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REYN'S PASTA BELLA v. VISA U.S.A.

April 21, 2003

REYN'S PASTA BELLA, LLC, JEFFREY LEDON DEWEESE, M.D. BARRY LEONAD, DBA CRITTER FRITTERS, HAR-IN-THE-RING, INC. DBA EDDIE RICKENBACNER'S, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
VISA U.S.A. INC., MASTERCARD INTERNATIONAL, INC., BANK OF AMERICA CORPORATION, WELLS FARGO & COMPANY, U.S. BANK, N.A., A SUBSIDIARY OF U.S. BANCORP, DEFENDANTS.



The opinion of the court was delivered by: Jeffery S. White, United States District Judge

ORDER GRANTING WELLS FARGO BANK'S MOTION TO COMPEL ARBITRATION AND STAY REMANING CLAIMS
INTRODUCTION

Now before the Court is Defendant Wells Fargo Bank's Motion to Compel Plaintiff Jeffrey Deweese to arbitration and to stay Mr. Deweese's claims pending arbitration. Having carefully reviewed the parties' papers and considered their arguments and the relevant legal authority, and good cause appearing, the Court hereby GRANTS Wells Fargo Bank's Motion to Compel Arbitration of Mr. Deweese s claims and to stay Mr. Deweese's claims pending arbitration.

STATEMENT OF FACTS

On June 29, 2002, Plaintiffs, various retail and service businesses, filed their first amended class action complaint against Defendants — two credit card companies and three credit-card issuing banks, including Wells Fargo Bank. The complaint challenges the internal fee system of Visa U.S.A., Inc. ("Visa") and Mastercard International, Inc. ("Mastercard"), in particular the "deposit-fee" that merchants are assessed by their banks when depositing Visa and Mastercard charges for processing, as a violation of section 1 of the Sherman Act. According to Plaintiffs, the defendant banks who participate in this fee system obtain unreasonable and unwarranted profits by virtue of their assessment of these deposit fees on Plaintiffs and other similarly situated businesses. Plaintiffs further allege that the structure of Visa and Mastercard as a joint venture of member banks violates various provisions of the Clayton Act, 15 U.S.C. § 12 et seq., prohibiting ownership of businesses by banks. Wells Fargo Bank and the other defendant banks have, according to Plaintiffs, violated section 7 of the Clayton Act by their acquisition of membership in Visa and Mastercard. Plaintiffs also claim that the defendant banks have exceeded the permissible activities of a bank service company, 12 U.S.C. § 1861, et seq. and violated 12 U.S.C. § 1865(a) by failing to inform the appropriate federal agency that they had acquired stock in Mastercard and Visa. See 12 U.S.C. § 1861, et seq; 12 U.S.C. § 1856(a).

Plaintiffs request both damages and equitable relief. Jeffrey Deweese ("Mr. Deweese") requests damages from Wells Fargo Bank for its alleged Sherman Act violations, including treble damages and compensation for the cost of filing this suit, including reasonable attorney fees. The claims under which Mr. Deweese seeks equitable relief, which are applicable to Wells Fargo Bank, are alleged violations of the Clayton Act and the Bank Services Act, for which he requests the "systematic divestiture over a reasonable period of time of all bank proprietary interest in VISA and MASTERCARD" and that Wells Fargo Bank be ordered to "bring itself into conformity with 12 U.S.C. § 1861 et seq." (FAC at 13.)

In 1993, Mr. Deweese, a physician, decided to give his patients the option of paying for his services with Visa and Mastercard. In 1993, he applied to Wells Fargo Bank to become a "merchant" provider. In September 1993, he completed and signed a Merchant Card Services Application which stated that "by signing below, . . . merchant agrees to be bound by all the terms of those documents/contractual terms for services used or selected by merchant, as indicated below." (Def. Decl., Exh. A) In June 1993, Mr. Deweese had completed and signed a Merchant Card Services Agreement which contained an arbitration clause providing that any disputes between the merchant and the bank were to be determined according to the Federal Arbitration Act, except for claims for equitable relief, which were to be brought in front of a court of competent jurisdiction. (Def. Decl. Exh. B)

Defendant Wells Fargo Bank now moves, pursuant to the Federal Arbitration Act, 9 U.S.C. § 4, to compel Plaintiff Mr. Deweese to arbitration as dictated by the arbitration clause in the Merchant Card Services Agreement. Wells Fargo Bank further requests that this Court stay Mr. Deweese's claims pending the outcome of the arbitration.

ANALYSIS

A. Legal Standard.

Agreements to arbitrate disputes are governed by the Federal Arbitration Act (The "FAA"), 9 U.S.C. § 1 et seq. The FAA creates a body of federal substantive law governing arbitrability and establishes a federal policy favoring arbitration of commercial disputes. Such policy provides that any disputes concerning arbitrability of claims are to be determined in favor of arbitration. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999).

B. The Federal Arbitration Act, not California Rules of Arbitration, Applies to this Motion.
Wells Fargo Bank argues that the Federal Arbitration Act governs, while Mr. Deweese contends that California rules of arbitration, under California Code of Civil Procedure § 1280 et seq., should apply. (Br. at 4; Opp. Br. at 4-5) Under the FAA, a court must compel arbitration even when there is a pending court action arising out of the same series of events or transactions as the claims to be arbitrated. 9 U.S.C. § 3; see also, Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 216-221 (1985); Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210-11 (9th Cir. 1998). Under California rules of arbitration, however, a court may stay arbitration pending resolution of related litigation. Cal. Code. Civ. Proc. § 1281.2. Because Mr. Deweese's complaint contains certain claims which are subject to arbitration under the arbitration clause in the Merchant Card Services Agreement and other claims which must be adjudicated in a proper court, it is necessary to determine whether Federal or California law applies. Under federal law, this Court must order arbitration of those claims within the scope of the arbitration agreement, while under California law this Court may stay the arbitration proceeding because there is a pending court action involving those claims not subject to the arbitration agreement. See 9 U.S.C. § 3; see also, Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 216-221 (1985); Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1210-11 (9th Cir. 1998); Cal. Code Civ. Proc § 1281.2; Volt Information Sciences, inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 477-79.

The Federal Arbitration Act states that a "written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Arbitration is defined as any agreement to submit a dispute to decision by a third party. Wolsey, 144 F.3d at 1208. "A transaction involving commerce" is construed broadly, with application to any contract affecting interstate commerce. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 276 (1995). The FAA rules do not, however, apply to an arbitration agreement in which the parties have clearly provided otherwise, as when the parties have specified in their contract different rules under which the arbitration is to be conducted. Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 469 (1989). Nonetheless, the default position is that the FAA, not state law, provides the rules for arbitration and absent a clear intent by the parties to incorporate state law rules, the FAA will apply. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 61-62; Sovak v. Chugai Pharmaceutical Co., 280 F.3d 1266, 1269 (9th Cir. 2002) cert. den. 123 S.Ct. 114 (2002); Wolsey Ltd., 144 F.3d at 1213.

Wells Fargo Bank argues that the Federal Arbitration Act applies here because it applies to any "written arbitration provision" that is part of a "contract evidencing a transaction involving commerce." See 9 U.S.C. § 4. The Merchant Card Services Agreement, governing merchant transactions between the bank and its merchant providers, contains a written arbitration provision and clearly falls within the broad category of transactions affecting commerce. Furthermore, Wells Fargo argues, the arbitration clause itself provides that disputes "shall be determined pursuant to Title 9 of the U.S. Code," and federal policy is for courts to rigorously enforce arbitration agreements according to their own terms. See Shearson/American Express, 482 U.S. at 226. Unless the parties expressly contract around the FAA, which they did not do in this case, the FAA governs the arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc. 514 U.S. 52 (1995). In Mastrobuono, the Supreme Court considered whether a general choice of law provision designating New York law as the governing law in a contract encompassed a New York law prohibiting the arbitration of punitive damages claims, or whether the FAA rules applied instead. The Court held that the choice of law provision did not encompass the New York arbitration rule because general choice of law provisions do not incorporate state rules that govern the allocation of authority between courts and arbitrators. See Mastrobuono, 514 U.S. at 63-64. Wells Fargo argues that under this reasoning, the choice of California law provision in the Merchant Card Services Agreement should not be read as encompassing California rules of arbitration, rather the FAA rules must be applied.

Mr. Deweese, however, argues that California law governs this motion because the Merchant Card Services Agreement contains a choice of law provision which specifies California Law as the governing law. The agreement provides that, "This agreement shall be governed by and construed in accordance with the laws of the State of California and the United States." Plaintiff relies on the Supreme Court's holding in Volt Information Sciences, Inc. v. Bd. of Trustees of Lelan Stanford Junior Univ., 489 U.S. 468 (1989), for the proposition that this general choice of law provision encompasses California rules of arbitration, which therefore govern this motion. In Volt, the Supreme Court affirmed a California Court of Appeal's ruling that a general choice of law provision in the parties' contract, which designated California law as governing the contract, encompassed California rules of arbitration. 489 U.S. at 477-80. ...


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