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Switch, LLC v. Ixmation, Inc.

United States District Court, N.D. California

July 21, 2015

SWITCH, LLC, Plaintiff,
v.
IXMATION, INC., Defendant.

ORDER DENYING MOTION TO COMPEL ARBITRATION Re: Dkt. No. 6

MARIA-ELENA JAMES, Magistrate Judge.

INTRODUCTION

Pending before the Court is Defendant ixmation, Inc.'s Motion to Compel Arbitration and to Dismiss or Stay Action pursuant to Federal Rule of Civil Procedure 12(b)(1).[1] Dkt. No. 6. Plaintiff Switch (Assignment for the Benefit of Creditors), LLC ("Switch") filed an Opposition (Dkt. No. 17), and ixmation filed a Reply (Dkt. No. 19). The Court finds this matter suitable for disposition without oral argument and VACATES the July 30, 2015 hearing. See Fed.R.Civ.P. 78(b); Civ. L.R. 7-1(b). Having considered the parties' positions, relevant legal authority, and the record in this case, the Court DENIES ixmation's Motion for the reasons set forth below.

BACKGROUND

Switch is the successor-in-interest to Switch Bulb Company, Inc.[2] Compl. ¶ 1, Dkt. No. 1-1. Switch's business related to the design, manufacture, and sale of light-emitting diode (LED) light bulbs. Id. ixmation is in the business of designing and building production machinery and automation systems. Id. ¶ 2.

In July 2013, ixmation provided a proposal to Switch to design and manufacture production machinery for Switch for $3, 908, 000 (the "Proposal"). A copy of ixmation's Proposal to Switch is attached as Exhibit A to Switch's September 9, 2014 Notice of Removal in ixmation, Inc. v. Switch Bulb Co., Inc., No. 14-cv-6993, filed in the United States District Court for the Northern District of Illinois, Eastern Division (the "Illinois Action").[3] The Proposal includes a provision that requires "any dispute, claim, question, or disagreement arising from or relating to this agreement or any claim breach thereof" that the parties cannot resolve on their own to be adjudicated by arbitration in Illinois. Illinois Action, Dkt. No. 1; Glass Decl., Ex. 1, Dkt. No. 8.

On or about July 17, 2013, Switch submitted a written purchase order to ixmation for the design, manufacture, and delivery of a light bulb manufacturing machine. Compl. ¶ 4 & Ex. A ("Purchase Order"). The Purchase Order contains Switch's terms and conditions of purchase, titled "Standard Conditions of Purchase, " and does not include an arbitration provision, but instead provides that acceptance of the Purchase Order "shall be construed and governed in accordance with the laws of the state of California, " with jurisdiction and venue in "the Superior Court of California for the County of Sonoma, or the United States District Court for the Northern District of California." Id., Ex. A. Switch alleges that ixmation agreed to Switch's terms and conditions of purchase by its performance under the Purchase Order. Id. ¶ 5. In the following months, Switch proposed and ixmation accepted various change orders that modified the purchase price. Id. Copies of the change orders are attached as Exhibit A to Switch's Notice of Removal in the Illinois Action. See also Glass Decl., Ex. 3. In order to secure payment for the machinery, Switch opened a letter of credit (the "Letter of Credit") with Wells Fargo Bank, N.A. ("Wells Fargo") in August 2013. Glass Decl., Ex. 1 (Ex. D to Switch's Notice of Removal in the Illinois Action).

In 2014, Switch alleges ixmation failed to adhere to the parties' agreed timetable for delivery of the machinery, after which Switch gave notice of termination of its order to ixmation. Compl. ¶ 6. In April 2014, ixmation initiated an American Arbitration Association ("AAA") arbitration proceeding in Illinois under the arbitration provision contained in its Proposal. Mot. at 6; Opp'n at 2.

On September 5, 2014, after it had initiated the AAA arbitration proceeding, ixmation filed suit against Switch and Wells Fargo in Illinois state court. Illinois Action, Dkt. No. 1. In that case, ixmation requested that Wells Fargo be enjoined from terminating the Letter of Credit pending resolution of the arbitration proceedings. Id. On September 9, 2014, Switch removed ixmation's lawsuit to the Illinois District Court. Id.

Thereafter, on September 12, 2014, Switch filed a Motion to Dismiss, and in the Alternative, Motion to Compel Arbitration. Illinois Action, Dkt. No. 7. In that motion, Switch states it accepted ixmation's July 2013 Proposal, issued Purchase Order M00000016, and the two documents together became the parties' "Agreement." Id. at 2. Switch further argues ixmation's "dispute with Switch is subject to an arbitration agreement between the parties, " and there "is no dispute that the Agreement contains a valid arbitration provision because the Agreement's terms expressly mandate arbitration." Id. at 1, 4. In a minute order dated September 17, 2014, the Illinois District Court denied Switch's motion on grounds related to ixmation's pending request for preliminary injunctive relief related to the Letter of Credit. Illinois Action, Dkt. No. 18.

Switch subsequently filed a second Motion to Dismiss, and in the Alternative, Motion to Compel Arbitration on October 10, 2014. Illinois Action, Dkt. No. 48. In its second motion, Switch incorporates its arguments from the first motion and argues that the court has no authority over the dispute as ixmation had already instituted an AAA arbitration. Id. at 1. The Illinois District Court did not rule on Switch's second motion, instead granting ixmation's oral motion to dismiss the case by minute order dated November 3, 2014. Illinois Action, Dkt. No. 61.

On March 6, 2015, Switch filed the present Complaint in Sonoma County Superior Court, alleging one claim for Breach of Written Contract. ixmation subsequently removed the case to this Court on April 10, 2015. Dkt. No. 1. ixmation filed the present Motion to Compel Arbitration on April 17, 2015.

LEGAL STANDARD

The Federal Arbitration Act ("FAA") provides that written agreements to settle a controversy through arbitration "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. The central purpose of the FAA "is to ensure that private agreements to arbitrate are enforced according to their terms." Momot v. Mastro, 652 F.3d 982, 986 (9th Cir. 2011). In order to enforce an arbitration agreement, a court shall issue an affirmative order to proceed in arbitration if the court is satisfied "that the making of the agreement for arbitration or the failure to comply therewith is not in issue." 9 U.S.C. § 4. Thus, a court's role in applying 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. If the response is affirmative on both counts, the [FAA] requires the court to enforce the arbitration agreement in ...


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