KINGSLEY CAPITAL MANAGEMENT, LLC v. Sly
820 F. Supp. 2d 1011
D. Ariz.2011Background
- Kingsley Capital Management and Kingsley MD IRA Rollover arbitration-related suit against Sly, Sly & Company, Huff, Bean, Cunningham, and others arising from investments in Oxygen LLC; Oxygen's operating agreement contains a Kentucky-law arbitration clause extending to disputes related to the Offering.
- Kingsley invested $1.75 million in Oxygen in July 2008 after extensive pitches by Sly and associates, including representations about Oxygen's finances and management team.
- Kingsley learned of concerns about Oxygen's finances, lack of audited financials, and potential criminal activity among Oxygen-related parties, leading to a put option and eventual litigation filed July 2010.
- Oxygen converted from member-managed to manager-managed in 2010, and the arbitration clause was amended to cover disputes among Members, the Manager, and/or the Company arising out of the Agreement and/or the Offering.
- Multiple defendants argued for arbitration through various theories (agency, estoppel, post-filing buy-in). Kingsley opposed arbitration for most defendants; Bean sought arbitration via agency, Huff argued against agency due to criminal history, and Sly claimed to have become an Oxygen member post- filing.
- The court denied arbitration against most defendants, granted arbitration only as to Bean on agency grounds, and denied Cunningham’s motion to dismiss for lack of personal jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cunningham has personal jurisdiction. | Kingsley asserts purposeful Arizona-directed acts by Cunningham. | Cunningham contends minimal forum-directed activity (one meeting). | Cunningham's jurisdiction challenged; court denied motion after analysis. |
| Whether Sly and Sly & Company are bound to arbitrate under Oxygen's arbitration clause. | Kingsley argues no mutual consent; post-filing buy-in cannot bindKingsley. | Sly argues post-filing transfer and agency could bind Kingsley. | Arbitration not compelled for Sly; Bean compelled via agency. |
| Whether Kingsley is equitably estopped from avoiding arbitration with non-signatories. | Kingsley argues lack of traditional estoppel basis; no reference to agreement in claims. | Defendants invoke MS Dealer broad and narrow approaches. | Narrow approach aligns with traditional principles; Kingsley not estopped under state or Carlisle. |
| Whether arbitration is warranted through agency for Bean and Huff. | Huff cannot be agent due to felony; Bean may be agent under Kentucky LLC law. | Huff argues agency; Bean asserts agency via River Falls and Oxygen structure. | Bean may compel arbitration via agency; Huff cannot bind Kingsley; agency analysis applied. |
| Whether arbitration in Kentucky would be unconscionable or improper due to law/fees. | Expenses and Arizona law concerns could render arbitration unjust. | Green Tree standard applied; no clear unconscionability; possible Kentucky law impact. | Arbitration not unconscionable; certain limited law-choicelaw issues acknowledged. |
Key Cases Cited
- MS Dealer Service Corp. v. Franklin, 177 F.3d 942 (11th Cir.1999) (two tests for equitable estoppel in arbitration)
- Carlisle v. Arthur Andersen LLP, 556 U.S. 624 (S. Ct. 2009) (state-law governs arbitration-by-estoppel; Carlisle abrogates federal preemption view)
- Mundi v. Union Security Life Ins. Co., 555 F.3d 1042 (9th Cir.2009) (narrow estoppel approach; signatory-sues-first)
- Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir.1999) (scope of arbitration clause; dispute between contracting parties)
- Morrison v. Amway Corp., 517 F.3d 248 (5th Cir.2008) (arbitration agreement validity concerns about unilateral rights)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (S. Ct. 1995) (state-law principles govern formation of contract and arbitration)