Zhao v. Metals Trading Corp.
| Decision Date | 04 February 2020 |
| Docket Number | FSTCV196042813S |
| Court | Connecticut Superior Court |
| Parties | Guoliang Zhao, Individually and Derivatively on Behalf of Metals Trading Corporation et al. v. Metals Trading Corporation et al. |
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Sommer, Mary E., J.
DECISION RE MOTION TO COMPEL ARBITRATION AND FOR A STAY PENDING ARBITRATION BY DEFENDANT METALS TRADING CORPORATION’S [#107.00]
Plaintiffs Guoliang Zhao ("Zhao") and Fabio Calia ("Calia") (Zhao and Calia, collectively "Plaintiffs"), both former executives of the Gerald Group, commenced this action by complaint dated June 27, 2019, seeking damages against the defendants as a result of their failure to pay sums allegedly due to each of the plaintiffs under promissory notes dated December 12, 2012. On August 29, 2019 motion of Metals Trading Corporation ("MTC") to compel arbitration and to stay this action pending the completion of arbitration (the "Motion"). The plaintiffs have filed a memorandum in opposition to the motion to compel arbitration dated September 16, 2019. The defendants filed a reply memorandum on September 29. 2019. The parties argued the motion before the court at short calendar on October 7, 2019.
In their complaint the plaintiffs allege that the defendants engaged in a series of actions designed for the purpose of avoiding their payment obligations to them while misappropriating to themselves hundreds of millions of dollars from the employee shareholders of the defendant Metals Trading Corporation ("MTC"). MTC is an employee owned holding company that controlled Gerald Group, which was a Stamford-based mining and metals trading company until its recent move overseas. The plaintiffs allege that the defendants accomplished this through a stock dilution and a series of fraudulent transfers to shell companies, using the money and assets of the company and therefore, that of the shareholders. The plaintiffs further allege that the defendants forced former director-shareholder Zhao to terminate his employment with the company in August 2017 and the plaintiff Calia to terminate his employment with the company in 2015. In the case of Zhao, they promised to purchase his shares in exchange for his silence. Neither Zhao nor Calia, like other shareholders, was ever paid the monies owed him. The defendants seek an order compelling plaintiff Zhao to submit to arbitration and a corresponding order to stay litigation by Zhao and Calia. The defendants also filed a motion to dismiss which had not been argued at the time tis motion appeared on short calendar.
MTC’s Motion seeks different relief against each of the two Plaintiffs. First, it asks this court to compel Zhao to arbitrate all of his claims in this action, effectively foreclosing his right to prosecute any claim against the defendants in this court. Second, it asks the court to stay prosecution of all of Calia’s claims pending the filing and completion of Zhao’s arbitration of his claims against Defendants. The court has reviewed the pleadings and the memoranda submitted by the parties and considered the arguments presented by both sides to the court: The following is the court’s analysis and its decision.
The motion to compel arbitration must be viewed in light of the express terms of the arbitration agreement itself. The defendant claims that it is entitled to arbitration of all plaintiff Zhao’s claims because he signed an agreement to arbitrate all claims. The plaintiff Zhao acknowledges that the agreement which contains language requiring arbitration, he does not agree-that the agreement precludes him from bringing the claims in his complaint to this court: In short, Zhao maintains that he never signed an arbitration agreement that required him to arbitrate the claims asserted in this action; to the contrary, the provision in question specifically excludes these claims from arbitration. MTC’s motion against Calia faces the following claims in opposition: (1) Calia did not sign any arbitration agreement and his claims are predicated on different documents, (2) MTC cites no authority for the extraordinary remedy of staying the claims of an unwilling non-signatory to an arbitration agreement pending an arbitration between other parties, and (3) even if the court had the authority to impose such a stay under these circumstances, there is no prudential reason to do so here.
As noted above, this is an action by Zhao and Calia to collect monies owing to them by MTC in the face of alleged concerted, wrongful acts by defendants to evade these payment obligations. Zhao and Calia are similarly-situated former employees of Gerald Group, of which MTC is or was the holding company; they both allege that they are victims of defendants’ illegal scheme but are otherwise unrelated, and as set forth more fully in their complaint, they have brought these claims together in this forum as a matter of convenience, efficiency, and the conservation of judicial resources.
The complaint alleges a wide-ranging scheme in which defendants allegedly misappropriated funds and assets ultimately belonging to MTC and thus, its shareholders, and transferred them to other entities and persons in derogation of plaintiffs’ rights. As a result, plaintiffs have asserted claims against MTC, their contractual counter-party, as well as against numerous other persons and entities that have participated in this scheme.
The plaintiff notes, and it is not disputed, that three of the four agreements at issue have no arbitration clause at all. As to the fourth agreement, the plaintiff argues that the arbitration provisions specifically exclude the claims which the plaintiff Zhao is making in the complaint. The two December 19, 2012 Dividend Promissory Notes issued by MTC to each plaintiff; which’ are Exhibits B and C to the complaint, do not contain-an arbitration provision.
As alleged in the complaint and supported by attached exhibit D, the Amended and Restated Stockholders’ Agreement, dated as of November 6, 2013 ("Stockholders Agreement"), among MTC, plaintiffs, and various other shareholders also does not contain any reference to arbitration. As further alleged in the complaint, in 2011, concomitant with his exit from the company, Zhao (along with his wife and a family trust) and MTC (along with a related entity, Gerald Metals, LLC), entered into a Stock and LLC Membership Interest Repurchase and Severance Agreement ("Repurchase Agreement"). Zhao’s Repurchase Agreement is the only agreement at issue containing an arbitration provision, i.e., the one quoted in full above and selectively quoted in MTC’s motion to compel arbitration. The Repurchase Agreement is Exhibit E to the Complaint. Calia never entered into a similar agreement.
Neither plaintiff has ever received even a single payment under the Dividend Promissory Notes, the Stockholders Agreement, or the Repurchase Agreement. To the contrary, the plaintiffs argue that defendants have engaged in a concerted scheme to enrich themselves at plaintiffs’ expense by totally avoiding their payment obligations under these agreements. Accordingly, Plaintiffs have commenced this action in which they claim that they are entitled to relief from defendants’ willful breaches and misconduct. The following is an analysis of the facts as related to the motion to compel arbitration and stay litigation.
First, the agreement which Zhao did sign containing an arbitration provision must be read in its entirety. The subject arbitration provision contains an express exclusion carving out the claims he brings in this action, i.e.," ... claims ... to enforce payment obligations owed to it." MTC’s motion ignores this language although the complaint twice quotes the language of this express exclusion. MTC has deliberately excluded this phrase from the purported block quotation of the "relevant part" of the "mandatory arbitration clause" by omitting, without reference, the sentence containing the express exclusion is incomplete and the defendants have failed to present the actual arbitration language which the court must evaluate. The full arbitration provision, with the sentence omitted by MTC indicated in italics, states:
Any dispute, controversy or claim arising out of or relating to this Agreement or the performance by the parties of its or their terms, shall be settled by binding arbitration held in Stamford, Connecticut, administered by the American Arbitration Association under its Commercial Arbitration Rules then in effect. The Seller agrees that arbitration shall be the exclusive forum for the adjudication of all such claims, that the Seller waives the right to file suit in court (other than to enforce the results of the arbitration), and that the Seller shall be precluded from bringing suit in court with respect to any claim(s) that was or could have been brought pursuant to this section, other than pursuant to Section 7(c) below or to enforce payment obligations owed to it.
Thus, as set forth in greater detail below and entirely omitted from MTC’s Motion, the agreement to arbitrate is only mandatory for claims "other than ... to enforce payment obligations" to Zhao. In this action, Zhao’s claims seek to enforce such payment obligations. Plaintiffs allege that MTC has breached its obligations to pay them millions of dollars, and that defendants have engaged in a course of misconduct and wrongdoing both to manufacture false grounds for refusing to pay and to prevent enforcement of MTC’s payment obligations by placing MTC’s assets beyond plaintiffs’ reach. As summarized in paragraph 12 of the complaint:
Thus, as set forth in detail below, Defendants engaged...
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