Loewen v. McDonnell, III
- Yvonne Rogers
- 4:19-cv-00467
- U.S. District Court · Northern District of California
- 9
In Loewen v. McDonnell, Judge Rogers compelled arbitration, denied dismissal, and stayed the case pending arbitration.
Kathryn Loewen and the defendants are affected because their court case is stayed and the dispute must proceed through arbitration; the arbitrator, rather than the court, will decide the agreement’s validity and scope.
What happened
Kathryn Loewen sued John McDonnell, III, and others, alleging they conspired to take control of her startup company, Control Mobile, Inc. The defendants argued that the claims were connected to a shareholder agreement requiring arbitration.
The court ruled that the agreement’s arbitration rules clearly gave the arbitrator authority to decide whether the agreement was valid and covered Loewen’s claims. The court therefore granted the motion to compel arbitration, denied the motion to dismiss, and stayed the case while arbitration proceeds.
Judge Yvonne Gonzalez Rogers also ordered the parties to file a status report before a scheduled compliance hearing, unless the hearing was taken off the calendar because arbitration was complete.
The detailed version
- Loewen v. McDonnell, III · No. 4:19-cv-00467
- Yvonne Rogers
- Sept. 13, 2019
Background
Kathryn Loewen alleged that defendants John McDonnell, III; The McDonnell Group, LLC; John “Jack” McDonnell II; Tony VanBrackle; Michael Bradley; Gary Bender; and Carneros Bay Capital LLC conspired to take her startup, Control Mobile, Inc., and its assets. She alleged that certain defendants breached fiduciary duties owed to her and Control and that other defendants aided and abetted those breaches.
The dispute involved Control’s March 19, 2015 Amended and Restated Shareholder Agreement. The agreement required disputes involving its interpretation, amounts due under it, or its breach, termination, or invalidity to be resolved through arbitration under the International Commercial Arbitration Rules of the Procedure of the British Columbia International Commercial Arbitration Centre.
Delegation of arbitrability questions
The incorporated arbitration rules stated that the arbitral tribunal “may rule on its own jurisdiction,” including objections concerning the existence or validity of the arbitration agreement. The defendants argued that incorporating those rules clearly and unmistakably delegated questions about arbitrability to the arbitrator. Loewen argued that the word “may” was permissive and did not require the court to delegate those questions.
The court adopted the view that incorporating rules empowering an arbitrator to decide arbitrability is clear and unmistakable evidence of an agreement to delegate those questions, even when the rules use the word “may.” The court held that whether the shareholder agreement was valid and whether the dispute fell within its scope were questions for the arbitrator, not the court. The opinion also states that Loewen’s remaining arguments concerning survivability, waiver, and unclean hands would be decided by the arbitrator.
Rulings and case status
The court granted the defendants’ motion to compel arbitration and denied their motion to dismiss. Because the court did not decide the gateway questions of arbitrability itself, it found dismissal at that stage inappropriate. The court also ordered that the action be stayed pending the completion of arbitration.
The court set a compliance hearing for January 17, 2020, and required the parties to file a joint statement about the status of arbitration five business days before the hearing. If compliance was complete, the parties did not need to appear and the hearing would be removed from the calendar.
Read the full 9-page opinion on CourtListener, the free public archive maintained by the Free Law Project.