Capstone Associated Services, Ltd. et al v. Organizational Strategies, Inc. et al
Filing
48
MEMORANDUM AND ORDER denying 43 Motion for Reconsideration.(Signed by Judge Nancy F Atlas) Parties notified.(TDR, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CAPSTONE ASSOCIATED
SERVICES, LTD., et al.,
Plaintiffs,
v.
ORGANIZATIONAL STRATEGIES,
INC., et al.,
Defendants.
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May 20, 2016
David J. Bradley, Clerk
CIVIL ACTION NO. H-15-3233
MEMORANDUM AND ORDER
This case is before the Court on the Motion for Reconsideration [Doc. # 43]
filed by Defendants Organizational Strategies, Inc. (“OSI”), Nicolette Hendricks,
William Hendricks, Integration Casualty Corp., System Casualty Corp., and Optimal
Casualty Corp. (collectively, the “OSI Entities”), to which Plaintiffs Capstone
Associated Services, Ltd. and Capstone Associated Services (Wyoming), Limited
Partnership (collectively, “Capstone”) filed a Response [Doc. # 44], and Defendants
filed a Reply [Doc. # 45].
Defendants seek reconsideration of the Court’s
Memorandum and Order [Doc. # 42] entered April 8, 2016, granting Plaintiffs’
Motion to Compel Arbitration. Defendants argue that the Court’s ruling is precluded
by the Memorandum Opinion and Order entered July 29, 2013 by the Honorable Gray
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Miller in PoolRe Ins. Corp. v. Organizational Strategies, Inc., Civil Action No. H-131857 (“Judge Miller’s Decision”). Having reviewed the record and applicable legal
authorities, the Court denies the Motion for Reconsideration.
I.
BACKGROUND
Defendant Organizational Strategies, Inc. is a defense contractor owned and
operated by Defendants Nicolette and William Hendricks. Integration Casualty Corp.,
System Casualty Corp. and Optimal Casualty Corp. are captive insurance companies,
established to insure the risks of the business with which they are associated.
Capstone offers alternative risk planning and administrative services for captive
managers. The Feldman Law Firm LLP and its principal attorney Stewart Feldman
(collectively, “Feldman”) are the attorneys for Capstone in connection with its
business of providing planning services for captive insurance companies.
Capstone alleges that it and Feldman entered into a contract with Defendants.
Plaintiffs allege that the contract is comprised of a June 20, 2011 Engagement Letter
with “Guidelines on Firm Administration and Billing” attached (“Engagement
Letter”), as amended by the “Capstone Services Agreement” (“CSA”). See Exhibit 1
to Amended Complaint [Doc. # 21-1]. The CSA provides specifically that it and the
Engagement Letter collectively are the entire agreement, and that the agreement can
be “amended, modified, or supplemented only by written agreement executed by the
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parties” thereto. See CSA [Doc. # 21-1], p. 10. The CSA controls in the event of a
conflict between it and the Engagement Letter. See id. at 9. Under Article V of the
CSA, Defendants were granted a limited license to use Capstone’s intellectual
property, a license that would expire upon the termination of the contract. See id. at 89.
The Engagement Letter contains a provision that requires arbitration of most
disputes among the parties (“Arbitration Provision”). This Arbitration Provision
specifically excludes disputes or claims for attorneys’ fees and/or costs, and requires
arbitration “with respect to any and all other disputes or claims whatsoever . . . related
to or arising out of [Feldman’s] services.” See Arbitration Provision [Doc. # 21-1],
pp. 14. The Arbitration Provision in the Engagement Letter provides that it “shall be
effective notwithstanding any actions that may later take place.” Id. at 15. The
Arbitration Provision states clearly and unequivocally that the parties agree that the
issue of arbitrability shall be decided by the arbitrator and not by the court. See id.
In Article VI, the CSA provides that the sole venue and jurisdiction for Article
V (intellectual property) claims “shall be courts located in Harris County, Texas” and
venue and jurisdiction for “all other disputes” will be in Delaware. See id. The
parties “expressly recognized that parallel proceedings may thereby result.” Id.
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Capstone alleges that in 2012, Defendants questioned the price of the insurance
premiums for the captives’ insurance policies. A related dispute arose in 2012 when
Defendants failed to pay for Plaintiffs’ services. Defendants notified Plaintiffs in
writing that they would be terminating the contract effective December 31, 2012.
Capstone alleges that, after the CSA was terminated, Defendants improperly continued
to use the intellectual property that was the subject of the license and refused to return
confidential documents.
Capstone filed an arbitration demand against the OSI Entities in March 2013.
Capstone asserted that its claim arose out of a breach of contract. Dion Ramos of
Conflict Resolution Systems, PLLC appointed himself as the arbitrator. PoolRe
Insurance Corp. (“PoolRe”) and Feldman intervened in the arbitration. Ramos found
that the Engagement Letter’s arbitration clause required arbitration of Capstone’s
claims.
Meanwhile, the OSI Entities filed a lawsuit in Delaware in April 2013, asserting
claims for professional negligence, malpractice, fraud in the inducement and breach
of contract. Capstone removed the lawsuit to Delaware federal court, where it was
assigned to the Honorable Richard G. Andrews.
Back in Houston, the arbitration was scheduled to begin on June 26, 2013. On
Sunday, June 23, 2013, Capstone filed a second arbitration demand, asserting that the
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OSI Entities breached Article V of the CSA, which related to Capstone’s intellectual
property. On Monday, June 24, 2013, Capstone filed a notice purporting to withdraw
its second arbitration demand, arguing that the claim was already part of the Houston
arbitration. Arbitrator Ramos disagreed and held that the Article V claim would not
be part of the arbitration.
On June 25, 2013, PoolRe filed the Motion for Confirmation of Arbitration
Award, which was assigned to Judge Miller as Civil Action No. H-13-1857. PoolRe
sought an order from Judge Miller confirming “a forthcoming arbitration award.”
Judge Miller ordered PoolRe to show cause why the case should not be dismissed for
lack of jurisdiction to confirm an arbitration award that had not been issued, with a
July 9, 2013 deadline for PoolRe’s response. In its response, filed at 11:26 p.m. on
July 9, 2013, PoolRe represented that the arbitration award its favor was issued on
July 9, 2013. Additionally, PoolRe asked Judge Miller to compel the OSI Entities to
participate in a the arbitration of the Article V claim that Arbitrator Ramos held was
not part of the first Houston arbitration. Judge Miller denied the request to compel
arbitration of the Article V claim, citing the venue requirement in Article VI of the
CSA that required Article V claims to be litigated solely in the courts of Harris
County, Texas.
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Meanwhile, back in Delaware, Judge Andrews ruled in February 2014 that the
parties were contractually required to arbitrate the non-Article V claims in Delaware.
The OSI Entities immediately filed an arbitration demand in Delaware. On March 14,
2014, the OSI Entities filed a motion in the Delaware federal court seeking an order
compelling arbitration. In his May 29, 2014 ruling, Judge Andrews granted the OSI
Entities’ motion to compel arbitration of the non-Article V dispute. In March 2015,
the United States Court of Appeals for the Third Circuit affirmed Judge Andrews’s
decision.
On October 1, 2015, Plaintiffs filed this lawsuit against Defendants in Texas
state court. On October 28, 2015, Plaintiffs and Defendants mediated all of their
disputes in a single mediation. The mediation resulted in the execution of the parties’
Mediated Settlement Agreement (“MSA”), which covers all claims between the
parties except the intellectual property (Article V) claims pending in this lawsuit. See
MSA, Exh. A to Motion to Compel Arbitration [Doc. # 32], ¶ 3.
Plaintiffs filed a Motion to Compel Arbitration.
Plaintiffs argued that
Defendants’ affirmative defenses, asserted in Defendants’ Answer and in their
Motions to Dismiss, are based on issues that were covered by and released under the
MSA. The issues asserted as affirmative defenses are not Article V claims for relief
but are, instead, non-Article V issues relating to Feldman’s services under the
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Engagement Letter and the CSA. This Court granted the request for arbitration
pursuant to the Arbitration Provision in the Engagement Letter and held that the issue
of arbitrability would be decided by the arbitrator. See Memorandum and Order [Doc.
# 42], p. 9.
Defendants filed their Motion for Reconsideration, arguing that, based on Judge
Miller’s July 23, 2013 decision in the PoolRe case, res judicata precluded arbitration
in this case. The Motion for Reconsideration has been fully briefed and is now ripe
for decision.
II.
STANDARD FOR RECONSIDERATION
Rule 59(e) permits a litigant to file a motion to alter or amend a judgment. FED.
R. CIV. P. 59(e) (“A motion to alter or amend a judgment must be filed no later than
28 days after the entry of the judgment.”). Reconsideration of a judgment is an
“extraordinary remedy that should be used sparingly.” Waites v. Lee County, Miss.,
498 F. App’x 401, 404 (5th Cir. Nov. 26, 2012) (quoting Templet v. Hydrochem, Inc.,
367 F.3d 473, 479 (5th Cir. 2004)). A motion for reconsideration “is not the proper
vehicle for rehashing evidence, legal theories, or arguments that could have been
offered or raised before the entry of judgment.” Templet v. HydroChem Inc., 367 F.3d
473, 479 (5th Cir. 2004); Knight v. Kellogg Brown & Root Inc., 2009 WL 1471788,
at *6 (5th Cir. 2009) (quoting Templet, 367 F.3d at 479). Instead, Rule 59(e) serves
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the narrow purpose of allowing a party to bring errors or newly discovered evidence
to the Court’s attention. See In re Rodriguez, 695 F.3d 360, 371 (5th Cir. 2012)
(citing In re Transtexas Gas Corp., 303 F.3d 571, 581 (5th Cir. 2002)).
A litigant seeking relief under Rule 59(e) “must clearly establish either a
manifest error of law or fact or must present newly discovered evidence.”
Balakrishnan v. Bd. of Supervisors of La. State Univ. & Agr. & Mech. Coll., 452 F.
App’x 495, 499 (5th Cir. 2011) (citing Ross v. Marshall, 426 F.3d 745, 763 (5th Cir.
2005) (quotation marks and citation omitted)). A Rule 59(e) motion “cannot be used
to argue a case under a new legal theory.” Id. (citing Ross, 426 F.3d at 763).
Moreover, “an unexcused failure to present evidence available at the time of summary
judgment provides a valid basis for denying a subsequent motion for reconsideration.”
Templet, 367 F.3d at 479 (citing Russ v. Int’l Paper Co., 943 F.2d 589, 593 (5th Cir.
1991)); see also Tate v. Starks, 444 F. App’x 720, 729 (5th Cir. June 21, 2011).
III.
ANALYSIS
Defendants seek reconsideration of the Court’s April 8, 2016 Memorandum and
Order.
Based on Judge Miller’s July 23, 2013 decision in the PoolRe case,
Defendants argue that res judicata precludes arbitration. “Res judicata has four
elements: (1) the parties are identical or in privity; (2) the judgment in the prior action
was rendered by a court of competent jurisdiction; (3) the prior action was concluded
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by a final judgment on the merits; and (4) the same claim or cause of action was
involved in both actions.” Houston Professional Towing Ass’n v. City of Houston,
812 F.3d 443, 447 (5th Cir. 2016). In this case, Defendants have failed to establish
the fourth element.
Plaintiffs seek to arbitrate whether Defendants in the MSA released the
affirmative defenses of prior material breach, conflict of interest, unclean hands, fraud
and illegality, and unconscionability. Each of these affirmative defenses is related to
or arises out of Feldman’s services under the Engagement Letter and the CSA. None
of the affirmative defenses involves a claim for relief under Article V of the CSA.
This Court, based on the clear and unambiguous language in the Engagement Letter,
held that the arbitrability of this specific issue would be determined by the arbitrator.
Judge Miller in the PoolRe case was presented with a different issue. In that
case, the issue was whether the Court or the arbitrator would decide the arbitrability
of claims under Article V of the CSA. Judge Miller noted that the Engagement Letter
contains a clear delegation to the arbitrator of the authority to decide arbitrability.
Judge Miller then noted that the CSA’s provision in Article VI that venue and
jurisdiction for Article V claims would be in the courts of Harris County, Texas,
indicated that “the parties intended to entrust disputes arising under Article V to a
judicial forum in Harris County, Texas.” See Judge Miller’s Decision, p. 13.
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Therefore, Judge Miller held that “the venue clause of Article VI of the [CSA]
supersedes the broad arbitration provisions of the [Engagement Letter] insofar as they
relate to claims for relief under Article V of the [CSA].” Id. at 10 (emphasis added).
In the case now before this Court, the affirmative defenses are not claims for relief
under Article V of the CSA and, as a result, Judge Miller’s decision did not decide the
issue before this Court. It is clear from the CSA and the MSA that the parties’
position throughout has been to treat the Article V claims and the non-Article V
claims differently. Indeed, no party is asserting that Plaintiffs’ Article V claims in this
case are arbitrable.
It may ultimately be decided that Defendants are correct that the non-Article V
issues in this case, presented as affirmative defenses to Article V claims, are not
arbitrable. The parties agreed in the Engagement Letter, however, that the issue of
arbitrability would be decided by the arbitrator. The parties’ agreement is not affected
by Judge Miller’s PoolRe decision, which was limited to the decision regarding the
arbitrability of Article V claims. This Court’s failure to give res judicata effect in this
case to Judge Miller’s ruling in PoolRe was not manifest error and, therefore,
reconsideration is not warranted.
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IV.
CONCLUSION AND ORDER
Judge Miller’s decision in PoolRe has no preclusive effect on this Court’s
decision that the arbitrator should determine the arbitrability of whether non-Article V
affirmative defenses, based on services performed under the Engagement Letter and
the CSA and asserted in this lawsuit, were waived in the MSA. The Court’s prior
ruling was correct, and it is hereby
ORDERED that Defendants’ Motion for Reconsideration [Doc. # 43] is
DENIED.
SIGNED at Houston, Texas, this 20th day of May, 2016.
NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE
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