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JDA Software Inc. v. Sabert Holding Corporation

United States District Court, D. Arizona

April 19, 2017

JDA SOFTWARE, INC., Plaintiff,
v.
SABERT HOLDING CORP., Defendant.

          ORDER

          H. Russel Holland United States District Judge

         Motion to Dismiss or Stay

         Defendant moves to dismiss or stay this case pending arbitration.[1] This motion is opposed, and plaintiff moves to stay the pending arbitration.[2] Oral argument was requested but is not deemed necessary.

         Background

         Plaintiff is JDA Software, Inc. Defendant is Sabert Holding Corp.

         Plaintiff alleges that on June 29, 2012, the parties “entered into a Customer Agreement[3] ... wherein [plaintiff] licensed its software” to defendant.[4] Plaintiff “agreed to provide licenses for: 2 Power End Users for its JDA Demand Classification Software, and 2 Power End Users for its JDA Master Planning Software.”[5] On June 29, 2012, the parties also “entered into a maintenance agreement wherein” plaintiff “would provide maintenance services for” its software.[6] Defendant paid $211, 000 for the licenses to use plaintiff's software.[7]

         Plaintiff alleges that “[p]ursuant to paragraph 2.8 of the [Customer] Agreement, ” it “was permitted to conduct regular audits to verify that [defendant's] use of the Software was within the scope permitted by the Agreement.”[8] Plaintiff alleges that it conducted such an audit on May 14, 2016 and discovered that defendant “had exceeded its licenses in violation of the Agreement.”[9] Plaintiff alleges that defendant had “11 additional Power End Users and 1 additional Casual End User” of the JDA Demand and Demand Classification Software and “12 additional Power End Users” of the JDA Master Planning Software.[10] Defendant's Vice-President of Information Technology, Michael Freeman, avers that defendant disagreed with plaintiff's audit results primarily because “JDA considered consultants retained to upgrade the software and [defendant's] system administrator to be ‘end users'....”[11]

         Plaintiff alleges that on September 19, 2016, it “sent notice to [defendant] of its material breach of the Agreement, with a payment request in the amount of $457, 002.00, ” which included the cost of the additional unlicensed users and “back maintenance fees for the additional unsanctioned licenses.”[12] Plaintiff alleges that defendant failed to cure its breach of the Customer Agreement and thus on November 18, 2016, plaintiff “inform[ed defendant] that the Agreement was terminated....”[13] Plaintiff further alleges that after it “properly terminated the Agreement, [defendant] continued to use [plaintiff's] software in violation of [plaintiff's] copyrights.”[14]

         Freeman avers that defendant responded to plaintiff's termination letter, “advising JDA that it did not have the right to terminate the License Agreement because [defendant's] good faith disagreement with the audit report was not a material breach of the License Agreement....”[15] Freeman avers that defendant requested that plaintiff revoke the termination but that plaintiff refused to do so.[16]

         Freeman avers that on “December 30, 2016, to show that it is willing to pay any amounts it may ultimately be found to owe JDA, [defendant] wired to JDA the sum of $45, 424, an amount representing the most that [defendant] could owe to JDA if JDA were given the benefit of every reasonable doubt.”[17] Freeman avers that this “amount was received by JDA and never returned.”[18]

         On January 9, 2017, defendant “filed a demand for arbitration with the American Arbitration Association.”[19] The parties' Customer Agreement contains the following arbitration agreement:

Except at the option of JDA with respect to a claim against Customer for the nonpayment by Customer of amounts owing to JDA or at the option of either party with respect to the right to apply to a court of competent jurisdiction for equitable or injunctive relief, any controversy or claim arising out of or related to this Agreement or in connection with a breach of this Agreement (“Claim”) will be settled by arbitration before a single arbitrator under the commercial arbitration rules of the American Arbitration Association in effect at the time such Claim is submitted to arbitration. The arbitrator will be a person having experience with and knowledge of the computer software business. The arbitrator will not have any authority to make any ruling, finding or award that does not conform to this Agreement. The arbitral award will be final and binding on all parties and may be entered as a judgment and enforceable by any court of competent jurisdiction.[20]

         Defendant's demand for arbitration contains two counts: 1) a claim for declaratory relief that the License Agreement remains in full force and effect and 2) a claim for declaratory relief that defendant owes no further payments to plaintiff.[21] More specifically, defendant seeks declarations that the November 18, 2016 termination letter was void ab initio, that all of its rights under the License Agreement continue unabated, that it could continue to use all the software identified in the License Agreement, and that it currently owed plaintiff nothing.[22]

         On February 3, 2017, plaintiff sent a letter asking that the arbitration be dismissed.[23] Plaintiff stated that “the current claim arises out of [defendant's] failure to pay [an] amount owed related to [defendant's] overuse of JDA's software. JDA is invoking its right under Section 9.2 to litigate [the] nonpayment of amounts claim[ed].”[24]

         On February 6, 2017, plaintiff commenced this action in which it asserts a breach of contract claim and a copyright infringement claim. Plaintiff seeks damages and injunctive relief.

         On February 9, 2017, the arbitrator denied plaintiff's request to dismiss the arbitration.[25] The arbitrator first determined that he had the authority to determine the arbitrability of the claims pending in the arbitration.[26] The arbitrator then considered whether

this arbitration has jurisdiction over the claims asserted. The Arbitration Agreement allows Respondent JDA Software, Inc., to elect to bring a claim for non-payment either in arbitration or in Court. The Arbitration Agreement also allows either party to bring claims for equitable or injunctive relief in arbitration or in Court. Claimant [Sabert] has elected to bring its claims in arbitration and there are no claims presented by Respondent [JDA]. Therefore, the issue is whether the claims presented by Claimant necessarily require Respondent to submit a claim to arbitration that Respondent prefers to present, if at all, in Court.[27]

         The arbitrator found that the “key issue” in the claims presented by defendant was whether defendant had materially breached the Customer Agreement and that the other issue was “whether Sabert could be in material breach of the Customer Agreement when there is a good-faith dispute as to whether Sabert owes additional license fees to JDA, and if so the amount of those fees.”[28] The arbitrator concluded that “[n]either of those determinations requires the arbitrator to necessarily find that there is a ‘nonpayment by Customer of amounts owing to JDA' that will require JDA to state a claim in arbitration in order to obtain those funds.”[29]

         Defendant now moves to dismiss or stay this case pending resolution of the arbitration. Plaintiff in turn moves to stay the pending arbitration until this case has been resolved.

         Discussion

         Since defendant is seeking an order dismissing or staying plaintiff's claims “because the case is subject to resolution by arbitration[, ]”[30] the court construes defendant's motion as a motion to compel arbitration pursuant to 9 U.S.C. § 4. “A motion to compel arbitration is decided according to the standard used by district courts in resolving summary judgment motions pursuant to Rule 56, Fed. R. Civ. P.” Coup v. Scottsdale Plaza Resort, LLC, 823 F.Supp.2d 931, 939 (D. Ariz. 2011).

         In considering a motion to compel arbitration, “[t]he first question for the [c]ourt to address ... is the ‘question of arbitrability, ' i.e., ‘whether the parties are bound by a given arbitration clause.'” The O.N. Equity Sales Co. v. Venrick, 508 F.Supp.2d 872, 874 (W.D. Wash. 2007) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). The parties disagree as to whether federal or ...


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