United States District Court, E.D. Kentucky, Central Division, Lexington
JAMES T. SCATUORCHIO RACING STABLE, LLC, et al., Plaintiffs,
WALMAC STUD MANAGEMENT, LLC, et al., Defendants.
MEMORANDUM OPINION AND ORDER
DANNY C. REEVES, District Judge.
Defendants Walmac Stud Management, LLC ("Walmac Stud"); Walmac Farm, LLC ("Walmac Farm"); Lincoln-Walmac Associated Farm Pty Ltd. ("Lincoln-Walmac"); John T.L. Jones III ("Jones"); and Saybrook Advertising, LLC's ("Saybrook") have moved the Court to compel arbitration and reconsider and amend an earlier Amended Memorandum Opinion and Order. [Record No. 131] They contend that findings made during discovery require that the claims against Walmac Farm and Saybrook be subject to arbitration. Specifically, the defendants seek to compel arbitration of the accounting and fraud claims against Walmac Farm (Counts Nine and Ten of the Second Amended Complaint) as well as the fraud claim against Saybrook, (Count Nine).
Plaintiffs James T. Scatuorchio, LLC ("Scatuorchio, LLC"), Kevin Scatuorchio, and Courtney Sullivan have also moved the Court for leave to file a Third Amended Complaint for the purpose of adding claims against Defendants Walmac Farm, Lincoln-Walmac, and Saybrook. [Record No. 133] For the reasons discussed below, the Court will grant the defendants' motion to reconsider and compel arbitration, but will deny the plaintiffs' motion to amend.
The factual and procedural history of this matter is lengthy and complicated. [ See Record Nos. 103, 127.] In pertinent part, this action arises from a series of contracts relating to the purchase and breeding of the thoroughbred stallion Ready's Image which is currently co-owned by Plaintiffs Scatuorchio, LLC, James T. Scatuorchio, Kevin Scatuorchio, Courtney Sullivan, and Bryan Sullivan, and a number of the defendants. The plaintiffs' Complaint is predicated upon the alleged "dishonest and fraudulent" manner in which the defendants managed the stud career of Ready's Image and breach of a number of written contracts between the plaintiffs, Walmac Stud, Walmac Farm, and other defendants.
In October 2008, Scatuorchio, LLC, Kevin Scatuorchio, and Courtney Sullivan sold a two-thirds undivided interest in Ready's Image to Walmac Stud for $2.4 million. The transaction was memorialized in a "Sale Agreement." [Record No. 72, ¶¶ 32, 47] In addition to the Sale Agreement, the co-owners of Ready's Image, including Defendant Walmac Stud and Plaintiffs Kevin Scatuorchio, Courtney Sullivan, and James T. Scatuorchio, LLC, by its member James Scatuorchio, executed a Stallion Co-Ownership Agreement ("COA").
One purpose of the COA was to establish the terms and conditions of the parties' relationship as co-owners of Ready's Image. Under the COA, Walmac Stud was named as the "Stallion Manager" and would be responsible for the day-to-day management of Ready's Image and "procuring business for the syndicate in the form of mare owners paying to breed their mares to Ready's Image." [Record No. 109, p. 5; Record No. 72 ¶ 39] As Stallion Manager, Walmac Stud had broad responsibilities for the supervision and management of the stallion, including setting the stallion service fee; determining the number of times the stallion was to be bred; marketing and selling all nominations; collecting the proceeds from the sales; paying expenses; and distributing net income or billing for net expenses to the owners. [Record No. 72-1, pp. 8-20; see also Record No. 133-1, p. 3.] The plaintiffs contend that as the Stallion Manager, not only was Walmac Stud a co-owner, but also an agent of the co-owners. [ See, e.g., Record No. 133-1, p. 3.]
The COA contains an arbitration provision that states, in pertinent part:
7.16 Arbitration. If a disagreement exists among the Co-Owners or between one or more of the Co-Owners and the Stallion Manager concerning READY'S IMAGE or relating to the relationships, rights, duties, or obligations hereunder (a "Dispute"), any one of the disputants may require the other parties to submit the Dispute to arbitration if good faith negotiations among the parties do not resolve the Dispute.
[Record No. 72-1, p. 33] The scope of this provision has been a hotly contested issue throughout the course of this litigation.
The plaintiffs initiated this action in New Jersey state court whereupon the defendants removed the case to the District Court of New Jersey. [ See Record No. 1] Once in a federal forum, the defendants renewed their motion to dismiss, arguing that all of the plaintiffs' claims are subject to the arbitration provision of the COA, as well as other alternative dispute resolution provisions outlined in a number of the parties' other contracts. [Record No. 19] However, before ruling on the merits of the defendants' motion, this matter was transferred to the United States District Court for the Eastern District of Kentucky and assigned to (now retired) United States District Court Judge Jennifer Coffman. [Record Nos. 28, 29, 30]
Following transfer, the defendants moved to again renew their motion to dismiss in favor of arbitration (a motion which had not yet been addressed on its merits). [Record No. 31] Following oral arguments and briefing, Judge Coffman concluded that the COA contains a legally binding arbitration provision. She next addressed the scope of the COA's arbitration provision finding that, given the "expansive arbitration provision as well as the policy favoring arbitration as to doubts regarding the scope of an arbitration provision, all of the plaintiffs' claims except counts 3, 6, and parts of 8 and 14 will be submitted to arbitration." [Record No. 86, p. 10] However, Judge Coffman further concluded that the defendants failed to demonstrate that the non-signatory parties, including, in part, Bryan Sullivan, Saybrook, Walmac Farm, and Lincoln-Walamc are bound by the arbitration provision of the COA. [ Id., p. 15 (noting that although non-signatories may be bound to an arbitration provision of a contract, it must be demonstrated that the non-signatories were "third party direct beneficiaries" to the contract) (citing Olshan Found. Repair & Waterproofing v. Otto, 276 S.W.3d 827, 831 (Ky. Ct. App. 2009)] Thus, Judge Coffman determined that only James T. Scatuorchio, LLC, Walmac Stud, John T.L. Jones, III, James Scatuorchio, Kevin Scatuorchio, and Courtney Sullivan "are bound to arbitrate the claims brought against them which fall under the scope of the COA arbitration provision." [ Id., p. 16]
Notwithstanding the above ruling, the parties disagreed regarding the extent to which claims remained before the Court and which were sent to arbitration. [Record No. 96] The parties each filed Position Statements which the Court treated as a joint motion to clarify. [Record Nos. 98, 99, 102] On January 2, 2013, the Court issued an Amended Memorandum Opinion and Order clarifying that, although the certain claims against Jones and Walmac Stud were subject to arbitration, the same claims against Walmac Farm and Saybrook were not arbitrable because they were not a signatory to the agreements. [Record No. 103] Specifically, the Court concluded that, despite being based on the same allegations, the plaintiffs' accounting claim against Walmac Stud and Jones would be sent to arbitration, while the accounting claim against Walmac Farm, Lincoln-Walmac, and Saybrook would remain before the Court. Likewise, the plaintiffs' fraud claim (again, based on the same allegations) was ordered to arbitration against Walmac Stud and Jones, but remained before the Court as it pertained to Walmac Farm and Saybrook.
Following Judge Coffman's retirement, this matter was reassigned to the undersigned on January 9, 2013. Upon reassignment, the Court entered a Scheduling Order and discovery progressed. It should come as no surprise that the defendants now request the Court to reconsider Judge Coffman's prior decision regarding the arbitrability of their claims. [Record No. 131]
The defendants contend that recent discovery responses have made it clear for the first time that the claims against Walmac Farm and Saybrook are being asserted on the basis that they "are agents of, conspirators with, and alter-egos of" Walmac Stud and Jones "for wrongdoing under the [COA]." [Record No. 131-1, pp. 1-2] Thus, they maintain that arbitration of the fraud claim against Saybrook (Count Ten) and the accounting and fraud claims against Walmac Farm (Count Nine and Ten, respectively) are necessary. The plaintiffs argue that, because defendants have failed to demonstrate that their motion to reconsider is warranted, the Court need not reach the substance of their claims. [Record No. 140, pp. 1-2] Further, they contend that even if the Court reconsiders the merits of the defendants' arguments, both the plain language of the arbitration clause of the COA and the defendants' alleged wrongful conduct preclude a different result. [ Id. ]
A. Motion to Reconsider
"District courts have inherent power to reconsider interlocutory orders and reopen any part of a case before entry of a final judgment." In re Saffady, 524 F.3d 799, 803 (6th Cir. 2008); see also Rodriguez v. Tennessee Laborers Health & Welfare Fund, 89 F.App'x 949, 959 (6th Cir. 2004) ("District courts have authority both under common law and Rule 54(b) [of the Federal Rules of Civil Procedure] to reconsider interlocutory orders and to reopen any part of a case before entry of final judgment."). "A district court may modify, or even rescind, such interlocutory orders." Mallory v. Eyrich, 922 F.2d 1273, 1282 (6th Cir. 1991); Leelanau Wine Cellars Ltd. v. Black & Red, Inc., 118 F.App'x 942, 946 (6th Cir.2004). The Court has "significant discretion" in considering a motion to reconsider an interlocutory order and, "[t]raditionally, courts will find justification for ...