterclaim for
breach of fiduciary duty against Plaintiff. (Id. at ¶¶ 97-104). Defendant’s answer contained
a jury demand for “all issues eligible.” (Id. at 15).
Plaintiff moved to dismiss Defendant’s counterclaim and to strike the related
affirmative defense, arguing principally that the counterclaim should be dismissed as
derivative, because the funds he was alleged to have misappropriated belonged to
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Defendant’s Indian subsidiary. (Dkt. 20; Dkt. 21). In opposition, Defendant argued,
among other things, that Plaintiff’s alleged breach of fiduciary duty had “enable[ed] him
. . . to remain on [Defendant’s] Board and in a position to make the present $2 million
claim[.]” (Dkt. 30 at 7). Defendant further argued that its set-off defense “must be heard
in conjunction with this action.” (Id. at 8). On November 23, 2015, United States District
Judge Michael A. Telesca, to whom the matter was then assigned, issued a Decision and
Order denying Plaintiff’s motion. (Dkt. 37). Plaintiff thereafter filed an answer to
Defendant’s counterclaim. (Dkt. 38).
In 2017, after the close of discovery, the parties filed cross-motions for summary
judgment. (Dkt. 67; Dkt. 73). On May 16, 2018, Judge Telesca entered a Decision and
Order in which he: (1) granted Plaintiff summary judgment on his claim for breach of the
Redemption Agreement; (2) granted Plaintiff summary judgment on his breach of contract
claim related to the Option Shares to the extent he claimed breach of a 30% Net Exercise
Agreement; (3) granted Plaintiff summary judgment on Defendant’s breach of fiduciary
duty counterclaim; (4) granted Defendant summary judgment on Plaintiff’s breach of
contract claim related to the Option Shares to the extent he claimed breach of a 100% Net
Exercise Agreement; and (5) granted Defendant summary judgment on Plaintiff’s unjust
enrichment claims. (Dkt. 116).
The parties appealed Judge Telesca’s Decision and Order to the Court of Appeals
for the Second Circuit. (Dkt. 127; Dkt. 130). The Second Circuit subsequently issued a
summary order vacating the judgment and remanding the matter for further proceedings.
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(Dkt. 153). The Second Circuit noted that Plaintiff had appealed “the dismissal of his
breach of contract claim related to one of the stock buyback agreements” and that
Defendant had appealed “the dismissal of its breach of fiduciary duty counterclaim.” (Id.
at 3). Plaintiff did not pursue an appeal of the dismissal of his unjust enrichment claims,
and Defendant did “not contest the district court’s conclusion that it agreed to the 30%
Buyback Agreement and that this agreement is valid and enforceable” (id.), nor did it
appeal Judge Telesca’s grant of summary judgment on the breach of contract claim related
to the Redemption Agreement.
The case was reassigned to the undersigned on September 18, 2019. (Dkt. 152).
The Court held a trial date status conference on November 11, 2019, and scheduled a jury
trial for June 15, 2020. (Dkt. 157). At the status conference, there was a brief discussion
as to whether there was a right to a jury trial as to some claims, and the Court advised the
parties to submit as part of their pretrial filings their respective positions on “exactly what
claims are going to be tried by the jury, and what, if any, would not be tried by the jury.”
(Dkt. 166 at 11). The trial scheduled for June 15, 2020, was subsequently adjourned due
to the global COVID-19 pandemic, and no pre-trial submissions were filed. (Dkt. 162).
In April of 2021, as part of its effort to resume civil trials notwithstanding the
ongoing challenges presented by the COVID-19 pandemic, the Court issued a Text Order
requiring the parties to submit a joint status report indicating, among other things, whether
the case would be tried by a jury. (Dkt. 163). The parties’ joint status report indicated that
they had a dispute regarding Defendant’s right to a jury trial on its breach of fiduciary duty
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counterclaim. (Dkt. 164). Upon order of the Court (Dkt. 165), the parties subsequently
filed briefing setting forth the basis of their dispute (Dkt. 167; Dkt. 168). In his briefing,
Plaintiff requested that the Court strike Defendant’s jury demand and conduct a bench trial
on all remaining claims. (Dkt. 168 at 5).
DISCUSSION
In a federal civil case, “[t]he right of trial by jury as declared by the Seventh
Amendment to the Constitution—or as provided by a federal statute—is preserved to the
parties inviolate.” Fed. R. Civ. P. 38(a). A party may waive its Seventh Amendment right
to a jury trial, provided that it does so “knowingly and intentionally.” Ruane v. Bank of
Am., N.A., 308 F. Supp. 3d 718, 721 (E.D.N.Y. 2018) (citation omitted). Because the right
to a jury trial is “fundamental,” the “party seeking to strike a jury demand bears the burden
of proof to overcome [a] presumption against . . . waiver[.]” Id. (citation omitted).
“Although the right [to a jury trial] is fundamental and a presumption exists against
its waiver, a contractual waiver is enforceable if it is made knowingly, intentionally, and
voluntarily.” Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 188 (2d
Cir. 2007). As another court in this Circuit has explained:
The factors a court must consider in determining whether a contractual
waiver of a right to a jury trial was entered into knowingly and voluntarily
include: 1) the negotiability of contract terms and negotiations between the
parties concerning the waiver provision; 2) the conspicuousness of the
waiver provision in the contract; 3) the relative bargaining power of the
parties; and 4) the business acumen of the party opposing the waiver. When
the criteria outlined above have been met, the waiver has been deemed
enforceable.
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Morgan Guar. Tr. Co. of New York v. Crane, 36 F. Supp. 2d 602, 603-04 (S.D.N.Y. 1999)
(citation omitted).
“If a contractual jury waiver is enforceable, a court must then analyze whether the
claims in the action fall within the scope of the jury waiver clause.” Kortright Cap.
Partners LP v. Investcorp Inv. Advisers Ltd., 327 F. Supp. 3d 673, 686 (S.D.N.Y. 2018).
Jury waiver provisions must not be construed in an overly broad fashion, but must also be
interpreted consistently with their plain language. Id. at 686-87; see also Allied Irish
Banks, p.l.c. v. Bank of Am., N.A., 875 F. Supp. 2d 352, 356 (S.D.N.Y. 2012) (“Although
some courts state that jury waivers are construed narrowly, courts have not hesitated to
enforce jury waivers as written.”).
Here, Plaintiff and Defendant are parties to a “Management Stockholders
Agreement” (the “MSA”) dated October 8, 2014, which contains the following jury waiver
provision:
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY AND THE
MANAGEMENT STOCKHOLDER HEREBY WAIVES AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT, OR OTHERWISE) ANY RIGHT TO TRIAL
BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION,
CLAIM, CAUSE OF ACTION, OR SUIT (WHETHER IN CONTRACT,
TORT, OR OTHERWISE), INQUIRY, PROCEEDING, OR
INVESTIGATION ARISING OUT OF, OR BASED UPON, THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, OR IN ANY
WAY CONNECTED WITH OR RELATED TO OR INCIDENTAL TO
THE TRANSACATIONS CONTEMPLATED HEREBY, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING.
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(Dkt. 168-2 at 37-38). Plaintiff was required to enter into the MSA in order to exercise the
stock options underlying his breach of contract claim and its terms were incorporated by
reference into the Net Exercise and Share Sale Election contract that Defendant allegedly
breached. (Id. at 3-4; see also Dkt. 167 at 21 (Defendant acknowledging that “the Net
Exercise and Share Sale Election contract incorporated by reference (and attached as an
exhibit) the Management Stockholders Agreement”)). The MSA expressly states that it is
being entered into “in connection with the exercise of the Options[.]” (Dkt. 168-2 at 30).
Defendant does not dispute that it entered into the MSA and its included jury waiver
provision knowingly, intentionally, and voluntarily. Nor could it reasonably do so, given
that it is a sophisticated corporate entity, that it drafted the MSA, and that the jury waiver
is conspicuously included therein. Instead, Defendant argues that: (1) Plaintiff’s assertion
of the jury waiver provision is untimely; and (2) its breach of fiduciary duty counterclaim
is not within the scope of the jury waiver. (Dkt. 167). The Court does not find these
arguments persuasive.
As to the timeliness argument, “[p]arties have a great deal of latitude on the timing
of motions to strike a jury demand. Because a court has the power to act sua sponte to
strike a jury demand at any time, it follows that a court has the discretion to permit a motion
to strike a jury demand at any time, even on the eve of trial.” Bear, Stearns Funding, Inc.
v. Interface Grp.-Nevada, Inc., No. 03 CIV. 8259 (CSH), 2007 WL 3286645, at *3
(S.D.N.Y. Nov. 7, 2007) (citation and alteration omitted); see also Chen v. Hunan Manor
Enter., Inc., 340 F.R.D. 85, 89 (S.D.N.Y. 2022) (“[A] court has the discretion to permit a
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motion to strike a jury demand at any time, even on the eve of trial.”). Indeed, the issue of
whether particular claims are within the scope of a jury waiver is often “better resolved
following discovery and resolution of any motions for summary judgment, at which point
it [is] more clear which, if any, parties and claims are headed for trial.” Taupita Inv., Ltd.
v. Benny Ping Wing Leung, No. 14 CIV. 9739 (PAE), 2017 WL 3600422, at *13 (S.D.N.Y.
Aug. 17, 2017).
In this case, it only became clear which claims were headed for trial when the
Second Circuit entered its summary order remanding the matter for further proceedings.
At the first appearance held after entry of that summary order, the parties and the Court
expressly left the issue of a jury trial versus a bench trial open, with the Court instructing
the parties to brief the matter as part of their pre-trial submissions. However, those pretrial submissions were ultimately not filed, because the trial was adjourned without date
due to the COVID-19 pandemic. Then, in response to the Court’s April 2021 Text Order,
Plaintiff promptly alerted both Defendant and the Court that its position was that Defendant
was not entitled to a jury trial on its breach of fiduciary duty counterclaim. Further, the
trial of this case has not been rescheduled at this time. Under these circumstances, there
has been no prejudice to Defendant based on the timing of Plaintiff’s assertion of the jury
waiver provision, and the Court does not find Plaintiff’s request to strike untimely. See
Chen, 340 F.R.D. at 89 (a court should decline to entertain a request to strike a jury demand
based on timing only if “the party opposing the motion shows (1) an inexcusable delay by
the movant and (2) prejudice as a result of the delay” (citation omitted)).
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As to the scope of the jury waiver provision, the language used in the MSA is
exceptionally broad. The plain language of the jury waiver provision is not limited to
individual claims, but encompasses any “action” or “suit” or “proceeding” that is “in any
way connected with or related to or incidental to” the transactions contemplated by the
MSA.
This action, including Defendant’s affirmative defense and corresponding
counterclaim based on the same underlying facts, undisputedly is connected with the option
exercise underlying Plaintiff’s breach of contract claim, which is a transaction
contemplated by the MSA. In other words, Plaintiff’s breach of contract claim has brought
the entirety of this action—including Defendant’s affirmative defense and corresponding
counterclaim—within the broadly defined scope of the jury waiver provision.
Accordingly, under the plain language of the jury waiver provision, Defendant has
waived any right to assert a right to trial by jury herein. See Nat’l Westminster Bank, U.S.A.
v. Ross, 130 B.R. 656, 667-68 (S.D.N.Y. 1991) (“The Court rejects Ross’s contention that
the waiver clause does not encompass Ross’s counterclaims. The plain language of the
clause establishes that Ross ‘waives the right in any litigation with the Bank . . . to trial by
jury.’ The phrase ‘any litigation’ means precisely that, and the Court construes that
language to apply to Ross’s counterclaims whether or not arising from the Guaranty.”),
aff’d sub nom. Yaeger v. Nat’l Westminster, 962 F.2d 1 (2d Cir. 1992); see also Am.
Equities Grp., Inc. v. Ahava Dairy Prod. Corp., No. 01 CIV. 5207, 2007 WL 4563487, at
*5 (S.D.N.Y. Dec. 18, 2007) (“jury trial waivers in a contract are to be construed . . . to
encompass . . . counterclaims whether or not arising from the contract at issue” where the
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waiver applies broadly to litigation between the parties); Wechsler v. Hunt Health Sys.,
Ltd., No. 94 CIV. 8294 (PKL), 2003 WL 21878815, at *6 (S.D.N.Y. Aug. 8, 2003) (“In
the present case, the jury waiver provision in the HCP states, ‘You hereby waive any and
all right to trial by jury in any action or proceeding arising from any action brought under
this Agreement. . . .’ The contract claims raised by the plaintiff and the counterclaim raised
by defendants do indeed fall within the rubric of this broad language.”).
Further, even considered individually, Defendant’s counterclaim is related or
incidental to Plaintiff’s option exercise. These terms do not, as Defendant seems to
suggest, require a causal connection. See Morales v. Trans World Airlines, Inc., 504 U.S.
374, 383 (1992) (“For purposes of the present case, the key phrase . . . is ‘relating to.’ The
ordinary meaning of these words is a broad one[.]”); Coregis Ins. Co. v. Am. Health Found.,
Inc., 241 F.3d 123, 128 (2d Cir. 2001) (“The term ‘related to’ is typically defined more
broadly [than the term ‘arising out of’] and is not necessarily tied to the concept of a causal
connection.”). The plain language of the jury waiver provision encompasses all claims that
have even a minor connection with Plaintiff’s option exercise. See Allied Irish Banks, 875
F. Supp. 2d at 356-57.
Defendant’s counterclaim falls squarely within this provision of the jury waiver
provision.
As noted above, Defendant also asserted the exact facts underlying its
counterclaim as an affirmative defense to Plaintiff’s claim for breach of contract related to
his option exercise. By definition, an affirmative defense is “a defendant’s assertion raising
new facts and arguments that, if true, will defeat the plaintiff’s … claim[.]” Saks v.
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Franklin Covey Co., 316 F.3d 337, 350 (2d Cir. 2003) (citation and original alteration
omitted and emphasis added). Defendant cannot claim on the one hand that its breach of
fiduciary claim is sufficient to defeat, in whole or in part, Plaintiff’s breach of contract
claim, and then on the other hand claim that there is not even an incidental relationship
between the two causes of action.
Consistent with this analysis, in its opposition to Plaintiff’s motion to dismiss and
to strike, Defendant made clear that there was a connection between Plaintiff’s alleged
breach of fiduciary duty and his subsequent option exercise, arguing that “[h]ad
[Defendant’s] Board been fully informed of Plaintiff’s misconduct, at a minimum,
[Plaintiff] would have been terminated much sooner for cause and this stock option claim
would not have arisen.” (Dkt. 30 at 10). Defendant has never repudiated or recanted that
position, but has maintained throughout this action that it is entitled to set-off any amount
it owes Plaintiff for his option exercise because of his alleged breach of fiduciary duty.
Accordingly, while there may not be a direct or causal connection between the option
exercise and Defendant’s counterclaim, there indisputably is some connection.
The decision in Kortright is persuasive and helpful. There, the jury waiver provision
encompassed any claim “relating in any way” to the termination agreement in which it was
contained. 327 F. Supp. 3d at 686. The court agreed with the plaintiff that this “clear and
unambiguous language,” which it described as “sweeping in scope,” was broad enough to
encompass a claim for negligent misrepresentation based on a prospective transaction with
a third party, because the plaintiff also claimed it would not have entered into the
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termination agreement absent those same misrepresentations. Id. at 687. Similarly, in this
case, Defendant has taken the position that it never would have allowed Plaintiff to exercise
his options—and thus would not have entered into the MSA—had it been aware of
Plaintiff’s alleged breach of fiduciary duty. While this may not be the most robust of
connections, it is sufficient to satisfy the broad language of the jury waiver provision that
Defendant drafted and entered into knowingly and voluntarily.
Defendant’s arguments to the contrary ignore the plain language of the jury waiver
provision and accordingly are not persuasive. Defendant contends that “a finding of
liability on [Defendant’s] counterclaim can unequivocally be reached without regard to,
and absent interpretation of, the Management Stockholders Agreement.” (Dkt. 167 at 22).
While this may be true, the jury waiver provision is not limited to actions or claims arising
out of—and thus requiring interpretation of—the MSA, but extends much more broadly to
actions or claims that are “in any way connected with or related to or incidental to” the
transactions contemplated by the MSA. See MAK Mktg., Inc. v. Kalapos, 620 F. Supp. 2d
295, 305 (D. Conn. 2009) (explaining that “courts have noted that ‘in connection with,’
‘relating to,’ and ‘associated with’ are all typically defined more broadly than ‘arising out
of,’ and are not necessarily tied to the concept of a causal connection”). In other words,
connection between liability on the two claims is not required.
A similar analysis applies to Defendant’s argument that “the relationship between
Narayanan and Sutherland Global does not emanate from the Management Stockholders
Agreement[.]” (Id. at 23). Again, the jury waiver is not limited to claims that directly
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implicate the MSA. The Court is bound to enforce the terms of the jury waiver provision
as it is written. See Allied Irish Banks, 875 F. Supp. 2d at 356. And, as written, the jury
waiver provision is drafted broadly enough to encompass a breach of fiduciary duty
counterclaim that is premised on facts Defendant maintains form a defense to Plaintiff’s
breach of contract claim, particularly where Defendant has asserted the exact same facts as
an affirmative defense in this action.
CONCLUSION
The Court concludes, for the reasons previously set forth, that Defendant has waived
its right to a jury trial on its breach of fiduciary duty counterclaim. Defendant’s jury
demand is stricken, and the Court will conduct a bench trial on all remaining claims in this
action. The Court will schedule a trial date status conference in a subsequent order.
SO ORDERED.
_________________________________
ELIZABETH A. WOLFORD
Chief Judge
United States District Court
Dated: January 26, 2023
Rochester, New York
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