Opinion
ORDER DENYING MOTION TO DISMISS COUNTERCLAIM AND GRANTING REQUESTS FOR JUDICIAL NOTICE
SUSAN ILLSTON, District Judge.
On July 30, 2004 the Court heard argument on the motion by counter-claimant, counter-defendant, and cross-claimant Payment Resources International, Inc. ("PRI") to dismiss Paycom Billing Services Inc.'s ("Paycom") counterclaim, as well as both parties' requests for judicial notice. Having carefully considered the arguments of the parties and the papers submitted, the Court DENIES PRI's motion to dismiss and GRANTS both parties' requests for judicial notice.
BACKGROUND
Plaintiff, cross-claim defendant, cross-claimant and counter-claimant Paycom's business is to serve as a "ticket agent" for the "adult Internet Industry." Second Amend. Compl. at ¶¶ 37 and 39, respectively. As such, it processes credit and debit card transactions for websites. The process by which such transactions are processed is detailed in depth in Paycom's complaint. Second Amend. Compl. at ¶¶ 24-26. Most notably, Paycom's transactions were bundled with other transactions to be submitted to banks who have relationships with Visa. This arrangement is utilized due to the high-risk nature of Paycom's transactions. Second Amend. Compl. 12-14. This type of bundling is used to combine less-risky transactions with Paycom's high-risk transactions, creating a ratio of high-to-low risk transactions acceptable to Visa. Id.
Risk, in this context, apparently relates to collectability and frequency of chargeback or disputed charges.
This action arises from the processing of Visa credit and debit card transactions between approximately December, 1999 and February, 2000. Opp'n. at 1. Paycom states that it provided the transactions in question to PRI to settle in Paycom's name through a merchant account at Lloyd's Bank in London ("Lloyd's"). Second Amend. Compl. at ¶36. Paycom believed that the settlement of its transactions at Lloyd's was to be accomplished through a sub-agent, Global Payment Systems Limited ("GPSL"). Second Amend. Compl. at ¶36. Paycom alleges that PRI gave the transactions to GPSL, which in turn delegated its responsibility to International Business Machine Corp.'s Denmark subsidiary ("IBM Denmark"), which delegated its responsibility to Global Collect. Id. at ¶37. Ultimately, Paycom's transactions were settled at National Westminster Bank ("NatWest"), not at Lloyd's as Paycom expected. Id . Paycom alleges that it did not receive approximately $17 million of the proceeds due from these transactions. Opp'n. at 1. Additionally, Global Collect has admitted that it has retained at least $2 million in proceeds from the processing of Paycom's transactions. Opp'n. at 3.
There has been considerable prior litigation regarding the transactions in question. In August, 2001, Paycom instituted litigation in the United States District Court for the Central District of California against PRI, GPSL and International Business Machines Corp. ("IBM") in an attempt to recover the alleged misappropriated proceeds of these Visa transactions (the "Central District Action"). Opp'n. at 2. As noted in Paycom's Second Amended Complaint, the Central District Action asserted claims against Internet Network Connections ("INC") and two of PRI's principals, Andrew Phillips and John Blaugrund (collectively the "RICO Defendants"), as well as GPSL, under 18 U.S.C. §§ 1962(c) and (d) and 1964(c) ("RICO"), as well as supplemental state law claims against these RICO Defendants, PRI, and IBM. Id . The Visa transactions and their transference between the above parties form what is described in the Central District Action as the "London Scheme." Id.
In October, 2002, PRI filed cross-claims in the Central District Action against Paycom and certain of Paycom's principals asserting, inter alia, an entitlement to over $2.227 million in fees supposedly arising out of PRI's role in the London Scheme. Id.
In November, 2003, the Court in the Central District Action granted summary judgment in favor of the RICO Defendants and dismissed without prejudice all of the state law claims asserted by Paycom against PRI and the RICO Defendants, as well as PRI's cross-claims against Paycom. Id . PRI promptly re-filed its state law claims in Orange County Superior Court.
On February 27, 2004, Paycom appealed orders of the Central District Action to the Ninth Circuit Court of Appeals. PRI's Request for Judicial Notice at Ex. E. Paycom appealed the order granting IBM Denmark's motion to dismiss, the order granting IBM U.S.'s motion for summary judgment, and the order granting defendants Andrew Phillips, John Blaugrund, and Internet Network Connection's motion for summary judgment with regard to Paycom's RICO claims. Id.
In July, 2003, Paycom brought the current suit in this court against Global Collect, because of its admission that it retained at least $2 million in proceeds from the processing of Paycom's transactions and Paycom's determination that this Court could have jurisdiction over Global Collect. Opp'n. at 3. Global Collect has asserted that it faces the potential of multiple other claims to that same $2 million - from IBM Denmark, PRI and GPSL. Id . In February, 2004, Global Collect filed a counterclaim and cross-claims seeking to invoke the procedural remedy of statutory interpleader under 28 U.S.C. § 1335 ("federal interpleader") to resolve this dispute between the various parties. Id.
On or about April 30, 2004, PRI filed cross-claims against Paycom asserting PRI's claims to the more than $2.227 million in fees supposedly arising out of PRI's role in the London Scheme. Id . In response, on May 26, 2004, Paycom filed its own affirmative counterclaims against PRI under Rule 13(a) of the Federal Rules of Civil Procedure asserting Paycom's state law claims relating to the London Scheme. Id. at 4. It is PRI's motion to dismiss these counterclaims that is now before the Court.
LEGAL STANDARD
A. Motion to dismiss under Rule 12(b)(6)
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer evidence in support of the claim. Fed.R.Civ.P. 12(b)(6) (2004). See Scheuer v. Rhodes , 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer , 468 U.S. 183 (1984). In answering this question, the Court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in plaintiff's favor. See Usher v. City of Los Angeles , 828 F.2d 556, 561 (9th Cir. 1987). Even if the face of the pleadings suggests that the chance of recovery is remote, the Court must allow the plaintiff to develop the case at this stage of the proceedings. See United States v. City of Redwood City , 640 F.2d 963, 966 (9th Cir. 1981).
If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith , 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).
B. Motion to dismiss under Rule 12(b)(1)
When subject matter jurisdiction is challenged under Federal Rule of Procedure 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion. Tosco Corp. v. Communities for a Better Environment , 236 F.3d 495, 499 (9th Cir. 2001). The supplemental jurisdiction statute, 28 U.S.C. § 1367(a), provides that in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action with such original jurisdiction that they form the same case or controversy under Article III of the United States Constitution.
Section 1367 incorporates the test set forth in United Mineworkers of America v. Gibbs , 383 U.S. 715, 725 86 S.Ct. 1130 (1966), that claims form the same "case or controversy" if they share a "common nucleus of operative fact" such that the plaintiff would ordinarily be expected to try them all in one judicial proceeding. See City of Chicago v. International College of Surgeons , 522 U.S. 156, 164-65, 118. S.Ct. 523 (1997). A court may decline to exercise supplemental jurisdiction over a claim that meets the "same case or controversy" test if: (1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates over the claims over which the district court has original jurisdiction; (3) the district court has dismissed all claims over which it has original jurisdiction; or (4) in exceptional circumstances, there are compelling reasons for declining jurisdiction. 28 U.S.C. § 1367(c). The Ninth Circuit has held that "unless a court properly invokes a section 1367(c) category in exercising its discretion to decline to entertain pendant claims, supplemental jurisdiction must be asserted." Executive Software North America v. U.S. Dist. Court , 24 F.3d 1545, 1556 (9th Cir. 1994).
DISCUSSION
PRI seeks the dismissal of Paycom's counterclaim under Rule 12(b)(6), or, in the alternative, under either the inherent authority of the Court or Rule 12(b)(1). Mot. at 1. This dismissal is sought on several grounds, including: another action pending, lack of subject matter jurisdiction, and failure to state a claim upon which relief can be granted. Id.
A. The Ninth Circuit appeal of the Central District action
PRI alleges that Paycom's counterclaim duplicates the Central District Action, which is on appeal to the Ninth Circuit. Id. at 5. This statement, as Paycom establishes, is not entirely accurate. The claims raised in Paycom's counterclaim are not part of the appeal and were dismissed without prejudice in the Central District Action. Opp'n. at 5. Therefore, Paycom's counterclaim against PRI is not duplicative of the portions of the Central District Action on appeal and should not be dismissed for that reason.
B. Lack of subject matter jurisdiction
PRI alleges that Paycom's counterclaim is also subject to dismissal due to lack of subject matter jurisdiction. Mot. at 6. PRI alleges that there is a lack of subject matter jurisdiction evident from (a) the fact of another action pending and (b) from the face of Paycom's counterclaim. Id.
As addressed previously, the claims on appeal to the Ninth Circuit are not the same claims that were addressed in Paycom's counterclaim. Therefore, PRI's argument that this Court lacks jurisdiction over Paycom's counterclaim for this reason is without merit. PRI asserts that it is spurious and disingenuous of Paycom to argue that the claims in the counterclaim are not in the appeal because it would pursue its pendant state claims in the Central District if it wins its appeal. Mot. at 9. The Court declines to engage in this manner of speculation as to Paycom's future litigation plans. Paycom's potential success on appeal is irrelevant to whether this Court has jurisdiction over its counterclaim.
PRI further argues that Paycom's counterclaim is not compulsory. Mot. at 9. According to Rule 13(a) of the Federal Rules of Civil Procedure, a counterclaim is compulsory "if it arises out of the same transaction or occurrence that is the subject matter of the opposing party's claim... and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction." PRI asserts that IBM Denmark is a necessary party to adjudicate Paycom's counterclaim and that this Court does not have personal jurisdiction regarding IBM Denmark. The Court need not consider the latter assertion. Given the facts of this dispute, i.e., "PRI owed direct duties to Paycom and directly breached those duties, " the Court is of the opinion that IBM Denmark is not a necessary party to Paycom's counterclaim. Opp'n. at 8.
State and federal law claims form the same "case or controversy" if they share a "common nucleus of operative fact" and are such that a plaintiff "would ordinarily be expected to try them in one judicial proceeding." See Executive Software , 24 F.3d at 1552 (quoting Gibbs , 383 U.S. at 725)). That standard is clearly met in this case. It is the London Scheme that is the subject of the present suit and the cross-claims of PRI. It is similarly the London Scheme which is implicated by Paycom's counterclaim. The London Scheme, therefore, meets the standard of the "same controversy" required under Executive Software. PRI concedes this point, stating, "Paycom's complaint filed in the Central District and its counterclaim filed in this court both arise out of the same transactions and occurrences." Mot. at 8.
C. Failure to meet the requirements for a statutory interpleader action
PRI argues that Paycom has failed to meet the requirements for a statutory interpleader action, and that therefore the Court has neither original nor supplemental jurisdiction over Paycom's counterclaim. This is inaccurate. While Paycom does state in its counterclaim that this Court has jurisdiction over said counterclaim under the federal interpleader statute, such an assertion is immaterial at this time for two reasons. First, Paycom did not bring a claim against PRI under the federal interpleader statute. Opp'n. at 10. Second, and more importantly, the Court has held that Paycom's counterclaim is compulsory, which automatically grants this Court supplemental jurisdiction to hear Paycom's counterclaim. As Paycom correctly cites, "If a counterclaim is compulsory, the federal court will have ancillary jurisdiction over it even though ordinarily it would be a matter for a state court." Baker v. Gold Seal Liquors, Inc. , 417 U.S. 467, 469, n.1 (1974) (superceded on other grounds by statute).
D. Failure to state a claim upon which relief can be granted
PRI alleges that in its counterclaim, Paycom fails to state any claims upon which relief can be granted. Mot. at 12. PRI does not, however, demonstrate how Paycom fails to state any claims. PRI's argument on this issue is predicated upon a finding that the Court does not have jurisdiction to hear Paycom's counterclaim. Id . As the Court did not make this finding, jurisdictional arguments fail to demonstrate a failure to state a claim. Furthermore, on the face of the counterclaim the Court is persuaded that there are claims properly pled on which relief can be granted.
CONCLUSION
For the foregoing reasons and for good cause shown, the Court hereby DENIES PRI's motion to dismiss Paycom's counterclaim. [Docket # 86]
IT IS SO ORDERED.