UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

________________________________ ) ) NANOSOLUTIONS, LLC, et al. ) ) Plaintiffs, ) ) Civ. Action No. 10-1741 (EGS) v. ) ) RUDY PRAJZA, et al., ) œœœœœœœœœœœœœœœœœ ) Defendants. ) ) ________________________________)

MEMORANDUM OPINION

This action arises out of an alleged breach of an Agreement

in Principle entered into by Nanosolutions, LLC (“Nano”) and

Aquiss Beverage Technologies, Inc. (“ABT”) (collectively,

“plaintiffs”), and Rudy Prajza (“Prajza”), Aqiss Canada, Ltd.

(“ACL”) and 2221267 Ontario, Ltd. (“Ontario”) (collectively

“defendants”). Pending before the Court are plaintiffs’ motion

for leave to amend their complaint and defendants’ motion and

renewed motion to stay the litigation pending arbitration. Upon

consideration of the motions, responses and replies thereto, the

applicable law, the entire record, and for reasons set forth

below, the Court will GRANT plaintiffs’ motion for leave to amend

the complaint, DENY AS MOOT defendants’ motion to stay, and GRANT

defendants’ renewed motion to stay the litigation in its entirety

pending arbitration. I. BACKGROUND

Plaintiff Nano is a biotechnology company which develops

“technology involving tissue-like nano-encapsulation delivery

systems, providing instant delivery of payloads into the

bloodstream.” Pls.’ Am. Compl. (“Am. Compl.”) ¶ 19.1 Plaintiff

ABT, an affiliate of Nano, developed “the AQISS brand of vitality

beverages” which provides “bio-availability of electrolytes and

cell repair technology through nano-encapsulation.” Am. Compl.

¶ 21. Defendant Rudy Prajza is a citizen of Canada. Defendants

ACL and Ontario are two companies created by Prajza.

This case involves three contracts: a 2007 Employment

Agreement between Prajza and ABT (“Employment Agreement”), a

March 2010 Agreement between ABT and professional tennis player

Andy Roddick, who is not a party to this case (the “Roddick

Agreement”), and the June 2010 Agreement in Principle (“AIP”)

between all the parties in this case. The agreements will be

discussed in turn.

In 2007, ABT and Prajza entered into an employment agreement

(“Employment Agreement”), which provided for Prajza to become

Chief Marketing Officer of ABT. Under the agreement, ABT would

pay Prajza $150,000 per year plus benefits, expenses, and shares

of stock, in exchange for which Prajza was to “promote the

1 Unless otherwise stated, all facts are drawn from the Amended Complaint.

2 beverage brand [AQISS] and expand the existing product sales and

distribution.” Am. Compl. ¶ 32. According to plaintiffs, Prajza

failed to perform the required functions of his position,

resulting in significant losses to ABT. In mid-2008 ABT ceased

making payments to Prajza under the Employment Agreement. The

Employment Agreement contains no arbitration provision. Am.

Compl. Ex. D.

After Prajza and ABT parted ways in 2008, ABT negotiated an

endorsement agreement with professional tennis player Andy

Roddick. ABT and Roddick executed the Roddick Agreement in March

2010, which grants to ABT the worldwide right to use Roddick’s

endorsement to promote ABT beverages, including AQISS. In

consideration for the right to use the athlete endorsement, the

Roddick Agreement provides, among other things, for minimum

annual royalties and the payment of a royalty on the sales of ABT

beverages. Am. Compl. ¶ 92. The Roddick Agreement does not

contain a mandatory arbitration provision. Pls.’ Opp’n to Motion

to Stay, Declaration of James Hovis (“Hovis Decl.”) ¶ 20.

Meanwhile, notwithstanding their troubled history, Prajza

and ABT remained in contact. Following protracted negotiations,

the parties executed an Agreement in Principle (“AIP”) for Prajza

and two companies created by him - Defendants Ontario and ACL -

to market and distribute AQISS products in Canada. In the AIP,

plaintiffs agreed to license Nano’s technology to defendants and

3 convey other rights in connection with the development,

production and marketing of AQISS in Canada. See Am. Compl. Ex.

A., AIP. In exchange for these rights, ACL and Ontario agreed to

pay royalties and other fees to plaintiffs and also agreed to

provide other services, including a website. Pursuant to the

AIP, ABT also agreed to sublicense to ACL its rights obtained

under the Roddick Agreement, so as to permit ACL to use the

endorsement of Andy Roddick in the marketing of AQISS. None of

the defendants are party to the Roddick Agreement. However, as a

condition of receiving the sublicense from ABT, defendant ACL

agreed “to be bound by all of the terms and conditions of the

Roddick Agreement and to take all necessary and reasonable

actions to ensure ABT’s compliance therewith pertaining to the

marketing and selling” of AQISS in Canada. AIP ¶ 2(a).

The AIP does not create an employment relationship between

Prajza and plaintiffs, nor does it reinstate Prajza’s prior

employment with ABT. It does, however, contain a provision

referring to that history. Paragraph 10 of the AIP provides, in

relevant part:

In lieu of the payment to [plaintiffs] of any up-front licensing fees, scientific support payments, work progress payments . . . and minimum royalty payments during the first 12 months from the date first above written . . . Rudy Prajza agrees to forgive any and all accrued salary, expenses and other amounts payable to him by ABT [] through the date hereof . . .

AIP ¶ 10.

4 Paragraph 12(d) of the AIP contains a mandatory arbitration

provision. It provides:

This Agreement and the legal relationships among the parties hereto shall be government by and construed in accordance with the substantive laws of the Province of Ontario, Canada without giving effect to the principals [sic] of conflicts of laws thereof. Conflicts between parties shall be resolved through the Arbitration Act, Ontario, held in the City of Toronto.

AIP ¶ 12(d).

Plaintiffs and defendants executed the AIP on June 24, 2010.

Problems between the parties developed immediately. Plaintiffs

allege that defendants breached the AIP by, among other things,

changing the price at which they promised to sell AQISS,

misrepresenting information about plaintiffs on ACL’s website,

and failing to abide by the terms and conditions of the Roddick

Agreement. On August 19, 2010 ABT sent a letter to ACL

terminating all of ACL’s rights under the Roddick Agreement. On

September 13, 2010, plaintiffs sent a letter to all defendants

terminating the AIP. The next day, defendants ACL and Ontario

responded by delivering to the plaintiffs a Notice to Arbitrate

in Ontario, Canada. Defs.’ Motion to Stay, Declaration of

Jonathan Stainsby (“Stainsby Decl.”) Ex. A. (“Notice to

Arbitrate”). The Notice to Arbitrate sought, inter alia, a

declaration that the AIP had not been terminated, an

interpretation of the AIP, a declaration regarding ACL’s

obligations under the Roddick Agreement, specific performance of

5 the AIP, and damages for breach of contract. Notice to Arbitrate

p. 2.

Plaintiffs informed the defendants that they would not

participate in the arbitration. Stainsby Decl. Ex. B. Instead,

a week later, on September 20, 2010, plaintiffs filed a one count

complaint alleging Fraud in the Inducement of the AIP in the

Superior Court for the District of Columbia. Defendants removed

the case to this Court, citing “two independently sufficient

grounds for removal . . . the Federal Arbitration Act §§ 203 and

205 . . . [and] diversity[.]” Notice of Removal, Doc. No. 1 at 1-

2. Following removal, defendants immediately moved to stay this

case pending completion of the arbitration initiated by ACL and

Ontario and “pending the outcome of any such claims as ABT may

seek to bring in arbitration under the [AIP].” Defs.’ Mem. in

Support of Motion to Stay at 9.

Shortly after the parties finished briefing Defendants’

Motion to Stay, an arbitrator appointed by the Ontario Supreme

Court of Justice issued his decision on the claims that ACL and

Ontario had asserted in arbitration. Defs.’ Notice of Decision,

Doc. No. 10. Plaintiffs did not participate in the arbitration

proceedings. Defendants argued that the arbitrator’s decision

should not impact their motion for a stay in this Court, noting

that “the arbitrator’s decision does not affect [defendants’]

entitlement to a stay of these proceedings under the Federal

6 Arbitration Act until after ABT commences and completes an

arbitration of its claim[s] . . . the claims asserted by ABT [in

litigation] remain subject to the arbitration clause and this

action must be stayed pending arbitration.” Defs.’ Notice of

Decision at 2.

On January 31, 2011, plaintiffs filed a Motion for Leave to

File an Amended Complaint. The amended complaint contains eight

counts. Counts One and Two are common law claims of negligence,

breach of contract, and conversion against Prajza only, and arise

from Prajza’s 2007 Employment Agreement with ABT. Count Three

alleges fraudulent inducement to enter into the AIP against all

defendants. Count Four alleges the defendants breached the AIP

in several ways, including that ACL breached its obligations

under the Roddick Agreement as incorporated into the AIP. Count

Five asserts that Prajza converted plaintiffs’ property by

registering the AQISS website in his own name. Count Six claims

Prajza made false statements and representations to plaintiffs in

2009 regarding his interest in again working for ABT. Count

Seven claims fraud in the arbitration proceeding. Finally, Count

Eight asserts defendants tortiously interfered in plaintiffs’

business relationships by contacting one of Nano’s owners and

Andy Roddick regarding the parties’ underlying disputes.

Plaintiffs seek a declaratory judgment that the AIP is void, that

the arbitrator lacks jurisdiction, and that the decision of the

7 Canadian arbitrator is not binding on plaintiffs, an injunction

preventing defendants from using the Roddick endorsement, and

damages of $330 million. Defendants have opposed the motion for

leave to amend, and have renewed their motion to stay the

proceedings pending arbitration. The motions are ripe for review

by the Court.

II. STANDARD OF REVIEW

A. Leave to Amend the Complaint

Under Federal Rule of Civil Procedure 15(a)(1), a party may

amend its pleading once as a matter of course within twenty-one

days after serving it, or, if a pleading is one to which a

responsive pleading is required, within twenty-one days after

service of a responsive pleading or within twenty-one days after

the defendant files a motion under Rule 12(b), (e) or (f),

whichever is earlier. Fed. R. Civ. P. 15(a)(1). Once the time

to amend a pleading as a matter of course elapses, a plaintiff

may amend the complaint with leave of the Court. Fed. R.

15(a)(2). The Rule directs courts to “freely give” leave to

amend a complaint “when justice so requires.” Id. “If the

underlying facts or circumstances relied upon by a plaintiff may

be a proper subject of relief, he ought to be afforded an

opportunity to test his claim on the merits.” Foman v. Davis,

(1962). Accordingly, courts should grant leave

to amend “in the absence of undue delay, bad faith, undue

8 prejudice to the opposing party, repeated failure to cure

deficiencies, or futility.” Richardson v. U.S.,

(D.C. Cir. 1999) (citing Foman,

).

B. Stay of Proceedings Pending Arbitration

When considering “a motion to stay proceedings and/or compel

arbitration, the appropriate standard of review for the district

court is the same standard used in resolving summary judgment

motions” under Federal Rule of Civil Procedure 56(a). Brown v.

Dorsey & Whitney, LLP,

(D.D.C. 2003).

“Thus, it is appropriate to grant a motion to stay proceedings

when the pleadings and the evidence demonstrate that there is no

genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law.” Detoledano v.

O’Connor,

(D.D.C. 2007) (citing Fed. R.

Civ. P. 56.) The party seeking a stay of proceedings bears the

initial burden of demonstrating an absence of genuine issues of

material fact. See Celotex Corp. v. Catrett,

(1986).

In determining whether a genuine issue of material fact

exists, the Court must view all facts in the light most favorable

to the non-moving party. See Matsushita Elec. Indus. Co. v.

Zenith Radio Corp.,

(1986); Keyes v. Dist. of

Columbia,

(D.C. Cir. 2004). The non-moving

party’s opposition, however, must consist of more than mere

9 unsupported allegations or denials and must be supported by

affidavits or other competent evidence setting forth specific

facts showing that there is a genuine issue for trial. See Fed.

R. Civ. P. 56(a); Celotex,

. If the evidence

favoring the non-moving party is “merely colorable, or is not

significantly probative, summary judgment may be granted.”

Anderson v. Liberty Lobby, Inc.,

(1986).

Summary judgment will be granted, therefore, if the plaintiffs

fail to offer “evidence on which the jury could reasonably find

for” the plaintiffs.

.

III. ANALYSIS

There are two motions pending before the Court. First, the

plaintiffs move for leave to amend their complaint. Second,

defendants have moved for a stay of all proceedings pending

arbitration. The Court considers each motion in turn.

A. Plaintiffs’ Motion for Leave to Amend

Plaintiffs seek leave to file an amended complaint, which

they have tendered to the Court. As discussed above, a party may

amend its complaint once as a matter of course before being

served with a responsive pleading. Fed. R. Civ. P. 15(a).

Because a motion to stay is not a responsive pleading, see Fed.

R. Civ. P. 7(a) (defining “pleadings”), and because this is

plaintiffs’ first attempt to amend the complaint, they are

10 entitled to amend their complaint without leave of the Court.2

See Stender v. Cardwell, No. O7-2503,

, at *5 (D.

Colo. Sept. 28, 2009). Accordingly, plaintiffs’ motion to amend

is GRANTED.3

B. Defendants’ Motion to Stay Proceedings Pending Arbitration

The defendants argue that all of plaintiffs’ claims in the

Amended Complaint are covered by the parties’ arbitration

agreement in the AIP, and accordingly, this case must be stayed

pending arbitration of those claims. Plaintiffs assert two main

arguments in response. First, plaintiffs assert that the

arbitration agreement is not valid, because the AIP was obtained

by fraud in the inducement. Second, they argue that even if the

arbitration clause is valid, its scope is limited and does not

encompass many of the claims asserted in this litigation.4 The

2 Even if leave of the Court were required in order to amend the complaint, the Court would grant it. Defendants have failed to show undue delay, bad faith, undue prejudice, repeated failure to cure deficiencies, or futility. Leave to amend would therefore be appropriate pursuant to Federal Rule of Civil Procedure 15(a)(2). 3 Because plaintiffs’ motion to amend is granted, defendants’ initial motion to stay, filed before plaintiffs moved to amend, is DENIED AS MOOT. 4 Plaintiffs also claim that defendants’ request for a stay is moot because the arbitrator has already rendered his decision on defendants’ claims; thus, “there is no longer any reason to stay the instant proceeding.” Pls.’ Response to Notice of Arbitrator’s Decision at 3. This argument is without merit. As defendants point out, they seek a stay not only to arbitrate their claims against plaintiffs, but also to preclude plaintiffs

11 Court will first set forth the governing law, and then will

explore plaintiffs’ claims in turn.

i. Applicable Law

Defendants invoke the Convention on the Recognition and

Enforcement of Foreign Arbitral Awards [1970] 21 U.S.T. 2517, 330

U.N.T.S. 38, reprinted at

(“New York Convention”)

to request a stay in this action pending arbitration of

plaintiffs’ claims. The New York Convention governs enforcement

of an arbitration clause contained within an international

commercial contract such as the AIP. See Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc.,

(1985). The

New York Convention is implemented in the United States through

the Federal Arbitration Act (“FAA”),

, which

provides “the [New York Convention] shall be enforced in United

States courts in accordance with this chapter.”

For an arbitration provision to be enforceable under the New

York Convention, “(1) there must be a written agreement; (2) it

from litigating their claims against defendants directly in court. See Defs.’ Reply to Pls.’ Response to Notice of Arbitrator’s Decision. Section 3 of the Federal Arbitration Act permits defendant to do exactly that. As this Circuit has held, “Section 3 empowers a district court only to stay an action, leaving to the claimant the choice of arbitrating the claims or abandoning them.” LaPrade v. Kidder Peabody & Co., Inc.,

(D.C. Cir. 1998); see also Cabinetree of Wisc., Inc. v. Kraftmaid Cabinetry, Inc.,

(7th Cir. 1995) (“a defendant who wants arbitration is often content with a stay, since that will stymie the plaintiff’s effort to obtain relief unless he agrees to arbitrate.”). Accordingly, defendants’ motion for a stay remains properly before the Court.

12 must provide for arbitration in the territory of a signatory of

the convention; (3) the subject matter must be commercial; and

(4) it cannot be entirely domestic in scope.” Smith/Enron

Cogeneration Ltd. P’Ship, Inc. v. Smith Cogeneration Int’l, Inc.,

, 92 (2d Cir. 1999). The parties do not dispute that

the New York Convention applies to the AIP’s arbitration

agreement.

As noted above, international arbitrations subject to the

New York Convention are governed by Chapter Two of the FAA.

Chapter One of the FAA applies, however, “to actions and

proceedings brought under [Chapter 2] to the extent that [Chapter

1] is not in conflict with [Chapter 2] or the Convention as

ratified by the United States.”

; see Khan v.

Parsons Global Services, Ltd.,

, 425 n.1 (D.C. Cir.

2008).

The FAA provides that an agreement to arbitrate in any

“contract evidencing a transaction involving commerce” is

enforceable “save upon such grounds as exist at law or in equity

for the revocation of any contract.”

. Thus,

arbitration agreements may be invalidated under Section 2 of the

FAA on the basis of “generally applicable contract defenses, such

as fraud, duress, or unconscionability.” Rent-A-Center, West,

13 Inc. v. Jackson,

(2010) (quoting Doctor’s

Associates, Inc. v. Casarotto,

(1996)).5

Once a court determines that an arbitration agreement is

valid - i.e. that the parties have a contract that provides for

arbitration of some issues between them, any doubts concerning

the scope of the arbitration clause are resolved in favor of

arbitration. “In determining the scope of arbitability, there is

a presumption of arbitrability in the sense that an order to

arbitrate the particular grievance should not be denied unless it

may be said with positive assurance that the arbitration clause

is not susceptible of an interpretation that covers the asserted

dispute. Doubts should be resolved in favor of coverage.”

Granite Rock Co. v. Int’l Brotherhood of Teamsters,

, 2866 (2010) (Sotomayor, J., concurring/dissenting) (quoting

5 The Supreme Court has recognized that in some circumstances, state (or international) contract law applies in determining whether there is an enforceable agreement to arbitrate. In cases arising under the New York Convention, however, there are “compelling reasons to apply federal law, which is already well-developed, to the question of whether an agreement to arbitrate is enforceable.” Smith/Enron, 198 F.3d at 96; see also Certain Underwrites at Lloyd’s London v. Argonaut Ins. Co.,

(7th Cir. 2007); Intergen N.V. v. Grina,

(1st Cir. 2003); Khan v. Parsons Global Services, Ltd,

(D.D.C. 2007), rev’d on other grounds,

(D.C. Cir. 2008). This is particularly true where, as here, neither party argues that any other law applies, and indeed, both parties exclusively cite federal law. See Smith/Enron, 198 F.3d at 96 (“while the language [of the agreement] might justify looking to Texas law . . . , neither party argued that it applied. Thus, we will apply the body of federal law under the FAA.”); see also Intergen N.V.

.

14 AT&T Technologies, Inc. v. Communications Workers,

(1986)); see also Wolff v. Westwood Management, LLC,

(D.C. Cir. 2009)(“the [FAA] establishes that, as a

matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration,

whether the problem at hand is the construction of the contract

language itself or an allegation of waiver, delay or a like

defense to arbitrability.”)(quoting Moses H. Cone Memorial Hosp.

v. Mercury Constr. Corp.,

(1983)).

ii. The Arbitration Agreement is Enforceable

As a threshold matter, the Court must determine whether the

arbitration agreement is valid and enforceable under Section 2 of

the FAA. Plaintiffs contend that the arbitration agreement is

invalid because defendants fraudulently induced them into

agreeing to the AIP. See Am. Compl. Count 3, ¶¶ 141-149.

Defendants counter that the plaintiffs have not alleged fraud in

the inducement of the arbitration clause; rather, plaintiffs

claim fraud in the inducement of the AIP as a whole. Defs.’

Reply in Support of Motion to Stay at 2-4. Defendants argue that

this court is not permitted to adjudicate claims of fraud in the

inducement of the contract generally; instead, such claims must

be considered by an arbitrator. Defs.’ Mem. in Support of Motion

to Stay at 7. This Court agrees with the defendants.

15 In Buckeye Check Cashing, Inc. v. Cardegena,

(2006), the Supreme Court noted that “[c]hallenges to the

validity of arbitration agreements . . . can be divided into two

types.”

. The first type, which “challenges

specifically the validity of the agreement to arbitrate,” may be

adjudicated by this Court.

However, the FAA prohibits a

district court from considering the second type, which challenges

the contract as a whole.

; see also Prima Paint

Corp. v. Flood & Conklin Mfg. Co.,

(1967)

(“if the claim is fraud in the inducement of the arbitration

clause itself - an issue which goes to the ‘making’ of the

agreement to arbitrate - the federal court may proceed to

adjudicate it. But the statutory language does not permit the

federal court to consider claims of fraud in the inducement of

the contract generally.”)

Here, the plaintiffs allege they were fraudulently induced

into entering into an agreement to do business with Prajza, who

misrepresented the composition of his companies, his connections,

and his abilities. Plaintiffs claim that “such false

representations included, but were not limited to,”

representations that Prajza “had contacts and leads in a number

of foreign countries . . . who would be excellent candidates to

license the plaintiff’s technology and distribute AQISS beverages

in such countries,” that Prajza would “make such introductions

16 and promote such licensing and distribution efforts in the event

that the parties executed an agreement acceptable to Mr. Prajza,”

and that “a list of prominent businessmen were part of the

Defendant companies.” Pls.’ Opp’n to Motion to Stay at 14; Am.

Compl. ¶¶ 75, 77. As defendants point out, plaintiffs do not

allege any “fraud in the inducement of the arbitration clause

specifically. Rather, each and every allegedly false statement

that [plaintiffs] identify as a basis for the alleged ‘fraudulent

inducement’ relates to the parties’ plans and expectations for

their business relationship, and not at all to the A[IP]’s

dispute-resolution mechanism.” Defs.’ Reply at 2-3.

The Court agrees with defendants that plaintiffs have not

alleged fraud in the inducement of the arbitration provision

either in their original complaint or their amended complaint.

Significantly, Count Three of the Amended Complaint - Fraud in

the Inducement - contains no allegation that plaintiffs were

fraudulently induced to specifically enter into the arbitration

clause. Moreover, plaintiffs’ letter terminating the AIP makes

no reference to the arbitration clause. Rather, plaintiffs claim

that the entire “Agreement in Principle was obtained by fraud in

the inducement.” Hovis Decl. Ex. B (Notice of Termination).6

6 The Court has considered plaintiffs’ assertion that they have long had “a policy against entering agreements containing arbitration provisions,” but, because of Prajza’s various misrepresentations, were fraudulently induced “to agree to terms to which the [plaintiffs] would not otherwise agree (including .

17 Accordingly, the Court finds that plaintiff is challenging the

entire AIP, and not specifically the arbitration clause. This

issue must be resolved by an arbitrator, and not by this Court,

in accordance with Prima Paint and Buckeye. The Court concludes,

therefore, that plaintiff’s attempt to invalidate the arbitration

agreement cannot be sustained, and finds the agreement to

arbitrate is enforceable under Section 2 of the F.A.A.7

iii. The Arbitration Agreement Encompasses All of Plaintiffs’ Claims in the Amended Complaint

Plaintiffs argue that even if the arbitration clause is

valid and binds them to arbitrate certain claims under the AIP,

it does not encompass all of the claims asserted in their Amended

Complaint. Defendants counter that all of plaintiffs’ claims

fall within the scope of the parties’ broad arbitration

agreement, and thus the entire litigation must be stayed. For

the reasons set forth above, the Court concludes that Count Three

of the Amended Complaint must be stayed. The Court will examine

the remaining counts in plaintiffs’ Amended Complaint in turn.

. . the arbitration provision . . . .).” Pls.’ Opp’n to Motion to Stay at 13-14; Hovis Decl. at ¶ 12; Am. Compl. ¶ 3. Given the absence of any factual claim or additional argument that the arbitration agreement itself was fraudulently induced, however, the Court is not persuaded that the plaintiffs have indeed challenged the arbitration provision itself, as opposed to the AIP as a whole. 7 Although the enforceability of the arbitration provision is a threshold issue in resolving the entire motion to stay, plaintiffs specifically raise it in Count Three. Accordingly, the Court will STAY Count Three of the Amended Complaint.

18 a. Claims Arising from the Alleged Breach of the AIP

Counts Four, Seven and Eight of the Amended Complaint arise

from or relate to the AIP. The Court will address Counts Seven

and Eight briefly, then turn to Count Four.

Count Seven alleges that defendant Prajza committed fraud in

the Canadian arbitration proceeding. Am. Compl. ¶¶ 169-175.

Count Eight alleges defendants tortiously interfered with

plaintiffs’ business opportunities by contacting an

owner/shareholder of Nano and Andy Roddick’s agent in order to

“damage the [plaintiffs’] relationships” with these two

individuals and thus undermine plaintiffs’ business. Am. Compl.

¶¶ 176-185. Defendants argue that these allegations must be

stayed pending arbitration. However, in their opposition,

plaintiffs fail to respond to the defendants’ arguments regarding

Counts Seven and Eight. It is therefore proper to treat

defendants’ arguments as conceded. See Sewell v. Chao,

, 135 n.5 (D.D.C. 2008), aff’d Slip Copy, No. 08-

5079,

(D.C. Cir. Feb. 25, 2009); see also Lytes

v. D.C. Water & Sewer Auth.,

(D.C. Cir. 2009).8

8 Even if plaintiffs had responded to defendants’ arguments, which they did not, the Court finds it unlikely that plaintiffs would prevail. As set forth above, the AIP provides for mandatory arbitration of “conflicts between parties” to the AIP and contains no language limiting the subject matter of the conflicts to be arbitrated. AIP ¶ 12. Plaintiffs’ claims in Counts Seven and Eight clearly fall within the scope of this extremely broad arbitration clause. Specifically, plaintiffs argue that the defendants committed fraud in the arbitration

19 The plaintiffs do, however, respond to defendants’ claim

that certain of the breaches alleged in Count Four -

specifically, the breaches which arise from defendant ACL’s

alleged obligations under the Roddick Agreement - fall within the

parties’ arbitration agreement in the AIP.9 It is to this

question that the Court now turns.

As set forth in Section I supra, the AIP contains an

arbitration agreement which governs, without limitation,

“disputes between parties” to the AIP. AIP ¶ 12(d). The AIP

also contains a provision regarding ABT’s agreement to sublicense

to ACL its rights obtained under the Roddick Agreement in order

proceedings agreed to by the parties in the AIP, and interfered wtih relationships arising out of the parties’ business relationship, which was governed by the AIP. Because both claims arise out of the AIP, and have their genesis in it, it is highly likely that the Court would find these claims “relate to the subject matter of the arbitration clause” and therefore must be resolved by an arbitrator. Sweet Dreams Unlimited, Inc. v. Dial- A-Mattress Int’l, Ltd.,

, 643 (7th Cir. 1993). 9 Plaintiffs fail to respond defendants’ motion to stay the remaining claims contained in Count Four, which allege breach of the AIP in ways unrelated to the Roddick Agreement. Am. Compl. ¶¶ 150-154. Therefore, it is also proper to treat defendants’ arguments regarding these portions of Count Four as conceded. As with Counts Seven and Eight, however, the Court finds that even if plaintiffs had responded to defendants’ arguments they would not prevail. Plaintiffs argue in Court Four that the defendants breached their contractual obligations under the AIP to, inter alia, maintain ABT’s website and submit required monthly reports. These claims clearly arise out of the AIP; indeed, they are expressly created by it. The Court would therefore also find that these claims relate to the subject matter of the AIP’s arbitration clause, and accordingly must be stayed by this Court pending resolution by an arbitrator.

20 to permit ACL to use the endorsement of Andy Roddick in the

marketing of AQISS. That provision provides:

ABT hereby grants a sublicense to [ACL] of its rights under that certain agreement dated March 27, 2010, by and between ABT and Andy R., Inc. (the “Roddick Agreement”) to use the Athlete Endorsement (as defined in paragraph 1 of the Roddick Agreement) in [Canada], in accordance with the terms of the Roddick Agreement, provided that, by executing [the AIP], [ACL] agrees to be bound by all of the terms and conditions of the Roddick Agreement and to take all necessary and reasonable actions to insure ABT’s compliance herewith pertaining to the marketing and selling of the [AQISS beverage] in [Canada].

AIP ¶ 2(a). The Roddick Agreement does not contain a mandatory

arbitration provision; rather, it provides that “the legal

relationships among the parties hereto” shall be governed by

Maryland law, and that “any dispute, controversy or claim arising

out of or relating to this Agreement, or the breach, termination

or validity of it, may, upon mutual agreement of the parties

hereto, be finally settled by arbitration[.]” Roddick Agreement ¶

16.

Plaintiffs argue that by agreeing to be bound to “all the

terms and conditions of the Roddick Agreement,” see AIP ¶ 2(a),

ACL is bound to the Roddick Agreement’s dispute resolution

provision and not to the AIP’s arbitration clause, to resolve

disputes with plaintiffs which relate to the Roddick Agreement.

Defendants respond that the only contract the parties all signed

is the AIP, and therefore its dispute resolution process

controls. Defs.’ Supplemental Mem. In Support of Motion to Stay,

21 p. 3-4, 6. After careful consideration, and for the following

reasons, the Court finds plaintiffs’ claims regarding ACL’s

alleged obligations under the Roddick Agreement are arbitrable

under the AIP’s arbitration clause.

As discussed throughout, the arbitration clause in the AIP

is extremely broad. It provides that “conflicts between parties

shall be resolved through the Arbitration Act, Ontario, held in

the city of Toronto” and contains no limits on the subject matter

of the conflicts to be arbitrated. Standing alone, the

arbitration provision clearly encompasses the parties’ conflict

about the sublicensing of Andy Roddick’s endorsement of the AQISS

beverage, particularly since the sublicense was granted in the

AIP. In determining the parties’ intent, however, the Court

“looks to all terms of the parties’ agreement bearing on

arbitration. Even though the words of the agreement’s

arbitration provision may be broad, its scope may be limited by

language elsewhere in the agreement clearly and unambiguously

negating or limiting it with respect to a matter in dispute.”

Woodcrest Nursing Home v. Local 144, Hotel, Hospital, Nursing

Home and Allied Services Union,

(2d Cir.

1986)(citations omitted); see also AT&T Technologies, 475 U.S. at

651-52 (on remand, lower courts must construe entire collective

bargaining agreement to determine whether a particular grievance

was subject to arbitration); Feingold, Alexander & Associates,

22 Inc. v. Setty & Associates, Ltd.,

(D.C. Cir.

1996) (reading contract as a whole to determine scope of

arbitration clause).

Plaintiffs urge the Court to read the arbitration clause

together with paragraph 2(a) of the AIP, which relates to the

Roddick Agreement, as well as the dispute provision of the

Roddick Agreement. Neither of these provisions, however,

“clearly or unambiguously [] negate[s]” the AIP’s arbitration

clause with respect to conflicts regarding the ACL’s obligation

under the Roddick Agreement. Woodcrest,

.

Section 2(a) contains ACL’s agreement to be bound to the

Roddick Agreement as it relates to “the marketing and selling of

the Finished Products [AQISS beverages] in the Territory

[Canada].” AIP ¶ 2(a). Given the limited scope of ACL’s sub-

license of the Roddick endorsement, its agreement to comply with

“all of the terms and conditions” of the Roddick Agreement cannot

be logically read to mean that every term and condition of the

Roddick Agreement creates an enforceable obligation for ACL. œœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ

23 œœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœœ Again, these

provisions create no obligation for ACL. Were the Court to read

paragraph 2(a) as plaintiffs suggest - creating obligations for

ACL under each and every provision of the Roddick Agreement -

these portions of the Roddick Agreement would be rendered

meaningless - a result forbidden by ordinary principles of

contract interpretation. See, e.g., Booker v. Robert Half

Intern., Inc.,

(D.C. Cir. 2005) (citing

Restatement (Second) of Contracts § 203(a) (1981)).

Similarly, the Court finds that the dispute resolution

provision in the Roddick Agreement creates no obligation for ACL.

That provision provides for resolution of disputes among the

“parties” to the Roddick Agreement. Roddick Agreement at ¶ 16

(emphasis added). But, as plaintiffs admit, ACL is not a party

to the Roddick Agreement. Am. Compl. ¶ 91. On the other hand,

ACL is a party to the AIP, which contains a mandatory arbitration

provision which covers, without limitation, conflicts between it

and ABT. If, as plaintiffs urge, the Court were to hold that the

dispute resolution provision of the Roddick Agreement allows

plaintiffs to avoid arbitration with ACL, then that clause could

not be squared with AIP’s mandatory arbitration clause covering

all conflicts with ACL. Such an outcome would not comport with

the Court’s duty to harmonize all provisions of a contract and to

reconcile them if possible. See, e.g., Papago Tribal Util. Auth.

24 v. Fed. Energy Regulatory Comm’n,

(D.C. Cir.

1979).

Instead, to reconcile the clauses, the Court reads the plain

language of Roddick Agreement’s dispute resolution to apply only

to parties to that agreement. Accordingly, if ABT has a dispute

with Roddick, the dispute resolution provisions of that agreement

apply. If, however, the parties to the AIP have a conflict, the

AIP’s dispute resolution provision applies. This construction of

the agreements gives meaning to both provisions and nullifies

neither.

Accordingly, the Court concludes that the AIP and the

Roddick Agreement are “susceptible of an interpretation” that

ABT and ACL’s dispute regarding the Roddick Agreement is covered

by the AIP’s arbitration clause. AT&T Technologies, 475 U.S. at

650. This portion of Count Four is therefore STAYED pending

arbitration.10

10 Plaintiffs assert a variety of common law contract doctrines - incorporation by reference, estoppel, and third party beneficiary - in support of their claims that ACL is bound by the dispute resolution provision of the Roddick Agreement. Pls.’ Mem. In Further Support of Opp’n to Motion to Stay at 4-7. However, plaintiffs admit that every authority they cite in support of these theories arises in the inverse of the situation here: i.e., courts use these contract law principles to bind an entity to a mandatory arbitration provision in a contract it did not sign. If, as plaintiffs urge, the Court applied these principles in this case, it would permit a party to escape a mandatory arbitration provision contained in a contract it signed. This result would be irreconcilable with the strong federal policy in favor of arbitration and this Court’s duty to resolve any doubts concerning the scope of an arbitration clause

25 b. Claims Arising from Rudy Prajza’s Former Employment with ABT

Counts One, Two, Five and Six of the Amended Complaint arise

from Prajza’s prior employment relationship with ABT.

Specifically, plaintiffs assert that Prajza breached his

employment contract with ABT, committed negligence in his role as

ABT’s Chief Marketing Officer, converted ABT’s property by

registering a website for ABT in his own name while employed by

ABT, and fraudulently induced ABT to obtain an H1-B visa for him

by misrepresenting that he would return to work for ABT. Am.

Compl. ¶¶ 131-140; 155-168.

Plaintiffs argue that their employment-related claims

against Prajza are not subject to the AIP’s arbitration clause

because they arose before the parties entered into the AIP.

Plaintiffs also argue that at least some of these claims are

governed by Prajza’s and ABT’s 2007 Employment Agreement, which

does not contain an arbitration clause.11 Pls.’ Opp’n to Defs.’

in favor of arbitration. Accordingly, the Court finds plaintiffs’ authority wholly inapplicable to this case. 11 Plaintiffs make the additional argument that the Canadian arbitrator’s decision requires this Court to hear their employment-related claims. In his Reasons for Decision, the arbitrator declined to rule on Prajza’s “personal” damage claims against plaintiffs arising out of his prior employment relationship with ABT. See Reasons for Decision, Doc. 10-1 at 4. Plaintiffs assert that this Court must resolve their claims regarding Prajza personally because the Canadian arbitrator refused to resolve Prajza’s similar claims against plaintiffs. See Id. at 3, 4, 12. The Court disagrees. Contrary to plaintiffs’ claim, it is

26 Renewed Motion to Stay at 6-9. Defendants counter that the AIP’s

arbitration clause governs all “conflicts between parties,” and,

as Prajza and ABT are indisputably parties to the AIP, ABT’s

claims against Prajza are subject to the parties’ agreement to

arbitrate, even if the events underlying the claims predate

execution of the AIP, and even if they arose under the 2007

Employment Agreement. Defs.’ Renewed Motion to Stay at 6. Upon

careful consideration, the Court agrees with defendants that

these claims are covered by the parties’ agreement to arbitrate.

Several circuits have held that a broad arbitration clause

may encompass claims between the parties that arise out of their

not clear that the arbitrator decided that Prajza’s employment- related claims fall outside the scope of the parties’ agreement to arbitrate. As the arbitrator noted, Prajza was not a party to the arbitration; the only claimants were ACL and Ontario. Defs’ Motion to Stay, Exhibit C, Notice of Application to Arbitrate. In declining to award employment-related damages allegedly incurred by Prajza to ACL and Ontario, the arbitrator noted that such claims “are personal to Mr. Prajza and do not arise in favour of the Claimants[.]” Notice of Decision at 4. Accordingly, it appears that the arbitrator did not have the opportunity to squarely consider whether such claims are within the scope of the parties’ arbitration agreement. In contrast, the issue is squarely before this Court. As the Supreme Court has repeatedly held, it is the role of the courts to determine what claims are arbitrable under the parties’ agreement to arbitrate unless the parties have clearly delegated that function to an arbitrator. See, e.g., AT&T Technologies, 475 U.S. at 649 (courts, not arbitrators, should determine the scope of an arbitration agreement “unless the parties clearly and unmistakably provided otherwise.”). Nothing in the AIP suggests that the parties delegated the question of arbitrability to the arbitrator, and none of the parties argue that they did so. Accordingly, the Court concludes that it has the authority to determine whether these claims are arbitrable.

27 ongoing relationship, even if those claims predate the agreement

to arbitrate and even if the claims are not related to the

subject matter of the agreement containing the arbitration

clause.12 See Coenen v. R.W. Pressprich & Co.,

(2d Cir. 1972)(an agreement to arbitrate “any controversy

between . . . members” included conflicts that accrued before the

members entered into the agreement, even if they were unrelated

to the agreement). See also Zink v. Merrill Lynch Pierce Fenner

& Smith,

(10th Cir. 1993) (arbitration clause

stating “any controversy between [the parties] arising out of

[plaintiff’s] business or this agreement” was “clearly broad

enough to cover the dispute at issue despite the fact that the

dealings giving rise to the dispute at issue occurred prior to

the execution of the agreement.”); Belke v. Merril Lynch, Pierce,

Fenner & Smith,

(11th Cir. 1982) abrogated on

other grounds, Dean Witter Reynolds, Inc. v. Byrd,

(1985) (“By its own terms the contract between the parties covers

not only disputes arising out of the agreement, but . . .

includes “any controversy between us arising out of your

business.” An arbitration clause covering disputes arising out

of the contract or business between the parties evinces a clear

intent to cover more than just those matters set forth in the

12 The D.C. Circuit does not appear to have directly addressed this situation.

28 contract.”) (emphasis in original).

Indeed, courts have applied broad arbitration clauses to

include disputes arising under earlier agreements between the

parties that did not themselves provide for mandatory

arbitration. In Levin v. Alms & Associates,

,(4th

Cir. 2011), the Fourth Circuit determined that an arbitration

clause which provided that “[a]ny dispute shall be submitted to

binding arbitration” was “broad enough to encompass all

agreements and any disputes,” including disputes arising from

earlier agreements with no arbitration provisions.

(emphasis in original). The Levin Court reasoned that the “heavy

presumption . . . in favor of arbitrability is particularly

applicable when the arbitration clause is broadly worded.”

; see also Kristian v. Comcast Corp.,

(1st Cir. 2006) (agreement to arbitrate “any claim or dispute

relating to or arising out of this agreement or the services

provided” applied retroactively to claims arising from prior

service contracts that did not contain arbitration provision);

Cash Converters USA, Inc. v. Burns, No. 99-C-146,

,

at *9 (N.D. Ill. Feb. 19, 1999) (arbitration clause covering all

claims arising out of the agreement as well as claims related to

the parties’ “relationship” encompasses prior agreements with no

arbitration provisions).

In this case, like those cited above, the arbitration

29 provision in the AIP is extremely broad – it requires arbitration

of “conflicts between parties” and contains no language limiting

the subject matter or temporal scope of those conflicts. AIP ¶

12(d). Moreover, the allegations in the Amended Complaint make

clear that ABT and Prajza have had a relationship since at least

2007, spanning the time period during which the incidents alleged

in Counts 1, 2, 5 and 6 occurred. See, e.g., Am. Compl. ¶¶ 30-

35, 43-48, 59-65, 71-73, 74-106. Of particular importance in

this case, the AIP itself contains language recognizing that

Prajza was once employed by ABT and relating back to that

relationship. The AIP does not create or renew an employment

relationship between Prajza and plaintiffs, but nevertheless,

Paragraph 10 of the AIP provides:

In lieu of the payment to [plaintiffs] of any up-front licensing fees, scientific support payments, work progress payments . . . and minimum royalty payments during the first 12 months from the [AIP’s effective date] . . . Rudy Prajza agrees to forgive any and all accrued salary, expenses and other amounts payable to him by ABT and/or [Nano] through the date hereof . . .

AIP ¶ 10. This language strongly indicates that the parties

accounted for and attempted to resolve issues relating to

Prajza’s previous employment with ABT in the AIP. At the same

time, they agreed to an extremely broad arbitration clause

covering “conflicts between parties” without limitation. Under

these circumstances, and bearing in mind that this Court is

required to accord a strong presumption in favor of arbitration,

30 the Court concludes that the arbitration clause in the AIP

encompasses plaintiffs’ claims arising out of Prajza’s earlier

employment relationship with ABT.

Plaintiffs cite to several cases in which courts refuse to

give retroactive effect to arbitration clauses. After careful

review, the Court finds these cases unpersuasive as applied to

the facts of this case. Nearly all of the cases relied upon by

plaintiffs contain arbitration clauses which are much narrower

than the arbitration agreement in the AIP, and explicitly

restrict arbitration to claims arising under the contract. See,

e.g., George Washington University v. Scott,

(D.C. 1988) (parties agreed to arbitrate “any claim . . . under

this contract”); Security Watch Inc. v. Sentinel Systems,

(6th Cir. 1999) (arbitration required “in

connection with all disputes . . . arising out of or relating to

Products furnished pursuant to this Agreement”); Peerless

Importers, Inc. v. Wine, Liquor & Distillery Workers Union Local

1,

(2d Cir. 1990) (mandatory arbitration of all

claims “arising under this agreement and during its term”).

Plaintiffs cite only a single case - Hendrick v. Brown &

Root - in which the court found a broad arbitration clause

between the parties did not cover claims predating the

arbitration agreement.

(E.D. Va. 1999). The

Court finds Hendrick inapposite to the facts of this case. In

31 Hendrick, the contract containing the arbitration provision was

not negotiated at all; rather, it was presented as a take it or

leave it agreement between a sophisticated multinational

corporation on the one hand and a single, unsophisticated

employee on the other.

. In contrast, the AIP in

this case was the product of protracted negotiation between

several equally sophisticated parties. Moreover, the plaintiff

in Hendrick did not know of the allegedly unlawful prior conduct

by his employer until after he had signed the contract containing

the arbitration clause; accordingly, he never had the opportunity

to pursue his claims in litigation before signing the later

agreement.

. In this case, on the other hand, ABT was

clearly unhappy with Prajza’s work when it stopped paying him in

2008, a full two years before executing the AIP. Accordingly,

plaintiffs had ample opportunity to litigate most of their

employment-related claims against Prajza before negotiating a

subsequent agreement agreeing to arbitrate any and all claims

between them. Cf. Davis v. Magnolia,

(D.D.C.

2009) (arbitration provision not retroactive where contract was

not product of negotiation between equally sophisticated parties

and where plaintiff had already begun litigating earlier claim

before signing contract containing arbitration provision);

Shelton v. Ritz Carlton Hotel Co.,

(D.D.C.

2008) (arbitration provision not retroactive where contract was

32 not product of negotiation between equally sophisticated parties

and where claim occurred one month before plaintiff signed

arbitration provision, therefore she had no chance to litigate

it).

Accordingly, given the broad scope of the AIP’s arbitration

clause, and in light of the parties’ clearly expressed intent to

resolve Prajza’s old employment disputes within the body of the

AIP, the Court GRANTS defendants’ motion to stay Counts One, Two,

Five and Six of the Amended Complaint pending arbitration of

plaintiffs’ claims.

IV. CONCLUSION

For the reasons stated above, plaintiffs’ motion to amend

the complaint is GRANTED, defendants’ first motion to stay is

DENIED AS MOOT, defendants’ renewed motion to stay this case in

its entirety pending arbitration is GRANTED. A separate order

accompanies this memorandum opinion. Because this Memorandum

Opinion discusses material which the parties filed under seal in

accordance with the [19] Order entered by the Court in March

2011, it is initially being filed under seal. An appropriate

Order resolving the motions and directing the parties to submit a

redacted opinion for public viewing accompanies this Memorandum

Opinion. Consistent with this Order, the parties shall submit a

33 sealed filing with the Court including their joint proposed

redactions by no later than June 16, 2011.

Signed: Emmet G. Sullivan United States District Judge June 2, 2011

34