United States District Court, E.D. Michigan, Southern Division
POWERS DISTRIBUTING COMPANY, INC. Plaintiff,
GRENZEBACH CORPORATION, Defendant.
OPINION AND ORDER DENYING DEFENDANT'S MOTION TO
DISMISS (DKT. 3)
TERRENCE G. BERG UNITED STATES DISTRICT JUDGE.
Grenzebach Corporation moves to dismiss this case for lack of
subject matter jurisdiction pursuant to Federal Rule of Civil
Procedure 12(b)(1) on the ground that the parties'
dispute must be arbitrated. The Court finds that
Plaintiff's claims relate to contracts with arbitration
provisions. But because Plaintiff asked at oral argument for
permission to amend its complaint, Defendant's motion is
DENIED WITHOUT PREJUDICE.
FACTUAL AND PROCEDURAL HISTORY
a breach of contract case. Plaintiff is a beer distributor.
Dkt. 5, Pg. ID 132. Defendant is a company that provides
automated systems for businesses. Id. In September
of 2013, Plaintiff purchased an automated system for locating
and retrieving products in a distribution center (a
“case-picking system”) from Material Handling
Technologies (MHT). Id. at Pg. ID 133. The contract
for the purchase of this system did not contain an
arbitration provision. Id. at Pg. ID 135. Six months
later, MHT informed Plaintiff that Defendant had acquired
MHT's entire case-picking line of business and that
Plaintiff should send future payments for the system to
Defendant, not MHT. Id. In June of 2014, Defendant
offered Plaintiff an update to the system that would give the
system new capabilities. Id. at Pg. IDs 135-36.
Defendant's offer was eventually memorialized in two
purchase orders, one for a software upgrade and one for a
hardware upgrade. Dkt. 5, Exs. C and D. Both purchase orders
contained the following arbitration provision:
Arbitration Except as specifically provided herein, any
dispute, controversy or claim arising out of or in relation
to or in connection with this agreement, or in the operations
carried out under this agreement, including without
limitation any dispute as to the construction, validity,
interpretation, enforceability or breach of this agreement,
shall be exclusively and finally settled by arbitration, and
any party or party affiliate may submit such a dispute,
controversy or claim to arbitration. Unless otherwise
expressly provided in this agreement or agreed in writing by
the parties or party affiliate to the arbitration proceeding,
the arbitration proceedings shall be held in Atlanta,
Georgia, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association (*ARAAA*), as amended
from time to time. However, any Arbitration Award (as defined
by ARAAA) may be entered in any court having jurisdiction
over the party, or party affiliate against which enforcement
is sought. Each party shall pay its own attorneys' fees
and costs, Other costs of arbitration, such as
arbitrator(s)' fee, shall be borne equally by the
parties. Consequential, punitive, or other similar damages
shall not be allowed.
The arbitration proceedings shall be conducted in the English
language and the arbitrators) shall be fluent in the English
language. Where the parties are of more than one nationality,
the single arbitrator or the presiding arbitrator, as the
case may be, shall not be of the same nationality as any of
the parties or their ultimate parent entities.
Id.; see also Dkt. 3, Exs. 1 and 2. Plaintiff
accepted Defendant's offer. Dkt. 3, Ex. 4.
of the upgrades took six months. Dkt. 5, Pg. ID 137. When the
installation was finally complete, Plaintiff tested the
upgrades. Id. The results were subpar. Id.
The system passed only half of the tests, and much of it had
to be reverted to the original version because of system
failures. Id. Plaintiff only approved the system for
the tests that it passed, but deemed the upgrade unworkable
in its entirety. Id. Plaintiff and Defendant then
agreed that Plaintiff would have the option to purchase the
next upgrade for $25, 000, and that, if Plaintiff chose to
purchase the upgrade, Defendant would install the upgrade no
later than December of 2016. Id.
upgrade never came. In November of 2015, Defendant fired the
only technician who could support the system. Dkt. 5, Pg. ID
137. Two months later, Defendant informed Plaintiff that
instead of providing the promised upgrade to the existing
system, Defendant planned to rewrite the entire system.
Id. at Pg. ID 138. The parties exchanged emails
discussing how the rewrite would affect the agreement the
parties reached after the first upgrade failed testing.
Id. at Pg. IDs 138-40. Defendant then emailed
Plaintiff with the news that Defendant had decided not to
rewrite the system after all, and that it was cutting support
for the original system from 24-hours-a-day to weekdays from
8:00 a.m. to 5:00 p.m. Id. at Pg. ID 140.
point Plaintiff still had the original system it purchased
from MHT, but needed to support the system itself because
Defendant no longer employed anyone who could provide
support. Dkt. 5, Pg. ID 140. On June 16, 2016, Plaintiff sued
Defendant in Oakland County Circuit Court, alleging Breach of
Contract, Breach of Express and Implied Warranties, Innocent
Misrepresentation, Negligent Misrepresentation, Silent Fraud,
and Indemnification. Dkt. 1. Defendant removed the case to
this Court, id., and now seeks dismissal based on
the arbitration clauses in the purchase orders. Dkt. 3.
Standard of Review
in the Sixth Circuit are split on whether a motion to dismiss
based on an arbitration agreement should be brought under
Federal Rule of Civil Procedure 12(b)(1) (lack of subject
matter jurisdiction) or Rule 12(b)(6) (failure to state a
claim). Some courts have found that such motions should be
raised under Rule 12(b)(1).Others have concluded that they
arise under Rule 12(b)(6).
to proceed under one rule or the other turns on concerns
about, on one hand, whether evidence outside the pleadings is
being used and whether the case should be dismissed with
prejudice under Rule 12(b)(6), and, on the other, whether the
term “jurisdiction” (as in “lack of subject
matter jurisdiction”) is being used with precision
under Rule 12(b)(1). When analyzing a factual attack to
subject matter jurisdiction under Rule 12(b)(1), a court may
consider any evidence properly before it. See Morrison v.
Circuit City Stores, Inc., 70 F.Supp.2d 815, 819 (S.D.
Ohio 1999). The typical result of a Rule 12(b)(1) dismissal
is that no obstacle prevents a plaintiff from litigating her
claims in a different forum. See Dalton, 979 F.Supp.
at 1192. A court dismissing a case because of an arbitration
agreement “does not prevent a plaintiff from litigating
the merits of his or her claim . . . [but] merely transfers
the forum in which the litigation on the merits will
occur.” Id. These aspects of how Rule 12(b)(1)
functions in the arbitration context suggest that a motion to
dismiss based on an arbitration agreement falls within Rule
12(b)(1) rather than within Rule 12(b)(6).
under the Federal Arbitration Act, a court retains authority
to stay a case pending arbitration and then afterward enter
judgment on the award. See 9 U.S.C. §§ 3,
9. So, technically, when a court compels arbitration it still
retains jurisdiction over the dispute. And the Sixth Circuit
has cautioned courts to be more precise when analyzing
challenges phrased as attacks on “jurisdiction.”
See Primax Recoveries, Inc. v. Gunter, 433 F.3d 515,
518-19 (6th Cir. 2006). This aspect of how Rule 12(b)(1)
functions in the arbitration context-dismissing a case for
“lack of subject matter jurisdiction” when the
court in fact has and retains jurisdiction-suggests that a
motion to dismiss based on an arbitration agreement falls
within Rule 12(b)(6) rather than within Rule 12(b)(1).
Defendant brings its motion under Rule 12(b)(1). Dkt. 3.
Plaintiff does not argue that the Court should analyze the
motion under Rule 12(b)(6), and instead responds within the
confines of Rule 12(b)(1). Dkt. 5, Pg. IDs 141-150. Because
the choice of Rules does not affect the outcome of the
Court's analysis, and because the parties address the
question similarly, the Court will treat the motion as one to
dismiss under Rule 12(b)(1).
12(b)(1) motion attacks a complaint either facially or
factually. United States v. Ritchie, 15 F.3d 592,
598 (6th Cir. 1994). A facial attack challenges the
sufficiency of the complaint itself, which requires a court
to take as true all material allegations in the complaint and
to construe those allegations in the light most favorable to
the plaintiff. Id. at 598. A factual attack,
however, challenges the factual existence of subject matter
jurisdiction. A court analyzing a factual attack therefore
need not accept as true the complaint's factual
allegations, but instead must weigh any evidence properly
before it. See Ohio Nat'l Life Ins. Co. v. United
States, 922 F.2d 320, 325 (6th Cir. 1990); Rogers v.
Stratton Indus., Inc., 798 F.2d 913, 918 (6th
Cir. 1986). Defendant argues that arbitration is the
appropriate forum in which to settle this dispute. The
complaint itself stands for Plaintiff's allegation that a
court of law is the appropriate forum in which to settle this
dispute. Thus Defendant's motion here is a factual attack
questioning the factual existence of subject matter
written agreement to arbitrate disputes arising out of a
transaction in interstate commerce ‘shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract.'” Javitch v. First Union Sec.,
Inc., 315 F.3d 619, 624 (6th Cir. 2003) (quoting 9
U.S.C. § 2). The Federal Arbitration Act “is at
bottom a policy guaranteeing the enforcement of private
contractual agreements” arising from a “liberal
federal policy favoring arbitration agreements.”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 625 (1985) (quoting Moses H.
Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S.
1 (1983)). Accordingly, “when asked by a party to
compel arbitration under a contract, a federal court must
determine whether the parties have agreed to arbitrate the
dispute at issue.” Great Earth Cos., Inc. v.
Simons, 288 F.3d 878, 889 (6th Cir. 2002). When making
this determination, there are two important considerations:
the language in the arbitration agreement and the claims of
the lawsuit. Here, both parties focus too much on the former
and not enough on the latter.
argues that the language “any dispute, controversy or
claim arising out of or in relation to or in connection with
this agreement” mandates that any dispute
between the parties must go to arbitration. Dkt. 3, Pg. ID
55. Plaintiff responds that the arbitration provisions in the
purchase orders were not intended to and should not
retroactively apply to the agreement between it and MHT. Dkt.
5, Pg. IDs 141-46. Both parties agree that the Court must
examine “which agreement determines the scope of the
contested obligations.” Nestle Waters N. Am., Inc.
v. Bollman, 505 F.3d 498, 504 (6th Cir. 2007). Defendant
touts the upgrade agreements (with the arbitration clauses)
and Plaintiff trumpets its agreement with MHT (without such
clauses), but neither party connects those agreements to the
specific obligations at issue in each cause of action.
has asserted six causes of action:
■ Breach of Contract;
■ Breach of Express and Implied Warranties;
■ Innocent Misrepresentation;
■ Negligent ...