The Property Sciences Group, Inc. v. Pinnacle Capital Mortgage Corporation

Filing 19

ORDER by Judge Hamilton granting 13 Motion to Compel Arbitration, denying Motion to Dismiss; ORDER staying case. (pjhlc1, COURT STAFF) (Filed on 9/8/2011)

1
2

UNITED STATES DISTRICT COURT

3

NORTHERN DISTRICT OF CALIFORNIA

4
5
6

THE PROPERTY SCIENCES GROUP,
INC.,

7
Plaintiff,

No. C 11-2687 PJH

8
v.
9
PINNACLE CAPITAL MORTGAGE
CORPORATION,

11
For the Northern District of California

United States District Court

10

ORDER GRANTING MOTION TO
COMPEL ARBITRATION; ORDER
STAYING CASE

Defendant.
_______________________________/

12
13

Before the court is the motion of defendant Pinnacle Capital Mortgage Corporation

14

(“Pinnacle”) for an order compelling arbitration of the parties’ dispute, and request for

15

dismissal of the action. Plaintiff Property Sciences Group, Inc. (“PSG”) opposes arbitration,

16

but also asserts that if arbitration is ordered, the court should condition it on the parties’

17

agreeing in advance that the arbitrator has the authority to impose equitable remedies.

18

Having read the parties’ papers and carefully considered their arguments, and good cause

19

appearing, the court hereby GRANTS the motion to compel arbitration, DENIES the

20

request for dismissal, ORDERS that the case be stayed pending the arbitration, and

21

DENIES the request to impose the pre-condition sought by PSG.

22

PSG, which provides home appraisal and related services, developed a web-based

23

appraisal order management and tracking system called the AMCTrak Order Workflow

24

System (“AMCTrak”), which has been registered with the U.S. Copyright Office. The

25

AMCTrak system is used in real property appraisals. In March 2009, Pinnacle, a mortgage

26

lender, entered into a non-exclusive license agreement (“the Subscription Agreement”) with

27

PSG, allowing Pinnacle to access the AMCTrak software and use the system to order,

28

deliver, and manage appraisal services. The Subscription Agreement prohibited Pinnacle

1

from reverse-engineering, or creating derivative works based on, the AMCTrak software

2

and system. Throughout 2009 and into early 2010, Pinnacle and PSG employees met

3

numerous times to discuss Pinnacle’s use and implementation of PSG’s software and

4

system.

5

On February 12, 2010, Pinnacle notified PSG that it was terminating its agreements

6

with PSG effective immediately. On February 16, 2010, Pinnacle launched a new web-

7

based appraisal management system that PSG claims is substantially similar to PSG’s

8

copyrighted system. In March 2010, Pinnacle hired the former PSG account manager.

9

PSG filed the complaint in the above-entitled action against Pinnacle on June 3,
2011, alleging three causes of action. PSG alleges that Pinnacle intentionally copied,

11
For the Northern District of California

United States District Court

10

distributed, modified, transformed and adapted PSG’s copyrighted software, and used it

12

without authorization (copyright infringement); alleges that this unauthorized copying

13

constituted an unlawful and unfair business practice under § 17200; and seeks a judicial

14

declaration that PSG is the owner of the ABCTrak software and system, and that the web-

15

based software appraisal system utilized by Pinnacle is based on or derived from or copied

16

from PSG’s AGCTrak system. PSG seeks compensatory and punitive damages, and an

17

accounting, and also seeks injunctive and declaratory relief.

18

The Subscription Agreement includes an arbitration provision, stating that “[a]ny

19

claim or controversy arising out of or relating to this Agreement, which cannot be resolved

20

between the Parties, shall be settled by arbitration in Pleasant Hill, California, in

21

accordance with . . . the Commercial Arbitration Rules of the American Arbitration

22

Association.”

23

In July 2011, counsel for Pinnacle sent counsel for PSG a letter asserting that the

24

claims in the complaint arise out of or are related to the Subscription Agreement between

25

the parties, and that the dispute must be submitted to arbitration. Counsel for PSG

26

responded that PSG would agree to submit the dispute to arbitration only if Pinnacle would

27

agree in advance that the arbitrator(s) had the authority to grant equitable relief as

28

demanded in the complaint. Pinnacle now seeks an order compelling PSG to submit this
2

1
2

dispute to arbitration without any preconditions, and dismissing the entire action.
Section 2 of the FAA provides that a written arbitration agreement in “a contract

3

evidencing a transaction involving commerce . . . shall be valid, irrevocable, and

4

enforceable.” 9 U.S.C. § 2. Any party bound to an arbitration agreement that falls within

5

the scope of the FAA may bring a motion in federal district court to compel arbitration and

6

dismiss or stay the proceedings. 9 U.S.C. §§ 3, 4. The FAA eliminates district court

7

discretion and requires the court to compel arbitration of issues covered by the arbitration

8

agreement. Dean Witter Reynolds, Inc., v. Byrd, 470 U.S. 213, 218 (1985).

9

The role of the federal courts in these circumstances is limited to determining
whether the arbitration clause at issue is valid and enforceable under § 2 of the FAA.

11
For the Northern District of California

United States District Court

10

Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). That is,

12

the court must determine whether there is an agreement between the parties to arbitrate;

13

the claims at issue fall within the scope of the agreement; and the agreement is valid and

14

enforceable. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir.

15

2004). Because of the strong policy favoring arbitration, doubts or ambiguities must be

16

resolved in favor of and not against arbitration. Moses H. Cone Mem. Hosp. v. Mercury

17

Const. Corp., 460 U.S. 1, 24-25 (1983).

18

Here, Pinnacle asserts, the requisites for arbitration are met – there is an agreement

19

to arbitrate contained within the Subscription Agreement, the claims at issue (copyright

20

infringement, unlawful business practices based on copyright infringement, and claim for

21

declaratory relief) all “arise out of or relate to” the provisions in the Subscription Agreement

22

allowing Pinnacle to use PSG’s software but prohibiting Pinnacle from copying or reverse-

23

engineering, or creating a derivative work from, the software; and PSG has made no

24

showing that the arbitration agreement is not valid and enforceable.

25

In opposition, PSG asserts that because its complaint alleges copyright

26

infringement, not breach of the Subscription Agreement, the case cannot be ordered to

27

arbitration; that because Pinnacle previously “repudiated” the Subscription Agreement

28

(when it informed PSG that it was terminating the Agreement), it cannot seek arbitration
3

1

under that agreement; and that even if the contract were enforceable, the arbitration

2

provision does not extend to the claims alleged in the complaint. The court finds none of

3

these arguments persuasive.

4

In determining whether a particular claim falls within the scope of the parties’

5

arbitration agreement, the court focuses on the factual allegations in the complaint rather

6

than on the legal causes of action asserted. Mitsubishi Motors Corp. v. Soler Chrysler-

7

Plymouth, Inc., 473 U.S. 614, 622-24 & nn.9, 13 (1985). If the allegations underlying the

8

claims “touch matters” covered by the parties’ agreement, then those claims must be

9

arbitrated, whatever legal labels are attached to them. Id. at 624 n.13.
Here, in contrast to the situation in the case cited by PSG – Kuklachev v. Gelfman,

11
For the Northern District of California

United States District Court

10

600 F.Supp. 2d 437 (E.D.N.Y. 2009) – the right to use the copyrighted material is the very

12

subject of the Subscription Agreement, which prohibits Pinnacle from copying or reverse-

13

engineering, or creating a derivative work of, the software. Thus, the claims alleged in the

14

complaint clearly “arise out of or relate to” the Subscription Agreement. The fact that PSG

15

chose to sue Pinnacle for copyright infringement rather than breach of the Subscription

16

Agreement is irrelevant under the standard articulated above.

17

Moreover, the court finds it unnecessary for the parties to agree in advance of the

18

arbitration that the arbitrator has the authority to award equitable relief, as it is up to the

19

arbitrator to decide what form of relief he/she may award. The arbitration provision in the

20

Subscription Agreement places no limits on the available relief, and PSG has cited no

21

authority supporting its position.

22
23

The date for the hearing on this motion, previously set for September 14, 2011, is
VACATED.

24
25

IT IS SO ORDERED.

26

Dated: September 8, 2011
______________________________
PHYLLIS J. HAMILTON
United States District Judge

27
28
4