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Davis v. Cascade Tanks LLC

United States District Court, D. Oregon, Portland Division

July 24, 2014

WILLIAM DAVIS and W.M.D. CONSULTING, LLC, Plaintiffs,
v.
CASCADE TANKS LLC, CASCADE COMPANIES LLC, BALUSA HOLDINGS, INC., MACGRECOV INVESTMENTS LIMITED, TRITORIA INVESTMENTS LIMITED, and PIETER VAN DER STAAL, Defendants.

OPINION AND ORDER

MICHAEL W. MOSMAN, District Judge.

This is a suit for breach of fiduciary duty, minority shareholder oppression, intentional interference with economic relations, and for an accounting. (Complaint [1-1].) Suit was brought by Plaintiffs William Davis ("Mr. Davis") and W.M.D. Consulting, LLC ("WMD") against Cascade Tanks, LLC ("Cascade Tanks"), various other entities in the corporate group of which Cascade Tanks is a part, and various individuals who were officers or directors of these entities during the relevant time. The suit was filed in Multnomah County Court on March 1, 2013, and was removed to this Court on November 27, 2013, under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, codified at 9 U.S.C. § 201-208 (the "Convention"). Plaintiffs filed a motion to remand [14] and Defendants filed a motion for stay pending arbitration [55, 57-1].

As explained on the record [69] and set out in my prior order [74], I DENIED the motion for remand, finding that this Court has jurisdiction to determine the enforceability of the arbitration agreement. Turning to the motion for stay, I concluded that the arbitration agreement at issue is enforceable under the Convention, and therefore stayed the case pending arbitration. (Order [74].) I now formally explain my rulings.

BACKGROUND

I. Corporate Structure of the Parties

The parties have submitted evidentiary support for their respective motions. According to this evidence and the Complaint [1-1], the facts in which I take as true, the basic structure of the corporate group is as follows: Mr. Davis is the sole member of WMD. WMD owns twenty five percent of the shares of Defendant Macgrecov Investments, Ltd., ("Macgrecov"), a Cyprus corporation. See Armstrong Decl. [17] Ex. 3. The other seventy five percent of Macgrecov is owned by Defendant Tritoria LLC, a Cyprus LLC, and Trio Group Investments, a Bahamas entity. Id. These two entities are allegedly controlled by a combination of Defendant Mr. van der Staal and other individuals, dubbed "the Norwegian Investors" by Plaintiffs. (Pl.'s Mem. in Supp. Mot. to Remand [15] at 3.)

Macgrecov holds all shares in Defendant Balusa Holdings, Inc., a Nevada corporation, which in turn wholly owns Defendant Cascade Tanks. See Armstrong Decl. [17] Ex. 3. Cascade Tanks is an oilfield fluid handling supply and service business. (Davis Decl. [17-2] ¶ 4.) Defendant Cascade Companies LLC is a now-dissolved corporation that was once the parent company of Cascade Tanks. (Armstrong Decl. [17] Ex. 3.)

Mr. Davis was General Manager of Cascade Tanks until his termination on February 15, 2013. (Compl. [1-1] ¶ 31; Davis Decl. [17-2] ¶ 4-5.) He was paid a significant salary, and ownership shares in Cascade Tanks were also part of his compensation. (Compl. [1-1] ¶¶ 16, 19-20, 23-24.) His employment was governed by an Employment Agreement that is not at issue in this suit. (Compl. [1-1] ¶ 22; Armstrong Decl. [17] Ex. 7.) In this case, he brought suit in his capacity as a minority shareholder of Defendants Balusa and/or Macgrecov, interests which he holds through WMD. (Compl. [1-1] ¶¶ 1-31, 69.)

It is alleged that during the restructuring that ultimately resulted in the corporate structure described above, Mr. Davis signed, on behalf of WMD, a Stock Buy-Sell Agreement related to Balusa Holdings. (Compl. [1-1] ¶ 23; Armstrong Decl. [17] Ex. 6.) This agreement provided for binding arbitration in Nevada. (Armstrong Decl. [17] Ex. 6 at 18-19.) Before signing this agreement, Mr. Davis consulted with his attorney. (Davis Decl. [17-2] ¶ 13.) It is Mr. Davis's position that this agreement took effect and WMD thereby held shares in Balusa throughout 2011 and 2012. (Pl.'s Mem. [15] at 5.)

Defendants contend that the Balusa Agreement never took effect. Their position is that after the Balusa Agreement was signed but before it was put into effect, (and thus before WMD took ownership of any Balusa shares), it was determined that elements of the corporate structure should be moved offshore for tax reasons. Thus, Defendant Macgrecov, later made the parent company of Balusa, was purchased. Defendants submit evidence supporting the inference that WMD quitclaimed any interest in Balusa. (Dueck Decl. [30] Ex. 1.) Mr. Davis then signed a new agreement, the Macgrecov Stock Buy-Sell Agreement (the "Macgrecov Agreement"), on its behalf. (Compl. [1-1] ¶ 25; Not. of Removal [1-1] Ex. B.)

In proposing that the Macgrecov Agreement replace the Balusa Agreement, Defendant Mr. van der Staal explained to Mr. Davis in an email that the new agreement was essentially the same as the former, except for two changes: "1. It shifts the competent court to [C]yprus, to ensure that the entire jurisdiction is offshore: and, 2. The references to Balusa' are replaced with Macgrecov.'" (Armstrong Decl. [17] Ex. 11 at 1.) The email containing these representations was sent on January 3, 2012. Id. at 1. A subsequent email, sent January 24, 2014, reiterated that "the document we sent you is the same as the one you previously signed, with only one significant change-namely that the agreement is subject to Cyprus law." Id. at 2.

Mr. Davis declares that he received the documents in August 2012, but "did not sign all of the documents until December 2012 because [he] wanted more information about the transaction." (Davis Decl. [17-2] ¶ 29.) However, he also declares that he "did not ask [his] lawyer to review the agreement" because he "relied on the representations... that the Macgrecov agreement was the same deal' as the Balusa buy-sell agreement." Id. ¶ 25.

II. The Foreign Arbitration Agreement

Defendants removed to this Court under the Convention on the grounds that the lawsuit relates to a foreign arbitration agreement found in the Macgrecov Agreement. (Not. of Removal [1] ¶ 2.) The Macgrecov Agreement's arbitration clause reads as follows:

10.15 Arbitration. Except as otherwise provided herein, any dispute or controversy arising out of or relating to this Agreement (including its execution or the construction or enforcement of its terms) shall be determined by arbitration with the competent courts of Cyprus Limassol who shall have jurisdiction to settle any disputes, which may arise out of or in connection with this Agreement and that accordingly any suit action or proceeding arising out of or in connection with the Agreement may be brought in such courts.
Upon filing of an action, each party agrees to undertake good faith efforts to agree upon an arbitrator within thirty (30) days after the deadline for filing of the answer to the complaint in question. If, despite such good faith efforts, the parties are unable to agree upon an arbitrator, each party such submit to the court... a maximum of three (3) arbitrators who meet the foregoing conditions for consideration, and the court shall decide upon the arbitrator from the potential arbitrators submitted to the court. Each party to the Action shall be responsible equally for the arbitrator's fees. The decision of the arbitrator shall be final and binding upon all parties.

(Not. of Removal [1] Ex. B at 16.)

III. The Underlying Claims

Plaintiffs' claims are for breach of fiduciary duty, minority shareholder oppression, intentional interference with economic relations, and for an accounting. (Complaint [1-1] ¶¶ 36-77.) Among other things, Plaintiffs allege that a Mr. Dueck (one of the "Norwegian Investors, " who has been dismissed as a defendant by the state court) and others authorized "suspect loan transactions" through which Balusa would borrow money from a nonprofit entity controlled by himself and other "Norwegian Investors" at high interest rates, thus transferring profits out of the Cascade Tanks corporate family. (Pl.'s Mem. [15] at 5; Davis Decl. [17-2] ¶ 18.) Another basis for the claims is that the "Norwegian Investors" caused an unspecified Defendant entity to enter into fraudulent "consulting" transactions, through which they paid other entities in which the "Norwegian Investors" have an interest for consulting services never actually performed. ( See Davis Decl. [17-2] ¶ 32.) Mr. Davis argues that his interest in Cascade Tanks, held through Macgrecov and Plaintiff WMD, has been and is being devalued by Defendants' actions.

LEGAL STANDARDS

The district courts have removal jurisdiction over any suit which "relates to" an arbitration agreement "falling under the Convention." 9 U.S.C. § 205. "[W]henever an arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff's case, the agreement relates to' the plaintiff's suit." Infuturia Global Ltd. v. Sequus Pharms, Inc., 631 F.3d 1133, 1138 (9th Cir. 2011) (emphasis omitted) (quoting Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002)).

Federal courts recognize "the emphatic federal policy in favor of arbitral dispute resolution, " a policy that "applies with special force in the field of international commerce." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985). The Supreme Court has explained that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

Although the Convention's implementing legislation is codified as part of the Federal Arbitration Act ("FAA"), its terms differ in some significant ways. See 9 U.S.C. § 208 ("Chapter 1 [of the FAA] applies to actions and proceedings brought under this chapter to the extent that chapter is not in conflict with this chapter or the Convention as ratified by the United States"). The Convention provides that "the court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall... refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed." Convention art. II(3), 21 U.S.T. 2517. In contrast, the FAA allows a party to resist arbitration on "such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

DISCUSSION

I. Removal Jursidiction

Plaintiffs contend that this court lacks removal jurisdiction because the arbitration clause is "unenforceable under the Convention based on traditional contract defenses under the common law of the United States." (Pl.'s Mem. [15] at 12.) Defendants argue that the jurisdictional inquiry is more limited, and that the substantive enforceability of the arbitration agreement is relevant not to jurisdiction, but to whether the court should go on to enforce the agreement and stay the action in favor of arbitration. (Def.'s Resp. [27] at 1.) As explained on the record, I agree with Defendants' reading of the Convention's text and the case law interpreting it.

As with any removed case, the Court's first inquiry is whether there is a statutory grant of federal jurisdiction. Here, Defendants' basis for removal is 9 U.S.C. § 205. In order to determine whether 9 U.S.C. § 205 provides jurisdiction in this case, the Court must answer two questions: (1) whether there is an arbitration agreement (or award) that "fall[s] under the Convention, " and (2) whether "the subject matter of an action or proceeding pending in a State court relates to" that arbitration agreement. 9 U.S.C § 205. Only if removal is proper does the court turn to the merits of enforcement.

Plaintiffs argue that more is required. I disagree-that the jurisdictional inquiry is separate from the merits of enforcement is required by the text of the Convention and the provisions in which it is implemented. The Convention provides that a court, "when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed." Convention art. II(3), 21 U.S.T. 2517. The text contemplates that only a court "seized of" the suit will turn to the question whether the arbitration clause shall be enforced. As used in article II(3), the phrase "seized of" means that the court is "in possession of" the action.[1] See 14 Oxford English Dictionary 896 (J.A. Simpson & E.S.C. Weiner eds., 2d ed. 1989); Black's Law Dictionary 1524 (Rev. 4th ed. 1968). As explained below, a federal court cannot be "seized of an action" under this provision in the absence of federal jurisdiction, which is granted in 9 U.S.C. §§ 203 and 205.

One commentator has observed that "[t]he Convention's text is drafted in broad terms, designed for application in a multitude of states and legal systems... the Convention imposes uniform international standards while leav[ing] a substantial role for national law and national courts to play in the arbitral process."[2] Congress did not individually codify many of the Convention's provisions, which apply on their own terms under 9 U.S.C. § 201.[3] In implementing the treaty, however, Congress did fill in U.S. law-specific gaps in the Convention's provisions.[4] Naturally, the Convention itself does not specify jurisdictional requirements, as these would differ between the many signatory states. ...


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