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Legacy Carbon LLC v. Potter

United States District Court, D. Hawaii

August 28, 2017



          Susan Oki Mollway, United States District Judge.


         The main issue before this court is whether Tiffany Potter, President of Streamline Consulting Group LLC, is compelled to arbitrate claims brought against her in her individual capacity by Legacy Carbon LLC. Legacy Carbon and Potter ask this court to rule on the present petition based on the papers. The petition is denied. However, Legacy Carbon may file an amended petition within thirty days of the date of this order.

         Any amended petition must include an exhibit clearly and thoroughly identifying all claims Legacy Carbon proposes to pursue against Potter in her individual capacity. This exhibit must include the factual basis for each claim. If the amended motion seeks discovery, the specific discovery and the legal authority to conduct discovery must be set forth.

         II. BACKGROUND.

         On January 3, 2014, Streamline Consulting Group, a District of Columbia limited liability company, entered into a contract with Hawaiian Legacy Carbon LLC. (“Services Agreement”). See Petition to Arbitrate, Exhibit A, ECF No. 1-2, PageID #s 16-18. See also Streamline Consulting Group LLC v. Legacy Carbon LLC, Civ. No. 15-00318 SOM-KSC, 2016 WL 347301, at *1 (D. Haw. Jan. 27, 2016). The Services Agreement states that Streamline “is a consulting practice managing information, communication, due diligence services, and capacity building for private or public sector entities that develop eco-assets.” ECF No. 1-2, PageID # 16. It says that Hawaiian Legacy Carbon, also known as Legacy Carbon, “through its affiliate[, ] Hawaiian Legacy Hardwoods, is a project developer that plants trees, restores degraded land, provides ecotourism, and creates products in the form of RFID tacks and ecosystem service credits.” Id.

         Pursuant to the Services Agreement, Streamline was to “assist in implementing [Legacy Carbon's] business plan.” Id. In return, Legacy Carbon and Hawaiian Legacy Hardwoods promised to pay a fee of 3.5% of the “awarded project funding.” Id.

         The Services Agreement has an arbitration clause stating:

Any controversy or claim arising out of, or relating to this agreement, or breach thereof, which is not settled amicably by and between the signatories within a period of 30 days shall be settled through binding arbitration in accordance with the laws of the defending state.

Id., PageID # 18.

         In early January 2014, the Services Agreement was signed on behalf of Legacy Carbon by Jeffrey Dunster, its co-founder, and on behalf of Streamline by Tiffany Potter, its President. Id.

         On or about December 17, 2013, a few weeks before the Services Agreement was executed, Hawaiian Legacy Hardwoods, entered into a Non-Circumvention Agreement with Streamline. See id.; see also Petition to Arbitrate, Exhibit E, ECF No. 1-6, PageID #s 109-13. According to the terms of the agreement, Hawaiian Legacy Hardwoods agreed not to

circumvent, avoid, bypass, or obviate directly or indirectly, the creation or pursuit of the Collaboration [defined as the mutually beneficial business relationship that might involve third parties] by entering into any direct or indirect negotiations, communications, or transactions with, or by soliciting or accepting any business or financing from or on behalf of an Introduced Party . . . .

ECF No. 1-6, PageID # 111. Hawaiian Legacy Hardwoods promised to pay Streamline a fee of 20% of the total value of money involved if it breached this non-circumvention provision. Id.

         The Non-Circumvention Agreement was executed by Dunster on behalf of Legacy Hardwoods, LLC, even though it was Hawaiian Legacy Hardwoods that was listed as a party to the agreement, [1] see id., PageID # 109, and by Potter on behalf of Streamline, see id., PageID # 113.

         On October 21, 2014, Streamline sent a demand for arbitration of its claims that the Services Agreement and Non-Circumvention Agreement had been breached. The demand went to Legacy Carbon LLC, dba Hawaii Legacy Carbon, dba Hawaiian Legacy Hardwoods. See Exhibit B, ECF No. 1-3, PageID #s 20-22. The Legacy entities responded that only Legacy Carbon, the company that had signed the Services Agreement, was subject to the mandatory arbitration provision. See Exhibit C, ECF No. 1-4, PageID #s 64-69. The parties chose former Hawaii Supreme Court Associate Justice James Duffy as their arbitrator. See Streamline Consulting Group LLC, 2016 WL 347301, at *3.

         In light of a dispute about which parties were subject to arbitration, Streamline commenced a suit in this court against the following entities: Legacy Carbon LLC, dba Hawaiian Legacy Carbon; Hawaiian Legacy Reforestation Initiative, dba Hawaiian Legacy Hardwoods, dba Hawaiian Legacy Forests, dba, Legacy Forest, dba Legacy Trees; HLH LLC, aka Hawaiian Legacy Hardwoods, LLC; Legacy Hardwoods, Inc., aka Hawaiian Legacy Hardwoods, Inc.; Legacy Holdings LLC, aka Hawaiian Legacy Holdings, LLC; and Jeffrey Dunster individually (“Legacy Defendants”). See Id. at *1; see also Exhibit H, ECF No. 1-9, PageID #s 150-82. Legacy Defendants sought dismissal of certain claims and an order compelling arbitration of other claims. Exhibit J, ECF No. 1-11, PageID #s 184-328; Exhibit K, ECF No. 1-12, PageID #s 331-53. Streamline filed a countermotion seeking to compel arbitration of all claims. Exhibit L, ECF No. 1-13, PageID #s 355-95.

         On January 27, 2016, this court compelled arbitration of claims arising under both the Services Agreement and the Non-Circumvention Agreement. Streamline Consulting Group LLC, 2016 WL 347301, at *5-6. However, the court retained jurisdiction to decide which Legacy Defendants were bound by the arbitration provision in the Services Agreement. Id. at *7. Faced with litigation over which Legacy Defendants were required to arbitrate, the parties entered into a Stipulation to Stay the Proceedings Pending Arbitration and to Refer All Issues to Arbitration (“Stipulation”). See Exhibit N, ECF No. 1-15, PageID #s 420-22. The parties agreed that “all [Legacy] Defendants will submit to arbitration.” Id., PageID # 421. The parties also agreed to refer to arbitration “(i) all Plaintiff's claims that were or could have been raised in this action; (ii) all [Legacy] Defendants' defenses, counterclaims, and third-party claims that could have been raised in this action; and (iii) all Plaintiff's defenses that could have been raised in this action.” Id. This court approved the Stipulation, which was signed by attorney John Winnicki on behalf of Streamline, and by attorney Christopher Muzzi on behalf of all Legacy Defendants. See id., PageID # 422.

         Thereafter, the parties raised with the arbitrator the issue of whether claims against Potter, who had not been individually named in the earlier lawsuit filed in this court, were arbitrable. The arbitrator stayed arbitration proceedings to allow the present motion asking this court to compel arbitration of claims against Potter.

         III. ANALYSIS.

         The Federal Arbitration Act (“FAA”) governs arbitration agreements in contracts involving interstate commerce. See 9 U.S.C. § 2. Under the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Id. “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition” a federal district court with jurisdiction “for an order directing that such arbitration proceed in the manner provided for in such agreement.” Id. § 4.

         A. This Court, Not an Arbitrator, Should Decide Whether the Arbitration Agreement and/or Stipulation Binds Potter, Who Did Not Individually Sign Those Agreements.

         There are two categories of “gateway issues” on a petition to compel arbitration. See Martin v. Yasuda, 829 F.3d 1118, 1122-23 (9th Cir. 2016). The first category concerns the “question of arbitrability, ” or rather, “whether the parties have submitted a particular dispute to arbitration.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). “This category includes issues that the parties would have expected a court to decide such as ‘whether the parties are bound by a given arbitration clause' or whether ‘an arbitration clause in a concededly binding contract applies to a particular type of controversy.'” Martin, 829 F.3d at 1123 (quoting Howsam, 537 U.S. at 84); see, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-46 (1995) (determining that a court should decide which parties agreed to arbitration); Atkinson v. Sinclair Ref. Co., 370 U.S. 238, 241-45 (1962) (ruling that a court should decide whether the term “grievances” in the arbitration agreement covered claims for damages for breach of a no-strike agreement). These gateway matters are “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Howsam, 537 U.S. at 83 (quoting AT&T Techs., Inc. v. Comms. Workers, 475 U.S. 643, 649 (1986)).

         The second category of gateway issues relates to procedural questions that “grow out of the dispute and bear on its final disposition.” Id. at 84 (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 546-47 (1964)). These procedural disputes, which may include issues such as waiver, delay, or similar defenses to arbitrability, “are presumptively not for the judge, but for an arbitrator to decide.” Id.

         Legacy Carbon asks this court to compel Potter to arbitrate third-party claims it proposes to assert against her. This is not a procedural question bearing on the final disposition of the third-party claims. Rather, it falls within the first category of gateway disputes reserved for judicial determination. The record does not demonstrate that the parties have “clearly and unmistakably” agreed to submit the question of the arbitrability of claims against Potter individually to arbitration. See First Options of Chicago, Inc., 514 U.S. at 943 (“Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, . . . so the question ‘who has the primary power to decide arbitrability' turns upon what the parties agreed ...

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