Savills Inc. v. Musgjerd ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SAVILLS INC., Case No. 20-cv-904-MMA (BLM) 12 Petitioner, ORDER (1) GRANTING 13 v. RESPONDENT MUSGJERD’S MOTION TO DISMISS AND (2) 14 CHRISTOPHER MUSGJERD, and DECLINING TO RULE ON ROBERT MCGRIFF, 15 PETITIONER’S MOTION TO Respondents. COMPEL ARBITRATION 16 17 [Doc. Nos. 4, 20] 18 19 On May 14, 2020, Savills Inc. (“Petitioner”) filed a Petition for an order 20 compelling arbitration and injunctive relief enjoining Respondent Christopher Musgjerd 21 (“Musgjerd”) “from proceeding in state court action pending in San Diego County 22 Superior Court.” See Doc. No. 1.1 Petitioner subsequently filed a motion “to compel 23 arbitration of dispute under 9 U.S.C. § 4 and to enjoin prosecution of improperly filed 24 state court action.” See Doc. No. 4. Respondent Robert McGriff (“McGriff”) filed a 25 notice of nonopposition to Petitioner’s Petition and motion. See Doc. Nos. 5, 7. 26 27 28 1 Musgjerd has filed a motion to dismiss the Petition pursuant to Federal Rule of Civil 2 Procedure 12(b)(1). See Doc. No. 20. Petitioner and Musgjerd oppose each other’s 3 motions, and each have filed replies. See Doc. Nos. 21, 22, 25, 26. The Court found the 4 matters suitable for determination on the papers and without oral argument pursuant to 5 Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7.1.d.1. See Doc. No. 27. 6 For the reasons set forth below, the Court (1) GRANTS Respondent Musgjerd’s motion 7 to dismiss the Petition and (2) declines to rule on Petitioner’s motion. 8 I. BACKGROUND 9 Petitioner is a “commercial real estate services firm” representing clients in leasing 10 transactions. Doc. No. 1 ¶ 1. Petitioner employs real estate salespersons to negotiate 11 commercial leases where several salespersons may be involved in a single deal. Id. ¶ 2. 12 “[S]alespersons are paid based on the commission earned by [Petitioner] in lease 13 transactions in which the respective salespersons are involved.” Id. ¶ 3. Compensation is 14 “determined on a lease by lease basis.” Id. After Petitioner deducts its “house share,” 15 salespersons agree among themselves how to divide the commission. Id. ¶ 4; see also id. 16 ¶ 4 n.1. 17 Disputes may arise between salespersons regarding how to divide the commission. 18 If a dispute cannot be resolved informally, Petitioner uses an “efficient, expeditious, 19 inexpensive, and equitable arbitration procedure (‘Arbitration Rules’).” Id. ¶ 4. “[E]ach 20 salesperson agrees in writing to use, and to be bound by, this procedure.” Id. 21 Petitioner employed Musgjerd as a salesperson from May 14, 2013 to August 22 2019. Id. ¶ 5. When Musgjerd began his employment with Petitioner, he “signed an 23 employment agreement (‘Musgjerd Employment Agreement’).” Id.; see also Doc. No. 1- 24 2 at 3–19 (providing the Musgjerd Employment Agreement). Petitioner employed, and 25 still employs, McGriff as a salesperson since July 14, 2016. Id. ¶ 6. When McGriff 26 began his employment with Petitioner, he “signed an employment agreement (‘McGriff 27 Employment Agreement’).” Id.; see also Doc. No. 1-2 at 21–41 (providing the McGriff 28 Employment Agreement). The agreements include “an agreement to arbitrate all Sharing 1 Percentage Disputes . . . in accordance with the Arbitration Rules current as of when the 2 Sharing Percentage Dispute in question is to be resolved.” Doc. No. 1 ¶¶ 5, 6. 3 In December 2019, Musgjerd and McGriff began their commission dispute. See id. 4 ¶ 7. The “dispute concerns the allocation of the commission earned by [Petitioner] in 5 connection with a lease entered into by Alphatec Spine, Inc., a client of [Petitioner].” Id. 6 On February 14, 2020, Musgjerd filed an action in San Diego Superior Court against 7 McGriff. Id. ¶ 8; see also Doc. No. 1-2 at 43–51 (providing the state action complaint). 8 Musgjerd’s state action alleges three causes of action: breach of contract, quantum 9 meruit, and fraud. See Doc. No. 1-2 at 46–48. 10 Petitioner claims that “Respondents are contractually obligated to arbitrate the 11 Sharing Percentage Dispute pursuant to the terms of their respective employment 12 agreements.” Doc. No. 1 ¶ 8. Petitioner notes that 13 14 [w]hether or not such an agreement existed between Respondents, the commission on any transaction in which [Petitioner] or any of its 15 salespersons is involved (including the transaction referenced in the State 16 Court Action) is, in fact, first paid by the responsible transaction party to [Petitioner], then allocated among the involved salespersons as described 17 above and then [Petitioner] pays to each of the involved salespersons the 18 respective portions due to each of them. 19 20 Id. ¶ 9. Petitioner avers that “any dispute over the existence, nature, and scope of such an 21 alleged formal or informal agreement constitutes a Sharing Percentage Dispute and must, 22 in accordance with the express terms of Respondents’ respective employment 23 agreements, be resolved in accordance with the Arbitration Rules.” Id. 24 Petitioner filed this action to compel Respondents to arbitrate the dispute 25 underlying the state court action pursuant to Respondents’ employment agreements with 26 Petitioner. See id. at 1. Petitioner also seeks to enjoin the state court action until 27 arbitration concludes. See id. Petitioner now moves to receive its sought relief. See Doc. 28 No. 4. Musgjerd moves to dismiss the Petition pursuant to Federal Rule of Civil 1 Procedure 12(b)(1), arguing that this Court lacks subject matter jurisdiction and Petitioner 2 lacks standing. See Doc. No. 20. 3 II. LEGAL STANDARD 4 A Federal Rule of Civil Procedure 12(b)(1) motion to dismiss allows for dismissal 5 of an action for lack of subject-matter jurisdiction. Subject-matter jurisdiction must exist 6 when the action is commenced. Morongo Band of Mission Indians v. California State 7 Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988). Further, subject-matter 8 jurisdiction may be challenged “at any stage in the litigation.” Arbaugh v. Y&H Corp., 9 546 U.S. 500, 506 (2006); see also Fed. R. Civ. P. 12(h)(3) (“If the court determines at 10 any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”). 11 The party seeking federal jurisdiction bears the burden to establish jurisdiction. 12 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citing McNutt v. 13 Gen. Motors Acceptance Corp., 298 U.S. 178, 182–83 (1936)). 14 A facial attack on jurisdiction asserts that the allegations in a complaint are 15 insufficient to invoke federal jurisdiction, whereas a factual attack disputes the truth of 16 the allegations that would otherwise confer federal jurisdiction. Safe Air for Everyone v. 17 Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In resolving a facial challenge to 18 jurisdiction, a court accepts the allegations of the complaint as true and draws all 19 reasonable inferences in favor of the plaintiff. Doe v. Holy See, 557 F.3d 1066, 1073 (9th 20 Cir. 2009) (quoting Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004)). In resolving 21 a factual attack, a court may examine extrinsic evidence “without converting the motion 22 to dismiss into a motion for summary judgment,” and a court need not accept the 23 allegations as true. Safe Air for Everyone, 373 F.3d at 1039; see also Land v. Dollar, 330 24 U.S. 731, 735 n.4 (1947) (“[W]hen a question of the District Court’s jurisdiction is raised 25 . . . the court may inquire by affidavits or otherwise, into the facts as they exist.”). 26 However, a Rule 12(b)(1) motion is “not appropriate for determining jurisdiction 27 . . . where issues of jurisdiction and substance are intertwined. A court may not resolve 28 genuinely disputed facts where ‘the question of jurisdiction is dependent on the resolution 1 of factual issues going to the merits.’” Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th 2 Cir. 1987) (quoting Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983)). 3 When there is an entanglement, determination of the jurisdictional issue should be 4 determined “on either a motion going to the merits or at trial.” Augustine, 704 F.2d at 5 1077. Unless the summary judgment standard is met, the disputed jurisdictional fact 6 “must be determined at trial by the trier of fact.” Id. 7 III. DISCUSSION 8 Because Musgjerd challenges the Court’s subject matter jurisdiction, the Court 9 addresses this threshold matter first. In his motion to dismiss, Musgjerd argues that the 10 Court lacks subject matter jurisdiction because the underlying issue does not involve a 11 federal question and the parties are not diverse. See Doc. No. 20-1 at 6, 8; see also Doc. 12 No. 25 at 2–7. As to diversity jurisdiction, Musgjerd asserts that “McGriff’s interests are 13 aligned with Petitioner’s in compelling arbitration and render them on the same side of 14 the ‘v’ for purposes of determining diversity. Because both McGriff and Musgjerd reside 15 in California, diversity cannot be met.” Doc. No. 20-1 at 8. Petitioner responds that it is 16 improper for the Court to engage in a “look through” analysis. See Doc. No. 21 at 10–11. 17 Alternatively, Petitioner argues that its and McGriff’s interests are “unquestionably 18 different” even if the Court were to engage in a look through analysis. See id. at 12. 19 In its Petition and motion to compel arbitration, Petitioner grounds jurisdiction in 20 diversity. See Doc. No. 1 ¶ 11; Doc. No. 4-1 at 11. Further, Petitioner concedes that it 21 “has never contended that this matter poses a federal question or that the Federal 22 Arbitration Act confers an independent jurisdictional basis. As such, [Petitioner] does 23 not address those arguments.” Doc. No. 21 at 10 n.5. Thus, the Court finds there is no 24 federal question jurisdiction. 25 The Court now turns to whether there is diversity subject matter jurisdiction. 26 Pursuant to 28 U.S.C. § 1332(a)(1), a federal district court has jurisdiction over “all civil 27 actions where the matter in controversy exceeds the sum or value of $75,000, exclusive 28 of interest and costs,” and the dispute is between citizens of different states. 28 U.S.C. 1 § 1332(a)(1). The Supreme Court has interpreted § 1332 to require “complete diversity 2 of citizenship,” meaning each plaintiff must be diverse from each defendant. Caterpillar 3 Inc. v. Lewis, 519 U.S. 61, 68 (1996). 4 5 The courts, not the parties, are responsible for aligning the parties according to their interests in the litigation. If the interests of a party named as a 6 defendant coincide with those of the plaintiff in relation to the purpose of the 7 lawsuit, the named defendant must be realigned as a plaintiff for jurisdictional purposes. 8 9 10 Cont’l Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1523 (9th Cir. 11 1987) (quoting Dolch v. United California Bank, 702 F.2d 178, 181 (9th Cir. 1983)); see 12 also City of Indianapolis v. Chase Nat. Bank of City of New York, 314 U.S. 63, 69 (1941) 13 (“Diversity jurisdiction cannot be conferred upon the federal courts by the parties’ own 14 determination of who are plaintiffs and who [are] defendants.”). The Court “must align 15 for jurisdictional purposes those parties whose interests coincide respecting the ‘primary 16 matter in dispute.’” Scotts Co. LLC v. Seeds, Inc., 688 F.3d 1154, 1157 (9th Cir. 2012) 17 (quoting Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 873 18 (9th Cir. 2000)); see also City of Indianapolis, 314 U.S. at 69 (first quoting E. Tennessee, 19 V. & G.R. Co. v. Grayson, 119 U.S. 240, 244 (1886); and then quoting Merchants’ 20 Cotton-Press & Storage Co. v. Ins. Co. of N. Am., 151 U.S. 368, 385 (1894)). “When 21 considering the primary purpose of a federal case in a realignment inquiry, a court may 22 not consider claims made in a different case.” Scotts Co. LLC, 688 F.3d at 1157; see also 23 id. at 1158 (“On remand, should the district court reconsider the realignment-of-parties 24 issue, it should limit its inquiry of what constitutes the primary dispute to the primary 25 purpose of this federal case.” (emphasis added)). 26 However, “the citizenship of someone not before the court is irrelevant to the 27 jurisdictional inquiry.” Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1106 (9th Cir. 28 2002). Courts cannot “look through” a Federal Arbitration Act (“FAA”) petition to 1 compel arbitration to examine the parties’ underlying state court dispute to determine 2 whether there is diversity jurisdiction. See id.; CarMax Auto Superstores California LLC 3 v. Hernandez, 94 F. Supp. 3d 1078, 1094, 1095, 1095 n.42 (C.D. Cal. 2015) 4 (distinguishing diversity from federal question jurisdiction in regard to the “look 5 through” approach and noting this trend is followed other district and circuit courts); see 6 also Northport Health Servs. of Arkansas, LLC v. Rutherford, 605 F.3d 483, 491 (8th Cir. 7 2010) (“[W]e conclude that diversity of citizenship is determined in these cases by the 8 citizenship of the parties named in the proceedings before the district court, plus any 9 indispensable parties who must be joined pursuant to Rule 19.”); Bank Leumi, USA v. 10 Miramax Distribution Servs., LLC, No. 2:18-cv-07574-SVW-KS, 2019 WL 7865180, at 11 *1 (C.D. Cal. Oct. 31, 2019) (quoting Hermes of Paris, Inc. v. Swain, 867 F.3d 321, 324 12 (2d Cir. 2017)) (“In evaluating whether the requirement of complete diversity is satisfied, 13 a court assessing its jurisdiction over an FAA petition is to ‘look[ ] only to the citizenship 14 of the parties in the action before it’—that is, the ‘parties to the petition to compel’ as 15 well as any indispensable parties who must be joined pursuant to Federal Rule of Civil 16 Procedure 19.”). 17 Here, Petitioner claims the Court’s subject matter jurisdiction is based on diversity 18 jurisdiction. Thus, the Court cannot “look through” to the state court complaint to 19 determine whether there is diversity in this instant action. See Najd, 294 F.3d at 1106. 20 However, the Court must still align the parties before this Court “according to their 21 interests in the litigation.” Cont’l Airlines, Inc., 819 F.2d at 1523 (quoting Dolch, 702 22 F.2d at 181). In aligning the parties according to their interests, the Court cannot rely on 23 claims made by Musgjerd in his state court action. See Scotts Co. LLC, 688 F.3d at 1157. 24 The primary dispute to the primary purpose of this federal case is whether to compel 25 arbitration. The Court does not and cannot consider the purpose of the state action 26 regarding unpaid commission. 27 In determining whether McGriff is properly aligned as a respondent, the Court 28 examines the following facts. McGriff is a current employee of Petitioner whereas 1 Musgjerd is a former employee of Petitioner. See Doc. No. 1 ¶¶ 5, 6. McGriff filed a 2 notice of nonopposition to Petitioner’s Petition and motion. See Doc. Nos. 5, 7. Notably, 3 Petitioner itself states in its motion and Petition that whereas Musgjerd “reneged on his 4 agreement to arbitrate and rejected [Petitioner’s] demand to arbitrate,” McGriff “has 5 consented to arbitrate the Alphatec Fee Sharing Dispute in accordance with the 6 Arbitration Rules.” Doc. No. 4-1 at 19; see also Doc. No. 1 ¶ 22. Together, these facts 7 strongly suggest that McGriff’s interests coincide with Petitioner in relation to the 8 purpose of this action, namely whether to compel arbitration. 9 Petitioner’s argument is unavailing. Attempting to show that Petitioner and 10 McGriff have different interests, Petitioner relies on the “underlying dispute” of “whether 11 [Musgjerd] is entitled to a portion of the commission . . . McGriff may earn on the 12 Alphatec Lease Transaction.” Doc. No. 21 at 12. Specifically, Petitioner argues that the 13 ultimate issue for McGriff is economic whereas the ultimate issue for Petitioner is 14 adherence to its arbitration procedures. See id. at 12. In doing so, Petitioner grounds its 15 argument in the underlying state court action. However, the Ninth Circuit requires that a 16 district court “limit its inquiry of what constitutes the primary dispute to the primary 17 purpose of this federal case.” Scotts Co. LLC, 688 F.3d at 1158 (emphasis added). The 18 Court “may not consider claims made in a different case.” Id. at 1157. Thus, the Court 19 declines to rely on claims made in the concurrent breach of contract state action to decide 20 the alignment inquiry in the arbitration action before this Court. Petitioner also uses 21 Musgjerd’s observation that Petitioner and McGriff formally had the same counsel to 22 underscore that the now different counsel indicates divergent interests. See Doc. No. 21 23 at 12 n.7. Although perhaps a factor suggesting different interests, the Court finds this 24 evidence is overshadowed by the aligned interests in seeking arbitration—the primary 25 purpose of this federal action. 26 Therefore, the Court realigns McGriff as a petitioner in this action. Because 27 McGriff and Musgjerd are citizens of California, see Doc. No. 1 ¶ 11, the realignment has 28 destroyed diversity. Accordingly, the Court finds that it lacks subject matter jurisdiction 1 |/over this action. Because the Court lacks subject matter jurisdiction, the Court declines 2 |\to address Musgjerd’s argument regarding standing or Petitioner’s motion. 3 IV. CONCLUSION 4 For the foregoing reasons, the Court (1) GRANTS Respondent Musgjerd’s motion 5 dismiss the Petition and (2) declines to rule on Petitioner’s motion. The Court 6 ||DIRECTS the Clerk of Court to close the case. 7 IT IS SO ORDERED. 8 9 ||Dated: July 29, 2020 10 WMikuk MU - (laphlr 11 HON. MICHAEL M. ANELLO ID United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28