Realty Executives International Services LLC v. Devonshire Western Canada Limited et al

Filing 84

ORDER denying 64 Motion to Amend/Correct. Defendants' spouses are dismissed. See Order for details. Signed by Senior Judge David G Campbell on 9/9/2019.(DGC, nvo)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA
Realty Executives International Services
LLC,

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Plaintiff,

No. CV-17-02671-PHX-DGC
ORDER

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v.

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Devonshire Western Canada Limited, et al.,

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Defendants.

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Plaintiff Realty Executives International Services, LLC (“REI”) has filed a motion

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for leave to file a second amended complaint (“SAC”) pursuant to Rule 15 of the Federal

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Rules of Civil Procedure. Doc. 64. The motion is fully briefed (Docs. 64, 70, 71, 74), and

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oral argument has not been requested. Because the proposed new claims are covered by

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an unambiguous arbitration provision, the Court will deny leave to amend as futile.1

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I.

Background.

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Plaintiff REI filed its initial complaint in Arizona state court, and Defendants

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removed the case to this Court on the basis of diversity jurisdiction. Doc 1. REI then

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amended its complaint as a matter of right. Doc. 16. The amended complaint alleged that

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Defendants breached a 2008 Regional Developer Agreement (“2008 Agreement”) and the

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implied covenant of good faith and fair dealing, and asserted a separate claim for tortious

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interference with business expectancy. Id. ¶¶ 71-98. REI now seeks to file a second

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amended complaint that would add two alternative claims – one for breach of a 2003

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Plaintiff’s brief places all citations in footnotes. Plaintiff’s counsel is reminded that the
Court’s Amended Case Management Order prohibits this practice. See Doc. 58, ¶ 10(b).

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franchise agreement (“2003 Agreement”), and the other for breach of the covenant of good

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faith and fair dealing implied in the 2003 Agreement. Doc. 64. REI further proposes to

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dismiss the claims against the Defendants’ spouses, which Defendants do not dispute.

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Docs. 64, 70 at 7.

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II.

Rule 15’s Standard for Amending Pleadings.

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Rule 15 provides that the Court “should freely give leave [to amend] when justice

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so requires.” Fed. R. Civ. P. 15(a)(2). The policy favoring leave to amend must not only

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be heeded, see Foman v. Davis, 371 U.S. 178, 182 (1962), it must be applied with “extreme

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liberality,” see Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th

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Cir. 2001). The Court may deny a motion to amend on the basis of undue delay or bad

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faith on the part of the moving party, undue prejudice to the opposing party, or futility of

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the proposed amendment. See Foman, 371 U.S. at 182. The party opposing amendment

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bears the burden of showing prejudice, futility, or another reason for denying the

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amendment. See DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987).

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III.

Discussion.

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Defendants contend that REI’s proposal to add claims based on the 2003 Agreement

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would be futile because the agreement contains a mandatory arbitration provision that

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precludes assertion of the claims in federal court. Doc. 70 at 4. An amendment is futile if

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no set of facts can be proven that would constitute a valid and sufficient claim. Miller v.

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Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). The test is identical to the one used

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in addressing challenges under Rule 12(b)(6). Nordyke v. King, 644 F.3d 776, 788 (9th

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Cir. 2011) (citing Miller, 845 F.2d at 214).

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Any claims arising out of or relating to the 2003 Agreement must be resolved under

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the agreement’s alternative dispute resolution mechanism. That mechanism calls for

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informal discussion, mediation, and binding arbitration. Doc. 64-6 ¶ 14. The agreement

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expressly states that these are the “sole and exclusive procedures for the resolution of

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disputes between the parties arising out of or relating to this Agreement.” Id.

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The Federal Arbitration Act “requires courts to ‘place arbitration agreements on an

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equal footing with other contracts, and enforce them according to their terms.’” Poublon

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v. C.H. Robinson Co., 846 F.3d 1251, 1259 (9th Cir. 2017) (quoting AT&T Mobility LLC

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v. Concepcion, 563 U.S. 333, 339 (2011)). Parties may contend that arbitration provisions

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are invalid under general contract principles, or that the claims they assert are not covered

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by an arbitration provision. Id.; 9 U.S.C. § 2. But REI makes no argument that the

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mediation and arbitration provision of the 2003 Agreement is invalid, and the proposed

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new claims clearly fall within its terms. The arbitration provision governs all claims

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“arising out of or relating to” the 2003 Agreement, Doc. 64-6 ¶ 14, and the claims for

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breach of the agreement and breach of the covenant implied in the agreement clearly arise

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out of or relate to the agreement. What is more, “[a]ny doubts about the scope of arbitrable

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issues . . . are to be resolved in favor of arbitration.” Tompkins v. 23andMe Inc., 840

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F.3d 1016, 1022 (9th Cir. 2016) (citation omitted).

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The Court may deny leave to amend if the new claims are subject to arbitration. See

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Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988); see also Thinket

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Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1060 (9th Cir. 2004)

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(affirming dismissal of claims that were subject to arbitration); Chappel v. Lab. Corp. of

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America, 232 F.3d 719, 725 (9th Cir. 2000) (where “judicial review . . . is barred by the

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[contract's] valid and enforceable arbitration clause[,] [t]he district court properly

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dismissed his complaint under Federal Rules of Civil Procedure 12(b)(6) for failure to state

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a claim”). If REI seeks to assert claims arising out of or related to the 2003 Agreement, it

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must do so under the process established in that agreement.

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REI contends that Defendants waived the right to rely on the 2003 mediation and

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arbitration clause by failing to invoke it earlier. Doc. 74 at 6. But REI has not previously

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brought a claim under the 2003 Agreement, and Defendants were not obligated to assert

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the mediation and arbitration clause of that agreement.

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REI also argues that the arbitration provision is not mandatory because it states that

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“either party may submit” to arbitration. Doc. 64-6 ¶ 14 (emphasis added). But this merely

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means that the parties are not required to arbitrate every dispute – they may choose to

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forego resolution of some disagreements. But if either side seeks to assert a claim arising

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out of or related to the 2003 Agreement, the arbitration provision is “the sole and exclusive

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procedure[] for the resolution of disputes[.]” Id.

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Finally, REI argues that denying leave to amend will potentially require it to litigate

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in two locations – this Court for its claims under the 2008 Agreement and arbitration for

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its claims under the 2003 Agreement. REI asserts it would be highly inefficient to litigate

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in two settings, particularly when its claims related to the 2003 Agreement are being

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asserted in the alternative to claims under the 2008 Agreement. Even if this is true, it does

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not invalidate the mandatory arbitration provision or authorize this Court to disregard that

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provision. If REI feels compelled to assert the 2003 Agreement claims now, perhaps it can

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seek a tolling agreement from Defendants or initiate arbitration and ask the arbitrator to

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stay the proceedings until this case is resolved in the next few months. What it cannot do,

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however, is assert claims in this Court that must be arbitrated.

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IV. Defendants’ Spouses.

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REI’s proposed SAC dismisses Defendants’ spouses. Defendants do not dispute

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this, and note that REI’s counsel has represented that REI “intend[s] to voluntarily dismiss

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the spouses” irrespective of the SAC. Doc. 70 at 7. Because it is undisputed that the

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Defendants’ spouses should not remain in this case, the Court will dismiss the claims

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against them.

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IT IS ORDERED:

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Plaintiff’s motion for leave to file an amended complaint (Doc. 64) is denied.

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2.

Defendants’ spouses are dismissed.

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Dated this 9th day of September, 2019.

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