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Melendez v. Horning

Supreme Court of North Dakota

March 8, 2018

Raymond Melendez, Plaintiff and Appellee
v.
Merritt Charles Horning III a.k.a. Chad Horning; Riggers Store Holdings, LLC; Riggers Store 1, LLC; Chase Merritt Management, Inc; Chase Merritt, LP, a limited partnership; and Racers Store Management, LLC, Defendants and Appellants and Gregory Dalton Bradford, Defendant and Appellee

         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 ...


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