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eTouch LV, LLC v. eTouch Menu, Inc.

United States District Court, D. Nevada

May 13, 2019

ETOUCH LV, LLC, Plaintiffs,
v.
ETOUCH MENU, INC., Defendants.

          ORDER

         Presently before the court is plaintiff eTouch LV, LLC's motion to compel arbitration. (ECF No. 21). Defendants Scott Morrow and eTouch Menu, Inc. (collectively “defendants”) filed a response (ECF No. 26), to which plaintiff replied (ECF No. 27).

         Also before the court is plaintiff's motion to dismiss, or in the alternative, stay. (ECF No. 22). Defendants filed a response (ECF No. 26), to which plaintiff replied (ECF No. 27).

         I. Facts

         In September 2017, plaintiff purchased from defendants a software business in exchange for $3.5 million. Id. The asset purchase agreement required plaintiff to pay $2 million at closing of the sale. Id. The remaining $1.5 million was a hold-back payment that plaintiff was obligated to pay in quarterly installments. Id. Under the asset purchase agreement, plaintiff could use the hold-back payment to offset any damages suffered in conjunction with the transaction. Id.

         Shortly after paying the initial $2 million and acquiring the software business, plaintiff discovered that defendants made numerous misrepresentations concerning various business assets, software products, customers, distributors, and revenues. (ECF No. 37-1). Because these breaches allegedly resulted in over $1.5 million in damages, plaintiff exercised its rights under the offset provision of the asset purchase agreement by refusing to make further payments. (ECF Nos. 1, 37).

         In conjunction with the asset purchase agreement, plaintiff also signed an at-will employment agreement with Morrow. (ECF Nos. 11, 20). On May 4, 2018, plaintiff terminated Morrow partially for his misconduct throughout the software business acquisition process. Id. Defendants allege that the termination was unlawful because plaintiff failed to pay Morrow $300, 000 in accordance with the employment agreement. (ECF No. 11).

         On September 19, 2018, plaintiff initiated this action in state court, asserting six causes of action: (1) breach of contract; (2) declaratory relief; (3) breach of the implied covenant of good faith and fair dealing; (4) breach of fiduciary duty; (5) unjust enrichment; (6) fraud in the inducement; and (7) violation of the Deceptive Trade Practices Act. (ECF No. 1-1). On October 26, 2018, defendants removed this action to federal court. (ECF No. 1).

         On November 9, 2018, the defendants filed an answer and counterclaim, asserting four causes of action: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) unjust enrichment; and (4) “failure of consideration - rescission.” (ECF No. 11). Defendants assert these counterclaims with respect to both the asset purchase agreement and the employment agreement. Id.

         Now, plaintiff moves to compel arbitration of defendants' counterclaims as they pertain to the employment agreement. (ECF No. 21). Plaintiff also moves to dismiss, or in the alternative, stay defendants' counterclaims as they pertain to the employment agreement. (ECF No. 21).

         II. Legal Standard

         The Federal Arbitration Act (“FAA”) provides for the enforcement of arbitration agreements in any contract affecting interstate commerce. 9 U.S.C. § 2; AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). A party to an arbitration agreement can invoke his or her rights under the FAA by petitioning federal courts to direct that “arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. When courts grant a petition to compel arbitration, the FAA requires stay of litigation “until such arbitration has been had[.]” Id. at § 3.

         The FAA embodies a clear policy in favor of arbitration. AT&T Mobility, 563 U.S. at 339. Courts must rigorously enforce arbitration agreements. Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). “[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). The FAA leaves no place for courts to exercise discretion, but instead mandates courts to enforce arbitration agreements. See Dean Witter Reynolds v. Byrd, 470 U.S. 213, 218 (1985).

         However, arbitration is a “matter of contract” and the FAA does not require a party to arbitrate “any dispute which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (quotes and citation omitted). When determining whether a party should be compelled to arbitrate claims: courts engage in a two-step process. Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The court must determine: (1) whether a valid agreement to arbitrate exists, and if it does; (2) whether the agreement encompasses the dispute at issue. Id.

         III. ...


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