IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
December 13, 2011
EPIC ADVERTISING D/B/A AZOOGLEADS.COM, INC., A DELAWARE CORPORATION,
ASIS INTERNET SERVICES, A CALIFORNIA CORPORATION; AND NELLA WHITE, AN INDIVIDUAL. DEFENDANTS.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS
Before the Court is a Motion to Dismiss filed by Defendants Asis Internet Services ("Asis") and Nella White ("White") 20 (collectively, "Defendants"). ECF No. 30 ("Mot."). Plaintiff Epic 21 Advertising ("Plaintiff") filed an Opposition. ECF No. 32 22 ("Opp'n"). Defendants did not file a Reply. For the following 23 reasons, the Court DENIES Defendants' Motion. 24 25
The Court detailed the background of this dispute in its prior 27 order denying Defendants' first motion to dismiss and does not 28 repeat that background here. ECF No. 28 ("Sep. 29, 2011 Order").
In short, this action involves Plaintiff's attempt to collect on a 2 judgment against Defendants from a prior lawsuit, ASIS Internet 3 Plaintiff filed this action on April 7, 2011, asserting state 5 law claims for malicious prosecution, tort of another, and 6 fraudulent transfer. ECF No. 1 ("Compl.") ¶¶ 103-133. On July 14, 7 Plaintiff's 2010 acquisition of non-party Connexus Corporation 9 Services v. Optin Global, Inc., No. 05-5124 (N.D. Cal.). 4
2011, Defendants filed their first motion to dismiss, claiming that 8 ("Connexus"), a California corporation, divested the Court of 10 diversity jurisdiction. See ECF No. 16 ("Defs.' First MTD"). The Court denied Defendants' motion, finding that Plaintiff had 12 established that Connexus was its subsidiary. Sep. 29, 2011 Order 13 at 7. 14 15 arguing that the Court lacks jurisdiction because of an arbitration 16 clause contained in a 2007 settlement agreement between Asis and 17 Connexus (the "Settlement Agreement"). Mot. at 2-3. Plaintiff 18 filed an Opposition arguing that the Motion fails for numerous 19 reasons and that the Court should impose sanctions upon Defendants 20 for unreasonably and vexatiously multiplying the proceedings. For 21 the following reasons, the Court DENIES Defendants' Motion and 22 DENIES Plaintiff's request for sanctions. 23 24
27 subject matter jurisdiction on the ground that the parties 28 contracted to resolve their disputes exclusively through
On October 18, 2011, Defendants filed the instant Motion,
A. Defendants' Motion
Defendants move to dismiss the instant action for lack of arbitration. When an action involves an issue properly governed by 2 an arbitration clause, however, the district court "is not deprived 3 of jurisdiction altogether." See Nicholson v. Labor Ready, Inc., May 23, 1997). Rather, pursuant to Section 4 of the Federal Arbitration Act ("FAA"), "the court shall make an order directing 7 the parties to proceed to arbitration in accordance with the terms 8 of the agreement." See 9 U.S.C. § 4. Additionally, pursuant to No. C 97-0518 FMS, 1997 U.S. Dist. LEXIS 23494, at *5 (N.D. Cal. Section 3 of the FAA, the court is required to stay, not dismiss, 10 the action pending arbitration. See id. § 3. Consequently,
Defendants are not entitled to dismissal of the instant action.
Although Defendants do not expressly move to compel
13 arbitration, the gravamen of their Motion is that this dispute is 14 subject to mandatory arbitration under the Settlement Agreement 15 between Asis and Connexus. Because Plaintiff has addressed the 16 merits of Defendants' arguments in support of arbitration, the Court will construe the instant Motion as a motion to compel 18 arbitration. See, e.g., Filimex, L.L.C. v. Novoa Invs., L.L.C., Ariz. July 17, 2006) (construing motion to dismiss for lack of 21 subject matter jurisdiction as motion to compel arbitration). When 22 ruling on a motion to compel arbitration, the district court's "role is limited to determining whether a valid arbitration 24 agreement exists and, if so, whether the agreement encompasses the 25 dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc.,
Here, Defendants wasted little time preparing their three-page motion with citation to but a single statute, no cases, and barely No. CV 05-3792-PHX-SMM, 2006 U.S. Dist. LEXIS 56039, at *5-8 (D. 207 F.3d 1126, 1130 (9th Cir. 2000).
any argument at all. They simply proclaim that Asis was engaged in 2 litigation with Connexus that resulted in the Settlement Agreement 3 prior to the events at issue in the present litigation; that Plaintiff and Connexus merged; and that therefore Plaintiff is 5 bound by an arbitration clause contained in the Settlement Code § 1107). Plaintiff argues, and the Court agrees, that First, the Court found in its September 29, 2011 Order that Connexus is Plaintiff's subsidiary. Sep. 29, 2011 Order at 7.
Plaintiff is not a party to the Settlement Agreement, which was 12 executed in 2007, well before Plaintiff acquired Connexus in 2010.
Ordinary contract and agency principles govern whether a non-15 signatory to an arbitration agreement is bound by the agreement. Cal. 2009). Under California contract law, "a parent corporation 18 and its subsidiary are legally distinct entities, and a contract 19 under the corporate name of one is not treated as that of both" 20 unless the subsidiary operates as the alter ego of the parent.
1040, 1057 (C.D. Cal. 2003). Defendants have presented no evidence 23 that Connexus is the alter ego of Plaintiff and have therefore 24 failed to show that Plaintiff is bound by the arbitration 25 agreement. 26
Agreement between Asis and Connexus. Mot. at 2 (citing Cal. Corp. Defendants' Motion fails for numerous reasons. 9
See ECF No. 29 Ex. B ("Settlement Agreement"); Graff Decl. ¶ 12.*fn1 Delmore v. Ricoh Americas Corp., 667 F. Supp. 2d 1129, 1135 (N.D.
Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 319 F. Supp. 2d
Second, Defendants have presented no argument as to why the
instant dispute falls within the scope of the arbitration agreement
3 between Asis and Connexus. The arbitration agreement provides that 4
all disputes "arising out of, or relating to" the settlement 5
agreement must be resolved by binding arbitration. Settlement
Agreement ¶ 19. The instant dispute concerns Defendants' alleged 7
malicious prosecution of a 2005 action against Plaintiff and their 8
alleged efforts to avoid paying the judgment awarded to Plaintiff 9 in
that action. See Compl. Asis's Settlement Agreement with 10
Connexus was executed in 2007, well before Plaintiff acquired Connexus in 2010. Defendants offer no explanation of how the 12 instant action is related to, or arises out of, a settlement 13 agreement to which Plaintiff was not a party. 14
Third, this Motion is procedurally improper because it was 15 filed five days after Defendants were required to file a responsive 16 pleading to the Complaint under Federal Rule of Civil Procedure 12(a)(4)(A). 18
For the foregoing reasons, Defendants' Motion is DENIED.
B. Plaintiff's Request for Sanctions
In its Opposition, Plaintiff asks the Court to impose
sanctions pursuant to its inherent power or 28 U.S.C. § 1927, which
22 provides that any attorney who "so multiplies the proceedings in 23
any case unreasonably and vexatiously may be required by the court 24
to satisfy personally the excess costs, expenses, and attorneys' 25
fees reasonably incurred because of such conduct." The imposition 26
of sanctions under Section 1927 or the Court's inherent power 27
requires a finding of bad faith. Alyeska Pipeline Serv. Co. v.
Wilderness Soc'y, 421 U.S. 240, 258-59 (1975).
While the Court agrees with Plaintiff that Defendants have
made very little effort to establish the merits of their Motion and
3 have come perilously close to submitting a frivolous filing that 4
wastes both Plaintiff's and the Court's time, the Court finds that 5
sanctions are not warranted at this time. However, the Court 6 reminds
Defendants of their obligations under Federal Rule of Civil
Procedure 11(b) and cautions Defendants that such barely 8
substantiated filings may be grounds for sanctions in the future. 9
For the foregoing reasons, the Court DENIES the Motion to Dismiss filed by Defendants Asis Internet Services and Nella White.
IT IS SO ORDERED.
UNITED STATES DISTRICT JUDGE