Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-00964/USCOURTS-casd-3_16-cv-00964-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity Action

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CITY OF SAN DIEGO,

Plaintiff,

CASE NO. 16cv964-WQH-BGS

ORDER

v.

MM SAN DIEGO, LLC,

Defendant.

MM SAN DIEGO, LLC; NEO SAN

DIEGO LLC, 

 Counter Claimants,

 v. 

CITY OF SAN DIEGO

 

 Counter Defendant.

HAYES, Judge:

The matter before the Court is the Motion to Compel Mediation by Independent

Engineer and Stay Proceedings filed by Defendant and Counter Claimant MM San

Diego LLC (“MM San Diego”). (ECF No. 17). 

I. Background 

Plaintiff City of San Diego (“the City”) filed a complaint in the Superior Court

of the County of San Diego alleging breach of contract causes of action against MM

San Diego, requesting declaratory relief, and demanding that MM San Diego account

for transactions for a certain period pursuant to two contracts between the parties. (ECF

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No. 1). 

On April 21, 2016, MM San Diego removed this matter to this Court pursuant

to 28 U.S.C. § 1441(b). Id. 

On April 28, 2016, MM San Diego and NEO San Diego filed a counterclaim

against the City alleging, among other claims, breach of contract against the City arising

out of the City’s alleged refusal to participate in mediation before an Independent

Engineer. (ECF No. 3). 

On April 28, 2016, MM San Diego filed an answer to the complaint. (ECF No. 

4). 

On May 16, 2016, the City filed an answer to the counterclaim. (ECF No. 7). 

On August 10, 2016, MM San Diego filed the Motion to Compel Mediation by

Independent Engineer and Stay Proceedings. (ECF No. 17). On September 1, 2016,

the City filed a response. (ECF No. 18). On September 12, 2016, MM San Diego filed

a reply. (ECF No. 20). 

II. Allegations of the Counterclaim and Answer

MM San Diego operates facilities that provide electricity to the City of San

Diego. (ECF No. 3 at 2). The City uses the electricity provided by MM San Diego at

two locations under two separate agreements1

 (the “Cogeneration Agreements”)

governing the sale of electricity to each location. Id. at 3. Section 12.7 of each

agreement states,

Either party hereto may give the other party written notice of any dispute with respect to the performance or payment of any obligation hereunder. Such notice shall specify a date and location for a meeting of the parties hereto at which such parties shall attempt to resolve such dispute. In the event that such dispute cannot be resolved by the parties hereto within 30 days, such dispute shall be referred to an Independent Engineer for advice and nonbinding mediation. If the Independent Engineer is unable, within 30 days, to reach a determination as to the dispute that is acceptable to the parties hereto, the matter may be referred by either party to Legal Proceedings. 

(ECF No. 3-1 at 70-71, 146).

1

 Copies of both agreements are attached to the counterclaim. (ECF No. 3-1 at 3-87, 88-161). 

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MM San Diego alleges that on February 1, 2016, 

MMSD gave notice to the City that MMSD disputed the City’s

performance of its obligations under each Agreement, specifically the City’s obligation to “use commercially reasonable efforts to obtain any

Shortfall Amount from Alternative Suppliers at the lowest available total

cost, and in a manner which minimizes any demand or service charges” and made a demand upon the City that it meet with MMSD in an attempt to resolve the dispute. 

(ECF No. 3 at 6). 

MM San Diego alleges that, “The City has breached the [Cogeneration

Agreements] by refusing to meet with MMSD in an attempt to resolve the dispute,

pursuant to Section 12.7 of each Agreement and, if the parties are unable to resolve the

dispute, by refusing to submit the dispute to mediation by an Independent Engineer.” 

Id. at 9-10. MM San Diego alleges that it has no adequate remedy at law and “specific

performance is necessary to provide complete relief to MMSD.” Id. at 10.

In the answer to the counterclaim, the City denies MM San Diego’s allegation

that it breached the Cogeneration Agreements. (ECF No. 7 at 5). 

III. Discussion 

MM San Diego contends that the City has refused to participate in mediation and

moves this Court to “order the City to comply with its contractual obligation to engage

[in] mediation to be conducted by a neutral Independent Engineer.” (ECF No. 17-1 at

3). MM San Diego seeks an order “compelling the City’s . . . compliance with the nonbinding mediation provisions set forth in section 12.7” of the Cogeneration Agreements. 

Id. at 2. MM San Diego contends the Court has the authority to compel mediation

under the Federal Arbitration Act (the “FAA”), to grant a preliminary injunction

ordering specific performance of the mediation provision of the contracts, or to order

the parties to mediate pursuant to the Court’s “inherent authority.” Id. at 8. MM San

Diego requests that the Court stay proceedings until mediation is completed. Id. at 16. 

The City contends that it has complied with its contractual obligations to MM

San Diego under section 12.7 of the Cogeneration Agreements. The City asserts that

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the parties participated in two mediation sessions in 2015 before retired Judge William

Cahill and agreed that Judge Cahill was being substituted for an Independent Engineer

as provided for in the Cogeneration Agreements. (ECF No. 18 at 3-4). The City

contends that the disputed mediation issue is “exactly the issue” the parties agreed to

submit to Judge Cahill in the previous mediation process. Id. at 6. The City contends

that it has “substantially complied and substantially performed its obligations under

Section 12.7” by participating in the mediation before Judge Cahill. Id. at 7. 

A. The Federal Arbitration Act 

Section 2 of the FAA provides, “A written provision in any . . . contract

evidencing a transaction involving commerce to settle by arbitration a controversy

thereafter arising out of such contract or transaction . . . 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 basic role for courts under the FAA is to determine

(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the

agreement encompasses the dispute at issue.” Kilgore v. KeyBank, Nat’l Ass’n, 718

F.3d 1052, 1058 (9th Cir. 2013) (en banc) (internal quotation marks omitted). “If the

response is affirmative on both counts, then the [FAA] requires the court to enforce the

arbitration agreement in accordance with its terms.” Chiron Corp. v. Ortho Diagnostic

Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 

Pursuant to section 4 of the FAA, a party may move for a district court order

compelling arbitration: 

A party aggrieved by the alleged failure, neglect, or refusal of another to

arbitrate under a written agreement for arbitration may petition any United

States district court which, save for such agreement, would have

jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

9 U.S.C. § 4.

 This Court has previously concluded that “there is no legal authority for an order

to compel non-binding mediation.” Heston v. GB Capital Holdings, LLC, No. 16cv912

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WQH (RBB), 2016 WL 4468254, at *3 (S.D. Cal. Aug. 23, 2016); see also Trujillo v.

Gomez, No. 14cv2483 BTM (BGS), 2015 WL 1757870, at * 9 (S.D. Cal. Apr. 17, 2015)

(finding that FAA remedies are not available for non-binding mediation and that the

California Code of Civil Procedure lacks a provision for motions to compel mediation).

 MM San Diego relies on Wolsey, Ltd. v. Foodmaker, Inc., in support of its

contention that a district court has the authority to compel non-binding mediation under

the FAA. 144 F.3d 1205 (9th Cir. 1998). In Wolsey, the Court of Appeals considered

whether non-binding arbitration qualified as “arbitration” under the FAA, but did not

address non-binding mediation. Id. at 1209. The Court of Appeals concluded that the

non-binding arbitration provision should qualify as “arbitration” for purposes of the

FAA because it did not allow the parties to seek recourse to the courts before the

arbitrator made a decision and the arbitration was complete. Id. The Court of Appeals

relied in part on a Third Circuit decision holding that “[a]rbitration does not occur until

the process is completed and the arbitrator makes a decision” which precluded parties

from seeking “recourse to the courts before that time.” Id. at 1208 (citing Harrison v.

Nissan Motor Corp., 111 F.3d 343, 350 (3rd Cir. 1997)). The Court of Appeals held

that “arbitration need not be binding to fall within the scope of the Federal Arbitration

Act.” Id. at 1209. 

In this case, section 12.7 expressly allows the parties to pursue legal proceedings

if the Independent Engineer has not reached “a determination . . . acceptable to the

parties” within 30 days. (ECF No. 3-1 at 71, 146). Contrary to the non-binding

arbitration provision at issue in Wolsey, section 12.7 does not indicate that the parties

have agreed to seek a complete resolution from the Independent Engineer or that the

parties have agreed to not pursue litigation until the mediation process is complete. See

also Trujillo, 2015 WL 1757870, at *9 (declining to compel mediation pursuant to the

FAA because the mediation process at issue did not “purport to adjudicate or resolve

a case in any way” and thus did not qualify as “arbitration” under the FAA). 

The Court concludes that the non-binding mediation provisions in section 12.7

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of each Cogeneration Agreement do not constitute an agreement to arbitrate falling

within the scope of the FAA. In the absence of legal authority, the Court declines to

grant MM San Diego’s motion to compel non-binding mediation. 

B. Preliminary Injunction

“[A] preliminary injunction is an extraordinary and drastic remedy, one that

should not be granted unless the movant, by a clear showing, carries the burden of

persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (quotation omitted). To

obtain preliminary injunctive relief, a movant must show “that he is likely to succeed

on the merits, that he is likely to suffer irreparable harm in the absence of preliminary

relief, that the balance of equities tips in his favor, and that an injunction is in the public

interest.” Winter v. Natural Res. Def. Council, 555 U.S. 7, 20 (2008); see also Alliance

for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011).

At a minimum, “the moving party must demonstrate a significant threat of irreparable

injury.” Arcamuzi v. Cont’l Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987) (citation

omitted). “Issuing a preliminary injunction based only on a possibility of irreparable

harm is inconsistent with our characterization of injunctive relief as an extraordinary

remedy that may only be awarded upon a clear showing that the plaintiff is entitled to

such relief.” Winter, 555 U.S. at 22. Financial injury “will not constitute irreparable

harm if adequate compensatory relief will be available in the course of litigation.” 

Goldie’s Bookstore, Inc. v. Superior Court, 739 F.2d 466, 471 (9th Cir. 1984). 

1. Likelihood of Irreparable Injury 

MM San Diego contends that it will be irreparably harmed if the City is not

ordered to mediate because it will be “forced to incur litigation costs.” (ECF No. 17-1

at 15). MM San Diego contends that some of these litigation costs are nonmonetary

because litigation will be “a drain on company resources.” Id. MM San Diego contends

that without mediation, it will be forced to “incur these costs without the benefit of

information regarding the City’s systems that would help MMSD assess its risks.” Id.

MM San Diego has not shown that adequate compensatory relief for any litigation costs

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will be unavailable at a later point in the proceedings.2 The Court concludes that MM

San Diego has not satisfied its burden to establish that MM San Diego faces a

“significant threat of irreparable injury.” See Arcamuzi, 819 F.2d at 937. 

2. Likelihood of Success On the Merits 

 MM San Diego contends that it has established a likelihood of success on the

merits. MM San Diego contends that it has demonstrated that the City breached a

contractual obligation by refusing to participate in mediation and that specific

performance is the appropriate remedy for this breach. (ECF No. 17-1 at 12-14). The

City contends that it has satisfied its contractual obligations through previous mediation

sessions with Judge Cahill. (ECF No. 18 at 3-7). 

In support of its motion to compel, MM San Diego provides communications

between counsel for the City and counsel for MM San Diego. (ECF No. 17-3 at 4-16). 

In a letter to the City dated February 1, 2016, counsel for MM San Diego invoked the

non-binding mediation provision of section 12.7 and stated that MM San Diego

disputed the City’s performance of its contractual obligation “to ‘use commercially

reasonable efforts to obtain any Shortfall Amount from Alternative Suppliers at the

lowest available total cost, and in a manner which minimizes any demand or service

charges’ as set forth in section 9.2(B).” Id. at 5. In a letter to MM San Diego dated

February 3, 2016, counsel for the City responded and stated, “[T]he City does not

intend to further meet with MMSD as it has complied with the contractual obligations

under Section 12.7.” Id. at 8. In its opposition to MM San Diego, the City provided

copies of email exchanges discussing the mediation before Judge Cahill. (ECF No. 18-

2 at 2-4; ECF No. 19). An email dated July 11, 2014 from counsel for MM San Diego

regarding the mediation before Judge Cahill states “[T]his message is to confirm that

2

 MM San Diego contends that the issue of compliance with section 12.7 alleged in the counterclaim should be resolved prior to resolution of the merits of the

counterclaim because MM San Diego will be “forced to incur [litigation] costs without the benefit of information regarding the City’s systems that would help MMSD assess its risks.” (ECF No. 17-1 at 15). Assuming that there are no disputed issues of material

fact, this matter may be resolved promptly in a motion for summary judgment. 

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Fortistar is willing to mediate the issue of the contract interpretation of costs included

in the North City Shortfall Amount Calculation. In doing so, we are also willing to use

a professional mediator as opposed to an Independent Engineer as called for in Section

12.7 of the North City Cogeneration Agreement.”3

 (ECF No. 18-2 at 3). 

MM San Diego has the burden to demonstrate a likelihood of success on the

merits on its claim that the City breached the dispute resolution provisions of the

Cogeneration Agreements. MM San Diego provides material to show that the City

refuses to participate in further mediation at this point in the proceedings; however, MM

San Diego does not provide facts to sufficiently dispute the City’s contention that it has

already satisfied its contractual obligations through the prior mediation session. The

Court concludes that MM San Diego has not carried its burden to demonstrate a

likelihood of success on the merits on its breach of contract claim against the City. The

Court concludes that MM San Diego is not entitled to a preliminary injunction under

Rule 65.

III. Conclusion

IT IS HEREBY ORDERED that the Motion to Compel Mediation By

Independent Engineer and Stay Proceedings (ECF No. 17) is DENIED. 

DATED: December 14, 2016

WILLIAM Q. HAYES

United States District Judge

3

 The City’s complaint alleges, “CITY is informed and believes., and thereon

alleges, that on or about 1998, that Generation II Locomotives, Inc. sold its fifty percent ownership in Minnesota Methane, LLC to Fortistar Methane, LLC . . . . CITY is

informed and believes, and thereon alleges, that on or about February 1998, Minnesota Methane, LLC created a special purpose San Diego entity MM San Diego LLC[.]”

(ECF No. 1-2 at ¶¶ 16-17). 

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