United States of America et al v. Cyberonics, Inc.

Filing 87

Judge F. Dennis Saylor, IV: ORDER entered. MEMORANDUM AND ORDER. The motion for leave to file a second amended complaint by relator Andrew Hagerty is DENIED. Defendant's motion to compel arbitration for Count 31 and Count 33 is GRANTED, and the case is STAYED pending the result of the arbitration process. (Maynard, Timothy)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
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UNITED STATES OF AMERICA et al. ex )
rel. ANDREW HAGERTY,
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Plaintiffs,
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v.
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CYBERONICS, INC.,
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Defendant.
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_______________________________________)

Civil Action No.
13-10214-FDS

MEMORANDUM AND ORDER ON
MOTION TO AMEND COMPLAINT AND MOTION TO COMPEL ARBITRATION
SAYLOR, J.
This is a qui tam action alleging the unlawful promotion of medically unnecessary
replacements of devices in epilepsy patients. Relator Andrew Hagerty has brought suit against
defendant Cyberonics, Inc., a company that manufactures and sells the Vagus Nerve Stimulator
Therapy (“VNS”) system, a medical device used to treat refractory epilepsy and treatmentresistant depression.
The case was originally filed under seal on February 4, 2013. On October 29, 2013, the
United States declined to intervene. The case was unsealed on December 5, 2013. On April 28,
2014, Cyberonics filed a motion to dismiss. Hagerty filed an amended complaint on May 19,
2014. On June 18, 2014, Cyberonics filed a second motion to dismiss for lack of subject-matter
jurisdiction and failure to state a claim. On March 31, 2015, the Court granted that motion in
part and denied it in part. It was granted as to the federal FCA claims (Counts 1 and 2), the state
FCA claims (Counts 3 through 30), and the claim for breach of contract and breach of the

implied covenant of good faith and fair dealing (Count 32), and denied as to the two remaining
counts. As a result, all that remains of the first amended complaint are claims for retaliatory
discharge in violation of 31 U.S.C. § 3730(h) (Count 31) and for wrongful termination and
retaliation in violation of public policy and the Massachusetts False Claims Act, Mass. Gen.
Laws ch. 12 § 5J (Count 33).
On May 13, 2015, Cyberonics filed a motion to compel arbitration and to dismiss the
remaining two counts. On August 14, 2015, Hagerty moved for leave to file a second amended
complaint.
For the following reasons, that motion will be denied, and defendant’s motion to compel
arbitration will be granted. The case will be stayed pending the result of the arbitration process.
I.

Background
On April 19, 2010, Andrew Hagerty applied for employment at Cyberonics, Inc., by

submitting and signing an employment application (the “Employment Application”). (Magee
Decl. Ex. 1). In the Employment Application, he represented that he had “read th[e] agreement”
and that he “accept[ed] all the terms described” therein. (Id. at 22). The application terms
included a dispute resolution clause that read as follows:
[I]n consideration for my submission and Cyberonics’ consideration of this
application, Cyberonics and I agree to resolve any claims or disputes arising out of
or relating to my application for employment or, if hired, my employment with or
termination from Cyberonics exclusively by final and binding arbitration before a
neutral arbitrator under the then current rules of the American Arbitration
Association.
(Id. at 14).
In an April 20, 2010 letter (the “Offer Letter”), Cyberonics offered Hagerty
“employment . . . in the position of Associate Therapeutic Consultant [for the] Boston
territory . . . .” (Magee Decl. Ex. 2). On the same day, Hagerty signed the Offer Letter. (Id. at
2

3). The Offer Letter stated that “[i]n the event of a dispute concerning the employment offer or
your employment relationship with Cyberonics, you and Cyberonics agree to submit the matter
to binding arbitration under the then current rules of the American Arbitration Association.” (Id.
at 2). The Offer Letter stated that although the “letter is not intended to alter th[e] employment
at will relationship in any way[,] [i]t does . . . supersede any other written and/or verbal
representations made by any representative of Cyberonics relative to your employment with the
Company.” (Id.).
On August 8, 2012, Hagerty filed a complaint against Cyberonics, alleging wrongful
termination (“Hagerty I”). Complaint, Hagerty v. Cyberonics, Inc., No. 1:12-cv-11465 (D.
Mass. Aug. 8, 2012). Cyberonics contends that on January 31, 2013, it notified Hagerty’s
attorney that it believed that the claims asserted in Hagerty I were subject to binding arbitration.
The complaint made no reference to government health-care programs or the FCA, although it
did contain allegations of fraud by Cyberonics against various physicians and patients. Id. It
alleged one claim for breach of contract. Id.
On February 2, 2013, Hagerty voluntarily dismissed Hagerty I. On February 4, 2013, he
filed the complaint in this case under seal. The complaint alleged, among other things, violations
of the False Claims Act. The FCA claims were pursued by Hagerty on behalf of the United
States as a qui tam action.
On October 29, 2013, the government filed a notice declining to intervene in this case.
(Docket No. 12). On December 5, 2013, the case was unsealed.
On April 28, 2014, Cyberonics moved to dismiss for failure to state a claim. On May 19,
2014, Hagerty filed an amended complaint. It alleged violations of the False Claims Act, 31
U.S.C. § 3729(a) (Count 1); conspiracy to violate the FCA (Count 2); violations of various state

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analogues to the FCA (Counts 3 through 30); retaliatory discharge in violation of 31 U.S.C.
§ 3730(h) (Count 31); breach of contract and breach of the implied covenant of good faith and
fair dealing (Count 32); and wrongful termination and retaliation in violation of public policy
and the Massachusetts False Claims Act, Mass. Gen. Laws ch. 12, § 5J (Count 33).
On June 18, 2014, Cyberonics moved to dismiss the amended complaint for lack of
subject-matter jurisdiction and failure to state a claim. That motion was granted in part and
denied in part on March 31, 2015. It was granted as to the federal FCA claims (Counts 1 and 2),
the state FCA claims (Counts 3 through 30), and the claim for breach of contract and breach of
the implied covenant of good faith and fair dealing (Count 32), and denied as to the two
remaining counts, the claims for retaliatory discharge in violation of 31 U.S.C. § 3730(h) (Count
31) and for wrongful termination and retaliation in violation of public policy and the
Massachusetts False Claims Act, Mass. Gen. Laws ch. 12 § 5J (Count 33).
On May 13, 2015, Cyberonics filed a motion to compel arbitration and to dismiss the
remaining two counts. At the hearing on the motion to compel arbitration, on July 22, 2015,
Hagerty notified the Court of his intent to file a second amended complaint. On August 14,
2015, he moved to file a second amended complaint.
II.

Hagerty’s Motion to Amend the Complaint
A.

Legal Standard

Rule 15 of the Federal Rules of Civil Procedure addresses amendments to pleadings.
Under Rule 15(a), a party may amend a “pleading” without leave of court in certain relatively
narrow circumstances.1 “In all other cases, a party may amend its pleadings only with the

1

A party may amend a pleading once as a matter of course within “21 days after serving it,” or “if the
pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days
after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.” Fed. R. Civ. P. 15(a)(1).

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opposing party’s written consent or the court’s leave. The court should freely give leave when
justice so requires.” Fed. R. Civ. P. 15(a)(2). Nonetheless, amendments may be denied on the
basis of “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to
cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, [and] futility of amendment.” Foman v. Davis, 371 U.S.
178, 182 (1962). In determining whether to grant a motion to amend, the Court must examine
the totality of the circumstances and “exercise its informed discretion in constructing a balance
of pertinent considerations.” Palmer v. Champion Mortg., 465 F.3d 24, 30-31 (1st Cir. 2006).
B.

Analysis

Cyberonics contends that the motion to amend should be denied on the basis of futility
and undue delay.
1.

Futility

The Court ruled in March 2015 that 30 of the 33 counts in Hagerty’s first amended
complaint did not meet the heightened pleading standard applied to FCA claims and its state-law
analogues. Hagerty’s proposed second amended complaint seeks to add additional allegations to
cure the deficiencies in the first amended complaint outlined by the Court.
The second amended complaint, like the first, lacks allegations of a single specific false
claim made to the government. It is also questionable whether it sufficiently alleges that any
specific medical procedure, or any specific purchase of a battery or VNS system, was actually
unnecessary. In any event, the Court need not reach the issue of futility because the motion will
be denied on the independent basis of undue delay.
2.

Undue Delay

In the First Circuit, it is well-established that “undue delay in moving to amend, even

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standing alone, may be . . . an adequate reason [to deny a motion for leave to amend].” In re
Lombardo, 755 F.3d 1, 3 (1st Cir. 2014) (citing Foman, 371 U.S. at 182; Acosta-Mestre v. Hilton
Int’l of P.R., Inc., 156 F.3d 49, 51-52 (1st Cir. 1998)); accord Perez v. Hospital Damas, Inc., 769
F.3d 800, 802 (1st Cir. 2014); Calderón-Serra v. Wilmington Trust Co., 715 F.3d 14, 20 (1st Cir.
2013) (“Appreciable delay alone, in the absence of good reason for it, is enough to justify
denying a motion for leave to amend.”). “When ‘considerable time has elapsed between the
filing of the complaint and the motion to amend, the movant has [at the very least] the burden of
showing some valid reason for his neglect and delay.’” In re Lombardo, 755 F.3d at 3 (internal
quotation marks omitted) (quoting Stephanischen v. Merchants Despatch Transp. Corp., 722
F.2d 922, 933 (1st Cir. 1983)). The First Circuit has “previously labeled as ‘considerable time’
warranting explanation, periods of fourteen months, fifteen months, and seventeen months.” Id.
(citations omitted) (citing Grant v. News Grp. Bos., Inc., 55 F.3d 1, 6 (1st Cir. 1995) (fourteen
months), Acosta-Mestre, 156 F.3d at 52 (fifteen months); Stepanischen, 722 F.2d at 933 (sixteen
months)). The First Circuit has “also held that in assessing whether delay is undue, a court will
take account of what the movant ‘knew or should have known and what he did or should have
done.’” Id. at 3-4 (quoting Invest Almza v. Temple-Inland Forest Prods. Corp., 243 F.3d 57, 72
(1st Cir. 2001)). Delays for periods as short as eleven months, four months, and less than three
month have been found to constitute undue delay. See Calderón-Serra, 715 F.3d at 19-20
(eleven-month delay); Villanueva v. United States, 662 F.3d 124, 127 (1st Cir. 2011) (fourmonth delay); Kay v. N.H. Dem. Party, 821 F.2d 31, 34 (1st Cir. 1987) (less than three-month
delay).
A “considerable” amount of time certainly passed here. Hagerty filed his initial
complaint on August 8, 2012. He filed the present action on February 4, 2013. After Cyberonics

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filed a motion to dismiss, Hagerty amended the complaint on May 19, 2014. Cyberonics moved
to dismiss the first amended complaint (actually, his third try at a complaint) on June 18, 2014.
The Court ruled on that motion on March 31, 2015. Hagerty did not move for leave to file a
second amended complaint until August 14, 2015. That motion was filed (1) more than three
years after Hagerty filed the initial lawsuit; (2) more than two and a half years after he filed the
initial complaint in this case; (3) more than fourteen months after he filed the first amended
complaint; (4) more than thirteen months after Cyberonics moved to dismiss the first amended
complaint; and (5) more than four months after the Court’s memorandum and order on the
motion to dismiss. Hagerty therefore bears the burden of “showing some valid reason for his
neglect and delay.” See In re Lombardo, 755 F.3d at 3.
Hagerty contends that he “promptly sought amendment following this Court’s
articulation of the pleading standard it is applying [in] this case.” (Pl.’s Mem. 11). He contends
that any delay “is merely a reflection of a careful investigation and drafting process rather than of
any undue delay.” (Id.). But Hagerty provides no satisfactory explanation as to why he did not
plead the new information at an earlier stage of litigation. Rather than including the additional
information in the original complaint or the first amended complaint, Hagerty permitted the
parties to file extensive briefing on the motion to dismiss, and allowed the Court to undertake the
work of reaching a decision on that motion. Having lost that motion, Hagerty now seeks yet
another chance, more than four months later.
The practice of waiting to amend a complaint until after the Court has ruled on a motion
to dismiss is troublesome, to say the least. As the First Circuit noted in ACA Financial Guaranty
Corp. v. Advest, Inc., 512 F.3d 46, 57 (1st Cir. 2008):
The plaintiffs argue that in the end, they were entitled to wait and see if their
amended complaint was rejected by the district court before being put to the costs
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of filing a second amended complaint. They claim this would promote efficiency
in the judicial system. Plaintiffs have it exactly backwards—their methodology
would lead to delays, inefficiencies, and wasted work. The plaintiffs do not get
leisurely repeated bites at the apple, forcing a district judge to decide whether
each successive complaint was adequate . . . . Plaintiffs may not, having the
needed information, deliberately wait in the wings for a year and a half with
another amendment to a complaint should the court hold the first amended
complaint was insufficient. Such an approach would impose unnecessary costs
and inefficiencies on both the courts and party opponents. This court expressly
disapproved a similar tactic in James [v. Watt, 716 F.2d 71 (1st Cir.1983)], and
we do so again. See id. at 78 (“Such a practice would dramatically undermine the
ordinary rules governing the finality of judicial decisions, and should not be
sanctioned in the absence of compelling circumstances.” (citing 6 Wright &
Miller, Federal Practice and Procedure § 1489 (1971))).
Here, Hagerty was “put on notice of the deficiencies in the complaint by the motion to
dismiss. If [he] had something relevant to add, [he] should have moved to add it then.” Fire &
Police Pension Ass’n of Colo. v. Abiomed, Inc., 778 F.3d 228, 247 (1st Cir. 2015). Hagerty has
been on notice of the deficiencies in the complaint since at least June 2014. He presumably had
the additional information at his disposal, or could have obtained it with reasonable diligence, at
all relevant times.1 Under the circumstances, Hagerty has not provided a valid reason for his
neglect and delay.
Hagerty contends that undue delay is not an independent basis to deny a motion to amend
in the absence of prejudice, citing Klunder v. Brown University, 778 F.3d 24, 34 (1st Cir. 2015).
Although the Klunder court states that “[i]n reviewing a district court’s decision on whether or
not to grant an amendment, [it] routinely focus[es] [its] analysis on the prejudice to the nonmoving party,” it appears to consider prejudice as a separate basis for denying a motion to
amend. Id. at 34-35. That approach would be consistent with the Supreme Court’s decision in
Foman. See 371 U.S. at 182 (noting that “undue prejudice to the opposing party” is one of many

1

Nor is it a credible excuse that he did not anticipate the legal standard applied by the Court; it applied the
well-established pleading standard articulated by the First Circuit in 2009 in United States ex rel. Duxbury v. Ortho
Biotech Products, L.P., 579 F.3d 13 (1st Cir. 2009).

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separate reasons that a court can deny amendment). Contrary to Hagerty’s contention, the court
does not “ma[k]e clear that absent a showing of prejudice undue delay alone was an insufficient
basis for denying leave to amend.” (See Pl.’s Reply 16). The Klunder court cites the 1979 First
Circuit opinion Hayes v. New England Millwork Distributors, Inc., 602 F.2d 15, 19 (1st Cir.
1979). In a parenthetical for Hayes, the Klunder court includes a quote from Hayes that states,
“[C]ourts may not deny an amendment solely because of delay and without consideration of the
prejudice to the opposing party . . . .” Klunder, 778 F.3d at 34. However, subsequent First
Circuit decisions explicitly make clear that “undue delay in moving to amend, even standing
alone, may be . . . an adequate reason [to deny a motion for leave to amend].” In re Lombardo,
755 F.3d at 3 (citing Foman, 371 U.S. at 182; Acosta-Mestre, 156 F.3d at 51-52); accord Perez,
769 F.3d at 802; Calderón-Serra, 715 F.3d at 20 (“Appreciable delay alone, in the absence of
good reason for it, is enough to justify denying a motion for leave to amend.”). Therefore, a
separate showing of prejudice is not necessary for the Court to deny a motion to amend on the
basis of undue delay, which is inherently prejudicial to the opposing party. See Fire & Police
Pension, 778 F.3d at 247. In any event, the harm here to Cyberonics from the lengthy delays and
repeated efforts to amend the complaint are sufficient to establish the requisite degree of
prejudice.
Under the circumstances, Hagerty’s motion for leave to file a second amended complaint
will be denied because of undue delay.
III.

Cyberonics’ Motion Compel Arbitration and Dismiss the Remaining Two Counts
A.

Legal Standard

The Federal Arbitration Act, 9 U.S.C. §§ 1-301, governs the enforcement of written
arbitration agreements. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001)

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(holding that the FAA extends to employment cases for employees other than those engaged in
transportation). It was enacted in order to reverse longstanding judicial hostility to arbitration
agreements and to “place such agreements upon the same footing as other contracts.” AlliedBruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 271 (1995) (internal quotation marks and
citation omitted); accord AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745-46 (2011).
When “construing an arbitration clause, courts and arbitrators must give effect to the contractual
rights and expectations of the parties.” Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S.
662, 682 (2010) (internal quotation marks and citation omitted). The Act promotes “a liberal
federal policy favoring arbitration agreements” and “establishes that, as a matter of federal law,
any doubts concerning 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).
“A party who is seeking to compel arbitration must demonstrate that a valid agreement to
arbitrate exists, that the movant is entitled to invoke the arbitration clause, that the other party is
bound by that clause, and that the claim asserted comes within the clause’s scope.” SotoFonalledas v. Ritz-Carlton San Juan Hotel Spa & Casino, 640 F.3d 471, 474 (1st Cir. 2011)
(internal quotation marks and citation omitted). “When an enforceable arbitration agreement
exists between the parties, a court may enforce that agreement by staying existing litigation
pending arbitration of the parties, 9 U.S.C. § 3, or compelling the parties to arbitrate, 9 U.S.C.
§ 4.” DeLuca v. Bear Stearns & Co., 175 F. Supp. 2d 102, 106-07 (D. Mass. 2001).
B.

Analysis

Cyberonics has moved to compel arbitration and dismiss Counts 31 and 33 pursuant to
the Federal Arbitration Act. It contends that a valid arbitration agreement exists between the

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parties, that Counts 31 and 33 fall within the arbitration agreement’s scope, and that it has not
waived its right to compel arbitration.
1.

Agreement to Arbitrate

To determine whether a valid agreement to arbitrate exists, federal courts generally
“apply ordinary state-law principles that govern the formation of contracts.” First Options of
Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see also Campbell v. General Dynamics Gov’t
Sys. Corp., 407 F.3d 546, 552 (1st Cir. 2005) (explaining that “principles of state contract law
control the determination of whether a valid agreement to arbitrate exists”). Under
Massachusetts law, the formation of a contract requires a definite offer, acceptance, and
consideration. Vadnais v. NSK Steering Sys. Am., Inc., 675 F. Supp. 2d 205, 207 (D. Mass.
2009). Formation of a contract is judged by the objective conduct of the parties, rather than their
subjective intent. Brewster Wallcovering Co. v. Blue Mountain Wallcoverings, Inc., 68 Mass.
App. Ct. 582, 596 n.35 (2007). A contract may be binding on an employee in the context of an
at-will employment relationship even if the agreement is not express and in writing. See, e.g.,
Ellerbee v. Gamestop, Inc., 604 F. Supp. 2d 349, 354 (D. Mass. 2009) (citing O’Brien v. New
England Tel. Co., 422 Mass. 686, 691 (1996)). An employee’s “continued employment [may]
constitute[ ] adequate consideration for the contract.” Id. (citing O’Brien, 442 Mass. at 691).
“Thus, the issue of whether the parties validly entered into an arbitration agreement
depends on whether [d]efendant gave ‘some minimal level of notice to the employee that
statutory claims are subject to arbitration.’” Id. (quoting Campbell, 407 F.3d at 554). “This is an
objective test: ‘the sufficiency of the notice turns on whether, under the totality of the
circumstances, the employer’s communication would have provided a reasonably prudent

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employee notice of the waiver [of the right to proceed in a judicial forum].’” Id. (quoting
Campbell, 407 F.3d at 555).
In the present case, it is clear that there was an arbitration agreement. Both the
Employment Application and the Offer Letter contain arbitration clauses. It is also clear from
Hagerty’s signature that he consented to the agreements and that he had actual notice of their
terms. His employment with Cyberonics from May 2010 to January 2012 was sufficient
consideration to make the arbitration agreements enforceable.
2.

Scope of Arbitration Agreement

The question of “whether a particular dispute is within the class of those disputes
governed by the arbitration clause . . . is a matter of federal law.” Century Indem. Co. v. Certain
Underwriters at Lloyd’s, London, 584 F.3d 513, 524 (3d Cir. 2009). “In determining whether
the particular dispute falls within a valid arbitration agreement’s scope, ‘there is a presumption
of arbitrability[:] an order to arbitrate the particular grievance should not be denied unless it may
be said with positive assurance that the arbitration clause is not susceptible of an interpretation
that covers the asserted dispute.’” Id. (quoting AT&T Techs., Inc. v. Communications Workers of
Am., 475 U.S. 643, 650 (1986)). In other words, if the contract is ambiguous as to whether
arbitration is mandatory, the federal policy favoring arbitration applies. Battaglia v. McKendry,
233 F.3d 720, 725 (3d Cir. 2000); Renfrew Ctrs., Inc. v. UNI/CARE Sys. Inc., 920 F. Supp. 2d
572, 575-77 (E.D. Pa. 2013). However, “the fact that the parties have agreed to arbitrate some
disputes does not necessarily manifest an intent to arbitrate every dispute that might arise
between the parties . . . .” CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165, 172 (3d Cir.
2014). Thus, “whether a dispute falls within the scope of an arbitration clause depends upon the

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relationship between (1) the breadth of the arbitration clause and (2) the nature of the given
claim.” Id.
The use of phrases such as “arising under” or “arising out of” in an arbitration provision
generally indicates an intent to arbitrate a broad scope of claims. Battaglia, 233 F.3d at 727; see
Miron v. BDO Seidman, LLP, 342 F. Supp. 2d 324, 330 (E.D. Pa. 2004); see, e.g., Century
Indem. Co., 584 F.3d at 556 (broadly construing a provision requiring arbitration of “any
dispute with reference to the interpretation of this Agreement or [the parties’] rights with respect
to any transaction involved”); Medtronic AVE Inc. v. Cordis Corp., 100 Fed. Appx. 865, 868-69
(3rd Cir. 2004) (compelling arbitration of “broad” clause that governed “any dispute, claim, or
controversy arising from or relating to this Agreement or alleged breaches thereof”); Peltz, 367
F. Supp. 2d at 717-18 (broadly construing an agreement that “[a]ny and all claims . . . of any
nature whatsoever (whether in contract, tort, or otherwise, including statutory . . . claims) arising
out of, relating to, or in connection with (1) this Agreement, [or] (2) the relationships which
result from this Agreement . . .”). In contrast, an agreement to arbitrate only disputes “regarding
the performance or interpretation” of the contract is normally relatively narrow in scope.
CardioNet, Inc., 751 F.3d at 173-74.
The two remaining claims in this case are for alleged retaliation in violation of the federal
and Massachusetts FCAs. In the Employment Application, the parties agreed “to resolve any
claims or disputes arising out of or relating to [Hagerty’s] application for employment or, if
hired, [his] employment with or termination from Cyberonics exclusively by final and binding
arbitration before a neutral arbitrator under the then current rules of the American Arbitration
Association.” (Magee Decl. Ex. 1) (emphasis added). In the Offer Letter, the parties agreed that
in “the event of a dispute concerning this employment offer or [Hagerty’s] employment

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relationship with Cyberonics, [Hagerty] and Cyberonics agree to submit the matter to binding
arbitration under the then current rules of the American Arbitration Association.” (Magee Decl.
Ex. 2) (emphasis added).
The “arising out of or relating to” and “concerning” provisions indicate an intent to
arbitrate a broad scope of claims. Battaglia, 233 F.3d at 727; see Miron, 342 F. Supp. 2d at 330.
The arbitration clauses state that they specifically apply to “employment,” “termination,” and
“employment relationship.” The FCA retaliation claims at issue here “are related to [Hagerty’s]
employment[], and particularly [his] termination[].” See United States ex rel. Wilson v. Kellogg
Brown & Root, Inc., 525 F.3d 370, 381 (4th Cir. 2008). Other courts to examine FCA claims
and arbitration clauses similar to those here have determined that the retaliation claims are
related to employment or termination, and therefore are within the arbitration provision’s scope.
See, e.g., United States ex rel. Wilson, 525 F.3d at 381 (finding that relators’ federal FCA
retaliation claims “clearly fall within the ambit of [an] arbitration clause” that stated that claims
“related to . . . employment, including . . . termination, . . . must be submitted to binding
arbitration instead of to the court system”); United States ex rel. Cassidy v. KBR, Inc., 590 F.
Supp. 2d 850, 854, 862-63 (S.D. Tex. 2008) (finding that relators’ FCA retaliation claims were
arbitrable when the arbitration clause stated that claims “related to . . . employment,
including . . . termination . . . must be submitted to binding arbitration instead of to the court
system”); Mikes v. Strauss, 889 F. Supp. 746, 755-57 (S.D.N.Y. 1995) (interpreting clause to
arbitrate all “disagreements, claims, questions or controversies which may arise out of relate to
[the] [a]greement” as covering plaintiff’s FCA retaliation claim). Therefore, in light of the
“presumption of arbitrability” and the federal policy favoring arbitration, Hagerty’s wrongful-

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termination claims are subject to arbitration, no matter whether the relevant agreement is the
Employment Application, the Offer Letter, or both.
Hagerty contends that the anti-retaliation claims do not fall within the scope of the
arbitration clause because the clause does not contain “clear and unmistakable terms” evidencing
an enforceable agreement to arbitrate the relevant statutory claims. He cites Warfield v. Beth
Israel Deaconess Medical Center, Inc., 454 Mass. 390 (2009) in support of that contention. In
Warfield, there was no dispute that there was a valid agreement that contained an arbitration
clause. Id. at 396. (“The arbitration clause in the agreement provides that ‘[a]ny claim,
controversy or dispute arising out of or in connection with this Agreement or its negotiations
shall be settled by arbitration.’”). The issue before the SJC was whether certain statutory claims
fell within the scope of an arbitration clause. Id. The SJC held that “Warfield’s statutory
discrimination claims do not fall within the scope of the arbitration clause contained in the
employment agreement.” Id. at 391. It found that “[c]onsistent with the public policy against
workplace discrimination reflected in [Mass. Gen. Laws ch. 151B], . . . an employment contract
containing an agreement by the employee to limit or waive any of the rights or remedies
conferred by Mass. Gen. Laws ch. 151B is enforceable only if such an agreement is stated in
clear and unmistakable terms.” Id. at 398.
However, the court in Warfield incorrectly “appl[ied] general principles of State contract
law to determine whether a particular agreement requires arbitration of a claim.” Id. at 396.2 As
previously stated, the question of “whether a particular dispute is within the class of those
disputes governed by the arbitration clause . . . is a matter of federal law.” Century Indem., 584

Hagerty appears to argue that the “clear and unmistakable” standard adopted in Warfield goes to validity,
and not to scope. However, the clear language in Warfield contradicts that contention.
2

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F.3d at 524. In determining whether the particular dispute falls within a valid arbitration
agreement’s scope, “‘there is a presumption of arbitrability[:] an order to arbitrate the particular
grievance should not be denied unless it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the asserted dispute.’” Id. (quoting
AT&T Techs., 475 U.S. at 650). Applying the Warfield “clear and unmistakable terms” test
would not “place [the arbitration agreement] upon the same footing as other contracts,” id. at
532, and would run afoul of the presumption of arbitrability whereby “any doubts concerning the
scope of an arbitrable issue should be resolved in favor of arbitration.” Id. at 527. Therefore, the
Warfield “clear and unmistakable terms” test does not apply here.3
However, and in any event, Warfield is readily distinguishable because the arbitration
provision at issue in that case was much narrower than the ones in the present case. In Warfield,
the parties agreed to arbitrate only claims or disputes “arising out of or in connection with the
Agreement or its negotiations.” 454 Mass. at 392. As previously stated, in the Employment
Application, the parties agreed to arbitrate claims “arising out of or relating to [Hagerty’s]
application for employment, or if hired, [his] employment with or termination from Cyberonics.”
In the Offer Letter, the parties agreed to arbitrate all disputes “concerning this employment offer
or [Hagerty’s] employment relationship with Cyberonics.” Therefore, the arbitration provisions
here are broader than the one in Warfield.
Hagerty also contends that the arbitration clause in the Offer Letter supersedes the clause
in the Employment Application, and the clause in the Offer Letter reflects an intent to have

3
There is language in a recent SJC case that suggests that Warfield may not be good law. In Machado v.
System4 LLC, 471 Mass. 204, 218 n.19 (2015), the SJC wrote that “[e]ven if Massachusetts law did require an
arbitration clause to specifically mention applicability to claims under the Wage Act, such a principle might be
preempted by the [Federal Arbitration Act], as it could be interpreted to prohibit or disproportionately disfavor
arbitration.” (citations and quotations omitted).

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matters relating to the terms of the employment arbitrated (not disputes involving retaliation,
termination or discrimination claims). He contends that the dispute here is not about the
“employment offer” or the “employment relationship” because it is about the lack of a
relationship due to his termination.
As a preliminary matter, the Offer Letter states that it only supersedes “other written
and/or verbal representations made by any representative of Cyberonics . . . .” Therefore,
because the Employment Application’s arbitration clause is a mutual and reciprocal agreement
between the parties, rather than a unilateral “representation made” by Cyberonics, the
Employment Application is not superseded by the Offer Letter.
However, and in any event, Hagerty’s contention is unpersuasive. Without an
employment relationship, there can be no termination. Therefore, it would make no sense for the
parties to agree to arbitration for matters arising out of their employment relationship, but to
exclude matters relating to the termination of that relationship.
Accordingly, Counts 31 and 33 fall within the scope of the arbitration agreements.
3.

Waiver

“In considering whether a party has waived its arbitration right, courts are consistently
mindful of the strong federal policy favoring arbitration.” Creative Sols. Grp., Inc. v. Pentzer
Corp., 252 F.3d 28, 32 (1st Cir. 2001). “Waiver is not to be lightly inferred, and mere delay in
seeking [arbitration] without some resultant prejudice to a party cannot carry the day.” Id.
(quoting Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 293 (1st Cir.
1986)). To determine whether there was prejudice, courts look to a number of factors, including:
(1) the length of delay in seeking a stay; (2) the extent to which the party participated in
litigation; (3) whether it took a position inconsistent with its arbitration right; (4) how much

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activity in the litigation has occurred; and (5) whether discovery or other important intervening
events have occurred. Id. at 32-33.
Hagerty contends that Cyberonics has waived its right to arbitration by filing two motions
to dismiss all of the claims before invoking its right to arbitration after the Court ruled the latter
motion. The problem with Hagerty’s contention is that most of the claims in the present lawsuit
were not arbitrable. It is understandable that Cyberonics did not wish to bifurcate litigation.
Cyberonics attempted to resolve all the claims with the motions to dismiss.4 “[I]t is wellestablished that a party does not waive its right to arbitrate merely by filing a motion to dismiss.”
Sharif v. Wellness Int’l Network, Ltd., 376 F.3d 720, 726-27 (7th Cir. 2004) (citing Creative Sols.
Grp., 252 F.3d at 33).
The two Eighth Circuit decisions that Hagerty cites in opposition to the motion to dismiss
are readily distinguishable from the present case. In both of those cases, motions to dismiss were
filed even though every claim was within the scope of a valid arbitration agreement. See Hooper
v. Advance Am. Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917, 921 (8th Cir. 2009) (finding
defendant’s actions inconsistent with arbitration where it “wanted to see how the case was going
to federal district court before deciding whether it would be better off there or in arbitration”);
Lewallen v. Green Tree Servicing, LLC, 487 F.3d 1085, 1090 (8th Cir. 2007) (finding that
multiple actions including filing bankruptcy proof of claim, serving discovery requests, and
moving to dismiss all claims on the merits were inconsistent with right to arbitrate). Here, it is
undisputed that thirty of the thirty-three claims in this case were not subject to arbitration. Under
the circumstances, moving to dismiss was neither unreasonable nor inconsistent with

4

In response to the first motion to dismiss, Hagerty amended the complaint. Cyberonics then filed a
second motion to dismiss. Therefore, the fact that Cyberonics filed two motions to dismiss (as opposed to one) is
irrelevant.

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Cyberonics’ right to arbitrate. See Sweater Bee by Banff, Ltd. v. Manhattan Indus., Inc., 754
F.2d 457, 463 (2d Cir. 1985) (finding that party did not waive arbitration by moving to dismiss
twenty-eight-count complaint containing mostly non-arbitrable claims); see also Hooper, 589
F.3d at 922 (“Not every motion to dismiss is inconsistent with the right to arbitration.”).
On March 31, 2015, all the claims with the exception of the two retaliation claims were
dismissed. After receiving an extension of time to file an answer, Cyberonics answered the
complaint on April 28, 2015. In its answer, Cyberonics made clear that it believed the remaining
claims are “subject to binding arbitration.” On May 13, 2015, it filed the motion to compel
arbitration. Under the circumstances, the delay was not unreasonable, Cyberonics did not take a
position that was inconsistent with its arbitration right, and Hagerty suffered little, if any,
prejudice from the brief delay. Accordingly, Cyberonics did not waive its right to arbitrate.
4.

Proper Disposition of the Case

Having determined that the arbitration provisions are enforceable, the Court must now
determine the proper disposition of the case. Defendant contends that after granting its motion to
compel arbitration, rather than granting a stay, the Court should dismiss the remaining two
counts with prejudice. Relator contends that the Court should stay the proceedings pending
arbitration.
“Where one side is entitled to arbitration of a claim brought in court, in this circuit a
district court can, in its discretion, choose to dismiss the lawsuit, if all claims asserted in the case
are found arbitrable.” Next Step Med. Co., Inc. v. Johnson & Johnson, Int’l, 619 F.3d 67, 71 (1st
Cir. 2010) (emphasis in original). Because the two remaining claims for retaliation are both
arbitrable, the Court could dismiss the entire matter with prejudice. However, such a resolution

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is unnecessary and less efficient because, among other things, a stay will consolidate the issues
for appeal. The Court will therefore stay the proceedings pending arbitration.
IV.

Conclusion
For the foregoing reasons, the motion for leave to file a second amended complaint by

relator Andrew Hagerty is DENIED. Defendant’s motion to compel arbitration for Count 31 and
Count 33 is GRANTED, and the case is STAYED pending the result of the arbitration process.
So Ordered.

/s/ F. Dennis Saylor IV
F. Dennis Saylor IV
United States District Judge

Dated: November 13, 2015

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