Katalyst Securities LLC v. Marker Therapeutics, Inc.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

KATALYST SECURITIES, LLC,

Petitioner,

21-CV-08005-LTS

-against-

MARKER THERAPEUTICS, INC.,

Respondent

MEMORANDUM ORDER

In this removed action, petitioner Katalyst Securities, LLC (“Katalyst”, or the

“Petitioner”) seeks confirmation of an arbitration award (the “Award”) rendered by a panel of

Financial Industry Regulatory Authority (“FINRA”) arbitrators (the “Panel”) against respondent

Marker Therapeutics (“Marker”, or the “Respondent”), on August 16, 2021, as well as pre-

judgment and post-judgment interest and costs (docket entry no. 1, Ex. A (the “Petition”) at 4-5.)

Marker’s motion to vacate the award (docket entry no. 12, “Resp. Mem.”) is now before the

Court. Marker argues that the panel of arbitrators lacked jurisdiction to arbitrate the dispute

between the two parties and, in the alternative, that the FINRA panel’s award demonstrated a

manifest disregard of the applicable law. (Resp. Mem.) Katalyst opposes the motion and

requests the entry of judgment granting its petition. The Court has jurisdiction of this action

pursuant to 28 U.S.C. section 1332 and 28 U.S.C. section 1441.

The Court has reviewed the parties’ submissions thoroughly and, for the following

reasons, Katalyst’s Petition to confirm the Award is granted. Marker’s motion to vacate the

Award is denied.

BACKGROUND

This dispute arises from a contract (Docket entry no. 13, Ex. 2 (the “Agreement”))

entered into between Petitioner Katalyst, a registered broker-dealer and FINRA member

(Agreement at 1) and Marker, a publicly traded immune-oncology company1 (together, the

“Parties”). (Id.) Under the terms of the Agreement, Marker appointed Katalyst “to assist the

Company in finding qualified subscribers” for the private placement of Marker’s securities in

exchange for a fee to be paid in cash and in warrants to purchase shares in Marker’s stock.

(Agreement at 1 & ¶ 3(a-b).) The Agreement also contained a clause providing that Katalyst

would be entitled to an additional fee should any investor “introduced” by Katalyst to Marker

“consummate” financing for Marker during a one-year “tail period” following the 2017 private

placement. (Agreement ¶ 3(c).)

The Agreement contained a two-stage dispute resolution mechanism. In the event

of a dispute, the Parties agreed to first “submit the matter for resolution to a mediator, acceptable

to all parties.” (Agreement ¶ 13.) If mediation failed, the parties agreed that “the matter will be

resolved by arbitration.” (Id.) As to arbitration, the Agreement provided as follows:

The parties hereto agree to submit all controversies to the exclusive

jurisdiction of FINRA arbitration in accordance with the provisions set

forth below and understand that . . . arbitration is final and binding on all

parties . . . and all controversies which may arise between the parties

concerning this agreement shall be determined by arbitration pursuant to

the rules then pertaining to FINRA.

(Agreement ¶ 13, the “Arbitration Clause”.) The Arbitration Clause also included a

choice of law provision, stating that “[a]ll questions concerning the construction, validity,

1 The parties to the Agreement are Katalyst and TapImmune Inc., Marker’s predecessor-in-

interest. (Docket entry no. 12 (“Resp. Mem.”) at 3 n. 1.) For purposes of clarity, and

consonant with the usage of the Parties, the Court will refer to the Respondent only as

Marker.

enforcement, and interpretation of this agreement shall be governed by and construed and

enforced in accordance with the laws of the State of New York.” (Id.)

A controversy subsequently arose when Katalyst claimed that Marker had

obtained financing during the “tail period” from investors that Katalyst had “introduced,” as

defined by the Agreement, to Marker. (Resp. Mem. at 2.) Marker denied any contractual

obligation to compensate Katalyst in connection with that later financing, and the matter was

referred to mediation as required under the Agreement’s terms. (Docket entry no. 15 (the

“Oppenheimer Decl.”), Ex. 3 at 16.) Mediation failed to resolve the dispute, and on May 20,

2019, Katalyst submitted a Statement of Claim to FINRA for arbitration. (Oppenheimer Decl.,

Ex. 2.) During the arbitration process, Marker “repeatedly objected” to FINRA’s assertion of

jurisdiction over the dispute, despite the terms of the Arbitration Clause. (Resp. Mem. at 5.)

Each time, Marker’s objection was overruled. (See docket entry no. 13 (the “Kuwana Decl.”), at

Ex. 4.) (Containing an e-mail from the Panel to the Parties, stating “The Panel has determined

that FINRA has jurisdiction over this matter pursuant to the terms of the parties’ agreement.”)

On August 16, 2021, FINRA issued a decision, awarding Katalyst $1,798,501.00 in

compensatory damages, $450,000.00 in attorney’s fees, and pre-award interest. (Kuwana Decl.,

Ex. 3. (the “Award”). Katalyst subsequently filed the Petition in the Supreme Court of New

York, New York County, seeking confirmation of the Award, and Marker removed the action to

this Court.

DISCUSSION

Jurisdiction

“Arbitration is a matter of contract between the parties; it is a way to resolve

disputes – but only those disputes – that the parties have agreed to submit to arbitration.” DDK

Hotels, LLC v. Williams-Sonoma, Inc., 6 F.4th 308, 316 (2d Cir. 2021) (quotation and citation

omitted). “Just as the parties may elect through their contract to have arbitrators (rather than a

court) resolve categories of disputes between them, they may similarly contract to have

arbitrators (rather than a court) decide whether a particular dispute is to be arbitrated under the

terms of the contract.” Metro Life Ins. Co. v. Bucsek, 919 F.3d 184, 189-90 (2d Cir. 2019).

“[T]he question of who decides arbitrability is itself a question of contract.” Henry Schein, Inc.

v. Archer and White Sales, Inc., 139 S. Ct. 524, 527 (2019). “When the parties’ contract

delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as

embodied in the contract.” Id. at 528. “In determining whether the arbitrability of a dispute is to

be resolved by the court or the arbitrator, the arbitration agreement is determinative.” DDK

Hotels, 6 F.4th at 318 (citing First Options of Chicago, Inc. v. Kaplan, 115 S. Ct. 1920 (1995)).

In reviewing an arbitration agreement, “[c]ourts should not assume that parties

agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”

First Options, 115 S. Ct. at 1924 (internal quotation omitted). “Rarely, however, do arbitration

agreements directly state whether the arbitrator or the court will decide the issue of arbitrability.”

DDK Hotels, 6 F.4th at 318 (internal modifications and quotation omitted). “In the absence of

such clear language, ‘courts must look to other provisions of the agreements to see what

contractual intention can be discerned from them.’” Id. (quoting Bucsek, 919 F.3d at 191.) If the

parties “clearly and unmistakably agreed to have” the issue of arbitration resolved by the

arbitrator, “it is the obligation of the court to enforce their agreement.” Bucsek, 919 F.3d at 191.

Courts in the Second Circuit have repeatedly “found the clear and unmistakable

provision [standard] satisfied where a broad arbitration clause expressly commits all disputes to

arbitration, concluding that all disputes necessarily includes disputes as to arbitrability,”

NASDAQ OMX Group, Inc. v. UBS Securities, LLC, 770 F.3d 1010, 1031 (2d Cir. 2014)

(internal quotation and citation omitted) (emphasis in original); see also Wells Fargo Advisors,

LLC v. Sappington, 884 F.3d 392, 396 n. 3 (2d Cir. 2018) (“[A] referral of ‘any and all’

controversies to arbitration suffices to reflect such a broad grant of power to the arbitrators as to

evidence the parties’ clear intent to arbitrate issues of arbitrability.”); see also Smith Barney

Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 43, 46 (1997) (holding that an agreement stating that

“[a]ny controversy . . . shall be settled by arbitration” and containing a choice of law provision

stating that the agreement “shall be governed by the laws of the State of New York’” clearly and

unmistakably authorizes the arbitrator to determine arbitrability); but see DDK Hotels, 6 F.4th

318-19 (2d Cir. 2021) (holding that a broad grant of authority to the arbitrator constitutes such

clear and unmistakable evidence of intent when coupled with incorporation of rules that

expressly empower an arbitrator to decide issues of arbitrability). Here, the Arbitration Clause

delegates resolution of “all disputes” to the “exclusive jurisdiction” of FINRA Arbitration. The

Court finds that “the meaning of this provision is plain indeed: any and all controversies are to be

determined by arbitration. The wording is inclusive, categorical, unconditional, and unlimited.”

PaineWebber v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996). The Court finds that the Arbitration

Clause itself thus provides clear and unmistakable evidence of the Parties’ intent to delegate the

question of arbitrability to the arbitrator.

Having so found, the Court is bound to defer to the Panel’s determination that the

dispute was amenable to arbitration. The record demonstrates that Marker repeatedly brought

that question before the Panel, and that the Panel decided that FINRA did have jurisdiction over

the dispute. (Docket entry no. 15 (“Oppenheim Decl.”), Ex. 8 (in which the Panel notifies both

Parties that “[t]he Panel has determined that FINRA has jurisdiction over this matter pursuant to

the terms of the parties’ agreement.”).) Because the Court is bound by this determination,

Marker’s motion to vacate the Award on the basis of lack of jurisdiction is denied.

Manifest Disregard for the Law

“The showing required to avoid summary confirmation of an arbitration award is

a lofty one, and the party moving to vacate the award bears a heavy burden of proof.” Manios v.

Zachariou, No. 14-CV-331-LTS, 2015 WL 1455696, at *2 (S.D.N.Y. Mar. 31, 2015) (citing

Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.

1997)). “The review of arbitration awards is very limited in order to avoid undermining the twin

goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive

litigation.” Beijing Shougang Mining Inv. Co., Ltd. v. Mongolia, 11 F.4th 144, 160 (2d Cir.

2021) (internal modifications and quotation omitted). In furtherance of these goals, “it is well

established that courts must grant an arbitrator’s decision great deference.” Duferco Intern. Steel

Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 388 (2d Cir. 2003). “With respect to

contract interpretation, this standard essentially bars review of whether an arbitrator

misconstrued a contract.” T.Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339

(2d Cir. 2010).

Against this exacting standard, a litigant may seek vacatur based on alleged

“manifest disregard” of the law. The “manifest disregard” exception is an exceedingly narrow

one. “[W]e have . . . described it ‘as a doctrine of last resort – its use is limited only to those

exceedingly rare instances where some egregious impropriety on the part of the arbitrators is

apparent, but where none of the provisions of the [Federal Arbitration Act] apply.’” Wallace v.

Buttar, 378 F.3d 182, 189 (2d Cir. 2004) (quoting Duferco, 333 F.3d at 389). “Mere error in the

law or failure on the part of the arbitrator to understand or apply the law is not sufficient to

establish manifest disregard of the law.” Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc.,

126 F.3d 15, 23 (2d Cir. 1997). For an award to be deemed issued in manifest disregard of the

law,

[t]he error must have been obvious and capable of being readily and

instantly perceived by the average person qualified to serve as an

arbitrator. Moreover, the term disregard implies that the arbitrator

appreciates the existence of a governing principle but decides to ignore or

pay no attention to it.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir. 1996). In

evaluating claims of manifest disregard of the law, the Second Circuit follows a three-part test:

(1) the law allegedly ignored must have been clear and explicitly applicable to the matter before

the arbitrators; (2) disregard of the law must have led to an erroneous outcome; and (3) the

arbitrators must have known of the law’s existence and its applicability to the case, and must

have disregarded it intentionally. See T.Co. Metals 592 F.3d at 339 (2d Cir. 2010).

Applying this standard, the Court finds that Marker’s argument falls well short.

Marker argues that the Panel exhibited manifest disregard for the law by misinterpreting the

contractual term “consummate,” resulting in an incorrect determination of the duration of the

“tail period” during which Katalyst was, under specified circumstances, entitled to additional

fees from Marker. (Pl. Mem. at 11.) Having relied on this interpretation in deciding in

Katalyst’s favor, the Panel, Marker theorizes, “manifestly disregarded the parties’ contract and

New York contract law.” (Id. at 12.) Regarding the first factor, Marker fails entirely to support

its argument that the Panel’s interpretation ignored clear and explicitly applicable law, asserting

instead, without citation, that “[t]he parade of dictionary definitions and case law that Marker

provided to the FINRA Panel left no doubt” that Marker’s proposed interpretation was correct.

(Reply at 10.) Nor does Marker offer any evidence of subjective intent, on the part of the Panel,

to disregard the law, as required under test’s third factor. See T.Co Metals, 592 F.3d at 339, infra

at 8 (“[T]he arbitrators must have known of the law’s existence and applicability to the case, and

must have disregarded it intentionally”).

On the contrary, Marker asks the Court to find manifest disregard for the law in

the Panel’s resolution of a straightforward dispute over contractual interpretation, which is

precisely the sort of Panel determination to which the Court is required to defer. “Even if a court

. . . were to disagree with the arbitrator’s findings of fact, or had a difference of opinion about the

correct interpretation of the contract, an arbitration award would still be subject to confirmation.”

Trustees of New York City District Council of Carpenters Pension Fund, Welfare Fund, Annuity

Fund, and Apprenticeship, Journeyman, Retraining, Educational and Industry Fund et al. v.

Windham Construction Corp., No. 17-CV-4630-VSB, 2017 WL 9472944, at *1 (S.D.N.Y. Dec.

27, 2017), report and recommendation adopted, 2018 WL 2338790 (S.D.N.Y. May 22, 2018).

The Court therefore finds that Marker has failed to make the showings necessary to warrant

vacatur on the basis of the doctrine of manifest disregard for the law, and Marker’s motion is

therefore denied in its entirety.

Confirmation of the Award

Respondent Marker having failed to identify any proper basis for vacatur of the

Award and Petitioner having established that confirmation of the Award is warranted, the Court

hereby confirms the arbitration award at issue in this action and will direct the entry of judgment

in favor of Katalyst in the amount found by the Panel: $1,798,501.00 in compensatory damages

and $450,000.00 in attorneys’ fees, plus a total of $154,433.26 in interest accrued at a rate of 3%

per annum on: (1) the amount of $234,751.00 from May 14, 2018, to August 16, 2021, the date

of the Award, and (2) the amount of $1,563,750.00 from October 17, 2018, through the date of

the Award. (Award at 2.) The Court also awards Katalyst pre-judgment interest pursuant to NY

CPLR section 5001 from the date of the Award, as requested in the Petition. (Petition at 4.)

“Post-award, pre-judgment interest is generally awarded at the discretion of the district court,

and there is a presumption in favor of awarding such interest.” In re Arbitration Between

Westchester Ins. Co. v. Massmont Ins. Agency, Inc., 420 F.Supp.2d 223, 226 (S.D.N.Y. Nov. 22,

2005) (citing In re Waterside Ocean Navigation Co. v. Int’l Navigation, Ltd., 73 F.2d 150, 153-

154 (2d Cir. 1984)). “In diversity actions, interest is to be calculated according to the statutory

rate prescribed by the law governing the contract . . . even where, as here, federal law governs

enforcement of the arbitration award.” Id. Here, pursuant to the Arbitration Clause’s choice of

law provision, (Arbitration Clause), the rate of prejudgment interest is governed by New York

law, and is therefore set at nine percent. “Interest shall be at the rate of nine per centum per

annum, except where otherwise provided by statute.” NY CPLR § 5004 (McKinney’s 2022).

The Court also grants Petitioners’ request for an award of post-judgment interest,

but only to the extent that interest shall accrue at the rate specified in 28 U.S.C. section 1961.

See 28 U.S.C. § 1961(a) (Westlaw current through P.L. 117-80) (“[i]nterest shall be allowed on

any money judgment in a civil case recovered in a district court”). “[U]nder [28 U.S.C.] § 1961,

federal district courts must apply the federal rate of post-judgment interest to judgments rendered

in diversity actions, even when those judgments have been docketed in state court.” Capiello v.

ICD Publications, Inc., 720 F.3d 109, 112 (2d Cir. 2013). Accordingly, the post-judgment

interest rate shall be calculated according to 28 U.S.C. section 1961(a), rather than CPLR section

5004, as requested the Petition. (Petition at 4.) Therefore, the Court awards post-judgment

interest at the above-mentioned statutory rate from the date on which judgment is entered until

the date payment is made. The Court also grants Katalyst’s request for costs in accordance with

Fed. R. Civ. P. 54(d).

CONCLUSION

For the reasons discussed above, Petitioner Katalyst’s petition to confirm the

arbitration award is granted, and Respondent Marker’s motion to vacate the arbitration award is

denied. The Clerk of Court is respectfully directed to enter judgment for Petitioner in the total

amount of $2,524,397.87 ($2,402,934.00 arbitration award plus $121,463.37 pre-judgment

interest thereon at the annual rate of 9% from August 16, 2021, through the date of this

Memorandum Order). Post-judgment interest will accrue in accordance with 28 U.S.C. section

1961. This resolves docket entry no. 11. The Clerk of Court is respectfully directed to close this

case following entry of judgment.

SO ORDERED.

Dated: New York, New York

March 9, 2021

/s/ Laura Taylor Swain_______

LAURA TAYLOR SWAIN

Chief United States District Judge