The Trustees of the New York State Nurses Association Pension Plan v. Hakkak

Background

The Trustees of the New York State Nurses Association Pension Plan sued Andre Hakkak and Barbara McKee under the Employee Retirement Income Security Act (ERISA). The Trustees alleged that Hakkak and McKee violated fiduciary duties by designing and managing the Plan’s investments in ways that benefited them beyond the terms agreed to in the investment management agreements.

The Trustees entered into investment management agreements with White Oak, a private investment firm co-founded by Hakkak and McKee. The agreements gave White Oak authority to invest Plan assets and included an arbitration clause stating: “Any dispute arising under this Agreement shall be resolved by arbitration of the American Arbitration Association in the City of New York.” The agreements also referred to the American Arbitration Association’s rules.

The Trustees previously arbitrated claims against White Oak concerning the management of the Plan’s investments. The arbitrator found that White Oak engaged in prohibited transactions under ERISA, removed White Oak as the Plan’s fiduciary and investment manager, ordered disgorgement of profits, and awarded the Trustees money for management fees and attorneys’ fees and costs. A court later substantively confirmed that arbitration award and denied White Oak’s motion to vacate it. The Trustees then filed this separate action against Hakkak and McKee, but not White Oak.

Motion to Compel Arbitration

Hakkak and McKee moved to compel arbitration as non-signatories to the 2016 investment management agreement. They relied on equitable estoppel, a contract principle that can prevent a party from avoiding arbitration when its claims are closely connected to an agreement and the non-signatory has a close relationship with a party to that agreement. They also argued that the arbitration clause covered the Trustees’ ERISA claims and that the agreement assigned arbitrability—the question whether a dispute must be arbitrated—to an arbitrator.

The Trustees opposed the motion. They argued that “arising under” language created a narrow arbitration clause covering only disputes about interpreting or performing the agreement, not statutory ERISA claims. They also argued that the court should decide arbitrability and that Hakkak and McKee had waived any right to have an arbitrator decide that question.

Court’s Analysis

The court applied the Federal Arbitration Act and state contract-law principles. It explained that the party seeking arbitration must first show that an arbitration agreement exists. If such an agreement exists, the opposing party must show that it does not apply or is invalid. The court then considered whether the dispute fell within the agreement’s scope.

The court found that Hakkak and McKee had a sufficiently close relationship with White Oak. The Trustees did not contest this part of the equitable-estoppel analysis. The court also found that the Trustees’ claims arose from and related to the same subject matter as the 2016 investment management agreement because the claims concerned the parties’ rights and obligations regarding the Plan’s investments.

The court rejected the Trustees’ argument that the phrase “arising under” made the clause narrow. It distinguished an earlier appellate decision involving similar language because the clause here referred to arbitration by the American Arbitration Association and its rules. The court concluded that the clause was broad enough to encompass the Trustees’ ERISA claims against Hakkak and McKee.

The court also rejected the waiver argument. Hakkak and McKee filed a pre-motion letter indicating their intent to seek arbitration less than two months after the case began and filed the motion about three months after the complaint. They had not responded to the complaint, and the case had been stayed without active discovery. The court held that their alternative arguments about the clause’s scope and arbitrability did not show intentional abandonment of their arbitration rights.

Finally, the court held that the arbitration clause’s reference to the American Arbitration Association’s rules provided clear and unmistakable evidence that the parties intended an arbitrator to decide arbitrability. The court noted that the referenced rules authorize an arbitrator to decide the arbitrator’s own jurisdiction, including whether a claim is arbitrable.

Disposition

The court granted Defendants’ motion to compel arbitration, directed the Clerk of Court to terminate the motion, and stayed the case. The parties were directed to submit a status update within 48 hours of the arbitration decision. Judge Ramos did not decide the underlying ERISA claims in this order.