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Worth v. Worth

United States District Court, E.D. Pennsylvania

December 22, 2016



          KEARNEY, J.

         There is something curious in a party appealing our Order finding an arbitration clause in a Shareholders Agreement either does not apply or is waived, obtaining a stay of all proceedings towards trial pending his appeal and then, forty-eight hours later, filing an arbitration demand on the same Shareholders Agreement. While not contemptuous, the party's conduct borders on "too cute". We are not persuaded by his creative advocacy. We cannot overlook the issue of whether the parties' disputes concerning the plaintiffs claims his brother harmed their family owned company and oppressed his shareholder rights must be resolved, by agreement, before our jury and not in arbitration. Even if reasonable minds could disagree and seek appellate review, reasonable minds would have a herculean task to allow the same appealing party to turn around and file an arbitration demand based on the same fact issues now stayed, at his request, while he appeals to our Court of Appeals.[1] We cannot find a valid basis to allow the post-appeal arbitration to proceed and our accompanying Order stays the post-appeal arbitration demand under the same Shareholders Agreement pending his appeal concerning the scope of arbitration now before the Court of Appeals.

         I. Background

         Mark Worth disputes a series of his brother Stephen's business decisions involving their family business, Worth and Company.[2] In October 2015, Mark sued Stephen in Pennsylvania state court.[3] After actively litigating there for nine months, Mark withdrew his state court case and started here against Stephen and several codefendants based on the same facts now dressed in federal statutory claims subject to review at summary judgment and trial.[4] Mark's claims derive from a minority shareholder oppression claim against Stephen, who had allegedly frozen Mark out of the Company and ordered Mark to stay away from the Company and its employees.[5] As a result, Mark claims he could not return to work. Mark never claims he quit work but Stephen could certainly raise this defense when we proceed to trial.

         Stephen and his codefendants moved to compel arbitration of this case under a Shareholders Agreement, although they did not raise arbitration in the nine months of litigating in state court.[6] At oral argument, Mark conceded his claims were either entirely derivative or fell within a carve out to the arbitration clause excluding arbitration on matters relating to the Company's operation and management. On November 29, 2016, we denied Stephen's motion to compel arbitration finding Mark's claims fell within the carve-out of the arbitration clause as they related to the operation or management of the Company.[7] We also found even if Mark's individual statutory claim for minority shareholder oppression did not involve the Company's operation or management and thus may be subject to the arbitration clause, Stephen waived his right to arbitrate by litigating these same fact issues in state court for nine months without mentioning arbitration.[8] After denying Stephen's motion to compel arbitration, we set the discovery schedule, required F.R.Evid. 408 exchanges, set summary judgment deadlines and attached counsel for trial beginning May 30, 2017.[9]

         On the same day we issued our Order denying his Motion to compel arbitration and setting a discovery and trial schedule, Stephen filed a Notice of Appeal and moved to stay our trial schedule during the pendency of the appeal.[10] We granted Stephen's motion to stay recognizing our lack of jurisdiction in proceeding with discovery and towards the May 30, 2017 trial during the pendency of Stephen's appeal.[11]

         Assured he had obtained the stay of our trial schedule in this Court, Stephen waited just two days to turn around and file a demand for arbitration of issues in the same Shareholders Agreement then on appeal.[12] Stephen seeks an arbitration order requiring Mark to sell his shares to Stephen under Sections 7 and 10 of the Shareholders Agreement because Mark no longer worked full time at the Company.[13]

         II. Analysis

         Mark now moves to stay Stephen's post-appeal arbitration demand, arguing Stephen's arbitration claim is a backdoor attempt to circumvent our Order denying Stephen's motion to compel arbitration and Stephen's oppressive conduct caused any change in his employment status.[14]Stephen counters his post-appeal arbitration under the same Shareholders Agreement based on Mark's non-employment status provoking a buyout is separate and distinct from the stayed trial issues. Stephen also argues his claim can be arbitrated pending appeal even if it shares factual issues with Mark's claims against him. While we do not find Stephen's conduct is contemptuous, we will stay his end run of our November 29, 2016 Order which he is now appealing.

         A. We have jurisdiction to decide this motion.

         We retain jurisdiction to decide this motion seeking to preserve the status quo after Stephen's appeal. Filing a notice of appeal generally divests district courts of jurisdiction over the case.[15] Our Court of Appeals has adopted the majority rule of automatic divestiture after an interlocutory appeal is taken under Section 16(a) of the Federal Arbitration Act.[16] But there are exceptions to this general rule for matters "collateral to the appeal on the merits."[17] District courts retain jurisdiction over such matters such as injunctions, sanctions, and attorney's fees.[18]Orders to stay litigation also fall within these exceptions.[19] Courts have considered motions to stay arbitration in similar circumstances.[20] This makes sense - a decision on a motion to stay has no bearing on the merits of the parties' substantive arguments. Instead, it involves the court using its sound discretion to best manage the litigation and the parties' needs. Such a decision is collateral to the issue on appeal, which is whether Mark's claims fall within the scope of the Shareholders Agreement's arbitration clause or whether Stephen waived his claim to seek arbitration by litigating for nine months in state court without mentioning arbitration. We entertain jurisdiction to decide this motion.

         B. We stay Stephen's demand for arbitration pending appeal.

         Motions to stay arbitration proceedings are governed by Fed.R.Civ.P. 62(c).[21] We consider whether: (1) the stay applicant has made a strong showing he is likely to succeed on the merits; (2) the applicant will be irreparably injured absent a stay; (3) issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) an injunction will affect the public interest.[22]

         The factors favor our stay of Stephen's post-appeal arbitration demand seeking to arbitrate the value of Mark's ownership interest based on a finding he resigned employment. Mark argues he did not resign and Stephen's operations and management of the Company oppressed him and locked him out of work. These are the issues ...

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