908 N.W.2d 115
N.D.2018Background
- Raymond Melendez, a minority member of Riggers Store Holdings (Del. LLC), sued Merritt Horning and related entities alleging Horning converted and commingled assets of Riggers Store 1 (a Williston convenience store) and breached fiduciary duties.
- Riggers Store Holdings’ operating agreement (governed by Delaware law) includes a broad arbitration clause requiring arbitration under the California Arbitration Act for disputes among the members or manager concerning the agreement or "rights and duties of any person or entity in relation thereto."
- Horning controls related entities: he is a limited partner in Chase Merritt, LP and owns Chase Merritt Management (manager of Riggers Store Holdings); Riggers Store Holdings is the sole member of Riggers Store 1; Racers Store Management operated Riggers Store 1.
- Defendants (Horning and affiliated entities) moved to compel arbitration and to dismiss; the district court denied arbitration, reasoning some defendants were nonsignatories and Melendez’s claims did not arise from the operating agreement or implicate contractual rights.
- The North Dakota Supreme Court granted interlocutory appellate review and reversed, holding the district court erred: (1) nonsignatories may be permitted to compel a signatory to arbitrate under equitable estoppel where claims are intertwined with the contract, and (2) Melendez’s fiduciary- and conversion-based claims touch on contractual rights/performance and fall within the broad arbitration clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether nonsignatories (Horning and affiliates) can compel a signatory (Melendez) to arbitrate | Melendez argued his claims are not contractual and nonsignatories cannot force arbitration | Horning argued equitable estoppel and interrelation of entities permit nonsignatories to compel arbitration of intertwined claims | Court: Nonsignatories may compel arbitration under equitable estoppel where claims are intertwined with the contractual obligations; district court erred in refusing to compel arbitration |
| Scope of arbitration clause — whether fiduciary/conversion claims fall within it | Melendez: Claims arise independently (tort/fiduciary) and do not depend on the operating agreement | Horning: The clause is broad; claims touch on members’ rights and manager duties under the operating agreement | Court: Clause is broad; claims touch contractual rights/performance and are arbitrable |
| Whether the operating agreement modifies fiduciary duties | Melendez: fiduciary claims are separate from contractual provisions | Horning: manager duties arise from agreement and company structure | Court: Agreement does not eliminate fiduciary duties; under Delaware law manager duties exist and the claims relate to those duties and company operation |
| Proper remedy after denial of arbitration | Melendez sought court resolution and injunctive relief; district court exercised jurisdiction | Horning sought compelled arbitration | Court: Reverse denial and remand to enter order compelling arbitration |
Key Cases Cited
- Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (framework for assessing whether an arbitration clause is broad or narrow and applying clause scope to asserted claims)
- Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286 (Del. 1999) (LLC operating agreement’s arbitration clause encompassed member’s breach-of-fiduciary-duty claims)
- MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942 (11th Cir. 1999) (equitable estoppel can permit nonsignatories to compel arbitration when signatory’s claims depend on the underlying agreement)
- 26th St. Hosp., LLP v. Real Builders, Inc., 879 N.W.2d 437 (N.D. 2016) (recognizing equitable estoppel allows nonsignatory to compel signatory to arbitrate when claims reference or presume the agreement)
- Kramlich v. Hale, 901 N.W.2d 72 (N.D. 2017) (North Dakota standards for reviewing orders granting or denying motions to compel arbitration)