David Ruppert v. MAV6 Holdings, LLC

IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI

NO. 2014-CA-00445-COA

DAVID RUPPERT AND PAUL FRANKEN APPELLANTS

v.

MAV6 HOLDINGS, LLC; MAV6 EMPLOYEE APPELLEES
EQUITY PROGRAM, LLC; A. JAY HARRISON;
AND BUFORD C. BLOUNT, III

DATE OF JUDGMENT: 03/21/2014
TRIAL JUDGE: HON. DEBORAH J. GAMBRELL
COURT FROM WHICH APPEALED: LAMAR COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: O. STEPHEN MONTAGNET III
WILLIAM B. BARDWELL
ATTORNEY FOR APPELLEES: CORY T. WILSON
NATURE OF THE CASE: CIVIL - CONTRACT
TRIAL COURT DISPOSITION: GRANTED APPELLEES’ MOTION TO
COMPEL ARBITRATION
DISPOSITION: AFFIRMED - 06/09/2015
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

BEFORE IRVING, P.J., ISHEE AND CARLTON, JJ.

ISHEE, J., FOR THE COURT:

¶1. This case involves a defense-contractor company named Mav6 LLC (Mav6). Mav6

is the operating company tied to Mav6 Holdings LLC (Holdings) and Mav6 Employee Equity

Program LLC (MEEP). Collectively, Mav6, Holdings, and MEEP are known as Mav6

Entities (Entities), which was founded by Major General Buford C. Blount III, a decorated

war veteran and former commander of the Army’s 3rd Infantry Division, and distinguished

Navy veteran and former senior executive in the Army A. Jay Harrison, in 2007. The

purpose of Holdings was laid out as follows:
(1) to oversee the operations of Mav6[] LLC (“Mav6”) to create the leading
agile, mid-tier systems integrator and technology innovation company serving
the national security community; (2) to exploit [d]efense and commercial
market synergies to build a highly differentiated Mav6 brand and diversified
revenue stream; and (3) to drive high technology economic development in the
State of Mississippi. The foregoing purposes shall be in addition to, and not
in limitation of, the general powers of limited liability companies under the
Act.

Likewise, the purpose of MEEP was:

(a) to act as a holding company for the employees of Mav6[] LLC (“Mav6”)
to combine their equity holdings and to secure continuity and stability of the
capitalization of the Company; (b) to do and perform all acts necessary and
desirable to carry out the foregoing purpose; and (c) to engage in any one or
more business[es] or transactions which from time to time may be authorized
or approved according to the provisions hereof. The foregoing enumerated
purposes shall be in addition to, and not in limitation of, the general powers of
limited liability companies under the Act.

¶2. From January 2008 until March 2012, Paul Franken worked for Mav6 as a

nonexecutive employee.1 Upon being given equity interests in MEEP, Franken became a

member of MEEP and was therefore subject to MEEP’s operating agreement, which he

acknowledged and signed. The operating agreement contained the arbitration provision at

issue. David Ruppert worked for Mav6 from April 2008 until June 2012, and served the

company as its general counsel and vice president. Ruppert was granted equity interests in

Holdings, and, as a member of Holdings, signed an operating agreement, which contained

an arbitration provision identical to the one Franken submitted to through his membership

in MEEP. The arbitration provisions read:

The Members agree that in the event of any dispute or disagreement solely

1
The record is unclear as to Franken’s exact position. However, it is certain that
he was not an executive.

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between or among any of them arising out of, relating to or in connection with
this Agreement or the Company or its organization, formation, business[,] or
management (“Member Dispute”), the Members shall use their best efforts to
resolve any such dispute by good-faith negotiation and mutual agreement.
However, in the event that the Members are unable to resolve any Member
Dispute, such parties shall first attempt to settle such dispute through a non-
binding mediation proceeding. In the event any party to such mediation
proceeding is not satisfied with the results thereof, then any unresolved
disputes shall be settled by final and binding arbitration conducted in the State
of Mississippi. All mediation or arbitration proceedings shall be conducted in
accordance with the American Arbitration Association’s rules therefor.
Judgment upon any award rendered by the arbitrator in a Member Dispute may
be filed in any court of competent jurisdiction; the law of the State of
Mississippi (excluding conflicts of law provisions) shall apply in any
proceeding arising out of or relating to this Agreement.

At the time Franken and Ruppert filed their complaint, Holdings owned 91.41% of Mav6,

and MEEP owned the remaining 8.59%. At all times relevant, Blount and Harrison served

as managing partners of Holdings. Blount also served as the chairman of Entities, and

Harrison served as managing director of Entities.

¶3. Mav6 operated profitably for several years. Appellees assert that several factors led

to the demise of Mav6, including governmental policy shifts associated with the U.S.

conflicts in the Middle East, which reduced Department of Defense investments; significant

federal defense-oriented spending cuts promulgated in 2011; and a federal investigation of

Mav6's CEO, retired U.S. Air Force Lieutenant General David F. Deptula, regarding alleged

violations of federal post-employment restrictions.

¶4. Blount and Harrison maintain that they made every effort to redirect many of Entities’

resources and keep the company afloat. Nonetheless, due to a steady decline in profit, they

decided to close down the operation in 2014. During the course of the company’s closure,

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Mav6 offered to buy the equity interests from its employees pursuant to Holding and MEEP’s

operating agreements. The buyout was accepted by all employees except Franken, Ruppert,

and three other members of MEEP. Several months later, Ruppert was discharged for cause,

and his interest in MEEP was repurchased.

¶5. On December 9, 2013, Franken and Ruppert filed suit in the Lamar County Chancery

Court contesting the valuation of their interests in Holdings and MEEP and, therefore, the

amount of the buyout to which they are entitled. They further asserted derivative claims in

Holdings and MEEP on the grounds of fraud and misconduct. Specifically, they asserted that

Harrison and Blount breached their fiduciary duties as well as the duty of good faith and fair

dealing. On January 17, 2014, Appellees filed a motion to compel arbitration pursuant to the

arbitration provisions set forth in the operating agreements of Holdings and MEEP. On

March 21, 2014, after a hearing on the matter, the chancery court granted the motion to

compel arbitration. It is from that judgment that Franken and Ruppert appeal.

DISCUSSION

¶6. The sole question before us today is whether the chancery court was correct in

determining that the issue before the court fell within the parties’ arbitration agreement such

that the motion to compel arbitration should be granted. When reviewing a grant or denial

of a motion to compel arbitration, the proper standard of review is de novo. Century 21

Maselle & Assocs. v. Smith, 965 So. 2d 1031, 1034 (¶6) (Miss. 2007) (citation omitted).

¶7. The Mississippi Supreme Court has held that we apply the Federal Arbitration Act

when reviewing a motion to compel arbitration. East Ford Inc. v. Taylor, 826 So. 2d 709,

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713 (Miss. 2002). The United States Supreme Court has further stated:

Questions of arbitrability must be addressed with a healthy regard for the
federal policy favoring arbitration. The Arbitration Act 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.

Id. (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).

Our supreme court adopted this preference for arbitrability. Id. In doing so, the supreme

court noted that an arbitration clause should be analyzed under the two-prong test laid out in

the Arbitration Act. Id. “The first prong has two considerations: (1) whether there is a valid

arbitration agreement and (2) whether the parties’ dispute is within the scope of the

arbitration agreement.” Id.

¶8. Accordingly, we first look to the question of whether a valid arbitration agreement

existed between the parties. Franken and Ruppert assert that the answer to this question is

no. They point out that the arbitration clause applies only to a “dispute or disagreement

solely between or among any of [the members]” of Holdings and MEEP. On this notion,

they continue their argument that the disputes at issue are not limited to “the members” of

Holdings and MEEP.

¶9. Specifically, Franken and Ruppert maintain claims against Holdings, MEEP, Harrison,

and Blount. The record is quite clear that Harrison and Blount both signed the operating

agreement for Holdings, thereby consenting to the arbitration clause and becoming members

under the agreement. However, Franken and Ruppert assert that Holdings and MEEP are

entities, not members, and therefore do not fall within the provisions of the arbitration

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agreement.

¶10. Franken and Ruppert cite to Freese v. Mitchell, Nos. 2012-CA-01045-SCT, 2013-CA-

00361-SCT, 2014 WL 1946593 (Miss. 2014), as recent support for their contention that the

parties to the disputes are not bound by the arbitration agreement. In Freese, two attorneys

working on mass-tort cases signed retainer agreements with each of their mutual clients that

essentially required arbitration for any disputes “arising out of, or related to” their

representation. Id. at *2-3 (¶11). The retainer agreements did not contain any information

about fee-splitting or allocation of expenses among the attorneys. Id. at *3 (¶11). A joint-

venture agreement was also signed between the attorneys but did not contain an arbitration

agreement. Id. at *1 (¶5), *2 (¶10). After a disagreement between the attorneys regarding

their fees, one attorney attempted to invoke the arbitration agreement from the retainer

agreements. Id. at *4 (¶18). However, the supreme court ultimately determined that the fee

dispute would fall under the joint-venture agreement, not the retainer agreement, and

therefore, no arbitration clause existed. Id. at *7 (¶31).

¶11. We find the facts of Freese are easily distinguished from the facts at hand. While

Freese dealt with two agreements that each governed separate issues and one which did not

contain an arbitration clause, the facts at hand revolve around two identical agreements with

identical arbitration clauses.

¶12. Nonetheless, we do find applicability in Freese’s plain-language reading of the

agreements at issue. The supreme court stated:

Nothing in the plain language of the [r]etainer [a]greement suggests that the
parties intended it to govern internal disputes among attorneys. . . . If the

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parties did agree to a separate fee agreement[,] . . . then such agreement is not
bound by an arbitration clause. Accordingly, we find that interpreting the
[r]etainer [a]greement’s arbitration clause to include an internal fee-sharing
dispute among attorneys would be inconsistent with the plain language of the
[r]etainer [a]greement.

Id.

¶13. In the case before us, a simple reading of the plain language on the signature pages

of the operating agreements provides the answer to our initial-prong inquiry. As noted by

Appellees, all parties associated with Franken and Ruppert’s claims are listed as consenting

members to the operating agreements in question and, thus, the arbitration agreements

therein. Indeed, the record reflects that on the final page of Holdings’ operating agreement,

“Mav6 Holdings[] LLC” is listed as a member to the agreement signed by “A. Jay Harrison,

Managing Director,” and “Buford Blount[] III” and “A. Jay Harrison” as “Managing

Partners.” Likewise, on the last page of MEEP’s operating agreement, “Mav6 Employee

Equity Program[] LLC” is listed as a member “By: Mav6 Holdings[] LLC, Its Manager, A.

Jay Harrison, Managing Director.” Hence, it is clear that Franken and Ruppert’s assertions

that the parties to the disputes do not fall within the arbitration agreement are unfounded.

¶14. Accordingly, we move to the next prong of our inquiry – whether the parties’ disputes

are within the scope of the arbitration agreements. Each of the identical arbitration

agreements define the scope of the agreements as “any dispute or disagreement solely

between or among any of them arising out of, relating to[,] or in connection with this

Agreement or the Company or its organization, formation, business[,] or management.”

¶15. Franken and Ruppert asserted five claims against Appellees at the trial level: (1) that

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the directors improperly and fraudulently deceived Mav6's members into not pursuing

judicial dissolution of the company when the company’s assets were valuable; (2) that the

directors of Mav6 and Mav6 directly breached the duty of good faith and fair dealing with

respect to payment of Franken and Ruppert’s financial interests in the company following

the termination of their employment; (3) that Harrison and Blount breached their fiduciary

duties to Franken and Ruppert by diminishing the values of all members’ financial interests;

(4) that Mav6 and its directors wrongfully continue to exercise control over and possession

of Franken and Ruppert’s financial interests in Holdings and MEEP; and (5) that Mav6 and

its directors have breached their fiduciary duties by withholding accounting records from

Franken and Ruppert.

¶16. Each of Franken and Ruppert’s claims is associated with Mav6's “organization,

formation, business[,] or management,” with particular weight toward its business and

management. It is without question that the content of the claims underlying this case fall

within the arbitration agreement’s plain language. Franken and Ruppert’s claims that the

parties and claims involved in this disagreement do not fall within the purview of the

arbitration agreements at issue is without merit. Under the Arbitration Act’s two-prong

inquiry, we find that the chancellor did not err in granting the Appellee’s motion to compel

arbitration.

¶17. THE JUDGMENT OF THE LAMAR COUNTY CHANCERY COURT IS
AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE
APPELLANTS.

LEE, C.J., IRVING AND GRIFFIS, P.JJ., BARNES, ROBERTS, CARLTON,
MAXWELL, FAIR AND JAMES, JJ., CONCUR.

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