GAR DISABILITY ADVOCATES v. TAYLOR
Filing
34
OPINION. Signed by Judge Kevin McNulty on 2/6/2019. (JB, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
GAR DISABILITY ADVOCATES, LLC,
No. 17-cv-3038 (KM)(MAH)
Plaintiff,
OPINION
V.
PAMELA S. TAYLOR,
Defendant.
KEVIN MCNULTY. U.S.D.J.:
Plaintiff OAR Disability Advocates, LLC (“GAR”) has brought this action
against one of its former employees, defendant Pamela S. Taylor, for breach of
contract and for various forms of equitable relief. Taylor has filed a
counterclaim for breach of contract, seeking monetary damages.
Now before the court is GAR’s motion to dismiss Taylor’s counterclaim
and to compel arbitration. For the reasons expressed herein, OAR’s motion to
compel arbitration is granted. (DE 24). However, because the arbitration
provision covers all disputes arising from the agreements at issue, I find that
both GAR’s and Taylor’s complaints are arbitrable. OAR’s motion to amend to
the complaint is denied as moot.
I.
Background
OAR is an organization that assists individuals that are either applying
for or receiving Social Security Disability Benefits (“SSDI”) or Supplemental
Security Income (“551”). On February 26, 2015, OAR and Taylor entered into
¶9).1 Pursuant
Asset Purchase and Sale Agreement (DE 5-1, “APS Agreement”,
to the terms of this agreement, Taylor agreed to sell and assign her current and
prospective SSDI and SSI cases to OAR. (APS Agreement ¶2). In return, OAR
“DE
“AC
“refers to the Docket Entry for this matter.
refers to the Amended Complaint (DE 5)
“
1
that
agreed to pay S275,000 for those “assets,” and it alleges that it paid Taylor
amount on March 3, 2015. (Id. ¶fl5-16).
The APS Agreement addressed Taylor’s right to seek the advice of an
attorney prior to executing the agreement:
Seller hereby acknowledges that she has been advised to retain her
own attorney, was given adequate time to seek the advice of such
attorney and that she has either done so or has voluntarily chosen
not to seek such counsel. The parties acknowledge and agree that
this Agreement was entered into an arm’s length, without duress
or coercion, and is to be interpreted as an agreement between two
parties of equal bargaining strength.
(Id., Representations and Warranties, ¶8(1)).
The APS Agreement contains an arbitration provision:
Any disputes regarding this agreement shall be decided by
arbitration before one (1) arbitrator. The parties shall first try to
find a mutually agreeable arbitrator. If one cannot be found then
they shall choose one arbitrator from a list provided by the
American Arbitration Association with the costs to be paid by the
losing party to the dispute. This Agreement shall be controlled by
and interpreted in accordance with the laws of the State of New
Jersey, without regard to any choice of law rules which may direct
the application of laws of another jurisdiction.
(Id. ¶8(d)).
The APS Agreement referenced and attached as an exhibit an unexecuted
copy of an Employment Agreement. (Id. ¶5). The APS Agreement provided that
the parties would execute the attached Employment Agreement once the
“assets” were transferred to GAl?. (Id.).
On March 2, 2015, the parties executed the Employment Agreement.
(“Employment Agreement”, DE 5-2). Under the Employment Agreement, GAl?
agreed to employ Taylor as a “Case Manager/Advocate.” Like the APS
Agreement, the Employment Agreement contains an arbitration clause:
Governing Law; Jurisdiction. Any disputes regarding this
agreement shall be decided by arbitration before one (I) arbitrator.
The parties shall first try to find a mutually agreeable arbitrator. If
one cannot be found then they shall choose one arbitrator from a
list provided by the American Arbitration Association with the
2
costs to be paid by the losing party to the dispute. This Agreement
shall be controlled by and interpreted in accordance with the laws
of the State of New Jersey, without regard to any choice of law
rules which may direct the application of laws of another
jurisdiction.
(Employment Agreement
¶
15)
The Employment Agreement also contained non-disclosure, noncompete, and non-disparagement clauses. (Id. fl8-10). In the event of a breach
of any of those provisions, the contract provided that OAR could seek
injunctive and equitable relief:
[Tjhe Employee acknowledges that, in the event of any breach or
threatened breach by the Employee of the provisions of Sections 8,
9 or 10, the Employer and its subsidiaries and affiliates shall be
entitled to temporary, preliminary and permanent injunctive or
and to an equitable
other equitable relief against the Employee
accounting of all earnings, profits and other benefits arising,
directly or indirectly, from such violation, which rights shall be
cumulative and in adding to (rather than instead of) any other
rights or remedies available at law or in equity.
.
.
.
(Id. ¶11). In the agreement, Taylor acknowledged that she “read and
understands all of the terms of this Agreement,” had “had an opportunity to
consult with independent counsel with respect to the terms of this Agreement,”
and had “made such investigation of the facts pertaining to this Agreement and
of all the matters pertaining hereto as she deems necessary.” (Id. ¶24).
OAR claims that Taylor breached the non-disclosure, non-compete, and
non-disparagement clauses of the Employment Agreement when she failed to
assign new cases and clients to GAR, and held herself out as the primary
representative to clients, instead of OAR. (AC fl41-43). On April 7, 2017, OAR
terminated Taylor’s employment. (AC ¶44). The parties dispute whether this
termination was with or without cause. Since Taylor’s termination, OAR
alleges, she has sent various emails to OAR, threatening to take employees and
claimants, and to release confidential information. (AC fl48, 50-51).
3
On May 20, 2017, OAR filed its original complaint seeking an injunction
and equitable relief related to Taylor’s alleged violation of the non-disclosure,
non-compete, and non-disparagement clauses. (flED 1).
On May 30, 2017, OAR filed its Amended Complaint (DE 5), asserting
four different causes of action: breach of the APS Agreement; breach of the
Employment Agreement; temporary restraints! permanent injunction; and an
accounting. (AC ¶j 52—76).
On June 16, 2017, Taylor filed an Answer to the Amended Complaint,
which included a Counterclaim for breach of contract, (DE 7). Taylor asserts
that she was not paid her salary, reasonable expenses, or compensation for
unused vacation time, as required by her Employment Agreement. (Id.).
On July 14, 2017, OAR filed the original version of this motion to compel
dismissed
arbitration of Taylor’s counterclaim. (DE 10). That motion
was
without prejudice so that the parties discuss whether they wished to proceed
with arbitration. (DE 17). The parties failed to reach an agreement, however,
and the motion to compel arbitration was renewed on May 16, 2018. (DE 24).
The Employment Agreement contains a choice of law provision, providing
that it is governed by New Jersey law. Taylor’s opposition to OAR’s motion to
compel relied almost exclusively upon the New Jersey Supreme Court case of
Atalese v. US. Legal Sen’s. Gip., L.P., 99 A.3d 306 (N.J. 2014), cert. denied, 135
S. Ct. 2804 (2015). (DE 26). Prior to the renewal of the motion to compel,
however, the New Jersey Supreme Court granted certification in Kemahan z.’.
Home Warranty Adm’r of Fla., Inc., a case that had the potential to affect the
Atalese holding. See 231 N.J. 334, 175 A.3d 177 (N.J. Nov. 29, 2017) (granting
certification).
Resolution of the motion to compel was held over pending a decision in
Kemahan. On January 10, 2019, the New Jersey Supreme Court rendered its
decision. Kemahun v. Home Warranty Adm’r of Fla., Inc., No. 079680, — N.J.
10, 2019). I granted leave to
—‘ 2019 WL 166309, 2019 N.J. LEXIS 3 (Jan.
4
submit supplemental briefing to address the effect of Kemahan (DE 31), and on
January 25, 2019, both sides submitted supplemental briefs. (DE 32, 33).
Standard
II.
The Federal Arbitration Act (“FAA”), 9 U.S.C.
§ 1 et seq., creates a strong
federal policy in favor of arbitration. See Harris u. Green Tree Fin. Corp., 183
F.3d 173, 178-79 (3d Cir. 1999) (noting that FAA “creates a body of federal
substantive law establishing and governing the duty to honor agreements to
arbitrate disputes.”). To achieve that aim, the FAA authorizes a party to enforce
a valid arbitration agreement by moving to compel arbitration. 9 U.S.C. § 2-4;
In re Pharmacy Benefit Managers Antitrust Litig., 700 F.3d 109, 116 (3d Cir.
2012).
Arbitration is a matter of contract between parties, so a judicial mandate
to arbitrate must be predicated on the parties’ consent. Guidotti z1’. Legal
Helpers Debt Resolution, L.L.C., 716 F.3d 764, 771 (3d Cir. 2013) (quoting ParStockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir. 1980)).
When a district court is presented with a motion to compel arbitration, the
Court must first determine whether the agreement to arbitrate is valid, and
then decide whether the dispute falls within the agreement’s scope. Century
Knit Mills, Inc.
t,’.
Indem. Co. v. Certain Underwriters at Lloyd’s, 584 F.3d 513, 523 (3d Cir. 2009).
If the agreement at issue contains both a choice-of-law clause and an
arbitration clause, the reviewing court will interpret the arbitration clause
under the substantive law chosen by the parties. Mastrobuono v. Shearson
Lehman Hutton, Inc., 514 U.S. 52, 63-64 (1995) (holding that application of
state law identified in choice-of-law clause harmonizes choice of law clause and
arbitration clause); see also Kirleis v. Dickie, McCamey & Chilcote, 560 F.3d
156, 160 (3d Cir. 2009) (noting that court applies “ordinary state-law principles
that govern the formation of contracts.”).
III.
Discussion
Taylor claims that the arbitration clause is not a valid agreement under
New Jersey law because it does not contain an explicit waiver-of-rights
5
disclaimer as required by Atalese, supra. Taylor further claims that even if the
arbitration clause is valid, GAl? waived its right to arbitration by instituting this
federal action.
A. Enforceability of Arbitration Clause
Both the Employment Agreement and the APS Agreement have choice of
law provisions that require the application of the substantive law of New
Jersey. Under New Jersey law, a plaintiffs claims are subject to arbitration so
long as the arbitration clause at issue gives sufficient “notice to all parties to
the agreement that claims involving july trials would be resolved instead
through arbitration.” Maflindale v. Sand vik, 800 A.2d 872, 884 (N.J. 2002). “An
agreement to arbitrate, like any other contract, ‘must be the product of mutual
assent, as determined under customary principles of contract law.”’ Atalese, 99
A.3d at 313 (citation omitted). “When a party enters into a signed, written
contract, that party is presumed to understand and assent to its terms, unless
fraudulent conduct is suspected.” Stelluti v. Casapenn Enters., LLC, 1 A.3d 678,
690 (N.J. 2010).
“An enforceable agreement requires mutual assent, a meeting of the
minds based on a common understanding of the contract terms.” Morgan v.
Sanford Brown Inst., 137 A.3d 1168, 1180 (N.J. 2016) (citing Atalese, 219 N.J.
at 442). “This requirement of a ‘consensual understanding’ about the rights of
access to the courts that are waived in the agreement has led [New Jerseyj
courts to hold that clarity is required.” Moore v. Woman to Woman Obstetrics &
Gynecology, L.L.C., 416 N.J. Super. 30, 37 (App. Div. 2010) (alteration added
and citation omitted). This clarity of intent is required to “assure that the
parties know that in electing arbitration as the exclusive remedy, they are
waiving their time-honored right to sue.” Marchak v. Claridge Commons, Inc.,
134 N.J. 275, 282 (1993); see also Morgan, 225 N.J. at 308 (noting that right to
civil jury trial is guaranteed by New Jersey Constitution. (citing N.J. Const. art.
I,
¶
9)).
6
Atalese, the New Jersey Supreme Court case cited by both parties, held
that “mutual assent” requires that parties to an arbitration agreement be
placed on explicit notice that they are waiving their right to have claims
words
adjudicated in a court of law. 219 N.J. at 442-43. “No particular form of
is necessary to accomplish a clear and unambiguous waiver of rights,” the
Court held, but the “waiver-of-rights language
.
.
.
must be clear and
that is, the parties must know that there is a distinction
between resolving a dispute in arbitration and in a judicial forum.” Id. at 443-
unambiguous
--
45.
In Atalese, the plaintiff contracted with the defendant for debtprovision
adjustment services. Id. at 435. The contract contained an arbitration
not
for the resolution of any dispute between the parties, but the provision did
explicitly state that the plaintiff was waiving her right to seek relief in court:
Arbitration: In the event of any claim or dispute between Client
and the USLSG related to this Agreement or related to any
performance of any services related to this Agreement, the claim or
dispute shall be submitted to binding arbitration upon the request
of either party upon the service of that request on the other party.
The parties shall agree on a single arbitrator to resolve the dispute.
The matter may be arbitrated either by the Judicial Arbitration
Mediation Service or American Arbitration Association, as mutually
agreed upon by the parties or selected by the party filing the claim.
The arbitration shall be conducted in either the county in which
Client resides, or the closest metropolitan county. Any decision of
the arbitrator shall be final and may be entered into any judgment
in any court of competent jurisdiction. The conduct of the
arbitration shall be subject to the then current rules of the
arbitration service. The costs of arbitration, excluding legal fees,
will be split equally or be borne by the losing party, as determined
by the arbitrator. The parties shall bear their own legal fees.
id. at 437. The plaintiff later sued, alleging violations of the Consumer Fraud
Act, and the Truth-in-Consumer Contract, Warranty and Notice Act. The
defendant moved to dismiss the complaint and compel arbitration. Id. at 436.
The Court held that the arbitration provision was unenforceable: “The
waiving
absence of any language in the arbitration provision that plaintiff was
her statutory’ right to seek relief in a court of law renders the provision
7
unenforceable.” Id. at 436 (emphasis in original). In reaching this conclusion,
the Court recognized that mutual assent requires that the parties understand
the “terms to which they have agreed.” Id. at 442 (citing Knorr v. Srneal, 178
N.J. 169, 177 (2003) (“An effective waiver requires a party to have full
knowledge of his legal rights and intent to surrender those rights.”). Thus,
Atalese required that a waiver of rights clause “be clear and unambiguous.” Id.
at 444.
Atalese arose in the context of a consumer fraud action, involving an
average member of the public. It is a truism, the Court observed, that “[b]y its
very nature, an agreement to arbitrate involves a waiver of a party’s right to
have her claims and defenses litigated in court.” Nevertheless, “an average
member of the public may not know
--
without some explanatory comment
--
that arbitration is a substitute for the right to have one’s claim adjudicated in a
court of law.” See id. at 442. Subsequent cases have recognized the consumerfraud context as a substantive limitation on the aplplicability of the “clear and
unambiguous” standard announced in Atalese.2
See Victory Entm’t, Inc. v. Schibell, 2018 N.J. Super. Unpub. LEXIS 1467, at
*10..1l, 21-23 (App. Div. June 21, 2018) (rejecting application of Atalese, and
compelling arbitration where provision at issue simply stated that disputes “shall be
submitted to binding arbitration” and contract at issue was not “a consumer contract”
that involved “average members of the public”); Columbus Circle NJ, LLC ii. Island
*57 (App. Div. Mar. 13,
Constr. Co., LLC, 2017 N.J. Super. Unpub. LEXIS 606, at
2017) (rejecting application of Atalese to contract at issue which was not “a consumer
contract of adhesion where one party possessed superior bargaining power and was
the more sophisticated party.”); Gold Mine Jewelry Shoppes, Inc. v. Lise Aagaard
Copenhagen, 240 F. Supp. 3d 391, 397 (E.D.N.C. 2017) (declining to apply Atalese to
retailer agreement executed between two corporations); Emcon Assocs. v. Zale Cop.,
No. 16-1985 (FLW), 2016 U.S. Dist. LEXIS 172721, at *1 (D.N.J. Dec. 14, 2016)
employment
(finding that Atalese has been limited to consumer and
discrimination contexts, and contract at issue involved commercial transaction
between two sophisticated entities) (citing Gastelu ii. Martin, 2015 N.J. Super. Unpub.
LEXIS 1639, at *14 (App. Div. July 9, 2015) (“Parties to a commercial contract can
express their intention to arbitrate their disputes rather than litigate them in court,
we are dealing
In the present case.
without employing any special language.
with commercial business transaction and, therefore, the standard is not as stringent
[as the one put forward in Atalesej.”)); cf Van Duren v. Rzasa-Ormes, 394 N.J. Super.
254, 257 (App. Div. 2007) (enforcing arbitration agreement “between two sophisticated
business parties, each represented by counsel”), affd ab., 195 N.J. 230 (2008).
2
statutory
.
.
.
8
.
.
In the recently decided Kemahan case, the New Jersey Supreme Court
stopped short of a categorical ruling that the rule in Atalese applies only to
consumer contracts. Still, it relied very heavily on the “consumer fraud” aspect
of Atalese. See 2019 N.J. LEXIS at *27283
Kemahan, as it happened, did involve a consumer contract. It held that
the arbitration clause at issue was “too confusing and misleading to meet
simple plain wording standards demanded by the public policy of this state for
consumer contracts.” Id. at *31. In particular, the arbitration provision was
located within a section labeled “MEDIATION”; used such small font that it
violated the font size requirements of New Jersey’s Plain Language Act; and
contained confusingly contrary terms. Id. at *3233. The Court summarized its
bases for holding the provision unenforceable as follows: “(1) the inconspicuous
location of the agreement to arbitrate under a section labeled ‘MEDIATION’; (2)
its small-font text and confusing ordering of sentences; and (3) the invocation
of the Commercial Mediation Rules.” Id. at *36.
The Kemahan decision built on Atalese, which, it noted, involved “the
enforceability of an agreement to arbitrate in a consumer contract for debtadjustment services.” Id. at *27 (emphasis added). The Atalese decision, as
Kemahan saw it, was guided “by twin concerns”:
First, the Court was mindful that a consumer is not necessarily
versed in the meaning of law-imbued terminology about
The decision repeatedly
procedures tucked into form contracts.
notes that it is addressing a form consumer contract, not a contract
individually negotiated in any way; accordingly, basic statutory
consumer contract requirements about plain language implicitly
provided the backdrop to the contract under review.
.
.
.
And, second, the Court was mindful that plain language
explanations of consequences had been required in contract cases
The defendants in Kemahan withdrew their earlier argument that the standard
in Atalese was preempted by the FAA and in conflict with the United States Supreme
Court’s recent decision in Kindred Nursing ars. L.P. v. Clark, 137 S. Ct. 1421, 1426
(2017) (holding that Kentucky’s “clear-statement rule” violated FAA by holding
arbitration agreements to a higher standard than other contracts). 2019 N.J. LEXIS at
*11, 20, 35. As a result, the Court did not rule on the issue. Id. at * 11.
3
9
in numerous other settings where a person would not be presumed
to understand that what was being agreed to constituted a waiver
of a constitutional or statutory right.
2019 N.J. LEXIS at *28..29 (emphasis added). In Atalese, the Kemahan Court
reiterated, “[tihe consumer context of the contract mattered.” Id. at *28. See
also Id. at *29 (reviewing “consumer contract language” in determining
“whether there was mutuality of assent to form an agreement to arbitrate”); Id.
at *29 (“In New Jersey, we have a Plain Language Act that imposes certain
to wit, they must use
simple principles on consumer contracts generally
--
plain language that is commonly understood by the wide swath of people who
comprise the consuming public.”); id. at *31 (“Atalese stands for the
proposition that an arbitration agreement is clearly enforceable when its terms
affirmatively state, or unambiguously convey to a consumer in a way that he or
she would understand, that there is a distinction between agreeing to resolve a
dispute in arbitration and in a judicial forum.”); Id. at *38 (holding that the
provision at issue was unenforceable because “a lay consumer” could not be
expected “to parse through the contents of this smalhfont provision to unravel
its material discrepancies.”). If the New Jersey Supreme Court has not yet
declared a consumer contract to be an absolute prerequisite to the application
of the Atalese “explicit
waiver”
rule, it has been elevated to the status of a very
critical factor.
GAl? and Taylor, the parties here, are not “average member[s] of the
public.” Neither the APS Agreement nor the Employment Agreement at issue
here was a “consumer contract.” Neither Agreement was a contract of adhesion
that was “not.
.
.
individually negotiated in any way.” See Atalese, 219 N.J. at
442, Kemahan, 201g N.J. LEXIS at *2829. Taylor worked as a non-attorney
advocate for clients seeking social security disability benefits. (DE 10-2 ¶4).
Prior to the execution of the Employment Agreement, Taylor and OAR executed
an Asset Purchase and Sale Agreement whereby Taylor sold her business
assets to OAR, in exchange for $275,000
—
a sophisticated commercial
agreement between people in the same business. In both the APS Agreement
10
and Employment Agreement, Taylor represented and warranted that she
understood the agreements and had had the opportunity to speak with an
attorney. In short, this was very far from being a “setting[] where a person
would not be presumed to understand” that the right to a civil trial was being
waived. Kemahan, 2019 N.J. LEXIS at *29.
Presented with the issue, I think that the New Jersey Supreme Court
would hold that the more exacting standard of Atalese does not apply here.
Most persuasive in this context are cases compelling arbitration where the
clause at issue, while not explicitly waiving a jury right, is nonetheless held
enforceable because the parties were involved in sophisticated negotiations,
and were not average consumers confronted with an adhesion contract. E.g.,
VictonjEntm’t, Inc., 2018 N.J. Super. Unpub. LEXIS at*1O11, 21-23
(compelling arbitration where provision at issue stated that disputes “shall be
submitted to binding arbitration” and contract at issue was not “a consumer
contract” that involved “average members of the public”); see also n.2, supra,
and cases cited.
These Agreements clearly and unambiguously indicate the intention of
the parties to submit any disputes regarding the contracts to arbitration. In
this commercial context, no more is required. I find that the arbitration clauses
are valid, binding, and enforceable.4
Taylor has proffered a supplemental certification, wherein she claims that she
was not advised by OAR or by counsel of the arbitration clause and that she did not
understand that she was waiving her right to a jury trial. (DE 32-1). This belated
certification was submitted after the parties were invited to submit supplemental
briefing only to address the impact of Kemahan. In any event, under “New Jersey law.
a defendant has no obligation to alert a plaintiff to an arbitration provision (or any
other provision) that is contained within the contract that the plaintiff is signing.”
*42 (D.N.J. Dec. 7,
Bacon v. Avis Budget Grp., Inc., 2018 U.S. Dist. LEXIS 207474, at
2018) (citing Gras v. Assocs. First Capital Corp., 346 N.J. Super. 42, 56 (App. Div.
2001) (“Failing to read a contract does not excuse performance unless fraud or
misconduct by the other party prevented one from reading.”)). I note also that the
certification is defective as to form. It omits the statutorily required provision that it is
submitted “under penalty of pexjuiy.” 28 U.S.C. § 1746; see also United States v.
Branella, 972 F. Supp. 294, 299 (D.N.J. 1997) (rejecting nonconforming certification,
noting that “[cjritical in the statutory prerequisite is the phrase ‘under penalty of
peijury,’ as the purpose of 28 U.S.C. 1746 is to set the stage for a federal prosecution
11
I next address the scope of the arbitration provisions.
Taylor’s counterclaim for breach of contract clearly and explicitly arises
from the Employment Agreement. (Counterclaim, DE 7 at 10—il, ¶ 1—17). The
arbitration clause in that Employment Agreement broadly applies to “[a]ny
disputes regarding this agreement.” Accordingly, Taylor’s counterclaim for
breach of contract would fall within that provision, and is arbitrable.
I next address the issue of whether OAR’s federal court complaint falls
within the scope of the arbitration clause(s), an issue not clearly addressed by
the parties.
GAR’s first two causes of action are clearly arbitrable. The first cause of
action alleges breach of contract, based on the APS Agreement, and alleges that
GAR “has sustained monetary damages in an amount to be determined at
trial.” (AC ¶jJ 52-56). The second cause of action alleges breach of contract,
based on the Employment Agreement, and asserts that “OAR has sustained
monetary damages in an amount to be determined at trial.” (AC ¶57-60).
Those two Agreements, as we have seen, contain substantially similar
arbitration provisions covering “disputes regarding this agreement.” That
language clearly covers claims for damages based on breach of those very
Agreements. Those claims for breach of contract would also fall (possibly
unwittingly) within the scope of OAR’s request on this motion that “an Order be
entered directing the parties to proceed into arbitration with regard to any and
all claims for money damages arising out of the Employment Agreement and/or
the Asset Purchase and Sale Agreement.” (DE 24-2 ¶j 20).
in the event of falsity.”); Pagan a Holder, 741 F. Supp. 2d 687, 694 n.h (D.N.J. 2010)
(rejecting certification that “is neither a sworn affidavit nor an unsworn declaration
made under penalty of perjury, pursuant to 28 U.S.C. § 1746.”). This certification
therefore would not properly be before the court even if relevant and timely submitted.
I say “unwittingly” because GAR seems to be of the impression that only Taylor
is asserting claims at law for damages. That impression is mistaken. While OAR’s
original complaint asserted only claims for equitable relief, Counts 1 and 2 of the
Amended Complaint assert claims at law for breach of contract, and seek monetary
damages. GAR, if the matter is not referred to arbitration, moves in the alternative that
it should be permitted to amend its complaint to assert claims at law for damages.
12
OAR’s amended complaint also seeks equitable relief, in the form of an
injunction and an accounting (the third and fourth counts). (AC ¶1 6 1-76).
OAR contends that injunctive relief is carved out from the scope of the
arbitration provisions. In support of that proposition, OAR cites the following
provision in the Employment Agreement:
[T]he Employee acknowledges that, in the event of any breach or
threatened breach by the Employee of the provisions of Sections 8,
9 or 10, the Employer and its subsidiaries and affiliates shall be
entitled to temporary, preliminary and permanent injunctive or
and to an equitable
other equitable relief against the Employee
accounting of all earnings, profits and other benefits arising,
directly or indirectly, from such violation, which rights shall be
cumulative and in adding to (rather than instead of) any other
rights or remedies available at law or in equity.
.
.
.
(DE 5-2, ¶11).
Nothing in that provision addresses the scope of arbitration or purports
to negate or limit the arbitration provision. The quoted provision does no more
than ensure the availability of remedies traditionally classified as equitable. It
specifies forms of relief, but says nothing about the forum in which they will be
sought. The arbitration provisions in the Agreements explicitly invoke the
procedures of the American Arbitration Association. The AAA Rules permit an
arbitrator to grant (1) “any remedy or relief that would have been available to
the parties had the matter been heard in court,” as well as (2) interim and
interlocutory relief. American Arbitration Association, Employment Arbitration
Rules and Mediation Procedures, Rule 39 (Nov. 1, 2009).6 In short, a reference
to equitable relief should not be deemed to rule out arbitration by implication.
The arbitration provisions cover all disputes that arise from any breach
of the APS or the Employment Agreement, without limitation as to the remedy
(See, e.g., DE 24-2 fl 20, 22). The premise of that request would seem to be that,
before now, OAR has not asserted such legal claims—but it has.
The AAA Rules are publicly available. See
www.adr.org/ sites/ default! ffles/ EmployrnentRulesWeb2 l19.pdf
6
13
sought. The claims in OAR’s complaint and Taylor’s counterclaims fit
comfortably within that definition, and are therefore arbitrable.
B. Waiver
I next address whether OAR waived its right to arbitrate by filing its
complaint in federal court.
Actively litigating a case on the merits can result in waiver where it
causes prejudice to the other party. See Gaulik Constr. Co. t’. H.F. Campbell Co.,
526 F.2d 777, 783 (3d Cir. 1975) (“We believe it is not the inconsistency of a
party’s actions, but the presence or absence of prejudice which is determinative
of the issue of waiver.”) (internal quotations and citation omitted), overruled on
other grounds by Zosky v. Boyer, 856 F.2d 554 (3d Cir. 1988); Paine Webber Inc.
v. Faragalli, 61 F.3d 1063, 1068-69 (3d Cir. 1995) (noting that “waiver will
normally be found only where the demand for arbitration came long after the
suit commenced and when both parties had engaged in extensive discovery”)
(internal quotation and citation omitted)); Hoxworth v. Blinder, Robinson & Co.,
Inc., 980 F.2d 912, 926-27 (3d Cir. 1992) (providing non-exclusive list of
factors relevant to prejudice inquiry, including: (1) timeliness of motion to
arbitrate; (2) degree to which the party seeking to compel arbitration has
contested the merits of its opponent’s claims; (3) whether that party has
informed its adversary of its intent to arbitrate even if it has not yet filed a
motion to compel; (4) the extent of its non-merits motion practice; (5) its assent
to the district court’s pretrial orders; and (6) the extent to which both parties
have engaged in discovery).
Nothing approaching the requisite level of prejudice is present here. The
parties have not engaged in any discovery or substantive motions addressing
the merits of the claims. See Qaulik Constr., 526 F.2d at 783 (“[M]erely
answering on the merits, asserting a counterclaim (or cross-claim) or
participating in discovery, without more, will not necessarily constitute a
waiver[.]”). It does not appear from the docket that there has even been an
14
initial Rule 16 conference, although the parties have filed a discovery’ plan. (DE
25)
While the motion to compel arbitration was pending, not much occurred
in the way of court proceedings. See Hoxworth, 980 F.2d at 925 (finding waiver
where parties litigated case for one year, which included participating in
numerous pretrial conferences, filing motion to dismiss for failure to state a
claim, motion to disqualify plaintiffs counsel, engaging in formal discovery,
including written discovery, depositions, and discovery motion practice); Esaka
v. Nanticoke Health Set-vs., 752 F. Supp. 2d 476, 485 (D. Del. 2010) (granting
motion to compel arbitration where there had been no exchange of discovery,
Rule 16 conference, or substantive motions); United States ex rel. Duo Metal &
Iron Works, Inc. z’. S.T.C. Constr. Co., 472 F. Supp. 1023, 1025 (E.D. Pa. 1979)
(finding waiver where plaintiff expended “considerable effort and expense in
conducting.
.
.
discovery” for nineteen months prior to filing motion to compel
arbitration).
GAR filed its original complaint in this court seeking only equitable relief,
in the evident belief that equitable claims were not arbitrable. (See DE 24-1).
Taylor’s answer to the Amended Complaint included counterclaims at law for
damages. That apparently was the catalyst for QAR’s filing of its original
motion to compel arbitration on July 14, 2017. (DE 10). That motion to compel
arbitration was confined to claims at law.
GAl? has consistently sought arbitration of all claims to which it believed
the arbitration clauses applied. Both sides at least entertained the idea of
arbitrating all claims; on consent, Magistrate Judge Hammer administratively
terminated the motion so that the parties could discuss dismissal of the action
and arbitration on consent, or in the alternative return to court to seek a
scheduling order. (DE 17).
I conclude that GAl? has not, by its litigation conduct, waived its right to
arbitrate, and has not caused Taylor to suffer any prejudice in the interim.
15
W.
Conclusion
OAR’s motion to compel arbitration (DE 24) is granted. All claims and
counterclaims will be referred to arbitration. In the meantime, this action will
be administratively terminated without prejudice. GAR’s request to amend the
complaint, as an alternative ground for relief, is denied as moot.
Dated: February 6, 2019
/&
%a
Kevin McNulty
United States District Judge
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