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Ronald J. Palagi, PC, LLC v. Prospect Funding Holdings (NY), LLC

Supreme Court of Nebraska

April 5, 2019

Ronald J. Palagi, PC, LLC, and Edrie Arlene Wheat, appellants,
Prospect Funding Holdings (NY), LLC, appellee.

         1. Judgments: Arbitration and Award: Federal Acts: Appeal and Error. In reviewing a decision to vacate, modify, or confirm an arbitration award under the Federal Arbitration Act, an appellate court is obligated to reach a conclusion independent of the trial court's ruling as to questions of law. However, the trial court's factual findings will not be set aside on appeal unless clearly erroneous.

         2. Summary Judgment. Summary judgment is proper when the pleadings and evidence admitted at the hearing disclose no genuine issue regarding any material fact or the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

         3. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an appellate court views the evidence in the light most favorable to the party against whom the judgment is granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

         4. Arbitration and Award: Federal Acts: Contracts. Arbitration in Nebraska is governed by the Federal Arbitration Act if it arises from a contract involving interstate commerce; otherwise, it is governed by Nebraska's Uniform Arbitration Act.

         5. Arbitration and Award: Federal Acts: Statutes: Contracts. When determining if an arbitration clause is governed by Nebraska's Uniform Arbitration Act or the Federal Arbitration Act, the initial question is whether the parties' contract evidences a transaction "involving commerce" as defined by the Federal Arbitration Act.

         6. Arbitration and Award: Contracts: Motions to Vacate. When arbitration has already occurred and a party seeks to vacate, modify, or [302 Neb. 770] confirm an award, a court's role is limited by the act governing the agreement.

         7. Summary Judgment: Motions for Continuance: Affidavits. Neb. Rev. Stat. § 25-1335 (Reissue 2016) provides a safeguard against an improvident or premature grant of summary judgment.

         8.___: ___: ___. As a prerequisite for a continuance, or additional time or other relief under Neb. Rev. Stat. § 25-1335 (Reissue 2016), a party must submit an affidavit stating a reasonable excuse or good cause for the party's inability to oppose a summary judgment motion. Such affidavits should specifically identify the relevant information that will be obtained with additional time and indicate some basis for the conclusion that the sought information actually exists.

          Appeal from the District Court for Douglas County: Leigh Ann Retelsdorf, Judge.

          Ronald J. Palagi and Donna S. Colley, of Law Offices of Ronald J. Palagi, P.C., L.L.C., for appellants.

          Adam W. Barney, of Cline, Williams, Wright, Johnson & Oldfather, L.L.P, for appellee.

          Heavican, C.J., Cassel, Stacy, Funke, and Freudenberg, JJ., and Pirtle and Bishop, Judges.

          STACY, J.

         After selling an interest in her personal injury claim to Prospect Funding Holdings (NY), LLC (Prospect), Edrie Arlene Wheat settled her claim. Thereafter, a dispute arose over the amount due Prospect. Prospect initiated arbitration proceedings against Wheat and the law firm representing her, identified in this case as Ronald J. Palagi, PC, LLC (Palagi). Neither Wheat nor Palagi participated in the arbitrations, and awards were eventually entered against each of them in favor of Prospect. Wheat and Palagi brought this interpleader action against Prospect in the district court for Douglas County, but did not seek to vacate, modify, or correct the arbitration awards. Prospect filed a motion to confirm the arbitration awards and a motion for summary judgment, [302 Neb. 771] and the district court granted both. Wheat and Palagi appeal. We affirm.


         Agreement At all relevant times, Palagi represented Wheat in connection with her personal injury claim. On July 5, 2016, with Palagi's knowledge, Wheat and Prospect entered into what was captioned a "Sale and Repurchase Agreement." Under that agreement, Wheat sold Prospect the rights to any sums recovered on her personal injury claim, up to $23, 120, in exchange for a net payment of $5, 000. The agreement included a "[Repurchase [s]chedule" which allowed Wheat to repurchase the proceeds of her claim for a set amount that increased every 6 months, up through January 1, 2020. The repurchase schedule applied a 60-percent annual percentage rate. As relevant here, Wheat could have repurchased the proceeds of her claim on or before January 1, 2017, for $8, 840.

         In the event of a breach, the agreement called for liquidated damages "in the amount of twice the prospect ownership amount regardless of the outcome of the legal claim or the amount of the proceeds. In addition, [the] breaching party shall pay for all collection costs, including reasonable attorney's fees and expenses of [the] non-breaching party.'' The agreement also contained an arbitration provision which expressly referenced the Federal Arbitration Act (FAA)[1] and provided in relevant part:

The parties waive the right to trial by jury and waive any right to pursue disputes on a class wide basis in any action or proceeding instituted with respect to this agreement. The parties agree that the issue of arbitra-bility shall be decided by the arbitrator and not by any other person. That is, the question of whether a dispute itself is subject to arbitration shall be decided solely by [302 Neb. 772] the arbitrator and not, for example, by any court. In so doing, the intent of the parties is to divest any and all courts of jurisdiction in disputes involving the parties, except for the confirmation of the award and enforcement. The [FAA] applies to this agreement and arbitration provision. We each agree that the FAA's provisions-not state law-govern all questions of whether a dispute is subject to arbitration. Any dispute or disagreement between these parties arising under this agreement or otherwise of any nature whatsoever including, but not limited to, those sounding in constitutional, statutory, or common law theories as to the performance of any obligations, the satisfaction of any rights, and/or the enforceability hereof, shall be resolved through demand by any party and/or interested party to arbitrate the dispute in New York in and under the laws of the State of New York and shall submit the same to a neutral arbitration association for resolution pursuant to its single arbitrator, expedited rules. . . . The arbitration decision shall be final and binding in all respects and shall be non-appealable. Any person may have a court of competent jurisdiction confirm the arbitration award as a judgment of such court and enter into its record the findings of such arbitrators for all purposes, including for the enforcement of the award. The prevailing party in any dispute shall be entitled to all reasonable attorneys' fees and costs, expenses and disbursements with respect to such dispute.

         The agreement, which was signed by Wheat as the "seller'' and a Prospect representative as the "purchaser," included the following paragraph which was signed by Palagi:

[Palagi] hereby certifies to [Prospect] that [Palagi] has reviewed the terms and conditions of this Sales [sic] and Repurchase Agreement and explained such terms and conditions to [Wheat], including all costs and fees and including [Wheat's] ability to repurchase the Prospect [302 Neb. 773] Ownership Amount according to the Repurchase Schedule and Amount of Repurchase. I have a written fee agreement with [Wheat] to pay my fees contingent on the outcome of the case. I agree that all disputes regarding this agreement will be resolved via arbitration and I have explained this to [Wheat]. All proceeds of the legal claim will be disbursed via the attorney's trust account and the attorney is following the written instructions of [Wheat] with regard to this Sale and Repurchase Agreement, and Irrevocable Letter of Directions which [the] attorney has acknowledged.

         When Wheat signed the agreement, she also signed an "Irrevocable Letter of Direction" addressed to Palagi. This letter generally instructed Palagi, after payment of all legal fees, to disburse any recovery amounts to Prospect up to the amount covered in the contract before disbursing the remainder to Wheat. The letter also directed that if any dispute arose as to the amount owed to Prospect, Palagi was to pay the non-disputed amount to Prospect and hold the disputed amount in his client trust account until the dispute was resolved through arbitration. The letter included an attorney acknowledgment of all instructions contained therein, and Palagi signed that acknowledgment.


         In December 2016, Wheat settled her personal injury claim for an amount which is not disclosed in the record. Palagi set aside $8, 840 of the settlement proceeds-an amount equal to the repurchase amount at that time-in his client trust account and disbursed the remainder of the settlement funds. The record is unclear regarding any attempts made by Wheat or Palagi thereafter to repurchase the proceeds under the terms of the agreement. However, once Prospect learned it would not be paid the full amount due under the agreement, it initiated separate arbitration proceedings-one against Palagi and the other against Wheat.

         [302 Neb. 774] Arbitration Proceedings and Award

         After arbitration proceedings were initiated, "Arbitration Resolution Services" sent an email to Wheat, advising that Prospect had initiated arbitration proceedings and that Wheat "ha[d] failed to sign into the [arbitrator's] website and verify [her] participation in the arbitration." The email warned, "Unless you do so by Feb[.] 02, 2017, the arbitration will proceed without your involvement and an arbitration award may be entered against you." An attorney with the Palagi law firm responded to this email, arguing generally that the agreement was void under Nebraska law. Neither Wheat nor Palagi otherwise participated in the arbitrations, and they were found by the arbitrator to have provided "no response."

         On June 8, 2017, the arbitrator issued an award in favor of Prospect and against Palagi in the sum of $23, 120. Thereafter, on August 3, 2017, the arbitrator issued an award in favor of Prospect and against Wheat in the sum of $46, 240, a sum that represented the amount of liquidated damages due under the agreement. The arbitrator found the agreement between Wheat and Prospect was valid and enforceable and had been breached.

         Interpleader Action

         Eight days after the first arbitration award was issued, Wheat, still represented by Palagi, filed what was styled an interpleader action in the district court for Douglas County. The complaint alleged Palagi was in possession of $8, 840 to which both Wheat and Prospect claimed entitlement. The complaint also alleged the agreement between Wheat and Prospect was invalid and unenforceable for a variety of reasons, including that Prospect was not registered to transact business in Nebraska, the agreement did not comply with Nebraska's Nonrecourse Civil Litigation Act, [2] and the [302 Neb. 775] interest rate charged was usurious. The complaint requested an order directing the disputed sums to be deposited with the court pending further determination of the proper allocation of the funds, and also asking the court to determine the validity of the agreement and enjoin Prospect's collection efforts in the meantime. Palagi amended the complaint on June 27, 2017, to include the Palagi law firm as a party plaintiff and filed a second amended complaint on November 16 to correct Prospect's legal name. Neither the original, amended, nor second amended complaint mentioned the arbitration proceedings, and none requested the awards be vacated, modified, or corrected.

         On November 20, 2017, Prospect filed an answer raising the affirmative defense of "[arbitration and [a]ward" and, in a counterclaim, seeking judicial confirmation of the arbitration awards. At the same time, Prospect filed a motion to confirm the arbitration awards pursuant to 9 U.S.C. § 9 of the FA A. Prospect also moved for summary judgment on the amended complaint, arguing that there was no genuine issue of material fact and that Prospect was entitled to judgment as a matter of law on its affirmative defense of arbitration and award.

         A hearing on Prospect's motions was held January 22, 2018. Prospect offered an affidavit which included the agreement, the arbitration notices, and the arbitration awards. This evidence was received without objection, and no evidence was offered in opposition. Neither Wheat nor Palagi argued they lacked notice of the arbitration proceedings or awards.

         During the hearing, the judge observed that the operative complaint appeared to be focused on rescinding or voiding the agreement, remarking, "I'm concerned . . . about why the arbitration award was not addressed within the appropriate time frame." Wheat's counsel responded it was the plaintiffs' position that "the overall contract. . . was void" and that therefore, Prospect "could not go forward with arbitration on a void ...

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