Boustead Securities, LLC v. Leaping Group Co., Ltd

Background

Boustead Securities, LLC sued ATIF Holdings Limited and Leaping Group Co., Ltd. for breach of contract. The dispute arose from an agreement connected to ATIF’s application to become a company listed on a national stock exchange in the United States. The agreement required disputes relating to or arising from the agreement to be resolved through arbitration under the Commercial Arbitration Rules of the Judicial Arbitration and Mediation Services, after 30 days’ notice.

Boustead initially asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with business relations, and quantum meruit. After an earlier dismissal without prejudice, Boustead filed a second amended complaint asserting only breach of contract. The court later entered default judgment against Leaping. ATIF moved to compel arbitration and asked the court either to dismiss or stay the case.

Whether ATIF Waived Arbitration

Boustead did not dispute that the arbitration clause was valid or that it covered the breach-of-contract claim. The only disputed issue was whether ATIF had waived its arbitration right through its conduct in the lawsuit.

The court applied federal arbitration law under the Federal Arbitration Act. It considered the time that had passed since the lawsuit began and the amount of litigation, including motions and discovery. The court did not consider prejudice to Boustead because the Supreme Court had held that courts may not impose an arbitration-specific prejudice requirement when deciding waiver.

ATIF waited more than two years before seeking arbitration, which weighed against its motion. The court nevertheless held that delay alone did not establish waiver. ATIF had not answered the complaint, the parties had exchanged only initial required disclosures, and they had conducted virtually no discovery. Although ATIF had filed three motions to dismiss, the court concluded that this pre-answer motion practice was not the kind of substantial litigation that ordinarily waives an arbitration right. The court therefore held that ATIF had not waived arbitration.

Disposition

The court granted ATIF’s motion to compel arbitration. It did not dismiss the case. Instead, because ATIF had requested either dismissal or a stay, the court stayed the case pending arbitration. The parties were ordered to submit a joint status update by May 15, 2023, and to continue submitting updates every three months on the first business day of the month until the matter was resolved. The Clerk of Court was directed to close the motion at docket entry 129 and stay the case.

Classification

This is a procedural order because the court compelled arbitration and stayed the judicial case rather than deciding the underlying breach-of-contract claim on its merits.