Hulstrunk v. Ultracell Insulation, LLC, 110-7-18 Oecv (Harris, J., Sept. 18, 2018)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the 

accompanying data included in the Vermont trial court opinion database is not guaranteed.]

STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Orange Unit Docket No. 110-7-18 Oecv

William Hulstrunk,

Plaintiff

v.

Ultracell Insulation, LLC,

Defendant

ENTRY ORDER

Pending before the court in this matter are several pending motions. Presently ripe are 

Plaintiff’s motion to stay (filed 8/15/18). Plaintiff’s Motion Temporary Restraining Order 

(“TRO”) (filed 8/24/18) may taken up before the Rule 6 / 78(a) reply memo period runs (here 

9/27/18), particularly as UltraCell filed its opposition to such motion on 9/10/18.

At its crux, this case involves contested claims both as to [1] the applicability and 

enforceability of confidentiality / non-competition and mandatory arbitration provisions in 

certain limited liability company operating agreement(s), and [2] whether this court, or an 

arbitrator, should decide such issues. The immediate status of the latter issue is the focus of 

this entry order. 

Plaintiff William Hulstrunk (“Plaintiff” or “Mr. Hulstrunk”) is a former Vice President 

of Technical Services For Defendant UltraCell Insulation, LLC (“Defendant” , the “Company”, 

or “UltraCell”). UltraCell is a Buffalo, NY- based limited liability company (“LLC”) that 

manufactures cellulose insulation and is formed as a Delaware LLC. 

The events that frame the issues for this entry order largely predate the filing of this 

action and are extensively set out in the parties’ motion memoranda and supporting affidavits, as 

well as in prior court proceedings. For purposes of this order, complete details of such factual 

and procedural background are not repeated here but are, in some regards, summarized. 

Mr. Hulstrunk is an Orange County, Vermont resident who had over 20 years’ experience 

in the building insulation industry when he was approached by UltraCell to work for them, after 

doing some initial work in November 2015 as a consultant. In January 2016, Mr. Hulstrunk 

accepted an employment position as a “Technical Manager”. As part of this agreement he 

agreed to receive 15,000 Class B Units in UltraCell. 
2

Acquisition of ownership of LLC units in the LLC, if accomplished, would create a 

second legal relationship between Mr. Hulstrunk and UltraCell in addition to their 

employee/employer relationship. Once Plaintiff became a LLC member, he would be subject to 

the rights and responsibilities associated with LLC documents that applied to him, such as 

operating agreement(s). 

In his employer/employee relationship with UltraCell, in the January 2016 Technical 

Manager employment letter, the Company stated Mr. Hulstrunk would be required to sign an 

additional employment agreement that “will include provisions relating to non-competition, nonsolicitation, confidentiality and assignment of inventions”. According to Mr. Hulstrunk, as some 

point he was sent a draft agreement with proposed restrictive covenants, but he never signed it or 

agreed to those terms. 

Presumably, from the employee/employee relationship context, had UltraCell presented 

such additional agreements to Mr. Hulstrunk, demanded that he sign, and he refused to do so -

UltraCell could have then terminated their at will employment relationship. See example, 

Madden v. Omega Optical, Inc., 165 Vt. 306 (1996). As noted, these steps did not occur. Any 

acquisition of confidentiality/non-compete rights against Plaintiff by UltraCell occurred under 

the LLC unit acquisition processes described below.

The Class B Unit grant agreement, to effectuate the transfer of the 15,000 Unit 

acknowledged to occur under Mr. Hulstrunk’s employment agreement, was taken up in February 

2016. Mr. Hulstrunk signed the grant agreement. In doing so he confirmed that the grant of the 

Units was subject to the LLC’s Operating Agreement. (At that time the Company had a second 

amended and restated operating agreement). Under the unit grant agreement he signed, Mr. 

Hulstrunk acknowledged receipt of the UltraCell Second Operating Agreement and stated that he 

“agrees to be bound by the terms thereof.” Facially, that Second Operating Agreement contained 

provisions about keeping certain defined Company “Confidential Information” confidential and a 

broad two-year non compete provision, with non-solicitation of customer provisions. 

The UltraCell LLC operating agreement in February 2016 stated unit purchase 

completion steps. They included that Mr. Hulstrunk execute a counterpart signature page to the 

LLC Operating Agreement (separate from the purchase agreement). This was never done. 

In January 2017, Mr. Hulstrunk and UltraCell signed a purchase agreement for Plaintiff 

to purchase 35,000 Units of “Class A Preferred Class Units”. On 1/27/17 Mr. Hulstrunk signed 

the purchase agreement, which stated purchasers “will enter into the LLC Agreement and be 

admitted as members and Unitholders of the company.” The Agreement further stated that 
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purchaser (that is Mr. Hulstrunk) “will execute a letter of acceptance, in form satisfactory to the 

Board, of all of the terms and conditions of the LLC Agreement”. No such letter of acceptance 

as ever prepared, submitted or signed. It appears Mr. Hulstrunk delivered a $350 check to pay 

for his 35,000 Class A Units.

In or around June 2017 UltraCell amended and restated its operating agreement into a 

third version the court refers to as the Third Operating Agreement. It continued to include the 

confidentiality/ non-compete provisions.

In August 2017 a new position was offered to Mr. Hulstrunk, under a letter offer of 

employment that he signed shortly thereafter. He was promoted to the position of “Vice 

President of Technical Service”. Like the Technical Manager position employment agreement, 

the accepted employment agreement for the new position included a provision that Mr. 

Hulstrunk would be required to sign an additional employment agreement that “will include 

provisions relating to non-competition, non-solicitation, confidentiality and assignment of 

inventions”. Again, apart from the exchange of the draft agreement with restrictive covenants 

described above1, no separate job position-specific confidentiality/ non-compete agreements 

were ever demanded or required as an employment condition.

The August 2017 letter made reference to granting Mr. Hulstrunk 50,000 Class B 

Membership Units, upon signing a vesting agreement. Unlike the January 2016 Technical 

Manager employment agreement letter, where the unit transfer under a vesting agreement was 

promptly followed by execution of vesting agreement paperwork, no further Calls B Unit 

vesting agreement or related paperwork was executed by the parties.

Mr. Hulstrunk accepted a job with Nature-Tech, a Wisconsin based company, in 

November 2017. Issues exist as to whether that employment and/or Mr. Hulstrunk’s activities for 

his new employer, violate the LLC agreement confidentiality/ non-compete provisions. Mr. 

Hulstrunk undoubtedly possessed considerable cellulose insulation expertise amassed before he 

worked at UltraCell, and during that employ learned considerable non-public knowledge about 

some of its particular products and/or manufacturing processed.

Litigation promptly ensued. UltraCell claimed Mr. Hulstrunk was bound by the 

Company’s Operating agreement’s confidentiality / non-compete provisions. He contended he 

was not so bound.

1

It is unclear at what point in time this presentation or exchange of proposed restrictive 

covenants occurred between Mr. Hulstrunk and the Company independent of the LLC unit 

transactions described in the opinion.
4

On 11/20/17 Mr. Hulstrunk filed a federal court diversity jurisdiction action in the 

District of Vermont, seeking declaratory relief that he was not a UltraCell unit holder and was 

not bound by the operating agreements’ confidentiality / non-compete provisions. UltraCell 

promptly sought a preliminary injunction to enforce the restrictive provisions in the operating 

agreement while the federal action was pending. 

The case slogged through initial pleadings, discovery and hearing preparation, resulting 

ultimately in a 95-entry federal docketing statement. (See Plaintiff’s Motion to Stay Arbitration, 

Exhibit A). Counterclaims were asserted against Mr. Hulstrunk for misappropriation of trade 

secret and breach of contract, and injunctive and declaratory relief and recovery of monetary 

damages by. (See Exhibit C to David Gwitt Affidavit filed with Defendant’s Motion to Dismiss, 

“Gwitt Affidavit”.). Nature-Tech was sued under a Third Party Complaint asserting the usual 

claims against the departed employee’s new employer in these situations. 

It became pretty clear as things progressed that a double threshold question was presented 

as to whether Mr. Hulstrunk was an UltraCell member. First, Plaintiff’s alleged LLC 

membership status was the nexus to bind him to the restrictive covenants in the operating 

agreement(s). Second, as party counsel called to the federal court’s attention in or around March 

2018, Plaintiff’s LLC membership status also impacted the federal court’s diversity jurisdiction. 

If Mr. Hulstrunk was an UltraCell “member”, since for diversity jurisdiction purposes a LLC 

expansively shares citizenship with each of its members, such a determination would destroy the 

Vermont federal court’s jurisdiction to act further. 

In the midst of these federal proceedings, on March 12, 2018 UltraCell amended its 

operating agreement to a fourth operating agreement. (the “Fourth Operating Agreement”). 

(Gwitt Affidavit, Exhibit A). Mr. Hulstrunk states he was not informed or consulted about the 

adoption of the Fourth Operating Agreement. Such adoption occurred four months after he had 

left the Company and while he was litigating whether he even was a Company member.

The Fourth Operating Agreement, for the first time, included a broad mandatory 

arbitration clause, at Section 13.9. It required exclusive, binding commercial arbitration with 

JAMS in “the event of a dispute, claim, or controversy arising out of or relating to this 

[Operating] Agreement or the validity or performance thereof or the transactions contemplated”. 

No mention of the new arbitration clause was made in the federal court. Nor were any 

demands to arbitrate issued under it. As the clause was adopted by UltraCell, the parties in this 

action were litigating Mr. Hulstunk’s membership status. If he was determined to not be an 
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UltraCell member, the Company would not have the basis to assert a right to arbitrate against 

Mr. Hulstrunk.

On 7/18/18 Judge Crawford issued a nine-page decision. He made extensive findings and 

concluded Mr. Hulstrunk was indeed a UltraCell member, and thus that the federal court lacked 

subject matter jurisdiction to hear the declaratory judgment request outlined in the complaint. He 

dismissed the complaint. Other stipulations and orders to close out the federal action followed.2

Further proceedings swiftly occurred.

Mr. Hulstrunk filed this action 7/19/18. The initial complaint sought declaratory 

judgment determination that he was not a UltraCell “member”, similar to the federal action. 

On July 25, 2018, UltraCell filed a demand for arbitration with JAMS. (Gwitt Affidavit, 

Ex. F, included in Defendant’s motion to dismiss).

On or around 8/8/18 Plaintiff filed an Amended Complaint. It largely added pleadings 

alleging that if Plaintiff were made subject to the restrictive covenants, they were nonenforceable as they were overbroad, never agreed and were unreasonable and unenforceable (as 

well as not violated). He seeks declaratory relief as to these claims, and trial by jury on triable 

issues. 

Since the Amended Complaint was filed Plaintiff filed a motion to stay the arbitration 

(8/15/18) and a motion for a TRO (8/24/18). Defendant filed a motion to dismiss (8/20/18) 

contending that all claims between the parties are subject to the mandatory arbitration clause and 

should be heard in the JAMS arbitration proceeding. 

Each party has participated to some degree in the proceedings in the forum which the 

party contends has no right to hear the matters in dispute. UltraCell has moved to dismiss these 

proceedings so it can pursue the arbitration action it initiated. Mr. Hulstrunk reportedly filed 

motions and or responses in the JAMS arbitration stating it has no authority to proceed and 

should dismiss the arbitration and/or defer or stay it while he pursues this action. 

On August 30, 2018 Attorney Elizabeth Carter, a Vice President for the East Central 

Region of JAMS, issued a brief letter reciting JAMS’s conclusion that as it received the Fourth 

Operating Agreement with Section 13.9(b), referring disputes to arbitration with JAMS, and 

JAMS Streamlined Arbitration Rule 8(b) refers issues as to the existence, validity and scope of 

2

 A stipulation to dismiss the third party complaint without prejudice was filed 8/6/18 and 

approved that day. Federal action Docket Entries 92 and 93. On the same day an order 

dismissing all pending motions without prejudice as moot, and a judgment of dismissal of the 

complaint for lack of subject matter jurisdiction and the third party complaint without prejudice, 

were signed. Id, entries 94 and 95. 
6

an arbitration clause to the arbitrator for determination, JAMS could continue to administer the 

arbitration demand in the matter. (Defendant’s Opposition to TRO Motion, Exhibit 2).

The present simultaneous dual proceedings in the JAMS arbitration action and this suit, 

exposes both parties’ to duplicative expenses, but also the possibility of competing and 

conflicting adjudications as to whether Mr. Hulstrunk is subject to the restrictive covenants and 

if they are enforceable against him, and the scope of the restraints the provisions may impose. 

Legal Analysis

The core present issue is whether this court should enjoin the JAMS arbitration, at least 

long enough for this court to determine if Mr. Hallstunk is bound to the mandatory arbitrations 

clause, and if so, whether this court or the arbitrator should determine any preliminary prearbitration issues. A TRO in essence would allow this court to make an orderly assessment if the 

JAMS arbitration should go forward, before the arbitration continues on its present copurse. If 

the arbitration proceeds, and the court decides it should have not have done so, the court and 

parties will face an unwieldy mess to untangle conflicting orders and directives. 

Before proceeding to the standards to stay, a few preliminary points regarding the impact 

of arbitration acts on matters need to be described. The arbitration clause is “in play” for this 

court, for stay determination purposes, even if the court determines later it does not apply to Mr. 

Hulstrunk. The parties have alternatively cited to the Vermont Arbitration Act (“VAA”) and the 

Federal Arbitration Act (“FAA”) as applying to the arbitration provision in the operating 

agreement. The provision is in a Buffalo, NY-based Delaware LLC’s operating agreement with a 

Vermont resident, and involving the member and LLC’s activities in states including those 

outside of Vermont.

The court concludes the FAA applies to the provision. As the Vermont Supreme Court 

recently stated in Hermitage Inn Real Estate Holding Company, LLC v. Extreme Contracting, 

LLC, 2017 VT 44, ¶ 14, fn. 1:

The Federal Arbitration Act provides that a contractual arbitration provision is 

enforceable if the provision is in a contract “evidencing a transaction involving 

commerce.” 9 U.S.C. § 2. In Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 

S.Ct. 834, 130 L.Ed.2d 753 (1995), the United States Supreme Court held that the scope 

clause meant that the Act applied if the contract in fact affected interstate commerce, in 

essence employing the limit of Congress's power under the Interstate Commerce Clause 

of the U.S. Constitution. See id. at 274, 281, 115 S.Ct. 834. The Court concluded that an 

arbitration provision in a contract between a termite exterminator and a homeowner came 

under the Act because it involved interstate commerce. Id. at 282, 115 S.Ct. 834.
7

The parties’ commercial transactions undoubtedly impacts interstate commerce in at least 

equal accord than a homeowner/ exterminator termite extermination contract. While state law 

may determine if the parties agreed to arbitrate, assuming they did so, then the FAA preempts 

inconsistent state arbitration laws. See Progressive Cas. Ins. Co. v. C.A. Reaseguradora 

Nacional De Venezuela, 1993, 991 F.2d 42 (2d Cir. 1993).

As the U.S. Supreme Court has noted, “§ 4 of the FAA does not confer a right to compel 

arbitration of any dispute at any time; it confers only the right to obtain an order directing that 

‘arbitration proceed in the manner provided for in [the parties'] agreement’ 9 U.S.C. § 4”. Volt 

Information Sciences, Inc. v. Bd of Trustees of Leland Stanford Junior University, 489 U.S. 466, 

474-75, 109 S. Ct. 1248, 103 2d 488 (italics in original). The FAA “does not require the parties 

to arbitrate when they have not agreed to do so.” Volt Information, supra. In Volt Information the 

Court noted some state law impacts on arbitration may be permissible if the purposes of the FAA 

are not impacted. The FAA does not preempt the entire arbitration field. Id.

Thus both arbitration acts may play a role in applying the arbitration clause, with the 

FAA playing a limited preemptive role – if the VAA undercuts the federal law and its objectives. 

While the FAA has no express provision to stay an arbitration if there is finding that the parties 

failed to agree to arbitrate, the VAA has such a provision. 12 V.S.A. § 5674(b). This section 

provides:

On application to compel or stay arbitration, and on a showing that there is no agreement 

to arbitrate, the court may stay a commenced or threatened arbitration proceeding. When 

in substantial and bona fide dispute, the issue of whether there is an agreement to 

arbitrate shall be forthwith and summarily tried. The court shall order the stay if it finds 

no enforceable agreement to arbitrate. Otherwise, the court shall order the parties to 

proceed to arbitration.

Consideration of a stay of an arbitration the parties have not agreed to is permissible under the 

FAA and federal law considering its application. As the U.S. Supreme Court stated in Granite 

Rock Co. v. International Broth of Teamsters, 561 U.S. 287, 296 (2010), whether the parties have 

agreed to submit a particular matter to arbitration is typically a matter for courts to decide. The 

court recognizes that where an arbitration clause is clearly agreed to and it provides the arbitrator 

a clear, broad and specific mantle of authority to decide what is to be arbitrated, courts may give 

such a provision effect.

But that presumes the parties’ agreement to be bound to such a clause has been shown. 

Where the dispute is over the formation of the arbitration contract formation, that issue is 

generally for the courts to decide. Granite Rock Co., supra, (citing First Options of Chicago, 

Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (“When deciding 
8

whether the parties agreed to arbitrate a certain matter ... courts generally ... should apply 

ordinary ... principles that govern the formation of contracts”); AT & T Technologies, supra, at 

648–649, 106 S.Ct. 1415 (explaining the settled rule in labor cases that “ ‘arbitration is a matter 

of contract’ ” and “arbitrators derive their authority to resolve disputes only because the parties 

have agreed in advance to submit such grievances to arbitration”); Buckeye Check Cashing, Inc. 

v. Cardegna, 546 U.S. 440, 444, n. 1, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (distinguishing 

treatment of the generally nonarbitral question whether an arbitration agreement was “ever 

concluded” from the question whether a contract containing an arbitration clause was illegal 

when formed, which question we held to be arbitrable in certain circumstances). Where the 

parties are found to not have agreed to arbitrate, declining to order arbitration does not offend the 

FAA. Volt Information, supra (noting the FAA “does not require the parties to arbitrate when 

they have not agreed to do so) See also Johnson v. Couturier, 572 F.3d 1067, 1083 (9th Cir. 

2009) (same).

When an issue exists as to whether a contract was formed courts should apply state law 

principles as to contract formation. See, First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 

943, 115 S.Ct. 1920, 131 L2d 985 (1995); Mastrobuono v. Shearson Lehman Hutton, Inc. 514 U. 

S. 52, 62-63, and n. 9, 115 S.Ct. 1212, 1218-1219, and n. 9; Volt Information, supra, 489 U.S. at 

475-476, 109 S.Ct. at 1253-1254; Perry v. Thomas, 482 U.S. 483, 492-493, n. 9, 107 S.Ct. 2520, 

2526-2527, n. 9, 96 L.Ed.2d 426 (1987).

With these principles in mind the court moves on to the issue of Mr. Hulstrunk’s stay 

request. 

 Rule 65 allows courts to enter preliminary injunctions and TRO’s. The factors to be 

applied, similar to those used under Federal Rule 65, are (1) the threat of irreparable harm to the 

movant; (2) the potential harm to the other parties; (3) the likelihood of success on the merits; 

and (4) the public interest. Taylor v. Town of Cabot, 2017 VT 92, ¶ 19, 178 A.3d 313. 

Preliminary injunctions and TRO’s are an extraordinary remedy and are not granted as a matter 

of right. Id, quoting Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24, 129 S.Ct. 365, 172 

L.Ed.2d 249 (2008).

 Some federal courts construe the the “likelihood of success on the merits”, with a 

degree of pragmatism to be met by a showing of “sufficiently serious questions as to the merits 

plus a balance of hardships that tips decidedly in their favor”, or similar formulations.3 The 

3 General Mills, Inc. v. Chobani, LLC, 158 F.Supp.3d 106, 115 (N.D.N.Y. 2016). See also for 

example, Okla. ex rel. Okla. Tax Comm'n v. Int'l Registration Plan, Inc., 455 F.3d 1107, 1113 
9

Vermont Supreme Court in Taylor essentially applied this standard in Vermont as “our test calls 

for a balancing of multiple factors, including the likelihood of success on the merits, it is 

sufficiently flexible to allow for a preliminary injunction in cases in which the court cannot 

definitively conclude that the movant is likely to prevail on the merits, but the balance of other 

factors tips strongly in favor of an injunction”. Id, at footnote 3, after citing the hardship-balancetipping test stated in General Mills, Inc. v. Chobani, LLC, 158 F.Supp.3d 106, 115 (N.D.N.Y. 

2016).

[1] Irreparable harm

Mr. Hulstrunk claims that being forced to defendant himself in the JAMS action, for an 

arbitration he never agreed to, is a form of irreparable injury. (Motion For TRO, page 2). This 

view has significant legal support. See example, Monavie, LLC v. Quuxtar, Inc., 741 F.Supp. 

1227, 1242 (D. Ut. 2009) (concluding, after drawing upon cases that find expenditure of energy, 

cost and fees in unnecessary litigation can pose “irreparable harm” that “ the injury to a party 

who is forced to submit to arbitration when it did not agree to do so constitutes per se irreparable 

harm for purposes of preliminary injunctive relief”) Herbert J. Sims & Co. v. Roven, 548 F. 

Supp. 2d 759, 766 (N.D. Cal. 2008) (finding a plaintiff would suffer irreparable harm if forced to 

arbitrate a dispute not subject to arbitration because it would have “no adequate remedy at law to 

recover the monetary and human capital it would expend defending itself in arbitration”); see 

also Goldman Sachs & Co. v. Becker, No. C 07 01599 WHA, 2007 WL 1982790, at *7 (N.D. 

Cal. July 2, 2007) (finding that a party will suffer irreparable harm if arbitration is not stayed); 

Credit Suisse Sec. (USA) LLC v. Sims, No. CIV.A. H–13–1260, 2013 WL 5530827, at *3 (S.D. 

Tex. Oct. 4, 2013) (“Plaintiffs will suffer irreparable harm if they are forced to participate in an 

arbitration where the dispute is not subject to an agreement to arbitrate”); Chase v. Manhattan 

Bank USA, N.A. v. Nat’l Arbitration Counsel, Inc., No. 3:04–cv–1205, 2005 WL 1270504, at *4 

(10th Cir.2006)(If the moving party demonstrates that the other three factors “tip strongly in his 

favor, the test is modified,” and the moving party “may meet the requirement for showing 

success on the merits by showing that questions going to the merits are so serious, substantial, 

difficult, and doubtful as to make the issue for litigation and deserving of more deliberate 

investigation.”) ; Homeowners Against the Unfair Initiative v. Calif. Building Industry Assoc.,

2006 WL 5003362, *2, 2006 U.S. Dist. LEXIS 97023, *4 (S.D.Cal. Jan. 26, 2006) (citing 

Immigrant Assistance Project of the L.A. County of Fed'n of Labor v. INS, 306 F.3d 842, 873 

(9th Cir.2002)) (The standard for issuing a TRO is similar to the standard for issuing a 

preliminary injunction and requires that the party seeking relief show either “(1) a combination 

of likelihood of success on the merits and the possibility of irreparable harm, or (2) that serious 

questions going to the merits are raised and the balance of hardships tips sharply in favor of the 

moving party.”).
10

(M.D. Fla. May 27, 2005) (“being compelled to arbitrate a claim in the absence of an agreement 

to arbitrate that claim constitutes an irreparable injury”); CCD Clearing, LLC v. LoBue, Case No. 

EDCV 16–909 JGB (KKx), 2016 WL 9088704 (C.D.Cal. June 16, 2016)(finding that the 

“plaintiff will suffer irreparable harm if it is forced to participate in an arbitration where the 

disputes at issue are not subject to an agreement to arbitrate”); Tiffany v. KO Huts, Inc., 178 F. 

Supp. 3d 1140, 1148–49 (W.D. Okla. 2016)(adopting Eight Circuit’s view that having to incur 

unnecessary arbitration costs for an arbitration one has not been shown to have agreed to may 

constitute irreparable harm for purposes of enjoining such an arbitration) ); PaineWebber Inc. v. 

Hartmann, 921 F.2d 507, 515 (3d Cir. 1990)( stating “we think it obvious that the harm to a 

party would be per se irreparable if a court were to abdicate its responsibility to determine the 

scope of an arbitrator's jurisdiction”, overruled on other grounds by Howsam v. Dean Witter 

Reynolds, Inc., 537 U.S. 79, 85 (2002)).

The court accepts these formulations of irreparable harm. As noted below this is precisely 

a case where the topic of whether Mr. Hulstrunk is subject to the arbitration clause is replete with 

considerable issues. This is not the typical arbitration case where the arbitration clause is 

provision in a mutual agreement clearly agreed to and signed before the controversy in issue 

arose between the parties. 

[2] Potential Harm to Non-Moving Party

Scant detail is given as to the specific harm to UltraCell may sustain if the arbitration is 

stayed while this court sorts out in which forum the restrictive covenant issues should be 

decided. If the court merely determines no agreement to arbitrate existed, UltraCell is not really 

harmed. If the court stays the JAMS arbitration proceeding and later determines it is proper and 

should proceed, UltraCell has the potential harm of delay in having its arbitration clause 

enforced, with Mr. Hulstrunk left unrestrained during the period of delay in having the restrictive 

covenants interpreted and deemed enforceable. 

However Mr. Hulstrunk has worked for Nature Tech for almost a year, and no specific 

harm (release of inside confidential UltraCell proprietary information; solicitation of its 

customers or employees, etc.) has been shown. He claims to not be soliciting Company 

employees or using inside Company information. Measures to mitigate this potential harm to 

UltraCell exist if an arbitration stay was ordered. For example the court could impose temporary 

activity and information use restrictions on Mr. Hulstrunk, if the arbitration proceeding was 

stayed to sort out which proceeding should hear these matters.
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[3] Likelihood of Success on the Merits –

This factor is of importance. In the specific context by which the arbitration clause arose, 

this factor has some nuances. 

A keystone issue is whether Mr. Hulstrunk is an UltraCell member. The Company claims 

collateral estoppel effect of the dismissed federal action. Mr. Hulstrunk argues no binding or 

other effect should be given the Judge Crawford’s opinion that formed the basis for him to 

dismiss the federal diversity action for lack of subject matter jurisdiction. 

As UltraCell notes, Vermont collateral estoppel principles relate to issue preclusion. 

Under the doctrine precludes re-litigation of an issue previously litigated by the same parties 

when five discrete criteria are present:

(1) it is asserted against one who was a party in the prior action; (2) the same issue was 

raised in the prior action; (3) the issue was resolved by a final judgment on the merits; (4) 

there was a full and fair opportunity to litigate the issue in the prior action; and (5) its 

application is fair.

In re Stormwater NPDES Petition, 2006 VT 91, ¶ 23, 180 Vt. 261, 910 A.2d 824; Trepanier . 

Getting Organized, Inc., 155 Vt. 259, 295 (1990). Facially the issue of re-litigating Mr. 

Hulstrunk’s UltraCell membership status appears appropriate to be reviewed under this five 

element test. Applicability of collateral estoppel is a question of law. In re Stormwater NPDES 

Petition, supra. Clearly the same parties and issue was presented. A full and fair opportunity to 

litigate that issue was presented – discovery was allowed and taken and the parties focused on 

the need to present facts, documents and legal arguments on that very issue. On the “final 

judgment on the merits” issue, although the dismissal was for lack of subject matter jurisdiction, 

the necessary factual basis for that dismissal was based on the appealable “membership” status 

factual and legal determination4. Although Mr. Hulstrunk’s arguments lacked traction with Judge 

Crawford, the court’s decision to dismiss for lack of subject matter, based on the membership 

status determination issue, was appealable to the Second Circuit Court of Appeals. With Mr. 

Hulstrunk having initiated the federal action, and requesting court declaration as to his 

membership status, it would seem fair to bind him to the result and not allow him to seek second 

adjudications from other courts on the very same issue. 

4 For collateral estoppel purposes, the “final judgment on the merits” element requires both that 

the issue was actually litigated in the prior proceeding and that its resolution was “necessary to 

the resolution of the [prior] action”. Faulkner v. Caledonia County Fair Association, 2004 VT 

123, fn. 6, 178 Vt. 51, quoting Am. Trucking Ass'ns v. Conway, 152 Vt. 363, 369, 566 A.2d 

1323, 1327 (1989
12

In response, Mr. Hulstrunk cites F.R.C.P. 41(b) and federal case law. Under Rule 41(d) 

dismissal for lack of jurisdiction is one of the exceptions from the federal action dismissal being 

“on the merits”. As he notes the Seventh Circuit, in Buker Ramo Corp. v. United Bus. Forms,, 

Inc. , 717 F.3d 1272, 1279 (7th Cir.) 1983) has observed that once a federal court expresses its 

view that it does not have subject matter jurisdiction, any findings it makes in that process carry 

no res judicata consequences. As one leading treatise has explained,

[i]f a first decision is supported by findings that deny the power of the court to decide the 

case on the merits and by findings that go to the merits, preclusion is inappropriate as to 

the findings on the merits. A court that admits its own lack of power to decide should not 

undertake to bind a court that does have power to decide.

18 Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and 

Procedure § 4421 (1981). It is common sense that for res judicata claim preclusion purposes, 

after a subject matter jurisdiction dismissal the second court should be unfettered by the first 

court’s factual determinations in deciding if the claim is precluded independent of the reasoning 

of the court in the dismissed court action. From the cases cited and the court’s initial limited 

legal research it is unclear if the ambit of the federal post-dismissal preclusion scope limitation

also extends to issue preclusion as to the key factual issues decided that were necessarily and 

centrally decided by the federal court before it dismissed its action. 

If the preclusive effect courts are to give to factual and legal findings made by federal 

courts in their subject matter determinations is very broad - and in effect required all 

determinations to be treated as dicta - this court does not believe any party statements, 

agreements or stipulations as to what they were asking the federal court to do, change the scope 

of the preclusive affect the dismissal order opinion carried, as a matter of law, as it was entered. 

The court agrees with Plaintiff that the U.S. Supreme Court disagrees with the concept that a 

district court can assume hypothetical jurisdiction for making a merits adjudication, as such an 

approach offends traditional separation of powers. Steel Co. v. Citizens for a Better 

Environment, 523 U.S. 83, 94 (1989). “On every writ of error or appeal, the first and 

fundamental question is that of jurisdiction, first, of this court, and then of the court from which 

the record comes. This question the court is bound to ask and answer for itself, even when not 

otherwise suggested, and without respect to the relation of the parties to it.” Great Southern Fire 

Proof Hotel Co. v. Jones, 177 U.S. 449 (1900).

 These uncertainties may mean Mr. Hulstrunk will be able re-litigate his membership 

status here free of collateral estoppel issue preclusion. At final hearing the issue may be looked 

at more closely under the law.
13

However these present observations do not equate to a current assessment that Plaintiff 

has shown a likelihood of success on his claim of non-membership status. Even if it is not 

bound by Judge Crawford’s membership status analysis, this court at present finds Judgfe 

Crawford’s conclusions reasonable. As to the final formal steps to complete the Company 

membership units’ issuance, the parties had no significant issues to still resolve. Mr. Hulstrunk 

had confirmed receipt of copies of the operating agreements and the final acts were of a 

ministerial nature. Further under general Delaware contract law in some circumstances 

acceptance of a contract may be implied from the acts and conduct of the party to whom the offer 

is made. See example, Corporation Service Co. v. Kroll Associates, Inc., Docket No. No. 

Civ.A.99C–12–210–JRS, Superior Court of Del., (June15, 2001) 2001 WL 755934; Whittington 

v. Dragon Group, LLC, Docket Civil Action No. 2291–VCP, Ct. of Chancery off Del. (March 1, 

2013), 2013 WL 1821615.

At later hearings the court will more deeply consider how strictly courts have applied the 

Delaware LLC law provisions Mr. Hulstrunk cites, to the effect that LLC membership admission 

requires adherence to the LLC operating agreement and Delaware members’ decisions how to 

run their LLC’s should be afforded respect and followed. 

This does not end the present likelihood of success analysis. At most, a determination that 

Mr. Hulstrunk was an UltraCell member at the time he left the Company would have subjected 

him to the Third Operating Agreement as the parties started their litigation and dispute. Under 

that form of the Operating Agreement, certain forms of Operating Agreement amendment 

required additional considerations to typical operating agreement amendments. Specifically, 

under Section 12.2(b)(i) of the Third Operating Agreement, any amendment to the agreement 

that had a disproportionate and material adverse impact on a Unitholder is not enforceable 

against that Unitholder who is adversely impacted, without their prior written consent. (See 

Michelle Patton Affidavit, Exhibit C).

As to these parties the operative contact to arbitrate (that contained the first mandatory 

arbitration clause) was the creation of the Fourth Amended Operating Agreement in March 2018, 

as the Third Operating Agreement contract was replaced. 

The court finds serious questions (i.e. support) going to success on the merits as to Mr. 

Hulstrunk’s claim that the addition of Section 13.9 had a disproportionate and material adverse 

impact on him. (This assumes he is indeed found to be a Company member). The provision 

adoption must be viewed in the time and context of when it was adopted and its impact on the 

then existing LLC members. At the time the provision was adopted, one of the members 
14

(Plaintiff) was actively engaged in post-employment court litigation over matters arising out of 

the member’s transactions with the LLC. The second and third operating agreements of the LLC 

allowed disputes involving LLC membership matters, or involving the operating agreements’ 

terms, to be litigated in court. Adoption of the new mandatory arbitration provision had a 

disproportionate impact on Mr. Hulstrunk – he had an identified, and active, operating agreement 

provision (restrictive covenant) dispute brewing with the Company. He was no longer 

employed with the Company and the Company was demanding that he comply with the 

restrictive covenant provisions and also suing him in a counterclaim for monetary recovery for 

his refusal to comply. (Federal Action Docket, Entry 2; Gwitt Affidavit, Exhibit C). 

Given these then existent conditions, UltraCell’s contention the clause was not 

“disproportionate” because it facially applied to all members, carries little persuasive impact. 

Under UltraCell’s logic, a new operating agreement provision adopted at this time, requiring all 

members no longer employed by the Company to surrender their units and pay a $1,000 per unit 

surrender fee within 7 days, might equally be viewed as non -disproportionate as it applied to all 

members. The new provision’s impact, not its facial applicability, is what mattered. 

The mandatory arbitration clause had a material adverse impact on Mr. Hulstrunk. If 

applied to him, the clause eliminated his right to proceed to court, with trial by jury on triable 

issues of fact, as to his contractual operating agreement dispute, as well as any contract-based or 

tort counterclaims UltraCell might bring against him for alleged violations of the disputed 

restrictive covenants. Access to courts for claim resolution also allows for meaningful appellate 

review of the trial court result, and the factual and legal basis on which that result is premised. 

Arbitration does not allow for such review as a check or balance against erroneous decision 

making. 

Lastly the court addresses the arbitration waiver arguments. Generally under the FAA 

the issue of waiver is for arbitrators, not the court. to decide if an agreement to arbitrate is 

otherwise existent. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588, 154 

L.Ed.2d 491 (2002); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 

103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Thus determination of this issue may not be germane to 

the likelihood of success of an arbitration stay request. Waiver issues (and who decides them) 

may be taken up after a decision is made on whether there was an agreement to arbitrate. 

 In any event, the court is hard pressed to find UltraCell’s conduct here should support a 

finding of waiver. The alleged operative mandatory arbitration agreement was added to the 
15

operating agreement at the time UltraCell and its purported member (Plaintiff) were embroiled in 

a high stakes federal court litigating whether Mr. Hulstrunk was a Company member. While 

notice of the new clause, and a demand to arbitrate, could have been made in the federal action, 

it is pretty clear they would have lay dormant until the central “membership” declaratory 

decision was reached. Arbitration was demanded within a week of the membership being 

adjudicated, while timelines for motions to alter or amend the federal order (F.R.C.P. 59) and/or 

to appeal the subject matter dismissal decision, had not lapsed. UltraCell’s decision to file 

memos and motions in this action, to dismiss it to allow the JAMS arbitration that Defendant 

believes controls, should not be viewed as a waiver of the right to enforce and proceed to 

mediation. Mr. Hulstrunk renewed his efforts for court determination of the membership issue 

and for UltraCell to not make a response, out of fear it would be deemed a “waiver”, would 

create an unfair situation for UltraCell. The need to participate in the Hulstrunk lawsuits was not 

just to resolve which forum a clearly agreed to arbitration clause should be litigated. The federal, 

and now this, court actions sought preemptive strike determinations for Plaintiff that the 

arbitration right simply never existed and thus any JAMS action was void. 

[4] The Public Interest 

No compelling case-specific public interest, involving the general public, has been shown 

to lie in balance depending upon whether the court stays the JAMS arbitration. The societal 

mechanisms used to decide complicated matters of import – whether they be arbitration or 

lawsuits – are ill-served where important matters are decided in haste. It is not in the public 

interest for parallel actions to proceed under a decision making race with the hopes that 

expediency and the temporary primacy of the first body’s decision will be afforded priority, 

regardless of the quality of the result. 

Further when initial significant issues exist as to one body’s authority to act, “[a]llowing 

an arbitration to proceed without an agreement to arbitrate does not serve the public interest.” 

Berthel Fisher & Co. Financial Servs. v. Frandino, No. CV 12–02165 PHX (NVWx), 2013 WL 

2036655 at *8 (D. Ariz. May 14, 2013); see also Berthel Fisher & Co. Fin. Servs. v. Larmon, 

No. CIV. 11–889 ADM/JSM, 2011 WL 3294682, at *8 (D. Minn. Aug. 1, 2011) aff’d, 695 F.3d 

749 (8th Cir. 2012) (“Public confidence in arbitration would be undermined if a party could be 

compelled to arbitrate without its consent’); Accord CCD Clearing, LLC v. LoBue, Case No. 

EDCV 16–909 JGB (KKx), 2016 WL 9088704 (C.D.Cal. June 16, 2016).
16

Summation 

Taken all together, the court concludes the significant showing Mr. Hulstrunk will 

succeed on his claim the recently adopted arbitration clause does not apply to him, coupled with 

the hardship of his being exposed to arbitration proceedings that his showing suggests he should 

not be subjected to; along with the public interest that the issue of whether contract with the 

arbitration clause applies to him is correctly decided; and limited hardship to UltraCell while the 

matters are sorted out - weigh in favor of a TRO in Mr. Hulstrunk’s favor. 

As a separate ground to issue a stay, the court views § 5674(b) of the VAA as authorizing 

a Vermont court to stay an arbitration, where it initially determines that it is likely that no 

agreement to arbitrate, but there are substantial and bona fide disputes on such issue that can be 

resolved by a prompt hearing and final order whether to make the stay permanent or order the 

arbitration to proceed. In the court’s view such a temporary § 5674(b) substantive statutory stay 

authorization operates independent of the 14 day, plus14 day extension, provisions of Rule 65, 

but must be premised on providing a prompt trial on the preliminary issue of whether the 

arbitration should proceed.

The § 5674(b) summary trial on the issue if the matter is subject to arbitration will be 

combined with the preliminary injunction hearing. At this phase of these proceedings the court 

will not be interpreting the scope or enforceability of the restrictive covenants’ content or their 

claimed unconscionability or application to Mr. Hulstrunk under the circumstances of his old or 

new job, or information learned or obtained, or present work activities. The focus will be if Mr. 

Hulstrunk is a Company member; if the Fourth Operating Agreement Section 13.9 applies to 

him; and if so if the alleged waiver and arbitration condition precedents are to be decided by this 

court or the JAMS arbitrator. 

The order requires the parties to confer and promptly report to the court how much 

hearing time they need for the Section 5674(b)/ preliminary injunction hearing so the court can 

promptly set it. 

Although many of the issues it asserts appears to overlap with those decided here, the 

court will still separately determine UltraCell’s 8/20/18 Motion To Dismiss. The court notes that 

Defendant’s motion asked the court to consider documents and affidavits beyond the matters 

asserted in the pleadings. Under Vermont law, this converted the motion into an early motion for 

summary judgment. Lueders v. Lueders, 152 Vt. 171 (1989). Such a conversion of the motion 

by the court requires notice to the parties of such conversion, and reasonable opportunity to 

submit additional materials pertinent to the motion, before the court rules. Hemond v. Frontier 
17

Communications, of America, Inc., 2015 VT 67, ¶ 22; Fitzgerald v. Congleton, 155 Vt. 283, 293-

294 (1990). Thus UltraCell is given an additional 14 days to submit additional materials for the 

motion, and Plaintiff 14 days after any further UltraCell submission or deadline, before the court 

rules on the motion. Ultracell will have the Rule 6 and 78(a) reply memo filing opportunity after 

Plaintiff’s last submission or the deadline for it, runs. If material issues of fact are found to exist 

as to the motion for summary judgment issues, trial on such issues is likely to be included in the 

Section 5674(b)/ preliminary injunction hearing.

IT IS HEREBY ORDERED: 

[1] The JAMS Arbitration proceeding between UltraCell and Mr. Hulstrunk is STAYED pending 

further order from this court. A copy of this order may be given to the JAMS arbitrator. If the

arbitrator refuses to comply with the stay, Mr. Hulstrunk may file appropriate action(s) in courts 

located in the state where the arbitration is proceeding to seek orders to compel compliance with 

this order. To the extent this order is issued under V.R.C.P. 65, it is entered for 14 days, subject 

to extension. However, this interim order is also issued pursuant to 12 V.S.A. § 5674(b), which 

stay continues in effect until the described hearing on the12 V.S.A. § 5674(b) / preliminary 

injunction stay requests. 

[2] To protect UltraCell’s interest in potential harm from the delay in arbitration, caused by these 

proceedings, if it is found to hold a right to require arbitration – while this order is in effect Mr. 

Hulstrunk is enjoined from disclosing to Nature Tech or third parties any alleged Confidential 

Information belonging to UltraCell, that would be covered under the UltraCell Operating 

Agreement. Such temporary injunction does not extend to potential customer contact 

information that Mr. Hulstrunk had learned or obtained before his employment by UltraCell. 

[3] Within 15 days the Parties shall inform the court how much hearing time they will need for a 

combined 12 V.S.A. § 5674(b) / preliminary injunction hearing to determine if the parties agreed 

to arbitrate and if so decide preliminary arbitration issues (waiver/ conditions precedent) or order 

that the arbitrator decide such matters. 

[4] The Parties are to exchange witness and exhibit lists two weeks before the hearing. They are 

encouraged to develop a set of stipulated exhibits where possible, to allow for efficient use of 

court time. As the hearing is set the court will allocate each party half of the available time for 

presentation of evidence (direct and cross) and is likely to use a chess clock are similar tool to 

track time. The Parties are forewarned of the need to organize their time in the presentation of 

their position. 
18

The present October 12, 2018 hearing date will likely be re-set for the section 5674(b) / 

preliminary injunction hearing, as at present the court has only allotted 30 minutes of hearing 

time.

_________________________________________

Michael J. Harris

Superior Court Judge