Lemberg Law, LLC v. Hussin et al

Filing 150

ORDER Denying Plaintiff's 108 Motion to Stay Proceedings and Compel Arbitration. Signed by Judge Jeffrey T. Miller on 9/26/2016. (rlu)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 LEMBERG LAW, LLC, Case No.: 16cv1727 JM(WVG) Plaintiff, 12 13 14 ORDER DENYING PLAINTIFF’S MOTION TO STAY PROCEEDINGS AND COMPEL ARBITRATION v. TAMMY HUSSIN, individually; LAW OFFICE OF TAMMY HUSSIN, P.C., 15 Defendants. 16 17 18 Plaintiff Lemberg Law, LLC, (“Lemberg”) moves the court, pursuant to the 19 Federal Arbitration Act, 9 U.S.C. § 1 et seq., to stay proceedings in this action and 20 compel arbitration. (Doc. No. 108.) For the reasons set forth below, the court denies 21 Plaintiff’s motion. 22 23 BACKGROUND On May 15, 2015, Lemberg filed a complaint in the District of Connecticut against 24 Defendants Tammy Hussin and the Law Office of Tammy Hussin, P.C., d/b/a Hussin 25 Law (“Hussin”). (Doc. No. 1.) Lemberg’s complaint asserts claims of (1) breach of 26 contract, (2) conversion, (3) violation of Connecticut’s Unfair Trade Practices Act 27 (“CUTPA”), (4) statutory theft, (5) violation of the Connecticut Uniform Trade Secrets 28 Act (“CUTSA”), (6) violation of Connecticut General Statute section 53a-251, (7) theft 1 16cv1727 JM(WVG) 1 2 of corporate opportunities, and for (8) quantum meruit and (9) unjust enrichment. According to the complaint, Hussin served as a contract attorney for Lemberg 3 before establishing her own firm in February 2014. Upon Hussin’s decision to open her 4 own firm, Hussin and Lemberg negotiated a separation agreement in which Lemberg 5 agreed to continue paying Hussin for cases that settled prior to her separation from the 6 firm, and Hussin agreed “to continue prosecuting under the Lemberg Law name 7 California federal cases filed by her for Lemberg Law clients.” Lemberg was to collect 8 forty percent of the fees generated from those cases, and Hussin was permitted to use 9 Lemberg’s computer system for her California cases. Lemberg alleges that Hussin 10 abandoned cases, improperly retained fees, improperly accessed Lemberg’s computer 11 system, and marketed herself to Lemberg’s current and former clients. Nowhere in the 12 complaint does Lemberg mention an agreement to arbitrate between the parties. 13 On January 7, 2016, Hussin filed a second amended answer. (Doc. No. 48.) In the 14 second amended answer, Hussin asserts three affirmative defenses: (1) that Lemberg 15 materially breached the separation agreement, (2) that Lemberg has unclean hands, and 16 (3) that Lemberg seeks to enforce an unenforceable contract that calls for an illegal fee 17 division. Hussin also asserts counterclaims of (1) breach of contract, (2) violation of 18 CUTPA, (3) conversion, (4) statutory theft, (5) quantum meruit, (6) unjust enrichment, 19 and (7) abuse of process. Hussin alleges, among other things, that Lemberg withheld fees 20 to which Hussin was entitled or paid her reduced fees, deducted unjustified costs from 21 settlement awards, affixed her signature to settlement agreements without her consent, 22 filed complaints on behalf of individuals who never agreed to be represented by Lemberg 23 or Hussin, and wrongfully used Hussin’s name to advertise Lemberg to California clients. 24 Hussin also states that Lemberg authorized her to access Lemberg’s computer systems to 25 transfer her files from Lemberg’s database. 26 Nearly one year after Lemberg filed the complaint, on Hussin’s motion, the 27 District of Connecticut transferred the case to the Southern District of California pursuant 28 to 28 U.S.C. § 1404(a). (Doc. No. 97.) The court later affirmed its decision to transfer 2 16cv1727 JM(WVG) 1 2 over Lemberg’s motion for reconsideration. (Doc. No. 121.) The docket indicates extensive litigation by both parties. For example, Lemberg, 3 in addition to filing the initial complaint, has filed (1) multiple motions to extend time to 4 respond to Hussin’s interrogatories, (Doc. Nos. 28, 50); (2) a motion to extend time to 5 respond to Hussin’s counterclaims and amended answer, (Doc. No. 36); a motion to 6 strike and dismiss portions of Hussin’s amended answer and counterclaims, (Doc. No. 7 42); a motion to dismiss and strike Hussin’s second amended answer, affirmative 8 defenses, and counterclaims, (Doc. No. 57); a motion to seal, (Doc. No. 59), and a motion 9 to amend that motion, (Doc. No. 61); a motion to compel discovery responses and for 10 sanctions, (Doc. No. 62); a joint motion to extend discovery deadlines, (Doc. No. 69); a 11 motion for status conference, (Doc. No. 75); a motion to extend time for the disclosure of 12 an expert report, (Doc. No. 79); a motion for reconsideration of the order transferring the 13 case to the Southern District of California, (Doc. No. 100); and the motion to stay 14 proceedings and compel arbitration now before the court, (Doc. No. 108). 15 In its motion, Lemberg asks the court to stay the proceedings and compel 16 arbitration based on an October 2013 memorandum of understanding between the parties, 17 which provided that “[a]ny controversy or claim arising out of or relating to this 18 agreement shall be settled by Mark Dubois.” (Doc. No. 110-1 at 4.) 19 DISCUSSION 20 A. 21 The Federal Arbitration Act (“FAA”) applies to arbitration provisions found in Legal Standards 22 written agreements that evidence a transaction involving commerce. 9 U.S.C. § 2. An 23 agreement to arbitrate is “valid, irrevocable, and enforceable, save upon such grounds as 24 exist at law or in equity for the revocation of any contract.” Id. Federal policy favors 25 arbitration, and arbitration agreements may not be placed in a disfavored position relative 26 to other contracts. See Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir. 27 2003). The court must grant a motion to compel arbitration if (1) a valid agreement to 28 arbitrate exists, and (2) the dispute at issue falls within the scope of that agreement. See 3 16cv1727 JM(WVG) 1 Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 2 Arbitration agreements are subject to general contract defenses, however. Ingle, 328 F.3d 3 at 1170. One such defense is waiver. United States v. Park Place Associates, Ltd., 563 4 F.3d 907, 921 (9th Cir. 2009). 5 B. 6 First, the court must determine whether Lemberg and Hussin agreed to an A Valid Agreement to Arbitrate Likely Exists. 7 enforceable arbitration clause.1 This question is for the court, not an arbitrator, to decide. 8 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002); Bridge Fund Capital 9 Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1000 (9th Cir. 2010). “To interpret 10 the parties’ contract, a court should look to ‘general state-law principles of contract 11 interpretation, while giving due regard to the federal policy in favor of arbitration by 12 resolving ambiguities as to the scope of arbitration in favor of arbitration.’” Boardman v. 13 Pac. Seafood Grp., 822 F.3d 1011, 1018 (9th Cir. 2016) (quoting Wagner v. Stratton 14 Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996)).2 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 It is inconsequential that neither Lemberg nor Hussin signed the purported arbitration clause. “While the FAA requires a writing, it does not require that the writing be signed by the parties.” Nghiem v. NEC Elec., Inc., 25 F.3d 1437, 1439 (9th Cir. 1994). 2 At this point, it is unclear whether Connecticut or California law applies to the parties’ agreement as a whole, and to interpreting the arbitration clause in particular. Following transfers for convenience under 28 U.S.C. § 1404(a), the transferee court in a diversity case must apply the law of the state in which the action was originally filed. Van Dusen v. Barrack, 376 U.S. 612, 639 (1964). That does not mean the law of the transferor state will always apply, however, because in a diversity case, part of the state law that would have been applied is the choice of law rules of the forum state, Klaxon Company v. Stentor Electric Manufacturing Company, Inc., 313 U.S. 487, 496 (1941), and that state’s choice of law rules may call for application of the law of the transferee state or some third state. Under Connecticut choice of law rules for claims “that sound in tort, namely, civil conspiracy, unjust enrichment and CUTPA, [courts] apply the law of the state in which the plaintiff was injured, unless to do so would produce an arbitrary or irrational result.” Macomber v. Travelers Prop. & Cas. Corp., 277 Conn. 617, 640 (2006). For contract claims, Connecticut courts employ “the ‘significant relationship’ test, and presume the application of the law of the state in which the bulk of the 4 16cv1727 JM(WVG) 1 Under California law, the agreement need not use the word “arbitration.” Cheng- 2 Canindin v. Renaissance Hotel Associates, 50 Cal. App. 4th 676, 691 (1996). But “a 3 dispute resolution procedure is not an arbitration unless there is a third party decision 4 maker, a final and binding decision, and a mechanism to assure a minimum level of 5 impartiality with respect to the rendering of that decision.” Id. at 687-88; but see Wolsey, 6 Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1209 (9th Cir. 1998) (“[A]rbitration need not be 7 binding in order to fall within the scope of the Federal Arbitration Act.”). The definition 8 of arbitration is nearly identical under Connecticut law. There, arbitration is “the 9 voluntary submission of an existing or future dispute to a disinterested person or persons 10 for final determination.” Harry Skolnick & Sons v. Heyman, 7 Conn. App. 175, 179 11 (1986). “An agreement to arbitrate is not required to be stated in any particular form or 12 wording, and the use of technical or formal words is not required.” Id. at 178 (stating that 13 it is “not determinative that the agreement does not use the term ‘arbitration’”). Rather, 14 the intent of the parties controls. Id. at 179. 15 Here, the agreement provides that “[a]ny controversy or claim arising out of or 16 relating to this agreement shall be settled by Mark Dubois.” While neither party provided 17 any information regarding the impartiality, background, or qualifications of Mr. Dubois, 18 or stated whether his decision would be final, the parties, by designating an agreed-upon 19 third party to “settle[]” their dispute, likely drafted a valid agreement to arbitrate. See 20 Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1580-82 (9th Cir. 1987) (holding valid 21 arbitration clause existed under California law where agreement called for certain 22 23 24 25 26 27 28 transaction took place.” Id. Based on the parties’ pleadings, the agreement at issue concerned conduct that occurred at least in part in California. It is therefore debatable whether Connecticut or California law applies to the common law claims in this case. However, because California and Connecticut provide similar rules for interpreting arbitration agreements and the court ultimately finds that Lemberg waived its right to arbitration, the court need not decide which state’s law governs the interpretation of the arbitration clause. 5 16cv1727 JM(WVG) 1 disputes to be decided “by three independent appraisers” despite the fact that the clause 2 did not use the word “arbitration”). Regardless, because, as discussed below, the court 3 finds that Plaintiff waived any right it had to arbitration, the court does not ultimately 4 resolve this question. 5 C. 6 Next, the court must determine whether the arbitration provision covers the issues The Dispute at Issue Likely Falls Within the Scope of the Agreement. 7 in question. This question is also for the court to decide, Howsam, 537 U.S. at 84, and 8 calls for the application of federal law, Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th 9 Cir. 2015) (holding federal law governs arbitrability where FAA covers agreement and 10 parties have not clearly and unmistakably designated that nonfederal arbitrability law 11 applies).3 The court finds that the arbitration provision, if valid, does cover the instant 12 dispute. Lemberg and Hussin delegated to Mr. Dubois the responsibility to decide “[a]ny 13 controversy or claim arising out of or relating to” the agreement. The United States 14 Supreme Court has held that this exact language constitutes a “broad arbitration clause . . 15 . .” Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398 (1967). 16 Likewise, the Ninth Circuit has noted that “when parties intend to include a broad 17 arbitration provision, they provide for arbitration ‘arising out of or relating to’ the 18 agreement.” Cape Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914, 922 (9th Cir. 2011) 19 (quoting Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th 20 Cir. 1983)); see also Collins & Aikman Prod. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 20 (2d 21 Cir. 1995) (“The clause in this case, submitting to arbitration ‘[a]ny claim or controversy 22 arising out of or relating to th[e] agreement,’ is the paradigm of a broad clause.”); Simula, 23 Inc. v. Autoliv, Inc., 175 F.3d 716, 720-21 (9th Cir.1999) (broadly interpreting even the 24 25 3 26 27 28 In applying federal law, the court follows the circuit in which it sits rather than the transferring circuit. Newton v. Thomason, 22 F.3d 1455, 1460 (9th Cir. 1994); Hartline v. Sheet Metal Workers’ Nat’l. Pension Fund, 201 F. Supp. 2d 1, 3-4 (D.D.C. 1999) (citing In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1173-76 (D.C. Cir. 1987), aff’d sub nom. Chan v. Korean Air Lines, Ltd., 490 U.S. 122 (1989)). 6 16cv1727 JM(WVG) 1 phrase “arising in connection with” in an arbitration agreement). 2 While Hussin argues that the agreement addressed how the parties intended to 3 continue, rather than end, their working relationship, the issues that have arisen are a 4 result of the breakdown of that relationship, and therefore are presumably within the 5 scope of the agreement. Given that “any doubts concerning the scope of arbitrable issues 6 should be resolved in favor of arbitration,” Moses H. Cone Mem’l Hosp. v. Mercury 7 Constr. Corp., 460 U.S. 1, 24-25 (1983), the court finds that the arbitration agreement 8 would control the claims in this case. 9 10 11 12 D. By Undertaking Extensive Federal Litigation, Plaintiff Waived Any Right to Arbitration. 1. The Court Decides the Question of Waiver. The Ninth Circuit recently made clear that “the question whether a party waived its 13 right to arbitrate on the basis of its litigation conduct . . . is presumptively for a court and 14 not an arbitrator to decide.” Martin v. Yasuda, No. 15-55696, 2016 WL 3924381, at *4 15 (9th Cir. July 21, 2016). In so doing, the court looks to the FAA rather than state law. 16 Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270 (9th Cir.), opinion amended on denial 17 of reh’g, 289 F.3d 615 (9th Cir. 2002). 18 19 2. Standards for Waiver Under the FAA. As the party arguing for waiver of the right to arbitrate, Hussin bears a “heavy 20 burden of proof.” Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). 21 The court must determine whether Lemberg waived its right to arbitrate “in light of the 22 strong federal policy favoring enforcement of arbitration agreements.” Fisher v. A.G. 23 Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). “[W]hether the problem at hand 24 is . . . an allegation of waiver, delay, or a like defense to arbitrability,” the court must 25 resolve any doubts in favor of arbitration. Moses H. Cone, 460 U.S. at 24-25. To prove 26 waiver, Hussin “must demonstrate: (1) knowledge of an existing right to compel 27 arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party 28 opposing arbitration resulting from such inconsistent acts.” Fisher, 791 F.2d at 694 (9th 7 16cv1727 JM(WVG) 1 2 Cir. 1986). The Ninth Circuit and courts within it have determined that parties took acts 3 inconsistent with their right to arbitrate when they filed a complaint requesting a jury 4 trial, e.g., United Computer Sys., Inc. v. AT & T Corp., 298 F.3d 756, 765 (9th Cir. 5 2002), or injunctive relief, Riverside Publ’g Co. v. Mercer Publ’g LLC, 829 F. Supp. 2d 6 1017, 1020-21 (W.D. Wash. 2011) (noting that party may have right to seek injunctive 7 relief from a court in aid of arbitration, for example to preserve the status quo pending 8 arbitration, but not where party does not acknowledge arbitrability of its claims and 9 instead requests actual damages and demands trial); see also Kelly v. Pub. Util. Dist. 10 No. 2, 552 F. App’x. 663, 664 (9th Cir. 2014) (finding party took inconsistent acts where 11 it “conducted discovery and litigated motions, including a preliminary injunction and a 12 motion to dismiss”). The Ninth Circuit recently noted that while there “is no concrete 13 test to determine whether a party has engaged in acts that are inconsistent with its right to 14 arbitrate[,] . . . a party’s extended silence and delay in moving for arbitration may 15 indicate a ‘conscious decision to continue to seek judicial judgment on the merits of the 16 arbitrable claims,’ which would be inconsistent with a right to arbitrate.” Martin, 2016 17 WL 3924381, at *5 (quoting Van Ness Townhouses v. Mar Industries Corp., 862 F.2d 18 754, 759 (9th Cir. 1988)). 19 In Martin, the court held that the defendants engaged in conduct inconsistent with 20 their right to arbitrate by spending seventeen months litigating the case, including filing a 21 motion to dismiss on a key merits issue, entering into a protective order, answering 22 discovery, and preparing for and conducting a deposition. Id. at *6. The court also 23 pointed out that the “defendants did not even note their right to arbitration until almost a 24 year into the litigation . . . .” Id. Regarding the question of prejudice, the Martin court 25 noted that “litigation conduct inconsistent with a right to arbitrate most frequently causes 26 prejudice to the opposing party, [but] the link is not automatic.” Id. Rather, parties must 27 show that, as a result of the opposing party’s delay in seeking arbitration, they “incurred 28 costs they would not otherwise have incurred,” “would be forced to relitigate an issue on 8 16cv1727 JM(WVG) 1 the merits on which they have already prevailed in court, or that the [opposing party has] 2 received an advantage from litigating in federal court that [it] would not have received in 3 arbitration.” Id. 4 In holding that the plaintiffs were prejudiced by the defendants belated decision to 5 seek arbitration, the court put it plainly: “When a party has expended considerable time 6 and money due to the opposing party’s failure to timely move for arbitration and is then 7 deprived of the benefits for which it has paid by a belated motion to compel, the party is 8 indeed prejudiced.” Id. at *7; see also Van Ness Townhouses, 862 F.2d at 759 9 (determining party waived its right to arbitration because appellants were prejudiced 10 when party chose “to litigate actively the entire matter—including pleadings, motions, 11 and approving a pre-trial conference order—and did not move to compel arbitration until 12 more than two years after the appellants brought the action”). 13 As a sophisticated party to the extensively negotiated agreement containing the 14 purported arbitration provision, Lemberg was no doubt aware of the provision and its 15 right to seek arbitration of its dispute with Hussin. Yet Lemberg instead chose to file suit 16 in federal court. Then, rather than quickly reversing course and seeking to enforce its 17 arbitration rights, Lemberg litigated the case for over a year before moving to stay 18 proceedings and compel arbitration. That litigation included motions to extend time, to 19 strike, to dismiss, to seal, to amend, to compel discovery, for a status conference, for 20 sanctions, and for reconsideration. By being required to litigate in response to these acts 21 that are inconsistent with a right to arbitrate, Hussin suffered prejudice. Hussin has spent 22 considerable time litigating this matter and has been subjected to expense, delay, and 23 hassle. Allowing Lemberg to compel arbitration at this late stage would only compound 24 that prejudice. Accordingly, the court declines to send this case to arbitration. 25 /// 26 /// 27 /// 28 /// 9 16cv1727 JM(WVG) 1 2 CONCLUSION For the foregoing reasons, the court denies plaintiff’s motion to stay the 3 proceedings and compel arbitration. 4 IT IS SO ORDERED. 5 6 7 DATED: September 26, 2016 JEFFREY T. MILLER JEFFREY MILLER United States District Judge United 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 16cv1727 JM(WVG)

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