Amisil Holdings Ltd. v. Clarium Capital Management

• Decision Date: 20 September 2007
• Docket Number: No. C06-05255 MJJ.,C06-05255 MJJ.
• Citation: 622 F.Supp.2d 825
• Parties: AMISIL HOLDINGS LTD., Plaintiff, v. CLARIUM CAPITAL MANAGEMENT, Defendant.
• Court: U.S. District Court — Northern District of California

622 F.Supp.2d 825

AMISIL HOLDINGS LTD., Plaintiff, v. CLARIUM CAPITAL MANAGEMENT, Defendant.

No. C06-05255 MJJ.

United States District Court, N.D. California.

September 20, 2007.

Harvey Lewis Leiderman, Tita Kanthatham Bell, Reed Smith, LLP, San Francisco, CA, Basileios Katris, Tressler Soderstrom Maloney & Priess LLP, Chicago, IL, for Plaintiff.

Howard S. Caro, Cecilia Y. Chan, Heller Ehrman LLP, San Francisco, CA, Robert B. Hawk, Heller Ehrman White & McAuliffe LLP, Menlo Park, CA, for Defendant.

ORDER ADOPTING REPORT AND RECOMMENDATION

MARTIN J. JENKINS, United States District Judge.

Pending before the Court is Defendants' Motion to Compel Arbitration and Stay Proceedings. (Docket No. 12.) On January 3, 2007, Magistrate Judge Chen issued a Report and Recommendation ("R & R") (Docket No. 79). The Court has considered the R & R and agrees with the Magistrate Judge's reasoning. Furthermore, there have been no objections within the allotted statutory time. Accordingly, the Court ADOPTS the R & R and GRANTS Defendants' Motion to Compel Arbitration and Stay Proceedings.

IT IS SO ORDERED.

CORRECTED REPORT AND RECOMMENDATION RE DEFENDANTS' MOTION TO COMPEL ARBITRATION

EDWARD M. CHEN, United States Magistrate Judge.

On August 28, 2006, Plaintiff Amisil Holdings, Ltd. filed suit against Clarium Capital Management, LLC, Peter Andreas Thiel, Jason Portnoy, and Mark Woolway. Amisil alleged violations of federal securities law as well as various state laws. Currently pending is a motion to compel arbitration filed by all Defendants (i.e., both the company and the individual defendants) and to stay proceedings pending arbitration. Having considered the parties' briefs and accompanying submissions, the Court hereby recommends that Defendants' motion to compel arbitration and stay proceedings be granted.¹

I. FACTUAL & PROCEDURAL BACKGROUND

In its complaint, Amisil alleges as follows: Clarium (formerly known as Thiel Capital Management, LLC) is a global macro hedge fund manager. See Compl. ¶ 13. Mr. Thiel is the majority member as well as managing member of Clarium. See id. ¶ 9. Mr. Portnoy is the CFO of Clarium and Mr. Woolway the managing director. See id. ¶¶ 10-11.

On or about December 19, 1997, Mr. Thiel solicited Amisil to invest in Clarium and Thiel Capital International, LLC (the "Fund"), a fund managed and owned in part by Clarium. See id. ¶ 18, 20, 27. Amisil agreed and entered into a Subscription Agreement with Clarium and the Fund. See id. ¶ 19. Thus, as of 1998, Amisil became a minority member of Clarium. See id. ¶ 14.

In December 1998, the Fund invested in a new company that was ultimately named PayPal. See id. ¶ 23. In February 2002, PayPal conducted an IPO of its shares in the public markets. Subsequently, Clarium's stake in PayPal (as a manager of and investor in the Fund) was worth approximately $4.9 million. See id. ¶ 28. Just a few months later, on May 2, 2002, at the behest of Mr. Thiel, Clarium tried to buy out Amisil's membership interest in Clarium for only $372. See id. ¶ 29.

On July 8, 2002, PayPal announced that it would be sold to eBay, Inc. for more than $1.5 billion. See id. ¶ 30. The sale was consummated in October 2002. See id. ¶ 32.

On February 19, 2003, Mr. Thiel, on behalf of Clarium, wrote to Amisil regarding proposed changes to Clarium's Operating Agreement. One of the proposed changes was a provision that authorized the managing member of Clarium (i.e., Mr. Thiel) to remove a member without the member's consent. See id. ¶ 34. Amisil objected to this proposed change, as well as others. See id.

Clarium failed to make any distributions to Amisil, issue any tax returns, or disclose any of its operations to Amisil from 2002 through 2005. See id. ¶ 35. For 2005, Mr. Thiel received a $31 million distribution. See id. ¶ 48.

On March 1, 2006, Amisil learned for the first time that Clarium was managing a hedge fund with more than $1.5 billion in assets. See id. ¶ 37.

On March 14, 2006, Mr. Portnoy and Mr. Woolway met with Amisil to discuss Amisil's interest in Clarium. At this meeting, Amisil was told that Clarium now had only two members, namely, Mr. Thiel and Amisil (with Mr. Thiel holding 98.66%) because all other members had been bought out in 2002. See id. ¶ 38.

Subsequently, on March 20, 2006, Amisil made a written request to inspect certain books and records of Clarium as provided by Clarium's Operating Agreement. See id. ¶ 39. Mr. Portnoy told Amisil that the requested documents would be forthcoming but they were not provided. See id. ¶ 40. Instead, on May 2, 2006, Mr. Thiel proposed to buy out Amisil's membership interest. See id. ¶ 41.

On July 17, 2006, Amisil made another request to inspect Clarium's books and records. See id. ¶ 44. Three days later, Mr. Thiel, in his capacity as managing member of Clarium, purported to expel Amisil as a member of Clarium and acquire its interest, effective July 26, 2006. See id. ¶ 45.

The thrust of Amisil's complaint is that [Mr.] Thiel and the other individual codefendants, acting individually and on behalf of Clarium, have oppressed and continue to oppress Amisil's rights as a holder of a minority membership interest in Clarium. Defendants have also repeatedly breached the company's Subscription Agreement and Operating Agreement to Amisil's continuing damage. Through a pattern and practice of unlawful activity, Defendants have deprived Amisil of the true value of its investment.

Id. ¶ 2.

The claims asserted in the complaint are as follows:

(1) Violation of § 10(b) of the Securities Exchange Act of 1984 and Rule 10b-5 (all Defendants);

(2) Violation of the Investment Advisers Act of 1940 (all Defendants);

(3) Fraud (all Defendants);

(4) Conversion (all Defendants);

(5) Breach of fiduciary duty (Mr. Thiel, Mr. Portnoy, and Mr. Woolway only);

(6) Conspiracy to defraud and to breach fiduciary duties (Mr. Thiel, Mr. Portnoy, and Mr. Woolway only);

(7) Breach of contract (Clarium only);

(8) Breach of implied covenant of good faith and fair dealing (Clarium only);

(9) Unfair business practices (all Defendants);

(10) Accounting and constructive trust (all Defendants); and

(11) Preliminary and permanent injunction (all Defendants).

Attached to Amisil's complaint is a copy of Clarium's Operating Agreement and the Fund's Operating Agreement, both dated September 9, 1996. See id., Ex. A (Fund's Operating Agreement); id. Ex. B (Clarium's Operating Agreement). Also attached is a copy of a Subscription and Investment Representation Agreement, dated February 27, 1998, entered into by Amisil, Clarium, and the Fund. See id., Ex. C (Subscription Agreement). According to the terms of the Subscription Agreement, Amisil agreed to be bound by Clarium's Operating Agreement as well as the Fund's. See Subscription Agreement ¶ 2(c). Paragraph 10.17(a) of Clarium's Operating Agreement provides:

Except as otherwise specifically provided in this Agreement, the Members shall make a reasonable attempt to resolve any controversy or claim arising out of or relating to this Agreement through non-binding mediation. Any such controversy or claim not resolved after such reasonable attempt shall be resolved through arbitration conducted in accordance with the rules of the American Arbitration Association, and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.

Operating Agreement ¶ 10.17(a). While Defendants do not concede that the Clarium Operating Agreement attached to the complaint is the version currently governing the parties' rights and obligations, they note that the language of the arbitration clause was not changed in other versions of the Operating Agreement. See Mot. at 2 n. 1.

II. DISCUSSION

In the instant case, all Defendants—i.e., both Clarium and the individual defendants—seek to compel arbitration. Defendants argue that arbitration must be compelled based on the arbitration provision in the Operating Agreement quoted above.

A. Clarium

Amisil argues that arbitration should not be compelled with respect to its claims against Clarium because arbitration under the AAA rules would substantially prejudice Amisil. Amisil points out that the AAA rules provide for discovery at the discretion of the arbitrator and as is consistent with the expedited nature of arbitration.² According to Amisil, this is not adequate because, in order to determine the true value of its interest in Clarium, Amisil needs "a thorough forensic examination of Clarium's books and records." Opp'n at 7. Amisil adds that Clarium has repeatedly failed to produce records requested by Amisil, to which Amisil was entitled under Clarium's Operating Agreement.

The only authority cited by Amisil in support of its argument above is Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). However, in Gilmer, the Supreme Court indicated that a challenge to arbitration on the basis that it provides for only limited discovery is not likely to succeed. The plaintiff in Gilmer claimed that he had been discriminated against on the basis of his age. According to the plaintiff, it would be more difficult for him to prove discrimination in arbitrator because the discovery allowed there was more limited than in federal courts. The Supreme Court thought it "unlikely . . . that age discrimination claims [would] require more extensive discovery than other claims that we have found to be arbitrable, such as RICO and antitrust claims." Id. at 31, 111 S.Ct. 1647. The Court further stated that there had been no showing that "the NYSE discovery provisions, which allow for document production, information requests, depositions, and subpoenas will prove insufficient to allow ADEA claimants such as [the plaintiff] a fair opportunity to present their claims." Id.

In the instant case, Amisil has not adequately demonstrated why arbitration under the AAA rules would deny it a fair opportunity to present...