Plaintiff sued defendants for, among other things, securities fraud in connection with its purchase of an unregistered security in one of the defendant limited liability companies (LLC). Despite representing in the Subscription Agreement that he was an “accredited investor,” the plaintiff alleged that, in fact, he was not an “accredited investor” and, accordingly, the LLC was not exempt from the registration requirements of the Securities Act of 1933.

The Defendants moved to dismiss on multiple grounds, including that the dispute was governed by the arbitration clause in the LLC’s Operating Agreement. Plaintiff opposed, arguing that the Subscription Agreement did not contain an arbitration clause and that the arbitration clause in the Operating Agreement was narrow in scope, concerned disputes over the operation and management of the LLC, and did not apply to his securities law claim.

After noting that federal policy and Delaware law, the governing law under the Operating Agreement, strongly favor arbitration when there is any doubt concerning the scope of arbitrable issues, the Court held that plaintiff’s claim must be arbitrated. The Court characterized both the Operating Agreement and the Subscription Agreement, which were simultaneously executed, as “necessary to complete the [same] transaction” because the Operating Agreement governed the relationship of parties who purchased interests in the LLC through their execution of the Subscription Agreement. Because of their “related” nature, the Court ruled that even though there was no arbitration clause in the Subscription Agreement, the arbitration clause in the Operating Agreement was sufficiently broad to “embrace” plaintiff’s claims relating to the Subscription Agreement. (Cohen v. Looking for Palladin, LLC, et al., 2008 WL 544597 (S.D.N.Y. Feb. 29, 2008))