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Freaner v. Valle

United States District Court, S.D. California

August 22, 2013

ENRIQUE MARTIN LUTTEROTH VALLE, an individual; HOTELERA CORAL, S.A. de C. V., a stock company of Baja California, Republic of Mexico; and Does 1 to 10, Defendants

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Ariel Freaner, Plaintiff: Frederick M Reich, LEAD ATTORNEY, Law Offices of James J Warner, San Diego, CA.

For Enrique Martin Lutteroth Valle, Defendant: Margarita Haugaard, LEAD ATTORNEY, Horton Knox Carter and Foote, San Diego, CA; Orlando Bailey Foote, III, LEAD ATTORNEY, Horton Knox Carter and Foote LLP, El Centro, CA.

For Hotelera Coral, S.A. de C.V., a stock company of Baja Calfiornia, Republic of Mexico, Defendant, Counter Claimant: Margarita Haugaard, LEAD ATTORNEY, Horton Knox Carter and Foote, San Diego, CA.

For Neyensech Printers, Inc., a California Corporation, Cross Claimant: J Robert O'Connor, III, Lori L Dunivan, LEAD ATTORNEYS, O'Connor Packer and Dunivan, San Diego, CA.


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Honorable Janis L. Sammartino, United States District Judge.

Presently before the Court is Plaintiff Ariel Freaner's (" Plaintiff," or " Freaner" ) Motion to Compel Arbitration of the 2009 Contract, (Mot. Compel Arbit., ECF No. 82), as well as Defendants Enrique Martin Lutteroth Valle (" Valle" ) and Hotelera Coral, S.A. de C.V.'s (" Hotelera Coral," and collectively, " Defendants" ) response in opposition, (Resp in Opp'n, ECF No. 85), and Freaner's reply in support, (Reply in Supp., ECF No. 86). The hearing on the motion set for March 22, 2013 was vacated and the matter was taken under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1).

Also before the Court is Defendants' Motion for Partial Summary Judgment, or Alternatively, for an Order Treating Specified Facts as Established, on Hotelera Coral's Counterclaim, (Mot. Partial Summ. J., ECF No. 64), along with Freaner's response in opposition, (Resp. in Opp'n, ECF No. 69), and Defendants' reply in support, (Reply in Supp., ECF No. 72). A hearing on the motion was held on January 31, 2013, at which time the Court took the motion under submission pending the filing and expedited briefing of Freaner's motion to compel arbitration.

Having considered the parties' arguments and the law, the Court (1) DENIES Freaner's motion to compel arbitration, (2) GRANTS IN PART AND DENIES IN PART Defendants' motion for partial summary judgment on their counterclaim, and (3) SETS a deadline of October 31, 2013 for the completion of all pending arbitration proceedings.


1. Factual Background

The Court has issued two prior Orders in this case that discuss the relationship between Freaner and Hotelera Coral and the breakdown of communication between the parties that preceded the filing of this suit. ( See Order, Nov. 17, 2011, ECF No. 23; Order, Feb. 6, 2013, ECF No. 81). This Order incorporates by reference the facts as set forth in those prior Orders. The most pertinent facts are set forth here once again to provide necessary context for the issues discussed below.

This case arises out of a contract dispute between Freaner, a graphic and web designer in San Diego, California, and Hotelera Coral, a resort hotel located in Baja California, Mexico. On June 23, 2008, the parties entered into a Service Agreement, memorialized in a signed, printed contract, pursuant to which Freaner was to provide marketing services and products to Hotelera Coral, including, among other things, design and development of a new web site, development of advertising concepts and strategies, and design and production of print advertising materials. Hotelera Coral was to pay $76,592 to Freaner in six installments.

The June 2008 Service Agreement includes a provision requiring Hotelera Coral to pay Freaner an hourly rate for projects

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or tasks outside the scope of the contract. The provision reads as follows:

c. Any projects or tasks outside the scope of this Agreement will be billed as follows:
i. $250 (two hundred fifty U.S. dollars) per hour for design and creative services
ii. $150 (one hundred fifty U.S. dollars) per hour for production services.
d. Clients will not be obligated to pay for any project outside the scope of this Agreement unless previously approved in writing.

The June 2008 Service Agreement also includes a provision requiring the parties to settle their disputes through binding arbitration. The arbitral clause reads as follows:


Any controversy or claim arising out of or related to this Agreement, or breach thereof, shall be submitted to and resolved by binding arbitration. The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules of the American Arbitration Association. The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law. The parties agree to abide by and perform any award rendered by the arbitrator. The arbitrator shall issue the award in writing and therein shall state the essential findings and conclusions on which the award is based. Judgment on the award may be entered in any court having jurisdiction thereof.

In the Spring of 2009, the parties began negotiating another contract. Freaner initiated the negotiations by sending Defendants a document marked as a proposal, which set forth two alternatives. Defendants reviewed the proposal and the parties subsequently agreed on the first alternative, pursuant to which Freaner would provide specified design and creative services in exchange for $4,000 per month from Hotelera Coral for a 12-month term.

Freaner then sent Defendants a printed contract that incorporated the terms that the parties had discussed. This printed contract contained the same arbitral clause as the June 2008 Service Agreement.

The parties disagree as to the events that followed, as discussed more extensively below. It is undisputed, however, that Defendants never signed the printed contract. It is also undisputed that Defendants began paying Freaner $4,000 per month beginning in July 2009 and that Freaner began providing services as specified in the printed contract.

Around May 2010, Defendants became upset because Freaner failed to deliver print advertising materials that Defendants had requested, and paid for, months earlier. The relationship between the parties broke down shortly thereafter and their agreement was not renewed for the following year.

On March 31, 2011, Freaner sent Defendants a letter demanding compensation for numerous services that he allegedly rendered between June 2008 and October 2010. Freaner alleged that he was entitled to $174,080 in unpaid compensation.

2. Procedural Background

On June 17, 2011, Freaner filed suit for breach of contract in the Superior Court of the State of California for the County of San Diego. In his complaint, he alleged breach of the June 2008 Service Agreement and sought damages in excess of $170,000.

On August 15, 2011, Defendants filed a motion to compel arbitration of Freaner's

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breach of contract claim. On the same day, Defendants also removed the action to this Court, invoking the Inter-American Convention on International Commercial Arbitration, also known as the Panama Convention, and its implementing legislation, 9 U.S.C. § § 301-307.

On September 2, 2011, Defendants filed a counterclaim for breach of contract, alleging that Freaner breached the parties' 2009 agreement. On the same day, Freaner filed a motion to compel arbitration of the June 2008 Service Agreement. On September 13, 2011, Freaner filed a motion to remand the action back to Superior Court. On September 27, 2011, Freaner filed an answer to Defendants' counterclaim.

On November 17, 2011, the Court denied Freaner's motion to remand because this action is related to an arbitration agreement falling under the Panama Convention, such that removal was proper under 9 U.S.C. § 205, which is incorporated by reference in cases falling under the Panama Convention by 9 U.S.C. § 302. (Order, Nov. 17, 2011, ECF No. 23). The Court granted the parties' motions to compel arbitration because the June 2008 Service Agreement contains a binding arbitration clause. ( Id. ) The Court directed the parties to arbitrate their dispute with the American Arbitration Association (" AAA" ) and to follow its rules to select an arbitrator. ( Id. ) The Court stated that it would be " premature to consider whether to compel arbitration of issues related to the 2009 contract that are the subject of Hotelera Coral's counterclaims as the Court is not yet faced with a motion to compel arbitration of those claims." ( Id. )

After Magistrate Judge Dembin vacated a previously scheduled Early Neutral Evaluation on January 3, 2012, Defendants proceeded to file an Ex Parte Application for Order Reinstating Scheduling of an Early Neutral Evaluation Conference. The Magistrate Judge granted Defendants' motion on the ground that only Freaner's breach of contract claim had been referred to arbitration and that Defendants' counterclaim remained before the Court and was ready to proceed to the next stage of litigation. An Early Neutral Evaluation and a Case Management Conference were subsequently held on February 23, 2012 before the Magistrate Judge.

Freaner had not commenced arbitration proceedings by the time the Magistrate Judge held these hearings. Thus, on February 24, 2012, the Magistrate Judge ordered Freaner to commence arbitration by March 8, 2012. Freaner requested additional time to raise funds to pay the AAA's initial filing fee and the Magistrate Judge subsequently extended the deadline to March 22, 2012. On March 26, 2012, this Court issued an Order to Show Cause Why Sanctions Should Not Be Imposed, requiring Freaner to explain why he had yet to commence arbitration by the generous deadline set by the Magistrate Judge.

On April 9, 2012, Freaner filed a declaration with the Court indicating that he had complied with the Magistrate Judge's Order, albeit in an untimely manner, by commencing arbitration on March 23, 2012. On that day, Freaner filed an arbitral demand with the AAA's International Centre for Dispute Resolution (" ICDR" ). Freaner's arbitral demand sought relief under the June 2008 Service Agreement and under the unsigned, printed contract that Freaner sent to Defendants in 2009.

On April 16, 2012, the Magistrate Judge issued a scheduling order setting a timetable for discovery and a cutoff date for the filing of dispositive motions. The parties subsequently filed several motions regarding the adequacy of Freaner's responses to discovery requests. These motions were addressed by the Magistrate Judge.

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On September 24, 2012, Freaner submitted a notice regarding the status of the arbitration proceedings. Freaner explained that he was unable to pay the ICDR's $2,500 proceed fee due to a lack of funds and that consequently the ICDR administratively closed the arbitral proceedings on July 17, 2012. Freaner also explained that he re-filed his arbitral demand with the ICDR on August 21, 2012. On the same day, Defendants filed a separate notice with the Court stating that they had not received any communications from ICDR regarding Freaner's renewed arbitral demand.

On October 9, 2012, Defendants filed a motion challenging the arbitrator's jurisdiction over the dispute. Although Defendants styled their motion as one for summary judgment, Defendants sought, in effect, an interlocutory ruling on the arbitrator's jurisdiction that might have been raised in a motion for an anti-arbitration injunction or declaration. See S. I. Strong, International Commercial Arbitration: A Guide for Judges 44 (2012). In their motion, Defendants requested that the Court issue an Order to Show Cause as to why judgment should not be entered against Freaner on his breach of contract claim due to his delay in commencing arbitration. Defendants also sought a ruling from the Court declaring that the arbitrator lacked jurisdiction to award compensation for services rendered by Freaner after the termination of the June 2008 Service Agreement. Finally, Defendants sought a ruling from the Court declaring that the arbitrator lacked jurisdiction over any claims arising under the 2009 agreement.

On the same day, Defendants also filed a motion for partial summary judgment on their breach of contract counterclaim. Freaner opposed this motion on the merits and Defendants filed a reply in support.

The Court held a hearing on Defendants' motions on January 31, 2013 and issued an Order shortly thereafter. (Order, Feb. 6, 2013, ECF No. 81). The Court determined that Freaner's delay in commencing arbitration was not so lengthy as to require a dismissal of his breach of contract claim, but concluded that a deadline for the completion of arbitral proceedings should be set in light of the substantial risk of prejudice to Defendants from continued delays. ( Id. ) The Court further concluded that the arbitrator should resolve the issue of the extent of his jurisdiction under the June 2008 Service Agreement. ( Id. ) Finally, the Court determined that further briefing would be required regarding the arbitrator's jurisdiction over the 2009 contract dispute. ( Id. )

The Court set an expedited briefing schedule for Freaner to file a motion to compel arbitration of the 2009 contract dispute and Defendants to file an opposition. The Court reserved ruling on Defendants' partial summary judgment motion until the arbitrator's jurisdiction over the 2009 dispute could be ascertained.

Freaner filed his motion to compel arbitration on February 15, 2013. Defendants filed a response in opposition on March 4, 2013, and Freaner filed a reply in support on March 11, 2013. As indicated above, the Court vacated the motion hearing and took the matter under submission on March 18, 2013.


1. Standard of Review

A. Applicability of the Inter-American Convention on International Commercial Arbitration

The arbitration clause invoked by Freaner in this action is governed by the

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Inter-American Convention on International Commercial Arbitration, also known as the Panama Convention. The Panama Convention is an international treaty that provides a regional framework for ensuring that national courts recognize and enforce arbitration agreements and arbitral awards relating to international commercial transactions.

The Panama Convention was originally promulgated on January 30, 1975 and signed by the United States on June 9, 1978. The United States subsequently ratified the Convention on October 9, 1986 and legislation implementing the Convention, now codified as Chapter 3 of the FAA, 9 U.S.C. § § 301-307, was signed into law on August 15, 1990. The U.S. deposited the ratified treaty with the Organization of American States (" OAS" ) on September 27, 1990, and the Convention went into force 30 days later, on October 27, 1990.

The Panama Convention is based, in large part, on the more widely known United Nations Convention on the Recognition and Enforcement of Arbitral Awards of June 10, 1958, also known as the New York Convention. The New York Convention was implemented by legislation now codified at Chapter 2 of the FAA, 9 U.S.C. § § 201-208. The two Conventions share many of the same features and characteristics and Congress has even indicated that the two Conventions are " intended to achieve the same results." See Energy Transp., Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 198 (S.D.N.Y. 2004) (quoting H. R. Rep. No. 101-50, at 4 (1990), reprinted in 1990 U.S.C.C.A.N. 675, 678. The legislation implementing the Panama Convention incorporates by reference several crucial provisions of the legislation implementing the New York Convention, further demonstrating the close relationship between the two Conventions. See 9 U.S.C. § 302 (incorporating by reference § § 202, 203, 204, 205, and 207).

Although the text of the Panama Convention is largely silent as to the Convention's field of application, this omission is addressed by the implementing legislation. Section 202, incorporated by reference by virtue of Section 302, provides, in relevant part:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial . . . falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.

This broad definition suggests that most arbitration agreements and arbitral awards relating to international commercial transactions will fall under either the New York or Panama Conventions.

Notwithstanding Section 202's expansive definition, the Panama Convention applies only to the field of " international" commercial arbitration. This limit is made explicit in the Convention's title and preamble. The " internationality" requirement distinguishes the Panama Convention from the New York Convention, which applies to the arguably broader category of " foreign arbitral awards." See John P. Bowman, The Panama Convention and its Implementation under the Federal Arbitration Act, 33-37 (2002); Albert Jan van den Berg, The New York Convention 1958 and Panama Convention 1975: Redundancy or ...

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