Unreported / Non-Citable
Background
Richard Belgarde is the minority member (18.92 percent) and Michael Young the majority member and manager (81.08 percent) of Millwright Holdings LLC. Their Operating Agreement, signed around August 2020, calls for face-to-face negotiation and then mediation or binding AAA arbitration under Delaware law (section 12.14). Belgarde once served as Millwright's CFO, and CFO Rick, a company he owns or is affiliated with, provided accounting services; both roles ended in March 2025. In November 2025 Young began an arbitration against Belgarde and CFO Rick. After the court held in a related case that CFO Rick, a non-signatory, could not be compelled to arbitrate, Young amended his demand to name only Belgarde, asserting fiduciary duty, contract, trade secret, fraud, and accounting claims, individually and derivatively for Millwright.
Belgarde then sued. As alleged in his first amended complaint, Count 1 seeks a declaration that he cannot be compelled to arbitrate because Young skipped face-to-face negotiation and did not make a demand on Millwright's board, or show futility, before asserting derivative claims. Count 2 seeks a declaration that Young may not use Millwright funds to pursue the arbitration, which Belgarde alleges is in bad faith and therefore outside the operating agreement's indemnification clause. Count 3 alleges breach of thirteen oral loan agreements totaling $209,330. Young moved to compel arbitration and stay, or alternatively dismiss; Belgarde argued waiver and that his claims belonged in court.
The Court’s Holding
Belgarde bore the burden of proving waiver, which under Armstrong v. Michaels Stores requires knowledge of the right and intentional acts inconsistent with it, without any showing of prejudice. Knowledge was undisputed. The court rejected all three theories. Young's remark at a case management conference, read in context, concerned federal jurisdiction over counterclaims he pleaded in the CFO Rick case because they might be compulsory. The arbitration's slow pace reflected the parties sorting out which claims could be arbitrated, and Young's email to the AAA said the parties were still in discussions and the amendment was meant to remove CFO Rick; attempts to settle are not waiver. Overlapping claims in other forums fit Young's theory of collusion and did not show he treated arbitration as a reserve forum.
On arbitrability, Belgarde's only argument against Young's claims was waiver, so those claims belong in arbitration. Because the clause incorporates AAA rules, which let the arbitrator rule on arbitrability, and sophisticated parties are bound by that delegation under Brennan v. Opus Bank, the face-to-face negotiation and board-demand issues go to the arbitrator. Count 1 was not an independent claim. Count 2 is independent but is not a true indemnification claim; it turns on whether Young may bring derivative claims for Millwright, an arbitrator's question, so the court did not reach Young's ripeness and demand arguments. For Count 3, the court conceded the complaint does not tie the loans to the Operating Agreement and that Young bears the burden, but Belgarde's own arbitration answer pleaded the loans as an offset, giving a reasonable basis for the arbitrator to decide scope. The court expressly did not hold that Count 3 is within the clause. It denied Belgarde's request to reserve a one-satisfaction or offset defense, granted the motion, and stayed the case under 9 U.S.C. section 3.
Key Takeaways
- After Armstrong, a party opposing arbitration must show knowing, intentional conduct inconsistent with arbitration, and statements and delays are read in full context.
- Pleading potentially compulsory counterclaims elsewhere and pausing to pursue settlement did not waive arbitration here.
- Incorporating AAA rules can delegate to the arbitrator disputes over scope, pre-arbitration procedure, and derivative-claim prerequisites.
- A claim about funding an arbitration with company money was sent to arbitration because it turned on whether the derivative claims were proper.
- The ruling compels arbitration and stays the case rather than entering a final judgment; the merits, whether the loan claim is actually covered, and offset defenses remain open before the arbitrator.
Why It Matters
The order shows a court enforcing a delegation created by incorporating AAA rules to send even side disputes between LLC members to the arbitrator, while declining to decide whether the loan claim is actually covered. Its waiver analysis, which weighs conduct in full context under Armstrong, offers guidance to parties accused of litigating inconsistently. It is an unreported district court order and carries no precedential weight beyond its persuasive reasoning.