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LLC v. KTJ 216, LLC

United States District Court, D. North Dakota

April 3, 2018

KTJ 216, LLC Defendant.




         Much has been written about the palpable injustices wrought by corporations on their customers through mandatory consumer arbitration. See e.g. Lauren G. Barnes, How Mandatory Arbitration Agreements and Class Action Waivers Undermine Consumer Rights and Why We Need Congress to Act, 9 Harv. L. & Pol'y Rev. 329 (2015); Michael S. Barr, Mandatory Arbitration in Consumer Finance and Investor Contracts, 11 N.Y.U. J.L. & Bus. 793 (2015); Emily Canis, One “Like” Away: Mandatory Arbitration for Consumers, 26 Geo. Mason U. Civ. Rts. L.J. 127 (2015); Michael Van Derwood, Consumer Arbitration Clauses: An Informal Survey of Their Prevalence in 2014 for an Average American Consumer, 15 U.C. Davis Bus. L.J. 289 (2015); Jack Downing, An Important Time for the Future of Class Action Waivers and the Power Struggle Between Businesses and Consumers, 81 Mo. L. Rev. 1151 (2016); Richard Frankel, “What We Lose in Sales, We Make Up in Volume”: The Faulty Logic of the Financial Services Industry's Response to the Consumer Financial Protection Bureau's Proposed Rule Prohibiting Class Action Bans in Arbitration Clauses, 48 St. Mary's L.J. 283 (2016).

         As distasteful as it may be to dragoon the courts into an oppressive sophistry that exalts mandatory arbitration into a tool for slamming the courthouse doors in the faces of those who most need access to justice, so too courts must be even more vigilant to guard against the risks that the voluntary choice to resort to arbitration may become subject to the undue costs and delays that so plague our court systems.

         This case illustrates those risks:

         Here, the plaintiff 16th Street Investments, LLC (“16th Street”) commenced arbitration between itself and the defendant KTJ 216, LLC (“KTJ”). Notice of Removal, ECF No. 1, Exhibit 1 at ¶ 4. A three day arbitration hearing was held from December 12 to December 15, 2016, and the final arbitration award promptly was issued to both parties on March 31, 2017. Id. at ¶ 5. 16th Street was awarded $1, 773, 497 plus interest at the rate of $231.85 per day accruing on and after April 1, 2017. Id. at ¶ 6.

         “It is well settled that a court must confirm an arbitration award . . . unless a party has filed a motion with the court to vacate, modify, or correct the award within 90 days after delivery of a copy of the award.” MBNA America Bank, N.A. v. Hart, 710 N.W.2d 125, 128 (N.D. 2006). KTJ did not move to modify, correct, or vacate the final award within the ninety day appeal period and, on August 7, 2017, 16th Street moved in this Court (under its diversity jurisdiction) to confirm the arbitration award as permitted under North Dakota Century Code (“N.D.C.C.”) § 32-29.3-22.[2]


         KTJ responded to 16th Street's motion to confirm the final award by initiating a third party complaint, now amended, [3]seeking indemnity, contribution and damages for negligence, breach of contract, and fraud from non-diverse third-parties Valley Grading, Inc. (“Valley Grading”), Larry Nygaard (“Nygaard”), and Roers Development, Inc. (“RDI”) (collectively “third party defendants”) that “caused KTJ to be ‘thrust'” into arbitration with 16th Street. Def's. Am. Compl., ECF 20 at 1-2. Predictably, this slowed things down until November 15 and November 21, 2017 when the third party defendants got around to moving to dismiss. Defs.' Mot. Dismiss, ECF Nos. 23, 25. This Court heard oral argument on those motions on February 20, 2018 and oral argument on the motion to confirm the final arbitration award on March 16, 2018. Minute Entry, ECF Nos. 34-35.

         This Court simply does not have supplemental jurisdiction under 28 U.S.C. § 1367(a) over these non-diverse third party claims. For supplemental jurisdiction to be available under 28 U.S.C. § 1367(a), 16th Street's motion to confirm the final arbitration award and KTJ's amended complaint must be so related that they form part of the same case or controversy. See Myers v. Richland County, 429 F.3d 740, 746-48 (8th Cir. 2005). Claims are part of the same case or controversy if they “derive from a common nucleus of operative fact.” City of Chicago v. Int'l College of Surgeons, 522 U.S. 156, 164-65 (1997) (quoting United Mine Workers of America v. Gibbs, 383 U.S. 715, 725 (1966)). At their core, both claims stem from the development of the Southgate Crossing Shopping Center. That, however, is the extent of the factual similarities. It cannot fairly be said that KTJ's amended complaint is so related to confirmation of the arbitration award that it forms part of the same case or controversy. None of the facts required to hold Valley Grading, Nygaard, and RDI liable for attorneys' fees, arbitration costs, and damages were in any way relevant to the arbitration proceedings or are helpful in determining whether judicial confirmation is warranted. Lacking supplemental jurisdiction, the Court dismisses KTJ's amended third party complaint.


         Wait, argues KTJ, we never contested our obligation to pay something under the arbitration award. Def.'s Opp. Pl.'s Mot. Conf. Arb. Award, ECF No. 7 at 1. Indeed, we twice tendered a substantial partial payment to 16th Street. Id. at 2. Surely, we deserve something for our efforts.

         Well, yes and no. Yes, by not contesting the arbitration award KTJ deserves to have its arguments analyzed rather than ignored. But no, its arguments are without merit. Here's why:

         KTJ's first tender of partial payment was just a ploy as it included language which would have worked an accord and satisfaction had it been accepted. Its second tender of partial payment was nothing more than an offer of compromise. 16th Street's non-acceptance does not impair its right to interest from the date of the award nor the attorneys' fees expended in seeking the award's confirmation. Had KTJ been serious about reducing its obligation to pay interest, it might have made partial payment into the Court's registry. As it is, KTJ has had the use of these ...

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