Cyber Imaging Systems, Inc. v. Eyelation, Inc.

Filing 16

ORDER regarding 12 Motion to Dismiss is GRANTED in part and DENIED in part. Cyber Imaging is DIRECTED to file a motion to change the caption of the case so it reflects its most recent filing with the North Carolina Secretary of State explaining that it does business as Cyber Imaging, Inc. Signed by District Judge Terrence W. Boyle on 5/6/2015. The parties are reminded to read the order in its entirety. (Downing, L.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:14-CV-901-BO

CYBER IMAGING SYSTEMS, INC.,
Plaintiff,
v.
EYELA TION, INC.,
Defendant.

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ORDER

This matter is before the Court on defendant Eyelation Inc.'s motion to dismiss pursuant
to Rules 12(b)(l) and 12(b)(6) ofthe Federal Rules of Civil Procedure. [DE 12]. Plaintiffhas
responded and defendant has replied. Accordingly, the motion is ripe for ruling. For the reasons
stated herein, defendant's motion to dismiss is GRANTED

IN PAR:t and DENIED IN PART.

BACKGROUND
This action stems from an agreement between the parties relating to the development of
virtual software for the selection, fitting, and sale of prescription safety eyeglasses. In 2012, a
dispute arose between Eyelation and Cyber Imaging regarding their respective rights and
obligations under the agreement. As required by the agreement, the dispute was submitted to
binding arbitration. An arbitration hearing was conducted over six days in June and July 2013.
The arbitrator found that Cyber Imaging partially breached the Agreement, Eyelation was
justified in taking measures to mitigate its damages, and that Cyber Imaging did not have an
ownership interest in the software that Eyelation developed in mitigation. The arbitrator also held
that Cyber Imaging was entitled to certain royalty payments stemming from the software that it
played a role in developing. Eyelation was instructed to transmit each payment "within thirty
days after the end of the month in which the revenues from such sales or licenses are received."
[DE 1-2 at 56]. Cyber Imaging filed suit in Wake County Superior Court alleging that it is not

receiving payments within 30 days of the underlying sales and suing for specific performance of
the arbitration award, breach of contract, and fraud. Eyelation removed the case to federal court
on the basis of diversity of citizenship and filed the instant motion to dismiss.
DISCUSSION
A Rule 12(b)(6) motion to dismiss for failure to state a claim for which relief can be
granted challenges the legal sufficiency of a plaintiffs complaint. Francis v. Giacomelli, 588
F.3d 186, 192 (4th Cir. 2009). When ruling on the motion, the court "must accept as true all of
the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007)
(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)). Although complete and
detailed factual allegations are not required, "a plaintiffs obligation to provide the 'grounds' of
his 'entitle[ment] to relief requires more than labels and conclusions ... ."Twombly, 550 U.S. at
555 (citations omitted). "Threadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 555). Similarly, a court need not accept as true a plaintiffs "unwarranted

inferences, unreasonable conclusions, or arguments." Eastern Shore Mkts., Inc., v. JD. Assocs.
Ltd., 213 F.3d 175, 180 (4th Cir. 2000).

1. Jurisdiction
Federal Rule of Civil Procedure 12(b)( 1) authorizes dismissal of a claim for lack of
subject matter jurisdiction. Standing is a necessary prerequisite to a court's proper exercise of
subject matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). If a party
does not have standing to bring or pursue a claim, the court has no subject matter jurisdiction to
hear it, and the claim must be dismissed. Lujan, 504 U.S. at 560. To demonstrate standing, Cyber
Imaging must establish that it has suffered an injury in fact that is concrete and particularized,

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that the injury is fairly traceable to the challenged action of the defendant, and that the injury is
likely to be redressed by a favorable decision from the Court. Chambers Med. Techs. ofS.C., Inc.
v. Bryant, 52 F .3d 1252, 1265 (4th Cir. 1995). When subject matter jurisdiction is challenged, the
plaintiff has the burden of proving jurisdiction to survive the motion. Evans v. B.F .Perkins Co.,
166 F.3d 642, 647 (4th Cir. 1999).
Eyelation argues that Cyber Imaging cannot establish that Cyber Imaging Systems, Inc.
has suffered any injury because Cyber Imaging, Inc. was the named party to the contract and
arbitration. The misnaming of a party "in a judicial proceeding is immaterial if it appears that the
corporation could not have been or was not misled." Morrel v. Nationwide Mutual Fire Ins. Co,
188 F.3d 218,224 (4th Cir. 1999). While Morrel dealt with service of process, the theory applied
by the court is instructive. Here, it is quite clear that Eyelation has not been misled. Although the
arbitration was conducted under the name of Cyber Imaging, Inc., it is clear from the pleadings
that Cyber Imaging, Inc. is the same party as is bringing suit in this case.
Eyelation's reliance on American Oil Company v. AAN Real Estate, LLC, 754 S.E.2d 844
(N.C. Ct. App. 2014), is inapposite. In American Oil, the court relied in part on the plaintiffs
failure to file a certificate of assumed name as required under state law. !d. at 846. Here, Cyber
Imaging recently filed a Corporate Certificate of Assumed Name with the North Carolina
Secretary of State that demonstrates that Cyber Imaging Systems, Inc., does business as CyberImaging, Inc. [DE 14-2]. Given Cyber Imaging's recent filing, the Court is satisfied that Cyber
Imaging Systems, Inc. and Cyber Imaging, Inc. are the same party and that Cyber Imaging has
standing to enforce the arbitration award. Accordingly, Eyelation's motion to dismiss pursuant to
Rule 12(b)( 1) of the Federal Rules of Civil Procedure is denied. For clarity, Cyber Imaging is

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directed to file a motion to change the caption of the case to reflect its recent filing with the
North Carolina Secretary of State demonstrating that it does business as Cyber Imaging, Inc.
2.

Enforcement of the Arbitration Award

The Federal Arbitration Act (FAA), which applies to arbitration agreements in the
context of interstate commerce, specifies that "[i]f the parties in their agreement have agreed that
a judgment of the court shall be entered upon the award made pursuant to arbitration ... then at
any time within one year after the award is made, any party to the arbitration may apply to the
court so specified for an order confirming the award[.] 9 U.S.C. § 9 (2014). The Fourth Circuit
has held that Section 9 is permissive and "does not bar the confirmation of an award beyond a
one-year period." Sverdrup Corp. v. WHC Constructors, Inc., 989 F.2d 148, 156 (4th Cir 1993).
The court explained that because common law remedies exist outside of the FAA to enforce an
award, "reading § 9 as a strict statute of limitations would be an exercise in futility" and "would
inevitably lead to inefficiency, delay, and court congestion" by encouraging common law actions
to enforce the awards. Id. at 155. Courts within the Fourth Circuit have followed this rule even in
light ofthe Supreme Court decision in Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co.,
529 U.S. 193 (2000), which instructed that the use ofthe word "may [in a statute] is not
necessarily conclusive of congressional intent to provide for a permissive or discretionary
authority." Id. at 198; See, e.g., 1199 SEIU United Healthcare Workers East v. Civista Med. Ctr.
Inc., No. DKC 10-0479,2011 WL 310486, at *4 (D.Md. Jan 28, 2011); United Gov't Sec.
Officers ofAm. v. Special Operations Grp. Inc., 436 F.Supp.2d 790, 794-95 (E.D.Va. 2006);
Watkins v. Duke Medical Center, No. 1:13-CV-1007, 2014 WL 4442936 (M.D.N.C. Sept. 9,
2014).

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Here, the arbitration award was made on October 3, 2013, and plaintiff did not institute
this action or otherwise certify the underlying award until December 2, 2014. While this is
outside the one year period provided by the FAA, this Court is bound by the Sverdrup decision,
which has not yet been reconsidered by the Fourth Circuit in light ofthe Supreme Court opinion
in Cortez and must deny Eyelation's motion to dismiss on this ground.
3. Breach of Contract Claim
Cyber Imaging claims that "Eyelation continues to breach the [2009] agreement by
failing to make full and adequate payment of royalties under the contract, by failing to provide
adequate evidence of the payments being made, by failing to make payments on time, by failing
to abide by the arbitration award, and by failing to act in good faith." [DE 1-2 at 17-18]. The
arbitration agreement provides that any claim arising thereunder is subject to the agreement's
choice oflaw provision, which establishes that Illinois law shall apply. To maintain a cause of
action for breach of contract under Illinois law, plaintiff must allege "the existence of a valid and
enforceable contract, performance by the plaintiff, breach of the contract by the defendant, and
resultant damages or injury to the plaintiff." Razor Capital v. Antaal, 972 N.E.2d 1238, 1246 (Ill.
2012). It is undisputed that the agreement was terminated prior to the conclusion of the
arbitration proceedings, and the arbitrator so found in his decision. Accordingly, there is no valid
and enforceable contract, and Eyelation has no continuing obligations thereunder. Eyelation's
motion to dismiss the breach of contract claim, therefore, is granted.
4. Fraud Claim
In its response to the motion to dismiss, Cyber Imaging states that it agrees to dismiss its
fraud claim against Eyelation. [DE 14 at 7]. Accordingly, the Court grants Eyelation's motion to
dismiss as to Cyber Imaging's third claim for relief, which alleges fraud against Eyelation.

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CONCLUSION
For the foregoing reasons, defendant's motion to dismiss [DE 12] is GRANTED as to the
breach of contract and fraud claims (Counts Two and Three of the complaint) and DENIED as to
the remaining claims. Cyber Imaging is DIRECTED to file a motion to change the caption of the
case so it reflects its most recent filing with the North Carolina Secretary of State explaining that
it does business as Cyber Imaging, Inc.

SO ORDERED, this_;____ day of May, 2015.

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T
NCE W. BOYLE
UNITED STATES DISTRICT JU GE

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