Reynolds and Reynolds Co. v. Image Software, Inc.

• Decision Date: 02 January 2003
• Docket Number: No. C-3-02-206.,C-3-02-206.
• Citation: 254 F.Supp.2d 761
• Parties: The REYNOLDS AND REYNOLDS COMPANY, Petitioner, v. IMAGE SOFTWARE, INC., fka Information Solutions, Inc., Respondent.
• Court: U.S. District Court — Southern District of Ohio

254 F.Supp.2d 761

The REYNOLDS AND REYNOLDS COMPANY, Petitioner, v. IMAGE SOFTWARE, INC., fka Information Solutions, Inc., Respondent.

No. C-3-02-206.

United States District Court, S.D. Ohio, Western Division.

January 2, 2003.

Terence Leslie Fague, Coolidge, Wall, Wonsley & Lombard, Dayton, OH, Bryan G. Harrison, Morris, Manning & Martin, Atlanta, GA, for Petitioner.

David Leslie Hall, Scott Alan Liberman, Matthew D. Stokely, Altick & Corwin, Dayton, OH, James A. Jablonski, Gorsuch Kirgis, LLP, Denver, CO, for Respondent.

DECISION AND ENTRY OVERRUING RESPONDENT'S MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION (DOC. # 6); PETITIONER DIRECTED TO FILE, WITHIN 20 DAYS FROM DATE, A SECOND AMENDED PETITION TO COMPEL ARBITRATION, EXPRESSLY SETTING FORTH THE BASIS FOR THE COURT'S SUBJECT MATTER JURISDICTION, AND STATING THE FACTS IN SUPPORT OF ITS ARGUMENT THAT ARBITRATION MUST BE COMPELLED

RICE, Chief Judge.

On May 3, 2002, the Reynolds and Reynolds Company ("Petitioner") petitioned the Court to compel Image Software, Inc., fka Information Solutions, Inc. ("Respondent"), to comply with an alternative dispute resolution provision which it (Petitioner) claims was binding on the Respondent. (See Doc. # 1; "Original Petition.") In the same filing, it also petitioned the Court to stay proceedings in the District Court for the City and County of Denver, Colorado, Case No. 02CV3268, relating to a declaratory judgment action which Respondent herein had filed against Petitioner herein and several other defendants, which Petitioner claimed was barred by the alternative dispute resolution provision. For its part, Respondent then moved to dismiss for lack of subject matter jurisdiction in this Court. (See Doc. 6.)

On September 23, 2002, Respondent informed the Court that the litigation in Case No. 02CV3268, in the District Court for the City and County of Denver, Colorado, had been dismissed pursuant to stipulation of the parties. (See Doc. # 11.) The Petitioner then filed a Motion to Amend Petition (Doc. # 16), stating that although the aforementioned litigation between it and the Respondent had been dismissed, two other actions, also brought by the Respondent, had come into existence, both of which would provide a jurisdictional basis for it to petition this Court to compel arbitration. By Notation Order of November 6, 2002, the Court granted the Petitioner's Motion to Amend (over the Respondent's subsequently filed objection to same (Doc. # 17)), and on November 20, 2002, the Petitioner filed its Amended Petition to Compel Compliance with Alternative Dispute Resolution Provision and for Stay (Doc. #18; "Amended Petition"). The Respondent responded to same on November 29, 2002. (See Doc. # 19.) The two cases noted by the Petitioner as the concurrent actions it wishes to have stayed by this Court are Case No. 02CV4701, in the District Court for the City and County of Denver, Colorado, and Civil Action No. 02-CV-1688, in the United States District Court for the District of Colorado.

For the reasons which follow, Respondent's Motion to Dismiss for Lack of Subject Matter Jurisdiction shall be overruled. Petitioner shall be directed to file a second amended petition to compel arbitration, expressly setting forth the basis for the Court's jurisdiction, and stating the facts supporting its argument that arbitration should be compelled.

I. Analysis

The facts can be simply stated for purposes of this Decision and Entry. Respondent is a developer of certain software, and Petitioner is a user of such. In 1994, the parties entered into an agreement ("1994 Agreement") whereby Respondent issued Petitioner, among other things, a license to use, distribute, and sub-license certain of its software products. The heart of this dispute concerns a mediation/arbitration clause contained in the 1994 Agreement, which required that any dispute arising out of or related to said agreement be submitted to mediation and then, if necessary, arbitration. In 1996, the parties entered into a separate agreement ("1996 Agreement"), whereby Respondent agreed to provide certain maintenance services and technical assistance to support the software it had given Petitioner license to use. At some point, Petitioner terminated the 1996 Agreement, an act which fomented the present controversy.

As this Court understood it, the underlying dispute in the original, but now dismissed declaratory judgment action in the District Court for the City and County of Denver, Colorado, Case No. 02CV3268, was whether Petitioner, in terminating the 1996 Agreement, gave up its right to continue to use Respondent's software in the manner it had been, or merely gave up its right to the maintenance services and technical assistance which Respondent agreed to provide under said agreement. Petitioner had argued that the latter characterization of the legal effect of its act of termination was correct, while the Respondent had argued that the former was correct. The original issue in this Court was whether the dispute which the Respondent had raised in its declaratory judgment action in the Colorado court was actually one which should have been submitted to mediation and/or arbitration, pursuant to the mediation/arbitration provision in the 1994 Agreement. In petitioning this Court to compel arbitration, it was the Petitioner's position that the declaratory judgment dispute was subject to the mediation/arbitration provision; Respondent argued to the contrary, contending that the 1996 Agreement did not incorporate the terms of the 1994 Agreement, and, therefore, that any dispute arising out of the 1996 Agreement was not subject to mandatory mediation/arbitration.

The Original Petition was brought pursuant to 9 U.S.C. §§ 3 & 4, the Federal Arbitration Act ("FAA"). Section 4 of the FAA states, in pertinent part:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.... The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.

The Respondent's jurisdictional argument was initially premised on the contention that the Petitioner had failed to state a basis for this Court's jurisdiction.¹ Subsequently, in its Supplemental Memorandum of Law in Support of its Motion to Dismiss, it pointed out that its declaratory judgment action had been dismissed pursuant to stipulation of the parties, such that Petitioner's own premise for its Original Petition was rendered moot, and therefore no longer justiciable. More recently, in its Response to the Petitioner's Amended Petition, it reiterates its earlier arguments, and has pointed out that the Petitioner has filed an identical petition to compel arbitration in their litigation which is presently before the District Court of Colorado, and contends that, if anything, it should be that court which decides the arbitration issue. The Court will address these arguments in turn.

The Original Petition was brought pursuant to 9 U.S.C. §§ 3 & 4, the Federal Arbitration Act ("FAA"), but stated no separate basis for subject matter jurisdiction. Rule 8(a)(1) of the Federal Rules of Civil Procedure requires a claimant to include in its complaint a "short and plain statement of the grounds upon which the court's jurisdiction depends ...," and it is settled that the Federal Arbitration Act does not provide a grant of subject matter jurisdiction of its own. See Detroit Pension Fund v. Prudential Sec, 91 F.3d 26, 29 (6th Cir.1996); Ford v. Hamilton Invs., Inc., 29 F.3d 255, 257-59 (6th Cir. 1994). Furthermore, it is not enough for a plaintiff, or a petitioner as the case may be, to attach, as the Petitioner did, an affidavit to the complaint (or petition), which itself asserts that diversity jurisdiction exists, at least not when the complaint (or petition) makes no reference to that affidavit so as to incorporate it therein. Rule 8(a)(1) requires the statement of jurisdiction to appear on the complaint itself. For these reasons, the Respondent argues that this requires dismissal for lack of subject matter jurisdiction.

While Respondent's argument is technically correct, it is also true that had the jurisdictional basis for the Original Petition been properly stated on its face, this Court would likely have subject matter jurisdiction pursuant to the diversity jurisdiction statute, 28 U.S.C. § 1332(a), as Petitioner is a corporate citizen of Ohio, and Respondent a corporate citizen of Colorado. See, e.g., Management Recruiters Int'l v. Bloor, 129 F.3d 851 (6th Cir.1997) (recognizing that the district court properly exercised jurisdiction, where a petition to compel was the only substantive matter before the court, because the corporate parties were diverse). It would be easy enough to allow the Petitioner leave to amend to clearly state this (provided it can also state, in good faith, that the amount in controversy exceeds $75,000). For this reason, the Court does not find that outright dismissal would be appropriate on this basis.

The argument raised in the Respondent's Supplemental Memorandum of Law appears to have been that because the factual basis for Petitioner's Original Motion ceased to exist with the dismissal of Respondent's declaratory judgment action, there also ceased to exist an underlying "case or controversy" between the two parties that would have provided the Court with continuing subject matter...