Whitehaven S.F., LLC v. Spangler
45 F. Supp. 3d 333
S.D.N.Y.2014Background
- Spangler (Florida resident) sued to void liens and the Finance Agreement after a 2008 litigation-funding advance of $50,000 from Whitehaven; the agreement included a mandatory New York–law arbitration clause and a minimum repayment of $85,000.
- Spangler had earlier taken a promissory note from Thatcher (an Indiana resident) for litigation funding; Thatcher later filed counterclaims in state court when Spangler challenged liens.
- Spangler and his attorney signed an Acknowledgement accepting Whitehaven’s lien and acknowledging counsel’s limited role; Spangler alleges unconscionability/usury/champerty.
- Spangler sued in Indiana state court (seeking to void the finance agreements); Whitehaven petitioned in federal court to compel arbitration and stay the Indiana action as to its claims.
- Spangler argued the arbitration clause is unenforceable because it violates a 2005 Assurance of Discontinuance between Whitehaven and the New York AG (which purportedly bars mandatory arbitration for "New York consumers") and because the contract is adhesive/unconscionable.
- The district court (S.D.N.Y.) held it had diversity jurisdiction, found the arbitration clause valid under New York law, refused to bind non‑signatory Thatcher to arbitration, and stayed the Indiana proceedings only as between Spangler and Whitehaven.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clause | Spangler: clause invalid because it conflicts with 2005 Assurance of Discontinuance (allegedly binding New York law) and is unconscionable/adhesive | Whitehaven: clause valid, negotiated with counsel, governed by NY law, FAA favors enforcement | Court: clause valid and enforceable; Assurance does not have force of law and clause is not unconscionable |
| Effect of 2005 Assurance of Discontinuance | Spangler: Assurance carries force/effect of law and prohibits mandatory arbitration for New York consumers, so clause unenforceable | Whitehaven: Assurance is a settlement with AG, not a statute; FAA and contract law govern arbitration | Court: Assurance is a private settlement, not state law or public policy that voids arbitration; private parties lack right to enforce Assurance against Whitehaven here |
| Unconscionability / contract of adhesion | Spangler: Finance Agreement was adhesive and arbitration clause oppressive | Whitehaven: Spangler had counsel, disclosures, cancellation right, and clause not buried or coercive | Court: procedural and substantive unconscionability not shown; clause upheld |
| Third parties / non‑signatories (Thatcher) | Thatcher: should not be stayed/arbitrated; needs to pursue counterclaims | Whitehaven: not seeking to compel Thatcher; he lacks standing to challenge clause | Court: Thatcher not bound (not signatory/third‑party beneficiary); arbitration compelled only as to Whitehaven vs. Spangler; Thatcher’s claims may proceed in court |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (U.S. 2011) (FAA preemption of state rules that categorically bar arbitration)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (U.S. 2000) (party resisting arbitration bears burden to show arbitration unsuitable)
- Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287 (U.S. 2010) (presumption of arbitrability applies only when an enforceable agreement exists)
- JLM Industries, Inc. v. Stolt‑Nielsen S.A., 387 F.3d 163 (2d Cir. 2004) (four‑part inquiry for motions to compel arbitration in the Second Circuit)
- Ragone v. Atlantic Video at Manhattan Center, 595 F.3d 115 (2d Cir. 2010) (arbitration clauses may be invalidated by generally applicable contract defenses such as unconscionability)
- T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010) (apply ordinary state‑law contract principles to arbitration‑agreement validity)