Breach of a promissory note; Breach of a guaranty; Arbitrability; First-filed doctrine; First-substantial-breach doctrine; Operating Agreement (OA)

The court affirmed a judgment entered by the trial court for plaintiff-Ari-El Financial, in the amount of $2,765,942.47, plus interest. “The trial court entered the judgment after it ruled that plaintiff was entitled to summary disposition under MCR 2.116(C)(10) on plaintiff’s claims for breach of a promissory note and breach of a guaranty.” The case concerned an alleged $2.1 million loan default. Defendants advanced “multiple grounds for reversal of the trial court’s judgment. However, all arguments ultimately reduce to a single dispositive issue: whether the trial court erred in declining to compel arbitration pursuant to the arbitration clause contained in the River Houze” OA. The court found that plaintiff was “not a signatory to the [OA] containing the arbitration provision, and” thus lacked privity as to it. “The principle of corporate separateness precludes extension of the arbitration clause to non-parties absent circumstances warranting veil-piercing.” Defendants did not show “any basis for disregarding plaintiff’s separate corporate existence.” Further, the court noted that “neither the note nor the guaranty contains an arbitration provision.” Defendants contended “that the note incorporated by reference the [OA’s] arbitration clause through the parties’ adoption of ‘the provisions of the [OA] relating to the Capital Contribution Loan.’” This argument failed. The court agreed “with the trial court that, based on the plain terms of the note and [OA], the parties’ selective incorporation of the portion of the [OA] specified in the note does not extend to § 12.10, which contains the arbitration provision.” The court held that the “trial court properly concluded that no agreement to arbitrate exists between these parties.” The court also found that “the guaranty contains an express forum-selection provision authorizing plaintiff to initiate proceedings in any court within this state, thereby negating any implied arbitration obligation.” The court noted that defendants “alternatively moved for dismissal pursuant to the first-filed doctrine, contending that the pending arbitration proceeding constituted a prior-filed action involving identical parties and substantially similar claims.” But they failed to establish “sufficient identity of parties and claims in both proceedings. Defendants therefore failed to establish entitlement to summary disposition under MCR 2.116(C)(6) and (I)(2).” The court further rejected their claim that plaintiff’s manager “committed the first breach between the parties,” barring plaintiff “from pursuing this action under the first-substantial-breach doctrine.” Their allegations did “not directly implicate plaintiff’s liability for any breach of the note.”