Blash v. BCS Placements, LLC

Background

W. Bradford Blash and Theodore M. Kerr, Jr. brought this diversity action against BCS Placements, LLC and Keith Butler. The plaintiffs sought to stop an arbitration and obtain related declarations. They were connected to Crossbeam Holdings, LLC, which had entered into placement agreements with BCS.

The 2006 placement agreement required BCS to obtain investors for a real-estate fund operated by Crossbeam. Its arbitration provision covered “all claims, disputes and other matters” arising from or relating to the agreement or its performance. It also specifically included questions about whether a matter was governed by the arbitration clause and incorporated the American Arbitration Association’s commercial arbitration rules. A later 2011 agreement between Crossbeam and BCS did not contain an arbitration provision.

Crossbeam ended its engagement with BCS in 2013. In 2015, Butler demanded placement fees that he said Crossbeam owed BCS. After Crossbeam was dissolved in 2018, BCS filed an arbitration demand in 2019. The demand included claims involving unpaid fees, alleged false accusations about BCS’s registration, an allegedly exclusive assignment, alleged defamation, and alleged abusive conduct by a Crossbeam partner.

The plaintiffs argued that the arbitration claims arose under the 2011 agreement rather than the 2006 agreement, or that the claims were time-barred. They moved for a preliminary injunction to stop the arbitration. The court decided the motion on the parties’ written submissions after concluding that it turned on a legal question and did not require additional discovery or an evidentiary hearing.

Legal standard

A preliminary injunction is an extraordinary remedy. The party seeking one generally must show a likelihood of success on the merits, likely irreparable harm without the injunction, favorable balancing of the hardships, and consistency with the public interest. The court also recognized an alternative standard allowing relief when there is a serious question for trial and the balance of hardships strongly favors the plaintiff.

Court’s analysis

The court first said that it did not matter whether federal arbitration law or New York law governed the 2006 agreement because both applied the same rule to the central issue: whether the parties clearly and unmistakably agreed to let an arbitrator decide arbitrability. “Arbitrability” means whether a dispute is covered by an arbitration agreement and must be decided through arbitration.

The court found a clear and unmistakable agreement to arbitrate arbitrability for several reasons. The 2006 clause broadly covered all disputes arising from or relating to the agreement, expressly included questions about whether a matter was governed by the clause, and incorporated American Arbitration Association rules giving the arbitrator authority to rule on the arbitrator’s own jurisdiction.

The court rejected the plaintiffs’ arguments based on the agreement’s choice-of-law, court-jurisdiction, and equitable-relief provisions. It read those provisions as allowing court involvement when arbitration was unavailable, not as reserving arbitrability questions for the court. The court also rejected the argument that the word “may” made arbitration entirely optional. It reasoned that, at minimum, arbitration was required in this dispute after the defendants invoked the arbitration provision. The court further concluded that the agreement’s choice-of-law language did not override its specific delegation of arbitrability questions to the arbitrator.

Ruling

The court held that the parties’ 2006 agreement clearly and unmistakably assigned questions of arbitrability to the arbitrator. Because the plaintiffs could not show a likelihood of success or a serious question supporting preliminary relief in court, Judge Alison J. Nathan denied the plaintiffs’ preliminary injunction motion.

The court did not decide whether the defendants’ claims were timely, whether they arose under the 2006 agreement, or whether Crossbeam had the capacity to be sued. It stated that those issues were for the arbitrator. The plaintiffs were ordered, within seven days of the opinion, to inform the court whether they contemplated any further proceedings there.