Hennepin County District Court File No. 27-CV-11-12611
John J. Steffenhagen, Hellmuth & Johnson, Edina, Minnesota (for respondent)
Charles J. Schoenwetter, Bowman and Brooke LLP, Minneapolis, Minnesota (for appellants)
Considered and decided by Smith, Presiding Judge; Worke, Judge; and Rodenberg, Judge.
Appellants challenge the district court's denial of their motion to dismiss based upon its finding that they had waived any contractual right they may have had to demand arbitration under a consulting agreement between respondent and a corporation owned by the parties. We affirm and grant respondent's motion to strike section II.E.3 of appellants' brief.
Respondent Bruce Bissonnette and appellants Charles Goracke, David Harchanko, Truman Howell, and Joseph Goracke (collectively appellants) formed Bissonnette, Howell & Harchanko, Inc. (BHH), with each of the five owning an equal equity stake in the corporation. On February 22, 2008, respondent resigned his employment at BHH and entered into a consulting agreement with the company. The consulting agreement was signed by respondent and by appellant Truman Howell as president of BHH. The agreement required BHH to pay respondent $250, 000 in monthly installments of $10, 000. The consulting agreement contained an arbitration clause stating: "Any controversy which arises under this agreement shall be settled by arbitration, according to the rules of the American Arbitration Association, with one arbitrator."
BHH made payments to respondent through November 2008. BHH made no further payments under the agreement and respondent sued BHH for breach of contract. BHH asserted the arbitration clause as an affirmative defense in its answer but did not move to compel arbitration. In November 2009, BHH withdrew its answer and consented to the entry of judgment, and the district court entered judgment for $160, 000 in favor of respondent and against BHH.
On June 9, 2011, and with the judgment unsatisfied, respondent started this action, alleging that appellants had made fraudulent transfers of BHH assets to themselves to the prejudice of respondent. Appellants answered and filed a motion to dismiss. Neither the answer nor the motion raised the issue of the arbitrability of the dispute. The district court granted the motion to dismiss in part, dismissing three of the counts in the complaint for failure to state a claim upon which relief can be granted, and also dismissing respondent's claim for punitive damages as noncompliant with Minn. Stat. § 549.191 (2012). The district court denied the motion to dismiss the remaining counts for failure to state a claim and denied appellants' motion for a more definite pleading and other relief. The parties conducted discovery. Appellants then moved for summary judgment. In May 2012, the district court denied appellants' motion for summary judgment. It simultaneously granted respondent's motion for leave to amend his complaint to assert a claim for punitive damages.
In response to respondent's amended complaint, appellants served an amended answer asserting 18 new defenses. Among other defenses, appellants asserted that respondent's claims were barred and that the district court did not have subject matter jurisdiction because respondent's claims were "subject to an arbitration clause in the underlying Consulting Agreement that required arbitration of the parties' disputes." Appellants also filed a second motion to dismiss, arguing that the district court lacked subject matter jurisdiction to hear the case because respondent's claims against the individual appellants fell within the scope of the arbitration agreement between respondent and BHH.
On November 6, 2012, the district court denied appellants' motion to dismiss. The district court was not persuaded by appellants' claims that they had earlier lacked knowledge of the arbitration clause and concluded that the appellants had not "expeditiously asserted their right to arbitration in this matter." The court further stated:
More than a year passed between [respondent] filing his Summons and Complaint and [appellants] moving to dismiss on jurisdictional grounds. The parties ought to have gone to trial during that time. [Appellants] filed an Answer, a Motion to Dismiss, and a Motion for Summary Judgment—and none of these pleadings referred to arbitration. Based ...