PEB, INC. v. PREMIUM MERCHANT FUNDING 26, LLC, et al.

Background

PEB, Inc. alleged that the defendants advanced approximately $2.4 million under eight merchant cash advance agreements between October 2023 and January 2024. PEB did not pay at least some amounts due. Premium Merchant Funding 26, LLC later sued PEB and guarantor Harvey Padilla in New York state court for breach of two agreements and related guarantees.

PEB then filed this federal case, asserting a substantive civil Racketeer Influenced and Corrupt Organizations Act claim and a civil RICO conspiracy claim. The defendants moved to compel arbitration under the agreements and to pause the federal case while arbitration proceeded. The agreements broadly covered disputes related to the agreements and relationship between the parties, assigned threshold questions of arbitrability to the arbitrator, and stated that the arbitration provisions could be enforced by PMF’s employees, officers, and other listed representatives.

In a July 1, 2025 order, the Court compelled arbitration and stayed the federal case. It determined that some waiver questions could be decided by the arbitrator. It separately considered whether the defendants’ litigation conduct created judicial estoppel—a doctrine that can prevent a party from taking an inconsistent position when doing so would harm the court or the opposing party—and concluded that the defendants had not improperly used the courts or delayed seeking arbitration. The Court also concluded that the individual defendants were third-party beneficiaries entitled to enforce the arbitration provisions. PEB was allowed to return to court if the arbitrator determined that the defendants had waived arbitration.

PEB’s Motion

PEB moved for reconsideration of the July order or, alternatively, for certification for an interlocutory appeal, which is an appeal before the case is finally resolved. PEB argued that the Court had wrongly delegated litigation-conduct waiver issues to the arbitrator and had wrongly decided that the defendants had not waived arbitration by filing and pursuing the state-court action.

Reconsideration

The Court stated that reconsideration requires an intervening change in controlling law, new evidence, or a need to correct clear error or prevent serious injustice. It found no clear error in the July order.

The Court explained that not every question described as waiver must be decided by a court. Contractual waiver questions that do not implicate the court’s authority or interest in protecting the judicial process may be delegated to an arbitrator. By contrast, a court must retain authority to decide whether a party’s litigation conduct improperly invoked the court’s power, took inconsistent positions, or harmed the judicial process. The Court said its earlier order recognized this distinction rather than adopting a blanket rule.

The Court also explained that PEB’s argument about the state-court lawsuit was properly considered under judicial-estoppel principles. It found that the defendants had not engaged in forum shopping, had not used the state case to gain an improper advantage in the federal RICO case, and had moved promptly to compel arbitration in this case.

The Court gave an additional reason why the defendants had not waived arbitration. It held that litigating one arbitrable claim does not waive arbitration of another claim unless the earlier litigation involved the same legal and factual issues as the claims later submitted to arbitration. The state-court case involved collection claims for breach of contract, while PEB’s federal case involved civil RICO claims that challenged the legality of the underlying agreements. Although the cases overlapped factually, the Court found the claims legally distinct. PEB had not identified any specific position, argument, or issue that the defendants litigated in state court and then sought to arbitrate in the federal case.

Interlocutory Appeal

The Court also declined to certify the July order for an interlocutory appeal under 28 U.S.C. § 1292(b). That procedure requires a controlling legal question, substantial grounds for disagreement about that question, and a finding that an immediate appeal could materially advance the case.

The Court acknowledged that courts continue to debate how to describe litigation-related loss of an arbitration right—as waiver, estoppel, forfeiture, or another doctrine. But it concluded that this case did not squarely present that broader issue because the Court had considered PEB’s arguments under both waiver and estoppel theories. The Court found no substantial disagreement about the principle that prior litigation of different legal and factual issues does not waive the right to arbitrate the claims at issue here. An appeal on the question proposed by PEB therefore would not control the case or materially advance its resolution.

Disposition

The Court denied the motion for reconsideration or, alternatively, certification for an interlocutory appeal. The Clerk was directed to close the motion. The earlier order compelling arbitration and staying the federal action was not changed.