Wargo v. Disassembly Holdings, LLC et al
Filing
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REPORT AND RECOMMENDATIONS- re 6 MOTION to Dismiss for Failure to State a Claim. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 3/3/2021. Signed by Judge Sherry R. Fallon on 2/17/2021. (lih)
Case 1:20-cv-00711-LPS-SRF Document 13 Filed 02/17/21 Page 1 of 8 PageID #: 192
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
KEVIN M. WARGO
)
)
Plaintiff,
)
)
v.
)
)
DISASSEMBLY HOLDINGS, LLC, et al., )
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Defendants.
)
Civil Action No. 20-711-LPS-SRF
REPORT AND RECOMMENDATION
I.
INTRODUCTION
Presently before the court in this declaratory judgment action is a motion to dismiss for
failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil
Procedure 12(b)(6) filed by defendant Disassembly Holdings, LLC (“Disassembly”). 1 (D.I. 6) 2
For the following reasons, the court recommends GRANTING Disassembly’s motion.
II.
BACKGROUND 3
Plaintiff Kevin M. Wargo (“Mr. Wargo”) signed the “Operating Agreements” 4 of two
limited liability companies, co-defendants Gulfstream GIV-1177, LLC (“Gulfstream”) and
1
Disassembly is a member of co-defendants Gulfstream GIV-1177, LLC (“Gulfstream”) and
Falcon 20-257, LLC (“Falcon”). (D.I. 1 at ¶¶ 17, 19) Disassembly moves to dismiss the
complaint “individually and derivatively on behalf of” Gulfstream and Falcon. (D.I. 6 at 1; D.I.
7 at 1 n.1, 13) The court refers to Gulfstream, Falcon, and Disassembly collectively as
“Defendants.”
2
The briefing for the pending motion is as follows: defendant’s opening brief (D.I. 7), plaintiff’s
answering brief (D.I. 8), and defendant’s reply brief (D.I. 9).
3
The facts in this section are based upon allegations in the complaint, which the court accepts as
true for the purposes of the present motion to dismiss. See Umland v. Planco Fin. Servs., 542
F.3d 59, 64 (3d Cir. 2008).
4
The court refers to the Gulfstream GIV-1177, LLC Operating Agreement as the “Gulfstream
Operating Agreement,” the Falcon 20-257, LLC Operating Agreement as the “Falcon Operating
Agreement,” and both together as the “Operating Agreements.” (See D.I. 1 at ¶¶ 18, 20) Both
agreements are among the documents attached to the complaint as Exhibits A and B. (D.I. 1-1;
Case 1:20-cv-00711-LPS-SRF Document 13 Filed 02/17/21 Page 2 of 8 PageID #: 193
Falcon 20-257, LLC (“Falcon”). (D.I. 1 at ¶¶ 17–20) He signed both Operating Agreements in
identical fashion in three places: (1) as the “Manager” of the respective “Company,” (2)
separately as a “Manager,” and (3) as a “Member” of another entity, Strong Tower Properties II,
LLC (in the Gulfstream Operating Agreement) and Dumont Group Properties II, LLC (in the
Falcon Operating Agreement). (Id. at ¶¶ 18, 20; D.I. 1-1 at 44; D.I. 1-2 at 43) Disassembly also
signed the Operating Agreements as a “Member” of both Gulfstream and Falcon. (D.I. 1 at ¶¶
17, 19; D.I. 1-1 at 44; D.I. 1-2 at 43)
Each Operating Agreement defines the term “party” as “a signatory to this Agreement,
including a Member, member of Management and any successor to any of the foregoing.” (D.I.
1-1 at 42, § 15.6; D.I. 1-2 at 41, § 15.6) The Operating Agreements also contain the following
“substantively identical” dispute resolution clause:
[A]ll disputes, claims, questions, or differences shall be finally settled by arbitration
administered by the American Arbitration Association before a single arbitrator
in accordance with the provisions of its Commercial Arbitration Rules. . . . Unless
otherwise mutually agreed to by the parties, the AAA arbitration shall take place in
Chicago, Illinois, if requested by the Strong Tower, or in Wilmington, Delaware, if
requested by the Investor Member.
(D.I. 1 at ¶ 15; D.I. 1-1 at 42, § 15.8; D.I. 1-2 at 41, § 15.8)
On May 4, 2020, Mr. Wargo was served with two demands for arbitration before the
American Arbitration Association (the “AAA”) in Wilmington, Delaware. (D.I. 1 at ¶ 9)
D.I. 1-2) The court cites the pages of the exhibits attached to the complaint as shown on ECF
when viewing each attachment individually. For example, the dispute resolution clauses in the
Gulfstream Operating Agreement and the Falcon Operating Agreement can be found at D.I. 1-1
at 42 and D.I. 1-2 at 41, respectively. “In deciding a Rule 12(b)(6) motion, a court must consider
only the complaint, exhibits attached to the complaint, matters of public record, as well as
undisputedly authentic documents if the complainant’s claims are based upon these documents.”
Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010). Accordingly, the court considers the
Operating Agreements incorporated by reference in the complaint. See id.; Reach Acad. for Boys
& Girls, Inc. v. Delaware Dep’t of Educ., 46 F. Supp. 3d 455, 464 (D. Del. 2014).
2
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Disassembly brought the first demand (the “Gulfstream Demand”) 5 individually and on behalf of
Gulfstream and the second demand (the “Falcon Demand”) 6 individually and on behalf of
Falcon. (Id. at ¶¶ 10–11) Mr. Wargo is named as a defendant in both demands as “an
individual.” (D.I. 1-1 at 3; D.I. 1-2 at 3) Among other things, the Demands claim that Mr.
Wargo violated fiduciary duties he owed to the respective “Members” of Gulfstream and Falcon
and that he is liable for fraudulent inducement and misrepresentation. 7 (D.I. 1 at ¶ 13)
Mr. Wargo asserts that he is not a “party” to the Operating Agreements and that he did
not sign them in his “individual capacity.” (Id. at ¶¶ 16–21) Accordingly, he filed the present
action pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57 seeking a
declaratory judgment that he is not bound in his individual capacity by the Operating
Agreements and, therefore, is not required to arbitrate Defendants’ claims against him. (Id. at ¶¶
1, 6, 23–28) The complaint expressly disclaims that Mr. Wargo challenges the merits of the
Demands for purposes of the instant suit. 8 (Id. at ¶ 13 n.1)
III.
LEGAL STANDARD
Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim
upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). When considering a Rule
5
Attached as Exhibit A to the complaint. (D.I. 1 at ¶ 10, D.I. 1-1)
Attached as Exhibit B to the complaint. (D.I. 1 at ¶ 11; D.I. 1-2)
7
After the parties fully briefed the pending motion, Defendants filed a “Request for Judicial
Notice” asking this court to “take judicial notice of the . . . decisions of the [AAA] determining
that the parties’ arbitration clause governed their disputes.” (D.I. 11) Defendants attached the
AAA decisions to their filing. (Id., Ex. A & B) Although the AAA decisions are consistent with
this Report and Recommendation, the court does not rely on them in making its Report and
Recommendation. (Id. at Ex. A at 2–3, Ex. B at 2)
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“Mr. Wargo disputes the allegations made in the Gulfstream and Falcon Demands. However,
in this complaint, Mr. Wargo challenges only the Defendants’ ability to require him to arbitrate
the claims, and therefore, Mr. Wargo does not address the assertions against him at this time, but
reserves all rights to defend against these claims at a later date.” (D.I. 1 at ¶ 13 n.1)
6
3
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12(b)(6) motion to dismiss, the court must accept as true all factual allegations in the complaint
and view them in the light most favorable to the plaintiff. See Umland v. Planco Fin. Servs., 542
F.3d 59, 64 (3d Cir. 2008).
To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint
must contain a “short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the
complaint must set forth sufficient factual matter, accepted as true, to “state a claim to relief that
is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft
v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations
allow the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged. See Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555–56.
The court’s determination is not whether the non-moving party “will ultimately prevail,”
but whether that party is “entitled to offer evidence to support the claims.” In re Burlington Coat
Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal citations and quotation marks
omitted). This “does not impose a probability requirement at the pleading stage,” but instead
“simply calls for enough facts to raise a reasonable expectation that discovery will reveal
evidence of [the necessary element].” Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir.
2008) (quoting Twombly, 550 U.S. at 556). The court’s analysis is a context-specific task
requiring the court “to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at
679.
IV.
DISCUSSION
“Under the Declaratory Judgment Act, district courts ‘may declare the rights and other
legal relations of any interested party seeking such declaration, whether or not further relief is or
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could be sought.’” Benson v. Amguard Ins. Co., C.A. No. 16-196-LPS, 2017 WL 2672078, at *3
(D. Del. June 21, 2017) (quoting 28 U.S.C. § 2201(a) (2012)). “[D]istrict courts have ‘unique
and substantial discretion in deciding whether to declare the rights of litigants.’” Id. (quoting
Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)); see also MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118, 136 (2007) (“The Declaratory Judgment Act provides that a court may
declare the rights and other legal relations of any interested party, not that it must do so.”)
(internal emphasis, citations, and quotations omitted). However, the court’s discretion “is not
without limits.” Benson, 2017 WL 2672078, at *3 (citing Step-Saver Data Sys., Inc. v. Wyse
Tech., 912 F.2d 643, 647 (3d Cir. 1990)). A declaratory judgment action must “have utility” and
“be of significant practical help in ending the controversy.” Id. (internal quotations and citations
omitted). Accordingly, a declaratory judgment action is appropriate when it “will terminate and
afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding” but
is “inappropriate when it is brought solely to adjudicate past conduct.” Id. (internal citations and
quotations omitted).
Disassembly argues that the court should dismiss the complaint for failure to state a
plausible claim for declaratory relief because allegations therein are contradicted by the
Operating Agreements, which are attached to and supersede the complaint. 9 (D.I. 7 at 2, 8–11)
Mr. Wargo admits in his complaint that he signed each Operating Agreement three times and
9
The parties raise various other arguments regarding their respective interpretations of the
Operating Agreements, including their respective positions about intent, the main purpose and
scope of those agreements, and whether those agreements are ambiguous. (D.I. 7 at 2–11; D.I. 8
at 4–8; D.I. 9 at 1–8) These arguments are not properly before the court in light of the provision
requiring mandatory arbitration of disputes in the Operating Agreements. See Priority
Healthcare Corp. v. Aetna Specialty Pharmacy, LLC, 590 F. Supp. 2d 663, 667–69 (D. Del.
2008) (declining to exercise jurisdiction over a declaratory judgment action that “would
effectively void a mutually agreed upon and enforceable” arbitration clause in the parties’
contract).
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does not dispute the authenticity of any of those signatures. (D.I. 1 at ¶¶ 18, 20; D.I. 8) More
specifically, Mr. Wargo signed each Operating Agreement as a “Manager.” (D.I. 1 at ¶¶ 18, 20;
D.I. 1-1 at 44; D.I. 1-2 at 43) Section 15.6 of the Operating Agreements expressly states that any
signatory to those agreements, including a “member of Management,” is a party thereto. (D.I. 11 at 42, § 15.6; D.I. 1-2 at 41, § 15.6) Moreover, as the complaint admits, the Operating
Agreements contain “substantively identical” dispute resolution clauses that require arbitration
before the AAA for disputes arising out of those agreements. (D.I. 1 at ¶ 15)
The complaint alleges that Mr. Wargo is not bound by the Operating Agreements’ dispute
resolution clauses because he did not sign those agreements in his “individual capacity and
therefore is not a party to” them. (Id. at ¶¶ 16–21) Mr. Wargo has pled himself out of court
because it is clear from the face of the Operating Agreements, which are attached as exhibits to
the complaint, that he is party to those agreements as defined in section 15.6 based on his
signature as a “Manager.” See Vorchheimer v. Philadelphian Owners Ass’n, 903 F.3d 100, 112
(3d Cir. 2018) (where a plaintiff’s “own exhibits contradict her allegations in the complaint, the
exhibits control”) (citing Abcarian v. McDonald, 617 F.3d 931, 933 (7th Cir. 2010)).
Despite the disclaimer in the complaint that Mr. Wargo is not making merits-based
challenges to the claims in the Demands against him in the instant suit (D.I. 1 at ¶ 13 n.1), he
argues that any interpretation of section 15.6 that would make him a party to the Operating
Agreements “would be incompatible with the clear purpose of the . . . Operating Agreements,
which is to establish the ‘rights and obligations of [the] Members’ and to reflect the ‘entire
understanding among the Members.’” (D.I. 8 at 5) He also notes that section 15.6 is “buried on
the fifteenth and sixteenth pages” of the respective Operating Agreements and is “titled ‘Other
Rules of Construction.’” (Id.) Mr. Wargo’s assertion that he is not bound by the Operating
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Agreements in his individual capacity and his argument that section 15.6 is “incompatible” with
the “clear purpose” of Operating Agreements call for contract interpretation and go to the merits
of the claims in the Demands that are grounded in the underlying Operating Agreements.
Accordingly, the issues and arguments raised in Mr. Wargo’s complaint are not properly before
this court and should be brought before the AAA, as he expressly agreed to do when he signed
the Operating Agreements. (See D.I. 1 at ¶ 15; D.I. 1-1 at 42, §§ 15.6, 15.8; D.I. 1-2 at 41, §§
15.6, 15.8)
Resolving the issue of whether Mr. Wargo is bound by the Operating Agreements in his
individual capacity in a federal declaratory judgment action would enable Mr. Wargo to use such
an action for the “improper purpose” of avoiding a valid dispute resolution clause. See Priority
Healthcare Corp. v. Aetna Specialty Pharmacy, LLC, 590 F. Supp. 2d 663, 667–69 (D. Del.
2008) (noting the “public policy interest in enforcing arbitration clauses” and declining to
exercise jurisdiction over a declaratory judgment action that “would effectively void a mutually
agreed upon and enforceable” arbitration clause in the parties’ contract). Therefore, the court
recommends granting Disassembly’s motion with prejudice.
V.
CONCLUSION
For the foregoing reasons, the court recommends GRANTING Disassembly’s motion to
dismiss for failure to state a claim with prejudice. (D.I. 6)
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(1)(B), Fed. R.
Civ. P. 72(b)(1), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy of this Report and Recommendation.
Fed. R. Civ. P. 72(b)(2). The objections and responses to the objections are limited to ten (10)
pages each. The failure of a party to object to legal conclusions may result in the loss of the right
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to de novo review in the District Court. See Sincavage v. Barnhart, 171 F. App’x 924, 925 n.1
(3d Cir. 2006); Henderson v. Carlson, 812 F.2d 874, 878–79 (3d Cir. 1987).
The parties are directed to the court’s Standing Order For Objections Filed Under Fed. R.
Civ. P. 72, dated October 9, 2013, a copy of which is available on the court’s website,
http://www.ded.uscourts.gov.
Dated: February 17, 2021
_________________________
Sherry R. Fallon
United States Magistrate Judge
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