Neal v. ASTA Funding, Inc.

DAVID SHAUN NEAL, Plaintiff, v. ASTA FUNDING, INC., GARY STERN, MARY CURTIN,SETH BERMAN, CYNTHIA SCHATZMANN (HORVAT),LOUIS PICCOLO, DAVID CAVILL,and JOHN DOES 1-10, Defendants.

Civ. No. 13-3438 (KM) (MAH)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

Dated: December 4, 2013

OPINION

KEVIN MCNULTY, U.S.D.J.:

This matter comes before the Court on the Defendants' motion (Docket No. 25) to dismiss the Complaint (Docket No. 1 ("Compl.")) in its entirety pursuant to Rules 12(b)(6) and 12(b)(1), Fed. R. Civ. P. In addition, the pro se plaintiff, David Shaun Neal, has filed a motion to stay a pending arbitration and to impose sanctions pursuant to 28 U.S.C. § 1927 (Docket No. 28). In response to that motion, the Defendants have cross-moved for sanctions and for injunctive relief (Docket No. 34). Defendants' motion to dismiss includes the contention that Neal is bound by an arbitration agreement and should therefore "be compelled to pursue any Counts that survive . . . in the Arbitration and this action [should be] stayed" pursuant to 9 U.S.C. §§ 3 and 4 (Docket No. 25-1 at 28).

The essence of Defendants' position is that these claims should be pursued, not here, but in an arbitration that is already pending (Docket No. 25-1 at 28). The essence of Neal's position is that the arbitration should be stayed and his claims should proceed in this action (and others).¹ Neal's claimsappear to be arbitrable, but that issue is not for me in the first instance; I refer those claims to the Arbitrator, to whom the issue of arbitrability is contractually committed. Whether or not Neal's claims are arbitrable, however, I will stay this action pending the resolution of the pending arbitration. Consequently, I will administratively terminate Defendants' motion to dismiss the Complaint, without prejudice.

I. BACKGROUND

The Complaint alleges that Neal was an employee of Defendant ASTA. Essentially, the Complaint alleges that ASTA wrongfully terminated Neal's employment because he blew the whistle on unlawful or unethical conduct of ASTA and its employees. See Compl. at ¶ 99-100, 338. More specifically, the Complaint asserts the following claims: (1) Violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5567 ("Dodd-Frank"); (2) Violation of the Sarbanes Oxley Act, 18 U.S.C. § 1514A ("SOX"); (3) Violation of New Jersey's Conscientious Employee Protection Act, N.J. Stat. § 34:19-1 ("CEPA"); and (4) Violation of public policy under Pierce v. Ortho Pharmaceuticals, 84 N.J. 58 (N.J. 1980) (holding that an "employee at will has a cause of action for wrongful discharge when the discharge is contrary to a clear mandate of public policy"). The fifth and final count is a general request for punitive damages.

The corporate Defendant, ASTA, is a debt acquisition and collection company. Individual Defendants Gary Stern, Mary Curtin, Seth Berman, and David Cavill are employed by ASTA. Compl. at 1-2; see Docket No. 25-1 at 3.Defendant Cynthia Schatzmann "is a former employee of ASTA and is believed to be a current employee of ASTA." Defendant Louis Piccolo ("Piccolo") is "a current independent director of ASTA." Id.

The Complaint alleges that Neal began his employment with ASTA in 2004 and that his company, New World Solutions ("NWS"), was retained to do certain Information Technology work for ASTA in 2009. Neal alleges that he was "a vocal critic of the lackadaisical attitude of senior management regarding legal compliance," and that he "repeatedly complained to ASTA that it lacked a compliance office." He further alleges that he "informed senior management at ASTA, including Defendant Stern, of the wrongful, illegal, and/or unethical activity" committed by ASTA. Compl. at ¶¶ 99-101. Neal alleges that Defendants retaliated against him for reporting these activities. Specifically, he alleges that Stern reduced his salary, set impossible budget goals, terminated his employment, and commenced a frivolous arbitration action against him. He also alleges that Curtin, Berman, Schatzmann, Cavill, and Piccolo retaliated against him by "transmitting false and disparaging statements to various employees of ASTA," and that Curtin, Schatzmann, and Cavill also "suggested] that Neal's employment be terminated." Compl. at 321-334.

Defendants deny that ASTA employed Neal. On the contrary, according to ASTA, it retained NWS, a company co-owned by Neal, as an independent contractor to perform Information Technology-support ("IT") services. That relationship was embodied in a written Information Technology Services Agreement, dated July 1, 2009. See Docket No. 25-3 (Exhibit A) ("Consulting Agreement"). That Consulting Agreement had a term of three years. Id. ASTA states that, on June 27, 2012, it terminated the Consulting Agreement because NWS had allegedly failed to perform as warranted and inflated its billing. (Arbitration Case No: 18 117 Y 00925 12; Docket No. 25-1 at 6-7; Compl. ¶¶ 324, 373).

The Consulting Agreement contains a broad clause providing for arbitration of disputes under the Commercial Arbitration Rules of the American Arbitration Association ("AAA").² After terminating the Agreement, on July 26,2012, ASTA filed a claim in arbitration with AAA alleging that NWS breached the Consulting Agreement by failing to perform as required under the agreement and by inflating its billing. Robert E. Bartkus, Esq., was duly appointed as arbitrator by the AAA. According to ASTA's filings, Neal has moved twice to remove Mr. Bartkus as arbitrator, but the AAA Administrative Review Counsel has denied those motions. (Docket No. 34-1 at 8). In the arbitration, NWS filed a counterclaim alleging that ASTA had itself breached the Consulting Agreement. (Docket 43-1, Exhibit 3 ("Counterclaim")).

After filing the arbitration case, ASTA learned that Neal had allegedly accessed confidential information, gained personal access to ASTA employees' email accounts, and copied certain confidential information. According to Defendants, Neal thereby violated confidentiality covenants that are contained in the Consulting Agreement, as well as a confidentiality order issued by the Arbitrator. Indeed, the Defendants say, the allegations in Neal's Complaint in this action are based on those confidential materials.

In the arbitration, the Arbitrator has entered a Turnover Order that, inter alia, restrained NWS and "its principal Shaun Neal" from disclosing any confidential information; ordered NWS to return all copies of documents that related to ASTA other than discovery materials produced during the arbitration; and restrained NWS and Neal from using any of these materials for any purpose other than for the arbitration proceedings. See Docket No. 43 (Exhibit 5); Docket No. 34-1 at 10-11. Neal then moved in this Court to vacate the Arbitrator's Turnover Order. Magistrate Judge Hammer denied that motion (Docket No. 35), and Neal recently moved for reconsideration of Judge Hammer's order (Docket No. 39).

On August 1, 2013, ASTA moved in the arbitration to supplement its statement of claim and assert new claims against NWS and Neal for alleged misappropriation of confidential information. Docket No. 34-1 at 14. At first, the Arbitrator allowed supplementation of the claims against NWS, but did not allow the addition of Neal as a party, because the request came too close to the scheduled hearing date. Id. Therefore, on September 3, 2013, ASTA initiated a second arbitration against Neal and the former co-owner of NWS, Robert F. Coyne. In that second arbitration, ASTA alleged claims of consumer fraud, violations of the Consumer Fraud and Prevention Act, and other New Jersey computer-related offenses. The original and second arbitration were recently consolidated. In connection with that consolidation, the Arbitrator, Mr. Bartkus, examined his own jurisdiction and held that Neal was individually subject to the arbitration agreement. (Docket No. 42-1 (Exhibit 6) ("Consolidation Order")). The arbitration hearing, originally scheduled for September 18, 2013, has been adjourned, and the arbitration is proceeding on a consolidated basis.

II. DISCUSSION

A. Arbitrability Under the Federal Arbitration Act and the Court's Power to Stay Litigation Pending Arbitration

The Federal Arbitration Act ("FAA") reflects a longstanding "liberal federal policy favoring arbitration agreements . . . ." Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA is designed to "ensure judicial enforcement of privately made agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Congress' "clear intent" in passing the FAA was "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible." Moses H. Cone Memorial Hosp., 460 U.S. at 22. To fulfill that goal, courts must "rigorously enforce agreements to arbitrate . . . ." Dean Witter Reynolds, Inc., 470 U.S. at 221. The FAA established that, "as a matter of federal law, 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 Memorial Hosp., 460 U.S. at 24-25; see also Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 938 (3d Cir. 1985) (ambiguous or unclear cases should be resolved in favor of arbitration).

To implement that federal policy in favor of arbitration, Section 3 of the FAA provides that issues within the scope of an arbitration agreement shall be referred to arbitration, and that court proceedings shall be stayed:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration . . ., the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceedings is referable to arbitration under such agreement, shall

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