Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-00766/USCOURTS-casd-3_11-cv-00766-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PROFITSTREAMS, LLC,

Petitioner,

CASE NO. 11 CV 0766 MMA (JMA)

ORDER GRANTING IN PART

AND DENYING IN PART

PROFITSTREAMS LLC’S

PETITION TO COMPEL

ARBITRATION

[Doc. No. 1] 

vs.

AMERANTH, INC.,

Respondent.

On April 13, 2011, Profitstreams, LLC filed a petition to compel arbitration against

Ameranth, Inc. [Doc. No. 1.] Ameranth submitted its response on September 2, and Profitstreams

filed a reply on September 19. [Doc. Nos. 24, 25.] On September 21, 2011, the Court in its

discretion under Civil Local Rule 7.1(d)(1), took the motion under submission on the papers and

without oral argument. For the reasons stated herein, the Court GRANTS IN PART and

DENIES IN PART Profitstreams’ petition to compel arbitration. 

BACKGROUND

On August 27, 2008, Profitstreams and Ameranth entered a Second Amended and Restated

License Agreement (“Agreement”), under which Profitstreams obtained a license for certain

technology owned by Ameranth. [Doc. No. 1, Exh. A; Doc. No. 9 (under seal).] A dispute has

arisen between the parties regarding the scope of the Agreement. [Doc. No. 1, p.3.] Profitstreams

alleges it “believes that the license in the Agreement covers all of the claims” of the patents at

issue, whereas Ameranth “contends that the license granted in the Agreement is limited to the

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subset of claims practiced by the Software.” [Id. at p.1] Correspondence between counsel

indicates the parties discussed the issue informally, but were unable to resolve their dispute. [Doc.

No. 24-3, Exhs. 4-18.] Profitstreams therefore seeks to initiate arbitration proceedings as

contemplated by the Agreement. [Id. at Exhs. 1-15.] 

The Agreement contains the following dispute resolution provisions:

14.2 Governing Law and Dispute Resolution:

14.2.1 . . .

14.2.2 Any dispute arising out of or in connection with this

Agreement, including any question regarding its existence,

validity or termination, shall first be referred to each Party’s

appointed management, and the Parties shall use reasonable

efforts to resolve such dispute.

14.2.3 Any dispute that is not resolved as provided in the preceding

Section 14.2.2, whether before or after termination of this

Agreement, will be referred to binding arbitration under the

Commercial Arbitration Rules of the American Arbitration

Association in the city and state where the defendant party has

its headquarters. Except with respect to a breach of Section 2.5

or any other unauthorized transfer of Ameranth’s intellectual

property or proprietary rights, the arbitrator shall not be

authorized to award, and no party shall be obligated to pay to

the other Party hereunder, punitive, exemplary, consequential,

indirect, special or incidental damages or lost profits

(collectively “Special Damages”) with respect to any such

claim or controversy, nor shall any party seek Special Damages

relating to any matter under, arising out of or relating to this

Agreement in any other forum. Judgment upon the award of

the arbitrators may be entered in any court having jurisdiction

thereof or such court may be asked to judicially confirm the

award and order its enforcement, as the case may be.

14.2.4 . . .

14.2.5 Notwithstanding anything to the contrary in this Section 14,

either Party shall be entitled to seek injunctive relief in any

court of competent jurisdiction for a breach or threatened

breach of Section 13 or any infringement of such Party’s

intellectual property or proprietary rights.

[Doc. No. 1, Exh. A, p.16 (bold and italics in original) (underline added).]

Ultimately, the parties reached an impasse regarding which claims could be sent to

arbitration, and Profitstreams filed the pending petition to compel Ameranth to arbitrate their

dispute regarding the scope of the license. [Doc. No. 1.] 

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LEGAL STANDARD

The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., governs the enforcement,

interpretation and validity of arbitration clauses in commercial contracts. Cape Flattery Ltd. v.

Titan Mar., LLC, 647 F.3d 914 *7 (9th Cir. 2011) (citing Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25 (1983)). The FAA provides that arbitration agreements “shall be

valid, irrevocable, and enforceable, save upon such grounds as exist at law or equity for the

revocation of any contract.” 9 U.S.C. § 2. This language creates a presumption in favor of

arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 625 (1985); 

Kuehner v. Dickinson & Co., 84 F.3d 316, 319 (9th Cir. 1996). 

To enforce a valid arbitration agreement, a party “may petition any United States district

court for an order directing that such arbitration proceed in the manner provided for in such

agreement.” Lansmont Corp. v. SPX Corp., 2011 U.S. Dist. LEXIS 65611 *16 (N.D. Cal. Jun. 20,

2011) (internal marks omitted) (citing Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d

1010, 1012 (9th Cir. 2004) (quoting 9 U.S.C. § 4)); In re: Virginia Van Dusen, 2011 U.S. App.

LEXIS 15398 *9-10 (9th Cir. July 27, 2011). “[A]s with any other contract, the parties’ intentions

control, but those intentions are generously construed as to issues of arbitrability.” Mitsubishi

Motors Corp., 473 U.S. at 626. Any doubts regarding the validity of an arbitration clause must be

resolved in favor of arbitration. Id. Accordingly, the party resisting arbitration bears the burden of

showing that the arbitration agreement is invalid or does not encompass the claims at issue. Green

Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 92 (2000).

When a party files a motion to compel arbitration, the district court’s role 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.” Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d

1126, 1130 (9th Cir. 2000) (citations 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.” 

Id. The FAA “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

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an arbitration agreement has been signed.” Id. (citation omitted); In re: Virginia Van Dusen, 2011

U.S. App. LEXIS at *9-10.

DISCUSSION

Neither party challenges the validity of the arbitration agreement at issue. Rather, the

parties primarily dispute which claims are arbitrable, and who should decide future issues of

arbitrability. Accordingly, the Court assumes the arbitration provision is valid and enforceable for

purposes of resolving the pending petition.

To determine whether the agreement to arbitrate encompasses the parties’ dispute, the

Court must first determine the scope of the arbitration clause. Section 14.2.3 of the Agreement

states, in relevant part, that “any dispute arising out of or in connection with this Agreement,

including any question regarding its existence, validity or termination,” that cannot be resolved by

the parties informally, “will be referred to binding arbitration.” [Doc. No. 1, Exh. A.] The sole

exception is noted in section 14.2.5, which states “[n]otwithstanding anything to the contrary in

this Section 14, either Party shall be entitled to seek injunctive relief in any court of competent

jurisdiction for a breach or threatened breach of Section 13 or any infringement of such Party’s

intellectual property or proprietary rights.” [Id.] 

Here, the parties’ underlying dispute centers on their disagreement about the scope of the

license Ameranth provided to Profitstreams. [See Doc. No. 1, p.1, 3.] The scope of the license

granted under the Agreement plainly qualifies as a dispute “arising out of” the Agreement, and is

therefore subject to arbitration. Likewise, Ameranth’s contention that Profitstreams has breached

its obligations under the Agreement “arises out of and in connection with” the Agreement. Indeed,

the record reveals the parties do not dispute their underlying dispute encompasses the following

four claims, which are subject to arbitration: (1) Profitstreams’ claim for declaratory relief as to the

scope of the patent license under the Agreement; (2) Profitstreams’ claim for rescission of the

Agreement on the ground of lack of meeting of the minds; (3) Ameranth’s claim for declaratory

relief as to the scope of the patent license under the Agreement; and (4) Ameranth’s claim for

breach of the Agreement. [Doc. No. 24, p.8-9; Doc. No. 25, p.2.] 

/ / /

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1

 Section 14.2.3 states the parties agreed the Commercial Arbitration Rules of the AAA shall

govern their arbitration proceedings. AAA Commercial Rule R-6 provides:

After filing of a claim, if either party desires to make any new or

different claim or counterclaim, it shall be made in writing and filed

with the AAA. The party asserting such a claim or counterclaim shall

provide a copy to the other party, who shall have 15 days from the date

of such transmission within which to file an answering statement with

the AAA. After the arbitrator is appointed, however, no new or

different claim may be submitted except with the arbitrator’s consent.

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The parties were unable to successfully initiate arbitration proceedings after Ameranth

proposed the parties stipulate that “neither party could amend or add claims without the consent of

the other party.” [Doc. No. 24, p. 9; Doc. No. 24-3, Exhs. 11-15.] Profitstreams refused to agree

to the additional limitation, asserting, in part, that it is inconsistent with the Commercial

Arbitration Rules of the American Arbitration Association (“AAA”), specifically Rule R-6, which

vests the arbitrator with the authority to approve a party’s request to add or amend claims.1 [Doc.

No. 25, p.3.] Profitstreams therefore proposes that the parties agree to let the arbitrator determine

which claims could be added to the arbitration proceedings if the issue arose. [Doc. No. 24-3,

Exh. 13.] Ameranth declines to accept this stipulation on the ground that the Court, not the

arbitrator, should be the one to decide which issues are arbitrable. [Id.]

The Court’s ability to resolve this dispute is limited. As stated above, in determining

whether an order to compel arbitration should issue, the Court’s analysis is limited to two discrete

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

agreement encompasses the dispute at issue.” Chiron Corp., 207 F.3d at 1130 (citations omitted). 

Here, the answer to both questions is “yes,” as the parties agree the arbitration clause is valid and

enforceable, and they do not dispute that the four enumerated issues fall within the scope of the

arbitration provision. Accordingly, the Court is required to direct the parties to proceed with

arbitration in accordance with the terms of their Agreement. Id. (citation omitted); In re: Virginia

Van Dusen, 2011 U.S. App. LEXIS at *9-10. 

For the same reason, the Court cannot impose either party’s proposed condition in

connection with ordering the parties to arbitration, because the Court must enforce the arbitration

agreement as written. Here, the plain language of the arbitration provision does not support either

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party’s request to include limiting language regarding who may resolve questions of arbitrability

after arbitration is commenced. In the absence of clear and unmistakable language to the contrary,

“[i]t is well established that the question whether the parties have submitted a particular dispute to

arbitration, i.e., the question of arbitrability, is an issue for judicial determination.” Oracle Am.,

Inc. v. Myriad Group AG, 2011 U.S. Dist. LEXIS 98830 *14-15 (N.D. Cal. Sept. 1, 2011)

(emphasis in original) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002); First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) (“If . . . the parties did not agree to

submit the arbitrability question itself to arbitration, then the court should decide that question just

as it would decide any other question that the parties did not submit to arbitration”)). Although the

Agreement makes clear the parties agreed the Commercial Rules of the AAA would govern

arbitration proceedings, the record does not contain clear and unmistakable evidence that the

parties did not intend to submit questions of arbitrability to the courts. The parties may not now

condition their participation in arbitration proceedings on the other party’s acquiescence to

additional limitations not set forth in their Agreement. 

In addition, the Court will not prospectively advise the parties whether additional

unidentified, hypothetical issues are subject to arbitration. As framed by the parties, the only

discernable issues are: (1) Profitstreams’ claim for declaratory relief as to the scope of the patent

license under the Agreement; (2) Profitstreams’ claim for rescission of the Agreement on the

ground of lack of meeting of the minds; (3) Ameranth’s claim for declaratory relief as to the scope

of the patent license under the Agreement; and (4) Ameranth’s claim for breach of the Agreement. 

[Doc. No. 24, p.8-9; Doc. No. 25, p.2.] Any other questions of arbitrability are anticipatory,

undefined, and not ripe for judicial determination. 

Accordingly, the Court GRANTS Profitstreams’ petition to compel arbitration IN PART

with respect to the four enumerated issues, but DENIES the petition IN PART with respect to any

other issues not currently before this Court. Also, the Courtcannot appoint the AAA to arbitrate

the parties’ dispute. The Court’s role is limited to enforcement of the terms of the valid arbitration

agreement, which does not designate the AAA as the agreed upon arbitration service. 

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (citation omitted). 

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The Court therefore DENIES the petition with respect to Profitstreams’ request to designate the

AAA as the required arbitration service. 

Lastly, the Court DENIES Profitstreams’ request for attorneys’ fees, as the Agreement

does not provide that Profitstreams is entitled to such recovery. Nor does Profitstreams cite any

authority upon which the Court might rely to impose a fee award. Accordingly, each party shall

bear its own fees and costs associated with the petition to compel.

CONCLUSION

For the reasons set forth above, the Court GRANTS IN PART and DENIES IN PART

Profitstreams’ petition to compel arbitration. [Doc. No. 1.] The Court hereby ORDERS the

parties to arbitration, through a mutually agreeable service provider, to resolve the following

issues in accordance with their Agreement:

(1) Profitstreams’ claim for declaratory relief as to the scope of the patent license under

the Agreement; 

(2) Profitstreams’ claim for rescission of the Agreement on the ground of lack of

meeting of the minds; 

(3) Ameranth’s claim for declaratory relief as to the scope of the patent license under

the Agreement; and 

(4) Ameranth’s claim for breach of the Agreement. 

The Clerk of Court is instructed to close the case file.

IT IS SO ORDERED.

DATED: September 27, 2011

Hon. Michael M. Anello

United States District Judge

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