Sample Motion to Stay Litigation and Compel Arbitration (ADR)
Sample Motion to Stay Litigation and Compel Arbitration
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS AND TO COMPEL ARBITRATION
I. STATEMENT OF FACTS
A. The Dispute.
As alleged in the Complaint, herein, LLC is governed by an Operating Agreement entered into by all of the parties hereto and members of the LLC in _____. See, paragraph ____ of the Complaint. The Operating Agreement establishes, among other things, procedures and agreed upon terms for the firm’s organization, its governance, its officers and committees, its allocations of profits and losses and its policies regarding records and accounting. See, Complaint at paragraph ___. Although not mentioned in the Complaint, the Operating Agreement also contains an all compassing, binding and enforceable Arbitration Clause at §____ which provides in pertinent part as follows:
Disputed Matters. Except as otherwise provided in this Agreement, any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action or inaction or any Member hereunder shall be submitted to arbitration by a single, neutral arbitrator before the American Arbitration Association in Las Vegas, Nevada under the commercial arbitration rules of the American Arbitration Association then in effect. Any award or decision obtained from any such arbitration proceeding shall be final and binding on the parties, and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. No action at law or in equity based upon any event arising out of or related to this Agreement shall be instituted in any court by any Member except (a) an action to compel arbitration pursuant to this Section, or (b) an action to enforce an award obtained in an arbitration proceeding in accordance with this Section.
The instant dispute is an attempt by some minority shareholders to takeover a viable and thriving company which is on the brink of closing a multi-million dollar financing deal to complete the research and development and marketing of valuable patent rights held by the LLC and invented by Defendant , who is the majority shareholder in the LLC. The dependency of this litigation is a severe impediment to the closing of the much needed financing for the LLC. Indeed, one of the term sheets or letters of intent signed by one of several lenders, has a face value of $85,000,000.
II. LEGAL ARGUMENT
Plaintiffs respectfully requests this Court compel arbitration per the agreement through the Amended Arbitration Association under its Commercial Arbitration Rules now in effect, is appropriate as Nevada has established a policy of favoring arbitration, the parties entered into a valid arbitration agreement, and the arbitration clause contained in the Operating Agreement is clear and unambiguous. Moreover, none of the parties have waived the opportunity to arbitrate. As such, this Court should compel arbitration.
B. The Arbitration Clause is Valid and Enforceable.
Applying Nevada substantive law, the arbitration clause in the Operating Agreement is valid and enforceable. Both the Nevada Legislature and Nevada Supreme Court support the enforcement of arbitration provisions for alternative dispute resolution in Nevada.The Nevada Arbitration Act recognizes that a written provision in a contract to submit any existing controversy to arbitration is valid, enforceable and irrevocable. NRS 38.219.1.
“On motion of a person showing an arbitration agreement and alleging another person's refusal to arbitrate pursuant to the agreement... the court shall proceed summarily to decide the issue and order the parties to arbitrate unless it finds that there is no enforceable agreement to arbitrate.” NRS 38.221.1(b) (emphasis added).
Nevada courts have uniformly held that agreements to arbitrate are specifically enforceable. Silverman v. Fireman's Fund Ins. Co., 96 Nev. 30, 604 P.2d 805 (1980). Any doubts concerning the arbitrability of the subject matter of the disputes are to be resolved in favor of arbitration. Exber, Inc. v. Sletten Const. Co., 92 Nev. 721, 558 P.2d 517 (1976). In the absence of the most forceful evidence of the purpose to exclude a claim from arbitration, the claim is properly submitted to arbitration. Clark County Public Employees v. Pierson, 106 Nev. 587, 798 P.2d 136 (1990).
The Nevada Supreme Court has further indicated that the parties are not to be deprived by the Court of the benefit of Arbitration, and any doubt is to be resolved in favor of arbitration. Exber, Inc. V. Sletten Construction Co., 92 Nev. 721, 528 P.2d 517 (1976).
All doubts concerning the arbitrability of the subject matter of the dispute are to be resolved in favor of arbitration. Once it is determined that an arbitrable issue exists, the parties are not to be deprived by the courts of the benefits of arbitration, for which they bargained - speed and the resolution of the dispute and the employment of the specialized knowledge and competence of the arbitrator. Id. At 729, 558 P.2d 517. (Emphasis added).
In this case, the parties entered into a Operating Agreement that clearly established arbitration as the forum for dispute resolution. See Exhibit 1, §14.9. Further, the parties agreed arbitration would “be final and binding.” See Exhibit 1, §14.9. As such, the parties entered into a valid and enforceable arbitration clause that should require the arbitration of the current dispute.
To gain exemption from arbitration, it must be specifically and expressly provided in the Operating Agreement that a particular grievance is exempted from arbitration. Clark County Public Employees v. Pierson, 106 Nev. 587, 591, 798 P.2d 136 (1990). In the absence of the most forceful evidence of the purpose to exclude a claim from arbitration, the claim is properly submitted to Arbitration. Id. Therefore, both the Nevada Legislature and the Nevada Supreme Court agree - agreements to arbitrate should be specifically enforced.
The clause in this case expressly covers “any controversy or dispute,” including any dispute relating to or arising out of “the action or inaction of any member.” The clause further bars litigation by stating that “no action at law or in equity shall be instituted in any court by any member,” except to compel arbitration or to enforce an arbitration award.
C. The Contract is Clear and Unambiguous.
The Operating Agreement between Plaintiffs and Defendants clearly and unambiguously requires arbitration for all disputes. Nevada Courts consistently enforce unambiguous contracts according to their plain language. Renshaw v. Renshaw, 96 Nev. 541, 611 P.2d 1070 (1980). Courts are bound by language that is clear and free of ambiguity and cannot, using the guise of interpretation, distort the plain meaning of the agreement. Watson v. Watson, 95 Nev. 495, 496 P.2d 507 (1979).
In this case, there is no doubt the parties agreed to a clear and unambiguous requirement to arbitrate. The arbitration provision is clearly marked in the Operating Agreement. See Exhibit 1 at §14.9. Moreover, the language clearly evidences an agreement to arbitrate disputes arising from the actions or inactions of Members. Id. Finally, it is clear from the language of the contract that the parties intended arbitration to be “final and binding.” As such, the contract clearly and unambiguously requires that the parties arbitrate this dispute and this Court should enforce the clear language of the Operating Agreement between the parties. See, e.g., Southern Trust Mortgage Co. V. Kay & Door Co., Inc., 104 Nev. 564, 763 P.2d 353 (1988) (holding that where a document is clear and unambiguous, the court must construe the document from its language); see, e.g., Love v. Love, 114 Nev. 572, 959 P.2d 523 (1998) (concluding that a clear and unambiguous document on its face must be construed according to its plain language); see, e.g., Ellison v. California State Automobile Association, 106 Nev. 601, 797 P.2d 975 (1990) (finding that Operating Agreements are construed from written language and enforced as written). Needless to say, the overwhelming authority from the Nevada Supreme Court and elsewhere holds that unambiguous Operating Agreements must be construed according to their plain language.
D. The Operating Agreement Clearly and Unambiguously Requires Arbitration.
The arbitration clause is clearly and unambiguously written. In particular, the provision governing disputes of the Operating Agreement is wholly free of ambiguity and clearly states that any dispute must be settled by Arbitration. Exhibit 1. Moreover, the Operating Agreement specifically provides that the Arbitration should take place according to the rules of AAA. Id. The Arbitration clause was fully negotiated and executed. Thus, given the clear and unambiguous language of the Operating Agreement requiring arbitration and Nevada’s presumption in favor of arbitration, the Operating Agreement should be specifically enforced, requiring that this dispute be submitted to binding arbitration and that this litigation is stayed in the interim.
In the instant case, no discovery has taken place and there has not been significant activity towards litigating either party's claims or defenses. No Answer has yet been filed. No discovery has taken place. Therefore, no parties will suffer prejudice from the change of forum from this honorable Court to arbitration. As there is no prejudice, this Court should compel arbitration.
E. The Court is Not to Consider the Merits.
The United States Supreme Court prohibits consideration of the merits on a motion to compel. The Supreme Court held that “there is a presumption of arbitrability in the sense that ‘[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.’” AT & T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)). In ruling on the arbitrability of a dispute, a court should not decide the merits of the underlying claims. See AT & T Tech., 475 U.S. at 649.
F. The Scope of the Broad Arbitration Clause.
Generally speaking, arbitration clauses are referred to as being “broad” or “narrow.” Typically, broad arbitration clauses encompass all of the parties' disputes arising out of their agreement, whereas narrow clauses are intended to limit the disputes that are only specifically referred to arbitration. For instance, in Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002), the parties agreed to arbitrate any dispute “arising out of or in connection with” their agreement, and like the case at bar. The Delaware Supreme Court held that the parties had “signaled an intent to arbitrate all possible claims that touch on the rights set forth in their contract.” Language such as “all disputes arising out of the operating agreement are subject to arbitration” or “any dispute or controversy arising under this operating agreement shall be submitted to binding arbitration” is equally effective in evincing the parties’ intent to submit all of their disputes to arbitration. See, e.g., Drafting Arbitration Provisions for LLC Agreements, D. GaHuso, ABA Business Law Today, Vol. 18, April 2009.
In the case at bar, LLC filed its Nevada Articles of Organization with the Secretary of State on ___. Thereafter, in late November and early December, the various members executed identical counterpart signature pages (attached to the Operating Agreement, which is attached hereto as Exhibit “A”), which provides as follows:
By signing this Agreement each member: (a) ratifies and confirms that the Company was governed by and operated under the Operating Agreement as amended from time to time by the Members; (b) from and after the date hereof agrees to adopt and approve this Agreement as the Operating Agreement of Affirmed Technologies, LLC; and (c) confirms and ratifies that his, or its membership interest is solely as set forth on Exhibit A hereto, and that any certificate representing any membership interest issued or outstanding prior to the effective date is null and void.”
NRS 86.286 provides as follows with respect to a situation as presented here where the operating agreement is signed by the members after the articles of organization are filed:
2. … If an operating agreement is adopted:
(a) Before the filing of the articles of organization or before the effective date of formation specified in the articles of organization, the operating agreement is not effective until the effective date of formation of the limited-liability company.
(b) After the filing of the articles of organization or after the effective date of formation specified in the articles of organization, the operating agreement binds the limited-liability company and may be enforced whether or not the limited-liability company assents to the operating agreement. (Emphasis added.)
Hence as a matter of law it is abundantly clear that in Nevada both the LLC itself, as well as the members and managers, are all bound by the Operating Agreement signed by the parties shortly after the articles of organization were filed with the Secretary of State. Hence the Arbitrator Clause is binding on every entity and individual named in the caption of the Complaint.
III. THE FEDERAL ARBITRATION ACT (“FAA”)
The Federal Arbitration Act (the “FAA” or the “Act”) provides that written arbitration agreements are “valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (1999). The main purpose of the Arbitration Act is “to overcome courts’ refusals to enforce agreements to arbitrate.” Allied-Bruce, 513 U.S. at 270. In passing the FAA, Congress was “motivated first and foremost by a desire to change this [trend],... to enforce [arbitration] agreements into which parties had entered, and to place such agreements ‘upon the same footing as other contracts.’” Id. At 270-71 (citations omitted) (second alteration in original).
To fulfill the purpose of enforcing arbitration clauses more uniformly throughout the country, Congress established a broad principal of enforceability within the provisions of the FAA. Doctor’s Assoc. V. Casarotto, 517 U.S. 681, 685 (quoting Southland Corp. v. Keating, 465 U.S. 1, 11 (1984)). The Supreme Court has determined that “Congress would not have wanted state and federal courts to reach different outcomes about the validity of arbitration in similar cases.” Allied-Bruce, 513 U.S. at 72, citing Southland Corp., 465 U.S. at 15-16. Accordingly, the “the Court also concluded that the Federal Arbitration Act preempts state law; and it held that state courts cannot apply state statutes that invalidate arbitration agreements.” Id. Hence, the outcome should be the same in state and federal court, applying state or federal statutes.
Plaintiffs respectfully requests that this Court compel the arbitration of the dispute between Plaintiffs and Defendants. The parties entered into a valid, clear and unambiguous arbitration agreement requiring arbitration of claims concerning the action or inaction of any party to the LLC. A dispute has now arisen concerning Defendants’ actions as a member and manager of the LLC. As such, the arbitration provision in the agreement between the parties should be given its full force and effect and this case should proceed through final and binding arbitration before the American Arbitration Association. Adequate time should be provided to Defendants to file an appropriate Answer and Counterclaim against Plaintiffs for intentionally interfering in the multi-million dollar transaction currently pending.
This lawsuit should be stayed pending binding arbitration. Nevada law (as articulated by both the Nevada Legislature and the Nevada Supreme Court), as well as the Federal Arbitration Act, uniformly hold that the arbitrability of disputes agreed upon in a written Contract or Agreement must be enforced. Moreover, Nevada law consistently enforces the clear and unambiguous language of contracts, particularly broad arbitration provisions such as that presented here. In this case, the clear and unambiguous contractual provision requires arbitration of “any disputes” arising out of or related to the Operating Agreement. Pursuant to both the Nevada Arbitration Act and the Federal Arbitration Act, this dispute should immediately be submitted to binding arbitration and this litigation stayed in the interim.
DATED this _____day of __________, ______.
ALBRIGHT, STODDARD, WARNICK & ALBRIGHT
G. MARK ALBRIGHT, ESQ.
Nevada Bar No. 001384
WILLIAM H. STODDARD, JR., ESQ.
Nevada Bar No. 008679
801 South Rancho Drive, Suite D-4
Las Vegas, NV 89106
Attorneys for Defendants