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F & D Defense, LLC v. East Texas Machining & Manufacturing, LLC

United States District Court, E.D. Oklahoma

January 22, 2019

F & D DEFENSE, LLC, Plaintiff,
v.
EAST TEXAS MACHINING & MANUFACTURING, LLC; and CORBY HALL, Defendants. EAST TEXAS MACHINING & MANUFACTURING, LLC; and CORBY HALL, Third-Party Plaintiffs,
v.
BRIAN SHIRLEY; STEPHEN PRENTICE; and QUAIL CREEK BANK, Third-Party Defendants.

          FINDINGS AND RECOMMENDATION

          KIMBERLY E. WEST, UNITED STATES MAGISTRATE JUDGE.

         This matter comes before the Court on Plaintiff's Motion to Compel Arbitration and Stay the Current Judicial Proceedings as to Defendants' Counterclaim (Docket Entry #36) and Defendant East Texas Machining & Manufacturing, LLC's Motion to Compel Arbitration (Docket Entry #40). United States District Judge James H. Payne who then presided over this case referred these Motions to the undersigned for the entry of these Findings and Recommendation. The case was subsequently reassigned to United States District Judge Ronald A. White, who did not alter or withdraw the referral.

         Plaintiff F & D Defense, LLC (“F & D”) initiated this case against Defendants Defendant East Texas Machining & Manufacturing, LLC (“ETM”) and Corby Hall (“Hall”), who F & D identified as “the Manager of ETM”, on January 5, 2018 in the District Court in and for Seminole County, Oklahoma and was later removed to this Court on March 1, 2018. The original Petition, as subsequently amended, alleged that F & D entered into an agreement with ETM to pay $270, 000.00 for the manufacture of an AR15 folder forearm tombstone pallet fixture op1-4 for Makino a51nx and an AR15 folder upper tombstone pallet fixture op1-4 for Makino a51nx (hereinafter referred to as the “Tombstone Agreement”). F & D alleged that ETM received payment for the tombstones but failed to deliver them and continues to refuse to do so. F & D stated in the Amended Petition that

Without the Tombstones ordered from ETM, Plaintiff has been unable to produce and sell products for which the Tombstones were ordered, thereby causing the loss of income. Plaintiff has attempted to obtain the design and drawings necessary to have another manufacturing firm complete the job but ETM has refused to provide the same.
Amended Petition at ¶5.

         F & D stated causes of action for breach of contract or delivery of the tombstones. It also sought a declaratory judgment seeking “[a]n Order declaring [F & D] to be the owner of the two Tombstones and that [ETM and Hall] have no claim to the Tombstones . . . .” F & D also included claims for unjust enrichment, conversion, as well as injunctive relief.

         On May 18, 2018 after the removal of this action to this Court, ETM and Hall answered and filed a counterclaim against F & D, alleging Hall, as the sole member of ETM, and ETM were firearms manufacturers who designed, developed, and manufactured high-quality tactical rifles. Hall is represented as the inventor and ETM the owner of intellectual property represented in two patents, identified as the “Folding Firearm Patent” and “Integrated Locking Joint Patent”. ETM states that it entered into four written agreements with F & D - the Apparatus for Folding Firearm License Agreement, the Integrated Locking Joint License Agreement, the Manufacturing Agreement, and the Equipment Agreement. Under these Agreements, F & D assembled and sold the products which Hall and ETM designed and manufactured using the two patents.

         ETM represents that it issued an invoice on January 9, 2017 which “was ancillary to the Apparatus for Folding Firearm License Agreement”. Under this invoice, F & D was to pay ETM $270, 000.00 for the manufacture of the Tombstones, which were required for the manufacture of folding AR15 rifles. ETM claims that F & D failed to timely and fully pay for the Tombstones.

         ETM asserts that it and Hall retained full ownership of the patents as well as any “end-product derivatives of the Licensed Material which may be used by F & D to accomplish the objectives of” the license agreement. ETM contends that the Tombstones are included in these “end-product derivatives.” In their claims, ETM and Hall contend F & D fraudulently claimed an ownership interest in the intellectual property by pledging it as collateral to obtain a bank loan. The bank filed a UCC-1 financing statement claiming a lien on the intellectual property as well as other assets. While the UCC-1 was amended by the bank, ETM states that the intellectual property was not deleted from the covered collateral for F & D's loan.

         ETM and Hall also assert that F & D breached its obligations under all four agreements. To that end, they seek a declaratory judgment defining their ownership rights to the intellectual property, machinery and equipment, and the Tombstones and that ETM and Hall may continue to work with third party vendors to product the folding AR15 rifles. ETM and Hall also bring monetary damage claims for the alleged breach of the four agreements by F & D. ETM also brings claims for fraudulent inducement and conversion.

         ETM and Hall also filed a third party complaint on the same date as the answer and counterclaim against the individual principals of F & D. They asserted claims to invade the corporate veil to find the named individuals liable for the actions taken by F & D. The third party complaint seeks money damages against these individuals for fraudulent inducement, declaratory relief, conversion, and negligence.

         In the subject Motion filed by F & D, it asserts that the four written agreements contain specific arbitration clauses governed by the Federal Arbitration Act. As a result, F & D contends that ETM's counterclaims should be subject to compelled arbitration before proceeding in this action. ETM responded that it agrees that its counterclaims are subject to arbitration but also maintains that F & D's claims are subject to the same arbitration as represented in its Motion filed on the same date. F & D does not agree that its claims are subject to compelled arbitration because the production of the Tombstones was governed by a fifth agreement which was oral in nature and had no provision for arbitration. ETM asserts that the broad arbitration clause contained in the Folding Firearm License encompassed claims related to the Tombstones.

         The four written agreements between the parties contain binding arbitration provisions. Two of the ...


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