Scruggs v. Anderson
Filing
10
MEMORANDUM OPINION AND ORDER granting in part and denying in part 8 MOTION by Wayne Anderson, US Natural Gas Corp WV, US Natural Gas Corp. to Compel Arbitration and to Dismiss; granting Defendants' motion to compel arbitration and denying th eir motion to dismiss; directing the parties to submit the disputes in this case to arbitration; staying this case pending the resolution of such arbitration. Signed by Judge Robert C. Chambers on 7/1/2014. (cc: attys; any unrepresented parties) (mkw)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION
WALLACE L. SCRUGGS, JR. and
RENEE SCRUGGS,
Plaintiffs,
v.
CIVIL ACTION NO. 3:13-30435
WAYNE ANDERSON, individually
and as successor in interest to
American Energy Holdings, LLC,
Wilon Resources, Inc. and E2
Investments, LLC;
US NATURAL GAS CORP WV,
a Florida Corporation and
US NATURAL GAS CORP,
a Florida Corporation,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the Court is the Motion to Compel Arbitration and to Dismiss, ECF No. 8,
of Defendants Wayne Anderson, US Natural Gas Corp. WV, and US Natural Gas Corp. For the
reasons explained below, the Court GRANTS in part and DENIES in part this Motion.
Specifically, the Court GRANTS Defendants’ motion to compel arbitration and DENIES their
motion to dismiss. The Court hereby ORDERS the parties to submit the disputes in this case to
arbitration. This case is STAYED pending the resolution of such arbitration.
I.
Background
On February 14, 2006, Plaintiffs Wallace and Renee Scruggs entered into a Subscription
Agreement (“the Agreement”) with American Energy Holdings, LLC (“AEH”), whereby, in return
for their investment of $350,000, Plaintiffs were to receive a working interest in a natural gas
well—specifically, Butler Davis Farm Well No. 5 (“the Well”). Compl. ¶ 23, ECF No. 1; Ex. A,
Defs.’ Mot. Compel Arb., ECF No. 8-1 at 2-4. The Agreement contains the following arbitration
clause:
We agree that all disputes between [AEH] and [Plaintiffs] relating to this
investment shall be resolved exclusively through binding arbitration conducted
under the commercial arbitration rules of the American Arbitration Association.
The Arbitration award is enforceable as a judgment of any court having proper
jurisdiction. The costs of arbitration shall be split equally between [AEH], [sic] and
each party and each shall bear that party’s own legal expenses.
Ex. A, Defs.’ Mot. Compel Arb., ECF No. 8-1 at 4.
According to the Complaint, AEH sold or transferred its interests, including that in the
Well, to Wilon Resources, Inc. (“Wilon”), which assumed AEH’s obligations under the
Agreement. Compl. ¶ 24. On June 2, 2008, Wilon executed a one-page Assignment of the same
amount of working interest in the Well as was designated in the original Agreement and recorded
that assignment in Wayne County, West Virginia. See id. ¶ 25; Ex. B, Defs.’ Mot. Compel Arb.,
ECF No. 8-1 at 6. On March 27, 2009, Wilon executed a one-page Amendment to both the original
Agreement and the Assignment which promised a priority per annum distribution to Plaintiffs
from August 14, 2006, to the date the first royalty payment is made. See Compl. ¶ 26; Ex. C, Defs.’
Mot. Compel Arb., ECF No. 8-1 at 8. Neither the Assignment nor the Amendment addressed
arbitration.
According to the Complaint, on November 10, 2009, E 2 Investments, LLC (“E 2”), a
wholly-owned subsidiary of Defendant US Natural Gas Corp. (“USNG”), agreed to purchase all of
Wilon’s outstanding shares. Compl. ¶ 27. Additionally, on or about March 19, 2010, USNG
acquired all of Wilon’s outstanding shares and began to hold Wilon as a wholly-owned subsidiary.
Id. ¶ 28. According to Plaintiffs, USNG is thus the successor to Wilon and assumed its
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responsibilities under the Agreement, the Assignment, and the Amendment. Id. ¶¶ 27-28. On the
same day when Wilon became a wholly-owned subsidiary of USNG, Wilon changed its name to
that of Defendant US Natural Gas Corp. WV (“USNG WV”). Id. ¶ 29.
Plaintiffs bring the instant action under breach of contract, negligence, breach of fiduciary
duty, and fraud against all Defendants in relation to Plaintiffs’ investment in the Well, including
alleged misrepresentations by the operator of AEH and Wilon and by the owner and/or operator of
USNG, Defendant Anderson,1 regarding the investment. See Compl. ¶¶ 18-21; id. at 7-13.
Defendants filed the instant Motion on June 2, 2014, and Plaintiffs filed no response. This
Motion is ripe for resolution.
II.
Legal Standard
In the Fourth Circuit, a litigant may compel arbitration under the Federal Arbitration Act
(“FAA”) if he demonstrates:
(1) the existence of a dispute between the parties, (2) a written agreement that
includes an arbitration provision which purports to cover the dispute, (3) the
relationship of the transaction, which is evidenced by the agreement, to interstate or
foreign commerce, and (4) the failure, neglect or refusal of the [other party] to
arbitrate the dispute.
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th Cir. 2002) (internal quotation marks
omitted).
“[D]ue regard must be given to the federal policy favoring arbitration, and ambiguities as
to the scope of the arbitration clause itself [are to be] resolved in favor of arbitration.” Id. at 500.
As explained by the Fourth Circuit:
The FAA requires a court to stay “any suit or proceeding” pending arbitration of
“any issue referable to arbitration under an agreement in writing for such
arbitration.” 9 U.S.C. § 3. This stay-of-litigation provision is mandatory. A district
court therefore has no choice but to grant a motion to compel arbitration where a
valid arbitration agreement exists and the issues in a case fall within its purview.
1
The relationship between Defendant Anderson and USNG is never clearly explained in the Complaint.
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Id.; see also Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 937 (4th Cir. 1999).
III.
Analysis
The four elements from Adkins are easily fulfilled here. First, a dispute exists between the
parties, as evidenced by the pending civil case. Second, the Agreement contains an expansive
arbitration clause, which states, in pertinent part, “[A]ll disputes . . . relating to this investment
shall be resolved exclusively through binding arbitration.” Ex. A, Defs.’ Mot. Compel Arb.
Additionally, Plaintiffs’ breach of contract, negligence, breach of fiduciary duty, and fraud claims
all relate back to Plaintiffs’ investment in the Well, as outlined in the Agreement. Though the
Agreement only purports to govern disputes between Plaintiffs and AEH, none of the parties
appear to contest the applicability of the Agreement—and thus its arbitration clause—to this case.
Indeed, were Plaintiffs to do so, the basis for the instant suit would be thrown into jeopardy, given
that the Agreement is the foundation upon which the later Assignment, Amendment, and
successions of responsibility leading to the alleged liability of Defendants are based. Whatever the
reason, Plaintiffs have neglected to file a response to the instant Motion, so the validity of the
Agreement in this case is not in dispute for the purpose of this Motion.
Third, the transaction at issue here—the exchange of money for a working interest in the
Well—relates to interstate commerce. See Gov’t of Virgin Is. v. United Indus. Workers, N.A., 169
F.3d 172, 176 (3d Cir. 1999) (“The Supreme Court has stated that the FAA’s reach coincides with
that of the Commerce Clause. [Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274 (1995).]
This broad interpretation of the FAA is consistent with the FAA’s basic purpose, to put arbitration
provisions on the same footing as a contract’s other terms.” (brackets omitted) (internal quotation
marks omitted)). Plaintiffs are residents of Maryland; AEH and Wilon were citizens of Tennessee;
the Well is located in West Virginia; and Defendants and E 2 are citizens of Florida. See Compl. ¶¶
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1-2, 4-6, 18-19. Fourth, Plaintiffs failed to arbitrate this dispute by filing this lawsuit in the first
place. Therefore, the Court easily finds that this dispute should be sent to arbitration.
The Fourth Circuit has declined to rule on whether dismissal or merely a stay is the proper
remedy when all of the issues presented in a lawsuit are arbitrable:
[T]here may be some tension between our decision in Hooters—indicating that a
stay is required when the arbitration agreement covers the matter in dispute—and
Choice Hotels—sanctioning dismissal when all of the issues presented are
arbitrable. [T]his potential tension mirrors a circuit split . . . . We . . . decline to
resolve this disagreement.
Noohi v. Toll Bros., Inc., 708 F.3d 599, 605 n.2 (4th Cir. 2013) (ellipses omitted) (internal
quotation marks omitted). In the exercise of caution and in compliance with the plain wording of
the FAA in 9 U.S.C. § 3, this Court declines Defendants’ invitation to entirely dismiss the case
and, instead, stays the action pending the resolution of court-ordered arbitration.
IV. Conclusion
As explained above, Defendants’ Motion to Compel Arbitration and to Dismiss, ECF No.
8, is GRANTED in part and DENIED in part. Specifically, the Court GRANTS Defendants’
motion to compel arbitration and DENIES their motion to dismiss. The Court hereby ORDERS
the parties to submit the disputes in this case to arbitration. This case is STAYED pending the
resolution of such arbitration.
The Court DIRECTS the Clerk to send a copy of this written Opinion and Order to counsel
of record and any unrepresented parties.
ENTER:
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July 1, 2014
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