Schorr v. Am. Arbitration Ass'n
| Decision Date | 01 February 2022 |
| Docket Number | 21 Civ. 5569 (PAE) |
| Citation | 583 F.Supp.3d 608 |
| Parties | Marcia SCHORR, Plaintiff, v. AMERICAN ARBITRATION ASSOCIATION, and The International Centre for Dispute Resolution, Defendants. |
| Court | U.S. District Court — Southern District of New York |
David E. Schorr, Schorr Associates, New York, NY, for Plaintiff.
Theodore Lewis Hecht, Schnader Harrison Segal & Lewis LLP, New York, NY, for Defendants.
This decision resolves a threshold issue of federal jurisdiction. Plaintiff Marcia Schorr here sues the American Arbitration Association ("AAA") and the International Centre for Dispute Resolution ("ICDR") (collectively, the "AAA-ICDR"). The heart of Schorr's grievance is that the AAA-ICDR wrongly terminated an arbitration in which she was a party before a decision on the merits could be reached, and in the course of which she had incurred fees and expenses. As damages, Schorr seeks from the AAA-ICDR the damages for which her arbitration adversary was allegedly liable on Schorr's claims, and the fees and expenses Schorr had incurred and advanced to the AAA-ICDR.
Schorr now moves to remand this case, which was originally filed in New York state court and was removed to this Court by the AAA-ICDR. Schorr argues that this Court lacks subject matter jurisdiction over her claims. For the reasons below, the Court denies the motion to remand, holding that Section 203 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 203, confers such jurisdiction and that removal of this action was proper under Section 205 of the FAA, id. § 205.
In September 2018, Schorr entered into a written "Operating Agreement" with an unnamed "Respondent." Respondent is a New York resident and national of the United States, United Kingdom, and Cuba. The Operating Agreement aimed to establish a joint venture concerning real property in Cuba. Dkt. 16 (Amended Complaint, or "AC") ¶¶ 4–5.
Under the Operating Agreement, a New York limited liability company would be established as the beneficial owner of title and access rights to approximately 85 acres of rural land located on or near a UNESCO World Heritage Site in Cuba. Id. Schorr paid $45,000, along with additional payments totaling $3,696.10, for a one-half interest in the property rights. Schorr alleges that her interest, in fact, is worth much more given the substantial difficulties in obtaining property rights in Cuba. Id. ¶¶ 5–7. Respondent was to hold the property rights in his name on behalf of the established company. Id. ¶¶ 5–6 & n.5.
The Operating Agreement provides that all disputes thereunder be settled by arbitration in New York County, and administered by the AAA in accordance with its Commercial Arbitration Rules. Id. ¶ 10. The Operating Agreement also includes an "Inquest Clause." It provides:
The parties agree that failure or refusal of a party to pay his/her required share of the deposits for arbitrator compensation or administrative charges shall constitute a waiver by that party to present evidence or cross-examine witness [sic]. In such event, the other party shall be required to present evidence and legal argument as the arbitrator(s) may require for the making of an award. Such waiver shall not allow for a default judgment against the non-paying party in the absence of evidence presented as provided for above.
Schorr alleges that the AAA-ICDR encourages contracting parties whose agreements provide for AAA arbitration to include such a clause, to incent parties to pay arbitral expenses:
The Commercial Rules provide parties with certain remedies if arbitrator compensation or administrative charges have not been paid in full by either side. However, parties can agree to certain consequences (i.e. : waiver) if either party fails to pay its share of required deposits for arbitrator compensation or administrative charges by including the following option [re: the Inquest Clause].
Id. ¶ 18 (brackets in original). The Inquest Clause in the Operating Agreement, Schorr alleges, was drawn verbatim from the AAA-ICDR's "ClauseBuilder" tool, an online drafting tool the organization advertises on various websites. Id. ¶¶ 13–17. The ClauseBuilder tool includes terms and conditions stating: "The AAA makes no representations or warranties regarding the enforceability of clauses or the AAA's acceptance for administration of matters that might be based upon the ClauseBuilder." Id. ¶ 21.
The Operating Agreement also incorporates by reference the AAA's Commercial Rules. Id. ¶ 61; see Dkt. 7-2. Those rules state, inter alia , that "[t]he parties, by written agreement, may vary the procedures set forth in these rules." AC ¶ 61.
On February 25, 2020, Respondent informed Schorr that he intended to sell the property rights covered by the Operating Agreement to an undisclosed buyer, without Schorr's consent, within 48 hours. Id. ¶ 23.1 That same day, Schorr filed a demand for arbitration with the AAA. She sought money damages and a preliminary injunction preventing Respondent from disposing of the property rights pending outcome of the arbitration. Id. ¶ 25 & n.9.
As a precondition to accepting the case for arbitration, the AAA-ICDR required that Schorr pay it a $3,750 fee. Schorr paid that fee.2 Id. ¶ 27. The AAA-ICDR then appointed an emergency arbitrator to hear Schorr's preliminary injunction application. Id. ¶ 30. On February 27, 2020, the AAA-ICDR asked Schorr to pay a $19,950 deposit for the emergency arbitrator's compensation. It warned her that failure to pay could result in the emergency arbitrator's postponing or terminating the proceeding. Id. ¶ 31. Schorr again paid. Id. ¶ 32. Respondent unsuccessfully attempted to recuse the emergency arbitrator. Id. ¶ 33.
On March 16, 2020, the emergency arbitrator granted Schorr's application for a preliminary injunction, and ordered Respondent to pay 50% of the costs (subject to further allocation in a final arbitral award) that Schorr had incurred in connection with the application. Id. ¶¶ 37–38. Respondent never did so. Id. ¶ 38. On March 20, 2020, the AAA-ICDR advised the parties that it would bill Schorr and Respondent "in equal shares" for all arbitral fees and expenses. Id. ¶ 39.
On April 28, 2020, the AAA-ICDR appointed a new arbitrator to preside over the balance of the arbitration. Id. ¶ 40. Respondent unsuccessfully attempted to recuse that arbitrator, too. Id. ¶ 41.
On May 4, 2020, the AAA-ICDR notified the parties that the arbitrator requested a $5,000 deposit for his fees, to be paid by May 18, 2020. It again warned that failure to pay could result in a postponement or termination of the proceedings. Id. ¶ 43. Schorr paid her $2,500 half of the fees; Respondent did not. Id. ¶ 45. On May 19, 2020, the AAA-ICDR requested that Schorr pay the remaining $2,500 fees no later than May 21, 2020. Id. ¶ 46. On May 20, 2020, Schorr paid the additional $2,500. Id. ¶ 47.
On an unspecified date thereafter, the AAA-ICDR notified Schorr that the emergency arbitrator was owed an additional $5,054, as a precondition to the arbitration going forward. Schorr paid this sum, too. Id. ¶¶ 48, 50. On May 29, 2020, the AAA-ICDR advised that Schorr's advancement of 100% of arbitration fees would be "subject to reallocation and shall be assessed by the arbitrator in the final award." Id. ¶ 51.
On June 26, 2020, the AAA-ICDR requested that Schorr alone pay an additional $5,000 deposit by July 16, 2020. Id. ¶ 55. Rejecting a request Schorr made that each party pay half of that sum, the arbitrator assured Schorr that he would entertain an application to assess the fees against one party before rendering a final award. Id. ¶ 57. Schorr paid the full $5,000. Id. ¶ 58.
Sometime during summer 2020, given Respondent's failure to pay any part of the fees and expenses of the arbitration to date, Schorr requested that the arbitrator "enforce the Inquest Clause and to thereby conclude the arbitration by holding an inquest on damages." Id. ¶ 59. On September 4, 2020, the arbitrator declined to do so, on the ground that it conflicted with AAA Commercial Rule 57(b). That rule states, in relevant part, "In no event, however, shall a party be precluded from defending a claim or counterclaim." Id. ¶ 60. Schorr alleges that she would not have used the AAA as the arbitral body to resolve this dispute had she known that the AAA-ICDR would not enforce the Inquest Clause in this context. Id. ¶¶ 22–23.
On November 6, 2020, the AAA-ICDR requested that Schorr pay $8,041.66 within two weeks, to "cover" $2,541.66 in existing arbitrator fees and a new $5,500 fee that the arbitrator sought. Id. ¶ 63. On November 10, 2020, the AAA-ICDR followed up with another request for payment of the $8,041.66. It warned that failure to pay could result in postponing or terminating the proceeding, and required that payment be made by November 24, 2020. Id. ¶ 64. On November 24, 2020, Schorr made the payment. Id. ¶ 65.
On December 18, 2020, the arbitrator struck Respondent's counterclaims and nearly all of his discovery requests due to his failure to pay. Id. ¶ 66.
In total, Schorr advanced $46,795.66 in fees to the AAA-ICDR. Id. ¶ 85.
Schorr alleges that, throughout the arbitral proceedings, Respondent was abusive, disrespectful, and threatening to the AAA-ICDR's personnel, the emergency arbitrator, and the arbitrator who followed. Id. ¶ 33. Respondent "repeatedly refused" to comply with those officials’ orders and directives, and sought to subvert the arbitration process—whereas Schorr complied fully and participated in good faith. Id.
For example, during a February 28, 2020 scheduling conference with the emergency arbitrator, Respondent stated that he did not recognize the emergency arbitrator's authority, that the arbitration was "ridiculous" and "illegal," and that the emergency arbitrator and the AAA were acting...
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