Schatzmann v. Harris Partners Ltd.
- Katherine Failla
- 1:21-cv-07301
- U.S. District Court · Southern District of New York
- 30
In Schatzmann v. Harris Partners Ltd., Judge Failla denied dismissal and arbitration, stayed the case pending Delaware arbitration, and denied plaintiffs’ motions as moot.
Simon Schatzmann, John Messina, and John Lezotte; Edward P. Harris; and Harris Partners Ltd. and Harris Trust Partners LLC. The case is stayed while the parties arbitrate their disputes.
What happened
Simon Schatzmann, John Messina, and John Lezotte said they worked for Harris Partners entities in 2020 but were never paid. They sued Harris Partners Ltd., Harris Trust Partners LLC, and Edward P. Harris under federal and New York wage laws and contract-related theories.
The court found that the employment letters contained enforceable arbitration provisions covering the plaintiffs’ claims, including their Fair Labor Standards Act claims. But because the provisions required arbitration in Delaware, this Southern District of New York court could not order arbitration there. It also rejected the plaintiffs’ challenges to the provisions, including their arguments about formation, Harris’s use of another name, unfairness, and waiver.
Judge Katherine Polk Failla denied Harris’s motions to dismiss and compel arbitration, granted his motion to stay the case, and denied the plaintiffs’ motions to strike or dismiss as moot. The case will remain stayed while the parties arbitrate their disputes.
The detailed version
- Schatzmann v. Harris Partners Ltd. · No. 1:21-cv-07301
- Katherine Failla
- Mar. 22, 2024
Background
Simon Schatzmann, John Messina, and John Lezotte were each hired in 2020 as regional sales executives, described in the offer letters as vice presidents of sales, for Harris Partners Ltd. and Harris Trust Partners LLC. Edward P. Harris controlled those entities. The plaintiffs alleged that they worked for several months but received no pay, despite promised salaries, commissions, bonuses, stock options, and other benefits.
The plaintiffs sued under the Fair Labor Standards Act, the New York Labor Law, and common-law theories including conversion, breach of contract, and unjust enrichment. The two Harris Partners entities did not appear and were in default. Harris, who was proceeding without a lawyer, filed an answer and counterclaims alleging fraud, interference with contractual relationships, and attempted extortion. He also argued that the plaintiffs’ claims had to be arbitrated under the arbitration provisions in their employment offer letters.
Arbitration provisions
Each offer letter stated that any controversy involving the agreement or another agreement between the parties or affiliated entities “shall be submitted to arbitration” in Delaware at either party’s request. The provisions incorporated the Commercial Arbitration Rules of the American Arbitration Association, which allow an arbitrator to decide questions about the existence, scope, validity, and arbitrability of the agreement.
The court found that Schatzmann and Messina had signed their offer letters. Although neither side produced a signed offer letter for Lezotte, the court found that he showed an intent to accept the letter’s terms by beginning work and relying on its compensation provisions in bringing the lawsuit. The court also found that Harris could invoke the arbitration provisions even though he may have signed the agreements only as an officer of the Harris Partners entities. The court concluded that the plaintiffs’ claims were intertwined with the agreements and that Harris’s relationship with the entities supported his ability to invoke arbitration.
The court rejected the plaintiffs’ arguments that the provisions were optional, invalid because Harris used the name “Edward P. Harris,” unconscionable, or waived by Harris’s filing of counterclaims. It also concluded that the plaintiffs’ challenges based on the defendants’ failure to pay wages attacked the employment agreements as a whole, rather than the arbitration clauses specifically, so those challenges were for the arbitrator to consider. The court further concluded that the plaintiffs’ employment-related claims, including their Fair Labor Standards Act claims, fell within the arbitration provisions.
Why the court could not compel arbitration in Delaware
The court explained that Section 4 of the Federal Arbitration Act authorizes a federal district court to compel arbitration only within the district where the petition to compel is filed. Because the offer letters designated Delaware as the arbitration location, this Southern District of New York court lacked authority to compel arbitration in Delaware, even assuming the provisions were valid and enforceable.
Section 3 of the Act separately requires a court to stay a lawsuit when the dispute is referable to arbitration. The court therefore could not dismiss the case or compel arbitration in Delaware, but it could stay the case while arbitration proceeded. The court stated that Harris’s failure to pursue arbitration diligently could later support an argument that he waived arbitration.
Disposition
The court denied Harris’s motions to dismiss and to compel arbitration. It granted Harris’s motion to stay the case pending arbitration and denied as moot the plaintiffs’ motions to strike Harris’s answer and dismiss his counterclaims. The Clerk was directed to stay the case pending further order and the parties were directed to submit a joint status letter by the earlier of September 30, 2024, or their receipt of a decision from the arbitrator. The court did not decide whether the plaintiffs were ultimately entitled to unpaid wages or whether Harris’s counterclaims had merit.
Read the full 30-page opinion on CourtListener, the free public archive maintained by the Free Law Project.