Perry v. Northcentral University Incorporated, et al

Filing 39

ORDER denying 37 Plaintiff's Renewed Motion for Sanctions; denying 26 Defendants' Motion for Attorney Fees. Signed by Senior Judge Paul G Rosenblatt on 5/16/12.(DMT)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 Anthony Perry, Plaintiff, 11 12 13 vs. NorthCentral University, Inc., et al., Defendants. 14 ) ) ) ) ) ) ) ) ) ) No. CV-10-8229-PCT-PGR ORDER 15 16 Pending before the Court is Defendants’ Motion for Attorneys’ Fees (Doc. 26). 17 Having considered the parties’ memoranda in light of the relevant record, the Court 18 finds that the motion should be denied.1 The Court further finds that the plaintiff’s 19 related [Renewed] Motion for Sanctions (Doc. 37) should also be denied. 20 Background 21 The plaintiff, subsequent to his termination from his employment, filed a state 22 court action involving several federal and state law claims related to sexual 23 harassment and retaliation. The defendants removed the action to this Court solely 24 on the basis of federal question jurisdiction pursuant to 28 U.S.C. § 1331 due to the 25 26 1 No party has asked for a hearing on the pending motions and the Court concludes that oral argument would not aid the decisional process. 1 presence of Title VII claims. The defendants subsequently filed a two-part motion 2 to dismiss the plaintiff’s amended complaint. The defendants argued in the first part 3 of their motion that the Court lacked subject matter jurisdiction over the plaintiff’s 4 action pursuant to Fed.R.Civ.P. 12(b)(1) and the Federal Arbitration Act (FAA) 5 because the plaintiff’s employment contract required that employment-related claims 6 be arbitrated; the Court construed that portion of the motion to dismiss as a motion 7 to compel arbitration under the FAA, 9 U.S.C. § 4. They argued in the second part 8 of their motion that six of the plaintiff’s seven state law claims in the amended 9 complaint should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state 10 a claim. The Court, relying entirely on the FAA, dismissed the entire action without 11 prejudice on September 19, 2011 based on its finding that all of the plaintiff’s federal 12 and state claims were subject to a contractual arbitration provision. As a result, the 13 Court directed the parties to proceed to arbitration before the American Arbitration 14 Association in accordance with the terms of the arbitration provision.2 The Court 15 specifically stated in its dismissal order that it was not making any ruling on that 16 portion of the defendants’ motion seeking a Rule 12(b)(6) dismissal. 17 Discussion 18 The defendants, relying solely on Arizona law, are seeking over $43,000 in 19 attorneys’ fees related to the one contract-based claim in the plaintiff’s amended 20 complaint and to the arbitration issue, as well as their fees related to their pending 21 motion, on the basis that they successfully obtained an order compelling the 22 arbitration of all of the claims the plaintiff raised in his amended complaint. 23 2 24 25 26 Although the plaintiff stated in his response to the defendants’ attorneys’ fees motion that the parties’ arbitration proceeding was then underway, the Court has no information before it as to whether that proceeding has been completed and, if so, what the outcome was. -2- 1 Under the well-settled American Rule on the payment of attorney’s fees in 2 federal litigation, such fees are generally not awarded to a prevailing litigant absent 3 statutory authorization or an enforceable contractual fees provision.3 See 4 Buckhannon Bd. and Care Home, Inc. v. W. Virginia Dept. of Health and Human 5 Resources, 532 U.S. 598, 602 (2001); Alyeska Pipeline Service Co. v. Wilderness 6 Society, 421 U.S. 240, 247 (1975). The FAA, which was the sole statutory basis for 7 the Court’s underlying order compelling arbitration, does not expressly provide for 8 the payment of attorney’s fees to a litigant who obtains a judicial order compelling 9 arbitration, American Reliable Ins. Co. v. Stillwell, 336 F.3d 311, 320 (4th Cir. 2003); 10 accord, Electrolux Home Products, Inc. v. United Automobile, Aerospace and 11 Agricultural Implement Workers of America, 343 F.Supp.2d 747, 761 (N.D.Iowa 12 2004) (“The Federal Arbitration Act does not contain any provisions providing for 13 awards of attorneys’ fees to successful or prevailing parties.”), aff’d, 416 F.2d 848 14 (8th Cir.2005), and the defendants do not suggest otherwise. While there is some 15 limited authority for the proposition that awarding attorney’s fees to a party who 16 successfully obtains an order compelling arbitration under the FAA may be 17 appropriate, see e.g., Olle v. 5401 Western Ave. Residential, LLC, 569 F.Supp.2d 18 141, 147 (D.D.C.2008), the Court is persuaded by the reasoning of those courts that 19 have concluded that such an award is improper because an order compelling 20 arbitration, being merely a preliminary procedural order that is not on the merits and 21 3 22 23 24 25 26 The defendants do not contend that any applicable contractual provision in the plaintiff’s employment contract provides a basis for their fee request. The Court notes that the arbitration provision in the employee handbook in effect at the time of the plaintiff’s termination merely provided in relevant part that “[t]he costs of arbitration, including consultants and attorney fees, may be ordered reimbursed or otherwise allocated between the parties as determined in the arbitration proceedings.” -3- 1 does not materially alter the legal relationship of the parties, does not make the 2 litigant obtaining the order a prevailing party for purposes of a fee award. See e.g., 3 Foot Solutions, Inc. v. Washio, 2009 WL 4261213 (N.D.Ga. Nov. 24, 2009) (Court, 4 which had dismissed the action because the plaintiffs’ claims were governed by an 5 arbitration agreement, denied the defendants’ request for attorneys’ fees on the 6 ground that their success in having the plaintiff’s claims sent to arbitration did not 7 made them a prevailing party for fee purposes since their victory was procedural 8 only and not one on the merits of the plaintiffs’ claims.); Frazier v. Johnson, 2009 WL 9 331372 (M.D.Fla. Feb. 10, 2009) (Court, after granting the defendants’ motion to 10 compel arbitration to the extent that the arbitrability of the plaintiffs’ claims was for 11 the arbitrator to decide, denied an award of attorneys’ fees to the defendants 12 because they were not prevailing parties as that term is normally used for fee 13 purposes since the arbitrator had not yet decided the merits of the case.); Gossett 14 v. Porsche Cars North America, Inc., 2006 WL 3007384 (D.S.Car. Oct. 20, 2006) 15 (Court concluded that its interlocutory order granting the defendant’s motion to 16 compel arbitration under the FAA did not make the defendant a prevailing party for 17 purposes of an award of attorneys’ fees since it had not shown its entitlement to 18 relief on the merits of the action and had not succeeded on an issue that was 19 significant or fundamental to the case.) 20 The defendants, cursorily stating that they are not seeking fees under federal 21 law and that Arizona law provides the rule of decision here, argue that A.R.S. § 12- 22 341.01(A) provides the statutory authority for their fee request as they are the 23 prevailing party in a contested matter arising out of a contract. Assuming that 24 Arizona law is applicable here, the Court agrees with the plaintiff that the defendants’ 25 request for attorneys’ fees pursuant to § 12-341.01(A) is not appropriate at this time. 26 -4- 1 The plaintiff argues in part that the defendants’ success in obtaining an order 2 compelling arbitration is insufficient to make them currently eligible for a fee award 3 under the state statute because the parties’ arbitration will determine the successful 4 party and the ultimate prevailing party on a contract issue. As the defendants 5 concede, rather than establishing any presumption that attorney’s fees should be 6 awarded in a contract action, this state fee-shifting statute grants courts the discretion 7 to award fees in an action arising out of contract if the party seeking fees was 8 successful and an award of fees is deemed to be appropriate.4 Associated Indemnity 9 Corp. v. Warner, 694 P.2d 1181, 1183 (Ariz.1985). 10 Although the Court does not consider the issue to be clearly settled under 11 Arizona law, the Court assumes for purposes of the pending motion that the 12 defendants can be considered successful parties for purposes of § 12-341.01(A) 13 notwithstanding that their success in compelling arbitration did not involve any 14 decision on the substantive merits of any of the plaintiff’s claims. See Wagenseller 15 v. Scottsdale Memorial Hospital, 710 P.2d 1025, 1047 and 1048-49 (Ariz.1985) 16 (Court, stating that “A.R.S. § 12-341.01 makes no reference to adjudication on the 17 merits as a prerequisite to recovering attorney’s fees as a successful party[,]” 18 concluded that the “‘successful party’ on appeal is not limited to those who have a 19 favorable final judgment at the conclusion of the appeal process” and that the term 20 “may include those who achieve reversal of an unfavorable interim order if that order 21 is central to the case and if the appeal process finally determines an issue of law 22 sufficiently significant that the appeal may be considered as a separate unit.”) But 23 24 25 26 4 A.R.S. § 12-341.01(A) provides in part that “[i]n a contested action arising out of contract, express or implied, the court may award the successful party reasonable attorney fees.” -5- 1 see, Desert Mountain Properties Ltd. Partnership v. Liberty Mutual Fire Ins. Co., 236 2 P.3d 421, 440 (Ariz.App.2010) (Court stated that for purposes of A.R.S. § 12- 3 341.01(A), “[t]he successful party is the one that is the ultimate prevailing party in the 4 litigation.”) (internal quotation marks omitted), aff’d, 250 P.3d 196 (Ariz.2011). 5 Nevertheless, the Court, in the exercise of its broad discretion, concludes that 6 the defendants should not now be awarded their attorneys’ fees for succeeding, as 7 of the time their fees motion was filed, on nothing more than effecting a change in the 8 forum charged with deciding the merits of the plaintiff’s claims.5 The result of that 9 arbitration may very well make the plaintiff the successful party on the contract-based 10 claim raised in his amended complaint. See Frazier v. Johnson, 2009 WL 331372, 11 at *5 (M.D.Fla. Feb. 10, 2009) (After dismissing the action due to a finding that the 12 defendants’ motion to compel arbitration should be granted to the extent that the 13 arbitrability of the plaintiffs’ claims was for the arbitrator to decide, the court denied 14 defendants’ request for attorneys’ fees under A.R.S. § 12-341.01 stating: “The 15 procedural skirmish concerning the proper forum for resolution of the plaintiffs’ claims 16 17 18 19 20 21 22 23 24 25 26 5 The Court notes that the Arizona Court of Appeals, in some postWagenseller unpublished decisions, has continued to conclude that it would be premature to award of attorneys’ fees under § 12-341.01 to a party that is successful only on a procedural arbitration-related issue. See e.g., National Bank of Arizona v. Stockton, 2011 WL 553226, at *4-5 (Ariz.App. Feb. 17, 2011) (Court, in affirming the denial of attorneys’ fees to a party obtaining an order compelling arbitration, noted that the fees request was premature because the action was in its preliminary stage and far from concluded and there was as yet no successful party since there had not been any decision on the merits of the plaintiff’s claims.); Perrybuilt Construction, LLC v. Norton, 2009 WL 271229, at *6 (Ariz.App. Feb. 5, 2009) (Court, in reversing an order denying a motion to compel arbitration, declined to award attorneys’ fees under § 12-341.01(A) because there had not yet been a decision on the merits of the plaintiff’s claims and because it would be more appropriate for the arbitrator to award fees when he or she decided the case on the merits and there was a prevailing party.) -6- 1 is not what this lawsuit was about. Rather, the plaintiffs’ filed this suit seeking various 2 forms of relief on the basis of several theories. ... Those claims seemingly have not 3 been resolved in the defendants’ favor. Unless, and until, they are, there would be 4 no justification for awarding the defendants attorneys’ fees for simply obtaining their 5 preferred choice of forum. In other words, it would be a completely hollow victory for 6 the defendants to have procured arbitration, if the arbitrator rules against them. It 7 would be anomalous for the defendants to be awarded attorneys’ fees for obtaining 8 arbitration only to be hit subsequently with a substantial judgment by the arbitrator on 9 the plaintiffs’ claims. In short, it is premature to award the defendants attorneys’ fees 10 as the victorious party.”) Cf. Hellon & Associates, Inc. v. Phoenix Resort Corp., 958 11 F.2d 295, 300 (9th Cir.1992) (Court, in denying attorneys’ fees under A.R.S. § 12- 12 341.01 sought by a litigant that successfully fought a motion to remand, noted that 13 “since at this preliminary stage of the proceedings the action is far from concluded, 14 an award of fees at this time would be premature.”) 15 Also pending before the Court is the plaintiff’s [Renewed] Motion for Sanctions 16 (Doc. 37), in which the plaintiff seeks an award pursuant to Fed.R.Civ.P. 11 of his 17 attorneys’ fees and costs incurred in responding to the defendants’ motion for 18 attorneys’ fees.6 19 remedy, one to be exercised with extreme caution” and is therefore a sanction 20 reserved for the “rare and exceptional case where the action is clearly frivolous, As the Ninth Circuit has noted, “Rule 11 is an extraordinary 21 22 23 24 25 26 6 While the Court stayed the briefing on this re-filed motion pending its resolution of the defendants’ underlying motion for attorneys’ fees, the Court notes that the parties have had the opportunity to brief the relevant issues since the plaintiff’s initial Rule 11 motion (Doc. 33) was withdrawn by him after being fully briefed due to his realization that he had filed it before complying with the safe harbor provision of Rule 11(c)(2). -7- 1 legally unreasonable or without legal foundation, or brought for an improper purpose.” 2 Operating Engineers Pension Trust v. A-C Co., 859 F.2d 1336, 1345-46 (9th 3 Cir.1988). While the defendants failed to persuade the Court that they are entitled 4 to their attorneys’ fees for compelling the arbitration of the plaintiff’s action, the Court 5 cannot agree with the plaintiff that the defendants’ motion was either frivolous or 6 improperly made for purposes of Rule 11.7 As previously noted by the Court, there 7 is some federal case law providing that a party successfully obtaining a ruling 8 compelling arbitration under the FAA can be awarded its attorneys’ fees, as well as 9 Arizona case law providing that it is not always necessary to prevail on the merits of 10 the underlying claims in order to be deemed a successful party under § 12-341.01(A). 11 Therefore, 12 13 14 15 16 IT IS ORDERED that Defendants’ Motion for Attorneys’ Fees (Doc. 26) is denied. IT IS FURTHER ORDERED that the plaintiff’s [Renewed] Motion for Sanctions (Doc. 37) is denied. DATED this 16th day of May, 2012. 17 18 19 20 21 22 23 24 25 26 7 While Rule 11(c)(2) grants a court the discretion to award attorneys’ fee to the party prevailing on a Rule 11 sanction motion, the Court notes that it would not grant the defendants their fees incurred in defending the plaintiff’s Rule 11 motion. -8-

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