Renfrew Ctrs., Inc. v. Uni/Care Sys. Inc.

• Decision Date: 17 January 2013
• Docket Number: Civil Action No. 12–3211.
• Citation: 920 F.Supp.2d 572
• Parties: The RENFREW CENTERS, INC., Plaintiff, v. UNI/CARE SYSTEMS INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

920 F.Supp.2d 572

The RENFREW CENTERS, INC., Plaintiff,

v.UNI/CARE SYSTEMS INC., Defendant.

Civil Action No. 12–3211.

United States District Court,

E.D. Pennsylvania.

Jan. 17, 2013.

Steven J. Engelmyer, Kleinbard Bell & Brecker LLP, Philadelphia, PA, for Plaintiff.

Mark D. Sullivan, Mark D. Sullivan PC, Wilson, WY, John J. Leonard, Leonard, Sciolla, Hutchison, Leonard & Tinari, LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

ANITA B. BRODY, District Judge.

Plaintiff The Renfrew Centers, Inc. (“Renfrew”) brings a claim against Defendant UNI/CARE Systems, Inc. (“UNI/CARE”) for making fraudulent misrepresentations that induced Renfrew to enter into a contract with UNI/CARE. UNI/CARE moves to dismiss the complaint and compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Diversity jurisdiction is proper pursuant to 28 U.S.C. § 1332. For the reasons set forth below, UNI/CARE's motion will be granted.

I. BACKGROUND¹

Renfrew is a health care organization that specializes i n the treatment of eating disorders. UNI/CARE is a national software vendor that sells health information software. Renfrew claims that UNI/CARE's representative, John Gohman, made misrepresentations about UNI/CARE's “Pro–Filer” product in order to induce Renfrew into purchasing the product. These misrepresentations include promises that the product would integrate into Renfrew's “front end system,” provide electronic billing capabilities, and that Gohman would supervise the product's implementation. On December 18, 2009, Renfrew signed a contract with UNI/CARE and paid $165,000 for installation of the product and training to use it.

In May 2011, Renfrew discovered that the product did not integrate with its “front end system,” that it did not perform as presented, and that staff training was disrupted by UNI/CARE's constantly changing personnel. Gohman became progressively unresponsive to Renfrew's complaints until January 30, 2012, when he became completely unavailable. Renfrew claims it cannot use the product at all. It brings one cause of action against UNI/CARE for fraudulent inducement.

UNI/CARE moves to dismiss Renfrew's complaint and compel arbitration based on an arbitration provision in the parties' contract.

II. STANDARD OF REVIEW

UNI/CARE moves to dismiss this case and compel arbitration under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). 12(b)(1) requires the dismissal of actions that lack subject matter jurisdiction. This rule is inapplicable to this case, where subject matter jurisdiction exists by way of diversity of citizenship of the parties, and an amount in controversy greater than $75,000. See Nationwide Ins. Co. v. Patterson, 953 F.2d 44, 45 n. 1 (3d Cir.1991). “Dismissal of a[n] ... action because the dispute is covered by an arbitration provision is generally effected under Rule 12(b)(6) covering dismissals for failure to state a claim upon which relief can be granted, or Rule 56 covering summary judgments if matters beyond the pleadings were considered.” Id. (internal quotation marks omitted). “When it appears from the face of a complaint, and documents relied upon i n the complaint, that certain of its claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's delay.” Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F.Supp.2d 474, 482 (E.D.Pa.2011). Here UNI/CARE asserts that the agreement it entered into with Renfrew contains an enforceable arbitrationclause that applies to Renfrew's claim. The agreement is attached to the complaint. Therefore, I will review UNI/CARE's motion under the 12(b)(6) standard.

Under Rule 12(b)(6), a court must “accept all factual allegations in the complaint as true and view them in the light most favorable to the plaintiff.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir.2006). This “assumption of truth” is “inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The complaint must allege facts sufficient to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Rather, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (internal quotation marks omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

III. DISCUSSION

Federal law applies when determining whether a dispute falls within the scope of an arbitration agreement. This contract is subject to the Federal Arbitration Act, a statute that creates federal substantive law governing the duty to honor agreements to arbitrate disputes. 9 U.S.C. § 2 (applying the FAA to written provisions for arbitration in maritime or commercial contracts); Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir.2009). The Federal Arbitration Act empowers district courts to compel arbitration in accordance with agreements. 9 U.S.C. § 206. Before compelling arbitration, a court must establish that “(1) there is an agreement to arbitrate and (2) the dispute at issue falls within the scope of that agreement.” Century Indem. Co., 584 F.3d at 523. The court relies on state-law contract principles for the first step, and federal law for the second step. Id. at 524. Here there is no dispute concerning the existence of an agreement to arbitrate. Because the dispute concerns the scope of the arbitration provision, federal law applies.

The parties dispute whether the arbitration provision is broad enough to encompass Renfrew's fraudulent inducement claim. Broadly written arbitration provisions generally encompass fraudulent inducement claims. Prima Paint Corp. v. Conklin Mfg. Co., 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006); Merritt–Chapman & Scott Corp. v. Pa. Turnpike Comm'n, 387 F.2d 768 (3d Cir.1967). These cases contain the quintessential broad arbitration provision, that directs to arbitration any controversy or claim “arising out of” or “related to” the agreement. This language is part of the standard clause recommended by the American Arbitration Association endorsed by the courts: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration.” See In re Petition of Kinoshita & Co., 287 F.2d 951, 953 (2d Cir.1961). The Third Circuit notes that arbitration provisions with the phrases “arising under” and “arising out of” “are normally given broad construction, and are generally construed to encompass claims going to the formation of the underlying agreements.” Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir.2000).

The relevant provisions of the contract are as follows:

10.05 Initial Dispute Resolution: In the event of resolution of a dispute regarding either party's performance under the terms of this Agreement, each party agrees to notify the other party in writing regarding the nature of the dispute, within fifteen (15) working days after such dispute arises. While any such dispute is unresolved, the parties shall, without delay, continue to perform their respective obligations under this Agreement. The parties further agree to use their best efforts in a good faith attempt to resolve said disputes on a timely basis. If the parties fail to resolve the dispute within thirty (30) working days of the initial written notification, then each party may assert its rights and remedies as provided under this Agreement.

10.06 Arbitration: In the event the parties fail to resolve a dispute pursuant to the Initial Dispute Resolution procedures set forth herein, said remaining controversy, dispute or claim arising out of or relating to this Agreement, any waiver or amendment, or any breach hereof, shall be settled by arbitration to be held in a location mutually agreed upon by both parties. If the parties fail to reach a mutual agreement as to the location, the arbitration shall be held in Sarasota County, Florida if brought by Licensee, or in Philadelphia County, Pennsylvania, if brought by Licensor....

Compl. Ex. A at 15–16.

Defendant UNI/CARE argues that because Clause 10.06 uses the broad language “arising out of or relating to,” the arbitration provision is broad and inclusive of the fraudulent inducement claim. Renfrew argues that when read together, Clauses 10.05 and 10.06 form an arbitration provision of narrower scope. Clause 10.05 describes an Initial Dispute Resolution (“IDR”) process for “dispute[s] regarding either party's performance under the terms of this Agreement....” Clause 10.06 begins,

In the event the parties fail to resolve a dispute pursuant to the Initial Dispute Resolution procedures set forth herein, said remaining controversy, dispute or claim arising out of or relating to this Agreement ...

Plaintiff Renfrew argues that the phrase “said remaining controversy” limits arbitration to disputes that went through the IDR procedures, but remain unresolved. Because the disputes that go through the IDR procedure are only those regarding the parties' “performance under the terms of [the] Agreement,” Renfrew maintains that clause is more limiting, and therefore excludes its fraudulent inducement claim.

The parties present divergent ways of interpreting the arbitration clause. Renfrew's narrower reading of the provision is plausible. Yet it is equally plausible that the “remaining controvers[ies], dispute[s] or claim[s]” that the arbitration clause covers...