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Bailey Engineers Inc v. Jst Acquisition Company

April 19, 2011

BAILEY ENGINEERS INC., PLAINTIFF,
v.
JST ACQUISITION COMPANY, L.L.C., DEFENDANT.



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Presently pending before the Court for disposition is the DEFENDANT"S MOTION TO DISMISS COMPLAINT (Doc. No. 11), with brief in support (Doc. No. 12) filed by Defendant JST Acquisition Company, L.L.C. ("JST" or "Defendant"). Plaintiff Bailey Engineers, Inc. filed a Response in Opposition (Doc. No. 15), and Defendant filed a reply brief (Doc. No. 16). Accordingly, the motions are now fully briefed and ripe for disposition.

BACKGROUND

On August 30, 1996, Plaintiff and PVS Chemicals, Inc. ("PVS"), Defendant's predecessor-in-interest, entered into an Operating Agreement to organize and manage a joint-venture, Bailey-PVS Oxides, L.L.C. ("BPO"), a Michigan limited liability company that the parties co-own as fifty percent (50%) members. PVS transferred its membership interest in BPO to Defendant in 2002.

Thereafter, on August 6, 2010, representatives of Plaintiff and Defendant met to discuss BPO. At the meeting, Defendant requested that Plaintiff consent to the voluntary dissolution of BPO, and Plaintiff disputed whether voluntary dissolution was permissible under the terms of the Operating Agreement. Defendant then stated that it would seek to dissolve BPO and Plaintiff advised that it would dispute whether sufficient ground existed for the dissolution. To settle this dispute, Defendant initiated an arbitration proceeding with the American Arbitration Association on January 4, 2011.

The Operating Agreement, Article XI, outlines the procedures that a party must follow to dissolve the company. The Operating Agreement also contains a provision for the "Settlement of Disputes," which mandates that the parties arbitrate any dispute that arises as follows:

Section 13.1-Settlement of Disputes. "If any dispute or difference shall arise among the Members touching on any clause, matter or thing contained in this Operating Agreement or the operation or construction of this Agreement, any matter or thing in any way connected with this Agreement or the rights, duties or liabilities of any party under or in connection with this Agreement, then and in every such case, the dispute or difference shall be referred to . . . arbitration proceedings . . .

(Doc. No. 4-1 at 22-23). The parties disagree as to whether this provision governs their dispute over the dissolution of BPO.

On January 18, 2011, Plaintiff initiated this diversity action by the filing of a two-count complaint (Doc. No. 1), seeking declaratory and injunctive relief. Plaintiff avers that Defendant improperly sought dissolution through an arbitration proceeding filed with the American Arbitration Association ("AAA"), which is allegedly outside the context of the Operating Agreement. Moreover, Plaintiff claims that Defendant initiated that proceeding, "despite failing to comply with the contractual notice of intent to dissolve and affording Bailey the option to acquire JST's interest in BPO." (Doc. No.1 at 4).

Plaintiff also alleges that AAA lacks jurisdiction over the Arbitration Proceeding. In sum, Plaintiff contends as follows: (1) "Bailey never contracted with JST, as successor to PVS under the Operating Agreement, to arbitrate claims with regard to dissolution of BPO under Michigan statutory and common law;" and (2) "under the Operating agreement, the parties contractually limited their ability to obtain dissolution of BPO, waiving the right to seek judicial (or tribunal)-ordered dissolution of the company." (Doc. No. 1 at 6-7). Thus, as Plaintiff claims, a separate non-arbitration procedure contained within the operating agreement governs dissolution of the company.

On March 3, 2011, Defendant filed the instant motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). Defendant contends that the Complaint must be dismissed because the parties agreed to submit "any dispute or difference . . . touching on any clause, matter or thing contained in this Operating Agreement or the operation or construction of this Agreement, any matter or thing in any way connected with this Agreement . . ." to arbitration. Defendant also alleges that the operating agreement "'touches on' every issue raised in [it's] Arbitration Demand, explicitly addressing the dissolution of the partnership, management obligations, and the requirements of the Michigan Limited Liability Company Act." (Doc. No. 12 at 2).

STANDARD OF REVIEW

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) challenges the legal sufficiently of the complaint filed by a plaintiff. The United States Supreme Court has held that "[a] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (207) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)) (alterations in original).

The Court must accept as true all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. However, as the Supreme Court made clear in Twombly, the "factual allegations must be enough to raise a right to relief above the speculative level." Id. The Supreme Court has subsequently broadened the scope of this requirement, stating that only a complaint that states a plausibleclaim for ...


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