Allen v. Horter Investment Management, LLC
1:20-cv-00011
| S.D. Ohio | Sep 30, 2020Background
- Plaintiffs (Allen et al.) allege Horter Investment Management’s advisors sold fraudulent and unregistered investments and rely on client agreements containing a binding arbitration clause (AAA; venue Cincinnati).
- Plaintiffs initiated arbitration with the AAA; the AAA declined to administer claims against Horter due to Horter’s prior noncompliance with AAA consumer policies.
- Plaintiffs moved to compel arbitration, to stay the case pending arbitration, or alternatively for the court to appoint arbitrators; Horter moved to dismiss.
- Horter contends it never refused to arbitrate and is willing to proceed via private arbitration; the parties have exchanged potential arbitrator names and were negotiating consolidation and selection.
- The AAA told parties it might accept future consumer claims if Horter took remedial steps (register clause, resolve obligations), but had declined to administer existing claims absent those steps.
- The Court found no unequivocal refusal to arbitrate under FAA §4, no "lapse" in arbitrator selection under §5, denied the motions to compel/stay/appoint, and dismissed the complaint without prejudice for lack of jurisdiction over arbitrable claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Horter "refused to arbitrate" under FAA §4 | AAA’s refusal to administer (due to Horter) prevents arbitration; Court should compel AAA arbitration | Horter never refused; parties can and have negotiated private arbitration | No refusal found; §4 relief denied |
| Whether court may appoint arbitrators under FAA §5 for a "lapse" | Deadlock over consolidation/selection requires court appointment | No lapse: parties amenable to private arbitration and exchanged arbitrator names | No lapse; §5 appointment denied |
| Whether the case should be stayed or dismissed pending arbitration | Stay requested while arbitration resolves claims | Move to dismiss because claims are arbitrable and Court lacks jurisdiction | Stay moot; case dismissed without prejudice |
Key Cases Cited
- Preston v. Ferrer, 552 U.S. 346 (recognizes federal policy favoring arbitration)
- LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194 (defines "refusal to arbitrate" under FAA §4)
- PaineWebber Inc. v. Faragalli, 61 F.3d 1063 (FAA §4 accrues only on unequivocal refusal to arbitrate)
- BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481 (courts should avoid appointing arbitrators absent a selection lapse)
- In re Salomon Shareholders' Derivative Litig., 68 F.3d 554 (defines "lapse" for purposes of FAA §5)