Credit Suisse AG v. Graham

533 F.Supp.3d 122

CREDIT SUISSE AG and Lara Warner, Petitioners,

v.Colleen A. GRAHAM, Respondent.

21-cv-951 (LJL)

United States District Court, S.D. New York.

Signed April 7, 2021

Joseph Serino, JR., Kuangyan Huang, Nathan Edmund Taylor, Latham & Watkins LLP, New York, NY, for Petitioners.

Robert David Kraus, Kraus & Zuchlewski LLP, New York, NY, for Respondent.

OPINION & ORDER

LEWIS J. LIMAN, United States District Judge:

Petitioners Credit Suisse AG ("CS") and Lara Warner ("Warner") petition for an order enjoining an arbitration. Respondent Colleen A. Graham ("Respondent" or "Graham") cross-moves for an order compelling arbitration. For the following reasons, Petitioners’ application is denied and Respondent's motion is granted.

BACKGROUND

A. Signac

This action grows out of a failed joint venture. Graham is the former Chief Supervisory Officer and a member of the Board of Managers of Signac LLC ("Signac" or the "Company"), an unsuccessful 50-50 joint venture formed between Credit Suisse First Boston Next Fund, Inc. ("CSFB") and Palantir Technologies Inc. ("Palantir"). Dkt. No. 1 ¶ 2 (the "Petition" or "Pet."). CS is the parent corporation of CSFB. Id. ¶ 7. Signac was formed to develop and market an "Enhanced Trading Oversight" solution ("ETOS")—a technology and services platform that would allow banks to more effectively monitor and combat inappropriate trading. Id. ¶ 13. It was governed by the Second Amended and Restated Limited Liability Company Agreement, effective as of February 29, 2016 (the "LLC Agreement"). Id. Pursuant to the LLC Agreement, Signac was overseen by a four-member Board of Managers. Id. ¶ 14. In addition to Graham, the Board of Managers included Warner, who was CSFB's representative on the Board of Managers of Signac. Id. The Board also included Sean Hunter, Signac's Chief Information Officer, and Matt Long, a representative of Palantir. Id. Graham and Hunter received ownership interests in Signac. Id. ¶ 15.

Signac's first and only client was CS. Id. ¶ 16. Signac and CS signed a Master Services Agreement ("MSA") pursuant to which Signac granted CS a permanent license to any trader surveillance technology created by Signac. Id. Sometime prior to June 2017, CS exercised its contractual and unilateral rights to terminate the MSA. Id. ¶ 17. In the wake of that decision, in June 2017, Signac's Board of Managers approved Signac's dissolution. Id. ¶ 18. Graham voted against the dissolution. Id. All other managers voted in favor of it. Id.

Two arbitration proceedings arising out of these events are at issue in this case.

B. JAMS I

On or about October 25, 2017, Graham filed an arbitration claim in JAMS on behalf of herself and Signac against CSFB and Palantir, as well as against Signac as nominal defendant. Id. ¶ 19. Graham subsequently amended her claim on or about November 20, 2017. Id.

The claims were filed pursuant to Section 14.7(b) of the LLC Agreement, which provides that any dispute that "arises from or relates to this Agreement or the breach thereof" shall be resolved through an arbitration administered by JAMS in accordance with its then-in-effect Comprehensive Arbitration Rules and Procedures. Dkt. No. 20-2 at 4.

Graham challenged the dissolution of the Company, alleging that CSFB and Palantir breached the LLC Agreement by improperly and inappropriately dissolving Signac, failing to maximize its value to all of its members, violating certain restrictive covenants found within the LLC Agreement and failing to act in good faith. Dkt. No. 20-2. She also alleged that CSFB had breached the restrictive covenants in the LLC Agreement and had been unjustly enriched by the wrongful appropriation of certain Signac intellectual property. Id. One of the restrictive covenants stated that "the Class A/B Members (and former Class A/B Members) [i.e., CSFB and Palantir] shall not, and shall cause their respective controlled Affiliates not to, without the prior written consent of the Company, directly or indirectly, (1) engage in a business that provides Enhanced Trading Oversight Solutions ["ETOS"] other than through the Company Parties." Dkt. No. 20-2 at 20. Graham sought an injunction against CSFB and Palantir selling ETOS to third parties and also claimed that CSFB had used ETOS for a time for internal purposes in violation of the restrictive covenant and, in the case of CS, without paying a fee. Dkt. No. 20-2 at 19-20. The particular tool Graham alleged CS used was a trader surveillance tool called BRM. Pet. ¶ 35. Graham did not name CS or Warner as respondents or seek relief as against them. Id.

The parties conducted a six-day hearing in JAMS I beginning on March 5, 2015 before Michael D. Young ("Arbitrator Young"). Id. ¶ 22. On June 8, 2018, the arbitrator issued an award in JAMS I, denying and dismissing with prejudice all of the claims made by Graham both on behalf of herself and on behalf of Signac and resolving all of the claims in the arbitration. Id. ¶ 24. In the course of his decision, Arbitrator Young made clear that he was not adjudicating any claim against Warner for breach of fiduciary duty. Dkt. No. 20-2 at 12 n.12. In the course of his ruling that the decision to dissolve Signac was not wrongful, Arbitrator Young stated: "the decision to dissolve Signac was based on a perceived lack of performance and other legitimate business considerations rather than on some bad faith reason such as wanting to appropriate the product" and that "appropriation of the product does not appear to have occurred." Id. at 17. With respect to the claim that CS had continued to use ETOS in violation of the MSA, Arbitrator Young stated that CS "is not a party before me and therefore it is not clear that I have the authority to adjudicate a claim against it." Id. at 21. Arbitrator Young stated that CS had continued to use the ETOS after its termination of the MSA improperly and without paying fees. However, there was no basis for him to award damages against CSFB for CS's breach of the MSA. He concluded with the observation that CS was no longer using ETOS and therefore there was no basis to award injunctive relief against CSFB "based on CS[’]s past use of [ETOS]." Id. at 23.

CSFB did not bring an action to confirm the arbitration award. Instead, on March 8, 2019, Graham filed a petition to vacate the award in New York state court pursuant to N.Y. CPLR § 7511(b)(1)(i), seeking to vacate the award on grounds of fraud or misconduct. Pet. ¶ 29. On June 6, 2019, the state court held a hearing on Graham's petition to vacate. Id. ¶ 32. At the hearing, the state court found that Graham had not put forth evidence that suggested any inconsistency with any prior testimony. Id . On June 21, 2019, the state court entered an order denying Graham's petition to vacate and confirming the JAMS I award. Id. ¶ 33. Graham filed a notice of appeal on July 9, 2019, appealing the state court's denial of her petition to vacate. However, Graham chose not to perfect the appeal and it was dismissed by operation of 22 N.Y. CRR § 1250.10(a). Id.

C. JAMS II

On December 22, 2020, Graham filed a second arbitration in front of JAMS ("JAMS II"). Id. ¶ 34; Dkt. No. 20-3. JAMS II was brought against CS and Warner, and against Signac as a derivative claimant and, in its capacity as an alter ego of CS, as a respondent. She invoked Section 20.2(b) of the MSA. Dkt. No. 20-3 at 4. That section provides: "If a dispute arises from or relates to this Agreement or the breach thereof, ... the dispute shall be settled by arbitration administered by Judicial Arbitration and Mediation Services, Inc. (‘JAMS’) in accordance with its then-in-effect Comprehensive Action Rules." Id.

Graham bases her claim in JAMS II on the Arbitrator's finding in JAMS I that CS had used ETOS wrongfully and on documents that she claims shows that the wrongful use was not only "for a limited time" as Arbitrator Young had concluded. Dkt. No. 20-4. Graham alleges that CS breached the MSA, Dkt. No. 20-4 at 17, and that Warner breached her fiduciary duties as a member of Signac, id. at 18. Graham further alleges that Trader Holistic Surveillance ("THS"), a surveillance tool used internally by CS, was in fact Signac's BRM tool, used under a different name. Pet. ¶ 30. She claims that CS breached the MSA by failing to pay required license fees and to act in good faith, including by attempting to conceal its continued use of THS, misappropriating THS, and using, modifying, and developing the same without a license or authorization. Graham also asserts claims against CS for unjust enrichment, conversion, breach of the duty of good faith and fair dealing under the MSA, and aiding and abetting Warner's breach of fiduciary duty. The sixth claim seeks an accounting and the seventh claim seeks a declaratory judgment.

The single claim against Warner alleges that she breached her fiduciary duties as a manager of Signac by, among other things, aiding and abetting CS's misappropriation or exploitation of THS, depriving Graham and other Class C members of Signac of the fair value of their equity, and failing to maximize the value of Signac. Dkt. No. 19 at 11.

In the JAMS II arbitration, Graham claims that documents produced in a Sarbanes-Oxley ("SOX") investigation instigated by her after the conclusion of the JAMS I arbitration show that testimony given at the JAMS I proceeding by Warner, as CS's Chief Compliance and Regulatory Affairs Officer ("CCRO") and by CS's Global Head Core Compliance, was false and misleading. Id. at 12.¹ Graham also claims that Warner breached her fiduciary duties to Signac by facilitating and then concealing CS's use of the technology in violation of its agreements with Signac, that THS was rolled out globally in May 2017, and that CS continued to use and develop THS after its release. Id. at 11.

PROCEDURAL HISTORY

On January 11, 2021, Petitioners filed in state court a petition to permanently stay the JAMS II arbitration as an impermissible collateral attack on the JAMS I award in...