Global Generation Group, LLC et al v. Mazzola et al

Filing 28

MEMORANDUM OPINION and ORDER Granting Defendants' 14 Motion to Compel Arbitration, Denying Plaintiffs' 26 MOTION for Partial Summary Judgment and Dismissing Plaintiff's 1 Complaint - Signed by District Judge Judith E. Levy. (FMos)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Global Generation Group, LLC;
and Benchmark Capital, LLC,
Case No. 13-cv-14979
Hon. Judith E. Levy
Mag. Judge Michael J. Hluchaniuk

Plaintiffs,
v.
Frank Mazzola; Emilio
DiSanluciano; FB Management
Associates II, LLC; Pipio
Management Associates, LLC;
Felix Venture Partners Qwiki
Management Associates, LLC;
Facie Libre Management
Associates, LLC; FMOF
Management Associates, LLC,
Defendants.
________________________________/

OPINION AND ORDER GRANTING DEFENDANTS’
MOTION TO COMPEL ARBITRATION [14]
This is a case involving several claims arising from a stockpurchasing agreement between plaintiffs and defendants. Pending is
defendants’ motion to compel arbitration or dismiss the complaint. For

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the reasons set forth below, the defendant’s motion to compel
arbitration is granted and the complaint is dismissed.1
I.

Background
Defendants are individuals and corporate entities whose business

involved the solicitation of other parties to invest in what were termed
“Opportunity Funds”: subsidiary companies set up for the sole purpose
of holding highly desirable stock in privately held tech companies.
Defendants offered memberships in the Opportunity Funds to third
parties. Each Opportunity Fund issued various Series; each Series
purported to consist of a certain number of shares of stock in a given
company, with those shares in turn being held by another company.
Purchasing a membership in an Opportunity Fund consisted of
subscribing to some portion of a Series, which made the member the
effective owner of the number of shares correlating to their membership
interest in a Series.

Plaintiffs have also filed a motion for partial summary judgment as to
two counts. (Dkt. 26.) As arbitration is being compelled as to all of
plaintiffs’ claims, the Court denies the motion for partial summary
judgment as moot.
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Membership in each fund, as well as the nature, responsibilities,
and management of each fund are laid out in the fund’s Operating
Agreement.
A. The Felix Multi-Opportunity Fund II, LLC (“FMOF II”)
The relevant fund in this matter is FMOF II, which is governed by
the FMOF II Operating Agreement. The agreement defines the roles
and responsibilities of FMOF II, its members and its managers, among
other things. The FMOF II Operating Agreement contains a broad
arbitration provision requiring that, “[i]n the event of any claim,
dispute or controversy arising under, out of or relating to this
Agreement or any breach or purported breach thereof,” the parties first
attempt to resolve any such dispute during a 90-day settlement period,
and then, should that fail, submit the dispute to binding arbitration
administered by the American Arbitration Association. (Dkt. 14-2, §§
14.1 – 14.3.)
The FMOF II Operating Agreement also incorporates any
subscription agreement and any “Side Letters” between a member and
FMOF II. (Id., § 15.3.) A Side Letter is “any written agreement . . .
entered into by [FMOF II] with one or more Members[.]” (Id., Art. I.) A
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Side Letter “may modify the terms of [the FMOF II Operating
Agreement] with respect to the Members party thereto.” (Id., § 15.3.)
B. The Facebook and Palantir Transactions
In 2011, defendants solicited plaintiffs to purchase a membership
interest in FMOF II. Between August and October 2011, the parties
entered into the following transactions:
1) August 11, 2011: Plaintiff Global Generation Group, LLC
(“Global”) paid $800,000 for a 100% membership interest in
Series F-9.2.11(B) of FMOF II. FMOF II purported to own an
interest in Facie Libre Associates II, LLC (“FLA II”)
representing the equivalent of 22,857 underlying shares of
Class B Common Stock in Facebook, Inc. (“Facebook”). Global
executed a subscription agreement with defendants Mazzola
and DiSanluciano, representing defendant FMOF
Management, commemorating the transaction on or around
October 4, 2011.
2) September 2, 2011: Global paid $1,204,990.88 for a 78.4149%
membership interest in in Series F.9.2.11(A) of FMOF II.
Plaintiff Benchmark Associates, LLC (“Benchmark”) paid
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$331,695.66 for the remaining 21.59% membership interest in
the same Series. FMOF II purported to own an interest in FLA
II representing the equivalent of 48,021 total underlying shares
of Class B Common Stock in Facebook for both transactions.
Plaintiffs and defendants Mazzola and DiSanluciano,
representing defendant FMOF Management, executed
subscription agreements commemorating each transaction on
or around October 4, 2011.
3) October 24, 2011: Global paid $1,218,750.88 for a 100%
membership interest in Series F-10.5 of FMOF II. FMOF II
purported to own an interest in FLA II representing the
equivalent of 37,500 shares of Class B Common Stock in
Facebook. Global executed a subscription agreement with
defendants Mazzola and DiSanluciano, representing defendant
FMOF Management, commemorating the transaction on or
around October 24, 2011.
4) October 6, 24 and 31, 2011: In three transactions, Global paid
a total of $2,800,000 for a 100% membership interest in Series
E-2(B) of FMOF II. FMOF II purported to own 933,333 shares
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of Class A Common Stock in Palantir Technologies, Inc.
(“Palantir”). Global executed a subscription agreement with
defendants Mazzola and DiSanluciano, representing defendant
FMOF Management, commemorating the transaction on or
around December 12, 2011.
Global paid a total of $6,023,741.76 for its shares in Facebook and
Palantir; Benchmark paid a total of $331,695.66 for its shares in
Facebook.
C. The December 7, 2011 Letter and Guarantee
On December 7, 2011, defendants sent plaintiffs’ representative,
John Syron, a letter memorializing certain terms of their transactions
(“the Letter”). The Letter, among other things: 1) modified Section 4.7.1
of the FMOF II Operating Agreement relating to distributions; 2)
granted plaintiffs’ Put Rights in exchange for paying the Manager of the
Fund an additional five percent of the distribution owed the manager
under the revised Section 4.7 of the FMOF II Operating Agreement; and
3) stated that the modification in the Letter “supersedes any actual or
potentially conflicting wording in the FMOF OA[.]” (Dkt. 1-2, at 7.) All
defendants signed the letter, as did Syron, on behalf of plaintiffs.
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Plaintiffs’ Put Rights permitted them, at any time following the
one-year anniversary of their purchase of the membership interest in
any Series, to deliver written notice of intent to demand redemption
from the Manager of the Fund. Redemption was defined as the amount
of money the member initially paid to FMOF II for the security. (Dkt.
1-2, at 5.) The parties would then agree on a redemption date no more
than forty-five days after the notice was given, and the Manager would
pay the member the redemption amount on that date. (Id.)
In order to induce plaintiffs to sign the Letter, defendants also
executed a Guarantee pursuant to the Letter.2 In sum, the Guarantee
promised that the defendants, named as “Affiliates,” would guarantee
payment of any money owed on exercise of the Put Rights. The
Guarantee also stated that, pursuant to the corporate defendants’
respective Operating Agreements (the FMOF II Operating Agreement
among them), each corporate defendant would offer certain Back-End
Fees equal to 150% of the aggregate amount of each the member’s
capital contributions in FMOF II, less amounts funded in escrow, as
collateral for the Put Rights. (Dkt. 1-3, at 5.)

2

The Guarantee terms the Letter a “Side Letter.” (Dkt. 1-3, at 2.)
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The Guarantee states that it, “together with the Side Letter,
constitutes the final and entire agreement with respect to the subject
matter contained herein.” (Id., at 7.) It was executed on December 7,
2011, by all the parties to this suit.
D. The Dispute
Plaintiffs attempted to exercise their Put Rights for the Facebook
shares on August 14, 2012, and submitted written notice demanding
redemption for the entire amount paid to FMOF II for the shares.
Pursuant to the Letter, the Manager of FMOF II was required to pay
the redemption amount within 45 days, or by October 28, 2012.
Plaintiffs allege that defendants instead retained the shares until May
9, 2013, when defendants sold the shares without paying plaintiffs.
Global also attempted to exercise its Put Rights for the Palantir
shares on October 9, 2012. Global alleges that defendants likewise
failed to pay it and instead sold the shares at some later date.
Plaintiffs filed this suit on December 9, 2013, alleging securities
fraud, breach of contract of the Letter and Guarantee, common-law
fraud, and innocent misrepresentation, unjust enrichment, and
unlawful conversion under Michigan law.
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II.

Legal Standard
“A written provision in any . . . contract evidencing a transaction

involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction . . . shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law or in equity for
the revocation of any contract.” Federal Arbitration Act, 9 U.S.C. § 2.
“A party aggrieved by the alleged ... refusal of another to arbitrate
under a written agreement for arbitration may petition ... for an order
directing that such arbitration proceed in the manner provided for in
such agreement.” 9 U.S.C. § 4. “The court shall hear the parties, and
upon being satisfied that the making of the agreement for arbitration or
the failure to comply therewith is not in issue, the court shall make an
order directing the parties to proceed to arbitration in accordance with
the terms of the agreement.” Id.
In considering a motion to compel arbitration, the Court must
determine: 1) whether the parties agreed to arbitrate; 2) the scope of the
agreement to arbitrate; 3) if federal statutory claims are asserted,
whether Congress intended the claims to be arbitrable; and 4) if some,
but not all of the claims are subject to arbitration, whether to stay the
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remainder of the proceedings pending arbitration. Fazio v. Lehman
Bros., Inc., 340 F.3d 386, 392 (6th Cir. 2003).
The Court examines “arbitration language in a contract in light of
the strong federal policy in favor of arbitration, resolving any doubts as
to the parties' intentions in favor of arbitration.” Nestle Waters N. Am.,
Inc. v. Bollman, 505 F.3d 498, 503 (6th Cir. 2007).

“[A]s a matter of

federal law, any doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration.” Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).
“[I]n the absence of any express provision excluding a particular
grievance from arbitration . . . only the most forceful evidence of a
purpose to exclude the claim from arbitration can prevail.” AT & T
Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 650 (1986).
“[A]ny doubts are to be resolved in favor of arbitration unless it may be
said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute.”
Nestle, 505 F.3d at 504.

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III. Analysis
Defendants argue that all of plaintiffs’ claims are subject to the
arbitration clause in the FMOF II Operating Agreement, which
deprives the Court of jurisdiction over the dispute. In support of this
argument, defendants provide two documents not included with
plaintiffs’ complaint: the FMOF II Operating Agreement and signature
pages purportedly from the Subscription Agreements signed by
plaintiffs.
Plaintiffs, in turn, argue that they never signed any document
containing any reference to arbitration and that their claims rest only
on the Letter and the Guarantee. Plaintiffs read Letter and Guarantee
as documents that are wholly independent of the FMOF II Operating
Agreement. Because the documents neither refer to nor require
reference to the FMOF II Operating Agreement in order to be enforced,
they argue, the claims cannot and should not be arbitrated.
They further argue that the Agreement is not enforceable against
the defendants who are not signatories to the Operating Agreement
(Mazzola, DiSanluciano, FB Management Associates II, LLC, Pipio

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Management Associates, LLC, and Felix Venture Partners Qwiki
Management Associates, LLC).
A. The Relation of the FMOF II Operating Agreement,
Letter, and Guarantee
The first and most critical part of this inquiry is how, exactly, each
of the relevant documents relate to each other.
The only documents included with plaintiffs’ complaint were the
Letter and Guarantee. Although a court may not normally look at
documents outside the complaint on a motion to dismiss, it may
consider documents either referenced in the plaintiffs’ complaint or
central to a plaintiff's claims in a motion to dismiss. Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); see also
Greenberg v. Life Ins. Co. of Virginia, 177 F.3d 507, 514 (6th Cir. 1999).
The FMOF II Operating Agreement is mentioned throughout the
Letter and Guarantee in plaintiffs’ complaint, and the Court will
consider it. Although the Subscription Agreements provided with
defendants’ response to plaintiffs’ opposition to the instant motion are
referenced repeatedly in plaintiffs’ exhibits, the signature pages
provided by defendants, on their own, are insufficiently trustworthy to
consider at this stage. Each is the ninth page of a document provided
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without the body of the governing document; the Court cannot
determine from the segregated pages the content of each Subscription
Agreement and what, if anything, the parties actually agreed to. As
such, the Court will not consider the Subscription Agreement signature
pages in its determination as to whether these claims are arbitrable.
The odd and labyrinthine relationship between defendants
extends to the agreements memorializing their relationship with their
clients. Different terms are used at different times to refer to the same
operative documents; the Letter containing the Put Rights is signed on
behalf of three LLCs by the same person, while the Guarantee requires
two individuals and five separate LLCs to take effect; and defendants
sell interests in one company’s stock held by a second company that can
only be purchased through a third company.
The simplest starting point is the one generating the substantive
rights plaintiffs wish to enforce: the Letter. The Letter is, by its plain
terms, a modification of the FMOF II Operating Agreement. Paragraph
4 of Section I expressly modifies Section 4.7.1 of the FMOF II Operating
Agreement, and the rest of the letter lays out the rights the Manager
and Purchaser/Member have under the modified Operating Agreement.
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The Letter, furthermore, ends by stating that it supersedes any actual
or potentially conflicting wording in the FMOF II Operating Agreement
by virtue of that modification.
The Guarantee not only bolsters this interpretation; when read in
conjunction with the FMOF II Operating Agreement, it confirms it. It
is undisputed that the Guarantee was issued in conjunction with the
Letter, which it refers to, importantly, as “that certain Side Letter.”
The FMOF II Operating Agreement not only defines what a Side Letter
is, but expressly incorporates any Side Letter into the Agreement in its
Section 15.3. Accordingly, the Letter is a Side Letter modifying the
FMOF II Operating Agreement.
The Guarantee, in turn, provides various assurances related to
the modifications set forth in the Side Letter designed to induce
plaintiffs to purchase memberships in FMOF II.
B. The Arbitration Provision Is Binding on Plaintiffs
The question left for the Court is the effect the FMOF II
Operating Agreement’s arbitration provisions have on plaintiffs’ claims.
Defendants argue that the FMOF II Operating Agreement is an
umbrella agreement, while plaintiffs argue that the Letter and
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Guarantee are entirely separate agreements having nothing to do with
the FMOF II Operating Agreement. Both parties are incorrect.
In Nestle Waters, the Sixth Circuit held that an arbitration clause
in one agreement was enforceable with regard to later agreements
where the first agreement was an “umbrella agreement governing the
parties’ overall relationship[.]” Nestle Waters, 505 F.3d at 506. There, a
Purchase and Sale Agreement for certain property rights on 868 acres
of land contained an arbitration clause. Pursuant to that agreement,
the parties subsequently entered into several other agreements to
ensure the rights were properly transferred to the buyer. None of the
subsequent agreements contained the same arbitration language; many
contained none whatsoever. Id. at 500-01. The subsequent agreements
were entirely separate legal documents, but the sole reason for their
existence was the umbrella agreement, which contained an arbitration
clause governing the other agreements entered into pursuant to its
ultimate goals. Id. at 506.
The Court need not engage in a Nestle Waters analysis here, as
the FMOF II Operating Agreement is not an umbrella agreement. The
two other agreements here are not separate and distinct legal
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agreements designed to further the goals of a governing agreement.
The Letter and the Guarantee are, together, a modification of the
Operating Agreement, having effect only if integrated into the
Operating Agreement.
As set forth above, the Court must resolve all doubts in favor of
arbitration. The Letter expressly modifies the FMOF II Operating
Agreement, which in turn expressly incorporates the Letter into the
overall agreement; the Guarantee provides assurances for the promises
of the Letter incorporated into the Operating Agreement. Whatever
doubts the Court has about the applicability of the arbitration
provision, it must enforce the provision where the agreements
inescapably lead to an agreed-upon and enforceable arbitration clause.3

Plaintiffs also argue that the “Entire Agreement” clause in Paragraph
11 of the Guarantee demonstrates that the Letter and Guarantee are a
separate agreement entirely distinct from the FMOF II Operating
Agreement. The clause states that “[The Guarantee], together with the
Side Letter, constitutes the final and entire agreement with respect to
the subject matter contained herein.” (Dkt. 1-3, at 7.) This language
refers only to the fact that the Letter and Guarantee are the entire
agreement with respect to the modification and consideration for the
modification of the FMOF II Operating Agreement.
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3

Accordingly, Section 14 of the FMOF II Operating Agreement
requiring arbitration is binding as to the plaintiffs and the signatory
defendants, and compels arbitration between them.
C. All of Plaintiffs’ Claims Are Arbitrable
The arbitration clause in the FMOF II Operating Agreement is
broad, covering “any claim, dispute or controversy arising under, out of
or relating to [the] Agreement.” All of plaintiffs’ claims inherently
relate to the modified FMOF II Operating Agreement to which they
were a signatory. Plaintiffs’ attempt to avoid the arbitration clause by
not suing FMOF II directly does not change this analysis.
The federal statutory claim under Section 10(b)(5) of the
Securities Exchange Act is likewise subject to arbitration. See, e.g.,
Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 237-38 (1987)
(holding that 10(b) claims may be arbitrated under the Federal
Arbitration Act).
D. The Nonsignatories to the Operating Agreement Are
Bound to Arbitrate by Equitable Estoppel
Defendants Mazzola, DiSanluciano, FB Management Associates
II, LLC, Pipio Management Associates, LLC, and Felix Venture
Partners Qwiki Management Associates, LLC are all signatories to the
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Guarantee, but not to the Operating Agreement or Letter. All have
stipulated to arbitration in lieu of litigation both in briefing and during
oral argument. In order to avoid any potential dispute should a nonsignatory party determine it no longer wishes to acquiesce to
arbitration, the Court will require arbitration among all parties under a
theory of equitable estoppel. See, e.g., Javitch v. First Union Sec., Inc.,
315 F.3d 619, 629 (6th Cir. 2003) (courts may bind nonsignatories to
arbitration agreements under a theory of equitable estoppel).
Although the above-referenced parties are not signatories to either
the Letter or Operating Agreement, they are signatories to the
Guarantee used to induce plaintiffs to become signatories to both of
those documents. Given the strong federal policy favoring arbitration,
it would be inequitable to let a nonsignatory wash its hands of the
arbitral process it induced another party to sign on to.
The Court accordingly compels all defendants to arbitrate all of
plaintiffs’ claims pursuant to Section 14 of the FMOF II Operating
Agreement.

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IV.

Conclusion

For the reasons set forth above, the Court will enforce the
arbitration clause contained in Section 14 of the FMOF II Operating
Agreement as to all claims. Accordingly,
Defendants’ motion to compel arbitration is GRANTED;
Plaintiffs’ motion for partial summary judgment is DENIED AS
MOOT; and
Plaintiffs’ complaint is DISMISSED.
IT IS SO ORDERED.

Dated: June 26, 2014
Ann Arbor, Michigan

s/Judith E. Levy
Hon. JUDITH E. LEVY
United States District Judge

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served
upon counsel of record and any unrepresented parties via the Court=s
ECF System to their respective email or First Class U.S. mail addresses
disclosed on the Notice of Electronic Filing on June 26, 2014.

s/Felicia M. Moses
FELICIA M. MOSES
Case Manager
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