Clark v. QMG Global Holdings, LLC

Background

William Thomas Clark and TDA Construction, Inc. sued QMG Global Holdings, LLC; Quantitative Strategies Group, LLC; QMG Founders I, LLC; QMG Investors, L.P.; John A. Brunjes; and Josephine M. Brunjes. Plaintiffs asserted claims for breach of contract and fraud.

The dispute involved several loans and investments connected to Quantitative Strategies and related entities. TDA lent $100,000 under a February 2013 convertible promissory note. Clark later lent an additional $50,000 under a May 2013 convertible promissory note. Clark’s self-directed individual retirement account then lent $1.3 million to QMG Founders through a $1 million Term Note and a $300,000 Series 2014-1 Term Note. The John W. Brunjes Estate Trust guaranteed the Series Note, subject to a $450,000 limit in the final guaranty agreement.

The arbitrator found that the borrowers breached their repayment obligations. He also found that Brunjes committed fraud by repeatedly representing that the retirement account’s $1.3 million loan would be secured by a mortgage on commercial property in Queens, even though no such mortgage was provided. Defendants had previously moved to compel arbitration, and the Court granted that motion and stayed the case while arbitration proceeded.

Arbitration Award

After an arbitration hearing at which Clark and Brunjes testified and were cross-examined, Arbitrator Dominic Falco, III issued an award on November 5, 2019. The award provided:

- $284,797.24 to TDA from Quantitative Strategies for breach of the February 2013 Note, with interest from August 2, 2019 at 18% per year until paid; - $137,465.64 to Clark individually from Quantitative Strategies for breach of the May 2013 Note, with interest from August 2, 2019 at 18% per year until paid; - $1,078,815.30 to Clark as administrator of the Clark IRA from QMG Founders for breach of the Term Note, with interest at the Term Note’s default rate until paid; - $489,600 to Clark as administrator of the Clark IRA from QMG Founders for breach of the Series Note, with interest at 12% per year until paid; - $450,000 to Clark as administrator of the Clark IRA from Brunjes in his capacity as the Trust, for breach of the Guaranty Agreement; and - $1,038,273.75 to Clark as administrator of the Clark IRA from Brunjes individually for fraud.

The award also required the parties to bear equally the American Arbitration Association’s $18,600 in administrative fees and the arbitrator’s $22,048.84 in compensation and expenses. The award stated that payments on the Term Note, Series Note, or Guaranty Agreement would be credited against the fraud award.

Court’s Review

Under the Federal Arbitration Act, a court generally must confirm an arbitration award unless a party establishes a statutory reason to vacate, modify, or correct it. The standard of review is highly deferential; a court needs only a barely colorable justification for the arbitrator’s result. The party seeking to vacate an award bears a heavy burden.

Defendants raised two objections. First, they argued that Plaintiffs had not supplied the required document showing the arbitrator’s appointment. Plaintiffs had accidentally omitted the document from their initial filing but supplied it with their reply papers. Because the omission was quickly corrected and Defendants did not show prejudice, the Court treated it as a harmless administrative error.

Second, Defendants argued that the $1,038,273.75 fraud award should not receive statutory post-judgment interest because the arbitrator’s decision did not expressly mention that interest. The Court rejected the argument, explaining that 28 U.S.C. § 1961(a) requires post-judgment interest on civil money judgments entered in federal district court. The Court noted that Defendants cited no authority barring such interest on an arbitration award involving fraud.

The Court also reviewed the arbitrator’s factual findings, including his determination that Clark was credible, that Brunjes’s testimony was not credible on several key issues, and that Brunjes knowingly made false promises intended to induce Clark’s reliance. The Court found no indication that the arbitrator acted arbitrarily, exceeded his authority, or acted contrary to law.

Disposition

Judge Kenneth M. Karas granted Plaintiffs’ Motion to Confirm the Arbitration Award and confirmed the award. The Clerk of Court was directed to terminate the pending motion and close the case.