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holding that defendant might have had "continuous and systematic" contacts with the forum if plaintiff had continued to work as an independent contractor for defendant in that forum
Summary of this case from GT Sec., Inc. v. Klastech GmbHOpinion
No. C 00-3594 JL
September 23, 2001
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING PLAINTIFF'S MOTION TO ENJOIN A STATE COURT PROCEEDING.
INTRODUCTION
Defendants' Motion to Dismiss Plaintiffs Complaint for Damages under F.R.C.P. 12(b)(2) and 12(b)(3) and Plaintiffs Motion to Enjoin Defendant from Proceeding in Illinois State Court were heard on August 1, 2001. Lindbergh Porter appeared on behalf of Defendants Peregrine Financials and Securities ("Peregrine"). John E. Linneball appeared on behalf of Plaintiff Rooz Eftekhari.
IT IS HEREBY ORDERED that Defendants' motion to dismiss the claim against individual Defendant Thomas Pearson for lack of jurisdiction under F.R.C.P. 12(b)(2) is GRANTED. The court finds that because Pearson had no minimum contacts with California and did not purposefully avail himself of the laws of the state, the court does not have jurisdiction over him.
IT IS HEREBY ORDERED that defendants' motion to dismiss the claim against Peregrine for lack of proper venue under F.R.C.P. 12(b)(3) is GRANTED. The court finds that none of the defendants reside in California and that a substantial part of the events or omissions on which this claim is based did not occur in California.
IT IS HEREBY ORDERED that Plaintiff's motion for a preliminary injunction to enjoin the state court proceeding in Illinois is DENIED. The court finds that it does not have the authority to stay an out-of-state court proceeding; that plaintiff does not meet the requisite standards for a preliminary injunction; and that because the Illinois proceeding has already been stayed, plaintiffs motion is moot.
IT IS HEREBY ORDERED that defendants' motion for this court to sanction plaintiff and his attorney under F.R.C.P. 11 is DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
Peregrine hired plaintiff as a securities broker on October 13, 1998. Plaintiff was hired in Chicago, Illinois and signed a Registered Representative Agreement specifying that he would indemnify Peregrine for any and all claims, demands, proceedings, suits and actions against Peregrine arising out of or relating to plaintiffs activities at Peregrine. The Agreement specified that plaintiffs association with Peregrine was subject to the laws of the State of Illinois. As a condition of plaintiffs association with Peregrine, plaintiff was required to register with the National Association of Securities Dealers ("NASD"), using the securities industry's standard "Form U-4." Under the Form U-4, plaintiff agreed to "arbitrate any dispute, claim or controversy" that might arise between himself and Peregrine or Peregrine's Chief Financial Officer Thomas Pearson or a customer.
On February 1, 2000, the parties amended a previous oral agreement and agreed that plaintiff would establish a Peregrine office in Oakland, California. Plaintiff relocated to Oakland as of June 1, 2000, and his status shifted from employee to independent contractor.
On June 27, 2000, Peregrine received a complaint from two of plaintiff's Illinois customers, who alleged that plaintiff, while in Illinois, had engaged in unauthorized trading in their brokerage accounts. Peregrine asked plaintiff to indemnify them for the $100,000 they paid to the customers, and plaintiff refused. On July 18, 2000, Peregrine filed an action in the Circuit Court of Cook County, Illinois, to sequester $100,000 of plaintiff's funds. The Circuit Court issued an order sequestering $75,681.43 in plaintiff's account. (Pearson Declaration, p. 3.) Subsequent to obtaining the Order of Attachment, Defendants learned that other customers of plaintiff alleged that he had engaged in unauthorized trading in their accounts as well.
On July 24, 2000, plaintiff was notified that he had been terminated as of July 18, 2000. On September 1, 2000, plaintiff filed a claim with the EEOC, alleging that in April and May of 2000, Peregrine's Chief Financial Officer, Defendant Thomas Pearson, made a series of derogatory remarks about plaintiffs national origin (Iranian), ethnicity (Persian) and religion (Islam). In his complaint, plaintiff alleges that one of the bases of Peregrine's filing of the sequestration action in Illinois state court is that Peregrine asserted that plaintiff was going to "flee to Iran."
On September 7, 2000, plaintiff received his right to sue letter from the EEOC, which he served on Peregrine on September 9, 2000. Plaintiff claims it was in retaliation for his EEOC complaint that Peregrine amended its action by asking to attach an additional $304,000 of plaintiffs funds. After receiving notice of defendants' amended sequestration action, plaintiff filed a reprisal claim with the EEOC.
In September of 2000, plaintiff filed a Motion to Stay the Proceeding and to Compel Arbitration with the Circuit Court of Cook County, Illinois. Plaintiff asked to have all matters, including his Title VII claims, arbitrated there. Subsequently, the parties actually commenced arbitration.
Nevertheless, on September 29, 2000, plaintiff filed a complaint in this court alleging discrimination in termination of his employment based on national origin, ethnicity and religion, pursuant to Title VII of the Civil Rights Act of 1964. Plaintiff filed additional claims for breach of the oral contract of employment, breach of the covenant of good faith and fair dealing and intentional infliction of emotional distress. Plaintiff also submitted supplemental claims for violation of California Labor Code § 203 and § 970.
Also on September 29, 2000, plaintiff filed an ex parte motion for preliminary injunction against defendants' state court proceeding in Illinois. On October 12, 2000, plaintiff consented to have a U.S. Magistrate Judge conduct any and all proceedings in this case, including trial and the entry of a final judgment, as provided by 28 U.S.C. § 636(c). On April 25, 2001, the court denied without prejudice plaintiffs ex parte motion for preliminary injunction to stay the Illinois state court proceeding. On June 14, 2001, plaintiff re-filed his motion for preliminary injunction. Defendants on the same date filed their motion to dismiss the claim against Thomas Pearson for lack of jurisdiction and to dismiss the claim against Peregrine for improper venue. Defendants also moved for an order compelling Plaintiff to arbitrate his claims pursuant to the U-4 form he signed when Peregrine hired him.
LEGAL ARGUMENT
A. Defendant's Motion
Defendant Peregrine makes three arguments: 1) that the court should dismiss this action against individual defendant Thomas Pearson, under F.R.C.P. 12(b)(2) because he had no minimum contacts with California and did not purposefully avail himself of the laws of the state and, therefore, a California court has no personal jurisdiction over him; 2) To best serve judicial economy, this court should dismiss the action under Rule 12(b)(3) for improper venue or, alternatively, under 28 U.S.C. § 1406, should transfer the suit to a federal district court in Illinois, where all the events that gave rise to plaintiff's claim took place and where all the witnesses reside; 3) or if this court finds that jurisdiction and venue are proper in California, the court should stay the action and issue an order compelling plaintiff to arbitrate his claims. One of the conditions of plaintiffs employment with Peregrine was that he sign a National Association of Securities Dealers ("NASD") form in which he agreed to arbitrate any dispute that might arise between himself and Peregrine. Defendants argue that the Federal Arbitration Act constitutes federal policy favoring arbitration over litigation.
In his Reply memo to Defendants' Motion to Dismiss, plaintiff disputes the facts regarding lack of jurisdiction and improper venue. Plaintiff argues that individual defendant Thomas Pearson is subject to California jurisdiction because he "runs offices in Southern California" and because he "sent plaintiff to establish an Oakland, California office for Peregrine." (Plaintiff's Reply Memo, p. 4.)
In his Declaration attached to Defendants' Motion to Dismiss, Peregrine CFO Thomas Pearson says that Peregrine does not have any offices in California although it does have an individually licensed independent contractor in Newport Beach. Pearson also says in his Declaration that plaintiff requested and Peregrine allowed him to trade securities as an independent contractor and registered representative in California. (Pearson Declaration, pp. 1, 2.) Plaintiff does not provide any documentation as to whether he became an independent contractor or continued as an employee of Peregrine as of June l, 2000.
In any event, individual defendant Pearson does not have the requisite minimum contacts with California to establish state jurisdiction over him. Pearson is not doing business in the state and has not availed himself of the state's laws. As to the question of venue, defendants argue, under 28 U.S.C. § 1391(b), that venue is improper because none of the defendants reside in California and because a substantial number of the events or omissions on which the claim is based did not occur in California. Defendants argue that Plaintiff's claim should be dismissed under F.R.C.P. 12(b)(3) or, alternatively, transferred to a federal district court in Illinois.
Plaintiff concedes that no defendants reside here. He argues in his Reply memo that because he was terminated after he relocated to Oakland, that a "substantial" portion of the events or omissions underlying his claims occurred in this state. Plaintiff does not address the fact that his Title VII claim is based largely on allegedly derogatory remarks made to him by Peregrine CFO Pearson in the Chicago office. Nor does plaintiff address the fact that Peregrine terminated him following the complaint from clients in Chicago who allege that plaintiff mishandled their accounts while in Chicago. Defendants argue finally that even if this court were to find jurisdiction and venue to be proper, plaintiff should be ordered to arbitrate his claims, both because plaintiff agreed to arbitrate all disputes and because arbitration is already underway.
Plaintiff, in his Reply memo of July 11, 2001, acknowledges that arbitration is underway but argues that the case should remain in this court. He asserts that because the NASD dispute resolution rules call for arbitration to be held at the nearest location where the employee was last employed, i.e. San Francisco, that here is also the proper venue for him to pursue his Title VII claim.
B. Plaintiffs Motion to Enjoin the State Court Proceeding
Plaintiff argues, first, that this court should stay Peregrine's civil action against him in Illinois state court because the parties agreed to arbitrate when they signed the NASD U-4 form. Plaintiff argues that this court has the authority to stay the Illinois state proceeding because while the Anti-Injunction Act, 28 U.S.C. § 2283, generally prohibits federal courts from enjoining state court proceedings, it allows injunctions "expressly authorized by Act of Congress."
At the same time, plaintiff argues that the Civil Rights Act of 1991 precludes mandatory arbitration of a Title VII claim. He cites a Ninth Circuit case in which an NASD broker was not required to arbitrate a Title VII claim pursuant to an arbitration clause of the NASD U-4 registration form. Plaintiff argues that he is entitled to pursue his employment discrimination claim against Peregrine in federal court in California, under either federal question or diversity jurisdiction, in lieu of arbitration.
As discussed above, defendant argues for a dismissal of plaintiff's case, first on grounds that this court lacks personal jurisdiction and is not the proper venue and, second, on grounds that plaintiff should be compelled to arbitrate his employment discrimination claim. At issue is whether the NASD U-4 form compels plaintiff to arbitrate his Title VII claim, not just the dispute about his alleged unauthorized trading practices.
Defendant disputes plaintiffs reading of the current law on arbitration of Title VII cases. Plaintiff agreed to arbitrate any and all claims. The Supreme Court has recently upheld mandatory arbitration of employment discrimination claims, thus overruling the Ninth Circuit case plaintiff cites.
In their Reply memo of July 11, 2001, defendants oppose plaintiffs Motion for a Preliminary Injunction primarily because the Illinois state court has, in fact, already stayed the proceeding pending completion of arbitration. Defendants take issue with plaintiff's pursuit of a motion which they say is "superfluous, nonsensical and brought in bad faith." There is, in effect, no ongoing state action to be stayed.
Defendants ask, finally, that this court sanction plaintiff's attorney under F.R.C.P. 11 for bringing a groundless motion.
LEGAL ANALYSIS
A. Defendant's Motion
1. California Has No Personal Jurisdiction over Defendant Thomas Pearson.
Defendant properly moves for dismissal of the claims against individual defendant Thomas Pearson under F.R.C.P. 12(b)(2), for lack of personal jurisdiction.
Pearson is Peregrine's Chief Financial Officer (CFO). In order for a federal court in California to exercise jurisdiction over an out-of-state defendant, that defendant has to have "minimum contacts" with the forum state. International Shoe Co. v. State of Washington, 326 U.S. 310 (1945).
In his Declaration in support of Defendants' Motion to Dismiss, Pearson states that he has never lived or worked in California and does not do business here. Peregrine does not have any offices or employees in California, though the company does have a licensed independent contractor in southern California. When plaintiff moved and established an office in California, it was as an independent contractor for Peregrine, not as an employee of Pearson's. It does not appear that individual defendant Pearson has availed himself of the laws of California, nor does he have the requisite minimum contacts to allow a court in California to have jurisdiction over him.
Defendants argue that when a nonresident defendant challenges jurisdiction, the plaintiff has the burden of proving that there exists a sufficient relationship between the defendant and the state of California to justify personal jurisdiction. Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389, 1392 (9th Circuit 1984). Plaintiff has to demonstrate either specific jurisdiction, i.e. that the case arises out of or relates to the foreign defendant's activities in the forum, or general jurisdiction, i.e. that the defendant has "continuous and systematic general business contacts" with the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 409 (1984).
In this case, plaintiff cannot establish either specific or general personal jurisdiction over defendant Pearson. Plaintiffs case against Pearson does not arise out of Pearson's or Peregrine's relationship with the independent contractor in Southern California, which would qualify as specific jurisdiction. Nor do either Pearson or Peregrine have "continuous and systematic" contacts with the state. They might have developed such contacts if plaintiff had continued to work as an independent contractor for Peregrine, but because he was terminated within a few weeks of his relocation to California, his work here does not amount to the requisite level of business contacts for Pearson.
Because Pearson does not have the requisite contacts, and because it would be unfair to subject Pearson to suit in California, Defendants' motion to dismiss the claim against Pearson is GRANTED.
2. California is not the Proper Venue for Plaintiff's Claim Against Peregrine.
Defendant moves to dismiss plaintiffs claim against Peregrine, under F.R.C.P. 12(b)(3), for improper venue. Alternatively, defendant asks this Court to transfer the case to a federal court in Illinois. Section 1391(b) of 28 U.S.C. addresses venue for actions not founded solely on diversity of citizenship. Such actions may be brought "only in 1) a judicial district where any defendant resides, if all defendants reside in the same State, 2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or 3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought."
In this case, plaintiff and defendants are citizens of different states and plaintiff alleges violations of Title VII. Therefore, venue is governed by the rules for federal question cases. In this case, California is not the proper venue. Peregrine conducts its 15 business in Illinois, where Pearson also resides. Plaintiffs oral employment agreement was negotiated in Chicago. Pearson's allegedly discriminatory remarks were made in Chicago. The alleged unauthorized trading practices occurred in Chicago. The only event that took place in California was Plaintiff's move to Oakland in June 2000 after he became an independent contractor.
Because California is not the proper venue for this case, this court may either dismiss the case against defendant Peregrine under Rule 12(b)(3) or transfer the action to the Northern District of Illinois under 28 U.S.C. § 1406(a). Dismissal is the better alternative for the following reasons.
Because this court has dismissed the case against individual defendant Pearson for lack of jurisdiction, plaintiff would have to refile against Pearson in the correct jurisdiction and should sue both Pearson and Peregrine in the same place. Additionally, dismissal, rather than transfer, is consistent with the fact that arbitration between the parties is already underway.
Defendants' motion to dismiss the claim against Peregrine for improper venue is GRANTED.
B. Plaintiffs Motion
1. This Court Lacks Jurisdiction to Stay the Illinois State Court Proceedings.
While it may well be unnecessary in light of the above rulings, this court will also address Plaintiff's motion. Section 2283 of 28 U.S.C. generally prohibits federal courts from enjoining state court proceedings. "A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." ( 28 U.S.C. § 2283).
Plaintiff acknowledges that federal courts are generally not allowed to enjoin state court proceedings. However, he argues that an exception to this rule is found in 28 U.S.C. § 2361, the Interpleader Act, which states that "a district court may issue its process for all claimants and enter its order restraining them from instituting or prosecuting any proceeding in any State or United States court affecting the property, instrument or obligation involved in the interpleader action until further order of the court."
Plaintiff argues that because the Illinois state proceeding and his Title VII federal action both pertain to the $404,000 Defendants seek to have sequestered, that this Court has the power to intervene to enjoin the state court proceeding.
Plaintiff uses false reasoning in invoking § 2361 to justify an exception to the prohibition of a federal injunction against a state court action. There has been no interpleader action filed in this court or in the Illinois Circuit Court under 28 U.S.C. § 1355. An interpleader is a means by which a person faced with the possibility of claims of conflicting liability or ownership asserted by two or more potential plaintiffs can secure a judgment binding on all the potential plaintiffs. (Defendants' Reply Memo, p. 5, citing 28 U.S.C. § 1355.)
In this case, Mr. Eftekhari is a defendant in a contract dispute filed by Peregrine in Illinois state court and a plaintiff in a Title VII action filed in federal court in California. The Illinois state action is a contract dispute between only one plaintiff and only one defendant. Interpleader is inappropriate. Apparently, plaintiff cites the Interpleader Act, 28 U.S.C. § 2361, because it contains one sentence authorizing a district court to restrain parties from proceedings affecting property. That the Illinois state action involves sequestered property does not make it eligible for the Interpleader Act exception to the prohibition on federal injunctions against state actions. There is, simply, no authority for this court to enjoin the Illinois state action.
Plaintiffs motion for a preliminary injunction against the Illinois state action is DENIED.
2. Plaintiff Does Not Satisfy All the Requirements for a Preliminary Injunction.
The party seeking a preliminary injunction has the burden of persuasion and has to show: 1) that he will suffer irreparable harm if the injunction is not granted; 2) that he will likely succeed on the merits of his claim; and 3) that the balance of hardships tips in the moving party's favor.
Because plaintiff faces the loss of at least $404,000 and may lose his license to practice as a securities registered representative, the balance of hardships appears to tip in his favor. However, plaintiff is unlikely to succeed on the merits of his claim. He promised to indemnify Peregrine for any losses to clients, and he is likely to owe Peregrine the amount of money Peregrine had to reimburse clients whose accounts were allegedly mishandled. Were he to ultimately prevail, however, the harm to him would not be irreparable. By not receiving a preliminary injunction, plaintiff has not suffered more financial harm than he is likely to suffer eventually anyway.
Because the Illinois state action has already been stayed, plaintiff's motion for a preliminary injunction is, as discussed below, moot.
3. Plaintiffs Motion to Stay the Illinois State Court Proceeding is Unnecessary.
Plaintiffs Motion for Preliminary Injunction is redundant. He already presented this motion to the Illinois Circuit Court nearly a year ago.
In their Reply memo and attached Declaration of Peregrine attorney Jennie Lau, Defendants assert that on September 29, 2000, plaintiff filed an identical motion to the one before this court, to stay the Illinois state proceeding and to compel arbitration. On October 2, 2000, the Illinois state court heard the motion. Plaintiff asked the court to stay all claims, and to compel the parties to arbitrate the matter pursuant to the U-4 form plaintiff had signed. (Ex. E, Jennie Lau Declaration, accompanying Defendants' July 11, 2001 Reply Memo. ) Plaintiff stated in his motion that the case "arises out of the employment and the termination of employment of Mr. Eftekhari." (Id. at p. 3.)
Before the Illinois Judge, Plaintiff's Chicago-based lawyer Tobin M. Richter said, "the dispute between Mr. Eftekhari and Peregrine Financial Securities should be handled 14 by a Securities Law arbitrator. . . . Every single bit of this dispute will go in front of an arbitrator, and that would be our preference." (Ex. F, pp. 8, 10, Jennie Lau Declaration.) Mr. Richter did not exclude plaintiffs employment discrimination claim from the "every single bit" of the dispute he wanted arbitrated.
The Illinois Circuit Court granted plaintiffs request to stay the proceedings, and he withdrew his motion to dismiss Peregrine's attachment action against him. The parties commenced arbitration in Illinois. (Defendants' Reply Memo, p. 2.)
Defendants contend that plaintiffs motion is "superfluous, nonsensical and brought in bad faith as there is no ongoing state action to be stayed, no irreparable harm being done and certainly no basis for usurping the authority of the NASD arbitration panel." (Id.)
On July 18, 2001, plaintiffs attorney, Mr. John Linneball, filed a Reply memo in which he concedes that the request to stay the Illinois state action is superfluous and apologizes for any inconvenience or confusion his request may have caused. Also on July 18, defendants filed a Reply to plaintiffs Opposition to their Motion to Dismiss. In that memo, defendants note that in a June 26, 2001 letter to Mr. Linneball, defendants' counsel Lindbergh Porter requested that Mr. Linneball withdraw the motion because the Illinois state action had already been stayed. (Ex. I to Jennie Lau Declaration.) In that same letter, Mr. Porter also warned Mr. Linneball that if he did not withdraw the motion, defendants would seek sanctions against him and his client. After receiving no response to the letter, on July 10, 2001, Jennie Lau telephoned Mr. Linneball, who refused to withdraw the motion. (Jennie Lau Declaration, Paragraph 11.)
Because Mr. Linneball concedes that his request for this Court to stay the Illinois state proceeding is superfluous, Plaintiff's motion is DENIED.
4. Plaintiff Should be Compelled to Continue to Arbitrate All Claims.
Plaintiff should be compelled to complete arbitration of all claims related to his employment relationship with Peregrine, for two reasons: 1) Plaintiff himself has agreed to arbitration. 2) The U.S. Supreme Court has upheld compulsory arbitration of employment disputes, including Title VII claims.
There are three indications that plaintiff agreed to arbitration. First, when plaintiff became a registered representative of Peregrine, he signed the standard NASD U-4 form in which he agreed to "arbitrate any dispute, claim or controversy that may arise between" himself, the firm, a customer or any other person. (Ex. A to Jennie Lau Declaration.) Secondly, in his own Motion for Preliminary Injunction, filed on June 14, 2001, plaintiff stated that transactions involving interstate commerce are governed by the arbitration code and that "it is crystal clear that Securities Transactions as well as employment described herein arise within the purview of the Interstate Commerce Clause. The parties clearly agreed to the jurisdiction of the NASD." (Plaintiff's Motion and Memorandum of Points and Authorities in Support of Preliminary Injunction, pp. 5, 6.) Thirdly, in the proceedings before the Illinois state court on October 2, 2000, plaintiffs Chicago attorney told the Court that it was Mr. Eftekhari's preference to have "every single bit of this dispute" go "in front of an arbitrator." (Ex. F to Jennie Lau Declaration.)
Plaintiffs pattern, from 1998 to 2001, has been to agree to have all aspects of his dispute with Peregrine settled through arbitration. Additionally, there is legal authority to compel Mr. Eftekhari to proceed with arbitration. The Supreme Court has upheld the same arbitration provision that plaintiff signed. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). In Gilmer, a securities broker-dealer sued his employer for age discrimination under the Age Discrimination in Employment Act (ADEA.) The employer sought to compel arbitration because Gilmer had signed a U-4 form agreeing to arbitrate. The court upheld mandatory arbitration and held that civil rights statutes may be subject to arbitration agreements. The court held that the pre-dispute arbitration clause should be enforced unless the plaintiff could show that Congress specifically intended to preclude arbitration. Id. at 26.
In a Ninth Circuit case, the U.S. Court of Appeals refused to enforce a Form U-4 arbitration clause when a securities broker-dealer sued her employer for breach of contract, tort claims, sexual discrimination and sexual harassment under Title VII and California's Fair Employment and Housing Act (FEHA). Duffield v. Robertson Stephens Co. 144 F.3d 1182 (9th Cir. 1998.) The court in Duffield held that the Civil Rights Act of 1991 did not allow employers to compel individuals to waive their Title VII right to a judicial forum but that there was no constitutional prohibition on employers requiring employees to agree in advance to arbitrate state-law tort and contract claims if those claims were not about violations of a state civil rights law. Id.
Recently, the Supreme Court reversed the Ninth Circuit in deciding to compel arbitration of employment discrimination claims. Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302 (2001). In Circuit City, an employer brought an action under the Federal Arbitration Act (FAA) to enjoin an employee's state court employment discrimination action and to compel arbitration under a pre-dispute agreement. The Court held that only employment contracts of transportation workers were exempted from the FAA, Id., thus strengthening the hand of employers to compel arbitration and to deny employees a judicial forum for their employment discrimination claims.
Defendants rely on the Supreme Court's holdings in Gilmer and Circuit City to argue that employers may compel arbitration, even of discrimination claims. A recent case in the Central District of California affirmed that the Court in its decision in Circuit City reverses Duffield and allows employers to compel arbitration agreements even for Title VII and FEHA claims. Olivares v. Hispanic Broadcasting Corp. 2001 WL 477171 (C.D. Cal. 2001). Under the decision in Circuit City, because he agreed to arbitrate, plaintiff is compelled to arbitrate not only the attachment action but also his Title VII employment discrimination claim.
C. Defendants' Request for Sanctions Against Plaintiff and His Counsel
In their memo in opposition to plaintiffs motion for a preliminary injunction, Defendants ask this court to sanction plaintiff and his attorney under F.R.C.P., for bringing a "frivolous and factually misleading" motion.
Under Rule 11, when an attorney presents to the court a written motion or other paper, that attorney is certifying to the best of his or her knowledge and belief "after an inquiry reasonable under the circumstances" that the paper "is not being presented for any improper purpose;" that the "the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument;" and that "the allegations and other factual contentions have evidentiary support." (F.R.C.P. 11(b).)
Rule 11 empowers federal courts to impose sanctions for pleadings that are frivolous or filed for an improper purpose. In re Grantham Bros. 922 F.2d 1438, 1441 (9th Cir. 1991). Rule 11 is "intended to be applied by district courts vigorously to curb widely acknowledged abuse from the filing of frivolous pleadings and other papers." Zaldivar v. City of Los Angeles 780 F.2d 823, 829 (Ninth Cir. 1986).
In Zaldivar, the Ninth Circuit adopted the amended Rule 11 standard for testing violations worthy of sanctions. Prior to the 1983 amendments to Rule 11, it was interpreted to require subjective bad faith by the attorney signing papers; the standard for avoiding sanctions was the attorney's best knowledge, information and belief that the papers presented to the court were not frivolous. Under the amended Rule 11, the standard is objective: the attorney's knowledge has to be "reasonable under the circumstances." Id. at 829. See also Cooter Cell v. Hartmarx Corp., 496 U.S. 384 (1990): "In directing the district court to impose an "appropriate" sanction, Rule 11 itself indicates that the district court is empowered to exercise its discretion." Id. at 400.
Plaintiff Eftekhari's motion for a preliminary injunction is based on the notion that a state proceeding is underway in Illinois state court, and that the federal court needs to stop it. Plaintiffs motion does not disclose to this Court that the Illinois state action is already stayed. In plaintiffs opposition memo to defendants' motion to dismiss, plaintiff's attorney, Mr. John Linneball, writes that "It has come to plaintiffs counsel's attention that the Illinois action was stayed pending arbitration sponsored by the NASD. Plaintiff's counsel was unaware of that fact until after the motion for preliminary injunction, set for hearing at the same time as defendant's motion to dismiss, was filed." (Plaintiff's Reply Memo of July 11,
At issue is whether it is reasonable that Mr. Linneball did not know that the Illinois state action had been stayed at the time he filed his motion on June 4, 2001. Plaintiff's motion to stay the proceedings and compel arbitration was heard by the Illinois state court on October 2, 2000. Judge Thomas P. Quinn issued an order to stay the proceedings pending arbitration. (Ex. G to Jennie Lau Declaration.) On November 21, 2000, Judge Quinn issued an order denying Mr. Eftekhari's motion to dismiss the July 18, 2000 order attaching his funds on behalf of Peregrine. In the November 21, 2000 order, Judge Quinn noted that "the only matter left before this Court will be a rather ministerial function dependent upon the NASD resolution." (Ex. H to Jennie Lau Declaration.)
Mr. Linneball is asking this Court to believe that between October and November of 2000 and June 4, 2001 when he filed the motion for preliminary injunction, he did not know that the Illinois state action had already been stayed. For that to be possible, Mr. Linneball could not have performed the "inquiry reasonable under the circumstances" required by Rule 11(b).
This Court has granted defendants' motion to dismiss the case against Thomas Pearson for lack of jurisdiction and against Peregrine for improper venue, and this court has denied plaintiffs motion for a preliminary injunction. Because plaintiffs case has been dismissed, the court also DENIES defendant's request to impose Rule 11 sanctions on plaintiff and plaintiffs counsel, even though it may have merit.
CONCLUSION
Defendants' motion to dismiss the action against Thomas Pearson for lack of jurisdiction under Rule 12(b)(2) is GRANTED.
Defendants' motion to dismiss the action against Peregrine, for improper venue, under Rule 12(b)(3) is GRANTED.
Plaintiffs motion for a preliminary injunction staying the Illinois state court proceeding is DENIED.
Defendants' motion to sanction plaintiff and plaintiffs attorney is DENIED.
Plaintiff shall take nothing by his complaint. The parties shall bear their own costs.
This order resolves Document Numbers 14, 15, and 17 in the court's docket. The Clerk shall close the file.
IT IS SO ORDERED.