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Meierhenry Sargent LLP v. Williams

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

November 20, 2017

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

         Pending 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.

         BACKGROUND

         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 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.

         In the 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.

         In 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.[1] The Contract also contained a "Fee on Termination" clause, which provided:

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.

         Notably, 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 termination.

         On 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.

         After 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.

         Ultimately, 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.

         DISCUSSION

         ESTOPPEL

         Defendants 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).

         In 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.

         "[Arbitration 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)).

         "[M]erely 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.

         SCOPE OF ARBITRATION PROCEEDINGS

         The way 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)).

         The 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 ...


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