Sgromo v. Scott

Background

Pietro Pasquale-Antonio Sgromo and Leonard Gregory Scott had a personal and professional relationship beginning in 2013. Sgromo owned or claimed interests in intellectual property involving a three-dimensional vision system for swimming pools and an inflatable landing for a water slide. Disputes later arose over whether Sgromo transferred those rights to Eureka Inventions, LLC, an entity of which Scott is the sole member, and who was entitled to royalties connected with license agreements involving Bestway.

While related litigation was pending, Sgromo began arbitration against Scott under a living-together agreement. Sgromo asserted claims including breach of contract, fraud, negligent misrepresentation, patent infringement, misappropriation of trade secrets, unjust enrichment, and conspiracy. He sought, among other relief, a declaration that license agreements involving Eureka and Bestway were unenforceable, the return of the intellectual property and escrowed royalties, and reimbursement for business expenses.

On February 25, 2019, Justice Low issued a final arbitration award. The arbitrator determined that the arbitration concerned only the living-together agreement and the property, business interests, and investments between Sgromo and Scott. The arbitrator found that Sgromo had no rights to the relevant intellectual property, that Scott was not responsible for any consulting compensation Sgromo sought from Bestway, and that Sgromo had not shown that the transfer of the intellectual property to Eureka was fraudulent. The arbitrator also rejected Sgromo’s claims involving malicious prosecution and interference with his relationship with Polygroup, and denied his requested relief.

Scott petitioned to confirm the award, and Sgromo filed a cross-petition to vacate it. Sgromo also sought to transfer the case to Judge Jeffrey S. White. The court denied those transfer-related motions, Docket Nos. 15 and 52, and stated that the remaining motions were moot.

Jurisdiction

The court explained that the Federal Arbitration Act permits a party to seek confirmation or vacatur of an arbitration award but does not itself create federal jurisdiction. An independent basis for federal jurisdiction was therefore required.

The arbitration award was for $0. Ordinarily, the amount in controversy in a confirmation proceeding is the value of the award. But the court concluded that Sgromo’s filings sought to reopen or obtain the equivalent of the claims pursued in arbitration. The court therefore measured the amount in controversy by the value of those underlying claims. Because Sgromo sought more than $75,000, including damages exceeding $250,000, the court found that diversity jurisdiction existed.

Governing law and timeliness

The court applied the Federal Arbitration Act rather than California arbitration law. Although the parties had agreed to use the JAMS Streamlined Arbitration Rules, the court found no evidence that they had agreed to use California law instead of the Federal Arbitration Act.

The court held that Sgromo’s petition to vacate was untimely. The Act required a petition to vacate to be filed within three months after delivery of the award. Based on the service materials, the court determined that the award was served no later than February 28, 2019. Even assuming that Sgromo’s June 13, 2019 notice of removal included a petition to vacate, the court found that it was filed more than two weeks after the statutory deadline. The court also rejected Sgromo’s argument that later delivery and mailing rules extended the deadline.

Vacatur arguments

The court stated that, even if Sgromo’s petition had been timely, he had not shown grounds for vacatur. Under the Federal Arbitration Act, a court’s review of an arbitration award is very limited. Relevant grounds include corruption or fraud, arbitrator partiality, serious misconduct affecting a party’s rights, or the arbitrator exceeding the arbitrator’s authority.

Sgromo argued that Justice Low misapplied estoppel, claim preclusion, and the statute of frauds, and that the award showed a disregard of the law. The court rejected those arguments. It reasoned that Eureka was not a party to the living-together agreement, that the arbitration was limited to the dispute between Sgromo and Scott, and that Sgromo’s disagreement with the arbitrator’s findings was not enough to justify vacating the award. The court also found no evidence that the award ignored the applicable law or failed to derive its substance from the parties’ agreement.

The court further held that a California statute concerning enforcement of certain settlement agreements did not govern this federal action and, in any event, concerned a settlement agreement to which Sgromo was not a party.

Disposition

The court granted Scott’s motion to confirm the arbitration award and denied Sgromo’s motion to vacate the award. It directed the clerk to enter judgment in Scott’s favor and close the case. The court also cautioned Sgromo against attempting to evade the court’s findings or those of other courts by filing repeated actions in other forums.