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Chestnut v. Whiteha Ven Income Fund I, LLC

United States District Court, S.D. New York

October 23, 2014

DERICK CHESTNUT, on behalf of himself and others, Plaintiff,
v.
WHITEHA VEN INCOME FUND I, LLC; WHITEHAVEN SHERWOOD FOREST, LLC WHITEHAVEN S.M.H. FUND I, LLC; and ARCHSTONE CASTLE HOLDINGS, LLC, Defendants.

OPINION & ORDER

PAUL A. CROTTY, District Judge.

Plaintiff Derrick Chestnut brings this class action against Defendants Whitehaven Income Fund I, LLC, Whitehaven Sherwood Forest, LLC, Whitehaven S.M.H. Fund I, LLC, and Archstone Capital Holdings, LLC (collectively, "Defendants").

Plaintiff and Defendants entered into a litigation funding contract, entitled Plaintiff Agreement ("Agreement").[1] Under its terms, Plaintiff received $5, 000 on the condition that he would repay Defendants-with 4.99% interest compounded monthly-from any net recovery he received from an unrelated products liability lawsuit. Compl. ¶ 85. Plaintiffs recovery from the products liability lawsuit after legal fees was $25, 677.08, but the amount due had grown from $5, 000 to more than $37, 000. Compl. ¶¶ 54-55.

Plaintiff brought a class action against Defendants alleging unjust enrichment and violations of New York General Business Law § 349. Plaintiff also seeks declaratory relief holding the Agreement unenforceable because it is unconscionable and illegal. On January 6, 2014, the Court denied Defendants' motion to dismiss.

On April 2, 2014, Defendants moved to compel arbitration pursuant to an arbitration clause in the Agreement. Plaintiff responds that: (1) Defendants should be estopped from relying on the arbitration clause; (2) the arbitration clause is unconscionable; and (3) Defendants have waived any right to arbitrate the dispute. The arguments are rejected and Defendants' motion to compel arbitration is GRANTED.

DISCUSSION

I. Legal Standard

Defendants move to compel arbitration under the Federal Arbitration Act ("FAA") pursuant to ¶ 27 of the Agreement, which provides that:

[a]ny controversy or claim arising out of or relating to this contract, including without limitation the interpretation, validity, enforceability or breach thereof, shall be settled by final, binding arbitration administered by the American Arbitration Association (hereinafter referred to as AAA') in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

This broadly worded arbitration clause creates a presumption in favor of arbitrating Plaintiff's claims. Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995) ("We have stated that a court should decide at the outset whether the arbitration agreement [is] broad or narrow.' If broad, then there is a presumption that the claims are arbitrable. The clause in this case, submitting to arbitration [a]ny claim or controversy arising out of or relating to th[e) agreement, ' is the paradigm of a broad clause.") (citations omitted).

Thus, if the non-moving party fails to rebut the presumption, the Court can compel arbitration. See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 91-92 (2000) (discussing the burden shouldered by the party resisting arbitration).

II. Defendants are not estopped from relying on the arbitration clause

Plaintiff argues that Defendants are not entitled to arbitrate because a 2005 settlement agreement between Defendants and the New York Attorney General ("Assurance") provides, in part, that "[n]o contract may require mandatory arbitration to resolve disputes under the contract." By its terms, the contract is applicable only to "New York consumers." See Assurance pmbl.

The legal effect of this Assurance was addressed in Whitehaven S.F., LLC v. Spangler, No. 13 Civ. 8476(ER), 2014 WL 4494168 (S.D.N.Y. Sept. 10, 2014). Judge Ramos determined that "the 2005 Assurance of Discontinuance is not a law of the state, nor is it a public policy, given that it is not found in the constitution, statutes or judicial records of New York." Id. at *11. The Assurance did not create a private right of action for citizens to enforce the terms. Id. at *12 ("To hold otherwise would essentially ...


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