Scolari v. Elliot Rust Companies, LLC, No. 3:2015cv05163 - Document 24 (W.D. Wash. 2015)
Court Description: ORDER denying 11 Motion to Dismiss by Judge Benjamin H. Settle.(TG)
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Scolari v. Elliot Rust Companies, LLC Doc. 24 1 2 3 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 4 5 6 JOSEPH SCOLARI, Plaintiff, 7 v. 8 9 ELLIOT RUST COMPANIES, LLC, CASE NO. C15-5163 BHS ORDER DENYING DEFENDANT’S MOTION TO DISMISS OR STAY PENDING ARBITRATION Defendant. 10 11 12 This matter comes before the Court on Defendant Elliot Rust Companies, LLC’s 13 (“Elliot Rust”) motion to dismiss or stay pending arbitration (Dkt. 11). The Court has 14 considered the pleadings filed in support of and in opposition to the motion and the 15 remainder of the file and hereby denies Elliot Rust’s motion for the reasons stated herein. I. PROCEDURAL AND FACTUAL BACKGROUND 16 17 On January 1, 2013, Plaintiff Joseph Scolari (“Scolari”) became an owner of Elliot 18 Rust. Dkt. 1 (“Comp.”) ¶ 3.2. Scolari received a ten percent interest in Elliot Rust 19 pursuant to a Grant Agreement. Id. ¶ 3.4; Dkt. 13, Declaration of Cesar Scolari (“Cesar 20 Dec.”), Ex. A (“Grant Agreement”) ¶ 1. 21 The Grant Agreement was executed between Scolari and Elliot Rust “according to 22 the terms of the Amended and Restated LLC Agreement of Elliot Rust Companies, LLC ORDER - 1 Dockets.Justia.com 1 dated January 1, 2013 (the ‘LLC Agreement’).” Id. at 1. The Grant Agreement also 2 provides: 3 4 5 [Scolari] understands, acknowledges and agrees that, upon execution of this Grant Agreement and the joinder to the LLC Agreement, [Scolari] shall, without further action or deed, thereupon be bound by the LLC Agreement, as it may thereafter be restated or amended, as though a direct signatory thereto. 6 Id. ¶ 5. Finally, the Grant Agreement includes the following jurisdiction clause: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Governing Law: Jurisdiction. This Grant Agreement and the transaction contemplated hereby shall be governed by and construed according to the laws of the state of Washington. With respect to any dispute arising out of or related to this Grant Agreement or the LLC Agreement, the parties hereby consent to the exclusive jurisdiction of the United States District Court for the Western District of Washington . . . . Id. ¶ 11(b). The LLC Agreement, in turn, contains an arbitration provision: Arbitration. All disputes, claims or controversies relating to this Agreement that are not resolved by mediation shall be submitted to final and binding arbitration . . . . Questions or arbitrability or the scope of the parties’ agreement to arbitrate shall be determined by the arbitrator. Cesar Dec., Ex. B (“LLC Agreement”) ¶ 11.17.3. The LLC Agreement also includes a jurisdiction and venue clause: Jurisdiction and Venue. Any suit involving any dispute or matter arising under this Agreement may only be brought in the United States District Court for the Western District of Washington or the Superior Court of Pierce County. All Members hereby consent to the exercise of personal jurisdiction by any such court with respect to any such proceeding. Id. ¶ 11.8. On November 6, 2014, Elliot Rust terminated Scolari. Dkt. 10, Declaration of Joseph Scolari (“Joseph Dec.”) ¶ 8. On December 15, 2014, Elliot Rust offered to ORDER - 2 1 purchase Scolari’s interest in the company for $158,882.60. Id. ¶ 9. On December 22, 2 2014, Scolari rejected Elliot Rust’s offer because he did not believe it was an accurate 3 valuation of his interest in the company. Id. ¶ 10. 4 On March 18, 2015, Scolari filed suit against Elliot Rust in this Court. Comp. 5 Scolari seeks a declaratory judgment that he has a twenty-percent profits interest in Elliot 6 Rust. Id. ¶ 4.5. Scolari also asserts equitable claims against Elliot Rust. Id. ¶¶ 4.6–4.18. 7 On April 3, 2015, Elliot Rust moved to dismiss or stay this matter pending 8 arbitration. Dkt. 11. On April 27, 2015, Scolari responded. Dkt. 21. On May 1, 2015, 9 Elliot Rust replied. Dkt. 23. 10 II. DISCUSSION 11 Elliot Rust moves to dismiss this action under Federal Rule of Civil Procedure 12 12(b)(3). Dkt. 11. Alternatively, Elliot Rust moves to stay this action under the Federal 13 Arbitration Act (“FAA”) pending the completion of arbitration. Id. 14 A. Federal Arbitration Act 15 The FAA provides that “an agreement in writing to submit to arbitration an 16 existing controversy arising out of such a contract, transaction, or refusal shall be valid, 17 irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 18 revocation of any contract.” 9 U.S.C. § 2. The purpose of the FAA is to “reverse the 19 longstanding judicial hostility to arbitration agreements . . . and to place arbitration 20 agreements upon the same footing as other contracts.” Gilmer v. Interstate/Johnson Lane 21 Corp., 500 U.S. 20, 24 (1991). To that end, the FAA requires courts to stay proceedings 22 when an issue before the Court can be referred to arbitration. 9 U.S.C. § 3. ORDER - 3 1 Under the FAA, the Court’s role is “limited to determining (1) whether a valid 2 agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the 3 dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th 4 Cir. 2000). If the party seeking arbitration establishes both factors, “then the [FAA] 5 requires the court to enforce the arbitration agreement in accordance with its terms.” Id. 6 “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of 7 arbitration . . . .” Id. at 1131. 8 B. Arbitration Clause 9 Elliot Rust seeks to enforce the LLC Agreement’s arbitration clause. Dkt. 11. 10 “[T]he party seeking to enforce an arbitration agreement bears the burden of showing that 11 the agreement exists and that its terms bind the other party.” Peters v. Amazon Servs. 12 LLC, 2 F. Supp. 3d 1165, 1169 (W.D. Wash. 2013). To determine whether the parties 13 agreed to arbitrate, courts apply ordinary state-law contract principles. First Options of 14 Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In Washington, “[t]he role of the 15 court is to determine the mutual intentions of the contracting parties according to the 16 reasonable meaning of their words and acts.” Fisher Props., Inc. v. Arden-Mayfair, Inc., 17 106 Wn.2d 826, 837 (1986). 18 Scolari does not dispute that he is bound by the terms of the LLC Agreement. 19 Dkt. 21 at 6. Scolari, however, argues that an ambiguity exists between the LLC 20 Agreement’s arbitration clause and the Grant Agreement’s jurisdiction clause, and that 21 this ambiguity should be construed against the drafter, Elliot Rust. Id. at 5. 22 ORDER - 4 1 Under Washington law, ambiguous contract terms must be construed against the 2 drafter. Wise v. Farden, 53 Wn.2d 162, 168 (1958). “A contract provision is ambiguous 3 when its terms are uncertain or when its terms are capable of being understood as having 4 more than one meaning.” Mayer v. Pierce Cnty. Med. Bureau, Inc., 80 Wn. App. 416, 5 421 (1995). 6 Here, the Court finds that ambiguity exists between the LLC Agreement and the 7 Grant Agreement. As acknowledged by Elliot Rust, the LLC Agreement and Grant 8 Agreement were executed as part of an integrated transaction. Dkt. 23 at 4–5. Integrated 9 transactions must be construed together. Boyd v. Davis, 127 Wn.2d 256, 261 (1995); 10 Kenney, 100 Wn. App. 467, 474 (2000). Although the LLC Agreement provides that all 11 disputes relating to the LLC Agreement are subject to arbitration, the Grant Agreement 12 provides that any dispute arising out of the Grant Agreement or the LLC Agreement is 13 subject to the exclusive jurisdiction of the United States District Court for the Western 14 District of Washington. Compare LLC Agreement ¶ 11.17.3, with Grant Agreement 15 ¶ 11(b). 16 Defendants argue that these two provisions do not conflict. According to 17 Defendants, the Grant Agreement simply provides that this Court may retain jurisdiction 18 pending arbitration. Dkt. 23 at 6. Yet Scolari’s interpretation is also reasonable. In light 19 of these competing interpretations, an ambiguity exists and this ambiguity must be 20 construed against Elliot Rust. 21 The Court also notes that ambiguity exists within the LLC Agreement itself. In 22 addition to the arbitration clause, the LLC Agreement contains a jurisdiction and venue ORDER - 5 1 clause, which provides that “[a]ny suit involving any dispute or matter arising under this 2 Agreement may only be brought in the United States District Court for the Western 3 District of Washington or the Superior Court of Pierce County.” LLC Agreement ¶ 11.8. 4 On its face, this clause conflicts with the arbitration clause’s requirement that “all 5 disputes, claims or controversies relating to [the LLC] Agreement . . . shall be submitted 6 to final and binding arbitration.” Id. ¶ 11.17.3. Thus, the LLC Agreement itself is 7 internally incongruous. 8 Although the FAA establishes a strong presumption in favor of arbitration, that 9 policy only comes into play after the Court determines that the parties have an 10 enforceable arbitration clause. See Chiron Corp., 207 F.3d at 1131 (“[A]ny doubts 11 concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .” 12 (emphasis added)). Here, ambiguity exists as to the enforceability of the LLC 13 Agreement’s arbitration clause, and thus the FAA’s policy favoring arbitration is not 14 implicated. 15 16 III. ORDER Therefore, it is hereby ORDERED that Elliot Rust’s motion to dismiss or stay 17 pending arbitration (Dkt. 11) is DENIED. 18 Dated this 2nd day of June, 2015. 19 20 A BENJAMIN H. SETTLE United States District Judge 21 22 ORDER - 6
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