New Orleans Gas & Electric Lights, Inc. et al v. Me'Lange Joli, Inc.

Filing 11

RULING denying 7 Motion to Stay or Alternatively, to Compel Arbitration. Signed by Judge James J. Brady on 7/7/2011. (CMM)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
NEW ORLEANS GAS & ELECTRIC
LIGHTS, INC., ET AL
CIVIL ACTION
VERSUS
NO. 11-194-JJB-CN
ME’LANGE JOLI, INC. d/b/a
THE COPPERSMITH

RULING ON DEFENDANT’S MOTION TO STAY OR, ALTERNATIVELY, TO
COMPEL ARBITRATION
This matter is before the Court on Defendant’s Motion (doc. 7) to Stay or,
Alternatively, to Compel Arbitration. Plaintiffs have filed an opposition (doc. 9).
There is no need for oral argument. This Court’s jurisdiction exists pursuant to
28 U.S.C. § 1332. For the reasons stated herein, the Court DENIES Defendant’s
motion.
Background
I. Facts
This suit arises out of the merger and subsequent fall-out of two gas and
light fixture companies, one of which is owned by an individual who is now
subject to bankruptcy proceedings.
On March 30, 2010, Defendant Me’lange Joli, Inc. (“Coppersmith”)—a
company solely owned by William P. Green (“Green”)—and Plaintiff New Orleans
Gas and Electric Lights, Inc. (“NOGEL”)—a company solely owned by Plaintiff
Paul Roussel (“Roussel”)—entered into a “Confidentiality, Nondisclosure and
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Assignment Agreement” (“CNAA”). Under the CNAA, NOGEL was to provide
Coppersmith with proprietary technological information, and in exchange,
Coppersmith was to provide goods and services to NOGEL. The CNAA also
provides that any dispute which the parties are unable to resolve in good faith
must be resolved in binding arbitration. 1 However, the CNAA also provides that,
at any time, either party may seek equitable or injunctive relief in either state or
Federal court to protect its intellectual property rights. 2
On September 8, 2010, the two companies agreed to consolidate and
entered into a merger agreement. Under the merger agreement, Green was to
transfer fifty percent of his Coppersmith stock to Roussel and Roussel was to
transfer fifty percent of his NOGEL stock to Green. Soon thereafter, the parties’
relationship went south.
II. Procedural History

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The CNAA defines a “dispute” as “any claim, demand, contest, dispute or controversy arising out of,
related to or in connection with, directly or indirectly, this Agreement” and “regardless of whether the
claim, demand, contest, dispute or controversy involves or sounds in contract, tort, quasi-contract, strict
liability, statutory claim or other cause of action” (doc. 3, ex. A, § 11). The CNAA also states that any
dispute, should the parties fail to resolve it within twenty days after it has been brought to their mutual
attention, “shall be resolved and settled by final, nonappealable and binding arbitration” (Id.).
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The CNNA states:
Notwithstanding any term or provision of these dispute resolution
provisions, either party shall have the right at any time, whether prior to
or during the pendency of the arbitration, to seek any injunctive or other
equitable relief in either a state or federal court in the district in which
Discloser is domiciled to maintain the status quo or grant such other
appropriate interim, preliminary or temporary relief pending, and during
the pendency of, the arbitration or to protect the Intellectual Property
Rights of either party pending, or during the pendency of, the arbitration.
(doc. 3, ex. A, § 11).

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On January 6, 2011, Green filed for Chapter 11 bankruptcy in the United
States District Court for the Southern District of Alabama, which entered an
automatic stay in accordance with the United States Bankruptcy Code. 3 During
the proceedings, Green claimed to be the sole owner of Coppersmith stock.
On March 25, 2011, Plaintiffs filed suit against Defendant (doc. 1).
Plaintiffs allege that Defendant breached the merger agreement by failing to
render minimum monthly payments and failing to timely fill customers’ orders,
and engaged in unfair trade practices and defamed Plaintiffs by contacting the
companies’ customers and blaming Plaintiffs for the delay. Plaintiffs also assert
Defendant is acting or may act acted improperly with regards to Plaintiffs’
proprietary information.
On June 13, 2011, Defendant filed its Motion (doc. 7) to Stay or,
Alternatively, to Compel Arbitration. Defendant asserts that (1) the automatic
stay issued in the bankruptcy proceedings should be extended to the
Coppersmith stock in the present proceedings; and (2) if this Court denies a stay,
that it should compel arbitration.
On June 27, 2011, Plaintiffs filed their opposition (doc. 9). Plaintiffs assert
that (1) the automatic stay should not be extended to this suit because this Court
is without authority to do so and because the automatic stay does not extend to

3

The bankruptcy proceedings are pending under case number 11-00051-MAM-11 before the Honorable
Margaret A. Mahoney.

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corporations wholly owned by a debtor; and (2) the suit is not subject to
arbitration.
Discussion
I. Stay
Defendant asserts that this Court should extend the automatic stay to any
action in this Court regarding the Coppersmith stock because the stock is part of
Defendant’s Chapter 11 bankruptcy estate. Defendant asserts that any action
relating to the stock in this proceeding could have an adverse impact on the
bankruptcy proceedings and the estate subject to those proceedings—that is, the
Coppersmith stock.
Plaintiffs assert that a motion for an extension of the stay is properly
addressed to the bankruptcy court and not this Court. Plaintiff also asserts that
the automatic stay does not extend to actions against corporations owned by the
debtor.

Finally, Plaintiffs assert that Defendant mischaracterizes the issue

because Plaintiffs have not specifically sought the Coppersmith stock, but
instead simply filed claims against the company.
Under § 362 of the United States Bankruptcy Code (“§ 362”), once an
individual has filed for Chapter 11 bankruptcy, the bankruptcy court enters an
automatic stay. 11 U.S.C. § 362 (2010). The stay purports to maintain the status
quo by preventing the debtor’s creditors from instituting separate actions against
the debtor or the debtor’s property. Id.

However, a corporation which is wholly

owned by a bankruptcy debtor is considered a separate and distinct legal entity,
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and, as such, actions against the corporation are not subject to the stay. Powers
v. Texaco, Inc., 22 F.3d 1094, 1994 WL 199075, *3 (5th Cir. May 11, 1994). In re
San Juan Dupont Plaza Hotel Fire Litig., 994 F.2d 956, 969 (1st Cir. 1993); In re
Winer, 158 B.R. 736, 743 (N.D. Ill. 1993) (stating that the automatic stay “does
not proscribe actions brought against nondebtor entities, even where there is a
close nexus between those nondebtors and their bankrupt affiliates” and that “the
doctrine applies with equal force even where the nondebtor is a corporation
wholly owned by the debtor”).
The Court finds that Defendant’s motion for stay should be denied. In the
bankruptcy proceedings, Green claimed that he owns one-hundred percent of the
Coppersmith stock. However, because the law treats the corporation and its
debtor-owner as separate and distinct legal entities, § 362’s automatic stay
simply does not apply to actions against a corporation that is wholly owned by
the debtor. Powers, 1994 WL 199075.
II. Arbitration
Defendant asserts that this Court should compel arbitration because the
CNAA states that unresolved disputes will be resolved in arbitration. Plaintiffs
assert that (1) their claim for equitable and injunctive relief is not governed by the
arbitration agreement; and (2) their claims for damages do not arise out of the
CNAA, but rather the merger agreement, and therefore, are not subject to the
CNAA’s arbitration provision.

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That parties to a contract may agree, in advance, to settle any and all
disputes through arbitration is clearly established. See Federal Arbitration Act 9
U.S.C. § 2 (2010). Moreover, the United States Congress and federal courts—in
the name of judicial economy, expeditious resolution of claims and enforcement
of agreements between parties—strongly favor the settlement of disputes
through arbitration and liberally construe arbitration agreements. Moses H. Cone
Mem’l Hosp. v Mercury Constr. Corp, 460 US 1, 23 (1983).

However,

“[a]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed to submit.” Moran v. Ceiling
Fans Direct, Inc., 239 Fed. App’x 931, 936 (5th Cir. 2007).
The Court finds that Plaintiffs’ claims are not subject to the CNAA’s
arbitration agreement.

The CNAA provides that any dispute “arising out of,

related to or in connection with, directly or indirectly this Agreement . . . shall be
resolved and settled by final, nonappealable and binding arbitration” (doc. 3, ex.
A, § 11) (emphasis added). However, the CNAA also expressly permits either
party to file for injunctive and equitable relief to protect its intellectual property
rights, regardless of whether arbitration has been or will be sought (Id.).
Plaintiffs have sought equitable and injunctive relief as well as damages
from Defendant’s alleged breach of contract, unfair trade practices and
defamation. Specifically, Plaintiffs requested that Defendant “be preliminarily and
permanently enjoined and restrained from disclosing, revealing, divulging,
copying, reproducing, duplicating, replicating and/or otherwise making use of
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Plaintiffs’ . . . documents or information disclosed by Plaintiffs to Defendant” (doc.
3, ¶ 44). This claim is not subject to the CNAA’s arbitration provision since the
CNAA permits either party to file for equitable and injunctive relief to protect its
intellectual property rights, which this claim plainly does. See Moran, 239 Fed.
App’x at 936.
In addition, Plaintiffs breach of contract and unfair trade practices claims
relate not to the CNAA, but to the merger agreement, which contains no
arbitration clause. Plaintiffs assert that Defendant failed to make the minimum
monthly payments required by the merger agreement and that Defendant
contacted the companies’ customers and blamed Plaintiffs’ for untimely filled
orders.

These claims arise out of the companies’ agreement to merge and

cooperate in order to serve customers. Because the CNAA plainly subjects to
arbitration only disputes “arising out of, related to or in connection with, directly or
indirectly this Agreement”—that is, the CNAA—Plaintiffs need not arbitrate their
claims arising out of the merger agreement. See Moran, 239 Fed. App’x at 936.
Conclusion
Accordingly, the Court hereby DENIES Defendant’s Motion (doc. 7) to Stay
or Alternatively, to Compel Arbitration.
Signed in Baton Rouge, Louisiana this 7th day of July, 2011.

S

JUDGE JAMES J. BRADY
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
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