Schnellecke Logistics USA LLC v. Lucid USA Inc.

688 F.Supp.3d 914

SCHNELLECKE LOGISTICS USA LLC, et al., Plaintiffs, v. LUCID USA INCORPORATED, et al., Defendants.

No. CV-22-01893-PHX-SMB

United States District Court, D. Arizona

Signed August 23, 2023

James Valletta, Warner Angle Hallam Jackson & Formanek PLC, Phoenix, AZ, for Plaintiffs.

Patricia Lee Refo, Rachael Marie Peters Pugel, Snell & Wilmer LLP, Phoenix, AZ, for Defendant Lucid USA Incorporated.

Rachael Marie Peters Pugel, Snell & Wilmer LLP, Phoenix, AZ, for Defendant Lucid Motors Canada ULC.

ORDER

Susan M. Brnovich, United States District Judge

Pending before the Court is Defendants Lucid USA Inc. and Lucid Motors Canada, ULC's (collectively "Lucid") Motion to Compel Arbitration of the Claims in the First Amended Complaint, and to Dismiss and/or Stay Proceedings. (Doc. 21.) Plaintiffs Schnellecke Logistics USA, LLC and Schnellecke Logistics Arizona, LLC (collectively "Schnellecke") filed a Response (Doc. 27), and Lucid filed a Reply (Doc. 28). Additionally, the Court read and considered the supplemental memorandums that were provided at the Court's request. (Docs. 35 & 36.) The Court exercises its discretion to resolve this Motion without oral argument. See LRCiv 7.2(f) ("The Court may decide motions without oral argument."). After reviewing the parties' arguments and the relevant law, the Court will grant Lucid's Motion for the following reasons.

I. BACKGROUND

This case involves a contract dispute between Lucid, which manufactures electric luxury vehicles (Doc. 21 at 3), and Schnellecke, a third-party logistics company (Doc. 16 at 2). Lucid hired Schnellecke "to provide warehousing, light manufacturing/assembly, and supplement management, including, but not limited to managing, storing, loading, moving, transferring, delivering, kiting, sub-assemblies and otherwise handling supplier-owned products." (Doc. 16 at 2.) The parties entered into a Master Services Agreement ("MSA") on March 7, 2022, in which they memorialized their intent to contract. (Id.) About two weeks later, the parties entered into a separate Statement of Work agreement ("SOW") that set forth the specifics of their contractual relationship. (Id.) On July 21, 2022, Lucid gave Schnellecke written, 30-days' notice of its termination of the MSA and SOW. (Id. at 3.) Schnellecke continued to provide logistics services until August 20, 2022. (Id. at 4.)

On two occasions in August 2022, Schnellecke sent Lucid invoices totaling $5,029,762.67. (Id.) Lucid had issued a purchase order authorizing payment of invoices for work already performed "up to $5.3 million." (Id.) Two invoices totaling $2,644,965.79 were due to be paid by September 1, 2022, and another invoice totaling $2,384,796.88 was due to be paid the following month. (Id.) Lucid did not pay the invoiced amounts by the appropriate due dates, and on September 7, 2022, Lucid communicated its intent to reject all invoices sent by Schnellecke based on "substandard performance of the [third-party logistics] services" Schnellecke provided. (Id. at 5.) Lucid instead communicated it believed to have sustained $130 million in damages related to Schnellecke's substandard performance. (Id.) Lucid also informed Schnellecke of its belief that Schnellecke failed to return more than $17,000 worth of computer equipment. (Id. at 6.)

Schnellecke filed this lawsuit in Maricopa County Superior Court. (See Doc. 1.) Lucid removed the action to this Court and now moves to compel arbitration. (See id.; Doc. 21.)

II. LEGAL STANDARD

The Federal Arbitration Act ("FAA") provides that written agreements to arbitrate disputes "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in the equity for the revocation of a contract." 9 U.S.C. § 2; see also AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011) (discussing the liberal federal policy favoring valid arbitration agreements). The FAA "leaves no room for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). "The court's role is to answer two gateway questions: does a valid agreement to arbitrate exist, and does the agreement encompass the dispute at issue." Adams v. Conn Appliances Inc., No. CV-17-00362-PHX-DLR, 2017 WL 3315204, at *1 (D. Ariz. Aug. 3, 2017) (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)). If so, the court must compel arbitration. Id.

"Where a contract contains an arbitration clause, courts apply a presumption of arbitrability as to particular grievances, and the party resisting arbitration bears the burden of establishing that the arbitration agreement is inapplicable." Wynn Resorts, Ltd. v. Atl.-Pac. Cap., Inc., 497 Fed. Appx. 740, 742 (9th Cir. 2012). However, state law is not entirely displaced from federal arbitration analysis because "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2 [of the FAA]." Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 936-37 (9th Cir. 2001) (citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)).

III. DISCUSSION

The parties do not dispute some key features of this case. The parties agree that California law governs their dispute, that Schnellecke assented to the MSA, and that the MSA contains a mandatory arbitration provision. (See Docs. 21 at 6 n.7, 7, 10; 27 at 3.) But Schnellecke contends the arbitration provision is inapplicable to its claims due to superseding language in the SOW. (Doc. 27 at 7.) Schnellecke also contends the arbitration provision is invalid because it is unconscionable. (Id. at 8.)

Multiple contracts govern the parties' contractual relationship. Schnellecke contends the SOW represents the parties' final word on the issue of arbitrability, while Lucid contends the MSA controls. "The Supreme Court has emphasized that the 'first principle' of its arbitration decisions is that '[a]rbitration is strictly a matter of consent and thus is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.' " Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 741-42 (9th Cir. 2014) (quoting Granite Rock Co. v. Int'l Bd. of Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010)). District courts apply state law principles of contract interpretation to determine whether the parties have consented to arbitration while respecting the federal policy "in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration." Id. at 742 (quoting Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1044 (9th Cir. 2009)).

The MSA sets forth:

Any Dispute will be resolved first through good faith negotiations between the parties. If the Dispute cannot be resolved through good faith negotiation, then the parties agree to submit the Dispute to mediation . . . . If the Dispute is not otherwise resolved through negotiation or mediation within a reasonable time period (such time period not to exceed seventy-five (75) days, the Dispute shall be submitted to binding arbitration with the American Arbitration Association . . . and arbitration will be the exclusive forum for adjudication of the dispute.

(Doc. 26 at 44.) Again, neither party disputes the MSA's content or its directive to submit the parties' contractual disputes to arbitration.

The SOW "specifies the additional terms and conditions specific to the operation at the Lucid Arizona Campus of plants under which [Schnellecke] will provide contract warehouse services and shuttles on occasion to Lucid." (Id. at 4.) The SOW contains an "Order of Precedence" provision stating, "[i]n the event of any conflict between the provisions of this SOW and any Attachment, the order of precedence is as follows": the SOW, the SOW Attachments, instructions on the front of Lucid's release or broadcast schedule, the MSA. (Id.) As to disputes, the SOW includes a "Governing Law and Venue" provision that asserts the SOW will be governed by California law and "[n]otwithstanding Section 21.1 of the MSA, the Parties may elect to commence any dispute resolution or litigation action in the venue of the County of Maricopa." (Id. at 23.)

A. MSA & SOW

Schnellecke argues its claims "might have fallen within the scope of the MSA's arbitration provision . . . had they not agreed to the superseding Forum Selection Clause in the SOW." (Doc. 27 at 3-4.) But Schnellecke's interpretation of these agreements is unsupported by the contracts' language. Schnellecke relies on the SOW's Order of Precedence provision to assert that the SOW's forum selection clause displaces the MSA's arbitration agreement. (Doc. 27 at 7-8) (citing Galaxia Elecs. Co., Ltd. v. Luxmax, U.S.A., No. LA CV16-05144 JAK (GJSx), 2018 WL 11421517, at *8 (C.D. Cal. June 6, 2018)) ("Whether the arbitration clause . . . was superseded by the forum-selection clause in the [subsequent agreement], . . . depends on whether the forum-selection clauses in those agreements are 'sufficiently specific to impute to the contracting parties the reasonable expectation that they are superseding, displacing, or waiving an earlier arbitration obligation.' " (quoting Goldman, 747 F.3d at 743)).

The SOW does not clearly displace the MSA, because the Order of Precedence provision only seeks to resolve conflicts between provisions in this SOW itself or the SOW attachments. (See Doc. 26 at 4.) The purportedly conflicting contractual provisions are not based on the SOW or any SOW attachment, but rather the SOW and the MSA. The Order of Precedence provision is therefore inapplicable to the Court's construing the MSA's mandatory arbitration provision and...