Court Opinion

ID: 8488603
Source: CourtListenerOpinion
Date Created: 2022-11-22 16:00:17.033882+00
Date Added: 2024-06-11T16:50:12.975590
License: Public Domain

21-2070-cv
     SDJ Investments v. Collector’s Coffee Inc.

                                UNITED STATES COURT OF APPEALS
                                    FOR THE SECOND CIRCUIT

                                             SUMMARY ORDER

     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
     CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
     PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A
     SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
     MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE
     (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY
     ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
     COUNSEL.

 1         At a stated term of the United States Court of Appeals for the Second Circuit,
 2   held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
 3   City of New York, on the 22nd day of November, two thousand twenty-two.
 4
 5           PRESENT: RAYMOND J. LOHIER, JR.,
 6                            SUSAN L. CARNEY,
 7                            ALISON J. NATHAN,
 8                                    Circuit Judges.
 9           ------------------------------------------------------------------
10
11           SDJ INVESTMENTS, LLC, ADOBE
12           INVESTMENTS, LLC, DARREN SIVERTSEN,
13           TRUSTEE OF SIVERTSEN FAMILY TRUST
14           U/A/D 10/01/2002,
15
16                           Intervenors-Plaintiffs-Appellees,
17
18                   v.                                                           No. 21-2070-cv
19
20           COLLECTOR’S COFFEE INC., DBA
21           COLLECTORS CAFE,
 1
 2                            Defendant-Intervenor-Defendant-Appellant. ∗
 3
 4            ------------------------------------------------------------------
 5
 6            FOR INTERVENORS-PLAINTIFFS-
 7            APPELLEES                                                 RICHARD A. SCHONFELD
 8                                                                      (Robert Z. Demarco, on the
 9                                                                      brief), Chesnoff & Schonfeld,
10                                                                      Las Vegas, NV
11
12            FOR INTERVENOR-DEFENDANT-
13            APPELLANT                                                 JAMES ARDOIN, Jimmy Ardoin
14                                                                      & Associates, PLLC, Bellaire,
15                                                                      TX (Stanley C. Morris,
16                                                                      Corrigan & Morris LLP, West
17                                                                      Los Angeles, CA, on the brief)
18
19            Appeal from a judgment of the United States District Court for the

20   Southern District of New York (Victor Marrero, Judge).

21            UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

22   AND DECREED that the judgment of the District Court is AFFIRMED.

23            Intervenor-Defendant-Appellant Collector’s Coffee Inc. (“CCI”) appeals

24   from a judgment of the United States District Court for the Southern District of

25   New York (Marrero, J.) denying its motion for judgment on the pleadings, and

26   granting in part and denying in part its motion for a stay pending arbitration.

     ∗
         The Clerk of Court is directed to amend the caption as set forth above.
                                                   2
 1   We assume the parties’ familiarity with the underlying facts and the record of

 2   prior proceedings, to which we refer only as necessary to explain our decision to

 3   affirm.

 4             I.   Factual Background

 5         In 2013 CCI and Mykalai Kontilai (together, “Defendants”) acquired two

 6   baseball contracts signed by Jackie Robinson (the “Contracts”). Defendants

 7   received loans from SDJ Investments, LLC, Adobe Investments, LLC, and the

 8   Sivertsen Family Trust (together, “Holders”) that were secured by the Contracts.

 9   In 2017 the Holders and Defendants entered into agreements that required

10   arbitration of future disputes between the parties concerning these loans.

11         In 2019 the Securities and Exchange Commission brought civil fraud

12   charges against Defendants alleging, among other things, that they made

13   material misrepresentations and omissions regarding the ownership and

14   valuation of the Contracts (“SEC Action”). The Holders filed a complaint in the

15   SEC Action as intervenors (“Intervenor Action”). The Intervenor Action has

16   two counts: Count One, against Defendants, seeks a declaration that the Holders

17   “have a first position perfected secured interest in the Contracts that would

18   entitle[] them to receive the first proceeds of any sale of the Contracts until their

                                               3
 1   interest is satisfied”; Count Two, against the Jackie Robinson Foundation (“JRF”),

 2   seeks a declaration that the JRF “does not have any right, title, or interest in the

 3   Contracts” and that “[CCI] had clear title/ownership to the Contracts at the time

4    it entered into its transactions with the Holders.” It also repeats the Holders’

5    request for a declaratory judgment that the Holders “have a first position

6    perfected secured interest in the Contracts.” App’x 329–32.

 7         In the Intervenor Action, Defendants moved for judgment on the

8    pleadings or, in the alternative, to stay the entire action and compel arbitration

 9   between the Holders and Defendants. The District Court (Marrero, J.) denied

10   the motion for judgment on the pleadings on the ground that the Court had

11   supplemental jurisdiction over the Intervenor Action. The District Court also

12   stayed its proceedings with respect to the Holders’ claim against the Defendants

13   (Count One) pending arbitration between those parties, but denied the requested

14   stay and allowed the claim against the JRF (Count Two) to proceed.

15          II.   Discussion

16         On appeal, CCI argues that the District Court erred in exercising

17   supplemental jurisdiction over the Intervenor Action and, in any event, that the

18   District Court should have stayed the entirety of the action pending arbitration.

                                               4
 1   Reviewing both decisions for abuse of discretion, we reject CCI’s arguments.

 2   See Valencia ex rel. Franco v. Lee, 316 F.3d 299, 306 (2d Cir. 2003) (subject matter

 3   jurisdiction); NPS Commc’n, Inc. v. Contl. Grp, Inc., 760 F.2d 463, 466 (2d Cir.

 4   1985) (partial stay).

 5         The District Court did not abuse its discretion in exercising supplemental

 6   jurisdiction over the Intervenor Action pursuant to 28 U.S.C. § 1367(a), which

 7   provides jurisdiction over “claims that are so related to claims in the action

 8   within such original jurisdiction that they form part of the same case or

 9   controversy under Article III of the United States Constitution.” “For purposes

10   of section 1367(a), claims form part of the same case or controversy if they derive

11   from a common nucleus of operative fact.” Shahriar v. Smith & Wollensky Rest.

12   Grp., Inc., 659 F.3d 234, 245 (2d Cir. 2011) (quotation marks omitted). The

13   ownership of the Contracts is central to both the SEC Action and the Intervenor

14   Action. To be sure, CCI’s ownership of the Contracts is relevant to the two

15   actions in different ways. But in both actions, whether and to what extent CCI

16   owns an interest in the Contracts is the central issue. The SEC alleges that CCI

17   misled investors by saying that it had a 100 percent interest in the Contracts,

18   when in reality, CCI had executed promissory notes giving the Holders and

                                               5
 1   others a significant interest in the Contracts. Therefore, for the SEC to prevail

 2   on this fraud claim, it will necessarily bring forth one of the factual issues

3    underlying the Holders’ claim: whether the Holders have a first position

 4   perfected secured interest in the Contracts. 1 Accordingly, “the facts underlying

 5   the federal and state claims substantially overlap[]” and “presentation of the

6    federal claim necessarily [brings] the facts underlying the state claim before the

 7   court.” Lyndonville Sav. Bank & Tr. Co. v. Lussier, 211 F.3d 697, 704 (2d Cir.

 8   2000). The District Court’s exercise of supplemental jurisdiction was therefore

 9   justified by “the values of judicial economy, convenience, fairness, and comity.”

10   Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988).

11          Next, the District Court did not abuse its discretion in granting only a

     1 CCI argues that there is no genuine dispute over the Holders’ position with respect to
     the Contracts and alleges that the Holders strategically inserted these claims to
     manufacture a basis for jurisdiction. It states that this issue was resolved by the parties
     in 2017. However, the Holders drew upon the Defendants’ answers to the SEC
     Complaint to show that “an actual and justiciable controversy exists between the
     Holders and the Defendants regarding the Holders’ rights related to the Contracts and
     their right to receive the first proceeds of any sale of the Contracts.” App’x 330.
     Additionally, this Court has strongly cautioned against assuming that a plaintiff’s
     claims were brought to manufacture subject-matter jurisdiction. See Catzin v. Thank
     You & Good Luck Corp., 899 F.3d 77, 84–85 (2d Cir. 2018). Accordingly, we do not
     believe these arguments demonstrate that the District Court’s exercise of supplemental
     jurisdiction over the Holders’ claims is an abuse of discretion.
                                                    6
 1   partial stay of the Intervenor Action. If a district court “concludes that some,

 2   but not all, of the claims in the case are arbitrable, it must then decide whether to

 3   stay the balance of the proceedings pending arbitration.” JLM Indus., Inc. v.

 4   Stolt-Nielsen SA, 387 F.3d 163, 169 (2d Cir. 2004) (quotation marks omitted).

 5   When “other persons who are parties to the underlying dispute [are] not [parties]

 6   to the arbitration agreement,” “it may be advisable to stay litigation among the

 7   nonarbitrating parties pending the outcome of the arbitration.” Moses H. Cone

 8   Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 & n.23 (1983). “That

 9   decision is one left to the district court . . . as a matter of its discretion to control

10   its docket.” Id. at 20 n.23; accord WorldCrisa Corp. v. Armstrong, 129 F.3d 71,

11   76 (2d Cir. 1997) (“We have recognized that district courts . . . may stay a case

12   pursuant to the power inherent in every court to control the disposition of the

13   causes on its docket with economy of time and effort for itself, for counsel, and

14   for litigants.”) (quotation marks omitted).

15          “[T]he movant bears a heavy burden of showing necessity for the stay.”

16   Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir. 1991). This showing will

17   depend on the relevant claim’s “[e]ffect [on] the outcome of [the] arbitration,”

18   whether “failure to stay [the] action would result in substantial prejudice,” and

                                                  7
 1   the “significant expense and inconvenience” of litigating and arbitrating

 2   simultaneously. WorldCrisa, 129 F.3d at 76. Although the extent of CCI’s

 3   ownership interest in the Contracts is central to both Count One and Count Two,

 4   the District Court did not abuse its discretion in declining to stay proceedings on

 5   Count Two. First, we afford district courts “great discretion” in declining to

 6   stay nonarbitrable claims pending arbitration of related claims. Chang v. Lin,

 7   824 F.2d 219, 222 (2d Cir. 1987). Here, when the District Court ruled, CCI had

 8   multiple avenues to advance its interest in these disputes. CCI had “every

 9   interest in demonstrating [its] ownership interest in the SEC action,” the

10   “Holders have a similar interest in the Intervenor action,” and CCI could have

11   moved to intervene in Count Two. Special App’x 10–11. Second, the progress

12   of litigation on Count Two before the District Court—including JRF’s recently-

13   filed crossclaim against CCI and CCI’s counterclaims against JRF—reduces any

14   potential prejudice to CCI. Finally, Count Two generally concerns the

15   ownership dispute between the JRF and CCI, whereas Count One generally

16   concerns the ownership dispute between the Holders and CCI. For these

17   reasons, we defer to the District Court’s decision as an exercise of its “discretion

18   to control its docket.” Moses H. Cone, 460 U.S. at 20 n.23.

                                               8
1         We have considered CCI’s remaining arguments and conclude that they

2   are without merit. For the foregoing reasons, the judgment of the District Court

3   is AFFIRMED.

4                                        FOR THE COURT:
5                                        Catherine O’Hagan Wolfe, Clerk of Court

                                           9