Meierhenry Sargent LLP v. Williams et al
Memorandum Opinion and Order granting 7 Motion to Stay; granting 7 Motion to Compel. Signed by U.S. District Judge Lawrence L. Piersol on 5/1/2017. (JLS)
UNITED STATES DISTRICT COURT
MAY 0 1 2017
DISTRICT OF SOUTH DAKOTA
MEIERHENRY SARGENT LLP, a South
Dakota limited liability partnership
MEMORANDUM OPINION AND
ORDER ON DEFENDANTS'
MOTION TO STAY ACTION AND
BRADLEY WILLIAMS and KERRY
Pending before the Court is Defendants' pre-answer Motion to Stay Action and Compel
Arbitration for claims asserted in Count II of Plaintiffs Complaint pursuant to the Federal
Arbitration Act,9 U.S.C. § 1 et seq., and Federal Rule of Civil Procedure 12(b)(1). Doc. 7. The
motion has been fully briefed, and for the reasons set forth below. Defendants' motion will be
Although some disputed questions of fact remain, the Court accepts as true the following
facts for purposes of this memorandum opinion and order. See Anderson v. Liberty Lobby, Inc.,
All U.S. 242, 247-48 (1986)(emphasis in original) (finding that "the mere existence of some
alleged factual dispute between the parties will not defeat an otherwise properly supported
motion [to compel arbitration]; the requirement is that there be no genuine issue of material
In 2015 and part of 2016, Defendants, residents of Mendota Heights, Minnesota, owned
agricultural land in Lincoln County, South Dakota. During this time, Dakota Access, LLC
("Dakota Access") was attempting to acquire easements firom landowners in various counties.
including Lincoln County, in order to build an oil pipeline.' In January of 2015, Defendants
hired Plaintiff, a Sioux Falls, South Dakota law firm, to advise and eonsult with them about
various legal matters related to the proposed pipeline ("First Hiring").^ The First Hiring
representation ended sometime before October of2015.
In Getober of 2015, Dakota Access initiated an eminent domain action against
Defendants. In December of 2015, Defendants retained Plaintiff to represent them in these
proceedings ("Second Hiring"). Plaintiff and the Defendants entered into an Attorney Fee
Contract ("Contract").^ The Contract provided that the Defendants would pay Plaintiff one-third
of the amount of settlement negotiated hy the Plaintiff, less the $101,082.56 settlement offer
negotiated by the Defendants prior to retaining Plaintiff The Contract also contained a "FEE
ON TERMINATION" clause, whieh provided:
FEE ON TERMINATION. If Client terminates Firm's employment
before conelusion of the case without good eause. Client shall pay Firm a fee and
expenses based on the fair and reasonable value of the services performed by
Firm before termination. If anv disagreement arises about the tetmination fee, the
elient mav choose two persons from a service profession, and the firm mav
choose one person. The firm will be bound bv a maioritv decision of the three
persons as to a fair fee. If the Firm terminates the representation, then it shall
receive no fee or expenses.^
During the approximately two months in which Plaintiff represented the Defendants,
Plaintiff obtained a settlement offer from Dakota Aecess for $750,000. Thereinafter, on or ahout
^ The proposed pipeline called for an approximate 3.41 acre easement across Defendants' land.
^ See Compl., Exh. A(engagement letter).
^ See Compl., Exh. B (Attorney Fee Contract).
B. Contingent Fee. A contingent fee calculated as follow:
If the case is settled, start with the total settlement amount;
If the case is tried to a verdict, add together the amoimt of the verdict, and the amounts
awarded by the Court for attorney fees, statutory disbursements and interest, if any;
Subtract the amount of the Pipeline Company's offer to purchase the property, which in
this case is $101,082.56;
The attorney fee shall be 33 1/3 % of the amount remaining after deduction of the
Pipeline Company's offer; plus gross receipts tax at the lawful rate at the time of
^ Id. at ^4(emphasis added).
March 8, 2016, the Defendants terminated Plaintiffs representation.^ In the days following this
termination, however, discussions continued between the parties.^ On March 11, 2016, the
Defendants emailed Plaintiff a revised contract proposal in which Plaintiff would be entitled to
collect fees on a settlement that exceeded $950,000 and Plaintiff would be responsible for all of
its expenses.^ Plaintiff declined the altemative contract proposal.^
Over the next several months. Defendants continued negotiations with Dakota Access.
Ultimately, Defendants sold the subject property in fee to Dakota Access.'® On May 11, 2016,
Plaintiff filed an Attorney's Lien in state court for $229,054.88 against Dakota Access and
Defendants." On June 14, 2016, Plaintiff emailed Defendants' new counsel, Edward Sheu, in an
attempt to privately settle the attorney fee dispute." On June 28, 2016, Attorney Sheu responded
to Plaintiffs email by highlighting the procedure, as set forth in the Contract, to settle an
attomey fee dispute, and noting the alleged deficiencies in Plaintiffs representation, specifically
that if Plaintiff made a claim for recovery of legal fees it would be met with malpractice and
ethics violations claims."
On November 17, 2016, Plaintiff filed a two-count Complaint against Defendants in
Minnehaha County state court. In its Complaint, Plaintiff alleged that it is due $593.60, plus
interest and costs, for the First Hiring (Count I), and $216,305.81, plus interest and costs, for the
Second Hiring(Count II)." On December 30, 2016, Defendants filed a timely notice of removal
^ See Doc. 13-1 (March 4, 2016 email from Brad Williams to Chris Healy: "The engagement letter allows me to
terminate the representation and pay you a fair and reasonable value of the services performed before termination.
The letter also provides for a procedure in the event of a disagreement over the fees[.]"; March 8, 2016 email from
Brad Williams to Chris Healy:"YOU ARE NO LONGER AUTHORIZED TO SPEAK TO DAKOTA ACCESS OR
THEIR ATTORNEYS ON MY BEHALF. YOU ARE HEREBY INSTRUCTED . . . TO RE-DIRECT THEIR
COMMUNICATIONS TO ME AND THE NEW COUNSEL I WILL SHORTLY BE DESIGNATING TO
SUBSTITUTE FOR YOU.").
^ See Doc. 13-2.
^ Id. (March 11, 2016 email from Brad Williams to Mark Meierhenry: "During our call yesterday, you proposed
continuing to work with me and my wife to get a deal done with Dakota Access. You asked me to provide you a net
amount for the check that we want to receive from your trust account, if a deal can be done. The number we arrived
at is $950,000.").
There is disagreement among the parties as to whose idea it was to formulate a new contract arrangement. See
Doc. 11 atf 5(Affidavit of Mark V. Meierhenry); Doc. 12 at 6("n the March 10, 2016 call, Mr. Meierhenry(not
Mr. Williams) proposed that the representation continue, with a new fee arrangement.").
See Doc. 11-2 n.l ("The Williamses ended up selling the subject property in fee to Dakota Access.").
See Doc. 13-3; see also Doc. 13-4 (Attorney's Lien Cancellation)("Claimant has learned that services of the lien
occurred after Dakota Access had paid all sums to Williams and had received a deed from Williams and therefore,
said lien is unenforeeable against Dakota Access.").
Doc. 11-1("We would prefer to resolve this matter privately rather than proceeding with court action.").
Count II is the only count subject to a contractual arbitration clause and is the focus of this motion.
pursuant to 28 U.S.C. §1332. On January 6, 2017, Defendants filed the current motion
requesting the Court to stay the action and compel arbitration of Count II pursuant to the Federal
Arbitration Act,9 U.S.C. § 1 etseq., and Federal Rule of Civil Procedure 12(b)(1). In opposition
to the motion. Plaintiff argues that Defendants repudiated the Contract, including the arbitration
clause, and therefore the parties are no longer contractually bound to arbitrate.
II. STANDARD OF REVIEW
The Federal Arbitration Act does not identify what evidentiary standard a party seeking
to avoid arbitration must meet. Neb. Mach. Co. v. Cargotec Solutions, LLC,762 F.3d 12)1, 74142(8th Cir. 2014); see also Henry Techs. Holdings, LLC v. Giordano, 2014 WL 3845870, at *3
(W.D. Wis. Aug. 5, 2014) ("The FAA does not define a standard for a district court's
determination of a motion to compel arbitration[.]"). Courts that have addressed the issue have
used a summary judgment standard. Id.-, see also Schwalm v. TCF Nat'l Bank, 2016 WL
7468016, at *2(D.S.D. Dec. 28, 2016); Technetronics, Inc. v. Leybold-Graeus GmbH, 1993 WL
197028, at *2 (E.D. Pa. June 9, 1993) ("[I]n a motion to stay proceedings and/or compel
arbitration, the appropriate standard of review for the district court is the same standard used in
resolving summary judgment motions pursuant to [Federal Rule of Civil Procedure] 56(c).").
Therefore, the court may consider all evidence in the record, viewing that evidence in the light
most favorable to the non-moving party. Id.-, see also Lee v. Credit Acceptance Corp., 2015 WL
7176374, at *1 (W.D. Wis. Nov. 12, 2015).
Through the Federal Arbitration Act ("FAA"), Congress sought to establish a strong
federal policy favoring the enforcement of arbitration agreements. Shearson/Am. Exp., Inc. v.
McMahon,482 U.S. 220(1987). Enacted in 1925, the FAA's goal was to "revers[e] centuries of
judicial hostility to arbitration agreements" by "plac[ing] arbitration agreements 'upon the same
footing as other contracts.'" Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974)(quoting
H.R. Rep. No. 97, 68th Cong., 1st Sess., 1, 2 (1924)); see also Rent-A-Center, W, Inc. v.
Jackson, 561 U.S. 63, 67(2010)(internal citations omitted)(finding that "[t]he FAA reflects the
fundamental principle that arbitration is a matter of contract[,]" and thus "requires courts to
enforce them according to their terms[.]"). Sections 3 and 4 of the FAA are key to the present
motion. 9 U.S.C.A. §§ 3-4. Section 3 allows federal courts to stay proceedings of issues
referable to arbitration. 9 U.S.C.A. § 3. Section 4 directs courts to compel the parties to
arbitration pursuant to the terms of their written arbitration agreement. 9 U.S.C. § 4; see also
Kubista v. Value Forward Network, LLC,2012 WL 2974675, at *2(D.S.D. July 20, 2012).
By its terms, the FAA "leaves no place for the exercise of discretion by a district court,
but instead mandates that district courts shall direct the parties to proceed to arbitration on issues
as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd, 470
U.S. 213, 217(1985)(emphasis in original). "A court's role under the FAA is therefore limited
to determining (1) whether a valid agreement to arbitrate exists and, if it does,(2) whether the
agreement encompasses the dispute." Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 871
(8th Cir. 2004). "If these requirements are met, the FAA allows the court to stay proceedings
and compel the parties to arbitrate." Precision Press, Inc. v. MLP U.S.A., Inc., 620 F. Supp. 2d
981, 989-90(N.D. Iowa 2009).
A. Whether state orfederal law applies
While the record before the Court demonstrates that the parties assume that the FAA is
applicable in the present case, the Court must first answer the threshold question of whether state
or federal law applies. Id. at 990.
"The construction of an agreement to arbitrate is governed by the FAA unless the
agreement expressly provides that state law should govern." Dominium Austin Partners, LLC v.
Emerson, 248 F.3d 720, 729 n.9 (8th Cir. 2001); see also Volt Info. Scis., Inc. v. Bd. of Trustees
ofLeland Stanford Junior Univ., 489 U.S. 468, 479(1989)(finding that the FAA is a matter of
consent, nor coercion, and does not prevent the enforcement of agreements to arbitrate under
different rules than those set forth in the Act). Thus, the Court "will not interpret an arbitration
agreement as precluding the application of the FAA unless the parties' intent that the agreement
be so construed is abundantly clear." UHC Mgmt., Co. v. Computer Sciences, Corp., 148 F.3d
992,996-97(8th Cir. 2001). In UHC Mgmt., for example, the contract contained a choice-of-law
clause, but the included arbitration a^eement was silent as to whether state or federal arbitration
law applied. Id. at 994, 997. In holding that the FAA was applicable, the Eight Circuit stated:
The agreement makes no reference to the Minnesota Uniform Arbitration Act or
to Minnesota case law interpreting the allocation of powers between arbitrators
and courts. Moreover, the choice-of-law clause itself specifically provides that
Minnesota law must yield whenever preempted by federal law, which cuts against
the argument that the parties intended that the FAA not apply.
Id. at 997. As such, the Court could "divine no such intent [to preclude application of the FAA]
from the language in the present agreement." Id. Similarly, in Precision Press, the court found
that the "generic choice-of-law clause, that [wa]s utterly silent regarding state arbitration rules
governing the agreement, as a matter of law, does not make the parties' intent to have federal
courts apply state arbitration law 'abundantly clear.'" Precision Press, 620 F. Supp. 2d at 991
(quoting UHCMgmt., 148 F.3d at 997).
Here, the Contract does not contain a choice-of-law clause, and the arbitration agreement
does not make any reference to either the FAA or state law to govern disputes. As such, in
accordance with the above precedent, the Court finds that federal law, rather than state law,
applies in the present case. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,60
n.4 (1995) (finding that it is clear that the FAA does not have to be mentioned in either the
contract or arbitration provision to apply). This does not end the Court's analysis, however. The
Court must now consider whether the FAA applies to the Contract at issue. See Precision Press,
620 F. Supp. 2d at 992.
B. Whether the FAA applies to the Contract
The FAA does not itself create federal jurisdiction and thus requires that an independent
basis for federal court jurisdiction exists in order for the Act to apply. See 9 U.S.C § 4. Once the
jurisdictional prerequisite is satisfied, the FAA is applicable where a written arbitration provision
is part of"a contract evidencing a transaction involving commerce." 9 U.S.C. § 2.'^
The words "involving commerce" have been broadly interpreted by the United States
Supreme Court to mean "affecting commerce." Allied-Bruce Terminix Int'I Co. v. Dobson, 513
U.S. 265, 273-74(1995)(holding that "the word 'involving,' like 'affecting,' signals an intent to
exercise Congress' commerce power to the full."). The phrase "affecting commerce," then,
indicates that Congress intended to regulate "to the outer limits of its authority under the
Commerce Clause." Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 115 (2001)(citing AlliedBruce, 513 U.S. at 277). "Because the statute provides for the enforcement of arbitration
agreements within the full reach of the Commerce Clause, it is perfectly clear that the FAA
encompasses a wider range of transactions than those actually in commerce—^that is, within the
Section 2 of the FAA provides, in part, "[a] written provision in any maritime transaction or a contract evidencing
a transaction involving commerce , . . shall be valid, irrevocable, and enforceable . , .
9 U.S.C.A. § 2. By its
terms, then, the FAA applies to (1) written agreements,(2)"involving commerce." Id.', see also Southland Corp. v.
Keating, 465 U.S. 1 (1984). In the present case, there is no argument that the arbitration agreement was written.
See Compl., Exh. B at ^ 4. Therefore, the first requnement is met.
flow of interstate eommeree." Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003)(internal
quotation marks and citations omitted); see also Circuit City Stores, 532 U.S. at 111 ("[T]he
FAA compels judicial enforcement of a wide range of written arbitration agreements.").
Determining whether a transaction involves interstate commerce requires a court to
examine the contract, the complaint, and the surrounding facts. The broad authority of the FAA
has been held to apply to employment contracts. See id. at 114-19 (holding that "the text of the
FAA forecloses the construction of § 1 followed by the [Ninth Circuit] Court of Appeals in the
ease under review, a construction which would exclude all employment contracts from the FAA .
. . . Section 1 exempts from the FAA only contracts of employment of transportation workers.").
Speeifieally, various courts have found the FAA to apply to attorney fee agreements. See G3
Analytics, LLC v. Hughes Socol Piers Resnick & DYM Ltd., 61 N.E.3d 940, 945 (111. App. Ct.
2016) (holding that "[t]he fee agreement was between parties jfrom different states and
contemplated potential False Claims Act litigation, under both state and federal law, in multiple
jurisdictions. Because the fee agreement involves interstate commerce, the FAA, not Illinois
law, governs."); Hasco, Inc. v. Schuyler, Roche & Zwirner, 981 F. Supp. 445, 449 (S.D.W. Va.
1997), rev'd on other grounds, 172 F.3d 43 (4th Cir. 1998) (finding that the FAA controlled
"[gjiven the multistate nature of the parties' relationship, including (1) SRZ's performance of
legal services primarily in Chicago for the West Virginia Plaintiffs; (2) the interstate travel of
SRZ attorneys to West Virginia for court appearances; and (3) the parties' interstate
communications, the Court has little difficulty concluding the retention letter evidences a
transaction involving commerce."); Default ProofCredit Card Sys., Inc. v. Friedland, 992 So. 2d
442, 445 (Fla. Dist. Ct. App. 2008)(finding that the activities, which included, "representation
by members of the Bar of different states, a question subject to federal interpretation under the
FAA, enforcement of the patents on a national basis, signatories to the Agreement being located
in different states and an Illinois contract to be enforced in Florida[,]" involved interstate
commerce, and therefore the Contract's arbitration provision came within the scope ofthe FAA);
Lucey v. Meyer, 136 S.E.2d 274 (S.C. Ct. App. 2012)(Employment contract between law firm
and associate attorney, in which attorney was employed to work on specific eases identified in
contract, involved interstate commerce,thereby triggering the FAA).
In the present case, the Court must first determine whether an independent basis for
jurisdiction exists. See 9 U.S.C. § 4. Here, the Plaintiff is a Sioux Falls, South Dakota law firm.
and the Defendants are Minnesota residents. Defendants properly removed the action to federal
court based on diversity jurisdiction. As such, an independent basis for jurisdiction is satisfied.
Next, the Court must decide whether the arbitration clause is part of "a contract evidencing a
transaction involving commerce." 9 U.S.C. § 2. Here, given both the broad authority of the
FAA, and the nature of the parties' relationship, including, both parties' signatures on the
Attorney Fee Contract, Plaintiffs performance of legal services in South Dakota for Minnesota
residents, interstate travel of the Minnesota residents to South Dakota for various legal matters
concerning the eminent domain action, and interstate communications, this Court concludes,that
the Contract evidences a transaction involving commerce and thus the FAA applies.
The Court must now determine whether the arbitration clause in the Contract constituted
a valid arbitration agreement and whether the agreement encompasses the dispute at issue. See
Pro Tech, i' ll F.3d at 871("A court's role under the FAA is therefore limited to determining(1)
whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement
encompasses the dispute.").
C. Whether a valid agreement to arbitrate exists
Under the FAA, state law contract principles govern the formation of an arbitration
agreement. See Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 834 (8th Cir. 1997)(internal
citations omitted); see also First Options of Chi. Inc. v. Kaplan, 514 U.S. 938, 944 (1955)
(finding that "[w]hen deciding whether the parties agreed to arbitrate a certain matter ..., courts
generally... should apply ordinary state-law principles that govern the formation of contracts.").
Under South Dakota law, the "elements essential to the existence of a contract are: (1) parties
capable of contracting; (2) their consent; (3) a lawful object; and (4) sufficient cause or
consideration." SDCL § 53-1-2.
Here, the Court finds—and the parties do not contest—^that a valid agreement to arbitrate
Count II exists under state-law contract principles. While not termed "Arbitration Agreement" in
the Contract, case law demonstrates that no "magic words" are required, rather "[i]f the parties
have agreed to submit a dispute for decision by a third party, they have agreed to arbitration."
AMP Inc. V. Brunswick Corp., 621 F. Supp. 456, 460 (E.D.N.Y. 1985); Wolsey, Ltd. v.
Foodmaker, Inc., 144 F.3d 1205, 1208 (9th Cir. 1998). As such, the "Fee on Termination"
clause contained in the Contract is a valid arbitration agreement.
D. Whether the agreement encompasses the dispute
The Court will next deeide whether the agreement eneompasses the attorney fee dispute.
ProTech Indus., Inc., 377 F.3d at 871; see also 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 119899 (8th Cir. 2008)(finding that "the eourt rather than the arbitrator will determine whether a
partieular dispute falls within the scope of the clause."). In determining whether claims come
within the scope of an arbitration provision, the eourt does not reach the merits of any claim, but
rather liberally construes the scope ofthe agreement, resolving any doubts in favor of arbitration.
3M Co., 542 F.3d at 1199. The party resisting arbitration "bears the burden of proving that the
claims at issue are unsuitable for arbitration." Green Tree Fin. Corp.-Alabama v. Randolph, 531
U.S. 79,91 (2000).
In the present case. Plaintiff argues that Defendants repudiated the Contract, which in
tum repudiated the arbitration clause, through their words and conduct, specifically the
termination of representation coupled with threats of filing legal malpractice and ethics
violations claims, and therefore the parties are no longer contractually bound to arbitrate.'^ hi
support of its argument. Plaintiff cites to Brown v. Dillard's, Inc., 430 F.3d 1004(9th Cir. 2005).
In Brown, Brown was fired from Dillard's and thereinafter sought to compel arbitration. Id. at
1005. Dillard's refused to participate in the arbitration proceedings. Id. Brown then filed suit in
state eourt. Id. at 1005-06. Dillard's removed the suit (o federal court and moved to compel
arbitration. Id. at 1006. The District Court denied the motion and Dillard's appealed. Id. On
appeal, the Ninth Circuit held that Dillard's had waived its right to arbitrate "by refusing to
participate in properly initiated arbitration proceedings." Id. at 1011. Simply stated, the Brown
Court found that one party's refusal to arbitrate in accordance with the contract will therefore
excuse the other party from his or her obligation to do so. Id.\ see also W.R. Grimshaw Co. v.
Nazareth Literary &Benev. Inst., 113 F.Supp. 564(E.D. Ark. 1953); 6 C.J.S. Arbitration § 17.
Plaintiffs reliance on Brown is misplaced. Unlike in Brown, the Defendants here did not
refuse to arbitrate and thereinafter move to compel arbitration in this Court. Rather, evidence
suggests that Defendants attempted to invoke, not repudiate, the arbitration clause in the
Contract. See Doc. 13-1 (March 4, 2016 email from Brad Williams to Chris Healy: "The
[engagement] letter also provides for a procedure in the event of a disagreement over the
It should be noted that the Defendants have not asserted a malpractice claim in this action, nor does the record
reflect an ethics complaint to any authority.
fees[.]"); Doc. 11-2(June 28, 2016 letter from Edward Sheu to Mark Meierhenry: "Your firm's
representation ... is governed by the Attorney Fee Contract . . . with any disagreement [about
the fee] to be decided by a panel of three professionals (two selected by the Williamses, one by
your firm, and with your firm being bound by their majority decision)...."). Therefore, the sole
issue becomes whether Defendants' statements that they would not perform under the Contract,
i.e. would not pay the contingent fee, and the threats of malpractice and ethics violations claims,
acted as a repudiation of the arbitration clause.
Generally, courts have allowed or ordered arbitration even where there has been a breach
of the underlying contract. See Drake Bakeries, Inc. v. Local 50, Am. Bakery & Confectionery
Workers Int'l, AFL-CIO, 370 U.S. 254, 263 n.lO (1962) (citing 6 Corbin, Contracts § 1443)
(finding that "mere nonperformance [of other provisions in the contract] . . . is not per se
'repudiation' [of an arbitration agreement]."); see also 6 C.J.S. Arbitration § 17 ("[A] breach of
the underlying agreement is not a repudiation of its arbitration provision . . . ."). This concept
was demonstrated most notably in the Supreme Court case of Drake Bakeries. In Drake
Bakeries, after a union strike, the bakery filed an action for breach of the no-strike provision and
the union filed a motion to stay and compel arbitration in accordance with the collective
bargaining agreement. Id. at 256. The District Court granted the motion and the bakery
appealed. Id. at 255. On appeal to the Supreme Court of the United States, the bakery argued, in
part, that "even if it agreed in the contract to arbitrate union violations of the no-strike clause, it
is excused by the union's breach from pursuing the post-breach remedies called for in the
contract." Id. at 260. The Supreme Court disagreed and found that "[a]rbitration provisions,
which themselves have not been repudiated, are meant to survive breaches of contract, in many
contexts, even total breach; and in determining whether one party has so repudiated his promise
to arbitrate that the other party is excused[,] the circumstances of the claimed repudiation are
critically important." Id. at 262-63 (emphasis added).
In a case denying arbitration of attorney fees, a 1940s New York court found that where
an attomey was discharged from his contract of employment, which provided for arbitration in
the event that a reasonable fee for his services could not be agreed on, but which further provided
that the fee was to be derived only from assets recovered upon the successful termination of the
action, it was held that the discharge of the attomey by the petitioners before the termination of
the action left no basis for the determination of the fee as provided in the contract of
employment, and further, that the petitioners, having repudiated the eontraet, were not entitled to
proceed thereunder, the petitioners' motion for an order directing arbitration being therefore
denied. See Application ofTully, 24 N.Y.S.2d 638 (N.Y. Spe. Term 1940), affd, 24 N.Y.S.2d
727(N.Y. App. Div. 1940). In the present ease, by contrast, there is a basis for determination of
the attomey fees in arbitration.
The facts in the present ease are similar to the facts in Drake Bakeries. Here, while the
Defendants refused to pay the contingent fee, and subsequently threatened to assert malpractice
and ethics violations claims against Plaintiff, Defendants did not repudiate the arbitration
provision, and as the Drake Bakeries Court established,"[ajrbitration provisions ... are meant to
survive breaches of contract. . . even total breaeh[es]." Drake Bakeries, Inc., 370 U.S. at 262-
63. The present ease appears to be a total breaching by Defendants of the contingent fee
Contract but despite that total breach there is no repudiation of the arbitration clause itself.
However, some courts have found that "'[there is] nothing shocking or repugnant to law in one
business man saying to another that he regrets to find himself unable to [perform] under a
contract between them and at the same time asking the other to join with him in a reference
under an arbitration clause in their contract. ..
New Linen Supply v. E. Envtl. Controls, Inc.,
158 Cal. Rptr. 251, 254 (Cal. Ct. App. 1979)(quoting Heyman v. Darwins, Ltd., (1942) A.C.
356, 373-75). That is not the present situation, as Defendants were able to perform but did not
Aside from that distinction, courts have observed that contractual violations, and
subsequent disputes, frequently encompass the very sort of matter that the arbitration clause in
the contract was designed to consider. See, e.g., Nolde Bros. v. Local No. 358, Bakery &
Confectionery Workers Union, AFL-CIO, 430 U.S. 243, 252 (1977)(finding that "the parties'
obligations under their arbitration clause survived contract termination when the dispute was
over an obligation arguably created by the expired agreement."). Similarly, the Defendants'
refusal to pay the contingent fee was a "disagreement. . . about the termination fee . . .
thus encompassed by the arbitration provision in the Contract.
Therefore, the Court concludes that Defendants' refusal to perform under the Contract
did not act as a repudiation of the arbitration clause itself. Rather, this attomey fee dispute was
one ofthe various issues contemplated by the "Fee on Termination" clause.
See Compl., Exh. B,^4(Attomey Fee Contract),
Plaintiff requests that there be no arbitration and that this litigation continue. The Court
has explained above that the dispute will go to arbitration. In the alternative, Plaintiff requested
an alternative "alternative dispute resolution" method. As explained above, the FAA applies and
the Court has no authority to create yet another arbitration procedure. Various courts have held
that a party may not avail itself of a favorable aspect of the contract and then disavow a non-
favorable aspect. See Ricketts v. First Trust Co. ofLincoln. Neb., 73 F.2d 599, 602 (8th Cir.
1934) (finding that "he who seeks equity must do equity, and that one may not accept the
benefits and repudiate the burdens of his contract."); Power Sys. & Controls, Inc. v. Schneider
Elec. USA, Inc., 2010 WL 2384537, at *3(E.D. Va. June 9,2010)("Applying the principle that a
party may not avail itself of one aspect of a contract and disavow another aspect of the contract
in order to avoid its consequences, particularly an arbitration clause, the Court finds that Plaintiff
must abide by the arbitration clause."). Here, in its Complaint, Plaintiff seeks the sum of
$216,305.81 plus tax and interest, a figure calculated by using the fee clause in the Contract. As
the cases cited above demonstrate, however. Plaintiff cannot seek to enforce those contractual
rights to a contingent fee, despite the strong contract renunciation by Defendants, and avoid the
Contract's fee arbitration requirement.
The Court finds that a valid arbitration agreement still exists even though Defendants
repudiated the contingent fee Contract after the Contract had been substantially performed. The
dispute thus falls within the scope of a valid agreement to arbitrate as to the appropriate fee.
This case is stayed pursuant to the provisions of Section 3 of the FAA. Therefore, IT IS
ORDERED that Defendant's motion to stay and compel arbitration. Doc. 7, is granted.
Dated this 1 st day of May,2017.
BY THE COURT:
Wence L. Piersol
United States District Judge
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