Opinion
23-cv-4563 (JGK)
07-02-2024
SOLIDUSLINK AG, ET AL., Plaintiffs, v. ANDREW WARD MOEDINGER, Defendant.
MEMORANDUM OPINION AND ORDER
JOHN G. KOELTL, DISTRICT JUDGE:
The plaintiffs -- SolidusLink AG, Investatus Intermediate Holdings LLC, SolidusLink USA Inc., and Solidus Ventures GmbH -brought this action against the defendant, Andrew Moedinger, alleging that the defendant violated the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(g), and the Defend Trade Secrets Act, 18 U.S.C. § 1836, by accessing the plaintiffs' computer systems without authorization and misappropriating the plaintiffs' confidential information. See Compl. ¶¶ 1-5, 16-17, ECF No. 2. The plaintiffs seek declaratory and injunctive relief, as well as actual and punitive damages. See id. ¶ 18.
The defendant now moves to compel arbitration based on an arbitration clause in the Stockholders Agreement that he and two of the plaintiffs (SolidusLink AG and Solidus Ventures GmbH) signed on December 31, 2016. See Declaration of Andrew Moedinger (“Moedinger Decl.”), Ex. 2, ECF No. 8-3 (“Agreement”). In the alternative, the defendant moves to dismiss the plaintiffs' claim under the Computer Fraud and Abuse Act for failure to state a claim. See Def.'s Mot., ECF No. 8.
For the reasons explained below, the motion to compel arbitration is granted as to SolidusLink AG and Solidus Ventures GmbH, and this litigation is stayed pending arbitration. At this time, the defendant's motion to dismiss the Computer Fraud and Abuse Act claim is denied without prejudice as moot.
I.
The plaintiffs are in the business of building and operating technology that enables United States broker-dealers in precious metals to do business online. The plaintiffs are also in the business of developing propriety financial products for United States broker-dealers, investment advisors, and others in the financial industry. See Compl. ¶¶ 19, 36. The defendant performed extensive work for the plaintiffs between October 2014 and January 2023, including as the manager of Investatus Intermediate Holdings LLC and the chief executive officer of SolidusLink AG and SolidusLink USA Inc. See id. ¶¶ 11-12, 24-25. While the defendant was employed by the plaintiffs, the defendant entered into a Stockholders Agreement with SolidusLink AG and Solidus Ventures GmbH to purchase shares in those entities. See Agreement.
The plaintiffs allege that the defendant resigned and ceased providing services for the plaintiffs in January 2023. See Compl. ¶ 25. The plaintiffs further contend that on February 3, 2023, the defendant downloaded a draft of his resignation letter, as well as 16,000 files, from the plaintiffs' internal network, including files containing trade secrets and confidential information. See id. ¶¶ 26-30; see also id., Ex. 1, ECF No. 2-1. Finally, the plaintiffs allege that the defendant also sent unauthorized messages to third parties using the plaintiffs' marketing automation and email services system. See Declaration of Eliot Samuels (“Samuels Decl.”) ¶ 10, ECF No. 101. The defendant's alleged actions caused the plaintiffs to incur significant costs. See id. ¶¶ 11-13.
In the months following February 3, 2023, the relationship between the plaintiffs and the defendant continued to deteriorate. The defendant claims that he required proof of his work as a director because he realized that the plaintiffs might not pay his compensation, reimburse his various expenses, and repay loans to him as previously agreed. See Moedinger Decl. ¶ 7. The plaintiffs, in turn, claim that the defendant repeatedly refused to return or destroy the stolen files and initiated an anticipatory litigation in Switzerland the day before the deadline by which the plaintiffs had demanded a response to their settlement terms. See Samuels Decl. ¶¶ 14-15. In response, the defendant claims that he filed the judicial proceeding in Switzerland in the hope of reaching an agreement after his attempts to mediate were rebuffed. See Moedinger Decl. ¶ 11. The plaintiffs filed this action on May 30, 2023. See Compl. The parties met with a conciliation judge in Switzerland on August 17, 2023, but were unable to reach an agreement. See Moedinger Decl. ¶ 13.
II.
Section 3 of the Federal Arbitration Act (“FAA”) provides that:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issues involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement ....9 U.S.C. § 3.
Section 2 of the FAA provides that “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract . . . .” Id. § 2. Section 2 “reflect[s] both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract[,]” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983); Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010)).
Unless otherwise noted, this Memorandum Opinion and Order omits all internal alterations, citations, footnotes, and quotation marks in quoted text.
When considering a petition to compel arbitration under the FAA, a court must determine: “(1) whether there exists a valid agreement to arbitrate at all under the contract in question . . . and if so, (2) whether the particular dispute sought to be arbitrated falls within the scope of the arbitration agreement.” Hartford Accident and Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001). The moving party bears the initial burden of showing that there existed an agreement to arbitrate. See Hines v. Overstock.com, 380 Fed.Appx. 22, 24 (2d Cir. 2010). The burden then shifts to the party resisting arbitration to show that the agreement is inapplicable or invalid. See id. “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration[.]” Moses H. Cone, 460 U.S. at 24-25.
The parties do not cite to the New York Convention, which applies to requests to compel arbitration under the Agreement because the Agreement “aris[es] out of a legal relationship . . . which is considered as commercial,” and at least one party is a citizen of a foreign state, or the “relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” 9 U.S.C. § 202; see also Republic of Kazakhstan v. Chapman, 585 F.Supp.3d 597, 606 (S.D.N.Y. 2022) (“This Court has jurisdiction under § 203 to compel arbitration pursuant to an arbitration agreement that falls under the Convention.... The Sharing Agreement is . . . not entirely between citizens of the United States [and] . . . readily meets the ‘commercial' requirement.”). In this case, the result is the same whether the New York Convention codified at 9 U.S.C. § 201 et. seq. or the FAA is applied without reference to the Convention.
“In deciding motions to compel, courts apply a standard similar to that applicable for a motion for summary judgment.” Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229 (2d Cir. 2016). Thus, courts “consider all relevant, admissible evidence submitted by the parties and contained in pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits.” Id. Courts “must draw all reasonable inferences in favor of the non-moving party.” Id. Where there is no issue of fact that the parties agreed to arbitration, the Court may direct that arbitration proceed in the manner provided for in the parties' agreement. See id. (citing 9 U.S.C. § 4).
III.
In this case, the defendant bore his initial burden by presenting the Stockholders Agreement, which contains an arbitration clause. See Agreement § 12.2. The plaintiffs do not dispute the validity of the Agreement. Rather, the plaintiffs offer three arguments for why the Court should not stay the proceedings and compel arbitration.
A.
First, the plaintiffs argue that the defendant's motion to compel arbitration is procedurally deficient. The plaintiffs argue that the defendant did not provide the plaintiffs with the requisite demand or notice to compel arbitration. See Pls.' Opp'n at 5-6, ECF No. 10.
Whether the arbitration agreement requires notice is a matter of contract interpretation, which requires applying state contract law. See Weiss v. Am. Express Nat'l Bank, No. 19-cv-4720, 2020 WL 71085, at *1-2 (S.D.N.Y. Jan. 7, 2020) (quoting Nicosia, 834 F.3d at 229). Courts in this Circuit have occasionally denied motions to compel arbitration where the moving party failed to provide notice. However, such denials have been limited to circumstances where the arbitration clauses expressly required notice, see, e.g., id. at *2, or where the arbitration clauses did not require, but merely allowed, arbitration, such that notice was required to signal a party's choice between arbitration and litigation, see, e.g., Marcus v. Frome, 275 F.Supp.2d 496, 505 (S.D.N.Y. 2003).
The arbitration clause at issue in this case does not fall into either of these two categories. Section 12.2 of the Stockholders Agreement states:
“Any dispute, controversy or claim arising out of or in connection with this agreement, including its conclusion, validity, binding effect, amendment, breach, termination or rescission shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers of Commerce in force on the date when the Notice of Arbitration is submitted in accordance with these Rules. The number of arbitrators shall be one. The seat of
arbitration shall be Zurich and the arbitral proceeding shall be conducted in English.”
The plaintiffs read Section 12.2 to require notice. However, to the extent that Section 12.2 references notice, it does so merely to clarify which edition of the Swiss Rules of International Arbitration will govern the arbitration. That provision will be satisfied if the Court rules that arbitration is required and the notice of arbitration is submitted. Nor does Section 12.2 make arbitration optional. Rather, Section 12.2 provides that all disputes shall be subject to arbitration.
The plaintiffs further argue that the defendant's motion to compel arbitration is premature under section 4 of the FAA because the plaintiffs did not yet fail, neglect, or refuse to arbitrate. See Pls.' Opp'n at 6 (citing 9 U.S.C. § 4).
Section 4 of the FAA “impose[s] no limits on jurisdiction beyond those already imposed by basic Article III principles of standing.” Phoenix Aktiengesellschaft v. Ecoplas, Inc., 391 F.3d 433, 437 (2d Cir. 2004). If a party moves to compel arbitration before the opposing party has refused to arbitrate, there is likely no Article III case or controversy. See id. However, a party has refused to arbitrate, for purposes of section 4, if it “commences litigation.” LAIF X SPRL v. Axtel, S.A. de C.V., 390 F.3d 194, 198 (2d Cir. 2004). By bringing this action, the plaintiffs have “unambiguously manifest[ed] an intention not to arbitrate . . . .” Id.
Accordingly, the defendant's motion to compel arbitration is not procedurally deficient.
B.
The plaintiffs also argue that the defendant waived his right to arbitration because he did not demand arbitration in a timely manner, initiated litigation in Switzerland, and participated substantially in that litigation as well as in this case. See Pls.' Opp'n at 6-8.
A party waives its right to arbitration if it acts inconsistently with that right by, for example, participating in litigation. See Doctor's Associates, Inc. v. Stuart, 85 F.3d 975, 981-82 (2d Cir. 1996). However, “[t]here is a strong presumption in favor of arbitration, and waiver of the right to arbitration is not to be lightly inferred.” Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 104-05 (2d Cir. 2002). “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone, 460 U.S. at 24-25.
The Court of Appeals for the Second Circuit has traditionally considered three factors in determining whether a party waived its right to arbitrate: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.” La. Stadium & Exposition Dist. v. Merrill Lynch, Pierce, Fenner & Smith Inc., 626 F.3d 156, 159 (2d Cir. 2010). Recently, however, the Supreme Court directed courts to focus on the conduct of the party that is alleged to have waived its right, rather than the effect on the opposing party, in order to align the test for waiver of arbitration with the test for waiver in any other contract dispute. See Morgan v. Sundance, Inc., 596 U.S. 411, 418-19 (2022). The Court of Appeals for the Second Circuit has not articulated a new waiver test after Morgan, but it has suggested that the non-prejudice elements of the arbitration waiver test are still relevant. See Nicosia v. Amazon.com, Inc., No. 21-cv-2624, 2023 WL 309545, at *4 n.2 (2d Cir. Jan. 19, 2023).Thus, the Court will consider (1) the time elapsed from when litigation was commenced until the request for arbitration and (2) the amount of litigation to date, including motion practice and discovery.
Morgan could be interpreted as requiring the courts to strip any prejudice requirement from their existing analysis of waivers of the right to arbitration, as suggested in Nicosia, or requiring the courts to adopt a general contract waiver analysis. See Herrera v. Manna 2nd Ave. LLC, No. 20-cv-11026, 2022 WL 2819072, at *8 (S.D.N.Y. July 18, 2022). In some cases, the outcome may be different depending on the test that a court uses. In this case, however, as in Herrera, the outcome is the same regardless of which test is used. See id.
In this case, the first factor weighs in favor of arbitration. The defendant timely moved to compel arbitration after the plaintiffs filed their complaint. The plaintiffs' complaint is dated May 30, 2023. See Compl. The defendant moved to compel arbitration less than four months later, on September 15, 2023. See Def.'s Mot. at 19.
The second factor also weighs in favor of arbitration. In assessing this factor, “courts consider any motion practice engaged in by the parties and the extent of discovery the parties have exchanged.” Herrera, 2022 WL 2819072, at *9. In this case, the defendant has merely requested a stay and moved to compel arbitration. He has not engaged in substantive motion practice or begun litigating the merits of the dispute, nor have the parties engaged in discovery. See id. at *10 (holding that the defendants did not waive their right to arbitration because the parties had yet to engage in “substantive motion practice” or “meaningful discovery”). While the defendant did initiate a proceeding in Switzerland, his actions in that proceeding are not part of this litigation. Furthermore, the Swiss proceeding has not advanced beyond a pre-litigation stage because Swiss courts require parties to participate in a mandatory conciliation process. See Swiss Civ. P. Code Art. 197. Only after that conciliation process has failed is the plaintiff authorized to sue. See id. Art. 209.
Accordingly, the defendant has not waived his right to arbitration.
C.
Finally, the plaintiffs contend that there is no agreement to arbitrate because two of the plaintiffs -- Investatus Intermediate Holdings LLC and SolidusLink USA Inc. -- are not parties to the Stockholder Agreement. See Pls.' Opp'n at 10.
However, the plaintiffs do not dispute that the other two plaintiffs -- SolidusLink AG and Solidus Ventures GmbH -- are parties to the Agreement, or that those two plaintiffs agreed to arbitrate the dispute at issue. Accordingly, the plaintiffs' argument that Investatus Intermediate Holdings LLC and SolidusLink USA Inc. are not parties to the Agreement does not change the result that this litigation should be stayed while SolidusLink AG and Solidus Ventures GmbH participate in the arbitration.
Given the relation of the parties, it is likely that the result of the arbitration will affect the claims among the parties whether or not Investatus Intermediate Holdings LLC and SolidusLink USA Inc. are eventually drawn into the arbitration.
III.
The defendant moves, in the alternative, to dismiss the plaintiffs' claim under the Computer Fraud statute for failure to state a claim. Because the action, is stayed, that motion is denied without prejudice as moot.
CONCLUSION
The Court has considered all of the arguments raised by the parties. To the extent not specifically addressed, the arguments are either moot or without merit. For the foregoing reasons, the motion to compel arbitration is granted as to SolidusLink AG and Solidus Ventures GmbH, and this action is stayed pending arbitration. Accordingly, the defendant's motion to dismiss the Computer Fraud and Abuse Act claim is denied without prejudice as moot at this time. The Clerk is directed to close all pending motions and to stay this case.
SO ORDERED.