Kumaran v. Vision Financial Markets, LLC

Background

Samantha Siva Kumaran, Nefertiti Risk Capital Management, LLC (NRCM), Nefertiti Asset Management, LLC (NAM), and Nefertiti Holding Corporation (NHC) brought state-law claims and claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Defend Trade Secrets Act (DTSA). The defendants moved to dismiss and partially moved to compel arbitration of claims brought by NRCM and NAM.

On August 4, 2022, Magistrate Judge Stewart D. Aaron issued an order and report and recommendation. He granted the defendants’ partial motion to compel arbitration. He recommended either dismissing the remaining federal claims and declining supplemental jurisdiction over the remaining state-law claims, or staying the non-arbitrable claims until arbitration concluded. The plaintiffs objected to the arbitration ruling and to the recommendation concerning the remaining claims.

Arbitration ruling

Judge Woods reviewed the arbitration ruling under the standard for nondispositive matters. Under that standard, the plaintiffs had to show that Judge Aaron’s decision was clearly mistaken or contrary to law. Judge Woods concluded that they had not met that burden.

The court upheld arbitration of NRCM’s claims against High Ridge Holding Corporation, LLC, Howard Rothman, Robert Boshnack, John Felag, Lazzara Consulting, Inc., Gerard Stephen Lazzara, and Vision Investment Advisors, LLC. Judge Aaron had found that NRCM agreed through its conduct to participate in arbitration and waived its right to object after initiating arbitration against those defendants. Judge Woods held that the plaintiffs had not shown clear error in that conclusion.

The court also upheld arbitration of NRCM’s claims against Vision Investment Advisors, LLC and NAM’s claims against High Ridge Holding Corporation, LLC, Howard Rothman, Robert Boshnack, John Felag, Lazzara Consulting, Inc., Gerard Stephen Lazzara, and Vision Investment Advisors, LLC. Judge Aaron had determined that the claims arose while NRCM and NAM were members of the National Futures Association and therefore were subject to the organization’s arbitration rules. Judge Woods rejected the plaintiffs’ argument that the claims were too late for arbitration, explaining that the arbitrators must address timeliness first.

The court further held that the plaintiffs had not shown that Congress intended their RICO or DTSA claims to be excluded from arbitration. The plaintiffs did not assert claims under the Commodity Exchange Act, so the court rejected their argument that a provision of that statute barred arbitration in this action. The court declined to consider additional arguments about the National Futures Association because the plaintiffs had not raised them before Judge Aaron.

Remaining claims and disposition

Judge Woods chose to stay the non-arbitrable claims rather than dismiss them. He found significant factual overlap between the claims that would be arbitrated and the remaining claims, making a stay appropriate to avoid duplicative litigation and potentially inconsistent results.

The court overruled the plaintiffs’ objections to Judge Aaron’s order granting the defendants’ partial motion to compel arbitration. It denied the defendants’ motions to dismiss without prejudice, stayed the action pending arbitration, and directed the parties to file a joint status letter no later than seven days after the arbitration concluded. The opinion does not state that the court decided the ultimate merits of the remaining claims.