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Meierhenry Sargent LLP v. Williams

United States District Court, D. South Dakota, Southern Division

May 1, 2017

MEIERHENRY SARGENT LLP, a South Dakota limited liability partnership Plaintiff,



         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 etseq., 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 granted.

         I. BACKGROUND

         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., 477 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 fact").

         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 from landowners in various counties, including Lincoln County, in order to build an oil pipeline.[1] In January of 2015, Defendants hired Plaintiff, a Sioux Falls, South Dakota law firm, to advise and consult with them about various legal matters related to the proposed pipeline ("First Hiring").[2] The First Hiring representation ended sometime before October of 2015.

         In October 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").[3] The Contract provided that the Defendants would pay Plaintiff one-third of the amount of settlement negotiated by the Plaintiff, less the $101, 082.56 settlement offer negotiated by the Defendants prior to retaining Plaintiff.[4] The Contract also contained a "FEE ON TERMINATION" clause, which provided:

4.FEE ON TERMINATION. If Client terminates Firm's employment before conclusion of the case without good cause, Client shall pay Firm a fee and expenses based on the fair and reasonable value of the services performed by Firm before termination. If any disagreement arises about the termination fee, the client may choose two persons from a service profession, and the firm may choose one person. The firm will be bound by a majority decision of the three persons as to a fair fee. If the Firm terminates the representation, then it shall receive no fee or expenses.[5]

         During the approximately two months in which Plaintiff represented the Defendants, Plaintiff obtained a settlement offer from Dakota Access for $750, 000. Thereinafter, on or about March 8, 2016, the Defendants terminated Plaintiffs representation.[6] In the days following this termination, however, discussions continued between the parties.[7] 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.[8] Plaintiff declined the alternative contract proposal.[9]

         Over the next several months, Defendants continued negotiations with Dakota Access. Ultimately, Defendants sold the subject property in fee to Dakota Access.[10] On May 11, 2016, Plaintiff filed an Attorney's Lien in state court for $229, 054.88 against Dakota Access and Defendants.[11] On June 14, 2016, Plaintiff emailed Defendants' new counsel, Edward Sheu, in an attempt to privately settle the attorney fee dispute.[12] On June 28, 2016, Attorney Sheu responded to Plaintiffs email by highlighting the procedure, as set forth in the Contract, to settle an attorney 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.[13]

         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).[14] On December 30, 2016, Defendants filed a timely notice of removal 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.


         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 737, 741-42 (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 or federal 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 of Leland 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 agreement 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 ...

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