Kumaran v. ADM Investor Services, Inc.

Background

Samantha Siva Kumaran and Nefertiti Risk Capital Management, LLC (NRCM) sued ADM Investor Services, Inc. (ADMIS) under the Racketeer Influenced and Corrupt Organizations Act, the Defend Trade Secrets Act, and state law. They alleged that ADMIS and others used customer accounts and information to compete unfairly, misused trade secrets, withdrew profits, and deducted unauthorized fees.

NRCM had opened an account with ADMIS through Kumaran, who signed an arbitration agreement as NRCM’s managing member. NRCM later initiated an arbitration against ADMIS through the National Futures Association (NFA) and participated in that proceeding for at least a year and a half without challenging the arbitrator’s authority. The arbitration was later stayed.

ADMIS moved to compel arbitration and dismiss the lawsuit. Nefertiti Asset Management, LLC (NAM) and Nefertiti Holding Corporation (NHC) separately moved to intervene as plaintiffs. The opinion states that Kumaran initially filed the lawsuit without a lawyer; NRCM later appeared through counsel.

Motion to compel arbitration

The court held that NRCM could not challenge arbitration after initiating the arbitration against ADMIS and participating in it without a timely objection. The court therefore concluded that NRCM had agreed to arbitrate its claims, or had waived its ability to challenge the arbitration agreement or the arbitrator’s authority.

The court reached a different conclusion regarding Kumaran’s possible individual claims. Kumaran signed the ADMIS arbitration agreement as NRCM’s managing member, not in her individual capacity. The court also found that any NFA arbitration obligation did not cover individual claims based on conduct that allegedly occurred before she became an NFA member. As a result, Kumaran was not bound to arbitrate claims she might have against ADMIS in her individual capacity. The court noted that it was not deciding at that time whether Kumaran had adequately pleaded any such individual claims.

The court nevertheless stayed the entire lawsuit pending the arbitration between NRCM and ADMIS. It found substantial factual overlap between Kumaran’s possible individual claims and NRCM’s arbitrated claims, including conflicting allegations about who owned the STORM Trading Program and its transaction records. The court also stated that Kumaran’s claims as a successor in interest to NRCM would be subject to arbitration.

Motion to intervene

The court denied NAM and NHC’s motion to intervene. The entities had not submitted a proposed pleading, and the existing filings did not clearly show what claims they intended to assert, whether they had separate accounts with ADMIS, or whether they separately owned trade secrets allegedly misappropriated by ADMIS. The court therefore found that they had not shown an interest in the lawsuit that could be impaired without intervention.

The court also found the motion untimely. NAM and NHC waited until almost a year after the lawsuit began, and until after ADMIS filed its arbitration motion, to seek intervention. The court noted that the entities had been formed by Kumaran and could have sought intervention earlier.

Disposition

Judge Stewart D. Aaron granted in part and denied in part ADMIS’s motion to compel arbitration, stayed the action pending arbitration, and denied NAM and NHC’s motion to intervene. The parties were ordered to file a joint status report by December 31, 2021, or within ten days after completion of the NRCM arbitration, whichever came first.