Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01040/USCOURTS-caed-2_05-cv-01040-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

MAXIT DESIGNS, INC., a

California corporation,

NO. CIV. S-05-1040 WBS DAD

Plaintiff, 

v. MEMORANDUM AND ORDER RE:

SECOND MOTION TO COMPEL 

ARBITRATION AND DISMISS

COVILLE, INC., a North

Carolina corporation,

Defendant.

----oo0oo----

Plaintiff Maxit Designs, Inc. filed this lawsuit

against Defendant Coville, Inc. to recover damages for fraud,

unfair competition, and breach of contract. Defendant moves to

compel arbitration and to dismiss. Jurisdiction is based on the

diversity of citizenship. See 28 U.S.C. § 1332. Because all

claims related to the contracts now submitted by defendant are

governed by a valid arbitration clause, the court grants the

motions.

///

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2

I. Factual and Procedural Background

This dispute arises out of a series of agreements

between the parties for the purchase of fabric by plaintiff from

defendant. Plaintiff alleges that, in approximately 1987 or

1988, an oral agreement was reached between Henry Jordan,

President of Coville, Inc. and Gail Ellison, President of Maxit

Designs, Inc. regarding the price of fabric. (Compl. ¶ 8.) 

Plaintiff further alleges that this oral agreement was the first

contract entered into by the parties. Id. Subsequently, over

the course of the following sixteen years, the parties entered

into dozens of written sales contracts. (Decl. of Christopher W.

Brown in Supp. of Def.’s Second Mot. to Compel Arbitration Ex.

2.) 

On April 20, 2005, plaintiff filed in state court a

complaint alleging three causes of action:

“misrepresentation/fraud in the inducement and/or fraud,” unfair

business practices pursuant to California Business and

Professions Code § 17200 et seq., and breach of contract. 

(Compl. ¶ 13-39.) The complaint states that plaintiff entered

into an agreement in 1987 or 1988 to buy fabric from defendant

for plaintiff’s “Headgator” product. (Id. ¶ 8.) Plaintiff

alleges that the substance of this original agreement was a

promise by defendant to sell the fabric to plaintiff at the

lowest price available to any customer. (Id. ¶ 9.) Plaintiff

further alleges that it learned in July 2004 that it was not

receiving the lowest price and had therefore been overcharged. 

(Id. ¶ 10-11.) Finally, plaintiff alleges that defendant’s

fabric was defective and that plaintiff’s reputation has been

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3

damaged. (Id. ¶ 12.) Plaintiff’s prayer for damages seeks,

inter alia, $337,087.92 for overpayment and additional damages

for injury to its reputation. (Id. at 10.)

 On June 1, 2005, defendant filed a motion to compel

arbitration and dismiss plaintiff’s claims. (Def.’s First Mot.

to Compel Arbitration.) In support, defendant submitted three

contracts executed by the parties (numbered 970384, 981251, and

990197) as examples of the standard written sales contract

between the parties. (Def.’s First Mot. to Compel Arbitration

Ex. 1.) Defendant’s primary contention was that, under the

Federal Arbitration Act (“FAA”), the arbitration clause contained

in all of the written sales contracts mandated that the dispute

be arbitrated. (Id. at 1-2.) In response, plaintiff argued that

its complaint focused solely on a breach of the original oral

agreement, which did not contain any arbitration provision, and

therefore the dispute was not subject to arbitration. (Pl.’s

Opp’n to Def.’s Mot. to Compel Arbitration at 2.) 

On August 1, 2005, the court granted the motion to

compel arbitration for any claims based on the three sales

contracts 970384, 981251, and 990197, and denied the motion in

all other respects. (Order Granting Mot. to Compel Arbitration

at 10:19-11:3.) In essence, although the court granted the order

to compel arbitration for the very limited number of transactions

before it, it was reluctant to declare that all of the

transactions at issue between the parties were covered by such an

arbitration clause without having seen any of the other written

agreements between the parties.

Defendant now brings another motion to compel

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Plaintiff stated at oral argument that there are 82 1

contracts attached to Christopher Brown’s declaration, but this

court could find only 71. The 148 page exhibit contains 74 twopage documents. One of these contracts, however, is contract

970384, on which this court previously granted a motion to compel

arbitration, (Id. at 13-14,) and two of the contracts are

annotated duplicates of the contract immediately preceding it. 

(Id. at 3-4, 17-18.) 

4

arbitration and dismiss the action. (Def.’s Second Mot. to

Compel Arbitration.) In support of this motion, defendant

submits 71 additional sales contracts, allegedly executed by the

parties, to further show that all of plaintiff’s claims must be

arbitrated. (Decl. of Christopher W. Brown in Supp. of Def.’s 1

Second Mot. to Compel Arbitration Ex. 2.) Two of these contracts

are signed by both representatives of both parties, while the

remainder are unsigned. (Id. at 1, 17.) Defendant represents

that these contracts constitute “all the contracts for the period

of April 1995 to 2004 still at issue in this case.” (Def.’s

Second Mot. to Compel Arbitration 2.) As such, defendant argues

that they constitute “written proof that each of the transactions

still at issue is also covered by a written arbitration clause.” 

(Id. at 5.) 

As with the three contracts covered by this court’s

previous order, plaintiff concedes that all 71 sales contracts

are identical. (Decl. of Christopher W. Brown in Supp. of Def.’s

Second Mot. To Compel Arbitration Ex. 3 at 2:27-3:1.) Each

contract contains eighteen numbered provisions, with three on the

front and fifteen on the back. (Id. Ex. 2 at 1-2.) The numbered

provisions on the front include one titled “contract

acknowledgment” and another titled “arbitration.” (Id. Ex. 2 at

1-2.) The “contract acknowledgment” provision provides that the

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contract:

shall become binding and enforceable against the Buyer

either (a) when signed or accepted in writing by the Buyer .

. ., or (b) when signed and delivered by the Seller to the

Buyer unless the Buyer gives the Seller written notice of

objection to its contents within ten days after receipt

hereof, or (c) when Buyer has paid for or accepted delivery

of the whole or any part of the goods herein described, or

(d) when Buyer has given either delivery dates, shipping

instructions, instructions to bill and hold, instructions as

to colors, designs, patterns, specifications or assortments,

as to all or any part of the goods herein described.

(Id.). The provision titled “arbitration” states:

Any controversy or claim arising out of or relating to this

contract, any modification thereof, or any interpretation or

breach thereof, shall be settled by arbitration in the City

of New York, before and under the rules then obtaining of

the General Arbitration Council of the Textile Industry or

the American Arbitration Association as the party first

referring the matter to arbitration shall elect, all subject

to and in accordance with the conditions on the reverse side

hereof.

(Id.) The sixth paragraph of the agreement, located on the

reverse side, contains further conditions of any arbitration

proceeding, such as that any dispute shall be heard by three

arbitrators, that the law applied shall be that of the state of

New York, and that the arbitrators shall not have the authority

to modify express contract provisions. (Id.) The fourth

paragraph of the agreement, also located on the reverse side, is

titled “applicable law” and states that “[t]his contract is

consummated in and governed by the laws of the State of New

York.” Id.

Plaintiff opposes defendant’s current motion to compel

on several grounds. First, plaintiff argues that the majority of

the sales “contracts” submitted by defendant are in fact not

valid enforceable contracts, because they are not signed by

either party and because they were induced by fraud. (Pl.’s

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A party aggrieved by the alleged failure, neglect, or 2

refusal of another to arbitrate under a written

agreement for arbitration may petition any United

States district court . . . for an order directing that

such arbitration proceed in the manner provided for in

such agreement. . . .

9 U.S.C. § 4.

6

Opp’n to Def.’s Second Mot. to Compel Arbitration at 3:14, 6:4.) 

Plaintiff contends that the unsigned “sales contracts” are merely

invoices probative of defendant’s breach of the promise to sell

at the lowest price. Id. Second, plaintiff asserts that, even

if the individual sales contracts are valid and enforceable, the

only breach referenced in the complaint was that of the original

oral agreement to sell fabric at the lowest price, and thus the

written sales contracts are not at issue in this case. (Id. at

5:6-7.) 

II. Discussion

The Federal Arbitration Act provides that a party may

seek an order to compel arbitration from a district court where

another party fails, neglects, or refuses to arbitrate. 9 2

U.S.C. § 1, 4. Section 4 “leaves no place for the exercise of

discretion by a district court, but instead mandates that

district courts shall direct the parties to proceed to

arbitration on issues as to which an arbitration agreement has

been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,

218 (1985)(emphasis in original). “The court’s role under the

Act is therefore limited to determining (1) whether a valid

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

agreement encompasses the dispute at issue.” Chiron Corp. v.

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

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Defendant cites numerous cases for the proposition 3

that, under the FAA, federal law should govern whether a dispute

should be heard in arbitration. (Def.’s Second Mot. to Compel

Arbitration at 7:17-21). Defendant is correct that the FAA must

govern “the scope of the arbitration clause.” (Id.) (citing

Tracer Research Corp. v. Nat’l Envtl. Servs. Co., 42 F.3d 1292,

1294 (9th Cir. 1994) (emphasis added)). However, the threshold

question of whether a valid arbitration agreement exists at all

must be answered according to state contract law. First Options,

514 U.S. at 944 (citing Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52, 57 (1995); Volt Info. Scis., Inc. v. Bd. of

Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475-76

(1989)).

7

A. Existence of a Valid Arbitration Agreement

“A party cannot be required to submit to arbitration in

any dispute which he has not agreed so to submit.” United

Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S.

574, 582 (1960). Thus, whether a party has submitted to

arbitration is a matter of contractual interpretation, and in

deciding whether a party agreed to arbitrate a particular issue,

courts should apply state-law principles that govern contract

formation. Id.; See First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938, 944 (1955) (noting a singular exception, not

applicable in this case, where an arbitration clause contains an

explicit provision regarding the “arbitrability” of

arbitration).3

1. Choice of Law

The parties do not dispute that all of the written

sales contracts at issue contain a choice of law provision,

stating that the contracts are “consummated in and governed by

the laws of the State of New York.” (Decl. of Christopher W.

Brown in Supp. of Def.’s Second Mot. To Compel Arbitration Ex. 2

at 2.) Therefore, it falls upon this court to decide whether,

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under New York law, a sales contract must be signed in order to

be valid.

2. Validity of an Unsigned Contract

New York courts have iterated a “long-standing rule

that an arbitration clause in a written agreement is enforceable,

even if the agreement is not signed, when it is evident that the

parties intended to be bound by the contract.” God’s Battalion

of Prayer Pentecostal Church, Inc., v. Miele Assocs., LLP, 6

N.Y.3d 371, 373 (N.Y. 2006). As long as there is “other proof

that the parties actually agreed on [the writing]” there is no

requirement of a signature. Crawford v. Merrill Lynch, Pierce,

Fenner & Smith, 35 N.Y.2d 291, 299 (N.Y. 1974).

In this case, plaintiff has maintained an ongoing

business relationship with defendant for the sale of fabric for

close to twenty years. (Compl. ¶ 8.) Both parties agree that,

during this entire period, every individual sales order was

governed by an identical sales contract. (Decl. of Christopher

W. Brown in Supp. of Def.’s Second Mot. To Compel Arbitration Ex.

3 at 2:27-3:2; Pls.’ Opp’n to Def.’s Second Mot. to Compel

Arbitration at 2:24-25.) These contracts contained the

aforementioned arbitration provision, as well as provisions for

payment, delivery, warranties and other aspects of the

transactions. (Decl. of Christopher W. Brown in Supp. of Def.’s

Second Mot. To Compel Arbitration Ex. 2 at 1-2.) Despite

plaintiff’s claim that the unsigned contracts were not binding or

enforceable, it appears that throughout the parties’ long

relationship, plaintiff operated under the terms of the sales

contracts without ever expressing an objection. (Id. Ex. 3 at

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(1) Except as otherwise provided in this section a 4

contract for the sale of goods for the price of $500 or

more is not enforceable by way of action or defense

unless there is some writing sufficient to indicate

that a contract for sale has been made between the

parties and signed by the party against whom

enforcement is sought or by his authorized agent or

broker. A writing is not insufficient because it omits

or incorrectly states a term agreed upon but the

contract is not enforceable under this paragraph beyond

the quantity of goods shown in such writing.

9

3:19-21.)

Moreover, it is significant that the first such sales

contract, as well as several subsequent contracts, were signed by

the parties, which undoubtedly indicates plaintiff’s intent to be

bound. (Id. Ex. 2 at 1, 13, 17; Def.’s First Mot. to Compel

Arbitration Ex. 1.) This court would find it difficult to

believe that plaintiffs intended to be bound by those five

particular signed contracts, but not the 68 identical unsigned

contracts. 

Finally, the “contract acknowledgment” provision in

each of the sales contracts indicates that the agreement “shall

become binding and enforceable against the Buyer . . . (c) when

Buyer has paid for or accepted delivery of the whole or any part

of the goods herein described.” (Id. Ex. 2 at 1.) Plaintiff

admits that it accepted and paid for the fabric covered by each

of these contracts without tendering written objection. (Id. Ex.

3 at 3:19-4:12.) 

Even if the contracts are enforceable without a

signature, plaintiffs cite the New York Uniform Commercial Code

for the contention that the only term which can be enforced by

the court is the term specifying the quantity of goods. (Pl.’s 4

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N.Y. U.C.C. § 2-201(1) (emphasis added)

Plaintiff additionally contends that the “sales 5

contracts were procured by fraud, and are therefore revocable

with its [sic] terms not enforceable.” (Pl.’s Opp’n to Def.’s

Second Mot. to Compel Arbitration 6:4-5.) It is well settled,

however, that “if the claim is fraud in the inducement of the

arbitration agreement clause itself . . . the federal court may

proceed to adjudicate it. But the statutory language [in the

FAA] does not permit the federal court to consider claims of

fraud in the inducement of the contract generally.” Buckeye

Check Cashing, Inc., v. Cardegna, 126 S.Ct. 1204, 1208 (2006)

(citing Prima Paint Corp. V. Flood & Conklin Mfg. Co., 388 U.S.

10

Opp’n to Def.’s Second Mot. to Compel Arbitration 4:8-9.) The

case law and commentary to the statutory provision reveal that

this is not a correct interpretation of § 2-201. 

The purpose of subsection (1) is simply to clarify

that, for relevant sales transactions, some minimal “writing” is

necessary to satisfy the Statute of Frauds, but that writing does

not need to contain all material terms of the contract. Thomaier

v. Hoffman Chevrolet, Inc., 410 N.Y.S.2d 645, 647-48 (N.Y. App.

Div. 1978). As the Official Comment makes clear, “[t]he only

term which must appear is the quantity term which need not be

accurately stated but recovery is limited to the amount stated.” 

N.Y. UCC § 2-201, Official Comment ¶ 2. Thus, as long as there

is some writing sufficiently indicating the existence of a

contract, the contract (and all of its terms) are valid. The

language cited by plaintiff merely signifies that, with regard to

the quantity term of the contract, as represented in the writing,

a court may not enforce any amount “beyond the quantity of goods

shown in the writing.” N.Y. U.C.C. § 2-201(1). For these

reasons, the court concludes that the unsigned sales contracts

are valid and enforceable.5

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395, 403-404) (quotations omitted)). Therefore, the court does

not reach this argument.

11

B. Scope of the Arbitration Agreement

This fact, however, does not settle the matter, because

the court must now determine whether the arbitration agreement in

each of the written sales contracts submitted by defendant

“encompasses the dispute at issue.” Chiron, 207 F.3d at 1130. 

Plaintiff argues that this dispute centers only around a breach

of the original oral agreement, and that plaintiff “has no

complaint about COVILLE’s performance of [the sales] contracts.” 

(Pl.’s Opp’n to Def.’s First Mot. to Compel Arbitration 2:9-10.) 

This distinction, however, is unsupportable in law. See Genesco

Inc., v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987) (“If

the allegations underlying the claims ‘touch matters covered by

the parties’ agreements, then those claims must be arbitrated,

whatever the legal labels attached to them.”) (citing Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 622

n.9, 624 n.13); Drews Distrib., Inc. v. Silicon Gaming, Inc., 245

F.3d 347, 350 (4th Cir. 2001) (noting that a party may not be

allowed to “retroactively restrict or eliminate its contractual

obligation to arbitrate a dispute by fashioning a limited

complaint.”). 

Indeed, this court already ruled on this issue in its

August 1, 2005 order, when it held that the three contracts

presented by defendant were “sufficient to show that plaintiff’s

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Plaintiff contends that this court’s previous order 6

precludes it from revisiting the issue. In that order, however,

the court noted that the three contracts before it at that time

did “not represent the sum total of the contracts upon which

plaintiff bases the present suit.” (Order Granting Mot. to

Compel Arbitration at 7:4-6.) The 71 sales contracts currently

before the court were not at issue under the previous motion, and

thus they are not affected by the court’s previous ruling.

Defendant’s motion additionally requests attorneys’ 7

fees. Defendant, however, has not properly noticed a motion for

attorneys’ fees pursuant to the Local Rules of the Eastern

District. See E.D. Local Rule 54-293 (noting that motions for

attorneys’ fees must be filed within thirty days of an entry of

judgment and are governed by Rule 78-230); E.D. Local Rule 78-230

(“[A]ll motions shall be noticed on the motion calendar of the

assigned Judge or Magistrate Judge. The moving party shall file

with the Clerk a notice of motion, motion, accompanying briefs,

affidavits, if appropriate, and copies of all documentary

evidence that the moving party intends to submit in support of

the motion.”). In addition, defendant indicated its intention to

submit a formal motion at a later date. (Def.’s Second Mot. to

Compel Arbitration at 10:5-6.) Therefore, the court will not

address the issue at this time.

12

claims as they relate to those contracts must be arbitrated.”6

(Order Granting Mot. to Compel Arbitration at 7:24-26.) This

ruling is the law of the case and governs the additional 71

contracts submitted with the current motion. Thus, any claims

based on the 71 sales contracts attached to defendant’s current

motion must be submitted to arbitration. See 9 U.S.C. § 4.7

C. Motion to Dismiss

Having decided that plaintiff’s claims must be

submitted to arbitration, the court must decide whether to stay

the proceedings or dismiss the action. A district court has the

discretion to dismiss a proceeding when “the arbitration clause

[is] broad enough to bar all of the plaintiff's claims.” 

Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635, 638 (9th

Cir. 1988); see Green v. Ameritech Corp., 200 F.3d 967, 973 (6th

Cir. 2000) (finding that “the weight of authority clearly

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It is worth noting that, even without the valid 8

arbitration clause mandating dismissal, each written contract

also contains a forum provision stating that “[t]he parties

consent to the jurisdiction of the Supreme Court of The State of

New York, an/or [sic] the United States District Courts located

in the State of New York, whichever is first selected by the

moving party, for all purposes. . . .” (Def.’s First Mot. to

Compel Arbitration Ex. 1 at 2.) Because the parties have agreed

to a particular forum, dismissal is also appropriate in order to

give effect to the parties' contractual intent.

13

supports dismissal of the case when all of the issues raised in

the district court must be submitted to arbitration.”). 

This court’s previous order was narrow in scope,

limited only to those three contracts before it. At that time,

the court was not prepared to speak to “all dealings between the

parties.” (Order Granting Mot. to Compel Arbitration at 7:18.) 

By contrast, defendant has submitted with the present order

contracts which cover all transactions between the parties from

1995 to 2004, and by admission of plaintiff’s own expert, the

only relevant transactions occurred between 2001 and July, 2004. 

(Pl.’s Disclosure of Expert Witnesses Ex. A at 4-6.) Thus, all

claims raised in the complaint must be submitted to arbitration

and the complaint will be dismissed.8

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IT IS THEREFORE ORDERED that defendant’s motion to

compel arbitration be, and the same hereby is, GRANTED; this

action is hereby ordered DISMISSED; and defendant’s motion for

attorneys’ fees is hereby DENIED, without prejudice to

defendant’s right to properly move for attorneys’ fees pursuant

to Local Rule 78-230.

DATED: September 24, 2006

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