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Case Summary — Freaner v. Lutteroth Valle, No. 11CV1819 JLS (MDD) (S.D. Cal. Nov. 17, 2011)

Factual and Procedural Background

On or about June 23, 2008, Plaintiff Ariel Freaner and Defendants Enrique Martin Lutteroth Valle and Hotelera Coral (a company organized under the laws of Baja California, Mexico) entered into a written services agreement under which Plaintiff agreed to design and develop a static website and to provide additional design services. The agreement provided for payment by Defendants for an hourly rate for additional services; Plaintiff alleges Defendants failed to pay for those extra services.

The agreement contained an arbitration clause requiring binding arbitration in San Diego, California under the rules of the American Arbitration Association (AAA), and a choice- of-law clause stating the agreement was to be construed and enforced in accordance with California law and consenting to jurisdiction in San Diego courts.

Following the alleged breach, Plaintiff filed a breach of contract complaint in San Diego Superior Court on June 21, 2011. Defendant Lutteroth removed the action to federal court asserting removability under the New York Convention (9 U.S.C. § 205) (and related provisions). Plaintiff thereafter filed two motions in the federal court: (1) a motion to compel arbitration and (2) a motion to remand the action back to state court. Defendants opposed both motions. The Court took both matters under submission without oral argument. The Court granted Plaintiff's motion to compel arbitration and denied Plaintiff's motion to remand.

Legal Issues Presented

  1. Whether removal to federal court was proper under the New York Convention (9 U.S.C. § 205) — specifically, (a) whether the parties' arbitration agreement "falls under" the Convention and (b) whether the subject matter of the litigation "relates to" that arbitration agreement.
  2. Whether the Court should compel arbitration of Plaintiff's breach-of-contract claims under the arbitration clause in the 2008 agreement and, because the parties cannot agree on an arbitrator, whether the Court should direct appointment procedures (including referral to the AAA under its rules).

Arguments of the Parties

Plaintiff's Arguments

  • Plaintiff sought remand to state court, arguing removal was improper because the Federal Arbitration Act (FAA) cannot provide the sole basis for federal jurisdiction (i.e., Plaintiff challenged removal in principal as improper if based solely on the FAA).
  • Plaintiff requested that the Court find California law applies to the dispute (relying on the contract's choice-of-law clause).
  • Plaintiff moved to compel arbitration and requested an order compelling arbitration through the AAA and employing the AAA "strike and rank" arbitrator selection process.

Defendants' Arguments

  • Defendants argued removal was proper because they removed under the New York Convention (9 U.S.C. § 205) rather than solely under the FAA, and they contended the arbitration agreement (1) falls under the Convention and (2) the dispute relates to that agreement.
  • Defendants pointed out that both parties had sought to compel arbitration (including Defendant's prior motion in state court) and argued it was more than reasonably possible the arbitration clause would be asserted.
  • In opposing Plaintiff's motion to compel arbitration, Defendants agreed arbitration applies but requested that the selected arbitrator be bilingual in Spanish and English; they also sought clarification on the scope of arbitrable issues (arguing certain counterclaims related to a 2009 contract were not covered by the 2008 agreement).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Infuturia Global Ltd. v. Sequus Pharm., Inc., No. C 08-4871, 2009 U.S. Dist. LEXIS 13570; aff'd, 631 F.3d 1133 (9th Cir. 2011) Explains that district courts have original jurisdiction over actions falling under the New York Convention and interprets the "relates to" requirement as satisfied when arbitration could conceivably affect the outcome of the plaintiff's suit. The Court relied on Infuturia to describe the federal jurisdictional standard under the Convention and to find that the arbitration agreement "relates to" the subject matter because arbitration could conceivably affect the suit's outcome.
Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002) Explains that, for § 202, an agreement must arise out of a commercial relationship and that removal under § 205 will be available whenever the defendant's assertion that an arbitration clause applies is not completely absurd or impossible (a low "relates to" bar). The Court cited Beiser for the definition of what it means to "fall under" the Convention (commercial relationship and foreign party or foreign relation) and for the low threshold for satisfying the "relates to" requirement.
Sedco, Inc. v. Petroleos Mexicanos, 767 F.2d 1140 (5th Cir. 1985) Used to support the proposition that an agreement must arise out of a commercial relationship to fall under the Convention. The Court relied on Sedco as supporting authority that the agreement here arises from a commercial relationship.
Gaus v. Miles, Inc., 980 F.2d 564 (9th Cir. 1992) States that removal statutes are generally strictly construed against removal jurisdiction. The Court acknowledged the general rule from Gaus but also explained that § 205's language provides broader removal authority under the Convention.
California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831 (9th Cir. 2004) Confirms that the removing party bears the burden of establishing federal jurisdiction. The Court applied the principle that defendants bear the burden to demonstrate that removal under § 205 was proper.
Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) Discusses the principal purpose of the Convention to unify standards for arbitration and enforcement of awards among signatory countries. The Court cited Scherk (via Beiser) to explain Congress's intent to favor federal jurisdiction over Convention-related claims to promote uniform law under the Convention.
McDermott Int'l v. Lloyds Underwriters of London, 944 F.2d 1199 (9th Cir. 1991) States that Congress made it easy for defendants in state-filed Convention cases to remove to federal court. The Court cited McDermott to emphasize the policy favoring federal jurisdiction in Convention cases.
Hawkins v. KPMG, 423 F. Supp. 2d 1038 (N.D. Cal. 2006) Used for the proposition that it is more than a reasonable possibility the arbitration clause will be asserted when a defendant already has sought to compel arbitration. The Court referenced Hawkins in support of the conclusion that it was reasonably likely the arbitration clause would be asserted here.
Cape Flattery Ltd. v. Tital Maritime, LLC, 647 F.3d 914 (9th Cir. 2011) Holds that parties can agree to apply non-federal arbitrability law, but courts should apply federal arbitrability law absent "clear and unmistakable evidence" that the parties agreed otherwise. The Court applied Cape Flattery to conclude that, because the contract was ambiguous as to whether California law governed arbitrability, federal arbitrability law applies (no clear and unmistakable evidence of contractual intent to apply state arbitrability law).
First Options v. Kaplan, 514 U.S. 938 (1995) Provides the "clear and unmistakable evidence" standard for demonstrating that parties agreed to non-federal arbitrability law. The Court cited First Options for the standard and applied it in concluding federal arbitrability law governs absent clear and unmistakable evidence to the contrary.
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) Explains the division between matters for the court (e.g., whether an arbitration agreement exists and is enforceable) and matters for the arbitrator (substantive disputes), guiding the scope of federal court jurisdiction. The Court relied on Prima Paint to explain that the Court's role is limited to determining existence and enforceability of the arbitration provision and that substantive law issues should be left to the arbitrator.
Ramirez v. Cintas Corp., No. C 04-00281, 2005 U.S. Dist. LEXIS 43531 (N.D. Cal. Nov. 2, 2005) Supports that disputes about applicable substantive law are for the arbitrator to resolve. The Court cited Ramirez to justify declining Plaintiff's request to make a substantive choice-of-law determination, leaving such disputes to the arbitrator.
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) Describes the FAA's reflection of a "liberal federal policy favoring arbitration agreements." The Court invoked Gilmer (via a New York Convention/FAA discussion) to explain the arbitration-favoring policy in applicable law considerations.
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) Quoted for the proposition that federal policy favors arbitration agreements. The Court cited Moses H. Cone as part of the general arbitration-favoring framework supporting compelling arbitration.
Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691 (9th Cir. 1986) Holds that the FAA requires district courts to compel arbitration even if that results in possibly inefficient separate proceedings in different forums. The Court cited Fisher to illustrate that compelling arbitration is required even if separate proceedings may result, consistent with New York Convention/FAA interplay.

Court's Reasoning and Analysis

The Court conducted a two-part analysis regarding removal under the New York Convention (9 U.S.C. §§ 202, 205) and a separate analysis concerning whether to compel arbitration:

Removal under the New York Convention (Motion to Remand)

  1. Legal standard: The Court explained that a defendant may remove a state-court action to federal court under 9 U.S.C. § 205 when the subject matter of the action "relates to" an arbitration agreement or award that "falls under" the New York Convention. The removing party bears the burden to show both elements.
  2. "Falls under" analysis (§ 202): The Court determined an agreement falls under the Convention if it arises out of a commercial relationship and at least one party is not a U.S. citizen, or, if between U.S. citizens, has a reasonable relation to a foreign state. The Court found the 2008 agreement arises from a commercial relationship and that Hotelera Coral is a Mexican entity (thus not a U.S. citizen). Alternatively, the contract involves property located in Baja California, Mexico, which establishes a reasonable relation with a foreign state. Therefore, the agreement "falls under" the Convention.
  3. "Relates to" analysis (§ 205): Applying the Ninth Circuit's interpretation, the Court concluded the "relates to" requirement is met when the arbitration agreement could conceivably affect the outcome of the plaintiff's suit. Because both parties had already sought to compel arbitration and the arbitration decision would determine the underlying issues, the arbitration agreement could conceivably affect the outcome. Thus, the subject matter of the litigation "relates to" the arbitration agreement.
  4. Choice-of-law and arbitrability: Plaintiff argued the contract's California choice-of-law provision means California law should determine arbitrability. The Court applied Ninth Circuit authority (Cape Flattery and First Options) holding that federal arbitrability law applies absent "clear and unmistakable evidence" that the parties chose non-federal arbitrability rules. The Court found the contract ambiguous as to whether California law governs arbitrability and thus applied federal arbitrability law.
  5. Conclusion on remand: Because the agreement falls under the Convention, the dispute relates to that agreement, and federal arbitrability law governs, removal under 9 U.S.C. § 205 was proper. The Court denied Plaintiff's motion to remand.

Motion to Compel Arbitration

  1. Existence of an agreement to arbitrate: The Court noted both parties agreed the 2008 contract contains a valid arbitration clause and that the existence of an agreement to arbitrate was not in dispute.
  2. Authority to appoint arbitrators: Under 9 U.S.C. § 206, a court may direct arbitration in accordance with the agreement and may appoint arbitrators in accordance with the agreement's provisions. The parties' arbitration clause specified a single neutral arbitrator, arbitration in San Diego, and that the AAA rules govern.
  3. Appointment procedure: The agreement itself did not specify an appointment method. Because the parties agreed AAA rules govern and those rules provide a selection procedure (including a "strike and rank" method and AAA appointment if parties cannot agree), the Court ordered the parties to submit the matter to the AAA and to use the AAA arbitrator-selection procedures.
  4. Requests the Court declined to grant:
    • The Court declined Defendants' request to require the arbitrator be bilingual in Spanish and English, observing the contract is silent on a bilingual arbitrator and that Defendants may pursue a bilingual arbitrator through the AAA selection process.
    • The Court declined Plaintiff's request to make a substantive determination that California law governs the underlying dispute; the Court limited its role to determining existence/enforceability of the arbitration provision and left substantive choice-of-law determinations to the arbitrator.
    • The Court declined to resolve whether counterclaims related to a 2009 contract are arbitrable, concluding such issues are premature absent a motion to compel arbitration as to those claims.
    • The Court declined to reach the merits of Plaintiff's underlying breach claim, noting that merits questions are for arbitration once arbitration is compelled.
  5. Directive and administrative requirement: The Court granted the motion to compel arbitration, ordered submission to the AAA and selection of an arbitrator under AAA rules, and required the parties to file a notice with the Court within thirty (30) days after completion of arbitration.

Holding and Implications

Holding: The Court GRANTED Plaintiff's motion to compel arbitration and DENIED Plaintiff's motion to remand.

Direct consequences for the parties:

  • The dispute arising from the 2008 contract is to be submitted to binding arbitration in accordance with the contract and AAA rules.
  • The parties must use the AAA procedures (including the arbitrator selection process) to select a single neutral arbitrator; the Court declined to mandate a bilingual arbitrator but left that consideration to the parties' AAA selection process.
  • Within thirty (30) days of completion of arbitration, the parties must file notice of completion with the Court.
  • The action remains in federal court (removal under 9 U.S.C. § 205 was proper); the Court's role is limited to determining arbitrability and enforcing the arbitration clause, not resolving the underlying merits.

Broader implications:

  • The opinion applies existing Ninth Circuit and related precedent concerning the New York Convention's removal provisions, the "falls under" and "relates to" analyses, and the standard for applying federal versus state arbitrability law. The decision enforces the practice of permitting removal under § 205 where an agreement falls under the Convention and the dispute relates to that agreement.
  • The Court did not announce any novel legal rule or binding new precedent; it applied established authorities (as cited) to the facts at hand and left substantive legal issues (choice of law for the merits, arbitrability of separate 2009-contract claims) to arbitration or to be raised in separate proceedings if appropriate.

Order signed: Honorable Janis L. Sammartino, United States District Judge (Nov. 17, 2011).

Show full summary ...

ARIEL FREANER, Plaintiff, v. ENRIQUE MARTIN LUTTEROTH VALLE, an indi

Janis L. Sammartino

ORDER (1) GRANTING MOTION TO COMPEL ARBITRATION; AND (2) DENYING MOTION TO REMAND
(ECF Nos. 5, 11)

Presently before the Court is Plaintiff Ariel Freaner's motion to compel arbitration, (Mot. Compel Arbit., ECF No. 5), and motion to remand action to state court, (Mot. Remand, ECF No. 11). Also before the Court is Defendant Enrique Martin Lutteroth Valle ("Lutteroth") and Hotelera Coral's (collectively, "Defendants") responses in opposition, (Resp. in Opp'n to Mot. Compel Arbit., ECF No. 21); (Resp. in Opp'n to Mot. Remand, ECF No. 18), and Plaintiff's reply in support of motion to remand, (Reply in Supp., ECF No. 19). The motion hearing on the motion to compel arbitration set for November 17, 2011 has been vacated, and the motion hearing on the motion to remand set for December 8, 2011, is HEREBY VACATED. The matters are taken under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having considered the parties' arguments and the law, the Court GRANTS Plaintiff's motion to compel arbitration and DENIES Plaintiff's motion to remand.

BACKGROUND

On or about June 23, 2008, Plaintiff and Defendants entered into a written agreement for Plaintiff to design and develop a static web site for Hotelera Coral, located in Baja California, Mexico. (Ex. A at 4, 16, ECF No. 1-2) Between July 2008 and October 2010, "Defendants requested and Plaintiff performed additional extra services not specified in the written Service Agreement." (Id. at 4) Pursuant to the terms of the agreement, however, Defendants were to pay Plaintiff an "hourly rate for additional extra services," but Defendants failed to do so. (Id.)

Relevant to the instant motion, the parties' agreement contained an arbitration provision:

Arbitration. Any controversy or claim arising out of or related to this Agreement, or breach thereof, shall be submitted to and resolved by binding arbitration. The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules of the American Arbitration Association. The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law. The parties agree to abide by and perform any award rendered by the arbitrator. The arbitrator shall issue the award in writing and therein shall state the essential findings and conclusions on which the award is based. Judgment on the award may be entered in any court having jurisdiction thereof.

(Id. at 14) Additionally, the agreement contained a choice-of-law provision:
California Law to Govern. This Agreement is being delivered and is intended to be performed in the State of California and is to be construed and enforced in accordance with the laws of California. Each party consents to the jurisdiction and venue of the state or federal courts in San Diego, California in any action, suit, or proceeding arising out of or relating to this Agreement.


(Id.)

Following Defendants' alleged breach, on June 21, 2011, Plaintiff filed a complaint asserting a breach of contract claim in San Diego Superior Court. (Id. at 2) Subsequently, Defendant Lutteroth removed the action to this Court pursuant to 9 U.S.C. § 205 and § 302. (Not. of Removal, ECF No. 1) Now, Plaintiff has filed the instant motions (1) to compel arbitration, (Mot. Compel Arbit., ECF No. 5); and (2) to remand the action back to state Court, (Mot. Remand, ECF No. 11). Defendants oppose. (Resp. in Opp'n to Mot. Compel Arbit., ECF No. 21); (Resp. in Opp'n to Mot. Remand, ECF No. 18)

Though Defendant bases removal on both 9 U.S.C. § 205 (New York Convention) and § 305 (Inter-American Convention), the Court's analysis focuses on § 205. Nevertheless, the Inter-American Convention incorporates by reference the relevant sections of the New York Convention, and thus an analysis of removal pursuant to the Inter-American Convention would mirror the Court's analysis here. See 9 U.S.C. § 302 ("Sections 202, 203, 204, 205, and 207 of this title shall apply to this chapter as if specifically set forth herein.").

MOTION TO REMAND 1. Legal Standard

In cases "brought in a State court of which the district courts of the United States have original jurisdiction," a defendant may remove the case to federal district court. 28 U.S.C. § 1441(a). "District courts have original jurisdiction over an action falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), regardless of the amount in controversy." Infuturia Global Ltd. v. Sequus Pharm., Inc., No. C 08-4871, 2009 U.S. Dist. LEXIS 13570, at *8-9 (N.D. Cal. Feb. 23, 2009) (citing 9 U.S.C. § 203), aff'd, 631 F.3d 1133 (9th Cir. 2011). Whether an action "falls under" the New York Convention is defined under § 202:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.

9 U.S.C. § 202.

Section 205 governs the removability of cases falling under the New York Convention:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.

9 U.S.C. § 205. Although courts generally "strictly construe the [§ 1441] removal statute against removal jurisdiction," Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (citations omitted), "the plain language of § 205 provides federal courts with remarkably broad removal authority," Infuturia Global, 631 F.3d at 1138 n.5 (citing Beiser v. Weyler, 284 F.3d 665, 674 (5th Cir. 2002) ("[E]asy removal is exactly what Congress intended in § 205.")). Nevertheless, the removing party continues to bear the burden of establishing federal jurisdiction. Infuturia Global, 2009 U.S. Dist. LEXIS 13570, at *11 (citing California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 838 (9th Cir. 2004)). Thus, "the removing party has the burden to show both that (1) an agreement exists that 'falls under' the New York Convention, and (2) the dispute 'relates to' the arbitration agreement." Id. (citing Beiser, 284 F.3d at 666).

2. Analysis

Plaintiff seeks remand of this action to the state court, arguing that Defendants improperly base removal on the Federal Arbitration Act ("FAA"), which "cannot provide the sole basis for federal jurisdiction." (Mot. Remand 3, ECF No. 11) Plaintiff's argument—while compelling had removal in fact been based on the FAA—totally misses the mark here, where Defendants sought removal pursuant to the New York Convention. (See Not. of Removal, ECF No. 1) Still, Defendants bear the burden of establishing that removal is appropriate. Here, Defendants contend that removal is appropriate under § 205 because the arbitration agreement (1) falls under the New York Convention and because (2) the subject matter of the litigation relates to the arbitration agreement. (Resp. in Opp'n 13, ECF No. 18)

A. The Arbitration Agreement "Falls Under" the New York Convention

Under § 202, "[i]n order for an agreement to fall under the Convention, it must arise out of a commercial relationship. At least one of the parties to the agreement must not be a U.S. citizen, or, if the agreement is entirely between U.S. citizens, it must have some 'reasonable relation' with a foreign state." Beiser, 284 F.3d at 666 n.2 (citing 9 U.S.C. § 202; Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1144 (5th Cir. 1985)).

Here, there are purportedly three parties to the agreement—Defendants Lutteroth and Hotelera Coral, and Plaintiff. (Resp. in Opp'n 13, ECF No. 18) The agreement arises out of a commercial relationship between Plaintiff and Defendants in that the parties agreed for "design services and products to be sold by Plaintiff to Hotelera." (Id. at 10) At least one of the parties to the agreement is not a U.S. citizen given that Defendant Hotelera Coral is a company formed under the laws of Baja California, Mexico. (Id.); (see also Countercl. ¶ 3, ECF No. 7) In addition, even if Hotelera Coral's citizenship is not considered, the agreement has a reasonable relation with a foreign state because it involves property that is located in Baja California, Mexico. (Not. of Removal ¶ 17, ECF No. 1); (Mot. Remand 8, ECF No. 11 ("The parties entered into a contract whereby Plaintiff provided advertising and marketing services to the Defendants for use by Defendant Hotelera Coral, a hotel and marina in Mexico.")) Thus, the Court concludes that the agreement "falls under" the New York Convention.

B. The Subject Matter of the Litigation "Relates to" the Arbitration Agreement

Having determined that the agreement "falls under" the New York Convention, the Court turns to whether the agreement "relates to" the subject matter of the action. The Ninth Circuit has recently interpreted the "relates to" requirement, concluding that "an arbitration agreement or award falling under the Convention 'relates to' the subject matter of an action whenever it could conceivably affect the outcome of the plaintiff's suit." Infuturia Global, 631 F.3d at 1135; see also Beiser, 284 F.3d at 669 ("[Federal courts] will have jurisdiction under § 205 over just about any suit in which a defendant contends that an arbitration clause falling under the Convention provides a defense. As long as the defendant's assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meet the low bar of 'relates to'.").

This interpretation of the "relates to" requirement is intentionally broad: "Congress favored federal jurisdiction over Convention-related claims in order to promote the development of a uniform body of law under the Convention." Beiser, 284 F.3d at 672 (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974) ("[The] goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was . . . to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.")); see also McDermott Int'l v. Lloyds Underwriters of London, 944 F.2d 1199, 1209 ("Congress made it easy for defendants in state-filed Convention cases to remove to federal court.").

Here, Defendants argue that "[t]here is indeed far more than 'a reasonable possibility' that the arbitration clause will be asserted. It has already happened." (Resp. in Opp'n 13, ECF No. 18 (quoting Hawkins v. KPMG, 423 F. Supp. 2d 1038, 1047 (N.D. Cal. 2006)). The parties agreed to arbitrate "[a]ny controversy or claim arising out of or relating to [their agreement], or breach thereof." (Ex. A at 14, ECF No. 1-2) Indeed, both Plaintiff and Defendants have filed motions to compel arbitration. (See Not. of Removal ¶ 6, ECF No. 1 (noting that Defendant Lutteroth filed a motion to compel arbitration before the San Diego Superior Court)); (Mot. to Compel Arbit., ECF No. 5) (Plaintiff's motion to compel arbitration filed in this Court)). Though the parties have as yet been unable to agree on an arbitrator, (see Mot. to Compel Arbit. 2, ECF No. 5), because the arbitrator's decision will ultimately determine the underlying issues, the arbitration agreement "could conceivably affect the outcome of the plaintiff's suit." Infuturia Global, 631 F.3d at 1135. Thus, it is clear that the agreement "relates to" the subject matter of the action under § 205.

C. Effect of Choice-of-Law Provision

Plaintiff contends that "the parties agreed that the laws of the State of California control the interpretation and enforcement of the contract." (Mot. Remand 6, ECF No. 11) Presumably, therefore, Plaintiff is arguing that removal to the federal court is inappropriate because California law—not federal law—should be utilized to determine the arbitrability of the underlying dispute. Although the Ninth Circuit has recently held that "contracting parties have the power to agree to apply non-federal arbitrability law," Cape Flattery Ltd. v. Tital Maritime, LLC, 647 F.3d 914, 919 (9th Cir. 2011), "courts should apply federal arbitrability law absent 'clear and unmistakable evidence' that the parties agreed to apply non-federal arbitrability law," id. at 921 (quoting First Options v. Kaplan, 514 U.S. 938, 944 (1995)).

Here, there is no "clear and unmistakable evidence" that the parties agreed to apply California arbitrability law. The arbitration provision provides that any dispute arising under the agreement "will be conducted in San Diego, California," and that "[t]he arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California." (Ex. A at 14, ECF No. 1-2) The choice-of-law provision adds that the agreement "is to be construed and enforced in accordance with the laws of California." (Id.) Taken together, these provisions clearly imply that California law applies to disputes that are subject to arbitration; "[h]owever, the agreement is ambiguous concerning whether [California] law also applies to determine whether a given dispute is arbitrable in the first place. Faced with such ambiguity, [the Court must] conclude that federal law applies to determine arbitrability." Cape Flattery, 647 F.3d at 921. Thus, because federal arbitration law applies, removal to this court pursuant to 9 U.S.C. § 205 is appropriate.

3. Conclusion

For the reasons stated above, the Court finds that removal was proper pursuant to 9 U.S.C. § 205 because the subject matter of Plaintiff's breach of contract action relates to the parties' arbitration agreement falling under the New York Convention, and because the choice-of-law provision does not apply to the determination of arbitrability. Thus, Plaintiff's motion to remand is DENIED.

MOTION TO COMPEL ARBITRATION

Although the parties agree that the underlying breach of contract dispute is subject to the arbitration provision—in fact both parties have independently filed motions to compel arbitration, Defendants in the state court proceedings and Plaintiff here—the parties have been unable to reach an agreement as to an arbitrator. (Mot. Compel Arbit. 2, 3, ECF No. 5); (Resp. in Opp'n to Mot. Compel Arbit. 2, ECF No. 21 ("Here, it appears indisputable that there is an agreement to arbitrate the 2008 Contract. Thus, the existence of an agreement to arbitrate is not at issue."))

1. Analysis

The New York Convention permits a court to "direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States. Such court may also appoint arbitrators in accordance with the provisions of the agreement." 9 U.S.C. § 206. Here, the parties' arbitration agreement provides that arbitration shall take place in San Diego, California, it requires that there be a "single neutral arbitrator," and it instructs that the arbitration be conducted "in accordance with the then current rules of the American Arbitration Association," ("AAA"). (Ex. A at 14, ECF No. 1-2)

The arbitration agreement does not provide any additional guidance as to how the parties will select an arbitrator; however, the AAA rules, which the parties agreed would govern the arbitration, provide a method for appointment "[i]f the parties have not agreed to the appointment of a mediator and have not provided any other method of appointment." AAA, Commercial Arbitration Rules and Mediation Procedures (effective June 1, 2009), online at http://www.adr.org/ si.asp?id=6447; AAA, International Dispute Resolution Procedures (effective June 1, 2009), online at http://www.adr.org/sp.asp?id=N33994; see also Swallow v. Toll Bros., No. C-08-02311, 2008 U.S. Dist. LEXIS 117046, at *14 (N.D. Cal. Sept. 8, 2008) ("Rule 12 of the AAA rules encourages the parties to agree on an arbitrator on the AAA's list of arbitrators but also provides an alternative procedure if the parties cannot agree according to which parties submit objections and rankings that are used by the AAA to select the arbitrator.").

In fact, the parties are in agreement that because they are unable to reach an agreement as to an arbitrator, the Court should order the parties to submit the matter to the AAA for appointment of an arbitrator pursuant to AAA rules. (Mot. Compel Arbit. 5, ECF No. 5 ("Plaintiff respectfully requests that the parties be ordered to submit this matter to binding arbitration through AAA, and that they be ordered to employ the 'strike and rank' arbitrator selection process contained in AAA rules.")); (Resp. in Opp'n to Mot. Compel Arbit. 5, ECF No. 21 ("In the absence of an agreement to an ad hoc arbitrator, the 2008 Contract should be submitted to the Triple-A. . . . [T]he Triple-A's . . . Rules provide[] applicable procedures for appointment of an arbitrator where the parties have not appointed an arbitrator and have not provided for an alternative appointment method.")). Thus, the Court GRANTS the motion to compel arbitration and ORDERS the parties to submit the dispute to the AAA and to employ the arbitrator selection procedures outlined in the AAA rules.

Despite their apparent agreement, the parties nevertheless present the Court with several additional issues they hope to resolve on this motion. First, Defendants request that the Court order that the selected arbitrator be bilingual in Spanish and English. (Resp. in Opp'n to Mot. Compel Arbit. 5, ECF No. 21) The Court declines to do so. The parties' agreement is silent as to whether a bilingual arbitrator is required. Moreover, Defendants can utilize their "strikes" and rankings under the AAA procedures for selecting an arbitrator in order to facilitate the appointment of a bilingual arbitrator.

The only provision even remotely on point states that "[i]n the unlikely event that a dispute arises, the English version of all correspondence shall govern. Where there is no English version, however, [Defendants] shall be responsible for any costs of translation that may be necessary in the event that a dispute arises." (Ex. A at 13, ECF No. 1-2) This provision weighs against Defendants' arguments for a bilingual arbitrator, if anything.

Second, Plaintiff "requests that a finding be made that the law of California apply to this dispute." (Mot. Compel Arbit. 5, ECF No. 5) Again, the Court declines to make such a determination. The Court's jurisdiction on removal is limited to determining the existence and enforceability of the arbitration provision. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-404 (1967) (discussing where to draw the line between matters subject to federal court jurisdiction versus arbitration). To the extent that the choice-of-law provision was relevant to that determination, the Court has already considered it supra. However, "any disputes between the parties about the applicable law [to the underlying dispute] should be for the arbitrator to resolve." Ramirez v. Cintas Corp., No. C 04-00281, 2005 U.S. Dist. LEXIS 43531, at *11 n.1 (N.D. Cal. Nov. 2, 2005) (citing Prima Paint, 388 U.S. at 403-04).

Third, Defendants seek an order clarifying the scope of issues to be submitted to arbitration. (Resp. in Opp'n to Mot. Compel Arbit. 3, ECF No. 21) Defendants do not contest that "those issues in dispute that correspond to the 2008 contract should be submitted" to arbitration, but contends that those issues in Hotelera Coral's counterclaim pertaining to the 2009 contract should not be submitted to arbitration because they are not subject to any arbitration clause. (Id.) Plaintiff does not request arbitration of the claims pertaining to the 2009 contract, however. Plaintiff's motion to compel arbitration pertains only to the 2008 contract dispute; in fact, it was filed the same day as Hotelera Coral's answer and counterclaim, and as such cannot be read to encompass a request for Hotelera Coral's counterclaims to be subject to arbitration as well. Thus, the Court concludes that it would premature to consider whether to compel arbitration of issues related to the 2009 contract that are the subject of Hotelera Coral's counterclaims as the Court is not yet faced with a motion to compel arbitration of those claims.

The fact that some of the parties' claims may be subject to arbitration while others may not does not affect the outcome of the instant motion. Section 208 of the New York Convention states that the FAA "applies to actions and proceedings" brought under the New York Convention "to the extent that chapter is not in conflict with this chapter." Thus, cases interpreting certain non-conflicting provisions of the FAA may be helpful authority in determining the scope of arbitration here. Specifically, the FAA reflects a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). As such, the FAA "requires district courts to compel arbitration even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 698 (9th Cir. 1986).
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Fourth and finally, Defendants seek clarification of Plaintiff's specific claims for breach of the 2008 contract, arguing that Plaintiff's "Complaint is without merit" because he "cannot make a legitimate claim under the 2008 Contract." (Id. at 7) The Court declines to reach the merits of Plaintiff's underlying claim, however. As mentioned, the Court's jurisdiction is limited to a determination of whether to compel arbitration; the legitimacy of Plaintiff's claim will be determined through arbitration.

2. Conclusion

For the reasons stated above, the Court finds that the parties agree to submit to arbitration for the dispute related to the 2008 contract. Therefore, the Court GRANTS Plaintiff's motion to compel arbitration. The parties SHALL SUBMIT Plaintiff's claims to the AAA and SHALL SELECT an arbitrator pursuant to the AAA rules. Within thirty (30) days of the completion of arbitration, the parties SHALL FILE a notice of said completion with the Court.

CONCLUSION

In sum, Plaintiff's motion to remand is DENIED; removal is appropriate pursuant to 9 U.S.C. § 205. Plaintiff's motion to compel arbitration is GRANTED; the parties are ordered to submit their dispute to arbitration.

IT IS SO ORDERED.

Honorable Janis L. Sammartino


United States District Judge


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