Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-05585/USCOURTS-cand-3_07-cv-05585-5/pdf.json

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

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

VISA USA, INC.,

Plaintiff,

 v.

MARITZ INC., d/b/a MARITZ LOYALTY

MARKETING, 

Defendant.

 /

No. C 07-05585 JSW

ORDER GRANTING

PLAINTIFF’S MOTION TO STAY

ACTION, DENYING

DEFENDANT’S MOTION TO

STAY ARBITRATION, DENYING

PLAINTIFF’S MOTION FOR

DISCOVERY AND DENYING AS

MOOT MOTION TO DISMISS

Now before the Court are several motions: (1) a motion to stay action and to compel

arbitration filed by Plaintiff Visa U.S.A., Inc.’s (“Visa”); (2) a motion to stay arbitration

pending determination of arbitrability filed by Defendant Maritz Inc., d/b/a Maritz Loyalty

Marketing (“Maritz”); (3) a motion for additional discovery filed by Maritz; and (4) Visa’s

motion to dismiss Maritz’s fraud counterclaims. Having carefully considered the motions and

the relevant legal authority, the Court hereby GRANTS Visa’s motion to stay the action and

compel arbitration, DENIES Maritz’s motion to stay arbitration, DENIES Maritz’s motion for

additional discovery, and DENIES Visa’s motion to dismiss as moot, without prejudice.

BACKGROUND

In April 2006, Maritz and Visa entered into a Master Services Agreement (“MSA”)

pursuant to which Maritz was obligated to develop, deploy, operate and maintain for Visa and 

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 The Court notes Visa’s evidentiary objections to portions of the Gallant

Declaration. However, even considering all the evidence propounded by Defendant, the

Court would still come to the same conclusion. Therefore, the Court need not rule on the

evidentiary objections at this time. 

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its member banks a points-based software rewards program for use by Visa’s cardholders (“the

Rewards Program”). The MSA does not contain an arbitration provision and specifies that 

“[t]he Parties shall act in good faith and reasonably in interpreting this Agreement and the

Related Agreements and resolving any disputes that arise thereunder.” (Declaration of

Roderick M. Thompson in support of Opposition (“Thompson Opp. Decl.”), Ex. B.) The MSA

also stated that “Time is of the essence of this Agreement,” and provides for liquidated damages

of $70,000 per day of delay in the launch date of September 30, 2006. (Id., Ex. B at ¶ R.) The

MSA also stated that “Maritz acknowledges that the successful completion of each Deliverable

in accordance with the Milestone Schedule is critical to the commercial viability of the Rewards

Program.” (Id., Ex. B at ¶ 3.10.) 

By letter dated April 20, 2007, Visa terminated the MSA and expressly “[r]eserved all

rights relating to or arising out of the [MSA] and any Related Agreement, including, without

limitation, claims Visa has against Maritz for Maritz’s breaches of the Agreement (including

any Related Agreement), Maritz’s non performance or delay in performing any obligations due

under the Agreement (including any Related Agreement), and Visa’s right to liquidated

damages.” (Id., Ex. C.) Maritz’s in-house counsel, Steven Gallant, subjectively considered the

‘reservation of rights’ language in Visa’s termination letter to be “simply standard language to

preserve Visa’s ability to object to the amount that Visa would have to pay to Maritz.” 

(Declaration of Steve Gallant in support of Motion to Stay Action (“Gallant Decl.”), ¶ 6.1

)

On May 7, 2007, Gallant responded to the termination letter, claiming that was itself

owed more than $5 million and stating that “[a]s Visa has reserved all of its rights relating to or

arising out of the Agreement or any Related Agreement, Maritz does the same.” (Thompson

Opp. Decl., Ex. D.) 

Visa responded by letter dated June 5, 2007, that it “anticipates providing additional

information to Maritz as to the nature and amount of Visa’s claims at the appropriate time.” 

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(Id., Ex. D.) Visa explained that once the new vendor’s transition was complete, “we will be

prepared to discuss your letter as part of the process of resolving our claims.” (Id., Ex. E.) 

On July 2, 2007, Visa wrote another letter, reiterating its commitment to discuss

“Maritz’s claims, as well as the nature and amount of Visa’s claims” and stating that “[i]t is

now timely to establish a procedure for efficiently documenting, discussing and resolving all

remaining claims.” (Id., Ex. F.) The letter proposed a three-stage process whereby the parties

would first engage in direct negotiations and then non-binding mediation. If neither method

resolved the parties’ claims, “the parties will submit the matter to confidential and binding

arbitration.” (Id.) The letter further stated that “[i]t is important to have this agreement on

process in place before we commence negotiations so that both sides will know the alternative

to a negotiated resolution.” (Id. (emphasis added).) 

The executed agreement dated July 9, 2007 (“Letter Agreement”), provided that the

parties “agreed that our clients’ respective claims for damages resulting from alleged breaches

of the Agreement and related claims will all be resolved outside of court.” (Declaration of Ryan

S. Hilbert (“Hilbert Decl.”), Ex. D.) The parties further agreed to “the dispute resolution

framework ... [direct negotiations followed by mediation and then] ... [b]inding arbitration

pursuant to the AAA Commercial Rules.” (Id.) The letter also set out that “[t]o the extent [the

parties] are unable to agree on any aspect of the [three-tiered dispute resolution] procedure,

such disagreement will be resolved by the applicable rules and procedures of the American

Arbitration Association.” (Id.) 

On July 10, 2007, Mr. Gallant sent by email the executed agreement setting out the

agreed-upon dispute resolution process and stated that “attached is an executed agreement

outlining the procedures for resolving any differences that may exist between Visa and Maritz.” 

(Id., Ex. G.) There were a number of conversations and communications between the parties

during this time, and, in his declaration submitted to conjunction with these motions, Mr.

Gallant states that “[a]t no time during any of these discussion or communications did Mr.

Thompson [counsel for Visa] say or indicate that Visa was claiming that Maritz was in default,

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or that Visa would claim that Maritz should pay Visa anything, much less that Visa was owed

tens of millions of dollars.” (Gallant Decl., ¶ 15.) 

A few weeks after signing the Letter Agreement, Gallant returned from a planned

vacation and, for the first time on July 23, 2007, requested from Visa an estimate as to the size

of Visa’s claim. Visa’s outside counsel responded that Visa’s claim was considerable and in the

range of tens of millions of dollars. (Declaration of Roderick M. Thompson in support of

Motion to Stay (“Roderick Decl.”), ¶ 9.) Gallant was surprised by the magnitude of Visa’s

claim. (Id.; see also Gallant Decl., ¶¶ 23-26.) 

Thereafter, on July 23, 2007, Gallant sent an email message to counsel for Visa and

stated that “I would like to make reference in here that our previous agreement is null an [sic]

void but that the parties will endeavor to reach resolution on ADR procedures it [sic] in the next

ten or so days.” (Roderick Opp. Decl., Ex. G.) Again, on August 8, 2007, Gallant sent an email

message to Visa indicating that “Maritz had originally agreed to arbitrate without ANY

understanding of the magnitude of Visa’s purported claims and as I have said to you repeatedly

there was no meeting of the minds between Maritz and Visa with respect to the circumstances

surrounding Maritz’ agreement to mediate. What we are committed to is seeking to determine

if there is a business resolution to this matter that might include arbitration....” (Id., Ex. I

(emphasis in original).) Although counsel for Visa responded that he “disagree[d] with Maritz’

position that the attached July 9, 2007 [L]etter [A]greement is not enforceable,” Maritz

maintained the position that “Although I suppose it goes without saying, we do disagree with

your view of the binding effect of the [L]etter [Agreement] you attached.” (Roderick Decl., Ex.

J.) 

On November 2, 2007, Visa submitted an arbitration demand to the AAA. (Id., Ex. K.) 

Maritz responded by letter to the AAA stating that the parties did not have a valid agreement to

arbitrate and that AAA therefore lacked jurisdiction over the matter. (Id., Ex. L.) Again, on

November 26, 2007, Maritz wrote to the AAA contending that the Letter Agreement was

invalid and unenforceable and that it was “induced by [Visa’s counsel] and Visa’s fraudulent

conduct.” (Id., Ex. M.) By letter dated November 30, 2007, the AAA rejected Maritz’s

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procedural challenge and, in the absence of a Court order to the contrary, directed the

arbitration to proceed and provided that any jurisdictional challenge could be raised before the

arbitrator. (Id., Ex. N.) Maritz continued to resist efforts to resolve the parties’ dispute in

arbitration. 

On November 28, 2007, Visa filed a petition to compel arbitration. On December 12,

2007, Maritz filed a cross-motion to stay arbitration pending determination of arbitrability. 

Because the case had been reassigned to the undersigned, on January 4, 2008, Visa re-noticed

their motion to stay the action and to compel arbitration. In addition, Maritz filed an improper

administrative request for additional discovery and the Court required further briefing on the

motion. Lastly, because an answer to the counterclaims was outstanding, on February 21, 2008,

Visa filed a motion to dismiss Maritz’s fraud counterclaims.

ANALYSIS

A. Legal Standards Applicable to Motions to Compel Arbitration.

Pursuant to the Federal Arbitration Act (“FAA”), arbitration agreements “shall be valid,

irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the

revocation of any contract.” 9 U.S.C. § 2. Once the Court has determined that an arbitration

agreement involves a transaction involving interstate commerce, thereby falling under the FAA,

the Court’s only role is to determine whether a valid arbitration agreement exists and whether

the scope of the parties’ dispute falls within that agreement. 9 U.S.C. § 4; Chiron Corp. v.

Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). “Under § 4 of the FAA, a

district court must issue an order compelling arbitration is the following two-pronged test is

satisfied: (1) a valid agreement to arbitrate exists; and (2) that agreement encompasses the

dispute at issue.” United Computer Systems v. AT&T Corp., 298 F.3d 756, 766 (9th Cir. 2002). 

The parties in this case do not dispute that the claims at issue would fall within the scope of the

Letter Agreement; the only issue is whether the agreement to arbitrate is valid and enforceable. 

The FAA represents the “liberal federal policy favoring arbitration agreements” and

“any doubts concerning the scope of arbitrable issues should be resolved in favor of

arbitration.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,

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24-25 (1983). Under the FAA, “once [the Court] is satisfied that an agreement for arbitration

has been made and has not been honored,” and the dispute falls within the scope of that

agreement, the Court must order arbitration. Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395, 400 (1967). That the Court must order arbitration is true “even where the result

would be the possibly inefficient maintenance of separate proceedings in different forums.” 

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985).

Notwithstanding the liberal policy favoring arbitration, by entering into an arbitration

agreement, two parties are entering into a contract. Volt Information Sciences, Inc. v. Board of

Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1989) (noting that arbitration

“is a matter of consent, not coercion”). Thus, as with any contract, an arbitration agreement is

“subject to all defenses to enforcement that apply to contracts generally.” Ingle v. Circuit City

Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 2003.) Although the Court can initially determine

whether a valid agreement exists, disputes over the meaning of specific terms are matters for the

arbitrator to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002); Prima

Paint, 388 U.S. at 403-404 (holding that “a federal court may consider only issues relating to

the making and performance of the agreement to arbitrate”).

Here, Maritz contends that the Arbitration Agreement is unenforceable because it was

obtained by fraud. The resolution of a claim that a contract containing an arbitration agreement

is unenforceable requires a two-part analysis. First, the Court must determine whether the

alleged fraud induced the party to enter the entire agreement or whether the fraud was directed

only at the arbitration provision. See Prima Paint, 388 U.S. at 403-04 (“if the claim is fraud in

the inducement of the arbitration clause itself – an issue which goes to the ‘making’ of the

agreement to arbitrate – the federal court may proceed to adjudicate it. But the statutory

language does not permit the federal court to consider claims of fraud in the inducement of the

contract generally.”); see also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449

(2006). Next, the Court must consider whether the parties’ agreement reserved for the arbitrator

questions regarding the validity of the agreement itself. Contec Corp. v. Remote Solution, Co.,

398 F.3d 205, 207 (2d Cir. 2005). While the Federal Arbitration Act contains the general

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presumption that arbitrability should be decided by the court, both state and federal cases hold

that the issue may be referred to the arbitrator if there is clear and unmistakable evidence from

the arbitration agreement that the parties intended that the question of arbitrability should be

decided by the arbitrator. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45

(1995); see also Contec, 398 F.3d at 208. Moreover, the cases hold that where the parties’

agreement to arbitrate includes an agreement to follow a particular set of arbitration rules – such

as the Commercial AAA Rules – that provide for the arbitrator to decide questions of

arbitrability, the presumption that courts decide arbitrability falls away, and the issue is decided

by the arbitrator. See, e.g., Poponin v. Virtual Pro, Inc., 2006 WL 2691418, *9 (N.D. Cal. Sept.

20, 2006); Anderson v. Pitney Bowes, Inc., 2005 WL 1048700, *2-4 (N.D. Cal. May 4, 2005);

Terminix Int’l Co. v. Palmer Ranch Ltd., 432 F.3d 1327, 1332 (11th Cir. 2005).

Visa contends that Maritz, upon disclosure of the amount actually at stake challenged

the Letter Agreement as a whole. Based upon this contention, Visa argues that the issue of

fraud in the inducement must be determined by the arbitrator. See Buckeye Cashing, 546 U.S.

at 449 (reiterating that “a challenge to the validity of the contract as a whole, and not

specifically to the arbitration clause, must go to the arbitrator.”) Although the contemporaneous

correspondence from Maritz’s general counsel does indeed suggest that Maritz objected to the

entire Letter Agreement, there is no authority for the argument that Maritz’s original objections

have any estoppel effect on their current position. Maritz now maintains that it objects merely

to the provision in the Letter Agreement relating to arbitration, and has in fact, carried out its

obligations under the Agreement to participate in the first two stages of the alternative dispute

resolution procedures – negotiation and mediation – both of which were unsuccessful. Because

the Court does not find the early representations of Maritz’s objections to the Letter Agreement

as a whole binding on Defendant, the Court does not find that, on this basis, the issue of fraud in

the inducement must be determined by the arbitrator.

However, the Letter Agreement clearly and unequivocally reserved for the arbitrator all

questions regarding its validity. The Letter Agreement specifically provides that “[t]o the

extent [the parties] are unable to agree on any aspect of the [dispute resolution] procedure, such

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disagreement will be resolved by the applicable rules and procedures of the American

Arbitration Association. (‘AAA’).” (Hilbert Decl., Ex. D.) The AAA Commercial Rules

provide that “The arbitrator shall have the power to rule on his or her own jurisdiction,

including any objections with respect to the existence, scope or validity of the arbitration

agreement.” AAA Commercial Rule R-7(a). By the explicit incorporation of the AAA rules,

the parties clearly and unmistakenly agreed that questions of arbitrability would be submitted to

arbitration for resolution. See, e.g., Poponin, 2006 WL 2691418 at *9 (where the arbitration

agreement incorporated ICC Rules that provide for the arbitrator to decide arbitrability, the

presumption that courts decide arbitrability falls away, and the issue of validity of agreement to

arbitrate is decided by the arbitrator); Anderson, 2005 WL 1048700 at *2-4 (court conducts

facial and limited review of the contract to determine only whether the parties have in fact

clearly and unmistakenly agreed to commit the question of arbitrability to the arbitrator); see

also Terminix, 432 F.3d at 1332 (holding that by incorporating the AAA rules, including [Rule

7], into their agreement, the parties clearly and unmistakably agreed that the arbitrator should

decide whether the arbitration clause is valid.”) Here, the Court finds the two references to the

AAA Rules and the explicit agreement to arbitrate disagreements on any aspect of the dispute

resolution procedure mandates the conclusion that the issue of the inducement to enter the

agreement must be submitted to the arbitrator for determination. See Contec, 398 F.3d at 208

(holding that where “parties explicitly incorporate rules that empower the arbitrator to decide

issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the

parties’ intent to delegate such issues to an arbitrator.”)

Accordingly, the Court GRANTS Visa’s motion to stay the action and to compel

arbitration and DENIES Maritz’s motion to stay arbitration pending determination of

arbitrability. In addition, because the Court has determined that arbitration is the correct forum

to resolve arbitrability, the Court finds that Maritz’s request for additional discovery is improper

and DENIES it as well. Lastly, the Court DENIES Visa’s motion to dismiss the fraud

counterclaims, without prejudice to refiling should the arbitration panel determine that the

parties’ dispute are not properly subject to arbitration. 

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CONCLUSION

For the foregoing reasons, the Court Court GRANTS Visa’s motion to stay the action

and compel arbitration, DENIES Maritz’s motion to stay arbitration, DENIES Maritz’s motion

for additional discovery, and DENIES Visa’s motion to dismiss as moot, without prejudice.

IT IS SO ORDERED.

Dated: March 18, 2008 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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