Myron Knight v. Idea Buyer, LLC

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 29, 2018
• Docket: 17-3539
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 18a0052n.06

Case No. 17-3539 FILED Jan 29, 2018 DEBORAH S. HUNT, Clerk UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

MYRON KNIGHT and ) ROYCE DICKERSON, ) ON APPEAL FROM THE UNITED ) STATES DISTRICT COURT FOR Plaintiffs-Appellants, ) THE SOUTHERN DISTRICT OF ) OHIO v. ) ) IDEA BUYER, LLC et al., ) OPINION ) Defendants-Appellees. ) )

BEFORE: BATCHELDER, GILMAN, and ROGERS, Circuit Judges.

RONALD LEE GILMAN, Circuit Judge. Myron Knight and Royce Dickerson (the

Plaintiffs) filed this class-action lawsuit on behalf of themselves and other similarly situated

customers against the invention promoter Idea Buyer, LLC and certain of its officers and

employees. They allege that Idea Buyer violated the American Inventors Protection Act (AIPA),

35 U.S.C. § 297. Idea Buyer, like all invention promoters, seeks to find “a firm, corporation, or

other entity to develop and market products or services that include” its customers’ inventions.

See id. § 297(c)(4). Before an invention promoter enters into a contract with a customer, the

AIPA requires that the promoter disclose information about the number of inventions it has

evaluated, its total number of customers, and the financial benefits it has secured for those Case No. 17-3539 Knight v. Idea Buyer, LLC

customers. Id. § 297(a). The Plaintiffs allege that Idea Buyer failed to make the required

disclosures before contracting with them.

In the district court, Idea Buyer filed a motion to dismiss pursuant to Rule 12(b)(1) of the

Federal Rules of Civil Procedure, arguing that an arbitration provision in the Fast Track

Agreement that each Plaintiff entered into requires that the claims be arbitrated. The arbitration

provision mandates that “[a]ny and all disputes . . . concerning th[e] Agreement or performance

under th[e] Agreement” be submitted to binding arbitration. In a thorough and comprehensive

opinion, the district court agreed with Idea Buyer and dismissed the case for lack of jurisdiction.

After carefully considering the record on appeal, the briefs of the parties, and the applicable law,

we are satisfied that dismissal was proper.

We note, however, that Idea Buyer’s Rule 12(b)(1) motion was the improper vehicle

through which to seek dismissal, although that selection is not fatal to its litigation objectives.

The Supreme Court has admonished courts to avoid “drive-by jurisdictional rulings,” in which

courts fail to properly distinguish dismissal for lack of subject-matter jurisdiction from failure to

state a claim. See Arbaugh v. Y & H Corp., 546 U.S. 500, 511 (2006). In that vein, this court

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,” meaning that a motion to dismiss on

such grounds is “properly construed as a motion . . . under Rule 12(b)(6).” Teamsters Local

Union 480 v. United Parcel Serv., Inc., 748 F.3d 281, 286 (6th Cir. 2014). A motion to dismiss

pursuant to an arbitration agreement should therefore be construed as a Rule 12(b)(6) motion

even if it is mislabeled as a Rule 12(b)(1) motion. See id.

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Moving now beyond the proper technical basis to dismiss the Plaintiffs’ claim, we find

no fault with the district court’s decision on the merits. A brief explanation of why we agree

with its reasoning follows.

The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16, governs the enforceability of the

arbitration provision. The FAA provides that arbitration agreements in contracts involving

interstate commerce “shall be valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.” Id. at § 2. This reflects a “strong

federal policy in favor of arbitration.” Nestle Waters N. Am., Inc. v. Bollman, 505 F.3d 498, 503

(6th Cir. 2007). The FAA’s mandate favoring arbitration, however, can be “overridden by a

contrary congressional command.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226

(1987).

The Plaintiffs argue that their claims are not arbitrable because the Fast Track Agreement

was entered into without any meeting of the minds. They also argue that the arbitration

provision is inapplicable to their AIPA claims because (1) the statute’s text evinces Congress’s

clear intent that such claims be nonarbitrable, and (2) subjecting such claims to arbitration would

undermine the statute’s consumer-protection purpose.

The Plaintiffs’ argument regarding the unenforceability of the arbitration provision due to

the overarching unenforceability of the Fast Track Agreement fails. “[A]s a matter of

substantive federal arbitration law, an arbitration provision is severable from the remainder of the

contract.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006). When plaintiffs

challenge the validity of the contract as a whole, rather than merely the validity of an arbitration

clause within the contract, “the issue of the contract’s validity is considered by the arbitrator in

the first instance.” Id. at 446. Because the Plaintiffs have challenged the Fast Track Agreement

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as a whole, this challenge “should therefore be considered by an arbitrator, not a court.” See id.;

see also Glazer v. Lehman Bros., Inc., 394 F.3d 444, 453 (6th Cir. 2005) (“The FAA does not

permit the courts to examine the enforceability of contracts containing arbitration provisions.”).

Nor do the Plaintiffs’ arguments regarding the inapplicability of the arbitration provision

to their AIPA claims have merit. They argue that the AIPA’s text prohibits arbitration because

the word “court” is used repeatedly in the cause of action that appears in the statute. See

35 U.S.C. § 297(b). But the Supreme Court roundly rejected that argument in the context of

another consumer-protection statute, holding that “[i]t is utterly commonplace for statutes that

create civil causes of action to describe the details of those causes of action . . . in the context of

a court suit,” and that “repeated use of the term[] . . . ‘court’ ” cannot override the FAA’s policy

favoring arbitration. CompuCredit Corp. v. Greenwood, 565 U.S. 95, 100–01 (2012).

Similarly, the Plaintiffs’ contention that subjecting AIPA claims to arbitration would

undermine the consumer-protection purpose of the statute is belied by the Supreme Court’s

numerous decisions holding that claims under federal consumer-protection statutes are arbitrable.

See, e.g., id. at 104 (holding that claims under the Credit Repair Organization Act are arbitrable);

Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90–92 (2000) (holding that claims under

the Truth in Lending Act are arbitrable); Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490

U.S. 477, 481 (1989) (holding that claims under the Securities Act of 1933 are arbitrable).

In sum, the Plaintiffs have failed to allege a specific defense to the arbitration provision

itself and have not identified any evidence that establishes a clear congressional intent that AIPA

claims are nonarbitrable. We therefore AFFIRM the judgment of the district court.

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