United States District Court, E.D. Pennsylvania
MICHAEL R. NELSON
DAVID L. BROWN, ET AL.
R. PADOVA, JUDGE.
Michael R. Nelson has filed the instant action seeking to
compel the mediation or arbitration of certain disputes
arising out of the dissolution of the law firm of Nelson
Levine de Luca & Hamilton, LLC (the “Firm”)
in accordance with the procedures set forth in the
Pennsylvania Bar Association's Lawyer Dispute Resolution
Program Rules (the “PBA Program”). Two of the
Defendants, William O. Krekstein and David L. Brown, have
filed Answers to the Amended Complaint. The remaining
Defendants have filed Motions to Dismiss the Amended
Complaint. In response, Plaintiff has filed a Cross-Motion to
Compel Arbitration. For the following reasons, we deny all of
Amended Complaint alleges the following facts. The parties
were all members of the Firm, which is a Pennsylvania limited
liability company. (Am. Compl. ¶ 16.) The rights and
obligations of the parties, who were members of the Firm, are
governed by the Amended and Restated Limited Liability
Company Operating Agreement (the “Operating
Agreement”) and the Amended and Restated Buy-Sell
Agreement (the “Buy-Sell Agreement”).
(Id. ¶ 2, Exs. A, B.) Both of the Agreements
require the parties to “resolve all claims and disputes
arising under or relating to” the Agreements through
mediation and, if necessary, through arbitration under the
PBA Program. (Id. ¶ 2; Ex. A § 9.13; Ex. B
§ 7.13.) Defendants have received notices and demands
for mediation and arbitration from Plaintiff and the
Pennsylvania Bar Association (“PBA”), but have
refused to participate in the PBA dispute resolution process.
(Id. ¶ 3.)
seeks to mediate, and if necessary arbitrate, claims against
Defendants arising from the following:
(a) the repayment of a $4 million line of credit with First
Niagara Bank. Plaintiff Nelson has had to contribute more
than his proportionate share to repay that line of credit,
and he has also had to pay income taxes on certain sources of
income used for the repayment. This implicates the
Defendants' duty, pursuant to Section III of the
Operating Agreement and paragraph 3.1.1 of the Buy-Sell
Agreement, to contribute capital. Plaintiff Nelson further
seeks indemnification from the Defendants for the amounts he
has paid beyond his proportionate share of liability.
(b) Defendants taking advance draws that exceeded their
entitlement to distributions for 2014, in violation of
Section IV of the Operating Agreement. Despite demand,
Defendants have refused to repay the excess advance draws
that they received and, instead, Defendants have tried to
characterize those advance draws as guaranteed payments. This
has diluted Nelson's interest. In addition to
constituting breaches of the Operating Agreement, this
conduct by Defendants also constitutes breaches of the
fiduciary duties that the Defendants owe to Plaintiff Nelson.
This conduct, and the fact that all of the Defendants left
the firm without giving proper notice, also implicates the
winding-up process set forth at Section VII of the Operating
Agreement, by placing undue burdens on Nelson.
(c) While all Defendants took advance draws to which they
were not entitled, Defendants Clark, de Luca, and Levine took
advance draws in 2014 simultaneously with planning and
preparing to launch their (respective) new, competing law
firms, at a time when they were supposed to be devoting all
of their professional time and efforts to the law firm they
shared with Plaintiff Nelson. This conduct violates paragraph
5.3 of the Operating Agreement and also constitutes
additional breaches of fiduciary duty by these Defendants.
(Id. ¶ 18.)
parties agreed, in both the Operating Agreement and the
Buy-Sell Agreement, that “‘any and all claims,
controversies and disputes . . . arising under or relating to
[the Agreements] shall be settled through mediation conducted
in accordance with the then-existing rules of the [PBA
Program].'” (Id. ¶ 20 (quoting
Operating Agreement § 9.13); see also id.
¶ 21 (quoting Buy-Sell Agreement § 7.13.) They
further agreed that “‘[a]ny DISPUTE not resolved
through such mediation shall be submitted to binding
arbitration conducted in accordance with the then existing
rules of the [PBA Program].'” (Id. ¶
20 (quoting Operating Agreement §9.13; see also
id. ¶ 21 (quoting Buy-Sell Agreement § 7.13).)
January 23, 2017, Plaintiff invoked the mediation and
arbitration process under the PBA Program by sending a notice
to the PBA and Defendants of the existence of disputes among
members of the Firm that require resolution. (Id.
¶ 24, Ex. D.) On February 6, 2017, the PBA sent a letter
to Defendants notifying them of the request for dispute
resolution under the PBA Program and asking that they sign a
standard mediation agreement and pay the required fee.
(Id. ¶ 25, Ex. E.) None of the Defendants has
signed the mediation agreement or paid the fee. (Id.
¶ 26.) All of the Defendants have thus failed and
refused to participate in mediation and arbitration under the
PBA Program. (Id. ¶ 27.)
Complaint asserts two claims for relief. Count I asks the
Court to compel mediation and, if necessary, arbitration,
pursuant to § 4 of the Federal Arbitration Act, 9 U.S.C.
§§ 1-14 (the “FAA”). Count II asks the
Court to require the parties to participate in mediation and,
if necessary, arbitration, pursuant to the Pennsylvania
Uniform Arbitration Act, 42 Pa. Cons. Stat. Ann. § 7304.
Defendant John M. Clark has filed a Motion to Dismiss for
lack of standing pursuant to Federal Rule of Civil Procedure
12(b)(1) and for failure to state a claim upon which relief
can be granted pursuant to Rule 12(b)(6). Defendants Kenneth
T. Levine and Daniel J. de Luca have filed a Motion to
Dismiss for failure to state a claim upon which relief can be
granted pursuant to Rule 12(b)(6). Defendants Claudia D.
McCarron and John F. Mullen have also filed a Motion to
Dismiss for failure to state a claim upon which relief can be
granted pursuant to Rule 12(b)(6). Defendant Michael A.
Hamilton has filed a Motion to Dismiss for failure to join an
indispensable party pursuant to Rule 12(b)(7). Plaintiff has,
in turn, filed a Motion to Compel Arbitration.
THE ARBITRATION ACT
Amended Complaint seeks an order pursuant to Section 4 of the
FAA compelling the mediation and, if necessary, arbitration
of the claims described in Paragraph 18 through the PBA
Program. Section 4 of the FAA provides as follows:
A party aggrieved by the alleged failure, neglect, or refusal
of another to arbitrate under a written agreement for
arbitration may petition any United States district court
which, save for such agreement, would have jurisdiction under
title 28, in a civil action or in admiralty of the subject
matter of a suit arising out of the controversy between the
parties, for an order directing that such arbitration proceed
in the manner provided for in such agreement.
9 U.S.C. § 4. When it enacted the FAA, “Congress
‘expressed a strong federal policy in favor of
resolving disputes through arbitration.'”
Flintkote Co. v. Aviva PLC, 769 F.3d 215, 219 (3d
Cir. 2014) (quoting Century Indem. Co. v. Certain
Underwriters at Lloyd's, London, 584 F.3d 513, 522
(3d Cir. 2009)). “[W]hen a party resists arbitration
under an existing arbitration clause . . . the FAA allows a
district court to compel, or enjoin, arbitration as the
circumstances may dictate.” John Hancock Mut. Life
Ins. Co. v. Olick, 151 F.3d 132, 136 (3d Cir. 1998)
(citing 9 U.S.C. §§ 3, 4; PaineWebber, Inc. v.
Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)).
decide “whether a party may be compelled to arbitrate
under the FAA, we first consider ‘(1) whether there is
a valid agreement to arbitrate between the parties and, if
so, (2) whether the merits-based dispute in question falls
within the scope of that valid agreement.'”
Flintkote, 769 F.3d at 220 (quoting Century
Indem., 584 F.3d at 527). At this stage of the
litigation, none of the Defendants disputes that the
Operating Agreement and Buy-Sell Agreement contain valid
agreements to mediate and, if necessary, to arbitrate under
the PBA Program. When a court is “deciding whether the
parties have agreed to submit a particular grievance to
arbitration, [the] court is not to rule on the potential
merits of the underlying claims.” AT & T
Techs., Inc. v. Commc'ns Workers of Am., 475 U.S.
643, 649 (1986). Thus, we “have no business weighing
the merits of the grievance, considering whether there is
equity in a particular claim, or determining whether there is
particular language in the written instrument which will
support the claim.” Id. at 650; see also
Silfee v. Automatic Data Processing, Inc., 696 Fed.Appx.
576, 577 (3d Cir. 2017) (stating that, when it decides
whether to compel arbitration, “the role of the court
‘is strictly limited to determining arbitrability and
enforcing agreements to arbitrate, leaving the merits of the
claim and any defenses to the arbitrator'” (quoting
Republic of Nicaragua v. Standard Fruit Co., 937
F.2d 469, 478 (9th Cir. 1991))). When we decide whether the
dispute “in question falls within the scope of [a]
valid [arbitration] agreement, ” Flintkote,
769 F.3d at 220, “‘there is a presumption of
arbitrability[:] an 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.'” Century Indem., 584 F.3d at 524
(alteration in original) (quoting AT&T Techs.,
475 U.S. at 650).
THE MOTIONS TO DISMISS