Opinion
C.A. KM-2019-0948 KM-2019-1047
03-16-2020
CANWELL, LLC, CANWELL PROCESSING (RI), LLC and CANWELL PROCESSING (ME), LLC, Petitioners, v. HIGH STREET CAPITAL PARTNERS, LLC, d/b/a ACREAGE HOLDINGS, INC., and as the Successor-in-interest to THE WELLNESS AND PAIN MANAGEMENT CONNECTION, LLC, and KEVIN MURPHY JOHN AND JANE DOES 1-20, Respondents. CANWELL, LLC, Petitioner, v. THE WELLNESS AND PAIN MANAGEMENT CONNECTION, LLC and Its Successor in Interest, HIGH STREET CAPITAL PARTNERS, LLC d/b/a ACREAGE HOLDINGS, INC., NORTHEAST PATIENTS GROUP d/b/a WELLNESS CONNECTION OF MAINE LLC, KEVIN MURPHY, and JOHN DOES 1-20, Respondents.
For Plaintiff: Vincent A. Indeglia, Esq. John C. Revens, Jr., Esq. William M. Russo, Esq. Thomas A. Tarro, III, Esq. For Defendant: Preston W. Halperin, Esq. Jeffrey S. Brenner, Esq.
"The long and winding road, that leads, to your door" The Beatles, 1970
For Plaintiff: Vincent A. Indeglia, Esq. John C. Revens, Jr., Esq. William M. Russo, Esq. Thomas A. Tarro, III, Esq.
For Defendant: Preston W. Halperin, Esq. Jeffrey S. Brenner, Esq.
DECISION
LICHT, J.
I. Introduction
The issue in this dispute is which door. In addition to these two petitions, two arbitrations, which the parties consented to, have been pending since October 2019, a case is pending in the Maine Superior Court, and a declaratory judgment action has been brought in Delaware. The facts of these petitions have been discussed at length in the Court's two prior decisions dated December 16, 2019 and January 29, 2020, and, thus, will not be repeated. As a result of those decisions, an Order and Judgment were entered in each case on March 5, 2020. This Court opened the door to arbitration but Respondents have filed Motions to Stay pending appeal of those judgments.
II. Standard of Review
Rhode Island Supreme Court Rule of Appellate Procedure 8(a) permits a trial court to hear a party's motion for a stay of enforcement pending an appeal of that trial court's decision. A stay pending appeal should not be granted unless the moving party "makes a 'strong showing that (1) it will prevail on the merits of its appeal; (2) it will suffer irreparable harm if the stay is not granted; (3) no substantial harm will come to other interested parties; and (4) a stay will not harm the public interest."' Town of North Kingstown v. International Association of Firefighters, Local 1651, AFL-CIO, 65 A.3d 480, 481 (R.I. 2013) (quoting Narragansett Electric Co. v. Harsch, 367 A.2d 195, 197 (R.I. 1976)). Although all four of the above-referenced factors should be considered, '"[they] are not prerequisites that must be met, but are interrelated considerations that must be balanced together."' Id. (quoting Service Employees International Union Local 1 v. Husted, 698 F.3d 341, 343 (6th Cir. 2012)).
"Whether the movant is likely to succeed on appeal is the 'sine qua non' of the standard governing rulings on motions to stay." Lawrence v. Western Mass. Blasting Corp., No. WC-2003-0600, 2013 WL 5526007, at *3 (R.I. Super. Oct. 01, 2013) (quoting International Association of Firefighters, 65 A.3d at 482); see also Providence Journal Co. v. FBI, 595 F.2d 889, 890 (1st Cir. 1979) (noting that "[a]ppellants are not, of course, entitled to a stay pending appeal without showing that their appeals have potential merit"). As a result, where the movant is unlikely to succeed on the merits, it must make a particularly strong showing on the other factors in order to tip the balance in favor of granting the stay. Id.
III. Motions to Stay
A. Likelihood of Success on the Merits
1. First Petition
Respondents argue that they will prevail on the merits of their appeal in four respects.
a. Hearing under G.L. 1956 § 10-3-5
Respondents argue that they were denied the evidentiary hearing that they were procedurally entitled to on the validity of the amended arbitration provision in the CanWell OAs pursuant to § 10-3-5. Section 10-3-5 states, in pertinent part: "[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the arbitration agreement is in issue, the court shall proceed summarily to the trial thereof."
It is well established that the raise-or-waive rule precludes a litigant from raising an issue if it was not first properly raised. Cusick v. Cusick, 210 A.3d 1199, 1203 (R.I. 2019). In the present case, Respondents never filed a motion pursuant to § 10-3-5 for an evidentiary hearing on the discrete issue of validity of the amended arbitration provision in the CanWell OAs prior to the entry of final judgment and, thus, the Court was never presented with a proper and timely mechanism to hold such a hearing. Respondents argue that "the matter leapfrogged from a petition to compel arbitration under § 10-3-4, to a motion to dismiss, to final judgment." Resp't Mem. in Supp. Of its Mot. To Stay, KM-2019-0948 (First Petition). This statement is ironic because Respondents filed the motion to dismiss, they submitted their own form of judgment, which was different from the Petitioners' form, and requested a hearing on the language.
In particular, Respondents contend that the Court could not make High Street Capital Partners, LLC d/b/a Acreage Holdings, Inc. (High Street/Acreage) submit to arbitration without such a trial. The Court finds that Respondents failed to preserve this argument on numerous occasions.
The two petitions describe this or these entities slightly differently. It was not clear if they are two distinct entities or one doing business as the other. The Court raised this issue with Petitioners at the hearing on which form of order and judgment to enter and did not receive a satisfactory answer from either party. Consequently, the Court will refer to them collectively as High Street/Acreage.
First, an Order was entered on October 25, 2019 in each case sending certain matters to arbitration. Respondents consented and never asked for language in that Order to exclude High Street/Acreage. Secondly, Respondents contended during oral argument on March 12, 2020 on their Motions to Stay that they were deprived of the opportunity to file a responsive pleading before final judgment was entered. They ignore the fact that their Motion to Dismiss was denied in the Court's decision dated December 16, 2019. That decision specifically instructed the parties to confer and present an order. No such order was presented until after the Court's next decision dated January 29, 2020. Nothing prevented Respondents from presenting a simple order indicating that their Motion to Dismiss was denied, which would have enabled them to file a responsive pleading. Moreover, since the Court's decision denying the Motion to Dismiss had been rendered, they could have filed a responsive pleading without an order.
Additionally, Respondents stood before this Court on March 4, 2020 to argue their proposed language for the judgment. Respondents could have, at any time during the March 4, 2020 hearing or prior thereto, requested the Court not enter final judgment so that they could file additional pleadings. It makes no sense that Respondents would propose a form of judgment, argue in favor of their proposed form, and now contend that they were deprived of the opportunity to present arguments prior to entry of that judgment.
Lastly, while Respondents may have mentioned the Court holding an evidentiary hearing in some of their memoranda, or oral argument, the Court responds to requests made by motion. It is not the Court's job to sift through the voluminous papers and assertions that Respondents have submitted in these matters and try to guess what Respondents want. As such, Respondents waived the issue of a hearing pursuant to § 10-3-5.
To support their position, Respondents, in their memoranda, have quoted what the Court said in prior hearings. First, those quotes are taken out of context. Furthermore, what may have been said by the Court in oral argument during dialogue with counsel at the various hearings is not the Court's rulings or findings and should not be relied on to support any parties' arguments. The Court's decisions form the basis of the Court's findings and rulings.
Furthermore, the Court questions whether the statute applies. In its January 29, 2020 Decision, the Court held that this matter is governed by the Federal Arbitration Act (FAA) because the CanWell OAs and the WPMC OA are contracts involving interstate commerce. See Canwell, LLC v. High Street Capital Partners, LLC, No. KM-2019-0948, KM-2019-1047, 2020 WL 547664, at *5, n.8 (R.I. Super. Jan. 29, 2020).
Insofar as Respondents assert that the FAA may not apply in state court proceedings, the United States Supreme Court has spoken on that question:
"We would expect that if Congress, in enacting the Arbitration Act, was creating what it thought to be a procedural rule applicable only in federal courts, it would not so limit the Act to transactions involving commerce. On the other hand, Congress would need to call on the Commerce Clause if it intended the Act to apply in state courts. Yet at the same time, its reach would be limited to transactions involving interstate commerce. We therefore view the "involving commerce" requirement in § 2, not as an inexplicable limitation on the power of the federal courts, but as a necessary qualification on a statute intended to apply in state and federal courts." Southland Corp. v. Keating, 465 U.S. 1, 14-15 (1984) (emphasis added).
Furthermore, there is no dispute that there is an agreement to arbitrate certain issues under the CanWell OAs; rather, the dispute is over the scope of that provision, which this Court has previously determined is for the arbitrator to decide under Delaware law. See Canwell, LLC, 2020 WL 547664, at **7-10. In fact, on October 8, 2019, with the assent of Respondents, certain matters were sent to arbitration as reflected in an Order dated October 25, 2019. Respondents have consistently agreed there are arbitration agreements. What they have vigorously disputed is which issues are arbitrable under those agreements. They produced pages and pages of argument contending that the Court, not a jury, must determine arbitrability and not the arbitrator. The Court concluded otherwise.
b. High Street/Acreage not a Party to Arbitration Agreement
Respondents assert that High Street/Acreage was ordered to arbitrate under the CanWell OAs, to which it is a non-signatory, absent a finding that High Street/Acreage is bound to so do. Respondents argue that High Street/Acreage cannot be compelled to arbitrate without the Court making the necessary finding that High Street/Acreage is WPMC's alter-ego. It is true that this Court previously held that whether High Street/Acreage is subject to arbitration is contingent upon whether it is found to be the alter-ego of WPMC. It is now disingenuous for Respondents to contend that, prior to arbitration, the Court should determine if High Street/Acreage is the alter-ego of WPMC. The Court notes that there is currently litigation pending in Delaware brought by High Street/Acreage to determine that exact issue. Placing that issue before this Court would be duplicative of that Delaware suit and may well be subject to estoppel or issue preclusion. High Street/Acreage cannot be compelled to arbitrate unless it is found to be WPMC's alter-ego. But who will decide that issue is for the arbitrator to decide. The arbitrator could conclude that the issue belongs in Delaware, just as he or she could conclude that the issues surrounding the noncompetition agreement should be decided in Maine. Alternatively, he or she could conclude that the issues are arbitrable. In any event, the determination of alter-ego status is not for this Court to make, nor does the first petition request that this Court make that finding, and Respondents never requested the Court decide that issue.
c. Deciding Substantive Arbitrability
Respondents submit that the issue of substantive arbitrability was for this Court, not an arbitrator, to decide. The Court has already heard and considered Respondents' arguments regarding substantive arbitrability, and it engaged in a lengthy analysis on that very issue in its January 29, 2020 decision. In that decision, the Court found that the arbitrator, not the Court, is to decide substantive arbitrability. A review of that discussion explains why, in the Court's mind, Respondents are unlikely to prevail on the merits of that issue on appeal. See Canwell, LLC, 2020 WL 547664, at **7-10. Moreover, Respondents have preserved their position for appeal and are free to argue, post-arbitrability determination, that the arbitrator did not have the authority to rule on substantive arbitrability. The Rhode Island Supreme Court has held:
"It is well settled in this jurisdiction that if a party objects to substantive arbitrability at the arbitration hearing and then proceeds to arbitration, the party has preserved the [substantive arbitrability] issue for later determination by a reviewing court . . . . Indeed, DOT was not required to object to substantive arbitrability at the arbitration hearing to preserve the issue for appeal. This is so because we deem the question of substantive arbitrability, the right to have the grievance heard in arbitration at all, [to be] the equivalent of subject matter jurisdiction in the courts . . . . Consequently, substantive arbitrability, like subject matter jurisdiction, can be raised at any time." Aetna Bridge Co. v. State Department of Transportation, 795 A.2d 517, 522-23 (R.I. 2002) (internal quotations omitted) (citations omitted).
d. Unenforceable Arbitration Provision
Respondents argue that the Court is compelling them to arbitrate under an arbitration provision that is invalid and unenforceable. Again, the Court addressed this issue in its January 29, 2020 decision. It expressly rejected Respondents' argument that "the amendment repealed the original arbitration clause and since the amendment was improperly adopted, Respondents in the First Petition might not be bound by the amended clause and, thus, not subject to arbitration at all." Canwell, LLC, 2020 WL 547664, at *8. What is more, this argument is immaterial for purposes of substantive arbitrability because the Court specifically found that if the adoption was improper, then the repeal of the original clause would be ineffective, and it would remain in effect. Importantly, this Court found that the result would be the same under either version of the CanWell OAs' arbitration provision. Id. at *9 ("no matter which version of the CanWell OAs' arbitration clause governs, the result is the same, and the arbitrator is to decide whether the ADA Disputes under the First Petition are arbitrable").
2. Second Petition
Concerning the Second Petition, Respondents WPMC and High Street/Acreage again argue that they are likely to succeed on the merits of their appeal because substantive arbitrability is for this Court, not the arbitrator, to decide. Respondent Northeast joins in this argument. They argue that the WPMC OA does not satisfy the first prong of Willie Gary because the arbitration clause does not "generally provide[] for arbitration of all disputes." James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 79 (Del. 2006). As previously stated, a review of the Court's January 29, 2020 decision explains why, in the Court's mind, Respondents are unlikely to prevail on the merits of that issue on appeal. See Canwell, LLC, 2020 WL 547664, at **7-10. Respondents rely, once again, on the same line of cases in arguing that there are dueling forum selection clauses, which this Court already addressed and distinguished from the case at bar. See id. at *7 (analyzing the applicability of Willie Gary and distinguishing the UPM-Kymmene Corp. v. Renmatix, Inc. line of cases).
Because the Court finds that Respondents failed to show a likelihood of success on the merits as to either petition, they "must make a particularly strong showing on the other factors in order to tip the balance in favor of granting the stay." Lawrence, 2013 WL 5526007, at *3 (citing International Association of Firefighters, 65 A.3d at 481).
a. Irreparable Harm, Substantial Harm to Other Interested Parties, and the Public Interest
'"Mere injuries, however substantial, in terms of money, time, and energy necessarily expended in the absence of a stay, are not enough' to meet the irreparable harm standard." Lawrence, 2013 WL 5526007, at *4 (quoting Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d 921, 925 (D.C. Cir. 1958)). "Rather, the movant must show that denial of the stay will upset the status quo, thereby causing it to take some irretrievable and inequitable action, whereas granting of a stay would cause 'relatively slight harm' to the opposing party." Id. (quoting Providence Journal Co., 595 F.2d at 890). Irreparable harm must be of a nature "that is presently threatened or imminent and for which no adequate legal remedy exists." Nye v. Brousseau, 992 A.2d 1002, 1010 (R.I. 2010) (internal quotation omitted).
Respondents WPMC and High Street/Acreage assert that they will suffer irreparable harm because, without a stay, Respondents will be compelled to arbitrate substantive arbitrability when they did not agree to do so, and High Street/Acreage will be compelled to participate in arbitration without a finding that it is the alter-ego of WPMC. As to High Street/Acreage, the arbitrator will determine whether the issue of an alter-ego relationship is subject to arbitration; this Court already held that whether the remaining issues are arbitrable is for the arbitrator to decide. If alter-ego status is not arbitrable, then High Street/Acreage can pursue that issue in the Delaware case, which is already pending. As for Respondent WPMC, who is a signatory to the CanWell OAs and the WPMC OA, the operative agreements contemplate arbitration of disputes between the parties in Rhode Island, and WPMC is already arbitrating issues arising thereunder. WPMC knowingly and voluntarily signed the CanWell OAs and WPMC OA and agreed to go to arbitration; it cannot now argue irreparable harm by arbitrating in Rhode Island when the parties had contemplated such an occurrence and have already begun arbitrating pursuant to these agreements. Whether the Alternative Dosage Agreement Disputes (ADA Disputes) fall within the scope of those arbitration provisions is for the arbitrator to decide, and the arbitrator could very well determine that none of these disputes are arbitrable and they should be litigated in the courts of Maine.
Respondent Northeast argues that it will suffer irreparable harm by "forcing" Northeast, a company with no presence outside Maine, to arbitrate in Rhode Island. This argument fails. The Court, in its December 16, 2019 decision, denied Northeast's Motion to Dismiss pursuant to Super. R. Civ. P. 12(b)(1), delineated all the ties that Northeast has to Rhode Island, and found that those contacts were sufficient to warrant personal jurisdiction over Northeast in Rhode Island. Moreover, the basis for ordering Northeast to arbitrate in Rhode Island is the WPMC OA, of which Northeast is a signatory, which specifically states that Northeast "consents to the jurisdiction and venue of the courts of the State of Rhode Island." 2015 WPMC OA § 16.3.
The Court has stated that Northeast's extensive participation in this litigation is not a basis for conferring jurisdiction in Rhode Island. However, that does not alter its position that jurisdiction lies pursuant to its reasoning in its December 16, 2019 decision.
In the present case, none of the parties in this case would be irreparably harmed by submitting to an arbitration proceeding to determine which disputes are in fact arbitrable. Respondents have preserved their ability to challenge any subsequent arbitration award based on arguments of substantive arbitrability. See Aetna Bridge Co., 795 A.2d at 522-23. Thus, the Respondents' assertion of irreparable harm rings hollow. They concede that arbitrability must be determined. They just do not like the forum that the Court ordered. But the underlying issue of arbitrability will be determined no matter what. Moreover, the parties are already involved in two arbitration proceedings relevant to this matter, and arbitrating arbitrability will merely keep the parties on the same course they are currently on. In this case, denial of Respondents' motions would not force Respondents to take any steps other than those already taken and "necessarily expended" in the regular course of litigation. Virginia Petroleum Jobbers Association, 259 F.2d at 925. Further, the parties are not being forced to arbitrate the ADA Disputes because the arbitrator has not made such a finding yet. As such, whatever harm Respondents allege is not "presently threatened or imminent." Nye, 992 A.2d at 1010. Pursuant to the October 25, 2019 Orders, the parties consented to arbitrate some issues. The arbitration of those issues will elicit many of the same facts that will be necessary to decide the issue of arbitrability. To stay the arbitration would cause unnecessary duplication of effort.
Furthermore, granting the stay would cause harm to other interested parties, to wit, the Petitioners. Petitioners' case has been pending for months, and a stay in the proceedings at this point would only further delay the resolution of their claims. Providence Journal Co., 595 F.2d at 890; see also Faerber v. Cavanagh, 568 A.2d 326, 330 (R.I. 1990) (approving of the trial court's denial of a motion that would have caused "excessive delay" and "substantial prejudice to the plaintiff"). Also, according to Petitioners, they will suffer irreparable harm by Respondents' ongoing deprivation of substantial monies, which were contractually bargained in the form of royalty payments. Equity and judicial economy lean in favor of moving toward a resolution of these disputed issues.
For these reasons, Respondents do not make a strong showing of the second and third factors of the motion to stay standard.
Lastly, the Court looks to whether the issuance of the stay itself would cause harm to the public interest. See Braintree Laboratories Inc. v. Citigroup Global Markets Inc., 622 F.3d 36, 45 (1st Cir. 2010). "When uncertainty exists about whether a dispute is arbitrable, this Court, like the United States Supreme Court, 'has enunciated a policy in favor of resolving any doubt in favor of arbitration.'" School Committee of Town of North Kingstown v. Crouch, 808 A.2d 1074, 1078 (R.I. 2002) (quoting Brown v. Amaral, 460 A.2d 7, 10 (R.I. 1983)). Moreover, the public interest is not served by further delaying the resolution of these claims on the merits. Litigation and/or arbitration has been pending in three different states for over six months. Numerous hearings have been held, and mountains of paper have been submitted without any movement toward a determination of the proper for a to decide the merits. It is in the public interest to have that issue decided sooner rather than two or more years from now.
IV. Conclusion
Because Respondents have not demonstrated a strong showing of success on appeal, they were required to make a strong showing of irreparable harm, which they failed to do. As a result, Respondents have not shown to this Court's satisfaction that the balance of the factors weighs in favor of granting a stay. Pursuant to this Court's previous decision finding that the threshold question of substantive arbitrability is for the arbitrator to decide, the Court declines to issue a stay and the Respondents' respective motions are denied. Counsel shall confer and present an order.