United States District Court, D. Arizona
G. Campbell Senior United States District Judge.
Realty Executives International Services, LLC
(“REI”) has filed a motion for leave to file a
second amended complaint (“SAC”) pursuant to Rule
15 of the Federal Rules of Civil Procedure. Doc. 64. The
motion is fully briefed (Docs. 64, 70, 71, 74), and oral
argument has not been requested. Because the proposed new
claims are covered by an unambiguous arbitration provision,
the Court will deny leave to amend as futile.
REI filed its initial complaint in Arizona state court, and
Defendants removed the case to this Court on the basis of
diversity jurisdiction. Doc 1. REI then amended its complaint
as a matter of right. Doc. 16. The amended complaint alleged
that Defendants breached a 2008 Regional Developer Agreement
(“2008 Agreement”) and the implied covenant of
good faith and fair dealing, and asserted a separate claim
for tortious interference with business expectancy.
Id. ¶¶ 71-98. REI now seeks to file a
second amended complaint that would add two alternative
claims - one for breach of a 2003 franchise agreement
(“2003 Agreement”), and the other for breach of
the covenant of good faith and fair dealing implied in the
2003 Agreement. Doc. 64. REI further proposes to dismiss the
claims against the Defendants' spouses, which Defendants
do not dispute. Docs. 64, 70 at 7.
Rule 15's Standard for Amending Pleadings.
provides that the Court “should freely give leave [to
amend] when justice so requires.” Fed.R.Civ.P.
15(a)(2). The policy favoring leave to amend must not only be
heeded, see Foman v. Davis, 371 U.S. 178, 182
(1962), it must be applied with “extreme liberality,
” see Owens v. Kaiser Found. Health Plan,
Inc., 244 F.3d 708, 712 (9th Cir. 2001). The Court may
deny a motion to amend on the basis of undue delay or bad
faith on the part of the moving party, undue prejudice to the
opposing party, or futility of the proposed amendment.
See Foman, 371 U.S. at 182. The party opposing
amendment bears the burden of showing prejudice, futility, or
another reason for denying the amendment. See DCD
Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir.
contend that REI's proposal to add claims based on the
2003 Agreement would be futile because the agreement contains
a mandatory arbitration provision that precludes assertion of
the claims in federal court. Doc. 70 at 4. An amendment is
futile if no set of facts can be proven that would constitute
a valid and sufficient claim. Miller v. Rykoff-Sexton,
Inc., 845 F.2d 209, 214 (9th Cir. 1988). The test is
identical to the one used in addressing challenges under Rule
12(b)(6). Nordyke v. King, 644 F.3d 776, 788 (9th
Cir. 2011) (citing Miller, 845 F.2d at 214).
claims arising out of or relating to the 2003 Agreement must
be resolved under the agreement's alternative dispute
resolution mechanism. That mechanism calls for informal
discussion, mediation, and binding arbitration. Doc. 64-6
¶ 14. The agreement expressly states that these are the
“sole and exclusive procedures for the resolution of
disputes between the parties arising out of or relating to
this Agreement.” Id.
Federal Arbitration Act “requires courts to
‘place arbitration agreements on an equal footing with
other contracts, and enforce them according to their
terms.'” Poublon v. C.H. Robinson Co., 846
F.3d 1251, 1259 (9th Cir. 2017) (quoting AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).
Parties may contend that arbitration provisions are invalid
under general contract principles, or that the claims they
assert are not covered by an arbitration provision.
Id.; 9 U.S.C. § 2. But REI makes no argument
that the mediation and arbitration provision of the 2003
Agreement is invalid, and the proposed new claims clearly
fall within its terms. The arbitration provision governs all
claims “arising out of or relating to” the 2003
Agreement, Doc. 64-6 ¶ 14, and the claims for breach of
the agreement and breach of the covenant implied in the
agreement clearly arise out of or relate to the agreement.
What is more, “[a]ny doubts about the scope of
arbitrable issues . . . are to be resolved in favor of
arbitration.” Tompkins v. 23andMe Inc., 840
F.3d 1016, 1022 (9th Cir. 2016) (citation omitted).
Court may deny leave to amend if the new claims are subject
to arbitration. See Sparling v. Hoffman Const. Co.,
Inc., 864 F.2d 635, 638 (9th Cir. 1988); see also
Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc.,
368 F.3d 1053, 1060 (9th Cir. 2004) (affirming dismissal of
claims that were subject to arbitration); Chappel v. Lab.
Corp. of America, 232 F.3d 719, 725 (9th Cir. 2000)
(where “judicial review . . . is barred by the
[contract's] valid and enforceable arbitration clause[, ]
[t]he district court properly dismissed his complaint under
Federal Rules of Civil Procedure 12(b)(6) for failure to
state a claim”). If REI seeks to assert claims arising
out of or related to the 2003 Agreement, it must do so under
the process established in that agreement.
contends that Defendants waived the right to rely on the 2003
mediation and arbitration clause by failing to invoke it
earlier. Doc. 74 at 6. But REI has not previously brought a
claim under the 2003 Agreement, and Defendants were not
obligated to assert the mediation and arbitration clause of
also argues that the arbitration provision is not mandatory
because it states that “either party may
submit” to arbitration. Doc. 64-6 ¶ 14 (emphasis
added). But this merely means that the parties are not
required to arbitrate every dispute - they may choose to
forego resolution of some disagreements. But if either side
seeks to assert a claim arising out of or related to the 2003
Agreement, the arbitration provision is “the sole and
exclusive procedure for the resolution of
REI argues that denying leave to amend will potentially
require it to litigate in two locations - this Court for its
claims under the 2008 Agreement and arbitration for its
claims under the 2003 Agreement. REI asserts it would be
highly inefficient to litigate in two settings, particularly
when its claims related to the 2003 Agreement are being
asserted in the alternative to claims under the 2008
Agreement. Even if this is true, it does not invalidate the
mandatory arbitration provision or authorize this Court to
disregard that provision. If REI feels compelled to assert
the 2003 Agreement claims now, perhaps it can seek a tolling
agreement from Defendants or initiate ...