Epic Advertising v. Asis Internet Services et al

Filing 36

ORDER by Judge Samuel Conti denying 30 Motion to Dismiss (sclc2, COURT STAFF) (Filed on 12/13/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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EPIC ADVERTISING d/b/a
AZOOGLEADS.COM, INC., a Delaware
corporation,

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Plaintiff,

For the Northern District of California

United States District Court

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v.
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ASIS INTERNET SERVICES, a
California corporation; and NELLA
WHITE, an individual.

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Defendants.

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I.

) Case No. 11-1705 SC
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) ORDER DENYING DEFENDANTS'
) MOTION TO DISMISS
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INTRODUCTION
Before the Court is a Motion to Dismiss filed by Defendants

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Asis Internet Services ("Asis") and Nella White ("White")

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(collectively, "Defendants").

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Advertising ("Plaintiff") filed an Opposition.

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("Opp'n").

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reasons, the Court DENIES Defendants' Motion.

ECF No. 30 ("Mot.").

Defendants did not file a Reply.

Plaintiff Epic

ECF No. 32

For the following

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II.

BACKGROUND
The Court detailed the background of this dispute in its prior

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order denying Defendants' first motion to dismiss and does not

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repeat that background here.

ECF No. 28 ("Sep. 29, 2011 Order").

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In short, this action involves Plaintiff's attempt to collect on a

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judgment against Defendants from a prior lawsuit, ASIS Internet

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Services v. Optin Global, Inc., No. 05-5124 (N.D. Cal.).
Plaintiff filed this action on April 7, 2011, asserting state

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law claims for malicious prosecution, tort of another, and

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fraudulent transfer.

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2011, Defendants filed their first motion to dismiss, claiming that

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Plaintiff's 2010 acquisition of non-party Connexus Corporation

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("Connexus"), a California corporation, divested the Court of

ECF No. 1 ("Compl.") ¶¶ 103-133.

On July 14,

United States District Court

For the Northern District of California

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diversity jurisdiction.

See ECF No. 16 ("Defs.' First MTD").

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Court denied Defendants' motion, finding that Plaintiff had

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established that Connexus was its subsidiary.

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at 7.

The

Sep. 29, 2011 Order

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On October 18, 2011, Defendants filed the instant Motion,

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arguing that the Court lacks jurisdiction because of an arbitration

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clause contained in a 2007 settlement agreement between Asis and

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Connexus (the "Settlement Agreement").

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filed an Opposition arguing that the Motion fails for numerous

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reasons and that the Court should impose sanctions upon Defendants

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for unreasonably and vexatiously multiplying the proceedings.

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the following reasons, the Court DENIES Defendants' Motion and

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DENIES Plaintiff's request for sanctions.

Mot. at 2-3.

Plaintiff

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III. DISCUSSION

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A.

Defendants' Motion

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Defendants move to dismiss the instant action for lack of

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subject matter jurisdiction on the ground that the parties

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contracted to resolve their disputes exclusively through

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For

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arbitration.

When an action involves an issue properly governed by

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an arbitration clause, however, the district court "is not deprived

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of jurisdiction altogether."

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No. C 97-0518 FMS, 1997 U.S. Dist. LEXIS 23494, at *5 (N.D. Cal.

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May 23, 1997).

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Arbitration Act ("FAA"), "the court shall make an order directing

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the parties to proceed to arbitration in accordance with the terms

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of the agreement."

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Section 3 of the FAA, the court is required to stay, not dismiss,

See Nicholson v. Labor Ready, Inc.,

Rather, pursuant to Section 4 of the Federal

See 9 U.S.C. § 4.

Additionally, pursuant to

See id. § 3.

Consequently,

United States District Court

For the Northern District of California

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the action pending arbitration.

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Defendants are not entitled to dismissal of the instant action.

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Although Defendants do not expressly move to compel

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arbitration, the gravamen of their Motion is that this dispute is

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subject to mandatory arbitration under the Settlement Agreement

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between Asis and Connexus.

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merits of Defendants' arguments in support of arbitration, the

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Court will construe the instant Motion as a motion to compel

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arbitration.

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No. CV 05-3792-PHX-SMM, 2006 U.S. Dist. LEXIS 56039, at *5-8 (D.

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Ariz. July 17, 2006) (construing motion to dismiss for lack of

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subject matter jurisdiction as motion to compel arbitration).

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ruling on a motion to compel arbitration, the district court's

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"role is limited to determining whether a valid arbitration

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agreement exists and, if so, whether the agreement encompasses the

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dispute at issue."

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207 F.3d 1126, 1130 (9th Cir. 2000).

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Because Plaintiff has addressed the

See, e.g., Filimex, L.L.C. v. Novoa Invs., L.L.C.,

When

Chiron Corp. v. Ortho Diagnostic Sys., Inc.,

Here, Defendants wasted little time preparing their three-page
motion with citation to but a single statute, no cases, and barely

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any argument at all.

They simply proclaim that Asis was engaged in

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litigation with Connexus that resulted in the Settlement Agreement

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prior to the events at issue in the present litigation; that

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Plaintiff and Connexus merged; and that therefore Plaintiff is

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bound by an arbitration clause contained in the Settlement

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Agreement between Asis and Connexus.

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Code § 1107).

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Defendants' Motion fails for numerous reasons.

Mot. at 2 (citing Cal. Corp.

Plaintiff argues, and the Court agrees, that

First, the Court found in its September 29, 2011 Order that

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United States District Court

For the Northern District of California

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Connexus is Plaintiff's subsidiary.

Sep. 29, 2011 Order at 7.

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Plaintiff is not a party to the Settlement Agreement, which was

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executed in 2007, well before Plaintiff acquired Connexus in 2010.

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See ECF No. 29 Ex. B ("Settlement Agreement"); Graff Decl. ¶ 12.1

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Ordinary contract and agency principles govern whether a non-

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signatory to an arbitration agreement is bound by the agreement.

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Delmore v. Ricoh Americas Corp., 667 F. Supp. 2d 1129, 1135 (N.D.

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Cal. 2009).

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and its subsidiary are legally distinct entities, and a contract

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under the corporate name of one is not treated as that of both"

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unless the subsidiary operates as the alter ego of the parent.

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Nat'l Rural Telecomms. Coop. v. DIRECTV, Inc., 319 F. Supp. 2d

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1040, 1057 (C.D. Cal. 2003).

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that Connexus is the alter ego of Plaintiff and have therefore

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failed to show that Plaintiff is bound by the arbitration

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agreement.

Under California contract law, "a parent corporation

Defendants have presented no evidence

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David Graff ("Graff"), General Counsel for Plaintiff, filed a
declaration in support of Plaintiff's opposition to Defendants'
first motion to dismiss. ECF No. 18. Graff declares that
Plaintiff acquired Connexus in 2010.
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Second, Defendants have presented no argument as to why the

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instant dispute falls within the scope of the arbitration agreement

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between Asis and Connexus.

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all disputes "arising out of, or relating to" the settlement

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agreement must be resolved by binding arbitration.

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Agreement ¶ 19.

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malicious prosecution of a 2005 action against Plaintiff and their

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alleged efforts to avoid paying the judgment awarded to Plaintiff

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in that action.

The arbitration agreement provides that

Settlement

The instant dispute concerns Defendants' alleged

See Compl.

Asis's Settlement Agreement with

United States District Court

For the Northern District of California

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Connexus was executed in 2007, well before Plaintiff acquired

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Connexus in 2010.

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instant action is related to, or arises out of, a settlement

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agreement to which Plaintiff was not a party.

Defendants offer no explanation of how the

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Third, this Motion is procedurally improper because it was

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filed five days after Defendants were required to file a responsive

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pleading to the Complaint under Federal Rule of Civil Procedure

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12(a)(4)(A).

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For the foregoing reasons, Defendants' Motion is DENIED.

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B.

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In its Opposition, Plaintiff asks the Court to impose

Plaintiff's Request for Sanctions

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sanctions pursuant to its inherent power or 28 U.S.C. § 1927, which

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provides that any attorney who "so multiplies the proceedings in

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any case unreasonably and vexatiously may be required by the court

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to satisfy personally the excess costs, expenses, and attorneys'

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fees reasonably incurred because of such conduct."

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of sanctions under Section 1927 or the Court's inherent power

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requires a finding of bad faith.

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Wilderness Soc'y, 421 U.S. 240, 258-59 (1975).

The imposition

Alyeska Pipeline Serv. Co. v.

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While the Court agrees with Plaintiff that Defendants have

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made very little effort to establish the merits of their Motion and

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have come perilously close to submitting a frivolous filing that

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wastes both Plaintiff's and the Court's time, the Court finds that

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sanctions are not warranted at this time.

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reminds Defendants of their obligations under Federal Rule of Civil

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Procedure 11(b) and cautions Defendants that such barely

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substantiated filings may be grounds for sanctions in the future.

However, the Court

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United States District Court

For the Northern District of California

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IV.

CONCLUSION

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For the foregoing reasons, the Court DENIES the Motion to

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Dismiss filed by Defendants Asis Internet Services and Nella White.

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IT IS SO ORDERED.

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Dated: December 13, 2011
UNITED STATES DISTRICT JUDGE

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