Ray v. Chafetz
Decision Date | 17 February 2017 |
Docket Number | Civil Action No. 16–428 (CKK) |
Citation | 236 F.Supp.3d 66 |
Parties | John RAY and Susan Ray, Petitioners, v. Marc CHAFETZ, Respondent. |
Court | U.S. District Court — District of Columbia |
Dwight D. Murray, STEIN MITCHELL & MUSE, LLP, Washington, DC, for Petitioners.
Timothy Ryan Clinton, CLINTON BROOK & PEED, Washington, DC, for Respondent.
Petitioner Susan Ray and Respondent Marc Chafetz are co-partners of the now-defunct Beltway Law Group LLP ("BLG"). Petitioner John Ray, Ms. Ray's ex-husband, is not formally a partner of BLG, but shares in the firm's distributions. Shortly after Respondent joined BLG, irreconcilable differences emerged between him and Ms. Ray, and the latter filed a demand for arbitration before the American Arbitration Association ("AAA") seeking dissolution of the firm. Mr. Ray, though not originally a party to the arbitration, was compelled by a North Carolina state court to join the proceedings. Ultimately, in a series of rulings spanning over two years, AAA arbitrators ordered BLG to dissolve, held in favor of Respondent on two counterclaims, and awarded Respondent attorney fees and costs pursuant to the fee-shifting provision in the parties' arbitration agreement and the AAA Rules.
Pending before the Court are a variety of motions related to those arbitral awards. Petitioners have filed two petitions to vacate, one seeking to vacate the award of attorney fees and costs ("Original Petition"), and another other seeking to vacate the final award that incorporated all prior awards issued during the arbitration ("Renewed Petition"). Petitioners have also asked the Court to appoint a receiver to administer the further winding down of BLG. Respondent, for his part, has moved to confirm the final award, and in doing so, seeks post-judgment interest and attorney fees and costs associated with his counsel's efforts before this Court. Respondent also seeks sanctions pursuant to Federal Rule of Civil Procedure 11(b) against Petitioners' counsel of record, Mr. Dwight D. Murray.
Upon consideration of the pleadings,1 the relevant legal authorities, and the record as a whole, the Court DENIES Petitioner John Ray's [1] Petition to Vacate Arbitration Award; GRANTS Petitioners' [7] Motion to Amend Caption2 ; DENIES Petitioners' [8] Motion For Expedited Appointment of Receiver and For Status Conference; DENIES Petitioners' [9] Renewed Petition to Vacate Arbitration Award and Motion to Appoint a Receiver; GRANTS Respondent's [14] Motion for Leave to File Surreply in Opposition to Renewed Petition to Vacate3 ; GRANTS Respondent's [23] Cross–Motion to Confirm Arbitration Award, except to the extent it seeks attorney fees and costs for matters before this Court, which is DENIED WITHOUT PREJUDICE; and DENIES Respondent's [26] Motion for Rule 11 Sanctions Against Dwight Murray.
Ms. Ray founded BLG in February 2012 with the assistance of her then husband, Mr. Ray. Orig. Pet. Mem. at 2. Ms. Ray, who is not an attorney, incorporated the firm in the District of Columbia because the D.C. Code permits lawyers to form partnerships with non-lawyers. Throughout the relevant period, a company owned by Ms. Ray and known as BDS Systems ("BDS") covered the operating expenses for and provided various marketing services to BLG. Id. The business model of BDS and BLG relied on the creation of numerous websites that were intended to attract new clients for unaffiliated trial law firms, which would pay BDS a deposit for the company's marketing expenses. In addition, once a client was sourced by BDS, and referred to the trial firm, BLG would enter into a co-counsel agreement with that firm, which entitled BLG to share in the settlement or verdict that the trial firm obtained, after the trial firm recouped the amount it had deposited with BDS. Renewed Pet. Mem. at 3. According to Petitioners, by the end of 2012, "BLG had entered into a large number of co-counsel agreements and had a substantial docket of active matters pending that had significant seven-figure value." Orig. Pet. Mem. at 3.
At the end of 2012, after BLG's initial lawyer-partner resigned, Respondent joined BLG as his replacement and entered into an amended partnership agreement with Ms. Ray ("LLP Agreement"), which is the operative agreement before the Court. Renewed Pet. Mem. at 4. The partners' revenue shares, however, were set forth in a separate distribution agreement. Id. at 4 n.6. Petitioner John Ray, who provided marketing and business development services to BLG, see Orig. Pet. Mem. at 4, was entitled to 35% of BLG's revenue under the distribution agreement, while Respondent and Ms. Ray, the two partners, were entitled to 32.5% each. Orig. Pet., Attach. 4.
By June 2013, irreconcilable differences emerged between Respondent and Ms. Ray. Orig. Pet. Mem. at 4. The specifics of those differences are not relevant to the Court's analysis of the pending motions, and they are not recounted here. Suffice it to say, in October 2013, Ms. Ray filed a demand for arbitration with the AAA seeking "dissolution ... based on failure of duty." Orig. Pet., Attach. 10. The demand was based on the arbitration provision in the LLP Agreement ("Arbitration Agreement"):
Orig. Pet., Attach. 3 at 13.
Pursuant to the terms of the Arbitration Agreement, the parties jointly appointed Judge Richard A. Levie to arbitrate their dispute. See Orig. Pet. Mem. at 7. In December 2013, Ms. Ray amended the demand to include additional counts against Respondent for breaches of contractual and fiduciary duties. Respondent filed a counterclaim in January 2014, likewise seeking dissolution of BLG. See Orig. Pet., Attach. 14 at 1–2. Then, on March 31, 2014, Judge Levie issued an Interim Award in which he concluded that "a Liquidating Event has occurred and that dissolution is appropriate at this time," noting that there had been "a complete breakdown of trust and confidence between the two parties." Orig. Pet., Attach. 12 at 2–3. Judge Levie also denied Ms. Ray's motion to appoint a receiver to administer the dissolution of BLG, holding that "any issues to be decided by any receiver insofar as they arise in the dissolution can be decided by the Arbitrator" and noting the practical reality that BLG at the time lacked any funds to pay for a receiver. Id. at 2, 5 (). To facilitate the winding down of BLG, Judge Levie ordered Respondent's counsel to establish "a trust escrow account [the "Escrow Account"] in the District of Columbia ... for the handling of funds." Id. at 4. Respondent's counsel was prohibited from making "disbursements from the Escrow Account without either express written consent of [Ms. Ray] to the specific disbursements (amount, payee, and time) or an order of the Arbitrator." Id. at 6.
In between the filing of the demand for arbitration and Judge Levie's Interim Order, two related actions were brought in North Carolina state court against BLG by Mr. Ray and BDS, respectively. Both lawsuits sought compensation for services allegedly rendered to BLG. Orig. Pet. Mem. at 7–8; Orig. Pet., Attach. 14 at 3. Because Ms. Ray held a proprietary interest in the outcome of these lawsuits that conflicted with the interests of BLG—because she owned BDS and was married to Mr. Ray—Judge Levie held that Ms. Ray was "not in a position to objectively represent the interests of BLG in these lawsuits," and permitted Respondent to represent BLG in the two North Carolina lawsuits. Orig. Pet., Attach. 12 at 5. Respondent then sought to the compel the arbitration of those disputes. Orig. Pet., Attach. 14 at 3.
The Interim Award essentially resolved the primary dispute between the parties that led to the arbitration—the dissolution of BLG—and ordered that "the Partnership shall continue solely for the purpose of winding up its affairs in an orderly manner ...." Orig. Pet., Attach. 12 at 6. The issues that remained, and that would eventually be resolved by another arbitrator—Robert E. Margulies—related to the award of...
To continue reading
Request your trial-
Petruss Media Grp. v. Advantage Sales & Mktg.
...fraudulent acts must have been so prejudicial that they effectively denied the opposing party a fundamentally fair hearing.'” Ray, 236 F.Supp.3d at 76 (quoting ARMA, 961 F.Supp.2d at 254). “the movant must show that the fraud could not have been discovered before or during the arbitration t......
- Eley v. Stadium Grp., LLC, Civil Action No. 14–cv–1594 (KBJ)
- Williams v. Stadium Grp.