Lapalco Brothers No. 125, LLC v. 7-Eleven, Inc., No. 2:2016cv00454 - Document 9 (E.D. La. 2017)
Court Description: ORDER AND REASONS that third-party defendants' motion 85 to stay the entire proceeding pending arbitration is GRANTED and third-party plaintiff's motion 93 to stay the parties from proceeding in arbitration is DENIED.. Signed by Judge Sarah S. Vance on 1/24/17.(Reference: ALL CASES)(jjs)
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Lapalco Brothers No. 125, LLC v. 7-Eleven, Inc. Doc. 9 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA CIVIL ACTION VETERANS BROTHERS NO. 126, L.L.C., ET AL. VERSUS NO. 16-272 7-ELEVEN, INC., ET AL. SECTION “R” (2) APPLIES TO: NO. 16-434 NO. 16-20 34 ORD ER AN D REASON S Before the Court is Third-Party Defendants Im ad Ham dan, Brothers Veterans, LLC, Brothers Avondale, LLC, and Brothers Lapalco, LLC’s (ThirdParty Defendants) m otion to stay this case pending arbitration.1 Also before the Court is Third-Party Plaintiff SEI Fuel Services, Inc.’s m otion to tem porarily stay the parties from proceeding in arbitration.2 For the following reasons, the Court grants third-party defendants’ m otion. For the sam e reasons, the Court denies third-party plaintiff’s m otion. 1 R. Doc. 85. All docket entries refer to case 2:16-cv-0 0 272 unless otherwise specified. 2 R. Doc. 93. Dockets.Justia.com I. BACKGROU N D This case is a consolidation of three lawsuits, and the procedural history of the cases can be hard to follow due to the nam es and corporate identities of all of the players. On Decem ber 7, 20 15, Veterans Brothers No. 126, LLC filed suit against 7-Eleven, Inc., in the 24th J udicial District Court for the Parish of J efferson, Louisiana.3 The suit alleges that despite 7Eleven’s claim s that it has the exclusive contractual right to sell and distribute m otor fuel to Veterans Brothers, Veterans Brothers is not, and has never been, a party to the alleged contract. 4 In the sam e court on the sam e day, Lapalco Brothers No. 125, LLC filed an identical suit against 7-Eleven, m aking the sam e allegations as the Veterans Brothers suit.5 7-Eleven rem oved both suits to this Court on J anuary 11, 20 16. 6 On J anuary 26, 20 16, Avondale Brothers No. 128, LLC filed a lawsuit in state court identical to those filed by Veterans Brothers and Lapalco Brothers, except this suit was against SEI Fuel rather than 7-Eleven.7 On February 2, 20 16, Veterans Brothers and Lapalco Brothers substituted SEI 3 R. Doc. 1. Veterans Brothers No. 126, Lapalco Brothers No. 125, and Avondale Brothers No. 128 are referred to as “Plaintiffs.” 4 R. Doc. 1-1 at 1. 5 R. Doc. 1-1 at 1 in 2:16-cv-0 0 454. 6 R. Doc. 1; R. Doc. 1 in 2:16-cv-0 0 454. 7 R. Doc. 1-1 at 1 in 2:16-cv-0 20 34. 2 Fuel for 7-Eleven,8 and on March 10 , 20 16, SEI Fuel rem oved the Avondale Brothers suit to this Court.9 Avondale Brothers, Veterans brothers, and Lapalco Brothers all sought a declaratory judgm ent declaring that they are not parties to any contract with SEI Fuel regarding the sale and distribution of gasoline. On March 15, the Court consolidated the three cases. 10 On March 11, 20 16, SEI Fuel filed its answer to the Veteran Brothers lawsuit, and filed counterclaim s against Veteran Brothers, but also nam ed Brothers Veterans, LLC, and Im ad Ham dan, as third-party defendants.11 On the sam e day, it answered the Lapalco Brothers suit, and filed counterclaim s not only against Lapalco Brothers, but also against Brothers Lapalco, LLC, and Ham dan.12 On March 28 , 20 16, SEI Fuel filed its answer to the Avondale Brothers suit and filed counterclaim s against Avondale Brothers, Brothers Avondale, LLC, and Ham dan.13 SEI Fuel’s counterclaim s alleged that despite the difference in nam es of the corporate entities (e.g., Avondale Brothers vs. Brothers Avondale), the entities operated as a single business enterprise. 8 9 10 11 12 13 R. Doc. 13. R. Doc. 1 in 2:16-cv-0 20 34. R. Doc. 21. R. Doc. 18. R. Doc. 19. R. Doc. 23. 3 SEI Fuel sought a declaratory judgm ent that the corporate entities (no m atter how they are nam ed) are obligated to com ply with the alleged fuel contracts. SEI Fuel also brought claim s for anticipatory breach of contract and for unfair trade practices under the Louisiana Unfair Practices and Consum er Protection Law. Initially, neither Brothers Lapalco, Brothers Veterans, Brothers Avondale, nor Ham dan answered the counterclaim s in a tim ely m anner. On Septem ber 9, 20 16, SEI Fuel sought an entry of default as to those third-party defendants,14 and the Clerk of Court issued an Entry of Default against those third-party defendants that sam e day.15 On October 12, 20 16, SEI Fuel m oved the Court to enter a default judgm ent against those third-party defendants.16 Two days later, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Ham dan filed a m otion to set aside the entry of default,17 and filed their answers to SEI Fuel’s counterclaim s on Novem ber 30 , 20 16.18 14 R. Doc. 48 (Veterans); R. Doc. 52 (Avondale); R. Doc. 55 (Lapalco); R. Doc. 49, 51, and 53 (Ham dan). Veterans Brothers, Lapalco Brothers, and Avondale Brothers answered SEI Fuel's counterclaim s. 15 R. Doc. 57 (Veterans); R. Doc. 60 (Avondale); R. Doc. 62 (Lapalco); R. Doc. 58, 59, and 61 (Ham dan). 16 R. Doc. 69. 17 R. Doc. 73. 18 R. Doc. 10 3; R. Doc. 10 4; R. Doc. 10 5. 4 While the m otions for default judgm ent and to set aside the entries of default were pending, on Novem ber 7, 20 16, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Ham dan filed a m otion to stay the consolidated case pending the resolution of arbitration proceedings between the parties.19 They also attached an arbitration dem and, dated Novem ber 1, 20 16, that they sent to SEI Fuel via overnight m ail.20 On Novem ber 11, 20 16, SEI Fuel filed its opposition to third-party defendants’ m otion,21 and sim ultaneously filed a m otion to tem porarily stay the parties from proceeding in arbitration.22 Third-party defendants opposed SEI Fuel’s m otion,23 and both parties filed replies.24 On Decem ber 27, 20 16, the Court found that third-party defendants had shown good cause and granted their m otion to set aside the entries of default.25 The Court now addresses the rem aining m otions. 19 20 21 22 23 24 25 R. Doc. 8 5. R. Doc. 8 5-2. R. Doc. 92. R. Doc. 93. R. Doc. 10 0 . R. Doc. 99; R. Doc. 10 8. R. Doc. 114. 5 II. LEGAL STAN D ARD There is a “strong federal policy in favor of enforcing arbitration agreem ents.” Dean W itter Rey nolds, Inc. v. By rd, 470 U.S. 213, 217 (1985). The Federal Arbitration Act states that: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration . . . the court . . . shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the term s of the agreem ent . . . . 9 U.S.C. § 3. An application for arbitration by either party under Section 3 “requests the district court to refrain from further action in a suit pending arbitration, and requires the court to first determ ine whether there is a written agreem ent to arbitrate between the parties, and then whether any of the issues raised are within the reach of the agreem ent.” Texaco Expl. & Prod. Co. v. Am Cly de Engineered Prod. Co., 243 F.3d 90 6, 90 9 (5th Cir. 20 0 1) (citing Midw est Mech. Contractors, Inc. v. Com m onw ealth Const. Co., 80 1 F.2d 748, 750 (5th Cir. 1986)). “If the issues in a case are within the reach of that [arbitration] agreem ent, the district court has no discretion under section 3 to deny the stay.” See id. (citation om itted). Despite the strong federal policy favoring arbitration, the right to arbitration m ay be waived. See Fry e v. Paine, W ebber, Jackson & Curtis, 6 Inc., 877 F.2d 396, 398 (5th Cir. 1989) (citing Price v. Drexel Burnham Lam bert, Inc., 791 F.2d 1156, 1158 (5th Cir. 1986)). The party asserting waiver has a heavy burden, but “waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detrim ent or prejudice of the other party.” Id. (quoting Miller Brew ing Co. v. Fort W orth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)). III. D ISCU SSION Third-party defendants argue that the Court should stay this case pending resolution of arbitration proceedings between the parties. In support, they point to the Branding and Product Purchase Com m itm ent Agreem ents between third party defendants and LavigneBaker Petroleum , LLC (SEI Fuel’s predecessor in interest), which all contain the following provision: Dispute Resolution. Except for any m atter arising out of Article 6 (Right of First Refusal), for which Seller m ay pursue any rem edy available at law or in equity, . . . all disputes between Seller and Buyer arising out of, relating to, or in connection with this Agreem ent, including, without lim itation, any Claim or question relating to this Agreem ent’s negotiation, perform ance, non-perform ance, interpretation or term ination or the relationship between Seller and Buyer contem plated or established by this Agreem ent, shall be referred to and finally resolved pursuant to the dispute resolution provisions of 7 Sch e d u le B of the Purchase Agreem ent. This section 7.3 shall survive indefinitely.26 Schedule B contains the following provision: Agreem ent to Arbitrate. Except as provided in any Transaction Docum ent, any dispute between the parties arising out of, relating to, or in connection with any Transaction Docum ents to which this Sch e d u le B relates, including any Claim or question relating to any Transaction Docum ent’s negotiation, perform ance, non-perform ance, interpretation, term ination or the relationship between the Parties established by any Transaction Docum ent . . . shall be referred to and finally and exclusively resolved by arbitration in accordance with the CPR Rules for Non-Adm inistered Arbitration, as such rules m ay be in effect on the date of such Transaction Docum ent . . . . 27 “Transaction Docum ents” are defined in the agreem ent as “the Purchase Agreem ent, the Lim ited Warranty Deeds, the Assignm ents of Lease, the Sublease, Bill of Sale, the Assignm ent of Contracts, the Assignm ent of Dealer Instrum ents, the WMA, the Branding Agreem ent, the Access Agreem ent and the Guarantee.”28 The “Guarantee” referred to in the definition of “Transaction Docum ents” is a Guarantee signed by Ham dan whereby Ham dan irrevocably and unconditionally guarantees the full and prom pt 26 Exhibit B, R. Doc. 85-3 at 14 (Veterans); Id. at 60 (Lapalco); Id. at 131 (Avondale). 27 Exhibit C, R. Doc. 8 5-4 at 59. 28 Id. at 57. 8 paym ent and perform ance of the obligations in the Purchase and Branding Agreem ents.29 Therefore, according to third-party defendants, there exists a written agreem ent to arbitrate between third-party defendants and SEI Fuel. Further, third-party defendants argue that SEI Fuel’s claim s against thirdparty defendants are within the reach of the arbitration agreem ent.30 Thus, in accordance with the strong policy in favor of arbitration and the agreem ents at issue, third-party defendants argue that the Court should stay this case pending resolution of the claim s through arbitration. SEI Fuel does not dispute that the contracts in question contain an agreem ent to arbitrate, nor does not it contest that the claim s asserted by SEI Fuel against third-party defendants fall within the coverage of the arbitration provisions. Instead, SEI Fuel argues that third-party defendants have waived their right to arbitrate by substantially invoking the judicial process to the prejudice of SEI Fuel.31 Waiver of the right to arbitrate is an issue for the Court to decide. See, e.g., Tristar Fin. Ins. Agency , Inc. v. Equicredit 29 R. Doc. 8 5-3 at 137. R. Doc. 8 5-1 at 4. 31 R. Doc. 92 at 6-14. SEI Fuel also argued in its m otion that thirdparty defendants’ m otion to stay should be denied because it was an attem pt to “circum vent the judicial consequences of their defaults.” Id. at 5. The Court has since set aside third-party defendants’ entries of default, R. Doc. 114, and therefore this argum ent is now m oot. 9 30 Corp. of Am ., 97 F. App’x 462, 464 (5th Cir. 20 0 4) (per curiam ) (citing How sam v. Dean W itter Rey nolds, Inc., 537 U.S. 79, 83 (20 0 2)). SEI Fuel’s waiver argum ent relies on im puting the actions of the plaintiffs in this case to third-party defendants, either as alter-egos, or by treating plaintiffs and third-party defendants as a single business enterprise. The Court will address the waiver argum ent first. As m entioned above, the right to arbitrate is not absolute, and it can be waived. See Fry e, 877 F.2d at 398 (5th Cir. 1989). SEI Fuel, as the party asserting waiver, m ust overcom e a heavy burden. Id. To show that thirdparty defendants have waived their right to arbitrate, SEI Fuel m ust show that third-party defendants have “substantially invoke[d] the judicial process to the detrim ent or prejudice of the other party.” Id. (quoting Miller Brew ing Co., 781 F.2d at 497 (5th Cir. 1986)). Echoing the strong policy in favor of arbitration, the Suprem e Court has instructed that any doubts “should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem ’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Further, the Fifth Circuit has m ade clear that there is a “strong presum ption against finding a waiver of arbitration.” Al Rushaid v. Nat. Oilw ell Varco, Inc., 757 F.3d 416, 421-22 10 (5th Cir. 20 14) (quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 20 0 4). A. Su bs tan tial In vo catio n o f Ju d icial Pro ce s s In order to “invoke the judicial process, a party m ust have litigated the claim that the party proposes to arbitrate.” Subw ay Equip. Leasing Corp. v. Forte, 169 F.3d 324, 328-29 (5th Cir. 1999); see also N icholas v. KBR, Inc., 565 F.3d 90 4, 90 8 (5th Cir. 20 0 9) (“We conclude that the act of a plaintiff filing suit without asserting an arbitration clause constitutes substantial invocation of the judicial process.”). Because it was plaintiffs, and not thirdparty defendants, who initiated this m atter by filing suit, SEI Fuel cannot show that third-party defendants substantially invoked the judicial process unless it can im pute plaintiffs’ actions to third-party defendants. SEI Fuel cites the case Al Rushaid v. National Oilw ell Varco, Inc., 757 F.3d at 422, to argue that when determ ining waiver, the Court m ay im pute the actions of an arbitration proponent’s affiliate to the proponent “when principles of agency or corporate law, such as the alter ego doctrine, would counsel such im putation.” But the quotation relied on by SEI Fuel from Al Rushaid is clearly referring to two non-Fifth Circuit cases. Id. n.19 (citing Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 456-57 (2d Cir. 1995); Yates v. 11 Doctor’s Assocs., Inc., 549 N.E.2d 10 10 , 10 17 (Ill. App. Ct. 1990 )).32 Al Rushaid m ade clear that the Fifth Circuit had yet to address “when, if ever, the actions of an arbitration proponent’s codefendants m ay be im puted to that proponent for the purposes of determ ining waiver.” Id. Additionally, Al Rushaid overturned the district court’s im putation of the proponent’s codefendants’ actions to the proponent and m ade clear that shared ownership between the codefendants, identical legal counsel, benefitting from the codefendants’ discovery in the lawsuit, and facilitation of a lengthy discovery process by refusing service, were all insufficient, either in isolation or in com bination, to warrant im putation. 757 F.3d at 423. Therefore, the Fifth Circuit has not yet instructed on what conditions are sufficient to im pute an arbitration proponent’s affiliated codefendants’ actions to the proponent. Al Rushaid did suggest, without deciding, that if the proponent was the alter ego of the affiliated codefendants, or if there were grounds to pierce the defendants’ corporate veils, “it [would] be appropriate to hold [the 32 Both Distajo and Yates are non-precedential, but Yates is of even less value to the Court because Yates held that the Federal Arbitration Act (and therefore the strong policy in favor of arbitration) did not apply. 549 N.E.2d at 10 15. 12 proponent] responsible for its codefendants’ actions.”33 Id. at 724. This suggests that SEI Fuel would have to establish that there are grounds to pierce third-party defendants’ corporate veil and disregard their corporate structure to im pute plaintiffs’ actions to third-party defendants. SEI Fuel argues that there are two bases for piercing the corporate veil: the alter-ego theory and single-business-enterprise theory. Caselaw suggests that the factors used in piercing the corporate veil on an alter-ego basis should guide the single business enterprise determ ination as well. See Gray son v. R.B. Am m on & Assocs., Inc., 778 So. 2d 1, 14 (La. App. 1 Cir. 20 0 0 ); Jackson v. Tanfoglio Giuseppe, S.R.L., 615 F.3d 579, 58 7 (5th Cir. 20 10 ) (“Under Louisiana law, the factors to be considered to determ ine whether one entity is an alter ego of another or whether two entities are a ‘single business enterprise’ are sim ilar.”) (citing Green v. Cham pion Ins. Co., 577 So. 2d 249, 257-58 (La. App. 1 Cir. 1991). The Louisiana Suprem e Court has instructed that factors to consider when determ ining whether the apply the alter-ego doctrine “include, but are 33 Thus, Al Rushaid does not establish that agency principles alone are sufficient to im pute the actions of plaintiffs to Ham dan and third-party defendants. SEI Fuel points only to Al Rushaid to argue that agency principles are sufficient. Nevertheless, SEI Fuel is incorrect to suggest that Ham dan and third-party defendants have conceded an agency relationship with plaintiffs, solely because Ham dan m anages each plaintiff. R. Doc. 92 at 6-7. 13 not lim ited to: 1) com ingling of corporate and shareholder funds; 2) failure to follow statutory form alities for incorporating and transacting corporate affairs; 3) undercapitalization; 4) failure to provide separate bank accounts and bookkeeping records; and 5) failure to hold regular shareholder and director m eetings.” Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164, 1168 (La. 1991) (citations om itted). Other factors used by other courts include “com m on ownership, directors and officers, em ployees, and offices; unified control; . . . one corporation paying the salaries, expenses, or losses of another corporation; and undocum ented transfers of funds between entities.” Jackson, 615 F.3d at 587 (citation omitted). No single factor is dispositive, id., and courts should consider the totality of the circum stances, Huard v. Shreveport Pirates, Inc., 147 F.3d 40 6, 40 9 (5th Cir. 1998). These factors, however, m ust be analyzed keeping in m ind that Louisiana law strongly cautions against piercing the corporate veil and disregarding the corporate structure. See id. (describing veil piercing as a “drastic rem edy” that should only be used in “exceptional circum stances”); Riggins, 590 So.2d at 1168; see also Stephen B. Presser, P IERCING THE CORPORATE VEIL § 2:19 (20 16) (“Piercing the veil is regarded as an exceptional rem edy in Louisiana.”). As both Louisiana and federal courts have recognized, the corporate structure ordinarily should not be disregarded 14 absent som e showing of fraud or deceit, or that piercing the veil is necessary to avoid inequitable results. See Riggins, 590 So.2d at 1168-69; In re ArkLa-Tex Tim ber Co., Inc., 482 F.3d 319, 335 (5th Cir. 20 0 7) (“Typically, the veil piercing theory is im plem ented . . . when a juridical person is used to defeat public convenience, justify wrong, protect fraud, or defend crim e.”) (quotation om itted); Huard, 147 F.3d at 40 9 (“The Louisiana courts have indicated that the corporate veil should be pierced when adherence to the corporate fiction would clearly result in inequity.”). If fraud is not alleged, the proponent of piercing the veil bears a heavy burden of proof. Id. at 410 . Further, where, as here, the underlying claim sounds in contract, the factors are “less likely to tip in favor of disregarding the corporate veil.” Id. at 40 9. SEI argues that m any of the veil-piercing factors are present in this case. More specifically, SEI points to: that Ham dan organized each plaintiff and third-party defendant on the sam e day; that Ham dan actively m anages each plaintiff and third-party defendant; that Ham dan is a m em ber of each plaintiff and third-party defendant; that Ham dan signed the latest annual report for each plaintiff and third-party defendant; that each plaintiff and third-party defendant have the sam e registered office address; and that Ham dan allegedly has referred to plaintiffs and third-party defendants 15 interchangeably.34 Additionally, SEI Fuel contends that docum ents obtained in discovery show Ham dan’s inconsistencies and further dem onstrate alter ego status. SEI Fuel contends that these docum ents show that: though plaintiffs assert in their lawsuits that they own the convenience stores at issue in this case, unrecorded leases establish that third-party defendants own the stores and have leased them to plaintiffs; that Ham dan claim s to have transferred 10 0 percent of his m em bership interest in each plaintiff to Brothers Petroleum , LLC, but he continues to sign annual filings with the Louisiana Secretary of State as a “m em ber” of each plaintiff; and that Ham dan breached the contracts in question by transferring the ownership and possession of the stores from third-party defendants to plaintiffs.35 The Court finds that this evidence is insufficient to warrant piercing the corporate veil, either on the alter-ego or single business enterprise basis. Much of the evidence pointed to by SEI Fuel, including that Ham dan is a m em ber of and actively m anages each plaintiff and third-party defendant and that the plaintiffs and third-party defendants have the sam e address is often present in corporate situations and to pierce the corporate veil solely because of shared ownership or participation would defeat the purpose of 34 35 R. Doc. 92 at 8-9. Id. at 9-10 . 16 corporate separateness. The Fifth Circuit has already established that joint ownership or shared m em bership is insufficient to im pute the actions of codefendant corporate affiliates to another codefendant seeking arbitration. Al Rushaid, 757 F.3d at 423-24. com m ingling of funds, abuse Further, there is no evidence of of Louisiana corporate form alities, undercapitalization, failure to provide separate bank accounts or bookkeeping records, or undocum ented transfer of funds. Even if there was som e evidence that Ham dan, plaintiffs, and third-party defendants were alter egos, the absence of the other factors and lack of evidence indicating that corporate form alities were ignored weighs against finding that the entities are alter egos. See Jackson, 615 F.3d at 588 (declining to find alter ego despite “som e factors in favor . . . and som e factors against”); see also Dalton v. R & W Marine, Inc., 897 F.2d 1359, 1363 (5th Cir. 1990 ) (declining to find alter ego even though one entity owned 10 0 percent of subsidiary, was responsible for corporate policy, and filed consolidated tax returns because those factors were outweighed by observation of corporate form alities). Additionally, SEI Fuel has not alleged fraud, and does not explain how piercing the corporate veil will prevent inequity. Aside from conclusorily alleging that Ham dan’s actions are “designed to m islead his contractual 17 partners and the public at large,”36 SEI Fuel does not identify the inequity that will result if the corporate veil is not pierced. The prejudice that SEI Fuel has allegedly suffered because of the delay in invoking arbitration, m ainly that SEI Fuel has spent legal fees and wasted tim e, does not rise to the level of inequity necessary to warrant the extraordinary action of piercing the corporate veil, see Al Rushaid, 757 F.3d at 424,37 especially considering the underlying claim s here are based on contract, see Huard, 147 F.3d at 40 9. Therefore, SEI Fuel has not shown that piercing the corporate veil is warranted, and the actions of plaintiffs in filing these cases will not be im puted to Ham dan and third-party defendants. As established above, SEI Fuel has a heavy burden in establishing that third-party defendants and Ham dan have waived the right to arbitration, and there is a “strong presum ption against finding a waiver of arbitration.” Al Rushaid, 757 F.2d at 422 (citation om itted). But SEI Fuel’s argum ent for waiver m ust also overcom e the strong presum ption in Louisiana law against 36 Id. at 10 . Al Rushaid rejected plaintiffs’ argum ent that delay and expense were the type of “unjust” or “inequitable” results that would warrant piercing the corporate veil. 757 F.2d at 424. Though Al Rushaid was applying Texas law, Texas courts, like Louisiana courts, have established that piercing the veil is an extraordinary rem edy only to be used when necessary to avoid fraud or an inequitable result. Id. (citing SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 451 (Tex. 20 0 9). 18 37 piercing the corporate veil. SEI Fuel has not m et its burden in establishing that piercing the corporate veil is warranted, and therefore cannot show that third-party defendants and Ham dan have substantially invoked the judicial process. Thus, SEI Fuel cannot m eet its burden in establishing that Ham dan and third-party defendants have waived the right to arbitration.38 B. Ad d itio n al D is co ve ry In the alternative, SEI Fuel asks the Court to allow for additional discovery so that SEI Fuel m ay obtain m ore inform ation to establish its alterego or single business enterprise theories.39 While courts have allowed prearbitration discovery, see e.g., Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 20 13), the two cases cited by SEI Fuel are cases in which no discovery had taken place before arbitration was ordered. See id. at 78 0 (“[G]iven that no discovery has taken place, any sum m ary conclusion is unwarranted.”); THI of N ew Mexico at Hobbs Ctr., LLC v . Spradlin, 532 F. App’x 813, 819 (1oth Cir. 20 13) (noting that district court decided case without providing opportunity for discovery). Here, SEI Fuel has engaged in discovery with plaintiffs for som e tim e, and indeed relies on 38 Because SEI Fuel has not established that Ham dan and thirdparty defendants have substantially invoked the judicial process, the Court need not opine on whether SEI Fuel has suffered prejudice. 39 R. Doc. 92 at 14-15. 19 m aterials obtained through discovery in arguing for piercing the corporate veil.40 Therefore, this is not a situation in which Ham dan and third-party defendants are the only parties with access to the inform ation needed by SEI Fuel to m ake their argum ent. Cf. Diam ond Servs. Corp. v. Oceanografia, S.A. De C.V., No. 10 -177, 20 11 WL 938785, at *8 (W.D. La. Feb. 9, 20 11). Further, SEI Fuel’s argum ent that Ham dan has evaded the ongoing discovery through a pattern of delay is unavailing, given SEI Fuel did not oppose three extensions of tim e granted to plaintiffs to respond to discovery requests in this case.41 Additionally, unlike in Sm oothline Ltd. v. N . Am . Foreign Trading Corp., No. 0 0 -2798, 20 0 2 WL 27330 1, at *5-6 (S.D.N.Y. Feb. 27, 20 0 2), SEI Fuel has not alleged fraud or shown that piercing the corporate veil is warranted, and therefore further discovery on the m atter is not warranted either. Cf. id. at 6 (ordering discovery on alter-ego theory because defendant alleged conduct that was “sufficient to constitute fraud or wrong for purposes of veil-piercing”). As described above, SEI Fuel did not allege fraud, nor did it adequately explain why piercing the veil was necessary to prevent inequity, 40 R. Doc. 92 at 8 (“Docum ents obtained in discovery further dem onstrate the alter ego corporate shell gam e that Ham dan is playing.”). 41 R. Doc. 46 at 2; R. Doc. 10 1 at 2; R. Doc. 115 at 2. 20 despite already engaging in discovery, and therefore additional discovery is not warranted. Finally, the additional discovery requested by SEI Fuel would, at best, help SEI Fuel establish that piercing the corporate veil would be warranted. While this m ay result in the im putation of plaintiffs’ litigation actions to third-party defendants, SEI Fuel would still have to show it has suffered prejudice in order for the Court to find that third-party defendants waived their right to arbitrate. But the prejudice com plained of here, m ainly delay and legal fees,42 will only increase if the Court allows additional discovery. The Court will not let SEI Fuel delay arbitration proceedings to attem pt to pierce the corporate veil and then use the delay and associated legal expenses to argue that it has been prejudiced. Because Ham dan and third-party defendants have shown that there is an agreem ent to arbitrate that covers the present dispute, their m otion to stay this case pending resolution through arbitration is granted. Because the Court finds that Ham dan and third-party defendants have not waived the right to seek arbitration, SEI Fuel’s m otion to stay the parties from proceeding in arbitration is denied. 42 R. Doc. 92 at 12-13. 21 IV. CON CLU SION For the foregoing reasons, third-party defendants’ m otion to stay the entire proceeding pending arbitration is GRANTED. For the sam e reasons, third-party plaintiff’s m otion to stay the parties from proceeding in arbitration is DENIED. 24th New Orleans, Louisiana, this _ _ _ _ _ day of J anuary, 20 17. _____________________ SARAH S. VANCE UNITED STATES DISTRICT J UDGE 22
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