214 A.D.3d 1
N.Y. App. Div.2023Background
- P.S. Finance, LLC (PSF), a New York litigation funder, entered a March 14, 2012 funding package with Texas company Eureka Woodworks: an Agreement to Pay (governed by New York law, with a New York forum-selection clause and an arbitration clause), an Irrevocable Lien, and an Attorney Acknowledgment signed and notarized by attorney Timothy Parker.
- The Attorney Acknowledgment required the attorney to distribute any "proceeds of the Litigation" in accordance with the funding agreement and acknowledged review/explanation of the funding contract.
- Eureka claimed two interim payments from the Gulf Coast Claims Facility (GCCF); PSF contended those payments were proceeds due to PSF under the funding agreement and sued in Richmond County by motion for summary judgment in lieu of complaint (CPLR 3213).
- Attorney defendants (Parker and Parker Law Firm) moved to dismiss for lack of personal jurisdiction; they asserted they were non‑signatories to the funding agreement and had minimal New York contacts.
- The Supreme Court, sua sponte, directed arbitration and dismissed the action; the attorney defendants appealed. The Appellate Division reversed the sua sponte arbitration directive, addressed jurisdiction, and resolved the merits as to the attorney defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May a court, on its own motion, direct parties to arbitrate? | PSF did not request arbitration; but arbitration clause exists. | Court may enforce arbitration where clause governs. | Courts should not sua sponte direct arbitration; arbitration must be requested by a party. |
| Did PSF waive any right to arbitrate by commencing and litigating in court? | PSF argued any litigation was protective and did not waive arbitration. | Attorney defendants: PSF waived arbitration by suing and not moving to compel. | PSF waived arbitration: commencing suit and litigating without seeking arbitration constituted waiver. |
| Are non‑signatory attorney defendants bound by the funding agreement’s New York forum‑selection clause (personal jurisdiction)? | PSF: attorney acknowledgment incorporated and related to the funding agreement; attorneys are closely related to transaction and foreseeable to be bound. | Attorneys: they never signed funding agreement; acknowledgment did not consent to NY jurisdiction; lack minimum contacts. | Attorneys are bound: they signed Attorney Acknowledgment (related agreement) and were closely related to the transaction and Eureka, so enforcement of forum clause against them comports with due process. Motion to dismiss for lack of personal jurisdiction denied. |
| Did the attorney defendants breach contract / implied covenant / fiduciary duty by not paying PSF the GCCF interim payments? | PSF: "any proceeds" language in acknowledgment required payment of the subject GCCF payments. | Attorneys: their duty to pay was conditioned on receipt of proceeds via a settlement, judgment, or verdict per the Agreement to Pay; GCCF interim payments were not such proceeds. | Defendants entitled to summary judgment: the funding agreement unambiguously made payment contingent on a settlement, judgment or verdict; interim GCCF payments did not satisfy that express condition precedent. Claims for breach of implied covenant and fiduciary duty dismissed as duplicative. |
Key Cases Cited
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. 1985) (FAA enforces arbitration agreements upon motion of a party; Court does not direct arbitration sua sponte)
- Sherrill v. Grayco Bldrs., 64 N.Y.2d 261 (N.Y. 1984) (protective court filings do not automatically waive arbitration when urgency requires immediate relief)
- Cusimano v. Schnurr, 26 N.Y.3d 391 (N.Y. 2015) (party conduct can constitute waiver of arbitration)
- International Shoe Co. v. Washington, 326 U.S. 310 (U.S. 1945) (due process limits on personal jurisdiction)
- MHR Capital Partners L.P. v. Presstek, Inc., 12 N.Y.3d 640 (N.Y. 2009) (language such as "if", "until" signals an express condition precedent)
- BR Ambulance Serv. v. Nationwide Nassau Ambulance, 150 A.D.2d 745 (App. Div. 2d Dep't 1989) (existence of arbitration clause does not authorize dismissal absent arbitration award)
- Oak Rock Finance, LLC v. Rodriguez, 148 A.D.3d 1036 (App. Div. 2d Dep't 2017) (related documents executed together are construed as one agreement; non‑signatory may be bound where agreements are related)