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transferring the dispute over arbitration after determining that venue was improper
Summary of this case from Arctic Glacier U.S.A., Inc. v. Principal Life Ins. Co.Opinion
Case No. 03-1206-WEB
November 18, 2003
MEMORANDUM AND ORDER
The Court now considers the motion by defendants Sutton Bank and Laura Aichholz (Doc. 16), which is joined by defendants Craig E. Chamberlain and Rate Quest Investments (Doc. 31), to dismiss, transfer, or stay this matter in deference to an action to compel arbitration brought by Sutton Bank and Laura Aichholz in the United States District Court for the Northern District of Ohio. The Honorable David A. Katz of the Ohio court has stayed proceedings there pending this Court's order. See Sutton Bank, et al, v. Bank of Commerce Trust Co., Case No. 3:03 CV 7487.
Defendants' motions are made "pursuant to Fed. R Civ. P. 12(b)(1), (3) and (6), as well as 9 U.S.C. § 2, 3 and 4, and 28 U.S.C. § 1404. . . ." Motions to Stay, at 1. The Court will consider each ground advanced by Defendants.
Fed.R.Civ.P. 12(b)(1): Defendants give little explanation of their assertion that this Court is without subject matter jurisdiction. Defendants allege that, "[o]nly a federal district court with jurisdiction over North Olmsted, Ohio has jurisdiction and authority to compel arbitration in North Olmsted," Memo, in Support, at 1, but this Court has not been asked to compel arbitration in North Olmsted.
Fed.R.Civ.P. 12(b)(3): Defendants argue that "the court with jurisdiction over the arbitration location is the only proper court to determine all matters regarding arbitrability, including whether a valid, enforceable agreement to arbitrate exists." Reply Memo, in Support, at 2. For the reasons stated in the discussion of the Federal Arbitration Act (FAA), the Court disagrees and holds that this is a proper venue to decide the initial question of arbitrability.
Fed.R.Civ.P. 12(b)(6): Defendants do not explain how Plaintiff has failed to state a claim. Defendants cite Federated Rural Electric Ins. Co. v. Nationwide Mutal Ins. Co., 874 F. Supp. 1204 (D.Kan. 1995), where a defendant filed a 12(b)(6) motion to dismiss or, in the alternative, a motion to transfer, and Defendants assert that the situation facing this Court is identical. What Defendants do not state is that the 12(b)(6) motion in Federated did not turn on that court's authority to order an arbitration outside the district. Judge Van Bebber considered that question as grounds to transfer pursuant to 28 U.S.C. § 1404, not as grounds to dismiss. See id. at 1209-10. Because it does not appear beyond doubt that Plaintiff can prove no set of facts which would entitle it to relief, the Court cannot say that Plaintiff has failed to state a claim. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80, 84 (1957).
9 U.S.C. § 2, 3 and 4: Defendants rely on 9 U.S.C. § 4, which states that court-ordered arbitration hearing and proceedings "shall be within the district in which the petition for an order directing such arbitration is filed." The Court does not dispute the numerous courts which construe § 4 to mean that a district court may not order an arbitration to take place outside its district. As already noted, however, the Court is not faced with such a request.
On the facts of this case, the controlling section of the FAA is § 3:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit is referable to arbitration under such agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.9 U.S.C. § 3. The First Amended Complaint raises numerous issues regarding a "brokered certificate of deposit program." First Amended Complaint, ¶ 8. Plaintiff alleges that it signed a "Customer Agreement regarding Ms program which contains an arbitration clause. Id Clearly, then, the Plaintiff brought suit in this Court regarding an issue which may be referable to arbitration, and under § 3 the Court must stay the trial until arbitration has been had, " upon being satisfied that the issue involved . . . is referable to arbitration under such an agreement. . . ." (Emphasis supplied.) Thus the question of arbitrabiliry is the threshold issue, and whether an arbitration should then be compelled a distinct question, proper only where there is an, "alleged failure, neglect, or refusal of another to arbitrate under a written agreement. . . ." 9 U.S.C. § 4. See also Shanferoke c. S. Corp. v. Westchester S. Corp. v. Westchester S. Corp., 293 U.S. 449, 453, 55 S.Ct. 313, 79 L.Ed.583, 587 (1935) ("there is no reason to imply that the power to grant a stay is conditioned upon the existence of power to compel arbitration. . . ."); ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1460 (10th Cir. 1995) ("A court must initially evaluate whether an individual is bound by a contractual duty to arbitrate before compelling arbitration.").
The authorities cited by Defendants are not to the contrary. Judge Van Bebber did not address arbitrabiliry because he decided to transfer the case under 28 U.S.C. § 1404. See Federated, 874 F. Supp. at 1209-10. In the other district case from this circuit cited by Defendants, Roe v. Gray, 165 F. Supp.2d 1164, 1165, 1168-69 (D.Colo. 2001), Chief Judge Babcock recognized that, "[b]efore staying this case under § 3, I must be satisfied that the issues involved in the suit are referable to arbitration." Id, at 1174. He did not make this finding, however, instead holding that the court in the district where the arbitration would take place, "should also decide the issue of arbitrability." Id, at 1173 (citing Merrill Lynch, Pierce, Fenner Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995)). The court based its decision on "the efficient use of judicial resources," and "comity and judicial efficiency. . . ." Id, at 1174, 1177.
The Lauer decision cited by Chief Judge Babcock held that the arbitrability question must be decided by the court which can issue the order compelling arbitration, but the rationale offered by the Seventh Circuit was similarly "judicial economy" and a desire to avoid "inefficiencies and potential inequities. . . ." 49 F.3d at 329-30.
Discretionary decisions to transfer or stay in the interests of justice, judicial economy, and comity do not establish a lack of authority under 9 U.S.C. § 3 to decide the initial question of arbitrability. The Court's reading of § 3 is also bolstered by a recent Supreme Court decision, Cortez Byrd Chips Inc. v. Bill Harbert Construction Co., 529 U.S. 193, 120 S.Ct 1331, 146 L.Ed.2d 171(2000). " In Cortez Bird Chips, the Supreme Court held that the post-arbitral venue provisions of the FAA, 9 U.S.C. § 9-11, are permissive and do not supplant the general venue statutes. Id. at 198, 201; 146 L.Ed.2d at 177-79. In explaining its holding, the Supreme Court related the pre-arbitral provisions of the FAA to the post-arbitral provisions:
A restrictive interpretation would also place § 3 and §§ 9-11 of the FAA in needless tension. . . . Section 3 provides that any court in which an action "referable to arbitration under an agreement in writing" is pending "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. If an arbitration were then held outside the district of that litigation, under a restrictive reading of §§ 9-11 a subsequent proceeding to confirm, modify, or set aside the arbitration award could not be brought in the district of the original litigation (unless that also happened to be the chosen venue in a forum selection agreement). We have, however, previously held that the court with the power to stay the action under § 3 has the further power to confirm any ensuing arbitration award.Id. at 201, 146 L.Ed.2d at 180. This passage shows that a court may enter a § 3 stay even where the arbitration is to be held elsewhere, and that the same court may then issue further orders regarding the arbitration after it has taken place. Indeed, the Court quoted with approval a party's assertion that, "the court entering a stay order under § 3 retains jurisdiction over the proceeding and does not `lose venue.'" Id. at 202, 146 L.Ed.2d at 180. If a court does not lose venue after entering a § 3 stay, it would not lack venue to make that decision in the first instance.
28 U.S.C. § 1404: In spite of its authority to decide the arbitrability question, the Court may transfer this action "[f]or the convenience of parties and witnesses" and "in the interest of justice. . . ." 28 U.S.C. § 1404(a). The party moving for transfer bears the burden. Chrysler Credit Corp. v. Country Chrysler, Inc. 928 F.2d 1509, 1515 (10th Cir. 1991). Among the factors the Court should consider are the Plaintiffs choice of forum, the accessibility of witnesses and other proof, the enforceability of the judgment, advantages and obstacles to a fair trial, docket congestion, the advantages of a local court determining local law, and any considerations of a practical nature making the trial expeditious and economical. See id., at 1516.
The Plaintiff instituted this action in Kansas, but in weighing this factor the Court gives some consideration to the Customer Agreement and its designation of North Olmsted, Ohio, as the site of the arbitration. An agreement to arbitrate in a certain place is a kind of forum-selection clause, Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S.Ct. 2449, 41 L.Ed.2d 270, 280 (1974), and courts may consider forum selection clauses in ruling on § 1404(a) transfer motions. Stewart Organization v. Ricoh Corp., 487 U.S. 22, 31 108 S.Ct. 2239, 101 L.Ed.2d 22, 32-33 (1988). While the Court does not mean to pre-judge the validity or the binding nature of the Customer Agreement, the Plaintiff pleaded that the Customer Agreement contains an arbitration clause and that its officer signed the Customer Agreement. The Plaintiff also attached a copy of the Customer Agreement to the First Amended Petition. In the Court's opinion, these factors mitigate somewhat the Plaintiffs choice of forum for its lawsuit.
Even without considering the Customer Agreement, however, the Court finds that the matter should be transferred. On the record as it now exists, neither forum is intrinsically more convenient than the other. Cf. Federated, 874 F. Supp. at 1209 ("While an Ohio forum would inconvenience . . .[Plaintiffs] employees located in Kansas, a Kansas forum would likewise inconvenience [Defendants'] employees."). Plaintiff alleges it wired funds to Sutton Bank, which is located in Ohio, so based on the pleadings any judgment would be more enforceable in Ohio than Kansas. In addition, only the Ohio court can order an arbitration. Cf. Federated, 874 F. Supp. at 1209-10.
Most importantly, the Court is concerned that discovery, briefing, and any hearing before this Court on the issue of arbitrability might be duplicated if the Ohio court were then asked to order the arbitration. The knowledge of the facts and the law gained in answering the arbitrability question would obviously inform the decision whether to compel arbitration, but if the proceedings are split between two courts, much of this advantage would be lost. It would be more convenient for the parties and witnesses, and would promote the interests of justice, if the issues were considered once in the same forum.
IT IS THEREFORE ORDERED that the motion by defendants Sutton Bank and Laura Aichhok (Doc. 16), and the motion by defendants Craig E. Chamberlain and Rate Quest Investments (Doc. 31), to dismiss, transfer, or stay this action are: DENIED as to dismissal and stay, and GRANTED as to transfer.
IT IS FURTHER ORDERED that the clerk shall transmit the court file along with a copy of this order to the United States District Court for the Northern District of Ohio, Western Division, pursuant to 28 U.S.C. § 1404(a).
SO ORDERED.