Golomb Mercantile Company LLC v. Marks Paneth LLP
- John Keenan
- 1:18-cv-03845
- U.S. District Court · Southern District of New York
- 30
In Golomb Mercantile v. Marks Paneth, Judge Keenan vacated Henning’s default, stayed the case for arbitration, and denied the remaining dismissal request as moot.
Golomb’s claims against Marks Paneth must proceed through non-binding arbitration before the litigation continues; Henning may defend the case because his default was set aside, while the proceedings were stayed and Golomb was directed to seek default judgment against OpportunIP after the stay ends.
What happened
Golomb Mercantile Company LLC sued Marks Paneth LLP, OpportunIP LLC, and Steven L. Henning over alleged fraud and breach of fiduciary duty involving the marketing of Golomb’s intellectual property. Marks Paneth and OpportunIP were presented to Golomb as closely connected, and the alleged fraud involved false communications about potential licensing or sales deals.
The court granted Henning’s request to set aside the default entered against him and vacated the certificate of default. It also granted Marks Paneth’s request to stay the case while Golomb’s claims against Marks Paneth proceed through the contract’s required non-binding arbitration process. The court denied without prejudice as moot the remainder of Marks Paneth’s motion to dismiss.
Judge John Keenan ruled that Henning’s failure to respond was not sufficiently willful, that setting aside the default would not sufficiently prejudice Golomb, and that Henning had identified potentially valid defenses. Judge Keenan also found that Golomb plausibly alleged that Marks Paneth could be responsible for OpportunIP’s conduct, but required arbitration before the litigation could proceed.
The detailed version
- Golomb Mercantile Company LLC v. Marks Paneth LLP · No. 1:18-cv-03845
- John Keenan
- Dec. 12, 2019
Background
Golomb Mercantile Company LLC alleged that Steven L. Henning, Marks Paneth LLP, and OpportunIP LLC committed common-law fraud and breached fiduciary duties in connection with efforts to market, sell, or license Golomb’s intellectual property. Golomb alleged that Henning used false emails, forged signatures, and fictitious agreements to make it appear that automobile manufacturers were interested in Golomb’s intellectual property. Golomb claimed that it spent hundreds of thousands of dollars on professional fees and suffered lost opportunities as a result.
Golomb had entered into a license agreement with OpportunIP. The agreement contained an arbitration clause requiring disputes arising from or related to the agreement to be submitted to non-binding arbitration before litigation. The agreement did not name Marks Paneth as a party.
Henning’s Motion to Set Aside Default
The court granted Henning’s motion under Federal Rule of Civil Procedure 55(c) to set aside the entry of default and vacated the certificate of default. The court applied the factors of willfulness, prejudice to the opposing party, and whether the defendant had a potentially meritorious defense.
The court found that Henning’s conduct was not sufficiently egregious to establish a willful default. Although Henning had not responded to the complaints and may have been aware of the lawsuit, the case was still at an early stage, and Golomb’s email to Henning’s lawyer in a separate criminal case did not establish that Henning willfully defaulted in this civil action.
The court also found that Golomb had not identified sufficient prejudice beyond delay and duplicative litigation efforts. Finally, the court determined that Henning had identified potentially valid defenses, including arguments concerning the recoverability of lost opportunities and professional fees. The court therefore found good cause to set aside the default.
Marks Paneth’s Motion
Marks Paneth moved to dismiss the Second Amended Complaint under Rules 12(b)(1), 12(b)(6), and 9(b), arguing that the court lacked jurisdiction and that Golomb had not adequately pleaded claims against Marks Paneth. Marks Paneth also argued that the case should be stayed pending arbitration.
The court rejected Marks Paneth’s jurisdictional arguments. It found that complete diversity existed and that Golomb had shown by a preponderance of the evidence that the amount in controversy exceeded $75,000.
The court also held that Golomb plausibly pleaded an alter-ego theory of liability. Under that theory, a court may disregard a company’s separate legal identity when another entity exercised sufficient control over it, used that control to commit a wrong, and caused an unjust loss or injury. The court found that the allegations about the relationship between Marks Paneth, its Advisory Services practice, Henning, and OpportunIP were sufficient at the pre-discovery stage to withstand dismissal.
The court nevertheless agreed that the dispute had to be submitted to arbitration first. It concluded that Golomb’s claims against Marks Paneth arose from Henning’s conduct in marketing Golomb’s intellectual property under the agreement between Golomb and OpportunIP. Applying principles that can allow a non-signatory to enforce an arbitration provision when the claims are closely connected to the agreement, the court held that Marks Paneth could demand a stay pending arbitration.
Disposition
Henning’s motion to set aside default was granted, and the certificate of default against him was vacated. Marks Paneth’s motion to stay the proceedings pending arbitration was granted. The remainder of Marks Paneth’s motion to dismiss was denied, without prejudice, as moot. The court stayed the proceedings and directed Golomb to move for default judgment against OpportunIP no later than 30 days after the stay ended.
Read the full 30-page opinion on CourtListener, the free public archive maintained by the Free Law Project.