JDA Software Incorporated v. Sabert Holding Corporation

Filing 15

ORDER denying 9 Motion to Dismiss. Defendant's alternative request to stay this case pending arbitration of plaintiff's claims is granted. This case is stayed pending determination of the arbitrability of plaintiff's claims. Plaintiff's motion to stay the pending arbitration is denied as moot. Signed by Judge H Russel Holland on 4/19/17.(KGM)

WO

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

JDA SOFTWARE, INC.,

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Plaintiff,
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vs.
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SABERT HOLDING CORP.,
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Defendant.
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_______________________________________)

No. 2:17-cv-0373-HRH

ORDER
Motion to Dismiss or Stay
Defendant moves to dismiss or stay this case pending arbitration.1 This motion is
opposed, and plaintiff moves to stay the pending arbitration.2 Oral argument was requested
but is not deemed necessary.
Background
Plaintiff is JDA Software, Inc. Defendant is Sabert Holding Corp.

1

Docket No. 9.

2

Docket No. 13.
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Plaintiff alleges that on June 29, 2012, the parties “entered into a Customer
Agreement[3] ... wherein [plaintiff] licensed its software” to defendant.4 Plaintiff “agreed
to provide licenses for: 2 Power End Users for its JDA Demand Classification Software, and
2 Power End Users for its JDA Master Planning Software.”5 On June 29, 2012, the parties
also “entered into a maintenance agreement wherein” plaintiff “would provide maintenance
services for” its software.6 Defendant paid $211,000 for the licenses to use plaintiff’s
software.7
Plaintiff alleges that “[p]ursuant to paragraph 2.8 of the [Customer] Agreement,” it
“was permitted to conduct regular audits to verify that [defendant’s] use of the Software was
within the scope permitted by the Agreement.”8 Plaintiff alleges that it conducted such an
audit on May 14, 2016 and discovered that defendant “had exceeded its licenses in violation
of the Agreement.”9 Plaintiff alleges that defendant had “11 additional Power End Users and
1 additional Casual End User” of the JDA Demand and Demand Classification Software and

3

Defendant refers to the Customer Agreement as the “License Agreement.”

4

Complaint at 2, ¶ 11, Docket No. 1.

5

Id. at ¶ 13.

6

Id. at ¶ 12.

7

Schedule 1-A, Exhibit A, Plaintiff’s Response to Defendant’s Motion to Dismiss and
Motion to Stay Arbitration, Docket No.13.
8

Complaint at 2-3, ¶ 14, Docket No. 13.

9

Id. at 3, ¶¶ 15-16.
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“12 additional Power End Users” of the JDA Master Planning Software.10 Defendant’s VicePresident of Information Technology, Michael Freeman, avers that defendant disagreed with
plaintiff’s audit results primarily because “JDA considered consultants retained to upgrade
the software and [defendant’s] system administrator to be ‘end users’....”11
Plaintiff alleges that on September 19, 2016, it “sent notice to [defendant] of its
material breach of the Agreement, with a payment request in the amount of $457,002.00,”
which included the cost of the additional unlicensed users and “back maintenance fees for
the additional unsanctioned licenses.”12 Plaintiff alleges that defendant failed to cure its
breach of the Customer Agreement and thus on November 18, 2016, plaintiff “inform[ed
defendant] that the Agreement was terminated....”13 Plaintiff further alleges that after it
“properly terminated the Agreement, [defendant] continued to use [plaintiff’s] software in
violation of [plaintiff’s] copyrights.”14
Freeman avers that defendant responded to plaintiff’s termination letter, “advising
JDA that it did not have the right to terminate the License Agreement because [defendant’s]
good faith disagreement with the audit report was not a material breach of the License

10

Id. at ¶¶ 17-18.

11

Declaration of Michael Freeman [etc.] at 2, ¶ 5, Exhibit 1, Motion to Dismiss or Stay
Action Pending Resolution of Pending Arbitration, Docket No. 9.
12

Complaint at 3 at ¶¶ 19-20, Docket No. 1.

13

Id. at ¶¶ 21-22.

14

Id. at 4, ¶ 27.
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Agreement....”15 Freeman avers that defendant requested that plaintiff revoke the termination
but that plaintiff refused to do so.16
Freeman avers that on “December 30, 2016, to show that it is willing to pay any
amounts it may ultimately be found to owe JDA, [defendant] wired to JDA the sum of
$45,424, an amount representing the most that [defendant] could owe to JDA if JDA were
given the benefit of every reasonable doubt.”17 Freeman avers that this “amount was
received by JDA and never returned.”18
On January 9, 2017, defendant “filed a demand for arbitration with the American
Arbitration Association.”19 The parties’ Customer Agreement contains the following
arbitration agreement:
Except at the option of JDA with respect to a claim against
Customer for the nonpayment by Customer of amounts owing
to JDA or at the option of either party with respect to the right
to apply to a court of competent jurisdiction for equitable or
injunctive relief, any controversy or claim arising out of or
related to this Agreement or in connection with a breach of this
Agreement (“Claim”) will be settled by arbitration before a
single arbitrator under the commercial arbitration rules of the
American Arbitration Association in effect at the time such

15

Freeman Declaration at 3, ¶ 8, Exhibit 1, Motion to Dismiss or Stay Action Pending
Resolution of Pending Arbitration, Docket No. 9.
16

Id.

17

Id. at ¶ 9.

18

Id.

19

Complaint at 4, ¶ 28, Docket No. 1.
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Claim is submitted to arbitration. The arbitrator will be a person
having experience with and knowledge of the computer software
business. The arbitrator will not have any authority to make any
ruling, finding or award that does not conform to this Agreement. The arbitral award will be final and binding on all parties
and may be entered as a judgment and enforceable by any court
of competent jurisdiction.[20]
Defendant’s demand for arbitration contains two counts: 1) a claim for declaratory relief that
the License Agreement remains in full force and effect and 2) a claim for declaratory relief
that defendant owes no further payments to plaintiff.21 More specifically, defendant seeks
declarations that the November 18, 2016 termination letter was void ab initio, that all of its
rights under the License Agreement continue unabated, that it could continue to use all the
software identified in the License Agreement, and that it currently owed plaintiff nothing.22
On February 3, 2017, plaintiff sent a letter asking that the arbitration be dismissed.23
Plaintiff stated that “the current claim arises out of [defendant’s] failure to pay [an] amount

20

Customer Agreement at § 9.2, Exhibit A, Plaintiff’s Response to Defendant’s
Motion to Dismiss and Motion to Stay Arbitration, Docket No. 13.
21

Sabert Holding Corp.’s Demand for Arbitration at 6-7, Exhibit A, Declaration of
Christopher Walsh [etc.], Exhibit 2, Motion to Dismiss or Stay Action Pending Resolution
of Pending Arbitration, Docket No. 9.
22

Id. at 8.

23

Exhibit B, Walsh Declaration, Exhibit 2, Motion to Dismiss or Stay Action Pending
Resolution of Pending Arbitration, Docket No. 9.
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owed related to [defendant’s] overuse of JDA’s software. JDA is invoking its right under
Section 9.2 to litigate [the] nonpayment of amounts claim[ed].”24
On February 6, 2017, plaintiff commenced this action in which it asserts a breach of
contract claim and a copyright infringement claim. Plaintiff seeks damages and injunctive
relief.
On February 9, 2017, the arbitrator denied plaintiff’s request to dismiss the
arbitration.25 The arbitrator first determined that he had the authority to determine the
arbitrability of the claims pending in the arbitration.26 The arbitrator then considered whether
this arbitration has jurisdiction over the claims asserted. The
Arbitration Agreement allows Respondent JDA Software, Inc.,
to elect to bring a claim for non-payment either in arbitration or
in Court. The Arbitration Agreement also allows either party to
bring claims for equitable or injunctive relief in arbitration or in
Court. Claimant [Sabert] has elected to bring its claims in
arbitration and there are no claims presented by Respondent
[JDA]. Therefore, the issue is whether the claims presented by
Claimant necessarily require Respondent to submit a claim to
arbitration that Respondent prefers to present, if at all, in
Court.[27]
The arbitrator found that the “key issue” in the claims presented by defendant was whether
defendant had materially breached the Customer Agreement and that the other issue was

24

Id.

25

Exhibit C, Walsh Declaration, Exhibit 2, Motion to Dismiss or Stay Action Pending
Resolution of Pending Arbitration, Docket No. 9.
26

Id. at 2.

27

Id. at 2-3.
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“whether Sabert could be in material breach of the Customer Agreement when there is a
good-faith dispute as to whether Sabert owes additional license fees to JDA, and if so the
amount of those fees.”28 The arbitrator concluded that “[n]either of those determinations
requires the arbitrator to necessarily find that there is a ‘nonpayment by Customer of amounts
owing to JDA’ that will require JDA to state a claim in arbitration in order to obtain those
funds.”29
Defendant now moves to dismiss or stay this case pending resolution of the
arbitration. Plaintiff in turn moves to stay the pending arbitration until this case has been
resolved.
Discussion
Since defendant is seeking an order dismissing or staying plaintiff’s claims “because
the case is subject to resolution by arbitration[,]”30 the court construes defendant’s motion
as a motion to compel arbitration pursuant to 9 U.S.C. § 4. “A motion to compel arbitration
is decided according to the standard used by district courts in resolving summary judgment
motions pursuant to Rule 56, Fed. R. Civ. P.” Coup v. Scottsdale Plaza Resort, LLC, 823
F. Supp. 2d 931, 939 (D. Ariz. 2011).

28

Id. at 3.

29

Id. at 4.

30

Motion to Dismiss or Stay Action Pending Resolution of Pending Arbitration at 1,
Docket No. 9.
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In considering a motion to compel arbitration, “[t]he first question for the [c]ourt to
address ... is the ‘question of arbitrability,’ i.e., ‘whether the parties are bound by a given
arbitration clause.’” The O.N. Equity Sales Co. v. Venrick, 508 F. Supp. 2d 872, 874 (W.D.
Wash. 2007) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). The
parties disagree as to whether federal or state law applies to the issue of arbitrability.
Defendant contends federal law applies. Plaintiff contends state law applies.
Plaintiff argues that state law applies to the question of arbitrability because the
Customer Agreement contains an Arizona choice of law provision. Section 9.1 of the
Customer Agreement provides that “[t]his Agreement will be governed by the internal laws
of the State of Arizona, without reference to its choice of law rules[.]”31
The Ninth Circuit has held “that courts should apply federal arbitrability law absent
‘clear and unmistakable evidence’ that the parties agreed to apply non-federal arbitrability
law.” Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914, 921 (9th Cir. 2011) (quoting
First Options of Chicago v. Kaplan, 514 U.S. 938, 944 (1995)). The Customer Agreement
contains a choice-of-law clause that provides that Arizona law governs the Customer
Agreement, but the Customer Agreement is silent as to whether Arizona law “also applies
to determine whether a given dispute is arbitrable in the first place.” Id. In short, there is no

31

Customer Agreement at § 9.1, Exhibit A, Plaintiff’s Response to Defendant’s
Motion to Dismiss and Motion to Stay Arbitration, Docket No. 13.
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clear and unmistakable evidence that the parties agreed to apply non-federal arbitrability law.
Thus, federal law applies to the question of arbitrability.
Under federal law, “whether the court or the arbitrator decides arbitrability is ‘an issue
for judicial determination unless the parties clearly and unmistakably provide otherwise.’”
Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069, 1072 (9th Cir. 2013) (quoting
Howsam, 537 U.S. at 83). The Ninth Circuit has held “that incorporation of the AAA rules
constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate
arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015).
The arbitration agreement provides, in relevant part, that
[e]xcept at the option of JDA with respect to a claim against
Customer for the nonpayment by Customer of amounts owing
to JDA or at the option of either party with respect to the right
to apply to a court of competent jurisdiction for equitable or
injunctive relief, any controversy or claim arising out of or
related to this Agreement or in connection with a breach of this
Agreement (“Claim”) will be settled by arbitration before a
single arbitrator under the commercial arbitration rules of the
American Arbitration Association in effect at the time such
Claim is submitted to arbitration.[32]
The parties have plainly incorporated the AAA rules into their arbitration agreement.
Plaintiff argues, however, that the incorporation of the AAA rules only applies to claims that
are subject to arbitration and that the arbitration agreement did not incorporate the AAA rules
into the entire arbitration agreement.

32

Customer Agreement, § 9.2, Exhibit A, Plaintiff’s Response to Defendant’s Motion
to Dismiss and Motion to Stay Arbitration, Docket No. 13.
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This is a nonsensical argument. Plaintiff is basically arguing that the AAA rule that
the arbitrator should decide arbitrability is inapplicable because its claims are not arbitrable.
Such an argument assumes the answer to the arbitrability question.
The AAA rules were incorporated into the entire arbitration agreement, which means
that the arbitrator must decide whether plaintiff’s claims are subject to arbitration, something
that plaintiff contends the arbitrator has already done. Plaintiff argues that there is no reason
to submit the arbitrability question to the arbitrator again.
Plaintiff contends that when deciding its motion to dismiss defendant’s arbitration,
the arbitrator decided that plaintiff’s claims were not subject to arbitration. This contention
is based on the arbitrator’s statement that “[t]he Arbitration Agreement allows Respondent
JDA Software, Inc., to elect to bring a claim for non-payment either in arbitration or in
Court.”33 Plaintiff argues that this shows that the arbitrator has already determined that it
may elect not to arbitrate its nonpayment claims.
The arbitrator has not already decided if plaintiff’s claims are subject to arbitration.
Plaintiff is making too much of the arbitrator’s statement. All the arbitrator was doing was
paraphrasing the arbitration agreement. The arbitrator could not have possibly decided
whether plaintiff’s claims were subject to arbitration because those claims were not yet in
front of the arbitrator.

33

Order Denying Respondent’s Motion to Dismiss for Lack of Arbitral Jurisdiction
at 2, Exhibit C, Walsh Declaration, Exhibit 2, Motion to Dismiss or Stay Action Pending
Resolution of Pending Arbitration, Docket No. 9.
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Because the arbitrator must determine whether plaintiff’s claims are subject to
arbitration, defendant’s instant motion, which the court has construed as a motion to compel
arbitration, is granted. Because the court is granting defendant’s motion, it must determine
whether to stay or dismiss this action. The court “may either stay the action or dismiss it
outright [if] the court determines that all of the claims raised in the action are subject to
arbitration.” Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1074 (9th Cir. 2014).
Here, a stay is appropriate because as defendant concedes, plaintiff’s copyright claim for
injunctive relief is not subject to arbitration.34
Conclusion
Defendant’s motion to dismiss this case35 is denied. Defendant’s alternative request36
to stay this case pending arbitration of plaintiff’s claims is granted. This case is stayed
pending determination of the arbitrability of plaintiff’s claims.
Plaintiff’s motion to stay the pending arbitration37 is denied as moot.
DATED at Anchorage, Alaska, this 19th day of April, 2017.
/s/ H. Russel Holland
United States District Judge

34

Reply Memorandum in Support of Motion to Dismiss or Stay Action Pending
Arbitration and in Opposition to Motion to Stay Arbitration at 8, Docket No. 14.
35

Docket No. 9.

36

Docket No. 9.

37

Docket No. 13.
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