Ridge at Red Hawk, L.L.C. v. Schneider

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
July 9, 2007
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

THE RID GE AT RED HAW K, L.L.C.,

Plaintiff - Appellant,
No. 06-4162
v.

JA M ES M . SCH NEID ER; S& K
DEVELOPM ENT COM PANY, IN C.,

Defendants - Appellees.

A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
FOR T HE DISTRICT OF UTAH
(D.C. No. 2:05-CV-44-TS)

Thomas W illiam Peters (and David W . Scofield, Peters, Scofield, Price, on the
brief), Salt Lake City, Utah, for Plaintiff - A ppellant.

Robert B. Lochhead, Parr, W addoups, Brown, Gee & Loveless, Salt Lake City,
Utah, for Defendants - Appellees.

Before KELLY, HE N RY, and LUCERO, Circuit Judges.

KELLY, Circuit Judge.

Plaintiff-Appellant The Ridge at Red Hawk, L.L.C. (“The Ridge”) appeals

the district court’s dismissal of its complaint, which sought the vacation or
modification of an arbitration award on the ground that the arbitrators erred in

determining the proper venue for arbitrating a dispute between The Ridge and

Defendants-Appellees James M . Schneider and S& K Development Company, Inc.

(“S& K”). The Ridge first attempted to persuade a Texas trial court that venue

was proper in Utah. However, the court referred the venue question to the

arbitration panel, which concluded that venue was proper in Texas. The Ridge

then filed this action in federal court in Utah to challenge the panel’s findings.

The district court granted the Defendants’ motion to dismiss, holding that the

venue ruling was a mixed question of fact and law and the parties’ arbitration

agreement permitted judicial review of pure legal questions only. W e have

jurisdiction over this appeal pursuant to 28 U.S.C. § 1291, and we affirm.

Background

The Ridge is a Utah limited liability company with its principal place of

business in Summit County, Utah. In 2002, it became a limited partner with 49%

ownership of a Texas venture known as M ountain Red Hawk Partners, Ltd.

(“M ountain Red Hawk”), which was formed to develop real property in Summit

County. K2 Properties, Ltd., was the other limited partner and also owned 49%

of the partnership, and K2 Development Company, Inc., was the general partner

and a 2% ow ner of M ountain R ed Hawk. Thereafter, M r. Schneider acquired K 2

Properties’s interest in M ountain Red Hawk, and S&K acquired K2

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Development’s interest.

M r. Schneider and S& K do not contest that they are bound by the original

partnership agreement and its amendments. Specifically, the parties agree that an

arbitration clause compelled M r. Schneider to seek arbitration when he sought to

dissolve the partnership in 2004. Under that clause:

In all arbitration proceedings in w hich the amount in controversy
exceeds $100,000, in the aggregate, the arbitrators shall make
specific, w ritten findings of fact and conclusions of law . In all
arbitration proceedings in which the amount in controversy exceeds
$100,000, in the aggregate, the parties shall have, in addition to the
limited statutory right, the right to seek vacation or modification of
any award that is based in whole or in part on an incorrect or
erroneous ruling of law by appeal to an appropriate court having
jurisdiction. . . . The arbitrators’ findings of fact shall be binding on
all parties and shall not be subject to further review except as
otherw ise allow ed by applicable law.

Aplt. App. 162-63. M oreover, the agreement provided that “[a]rbitration

proceedings hereunder shall be conducted in the principal place of business of the

party against whom arbitration proceedings are brought.” Id. at 163.

On December 9, 2003, M r. Schneider filed an action in Travis County,

Texas District Court seeking to wind up and dissolve the partnership. Id. at 263.

The Ridge filed an answ er and then moved to compel arbitration in Utah, its

principal place of business. Id. at 264. The court granted the motion in part,

ordering that the dispute be arbitrated but referring the question of venue to the

panel of arbitrators. The Ridge did not appeal this ruling.

The Ridge also did not initiate arbitration proceedings. Accordingly,

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counsel for M r. Schneider sent counsel for The Ridge a demand for arbitration

dated M arch 31, 2004. See id. at 262-65. Counsel explained that M r. Schneider

had begun proceedings before the American Arbitration Association but

maintained that The Ridge had “brought arbitration against Schneider and the

partnership” by moving to compel arbitration in Texas District Court. Id. at 264.

Accordingly, M r. Schneider argued that the arbitration should be held in his

principal place of business, Texas.

On June 7, 2004, The Ridge filed a petition to compel arbitration in Utah

federal district court. In the petition, The Ridge sought an order compelling M r.

Schneider to “terminate the Texas arbitration proceedings and, if he wishes to

arbitrate a dispute with Red Hawk and/or the Partnership, to initiate arbitration

proceedings in Utah in accordance with the terms of the parties’ written

agreement.” The Ridge at Red Hawk’s Petition for Order to Compel Compliance

W ith W ritten Arbitration Provisions at 5, The Ridge at Red Hawk, L.L.C. v.

James M . Schneider, 2:04-cv-00522-PG C (D. Utah June 7, 2004). M r. Schneider

filed a motion to dismiss for lack of subject matter jurisdiction, contending that

the Texas state district court had referred the venue question to the arbitration

panel, and the Rooker-Feldman doctrine prevented the federal court in Utah from

re-litigating the issue. See D.C. Court of Appeals v. Feldman, 460 U.S. 462

(1983); Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923). The federal district

court granted M r. Schneider’s motion to dismiss on July 8, 2004. See Aplee. Br.

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Att. 1, at 1-2.

The parties then prepared for arbitration in Texas. Prior to the arbitration,

however, the parties stipulated in writing that they waived their entitlement to

written findings of fact and conclusions of law from the panel. A plt. A pp. at 188.

The Ridge then argued that the proper venue was Utah, but the three-member

arbitration panel issued a decision on September 9, 2004, ruling that the

arbitration should proceed in Austin, Texas. It explained:

The Arbitration Panel has considered the parties’ contentions on
venue/locale of the arbitration proceeding and the hearings to be held
in connection therewith, including carefully considering The Ridge at
Red Hawk’s claims that the arbitration should be conducted in Utah,
the Commercial Rules of the Association and all factors traditionally
considered in connection with venue, and based upon all the facts
and circumstances of this case, is of the opinion, and so finds, that
venue of this arbitration proceeding and of the hearings to be
conducted in connection therewith shall be in Austin, Texas.

M otion to Remand, Ex. E, James M . Schneider v. The Ridge at Red Hawk,

L.L.C., 1:05-cv-00391-LY (W .D. Tex. June 20, 2005). 1

The arbitration was held from November 29 through December 1, 2004.

O n D ecember 30, 2004, the panel issued an award dissolving M ountain Red H aw k

and providing a framework for the dissolution of partnership assets. See Aplt.

1
Although M r. Schneider’s M otion to Remand is part of our record on
appeal, the parties did not include this exhibit for us. However, it is part of the
record in a related action in the United States D istrict Court for the W estern
District of Texas, and its authenticity is not disputed by the parties, so we may
consider it in reviewing the dismissal of The Ridge’s claims. See County of
Santa Fe v. Pub. Serv. Co. of N .M ., 311 F.3d 1031, 1035 (10th Cir. 2002).

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App. at 183-90. It further determined that M r. Schneider, as the prevailing party

in his request for declaratory relief, was entitled to recover $30,000 in attorneys’

fees as well as his share of the costs of the arbitration proceeding. Id. at 187-88.

On January 14, 2005, The Ridge filed this action in Utah federal district

court seeking to vacate or modify the arbitration aw ard. See id. at 16-19. It

contended that the arbitration panel made incorrect rulings of law, permitting

court review of the award pursuant to § 14.16(e) of the Partnership Agreement.

Id. at 18-19. M eanwhile, M r. Schneider returned to the Texas state district court

and filed a petition to confirm the arbitration award on M ay 20, 2005. Before the

court could rule on this petition, however, The Ridge removed the case to the

federal district court for the W estern District of Texas. M r. Schneider moved to

remand the action to the Texas state district court, and the parties ultimately

stipulated to the dismissal of the Texas litigation. On August 10, 2005, the

federal district court in Texas entered a final judgment of dismissal without

prejudice. It does not appear that either Texas court ever ruled on the petition to

confirm the arbitration award.

Following the stipulated dismissal of the Texas litigation, M r. Schneider

filed a motion to dismiss The Ridge’s U tah law suit for failure to state a claim

upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The district court

granted this motion on December 9, 2005, holding that “any application of the

Partnership Agreement’s venue provisions at issue would necessarily have

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resulted from a factual finding on the issue of which party was ‘the party against

whom the arbitration proceedings are brought.’” Aplt. App. at 12 (internal

footnote omitted). M oreover, the court noted that “[i]t is not possible for a court

to determine whether an arbitration award is ‘based in whole or in part on an

incorrect or erroneous ruling of law’ where the objecting party waived the

requirement that the arbitration panel’s decisions be supported by ‘specific

written findings of fact and conclusions of law.’” Id. at 11-12. Accordingly, the

court concluded that The Ridge had not pled sufficient allegations to support an

order vacating or modifying the award due to an erroneous ruling of law , and it

granted M r. Schneider’s motion to dismiss. Id. at 13. The Ridge filed a timely

motion, pursuant to Fed. R. Civ. P. 59(e), seeking to alter or amend the judgment

and to amend its complaint, but the district court denied this motion. Id. at 15.

Discussion

W e review a dismissal under Fed. R. Civ. P. 12(b)(6) de novo. Beedle v.

W ilson, 422 F.3d 1059, 1063 (10th Cir. 2005). In conducting our review, we

assume the truth of the plaintiff’s well-pleaded factual allegations and view them

in the light most favorable to the plaintiff. Id. And until recently, we have only

affirmed a dismissal where “it appears beyond a doubt that the plaintiff can prove

no set of facts in support of his claim which would entitle him to relief.” Id.

(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). However, the Supreme

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Court recently decided that “this famous observation has earned its retirement,”

and it has prescribed a new inquiry for us to use in reviewing a dismissal: whether

the complaint contains “enough facts to state a claim to relief that is plausible on

its face.” Bell Atlantic Corp. v. Twombly, — U.S.— , 127 S. Ct. 1955, 1969, 1974

(2007). The Court explained that a plaintiff must “nudge[] [his] claims across the

line from conceivable to plausible” in order to survive a motion to dismiss. Id. at

1974. Thus, the mere metaphysical possibility that some plaintiff could prove

some set of facts in support of the pleaded claims is insufficient; the complaint

must give the court reason to believe that this plaintiff has a reasonable likelihood

of mustering factual support for these claims.

The Ridge contends that it has satisfied its pleading obligations. It begins

by conceding that the partnership agreement only permits the parties to seek

judicial review of pure legal questions. However, it argues that the factual

allegations in the First Amended Complaint establish that: (1) The Ridge has its

principal place of business in Utah; (2) M r. Schneider filed a demand for

arbitration; and (3) the arbitration was held in Austin, Texas. See Aplt. App. at

106-07. It further notes that the partnership agreement was attached to the First

Amended Complaint as an exhibit, id. at 109-74, and the district court properly

referenced this document in ascertaining the criteria by which venue was to be

judged, see Hall v. Bellmon, 935 F.2d 1106, 1112 (10th Cir. 1991). Because The

Ridge alleged that the panel made incorrect rulings of law, including overruling

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its objections to venue, Aplt. App. at 108, The Ridge contends that its allegations

were sufficient to survive a motion to dismiss.

W e disagree. The Ridge has a contractual right to seek vacation or

modification of an arbitration award only if the award “is based in whole or in

part on an incorrect or erroneous ruling of law.” Id. 163. Necessarily, then, an

incorrect ruling of law that is not the basis for an award is insufficient. 2 It is not

enough merely to allege that “the panel . . . improperly overruled objections by

The Ridge to venue,” id. at 108, because the fact that an arbitration was held in an

improper venue does not call into question the merits of the aw ard. 3 The First

Amended Complaint leaves the district court with no reason to conclude that the

award was “based in whole or in part on an incorrect or erroneous ruling of law,”

id. at 163, so the court correctly held that The Ridge failed to state a claim on

2
Although the Texas A rbitration Act may indeed permit a court to vacate
an arbitration award if the arbitration was conducted in an improper venue,
see Aplt. Reply Br. at 6 (citing Tex. Civ. Prac. & Rem. Code Ann. § 171.088
(Vernon 2005)), the relevant question here is whether the allegedly erroneous
venue ruling was the basis for the award. This question is controlled by the
parties’ contract, not the Texas A rbitration Act.
3
This is because “venue is a matter that goes to process rather than
substantive rights–determining which among various competent [tribunals] w ill
decide the case.” Am. Dredging Co. v. M iller, 510 U.S. 443, 453 (1994); cf.
Indus. Addition Ass’n v. Comm’r of Internal Revenue, 323 U.S. 310, 313-14
(1945) (“[T]he court of trial having jurisdiction but not the proper venue may
render a judgment binding on the parties.”); In re Commitment of Johnson, 153
S.W .3d 129, 131 (Tex. App. 2004) (“A venue provision is not a substantive
limitation on court power; it neither limits nor creates specific powers in a
specific court.”).

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which relief could be granted. 4

The First Amended Complaint has another fatal defect: it establishes that

The Ridge cannot provide the court with a basis on which to conclude that venue

was a purely legal determination. The Ridge argues that “where the particular

character of the suit constitutes a factor in determining the question of venue, the

character of the suit becomes a law question, arising on the pleadings, and the

character of the suit is determinable solely by the allegations contained in the

[complaint].” Aplt. Br. at 9 (quoting Hays v. M cKemie, 185 S.W .2d 484, 485

(Tex. Civ. App. 1945)) (internal quotation marks omitted). However, the

arbitration award, which was attached to the First Amended Complaint as an

exhibit, notes the undisputed fact that “all parties to this arbitration have

previously stipulated in writing to the Association that they each waive any

requirement in the arbitration agreement that . . . ‘the arbitrators shall make

specific, written findings of fact and conclusions of law.’” Aplt. App. at 188. The

Order on Venue does not explain the basis for the panel’s venue determination,

and without findings and conclusions on this issue, the district court simply

cannot determine whether venue was a purely legal question or what facts the

4
Although the district court did not justify its dismissal on this rationale,
“[w]e may affirm the rulings of the low er court on any ground that finds support
in the record . . . .” United States v. Ledford, 443 F.3d 702, 707 (10th Cir. 2005)
(internal quotation marks omitted).

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arbitration panel considered in reaching its venue ruling. 5 Absent such a

determination, The Ridge cannot prevail.

It is clear from the First Amended Complaint that The Ridge has failed to

“nudge[] [its] claims across the line from conceivable to plausible,” Twombly,

127 S. Ct. at 1974, and the district court properly granted M r. Schneider’s motion

to dismiss. Given the impossibility of stating a valid claim on the facts of this

case, further amendments to the complaint would have been futile, and the district

court did not err in denying The Ridge’s Fed. R. Civ. P. 59(e) motion. See

Bauchman v. W est High Sch., 132 F.3d 542, 562 (10th Cir. 1997). The joint

motion to clarify the record is granted.

A FFIR ME D.

5
Notably, the Order on Venue states that the panel’s ruling was “based
upon all the facts and circumstances of this case,” strongly suggesting that venue
was not a pure legal question. See M otion to Remand, Ex. E.

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