Quantum Research International Inc v. SPG Institute Inc

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

NORTHEASTERN DIVISION

QUANTUM RESEARCH )

INTERNATIONAL, INC., )

)

Plaintiff, )

Civil Action Number

)

v. ) 5:21-cv-01680-AKK

)

SPG INSTITUTE, INC., SP

)

GLOBAL, INC., DANIEL

)

TOLLEY, and THOMAS D.

)

BURNS, SR.,

)

)

Defendants.

)

MEMORANDUM OPINION

This lawsuit alleges a scheme to defraud defense contractors and technology

companies, including several based in Alabama, through the “Autonomy Research

Network Consortium” or “ARCNet.” Quantum Research International, Inc. sues

SPG Institute, Inc., SP Global, Inc., and two executives for apparently leading the

operation. Doc. 23. The defendants move to dismiss on personal jurisdiction

grounds and also argue that Quantum agreed to arbitrate its claims and fails to plead

claims for which it is entitled to relief. See doc. 29. Having considered the briefing,

docs. 31; 32, the court will grant the motion, doc. 29, so the parties can submit to

mandatory arbitration.

I.

Under Rule 12 of the Federal Rules of Civil Procedure, a litigant may move

to dismiss the claims against it for lack of personal jurisdiction or for failure to state

a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(2), 12(b)(6). A

litigant may also move to dismiss because of a binding arbitration clause. See Baptist

Hosp. of Miami, Inc. v. Medica Healthcare Plans, Inc., 376 F. Supp. 3d 1298, 1304

(S.D. Fla. 2019) (citing FED. R. CIV. P. 12(b)(1)).

With respect to personal jurisdiction, the court first considers Alabama’s long-

arm statute. See Olivier v. Merritt Dredging Co., 979 F.2d 827, 830 (11th Cir. 1992).

Interpreting this statute, “the Supreme Court of Alabama has extended the

jurisdiction of Alabama courts to the extent permissible under the due process clause

of the Fourteenth Amendment.” Id. The relevant inquiry is thus whether the

exercise of personal jurisdiction would violate the Fourteenth Amendment. See id.

This, in turn, requires consideration of whether the defendants “engaged in minimum

contacts with the State of Alabama” and whether “the exercise of personal

jurisdiction over the defendants would offend ‘traditional notions of fair play and

substantial justice.’” Id. at 830–31; see Int’l Shoe Co. v. Washington, 326 U.S. 310,

316 (1945). See also Horizon Aggressive Growth, L.P. v. Rothstein-Kass, P.A., 421

F.3d 1162, 1166 (11th Cir. 2005).

Under Rule 12(b)(6), a complaint fails to state a claim if it does not plead

factual allegations that, taken as true, “raise a right to relief above the speculative

level” and render it “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “does

not require ‘detailed factual allegations,’ but it demands more than an unadorned,

the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. In other

words, the plaintiff must “plead[] factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.”1 Id.

Finally, if a valid arbitration agreement exists, a court may compel arbitration

by dismissing the case in lieu of issuing a stay when all of the issues raised must

proceed to arbitration. Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164

(5th Cir. 1992); Baptist Hosp. of Miami, Inc., 376 F. Supp. 3d at 1304; Caley v.

Gulfstream Aerospace Corp., 333 F. Supp. 2d 1367, 1379 (N.D. Ga. 2004) (granting

motions to compel arbitration and to dismiss), aff’d, 428 F.3d 1359, 1379 (11th Cir.

2005).

II.

SPGI, a Virginia-based nonprofit, acts as a “conduit” between the U.S. Air

Force Research Laboratory—the Department of Defense’s research arm—and sub-

1 Relevant to certain of Quantum’s claims, Rule 9(b) also requires a complaint to “state with

particularity” claims involving fraud. See FED. R. CIV. P. 9(b). See also Tello v. Dean Witter

Reynolds, Inc., 494 F.3d 956, 972 (11th Cir. 2007). However, because the court will not reach the

factual sufficiency of Quantum’s claims in this opinion, the court does not restate the extent of the

standards for pleading fraud under Rule 9.

awardees that work on federal contracts. See doc. 23 at 3–4. In this role, SPGI

distributes funds from AFRL and must “adequately safeguard all assets and assure

that they are used solely for authorized purposes.” See id.

In February 2019, AFRL allegedly awarded to SPGI a contract identified as

Cooperative Agreement No. FA8650-19-2-6983. Id. at 3. Soon after, Daniel Tolley,

a Virginia citizen who serves as SP Global’s president and SPGI’s treasurer,

“established a ‘consortium’ called the Autonomy Research Network Consortium

(‘ARCNet’).” Id. at 4–5. Tolley “represented to the public that businesses could

join [ARCNet] for a fee and then be eligible to bid on projects under the Cooperative

Agreement.” Id.

SPGI, SP Global, Tolley, and Thomas D. Burns, Sr.—a Virginia citizen who

serves as CEO of SP Global, chairman of its board, and SPGI’s president—allegedly

controlled ARCNet. Id. at 5. They began to recruit “several Alabama businesses”

to join ARCNet and “used [the businesses’] names for promotional efforts.” Id. at

5. Quantum, among other Huntsville-based companies, bought a “membership

interest” in ARCNet, and ARCNet vowed that it and SPGI would “actively solicit

opportunities for members, ‘administer and manage the funds collected through the

consortium[,]’ and ‘[b]e responsible for the management and integration of all [the]

[c]onsortium’s efforts under the Cooperative Agreement or associated legal

mechanisms.’” Id. (quoting doc. 23-2). ARCNet purportedly promised Quantum

“access to AFRL opportunities under the Cooperative Agreement,” and Quantum

joined ARCNet “with the expectation of realizing profits in the future.” Id.

Midway into 2020, things appeared to go as envisioned. In September 2020,

“one or more” of the defendants “communicated to Quantum in Alabama about a

request for proposal and the possibility of Quantum performing work under a

subaward.” Id. at 6. To this end, the defendants provided Quantum with certain

materials, including a proposal form; Quantum submitted its proposal; and the

defendants relayed it to AFRL. Id. On October 1, 2020, SPGI entered into a “cost

reimbursement Subaward Agreement 2020-ARC-S-20013 . . . with Quantum for

collecting, securing[,] and monitoring autonomous and artificial intelligence.” Id.

From its location in Huntsville, Quantum performed tasks under the Subaward

Agreement for several months and sent invoices to SPGI for this work. Id.

But, unbeknownst to Quantum, things had begun to unravel. Allegedly, the

defendants had moved “millions of dollars from AFRL . . . into a separate bank

account that, by law, was supposed to be used to pay Quantum and other

subawardees” and taken the money for themselves and their own businesses. Id. at

6–7. In particular, Tolley and Burns purportedly took over $11 million from the

AFRL funds: Tolley allegedly received “personal payments” from the funds, and

Burns apparently admitted to “us[ing] money intended for Quantum to pay [the]

[d]efendants’ rent, salaries and insurance, and . . . [for] affiliated businesses.” Id. at

7 (citing doc. 23-9). All the while, the defendants purportedly encouraged Quantum

to join ARCNet and then to work on the Subaward Agreement. See id.

Eventually, AFRL prevented the defendants from making “advance draws” of

the federal funds, pumping the brakes on the apparent operation. See id. SPGI and

ARCNet subsequently “issued a suspension of work notice to Quantum in Alabama,

. . . and Quantum stopped work.” Id. Quantum and other sub-awardees

“complained about the unpaid invoices” to no avail. See id. at 8–9. Quantum claims

that at least one of the defendants “communicated with Quantum by telephone and/or

by e-mail in Alabama” and “acknowledge[d] that the money was gone.” Id. at 9. At

that point, the defendants purportedly represented that “they would pay all

outstanding invoices when they secured funding from an outside investor –

essentially promising to replace the misappropriated funds with funds from another

source.” Id. Quantum thereafter filed this lawsuit, pleading claims for (1) breach of

contract against SPGI; (2) quantum meruit against SPGI;2 (3) unjust enrichment

against all defendants; (4) fraud and deceit against SPGI, Burns, and Tolley; (5)

conversion against all defendants; (6) breach of fiduciary duty against SPGI, Burns,

and Tolley; (7) conspiracy against all defendants; and (8) violation of the Alabama

2 The heading for the quantum meruit claim in Quantum’s complaint states that Quantum brings

the claim against “All Defendants.” Doc. 23 at 11. However, Quantum demands judgment on the

claim only against SPGI and brings the quantum meruit claim as an alternative to the breach of

contract claim against SPGI. Id.

Securities Act against SPGI, Burns, and Tolley. Doc. 23.

III.

In their motion to dismiss, the defendants contend that the court lacks personal

jurisdiction, Quantum agreed to arbitrate its claims, and Quantum fails to allege

sufficient facts. Doc. 29. The court begins with the threshold questions of

jurisdiction and arbitration. As explained below, although the court has personal

jurisdiction over the defendants, the parties must arbitrate these claims.

Consequently, the court will not address the Rule 12(b)(6) sufficiency of the factual

allegations.

A.

The defendants claim that Quantum fails to establish personal jurisdiction for

three reasons: (1) SPGI’s contracts with Quantum and other Alabama corporations

cannot establish the “minimum contacts” necessary for specific jurisdiction; (2) SP

Global, Tolley, and Burns were not party to any contract with Quantum; and (3)

Tolley and Burns “personally had [no] contacts with Alabama outside of their

dealings with SPGI.” Doc. 29 at 7. In short, the defendants assert that “Quantum

asserts an insufficient basis for specific personal jurisdiction over . . . SPGI and SP

Global, [and] Quantum asserts no basis for specific jurisdiction over . . . Tolley and

Burns.” Id. at 8 (emphasis in original).

1.

A plaintiff can establish a court’s personal jurisdiction over a nonresident

defendant via general or specific jurisdiction.3 Tinsley, 112 F. Supp. 3d at 1258

(citing Int’l Shoe Co., 326 U.S. at 316); see Consol. Dev. Corp. v. Sherritt, Inc., 216

F.3d 1286, 1291 (11th Cir. 2000). General jurisdiction exists where the defendants’

connections with the forum state “are so ‘continuous and systematic’ as to render

them essentially at home in the forum State.” Goodyear Dunlop Tires Operations,

S.A. v. Brown, 564 U.S. 915, 919 (quoting Int’l Shoe Co., 326 U.S. at 317). Specific

jurisdiction, by contrast, “arises out of [the defendants’] activities in the forum that

are related to the cause of action alleged in the complaint.” Consol. Dev. Corp., 216

F.3d at 1291.4

Two requirements exist for specific jurisdiction. Olivier, 979 F.2d at 830.

First, the defendants must have “engaged in minimum contacts” with the forum state.

Id. Second, “the exercise of personal jurisdiction over the defendants [must not]

3 Because this court sits in diversity, it may exercise personal jurisdiction over the nonresident

defendants to the extent permitted under Alabama law and under the Constitution. See Meier ex

rel. Meier v. Sun Int’l Hotels, Ltd., 288 F.3d 1264, 1269 (11th Cir. 2002). And because Alabama’s

long-arm statute authorizes personal jurisdiction to the extent permitted by federal due process,

Olivier, 979 F.2d at 830; Tinsley v. BP Corp. N. Am., Inc., 112 F. Supp. 3d 1253, 1257 (N.D. Ala.

2015), the state- and federal-law inquiries merge.

4 To the extent that Quantum claims to establish general personal jurisdiction, the court agrees

with the defendants that Quantum’s allegations do not show that the defendants have “continuous

and systematic” contacts with Alabama such that they are “essentially at home” in this forum. See

doc. 29 at 6; Goodyear, 564 U.S. at 919. The defendants’ alleged contacts with Alabama are much

more limited. Thus, the court proceeds to specific jurisdiction.

offend traditional notions of fair play and substantial justice.” Id. at 830–31

(quotation omitted). Under the first prong, a defendant engages in minimum

contacts with the forum state when it “‘purposefully avails itself of the privilege of

conducting activities within the forum State, thus invoking the benefits and

protections of its laws.’” Consol. Dev. Corp., 216 F.3d at 1291 (quoting Hanson v.

Denckla, 357 U.S. 235, 253 (1958)). In addition, the plaintiff’s claims must ‘“arise

out of or relate to’ at least one of the defendant’s contacts with the forum.” Louis

Vuitton Malletier, S.A. v. Mosseri, 736 F.3d 1339, 1355 (11th Cir. 2013) (quoting

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)). If the plaintiff

establishes purposeful availment and a relationship between the contacts and the

claims, then, to defeat specific jurisdiction, the defendants “must make a ‘compelling

case’ that the exercise of jurisdiction would violate traditional notions of fair play

and substantial justice.” Id.

The analysis of the relationship between the claims and the defendants’

contacts “focus[es] on the direct causal relationship between the defendant[s], the

forum, and the litigation,” as this relationship “is the essential foundation” of

personal jurisdiction. Id. at 1355–56.5 “[T]he conduct at issue is that of the

5 Conducting this analysis in Mosseri, for example, the Eleventh Circuit determined that a

plaintiff’s trademark claims arose out of the defendant’s contacts with the forum state where the

defendant’s ties to the state “all involve[d] the advertising, selling, and distributing of alleged

counterfeit and infringing . . . goods into the state and accepting payment from [the state’s]

customers for such goods.” 736 F.3d at 1356.

defendants,” and “[n]o plaintiff can establish jurisdiction over a defendant through

[its] own actions.” First Metro Bank v. Central Bank, 904 F. Supp. 2d 1215, 1223

(N.D. Ala. 2012) (emphasis omitted). Relatedly, the purposeful availment analysis

asks whether the defendants’ contacts with the forum state show that the defendants

“should reasonably anticipate being haled into court in the forum.” Mosseri, 736

F.3d at 1357.

2.

Quantum claims that the court has specific jurisdiction over the defendants.

Allegedly, the defendants

purposefully availed themselves of the laws and privileges of the state

of Alabama by, among other things, conducting business in Alabama,

recruiting business in Alabama, engaging in tortious conduct and

causing harm to Quantum in Alabama, marketing and selling securities

in Alabama, and participating in a conspiracy to defraud Quantum in

Alabama. Defendants knew or should have anticipated that Quantum

would feel the effect of their misconduct in Alabama. Furthermore,

because Defendants conspired and operated a scheme to defraud

citizens of Alabama, they should not be surprised when they are haled

into court here to answer for their conduct.

See doc. 23 at 2–3. Taking these underlying factual allegations as true, the court

agrees that it has personal jurisdiction over the defendants. Far from alleging just

one arrangement between Quantum and SPGI, Quantum pleads that all four

defendants established or controlled ARCNet and intentionally recruited Quantum

and four other Alabama-based companies to join ARCNet under a conspiracy to

defraud Quantum and the other businesses. Id. at 5. To accomplish this, the

defendants purportedly advertised and sold membership interests in ARCNet to

Quantum with the expectation that Quantum would seek and perform ARCNet-

related federal contracts at its location in Huntsville. See id. at 5–7. The defendants

also allegedly “used [Quantum’s and the other Alabama businesses’] names for

promotional efforts.”6 Id. at 5. And, after SPGI entered into a contract with

Quantum, Tolley and Burns allegedly moved funds from the ARCNet account—

from which Quantum would be paid—to the SP Global account in order to divert the

money to their own companies. See id. at 6–8. These claims, if true, establish that

Quantum’s claims arise from the defendants’ contacts with Alabama and that the

defendants purposefully availed themselves of the benefits of transacting in Alabama

when they actively recruited Quantum and others to join ARCNet.

Accordingly, the burden shifts to the defendants to make a “compelling case”

that the exercise of personal jurisdiction contravenes “traditional notions of fair play

and substantial justice.” See Mosseri, 736 F.3d at 1355. As to this prong, the court

considers four factors: “(1) the burden on the defendant[s]; (2) [Alabama’s] interest

in adjudicating the dispute; (3) [Quantum’s] interest in obtaining convenient and

effective relief; and (4) the judicial system’s interest in resolving the dispute.” See

6 To support this claim, Quantum supplies a screenshot of “promotional materials” that appear to

be a list of ARCNet’s then-members on its website. See doc. 23-4. At least at this juncture, the

court is not totally convinced that this list is a “promotional” material that highlights ARCNet’s

links to Alabama. However, the court understands Quantum to argue that this evinces the

defendants’ dealings in places that include Alabama and their attempts to show ARCNet’s reach.

id. at 1358 (quoting Licciardello v. Lovelady, 544 F.3d 1280, 1288 (11th Cir. 2008))

(internal quotation marks omitted). Here, the defendants fall short.

For one, the defendants say nothing about the burdens, if any, they will

experience in having to defend against this case in Alabama. See generally docs.

29; 32. Nor do they argue that Alabama, where Quantum and several of the other

allegedly defrauded companies are located, lacks a sufficient interest in adjudicating

Quantum’s claims. And indeed, Alabama “has a very strong interest in affording its

residents a forum to obtain relief from intentional misconduct of nonresidents

causing injury in [Alabama].” See Lovelady, 544 F.3d at 1288. Quantum, for its

part, has an interest in obtaining relief in its home state, and it “is not required to

travel to the nonresident[s]’ state of residence to obtain a remedy” for misconduct

that, allegedly, was expressly directed at it in Alabama. See id.; doc. 23 at 5. Finally,

the judiciary has an interest in resolving this dispute in Alabama, where the

defendants purportedly targeted and recruited certain businesses to join ARCNet and

where the defendants knew Quantum would perform ARCNet-related work under

the Subaward Agreement. See Mosseri, 736 F.3d at 1358; doc. 23 at 5–6.

Collectively, Quantum has met its burden as to personal jurisdiction, and the

defendants have failed to show that the exercise of personal jurisdiction offends due

process. Accordingly, the motion to dismiss, doc. 29, is due to be denied as to

personal jurisdiction.

B.

The court turns now to whether Quantum must arbitrate its claims under the

Subaward Agreement. “When, as in this case, a party moves a district court to

compel arbitration under the FAA, the court must first determine whether ‘the

making of the agreement for arbitration or the failure to comply therewith is . . . in

issue.’” Burch v. P.J. Cheese, Inc., 861 F.3d 1338, 1346 (11th Cir. 2017). Put

another way, the court cannot compel Quantum to arbitrate its claims unless

Quantum previously agreed to do so, see Employers Ins. of Wausau v. Bright Metal

Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir. 2001), and, at this stage, the court

must consider “(1) whether there is a valid agreement to arbitrate; and (2) whether

the dispute in question falls within the scope of that agreement.” See Scurtu v. Int’l

Student Exch., 523 F. Supp. 2d 1313, 1318 (S.D. Ala. 2007). To resolve these

questions, the court looks to “state-law principles relating to ordinary contract

formation and interpretation, construed through the lens of the federal policy

favoring arbitration.” See id. “[D]oubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration,” but this presumption “does not apply to

disputes concerning whether an agreement to arbitrate has been made.” Burch, 861

F.3d at 1346 (emphasis in original).

Here, no one disputes that Quantum entered into the Subaward Agreement

containing the arbitration clause, so the relevant questions are (1) who can enforce

the clause and (2) what claims fall under its scope. The arbitration clause in the

Subaward Agreement provides:

Any party (claimant) who has any dispute relating to this Subaward

shall provide written notice to any other person that has an interest in

the controversy (respondents) describing the general nature of the

controversy. Said notice must designate an Independent Person as an

authorized representative who is empowered to fully settle the

controversy on behalf of the claimant. . . . If the authorized

representatives do not resolve the controversy within ten (10) calendar

days, or unless both parties agree that a resolution is imminent, the ten

(10) calendar days may be extended for an additional five (5) working

days or additional time as agreed in writing by the parties, otherwise

they shall discontinue direct negotiations and submit the controversy to

mandatory and binding arbitration.

If the controversy is not resolved, the parties to the controversy shall

submit to mandatory and binding arbitration. The controversy will be

settled by a single Ohio, Montgomery County arbitrator. Said

arbitration will be governed by Ohio Statutes. In the event both parties

are unable to agree on an Ohio, Montgomery County Arbitrator, then

the controversy will be settled by arbitration according to the

Commercial Arbitration Rules of the American Arbitration Association

(AAA). . . . The arbitrator’s decision is final and not subject to judicial

review.

Doc. 23-6 at 12.

The defendants argue that the broad wording of this agreement—“any dispute

relating to this Subaward”—cleanly sweeps Quantum’s lawsuit within its scope and

mandates that Quantum arbitrate the claims it raises here. See doc. 29 at 14–15.

Additionally, according to the defendants, although SP Global, Tolley, and Burns

are not parties to the Subaward Agreement, they can enforce the arbitration clause

because Quantum relies on the Subaward Agreement to assert claims against them

and because the arbitration clause governs disputes between “any party” and “any

other person that has an interest in the controversy.” Id. at 15 n.14; doc. 32 at 3–4;

see doc. 29-1 at 12. For its part, Quantum argues that (1) it has “sued people and

entities that are not parties to the purported arbitration agreement,” (2) it has asserted

claims unrelated to and outside the agreement’s scope, and (3) the apparent conflict

in the provisions of the Subaward Agreement that refer to arbitration and judicial

jurisdiction shows that “the parties did not intend to be bound by the purported

arbitration clause.” Doc. 31 at 12–15.

Before delving into these arguments, the court must address a problem about

the choice of law to apply in interpreting the Subaward Agreement, including its

arbitration clause. The Subaward Agreement clearly provides that “[it] will be

governed by the laws of the State of Ohio,” doc. 23-6 at 15, a clause Quantum cites

while addressing an argument related to the arbitration clause, see doc. 31 at 14. But

neither party asks the court to enforce the choice-of-law provision or, conversely,

challenges its enforceability. Rather, they both argue their motions using Alabama

law. See docs. 29; 31; 32. As a result, the court has opted to cite Alabama law in

interpreting the Subaward Agreement while citing corresponding Ohio authorities

that suggest the court’s conclusions would be the same under either, albeit using

slightly different reasonings.7

1.

The first question is whether the defendants who did not enter into the

Subaward Agreement—SP Global, Burns, and Tolley—can compel enforcement of

the arbitration clause. In some circumstances, nonparties to an arbitration agreement

can indeed compel arbitration. See Ex parte Stamey, 776 So. 2d 85, 89–90 (Ala.

2000). See also I Sports v. IMG Worldwide, Inc., 813 N.E. 2d 4, 8 (Ohio Ct. App.

2004) (outlining the circumstances under which “[a] nonsignatory may compel

arbitration against a party to an arbitration agreement”).

First, a nonparty may compel arbitration against a party if the nonparty is an

intended third-party beneficiary of the contract. Ex parte Dyess, 709 So. 2d 447,

7 The Subaward Agreement also contains a forum-selection clause designating Ohio courts, see

doc. 23-6 at 16, that the court considers in a later section of this opinion. While the parties likely

waived choice-of-law and venue-based challenges by failing to raise them here, the court believes

its hybrid method of looking to both sources of law strikes the most cautious approach to the issue.

For instance, the Sixth Circuit declined to consider a choice-of-law issue where, although the

parties’ agreement provided that Ohio law would govern its “interpretation and construction” and

although Michigan, the forum state, favored enforcement of choice-of-law provisions, the plaintiff

sued under a Michigan statute and “neither party raised the choice of law provision at the district

court level.” Hardy v. Reynolds & Reynolds Co., 311 F. App’x 759, 761–62 (6th Cir. 2009). In

so holding, the Sixth Circuit noted that “the general principles of contract interpretation that would

apply in interpreting the [agreement] [did] not significantly differ from Ohio to Michigan.” Id. at

762–63. And in Medalie v. FSC Securities Corporation, the Southern District of Florida applied

Florida law to interpret a contract after recognizing that “[b]y arguing their motions based on

Florida law, the parties ha[d] stipulated that Florida law applie[d].” 87 F. Supp. 2d 1295, 1297

(S.D. Fla. 2000). To be sure, in Medalie, the parties had also contractually consented to venue,

personal jurisdiction, and subject matter jurisdiction in Florida. Id. But the court also observed

that “[b]ecause the parties did not raise a conflict of laws issue in [their] motions and argued their

motions based only on Florida law, the law of the forum [would] govern, absent any facts justifying

the application of some other state’s law.” Id. at 1297 n.1.

450, 452 (Ala. 1997); I Sports, 813 N.E. 2d at 8. Here, however, SP Global, Tolley,

and Burns cannot compel arbitration under a third-party beneficiary theory because

they have not established Quantum’s and SPGI’s intent to bestow a direct benefit on

them. Indeed, the Subaward Agreement expressly provides that “[t]here are no third-

party beneficiaries to this Subaward” and explains that “[n]othing in this Subaward,

express or implied, confers any legal or equitable right, benefit, or remedy of any

nature whatsoever upon any other person or party . . . .” See doc. 23-6 at 16.

In Alabama, an arbitration agreement may also be sufficiently broad to include

claims against nonparties. See Stamey, 776 So. 2d at 89–90. For example, Alabama

courts have found that arbitration agreements cover claims against nonparties when

the agreement expressly covers “all disputes,” the description of the entities subject

to arbitration is not restrictive, the claims against the nonparties arise out of the

contract or are intertwined with the claims against the party, and the nonparties are

closely related to a party. See Ex parte Napier, 723 So. 2d 49, 53–54 (Ala. 1998);

Ex parte Gates, 675 So. 2d 371, 374–75 (Ala. 1996); Matthews v. AT&T Operations,

Inc., 764 F. Supp. 2d 1272, 1283–84 (N.D. Ala. 2011). Not dissimilarly, Ohio courts

also recognize the ability of a nonsignatory to compel arbitration against a signatory

under an equitable estoppel theory, which “arises when the signatory to the contract

alleges ‘substantially interdependent and concerted misconduct by both

the nonsignatory and one or more of the signatories to the contract.’” See I Sports,

813 N.E. 2d at 9.

First, the court finds that under Alabama law, the nonsignatory-defendants

may compel arbitration against Quantum because the arbitration agreement is

sufficiently broad to encompass Quantum’s claims against them. See Napier, 723

So. 2d at 53–54. The arbitration agreement is not limited to disputes between

Quantum and SPGI; instead, it covers “any dispute” between “[a]ny party” and “any

other person.” Doc. 29-1 at 12. Similarly, the arbitration agreement does not

significantly restrict what kinds of claims must be arbitrated; again, the agreement

covers “any dispute” related to the Subaward Agreement. Id. Also, some of

Quantum’s claims against SPGI are identical to the claims against the non-

signatories, and all of Quantum’s claims are intertwined with or relate to the

Subaward Agreement.

Also, the court finds that the nonsignatory-defendants can compel arbitration

against Quantum under Ohio law. These three defendants have a close relationship

with SPGI, the signatory: Tolley is its treasurer, Burns is its president, and both

control SP Global, which allegedly received AFRL funds from SPGI. Significantly,

Quantum clearly alleges that these defendants worked in concert with SPGI, a

signatory-defendant, to defraud Quantum and other businesses through ARCNet,

and Quantum asserts a conspiracy on these grounds. Doc. 23 at 2–3. Accordingly,

the allegations suggest that Ohio law would allow all of the defendants to enforce

the arbitration provision of the Subaward Agreement against Quantum.

2.

On that note, all of Quantum’s claims appear to fall under the arbitration

clause’s scope, which broadly covers “any dispute relating to” the contract. See doc.

29-1 at 12. In Green Tree Financial Corporation-Alabama v. Randolph, the

Supreme Court found that an agreement to arbitrate “[a]ll . . . claims . . . relating to

[the] [c]ontract” encompassed a Truth in Lending Act claim against creditors who

allegedly failed to disclose a charge in a contract to purchase a mobile home. See

531 U.S. 79, 83 (2000). Specifically, the contract provided that “[a]ll disputes,

claims, or controversies arising from or relating to this Contract . . . shall be resolved

by binding arbitration.” Id. at 83 n.1. Relevant here, the TILA claim did not allege

nonperformance of a contractual obligation but rather the violation of a statutory

duty outside of the contract. Still, citing the “liberal federal policy favoring

arbitration agreements,” the Court concluded that a claim that a creditor violated

TILA for not disclosing charges in a contract arises out of that contract, and so the

parties had to arbitrate the TILA claim. Id. at 90–91.

Similarly, the Alabama Supreme Court in Bennett v. Skinner concluded that

an agreement to arbitrate “[a]ny and all claims . . . arising out of or related to the

contract” covered claims for fraudulent inducement and the tort of outrage. 98 So.

3d 1140, 1141–45 (Ala. 2012). The defendant allegedly breached a construction-

services contract by shoddily renovating the plaintiffs’ house and induced the

plaintiffs to enter into the contract by falsely representing to them that he would

personally oversee the work with the necessary licenses. See id. at 1141–42. The

Court determined that the arbitration clause covered the fraudulent inducement and

outrage claims because those claims arose out of or related to the original contract.

Id. at 1143, 1145. In particular, the Court concluded that the outrage claim arose

from the defendant’s alleged failure to uphold obligations with regard to the contract

and out of a “disagreement concerning the construction-services contract.” Id. at

1145 (internal quotation marks omitted).8

Finally, the Ohio Supreme Court in Academy of Medicine of Cincinnati v.

Aetna Health, Inc. articulated similar standards for evaluating the scope of an

arbitration clause. See 842 N.E. 2d 488, 492–93 (Ohio 2006). Holding that an

arbitration provision that “purport[ed] to cover any disputes about the parties’

business relationship . . . [was] a broad clause,” the Court instructed that “[a]n

arbitration clause that contains the phrase ‘any claim or controversy arising out of or

8 Likewise, the agreement to arbitrate “[a]ny controversy or Claim arising out of or related to the

Contract” in Beaver Construction Company v. Lakehouse, L.L.C. covered tort claims related to the

contract. 742 So. 2d 159, 161, 165 (Ala. 1999). The defendant allegedly breached a contract by

failing to adequately prepare the construction site, failing to install a sewer system, and

withholding sewer tap permits. Id. at 163. Among other claims, the plaintiff alleged negligence,

fraudulent inducement, and conversion of the sewer tap permits. See id. The Court found that all

of the tort claims arose out of or were related to the contract because (1) the defendant’s allegedly

negligent construction was performed pursuant to the contract, (2) the defendant allegedly

fraudulently induced the plaintiff to enter into the contract, and (3) the allegedly converted sewer

tap permits were issued for the construction project borne from the contract. Id. at 165–67.

relating to the agreement’ is considered ‘the paradigm of a broad clause.’” Id. The

Court also observed that “[a]rbitration is not limited to claims alleging a breach of

contract,” meaning a broad arbitration clause can cover alleged violations of

statutory rights so long as “the parties agreed to arbitrate the issue.” See id. at 493.

Following these principles, the Court of Appeals of Ohio in Sebold v. Latina Design

Build Group, L.L.C. addressed an arbitration clause that covered “any

‘disagreements arising out of contract or breach thereof.’” 166 N.E. 3d 688, 692

(Ohio Ct. App. 2021). There, the court held that the plaintiffs’ claims for violations

of the Ohio Home Construction Services Supplier Act and the Ohio Consumer Sales

Practices Act, breach of contract, and breach of implied duty to perform in a

workmanlike manner, among other claims, “[were] all disputes that emanate[d] from

the parties’ contractual relationship” and thus “[fell] squarely under the arbitration

provision.” Id. at 691, 693.9

This case law demands a broad interpretation of the phrase “any dispute

relating to this Subaward,” and Quantum’s claims fall within the scope of claims

broadly related to the Subaward Agreement. See doc. 23-6 at 12. The unjust

enrichment claim alleges that the defendants unjustly received funds from AFRL

because of Quantum’s work performed under the Subaward Agreement. Doc. 23 at

9 Moreover, the court recognized that “[a]ny doubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration.” Sebold, 166 N.E. 3d at 692.

12. The fraud and deceit claim alleges that SPGI, Burns, and Tolley fraudulently

concealed that they had no intention to pay Quantum and falsely promised contract

opportunities to induce Quantum to enter the Subaward Agreement. Id. at 13–14.

The conversion claim alleges that the defendants rerouted funds that Quantum

earned for work performed under the Subaward Agreement. Id. at 15–16. The

breach of fiduciary duty claim alleges a relationship of trust established by

Quantum’s reasonable belief that SPGI, Burns, and Tolley would pay Quantum for

work performed under the Subaward Agreement. Id. at 17. The conspiracy claim

rests on all of these allegations. See id. at 18. And the Alabama Securities Act claim

alleges that the ARCNet membership is a security under Alabama law that SPGI,

Burns, and Tolley sold to Quantum so they could reap funds from AFRL intended

for Quantum under the Subaward Agreement. Id. at 20–21.

In short, without the Subaward Agreement, there are no claims.10 And the

federal and state policies favoring arbitration bolsters this conclusion. Accordingly,

all of Quantum’s claims fall within the broad arbitration clause of the Subaward

Agreement.

10 The conclusion is the same even if Quantum is asserting that the defendants withheld a separate

benefit owed to Quantum because of its membership in ARCNet, and not specifically because of

the Subaward Agreement. ARCNet would apparently “solicit opportunities” for its members.

Doc. 23 at 5. Those opportunities were projects under the Cooperative Agreement. See id. at 4–

6. Quantum seized one such opportunity and consequently entered into the Subaward Agreement.

In other words, the Subaward Agreement was Quantum’s benefit from joining ARCNet.

Therefore, none of the claims can ignore the Subaward Agreement and rest only on Quantum’s

membership in ARCNet.

3.

Quantum’s final argument that contradictory language in the Subaward

Agreement obscures the parties’ intent is also unavailing. See doc. 31 at 14. The

allegedly contradictory terms are the arbitration provision and the forum-selection

clause in the Subaward Agreement. See id. The forum-selection clause is contained

within the provision that reads:

This Subaward will be governed by the laws of the State of Ohio. The

Parties agree that jurisdiction and venue for any dispute arising under

(or as a result of) this Subaward will be tried in appropriate federal or

state courts encompassing Montgomery County, Ohio, and each Party

submits to the jurisdiction of such courts.

Doc. 29-1 at 16.11 To be sure, when read in conjunction with the arbitration clause,

this provision may appear to establish incompatible agreements to arbitrate and to

litigate. However, the clauses can be reconciled.

Under Alabama law and Ohio law, courts must attempt to reconcile

inconsistent contract terms, give effect to each term, and construe the terms in

11 Again, neither party has asked the court to enforce this provision. See docs. 29; 31; 32. See also

doc. 31 at 14 n.9. Presumably, Quantum believes its claims fall outside the scope of this provision,

see doc. 31 at 14 n.9, and the defendants ultimately want Quantum to arbitrate its claims outside

of any judicial forum, be it an Ohio court or an Alabama court, see doc. 32 at 3–4. (Quantum also

suggests that applying Ohio law would not alter the relevant components of the court’s analysis,

anyway. See doc. 31 at 13.) While this court believes that Quantum’s claims likely fall within the

scope of the forum-selection clause for the same reasons they fall under the arbitration clause, see

supra, because the parties do not contest venue and in light of the federal policy favoring valid

arbitration agreements, the court will dismiss the case on arbitration, not venue, grounds. And

again, because the Subaward Agreement states that Ohio law will govern, in an abundance of

caution, the court cites to Alabama law and Ohio law in its interpretation of the Subaward

Agreement. The court also observes that these laws appear to align in this context.

relation to the contract as a whole. Bay Shore Power Co. v. Oxbow Energy Sols.,

LLC, 969 F.3d 660, 666 (6th Cir. 2020); Advance Tank & Constr. Co. v. Gulf Coast

Asphalt Co., 968 So. 2d 520, 527 (Ala. 2006). And generally speaking, courts have

reconciled apparently contradictory arbitration and forum-selection clauses by

finding that the parties intended to arbitrate claims within the scope of the arbitration

clause, litigate nonarbitrable claims, and choose the governing law and forum for

that litigation. See, e.g., Applied Energetics, Inc. v. NewOak Cap. Markets, LLC,

645 F.3d 522, 525 (2d Cir. 2011); Pers. Sec. & Safety Sys. Inc. v. Motorola Inc., 297

F.3d 388, 395–96 (5th Cir. 2002); Advance Tank, 968 So. 2d at 527; Cook v. Cmty.

Health Partners, No. 13CA010520, 2015 WL 1291514, at *3–4 (Ohio Ct. App.

March 23, 2015); Sims v. Clarendon Nat. Ins. Co., 336 F. Supp. 2d 1311, 1319 n.3

(S.D. Fla. 2004).

Here, the parties agreed to submit “any dispute relating to [t]he Subaward” to

“mandatory and binding arbitration,” doc. 29-1 at 12, but also agreed “that

jurisdiction and venue for any dispute arising under (or as a result of) this Subaward

[would] be tried in appropriate federal or state courts encompassing Montgomery

County, Ohio” applying Ohio law, id. at 16. Under a plain reading of the provisions,

the parties agreed to litigate only the issues of jurisdiction and venue in Ohio court

and to leave all other issues to arbitration. And although they also preselected this

jurisdiction and venue, the forum-selection clause would place any disputes about

jurisdiction and venue—e.g., challenges to enforceability—in the hands of the Ohio

court. Then, the arbitration clause would require arbitration of all other issues.

Because the clauses can be reconciled,'” the court sees no basis for setting aside the

arbitration provision, and Quantum must submit to arbitration on its claims.

IV.

In sum, the court will grant the motion to dismiss, doc. 29, because the

defendants can validly enforce the mandatory arbitration clause against Quantum on

its claims under the Subaward Agreement. As a result, the court need not wade into

the sufficiency of Quantum’s factual allegations or the Rule 12(b)(6) aspect of the

motion to dismiss. A separate order follows.

DONE the 28th day of June, 2022.

ABDUL K. KALLON

UNITED STATES DISTRICT JUDGE

A broader interpretation of the forum-selection clause would provide Ohio courts jurisdiction

over all disputes, without limitation. Quantum seems to endorse this interpretation by selectively

omitting the crucial language “jurisdiction and venue” and “will be tried” from the forum-selection

clause. See doc. 31 at 14-15. Perhaps Quantum is correct that the parties essentially meant to say

that jurisdiction and venue for any dispute arising under the Subaward Agreement are the federal

and state courts encompassing Montgomery County, Ohio. See id.; doc. 26-3 at 16. Even if so,

however, the forum-selection and arbitration clauses can still be reconciled. Quantum and SPGI

would have agreed to arbitrate all claims within the scope of the arbitration clause and to litigate

in that particular forum issues outside the scope of the clause or arising out of the arbitration. This

reconciliation suggests that the parties did intend to be bound by arbitration for the claims at issue.

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