The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge
ORDER: GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS (Doc. Nos. 6)
Presently before the Court is Defendants' motion to dismiss or stay the case. (Doc. No. 6.) Also before the Court is Plaintiff's opposition and Defendants' reply. (Doc. Nos. 11 & 12.) For the following reasons, Defendants' motion is GRANTED IN PART and DENIED IN PART.
The background of this case is set forth in detail in the Court's Order granting in part Plaintiff's motion for a writ of attachment. (See Doc. No. 17 at 1--3.) That summary is incorporated by reference here.
The Federal Arbitration Act ("FAA") governs arbitration agreements in contracts involving transactions in interstate commerce. 9 U.S.C. § 1. Under the FAA, arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act's provisions reflect a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). This "national policy" is enforceable in both state and federal courts and preempts any state laws or policies to the contrary. Preston v. Ferrer, 552 U.S. 346, 349 (2008) (quoting Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)).
A court interpreting an arbitration agreement must resolve ambiguities as to the scope of the arbitration clause in favor of arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995); AT&T Techs. Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650 (1986) ("[I]n the absence of any express provision excluding a particular grievance from arbitration . . . only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail."). The FAA requires courts to "rigorously enforce agreements to arbitrate" even when such agreements implicate claims arising under federal statutes. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). Additionally, it "requires district courts to compel arbitration even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 698 (9th Cir. 1986). The overall mandate for arbitration is defeated only where circumstances demonstrate "a contrary congressional command," with the burden on the party opposing arbitration "to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue." Id.
In determining whether to compel a party to arbitration, a district court may not review the merits of the dispute; rather, a district court's role under the FAA 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." Cox v. Ocean View Hotel, Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (citation and quotation marks omitted). In construing the terms of an agreement, the Court "appl[ies] general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration." Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). If the district court determines that a valid arbitration agreement encompasses the dispute, then the FAA requires the court to enforce the arbitration agreement according to its terms. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). Therefore, a district court must compel arbitration "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." United Steelworkers of Am. v. Warrior & Gulf Navigation, 363 U.S. 574, 582--83 (1960).
I. Existence of an Arbitration Provision
As stated above, ordering the parties to a case to arbitration requires that those parties have contractually agreed to settle disputes through arbitration. 9 U.S.C. § 2. In this case, there is only one contract at issue: the Merger Agreement. This Agreement contains a sharply limited arbitration agreement which provides:
If the Parties are unable to agree upon the amount of any Cash Merger Consideration or any Contingent Merger Consideration due hereunder, the Parties shall promptly thereafter cause an independent accountant reasonably satisfactory to Parent and the Shareholders' Representative (the "Independent Accountant") to review the disputed item(s) and amount(s) as set forth in the Contingent Gross Revenue Certificate Contest Notice for the purposes of calculating the applicable Contingent Merger Consideration due hereunder. In making such determination, such Independent Accountant shall consider only those items or amounts in the calculation of the Contingent Merger Consideration set forth in the Contingent Gross Revenue Certificate Contest Notice. The Independent Accountant shall deliver to Parent and the Shareholders' Representative, as promptly as practicable (and in any event within 60 days of the Parties' submission of the matter to the Independent Accountant), a report that explains any discrepancies and sets forth the Independent Accountant's calculation of the actual Contingent Merger Consideration due hereunder. Such report and the calculations set forth therein shall be final and binding upon the Parties, and shall not be subject to challenge in a court of law or otherwise. In the event that the Independent Accountant concludes that there was an underpayment of Cash Merger Consideration or Contingent Merger Consideration, Parent and Intermediate Parent, jointly and severally, shall immediately pay the amount by which the Cash Merger Consideration or Contingent Merger Consideration was underpaid, together with simple interest thereon at the rate of eight percent (8%) per annum. The costs and expenses of the Independent Accountant shall be initially be paid by Parent and Intermediate Parent, jointly and severally, but if the Independent Accountant concludes that there was no underpayment of the Contingent Merger Consideration, then such costs and expenses shall be paid by the Shareholders, in the form of a deduction from any future payment of Contingent Merger Consideration (with interest thereon at the rate of eight percent (8%) per annum). (Merger Agreement § 1.2(b)(vi) ("Independent Accountant provision").) Although Plaintiff suggested at oral argument that this is not an arbitration clause, his argument is without merit. A contract need not use the word "arbitration" in order to have an arbitration clause. See Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1208 (9th Cir. 1998). It need only be an agreement "'to have third parties decide disputes.'" Id. (quoting AMF Inc. v. Brunswick Corp., 621 F. Supp. 456, 460 (E.D.N.Y. 1985)).
Given that the agreement contains an arbitration provision, was signed by both parties, and is otherwise valid and enforceable, the Court finds that a valid agreement to arbitrate exists.
II. Scope of the Arbitration Provision
The Court's second task under the FAA requires it to determine "whether the agreement encompasses the dispute at issue." Cox, 533 F.3d 1119 (citing Chiron, 207 F.3d 1130). The FAA represents a "liberal federal policy favoring arbitration agreements, . . . [and] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone, 460 U.S. at 24--25. Therefore, this Court must "rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985). However, the Court may only order arbitration of claims which the parties have agreed to arbitrate, as the FAA "requires piecemeal resolution when necessary to give effect to an arbitration agreement." Moses H. Cone, 460 U.S. at 20.
The arbitration clause in this case applies to any disputes or disagreements over the "amount of any Cash Merger Consideration or any Contingent Merger Consideration due" under the Merger Agreement. (Merger Agreement § 1.2(b)(vi).) Defendants argue that Plaintiff's only cause of action falls within the arbitration provision at hand. (Memo. ISO Motion at 7.) Accordingly, Defendants request that this Court dismiss Plaintiff's complaint. (Id. at 4.) Because all of the issues raised in this action are not arbitrable pursuant to the arbitration provision, the Court disagrees.
Generally, courts grant motions to dismiss in favor of arbitration where the arbitration provision or agreement is broadly-worded and covers all the issues at hand. See Boston Telecomms. Group, Inc. v. Deloitte Touche Tohmatsu, 249 F. App'x 534, 538 (9th Cir. 2007) (finding that an arbitration provision was sufficiently broad in scope to cover the dispute at hand because it stated that "'[a]ny disputes arising out of the interpretation of [the] agreement" would be settled by arbitration); Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1131 (9th Cir. 2000) (clause requiring arbitration of any dispute "relating to" agreement is "broad and far reaching"); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 720, 726 (9th Cir. 1999) (granting a motion to dismiss where the arbitration clause was broadly worded because it provided for arbitration of all disputes "arising in connection with" the parties' agreement). "In construing the scope of an arbitration clause," courts also "'ascertain and implement the reasonable expectations of the parties.'" Luna v. Kemira Specialty, Inc., 575 F. Supp. 2d 1166, 1179 n.43 (C.D. Cal. 2008) (citation omitted). Because "contracting parties control their own fate when it comes to deciding which disputes to consign to arbitration," the "'strong federal policy favoring arbitration may not extend the reach of arbitration beyond the intended scope of the clause providing for it.'" Id. (citation omitted).
In the instant case, the Independent Accountant provision does not entirely encompass the dispute at issue. The provision is not broadly-worded and is instead narrow in scope. It uses no language suggesting arbitration of all disputes arising in connection with the Merger Agreement. Rather, the provision is narrow in that it specifies review by an independent accountant if the parties are unable to agree on "the amount of any Cash Merger Consideration or any Contingent Merger Consideration due." (Merger Agreement § 1.2(b)(vi)(emphasis added).) Moreover, the provision does not implicate that the parties expected a breach of contract claim or bad faith conduct to be decided by an arbitrator. Instead, the language of the provision is clear that the parties' "reasonable expectation" was that disputes over the amount owed on the Contingent Merger Consideration would be sent to arbitration. (See id.)
Plaintiff alleges a claim for breach of contract and argues that the present action involves nonarbitrable issues which "go far beyond any auditing of disputed calculations contemplated by Section 1.2(b)(iv) of the Merger Agreement." (Opp. at 13.) In his opposition, Plaintiff presents the following issues as ones that are beyond the scope of the arbitration provision: 1) statutory interest and attorneys' fees; 2) Defendants' bad faith conduct; 3) evidentiary issues arising from Defendants' altering of an invoice; 4) a collateral agreement after the Merger Agreement which stipulated the amount of the 2008 gross revenues in order to calculate the Second Earn Out; ...