Reeves v. Safeguard Properties

Background

Michael Duke Reeves and Dreamduke Enterprise, LLC sued Safeguard Properties Management, LLC and other defendants. The complaint alleged that Dreamduke had contracted with Safeguard to provide property-preservation services for foreclosed properties in New York and New Jersey, and that Safeguard had not adequately paid Dreamduke.

On August 18, 2020, the court dismissed the action because the plaintiffs had failed to prosecute it. The dismissal was without prejudice to renewal after Reeves obtained a licensed attorney to represent Dreamduke and showed good cause for not doing so earlier. Reeves later moved for reconsideration and asked the court to reopen the case.

Reconsideration standard

The court explained that reconsideration is available only in limited circumstances, such as an intervening change in controlling law, new evidence, or the need to correct a clear error or prevent serious unfairness. It is not an opportunity to repeat arguments already rejected or raise arguments that could have been made earlier.

Representation of Dreamduke

The court held that Reeves could not represent Dreamduke in federal court because he was not a licensed attorney. Under Second Circuit precedent, a limited liability company must appear through licensed counsel, including when it has only one member. The court rejected Reeves’s argument that Dreamduke should be treated like a sole proprietorship because he controlled it.

The court also concluded that Reeves’s claims arose from actions taken in his role as Dreamduke’s member and proprietor. The claims therefore sought relief for injuries to Dreamduke, not injuries Reeves could pursue individually. Reeves had not stated that he intended to obtain a licensed attorney for Dreamduke. The court found no basis to reverse the earlier dismissal, while preserving the stated possibility of renewal after counsel is obtained and good cause is shown.

Arbitration

The court separately considered whether the case should be stayed for arbitration. The agreement between Dreamduke and Safeguard contained a broad arbitration clause covering disputes related to the agreement, the services, work orders, the parties’ relationship, or their dealings. It also provided that the Federal Arbitration Act applied and specified arbitration before a single neutral lawyer in Cuyahoga County, Ohio.

Reeves argued that the arbitration clause was unconscionable, meaning unfairly imposed or unfair in its terms. The court applied the requirement under both New York and Ohio law that a party generally show procedural and substantive unconscionability. Procedural unconscionability concerns the contracting process and whether the party had a meaningful choice; substantive unconscionability concerns whether the contract terms were unreasonably unfair.

The court found that Reeves had not established procedural unconscionability. Although he alleged unequal bargaining power, high-pressure tactics, and a take-it-or-leave-it offer, he did not provide enough facts showing that he lacked a meaningful choice. He did not allege that he lacked time to read the agreement, was prevented from consulting a lawyer, or was unable to see the arbitration terms. The court also noted that the arbitration provisions appeared in bold print and that Reeves had signed the agreement and initialed each page, including the pages containing the arbitration clause.

Because the failure to show procedural unconscionability was enough to reject Reeves’s challenge, the court did not decide whether the clause was substantively unconscionable. The court stated that the case was not properly before it and that it would have stayed the matter for arbitration had the case not already been dismissed for failure to prosecute.

Disposition

The court denied Reeves’s motion for reconsideration, directed the clerk to terminate the motion, and ordered that the matter remain closed under the August 18, 2020 dismissal. The court also ordered the parties to report the results if they arbitrated the dispute.