American E Group LLC v. LiveWire Ergogenics Inc.

Background

Livewire Ergogenics Inc. entered into an engagement letter with JS Barkats PLLC (JSB) for legal representation. The letter covered securities-reporting obligations, corporate governance, and financing assistance. It stated that “[a]ny dispute” would be resolved through confidential arbitration. It provided that certain attorney-client fee disputes would use the New York Fee Dispute Resolution Program and that other disputes would use the Commercial Arbitration Rules of the American Arbitration Association in New York City.

American E Group LLC sued Livewire to enforce a note. Livewire filed counterclaims against American E Group and third-party claims against JSB and Sunny Joseph Barkats, who had represented Livewire in connection with the note’s negotiation and execution. Livewire’s third-party claims included constructive fraud, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, legal malpractice, and civil conspiracy.

Arguments about arbitration

The Barkats Defendants moved under Section 4 of the Federal Arbitration Act to compel arbitration. Livewire argued that the engagement letter’s arbitration provision applied only to attorney-client fee disputes. It also argued that the Barkats Defendants waived arbitration by agreeing to waive “all jurisdictional defenses” in exchange for more time to respond to the third-party claims. Livewire additionally appeared to argue that arbitration should be considered waived because allowing it would prejudice Livewire.

Court’s analysis

The court applied New York contract law because both sides relied on it in their briefs. It held that the arbitration provision was unambiguous. The phrase “any dispute” covered Livewire’s third-party claims, while the fee-dispute program merely supplied special procedures for the subset of disputes to which that program applied. It did not limit the broader requirement that disputes be arbitrated.

The court also held that waiving “jurisdictional defenses” did not waive the right to compel arbitration. The court explained that an arbitration agreement is a type of forum-selection provision and does not remove the federal court’s subject-matter jurisdiction. The court assumed, without deciding, that the email waiver of jurisdictional defenses was otherwise valid and effective.

The court further found no waiver based on participation in the litigation. The parties had not engaged in extended litigation concerning the third-party claims, and the Barkats Defendants had not made a motion addressing the merits of those claims during the relevant period. Livewire therefore had not shown the type of prejudice required to infer a waiver of arbitration.

Although Sunny Joseph Barkats was not a party to the engagement letter, the court construed the arbitration provision to apply to the third-party claims against both JSB and Mr. Barkats. The court noted that Livewire had not argued that arbitration should apply only to JSB and that allowing the claims to proceed against Mr. Barkats individually could frustrate the arbitration provision.

Disposition

The court granted the Barkats Defendants’ motion to compel arbitration. Because no party requested a stay, the court concluded that it could dismiss the third-party claims instead. It dismissed the third-party claims against JSB and Sunny Joseph Barkats, without stating that the dismissal was with or without prejudice. Judge Gregory H. Woods did not decide the merits of Livewire’s underlying claims.