NAVCAN.DC, Inc. v. Rinde

Background

NAVCAN.DC, Inc., formerly known as Cascade Divide Data Centers, Inc.; DACH Holdings, LLC; Silverstein Realty Group, Inc.; Silver Springs Development, Inc., as assignee of Cordella Developments Corp.; GGH, Inc.; and Residencial de Chihuahua 2001, S.A. de C.V. sued Jeffrey Rinde and CKR Law LLP. The claims included breach of contract, fraudulent concealment, misrepresentation and omission, breach of the duty of good faith and fair dealing, breach of fiduciary duty, conversion, unjust enrichment, breach of a retainer agreement, and breach of an arbitration agreement.

Each plaintiff had an escrow agreement with the defendants containing an arbitration clause. The agreement with NAVCAN required the party seeking arbitration to pay the arbitration service’s fees and designated the American Arbitration Association, or AAA, if the parties could not agree on another service. The other agreements required binding arbitration in New York but did not specify who would administer the arbitration or how its costs would be allocated.

NAVCAN began an arbitration with the AAA on October 29, 2021. The other plaintiffs later joined that arbitration. The defendants participated by objecting to some plaintiffs’ participation before the AAA, helping select arbitrators, answering claims, bringing counterclaims and third-party claims, paying some AAA fees, and participating in discovery. The arbitration panel suspended the proceeding in November 2022 because the defendants had not paid outstanding fees. After the defendants failed to make the required deposits despite assurances that they would, the panel terminated the arbitration on January 13, 2023.

The plaintiffs then filed this lawsuit. The defendants moved to compel arbitration and asked the court to dismiss the action or pause it while arbitration proceeded.

Whether the Court or an Arbitrator Decides Waiver

The defendants argued that an arbitrator should decide whether they waived their right to arbitrate. The court rejected that argument. It noted that the defendants first raised it in their reply brief and that the arbitration agreements did not clearly and unmistakably assign the waiver question to an arbitrator.

Although the agreements broadly covered disputes arising from the agreements, the NAVCAN agreement incorporated AAA rules only conditionally, if the parties did not choose another arbitration service. The other agreements did not identify an arbitrator or incorporate arbitration rules. The court therefore decided the waiver issue itself.

Waiver Through Nonpayment

The court held that the defendants waived their right to arbitrate by failing to pay the AAA fees after receiving warnings that nonpayment could lead to termination. Defense counsel told the AAA on October 31, 2022, that overdue funds had been transferred, but the AAA never received the payment. The arbitration was suspended on November 17, 2022, and the defendants were given additional deadlines. The panel terminated the proceeding on January 13, 2023, because the defendants had not made the required deposits.

The court found that the defendants were in default in the arbitration and had waived the right to arbitrate the disputes that had been before the panel. The court rejected the argument that waiver required arbitration to be permanently unavailable. It also rejected the argument that the plaintiffs were partly responsible, stating that the record did not show that the panel suspended or terminated the arbitration because of the plaintiffs’ conduct. The court further stated that bad faith was not required to find a default in arbitration.

Because the defendants had waived the right to arbitrate in any forum, the court did not reach their request to have disputes involving certain plaintiffs proceed before JAMS.

Disposition

The court denied the defendants’ motion to compel arbitration and dismiss the plaintiffs’ claims. The defendants’ alternative request to stay, or pause, the case pending arbitration was denied for the same reasons and was described as moot. The Clerk of Court was directed to close the motion at Docket 49.