1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 1

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

SHAININ II, LLC, et al.,

Plaintiffs,

v.

JOHN ALLEN, et al.,

Defendants.

NO. C06-420P

ORDER ON PLAINTIFFS’ MOTION

TO STAY AND TO COMPEL

ARBITRATION

This matter comes before the Court on plaintiffs’ motion to stay and to compel arbitration. 

(Dkt. No. 45). Having reviewed the materials submitted by the parties and the balance of the record,

the Court GRANTS in part and DENIES in part plaintiffs’ motion. The Court ORDERS as follows:

(1) The Court GRANTS plaintiffs’ motion to the extent it seeks to compel arbitration and

stay litigation of claims asserted by plaintiffs Shainin LLC and Red X Holdings LLC against defendant

David Hartshorne. Arbitration between these parties is compelled pursuant to: 

(a) The 1998 License Agreement executed by David Hartshorne, which was

subsequently assigned to Red X Holdings LLC in 2002; and

(b) The 1998 Standard Consultant Agreement between David Hartshorne and

Shainin LLC.

(2) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration

pursuant to the 1993 License Agreement between David Hartshorne and Red X Technologies, Inc. 

Red X Technologies, Inc. is not a party to this action and plaintiffs have not offered sufficient evidence

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 1 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 2

to demonstrate that a named plaintiff has been assigned the right to enforce the 1993 license

agreement.

(3) The Court GRANTS plaintiffs’ motion to the extent it seeks to compel arbitration and

stay litigation of claims asserted by plaintiff Red X Holdings LLC against defendant John Allen

pursuant to a 1998 License Agreement executed by Mr. Allen, which was subsequently assigned to

Red X Holdings LLC in 2002.

(4) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by plaintiffs for violations of Section 9 of a 2003 Employment Consultant Agreement

between Shainin LLC and defendant John Allen. This agreement provides that “in lieu of arbitration,”

Shainin may seek legal and equitable relief in this Court for alleged breaches of Section 9 of the

agreement. Because Shainin chose to file a lawsuit in this Court seeking damages to be determined at

trial as well as a permanent injunction against Mr. Allen pursuant to the 2003 agreement, the Court

finds that Shainin is not entitled to arbitrate the claims asserted in its complaint against Mr. Allen

pursuant to Section 9 of the 2003 agreement.

(5) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by plaintiffs pursuant to a purported 2002 Consulting Agreement between plaintiff

Shainin LLC and defendant John Allen. Because plaintiffs have not produced a signed copy of this

document, the Court cannot compel arbitration pursuant to this document.

(6) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by Shainin II, LLC. It is undisputed that Shainin II, LLC does not have an arbitration

agreement with any of the defendants. 

(7) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted against John Allen LLC, David Hartshorne, Ltd., and The New Science of Fixing

Things, Ltd. None of these corporate entities signed any of the arbitration agreements. This denial is

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 2 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

 Plaintiffs’ complaint also raised claims for misappropriation of trade secrets. However,

plaintiffs have indicated that they do not intend to pursue such claims.

ORDER - 3

without prejudice to plaintiffs’ ability to file a renewed motion that demonstrates why these nonsignatory corporate defendants should be compelled to arbitrate any disputes with plaintiffs.

Background

There are three named plaintiffs in this action: (1) Shainin II, LLC; (2) Shainin LLC; and (3)

Red X Holdings LLC. Plaintiffs are affiliated companies. According to plaintiffs’ complaint, the

companies “provide consulting and training services to help manufacturing and product development

business avoid and reduce costs associated with technical problems.” (Complaint ¶ 1).

Plaintiffs’ complaint names five defendants: (1) John Allen; (2) David Hartshorne; (3) John

Allen LLC; (4) David Hartshorne, Ltd.; and (5) The New Science of Fixing Things, Ltd. Mr. Allen

was affiliated with Shainin companies as an employee, member, and consultant. He ended his

affiliation with Shainin companies in the summer of 2004 and now offers consulting and training

services through John Allen LLC. Mr. Hartshorne was affiliated with Shainin companies as a member

and as a consultant. He terminated his consulting agreement with Shainin in December 2005 and now

offers consulting and training services through David Hartshorne, Ltd. Since ending their affiliations

with Shainin companies, Mr. Allen and Mr. Hartshorne have also worked together in connection with

a company called “The New Science of Fixing Things, Ltd.” 

Mr. Allen and Mr. Hartshorne executed a number of agreements while affiliated with Shainin

companies, some of which included confidentiality and non-competition clauses. Plaintiffs’ complaint

raises various claims alleging violations of these agreements, including claims for breach of contract,

tortious interference, unfair competition, trademark infringement, and Washington Consumer

Protection Act violations.1

Plaintiffs filed their complaint on March 24, 2006, along with a motion for a preliminary

injunction. Plaintiffs’ complaint seeks damages to be determined at trial, as well as a preliminary and

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 3 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 4

permanent injunction. On the same day, plaintiffs also filed a notice of intent to arbitrate and demand

for expedited arbitration with the American Arbitration Association. In their preliminary injunction

motion, plaintiffs indicated that they sought a preliminary injunction from this Court because “urgent

injunctive relief is requested within a shorter time frame than would be possible in a proceeding before

the AAA.” (Dkt. No. 5, at 3). On May 15, 2006, the Court issued an order that granted in part and

denied in part plaintiffs’ motion for a preliminary injunction.

Shortly after the Court issued its order on plaintiffs’ motion for a preliminary injunction,

plaintiffs moved to compel arbitration of their claims. In support of their motion to compel, plaintiffs

cite arbitration clauses in six agreements allegedly executed by Mr. Allen or Mr. Hartshorne. These

agreements are:

* A 1998 License Agreement between John Allen, Red X, Inc., and Shainin LLC which provided

that “[a]ny controversy or claim arising out of or relating to this Agreement or the breach of

this Agreement, shall be settled by arbitration in accordance with the commercial Arbitration

Rules of the American Arbitration Association . . . .” (Dkt. No. 1, Ex. 3, ¶ 12.9). In 2002,

Mr. Allen signed a document that assigned this agreement to plaintiff Red X Holdings LLC. 

(Dkt. No. 60-2, Ex. A).

* A 2002 Consulting Agreement which was purportedly executed by John Allen and Shainin

LLC. This document provides “[a]ny controversy or claim arising out of or relating to this

Agreement or the breach of thereof, shall be settled by arbitration in accordance with the

commercial Arbitration Rules of the American Arbitration Association.” (Dkt. No. 60-2, Ex.

C, ¶ 14.8). It should be noted that plaintiffs have not produced a signed copy of this

document.

* A 2003 Employment Consultant Agreement between John Allen and Shainin LLC that

provides “[a]ny controversy or claim arising out of or relating to this Agreement or the breach

thereof shall be settled by arbitration in accordance with the commercial Arbitration Rules of

the American Arbitration Association then in effect.” Unlike the other agreements, this

agreement also provides that “[n]otwithstanding the provisions of this [section], the parties

agree that at the Company’s option, in lieu of arbitration, the Company may seek interim relief,

injunctive relief, specific performance and any other available legal or equitable remedy from a

court of competent jurisdiction in the event that Employee breaches or threatens to breach any

provision set forth in Section 9 of this Agreement.” (Dkt. No. 1, Ex. 2, ¶ 14.8).

* A 1993 License Agreement between David Hartshorne and Red X Technologies, Inc. that

provides “[a]ny controversy or claim arising out of or relating to this Agreement, or the breach

thereof, shall be settled by arbitration in accordance with the commercial Arbitration Rules of

the American Arbitration Association . . . .” (Dkt. No. 1, Ex. 4, ¶ 22.1). “Red X

Technologies, Inc.” is not a named plaintiff in this action.

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 4 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 5

* A 1998 License Agreement between David Hartshorne, Red X, Inc., and Shainin LLC that

provides “[a]ny controversy or claim arising out of or relating to this Agreement or the breach

of this Agreement, shall be settled by arbitration in accordance with the commercial Arbitration

Rules of the American Arbitration Association . . . .” (Dkt. No. 2, Ex. G, ¶ 12.9). In 2002,

Mr. Hartshorne signed a document that assigned this agreement to plaintiff Red X Holdings

LLC. (Dkt. No. 2, Ex. H).

* A 1998 Standard Consultant Agreement between David Hartshorne and Shainin LLC that

provides “[a]ny controversy or claim arising out of or relating to this Agreement or the breach

thereof, shall be settled by arbitration in accordance with the commercial Arbitration Rules of

the American Arbitration Association . . . .” (Dkt. No. 1, Ex. 5, ¶ 13.9).

Analysis

Under the Federal Arbitration Act, the Court’s role in determining whether to compel

arbitration turns on two questions: “(1) whether a valid agreement to arbitrate exists and, if it does, (2)

whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys.,

Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). “If the response is affirmative on both counts, then the Act

requires the court to enforce the arbitration agreement in accordance with its terms.” Id. 

A. Existence of Arbitration Agreements

1. Non-Signatory Defendants

Defendants argue that three defendants (John Allen LLC, David Hartshorne, Ltd., and the New

Science of Fixing Things, Ltd.) are not parties to any of the arbitration agreements and therefore

cannot be compelled to arbitrate. Plaintiffs did not address this issue in their opening brief. In their

reply brief, plaintiffs offer the following response to defendants’ argument: 

John Allen and David Hartshorne, the parties who signed the arbitration agreements, are the

sole officers and shareholders of the corporate defendants. They cannot "evade legal

obligations" by creating entities to mask their actions. All defendants must arbitrate.

(Reply at 5) (internal citations omitted). 

The question of whether non-signatories to an arbitration agreement may be compelled to

arbitrate is governed by federal substantive law rather than state law. See Letizia v. Prudential Bache

Securities, Inc., 802 F.2d 1185, 1187 (9th Cir. 1986). Under Ninth Circuit law, “nonsignatories of

arbitration agreements may be bound by the agreement under ordinary contract and agency

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 5 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 6

principles.” Id. at 1187-88. “Among these principles are ‘1) incorporation by reference; 2)

assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.’” Comer v. Micor, Inc., 436 F.3d

1098, 1101 (9th Cir. 2006). 

Though not explicitly stated, plaintiffs appear to argue in their reply brief that the three

corporate defendants who are non-signatories to the arbitration agreements may be compelled to

arbitrate under a “veil-piercing/alter ego” theory. Putting aside the fact that plaintiffs did not raise this

argument until their reply brief, they do not cite authority indicating that the corporate veil may be

pierced solely because Mr. Allen and Mr. Hartshorne are the officers and shareholders of the corporate

defendants. Plaintiffs need to make a stronger showing – and one not presented for the first time in a

reply brief – in order to justify piercing the corporate veil. 

Therefore, the Court denies plaintiffs’ motion to the extent it seeks to compel John Allen LLC,

David Hartshorne, Ltd., and the New Science of Fixing Things, Ltd. to arbitrate. This denial is

without prejudice to plaintiffs’ ability to submit a renewed motion that demonstrates why these nonsignatories are subject to the arbitration agreements signed by Mr. Allen and Mr. Hartshorne. 

2. Non-Signatory Plaintiff

Defendants also note that plaintiff Shainin II, LLC is not a party to any agreement that includes

an arbitration clause. Although David Hartshorne executed an agreement in 2004 with Shainin II,

LLC (see Complaint, Ex. 6), the agreement does not include an arbitration clause. Plaintiffs’ response

to this point is contained in a footnote in their reply brief, where they argue:

Shainin submits that the basis of Shainin II's claims against Mr. Hartshorne for violation of the

confidentiality clause of that agreement are related, both legally and factually, to Shainin's

other contractual claims against Mr. Hartshorne and that on that basis it would be both

efficient and fair to address those claims in arbitration as well. However, to the extent the

Court disagrees, Shainin respectfully requests that the Court stay Shainin II's claims while the

other claims proceed in arbitration.

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 6 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2

 It also appears that the 1993 agreement may have expired. See Dkt. No. 1, Ex. 4, ¶ 10.1(b)

(providing that the agreement would expire after an initial term of five years from the effective date of

the agreement, unless the parties agreed in writing more than 60 days in advance of such date to

extend the agreement).

ORDER - 7

(Dkt. No. 59 at 6 n.5). Plaintiffs cite no legal authority to support this argument. Because Shainin II,

LLC does not have any arbitration agreement with Mr. Hartshorne, the company is not entitled to

compel arbitration of its claims against him. 

3. 1993 Agreement between David Hartshorne and Red X Technologies, Inc.

Defendants also argue that plaintiffs cannot compel arbitration pursuant to a 1993 license

agreement between David Hartshorne and Red X Technologies, Inc. Defendants note that Red X

Technologies, Inc. is not a party to either this case or the proposed arbitration. In their reply brief,

plaintiffs argue that Red X Holdings LLC (a named plaintiff) is a successor in interest to Red X

Technologies and therefore may enforce the agreement. However, Plaintiffs do not point to evidence

demonstrating that Red X Technologies assigned its rights under the 1993 license agreement to Red X

Holdings LLC.2

 See, e.g., Britton v. Co-op Banking, 4 F.3d 742, 746 (9th Cir. 1993) (party must

offer sufficient proof to demonstrate that it is a successor in interest or assignee of a contractual right). 

 However, plaintiffs have offered evidence that Mr. Hartshorne executed a 1998 license

agreement with Shainin that includes an arbitration clause. Plaintiffs have also offered evidence that

this agreement was subsequently assigned to plaintiff Red X Holdings in 2002. As a result, Red X

Holdings has a valid arbitration agreement with Mr. Hartshorne by virtue of the 1998 license

agreement and 2002 assignment of this agreement to Red X Holdings.

4. Purported 2002 Agreement between John Allen and Shainin LLC

Defendants also argue that John Allen cannot be compelled to arbitrate under a purported

2002 Consulting Agreement between Mr. Allen and Shainin LLC. Mr. Allen argues that “plaintiffs

have only placed three pages of this alleged agreement before the Court, and the proffered agreement

is not executed by any party.” (Opp. at 9).

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 7 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 8

In response, Plaintiffs have produced a complete – but unsigned – copy of this document. 

Although the document is unsigned, plaintiffs argue in their reply brief that the 2002 agreement is

enforceable because Mr. Allen “admitted in his answer that he signed the agreement.” (Reply at 6)

(citing ¶¶ 24-29 of John Allen’s answer to complaint) (emphasis in original). However, Mr. Allen’s

answer does not include an admission that he signed this particular document. The complaint does not

specifically reference a 2002 agreement between Mr. Allen and any of the plaintiffs. In terms of

agreements involving Mr. Allen, the complaint specifically references only a 2003 Consultant

Agreement (Complaint, ¶ 26-27) and a 1998 Red X License Agreement (id. ¶ 28). As a result, the

Court finds that plaintiffs have not demonstrated that they are entitled to arbitration of any disputes

with Mr. Allen pursuant to the purported 2002 Consulting Agreement, since plaintiffs have not

demonstrated that Mr. Allen executed this agreement.

 5. Summary

Plaintiffs have not demonstrated that there are valid arbitration agreements between plaintiff

Shainin II, LLC and any of the defendants. In addition, plaintiffs have not demonstrated that there are

valid arbitration agreements between any of the plaintiffs and defendants John Allen LLC, David

Hartshorne, Ltd., or The New Science of Fixing Things, Ltd., nor have plaintiffs offered sufficient

evidence to support compelling these non-signatory defendants to arbitrate any disputes under a veilpiercing/alter ego theory. Finally, plaintiffs have not demonstrated that the Court may compel

arbitration pursuant to a 1993 license agreement between David Hartshorne and Red X Technologies,

Inc. 

B. Plaintiffs’ Right to Compel Arbitration After Filing this Lawsuit

Defendants also argue that plaintiffs are not entitled to arbitration because plaintiffs filed this

lawsuit, which seeks essentially the same relief that plaintiffs seek in arbitration. Defendants’

argument is based on the language of the agreements, as well as waiver theories. 

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 8 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

3

 Section 9 of the Agreement includes confidentiality and non-competition clauses.

ORDER - 9

1. 2003 Employment Consultant Agreement with Mr. Allen

The arbitration clause in John Allen’s 2003 Employment Consultant Agreement with Shainin

LLC differs in significant respects from the arbitration clauses contained in other agreements at issue

in this case. Much like the other agreements, the 2003 agreement provides that “[a]ny controversy or

claim arising out of or relating to this Agreement or the breach thereof shall be settled by arbitration in

accordance with the commercial Arbitration Rules of the American Arbitration Association then in

effect.” (Dkt. No. 1, Ex. 2, ¶ 14.8). However, unlike the other agreements, the 2003 agreement

includes the following provision:

Notwithstanding the provisions of this [section], the parties agree that at the Company’s

option, in lieu of arbitration, the Company may seek interim relief, injunctive relief, specific

performance and any other available legal or equitable remedy from a court of competent

jurisdiction in the event that Employee breaches or threatens to breach any provision set forth

in Section 9 of this Agreement.3

Id. (emphasis added). 

Defendants maintain that because plaintiffs filed a complaint in this Court that seeks damages

to be determined at trial and a permanent injunction, plaintiffs are now foreclosed under the 2003

agreement from seeking the same relief in arbitration. In response, plaintiffs argue that they made it

clear in their preliminary injunction motion and “in every appearance before this Court” that they

intended to arbitrate and that defendants cannot claim confusion because they received plaintiffs’

demand for arbitration on the same day as the complaint. (Reply at 4).

The language of the 2003 agreement includes a broad arbitration clause. However, the

agreement also specifically provides that “at the Company’s option, in lieu of arbitration, the Company

may seek interim relief, injunctive relief, specific performance and any other available legal or equitable

remedy from a court of competent jurisdiction” if Mr. Allen breached or threatened to breach the

provision of Section 9 of the agreement. (Dkt. No. 1, Ex. 2, ¶ 14.8) (emphasis added). Here,

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 9 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 10

plaintiffs’ complaint alleges that Mr. Allen breached the confidentiality and non-competition provisions

of Section 9 of the 2003 agreement. (Complaint ¶¶ 25-27, 47-50). The complaint also requests

damages to be determined at trial and a permanent injunction. Id. at 17-18. By filing a complaint in

this Court seeking damages to be determined at trial and a permanent injunction, Shainin LLC plainly

chose to seek both legal and equitable remedies from this Court for Mr. Allen’s alleged breaches of

Section 9 of the agreement.

Under these circumstances, the Court finds that Shainin is not entitled under the 2003

agreement to compel arbitration of the claims asserted in the complaint against Mr. Allen for violations

of Section 9 of the agreement. By its express terms, the 2003 agreement provides that “in lieu of

arbitration,” Shainin LLC has the option of seeking any “available or legal equitable remedy” in court

for breaches of Section 9 of the agreement. The term “in lieu of” is not ambiguous; it means

“[i]nstead of or in place of.” Black’s Law Dictionary (8th ed. 1999). Because Shainin chose to file a

complaint in this Court that seeks legal and equitable relief against Mr. Allen for alleged violations of

Section 9 of the 2003 agreement, Shainin is now precluded under the agreement from seeking the

same relief in arbitration. To hold otherwise would effectively require the Court to read the “in lieu of

arbitration” language out of the arbitration agreement. 

To be sure, plaintiffs’ motion for a preliminary injunction suggested that plaintiffs intended to

arbitrate their disputes. In that motion, which was filed the same day as their complaint, plaintiffs

stated:

Simultaneously with the filing of this motion for preliminary injunction, Plaintiffs are submitting

their written notice of intent to arbitrate these disputes before the AAA. Certain of the

contracts between Plaintiffs and Defendants Allen and Hartshorne require arbitration of

disputes relating to the contracts. However, certain of the contracts provide for resort to the

courts for purposes of seeking and obtaining injunctive relief. By this action, the Plaintiffs seek

a preliminary injunction to preserve the status quo, as urgent injunctive relief is requested

within a shorter time frame than would be possible in a proceeding before the AAA.

(Dkt. No. 5 at 2-3). Nonetheless, the complaint that plaintiffs actually filed in this Court was not

limited to seeking preliminary injunctive relief. If plaintiffs only desired to seek interim injunctive relief

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 10 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

4

 The Court uses the term “the remaining arbitration agreements” to refer to the following

three agreements: (1) the 1998 License Agreement executed by David Hartshorne, which was

subsequently assigned to Red X Holdings LLC in 2002; (2) the 1998 Standard Consultant Agreement

between David Hartshorne and Shainin LLC; and (3) the 1998 License Agreement executed by John

Allen, which was subsequently assigned to Red X Holdings LLC in 2002.

ORDER - 11

from this Court while arbitrating the merits of their disputes, plaintiffs could have filed a demand for

arbitration and an action for injunctive relief in this Court. See, e.g., SATCOM Int’l Group PLC v.

Orbcomm Int’l Partners, L.P., 49 F. Supp. 2d 331, 338 (S.D.N.Y. 1999) (noting that a party may seek

arbitration and at the same time bring an injunctive action to maintain the status quo pending the

completion of arbitration). Instead, plaintiffs chose to file a complaint that seeks full relief from in this

Court for Mr. Allen’s alleged breaches of Section 9 of the 2003 agreement, including damages to be

determined at trial and a permanent injunction. Because plaintiffs chose to file a complaint in this

Court seeking full relief for their claims against Mr. Allen under the 2003 agreement, the Court must

conclude that plaintiffs are required under the 2003 agreement to pursue such claims in this Court “in

lieu of arbitration.”

B. Remaining Arbitration Agreements

The remaining arbitration agreements4 do not contain the “in lieu of arbitration” provision that

was included in Mr. Allen’s 2003 agreement. Instead, these agreements include mandatory arbitration

clauses. Despite these mandatory arbitration clauses, defendants argue that plaintiffs cannot seek

arbitration under the remaining agreements. Defendants ask the Court to find that Plaintiffs have

waived their right to arbitration under the remaining agreements. 

A party seeking to prove waiver of arbitration must demonstrate that the party seeking to

compel arbitration: (1) knew of its right to arbitrate; (2) acted inconsistently with that right; and (3)

caused prejudice to the non-moving party. Britton v. Co-op Banking Group, 916 F.2d 1405, 1412

(9th Cir. 1990). Courts “do not lightly find waiver of the right to arbitrate.” Chappel v. Laboratory

Corp. of America, 232 F.3d 719, 724 (9th Cir. 2000). “[W]aiver of the right to arbitration is

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 11 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

5

 Defendants also appear to suggest that plaintiffs have acted inconsistently with an intent to

arbitrate because: (1) Pete Shainin allegedly told John Allen in January 2005 that materials on Mr.

Allen’s website infringed Shainin’s intellectual property rights; (2) plaintiffs did not file this complaint

and a demand for arbitration until March 2006. In response, plaintiffs point to Benson Pump Co. v.

South Central Pool Supply, Inc., 325 F. Supp. 2d 1152 (D. Nev. 2004), where the court stated

“according to the Ninth Circuit, timeliness of a motion to compel arbitration is a procedural question

to be decided by the arbitrator, not the court.” Id. at 1157 (citing Retail Delivery Drivers v.

Servomation Corp., 71 F.2d 475, 478 (9th Cir. 1983)). The Court agrees with plaintiffs’ analysis of

this point.

ORDER - 12

disfavored because it is a contractual right, and thus ‘any party arguing waiver of arbitration bears a

heavy burden of proof.’” Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 758 (9th Cir.

1989). 

Here, there is no dispute that plaintiffs knew of their right to arbitrate under the remaining

agreements. Plaintiffs also acted inconsistently with their right to arbitrate under the remaining

agreements by filing a complaint in this Court that seeks full relief on their claims, including damages

to be determined at trial and a permanent injunction.5 

However, the Court finds that defendants have not demonstrated that they have been

prejudiced by plaintiffs’ inconsistent actions with respect to the remaining arbitration agreements. As

noted above, plaintiffs filed a demand for arbitration on the same date that they filed this lawsuit and

suggested in their preliminary injunction motion that they would seek to arbitrate the merits of their

claims. As a result, defendants were put on notice from the outset that plaintiffs would seek to

arbitrate at least some of their claims. To be sure, defendants were required to expend resources in

this Court to defend against plaintiffs’ motion for a preliminary injunction. However, plaintiffs were

not foreclosed from seeking a preliminary injunction in this Court to maintain the status quo pending

arbitration of their claims under the remaining agreements. As noted above, a plaintiff seeking

arbitration may request that a court issue an injunction in aid of arbitration to maintain the status quo

pending arbitration. See SATCOM, 49 F. Supp. 2d at 338; see generally PMS Distrib. Co. v. Huber

& Suhner, A.G., 863 F.2d 639, 641-42 (9th Cir. 1988) (citing with approval cases holding that a

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 12 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 13

district court may issue a preliminary injunction even when the merits of the underlying dispute are

subject to arbitration). Defendants also have not been prejudiced by engaging in discovery under the

rules applicable in federal court, since the remaining arbitration agreements all provide for discovery

“as provided by the United States Federal Rules of Civil Procedure as modified by the Local Rules for

the Western District of Washington.” See Dkt. No. 1, Ex. 3, ¶ 12.9; Dkt. No. 2, Ex. G, ¶ 12.9; Dkt.

No. 1, Ex. 5, ¶ 13.9.

Under these circumstances, the Court finds that defendants have not demonstrated prejudice

resulting from actions that plaintiffs have taken that are inconsistent with their right to arbitrate.

Therefore, the Court will grant Plaintiffs’ motion to compel arbitration and to stay the litigation with

respect to claims arising under: (1) the 1998 License Agreement executed by David Hartshorne, which

was subsequently assigned to Red X Holdings LLC in 2002; (2) the 1998 Standard Consultant

Agreement between David Hartshorne and Shainin LLC; and (3) the 1998 License Agreement

executed by John Allen, which was subsequently assigned to Red X Holdings LLC in 2002.

Conclusion

Consistent with the discussion above, the Court GRANTS in part and DENIES in part

plaintiffs’ motion to stay and to compel arbitration. The Court ORDERS as follows:

(1) The Court GRANTS plaintiffs’ motion to the extent it seeks to compel arbitration and

stay litigation of claims asserted by plaintiffs Shainin LLC and Red X Holdings LLC against defendant

David Hartshorne. Arbitration between these parties is compelled pursuant to: 

(a) The 1998 License Agreement executed by David Hartshorne, which was

subsequently assigned to Red X Holdings LLC in 2002; and

(b) The 1998 Standard Consultant Agreement between David Hartshorne and

Shainin LLC.

(2) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration

pursuant to the 1993 License Agreement between David Hartshorne and Red X Technologies, Inc. 

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 13 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 14

Red X Technologies, Inc. is not a party to this action and plaintiffs have not offered sufficient evidence

to demonstrate that any named plaintiffs have been assigned rights under the 1993 license agreement.

(3) The Court GRANTS plaintiffs’ motion to the extent it seeks to compel arbitration and

stay litigation of claims asserted by plaintiff Red X Holdings LLC against defendant John Allen

pursuant to a 1998 License Agreement executed by Mr. Allen, which was subsequently assigned to

Red X Holdings LLC in 2002.

(4) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by plaintiffs for violations of Section 9 of a 2003 Employment Consultant Agreement

between Shainin LLC and defendant John Allen. This agreement provides that “in lieu of arbitration,”

Shainin may seek legal and equitable relief in court for alleged breaches of Section 9 of the agreement. 

Because Shainin filed a lawsuit in this Court seeking damages to be determined at trial as well as a

permanent injunction, the Court finds that Shainin is not entitled to arbitrate the claims asserted in its

complaint against Mr. Allen pursuant to Section 9 of the 2003 agreement.

(5) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by plaintiffs pursuant to a purported 2002 Consulting Agreement between plaintiff

Shainin LLC and defendant John Allen. Because plaintiffs have not produced a signed copy of this

document, the Court cannot compel arbitration pursuant to this document.

(6) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted by Shainin II, LLC. It is undisputed that Shainin II, LLC does not have an arbitration

agreement with any of the defendants. 

(7) The Court DENIES plaintiffs’ motion to the extent it seeks to compel arbitration of

claims asserted against John Allen LLC, David Hartshorne, Ltd., and The New Science of Fixing

Things, Ltd. None of these corporate entities signed any of the arbitration agreements. This denial is

without prejudice to plaintiffs’ ability to file a renewed motion that demonstrates why these nonsignatory corporate defendants should be compelled to arbitrate any disputes with plaintiffs.

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 14 of 15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26 ORDER - 15

The Court recognizes that this order will likely result in piecemeal proceedings involving

similar (if not identical) facts and legal issues in two different forums. Unfortunately, this highly

inefficient result is dictated by the unusual facts of this case and by the conduct of the parties. 

Although the parties would likely be well-served if they could agree to pursue all claims in one forum,

the Court cannot compel the parties to do so. Instead, the Court must “rigorously enforce agreements

to arbitrate, even if the result is ‘piecemeal’ litigation.” Dean Witter Reynolds v. Byrd, 470 U.S. 213,

221 (1985).

The clerk is directed to send copies of this order to all counsel of record.

Dated: August 28, 2006

s/Marsha J. Pechman 

Marsha J. Pechman

United States District Judge

Case 2:06-cv-00420-MJP Document 83 Filed 08/28/06 Page 15 of 15