Cadia Capital Advisors LLC v. Fagu LLC

Background

Cadia Capital Advisors LLC, doing business as Rubicon Capital Advisors, brought claims against Fagu LLC, Miguel Oneto Trust, and Miguel Oneto as trustee. The claims included breach of contract, breach of the implied covenant of good faith and fair dealing, breach of implied contract, unjust enrichment, and quantum meruit.

On January 18, 2019, the parties entered an agreement under which Rubicon would act as Defendants’ exclusive financial adviser in connection with the sale of Defendants’ membership interest in a solar-powered electrical-generation project. The agreement provided for initial fees and an advisory fee based on the amount paid for the membership interest after its sale. In March 2021, the parties amended the agreement to define the transaction as a sale to Hive Energy Limited and set the agreement to expire on April 30, 2021.

Rubicon alleged that while negotiations to extend the agreement were continuing, Defendants were also negotiating with Greenalia SA without Rubicon’s knowledge. Hive declined to proceed on April 8, 2021. Rubicon alleged that Defendants nevertheless asked it to continue providing services, including evaluating and communicating with alternative purchasers and providing financial advice. Rubicon continued providing services until it learned in July 2021 that Defendants had completed a transaction with Greenalia. When Rubicon sought payment, Defendants argued that they owed nothing because the Greenalia transaction closed after the agreement expired.

Defendants removed the action from state court and moved to dismiss it, or alternatively stay it, so the dispute could proceed in arbitration under the Federal Arbitration Act and Financial Industry Regulatory Authority Rule 12200.

Parties’ Positions

Defendants argued that Rule 12200 required arbitration because Rubicon was a Financial Industry Regulatory Authority member, Defendants were its customers, Defendants requested arbitration, and the dispute arose from Rubicon’s business activities.

Rubicon disputed that Rule 12200 applied. It argued that the rule required the dispute to arise from a binding contract and that Defendants should first concede that the parties had a contract covering the Greenalia transaction. Defendants responded that Rule 12200 required only that Rubicon allege that its claims arose from business activities with Defendants.

Court’s Analysis

The court explained that the Federal Arbitration Act requires a court to direct arbitration when a valid arbitration obligation exists and one party has failed, neglected, or refused to arbitrate. The party seeking to avoid arbitration generally bears the burden of showing that the arbitration obligation does not apply or is invalid.

The court held that the arbitration agreement arose from Rubicon’s membership in the Financial Industry Regulatory Authority and the organization’s arbitration rules. Under Rule 12200, arbitration is required when the rule applies, the dispute is between a customer and a member or associated person, and the dispute arises in connection with the member’s business activities.

The court found that all three requirements were met. Defendants requested arbitration. The parties did not dispute that Rubicon was a Financial Industry Regulatory Authority member bound by its rules or that Defendants were Rubicon’s customers. The dispute also arose from Rubicon’s business activities because Rubicon’s claims concerned financial services it provided to Defendants.

The court rejected Rubicon’s argument that Defendants had to concede the existence of a binding contract covering the Greenalia transaction before arbitration could proceed. It explained that the requirement that a dispute arise from a member’s business activities is not the same as a requirement that the defendant admit that a written contract applies. The court also found that the authorities Rubicon cited did not support its interpretation of Rule 12200.

Disposition

The court granted the motion of Fagu LLC, Miguel Oneto Trust, and Miguel Oneto as trustee to compel Cadia Capital Advisors LLC, doing business as Rubicon Capital Advisors, to arbitrate the underlying dispute. It ordered the parties to proceed under Financial Industry Regulatory Authority Rule 12200 and directed the Clerk to dismiss the complaint without prejudice, pending the outcome of the compelled arbitration. The order did not decide the underlying contract and payment claims on their merits.