Al Thani v. Hanke

MOHAMMED THANI A.T. AL THANI, Plaintiff, v. ALAN J. HANKE et al., Defendants.

No. 20 Civ. 4765 (JPC)

United States District Court, S.D. New York

September 21, 2021

OPINION AND ORDER

JOHN P. CRONAN, UNITED STATES DISTRICT JUDGE.

Plaintiff Mohammed Thani A.T. Al Thani filed an Amended Complaint against Defendants Alan J. Hanke, IOLO Global LLC (“IOLO” and with Hanke, the “Hanke Defendants”), Sidney Mills Rogers III, Laura Romeo, Amy Roy-Haeger, the Subgallagher Investment Trust, and Sherry Sims on September 25, 2020, bringing several common law claims and a claim for violation of section 206 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6. Dkt 35 (“Am. Compl.”). Now before the Court is Rogers's motion to dismiss or stay the claims against him under Rule 12(b)(6) of the Federal Rules of Civil Procedure or 9 U.S.C. § 3, respectively, pending arbitration, or to sever those claims under Rule 21 and transfer them to Georgia under 28 U.S.C. § 1404(a). For the reasons below, the Court construes Rogers's motion as one to compel arbitration, grants the motion to compel, and stays the claims against Rogers pending arbitration.

I. Background

A. Facts

The following facts are from the Amended Complaint and the documents incorporated by reference in the Amended Complaint, and are taken to be true for the purposes of this motion.^[1]The Court detailed the factual allegations and procedural background in a previous Opinion and Order dated May 11, 2021, see Al Thani v. Hanke, No. 20 Civ. 4765 (JPC), 2021 WL 1895033, at *1-4 (S.D.N.Y. May 11, 2021), and as such now focuses only on the allegations specific to Rogers's motion.

Rogers, an attorney living in Georgia, was allegedly involved in a scheme to defraud Al Thani of millions of dollars. Am. Compl. ¶¶ 1, 10. In short, Hanke induced Al Thani to enter into two Management and Deposit Agreements (“MDAs”) and various addenda to these MDAs, under which Al Thani entrusted Hanke with $6.5 million. Id. ¶¶ 1-4, 35. Rogers's role in this was twofold. First, Rogers allegedly provided records of fictitious payments to Hanke to further the fraud. Id. ¶ 110. Second, and more importantly, Rogers, acting as an Escrow Agent for the fraudulent transactions, “used his attorney [Interest on Lawyers'] Trust Account to create the air of legitimacy and was an instrumental part of the fraudulent investment scheme.” Id. ¶ 5. Al Thani's investments were to be deposited with Rogers in escrow before IOLO invested them. Id. ¶ 24. To accomplish this, Al Thani, IOLO (through Hanke), and Rogers entered into escrow agreements in March 2019, id. ¶ 30; Dkt. 99, Exh. A (“March Escrow Agreement”), and July 2019, Am. Compl. ¶ 39; Dkt. 99, Exh. B (“July Escrow Agreement”), with Rogers named as the Escrow Agent. Al Thani was never paid the millions of dollars he was due under the MDAs and addenda to the MDAs, Am. Compl. ¶ 44, and as of the time Al Thani filed the Amended Complaint, Rogers had refused to provide any information on the whereabouts of Al Thani's funds after they were deposited in escrow, id. ¶ 24.

B. The Escrow Agreement^[2]

Paragraph 9 of the Escrow Agreement is entitled “Disputes.” March Escrow Agreement ¶ 9; July Escrow Agreement ¶ 9. That paragraph begins with the following provision, which describes what the Escrow Agent may do in the event of a “dispute” “with respect to the payment, ownership or right of possession of the Escrow Deposit”:

The Parties hereto agree that should any dispute arise with respect to the payment, ownership or right of possession of the Escrow Deposit, the Escrow Agent is authorized and directed to retain in its possession, without liability to anyone, except for its bad faith, gross negligence, or willful misconduct, all or any part of the Escrow Deposit until such dispute shall have been settled either by mutual agreement of the Parties concerned and a joint, notarized written instruction notice from the Depositor and Beneficiary shall have been delivered to the Escrow Agent or by an arbitrator's decision, judgment or order issued by a court of competent jurisdiction setting forth the resolution of the dispute.

March Escrow Agreement ¶ 9; July Escrow Agreement ¶ 9. This is immediately followed by an arbitration provision, which states:

Any controversy or claim arising out of or relating to this Agreement to which Escrow Agent is a party shall be determined by an independent arbitrator of the Parties' choosing located in Cobb County, Georgia, United States of America, and in accordance with the provisions of the Commercial Arbitration Rules then in effect of the American Arbitration Association.

March Escrow Agreement ¶ 9; July Escrow Agreement ¶ 9. The Escrow Agreement thus incorporates the American Arbitration Association's Commercial Arbitration Rules (“AAA Rules”), which provide: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Dkt. 99, Exh. C. The “Disputes” paragraph also states: “If for any reason a dispute is not to be resolved by arbitration, as set forth above, any actions and proceedings arising out of or relating to this Agreement shall be heard and determined in the Circuit Court of Cobb County (state court) or the Northern District of Georgia (federal court).” March Escrow Agreement ¶ 9; July Escrow Agreement ¶ 9.

The Escrow Agreement also defines Rogers's role and responsibilities as the Escrow Agent. For instance, the Escrow Agreement states: “The Escrow Agent shall not be liable for any action taken or omitted by it in good faith except to the extent that a court of competent jurisdiction determines that the Escrow Agent's bad faith, gross negligence, or willful misconduct was the primary cause of any loss to the Depositor and Beneficiary.” March Escrow Agreement ¶ 4; July Escrow Agreement ¶ 4. It also states: “In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any Party hereto which, in its opinion, conflict with any of the provisions of this Escrow Agreement, it shall be entitled to refrain from taking any action and its sole obligation shall be to keep safely all property held in escrow until it shall be directed otherwise in writing by the Depositor and the Beneficiary or by a final order or judgment of a court of competent jurisdiction.” March Escrow Agreement ¶ 4; July Escrow Agreement ¶ 4.

C. Procedural History

Al Thani commenced this action on June 22, 2020, naming the Hanke Defendants and John Does 1-100. Dkt. 1. Al Thani filed the Amended Complaint on September 25, 2020, adding the remaining Defendants. As is relevant here, the Amended Complaint brings claims for (1) fraudulent inducement against all Defendants, Am. Compl. ¶¶ 99-112, (2) fraud against all Defendants, id. ¶¶ 113-122, and (3) aiding and abetting fraud against all Defendants except the Hanke Defendants, id. ¶¶ 123-127.

Defendants have filed several motions. The Hanke Defendants filed a pre-answer motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure or to dismiss for failure to state a claim under Rule 12(b)(6), Dkts. 62, 63, 64, 65; Roy-Haeger moved to dismiss for lack of personal jurisdiction or to transfer venue, Dkt. 82; Sims and the Subgallagher Investment Trust moved to dismiss for lack of personal jurisdiction, Dkt. 96; and Rogers moved to dismiss for lack of personal jurisdiction; to dismiss or stay the claims against him under Rule 12(b)(6) or 9 U.S.C. § 3, respectively, pending arbitration; or to sever those claims under Rule 21 and transfer them to Georgia under 28 U.S.C. § 1404(a), Dkts. 97, 98, 99. In an Opinion and Order dated May 11, 2021, the Court denied the Hanke Defendants' motion, granted Al Thani's request for limited jurisdictional discovery, and stayed the remaining motions to dismiss. Dkt. 188. Rogers moved for reconsideration of that Opinion and Order. Dkt. 195. Before the Court could decide Rogers's motion for reconsideration, Rogers withdrew his motion to dismiss for lack of personal jurisdiction and requested that the Court decide the rest of his motion. Dkt. 218. The Court therefore turns to the rest of Rogers's arguments.

II. Applicable Legal Standard

Under the Federal Arbitration Act (“FAA”), a written agreement to arbitrate is “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 embodies “a congressional declaration of a liberal federal policy favoring arbitration agreements.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Thus, it seeks “preserve the parties' ability to agree to arbitrate, rather than litigate, [their] disputes.” Schnabel v. Trilegiant Corp., 697 F.3d 110, 118 (2d Cir. 2012).

When faced with a motion to compel arbitration, a court faces two main questions: (1) did the parties agree to arbitrate and (2) if so, what is the scope of their arbitration agreement? Starke v. Squaretrade, Inc., No. 16 Civ. 7036 (NGG) 2017 WL 3328236, at *5 (E.D.N.Y. Aug. 3, 2017), aff'd, 913 F.3d 279 (2d Cir. 2019). “In other words, a party opposing a motion to compel arbitration may challenge the existence or enforceability of an arbitration agreement, or may challenge the applicability of such an agreement to the claims at issue.” Bezek v. NBC Universal, No. 3:17 Civ. 1087 (JCH), 2018 WL 2337131, at *14 (D. Conn. May 23, 2018), aff'd, 770 Fed.Appx. 599 (2d Cir. 2019). While the party moving to compel arbitration has the initial burden of showing that the parties agreed to arbitrate,...