United States District Court, S.D. New York
OPINION AND ORDER
M. FURMAN, United States District Judge
iPayment, Inc. filed this suit to confirm an arbitration
award. In a prior opinion, District Judge Analisa Torres, to
whom the case was previously assigned, confirmed the award
against Respondent 1st Americard, Inc. See iPayment, Inc.
v. 1stAmericard, Inc., No. 15-CV-1904 (AT), 2016 WL
1544736, at *5 (S.D.N.Y. Mar. 25, 2016). (Docket No. 26).
With the benefit of supplemental briefing, iPayment now seeks
to confirm the award against two additional Respondents:
Kelly Grainger, the former President and sole shareholder of
1st Americard; and Kelly Grainger, as Administrator of the
Estate of Greg Grainger, the former Chief Executive Officer
of 1st Americard. Whether the award should be confirmed
against the Graingers turns on whether the corporate veil
should be pierced, as neither Grainger was a signatory to the
agreements at issue. For the reasons stated below, the Court
concludes that this is a textbook case for application of
veil piercing and thus confirms the award in its entirety and
denies Respondents' motion to vacate the award as to the
Graingers. Additionally, the Court grants iPayment's
unopposed application for attorney's fees.
threshold matter, the parties dispute what materials the
Court can look to in deciding whether to confirm the award
against the Graingers. In its prior Opinion, the Court noted
that it “must consider the issue of the Graingers'
alter ego liability de novo, and approach the
question as if it were raised on a motion for summary
judgment.” iPayment, 2016 WL 1544736, at *5;
see also Kaplan v. First Options of Chi., Inc., 19
F.3d 1503, 1520 (3d Cir. 1994) (holding that a court is not
bound by an arbitrator's determination of alter ego
liability and should review the question de novo),
aff'd, 514 U.S. 938 (1994). Seizing on Judge
Torres's reference to de novo review,
Respondents contend that the Court's review should be
limited to the record before the arbitrator. (Docket No. 39
(“Resp't Opp'n”) 4). By contrast,
emphasizing the reference to summary judgment, iPayment
contends that the Court can and should consider additional
evidence, namely written discovery and deposition testimony
obtained through post-arbitration litigation currently
pending in North Carolina. (Docket No. 36 (“Pet'r
has the better of the argument. For one thing,
Respondents' position is ironic - and hard to credit - as
they themselves submit and rely on supplemental evidence.
(See Docket No. 42 (“Heater Decl.”)).
For another, the only case cited by Respondents that is even
marginally on point, Kaplan v. First Options of Chicago,
Inc., cuts the other way, as the district court in that
case provided the parties with an opportunity to submit
additional post-arbitration evidence in connection with its
veil-piercing analysis. 19 F.3d at 1520 n.26. And on top of
that, most of the disputed evidence concerns the time period
before the arbitration. (See, e.g., Docket
No. 37 (“Second Dahill Decl.”) Ex. 5
(“Grainger NC Hearing Tr.”) 114 (Kelly Grainger
testifying for the first time, post-arbitration, that Greg
Grainger had begun “withdrawing” from his
responsibilities at 1st Americard six months before the
transaction with iPayment)). Respondents almost certainly
withheld such evidence during the arbitration proceedings,
and should not be rewarded now by disregarding any such
evidence that is admissible. Cf. Connors v. Connecticut
Gen. Life Ins. Co., 272 F.3d 127, 134-35 (2d Cir. 2001)
(noting that a district court reviewing an ERISA eligibility
determination de novo has discretion to consider
additional evidence outside the administrative record if
there is “good cause” to do so).
recognizing the dearth of authority supporting their
argument, Respondents seize upon Judge Torres's use of
the term “de novo” to argue that this
proceeding is akin to an appeal and thus should be limited to
the original record. (Resp't Opp'n 5-6). The question
of whether the Graingers are bound by the arbitration award,
however, turns on a question of arbitrability - namely,
whether they were bound by the arbitration agreements between
the two companies even though they themselves were not
signatories to those agreements. See, e.g.,
Trina Solar US, Inc. v. JRC-Servs. LLC, No.
16-CV-2869 (VEC), 2017 WL 187476, at *4 (S.D.N.Y. Jan. 17,
2017) (“Given that there has been no clear and
unmistakable showing that the parties agreed to arbitrate
arbitrability, the Court reviews de novo the
Tribunal's decision that [the respondent] was bound by
the arbitration agreement although not a signatory to
it.” (internal quotation marks omitted));
iPayment, 2016 WL 1544736, at *5 (citing
Nat'l Ass'n of Broad. Emps. & Technicians v.
Am. Broad. Co., 140 F.3d 459, 462 (2d Cir. 1998). And
the law is clear that such questions are to be decided using
the summary judgment standard, with trial - and thus the
possibility of new evidence - if there is a dispute of
material fact. See, e.g., Wachovia Bank, Nat.
Ass'n v. VCG Special Opportunities Master Fund,
Ltd., 661 F.3d 164, 172 (2d Cir. 2011); Bensadoun v.
Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003). It follows
that the Court can and should consider any admissible
evidence presented by the parties and that “de
novo review” in this context means simply review
without the deference traditionally given to the decision of
an arbitrator on the merits. See Kaplan, 19 F.3d at
1520; iPayment, 2016 WL 1544736, at *5; cf.
Zervos v. Verizon N.Y., Inc., 252 F.3d 163, 168 (2d Cir.
2001) (“De novo review is review without
deference. . . . [O]ur review is independent and plenary; as
the Latin term suggests, we look at the matter anew, as
though it had come to the courts for the first time.”
(footnote and citation omitted)).
light of the foregoing, the following relevant facts are
drawn from materials submitted by the parties, and are either
undisputed or described in the light most favorable to
Respondents. See Costello v. City of Burlington, 632
F.3d 41, 45 (2d Cir. 2011). iPayment is an Independent Sales
Organization (“ISO”) that enables small and
medium-sized merchants across the United States to accept
credit card payments. (Docket No. 33 (“Jt.
Stmt.”) ¶ 1). 1st Americard was an ISO engaged in
the same business in the Charlotte, North Carolina area.
(Id. ¶ 3). Greg Grainger was 1st
Americard's CEO and was responsible for the company's
day-to-day operations. (See Docket No. 10 Ex. 4
(“Award”) at 1; Second Dahill Decl.Ex. 1
(“Hearing Tr.”) 148-49). Kelly Grainger was the
sole shareholder and President of 1st Americard. (Award 1).
2013, the two companies entered into an asset purchase
agreement pursuant to which iPayment paid nearly $5 million
to 1st Americard in exchange for its merchant portfolio. (Jt.
Stmt. ¶¶ 125-27). The parties also signed a
“Sub-ISO agreement” that required 1st Americard
to use its “best efforts” to recruit new
merchants for iPayment for three years following the
transaction. (Award 2). The asset purchase agreement and the
Sub-ISO agreement each contained an arbitration provision.
(See Second Dahill Decl. Exs. 5-6). Neither Greg nor
Kelly Grainger, however, was party to the agreements in his
or her individual capacity.
after 1st Americard wired payment to iPayment, things began
to fall apart. On July 14, 2013, Greg Grainger (apparently -
unbeknownst to iPayment - having been involuntarily
committed) sent iPayment's general counsel a text message
accusing Kelly Grainger of “kill[ing] all will to go
forward with this deal.” (Docket No. 7 (“First
Dahill Decl.”) Ex. 7; id. Ex. 9 ¶ 6). The
text also stated that 1st Americard's portfolio had lost
“at least 20%” of its value in the prior ninety
days, that Kelly had “embezzled over 3 million dollars
of the money, ” and that Kelly had tried to wire an
additional “4 million dollars to an unknown”
personal account. (Id.). iPayment immediately asked
the Graingers to place the $4.87 million it had paid in
escrow pending further discussion. (First Dahill Decl. Ex.
8). In response, the Graingers transferred the money into
their personal bank accounts, leaving only $20, 000 in 1st
Americard's account. (Award 6).
thereafter, iPayment discovered that in the months leading up
to execution of the asset purchase agreement, 1st
Americard's portfolio had lost over 36% of its value and
was generating only about $86, 000 per month in revenue -
approximately $50, 000 per month less than what Greg Grainger
had represented during the parties' negotiations.
(Compare First Dahill Decl. Ex. 3, with Id.
Ex. 17, at 15-16). Additionally, by January 2014, 1st
Americard's workforce had contracted from ten employees
to three, leaving only the Graingers and a third employee who
left in May 2014. (First Dahill Decl. Ex. 12 at 105;
id. Ex. 16 at 18, 106). Between the closing of the
sale to iPayment and the filing of this suit, 1st Americard
had recruited only one new merchant for iPayment's
portfolio. (First Dahill Decl. Ex 13, at 23-24).
November 2013, iPayment initiated arbitration against 1st
Americard and the Graingers, alleging breach of contract and
other claims. (First Dahill Decl. Ex. 9). iPayment contended
that the Graingers, although not signatories to the
companies' agreements, were liable as 1st Americard's
alter egos. (Id.). On March 31, 2015, after a
four-day arbitration hearing, the arbitrator issued a Final
Award (the “Award”) finding that Respondents had
breached the parties' agreements and that the Graingers
were “proper parties” to the action because
iPayment had sustained its burden of proof to pierce 1st
Americard's corporate veil. (Award 2-6). The arbitrator
found Respondents jointly and severally liable for $1, 930,
073.35 in damages, plus 9% per annum interest, and $420,
191.39 in fees and costs. (Id. at 8). On February
13, 2015, iPayment filed a petition to confirm the Award in
New York state court. (First Dahill Decl. Ex. 22).
Thereafter, Respondents removed the matter to this Court and
moved to vacate the Award as to the Graingers individually.
(Docket Nos. 1, 3). On March 25, 2016, Judge Torres confirmed
the Award as to 1st Americard, but deferred determination of
whether to confirm it as to the Graingers pending further
briefing on whether the evidence supported piercing the veil
and holding the Graingers accountable for 1st Americard's
breaches. See 2016 WL 1544736, at *5.
New York law - which the parties agree applies here
(Pet'r Mem. 30; Resp't Opp'n 10) - a plaintiff
may “pierce the corporate veil” and sue a
non-signatory for breach of contract when the non-signatory
is an alter ego of a signatory. Kaliner v. Mt. Vernon
Monetary Mgmt. Corp., No. 07-CV-4643 (LMM), 2008 WL
4127767, at *2 (S.D.N.Y. Sept. 3, 2008). In order to pierce
the corporate veil, a party must establish that “(1)
the owners exercised complete domination of the corporation
in respect to the transaction attacked; and (2) that such
domination was used to commit a fraud or wrong against the
plaintiff which resulted in the plaintiff's
injury.” JSC Foreign Econ. Ass'n
Technostroyexport v. Int'l Dev. & Trade Servs.,
Inc.,306 F.Supp.2d 482, 485 (S.D.N.Y. 2004); see
also Freeman v. Complex ...