Streamlined Consultants, Inc. v. Forward Financing LLC

Background

Streamlined Consultants, Inc., doing business as Streamlined Consultants, and Moshe Schoenwald sued Forward Financing LLC, doing business as Forward Financing, and Splash Advance, LLC. The plaintiffs asserted claims of usury and unconscionability, alleging that the defendants issued an improper loan under the guise of a sales contract. Forward removed the action from state court based on diversity jurisdiction and sought permission to file a motion to dismiss, partly relying on an alleged mandatory arbitration clause in the parties’ agreement.

Forward began parallel arbitration proceedings on January 25, 2022. The plaintiffs first sought permission to move to stop those proceedings and then filed the emergency letter motion addressed in this order. They asked for an immediate, temporary stay of the arbitration while the court considered their yet-to-be-briefed motion to stay arbitration.

Legal standard

The Federal Arbitration Act generally makes written arbitration agreements enforceable. The court explained that a party resisting arbitration bears the burden of showing that the claims are not suitable for arbitration. A court considering whether to stop arbitration must examine whether the parties agreed to arbitrate and whether the dispute falls within that agreement.

The court treated the requested interim stay as a request for a preliminary injunction. To obtain that relief, the plaintiffs needed to show irreparable harm, either a likelihood of success on the merits or sufficiently serious questions combined with a hardship balance strongly favoring them, and that an injunction would serve the public interest.

Court’s analysis

The court found that the plaintiffs cited no legal authority supporting an immediate interim stay merely because they had filed a motion seeking to stay arbitration. It concluded that the plaintiffs had not carried their burden of showing that the claims were unsuitable for arbitration.

The plaintiffs argued that they would suffer harm and that their motion to stay could become moot if the arbitration continued. The court found that they did not adequately describe the alleged harm. Even assuming the plaintiffs were concerned about the possible preclusive effect of arbitration or the mootness of their motion, the court concluded that those concerns did not establish irreparable harm.

The court also reasoned that if the plaintiffs later showed that they had not agreed to arbitration, an arbitrator’s findings or award would not have a preclusive effect because the arbitrator would have exceeded the arbitrator’s authority. In addition, the court said the plaintiffs’ motion to stay could become moot when the court ruled on Forward’s motion to dismiss, because that motion also raised the validity of the alleged arbitration agreement.

Finally, the court found that the plaintiffs had not shown a likelihood of success, a hardship balance favoring an injunction, or that an injunction would serve the public interest. The court said the hardship balance and public interest instead favored denying the request because federal law expresses a strong policy favoring arbitration and injunctions stopping arbitration are strongly disfavored.

Disposition

Judge Nelson S. Roman DENIED the plaintiffs’ second emergency letter motion seeking an immediate temporary interim stay of the ongoing parallel arbitration proceedings. The Clerk of Court was directed to terminate the motion at ECF No. 11. This order addressed the requested interim stay; it did not decide the plaintiffs’ underlying usury and unconscionability claims.