GateGuard, Inc. v. Goldenberg

585 F.Supp.3d 391

GATEGUARD, INC., Plaintiff,

v.Abi GOLDENBERG et al., Defendants.

20 Civ. 1609 (AJN) (GWG)

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

Signed February 15, 2022

Ariel Reinitz, FisherBroyles, LLP, New York, NY, Ronald David Coleman, Dhillon Law Group Inc., Newark, NJ, for Plaintiff.

Jacob Schindelheim, K&L Gates, Washington, DC, Shira Moyal, Simcha David Schonfeld, Koss & Schonfeld, LLP, New York, NY, for Defendants.

OPINION AND ORDER

GABRIEL W. GORENSTEIN, UNITED STATES MAGISTRATE JUDGE

Plaintiff GateGuard, Inc. ("GateGuard") brings this action alleging breach of contract by Goldmont Realty Corp. ("Goldmont") and fraud by two of Goldmont's executives, Abi Goldenberg and Leon Goldenberg. See Verified First Amended Complaint, dated February 1, 2020, annexed as Ex. C to Notice of Removal, filed February 24, 2020 (Docket # 1) ("FAC"), at 5-6. Before the Court is defendants’ motion to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 1, et seq. ("FAA").¹ For the following reasons, defendants’ motion is granted as to the contract claim and denied as to the fraud claims.²

I. BACKGROUND

On August 30, 2019, Goldmont executed an Equipment Purchase Agreement with GateGuard, which provided that GateGuard would provide Goldmont with 41 intercom devices for a purchase price of $369,000. See GateGuard Equipment Purchase Agreement, annexed as Ex. C to Def. Mot. ("Purchase Agreement"), at *2. The parties dispute whether Goldmont breached the purchase agreement. Goldmont maintains that it repudiated the agreement prior to performance, see Def. Mem. at 3, while GateGuard contends that it delivered the intercom devices and Goldmont refused to pay for them, see Pl. Opp. at 3. The Purchase Agreement bound the parties to additional terms regarding dispute resolution, which were available via a website. Purchase Agreement at *14; see Dispute Resolution Terms, annexed as Ex. D to Def. Mot. ("Arbitration Agreement"). Those terms contained the following provision:

Notwithstanding anything to the contrary contained herein, you and GateGuard agree that any dispute, claim or controversy arising out of or relating to the Terms or the breach, termination, enforcement, interpretation or validity thereof, or to the use of the Site will be settled by binding arbitration, except that GateGuard alone retains the right to seek injunctive or other equitable relief in a court of competent jurisdiction to prevent the actual or threatened infringement, misappropriation or violation of a [sic] its copyrights, trademarks, trade secrets, patents, or other Intellectual Property rights.

Arbitration Agreement at 1. The arbitration agreement provides that the "arbitration will be administered by the American Arbitration Association (‘AAA’) in accordance with the Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes." Id.

On December 4, 2019, GateGuard filed an action for breach of contract against Goldmont in New York State Supreme Court. See Verified Complaint, dated Dec. 4, 2019, annexed as Ex. A to Notice of Removal. On February 1, 2020, GateGuard filed an amended complaint that added a claim for fraud against Abi Goldenberg, a Goldmont executive, and Leon Goldenberg, Goldmont's CEO. See FAC at 1, 6. On February 24, 2020, defendants removed the case to federal court, invoking diversity jurisdiction. See Notice of Removal.

Since being removed to this Court, the parties have engaged in discovery. Each side has served interrogatories and document requests on the other side. See, e.g., Defendants’ Request for Production of Documents, filed Aug. 24, 2020 (Docket # 17) ("Def. RFP"); Defendants’ First Set of Interrogatories, filed Sept. 24, 2020 (Docket # 18) ("Def. Interrogatories"); Letter from Ariel Reinitz, filed Apr. 13, 2021 (Docket # 39) (detailing interrogatories and document requests served on defendants by GateGuard). The parties have sought this Court's assistance in resolving several discovery disputes. See Letter from Ariel Reinitz, filed Apr. 13, 2021 (Docket # 39); Letter from Simcha Schonfeld, filed June 11, 2021 (Docket # 58); Letter from Ariel Reinitz, filed Nov. 11, 2021 (Docket # 75); Letter from Ariel Reinitz, filed Dec. 2, 2021 (Docket # 84); Letter from Ariel Reinitz, filed Dec. 31, 2021 (Docket # 91). Neither side has filed any motions to dismiss or motions for judgment on the pleadings in this Court, and no trial date has been set.³

II. LEGAL STANDARD

Section 2 of the FAA provides in pertinent part:

A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, ... 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. Section 4 of the FAA permits a party to obtain from a federal district court "an order directing that [an] arbitration proceed in the manner provided for" in an arbitration agreement. 9 U.S.C. § 4. As the Second Circuit has held, the FAA "requires the federal courts to enforce arbitration agreements, reflecting Congress’ recognition that arbitration is to be encouraged as a means of reducing the costs and delays associated with litigation." Vera v. Saks & Co., 335 F.3d 109, 116 (2d Cir. 2003) (quotation omitted). The FAA thus reflects "a strong federal policy favoring arbitration as an alternative means of dispute resolution." Ross v. Am. Express Co., 547 F.3d 137, 142 (2d Cir. 2008) (quotation omitted).

The Second Circuit has held that a court considering a motion to compel arbitration of a dispute first must

determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.

JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 169 (2d Cir. 2004) (quoting Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 75-76 (2d Cir. 1998) ).

Under the FAA, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

III. DISCUSSION

A. Waiver

Before addressing the issue of the agreement to arbitrate and its scope, we address GateGuard's argument that defendants’ motion to compel arbitration should be denied because defendants waived any right to compel arbitration by participating in this litigation for "nearly two years." Pl. Opp. at 1.

A court must look to three factors to determine whether a party has waived its right to compel arbitration by litigation conduct: "(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice." Louisiana Stadium & Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 (2d Cir. 2010) (punctuation omitted). "Generally, waiver is more likely to be found the longer the litigation goes on, the more a party avails itself of the opportunity to litigate, and the more that party's litigation results in prejudice to the opposing party." Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir. 2002) (citing Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995) ). However, "the key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated." Merrill Lynch, 626 F.3d at 159 (punctuation omitted).

"[W]aiver of arbitration is not to be lightly inferred," and "any doubts concerning whether there has been a waiver are resolved in favor of arbitration." Leadertex, 67 F.3d at 25 (punctuation omitted); see also Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25, 103 S.Ct. 927. "There is no rigid formula or bright-line rule for identifying when a party has waived its right to arbitration; rather, the above factors must be applied to the specific context of each particular case." Merrill Lynch, 626 F.3d at 159.

We examine the three factors next.

1. Time Elapsed

GateGuard commenced this action in New York state court on December 4, 2019. See Notice of Removal ¶ 1. GateGuard filed an amended complaint on February 1, 2020, id. ¶ 8, and defendants filed a notice of removal with this Court on February 24, 2020, see generally id. The instant motion to compel arbitration was filed on October 28, 2021. See Def. Mot. Accordingly, the matter was litigated for over 22 months before the instant motion was filed. This represents a significant length of time, and much shorter delays have been held to support a finding of waiver. See Merrill Lynch, 626 F.3d at 159-60 (characterizing an 11 month delay as a "significant amount of time" that, in combination with other factors, constituted waiver); Leadertex, 67 F.3d at 26 (7 month delay supported waiver); Galvstar Holdings, LLC v. Harvard Steel Sales, LLC, 2018 WL 6618389, at *3 (S.D.N.Y. Dec. 18, 2018) (finding waiver after defendant offered "no reasonable explanation as to why it waited" two years to seek arbitration).⁴ The first factor therefore favors GateGuard.

2. The Amount of Litigation to Date

In assessing "the amount of litigation to date, including motion practice and discovery," Merrill Lynch, 626 F.3d at 159, courts look to whether the party seeking arbitration has "evidenced a preference for litigation that supports a finding of waiver." PPG Indus., Inc. v....