JC Aviation Invs., LLC v. HyTech Power, LLC
| Decision Date | 01 March 2021 |
| Docket Number | No. 81539-3-I,81539-3-I |
| Court | Washington Court of Appeals |
| Parties | JC AVIATION INVESTMENTS, LLC, a Washington limited liability company, Respondent, v. HYTECH POWER, LLC, a Washington limited liability company, and HTP, INC., a Washington corporation, Appellant. |
UNPUBLISHED OPINION
VERELLEN, J. — Parties can be compelled to arbitrate only the matters they agreed to arbitrate. Because the unambiguous language of the arbitration clause in the limited liability corporation (LLC) agreement between members HTP, Inc., and JC Aviation Investments, LLC (JCAI) is narrowly drafted and does not encompass the parties' disputes, we affirm the trial court order denying HTP's motion to compel arbitration.
Because HTP fails to satisfy the standards for discretionary review, we deny review of other issues.
FACTS
HyTech Power, LLC researches and builds tools to make internal combustion engines more efficient. It was formed on June 14, 2018 with an LLC agreement signed by its two members, JCAI and HTP. JCAI holds 52 percent of HyTech and is one of its secured creditors. HTP holds 48 percent of HyTech. HyTech has a five-member board of directors, with JCAI controlling three seats and HTP the other two.
Over the spring of 2020, relations between JCAI and HTP frayed as HyTech's financial position became more perilous. On March 2, 2020, the board met to discuss HyTech's "paths forward" when it had "no cash resources" and was "insolvent."1 It also noted secured creditor Acamar Investments, Inc. had, without board approval, been paying for HyTech employees to take international business trips to sell HyTech's product. On March 6, the board unanimously passed a resolution deciding it was "in the best interests of the Company to immediately discontinue employment of all employees" because HyTech was insolvent, was unable to meet payroll, had defaulted on $2.3 million in debt to its creditors, and was unable to agree on new financing offers.2 Shortly thereafter, HTP executive chairman and HyTech board representative Henry Dean asked the board to rescind that decision. The board declined, but HTP obtained more outside funding from Acamar to rehire HyTech's employees.
On April 9, the board met, discussed outside funding from Acamar, and unanimously agreed to retroactively reinstate its employees until April 17 when "[a]ll company employees will be terminated" unless the board agreed to additionalfunding.3 The board also retroactively authorized new funding provided from January through April 15 and agreed to refuse any additional new funding.
On May 12, the board had a contentious meeting where HTP surprised the JCAI board members by announcing it was independently funding beta tests of HyTech's product and would continue to do so "even if a lawsuit was filed."4 The same day, JCAI filed a petition seeking judicial dissolution of HyTech and appointment of a general receiver to liquidate the company's assets. On May 20, HTP told the board beta testing was ongoing, and Acamar filed a CR 24 motion to intervene in the action for dissolution and appointment of a receiver. On May 27, HyTech filed a motion for a temporary restraining order (TRO) enjoining HTP from using HyTech's assets or conducting business in its name. On May 28, superior court Commissioner Judson denied Acamar's motion to intervene, declined to consider the motion to dissolve HyTech, and referred the case to Judge McDonald for trial on dissolution and appointment of a receiver. On May 29, HTP filed a motion to compel arbitration of JCAI's motion for dissolution and appointment of a receiver.
On June 3, HyTech filed for a preliminary injunction to enjoin HTP from using HyTech's assets or conducting business in its name. On June 4, Commissioner Judson granted HyTech's request for a TRO to expire on June 16 when Judge McDonald would consider the motion for a preliminary injunction. OnJune 16, Judge McDonald heard argument on HTP's motion to compel arbitration and HyTech's motion for a preliminary injunction. Judge McDonald first denied the motion to compel arbitration, explaining the LLC agreement did not encompass the issues of dissolution, appointment of a receiver, or injunctive relief. He then granted the preliminary injunction, finding "[n]one of HTP's operations of HyTech's business or use of its assets were authorized by the Board."5
On June 17, HTP appealed, as a matter of right, denial of its motion to compel arbitration and sought discretionary review of the preliminary injunction. Judge McDonald concluded RAP 7.2(a) precluded further proceedings as of June 17 when this court accepted review of the motion to compel, and he struck the pending trial on the motions for dissolution and appointment of a receiver until this appeal is resolved. A commissioner of this court referred HTP's motion for discretionary review to us because its issues were closely related to the merits of HTP's direct appeal.
ANALYSIS
We review denial of a motion to compel arbitration de novo.6 The parties agree the LLC agreement is valid and the court, rather than an arbitrator, decides threshold questions of arbitrability. But they dispute whether the LLC agreementcompels arbitration of dissolution, appointment of a receiver, and injunctive relief. Thus, the key question is whether those issues are within the scope of the arbitration clause in the parties' LLC agreement.7
HTP argues the Federal Arbitration Act (FAA), 9 U.S.C. § 2, applies here and compels arbitration. The threshold issue of arbitrability is the same under the FAA and Washington's Uniform Arbitration Act, chapter 7.04A RCW: whether the parties agreed to arbitrate a particular dispute.8 Both federal and Washington law presume a dispute is arbitrable, so any doubt must be resolved in favor of arbitration.9
Section 12.13 of the LLC agreement contains the arbitration clause here:
The parties hereto will use their reasonable best efforts to resolve any dispute hereunder through good faith negotiations. In the event a dispute cannot be resolved informally within thirty (30) days of notice by one party to the other of such dispute, the parties agreethat such dispute will be resolved exclusively through final and binding arbitration.10
The LLC agreement provides for arbitration of "any dispute hereunder." HTP argues the arbitration clause should be read broadly, asserting it is the equivalent of clauses compelling arbitration for disputes "arising out of" and "relating to" an underlying agreement. But we reject the premise that a dispute "under" an agreement is just as broad as a claim "arising out of" or "relating to" the agreement.11 Neither "arising out of," "relating to," nor any similar terms appear inthe arbitration clause here. Because the arbitration clause is narrowly limited to "any dispute hereunder," we decline to speculate on the impact a broader arbitration clause would have.12
Most importantly, the key provisions in the arbitration clause at issue here include terms specifically defined in the agreement. Section 12.13 mandates arbitration of "any dispute hereunder."13 In turn, section 1.02 specifies that "'hereunder' refer[s] to this Agreement as a whole."14 Section 1.01 defines "Agreement" as "this Limited Liability Company Agreement, as executed and as it may be amended."15 And section 12.07 distinguishes the LLC agreement from other documents associated with HyTech: "This Agreement, together with the Certificate of Formation and all related Exhibits and Schedules, constitutes the sole and entire agreement of the parties to this Agreement with respect to thesubject matter contained herein and therein."16 Thus, arbitration is required for a dispute about the LLC agreement itself, exclusive of documents not part of the "Agreement" defined in section 1.01. The agreement's narrow, unambiguous language is sufficient to show the parties' objective intent to limit the scope of arbitration.17
HTP contends arbitration is required for the issue of dissolution because only an arbitrator can decide whether JCAI or HTP breached the operating agreement and whether either breach impacts who will serve as HyTech's liquidator. HTP mischaracterizes its motion to compel arbitration.
On May 12, JCAI filed its petition to dissolve HyTech and appoint a receiver. Specifically, JCAI requested a decree of judicial dissolution pursuant to RCW 25.15.274 and appointment of a general receiver. On May 29, HTP filed its motion to compel arbitration, asking the court to decide "[w]hether this action for judicial dissolution of HyTech and for appointment of a general receiver is a[n arbitrable] dispute between JCAI, HTP and HyTech under the LLC Agreement."18HTP argued whether JCAI breached the LLC agreement "bears directly on the expressed terms in the LLC Agreement and is, thus, subject to arbitration."19
Whether a dispute is arbitrable is decided by the terms of the parties' agreement without considering the merits of the dispute.20 We read agreements to uphold the parties' objective intent as shown by the terms used.21 Agreements should be read to give meaning to the parties' chosen terms and to avoid "'render[ing] some of the language meaningless or ineffective.'"22
Section 11.01 of the operating agreement identifies four "dissolution events":
Because JCAI invoked only section 11.01(d) as the basis for...
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