Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-02489/USCOURTS-azd-2_05-cv-02489-1/pdf.json

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

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Converged IT, L.L.C., et al., 

Plaintiffs, 

vs.

Business Development Solutions, Inc., et

al., 

Defendants. 

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No. CV 05-2489-PHX-ECV

ORDER

Pending before the court are Defendants' Motion for Order Compelling Arbitration

(Doc. #5), Motion to Dismiss for Improper Venue (Doc. #6), and Motion to Stay Action

Pending Arbitration (Doc. #7).

A. Motion to Compel Arbitration

Defendants contend that this case should be submitted to binding arbitration based on

an arbitration clause in the business consulting agreement between Defendant BDSI and

Plaintiff Converged IT, LLC ("CIT"). Plaintiffs argue that the claims in this action are not

subject to arbitration because they do not arise out of the business consulting agreement, the

only agreement that contains an arbitration provision.

The Federal Arbitration Act ("FAA") states that a written provision in a contract to

arbitrate disputes arising out of that contract "shall be valid, irrevocable, and enforceable,

save upon such grounds as exist at law or in equity for the revocation of any contract." 9

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U.S.C. § 2. This and other provisions of the act have been interpreted to convey a federal

policy of liberally interpreting arbitration agreements. E.E.O.C. v. Waffle House, Inc., 534

U.S. 279, 289 (2002) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25

(1991)). One purpose of the FAA "was to reverse the longstanding hostility to arbitration

agreements that had existed in English common law and had been adopted by American

courts, and to place arbitration agreements upon the same footing as other contracts." Id.

(quoting Gilmer, 500 U.S. at 24). Consistent with that purpose, and absent some ambiguity

in the agreement, the language in the contract defines the scope of disputes subject to

arbitration. Id. "For nothing in the statute authorizes a court to compel arbitration of any

issues, or by any parties, that are not already covered in the agreement." Id. Thus, however

favored by the courts and Congress, arbitration is a contractual right that may not be enforced

by someone who is not a party to the agreement and who does not otherwise have the right

to compel arbitration. Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir. 1993)

(citing Lorber Industries of California v. Los Angeles Printworks Corp., 803 F.3d 523, 525

(9th Cir. 1986)). 

Moreover, in the case of multiple agreements, an arbitration clause in one contract

does not govern disputes arising out of a subsequent contract unless the contracts are

interrelated in an ongoing series of transactions. International Ambassador Programs v.

Archexpo, 68 F.3d 337, 339-40 (9th Cir. 1995). The lack of an arbitration clause in a

subsequent agreement that is independent and subject to individual interpretation means

disputes over such an agreement are not subject to arbitration. Id.

Defendants contend in their motion that the arbitration clause in the business

consulting agreement between CIT and BDSI compels arbitration of all the claims in this

case, even though the subsequent reorganization agreement between CIT and HID Properties

contains no such clause. Plaintiffs allege eight causes of action in their complaint, only two

of which name BDSI as a defendant. BDSI is not named in counts three through eight, and

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1

 Lyle E. Pearson, a named defendant in every count of the complaint, states in his

affidavit that he is the President of BDSI (and the CEO/President of HID Properties, Inc.).

Defendant Pearson, however, has presented no evidence to show that he is authorized, in his

individual capacity, to invoke the arbitration provision of the BDSI/CIT contract. See

Britton, 4 F.3d at 748 (individual defendant did not have standing to enforce contract's

arbitration clause despite claims that he was a third party beneficiary, a successor in interest,

and an agent, officer and employee of the corporation). The court therefore need not analyze

whether Pearson's involvement with BDSI authorizes him to invoke the arbitration clause.

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the defendants named in those counts are not parties to the BDSI/CIT agreement.1

 As a

result, the defendants in counts three through eight have no standing to invoke an arbitration

clause in a contract to which they are not parties. See Britton, 4 F.3d at 744.

Moreover, with respect to all the counts, Defendants have not shown that the claims

are covered by the arbitration clause. First, upon review of all the causes of action, the court

agrees with Plaintiffs that the claims relate primarily to the circumstances surrounding the

sale of CIT to HID Properties, not to the consulting agreement between CIT and BDSI.

Because the claims do not arise from the agreement that contains the arbitration clause, they

are not covered by it. Second, Defendants have not demonstrated that the business

consulting agreement and the subsequent reorganization agreement were interrelated such

that the arbitration clause in the first agreement should apply to disputes arising from the

second. The first page of the reorganization agreement itself states that "[t]his Agreement

supersedes all prior agreements verbal or written between the parties." In addition, the

agreements did not even involve the same parties or the same subjects - one involved

consulting services between BDSI and CIT and the other involved a sale and reorganization

between HID Properties and CIT. Defendants have provided no basis to conclude that the

parties to the second agreement intended the arbitration clause of the first agreement to

govern their disputes. The court will not infer an intent to arbitrate disputes arising out of

the reorganization agreement where nothing in that agreement supports such an intent. For

these reasons, Defendants' motion to compel arbitration will be denied.

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2

 Although Defendants request a dismissal in their motion, their two main arguments

address a transfer to California, not a dismissal. Defendants have presented no authority or

argument in support of a dismissal and the court will therefore not address that request. 

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B. Motion to Stay Pending Arbitration

In light of the court's denial of the motion to compel arbitration, the motion to stay

will also be denied.

C. Motion to Dismiss for Improper Venue2

Defendants argue in this motion that the case should be transferred to California

pursuant to provisions in the consulting agreement and a Mutual Non-Disclosure Agreement.

Alternatively, Defendants argue that the case should be transferred for the convenience of

the parties pursuant to 28 U.S.C. § 1404(a).

Regarding Defendants' first argument for transfer, Defendants rely on a choice of law

provision in the consulting agreement and a clause in the Mutual Non-Disclosure Agreement

in which the parties (CIT and HID Properties) agreed to exclusive jurisdiction in California

for disputes arising from that agreement. However, Defendants can point to no provision in

the reorganization agreement that supports a transfer to California. As discussed above, the

claims in this action relate primarily to the terms in the reorganization agreement regarding

the sale of CIT to HID Properties. Further, the reorganization agreement expressly states that

it supersedes all prior agreements between the parties. Because the primary agreement at

issue in this action contains no choice of law or jurisdictional provision, the court finds no

contractual basis to transfer this action to California.

Defendants further argue that California would be a more convenient venue. 28

U.S.C. § 1404(a) provides:

For the convenience of parties and witnesses, in the interest of justice,

a district court may transfer any civil action to any other district or division

where it might have been brought.

This provision is "intended to place discretion in the district court to adjudicate motions for

transfer according to an 'individualized, case-by-case consideration of convenience and

fairness.'" Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting Van

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Dusen v. Barrack, 376 U.S. 612, 622 (1964)). A plaintiff's choice of forum should not be

upset absent a strong showing of inconvenience by the defendants. Decker Coal Co. v.

Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986). 

Here, the court finds that Defendants have failed to establish California as a

significantly more convenient venue. As Plaintiffs explain, they are residents of Arizona and

have their principal place of business here. They contend that the principal witnesses have

substantial ties to Arizona or reside in Arizona, which Defendants do not dispute in their

reply. Defendants also identify several witnesses in their reply who they say reside in

California. Defendants further contend that the relevant contracts in this action were

negotiated in California. However, in light of the policy favoring a plaintiff's choice of

forum and because Defendants have failed to demonstrate that the balance of convenience

weighs strongly in their favor, the motion to transfer will be denied.

IT IS THEREFORE ORDERED:

That Defendants' Motion for Order Compelling Arbitration (Doc. #5), Motion to

Dismiss for Improper Venue (Doc. #6), and Motion to Stay Action Pending Arbitration (Doc.

#7) are DENIED. 

DATED this 10th day of February, 2006.

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