Appeal
from the District Court of Williams County, Northwest
Judicial District, the Honorable Paul W. Jacobson, Judge.
Charles L. Neff, Williston, N.D., for plaintiff and appellee.
Kip M.
Kaler (argued) and Asa K. Burck (on brief), Fargo, N.D., for
defendants and appellants.
Michael L. Gust (on brief) and Matthew D. Kirschenmann
(appeared), Fargo, N.D., for defendant and appellee.
OPINION
TUFTE,
JUSTICE.
[¶
1] Merritt Charles Horning III; Riggers Store Holdings, LLC;
Riggers Store 1, LLC; Chase Merritt Management, Inc.; Chase
Merritt, LP; and Racers Store Management, LLC (collectively
the "Horning defendants") appeal from a district
court order denying their motion to compel arbitration of
Raymond Melendez's lawsuit against them. The issues in
this appeal involve whether Melendez's claims against the
Horning defendants concerning the operation of a convenience
store in Williston are arbitrable under an arbitration clause
in an operating agreement for Riggers Store Holdings. We
conclude the district court erred in deciding Melendez's
claims are not arbitrable, and we reverse the order denying
arbitration and remand for entry of an order compelling
arbitration.
I
[¶
2] The resolution of the issues raised in this appeal
requires a description of the relationship of the entities
involved in the proceeding. Melendez, Greg Bradford, and
Chase Merritt, LP, a Delaware limited partnership, are the
three sole members of Riggers Store Holdings, a Delaware
limited liability company. Chase Merritt Management, a
Delaware corporation, is the manager of Riggers Store
Holdings. Horning is a limited partner of Chase Merritt, LP,
and is the president and owns all the stock of Chase Merritt
Management. Riggers Store Holdings is the sole member of
Riggers Store 1, a Delaware limited liability company and
convenience store located in Williston. Riggers Store
Holdings appointed Chase Merritt Management as the manager of
Riggers Store 1, and Chase Merritt Management contracted with
Racers Store Management, a Delaware limited liability
company, to operate Riggers Store 1.
[¶
3] Melendez, Bradford, and Chase Merritt, LP, as the members,
and Chase Merritt Management, as the manager, executed an
operating agreement for Riggers Store Holdings. The operating
agreement stated that it "shall be governed by, and
construed and enforced in accordance with, the laws of the
State of Delaware" and that the "rights and
obligations of the Members and the Manager, and the
formation, operation, administration and termination of the
Company shall be governed by the laws of the State of
Delaware." The operating agreement also included an
arbitration clause requiring arbitration governed by the
California Arbitration Act "[i]f any controversy or
dispute arises between or among the Members or the Manager or
their respective representatives concerning any provision of
this Agreement or the rights and duties of any person or
entity in relation thereto."
[¶
4] Melendez claimed that Horning, through his ownership and
control of the interrelated companies, controlled four
convenience stores in Williston, Minot, and Stanley,
including Riggers Store 1 in Williston, and that Horning
converted assets and cash belonging to Riggers Store 1 for
his personal benefit and the benefit of the other convenience
stores. Melendez had a minority ownership interest in Riggers
Store 1 through his interest in Riggers Store Holdings, but
he did not have an ownership interest in the other three
convenience stores. Melendez sued the Horning defendants and
Bradford, alleging that Horning, individually and through his
ownership and control of the companies, had a fiduciary duty
of good faith and fair dealing to the minority owners of
Riggers Store Holdings and that Horning and his companies had
a duty to comply with all applicable operating agreements and
documents involving Riggers Store Holdings and Riggers Store
1. Melendez specifically alleged that Horning, through his
control of the companies, unlawfully converted and commingled
inventory, cash, and other assets belonging to Riggers Store
Holdings and Riggers Store 1. Melendez sought: (1) the
appointment of a new managing member for Riggers Store 1 and
Riggers Store Holdings; (2) a declaration of the ownership
interests of the members of Riggers Store Holdings; (3) an
accounting of commingled and converted assets and cash; and
(4) a determination that Horning's conduct constituted
actual and constructive fraud.
[¶
5] Riggers Store 1 and Racers Store Management moved for a
preliminary injunction under N.D.C.C. ch. 32-06, alleging
Melendez had forcibly taken control of Riggers Store 1 and
seeking an order directing Melendez and anyone acting at his
behest or control to immediately remove themselves from the
operation of Riggers Store 1. The district court described
the status quo as Melendez having assumed management and
control of the convenience store, and the court concluded the
movants had not shown a substantial probability of succeeding
on the merits and denied their motion for a preliminary
injunction.
[¶
6] Horning, Chase Merritt Management, and Chase Merritt, LP,
thereafter moved to dismiss Melendez's complaint for lack
of personal jurisdiction. All the Horning defendants also
moved to dismiss Melendez's complaint for failure to
state a cause of action and alternatively sought an order
compelling arbitration of his claims.
[¶
7] The district court denied the motions, ruling that it had
personal jurisdiction over Horning and that Melendez's
lawsuit stated a cause of action. The court ruled it lacked
authority to compel Horning, Riggers Store 1, and Racers
Store Management to arbitrate, because they were not
signatories to the Riggers Store Holdings' operating
agreement. The court held the arbitration clause in that
operating agreement did not compel arbitration of
Melendez's claims, because those claims did not arise out
of the interpretation or enforcement of the operating
agreement or touch on contractual rights or performance under
that agreement. The court explained the operating agreement
did not implicate the Horning defendants' fiduciary
duties and the arbitration ...