Century Satellite v. Echostar Satellite, L.L.C., Civ.A. H-04-3243.

• Decision Date: 23 June 2005
• Docket Number: No. Civ.A. H-04-3243.,Civ.A. H-04-3243.
• Citation: 395 F.Supp.2d 487
• Parties: CENTURY SATELLITE, INC., Plaintiff, v. ECHOSTAR SATELLITE, L.L.C., formerly known as Echostar Satellite Corporation, Echosphere, L.L.C., Mid-State Distributing Company, Inc., and Recreational Sports and Imports, Inc. Defendants.
• Court: U.S. District Court — Southern District of Texas

Page 487

395 F.Supp.2d 487

CENTURY SATELLITE, INC., Plaintiff, v. ECHOSTAR SATELLITE, L.L.C., formerly known as Echostar Satellite Corporation, Echosphere, L.L.C., Mid-State Distributing Company, Inc., and Recreational Sports and Imports, Inc. Defendants.

No. Civ.A. H-04-3243.

United States District Court, S.D. Texas, Houston Division.

June 23, 2005.

Anthony L. Bannwart, Bannwart & Assoc., Houston, TX, for Plaintiff.

Damon Henry Meeks, III, T. Wade Welch & Assoc., Michael Steven Burg, Attorney at Law, Houston, TX, Robert T. Brousseau, Stutzman Bromberg, et al., Dallas, TX, for Defendants.

MEMORANDUM AND ORDER AND STAY OF PROCEEDINGS

WERLEIN, District Judge.

Pending are Defendants Echostar Satellite, L.L.C.'s and Echosphere, L.L.C.'s Combined Motion to Dismiss Plaintiff's First Amended Complaint for Failure to State a Claim, and Alternatively, Motion to Stay or Dismiss Action Pending Arbitration, Motion to Transfer Venue, and Motion for a More Definite Statement (Document No. 38) and Defendant Recreational Sports and Imports, Inc.'s Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6), Motion to Stay or Dismiss Action Pending Arbitration, and Alternatively, Motion to Transfer Venue (Document No. 39).¹ After carefully considering the motions, responses replies, and the applicable law, the Court concludes as follows:

I. Background

Plaintiff Century Satellite, Inc. ("Century") brings this diversity action against Defendants Echostar Satellite, L.L.C. ("Echostar"), Echosphere, L.L.C. ("Echosphere"), Mid-State Distributing Company, Inc. ("Mid-State"), and Recreational Sports and Imports, Inc. ("RS & I") for breach of contract, unjust enrichment, and/or conversion.

Century alleges that, pursuant to a series of annual agreements, it served as a non-exclusive satellite dish and programming retailer for Echostar and/or Echosphere from October, 1999, through March 23, 2004. Under these agreements, Century explains, it installed or caused the installation of certain satellite equipment for consumers. Echostar provided satellite programming directly to the consumers, while Echosphere supplied Century with the requisite satellite equipment through designated regional distributors, Mid-State and RS & I.

According to Century, part of its compensation under the annual agreements — as well as other oral agreements, "business rules," and the parties' course of dealing — consisted of an incentive/residual ("residual payment"), that is, a payment for each consumer to whom Century sold satellite programming, which payment lasted for the "lifetime" of the customer account. Each month for approximately four years, Century alleges, Echostar and/or Echosphere made these residual payments to Century through Mid-State. In February, 2004, RS & I allegedly replaced Mid-State as regional distributor.

On March 23, 2004, Century received a written termination notice stating that, effective immediately, it "hereby terminates both Non-Incentivized Retailer Agreements with [Century] between [Mid-State] and [RS & I]," on grounds that Century had violated "paragraph 9.4 of the Agreement." See Document No. 31 ex. D.² After the termination, Century alleges, it received no residual payments and was forced to close its business. Echostar then initiated arbitration proceedings against Century on June 21, 2004, and Century thereafter filed this lawsuit.

In its First Amended Complaint, Century alleges that the termination of its retailer services by Echostar and/or Echosphere, "acting individually or in concert with other Defendants, was wrongful and constitutes a breach of contract." See id. ¶ 5.1. Century contends that it was never in default of any written or oral agreement between the parties, business rules, or courses of dealing. Alternatively, Century pleads, Defendants failed to provide a mandatory notice of default and opportunity to cure. Moreover, Century argues, Defendants' failure to make any further residual payments is itself a breach of contract, or at least unjust enrichment and/or conversion with respect to accounts that were attributable to Century's services and were active beyond January, 2004. Century pleads for damages, costs, and attorney's fees. Echostar, Echosphere, and RS & I (collectively, "Defendants") now move for dismissal for failure to state a claim, an order compelling arbitration and staying or dismissing Century's arbitrable claims, or alternatively, a transfer of venue or a more definite statement.

II. Discussion

Defendants move for dismissal pursuant to Fed.R.Civ.P. 12(b)(6), but also request an order compelling arbitration and staying or dismissing Century's arbitrable claims. If Century's Amended Complaint asserts claims falling within the scope of a valid arbitration agreement, then the parties must proceed to arbitration on those claims without a judicial determination on the merits thereof. See Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 218-19 (5th Cir.2003); Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1267-68 (5th Cir.1994). Accordingly, Defendants' motions to compel arbitration must be considered first.

A. Arbitration

It is uncontroverted that the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., applies to the arbitration agreements at issue in the instant case.³ The FAA "provides for district courts to stay legal proceedings on issues referable to arbitration, 9 U.S.C. § 3, and empowers the courts to compel arbitration of arbitrable issues, 9 U.S.C. § 4." Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058, 1061 (5th Cir.1990).

Under the FAA, "[a] two-step inquiry governs whether parties should be compelled to arbitrate a dispute. `First, the court must determine whether the parties agreed to arbitrate the dispute. Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims non-arbitrable.'" Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir.2004) (quoting R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir.1992)). The first step requires the court to determine according to state law (1) whether the parties have a valid agreement to arbitrate; and (2) whether the dispute falls within the scope of that arbitration agreement. See id. Although a strong federal policy favors arbitration, the policy does not apply to the initial question of whether there is a valid agreement to arbitrate. See id. Once a court determines that an arbitration agreement exists, however, the court "must pay careful attention to the strong federal policy favoring arbitration and must resolve all ambiguities in favor of arbitration." Id.

Two of the agreements that Century attaches to and relies upon in its Amended Complaint contain very similar arbitration provisions. An "Authorized Retailer Agreement" between Century and RS & I states in relevant part:

ANY AND ALL DISPUTES, CONTROVERSIES OR CLAIMS BETWEEN [CENTURY] AND/OR ANY OF ITS AFFILIATES, ON THE ONE HAND, AND RS & I AND/OR ANY OF ITS AFFILIATES, ON THE OTHER HAND, INCLUDING WITHOUT LIMITATION ANY AND ALL DISPUTES, CONTROVERSIES OR CLAIMS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO THE VALIDITY OF SECTION 17.3, THE CIRCUMSTANCES CONCERNING THE EXECUTION OF THIS AGREEMENT, AND ALLEGATIONS OF FRAUD IN THE INDUCEMENT, OR WHICH RELATE TO THE PARTIES' RELATIONSHIP WITH EACH OTHER OR EITHER PARTY'S COMPLIANCE WITH ANY STATE OR FEDERAL LAW, WHICH ARE NOT SETTLED THROUGH NEGOTIATION, THE CLAIM PROCESS

ABOVE, OR THE MEDIATION PROCESS SET FORTH ABOVE, SHALL BE RESOLVED SOLELY AND EXCLUSIVELY BY BINDING ARBITRATION IN ACCORDANCE WITH BOTH THE SUBSTANTIVE AND PROCEDURAL LAWS OF TITLE 9 OF THE U.S. CODE ("FEDERAL ARBITRATION ACT") AND THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

Document No. 31 ex. C, at 18. Likewise, an "Incentivized Retailer Agreement" between Century and Echostar contains a nearly identical provision applying to "any and all disputes, controversies or claims" between Century, Echostar, and/or their respective affiliates, "including without limitation any and all disputes, controversies, or claims arising out of or in connection with this Agreement ... or which relate to the parties' relationship with each other...." Id. ex. B, at 13.⁴

The foregoing language, which encompasses not only disputes, controversies, and claims "arising out of" the respective Retailer Agreements, but those "in connection with" the Retailer Agreements, or which "relate to the parties' relationship with each other," is broad and expansive. See Pennzoil Exploration and Prod. Co. v. Ramco Energy, Ltd., 139 F.3d 1061, 1067 (5th Cir.1998) ("[C]ourts distinguish `narrow' arbitration clauses that only require arbitration of disputes `arising out of' the contract from broad arbitration clauses governing disputes that `relate to' or `are connected with' the contract."). Thus, Century's claims against RS & I and Echostar for breach of contract, unjust enrichment, and conversion — all of which are made "in connection with" the Authorized and/or Incentivized Retailer Agreements, and which "relate to the parties' relationship with each other" — fall squarely within the scope of the foregoing arbitration provisions. Cf. Personal Security & Safety Sys., Inc. v. Motorola Inc., 297 F.3d 388, 392 (5th Cir.2002) ("[A] valid agreement to arbitrate applies unless it can be said with positive assurance that [the] arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.") (internal quotations omitted).⁵

Similarly, Century's claims against Echosphere, which mirror those against Echostar, also fall within the scope of the Incentivized Retailer Agreement's arbitration provisions. Indeed, it is uncontroverted that Echosphere is an "Affiliate" of Echostar as that term is used in those provisions. See Document No. 31 ex. B, at 2, 13. Furthermore, the fact that Echosphere is not a...