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Hopkins & Carley, Alc v. Thomson Elite

April 6, 2011


The opinion of the court was delivered by: Lucy H. Koh United States District Judge


United States District Court For the Northern District of California

Defendant Thomson Elite moves to compel arbitration and dismiss this action. The Courtheard oral argument on March 31, 2011. Having considered the arguments and submissions of the parties, the Court GRANTS Defendant's motion to compel arbitration. By April 21, 2011, the parties shall file a stipulation dismissing the action without prejudice and providing for tolling of the statute of limitations.


This action arises out of a contractual agreement between Plaintiff Hopkins & Carley, ALC ("Plaintiff" or "H&C") and Defendant Thomson Elite ("Defendant" or "Thomson"). H&C is a California Law Corporation located in San Jose, California. Compl. ¶ 1. Thomson is a software development and consulting firm incorporated under the laws of Minnesota, with its principal place 28 of business in Minnesota. Compl. ¶ 5; Notice of Removal ¶ 7. In 2005, H&C began exploring options to replace its existing accounting and law practice management software. Compl. ¶ 6.

After meeting with Thomson and participating in an interactive product demonstration, H&C 3 agreed to purchase Thomson's Elite financial and practice management system, with certain specified customizations. Compl. ¶¶ 7-8. On June 8, 2006, the parties entered into a Customer ("Rosenberg Decl.") ¶ 2-3 & Ex. A, attached to Def.'s Mot. to Compel Arbitration, ECF No. 9. 7 H&C claims that while it was still in the process of implementing the Elite software, Thomson 8 approached H&C and encouraged it to switch to Thomson's new 3E software product. Compl. ¶ 9. 9 Agreement for the Elite software and associated services.*fn1 Decl. of Melina Rosenberg Thomson allegedly told H&C that the new 3E product was far superior and that H&C could switch 10 to the new product at no additional cost. Id. Based on Thomson's representations, H&C agreed to switch from the older Elite product to the newer 3E product. Compl. ¶ 10. On September 28, 2006, the parties executed an Amendment to the Customer Agreement (the "Amendment") that 13 replaced the Software and Fee Schedule to substitute the 3E software and added certain other 14 provisions. Rosenberg Decl. Ex. B. H&C also agreed to purchase Thomson's Client Relationship Management ("CRM") product, which Thomson claimed was easily integrated with the 3E 16 product. Compl. ¶ 11. and eventually switched its entire accounting function to the new 3E platform. Compl. ¶ 12. After ¶ 13. H&C claims that at first Thomson represented that these problems were minor bugs that could easily be fixed. Compl. ¶ 14. Despite these early assurances, however, H&C claims that Thomson was never able to make the 3E product function and that the minor "bugs" were in fact serious structural problems that made the product unusable and unfixable. Id. Although Thomson allegedly represented that the 3E product was complete and available when H&C agreed to purchase it, H&C believes that the product was actually still in development and was essentially a Customer Agreement as an exhibit to the motion to compel arbitration. As H&C has not objected to this submission and cites to it in its opposition brief, it appears that the documents submitted by Thomson are true and correct copies of the parties' agreement that may be considered by the Court in ruling on the motion to compel arbitration.

H&C claims that it spent considerable time and resources implementing that 3E product 3E was operational, however, H&C began to note various problems with its operations. Compl. prototype that had never before been sold or successfully implemented. Compl. ¶ 15. H&C therefore believes that Thomson negligently and intentionally misrepresented the status and availability of the 3E product in order to induce H&C to purchase it. Compl. ¶¶ 15-17. H&C claims that Thomson compounded the consequences of its actions by taking the 3E system live even though it knew the system was not ready. Compl. ¶ 17. H&C also claims that the CRM product was not even in production when H&C agreed to purchase it and believes, contrary to Compl. ¶ 20.

On September 28, 2010, H&C filed suit in the Superior Court of the County of Santa Clara, the action to federal court on December 21, 2010, on the basis of diversity jurisdiction. H&C's valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 20 avoidance of any contract." 9 U.S.C. § 2. In deciding whether a dispute is arbitrable, a court must 21 answer two questions: (1) whether the parties agreed to arbitrate, and, if so, (2) whether the scope 22 of that agreement to arbitrate encompasses the claims at issue. Chiron Corporation v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If a party seeking arbitration 24 establishes these two factors, the court must compel arbitration. 9 U.S.C. § 4; Chiron, 207 F.3d at 25 1130. "The standard for demonstrating arbitrability is not a high one; in fact, a district court has 26 little discretion to deny a arbitration motion, since the [FAA] is phrased in mandatory terms."

Complaint asserts six causes of action: (1) fraudulent performance of contract; (2) fraudulent 13 inducement of contract; (3) negligent misrepresentation; (4) breach of contract; (5) breach of 14 express and implied warranty; and (6) rescission. Thomson now argues that each of these claims is 15 encompassed by the arbitration clause contained in the original Customer Agreement and retained 16 by the Amendment. Thomson thus moves to compel arbitration and dismiss the action.

"arbitration is a matter of contract and a party cannot be required to submit to arbitration any

II.Legal Standard

The Federal Arbitration Act mandates that written agreements to arbitrate disputes "shall be Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 475 (9th Cir. 1991). Nonetheless, dispute which he has not agreed so to submit." AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648 (1986) (quoting Steelworkers v. Warrior & Gulf The FAA creates a body of federal substantive law of arbitrability that requires a healthy regard for the federal policy favoring arbitration and preempts state law to the contrary. Volt 468, 475-479 (1989); Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 931, 936-37 (9th Cir. 2001).

F.3d at 936-37. When deciding whether the parties agreed to arbitrate a certain matter, courts 10 generally apply ordinary state-law principles of contract interpretation. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Parties may also contract to arbitrate according to state rules, so long as those rules do not offend the federal policy favoring arbitration. Volt, 489 U.S. at "general state-law principles of contract interpretation, while giving due regard to the federal 15 policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of 16 arbitration." Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1044 (9th Cir. 2009) (quoting Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996)). "[A]s with any other 18 contract, the parties' intentions control, but those intentions are generously construed as to issues of 19 arbitrability." Mitsubishi Motors Corp. v. Soler ...

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