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McGill Smith Punshon, Inc. v. Fireblocks, LLC

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

August 6, 2019

McGill Smith Punshon, Inc., Plaintiff,
v.
Fireblocks, LLC, et. al., Defendants.

         ENTRY AND ORDER STAYING ALL CAUSES OF ACTION AGAINST ALL DEFENDANTS, DENYING DEFENDANTS 100 EAST THIRD ST, LLC, 115 E. THIRD, LLC, AND WINDSOR CONSTRUCTION SERVICES LLC'S MOTION TO DISMISS (Doc. No. 10); DENYING DEFENDANT NICHOLAS KINNEY'S MOTION TO DISMISS (Doc. No. 12); AND REQUIRING 100 EAST THIRD ST, LLC AND 115 E. THIRD, LLC TO SUBMIT TO THIS COURT UPDATES TO STATUS OF THE ARBITRATION EVERY 60 DAYS.

          THOMAS M. ROSE UNITED STATES DISTRICT JUDGE.

         Pending before the Court are motions of Defendants 100 East Third St, LLC (“100 ETS”), 115 E. Third, LLC (“115 ETS”), Windsor Construction Services LLC (“Windsor”), and Nicholas Kinney (“Kinney”) to dismiss Plaintiff McGill Smith Punshon, Inc.'s (“MSP”) claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. Nos. 10, 12. Plaintiff MSP filed their complaint on August 23, 2018. Doc. No. 1. Defendants 100 ETS, 115 ETS, and Windsor jointly filed a Motion to Dismiss on October 15, 2018. Doc. No. 10. Defendant Kinney filed a Motion to Dismiss on November 18, 2018. Doc No. 12. MSP filed a response to the first motion on November 5, 2018 and to the second motion on December 10, 2018. Doc. Nos. 11, 14. Defendants 100 ETS, 115 ETS, and Windsor jointly filed a reply to MSP's response on November 19, 2018. Doc. No. 13. No party has moved to stay the proceedings or to compel arbitration. Defendant Fireblocks has not filed anything in response to the complaint, or joined the Motions to Dismiss. See Doc. No. 1-2 PageID 15, 25; Doc. No. 11 at 2, n. 1.

         For reasons discussed below, the Court will treat Defendants Motions to Dismiss as motions to dismiss or, in the alternative, to stay the proceedings. The Court hereby orders that because MSP sufficiently pleads a cause of action against multiple defendants including Defendant Kinney, Kinney's Motion to Dismiss is DENIED. The Court hereby GRANTS in part and DENIES in part 100 ETS and 115 ETS Motion to Dismiss. The Court hereby DENIES Defendants Windsor's Motion to Dismiss. The Court hereby STAYS this case as to all parties pursuant to section 3 of the Federal Arbitration Act (“FAA”) and ORDERS Defendants 100 ETS and 115 ETS to submit updates on the status of the arbitration every sixty (60) days.

         I. Background

         Plaintiff MSP is a Cincinnati based architecture and engineering firm. Doc. No. 1 ¶ 12. MSP alleges entering into an agreement listed as the Architect with Defendant Fireblocks LLC (“Fireblocks”) listed as Owner on February 7, 2017. Id. ¶ 13; Doc. No. 1-2 at 1. The agreement is a Master Agreement (“Master Agreement”) between Owner and Architect. Doc. No. 1 ¶ 13; Doc. No. 1-2 PageID 15. The Master Agreement also has a provision that applies the Master agreement to service orders, thereby forming a Service Agreement. Doc. No. 1-2 PageID 15 (Article 1 § 1.2 of the Master Agreement). MSP entered into two service orders with 115 ETS listed as the Owner on February 7. 2017 and on September 20, 2017. Doc. No. 1-3 PageID 28; Doc. No. 1-4 PageID 38. MSP also entered into two service orders with 100 ETS listed as the Owner on April 25, 2017 and on September 20, 2017. Doc. No. 1-5 PAGEID 55; Doc. No. 1-6 PageID 66. Defendants Windsor and Kinney are not listed parties to any service order or the Master Agreement. Doc. No. 11 at 2.

         MSP alleges they conveyed architectural drawings and construction and design documents to Fireblocks, 100 ETS, and 115 ETS, via instruments of service (IOS works), pursuant to the above agreements (Master Agreement and Service orders). Doc. No. 1 ¶¶ 17-8. MSP also asserts they own the copyrights to the IOS works, which they registered with the U.S. Copyright office. Id. ¶¶ 19-21. MSP, in their complaint, also alleges article six of the Master Agreement governs the scope of the copyrights of the IOS works between the Owner and Architect. Id. ¶ 22; Doc. 1-2 PageID 19. Specifically, the Master Agreement grants a nonexclusive license for the purpose of completing the project. Doc. 1-2 PageID 19. Additionally, the nonexclusive license allows for the owner to authorize contractors, subcontractors, sub-subcontractors and the Owner's consultants to reproduce portions of the IOS works to complete the project. Id. The licenses referenced in the Master Agreement also terminate when the Architect rightfully terminates a Service Agreement under section 8.3 and 8.4 of the Master Agreement. Id.

         MSP alleges four causes of action against the Defendants. Count I alleges that all Defendants (including Kinney) infringed upon the copyrights of the IOS works since June of 2018. Doc. No. 1 ¶¶ 24-31. MSP alleges in Count II that Fireblocks, 100 ETS, and 115 ETS breached the Master Agreement and Service Orders respectively by materially breaching the agreements when they failed to pay as agreed. Id. ¶¶ 32-39. In Count III, MSP alleges that all defendants are unjustly enriched by the conveyance and retention of the IOS works without payment. Id. ¶¶ 40-45. MSP finally alleges in Count IV all defendants have committed conversion by appropriating the IOS works and refusing to return them after a demand by MSP. Id., ¶¶46-49.

         Defendants 100 ETS, 115 ETS and Windsor brought the first Motion to Dismiss pursuant to Federal Rule of Procedure 12(b)(6) because of arbitration provisions within the Master Agreement. Doc. No. 10; see Doc. No. 1-2 PageID 20-21 (Article 7 of the Master Agreement).

         The Dispute Resolution Provisions state in pertinent part: “The Owner and Architect shall commence all claims and causes of action, whether in contract, tort, or otherwise, against the other arising out of or related to any Service Agreement, with the method of binding dispute resolution selected in this Master Agreement.” Doc. No. 1-2 PageID 20 (section 7.1.1 Master Agreement) (emphasis added). “The Owner and Architect shall endeavor to resolve claims, disputes and other matters in question between them by mediation . . . administered by the American Arbitration Association.” Id. (section 7.2.2 Master Agreement) (emphasis added). “Any claim, dispute or other matter in question arising out of or related to a service agreement shall be subject to mediation as a condition precedent to binding dispute resolution.” Id. (Section 7.2.1 Master Agreement). Finally, section 7.2.4 of the Master Agreement stipulates that arbitration in accordance with section 7.3 is the binding dispute resolution. Id.

         The Arbitration Clause states in pertinent part: “[A]ny claim, dispute or other matter in question arising out of or related to a Service Agreement subject to, but not resolved by mediation shall be subject to arbitration . . . administered by the AAA” Id. PageID 21 (section 7.3.1 Master Agreement). “Either party . . . may [join] persons or entities substantially involved in a common question of law or fact whose presence is required if complete relief is to be accorded in arbitration, provided that the party sought to be joined consents in writing to such joinder.” Id. (section 7.3.4.2 Master Agreement) (emphasis added).

         Moreover, Defendants 100 ETS, 115 ETS, and Windsor all allege they are parties to the Arbitration Agreement within the Master Agreement. Doc. No. 13 at 5-6. Defendant Kinney brought the second Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for MSP failing to pursue arbitration, and for not pleading sufficient facts to allow him to defend the allegations. Doc. No. 12.

         Defendants Fireblocks, 100 ETS and 115 ETS appear to be signatories to Service Orders, which, based on the language of the Master Agreement, merge with the Master Agreement into Service Agreements. See Doc. Nos. 1-2, 1-3, 1-4, 1-5, 1-6. As stated above, the Master Agreement has a binding Arbitration Clause, which 100 ETS and 115 ETS seek to enforce through their motion. Doc. No. 13 at 6. Defendants Windsor and Kinney are not signatories to the Master Agreement or any Service Order, but nonetheless wish to enforce the Arbitration Clause against MSP. Id. at 5-6; Doc. No. 11 at 2. They assert that the joinder provision in section 7.3.4.2 entitles them to be a party to the Arbitration, and the claims against them should similarly be dismissed. Doc. No. 13 at 5-6.

         The Court will discuss the standard of review for the Motions to Dismiss below. After the standard is discussed, the Court will analyze the Motions to Dismiss based on applicable law and the arguments of the parties.

         II. Standard of Review for Failure to State a Claim

         “The purpose of a Rule 12(b)(6) motion to dismiss is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true.” Bihn v. Fifth Third Mortg. Co., 980 F.Supp.2d 892, 897 (S.D. Ohio 2013) (citing Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)). Moreover, the purpose of the motion is to test the formal sufficiency of the statement of the claim for relief. Id. “[F]or the purposes of a motion to dismiss, the complaint must be construed in the light most favorable to the plaintiff and its allegations taken as true.” Id. (citing Scheuer v. Rhodes, 416 U.S. 232 (1974)).

         The Sixth Circuit has held “that a party's ‘failure to pursue arbitration' in spite of a compulsory arbitration provision means that the party ‘has failed to state a claim,' and a motion to dismiss on such grounds is ‘properly construed as a motion . . . under 12(b)(6).'” Knight v. Idea Buyer, LLC, 723 Fed.Appx. 300, 301 (6th Cir. 2018) (quoting Teamsters Local Union 480 v. United Parcel Serv., Inc., 748 F.3d 281, 286 (6th Cir. 2014). District Courts have also interpreted a party's motion to dismiss based on arbitrability of claims as an affirmative defense provided by section 3 of the Federal Arbitration Act, 9 U.S.C. §§ 1-16. E.g., Tower v. Amazon.com, Inc., No. 15-cv-2405, 2016 U.S. Dist. LEXIS 109924, at *3 (S.D. Ohio Aug. 18, 2016). The Court treats ...


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