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L.L.C. v. 7-Eleven, Inc.

United States District Court, E.D. Louisiana

January 24, 2017

VETERANS BROTHERS NO. 126, L.L.C., ET AL.
v.
7-ELEVEN, INC., ET AL. Nos. 16-434, 16-2034

         SECTION “R” (2)

          ORDER AND REASONS

          SARAH S. VANCE UNITED STATES DISTRICT JUDGE

         Before the Court is Third-Party Defendants Imad Hamdan, Brothers Veterans, LLC, Brothers Avondale, LLC, and Brothers Lapalco, LLC's (Third-Party Defendants) motion to stay this case pending arbitration.[1] Also before the Court is Third-Party Plaintiff SEI Fuel Services, Inc.'s motion to temporarily stay the parties from proceeding in arbitration.[2] For the following reasons, the Court grants third-party defendants' motion. For the same reasons, the Court denies third-party plaintiff's motion.

         I. BACKGROUND

         This case is a consolidation of three lawsuits, and the procedural history of the cases can be hard to follow due to the names and corporate identities of all of the players. On December 7, 2015, Veterans Brothers No. 126, LLC filed suit against 7-Eleven, Inc., in the 24th Judicial District Court for the Parish of Jefferson, Louisiana.[3] The suit alleges that despite 7-Eleven's claims that it has the exclusive contractual right to sell and distribute motor fuel to Veterans Brothers, Veterans Brothers is not, and has never been, a party to the alleged contract.[4] In the same court on the same day, Lapalco Brothers No. 125, LLC filed an identical suit against 7-Eleven, making the same allegations as the Veterans Brothers suit.[5] 7-Eleven removed both suits to this Court on January 11, 2016.[6]

         On January 26, 2016, Avondale Brothers No. 128, LLC filed a lawsuit in state court identical to those filed by Veterans Brothers and Lapalco Brothers, except this suit was against SEI Fuel rather than 7-Eleven.[7] On February 2, 2016, Veterans Brothers and Lapalco Brothers substituted SEI Fuel for 7-Eleven, [8] and on March 10, 2016, SEI Fuel removed the Avondale Brothers suit to this Court.[9] Avondale Brothers, Veterans brothers, and Lapalco Brothers all sought a declaratory judgment declaring that they are not parties to any contract with SEI Fuel regarding the sale and distribution of gasoline. On March 15, the Court consolidated the three cases.[10]

         On March 11, 2016, SEI Fuel filed its answer to the Veteran Brothers lawsuit, and filed counterclaims against Veteran Brothers, but also named Brothers Veterans, LLC, and Imad Hamdan, as third-party defendants.[11] On the same day, it answered the Lapalco Brothers suit, and filed counterclaims not only against Lapalco Brothers, but also against Brothers Lapalco, LLC, and Hamdan.[12] On March 28, 2016, SEI Fuel filed its answer to the Avondale Brothers suit and filed counterclaims against Avondale Brothers, Brothers Avondale, LLC, and Hamdan.[13]

         SEI Fuel's counterclaims alleged that despite the difference in names of the corporate entities (e.g., Avondale Brothers vs. Brothers Avondale), the entities operated as a single business enterprise. SEI Fuel sought a declaratory judgment that the corporate entities (no matter how they are named) are obligated to comply with the alleged fuel contracts. SEI Fuel also brought claims for anticipatory breach of contract and for unfair trade practices under the Louisiana Unfair Practices and Consumer Protection Law.

         Initially, neither Brothers Lapalco, Brothers Veterans, Brothers Avondale, nor Hamdan answered the counterclaims in a timely manner. On September 9, 2016, SEI Fuel sought an entry of default as to those third-party defendants, [14] and the Clerk of Court issued an Entry of Default against those third-party defendants that same day.[15] On October 12, 2016, SEI Fuel moved the Court to enter a default judgment against those third-party defendants.[16] Two days later, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Hamdan filed a motion to set aside the entry of default, [17] and filed their answers to SEI Fuel's counterclaims on November 30, 2016.[18]

         While the motions for default judgment and to set aside the entries of default were pending, on November 7, 2016, Brothers Veterans, Brothers Avondale, Brothers Lapalco and Hamdan filed a motion to stay the consolidated case pending the resolution of arbitration proceedings between the parties.[19] They also attached an arbitration demand, dated November 1, 2016, that they sent to SEI Fuel via overnight mail.[20] On November 11, 2016, SEI Fuel filed its opposition to third-party defendants' motion, [21] and simultaneously filed a motion to temporarily stay the parties from proceeding in arbitration.[22] Third-party defendants opposed SEI Fuel's motion, [23] and both parties filed replies.[24]

         On December 27, 2016, the Court found that third-party defendants had shown good cause and granted their motion to set aside the entries of default.[25] The Court now addresses the remaining motions.

         II. LEGAL STANDARD

         There is a “strong federal policy in favor of enforcing arbitration agreements.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985). The Federal Arbitration Act states that:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration . . . the court . . . shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . .

9 U.S.C. § 3.

         An application for arbitration by either party under Section 3 “requests the district court to refrain from further action in a suit pending arbitration, and requires the court to first determine whether there is a written agreement to arbitrate between the parties, and then whether any of the issues raised are within the reach of the agreement.” Texaco Expl. & Prod. Co. v. AmClyde Engineered Prod. Co., 243 F.3d 906, 909 (5th Cir. 2001) (citing Midwest Mech. Contractors, Inc. v. Commonwealth Const. Co., 801 F.2d 748, 750 (5th Cir. 1986)). “If the issues in a case are within the reach of that [arbitration] agreement, the district court has no discretion under section 3 to deny the stay.” See id. (citation omitted).

         Despite the strong federal policy favoring arbitration, the right to arbitration may be waived. See Frye v. Paine, Webber, Jackson & Curtis, Inc., 877 F.2d 396, 398 (5th Cir. 1989) (citing Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1158 (5th Cir. 1986)). The party asserting waiver has a heavy burden, but “waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.” Id. (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986)).

         III. DISCUSSION

         Third-party defendants argue that the Court should stay this case pending resolution of arbitration proceedings between the parties. In support, they point to the Branding and Product Purchase Commitment Agreements between third party defendants and LavigneBaker Petroleum, LLC (SEI Fuel's predecessor in interest), which all contain the following provision:

Dispute Resolution. Except for any matter arising out of Article 6 (Right of First Refusal), for which Seller may pursue any remedy available at law or in equity, . . . all disputes between Seller and Buyer arising out of, relating to, or in connection with this Agreement, including, without limitation, any Claim or question relating to this Agreement's negotiation, performance, non-performance, interpretation or termination or the relationship between Seller and Buyer contemplated or established by this Agreement, shall be referred to and finally resolved pursuant to the dispute resolution provisions of Schedule B of the Purchase Agreement. This section 7.3 shall survive indefinitely.[26]

         Schedule B contains the following provision:

Agreement to Arbitrate. Except as provided in any Transaction Document, any dispute between the parties arising out of, relating to, or in connection with any Transaction Documents to which this Schedule B relates, including any Claim or question relating to any Transaction Document's negotiation, performance, non-performance, interpretation, termination or the relationship between the Parties established by any Transaction Document . . . shall be referred to and finally and exclusively resolved by arbitration in accordance with the CPR Rules for Non-Administered Arbitration, as such rules may be in effect on the date of such Transaction Document . . . .[27]

         “Transaction Documents” are defined in the agreement as “the Purchase Agreement, the Limited Warranty Deeds, the Assignments of Lease, the Sublease, Bill of Sale, the Assignment of Contracts, the Assignment of Dealer Instruments, the WMA, the Branding Agreement, the Access Agreement and the Guarantee.”[28] The “Guarantee” referred to in the definition of “Transaction Documents” is a Guarantee signed by Hamdan whereby Hamdan irrevocably and unconditionally guarantees the full and prompt payment and performance of the obligations in the Purchase and Branding Agreements.[29]

         Therefore, according to third-party defendants, there exists a written agreement to arbitrate between third-party defendants and SEI Fuel. Further, third-party defendants argue that SEI Fuel's claims against third-party defendants are within the reach of the arbitration agreement.[30] Thus, in accordance with the strong policy in favor of arbitration and the agreements at issue, third-party defendants argue that the Court should stay this case pending resolution of the claims through arbitration.

         SEI Fuel does not dispute that the contracts in question contain an agreement to arbitrate, nor does not it contest that the claims asserted by SEI Fuel against third-party defendants fall within the coverage of the arbitration provisions. Instead, SEI Fuel argues that third-party defendants have waived their right to arbitrate by substantially invoking the judicial process to the prejudice of SEI Fuel.[31] Waiver of the right to arbitrate is an issue for the Court to decide. See, e.g., Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 F. App'x 462, 464 (5th Cir. 2004) (per curiam) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)). SEI Fuel's waiver argument relies on imputing the actions of the plaintiffs in this case to third-party defendants, either as alter-egos, or by treating plaintiffs and third-party defendants as a single business enterprise. The Court will address the waiver argument first.

         As mentioned above, the right to arbitrate is not absolute, and it can be waived. See Frye, 877 F.2d at 398 (5th Cir. 1989). SEI Fuel, as the party asserting waiver, must overcome a heavy burden. Id. To show that third-party defendants have waived their right to arbitrate, SEI Fuel must show that third-party defendants have “substantially invoke[d] the judicial process to the detriment or prejudice of the other party.” Id. (quoting Miller Brewing Co., 781 F.2d at 497 (5th Cir. 1986)). Echoing the strong policy in favor of arbitration, the Supreme Court has instructed that any doubts “should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Further, the Fifth Circuit has made clear that ...


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