Kramlich v. Hale
2017 ND 204
| N.D. | 2017Background
- Somerset Court Partnership owns land for an assisted-living facility; partners include Gary and Glory Kramlich (25%) and Robert and Susan Hale (62%).
- Somerset-Minot, LLC (formerly Spectrum Care, LLC) operates the facility; members include Gary Kramlich and Robert Hale (Gary 950 voting shares; Robert 2,850 of 4,000 voting shares). Glory Kramlich and Susan Hale are not LLC members.
- The LLC operating agreement (May 28, 1999) contains an arbitration clause requiring AAA arbitration for any dispute "arising out of or relating to this agreement." The partnership agreement (July 24, 2000) contains no arbitration clause.
- The Hales offered to buy the Kramlichs’ interests; the Kramlichs refused and sued alleging breach, fraud, embezzlement, misrepresentation, and related claims against the Hales, the partnership, the LLC, and other entities.
- The district court dismissed and compelled arbitration of all disputes based on the LLC’s broad arbitration clause; the Kramlichs appealed and the Hales cross-appealed on mootness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the LLC arbitration clause can be applied to disputes involving the partnership | Kramlich: partnership claims not subject because partnership agreement has no arbitration clause | Hales: LLC clause is broad and parties/entities/issues are interrelated so arbitration should cover all disputes | Court: Arbitration required only for claims "arising out of or relating to" the LLC operating agreement; partnership claims not compelled to arbitration |
| Who decides arbitrability of particular claims | Kramlich: court should determine arbitrability | Hales: incorporation of AAA rules delegates arbitrability to arbitrator | Court: Incorporation of AAA rules is clear evidence parties agreed that arbitrator decides which claims arise from or relate to the LLC agreement |
| Whether compelling arbitration violated the Kramlichs’ jury-trial right | Kramlich: compelled arbitration waives jury right improperly | Hales: Gary signed the LLC agreement; pursuing claims under that agreement waives jury right; non-signatory spouses may be estopped | Court: No violation; Gary signed and equitable estoppel applies to claims based on the agreement |
| Whether the case was rendered moot by the Hales’ withdrawal of the buyout offer | Hales: withdrawal moots the dispute | Kramlich: claims are broader than the offer and survive withdrawal | Court: Not moot; claims survive withdrawal and remain justiciable |
Key Cases Cited
- Blinco v. Green Tree Servicing, LLC, 400 F.3d 1308 (11th Cir. 2005) (broad arbitration clause binds related non-signatories under equitable estoppel where they claim benefits from the contract)
- ARW Expl. Corp. v. Aguirre, 45 F.3d 1455 (10th Cir. 1995) (arbitration clauses in related agreements can reach disputes in an agreement lacking an arbitration clause)
- Associated Brick Mason Contractors of Greater New York, Inc. v. Harrington, 820 F.2d 31 (2d Cir. 1987) (collective bargaining arbitration provision held broad enough to cover disputes under separate memorandum)
- Breaker v. Corrosion Control Corp., 23 P.3d 1278 (Colo. Ct. App. 2001) (arbitration clause limited to disputes "arising out of or relating to this Agreement" does not necessarily cover separate agreements)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (procedural questions about arbitration are presumptively for arbitrators unless parties clearly provide otherwise)
- Real Builders, LLP v. 26th Street Hosp., LLP, 879 N.W.2d 437 (N.D. 2016) (North Dakota recognizes strong policy favoring arbitration and allows incorporation of AAA rules to delegate arbitrability to arbitrator)