Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01181/USCOURTS-azd-2_08-cv-01181-1/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1962 Racketeering (RICO) Act

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Plaintiff Trussnet has requested oral argument. The request is denied because the

parties have thoroughly discussed the law and the evidence, and oral argument will not aid

the Court’s decision. See Lake at Las Vegas Investors Group, Inc. v. Pac. Malibu Dev., 933

F.2d 724, 729 (9th Cir. 1991). 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

TRUSSNET USA, INC., a Delaware

corporation,

Plaintiff, 

vs.

PETER A LENDRUM and JAMIE R.

LENDRUM, husband and wife;

RICHARD THOMAS, an individual;

GEORGE D. SLESSMAN and

SHANNON P. SLESSMAN, husband and

wife; WILLIAM D. SLESSMAN and

SARAH I. SLESSMAN, husband and

wife,

Defendants. 

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No. CV-08-1181-PHX-GMS

ORDER

Pending before the Court is the Motion to Dismiss or, in the Alternative, Stay

Proceedings and Compel Arbitration of Defendants Peter A. and Jamie R. Lendrum. (Dkt.

# 19.) Defendants George D. and Shannon P. Slessman and William D. and Sarah I.

Slessman joined in the motion. (Dkt. # 23.) For the reasons set forth below, the Court grants

Defendants’ motion to stay the proceedings and compel arbitration.1

Case 2:08-cv-01181-GMS Document 47 Filed 12/09/08 Page 1 of 8
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The first contract, entitled “Independent Contractor Agreement,” states:

If a dispute arises related to this Agreement or the termination

thereof, claims for breach of contract or breach of the covenant

of good faith and fair dealing . . . or any other claims under any

federal, state or local law or regulation . . . the parties shall

attempt in good faith to settle the Dispute through mediation . .

. . If the Dispute is not resolved . . . it shall be resolved through

final and binding arbitration . . .conducted by the Judicial

Arbitration and Mediation Services, Inc. (“JAMS”) . . . .

(Dkt. # 19 Ex. A ¶ 14.)

The second contract, entitled “Employee Proprietary Information and Interventions

Agreement,” states, “Any dispute between the parties arising out of or related to this

Agreement shall be submitted to binding arbitration with . . . [JAMS] . . . for resolution . . .

.” (Id. Ex. B ¶ 30.)

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BACKGROUND

This dispute centers on allegations that Defendant Peter Lendrum, a Vice-President

and principal architect of Plaintiff’s Phoenix office, surreptitiously competed with Plaintiff;

used Plaintiff’s employees and resources in his own enterprises; and diverted business from

Plaintiff’s clients, to enrich himself, Defendant Thomas, and the Slessman Defendants. (See

Dkt. # 1.) It is alleged that this conduct occurred despite the existence of contracts between

Plaintiff and Defendant Lendrum that expressly required Defendant Lendrum to fully devote

his efforts and time to his duties as Vice-President and principal architect of Trussnet. (Id.

¶¶ 10-11, 13-14, 18-20.) The parties do not dispute that Defendant Peter Lendrum and

Plaintiff are parties to enforceable contracts that are central to the claims asserted against

Defendant Lendrum. It is also undisputed that the contracts both contain: (1) binding

arbitration clauses that require the parties to submit disputes arising out of the contracts to

binding arbitration with Judicial Arbitration and Mediation Services, Inc. (“JAMS”)2

 and (2)

choice of law provisions requiring application of California law to disputes arising under the

contract. (Dkt. # 19 Exs. A ¶ 14, B ¶ N.) Finally, the parties do not dispute that all of the

Case 2:08-cv-01181-GMS Document 47 Filed 12/09/08 Page 2 of 8
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In the Complaint, Plaintiff asserts breach of contract, breach of the covenant of good

faith and fair dealing, breach of fiduciary duties, conversion, fraud, interference with

prospective business relations, and violations of the Racketeer Influenced and Corrupt

Organizations Act (RICO) against Defendant Peter Lendrum. (Dkt. # 1.)

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claims asserted against Defendant Peter Lendrum in the current action are within the scope

of the compulsory arbitration and choice of law clauses.3

 (See Dkt. # 31 at 9.) 

In or around March, 2008, Plaintiff indicated intent to pursue arbitration of its claims

against Defendant Peter Lendrum by filing a Demand for Binding Arbitration with JAMS

in California. (See id. Ex. C.) Defendant Peter Lendrum responded by filing a counterclaim

Demand for Binding Arbitration with JAMS, and the arbitration was officially commenced

on March 31, 2008. (Id.) 

Despite the arbitration proceedings, on June 26, 2008, Plaintiff filed a complaint in

this Court seeking judicial process in resolving both the claims previously submitted to

arbitration and additional claims asserted against Defendants not subject to the arbitration

proceedings. (Dkt. # 1.) On August 14, 2008, Defendants Peter and Jamie Lendrum filed

a motion to dismiss or in the alternative to stay the proceedings and compel arbitration. (Dkt.

# 19.) The Lendrums seek dismissal of Counts 1-7 and 11-13 – all counts asserted against

them – due to the existence of the binding arbitration agreements between the parties as well

as dismissal of Counts 5-7 and 11-13 under Federal Rule of Civil Procedure 12(b)(6) for

failure to state a claim upon which relief can be granted. Alternatively, the Lendrums move

the Court to stay the matter and compel arbitration. On August 21, 2008, Defendants George

D. and Shannon P. Slessman and William D. and Sarah I. Slessman (“the Slessmans”) –

parties not subject to the contractual arbitration – joined in the motion. (Dkt. # 23.) The

Slessmans additionally seek dismissal of Counts 9 and 10 under Rule 12(b)(6) for failure to

state a claim upon which relief can be granted. 

DISCUSSION

Defendants Peter and Jamie Lendrum principally argue that the Federal Arbitration

Act (“FAA”), 9 U.S.C. §§ 1-4, requires this Court to stay the proceedings and compel

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arbitration of the claims asserted against Defendant Peter Lendrum. (Dkt. # 19 at 5-6.) The

FAA governs the allocation of authority between courts and arbitrators. Chiron Corp. v.

Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1131 (9th Cir. 2000); see also 9 U.S.C. §§ 1-4.

By its terms, section 3 of the FAA “leaves no place for the exercise of discretion by a district

court but instead mandates that district courts shall direct the parties to proceed to arbitration

on issues as to which an arbitration agreement has” been reached. Dean Witter Reynolds,

Inc. v. Byrd, 470 U.S. 213, 218 (1985); see also Republic of Nicaragua v. Standard Fruit

Co., 937 F.2d 469, 475 (9th Cir. 1991) (“The standard for demonstrating arbitrability is not

a high one; in fact, a district court has little discretion to deny an arbitration motion, since the

[FAA] is phrased in mandatory terms.”). Because of this mandate, the FAA limits courts’

involvement to “determining (1) whether a valid agreement to arbitrate exists and, if it does,

(2) whether the agreement encompasses the dispute at issue.” Chiron, 207 F.3d at 1130

(citation and quotation omitted). If these inquiries are answered in the affirmative, 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. Here, the parties do

not dispute either that a valid agreement to arbitrate exists or that the scope of the arbitration

clauses encompasses the claims at issue. Therefore, under the FAA, this Court must compel

arbitration of the claims asserted against Defendant Peter Lendrum.

Plaintiff, however, argues that “the FAA does not apply without regard to the parties’

agreement to proceed according to different terms or in a different manner.” (Dkt. # 31 at

4.) Specifically, Plaintiff argues that because “the parties chose to incorporate California law

into each arbitration agreement . . . California law applies.” (Id.) Accordingly, Plaintiff

contends that the Court is bound to follow California Civil Procedure Code section

1281.2(c). Section 1281.2(c) states, in relevant part, that a court need not issue an order

compelling arbitration when:

A party to the arbitration agreement is also a party to a pending

court action or special proceeding with a third party, arising out

of the same transaction or series of related transactions and there

is a possibility of conflicting rulings on a common issue of law

or fact . . . . Once a court identifies such a situation, that court

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may: (1) refuse to enforce the arbitration agreement and may

order intervention or joinder of all parties in a single action or

special proceeding; (2) may order intervention or joinder as to

all or only certain issues; (3) may order arbitration among the

parties who have agreed to arbitration and stay the pending court

action or special proceeding pending the outcome of the

arbitration proceeding; or (4) may stay the arbitration pending

the outcome of the court action or special proceeding.

Plaintiff argues that judicial economy dictates that the Court stay the arbitration proceeding

as permitted by option (4). (Dkt. # 31 at 7.) 

In support of her argument, Plaintiff cites to the Supreme Court decision in Volt Info.

Scis, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989), for the

proposition that “choice-of-law provisions, such as the [provisions applicable in this case]

are intended to incorporate both California substantive law and California arbitration rules,

including § 1281(c).” (Dkt. # 31 at 5.) However, Plaintiff’s reliance on Volt is misplaced.

In Volt, the Supreme Court did not hold that any choice-of-law provision always incorporates

both state substantive law and state arbitration rules. Rather, the Court merely refused to set

aside a state court’s construction of a choice-of-law provision in which the state court

interpreted the provision as intending to incorporate California rules of arbitration into their

agreement. Volt, 489 U.S. at 474. The Court stated that “interpretation of private contracts

is ordinarily a question of state law, which this Court does not sit to review.” Id. After

addressing the appellant’s concerns with the state court’s interpretation, the Court stayed the

arbitration “to accommodate litigation involving third parties who were strangers to the

arbitration agreement.” Preston v. Ferrer, 128 S. Ct. 978, 980 (2008). “Because the contract

at issue in Volt did not address the order of proceedings and included a choice-of-law clause

adopting California law, the Volt Court recognized as the gap filler a California statute

authorizing the state court to stay either third-party court proceedings or arbitration

proceedings to avoid the possibility of conflicting rulings on a common issue.” Id. 

Here, despite Plaintiffs insistence to the contrary, the Court is not convinced that the

choice-of-law provisions applicable here were intended to incorporate California’s arbitration

rules. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59 (1995) (noting

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that a generic choice-of-law provision “in isolation” could “reasonably be read as merely a

substitute for the conflict of laws analysis that otherwise would determine what law to apply

to disputes arising out of the contractual relationship”). However, the Court need not reach

this issue because, even should this Court find that Plaintiff and Defendant Peter Lendrum

did intend to incorporate California arbitration law into their agreements, nothing in section

1281.2(c) would require the Court to stay the arbitration proceedings. As in Volt, the

California statute would act as a gap filler authorizing this Court to stay either the court

proceedings or arbitration proceedings to avoid the possibility of conflicting rulings on a

common issue of law or fact. 

The alleged circumstances of this case plainly indicate that Defendant Peter Lendrum

was the principal actor and the Defendant at which the majority of Plaintiff’s claims are

directed. Several of Plaintiff’s claims – Count 8 and 9 – assert claims that rely on a finding

that Lendrum’s actions constitute a tort. Should this Court choose to stay the arbitration and

proceed with adjudication of the claims brought against parties not subject to the arbitration

agreements, the Court would be forced to determine whether and to what extent Lendrum’s

conduct was tortious. Additionally, given the posture of the case and the fact that Defendant

Thomas is in default, the only active claims not subject to arbitration are Counts 9 and 10

asserted against the Slessmans. Plaintiff has offered no persuasive reasons that favor

ordering a stay on arbitration proceedings rather than ordering a stay on the court

proceedings. Therefore, whether this case falls squarely in line with the FAA or whether

section 1281.2(c) of the California arbitration rules is applicable is inconsequential because,

under either, a stay on the court proceedings is appropriate. Therefore, the court proceedings

involving the Plaintiff and Defendant Peter Lendrum are stayed pending the completion of

arbitration.

The Slessmans argue that the claims asserted against them by Plaintiff should also be

stayed. (Dkt. # 36 at 2.) The Court recognizes that the Slessmans are not parties to the

arbitration agreements and hence do not have the ability to compel arbitration of either their

claims or the claims of Defendant Peter Lendrum. However, the Slessmans argue that a stay

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is nevertheless appropriate because it would promote efficient use of judicial resources and

assist the Court in the effective management of its docket. (See Dkt. # 23 at 10-11.) The

Supreme Court has recognized that, in a situation such as this, staying litigation of parties not

subject to arbitration may be an advised course of action. Moses H. Cone Mem’l Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 21 n.23 (1983). “That decision is one left to the district

court . . . as a matter of its discretion to control its docket.” Id. Therefore, in the interest of

judicial economy and efficiency, a stay pending the completion of arbitration is prudent in

respect to the claims involving the Slessmans. 

Because the Court has granted the motions to stay the case pending the results of

arbitration, the Court declines to reach the merits of either the Lendrums’ or Slessmans’

alternative motions to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6).

The Slessmans are free to reassert their motions upon completion of the arbitration

proceedings. 

IT IS THEREFORE ORDERED that the Lendrums’ motion to stay the court

proceedings and compel arbitration (Dkt. # 19) is GRANTED in respect to the claims

asserted against Defendant Peter Lendrum.

IT IS FURTHER ORDERED that the court proceedings are stayed in respect to the

claims asserted against Defendants George and Shannon Slessman and William and Sarah

Slessman pending the completion of the arbitration between Plaintiff and Defendant Peter

Lendrum.

IT IS FURTHER ORDERED that the motions to dismiss of both the Lendrums and

Slessmans (Dkt. ## 19, 23) are DENIED AS MOOT WITHOUT PREJUDICE.

/ / /

/ / /

/ / /

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IT IS FURTHER ORDERED that Plaintiff and Defendant Peter Lendrum shall file

quarterly reports with the Court informing the Court of the status of the arbitration

proceedings. The first report will be due by March 1, 2009.

DATED this 8th day of December, 2008.

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