7:21-cv-10838
S.D.N.Y.Mar 9, 2022Background
- Plaintiffs Streamlined Consultants, Inc. and Moshe Schoenwald sued to declare void a June 18, 2021 Future Receipts Sale Agreement (sale of $118,260 for $81,000; 10% of monthly receivables; ACH debits), alleging usury and seeking to enjoin collections. Plaintiffs filed in New York state court; Forward removed to the SDNY.
- Forward Financing alleges multiple returned ACH debits, assessed returned-item fees, and contends Plaintiffs breached the Agreement and committed fraud; Forward initiated AAA arbitration and filed a related arbitration claim.
- Forward also filed a motion to dismiss/compel arbitration in federal court; Plaintiffs moved for leave to file a motion to stay the parallel AAA arbitration pending court resolution, asserting the Agreement is void and arbitration should be enjoined in furtherance of public policy and judicial economy.
- Forward opposes a stay, arguing lack of personal jurisdiction (improper service in state court), that the Federal Arbitration Act (FAA) governs and preempts state-law arguments, and that challenges to the contract as a whole (e.g., usury) must be decided by the arbitrator under Buckeye.
- The Court waived the Individual Rules pre-motion conference, granted Plaintiffs leave to file a motion to stay the arbitration, and set a briefing schedule (service dates and May 24, 2022 filing/deadline); the Court did not resolve the substantive stay or arbitrability issues in this endorsement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the parallel AAA arbitration should be stayed pending this Court's ruling | Plaintiffs: the Agreement is void for usury so arbitration is not enforceable; stay preserves Court authority and judicial economy | Forward: no automatic stay; FAA applies and Plaintiffs bear burden to show arbitration unsuitable; Forward properly invoked arbitration | Court did not decide merits — granted Plaintiffs leave to file a motion to stay and set briefing schedule |
| Who decides arbitrability when Plaintiff challenges contract as usurious | Plaintiffs: court should enjoin arbitration because the entire Agreement is void | Forward: under Buckeye, challenges to the contract as a whole go to the arbitrator; court should compel arbitration | Not decided on merits in endorsement |
| Applicability of FAA and preemption of state-law schemes | Plaintiffs relied on state decisions to seek injunction | Forward: FAA applies (interstate transaction) and preempts inconsistent state statutes; FAA standards govern | Not decided on merits in endorsement |
| Personal jurisdiction / proper service in state-court action | Plaintiffs: (implicit) state action filed and seek to enjoin arbitration | Forward: Plaintiffs never properly served Forward in state court; lack of service defeats injunctive relief | Not decided on merits in endorsement; Forward raised service as defense in briefing, but Court only granted leave to file motion to stay |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (challenge to validity of contract as a whole is for arbitrator under FAA)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) (party resisting arbitration bears burden to prove arbitration unsuitable)
- In re American Express Financial Advisors Securities Litigation, 672 F.3d 113 (2d Cir. 2011) (discusses court authority to enjoin arbitration under FAA)
- McIntire v. China MediaExpress Holdings, Inc., 113 F. Supp. 3d 769 (S.D.N.Y. 2015) (FAA limits court power to enjoin arbitration to situations where agreement is invalid or nonbinding)
- Societe Generale de Surveillance v. Raytheon European Management & Systems Co., 643 F.2d 863 (1st Cir. 1981) (enjoining arbitration where no agreement to arbitrate is the counterpart to compelling arbitration where agreement exists)
- Sanders v. Gardner, 7 F. Supp. 2d 151 (E.D.N.Y. 1998) (FAA preempts incongruent state statutory schemes)