Shamrock Fisheries, LLC v. Manning

MEMORANDUM AND ORDER

ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.

Shamrock Fisheries, LLC; Kineo Fisheries, LLC; Mariner Fisheries, LLC; Seafarer Fisheries, LLC; Cynbel Fisheries, LLC; Torbay Fisheries, LLC; Galway Fisheries, LLC; Quinn Fisheries, LLC; and Blue Harvest Fisheries, LLC (collectively “Plaintiffs”) brought suit against arbitrators Mark C. Manning, Robert J. Bocko, and Stevenson L. Weeks, (collectively “Panelist Defendants”) alleging that their actions have prevented a multi-million-dollar transaction from closing. [ECF No. 1-1 at 10-28 (“Compl.”)]. Plaintiffs seek declaratory and injunctive relief and have also moved for a preliminary injunction. [Compl.; ECF No. 1-1 at 3-7]. The Panelist Defendants have moved to dismiss. [ECF No. 5]. For the reasons set forth below, the Panelist

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Defendants' motion to dismiss is GRANTED and Plaintiffs' motion for a preliminary injunction is DENIED.

I. BACKGROUND

A. Factual Background^[1]

Plaintiffs are nine different fisheries, eight of which have principal places of business in New Bedford, Massachusetts. [Compl. ¶¶ 1-8].^[2] With the exception of Blue Harvest Fisheries, LLC (“Blue Harvest”), the fisheries are collectively referred to as the “Quinn Entities.” [Id. at 1]. The Quinn Entities and Blue Harvest want to close a multi-million-dollar transaction that would transfer vessels and fishing permits between the Quinn Entities and Blue Harvest (the “Transaction”). [Id. ¶ 13]. According to Plaintiffs, the Transaction has been stymied because of awards the Panelist Defendants issued while presiding over an arbitration that was initially between several non-parties in this case, including Carlos Rafael and his affiliated fishing companies (the “Rafaels”), BASE, Inc. (“BASE”), and VII Northeast Fishery Sector Inc. (“Sector VII”).^[3] [Id. ¶¶ 16-30, 87-92, 94-95; ECF No. 1-1 at 350-64].

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1. The Underlying Arbitration

In 2016, the National Oceanic and Atmospheric Administration (“NOAA”) initiated a civil enforcement action against Carlos Rafael. [Compl. ¶ 44]. NOAA and the Rafaels eventually reached a settlement agreement in August 2019, and the Rafaels were ordered to divest their commercial fishing vessels and permits in a NOAA-approved sale by December 31, 2020. [Id. ¶¶ 52-53]. As part of the settlement agreement, the Rafael Settlement Trust was formed to hold the Rafaels' assets. [ECF No. 1-1 at 32]. The Nominal Defendant in this action, the Honorable Lloyd MacDonald (the “Trustee”), serves as the trustee of the Rafael Settlement Trust. [Id.; Compl. ¶ 12].

As a result of the NOAA action, the Quinn Entities and the Rafaels entered into a contingency agreement for the sale of seven of the Rafaels' commercial fishing vessels and permits. [Compl. ¶ 67]. On September 18, 2019, BASE initiated arbitration against the Rafaels and Sector VII asserting that, pursuant to an agreement governing New Bedford area fisheries, it has a right of first refusal to the assets that the Rafaels were in the process of selling to the Quinn Entities. [Id. ¶¶ 72-76, 87-89; ECF No. 1-1 at 350-64]. The Panelist Defendants were selected to preside over that arbitration. [ECF No. 1-1 at 190 (showing the Panelist Defendants as arbitrators)]. On September 24, 2019, while the arbitration was pending, the Rafaels and the Quinn Entities completed the sale of the assets. [Compl. ¶ 81].

On October 25, 2019, the Panelists Defendants issued an interim award that prohibited the Rafaels from further selling or changing the status of their assets and also directed the Rafaels to instruct their agents or trustees to do the same (the “Interim Award”). [ECF No. 1-1 at 192-94; ECF No. 7-2 ¶¶ 3(a)-(f)]. The Panelists Defendants issued another order on February 25, 2021, which reiterated the Rafaels' obligation to instruct its trustees not to change the status

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of any assets. [ECF No. 1-1 at 189-90]. On or around March 4, 2021, the Rafaels' attorney sent notice of the Interim Award and February 25, 2021 order to the Trustee and advised the Trustee not to “transfer, spend, distribute, invest, or otherwise change the present status” of certain assets held by the Rafael Settlement Trust. [Compl. ¶ 94; ECF No. 1-1 at 186].

Neither Plaintiffs nor the Trustee were parties to the arbitration when the Interim Award was issued. [Compl. ¶ 29]. However, on May 3, 2021, after this suit was filed, a judge in Suffolk County Superior Court issued an order compelling seven of the eight Quinn Entities to participate in the underlying arbitration between BASE, the Rafaels, and Sector VII. [ECF No. 7-1 at 1].

2. Transaction between the Quinn Entities and Blue Harvest

As the arbitration proceeds, Plaintiffs have been attempting to complete the Transaction, which was originally scheduled to close on April 16, 2021. [Compl. ¶¶ 14, 16]. The assets that the Quinn Entities want to transfer to Blue Harvest are subject to mortgages and security interests in favor of the Rafael Settlement Trust and another non-party bank. [Id. ¶ 18]. Due to those mortgages and security interests, both the bank and the Trustee need to consent to the transfer of the assets from the Quinn Entities to Blue Harvest. [Id. ¶ 20]. The non-party bank has consented to the transfer, but the Trustee has not. [Id. ¶¶ 21-22]. According to Plaintiffs, the Trustee interprets the February 25, 2021 order, which discusses the Interim Award, as prohibiting him from undertaking the necessary steps to allow the Transaction to close and the Trustee “seeks guidance” from the Court before allowing the Transaction to proceed. [Id. ¶¶ 22, 95]. Because some of the permits to be exchanged in the Transaction are for fishing seasons that commenced on May 1 or on June 1, 2021, Plaintiffs allege that they will experience serious and irreparable financial harm if the transaction does not close immediately. [Id. ¶ 17].

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B. Procedural History

On April 19, 2021, Plaintiffs filed this lawsuit in Bristol County Superior Court. [Compl. at 28]. The two-count verified complaint requests that the Court declare, among other things, that Plaintiffs and the Trustee are not subject to the jurisdiction of the American Arbitration Association (“AAA”) or the arbitration, that Plaintiffs and the Trustee are not bound by the Panelist Defendants' orders, and that the Panelist Defendants have “no jurisdiction to direct or restrain the Trustee in the exercise of his fiduciary duties” (Count I). [Compl. ¶¶ 96-98]. Plaintiffs also seek injunctive relief prohibiting the Panelist Defendants, the Rafaels, and BASE “from interfering with the Trustee's exercise of his fiduciary duties” and instructing “the Trustee on the contemplated substitution of collateral, ” which would allow the Transaction to close (Count II). [Id. ¶¶ 99-101].

Along with the complaint, Plaintiffs also filed a motion for a temporary restraining order and preliminary injunction (the “motion for a preliminary injunction”). [ECF No. 1-1 at 3-8, 368-373]. The motion for a preliminary injunction asks the Court to 1) enjoin the Panelist Defendants from “interfering with the Trustee's exercise of his fiduciary duties or issuing any Order or Award that interferes with the” Transaction; and 2) instruct the Trustee that he is “authorized to execute any documents necessary to” allow the Transaction to close. [Id. at 373].

The Panelist Defendants removed the case to this court on April 26, 2021. [ECF No. 1]. They opposed the motion for a preliminary injunction and filed their motion to dismiss on May 10, 2021. [ECF Nos. 5, 7]. Plaintiffs filed their opposition to the motion to dismiss and reply in support of the motion for a preliminary injunction on May 26, 2021. [ECF No. 15]. The Panelist Defendants filed their reply in support of the motion to dismiss on June 11, 2021. [ECF No. 17]. The Court held a hearing on June 16, 2021, where the parties informed the Court that a

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mediation may resolve some of the issues in this case. [ECF No. 19]. On August 6, 2021, the parties filed a status report stating that the mediation had not resolved any of the underlying issues and that the pending motions were ripe for disposition. [ECF No. 21].

II. PANELIST DEFENDANTS' MOTION TO DISMISS

A. Legal Standard

In reviewing a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded facts, analyze those facts in the light most favorable to the plaintiff, and draw all reasonable factual inferences in favor of the plaintiff. See Gilbert v. City of Chicopee, 915 F.3d 74, 76, 80 (1st Cir. 2019). “[D]etailed factual allegations” are not required, but the complaint must set forth “more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The alleged facts must be sufficient to “state a claim to relief that is plausible on its face.” Id. at 570.

“To cross the plausibility threshold a claim does not need to be probable, but it must give rise to more than a mere possibility of liability.” Grajales v. P.R. Ports Auth., 682 F.3d 40, 44-45 (1st Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A determination of plausibility is ‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” Id. at 44 (quoting Iqbal, 556 U.S. at 679). “[T]he complaint should be read as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.” Hernandez-Cuevas v. Taylor, 723 F.3d 91, 103 (1st...