A different approach in today’s Highlights – a long discussion of just one case. However, that case is a template for considering a motion to compel.

If you are new to arbitration practice or have an associate/mentee whom you are teaching to analyze a motion to compel, use Desarrolladora La Ribera, S. De R.L. de C.V. v. Anderson, 2024 U.S. Dis. LEXIS 231048 (S.D.N.Y December 20, 2024), as a roadmap for working through many relevant issues.  Regardless of whether you agree with Magistrate Judge Moses’ conclusions, the opinion analyzes several commonly faced questions and is a primer on issues to consider when opposing a motion to compel.  For experienced practitioners, the case is worth putting in your arbitration notebook because Magistrate Moses’ extensive citations can be a starting point for your own research.  As usual, I am not expressing any opinion as to whether the court is right or wrong on the merits. The purpose of Highlights is to bring interesting or important decisions to a reader’s attention.  Cases are fact-intensive, and there is often a lot of background that does not show up in the opinion.

Plaintiff, the developer of a “luxury residential community” in Mexico, sued for defamation, claiming that Defendants had placed untrue newspaper articles charging that Desarrolladora (“DLR”) was running a “Ponzi Scheme” in connection with the development.   One of the defendants, TRG, counterclaimed. DLR moved to compel arbitration of counterclaims based on a Construction Agreement between a DLR subsidiary and TRG. Defendants opposed arbitration of the counterclaims on a number of grounds and moved to compel arbitration of the initial defamation claims.

Waiver

TRG claimed that DLR waived any arbitration rights that it might have by waiting six months between the filing of the complaint and moving to arbitrate. Magistrate Judge Moses rejects the claim. Although DLR filed amended complaints, the court opines that the first response to the counterclaim was the motion to compel. “[DLR] filed no answer, asserted no affirmative defenses, made no motions (other than its extension applications), sought no discovery, and did nothing else that could be characterized as ‘litigating’ the Raizada/TRG counterclaims.”  The court finds that the motion to compel “was made promptly” upon the filing of the operative counterclaim.  The mere passage of six months was insufficient to demonstrate that DLR “’knowingly reliquish[ed] the right to arbitrate’ the counterclaims.” (Internal citation omitted). Further, DLR did not waive arbitration by seeking to litigate, rather than arbitrate, the defamation claim; those claims, the court opines, “are not ‘identical,’ either factually or legally” to those asserted in the counterclaim,” and, “thus, the fact that DLR seeks to litigate its own claims does not constitute a waiver of its right to arbitrate the counterclaims.” (Internal citation omitted).

The practice lesson – if you have a potential arbitration claim STOP EVERYTHING; do not file an answer, make a merits motion, file discovery, or take any other steps, except those which the court or rules require, until you have made your motion to compel arbitration.

Delegation

Anderson, one of the defendants, moved to compel arbitration of DLR’s initial claims. DLR opposed the motion on two grounds.  First, it argued that the defamation claims did not “arise out of or relate to” the agreement containing the arbitration clause.  Second, it argued that Anderson was not a signatory to the agreement containing the arbitration clause and, therefore, could not invoke its provisions.  The court characterizes that opposition as raising the issue of “arbitrability” of the dispute.

Magistrate Judge Moses first addresses whether she or the arbitrator is the proper person to resolve these issues.  She recognizes that arbitrability is normally an issue for the court to resolve before the case goes to arbitration.  However, she opines, where the parties have “clearly and unmistakably” indicated that the arbitrator, not the court, should decide those questions, the court will delegate them to the arbitral tribunal, citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002).  The court considers whether the agreement’s arbitration clause was sufficiently broad to delegate arbitrability.  She characterizes that provision as containing “classically broad language, requiring arbitration of any ‘controversy or claim arising out of or relating to this Agreement or the breach thereof[.]’” (Brackets in opinion). That language, the court opines, coupled with the parties’ submission of the dispute under the ICC Rules, demonstrates an intent to delegate arbitrability questions.[1] See Ireland-Gordy v. Tile, Inc., 2024 U.S. Dist. LEXIS 232240 (N.D. Cal. December 19, 2024)(Lin, J.), for a recent limiting view on when the reference to tribunal rules constitutes a delegation of resolution of threshold issues.  However, in reality, this whole discussion is dictum, as the parties “invited the court” to resolve the arbitrability issue, and Magistrate Judge Moses does so.

Scope

The parties’ agreement provided for arbitration of “any controversy or claim arising out of or relating to this Agreement or the breach thereof.”  The court addresses the question of whether the issues presented in the defamation case “relate to” that agreement.  The court ‘s reasoning “begin[s] with the broad language in the parties’ arbitration agreement, which is ‘significant’ because it signals the parties’ intent that ‘even collateral issues – that is, issues “related to but not facially covered by the arbitrable subject matter – should be arbitrated.”’” (Emphasis in opinion; Internal citations omitted). The court holds that there is such a relationship here, opining that, but for the contract, Anderson would not have even been a customer of DLR.  (NB, be aware that there are cases holding that merely because the relationship between the parties derives from a contract is not enough to establish that an extra-contractual dispute necessarily relates to or arises from the parties’ agreement).  Further, Magistrate Judge Moses opines, it would be “difficult to imagine” how Plaintiff could prove contest Defendants’ claims without litigating the parties’ conduct under the agreements.

Equitable Estoppel

The court also considers Anderson’s right to invoke the agreement’s arbitration provisions where he was not a signatory thereto.  She applies the oft-invoked doctrine of equitable estoppel to allow him to compel arbitration.  The Court finds that DLR “effectively conceded the ‘close relationship’” between Anderson and the entity which signed the agreement.  He was, the court finds, its sole disclosed agent; he negotiated the agreements; he signed them on behalf of the buyer; he performed the buyer’s contractual obligations; he was the managing agent thereof; and he “asserted the Buyer’s contractual rights.”  In short, Magistrate Judge Moses opines, “DLR has treated Anderson and his LLC interchangeably. . . . “

Stay Pending Arbitration

Although the court sends a number of the counterclaims to arbitration, it leaves certain claims for litigation. Magistrate Judge Moses, therefore, had to determine whether to stay litigation on those pending claims until completion of the arbitration.  Finding that the underlying facts on the arbitral and non-arbitral claims “are identical” or “overlap,” the court opines that “a stay will preserve both judicial and party resources, guard against duplicative discovery (as well as improper use of discovery devices available only in this Court to obtain discovery for use in the Mexican Arbitration), and ‘avoid[] possible inconsistent results.’” (Brackets in opinion; internal citation omitted).  Therefore, she grants the stay.

Magistrate Jurisdiction

In a footnote, the court opines that a motion to compel arbitration is within the Magistrate Judge’s authority to hear and determine.  Therefore, any review by the District Judge is limited to a determination of “clear error,” not a de novo review.  While the court cites only one District Court opinion, the referenced authority collects a number of cases on the issue.

For many 2024 has been tough, as the world moves through conflicts in the Middle East, the often-forgotten troubles in Sub Saharan Africa, and a contentious election in the U.S.  In addition, we all have faced whatever individual challenges the year may have provided.  As we move into 2025, I wish you a healthy, satisfying, and profitable New Year.  Please step back from social media a little more; talk with and listen to those with whom you disagree; and spend a bit more time with books, friends, and family. Happy New Year to you all.

David Reif, FCIArb
Reif ADR
Dreif@reifadr.com

[1] The ICC Rules provide that “pleas concerning the existence, validity or scope of the arbitration agreement. . . shall be decided directly by the arbitral tribunal. . . “