Blueprint Capital Advisors LLC v. State of New Jersey Division of Investment

• Court: Court of Appeals for the Third Circuit
• Decided: December 22, 2023
• Docket: 23-1116
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _______________

No. 23-1116 _______________

BLUEPRINT CAPITAL ADVISORS, LLC

v.

STATE OF NEW JERSEY DIVISION OF INVESTMENT; BLACKROCK, INC.; BLACKROCK ALTERNATIVE ADVISORS; CLIFFWATER, LLC; TIMOTHY WALSH, in his individual and professional capacities; SAMANTHA ROSENSTOCK, in her individual and professional capacities; JASON MACDONALD, in his individual and professional capacities; CHRISTOPHER MCDONOUGH, in his individual and professional capacities; COREY AMON, in his individual and professional capacities; DINI AJMANI, in her individual and professional capacities; PHILIP MURPHY, in his official capacity as Governor of the State of New Jersey; OWL ROCK CAPITAL CORPORATION; DERRICK GREEN; GEORGE HELMY; MATTHEW PLATKIN, in their individual and professional capacities

Timothy Walsh, Appellant _______________

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 2:20-cv-07663) District Judge: Honorable Julien X. Neals _______________

Submitted Pursuant to Third Circuit L.A.R. 34.1(a) November 17, 2023

Before: CHAGARES, Chief Judge, MATEY and FUENTES, Circuit Judges.

(Filed: December 22, 2023) _______________

OPINION* _______________ FUENTES, Circuit Judge.

Blueprint Capital Advisors, LLC (“BCA”) sued a former member of its advisory

board, Timothy Walsh, for allegedly participating in a discriminatory conspiracy to

misappropriate BCA’s confidential and proprietary investment model for public pension

funds. Walsh argues that BCA’s claims against him must be resolved by arbitration due

to an arbitration clause in the Transaction Agreement entered into between BCA and

Walsh’s living trust. We cannot address that issue because the arbitration clause

delegates the threshold question of arbitrability to an arbitrator. So we will vacate the

District Court’s order denying Walsh’s motion to compel arbitration and remand for

further proceedings.

I.1

A.

BCA is an investment advisory firm. BCA and Walsh’s trust2 entered into the

Transaction Agreement in June 2017, approximately two years after Walsh joined BCA’s

advisory board. Under the Transaction Agreement, Walsh’s trust made a $75,000 capital

* This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding precedent. 1 Because we write solely for the parties, we recite only the facts necessary to our disposition. 2 We will not consider BCA’s argument that Walsh is not a party to the Transaction Agreement and therefore cannot invoke the arbitration clause because that argument was raised for the first time on appeal. See Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 249 (3d Cir. 2013) (citing Singleton v. Wulff, 428 U.S. 106, 120 (1976)). 2 contribution to BCA. In exchange, Walsh’s trust became a “Member” of BCA with

“rights and responsibilities” set forth in the Transaction Agreement.3

As part of the Transaction Agreement, Walsh’s trust “confirm[ed] and agree[d]”

that:

[I]t has not and shall not; and . . . its Affiliates have not and [it] shall cause . . . its Affiliates not to, directly or indirectly, disclose(d) to any Person or use(d) for [its] own benefit any BCA Party Confidential Information . . . concerning the business, contacts, finances or operations of the BCA Parties or their respective Affiliates.4

The Transaction Agreement also includes an arbitration clause, which states:

Any controversy or claim arising out of or relating to this Agreement or the breach thereof, that cannot be settled between the Parties, shall be settled by arbitration in accordance with AAA and pursuant to the AAA Rules; provided, that each Party shall retain his or its right to commence an action to obtain specific performance or other equitable relief from any court of competent jurisdiction.5

The Transaction Agreement defines “AAA Rules” to mean “the Commercial Arbitration

Rules of the American Arbitration Association.”6 The Transaction Agreement also states

that it “supersede[s] all other prior agreements and understandings, whether oral, written,

or electronic, among the Parties hereto and their respective Affiliates with respect to the

subject matter hereof or thereof . . . .”7

3 App. 245. 4 App. 250. 5 App. 257 (emphasis in original). 6 App. 282. 7 App. 258. 3 B.

BCA’s complaint—initially filed in June 2020 but subsequently amended in

November 2020—alleges that Walsh used his advisory position to extract BCA’s

confidential information. It asserts claims of racketeering, fraud, breach of contract,8

breach of fiduciary duty, and civil conspiracy against Walsh, and seeks declaratory relief,

monetary damages, and attorneys’ fees and costs from him.9

In February 2021, Walsh moved to dismiss the Amended Complaint or to compel

arbitration based on the Transaction Agreement’s arbitration clause. In December 2022,

the District Court denied Walsh’s motion to dismiss in significant part and denied his

motion to compel arbitration in its entirety. On Walsh’s motion to compel arbitration, the

District Court concluded that the dispute falls outside the scope of the arbitration clause,

but did not first consider whether the parties agreed to delegate the issue of arbitrability

to an arbitrator. Walsh appeals only the District Court’s denial of his motion to compel

arbitration.

II.

The District Court had jurisdiction under 28 U.S.C. §§ 1331, 1367, and we have

jurisdiction pursuant to 28 U.S.C. § 1291 and 9 U.S.C. § 16.10 We exercise plenary

8 BCA’s breach of contract claim does not explicitly refer to the Transaction Agreement. Rather, BCA alleges that “Walsh contracted with BCA to serve as a member of BCA’s advisory board,” “owed BCA a duty of confidentiality associated with his agreement to serve as a member of the advisory board,” and “breached his duties to BCA by, among other things, disclosing proprietary confidential information.” App. 234. 9 The Amended Complaint seeks injunctive relief against other defendants. 10 See Griswold v. Coventry First LLC, 762 F.3d 264, 268 (3d Cir. 2014). 4 review over the District Court’s order on a motion to compel arbitration, except for

underlying findings of fact, which we review for clear error.11

III.

The Supreme Court has consistently held that parties may agree to have an

arbitrator, rather than a court, resolve threshold arbitrability questions, “such as whether

the parties have agreed to arbitrate or whether their agreement covers a particular

controversy.”12 If the parties have a valid arbitration agreement that delegates the issue

of arbitrability to an arbitrator by “clear and unmistakable” evidence, “a court possesses

no power to decide the arbitrability issue.”13 “That is true even if the court thinks that the

argument that the arbitration agreement applies to a particular dispute is wholly

groundless.”14

There is no dispute that the parties have a valid arbitration agreement,15 and Walsh

argues that the parties’ incorporation of the rules of the American Arbitration Association

(“AAA”) in the arbitration agreement constitutes “clear and unmistakable” evidence of

their agreement to delegate arbitrability questions to an arbitrator. We agree.

11 See Morales v. Sun Constructors, Inc., 541 F.3d 218, 221 (3d Cir. 2008). 12 Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530, 529 (2019) (quoting Rent–A–Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010) and citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943-44 (1995)). 13 Id. (quoting First Options, 514 U.S. at 944); see also Williams v. Medley Opportunity Fund II, LP, 965 F.3d 229, 237 (3d Cir. 2020). 14 Henry Schein, 139 S. Ct. at 529. 15 Because there was no challenge to the validity of the arbitration clause before the District Court, we will treat the arbitration clause as a valid and enforceable agreement. See Robert D. Mabe, Inc. v. OptumRX, 43 F.4th 307, 326 (3d Cir. 2022) (quoting MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974 F.3d 386, 397 (3d Cir. 2020)). 5 The arbitration clause states that “[a]ny controversy or claim arising out of or

relating to this Agreement or the breach thereof . . . shall be settled by arbitration in

accordance with AAA and pursuant to the AAA Rules,”16 which the Transaction

Agreement defines as the AAA’s Commercial Arbitration Rules.17 And Rule 7(a) of the

AAA Rules states that “[t]he arbitrator shall have the power to rule on his or her own

jurisdiction, including any objections with respect to the existence, scope, or validity of

the arbitration agreement or to the arbitrability of any claim or counterclaim.”18 Because

the AAA Rules empower an arbitrator to resolve arbitrability questions, their

incorporation into an arbitration agreement may constitute a clear and unmistakable

delegation of arbitrability, so long as the parties’ agreement does not present ambiguity as

to that delegation.19

Here, no ambiguity exists. The arbitration clause broadly applies both to

controversies or claims that arise under the Transaction Agreement and those that relate

to the Transaction Agreement or its breach,20 and a dispute over arbitrability surely

16 App. 257. 17 App. 282. 18 American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 7(a). 19 See Chesapeake Appalachia, LLC v. Scout Petrol., LLC, 809 F.3d 746, 763 (3d Cir. 2016) (holding that the incorporation of unspecified AAA rules requiring a “daisy-chain” of cross-references to the AAA’s Supplementary Rules did not serve as a clear and unmistakable delegation to an arbitrator to decide class arbitrability); HealthplanCRM, LLC v. AvMed, Inc., 458 F. Supp. 3d 308, 322-23 (W.D. Pa. 2020) (holding that the incorporation of the AAA’s Commercial Arbitration Rules in a bilateral arbitration agreement constituted a clear and unmistakable delegation of arbitrability). 20 We disagree with BCA’s argument that the arbitration clause expressly excludes claims that predate the Transaction Agreement. Nowhere does the Transaction Agreement impose such a rigid temporal restriction. 6 relates to the Transaction Agreement.21 Although the arbitration clause excludes claims

that seek “specific performance or other equitable relief,”22 that carve-out does not

narrow the delegation where, as here, neither form of relief is sought.23 Furthermore, the

Transaction Agreement clearly and unmistakably specifies that the AAA’s Commercial

Arbitration Rules apply, making Rule 7(a) readily accessible. We therefore hold that the

arbitration clause clearly and unmistakably delegates the threshold arbitrability question,

and an arbitrator must determine whether BCA’s claims against Walsh are arbitrable.

IV.

For these reasons, we will vacate the District Court’s order denying the motion to

compel arbitration and remand for further proceedings consistent with this opinion.

21 See HealthplanCRM, LLC, 458 F. Supp. 3d at 324. 22 App. 257. 23 See Brennan v. Opus Bank, 796 F.3d 1125, 1130-31 (9th Cir. 2015). 7