PrecisionWorks MFG, LLC v. Union Funding Source, Inc.
- Lorna Schofield
- 1:22-cv-08290
- U.S. District Court · Southern District of New York
- 4
In PrecisionWorks v. Union Funding, Judge Schofield ordered arbitration with Fundamental and stayed the case against it.
Plaintiffs and Fundamental Capital LLC must arbitrate the claims against Fundamental, and those court proceedings are stayed. The order does not compel non-signatories to arbitrate and leaves the temporary restraining order in effect as to Fundamental under specified conditions.
What happened
In PrecisionWorks MFG, LLC v. Union Funding Source, Inc., the court considered whether Plaintiffs’ claims against Defendant Fundamental Capital LLC had to be arbitrated under a merchant cash advance agreement. The agreement covered disputes related to the agreement, its security agreement, and its guarantees.
Plaintiffs argued that the agreement was unconscionable, that the arbitration forum was not fair or neutral, and that some people connected to Fundamental and the alleged racketeering enterprise had not agreed to arbitration. The court found that all three claims against Fundamental related to the agreement and that Plaintiffs did not dispute that point.
Judge Lorna G. Schofield granted Fundamental’s motion to compel arbitration and stayed the case against Fundamental. The court did not apply the arbitration agreement to non-signatories, required status letters every 60 days, and kept the temporary restraining order in effect as to Fundamental under the conditions stated in the order.
The detailed version
- PrecisionWorks MFG, LLC v. Union Funding Source, Inc. · No. 1:22-cv-08290
- Lorna Schofield
- Oct. 25, 2022
Background
Plaintiffs entered into a merchant cash advance agreement with Fundamental Capital LLC. Section 4.11 provided that either party could elect arbitration for disputes arising out of or relating to the agreement, its security agreement, or its guarantees. The agreement named Mediation and Civil Arbitration, Inc., doing business as RapidRuling, or another forum selected by Fundamental, and specified New York as the place of arbitration.
Fundamental moved under the Federal Arbitration Act for an order dismissing the action against it or, alternatively, staying the proceedings in favor of arbitration. The court explained that before compelling arbitration it had to determine whether the parties agreed to arbitrate and whether the dispute fell within that agreement. It applied a standard similar to the standard used for summary judgment and considered the relevant evidence.
Arguments and Analysis
The court held that the agreement showed an unambiguous intent to arbitrate all of Plaintiffs’ claims against Fundamental. The claims included claims under 18 U.S.C. § 1961 and related provisions, described in the opinion as involving an alleged racketeering enterprise, and a breach-of-contract claim. The court stated that all three claims arose out of or related to the merchant cash advance agreement, and Plaintiffs did not dispute that conclusion.
Plaintiffs argued that the merchant cash advance agreement was unconscionable, meaning unfairly oppressive or unreasonable. The court rejected that argument as a challenge to the validity of the agreement as a whole rather than specifically to the arbitration clause. Under the rule applied by the court, that type of challenge must be decided by the arbitrator rather than the court.
Plaintiffs also argued that the arbitration clause was invalid because it did not provide a fair and unbiased forum. The court found that Plaintiffs offered no evidence that the forum was non-neutral. The court also rejected Plaintiffs’ argument that certain investors, officers, and brokers connected to Fundamental and the alleged racketeering enterprise were not bound by the arbitration agreement. It explained that the motion concerned only the action between Plaintiffs and Fundamental and that the arbitration agreement was not being applied to non-signatories.
Ruling and Effect
The court ordered that Fundamental’s motion to compel arbitration was GRANTED, and that the case against Fundamental was STAYED. The order required Plaintiffs and Fundamental to file a joint letter about the arbitration’s status 60 days after the order and every 60 days afterward, and to promptly report any resolution or other event affecting the stay.
The court further ordered that the temporary restraining order dated October 18, 2022, would remain in effect as to Fundamental until the arbitration began and the arbitrator ruled on the temporary restraining order or similar injunctive relief, or until the court lifted the temporary restraining order or a later preliminary injunction as to Fundamental. The opinion does not state a disposition of claims against the other defendants.
Read the full 4-page opinion on CourtListener, the free public archive maintained by the Free Law Project.