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Empire State Ethanol and Energy, LLC v. BBI International

March 20, 2009

EMPIRE STATE ETHANOL AND ENERGY, LLC, PLAINTIFF,
v.
BBI INTERNATIONAL; MIKE BRYAN, INDIVIDUALLY AND IN HIS CAPACITY AS CHIEF EXECUTIVE OFFICER, MARK YANCEY, INDIVIDUALLY AND IN HIS CAPACITY AS VICE PRESIDENT OF PROJECT DEVELOPMENT, BBI INTERNATIONAL; ALBANY RENEWABLE ENERGY, LLC; BIO-PRO RESOURCES, LLC, ON ITS OWN BEHALF AND IN ITS CAPACITY AS MEMBER ALBANY RENEWABLE ENERGY, LLC; JEFF KISTNER, INDIVIDUALLY AND IN HIS CAPACITY AS MEMBER OF BIO-PRO RESOURCES, LLC, AND/OR ALBANY RENEWABLE ENERGY, LLC; ED STAHL, INDIVIDUALLY AND IN HIS CAPACITY AS MEMBER OF BIO-PRO RESOURCES, LLC, AND/OR ALBANY RENEWABLE ENERGY, LLC, DEFENDANTS.



The opinion of the court was delivered by: Gary L. Sharpe U.S. District Judge

MEMORANDUM-DECISION AND ORDER

I. Introduction

Plaintiff Empire State Ethanol and Energy, LLC ("Empire") brings this action against defendants BBI International ("BBI"), Mike Bryan ("Bryan"), Mark Yancey ("Yancey"), Albany Renewable Energy, LLC ("ARE"), Bio-Pro Resources, LLC ("Bio-Pro"), Jeff Kistner ("Kistner") and Ed Stahl ("Stahl"), alleging violations of the Sherman and Clayton Acts, as well as various state statutory and common law claims. (See Dkt. No. 17.) Pending are:

1) defendants' motions to compel arbitration and to dismiss under FED.R. CIV. P. 12(b)(6) (See Dkt. Nos. 25, 26, 28); and 2) BBI, Bryan and Yancey's motion for a civil gag order (See Dkt. No. 36.), in which the remaining defendants join (See Dkt. Nos. 44, 47). For the reasons that follow, the court: 1) grants BBI, Bryan and Yancey's motion to compel arbitration and stays this action as against them in lieu of dismissal; 2) denies ARE, BioPro, Kistner and Stahl's motions to compel arbitration and dismiss, with leave to make a renewed motion for a discretionary stay; and 3) denies the motion for a gag order.

II. Background*fn1

A. Allegations Relevant to the Motion to Dismiss

Empire is a New York limited liability company organized for the purpose of constructing and operating an ethanol plant in New York. (See Am. Compl. ¶¶ 5, 19; Dkt. No. 17.) BBI is a Colorado corporation and the leading provider of project development and consulting services in the bio-fuels industry. Id. at ¶¶ 6-8. In 2006, Empire retained BBI to conduct a study regarding the feasibility of entering the biofuels market in New York (the "FS"). Id. at ¶ 20. In January and July of 2007, BBI issued FS reports which recommended Oneonta, New York as a potential site for an ethanol plant. Id. at ¶ 28. However, BBI never recommended the Port of Albany, New York, which was allegedly a far more desirable site. Id. at ¶ 49.

On May 2, 2007, Empire and BBI entered into a Project Development Agreement ("PDA") under which BBI assumed control of Empire's plant project, then focused on Oneonta. (See Ex. A. to Marciano Declaration; Dkt. No. 25.) The PDA contained an arbitration provision requiring arbitration of "any dispute or controversy arising between the Parties hereto under or relating to [the PDA] or [BBI's] performance or nonperformance of its obligations hereunder." (See Ex. A. to Marciano Declaration at ¶ 7; Dkt. No. 25.) The PDA also contained a confidentiality provision which required BBI to maintain confidentiality of Empire's proprietary business information. (See Am. Compl. ¶ 35; Dkt. No. 17.) BBI was obligated, inter alia, to "recommend" and "assist" in the selection of contractors and professionals for Empire's project under the PDA, and Empire contends BBI actually made its services contingent on the retention of pre-selected professionals (the "preferred partners") at set prices. (See id. at ¶¶ 30, 42; Ex. A. to Marciano Declaration at pgs 5-7; Dkt. No. 25.) The PDA could be terminated by BBI on thirty days notice only if it was unable to perform its obligations for sixty days as a direct result of Empire's actions. (See Ex. A. to Marciano Declaration at ¶ 5; Dkt. No. 25.)

Unbeknownst to Empire at the time it entered into the PDA, Kistner and Stahl, both high ranking BBI employees, had created Bio-Pro in April of 2007, for the purpose of developing an ethanol plant in New York that would compete directly with Empire's proposed plant. (See Am. Compl. ¶¶ 29, 70; Dkt. No. 17.) Bio-Pro was created with the knowledge, encouragement and consent of BBI, its CEO, Bryan, and its Vice-President of Project Development, Yancey. Id. at ¶¶ 29, 38. Soon after the PDA was executed, Bryan and Yancey appointed Stahl and Kistner to oversee certain aspects of Empire's project under the PDA, in which capacity they had access to all manner of Empire's confidential information. Id. at ¶ 36, 37, 39.

In or around September of 2007, Empire independently determined that the Port of Albany was a more feasible site for the ethanol plant than Oneonta, and proposed a supplemental FS be conducted by BBI. Id. at ¶¶ 50, 53. Empire's requests were met with inexplicable recalcitrance, and on November 7, 2008, Yancey informed Empire that BBI could not perform the supplemental FS because it was focusing on the development of a new technology. Id. at ¶¶ 54-55. Relying on Yancey's representations, which Empire contends were false, Empire conceded to the termination of the PDA. Id. at ¶¶ 56-59.

At approximately the same time, the Albany-Rensselaer Port District Commission issued a request for proposals ("RFP"), for the leasing and development of approximately 18 acres of land at the Port of Albany. Id. at ¶ 74. On November 9, 2007, Kistner formed a Delaware company named New York Renewable Energy, LLC, which subsequently became ARE on November 16, 2007. Id. at ¶¶ 60-61. The sole member of ARE was BioPro. Id. at ¶ 13. Stahl and Kistner then submitted an ethanol plant proposal on behalf of ARE using their BBI contact information with BBI's encouragement and consent. Id. at ¶¶ 72-73. ARE's submissions in response to the RFP also identified BBI as a project partner and the preferred partners who had previously been recommended to Empire by BBI as participants in ARE's proposal. Id. at ¶ 84. Many of these same preferred partners inexplicably terminated their relationship with Empire after the cancellation of the PDA. Id. Additionally, much of the research, data and information supporting ARE's submissions was virtually identical to that BBI had previously prepared for Empire under the PDA. Id. ARE was awarded the contract with the Port of Albany on April 1, 2008. Id. at ¶ 3.

On June 13, 2008, Empire filed this action. Empire's amended complaint sets forth the following ten claims: 1) violation of § 1 of the Sherman Act; 2) violation of § 2 of the Sherman Act; 3) violation of § 3 of the Clayton Act; 4) violation of N.Y. Gen. Bus. Law §§ 340-347; 5) breach of contract; 6) fraud; 7) tortious interference with contract; 8) tortious interference with prospective contractual relations; 9) breach of fiduciary duties; and 10) piercing the corporate veil. Id. at ¶¶ 97-170.

B. Allegations Relevant to the Motion for a Gag Order

On August 20, 2008, a press release was purportedly issued by Empire which stated, inter alia:

BBI is also expanding their control of the ethanol industry, and now wants to become a producer, by forming their new venture BBI Bio Ventures, LLC. The industry is shifting from corn to cellulosic ethanol production, and BBI is no longer satisfied being just an industry consultant. They now want to develop and operate their own cellulosic ethanol plants, and formed BBI Bio Ventures, LLC, and named Mark Yancey as the CEO. "This expanded market influence now potentially puts BBI in a position in which they can take all of their consulting client's confidential information, business plans, acquired knowledge, business contacts, financial investors, and proposed plant information to take over the industry business model in cellulosic ethanol," said [Empire's managing member] Von Zwehl. "We tried to amicable [sic] settle this, but they have not even responded. I guess they feel they are above answering to anyone but themselves," he concludes. (See Marciano Decl. Ex. A; Dkt. No. 36.) Similar press releases were issued on September 5th, 10th, and 22nd of 2008, in which Von Zwehl and Empire's counsel purportedly discussed the merits of Empire's lawsuit; stated that "[i]rrefutable evidence shows BBI did commit a serious breach of integrity and trust;" indicated that BBI was in a position to take its client's sensitive materials for its own uses; and accused BBI of setting up illegal shell companies to build monopoly control in the fuel ethanol market. (See Marciano Decl. Exs. C, D, H; Dkt. No. 36.) Each of these press releases is alleged to have resulted in articles in the Albany Times Union or the Business Review. (See Marciano Decl. Exs. B, E, F, I; Dkt. No. 36.) Further, defendants contend that Empire gave a lengthy PowerPoint presentation at a press conference which argued Empire's claims, described BBI's wrongful acts and accused BBI officials of perjury. (See Marciano Decl. Ex. G; Dkt. No. 36.) Thereafter this presentation was posted to http://www.bbiconsulting.info/ESE/ESEvBBI_10-Sept-08_ppt.pdfa website which was not affiliated with BBI in any capacity.

Defendants assert that they have attempted to resolve these issues with Empire's counsel without success.

III. Discussion

A. Defendants' Motion to Dismiss and Compel Arbitration; the Federal Arbitration Act*fn2

"The Federal Arbitration Act [("FAA"), 9 U.S.C. § 1, et seq.,] creates a 'body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.'"*fn3 PainWebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). The Act represents "a strong federal policy favoring arbitration as an alternative means of dispute resolution." Hartford Accident and Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001). Accordingly, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25. That said "arbitration is [still] a matter of ...


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