Ragab v. Howard et al

Filing 58

ORDER that Defendants Muhammad Howard and Ultegra Financial Partners, Inc.s Motion to Compel Arbitration and Motion to Dismiss Plaintiffs Claims or, in the Alternative, Stay Plaintiffs Claims ECF No. 21 is DENIED. It is FURTHER ORDERED that Defendant Clive Funding, Inc.s Motion to Compel Arbitration and Motion to Dismiss Plaintiffs Claims or, in the Alternative, Stay Plaintiffs Claims ECF No. 51 is DENIED. by Judge Wiley Y. Daniel on 11/2/2015.(evana, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Wiley Y. Daniel
Civil Action No. 15-cv-00220-WYD-MJW
SAMI RAGAB, an individual,
Plaintiff,
v.
MUHAMMAD HOWARD, individually and in his capacity as owner, partner, and
corporate officer; and
ULTEGRA FINANCIAL PARTNERS, INC., a Colorado corporation; and
SEED CONSULTING, LLC, d/b/a SEED CAPITAL, a Nevada limited liability company,
Defendants.

ORDER

I.

INTRODUCTION
THIS MATTER is before the Court on Defendants Muhammad Howard

[“Howard”] and Ultegra Financial Partners, Inc.’s [“Ultegra”] [collectively “the Ultegra
Defendants”] Motion to Compel Arbitration and Motion to Dismiss Plaintiff’s Claims or, in
the Alternative, Stay Plaintiff’s Claims filed April 13, 2015. A response was filed on May
5, 2015, a reply was filed on May 19, 2015, and a surreply was filed with leave of the
Court on June 18, 2015. On October 9, 2015, Magistrate Judge Watanabe granted the
Ultegra Defendants’ motion to stay discovery pending a ruling on the motion to compel
arbitration.
Additionally, the parties were asked to brief the impact of an Amended Complaint
filed on June 24, 2015, that added Defendant Clive Funding Inc. [“Clive Funding”].

Briefs were filed on this issue on July 7, 2015. On October 14, 2015, Defendant Clive
Funding filed a Motion to Compel Arbitration and Motion to Dismiss Plaintiff’s Claims
Pursuant to Rule 12(b)(1) or, in the Alternative, Stay Plaintiff’s Claims. It also filed a
motion to stay discovery, which was granted on October 22, 2015. Thus, discovery is
currently stayed as to all Defendants except Seed Consulting, LLC [“Seed Consulting”]
pending rulings on the motions to compel arbitration.
The Ultegra Defendants’ motion notes that Plaintiff entered into several
agreements, all of which contained provisions requiring the parties to submit claims and
disputes between them to binding arbitration. (Am. Motion to Compel Arbitration and
Mot. to Dismiss Pl.’s Claims or, in the Alternative, Stay Pl.’s Claims [“Am. Mot.”], Ex. A,
Howard Decl., ¶¶ 1-8) (verifying the agreements attached as Exhibits B through H to the
motion.) The motion further asserts that all of Plaintiff’s claims, including alleged
violations of the Credit Repair Organization Act, Colorado Credit Services Organization
Act, and Colorado Uniform Debt-Management Services Act, and negligent
misrepresentation, fraudulent misrepresentation, and piercing the corporate veil, fall
within the broad scope of the arbitration provisions in the written agreements. Thus, the
Ultegra Defendants request that the Court compel arbitration of this dispute and dismiss
Plaintiff’s claims under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction or,
alternatively, stay these proceedings pending arbitration.
Clive Funding’s motion incorporates the arguments made in the Ultegra
Defendants’ motion, and asserts that the only places where Clive is mentioned in the
Amended Complaint are in conjunction with the Ultegra Defendants. Accordingly, if
-2-

arbitration is compelled with respect to Ultegra and Howard, Clive Funding asserts
arbitration should also be compelled with respect to it.
II.

FACTS
As referenced in the Amended Complaint, on or about March 11, 2013, Ultegra

and Phoneless, LLC [“Phoneless”], in which Plaintiff was a member, entered into a
Consulting Agreement. (See Am. Compl., Ex. 1, unsigned copy of the Agreement; Am.
Mot., Ex. B.) Although the preamble on page one of the Consulting Agreement
identifies Phoneless as the “Client”, the signature block on the final page of the
Agreement identified the “Client” as Sami Ragab, the Plaintiff. (Id. at pp. 1, 6.) The
Consulting Agreement states:
7.8

Enforcement and Arbitration. Actions to enforce payment of
amounts due under this Agreement, at the option of Consultant,
and actions for injunctive relief may be brought in a court of
competent jurisdiction. If it is necessary to Consultant to seek
injunctive relief or to collect any fees, costs or other charges due to
the Consultant by the Client, the Client agrees to pay the
Consultant’s attorney ‘s fees, costs and other charges incurred in
collecting the amount owed. The Client further authorizes the filing
of charging and/or retaining liens, as applicable and to the
extent such authorization is necessary.

7.8.1. Arbitration. Any other question, disagreement, difference, or controversy
which arises among the parties hereto, with respect to this Agreement, the
Services or any other manner, shall be submitted to and determined by
binding arbitration. All arbitration under this Section 12.13 [sic] shall
proceed as follows: the parties in dispute shall agree on and appoint one
neutral arbitrator within thirty days after a written request for arbitration
has been given by one party to the other. If the parties do not agree and
fail to appoint such neutral arbitrator within the thirty day period, the
arbitrator shall be appointed by a court of competent jurisdiction of the
State of Colorado, upon the application of either party. Except as set forth
in this Agreement, each party shall pay their own attorneys’ fees and costs
related to such Arbitration. Subject to the provisions set forth within this
-3-

Section 12.13 [sic], the arbitration shall be governed by the Uniform
Arbitration Act of 1975, C.R.S. § 13-22-201 et seq., as it exists on the
effective date of this Agreement and it may be thereafter amended.
The Consulting Agreement concerned Ultegra’s agreement to assist Plaintiff
obtain financing and raise capital for Phoneless. (Mot. to Compel Arbitration, Ex. A at
¶¶ 1.1-1.3.) The Ultegra Defendants contend that the main thrust of the Complaint
concerns Ultegra’s conduct in assisting Plaintiff obtain financing and raise capital for
Phoneless, including helping repair Plaintiff’s credit so he could raise the capital he
needed. (See Am. Compl., ¶¶ 13-51.) The Consulting Agreement contained a Personal
Guarantee by Plaintiff in which he agreed and consented to all of the terms in the
Agreement. (Id., ¶ 24, Am. Mot. to Compel Arbitration, Ex. B.)
A Membership Interest Purchase Agreement was also entered into, which
according to the Ultegra Defendants was drafted by Plaintiff’s attorney. While the
Agreement states in the opening paragraph that it is entered into between Plaintiff and
Ultegra, the Agreement is signed by Plaintiff, as the Seller, and Howard, as the
Purchaser. (Am. Mot. to Compel Arbitration, Ex. C.) Paragraph 9 of the Membership
Purchase Agreement contains an arbitration provision providing in pertinent part:
In the event a dispute arises over any matters arising out of or relating to
the subject matter of this Purchase Agreement, which cannot be resolved
by the parties hereto, then the existence of said dispute shall first be
confirmed by written notice of the dispute by any such party to the
other(s). ... If such dispute has not been resolved ... then said dispute
shall be resolved by binding arbitration ...
The Membership Interest Purchase Agreement memorialized the Ultegra
Defendants’ agreement to purchase 50% of the membership interest in Phoneless in

-4-

exchange for payment of $100.00 to Plaintiff. (Am. Mot., Ex. C at p. 1, Recitals and
¶ 1.) The motion notes that Plaintiff has made several allegations in his Complaint
about the circumstances surrounding the Ultegra Defendants’ purchase of 50% of
Phoneless, and seeks damages in connection with his sale of the 50% interest to the
Ultegra Defendants. (Am. Compl., ¶¶ 59, 63, 69, 74, 82, 90, 94, 99, 107, and 109.)
An Operating Agreement was also entered into by Plaintiff, the initial member of
Phoneless, which again according to the Ultegra Defendants was drafted by Plaintiff’s
attorney. (Am. Mot., Ex. D.) Article XIII of the Operating Agreement, titled “Dispute
Resolution”, contains an arbitration agreement stating in pertinent part:
In the event a disagreement arises out of any matters arising out of or
relating to the subject matter of this Agreement, which cannot be resolved
by the majority vote of the Membership Interest, ... then said disagreement
shall be resolved by binding arbitration, initiated by any Members, at
Denver, Colorado, U.S.A., conducted by a sole arbitrator chosen by the
American Arbitration Association (“AAA”) and otherwise through and
administered by the AAA pursuant to its then current Commercial
Arbitration Rules.
(Id. at p. 9) (emphasis in original.) The First Amendment to the Operating Agreement
formally made Ultegra a party to the Agreement. (Am. Mot., Ex. E.) It was signed by
Howard.
The Operating Agreement and First Amendment thereto memorialized, among
other things, the operational structure of the LLC and the obligations and rights of the
members and the management of the LLC, including the obligation of Plaintiff to
personally guarantee the initial $80,000.00 in capital raised for Phoneless. (Am. Mot.,
Exs. D and E at ¶¶ 7 and 16 (agreement to be bound by Operating Agreement and any

-5-

amendments thereto “without limitation”)). The Ultegra Defendants assert that Plaintiff
made several allegations in his Complaint concerning the operations of Phoneless, and
the obligations and rights of the members and management of Phonless, including
Plaintiff’s agreement to personally guarantee the initial $80,000.00 in financing obtained
for Phoneless and how the debt would be structured (Am. Compl., ¶¶ 18-21), and
Ultegra’s alleged obligations to provide funding and pay for debts incurred by Plaintiff
(id., ¶¶ 36 and 42.)
Plaintiff and Ultegra also entered into an Assignment of Limited Liability
Company Membership Interest [“Assignment”], which again was purportedly drafted by
Plaintiff’s attorney. (Am. Mot., Ex. F.) It was signed by Howard. The Assignment
contains an arbitration provision at paragraph 6, stating in pertinent part:
In the event a disagreement arises out of any matters arising out of or
relating to the subject matter of this Assignment, which cannot be resolved
by the parties hereto, ... then said disagreement shall be resolved by
binding arbitration, initiated by any party, at Denver, Colorado, conducted
by a sole arbitrator chosen by the American Arbitration Association
(“AAA”), and otherwise through and administered by the AAA pursuant to
its then current Commercial Arbitration Rules.
(Id. at ¶ 6, pp. 2-3.)
The Assignment concerned the sale of Plaintiff’s 50% membership interest in
Phoneless to the Ultegra Defendants, and referenced the Membership Interest
Purchase Agreement, the First Amendment to the Operating Agreement of the
Company, a Joinder Agreement, and the Operating Agreement. (Am. Mot., Ex. F at p.
1, “Recitals”, and ¶¶ 1-2.) Again, the Ultegra Defendants assert that Plaintiff’s
Complaint makes several allegations and claims pertaining to the sale of the 50%
-6-

interest of Plaintiff’s membership interest in Phoneless to the Ultegra Defendants, the
operations of Phoneless, and the parties’ roles and obligations to each other and
Phoneless. (Am. Compl., ¶¶ 18-21, 36-42, 59, 63, 69, 74, 82, 90, 94, 99, 107, and
109.)
Plaintiff also entered into an Employment Agreement concerning his employment
with Phoneless. (Am. Mot., Ex. G.) The Employment Agreement contains an
agreement to arbitration, stating in pertinent part, “Any claim or controversy that arises
out of or relates to this agreement, or the breach thereof, shall be settled by arbitration
in accordance with the rules of the American Arbitration Association.” (Id. at ¶ 8.) The
Employment Agreement contained terms relating to Plaintiff’s salary, bonus, and role.
The Complaint includes allegations and claims relating to payment of Plaintiff’s salary.
(Am. Compl., ¶¶ 40 and 42.)
Finally, Plaintiff entered into a “Non Circumvention, Non Disclosure &
Confidentiality Agreement (the “Non-Circumvention Agreement) with Ultegra. (Am.
Mot., Ex. H.) The Non-Circumvention Agreement contains an agreement to arbitrate,
stating in pertinent part:
By executing this agreement, All Parties irrevocably agrees [sic] that any
controversy, claim, or dispute arising out or relating to any part or the
whole of this agreement or breach thereof is to be exclusively and finally
settled by arbitration under the Rules of the Colorado Court.
(Id. at p. 4, ¶ 9.13) (emphasis in original.)
The Non-Circumvention Agreement concerned the handling of Plaintiff’s and
Ultegra’s confidential information, as well as the parties’ promise not to circumvent the

-7-

other with respect to obtaining any financing. (Am. Mot., Ex. H, generally and at ¶ 8.)
The Complaint contains allegations that Plaintiff obtained additional loans and
attempted to open new bank accounts without involving Ultegra in the process or
decision. (Am. Compl., ¶¶ 48 and 50.)
III.

ANALYSIS
The Federal Arbitration Act provides that “[a] written provision in any . . . contract

evidencing a transaction involving commerce to settle by arbitration a controversy there
after arising out of such contract or transaction, . . . shall be valid irrevocable and
enforceable, save upon such grounds as exist at law or in equity for the revocation of
any contract.” 9 U.S.C. § 1. "There is a strong federal policy encouraging the
expeditious and inexpensive resolution of disputes through arbitration". Metz v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1488-89 (10th Cir. 1994). To this
end, courts must interpret arbitration clauses liberally, and all doubts must be resolved
in favor of arbitration. Armijo v. Prudential Ins. Co. of America, 72 F.3d 793, 798 (10th
Cir. 1995).
However, “arbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed to submit.” United
Steelworkers of Am. v. Warrior and Gulf Navigation Co., 363 U.S. 574, 582 (1960). The
parties’ intent to arbitrate controls, and determining this intent is a question of law for the
Court to decide. Armijo, 72 F.3d at 798. In deciding this issue, courts generally should
apply ordinary state-law principals that govern the formation of contracts. First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
-8-

Under Colorado law, "in order to establish the existence of a contract, the
evidence must show that the parties agreed upon all essential terms." I.M.A., Inc. v.
Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo. 1986). "The parties’ agreement
is evidenced by their manifestations of mutual assent." Id. “[E]vidence of the parties’
conduct, their oral statements and their writings, and other evidence illuminating the
circumstances surrounding the making of an agreement are admissible to clarify the
intent and purpose of the parties." Id. The Colorado Supreme Court has held that “[t]he
court can supply some elements in a contract, but they cannot make one; and when the
language in a contract is too uncertain to gather from it what the parties intended, the
courts cannot enforce it.” Newton Oil Co. v. Bockhold, 176 P.2d 904, 908 (Colo. 1947).
“A court will not undertake to enforce a contract, unless by some lawful means it can
ascertain and know just what the contract bound each party to do.” Id.
In the case at hand, it is undisputed that Plaintiff and Defendant Ultegra entered
into numerous agreements that required arbitration regarding disputes.1 I also find that
the disputes at issue in the complaint arguably fall within the scope of the agreements to
arbitrate. See Nat’l Am. Ins. Co. v. SCOR Reinsurance Co., 362 F.3d 1288, 1290 (10th
Cir. 2004). As the Ultegra Defendants note, Plaintiff’s allegations and claims concern,
among other things: (a) the sale of 50% interest in Phoneless to the Ultegra Defendants,
which arguably arises out of or relates to the Membership Interest Purchase Agreement
and the Assignment; (b) the operations of Phoneless; the obligations and rights of the
members and management of Phoneless, including Plaintiff's agreement to personally
1

There is a dispute about whether Defendant Howard was a party to any of the agreements.

-9-

guarantee the initial $80,000.00 in financing obtained for Phoneless and how the debt
would be structured; and Ultegra's alleged obligations to provide additional funding,
which arguably which arise out of or relate to the Operating Agreement and First
Amendment thereto; (c) payment of Plaintiff's salary which arguably arises out of or
relates to the Employment Agreement; and (d) additional loans and new bank accounts
that Plaintiff obtained or attempted to obtain without involving the Ultegra Defendants in
the process which arguably arises out of or relates to the Non-Circumvention Agreement.
Plaintiff has not disputed this for purposes of the Ultegra Defendants’ motion.
The problem, however, is that the agreements differ and conflict as to the terms
and manner of arbitration and, as Defendants have pointed out, the claims implicate all
of the agreements discussed in this Order. Thus, it is impossible to single out one
agreement as the controlling one on arbitration.
Plaintiff has identified 74 independent ways in which the six arbitration clauses are
not only ambiguous in relation to one another but also inconsistent. (Pl.’s Opp’n to Am.
Mot. to Compel, Exs. B-E.) For example, as to the rules governing the arbitration, the
Consulting Agreement states that the parties “shall agree on and appoint one neutral
arbitrator within thirty days after a written request for arbitration”, and if the parties do not
agree, “the arbitrator shall be appointed by a court of competent jurisdiction of the State
of Colorado. . . .” (Am. Mot., Ex B, p. 6.) The Consulting Agreement also states that the
arbitration is to be governed by the Uniform Arbitration Act of 1975, C.R.S. § 13-22-201
et seq. In contrast, under the Membership Interest Purchase Agreement, the Operating
Agreement and the Assignment, the arbitration is to be conducted by a sole arbitrator
-10-

chosen by the American Arbitration Association (“AAA”) and administered by the AAA
pursuant to its then current Commercial Arbitration Rules. The Employment Agreement
and Non-Circumvention Agreement are silent as to who the arbitrators are or how they
are chosen. The Employment Agreement provides that the arbitration shall be governed
by the rules of the American Arbitration Association whereas the Non-Circumvention
Agreement states that the arbitration is to be governed by the Rules of the Colorado
Court. It is impossible to reconcile these different requirements.
Another difference in the agreements relates to notice of the dispute. The
Membership Interest Purchase Agreement and Assignment state that the parties must
give written notice of any dispute, and the disagreeing parties have ten calender days
from receipt of the written notice to resolve the dispute before it is submitted to
arbitration. By contrast, the Operating Agreement states that after written notice of a
disagreement, the parties have 30 calendar days to resolve the disagreement. The other
agreements are silent as to this issue.
There are also differences in regard to attorney fees. Under the Operating
Agreement, Membership Interest Purchase Agreement, and Assignment, the prevailing
party shall be entitled to recover reasonable attorneys’ fees and other costs. The
Consulting Agreement, however, gives a unilateral right for the Consultant, Ultegra, to
obtain attorney’s fees and costs for non-payment claims, and authorization to file
charging and/or retaining liens. (Am. Mot., Ex. B, p. 5.) No such provision is in any of
the other agreements. With the exception of Ultegra’s right of Ultegra to recover fees

-11-

and costs for non-payment claims, the Consulting Agreement states that “each party is to
pay their own attorneys’ fees and costs related to such Arbitration.” (Id., p. 6.)
Based on the foregoing, I agree with Plaintiff that there was no actual agreement
to arbitrate, as there was no meeting of the minds as to how claims that implicated the
numerous agreements, as here, would be arbitrated. Courts have found in similar
situations where parties have entered into multiple agreements containing conflicting
arbitration clauses that as a matter of law there was no meeting of the minds with
respect to dispute resolution and none of the arbitration clauses were enforceable.
Thus, in Bellman v. i3Carbon, LLC, 563 F. App’x 608, 614 (10th Cir. 2014), the Tenth
Circuit held that conflicting provisions regarding arbitration in an agreement rendered the
alleged obligation to arbitrate unenforceable because of a failure to demonstrate a
“meeting of the minds”, noting that this was “consistent with the approach taken by other
courts. Id. at 614 n. 2 (citing In re Toyota Motor Corp. Unintended Acceleration Mktg.,
Sales Practices, & Prods. Liab. Litig., 838 F. Supp. 2d 967, 992 (C.D. Cal. 2012)
(refusing to compel arbitration where two documents contained conflicting arbitration
provisions that were “not only ambiguous” but also “fundamentally incompatible”); Rockel
v. Cherry Hill Dodge, 368 N.J.Super. 577, 847 A.2d 621, 623–24 (N.J. Super. Ct. App.
Div. 2004) (holding that where “parties executed two documents which contain separate
and somewhat disparate arbitration clauses [, t]his ambiguity ... is fatal to the compelling
of the arbitration of plaintiffs' ... claims”)).
The Ultegra Defendants argue that the above cases are factually distinguishable
from this case because they involved conflicting provisions regarding whether the claims
-12-

should be heard in court or through arbitration, whereas here all the agreements required
arbitration. I disagree. First, the Rockel case involved two conflicting provisions as to
arbitration. Moreover, other courts have held that conflicting arbitration provisions are
not sufficient to create a meeting of the minds regarding arbitration. Thus, in NAACP of
Camden Cnty. East v. Foulke Mgmt. Corp., 24 A.3d 777, (N.J. Sup. Ct. App. Div. 2011),
the court severed arbitration provisions rendering them unenforceable because “the
assorted [agreements] are too plagued with confusing terms and inconsistencies to put a
reasonable consumer of fair notice of their intended meaning” and “do not plainly
convey–with precision and consistency–what the exact terms and conditions of th[e]
arbitration process would be.” Similarly, in Basulto v. Hialeah Automotive, 141 So. 3d
1145, 1150 (Fla. 2010), the court found that there was no meeting of the minds regarding
multiple arbitration clauses when they were “conflicting in their essential provisions”,
including use of a single arbitrator versus a panel of three arbitrators and in “the
methods for selecting arbitrators . . . as what law or procedure would govern the
arbitration proceeding”).
In short, the Ultegra Defendants have not shown that the parties agreed upon all
essential terms related to arbitration. I.M.A., Inc., 713 P.2d at 888. The terms of
arbitration in the various agreements differ and conflict, and the language is thus too
uncertain to enforce arbitration. Newton Oil Co., 176 P.2d at 908. While the Ultegra
Defendants argue that the court should allow the arbitrators to work out the details of
arbitration, that is not appropriate. There are “genuine issues of material fact regarding
the parties’ agreement”, meaning that the motion to compel arbitration must be denied.
-13-

See Hancock v. Am. Tel. and Tel. Co., Inc., 701 F.3d 1248, 1261 (10th Cir. 2012) (noting
that framework for deciding motion to compel arbitration “is similar to summary judgment
practice”, that the defendants, as the moving party, have the burden to show that the
arbitration clauses apply, and that if that burden was met, plaintiff “could attempt to rebut
that showing with evidence establishing a genuine dispute as to whether the provisions
apply”).
Based on the foregoing, I find that the Ultegra Defendants’ Motion to Compel
Arbitration and Motion to Dismiss Plaintiff’s Claims or, in the Alternative, Stay Plaintiff’s
Claims must be denied. Since Clive Funding’s motion to compel arbitration incorporates
the Ultra Defendants’ arguments in their motion, it also must be denied. Clive Funding’s
other argument that Plaintiff should be estopped from avoiding arbitration by adding a
third party is denied as moot in light of the fact that I found no binding arbitration
provisions to enforce.
It is therefore
ORDERED that Defendants Muhammad Howard and Ultegra Financial Partners,
Inc.’s Motion to Compel Arbitration and Motion to Dismiss Plaintiff’s Claims or, in the
Alternative, Stay Plaintiff’s Claims (ECF No. 21) is DENIED. It is
FURTHER ORDERED that Defendant Clive Funding, Inc.’s Motion to Compel
Arbitration and Motion to Dismiss Plaintiff’s Claims or, in the Alternative, Stay Plaintiff’s
Claims (ECF No. 51) is DENIED.

-14-

Dated: November 2, 2015
BY THE COURT:

s/ Wiley Y. Daniel
Wiley Y. Daniel
Senior United States District Judge

-15-