T-Mobile USA Inc v. Montijo et al, No. 2:2012cv01317 - Document 15 (W.D. Wash. 2012)

Court Description: ORDER granting in part and denying in part dfts' 9 Motion to Dismiss and compel arbitration or stay pending arbitration by Judge Ricardo S Martinez.(RS)

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T-Mobile USA Inc v. Montijo et al Doc. 15 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 T-MOBILE USA, INC., 11 12 13 14 15 16 CASE NO. C12-1317RSM Plaintiff, ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION v. MICHAEL MONTIJO, et al., Defendants. I. INTRODUCTION This matter comes before the Court pursuant to Defendants’ Fed. R. Civ. P. 12(b)(1), 17 12(b)(3) and 12(b)(6) motions to dismiss and compel arbitration, or stay the case pending 18 arbitration. Dkt. # 9. For the reasons set forth below, Defendants’ motion to dismiss is DENIED 19 and the motion to stay is GRANTED. 20 21 II. BACKGROUND In March 2009 and April 2010, plaintiff T-Mobile USA, Inc. (“T-Mobile”) entered into 22 Limited Exclusive and Exclusive Retailer Agreements (“Dealer Agreements”) with Wireless 23 Now, Inc. (“Wireless Now”) and Mobile South, LLC (“Mobile South”) respectively. In addition, 24 T-Mobile and Wireless Now entered into a Cross-Corporate Guaranty, under which Wireless ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 1 Dockets.Justia.com 1 Now guaranteed payment of any and all debts owed by Mobile South. Michael Montijo and 2 David Moored (collectively “Defendants”) are the co-owners of Wireless Now and Mobile 3 South. In September 2010 and March 2011, the Defendants each executed a Personal Guaranty, 4 under which they guaranteed payment of Mobile South and Wireless Now’s debts respectively. 5 In May 2011, Wireless Now filed for bankruptcy in the Northern District of Illinois and 6 filed adversary complaints against T-Mobile alleging that no debts are actually owed due to fraud 7 and antitrust violations among other things. T-Mobile successfully moved the matter to 8 arbitration in Seattle pursuant to the arbitration provision contained in the Dealer Agreement. 9 Consequently, Wireless Now filed an arbitration demand and Mobile South joined in to establish 10 what liabilities, if any, are owed to T-Mobile under the Dealer Agreements. The arbitration 11 proceeding is now pending and scheduled for hearing in March 2013. 12 T-Mobile filed the instant action against Defendants alleging breach of the Personal 13 Guaranties due to nonpayment of debts incurred by Wireless Now and Mobile South. The 14 guaranties provide that the parties mutually consent to the jurisdiction of any state or federal 15 court sitting in King County, Washington and that T-Mobile’s right to collect from the 16 Defendants is not to be affected by any pending claims brought under the Dealer Agreements. 17 T-Mobile argues that since the parties agreed to these express terms, the guaranties must be 18 construed as entirely separate contracts from the Dealer Agreements, which are enforceable in 19 this Court. Defendants argue that the determination of liability under the Personal Guaranties 20 necessarily hinges on the arbitration outcome of the Dealer Agreements. As such, they argue the 21 Court must exercise equitable estoppel and compel arbitration of T-Mobile’s claims, or in the 22 alternative stay the case pending the outcome of arbitration. 23 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 2 1 III. DISCUSSION 2 A. Equitable Estoppel 3 As a general rule, nonsignatories to an agreement are not bound by arbitration clauses. 4 See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). Courts, however, have 5 recognized limited exceptions to this rule including the principle of equitable estoppel. 6 “Equitable estoppel ‘precludes a party from claiming the benefits of a contract while 7 simultaneously attempting to avoid the burdens that contract imposes.’” Comer v. Micor, Inc., 8 436 F.3d 1098, 1102 (9th Cir. 2006) (quoting Wash. Mut. Fin. Group, L.L.C. v. Bailey, 364 F.3d 9 260, 267 (5th Cir. 2004). Under narrow circumstances, a third party nonsignatory to an 10 agreement containing an arbitration clause may require a signatory of that agreement to arbitrate. 11 This occurs if the issues of the claim and underlying agreement are “intertwined” and the 12 nonsignatory has a “close relationship” with one of the entities involved. Mundi v. Union Sec. 13 Life Ins. Co., 555 F.3d 1042, 1046 (9th Cir. 2009); see also Double D Trade Co. v. Lamex 14 Foods, Inc., No. 09-0919, 2009 WL 4927800, at *6, n. 5 (W.D. Wash. Dec. 14, 2009). 15 According to Mundi, the equitable estoppel test applies where a defendant who is a nonsignatory 16 to an agreement providing for arbitration seeks to compel arbitration of separate claims brought 17 by a plaintiff who is a signatory to that agreement. See Soto v. Am. Honda Motor Co., No. 1218 1377, 2012 WL 4746969, at *3 (N.D. Cal. Nov. 20, 2012); Allianz Global Risk U.S. Ins. Co. v. 19 Gen. Electric Co., No. 09-9033, 2010 WL 749876, at *2-3 (C.D. Cal. Mar. 1, 2010); 20 ValueSelling Associates, L.L.C. v. Temple, No. 09-1493, 2009 WL 3736264, at *6-7 (S.D. Cal. 21 Nov. 5, 2009). 22 Here, Defendants are nonsignatories to the Dealer Agreements that are pending 23 arbitration. T-Mobile, a signatory to that agreement, brought separate claims arising from 24 Defendants’ Personal Guaranties to this court. On the basis of equitable estoppel, the ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 3 1 nonsignatory Defendants seek to dismiss and compel arbitration because T-Mobile’s claim on 2 the Personal Guaranties is “intertwined” with the Dealer Agreements. Given the factual 3 circumstances outlined in Mundi, equitable estoppel analysis is proper. 4 Due to the limited application of estoppel in this context, this Court has yet to apply the 5 doctrine to compel arbitration. See, e.g., Rajagopalan v. Noteworld, L.L.C., No. 11-5574, 2012 6 WL 727075, at *6 (W.D. Wash. Mar. 6, 2012) (citing Mundi, the court declined to extend 7 equitable estoppel to a nonsignatory defendant who was expressly listed as an “independent third 8 party” in the signatory plaintiff’s agreement containing the arbitration clause), Double D Trade, 9 2009 WL 4927899 at *6, n. 5 (citing Mundi, the court acknowledged that equitable estoppel may 10 be used by nonsignatories to enforce arbitration of a signatory, but the court declined to compel 11 arbitration on estoppel grounds because the facts did not apply in that case). 12 Ninth Circuit district courts have established a two-prong standard for a nonsignatory 13 defendant to compel arbitration of signatory plaintiff’s claim: (1) the subject matter of the 14 dispute must be “intertwined with the contract providing for arbitration”; and (2) there must be a 15 “close relationship” between a signatory party and the nonsignatory party seeking to compel 16 arbitration. In re Apple & AT & TM Antitrust Litig., 826 F.Supp.2d, 1168, 1176-78 (N.D. Cal. 17 2011) (citing Mundi, 555 F.3d at 1046, where the court examined and adopted the Second 18 Circuit’s standard set out in Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354, 359-62 (2d 19 Cir. 2008)). Moreover, the estoppel inquiry is fact-specific. See JLM Indus., Inc. v. Stolt20 Nielsen SA, 387 F.3d 163, 178 (2d Cir. 2004). 21 Under the first prong, “claims are intertwined where the merits of an issue between the 22 parties is bound up with a contract binding one party and containing an arbitration clause.” 23 Bimota SPA v. Rousseau, 628 F.Supp.2d 500, 504 (S.D.N.Y. 2009); see Hawkins v. KPMG 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 4 1 L.L.P., 423 F.Supp.2d 1038, 1050 (N.D. Cal. 2006). In the Second Circuit, the court reasoned 2 that to allow a nonsignatory to compel a signatory to arbitrate based on estoppel, it was 3 “essential…that the subject matter of the dispute was intertwined with the contract providing for 4 arbitration.” Sokol Holdings, 542 F.3d at 361; see also Smith/Enron Cogeneration Ltd. P’ship v. 5 Smith Cogeneration Int’l, Inc., 198 F.3d 88, 98 (2d Cir. 1999) (holding that a signatory is 6 estopped from avoiding arbitration with a nonsignatory “when the issues the nonsignatory is 7 seeking to resolve in arbitration are intertwined with the agreement that the estopped party has 8 signed”). It is not enough to show that but-for the underlying agreement, the signatory plaintiff 9 would have no claim. The claim must be “substantially interrelated” with the underlying 10 conduct. Bultemeyer v. Systems & Services Technologies, Inc., No. 12-0998, 2012 WL 4458138, 11 at *4 (D. Ariz. Sep. 26, 2012) (citing Mundi, the court rejected a nonsignatory defendant’s 12 argument that but-for the breach of the underlying contract, defendant would have no claim. 13 Defendant’s role was simply a third-party debt collector in the underlying contract with the 14 signatory plaintiff, which was an insufficient link to show that the subject matter of the debt 15 collection claim was intertwined with the terms of the contract); cf. Lucas v. Hertz Corp., No. 16 11-1581, 2012 WL 2367617, at *7 (N.D. Cal. June 21, 2012) (granting a nonsignatory 17 defendant’s motion to compel arbitration of plaintiff’s claims because all of the claims rested on 18 the terms of the underlying contract). 19 Here, the subject matter of the Personal Guaranties is the Defendants’ respective 20 obligations to pay T-Mobile the debts incurred by their companies, Wireless Now and Mobile 21 South. These obligations were stipulated pursuant to the arrangement made between T-Mobile 22 and the companies through the Dealer Agreements. T-Mobile’s claim for breach on the 23 guaranties stems directly from the facts surrounding the parties’ obligations under the Dealer 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 5 1 Agreements. Further, the arbitration proceeding is set to resolve allegations of fraud and 2 antitrust violations against T-Mobile in respect to the Dealer Agreements. The determination of 3 any liabilities there directly impacts whether the Defendants owe any liabilities on the Personal 4 Guaranties. As such, T-Mobile’s claim is fundamentally “intertwined” with the Dealer 5 Agreements, and the first requirement is satisfied. 6 Under the second prong, there must be “a relationship among the parties of a nature that 7 justifies a conclusion that the party which agreed to arbitrate with another entity should be 8 estopped from denying an obligation to arbitrate a similar dispute with the adversary which is not 9 a party to the arbitration agreement.” Sokol Holdings, 542 F.3d at 359. Courts have permitted 10 nonsignatories to compel arbitration in cases where they “have tended to share a common feature 11 in that the nonsignatory party asserting estoppel has had some sort of corporate relationship to a 12 signatory party.” Just Film, Inc. v. Merch. Services, Inc., No. 10-1993, 2011 WL 3809908, at *5 13 (N.D. Cal. Aug. 29, 2011) (citing Ross v. Am. Exp. Co., 547 F.3d 137, 144 (2d Cir. 2008)). 14 These cases were those “involving subsidiaries, affiliates, agents, and other related business 15 entities.” Id.; see also Bimota SPA, 628 F.Supp.2d at 504-05 (holding that the nonsignatory 16 defendants being President, CEO and controlling shareholders of the signatory company satisfied 17 the “close relationship” requirement of the estoppel test). 18 Here, the Defendants are co-owners of Wireless Now and Mobile South, making them 19 officers of the signatory companies. The Personal Guaranties were executed in their official 20 capacities as officers for the sole purpose of assuming the company debts underlying the Dealer 21 Agreements. Defendants are not merely third party beneficiaries, but are directly affected by the 22 “close relationship” with the signatory companies. To deprive Defendants’ right to arbitrate the 23 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 6 1 issues of fraud, antitrust and corporate liability before ruling on the issue of personal liability 2 would be contrary to sound judicial policy. 3 T-Mobile nonetheless argues that under the Federal Arbitration Act (“FAA”), arbitration 4 is a matter of contract, and the court cannot require a party to arbitrate a dispute unless the party 5 has agreed to do so. United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 6 574, 582 (1960). T-Mobile relies on the fact that the parties have expressly agreed to enforce T7 Mobile’s right to claim on the Personal Guaranties without arbitration, despite any pending 8 action on the Dealer Agreements. The relevant provision states: 9 10 11 12 “This Guaranty is an original and independent obligation of Guarantor, separate and distinct from Dealer’s obligations under the Dealer Agreement(s), and TMobile may join Guarantor in any action against Dealer on the guaranteed obligations, or may bring a separate action against Guarantor or Dealer. This Guaranty constitutes a guaranty of payment, not of collection, and the obligations of Guarantor hereunder are direct and primary, regardless of the validity of enforceability of the Dealer Agreement(s)…” Dkt. # 12. 13 As such, T-Mobile argues that the Personal Guaranties are a separate agreement outside the 14 scope of the Dealer Agreements and should be treated as a separate contract altogether. 15 In the context of equitable estoppel, however, district courts have found that such 16 guaranties relate to the same “subject matter of the underlying agreement” and are just another 17 indication of the close relationship between the nonsignatory defendants and the signatory entity. 18 Bimota SPA, 628 F.Supp.2d at 505 (quoting Chase Mortg. Co.-W. v. Bankers Trust Co., No. 0019 8150, 2001 WL 547224, at *2 (S.D.N.Y. May 23, 2001), the court held that while the personal 20 guaranty signed by a nonsignatory defendant was outside the scope of the underlying agreement, 21 the pending arbitration proceeding was the appropriate forum for the matter under equitable 22 estoppel). Similarly here, the Personal Guaranties are written as “separate” agreements, but the 23 clear purpose is for Defendants to guaranty payment of Wireless Now and Mobile South’s 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 7 1 obligations pursuant to the Dealer Agreement. As the court is not aware of any other liabilities 2 the Defendants owe T-Mobile, the finding of liability under the Personal Guaranties is 3 necessarily dependent on the finding of liability in the Dealer Agreements. 4 Courts also look to the arbitration provision in the underlying agreement to determine the 5 scope of arbitrability. See, e.g., Thyssen, Inc. v. M/V Markos N, No. 97-6181, 1999 WL 619634, 6 at *4-5 (S.D.N.Y. Aug. 16, 1999) (finding that a broad arbitration clause in an underlying 7 agreement covers even a dispute involving a nonsignatory, whereas a narrow arbitration clause 8 applies only to disputes between the particular parties identified in the clause). Here, the Dealer 9 Agreements contain a broad arbitration provision, allowing for the parties to arbitrate any 10 disputes arising within the scope of the agreement. The relevant provision states: 11 12 “Any Claims or controversies, regardless of the theory under which they arise, including without limitation contract, tort, common law, statutory, or regulatory duties or any other liability arising out of or relating to this Agreement (“Claim”) shall be resolved by submission to binding arbitration.” Dkt. # 10-10, 10-11. 13 The provision contains no language that limits Defendants’ role as a third party nonsignatory. 14 Moreover, T-Mobile is the party that initiated the arbitration proceeding with the companies, so 15 it has implicitly acknowledged the validity of the arbitration clause contained in the Dealer 16 Agreements. See Bimota SPA, 628 F.Supp.2d at 506. In the pending arbitration, T-Mobile is 17 seeking to resolve claims based on facts that are “inherently inseparable” from the subject matter 18 of the instant action. See Fujian Pac. Electric Co. v. Bechtel Power Corp., No. 04-3126, 2004 19 WL 2645974, at *6 (N.D. Cal. Nov. 19, 2004) (applying equitable estoppel, the court granted 20 defendant’s motion to stay a corporate guaranty claim pending arbitration of a related dispute). 21 If the court were to proceed as T-Mobile suggests, “the arbitration proceedings between 22 the…signatories would be rendered meaningless and the federal policy in favor of arbitration 23 effectively thwarted.” MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999) 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 8 1 (quoting Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir. 1976). 2 Accordingly, equitable estoppel is proper here. 3 B. Motion to Dismiss and Compel Arbitration or Stay Pending Arbitration 4 The only remaining issue is whether the Court should dismiss and compel arbitration of 5 T-Mobile’s claims or stay the case pending the outcome of arbitration on the Dealer Agreements. 6 Defendants move to dismiss pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(3) and 12(b)(6). On the 7 issues of subject matter jurisdiction and venue, the motions are inapposite here, because this 8 Court has diversity jurisdiction over T-Mobile’s claims pursuant to the express terms in the 9 Personal Guaranties. Next, a motion to dismiss for failure to state a claim will be denied unless 10 it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her 11 to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957), Parks School of Bus., Inc. v. Symington, 12 51 F.3d 1480, 1484 (9th Cir. 1995). T-Mobile’s complaint alleges Defendants breached the 13 Personal Guaranties by not paying debt obligations owed in connection with Wireless Now and 14 Mobile South’s Dealer Agreements. If corporate liability under the Dealer Agreements is 15 established, T-Mobile may have a legitimate claim for damages under the guaranties. Thus, 16 Defendants’ Rule 12(b)(1), 12(b)(3) and 12(b)(6) motions are denied. 17 While the Defendants’ motions are inapplicable here, the decision to dismiss and compel 18 arbitration or stay pending arbitration is based on equitable grounds. It is exercised in order to 19 avoid inefficient, duplicate litigation. Garcia v. Stonehenge, Ltd., No. 97-4368, 1998 WL 20 118177, at *5 (N.D. Cal. Mar. 2, 1998). When equitable estoppel is exercised, the court has 21 considerable discretion in granting either form of relief. Amisil Holdings, Ltd. v. Clarium 22 Capital Mgmt., 622 F.Supp.2d 825, 841 (N.D. Cal. 2007); Fujian, 2004 WL 2645974 at *7. 23 Nonetheless in exercising this discretion, the court must take into account the intent of the parties 24 as expressed in the various contracts at issue. Accord WorldCrisa Corp. v. Armstrong, 129 F.3d ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 9 1 71, 74 (2d Cir. 1997) (citing Collins & Aikman Products Co. v. Bldg. Systems, Inc. 58 F.3d 16, 2 19 (2d Cir. 1995)) (“Arbitration is essentially contractual, . . . and the parties may not be forced 3 into arbitration if that was not their true agreement”). To compel arbitration, it must be 4 foreseeable that T-Mobile is subject to arbitration with Defendants on this matter and that no 5 prejudice results to either party. See Fujian, 2004 WL 2645974 at *8. Here, the parties 6 expressly agreed to enforce the Personal Guaranties without an arbitration clause. Alongside the 7 absent arbitration provision, the parties executed the guaranties after the Dealer Agreements so 8 the parties were aware of the scope of obligations under the guaranties. It follows that the parties 9 did not intend to arbitrate the obligations contained therein and a stay pending the resolution of 10 arbitrable claims under the Dealer Agreements is proper. Under similar circumstances, courts 11 have declined to compel arbitration in favor of a stay. See id. 12 A district court retains the inherent power to stay litigation “to control the disposition of 13 the cases on its docket with economy of time and effort for itself, for counsel, and for the 14 litigants.” Landis v. North Am. Co., 299 U.S. 248, 254 (1936). In exercising this power, the 15 court must balance the hardship and inequity of allowing the action to proceed with “the 16 ossification of rights which attends inordinate delay.” Yong v. INS, 208 F.3d 1116, 1119 (9th Cir. 17 2000). In accordance with the FAA policy of staying any litigation that contravenes enforceable 18 arbitration agreements, “if a suit against a nonsignatory is based upon the same operative facts 19 and is inherently inseparable from the claims against a signatory, the trial court has discretion to 20 grant a stay if the suit would undermine the arbitration proceedings and thwart the federal policy 21 in favor of arbitration.” Amisil Holdings, 622 F.Supp.2d at 842 (quoting Hill v. GE Power Sys., 22 Inc., 282 F.3d 343, 347 (5th Cir. 2002)). Here, the determination of Defendants’ liabilities, if 23 any, rest on the outcome of the arbitration proceedings. For considerations of judicial economy 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 10 1 and efficiency, a stay is appropriate. Defendants’ motion to dismiss and compel arbitration is 2 hereby DENIED and the motion to stay pending arbitration is GRANTED. The parties are 3 directed to inform the Court on the status and outcome of the arbitration proceeding upon 4 issuance of the ruling or no later than six (6) months of this order, whichever is sooner. 5 6 IV. CONCLUSION Having reviewed the relevant pleadings, the declarations and exhibits attached thereto, 7 and the remainder of the record, the Court hereby finds and ORDERS: 8 (1) Defendants’ Motion to Dismiss and Compel Arbitration (Dkt. # 9) is DENIED. 9 (2) Defendants’ Motion to Stay Pending Arbitration (Dkt. # 9) is GRANTED. 10 11 12 (3) The Clerk is directed to forward a copy of this Order to plaintiffs and to all counsel of record. Dated December 11, 2012. 13 14 15 16 17 A RICARDO S. MARTINEZ UNITED STATES DISTRICT JUDGE 18 19 20 21 22 23 24 ORDER ON DEFENDANTS’ MOTION TO DISMISS AND COMPEL ARBITRATION OR STAY PENDING ARBITRATION - 11

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