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Clearwater REI, LLC v. Boling

Supreme Court of Idaho, Boise

February 11, 2014

CLEARWATER REI, LLC, an Idaho limited liability company; Barton Cole Cochran; Chad James Hansen; Ronald D. Meyer; Christopher J. Benak; Rob Ruebel; and Re Capital Investments, LLC, a Delaware limited liability company, Plaintiffs-Counterdefendants-Respondents,
v.
Mark BOLING, Defendant-Counterclaimant-Appellant.

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[Copyrighted Material Omitted]

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Mark A. Boling, Lake Forest, California, argued for himself.

Rebecca A. Rainey, Boise, argued for respondents.

EISMANN, Justice.

This is an appeal out of Ada County from an order denying a motion to compel nonparties to a contract to arbitrate pursuant to an arbitration clause in the contract. We affirm the order of the district court.

I.

Factual Background.

In February 2010, Mark Boling, an attorney residing in California, received a packet dated February 1, 2010, from Clearwater Real Estate Investments. The packet included a cover letter with the letterhead of Clearwater Real Estate Investments, information about Clearwater Real Estate Investments, and information about Clearwater 2008 Note Program, LLC. The cover letter stated that the note program paid " 9% Annual Interest (paid monthly)." The packet included an investment summary and a memorandum dated August 29, 2008, which described the note program in detail. The notes were offered for sale in reliance upon an exemption from the registration requirements of the Securities Act of 1933. In essence, the program offered persons to whom Clearwater 2008 Note Program, LLC, could sell its securities under that exemption the opportunity to purchase interests in promissory notes it issued. It would use the proceeds from the notes to invest in real estate acquisition and development projects, and the revenues from the real estate investments would be used to pay the notes. The notes were due on December 31, 2015, and RE Capital Investments, LLC, guaranteed the payment of the principal amount of the notes.

On February 12, 2010, Mr. Boling signed a subscription agreement for the note program and submitted it with a check for $50,000 to

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invest in the program. The subscription agreement stated that the offer to enter into the agreement was made by " Clearwater 2008 Note Program, LLC, an Idaho limited liability company." On February 26, 2010, Clearwater 2008 Note Program, LLC, signed the subscription agreement by its sole member, Clearwater REI, LLC. Bart Cochran signed on behalf of Clearwater REI, LLC, as its manager.

By letter dated March 1, 2010, Clearwater Real Estate Investments sent Mr. Boling a letter addressed to " Dear Valued Customer" thanking him for choosing Clearwater Real Estate Investments and confirming that his subscription in Clearwater 2008 Note Program, LLC, in the principal amount of $50,000 had been accepted. Enclosed with the letter were a certificate stating that Mr. Boling had invested $50,000 in Clearwater 2008 Note Program, LLC, and a copy of a note dated August 29, 2008, that was executed by Clearwater 2008 Note Program, LLC, as maker. The note stated that the payees were listed in Exhibit A attached to the note.

The subscription agreement contained a provision requiring binding arbitration to resolve any dispute, controversy, or other claim arising under, out of, or relating to the agreement. Mr. Boling did not receive the payments anticipated, and on February 15, 2012, he filed a demand for commercial arbitration with the American Arbitration Association, seeking to arbitrate claims against Clearwater 2008 Note Program, LLC; Clearwater REI, LLC; Clearwater Real Estate Investments; RE Capital Investments, LLC; Barton Cole Cochran; Chad James Hansen; Ronald D. Meyer; Christopher J. Benak; and Rob Ruebel. The alleged claims were violations of the Idaho Consumer Protection Act against all of the respondents; breach of contract against Clearwater 2008 Note Program, LLC; and breach of the guaranty agreement against RE Capital Investments, LLC, a Delaware limited liability company.

Clearwater REI, LLC, was the sole member of Clearwater 2008 Note Program, LLC. Messrs. Meyer and Benak each owned a limited liability company, and each of those two companies owned a 50% interest in RE Capital Investments, LLC, which owned 55.84% of Clearwater Real Estate Investments, LLC. Messrs. Cochran and Hansen each owned a limited liability company, each of which owned a 19.58% interest in Clearwater Real Estate Investments, LLC. Messrs. Meyer, Benak, Cochran, and Hansen were officers of Clearwater 2008 Note Program, LLC, and they were also key management of Clearwater REI, LLC. Mr. Ruebel was a regional vice president of sales for Clearwater Real Estate Investments, LLC.

On May 14, 2012, Clearwater REI, LLC; Barton Cole Cochran; Chad James Hansen; Ronald D. Meyer; Christopher J. Benak; Ron Ruebel; and RE Capital Investments, LLC, filed this action seeking a stay of the arbitration proceedings on the ground that none of them were parties to the subscription agreement. On June 28, 2012, Mr. Boling filed an answer asking that they be denied any relief. On the same day, Mr. Boling also filed a counterclaim against them and a third-party complaint against Clearwater Real Estate Investments, LLC, seeking to recover damages for alleged breaches of the Idaho Consumer Protection Act and a counterclaim against RE Capital Investments, LLC, seeking to recover damages for breach of the guaranty. On July 6, 2012, RE Capital Investments had filed a petition under Chapter 7 of the Bankruptcy ...


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