Opinion
CV 15-07256 RSWL (GJSx)
05-18-2016
IDEAL COMPANY, INC., a California corporation; ARNOLD LARA, an individual, Plaintiffs, v. 1st MERCHANT FUNDING, LLC AND DOES 1-10, inclusive, Defendant(s).
ORDER re: DEFENDANT'S MOTION TO DISMISS, OR IN THE ALTERNATIVE, STAY [18]
Before the Court is Defendant 1st Merchant Funding, LLC's ("Defendant") Motion to Dismiss, or in the Alternative, Stay [18]. The present Motion arises from an action brought on September 9, 2015 in Florida state court by Defendant against Ideal Company, Inc. ("Ideal") and Arnold Lara (collectively "Plaintiffs") for breach of a UCC Article 9 sales agreement ("the Agreement"). In the underlying action, Defendant seeks damages, attorneys' fees, costs, and interest.
On September 16, 2015, Plaintiffs filed the present Action, alleging that the Agreement is a disguised loan transaction and asserting various California law claims as well as violations of the Telephone Consumer Protection Act ("TCPA"). Defendant now requests that this Court dismiss, or in the alternative stay the present action. For the reasons discussed below, this Court GRANTS Defendant's Motion [18] and dismisses the present matter.
I. BACKGROUND
A. Factual Background
Defendant is a Florida Limited Liability Company, based in Miami, Florida, that is involved in "merchant funding," that is, purchasing future receivables from small to mid-size businesses. Plaintiff Ideal Co. is a California corporation based in Los Angeles, California. Pls.' Compl. ¶ 4, ECF No. 1. Plaintiff Arnold Lara is president of Ideal Co. Id. Ideal Co. entered into a Future Receipts Purchase and Sale Agreement (the "Agreement") with 1MF. See id. Ex. A. Arnold Lara personally guaranteed that Ideal Co. would not breach certain specified provisions of the Agreement. Id. at Art VI., p. 1.
On May 12, 2015, the parties entered into the Agreement together, wherein the Plaintiffs sold $76,680.00 of Ideal's receivables/revenue to Defendant. Def.'s Compl. ¶ 11, ECF No. 11-3; see Pl.'s Compl. Ex. A. The receivables/revenue were to be paid to Defendant from a percentage of Ideal's daily revenue/receivables, in exchange for an up-front sum of $54,000.00 from Defendant, less a filing fee of $295.00. Id. The receivables were to be paid to 1MF in a fixed daily payment of $290.45. See Pl.'s Compl. Ex. A, p. 1, Art. III.
Between May 29, 2015 and July 23, 2015, 1MF collected $9,003.95 of the future receivables it had purchased, leaving $67,966.50 yet to be transferred. See Reynolds Decl. ¶ 22, Ex. A. Defendant alleges that "[o]n approximately July 24, 2015, Ideal Co. Breached [] Section 4.1 of the Agreement and its representations and warranties by converting the designated bank account to a deposit-only account, thereby preventing 1MF from collecting the purchased receivables and depriving 1MF of the benefit of the bargain." Mot. to Compel Arbitration ("Mot.") 5:15-21.
Defendant alleges that after informal attempts to resolve the issue failed, on September 9, 2015, Defendant filed an action in Florida state court (the "Florida action") seeking damages from Plaintiffs for breach of the Agreement. Id. at 5:23-26. On September 16, 2015, Plaintiffs filed the present Action, alleging that the Agreement actually represents a disguised loan transaction and asserting claims under California law, as well as violations of the Telephone Consumer Protection Act. See generally Pls.' Compl., ECF No. 1.
On October 15, 2015, Defendant filed an arbitration proceeding with the American Arbitration Association ("AAA") in Miami, Florida, seeking to arbitrate its claims for damages against Plaintiffs in the Florida action, as well as a declaration that Plaintiffs' claims asserted in this Action are without merit (the "Arbitration Proceeding"). "After Plaintiffs would not agree that these claims were arbitrable, the AAA and the parties agreed to stay that proceeding pending this [C]ourt's ruling on this Motion to Compel Arbitration. On December 4, 2015, [Defendant] dismissed the Florida Action without prejudice." Id. at 6:6-14. On March 1, 2016, this Court denied Defendant's Motion to Compel Arbitration, finding that while the parties' Arbitration Provision was valid and enforceable, and while the parties' claims were all arbitrable, this Court could not order the parties to arbitrate outside of this Court's jurisdiction. See Order dated 3/1/16, ECF No. 17 ("March 1 Order"). B. Procedural Background
On September 16, 2015, Plaintiffs brought the present Action [1]. On December 8, 2015, Defendant filed its Motion to Compel Arbitration [11]. On March 1, 2016, this Court denied Defendant's Motion to Compel Arbitration [17]. On March 21, 2016, Defendant filed the present Motion to Dismiss, or in the Alternative, Stay [18]. The present motion was made following the conference of counsel pursuant to Local Rule 7-3, which took place during an exchange of emails between March 15, and March 21, 2016. Not. of Mot. 2:1-3, ECF No. 18. Plaintiffs have not opposed Defendant's present Motion. The Motion was taken off-calendar and under submission on April 14, 2016.
II. DISCUSSION
A. Legal Standards
1. Motion to Dismiss - Fed. R. Civ. P. 12(b)(1)
A motion to dismiss an action pursuant to Fed. R. Civ. P. 12(b)(1) raises the question of the federal court's subject matter jurisdiction over the action. The burden of proof in a Rule 12(b)(1) motion is on the party asserting jurisdiction. See Sopcak v. N. Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir. 1995); Ass'n of Am. Med. Coll. v. United States, 217 F.3d 770, 778-79 (9th Cir. 2000). If jurisdiction is based on a federal question, the pleader must show that he has alleged a claim under federal law and that the claim is not frivolous. See 5B Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, § 1350, pp. 211, 231 (3d ed. 2004). On the other hand, if jurisdiction is based on diversity of citizenship, the pleader must show real and complete diversity, and also that his asserted claim exceeds the requisite jurisdictional amount of $75,000. See id.
2. Motion to Dismiss - Fed R. Civ. P. 12(b)(3)
Pursuant to Federal Rule of Civil Procedure 12(b)(3), a defendant may move to dismiss a complaint for improper venue. Generally, courts look to the venue provisions set forth in 28 U.S.C. § 1391 to determine whether venue is proper. When considering a motion to dismiss under Rule 12(b)(3), a court need not accept the pleadings as true and may consider facts outside of the pleadings. Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). Once the defendant has challenged a given court's jurisdiction for improper venue, the plaintiff bears the burden of showing that venue is proper. Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). If the court determines that venue is improper, the court must dismiss the action or, if it is in the interests of justice, transfer the action to a district or division in which the action could have been brought. 28 U.S.C. § 1406(a). Whether to dismiss for improper venue or transfer venue to a proper court is within the sound discretion of the district court. See King v. Russell, 963 F.2d 1301, 1304 (9th Cir. 1992).
3. Motion to Dismiss - Fed. R. Civ. P. 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal of one or more claims if the pleading fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). Dismissal can be based on "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint "should not be dismissed under Rule 12(b)(6) 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In a Rule 12(b)(6) motion to dismiss, a court must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the non-moving party. Klarfeld v. United States, 944 F.2d 583, 585 (9th Cir. 1991). A complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). B. Analysis
1. Defendant's Motion is Unopposed
Local Rule 7-12 provides that a party's failure to file any memorandum or other document, such as an opposition to a motion, within the proscribed deadline "may be deemed consent to the granting or denial of the motion." L.R. 7-12. Here, as Plaintiff has not responded to Defendant's present Motion to Dismiss, or in the Alternative, Stay [18-1], this Court may grant Defendant's Motion pursuant to Rule 7-12. Nonetheless, this Court will consider Defendant's Motion on the merits. // //
2. Dismissal is the Appropriate Remedy
In this Court's March 1 Order, addressing Defendant's Motion to Compel Arbitration [11], this Court found that (1) the parties' arbitration provision is within the scope of the FAA, (2) the arbitration provision is valid, and (3) all of the claims in this action are subject to the arbitration provision. Order dated 3/1/16, 7:1-12:9, ECF No. 17. In fact, as this Court noted in its March 1 Order, the parties do not dispute that the claims in the present matter are subject to their arbitration provision. Id.
In Defendant's Motion to Compel Arbitration, Defendant requested that this Court order the parties to arbitrate their claims in Miami, Florida. See generally Def.'s Mot. to Compel Arbitration, ECF No. 11. This Court held that it could not compel arbitration in Miami because this Court, pursuant to the Ninth Circuit's ruling in Continental Grain Co v. Dant & Russell, 118 F.2d 967, 969 (9th Cir. 1941), cannot compel arbitration outside of its jurisdiction. Accordingly, this Court denied Defendant's Motion. See Order dated 3/1/16, ECF No. 17.
The Federal Arbitration Act ("FAA") prescribes that when an issue referable to arbitration is brought before the court, the court "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. This is so, even when the court lacks the power to compel arbitration; it is the existence of the agreement to arbitrate which requires the court to stay proceedings until arbitration has been completed.
However, circuit courts, including the Ninth Circuit, have held that "§ 3 is not mandatory and, alternatively, district courts may order dismissal 'when all claims are barred by an arbitration clause.'" Randhawa v. Skylux, Inc., No. 09-cv-2304-WBS-KJN, 2010 WL 4069654, at *2 (E.D. Cal. 2010) (citing Sparling v. Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir. 1988)); see also Sparling v. Hoffman Construction Co., 864 F.2d 635, 638 (9th Cir. 1988); Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001) ("Notwithstanding the terms of § 3, however, dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable."); Green v. Ameritech Corp., 200 F.3d 967, 973 (6th Cir. 2000) ("The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration."); Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) (holding that § 3 "was not intended to limit dismissal of a case in the proper circumstances."). Further, "[s]ubstantial case law establishes that [Rules 12(b)(1), (3) and (6) are the correct rules under which to seek dismissal based on an arbitration provision." Valley Power Sys., Inc. v. Gen. Elec. Co., No. 11-cv-10726-CAS-JCx, 2012 WL 665977, at *7 (C.D. Cal. Feb. 27, 2012).
As dismissal is discretionary, and district courts have frequently found dismissal to be the appropriate remedy when all of the claims asserted are arbitrable, this Court hereby GRANTS Defendant's Motion [18], and dismisses this action without prejudice.
III. CONCLUSION
Based on the foregoing reasons, this Court GRANTS Defendant's Motion [18].
IT IS SO ORDERED. DATED: May 18, 2016
s/ RONALD S.W. LEW
HONORABLE RONALD S.W. LEW
Senior U.S. District Judge