Avondale Brothers No. 128 LLC v. SEI Fuel Services, Inc

Filing 6

ORDER AND REASONS that third-party defendants' motion 85 to stay the entire proceeding pending arbitration is GRANTED and third-party plaintiff's motion 93 to stay the parties from proceeding in arbitration is DENIED.. Signed by Judge Sarah S. Vance on 1/24/17.(Reference: ALL CASES)(jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CIVIL ACTION

VETERANS BROTHERS NO. 126,
L.L.C., ET AL.
VERSUS

NO. 16-272

7-ELEVEN, INC., ET AL.

SECTION “R” (2)
APPLIES TO: NO. 16-434
NO. 16-2034

ORDER AND REASONS
Before the Court is Third-Party Defendants Imad Hamdan, Brothers
Veterans, LLC, Brothers Avondale, LLC, and Brothers Lapalco, LLC’s (ThirdParty Defendants) motion to stay this case pending arbitration.1 Also before
the Court is Third-Party Plaintiff SEI Fuel Services, Inc.’s motion to
temporarily stay the parties from proceeding in arbitration.2

For the

following reasons, the Court grants third-party defendants’ motion. For the
same reasons, the Court denies third-party plaintiff’s motion.

R. Doc. 85. All docket entries refer to case 2:16-cv-00272 unless
otherwise specified.
2
R. Doc. 93.
1

I.

BACKGROUND
This case is a consolidation of three lawsuits, and the procedural

history of the cases can be hard to follow due to the names and corporate
identities of all of the players. On December 7, 2015, Veterans Brothers No.
126, LLC filed suit against 7-Eleven, Inc., in the 24th Judicial District Court
for the Parish of Jefferson, Louisiana.3 The suit alleges that despite 7Eleven’s claims that it has the exclusive contractual right to sell and
distribute motor fuel to Veterans Brothers, Veterans Brothers is not, and has
never been, a party to the alleged contract.4 In the same court on the same
day, Lapalco Brothers No. 125, LLC filed an identical suit against 7-Eleven,
making the same allegations as the Veterans Brothers suit.5 7-Eleven
removed both suits to this Court on January 11, 2016.6
On January 26, 2016, Avondale Brothers No. 128, LLC filed a lawsuit
in state court identical to those filed by Veterans Brothers and Lapalco
Brothers, except this suit was against SEI Fuel rather than 7-Eleven.7 On
February 2, 2016, Veterans Brothers and Lapalco Brothers substituted SEI

R. Doc. 1. Veterans Brothers No. 126, Lapalco Brothers No. 125,
and Avondale Brothers No. 128 are referred to as “Plaintiffs.”
4
R. Doc. 1-1 at 1.
5
R. Doc. 1-1 at 1 in 2:16-cv-00454.
6
R. Doc. 1; R. Doc. 1 in 2:16-cv-00454.
7
R. Doc. 1-1 at 1 in 2:16-cv-02034.
2
3

Fuel for 7-Eleven,8 and on March 10, 2016, SEI Fuel removed the Avondale
Brothers suit to this Court.9 Avondale Brothers, Veterans brothers, and
Lapalco Brothers all sought a declaratory judgment declaring that they are
not parties to any contract with SEI Fuel regarding the sale and distribution
of gasoline. On March 15, the Court consolidated the three cases.10
On March 11, 2016, SEI Fuel filed its answer to the Veteran Brothers
lawsuit, and filed counterclaims against Veteran Brothers, but also named
Brothers Veterans, LLC, and Imad Hamdan, as third-party defendants.11 On
the same day, it answered the Lapalco Brothers suit, and filed counterclaims
not only against Lapalco Brothers, but also against Brothers Lapalco, LLC,
and Hamdan.12 On March 28, 2016, SEI Fuel filed its answer to the Avondale
Brothers suit and filed counterclaims against Avondale Brothers, Brothers
Avondale, LLC, and Hamdan.13
SEI Fuel’s counterclaims alleged that despite the difference in names
of the corporate entities (e.g., Avondale Brothers vs. Brothers Avondale), the
entities operated as a single business enterprise.

8
9
10
11
12
13

R. Doc. 13.
R. Doc. 1 in 2:16-cv-02034.
R. Doc. 21.
R. Doc. 18.
R. Doc. 19.
R. Doc. 23.
3

SEI Fuel sought a

declaratory judgment that the corporate entities (no matter how they are
named) are obligated to comply with the alleged fuel contracts. SEI Fuel also
brought claims for anticipatory breach of contract and for unfair trade
practices under the Louisiana Unfair Practices and Consumer Protection
Law.
Initially, neither Brothers Lapalco, Brothers Veterans, Brothers
Avondale, nor Hamdan answered the counterclaims in a timely manner. On
September 9, 2016, SEI Fuel sought an entry of default as to those third-party
defendants,14 and the Clerk of Court issued an Entry of Default against those
third-party defendants that same day.15 On October 12, 2016, SEI Fuel
moved the Court to enter a default judgment against those third-party
defendants.16

Two days later, Brothers Veterans, Brothers Avondale,

Brothers Lapalco and Hamdan filed a motion to set aside the entry of
default,17 and filed their answers to SEI Fuel’s counterclaims on November
30, 2016.18

R. Doc. 48 (Veterans); R. Doc. 52 (Avondale); R. Doc. 55
(Lapalco); R. Doc. 49, 51, and 53 (Hamdan). Veterans Brothers, Lapalco
Brothers, and Avondale Brothers answered SEI Fuel's counterclaims.
15
R. Doc. 57 (Veterans); R. Doc. 60 (Avondale); R. Doc. 62
(Lapalco); R. Doc. 58, 59, and 61 (Hamdan).
16
R. Doc. 69.
17
R. Doc. 73.
18
R. Doc. 103; R. Doc. 104; R. Doc. 105.
4
14

While the motions for default judgment and to set aside the entries of
default were pending, on November 7, 2016, Brothers Veterans, Brothers
Avondale, Brothers Lapalco and Hamdan filed a motion to stay the
consolidated case pending the resolution of arbitration proceedings between
the parties.19 They also attached an arbitration demand, dated November 1,
2016, that they sent to SEI Fuel via overnight mail.20 On November 11, 2016,
SEI Fuel filed its opposition to third-party defendants’ motion,21 and
simultaneously filed a motion to temporarily stay the parties from
proceeding in arbitration.22 Third-party defendants opposed SEI Fuel’s
motion,23 and both parties filed replies.24
On December 27, 2016, the Court found that third-party defendants
had shown good cause and granted their motion to set aside the entries of
default.25 The Court now addresses the remaining motions.

19
20
21
22
23
24
25

R. Doc. 85.
R. Doc. 85-2.
R. Doc. 92.
R. Doc. 93.
R. Doc. 100.
R. Doc. 99; R. Doc. 108.
R. Doc. 114.
5

II.

LEGAL STANDARD
There is a “strong federal policy in favor of enforcing arbitration

agreements.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985).
The Federal Arbitration Act states that:
If any suit or proceeding be brought in any of the courts of the
United States upon any issue referable to arbitration . . . the court
. . . 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 . . . .
9 U.S.C. § 3.
An application for arbitration by either party under Section 3 “requests
the district court to refrain from further action in a suit pending arbitration,
and requires the court to first determine whether there is a written
agreement to arbitrate between the parties, and then whether any of the
issues raised are within the reach of the agreement.” Texaco Expl. & Prod.
Co. v. AmClyde Engineered Prod. Co., 243 F.3d 906, 909 (5th Cir. 2001)
(citing Midwest Mech. Contractors, Inc. v. Commonwealth Const. Co., 801
F.2d 748, 750 (5th Cir. 1986)). “If the issues in a case are within the reach of
that [arbitration] agreement, the district court has no discretion under
section 3 to deny the stay.” See id. (citation omitted).
Despite the strong federal policy favoring arbitration, the right to
arbitration may be waived. See Frye v. Paine, Webber, Jackson & Curtis,
6

Inc., 877 F.2d 396, 398 (5th Cir. 1989) (citing Price v. Drexel Burnham
Lambert, Inc., 791 F.2d 1156, 1158 (5th Cir. 1986)). The party asserting
waiver has a heavy burden, but “waiver will be found when the party seeking
arbitration substantially invokes the judicial process to the detriment or
prejudice of the other party.” Id. (quoting Miller Brewing Co. v. Fort Worth
Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)).

III. DISCUSSION
Third-party defendants argue that the Court should stay this case
pending resolution of arbitration proceedings between the parties.

In

support, they point to the Branding and Product Purchase Commitment
Agreements between third party defendants and LavigneBaker Petroleum,
LLC (SEI Fuel’s predecessor in interest), which all contain the following
provision:
Dispute Resolution. Except for any matter arising out of Article
6 (Right of First Refusal), for which Seller may pursue any
remedy available at law or in equity, . . . all disputes between
Seller and Buyer arising out of, relating to, or in connection with
this Agreement, including, without limitation, any Claim or
question relating to this Agreement’s negotiation, performance,
non-performance, interpretation or termination or the
relationship between Seller and Buyer contemplated or
established by this Agreement, shall be referred to and finally
resolved pursuant to the dispute resolution provisions of

7

Schedule B of the Purchase Agreement. This section 7.3 shall
survive indefinitely.26
Schedule B contains the following provision:
Agreement to Arbitrate. Except as provided in any Transaction
Document, any dispute between the parties arising out of,
relating to, or in connection with any Transaction Documents to
which this Schedule B relates, including any Claim or question
relating to any Transaction Document’s negotiation,
performance, non-performance, interpretation, termination or
the relationship between the Parties established by any
Transaction Document . . . shall be referred to and finally and
exclusively resolved by arbitration in accordance with the CPR
Rules for Non-Administered Arbitration, as such rules may be in
effect on the date of such Transaction Document . . . .27
“Transaction Documents” are defined in the agreement as “the Purchase
Agreement, the Limited Warranty Deeds, the Assignments of Lease, the
Sublease, Bill of Sale, the Assignment of Contracts, the Assignment of Dealer
Instruments, the WMA, the Branding Agreement, the Access Agreement and
the Guarantee.”28

The “Guarantee” referred to in the definition of

“Transaction Documents” is a Guarantee signed by Hamdan whereby
Hamdan irrevocably and unconditionally guarantees the full and prompt

Exhibit B, R. Doc. 85-3 at 14 (Veterans); Id. at 60 (Lapalco); Id.
at 131 (Avondale).
27
Exhibit C, R. Doc. 85-4 at 59.
28
Id. at 57.
8
26

payment and performance of the obligations in the Purchase and Branding
Agreements.29
Therefore, according to third-party defendants, there exists a written
agreement to arbitrate between third-party defendants and SEI Fuel.
Further, third-party defendants argue that SEI Fuel’s claims against thirdparty defendants are within the reach of the arbitration agreement.30 Thus,
in accordance with the strong policy in favor of arbitration and the
agreements at issue, third-party defendants argue that the Court should stay
this case pending resolution of the claims through arbitration.
SEI Fuel does not dispute that the contracts in question contain an
agreement to arbitrate, nor does not it contest that the claims asserted by SEI
Fuel against third-party defendants fall within the coverage of the arbitration
provisions.

Instead, SEI Fuel argues that third-party defendants have

waived their right to arbitrate by substantially invoking the judicial process
to the prejudice of SEI Fuel.31 Waiver of the right to arbitrate is an issue for
the Court to decide. See, e.g., Tristar Fin. Ins. Agency, Inc. v. Equicredit

R. Doc. 85-3 at 137.
R. Doc. 85-1 at 4.
31
R. Doc. 92 at 6-14. SEI Fuel also argued in its motion that thirdparty defendants’ motion to stay should be denied because it was an attempt
to “circumvent the judicial consequences of their defaults.” Id. at 5. The
Court has since set aside third-party defendants’ entries of default, R. Doc.
114, and therefore this argument is now moot.
9
29

30

Corp. of Am., 97 F. App’x 462, 464 (5th Cir. 2004) (per curiam) (citing
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)). SEI Fuel’s
waiver argument relies on imputing the actions of the plaintiffs in this case
to third-party defendants, either as alter-egos, or by treating plaintiffs and
third-party defendants as a single business enterprise.

The Court will

address the waiver argument first.
As mentioned above, the right to arbitrate is not absolute, and it can be
waived. See Frye, 877 F.2d at 398 (5th Cir. 1989). SEI Fuel, as the party
asserting waiver, must overcome a heavy burden. Id. To show that thirdparty defendants have waived their right to arbitrate, SEI Fuel must show
that third-party defendants have “substantially invoke[d] the judicial process
to the detriment or prejudice of the other party.” Id. (quoting Miller Brewing
Co., 781 F.2d at 497 (5th Cir. 1986)). Echoing the strong policy in favor of
arbitration, the Supreme Court has instructed that any doubts “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). Further, the Fifth Circuit has made
clear that there is a “strong presumption against finding a waiver of
arbitration.” Al Rushaid v. Nat. Oilwell Varco, Inc., 757 F.3d 416, 421-22
10

(5th Cir. 2014) (quoting Republic Ins. Co. v. PAICO Receivables, LLC, 383
F.3d 341, 344 (5th Cir. 2004).
A.

Substantial Invocation of Judicial Process

In order to “invoke the judicial process, a party must have litigated the
claim that the party proposes to arbitrate.” Subway Equip. Leasing Corp. v.
Forte, 169 F.3d 324, 328-29 (5th Cir. 1999); see also Nicholas v. KBR, Inc.,
565 F.3d 904, 908 (5th Cir. 2009) (“We conclude that the act of a plaintiff
filing suit without asserting an arbitration clause constitutes substantial
invocation of the judicial process.”). Because it was plaintiffs, and not thirdparty defendants, who initiated this matter by filing suit, SEI Fuel cannot
show that third-party defendants substantially invoked the judicial process
unless it can impute plaintiffs’ actions to third-party defendants.
SEI Fuel cites the case Al Rushaid v. National Oilwell Varco, Inc., 757
F.3d at 422, to argue that when determining waiver, the Court may impute
the actions of an arbitration proponent’s affiliate to the proponent “when
principles of agency or corporate law, such as the alter ego doctrine, would
counsel such imputation.” But the quotation relied on by SEI Fuel from Al
Rushaid is clearly referring to two non-Fifth Circuit cases. Id. n.19 (citing
Doctor’s Assocs., Inc. v. Distajo, 66 F.3d 438, 456-57 (2d Cir. 1995); Yates v.

11

Doctor’s Assocs., Inc., 549 N.E.2d 1010, 1017 (Ill. App. Ct. 1990)).32 Al
Rushaid made clear that the Fifth Circuit had yet to address “when, if ever,
the actions of an arbitration proponent’s codefendants may be imputed to
that proponent for the purposes of determining waiver.” Id. Additionally, Al
Rushaid overturned the district court’s imputation of the proponent’s
codefendants’ actions to the proponent and made clear that shared
ownership between the codefendants, identical legal counsel, benefitting
from the codefendants’ discovery in the lawsuit, and facilitation of a lengthy
discovery process by refusing service, were all insufficient, either in isolation
or in combination, to warrant imputation. 757 F.3d at 423. Therefore, the
Fifth Circuit has not yet instructed on what conditions are sufficient to
impute an arbitration proponent’s affiliated codefendants’ actions to the
proponent.
Al Rushaid did suggest, without deciding, that if the proponent was the
alter ego of the affiliated codefendants, or if there were grounds to pierce the
defendants’ corporate veils, “it [would] be appropriate to hold [the

Both Distajo and Yates are non-precedential, but Yates is of even
less value to the Court because Yates held that the Federal Arbitration Act
(and therefore the strong policy in favor of arbitration) did not apply. 549
N.E.2d at 1015.
12
32

proponent] responsible for its codefendants’ actions.”33 Id. at 724. This
suggests that SEI Fuel would have to establish that there are grounds to
pierce third-party defendants’ corporate veil and disregard their corporate
structure to impute plaintiffs’ actions to third-party defendants.
SEI Fuel argues that there are two bases for piercing the corporate veil:
the alter-ego theory and single-business-enterprise theory. Caselaw suggests
that the factors used in piercing the corporate veil on an alter-ego basis
should guide the single business enterprise determination as well. See
Grayson v. R.B. Ammon & Assocs., Inc., 778 So. 2d 1, 14 (La. App. 1 Cir.
2000); Jackson v. Tanfoglio Giuseppe, S.R.L., 615 F.3d 579, 587 (5th Cir.
2010) (“Under Louisiana law, the factors to be considered to determine
whether one entity is an alter ego of another or whether two entities are a
‘single business enterprise’ are similar.”) (citing Green v. Champion Ins. Co.,
577 So. 2d 249, 257-58 (La. App. 1 Cir. 1991).
The Louisiana Supreme Court has instructed that factors to consider
when determining whether the apply the alter-ego doctrine “include, but are

Thus, Al Rushaid does not establish that agency principles alone
are sufficient to impute the actions of plaintiffs to Hamdan and third-party
defendants. SEI Fuel points only to Al Rushaid to argue that agency
principles are sufficient. Nevertheless, SEI Fuel is incorrect to suggest that
Hamdan and third-party defendants have conceded an agency relationship
with plaintiffs, solely because Hamdan manages each plaintiff. R. Doc. 92 at
6-7.
13
33

not limited to: 1) comingling of corporate and shareholder funds; 2) failure
to follow statutory formalities for incorporating and transacting corporate
affairs; 3) undercapitalization; 4) failure to provide separate bank accounts
and bookkeeping records; and 5) failure to hold regular shareholder and
director meetings.” Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164, 1168
(La. 1991) (citations omitted). Other factors used by other courts include
“common ownership, directors and officers, employees, and offices; unified
control; . . . one corporation paying the salaries, expenses, or losses of
another corporation; and undocumented transfers of funds between
entities.” Jackson, 615 F.3d at 587 (citation omitted). No single factor is
dispositive, id., and courts should consider the totality of the circumstances,
Huard v. Shreveport Pirates, Inc., 147 F.3d 406, 409 (5th Cir. 1998).
These factors, however, must be analyzed keeping in mind that
Louisiana law strongly cautions against piercing the corporate veil and
disregarding the corporate structure. See id. (describing veil piercing as a
“drastic remedy” that should only be used in “exceptional circumstances”);
Riggins, 590 So.2d at 1168; see also Stephen B. Presser, PIERCING

THE

CORPORATE VEIL § 2:19 (2016) (“Piercing the veil is regarded as an exceptional
remedy in Louisiana.”).

As both Louisiana and federal courts have

recognized, the corporate structure ordinarily should not be disregarded
14

absent some showing of fraud or deceit, or that piercing the veil is necessary
to avoid inequitable results. See Riggins, 590 So.2d at 1168-69; In re ArkLa-Tex Timber Co., Inc., 482 F.3d 319, 335 (5th Cir. 2007) (“Typically, the
veil piercing theory is implemented . . . when a juridical person is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.”)
(quotation omitted); Huard, 147 F.3d at 409 (“The Louisiana courts have
indicated that the corporate veil should be pierced when adherence to the
corporate fiction would clearly result in inequity.”). If fraud is not alleged,
the proponent of piercing the veil bears a heavy burden of proof. Id. at 410.
Further, where, as here, the underlying claim sounds in contract, the factors
are “less likely to tip in favor of disregarding the corporate veil.” Id. at 409.
SEI argues that many of the veil-piercing factors are present in this
case. More specifically, SEI points to: that Hamdan organized each plaintiff
and third-party defendant on the same day; that Hamdan actively manages
each plaintiff and third-party defendant; that Hamdan is a member of each
plaintiff and third-party defendant; that Hamdan signed the latest annual
report for each plaintiff and third-party defendant; that each plaintiff and
third-party defendant have the same registered office address; and that
Hamdan allegedly has referred to plaintiffs and third-party defendants

15

interchangeably.34 Additionally, SEI Fuel contends that documents obtained
in discovery show Hamdan’s inconsistencies and further demonstrate alter
ego status. SEI Fuel contends that these documents show that: though
plaintiffs assert in their lawsuits that they own the convenience stores at
issue in this case, unrecorded leases establish that third-party defendants
own the stores and have leased them to plaintiffs; that Hamdan claims to
have transferred 100 percent of his membership interest in each plaintiff to
Brothers Petroleum, LLC, but he continues to sign annual filings with the
Louisiana Secretary of State as a “member” of each plaintiff; and that
Hamdan breached the contracts in question by transferring the ownership
and possession of the stores from third-party defendants to plaintiffs.35
The Court finds that this evidence is insufficient to warrant piercing
the corporate veil, either on the alter-ego or single business enterprise basis.
Much of the evidence pointed to by SEI Fuel, including that Hamdan is a
member of and actively manages each plaintiff and third-party defendant
and that the plaintiffs and third-party defendants have the same address is
often present in corporate situations and to pierce the corporate veil solely
because of shared ownership or participation would defeat the purpose of

34
35

R. Doc. 92 at 8-9.
Id. at 9-10.
16

corporate separateness. The Fifth Circuit has already established that joint
ownership or shared membership is insufficient to impute the actions of
codefendant corporate affiliates to another codefendant seeking arbitration.
Al Rushaid, 757 F.3d at 423-24.

Further, there is no evidence of

commingling of funds, abuse of Louisiana corporate formalities,
undercapitalization, failure to provide separate bank accounts or
bookkeeping records, or undocumented transfer of funds. Even if there was
some evidence that Hamdan, plaintiffs, and third-party defendants were
alter egos, the absence of the other factors and lack of evidence indicating
that corporate formalities were ignored weighs against finding that the
entities are alter egos. See Jackson, 615 F.3d at 588 (declining to find alter
ego despite “some factors in favor . . . and some factors against”); see also
Dalton v. R & W Marine, Inc., 897 F.2d 1359, 1363 (5th Cir. 1990) (declining
to find alter ego even though one entity owned 100 percent of subsidiary, was
responsible for corporate policy, and filed consolidated tax returns because
those factors were outweighed by observation of corporate formalities).
Additionally, SEI Fuel has not alleged fraud, and does not explain how
piercing the corporate veil will prevent inequity. Aside from conclusorily
alleging that Hamdan’s actions are “designed to mislead his contractual

17

partners and the public at large,”36 SEI Fuel does not identify the inequity
that will result if the corporate veil is not pierced. The prejudice that SEI
Fuel has allegedly suffered because of the delay in invoking arbitration,
mainly that SEI Fuel has spent legal fees and wasted time, does not rise to
the level of inequity necessary to warrant the extraordinary action of piercing
the corporate veil, see Al Rushaid, 757 F.3d at 424,37 especially considering
the underlying claims here are based on contract, see Huard, 147 F.3d at 409.
Therefore, SEI Fuel has not shown that piercing the corporate veil is
warranted, and the actions of plaintiffs in filing these cases will not be
imputed to Hamdan and third-party defendants.
As established above, SEI Fuel has a heavy burden in establishing that
third-party defendants and Hamdan have waived the right to arbitration,
and there is a “strong presumption against finding a waiver of arbitration.”
Al Rushaid, 757 F.2d at 422 (citation omitted). But SEI Fuel’s argument for
waiver must also overcome the strong presumption in Louisiana law against

Id. at 10.
Al Rushaid rejected plaintiffs’ argument that delay and expense
were the type of “unjust” or “inequitable” results that would warrant piercing
the corporate veil. 757 F.2d at 424. Though Al Rushaid was applying Texas
law, Texas courts, like Louisiana courts, have established that piercing the
veil is an extraordinary remedy only to be used when necessary to avoid fraud
or an inequitable result. Id. (citing SSP Partners v. Gladstrong Invs. (USA)
Corp., 275 S.W.3d 444, 451 (Tex. 2009).
18
36
37

piercing the corporate veil. SEI Fuel has not met its burden in establishing
that piercing the corporate veil is warranted, and therefore cannot show that
third-party defendants and Hamdan have substantially invoked the judicial
process. Thus, SEI Fuel cannot meet its burden in establishing that Hamdan
and third-party defendants have waived the right to arbitration.38
B.

Additional Discovery

In the alternative, SEI Fuel asks the Court to allow for additional
discovery so that SEI Fuel may obtain more information to establish its alterego or single business enterprise theories.39 While courts have allowed prearbitration discovery, see e.g., Guidotti v. Legal Helpers Debt Resolution,
L.L.C., 716 F.3d 764 (3d Cir. 2013), the two cases cited by SEI Fuel are cases
in which no discovery had taken place before arbitration was ordered. See
id. at 780 (“[G]iven that no discovery has taken place, any summary
conclusion is unwarranted.”); THI of New Mexico at Hobbs Ctr., LLC v.
Spradlin, 532 F. App’x 813, 819 (1oth Cir. 2013) (noting that district court
decided case without providing opportunity for discovery). Here, SEI Fuel
has engaged in discovery with plaintiffs for some time, and indeed relies on

Because SEI Fuel has not established that Hamdan and thirdparty defendants have substantially invoked the judicial process, the Court
need not opine on whether SEI Fuel has suffered prejudice.
39
R. Doc. 92 at 14-15.
19
38

materials obtained through discovery in arguing for piercing the corporate
veil.40 Therefore, this is not a situation in which Hamdan and third-party
defendants are the only parties with access to the information needed by SEI
Fuel to make their argument. Cf. Diamond Servs. Corp. v. Oceanografia,
S.A. De C.V., No. 10-177, 2011 WL 938785, at *8 (W.D. La. Feb. 9, 2011).
Further, SEI Fuel’s argument that Hamdan has evaded the ongoing discovery
through a pattern of delay is unavailing, given SEI Fuel did not oppose three
extensions of time granted to plaintiffs to respond to discovery requests in
this case.41
Additionally, unlike in Smoothline Ltd. v. N. Am. Foreign Trading
Corp., No. 00-2798, 2002 WL 273301, at *5-6 (S.D.N.Y. Feb. 27, 2002), SEI
Fuel has not alleged fraud or shown that piercing the corporate veil is
warranted, and therefore further discovery on the matter is not warranted
either. Cf. id. at 6 (ordering discovery on alter-ego theory because defendant
alleged conduct that was “sufficient to constitute fraud or wrong for purposes
of veil-piercing”). As described above, SEI Fuel did not allege fraud, nor did
it adequately explain why piercing the veil was necessary to prevent inequity,

R. Doc. 92 at 8 (“Documents obtained in discovery further
demonstrate the alter ego corporate shell game that Hamdan is playing.”).
41
R. Doc. 46 at 2; R. Doc. 101 at 2; R. Doc. 115 at 2.
20
40

despite already engaging in discovery, and therefore additional discovery is
not warranted.
Finally, the additional discovery requested by SEI Fuel would, at best,
help SEI Fuel establish that piercing the corporate veil would be warranted.
While this may result in the imputation of plaintiffs’ litigation actions to
third-party defendants, SEI Fuel would still have to show it has suffered
prejudice in order for the Court to find that third-party defendants waived
their right to arbitrate. But the prejudice complained of here, mainly delay
and legal fees,42 will only increase if the Court allows additional discovery.
The Court will not let SEI Fuel delay arbitration proceedings to attempt to
pierce the corporate veil and then use the delay and associated legal expenses
to argue that it has been prejudiced.
Because Hamdan and third-party defendants have shown that there is
an agreement to arbitrate that covers the present dispute, their motion to
stay this case pending resolution through arbitration is granted. Because the
Court finds that Hamdan and third-party defendants have not waived the
right to seek arbitration, SEI Fuel’s motion to stay the parties from
proceeding in arbitration is denied.

42

R. Doc. 92 at 12-13.
21

IV.

CONCLUSION
For the foregoing reasons, third-party defendants’ motion to stay the

entire proceeding pending arbitration is GRANTED. For the same reasons,
third-party plaintiff’s motion to stay the parties from proceeding in
arbitration is DENIED.

24th
New Orleans, Louisiana, this _____ day of January, 2017.
_____________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

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