Stanek Holdco, Inc. v. Water Res. Grp.

• Decision Date: 17 August 2020
• Docket Number: C/w Civil Action No. 19-cv-3360-WJM-SKC,Civil Action No. 19-cv-3194-WJM-SKC
• Parties: STANEK HOLDCO, INC., Plaintiff, v. WATER RESOURCES GROUP, INC., Defendant.
• Court: U.S. District Court — District of Colorado

STANEK HOLDCO, INC., Plaintiff, v. WATER RESOURCES GROUP, INC., Defendant.

Civil Action No. 19-cv-3194-WJM-SKC

C/w Civil Action No. 19-cv-3360-WJM-SKC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

August 17, 2020

Judge William J. Martínez

ORDER GRANTING WATER RESOURCE GROUP'S MOTION TO COMPEL ARBITRATION AND MOTION FOR SUMMARY JUDGMENT

Before the Court are the following motions:

1. Plaintiff Stanek Holdco's Motion to Dismiss Defendant's Counterclaims (ECF No. 22);

2. Defendant Water Resources Group's Motion to Compel Arbitration and Stay Proceedings (ECF No. 24);

3. Plaintiffs Arguello and Stanek's Motion to Remand for Lack of Subject Matter Jurisdiction (ECF No. 68);

4. Plaintiffs Arguello and Stanek's Motion to Dismiss Defendant's Counterclaim for Failure to State a Claim Pursuant to Fed. R. Civ. P. 12(b)(6) (ECF No. 71);

5. Plaintiffs Arguello and Stanek's Motion to Dismiss Defendant's Amended Counterclaims for Failure to State a Claim Pursuant to Fed. R. Civ. P. 12(b)(6) (ECF No. 73); and

6. Defendant Water Resources Group's Motion for Summary Judgment (ECF No. 75).

I. FACTUAL BACKGROUND¹

A. Sale of Stanek Constructors

In late 2017 and early 2018, Stanek Holdco, Inc. ("Holdco") negotiated the sale of its construction company, Stanek Constructors, Inc. ("Stanek Constructors"), to Water Resources Group ("WRG"). (ECF No. 24 at 3; ECF No. 76 at ¶ 4.) At the time, Holdco was comprised of four individual shareholders, Robert Stanek ("Stanek"), Diane Stanek, Jerry Arguello ("Arguello"), and George Foote ("Foote"). (ECF No. 76 at ¶ 1.) Stanek and Arguello were the Chief Executive Officer and Chief Financial Officer, respectively, of Stanek Constructors. (ECF No. 76 at ¶ 3; ECF No. 86 at 5.)

On March 1, 2018, Holdco, WRG, and the four Holdco shareholders executed a Stock Purchase Agreement ("SPA") that transferred all of the issued and outstanding capital stock of Stanek Constructors to WRG for $2,222,525.46. (ECF No. 24 at 1; ECF No. 46 at 2; ECF No. 76-2 at 2.) On the same day, Stanek Constructors entered into separate employment agreements ("Employment Agreements") with three of Holdco's shareholders—Stanek, Arguello, and Foote—so that they would remain employed by Stanek Constructors after its sale to WRG. (ECF No. 76-2 at 27, 41, 55.)The Employment Agreements were attached to the SPA as Exhibit A. (See id. at 26.)

The Employment Agreements contain arbitration provisions that state in relevant part:

Arbitration. Any dispute arising out of or relating to this Agreement or the alleged breach of it, or the making of this Agreement, including claims of fraud in the inducement, shall be settled by binding arbitration. . . . Arbitration will be conducted pursuant to the provisions of this Agreement, and the Colorado District Rules of Civil Procedure, except as limited by this paragraph (c), unless such rules are inconsistent with provisions of this Agreement. . . .

(ECF No. 24 at 6; ECF No. 25-2 at § 12(c); ECF No. 76 at ¶ 34.)

B. Arguello and Stanek's Termination and Arbitration Proceeding

On April 1, 2019, Stanek Constructors terminated Arguello and Stanek's employment. (ECF Nos. 86-1, 86-2.) The termination letters state that

[p]ursuant to Section 3(c)(2)(i)(e) of the [Employment] Agreement, we hereby notify you that we are terminating your employment and the Employment Period for Misconduct, effective immediately. Among other reasons, you breached Section 4.9 (Absence of Material Adverse Changes) of that certain Stock Purchase Agreement dated effective as of March 1, 2018 between you, the Company and certain other parties thereto.

(ECF Nos. 86-1, 86-2.)

On September 30, 2019, Stanek and Arguello commenced an arbitration proceeding against Stanek Constructors for allegedly breaching their respective Employment Agreements. (ECF No. 76 at ¶ 34.) Thereafter, WRG attempted to assert a counterclaim in that arbitration proceeding, alleging that Stanek and Arguello fraudulently or negligently misrepresented (1) financial information relating to one of Stanek Constructors's key projects; and (2) Stanek Constructors's compliance with itsERISA obligations. (Id. at ¶ 36.) WRG further alleges that it was induced into entering into the SPA due to Stanek and Arguello's material misrepresentations. (Id. at ¶ 37.) Stanek and Arguello, however, dispute that they ever agreed to arbitrate with WRG. (Id. at ¶ 38.)

C. Holdco v. WRG Lawsuit

On November 11, 2019, Holdco filed a lawsuit against WRG, alleging that WRG failed to maintain the operations of Stanek Constructors as required under the terms of the SPA, which in turn prevented Holdco from earning and maximizing certain earnout payments that it was entitled to receive under the SPA. (ECF No. 1 at 1.) Holdco also alleges that Stanek Constructors terminated Stanek and Arguello on April 1, 2019 "without cause, and for the purpose of trying to avoid the Earnout Payments due by [WRG]." (Id. at 5, ¶ 23.) Holdco brings a single claim against WRG for breach of contract (see id. at 6-7, ¶¶ 25-32).

On December 26, 2019, WRG filed its Amended Answer and Counterclaim (ECF No. 23), asserting three counterclaims against Holdco: (1) that Holdco made fraudulent and/or negligent misrepresentations to WRG that induced WRG to enter into the SPA (see id. at 17-19, ¶¶ 37-53); (2) a request for a declaration that WRG's claims—that Holdco induced WRG to "enter into the transaction for the [SPA] and the Employment Agreements by fraudulently or negligently making material misrepresentations or omissions when entering into the [SPA], including [the Employment Agreements]"—are subject to arbitration under 9 U.S.C. §§ 3-4 (see id. at 19-20, ¶¶ 54-60); and (3) that Holdco breached the SPA (see id. at 20-21, ¶¶ 61-64).

On December 26, 2019, WRG filed a Motion to Compel Arbitration and StayProceedings. (ECF No. 24.) Holdco responded on January 28, 2020 (ECF No. 46) and WRG replied on February 14, 2020 (ECF No. 55).

Holdco moved to dismiss WRG's amended counterclaims on January 8, 2020. (ECF No. 28.) WRG responded on January 31, 2020 (ECF No. 50), and Holdco replied on February 14, 2020 (ECF No. 54).

D. Arguello et al v. WRG Lawsuit²

On November 12, 2019, Stanek and Arguello filed a separate lawsuit against WRG in Denver District Court, seeking a permanent injunction to prevent WRG from arbitrating its claims in Stanek and Arguello's arbitration proceeding against Stanek Constructors. (ECF No. 67.) They also seek an order that no arbitration agreement exists between them and WRG. (Id.)

WRG removed this action to federal court on November 27, 2019 and filed an Amended Notice of Removal on December 9, 2019. (ECF No. 61.) Arguello and Stanek moved to remand the case to state court on January 11, 2020. (ECF No. 68.) WRG responded on January 13, 2020 (ECF No. 69), and Arguello and Stanek replied on January 21, 2020 (ECF No. 70).

On March 11, 2020, WRG filed Amended Counterclaims against Arguello and Stanek. (ECF No. 72.) WRG alleges that during the negotiation of the SPA and the Employment Agreements, Stanek and Arguello fraudulently or negligently madematerial misrepresentations to WRG regarding the value and profitability of Stanek Constructors. WRG seeks (1) a declaratory judgment that WRG's claims are arbitrable (see id. at 10, ¶¶ 37-42); and (2) an order directing the parties to proceed to arbitration on WRG's claims under 9 U.S.C. § 4 (see id. at 10-11, ¶¶ 43-49.)

Stanek and Arguello moved to dismiss WRG's Amended Counterclaims on March 31, 2020. (ECF No. 73.) WRG responded on April 15, 2020 (ECF No. 74), and Arguello and Stanek replied on April 29, 2020 (ECF No. 78).

On April 16, 2020, WRG filed its Motion for Summary Judgment. (ECF No. 75.) Stanek and Arguello responded on May 28, 2020 (ECF No. 86), WRG replied on June 11, 2020 (ECF No. 88).

II. MOTIONS TO DISMISS WRG'S ORIGINAL COUNTERCLAIMS

After Holdco moved to dismiss WRG's original counterclaims (ECF No. 22), WRG filed an Amended Counterclaim in the lawsuit (ECF No. 23). By filing its Amended Counterclaims, WRG has rendered its original counterclaims moot. See Davis v. TXO Prod. Corp., 929 F.2d 1515, 1517 (10th Cir. 1991) ("It is well established that an amended complaint ordinarily supersedes the original and renders it of no legal effect."). Because there is no longer a live dispute about the merit of WRG's original counterclaims, Holdco's Motion to Dismiss those counterclaims is denied as moot. See Leveraged Innovations LLC v. BATS Exch., Inc., 2014 WL 11516547, at *1 (D. Kan. May 29, 2014) (denying plaintiff's motion to dismiss defendants' counterclaims as moot because defendants amended their counterclaims).

Stanek and Arguello's Motion to Dismiss WRG's original counterclaims (ECF No. 71) is likewise denied as moot because those counterclaims were superseded byWRG's Amended Counterclaims (ECF No. 72).

III. MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS

WRG asks the Court to compel Holdco to arbitrate WRG's Fifth Affirmative Defense³ and Count I of its Amended Counterclaims⁴ against Holdco under 9 U.S.C. §§ 2-4 and to stay the remaining claims in this action until the arbitration proceeding has concluded. (ECF No. 24 at 1.)

A. Legal Standard

Section 2 of the Federal Arbitration Act ("FAA") declares that a written agreement to arbitrate in any contract involving interstate commerce or a maritime transaction "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Section 4 of the FAA permits a party to an arbitration agreement to "petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement." Id. § 4. The Supreme Court has interpreted the FAA as "manifest[ing] a 'liberal federal policy favoring arbitration agreements.'" Gilmer v. Interstate/JohnsonLane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). "As with...