Somerset Consulting, LLC v. United Capital Lenders, LLC
2011 U.S. Dist. LEXIS 131444
| E.D. Pa. | 2011Background
- Plaintiffs Somerset Consulting, LLC and Schmeling sue United Capital Lenders, LLC and two individuals for ten claims arising from April 2008 consulting/referral agreements.
- The agreements included an arbitration clause in Section 8, with JAMS as administrator, located in Philadelphia, PA.
- Defendants moved to dismiss and compel arbitration under Fed. R. Civ. P. 12(b)(6); plaintiffs oppose arguing discovery is needed to assess arbitrability and unconscionability.
- Plaintiffs allege United breached, and seek various relief including accounting, unjust enrichment, and attorney’s fees; defendants respond that claims are arbitrable and governed by the arbitration clause.
- The court analyzes whether to apply Rule 12(b)(6) or Rule 56 standards and whether discovery is warranted before ruling on arbitration.
- The court grants the motion to compel arbitration, dismisses counts I–X, and directs arbitration under the 2008 agreement; case to be closed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard for arbitrability ruling | Arbitrability should be assessed with discovery under summary-judgment standards. | Arbitrability should be decided under 12(b)(6) or promptly decided with limited discovery. | Arbitrability to be decided under 12(b)(6) standards without discovery. |
| Is the arbitration clause enforceable against the plaintiffs | Clause is unconscionable due to adhesion, lack of counsel, and bargaining power disparity. | Clause is valid; consideration favors enforcing arbitration. | Clause not procedurally or substantively unconscionable as pleaded; enforceable. |
| Availability of injunctive relief in arbitration | Arbitration cannot provide injunctive relief for ongoing covenants and asset preservation. | Arbitration rules permit interim measures, including injunctions, through JAMS. | Injunctive relief available through arbitral interim measures; does not defeat arbitration. |
| Disposition following arbitration enforcement | Case should proceed in court due to ongoing relief needs and potential non-arbitrable issues. | Case should be stayed and ultimately dismissed in favor of arbitration. | Amended complaint dismissed; case closed and referred to arbitration. |
Key Cases Cited
- Palcko v. Airborne Express, Inc., 372 F.3d 588 (3d Cir.2004) (motion to compel arbitration treated as dismissal for failure to state claim; summary judgment standard not required)
- Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51 (3d Cir.1980) (summary judgment-like consideration for arbitrability)
- Vilches v. The Travelers Companies, Inc., 413 F. App’x 487 (3d Cir.2011) (arb. motion standard aligns with summary judgment framework)
- Green Tree Fin. Corp.—Alabama v. Randolph, 531 U.S. 79 (Supreme Court 2000) (pre-arbitration discovery to assess costs; availability of discovery in arbitratability)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (Supreme Court 2006) (two types of challenges to arbitration: to the agreement itself vs the contract as a whole)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (Supreme Court 1967) (separation of issues: fraud in inducement of arbitration clause vs contract generally)
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (Supreme Court 1985) (FAA aims for speedy dispute resolution and enforcement of private agreements)