McConnell & Malek Enterprises v. Proof Mark, Inc

Opinion

1 2 3 6 7 MCCONNELL & MALEK Case No. 23-cv-00010-LJC ENTERPRISES, 8 Plaintiff, ORDER DENYING MOTION TO 9 VACATE ARBITRATION AWARD v. 10 ORDER TO SHOW CAUSE WHY PROOF MARK, INC, CASE SHOULD NOT BE DISMISSED 11 Defendant. Re: Dkt. No. 85 12 14 Plaintiff McConnell & Malek Enterprises moves to vacate an arbitration award. The Court 15 ordered Plaintiff to show cause why that motion should not be denied as untimely under 9 U.S.C. 16 § 12. Plaintiff now suggests that the Court lacks subject matter jurisdiction and should remand the 17 case to state court. For the reasons discussed below, the Court finds that it has subject matter 18 jurisdiction over the case and over Plaintiff’s Motion, and DENIES that Motion as untimely.1 The 19 parties are ORDERED TO SHOW CAUSE why the case should not be dismissed. Any party that 20 opposes dismissal must file a response to this Order no later than September 5, 2025, not 21 exceeding five pages, explaining how and why the case should proceed. 22 The case management conference previously set for August 28, 2025 is CONTINUED to 23 October 23, 2025. If the case has not been dismissed, the parties shall file an updated joint case 24 management statement no later than October 16, 2025. Defendant’s unilateral case management 25 statement filed August 21, 2025, ECF No. 102, is STRICKEN sua sponte for failure to comply 26 with this Court’s June 16, 2025 Order (ECF No. 96) and Civil Local Rule 16-9, both of which 27 1 required a joint case management statement. The Court notes that Plaintiff, who did not file a case 2 management statement at all, also failed to comply with that previous Order. 4 This Order need not address the full tortured history of the case, but as is relevant here, 5 Plaintiff filed this action in state court in January of 2023, and Defendant Proof Mark, Inc. 6 removed to this Court. The Court denied Plaintiff’s motion to remand on May 25, 2023, finding 7 that the case fell within diversity jurisdiction under 28 U.S.C. § 1332(a). ECF No. 49 at 3–5. The 8 parties later stipulated to submit their dispute to arbitration and stay this case, which the Court 9 granted. ECF Nos. 58, 60. 10 An arbitrator issued an award on October 8, 2024, requiring each party to pay the other 11 various amounts, which offset to a net award of a few thousand dollars in favor of Defendant. 12 ECF No. 70-1. As the Court noted in its previous Order to Show Cause, Plaintiff “chose[] to 13 ignore [the award] and await action by Defendant.” ECF No. 99 at 1 (citing ECF No. 77, ¶¶ 9– 14 10). The parties belatedly notified the Court of that award on March 4, 2025, ECF No. 70, in 15 violation of a previous Order requiring a status report “within twenty days after the conclusion of 16 arbitration or by February 28, 2025, whichever is sooner,” ECF No. 67. 17 Plaintiff filed the present Motion to Vacate on April 18, 2025. ECF No. 85. “Protracted 18 confusion followed” over a stipulation to vacate the arbitration award, which the Court ultimately 19 denied after concluding that the parties had not reached a meeting of the minds. See ECF No. 99 20 at 2 (discussing that procedural history). 21 Section 12 of the Federal Arbitration Act (FAA) provides that “[n]otice of a motion to 22 vacate, modify, or correct an award must be served upon the adverse party or his attorney within 23 three months after the award is filed or delivered.” 9 U.S.C. § 12. On June 25, 2025, the Court 24 directed the parties to “address whether the three-month deadline of 9 U.S.C. § 12 bars the relief 25 Plaintiff now seeks.” ECF No. 97. Both parties failed to do so, and the Court issued an Order to 26 Show Cause why the Motion should not be denied on that basis. ECF No. 99. As discussed in 27 that Order to Show Cause, the Ninth Circuit has construed § 12’s deadline strictly, and though this 1 such enforcement serves the Federal Arbitration Act’s (FAA’s) “purpose to promote judicial 2 efficiency and finality of arbitration awards.” Id. at 2–3. 3 Defendant Proof Mark, Inc. responded that the Motion should be denied because the 4 arbitration award was served on both parties on October 8, 2024, and Plaintiff did not file its 5 Motion until April 18, 2025. ECF No. 100; see ECF No. 100-2 (email transmitting arbitration 6 award). Accordingly, because “[n]otice of a motion to vacate, modify, or correct an [arbitration] 7 award must be served upon the adverse party or his attorney within three months after the award is 8 filed or delivered,” Plaintiff’s Motion is too late. See 9 U.S.C. § 12. 9 Plaintiff, on the other hand, once again disregards the Court’s instruction to address the 10 timeliness of its Motion under § 12. Instead, Plaintiff asserts that this Court “does not have 11 jurisdiction over the matter as a diversity case as an appeal.” ECF No. 101 at 2. According to 12 Plaintiff “[t]he entire matter should have been remanded to the Superior Court as a result of the 13 filing of Plaintiff’s Motion to Vacate.” Id. Plaintiff also asserts in passing that “the Court pointed 14 out [that the Motion] was timely filed on April 18, 2025.” Id. (citing ECF No. 99 at 2). That 15 assertion is false, at least when it comes to § 12: the Order to Show Cause that Plaintiff cites 16 explained why Plaintiff’s Motion was untimely with respect to that statute. ECF No. 99 at 2. 17 Plaintiff has not filed a motion to remand, but the Court has a continuing obligation to 18 consider its subject matter jurisdiction, see, e.g., 28 U.S.C. § 1447(c), and therefore addresses 19 Plaintiff’s argument notwithstanding its dubious procedural posture. 21 Plaintiff relies on the Supreme Court’s decision in Badgerow v. Walters, 596 U.S. 1 (2022) 22 (erroneously cited by Plaintiff as 556 U.S. 1, see ECF No. 101 at 3).2 There, the plaintiff initiated 23 arbitration against her former employers, asserting claims under both state and federal law, but the 24 arbitrators sided with the defendants and dismissed the plaintiff’s claims. Id. at 5. The plaintiff 25 filed a case in state court to vacate the arbitration award, and the defendants removed to federal 26 2 Plaintiff’s response cites only Badgerow, its predecessor Vaden v. Discover Bank, 556 U.S. 49 27 (2009) (considering petitions to compel arbitration under 9 U.S.C. § 4), and authority addressing 1 court and moved to confirm the arbitration award. Id. The plaintiff moved to remand for lack of 2 subject matter jurisdiction, but the district court held that it had jurisdiction because the underlying 3 arbitration addressed claims under federal law. Id. at 5–6. The Supreme Court disagreed, holding 4 that although courts properly “look through” a petition to compel arbitration under 9 U.S.C. § 4 5 and consider whether the claims to be arbitrated fall within a court’s subject matter jurisdiction, 6 the different statutory texts of 9 U.S.C. §§ 9 and 9/10" style="color:var(--green);border-bottom:1px solid var(--green-border)">10 (for petitions to vacate or confirm arbitration 7 awards) preclude that approach. See id. at 11–12. Cases arising out of those petitions must be 8 filed in state court, unless there is some basis for federal jurisdiction that does not depend on the 9 claims at issue in arbitration. 10 This is not a new case originating with a petition to vacate an arbitration award, as in 11 Badgerow. Instead, this case predated any arbitration proceedings. Plaintiff filed a complaint in 12 state court asserting substantive claims for relief, Defendant removed the case to this Court, and 13 Plaintiff moved to remand. The Court denied that motion long ago, holding that the case properly 14 fell within diversity jurisdiction under 28 U.S.C. § 1332(a) because the parties were citizens of 15 different states and the amount in controversy exceeded $75,000. ECF No. 49 at 3–5; McConnell 16 & Malek Enters. v. Proof Mark, Inc., No. 23-cv-00010-LJC, 2023 WL 3688094, at *2–3 (N.D. 17 Cal. May 25, 2023). Plaintiff has not sought, nor shown any basis for, leave to file a motion for 18 reconsideration of that order under Civil Local Rule 7-9. After the Court determined its 19 jurisdiction over the substantive claims at issue—which, again, Plaintiff filed as a civil action, not 20 initially as a demand for arbitration—the parties stipulated to arbitrate their claims and stay this 21 case. ECF Nos. 58, 60. 22 Though Plaintiff’s present argument for lack of jurisdiction could be clearer, the Court 23 understands it as suggesting that there is no independent basis for federal subject matter 24 jurisdiction over the Motion to Vacate because the arbitrator’s award, and thus the amount in 25 controversy, is less than $75,000. (The parties, of course, remain the same, and Plaintiff has 26 identified no other reason why jurisdiction might be lacking.) 27 The Supreme Court held more than eighty years ago that “rulings of the district court after 1 justify remand.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938) (footnote 2 omitted). Nor can a plaintiff prompt remand “by stipulation, by affidavit, or by amendment of his 3 pleadings, reduc[ing] the claim below the requisite amount.” Id. The St. Paul decision remains 4 good law—informing, for example, the Ninth Circuit’s holding in 2010 that denial of class 5 certification of a case removed under the Class Action Fairness Act does not warrant remand. 6 United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, 7 v. Shell Oil Co., 602 F.3d 1087, 1091 (9th Cir. 2010). Under “the usual and long-standing 8 principles . . . post-filing developments do not defeat jurisdiction if jurisdiction was properly 9 invoked as of the time of filing.” Id. at 1091–92. The arbitrator’s decision in this case awarding 10 less than $75,000 falls squarely within the sort of post-removal development that does not alter the 11 Court’s jurisdiction.3 12 In explaining why district courts must stay, rather than dismiss, a case that has been 13 compelled to arbitration, the Supreme Court has identified motions to confirm arbitration awards 14 under § 9 as falling within “the supervisory role that the FAA envisions for the courts,” and thus 15 as matters to be addressed by a “court[] with proper jurisdiction” after it stays proceedings. Smith 16 v. Spizzirri, 601 U.S. 472, 478 (2024). The same would seem to apply to a motion to vacate such 17 an award—though it may be filed as a separate action, particularly if no civil action had been filed 18 before commencing arbitration, it may also be filed in a stayed case where a court retains a 19 supervisory role with respect to the arbitration. The Supreme Court has not held that, when (as 20 here) a case properly falling within a district court’s jurisdiction has been stayed pending 21 arbitration, the court must reconsider its jurisdiction upon the filing of a motion to confirm or 22 vacate the award, and start from a blank slate as if such a motion were a new case. 23 Courts are divided as to that issue of whether district courts must have an independent 24

25 3 Of course, if “federal jurisdiction is absent from the commencement of a case, a putative class action is not ‘properly removed’—and therefore need not ‘stay[] removed.’” Polo v. Innoventions 26 Int’l, LLC, 833 F.3d 1193, 1197 (9th Cir. 2016) (quoting United Steel, 602 F.3d at 1197) (alteration in original). As noted above, though, this Court already considered a motion by 27 Plaintiff to remand the case after its removal, and denied that motion after determining that the 1 jurisdictional basis to consider a motion to vacate (or confirm) an arbitration award when such a 2 motion is filed in a case that the district court previously stayed pending the outcome of 3 arbitration. See Teleport Mobility, Inc. v. Sywula, No. 21-cv-00874-SI, 2025 WL 860498, at *5 4 (N.D. Cal. Mar. 18, 2025) (addressing the split of authority among both circuit and district courts). 5 The Seventh Circuit has held that Badgerow did not alter that circuit’s existing precedent that 6 where a district court had jurisdiction over claims filed in a civil action, and subsequently stays 7 those claims pending arbitration, the district court retains jurisdiction to address a motion to vacate 8 an arbitration award. Kinsella v. Baker Hughes Oilfield Operations, LLC, 66 F.4th 1099, 1103 9 (7th Cir. 2023). The Fourth Circuit has held to the contrary, holding that “Badgerow itself makes 10 no distinction between ‘freestanding’ Section 9 and 10 applications and those filed in cases where 11 the action was previously stayed,” and requires the same independent jurisdictional basis for such 12 motions as if they were filed as separate actions. SmartSky Networks, LLC v. DAG Wireless, Ltd., 13 93 F.4th 175, 184 (4th Cir. 2024). In Teleport Mobility, Judge Illston sided with the Seventh 14 Circuit, “declin[ing] to extend Badgerow’s holding to the circumstances here” because “[r]etaining 15 jurisdiction over the issues already before the Court ‘comports with the supervisory role that the 16 FAA envisions for the courts’ and ‘makes good sense.’” Teleport Mobility, 2025 WL 860498, at 17 *5 (quoting Spizzirri, 601 U.S. at 478). 18 The Ninth Circuit expressly declined to resolve this question in Tesla Motors, Inc. v. 19 Balan (Balan II), 134 F.4th 558, 562 n.1 (9th Cir. 2025). The Balan saga began with a case in the 20 Western district of Washington, which—after a first appeal to the Ninth Circuit that is not relevant 21 here4—that court dismissed when it granted a motion to compel arbitration, failing to predict the 22 later holding of Spizzirri that such cases should instead be stayed. See Balan v. Tesla Motors Inc. 23 (Balan I), No. C19-67 MJP, 2022 WL 2192872, at *1 (W.D. Wash. June 16, 2022) (discussing the 24 procedural history of the case); cf. Spizzirri, 601 U.S. at 478. When the plaintiff returned to the 25

26 4 Balan v. Tesla, Inc., 840 F. App’x 303 (9th Cir. 2021). For convenience, this Order uses Balan I and Balan II for the two decisions discussed in more detail above, but those designations are 27 perhaps misnomers to the extent that they obscure the various other decisions in that long-running 1 court seeking to vacate the award, the district court construed that “Motion to Vacate as an 2 application to vacate the arbitrator’s award, which is a separate action from [the] initial civil action 3 filed with this Court,” and held that it lacked personal jurisdiction over one of the parties to that 4 new “action,” and transferred the case to the Northern District of California, where the other 5 defendant had filed another action to confirm the award. Balan I, 2022 WL 2192872, at *2–4. 6 The Northern District confirmed the zero-dollar arbitration award, but the Ninth Circuit 7 determined that the district court lacked jurisdiction over that petition, and declined to consider 8 whether the Western District of Washington would have retained jurisdiction over such a motion 9 if it had stayed its case rather than dismissing it. Balan II, 134 F.4th at 561–62. The defendant’s 10 argument that the district court should have stayed the case and retained jurisdiction “fail[ed] 11 because, even if we now know with the hindsight of Spizzirri that the district court should have 12 stayed the case, it didn’t—the court dismissed it.” Id. The Balan case therefore did not “present 13 the question whether ‘a district court that previously stayed a case [can] retain or extend its subject 14 matter jurisdiction over subsequent Sections 9 and 10 applications.’” Id. at 562 n.1 (quoting 15 SmartSky, 93 F.4th at 184–86) (alteration in original). 16 With the “Ninth Circuit ha[ving] not considered the extension of Badgerow under these 17 circumstances,” this Court agrees with Judge Illston’s conclusion on the issue. See Teleport 18 Mobility, 2025 WL 860498, at *6. So long as a court properly had jurisdiction over claims 19 presented to the Court but subsequently stayed pending arbitration, retaining jurisdiction over 20 motions to confirm or vacate the resulting arbitration award on those claims “comports with the 21 supervisory role” that the Supreme Cout recognized in Spizzirri, and “makes good sense.” Id. 22 (quoting Spizzirri, 601 U.S. at 478). The Court therefore retained subject matter jurisdiction to 23 consider Plaintiff’s present Motion. 24 Even if that were not so, the reasoning of cases finding a lack of jurisdiction over motions 25 to confirm or vacate arbitration awards does not counsel in favor of remanding this “entire matter” 26 to the state court, as Plaintiff now seeks. ECF No. 101 at 2. If Plaintiff should have filed its 27 present Motion as a separate action in a state court, that would be a separate and sufficient reason 1 which encompasses the parties’ underlying substantive claims (which as of now remain stayed), 2 not only Plaintiff’s present Motion. As the Court previously held in denying Plaintiff’s motion to 3 remand, those claims fall within this Court’s jurisdiction. Nor could the Court construe the 4 Motion as a separate action and remand that to state court, because that hypothetical action was 5 never filed in state court. 6 Moreover, if the Court were to look only to Plaintiff’s Motion to consider jurisdiction, it is 7 still not clear that the Court lacks subject matter jurisdiction. The relief Plaintiff seeks on its 8 Motion is not only to set aside the arbitrator’s award of less than $75,000, but to resume either 9 litigation or arbitration of claims for which the Court previously found the amount in controversy 10 to exceed that value. See, e.g., ECF No. 92 at 6 (Plaintiff’s subsequent case management 11 statement, suggesting that Defendant might “default and accept the court’s ruling on the 12 calculation of damages,” and reiterating that the amount in controversy exceeds $75,000). The 13 amount in controversy on the present Motion might therefore meet § 1332(a)’s jurisdictional 14 threshold.5 But again, regardless of whether Plaintiff could or should have filed its Motion as a 15 separate action in state court, “it didn’t.” See Balan II, 134 F.4th at 562 (declining to consider a 16 counterfactual procedural posture). Plaintiff filed it in this action, and did so too late. 18 For the reasons discussed above and in the previous Order to Show Cause, Plaintiff’s 19 Motion to Vacate the Arbitration Award is therefore DENIED as untimely. 20 Plaintiff can no longer seek relief from the arbitration award, which resolved the parties’ 21 claims and ruled on balance in favor of Defendant, albeit for a relatively small net recovery. See 22

23 5 In Badgerow, the only asserted basis for subject matter jurisdiction was federal question jurisdiction under § 1331, based on the district court’s “look-through” approach to consider the 24 federal claims that were resolved in arbitration, which the Supreme Court held improper. See 596 U.S. at 6. The Supreme Court did not address how to assess the amount in controversy on such a 25 matter for the purpose of diversity jurisdiction, though it held that such jurisdiction can apply in an appropriate case. Id. at 9; see also id. at 25 (Breyer, J., dissenting) (“To determine at least one 26 important aspect of diversity jurisdiction [on a petition to vacate]—the amount in controversy— must the court not look to the underlying dispute?”). In Balan II, the Ninth Circuit held that “on 27 its face, a petition to confirm a zero-dollar award cannot support the amount in controversy 1 ECF No. 74-1. Defendant has previously indicated it has “no further interest or authority to 2 || conduct further proceedings.” See ECF No. 89 at 1. The parties are therefore ORDERED TO 3 SHOW CAUSE why this case should not be dismissed. Any party that opposes dismissal must 4 || file a response as discussed above in the introduction to this Order. 6 || Dated: August 22, 2025 7 ts, | hari — A J. CISNEROS 9 ited States Magistrate Judge 10 11 12

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