Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01040/USCOURTS-caed-2_05-cv-01040-0/pdf.json

Parties Involved:
Coville, Inc.
Defendant
Maxit Designs, Inc.
Plaintiff

Document Text:

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1 Defendant objects to the late filing by plaintiff of

the opposition to defendant’s motion. Defendant was not

prejudiced by plaintiff’s late filing, as the court finds

defendant was able to prepare an adequate reply. The court has

an interest in deciding cases on their merits and not on

technicalities. Olvera v. Giurbino, 371 F.3d 569, 573 (9th Cir.

2004). 

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:

MOTION TO COMPEL ARBITRATION

AND DISMISS OR STAY

COVILLE, INC., a North

Carolina corporation,

Defendant.

----oo0oo----

Defendant seeks to compel arbitration and also moves to

dismiss, or, in the alternative, to stay this litigation pending

arbitration of plaintiff’s claims. Jurisdiction is based on the

diversity of citizenship of the parties. See 28 U.S.C. § 1332.1

///

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I. Factual and Procedural Background

Defendant seller and plaintiff buyer entered into a

series of contracts for the purchase of fabric. Plaintiff

alleges that the first contract between the parties was entered

into in 1987 or 1988. (Def.’s Notice of Removal Ex. 1 (compl.) ¶

8). Plaintiff’s counsel stated at the hearing on this matter

that plaintiff and defendant entered into hundreds of contracts

over the course of sixteen years. On October 19, 2004, defendant

filed a “Demand for Arbitration” with the American Arbitration

Association. (Def.’s Mem. in Supp. of Mot. to Compel Arbitration

Ex. 2). The demand states that:

Claimant Coville, Inc. (‘Coville’) hereby demands

arbitration of a controversy between it and respondent Maxit

Designs Inc. (‘Maxit’) arising out of invoice numbers 22369,

22376, 22570, and 22594 dated June 10, 2004, June 10, 2004,

July 30, 2004 and August 10, 2004 respectively. Coville and

Maxit have entered into several contracts, including

contract no. 970384, 981251, and 990197.

 

(Id. Ex. 2 at 1). Defendant’s demand sought $56,143.05 plus

interest due to plaintiff’s nonpayment for defendant’s goods. 

(Id. Ex. 2 at 2). The arbitration hearing was scheduled to take

place in New York City. 

Subsequently, 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. 

(Def.’s Notice of Removal Ex. 1 (compl.)). Plaintiff’s complaint

states that plaintiff entered into an agreement in 1987 or 1988

to buy from defendant fabric for plaintiff’s “Headgator” product. 

(Id. Ex. 1 ¶ 8). Plaintiff alleges that a material part of the

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3

agreement was defendant’s promise to sell to plaintiff at the

lowest price available to any customer. (Id. Ex. 1 ¶ 9). 

Plaintiff further alleges that it learned in July 2004 that it

was not receiving the lowest price and had therefore been

overcharged. (Id. Ex. 1 ¶ 10-11). Finally, plaintiff alleges

that defendant’s fabric was defective and that plaintiff’s

reputation has been damaged. (Id. Ex. 1 ¶ 12). Plaintiff’s

prayer for damages seeks, inter alia, $337,087.92 for overpayment

and additional damages for injury to its reputation. (Id. Ex. 1

at 10).

Defendant submits three contracts executed by the

parties to show that these allegations must be arbitrated. 

(Def.’s Mem. in Supp. of Mot. to Compel Arbitration Ex. 1). The

first contract, numbered 970384, was for 12,643 yards of “solid

jersey: 924 polypropylene/94 lycra.” The first contract was

executed by the parties on May 22, 1997. (Id. Ex. 1 at 1). The

second contract, numbered 981251, was executed by Coville on June

3, 1998 and executed by Maxit at an uncertain time, and was for

43,100 yards of “double napped anti-microbial lycra jersey: 93%

polypropylene/7% lycra.” (Id. Ex. 1 at 3). The third contract,

numbered 990197, was executed by Coville on May 17, 1999 and by

Maxit at an uncertain time, and was for 80 yards of “napped am p2

lycra jersey: 91% polyolefin/9% lycra.” (Id. Ex. 1 at 5).

Plaintiff contends that, of the contracts that

defendant submits, only the May 17, 1999 contract is relevant to

plaintiff’s causes of action. 

Each of the submitted contracts contains eighteen

numbered provisions, three on the front and fifteen on the back. 

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The numbered provisions on the front include one titled “contract

acknowledgment” and another titled “arbitration.” (Id. Ex. 1). 

The “contract acknowledgment” provision provides that the

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. Ex. 1). 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. Ex. 1). The sixth paragraph of the agreement, contained 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. Ex. 1).

None of the contracts that defendant presents the court

was at issue in the New York arbitration. The contracts

defendant presents the court are from 1997, 1998, and 1999. The

contracts upon which defendant brought plaintiff to arbitration

are all from 2004. (Def.’s Mem. in Supp. of Mot. to Compel

Arbitration Ex. 2 (Demand for Arbitration) at 1). 

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Arbitration has gone forward. “The arbitration

hearings were held on Wednesday, July 13, 2005 and Thursday July

14, 2005. The testimony of both sides and introduction of all

exhibits was completed and, subject to the mailing of certain

records to the arbitrators, the hearings have been concluded.”

(Duboff Decl. in Supp. of Def.’s Opp’n to Pl.’s Application to

Enlarge Time ¶ 4). “The deadline for the arbitrators to make a

decision is August 15, 2005.” (Duboff Decl. in Supp. of Reply to

Pl.’s Opp’n to Def.’s Motion to Compel Arbitration ¶ 7). 

Attorney Michael Duboff, who represented defendant

Coville in the arbitration in New York, filed a declaration

stating that plaintiff’s opening statement in the arbitration

addressed the issues of fraudulent inducement and the claim that

the 1987 or 1988 contract included an agreement that defendant

would provide plaintiff with the fabric at the lowest price

available. (Id. ¶ 4). Duboff does not present any documentary

evidence of the substance of plaintiff’s oral opening statement

at the New York arbitration. Duboff’s statement regarding the

content of plaintiff’s oral argument before the arbitral body is

hearsay. Fed. R. Evid. 801(c). 

Plaintiff opposes defendant’s motion to compel

arbitration on the grounds that the operative contracts are an

oral agreement between the parties made in 1987 or 1988 and the

hundreds of separate contracts the parties have entered since. 

(Pl.’s Opp’n to Mot. to Compel Arbitration at 1). Plaintiff

argues that the parties did not agree to arbitrate their claims

at the time of the oral contract. Plaintiff further argues that

the three contracts defendant presents the court are wholly

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2 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 . . . for an order directing that

such arbitration proceed in the manner provided for in

such agreement. . . .

9 U.S.C. § 4.

6

inadequate to require the court to compel arbitration and stay

the case. Plaintiff argues that two of the three contracts

defendant has provided do not concern the fabric used in the

“Headgator,” and thus are irrelevant. Further, plaintiff argues,

an arbitration clause in one contract from May 1999 cannot serve

to compel arbitration and stay plaintiff’s claims when

plaintiff’s claims rest on sixteen or more years of dealings and

hundreds of contracts.

II. Discussion

A. Motion to Compel Arbitration

The standard that governs whether the court must compel

plaintiff’s claims to arbitration is governed by the Federal

Arbitration Act. See 9 U.S.C. § 1 et seq. Title 9 U.S.C. § 4

(“§ 4”) provides that a party may seek an order to compel

arbitration from a district court where another party fails,

neglects, or refuses to arbitrate.2 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

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7

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

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

In this case, the written agreements entered into by

the parties in 1997, 1998, and 1999 do not represent the sum

total of the contracts upon which plaintiff bases the present

suit. Plaintiff alleges that the parties entered into their

first contract as far back as 1988, and it is clear from

defendant’s arbitration demand that the parties continued to have

dealings through 2004. Each contract that defendant submits

limits the effect of the arbitration clause contained within it

to “[a]ny controversy or claim arising out of or relating to this

contract.” (Mem. in Supp. of Def.’s Mot. to Compel Arbitration

Ex. 1). The court finds that all of plaintiff’s claims cannot

fairly be said to arise out of or relate to the contracts

defendant has produced. The contracts cover limited quantities

of goods delivered by defendant to plaintiff in 1997, 1998, and

1999. The contracts do not purport to be broad, global

agreements that cover all dealings between the parties between

1988 and 2004. Under these facts, the Federal Arbitration Act

does not require the court to compel arbitration on plaintiff’s

claims. See 9 U.S.C. § 4(providing that the party seeking to

compel arbitration must show a written agreement to arbitrate the

relevant issues).

However, the contracts defendant presents are

sufficient to show that plaintiff’s claims as they relate to

those contracts must be arbitrated. Therefore, any claims based

on sales contracts numbered 970384, 981251, or 990197 must be

submitted to arbitration. See 9 U.S.C. § 4.

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B. Motion to Stay Pending Result of New York Arbitration 

Defendant moves the court to stay this case pending the

outcome of the arbitration in New York. Defendant argues that

the risk of results inconsistent with those reached in the New

York arbitration justifies staying this action. 

The trial court has the inherent power to control its

own docket and calendar. Landis v. N. Am. Co., 299 U.S. 248,

254-55 (1936). In Leyva v. Certified Grocers of California,

Ltd., 593 F.2d 857, 863 (9th Cir. 1979), the court held that some

claims at issue in the suit were subject to arbitration but that

others were not. Thus, Leyva found that 9 U.S.C. § 3 did not

require the district court to grant a stay as to the claims not

subject to arbitration. Id. Nevertheless, Leyva held that

“sound reasons may exist in the case to support the district

court’s determination to stay the action under the powers to

control its own docket and to provide for the prompt and

efficient determination of the cases pending before it.” Id.

Leyva showed a concern for judicial efficiency.

It would waste judicial resources and be burdensome upon the

parties if the district court in a case such as this were

mandated to permit discovery, and upon completion of

pretrial proceedings, to take evidence and determine the

merits of the case at the same time as the arbitrator is

going through a substantially similar parallel process.

Id. at 864. In that case, the court found that the findings of

the arbitrator “may be of valuable assistance to the court in

resolving the [non-arbitrable] claims, even under the assumption

that the court is not bound and controlled by the arbitrator’s

conclusion.” Id. at 863.

In this case, a Landis stay is not justified. First,

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the scope of the issues in this case is much broader than that of

the issues being arbitrated in New York. The New York

arbitration bears on plaintiff’s alleged nonpayment on four

contracts entered into in 2004. Plaintiff in this suit alleges

fraud in the inducement, unfair business practices, and breach of

contract. Plaintiff makes these allegations in connection with

all of the dealings the parties had with each other between 1987

or 1988 and 2004.

Defendant contends that plaintiff’s allegation that a

1987 or 1988 contract required defendant to sell to plaintiff at

the lowest price was argued at the arbitration. However, the

only evidence defendant brings forward to support this contention

is Duboff’s hearsay statement. No documentary evidence, such as

a transcript of the arbitration proceedings, has been provided

the court. The court finds the evidence of overlap between the

arbitration and this case to be lacking and therefore not

supportive of a an order staying this action.

Third, there is no prejudice to defendant in not

granting a stay. Defendant represents to the court that the

arbitral body will issue its opinion within three weeks. (Duboff

Decl. in Supp. of Reply to Pl.’s Opp’n to Def.’s Mot. to Compel

Arbitration ¶ 7). Thus, even were this court to grant a stay

under Landis, the stay would be of less than a month’s duration. 

This case arrived in federal court on May 25, 2005. (See Notice

of Removal). There has not yet been a Federal Rule of Civil

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3 The Rule 16 conference is scheduled for August 15,

2005, the same day that, according to defendant, the arbitrator’s

decision is due.

10

Procedure 16 status conference yet,3 and deadlines for the

completion of discovery and submission of dispositive motions are

therefore likely to be months away. There is no pressure on the

litigants to immediately conduct discovery on issues that may be

settled by the imminent decision in New York.

Fourth, the granting of a stay would not work to

conserve judicial resources. Any overlap in the efforts of this

court and the arbitral body will be minimal. According to

defendant, the arbitral body is currently preparing a decision on

the issues in that case. During the next few weeks, this court,

in contrast, will be implementing a plan for the conduct of

discovery and the timing of certain deadlines. See Fed. R. Civ.

P. 16. The court will have more than enough time to rule on the

effect of the arbitral body’s decision.

Therefore, the court concludes that the concerns

present in Leyva are not present here. A stay of proceedings in

this action pending the result of the New York arbitration is not

justified. 

IT IS THEREFORE ORDERED that:

(1) defendant’s motion to compel arbitration be, and

the same hereby is, GRANTED, regarding any claims by plaintiff

relating to contracts numbered 970384, 981251, and 990197;

(2) plaintiff’s causes of action are STAYED to the

extent that they rely on contracts numbered 970384, 981251, and

990197; 

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(3) in all other respects, except as provided in

paragraphs (1) and (2) above, defendant’s motions to compel

arbitration and to stay be, and the same hereby are, DENIED.

DATED: August 1, 2005

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