Wolfe Electric Company, Inc. v. Corporate Business Solutions, Inc. et al
ORDER granting in part and denying in part as follows: 1) Defendants" Motion to Compel Arbitration, 11 , is granted and this case will be stayed pending the outcome of arbitration, which shall take place in Nebraska if the Plaintiff so desi res.2) Defendants' motion is denied to the extent they seek dismissal of this case. 3) Defendants' renewed Motion to Compel Arbitration, 33 , is denied as moot.4) Plaintiff's request for limited discovery is denied. 5 ) The clerk of the court is directed to close this case for statistical purposes; and 6) The parties shall each file a status report, not less than once every six months, regarding the progress of their arbitration. Ordered by Magistrate Judge Cheryl R. Zwart. (BHC)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
WOLFE ELECTRIC COMPANY, INC., a
CORPORATE BUSINESS SOLUTIONS,
INC., an Illinois Corporation; GPS, USA,
INC., a Nevada Corporation; and
STRATEGIC TAX ADVISORS, INC., a
MEMORANDUM AND ORDER
This matter is before the court on the Defendants’ Motion to Compel Arbitration
and to Dismiss or, Alternatively, Stay Proceedings, (Filing No. 11). For the reasons set
forth below the motion is granted in part and denied in part.
Wolfe Electric Company, Inc. (“Wolfe Electric”) is a Nebraska corporation with
its principal place of business in Lincoln, Nebraska. Defendants Corporate Business
Solutions, Inc. (“CBS”); GPS, USA, Inc. (“GPS”); and Strategic Tax Advisors, Inc.
(“STA”) provide various business consulting services. CBS is an Illinois corporation
doing business in Nebraska. GPS and STA are Nevada corporations doing business in
Wolfe Electric alleges Defendants contacted its president, Richard Wolfe
(“Wolfe”), regarding the potential of Defendants providing various business consulting
services to Wolfe Electric. (Filing No. 32, ¶5, at CM/ECF p. 2). Specifically, Plaintiff
alleges Wolfe met with a representative of GPS, Kathy Nielson, on March 1, 2011, that
Nielson was meeting with Wolfe on behalf of and with the consent of GPS and CBS, and
that CBS would provide a business analysis service to Wolfe Electric. (Filing No. 32, ¶6,
at CM/ECF p. 2). Plaintiff further alleges Nielson represented “CBS and its related
companies, GPS and STA, would provide specific results to Wolfe Electric” including an
increase in its profit margin sufficient to cover the cost of the proposed consulting
services. (Filing No. 32, ¶¶6-7 at CM/ECF p. 2).1
Wolfe Electric shared its confidential financial information with a Senior Business
Analyst from CBS who, upon review of that information, allegedly represented on March
14, 2011, that Wolfe Electric was “in a critical financial state.” (Filing No. 32, ¶15, at
CM/ECF p. 4).
That same day, a Senior Tax Consultant for STA met with a
representative from Wolfe Electric and “represented that STA would provide tax-related
services to Wolfe Electric in conjunction with the services provided by CBS and GPS.”
(Filing No. 32, ¶18, at CM/ECF p. 4).
The parties apparently agreed upon the provision of consulting services and
memorialized the agreements by entering into a “Consulting Agreement” and a “U.S.
Agreement for Tax Consulting Services” (the “Tax Consulting Agreement”) on March
14, 2011. (Filing No. 12-1).
The Consulting Agreement, (Filing No. 12-1), between Wolfe Electric and CBS
was “for the sole purpose of CBS providing consulting services” to Wolfe Electric. The
Consulting Agreement sets for the terms of engagement including, as indicated on the
second page of the two page agreement, the following paragraph,
This case was originally filed in the District Court of Lancaster County, Nebraska on
January 17, 2013 and was removed to this court on February 25, 2013. (Filing No. 1).
It is expressly agreed that his printed document embodies the entire
agreement of the parties in relation to the subject matter of consulting
services to be rendered by CBS; and that no other understanding or
agreement, verbal or otherwise, exists between the parties, except as herein
expressly set forth. Client and CBS expressly agree all disputes of any
kind between the parties arising out of or in connection with this
Agreement shall be submitted to binding arbitration which would be
administered by the American Arbitration Association. Exclusive
jurisdiction and venue shall vest in Lake County, Illinois, Illinois law
(Filing No. 12-1, at CM/ECF p. 4) (emphasis in original).
Wolfe Electric and STA entered into the Tax Consulting Agreement “for the sole
purpose of [Wolfe Electric] retaining STA to provide consulting services.” (Filing No.
12-1, at CM/ECF p. 5).
The Tax Consulting Agreement further provided that STA
would “evaluate [Wolfe Electric’s] past years tax reporting submissions and develop
future savings and asset protection strategies.” Id. The second page of this two page
agreement contains an arbitration provision, identical to one contained in the above cited
Consulting Agreement, requiring the arbitration of any dispute arising out of the Tax
Consulting Agreement between Wolfe Electric and STA. (Filing No. 12-1, at CM/ECF p.
6). Wolfe signed both the Consulting Agreement and the Tax Consulting Agreement in
his capacity as president of Wolfe Electric on March 11, 2011.2
Plaintiff infers, without expressly stating, that the respective agreements might not be
valid and that it “cannot confirm or deny the authenticity of the document purporting to contain
an arbitration clause between Wolfe Electric and . . . STA.” Filing No. 20, at CM/ECF p. 15.
However, Wolfe Electric also acknowledges the signature of Richard Wolfe appears on the
agreement between STA and Wolfe Electric and states it is “quite possible” Wolfe did sign the
document as represented. Filing No. 20, n. 1, at CM/ECF p. 15. Without some evidence of how
Wolfe’s signature could appear on the document without him actually signing it, the court will
presume Wolfe signed the Tax Consulting Agreement and will not further address Wolfe
Electric’s inferences to the contrary.
Wolfe Electric alleges the defendants made several fraudulent misrepresentations
to Wolfe while attempting to secure contracts for consulting services including,
Wolfe Electric was in a critical financial state,
Defendants would provide specific results to Wolfe Electric,
including a guaranteed 3-5% increase in profit margins plus
increased profits during the first year sufficient to cover the cost of
consulting services provided by Defendants;
Defendants had insurance coverage in force for the protection of
Wolfe Electric in the amount of $2,000,000;
Defendants had experts in Wolfe Electric’s industry who would
provide all consulting services to Wolfe Electric on behalf of
Defendants would provide services and products to Wolfe Electric
that were necessary to fix Wolfe Electric’s financial condition.
(Filing No. 20, at CM/ECF p. 4).
The parties’ relationship deteriorated and Wolfe Electric filed suit alleging
Defendants did not provide the services or results they represented they would.
Defendants now seek to compel arbitration pursuant to the provisions in the Consulting
Agreement and the Tax Consulting Agreement and to have this case dismissed, or in the
alternative, stayed pending the completion of arbitration.
“[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which [it] has not agreed so to submit.” AT & T Technologies v.
Communications Workers of Am., 475 U.S. 643, 648 (1986); see also Churchill
Environmental and Indus. Equity Partners, L.P. v Ernst & Young, L.L.P., 643 N.W.2d
333, 336 (Minn. Ct. App. 2002)(citing AgGrow Oils, L.L.C. v. Nat’l Union Fire Ins. Co.
of Pittsburg, PA, 242 F.3d 780, 782 (8th Cir. 2001)). Unless the parties have agreed to
submit the arbitrability question itself to arbitration, the court must first decide whether a
valid agreement to arbitrate exists. First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 943 (1995). If so, the court must then determine if the parties’ dispute falls within
the scope of the arbitration agreement. AT & T Technologies, 475 U.S. at 649; LiptonU.City, LLC v. Shurgard Storage Centers, Inc., 454 F.3d 934, 937 (8th Cir. 2006);
Teamsters Local Union No. 688 v. Industrial Wire Products, Inc., 186 F.3d 878, 881 (8th
Cir. 1999). “[A]rbitration is simply a matter of contract between the parties; it is a way to
resolve those disputes--but only those disputes--that the parties have agreed to submit to
arbitration.” First Options, 514 U.S. at 943 (1995).
Except to the extent state law treats arbitration agreements differently from other
contracts, ordinary state-law principles govern the determination of whether an
arbitration contract was formed. First Options, 514 U.S. at 944. However, once the court
determines that an arbitration agreement exists, the Federal Arbitration Act, as a matter of
federal law, requires that any doubts concerning the scope of arbitrable issues be resolved
in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460
U.S. 1, 24-25 (1983); Teamsters Local Union No. 688, 186 F.3d at 881)(“[A]rbitration is
a matter of contract and may not be ordered unless the parties agreed to submit the
dispute to arbitration. . . . [W]hen an arbitration clause exists in a contract, there is a
presumption of arbitrability unless it is clear that the arbitration clause is not susceptible
of an interpretation that covers the dispute.”).
Specifically, the presumption of
arbitrability applies to the scope of an arbitration agreement, but not to the existence of
such an agreement. See Riley Mfg. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d
775, 779 (10th Cir. 1998).
Arbitration as to CBS and STA.
The Consulting Agreement and Tax Consulting Agreements each contain an
express provision requiring the parties to arbitrate disputes of any kind resulting from the
respective agreements. CBS and STA seek to enforce these provisions while Wolfe
Electric requests that the court refuse to order arbitration. Each of Wolfe Electric’s
arguments against compelling arbitration are addressed in turn.
Plaintiff argues the court should not compel arbitration of the disputes between it
and CBS and STA, alleging the Consulting Agreement and Tax Consulting Agreement
were procured by fraud and are unconscionable. It is well settled law that “a party’s
challenge . . . to the contract as a whole does not prevent the court from enforcing a
specific agreement to arbitrate.” Rent-A-Center, West, Inc. v. Jackson, -- U.S. --, 130
S.Ct. 2772, 2778 (2010). Even “where the alleged fraud that induced the whole contract
equally induced the agreement to arbitrate which was part of the contract – [the Court]
nonetheless require[s] the basis of the challenge to be directed specifically to the
agreement to arbitrate before the court will intervene.” Id.
All of the alleged instances of fraud of which Plaintiff complains relate to the
general contract negotiations and the performance of the contract and do not speak to the
arbitration provision specifically. For instance, Plaintiff argues it was induced to enter
the agreement because Defendants allegedly misrepresented Plaintiff’s financial
condition and Defendants’ competency and ability to deliver on its promises to increase
Wolfe Electric’s profit margins. None of these complaints specifically apply to the
arbitration provisions in each contract.
Without accusations of fraud pertaining
specifically to the arbitration provisions in the respective contracts, the court will not
intervene. Rent-A-Center, 130 S.Ct. at 2779; M.A. Mortenson Co. v. Sanders Concrete
Co., Inc., 676 F.3d 1153, 1157 (8th Cir. 2012); see also Ikechi v. Verizon Wireless, case
no. 10cv4554, 2012 WL 3079254, (D. Minn. July 6, 2012) (parties will be forced to abide
by an arbitration clause where claims of fraud are not directed specifically to the
Plaintiff also argues the arbitration provisions are unconscionable and, for that
reason, should not be enforced. “[W]hen deciding whether an arbitration provision is
unconscionable, courts apply ordinary state-law principles governing the formation of
contracts.” Pro Tech Industries, Inc. v. URS Corp., 377 F.3d 868, 872 (8th Cir. 2004).
The parties appear to agree that Nebraska law applies in this case.
The unconscionability of a contract provision presents a question of law.
See Melcher v. Boesch Motor Co., 188 Neb. 522, 198 N.W.2d 57 (1972).
When considering whether an agreement is unconscionable, this court has
stated that the term “unconscionable” means manifestly unfair or
inequitable. See Weber v. Weber, 200 Neb. 659, 265 N.W.2d 436 (1978).
A contract is not substantively unconscionable unless the terms are grossly
unfair under the circumstances that existed when the parties entered into the
contract. Adams v. American Cyanamid Co., 1 Neb.App. 337, 498
N.W.2d 577 (1992). In a commercial setting, however, substantive
unconscionability alone is usually insufficient to void a contract or clause.
See id., citing 1 E. Allan Farnsworth, Farnsworth on Contracts § 4.28 (2d
ed. 1990). A court must also consider whether the contract formation was
procedurally unconscionable. See id. An essential fact in determining
unconscionability is the disparity in respective bargaining positions of
parties to a contract. See Ray Tucker & Sons v. GTE Directories Sales
Corp., 253 Neb. 458, 571 N.W.2d 64 (1997).
Myers v. Nebraska Inv. Council, 272 Neb. 669, 692-93, 724 N.W.2d 776, 799 (2006).
The court may also consider the manner in which the parties entered the contract,
whether the parties had reasonable opportunity to understand the terms of the contract;
and whether the important terms of the contract were hidden in the fine print. Parizek v.
Roncalli Catholic High School, 11 Neb. App. 482, 655 N.W.2d 404, 408 (2002).
Wolfe Electric alleges the arbitration clause is unconscionable, but in support of
its claim, it mostly reasserts the fraud arguments addressed above. Wolfe Electric also
claims the arbitration clauses were “hidden” within the agreements and that Wolfe was
“overwhelm[ed]” by the paper work and the “sudden physical presence of various
representatives of the three Defendant corporations”. (Filing No. 20, at CM/ECF p. 11).
The Amended Complaint further asserts that Wolfe Electric did not have an opportunity
to “review the arbitration clause prior to signing the documents,” that Defendants did not
inform Plaintiff of the presence of arbitration clauses, and that “Defendants preyed upon
Wolfe Electric’s financial vulnerability.” (Filing No. 32, ¶¶ 36-7, at CM/ECF p. 8).
These arguments are not persuasive.
Defendants provided unrefuted evidence that Wolfe Electric is a well-established
business with extensive dealings with contracts and litigation. (Filing No. 26). There is
no evidence that Wolfe Electric was somehow forced to accept the Defendants’ offer of
consulting services or that the company could not have explored other alternatives to
working with Defendants. Further, Plaintiff has provided no evidence to support its
claim that an imbalance of bargaining power existed between these businesses.
Plaintiff’s assertion that the arbitration clause was “hidden” in the documents is
also without merit. The Consulting Agreement and Tax Consulting Agreement are each
two pages in length. The arbitration provision is in bold in the final paragraph of the
documents, on the same page where Wolfe signed as president of the Wolfe Electric.
Plaintiff’s argument that it could not have read the two page contracts and discovered the
arbitration clause is unavailing.
Finally, Plaintiff argues that the arbitration clause is unconscionable because the
costs associated with arbitrating the case in Illinois3 “shocks the conscious.” (Filing No.
20, at CM/ECF p. 13). Plaintiff offers evidence that it “may well” have to pay a $4,050
administrative filing fee plus the arbitrator’s fee of $300 to $350 an hour. (Filing No. 20,
at CM/ECF p. 13). Even assuming Plaintiff will have to pay these costs, the expenses of
arbitration do not approach a level which “shocks the conscious.”
argument ignores that whether resolved by arbitration or litigation, this case will cost
There is no evidence the projected arbitration costs will exceed the likely
See generally E.E.O.C. v. Woodmen of World Life Ins. Soc., 479 F.3d
561, 567 (8th Cir. 2007)(“[T]he fact that a party will incur litigation costs and attorney’s
fees in an arbitral forum does not make that forum unconscionable, she would generally
face those fees regardless of forum.”).
Further, Plaintiff has not asserted that it will be unable to afford the costs of
arbitration, making this case easily distinguishable from cases where the courts have
found arbitration agreements unconscionable due to cost. See Faber v. Menard, Inc., 367
F.3d 1048, 1054 (8th Cir. 2004)(“party seeking to avoid arbitration should present
specific evidence of likely arbitrators’ fees and its financial ability to pay”); Sprague v.
Household Intern., 473 F. Supp. 2d 966, 976 (W.D. Mo. 2005)(Plaintiff submitted an
uncontested “affidavit of poverty” in support of its contention it could not pay for
arbitration). Plaintiff has failed to show that the costs of arbitration rise to the level of
Defendants have agreed to arbitrate the dispute in Nebraska if Plaintiff so desires.
(Filing No. 27-1, ¶3 at CM/ECF p. 1).
unconscionability such that the arbitration clause can be deemed unenforceable under
Arbitration as to GPS.
GPS, a non-signatory of the Consulting Agreement and the Tax Consulting
Agreement seeks to compel arbitration of Wolfe Electric’s claims against it. In PRM
Energy Systems, Inc. v. Primenergy, LLC, 592 F.3d 830 (8th Cir. 2008) the Eighth
Circuit held that a non-signatory to a contract containing an arbitration agreement could
require a signatory to arbitrate under certain limited circumstances. Id. at 834. Those
circumstances include: (1) when the relationship of the nonsignatory with a signatory is
so close that failing to order arbitration would “eviscerate the arbitration agreement; and
(2) where the claims against the non-signatory are “so intertwined with the agreement
containing the arbitration clause that it would be unfair to allow the signatory to rely
upon the agreement” for the basis of its claims but disallow arbitration of disputes arising
under the same agreement. Id. at 834-35 (discussing CD Partners, LLC v. Grizzle, 424
F.3d 795, 798 (8th Cir. 2005).
The court referred to the second circumstance as
“alternative estoppel.” PRM Energy Systems, 592 F.3d at 835.
In addressing alternative estoppel, the PRM court considered whether the party
seeking to avoid arbitration was alleging “concerted misconduct” between a signatory of
the agreement containing an arbitration provision and a non-signatory. To find sufficient
“concerted misconduct,” the court evaluates whether the plaintiff “ ‘specifically allege[s]
coordinated behavior between a signatory and a non-signatory.’ ” Id. at 835 (quoting
Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 734 (8th Cir. 2009)). The
test for alternative estoppel requires allegations of “pre-arranged collusive behavior” that
demonstrates a connection “between [the parties’], wrongs, and issues necessary to
compel arbitration.” Id. at 835-36 (internal citations omitted).
In this case, there is little question the requirements for alternative estoppel
allowing GPS to compel arbitration are present. Plaintiff makes little effort to distinguish
its claims against the separate defendants.
Its general allegations against all
“Defendants” are pervasive throughout the Amended Complaint. See, e.g., Filing No. 32,
¶¶ 38-61. Specific examples of the GPS’s alleged close relationship with the other two
defendants and GPS’s role in the alleged malfeasance include:
On or about March 1, 2011, representatives for Defendants contacted
Richard Wolfe, President of Wolfe Electric, by telephone at Wolfe
Electric's business office located in Lincoln, Nebraska, and requested to
meet with him. (Filing No. 32, ¶ 5, at CM/ECF p. 2).
On or about March 1, 2011, Kathy Nielson, Major Account Executive for
GPS, met with Mr. Wolfe at Wolfe Electric's office located in Lincoln,
Nebraska. During the course of said meeting, Ms. Nielson represented to
Mr. Wolfe that she was there on behalf of and with the consent of
Defendants GPS and CBS. Further, Ms. Nielson represented that
Defendant CBS would provide a business analysis service to Wolfe Electric
in exchange for payment in the amount of One Thousand Three Hundred
Dollars ($1,300). (Filing No. 32, ¶6, at CM/ECF p. 2).
During the meeting between Mr. Wolfe and Ms. Nielson on or about March
1, 2011, Ms. Nielson represented to Mr. Wolfe that CBS and its related
companies, GPS and STA, would provide specific results to Wolfe Electric,
including a guaranteed 3-5% increase in profit margins plus increased
profits during the first year sufficient to cover the cost of consulting
services provided by CBS and its related companies. (Filing No. 32, ¶7, at
CM/ECF p. 2).
Also on or about March 14, 2011, a Senior Tax Consultant for STA, Tracy
Legel, appeared at Wolfe Electric's office located in Lincoln, Nebraska, and
represented that STA would provide tax-related services to Wolfe Electric
in conjunction with the services provided by CBS and GPS. (Filing No. 32,
¶18, at CM/ECF p. 4).
Plaintiff’s allegations of malfeasance against GPS are indistinguishable from its
accusations against CBS and STA. The allegations arise out of the same set of operative
facts and are interdependent. Accordingly, GPS may compel arbitration of the claims
Wolfe Electric has asserted against it.
Plaintiff’s Request for Limited Discovery.
Plaintiff requests that if the court orders this matter to arbitration, Plaintiff should
be allowed to conduct limited discovery, arguing that Defendants have “exclusive control
over additional evidence that would support Wolfe Electric’s claims” of fraud. Filing
No. 20, at CM/ECF p. 16. “The purpose of the FAA is ‘to move the parties to an
arbitrable dispute out of court and into arbitration as quickly and easily as possible.’ ”
Koch v. Compucredit Corp., 543 F.3d 460, 463 (8th Cir.2008) (quoting Moses H. Cone,
460 U.S. at 22, 103 S.Ct. at 940). Thus, pre-arbitration discovery is only allowed in the
limited cases in which a party seeks additional information on the “making of the
arbitration agreement or the failure, neglect, or refusal to perform” the agreement to
arbitrate. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 726 (9th Cir. 1999)(quoting 9
U.S.C. § 4).
In this case, Plaintiff has not provided any specific examples of what types of
information Defendants may have in their possession that would provide additional
insight into Plaintiff’s fraud or unconscionability arguments. These arguments are almost
wholly based on representations the Defendants allegedly made to Plaintiffs. As such,
that information is currently in the possession of Plaintiff and, presumably, has been
submitted in opposition to Defendants’ motion to compel arbitration. Accordingly, no
discovery is warranted at this time.
Motion to Dismiss.
The Federal Arbitration Agreement generally calls for the stay of proceedings
until the arbitration process is complete. 9 U.S.C. § 3. There is a judicially created
exception to this rule whereby “ ‘district courts may, in their discretion, dismiss an action
rather than stay it where it is clear the entire controversy between the parties will be
resolved by arbitration.’ ” Roseman v. Sigillito, 877 F. Supp. 2d 763, 777 (E.D. Mo.
2012) (citing Green v. SuperShuttle Int’l, Inc., 653 F.3d 766, 769-70 (8th Cir. 2011)).
In this case, the plaintiff has raised questions about the enforcement of the
arbitration provision and whether the claims should be subject to arbitration at all.
Although the court finds little merit in these contentions, the arguments at least raise the
remote possibility that some of the claims could be returned to the court by the arbitrator.
Accordingly, this matter will be stayed pending resolution by the arbitrator.
IT IS ORDERED:
Defendants’ Motion to Compel Arbitration, (Filing No. 11), is granted and
this case will be stayed pending the outcome of arbitration, which shall take
place in Nebraska if the Plaintiff so desires.
Defendants’ motion is denied to the extent they seek dismissal of this case.
Defendants’ renewed Motion to Compel Arbitration, (Filing No. 33), is
denied as moot.
Plaintiff’s request for limited discovery is denied.
The clerk of the court is directed to close this case for statistical purposes;
The parties shall each file a status report, not less than once every six
months, regarding the progress of their arbitration.
Dated this 8th day of May, 2013.
BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge
*This opinion may contain hyperlinks to other documents or Web sites. The U.S. District Court for the District of
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The court accepts no responsibility for the availability or functionality of any hyperlink. Thus, the fact that a
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