Walkwell International, Inc. v. DJO Global, Inc.

Filing 19

MEMORANDUM DECISION AND ORDER. NOW THEREFORE IT IS HEREBY ORDERED that Defendants' Motion to Dismiss Idaho State Law Claims and to Compel Arbitration 9 is GRANTED IN PART and DENIED IN PART. The Motion is GRANTED to the extent the Court fin ds the parties are compelled to arbitrate their claims and the Complaint is dismissed without prejudice on this basis. The Motion is DENIED in all other respects. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

WALKWELL INTERNATIONAL, INC.,
an Idaho corporation

Case No. 1:17-cv-00270-EJL-REB

Plaintiff,
MEMORANDUM DECISION AND
ORDER

vs.
DJO GLOBAL, INC., a Delaware
corporation, and DOES 1-10,
Defendants.

INTRODUCTION
Pending before the Court is Defendants’ Motion to Dismiss Idaho State Law Claims
and to Compel Arbitration. (Dkt. 9.) The parties filed responsive briefing and the motion
is now ripe. Having fully reviewed the record herein, the Court finds that the facts and legal
arguments are adequately presented in the briefs and record. Accordingly, in the interest of
avoiding further delay, and because the Court conclusively finds that the decisional process
would not be significantly aided by oral argument, the Motion shall be decided on the
record before the Court without oral argument.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Walkwell International, Inc. (“Walkwell”) is an Idaho corporation that
designs medical support devices. (Dkt. 1-4, Ex. D, Complaint, ¶ 1.) Defendant DJO Global,
Inc. (“DJO”) is a Delaware corporation with its principal place of business in Vista,
MEMORANDUM DECISION AND ORDER- 1

California. Id. at ¶ 2. DJO is the largest nonsurgical orthopedic rehabilitation device
company in the United States. Id. at ¶ 12.
On February 14, 1997, Walkwell and Johnson & Johnson Professional, Inc. (“J&J”)
entered into a License Agreement. Id. at ¶ 4. Walkwell owned patents and a trademark
relating to the “Dorsiwedge Night Splint” (the “splint”). Id. at ¶ 4-10. Pursuant to the
Licensing Agreement, Walkwell licensed the splint patents and trademark for use by J&J.
Id. at ¶ 4-10. In exchange for the exclusive license to produce and sell the splint, J&J agreed
to pay certain royalties to Walkwell. J&J later transferred its interests, rights, and
responsibilities under the License Agreement to DJO, who is the contractual successor to
J&J with respect to the License Agreement. Id. at ¶ 11.
Pursuant to the License Agreement, J&J and then DJO manufactured and sold the
splint, paying Walkwell royalties. Id. at ¶ 11-14. However, in 2015, Walkwell alleges that
DJO violated the License Agreement when it stopped making royalty payments, but
continued to manufacture and sell the split. Id. at ¶ 15.
On May 11, 2017, as a result of these alleged violations, Walkwell filed suit against
DJO in the Fourth Judicial District of Idaho. (Dkt. 1-4, Ex. D, Complaint.) In its Complaint,
Walkwell alleges trademark infringement under the Lanham Act and common law, patent
infringement, and violations of the Idaho Consumer Protection Act (ICPA). (Dkt. 1-4, Ex.
D, Complaint.) On June 27, 2017, DJO filed a Notice of Removal to this Court pursuant to
28 U.S.C. §§ 1441 and 1446. (Dkt. 1.) DJO removed the case based on this Court having
federal question over the Lanham Act and patent claims and supplemental jurisdiction over
the remaining claims. (Dkt. 1.)
MEMORANDUM DECISION AND ORDER- 2

On July 28, 2017, DJO filed its Motion to Dismiss Idaho State Law Claims and to
Compel Arbitration. (Dkt. 9.) On August 16, 2017, Walkwell filed an Objection and CrossMotion to Remand. (Dkt. 12.) The Motion is ripe for the Court’s consideration and the
Court finds as follows.
STANDARD OF LAW
A motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6) tests
the sufficiency of a party’s claim for relief. When considering such a motion, the Court’s
inquiry is whether the allegations in a pleading are sufficient under applicable pleading
standards. Federal Rule of Civil Procedure 8(a) sets forth minimum pleading rules,
requiring only a “short and plain statement of the claim showing that the pleader is entitled
to relief.” Fed. R. Civ. P. 8(a)(2).
In general, a motion to dismiss will only be granted if the complaint fails to allege
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. The plausibility standard is not akin to a
‘probability requirement,’ but asks for more than a sheer possibility that a defendant has
acted lawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(citations omitted).
Apart from factual insufficiency, a complaint is also subject to dismissal under Rule
12(b)(6) where it lacks a cognizable legal theory, Balistreri v. Pacifica Police Dept., 901
F.2d 696, 699 (9th Cir. 1990), or where the allegations on their face “show that relief is
barred for some legal reason.” Jones v. Bock, 549 U.S. 199, 215 (2007).
MEMORANDUM DECISION AND ORDER- 3

Although the Court “must take all of the factual allegations in the complaint as true,”
it is “not bound to accept as true a legal conclusion couched as a factual allegations.”
Twombly, 550 U.S. at 555. Therefore, “conclusory allegations of law and unwarranted
inferences are insufficient to defeat a motion to dismiss for failure to state a claim.”
Caviness v. Horizon Comm. Learning Cent., Inc., 590 F.3d 806, 811-12 (9th Cir.
2010)(citation omitted).
When ruling on a motion to dismiss, the court must normally convert a Rule 12(b)(6)
motion into one for summary judgment under Rule 56 if the court considers evidence
outside of the pleadings. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003).
However, a court may consider attachments to the complaint and documents referred to in
the complaint, where the authenticity of such documents are not in question. Cooper v.
Pickett, 137 F.3d 616, 622-23 (9th Cir. 1997) (citing Branch v. Tunnel, 14 F.3d 449, 45354 (9th Cir. 1994)).
DISCUSSION
Walkwell alleges DJO violated the Lanham Act and common law by infringing on
its trademark, committed patent infringement, and violated the Idaho Consumer Protection
Act (ICPA). (Dkt. 1.) DJO contends that Walkwell should be compelled to arbitrate these
claims as the parties agreed in the Licensing Agreement. (Dkt. 9, 14.) DJO further contends
that Walkwell’s state law claims, brought under Idaho law, must be dismissed because the
Licensing Agreement contains a choice of law provision in which the parties agreed that
their relationship would be controlled by the law of New Jersey. (Dkt. 9, 14.)

MEMORANDUM DECISION AND ORDER- 4

In response to DJO’s Motion, Walkwell argues that the Licensing Agreement’s
arbitration and choice of law provisions are unconscionable. Walkwell further argues that
the case should be remanded to state court.
1.

Remand is Not Appropriate.
Walkwell asserts that removal was improper and the case should be remanded back

to state court because the Court does not have exclusive jurisdiction over Walkwell’s
trademark claims under the Lanham Act; the state court has concurrent jurisdiction over
these claims. (Dkt. 12.) DJO contends that Walkwell’s Motion to Remand must be denied
for four reasons: first, it is untimely; second, this Court has original and exclusive
jurisdiction over Walkwell’s patent infringement claim; third, this Court has supplemental
jurisdiction over Walkwell’s state law claims; and fourth, the existence of concurrent
jurisdiction alone is not a basis for remand. (Dkt. 14.)
Federal court jurisdiction is limited by Congress and the Constitution, both of which
provide the subject matter of cases that a federal court may adjudicate. See Polo v.
Innoventions International, LLC, 833 F.3d 1193, 1195-96 (9th Cir. 2016). “State courts,
by contrast are not so limited. As a result, federal and state courts frequently have
concurrent jurisdiction over a given case.” Polo, 833 F.3d at 1196 (internal citation
omitted); see Tafflin v. Levitt, 493 U.S. 455, 458-60 (1990).
When concurrent jurisdiction exists, the plaintiff may choose the court system in
which he files suit. See id. However, a defendant may remove a case, “bring[ing] to federal
court a suit initially filed in state court—if the federal court could have exercised original
jurisdiction in the first instance.” Id. citing 28 U.S.C. § 1441(a), (b).
MEMORANDUM DECISION AND ORDER- 5

“If the removal suffers from procedural defects, the plaintiff is responsible for
bringing those defendants to the attention of the district court in a timely motion to
remand.” Id. “A motion to remand the case on the basis of any defect other than lack of
subject matter jurisdiction must be made within 30 days after the filing of the notice of
removal under section 1446(a).” 28 U.S.C. § 1447(c). If the removal suffers from timely
raised defects or from a lack of subject matter jurisdiction raised at any time before a final
judgment is entered, “the district court generally must remand the case to state court, rather
than dismiss it.” Polo, 833 F.3d at 1196 (citing Bruns v. Nat’l Credit Union Admin., 122
F.3d 1251, 1257 (9th Cir. 1997)).
Walkwell’s Motion to Remand is denied for two reasons: (1) it is untimely and (2)
concurrent state jurisdiction is not grounds for remand.
First, DJO filed its Notice of Removal on June 27, 2017. (Dkt. 1.) Walkwell filed
its Motion to Remand on August 16, 2017, more than 30 days thereafter. (Dkt. 12.) Because
Walkwell does not allege that this Court does not have subject matter jurisdiction over this
matter, the Motion is untimely.
Second, this Court has original jurisdiction over Walkwell’s Lanham Act and patent
infringement claims and supplemental jurisdiction over the remaining claims. Accordingly,
the suit could be removed from state court on federal question grounds. A state court’s
concurrent jurisdiction does not prevent that removal, nor is it grounds for remand. See
Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 474 (1998) and Destfino v. Kennedy,
2008 WL 4901195, at *1 (E.D. Cal. Nov. 12, 2008), aff’d sub nom. Destfino v. Reiswig,
630 F.3d 952 (9th Cir. 2011).
MEMORANDUM DECISION AND ORDER- 6

2.

Motion to Compel Arbitration
The Federal Arbitration Act (FAA) controls the enforcement of arbitration clauses.

Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010). It provides:
A written provision in . . . a contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of
such contract or transaction, or the refusal to perform the whole or any
part thereof, or an agreement in writing to submit to arbitration an
existing controversy arising out of such a contract, transaction, or
refusal, shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2.
Section 3 of the FAA “requires courts to stay litigation of arbitral claims pending
arbitration of those claims ‘in accordance with the terms of the agreement’; and § 4 requires
courts to compel arbitration ‘in accordance with the terms of the agreement’ upon the
motion of either party to the agreement (assuming that the ‘making of the arbitration
agreement or the failure . . . to perform the same’ is not at issue).” AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 344 (2011).
Under the FAA, “[a] party seeking to compel arbitration has the burden . . . to show
(1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the
agreement to arbitrate encompasses the dispute at issue.” Ashbey v. Archstone Prop. Mgmt.,
Inc., 785 F.3d 1320, 1323 (9th Cir. 2015).
A.

Arbitrability of the Claims

“‘[U]nlike the arbitrability of claims in general, whether the court or the arbitrator
decides arbitrability is an issue for judicial determination unless the parties clearly and
unmistakably provide otherwise.’” Mohamed v. Uber Technologies, Inc., 848 F.3d 1201,
MEMORANDUM DECISION AND ORDER- 7

1208 (9th Cir. 2016) (emphasis in original) (quoting Oracle Am., Inc. v. Myriad Grp. A.G.,
724 F.3d 1069, 1072 (9th Cir. 2013) (internal quotations omitted)). “‘In other words, there
is a presumption that courts will decide which issues are arbitrable; the federal policy in
favor of arbitration does not extend to deciding questions of arbitrability.’” Mohamed, 848
F.3d at 1208 (quoting Oracle Am., 724 F.3d at 1072); see also Goldman, Sachs & Co. v.
City of Reno, 747 F.3d 733, 738 (9th Cir. 2014). The role of the Court “‘is strictly limited
to determining arbitrability and enforcing agreements to arbitrate, leaving the merits of the
claim and any defenses to the arbitrator.’” Chiron Corp. v. Ortho Diagnostic Systems, Inc.,
207 F.3d 1126, 1131 (9th Cir. 2000) (quoting Republic of Nicaragua v. Standard Fruit Co.,
937 F.2d 469, 478 (9th Cir. 1991)).
There is no evidence that the parties clearly and unmistakably provided for an
arbitrator to determine arbitrability of the claims, therefore the Court will decide which
claims are arbitrable. See Goldman, Sachs & Co., 747 F.3d at 738. In determining what
claims are arbitrable, the Court considers whether there is a valid arbitration agreement and
whether the claims fall within the scope of that agreement. See Chiron Corp., 207 F.3d at
1131.
B.

Validity & Enforceability of the Arbitration Clause

The Licensing Agreement contains the following language:
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, including any dispute relating to patent validity or
infringement arising under this Agreement, shall be settled by arbitration.
Such arbitration shall be conducted in New Jersey, in accordance with the
rules then pertaining to the American Arbitration Association with a panel
of three (3) arbitrators. The law of the state of New Jersey shall apply to
MEMORANDUM DECISION AND ORDER- 8

the arbitration proceedings. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
(Dkt. 9-1.)
Walkwell argues the Court should not enforce the arbitration clause because it is
unconscionable under Idaho law. (Dkt. 12.) DJO contends that Idaho law cannot preempt
the FAA and the arbitration clause is not unconscionable when applying state contract law
defenses. (Dkt. 14.)
While the Court applies federal law in determining whether an arbitration provision
is enforceable, it can apply state law pursuant to section two of the FAA. See Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32 (1983) and Doctor’s
Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996). Like other contracts, arbitration
agreements “may be invalidated by ‘generally applicable contract defenses, such as fraud,
duress, or unconscionability’” without contravening the FAA. Rent-A-Center, 561 U.S. at
68 (quoting Casarotto, 517 U.S. at 687).
It is well settled law that a Court may refuse to enforce a contract or contractual
provision that is unconscionable. See Lovey v. Regence BlueShield of Idaho, 72 P.3d 877,
882 (Idaho 2003). 1 For the arbitration clause to be voided as unconscionable, it must be
both procedurally and substantively unconscionable. See Lovey, 72 P.3d at 882. Procedural
unconscionability relates to the bargaining process leading to the agreement while

1

Both parties rely on Idaho law to determine whether the arbitration clause is enforceable.
Because this issue is not in dispute, the Court also applies Idaho law noting, however, that there is
no dispute between Idaho law and New Jersey law in this regard. See Muhammad v. County bank
of Rehoboth Beach, Delaware, 912 A.2d 88, 96 (N.J. 2006.)
MEMORANDUM DECISION AND ORDER- 9

substantive unconscionability focuses upon the terms of the agreement itself. See Lovey,
72 P.3d at 882.
In this case, Walkwell has made no showing of procedural unconscionability.
“Indicators of procedural unconscionability generally fall into two areas: lack of
voluntariness and lack of knowledge.” Lovey, 72 P.3d at 882. Nevertheless, Walkwell does
not address voluntariness or knowledge. Further, the record is silent regarding contract
formation and the negotiation of the Licensing Agreement.
Walkwell rests his unconscionability argument on an unsupported assertion that
forced arbitration would be cost prohibitive. This argument alone is insufficient to
establish either procedural or substantive unconscionability in this case. The United
States Supreme Court has held that “the existence of large arbitration costs could
preclude a litigant . . . from effectively vindicating [its] federal statutory rights in the
arbitral forum.” Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90
(2000). But in so holding, the Court also held that “where, as here, a party seeks to
invalidate an arbitration agreement on the ground that arbitration would be prohibitively
expensive, that party bears the burden of showing the likelihood of incurring such costs.”
Green Tree, 531 U.S. at 91 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
26 (1991)). Walkwell’s bare allegation without factual support does not rise to the level
required to meet that burden.
Accordingly, the Court finds the arbitration clause is valid and enforceable.

MEMORANDUM DECISION AND ORDER- 10

C.

The Arbitration Clause Encompasses All of Walkwell’s Claims

DJO contends that all of Walkwell’s claims arise out of or are related to the
Licensing Agreement. (Dkt. 9-1, 14.) The Court agrees.
The parties’ arbitration clause is broad and far reaching. It requires “[a]ny
controversy or claim arising out of or relating to this Agreement, or the breach thereof,
including any dispute relating to patent validity or infringement arising under this
Agreement, shall be settled by arbitration.” (Dkt. 9-1.)
The current dispute between the parties centers on Walkwell’s allegations that J&J,
and then DJO, had exclusive rights to manufacture and market its splint in return for
royalties. (Dkt. 1-4, Ex. D, Complaint.) DJO has ceased making royalty payments but
continued manufacturing and marketing of the splint. (Dkt. 1-4, Ex. D, Complaint.) As a
result, Walkwell makes the following claims against DJO: trademark infringement under
the Lanham Act and common law, patent infringement, and violations of the Idaho
Consumer Protection Act.
The Court finds this dispute unquestionably arises out of the Licensing Agreement.
DJO was granted the exclusive manufacturing and marketing rights to the splint under the
terms of the Licensing Agreement. If DJO had not ceased making payments under the
Licensing Agreement, none of Walkwell’s claims would have arisen. Therefore, all of
Walkwell’s claims are encompassed by the arbitration clause.
In short, this Court finds that DJO has met its burden in establishing that the
arbitration clause is valid and enforceable and all of Walkwell’s claims are encompassed

MEMORANDUM DECISION AND ORDER- 11

by it. As such, Walkwell must arbitrate its claims against DJO in compliance with the
arbitration clause within the Licensing Agreement.
3.

Dismissal on the Basis of Choice of Law
DJO argues Walkwell’s claims brought under Idaho state law must be dismissed

as the Licensing Agreement provides for the application of New Jersey law. (Dkt. 9-1,
14.) Finding that all of Walkwell’s claims are subject to arbitration, the Court must leave
the merits of the claim and defenses to the arbitrator. See Chiron Corp., 207 F.3d at 1131.
Thus, the Court denies DJO’s Motion to Dismiss all Idaho state law claims.
4.

Dismissal Pending Arbitration
DJO requests the Court to dismiss these proceedings and compel Walkwell to

arbitrate all of its claims against DJO. (Dkt. 9-1.)
“The FAA provides that district courts must stay pending proceedings on issues
subject to arbitration until such arbitration has been had.” Tillman v. Tillman, 825 F.3d
1069, 1075 (9th Cir. 2016) (citing 9 U.S.C. § 3); see also E.E.O.C. v. Waffle House, Inc.,
534 U.S. 279, 289 (2002) (citing 9 U.S.C. § § 3 and 4). The Ninth Circuit “ha[s] held that,
notwithstanding the language of § 3, a district court may either stay the action or dismiss
it outright when, as here, 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, 1073 (9th
Cir. 2014). Dismissal is appropriate where “the arbitration clause [i]s broad enough to bar
all of the plaintiff’s claims [by] requir[ing] [the plaintiff] to submit all claims to
arbitration.” Sparling v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th Cir. 1988).

MEMORANDUM DECISION AND ORDER- 12

The Court has found that the arbitration clause is broad enough to require Walkwell
to submit all of his claims to arbitration. Therefore, the Court finds it is appropriate to
dismiss the complaint rather than stay the proceedings.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that Defendants’ Motion to
Dismiss Idaho State Law Claims and to Compel Arbitration (Dkt. 9) is GRANTED IN
PART and DENIED IN PART. The Motion is GRANTED to the extent the Court finds
the parties are compelled to arbitrate their claims and the Complaint is dismissed without
prejudice on this basis. The Motion is DENIED in all other respects.

DATED: November 15, 2017

_________________________
Edward J. Lodge
United States District Judge

MEMORANDUM DECISION AND ORDER- 13