Opinion
Civil No. 05cv1697-L(JMA).
March 17, 2006
ORDER: (1) GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS; (2)COMPELLING ARBITRATION; and (3) STAYING ACTION [Dock. Nos 29, 37]
This matter comes before the Court on: (1) Defendant Keller Williams Realty, Inc.'s Motion to Dismiss, or in the Alternative, Stay Action and Compel Arbitration or Transfer Venue; and (2) Defendant Tom Colwell's Motion to Dismiss. The Court finds the motions suitable for determination on the papers and without oral argument in accordance with Civil Local Rule 7.1(d)(1).
BACKGROUND
Defendant Keller Williams Realty, Inc. ("KWRI") is an international real estate company that licenses its offices in the United States and Canada. KWRI is a Texas corporation with its principal place of business in Austin, Texas. On July 15, 1998, Plaintiff Dan Townsend, by and through Benefit Asset Management Corp. (later renamed BLT I), entered into a license agreement with KWRI to operate a real estate Market Center in Rancho Bernardo, California. On June 11, 1999, Townsend by and through BLT II entered into a license agreement with KWRI to operate a real estate Market Center in Mission Valley. During the years 1998 through 2001, Defendant Tom Colwell, a Colorado citizen, held himself out as KWRI's regional director for the San Diego area. Colwell was responsible for approving Townsend's Market Centers' initial budgets and core start up personnel, including the operating principal and team leaders, and was responsible for providing advice and training to the Rancho Bernardo and Mission Valley Market Centers.
First Amended Complaint ("FAC") ¶ 14.
Id. ¶ 16, Ex. A.
FAC ¶ 17., Ex. B.
FAC ¶¶ 15, 20.
Id. ¶ 20.
The license agreements contain an arbitration clause requiring the parties to submit to arbitration any disputes arising out of or relating to the licensee's operation of the Market Center. According to Plaintiffs, as a result of Defendants' wrongful actions, Townsend was forced to sell his Rancho Bernardo Market Center on August 30, 2001. As a further direct result of Defendants' wrongful and unfair business practices, on June 27, 2003, Townsend defaulted out of his Mission Valley Market Center.
FAC Ex. A ¶ 20.02(c); FAC Ex. B ¶ 20.02(c).
FAC ¶¶ 27-33, 36-38.
FAC ¶ 39.
On August 29, 2005, Townsend, BLT I, and BLT II filed this action against KWRI, Colwell, and Colwell's limited liability company KW California, LLC. On November 14, 2005, Plaintiff filed an amended complaint no longer naming KW California as a Defendant and alleging: (1) breach of contract against KWRI; (2) unfair business practices under California Business Professions Code section 17200 against KWRI and Colwell; (3) intentional interference with prospective business advantage against KWRI and Colwell; (4) unjust enrichment against KWRI; and (5) requests an accounting as to KWRI.
Under the terms of the license agreements, KWRI filed a Demand for Arbitration with the American Arbitration Association ("AAA") in Dallas, Texas on December 2, 2005. KWRI requests: (1) a declaratory judgment that KWRI fully complied with the license agreements; (2) damages for Plaintiffs' breaches of the license agreements; and (3) attorneys' fees and costs.
Coldwell Decl. ¶ 2, Ex. A.
Coldwell Decl. Ex. A.
In this action, KWRI and Colwell filed separate motions challenging the amended complaint. Both motions request dismissal for lack of subject matter jurisdiction. KWRI alternatively moves to stay this action and compel arbitration or, in the alternative, dismiss or transfer this action for lack of venue. Colwell, in turn, moves to dismiss for failure to state a claim, challenges BLT I and BLT II's capacity to sue, and argues the case should be stayed should the Court compel arbitration of Plaintiffs' claims against KWRI. In the alternative, Colwell moves for a more definite statement.
DISCUSSION
I. Motions to Dismiss for Lack of Subject Matter Jurisdiction
The federal court is one of limited jurisdiction. See Gould v. Mutual Life Ins. Co. of New York, 790 F.2d 769, 774 (9th Cir. 1986). As such, it cannot reach the merits of any dispute until it confirms its own subject matter jurisdiction. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998). "`Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.'" Id. (quoting Ex parte McCardle, 74 U.S. (7 Wall.) 506, 614 (1868)).
Jurisdiction in this case is founded on diversity. "District courts have jurisdiction in civil actions where there is complete diversity of citizenship among the parties and the amount in controversy exceeds $75,000, exclusive of interest and costs." Crum v. Circus Circus Enters., 231 F.3d 1129, 1131 (9th Cir. 2000). The amount in controversy requirement is determined from the allegations or prayer of the complaint. Id. The amount claimed by the plaintiff is controlling, provided the claim is made in good faith. Id. To justify dismissal, "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938); accord Crum, 231 F.3d at 1131. "Legal impossibility" differs from the standard set by Federal Rule of Civil Procedure 12(b): "A legal shortcoming does not equate to a jurisdictional shortfall, else defendants would never win in diversity cases. They could at best achieve jurisdictional dismissals, followed by new suits in state court." Johnson v. Wattenbarger, 361 F.3d 991, 993-94 (7th Cir. 2004) (internal citations omitted). A demand is legally impossible when "it runs up against a statutory or contractual cap on damages, or when the theories of damages employ double counting." Id. at 994 (internal citations omitted).
FAC ¶¶ 1-9.
A. Colwell's Motion to Dismiss for Lack of Subject Matter Jurisdiction
The FAC alleges the amount in controversy exceeds $75,000, and that Townsend paid Defendants $37,000 in franchise fees and $175,000 in royalty fees. The FAC also seeks damages for breach of the license agreements and as a result of Defendants' intentional interference with prospective business advantage. Colwell maintains these allegations are insufficient and conclusory, and therefore diversity jurisdiction is lacking. According to Colwell, Plaintiffs fail to properly allege an amount in controversy because Plaintiffs have not asserted any claim that would entitle them to a refund of the franchise and royalty fees. Colwell further argues the FAC's allegations for damages in an unspecified amount do not meet the $75,000 minimum amount in controversy requirement.
FAC ¶¶ 7-9.
Having reviewed the FAC, the Court finds its allegations sufficient to support diversity jurisdiction. The FAC seeks restitution of the royalty and franchise fees as ill-gotten gains under California Business Professions Code section 17200. The FAC does, therefore, allege a basis for recovery of the more than $200,000 paid to Defendants. Although Colwell maintains Plaintiffs' § 17200 claim must be dismissed, the merits of that claim are irrelevant in determining the existence of diversity jurisdiction. See Johnson, 361 F.3d at 994 ("Thus, `[s]ubject matter jurisdiction is not defeated by the possibility that the complaint ultimately fails to state a claim.'") (quoting Louque v. Allstate Ins. Co., 314 F.3d 776, 782 (5th Cir. 2002)). The Court does not find it legally impossible for Plaintiffs to have suffered more than $75,000 in damages. Accordingly, Colwell's motion to dismiss for lack of subject matter jurisdiction is DENIED.
FAC ¶ 60, at 14.
B. KWRI's Motion to Dismiss for Lack of Subject Matter Jurisdiction
KWRI argues that because the parties agreed to arbitration in the license agreements, this Court lacks subject matter jurisdiction over this case. The Court disagrees. "[A]rbitration agreements do not divest courts of jurisdiction, though they prevent courts from resolving the merits of arbitrable disputes." DiMercurio v. Sphere Drake Ins., PLC, 202 F.3d 71, 77 (1st Cir. 2000); see Nelson v. Insignia/ESG, Inc., 215 F. Supp. 2d 143, 146 (D.D.C. 2002) (holding that an arbitration clause does not divest the court of jurisdiction). Accordingly, the existence of an arbitration clause does not deprive this Court of jurisdiction over the case.
II. KWRI's Motion to Compel Arbitration
The Federal Arbitration Act ("FAA") empowers federal courts to stay actions subject to an arbitration agreement and to order a refusing party to abide by the procedures in the agreement. 9 U.S.C. § 3; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24-25 (1991). The language of the FAA is mandatory:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. 9 U.S.C. § 3; Bosinger v. Phillips Plastics Corp., 57 F. Supp. 2d 986, 989 (S.D. Cal. 1999).
"The standard for demonstrating arbitrability is not high." Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999). "The Supreme Court has held that the FAA leaves no place for the exercise of discretion by a district court, but instead mandates that district courts direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Id. (citing Dean Witter Reynolds v. Byrd, 470 U.S. 213, 218 (1985)). Thus, the court's role is limited to determining "(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).
The license agreements concerning the Rancho Bernardo and Mission Valley Market Centers contain the following arbitration clause:
(a) Except as provided in this agreement, licensor and licensee agree that any claim, controversy or dispute arising out of or relating to licensee's operation of the market center under this agreement (and exhibits) including, but no limited to, those occurring subsequent to the termination or expiration of this agreement, that cannot be amicably settled among the parties or through mediation shall, except as specifically set forth herein and in section 20.02(c), be referred to arbitration in accordance with the rules of arbitration of the American Arbitration Association, as amended. If such rules are in any way contrary to or in conflict with this agreement, the terms of this agreement shall control. Only claims, controversies or disputes involving licensee and no claims for or on behalf of any other licensee or supplier may be brought by licensee hereunder.
FAC Ex. A ¶ 20.02(a); FAC Ex. B ¶ 20.02(a).
The license agreements require arbitration to take place at KWRI's corporate offices in Austin, Texas. These agreements also provide that all disputes will be governed by Texas law.
FAC Ex. A ¶ 20.02(b); FAC Ex. B ¶ 20.02(b). For those claims that are not arbitrable as set forth in the license agreements, suit is to be brought in the state courts of Travis County, Texas and the federal District Court for the Western District of Texas, Austin Division. (FAC Ex. A ¶ 20.02(f); FAC Ex. B ¶ 20.02(f).
FAC Ex. A ¶ 20.02(f); FAC Ex. B ¶ 20.02(f).
KWRI contends all of the claims Plaintiffs have asserted against it fall within the scope of the arbitration clause in the license agreements, and further argues the arbitration should take place in Austin, Texas and be governed by Texas law. Plaintiffs do not dispute the claims are arbitrable. However, Plaintiffs maintain this Court should require the arbitration to take place in San Diego under California law.
"`[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting United Steelworkers v. Warrior Gulf Navigation Co., 363 U.S. 574, 582 (1960)). Thus, while the Supreme Court has "long recognized and enforced a liberal federal policy favoring arbitration agreements, it has made clear that there is an exception to this policy:" "questions of arbitrability," such whether the parties agreed to arbitrate a dispute and are bound by an arbitration clause, must be decided by the court. Howsam, 537 U.S. at 83 (internal quotations and citations omitted); Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). In contrast, "procedural questions which grow out of the [parties'] dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide." Howsam, 537 U.S. at 84 (internal quotations omitted). For example, the Supreme Court held that whether arbitration of a dispute between a brokerage firm and its customer was time barred under the National Association of Securities Dealers Code of Arbitration Procedure was a matter presumptively for the arbitrator, not for the judge. Id. at 85. The Court also held that an arbitrator should decide allegations of waiver, delay, or a similar defense to arbitrability. Id. at 84; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
Applying this precedent, the First Circuit concluded a dispute between the parties regarding where an arbitration will take place "raises not a question of arbitrability but a procedural question and is therefore for the arbitrator, not the Court." Richard C. Young Co. v. Leventhal, 389 F.3d 1, 4 (1st Cir. 2004). In that case, the arbitration agreement provided, "any disagreement between [the parties] in connection with" the arbitration agreement "will be submitted to arbitration." Id. The appellate court found that disagreement over interpretation of the forum selection clause is one "in connection with" the arbitration agreement, and thus was an issue the parties agreed to submit to arbitration. Id.
The license agreements between Plaintiff's and KWRI state, "any claim, controversy or dispute arising out of or relating to licensee's operation of the market center under this agreement . . . shall . . . be referred to arbitration in accordance with the rules of arbitration of the American Arbitration Association, as amended." The "arising out of and relating to" language renders the arbitration clause broad, encompassing questions regarding venue. See Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983); Bosinger, 57 F. Supp. 2d at 993.
FAC Ex. A ¶ 20.02(a); FAC Ex. B ¶ 20.02(a).
In addition, the parties' agreement to arbitrate in accordance with AAA rules is significant. Cf. PP Indus., Inc. v. Sutter Corp., 179 F.3d 861, 867 (10th Cir. 1999) (holding that a party who consents to arbitration before the AAA also consents to be bound by AAA's procedural rules unless the party indicates otherwise); Rainwater v. Nat'l Home Ins. Co., 944 F.2d 190, 192-93 (4th Cir. 1991) (same). AAA's Commercial Arbitration Rules state that the arbitrator decides venue when the issue is in dispute:
AAA's Commercial Arbitration Rules apply whenever the parties agree to arbitration by AAA under its Commercial Arbitration Rules, and also when they agree to arbitration by the AAA of "a domestic commercial dispute without specifying particular rules." AAA Commercial Arbitration Rules R-1.
The parties may mutually agree on the locale where the arbitration is to be held. If any party requests that the hearing be held in a specific locale and the other party files no objection thereto within 15 days after notice of the request has been sent to it by the AAA, the locale shall be the one requested. If a party objects to the locale requested by the other party, the AAA shall have the power to determine the locale, and its decision shall be final and binding.
AAA Commercial Arbitration Rules R-10.
Applicable authority and the AAA's procedural rules mandate the conclusion this Court does not have jurisdiction to interpret the license agreements' forum selection clause, and instead the issue must be decided by the arbitrator. Similarly, the Court finds the dispute between the parties regarding which substantive law applies to Plaintiffs' claims is a procedural matter to be decided by the arbitrator. See ATSA of Cal., Inc. v. Continental Ins. Co., 702 F.2d 172, 175 (9th Cir. 1983) ("[T]he arbitrator has authority to determine the applicable law."); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd., 109 F. Supp. 2d 1236, 1253 (S.D. Cal. 2000) (same); In the Matter of Arbitration Between Zurich Ins. Co. v. Ennia Gen. Ins. Co., 882 F. Supp. 1438, 1440 (S.D.N.Y. 1995) ("[T]he issue of law to be applied in the arbitration proceeding — including the question whether the choice of law clause in the Management Agreement applies — is for the arbitration panel.").
Having found the parties agree Plaintiffs' claims against KWRI are arbitrable and the arbitrator must interpret the license agreements' choice of law and forum selection clauses, the remaining task for the Court is to compel arbitration. Section 4 of the FAA states that the court "shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed." 9 U.S.C. § 4 (emphasis added). By its terms, § 4 "confines the arbitration to the district in which the petition to compel is filed." Textile Unlimited, Inc. v. ABMH Co., 240 F.3d 781, 785 (9th Cir. 2001) (emphasis omitted). Accordingly, the FAA requires this Court to order Plaintiffs' claims against KWRI to be submitted for arbitration with the AAA in the Southern District of California. However, this order does not preclude KWRI from challenging venue before the AAA, nor does the Court express any opinion as to whether the arbitration of Plaintiffs' claims against KWRI should be consolidated with the arbitration proceedings in Texas, as that is a procedural matter left to the arbitrator. See Green Tree, 539 U.S. at 450-54 (holding that the arbitrator, not court, determines whether an arbitration clause permits classwide arbitration); Shaw's Supermarkets, Inc. v. United Food Commercial Workers Union, 321 F.3d 251, 254 (1st Cir. 2003) (holding that whether grievances should be consolidated was a matter for the arbitrator); Weyerhauser Co. v. Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984) (holding federal court lacks power to order consolidation without the parties' consent, even when the separate arbitrations involve the same questions of fact and law); H. Warren Knight, California Practice Guide: Alternative Dispute Resolution § 5:361 at 5-181 (The Rutter Group 2004) (stating that arbitrator should decide whether arbitration clause allows consolidation of separate arbitration proceedings). III. Colwell's Motion to Dismiss, for More Definite Statement, and for a Stay
Colwell moves to dismiss the FAC, arguing the causes of action against him are time-barred, the FAC fails to state a claim upon which relief can be granted, and BLT I and BLT II lack capacity to sue. He contends this action should be stayed if this Court orders arbitration of the claims between Plaintiffs and KWRI. In the alternative, Colwell moves for an order requiring a more definite statement.
The two causes of action alleged against Colwell — unfair business practices and intentional interference with prospective business advantage — are levied against both Colwell and KWRI. As discussed above, Plaintiffs and KWRI agree these claims must be arbitrated. The Ninth Circuit has recognized a court may
See FAC ¶¶ 53-64.
"find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case. This rule applies whether the separate proceedings are judicial, administrative, or arbitral in character, and does not require that the issues in such proceedings are necessarily controlling of the action before the court."Mediterranean Enters., 708 F.2d at 1465 (quoting Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 863-64 (9th Cir. 1979)). In this case, there is a significant overlap between the arbitrable and the nonarbitrable claims, as the causes of action asserted against Colwell are also alleged against KWRI. Whether Colwell can be liable to the Plaintiffs will be influenced by the outcome of Plaintiffs' case as to KWRI. This Court thus cannot rule on Colwell's challenges to the merits of the claims asserted against him, nor on Colwell's argument regarding BLT I and BLT II's capacity to sue, without creating a risk of inconsistent rulings with the arbitrator and running afoul of the strong federal policy favoring arbitration. Accordingly, Colwell's motion to stay is GRANTED, and his motions to dismiss and for more definite statement are DENIED WITHOUT PREJUDICE.
CONCLUSION
Having reviewed the parties' briefs, applicable law, and good cause appearing, IT IS HEREBY ORDERED:1. Colwell's Motion to Dismiss for Lack of Subject Matter Jurisdiction is DENIED [dock. no 29-1].
2. Colwell's Motion to Dismiss for Failure to State a Claim and alternative Motion for More Definite Statement are DENIED WITHOUT PREJUDICE [dock. no 29-1, 29-2].
3. Colwell's Motion to Stay Proceedings is GRANTED [dock. no. 29-3]
4. KWRI's Motion to Dismiss for Lack of Subject Matter Jurisdiction is DENIED [dock. no. 37-1].
5. KWRI's Motion to Stay this Action and Compel Arbitration is GRANTED [dock. no. 37-2, 37-3, 37-4]. Plaintiffs' claims against KWRI shall be submitted to arbitration with the AAA in the Southern District of California.
6. Plaintiffs' claims against Colwell are not arbitrable. Further, as the arbitration of Plaintiffs' claims against KWRI will likely impact Colwell's liability to Plaintiff, the Court STAYS this civil action pending final resolution of the arbitration proceedings. Because this Court may not proceed with this case in the normal course, and in the interest of judicial efficiency, the Court finds this civil case should be administratively closed until the completion of the arbitration proceedings. Upon proper application by a party, the Court may reopen this civil case.
The Clerk of the Court is directed to administratively close this case and submit a JS-6 form to the Administrative Office.
IT IS SO ORDERED.