WDCD, LLC v. iStar, Inc.

Filing 31

ORDER GRANTING iSTAR INC.'S MOTION TO STAY LITIGATION UNDER 9 U.S.C. 3 OR, IN THE ALTERNATIVE, TO DISMISS UNDER RULES 8, 12(b)(6), AND 12(b)(7) re #13 , 27 - Signed by JUDGE DERRICK K. WATSON on 11/16/2017. "For the foregoing reasons, the Court hereby GRANTS iStar's Motion to Stay this case, and directs the Clerk of Court to administratively close it. The administrative closing of this case is solely an administrative matter and does not impact, in any manner, any party's rights or obligations, has no impact on any limitation period applicable to this case, does not alter in any manner any previous rulings by the court, and does not require a filing fee to reopen the case. In addition, the parties are directed to notify the Court within 30 days after final resolution of the arbitration, with joint recommendations, if possible, regarding any further proceedings that may be necessary in this Court." (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

UNITED STATES DISTRICT COURT
DISTRICT OF HAWAII

WDCD, LLC, A HAWAII LIMITED
LIABILITY COMPANY,

CIV. NO. 17-00301 DKW-RLP

Plaintiff,
ORDER GRANTING iSTAR INC.’S
MOTION TO STAY LITIGATION
UNDER 9 U.S.C. § 3 OR, IN THE
ALTERNATIVE, TO DISMISS
UNDER RULES 8, 12(b)(6), AND
12(b)(7)

vs.
iSTAR, INC., A MARYLAND
CORPORATION,
Defendant.

Before the Court is Defendant iStar, Inc.’s Motion to Stay Litigation Under
9 U.S.C. § 3 or, in the Alternative, to Dismiss Under Rules 8, 12(b)(6) and
12(b)(7), filed August 1, 2017 (see ECF No. 13). For the reasons set forth below,
the Motion to Stay is GRANTED.
BACKGROUND
On April 4, 2012, SFI Ilikai Retail Owner LLC, SFI Ilikai Property Owner
LLC, and SFI Ilikai 104 LLC (collectively “SFI Parties”), as owners, and WDCD,
LLC, as consultant, executed a Development Consultant Agreement
(“Agreement”; Dookchitra Decl., Ex. A, ECF No. 13-1) in connection with the
redevelopment and potential sale of the Ilikai property in Waikiki. Mot. to Stay 1,

ECF No. 13 at 6. The Agreement contains an arbitration provision requiring that
any controversy “arising out of or relating to this Agreement or its breach, [] be
submitted to arbitration.” Mot. to Stay 1, 6 (citing Dookchitra Decl., Ex. A
[Agreement] § 7.14).
On November 1, 2016, WDCD advised iStar, the SFI Parties’ parent
company, of additional commissions that WDCD claimed it was owed under the
Agreement. Dorsey Decl. ¶¶ 2, 3, ECF No. 24-1. WDCD asserts that although it
requested that iStar arbitrate these commissions claims pursuant to the Agreement,
iStar refused:
I asked Mr. Dorsey [iStar’s counsel] whether iStar Inc. was
subject to arbitration under the terms of the Development
Agreement. Mr. Dorsey replied that iStar had not signed the
Development Agreement and therefore could not be compelled
to arbitrate with WDCD. I asked Mr. Dorsey if iStar would
nevertheless agree to arbitrate WDCD’s claims against it and,
consistent with my understanding of iStar[’s] Motion to Stay,
he replied that iStar would not and that WDCD could only
arbitrate against SFI Parties.
Sullivan Decl. ¶ 5, ECF No. 22-1. Accordingly, WDCD filed the instant action.
Sullivan Decl. ¶ 6.
iStar claims to have never refused to arbitrate. Indeed, iStar filed the instant
motion on August 1, 2017, asking the Court to stay the lawsuit “pursuant to
Section 3 of the Federal Arbitration Act in favor of arbitration” because each of
WDCD’s claims arises out of the underlying Agreement. Mot. to Stay 2.
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Additionally, on September 19, 2017, iStar filed an Arbitration Demand and
Statement of Claims against WDCD with Dispute Prevention & Resolution Inc.
(“DPR”), seeking adjudication of all rights arising out of or relating to the
Agreement, including those raised by WDCD against iStar in the instant lawsuit.
See Dorsey Decl., Ex. B [Arbitration Demand], ECF No. 24-3.
On October 13, 2017, the Court issued an order granting iStar’s Motion to
Stay this litigation in favor of the DPR arbitration that iStar had noticed on
September 19, 2017. ECF No. 27. On November 14, 2017, before the Court could
set forth its reasoning for doing so, the parties jointly filed a Notice of Agreement
to Arbitrate. ECF No. 30. Notwithstanding this Notice, the Court offers the
following explanation for its October 13, 2017 decision.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., provides that
written arbitration agreements “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or equity for the revocation of any contract.” 9
U.S.C. § 2. 1 The FAA provides that “any doubts concerning the scope of

1

Section 3 of the FAA outlines the circumstances under which a court “shall” stay proceedings
pending 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

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arbitrable issues 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); see also Mastrobuono v. Shearson
Lehman Hutton, Inc., 514 U.S. 52, 62 (1995); United Steelworkers of Am. v.
Warrior & Gulf Navigation, 363 U.S. 574, 584–85 (1960). “The standard for
demonstrating arbitrability is not high. The Supreme Court has held that the FAA
leaves no place for the exercise of discretion by a district court, but instead
mandates that district courts direct the parties to proceed to arbitration on issues as
to which an arbitration agreement has been signed.” Simula, Inc. v. Autoliv, Inc.,
175 F.3d 716, 719 (9th Cir.1999) (citing Dean Witter Reynolds v. Byrd, 470 U.S.
213, 218 (1985)). Indeed, the factual allegations need only “‘touch matters’
covered by the contract containing the arbitration clause” for arbitration to be
triggered. Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 624 n. 13 (1985)).
In deciding whether to compel arbitration, the court may not review the
merits of the underlying dispute. Instead, the court must examine whether:

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 such arbitration.
9 U.S.C. § 3.

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(1) there exists a valid agreement to arbitrate; (2) the parties’ dispute falls within
their arbitration agreement; and (3) there exists “a defense that would be available
to a party seeking to avoid the enforcement of any contract.” Brown v. Dillard’s,
Inc., 430 F.3d 1004, 1010 (9th Cir.2005); Republic of Nicar. v. Standard Fruit Co.,
937 F.2d 469, 477–78 (9th Cir.1991); see also Lowden v. T-Mobile USA, Inc., 512
F.3d 1213, 1217 (9th Cir. 2008) (“[T]he court must determine (1) whether a valid
agreement to arbitrate exists and, if it does, (2) whether the agreement
encompasses the dispute at issue.” (citation and quotation signals omitted)).
DISCUSSION
I.

iStar May Invoke the Arbitration Clause of the Agreement,
Notwithstanding its Non-Signatory Status.
The parties do not dispute the validity of the Agreement, nor do they dispute

the presence of a binding arbitration clause within the Agreement:
Any controversy between the parties regarding the construction
or application of any term or provision hereof, or the
performance of any services under this Agreement, and any
claim arising out of or relating to this Agreement or its breach,
shall be submitted to arbitration to be held in Honolulu, Hawaii
upon the written request of one party after the service of that
request on the other party. The arbitration shall be conducted in
accordance with the Rules, Procedures, and Protocols for
Arbitration of Disputes of Dispute Prevention & Resolution,
Inc. (‘DPR’) as modified herein.
Dookchitra Decl., Ex. A [Agreement] § 7.14.1, ECF No. 13-1 at 20.

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The only point of contention is whether iStar, a non-signatory to the Agreement,
may invoke the arbitration provision to compel WDCD to proceed to arbitration on
the commissions claims that are unquestionably founded on the Agreement.
The Hawai`i Supreme Court, in Luke v. Gentry Realty, Ltd, 96 P.3d 261
(Hawai‘i 2004), has held that a non-signatory to an arbitration agreement has
standing to invoke the arbitration agreement against a signatory if either one of the
following two conditions is met: 2
First, when the signatory to a written agreement containing an
arbitration clause must rely on the terms of the written
agreement in asserting its claims against the nonsignatory.
Second, when the signatory to the contract containing a[n]
arbitration clause raises allegations of substantially
interdependent and concerted misconduct by both the
nonsignatory and one or more of the signatories to the contract.
Luke, 96 P.3d at 268 (citing Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir.
2002)) (formatting altered).
Under the first condition, “[a] signatory to an arbitration agreement is
estopped from refusing to arbitrate claims against a nonsignatory when the
signatory’s claims are intertwined with, rather than independent of, the agreement
containing the arbitration clause.” Luke, 96 P.3d at 268. “In determining whether
a particular claim falls within the scope of the parties’ arbitration agreement, we
2

The parties agree that state law controls the question of who may avail itself of a contractual
arbitration clause, though they disagree on which state law governs. See Mot. to Stay at 10;
Mem. in Opp’n at 15–17.

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focus on the factual allegations in the complaint rather than the legal causes of
action asserted,” and “[i]f the allegations underlying the claims ‘touch matters’
covered by the parties’ [contract], then those claims must be arbitrated [in
accordance with the contract], whatever the legal labels attached to them.”
Genesco, Inc. v. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (citing
Mitsubishi Motors, 473 U.S. at 622 n.9, 624 n.13).
Here, WDCD alleges six causes of action:
1. Unfair methods of competition arising in part out of iStar’s treatment
of itself as separate as distinct from the SFI Parties and for its alleged
refusal to subject itself to arbitration under the Agreement (Compl.
¶¶ 151–66, ECF No. 1 at 68–80);
2. Negligent misrepresentation and non-disclosure of material facts for
iStar’s alleged failure to notify WDCD “that it, and not [the] SFI
Parties themselves . . . controlled [the] SFI Parties’ performance under
the Development Agreement, including but not limited to whether or
not [WDCD] would receive its bargained for compensation” (Compl.
¶¶ 167–78);
3. Fraud in “depriv[ing WDCD] of its rights and interests in and to the
Project and the profits and revenues generated therefrom” (Compl.
¶¶ 179–81);
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4. Unjust enrichment by illegally competing with WDCD “for the profits
from the Project” (Compl. ¶¶ 182–85);
5. Interference with economic advantage arising out of iStar’s alleged
interference with WDCD’s business relationship with the SFI Parties
under the Agreement by, among other things, acting “to induce
[WDCD] to believe that [it] was entitled to the Sales Override Fees
and Profit Participation from the entire Project” (Compl. ¶¶ 186–95);
and
6. For “an accounting to determine the total sales, revenues, costs and
profits from the Project that may have been or may be received by
[the] SFI Parties or iStar in order to determine the full value of its
interest in and to the Project and the proceeds generated therefrom”
(Compl. ¶¶ 196–97).
Each of these claims against iStar not only “touches” on the Agreement but,
by reference to the Project that the Agreement was designed to implement, and the
relationship between the SFI Parties and WDCD under the Agreement, necessarily
relies on the Agreement. See Simula, 175 F.3d at 721 (citations omitted); Chloe Z
Fishing Co., Inc. v. Odyssey Re (London) Ltd., 109 F. Supp. 2d 1236, 1256–58
(S.D. Cal. 2000) (concluding that each of the plaintiff’s claims—including for
breach of implied covenant of good faith and fair dealing, for unfair business
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practices, and for intentional interference with contractual relations, among
others—“either specifically references the interpretation of the [agreement] or
implicitly charges that defendants’ have not performed their obligations in light of
the coverage provided to plaintiffs in the [agreement]” (internal record citations
omitted)). Moreover, as iStar points out, the June 26, 2017 Complaint “references
the Agreement by name forty-seven times; and each claim is expressly dependent
upon it and incorporates it by reference.” Mot. to Stay at 14. As such, it cannot be
said that “the claim(s) against the nonsignatory [(iStar)] are independent of the
agreement in which the arbitration clause appears.” Luke, 96 P.3d at 268 (footnote
omitted) (citing Westmoreland, 299 F.3d at 467; Britton v. Co-op Banking Grp., 4
F.3d 742, 747–78 (9th Cir. 1993)).
The Court holds that a valid written agreement exists that unambiguously
evinces an intent to arbitrate disputes founded on the Agreement. The Court
further holds that non-signatory iStar has standing to enforce the Agreement and
invoke the arbitration clause against signatory WDCD under Hawaii law. See
Luke, 96 P.3d at 268.
II.

The Agreement Encompasses the Claims at Issue.
In construing the terms of an arbitration provision, courts “appl[y] 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
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arbitration in favor of arbitration.” Lexington Ins. Co. v. Centex Homes, 795 F.
Supp. 2d 1084, 1089 (D. Haw. 2011) (citing Mastrobuono, 514 U.S. at 62; United
Steelworkers of Am., 363 U.S. at 584–85). This standard requires courts to compel
arbitration “‘unless it can be said with positive assurance that the arbitration clause
is not susceptible of an interpretation that covers the asserted dispute.” Id. (quoting
United Steelworkers of Am., 363 U.S. at 582–83); Leyva v. Certified Grocers of
Cal., Ltd., 593 F.2d 857, 860 (9th Cir. 1979).
Here, Section 7.14.1 of the Agreement states that “any claim arising out of
or relating to this Agreement or its breach, shall be submitted to arbitration to be
held in Honolulu, Hawaii upon the written request of one party after the service of
that request on the other party.” Dookchitra Decl., Ex. A [Agreement], ECF No.
13-1 at 20. In this Circuit, where “arising out of or relating to” language is
present in an arbitration provision, a claim “need only touch matters covered by the
contract, in order for the court to resolve all doubts in favor of arbitration.”
Simula, 175 F.3d at 721 (citing Mitsubishi, 473 U.S. at 624 n.13); Genesco, 815
F.2d at 846; J.J. Ryan & Sons v. Phone Poulenc Textile, S.A., 863 F.2d 315, 319
(4th Cir. 1988)). As discussed above, WDCD’s claims against iStar not only
“touch” but rely on the Agreement as the foundation for WDCD’s asserted
entitlement to additional compensation. No party, including WDCD, suggests

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otherwise. Thus, WDCD’s claims fall within the scope of the Agreement’s
arbitration provision. See Brown, 430 F.3d at 1010.
III.

WDCD Presents No Meritorious Contract Defenses
The gravamen of WDCD’s opposition to iStar’s Motion to Stay is that iStar

has refused to arbitrate, and that as a non-signatory to the Agreement, iStar may
not invoke FAA § 3 to stay the case. The former contention is moot, 3 and the latter
fails under the rule set forth in Luke, 96 P.3d at 268, as discussed above.4
WDCD’s remaining “unfairness” defense is equally unavailing.
WDCD asserts two principal forms of perceived “unfairness.” First, it
characterizes itself as a “small, privately held local company” being forced “to
conduct multiple, expensive and time-consuming proceedings in multiple forums
with multiple parties with the endgame that WDCD will never survive” to see its
claims adjudicated on the merits. Mem. in Opp’n at 21–22, ECF No. 22. Second,
WDCD suggests that, if compelled to arbitrate, the DPR discovery rules applicable
to arbitration somehow place WDCD at a disadvantage. See e.g., Mem. in Opp’n
at 3 (“If a Stay is granted, Plaintiff submits that this Court must order arbitration of

3

iStar’s September 19, 2017 Arbitration Demand belies any notion that iStar has denied its
obligation or willingness to arbitrate WDCD’s claims against it.
4
A “litigant who was not a party to the relevant arbitration agreement may invoke [FAA] § 3 if
the relevant state contract law allows him to enforce the agreement.” Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 632 (2009). Here, the Hawaii Supreme Court’s decision in Luke, 96 P.3d
at 268, is “the relevant state contract law” that establishes when non-signatories may enforce an
arbitration agreement. To the extent either party contends otherwise (see e.g. Mem. in Opp’n at
17–20), that contention is misplaced.

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its claims against iStar . . . without limitation on metadata discovery” (citations
omitted).
Without more, “unfairness” is no reason to abrogate an otherwise valid
contract. See, e.g., Chloe Z Fishing Co., 109 F. Supp. 2d at1258 (stating that
potential unfairness of the arbitration proceeding is irrelevant to determining the
arbitrability of the dispute and only comes into play, if at all, upon enforcement)
(citing AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648
(1986)). Moreover, the unfairness described by WDCD is not apparent. No one is
forcing WDCD to simultaneously litigate on multiple fronts in an effort to exhaust
its limited resources. In fact, arbitration is generally sought as an expeditious way
of reaching the merits of a dispute without the expenditure of significant litigation
costs common to federal court. The Court sees no reason why that would not be
the case here. And the Court’s order herein staying the instant action is designed,
in part, to avoid the parable of horrors—in the form of multiple litigation fronts—
hypothesized by WDCD. Similarly, there is nothing inherently unfair about the
DPR discovery rules applicable to arbitration. Rules 19 and 20, for instance,
afford the arbitrator great latitude in fashioning a discovery plan that could very
well be far less costly than the minimum discovery “guarantees” afforded by
Fed.R.Civ.P. 30(a) and 33(a). Nor is it evident why the specific discovery
provisions in the Agreement are any more onerous on WDCD than they would be
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on iStar, given the reciprocal nature of the provisions. See Dookchitra Decl., Ex. A
§§ 7.14.2 and 7.14.3.
In sum, WDCD has not raised any meritorious defenses or arguments that
would provide a basis for this Court to conclude that the Agreement is
unenforceable.
IV.

The Case is Stayed Pending Arbitration
The Court now must decide whether to stay the balance of the proceedings

pending arbitration. Such a decision is “a matter largely within the district court's
discretion to control its docket.” Genesco, 815 F.2d at 856 (citing Moses H. Cone,
460 U.S. at 20 n. 23). The Court, in its discretion, determines that in light of the
pending arbitration, the benefits of staying the instant case—primarily avoiding the
potential for inconsistent rulings, promoting judicial economy, and conserving the
parties’ resources—outweigh any potential prejudice caused by a delay. See
generally Landis v. N. Am. Co., 299 U.S. 248, 254 (1936); see, e.g., Chloe Z
Fishing Co., 109 F. Supp. 2d at 1261 (staying case pending arbitration under the
FAA (citations omitted)). In light of the propriety and anticipated duration of a
stay, the Court further orders that the case be administratively closed.
CONCLUSION
For the foregoing reasons, the Court hereby GRANTS iStar’s Motion to Stay
this case, and directs the Clerk of Court to administratively close it. The
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administrative closing of this case is solely an administrative matter and does not
impact, in any manner, any party’s rights or obligations, has no impact on any
limitation period applicable to this case, does not alter in any manner any previous
rulings by the court, and does not require a filing fee to reopen the case.
In addition, the parties are directed to notify the Court within 30 days after
final resolution of the arbitration, with joint recommendations, if possible,
regarding any further proceedings that may be necessary in this Court.
IT IS SO ORDERED.
DATED: November 16, 2017 at Honolulu, Hawai‘i.

WDCD, LLC, v. iStar, Inc., CIV. NO. 17-00301 DKW-RLP; ORDER
GRANTING iSTAR INC.’S MOTION TO STAY LITIGATION UNDER 9
U.S.C. § 3 OR, IN THE ALTERNATIVE, TO DISMISS UNDER RULES 8,
12(b)(6), AND 12(b)(7)
14