Anamiria Madrigal v. AT&T Wireless Services Inc et al

Filing 30

Memorandum Decision and ORDER GRANTING 17 Motion to Compel Arbitration signed by Judge Oliver W. Wanger on 8/17/2009. (Figueroa, O)

1 UNITED STATES DISTRICT COURT 2 EASTERN DISTRICT OF CALIFORNIA 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. The Dealer Agreement On or about April 1, 2002, Plaintiff Anamiria Madrigal and AT&T Wireless Services, Inc. entered into an Exclusive Dealer 1 I. INTRODUCTION v. NEW CINGULAR WIRELESS SERVICES, INC., a Corporation; and AT&T MOBILITY, LLC, a Corporation Defendants. ANAMIRIA MADRIGAL, individually and doing business as Atzek Cellular, a sole proprietorship; and ATZEK CELLULAR,INC. Plaintiffs, 09-CV-00033-OWW-SMS MEMORANDUM DECISION AND ORDER RE: DEFENDANTS' MOTION TO COMPEL ARBITRATION

Before the court is a motion to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, brought by Defendants New Cingular Wireless Services, Inc. and AT&T Mobility, LCC (collectively "Defendants"). Defendants contend that the four

claims asserted by Plaintiffs Anamiria Madrigal and her company Atzek Cellular, Inc. ("Plaintiffs") in the First Amended Complaint ("FAC"), and the counterclaims asserted by Defendants in their responsive pleading, are subject to an arbitration clause in an Exclusive Dealer Agreement executed between the parties. The following background facts are taken from the parties' submissions in connection with the motion and other documents on file in this case. II. BACKGROUND

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Agreement ("Dealer Agreement"). (Doc. 13 at 3; Doc. 16 at 10.)1 The terms of the Dealer Agreement authorized Madrigal to market wireless products and services to customers of AT&T Wireless. (Doc. 13 at 3.) Madrigal opened and operated several retail stores under the name "Aztek Cellular." (Doc. 13 at 3; Doc. 16 at 10.) After "Atzek

Cellular" incorporated, on August 8, 2002, Madrigal assigned her rights under the Dealer Agreement to Atzek Cellular, Inc. (Woosley Decl. ¶ 5, Ex. C.) The term of the Dealer Agreement was two years

with automatic one-year extensions if not terminated by either party. (Doc. 13 at 4; Doc. 16 at 10.) The Dealer Agreement was

renewed in 2004 and 2005. (Doc. 13 at 4; Doc. 16 at 10.) During the term of the Dealer Agreement, Plaintiffs

experienced considerable financial success while operating nine retail stores. (Doc. 13 at 4.) B. The Switch From AT&T To Cingular And The Commission Dispute In 2004, Cingular Wireless acquired AT&T Wireless after which AT&T Wireless was renamed New Cingular Wireless Services, Inc. (Doc. 13 at 2.) As part of the conversion from AT&T Wireless to

Cingular, Plaintiffs were offered "Special Promotional Incentives Funds" ("SPIFs"). (Doc. 13 at 5.) For former AT&T Wireless

customers Plaintiffs successfully transferred to Cingular and/or sold additional data features, Plaintiffs earned SPIFs (or

commissions) as incentive compensation. (Id.) By the fall of 2005, Plaintiffs calculated that they were owed

Document ("Doc.") 13 is Plaintiffs' FAC, and Doc. 16 is the Order After Scheduling Conference. 2

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more

than

$2,000,000

in

unpaid

and

improperly

calculated

commissions. (Doc. 13 at 5; Doc. 16 at 4-5.) However, calculations of SPIFs were complicated and Cingular contested the unpaid amount claimed by Plaintiffs. (Doc. 13 at 5.) Plaintiffs were offered Plaintiffs

$475,000 in settlement. (Doc. 13 at 5; Doc. 16 at 5.)

rejected the offer and alleged that Cingular's calculations were erroneous. (Doc. 13 at 5; Doc. 16 at 5.) Plaintiffs maintain that

Cingular "had no accounting reflecting their own calculations were in error." (Doc. 13 at 5; Doc. 16 at 5.) Cingular then reduced its

offer to $435,000, without providing supporting documentation. (Doc. 13 at 5; Doc. 16 at 5.) After Plaintiffs refused to compromise, on December 24, 2005, Defendants served Plaintiffs with a 90-day written notice of termination of the Dealer Agreement. (Doc. 13 at 4; Doc. 16 at 10.) On or about April 1, 2006, the Dealer Agreement terminated. (Doc. 13 at 8; Doc. 16 at 10.) Cingular made a final attempt to settle

the disputed commissions for $149,275. (Doc. 13 at 5; Doc. 16 at 5.) Plaintiffs rejected the offer. Subsequently, Plaintiffs, through counsel, requested mediation or, in the alternative, arbitration of the commission dispute. (Swingle Decl. Ex. A.) The parties agreed to mediate (Swingle

Decl. Exs. B-C), but the mediation never occurred. After retaining new counsel, Plaintiffs requested arbitration of the commission claims. (Cornwell Decl. Exs. A-B.) A couple months later, apart from the commission claims, Plaintiff Madrigal filed a state-court complaint asserting

statutory claims arising from termination of the Dealer Agreement.

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C.

Procedural History On November 18, 2008, Plaintiff Madrigal filed a complaint in

Fresno County Superior Court alleging four statutory causes of action. On January 7, 2009, the action was removed to federal On March 5, 2009,

court on diversity of citizenship grounds.

Plaintiffs2 filed a FAC alleging the same four statutory causes of action, which are: (1) a violation of the California Fair

Dealership Law, Civil Code §§ 80-86; (2) a violation of the California Franchise Relations Act, Bus. & Prof. Code § 20000 et seq.; (3) a violation of the New York Franchise Law, N.Y. Gen. Bus. Law § 680; and (4) a violation of the California Unfair Competition Law, Bus. & Prof. Code § 17200 et seq. All of these claims allege,

among other things, that the termination of the Dealer Agreement was unlawful and part of a scheme to put pressure on Plaintiffs to settle the commission dispute on terms adverse to Plaintiffs. Defendants have demanded that Plaintiffs arbitrate their

claims in this lawsuit. (De Liberty Decl. Ex. D.) resisted arbitration to of their the statutory dispute claims over

Plaintiffs have despite their

willingness

arbitrate

the

commissions.

(Cornwell Decl. Ex. B.) III. The FAA ARBITRATION UNDER THE FAA a "liberal federal policy favoring

represents

arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991) (internal quotation marks omitted). "central purpose of the [FAA] [is] to ensure that The

private

The claims in the first amended complaint are asserted by Plaintiff Madrigal and Plaintiff Atzek Cellular, Inc. 4

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agreements to arbitrate are enforced according to their terms." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53-54 (1995). The "preeminent concern of Congress in passing the [FAA]

was to enforce private agreements into which parties had entered, a concern which to requires that [courts] rigorously Corp. v. enforce Soler

agreements

arbitrate."

Mitsubishi

Motors

Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26 (1985) (internal quotation marks omitted). In pertinent part, section 2 of the FAA provides that a "written" arbitration provision in any "contract evidencing a transaction involving commerce" is "valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The term

"involving commerce" in section 2 is the "functional equivalent of the more familiar term `affecting commerce' ­ words of art that ordinarily signal the broadest permissible exercise of Congress' Commerce Clause Power." Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (per curiam). The FAA "provides for the enforcement

of arbitration agreements within the full reach of the Commerce Clause." Id. (internal quotation marks omitted). the FAA, the "contract evidencing a To fall within involving

transaction

commerce," in which an arbitration agreement is embedded, need not be one "within the flow of interstate commerce," nor one that, "taken alone," has "a substantial effect on interstate commerce." Id. (internal quotation marks omitted). "Congress' Commerce Clause power may be exercised in individual cases without showing any specific effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice 5

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... subject to federal control." Id. 56-57 (internal quotation marks omitted). Defendants engage in cellular business throughout the United States, entering into dealership agreements across the country. (Woosley Decl. ¶¶ 9-11.) The Dealer Agreement here, reached

between parties from different states, involves the provision of cellular services to end customers over a significant period of time. The Dealer Agreement represents a transaction "involving

commerce," and even if there were "any . . . doubt about the magnitude of the impact on interstate commerce caused by the particular" Dealer Agreement in this case, "that doubt would dissipate upon consideration of the "general practice th[at]

transaction[] represent[s]." Citizens Bank, 539 U.S. at 57-58. "No elaborate explanation is needed to make evident the broad impact [cellular services have] on the national economy." Id. at 58. The

written arbitration agreement here is embedded in a contract evidencing a transaction involving commerce within the meaning of the FAA. Section 4 of the FAA "authorizes a federal district court to issue an order compelling arbitration if there has been a `failure, neglect, or refusal' to comply with the arbitration agreement." Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (quoting 9 U.S.C. § 4). When a party brings a motion to compel arbitration under section 4, a threshold inquiry is whether an "arbitration"

agreement exists. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). No party disputes that the

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Dealer Agreement contains an arbitration agreement.3 The next inquiry deals with the scope of the arbitration agreement. "[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995). "Accordingly, the [next] task of a court asked to compel

arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute." Mitsubishi Motors Corp., 473 U.S. at 626. In opposition to the motion to compel arbitration, Plaintiffs contend that the scope of the arbitration agreement does not encompass the statutory claims in the FAC. Alternatively,

Plaintiffs argue that even if the statutory claims fall within the scope of the arbitration agreement, the arbitration agreement is unconscionable (under California law) and thus invalid. Finally,

Plaintiffs argue that even if the arbitration agreement encompasses the statutory claims and is not unconscionable, Defendants waived their right to enforce the arbitration agreement. that follow, Plaintiffs' first and second For the reasons to the

challenge

arbitration agreement as to its scope and validity are disputes that the parties agreed to arbitrate. Plaintiffs' third challenge

(on waiver grounds), which the court can decide, lacks merit. IV. DISCUSSION A. Scope Of The Arbitration Agreement

Relatedly, no party disputes that both Plaintiffs (Madrigal and her company Atzek Cellular, Inc.) and both Defendants are subject to the arbitration agreement. 7

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Under the FAA any doubts regarding the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem'l. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The arbitration clause (section 10.2.1) in haec verba reads: Except as stated in section 10.2.4 of this Agreement, all claims (including counterclaims and cross-claims) and disputes between Dealer and Company must be resolved by submission to binding arbitration. The parties must submit any such disputes to the office of the American Arbitration Association ("AAA") nearest to Dealer within the Area, to be decided under the then current AAA commercial arbitration rules. (Woolsey Decl. Ex. B at 12)(emphasis added).4 Plaintiffs argue

that the statutory causes of action in their FAC do not fall within the scope of the arbitration provision because they are neither "claims" nor "disputes" (both of which are undefined terms in the agreement). To support their argument, Plaintiffs cite to section

10.1 of the Dealer Agreement, which immediately precedes the section on arbitration. Section 10.1 specifies:

Dealer must notify Company in writing of any grievance or dispute it may have regarding the Agreement or its relationship with Company within 120 days of the date the dealer became aware of this grievance or dispute. (Emphasis added.) According to Plaintiffs, each one of their

statutory causes of action is a "grievance" (which is also an undefined term). "claims" and Because the arbitration agreement applies to but does not mention "grievances,"

"disputes"

Plaintiffs contend they need not arbitrate their statutory causes of action. Regardless of whether Plaintiffs' contention has merit, the parties have agreed to arbitrate the scope of the arbitration agreement. No party contends that section 10.2.4 exempts arbitration any of the claims at issue in this lawsuit. 8
4

from

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Normally, whether a particular dispute falls within the scope of an arbitration agreement is a question for the court to resolve. "The question whether the parties have submitted a particular dispute to arbitration" is considered a "question of

arbitrability." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (emphasis removed). As a matter of federal law under the

FAA, a "question of arbitrability" presents "an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise." Id. (emphasis added) (alteration in original) (internal quotation marks omitted); see also First Options, 514 U.S. at 944. In other words, questions of arbitrability are presumptively for a court to decide. This presumption is overcome in this case.

The arbitration agreement calls for arbitration by the AAA, "to be decided under the then current AAA commercial arbitration rules." See section 10.2.1. In their moving papers, Defendants

attached a copy of the AAA commercial arbitration rules. (De Liberty Decl. Ex. A.) In their briefing, Plaintiffs concede that

these are the operative AAA rules. (See Doc. 20 at 17 & n.7.) Rule 7 of the AAA commercial arbitration rules provides: The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement. Rule R-7(a) (emphasis added). Numerous courts have examined the language in Rule 7 and concluded that, when incorporated into an arbitration agreement, it clearly and unmistakable evidences the parties' intent to arbitrate the scope of the arbitration agreement, i.e., to arbitrate whether a claim or claims fall(s) within the scope of the arbitration

9

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agreement. See Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 11 (1st Cir. 2009) (stating that Rule 7 "says plainly that the arbitrator may `rule on his or her own jurisdiction' including any objection to the `existence, scope or validity of the arbitration agreement.' This is about as `clear and unmistakable' as language can get . . . ."); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009) (concluding that Rule 7 "constitutes a clear and unmistakable expression of the parties' intent to leave the question of

arbitrability to an arbitrator"); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir. 2006) (concluding that identical

language in another AAA rule "clearly and unmistakably shows the parties' intent to delegate the issue of determining arbitrability to an arbitrator"); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005) (concluding that Rule 7 "serves as clear and unmistakable evidence of the parties' intent to delegate" "issues of arbitrability" "to an arbitrator"); Clarium Capital Mgmt. LLC v. Choudhury, Nos. C 08-5157SBA, O6-5255, 2009 WL 331588, at *5 (N.D. Cal. Feb. 11, 2009) (concluding that Rule 1 of Article 15 of the AAA rules on international dispute resolution, which contains language identical to Rule 7 of the commercial arbitration rules, represents "`clear and unmistakable' evidence of the

parties' intent to delegate the issue of arbitrability to the arbitrator"); Clyde Bergemann, Inc. v. Sullivan, Higgins & Brion, PPE LLC, No. 08-162-KI, 2008 WL 2116908, at *2-3 (D. Or. May 14, 2008) (concluding that a rule in the employment dispute resolution rules of the AAA, which contains language identical to Rule 7, "clearly and unmistakably showed the parties' intent to delegate the issue of determining arbitrability to an arbitrator"); VISA 10

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USA, Inc. v. Maritz Inc., No. C 07-05585 JSW, 2008 WL 744832, at *5 (N.D. Cal. Mar. 18, 2008) (concluding that the incorporation of Rule 7 shows that the parties "clearly and unmistakenly agreed that questions of arbitrability would be submitted to arbitration for resolution"); Grynberg v. BP P.L.C., 585 F. Supp. 2d 50, 55 (D.D.C. 2008) (concluding that another AAA rule, which contains language identical to Rule 7, "constitutes clear and unmistakable evidence that the parties intended to submit the threshold question of arbitrability to the arbitrator himself"); Rodriguez v. Am. Techs. Inc., 136 Cal. App. 4th 1110, 1123 (2006) (concluding that by incorporating Rule 8 of the AAA's construction industry rules, which contains language identical to Rule 7, "the parties clearly and unmistakably agreed to have the arbitrator determine the scope of the arbitration clause"); see also Ariza v. Autonation, Inc., 317 F. App'x 662, 664 (9th Cir. Mar. 5, 2009) (citing Rodriquez with approval on this point and using it for analogical support); Aceves v. Autonation, Inc., 317 F. App'x 665, 666-67 (9th Cir. Mar. 5, 2009) (same). Here the arbitration agreement specifies that "all claims" and "disputes" are subject to arbitration by the AAA, and it explicitly states that the "AAA commercial arbitration rules" govern. is one of those rules.5 Rule 7

Consistent with the great weight of

The parties agree that the commercial arbitration rules attached to Woolsey's Declaration, which contain Rule 7, represent the "then current" AAA commercial arbitration rules as stated in the arbitration agreement. Rule 7, formerly Rule 8, has been in existence since at least 1999. See Grynberg, 585 F. Supp. 2d at 54 (discussing Rule 8 of the 1999 commercial arbitration rules which provides that the "[a]rbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to 11

5

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authority, by incorporating the language of Rule 7 of the AAA commercial arbitration rules into their arbitration agreement, the parties clearly and unmistakably expressed their intent to have the arbitrator decide disputes over the scope of the arbitration agreement. Accordingly, Defendants' motion to compel arbitration

is GRANTED. The arbitrator, not the court, must decide whether the claims in this lawsuit fall within the scope of the arbitration agreement.6

the existence, scope or validity of the arbitration agreement."); see also Book Depot P'ship v. Am. Book Co., No. 3:05-CV-163, 2005 WL 1513155, at *3 (E.D. Tenn. June 24, 2005) (discussing Rule 7 of the 2003 AAA Commercial Arbitration Rules which provides that the "[a]rbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." (alteration removed)). Accordingly, at the time Plaintiff Madrigal entered into the Dealer Agreement in April 2002, when her corporation Plaintiff Atzek Cellular, Inc. assented to the Dealer Agreement in August 2002, when the Dealer Agreement was renewed in 2004 and 2005, and before it expired in April 2006, Rule 7 or its language was (and continues to be) part of the AAA commercial arbitration rules. Courts that have concluded that the parties clearly and unmistakably agreed to have the arbitrator (not the court) determine the scope of the arbitration agreement have, before sending the matter to arbitration, inquired further as to whether the "assertion of arbitrability is wholly groundless." Qualcomm Inc., 466 F.3d at 1371. This "wholly groundless" inquiry prevents a party from "asserting any [substantive] claim at all, no matter how divorced from the parties' agreement, [only] to force an arbitration" over the scope of the arbitration agreement. Id. at 1373 n.5. The assertion that the claims in this case fall within the scope of the arbitration agreement is not "wholly groundless." The claims arose out of the parties relationship and may or may not fall within the ambit of the "claims" and "disputes" language. To respect the province of the arbitrator, no opinion is expressed on whether the claims in this case actually fall within the scope of the arbitration agreement. 12
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B.

Validity Of Arbitration Agreement ­ Unconscionability Arbitration agreements are subject to normal contract defenses

arising

under

state

law

such

as

fraud,

duress,

and

unconscionability. 687 (1996).

Doctor's Assocs. v. Casarotto, 517 U.S. 681,

Plaintiffs argue that the arbitration agreement is

unconscionable given certain of its features, e.g., it places limits on discovery and requires the payment of arbitration fees which Plaintiffs believe are excessive. Assuming, without deciding, that the court can determine whether Plaintiffs' claims fall within the scope of the arbitration agreement, and further assuming, without deciding, that they do, Plaintiffs' challenge to the validity of the arbitration agreement on unconscionability grounds cannot be judicially determined. The

parties have clearly and unmistakably provided that arbitrator is empowered to determine the "validity of the arbitration agreement" (as well as its scope). Rule 7. Courts have recognized that "the validity of an arbitration clause is itself a matter for the arbitrator where the agreement so provides." Awuah, 554 F.3d at 11; see also Terminix Int'l Co. v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332 (11th Cir. 2005) (concluding that by incorporating the AAA commercial arbitration rules into their arbitration agreement, and specifically the rule which provides that the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement," the "parties clearly and unmistakably agreed that the arbitrator should decide whether the arbitration clause is valid"); Monex Deposit Co. v. Gilliam, 616 F. Supp. 2d 1023, 1026 (C.D. Cal. 13

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2009).

By incorporating Rule 7 of the AAA commercial arbitration

rules into their arbitration agreement, the parties clearly and unmistakably expressed their intent to have the arbitrator decide disputes over the validity of the arbitration agreement. Referring Plaintiffs' dispute over the validity of the arbitration agreement to the arbitrator, which is what the parties provided for, is consistent with the FAA. The "central purpose of the [FAA] [is] to ensure that private agreements to arbitrate are enforced according to their terms." Mastrobuono, 514 U.S. at 53-54 (emphasis added). Section 4 of the

FAA authorizes a district court to compel arbitration when the court is "satisfied" that "the making of the agreement for

arbitration" is "not in issue."

9 U.S.C. § 4.

In cases where the

making of the agreement to arbitrate is at issue, the court should decide whether an arbitration agreement was ever concluded. See Prima Pain Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967) ("[I]f the claim is fraud in the inducement of the

arbitration clause itself-an issue which goes to the `making' of the agreement to arbitrate-the federal court may proceed to

adjudicate it.").

There is no such dispute here.

Plaintiffs' unconscionability challenge assumes the existence and making of the arbitration agreement. Contending the

arbitration agreement is unconscionable, Plaintiffs dispute the validity of the agreement made, not that they ever made an

arbitration agreement to begin with.7

Accordingly, § 4 does not

In her declaration, Plaintiff Madrigal explains that when she entered into the Dealer Agreement she had been working with one of AT&T Wireless's exclusive dealers as an employee managing 14

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preclude an order compelling Plaintiffs to comply with their agreement to arbitrate their dispute as to the validity of the arbitration agreement. conclude that the Even though an arbitrator may ultimately agreement is invalid and that

arbitration

Plaintiffs need not arbitrate their statutory claims, this does not eviscerate the presently operative and more limited provision that the arbitrator must decide disputes over the validity of the arbitration agreement in the first instance. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 448 (2006) (recognizing that, under the FAA, a court may "enforce an arbitration agreement in a contract that the arbitrator later finds to be void" even though this would also render the arbitration provision void); PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 407 (2003) (concluding that the arbitration agreements at issue were initially enforceable and compelling arbitration even though the arbitrator may interpret the arbitration agreements in such a manner as to "render the parties' [arbitration] agreements unenforceable"); see also Green Tree Fin. Corp v. Bazzle, 539 U.S. 444, 452 (2003) (plurality opinion with Stevens, J., concurring in judgment)

several locations. She "interpreted" provisions of the Dealer Agreement in light of this "background" and "from this perspective." She states that "where the arbitration clause in the Dealer Agreement referred to `claims' and `disputes,' I assumed it meant business disagreements over compensation ­ including commissions, chargebacks, and special incentives. . ." (Madrigal Decl. ¶¶ 3-4.) Documents in the record also show that Plaintiffs have requested and been willing to arbitrate their commission claims. Plaintiff Madrigal's declaration, and the requests for arbitration of the commission claims, confirm that the parties made an arbitration agreement even though disputes now exist over its scope and validity with respect to the statutory claims. 15

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(noting that "in the absence of clea[r] and unmistakabl[e] evidence to the contrary," "in certain limited circumstances, courts assume the parties intended courts, not arbitrators, to decide" certain "gateway matters, such as whether the parties have a valid

arbitration agreement at all") (emphasis added) (alterations in original) (internal quotation marks omitted). Submitting Plaintiffs dispute over the validity of the

arbitration agreement, as the parties have provided, is also reasonable in light of the nature of Plaintiffs' challenge.

Plaintiffs argue that the arbitration agreement is unconscionable because, among other things, the face of the arbitration agreement purports to limit discovery (the agreement provides for four depositions, Plaintiffs one also document argue request the and one interrogatory). agreement is

that

arbitration

unconscionable because it requires Plaintiffs to pay allegedly "e[]xorbitant" arbitration fees. The merits of these arguments are directly linked to an interpretation and understanding of the AAA commercial arbitration rules. The commercial arbitration rules specifically provide that the arbitrator, "[a]t the request of any party or at the discretion of the arbitrator," "may direct" "the production of documents and other information." Rule 21. Moreover, as specified in the

"Introduction" section of the AAA commercial arbitration rules, if the parties proceed under the additional rules of AAA commercial arbitration for "Large, Complex Cases," the arbitrator is given "broad" "authority to order and control discovery, argument including that the

depositions."

Accordingly,

Plaintiffs'

arbitration agreement is unconscionable because it unduly limits 16

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discovery can be properly analyzed by taking into account the extent to which parties can obtain discovery under the AAA rules. This determination, however, involves an interpretation of the AAA rules, something which arbitrators, not courts, are better equipped to provide. See Howsam, 537 U.S. at 85 ("Moreover, the NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it."). The AAA rules themselves, which the parties have

incorporated into their agreement, provide that the arbitrator is empowered to "interpret and apply these rules" as they relate to his "powers and duties." Rule 53. Similarly, as to Plaintiffs' argument that the "arbitration fees" are excessive and thus render the agreement unconscionable, this argument also implicates AAA rules. For example, under Rule

49 of the AAA commercial arbitration rules, the AAA can "defer or reduce" administrative fees in the event of "extreme hardship." Moreover, Rule 49 also states that the "filing fee" is "subject to final apportionment by the arbitrator in the award." See also Rule 43(c) (providing that, in the final award, the "arbitrator may apportion" the "fees, expenses, and compensation among the parties in such amounts as the arbitrator determines appropriate"). Under

what circumstances and the extent to which a party can obtain a reduction of fees or an apportionment thereof under the AAA rules is something which arbitrators, not courts, are in a better

position to evaluate.8

Plaintiffs based their estimation of administrative fees on the estimated monetary amount of their claims. Plaintiffs have already requested that arbitration proceed on their commission 17

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For

the

foregoing

reasons,

Defendants'

motion

to

compel

arbitration is GRANTED.

The arbitrator, not the court, must

determine the validity of the arbitration agreement in light of Plaintiffs' arguments. C. Enforceability Of Arbitration Agreement ­ Waiver Plaintiffs argue that even if the arbitration agreement covers their statutory claim and is not unconscionable, Defendants have nonetheless waived their right to arbitrate. waiver, delay, or a like defense to "[A]llegation[s] of arbitrability" are

presumptively for the arbitrator to decide. Moses H Cone, 460 U.S. at 24-25. Notwithstanding this rule, federal courts (not

arbitrators) often decide whether a party's pre-motion to compel conduct amounts to a waiver of the right to arbitrate. See, e.g., Chappel v. Laboratory Corp. of Am., 232 F.3d 719, 724 (9th Cir. 2000). Rule 7 of the AAA commercial arbitration rules does not Rule 7 empowers the arbitrator to decide the A perfectly

address this issue.

"scope" and "validity" of the arbitration agreement.

valid arbitration agreement may cover a particular substantive claim, but the party seeking enforcement of the arbitration Accordingly,

agreement may have waived its right to arbitrate. Rule 7 does not resolve Plaintiffs' waiver argument.

claims (which exceed $2,000,000 according to Plaintiffs). It is not clear that Plaintiffs will incur any additional administrative fees in connection with their statutory claims (which they have refused to arbitrate). Moreover, the administrative fees for "nonmonetary claims" (which would presumably include requests to determine the scope and validity of an arbitration agreement) are significantly less than those projected by Plaintiffs, and there is no evidence that obtaining an arbitral decision on the scope and validity of the arbitration agreement is prohibitively expensive. 18

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To resolve Plaintiffs' waiver argument, the applicable law must be determined. The Dealer Agreement contains a choice of law

provision that states: "Except to the extent governed by federal laws or regulations, the entire relationship of the parties based on this Agreement is governed by the substantive laws of the State of New York, without reference to its choice of law rules." (Woolsey Decl. Ex. B at § 11.1) (emphasis added.) Federal courts in diversity cases look to the law of the forum state in making choice of law determinations. Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005). Courts in

California and New York, however, have recognized that when the FAA applies, whether a party has waiver a right to arbitrate is a matter of federal law not state substantive law. See Aviation Data, Inc. v. Am. Express Travel Related Servs. Co., 152 Cal. App. 4th 1522, 1535 (2007) (recognizing that "it is federal law, not state, that governs the inquiry into whether a party has waived its right to arbitration" and noting that "waiver of the right to compel arbitration is not viewed as a question of substantive contract law"); Singer v. Jefferies & Co., 78 N.Y.2d 76, 84 (1991) (stating that with respect to waiver "it appears that Federal law is controlling"); Danny's Constr. Co. v. Birdair, Inc., 136 F. Supp. 2d 134, 142 (W.D.N.Y. 2000) ("[I]t is federal law, not state, that governs the inquiry into whether a party has waived its right to arbitration.") (citing Graphic Scanning Corp. v. Yampol, 850 F.2d 131, 133 (2nd Cir. 1988)). is applicable. Under federal law, a party seeking to prove waiver of a right to arbitrate must demonstrate "(1) knowledge of an existing right 19 Accordingly, the federal law on waiver

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration

resulting from such inconsistent acts." Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005); United States v. Park Place Assocs., Ltd., 563 F.3d 907, 921 (9th Cir. 2009).9 The "waiver of

the right to arbitrate is disfavored because it is a contractual right, and thus any party arguing waiver of arbitration bears a heavy burden of proof." Park Place Assocs., Ltd., 563 F.3d at 921 (internal quotation marks omitted); see also Thyssen, Inc. v. Calypso Shipping Corp., 310 F.3d 102, 104-05 (2d Cir. 2002)

("[T]here is a strong presumption in favor of arbitration[, and] waiver of the right to arbitration is not to be lightly inferred." (alterations in original) (internal quotation marks omitted); Saint Agnes Med. Ctr., 31 Cal. 4th at 1195 ("[W]aivers" of the right to arbitrate "are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof"). Defendants conceded they knew of the right to arbitrate, establishing the first element. As to the second element,

according to Plaintiffs, Defendants acted inconsistently with the right to arbitrate in multiple respects. First, Defendants pursued mediation of the commission claims and delayed the mediation efforts instead of proceeding with arbitration. Second, Defendants

These factors are also relevant to the waiver issue under California substantive law, New York substantive law, and federal law in the Second Circuit. See Aviation Data, Inc., 152 Cal. App. 4th at 1537 (citing St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1195 (2003)); Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66-67 (2007); Flynn v. Labor Ready, Inc. 775 N.Y.S.2d 357, 493 (N.Y. App. Div. 2004); Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 104-05 (2d Cir. 2002). 20

9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

removed Plaintiffs' state-court complaint and filed an answer with counterclaims instead of promptly moving to compel arbitration of Plaintiffs' claims. 1. Mediation-Related Activity

The argument that Defendants' agreement to mediate is an act inconsistent with their right to arbitrate is unpersuasive. It was Plaintiffs who initially proposed mediation instead of arbitration. On May 15, 2006, through their counsel, Plaintiffs wrote to

Defendants about the dispute over the unpaid commissions and stated that they wanted to mediate the matter: We are hopeful that a meeting of the minds can be reached regarding this matter. However, should Cingular Wireless be unwilling to meet Ms. Madrigal's demand, we believe that mediation within the next sixty (60) days would be advisable to avoid further legal action. Should Cingular be unwilling to submit this matter to mediation please consider this letter as a demand for arbitration pursuant to the contractual agreement between Cingular and Atzek Cellular, Inc. (Swingle Decl. Ex. A.) Because Plaintiffs specifically proposed

mediation in the first place, Plaintiffs cannot fault Defendants for agreeing to mediate instead of pursuing arbitration. See also Walker v. J.C. Bradford & Co., 938 F.2d 575, 578 (5th Cir. 1991) ("Attempts at settlement, however, are not inconsistent with an inclination to arbitrate and do not preclude the exercise of a right to arbitration."); Langfitt v. Jackson, 644 S.E.2d 460, 464 (Ga. Ct. App. 2007) ("Mediation is designed to resolve disputes without litigation, and thus is not inconsistent with the purposes of arbitration."). Plaintiffs also contend that Defendants' delay in getting the mediation on track, or Defendants' stalling of the mediation efforts, was inconsistent with their right to arbitrate.

21

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Shortly after Plaintiffs proposed mediation, on June 2, 2006, Defendants agreed to "non-binding mediation." (Swingle Decl. Ex. B.) At that time, Defendants stated that they would contact "regarding (Id.) the On details 12, and 2006, coordination Plaintiffs of sent the a

Plaintiffs mediation."

June

correspondence to Defendants indicating that they (Plaintiffs) had not heard back from Defendants. (Swingle Decl. Ex. C.) Plaintiffs

stated that although the parties "are agreeable to mediating this matter," this does not "invalidate our previous demand for binding arbitration." (Id.) Plaintiffs proposed a specific mediator and

stated that they looked forward "to your prompt response." (Id.) According to Plaintiffs, as late as September 2006, they were still trying to get a commitment from Defendants about a date for mediation. (Swingle Decl. ¶ 6.) Plaintiffs contacted the office of the proposed mediator and obtained dates of his availability. (Swingle Decl. Ex. D.) On September 13, 2006, Plaintiffs sent

Defendants a correspondence listing three days in October 2006 the mediator had available. (Id.) On September 26, 2006, Defendants

wrote back that they were unavailable on those dates and requested to be advised of dates in November and December when Plaintiffs and the mediator would be available. (Swingle Decl. Ex. E.)

Subsequently, on October 5, 2006, Defendants proposed December 4 and December 18, 2006, as dates for the mediation. (Swingle Decl. Ex. F.) Plaintiffs wrote back on October 9, 2006, to confirm that

the mediation would go forward on December 4. (Swingle Decl. Ex. G.) Defendants, however, later requested that the mediation take

place on December 22 and Plaintiffs agreed. (Swingle Decl. ¶ 8, Ex. H.) Ultimately, after further correspondence between the parties, 22

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

the mediation never occurred. (Swingle Decl. Ex. J.) One weakness in Plaintiffs' delay argument ­ that Defendants' delay in proceeding with mediation is inconsistent with their right to arbitrate ­ is that only the commission claims were a part of the mediation efforts. The statutory claims were not a part of the

mediation efforts ­ they were asserted in the original state-court complaint filed November 18, 2008, and again in the FAC filed March 5, 2009. The commission claims, which are not asserted in the

original complaint or the FAC, are not a part of this lawsuit and Defendants' motion to compel does not cover them. Whatever delay

in mediation is attributable to Defendants, it is not necessarily inconsistent with their right to arbitrate the statutory claims which were asserted by Plaintiffs well after efforts to mediate the commission claims failed. Assuming, arguendo, that Defendants' delay in mediation of the commission claims is inconsistent with their right to arbitrate the statutory claims (or any others), Plaintiffs have not demonstrated prejudice from this delay. Plaintiffs contend that they suffered

prejudice from Defendants delay in mediation because it ultimately caused their claims to be barred by the contractual limitations period in the arbitration agreement. Plaintiffs point to an e-mail correspondence from Defendants dated December 11, 2006, days before the scheduled mediation. (Swingle Decl. Ex. H.) In this e-mail, Defendants took the

position that "all" of Plaintiffs claims were time-barred: It appears that Atzek contends Cingular owes it over $2M in commissions for customers that Atzek subscribed to Cingular's service as far back as 2004. Bradley's letter 23

1 2 3 4 5 6 7 8 9 10

[on May 15, 2006] also contains an arbitration demand. Attached is a copy of the Atzek Dealer Agreement. It is Cingular's contention that under Section 10.2.2. Limitations of Actions, all of Atzek's claims are time barred as this section requires Atzek to initiate arbitration by demanding the same in writing `not later than 180 days after the act or omission giving rise to the claim or dispute occurred.' If Atzek fails to do so, its claims are time barred. For your convenience, I quote below Section 10.2.2. in its entirety. Arbitrators in similar disputes between Cingular and its dealers have upheld and enforced Section 10.2.2. Bradley's May 15, 2006, letter is the only written arbitration demand that Atzek has served on Cingular. Accordingly, if this matter is submitted to arbitration, I believe Atzek's claims would be time barred and the arbitrator would find for Cingular. (Id.) Section 10.2.2 of the Dealer Agreement provides:

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 Notwithstanding Defendants' argument in their December 11 e-mail that all of Plaintiffs' claims were time-barred by section 10.2.2., in hopes of "resolving this matter before the scheduled mediation," Defendants requested information from Plaintiffs including the date the claimed compensation was earned, the amount of the claimed compensation, and the nature of the claimed compensation. (Swingle Decl. Ex. H.) On December 12, 2006, Plaintiffs responded. (Swingle Decl. Ex. I.) mediation and Plaintiffs stated that they wanted to proceed with would provide Defendants, in advance of the All claims and disputes covered by this section 10 must be submitted to arbitration by initiating the arbitration not later than 180 days after the act or omission giving rise to the claim or dispute occurred . . . The failure to initiate arbitration within the period constitutes an absolute bar to the institution of any proceedings based on such act or omission. The aggrieved party must initiate arbitration under this section 10 by sending written notice of an intention to arbitrate to all parties. The notice must contain a description of the dispute, the amount involved, and the remedy sought.

mediation, with documentation and their "forensic accountant's

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

report" substantiating their commission claims. (Id.)

Later that

day, Defendants wrote back asking to reschedule the mediation for some time in the next four weeks to provide adequate time to review Plaintiffs' forensic accountant report and supporting

documentation. (Swingle Decl. Ex. J.) schedule and there is no indication

The mediation was taken off in the submissions that

Plaintiffs ever provided the forensic accountant's report and documentation to Defendants. occurred. Plaintiffs' prejudice argument is premised on the theory that Defendants' delay in mediation pushed their claims beyond the 180day limit in section 10.2.2, i.e., that Defendants' caused Ultimately, the mediation never

Plaintiffs' non-compliance with the 180-day time limit in section 10.2.2. This contention is erroneous.

As of (and prior to) May 15, 2006, Plaintiffs were represented by counsel and on May 15, 2006, Plaintiffs had the ability to initiate arbitration of their statutory claims in accordance with the arbitration agreement. Nothing Defendants did prevented

Plaintiffs from complying with section 10.2.2. As of May 15, 2006, when Plaintiffs' wrote Defendants that they wanted to mediate the commission claims instead of arbitrating them, Plaintiffs could have initiated arbitration of the statutory claims. That

Plaintiffs failed to do so is not Defendants' fault. All of the statutory claims in the FAC (like the original complaint) are based on the alleged wrongful termination of the Dealer of the Agreement (see Doc. 13 at 6, 8-11), claimed to be unlawful under different statutes. The Dealer Agreement terminated 25

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

effective April 1, 2006. (Doc. 13 at 8; Doc. 16 at 10.)

On

December 24, 2005, Defendants notified Plaintiffs that the Dealer Agreement would be terminated. (Doc. 13 at 4; Doc. 16 at 10.) Whether the date the Dealer Agreement was terminated (April 1, 2006) or the date of notification (December 24, 2005) is considered the date of the "act or omission" giving rise to the statutory claims, when Plaintiffs' on May counsel 15, of proposed 180 mediation had not of the

commission following

claims the

2006, the

days

passed or the

termination

Dealer

Agreement

notification of termination.

At that time and for some time

thereafter, Plaintiffs could have raised and initiated arbitration of their statutory claims. Any delay in Defendants' mediation

efforts did not affect Plaintiffs' ability and unilateral right to commence arbitration of their statutory claims. Nor did delay in

mediation impinge in any way Plaintiffs' ability to initiate arbitration of the commission claims.10 Plaintiffs were not

prejudiced by Defendants' delay in mediation ­ Defendants conduct did not cause any of Plaintiffs' claims to fall outside the 180-day limit.11

To the extent Plaintiffs' commission claims were based on 2004 commissions owed, these claims fell outside the 180-day limit before the parties agreed to pursue mediation. Plaintiffs' prejudice argument ­ that the delay in mediation caused their claims to fall outside the 180-day limit in section 10.2.2 ­ is also premised on the theory that their correspondence on May 15, 2006, in which they requested arbitration as an alternative to mediation, failed to satisfy the requirements of section 10.2.2. If their May 15, 2006, correspondence satisfied the requirements of section 10.2.2., then their argument that Defendants caused their non-compliance with section 10.2.2. and its 26
11

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Plaintiffs

suggest

that

they

did

not

pursue

arbitration

because they were "lull[ed]" into mediation. (Doc. 20 at 15.) However, Plaintiffs, who proposed mediation themselves and who were represented by counsel, were well aware that mediation is not always successful. The parties were not required to reach a

settlement, and no enforceable promises or representations were made that a settlement would be reached in mediation. agreed to "non-binding" mediation. Defendants

No conduct by Defendants

prevented Plaintiffs from complying with section 10.2.2 to preserve their claims if the mediation failed. As to other forms of potential prejudice, Plaintiffs do not contend, and there is no evidence, that through agreeing to mediate and delaying the process, Defendants were able to gain documents or information that they would not have been otherwise able to obtain in arbitration. Cf. Saint Agnes Med. Ctr., 31 Cal. 4th at 1204 ("[C]ourts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side's case that could not have been gained in

arbitration.").

There is no evidence that by agreeing to mediate

180-day limit would be erroneous. Whether and to what extent this correspondence (or any other) was sufficient to initiate arbitration of the commission claims, or of both the commission claims and the statutory claims, need not be determined at this time. These are matters that can be addressed by the arbitrator. See Howsam, 537 U.S. at 85 (quoting comments to the Revised Uniform Arbitration Act of 2000 which state that "issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide"). 27

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

and delaying mediation, Defendants caused Plaintiffs to incur excessive fees. Id. at 1203 (stating that "[b]ecause merely

participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses"); Thyssen, Inc., 310 F.3d at 105 (finding no waiver of arbitration where the party claiming waiver "did not face excessive costs."). Defendants' agreement to mediate and their delay in getting the mediation on track was not inconsistent with their right to arbitrate Plaintiffs' statutory claims, which were asserted only after the mediation efforts failed, and Plaintiffs did not suffer the requisite prejudice. Defendants did not prevent Plaintiff from complying with section 10.2.2., did not gain documents or

information from the failed mediation attempt that they would not have been able to obtain in arbitration, and did not cause

Plaintiffs to incur excessive fees in the process.

Defendants'

agreement to mediate and their delay in mediating is not a waiver of their right to arbitrate. by the fact that well This conclusion is further supported the mediation efforts failed,

after

Plaintiffs specifically requested that Defendants arbitrate the commission claims, acknowledging the continuing vitality of the arbitration agreement. (Corwell Decl. Ex. A.) 2. Lawsuit-related activity

Plaintiffs argue that Defendants acted inconsistently with their right to arbitrate an by removing and Plaintiffs state-court instead of

complaint

and

filing

answer 28

counterclaims

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

promptly moving to compel arbitration. Plaintiffs' argument is not persuasive. At no point prior to Plaintiffs' filing their state-court complaint did Plaintiffs ever demand arbitration of their statutory claims. The statutory claims were raised in Plaintiffs' state-

court complaint. Defendants' exercise of their right to remove the state-court action to federal court and filing an answer with counterclaims (without litigating them) is not sufficiently

inconsistent with their right to arbitrate. See Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 562 (7th Cir. 2008) (concluding that removal does not constitute a waiver); PPG Indus., Inc. v. Webster Auto Parts Inc., 128 F.3d 103, 107 (2d Cir. 1997) (concluding that "a party waives its right to arbitration when it engages in protracted litigation that prejudices the opposing party") (emphasis added); Great W. Mortgage Corp. v. Peacock, 110 F.3d 222, 233 (3d Cir. 1997) ("Indeed, a party waives the right to compel arbitration only in the following circumstances: when the parties have engaged in a lengthy course of litigation, when extensive discovery has occurred, and when prejudice to the party resisting arbitration can be shown." (emphasis added)); Creative Telecomms., Inc v. Breeden, 120 F. Supp. 2d 1225, 1232 (D. Haw. 1999) ("Courts have found that the filing of a complaint, an answer, a counterclaim or a third-party complaint does not waive the right to pursue arbitration."); Saint Agnes Med. Ctr., 31 Cal. 4th at 1203 ("[M]erely participating in litigation, by itself, does not result in a waiver" of arbitration). A party can move to In their

compel arbitration in both state and federal court. 29

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

answer Defendants specifically asserted that Plaintiffs were in violation of the arbitration clause (Doc. 13 at 7), and Defendants filed a motion to compel arbitration. Invoking federal

jurisdiction, asserting the arbitrability of the dispute in an answer, and pleading (without litigating) counterclaims does not constitute a waiver.12 Even assuming, arguendo, that Defendants' removal, answer and counterclaims are facially inconsistent with their right to

arbitrate, Plaintiffs have suffered no prejudice. The statutory claims Plaintiffs assert were raised in their state-court complaint filed November 18, 2008. Defendants' timely

removed the action in January 2009 after being served with the complaint. Defendants filed their responsive pleading shortly

thereafter (January 12, 2009) asserting that Plaintiffs violated the mandatory arbitration provision. In February 2009, Defendants' counsel wrote to Plaintiffs' counsel to demand arbitration;

Plaintiffs refused.

Defendants filed their motion to compel

arbitration in April 2009, less than four months after removing this action to federal court, less than six months after the statecourt action was filed, and just over two months after their formal demand for arbitration. Plaintiffs have not shown sufficient prejudice arising from Defendants' removal and filing of a responsive pleading, or

Defendants do not seek to avoid arbitration of their counterclaims. Through their motion, they seek an order compelling "arbitration of all claims and counterclaims asserted in this action." (Doc. 17 at 1.) 30

12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Defendants' "delay" in moving to compel arbitration. does not reflect that Defendants have

The record their

litigated

counterclaims, engaged in significant discovery (or any discovery), or caused Plaintiffs to incur excessive fees due to any "delay" in seeking to compel arbitration. See Brown, 430 F.3d at 1012

("Unsurprisingly, courts are reluctant to find prejudice to the plaintiff who has chosen to litigate, simply because the defendant litigated requesting briefly (e.g., by filing a motion to dismiss to or

limited

discovery)

before

moving

compel

arbitration."); Thyssen, Inc., 310 F.3d at 105 (finding no waiver of arbitration where the party claiming waiver "did not face excessive costs," and further noting that even "[t]hough there was a significant length of time between the filing of the complaint and the assertion of [defendant's] right to arbitrate, there was no evidence of extensive discovery or substantive motions by

[defendant]".); Lake Commc'ns, Inc. v. ICC Corp., 738 F.2d 1473, 1477 (9th Cir. 1984) (finding no prejudice where "only limited discovery has occurred," including one deposition)13; Saint Agnes, 31 Cal. 4th at 1203-04. Plaintiffs have not met their burden to establish waiver. Plaintiffs have not shown that Defendants' conduct in removing Plaintiffs' action and filing an answer with counterclaims, instead of moving immediately to compel arbitration of Plaintiffs' claims,

ICC Corp was later overruled on other grounds by Mitsubishi Motors, 473 U.S. at 632-35. 31

13

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

constitutes

a

waiver.14

These

acts

were

not

sufficiently

inconsistent with Defendants' right to arbitrate and even if they were, Plaintiffs have not shown the requisite prejudice.

Defendants did not waive their right to arbitrate. D. Plaintiffs' Request For Jury Trial Plaintiffs have filed a one-paragraph demand for jury trial (Doc. 21.) Plaintiffs argue that the FAA "provides that a party alleged to be in default of arbitration agreement may demand a jury trial of the issue. 9 U.S.C. § 4." (Id.) Plaintiffs note that in

the answer to the FAC, Defendants have alleged that Plaintiffs are in violation of the contractual arbitration agreement. When a party brings a motion to compel arbitration under section 4 of the FAA, The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the Plaintiffs also contend that Defendants, in asserting their counterclaims, failed to comply with section 10.2.2. Plaintiffs assert that the counterclaims are "substantially" barred by the 180-day limitations period in section 10.2.2, and that Defendants' failed to give them notice of an intent to arbitrate the counterclaims as required by section 10.2.2. Even assuming this is true, and assuming that Defendants' assertion of counterclaims is sufficiently inconsistent with Defendants' right to arbitrate, again Plaintiffs have not shown they have been sufficiently prejudiced by Defendants' conduct. Moreover, Plaintiffs can argue to the arbitrator that Defendants have failed to comply with section 10.2.2. and that this bars their counterclaims. See Howsam, 537 U.S. at 85 (quoting comments to the Revised Uniform Arbitration Act of 2000 which state that "issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide"). 32
14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

terms of the agreement. . . . If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. 9 U.S.C. § 4 (emphasis added). Plaintiffs' demand for jury trial

rests on the flawed premise that their "failure, neglect, or refusal" to comply with the arbitration agreement is "in issue." Defendants have demanded and Plaintiffs have resisted

arbitration of their statutory claims, arguing, among other things, that the arbitration agreement does not encompass their statutory claims and it is invalid on unconscionability grounds. The parties agreed, however, to have their disputes over the scope and validity of the arbitration agreement decided by an arbitrator, and this has not yet occurred. The FAA "authorizes a federal district court to

issue an order compelling arbitration if there has been a failure, neglect, or refusal to comply with the arbitration agreement." Shearson/Am. Express, Inc., 482 U.S. at 226. It is apparent that

Plaintiffs have not complied with the arbitration agreement ­ there is no need for a jury to make this determination. Their "failure,

neglect, or refusal to comply" is not "in issue," i.e., there is no triable issue of fact that Plaintiffs have not complied and will not comply unless ordered to do so. Plaintiffs' request for a jury 33

1 2

trial is DENIED. V. CONCLUSION Upon granting a motion to compel arbitration a court must

3 issue an "order directing the parties to proceed to arbitration in 4 accordance with the terms of the [arbitration] agreement." 9 U.S.C. 5 § 4. 6 arbitration is GRANTED. 7 Plaintiffs and Defendants shall proceed to arbitration in 8 accordance with the terms of their arbitration agreement and 9 arbitrate their dispute over: (1) whether the claims in this 10 lawsuit, or any of them, fall within the scope of the arbitration 11 agreement, and (2) whether the arbitration agreement is valid; and 12 if so, the parties shall arbitrate all such claims. 13 Although Defendants' motion seeks a broader order compelling 14 the parties to proceed to arbitration of Plaintiffs' statutory 15 claims and Defendants' counterclaims, the arbitrator must fist 16 determine the scope and validity of the arbitration agreement. 17 18 19 20 21 22 23 24 25 26 27 28 34 IT IS SO ORDERED. Dated: 9i274f August 17, 2009 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE For the foregoing reasons, Defendants' motion to compel