Prospect Funding Holdings (NY), LLC v. Ronald J. Palagi, P.C.
| Decision Date | 30 September 2019 |
| Docket Number | 8:18-CV-15 |
| Citation | 410 F.Supp.3d 1077 |
| Parties | PROSPECT FUNDING HOLDINGS (NY), LLC, Plaintiff and Counter-Defendant, v. RONALD J. PALAGI, P.C., L.L.C., and Che Stubblefield, Defendants and Counterclaimants. |
| Court | U.S. District Court — District of Nebraska |
Adam W. Barney, Cline, Williams Law Firm-Omaha, Omaha, NE, for Plaintiff and Counter-Defendant.
John K. Green, Pickens, Daubman Law Firm, Ronald J. Palagi, Palagi Law Office, Omaha, NE, for Defendants and Counterclaimants.
The plaintiff, Prospect Funding Holdings (NY), LLC, seeks confirmation of two arbitration awards pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and have moved for summary judgment to that effect. Filing 64. The defendants, Ronald J. Palagi, P.C., L.L.C. ("RJP") and Che Stubblefield, have asked to vacate the awards, and have filed cross-motions for summary judgment. Filing 64; filing 69; filing 78.
As explained below, the Court finds that RJP and Stubblefield weren't provided with adequate notice of either the commandment of arbitration proceedings or the arbitration awards. So, the Court concludes that the arbitration awards aren't enforceable. The Court will deny Prospect Funding's motion for summary judgment and grant the defendants' motions.
Stubblefield was represented by RJP in a lawsuit in Douglas County District Court. On January 27, 2016, Stubblefield and Prospect Funding entered into a "Sale and Repurchase Agreement" pursuant to which Prospect Funding agreed to purchase a share of Stubblefield's claims in the state court case. Filing 2-2; filing 79 at 3.1 The Agreement provided for an initial payment to Stubblefield of $5,000, in exchange for which Prospect Funding received a share of Stubblefield's claim in the amount of $23,120. Filing 2-2 at 1. The Agreement also provided for up to seven monthly "additional purchases" in which Stubblefield would receive another $3,000 each month in exchange for an additional $12,036 share of Stubblefield's claims. Filing 2-2 at 1. The Agreement provided that the "maximum amount of Additional Prospect Ownership Amount will be $84,252 with a total purchase price of $24,780." Filing 2-2 at 1 (emphasis omitted). Accordingly, if all the additional purchases had been made, Stubblefield would have received $26,000 in exchange for a $107,372 interest in his claims. Filing 2-2 at 13.
The Agreement provided that if Stubblefield received nothing on his claims in state court, then he would owe Prospect Funding nothing. Filing 2-2 at 1. If he recovered on his claims, he would receive nothing until Prospect Funding had received its ownership amount, but his obligation to pay Prospect Funding was limited to amounts he recovered. Filing 2-2 at 1, 4. The Agreement provided, however, that if Stubblefield did not comply with the Agreement or attempted to avoid paying Prospect Funding, he would be liable for liquidated damages of twice the amount of Prospect Funding's ownership amount in his claims, regardless of the outcome of the underlying case. Filing 2-2 at 1, 5.
Filing 2-2 at 7 (emphasis omitted); see filing 79 at 3.
Stubblefield also signed an "Irrevocable Letter of Direction," addressed to Palagi,2 directing Palagi to pay Prospect Funding from any settlement proceeds. Filing 2-2 at 9; filing 79 at 4. Palagi signed the "Attorney Acknowledgement" at the end of the letter, acknowledging the arbitration clause and agreeing to honor the letter. Filing 2-2 at 10; filing 79 at 4.
Prospect Funding asserts that Stubblefield received a settlement in the state court litigation and refused to pay Prospect Funding. Filing 2-1 at 2. Palagi told Prospect Funding he didn't believe the Agreement was enforceable. Filing 79 at 4. So, Prospect Funding initiated separate arbitration claims against Stubblefield and RJP with Arbitration Resolution Services, Inc. (ARS). Filing 2-3; filing 2-4; filing 79 at 4. ARS sent emails about the pending arbitration to Palagi and Stubblefield at email addresses that had been provided to Prospect Funding. Filing 79 at 4-5; filing 80-3; filing 80-4. Palagi and Stubblefield both aver, however, that they received no notice of the arbitration proceeding. Filing 80-1 at 56, 71.
On April 25, an arbitration award against RJP in the amount of $190,672 was entered by an arbitrator. Filing 2-5; filing 79 at 5. No one appeared on RJP's behalf. Filing 2-5. The award explained:
The arbitrator finds a valid contract in the Sale and Repurchase Agreement between Prospect Funding Holdings LLC and Che Stubblefield including an Irrevocable Letter of Direction acknowledged by Attorney Ronald J. Palagi dated January 27, 2016. Arbitrator finds jurisdiction over this matter as set forth in said documents and as agreed to by the parties. The plaintiff has purchased an interest in the case settlement proceeds in the sum of $95,336.00. There is a breach of said contract in that Attorney Palagi has failed to advise the Plaintiff of the status of said case and failed in the attorney's fiduciary duty to pay the Plaintiff from said settlement proceeds as set forth in the Agreement. Attorrney [sic] Palagi has admitted failure to pay and has failed to respond to said complaint. Therefore, the Arbitrator finds for the Plaintiff, Prospect Funding Holdings, LLC the full contract amount of $95,336.00 plus liquidated damages of twice the amount as set forth in the contract for a judgement of $190,672.00 plus costs and expenses.
Filing 2-5. A similar award as to Stubblefield was entered on August 8. Filing 2-7; filing 79 at 5. ARS sent the awards to Palagi and Stubblefield at the same email addresses it had been using. Filing 2-6; filing 2-7; filing 79 at 5.
Prospect Funding filed the present petition to confirm the arbitration awards on January 12, 2018. Filing 1. The defendants answered on February 20. The answer contained a cross-petition to vacate the arbitration awards, and was accompanied by an affidavit denying that notice of the arbitration proceeding had been given. Filing 11 at 3-4; filing 11-1 at 1; see 9 U.S.C. § 12. The Court ordered limited discovery. Filing 32. These cross-motions for summary judgment followed. Filing 64; filing 69; filing 78.
Summary judgment is proper if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). The movant bears the initial responsibility of informing the Court of the basis for the motion, and must identify those portions of the record which the movant believes demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester , 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant does so, the nonmovant must respond by submitting evidentiary materials that set out specific facts showing that there is a genuine issue for trial. Id.
On a motion for summary judgment, facts must be viewed in the light most favorable to the nonmoving party only if there is a genuine dispute as to those facts. Id. Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the evidence are jury functions, not those of a judge. Id. But the nonmovant must do more than simply show that there is some metaphysical doubt as to the material facts. Id. In order to show that disputed facts are material, the party opposing summary judgment must cite to the relevant substantive law in identifying facts that might affect the outcome of the suit. Quinn v. St. Louis Cty. , 653 F.3d 745, 751 (8th Cir. 2011). The mere existence of a scintilla of evidence in support of the nonmovant's position will be insufficient; there must be evidence on which the jury could conceivably find for the nonmovant. Barber v. C1 Truck Driver Training, LLC , 656 F.3d 782, 791-92 (8th Cir. 2011). Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Torgerson , 643 F.3d at 1042.
The FAA establishes a liberal federal policy favoring arbitration agreements. Epic Sys. v. Lewis , ––– U.S. ––––, 138 S. Ct. 1612, 1621, 200 L.Ed.2d 889 (2018). So, the Court is required to rigorously enforce arbitration agreements according to their terms. Id. The Court must accord an extraordinary level of deference to the underlying awards. SBC Advanced Sols., Inc. v. Commc'n Workers of Am., Dist. 6 , 794 F.3d 1020, 1027 (8th Cir. 2015). Courts have no authority to reconsider the merits of an arbitration award, even when the parties allege the award rests on factual errors or a misinterpretation of the underlying contract. Med. Shoppe Int'l v. Turner Invs., Inc. , 614 F.3d 485, 488 (8th Cir. 2010). The Court must confirm the award even if it is convinced that the arbitrator committed serious error, so...
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