United States District Court, S.D. Indiana, Evansville Division
For LARRY GILMAN, WAYNE GILMAN, THE HONORABLE TERRANCE HANLEY, TERRANCE HANLEY FAMILY TRUST, IRENE HANLEY, IRENE HANLEY FAMILY TRUST, DALE P. ARMSTRONG, M.D., GEORGE W. BELSEY, CHARLES R. BLAKLEY, RICHARD C. BOUGLER, JUANITA S. BOUGLER, RICHARD C. BOUGLER AND JUANITA S. BOUGLER TRUST, EDGAR E. BRITT, BRITT ASSET MANAGEMENT, LLC, RICHARD Y. CHAN, CYNTHIA C. CHAN, CHAN TRUST, FRANK DAVIDSON, JUDITH DAVIDSON, ROSWITHA K. FISHER, MIKI HASHIMOTO, VINCENT E. HULL, HULL BROS. ENTERPRISES, LLC, DOUGLAS H. KAZEN, APARA KOHLS, CAROLYN LITTLEJOHN, M & S TELECOMMUNICATIONS INC., JOHN MURRIN, Esq., DEVONNA MURRIN, MIKE RENNIE, LAWRENCE J. SKOGLUND, Esq., JOHN C. SMITH, KATHLEEN V. SMITH, JOSEPH D. SMITH, ROSANNE SMITH, SMITH FAMILY TRUST, WAYNE SMOLDA, CLAUDIA SMODA, JAMES A. STOCK, MICHAEL J. SULLIVAN, GARY P. VENET, JAMES C. WORST, LOIS L. WORST, individually, and in the right of and for the benefit of, Plaintiffs: Edwin L. Sisam, PRO HAC VICE, SISAM & ASSOCIATES, LLP, Edina, MN; Joshua H. Sisam, PRO HAC VICE, SISAM & ASSOCIATES, LLP, Boerne, TX; Mark E. Maddox, MADDOX HARGETT & CARUSO, PC, Fishers, IN; Thomas K. Caldwell, Timothy John Kirk, MADDOX HARGETT & CARUSO, PC, Fishers, IN.
For MANNON L. WALTERS, individually, IVY MORRIS, individually, MANNON L. WALTERS, INC., an Illinois corporation, MANNON L. WALTERS LLC, an Nevada Limited Liability Company also known as, MANNON OIL, LLC, MANNON OIL OF TENNESSEE, LLC, a Tennessee Limited Liability Company, F.E. MORAN OIL COMPANY, a Kentucky corporation, Defendants: Clay W. Havill, Jean Marie Blanton, Patrick A. Shoulders, Robert L. Burkart, ZIEMER STAYMAN WEITZEL & SHOULDERS LLP, Evansville, IN.
For MLW, INC., an Illinois corporation, Defendant: Patrick A. Shoulders, ZIEMER STAYMAN WEITZEL & SHOULDERS LLP, Evansville, IN.
ORDER ON PENDING MOTIONS
SARAH EVANS BARKER, United States District Judge.
This cause is before the Court on Defendants' Motion to Stay Arbitration [Docket No. 116], filed on June 2, 2014. Because we have ruled herein on the issues raised by Defendants, there is no need to stay the arbitration. Accordingly, Defendants' Motion to Stay is DENIED AS MOOT. Our rulings on the issues raised by Defendants are set forth in detail below.
Procedural and Factual Background
Plaintiffs are investors in one or more of five separate oil and gas limited partnerships (" LP" ) through their execution of a written Subscription Agreement. Each LP is a separate investment entity governed by a limited partnership agreement (" LPA" ). Each LPA contains an identical dispute resolution provision, which states, " Any controversy or claim arising out of or relating to this Agreement shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules ...." (the " Arbitration Clause" ). On January 7, 2012, Plaintiffs filed a consolidated arbitration demand with the American Arbitration Association (" AAA" ) (the " Demand" ) alleging various claims, including, inter alia breach of contract, deceptive trade, and RICO. The Demand filed by Plaintiffs included as respondents both signatories and non-signatories to the LPAs. On April 10, 2012, the AAA claims administrator instructed Plaintiffs to amend their consolidated demand to " file separate arbitrations for their claims arising under each of the contracts containing arbitration clauses."
On January 27, 2012, shortly after they filed the original Demand with the AAA, Plaintiffs also filed the instant lawsuit, explaining that their judicial complaint was to " toll the statute of limitations and seek a declaratory judgment that the matters
contained herein should be properly decided by arbitration." Compl. ¶ 55; First Am. Compl. ¶ 56. Thereafter, on March 20, 2012, Plaintiffs filed a Motion to Stay Federal Proceedings and Compel Arbitration. On January 31, 2013, Plaintiffs' motion was denied, based on the ruling of the Magistrate Judge as follows:
Defendants have appeared in the AAA proceeding, filed a response, and that matter may proceed upon the filing of an Amended Demand. Because the Defendants have not failed, neglected, or refused to arbitrate under written agreement, Plaintiffs are not entitled to relief under 9 U.S.C. § 4.
Dkt. No. 68.
On September 5, 2013, Defendants filed a Motion to Dismiss for Lack of Prosecution or, in the Alternative, Motion to Compel Arbitration based on Plaintiffs' failure to file an amended demand for arbitration. That prompted Plaintiffs the very next day to file a nearly identical consolidated arbitration demand with the AAA, which respondents countered with a nearly identical jurisdictional challenge filed on September 9, 2013. On October 2, 2013, the AAA case administrator again informed Plaintiffs that they must file separate demands for each contract containing an arbitration clause. On November 27, 2013, we granted Defendants' motion to compel arbitration, and ordered Plaintiffs to comply with the AAA case administrator's instructions on the grounds that it was the arbitrator's responsibility to determine the consolidation question.
On December 19, 2013, Plaintiffs complied with the case administrator's directive by filing five separate arbitration demands, pursuant to the arbitration provision in each of the LPAs, thereby creating five separate arbitration cases to be administered by the AAA. In each of the five cases, Plaintiffs named the respective LP and managing general partner as the sole respondents, consistent with the AAA case manager's instructions. That same day Plaintiffs also filed an Objection to Directive to Sever the Amended Statement of Claim in each of the five cases. The respondent in each of the five cases thereafter filed an objection to AAA jurisdiction.
The AAA appointed Howard Suskin (" Arbitrator Suskin" ) in AAA Case No. 52 198 Y 00012 12 pursuant to the 2005A1 LPA (the " 2005A1 LPA Case" ). The parties requested selection of a panel possessing specific expertise in the oil and gas industry in the 2005A2 LP case, the 2006 A LP case, the 2006B LP case, and the 2007A LP case (the " Other Four Cases" ). The AAA complied with that request by providing panels in each of the Other Four Cases, from which an arbitrator was appointed after the parties had an opportunity both to strike and rank the individual panel members. Preliminary hearings were held with arbitrators in four of the cases and deadlines were set in those four cases to address pending objections. A preliminary hearing was scheduled in the fifth case but it was subsequently postponed indefinitely by the AAA.
On April 14, 2014, Arbitrator Suskin granted Plaintiffs' Objection to Sever in the 2005A1 LP Case. In that order, Arbitrator Suskin held that " Mannon L. Walters, LLC ... is the signatory to the [2005A1] Limited Partnership Agreement (LPA), is subject to the LPA's arbitration clause [and] ... the LPA's arbitration clause ... encompasses each of Claimants' claims as currently pleaded against Mannon L. Walters, LLC." Docket No. 118-1 at 1. Arbitrator Suskin allowed Plaintiffs 30 days within which to file a " Consolidated Amended Statement of Claim" in order to add new parties if they wished, instructing
Plaintiffs to " plead with specificity the factual and legal bases upon which each additional party is an " Affiliate" of Mannon L. Walters, LLC, as that term is used in the LPA, and the factual and legal bases upon which AAA has jurisdiction over each such Affiliate." Id. at 2. Arbitrator Suskin noted that consolidation " would serve the interests of arbitral economy and also would serve the interests of all parties by conserving their resources, at least through the discovery and pre-hearing phases" but stated that if Mannon L. Walters, LLC " wishes to revisit the issue of severance for purposes of the final arbitration hearing, it may do so by way of motion at the conclusion of the discovery phase of this proceeding." Id. at 3.
Prior to any claimant filing a consolidated amended demand, on April 16, 2014, Arbitrator Suskin entered an order allowing discovery encompassing matters relating not only to the 2005A1 LP Case but also to the Other Four Cases. On April 25, 2014, Plaintiffs in the 2005A1 LP Case served a Request for Production to Mannon L. Walters, LLC n/k/a Mannon Oil, LLC (" Mannon Oil" ) seeking documents relating, in part, to the Other Four Cases. That same day, Plaintiffs filed a Second Amended Statement of Claim (the " Amended Demand" ) in the 2005A1 LP Case, which added all parties, non-parties, and claims set forth in the Other Four Cases. Respondents named include the following: Mannon L. Walters, individually; Ivy Morris, individually; Mannon L. Walters, Inc.; MLW, Inc.; MLW, LLC; Mannon L. Walters LLC n/k/a Mannon Oil, LLC; Mannon Oil of Tennessee, LLC; F.E. Moran Oil Company; and John and Jane Does I-X. The Amended Demand asserts fourteen counts for relief based on the LPAs, the Subscription Agreements, the Drilling and Operating Agreements, state common and statutory law, and federal statutory law.
On April 29, 2014, Mannon Oil, as managing general partner of the 2005A1 LP, filed a Motion to Correct Error in the 2005A1 LP Case, objecting to Arbitrator Suskin's April 14, 2014 Order permitting Plaintiffs to file a Consolidated Amendment of Claims. Arbitrator Suskin denied Mannon Oil's motion on May 15, 2014, holding in pertinent part as follows:
1. From the start of this proceeding, Claimants have expressed their desire to have their disputes concerning five limited partnerships adjudicated through the assertion of a single consolidated Statement of Claim, which is what they originally filed with the AAA and have since amended. They note that a number of the individual Claimants are limited partners in more than one of the limited partnerships at issue, and that the non-nominal Respondents are the same with respect to each limited partnership. Further, Claimants allege that the limited partnerships " are inherently inseparable and inexorably intertwined" and were created and operated by Respondents as a " single continuous enterprise," making adjudication in a single proceeding appropriate. It is undisputed that the arbitration clauses in each of the five limited partnership agreements provide for arbitration under the AAA Commercial Rules, and thus there is not any basis to contend that the AAA lacks jurisdiction over Claimants' claims.
2. In the Motion to Correct Error, Respondent notes that it was not until 2013 that the AAA Rules expressly permitted consolidation and joinder of arbitrations, and Respondent contends that the April 14, 2014 Order erred because the original action was filed in January 2012 and governed by the ...