Himark Biogas, Inc. v. Western Plains Energy LLC, No. 6:2014cv01070 - Document 12 (D. Kan. 2014)

Court Description: MEMORANDUM AND ORDER granting 7 Motion to Compel arbitration and to stay action (Dk. 7) is granted, and all of the plaintiff's pleaded claims against the defendant are subject to arbitration, and this case is stayed pending arbitration. Partie s shall file a joint status report, not less than every six (6) months (commencing six months after the filing date of this order), regarding the progress of the arbitration. See order for other details. Signed by U.S. District Senior Judge Sam A. Crow on 7/16/14. (mb)
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Himark Biogas, Inc. v. Western Plains Energy LLC Doc. 12 I N THE UNI TED STATES DI STRI CT COURT FOR THE DI STRI CT OF KANSAS HI MARK BI OGAS, I NC., Plaint iff vs. Case No. 14- 1070- SAC WESTERN PLAI NS ENERGY LLC, Defendant . MEMORANDUM AND ORDER The defendant West ern Plains Energy LLC ( “ WPE” ) m oves t he court t o com pel arbit rat ion and st ay t he act ion. ( Dk. 7) . This act ion arises from t he design, inst allat ion, and const ruct ion of a biogas plant ( “ Plant ” ) at WPE’s et hanol product ion facilit y in Gove Count y, Kansas. From it s et hanol product ion wast e and ot her feedst ock, including cat t le feedlot m anure, t he Plant was int ended t o produce enough biogas using an anaerobic digest er t hat it would m eet WPE’s energy needs. The plaint iff Him ark biogas, I nc. ( “ Him ark) conduct ed t he feasibilit y st udy for t he digest er, provided consult ing services, and licensed t he t echnology for t he digest er. WPE cont ract ed wit h t he non- part y I CM, I nc. t o serve as general cont ract or and provide various services for t he design and const ruct ion of t he digest er using Him ark’s licensed t echnology. Besides incurring expenses far in excess of proj ect ed cost s, WPE’s digest er has not perform ed as expect ed. Bot h I CM and Him ark blam e ot hers, including WPE, for t he digest er’s subst andard Dockets.Justia.com perform ance. See Com plaint , Dk. 1, ¶ 20. Bot h also believe t hat WPE owes each of t hem m ore m onies for t heir work. See WPE’s St at em ent of Claim in Arbit rat ion Proceeding Dk. 7- 8, p. 3. WPE began an arbit rat ion proceeding against I CM in Kansas, and WPE now seeks t o com pel Him ark’s current act ion int o arbit rat ion t oo. Him ark filed t his act ion against only WPE seeking t o recover on several different t heories. Him ark first sues for breach of cont ract and unj ust enrichm ent / quant um m eruit want ing t o recover for t he consult ing services it provided aft er Novem ber 2012, for an inj unct ion t o require WPE t o conduct t he necessary t est ing t hat would t rigger t he addit ional $1,000,000 license fee under t he license agreem ent , for a prelim inary inj unct ion t o enj oin WPE from operat ing t he digest er and m aking unaut horized disclosures of confident ial inform at ion, and for pat ent infringem ent . Fa ct u a l Ba ck gr ou n d- - Agr e e m e n t s a n d Ar bit r a t ion Pr ovision s Aft er t he feasibilit y st udy, WPE and Him ark ent ered int o a “ Consult ing Agreem ent ” and a “ Licensing Agreem ent ” on Novem ber 11, 2011. The Consult ing Agreem ent explained t hat WPE was cont ract ing t o use Him ark’s consult ing services, as well as it s t echnologies pursuant t o a separat e license agreem ent , for t he st at ed “ Purpose” of t aking feedst ock and producing biogas at a benchm ark product ion level t hat would m eet WPE’s heat ing and elect ricit y needs. ( Dk. 7- 1, pp. 2, 3- 4) . Under t he Consult ing Agreem ent , Him ark agreed t o: 2 provide consult ing services t o WPE in order t o facilit at e t he const ruct ion and operat ion of t he Oakley I MUS Facilit y in accordance wit h t he Purpose ( “ Con su lt in g Se r vice s”) . The foregoing Consult ing Services shall include, but not be lim it ed t o, Highm ark working wit h WPE and it s chosen cont ract or, during bot h t he design and const ruct ion phases of t he Plant , in order t o provide on- sit e supervision, t raining, and engineering services as necessary t o support t he const ruct ion and operat ion of t he Plant . ( Dk. 7- 1, p. 5, ¶ 2.1) . The Consult ing Agreem ent provided it was effect ive for one year, ( Dk. 7- 1, p. 13, ¶ 11.1) , and it included a survival clause t hat “ [ t ] he t erm s and condit ions which by t heir nat ure should survive t he t erm inat ion of t his Agreem ent shall so survive,” id. at ¶ 11.7. The consult ing agreem ent also included t his arbit rat ion provision: I n t he event of any disput e am ong t he part ies arising from or relat ed t o t his Agreem ent ( a “ D ispu t e ” ) , each Part y agrees t o cooperat e wit h t he ot her Part y and m ut ually work t oget her in good fait h t owards t he resolut ion of t he Disput e . . . . I n t he event t hat t he Part ies fail t o resolve t he Disput e wit hin t he Resolut ion Period, t he Part ies agree t hat t he Disput e shall be finally set t led under t he Rules of Arbit rat ion of t he I nt ernat ional Cham ber of Com m erce . . . . The arbit rat ion will be conduct ed in t he cit y of Edm ont on, Albert a Canada in t he English language. I d. at p. 17, ¶ 13.7. Also on Novem ber 11, 2011, WPE and Him ark ent ered int o t he Licensing Agreem ent . I n an opening clause, Him ark agreed “ t o provide consult ing services in relat ion t o . . . [ it s t echnologies] pursuant t o a separat e consult ing agreem ent , and grant . . . [ WPE] a lim it ed license” t o it s t echnologies. ( Dk. 7- 2, p. 2) . The Licensing Agreem ent st at ed t he sam e “ Purpose” for t he cont ract ual relat ions bet ween t he part ies as was st at ed in 3 t he Consult ing Agreem ent . ( Dk. 7- 1, pp. 4- 5; Dk. 7- 2, p. 5) . The Licensing Agreem ent grant ed WPE a lim it ed license t o use Him ark’s t echnology for t he st at ed “ Purpose” and any use of t he t echnology beyond t hat “ Purpose” or at a different plant would be t he subj ect of separat e agreem ent s or addendum s. ( Dk. 7- 2, pp. 4- 5) . The Licensing Agreem ent provided t hat WPE would pay a $1,000,000 license fee “ upon successful com plet ion of t he Perform ance Test .” I d. at p. 8. The part ies also agreed t hat t he licensed t echnology would m eet specificat ions, t hat t he “ Perform ance Test ” would be sole m easure of conform it y wit h warrant y requirem ent s, and t hat if t he specificat ions were not m et aft er t he Test , t hen Him ark shall “ m ake such changes in design, const ruct ion, or equipm ent as required t o m eet t he” specificat ions and Perform ance Test . I d. at p. 16. The Licensing Agreem ent specified t hat it rem ained effect ive for t he lifet im e of WPE’s Plant unless it is t erm inat ed. I d. at p. 18. Finally, t he arbit rat ion provision in t he Licensing Agreem ent is ident ical t o t hat in t he Consult ing Agreem ent . ( Dk. 7- 1, p. 17; Dk. 7- 2, pp. 20- 21) . Lat er t hat sam e m ont h, WPE and I CM ent ered int o a work agreem ent for I CM t o “ perform all work necessary t o provide engineering, procurem ent , const ruct ion and com m issioning services t o provide West ern Plains Energy an Anaerobic Digest ion Facilit y ut ilizing” Him ark t echnology. ( Dk. 7- 3, p. 22) . The Working Agreem ent included t his arbit rat ion provision: 16.1 Any disput e arising bet ween t he Part ies concerning t his Agreem ent or t he right s and dut ies of eit her Part y in relat ion t heret o 4 shall first be subm it t ed t o a panel consist ing of at least one represent at ive of each Part y who shall have t he aut horit y t o ent er int o a writ t en agreem ent t o resolve t he disput e. . . . 16.2 I n t he event t he process described in Art icle 16.1 does not resolve t he disput e wit hin a reasonable period of t im e t he disput e shall be resolved by arbit rat ion . . . . ( Dk. 7- 3, p. 11) . This agreem ent was m odified in t he first part of 2012 by a change order indicat ing t hat WPE had “ request ed” I CM t o cont ract wit h Him ark t o provide engineering services and support during const ruct ion and st art up and t hat t his change was incorporat ed int o I CM’s scope under t he Work Agreem ent . ( Dk. 7- 5, p. 1) The cont ract referenced in t his change order appears t o be t he Engineering Services Agreem ent next discussed. On Decem ber 1, 2011, I CM and Him ark ent ered int o an Engineering Services Agreem ent t hat defined t he proj ect as follows: Highm ark will perform t he det ailed design and engineering work and provide t he proj ect support , st art - up services and t raining as det ailed below for t he WPE bioGas Plant . . . . I CM acknowledges and agrees t hat a sanct ioned WPE bioGas Plant based on t he engineering designs and docum ent s provided by Highm ark hereunder will require a licensing arrangem ent bet ween WPE and Highm ark for t he use of . . . t echnology ( t he “Lice n se Agr e e m e n t ” ) . ( Dk. 7- 4, p. 2) . This agreem ent also included an arbit rat ion provision t hat is t he sam e as t hose in t he Consult ing Agreem ent and Licensing Agreem ent except specifying t he arbit rat ion would occur in Minneapolis, Minnesot a. ( Dk. 7- 4, p. 11) . As alleged in it s com plaint , less t han a year aft er ent ering t he Engineering Services Agreem ent wit h I CM, Him ark resum ed working direct ly wit h WPE in providing consult ing services: 5 21. Rat her t han work t hrough I CM, in lat e Novem ber 2012 WPE elect ed t o engage Him ark direct ly t o provide ext ensive consult ing services t o WPE t o help it achieve Nam eplat e product ion in spit e of t he issues inherit ed from I CM. By doing so, WPE was able t o work wit h Him ark engineers t o successfully resolve m any of t he Plant ’s issues. By doing so, WPE was also able t o avoid a 10% surcharge I CM was adding t o Him ark’s engineering services perform ed pursuant t o t he Decem ber 1, 2011 agreem ent bet ween I CM and Him ark, which I CM was passing on t o WPE. WPE sought t o avoid t he surcharge and t o have m ore cont rol and direct cont act wit h Him ark as t he expert regarding it s own propriet ary Him ark Technologies. 22. Under t he agreem ent bet ween WPE and Him ark, WPE agreed t o keep Him ark engineers and sub- cont ract ors on sit e at WPE t o ext ensively evaluat e t he Plant and recom m end t he st eps necessary t o resolve t he inabilit y of t he plant t o achieve Nam eplat e product ion. WPE agreed t hat it would be billed direct ly for t he consult ing services provided by Him ark st art ing Decem ber, 2012. ( Dk. 1, p. 8) . Him ark furt her alleges t hat it s “ engineers provided t housands of hours of services from Decem ber 2012 t hrough Decem ber 2013.” ( Dk. 1, p. 9, ¶ 23) . Him ark claim s t hat WPE has not paid t he invoices subm it t ed for t his consult ing engineering work perform ed aft er Novem ber 2012 and owes Him ark in excess of $1.5 m illion. I d. at ¶ 24. This claim of unpaid services is t he basis for count s one and t wo of Him ark’s com plaint . Count t hree of t he Him ark’s com plaint seeks an inj unct ion against WPE for t he Perform ance Test required by t he License Agreem ent t o be conduct ed so as t o t rigger t he $1 m illion License Fee under t he License Agreem ent . Count four seeks t o enj oin WPE from operat ing t he Digest er and from m aking unaut horized disclosures of Him ark’s confident ial inform at ion. Count five claim s WPE’s cont inued use of Him ark’s t echnology wit hout a current license agreem ent is infringing Him ark’s pat ent s. 6 Le ga l St a n da r d a n d An a lysis The Federal Arbit rat ion Act ( “ FAA” ) , 9 U.S.C. §§ 1- 16, est ablishes t he enforceabilit y of arbit rat ion clauses in com m erce cont ract s. Agreem ent s t o arbit rat e disput es “ shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equit y for t he revocat ion of any cont ract .” 9 U.S.C. § 2. The Act is a “ congressional declarat ion of a liberal federal policy favoring arbit rat ion agreem ent s.” Moses H. Cone Mem 'l Hosp. v. Mercury Const r. Corp., 460 U.S. 1, 24 ( 1983) . Thus, “ quest ions of arbit rabilit y m ust be addressed wit h a healt hy regard for t he federal policy favoring arbit rat ion.” I d. While t he FAA “ preem pt [ s] st at e laws t hat aim t o channel disput es int o lit igat ion rat her t han arbit rat ion, even under t he FAA it rem ains a ‘fundam ent al principle’ t hat ‘arbit rat ion is a m at t er of cont ract ,’ not som et hing t o be foist ed on t he part ies at all cost s.” Howard v. Ferrellgas Part ners, L.P., 748 F.3d 975, 977 ( 10t h Cir. 2014) ( quot ing AT & T Mobilit y LLC v. Concepcion, - - - U.S. - - - , 131 S. Ct . 1740, 1745 ( 2011) ) . By operat ion, § 3 of t he FAA “ obliges court s t o st ay lit igat ion on m at t ers t hat t he part ies have agreed t o arbit rat e; ” and § 4 “ aut horizes a federal dist rict court t o com pel arbit rat ion when it would have j urisdict ion over a suit on t he underlying disput e.” Hill v. Ricoh Am ericas Corp. 603 F.3d 766, 771 ( 10t h Cir. 2010) ( cit at ion om it t ed) . “ Absent som e am biguit y in t he agreem ent , however, it is t he language of t he cont ract t hat defines t he scope of disput es subj ect t o 7 arbit rat ion.” E.E.O.C. v. Waffle House, I nc., 534 U.S. 279, 289 ( 2002) ( cit at ion om it t ed) . The part ies’ expressly agreed t o arbit rat e “ any disput e am ong t he part ies arising from or relat ed t o” t he Licensing Agreem ent . ( Dk. 7- 2, p. 20, ¶. 13.7) . Count t hree t hat seeks t o enj oin WPE’s com pliance wit h a t erm of t he Licensing Agreem ent plainly com es wit hin t he t erm s of t his arbit rat ion provision. Nor is it m uch of st ret ch t o conclude t hat count four also arises from t he Licensing Agreem ent , as Him ark’s com plaint alleges for t his count t he following: Him ark acknowledges t hat t he License Agreem ent cont ains an arbit rat ion provision, but Him ark request s t hat , in t he alt ernat ive t o t he affirm at ive inj unct ion request ed in Count I I I , t he Court ent er a prelim inary inj unct ion against WPE and t hereby enj oin WPE from operat ing t he Plant in order t o preserve t he st at us quo ant e and t o prevent furt her unaut horized disclosures of Him ark’s confident ial inform at ion such as t he unaut horized disclosure t o Burns & McDonnell t hat occurred in spit e of Him ark’s warnings t hat such disclosure would be a violat ion of t he License Agreem ent . ( Dk. 1, ¶ 58) . Seeking alt ernat ive relief t o count t hree pursuant t o t he t erm s of t he Licensing Agreem ent and t he I CC’s Rules of Arbit rat ion, ( Dk. 10, pp. 12- 13) , Him ark’s count four arises from t he Licensing Agreem ent . To t he ext ent t hat count four m ay allow for int erim relief in advance of arbit rat ion, t he plaint iff has yet t o file a separat e m ot ion seeking t he sam e. Because t his case is now t o be subm it t ed for arbit rat ion, t he availabilit y of such int erim relief will be subj ect t o t he arbit rat ion rules. As for count five, it t oo arises from or is relat ed t o t he Licensing Agreem ent in t hat Him ark is alleging pat ent infringem ent because WPE has refused t o pay t he licensing fee under 8 t erm s required by t he Licensing Agreem ent , failed t o com ply and m aint ain a valid license under t he Licensing Agreem ent , and has not st opped using t he digest er aft er failing t o pay t he license fee. ( Dk. 10, pp. 13- 14) . The court ’s conclusion t hat t hese claim s com e wit hin t he scope of t he arbit rat ion clause is consist ent wit h t he Tent h Circuit ’s holding t hat t he phrase, “ arising out of or relat ing t o,” such as is found in t he Licensing Agreem ent , is a broad arbit rat ion clause. See Brown v. Colem an Co., I nc., 220 F.3d 1180, 1184 ( 10t h Cir. 2000) , cert . denied, 531 U.S. 1192 ( 2001) ; P & P I ndust ries, I nc. v. Sut t er Corp., 179 F.3d 861, 871 ( 10t h Cir. 1999) ( cit ing Prim a Paint Corp. v Flood & Conklin Mfg. Co., 388 U.S. 395, 398 ( 1967) ) ; see e.g., Schm idt v. Wine, 2013 WL 3991808 at * 3 ( D. Kan. 2013) ; Locke- O’Dell v. Global Client Solut ions, LLC, 2012 WL 1033624, at * 3 ( D. Kan. 2012) . “ When a cont ract cont ains a broad arbit rat ion clause, m at t ers t hat t ouch t he underlying cont ract should be arbit rat ed.” Brown, 220 F.3d at 1184 ( cit ing in part , Mit subishi Mot ors v. Soler Chrysler- Plym out h, I nc., 473 U.S. 614, 624 n.14 ( 1985) ) . I t also m eans “ t hat t he st rong presum pt ion in favor of arbit rabilit y . . . applies wit h even great er force.” P & P I ndust ries, I nc., 179 F.3d at 871 ( int ernal quot at ion m arks and cit at ions om it t ed) . Count s one and t wo are claim s t o recover for Him ark’s consult ing services perform ed aft er Novem ber 2012. Him ark alleges t hat t he part ies ent ered int o a separat e cont ract t o provide t hese consult ing services as evidenced by oral com m unicat ions and em ails. Him ark argues t his sam e 9 evidence does not refer t o any agreem ent t o arbit rat e as a t erm of t he separat e cont ract . WPE denies t hat a separat e cont ract was m ade, t hat t he em ails evidence any agreem ent , or t hat it paid Him ark consist ent wit h any such agreem ent . WPE argues several alt ernat ive grounds for finding arbit rat ion required here. Because Him ark was a subcont ract or of I CM and t he I CM/ WPE Work Agreem ent included an arbit rat ion clause, WPE argues t hat Him ark should be equit ably est opped from seeking com pensat ion and avoiding t he arbit rat ion clause. Count s one and t wo are relat ed t o t he Licensing Agreem ent and subj ect t o it s arbit rat ion provision. Since Him ark’s consult ing services perform ed aft er Novem ber 2012 were a cont inuat ion of services required by t he Consult ing Agreem ent before it expired in Novem ber 2012, t he arbit rat ion provision in t hat Agreem ent should survive. As for t he proper venue of an arbit rat ion proceeding, WPE describes t his as a procedural issue reserved for t he arbit rat or t o decide. The court concludes t hat count s one and t wo t o recover for consult ing services perform ed aft er Novem ber 2012 com e wit hin t he scope of “ any disput e am ong t he part ies . . . relat ed t o” t he Licensing Agreem ent . “ [ A] ll claim s wit h a significant relat ionship t o t he [ Agreem ent ,] regardless of t he label at t ached t o t hem arise out of and are relat ed t o t he Agreem ent .” P & P I ndust ries, I nc., 179 F.3d at 871 ( int ernal quot at ion m arks and cit at ions om it t ed) . This det erm inat ion of scope “ t urns on t he fact ual allegat ions in t he com plaint rat her t han t he legal causes of act ion assert ed.” I d. I n t he 10 Licensing Agreem ent , Him ark expressly agreed “ t o provide consult ing services in relat ion . . . [ t o it s t echnology] pursuant t o a separat e concult ing agreem ent .” ( Dk. 7- 2, p. 2) . Him ark did not lim it it s agreem ent t o provide consult ing services t o a part icular consult ing agreem ent . Thus, any agreem ent by Him ark t o provide consult ing services in support and in relat ion t o it s licensed t echnology and any disput e result ing t herefrom are necessarily “ relat ed t o” t he Licensing Agreem ent . The Licensing Agreem ent shows t he significant relat ionship bet ween it and t he consult ing services as Him ark expressly agreed under t he form er t o provide t hese services “ in relat ion t o t hese t echnologies.” ( Dk. 7- 2, p. 2) . Addit ionally, Him ark’s com plaint alleges it s consult ing services aft er Novem ber 2012 were provided t o help WPE “ achieve Nam eplat e product ion” t hat is t he product ion which t he Plant was designed t o yield. ( Dk. 1, ¶¶ 19 and 21) . Thus, by it s own allegat ions, Him ark provided t hese consult ing services in order t o help m eet t he perform ance st andards in t he Licensing Agreem ent which would t rigger paym ent of t he license fee. ( Dk. 7- 2, p. 8) . The Licensing Agreem ent furt her obligat es Him ark t o “ m ake such changes in design, const ruct ion, or equipm ent as required t o m eet ” specificat ions aft er t he failed perform ance t est . ( Dk. 7- 2, p. 16) . The court finds t hat t he disput e over paym ent of consult ing services in count s one and t wo is significant ly relat ed t o t he licensing agreem ent . 11 The court does not find t hat Him ark has raised a genuine issue for t rial on whet her t o com pel arbit rat ion. There m ay be an issue of fact over whet her t he part ies ent ered int o a separat e agreem ent for consult ing services aft er Novem ber of 2012. 1 This issue is not m at erial for even if t here was a separat e, lat er agreem ent , t he court would st ill regard t he arbit rat ion provision in t he Licensing Agreem ent as covering t his disput e. Applying t he four- fact or t est in Consolidat ed Brokers I ns. Services, I nc. v. Pan- Am erican Assurance Co., I nc., 427 F. Supp. 2d 1074 ( D. Kan. 2006) , t he court would find t hat t he Licensing Agreem ent expressly references t he agreem ent s for Him ark t o provide consult ing services; expressly recognizes t he need for Him ark’s consult ing services in using Him ark’s t echnology and t he int ent of bot h part ies t o have t hese services be a significant part of t heir licensing arrangem ent ; does not exclude any claim s from arbit rat ion and broadly ext ends t o any disput es relat ed t o t he Licensing Agreem ent ; and involves t he sam e part ies who were engaged in t he ongoing work of designing, inst alling, const ruct ing, m odifying, and bringing t he Plant int o operat ion at perform ance st andards. The court concludes t hat t he arbit rat ion clause of t he Licensing Agreem ent covers any disput e bet ween t he part ies relat ed t o t his agreem ent including t he perform ance and paym ent of Him ark’s consult ing services aft er Novem ber 2012. 1 The em ail dat ed March 12, 2013, ( Dk. 11- 1) cert ainly cont radict s any claim t hat WPE and Him ark had reached som e agreem ent as of t he February 2013 em ails exchanged bet ween t he sam e officers. 12 Concluding t hat t he arbit rat ion clause in t he Licensing Agreem ent applies t o all of Him ark’s claim s for t he reasons st at ed above, t he court shall grant t he defendant ’s m ot ion. I T I S THEREFORE ORDERED t hat t he defendant ’s m ot ion t o com pel arbit rat ion and t o st ay act ion ( Dk. 7) is grant ed, and all of t he plaint iff’s pleaded claim s against t he defendant are subj ect t o arbit rat ion, and t his case is st ayed pending arbit rat ion; I T I S FURTHER ORDERED t hat t he part ies shall proceed t o arbit rat ion in accordance wit h t he Licensing Agreem ent ’s arbit rat ion clause; I T I S FURTHER ORDERED t hat t his court shall ret ain j urisdict ion t o review, m odify, or vacat e any arbit rat ion awards, should any part y choose t o seek such act ion as perm it t ed by t he Federal Arbit rat ion Act ; I T I S FURTHER ORDERED t hat t he part ies shall file a j oint st at us report , not less t han every six ( 6) m ont hs ( com m encing six m ont hs aft er t he filing dat e of t his order) , regarding t he progress of t he arbit rat ion. Dat ed t his 16t h day of July, 2014, Topeka, Kansas. s/ Sam A. Crow Sam A. Crow, U.S. Dist rict Senior Judge 13
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