AKS Trade Company, LLC v. Americap Direct Corporation
- Katherine Failla
- 1:21-cv-09364
- U.S. District Court · Southern District of New York
- 14
In AKS Trade v. Americap, Judge Failla denied arbitration in New York and transferred the action to California under the parties’ forum-selection clause.
AKS Trade Company, LLC and Americap Direct Corporation are directly affected by the rulings on arbitration and transfer. The entire action, which also names David Ault and Model Financial Services LLC, was ordered transferred to the Eastern District of California.
What happened
AKS Trade Company, LLC sued Americap Direct Corporation, David Ault, and Model Financial Services LLC over failed arrangements to obtain documentary letters of credit for gold purchases. It claimed breach of contract, fraud, and unjust enrichment, and asked the court to require Americap to arbitrate in New York.
Americap agreed that the claims against it were subject to arbitration but argued that a separate escrow agreement required disputes to be handled in Sacramento County, California. AKS Trade argued that the escrow agreement did not apply because it sent its deposit directly to Americap instead of using the escrow agent.
Judge Katherine Polk Failla denied AKS Trade’s motion to compel arbitration in New York and granted Americap’s request to transfer the case to the Eastern District of California. The court held that the escrow agreement’s exclusive-jurisdiction clause covered at least some of AKS Trade’s claims and that transfer, rather than dismissal, was the proper way to enforce that clause.
The detailed version
- AKS Trade Company, LLC v. Americap Direct Corporation · No. 1:21-cv-09364
- Katherine Failla
- Apr. 21, 2022
Background
AKS Trade Company, LLC brought claims for breach of contract, fraud, and unjust enrichment against Americap Direct Corporation, David Ault, and Model Financial Services LLC. The claims arose from arrangements for Americap to provide two documentary letters of credit—one for $25 million and one for $50 million—to help AKS Trade secure gold purchases. AKS Trade paid deposits totaling $325,000, which were to be refundable if Americap did not obtain the letters of credit. According to the complaint, AKS Trade sent the deposits directly to Americap after Ault advised it to bypass the escrow agent. Americap allegedly did not obtain the letters of credit or refund the deposits.
The two documentary-letter-of-credit agreements contained arbitration clauses. The parties agreed that AKS Trade’s claims against Americap were subject to arbitration, but they disagreed about where the arbitration should occur. AKS Trade asked the Southern District of New York to compel arbitration at International Chamber of Commerce offices in Manhattan. Americap relied on a forum-selection clause in a separate escrow agreement, which stated that each party submitted to the exclusive jurisdiction and venue of a state or federal court sitting in Sacramento County, California. Americap requested dismissal or transfer to the Eastern District of California. Ault and Model Financial Services LLC had not appeared in the action.
Court’s Analysis
The court applied California law to interpret the escrow agreement’s forum-selection clause because that agreement selected California law. The court rejected AKS Trade’s argument that it had abandoned the escrow agreement by sending its deposit directly to Americap. The court explained that the agreement covered issues concerning the construction, validity, enforcement, and interpretation of the escrow agreement and its exhibits, including an attached documentary-letter-of-credit agreement. It also noted that the escrow agreement did not provide for unilateral termination and that neither of its stated termination events was alleged to have occurred.
The court concluded that AKS Trade’s contract and unjust-enrichment claims against Americap relating to the documentary-letter-of-credit agreements concerned enforcement of those agreements and therefore fell, at least in part, within the escrow agreement’s forum-selection clause. The court further held that transfer under 28 U.S.C. § 1404(a), rather than dismissal for improper venue under Federal Rule of Civil Procedure 12(b)(3), was the appropriate method for enforcing the clause. The court found that the case could have been brought in the Eastern District of California and that AKS Trade had not shown extraordinary circumstances justifying departure from the agreed forum.
The court also stated that it lacked authority to compel arbitration in a different federal district when the parties’ agreement designated another forum. It therefore transferred the case without deciding whether the Eastern District of California would later compel arbitration under the documentary-letter-of-credit agreements.
Disposition
The court DENIED Plaintiff’s motion to compel arbitration in the Southern District of New York and GRANTED Americap’s request to transfer the case to the Eastern District of California under 28 U.S.C. § 1404(a). The Clerk was directed to terminate pending motions, adjourn remaining dates, and transfer the action. The opinion did not resolve the underlying breach-of-contract, fraud, or unjust-enrichment claims on their merits.
Read the full 14-page opinion on CourtListener, the free public archive maintained by the Free Law Project.