Schorr v. Doggart, Emergency Arbitrator's Order, 16 Mar 2020

I, THE UNDERSIGNED EMERGENCY ARBITRATOR, having been designated in accordance with the arbitration agreement of the Operating Agreement of La Palma LLC entered into between the above-named parties and effective as of September 2018, and having been duly sworn, and having duly heard the proofs and allegations of the parties, by Claimant who is represented by attorney David E. Schorr, and by Respondent who is represented by Diana Mohyi, do hereby, ORDER, as follows:

1.

This dispute, between Claimant Marcia Schorr ("Mrs. Schorr" or "Claimant") and Respondent Sebastian Doggart ("Mr. Doggart" or "Respondent"), arises from an Operating Agreement of La Palma LLC, effective as of September 2018 (the "Agreement"). La Palma LLC is a New York limited liability company ("La Palma" or the "Company"). Pursuant to this Agreement, Mr. Doggart acquired title to certain Property and Property Rights in Cuba, on behalf of La Palma LLC. The Property and Property Rights consist of land and a "dwelling" representing a total surface of 320 square meters located in the municipality of La Palma, province Pinar del Rio, in Cuba. (Agreement, Exhibits B & C.) On February 26, 2020, Claimant filed an arbitration demand with the American Arbitration Association ("AAA"), dated February 25, 2020, and initiated this emergency arbitration proceeding to seek a preliminary injunction, enjoining Respondent from selling the Property and Property Rights. Respondent opposes this request for emergency relief and argues that he is entitled to unilaterally sell these assets because the entire Agreement constitutes an unlawful scheme to circumvent U.S. sanctions laws, in particular the U.S. Cuban Asset Control Regulations. He claims that, had the Cuban Government learned of this scheme, it likely would have confiscated the Property and Property Rights under Cuban criminal law. Respondent also contends that this application for emergency relief is moot because he took steps to "confirm" a sale to a buyer in Cuba on February 27, 2020, one day after the commencement of this emergency arbitration proceeding. (Respondent's Statement, dated March 6, 2020 ("Respondent's Submission"), at 27.) Respondent, however, has not provided any evidence that he actually consummated a sale in Cuba.

2.

This emergency proceeding focuses on whether the Emergency Arbitrator should issue a preliminary injunction, enjoining respondent from selling property located in Cuba which, Respondent argues, was acquired in violation of U.S. sanctions laws.

3.

The Agreement states that the Company has two Members, Mrs. Schorr and Mr. Doggart, who each own 50% of the Company and each made a $45,000 capital contribution. (Agreement, Exhibit A).¹

4.

Mr. Doggart agreed to hold title to such Property and Property Rights "in his name on behalf of and for the benefit of the Company." (Agreement, Section 3.2.) The Agreement recites that the "purpose of the Company shall be to engage in activities under 31 CFR 515.575 ('humanitarian projects') and as may otherwise be permitted from time to time under U.S. and Cuban law with respect to the Property and Property Rights," and that the "Company shall at all times comply fully with Cuban and U.S. law." (Agreement, Sections 3.1 & 3.4.)

5.

In Articles 9.2 of the Agreement, Respondent covenanted and agreed as follows:

(a) He will make best efforts to remain at all times a permanent resident of Cuba;

(b) Unless and until such time as a change in title occurs under Section 3.3, he will remain at all times the title holder in the Property and the Property Rights and will fully protect all the title and rights (held in his name and on behalf of and for the benefit of the Company) in the Property and the Property Rights;

(c) That the certified translations in English of the documentation referred to Section 3.2 is a true and correct translation of the official Cuban documentation in Spanish referred to in that Section;

(d) That all actions taken with respect to the Property and Property Rights and all actions by or on behalf of the Company generally will comply fully and at all times with U.S. and Cuban law, including without limitation, the U.S.'s Cuban Assets Control Regulations ... .

(Agreement, Article 9.2 (a) through (d).)

6.

Article VI addresses the "Management of the Company." (Agreement, Article VI). Specifically, Article 6.1 provides as follows:

6.1 Management of the Company

(a) The Company shall be managed by its Members who shall act jointly in all matters.

(b) David Schorr has full Power of Attorney to act on behalf of Mrs. Schorr in all respects under this Agreement.

(Agreement, Article 6.1.)

7.

The Agreement also sets forth the circumstances under which the Company can be dissolved, including in the event of a "dispute" between the Members. (Agreement, Article 8.1.) Specifically, Article 8.2 provides that:

Notwithstanding anything to the contrary set forth in this Agreement, in the event that a dispute shall arise over any material matter and the Members are unable to resolve such dispute within 30 days after written notice from either Member that such dispute exists, then either Member may cause the Company to be dissolved under the terms of this Article VIII.

(Agreement, Article 8.2.)

8.

Article 8.3 provides, inter alia, that:

Upon dissolution of the Company, the Company shall take full account of the Company's assets and liabilities and the assets shall be liquidated as promptly as is consistent with obtaining the fair market value thereof and as shall be necessary to timely make the distributions below described, and the net proceeds therefrom shall be applied and distributed in the following order:

(a) to the payment of the expenses of liquidation and the debts and liabilities of the Company;

(b) to the setting up of any reserves that the Company may deem necessary or desirable for any contingent or unforeseen liabilities or obligations of the Company, which reserves shall be held for a period to be determined by the Company, at the expiration of which period the balance of such reserves shall be distributed in the order of priority herein; and

(c) to the Members in accordance with Section 5.4.

(Agreement, Article 8.3.)

9.

On January 23, 2020, Respondent wrote to Mrs. Schorr and David Schorr to "confirm formally that, pursuant to Article VIII of the Operating Agreement of La Palma LLC, and to my provision of written notice on November 1, 2019 that a material dispute exists between us, and to our inability to resolve such dispute, La Palma LLC is now dissolved." (Letter from Mr. Doggart to Mrs. Schorr and David Schorr, dated January 23, 2020.) Respondent's letter then addressed the need to "wind up the company in as efficient and harmonious way as possible" and requested payment of $24,981 in expenses of the Company allegedly owed to him under Article 10.2 of the Agreement. (Id.) Respondent stated that a "further matter we all agree is pending is the valuation of the property," and that "we have been unable to agree on a valuation." (Id.) Respondent stated that "[i]f we are unable to agree on a valuation, we will need to resort to Article 11.5 ('Arbitration'). I suggest we both research the steps necessary to do this as economically as possible, in case out meeting does not yield an agreement." (Id.)

10.

On February 26, 2020, Claimant filed with AAA a Demand for Arbitration, dated February 25, 2020, along with a Request for emergency relief under Rule 38. Emergency Measures of Protection of the Commercial Arbitration Rules and for a permanent injunction. (Request for emergency relief under R-38 and permanent injunction, dated February 26, 2020 ("Request for emergency relief").) The Request for emergency relief states, among other things, that "Respondent, a Cuban national and U.K. and U.S. citizen, holds the assets in his name on the Company's behalf," and that "Respondent has informed Claimant that he will sell (without the required consent of Claimant) 100% of the assets of the Company within 48 hours of February 25, 2020 for $10,000." (Request for emergency relief, at 1.)

11.

In the Demand for Arbitration, Claimant seeks a temporary and permanent injunction "enjoining Respondent from selling the Property or Property Rights in violation of the Operating Agreement and New York law." (Demand for Arbitration, dated February 25, 2020.) On February 26, 2020, Claimant sought further emergency relief prohibiting Respondent from continuing to violate the confidentiality provisions of the Operating Agreement. (Supplemental request for emergency relief under R-38 and a permanent injunction, and for monetary damages, dated February 26, 2020 ("Supplemental request for emergency relief").)

12.

The Agreement contains an arbitration clause, which provides as follows:

11.5 Arbitration (a) Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules and judgement on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

(b) Claims shall be heard by a single arbitrator, unless the claim amount exceeds $500,000, in which case the dispute shall be heard by a panel of three arbitrators. The place of arbitration shall be New York County, State of New York. The arbitration shall be governed by the laws of the State of New York. Hearings will take place pursuant to the standard procedures of the Commercial Arbitration Rules that contemplate in-person hearings. The arbitrators will have no authority to award punitive or other damages not measured by the prevailing party's actual damages, except as may be required by statute. The arbitrators may determine how the costs and expenses of the arbitration shall be allocated between the parties, but they shall not award attorneys' fees. Except as may be required by law, neither party nor an arbitrator may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties. The parties agree that failure or refusal of a party to pay his/her required share of the deposits for arbitrator compensation or administrative charges shall constitute a waiver by that party to present evidence or cross-examine witness. In such event, the other party shall be required to present evidence and legal argument as the arbitrator(s) may require for the making of an award. Such waiver shall not allow for a default judgment against the non-paying party in the absence of evidence presented as provided for above.

(Agreement, Article 11.5)

13.

On February 27, 2020, the International Centre for Dispute Resolution ("ICDR"), a division of AAA, issued a letter to the Parties confirming the appointment of the undersigned as the Emergency Arbitrator (the "Emergency Arbitrator") and scheduling a Preparatory Conference for February 28, 2020.

14.

The Emergency Arbitrator conducted a Preparatory Conference on Friday February 28, 2020, in which Mr. Schorr and Mr. Doggart participated. During this conference call, the Emergency Arbitrator asked Respondent whether he had already sold the Property and Property Rights, but Respondent refused to respond. He stated that the Company was dissolved, and that the 48-hour deadline set forth in his February 25, 2020 letter to Claimant had expired. (Supra ¶ 10; Respondent's Submission, dated March 6, 2020, Exhibit P.)

15.

During this conference call, Respondent stated that he was in the process of deciding whether to retain counsel in this arbitration and requested an extension of time to make submissions in this emergency proceeding. Respondent also challenged Mr. Schorr's ability to represent his mother in this emergency proceeding, an issue Respondent previously raised on February 26 and 27, 2020. The Emergency Arbitrator asked for briefing from both sides on this and eight other topics that he set forth during the call. Having heard both sides, the Emergency Arbitrator issued Procedural Order No. 1, which set forth, inter alia, nine topics on which he sought the Parties' input and provided for written submissions on March 3-6, and an emergency arbitration hearing to hear oral argument on March 12, 2020. (Procedural Order No. 1 (February 28, 2020).)

16.

On Saturday February 29, Mr. Doggart and Mr. Schorr both wrote to the Emergency Arbitrator requesting the issuance of a confidentiality order. They both stated that a confidentiality order was necessary to prevent the other side from circumventing its confidentiality obligations in the Operating Agreement. Mr. Doggart and Mr. Schorr did not agree, however, on the terms of such an order. On March 2, 2020, after considering both sides' submissions, the Emergency Arbitrator issued Procedural Order No. 2 (confidentiality order) (March 2, 2020).

17.

On March 3, 2020, Claimant made submissions pursuant to Procedural Order No. 1 ("Claimant's Submission"). Claimant argues that Respondent should be enjoined from consummating a sale and directed "to divulge the current status of the assets including without limitation (i) whether a sale has been initiated and, if so, when; (ii) whether a sale has been completed and, if so, when; (iii) the identity of the purchaser; and (iv) how and in what currency the sale was transacted. In addition, Respondent should be ordered to provide copies of all purchase and sale documents." (Claimant's Submission, at 2.) Claimant argues that because "Respondent has not disclosed any details of his sale or proposed sale of the Property and Property Rights, it is not possible to know at this time if Respondent has complied or will comply with U.S. law, including U.S. Cuban Asset Control Regulations." (Id. at 3.)

18.

Claimant argues that the Operating Agreement is lawful under U.S. Law, including the U.S. Cuban Asset Control Regulations because the projects discussed by Mr. Schorr and Mr. Doggart included "building on the Property a small guesthouse with 8 guestrooms, financed by an outside investor," which allegedly would qualify as a "humanitarian project" under 31 C.F.R § 515.575(b), as this provision permits "projects suitable to the development of small-scale private enterprise" and "projects that are related to agricultural and rural development that promote independent activity." (Id. at 6.) Claimant argues that the projects discussed with Mr. Doggart would have included the employment of a local family. (Id. at 7.)²

19.

Claimant further argues that the potential violation of Cuban law is irrelevant because New York law governs the Agreement. (Id. at 7.) In addition, in Article 9(b)(d) of the Operating Agreement, Respondent covenanted that "all actions taken with respect to the Property and Property Rights and all actions by or on behalf of the Company generally will comply fully and at all times with U.S. and Cuban law ... ." (Id.)

20.

Mr. Schorr argues that Respondent should be estopped from challenging his ability to act as Mrs. Marcia Schorr's POA because Article 6.1(b) of the Operating Agreement states that "David Schorr has full Power of Attorney to act on behalf of Mrs. Schorr in all respects under this Agreement," the Operating Agreement was signed by Mr. Schorr in his capacity as her agent, and Mrs. Schorr's investment was made by "two cashier checks made payable to Respondent and that contained the notation: 'MARCIA SCHORR/DAVID E SCHORR POA.'" (Id. at 11.) Claimant's Submission also reiterates that Mr. Schorr has a "full general Power of Attorney with my mother," dated September 14, 2013, which allegedly provides him with the authority to act on behalf of his mother with respect to a broad range of matters and transactions, including "claims and litigation." (Id. at 12.) Claimant's Submission states that this power of attorney was notarized by a third party. (Id.) Claimant denies that he should be disqualified. (Id. at 11-12.)

21.

On March 4, 2020, Respondent made a submission in which he requested a ruling on "the threshold issue of whether Mr. Schorr may participate in these proceedings." (Letter from Respondent to the Emergency Arbitrator, dated March 4, 2020 ("Respondent's Letter").)

22.

On March 4, the Emergency Arbitrator reiterated that, in Procedural Order 1, he "requested the parties' views and input," on nine topics, including "whether there are any issues with the Claimant's power of attorney in this emergency arbitration proceeding, or Mr. Schorr's ability to represent Claimant in this emergency proceeding." (Ruling, dated March 4, 2020, citing to Procedural Order No. 1, paragraph 7(i).) The Emergency Arbitrator pointed out that Respondent's submission, dated March 4, addresses this topics, and that the Emergency Arbitrator will consider it pursuant to the schedule set forth in Procedural Order No. 1. The Emergency Arbitrator reiterated that the sole purpose of the emergency hearing would be to hear oral argument. He stated that "[c]onsistent with typical emergency arbitration proceedings, this telephonic hearing will not include witness testimony. Once the Tribunal is appointed in this arbitration, it will have the opportunity to decide issues relating to witness testimony." (Procedural Order No. 1, paragraph 6; Ruling, dated March 4, 2020.)

23.

On March 4 and 5, Respondent raised again the topic of Mr. Schorr's participation in these proceedings and cited a Second Circuit and a Ninth Circuit decisions about conflicts of interest. (Emails from Respondent to the Emergency Arbitrator, dated March 4 at 8:49 pm & March 5 at 8:25 am.) Respondent asked that the Emergency Arbitrator "suspend proceedings" until the subject of the alleged conflict of interest is resolved. The Emergency Arbitrator provided Mr. Schorr an opportunity to respond to these two emails by March 6, at noon. Mr. Schorr did not respond. The Emergency Arbitrator addresses the topic of Mr. Schorr's ability to represent Claimant in these emergency proceedings below. (Infra ¶¶ 74-84.)

24.

On March 6, Pursuant to Procedural Order No. 1, Respondent made a 49-page submission with exhibits ("Respondent's Submission"), which makes, inter alia, five key arguments. First, Respondent argues that in August 2018, both prospective partners agreed on the basic objective of their enterprise: "the purpose of the company [La Palma LLC] was to develop a commercial hotel that would have generated substantial income, and paid substantial taxes to the Cuban government. As such, the operation would not have classed as 'humanitarian' at all." (Respondent's Submission, at 3, 4, 5, 6, 22, 32, 35-36.) Respondent argues that his prospective partner was David E. Schorr, not his mother, and that Mrs. Schorr allegedly became a Member of La Palma LLC to "ensure that his [Mr. Schorr's] ex-wife cannot learn about the investment, let alone make a claim on the asset." (Id. at 3.)

25.

According to Respondent, both Mr. Schorr and Respondent had "extensive debate about the US embargo," and declaring the enterprise as a "humanitarian project" was "the way round the embargo." (Id.) Respondent argues that the "Operating Agreement drafted by David Schorr in September 2018 is illegal, unconscionable and invalid. DS has no legal claim to own a property, or a for-profit business, in Cuba. The Operating Agreement which he drafted was a bad-faith attempt to use a corporate structure to circumvent US Law. It sought to dupe respondent, the US Government, the NY State, and his own ex-wife." (Id. at 32.)

26.

Second, Respondent argues that, following the execution of the Operating Agreement, disputes arose between him and Mr. Schorr under Article 10.2 of this Agreement. (Id. at 5, 7, 18, 20.) Article 10.2 states that the "Members shall share the necessary expenses of the Company in proportion to their Membership Interests." (Id. at 20.) According to Respondent, Claimant owes him $24,981 as his share of the necessary expenses of the Company under Article 10.2. (Id. at 22.)

27.

Third, Respondent argues that a dispute also arose about the valuation of the Property and Property Rights. (Id. at 22-27.) According to Respondent, he located a potential buyer who was "interested in purchasing a 100% share in the property, and property rights, for a total of $10,000." (Id. at 23.) Mr. Schorr, however, did not agree to sell the Property and Property Rights for this price. (Id. at 24.) On February 24, 2020, Respondent wrote to Mr. Schorr that he was welcome to search for a buyer willing to pay more than $10,000, but that "I plan to effectuate the sale on or around April 14, 2020 when I am next in Cuba." (Id. at 24.) On the same day, Respondent indicated to Mr. Schorr that "[y]ou have more than enough time to find a buyer before then." (Id. at 24.)

28.

According to Respondent's Submission, the following exchange occurred on February 24:

Mr. Schorr: No. As I said previously, I am fine with selling our interest in the Company, but not at such a low price.

Respondent: Then get off your lazy ass and find another buyer or come back with a reasonable counter-offer to my compromise proposal.

Mr. Schorr: I think that we're going in circles here. When the time comes, we will deal with any issues in arbitration. I think that's where we will have to leave things for the time being.

Respondent: Well, if you and your mother have definitely decided that you are not even going to bother to look for another buyer, there is no reason for me to wait to execute the sale until April 14, right? If this is the case, I will move to enact the sale while I am still here in Cuba. You can take whatever action you want.

(Id. at 26) (emphasis in original).

29.

On February 25, Respondent advised Mr. Schorr that "I and my counsel plan to complete the sale within the next 48 hours, at a value of $10,000 (excluding reasonable transaction and counsel cost)." (Id. at 27.) Respondent's Submission states that, on February 27, 2020, "Respondent and the buyer confirm[ed] sale of Property and Property Interests for a total of $10,000. All details on this deal are confidential, further to the strict confidentiality agreement made with buyer." (Id.) Respondent has not provided any evidence that a sale actually occurred.

30.

Fourth, Respondent's Submission reflects that his enterprise with Claimant amounted to a violation of Cuban law. (Id. at 20, 22.) According to Respondent, Mr. Schorr threatened that he might advertise a sale in Miami and Havana, and Respondent warned Mr. Schorr that "it would endanger both respondent and our local partners if he were to publicly state that La Palma LLC is the owner of the property and thus entitled to sell it" because it is illegal under Cuban law for any foreign company to own property in Cuba. (Id.)

31.

Fifth, Respondent states that he unilaterally dissolved La Palma LLC on January 23, 2020, and that since then, "the company's assets and liabilities have been largely wound up. There are no damages due Mr. Schorr since the sale price of $10,000 was a fair market value which Mr. Schorr was unable to better. The only outstanding issues are to distribute the net proceeds from the sale of the Property and Property interests; and the settlement of an outstanding debt of $24,981 which Claimant owes respondent for her unpaid share of expenses." (Id. at 38.) Respondent's claim for $24,981 is based on Article 10.2 of the Operating Agreement. Respondent's Submission further "requests that the EA [Emergency Arbitrator] issue an order for claimant to cooperate in the Company's winding down." (Id. at 39.) Specifically, "Respondent requests that EA issues an order forthwith for both parties to file dissolution articles with the New York Division of Corporations." (Id.)

32.

Respondent's Submission also reiterated Respondent's objection to the participation of Mr. Schorr in these emergency arbitration proceedings and asked the Emergency Arbitrator to direct Mr. Schorr to produce the power of attorney, dated September 14, 2013, which Claimant described in her Submission. (Id. at 44-45.) Respondent stated that the "relevance of this document is immense. If it does not exist, or is not valid, then the whole OA is null and void." (Id. at 44.) (emphasis in original.) Respondent expressly consented to the Emergency Arbitrator's review of this document in camera "for him to evaluate whether a) it warrants being excluded from the Respondent; and b) whether it has any material bearing on Respondent's application to disqualify DS [David Schorr]." (Id.)

33.

On March 7, 2020, the Emergency Arbitrator directed Mr. Schorr to submit this 2013 power of attorney for in camera inspection, and Mr. Schorr made it available on the same day. On March 7, 2020, in light of Respondent's request for emergency relief, the Emergency Arbitrator also provided Claimant with an opportunity to comment on this new request. (E-mail from the Emergency Arbitrator to both sides, dated March 7, 2020.) On March 9, Claimant opposed Respondent's request for emergency relief. (Claimant's Submission, dated March 9, 2020.)

34.

On March 9, the Emergency Arbitrator issued Procedural Order No. 3, which provided both sides an opportunity to comment on the possible production to Respondent of the September 14, 2013 power of attorney. The Emergency Arbitrator asked that any such comments be provided by 10:00 am EDT on March 10.

35.

On March 9, Ms. Mohyi appeared as counsel for Respondent in this emergency proceeding and reiterated his request that this power of attorney be produced. On March 10, the Emergency Arbitrator issued Procedural Order No. 4, which directed Claimant to produce this power of attorney to Respondent. The Emergency Arbitrator stated that Claimant relies on this power of attorney in this emergency proceeding; Respondent has asked for an opportunity to review it; and there is no legitimate basis to withhold it from Respondent. Claimant subsequently submitted comments and asked the Emergency Arbitrator to require additional confidentiality undertakings from Respondents and his counsel. Claimant's comments were not timely submitted, and in any event the Emergency Arbitrator stated that there is no legitimate basis to withhold the power of attorney from Respondent, and that Respondent and his counsel are bound by the confidentiality obligations in Procedural Order No. 2. Mr. Schorr produced the power of attorney to Respondent on March 10.

36.

On March 9, Respondent asked that the Emergency Arbitrator direct Mrs. Marcia Schorr to appear at the March 12 hearing as a witness to testify about the authenticity of the 2013 power of attorney, and whether she ever revoked it. On March 11, the Emergency Arbitrator issued Procedural Order No. 5, in which he declined to call Mrs. Schorr as a witness and reiterated that the purpose of the hearing on March 12 was to hear oral argument, not witness testimony.

37.

On March 12, an emergency arbitration hearing was conducted by telephone. Mr. Schorr participated on behalf of Claimant. Mr. Doggart and his counsel also participated.

38.

In letters and his Submission, Respondent initially asserted three arguments to challenge arbitrability. In the course of oral argument on March 12, however, Respondent's counsel stated in substance that he abandons these arguments. Respondent's counsel stated that he wishes to resolve this dispute, avoid back and forth about the severability of the arbitration clause, and avoid arguments about whether a court of arbitration offers the best forum. When the Emergency Arbitrator asked Respondent's counsel to clearly set forth his position, she responded that "if we can resolve the dispute here and now, let's do it." In light of Respondent's abandonment of his challenge to arbitrability, there is no question that this dispute is arbitrable.

39.

In any event, the Emergency Arbitrator briefly addresses and rejects Respondent's arguments regarding arbitrability.

40.

First, on February 27, 2020, Respondent wrote to AAA and raised an objection to these emergency arbitration proceedings, asking whether "this process is even lawful now that the business has been dissolved ... ." (Email from Respondent to AAA, dated February 27, 2020). Assuming for the sake of argument that Respondent had the right to unilaterally dissolve the company, it did not terminate the Operating Agreement, including its arbitration clause. (See infra ¶¶ 59-63.) To the contrary, Respondent's letter to Mrs. Schorr and Mr. Schorr, dated January 23, 2020, expressly referenced the arbitration agreement in Operating Agreement and stated that "[i]f we are unable to agree on a valuation, we will need to resort to Article 11.5 ('Arbitration'). I suggest we both research the steps necessary to do this as economically as possible, in case our meeting does not yield an agreement." (Letter from Respondent to Mrs. Schorr and Mr. Schorr, dated January 23, 2020.) In addition, Respondent's Submission seeks affirmative relief from the Emergency Arbitrator in this emergency proceeding in the form of an order directing Mr. Schorr to collaborate with the winding down of the Company. (Supra ¶ 31.) Because Respondent expressly relies on the arbitration clause and seeks affirmative relief in this emergency proceeding, the dispute is arbitrable.

41.

Second, Respondent alleges that the Operating Agreement is "null and void in its entirety – and is not severable from the arbitration clause." (Respondent's Submission, at 37-38; Letter from Respondent to AAA, dated February 26, 2020.) Specifically, Respondent argues that Mr. Schorr committed "fraud in the inducement" and "fraud in factum" in the drafting and entering into the Operating Agreement, and that "the central issue as to the existence of the La Palma LLC Operating Agreement cannot be arbitrated and must be decided by a Court per the Second Circuit's decisions laying out an exception to Buckeye." (Respondent's Submission, at 38.)

42.

To the extent the Operating Agreement is illegal, as Respondent argues, the arbitration agreement is severable from the Operating Agreement, and in the absence of a challenge "to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance." (Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006).) Respondent has not challenged the arbitration clause itself. To the contrary, he has invoked the arbitration agreement and the jurisdiction of the Emergency Arbitrator. Further, international arbitration tribunals regularly address whether a contract was entered into for an unlawful purpose and the consequences of such illegality.

43.

Respondent has attached to his submission a document called "Exhibit U," which appears to be an excerpt from a case or article addressing the Supreme Court decision in Buckeye. This excerpt cites the Second Circuit decision in Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58 (2d Cir. 2012). In Ipcon, the Second Circuit reiterated that "[t]he Federal Arbitration Act, 9 U.S.C. § 1 et seq., however, '"does not permit the federal court to consider claims of fraud in the inducement of the contract generally."' Buckeye Check Cashing, 546 U.S. at 445 (quoting [Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)]). Rather, such claims must be decided by the arbitrator." (Id. at 61.) The Second Circuit added that "a limited exception to the requirement of arbitration for general contract challenges may be available where a party 'questions ... whether a contract was ever made.'" (Id. (citation omitted).) Respondent's reliance on Ipcon is misguided: (1) Respondent's Submission argues fraud in the inducement. (Respondent's Submission, at 38.) (2) Respondent seeks relief from the Emergency Arbitrator and argues that Claimant owes him money under Article 10.2 of the Operating Agreement. (Supra ¶ 31.) This position cannot be reconciled with an argument that the contract was never made.³

44.

Third, Respondent's Submission argues that Mr. Schorr did not have a power of attorney to enter into the Operating Agreement, and that even if such a power of attorney existed, "Marcia Schorr has no idea she is a member of La Palma LLC, much less its purpose." (Id. at 38.) Mr. Schorr has produced a power of attorney, dated September 14, 2018. The Operating Agreement provides that "David Schorr has full Power of Attorney to act on behalf of Mrs. Schorr in all respects under this Agreement." (Operating Agreement, Article 6.1(b).) Accordingly, he has made a prima facie showing that a power of attorney existed. Any further disputes about this 2013 power of attorney, or the February 22, 2020 power of attorney should be considered by the Tribunal once appointed.

45.

Rule 38 allows an emergency arbitrator to enter an interim order or award granting emergency measures of protection to a party prior to the constitution of the tribunal. (AAA Commercial Arbitration Rules and Mediation Procedures, Rule 38(b) & (e).) The party seeking such relief must show that "immediate and irreparable loss or damage shall result in the absence of emergency relief, and that such party is entitled to such relief" prior to the constitution of the tribunal. (AAA Commercial Arbitration Rules and Mediation Procedures, Rule 38(b) & (e).) Once the tribunal is constituted, it is not bound by the decisions of the emergency arbitrator.

46.

There is no dispute that, under New York law, Claimant must demonstrate (1) a likelihood of success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor. (Claimant's Submission, at 4 (citing Doe v. Axelrod, 73 N.Y.2d 748, 750 (1988); Respondent's letter to the Emergency Arbitrator, dated March 13, 2020.) Rule 38, which governs emergency arbitration proceedings, requires a showing that "immediate and irreparable loss or damage shall result in the absence of emergency relief ... ." (AAA Commercial Arbitration Rules and Mediation Procedures, Rule 38(e).)

47.

The purpose of a preliminary injunction is to maintain the status quo. Claimant is entitled to a preliminary injunction to preserve the status quo until the Tribunal has an opportunity to consider whether the Operating Agreement constitutes an unlawful scheme to circumvent U.S. laws.

48.

The Property and Property Rights were acquired pursuant to the scheme set forth in the Operating Agreement. (Operating Agreement, Article 3.2). The Operating Agreement makes clear that the purpose of this scheme was to acquire, through Respondent, certain Property and Property Rights in Cuba that the Company was not allowed to own directly. Article 3.2 of this Agreement states that "[o]n behalf of the Company, Mr. Doggart has purchased the title to the property described in the title deed in Exhibit B hereto (the 'Property')," and that he also holds certain Property Rights "in his name on behalf of and for the benefit of the Company." (Operating Agreement, Article 3.2.) In Article 9.2(b) of the Agreement, Respondent covenanted that, inter alia, "[u]nless and until such time as a change in title occurs under Section 3.3 [addressing a change in U.S. and Cuban law], he will remain at all times the title holder in the Property and the Property Rights and will fully protect all the title and rights (held in his name and on behalf of and for the benefit of the Company) in the Property and Property Rights." (Id., Article 9.2.)

49.

Pursuant to 31 C.F.R. § 515.201 (2019):

(b) All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) by means of regulations, rulings, instructions, licenses, or otherwise, if such transactions involve property in which any foreign country designated under this part, or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect:

(1) All dealings in, including, without limitation, transfers, withdrawals, or exportations of, any property or evidences of indebtedness or evidences of ownership of property by any person subject to the jurisdiction of the United States; and

(2) All transfers outside the United States with regard to any property or property interest subject to the jurisdiction of the United States.

(c) Any transaction for the purpose or which has the effect of evading or avoiding any of the prohibitions set forth in paragraph (a) or (b) of this section is hereby prohibited.

(31 C.F.R. § 515.201 (2019).)

50.

Both sides rely on the U.S. Treasury's Office of Foreign Asset Control's Frequently Asked Questions, which state that "[p]ersons subject to U.S. jurisdiction are prohibited from doing business or investing in Cuba unless authorized by OFAC," and that a person subject to U.S. jurisdiction is generally not "authorized to purchase or lease real property in Cuba." (Respondent's Submission, at 33-34 (quoting questions 73 and 114); Claimant's Submission at 6-7 (quoting question 114 of the Obama Administration Cuba FAQs & 107 of the Trump Administration Cuba FAQs).) As set forth in the Cuban regulations cited by the Parties, the penalties for violating these regulations include criminal sanctions. (31 C.F.R. § 501.701; Respondent's Submission, at 33 (at the time the Agreement was drafted, "it was a crime to engage in unlicensed commercial activities in Cuba ... .".))

51.

Claimant argues that the enterprise contemplated by Messrs. Doggart and Schorr qualifies as a humanitarian project because it involved "projects suitable to the development of small-scale private enterprise" or "projects that are related to agricultural and rural development that promote independent activity." (Claimant's Submission, at 6 (citing 31 C.F.R. § 515.575(b) (2019)).)

52.

Respondent argues that their enterprise did not involve "humanitarian projects" because (1) it was designed to create "investment opportunities for tourism," not to "directly benefit the Cuban people" under 31 C.F.R. § 515.575 (2019); (2) La Palma LLC sought to exploit tourism opportunities, not the types of farming projects that could qualify as humanitarian; and (3) tourism is not referenced as a humanitarian activity under the plain language of 31 C.F.R. §515.575 (2019). (Respondent's Submission, at 35-36.)

53.

The regulations set forth the following example of appropriate humanitarian project under 31 C.F.R. § 515.575(b) (2019): "A U.S. group of medical professionals that specializes in disease treatment wishes to support a community in Cuba by providing the latest techniques and literature in disease education and prevention directly to the Cuban people. Provided that the medical professionals in the group maintain a full-time schedule related to disease education and prevention, these activities qualify for the general license." (31 C.F.R. § 515.575(b) (2019).) The type of profitable tourism activities that the parties contemplated appears different in kind from the example set forth in the Cuban regulations.

54.

If the scheme contemplated by Messrs. Doggart and Schorr is unlawful under U.S. law, the acquisition and sale of the Property and Property Rights pursuant to this scheme are also unlawful and expose Claimant, Mr. Schorr, and the Company to potential criminal investigations and penalties in the U.S. In Coalition of New York State Carrier Schools, Inc. v. Riley, 894 F. Supp. 567 (N.D.N.Y. 1995), the U.S. District Court for the Northern District of New York held that faced with, inter alia, a potential criminal prosecution, a plaintiff had "met the standard of demonstrating sufficient irreparable harm to justify issuance" of a preliminary injunction. (Id. at 570.) The exposure of Claimant, Mr. Schorr, and the Company to criminal sanctions justifies the issuance of a preliminary injunction to preserve the status quo.

55.

Rule 38 of the AAA Commercial Arbitration Rules requires a showing of "immediate and irreparable loss or damage." (Supra ¶ 46.) For the reasons set forth above, supra ¶ 54, Claimant has made this showing because the sale of the Property and Property Rights pursuant to a scheme that violates U.S. law would expose Claimant, Mr. Schorr, and the Company to criminal investigations and penalties in the U.S.

56.

At the emergency arbitration hearing, the Emergency Arbitrator pointed out the District Court and Second Circuit decisions in Coalition of New York State Carrier Schools, Inc. v. Riley, 894 F. Supp. 567 (N.D.N.Y. 1995) and Coalition of New York State Career Schools, Inc. v. Riley, 129 F.3d 276 (2d Cir. 1997). The Parties did not cite these decisions in their submissions, and the Emergency Arbitrator asked them to submit letters addressing their potential relevance, particularly with respect to the analysis of irreparable harm for purposes of a motion for a preliminary injunction. Respondent's submission, dated March 13, 2020, argues, inter alia, that "Respondent avoided possible criminal prosecution under Cuban and New York Law by effectuating the sale of the property as soon as it was clear to him that the Claimant's purpose for their enterprise inconsistent with the Law." (Letter from Respondent's counsel to the Emergency Arbitrator, dated March 13, 2020.) If, as Respondent argues, the entire Operating Agreement is in violation of U.S. law the Emergency Arbitrator is not convinced that a sale of the Property and Property Rights pursuant to that same Agreement would insulate the Parties from potential criminal investigation and liability in the U.S.⁴

57.

To the extent the Operating Agreement is not a scheme to violate of U.S. law, Claimant has also demonstrated irreparable harm and an immediate and irreparable loss. Irreparable injury, for purpose of equitable relief, means an injury for which money damages are insufficient. Even if the scheme was lawful under U.S. law, Respondent argues that, had the Cuban Government learned of the Parties' enterprise, it would likely have concluded that this entire scheme is illegal under Cuban law, exposing Respondent to potential imprisonment and the confiscation of the Property and Property Rights.⁵ (Oral Argument held on March 12, 2020.) Respondent's Submission argues that "US citizens, and US based companies like La Palma LLC, are not permitted to own any property under Cuban law." (Respondent's Submission, at 32.) According to Respondent, publicly stating that La Palma LLC was the owner of the Property and Property Rights would have "endanger[ed] both respondent and our local partners" in Cuba because "'comercio ilicito' is a crime." (Id. at 20-21.) While Respondent acknowledges that it is not possible to "provide a fair market value for an interest in a corporation trying to evade US Cuba Asset Control Regulations," (id. at 40), the same reasoning should apply to the valuation of an interest in a company that holds Property and Property Rights in Cuba, in violation of Cuban law. The Parties have not identified an appropriate measure of damages under these circumstances. In addition, Claimant's demand for arbitration seeks a preliminary and permanent injunction; in the absence of a preliminary injunction, the arbitral award may be ineffectual. (Claimant's Submission, at 4-5.)⁶

58.

If, as Respondent argues, the Operating Agreement constitutes an unlawful scheme under U.S. law, Claimant may not be able to meet her burden of showing a likelihood of success on the merits. In light of the potential violation of U.S. sanctions laws, however, the Emergency Arbitrator concludes that it is necessary to maintain the status quo until the Tribunal has an opportunity to consider this topic.

59.

If, however, the Operating Agreement is not unlawful, Claimant has met her burden of showing a reasonable likelihood of success on the merits. As described above, Article 6.1(a) of the Operating Agreement provides that "[t]he Company shall be managed by its Members who shall act jointly in all matters." (Operating Agreement, Article 6.1(a) (emphasis added).) Assuming for the sake of argument that Respondent could unilaterally dissolve La Palma LLC, such dissolution did not terminate the Operating Agreement.⁷ To the contrary, Article 8.3 of the Operating Agreement sets forth provisions governing the winding down of the Company following a dissolution. It provides that "[u]pon dissolution, of the Company, the Company shall take full account of the Company's assets and liabilities and the assets shall be liquidated as promptly as is consistent with obtaining the fair market value thereof and as shall be necessary to timely make the distributions below described ... ." (Operating Agreement, Article 8.3.) At the emergency arbitration hearing, Respondent's counsel stated that her client is "more than willing to pay Claimant her share of the proceeds." (Oral Argument, dated March 12, 2020.)

60.

Articles 6.1(a) and 8.3 are unambiguous and make clear that the Company was required to take full account of its assets, and its Members were required to act jointly with respect to their liquidation. Claimant has a reasonable likelihood of prevailing on the claim that Respondent breached the terms of the Operating Agreement by purporting to unilaterally sell the Property and Property Right.

61.

This analysis is consistent with New York limited liability company law ("N.Y. LTD. LIAB. CO. LAW"). Under § 703(a) of N.Y. LTD. LIAB. CO. LAW, "[i]n the event of a dissolution of a limited liability company, except for a dissolution pursuant to section seven hundred two of this article, unless otherwise provided in the operating agreement, the members may wind up the limited liability company's affairs." (N.Y. LTD. LIAB. CO. LAW § 703(a).) Accordingly, the statute contemplates that the winding up of a New York limited liability company should be conducted by the members, not one of them individually. In contrast, this section also refers to the right of "any member" to apply to the New York State Supreme Court for the appointment of a receiver. (Id.) Accordingly, while a member may petition the New York Supreme Court on his own, the members were required to act jointly to wind up the company's affairs.

62.

According to § 703(b), "[u]pon dissolution of a limited liability company, the persons winding up the limited liability company's affairs may, in the name of and for and on behalf of the limited liability company, prosecute and defend suits, whether civil, criminal or administrative, settle and close the limited liability company's business, dispose of and convey the limited liability company's property, discharge the limited liability company's liabilities and distribute to the members any remaining assets of the limited liability company, all without affecting the liability of the members including members participating in the winding up of the limited liability company's affairs." (N.Y. LTD. LIAB. CO. LAW § 703(b).) Accordingly, §§ 703(a) and (b) contemplate that the members, not one of them individually, will wind up the limited liability company's affairs, including settling and closing its business and disposing of its assets.

63.

According to § 705(b), "[t]he cancellation of the articles of organization is effective at the time of filing of the articles of dissolution." (N.Y. LTD. LIAB. CO. LAW § 705(b).) Under New York law, La Palma LLC will continue to exist until the filing of such articles.

64.

The Emergency Arbitrator concludes that the balance of the equities does not weigh in favor of either side given the potential violations of U.S. law.

65.

Respondent argues that Mr. Schorr drafted the Operating Agreement and falsely represented to Respondent that their proposed enterprise was lawful under U.S. law. (Respondent's Submission, at 32.) Claimant argues that Respondent falsely represented to Claimant in the Operating Agreement that their enterprise was lawful under Cuban law, and that Respondent knew these representations were false because he was represented by Cuban counsel. (Oral Argument, dated March 12, 2020; Claimant's Submission, at 7.) Under these circumstances, the balance of equities favors neither side.

66.

For these reasons, Claimant's request for a preliminary injunction, enjoining Respondent from selling the Property and Property Rights is granted, and Respondent is enjoined from taking any steps or allowing anyone acting on his behalf to take any steps to consummate a sale.

67.

On February 26, 2020, Claimant sought further emergency relief prohibiting Respondent from continuing to violate the confidentiality provisions of the Operating Agreement. (Supplemental request for emergency relief, at 1.) Claimant argues that Respondent has provided a copy of the Agreement to various third parties. On February 29, 2020, Respondent also requested the issuance of a confidentiality order preventing "both parties from revealing further sharing of the details of the La Palma LLC Operating Agreement, until the conclusion of this emergency proceeding." (E-mail from Respondent to the Emergency Arbitrator, dated February 29, 2020.)

68.

On March 3, 2020, in light of both sides' request for a confidentiality order, the Emergency Arbitrator issued Procedural Order No. 2 (confidentiality order). He reasoned that both sides had identified facts that may substantiate an existing or threatened breach of the confidentiality provisions in the Operating Agreement.⁸ At this time, both sides continue to invoke the need for confidentiality. (Respondent's Submission at 46-48; E-mail from Mr. Schorr to the Emergency Arbitrator, dated March 10, 2020.)

69.

Accordingly, Procedural Order No. 2 will remain in effect until the Tribunal is appointed and has an opportunity to review the need for confidentiality measures. As described in Procedural Order No. 2, the Parties and their respective counsel will suffer no harm from being enjoined from what they are otherwise prohibited from doing under the confidentiality provisions of the Operating Agreement. (Procedural Order No. 2, at 3.) This ruling does not modify the scope of the confidentiality provisions set forth in Article 11.5 (arbitration) and 11.13 (confidentiality) of the Agreement.

70.

Claimant's Submission seeks an order directing Respondent "to divulge the current status of the assets including without limitation (i) whether a sale has been initiated and, if so, when; (ii) whether a sale has been completed and, if so, when; (iii) the identity of the purchaser; and (iv) how and in what currency the sale was transacted. In addition, Respondent should be ordered to provide copies of all purchase and sale documents." (Claimant's Submission, at 2.) To the extent the assets have been sold, Claimant also requests an order directing Respondent to restore them to the Company. (Id.)

71.

Respondent has declined to provide any factual information about his purported "confirm[ation]" of sale of the Property and Property Rights. (Respondent Submission, at 27.) At the oral argument on March 12, Respondent's counsel was unable to shed any light on the purported sale other than to say that Respondent's Cuban attorney handled this purported sale. (Oral Argument held on March 12, 2020.) There is no evidence, however, that an actual sale was consummated.⁹

72.

While Claimant will most likely be entitled to obtain specific information about this "confirm[ation]" of sale in the course of the arbitration, Claimant has failed to show that "immediate and irreparable loss or damage shall result in the absence of emergency relief" under Rule 38, i.e., in the absence of an order directing Respondent to provide information and documents about this "confirm[ed]" sale. (AAA Commercial Arbitration Rules, Rule 38(e); Respondent's Submission, at 27.) As described above, Respondent and anyone acting on his behalf is enjoined from taking any further steps to consummate a sale of the Property or Property Rights. Accordingly, this request for emergency relief seeking information and documents is denied. For the same reason, Claimant's request for an order directing Respondent to "restore" the assets should be submitted to the Tribunal once confirmed.

73.

Respondent's Submission "requests that the EA [Emergency Arbitrator] issue an order for claimant to cooperate in the Company's winding down." (Respondent's Submission, at 39.) Specifically, "Respondent requests that EA issues an order forthwith for both parties to file dissolution articles with the New York Division of Corporations." (Id.) Claimant was provided an opportunity to respond. On March 9, 2020, Claimant took the position that no dissolution has taken place, thus, that any request for collaboration was premature. Claimant further stated that "[o]f course, should it be determined during the course of the arbitration proceedings (should such determination prove to be necessary) that 'dissolution' has indeed taken place, we will, of course, cooperate in good faith in the Company's winding down." (E-mail from Mr. Schorr to the Emergency Arbitrator, dated March 9, 2020.) Respondent has failed to show that "immediate and irreparable loss or damage shall result in the absence of emergency relief" under Rule 38. (AAA Commercial Arbitration Rules, Rule 38(e).) Under New York limited liability company law, articles of dissolution should be filed with the Department of State within 90 days "following the dissolution and the commencement of winding up" of La Palma LLC. (N.Y. LTD. LIAB. CO. LAW § 705(a).) Respondent purported to dissolve the Company on January 23, 2020. (Supra ¶ 9.) Respondent's request should be submitted to the Tribunal once appointed.

74.

Respondent claims that Mr. Schorr "cannot either legally or ethically participate in these proceedings." (Letter from Respondent to the Emergency Arbitrator, dated March 4, 2020 ("Respondent's Letter"), at 1; Respondent's Submission, at 44-46.) Respondent asserts three arguments.

75.

First, Respondent argues that under New York law, "the right to pro se is an individual right that cannot be delegated, even with an executed power of attorney." (Respondent's Letter, at 1-2.) Respondent points out that "New York law prohibits the practice of law in this state on behalf of anyone other than himself or herself by a person who is not an admitted member of the bar, regardless of the authority purportedly conferred by execution of a power of attorney." (Smolenski v. T.G.I. Friday's, Inc., 834 N.Y.S.2d 436, 437 (N.Y. Sup. Ct. 2007) (citation omitted).) See also Parkchester Preserv. Co., LP v. Feldeine, 922 N.Y.S.2d 744, 748 (N.Y. Civ. Ct. 2011) (layperson may not appear "in a summary proceeding on behalf of another party, even where there is a properly executed power of attorney"); Gilman v. Kipp, 519 N.Y.S.2d 314, 315 (N.Y. City Ct. 1987) ("Sections 478 and 484 of the Judiciary Law preclude persons from appearing as an attorney-at-law for a person other than himself or herself in any court of record unless that person has been licensed and admitted to the practice of law.")

76.

These authorities, however, do not preclude Mr. Schorr from appearing on behalf of Claimant in this emergency arbitration proceeding. Respondent's authorities hold that a layperson may not appear in court unless this person is licensed and admitted to practice law, even when there is a properly executed power of attorney. It is undisputed that Mr. Schorr is admitted to practice law in New York. Accordingly, to the extent this prohibition applies to emergency arbitration proceedings under the AAA Commercial Arbitration Rules, it does not prohibit Mr. Schorr from appearing in this emergency arbitration.¹⁰

77.

Respondent also argues that, based on the New York State Supreme Court decision in Smolenski, he should be disqualified. (Respondent's Submission, at 45, citing Smolenski, 834 N.Y.S.2d at 437). Smolenski is distinguishable because in that case the court held that "[w]hether or not to disqualify an attorney is a matter which rests in the sound discretion of the court," and expressed its concern with "the prospect of Mr. Smolenski being called as a fact witness, testifying and being cross-examined, and at the same time representing Mrs. Smolenski as her attorney in the case." Smolenski, 834 N.Y.S.2d at 437, 438. That concern is not present here because the emergency arbitration hearing on March 12 did not involve witness testimony, as stated in advance in Procedural Order No. 1 and the Emergency Arbitrator's ruling, dated March 4.

78.

Second, Respondent argues that, if Mr. Schorr appears as counsel for Ms. Marcia Schorr in these emergency proceedings, he will harbor a conflict of interest because he allegedly acted as counsel for La Palma LLC when drafting the Operating Agreement and registering La Palma LLC with the State of New York. (Letter from Respondent to the Emergency Arbitrator, dated March 4, 2020; Respondent's Submission, at 46.) On March 5, Respondent made a further submission along the same lines arguing that:

[t]he Emergency Arbitrator in this matter has a threshold obligation to examine the charges of a conflict with attorney Schorr.

* * *

However, if you continue to refuse to accept the Emergency Arbitrator's threshold obligation on these charges, and do not suspend proceedings until these obligations are met, it is the respondent's psoition [sic] that this would escalate from an error of legal judgment to an act of bad faith warranting your inmediate disqualification [sic].

(E-mail from Respondent to the Emergency Arbitrator, dated March 5.)

79.

Respondent relies on United States v. Kliti, 156 F.3d 150 (2d Cir. 1998). That decision involved a criminal defendant's Sixth Amendment right to be represented by an attorney who is free from conflicts of interest. The Second Circuit held as follows:

When the trial court knows or reasonably should know of the possibility of a conflict of interest, it has a threshold obligation to determine whether the attorney has an actual conflict, a potential conflict, or no conflict... . In fulfilling this initial obligation to inquire into the existence of a conflict of interest, the trial court may rely on counsel's representations... . If a district court ignores a possible conflict and does not conduct this initial inquiry, reversal of a defendant's conviction is automatic. (Id. at 153 (citations omitted).)

80.

In Kliti, the Court of Appeal held that "[t]he more troubling issue involves [the attorney's] role as a potential witness. A Curcio hearing is required whenever a defendant would forgo important testimony by his attorney because of his attorney's continued representation of him." (Id. at 155.) Cf. United States v. Curcio, 680 F.2d 881 (2d Cir. 1982). It held that the district court should have conducted a hearing on the subject of the conflict of interest prior to the cross-examination of a key witness at trial. As described above, consistent with the typical practice at the ICDR in emergency arbitration proceedings, the emergency arbitration hearing does not include witness testimony.

81.

The Operating Agreement provides that "David Schorr has full Power of Attorney to act on behalf of Mrs. Schorr in all respects under this Agreement." (Operating Agreement, Section 6.1(b).) He signed the Operating Agreement as "David E. Schorr, POA, on behalf of Marcia Schorr." (Id., page 15.)

82.

Respondent claims that it would be "a conflict of interest for Mr. Schorr to represent one member of La Palma LLC against another member of the corporation asserting provisions of the Operating Agreement as a sword." (Respondent's Letter, at 2.) Respondent, however, has not submitted evidence that Mr. Schorr acted on behalf of a client other than Mrs. Schorr in connection with the drafting of the Operating Agreement. For purposes of this emergency arbitration proceeding, Respondent has not met his burden of proving that Mr. Schorr harbors a disqualifying conflict of interest.¹¹ To the extent there is a factual dispute about, among other things, (i) whether Mr. Schorr previously represented La Palma LLC or only Mrs. Schorr in connection with drafting the Operating Agreement; (ii) the scope of any such prior representation; (iii) whether Mr. Schorr harbored a conflict, and if so whether such conflict was waived, such dispute should be resolved by the Tribunal once appointed.¹²

83.

Third, Respondent argues that Mr. Schorr's power of attorney is invalid because "[Mr. Schorr] notarized the Power of Attorney his mother signed. Since he has a clear interest both per the terms of the Operating Agreement and by his actions, he should have disqualified himself." (Respondent's letter to the ICC, dated February 26, 2020.) As described above, however, the Operating Agreement represents that "David Schorr has full Power of Attorney to act on behalf of Mrs. Schorr in all respects under this Agreement." (Operating Agreement, Section 6.1(b).) This Operating Agreement was entered into in September 2018. It appears that, from September 2018 until January 2020, Respondent did not challenge that Mr. Schorr had a proper power of attorney.

84.

In addition, Mr. Schorr has produced in this emergency proceeding a power of attorney, dated September 14, 2013. (Supra ¶ 20.) He has made a prima facie showing that Mrs. Marcia Schorr granted him this broad power of attorney to act on her behalf. To the extent there are any further disputes about the validity of the powers of attorney, dated September 14, 2013 and February 22, 2020, or whether Ms. Schorr ever revoked these powers of attorney, these disputes should be submitted to the Tribunal once appointed.¹³

85.

Under Rule 38(i) of AAA's Commercial Arbitration Rules, the "costs associated with applications for emergency relief shall initially be apportioned by the emergency arbitrator ... subject to the power of the tribunal to determine finally the apportionment of such costs." (AAA Commercial Arbitration Rules, Rule 38(i)). The Emergency Arbitrator concludes that these "costs" refer to the Emergency Arbitrator's compensation and expenses and the ICDR administrative fees and expenses.

86.

Under Rule 38(i), the Emergency Arbitrator initially allocates 50% of these costs to the Claimant and 50% to the Respondent, subject to the power of the Tribunal ruling on the merits to determine finally the apportionment. Claimant has prevailed on the request for a preliminary injunction and to some extent on his request for a confidentiality order, but not on his request for an order directing Respondent to divulge the current status of the assets, produce documents, and restore the assets to the Company.¹⁴ Respondent has prevailed to some extent on his request for a confidentiality order, but not on his request for an order directing Claimant to collaborate in the winding down of the Company.

87.

Respondent's Submission also shows that his conduct caused this emergency proceeding because there was no urgency to "confirm" a sale on February 27. Specifically, Respondent had planned to sell the Property and Property Rights in Cuba on April 14, 2020, for $10,000. He offered Claimant the opportunity to locate a buyer willing to pay a higher price by that date. (Respondent's Submission, at 23-25.) On February 24, however, Respondent wrote to Claimant and Mr. Schorr that "[w]ell, if you and your mother have definitely decided that you are not even going to bother to look for another buyer, there is no reason for me to wait to execute the sale until April 14, right? If this is the case, I will move to enact the sale while I am still here in Cuba. You can take whatever action you want." (Respondent's Submission, at 26.) On February 27, after the demand for arbitration was filed with AAA and the initiation of this emergency proceeding, Respondent "confirm[ed]" a sale. (Id. at 27.)

[88].

For the reasons stated above, I, the Undersigned Emergency Arbitrator, Order as follows:

• Claimant's request for a preliminary injunction, enjoining Respondent from selling the Property and Property Rights is granted, and Respondent is enjoined from taking any steps, or allowing anyone acting on his behalf to take any steps, to consummate a sale.

• Claimant's request for an order directing Respondent to divulge the current status of the assets, or to restore the assets to the Company is denied.

• Claimant's request for a confidentiality order is granted to the extent that Procedural Order No. 2 shall remain in effect until the Tribunal is appointed and has an opportunity to rule on the need for confidentiality measures of protection.

• Respondent's request for a confidentiality order is granted to the extent that Procedural Order No. 2 shall remain in effect until the Tribunal is appointed and has an opportunity to rule on the need for confidentiality measures of protection.

• Respondent's request for an order directing Claimant to cooperate in the company's winding down is denied.

• The Emergency Arbitrator's compensation and expenses and the ICDR's administrative fees and expenses in connection with this application for emergency measures of protection shall be borne equally between Claimant and Respondent, subject to the power of the main tribunal, once appointed, to determine finally the appropriate apportionment in the Final Award;

• All other requests for emergency measures are denied.

Date March 16, 2020

Place of Arbitration: New York, NY

Schorr v. Doggart

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Emergency Arbitrator's Order

Introduction and Procedural History

Arbitrability

Standard

Irreparable and imminent harm

Likelihood of success on the merits

Balance of the equities

Other emergency relief sought by Claimant and Respondent

(i) Confidentiality

(ii) Disclosure of the current status of the assets

(iii) Respondent's request for emergency relief

Mr. Schorr's ability to represent Claimant for purposes of this emergency proceeding

Costs

ORDER

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