Streamline Consulting Group LLC v. Legacy Carbon LLC dba Hawaiian Legacy Carbon et al
ORDER (1) DETERMINING THAT CLAIMS ARISING UNDER THE SERVICING AND NON-CIRCUMVENTION AGREEMENTS ARE SUBJECT TO ARBITRATION AND DENYING MOTION TO DISMISS; (2) DENYING REQUEST FOR FEES; AND (3) STAYING CASE EXCEPT WITH RESPECT TO THE ISSUE OF WHICH DE FENDANTS ARE SUBJECT TO THE ARBITRATION AGREEMENT re 7 , 8 , 25 - Signed by JUDGE SUSAN OKI MOLLWAY on 1/27/2016. "With respect to the parties' motion seeking to compel arbitration, this court determines that claims arising under the Services Agreement and/or the Non-Circumvention Agreement are subject to mandatory arbitration. But before sending any party to arbitration, this court will determine which parties are subject to the arbitration agreement. The court therefore stays this action, except with respect to the issue of which parties are subject to the arbitration agreement. The court denies Defendants' motion to dismiss and request for sanctions." (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
STREAMLINE CONSULTING GROUP
LEGACY CARBON LLC, dba
HAWAIIAN LEGACY CARBON;
HAWAIIAN LEGACY REFORESTATION )
INITIATIVE, dba HAWAIIAN
LEGACY HARDWOODS, dba
HAWAIIAN LEGACY FORESTS, dba, )
LEGACY FORESTS, dba LEGACY
HLH LLC, aka HAWAIIAN LEGACY )
LEGACY HARDWOODS, INC., aka
HAWAIIAN LEGACY HARDWOODS,
LEGACY HOLDINGS LLC, aka
HAWAIIAN LEGACY HOLDINGS,
JEFFREY DUNSTER; and
CIVIL NO. 15-00318 SOM/KSC
ORDER (1) DETERMINING THAT
CLAIMS ARISING UNDER THE
ARE SUBJECT TO ARBITRATION
AND DENYING MOTION TO
DISMISS; (2) DENYING REQUEST
FOR FEES; AND (3) STAYING
CASE EXCEPT WITH RESPECT TO
THE ISSUE OF WHICH DEFENDANTS
ARE SUBJECT TO THE
ORDER (1) DETERMINING THAT CLAIMS ARISING UNDER THE SERVICING AND
NON-CIRCUMVENTION AGREEMENTS ARE SUBJECT TO ARBITRATION AND
DENYING MOTION TO DISMISS; (2) DENYING REQUEST FOR FEES; AND
(3) STAYING CASE EXCEPT WITH RESPECT TO THE ISSUE OF WHICH
DEFENDANTS ARE SUBJECT TO THE ARBITRATION AGREEMENT
The main issue before this court is whether claims that
Defendants breached a Services Agreement and a Non-Circumvention
Agreement must be arbitrated.
The court determines that all
claims arising under either the Services Agreement or the NonCircumvention Agreement must be arbitrated.
However, this court
reserves to itself the issue of which parties are covered by the
The court therefore stays this case
except with respect to that issue.
The court denies Defendants’
motion to dismiss and request for fees.
The Services Agreement.
Streamline Consulting Group is a District of Columbia
limited liability company that says it “provides consulting
services in the management of business development, data and
information, and capacity building for project developers raising
and placing capital in eco-asset markets, including renewable
energy, nutrient credits, energy efficiency, carbon offsets, and
Complaint ¶ 1, ECF No. 1, PageID # 2.
On or about January 3, 2014, Streamline entered into a
contract with Hawaiian Legacy Carbon LLC. (“Services Agreement”)
See ECF No. 1-1, PageID # 22.
The Services Agreement lists a
Coelho Way address for Hawaiian Legacy Carbon LLC.
The Services Agreement says that Hawaiian Legacy
Carbon, “through its affiliate[,] Hawaiian Legacy Hardwoods, is a
project developer that plants trees, restores degraded land,
provides ecotourism, and creates products in the form of RFID
tacks and ecosystem service credits.”
Hardwoods is also called “HLH” in the Services Agreement.
Pursuant to the Services Agreement, Streamline was to
“assist in implementing [Hawaiian Legacy Carbon’s] business plan”
by, among other things (1) coordinating and creating a retail
program or plan to sell carbon offset and water quality and
trading credits; (2) introducing Hawaiian Legacy Carbon
affiliates to people or companies that raised capital or sold
products; (3) assisting with retail strategies and grant
proposals; and (4) including Streamline’s president’s biography
in Hawaiian Legacy Carbon and Hawaiian Legacy Hardwoods
“marketing documentation and website.”
In return, Hawaiian
Legacy Carbon and Hawaiian Legacy Hardwoods promised to pay a fee
of 3.5% of the “awarded project funding.”
The Services Agreement had an arbitration provision
Any controversy or claim arising out of, or
relating to this agreement, or breach
thereof, which is not settled amicably by and
between the signatories within a period of 30
days shall be settled through binding
arbitration in accordance with the laws of
the defending state.
Id., PageID # 24.
The Services Agreement was executed on behalf of
Hawaiian Legacy Carbon by Jeffrey Dunster, its co-founder, in
early January 2014.
Streamline alleges that Defendants, who appear to all
be citizens of Hawaii, breached the Services Agreement by failing
to pay amounts due.
From April 2, 2014, through July 22, 2014,
these amounts allegedly equaled $28,610.71.
Complaint ¶ 23.
The Non-Circumvention Agreement.
On or about December 17, 2013, which was a few weeks
before the Services Agreement was executed, Hawaiian Legacy
Hardwoods, LLC, entered into a Non-Circumvention Agreement with
See ECF No. 1-2.
Through this agreement, Hawaiian
Legacy Hardwoods, which has the same Coelho Way address as
Hawaiian Legacy Carbon, agreed not to “circumvent, avoid, bypass,
or obviate directly or indirectly, the creation or pursuit of the
Collaboration [defined as the mutually beneficial business
relationship that might involve third parties] by entering into
any direct or indirect negotiations, communications, or
transactions with, or by soliciting or accepting any business or
financing from or on behalf of an Introduced Party . . . .”
PageID # 28.
If it breached this provision, Hawaiian Legacy
Hardwoods promised to pay Streamline a fee of 20% of the total
value of the money involved.
The Non-Circumvention Agreement was executed by Dunster
on behalf of Legacy Hardwoods, LLC, even though, in the first
paragraph of the Non-Circumvention Agreement, it is Hawaiian
Legacy Hardwoods, LLC, that is listed as a party to that
See ECF No. 1-2, PageID # 30.
The Complaint alleges that Streamline introduced
Defendants to key personnel at the Cambridge office of a company
called The Gold Standard in connection with an award-winning
certification standard for carbon mitigation projects.
Complaint ¶¶ 33-35, ECF No. 1, PageID # 10.
alleges that, after Defendants failed to pay its bills,
Defendants began communicating and negotiating with The Gold
Id. ¶ 36.
The Complaint alleges that, as a
result, Defendants owe Streamline $300,000.
Id. ¶ 41, PageID
Allegations and Facts Concerning Piercing the
Corporate Veil, Alter Ego, and Joint Tortfeasor
Although the Services Agreement was executed by
Hawaiian Legacy Carbon LLC, and although the Non-Circumvention
Agreement was executed by Legacy Hardwoods, LLC, the Complaint
seeks to hold other Defendants liable through piercing the
corporate veil or on alter ego and joint tortfeasor theories of
8. Defendant JEFFREY A. DUNSTER (“Dunster”)
is a resident of the City and County of
Honolulu, State of Hawaii, and is the owner
and operator of a business organization or
enterprise involved in developing a tropical
hardwood plantation on the Island of Hawaii,
with emphasis upon growing koa trees, and
related activities, utilizing the foregoing
entities as a conduit for his operation
(hereinafter, the “Dunster’s Project”).
9. Dunster is operating his organization
through a network of related or affiliated
entities, including Defendants Legacy Carbon,
LLC dba Hawaiian Legacy Carbon, Hawaiian
Legacy Reforestation Initiative dba Hawaiian
Legacy Hardwoods dba Hawaiian Legacy Forests
dba Legacy Forests dba Legacy Trees, HLH, LLC
fka Hawaiian Legacy Hardwoods, LLC, Legacy
Hardwoods, Inc. fka Hawaiian Legacy
Hardwoods, Inc., and Legacy Holdings, LLC fka
Hawaiian Legacy Holdings, LLC (collectively,
the “Dunster Entities”), which however are
all part of the same business enterprise with
identity or substantial identity of ownership
under common control and have no independent
ECF No. 1, PageID #s 3-4
Defendant Legacy Carbon, LLC, dba Hawaiian
The court takes judicial notice of the business
registration documents available on Hawaii’s Department of
Commerce and Consumer Affairs website, https://hbe.ehawaii.gov/
According to this website, no business
has been registered with the name Hawaiian Legacy Carbon LLC the
entity that signed the Services Agreement with the Coelho Way
But there is a company registered as Legacy Carbon LLC
that has the same address listed for Hawaiian Legacy Carbon LLC
in the Servicing Agreement.
documents/ usiness.html?fileNumber=85199C5 (last visited January
It thus appears that Legacy Carbon LLC is doing
business as Hawaiian Legacy Carbon LLC.
Legacy Carbon LLC has an
address c/o Jeffrey A. Dunster, its agent.
85199C5&view=info (last visited January 14, 2016).
November 17, 2015, its manager is Legacy Hardwoods Inc.
85199C5&view=officers (last visited January 14, 2016).
Defendant Legacy Hardwoods Inc., dba Hawaiian
Legacy Hardwoods, Inc.
Legacy Hardwoods Inc. also lists the same Coelho Way
address, and its agent is Dunster.
documents/business.html?fileNumber=224471D1 (last visited January
Dunster is also listed as its president and director.
No other officers are listed.
documents/business.html?fileNumber= 224471D1&view=officers (last
visited January 14, 2016).
Legacy Hardwoods Inc. was formerly
known as Hawaiian Legacy Hardwoods, Inc.
fileNumber=224471D1&view=transactions (last visited January 14,
Defendant HLH LLC, fka Hawaiian Legacy
The Services Agreement calls Hawaiian Legacy Hardwoods
It is not clear whether the company referred to in the
Services Agreement is Hawaiian Legacy Hardwoods, Inc., or
Hawaiian Legacy Hardwoods LLC.
Hawaiian Legacy Hardwoods LLC is
another company with the same Coelho Way address.
Its manager is
also Jeffrey Dunster.
business.html?fileNumber=65846C5 (last visited January 14, 2016).
As of November 17, 2015, its members were Legacy Hardwoods Inc.
and Synergistic Connections, Inc.
visited January 14, 2016).
On or about March 7, 2014, Hawaiian
Legacy Hardwoods LLC changed its name to HLH LLC, a name similar
to the name “HLH” used in the Services Agreement.
5&view=transactions (last visited January 14, 2016).
Defendant Hawaiian Legacy Reforestation
Initiative, dba Hawaiian Legacy Hardwoods,
dba Hawaiian Legacy Forests, dba Legacy
Forests, dba Legacy Trees.
Defendant Hawaiian Legacy Reforestation Initiative is a
Hawaii corporation with a Merchant Street address, not a Coelho
business.html?fileNumber=242116D2&view=info (last visited January
Dunster is listed as its president and as one of its
business.html?fileNumber=242116D2&view=officers (last visited
January 14, 2016).
Hawaiian Legacy Reforestation Initiative is
listed as owning the following trade names or trademarks:
Hawaiian Legacy Forests, Hawaiian Legacy Hardwoods, Legacy
Forests, and Legacy Trees.
visited January 14, 2016).
Defendant Legacy Holdings, LLC, fka Hawaiian
Legacy Holdings, LLC.
Defendant Legacy Holdings, LLC, is a Hawaii limited
liability company that shares the Coelho Way address.
business.html?fileNumber=66081C5 (last visited January 14, 2016).
It has two members, Dunster and Darrell Fox.
5&view=officers (last visited January 14, 2016).
On March 7,
2014, it changed its name from Hawaiian Legacy Holdings, LLC, to
Legacy Holdings, LLC.
business.html?fileNumber=66081C5&view=transactions (last visited
January 14, 2016).
On October 21, 2014, Streamline sent Defendants a
demand for arbitration of its claims that the Servicing Agreement
and the Non-Circumvention Agreement had been breached.
of John Winniki ¶ 15, ECF No. 25-1, PageID # 365; ECF No. 8-3
(copy of demand).
Defendants responded that only Legacy Carbon
LLC, the company that had signed the Servicing Agreement, was
subject to the mandatory arbitration provision.
Decl. ¶ 16, ECF No. 25-1, PageID # 365.
The parties selected
former Hawaii Supreme Court Associate Justice James Duffy as
See id. ¶ 18.
At a prearbitration hearing on February 23, 2015, the
parties told the arbitrator that they had a disagreement about
the scope of the claims subject to arbitration and as to which
Defendants were subject to those claims.
Duffy allegedly told
the parties that they needed to have a court decide those issues.
Id. ¶¶ 19-20.
On June 23, 2015, the arbitration case manager sent the
parties an e-mail, asking about the status of the case.
No. 8-7, PageID # 203.
Counsel for Streamline responded, “At
this time, we are still pursuing a court action to resolve this
matter, and do not plan on resolving the claims through
If through court order or agreement the parties
submit to arbitration, we will contact you, if that is
See ECF No. 8-8, PageID # 207.
The following day,
June 24, 2015, counsel for Defendants responded, “There are some
claims and counterclaims outstanding that undisputably are
subject to arbitration.
The case should not be closed at this
Id., PageID # 206.
On August 8, 2015, Streamline filed the present action
in this court.
Count I asserts a breach of the Services
Agreement arising out of an alleged failure to pay amounts owed
Count II asserts a breach of the Non-
Circumvention Agreement, arising out of Defendants’ alleged
direct contact with The Gold Standard.
Count III seeks
declaratory and injunctive relief with respect to the alleged
Count IV asserts a breach of the implied
covenant of good faith and fair dealing.
Count V asserts a claim
of intentional interference with economic advantage.
Count VI asserts an unjust enrichment claim.
See ECF No. 1.
Defendants have filed two motions that overlap in many
In the first, Defendants seek dismissal of Count I and
of portions of Counts III through VI, to the extent they are
premised on the Servicing Agreement.
Defendants argue that those
claims are subject to the mandatory arbitration provision in the
See ECF No. 7-1.
The motion also seeks
dismissal of (1) Hawaiian Legacy Reforestation Initiative, dba
Hawaiian Legacy Hardwoods, dba Hawaiian Legacy Forests, dba
Legacy Forests, dba Legacy Trees, and (2) Legacy Holdings, LLC,
fka Hawaiian Legacy Holdings, LLC.
Defendants contend that the
allegations contained in the Complaint fail to allege facts that
indicate any wrongdoing on the part of those Defendants.
The motion also seeks dismissal of Dunster, arguing that no facts
are alleged that would make him personally responsible under the
In its second motion, filed the same day as the first
motion, Defendants seek to compel arbitration of Count I and of
portions of Counts III through VI, to the extent they are
premised on the Servicing Agreement, arguing that those claims
are subject to a mandatory arbitration provision.
See ECF No. 8-
Defendants also seek fees for having to seek to compel
Streamline responded with a countermotion to compel
arbitration of all of the claims asserted in the Complaint.
ECF No. 25.
Streamline also seeks a stay of this action pending
the proposed arbitration.
THE COURT COMPELS ARBITRATION OF CLAIMS ARISING UNDER
BOTH THE SERVICES AGREEMENT AND THE NON-CIRCUMVENTION
AGREEMENT, BUT RETAINS JURISDICTION OF THIS MATTER TO
DECIDE WHICH DEFENDANTS ARE BOUND BY THE ARBITRATION
CLAUSE IN THE SERVICING AGREEMENT.
The Federal Arbitration Act, or FAA, governs
arbitration agreements in contracts involving interstate
See 9 U.S.C. § 2.
Under the FAA, arbitration
agreements “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation
of any contract.”
“A party aggrieved by the alleged
failure, neglect, or refusal of another to arbitrate under a
written agreement for arbitration may petition” a United States
district court with jurisdiction “for an order directing that
such arbitration proceed in the manner provided for in such
Id. § 4.
The FAA’s provisions reflect a “liberal federal policy
Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
interpreting an arbitration agreement must resolve ambiguities as
to the scope of the arbitration clause in favor of arbitration.
See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62
(1995); United Steelworkers of Am. v. Warrior & Gulf Navigation
Co., 363 U.S. 574, 584-85 (1960) (“In the absence of any express
provision excluding a particular grievance from arbitration, we
think only the most forceful evidence of a purpose to exclude the
claim from arbitration can prevail . . . .”).
In determining whether to compel a party to arbitrate,
a district court may not review the merits of the dispute;
rather, the court’s role under the FAA is limited “to determining
(1) whether a valid agreement to arbitrate exists and, if it
does, (2) whether the agreement encompasses the dispute at
Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th
Cir. 2008) (citation and quotation marks omitted).
the terms of an agreement, the court “appl[ies] general state-law
principles of contract interpretation, while giving due regard to
the federal policy in favor of arbitration by resolving
ambiguities as to the scope of arbitration in favor of
Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046,
1049 (9th Cir. 1996).
If the court determines that a valid
arbitration agreement encompasses the parties’ dispute, the FAA
requires the court to enforce the arbitration agreement according
to its terms.
Countrywide Home Loans, Inc., v. Mortgage Guar.
Ins. Corp., 642 F.3d 849, 854 (9th Cir. 2011).
All parties agree that the arbitration clause contained
in the Services Agreement is valid and enforceable, as all have
moved to compel arbitration of claims arising out of the Services
Agreement, although Defendants dispute which Defendants are
properly sued for allegedly violating the Services Agreement.
The court compels arbitration of the substance of those claims.
The parties dispute the arbitration clause’s
applicability to the claims arising out of the alleged breach of
the Non-Circumvention Agreement.
claims must also be arbitrated.
The court determines that those
The Services Agreement, executed
after the Non-Circumvention Agreement, provides that Streamline
shall provide “strategic introductions for [Legacy Carbon dba
Hawaiian Legacy Carbon] affiliates for the purposes of raising
capital or selling product (e.g. carbon offsets, RFID tags, etc.”
ECF No. 1-1, PageID # 22.
The use of the word “affiliates”
indicates that the parties contemplated that Streamline would
introduce companies related to Legacy Carbon dba Hawaiian Legacy
Carbon to third parties that might raise capital or sell
Streamline alleges that Defendants, or Legacy Carbon
dba Hawaiian Legacy Carbon’s “affiliates,” breached the NonCircumvention Agreement.
According to Streamline, it provided introductions to
key personnel at The Gold Standard’s Cambridge office, thus
facilitating certification of Defendants’ project by The Gold
Standard and greatly increasing the marketability of Defendants’
carbon offset credits and products.
Defendants allegedly then
began to interact directly with The Gold Standard.
¶¶ 35-36, ECF No. 1, PageID # 10.
The arbitration clause in the Servicing Agreement
covers all controversies and claims “relating to” the Servicing
The alleged breach of the Non-Circumvention Agreement
“relat[es] to” the Servicing Agreement.
Thus, the arbitration
clause applies to the claims arising out of the alleged breach of
the Non-Circumvention Agreement.
See Prima Paint Corp. v. Flood
& Conklin Mfg. Co., 388 U.S. 395, 398 (1967) (stating that
reference to “Any controversy or claim arising out of or relating
to this Agreement” was part of “broad” arbitration clause).
Non-Circumvention Agreement has no meaning absent a separate
agreement that the parties are agreeing may not be freely
Not only does the Non-Circumvention Agreement depend on
the existence of the Services Agreement, the Services Agreement
could cause Streamline to provide services for free if it could
Under these circumstances, the court compels
arbitration of the Non-Circumvention Agreement claims.
The court turns now to the question of which Defendants
are subject to the mandatory arbitration clause.
to arbitration agreements are sometimes bound by such agreements.
In Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 631
(2009), for example, the Supreme Court held that a nonsignatory
to an arbitration agreement could be bound by that agreement
under traditional principles of contract law.
The Supreme Court
noted that state law is applicable to the determination of which
contracts are arbitrable under § 2 of the FAA.
principles of state law allow a contract [such as an arbitration
agreement] to be enforced by or against nonparties to the
contract through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel.”
The court begins its analysis of which Defendants must
arbitrate by examining whether this is a matter to be determined
by this court or by the arbitrator.
The Supreme Court has
provided guidance on this issue, stating, “Unless the parties
clearly and unmistakably provide otherwise, the question of
whether the parties agreed to arbitrate is to be decided by the
court, not the arbitrator.”
AT&T Techs., Inc. v. Commc'ns
Workers of Am., 475 U.S. 643, 649 (1986).
Courts examining the issue of whether a defendant is an
alter ego of a signatory to an arbitration agreement have
therefore held that it is the court, not the arbitrator, who
makes the decision as to arbitrability.
See Local 36 Sheet Metal
Workers' Int'l Ass'n, AFL-CIO v. Whitney, 670 F.3d 865, 868 (8th
Cir. 2012) (stating that court decides whether nonsignatory to
collective bargaining agreement must arbitrate as alter ego of
signatory company); ARW Expl. Corp. v. Aguirre, 45 F.3d 1455,
1460 (10th Cir. 1995) (“The district court’s arbitrability
determination includes ascertaining whether a duty to arbitrate
exists upon a finding of alter ego.”); Int'l Ass'n of Heat &
Frost Insulators & Asbestos Workers Local Union 42 v. Absolute
Envtl. Servs., Inc., 814 F. Supp. 392, 398 (D. Del. 1993) (“It is
the province of the district courts to determine as a threshold
matter whether a party has a contractual duty to submit to
This court takes it upon itself to therefore decide the
issue of whether nonsignatories to the Servicing Agreement are
subject to the arbitration agreement.
At this point, the court
declines to dismiss claims against nonsignatories to the
The Complaint alleges that Dunster operated his
businesses in a manner that allows the piercing of the corporate
veil, or allows liability based on an alter ego or joint
Although Dunster and other entities are not
alleged to have personally done anything wrong, sufficient facts
are alleged to justify holding them liable under the theory of
piercing of the corporate veil, alter ego, and/or joint
It is this court that will determine which
Defendants are subject to the arbitration clause.
THE COURT STAYS THIS CASE, EXCEPT FOR THE ISSUE OF
WHICH PARTIES ARE SUBJECT TO THE ARBITRATION AGREEMENT.
The FAA provides for a stay of court proceedings when
matters are referred to arbitration:
If any suit or proceeding be brought in any
of the courts of the United States upon any
issue referable to arbitration under an
agreement in writing for such arbitration,
the court in which such suit is pending, upon
being satisfied that the issue involved in
such suit or proceeding is referable to
arbitration under such an agreement, shall on
application of one of the parties stay the
trial of the action until such arbitration
has been had in accordance with the terms of
the agreement, providing the applicant for
the stay is not in default in proceeding with
9 U.S.C. § 3.
A stay, however, is not mandatory, and a court may
alternatively dismiss claims subject to arbitration.
Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053,
1060 (9th Cir. 2004); Sparling v. Hoffman Construction Company,
864 F.2d 635, 638 (9th Cir. 1988); Doyle v. Hawaiian Cement, No.
CIV. 08-00017 JMS/KSC, 2008 WL 2230734, at *4 (D. Haw. May 29,
2008) (“A stay, however, is not mandatory and the court may
alternatively dismiss those claims that are subject to
Because, pending its determination of which
Defendants must arbitrate, this court is not sending the parties
to arbitration, this court need not now decide whether to stay or
dismiss this case pending the outcome of the arbitration.
Although this court is not at this moment referring
this case to arbitration, the court exercises its inherent
authority and stays all issues in this case except for the issue
of which parties are subject to the arbitration agreement.
Landis v. N. Am. Co., 299 U.S. 248, 254 (1936) (“the power to
stay proceedings is incidental to the power inherent in every
court to control the disposition of the causes on its docket with
economy of time and effort for itself, for counsel, and for
This stay furthers the parties’ agreement to have
the issues decided in arbitration while also allowing the parties
to litigate in this court the arbitrability of the claims with
respect to each Named Defendant.
Defendants seek their fees as a sanction under 28
U.S.C. § 1927 and under section 607-14 of Hawaii Revised
That request is denied.
Under 28 U.S.C. § 1927, a court may impose sanctions
for multiplying proceedings.
The statute reads:
Any attorney or other person admitted to
conduct cases in any court of the United
States or any Territory thereof who so
multiplies the proceedings in any case
unreasonably and vexatiously may be required
by the court to satisfy personally the excess
costs, expenses, and attorneys’ fees
reasonably incurred because of such conduct.
28 U.S.C.A. § 1927.
only upon counsel.
In other words, § 1927 authorizes a sanction
Sneller v. City of Bainbridge Island, 606
F.3d 636, 640 (9th Cir. 2010).
To be sanctionable under § 1927, counsel’s conduct must
multiply the proceedings in both an “unreasonable and vexatious
In re Girardi, 611 F.3d 1027, 1061 (9th Cir. 2010).
When such multiplication has occurred, the court may order
sanctions upon finding recklessness or bad faith.
B.K.B. v. Maui
Police Dept., 276 F.3d 1091, 1107 (9th Cir. 2002).
“Bad faith is present when an attorney knowingly or
recklessly raises a frivolous argument, or argues a meritorious
claim for the purpose of harassing an opponent.”
Mgmt, Co., 78 F.3d 431, 436 (9th Cir. 1996).
In re Keegan
Under Keegan, even
filings that do not make frivolous arguments may give rise to
sanctions if the court finds that the filing party acted with
intent to harass.
Since Keegan, the Ninth Circuit has held
that recklessness may warrant sanctions under § 1927 even if the
recklessness does not rise to the level of bad faith.
v. Gomez, 239 F.3d 989, 993 (2001) (“recklessness suffices for
Ignorance or negligence does not meet this standard.
Streamline’s conduct does not warrant sanctions under
Streamline attempted to arbitrate the claims
presented in its Complaint, only to have Defendants argue that
claims under the Non-Circumvention Agreement were not arbitrable
and that claims against nonsignatories to the Servicing Agreement
were not arbitrable.
Streamline appears to have filed the
present case only after the arbitrator told it that it needed a
court order or agreement to arbitrate.
Although the claims
against Legacy Carbon LLC, dba Hawaiian Legacy Carbon LLC, are
clearly arbitrable, the court does not find that Streamline acted
in bad faith or acted recklessly by including the arbitrable
claims in its Complaint.
Streamline is seeking to hold other
Defendants liable under the Servicing Agreement.
told Streamline that it could not assert claims against other
Defendants absent a court order.
The court does not find bad
faith or recklessness under these circumstances.
The court also denies Defendants’ fee request under
section 607-14 of Hawaii Revised Statutes.
That section states:
In all the courts, in all actions in the
nature of assumpsit and in all actions on a
promissory note or other contract in writing
that provides for an attorney’s fee, there
shall be taxed as attorneys’ fees, to be paid
by the losing party and to be included in the
sum for which execution may issue, a fee that
the court determines to be reasonable;
provided that the attorney representing the
prevailing party shall submit to the court an
affidavit stating the amount of time the
attorney spent on the action and the amount
of time the attorney is likely to spend to
obtain a final written judgment, or, if the
fee is not based on an hourly rate, the
amount of the agreed upon fee. The court
shall then tax attorneys' fees, which the
court determines to be reasonable, to be paid
by the losing party; provided that this
amount shall not exceed twenty-five per cent
of the judgment.
Haw. Rev. Stat. Ann. § 607-14.
To the extent Defendants seek
fees under section 607-14, they have not yet established that
they are the prevailing parties.
With respect to the parties’ motion seeking to compel
arbitration, this court determines that claims arising under the
Services Agreement and/or the Non-Circumvention Agreement are
subject to mandatory arbitration.
But before sending any party
to arbitration, this court will determine which parties are
subject to the arbitration agreement.
The court therefore stays
this action, except with respect to the issue of which parties
are subject to the arbitration agreement.
The court denies
Defendants’ motion to dismiss and request for sanctions.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, January 27, 2016.
/s/ Susan Oki Mollway
Susan Oki Mollway
United States District Judge
Streamline Consulting Group v. Legacy Carbon LLC, et al., Civ. No. 15-00318
SOM/KSC; ORDER (1) DETERMINING THAT CLAIMS ARISING UNDER THE SERVICING AND
NON-CIRCUMVENTION AGREEMENTS ARE SUBJECT TO ARBITRATION AND DENYING MOTION TO
DISMISS; (2) DENYING REQUEST FOR FEES; AND (3) STAYING CASE EXCEPT WITH
RESPECT TO THE ISSUE OF WHICH DEFENDANTS ARE SUBJECT TO THE ARBITRATION
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