Chalpin Realty SC v. Marcus & Millichap Real Estate Investment Services Inc.

Background

In 2019, Chalpin hired Marcus & Millichap Real Estate Investment Services, Inc. (M&M) as its agent and investment advisor for a like-kind real-estate transaction. M&M identified a South Carolina commercial property called TheBLVD and advised Chalpin to acquire it. Chalpin alleged that it did not know M&M also represented the seller. The property’s value then fell sharply, and Chalpin lost almost all of its equity.

Chalpin sued M&M and others in South Carolina state court in 2020, alleging contract and fraud claims and alleging that M&M had acted as an undisclosed dual agent. After M&M and its agent Judson Kauffman obtained an order requiring arbitration, the arbitrator found that M&M was Chalpin’s fiduciary and had served as an unconsented-to dual agent. The arbitrator nevertheless dismissed Chalpin’s breach-of-fiduciary-duty claim because Chalpin knew or should have known that M&M represented both sides. On March 12, 2024, Chalpin stipulated to dismissing its South Carolina claims against M&M and Kauffman with prejudice.

Chalpin then filed this federal petition seeking to partly vacate the arbitration award. It asked the court to vacate the portion dismissing its breach-of-fiduciary-duty claim and to send the matter back to the arbitrator for further findings or a ruling imposing liability on M&M. M&M moved to dismiss.

Jurisdiction

The court rejected M&M’s argument that Chalpin’s late service deprived the court of subject-matter jurisdiction. The Federal Arbitration Act does not clearly state that the three-month service requirement is jurisdictional, so the court treated that requirement as a nonjurisdictional deadline. The court also rejected M&M’s argument that the South Carolina state court had exclusive authority over challenges to the arbitration award. The court therefore concluded that it had jurisdiction to consider Chalpin’s petition.

Claim preclusion

The court applied New York law. Claim preclusion, also called res judicata, generally prevents a party from bringing a later claim when an earlier judgment on the merits involved the same parties and subject matter. It also bars claims that could have been raised in the earlier case.

The court held that the parties’ stipulation dismissing the South Carolina Action with prejudice had the same preclusive effect as a judgment on the merits. Chalpin had voluntarily agreed to dismiss all claims against M&M with prejudice, had been represented by counsel, and identified no equitable reason to give that language a narrower meaning.

The court further held that the federal petition arose from the same transaction and legal theory as the South Carolina claims. Both proceedings concerned the South Carolina property transaction and whether M&M breached its fiduciary duties by failing to disclose its relationship with the seller. The court also found that the requested relief and evidence substantially overlapped. The petition was therefore barred by claim preclusion.

The court separately noted that Chalpin’s passing argument that the arbitrator was biased was conclusory. It did not find that prior rulings in M&M’s favor, by themselves, established partiality, and it treated the allegation that the arbitrator ignored dual-agency law as duplicative of the precluded claim.

Untimely service

The court also held that Chalpin failed to comply with the Federal Arbitration Act’s requirement that notice of a petition to vacate an award be served within three months after the award was delivered or filed. The court found that the service deadline was June 4, 2024, but Chalpin served M&M on June 10, six days late.

Chalpin argued that the delay should be excused. The court rejected that argument because nothing prevented Chalpin from serving M&M before the deadline. Chalpin had contacted M&M’s counsel about accepting service, waited for an answer, and then hired a process server after learning that counsel was not authorized to accept service. The court found no extraordinary circumstance supporting equitable tolling and rejected Chalpin’s argument that M&M had waived its objection to late service.

Disposition

Judge Valerie Caproni granted M&M’s cross-motion to dismiss the petition. The court relied on both claim preclusion and untimely service, did not reach M&M’s other grounds for dismissal, and expressly did not reach the merits of Chalpin’s challenge to the arbitration award. The Clerk was directed to terminate the open motions and close the case.