MegaForce v. Eng

Background

MegaForce, a concert promoter based in South Korea, alleged that it entered into a Performance Agreement and an Appearance Agreement with WAV Events and Entertainment, LLC (WAV) for two events in South Korea on January 26 and 27, 2018. Under the agreements, WAV was to arrange appearances by Floyd Mayweather Jr., Lil Wayne, and Lil Jamez. MegaForce alleged that it paid WAV $110,000, incurred additional third-party expenses and liabilities, and received less than two weeks’ notice that the promised celebrities would not appear.

MegaForce sued WAV and its two alleged co-managers, Joseph Robert Eng and William Joseph Johnson. Its claims included breach of contract, breach of the covenant of good faith and fair dealing, fraud, unjust enrichment, violation of the Minnesota Deceptive Trade Practices Act, and civil conspiracy. The contract and covenant claims were asserted against WAV only; the other claims were asserted against all defendants.

WAV and Eng did not appear. MegaForce moved for default judgment against them. Johnson appeared, opposed the default-judgment motion to the extent it might affect his rights, and moved to compel arbitration and dismiss the claims against him.

Arbitration ruling

The agreements contained arbitration clauses requiring disputes arising from or relating to the agreements to be resolved in arbitration in New York under American Arbitration Association rules. Johnson was not a signatory; MegaForce and WAV signed the agreements.

The court analyzed Johnson’s motion under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, rather than under the jurisdictional rule Johnson initially identified. The court could consider the agreements because MegaForce attached them to its complaint.

The court applied federal arbitration law and concluded that a non-signatory may sometimes enforce an arbitration agreement under an estoppel theory. That theory can apply when the dispute is closely connected to the signed agreement and the relationship among the parties supports requiring arbitration.

The court found that MegaForce’s claims against Johnson were intertwined with the agreements. It also relied on MegaForce’s allegations that Johnson and Eng were WAV’s only managers, that the defendants operated as a single unit, and that Johnson should be personally liable for actions taken as WAV’s agent and co-manager. Based on those allegations, the court held that MegaForce must arbitrate its claims against Johnson. The court rejected MegaForce’s argument that Johnson had unclean hands, finding that the allegations did not establish improper conduct at this stage.

The court ordered arbitration but declined to dismiss the claims against Johnson. Because arbitration would resolve only the claims against Johnson, the court stayed the case rather than dismissing it. The court also declined to require that arbitration finish within thirty days.

Default judgment against Eng and WAV

The court denied without prejudice MegaForce’s motion for default judgment against Eng and WAV. It relied on the principle that when some defendants may be jointly and severally liable and other defendants have not defaulted, deciding damages against the defaulting defendants should generally wait until the claims against the nondefaulting defendant are resolved. This avoids potentially inconsistent damage determinations.

The court stated that MegaForce could renew its default-judgment motion against Eng and WAV after the claims against Johnson were resolved. It also stated that any renewed motion should address the agreements’ New York choice-of-law clauses and explain the legal basis for each statutory and common-law claim.

Disposition

Judge Eric C. Tostrud ordered as follows:

- Johnson’s motion to compel arbitration and dismiss the claims was granted in part and denied in part. - The motion was granted insofar as it sought to compel MegaForce to arbitrate its claims against Johnson. - The parties were ordered to arbitrate those claims. - The motion was denied insofar as it sought dismissal of the claims against Johnson. - MegaForce’s motion for default judgment against Eng and WAV was denied without prejudice. - The action was stayed until an arbitration award was issued and the court was notified of the award or the resolution of the claims against Johnson.