Legal Recovery Associates LLC v. Brenes Law Group, P.C.

Background

Legal Recovery Associates LLC (LRA), described in the opinion as a lender, sued Brenes Law Group, P.C. (BLG), a law firm, and Troy Brenes to enforce two promissory notes totaling $1.6 million in principal. BLG and Brenes removed the case to federal court and asserted three counterclaims.

The first counterclaim, asserted only against LRA, alleged that LRA breached the implied duty of good faith and fair dealing by refusing to provide the payoff balance and account information needed to repay the notes. The second counterclaim alleged unjust enrichment against LRA, Lawrence Litigation Group, L.P. (LLG), and three individuals. The third counterclaim alleged fraud against the same group. The individuals had not been served or appeared, so the motion at issue concerned LRA and LLG.

BLG and LLG had entered into an Attorney Association Agreement governing their collaborative work on certain personal-injury cases, including their responsibilities, expenses, and fee-sharing. The agreement contained a broad arbitration clause covering “[a]ny controversy arising out of or related to” the agreement. The promissory notes between BLG and LRA did not contain an arbitration clause.

The parties’ positions

LRA and LLG moved to compel arbitration of the second and third counterclaims. BLG and Brenes agreed that the Association Agreement contained a broad arbitration clause but argued that the counterclaims arose from the loan relationship with LRA instead. They also argued that they could not be required to arbitrate against LRA because LRA had not signed the Association Agreement.

LRA and LLG argued that the counterclaims necessarily involved the Association Agreement because they concerned whether LLG had rights to fees from BLG’s cases and whether the alleged conduct involved fee interests created or governed by that agreement.

Court’s analysis

The court concluded that the second and third counterclaims were within the scope of the Association Agreement’s arbitration clause. The allegations concerned whether LLG had improperly benefited from the value of BLG’s fee interests, including interests in cases that BLG alleged were not shared with LLG under the agreement. Resolving those claims would require interpreting the Association Agreement and determining the parties’ rights and obligations under it.

The court stated that the claims could also relate to the loan agreement, but held that this did not prevent arbitration because the claims also arose out of or related to an agreement containing an arbitration clause.

Brenes had signed the Association Agreement on behalf of BLG but was not separately identified as a party. The court nevertheless concluded that Brenes, along with BLG, had to arbitrate the second and third counterclaims against LLG. It relied in part on the fact that Brenes asserted the counterclaims jointly with BLG and did not dispute LRA and LLG’s argument that he had accepted benefits associated with the agreement.

The court did not compel arbitration against LRA. LRA was not a signatory to the Association Agreement, and the court declined to make an equitable-estoppel argument on LRA’s behalf because LRA had not adequately addressed the issue.

Disposition

The court granted in part LRA and LLG’s motion to compel arbitration and for related relief. Specifically, it compelled BLG and Brenes to pursue the second and third counterclaims against LLG in arbitration, if at all. It stayed those two counterclaims against all counterclaim defendants pending the arbitration’s outcome. The stay did not extend to the first counterclaim.

The court ordered BLG and Brenes to submit a letter about the arbitration’s status every three months, beginning May 1, 2023. It also ordered them, by February 7, 2023, either to dismiss the second and third counterclaims against Howard R. Berger, Gregory Goldberg, and Gary Podell or to show cause in writing why those claims should not be dismissed under Federal Rule of Civil Procedure 4(m) because those individuals had not been served.