Bergman et al v. Spruce Peak Realty, LLC et al
Filing
64
MEMORANDUM OPINION AND ORDER granting 57 Motion to Consolidate Cases Nos. 2:11-cv-127 and 2:11-cv-128, MOTION to Compel Arbitration of the 2:11-cv-128 Action, MOTION to Stay the Consolidated Action Pending the Outcome of Arbitration. Signed by Judge William K. Sessions III on 12/13/2012. (law)
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT
MICHELLE BERGMAN, JEFFREY D.
BERGMAN, DAVID FRIEND, STEPS AWAY
AT STOWE MOUNTAIN LLC, PATRICK
SULLIVAN, SHELAGH SULLIVAN, KAREN
HESSE FLATOW, TALL PINES LLC, and
GEORGE WILSON, individually and on
behalf of a class of similarly
situated persons,
Plaintiffs,
v.
SPRUCE PEAK REALTY, LLC and
STOWE MOUNTAIN LODGE, LLC,
Defendants.
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Case Nos. 2:11-cv-127
2:11-cv-128
MEMORANDUM OPINION and ORDER
In this pair of class action complaints both parties have
moved to consolidate the actions pursuant to Rule 42(a) of the
Federal Rules of Civil Procedure.
The Plaintiffs seek to amend
their complaint in Docket No. 2:11-cv-127 (“the ‘127 action” or
“the Declaration lawsuit”) pursuant to Rule 15(a)(2) of the
Federal Rules of Civil Procedure, which the Defendants do not
oppose.
The Plaintiffs have moved to lift the stay pending
arbitration imposed on November 14, 2011 in the ‘127 action.
Defendants oppose lifting the stay in the ‘127 action.
The
In Docket
No. 2:11-cv-128 (“the ‘128 action” or “the SAS Covenant
lawsuit”), the Defendants seek to compel arbitration and to stay
the action pending the outcome of arbitration, which the
Plaintiffs oppose.
The Plaintiffs’ Motion to Lift the Stay,
Amend Complaint and Consolidate Actions in the ‘127 action, ECF
No. 39, is granted.
The Defendants’ Motion to (A) Consolidate
Civil Action Nos. 2:11-cv-127 and 2:11-cv-128; (B) Compel
Arbitration of the ‘128 Action; and (C) Stay the Consolidated
Action Pending the Outcome of Arbitration, ECF NO. 57, is
granted.
The Plaintiffs are given leave to file their amended
complaint in the ‘127 action.
The cases are consolidated.
stay in the ‘127 action is lifted.
The
The Defendants’ motions to
compel and to stay the consolidated action are granted.
I.
Background
On May 13, 2011, Plaintiffs, owners of interests in
residential units in the Stowe Mountain Lodge Condominium
(“Condominium”), filed two class action lawsuits in this Court
against the developers of the Condominium, the Declaration
lawsuit and the SAS Covenant lawsuit.
In the Declaration lawsuit
Plaintiffs sought reformation of the Declaration, as well as
damages under the Vermont Common Interest Ownership Act
(“VCIOA”), under the Vermont Consumer Fraud Act (“VCFA”), and for
common law fraud.
1.
See Class Action Compl., ‘127 action, ECF No.
In the SAS Covenant lawsuit Plaintiffs seek to void or reform
the SAS Covenant or rescind their Condominium purchases, as well
as to obtain damages under the VCIOA, the VCFA, the Interstate
Land Sales Full Disclosure Act of 1968 (“ILSA”), and for breaches
2
of the SAS Covenant.
action, ECF No. 41.
See Second Am. Class Action Compl., ‘128
Plaintiffs also commenced an arbitration
action on May 23, 2011, with respect to the ‘127 action claims,
and sought to stay the ‘127 action pending the outcome of
arbitration.
This Court granted the stay on November 14, 2011, finding
that under the arbitration clause in the Stowe Mountain Lodge
Condominium (“SML”) Declaration, issues of arbitrability were for
the arbitrator to resolve.
No. 33.
Mem. Op. & Order 7, ‘127 action, ECF
On July 10, 2012, the Arbitrator issued Procedural Order
(“P.O.”) No. 3, in which he ruled that claims for declaratory
relief and for breach of contract are arbitrable, and that
statutory and common law fraud and misrepresentation claims are
not.
See P.O. No. 3 at 14, ‘127 action, ECF No. 39-2.
On the
same day, the Arbitrator issued a Partial Final Clause
Construction Award (“PFCCA”), ruling that the claims for
declaratory relief and for breach of contract are not arbitrable
on a class basis.
See PFCCA 23, ‘127 action, ECF No. 39-1.
The
PFCCA was confirmed by this Court on August 23, 2012.
The Arbitrator’s rulings substantially limited the number of
claimants and claims in the arbitration proceeding.
Following the Arbitrator’s rulings, the Defendants moved to
compel arbitration of the ‘128 action, consolidate it with the
‘127 action and stay the consolidated action pending the outcome
3
of arbitration.
The Plaintiffs moved in the ‘127 action to lift
the stay, amend their complaint and consolidate it with the ‘128
action.
Their proposed amended class action complaint deleted
the claims over which the Arbitrator assumed jurisdiction, and
consists of a request for declaratory relief to prohibit
Defendants from collecting charge-back assessments and to require
them to install individual electric meters for each residential
unit; and a statutory consumer protection claim for failure to
disclose charge-backs to the residential unit owners and for
misrepresentation concerning sub-metering of electricity
consumption.
II.
Discussion
A.
Motion to Amend & Motions for Consolidation1
Rule 15(a)(2) permits a party to amend its pleading by leave
of court or with the opposing party’s written consent.
Civ. P. 15(a)(2).
Fed. R.
The Defendants have consented to the
amendment, and the Court grants leave to Plaintiffs to file an
amended complaint in the ‘127 action.
Rule 42(a) of the Federal Rules of Civil Procedure permits
consolidation of actions that involve common questions of law or
fact.
Fed. R. Civ. P. 42(a)(2).
The parties acknowledge and the
Court finds that the two actions involve common questions of law
1
Should the Court keep the November 14, 2011, stay in place, the
Plaintiffs withdraw their motion to consolidate the two cases.
4
and common facts.
The ‘127 action and the ‘128 action are hereby
consolidated.
B.
The Motion to Compel Arbitration
“‘Under the [Federal Arbitration Act (“FAA”)], the role of
courts 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.’”
LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194,
198 (2d Cir. 2004) (quoting Jacobs v. USA Track & Field, 374 F.3d
85, 88 (2d Cir. 2004)).
The SAS Covenant was made by SPR as owner of the “Shared
Amenities Unit,” which consists of various indoor and outdoor
areas and improvements in the complex, some of which are reserved
to the Shared Amenities Unit owner and its guests and invitees,
and some of which are made available to some or all of the unit
owners.
SAS Covenant ¶ D.
The SAS Covenant declares that its
covenants, conditions and restrictions run with the land, are
binding upon the owners and exist for their benefit.
Id. ¶ F.
According to the SAS Covenant’s arbitration clause,
residential unit owners such as the Plaintiffs do not have
standing to exercise rights under the SAS Covenant.
If an owner
wishes to pursue a claim against SPR with respect to any
provision of the SAS Covenant, that owner may do so only through
action it causes the Spruce Mountain Lodge Condominium Owners
5
Association (“SMLCOA”) to take on the owner’s behalf.
All
disputes between the Shared Amenities Unit Owner and the SMLCOA
must at the request of either party be resolved by an arbitration
conducted in accordance with the Commercial Rules of the American
Arbitration Association.
Id. ¶ 12.14.
A portion of the clause
entitled NOTICE OF ARBITRATION states “This Section 12.14 is an
agreement to arbitrate.
As a consequence, no party shall be able
to bring a lawsuit concerning any dispute that may arise which is
covered by this agreement to arbitrate . . . .
Instead, any such
dispute must be submitted to an impartial arbitrator.”
Id. (bold
typeface in original).
“[T]he FAA does not require parties to arbitrate when they
have not agreed to do so . . .[; i]t simply requires courts to
enforce privately negotiated agreements to arbitrate, like other
contracts, in accordance with their terms.”
Volt Info. Scis.,
Inc. v. Bd. of Trs. of the Leland Stanford Junior Univ., 489 U.S.
468, 478 (1989).
Ordinarily, the validity of an arbitration
clause is a matter for the court to decide.
See Nitro-Lift
Techs., L.L.C. v. Howard, 568 U.S. ___, 2012 WL 5895686 at *2
(Nov. 26, 2012) (per curiam); accord Telenor Mobile Commc’ns AS
v. Storm LLC, 584 F.3d 396, 407 (2d Cir. 2009).
However, this
arbitration clause, like the arbitration clause in the Stowe
Mountain Lodge Condominium (“SML”) Declaration, specifies that
the arbitration shall be conducted in accordance with the
6
Commercial Rules of the American Arbitration Association (“AAA”),
including its rules of practice, procedure and evidence.
Covenant ¶ 12.14.
SAS
Those rules provide that “[t]he arbitrator
shall have the power to rule on his or her own jurisdiction,
including any objections with respect to the existence, scope or
validity of the arbitration agreement.”
AAA Commercial
Arbitration Rule 7(a).
“Unless the parties clearly and unmistakably provide
otherwise, the question of whether the parties agreed to
arbitrate is to be decided by the court, not the arbitrator.”
AT
& T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649
(1986).
Where an arbitration clause “explicitly incorporate[s]
rules that empower an arbitrator to decide issues of
arbitrability, the incorporation serves as clear and unmistakable
evidence of the parties’ intent to delegate such issues to an
arbitrator,” however.
Contec Corp. v. Remote Solution Co., 398
F.3d 205, 208 (2d Cir. 2005).
In its November 14, 2011, ruling in the ‘127 action, the
Court concluded that identical language in the arbitration clause
of the SML Declaration meant that the parties intended the
arbitrator to rule on issues of arbitrability, in that case the
scope of the arbitration agreement.
No. 33.
See Mem. Op. & Order 7, ECF
In the ‘128 action, the parties have reversed the
positions they held in the ‘127 action, the Defendants now
7
seeking to compel arbitration when they previously sought to
enjoin it, and the Plaintiffs seeking to avoid arbitration when
they previously invoked it.
This reversal of positions brings to light an ambiguity in
both arbitration clauses that was not relevant when ruling on the
Plaintiffs’ motion to stay the ‘127 action to permit arbitration
to proceed.
According to the SAS Covenant arbitration clause,
disputes arising under the SAS Covenant between SPR—as the Shared
Amenities Unit Owner—and the SMLCOA are to be resolved by binding
arbitration “upon the request of either party.”
12.14.
SAS Covenant ¶
That is to say either SPR or the SMLCOA may, but is not
required to, seek to arbitrate a dispute arising under the SAS
Covenant.
For the provision to come into operation a party must
make a request for arbitration.
The record does not reflect that
the Defendants have requested that the SMLCOA—or the Plaintiffs
for that matter—arbitrate their grievances pertaining to the SAS
Covenant, or that the SMLCOA or the Plaintiffs have refused to
arbitrate those grievances.
Neither the SMLCOA nor the
Plaintiffs have sought arbitration of the claims in the ‘128
action.
As far as the Court is aware, the Defendants have not
requested that any of the Plaintiffs’ claims be resolved by
arbitration.
Without a request to arbitrate, arguably the
arbitration clause does not apply.
The paragraph in bold typeface in the arbitration clause,
8
however, notifies the parties that any dispute that is covered by
the agreement to arbitrate must be submitted to an impartial
arbitrator, and that no party shall be able to bring a lawsuit
concerning a dispute that is covered by the agreement.
Given no
evidence that the parties regard the arbitration clause as
permissive or elective, and mindful that doubts concerning the
interpretation of an arbitration clause should be resolved in
favor of arbitration, see WorldCrisa Corp. v. Armstrong, 129 F.3d
71, 74 (2d Cir. 1997), the Court concludes that the Defendants
have appropriately moved to compel arbitration.
In keeping with its November 14, 2011, ruling construing
identical language in the arbitration clause of the SML
Declaration, the Court concludes that by incorporating the
Commercial Rules of the American Arbitration Association in the
arbitration clause of the SAS Covenant, the parties intended the
arbitrator to rule on issues of arbitrability, specifically any
questions “with respect to the existence, scope or validity of
the arbitration agreement.”
American Arbitration Ass’n
Commercial Arbitration Rule 7(a).
The Court concludes that the
matter must be referred to arbitration pursuant to 9 U.S.C. § 4.
Issues concerning the existence, scope or validity of the
arbitration agreement must be presented to an arbitrator.
The Plaintiffs argue that the motion to compel arbitration
should be regarded as an untimely motion to reconsider the
9
Court’s ruling in the ‘128 action denying Defendants’ motion to
dismiss for failure to state a claim, where it stated “Plaintiffs
are entitled to present evidence that the provision in the
arbitration clause that forces them to act through the SMLCOA is
unenforceable, and that therefore they are not contractually
barred from bringing suit.”
Bergman v. Spruce Peak Realty, LLC,
847 F. Supp. 2d 653, 666 (D. Vt. 2012).
The Defendants’ motion
to compel arbitration seeks to compel arbitration.
The
arbitration clause provides that issues regarding the validity of
the agreement are to be determined by the arbitrator.
In the
sentence quoted by the Plaintiffs the Court made no determination
that the Plaintiffs were entitled to present that evidence in a
judicial proceeding.
Presumably the Plaintiffs will present
evidence that the agreement is unenforceable in the arbitral
proceeding.
Reconsideration of this Court’s ruling in the ‘128
action has neither been sought nor obtained; the Defendants have
simply sought to compel arbitration.
The Plaintiffs also argue that Defendants waived their right
to request arbitration by litigating the matter in this court.
party may waive its right to arbitration.
A
See Louisiana Stadium
& Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc.,
626 F.3d 156, 159 (2d Cir. 2010); S & R Co. of Kingston v. Latona
Trucking, Inc., 159 F.3d 80, 83 (2d Cir. 1998).
“[W]aiver of
arbitration ‘is not to be lightly inferred,’” Leadertex, Inc. v.
10
Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995)
(quoting Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir.
1985)), however, and “doubts concerning whether there has been a
waiver are resolved in favor of arbitration.”
Id.
A threshold question is whether the issue of waiver is to be
decided by the court or the arbitrator.
In this Circuit, a
waiver of arbitration by participation in litigation is a matter
for judicial determination.
See, e.g., S & R Co., 159 F.3d at
83-84; Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 456 (2d
Cir. 1995)).
But see Republic of Ecuador v. Chevron Corp., 638
F.3d 384, 394 (2d Cir. 2011) (holding that issues of waiver and
estoppel which arguably undermined the agreement itself were
arbitrable because of clear and unmistakable evidence that the
parties intended the issues to be decided by the arbitral panel).
Republic of Ecuador does not control the waiver issue in
this case.
In Republic of Ecuador, the panel considered an
argument that by agreeing to litigate a dispute with Ecuadorian
citizens in Ecuador the defendant had waived or was estopped from
commencing Bilateral Investment Treaty (“BIT”) arbitration
against Ecuador.
Ecuador maintained that its waiver and estoppel
arguments undermined the validity of the arbitration agreement
itself, and thus the issue was presumptively for the court to
decide.
The panel concluded that the BIT arbitration rules
provided “clear and unmistakable evidence” that the parties
11
intended these issues to be decided in arbitration.
Id.
Republic of Ecuador did not discuss the Second Circuit cases
accepting judicial determination of waiver by litigation, but
that is hardly surprising, for two reasons.
One, of significance
in Republic of Ecuador was the argument that the defendant’s
conduct in agreeing to litigate in Ecuador had the effect of
undermining the arbitration agreement itself, rather than merely
barring Chevron from proceeding to arbitration.
See id.
Two,
the parties and the relief sought in the two proceedings were
different:
in the Ecuadorian litigation private citizens sought
relief for the devastation of the Ecuadorian rainforest,
allegedly caused by oil exploration and drilling operations; in
the BIT arbitration Chevron Corporation sought relief from
Ecuador for allegedly interfering in the lawsuit and for failing
to honor a release from liability.
See id. at 388, 390.
By
contrast, here the same plaintiffs and the same defendants are
jockeying for position on the same issues.
The Court concludes that the waiver issue in this case is
appropriate for judicial determination.
at 83.
See S & R Co., 159 F.3d
Factors to be considered in determining waiver include
the time elapsed from the commencement of litigation, the amount
of litigation, and prejudice to the opposing party.
Stadium, 626 F.3d at 159.
prejudice,” however.
Louisiana
“The key to a waiver analysis is
Thyssen, Inc. v. Calypso Shipping Corp.,
12
S.A., 310 F.3d 102, 105 (2d Cir. 2002).
Prejudice may be
substantive or it may be due to excessive costs and time delay.
Louisiana Stadium, 626 F.3d at 159.
Because without a demonstration of prejudice there can be no
waiver, the Court turns to the Plaintiffs’ assertion of
prejudice.
As evidence of prejudice, Plaintiffs point to having
faced three intensively briefed motions to dismiss that attacked
the merits of their claims, and having endured many months of
unnecessary delay which caused the Plaintiffs and the putative
class members to incur additional SAS fees.
In addition, they
claim prejudice in the dismissal of one of the counts of their
complaint as time-barred and their fear that the Defendants will
renew their challenges to the viability of the Plaintiffs’ claims
in arbitration.
The Court is not persuaded that these
circumstances, undoubtedly irksome, amount to prejudice.
As to the three motions to dismiss, Plaintiffs responded to
the first by filing an amended class action complaint, and the
first motion to dismiss was denied as moot.
The Defendants then
challenged the first amended class action complaint; the Court
granted the motion to dismiss in part and denied it in part and
gave leave to replead.
The Plaintiffs filed a second amended
class action complaint and the Defendants have moved to dismiss
one count, asserting that the Plaintiffs failed to cure the
defects that required its dismissal.
13
“[T]he litigation of substantial issues going to the merits
may constitute a waiver of arbitration.”
Sweater Bee by Banff,
Ltd. v. Manhattan Indus., Inc., 754 F.2d 457, 461 (2d Cir. 1985).
The only ruling on the merits to date has been the dismissal on
statute of limitations grounds of any Plaintiff’s 15 U.S.C. §
1703(a)(1) claim that is based on a purchase and sale agreement
executed before May 13, 2008, and the dismissal of Plaintiffs’
common law fraud claim.2
Confronted with a complex complaint,
two years of litigation on the merits and considerable discovery
before a defendant sought arbitration, the Sweater Bee court
upheld the district court’s order compelling arbitration of the
arbitrable issues.
Id. at 466; see also Rush, 779 F.2d at 890-91
(reversing a district court’s finding of waiver on the basis of
expense, delay, and litigation on the merits).
In this case,
which is far less complex, which has involved less than two years
of litigation3 and no discovery, and where many of the claims are
likely nonarbitrable, Plaintiffs have not sustained their “heavy
burden” of showing waiver.
Sweater Bee, 754 F.2d at 466.
Moreover, the Plaintiffs themselves have contributed to a
proliferation of filings by packaging their claims in three
separate actions.
The Court has no doubt that they had good-
2
If the Arbitrator employs the same analysis of the SAS Covenant
arbitration clause as he did for the Declaration arbitration clause, he is
likely to conclude that the common law fraud claim is nonarbitrable, in any
event.
3
The ‘128 action was filed on May 13, 2011.
14
faith legal and strategic reasons to do so.
The Court equally
has no doubt that the Defendants have good-faith legal and
strategic reasons to challenge both the substance of the claims
and the manner in which they have been brought.
All parties have
been aware from the onset of this litigation that the scope and
validity of the arbitration clauses in the SML Declaration and
the SAS Covenant would be at issue.
The parties’ approaches have
evolved as they have received rulings from this Court and from
the Arbitrator.
Under the circumstances, the Court cannot find
that the Defendants have waived the right to have the arbitrable
portions of this dispute resolved in arbitration.
Finally, the Plaintiffs argue that the FAA does not apply to
a purely intrastate transaction, the SAS Covenant is a purely
intrastate real estate-related services contract with no
substantial or direct connection to interstate commerce, and the
arbitration clause is invalid under the Vermont Arbitration Act.
The FAA covers arbitration clauses in contracts “evidencing
a transaction involving commerce.”
9 U.S.C. § 2.
The Supreme
Court has interpreted this phrase “as implementing Congress’
intent ‘to exercise [its] commerce power to the full.’”
Circuit
City Stores, Inc. v. Adams, 532 U.S. 105, 112 (2001) (quoting
Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277 (1995)).
The FAA thus “encompasses a wider range of transactions than
those actually ‘in commerce’—that is, ‘within the flow of
15
interstate commerce.’”
Citizens Bank v. Alafabco, Inc., 539 U.S.
52, 56 (2003) (per curiam) (quoting Allied-Bruce, 513 U.S. at
273).
Like the debt-restructuring agreements at issue in
Citizens Bank, the SAS Covenant satisfies the FAA “involving
commerce” test.
The Defendants have engaged in marketing and
sales activities for their condominium units far beyond the
borders of Vermont.
The SML Declaration and the SAS Covenant
were key documents in that activity.
See Class Action Compl.,
‘127 action; Second Am. Class Action Compl., 128 action.
Indeed,
the Plaintiffs invoked the FAA in requesting an order staying the
‘127 action on the Declaration.
Although it is true that the
Declaration and the Covenant are distinct documents, it is
undisputed that these documents were distributed “via means or
instruments of transportation or communication in interstate
commerce and the mails,” Pls.’ Opp’n to Defs.’ Mot. to Dismiss 15
n.7, ECF No. 53, in connection with Defendants’ marketing and
sales efforts.
The FAA, and not the Vermont Arbitration Act, applies to the
SAS Covenant arbitration clause.
For all of the reasons stated above, the Court grants the
motion to compel arbitration.
An arbitrator will determine his
or her jurisdiction under the agreement, including the validity
of the agreement, who are proper parties to arbitration under the
agreement, and the scope of arbitrable issues under the
16
agreement.
C.
The Motions to Lift Stay in the ‘127 Action and Grant a
Stay in the Consolidated Actions
In the ‘127 action, the Arbitrator has accepted jurisdiction
over the following claims:
1) declaratory relief with respect to
the SML Declaration (except for the allegations of
misrepresentations); 2) breach of the SML Declaration; and 3)
violation of the VCIOA.
P.O. No. 3 at 14.
The Arbitrator has
declined jurisdiction over the remainder of the claims “without
prejudice to Claimants’ ability to pursue such claims in an
appropriate forum.”
Id. at 17.
In response to the Arbitrator’s
ruling, the Plaintiffs drafted their First Amended Class Action
Complaint limited to a claim that misrepresentations about submetering and failure to disclose charge-backs to the residential
unit owners violates Vermont’s consumer protection law, and a
claim for declaratory relief based upon those misrepresentations
and failures to disclose.
“‘[I]f some, but not all, of the claims in the case are
arbitrable, [a court] must then decide whether to stay the
balance of the proceedings pending arbitration.’”
Guyden v.
Aetna, Inc., 544 F.3d 376, 382 (2d Cir. 2008) (quoting Oldroyd v.
Elmira Sav. Bank, 134 F.3d 72, 76 (2d Cir. 1998)); accord
Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.
1987).
Although maintaining the stay in the ‘127 action might be
17
appropriate if the arbitrable claims predominated, or if the
nonarbitrable claims were of questionable merit, see id. at 856,
at this early stage of the litigation the arbitrable and
nonarbitrable claims appear relatively equal in weight and merit.
The arbitration proceeding and the ‘127 action both deal
with the charge-backs of a portion of the Shared Amenities Unit
Condominium assessments and the failure to sub-meter electricity
consumption.
The arbitration will address claims related to the
interpretation of and performance under the SML Declaration with
respect to these issues.
According to the Arbitrator’s
interpretation of the scope of the arbitration clause, claims of
misrepresentation and failure to disclose to potential purchasers
are reserved for the Court.
Although the issues are undoubtedly
related, there is no real risk of inconsistent results:
should
the Arbitrator find that there has been no breach of the SML
Declaration, the Court may still find that the Defendants
misrepresented or failed to disclose material information when
the residential owners purchased their units.
And should the
Court find that the Plaintiffs cannot prevail on their claims of
misrepresentation and failure to disclose, the Arbitrator may yet
find that the Respondents are not permitted to charge back a
portion of the Shared Amenities Unit Condominium assessments, or
to refuse to sub-meter electricity consumption.
Under these
circumstances, where the outcome of the arbitration proceeding
18
will not affect a determination whether SPR made
misrepresentations or failed to disclose material facts in its
marketing of the residential units, continuance of the stay
pending the outcome of arbitration is not warranted.
Moreover, the Defendants’ suggestion that an arbitration
award will have preclusive effect or that the Court will likely
never address the charge-back and sub-metering issues glosses
over the difference, as the Court understands it, between the
claims now pending in arbitration and before this Court.
Under
Vermont law, which applies to the determination of issue
preclusion in this diversity case, see BBS Norwalk One, Inc. v.
Raccolta, Inc., 117 F.3d 674, 677 (2d Cir. 1997), “[a]n
arbitration award will preclude relitigation of an issue in a
subsequent judicial proceeding where the parties and issues in
both proceedings are the same, the issues were resolved by a
final award on the merits, the arbitration provided a full and
fair opportunity to litigate the issues and it is fair to
preclude the subsequent litigation.”
Mellin v. Flood Brook Union
Sch. Dist., 790 A.2d 408, 416 (Vt. 2001).
Should the Arbitrator
determine an issue that Plaintiffs seek to relitigate, the
Defendants may invoke collateral estoppel.
The mere speculation
that the Arbitrator’s award on the interpretation of and
performance under the Declaration may implicate an issue relevant
to Plaintiffs’ misrespresentation and nondisclosure claims is
19
insufficient reason to delay resolution of the nonarbitrable
claims.
It is fair criticism that this bifurcated proceeding is less
than efficient, but that is a function of the Defendants having
drafted a narrow arbitration clause that will not allow all of
the Plaintiffs’ claims to be arbitrated.
Cf. Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) (acknowledging
that piecemeal resolution of disputes may result from enforcement
of arbitration agreements).
In the exercise of its discretion, the Court lifts the stay
in the ‘127 action.
See, e.g., Chang v. Lin, 824 F.2d 819, 822-
23 (2d Cir. 1987) (approving simultaneous arbitration and
litigation on nonarbitrable claims in the context of federal
securities litigation).
Nevertheless, having determined that threshold issues of
arbitrability in the ‘128 action must be determined by an
arbitrator, the Court must stay the consolidated action until
those issues are resolved.
See 9 U.S.C. § 3; AT&T Mobility LLC
v. Concepcion, 131 S. Ct. 1740, 1748 (2011) (Ҥ 3 requires courts
to stay litigation of arbitral claims pending arbitration of
those claims ‘in accordance with the terms of the agreement.’).
Once the Arbitrator determines the scope of the arbitration
proceeding, the Court will entertain a motion to lift the stay to
permit the nonarbitrable claims to proceed.
20
III. Conclusion
For the above-stated reasons, the Plaintiffs’ Motion to Lift
the Stay, Amend Complaint and Consolidate Actions in the ‘127
action is granted.
The Defendants’ Motion to: (A) Consolidate
Civil Action Nos. 2:11-cv-127 and 2:11-cv-128; (B) Compel
Arbitration of the ‘128 Action; and (C) Stay the Consolidated
Action Pending the Outcome of Arbitration is granted.
Dated at Burlington, Vermont, this 13th day of December,
2012.
/s/ William K. Sessions III
William K. Sessions III
District Court Judge
21
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