The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge
Plaintiffs Andrew Beer ("Beer") and Pinnacle Group Securities, LLC ("Pinnacle") (collectively "Plaintiffs" or "Respondents") have filed a joint motion for a preliminary injunction to stay an arbitration initiated by Defendant David Nutt ("Nutt" or "Defendant" or "Claimant") currently pending in front of the National Association of Securities Dealers ("NASD") in Jackson, Mississippi. Defendant Nutt moves to dismiss this case for improper venue or in the alternative, compel arbitration. For the reasons below, Plaintiffs motion to stay arbitration is DENIED and Defendant's cross-motion to compel arbitration in Mississippi is GRANTED.
The following facts are taken in main part from Defendant Nutt's Statement of Claim to the NASD arbitration panel. In late 2000, Defendant Nutt traveled to New York City where he met with Plaintiff Beer, President of Bricolage Capital, LLC ("Bricolage"), who described an investment opportunity in a "Fund of Funds" called Fiesta Partners Fund, LLC ("Fiesta" or "Fund").*fn1 Andrew Beer Affidavit ("Beer Aff."), Ex. 1, Statement of Claim at 1 (Oct. 13, 2006). Beer explained that Fiesta was a vehicle that would invest in a hedge fund that dealt with foreign currency (the "Option Fund") as well as in a venture capital fund that would invest in technology start-up companies (the "Venture Capital Fund"). Id. Pursuant to Fiesta's Operating Agreement, Bricolage would be the sole managing member of the Fund, id. ¶ 2, and would own 1% of Fiesta. The remaining 99% would be owned by Nutt. Id., Ex. 1 at 12. Based on Beer's representations, Nutt decided to invest approximately $4.9 million in Fiesta.
In a letter dated January 27, 2003, Bricolage informed Nutt that Pinnacle would assist Bricolage with Fiesta's asset management as a placement agent for the Fund.*fn2 David Nutt Affidavit ("Nutt Aff."), Ex. 1. Defendant Nutt alleges that at this point Pinnacle replaced Bricolage as managing member of Fiesta.
Nutt argues that despite Beer's assurances about the future profitability of the Fiesta Fund, the investment was a sham operation used to obtain his money and pay fees to Bricolage and Beer. In mid-2005, Nutt claims that he learned that his investment in the Venture Capital Fund was worthless.
On August 31, 2006, Nutt filed a NASD arbitration claim against Beer and Pinnacle, Respondents in the arbitration action, which alleged that Beer, individually and through alter ego corporations which include Pinnacle and Bricolage, defrauded him in connection with his investment of $4.9 million in Fiesta. He brings the following causes of action against these entities -- breach of fiduciary duty, common law fraud and misrepresentation, negligence/breach of NASD Rules, and violations of the Mississippi securities act. Nutt seeks to recover his initial $3.8 million investment in the Venture Capital Fund as well as punitive damages.*fn3
On October 16, 2006, Beer and Pinnacle filed a motion for a preliminary injunction to enjoin the arbitration proceeding on the basis that they never agreed to arbitrate this claim in front of the NASD and are not mandated to do so because Nutt's claim does not arise out of their business. Nutt, the Defendant in the action before me, responded with a motion to dismiss for improper venue, or in the alternative, a motion to compel arbitration. The matter was fully briefed on November 13, 2006 and an oral argument was held the next day.
A. Preliminary Injunction
In order to grant an injunction, Plaintiffs as the moving party must establish: 1) irreparable harm without an injunction, and (2) either (a) a likelihood of success on the merits or (b) serious questions about the merits, such that the balance of hardships weigh in their favor. Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003).
A party forced to spend time and money to arbitrate a claim that is not arbitrable will suffer irreparable harm. Id. (citing Maryland Cas. Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997)). It is undisputed that Plaintiffs have not agreed to arbitrate this claim and that they contend that the Defendant's claim does not arise out of the business of Pinnacle or its associated person, Beer. If true, Plaintiffs ...