United States District Court, N.D. Texas, Dallas Division
MARK P. HURLEY and JA BROOKVIEW LLC, Plaintiffs,
EMIGRANT BANK, HOWARD MILSTEIN, BARRY FRIEDBERG, ALAIN LEBEC, JOHN SANDERS, GREGG FRIEDMAN, and KARL HECKENBERG, Defendants.
MEMORANDUM OPINION AND ORDER
J. BOYLE UNITED STATES DISTRICT JUDGE
the Court is Defendants' Motion to Compel Arbitration and
Stay Proceedings (Doc. 31). After reviewing the parties'
briefing and applicable law, the Court
GRANTS the motion.
dispute arises from the aftermath of a company's forced
sale and subsequent purchase. The company, Fiduciary Network,
LLC, was a joint venture between Mark P. Hurley and EB Safe,
LLC. Doc. 1, Notice of Removal, 2. Hurley and EB Safe formed
Fiduciary Network to provide long-term financing for wealth
management firms. Id. Fiduciary Network is governed
by an LLC Agreement. The question before the Court is whether
an arbitration provision in this Agreement can be relied upon
by the Defendants in this case, who never signed the
Agreement, to compel arbitration against Hurley, who did sign
the Agreement. But before turning to that issue, the Court
introduces the parties and entities that are involved in this
case is brought by Mark Hurley and his LLC, JA
Brookview. Doc. 28, Am. Compl., 1. In 2006, Hurley
and EB Safe LLC cofounded Fiduciary Network. Doc. 34, Mot. to
Compel, 2. EB Safe is a wholly owned subsidiary of Emigrant
Bank, a private depository institution. Doc. 28, Am. Compl.,
¶ 16. Emigrant Bank is owned and operated by Howard
Milstein. Id. Hurley and Milstein negotiated the LLC
Agreement that formed Fiduciary Network. Id. ¶
17. At the times relevant to this lawsuit, Fiduciary Network
had a seven-member board: EB Safe controlled five of the
seats and Hurley controlled two. Id. EB Safe
appointed as directors Barry Friedberg, Alain Lebec, John
Sanders, Gregg Friedman, and Karl Heckenberg (referred to
together as, “director Defendants, ” below).
arrangement was that EB Safe provided the capital to start
Fiduciary Network, while Hurley managed the day-to-day
operations. Id. at 2-3. EB Safe received a 75%
membership interest, while Hurley and his management team
received the remaining 25%. Id. at 6-7. Hurley
retained around 19% for himself and his related
entities. Doc. 34, Defs.' Br., 3 (citing Ex. 14
to Doc. 28, Am. Compl.).
amended complaint goes on to detail the tumultuous history of
Fiduciary Network, which ultimately led to a forced-sale
process that Hurley triggered under the LLC Agreement. The
Court need not wade into these allegations to resolve this
motion. Suffice to say, the LLC Agreement provided Hurley
with the right to initiate a forced sale of his membership
interest in Fiduciary Network. Doc. 41, Pls.' Resp., 3
(citing Ex. 14 to Doc. 28, Am. Compl.). And EB Safe was given
a right of first refusal where it could buy Hurley's
membership interest at the end of the sales process if it
matched the price of the highest bidder. Id. Hurley
triggered his forced-sale right in November 2016.
Id. This started the sales process under which a
third-party investment banker was selected to solicit bids
and maximize the value of membership interests. Id.
Ultimately, on November 20, 2018, the sales process closed,
and EB Safe exercised its right of first refusal to purchase
Hurley's membership interest. Id. at 4. EB Safe
then terminated Hurley as CEO. Id.
alleges that EB Safe “engaged in numerous wrongful
acts” to either stop the sales process or to
artificially lower the price of Hurley's membership
interest so that it could make a matching bid at the end of
the sales process. Id. at 3. As Hurley puts it,
Milstein led “a multi-year scorched-earth campaign . .
. to wrest control of a once-successful business (for pennies
on the dollar) by disrupting its contractual relationships
and disparaging its founder.” Doc. 28, Am. Compl., 1.
Hurley's specific claims here essentially stem from this
not the first action the parties have brought that relates to
this dispute. It started in December of 2017, when EB Safe
commenced an arbitration proceeding against Hurley, seeking
to preclude Hurley from bidding on his own membership
interest in the sale process. Doc. 41, Pls.' Resp., 3. At
some point during that proceeding, EB Safe's board
attempted to suspend Hurley as CEO pending an investigation
related to Hurley's personal affairs. Id. at
3-4. Hurley challenged his suspension in the arbitration and
won. Id. EB Safe then filed an emergency petition in
New York state court, arguing that the arbitration panel
exceeded its authority in granting Hurley's request for
relief because it improperly extended its jurisdiction to
matters concerning EB Safe's directors. Id. The
New York court rejected this argument. Id.
Fiduciary Network brought its own suit against Hurley in New
York state court. Id. at 5. Fiduciary Network
claimed that Hurley was not entitled to indemnification for
attorneys' fees and costs associated with defending
against his investigation and suspension. Id.
Fiduciary Network also claimed Hurley was interfering with
its current and prospective business relations through the
sales process. Id. Specifically, Fiduciary Network
claimed that Hurley triggered the sales process to find a new
financing partner that he could partner with. Id.
But once it was clear he wouldn't be the highest bidder,
Hurley allegedly attempted to intimidate portfolio companies
from working with Fiduciary Network. Id.
subsequently removed the action to the Southern District of
New York. See Fiduciary Network LLC v. Hurley, Civ.
Action No. 1:19-cv-0379-GHW (S.D.N.Y. Jan. 14, 2019). That
case is still pending.
then we get to the case before the Court. Hurley filed his
original petition in this case on December 7, 2018, in Texas
state court. Doc. 1, Notice of Removal, 1-2. That petition
named as defendants Emigrant Bank, Milstein, and the other EB
Safe directors listed above. Id. The petition also
named EB Safe as a defendant and brought derivative claims on
behalf of Fiduciary Network. Id. The petition
alleges the following claims:
1. Tortious Interference with Prospective Business Relations
(against EB Safe);
2. Derivative Claim for Tortious Interference (against EB
Safe, Emigrant Bank, and Milstein);
3. Defamation Per Se;
4. Business Disparagement;
5. Derivative Claim for Breach of Fiduciary Duty (against
Freidberg, Lebec, Sanders, Freedman, Heckenberg, and against
EB Safe, Emigrant Bank, and Milstein); and
6. Civil Conspiracy (against EB Safe, Milstein, Friedberg,
Lebec, Sanders, Freedman, and Heckenberg).
Id. at 3. On January 3, 2019, Defendants removed to
this Court on the basis of diversity. Id.
on January 10, 2019, Defendants filed a motion to compel
arbitration and stay proceedings based on the arbitration
clause in the Fiduciary Network LLC Agreement. Doc. 6, Mot.
to Compel. Instead of filing a response, Plaintiffs chose to
amend their complaint. See Doc. 28, Am. Compl. In
their amended complaint, Plaintiffs no longer name EB Safe as
a Defendant. In fact, Plaintiffs have seemingly removed all
allegations and references related to EB Safe and instead
attribute their previous allegations to Emigrant Bank and the
other Defendants. Plaintiffs have also removed any derivative
claims on Fiduciary Network's behalf.
then filed a renewed motion to compel arbitration based on
the allegations in the amended complaint. Doc. 31, Mot. to
Compel. All briefing has been submitted, and the motion is
now ripe for the Court's consideration.
enacting the Federal Arbitration Act (FAA), “Congress .
. . expressed a strong policy favoring arbitration before
litigation.” J.S. & H. Constr. Co. v. Richmond
Cty. Hosp. Auth., 473 F.2d 212, 214-15 (5th Cir. 1973).
Under the FAA, “[a] written provision in any . . .
contract evidencing a transaction involving commerce to
settle by arbitration a controversy thereafter arising out of
such contract or transaction . . . shall be valid,
irrevocable, and ...