Holistic Indus. of Ark. v. Feuerstein Kulick LLP
| Decision Date | 02 September 2021 |
| Docket Number | 2:20-cv-230-LPR |
| Parties | HOLISTIC INDUSTRIES of ARKANSAS, LLC PLAINTIFF v. FEUERSTEIN KULICK LLP DEFENDANT |
| Court | U.S. District Court — Eastern District of Arkansas |
Plaintiff Holistic Industries of Arkansas, LLC sued Defendant Feuerstein Kulick LLP for legal malpractice. The claim centers on Defendant's work on medical marijuana license applications.[1] Pending before the Court is a Motion to Dismiss.[2] Defendant raises standing, personal jurisdiction, and failure to state a claim upon which relief may be granted.[3] In the alternative, Defendant argues that the dispute between the parties is subject to binding arbitration.[4]
For the reasons discussed below, the Court GRANTS in part and DENIES in part the Motion to Dismiss. Defendant's positions on standing and personal jurisdiction are wrong. However Defendant is correct that the parties must resolve this dispute in binding arbitration. Accordingly, this case is STAYED pending the resolution of arbitration. The other requests in the Motion to Dismiss are denied as moot.
Standing[5]
“Standing is a threshold inquiry and jurisdictional prerequisite that must be resolved before reaching the merits of a suit.”[6] Defendant argues that the Complaint fails to allege how Holistic Industries of Arkansas, LLC can properly bring this action. Defendant's argument is two-fold: (1) the Operating Agreement prohibits Holistic Industries of Arkansas, LLC from bringing this suit;[7]and (2) Holistic Industries of Arkansas LLC “was dissolved before this action was initiated.”[8]
On the first point, Defendant asserts that the Operating Agreement requires three of the four members to agree to “the filing of [a] lawsuit . . . .”[9] Defendant submitted affidavits from two members of Holistic Industries of Arkansas, LLC who state that “had [they] been advised by any member of the Company [that] it was considering a lawsuit against the firm, [they] would have objected” and, if necessary, invoked a provision of the Operating Agreement to call a vote.[10] In response, Holistic Industries of Arkansas, LLC says that “there is no provision in the Operating Agreement requiring 3 of 4 Founding Members to authorize suit.”[11] Holistic Industries of Arkansas, LLC also says that 3 of the 4 members “have authorized suit.”[12] To support this latter proposition, Holistic Industries of Arkansas, LLC provides an Assignment dated August 15, 2018, which shows that Josh Genderson and Richard Genderson (two of the original four Holistic Industries of Arkansas, LLC members) assigned their interests in Holistic Industries of Arkansas, LLC to David Engel.[13]
There is no explicit language in the Operating Agreement supporting Defendant's position that a lawsuit requires approval of three members. Defendant's argument might be referring to a provision in the Operating Agreement that requires legally binding agreements to be signed by at least three of the four Founding Members.[14] But filing a lawsuit is not the same thing as entering a legally binding agreement. Moreover, even if the Operating Agreement required three-member approval (it did not), Holistic Industries of Arkansas, LLC has presented evidence that Josh Genderson and Richard Genderson assigned their interests in Holistic Industries of Arkansas, LLC to David Engel in August 2018.[15] Defendant does not deny the validity of this assignment.[16] So, this means that Mr. Engel has two member votes and the original named Plaintiff, Mr. Epstein, a third.[17] Three of the four members authorized the suit.[18]
Defendant's second argument is that Holistic Industries of Arkansas, LLC, was “a dissolved entity” at the time it filed the lawsuit and thus “lack[ed] authority to sue under Arkansas law.”[19] Defendant cited an Eighth Circuit case for this proposition, which in turn cited an Arkansas Supreme Court decision.[20] Both cases dealt with corporations whose corporate charters had been involuntarily revoked by the Arkansas Secretary of State.[21] If not completely inapposite, they are certainly not controlling. Under Arkansas law, a dissolved LLC can prosecute civil lawsuits as part of winding up the LLC.[22]
In short, neither of Defendant's standing arguments carries the day.[23]
Defendant says the Court lacks personal jurisdiction over it. To survive a motion to dismiss for lack of personal jurisdiction, the nonmoving party must make a prima facie showing that personal jurisdiction exists “which is accomplished by pleading sufficient facts ‘to support a reasonable inference that the defendant can be subjected to jurisdiction within the state.'”[24]
When, like here, a defendant raises a 12(b)(2) motion, the path for resolution of that motion depends in part on whether the Court chooses to hold a hearing or “instead relies on pleadings and affidavits.”[25] If the Court chooses the latter approach, it “‘must look at the facts in the light most favorable to the nonmoving party and resolve all factual conflicts in favor of that party.'”[26]Because the Court has not held a hearing on this matter, the following factual findings are based on the record evidence, with all factual disputes and all reasonable inferences resolved in favor of Holistic Industries of Arkansas, LLC.
Defendant is a law firm that operates as a limited liability partnership and has its principal place of business in New York, New York.[27] Defendant holds itself out as “one of the preeminent and [sic] go-to law firms for individuals and companies operating in the legal cannabis space, representing clients across the U.S. in virtually every facet of the industry.”[28] Defendant does not advertise in Arkansas, nor has it “actively sought or established any business relationships in the State of Arkansas.”[29] No. one in the firm has traveled to Arkansas.[30]
Around September 2017, Josh Genderson (a resident of Washington, D.C) contacted Mitchell Kulick, a member of the law firm, “to engage the Firm's assistance in submitting an application on behalf of the [Holistic Industries of Arkansas, LLC] in the State of Arkansas.”[31] Specifically, Mr. Genderson, engaged the law firm “to assist in the preparation of [Holistic Industries of Arkansas, LLC's] application for a medical marijuana license in Arkansas.”[32] There is one quirk that will become important later: Holistic Industries of Arkansas, LLC was not yet in existence at this time.[33]
Defendant sent an engagement letter to Mr. Genderson via email.[34] The engagement letter “outline[d] the scope of [the law firm's] services” and explained the fee structure.[35] The engagement letter was addressed to Holistic of Arkansas, LLC (not to be confused with Holistic Industries of Arkansas, LLC, the plaintiff in the case at bar).[36] The engagement letter defined Holistic of Arkansas, LLC as “the ‘Company.'”[37]
The engagement letter stated that “[t]he Company has engaged the Firm to represent it in connection with its applications for [] medical marijuana cultivation and dispensary licenses in the State of Arkansas.”[38] The engagement letter stated that the law firm's services “will be performed by [the law firm] principally in the State of New York and that the substantive law of New York will govern any issues that may arise concerning this representation and any of the provisions of this agreement[, ] including its enforcement.”[39] The engagement letter stated that any dispute the parties could not resolve informally would be resolved “exclusively through private and confidential binding arbitration in New York City before JAMS or NAM . . . .”[40]
Part of the fee structure set out in the engagement letter included the potential for the law firm to acquire an equity interest in the Company.[41] Specifically, in the event that the Company received a medical marijuana license, the Company was to issue to the law firm “[u]nits and interests . . . equal to two percent (2%) in and to the Company and any affiliate owned and/or controlled by Josh Genderson and/or David Engel as far as such entity relates to the Arkansas operation(s).”[42]
Josh Genderson signed the letter on behalf of “Holistic of Arkansas, Inc.”[43] The careful reader will note that we now have three purported companies to keep straight: (1) Holistic Industries of Arkansas, LLC (the plaintiff here); (2) Holistic of Arkansas, LLC (the company to whom the engagement letter was directed); and (3) Holistic of Arkansas, Inc. (the company on whose behalf Mr. Genderson purported to sign the engagement letter). None of these entities existed at the time the engagement letter was drafted, sent, or signed.[44]
At various times during its legal representation, Defendant communicated by phone with Sam Epstein Angel, an Arkansas resident.[45] Defendant also contacted Arkansas through “U.S. mail and electronic correspondence.”[46] On September 11, 2017, Defendant “contacted Northwest Registered Agent, LLC, a corporate services firm, to form an Arkansas Limited Liability company called ‘Holistic Industries of Arkansas, LLC' as that formation was contemplated by the engagement.”[47] The Articles of Organization for Holistic Industries of Arkansas, LLC indicate that Northwest Registered Agent, LLC has an office located in Mountain Home, Arkansas.[48] That Mountain Home address is listed as the “Registered Agent” address for Holistic Industries of Arkansas, LLC.[49]
The deadline for the marijuana license applications was September 18, 2017.[50] On that day, Defendant emailed the “the applications and supporting materials to a FedEx location in Little Rock, Arkansas, where a representative of Holistic Industries [of Arkansas, LLC] picked up the print job and rushed it to the [Ma...
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