RISO Inc v. Witt Company, No. 2:2013cv09351 - Document 28 (C.D. Cal. 2014)
Court Description: ORDER DENYING PLAINTIFFS MOTION TO COMPEL ARBITRATION 6 by Judge Dean D. Pregerson. (lc). Modified on 9/16/2014 (lc).
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RISO Inc v. Witt Company Doc. 28 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 RISO, INC., a Massachusetts corporation, 12 Plaintiff, 13 v. 14 15 WITT COMPANY, an Oregon corporation, 16 Defendant. ___________________________ ) ) ) ) ) ) ) ) ) ) ) Case No. CV 13-09351 DDP (JCGx) ORDER DENYING PLAINTIFF’S MOTION TO COMPEL ARBITRATION [Dkt. No. 6] 17 18 Presently before the court is Defendant Witt Company 19 (“Witt”)’s Motion to Dismiss Plaintiff’s Complaint. (Dkt. No. 6.) 20 Having considered the submissions of the parties and heard oral 21 argument, the court denies the motion and adopts the following 22 order. 23 I. 24 Background RISO manufactures and distributes printing and duplicating 25 hardware and supplies. (Complaint, Ex 3. at 3.) 26 of office technology products and related services, including Riso 27 duplicators. (Id.) Witt has been an authorized dealer of products 28 since approximately 1988. (Id.) Witt is a seller Dockets.Justia.com 1 On April 1, 2011, the parties entered into an Asset Purchase 2 Agreement (“the Agreement”), under which Witt acquired seven of 3 RISO’s markets in California and Arizona. (Id. at 4.) 4 Agreement included an arbitration provision, which states, in 5 relevant part, “Except as provided in subsection (iii), any 6 controversy or claims arising out of or relating to this Agreement 7 shall be determined exclusively by binding arbitration . . . .” 8 (Agreement § 9.3, Compl. Ex. 5 at 34.) 9 The Subsection (iii) states: Notwithstanding the binding arbitration provision of this section 9.3, in the event of a breach, either Party shall have the right to bring an action in any court of competent jurisdiction for injunctive relief or remedy. The filing of any such action or remedy will not waive [RISO]’s or [Witt]’s right to compel arbitration under this Section for other matters that are not the subject of such action or remedy. 10 11 12 13 (Id.) 14 Subsequent to the execution of the Agreement, the parties 15 unsuccessfully attempted to negotiate a new Dealer Agreement. 16 (RISO I at 4.) Absent a new Dealer Agreement, and the Agreement 17 notwithstanding, RISO threatened to stop selling its products and 18 services to Witt after March 13, 2013. (Id., Compl. ¶¶ 10-11.) 19 On January 29, 2013, Witt filed a complaint (“the Oregon 20 action”) against RISO in the United States District Court for the 21 District of Oregon. (Compl. ¶ 9.) Witt alleged that under the 22 Agreement, RISO was obligated to do business with Witt until April 23 2014. See Witt Co. v. RISO, Inc., 948 F.Supp.2d 1227, 1245 (D. Or. 24 2013). Witt therefore brought causes of action against RISO for 25 breach of the Agreement and breach of the duty of good faith and 26 27 28 2 1 fair dealing.1 2 RISO from terminating Witt’s authorized dealer status. 3 Ex. 1 at 20.) 4 company as a result of RISO’s conduct . . . .” 5 (Id.) Witt sought injunctive relief preventing (Compl., Witt also sought “all damages suffered by Witt (Id.) RISO moved to dismiss Witt’s claims under Federal Rule of 6 Civil Procedure 12(b)(6). 7 2013, the Oregon court granted RISO’s motion and dismissed Witt’s 8 contract claims with prejudice. Witt, 948 F.Supp.2d at 1247-8. 9 Witt, 948 F.Supp.2d at 1246. On June 7, On October 11, 2013, Witt filed a Demand for Arbitration 10 before the American Arbitration Association, asserting claims for 11 breach of the Agreement with respect to certain bonus payments and 12 fraud in the inducement of the Agreement. (Compl., Ex. 5.) 13 fraud in the inducement claim seeks rescission of the Agreement on 14 the ground that Witt allegedly would not have entered into the 15 Agreement had it known that RISO would not negotiate the terms of 16 the Dealer Agreement in good faith and that RISO would terminate 17 Witt’s rights to sell RISO products in May of 2013. (Id. ¶ 22-28.) 18 On December 19, 2013, RISO filed the instant declaratory Witt’s 19 judgment action in this court. 20 that Witt waived its rights to arbitrate the fraudulent inducement 21 claim and is barred by res judicata, or collaterally estopped, from 22 arbitrating the fraudulent inducement claim as a result of the 23 Oregon action.2 RISO seeks a declaratory judgment 24 25 26 27 1 Witt also brought antitrust and intentional interference with economic relations claims which, the parties appear to agree, are not relevant here, as they did not arise out of or in connection with the Agreement. 2 28 RISO does not contend that Witt waived its right to arbitrate the breach of contract claim. 3 1 Witt now moves to compel arbitration of RISO’s declaratory 2 judgment action and dismiss the Complaint. 3 II. 4 Legal Standard Although the instant Motion is styled as a Motion to Dismiss, 5 it is in effect a motion to compel RISO to arbitrate its 6 declaratory judgment action. Accordingly, the motion is 7 appropriately construed as a motion to compel arbitration. 8 The Federal Arbitration Act ("FAA") reflects a “federal policy 9 favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane 10 Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem. Hosp. v. 11 Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Under the FAA, 9 12 U.S.C. § 1 et seq., a written agreement that controversies between 13 the parties shall be settled by arbitration is “valid, irrevocable, 14 and enforceable, save upon such grounds as exist at law or in 15 equity for the revocation of any contract.” 9 U.S.C. § 2. 16 A party aggrieved by the refusal of another to arbitrate under 17 a written arbitration agreement may petition the court for an order 18 directing that arbitration proceed as provided for in the 19 agreement. 9 U.S.C. § 4; see e.g. Stirlen v. Supercuts, Inc., 51 20 Cal.App.4th 1519, 1526-27 (1997). In considering a motion to compel 21 arbitration, the court must determine whether there is a duty to 22 arbitrate the controversy, and “this determination necessarily 23 requires the court to examine and, to a limited extent, construe 24 the underlying agreement.” Stirlen, 51 Cal.App.4th at 1527. The 25 determination of the validity of an arbitration clause is solely a 26 judicial function. Id. (internal citation omitted). If the court is 27 satisfied that the making of the arbitration agreement or the 28 failure to comply with the agreement is not at issue, the court 4 1 shall order the parties to proceed to arbitration in accordance 2 with the terms of the agreement. 9 U.S.C. § 3. 3 III. Discussion 4 A. 5 A key issue in this case, and in this motion, is whether Witt Whether This Court Or The Arbitrator Should Decide Waiver 6 waived its right to arbitrate its fraudulent inducement claim by 7 filing the Oregon action. 8 question must be addressed by the arbitrator, and not by this 9 court. 10 Witt first argues that the waiver In Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), 11 the Supreme Court explained that “questions of arbitrability,” such 12 as what parties are bound by an arbitration agreement or the 13 application of an agreement to particular controversy, should 14 generally be decided by a court. 15 Procedural questions, on the other hand, are presumptively for an 16 arbitrator to decide. 17 allegations of waiver. 18 Id. Howsam, 537 U.S. at 84. Such procedural questions include Id. Several circuits, however, have interpreted "Howsam’s use of 19 the term ‘waiver’ as referring not to conduct-based waiver, but to 20 a defense arising from non-compliance with contractual conditions 21 precedent to arbitration.” 22 Investment, 664 F.3d 1350, 1353 (11th Cir. 2011) (internal 23 quotation and citations omitted); see also JPD, Inc. v. Chronimed 24 Holdings, Inc., 539 F.3d 388, 393–94 (6th Cir.2008); Ehleiter v. 25 Grapetree Shores, Inc., 482 F.3d 207, 217–19 (3d Cir.2007); Marie 26 v. Allied Home Mortg. Corp., 402 F.3d 1, 12–14 (1st Cir.2005); In 27 re Toyota Motor Corp. Prods. Liability Litigation; 838 F.Supp.2d 28 967 (C.D. Cal. 2012). Grigsby & Assoc., Inc. v. M. Securities Thus, these courts have concluded that 5 1 waiver remains a court issue insofar as it is premised upon the 2 conduct of the party seeking to arbitrate. 3 F.Supp.3d at 975 (discussing cases); but see Nat’l Am. Ins. Co. V. 4 Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 5 2003) (holding conduct-based waiver to be an issue for an 6 arbitrator). 7 approach to Howsam, noting that “to treat breach and waiver as 8 procedural issues for the arbitrator . . . would create a strange 9 result: the arbitrator would get first crack at defenses to a See In re Toyota, 838 The Ninth Circuit has implicitly agreed with this 10 motion to compel arbitration based on waiver or breach. 11 essence, the court would have to compel arbitration without 12 reviewing the parties’ contentions.” 13 Corp., 533 F.3d 1114, 1121 n.5 (9th Cir. 2008). 14 for this court to decide whether Witt’s litigation conduct in 15 Oregon constitutes a waiver of its right to arbitrate the 16 fraudulent inducement claim.3 In Cox v. Ocean View Hotel It is, therefore, 17 B. 18 “To demonstrate waiver of the right to arbitrate, a party must Whether Witt Waived Its Right To Arbitrate 19 show: ‘(1) knowledge of an existing right to compel arbitration; 20 (2) acts inconsistent with that existing right; and (3) prejudice 21 to the party opposing arbitration resulting from such inconsistent 22 acts.’” 23 v. Park Place Assoc., Ltd., 563 F.3d 907, 921 (9th Cir. 2009)). In re Toyota, 838 F.Supp.3d at 976 (citing United States 24 25 26 27 28 3 Were Witt correct in its assertion that conduct constituting waiver must occur before the same court deciding waiver (Reply at 4), the Oregon court, not the arbitrator, would be the proper decision maker. Neither party has sought to transfer this case to the District of Oregon. 6 1 Here, Witt does not dispute that it had knowledge of its right 2 to compel arbitration at the time it filed the Oregon action. 3 Indeed, Witt pursued that right soon after its claims in the Oregon 4 action were dismissed. 5 actions in the Oregon action were not inconsistent with its 6 arbitration rights. 7 Witt primarily argues, rather, that its The Agreement’s arbitration provision states that “either 8 Party shall have the right to bring an action in any court of 9 competent jurisdiction for injunctive relief or remedy. The filing 10 of any such action or remedy will not waive [RISO]’s or [Witt]’s 11 right to compel arbitration.” 12 added). 13 injunctive relief on Witt’s causes of action for breach of contract 14 and breach of the duty of covenant of good faith and fair dealing. 15 Witt also, however, sought “all damages suffered by Witt company as 16 a result of RISO’s conduct . . . .” 17 (Agreement § 9.3(iii) (emphases As relevant here, Witt’s Oregon complaint sought Witt argues that it “primarily sought to enjoin RISO from 18 terminating Witt [] as an authorized dealer.” 19 further argues that the Agreement does not prohibit parties from 20 seeking damages that are “incidental, or in addition to, a claim 21 for injunctive relief.” 22 plain language of the agreement. 23 Agreement-related claims, other than those carved out by subsection 24 (iii), must be arbitrated. 25 actions for injunctive relief or remedy. 26 of the Agreement suggests that either party may litigate other 27 claims “in addition to” permissible injunctive relief claims. 28 does not dispute RISO’s repeated assertions that the damages sought Id. (Reply at 7.) Witt Witt’s argument conflicts with the The Agreement states that all Subsection (iii) carves out only 7 Nothing in the language Witt 1 in the Oregon action numbered in the millions of dollars. (Opp. at 2 1, 4, 5, 10.) 3 to Witt’s injunctive relief claims. 4 dollars in damages was inconsistent with its obligation to 5 arbitrate all claims other than those for injunctive relief. Such damages can hardly be considered “incidental” Witt’s pursuit of millions of 6 Though Witt does not expressly address the effect of its 7 actions on RISO, Witt’s attempt to take the two bites at the apple 8 has prejudiced RISO. 9 the arbitration provision and forced RISO to defend against claims First, Witt ignored the mandatory language of 10 for millions of dollars in damages in federal court. 11 RISO prevailed, and once Witt’s claims were dismissed with 12 prejudice, did Witt then attempt to unring the bell and pursue 13 arbitration. 14 as it does now in the arbitration action, but rather to enforce its 15 reading of it. 16 recovered its damages, it almost certainly would not have sought to 17 rescind the Agreement in arbitration. 18 inconsistent actions, which appear to be motivated in substantial 19 part by Witt’s defeat in the Oregon action, RISO has not only been 20 forced to defend the Oregon action in court rather than in 21 arbitration, but now must either also defend against the 22 arbitration claim or prevail in this affirmative suit. 23 Only after Notably, Witt did not seek to rescind the Agreement, Had Witt prevailed, obtained injunctive relief, and As a result of Witt’s Witt’s decision to seek millions of dollars in damages in 24 federal court, contrary to the mandatory arbitration provision of 25 the Agreement, cannot be reconciled with its current attempt to 26 rescind the Agreement through arbitration proceedings.4 Witt’s 27 4 28 Witt contends that the Oregon action could not preclude (continued...) 8 1 earlier conduct in the Oregon action, which has prejudiced RISO, 2 constitutes waiver of Witt’s right to arbitrate its fraudulent 3 inducement claim. 4 IV. 5 6 Conclusion For the reasons stated above, Witt’s Motion to Compel Arbitration is DENIED.5 7 8 9 10 11 12 13 IT IS SO ORDERED. 14 15 16 Dated: September 16, 2014 DEAN D. PREGERSON United States District Judge 17 18 19 20 21 22 4 23 24 25 26 27 28 (...continued) arbitration of Witt’s fraudulent inducement claim because Section III of the Agreement states that the filing of an injunctive relief action does not operate as a waiver of other, arbitrable claims. As described above, however, the Oregon action sought both injunctive relief and significant monetary damages. 5 Though the parties devote much of their attention to res judicata issues, which form the core of RISO’s affirmative claim for declaratory relief, such issues are not necessary to the disposition of the instant motion. The court, therefore, does not address those ultimate issues here. 9
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