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American E Group LLC v. Livewire Ergogenics Inc.

United States District Court, S.D. New York

January 13, 2020

AMERICAN E GROUP LLC, Plaintiff,
v.
LIVEWIRE ERGOGENICS INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          GREGORY H. WOODS, UNITED STATES DISTRICT JUDGE:

         Third-Party Plaintiff Livewire Ergogenics Inc. executed an engagement letter (the “Engagement Letter) for Third-Party Defendant JS Barkats PLLC (“JSB”) (and together with Third-Party Defendant Sunny Joseph Barkats, the “Barkats Defendants”) to represent it as legal counsel. The Engagement Letter contained a provision compelling arbitration of “any dispute.” In the early stages of this case, counsel for JSB agreed to waive all “jurisdictional defenses” in exchange for an extension of time to file an answer to Livewire's third-party claims. The Barkats Defendants now move to compel arbitration of the third-party claims against them. Because the Engagement Letter contains an arbitration provision that subjects this dispute to arbitration and JSB's agreement to waive “jurisdictional defenses” does not override the parties' agreement to arbitrate in the Engagement Letter, the Barkats Defendants' motion to compel is GRANTED.

         I. BACKGROUND[1]

         A. Facts[2]

         On November 3, 2015, Livewire entered into an agreement with JSB for JSB to represent Livewire as legal counsel. TPC ¶ 17. The relationship between JSB and Livewire was memorialized in an engagement letter. See Engagement Letter, Dkt No. 140-1. The Engagement Letter states that Livewire is retaining JSB in connection with its reporting obligations under the Securities Exchange Act of 1934, “general corporate governance[, ]” and assistance with financing. Id. at 1.[3] The Engagement Letter contains an arbitration provision concerning disputes between JSB and Livewire.

         This provision states:

Any dispute, shall be resolved by confidential arbitration as follows: (1) If and to the extent that the New York Fee Dispute Resolution Program (Part 137 of 22 NYCRR) providing for the information and expeditious resolution of fee disputes between attorneys and clients is applicable. (2) If such Fee Dispute Resolution Program is not applicable to any such dispute, controversy or claim, then the arbitration shall be conducted in New York City in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and any award issued in such arbitration shall be enforceable in any court with jurisdiction. A copy of the New York Fee Dispute Resolution Program is available upon request.

Id. at 4.

         Soon after JSB and Livewire executed the Engagement Letter, Livewire executed a note (the “Note”) with Plaintiff American E Group LLC (AEG) that has been the subject of extensive litigation in this action. TPC ¶ 24. AEG sued Livewire to enforce the Note. Dkt No. 1. Livewire, in turn, filed counterclaims against AEG and a third-party action against the Barkats Defendants, who had represented them in in connection with the negotiation and execution of the Note. Dkt No. 54. The third-party complaint was served on the Barkats Defendants on January 25, 2019. Dkt No. 73.

         As a result, on February 19, 2019, Jerome Noll-acting as counsel for JSB-emailed counsel for Livewire Ryan Whalen to request “an extension of time through March 11, 2019 to respond to the Counterclaim and Third-Party Complaint[.]” February 19, 2019 Emails, Ex. C to Whalen Aff., Dkt No. 154-3, at 3. On the same day, Whalen responded that “Livewire will consent to this request on the condition that JS Barkats, PLLC waives all jurisdictional defenses, including, but not limited [to], improper or defective service of the summons and complaint on JS Barkats PLLC.” Id. at 2. Noll then responded, again on February 19, 2019, that “JS Barkats, PLLC waives all jurisdictional defenses, including, but not limited to, improper or defective service of the summons and complaint on JS Barkats, PLLC[.]” Id.

         B. Procedural History

         Livewire filed an amended answer with counterclaims and third-party claims on April 10, 2019. TPC, Dkt No. 107. As against the Barkats Defendants, the TPC raises claims for constructive fraud, id. ¶¶ 68-72, breach of fiduciary duty, id. ¶¶ 73-79, breach of the implied covenant of good faith and fair dealing, id. ¶¶ 94-99, legal malpractice, id. ¶¶ 108-115, and civil conspiracy, id. ¶¶ 116-127. On July 17, 2019, the Barkats Defendants filed a motion to compel arbitration under section 4 of the Federal Arbitration Act (“FAA”). Motion to Compel Arbitration (“Mot.”), Dkt No. 140. On August 6, 2019, Livewire filed a memorandum of law in opposition to the motion to compel arbitration and an affirmation of Ryan J. Whalen in support of its opposition. Dkt Nos. 153-54; Whalen Aff., Dkt No. 154.

         In its opposition, Livewire makes three arguments. First, it argues that Livewire's claims against the Barkats Defendants are not arbitrable under the terms of the Engagement Letter. Memorandum of Law in Opposition to Motion To Compel Arbitration (“Opp.”) at 9 (capitalization altered). Second, it argues that the Barkats Defendants waived their right to arbitrate by agreeing to waive its jurisdictional defenses. Opp. at 7. Third, Livewire seems to argue that waiver should be inferred because it would suffer prejudice if the Barkats Defendants are allowed to compel arbitration. Opp. at 8-9. The Barkats Defendants filed their reply on August 13, 2019. Reply Memorandum of Law in Support of Motion to Compel Arbitration (“Rep.”), Dkt No. 159.

         II. LEGAL STANDARD

         Under Section 2 of the FAA, as a general matter, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA also provides that parties can petition the district court for an order compelling arbitration under 9 U.S.C. § 4. Section 4 of the FAA provides:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an ...

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