HICKEY v. SMITH

Background

Joseph P. Hickey and Laurel Ulrich, individually and as guardian of two minor children, brought claims concerning allegedly fraudulently obtained and transferred ownership interests and withheld income distributions related to several Bobby Van’s Restaurants in which they are minority shareholders. The case was transferred from the United States District Court for the District of Columbia to the Southern District of New York after Judge McFadden determined that at least some of Hickey’s claims had to be presented to an arbitrator in New York.

The contracts at issue were a 2017 Stock Purchase Agreement and a 2021 Amended Stock Purchase and Sale Agreement. Judge McFadden found that Joseph P. Smith had shown an agreement to arbitrate with Hickey and that the agreements delegated initial questions about whether claims were arbitrable to an arbitrator. Judge McFadden nevertheless concluded that the Federal Arbitration Act did not authorize that court to compel arbitration in New York, so he transferred the case. He noted that some defendants were not parties to the agreements and that Ulrich was not a party to them, but did not decide whether those defendants could enforce the agreements.

Motion to Amend

After the transfer, the plaintiffs moved under Rule 15(a) of the Federal Rules of Civil Procedure for permission to file a Second Amended Complaint. They proposed omitting several counts, adding allegations and counts concerning mutual mistake, further developing a fraudulent-inducement count, and reorganizing the complaint.

Rule 15(a)(2) provides that courts should generally freely allow amendments when justice requires. A court may deny amendment for reasons such as futility, bad faith, undue delay, or undue prejudice. The defendants primarily argued that amendment would be futile because the earlier transfer decision, as the law of the case, had already established that the arbitration agreements governed the plaintiffs’ claims. The law-of-the-case doctrine generally limits reconsideration of issues already decided in the same litigation.

Analysis

The court rejected the defendants’ futility argument at this stage. It explained that the transfer decision held only that at least some of Hickey’s claims had to be arbitrated. It did not establish that arbitration agreements existed or applied as to all parties, including defendants who were not signatories. The earlier court had mentioned equitable estoppel—a doctrine that can sometimes allow a nonsignatory to enforce an arbitration agreement—but had expressly declined to decide whether that doctrine applied here. The earlier decision also recognized that Ulrich was not a party to the arbitration agreements.

The court further stated that the transfer decision did not itself compel arbitration. Although Judge McFadden had treated the defendants’ motions as motions to compel arbitration, the Southern District of New York noted that those motions had requested dismissal for improper venue rather than an order compelling arbitration. No plaintiff had initiated arbitration in the Southern District of New York, and no defendant had moved to compel arbitration after the transfer or requested such an order in opposition to the amendment motion.

The court declined to enforce the arbitration provisions on its own because the issue had not been properly presented and no party had explicitly asked the court to compel arbitration. It left open questions concerning contract formation, whether the arbitration agreements apply to nonsignatory parties, and the effect of the earlier transfer decision under the law-of-the-case doctrine. The court stated that those issues could be considered if defendants later moved to compel arbitration after the Second Amended Complaint was filed.

Disposition

The court GRANTS the plaintiffs’ motion for leave to file the proposed Second Amended Complaint. It ordered the complaint filed by March 11, 2024, and set April 8, 2024, as the deadline for defendants’ responses. The order did not decide whether all or any additional claims must be arbitrated, and it did not compel arbitration.