United States District Court, D. South Dakota, Southern Division
MEIERHENRY SARGENT LLP, a South Dakota limited liability partnership, Plaintiff,
BRADLEY WILLIAMS and KERRY WILLIAMS, Defendants.
MEMORANDUM OPINION AND ORDER ON PLAINTIFF'S
MOTION FOR RELIEF FROM STAY AND FOR ORDER TO DECLARE THE
SCOPE OF ARBITRATION PROCEEDINGS
LAWRENCE L. PIERSOL UNITED STATES DISTRICT JUDGE
before the Court is Plaintiffs Motion for Relief from Stay
and Motion for Order to Declare the Scope of Arbitration
Proceedings, Doc. 16. A hearing was held and argument was
heard on the Motion on October 26, 2017 with Plaintiffs
counsel appearing in person and Defendant's counsel
appearing by telephone. For the reasons set forth herein,
Plaintiffs Motion is granted.
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 seeking to acquire easements from
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 consult with them about various legal
matters related to the proposed pipeline ("First
Hiring"). The First Hiring representation ended sometime
before October of 2015.
First Hiring, the parties agreed Defendants would pay
Plaintiff on a per hour basis at the rate of $275/hour for
Mark Meierhenry's time, $160/hour for Christopher
Healy's time, and $75/hour for their legal
assistant's time. At the time the First Hiring ended,
Plaintiff alleged that Defendants had an outstanding bill for
services rendered in the amount of $593.60. There was not an
arbitration provision in the terms of the First Hiring.
October of 2015, Dakota Access initiated an eminent domain
action against Defendants. In December of 2015, Defendants
retained Plaintiff to represent them in those proceedings
("Second Hiring"). Plaintiff and the Defendants
entered into an Attorney Fee Contract ("Contract")
which provided that 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. The Contract also
contained a "Fee on Termination" clause, which
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
the provision is silent as to who, the panel of arbitrators
or the Court, decides the scope of arbitration. Ultimately,
Plaintiff and Defendants had a falling out, resulting in the
termination of Plaintiffs services. There is now a dispute
regarding the fees and expenses owed as a result of the
November 17, 2016, Plaintiff filed a two-count Complaint
against Defendants in Minnehaha County state court, seeking
payment for its fees for the First and Second Hirings. On
December 30, 2016, Defendants filed a timely notice of
removal pursuant to 28 U.S.C. § 1441 and 28 U.S.C.
§ 1332. On January 6, 2017, Defendants filed a motion
requesting this Court to stay the action and compel
arbitration of Count II pursuant to the Federal Arbitration
Act, 9 U.S.C. § 1 et seq., and Fed.R.Civ.P. 12(b0(1). On
May 1, 2017, this Court issued a Memorandum Opinion and Order
on Defendants' Motion to Stay Action and Compel
Arbitration, granting the stay and compelling arbitration of
Plaintiffs claim for money owed under the Contract.
Defendants' Motion was granted, Defendants presented
Plaintiff with an Answer, Affirmative Defenses, and
Counterclaims. The first three of the twelve counterclaims
involve the First Hiring and the remainder the Second Hiring.
The parties subsequently began discussing protocols and
procedures for the arbitration. Plaintiff asserts that
throughout these discussions, Plaintiff filed submissions
stating that the arbitrators do not have authority to
determine the arbitrability of Defendants' Counterclaims
and that the Counterclaims were not arbitrable. On August 2,
2017, the Arbitration Panel ("Panel") proposed
procedures based on the parties' competing proposals,
including that the Counterclaims were arbitratrable, and on
August 9, 2017, the parties and the Panel held a phone
conference to discuss the parties' positions. The
arbitrability of Count I and Counterclaims I-III was not
submitted to the Panel. On August 23, 2017, Plaintiff filed
this Motion for Relief from Stay and Motion for Order to
Declare the Scope of the Arbitration Proceedings. The
following day, the Panel issued an order on the parties'
positions, but because Plaintiff had added new counsel and
filed this motion with the Court, the Panel deferred
addressing arbitrability in its order.
Plaintiff challenges the arbitrability of Counterclaims IV,
V, and DC-XII. Plaintiff argues that it is for the Court, not
the Panel, to determine the arbitrability of the
Counterclaims and therefore asks the Court to determine the
scope of the arbitration proceedings. In response, Defendants
argue Plaintiff should be estopped from submitting to the
Court the issue of arbitrability of Defendants'
Counterclaims and that the arbitration provision of the
Contract is broadly drafted to include all of Defendants'
Counterclaims. For the reasons set forth herein, the Court
finds Plaintiffs are not estopped from submitting this issue
to the Court. Therefore, the Court sets forth the scope of
arbitration proceedings below.
argue that, because Plaintiff submitted the issue of
arbitrability to the Panel by arguing arbitrability in its
own Brief in Support of Arbitration Protocols,
"Plaintiffs request that the Court now stop the Panel
from hearing the Counterclaims is untimely and waived."
Plaintiff maintains, however, that it has firmly argued that
the arbitrators do not have authority to determine the scope
of the arbitration provision of the Contract through the
entirety of the arbitration discussions. The Court need not
tarry long with the issue of estoppel, however, as the
question of whether a party submits the question of
arbitrability to arbitration by merely arguing the
arbitrability issue to an arbitrator has been squarely
addressed by the Supreme Court in First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).
addressing the question, the Court noted its practical
importance "because a party who has not agreed to
arbitrate will normally have a right to a court's
decision about the merits of the dispute." First
Options, 514 U.S. at 942. "Where the party has
agreed to arbitrate, he or she, in effect, has relinquished
much of that right's practical value." Id.
Accordingly, "[t]he question whether the parties have
submitted a particular dispute to arbitration, i.e., the
'question of arbitrability, ' is 'an issue for
judicial determination [u]nless the parties clearly and
unmistakably provide otherwise.'" Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (citing
AT&T Techs., Inc. v. Commc'ns Workers, 475
U.S. 643, 649 (1986) (emphasis added); First
Options, 514 U.S. at 944). The question of whether the
parties have waived their right to have the issue of
arbitrability decided by the Court is similarly substantive,
requiring resolution by the courts, because the question
speaks to whether or not the parties haye agreed to arbitrate
the issue. See First Options, 514 U.S. at 943
("[T]he question 'who has the primary power to
decide arbitrability' turns upon what the parties agreed
about that matter.") Thus, the question is not whether
the parties waived their agreed upon right to arbitrate, a
procedural matter left to the arbitrator to decide, see
Howsam, 537 U.S. at 84-85 (citing Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983), but whether the parties demonstrated an
agreement to arbitrate an issue at all.
is simply a matter of contract between the parties; it is a
way to resolve those disputes-but only those disputes-that
the parties have agreed to submit to arbitration."
First Options, 514 U.S. at 943. "When deciding
whether the parties agreed to arbitrate a certain matter
(including arbitrability), courts generally (though with a
qualification...) should apply ordinary state-law principles
that govern the formation of contracts." Id. at
944. The referenced qualification applies when courts decide
whether a party has agreed that arbitrators should decide
arbitrability: "Courts should not assume that the
parties agreed to arbitrate arbitrability unless there is
'clea[r] and unmistakabl[e] evidence that they did
so.'"/J. (quoting AT&T Techs., Inc. v.
Commc'ns Workers, 475 U.S. 643, 649 (1986)).
arguing the arbitrability issue to an arbitrator does not
indicate a clear willingness to arbitrate that issue, i.e., a
willingness to be effectively bound by the arbitrator's
decision on that point." Id. at 946. Here, as
the defendants did in First Options, Plaintiff has
continuously forcefully objected to the arbitrators deciding
the Counterclaims. See Id. As the Supreme Court
concluded, this does not demonstrate a clear willingness to
arbitrate. See Id. Instead, "one naturally
would think that they did not want the arbitrators
to have binding authority over them." Id. The
basic objective of this area of law is "to ensure that
commercial arbitration agreements, like other contracts,
'are enforced according to their terms."
Id. at 947 (citing Mastrobuono v. Shearson
Lehman Hutton, 7«c., 514U.S. 52, 54 (1995)
(quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland
Stanford Junior Univ., 489 U.S. 468, 479 (1989))).
Accordingly, because the arbitration provision of the
Contract is silent on the issue and because Plaintiff did not
clearly agree to submit the question of arbitrability to
arbitration, the arbitrability of the Counterclaims is
subject to independent review by the Court.
OF ARBITRATION PROCEEDINGS
the law treats silence or ambiguity about the question of who
decides arbitrability is different from the way it treats
silence or ambiguity about the question "whether a
particular merits-related dispute is arbitrable because it is
within the scope of a valid arbitration agreement."
Id. at 944-45. With respect to the latter question,
the law reverses the presumption, and "any doubts
concerning the scope of arbitrable issues should be resolved
in favor of arbitration." Mitsubishi Motors Corp. v.
Soler Chrystler-Plymouth, Inc., 473 U.S. 614, 626 (1985)
(quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24-25 (1983)).
Court has previously held that there is a binding arbitration
agreement. The next question now presented is "as to
whether a valid arbitration agreement applies to the subject
matter at hand" and that "is a question for a court
to consider." EFCO Corp. & Const. Prods.,
Inc.,359 F.3d 954, 956 (8th Cir. 2004). The Court does
determine that the arbitration clause in this Attorney Fee
Contract is narrow. It is a typical contingent attorney fee
contract based upon a percentage of the lift over an existing
offer. The arbitration clause itself is limited to
determining fees upon termination of the Firm's
employment before conclusion of the case without good cause.
By comparison, the Eighth Circuit has held a clause which
provides for arbitrating any "claim ...