United States District Court, D. Oregon
Thomas M. Triplett, Richard K. Hansen, Roman D. Hernandez, SCHWABE, WILLIAMSON & WYATT, P.C., Portland, Oregon.
Edwin G. Harvey, Matthew J. Landwehr, David M. Mangian, THOMPSON COBURN LLP, St. Louis, Missouri, Attorneys for Plaintiff.
John F. McGrory, Jr., Kaley L. Fendall, DAVIS WRIGHT TREMAINE LLP, Portland, Oregon, Attorneys for Defendants.
OPINION & ORDER
MARCO A. HERNANDEZ, District Judge.
Plaintiff RISO, Inc. brings this action against Defendants Witt Company and two Witt Company executives: William Witt and Gary Edner. Most of the claims are based on RISO's contention that Witt Company, previously an authorized dealer of RISO products, defrauded RISO by submitting unsupported reimbursement claims to RISO under RISO's "Price Support Programs." Defendants move to dismiss the case based on a contractual arbitration clause. I grant the motion because I agree with Defendants that other than the injunctive relief portion of the Lanham Act claim, all of the claims are subject to the arbitration provision.
RISO is the United States distributor of certain imaging and printing products. First Am. Compl. at ¶ 6. From August 1, 1989 to May 31, 2013, Witt Company was an authorized RISO dealer. Id. at ¶ 7. During that time, Witt Company engaged in the distribution, sale, lease, rental, installation, maintenance, refurbishment, and servicing of RISO's products, including digital duplicators, accessories, supplies, parts, and related products now or in the past distributed by RISO. Id. at ¶ 8.
Defendant William Witt is the President of Witt Company and was actively involved in the operations and management of Witt Company. Id. at ¶ 11. He directly or indirectly owns Witt Company and controls, participates in, and directs Witt Company's operations, including its day-to-day functions. Id . Defendant Gary Edner is Corporate Operations Manager for Witt Company and was and is actively involved in the operations and management of Witt Company. Id. at ¶ 12.
RISO sells its products in the United States primarily through 160 independently owned and operated dealers. Id. at ¶ 16. These dealers then resell the products to end-users/customers. Id . RISO's digital duplicators consume two supply products: inks and masters. Id. at ¶ 17. RISO sells its products, including inks and masters, at wholesale to its dealers at dealer published prices. Id. at ¶ 18. Those dealers then make retail sales of the products to end-users. Id.
The parties and their commercial relationship are not strangers to this Court. In 2013, Witt Company filed suit against RISO contending that RISO's insistence that Witt Company purchase supplies along with digital duplicators violated the "anti-tying" provisions of federal antitrust laws. Witt Co. v. RISO, No. 03:13-cv-00166-HZ (hereinafter "the 2013 Antitrust Litigation"). Witt Company also brought claims of intentional interference with business relations, breach of contract, and breach of the duty of good faith and fair dealing. I denied Witt Company's motion for a preliminary injunction and then granted RISO's motion to dismiss. Although I gave Witt Company leave to amend as to some of its claims, Witt Company elected not to file an amended complaint and a Judgment was filed in July 2013.
Witt Company was a party to several "Dealer Agreements" with RISO during the time it was a RISO authorized dealer. See 2013 Antitrust Litigation, No. 03:13-cv-00166-HZ, June 7, 2013 Op. & Ord.  at 3 (Witt Company "entered into several RISO Domestic Dealer Agreements (Dealer Agreements) from time to time which set forth the terms and conditions of the parties' business relationship."). The last express Dealer Agreement executed by the parties was one governing Fiscal Year 2008, referred to herein as the FY 2008 Dealer Agreement. See id. at 3-4 (noting that the parties signed the FY 2008 Dealer Agreement on April 1, 2007).
All of the Dealer Agreements to which Witt Company was a party included some sort of Price Support Program. As alleged in the First Amended Complaint, RISO dealers often face pricing competition. First Am. Compl. at ¶ 19. Requests for proposal, bid requests, or other forms of solicitation are routinely awarded to the lowest-priced bidder whose product meets the qualifications. Id . Pricing competition also arises when a retailer of competitive products directly approaches the dealer's existing or prospective customers and offers competitive products. Id . To assist its dealers to more effectively compete for or to retain a customer's business, RISO maintains a pricing support program referred to as "Price Support" through which RISO furnishes financial credit to its dealers in certain competitive pricing situations. Id. at ¶ 20. The dealer sells the products to the customer at a reduced price, but RISO shares the burden of the price reduction when it provides Price Support so that the dealer may obtain or retain the business rather than lose the bid or customer to a competitor. Id. at ¶ 22. Price Support lowers the wholesale price by lowering the cost to the dealer through an after-purchase rebate credit (or at times by an up-front discount) and results in less money to RISO for the sale of products to the dealer. Id.
To be eligible for Price Support, the RISO dealer must submit a pre-bid Price Support application to RISO. Id. at ¶ 25. There, the dealer provides details regarding the bid/competitive situation, and identifies the customer, machines, accessories, and supplies that are being bid. Id . The dealer also identifies the competition the dealer reasonably anticipates it is facing. Id . RISO reviews the application and if approved, it issues the dealer a "Price Support Letter" verifying the price the dealer intended to propose to the customer and specifying which products are being supported. Id. at ¶ 27. The Price Support Letter also states the maximum price at which the dealer can sell the product to the customer in order to be eligible to receive Price Support credit on that sale. Id . Generally, a dealer sells the RISO product for whatever price it wants. However, to receive Price Support credit, the dealer must sell the product for a price at or less than the maximum price stated in RISO's Price Support Letter approving the dealer's Price Support application. Id. at ¶ 28.
If the dealer wins the customer's business, the dealer purchases the applicable RISO products from RISO at the dealer's then-current dealer pricing and sells the products to the customer. Id. at ¶ 30. The dealer then must submit additional paperwork to RISO requesting a credit for the difference between the price at which the dealer purchased the products from RISO and the Price Support amount. Id. at ¶ 31 (noting that the three required documents are collectively referred to as the "Credit Request Documentation"). If the dealer timely submits the Credit Request Documentation and the information submitted is accurate, RISO issues the dealer a cash credit that can be used by the dealer to pay RISO invoices for products. Id. at ¶ 35. Since April 2002, Witt Company has received Price Support from RISO through this program in a total amount exceeding $2 million. Id. at ¶ 36.
In the course of expedited discovery in the 2013 Antitrust Litigation, RISO obtained copies of 2, 935 invoices reflecting the sale of non-RISO brand inks and masters which Witt Company issued to its customers between April 1, 2011 and March 28, 2013. Id. at ¶ 45. In comparing those invoices with invoices Witt Company had previously submitted to RISO in order to obtain Price Support credit, RISO found that thirty-three of the litigation invoices were materially different from the matching counterpart submitted by Witt Company for a Price Support credit, including differences in price, quantity, and/or product sold. Id. at ¶¶ 47, 50. The litigation invoices also showed the sale of Witt Company brand generic supplies, whereas the corresponding invoices submitted for Price Support credit showed the products sold as genuine RISO supplies. Id . RISO contends that Witt Company submitted invoices and received Price Support credit from RISO for the sale of non-RISO supplies. Id. at ¶ 51. Additionally, RISO contends that Witt Company received Price Support credit for sales made well above the price approved by RISO for Price Support. Id. at ¶ 52. The thirty-three invoices that RISO examined showed that RISO paid $9, 247.15 in Price Support to Witt Company for the products on those invoices. Id. at ¶ 56.
RISO then sent records requests, pursuant to the appropriate state freedom of information laws, to a number of public school districts in Oregon, Washington, California, and Arizona. Id. at ¶ 59. RISO received hundreds of invoices back from the schools. Id. at ¶ 61. Of those, only twenty-seven were not materially different in terms of price, quantity, or product, from the Price Support customer invoices that had been submitted to RISO by Witt Company to obtain Price Support credit. Id . RISO alleges that its investigation is continuing but as of the time it filed its Amended Complaint in this case, a comparison of the school invoices with the corresponding counterparts submitted for Price Support credit shows that approximately ninety percent of the invoices submitted by Witt Company for Price Support were materially altered from the actual customer invoice. Id. at ¶ 66.
RISO alleges that its investigation to date confirms that since at least 2006, all three Defendants were engaged in a scheme to defraud RISO whereby they knowingly created false and fraudulent invoices purporting to show Witt Company made sales to customers which qualified for the Price Support Program, submitted the fraudulent invoices to RISO, and requested and received Price Support from RISO based on the fraudulent invoices. Id. at ¶ 68. On information and belief, RISO alleges that this fraudulent scheme started earlier than 2006 and perhaps as early as 2002 or earlier. Id.
Based on these allegations, RISO brings the following claims:
(1) Count I: fraud, fraudulent misrepresentation, and/or intentional misrepresentation against Witt Company, William Witt, and Edner;
(2) Count II: a claim under the Massachusetts Consumer Protection Act, M.G.L.A. 93A § 2, against Witt Company, William Witt, and Edner alleging that the actions alleged constitute unfair and deceptive acts or practices in the course of trade or commerce;
(3) Count III: conversion against Witt Company;
(4) Count IV: money had and received against Witt Company;
(5) Count V: unjust enrichment against Witt Company;
(6) Count VI: suit on account against Witt Company;
(7) Count VII: a RICO claim under 18 U.S.C. § 1962(c) against William Witt and Edner alleging that they engaged in a pattern of racketeering activity consisting of hundreds of acts of mail and wire fraud;
(8) Count VIII: a RICO claim under 18 U.S.C. § 1962(d) against William Witt and Edner alleging that they conspired to engage in a pattern of racketeering activity consisting of hundreds of acts of mail and wire fraud; and
(9) Count IX: a claim for unfair competition under the Lanham Act, 15 U.S.C. § 1125, against Witt Company. Id. at ¶¶ 78-195.
All but two claims arise from the alleged fraudulent Price Support invoice scheme. Count VI for suit on account alleges that in response to requests from Witt Company, RISO furnished Witt Company with RISO equipment, parts, and supplies in the amount of $123, 819.68 and sent Witt Company invoices for those goods which Witt Company has allegedly refused to pay. Id. at ¶¶ 118-125. The unfair competition claim in Count IX contends that despite the expiration of its authorized dealer status on May 31, 2013, Witt Company continues to associate itself with RISO as an authorized dealer, including but not limited to representations made on Witt Company's website. Id. at ¶ 189. RISO alleges that these representations by Witt Company are likely to cause confusion or cause mistake or to deceive as to the affiliation, connection, or association of Witt Company with RISO, or as to the origin, sponsorship, or approval of Witt Company through its good or commercial activities by RISO. Id. at ¶ 191.
Where the court lacks subject-matter jurisdiction, the action must be dismissed. Fed.R.Civ.P. 12(b)(1). A motion to compel arbitration is appropriately raised pursuant to Rule 12(b)(1). See Geographic Expeditions. Inc. v. Estate of Lhotka ex rel. Lhotka , 599 F.3d 1102, 1104 (9th Cir. 2010). In considering a Rule 12(b)(1) motion, the court may consider evidence outside the pleadings to resolve factual disputes. Robinson v. United States , 586 F.3d 683, 685 (9th Cir. 2009).
The Federal Arbitration Act, 9 U.S.C. §§ 1-16 (FAA), removes the court's subject matter jurisdiction to hear the claim when there is a valid, enforceable arbitration clause. Therefore, Defendants' motion to dismiss is "one means to raise its arbitration defense. In effect, [Defendants'] motion is a petition to this court within the meaning of § 4 of the FAA." Rogue v. Applied Materials, Inc., No. 03:03-cv-1564-ST, 2004 WL 1212110, at *4 (D. Or. Feb. 20, 2004), adopted by J. Brown (D. Or. June 1, 2004).
The FAA states that written agreements to arbitrate arising out of transactions involving 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." 9 U.S.C. § 2. If the issue is referable to arbitration under the agreement, then the court must direct the issue to arbitration and stay the trial. 9 U.S.C. § 3. An agreement to arbitrate is to be "rigorously enforce[d.]" Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 221 (1985).
Courts strongly favor arbitration and broadly construe arbitration clauses. E.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 626 (1985) ("any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration") (internal quotation marks omitted); Simula, Inc. v. Autoliv, Inc. , 175 F.3d 716, 719 (9th Cir. 1999) ("The standard for demonstrating arbitrability is not high").
As Judge Stewart explained in a 2010 opinion:
The court's role under the FAA is limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue. If the response is affirmative on both counts, then the [FAA] requires the court to enforce the arbitration agreement in accordance with its terms.
Morrow Equip. Co., v. Baker Concrete Constr., Inc., No. 03:09-cv-1335-ST, 2010 WL 4483914, at *4 (D. Or. June 8, 2010) (internal quotation marks omitted), adopted by J. Haggerty (D. Or. Nov. 1, 2010).
The arguments made in this motion require discussion of the following issues: (1) the Price Support claims against Witt Company (meaning all claims other than Counts VI and IX), arising before the expiration of the FY 2008 Dealer Agreement; (2) the Price Support claims against Witt Company arising after the expiration of the FY 2008 Dealer Agreement; (3) whether the arbitration provision applies to the Price Support claims against William Witt and Edner (meaning Counts I & II and the RICO claims in Counts VII and VIII); and (4) whether the arbitration provision applies to the non-Price Support claims (meaning Counts VI and IX).
I. The Dealer Agreements' Arbitration Provisions and Effective Dates of Express Agreements
A. Arbitration Agreements
1. 1998 and 2003 Dealer Agreements
From at least as early as 1998, RISO's Dealer Agreements have contained an arbitration provision requiring that RISO and Witt Company arbitrate their claims. A 2003 Dealer Agreement superseded and replaced the 1998 Dealer Agreement. Paragraph 8(h) of the 1998 Dealer Agreement and Paragraph 8(i) of the 2003 Dealer Agreement contain the following identical arbitration provisions:
Any controversy or claim arising out of or relating to this Agreement shall be determined exclusively by binding arbitration in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association utilizing three arbitrators. The arbitrators shall award all reasonable attorney's fees and costs incurred in connection with the arbitration to the party the arbitrators determine substantially prevailed in the arbitration.
B. Witt Feb. 13, 2014 Decl., Ex. 1 at 6 (1998 Dealer Agreement); Ex. 2 at 7 (2003 Dealer Agreement).
2. 2005 Dealer Agreement
The 2003 Dealer Agreement between the parties was replaced by a 2005 Dealer Agreement which contained, in paragraph 8(l), an arbitration provision similar, but not identical, to the one in the earlier agreements as follows:
Any controversy or claim arising out of or relating to this Agreement shall be determined exclusively by binding arbitration in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association utilizing three arbitrators. The arbitrators shall award all reasonable attorney's fees and costs, including fees of arbitration and expert fees, incurred in connection with the arbitration to the party the arbitrators determine substantially prevailed in the arbitration. Consistent with paragraph 8(j) above, the arbitrators shall have no power to award, and the parties do not agree to arbitrate any claims seeking, punitive or exemplary damages (including treble or other multiple damages).
Paragraph 8(j) of the 2005 Dealer Agreement states that:
Neither RISO nor Dealer shall be liable to the other for any punitive or exemplary damages of any sort (including treble or other multiple damages), and both expressly waive any right they might otherwise have to seek the same. RISO will not under any circumstances be liable to Dealer or any End-user for ...