Court Opinion

ID: 6331398
Source: CourtListenerOpinion
Date Created: 2022-04-14 00:00:25.196396+00
Date Added: 2024-06-11T09:23:10.518939
License: Public Domain

Case: 21-50609     Document: 00516278837         Page: 1    Date Filed: 04/13/2022

           United States Court of Appeals
                for the Fifth Circuit                                United States Court of Appeals
                                                                              Fifth Circuit

                                                                            FILED
                                                                        April 13, 2022
                                  No. 21-50609                         Lyle W. Cayce
                                                                            Clerk

   Noble Capital Fund Management, L.L.C.; TXPLCFQ,
   L.L.C.; TXPLCFNQ, L.L.C.,

                                                           Plaintiffs—Appellees,

                                      versus

   US Capital Global Investment Management, L.L.C.,
   formerly known as US Capital Investment Management,
   L.L.C.,

                                                        Defendant—Appellant.

                  Appeal from the United States District Court
                       for the Western District of Texas
                           USDC No. 1:20-CV-1247

   Before Richman, Chief Judge, and Higginbotham and Elrod,
   Circuit Judges.
   Patrick E. Higginbotham, Circuit Judge:
         This case arises from a dispute regarding a joint financial venture
   between Noble Capital Fund Management, L.L.C. and US Capital Global
   Investment Management, L.L.C. Following the termination of the arbitration
   proceedings, Noble sought to resolve its claims in court. The district court
   denied US Capital’s motion to stay judicial proceedings and compel
   arbitration.US Capital now appeals that decision. We affirm.
Case: 21-50609       Document: 00516278837            Page: 2     Date Filed: 04/13/2022

                                       No. 21-50609

                                            I.
           In 2016, Noble and US Capital conducted preliminary discussions
   regarding a joint real estate investment venture. In 2017, Noble created two
   separate funds—TXPLCFQ, L.L.C. and TXPLCFNQ, L.L.C. (collectively
   the “Feeder Funds”)—to provide an initial contribution to the joint venture.
   Noble’s investors placed $25 million into the Feeder Funds. The Feeder
   Funds and US Capital entered into the Limited Partnership Agreement to
   establish the US Capital/Noble Capital Texas Real Estate Income Fund, LP
   (the “Fund”). Under the LPA, US Capital was the Fund’s general partner.
   Noble, US Capital, and the Fund then entered into the Management
   Advisory Services Agreement, whereby Noble was in charge of making
   investments for the Fund. Both agreements had enforceable arbitration
   clauses. 1
           The relationship between the parties quickly soured. On January 15,
   2019, Noble and the Feeder Funds initiated a JAMS arbitration against US
   Capital, alleging that US Capital engaged in fraud, mismanaged and
   converted the Fund’s assets, attempted to usurp Noble’s client network, and
   breached its contractual and fiduciary duties. While the arbitration was
   proceeding, the Fund sued Noble in the Northern District of California; 2 this
   suit was stayed and consolidated with the JAMS proceeding.
           On July 10, 2019, a JAMS arbitrator entered an Emergency
   Arbitrator’s Award, in part enjoining US Capital from causing the Fund to
   use Fund money for its lawsuit or the outside investigation it was conducting

           1
            See Noble Cap. Grp., L.L.C. v. US Cap. Partners, Inc., No. 20-50721, 2021 WL
   3477481 (5th Cir. Aug. 6, 2021).
           2
           See US Cap./Noble Cap. Tex. Real Est. Income Fund, LP v. Newman, 3:19-cv-2750
   (N.D. Cal. May 20, 2019).

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                                    No. 21-50609

   into Noble. The Fund then filed a motion to clarify or modify the emergency
   arbitrator’s partial award. On September 19 and 20, 2019, a JAMS panel
   conducted a hearing on the Fund’s motion. In its Partial Final Award, the
   JAMS panel placed an immediate freeze on the Fund’s remaining assets
   absent a further order.
          A final JAMS hearing on the merits was set for January 2021.
   However, on August 11, 2020, the Fund claimed it could not pay its portion
   of the JAMS expenses due to the freeze imposed by the Partial Final Award
   and required an order directing Noble to pay the Fund’s portion of the
   expenses. The Fund claimed that if Noble was not ordered to pay the Fund’s
   cost, the arbitration of the Fund’s claims against Noble must be terminated
   so that the Fund could resume its litigation in federal court. Neither Noble
   nor US Capital paid the Fund’s expenses in order to sustain the arbitration.
   The JAMS panel terminated the arbitration, and the arbitration was officially
   closed as of October 26, 2020.
          On November 24, 2020, Noble and the Feeder Funds sued US Capital
   in Texas state court, asserting claims for fraud and fraudulent inducement,
   breach of fiduciary duty, breach of contract, and tortious interference. The
   case was removed to federal court. US Capital moved to compel arbitration
   and stay proceedings, or dismiss the action, or transfer venue to the Northern
   District of California. After referring US Capital’s motions to a magistrate
   judge, the district court adopted the magistrate judge’s Report and
   Recommendation in full and denied each of US Capital’s motions. US
   Capital appeals the denial of its motion to compel arbitration and stay judicial
   proceedings and the denial of its motion to transfer.
                                         II.
          We have jurisdiction over an appeal of the district court’s denial of a
   motion to compel arbitration and stay judicial proceedings pursuant to 9

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   U.S.C. § 16(a)(1)(A) and 28 U.S.C. § 1332(a) as there is complete diversity
   between the parties. 3 “We review de novo a district court’s denial of a motion
   to compel arbitration and to stay judicial proceedings pursuant to the
   [Federal Arbitration Act].” 4
           Section 3 of the Federal Arbitration Act requires that, where a suit is
   referable to arbitration, judicial proceedings be stayed until arbitration has
   been had in accordance with the terms of the arbitration agreement. 5 Before
   us today is whether arbitration has been had and the parties may now pursue
   their claims in court.
           Here the parties’ arbitration agreements called for arbitration
   pursuant to JAMS Comprehensive Arbitration Rules and Procedures, which
   included the right of JAMS to terminate the arbitration proceedings for
   nonpayment of fees by any party. 6 Exercising this right, JAMS terminated the
   arbitration proceeding following the Fund’s nonpayment. Following the lead
   of our sister circuits, we conclude that arbitration ‘has been had.’ 7 Even
   though the arbitration did not reach the final merits and was instead

           3
               See Badgerow v. Walters, No. 20-1143, --- S. Ct. --- (U.S. Mar. 31, 2022).
           4
               Galey v. World Mktg. All., 510 F.3d 529, 531 (5th Cir. 2007).
           5
               9 U.S.C. § 3.
           6
              See JAMS Rule 6(c) (“If, at any time, any Party has failed to pay fees or expenses
   in full, JAMS may order the suspension or termination of the proceedings.”).
           7
             See Tillman v. Tillman, 825 F.3d 1069, 1072–74 (9th Cir. 2016) (holding that
   arbitration had been had where arbitration was terminated after the plaintiff was unable to
   pay her portion of the arbitration fees); Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287,
   1293–94 (10th Cir. 2015) (affirming the lift of a stay of judicial proceedings after a party
   failed to pay arbitration fees and the arbitration proceedings were terminated by the
   arbitrator); and Freeman v. SmartPay Leasing, LLC, 771 F. App’x 926, 934–35 (11th Cir.
   2019) (affirming the lift of a stay of judicial proceedings after the party seeking to enforce
   the arbitration agreement failed to pay its JAMS filing fees and JAMS terminated the
   arbitration).

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   terminated because of a party’s failure to pay its JAMS fees, the parties still
   exercised their contractual right to arbitrate prior to judicial resolution in
   accordance with the terms of their agreements.
          US Capital argues that the circumstances of the arbitration’s
   termination, here for non-payment by a party, should control. But the statute
   does not ask why the arbitration terminated and thus the inquiry over
   whether arbitration “has been had” does not require us to examine the cause
   of the arbitration’s termination, only that arbitration has been had in
   accordance with the terms of the agreement. There is no arbitration to return
   this case to and parties may not avoid resolution of live claims through
   compelling a new arbitration proceeding after having let the first arbitration
   proceeding fail. Therefore, the district court properly denied US Capital’s
   motion to stay judicial proceedings and compel arbitration.
                                               III.
          US Capital alternatively appeals the denial of its motion to transfer.
   However, prior to addressing the merits of the motion to transfer, we must
   satisfy ourselves that appellate jurisdiction is proper. 8 As no statute
   specifically grants appellate jurisdiction and the district court has not
   certified its denial of the motion to transfer for appeal under 28 U.S.C.
   § 1292(b), we only have jurisdiction if we can exercise pendent appellate
   jurisdiction over the denial of the motion to transfer.
          “Pendant appellate jurisdiction is only proper in rare and unique
   circumstances where a final appealable order is ‘inextricably intertwined’
   with an unappealable order or where review of the unappealable order is

          8
              Thornton v. Gen. Motors Corp., 136 F.3d 450, 453 (5th Cir. 1998) (per curiam).

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   necessary to ensure meaningful review of the appealable order.” 9 The factors
   considered in reviewing a denial of a motion to transfer venue are entirely
   distinct from the factors considered in reviewing a denial of a motion to stay
   judicial proceedings and compel arbitration. 10 Because we need not consider
   the motion to transfer venue in order to address the motion to compel
   arbitration and stay proceedings, the two issues are not inextricably
   intertwined. And these issues are not so related as to where resolving them
   together would promote judicial economy. 11 We find no pendent jurisdiction
   over the denial of the motion to transfer and decline to consider this issue
   further.
                                                 IV.
           For the foregoing reasons we AFFIRM the district court’s denial of
   the motion to stay judicial proceedings and compel arbitration and we
   DISMISS the appeal of the district court’s denial of the motion to transfer
   for a lack of jurisdiction.

           9
                Id.
           10
               See Lavigne v. Herbalife, Ltd., 967 F.3d 1110, 1120–21 (11th Cir. 2020) (affirming
   a district court’s denial of a motion to compel arbitration and finding that Eleventh Circuit
   did not have pendent jurisdiction to consider the accompanying denial of a motion to
   transfer venue).
           11
                See Thornton, 136 F.3d at 453.

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