(148) Petras vs Mole, Canon, Kaplan, Marriner et al: Petras Response to Touchdown Motion to Compel Arbitration

7/30/2019 (148) Petras vs Mole, Canon, Kaplan, Marriner et al: Petras Response to Touchdown Motion to Compel Arbitration

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PLAINTIFF MICHAEL PETRAS MEMORANDUM OF LAW IN

OPPOSITION TO DEFENDANT TOUCHDOWN PROPERTIES, LLCS

MOTION TO COMPEL ARBITRATION AND STAY FURTHER PROCEEDINGS - Page 2

II. ARGUMENT

A. Petras Claims Against Touchdown

Do Not Come Within the Scope of the Arbitration Provision.

While there is indeed a strong policy favoring arbitration, arbitration is a matter of

contract and a party cannot be required to submit to arbitration any dispute which he has not

agreed so to submit. United Steelworkers of America v. Warrior & Gulf Navigation Co., 363

U.S. 574, 582 (1960). The Federal Arbitration Act does not require parties to arbitrate when

they have not agreed to do so. Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland Stanford

Junior Univ., 489 U.S. 468, 485 (1989). For these reasons, [a] party attempting to compel

arbitration must first establish that the dispute in question falls within the scope of a valid

arbitration agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (1999). As

shown below, Petras agreement to arbitrate disputes with Franklin Power concerning his

separation from the company cannot be recast as his agreement to arbitrate his claims against

Touchdown. Stated differently, Petras has not in any way agreed to arbitrate his conspiracy or

breach of fiduciary duty claims against Touchdown.

B. California Law Governs This Motion.

This lawsuit contains claims for professional malpractice, negligence, breach of fiduciary

duty, fraud, negligent misrepresentation, and conspiracy. Touchdown is a defendant only to the

conspiracy and breach of fiduciary duty claims.

When Petras left Franklin Power in January 2005, he signed two documents: a Departure

Agreement clarifying the details of the termination of his employment with Franklin Power and a

Stock Repurchase Agreement (the Repurchase Agreement; attached to Touchdowns motion as

Exhibit A-1) specifying the terms for Franklin Powers repurchase of his stock in the company.

The parties to these agreements were Franklin Power, Petras, and Allegra.

Case 3:11-cv-01402-N Document 148 Filed 11/29/12 Page 2 of 10 PageID 2015


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While Petras complaint references the Repurchase Agreement, he has not asserted a

cause of action for its breach. Its most direct connection to this litigation is that: (1) certain

defendants in this case fraudulently induced Petras to sell his interest in Franklin Power for $2

million, which they never intended to pay (Second Amended Complaint (SAC), para. 21, 25,

and 26); and (2) that Defendant Charles Kaplan (Kaplan) had a conflict of interest in advising

Petras not to retain independent counsel and instead to let Kaplan represent him in trying to

collect money from Defendant Gary Mole (Mole) and Touchdown, both of whom Kaplan also

represented (SAC, para. 29-31 and 55).

Moreover, despite Touchdowns repeated references to the Repurchase Agreements

arbitration clause, there is no arbitration clause in the Repurchase Agreement. The arbitration

provision Touchdown focuses on is in the Departure Agreement, which describes the terms of

Petras separation from Franklin Power. The Departure Agreement, which is not mentioned in

Petras complaint, states in paragraph 13:

This Agreement shall be interpreted under the laws of the State of

Texas and any disputes hereunder shall be brought in Texas and

settled by binding arbitration, by a single arbitrator, under the

Commercial Rules of the American Arbitration Association. Each

party shall bear its own costs in the arbitration proceeding and the

parties shall equally bear the cost of the arbitration proceeding

itself.

Departure Agreement, para. 13 (emphasis added).

The Departure Agreement contains a Texas choice of law provision for the disputes that

are subject to binding arbitration. The Repurchase Agreement (the contract Touchdown relies on

in its motion), however, states: This Repurchase Agreement shall be governed by the laws of



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the State of California. Repurchase Agreement, para. 2.1. Therefore, California, not Texas, law

governs interpretation of the Repurchase Agreement.

C. Under California Law,Petras Cannot Be Compelled to Arbitrate His Claims Against Touchdown.

Under California law, pre-dispute arbitration agreements in contracts between employees

and their employer must meet certain requirements. Two such requirements are: (1) providing for

adequate discovery; and (2) limiting the costs of the arbitration payable by the plaintiff. See

Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal.4th 83, 104-105 (2000) (discovery

in arbitration is indispensable in vindicating statutory discrimination claims); Armendariz, 24

Cal.4th at 110-111 (when an employer imposes mandatory arbitration as a condition of

employment, the arbitration agreement or arbitration process cannot generally require the

employee to bear any type of expense that the employee would not be required to bear if he or

she were free to bring the action in court.).

The arbitration provision Touchdown seeks to enforce meets neither of these

requirements. First, it does not provide for any discovery. Neither do the American Arbitration

Associations rules for commercial disputes that it incorporates (except potentially for Large,

Complex Commercial Cases). See Rule L-3 of the American Arbitration Association

Commercial Arbitration Rules and Mediation Procedures (Including Procedures for Large,

Complex Commercial Disputes), June 1, 2009. (Appx. at 38). Second, there is no limit on the

employees forum costs, which can be substantial in arbitration and would deter employees from

bringing meritorious claims. 24 Cal.4th

at 113 (mandatory employment arbitration agreement

that contains within its scope the arbitration of [Fair Employment and Housing Act] claims

impliedly obliges the employer to pay all types of costs that are unique to arbitration); see also,



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Mercuro v. Superior Court, 96 Cal.App.4th 167, 180 (2002) (applyingArmendarizrequirements

to statutory fraud claim).. The arbitration provision is not enforceable because it does not satisfy

the requirements of controlling California law.

D. Even Under Texas Law,

the Arbitration Provision Does Not Extend to Claims Against Touchdown.

While the Repurchase Agreement incorporated the Departure Agreement by reference,

this does not change the fact that the arbitration provision is limited to disputes arising under the

latter agreement. The arbitration provision cannot reasonably be read to extend to Petras claims

against Touchdown.

None of the Texas authorities cited by Touchdown change this result. In Coleman v.

Qwest Commcns Corp., the plaintiff was suing for breach of a written contract while arguing

that his lack of signature on the contract rendered its arbitration provision unenforceable. See

2003 WL 22388482, 2 (N.D. Tex., 2003). The court had no trouble concluding that under those

circumstances, plaintiff was estopped from arguing that he was not bound by the arbitration

provision. See Id. The issue here is not whether plaintiff agreed to arbitrate claims under the

Departure Agreement he unquestionably did but whether he can be compelled to arbitrate

claims with no connection to that agreement. In that regard, Coleman provides no help to

Touchdown.

Grigson v. Creative Artists Agency L.L.C. involved a contract with an arbitration

provision that extended to allcauses of action (whether sounding in contract or in tort) arising

out of or relating to this Agreement. 210 F.3d 524, 527 (C.A.5, 2000). In that case, the court

concluded that the plaintiff could be compelled to arbitrate his claims for tortious interference

with the agreement containing the arbitration clause even though the defendant was not a party to

the agreement. See Id. The connection Touchdown attempts to draw here is far more attenuated.



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Petras is not suing for breach of contract or tortious interference with any contract. Moreover,

Petras claims against Touchdown have no connection to the Departure Agreement, and

Touchdown does not even attempt to argue otherwise. Finally, the Departure Agreement required

arbitration of disputes arising hereunder, which is significantly narrower than the arbitration

agreement in Grigson, which extended allcauses of action [in contract or in tort] arising out

of or relating to the agreement. Id. at 527. The analysis used by the court in Grigson, therefore,

does not apply to the present facts.

Ramasamy v. Essar Global Ltd. relied on Grigson in compelling a plaintiff to arbitrate his

breach of contract claim. See 825 F.Supp.2d 466, 467 (S.D.N.Y., 2011). Although the plaintiff

alleged breach of an oral contract concerning his compensation, the court concluded that that

question necessarily required reference to an underlying written employment contract that

contained an arbitration clause because the plaintiff claimed that the oral agreement was a

substitute for the earlier written agreement. Id. at 470. There is no analogous connection here

between the Departure Agreement and Petras claims against Touchdown.

Meyer v. WMCO-GP, LLCis similarly distinguishable. After recognizing the general rule

that arbitration of a claim cannot be compelled unless it falls within the scope of a valid

arbitration agreement, the court recognized an exception that applied when a personseeks by

his claim to derive a direct benefit from the contract containing the arbitration provision. 211

S.W.3d 302, 305 (Tex., 2006). In each of these cases, the connection between the contracts

arbitration provision and the plaintiffs claims was much more direct than in the present case.

This conclusion is reinforced by examining the intertwined claims standard that these cases

rely on.

As Grigson explains:



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First, equitable estoppel applies when the signatory to a writtenagreement containing an arbitration clause must rely on the termsof the written agreement in asserting its claims against thenonsignatory. When each of a signatory's claims against anonsignatory makes reference to or presumes the existence of the

written agreement, the signatory's claims arise out of and relatedirectly to the written agreement, and arbitration is appropriate.Second, application of equitable estoppel is warranted when thesignatory to the contract containing an arbitration clause raisesallegations of substantially interdependent and concertedmisconduct by both the nonsignatory and one or more of thesignatories to the contract.

Grigson, 210 F.3d at 527 (internal citations and quotations omitted; emphasis in original).

Touchdown satisfies neither of these requirements. Petras need not rely on the terms of

the Departure Agreement (or, for that matter, the Repurchase Agreement) to pursue his

conspiracy claim against Touchdown. Nor is Petras bringing claims against Touchdown (a

nonsignatory to the agreement) for substantially interdependent and concerted misconduct with

one or more signatories to the agreement (Petras, Franklin Power, and Allegra). Touchdown is

therefore unable to show that there are intertwined claims such that plaintiff should be

equitably estopped from opposing arbitration with Touchdown. More importantly, Touchdown is

unable to show that plaintiff agreed to arbitrate his claims against it.

E. Even If There Were a Valid Arbitration Agreement,

Touchdown Has Waived Its Right to Compel Arbitration.

While Touchdown is relatively new to this litigation, Mole (its principal) has been

involved in this litigation from the outset. Furthermore, Touchdown is essentially Moles alter

ego. In Castleberry v. Branscum, the landmark case in Texas for disregarding the corporate

fiction, the Texas Supreme Court stated that [a]lter ego applies when there is such unity

between corporation and individual that the separateness of the corporation has ceased. 721

S.W.2d 270, 272 (Tex. 1986). That is certainly the case here. In fact, Mole has previously



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testified that Touchdown was [j]ust a holding company thatheld [his] shares in Franklin.

and that Mole's ownership was through Touchdown. Deposition of Gary Mole inPrengler v.

Glacial Energy Holdings, taken August 23, 2011, p. 71, lines 15-18 and p. 144 lines 8-10 (Appx.

at 55-56). In Castleberry, the court held, [w]e disregard the corporate fiction, even though

corporate formalities have been observed and corporate and individual property have been kept

separately, when the corporate form has been used as part of a basically unfair device to achieve

an inequitable result. Id. at 271. The court then went on to list certain types of inequitable

results, two of which pertain to this case. The first is where the corporate fiction is resorted to as

a means of evading an existing legal obligation. Id. at 272. In this case, Mole has an obligation

to continue with the litigation he has so actively participated in for months. Now he tries to use

Touchdown as a means of compelling arbitration to avoid this obligation. Such an inequitable

result is exactly the type sought to be prevented by the Texas Supreme Courts holding in

Castleberry. The second type of inequitable result specifically mentioned by the court in

Castleberry that applies to the present case is where the corporate fiction is relied uponto

justify wrong. Id. Permitting Mole to compel arbitration after months of litigation would

certainly be wrong. Mole is merely attempting to justify this obvious hardship by hiding behind

Touchdown as his alter ego. Again, this type of inequitable result is exactly the kind sought to be

prevented by the Texas Supreme Courts holding in Castleberry.

By litigating the matter in this Court for months (including attacking the pleadings as not

complying with applicable federal law, filing a counterclaim for declaratory relief, conducting

discovery, and moving for summary judgment), Mole has waived the right to now require that

the dispute be arbitrated. Both individually and as the principal representative of Touchdown,

Mole has taken steps inconsistent with an intent to invoke arbitration. St. Agnes Med. Ct.r v.



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PacificCare of Cal., 31 Cal.4th 1187, 1196 (2003). [A] party who has actively participated in

litigation . . . is necessarily in default, within the meaning of [9 U.S.C. 3; discussing right to

stay of litigation pending arbitration]. Zuckerman Spaeder, LLP v. Auffenberg, 646 F.3d 919,

921-22 (D.C. Cir. 2011). Mole cannot simultaneously take advantage of the procedures available

in court and argue, through a co-defendant he fully controls, that the matter belongs in

arbitration. By doing so, he has waived any arguable right to arbitrate.

Moreover, requiring Petras to begin the litigation process against Touchdown from the

outset in a new forum would seriously prejudice Petras. He has been required to expend

considerable resources to pursue this case in federal court. To now require him to start over in a

new forum would cause him great prejudice.

F. If the Court Orders Arbitration,

It Should Only Stay the Proceedings Against Touchdown.

For the reasons set forth above, Petras contends that there is no basis for ordering him to

arbitrate his claims against Touchdown. However, if the Court rules otherwise, plaintiff requests

that he be allowed to proceed in this Court with his claims against the other defendants.

III. CONCLUSION

As stated at the outset, arbitration is a matter of contract and a party cannot be required

to submit to arbitration any dispute which he has not agreed so to submit. United Steelworkers,

363 U.S. at 582 (1960). Because Petras did not agree, either explicitly or implicitly, to arbitrate

his claims against Touchdown, the motion to compel arbitration must be denied.

DATED: 29 November 2012.



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Respectfully submitted,

/s/ Andrew Jee

Andrew Jee

Texas State Bar No. 24047532JEE LAW, PLLC3811 Turtle Creek Boulevard, Suite 1400Dallas, Texas 75219Telephone: (214) 965-0011Facsimile: (214) 572-7297Email: [email protected]

Curtis E. SmolarCalifornia Bar No. 194700FOX ROTHSCHILD, LLP

235 Pine Street, 15

th

FloorSan Francisco, California 94104Telephone: (415) 364-5540Facsimile: (415) 391-4436Email: [email protected]

ATTORNEYS FOR PLAINTIFF,

MICHAEL V. PETRAS

CERTIFICATE OF SERVICE

I hereby certify that on the 29th of November 2012, a true and correct copy of the foregoingdocument was submitted to the Clerk of the Court of the U.S. District Court, Northern District ofTexas, using the CM/ECF system, and was served upon all counsel that have appeared in thiscase through this Courts electronic filing system.

/s/ Andrew Jee

Andrew Jee


Documents

(148) Petras vs Mole, Canon, Kaplan, Marriner et al: Petras Response to Touchdown Motion to Compel Arbitration