Kumaran v. National Futures Association

Background

Nefertiti Risk Capital Management, LLC (NRCM), a plaintiff in the case, moved to compel arbitration against Kadlec in the Commodity Futures Trading Commission’s Reparations forum. The motion was brought under the Federal Arbitration Act, which generally makes qualifying written arbitration agreements enforceable. The court’s issue was whether NRCM had waived, meaning knowingly given up, any right to arbitrate its claims against Kadlec.

The opinion states that NRCM was dissolved but remained a plaintiff, and that Samantha Siva Kumaran could not assert NRCM’s claims as its successor or litigate those claims for NRCM while representing herself. The court did not decide the parties’ arguments about whether NRCM’s claims were eligible for arbitration in the CFTC Reparations forum.

Legal Standards

The court described two possible approaches to arbitration waiver after the Supreme Court’s decision in Morgan v. Sundance, Inc. Under the first, waiver is analyzed under applicable state contract law. Applying New York law, the court explained that waiver requires a clear indication of an intent to give up a known contractual right. Under the second, courts apply the Second Circuit’s earlier arbitration-waiver factors but omit the requirement to show prejudice. Those factors consider how much time passed before arbitration was requested and how much litigation occurred.

The court stated that the Second Circuit had not yet decided how Morgan affected its arbitration-waiver analysis. It therefore applied both possible approaches and concluded that both produced the same result.

Application

Under the New York-law approach, the court found a clear manifestation that NRCM intended to give up arbitration against Kadlec. Before filing this action and two related actions, NRCM had initiated arbitration before the National Futures Association against multiple defendants, including ADM Investor Services, Inc., but not Kadlec. In the related actions, the court compelled arbitration of NRCM’s claims against ADM Investor Services. NRCM opposed arbitration there, objected to a decision compelling arbitration, and sought reconsideration.

The court contrasted NRCM’s conduct in the related cases with its conduct in this case: NRCM had opposed arbitration when it faced arbitration in the related cases, but sought arbitration here after becoming dissatisfied with the course of the litigation. The court viewed that conduct as inconsistent with NRCM’s current position and as an effort to obtain a more favorable forum.

Under the modified Second Circuit approach, the court found that more than three years had passed since NRCM filed this action on May 11, 2020. The court rejected the argument that NRCM’s delay was excused because certain claims against Kadlec were not decided until April 28, 2023. Even if that argument applied to those claims, the court said it did not excuse the delay concerning claims against Kadlec in his capacity as President of ADM Investor Services, which mirrored claims NRCM had asserted in National Futures Association arbitration beginning in April 2018.

The court also found substantial litigation activity. Although discovery had not begun, the case involved motions to dismiss, motions for reconsideration, and a pending motion to strike an amended pleading. The court concluded that this prolonged litigation supported waiver under the modified test.

Disposition

The court held that NRCM waived any right to arbitrate its claims against Kadlec under both possible waiver analyses. It denied NRCM’s motion to compel arbitration. The order was signed by Stewart D. Aaron, United States Magistrate Judge.