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Shoebacca, LTD. v. K-2 Corporation

United States District Court, N.D. Texas, Dallas Division

July 21, 2017

SHOEBACCA, LTD., Plaintiff,
v.
K-2 CORPORATION a/k/a K2 SPORTS, Defendant.

          MEMORANDUM OPINION AND ORDER

          A. JOE FISH Senior United States District Judge

         Before the court is the defendant's motion to dismiss (docket entry 8) for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3), and in the alternative, lack of subject matter jurisdiction pursuant to Rule 12(b)(1). For the reasons stated below, the defendant's motion is granted.

         I. BACKGROUND

         A. Factual Background

         The plaintiff, Shoebacca, Ltd. (“Shoebacca”), brings this suit against the defendant, K-2 Corporation (“K2”), for claims of fraud, negligence, and detrimental reliance related to a contractual agreement between the parties for the purchase and sale of shoes. Notice of Removal, Exhibit A2 (“Original Petition”) ¶¶ 9, 14-17 (docket entry 1). Shoebacca is a wholesaler and retailer of sports shoes and apparel. Id. ¶ 7. K2 is primarily engaged in the business of manufacturing sports shoes and apparel. Id. ¶ 8. On December 18, 2013, Shoebacca and K2 entered into a contract titled “Retail Dealer Agreement” (“the Agreement”) governing all K2 product orders made by Shoebacca. Motion to Dismiss for Lack of Jurisdiction (“Motion to Dismiss”) at 1 (docket entry 8). The Agreement contains both a forum selection and an arbitration clause, stating that all disputes arising under the Agreement are to be resolved by arbitration in the state of Washington. Appendix In Support of Shoebacca Ltd.'s Response and Objection (“Appendix In Support”), Exhibit 2 ¶ 7.5 (docket entry 12).

         Shoebacca claims that as direct inducement to enter into a contract with K2, K2 promised several benefits to Shoebacca, such as allowing Shoebacca to participate in sponsorship to promote its brand. Original Petition ¶ 9. Based on these promises, Shoebacca purchased K2 products at prices higher than what it would have otherwise paid. Id. ¶¶ 10-11. However, Shoebacca alleges that K2 has since failed to honor any of its promises, leaving Shoebacca with a large inventory of shoes for which it has overpaid. Id. ¶¶ 11-14.

         B. Procedural Background

         On January 11, 2017, Shoebacca filed suit in the 162nd Judicial District of Dallas County, Texas, asserting claims for fraudulent inducement, fraud, negligence, and detrimental reliance against K2. Id. ¶¶ 14-17; Notice of Removal ¶ 1. On February 20, 2017, K2 timely removed the action to this court based on diversity of citizenship jurisdiction.[1] Notice of Removal at 2. K2 then filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(3) for improper venue due to the forum selection and arbitration clauses in the Agreement. Motion to Dismiss at 1. Alternatively, K2 also seeks dismissal pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. Id. at 1, 5. Shoebacca subsequently filed a response to K2's motion to dismiss, to which K2 filed a timely reply. Plaintiff's Objections to Defendant's Motion to Dismiss Pursuant to F.R.C.P. 12(b)(3) and 12(b)(1) and Brief in Support (“Response”) (docket entry 11); Defendant K-2 Corporation's Reply to Plaintiff's Response to Defendant's Motion to Dismiss (“Reply”) (docket entry 18). The motion is now ripe for decision.

         II. ANALYSIS

         A Legal Standard

         When faced with a motion to dismiss based on an arbitration clause, the Fifth Circuit has yet to explicitly decide whether Rule 12(b)(1) or Rule 12(b)(3) is the proper rule. Noble Drilling Services, Inc. v. Certex USA, Inc., 620 F.3d 469, 472 n.3 (5th Cir. 2010); see also Murchison Capital Partners, L.P. v. Nuance Communications, Inc., 625 F. App'x 617, 626-27 (5th Cir. 2015) (noting that the defendant “would have been entitled to prevail on a Rule 12(b)(1) or 12(b)(3) motion to dismiss the case because the dispute is covered by the arbitration clause.”). Without deciding whether Rule 12(b)(3) or 12(b)(1) is the proper rule here, the court first analyzes the pending motion under Rule 12(b)(3) as it is the basis of the defendant's primary argument.[2] McGee v. Western Express, Inc., No. 3:15-CV-3673K, 2016 WL 1622632, at *2 (N.D. Tex. Apr. 5, 2016) (Horan, M.J.) (“[W]ithout deciding whether Rule 12(b)(1) or Rule 12(b)(3) is the proper rule here, because the Agreement's arbitration clause contains a forum selection clause, the undersigned will analyze the pending motion under Rule 12(b)(3).”), report and recommendation adopted, No. 3:15-CV-3673-K, 2016 WL 1627662 (N.D. Tex. Apr. 22, 2016). Because the court concludes that the instant case is properly dismissed for improper venue under Rule 12(b)(3), it does not reach the defendant's 12(b)(1) argument.

         On a Rule 12(b)(3) motion, the plaintiff has the burden of proving that the chosen venue is proper. Psarros v. Avior Shipping, Inc., 192 F.Supp.2d 751, 753 (S.D. Tex. 2002). When reviewing the facts, “the court must accept as true all allegations in the complaint and resolve all conflicts in favor of the plaintiff.” Braspetro Oil Services Company v. Modec (USA), Inc., 240 Fed. App'x 612, 615 (5th Cir. 2007) (per curiam). Moreover, on a Rule 12(b)(3) motion, the court may look outside of the complaint and its attachments and review extrinsic materials, including affidavits.[3]See Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008); Burkitt v. Flawless Records, Inc., No. CIV. A. 03-2483, 2005 WL 6225822, at *4 (E.D. La. June 13, 2005) (“Unlike a Rule 12(b)(6) motion, . . . a court may consider extrinsic materials, including affidavits and other materials, in determining whether venue is proper.”). Conflicts in the parties' affidavits must also be resolved in favor of the plaintiff. CIT Group/ Commercial Services, Inc. v. Romansa Apparel, Inc., No. 3:02-CV-1954-P, 2003 WL 169208, at *2 (N.D. Tex. Jan. 21, 2003) (Solis, J.).

         B. Application

         Determining whether parties should be compelled to arbitrate a dispute involves two considerations: (1) whether there is a valid agreement to arbitrate; and (2) whether the dispute in question falls within the scope of the arbitration agreement. Graves v. BP America, Inc., 568 F.3d 221, 222 (5th Cir. 2009) (per curiam). Shoebacca argues that venue in this court is proper because the dispute at issue falls outside the scope of the arbitration clause and is therefore not subject to its terms. Response at 2-5. Because Shoebacca does not dispute the validity of the arbitration clause, see id., but merely the ...


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