In Re Pacific Fertility Center Litigation

Filing 250

ORDER by Magistrate Judge Jacqueline Scott Corley denying 204 Motion to Stay. (ahm, COURT STAFF) (Filed on 6/27/2019)

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1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 IN RE PACIFIC FERTILITY CENTER 9 LITIGATION 10 United States District Court Northern District of California 11 Case No.18-cv-01586-JSC ORDER DENYING DEFENDANTS’ MOTIONS FOR A STAY PENDING APPEAL Re: Dkt. Nos. 203, 208 12 13 Plaintiffs filed this putative class action against Pacific Fertility Center (“Pacific 14 15 Fertility”), Prelude Fertility, Inc. (“Prelude”), and Chart Industries (“Chart”) alleging various state 16 law claims.1 Pacific Fertility responded by moving to compel arbitration based on the Plaintiffs’ 17 fertility services agreement with Pacific Fertility. Prelude, Pacific Fertility MSO, and Chart filed 18 separate joinders likewise moving to compel arbitration. After two rounds of briefing, the Court 19 granted Pacific Fertility’s motion to compel arbitration, but denied Prelude, Pacific Fertility MSO, 20 and Chart’s motions to compel arbitration, and denied the accompanying requests to stay 21 proceedings pending arbitration. (Dkt. No. 192.) Prelude, Pacific Fertility MSO, and Chart have 22 since appealed the denial of their motions to compel arbitration and now move for a stay pending 23 appeal. (Dkt. Nos. 203 & 208.) Having considered the parties’ briefs and having had the benefit 24 of oral argument on June 20, 2019, the Court DENIES the motions to stay. Defendants have 25 failed to demonstrate that their appeals raise serious legal issues or that they face probable 26 irreparable injury absent a stay. 27 28 Plaintiffs’ First Amended Complaint added Pacific Fertility MSO, LLC, a Prelude subsidiary, as a defendant. (Dkt. No. 143.) 1 BACKGROUND 1 2 Pacific Fertility markets and sells egg and embryo cryopreservation services. (Dkt. No. 196, 3 First Amended Consolidated Amended Class Action Complaint (“FAC”) at ¶ 1.2) Cryopreservation 4 involves preservation of tissue using cooling techniques. (Id. at ¶ 1.) Plaintiffs engaged Pacific 5 Fertility’s services to cryopreserve their eggs and embryos between 2010 and 2016, and in doing so, 6 signed Informed Consent Agreements containing arbitration clauses. (Id. at ¶ 4.) In 2017, 7 unbeknownst to Plaintiffs, Prelude took over operation of Pacific Fertility’s egg and embryo storage 8 facilities through its operating subsidiary Pacific MSO. (Id. at ¶ 5.) Prelude operates a national 9 network of egg and embryo long-term freezer storage facilities. (Id.) On March 4, 2018, Prelude “discovered that the liquid nitrogen levels in a tank known as ‘Tank 4’ had dropped to an unsafe level 11 United States District Court Northern District of California 10 for an undetermined period of time, destroying or jeopardizing the eggs and embryos stored in the 12 tank, including those belonging to Plaintiffs.” (Id. at ¶ 6.) The at-issue tank was manufactured by 13 Chart. (Id. at ¶ 8.) On March 11, 2018, Plaintiffs were notified via email of “‘a very unfortunate incident’ in 14 15 which the storage tank containing Plaintiffs’ cryopreserved eggs and embryos ‘lost liquid nitrogen 16 for a brief period of time,’ [and] that a ‘preliminary analysis’ suggested some of the eggs and 17 embryos in the tank may have been destroyed.” (Id. at ¶ 7.) Following receipt of this email, 18 Plaintiffs filed this putative class action, which was later consolidated with two other actions 19 pending in the Northern District of California: Bauer, et al. v. Pacific Fertility Center, et al., No. 3:18- 20 cv-01634 (N.D. Cal. filed Mar. 15, 2018) and A.B., et al. v. Pacific Fertility Center, et al., No. 3:18- 21 cv-02298 (N.D. Cal. Filed April 17, 2018). (Dkt. No. 17.) These actions are now known as the In re: 22 Pacific Fertility Litigation. 23 Shortly after the actions were consolidated, Pacific Fertility filed a motion to compel 24 arbitration in which Prelude and Chart filed separate joinders. (Dkt. Nos. 52, 56, 67.) The motions to 25 compel arbitration first came before the Court for a hearing on November 9, 2018. At that hearing, 26 Plaintiffs requested leave to amend their complaint to reflect information learned through discovery. 27 28 Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of the documents. 2 2 1 The Court granted Plaintiffs’ request and ordered the parties to file supplemental briefing related to the 2 motion to compel arbitration. (Dkt. No. 133.) Plaintiff’s FAC added Pacific MSO, Prelude’s 3 subsidiary, as a defendant and pleads the following 11 claims for relief: (1) negligence and/or gross 4 negligence as to Prelude and Pacific MSO; (2) negligent failure to recall as to Chart; (3) bailment as to 5 Prelude and Pacific MSO; (4) premise liability as to Prelude and Pacific MSO; (5) violation of 6 California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq. as to all 7 Defendants; (6) violation of California’s Consumer Legal Remedies Act (CLRA), Cal. Civ. Code § 8 1750 et seq. as to Pacific Fertility, Prelude, and Pacific MSO; (7) fraudulent concealment as to Pacific 9 Fertility, Prelude, and Pacific MSO; (8) strict products liability-failure to warn as to Chart; (9) strict products liability-manufacturing defect as to Chart; (10) strict products liability-design defect- 11 United States District Court Northern District of California 10 consumer expectations test as to Chart; and (11) strict products liability-design defect-risk utility test 12 as to Chart. (Dkt. No. 196.) The Court thereafter granted multiple extensions of the briefing schedule 13 and ultimately, the motions to compel arbitration came before the Court for a second hearing on March 14 12, 2019. (Dkt. Nos. 149, 162, 178.) 15 On March 25, 2019, the Court issued its Order granting Pacific Fertility’s motion to compel 16 arbitration, but denying Prelude, Pacific Fertility MSO, and Chart’s joinders, as well as their 17 motions to stay proceedings pending arbitration of the claims against Pacific Fertility. (Dkt. No. 18 192.) A month later, Prelude, Pacific Fertility MSO, and Chart filed notices of appeal and the 19 underlying motions to stay pending appeal. (Dkt. Nos. 201, 202, 204, 208.) The following day, 20 the parties appeared for a Further Case Management Conference where the Court set a briefing 21 schedule on the motion to stay, and a schedule for the rest of the action with a deadline of January 22 16, 2020 for hearing Plaintiffs’ class certification motion and a trial date of September 8, 2020. 23 (Dkt. No. 206.) The Court also lifted the stay of discovery and is presently actively engaged in 24 overseeing discovery. 25 26 LEGAL STANDARD A district court’s order denying a motion to compel arbitration does not automatically 27 result in a mandatory stay of proceedings pending appeal of that order. See Britton v. Co-op 28 Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). A stay pending appeal is a matter of 3 1 judicial discretion, not of right. Lair v. Bullock, 697 F.3d 1200, 1203 (9th Cir. 2012) (citing Nken 2 v. Holder, 556 U.S. 418, 433 (2009)). “The party requesting a stay bears the burden of showing 3 that the circumstances justify an exercise of [the Court’s] discretion.” Nken, 556 U.S. at 433. 4 In deciding whether to exercise that discretion, courts consider the following factors: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. 5 6 7 8 9 Id. (citation omitted). In weighing these factors, courts apply a “sliding scale,” whereby the elements of the test are balanced “so that a stronger showing of one element may offset a weaker showing of another.” Leiva–Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011). In particular, a 10 moving party who under the first factor cannot satisfy a strong likelihood of success, must at United States District Court Northern District of California 11 12 13 minimum show that its appeal presents “a substantial case on the merits.” Id. at 966. Courts alternatively articulate this lesser threshold as whether “serious legal issues” are raised. See Abbassi v. INS, 143 F.3d 513, 514 (9th Cir. 1998). “[A] party satisfying this lower threshold 14 under the first Nken factor must [also] demonstrate that the balance of hardships under the second 15 and third factors tilts sharply in its favor.” Jimenez v. Menzies Aviation Inc, No. 15-CV-02392- 16 WHO, 2015 WL 5591722, at *2 (N.D. Cal. Sept. 23, 2015) (internal citation and quotation marks 17 omitted). 18 DISCUSSION 19 Prelude and Chart advance similar arguments in favor of a stay.3 Both insist that their 20 appeals raise serious legal issues and that they would face irreparable harm if proceedings were to 21 continue in this Court while their appeals are heard. 22 A. Serious Legal Issues/ Substantial Case on the Merits 23 24 25 The first Nken factor requires the moving party to demonstrate either a “likelihood of success on the merits” or “a substantial case on the merits” or that “serious legal questions are raised.” Leiva-Perez, 640 F.3d at 968. Defendants here do not argue a likelihood of success on 26 27 28 3 For the remainder of this order, Prelude and its subsidiary Pacific Fertility MSO are referred to collectively as Prelude and Defendants refers to Prelude, Pacific Fertility MSO, and Chart collectively. 4 1 the merits and instead focus on whether their appeals present a substantial case on the merits or 2 raise serious legal issues. The Ninth Circuit has not clearly defined these phrases. Courts, 3 however, have found that the following constitute serious legal issues: issues of first impression 4 within the Ninth Circuit, see Britton, 916 F.2d at 1412, questions of constitutionality, see Guifu Li 5 v. A Perfect Franchise, Inc., No. 5:10-CV-01189-LHK, 2011 WL 2293221, at *3 (N.D. Cal. June 6 8, 2011), splits in authority on important legal issues, see Pokorny v. Quixtar, Inc., No. 07–00201 7 SC, 2008 WL 1787111 at *2 (N.D. Cal. Apr.17, 2008), and open questions as to whether a 8 California Supreme Court case was preempted by the Federal Arbitration Act, see Blair v. Rent-A- 9 Ctr., Inc., No. C 17-02335 WHA, 2018 WL 2234049, at *2 (N.D. Cal. May 16, 2018). See also Stiner v. Brookdale Senior Living, Inc., No. 17-CV-03962-HSG, – F.Supp.3d – 2019 WL 11 United States District Court Northern District of California 10 2372324, at *3 (N.D. Cal. June 5, 2019) (finding that a substantial question is one which “raise[s] 12 genuine matters of first impression with the Ninth Circuit, implicate[s] a constitutional question, 13 or otherwise address[es] a pressing legal issue.”). 14 Neither Prelude nor Chart argue that their appeals present an issue of first impression, a 15 constitutional question, or seek to resolve a split of authority. Instead, they both dispute the 16 Court’s application of well-settled California and Ninth Circuit law to the facts of this case. In 17 particular, both Prelude and Chart insist that the Court erred in finding that they were not entitled 18 to enforce the arbitration agreements Plaintiff signed with Pacific Fertility under a theory of 19 equitable estoppel. However, as the Court discussed at length in its order, equitable estoppel is 20 “narrowly confined” in the arbitration context. See Murphy v. DirecTV, Inc., 724 F.3d 1218, 1229 21 (9th Cir. 2013) (“Because generally only signatories to an arbitration agreement are obligated to 22 submit to binding arbitration, equitable estoppel of third parties in this context is narrowly 23 confined.”). Neither of the circumstances set forth in Goldman v. KPMG LLP, 173 Cal. App. 4th 24 209, 219, 221 (2009), are satisfied here because Plaintiffs’ claims against Prelude and Chart are 25 not “founded in,” “intertwined with,” or “intimately connected to” the agreements they signed 26 with Pacific Fertility which contain the arbitration agreements. Prelude also renews its argument 27 that it is entitled to enforce the arbitration agreements as a third-party beneficiary based on its 28 status as an assignee or as “designated staff.” The Court considered, and rejected, this argument in 5 1 denying Prelude’s motion to compel arbitration.4 Finally, Chart insists that the Court’s denial of a 2 stay of proceedings pending arbitration of the Pacific Fertility claims presents a serious legal issue 3 reiterating the same arguments previously advanced. Defendants’ rehash of arguments the Court previously considered and rejected at length 4 5 fails to raise a serious legal question; otherwise, every time a party disagreed with a court’s ruling, 6 a serious question would exist. See Jimenez, 2015 WL 5591722, at *2 (“rais[ing] similar 7 arguments to those made in its motion to compel arbitration” rather than any substantively new 8 arguments fails to raise a serious legal issue for purposes of a stay pending appeal). Guifu, 2011 9 WL 2293221, at *4 (finding that defendant failed to raise a serious legal question where its argument was not that the court applied the wrong test, but rather that the court misapplied the test 11 United States District Court Northern District of California 10 that all the parties agreed was the proper test). Accordingly, neither Prelude nor Chart have shown that their appeals raise a substantial 12 13 case on the merits or a serious legal issue. The first Nken factor thus weighs against a stay. 14 B. Irreparable Harm and Balance of Hardships 15 The moving party’s “burden with regard to irreparable harm is higher than it is on the 16 likelihood of success prong, as she must show that an irreparable injury is the more probable or 17 likely outcome.” Leiva-Perez, 640 F.3d at 968. As the Supreme Court has explained, the “key 18 word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, 19 time and energy necessarily expended in the absence of a stay, are not enough.” Sampson v. 20 Murray, 415 U.S. 61, 90 (1974). 21 Here, Prelude and Chart insist that they will be irreparably harmed if proceedings continue 22 while their appeals are heard. Prelude argues that if a stay is denied “they will irrevocably lose the 23 chance to reap the advantages of arbitration” (Dkt. No. 203 at 20:19-20) and Chart insists that the 24 potential advantages of arbitration will be lost should litigation continue pending appeal (Dkt. No. 25 208 at 13:10-11). In making this argument, they rely on cases in which the appealing party had an 26 arbitration agreement which the trial court had refused to enforce notwithstanding the presumption 27 28 4 Prelude has abandoned its third theory for third-party beneficiary status—that it was a successorin-interest. 6 in favor of arbitration. These circumstances are not present here; rather, the Court rejected 2 Defendants’ attempt to take advantage of an arbitration agreement to which they are not parties. 3 There is no presumption in favor of arbitration in this context. See Rajagopalan v. Noteworld, 4 LLC, 718 F.3d 844, 847 (9th Cir. 2013) (explaining that the liberal federal policy regarding scope 5 of arbitration does not apply to the question “whether a particular party is bound by the arbitration 6 agreement”). Further, the burden to establish that arbitration is proper under such circumstances 7 is firmly on the non-signatory—Defendants; Plaintiffs do not bear the burden to show that 8 arbitration is not required. See In re Carrier IQ, Inc. Consumer Privacy Litig., No. C-12-MD- 9 2330 EMC, 2014 WL 1338474, at *4 (N.D. Cal. Mar. 28, 2014) (“Defendants have the burden of 10 establishing equitable estoppel.”); Crestline Mobile Homes Mfg. Co. v. Pac. Fin. Corp., 54 Cal.2d 11 United States District Court Northern District of California 1 773, 778 (1960) (stating that under California law the party relying on equitable estoppel has the 12 burden to show it applies); Jones v. Jacobson, 195 Cal. App. 4th 1, 15 (2011), as modified (June 1, 13 2011) (“[W]hen a nonsignatory seeks to enforce an arbitration agreement/provision against a 14 signatory . . . the nonsignatory bears the burden to establish he or she is a party to the arbitration 15 agreement/provision covering the dispute.” (emphasis removed)). The cases Defendants rely on are thus inapposite. In Wuest v. Comcast Cable Commc'ns 16 17 Mgmt., LLC, No. 17-CV-04063-JSW, 2017 WL 5569819, at *1 (N.D. Cal. Nov. 20, 2017), the 18 court granted a stay after denying the defendant’s motion to compel arbitration pursuant to its own 19 arbitration agreement. The court’s reasoning that there was irreparable harm where “a party is 20 denied the opportunity to arbitrate and is required to incur the expense and delay of trial before 21 being able to appeal, ‘the advantages of arbitration—speed and economy—are lost forever’” does 22 not apply here where neither Prelude nor Chart are parties to the arbitration agreement. See 23 Wuest, 2017 WL 5569819, at *1 (citing Alascom, Inc. v. ITT North Elec. Co., 727 F.2d 1419, 1422 24 (9th Cir. 1984); see also Zaborowski v. MHN Gov’t Servs., Inc., No. C 12-05109 SI, 2013 WL 25 1832638, at *2 (N.D. Cal. May 1, 2013) (granting a stay pending appeal of the court’s order 26 denying defendants’ motion to compel arbitration under its own arbitration agreement).5 Prelude 27 28 5 Further, Alascom, on which both Wuest and Zaborowski relied, dealt with whether an order staying arbitration may be appealed and not a request to stay proceedings pending appeal. 7 1 and Chart cannot argue that they are not getting the benefit of the bargained for exchange—there 2 was no bargain, no exchange. Indeed, Prelude had no relationship with Pacific Fertility at the time 3 Plaintiffs entered into the arbitration agreements with Pacific Fertility. 4 Further, in Britton, the Ninth Circuit rejected the notion of an automatic stay pending 5 appeal of the denial of a motion to compel arbitration. See Britton v. Co-op Banking Grp., 916 6 F.2d 1405, 1412 (9th Cir. 1990) (rejecting the suggestion that an appeal regarding arbitrability 7 could always put a case on hold because it “would allow a defendant to stall a trial simply by 8 bringing a frivolous motion to compel arbitration.”); see also Monsanto v. DWW Partners, LLP, 9 No. CV–09–01788–PHX–FJM, 2010 WL 1904274, at *1 (D. Ariz. May 10, 2010) (“Britton does not hold that the general standard for a stay pending appeal is inapplicable in the context of 11 United States District Court Northern District of California 10 arbitration” and applying the four-factor test set forth in Hilton and Nken). 12 Defendants must show some particular harm to them if a stay is not granted. In 13 considering the irreparable harm factor in the context of a motion for a stay of removal in an 14 immigration case, the Ninth Circuit in Leiva-Perez held that the “noncitizen must show that there 15 is a reason specific to his or her case, as opposed to a reason that would apply equally well to all 16 aliens and all cases, that removal would inflict irreparable harm.” Id. at 640 F.3d at 969 (emphasis 17 added). So too here. Defendants cannot just rely on the costs of litigation and expenditure of 18 resources—these exist in every interlocutory appeal. See Mohamed v. Uber Techs., et al, 115 F. 19 Supp. 3d 1024, 1032–33 (N.D. Cal. 2015) (noting that “nearly all courts have concluded that 20 incurring litigation expenses does not amount to an irreparable harm” and collecting cases re: 21 same). Further, the discovery underway now will be necessary for arbitration as well and are thus 22 not lost expenditures regardless of what happens on appeal. 23 In contrast, Plaintiffs face real harm absent a stay. Unlike Defendants, the harm to 24 Plaintiffs is not economic—it is time and information. Information regarding the viability of their 25 eggs and embryos and a finite period of time in which they can make reproductive related 26 27 28 Alascom, 727 F.2d at 1422 (holding that an order staying arbitration is appealable, because otherwise “one party is deprived of the inexpensive and expeditious means by which the parties had agreed to resolve their disputes.”). 8 1 decisions based on that information. Defendants hold that information and a delay of proceedings 2 here while the Ninth Circuit considers their appeals will harm Plaintiffs’ ability to make these 3 decisions. 4 Defendants have thus failed to show that “irreparable injury is the more probable or likely 5 outcome” if proceedings are not stayed pending appeal and the balance of hardships tips sharply in 6 Plaintiffs’ favor. See Leiva-Perez v. Holder, 640 F.3d 962, 968 (9th Cir. 2011). The second and 7 third Nken factors therefore weigh against as stay as well. C. The Public Interest 9 The first two factors in the traditional stay test are the most important. Indeed, a court 10 need not consider the remaining factors unless it concludes that the moving party has made an 11 United States District Court Northern District of California 8 adequate showing on the first two. See Nken, 556 U.S. at 435 (“Once an applicant satisfies the first 12 two factors, the traditional stay inquiry calls for assessing the harm to the opposing party and 13 weighing the public interest.”); Mount Graham Coalition v. Thomas, 89 F.3d 554, 558 (9th Cir. 14 1996) (declining to continue analysis where moving party failed to satisfy first factor’s threshold 15 requirement). Because neither Prelude nor Chart have met the first three Nken factors, the Court 16 need not go on to consider the public interest. CONCLUSION 17 18 19 20 21 For the reasons stated above, Defendants’ motions for stay pending appeal are DENIED. (Dkt. Nos. 203 & 208.) IT IS SO ORDERED. Dated: June 27, 2019 22 JACQUELINE SCOTT CORLEY United States Magistrate Judge 23 24 25 26 27 28 9

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