Perkins Delaware, LLC v. MF Cornhusker Member, LLC et al
Filing
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ORDER denying 32 Motion to Compel Arbitration. Counsel for the parties shall confer and, on or before May 29, 2018, they shall jointly file a Form 35 (Rule 26 (f)) Report. Ordered by Magistrate Judge Cheryl R. Zwart. (Zwart, Cheryl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PERKINS DELAWARE, LLC, a
Delaware limited liability company;
8:17CV332
Plaintiff,
MEMORANDUM AND ORDER
vs.
MF CORNHUSKER MEMBER, LLC, a
Delaware limited liability company; and
MFP CORNHUSKER PROPERTIES
LLC, a Delaware limited liability
company;
Defendants.
This matter is before the court on Plaintiff Perkins Delaware, LLC’s Motion
to Compel Arbitration. (Filing No. 32). For the reasons stated below, Plaintiff’s
motion is denied.
BACKGROUND
In August of 2013, Plaintiff Perkins Delaware, LLC (“Perkins Member”) and
Defendant MF Cornhusker Member, LLC (“PF Member”) formed Defendant MFP
Cornhusker Properties, LLC (“MFP Cornhusker”) for the purpose of operating
commercial retail properties in Nebraska and South Dakota. 1 (Filing No. 1 at
CM/ECF p. 13). In October of 2013, Perkins Member and PF Member executed
1
MFP Cornhusker is listed as a defendant but Perkins Member does not
seek affirmative relief against this defendant. Perkins Member listed MFP
Cornhusker as a defendant because it “has an interest in this litigation sufficient
to have a right to intervene.” (Filing No. 1 CM/ECF p. 12). That said, MFP
Cornhusker does not object to Perkin Member’s Motion to Compel Arbitration
(Filing No. 32).
an Operating Agreement (the “Agreement”) for MFP Cornhusker. Under the
terms of the Agreement, Perkins Member is the manager and PF Member is the
agent.
Under Section 4.1 of the Agreement, as manager, Perkins Member was to
manage all the affairs of MFP Cornhusker and to “make all decisions . . . except
where PF Member’s approval is required under this Agreement.” (Filing No. 1 at
CM/ECF pp. 13–14). “Major Decisions” were one such area in which Perkins
Member needed the approval of PF Member to proceed. (Id. at CM/ECF pp. 14,
38–40). Section 4.1(b) of the Agreement outlines and defines what type of
actions constitute Major Decisions. (Id. at CM/ECF pp. 38–40).
Section 4.1(d) contains an arbitration provision which could be utilized for
disputes concerning Major Decisions:
If Perkins Member and PF Member are unable to agree on the
resolution of any Major Decision, either Member, by notice to the
other Member, may require the resolution of the Major Decision to
be made by an independent arbitrator specified in that notice. If
either Member objects to the independent arbitrator designated
therein within three (3) Business Days after it receives such notice
and PF Member and Perkins Member fail to agree on an
independent arbitrator, then either may request that the Omaha,
Nebraska office of the American Arbitration Association (the “AAA”)
designate an independent arbitrator, in which case the selection of
the arbitrator by the AAA shall be binding on the parties. The
determination of the selected arbitrator shall be final and binding on
all parties. . . . The decision of the arbitrator must be the resolution of
the Major Decision proposed by either PF Member or by Perkins
Member, and shall be rendered within thirty (30) days after the
arbitrator's selection.
(Id. pp. 40–41). Section 4.5 of the Agreement outlines the terms under which PF
Member could seek to remove Perkins Member as the Manager to MFP
Cornhusker. (Id. at CM/ECF p. 43–44)
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In October of 2013, MFP Cornhusker obtained a loan which was secured
by a lien in all of its properties. (Id. at CM/ECF p. 15). In March of 2017, Perkins
Member approached PF Member with a prospect for refinancing part of the loan.
PF Member did not agree to the refinancing opportunity and refused to provide
consent unless certain conditions were met. (Filing No. 37 at CM/ECF p. 4). At
the end of March 2017, Perkins Member took unilateral action and refinanced the
loan (the “refinancing event).
In mid-April of 2017, PF Member sought to enact the Removal Provision of
the Agreement and remove Perkins Member as manager of MFP Cornhusker
due to the refinancing event. And in August of 2017, Perkins Member removed
PF Member as Manager of MFP Cornhusker.
Perkins Member filed its complaint on August 15, 2017 and PF Member
removed the Complaint to this court on September 13, 2017. (Filing No. 1). In the
complaint, Perkins Member alleges it was wrongfully removed as Manager of
MPF Cornhusker. It primarily claims the refinancing event was not a Major
Decision as defined in the Agreement and therefore removing it as Manager was
improper. (Id. at CM/ECF p. 18). It alternatively argues that PF Member approved
the refinancing event, or the event was not a material breach of the Agreement.
(Id.).
As relief, Perkins Member seeks a declaratory judgment determining the
rights, status, and legal relations of Perkins Member and PF Member and to
determine the terms of the Agreement as they relate to PF Member’s allegation
of a removal event. (Id. at CM/ECF p. 19). Specifically, Perkins Member requests
that this court enter a declaratory judgment finding as follows:
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(a)
The Refinancing event is not a Removal Event under the
Operating Agreement, either because it was not a Major
Decision defined in Section 4.1 of the Operating Agreement,
PF Member approved the refinancing event, or the refinancing
event was not a material breach of the Operating Agreement
by Perkins Member;
(b)
The portion of Section 4.5 of the Operating Agreement
providing that upon a Removal Event PF Member may cause
the forfeiture of a portion of Perkins Member's Residual
Sharing Ratio is void and unenforceable;
(c)
Alternative to (a), the terms of the Operating Agreement
provide that before PF Member may unilaterally declare a
Removal Event, the Refinancing event issue shall be
submitted to an arbitrator as provided in Section 4.l(d) of the
Operating Agreement, and if the arbitrator determines that the
Refinancing event was a reasonable action to take by the
Manager in the best interests of MFP Cornhusker, the dispute
is resolved and there is no Removal Event;
(Id.). Perkins Member also seeks an injunction to enjoin PF Member from taking
any action to enforce its claimed Removal Event including attempting to act as
Manager of MFP Cornhusker. (Id. at CM/ECF pp. 20–21).
In the current motion, Perkins Member seeks to enact the arbitration
provision contained in Section 4.1(d) of the Agreement and to compel the
arbitration of this matter. It argues the following issues should be arbitrated:
1)
Whether the refinancing event was a “Major Decision” as that
term is defined in Section 4.1(b) of the Operating Agreement.
2)
Assuming the refinancing event was a “Major Decision”,
whether the refinancing event was a transaction that was likely
to be beneficial to the Company and thus a transaction the
Company should have proceeded with.
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3)
All procedural matters relating to arbitrability, including
whether Perkins Member’s request for arbitration is sufficiently
timely.
(Filing No. 32). Perkins Member asserts arbitrating these events would resolve all
claims in this matter. Defendant PF Member opposes Plaintiff’s motion.
LEGAL ANALYSIS
Arbitration is favored and this court’s role is to engage in a limited inquiry
to “determine whether there is a valid agreement to arbitrate and whether the
specific dispute at issue falls within the substantive scope of that agreement.”
Larry's United Super, Inc. v. Werries, 253 F.3d 1083, 1085 (8th Cir. 2001). If the
court so finds, Section 3 of the FAA requires a stay of proceedings subject to an
arbitration agreement, and Section 4 empowers the court to compel the parties to
proceed with arbitration. 9 U.S.C. §§ 3, 4. “The party resisting arbitration bears
the burden of demonstrating the motion to compel arbitration should be denied.”
Green Tree Financial Corp. -Alabama v. Randolph, 531 U.S. 79, 91 (2000).
“[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); Volt
Information Sciences v. Board of Trustees, 489 U.S. 468, 479 (1989) (stating
Arbitration is “a matter of consent, not coercion,” and if the parties have not
“agreed to arbitrate, the courts have no authority to mandate that they do so.”);
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)). When deciding whether to compel arbitration, a two-part test is applied.
USW, AFL-CIO-CLC v. Duluth Clinic, Ltd., 413 F.3d 786, 788 (8th Cir. 2005). The
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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.
The parties do not dispute that there was an arbitration provision within the
Agreement. The sole arbitration provision contained within the Agreement is
located in Section 4.1(d) and provides that if Perkins Member and PF Member
“are unable to agree on the resolution of any Major Decision,” then either of them
“may require the resolution of the Major Decision to be made by an independent
arbitrator[.]” (Filing No. 1 at CM/ECF p. 14). As written, arbitration is discretionary
and may be called upon by either member in the event of a deadlock regarding a
Major Decision for the sole purpose of resolving said decision.
The claims at issue in this case fail to fit within the scope of arbitration
provision for two main reasons. First, it is currently in dispute whether the
refinancing event was a major decision. In fact, Perkins Member—which seeks
arbitration of this matter—largely argues the refinancing event was not a major
decision and requests that this court resolve this issue through a declaratory
judgment. Second, a plain reading of the provision indicates that the arbitration
provision was designed as a means of timely resolving major decision deadlocks
as they arose. Accordingly, the provision must be enacted before the decision is
made. In this case, Perkins Member and PF Member were deadlocked regarding
the refinancing decision but instead of seeking a resolution through arbitration,
Perkins Member took unilateral action. So the time for the arbitrator to determine
the action to take on the refinancing decision has passed.
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Perkins Member argues that this court cannot and should not rely on the
argument that the arbitration provision must be enacted prior to the decision
being made because that is a procedural matter for the arbitrator to determine.
See John Wiley & Sons v. Livingston, 376 U.S. 543, 557 (1964). The
undersigned magistrate judge disagrees. The cases cited by Plaintiff typically
involved claims which clearly fit within the scope of the arbitration provision at
issue, but failed to meet the specific time limitations set within the arbitration
provision. See, e.g., Automotive Petroleum & Allied Industries Employees Union,
Local No. 618 v. Town & Country Ford, Inc., 709 F.2d 509 (8th Cir. 1983)
(requiring arbitration of all employment discharge disputes but setting a 5-day
time limit for submitting grievances). The undersigned finds that unlike the cases
cited by Plaintiff, here, the timeliness issue goes to the heart of the scope of the
arbitration provision: The parties only agreed to arbitrate ongoing deadlocks.
This is further evidenced by the following wording in in the provision: “The
decision of the arbitrator must be the resolution of the Major Decision proposed
by either PF Member or by Perkins Member, and shall be rendered within thirty
(30) days after the arbitrator's selection.” (Filing No. 1 at CM/ECF pp. 40–41).2
This sentence makes clear that the sole reason the parties agreed to arbitrate
was to avoid being stuck in a deadlock indefinitely and to facilitate quick decision
making concerning MFP Cornhusker’s business operations. They did not agree
to arbitrate whether a certain action constituted a “major decision,” nor to
determine whether an already-made decision made was “reasonable.”
2
This wording even further shows the limited authority of the arbitrator if
the provision was to be enacted. In essence, the parties agreed that the arbitrator
would not even have full authority to create his or her own resolution, but must
choose between the two outcomes proposed by PF Member or by Perkins
Member.
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For all the above reasons, the undersigned finds Plaintiff’s claims are
beyond the scope of the arbitration provision and are not subject to arbitration
absent the current and mutual consent of the parties.
IT IS ORDERED:
1)
Plaintiff Perkins Delaware, LLC’s Motion to Compel Arbitration.
(Filing No. 32), is denied.
2)
Counsel for the parties shall confer and, on or before May 29, 2018,
they shall jointly file a Form 35 (Rule 26 (f)) Report, a copy of which can be found
at http://www.ned.uscourts.gov/forms in Word and WordPerfect format.
3)
If one or more of the parties believes a planning conference is
needed to complete the Rule 26(f) Report, or if the parties cannot agree on one
or more of the deadlines identified or case progression issues raised in the Rule
26(f) Report, on or before May 22, 2018, a party shall contact my chambers at
(402) 437-1670, or by email addressed to zwart@ned.uscourts.gov, to arrange a
conference call.
Dated this 6th day of May, 2018.
BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge
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