Morgan Stanley & Co. v. Couch

MORGAN STANLEY & CO., LLC,AND MORGAN STANLEY SMITH BARNEY, LLC, Plaintiffs, v. DAVID COUCH, Defendant.

1:15-cv-1291-LJO-JLT

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

October 22, 2015

MEMORANDUM DECISION AND ORDER RE DEFENDANT'S MOTION TO DISMISS

Defendant David Couch ("Couch") moves to dismiss Plaintiff's¹ Complaint under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. See Doc. 17-1 at 1-3. The Court finds it appropriate to rule on the motion without oral argument. See Local Rule 230(g). For the following reasons, the Court GRANTS IN PART and DENIES IN PART the motion.

I. FACTUAL AND PROCEDURAL BACKGROUND²

Couch is a former MSSB employee. Doc. 1, Complaint ("Compl.") at ¶ 10. When joining, MSSB and Couch executed an employment agreement (Doc. 1-2, "Employment Agreement"), which contained an arbitration clause. Id. at ¶ 18; Employment Agreement at 5-6.

Last year, Couch brought suit against MSSB in this Court, which the parties litigated for over a year. See generally Couch, Docs. 31, 33, 36, 38-43, 71 at 5; Couch, 2015 WL 4716297, at *5. In June of 2015, Couch filed a claim in arbitration with the Financial Industry Regulatory Authority ("FINRA") pursuant to the Employment Agreement's arbitration clause ("the Arbitration Claim"). Couch, 2015 WL 4716297, at *8; Doc. 1-4.³ MSSB moved for summary judgment on all of Couch's claims in the Couch case, and moved to enjoin the FINRA arbitration. Couch, 2015 WL 4716297, at *8. The Court granted the summary judgment motion in its entirety, but denied MSSB's motion for an injunction on the ground MSSB was not entitled to any injunctive relief because it had no underlying claim in the Couch case. Id. at *24.

MSSB then brought this case. Compl. at 1. MSSB asserts causes of action for declaratory judgment and injunctive relief. In the former, MSSB seeks "[a] judicial declaration that Couch is barred by res judicata and/or collateral estoppel from bringing the Arbitration Claim, and/or that Couch has waived his right to arbitrate the Arbitration Claim." Id. at ¶ 31. Based on those assertions, MSSB's second claim seeks an order from this Court enjoining Couch's FINRA arbitration. Id. at ¶¶ 34-35. MSSB maintains an injunction is necessary because Couch "has asserted claims for money damages against MSSB in the FINRA arbitration and . . . unless enjoined will continue to pursue such claims to judgment." Id. at ¶ 34.

The Court recently granted MSSB's motion to enjoin preliminarily Couch's FINRA arbitration proceedings. See Morgan Stanley & Co., LLC v. Couch, ___ F. Supp. 3d ___, 2015 WL 5647946 (E.D. Cal. 2015) ("the PI Order"). In doing so, the Court found, among other things, that (1) it has jurisdiction over MSSB's declaratory relief claim⁴; (2) the Court, not a FINRA arbitrator, properly decides whether Couch waived his arbitration rights under the Employment Agreement; (3) MSSB is likely to succeed on the merits of its declaratory relief claim that Couch waived his arbitration rights under the Employment Agreement because (4) Couch in fact did waive his arbitration rights under the Employment Agreement. See PI Order at *3-17. Among other reasons, the Court found Couch waived his arbitration rights because he litigated non-statutory claims in this Court—claims he was required to submit to FINRA arbitration under the Employment Agreement. See id. at *10.

Couch moves to dismiss on the grounds that (1) this Court lacks subject matter jurisdiction over MSSB's complaint and (2) neither of MSSB's two causes of action states a claim for relief.⁵ Doc. 17 at 1. MSSB opposes on both grounds. Doc. 19 at 1.⁶

II. STANDARDS OF DECISION

A. Fed. R. Civ. P. 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of an action for "lack of subject-matter jurisdiction." Faced with a Rule 12(b)(1) motion, a plaintiff bears the burden of proving the existence of the court's subject matter jurisdiction. Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996). A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears. Gen. Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 968-69 (9th Cir. 1981). A challenge to subject matter jurisdiction may be facial or factual. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). As explained in Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1038 (9th Cir. 2004):

In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.

The present motion is a facial attack, because Couch "contends that the allegations of jurisdiction contained in the complaint are insufficient on their face to demonstrate the existence of jurisdiction." Beco Dairy Automation, Inc. v. Global Tech Sys., Inc., ___ F. Supp. 3d ___, 2015 WL 2185121, at *4 (E.D. Cal. May 8, 2015) (internal citation and quotation omitted). In a facial attack, "the plaintiff is entitled to safeguards similar to those applicable when a 12(b)(6) motion is made." Id. "The factual allegations of the complaint are presumed to be true, and the motion is granted only if the plaintiff fails to allege an element necessary for subject matter jurisdiction." Id.; see also Cassirer v. Kingdom of Spain, 580 F.3d 1048, 1052 n. 2 (9th Cir. 2009), rev'd on other grounds, 616 F.3d 1019 (9th Cir. 2010) (en banc) (applying Ashcroft v. Iqbal, 556 U.S. 662 (2009), standard to a facial motion to dismiss for lack of subject matter jurisdiction); Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004) ("[I]n reviewing a Rule 12(b)(1) motion to dismiss for lack of jurisdiction, we take the allegations in the plaintiff's complaint as true.").

B. Fed. R. Civ. P. 12(b)(6)

A motion to dismiss pursuant to Fed R. Civ. P. 12(b)(6) is a challenge to the sufficiency of the allegations set forth in the complaint. A 12(b)(6) dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balisteri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the allegations in the complaint, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y. Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).

To survive a 12(b)(6) motion to dismiss, the Plaintiffs must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the Plaintiffs pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility for entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a Plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted). Thus, "bare assertions . . . amount[ing] to nothing more than a 'formulaic recitation of the elements' . . . are not entitled to be assumed true." Iqbal, 556 U.S. at 681. In practice, "a complaint . . . must contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Twombly, 550 U.S. at 562. To the extent that the pleadings can be cured by the allegation of additional facts, the Plaintiffs should be afforded leave to amend. Cook, Perkiss and Liehe, Inc. v. Northern California Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990) (citations omitted).

III. DISCUSSION

A. The Court Has Jurisdiction Over MSSB's Complaint.

The Court must confirm at the outset that it has jurisdiction over MSSB's Complaint. See Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006). As noted, the Court found it had subject matter jurisdiction over the Complaint when ruling on MSSB's preliminary injunction motion. The Court continues to find that it has subject matter jurisdiction over the case, but for different reasons.

MSSB alleged the Court has diversity jurisdiction over this case in its Complaint (Compl. at ¶ 8), and in its reply in support of its preliminary injunction motion (Doc. 15 at 6). In the PI Order, however, the Court found it had jurisdiction over this case on the ground that Couch hypothetically could file a petition to compel MSSB's participation in the FINRA arbitration under § 4 of the Federal Arbitration Act ("FAA") ("§ 4"), reasoning that this "threatened coercive action" confers the Court with subject matter jurisdiction over MSSB's declaratory judgment claim. PI Order at *5. The Court did not address MSSB's contention that the Court is vested with diversity jurisdiction. See id. at *3-5. On further consideration, the Court concludes the jurisdictional analysis is much more straightforward: the Court has diversity jurisdiction.

Couch argues—in his reply only—that the Court lacks diversity jurisdiction. See Doc. 24 at 10. Couch does not dispute that there is diversity of citizenship, but he does...