UNITED STATES DISTRICT COURT DISTRICT OF NEVADA

Transcription

1 Case :0-cv-0053-RLH-LRL Document Filed 0// Page of UNITED STATES DISTRICT COURT DISTRICT OF NEVADA * * * ARCHON CORPORATION, Plaintiff, vs. GIBSON, DUNN & CRUTCHER, LLP, Defendant. Case No.: :0-cv-0053-RLH-LRL ORDER (Objections to Magistrate Judge's Order-^) AO (Rev. /) Before the Court is an Order (#) entered by the Honorable Lawrence R. Leavitt on August 3, 0 regarding Defendant Gibson, Dunn & Crutcher, LLP's ("Gibson Dunn") Motion to Compel Arbitration and Stay of Proceedings (#), filed May, 0. Plaintiff Archon Corporation ("Archon") filed Objections to Judge Leavitt's Order (#) on September, in accordance with Local Rule IB 3- of the Rules of Practice of the United States District Court for the District of Nevada. Gibson Dunn filed its Response (#) on September. Archon filed a Reply (#) on October, and this matter was referred to this Court for consideration. The Court has conducted a de novo review of the record in this case in accordance with U.S.C. 3(b)(l)(A), (B), and (C) and Local Rule IB 3- and determines that the Order of Magistrate Judge Leavitt is not clearly erroneous or contrary to law and should be affirmed.

2 Case :0-cv-0053-RLH-LRL Document Filed 0// Page of 3 IT IS THEREFORE ORDERED that Magistrate Judge Leavitt's Order (#) is AFFIRMED, Archon's Objections (#) are overruled, and Gibson Dunn's Motion to Compel Arbitration and Stay of Proceedings (#) is granted. 4 5 Dated: January,. r L HUNT ted States district Judge AO (Rev. /)

3 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page of l UNITED STATES DISTRICT COURT 3 DISTRICT OF NEVADA 4 * * * 5 ARCHON CORPORATION, Plaintiff, v. GIBSON, DUNN & CRUTCHER, LLP, Defendant. :0-cv-0053-RLH-LRL ORDER This case comes before the court on defendant's Motion to Compel Arbitration and Stay of Proceedings (#). The court has considered the motion, responses and replies. The court has also considered the arguments of counsel at the hearing on August, 0. For the following reasons, the motion will be granted. BACKGROUND This is an action for legal malpractice and breach of contract in connection with the issuance of preferred stock. Archon is a Nevada corporation whose primary business operations are conducted through a wholly-owned subsidiary, Pioneer Hotel, Inc., which operates the Pioneer Hotel & Gambling Hall in Laughlin. In 3, Archon transitioned from a publicly traded limited liability partnership to a publicly traded corporation. Archon issued seven million shares of exchangeable redeemable preferred stock as part of the transition. Gibson Dunn prepared all legal documents with respect to the stock issuance. See Exh. B-l to Opp'n (#) at fflj -. By the fall of 04, all of Gibson Dunn's active matters for Archon were completed. See Exh. A to Errata (#). On October, 05, Karen Bertero, Esq. ("Bertero") of Gibson Dunn sent a 5 disengagement letter to Paul Lowden, Archon's President and CEO, advising him that it had been over a year since the firm had handled any active matters for Archon and that the firm was formally closing

4 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page of all of its files on the various matters in which it had represented Archon. Id. In May 0, Archon received correspondence from Mercury Real Estate Securities Fund, LP 3 ("Mercury"), a hedge fund holding Archon exchangeable redeemable preferred stock. Mercury 4 5 demanded that Archon recalculate the liquidation preference on the stock such that accrued interest on unpaid dividends would compound. Exh. A to Opp'n (#) at f 3. Mercury based its demand on the following language in the stock certificate: "Dividends shall accrue from the date of issuance and be payable semi-annually in arrears"; "dividends... shall be fully cumulative." Id., Exh. B-l at p.. This was the first time a preferred shareholder made such a demand of Archon. Id., Exh. A at f 3. David Lowden, Archon's Real Estate Projects Director, relayed Mercury's demand to Bertero during the first week of June 0. See id. at 5-. The two corresponded regarding this issue throughout the week, and into the next. See id. at pp.,. Around the same time, David Lowden asked Bertero for her assistance with a new matter involving shareholder consent to acquire certain real property in Las Vegas. Mat pp. -. Bertero advised him that Gibson Dunn had instituted client intake policies that required the partners to obtain a signed engagement letter from clients. Errata (#) at. She sent Paul Lowden an engagement letter on June, 0. Opp'n (#) at pp. -. Paul Lowden signed and returned the letter that same day. Exh. B to Mot. (#) at p.. The engagement letter is a written contract in which Gibson Dunn agreed to provide legal services to Archon in exchange for Archon's agreement to the terms and conditions contained in the letter, including the attached Terms of Retention: Recently, the Firm has modified its business intake procedures which require the Firm to enter into a retention agreement with clients, even existing clients such as Archon, to confirm and memorialize the scope of work for which we are being retained and the terms of our engagement. Unless otherwise agreed in writing, the terms of this letter and the attached Terms of Retention will also apply to any additional matters we handle on behalf of Archon... Exh. A to Opp'n (#) at p.. The terms and conditions include a broad arbitration provision regarding any claims Archon may have against Gibson Dunn arising out of or relating to Gibson Dunn's legal services:

5 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page 3 of By signing this engagement letter agreement, you agree to binding arbitration of any dispute, claim or controversy regarding any of our past, present or future services as described in the attached Terms of Retention. You are also agreeing that Archon is waiving its right to a jury or court trial, and is waiving any right Archon might have to collect punitive damages. This waiver of punitive damages applies only to the maximum extent permitted by law Id. at p.. The engagement letter includes advice concerning Gibson Dunn's request that Archon agree to arbitration of disputes: If you do not wish to agree to arbitration, you should advise us before signing this letter. If you have any questions or concerns regarding the advisability of arbitration, we encourage you to discuss them with us, independent counsel, or your other advisors. Id. Section of the Terms of Retention referred to in the engagement letter and attached thereto contains the following arbitration provision in capital letters:. ARBITRATION OF ALL DISPUTES, CLAIMS OR CONTROVERSIES. AS A MATERIAL PART OF OUR AGREEMENT, YOU [Archon] AND THE FIRM AGREE THAT ANY AND ALL DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT, OUR RELATIONSHIP, OR THE SERVICES PERFORMED OR ANY OTHER MATTER OR THING, SHALL BE DETERMINED EXCLUSIVELY BY CONFIDENTIAL, FINAL AND BINDING ARBITRATION AS FOLLOWS: (A) THE MATTERS SUBMITTED TO ARBITRATION SHALL BE HEARD AND DETERMINED BY A SINGLE ARBITRATOR IN THE PRINCIPAL CITY OF THE FEDERAL JURISDICTION IN WHICH THIS AGREEMENT IS ENTERED INTO, IN ACCORDANCE WITH THE THEN EXISTING RULES FOR COMMERCIAL ARBITRATION OF THE JUDICIAL ARBITRATION AND MEDIATION SERVICES ("JAMS"). (B) ANY PARTY TO THE ARBITRATION MAY REQUEST JAMS TO IDENTIFY PANELS OF RETIRED OR FORMER JURISTS QUALIFIED AND ABLE TO SIT AS ARBITRATORS OF THE MATTERS SUBMITTED FOR ARBITRATION AND THE ARBITRATOR DETERMINING THE SUBMITTED MATTERS SHALL BE SELECTED FROM SUCH PANELS 3 PURSUANT TO JAMS RULES. (C) DISPUTES, CLAIMS AND CONTROVERSIES SUBJECT TO FINAL AND BINDING ARBITRATION UNDER THIS AGREEMENT INCLUDE, 5 WITHOUT LIMITATION, ALL THOSE THAT OTHERWISE COULD BE TRIED IN COURT TO A JUDGE OR JURY IN THE ABSENCE OF THIS AGREEMENT. SUCH DISPUTES, CLAIMS AND CONTROVERSIES

6 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page 4 of INCLUDE, WITHOUT LIMITATION, CLAIMS FOR PROFESSIONAL MALPRACTICE, DISPUTES OVER OUR FEES AND EXPENSES, ANY DISPUTES OVER THE QUALITY OF SERVICES WHICH WE RENDER, ANY CLAIMS RELATING TO OR ARISING OUT OF YOUR OR OUR 3 PERFORMANCE UNDER THIS AGREEMENT, AND ANY OTHER CLAIMS ARISING OUT OF ANY ALLEGED ACT OR OMISSION BY YOU 4 OR US. 5 (D) EXCEPT AS OTHERWISE DETERMINED BY THE ARBITRATOR, THE FEES OF THE ARBITRATION INITIALLY WILL BE PAID EQUALLY BY BOTH THE FIRM AND YOU. HOWEVER, THE ARBITRATOR SHALL HAVE THE RIGHT TO ORDER EITHER PARTY TO PAY ALL FEES AND COSTS AS PART OF THE AWARD. (E) THEPROVISIONSOFSECTION3.05OFTHECALIFORNIACODEOF CIVIL PROCEDURE ("MANNER OF TAKING DEPOSITION") ARE HEREBY INCORPORATED INTO THIS ARBITRATION PROVISION. (F) BY AGREEING TO SUBMIT ALL DISPUTES, CLAIMS AND CONTROVERSIES TO BINDING ARBITRATION, YOU AND THE FIRM EXPRESSLY WAIVE YOUR RIGHTS TO HAVE SUCH MATTERS HEARD OR TRIED IN COURT BEFORE A JUDGE OR JURY OR IN ANOTHER TRIBUNAL. YOU AND THE FIRM FURTHER AGREE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, TO WAIVE ANY RIGHT YOU OR THE FIRM MAY HAVE TO PUNITIVE DAMAGES. (G) THE ARBITRATOR SHALL BE AUTHORIZED TO DETERMINE ALL ISSUES IN ARBITRATION AS IF THE ARBITRATOR WERE SITTING AS A JUDGE WITHOUT A JURY, AND THE ARBITRATOR SHALL RENDER A WRITTEN REASONED AWARD WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW SUFFICIENT TO SUPPORT SUCH JUDICIAL REVIEW AS IS PROVIDED BY APPLICABLE STATUTES GOVERNING ARBITRATIONS. (H) ANY ARBITRATION AWARD SHALL BE FINAL, BINDING AND CONCLUSIVE UPON THE PARTIES, SUBJECT ONLY TO JUDICIAL REVIEW PROVIDED BY STATUTES GOVERNING ARBITRATIONS, AND A JUDGMENT RENDERED ON THE ARBITRATION AWARD MAY 0 BE ENTERED IN ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF..3 WAIVER OF RIGHT TO JURY OR COURT TRIAL. YOU UNDERSTAND THAT BY ENTERING INTO THIS AGREEMENT YOU ARE WAIVING YOUR RIGHT TO A JURY OR COURT TRIAL..4 WAIVER OF RIGHT TO RECEIVE PUNITIVE DAMAGES. YOU 5 UNDERSTAND THAT BY ENTERING INTO THIS AGREEMENT, YOU AND THE FIRM ARE WAIVING, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT YOU OR THE FIRM HAVE TO AN AWARD OF PUNITIVE DAMAGES.

7 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page 5 of OTHER ARBITRATION SERVICE PROVIDERS. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE PARTIES TO STIPULATE AND AGREE TO CONDUCT THE ARBITRATION BEFORE AND PURSUANT TO THE THEN EXISTING RULES OF ANY OTHER AGREED-UPON ARBITRATION SERVICES PROVIDER. Id. at pp. - (capitalization and underlines in original). From August 0 to January 0, holders of the exchangeable redeemable preferred stock, including Mercury, filed three separate lawsuits against Archon in this court. Plaintiffs base their claims on the alleged miscalculation of unpaid dividends and liquidation preferences. On February, 0, this court consolidated Rainero and Leeward into D.E. Shaw for purposes of discovery only. On August, 0, Judge Philip M. Pro granted plaintiffs' motion for partial summary judgement in D.E. Shaw,findingthat the stock certificate required preferred stock dividends be compounded. Exh. D to Opp'n (#). On October, 0, Archon filed the present lawsuit in the District Court for Clark County, Nevada. On March, 0, the state court proceeding was removed to this court based on diversity jurisdiction. Prior to removal, Gibson Dunn informed Archon's counsel of its election to arbitrate Archon's claims pursuant to the engagement letter agreement. Exh. G to Opp'n (#) at p.. Gibson Dunn inquired whether Archon would agree to arbitration. Id. Archon refused Gibson Dunn's request on March 3, 0. Id. at pp. -. DISCUSSION Archon argues that the arbitration provision does not cover the claims alleged in its Amended Complaint. Specifically, Archon contends that the arbitration provision covers disputes over fees and expenses only, and not claims arising out of Gibson Dunn's alleged acts or omissions in rendering legal services to Archon. Alternatively, Archon argues that the provision covers only those claims for malpractice that allegedly arise after the execution of the engagement letter. The court finds, however, See D E Shaw Laminar Portfolios, L L C v Archon Corporation,! 0-cv-0-PMP-LRL,/Ja;nero, onbehalf of himself and on behalf of others similarly situated v Archon Corporation, 0-cv-053-RCJ-PAL, and Leeward Capital, L P v Archon Corporation, 0-CV-0000-PMP-LRL

8 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page of that the language of the arbitration agreement is unambiguous and expressly covers claims based upon prior alleged wrongful acts or omissions. 3 The arbitration agreement provides that "[b]y signing this engagement letter agreement, you 4 agree to binding arbitration of any dispute, claim or controversy regarding any of our past, present or 5 future services as described in the attached Terms of Retention." Exh. A to Opp'n (#) at p.. The Terms of Retention indicate that "as a material part of our agreement, you and the firm agree that any and all disputes, claims or controversies arising out of or relating to this agreement, our relationship, or the services performed or any other matter or thing, shall be determined exclusively by confidential, final and binding arbitration as follows...." Id. at p. (capitalization removed). The Terms of Retention further provide that "such disputes, claims and controversies include, without limitation, claims for professional malpractice." Id. atp. (capitalization removed). Archon has failed to identify any plausible ambiguity in either of these sentences, and it has not shown how either sentence is reasonably susceptible to the interpretation it offers. Archon also argues that the arbitration provision should not be enforced because it is unconscionable or, alternatively, because Gibson Dunn breached ethical duties in inducing Archon to sign the engagement letter. The court disagrees. At the time it received the engagement letter Archon had a reasonable basis to believe it may have potential claims against Gibson Dunn based upon the contentions of preferred shareholders. Archon itself states that the alleged "drafting error" came to light in May 0 when a group of preferred shareholders demanded that it recalculate the redemption price 0 on its accrued but unpaid dividends. Opp'n (#) at p.. In early June 0, following the communications Archon received from Mercury, David Lowden informed Bertero that "Mercury was demanding that Archon recalculate the liquidation preference and had threatened to bring a claim 3 against Archon if it did not do so." Exh. A to Opp'n (#) at ^ 5. Thus, there is ample reason in this 4 record to infer that Archon was aware of potential claims against Gibson Dunn prior to signing the 5 engagement letter. Archon contends that "[njothing in the engagement letter put Archon on notice that these terms

9 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page of were meant to cover malpractice actions arising from past legal services." Opp. (#) at p.. Again the court disagrees. The engagement letter states that by signing the letter Archon is agreeing to "binding arbitration of any dispute, claim or controversy regarding any of our past, present or future services as described in the attached Terms of Retention." Exh. A to Opp'n (#) at p.. And the Terms of Retention, which were incorporated into the engagement letter, specifically include "claims for professional malpractice" in the list of disputes subject to binding arbitration under the arbitration agreement. Id. atp. ^f.(c) (capitalization removed). The arbitration provisions were fully disclosed to Archon and included the following written advice: "If you do not wish to agree to arbitration, you should advise us before signing this letter. If you have any questions or concerns regarding the advisability of arbitration, we encourage you to discuss them with us, independent counsel, or your other advisors." Id. at p.. Archon, a publicly traded company, had access to other counsel if it had questions or concerns. It is not entitled to claim surprise or undue pressure when the arbitration agreement is fully disclosed and Archon had the ability to seek independent counsel. Neither of Archon's declarants even state that they read the letter before it was executed. Nor do they suggest that Gibson Dunn attempted to dissuade them from consulting with independent counsel as they were advised to do. In light of the conspicuous and detailed elaboration of the terms of the arbitration agreement, Archon's contention that the arbitration agreement was procedurally unconscionable is untenable. See D.R. Horton, Inc. v. Green, Nev. 54, (Nev. 04). Substantive unconscionability "focuses on the one-sidedness of the contract terms." Id. at 554. Here, the arbitration provisions are bilateral and apply equally to both parties. Thus, a claim of substantive unconscionability must fail. During the hearing, counsel for Archon argued that if Gibson Dunn "believefd] that there may be [such claims]" (emphasis added), Gibson Dunn had an ethical obligation to include in the engagement letter an express warning that Archon had a potential malpractice claim against Gibson Dunn In making this argument, counsel specifically relied on a footnote to an opinion of The State Bar of California Standing Committee on Professional Responsibility and Conduct See Exh F to Opp'n (#) at p n 4 The footnote, however, provides a markedly different standard as to when such a warning is required "It would, of course, be unethical for an attorney, knowing he/she had committed malpractice, to attempt to negotiate an arbitration provision into an existing retainer agreement without fully disclosing the fact of the attorney's negligence to the client " Id (emphasis added) Counsel's mischaractenzation of the footnote was misleading

10 Case :0-cv-0053-RLH-LRL Document Filed 0/3/0 Page of Accordingly, and for good cause shown, IT IS ORDERED that Gibson Dunn's Motion to Compel Arbitration and Stay of Proceedings 3 (#) is GRANTED. All further action in this case shall be and is STAYED pending completion of 4 arbitration as contemplated by the engagement letter agreement signed by Archon. 5 IT IS FURTHER ORDERED that Archon's Motion for Hearing (#) is DENIED as moot. DATED this 3 st day of August, 0. tfutm- LAWRENCE R. LEAVITT UNITED STATES MAGISTRATE JUDGE