Arnold et al v. Chesapeake Energy Corporation et al

BRIEF IN SUPPORT re MOTION to Compel Arbitration, To Dismiss Counts VII, VIII, and IX, and To Stay All Remaining Claims Pending Arbitration

M.D. Pa.May 1, 2017

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA PAUL H. ARNOLD, et al., Plaintiffs, v. CHESAPEAKE ENERGY CORPORATION; CHESAPEAKE APPALACHIA, L.L.C.; CHESAPEAKE ENERGY MARKETING, INC.; CHESAPEAKE OPERATING, L.L.C., as successor by conversion to and f/k/a CHESAPEAKE OPERATING, INC.; ANADARKO PETROLEUM CORPORATION; ANADARKO E&P ONSHORE LLC, as successor by merger to and f/k/a ANADARKO E & P COMPANY, L.P.; WILLIAMS PARTNERS L.P. as successor by merger to and f/k/a ACCESS MIDSTREAM PARTNERS, L.P.; ACCESS MLP OPERATING, L.L.P.; APPALACHIA MIDSTREAM SERVICES, L.L.C.; and MITSUI E&P USA LLC, Defendants. Case No. 4:16-cv-01345-MWB (Judge Matthew W. Brann) Electronically Filed MEMORANDUM OF LAW IN SUPPORT OF THE CHESAPEAKE DEFENDANTS’ MOTION TO COMPEL ARBITRATION, TO DISMISS COUNTS VII, VIII, AND IX, AND TO STAY ALL REMAINING CLAIMS PENDING ARBITRATION Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 1 of 31 TABLE OF CONTENTS Page TABLE OF AUTHORITIES .................................................................................... ii I. INTRODUCTION AND BACKGROUND .................................................... 1 II. PROCEDURAL HISTORY ............................................................................ 3 III. QUESTIONS INVOLVED ............................................................................. 4 IV. STANDARD OF REVIEW ............................................................................. 5 A. Motion to Dismiss ................................................................................. 5 B. Motion to Compel Arbitration ............................................................... 5 V. ARGUMENT ................................................................................................... 7 A. The Arbitration Agreements Are Valid ................................................. 7 B. Plaintiffs’ Common Law and Statutory Claims Are Arbitrable ........... 8 C. Plaintiffs’ Claims against the Non-Signatory Chesapeake Defendants Are Arbitrable .................................................................. 10 1. Non-Signatories May Enforce the Arbitration Agreement Against Signatory Plaintiffs ...................................................... 10 2. The Chesapeake Defendants Have Directly Related Interests in This Action That Warrant Arbitration ................... 13 3. The Claims Against Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy Should Be Arbitrated Under the Doctrine of Equitable Estoppel ................................ 16 D. Plaintiffs’ Request for Declaratory Relief in Count IX Should Be Denied.................................................................................................. 18 E. Counts VII, VIII, and IX Should Be Dismissed and the Remaining Claims Should Be Stayed Pending Arbitration ................ 21 VI. CONCLUSION .............................................................................................. 22 Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 2 of 31 ii TABLE OF AUTHORITIES CASES Page(s) A.G.K. Sarl v. A.M. Todd Co., No. 07-2727, 2008 WL 724607 (E.D. Pa. Mar. 18, 2008) ................................. 15 Aegis Sec. Ins. Co. v. Harco Nat’l Ins. Co., No. 1:CV-06-0606, 2006 WL 1722395 (M.D. Pa. June 22, 2006) .................... 22 Alexander v. Chesapeake Appalachia, LLC, 839 F. Supp. 2d 544 (N.D.N.Y. 2012) .................................................................. 7 Aluminium Bahrain B.S.C. v. Dahdaleh, 17 F. Supp. 3d 461 (W.D. Pa. 2014) ................................................................... 16 Arnold v. Arnold Corp.-Printed Commc’ns for Bus., 920 F.2d 1269 (6th Cir. 1990) ............................................................................ 12 Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009) ............................................................................................ 16 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .............................................................................................. 5 AT&T Techs., Inc. v. Commc’n Workers of Am., 475 U.S. 643 (1986) .............................................................................................. 6 Bannett v. Hankin, 331 F. Supp. 2d 354 (E.D. Pa. 2004) .................................................................... 9 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................. 5 Booth v. BMO Harris Bank, N.A., No. 13-5968, 2014 WL 3952945 (E.D. Pa. Aug. 11, 2014) ......................... 15, 16 Caparra v. Maggiano’s Inc., No. 14-05722, 2015 WL 5144030 (E.D. Pa. Sept. 1, 2015) ................... 11, 12, 18 Certain Underwriters at Lloyd’s v. Century Indem. Co., No. 05-2809, 2005 WL 1941652 (E.D. Pa. Aug. 1, 2005) ................................. 20 Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 3 of 31 iii Chase v. Check, 158 F.R.D. 59 (E.D. Pa. 1994) .............................................................................. 8 Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F. Supp. 3d 912 (M.D. Pa. 2016) ................................................................... 6 Chesapeake Appalachia, L.L.C. v. Scout Petroleum, LLC, No. 4:14-cv-00620-MWB, slip op. (M.D. Pa. Apr. 28, 2017) ....................... 1, 19 CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) ................................................................................................ 9 Cott v. Waldron, LP, No. 15-1259, 2016 WL 3166269 (W.D. Pa. May 2, 2016), report and recommendation adopted, 2016 WL 3136906 (W.D. Pa. June 6, 2016) ....................................................................................................... 21 Cty. of Hudson v. Janiszewski, 351 F. App’x 662 (3d Cir. 2009) .......................................................................... 5 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) .............................................................................................. 5 Dodds v. Pulte Home Corp., 909 A.2d 348 (Pa. Super. Ct. 2006) ........................................................ 11, 12, 14 E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir. 2001) ............................................................................... 17 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) ................................................................................................ 6 Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013) ........................................................................... 7, 21 Herndon v. Green Tree Servicing LLC, No. 4:15-cv-01202, 2016 WL 1613973 (M.D. Pa. Apr. 22, 2016) ...................... 6 Langlais v. PennMont Benefit Servs., Inc., No. 11-5275, 2012 WL 2849414 (E.D. Pa. July 11, 2012), aff’d, 527 F. App’x 215 (3d Cir. 2013)........................................................... 9-10 Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 4 of 31 iv Leighton v. Chesapeake Appalachia, LLC, No. 1:13-CV-2018, 2013 WL 6191739 (M.D. Pa. Nov. 26, 2013) ............ 7, 8, 14 Lloyd v. Hovensa, LLC, 369 F.3d 263 (3d Cir. 2004) ............................................................................... 22 Medversant Techs., LLC v. Leverage Health Sols., LLC, 114 F. Supp. 3d 290 (E.D. Pa. 2015) .................................................................. 14 Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125 (2d Cir. 2003) ............................................................................... 11 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) .......................................................................................... 6, 9 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) ............................................................................................ 6, 22 MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942 (11th Cir.1999) ............................................................................. 15 Oral Cancer Prevention Int’l, Inc. v. Johnson & Johnson, No. 3:11-cv-3878, 2011 WL 6130599 (D.N.J. Dec. 7, 2011) ...................... 16-17 Phila. Reinsurance Corp. v. Emp’rs Ins. of Wausau, 61 F. App’x 816 (3d Cir. 2003) .......................................................................... 20 Phillips v. Cty. of Allegheny, 515 F.3d 224 (3d Cir. 2008) ................................................................................. 5 PNY Techs., Inc. v. Samsung Elecs. Co., Nos. 10-4587, 10-6803, 2011 WL 900154 (D.N.J. Mar. 14, 2011) ............. 12, 17 Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993) ................................................................................. 13 RCM Techs., Inc. v. Brignik Tech., Inc., 137 F. Supp. 2d 550 (D.N.J. 2001) ....................................................................... 9 Roman v. Chesapeake Appalachia, LLC, No. 3:11cv1614, 2012 WL 2076846 (M.D. Pa. June 8, 2012) ......................... 7, 8 Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 5 of 31 v Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (1987) ........................................................................................ 9-10 Torres v. CleanNet, U.S.A., Inc., 90 F. Supp. 3d 369 (E.D. Pa. 2015) .................................................................... 18 United States ex rel. Frank M. Sheesley Co. v. St. Paul Fire & Marine Ins. Co., 239 F.R.D. 404 (W.D. Pa. 2006) ........................................................................ 14 Vosburg v. Chesapeake Appalachia, LLC, No. 3:11-cv-1615, 2011 U.S. Dist. LEXIS 155364 (M.D. Pa. Nov. 16, 2011) ...................................................................................................... 7 Wald v. 1 Fin. Marketplace Sec., LLC, No. 2:09-cv-1116, 2009 WL 3209930 (E.D. Pa. Oct. 5, 2009) .......................... 22 Wellington v. Westrum Dev. Co., No. 00992 Dec. Term 2009, 2011 WL 9933457 (Pa. Com. Pl. Mar. 17, 2011)..................................................................................................... 13 STATUTES, RULES & REGULATIONS 9 U.S.C. § 3 .............................................................................................................. 22 Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 6 of 31 I. INTRODUCTION AND BACKGROUND Plaintiffs are oil and gas lessors, who have leased their oil and gas rights to Defendants Chesapeake Appalachia, L.L.C (“Chesapeake Appalachia”), Mitsui E&P USA LLC, and Anadarko E&P Company LP (collectively, “Lessee Defendants”). First Am. Compl. (“FAC”) ¶¶1, 3, 4. Plaintiffs’ oil and gas leases (the “Leases”) contain mandatory arbitration agreements, that apply “[i]n the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations.” Id. ¶¶9, 443. The agreements further provide that such arbitrations shall proceed in accordance with AAA rules. Id. ¶¶231, 443. The validity of these arbitration agreements is undisputed. Id. ¶231. Despite these broad and enforceable arbitration agreements, Plaintiffs filed a federal action alleging ten counts—all premised on the allegation that royalty payments or bonuses under the Leases were purportedly underpaid. Id. ¶¶298-472. For several reasons, all claims should be compelled to individual arbitration and the requested declaration in Count IX should be denied. See Chesapeake Appalachia, L.L.C. v. Scout Petroleum, LLC, No. 4:14-cv-00620-MWB, slip op. at 12 (M.D. Pa. Apr. 28, 2017) (“Scout”) (interpreting similar arbitration agreements to require individual arbitration proceedings). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 7 of 31 2 First, all of the substantive claims against Chesapeake Appalachia, Chesapeake Energy Corp. (“Chesapeake Energy”), Chesapeake Operating, L.L.C. (“Chesapeake Operating”), and Chesapeake Energy Marketing, L.L.C.1 (“Chesapeake Marketing”) (collectively, the “Chesapeake Defendants”) fall within the scope of the arbitration agreements in the Leases. Plaintiffs concede that the arbitration agreements are enforceable, but seek to avoid their application to statutory, tort, and quasi-contract claims. Id. ¶9. Plaintiffs cannot so narrowly limit their scope. Under the arbitration agreements, those claims are arbitrable because they pertain to royalties, bonuses, and leasing practices, which, in turn, concern rights, obligations, and performance under the Leases. Second, the claims against the non-signatory Chesapeake Defendants are also subject to arbitration. Plaintiffs themselves allege that the non-signatory Chesapeake Defendants have interests directly related to Chesapeake Appalachia’s interests, id. ¶¶4, 6, 26, 289, and they further allege interdependent and concerted misconduct among Chesapeake Appalachia and its affiliates, id. ¶¶24, 350-54, 240- 45, all of which is intertwined with rights and obligations under the Leases, id. ¶¶322, 392, 396-99, 412, 471. Third, the declaratory relief sought in Count IX is baseless. Over a year ago, Plaintiffs’ counsel asked the AAA for permission to initiate a mass arbitration 1 Plaintiffs bring their FAC against “Chesapeake Energy Marketing, Inc.” but this entity is now Chesapeake Energy Marketing, L.L.C. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 8 of 31 3 proceeding (involving hundreds of claimants and leases) and was informed of the AAA’s policy prohibiting such a practice without the consent of all parties. Id. ¶¶453-55. When Defendants objected to such a mass arbitration filing, the AAA explained that the arbitrations would have to be filed individually, after which the claimants could seek consolidation of the filed proceedings. Id. ¶455. To evade the AAA’s “one contract, one case” procedure and to relieve themselves of having to prove the propriety of massive joinder of their independent claims, Plaintiffs now request a court order directing the AAA (a non-party to this lawsuit) to violate its procedural rules and filing requirements. The Court should reject this meritless demand. For these reasons, and as explained further below, the Chesapeake Defendants request that the Court grant their motion, compel all claims against them to individual arbitration, dismiss Counts VII, VIII, and IX, stay the remaining claims while those arbitrations proceed, and leave the question of whether any such individual arbitrations should be consolidated (under the Leases and the law) until such time as those proceedings have been properly commenced in accordance with the Leases and the governing rules. II. PROCEDURAL HISTORY Plaintiffs filed their Complaint on June 28, 2016 and their FAC on January 30, 2017. The FAC asserts claims for an alleged agreement to restrain competition Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 9 of 31 4 in violation of Section 1 of the Sherman Act (Count I); conspiracy to monopolize trade or commerce in violation of Section 2 of the Sherman Act (Count II); violation of RICO (Count III); conspiracy to violate RICO (Count IV); conversion (Count V); civil conspiracy (Count VI); breach of contract (Count VII); action for accounting (Count VIII); declaratory judgment (Count IX); and unjust enrichment (Count X). Plaintiffs bring Counts I-VI, IX and X against Chesapeake Energy; Counts I, II, IV, IX, and X against Chesapeake Operating and Chesapeake Marketing; and Counts I, VII, VIII, and IX against Chesapeake Appalachia. As to Counts VII, VIII, and IX, Plaintiffs seek declaratory relief directing the AAA to permit Plaintiffs to file a single, mass arbitral proceeding and pay a single filing fee in contravention of AAA’s filing procedures. FAC ¶¶456, 461, 463. Plaintiffs also request that the Court declare their antitrust and RICO claims to be non-arbitrable. Id. ¶467(e). By stipulated Order dated April 3, 2017, this Court granted Defendants until May 1, 2017 to respond to the FAC. By stipulated Order dated April 28, 2017, the Parties agreed to address issues of arbitrability before reaching the substance of the claims. III. QUESTIONS INVOLVED 1. Should the Court compel all claims against the Chesapeake Defendants to individual arbitration, dismiss Counts VII, VIII, and IX, and stay the remaining claims while those arbitrations proceed? Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 10 of 31 5 2. Should the Court refuse to declare that the AAA must accept a single mass arbitration demand that contravenes the Leases, the law, the Defendants’ objections, and the AAA’s filing procedures? IV. STANDARD OF REVIEW A. Motion to Dismiss To state a claim, a complaint must contain sufficient factual allegations that “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering a motion to dismiss, the Court must accept as true a complaint’s well-pleaded allegations of fact, Phillips v. Cty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008), but it need not accept a plaintiff’s bald assertions or legal conclusions, Cty. of Hudson v. Janiszewski, 351 F. App’x 662, 667 (3d Cir. 2009). To survive a Rule 12(b)(6) motion, the “well-pleaded facts” must “permit the court to infer more than the mere possibility of misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (emphasis added). B. Motion to Compel Arbitration Congress has expressed a strong public policy favoring arbitration and requiring that courts “rigorously enforce” arbitration agreements. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985). Congress enacted the Federal Arbitration Act (“FAA”) to “reverse the longstanding judicial hostility to arbitration agreements” and to place them on “the same footing as other Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 11 of 31 6 contracts.”2 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991); see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (noting the “emphatic federal policy in favor of arbitral dispute resolution”). “Given this sweeping policy in favor of arbitration, a motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement.” Herndon v. Green Tree Servicing LLC, No. 4:15-cv-01202, 2016 WL 1613973, slip op. at *3 (M.D. Pa. Apr. 22, 2016) (citation omitted). In conducting this limited review, “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). This presumption “is particularly applicable when the [arbitration] clause is … broad.” AT&T Techs., Inc. v. Commc’n Workers of Am., 475 U.S. 643, 650 (1986). In addition, where, as here, it is apparent from the face of the complaint and the documents relied upon therein that the pleaded claims are subject to an enforceable arbitration agreement, the Court evaluates a motion to compel arbitration under the Rule 12(b)(6) standard. See 2 Plaintiffs’ Leases implicate interstate commerce and are governed by the FAA. See, e.g., Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F. Supp. 3d 912, 915-16 (M.D. Pa. 2016). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 12 of 31 7 Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 776 (3d Cir. 2013). V. ARGUMENT A. The Arbitration Agreements are Valid. Plaintiffs agreed to valid, mandatory arbitration provisions within their Leases with the following language: In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association.… FAC ¶443. Courts have agreed that this exact arbitration provision is “extremely broad” in scope. Alexander v. Chesapeake Appalachia, LLC, 839 F. Supp. 2d 544, 553 (N.D.N.Y. 2012); see, e.g., Vosburg v. Chesapeake Appalachia, LLC, No. 3:11-cv- 1615, 2011 U.S. Dist. LEXIS 155364 (M.D. Pa. Nov. 16, 2011) (holding that an arbitration clause with an identical scope is broad and covers tort claims); Roman v. Chesapeake Appalachia, LLC, No. 3:11cv1614, 2012 WL 2076846, at *4 (M.D. Pa. June 8, 2012) (same); Leighton v. Chesapeake Appalachia, LLC, No. 1:13-CV- 2018, 2013 WL 6191739, at *5 (M.D. Pa. Nov. 26, 2013) (noting the arbitration agreement’s broad scope that “requires arbitration of ‘all such disputes’”). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 13 of 31 8 B. Plaintiffs’ Common Law and Statutory Claims Are Arbitrable. Based upon Plaintiffs’ own allegations, the tort claims of conversion and civil conspiracy are arbitrable. In the conversion count, Plaintiffs allege that Defendants “caused unauthorized or artificially inflated and unreasonable deductions to be taken from royalties otherwise payable to Plaintiffs [who] were entitled to receive the wrongfully deducted amounts pursuant to their leases.” FAC ¶¶396-97 (emphasis added). In the civil conspiracy count, Plaintiffs allege Defendants “conspired with each other … to make wrongful deduction from Plaintiffs’ royalties and to thereby deprive Plaintiffs of the royalties which they were and are entitled to receive under the respective Leases ….” Id. ¶408 (emphasis added). Because the pleaded tort claims concern the Leases and performance thereunder, they are expressly covered by the arbitration agreements. Id. ¶443; see Roman, 2012 WL 2076846, at *4 (compelling arbitration of tort claims under identical arbitration clause, and recognizing “[i]t is settled that courts in Pennsylvania compel tort claims to arbitrate if the arbitration clause at issue is broad enough” (citing Muhlenberg Twp. Sch. Dist. Auth. v. Pa. Fortunato Constr. Co., 333 A.2d 184, 186 (Pa. 1975))); Leighton, 2013 WL 6191739, at *5 (same); see also Chase v. Check, 158 F.R.D. 59, 63-64 (E.D. Pa. 1994) (compelling arbitration of tort and RICO claims). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 14 of 31 9 For similar reasons, Plaintiffs’ unjust enrichment claim is also arbitrable, as the factual allegations underlying the claim “touch matters covered by the parties’ agreement.” Bannett v. Hankin, 331 F. Supp. 2d 354, 361 & n.8 (E.D. Pa. 2004) (citing RCM Techs., Inc. v. Brignik Tech., Inc., 137 F. Supp. 2d 550, 556 (D.N.J. 2001)). Plaintiffs have alleged Chesapeake Energy was unjustly enriched due to “artificially inflated post-production costs from Plaintiffs’ royalties,” FAC ¶471, but those royalties are only due to the Plaintiffs because of their Leases, id. ¶5. As a result, the unjust enrichment count should be compelled to arbitration. See Bannett, 331 F. Supp. 2d at 361 & n.8 (compelling arbitration of unjust enrichment count against non-signatories); RCM Techs., 137 F. Supp. 2d at 556 (same). The same conclusion applies to Plaintiffs’ statutory claims for antitrust and civil RICO violations. Courts must enforce agreements even when the claims at issue are statutory, unless the FAA’s mandate has been “overridden by a contrary congressional command.” CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012) (citing Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987); Dean Witter, 470 U.S. at 221). No such mandate exists here. The Supreme Court has held that claims brought under the Sherman Act and under RICO may be arbitrated. See Mitsubishi Motors, 473 U.S. at 628-40 (federal antitrust laws do not prohibit agreements to arbitrate antitrust claims); Shearson/Am. Express, 482 U.S. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 15 of 31 10 at 242 (“[W]e find no basis for concluding that Congress intended to prevent enforcement of agreements to arbitrate RICO claims.”). Here, the statutory claims are arbitrable because the allegations of statutory misconduct are directly connected to alleged entitlements and obligations under the Leases. Plaintiffs allege the relevant market for their antitrust claim is the market for the lease of gas, together with the rights to develop and produce “gas from the leased premises.” FAC ¶301. They similarly describe the RICO enterprise conduct as “underpaying the royalties due under [the] leases.” Id. ¶343. Their alleged injuries are also tied to the Leases: they describe the antitrust injury as “artificial depression of their initial lease signing bonuses, royalty rates and lease terms, and the subsequent loss of royalties” due to inflated post-production costs, id. ¶322, and the RICO injury as “the loss of royalties to which they otherwise were entitled,” id. ¶358. Accordingly, the alleged statutory claims are arbitrable because they arise out of Plaintiffs’ economic relationship with Defendants as leaseholders. C. Plaintiffs’ Claims against the Non-Signatory Chesapeake Defendants Are Arbitrable. 1. Non-Signatories May Enforce the Arbitration Agreement Against Signatory Plaintiffs. As signatories to the arbitration agreements, Plaintiffs agreed to arbitrate any disagreements concerning their Leases. Id. ¶443. “As several circuit courts Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 16 of 31 11 have recognized, it matters whether the party resisting arbitration is a signatory or not.” Langlais v. PennMont Benefit Servs., Inc., No. 11-5275, 2012 WL 2849414, at *9 (E.D. Pa. July 11, 2012) (citations omitted), aff’d, 527 F. App'x 215 (3d Cir. 2013); see also Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131 (2d Cir. 2003) (discussing differences between willing non-signatory and willing signatory). Through this motion, non-signatory Defendants Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy seek to resolve this dispute through arbitration, consistent with the Leases that Plaintiffs signed. Plaintiffs should not be heard to selectively disclaim their arbitration agreements as to the claims against non-signatories who are willing to arbitrate royalty-related disputes tied to the Leases. See Dodds v. Pulte Home Corp., 909 A.2d 348, 352 (Pa. Super. Ct. 2006) (“[B]ecause PHC wishes to enforce the arbitration agreement rather than avoid it, Plaintiffs, as signatories to the arbitration agreement, should not be able to avoid the requirement to arbitrate by a non-signatory when the non-signatory wants to arbitrate.”); Caparra v. Maggiano’s Inc., No. 14-05722, 2015 WL 5144030, at *8 (E.D. Pa. Sept. 1, 2015) (signatory cannot ignore arbitration agreement where non-signatory is willing to arbitrate). Indeed, courts regularly reject plaintiffs’ attempts to limit the scope and effect of arbitration clauses by bringing suits against related non-signatories. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 17 of 31 12 Dodds, 909 A.2d at 352 (“An arbitration agreement would be of little value if a party could obviate [its] effect … merely by finding a way to join another party.”); Caparra, 2015 WL 5144030, at *8 (“Any other result [than compelling arbitration] would permit a party to obviate the effect of the agreement merely by finding a way to join another party.” (citations omitted)); Arnold v. Arnold Corp.-Printed Commc’ns for Bus., 920 F.2d 1269, 1281 (6th Cir. 1990) (“[I]f appellant can avoid the practical consequences of an agreement to arbitrate by naming nonsignatory parties as [defendants] in his complaint . . . the effect of the rule requiring arbitration would, in effect, be nullified.” (alteration in original) (citations omitted)). This is particularly true, where, as here, Plaintiffs do not delineate the alleged misconduct of each affiliated entity, referring to them instead as “Chesapeake Defendants.” See, e.g., FAC ¶¶24, 44, 211, 215, 218, 303, 308, 309, 310, 315, 471. Plaintiffs lump together the Chesapeake Defendants when convenient, see id., but then seek to draw lines between them to avoid arbitration, see, e.g., id. ¶443. Courts reject this type of gamesmanship. See PNY Techs., Inc. v. Samsung Elecs. Co., Nos. 10-4587, 10-6803, 2011 WL 900154, at *8 (D.N.J. Mar. 14, 2011) (rejecting as “not equitable” plaintiff’s request that the court “differentiate the Samsung affiliate entities when it is beneficial to its legal strategy and to pierce the corporate structure when differentiating the entities is not Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 18 of 31 13 beneficial to it,” noting plaintiff “cannot have it both ways”); Wellington v. Westrum Dev. Co., No. 00992 Dec. Term 2009, 2011 WL 9933457, at *3 (Pa. Com. Pl. Mar. 17, 2011) (rejecting plaintiffs’ “disingenuous” efforts to avoid arbitrating with non-signatory because plaintiffs referred to signatory and non- signatory entities collectively throughout the complaint). This court should do the same. 2. The Chesapeake Defendants Have Directly Related Interests in This Action That Warrant Arbitration. In addition to the foregoing legal and practical rationales favoring arbitration in this context, the Court of Appeal’s decision in Pritzker further supports the arbitrability of Plaintiffs’ claims against the non-signatory Chesapeake Defendants. See Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993). In Pritzker, the Court of Appeals compelled arbitration of claims against a “corporate sister” of the signatory defendant whose interests were “directly related to, if not predicated upon” the signatory’s conduct. Id. at 1121-22. Similarly, Plaintiffs here allege that the interests of Chesapeake Energy, Chesapeake Marketing, and Chesapeake Operating are directly related to (and even predicated upon) Chesapeake Appalachia’s conduct. For example, Plaintiffs allege Defendants used Chesapeake Appalachia’s payment of royalties as part of their alleged scheme to enrich themselves to the detriment of landowners and that they profited from Chesapeake Appalachia’s alleged underpayment of royalties. See, Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 19 of 31 14 e.g., FAC ¶¶6, 26, 289. They also allege that Chesapeake Operating operates the wells at issue for Chesapeake Appalachia, id. ¶4, and that Chesapeake Appalachia sells the gas at issue to Chesapeake Marketing, id. ¶241. Given the allegations of related interests among the Chesapeake Defendants, the Court should compel arbitration of Plaintiffs’ claims against Chesapeake Appalachia’s corporate affiliates. See, e.g., Leighton, 2013 WL 6191739, at *8 (compelling arbitration under Pritzker’s “analogous reasons” analysis because the non-signatories, including Chesapeake Energy, were “related entities” that were “alleged to have engaged in the conduct with Chesapeake Appalachia that damaged Plaintiffs’ Property”); Medversant Techs., LLC v. Leverage Health Sols., LLC, 114 F. Supp. 3d 290, 298 (E.D. Pa. 2015) (“Even though these individual Defendants were not personal signatories to the Agreement, under Pritzker the Arbitration Clause applies to them because their interests are ‘directly related to’ those of Leverage [a signatory].”); see also United States ex rel. Frank M. Sheesley Co. v. St. Paul Fire & Marine Ins. Co., 239 F.R.D. 404, 418 (W.D. Pa. 2006) (noting Pritzker’s holding that “arbitration agreements may be upheld against non- parties where the interests of such parties are directly related to, if not congruent with, those of a signatory” (citation omitted)); Dodds, 909 A.2d at 352 (compelling arbitration in part because “the interests of PHC [non-signatory] are the same as those of PHCDV [signatory]”). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 20 of 31 15 In addition, courts have compelled arbitration under a slightly different test, i.e., where the “nonsignatory is alleged to have engaged in ‘substantially interdependent and concerted misconduct’ with a signatory other than the plaintiff.” A.G.K. Sarl v. A.M. Todd Co., No. 07-2727, 2008 WL 724607, at *10 (E.D. Pa. Mar. 18, 2008) (citation omitted); see also Booth v. BMO Harris Bank, N.A., No. 13-5968, 2014 WL 3952945, at *6-7 (E.D. Pa. Aug. 11, 2014). According to Plaintiffs, Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy have purportedly engaged in substantially interdependent and concerted misconduct with Chesapeake Appalachia. For example, they allege that the Chesapeake Defendants worked together as a part of an “ongoing anticompetitive conspiracy” to defraud landowners and generate funds, FAC ¶24, that Defendants allegedly operated their RICO conspiracy through Chesapeake Appalachia’s payment of royalty checks, id. ¶¶350-54, and that Chesapeake Energy allegedly uses non arms’-length transactions with its affiliates to artificially reduce royalties, id. ¶¶240-45. In short, according to Plaintiffs’ own allegations, the claims against the non- signatory Chesapeake Defendants are not only arbitrable under Pritzker’s “directly related” test, but also under the “substantially interdependent and concerted misconduct” test used by courts within this circuit and elsewhere. See MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir.1999). Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 21 of 31 16 3. The Claims Against Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy Should Be Arbitrated Under the Doctrine of Equitable Estoppel. Equitable estoppel is yet another basis upon which non-signatories like Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy can enforce arbitration clauses against signatories like Plaintiffs. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009). Courts have developed a two part test for equitable estoppel: [E]quitable estoppel applies to bind a signatory to arbitrate with a non-signatory at the nonsignatory’s insistence when there is: (1) a close relationship between the entities involved; and (2) a relationship between the alleged wrongs and the nonsignatory’s obligations and duties in the contract. To satisfy the second part of the test, the non- signatory seeking enforcement of an arbitration agreement must show that the claims against them are ‘intimately founded in and intertwined with’ the underlying obligations of the contract to which they were not a party. Booth, 2014 WL 3952945, at *4 (citations omitted). Both prongs are satisfied here. First, there is a “close relationship” between Chesapeake Appalachia, on one hand, and Chesapeake Operating, Chesapeake Marketing, and Chesapeake Energy, on the other hand, because they are all corporate affiliates. FAC ¶¶184-91. Courts consistently find that corporate affiliation satisfies the first-prong of the equitable estoppel test. See, e.g., Aluminium Bahrain B.S.C. v. Dahdaleh, 17 F. Supp. 3d 461, 470 (W.D. Pa. 2014); Oral Cancer Prevention Int’l, Inc. v. Johnson & Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 22 of 31 17 Johnson, No. 3:11-cv-3878, 2011 WL 6130599, at *7 (D.N.J. Dec. 7, 2011); PNY Techs., 2011 WL 900154, at *8. Second, Plaintiffs’ claims against Chesapeake Appalachia and the other Chesapeake Defendants stem from the same alleged issues and are “intimately founded in and intertwined with the underlying … obligations” of the contract to which they were not a party. E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir. 2001) (citation omitted). Plaintiffs allege that their antitrust injury is the purported “artificial depression of their initial lease signing bonuses, royalty rates and lease terms, and the subsequent loss of royalties,” FAC ¶322, the RICO conspiracy allegedly led to loss of royalties, id. ¶392, the conversion injury is the allegedly wrongful collection and retention of royalties, id. ¶¶396-99, Defendants allegedly conspired to deprive Plaintiffs of royalties, id. ¶412, and finally, the deduction of royalties unjustly enriched Defendants, id. ¶471. In other words, the allegations of wrongdoing are collective in nature against the Chesapeake Defendants and derive from lease entitlements and obligations, like royalties and bonuses. Further, Plaintiffs allege Chesapeake Operating and Chesapeake Marketing performed actions necessary for Chesapeake Appalachia to fulfill contractual commitments under the Leases, such as drilling and operating wells and marketing the gas produced from them. Id. ¶¶4, 188, 190, 241. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 23 of 31 18 Given these allegations, both prongs of the equitable estoppel test are met. The Chesapeake Defendants share a close relationship and the alleged claims against them are intertwined with obligations under the Leases. Thus, the non- signatory Chesapeake Defendants can enforce the arbitrations agreements in those contracts. See Caparra, 2015 WL 5144030, at *8 (compelling arbitration against non-signatories under equitable estoppel); Torres v. CleanNet, U.S.A., Inc., 90 F. Supp. 3d 369, 379-80 (E.D. Pa. 2015) (same). D. Plaintiffs’ Request for Declaratory Relief in Count IX Should Be Denied. All parties agree Counts VII and VIII are subject to mandatory arbitration. FAC ¶444. The only remaining justiciable question in Count IX, then, is whether the Court, in compelling such arbitration, can order the AAA to violate its procedural filing rules, forego its filing fee schedule, and permit the initiation of a single mass arbitration proceeding asserted on behalf of multiple claimants, against multiple defendants, arising out of multiple contracts, without the consent of all parties involved. Id. ¶¶439-68. Putting aside the fact that the AAA is not a party to this dispute, any such declaration violates the arbitration agreements in the Leases and the procedural rules the Plaintiffs agreed to apply. As an initial matter, Plaintiffs raised the very same issue with the AAA over a year ago, at which time the AAA explained that under its procedures, claimants may only file a mass arbitration if the other parties consent. Id. ¶455. Absent that Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 24 of 31 19 consent, the AAA’s “one contract, one case” guideline requires Plaintiffs to file a separate demand, and pay a separate filing fee, for the claims associated with each lease. Id. The AAA has said that Plaintiffs may seek to combine two or more of their pending arbitrations after filing separate demands for each lease. Id. Plaintiffs now ask this Court to alleviate their obligation to do that by entering an Order prohibiting the AAA from applying its own filing procedures. Id. ¶468. There is no legal authority for such an extraordinary request. Chesapeake Appalachia has no obligation to release Plaintiffs from their agreements to arbitrate their cases individually. Plaintiffs agreed to this procedure in their Leases. Moreover, Plaintiffs’ proposed declaratory relief would effectively relieve Plaintiffs of their burden of proving the propriety of consolidating pending arbitrations on a massive scale and then shift the burden to the Defendants to try to undo the mass arbitration Plaintiffs seek to file in violation of AAA procedures. Plaintiffs contend that “all parties” could raise “any objections or questions as to the propriety of such joinder,” id. ¶462, but they ask the Court to impede that right until after they file a consolidated arbitration proceeding. That relief may be convenient for Plaintiffs, but it is improper under Plaintiffs’ contractual obligations and the applicable AAA procedural requirements. Not only do the Leases themselves clearly contemplate individual arbitration of disputes specific to each Lease, id. ¶443; see Scout at 12, but Chesapeake Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 25 of 31 20 Appalachia has also repeatedly made clear that it has not and does not agree to consolidated arbitration proceedings, id. ¶453. The law clearly does not allow compulsion of mass arbitrations without consent. See Phila. Reinsurance Corp. v. Emp’rs Ins. of Wausau, 61 F. App’x 816, 821 n.4 (3d Cir. 2003) (“[A] district court cannot compel consolidation of arbitration absent an explicit agreement between the parties.”); Certain Underwriters at Lloyd’s v. Century Indem. Co., No. 05-2809, 2005 WL 1941652, at *2 (E.D. Pa. Aug. 1, 2005) (refusing to order consolidation of arbitrations because there “is no explicit agreement to do so”). In addition, granting Plaintiffs’ requested declaratory relief would place respondents and arbitrators under the artificial umbrella of a single demand for arbitration and impose upon them significant burden and expense to disentangle claims by different lessors, in different production units, involving different contractual counterparties, different royalty payments, and different post- production deductions, for purposes of adjudicating the merits of their individual claims. Plaintiffs conclude that their preferred arbitral procedure “would foster the orderly, speedy, and cost-efficient disposition of their Arbitrable Claims,” FAC ¶446, and avoid “unnecessary administrative complication, confusion, delay and expense,” id. ¶461, but that is neither supported by well-pleaded facts nor a reason for the Court to order a consolidated arbitration proceeding. See Phila. Reinsurance, 61 Fed. App’x. at 821 n.4 (expressly disavowing district court’s Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 26 of 31 21 “holding that that ‘the interests of justice and judicial economy are best served’ by consolidating the arbitrations.”). For these reasons, the Court should deny the request in Count IX for a declaration forcing the AAA to accept a single mass arbitration demand filed by Plaintiffs, and dismiss Count IX in its entirety. To the extent Plaintiffs properly initiate individual arbitrations in accordance with the Leases and the AAA filing procedures and then subsequently raise the issue of consolidation of two or more pending arbitration proceedings, the parties will address the propriety of that request and the proper tribunal to decide it at that time. E. Counts VII, VIII, and IX Should Be Dismissed and the Remaining Claims Should Be Stayed Pending Arbitration. Given that all parties agree Counts VII (breach of contract) and VIII (action for accounting) are subject to mandatory arbitration, FAC ¶444, the Court may compel arbitration and should dismiss these claims in their entirety. See Guidotti, 716 F.3d at 776; Cott v. Waldron, LP, No. 15-1259, 2016 WL 3166269, at *5 (W.D. Pa. May 2, 2016) (dismissing counterclaim that was subject to arbitration), report and recommendation adopted, 2016 WL 3136906 (W.D. Pa. June 6, 2016). For the reasons articulated above in Part D, the Court should also dismiss Count IX because Plaintiffs fail to plead a cognizable claim for declaratory relief. The remainder of the claims should also be compelled to individual arbitration and then stayed in this action while those arbitrations proceed. See Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 27 of 31 22 9 U.S.C. § 3 (upon being satisfied that the issues are referable to arbitration, the court “shall” stay the action pending arbitration); Moses H. Cone, 460 U.S. at 22 (explaining the FAA provides for arbitration and accompanying stay); Lloyd v. Hovensa, LLC, 369 F.3d 263, 269-71 (3d Cir. 2004); Wald v. 1 Fin. Marketplace Sec., LLC, No. 2:09-cv-1116, 2009 WL 3209930, at *4 (E.D. Pa. Oct. 5, 2009) (noting defendants will be entitled to arbitration and stay if arbitration clause covers the dispute (citing Dean Witter, 470 U.S. at 218)); Aegis Sec. Ins. Co. v. Harco Nat’l Ins. Co., No. 1:CV-06-0606, 2006 WL 1722395, at *2 (M.D. Pa. June 22, 2006).3 VI. CONCLUSION For the foregoing reasons, the Chesapeake Defendants respectfully request an order granting their motion, compelling all claims against them to individual arbitration, dismissing Counts VII, VIII, and IX, and staying the remaining claims while those arbitrations proceed. 3 Should the Court decline to dismiss Counts VII, VIII, and IX, those claims should also be stayed pending arbitration. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 28 of 31 23 Dated: May 1, 2017 By: /s/ Daniel T. Brier Daniel T. Brier John B. Dempsey MYERS BRIER & KELLY, LLP 425 Spruce Street, Suite 200 Scranton, PA 18503 Tel: (570) 342-6100 Fax: (570) 342-6147 E-mail: dbrier@mbklaw.com jdempsey@mbklaw.com Seamus C. Duffy (pro hac vice forthcoming) Kathryn E. Deal (pro hac vice forthcoming) DRINKER BIDDLE & REATH LLP One Logan Square, Suite 2000 Philadelphia, PA 19103 Tel: (215) 988-2700 Fax: (215) 988-2757 E-mail: seamus.duffy@dbr.com kathryn.deal@dbr.com Daniel T. Donovan (pro hac vice forthcoming) Ragan Nash (pro hac vice forthcoming) KIRKLAND & ELLIS LLP 655 Fifteen Street, NW Washington, DC 20005 Tel: (202) 879-5000 Fax: (202)879-5200 Email: ddonovan@kirkland.com ragan.naresh@kirkland.com Attorneys for Defendants Chesapeake Energy Corporation, Chesapeake Appalachia, L.L.C., Chesapeake Energy Marketing, L.L.C., and Chesapeake Operating, L.L.C. Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 29 of 31 CERTIFICATE OF SERVICE I hereby certify that on May 1, 2017, a copy of the foregoing was filed electronically. Notice of this filing will be sent to all parties who have appeared in this action via the Court’s electronic filing system. Parties may access this filing through the Court’s system. /s/ Daniel T. Brier Daniel T. Brier Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 30 of 31 CERTIFICATE OF COMPLIANCE I hereby certify pursuant to L.R. 7.8(b)(2) that the text of this filing contains 4,848 words, excluding the caption, Table of Contents, Table of Authorities, and signature blocks, which is within the limit of 5,000 words as permitted by the Local Rules. /s/ Daniel T. Brier Daniel T. Brier Case 4:16-cv-01345-MWB Document 59 Filed 05/01/17 Page 31 of 31 APPENDIX OF UNPUBLISHED OPINIONS A. A.G.K. Sarl v. A.M. Todd Co., No. 07-2727, 2008 WL 724607 (E.D. Pa. Mar. 18, 2008) B. Aegis Sec. Ins. Co. v. Harco Nat’l Ins. Co., No. 1:CV-06-0606, 2006 WL 1722395 (M.D. Pa. June 22, 2006) C. Booth v. BMO Harris Bank, N.A., No. 13-5968, 2014 WL 3952945 (E.D. Pa. Aug. 11, 2014) D. Caparra v. Maggiano’s Inc., No. 14-05722, 2015 WL 5144030 (E.D. Pa. Sept. 1, 2015) E. Certain Underwriters at Lloyd’s v. Century Indem. Co., No. 05-2809, 2005 WL 1941652 (E.D. Pa. Aug. 1, 2005) F. Chesapeake Appalachia, L.L.C. v. Scout Petroleum, LLC, No. 4:14-cv-00620-MWB, slip op. (M.D. Pa. Apr. 28, 2017) G. Cott v. Waldron, LP, No. 15-1259, 2016 WL 3166269 (W.D. Pa. May 2, 2016) H. Cott v. Waldron, LP, No. 15-1259, 2016 WL 3136906 (W.D. Pa. June 6, 2016) I. Herndon v. Green Tree Servicing LLC, No. 4:15-cv-01202, 2016 WL 1613973 (M.D. Pa. Apr. 22, 2016) J. Langlais v. PennMont Benefit Servs., Inc., No. 11-5275, 2012 WL 2849414 (E.D. Pa. July 11, 2012) K. Leighton v. Chesapeake Appalachia, LLC, No. 1:13-CV-2018, 2013 WL 6191739 (M.D. Pa. Nov. 26, 2013) L. Oral Cancer Prevention Int’l, Inc. v. Johnson & Johnson, No. 3:11-cv-3878, 2011 WL 6130599 (D.N.J. Dec. 7, 2011) Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 1 of 133 2 M. PNY Techs., Inc. v. Samsung Elecs. Co., Nos. 10-4587, 10-6803, 2011 WL 900154 (D.N.J. Mar. 14, 2011) N. Roman v. Chesapeake Appalachia, LLC, No. 3:11cv1614, 2012 WL 2076846 (M.D. Pa. June 8, 2012) O. Vosburg v. Chesapeake Appalachia, LLC, No. 3:11-cv-1615, 2011 U.S. Dist. LEXIS 155364 (M.D. Pa. Nov. 16, 2011) P. Wald v. 1 Fin. Marketplace Sec., LLC, No. 2:09-cv-1116, 2009 WL 3209930 (E.D. Pa. Oct. 5, 2009) Q. Wellington v. Westrum Dev. Co., No. 00992 Dec. Term 2009, 2011 WL 9933457 (Pa. Com. Pl. Mar. 17, 2011) Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 2 of 133 A Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 3 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2008 WL 724607 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. A.G.K. SARL v. A.M. TODD COMPANY, et al. Civil Action No. 07-2727. | March 18, 2008. Attorneys and Law Firms Stephen R. Bolden, Fell & Spalding, Phila, PA, Ben Whaley LeClercq, Charleston, SC, for A.G.K. Sarl. John W. Allen, Kathryn D. Soulier, Varnum Riddering Schmidt & Howlett LLP, Kalamazoo, MI, Joseph G. Derespino, Derespino & Dougher PC, Philadelphia, PA, for A.M. Todd Company, et al. MEMORANDUM AND ORDER McLAUGHLIN, District Judge. *1 The plaintiff has filed suit on contract and non-contract grounds against the defendants, two corporations and an individual. The plaintiff alleges that it shipped vanilla beans to the defendants or one of the corporate defendants' subsidiaries in early 2004, but neither the defendants nor the subsidiary ever paid for the beans. In 2005, the plaintiff filed an arbitration proceeding against the subsidiary. The plaintiff claimed that it and the subsidiary had a contract for the sale of vanilla that included an arbitration clause. The plaintiff withdrew from the arbitration proceeding in February 2007, just before the final hearing was scheduled to occur, citing concerns that the subsidiary was judgment-proof and a sham corporation. A few months after the arbitration proceeding terminated, the plaintiff brought this suit. This suit seeks to hold the defendants liable in three distinct ways: first, the plaintiff alleges that the corporate veil of the subsidiary should be pierced to hold the defendants liable for the subsidiary's liabilities; 1 second, the plaintiff alleges that one or more of these defendants are directly liable as parties to the contract with the plaintiff; and third, the plaintiff alleges that the defendants are directly liable under two non-contract theories- conversion and unjust enrichment. Under all of these theories, the plaintiff seeks to pierce the corporate veil of one of the corporate defendants in order to hold the other two defendants liable. 1 The plaintiff alleges both a corporate-veil-piercing theory and an alter ego theory. This Court has recognized that these theories, though similar, are not identical. Brown v. Astro Holdings, Inc., 385 F.Supp.2d 519, 524 & n. 3 (E.D.Pa.2005). The distinctions between these two theories are not material to the Court's decision here. The Court will therefore sometimes refer to piercing the corporate veil when it also means to include the plaintiff's alter ego theories. The defendants have filed a Motion to Dismiss, or in the Alternative to Change Venue. The defendants argue that the plaintiff is estopped from filing suit here and from taking various factual positions here because it previously brought and abandoned arbitration proceedings in which it took contrary positions. They argue further that this Court lacks jurisdiction over this dispute because of the arbitration clause. Additionally, the motion argues that the plaintiff does not plead piercing the corporate veil with enough specificity, and that venue is proper only in the Southern District of New York because New York was the agreed-upon situs of the arbitration and would be the location of any appeal from an arbitration judgment. The Court will grant the motion. The Court finds that all matters in this suit are arbitrable, but it will stay, rather than dismiss, the case. The plaintiff consented to arbitrate its claims when it brought and prosecuted the arbitration proceeding against the defendants' subsidiary. Although the defendants did not sign the arbitration agreement, they have standing to enforce the arbitration agreement against the plaintiff. The plaintiff cannot bring any claims here that purport to pierce the subsidiary's veil, before it first establishes the subsidiary's liability in arbitration. To the extent that the plaintiff tries to hold the defendants directly liable under the contract that includes the arbitration clause, the plaintiff must arbitrate such claims. Finally, under the liberal federal policy favoring arbitration, the Court finds that the scope of the plaintiff's consent to arbitrate is broad enough to cover all of the claims that the plaintiff raises here, even its non-contract Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 4 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 claims, because the factual allegations necessary to prove these claims are so intertwined with one another. Having found the claims in this suit arbitrable, the Court stays these proceedings pending arbitration. I. Facts A. Legal Standard *2 A motion to stay a suit in favor of arbitration is treated as a motion for summary judgment because the Court must decide the question of whether the parties have agreed to submit the dispute to arbitration. Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 & n. 9 (3d Cir.1980). Although the defendants do not ask this Court to compel arbitration, they do ask this Court to find that this suit was improperly brought because the plaintiff's claims are subject to binding arbitration. Tr. Oral Arg. at 34, 56-57. The summary judgment standard, therefore, applies to the present motion. The Court will view the facts in the light most favorable to the plaintiff. 2 2 On a motion for summary judgment, a court must view the evidence and draw reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. See, e.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is proper if the pleadings and other evidence on the record “show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). Parts of the Court's decision rest on the relationship between the plaintiff's claims and the arbitration clause that the Court rules is applicable. The Court has relied on the complaint in construing the relationship between the plaintiff's claims and the arbitration clause. The determination does not rely on any facts that are in dispute. The Court draws the following facts from three sources: the complaint, the papers filed in the earlier arbitration, and the parties' papers regarding the motion to dismiss. The Court will not set forth all of the details of the parties' dealings because many are not relevant to the disposition of the present motion. B. The Complaint The plaintiff, A.G.K. Sarl (“AGK”), is a vanilla bean exporting company based in the Comoros, an island nation located between Madagascar and mainland Africa. AGK is owned and directed by Amine Kalfane, a citizen of the Comoros. Defendant A.M. Todd Company (“A .M. Todd”) is a Michigan company, while defendant Zink and Triest Company (“ZTC”) is a Delaware corporation and has its principal place of business in Montgomeryville, Pennsylvania. Defendant Henry W. Todd, Jr. (“Todd”), a citizen of Pennsylvania, is a director of ZTC and of A.M. Todd. The corporate defendants are engaged in the food additives and flavorings business. Compl. ¶¶ 1-4. The defendants began purchasing large quantities of vanilla from the plaintiff in the 1990s. AGK would act as purchasing agent for the defendants, with ZTC always serving as the consignee on the contract. ZTC frequently provided down payments to AGK to finance vanilla production. By 1996, ZTC was buying nearly all of AGK's vanilla output. Compl. ¶¶ 6-9. In the fall of 2003, AGK and the defendants entered into an agreement that AGK would sell a large quantity of vanilla to the defendants. Todd urged AGK to buy up as much vanilla as possible-more than AGK would have otherwise. In September 2003, the defendants advanced $3 million to AGK toward its 2003 vanilla crop. AGK borrowed a large additional sum in order to procure as much vanilla as possible. Todd told AGK that, because of global vanilla shortages, the price for vanilla would be $575 per kilogram for high quality vanilla. AGK sold all of its vanilla output to the defendants, turning down several other offers to buy its vanilla. Nearly all of the defendants' correspondence with AGK was on ZTC letterhead. Compl. ¶¶ 11-12, 14-16, 18, 20. *3 The parties reached agreement on all significant terms of the sale by the end of 2003. One shipment of vanilla was to include 17 tons of vanilla beans at a cost of $570 per kilogram (“Tranche 1”). The remaining vanilla was to be sold on consignment, with ZTC negotiating the best price possible with the ultimate customer, between $500 and $510 per kilogram. This remaining vanilla included a shipment of more than six tons (“Tranche 2”) and several additional shipments of about 6.5 tons (“the airway bills”). Compl. ¶ 22. The defendants created Zink and Triest International (“ZTI”) before 2001 to be the nominal buyer in Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 5 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 such vanilla contracts. ZTI is an “offshore” “dummy” corporation organized under the laws of Mauritius. It is a wholly owned subsidiary of one or more of the defendants. At all relevant times, ZTI had no existence apart from the defendants, was grossly undercapitalized, did not engage in arms-length transactions or corporate formalities, and was operated by the defendants “solely as a shell, artifice and façade with the attempted purpose of unjustly limiting Defendants' exposure in contracts with foreign parties.” Compl. ¶¶ 23-25. On January 14, 2004, after AGK had finished acquiring, preparing, packing, and readying the vanilla for shipment, it received a document (“Contract 11204”) on ZTI letterhead, signed by Todd on behalf of ZTI. ZTC is listed as the consignee. 3 Contract 11204 “memorializes some of the terms of the agreement the parties had previously reached, and unilaterally claims to modify other terms, such as payment and acceptance terms.” AGK did not sign the document and used it only as a formality for customs purposes. Contract 11204 specifies the quantity and price of the beans to be sold. Tranche 1, weighing 17,750.05 kilograms, would be sold for $570 per kilogram. Tranche 2, weighing 6,975.15 kilograms, would be sold at a price to be determined. The document recites that payment for Tranche 1, less the $3 million advance, will be due “immediately upon payment by Z & T's customer.” Tranche 2 is specified to be on consignment. Compl. ¶ 28-30. 4 3 The complaint states that “the insurance clause refers to Zink and Triest [ZTC] as the buyer,” but this characterization is inaccurate. Contract 11204 refers to ZTI as the buyer. Compl. ¶ 30; Ex. A to the Compl. 4 AGK attaches a copy of Contract 11204 as Exhibit A to its complaint. The complaint does not, however, mention the arbitration clause, the contents of which the Court will discuss in Section I.C. below. The defendants had approved samples of the vanilla that was sent in Tranche 1 and Tranche 2. The beans left the Comoros on January 14, 2004, and arrived in Philadelphia on January 15, 2004. The market price for vanilla was dropping as the beans arrived in Philadelphia. Although it is industry standard for the consignee or buyer to notify the seller within two to three days of any problems with a shipment, ZTC did not mention any problem with the quality of Tranche 1 until eight weeks later on March 9, 2004, one day after a cyclone in Madagascar destroyed a large portion of ZTC's stock and caused liquidity problems for ZTC. Compl. ¶¶ 32-34, 39, 47-49. Unbeknownst to AGK at the time, the ultimate customer for the vanilla was Coca-Cola, which had tested and approved samples of the beans. The defendants unilaterally gave Coca-Cola extra time to inspect the beans. Even after ZTC expressed concerns about the quality of the beans, ZTC sent AGK additional payments in April 2004 totaling $1.7 million. ZTC's CFO, Brian Scott, e-mailed AGK indicating that the defendants intended to pay the balance owed. Compl. ¶¶ 44, 45, 50, 53-55. *4 AGK sent Tranche 2 to the defendants on January 29, 2004, and it arrived in Philadelphia on January 30, 2004. On or about February 6, 2004, the plaintiff sent the defendants two shipments on consignment. These shipments, known as the airway bills, were listed as AWB 1473878 (2,149 kilograms of vanilla) and AWB 90134704 (4,400 kilograms of vanilla). The parties had agreed that these shipments would be treated in the same manner as Tranche 2, that is, to be sold on consignment for at least $500 per kilogram. On February 24, 2004, the defendants informed AGK that these three shipments required “restorative measures” in order to be suitable for sale. AGK agreed to these measures. Compl. ¶¶ 41, 42, 46. The defendants ultimately claimed that Coca-Cola had rejected the shipment. The defendants never paid for any of the vanilla beyond the advances described above. They kept the beans and asserted that they were attempting to mitigate damages by mixing the beans that AGK had shipped with other beans, and then selling the mixture. Compl. ¶¶ 56, 57. As of April 2005, ZTC is no longer operating. A.M. Todd has taken over all of its accounts and functions. As of April 8, 2005, all payments for vanilla bought from ZTC were to be made to A.M. Todd. Compl. ¶ 58. AGK advances three types of claims. Counts 1, 2, and 3 refer to Tranche 1, while counts 4, 5, and 6 refer to the three subsequent shipments, Tranche 2 and the airway bills. First, counts 1 and 4 contend that the parties had an oral contract, partially memorialized by certain faxes, that the defendants breached. 5 The parties had agreed that Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 6 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 the defendants would purchase all of the plaintiff's 2003 vanilla output. AGK repeats its earlier contention that Contract 11204 incorporated some of the parties' agreed- upon terms but unilaterally changed others, especially payment terms. AGK reiterates that the defendants had a duty to inspect and reject the vanilla promptly if it were defective. Compl. ¶¶ 60-63, 86-99. 5 The complaint does not mention ZTI in the counts praying for relief, instead referring mostly to “Defendants” and occasionally to “Zink and Triest” (what the Court has called ZTC). AGK acknowledged in its brief and at oral argument, however, that proving ZTI's liability may be necessary for some of its claims. Pl's Br. at 34-36; Tr. Oral Arg. at 38-39. Second, counts 2 and 5 claim that if Contract 11204 was a valid contract, then the defendants breached that contract. The defendants had a duty to inspect and reject the vanilla promptly if it were defective. Once they accepted the beans but refused to pay for them, the defendants converted the beans to their own use. If the beans were not defective on arrival but later became defective, then the defendants breached their duty by failing to store the vanilla properly and/or by unilaterally giving Coca-Cola extra time to test the product. If the beans were never defective, then AGK should not have had to bear the risk that Coca-Cola would reject the beans solely to get a better price elsewhere. The plaintiff emphasized at oral argument that it asserts that ZTC is directly liable to AGK as the consignee in Contract 11204. Compl. ¶¶ 67-71, 103-09; Tr. Oral Arg. at 21-22. Finally, counts 3 and 6 allege that, if the Court finds no contract, then the defendants have been unjustly enriched because AGK acquired a large amount of vanilla at the defendants' behest and as their purchasing agent, and the defendants retained the vanilla that AGK shipped. The defendants had a duty to inspect and reject the vanilla promptly if it were defective. Instead, they have retained the vanilla and have not paid for it. Compl. ¶¶ 75-82, 113-20. *5 On all counts, the plaintiff argues that the defendants should be treated as a single entity or ZTC's veil should be pierced to hold A .M. Todd and Todd liable. Compl. ¶¶ 64-65, 72-73, 83-84, 100-01, 110-11, 121-22. C. The Arbitration On March 10, 2005, AGK brought an arbitration proceeding against ZTI before the International Division of the American Arbitration Association (“AAA”) in New York, demanding more than $23.6 million in compensatory damages plus punitive damages. The arbitration complaint invoked the arbitration clause in Contract 11204: “[i]n the event of disputes Arbitration Rules of the American Arbitration Association in New York will apply.” ZTI brought a counterclaim for the $4.7 million that it had advanced to AGK, plus certain additional costs. Ex. A at cover page, 2, 62; Ex. B; Ex. MM at 9-10 . 6 6 Unless otherwise noted, references to lettered exhibits refer to exhibits to the defendants' motion. References to numbered exhibits refer to exhibits to the plaintiff's opposition. In early 2006, AGK attempted to join the defendants as respondents in the arbitration, arguing that ZTI's corporate veil should be pierced. ZTI opposed the joinder of these additional parties, arguing that the defendants were separate from ZTI and were not signatories to the contract. On July 6, 2006, the arbitrators issued a Partial Award denying AGK's request because joining new parties so late in the proceedings would unfairly deny those parties the opportunity to participate in choosing the arbitrators and the rules of the arbitration. The arbitrators explicitly did not rule on the merits of whether the arbitration panel would have jurisdiction over the defendants or on whether the corporate veil should be pierced to hold the defendants liable for ZTI's debts. The arbitrators did suggest that AGK could bring a separate arbitration proceeding against the defendants to resolve these issues. Ex. GG; Ex. HH; Ex. FF; Ex. OO. On February 2, 2007, the plaintiff sent a letter to the arbitration panel and to ZTI, stating that it had resolved to withdraw from the arbitration because it had discovered that ZTI was judgment-proof and a shell corporation. The letter states that Todd had contacted AGK urging it to drop the suit because ZTI had no assets. AGK also states that any judgment against ZTI will be unenforceable because ZTI no longer exists. In the face of AGK's withdrawal, ZTI dropped its counterclaim. The arbitrators terminated the arbitration proceeding on February 28, 2007. A final oral hearing had been scheduled for February 26, 2007. The parties agreed at oral argument that the termination was without prejudice. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 7 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Ex. W; Pl's Ex. 3 distributed at oral arg.; Ex. BB; Tr. Oral Arg. at 20-21, 43. D. The Defendants' Motion to Dismiss and the Plaintiff's Opposition In their motion to dismiss, the defendants argue that the Court should dismiss the plaintiff's complaint because: (1) AGK is judicially estopped from arguing that the arbitration clause does not govern the parties' transaction because AGK brought and for two years participated in arbitration; (2) the Court lacks subject matter jurisdiction because the arbitration clause is valid; (3) the complaint's allegations of veil-piercing are insufficient; and (4) venue is improper. In the alternative, the defendants argue that (5) the Court should stay these proceedings until AGK obtains an arbitration award against ZTI; (6) the Court should transfer these proceedings to the Southern District of New York; or (7) AGK should be required to plead more specifically. Def's Br. at 4. *6 The plaintiff opposes each of these positions, arguing that it may go forward with all of its claims. AGK argues that it is not estopped from pleading in the alternative and states that it may proceed against the defendants notwithstanding its prior arbitration against ZTI. It calls that arbitration a “mistake.” Pl's Br. at 29, 34. A few additional relevant facts came to light as part of the parties' motion papers. In particular, AGK provided documents that explain further why it withdrew from the arbitration proceeding. The defendants deny the conclusion that ZTI was, in fact, judgment-proof or a shell corporation at the relevant times. They do not dispute, however, that the following events occurred. After filing the arbitration, AGK's counsel, Eric Sossah, a French attorney, investigated ZTI's finances and corporate information. As a result of this investigation, which included traveling to Mauritius, Sossah concluded that ZTI was a “nameplate” company, with no physical presence apart from a corporate depository that provided a Mauritius mailing address. Aff. of Eric Sossah, Ex. 20, ¶¶ 8-16, 21. To substantiate its position that ZTI was judgment- proof by the time the arbitration terminated, the plaintiff submitted an e-mail from ZTI's counsel (also defense counsel here) to AGK's counsel stating that ZTI's “assets ... are dwindling rapidly and its cash balances are approaching absolute zero.” The exhibit does not appear to contain the date of the e-mail, but the plaintiff's brief represents that the e-mail was sent on November 29, 2006. Ex. 17. II. Discussion The Court's decision proceeds in seven parts, holding that: (1) the framework of the Federal Arbitration Act (“FAA”) applies to this case; (2) AGK has demonstrated its consent to arbitrate at least its claims against ZTI by bringing the AAA proceeding; (3) the defendants can enforce AGK's agreement to arbitrate against AGK; (4) because AGK's claims against ZTI are arbitrable, any claims that purport to pierce ZTI's veil are likewise arbitrable; (5) any claims that rely specifically on Contract 11204, whether pleading that it is the governing contract or that it memorializes some but not all of the parties' intentions, are arbitrable; (6) the plaintiff's claims for unjust enrichment and conversion, brought against the defendants directly, must be sent to arbitration because they plausibly relate to the subject matter of the agreement to arbitrate; and (7) the FAA requires the Court to stay the case. A. The Federal Arbitration Act The FAA, 9 U.S.C. §§ 1-16, governs all contracts that rely on a written arbitration clause and concern interstate or foreign commerce. 9 U.S.C. §§ 1, 2. If a court finds that a given dispute falls under a valid arbitration clause, then the court must stay court proceedings pending arbitration (9 U.S.C. § 3) and compel arbitration (9 U.S.C. § 4) if a party requests such relief. Under the FAA, questions of whether the parties formed an agreement to arbitrate at all are governed by state contract law. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 945, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). “Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (internal quotations omitted). The FAA mandates that the arbitration clause is valid and enforceable to the same extent that any other contractual provision would be. An arbitration clause cannot be invalidated except on the basis of generally applicable contract principles, such as fraud or unconscionability. 9 U.S.C. § 2; see also Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 8 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 (1996) (“By enacting § 2, ... Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed upon the same footing as other contracts.” (internal quotations omitted)). 7 7 If the party challenges the arbitration clause in particular-not the contract as a whole-on the basis of such a principle, then the court can decide the clause's validity. In contrast, if the party challenges the contract as a whole on the basis of such a principle, then the court must not decide the question but must instead submit the issue to the arbitrator. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). *7 Once it is established that an arbitration clause exists and that the FAA applies, federal law governs the scope of an arbitration clause. The FAA embodies a liberal policy favoring arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Any ambiguity as to whether a particular grievance falls within the ambit of an arbitration clause must be resolved in favor of arbitration. AT & T, 475 U.S. at 650. “An order to arbitrate 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.” So long as a party's claim of arbitrability is “plausible,” an arbitrator, not a court, must interpret the contract. Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 55 (3d Cir.2001) (internal quotations omitted). The FAA applies to the present facts. The parties do not directly address whether the FAA applies. The plaintiff does not mention the FAA in its brief at all, while the defendants refer to it only in passing. The Court finds, however, that both FAA requirements have been met. First, the arbitration clause in Contract 11204 is written. The fact that Contract 11204 was never signed by AGK does not remove the contract from the FAA's ambit. The FAA does not require a signature. See Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir.1987). 8 Second, no one disputes that the transaction at issue is international, with the vanilla beans shipped from the Comoros to Philadelphia. 8 Where lawmakers have wished to indicate that a law applies only when the contract with the arbitration clause has been signed, they have done so explicitly. See Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 448-49 (3d Cir.2003) (holding that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been incorporated into U.S. law, is applicable only when both parties have signed a contract or series of letters agreeing to arbitration). B. AGK Agreed to Arbitrate Its Claims By Bringing the AAA Arbitration Ordinarily, the Court would engage in an inquiry into whether Contract 11204 satisfied the contract principles of offer, acceptance, meeting of the minds, and so forth. 9 AGK argues that it never agreed to arbitrate any disputes with ZTI or the defendants because it never agreed to Contract 11204. It does not argue that the arbitration clause specifically is invalid. Instead, it argues that it never agreed to several key terms in Contract 11204, that its shipment of the vanilla beans did not constitute acceptance of Contract 11204, and therefore that Contract 11204 did not represent the parties' true agreement. 9 The parties disagree about which state's law should apply, but neither points out a relevant difference between Pennsylvania law (favored by the plaintiff) and New York law (favored by the defendants). Both parties freely cite to federal cases applying federal law, as well. New York and Pennsylvania law both support the Court's ruling, which is based on generally applicable principles of consent and waiver. Therefore, the Court does not conduct a choice of law analysis. In this case, however, the Court need not conduct an inquiry into whether or not Contract 11204 was validly formed because AGK manifested its consent to arbitrate by bringing the AAA arbitration. Although a party usually indicates its intent to arbitrate by signing a contract that includes an arbitration clause, it can also indicate its consent by bringing and prosecuting an arbitration proceeding. A party may also waive any objection to arbitration by not raising it early enough. United Indus. Workers, Local No. 16 v. Gov't of the V.I., 987 F.2d 162 (3d Cir.1993). In United Industrial Workers, the United States Court of Appeals for the Third Circuit held that Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 9 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 by demanding arbitration and fully participating in arbitration, represented by counsel, the plaintiff union demonstrated its unmistakable intent to arbitrate the dispute. Id. at 168. The court went on to cite approvingly a case from the United States Court of Appeals for the Seventh Circuit that stated that “[t]he party initiating the arbitration has made a decision that the dispute is arbitrable.” Id. (citing Int'l Ass'n of Machinists & Aerospace Workers, Lodge No. 1777 v. Fansteel, Inc., 900 F.2d 1005, 1009 (7th Cir.1990)). The United Industrial Workers court noted that its decision to hold the union to the arbitration clause could also be understood as stating that the union had waived any right to object to arbitration. The court cited other circuits approvingly for the proposition that by submitting a matter to arbitration, a party waives the right to object to the arbitrability of a dispute. United Indus. Workers, 987 F.2d at 168-69. *8 This common sense principle finds support in both New York and Pennsylvania state law. In Merrill Lynch, Pierce, Fenner & Smith Inc. v. Chan, 38 A.D.3d 355, 832 N.Y.S.2d 182, 183 (N.Y.App.Div.2007), the respondent challenged the results of an arbitration on the grounds that the arbitrator lacked authority to hear the case. The court rejected this challenge because the respondent had himself brought the arbitration proceeding. In Weinmann v. Meehan, 428 Pa.Super. 582, 631 A.2d 684 (Pa.Super.1993), the appellants argued that the arbitration award against them was invalid because they, as directors and not shareholders of the corporation at issue, did not fall within the relevant arbitration clause. Stating that “the parties by their conduct may assent to have a matter resolved by a particular tribunal,” the court held that the appellants could not challenge the arbitration because when the appellee had previously brought suit in court, the appellants had successfully argued that the matter was arbitrable. Id. at 686; cf. 42 Pa. Cons.Stat. § 7314(a)(1)(v) (in statutory arbitration scheme, the court shall vacate an arbitration award where there was no agreement to arbitrate, no court had previously stayed litigation or compelled arbitration, and the party asking the court to vacate the order had raised the issue of an agreement to arbitrate before the arbitrators). Having brought an arbitration proceeding against ZTI and prosecuted that action for two years, AGK has manifested its consent to arbitrate those claims. It is immaterial that the above cited cases, unlike the instant case, concern motions to vacate a final arbitration judgment. In all cases, the central question is whether the party opposing arbitration has already expressed its consent to arbitrate. The instant case squarely implicates the policy rationales behind United Industrial Workers, Merrill Lynch, and Weinmann, as well as an earlier, similar case, Teamsters Local Union No. 764 v. J.H. Merritt & Co., 770 F.2d 40, 42 (3d Cir.1985). To allow a party to bring arbitration, abandon it just before its conclusion-no matter for what reason-and then bring federal suit arguing that no valid arbitration clause existed would introduce unfair and inefficient incentives. AGK is therefore estopped from asserting that it did not agree to arbitrate. Alternatively formulated, AGK has waived any objection to arbitration on the grounds that it did not consent. Whether or not bringing the arbitration was a “mistake,” as AGK now states, is immaterial under the framework of United Industrial Workers. Instead, it is the act of bringing and prosecuting the arbitration- regardless of motivation-that manifests the plaintiff's consent to arbitration and therefore binds the plaintiff to arbitrate. The extraordinary remedy of judicial estoppel, in contrast, is not applicable here. Judicial estoppel is an equitable doctrine intended to protect the integrity of the judicial process by preventing parties from deliberately changing positions according to the exigencies of the moment. It should be applied only to prevent a miscarriage of justice, and the court must give the accused party a chance to explain the inconsistency in its positions. Krystal Cadillac- Oldsmobile GMC Truck, Inc. v. General Motors Corp., 337 F.3d 314, 319-20 (3d Cir.2003). *9 “[S]ome aggravating factor, and not mere inconsistency, is necessary for the application of judicial estoppel.” Chao v. Roy's Const., Inc., ---F.3d ----, 2008 WL 540245, at *11 n. 5 (3d Cir. Feb.29, 2008) (quoting New Hampshire v. Maine, 532 U.S. 742, 751, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001)) (internal quotations omitted). Several factors play a role in a court's determination of whether judicial estoppel is appropriate. First, a party's later position must be clearly inconsistent with its earlier position. Second, courts inquire whether the party has persuaded the earlier court to adopt that party's earlier position. Third, courts inquire whether the party seeking to assert the inconsistent position would gain Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 10 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 an unfair advantage if not estopped. The court may also consider other factors in balancing the equities, for instance, whether the initial position was a mistake. New Hampshire, 532 U.S. at 749-51, 753 (internal citations omitted); see also Montrose Med. Group Participating Savings Plan v. Bulger, 243 F.3d 773, 780-81 (3d Cir.2001). The United States Court of Appeals for the Third Circuit has held that the presence of bad faith is relevant to the court's determination. Krystal, 337 F.3d at 319-20. In view of these factors and on this record, the Court cannot find that AGK has abused the judicial process. The arbitration panel never adopted the claims to which the defendants seek here to bind the plaintiff. Although the arbitration panel issued interim rulings that may have accepted certain of the positions that the plaintiff took in that proceeding, the panel never reached the merits of AGK's claims against ZTI and therefore did not accept or adopt those theories of liability. C. The Defendants Can Enforce AGK's Agreement to Arbitrate Although they were not signatories to the arbitration agreement, the defendants can enforce the arbitration agreement against AGK. Under certain circumstances, a nonsignatory to an arbitration agreement can enforce that agreement against a signatory. 10 This is so despite the fact that arbitrability is a matter of contract, ordinarily resting on the agreement of the parties. 10 AGK protests that it is not a “signatory” because it never signed Contract 11204. The Court has found, however, that AGK consented to arbitrate by bringing the arbitration proceeding, so AGK is a signatory for purposes of this analysis, in that it is a party that directly agreed to arbitrate. The United States Court of Appeals for the Third Circuit has noted with approval that courts have bound a signatory to arbitrate with a nonsignatory “at the nonsignatory's insistence because of the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract ... and [the fact that] the claims were intimately founded in and intertwined with the underlying contract obligations.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199-200 (3d Cir.2001) (internal quotations omitted). On this theory, the signatory is estopped from avoiding arbitration with a nonsignatory when the claims at issue rely on the terms of the agreement or assume the existence of, arise out of, or relate directly to, the written agreement. Bannett v. Hankin, 331 F.Supp.2d 354, 359-60 (E.D.Pa.2004) (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524 (5th Cir.2000); MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir.1999); McBro Planning & Dev. Co. v. Triangle Elec. Const. Co., Inc., 741 F.2d 342 (11th Cir.1984); Domke on Commercial Arbitration § 13:8 (2003)). *10 Estoppel may also apply where the nonsignatory is alleged to have engaged in “substantially interdependent and concerted misconduct” with a signatory other than the plaintiff. Grigson, 210 F.3d at 527 (quoting MS Dealer, 177 F.3d at 947). Here, nearly all of the factual allegations supporting the plaintiff's claims are allegations that AGK would have had to have proven in the arbitration in order to prevail against ZTI. In particular, the allegations of wrong-doing are nearly identical. Only the allegations of the corporate relationships among the defendants and ZTI and of the identities of the parties that formed the contract would have been inapplicable to the arbitration proceeding. In fact, AGK attempted to put those relationships at issue even after the arbitration panel ruled against the joinder of the defendants. Ex. PP. The second test for applying estoppel is also satisfied. To the extent that ZTI has some existence separate from the defendants, AGK alleges “substantially interdependent and concerted misconduct” among ZTI and the defendants. This suit presents the unusual circumstances that the parties seeking to enforce the arbitration agreement have not conceded that the claims against them are arbitrable and that the subsidiary of those parties in fact argued in arbitration that those parties were not subject to the arbitration clause. These facts do not change the Court's conclusions that the plaintiff has agreed to arbitration and that the defendants have standing to enforce that agreement. They do, however, raise interesting issues for resolution in the first instance by the arbitration panel. The Court does not express any view as to any issues other than those decided here. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 11 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 D. AGK Cannot Sue on a Piercing the Veil Theory Without First Arbitrating ZTI's Liability The Court finds that if a party has an arbitration agreement with a subsidiary, that party cannot sue the subsidiary's parent in federal court on a piercing the veil theory without first obtaining an arbitration judgment that the subsidiary is liable. 11 As a result, all of the plaintiff's claims that rely on piercing ZTI's veil are arbitrable, in whatever counts of the complaint they appear. 11 To the extent that AGK is correct that ZTI has no separate corporate existence apart from the defendants, AGK could be said to be contending that its contractual partners were really the defendants all along. If that were so, then the defendants would be parties to Contract 11204 and therefore to the arbitration clause. When the plaintiff is obligated to arbitrate its disputes with a subsidiary, allowing the plaintiff to sue the parent directly would allow the plaintiff to bypass the requirement that arbitrators, not a court, rule on whether the subsidiary is liable. This outcome would frustrate the federal policy favoring arbitration. 12 12 Case law supports the analogous proposition that, in the interest of avoiding inconsistent legal determinations, a court may stay non-arbitrable claims against a parent so that arbitrable claims against the subsidiary may be arbitrated first. As the Supreme Court has stated, the trial court has discretion to issue a stay as to a litigant that is not a party to an arbitration agreement. Moses H. Cone, 460 U.S. at 21 n. 23. For instance, in Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679 (5th Cir.1976), the United States Court of Appeals for the Fifth Circuit held that where the charges against parent companies of the arbitrating party “were based on the same operative facts and were inherently inseparable from the claims against [the subsidiary],” the trial court had discretion to stay the claims against the parent pending arbitration against the subsidiary. As the court explained, “[i]f the parent corporation was forced to try the case, the arbitration proceedings would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.” Id . at 681. The parties cite several cases in their briefs and in oral argument regarding whether a party can sue a parent under a piercing the veil theory before obtaining a judgment that the subsidiary is liable. These cases do not address the central issue at hand. There may be situations in which there is no arbitration clause and a plaintiff can pursue the parent directly on a piercing the veil theory, without first separately showing the subsidiary's liability. See, e.g., Brown v. Astro Holdings, Inc., 385 F.Supp.2d 519 (E.D.Pa.2005). None of the cases cited by the parties, however, concerned a situation in which the plaintiff was obligated to arbitrate its disputes with the subsidiary but brought suit only against the parent, and the Court has found no such cases. *11 The plaintiff protests that it would be unreasonable to expect it to proceed to judgment in an arbitration against a judgment-proof entity incorporated in an asset- protection jurisdiction. The Court disagrees. If AGK had won in arbitration against ZTI, it could then have sued the defendants on a piercing the veil theory to enforce that judgment. The parties could then have litigated the issue of whether that veil-piercing suit fell under the arbitration clause. If AGK had lost in arbitration against ZTI, AGK readily agrees that it would not be able to bring at least some of the claims alleged in the instant suit. Tr. Oral Arg. at 18, 38, 40-41. The arbitrators themselves suggested a potential solution to AGK's claim that it should not be forced to pursue arbitration against ZTI without any prospect of being able to hold a non-judgment-proof entity liable. In their decision denying AGK's request to join the defendants as respondents in the arbitration, the arbitrators contemplated that a separate arbitration panel could have determined whether or not any claims by AGK against the defendants were arbitrable. Ex. OO ¶ 23; Tr. Oral Arg. at 31. E. The Plaintiff Must Arbitrate All Claims That Rely on Contract 11204 Based on a similar analysis, any claims that rest on or require interpreting Contract 11204 are also arbitrable. Once a court has determined that an agreement to arbitrate exists, it should find a particular dispute arbitrable “unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Medtronic, 247 F.3d at 55 (internal quotations omitted). A party's claim that a particular dispute is arbitrable Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 12 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 10 need be only “plausible” for the court to hold that an arbitrator should decide the question. Id. Moreover, in determining whether a claim falls within the scope of the arbitration agreement, the Court must focus on “the factual underpinnings of the claim rather than the legal theory alleged in the complaint.” Id. The Court must give effect to the arbitration clause's breadth. The contract reads: “[i]n the event of disputes Arbitration Rules of the American Arbitration Association in New York will apply.” This clause is not fatally ambiguous, as the plaintiff urges. This is a broad arbitration clause, at least plausibly encompassing all disputes that relate to the subject matter of the contract. The plaintiff argues that ZTC is directly liable under Contract 11204 as the named consignee in that contract. Arbitration is mandatory for those claims. If the plaintiff is going to rely on Contract 11204 for recovery, then it cannot avoid the enforcement of the arbitration clause that Contract 11204 contains. The plaintiff's direct contract claims, counts 2 and 5, must therefore be arbitrated. 13 13 The plaintiff urges that its complaint includes the non- contract claim of conversion. Although there is no separate count of conversion, the plaintiff uses the term “converted” in counts 2, 4, and 5. Compl. ¶¶ 69, 91, 97, 107. To the extent that these counts articulate non-contract conversion claims, the Court's analysis in Section II.F. below applies. Counts 1 and 4 allege that the plaintiff had an oral contract with the defendants. In count 1, which concerns Tranche 1, the plaintiff alleges that “ ‘Contract’ 11204 ... incorporates some of the parties['] agreement on terms ..., while unilaterally changing other terms ....” The plaintiff makes a similar allegation with respect to Tranche 2 in count 4. The plaintiff also alleges that the parties had agreed to treat the airway bills the same as Tranche 2 and that the plaintiff would sell the defendants its entire 2003 vanilla output. Because both counts 1 and 4 require adjudication of the meaning of Contract 11204 and to what extent its terms reflected the parties' intentions, these counts must be arbitrated. Compl. ¶¶ 60, 87, 22, 86. F. The Plaintiff Must Arbitrate All Claims Related to the Subject Matter of Contract 11204 *12 The Court concludes that the scope of the plaintiff's consent to arbitrate is broad enough to encompass all of its claims, including the unjust enrichment claims in counts 3 and 6. The plaintiff argues that because counts 3 and 6 articulate a completely non-contract claim against the defendants, they should not be affected by AGK's previous arbitration against ZTI. In particular, AGK urges that the defendants are liable directly, not through ZTI, for keeping the vanilla beans rather than returning them to AGK. Because Contract 11204 purports to set forth the terms under which AGK shipped the vanilla, however, these claims, too, must be submitted to an arbitrator. Under Medtronic, the factual allegations on which a claim rests, not the claim's legal label, determine whether the claim is arbitrable. Medtronic, 247 F.3d at 55; cf. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. ., 473 U.S. 614, 625 n. 13, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ( “[I]nsofar as the allegations underlying the statutory claims touch matters covered by the enumerated articles, the Court of Appeals properly resolved any doubts in favor of arbitrability.”). Where separate tort claims arise out of the same facts as the breach of contract claim, a broadly worded arbitration provision covers such claims. Although the United States Court of Appeals for the Third Circuit does not appear to have addressed this particular aspect of the scope of an arbitration clause, other courts have held unjust enrichment and conversion claims to be arbitrable. See, e.g., U.S. Claims, Inc. v. Saffren & Weinberg, LLP, Civ. No. 07-0543, 2007 WL 4225536, at *7 (E.D.Pa. Nov.29, 2007); RCM Techs., Inc. v. Brignik Tech., Inc., 137 F.Supp.2d 550, 556 (D.N.J.2001); cf. Brayman Const. Corp. v. Home Ins. Co., 319 F.3d 622, 625-26 (3d Cir.2003). G. The Court Will Stay the Case The defendant moves for this Court to dismiss the case, or in the alternative to stay proceedings pending arbitration. The Court will stay the case. Under the FAA, if a suit is brought on an issue “referable to arbitration under an agreement in writing for such arbitration,” then “the court ... shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 13 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 11 the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. The United States Court of Appeals for the Third Circuit has held that the FAA leaves no discretion to dismiss a fully arbitrable case instead of granting a stay, if a party has requested a stay. Lloyd v. Hovensa, LLC, 369 F.3d 263, 269 (3d Cir.2004). 14 As the Lloyd court notes, even where all claims in a case are arbitrable, a district court retains many roles, including the ability to confirm, vacate, or modify the ultimate arbitration order. Id. at 270 (citing FAA, 9 U.S.C. §§ 9-11); see also Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193, 201-02, 120 S.Ct. 1331, 146 L.Ed.2d 171 (2000) (stating that any court with the power to stay a suit pending arbitration would have the power to confirm, vacate, or deny any ultimate arbitration award, regardless of whether the arbitration occurred in that court's district). 14 The defendants are not in default in proceeding with arbitration. “Default” for the purpose of § 3 is generally treated as synonymous with having waived the right to arbitrate by actively litigating the case in court. Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-18 (3d Cir.2007). *13 Lloyd concerned a case in which a party moved for a stay, but the district court instead dismissed the case. Here, the defendants would prefer a dismissal, but have moved for a stay in the alternative. The question arises whether this factor would allow the court to dismiss instead of staying the case. District courts in this circuit have uniformly held post-Lloyd that when a litigant moves for a stay even as part of a motion in the alternative, Lloyd 's mandate applies. See, e.g., Bloom v. Jersey City Mun. Utils. Auth., No. 06-CV-3526, 2008 WL 360986, at *6 (D.N.J. Feb. 8, 2008) (ruling on motions for summary judgment, motions to dismiss, and a motion to stay by only one of multiple defendants, the court has no choice but to stay); U.S. Claims, 2007 WL 4225536, at *14 (ruling on a motion to dismiss or in the alternative to stay the suit, the court has no choice but to stay); Griffen v. Alpha Phi Alpha, Inc., No. Civ. A. 06-1735, 2007 WL 707364, at *9 (E.D.Pa. Mar.2, 2007) (same). On the other hand, when a party has moved for a dismissal but has not moved for a stay, some courts have ruled that Lloyd does not apply and therefore that a dismissal is available if all claims in the suit are arbitrable. See, e.g., Rhodia Inc. v. Bayer Cropscience Inc., No. Civ. 04-6424, 2007 WL 3349453, at *5 (D.N.J. Nov.7, 2007). 15 15 If a party that is not subject to arbitration applies for a stay, the court has the discretion but not the obligation to stay the litigation as to that party, in order to allow other claims in a suit to go to arbitration first. See Moses H. Cone, 460 U.S. at 21 n. 23. This Court has ruled that the defendants can enforce the arbitration agreement against the plaintiff even though they are not signatories to the arbitration agreement. This principle, therefore, does not apply here. The Court need not decide whether a stay is mandatory here because even if a stay were not mandatory under the FAA, the Court would exercise its discretion to stay the case pending arbitration because the Court retains many roles in connection with an arbitration. Even if some but not all of the claims in this case were arbitrable, the Court would stay the entire case pending arbitration because the factual bases for all of the claims are so intertwined with one another. The fact that arbitration was previously commenced but never concluded does not change the Court's finding that a stay is warranted. 16 16 The Supreme Court encountered a case in which arbitration proceedings had been suspended in Mitsubishi Motors, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444, in which the Court found the dispute in question arbitrable. The district court had stayed its own proceedings pending arbitration in Japan that subsequently halted when one party filed for bankruptcy. Id. at 623 n. 12. The question of how the district court should handle the stay in the face of the halted arbitration proceedings was not, however, before the Supreme Court. The Court does not reach the defendants' other arguments in support of its motion to dismiss. An appropriate Order follows. ORDER AND NOW, this 18th day of March, 2008, upon consideration of the defendants' Motion to Dismiss, or in the Alternative to Change Venue (Docket No. 12), Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 14 of 133 Sarl v. A.M. Todd Co., Not Reported in F.Supp.2d (2008) 2008 WL 724607 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 12 the plaintiff's opposition thereto, the defendants' reply thereto, and the parties' supplemental submissions, and following oral argument held on November 1, 2007, IT IS HEREBY ORDERED that the motion to dismiss or stay is GRANTED, and that the motion to change venue is DENIED as MOOT, for the reasons stated in the accompanying memorandum. IT IS FURTHER ORDERED that these proceedings are STAYED until further notice by the Court. The parties shall report back to the Court within 90 days of the entry of this Order as to the status of this matter. All Citations Not Reported in F.Supp.2d, 2008 WL 724607 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 15 of 133 B Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 16 of 133 Aegis Sec. Ins. Co. v. Harco Nat. Ins. Co., Not Reported in F.Supp.2d (2006) 2006 WL 1722395 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2006 WL 1722395 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. AEGIS SECURITY INSURANCE COMPANY, Plaintiff, v. HARCO NATIONAL INSURANCE COMPANY, Defendant. Civil No. 1:CV-06-0606. | June 22, 2006. Attorneys and Law Firms Carl M. Buchholz, Christopher A. Lewis, Matthew J. Siembieda, Blank Rome LLP, Philadelphia, PA, for Plaintiff. Brian R. Elias, Elliott, Greenleaf & Siedzikowski, P.C., Blue Bell, PA, John D. Winters, Michael A. Stick, R. Douglass Bond, Buter Rubin Santarelli & Boyd LLP, Chicago, IL, for Defendant. MEMORANDUM SYLVIA H. RAMBO, District Judge. *1 Before the court is Defendant Harco National Insurance Company's (hereinafter “Harco”) Motion to Compel Arbitration and Stay Proceedings (Doc. 12). The parties have briefed the issues and the matter is ripe for disposition. For the following reasons, the court will grant Defendant's motion. Plaintiff has requested oral argument on the motion, which the court will deny as moot. I. Background A. Facts Plaintiff Aegis Security Insurance Company (hereinafter “Aegis”) and Defendant Harco are insurance companies that entered into reinsurance agreements to post immigration bonds, arranged by Capital Bonding Corporation (hereinafter “Capital Bonding”) and other reinsurance intermediaries. In or around June 2001, Aegis became the surety on bonds posted by Capital Bonding for the immigration bond program through December 31, 2001. Aegis continued as surety from January 1, 2002 through December 31, 2002 pursuant to a Bond Quota Reinsurance Agreement (hereinafter “the 2002 Reinsurance Treaty”). Under the terms of the 2002 Reinsurance Treaty Harco subscribed for a portion of Aegis's gross liability under the immigration bonds posted by Capital Bonding. 1 Aegis withdrew as surety when the 2002 Reinsurance Treaty expired and Harco became the surety for immigration bonds posted by Capital Bonding under a 2003 agreement (hereinafter the “2003 Reinsurance Treaty”). Aegis was a party to the 2003 Reinsurance Treaty but only in connection with bail and supersedeas bonds in three states for April and May 2003. 1 Aegis also agreed to serve as surety for state bail bonds and supersedeas bonds posted by Capital Bonding; parties to the 2002 Reinsurance Treaty shared in liability for those as well. However, the instant dispute arises out of events involving the immigration bonds only. The parties agree that Harco owes Aegis for a portion of liabilities incurred during the time period governed by the 2002 Reinsurance Treaty, in connection with a settlement negotiated by Aegis with the United States Department of Homeland Security. Harco has paid and continues to pay its allocable share of the relevant losses and adjusted loss expense arising under the 2002 Reinsurance Treaty for bail bonds and supersedeas bonds, but refuses to pay related expenses arising from immigration bonds. Harco claims that it is entitled to offset the immigration bond expenses because Capital Bonding improperly used revenues from the sale of bonds issued in Harco's name under the 2003 Reinsurance Treaty to make payments and cover losses incurred from bonds issued in Aegis's name under the 2002 Reinsurance Treaty. Article X of the 2002 Reinsurance Treaty, the offset provision, provides: The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Agreement or any other agreement heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or ceding company. This provision shall not be Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 17 of 133 Aegis Sec. Ins. Co. v. Harco Nat. Ins. Co., Not Reported in F.Supp.2d (2006) 2006 WL 1722395 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 affected by the insolvency of either party to this Agreement. In addition, the 2002 Reinsurance Treaty contains an arbitration provision, which requires the parties to arbitrate “any dispute arising out of the interpretation, performance or breach of this Agreement.” Both parties agree that the 2002 Reinsurance Treaty and the offset and arbitration provisions are valid. B. Procedural History *2 On March 23, 2006 Aegis filed a complaint seeking a declaratory judgment that Harco has no right to offset any amounts it owes to Aegis under the 2002 Reinsurance Treaty based on Capital Bonding's allegedly improper administration of the 2003 Reinsurance Treaty with Harco. On May 2, 2006, Harco filed the instant Motion to Compel Arbitration and Stay Proceedings. Harco filed its brief in support of the motion on May 19, 2006. 2 2 In its opposition brief (Doc. 18), Aegis expresses a desire to resolve the merits of the instant motion, but disputes the timeliness of Harco's brief in support of the motion (Doc. 17). The court has reviewed Harco's stated reasons for its interpretation of the due date and is satisfied that the brief in support of the motion was filed in accordance with applicable procedural rules. II. Legal Standard-Arbitrability The Federal Arbitration Act (hereinafter “FAA”), 9 U.S.C. §§ 1 et seq., governs the relief sought by Defendant. Where parties have entered into a written agreement for arbitration, the court may grant a party's petition to direct that an arbitration proceed “in accordance with the terms of the agreement.” 9 U.S.C. § 4. Moreover, once the court has directed the parties to proceed with the arbitration, the court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3. “By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Because the genesis of arbitration is contract, arbitrators only have authority to resolve disputes where parties have “agreed to submit to arbitration.” Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 54 (3d Cir.2001) (internal citations omitted). Accordingly, when a party requests a stay of proceedings pending arbitration, the court's inquiry is two-fold. The court must “determine whether there is a valid agreement to arbitrate and, if so, whether the specific dispute falls within the substantive scope of that agreement.” Id. at 55. The court's function is “very limited when the parties have agreed to submit all questions of contract interpretation to the arbitrator.” Id. In such an instance, the court “is confined to ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract” and “must submit the matter to arbitration without ruling on the merits of the case.” Id. (internal quotations omitted). There is a strong presumption in favor of arbitration. Any doubts about the scope of an arbitration provision are resolved in favor of arbitration. Id. In addition, where a contract includes an arbitration clause, “ ‘[a]n 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.’ “ AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986). Id. (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)). III. Discussion *3 Plaintiff maintains that, because Defendant relies upon events extraneous to the 2002 Reinsurance Treaty as the basis for the claimed offset, the 2002 Reinsurance Treaty's arbitration provisions do not govern the instant dispute. Defendant argues that in order to initially determine whether the claimed offset falls within the scope of the 2002 Reinsurance Treaty's provisions, the contract must be interpreted and, subsequently, must be submitted to arbitration. The court agrees with Defendant. The 2002 Reinsurance Treaty explicitly provides for offsets. Plaintiff's position that the offset claimed cannot be an offset because the events giving rise to the offset claim fall outside the scope of the agreement does not alter this. In order to determine the extent and scope of the offset provision, specifically what may properly be used as an offset and what circumstances may give rise to an offset, it is necessary to interpret the offset provision. Such Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 18 of 133 Aegis Sec. Ins. Co. v. Harco Nat. Ins. Co., Not Reported in F.Supp.2d (2006) 2006 WL 1722395 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 interpretation falls squarely within the scope of matters designated for arbitration by the parties. Accordingly, the decision whether a particular amount may be considered an offset within the scope of the agreement is, in the first instance, properly left to arbitration as designated by the parties. The parties also dispute whether the Defendant's characterization of the offset claim in terms of unjust enrichment establishes that the instant dispute is not contractual and thus not subject to contractual arbitration provisions. Because the contract expressly provides for offsets and the offset issue must be arbitrated, the court will not reach the merits of the unjust enrichment argument. IV. Conclusion For the foregoing reasons, the court will grant Defendant's motion to compel arbitration and stay proceedings. The court will also deny Plaintiff's request for oral argument on the motion as moot. An appropriate order will issue. ORDER In accordance with the accompanying memorandum of law, IT IS HEREBY ORDERED THAT 1) Defendant Harco National Insurance Company's Motion to Compel Arbitration and Stay Proceedings (Doc. 12) is GRANTED. 2) Plaintiff Aegis Security Insurance Company's request for oral argument on the motion is DENIED as moot. 3) The captioned matter is stayed pending arbitration. All Citations Not Reported in F.Supp.2d, 2006 WL 1722395 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 19 of 133 C Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 20 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2014 WL 3952945 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. Patricia BOOTH v. BMO HARRIS BANK, N.A., et al. Civil Action No. 13–5968. | Signed Aug. 11, 2014. Attorneys and Law Firms Hassan A. Zavareei, Tycko & Zavareei LLP, Washington, DC, Jeffrey M. Ostrow, Kopelowitz Ostro PA, Ft Lauderdale, FL, John Austin Moore, Steve Six, Stueve Siegel Hanson LLP, Kansas City, MO, Natalie Finkelman Bennett, James C. Shah, Shepherd Finkelman Miller & Shah LLC, Media, PA, for Patricia Booth. Debra Bogo-Ernst, Lucia Nale, Mayer Brown LLP, Chicago, IL, Lisa C. Wood, Marc C. Singer, Saiber, LLC, Florham Park, NJ, Elizabeth Balassone, James R. McGuire, Rita F. Lin, Morrison & Foerster LLP, San Francisco, CA, Marc Durant, Durant & Durant, James T. Moughan, Britt, Hankins & Moughan, Philadelphia, PA, Todd A. Noteboom, Minneapolis, MN, for BMO Harris Bank, N.A., et al. MEMORANDUM SURRICK, District Judge. *1 Presently before the Court is Defendant First International Bank & Trust's Motion to Compel Arbitration (ECF No. 34), Defendant BMO Harris Bank, N.A.'s Motion to Compel Arbitration (ECF No. 40), and Defendant North American Banking Company's Motion to Compel Arbitration (ECF No. 46). For the following reasons, Defendants' Motions will be granted. I. BACKGROUND Plaintiff allegedly obtained three “payday” loans at usurious rates from three online lenders. (See Compl., ECF No. 1.) A payday loan is a small, high fee, short- term loan traditionally made to consumers in anticipation of an upcoming paycheck. (Id. at ¶ 23.) In this case, the payday loans had interest rates of 30%. (Id. at ¶¶ 79, 83.) To obtain a payday loan, a borrower must provide the lender with security for the loan amount by giving the lender a personal check or authorizing the lender to electronically debit the borrower's account. (Id.) On May 30, 2013, Plaintiff obtained a payday loan from One Click Cash by completing an online application. (Id. at ¶ 82.) As part of the transaction, Plaintiff authorized One Click Cash to debit her checking account with Wells Fargo to repay the loan. (Id.) One Click Cash initiated a debit transaction on July 5, 2013. (Id. at ¶ 85.) Plaintiff obtained a second payday loan on July 10, 2013, this time from a different online lender, My Cash Advance, and she again authorized the lender to debit her checking account. (Id. at ¶ 78.) My Cash Advance debited Plaintiff's checking account on July 19, 2013. (Id. at ¶ 81.) Finally, on July 24, 2013, Plaintiff obtained a third payday loan from a third lender, Plain Green. (Id. at ¶ 74.) Plaintiff authorized Plain Green to debit her checking account, and Plain Green initiated a debit transaction on August 2, 2013. (Id. at ¶ 77.) To electronically deposit the loan proceeds and then to initiate the debit transactions of Plaintiff's checking account for repayments, One Click Cash, My Cash Advance, and Plain Green (collectively the “Lenders”) needed access to the Automated Clearing House (“ACH”) Network. (Id. at ¶ 6–7.) 1 The Defendants here are Originating Depository Financial Institutes (“ODFIs”) that are members of and have access to the ACH Network. (Compl. at ¶ 6.) For a fee, Defendants allegedly provided the Lenders with the access they needed to the ACH Network by “originating” the debits and credits on the payday loans. (Id.) Specifically, First International Bank & Trust (“FIB”) originated transactions in connection with the May 30 loan from One Click Cash; BMO Harris Bank, N.A. (“BMO”) originated transactions in connection with the July 10 loan from My Cash Advance; and North American Banking Company (“NABC”) originated transactions in connection with the July 24 loan from Plain Green. (Id. at ¶ ¶ 77, 81, 85.) Plaintiff claims that by providing the Lenders access to the ACH Network, Defendants violated the Racketeering Influenced and Corrupt Organization Act (“RICO”) by knowingly participating in an enterprise's affairs through “collection of unlawful debt.” Defendants allegedly knew that the Lenders were loaning at usurious rates but still allowed them to access the ACH Network. In addition, Plaintiff alleges that Defendants each conspired with the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 21 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Lenders to violate RICO. Lastly, Plaintiff claims that each Defendant violated various Pennsylvania state laws. 1 The ACH Network is a processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing. The ACH transactions are the credits and debits of funds from a financial account necessary for an exchange between two parties. (Compl.¶ 31.) *2 When Plaintiff obtained each of her payday loans, she signed loan agreements with the Lender that provided the loan (collectively “Loan Agreements”). 2 All the Loan Agreements contain arbitration provisions. First, the loan application and loan agreement with One Click Cash contains the following arbitration provision: 2 Although Plaintiff did not attach the Loan Agreements to the Complaint, Defendants provided them as exhibits attached to declarations that were made by individuals who had access to the Lender's records of customer loan agreements. We can consider these documents at this stage because they are integral to and explicitly relied upon in the Complaint: Plaintiff references the terms of the Loan Agreements throughout the Complaint and cites to Defendants' exhibits throughout her oppositions. In re: Burlington Coat Factory Securities Litig., 114 F.3d 1410, 1426 (3d Cir.1997) (stating documents that are integral to or explicitly relied upon in the complaint may be considered on a motion to dismiss without converting the motion into one for summary judgment). In addition, Plaintiff does not challenge the “validity and scope” of the arbitration provisions in the Loan Agreements. (Pl.'s FIB Resp.5–6; Pl.'s BMO Resp. 5; Pl.'s NABC Resp. 5) “We” or “Us” are SFS, Inc. dba OneClickCash and its directors, officers, employees, authorized representatives, agents and successors in interest acting within the scope of their authority. .... If any dispute arises that We cannot resolve to your satisfaction, You and We hereby agree that we shall arbitrate that dispute in accordance with the terms of this Arbitration Provision. .... The word “dispute” and “disputes” are given the broadest possible meaning and include, without limitation and whether past, present or future: (a) all claims, disputes or controversies arising from or relating directly or indirectly to the signing of this Loan Agreement, including the validity and scope of this Arbitration Provision, or any claim, dispute, or controversy relating to the interpretation, applicability, enforceability or formation of this Loan Agreement, including, but not limited to any claim that all or any part of this Loan Agreement or this Arbitration Provision is void, voidable, invalid or unenforceable; (b) all federal or state law claims arising from or relating directly or indirectly to this Loan agreement ...; (c) all counterclaims, cross-claims and third party claims; (d) all common law claims, based upon contract, tort, fraud, or other intentional torts; (e) all claims based upon a violation of any state or federal constitution, statute or regulation ...; (g) all claims asserted by You individually against Us, and/or any of our agents, consultants, or servicers and/or any of their employees, directors, officers, shareholders, managers, members, parents, subsidiaries, or any affiliated entities (hereinafter collectively referred to as “related third parties” ) ... (One Click Cash Agmt., Lin Decl. Ex. 1A, ECF No. 35 (emphasis added).) FIB originated the transactions related to the One Click Cash Loan Agreement. Next, the loan agreement with My Cash Advance similarly reads: [T]he words “dispute and “disputes” are given the broadest possible meaning and include without limitations (a) all claims, disputes, or controversies arising from or relating directly or indirectly to the signing of this Arbitration Provision, the validity and scope of this Arbitration Provision and any claim or attempt to set aside this Arbitration Provision; (b) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the Loan Agreement ... (c) all counterclaims, cross- claims and third-party claims; (d) all common law claims, based upon contract, tort, fraud, or other intentional torts; ... (g) all claims asserted by You individually against Us and/or any of Our employees, agents, directors, officers, shareholders, governors, managers, members, parents company or affiliated Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 22 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 entities (hereinafter collectively referred to as “related third parties”) ... (emphasis added) *3 .... YOU AND WE WOULD HAVE HAD A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH BINDING ARBITRATION. (emphasis in original) (My Cash Advance Agmt., Raines Decl. Ex. 5, ECF No. 41.) BMO originated the transactions related to the My Cash Advance Agreement. Finally, the loan agreement with Plain Green reads: You and we ... agree that any Dispute ... will be resolved by Arbitration. .... [T]he terms “we,” “our,” and “us” mean Lender, Lender's affiliated companies, the Tribe, Lender's servicing and collection representatives and agents, and each of their respective agents, representatives, employees, officers, directors, members, managers, attorney, successors, predecessors, and assigns. .... [T]he term Dispute is to be given its broadest possible meaning and includes, without limitation, all claims or demands (whether past, present, or future) ... based on any legal or equitable theory (contract, tort, or otherwise) and regardless of the type of relief sought.... A Dispute includes by way of example and without limitation, any claim based upon tribal, federal or state constitution, statute, ordinance, regulation, or common law, and any issue concerning the validity, enforceability, or scope of this Agreement or this Agreement to Arbitrate. (Plain Green Agmt., Schwingler Decl. Ex. 1, ECF No. 46 (emphasis added).) NABC originated the transactions related to the Plain Green Agreement. Defendants have each filed a Motion to Compel Arbitration under the above arbitration provisions. FIB's Motion was filed on December 11, 2013 (FIB's Mot., ECF No. 34), BMO's Motion was filed on December 13, 2013 (BMO's Mot., ECF No. 40), and NABC's Motion was filed on December 24, 2013 (NABC's Mot., ECF No. 46). Plaintiff responded to FIB's Motion on January 21, 2014 (Pl.'s Resp. FIB, ECF No. 50) and to BMO's Motion and NABC's Motion on January 30, 2014 (Pl.'s Resp. BMO, ECF No. 53; Pl.'s Resp. NABC, ECF No. 54). On February 2, 2014, FIB filed a Reply. (FIB's Reply, ECF No. 56.) On February 20, 2014, BMO and NABC also filed Replies. (BMO Reply, ECF No. 62; NABC's Reply, ECF No. 58.) The parties have continued to file notices of supplemental authority. II. LEGAL STANDARD The applicable legal standard for a motion to compel arbitration depends upon the facts and circumstances of the case. Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 776 (3d Cir.2013). “[W]hen it is apparent, based on the face of a complaint, and documents relied upon in the complaint, that certain of a party's claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b) (6) standard without discovery's delay.” Id.; Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F.Supp.2d 474, 482 (E.D.Pa.2011). Here, the Loan Applications indicate that Plaintiff agreed to arbitrate disputes with the Lenders. Plaintiff does not contest the validity of the arbitration provisions in the Loan Applications. Rather, she claims that Defendants cannot enforce the arbitration provisions. The Rule 12(b)(6) standard is appropriate. *4 Under this standard, the District Court must “accept all factual allegations in the complaint as true and give the pleader the benefit of all reasonable inferences that can be fairly drawn therefrom.” Fed.R.Civ.P. 12(b)(6). The court cannot accept conclusory allegations. Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir.2009). Viewing the facts in this light, a motion to compel arbitration will be granted “only where there is no genuine issue of fact concerning the formation of the agreement to arbitrate .” Kirleis v. Dickie, McCamey & Chilcote, P. C., 560 F.3d 156, 159 (3d Cir.2009) (internal quotation marks omitted). III. DISCUSSION Pursuant to the Federal Arbitration Act (“FAA”), arbitration clauses in contracts that involve commerce are “valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. This establishes a strong Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 23 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 federal policy favoring arbitration. Moses H. Cone Mem ‘l Hosp. v. Mercy Constr. Corp, 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). However, a dispute is not automatically submitted to arbitration upon the demand of a party to the dispute. Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir.2009). First, a court must determine that there is an agreement to arbitrate. Id. “Because an arbitrator's authority derives solely from the parties' agreement to submit their disputes to arbitration, a party cannot be compelled to submit a dispute to arbitration unless it has agreed to do so.” Invista S.a.r.l. v. Rhodia, S.A., 625 F.3d 75, 84 (3d Cir.2010) (quotation omitted); see also Guidotti, 716 F.3d at 771. Here, Plaintiff did not contract with Defendants but with the Lenders who are not parties to this action. However, this does not mean Defendants cannot enforce the arbitration provisions in the Loan Agreements because “non-signatories may be bound to arbitration agreements under certain very limited circumstances.” Rhodia, 625 F.3d at 84. There are five theories upon which non-signatories can be bound: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/ alter ego; and (5) estoppel. Id. Defendants argue that agency and estoppel are applicable to this case. In addition, Defendants argue that they can enforce the arbitration provisions as third-party beneficiaries to the Loan Agreements. Plaintiff responds that the arbitration provisions should not be enforced because the Loan Agreements are illegal and Defendants have unclean hands. 3 3 FIB and NABC argue that based on the language of the Loan Agreements, the issue of arbitrability should be decided by an arbitrator. “The Court will not assume that a party has agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that it did so.” Sarl v. A.M. Todd Co., No. 07–2727, 2009 WL 2526432, at *4 (E.D.Pa. Aug.18, 2009) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83–84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). Here, there is no agreement between Plaintiff and Defendants, and Defendants as “non- signator[ies] cannot be bound to arbitrate unless [they are] bound under traditional principles of contract and agency law to be akin to a signatory of the underlying agreement.” Rhodia, 625 F.3d at 84. Therefore, even if the issue of arbitrability must be submitted to the arbitrator under the language of the Loan Agreements, we still must first determine whether Defendants are bound by and can enforce the arbitration provisions. See Aluminium Bahrain B.S.C. v. Dahdaleh,–F. Supp.2d-, No. 8–299, 2014 WL 1681494, at *8 (W.D.Pa. Apr.28, 2014) (determining whether non-signatory could enforce arbitration agreement before determining whether the parties agreed to arbitrate arbitrability). A. Equitable Estoppel 4 4 Plaintiff claims that under Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009), “[a] non-signatory to an arbitration agreement can only compel parties to arbitrate under the FAA when ‘the relevant state contract law allows him to enforce the agreement.’ ” (Pl.'s Resp. FIB 19; Pl.'s Resp. BMO 15; Pl.'s Resp. NABC 16 (all quoting Arthur Andersen, 556 U.S. at 632).) Plaintiff claims that the relevant contract law here is the law of the tribal nations where the Lenders are based, as set out in the choice of law provisions of the Loan Agreements. Yet, Plaintiff does not claim there is a conflict between Pennsylvania law and the applicable tribal law. Instead, she argues that Defendants' estoppel argument fails because Defendants have not established whether estoppel is available under the applicable tribal law. Plaintiff's argument is misguided. The choice-of-law question is relevant only to the extent that the foreign law conflicts with the law of the forum. Berg Chilling Sys., v. Hall Corp., 435 F.3d 455, 462 (3d Cir.2006) (“According to conflicts of laws principles, where the laws of the two jurisdictions would produce the same result on the particular issue presented, there is a ‘false conflict,’ and the Court should avoid the choice-of- law question.” (citations omitted)). And when foreign law is at issue, “it is incumbent upon the parties to carry both the burden of raising the issue that foreign law may apply in an action, and the burden of adequately proving foreign law to enable the court to apply it in a particular case.” Mzamane v. Winfrey, 693 F.Supp.2d 442, 469 (E.D.Pa.2010) (citing Bel– Ray Co., Inc. v. Chemrite Ltd., 181 F.3d 435, 440 (3d Cir.1999)). When the parties do not satisfy these burdens, the law of the forum applies. Id.; see also Walter v. Neth. Mead N.V., 514 F.2d 1130, 1137 n. 14 (3d Cir.1975) (concluding that although the law of the Netherlands ostensibly applied, where a party did not conclusively establish the foreign law, the court should assume it is consistent with the law of the forum). Plaintiff has not alleged that any true conflict exists, and according to FIB and NACB, no Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 24 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 conflict does exist because the applicable tribal law allows estoppel. In addition, FIB and BMO state that the FAA-not tribal law-applies to the arbitration provisions in the One Click Cash and My Cash Advance Loan Agreements. It is clear that the parties have not carried their burden of proving the tribal law such that we can apply here. We therefore will apply Pennsylvania law to the extent that it, and not the FAA, is applicable. We note that this outcome is consistent with the parties' submissions to this Court. Although Plaintiff appears to be making a choice-of-law argument, all of Plaintiff's claims and arguments in opposition to Defendants' Motions other than the choice-of-law argument assume that Pennsylvania law applies. Defendants also agreed to the application of Pennsylvania law. Thus, it appears that the parties have agreed that Pennsylvania law applies. We will not disturb that agreement. See USA Mach. Corp. v. CSC, Ltd., 184 F.3d 257, 263 (3d Cir.1999) (assuming without deciding that Pennsylvania law governed diversity suit where parties agreed on choice of law). There are two theories of equitable estoppel that can bind a non-signatory to an arbitration clause. E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir.2001). First, “[e]stoppel can bind a nonsignatory to an arbitration clause when that non-signatory has reaped the benefits of a contract containing an arbitration clause.” Rhodia, 625 F.3d at 85. The purpose of this is to “prevent a non-signatory from embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful.” Peltz ex rel. Estate of Peltz v. Sears Roe Buck, 367 F.Supp.2d 711, 719 (E.D.Pa.2005). Second, equitable estoppel applies to bind a signatory to arbitrate with a non-signatory at the nonsignatory's insistence when there is: (1) a “close relationship between the entities involved[;]” and (2) “[a] relationship [between] the alleged wrongs [and] the nonsignatory's obligations and duties in the contract[.]” E.I. DuPont de Nemours & Co., 269 F.3d at 199. “To satisfy the second part of the test, the non-signatory seeking enforcement of an arbitration agreement must show that the claims against them are ‘intimately founded in and intertwined with’ the underlying obligations of the contract to which they were not a party. Miron v. BDO Seidman, LLP, 342 F.Supp.2d 324, 333 (E.D.Pa.2004) (quoting E.I. DuPont de Nemours & Co., 269 F.3d at 199). The second theory of equitable estoppel applies to this case. 1. Close Relationship Between the Entities *5 Determining whether a close relationship exists between the entities involved requires “examin[ing] the relationship of the alleged wrong to the nonsignatory's obligations and duties in the contract.” Miron, 342 F.Supp.2d at 333 (internal citations omitted). “[N]on- signatories ... can enforce an [arbitration] agreement when there is an obvious and close nexus between nonsignatories and the contract or the contract parties” such that it “is the signing parties' intent” to hold that party to the arbitration provision. Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.Super.Ct.2006). Here, a close relationship exists between Defendants, the parties to the Loan Agreements, and the Loan Agreements themselves because Defendants' role in processing the debits and credits related to Plaintiff's loans was set out in the Loan Agreements, and Plaintiff agreed to arbitrate disputes with parties other than the Lender. In both the One Click Cash and Plain Green Agreements, Plaintiff agreed to provisions authorizing the Lender's “agents” or other listed types of third-parties to debit Plaintiff's bank account through the ACH Network for re-payment of her loans. The One Click Cash Agreement listed “authorized representatives,” and the Plain Green Agreement listed “representatives” and “affiliates.” The language of the Loan Agreements reveals that Plaintiff also consented to arbitrate with not only the signatory Lenders, but also related parties. Specifically, under the One Click Cash Loan Agreement, Plaintiff agreed to arbitrate all claims against One Click Cash's “agents,” “servicers,” or “affiliated entities.” (One Click Cash Agmt.) Similarly, Plaintiff agreed to arbitrate any dispute with Plain Green's “servicing and collection representatives and agents” under the Plain Green Loan Agreement. (Plain Green Agmt.) Having agreed to arbitrate with undefined agents and servicers or servicing representatives, and likewise having agreed that agents and third-parties, such as representatives, could perform the ACH transactions related to the Loan Agreements, it would be inequitable for Plaintiff to avoid arbitration with those same agents and third-parties that obviously have a nexus to Plaintiff and the Loan Agreements. FIB and NABC originated the ACH transactions that were referenced and anticipated by the Loan Agreements, which were integral to the functioning of the loan. Therefore, FIB and NABC are closely related to the entities involved such that the parties intended for Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 25 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 claims against them to fall within the scope of the arbitration provisions. Indeed, other courts on similar facts have found a sufficiently close relationship to compel arbitration under an estoppel theory. See Riley v. BMO Harris Bank, N.A., No. 13–1677, 2014 WL 3725341, at *6 (D.D.C. July 29, 2014); Graham v. BMO Harris Bank, N.A., No. 13–1460 (D.Conn. July 16, 2014); Moss v. BMO Harris Bank, N.A., No. 13–5438, 2014 WL 2565824, at *5– 6 (E.D.N.Y. June 9, 2014). In each of these cases, banks that processed ACH transactions for payday lenders were found to be intimately connected to the signatory plaintiffs who entered into broad arbitration agreements with the payday lenders. The signatory plaintiffs were not permitted to deny the foreseeability of having to arbitrate with the banks. *6 The same result is warranted with regard to BMO. The My Cash Advance Loan Agreement contains an ACH Authorization whereby Plaintiff authorized My Cash Advance and any “assignee” to initiate electronic fund transfers from Plaintiff's account. The ACH Authorization also refers to the “network.” While this is a narrower ACH authorization than the other Loan Agreements, the authorization still suggests that the debit could be performed by a third party. In addition, the My Cash Advance Loan Agreement contains a broad arbitration provision, providing for arbitration of disputes asserted against “agents” of My Cash Advance or “affiliated entities.” (My Cash Advance Agmt.) The combined effect of these provisions again creates an obvious close nexus between BMO and the parties to the Loan Agreement, such that the parties intended to hold BMO to the arbitration agreement. BMO originated the ACH debits anticipated in the Loan Agreement, and the parties to the Loan Agreement-by agreeing to arbitrate with affiliated entities-agreed to arbitrate with an undefined, expansive class of entities conducting business with My Cash Advance. Defendants have established that a close relationship exists. They should be permitted to enforce the arbitration provisions in the Loan Agreements. 2. Claims Intertwined with Contract Obligations Claims are intertwined with an arbitration agreement when the signatory's claims “rely on the terms of the agreement or assume the existence of, arise out of, or relate directly to, the written agreement.” Sarl v. A.M. Todd Co., No. 07–2727, 2008 WL 724607, *9 (E.D.Pa. Mar.18, 2008). Here, all of Plaintiff's claims rely on the terms of the Loan Agreements being illegal because of allegedly usurious interest rates. Each claim is premised on the idea that Defendants, by giving the Lenders access to the ACH Network to originate debits and credits related to the Loan Agreements, were involved in the collection of unlawful debts. Thus, the natural conclusion is that Plaintiff's claims are intertwined with the Loan Agreements that contain both the usurious interest rates and the arbitration provisions. Bannett v. Rankin, 331 F.Supp.2d 354, 360 (E.D.Pa.2004) (finding the defendants had standing to compel arbitration “[b]ecause all of [the][p]laintiff's claims make reference to or presume the existence of the partnership agreements and relate directly to those agreements”); see also Sarl, 2008 WL 724607, at *9–10 (E.D.Pa. Mar.18, 2008) (finding that the plaintiffs were estopped from avoiding arbitration because claim that non-signatory breached the contract relied upon the contract). Plaintiff argues that her claims are not “intertwined” with the Loan Agreements because she has not alleged that Defendants violated duties or obligations under the Loan Agreement. Plaintiff's argument is misguided. The relevant question is whether the claims at issue rely or depend on the terms of the agreement. Bannett, 331 F.Supp.2d at 360; Miron, 342 F.Supp.2d at 333 (“The plaintiff's actual dependence on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.” (emphasis in original) (quotations omitted)). Contrary to Plaintiff's assertion, her claims do actually depend on the Loan Agreements: her statutory and common law claims specifically rely on the terms of the Loan Agreements being illegal. *7 Further evidence of this dependence is found in Plaintiff's allegations of concerted misconduct between Defendants and the Lenders. See Sarl, 2008 WL 724607, at * 10 (quoting Grigson v. Creative Artist Agency L.L. C., 210 F.3 d 524, 527 (5th Cir.2000) (“Estoppel may also apply where the nonsignatory is alleged to have engaged in ‘substantially interdependent and concerted misconduct’ with a signatory other than the plaintiff.”)). Plaintiff alleges interdependent and concerted conduct by Defendants and the Lenders through the use of their roles in the ACH Network “to facilitate payday loans.” (See Compl. ¶¶ 107, 124, 141.) More importantly, the Loan Agreements were central to the goal of Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 26 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 the alleged conspiracy: without the Loan Agreements, Defendants would not have loans to facilitate. Because Plaintiff's entire case depends on the contents of the loan agreements, which Defendants allegedly knew about, we find that the claims are sufficiently intertwined with the Loan Agreements. 5 Consequently, Plaintiffs are equitably estopped from disclaiming Defendants' right to enforce the arbitration provisions in the Loan Agreements. 6 5 As noted above, courts in other jurisdictions facing nearly identical facts to those before us have found the plaintiffs to be equitably estopped from denying similar arbitration provisions. Those courts found the loan agreements to be intertwined with the plaintiffs' claims. Those cases are persuasive. Riley, 2014 WL 3725341, at *5; Graham v. BMO Harris Bank, N.A., No. 13–1460 (D.Conn. July 16, 2014); Moss, 2014 WL 2562824, at * 5–6; Elder v. BMO Harris Bank, N.A., No. 13–3043, 2014 WL 1429334, at *1 (D.Md. Apr.11, 2014). 6 Because we found that equitable estoppel applies, we need not determine whether Defendants are third- party beneficiaries of the Loan Agreements or agents of the Lenders. B. Legality of the Loan Agreements and Unclean Hands Plaintiff also argues that the Court should not enforce the arbitration provisions because they are contained within allegedly illegal Loan Agreements. Plaintiff fails to recognize that we do not have authority to decide that issue. Plaintiff's argument attacks the legality of the entire Loan Agreement-not the individual arbitration provisions. The Supreme Court established in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–446, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), that “unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.” Accordingly, we will leave the determination of the legality of the Loan Agreements to the arbitrator. 7 7 Plaintiff attempts to claim that she is challenging the validity of the arbitration provisions by alleging that the arbitration provisions are linked to illegal ACH Authorizations. In essence, Plaintiff contends that before we can compel arbitration, we must determine whether the ACH Authorizations were illegal, and thus whether there is a possibility the arbitration agreements were also illegal because of their relation to the ACH Authorizations. We reject this argument. Plaintiff has not identified any facts that suggest the ACH Authorizations were illegal. Plaintiff's argument that Defendants have unclean hands fails for a similar reason. Plaintiff contends that Defendants aided and abetted the illegal Loan Agreements, and thus they have unclean hands and should not be permitted to benefit from the doctrine of equitable estoppel. Again, Plaintiff is not specifically attacking the arbitration provision, but Defendants actions with regard to the Loan Agreement as a whole. This is again an issue for the arbitrator because any challenge to the validity of the entire contract must go to the arbitrator. In re A2P SMS Antitrust Litig. ., 972 F.Supp.2d 465, 482 (S.D.N.Y.2013) (stating that “in contesting the application of equitable estoppel, Plaintiffs still must discuss why Defendants' hands are unclean with regard to the ‘making of the agreement to arbitrate’ ” (quoting Buckeye, 546 U.S. at 446)). As such, Plaintiff's arguments concerning the legality of the Loan Agreements and Defendants' alleged unclean hands do not affect Defendants' ability to enforce the arbitration provisions. IV. CONCLUSION *8 For the foregoing reasons, Defendants' Motions to Compel Arbitration will be granted. In addition, Plaintiff's claims will be dismissed because all the claims in the Complaint are subject to arbitration as provided in the Loan Agreements. Seus v. John Nuveen & Co., Inc., 146 F.3d 175, 179 (3d Cir.1998) (“If all the claims involved in an action are arbitrable, a court may dismiss the action instead of staying it.”). An appropriate Order follows. ORDER AND NOW, this 11th day of August, 2014, upon consideration of Defendant First International Bank & Trust's Motion to Compel Arbitration (ECF No. 34), Defendant BMO Harris Bank, N.A.'s Motion to Compel Arbitration (ECF No. 40), and Defendant North American Banking Company's Motion to Compel Arbitration (ECF No. 46), and all papers submitted in support thereof and in opposition thereto, it is ORDERED as follows: Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 27 of 133 Booth v. BMO Harris Bank, N.A., Not Reported in F.Supp.3d (2014) 2014 WL 3952945 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 1. Defendant First International Bank & Trust's Motion to Compel Arbitration (ECF No. 34), Defendant BMO Harris Bank, N.A.'s Motion to Compel Arbitration (ECF No. 40), and Defendant North American Banking Company's Motion to Compel Arbitration (ECF No. 46) are GRANTED. 2. Defendant BMO Harris Bank, N.A.'s Motion to Sever (ECF No. 38), Motion to Transfer (ECF No. 39), and Motion to Dismiss (ECF No. 42) are DENIED as moot. 3. Plaintiff's Complaint is DISMISSED without prejudice and the Clerk of Court is directed to close this matter. IT IS SO ORDERED. All Citations Not Reported in F.Supp.3d, 2014 WL 3952945 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 28 of 133 D Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 29 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2015 WL 5144030 United States District Court, E.D. Pennsylvania. Fabio Caparra, Plaintiff, v. Maggiano's Inc. et al., Defendants. CIVIL ACTION NO. 14–05722 | Signed September 1, 2015 Attorneys and Law Firms Stephen G. Console, Caren N. Gurmankin, Console Law Offices LLC, Philadelphia, PA, for Plaintiff. Stephanie Jill Peet, Samantha Sherwood Bononno, Jackson Lewis P.C., Philadelphia, PA, for Defendants. MEMORANDUM PAPPERT, District Judge *1 Plaintiff Fabio Caparra (“Caparra”) sued Maggiano's, Inc. (“Maggiano's), Brinker International, Inc. (“Brinker International”), and Brinker International Payroll Company, L.P. (“Brinker Payroll”) (collectively referred to as “Defendants” throughout the complaint), alleging that Defendants violated the Family Medical Leave Act, 29 U.S.C. § 2601 et seq. (“FMLA”), the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq. (“ADA”), and the Pennsylvania Human Relations Act, 43 P.S. § 951 et seq. (“PHRA”) by terminating him while he was on medical leave. Approximately ten months before his termination, Caparra signed an agreement to arbitrate with Brinker Payroll. Brinker Payroll now seeks to enforce this agreement and compel Caparra to arbitrate his claims. Maggiano's and Brinker International join the motion to compel and also move to dismiss. 1 For the reasons that follow, the Court will compel arbitration and stay these proceedings while the parties arbitrate Caparra's claims. 1 Brinker International and Maggiano's contend that they are improperly named defendants because neither employed Caparra. (See, e.g., Defs.' Reply 2– 4, ECF No. 19.) They thus argue that they should be dismissed. (See, e.g., Defs.' Mot. Dismiss 8, ECF No. 16.) However, a challenge to the merits of Caparra's claims must be decided by the arbitrator. PaineWebber Inc. v. Hartman, 921 F.2d 507, 511 (3d Cir.1990) (“If ... the court determines that an agreement exists and that the dispute falls within the scope of the agreement, it then must refer the matter to arbitration without considering the merits of the dispute.”), overruled on other grounds by Howsam v. Dean Witter Reynolds, 537 U.S. 79, 85 (2002). I. Background In 2004, Defendants hired Caparra as a sous chef. (Compl. ¶ 23, ECF No. 1.) Over the next six years, Caparra received several promotions. In December 2010, he was promoted to Executive Chef–Managing Partner, making him one of the highest-level managers at his location. (Id.) On April 27, 2012, Caparra signed an agreement to arbitrate with Brinker Payroll. (Caparra Dep. 94:17–95:11, Apr. 14, 2015, Pl.'s Opp'n Mot. Dismiss Ex. 11.) In November 2012, Caparra informed Defendants that he needed to take medical leave to undergo surgery for acute spinal stenosis. (Compl.¶ 28.) Caparra began leave on January 21, 2013–the same day he underwent back surgery. (Id. ¶ 29.) On February 27, 2013, Caparra sent Defendants a doctor's note stating that he was cleared to return to work if Defendants provided certain accommodations. (Id. ¶ 36.) Defendants received the doctor's note, but did not discuss Caparra's requested accommodations. (Id. ¶ 37.) The next day, while Caparra remained on leave, his supervisor David Kososki terminated him. (Id. ¶ 39.) Caparra later learned that he had been terminated for “misconduct and behavior deemed detrimental,” but was provided no further explanation. (Id. ¶ 41.) Caparra contends that the Defendants interfered with his rights under the FMLA, and retaliated against him for exercising those rights by terminating him while he was out on leave. Caparra avers that this same incident violated the ADA and the PHRA. *2 On December 8, 2014, Defendants filed a motion to dismiss and to compel arbitration. (ECF No. 6.) In response, Plaintiff argued inter alia that the arbitration agreement was unconscionable. (See ECF No. 10.) Concluding that it was unable to rule on Defendants' motion in the absence of a fuller evidentiary record, the Court denied the motion without prejudice and ordered the parties to conduct discovery into Plaintiff's unconscionability arguments. (See Order, ECF No. 15.) Discovery revealed the following pertinent facts. 2 On April 27, 2012, Caparra learned that all “teammates” were Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 30 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 being asked to sign a stand-alone arbitration agreement. (Caparra Dep. 94:23–95:5; see also id. at 95:17–95:21.) Caparra was told that he needed to sign the document the day he received it, and he did so after learning that his superiors had also signed the document. (Id.; see also id. at 98:13–99:22.) Caparra asked to call his wife before signing the document, and he was permitted to make the call. (Id. at 105:23–106:1.) Caparra did not, however, ask any questions about the document nor did he read it before signing it. (Id. at 101:4–103:2; 110:9– 110:21.) Rather, he signed the document in reliance on his superiors' assurances that they signed the document, his belief that the document was innocuous, and in an effort to encourage his kitchen staff to sign the document. (Id. at 92:3–93:22.) 2 Most of the evidence submitted by the parties in support of their positions pertains to whether the arbitration agreement is procedurally, as opposed to substantively, unconscionable. For reasons discussed infra, the Court does not address the procedural unconscionability issue. The Court accordingly does not recount those facts in detail here. The arbitration agreement 3 (the “Arbitration Agreement”) that Caparra signed on April 27, 2012 states the following: Brinker Payroll International Company, L.P. (“Brinker”) makes available certain internal procedures for amicably resolving any complaints or disputes you have relating to your employment. However, if you are unable to resolve any such complaints or disputes to your satisfaction internally, Brinker has provided for the resolution of all disputes that arise between you and Brinker through formal, mandatory arbitration before a neutral arbitrator. Because of, among other things, the delay and expense which result from the use of the court systems, any legal or equitable claims or disputes arising out of or in connection with employment, terms and conditions of employment, or the termination of employment with Brinker will be resolved by binding arbitration instead of in a court of law or equity. This agreement applies to all disputes involving legally protected rights (e.g., local, state and federal statutory, contractual or common law rights) regardless of whether the statute was enacted or the common law doctrine was recognized at the time this agreement was signed. This agreement does not limit an employee's ability to complete any external administrative remedy (such as with the EEOC). This Agreement to Arbitrate substitutes one legitimate dispute resolution form (arbitration) for another (litigation), thereby waiving any right of either party to have the dispute resolved in court. This substitution involves no surrender, by either party, of any substantive statutory or common law benefits, protection or defense for individual claims. You do waive the right to commence or be party to any representative, collective or class action. *3 Arbitration Rules ...Each party is entitled to representation by an attorney throughout the arbitration proceeding at their own expense. Each party shall bear their own fees and expenses, unless otherwise awarded by the arbitrator in the final, written decision. ...The arbitrator may award individual relief only ... (Defs.' Mot. Dismiss Ex. G; Pl.'s Opp'n Mot. Dismiss Ex. 1) (emphasis added). The Arbitration Agreement also sets forth where the arbitration proceeding will occur, the process to initiate arbitration, and additional procedural rules. (See id.) 3 At the time of his hire in 2004, Caparra agreed to be bound by a similar arbitration agreement. (See Defs.' Mot. Dismiss Ex. F; Pl.'s Opp'n Mot. Dismiss Ex. 10, ECF No. 18.) As Caparra points out, the 2004 agreement obligated him to arbitrate disputes “arising out of or related to [his] compensation, employment or termination of employment with Brinker International or its related companies.” (Defs.' Mot. Dismiss Ex. E.) The 2012 agreement does not include this “related companies” language. Caparra contends that this distinction means that he cannot be compelled to arbitrate his claims against Defendants Brinker International and Maggiano's. However, as discussed infra, the absence of this language does not permit Caparra to avoid his arbitration obligations. The agreements are otherwise substantially similar and Caparra makes no arguments regarding the unenforceability of the agreement signed in 2004. For these reasons, the Court considers only the agreement signed on April 27, 2012. II. Legal Standard For a Motion to Compel Arbitration Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 31 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 The Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”) evinces Congress' liberal policy favoring arbitration agreements. 4 Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983). Pursuant to Section 2 of the FAA, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “Agreements to arbitrate employment disputes, whether based on federal or state statutory claims, are enforceable under the [FAA].” Hudyka v. Sunoco, Inc., 474 F.Supp.2d 712, 715 (E.D.Pa.2007) (citing Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001)). “A district court is authorized to compel arbitration if a party to an arbitration agreement institutes an action that involves an arbitrable issue and one party to the agreement has failed to enter arbitration.” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3d Cir.1999). 4 All parties agree that the FAA governs this dispute. The Third Circuit Court of Appeals recently clarified the standard by which a district court must review a motion to compel arbitration: [W]hen it is apparent, based on the face of the complaint, and documents relied upon in the complaint, that certain of a party's claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b) (6) standard without discovery's delay. But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on the question. After limited discovery, the court may entertain a renewed motion to compel, this time judging the motion under a summary judgment standard. *4 Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764, 776 (3d Cir.2013) (internal quotation marks and citations omitted). Because the complaint did not make clear that the parties' dispute was subject to arbitration and Caparra asserted in response to Defendants' initial motion that the agreement to arbitrate was unconscionable, the Court ordered limited discovery on the issue. After completing discovery, Defendants filed a renewed motion to dismiss and to compel arbitration pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court must, however, entertain the renewed motion to compel under a summary judgment standard. Under a summary judgment standard, a court will grant the motion “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In ruling on a summary judgment motion, we consider “the facts and draw all reasonable inferences in the light most favorable to the plaintiff, the party who opposed summary judgment.” Lamont v. New Jersey, 637 F.3d 177, 179 n.1 (3d Cir.2011) (citing Scott v. Harris, 550 U.S. 372 (2007)). “The party seeking to compel arbitration bears the initial burden of showing that the non-movant has failed to establish one or more essential elements of its case. If it meets this burden, the party seeking to avoid arbitration must point to specific facts in the record that demonstrate that there is a genuine issue for trial.” Porreca v. Rose Grp., No. 13–cv–1674, 2013 WL 6498392, at *6 (E.D.Pa. Dec. 11, 2013) (citing Guidotti, 716 F.3d at 773)). III. Discussion “Because arbitration is a matter of contract, before compelling arbitration pursuant to the [FAA], a court must determine that (1) an enforceable agreement to arbitrate exists, and (2) the particular dispute falls within the scope of that agreement.” MacDonald v. Unisys Corp., 951 F.Supp.2d 729, 734 (E.D.Pa.2013) (quoting Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.2009)). Caparra challenges only the enforceability of the Arbitration Agreement, contending that (1) that the agreement is invalid because it is not supported by consideration, and (2) that the agreement is unenforceable because it is unconscionable. The Court considers the arguments in turn. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 32 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 a. Validity of the Arbitration Agreement “To determine whether the parties have agreed to arbitrate, we apply ordinary state-law principles that govern the formation of contracts.” Century Indem. Co. v. Certain Underwriters at Lloyd's London, 584 F.3d 513, 524 (3d Cir.2009) (citations omitted). The parties agree that Pennsylvania contract principles apply. To determine whether a contract was formed under Pennsylvania law, a court must look to: (1) whether both parties manifested an intention to be bound by the agreement; (2) whether the terms of the agreement are sufficiently definite to be enforced; and (3) whether there was consideration. Id. at 533. “Pennsylvania contract law assigns to the party seeking arbitration ‘the burden of demonstrating that a valid agreement to arbitrate exists between the parties.” Swartz v. Comcast Corp., 256 Fed.Appx. 515, 518 (3d Cir.2007) (quoting Goldstein v. Depository Trust Co., 717 A.2d 1063, 1067 (Pa.Super.Ct.1998)). Caparra contends only that the Arbitration Agreement is not supported by consideration. “Consideration confers a benefit upon the promisor or causes a detriment to the promisee and must be an act, forbearance or return promise bargained for and given in exchange for the original promise.” Channel Home Ctrs. v. Grossman, 795 F.2d 291, 299 (3d Cir.1986) (citation omitted). The Arbitration Agreement states that Brinker Payroll “has provided for the resolution of all disputes that arise between you and Brinker through formal, mandatory arbitration before a neutral arbitrator.” This language makes clear that Caparra and Brinker Payroll mutually agreed to forgo litigation and to arbitrate all disputes covered by the agreement. “When both parties have agreed to be bound by arbitration, adequate consideration exists and the arbitration agreement should be enforced.” Blair v. Scott Specialty Gases, 283 F.3d 595, 603–04 (3d Cir.2002). The Arbitration Agreement is supported by consideration, and is thus a valid contract. b. Unconscionability *5 Caparra also contends that the Arbitration Agreement is unconscionable and thereby unenforceable. (Pl.'s Opp'n Mot. Dismiss 12.) “To prove unconscionability under Pennsylvania law, a party must show that the contract was both substantively and procedurally unconscionable.” Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 230 (3d Cir.2012) (citing Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa.2007)). “[T]he Pennsylvania Supreme Court has indicated that it might be appropriate to use a ‘sliding scale approach’ so that where the procedural unconscionability is very high, a lesser degree of substantive unconscionability may be required and presumably, vice-versa.” Quilloin, 673 F.3d at 230 (citation omitted). This “sliding scale approach” does not, however, eliminate a party's obligation to demonstrate the existence of both procedural and substantive unconscionability. See Porreca, 2013 WL 6498392, at *16 (citing Quilloin, 673 F.3d at 230). “[T]he burden of establishing unconscionability lies with the party seeking to invalidate the contract, including an arbitration agreement ...” Salley, 925 A.2d at 347. Procedural unconscionability focuses on the process underlying the formation of the contract and the form and language of the agreement. Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, 228 (3d Cir.2008). A procedurally unconscionable contract is one marked by “a lack of meaningful choice in the acceptance of the challenged provision.' ” Quillion, 673 F.3d at 236 (quoting Salley, 925 A.2d at 119). On the other hand “[a] contract or provision is substantively unconscionable where it ‘unreasonably favors the party asserting it.’ ” Id. (quoting Salley, 925 A.2d at 119). “An arbitration agreement cannot be construed as substantively unconscionable where it ‘does not alter or limit the rights and remedies available to [a] party in the arbitral forum....’ ” Quilloin, 673 F.3d at 231 (quoting Edwards v. HOVENSA, LLC, 497 F.3d 355, 364 (3d Cir.2007)). Caparra presents three reasons why the Arbitration Agreement is substantively unconscionable. First, Defendants failed to explain the terms of the Arbitration Agreement to him. (Pl.'s Opp'n Mot. Dismiss 19, 22.) Second, the Arbitration Agreement limits his ability to recover equitable and injunctive relief available to him under the ADA, the FMLA and the PHRA. (Id. at 23.) Third, the Arbitration Agreement makes him bear his own fees and expenses. (Id. at 24.) Caparra also contends that the Arbitration Agreement is a procedurally unconscionable contract of adhesion. (Id. at 14–19.) Because the Court finds that the Arbitration Agreement is not substantively unconscionable, the Court need Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 33 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 not determine whether the Agreement is procedurally unconscionable. i. Substantive Unconscionability Caparra contends that the terms of the Arbitration Agreement are “ ‘unreasonably or grossly favorable to one side’ i.e., Defendants” because “a high-level director” David Kososki did not understand the meaning of many of the terms in the agreement. 5 (Id. at 22.) In support of this position Caparra quotes sections of Kososki's deposition where he admits that: he does not know the difference between a legal claim or an equitable claim; he does not know what a court of equity is; he does not know what a statutory or common law benefit is; he does not know what the Federal Rules of Evidence or Rules of Civil Procedure are; and he does not know the meaning of the sentence, “The arbitrator may award individual relief only.” (Id. at 19–22.) Caparra, like Kososki, does not understand the terms of the Arbitration Agreement, and “no one at Defendants ever made any effort to explain the Agreement to [him].” (Id. at 22.) 5 This argument, which challenges the procedure underlying the formation of the Arbitration Agreement, is a procedural unconscionability argument. See Alexander v. Anthony Intern., L.P., 341 F.3d 256, 265 (3d Cir.2003) (“Procedural unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language.”) (citation omitted). The Court nevertheless considers it pursuant to Caparra's substantive unconscionability label. *6 Caparra failed to read the agreement and he did not raise any questions about its language before signing. (See Caparra Dep. 98:13–103:1, 110:9–110:21.) He contends that even if he had read the document, he would not have understood it. (Id. at 111:19–111:24.) Nevertheless, the terms of the agreement were clearly described in the document that Caparra received and signed. Under Pennsylvania law, “[c]ontracting parties are normally bound by their agreements, without regard to whether the terms thereof were read and fully understood and irrespective of whether the agreements embodied reasonable or good bargains.” Simeone v. Simeone, 581 A.2d 162, 165 (Pa.1990). Caparra cites no law for the proposition that an arbitration agreement is unconscionable because his employer failed to explain its terms. To the contrary, there is “no additional requirement to conduct an orientation to discuss the terms of the agreement with the employee and ensure that the employee understands all of its terms.” Porreca, 2013 WL 6498392, at *9; see also Morales v. Sun Constructors, Inc., 541 F.3d 218, 223 (3d Cir.2008) (enforcing arbitration agreement drafted in English against non-English speaking employee who made no effort to learn the terms of the agreement). The Court cannot find the Arbitration Agreement substantively unconscionable because Caparra failed to understand its terms before he signed the document. Caparra next contends that the Arbitration Agreement precludes him from seeking the equitable and injunctive relief he is entitled to under the ADA, the FMLA and the PHRA. 6 He is correct that he is entitled to seek such relief under those statutes. See 42 U.S.C. § 12117(a); 29 U.S.C. § 2617(a)(1)(B); 43 P.S. § 962(c)(3). He is incorrect, however, that the fact that the “arbitrator may award individual relief only” eliminates his right to these remedies. The Arbitration Agreement unequivocally states that the agreement “involves no surrender, by either party, of any substantive statutory or common law benefit, protection or defense for individual claims.” The “individual relief” limitation refers to the class action waiver 7 in the Arbitration Agreement; it is not a limit on the remedies available to Caparra. Moreover, should some ambiguity between the rights available under the ADA, the FMLA or the PHRA and the language of the Arbitration Agreement arise, the “Supreme Court has clearly established that ambiguities in arbitration agreements must be interpreted by the arbitrator.” Quilloin, 673 F.3d at 231 (citing PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401, 406–07 (2003)). The Arbitration Agreement cannot be deemed substantively unconscionable on this basis. 6 Caparra has asked the Court to “enjoin and permanently restraining [sic] the violations” and to grant “such other and further relief as this Court may deem just, proper, or equitable including other equitable and injunctive relief providing restitution for past violations and preventing future violations.” (Compl. at 12–13.) Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 34 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 7 Caparra has not asserted a putative class action and he raises no challenges to the class action waiver in the Arbitration Agreement. Caparra appears (though only through parentheticals appended to case citations) to contend that requiring him to bear his own costs makes the arbitral forum prohibitively expensive, which renders the Arbitration Agreement substantively unconscionable. (Pl.'s Opp'n Mot. Dismiss 24.) An arbitration agreement that requires a claimant to bear prohibitive costs may be unconscionable because such costs could deter a litigant from effectively vindicating his rights. See Nino v. Jewelry Exch., Inc., 609 F.3d 191, 203 (3d Cir.2010); Blair, 283 F.3d at 605 (“[T]he existence of large arbitration costs could preclude a litigant ... from effectively vindicating her federal statutory rights in the arbitral forum.”). However, the mere risk that a party “will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000). A party seeking to invalidate an arbitration agreement on such grounds bears the burden of showing the likelihood of incurring such costs. Id. *7 The Arbitration Agreement states “Each party shall bear their own fees and expenses, unless otherwise awarded by the arbitrator in the final, written decision.” This plain language expressly provides the arbitrator the discretion to award Caparra fees and costs. The agreement places no limitations on the arbitrator's discretion to do so and, as discussed above, Caparra has not waived his right to recover fees, to the extent available, under the ADA, the FMLA or the PHRA. See 42 U.S.C. § 12205; 29 U.S.C. § 2617(a)(3); 43 P.S. § 962(c)(4). Despite engaging in discovery directed at the unconscionability of the Arbitration Agreement, Caparra makes no attempt to show that he will have to bear his own costs or that he is unable to pay such costs. 8 “[T]he effect of the attorney fees provision ... is, at this point, purely speculative.” (Defs.' Mot. Dismiss Ex. O, Johnson v. Brinker Int'l Payroll Co., No. 13–cv–1090, at 7 (W.D.Wash. Oct. 23, 2013) (interpreting an identical arbitration provision)). The Arbitration Agreement is not substantively unconscionable. 8 Caparra's citations to Nino v. Jewelry Exchange, Inc., 609 F.3d 191 (3d Cir.2010) and Parilla v. IAP Worldwide Services VI, Inc., 368 F.3d 269 (3d Cir.2004) lend no support to his argument. In Nino, the Third Circuit held that an arbitration provision that stated “that the fees and expenses of the arbitrator and stenographer are to be borne equally by the parties” was substantively unconscionable because its restriction on the arbitrator's ability to award attorney's fees, costs and expenses “undermine[d] the legislative intent behind fee- shifting statutes like Title VII.” Nino, 609 F.3d at 203. The Arbitration Agreement in this case does not contain a similar restriction. Similarly, the provisio n in Parilla required each party to “bear its own costs and expenses, including attorney's fees.” Parilla, 368 F.3d at 278–79. The Third Circuit held that the relinquishment of eligibility for costs, expenses and attorney's fees “clearly helps the employer” and is thus substantively unconscionable. Id. at 278. Caparra, however, has not relinquished his eligibility for costs, expenses and attorney's fees under the ADA, the FMLA or the PHRA. The arbitration agreement in Parilla also required the employee to reimburse the company for the arbitrator's fees and expenses if so directed by the arbitrator. Id. at 283. While noting that “the prospect that the employee may have to pay the entire amount of the arbitrator's fees and expenses may serve to chill her willingness to bring a claim,” the court remanded the case to permit the employee to conduct limited discovery in an effort to demonstrate her inability to pay the anticipated costs of arbitration. Id. at 284–85. The Arbitration Agreement here does not saddle Caparra with a similar obligation. And even if it did, Caparra puts forth no evidence regarding his inability to pay such fees. ii. Procedural Unconscionability Caparra contends that the Arbitration Agreement is a procedurally unconscionable contract of adhesion, which is a “ ‘standard-form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who adheres to the contract with little choice about the terms.’ ” Chepkevich v. Hidden Valley Resort, L.P., 2 A.3d 1174, 1190 (Pa.2010) (quoting Black's Law Dictionary 342 (8th ed.2004)). Under Pennsylvania law, contracts of adhesion are usually found to be procedurally unconscionable. Quilloin, 673 F.3d at 235. Nonetheless, the absence of substantive unconscionability mandates the enforcement of the Arbitration Agreement, regardless of a finding of procedural unconscionability. See Williams v. Nabors Drilling USA, LP, No. 13–cv– 1013, 2014 WL 710078, at *9 (W.D.Pa. Feb. 25, 2014) Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 35 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 (“[B]ecause the Employees failed to show substantive unconscionability, procedural unconscionability is irrelevant. The Arbitration Agreement must be enforced.”); accord Zimmer, 523 F.3d at 230 (“Because we have concluded that the arbitration agreement here was not procedurally unconscionable and reverse on that basis, we need not decide whether the District Court's decision as to substantive unconscionability was correct.”). Put another way, even if the Court, after considering the record evidence and applying the sliding scale approach, found the Arbitration Agreement was procedurally unconscionable, it would still enforce the Arbitration Agreement. Therefore, the Court need not take up Caparra's procedural unconscionability arguments. c. Scope of the Arbitration Agreement *8 Because an enforceable arbitration agreement exists, the Court must determine whether the dispute falls within the scope of the agreement. See MacDonald, 951 F.Supp.2d at 734. “[W]here the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that ‘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. Doubts should be resolved in favor of coverage.’ ” AT & T Tech., Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582–83(1960)). This presumption is “particularly applicable where the clause is broad.” Id. Accordingly, “if the allegations underlying the claims touch matters covered by an arbitration clause in a contract, then those claims must be arbitrated.” Brayman Const. Corp. v. Home Ins. Co., 319 F.3d 622, 626 (3d Cir.2003) (internal quotation marks and citation omitted). The parties agreed to arbitrate “any legal or equitable claims or disputes arising out of or in connection with employment, terms and conditions of employment, or the termination of employment ...” This broad language clearly encompasses Caparra's ADA and PHRA discrimination claims as well as his FMLA interference and retaliation claims. Caparra makes no argument to the contrary. The Court accordingly finds that the Arbitration Agreement is a valid, enforceable contract requiring Caparra to arbitrate the claims set forth in his complaint. d. Claims Against Brinker International and Maggiano's Must Also Be Arbitrated Finally, Caparra asserts that he cannot be compelled to arbitrate his claims against Brinker International and Maggiano's because they did not sign the Arbitration Agreement. (Pl.'s Opp'n Mot. Dismiss 6–10.) Even assuming that Caparra was employed by one or both of these entities—as he contends—his joinder of these defendants does not mandate the conclusion that he need not arbitrate his claims against them. A non-signatory to a contract may bind a signatory to arbitrate a dispute when “traditional principles of state law allow a contract to be enforced by or against non- parties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third- party beneficiary theories, waiver and estoppel.” Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 631 (2009) (internal quotation marks omitted). “In the wake of Arthur Anderson ... we must expressly consider whether the relevant state contract law recognizes the particular principle as a ground for enforcing contracts by or against third parties.” Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir.2014) (internal quotation marks omitted). Pennsylvania law embraces the theory of equitable estoppel. Griswold v. Coventry First LLC, 762 F.3d 264, 271 (3d Cir.2014) (citing Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.Super.Ct.2006)). Under Dodds, “[n]on-signatories to an arbitration agreement can enforce such an agreement when there is an obvious and close nexus between the non-signatories and the contract or the contracting parties.” 909 A.2d at 351. The Dodds plaintiffs signed an arbitration agreement with Pulte Home Corporation of the Delaware Valley (“Pulte Home”) and agreed that “any controversy, claim or dispute arising out of or relating to this Agreement or purchase of the Home ... shall be settled by arbitration.” Id. at 350. The plaintiffs asserted a fraud claim against Pulte Home's parent company, who had not signed the arbitration agreement, in an effort to avoid arbitration. Id. at 351. Because the interests of the parent company were the same as Pulte Home, the Dodds plaintiffs could not avoid the arbitration agreement by asserting a fraud claim against the parent company. Id. at 352. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 36 of 133 Caparra v. Maggiano's Inc., Not Reported in F.Supp.3d (2015) 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 Here, Caparra lumps together non-signatory affiliated entities, Brinker International and Maggiano's, with signatory affiliated entity Brinker Payroll, and alleges that the Defendants are collectively liable as his employer. (See, e.g., Compl.¶¶ 23, 41, 42, 43, 44, 46, 47, 48, 49.) Caparra's claims against the Defendants are indistinguishable as they stem from the same incident and implicate identical legal principles. Permitting simultaneous litigation and arbitration of these identical claims runs the risk of different fact finders interpreting identical fact patterns differently and unnecessarily wastes judicial resources. See Smay v. E.R. Stuebner, Inc., 864 A.2d 1266, 1272 (Pa.Super.Ct.2004) (“[I]n disputes involving identical facts, we have an interest in obtaining consistent results and avoiding an unnecessary waste of resources.”). Moreover, Caparra, a signatory to the arbitration agreement, “should not be able to avoid the requirement to arbitrate by a non-signatory when the non-signatory wants to arbitrate.” Dodds, 909 A.2d at 352; see also Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1112 (3d Cir.1993) (holding that claims against non-signatory “corporate sister” of signatory corporation fell within the scope of an arbitration agreement because plaintiff's theory of liability demonstrated that corporate sister's interests were “directly related to, if not predicated upon” the alleged wrongful conduct). Any other result would permit a party to “obviate the effect of the agreement merely by finding a way to join another party.” Dodds, 909 A.2d at 352; see also Arnold v. Arnold Corp.-Printed Commc'ns For Bus., 920 F.2d 1269, 1281 (6th Cir.1990) (“[I]f appellant can avoid the practical consequences of an agreement to arbitrate by naming non-signatory parties as defendants in his complaint, or signatory parties in their individual capacities only, the effect of the rule requiring arbitration would, in effect, be nullified.”) (internal quotation marks omitted). The Court accordingly finds that Caparra must arbitrate his claims against Brinker International and Maggiano's. IV. Conclusion *9 The FAA directs that if a case referable to arbitration is brought in federal court, the court before which the lawsuit is pending “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3. This section “affords district courts no discretion to dismiss a case where one of the parties applies for a stay pending arbitration.” Lloyd v. HOVENSA, LLC, 369 F.3d 263, 269 (3d Cir.2004). Defendants move to dismiss the complaint; they did not request a stay. Nevertheless, Caparra appears to request a stay in opposition to the Defendants' motion. (See Pl.'s Opp'n Mot. Dismiss 25.) A stay furthers both the Defendants' interests in compelling arbitration and judicial economy. See Lloyd, 369 F.3d at 270 (noting that entering a stay expedites judicial resolution of disputes for which the parties are entitled to seek the Court's assistance during arbitration and ensures that the parties proceed immediately to arbitration). Accordingly, this case will be stayed, and administratively closed, pending the resolution of arbitration. Cf. Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F.Supp.2d 474, 490 (E.D.Pa.2011) (dismissing case because “neither plaintiffs nor defendants have requested that we stay the action pending arbitration”). An appropriate Order follows. ORDER AND NOW, this 1st day of September, 2015, upon consideration of Defendants' Renewed Motion to Dismiss Complaint and to Compel Arbitration (ECF No. 16), Plaintiff's response in opposition (ECF. No. 18), and Defendants' reply (ECF No. 19), it is ORDERED that the motion is GRANTED in part. The parties shall arbitrate the claims raised in Plaintiff's Complaint (ECF No. 1) in accordance with the parties' enforceable arbitration agreement. It is further ORDERED that this action shall be stayed and placed in CIVIL SUSPENSE pending the outcome of the arbitration. All Citations Not Reported in F.Supp.3d, 2015 WL 5144030, 25 Wage & Hour Cas.2d (BNA) 773, 32 A.D. Cases 38 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 37 of 133 E Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 38 of 133 Certain Underwrities at Lloyd's v. Century Indem. Co., Not Reported in F.Supp.2d (2005) 2005 WL 1941652 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2005 WL 1941652 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. CERTAIN UNDERWRITERS AT LLOYD'S and Excess Insurance Company Ltd., et al., Petitioners, v. CENTURY INDEMNITY COMPANY, As Successor to Insurance Company of North America, et al., Respondents. No. Civ.A.05-2809, Civ.A.05-2810, Civ.A.05-2811, Civ.A.05-2812, Civ.A.05-2813. | Aug. 1, 2005. Attorneys and Law Firms Howard D. Scher, Buchanan Ingersoll, PC, Philadelphia, PA, for Petitioners. Thomas A. Allen, White and Williams, Philadelphia, PA, for Respondents. MEMORANDUM AND ORDER NEWCOMER, J. *1 Presently before the Court are Petitioners' Petitions to Compel Arbitration (in part) and Stay Arbitration (in part). For the reasons set forth below, the relief sought in the Respondents' Petitions is denied. An appropriate order follows. 1 1 Respondents have requested an oral argument on this Petition which, in light of this Court's disposition, will be denied. See LOCAL R. CIV. P. 7.1(f) (noting that “[t]he Court may dispose of a motion without oral argument”). I. BACKGROUND The Parties have become embroiled in a dispute over reinsurance pay-outs as a result of asbestos litigation. The relevant reinsurance contracts underlying this dispute were entered into during the 1950's and 1960's. A series of these layered contracts constitutes a reinsurance program. 2 There are five such programs at issue, as reflected by the five civil actions before the Court for resolution. Each reinsurance contract contained a unique arbitration clause. The issue for this Court to resolve is whether to compel arbitration as structured by the Petitioners or as structured by the Respondents. Petitioners seek to compel arbitration as it is provided for in each reinsurance contract, while Respondents seeks to group each arbitration by the reinsurance program. 2 Case No. 05-CV-2809 involves Century's General Casualty Treaty (“Treaty 101”) reinsurance program for years 1951 through 1967; Case No. 05-CV-2810 involves Century's Blanket Excess of Loss Treaty (“Global Slip”) reinsurance program for years 1968 through 1972; Case No. 05-CV-2811 involves Century's Casualty Quota Share Treaty (“CQS”) reinsurance program for years 1951 through 1964; Case No. 05-CV-2812 involves Century's Excess General Liability Excess of Loss reinsurance program for years 1975 through 1986; and Case No. 05- CV-2813 involves ACE P & C's Casualty Excess of Loss (“Treaty 4002”) reinsurance program for years 1963 through 1982. II. LEGAL STANDARD The well-settled summary judgment standard set forth in FED. R. CIV. P. 56(c) governs a motion to compel arbitration. See Bellevue Drug Co. v. Advance PCS, 333 F.Supp.2d 318, 322 (E.D.Pa.2004) (citations omitted). Movants must prove through “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ... that there is no genuine issue of material fact and that [they are] entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). In considering a motion to compel arbitration, the Court must consider all of the non-moving party's evidence and construe all reasonable inferences in the light most favorable to the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Versarge v. Township of Clinton N.J., 984 F.2d 1359, 1361 (3d Cir.1993). III. DISCUSSION A. The Dispute Is Arbitrable. There is a strong federal policy in favor of resolving disputes through arbitration. See Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir.2003). Before the Court can order a reluctant party to arbitrate, however, the district court must conduct a limited review to ensure Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 39 of 133 Certain Underwrities at Lloyd's v. Century Indem. Co., Not Reported in F.Supp.2d (2005) 2005 WL 1941652 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 that the dispute is arbitrable, that is that there is a valid agreement to arbitrate and that the dispute falls within the substantive scope of the agreement. See Bellevue, 333 F.Supp.2d at 323 (quoting PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.1990)) (overruled on other grounds by Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002)). In this case, the Parties do not dispute the validity of multi-layered agreements. In fact, the Parties have had a number of prior disputes under the reinsurance programs and, when necessary, the disputes were arbitrated in accordance with the arbitration clauses in the reinsurance contracts. The present dispute is within the scope of the series of reinsurance agreements. According to Respondents, Lloyds unilaterally announced in 2001 that it was imposing new, onerous documentation requirements that would have to be satisfied before it would pay asbestos losses under any of Respondents' reinsurance programs. One requirement was that Respondents must provide documentation regarding specific asbestos claims paid by other insurers decades ago, as well as submitting sworn certifications to accompany asbestos billings. Respondents objected to the new requirements, arguing that they were extra-contractual. As a result, Lloyds has refused to pay Respondent for asbestos losses because of the Respondents' alleged failure to meet these new requirements. Thereafter, on May 13, 2005, Respondents attempted to arbitrate their dispute with Lloyds, structuring the arbitrations according to the reinsurance programs in order to prevent delay and promote efficiency in the dispute resolution process. Lloyds challenges this method, arguing that none of the reinsurance contracts provide for consolidation of arbitration proceedings, and that it has not consented to the arrangement as proposed by Respondents. The Court agrees with Lloyds. B. The Number of Arbitrations Is Tied to the Reinsurance Contracts. *2 Petitioners persuasively argue that the number of arbitrations must be tied to the contracts and not to the reinsurance programs. This Court will not order consolidation of these arbitrations as sought by Respondents because there is no explicit agreement to do so. See Phila. Reinsurance Corp. v. Emplrs. Ins. of Wausau, 61 Fed. Appx. 816, 820 (3d Cir.2003) (finding that “[a] district court may order the consolidation of separate arbitrations when the parties have an explicit agreement to do so”). It should be noted that Respondents did not file an action specifically seeking a court- ordered consolidation of multiple arbitrations, but instead initially submitted a single demand for arbitration, that is, one arbitration panel for each reinsurance program. Although Respondents have not sought to consolidate the arbitrations, the Court finds that there is no contractual agreement, express or implied, to structure the arbitrations by the reinsurance programs as opposed to by the reinsurance contracts. After considering the affidavits of both Parties, there does not appear to be any ‘course of business' dealings that would establish a practice of arbitrating by the reinsurance program as opposed to by the reinsurance contract. See Aff.'s of Patrick Benedict Robin Coldstream & Judith A. Harnadek (reflecting that while the Parties have arbitrated several times by reinsurance program, the cases involved a single policy holder); Philadelphia Reinsurance Corporation, 61 Fed. Appx. at 819-20 (finding that the district court properly ordered the consolidation of separate arbitrations when the parties had an informal contract, which may be expressed through a course of business). Accordingly, Respondents must arbitrate in separate proceedings under each contract, and if they desire consolidation, they must direct such a request to the respective arbitration panels. An appropriate order follows. ORDER AND NOW, on this 1 st day of August, 2005, upon consideration of Petitioners' Petition (Doc. 1), Respondents' Response, and Petitioners' Reply, said Petition is GRANTED. All Motions seeking leave to file reply briefs are GRANTED. It is further ORDERED that: 1. Century shall produce all reinsurance agreements within the scope of its arbitration demand; 2. Century is compelled to arbitrate under separate proceedings under each agreement; 3. The arbitration proceeding commenced by Century's May 13, 2005 demand letter is STAYED. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 40 of 133 Certain Underwrities at Lloyd's v. Century Indem. Co., Not Reported in F.Supp.2d (2005) 2005 WL 1941652 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 AND IT IS SO ORDERED. All Citations Not Reported in F.Supp.2d, 2005 WL 1941652 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 41 of 133 F Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 42 of 133 IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA CHESAPEAKE APPALACHIA, : 4:14-CV-0620 L.L.C., : : Plaintiff, : (Judge Brann) v. : : SCOUT PETROLEUM, LLC, and : SCOUT PETROLEUM II, LP, : : Defendants. : MEMORANDUM APRIL 28, 2017 I. BACKGROUND: Plaintiff, Chesapeake Appalachia, LLC, hereinafter “Chesapeake,” commenced the instant civil action on April 1, 2014, against Defendants, Scout Petroleum, LLC and Scout Petroleum II, LP (hereinafter, collectively, “Scout”). The two-count complaint was filed after Scout initiated arbitration proceedings against Chesapeake with the American Arbitration Association (hereinafter “AAA”). Count I is a demand for a declaratory judgment requesting that the Court decide whether it or the arbitrator is tasked to interpret the contract, commonly referred to as the “who decides” question. Count II is a demand for a declaratory 1 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 1 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 43 of 133 judgment contending that the contract does not permit class arbitration, commonly referred to as the “clause construction” question. On October 16, 2014, I granted Chesapeake’s motion for partial summary judgment on Count I and entered a declaratory judgment to the effect that the Court is to interpret the contract. Thereafter, I heard oral argument on Scout’s motion for reconsideration, which I denied on December 19, 2014, and then certified that decision for interlocutory appeal. On January 27, 2016, the United States Court of Appeals for the Third Circuit affirmed my determination that a court, not an arbitrator, is charged with interpreting the clause at issue. The parties are now before the Court for resolution of Count II, the “clause construction” question. Chesapeake moves for partial summary judgment requesting that the Court enter a declaratory judgment that the various contracts at issue do not permit class arbitration, only what is called individual or bilateral arbitration. Scout moves to dismiss the complaint arguing that Pennsylvania contract law permits class arbitration. Scout again requested oral argument on the motions and the parties were heard on April 5, 2017. For the reasons that follow, Scout’s motion will be denied, Chesapeake’s motion will be granted, and final judgment will be entered in favor of Chesapeake. 2 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 2 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 44 of 133 II. DISCUSSION: A. Standard of Review Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”1 A fact is “material” where it “might affect the outcome of the suit under the governing law.”2 A dispute is “genuine” where “the evidence is such that a reasonable jury,” giving credence to the evidence favoring the nonmovant and making all inferences in the nonmovant’s favor, “could return a verdict for the nonmoving party.”3 The burden of establishing the nonexistence of a “genuine issue” is on the party moving for summary judgment.4 The moving party may satisfy this burden by either (I) submitting affirmative evidence that negates an essential element of the nonmoving party’s claim; or (ii) demonstrating to the court that the nonmoving party’s evidence is insufficient to establish an essential element of the nonmoving party’s case.5 1 Fed. R. Civ. P. 56(a). 2 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 3 Id. 4 In re Bressman, 327 F.3d 229, 237 (3d Cir. 2003) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986) (Brennan, J., dissenting)). 5 Id. at 331. 3 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 3 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 45 of 133 Where the moving party’s motion is properly supported, the nonmoving party, to avoid summary judgment in his opponent’s favor, must answer by setting forth “genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.”6 For movants and nonmovants alike, the assertion “that a fact cannot be or is genuinely disputed must” be supported by “materials in the record” that go beyond mere allegations, or by “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.”7 “When opposing summary judgment, the non-movant may not rest upon mere allegations, but rather must ‘identify those facts of record which would contradict the facts identified by the movant.’”8 Furthermore, “[i]f a party fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact as required by Rule 56©, the court may . . . consider the fact undisputed for purposes of the motion.”9 In deciding the merits of a party’s motion for summary judgment, the court’s role is not to evaluate the evidence and decide the truth of the matter, but 6 Anderson, 477 U.S. at 250. 7 Fed. R. Civ. P. 56(c)(1); see also Anderson, 477 U.S. at 248–50. 8 Port Auth. of N.Y. and N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 233 (3d Cir. 2003). 9 Fed. R. Civ. P. 56(e)(2). 4 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 4 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 6 of 133 instead to determine whether there is a genuine issue for trial.10 Credibility determinations are the province of the factfinder, not the district court.11 Although the court may consider any materials in the record, it need only consider those materials cited.12 B. Facts In 2008, Chesapeake entered into various paid-up oil & gas leases with landowners in several northeastern Pennsylvania counties to explore for, and produce natural gas from, the landowners’ property. The leases at issue are standard natural gas leases, which consist of a basic boilerplate form contract, often together with an individually negotiated addendum. In 2013, Scout purchased the right to certain of the leases from certain landowners and has received royalties from Chesapeake on the gas produced from these mineral estates. On March 17, 2014, Scout sought to commence a class arbitration against Chesapeake. Scout’s attempt to pursue class arbitration is on behalf of themselves, together with a putative class of thousands of landowners. The claims deal with the calculation of royalties under the terms of the natural gas leases. 10 Anderson, 477 U.S. at 249. 11 BWM, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992). 12 Fed. R. Civ. P. 56(c)(3). 5 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 5 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 47 of 133 The leases at issue contain the following pertinent arbitration provision: ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee.13 Chesapeake asserts that the above-cited lease term does not provide for, or otherwise contemplate, class arbitration; instead it envisions only individual arbitration. Chesapeake filed the instant action and motion for equitable relief seeking to have the Court declare that class arbitration is not available under the leases. C. Analysis As it turns out, this exact issue was recently decided based on identical language from Chesapeake’s leases. The Honorable John E. Jones III, of this Court, held in Chesapeake Appalachia, L.L.C. v. Ostroski, 199 F. Supp. 3d 912 (M.D. Pa. 2016), that the lease language at issue does not permit class arbitration. In Ostroski, Judge Jones granted summary judgment in Chesapeake’s favor and declared that the lease with identical language to the leases in the matter at hand does not permit class arbitration. In doing so, Judge Jones stated: 13 ECF No. 1 at 7 citing Ex. A at SCOUT I-000181. 6 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 6 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 48 of 133 It is undisputed that the arbitration clause of the Lease does not mention class arbitration. ***** Our analysis on this point is necessarily abbreviated because the jurisprudence is abundantly clear. Because the plain language of the arbitration clause in the Lease is silent as to class arbitration, we find that the Lease does not allow Defendants to compel it.14 With that conclusion in mind, then, I turn my attention to the law of the case doctrine. “The law-of-the-case doctrine rests on a simple premise: ‘the same issue presented a second time in the same case in the same court should lead to the same result.’”15 While I certainly acknowledge that the matter before this Court is not precisely the matter litigated before my colleague in Ostroski, it’s close. It would be extraordinary indeed for me to hold differently than did Judge Jones when presented with the same lease language, from the same Plaintiff, in the same Court. Moreover, and perhaps more importantly I agree with Judge Jones’s holding and sound legal reasoning. Considering the matter more broadly, I am also cognizant that the United States Supreme Court stated in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. that “a party may not be compelled under the FAA to submit to class arbitration unless 14 Chesapeake Appalachia, L.L.C., 199 F. Supp. 3d at 916- 917. 15 Kimberlin v. Quinlan, 199 F.3d 496, 500 (D.C. Cir. 1999) citing LaShawn A. v. Barry, 87 F.3d 1389, 1393 (D.C. Cir. 1996) (en banc). 7 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 7 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 49 of 133 there is a contractual basis for concluding that the party agreed to do so.”16 “This is so because class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”17 “In bilateral arbitration, parties forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution: lower costs, greater efficiency and speed, and the ability to choose expert adjudicators to resolve specialized disputes.”18 “But the relative benefits of class-action arbitration are much less assured, giving reason to doubt the parties' mutual consent to resolve disputes through class-wide arbitration.”19 The Supreme Court declined to allow class arbitration in Stolt-Nielsen where the contract referred explicitly to bilateral arbitration but was silent as to class arbitration. “An arbitrator chosen according to an agreed-upon procedure no longer resolves a single dispute between the parties to a single agreement, but instead resolves many disputes between hundreds or perhaps even thousands of parties.”20 “Under the Class Rules [of the American Arbitration Association], ‘the 16 Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 684, 130 S. Ct. 1758, 1775, 176 L. Ed. 2d 605 (2010) 17 Id. 18 Id. 19 Id. at 685-686. 20 Id. at 686. 8 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 8 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 50 of 133 presumption of privacy and confidentiality’ that applies in many bilateral arbitrations ‘shall not apply in class arbitrations.’”21 Moreover, the United States Court of Appeals for the Sixth Circuit in Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett found that the clause22 at issue in that case did “not mention classwide arbitration at all.”23 The Sixth Circuit stated: The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it. A second reason, as the district court correctly observed, is that the clause limits its scope to claims “arising from or in connection with this Order,” as opposed to other customers’ orders. Crockett responds that the arbitration clause refers to the AAA’s Commercial Rules, which themselves incorporate the AAA’s Supplemental Rules for Class Arbitration. But the Supplemental Rules expressly state that one should “not consider the existence of these Supplementary Rules, or any other AAA rules, to be a factor either in favor of or against permitting the arbitration to proceed on a class basis.” Crockett also responds that the agreement does not expressly exclude the possibility of classwide arbitration, which is true enough. But the agreement does not include it either, which is what the agreement needs to do in order for us to force that momentous consequence upon the parties here. The Supreme Court has made clear that “[a]n implicit agreement to authorize class-action arbitration” should not be inferred “solely from the fact of the parties' agreement to arbitrate.” Stolt–Nielsen, 559 U.S. 21 Id. 22 That clause stated: Except as provided below, any controversy, claim or counterclaim (whether characterized as permissive or compulsory) arising out of or in connection with this Order (including any amendment or addenda thereto), whether based on contract, tort, statute, or other legal theory (including but not limited to any claim of fraud or misrepresentation) will be resolved by binding arbitration under this section and the then-current Commercial Rules and supervision of the American Arbitration Association (“AAA”). 23 Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013). 9 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 9 of 13Case 4:16-cv-01345-MWB Document 59-1 il 5/01/ 51 of 133 at 685, 130 S.Ct. 1758. That, at bottom, is the inference that Crockett asks us to make here. The agreement in this case does not provide for classwide arbitration.24 This reasoning is also, to my mind, persuasive. Scout in contrast attempts to construct its arguments on two cases, both inapposite. The first case hails from the Third Circuit, Opalinski v. Robert Half Int’l Inc., and known as Opalinski II.25 Scout contends that although class arbitration was not explicitly mentioned in the clause in the case at bar, it is implicitly assumed. Scout tries to make the same unpersuasive argument that the Opalinski II plaintiffs made, which was rejected by the Third Circuit. “Several other Circuits, including the Fifth, Sixth, Seventh, Eighth, and Ninth, have likewise stated that “silence” in an agreement regarding class arbitration generally indicates that it is not authorized by the agreement.”26 24 Id. at 599-600. 25 Opalinski v. Robert Half Int’l Inc., 2017 U.S. App. LEXIS 1594 (3d Cir. N.J. Jan. 30, 2017). 26 Id. citing Eshagh v. Terminix Int’l Co., 588 F. App’x 703, 704 (9th Cir. 2014) (affirming the district court’s grant of a motion to strike class allegations, where the arbitration agreement did not mention class arbitration); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013) (“The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it.”); Reed v. Fla. Metro. Univ., Inc., 681 F.3d 630, 643-44 (5th Cir. 2012) (finding that silence in an agreement does not “constitute[ ] consent to class arbitration” (internal quotation marks omitted)), abrogated on other grounds by Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 186 L. Ed. 2d 113 (2013); Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 728-29 (8th Cir. 2001) (holding that the district court [*8] did not err by compelling individual, rather than class, arbitration because the relevant agreements were silent as to class arbitration); Champ v. Siegel Trading Co., 55 F.3d 269, 275 (7th Cir. 1995) (stating “the FAA forbids federal judges from ordering class arbitration where the parties’ arbitration agreement is silent on the matter”). 10 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 10 of 13Case 4:16-cv-01345-MWB Document 5 -1 il 5/01/ 52 f 3 Scout also cites to a Pennsylvania Superior Court decision, Dickler v. Shearson Lehman Hutton, Inc., 408 Pa. Super. 286, 299, 596 A.2d 860, 866 (1991) to support its argument. Dickler is incongruent for two reasons. First, Dickler was decided in 1991, twelve years before the United States Supreme Court commenced its analysis in this area of law. As I noted in my Order of December 19, 2014, “The rocky path the issue of class arbitrability has traversed over the years began eleven years ago with the United States Supreme Court's plurality decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S. Ct. 2402, 156 L.Ed.2d 414 (2003).” The Supreme Court next decided Stolt- Neilsen in 2010. The Sixth Circuit later decided Reed-Elsiver in 2013. This Court then decided Ostroski in 2016. Second, the Dickler contract clause language is distinguishable from the clause at issue while the Ostroski contract clause is identical. I can discern no plausible legal basis for this Court to rely on Dickler when decisions, contrary to it, have been made in this Court, various Courts of Appeals and by the United States Supreme Court. Even if I accept Scout’s argument that I should find an implicit reference to class arbitration and therefore apply Pennsylvania contract law, including Dickler, I would still not find that the plain language of the contract permits class arbitration. “The fundamental rule in contract interpretation is to 11 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 11 of 13Case 4:16-cv-01345-MWB Document 5 -1 il 5/01/ 53 f 3 ascertain the intent of the contracting parties.”27 “In cases of a written contract, the intent of the parties is the writing itself.”28 “The task of interpreting a contract is [an issue of law decided] by a court.”29 Dickler is compelling in one limited way, however. It stated “the Court has consistently reiterated this policy of respecting arbitration agreements.”30 That is precisely what I do in the instant matter. The contracts at issue here clearly allow for arbitration; but what the plain language of the leases allow is individual or bilateral arbitration, not a class arbitration. The language in this matter is written in the singular, which indicates individual or bilateral arbitration, i.e.: “in the event of a disagreement between lessor and lessee concerning this lease.” The clause at issue in Dickler was drafted plurally, and states: “any controversy arising out of or relating to my accounts, to transactions with you, your officers, directors agents and/or employees for me...shall be settled by arbitration.” This is what distinguishes Dickler - the actual language utilized in the contract. 27 Ins. Adjustment Bureau, Inc. v. Allstate Ins. Cos., 588 Pa. 470, 480, 905 A.2d 462, 468 (2006) citing Robert F. Felte, Inc. v. White, 451 Pa. 137, 302 A.2d 347, 351 (1973). 28 Id. citing . Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124, 145 A.2d 672 (1958). 29 Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). 30 Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d 860, 862 (Pa. Super. 1991) 12 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 12 of 13Case 4:16-cv-01345-MWB Document 5 -1 il 5/01/ 54 f 3 The Dickler Court also wrote “we find that the broad agreement [ ] signed by the parties encompasses all controversies ...which may continue through arbitration on a class-wide basis.”31 Therefore, even applying Dickler, I still find that judgment should be entered in Chesapeake’s favor. III. CONCLUSION: For all of the foregoing reasons, Chesapeake’s motion will be granted. A separate Order will issue granting Plaintiff’s motion for summary judgment on Count II and denying Defendants’ motion to dismiss Count II. Final judgment will be entered in favor of Plaintiff and against Defendants and this case is dismissed. BY THE COURT: s/Matthew W. Brann Matthew W. Brann United States District Judge 31 Dickler at 288. 13 Case 4:14-cv-00620-MWB Document 99 Filed 04/28/17 Page 13 of 13Case 4:16-cv-01345-MWB Document 5 -1 il 5/01/ 55 f 3 G Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 56 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3166269 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 3166269 Only the Westlaw citation is currently available. United States District Court, W.D. Pennsylvania. Richard M. Cott, Plaintiff, v. Waldron, LP, Defendant. Civil Action No. 15-1259 | Signed May 2, 2015 | Filed 05/02/2016 Re: ECF No. 17 REPORT AND RECOMMENDATION MAUREEN P. KELLY, CHIEF UNITED STATES MAGISTRATE JUDGE I. RECOMMENDATION *1 Plaintiff Richard M. Cott (“Plaintiff”) brought this civil action against Defendant Waldron, LP (“Defendant”) on September 25, 2015, alleging that Defendant discriminated against him in violation of the Americans with Disabilities Act, 42 U.S.C. §§ 12101, et seq. (“ADA”), and the Pennsylvania Human Relations Act, 43 P.S. §§ 951, et seq. (“PHRA”), when Defendant terminated his employment in May of 2014. ECF No. 1. On December 4, 2015, Defendant filed an Answer to the Complaint and a Counterclaim against Plaintiff for breach of contract. ECF No. 9. Presently before the Court is Plaintiff's Motion to Dismiss and Compel Arbitration of Counterclaim (“the Motion”). ECF No. 17. For the reasons that follow, it is respectfully recommended that the Motion be granted. II. REPORT A. FACTUAL AND PROCEDURAL BACKGROUND It appears undisputed that Plaintiff began his employment with Defendant in August of 2013 and that his compensation package included a $700,000.00 forgivable loan (“the Loan”), which was to be paid to Plaintiff in installments. ECF No. 9 at 8, ¶ 11. According to the Counterclaim and the Transition Promissory Note (“the Note”), which sets forth the terms of the Loan, the Loan would be forgiven only if Plaintiff remained in Waldron's employment for forty-eight months; Plaintiff paid to Defendant all applicable federal, state and local taxes on the Loan; and that no event of default occurred. Id. at 8-9, ¶ 12. See ECF No. 17-1 ¶ 2. It also appears that under the terms of the Note, the termination of Plaintiff's employment “for any reason, with or without cause,” would constitute an event of default, which would permit Defendant to declare the entire disbursed but unpaid principal balance of the Loan to be immediately due. ECF No. 9 at 9, ¶ 13; at 11, ¶ 28. See ECF No. 17-1 ¶ 3. Defendant terminated Plaintiff's employment in May of 2014. On July 24, 2014, Defendant notified Plaintiff that $175,000.00 of the unpaid principal balance of the Loan, plus interest, costs and fees were immediately due and owing. ECF No. 9 at 11, ¶ 31. Plaintiff has apparently refused to pay. Id. ¶ 32. Accordingly, on December 4, 2015, Defendant filed a Counterclaim alleging that Plaintiff has breached his contractual duties and obligations under the terms of the Loan. Id. Plaintiff filed the instant Motion on December 28, 2015, arguing that the plain and unambiguous language of the Note indicates that Defendant is obligated to arbitrate its breach of contract claim. ECF No. 17. Defendant filed a Response to the Motion on January 19, 2016, and Plaintiff filed a Reply Brief on February 1, 2016. ECF Nos. 22, 23. As such, the Motion is ripe for review. B. STANDARD OF REVIEW “Because ‘[a]rbitration is a matter of contract between the parties,’ a judicial mandate to arbitrate must be predicated upon the parties' consent.” Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 771 (3d Cir. 2013), quoting Par–Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir. 1980). Thus, although the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 1, et seq., permits the enforcement of a contract to arbitrate, it requires that a court first satisfy itself that the making of the agreement to arbitrate is not in issue. Id., citing 9 U.S.C. § 4. In determining whether an agreement to arbitrate was actually reached, the United States Court of Appeals for the Third Circuit has found that the appropriate standard to be applied depends on the circumstances of the particular case. Guidotti v. Legal Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 57 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3166269 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 Helpers Debt Resolution, L.L.C., 716 F.3d at 774-776. Specifically, the Court of Appeals held that: *2 when it is apparent, based on the face of a complaint, and documents relied upon in the complaint, that certain of a party's claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery's delay. But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on the question. After limited discovery, the court may entertain a renewed motion to compel arbitration, this time judging the motion under a summary judgment standard. Id. at 776. Here, although the parties have arrived at different conclusions, they appear to agree that the question of arbitrability can be decided on the face of the Counterclaim and the documents relied upon therein. As such, the Court is properly guided by the standard governing Rule 12(b)(6) motions in resolving the instant dispute. The question therefore becomes whether, under any plausible reading of the Counterclaim, Defendant's breach of contract claim is properly pursued in this Court or whether the allegations in the Counterclaim establish, absent any speculation, that the parties agreed to arbitrate the claim. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). In so deciding, the Court must accept as true all material allegations in the Counterclaim and all reasonable factual inferences must be viewed in the light most favorable to Defendant as the Counter-Claimant. Odd v. Malone, 538 F.3d 202, 205 (3d Cir. 2008). The Court, however, need not accept bald assertions or inferences drawn by Defendant if they are unsupported by the facts set forth in the Counterclaim. See California Pub. Emp. Ret. Sys. v. The Chubb Corp., 394 F.3d 126, 143 (3d Cir. 2004), citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Nor must the Court accept legal conclusions set forth as factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. at 555. C. DISCUSSION The FAA provides that “[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The FAA also provides that “[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States District Court ... for an Order directing that such arbitration proceed in the manner provided in the agreement.” 9 U.S.C. § 4. See Grimm v. First Nat'l Bank of Pa., 578 F. Supp. 2d 785, 791 (W.D. Pa. 2008). See also Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d at 773 (“questions of arbitrability ... are presumed to be questions for judicial determination”). Under these provisions, “federal law places ‘arbitration agreements on an equal footing with other contracts,’ and requires courts to ‘enforce them according to their terms.’ ” CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165, 172-73 (3d Cir. 2014), quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Accordingly, when deciding a motion to compel arbitration, the court must address two issues: (1) whether the parties have entered into a valid written agreement to arbitrate, and (2) whether the dispute in question falls within the scope of that agreement. Schrock v. Nomac Drilling, LLC, No. 2:15- CV-1692, 2016 WL 1181484, at *2-3 (W.D. Pa. Mar. 28, 2016), citing Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 523 (3d Cir. 2009). *3 In the instant case, the parties do not dispute that they entered into a valid written agreement to arbitrate. The only question before the Court therefore is whether Defendant's breach of contract claim falls within the scope of that agreement. “In assessing whether a particular dispute falls within the scope of an arbitration clause, “[the] ‘focus [is] on the factual underpinnings of the claim rather than the legal theory alleged in the complaint.’ ” CardioNet, Inc. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 58 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3166269 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 v. Cigna Health Corp., 751 F.3d at 172-73, quoting Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 55 (3d Cir. 2001). “In so doing, [the court can] ‘prevent[ ] a creative and artful pleader from drafting around an otherwise-applicable arbitration clause.’ ” Id., quoting Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc., 567 F.3d 1191, 1198 (10th Cir. 2009). The court therefore should first look to the contractual language in the arbitration clause at issue. Id. The arbitration clause contained in the Note at issue here provides that: Arbitration Clause. Waldron and you agree that any action instituted as a result of any controversy arising out of this Note, or as a result of any section interpretation thereof, shall be brought before the arbitration facility of the Financial Industry Regulatory Authority to the exclusion of all others. You agree that arbitration shall be your exclusive remedy and that the results of such arbitration shall be final and binding upon you. Judgment upon any award rendered by an arbitration panel may be entered in any state or federal court of competent jurisdiction. ECF No. 71-1 at 3, ¶ 7. It appears clear from this language that the parties intended to arbitrate “any controversy arising out of [the] Note.” Because Defendant's Counterclaim is based on Plaintiff's alleged breach of the Note, it necessarily constitutes a controversy arising out of the Note. Defendant's breach of contract claim therefore falls within the scope of the arbitration agreement and Defendant is obligated to arbitrate its claim. Defendant nevertheless argues that, given the termination of Plaintiff's employment, the arbitration clause does not apply in this case because there is no controversy or dispute regarding the existence of Plaintiff's debt or that he is required to repay the unforgiven portions of the Loan that he received. Plaintiff, however, obviously does dispute that he is required to repay Defendant the portion of the Loan he received or there would be no need for Defendant to have filed the instant Counterclaim and no controversy to be adjudicated. Defendant also points to Section 4 of the Note regarding “Remedies” which provides that “[u]pon the occurrence of an Event of Default ... Waldron may, at its option, declare the entire disbursed but unpaid principal balance of this Note immediately due and payable ... and Waldron may exercise any and all rights and remedies available to it under applicable law with respect to the enforcement and collection of this Note.” Defendant argues that under this provision it is permitted to pursue its breach of contract claim in this Court. RCF No. 17-1 at 2, ¶ 4. Defendant's argument, however, overlooks the plain language of the arbitration clause which governs the issue before the Court. Because the arbitration clause dictates the forum in which disputes arising out of the Note are to be adjudicated and mandates that those controversies are to be arbitrated before the Federal Industry Regulatory Authority, it appears that any right and remedy other than arbitration is not available to Defendant under those circumstances. Section 4 therefore does not provide the basis for Defendant to side-step the arbitration clause to which it agreed. *4 Defendant further argues that because Plaintiff was the first to file suit relative to the termination of his employment, he has placed his entire employment relationship with Defendant at issue and that because the terms and conditions of his employment were outlined in documents in addition to the Note, i.e, a July 24, 2013 offer letter and an Employment Agreement, the Court should also look to these documents to determine whether its breach of contract claim is subject to arbitration. Specifically, Defendant asks the Court to consider the language in the Employment Agreement entered into by the parties which apparently states that “[a]ny litigation initiated as a result of a breach or alleged breach of this agreement must be filed and pursued in Allegheny County, Pennsylvania.” See ECF No. 22 at 5 (emphasis added). Clearly, this provision applies to any litigation resulting from a breach of the Employment Agreement. Defendant, however, has not alleged that Plaintiff breached the Employment Agreement but rather has alleged that Plaintiff breached the terms of the Note. Thus, the only issue before the Court is whether Defendant's Counterclaim falls within the scope of the Note and the terms of the Employment Agreement are irrelevant. Defendant also argues that because its Counterclaim arises out of the same operative facts that form the basis of Plaintiff's Complaint, i.e., whether Defendant's decision to terminate Plaintiff's employment was based on legitimate business reasons, it was required under the Federal Rules Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 59 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3166269 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 of Civil Procedure to file its Counterclaim. The Court disagrees. Although as a general matter it is clear that all of the claims brought by the parties arise out of their employment relationship, the similarity between Plaintiff's claims and that raised by Defendant ends there. Plaintiff's claims require the Court to inquire into the reasons for Plaintiff's discharge, i.e., whether Defendant did so unlawfully in violation of the ADA and the PHRA or whether it did so for legitimate nondiscriminatory business reasons, i.e., Plaintiff's poor performance. Defendant's Counterclaim, however, revolves solely around Plaintiff's contractual obligations under the terms of the Note following his termination. Indeed, none of the facts offered by Defendant in support of its breach of contract claim mirror those set forth by Plaintiff to support his ADA and PHRA claims. See ECF Nos. 1, 9. Defendant's Counterclaim therefore does not “arise[ ] out of the transaction or occurrence that is the subject matter of [Plaintiff's] claim,” and is not, as Defendant suggests, a compulsory counterclaim brought pursuant to Fed. R. Civ. P. 13(a)(1)(A). Under these circumstances, Defendant's argument that it was required to bring its Counterclaim in this Court is unavailing. Finally, in the alternative, Defendant argues that, because review of the Note, the Employment Agreement and it's legal arguments “show that the parties disagree on whether the Arbitration provision of the Note applies to [its] Counterclaim,” it should “be permitted to engage in limited discovery to determine whether [Defendant's] Counterclaim must be submitted to arbitration.” ECF No. 22 at 7. As the Court of Appeals for the Third Circuit has found: [A] Rule 12(b)(6) standard is inappropriate when either ‘the motion to compel arbitration does not have as its predicate a complaint with the requisite clarity’ to establish on its face that the parties agreed to arbitrate ... or the opposing party has come forth with reliable evidence that is more than a ‘naked assertion ... that it did not intend to be bound’ by the arbitration agreement, even though on the face of the pleadings it appears that it did.... Under the first scenario, arbitrability not being apparent on the face of the complaint, the motion to compel arbitration must be denied pending further development of the factual record. The second scenario will come into play when the complaint and incorporated documents facially establish arbitrability but the non-movant has come forward with enough evidence in response to the motion to compel arbitration to place the question in issue. At that point, the Rule 12(b)(6) standard is no longer appropriate, and the issue should be judged under the Rule 56 standard.... (judging motion to compel arbitration under summary judgment standard where plaintiff presented “[a]n unequivocal denial that the agreement had been made, accompanied by supporting affidavits”). *5 Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d at 774 (internal citations omitted). “Under either of those scenarios, a ‘restricted inquiry into factual issues' will be necessary to properly evaluate whether there was a meeting of the minds on the agreement to arbitrate ..., and the non-movant ‘must be given the opportunity to conduct limited discovery on the narrow issue concerning the validity’ of the arbitration agreement ....” Id., quoting Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 22 (1983) and Deputy v. Lehman Bros., Inc., 345 F.3d 494, 511 (7th Cir. 2003). In the instant case, however, the Court has already found that Plaintiff's Motion is predicated on a complaint (or, in this case, the Counterclaim) that has the requisite clarity to establish on its face that the parties agreed to arbitrate and that the evidence and/or arguments proffered by Defendant in its Response to the Motion are insufficient to place the question of arbitrability at issue. Accordingly, Defendant's contention that it did not intend for its breach of contract claim to be arbitrated when it executed the Note and agreed to the arbitration clause contained therein, is nothing more than a naked assertion and does not provide the basis for granting discovery into the matter. D. CONCLUSION For the foregoing reasons, it is respectfully recommended that Plaintiff's Motion to Dismiss and Compel Arbitration of Counterclaim, ECF No. 17, be granted. In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(1), and Local Rule 72.D.2, the parties are permitted to file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Failure to timely file objections will waive the right to appeal. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 60 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3166269 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Brightwell v. Lehman, 637 F.3d 187, 193 n.7 (3d Cir. 2011). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2. All Citations Slip Copy, 2016 WL 3166269 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 61 of 133 H Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 62 of 133 Cott v. Waldron, LP, Slip Copy (2016) 2016 WL 3136906 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 3136906 Only the Westlaw citation is currently available. United States District Court, W.D. Pennsylvania. Richard M. Cott, Plaintiff, v. Waldron, LP, Defendant. Civil Action No. 15-1259 | Signed 06/06/2016 ORDER Re: ECF No. 17 Nora Barry Fischer, United States District Judge *1 AND NOW, this 6 th day of June, 2016, after Plaintiff Richard M. Cott filed an action in the above- captioned case and Defendant Waldron, LP filed a filed a Counterclaim against Plaintiff, and after Plaintiff filed a Motion to Dismiss and Compel Arbitration of Counterclaim, and after a Report and Recommendation was filed by the Chief United States Magistrate Judge in which it was recommended that the Motion to Dismiss and Compel Arbitration be granted, and upon consideration of the Objections filed by Defendant and the response to the Objections submitted by Plaintiff, and upon independent review of the record, and upon consideration of the Magistrate Judge's Report and Recommendation, which is adopted as the opinion of this Court, IT IS HEREBY ORDERED that the Motion to Dismiss and Compel Arbitration of Counterclaim submitted by Plaintiff, ECF No. 17, is GRANTED. All Citations Slip Copy, 2016 WL 3136906 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 63 of 133 I Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 64 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2016 WL 1613973 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. Brenda Herndon, individually and on behalf of all others similarly situated, Plaintiff(s), v. Green Tree Servicing LLC, Defendant. No. 4:15-cv-01202 | Signed 04/22/2016 REVISED MEMORANDUM Matthew W. Brann, United States District Judge I. BACKGROUND *1 As a preliminary matter, the Court issued a Memorandum and Order dated March 31, 2016 on Defendant's Motion to Compel Arbitration. In response, Defendant filed an unopposed Motion for Reconsideration and/or Clarification of the Court's March 31, 2016 decision. Following a telephonic status conference with the parties, the Court will issue this Revised Memorandum and Order, compelling arbitration as to Plaintiff's individual claims and staying the remainder of the proceedings before this Court. The factual posture of this case is as follows. On August 18, 2000, Plaintiff Brenda Herndon entered into a Retail Installment Contract and Security Agreement with Chesapeake Mobile Homes, Inc. to finance the purchase of a manufactured home in the amount of $28,007.00. 1 Plaintiff's loan was secured by, among other assets, her new home itself. 2 1 ECF No. 10 at 7. 2 Id. The purchase agreement contained a broad arbitration clause. That clause read as follows: ARBITRATION OF DISPUTES AND WAIVER OF JURY TRIAL: a. Dispute Resolution. Any controversy or claim between or among you [Seller] and me [Herndon] or our assignees arising out of or relating to this Contract or any agreements or instruments relating to or delivered in connection with this Contract, including any claim based on or arising from an alleged tort, shall, if required by either you or me, be determined by arbitration, reference, or trial by a judge as provided below. A controversy involving only a single claimant, or claimants who are related or asserting claims arising from a single transaction shall be determined by arbitration as described below. Any other controversy shall be determined by judicial reference of the controversy to a referee appointed by the court or, if the court where the controversy is venued lacks the power to appoint a referee, by a judge without a jury, as described below. YOU AND I AGREE AND UNDERSTAND THAT WE ARE GIVING UP THE RIGHT TO TRIAL BY JURY, AND THERE SHALL BE NO JURY WHETHER THE CONTROVERSY OR CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE. *2 b. Arbitration. Since this Contract touches and concerns interstate commerce, an arbitration under this Contract shall be in accordance with the United States Arbitration Act (Title 9, United States Code), notwithstanding any choice of law provision in this Contract. The Commercial Rules of the [AAA] also shall apply. The arbitrator(s) shall follow the law and shall give effect to the statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). The award of the arbitrator(s) shall be in writing and include a statement of reasons for the award. The award shall be final. Judgment upon the award may be entered in any court having jurisdiction, and no challenge to entry of judgment upon the award shall be entertained except as provided by Section 10 of the United States Arbitration Act or upon a finding of manifest injustice. 3 3 ECF No. 12 Ex. 1 at 7. In addition to these broad arbitration provisions, the agreement between Plaintiff and Chesapeake also contained a form “Holder Notice” provision, which read: Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 65 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 NOTICE ANY HOLDER OF THIS CONSUMER CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF, RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. 4 4 ECF No. 12 Ex. 1 at 8. Upon execution of the purchase agreement, Chesapeake assigned the agreement and all of its associated rights under the agreement to GreenPoint Credit, LLC. 5 Specifically, the agreement included the following passage: “For value received, [Chesapeake] hereby assigns to [GreenPoint] all its rights, title and interest in this Contract and the property which is the subject matter hereof and authorizes [GreenPoint] to do everything necessary to collect and discharge same.” 6 Later, on October 8, 2004, Defendant Green Tree Servicing, LLC, purchased certain GreenPoint's servicing portfolio of manufactured housing loans, which included the loan at issue here. 7 5 Id. 6 Id. 7 Id. at 9. Thereafter, Plaintiff admits that she “fell behind in her payments.” 8 Defendant attempted to collect on Plaintiff's past-due debt pursuant to the terms of the original purchase agreement. Plaintiff thereafter filed a putative class action against Defendant in this Court, alleging violations of the Telephone Consumer Protection Act. 8 ECF No. 11 at 7. Pursuant to the broad arbitration provisions in Plaintiff's purchase agreement, Defendant sought to compel arbitration of Plaintiff's individual claims and to stay proceedings. 9 Because the arbitration clause in the original purchase agreement is valid and enforceable by Defendant and because it applies to the instant dispute, Defendant's Motion to Compel Arbitration and Stay Proceedings is granted as to Plaintiff's individual claims. 9 ECF No. 8. II. LAW Defendant seeks to compel arbitration and stay proceedings pursuant to the Federal Arbitration Act (“FAA”). 10 Section 2 of the FAA, which governs the validity of arbitration agreements, mandates that: A written provision in any ...contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof...shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 10 9 U.S.C. § 1 et seq. The primary purpose behind the FAA was to dismiss with “ancient judicial hostility to arbitration,” and to “ensure that 'private agreements to arbitrate are enforced according to their terms.' +” 11 In enacting the FAA, “Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” 12 Accordingly, “in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the Act, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.” 13 The FAA “thereby places arbitration agreements on an equal footing with other contracts and requires courts to enforce them according to their terms.” 14 11 Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56 (1995) (internal quotations omitted). Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (quoting Volt Info. Sciences, Inc. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 66 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 v. Board of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 479 (1989)). 12 Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). 13 Volt, 489 U.S. at 475–76. 14 Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). *3 Given this sweeping policy in favor of arbitration, “[a] motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement.” 15 If “the court determines that an agreement exists and that the dispute falls within the scope of the agreement, it then must refer the matter to arbitration without considering the merits of the dispute.” 16 “In making this determination, the court must operate under a ‘presumption of arbitrability in the sense that 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.’ ” 17 15 Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005) (Alito, J.). 16 PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir. 1990) (Becker, J.). 17 Id. (quoting AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650 (1986)) (second internal quotation omitted). Once the court has found that the arbitration agreement sought to be enforced is valid and that the disputed issues falls within that agreement's scope, the court must enter a mandatory stay of the proceedings according to Section 3 of the FAA. That provision states: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. “The purpose of Section 3, in particular, is to guarantee that a party who has secured the agreement of another to arbitrate rather than litigate a dispute will reap the full benefits of its bargain.” 18 “Section 3 is drafted to fit the paradigm situation in which a motion for a stay pending arbitration occurs—a plaintiff brings suit on a claim involving an issue it is obligated to arbitrate under an agreement in writing with a defendant and that defendant seeks to stay the litigation pending arbitration.” 19 “The defendant is entitled to a mandatory stay of the ‘suit or proceeding’ in such circumstances providing it ‘is not in default in proceeding with such arbitration.’ ” 20 18 Mendez v. Puerto Rican Int'l Companies, Inc., 553 F.3d 709, 711 (3d Cir. 2009). 19 Id. at 712. 20 Id. III. ANALYSIS For the foregoing reasons, Defendant's Motion to Compel Arbitration and Stay Proceedings is granted. A. Plaintiff's Primary Argument—That The Court May Not Rely On The Text Of The Arbitration Agreement Because Defendant Failed To Attach It To Its Opening Brief—Is Tertiary To The Main Issue, Was Made In Bad Faith, And Is Ultimately Unavailing. Plaintiff first contends that this Court should discount the existence of the arbitration agreement because Defendant failed to attach an original copy to its opening brief. That is an exceptionally picayune manner in which to begin one's argument. Basing one's case primarily on a technicality evidences to the trier of fact a dire lack of confidence in the true merits of the underlying issue. Equally as troubling was the revelation that defense counsel had made aware and provided copies of the pertinent agreement to Plaintiff's counsel as a consequence of Defendant's efforts to satisfy Local Rule 7.1, which Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 67 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 mandates that parties supply to the Court a certificate of concurrence or nonconcurrence, as appropriate upon the filing of their motion. I therefore cannot consider Plaintiff's primary argument as having been made in good faith. *4 In any event, Plaintiff proceeded to acknowledge the existence and the contents of the agreement despite her preliminary objections. In that manner, her evidentiary objection amounted to nothing more than a distraction from the Court's point of view. To that end, Defendant was rightly able to cure any purported evidentiary deficiencies in its papers simply by attaching copies of the agreements to its reply brief. Plaintiff's evidentiary objection effectively made a lot of fuss about nothing. For future reference, this Court would advise the parties to compare their relationship with the judges before whom they appear to that of a “credibility” bank account. By the time I reached the merits here, Plaintiff's counsel was already perilously close to bankruptcy. B. Defendant Has Demonstrated The Existence Of A Valid Arbitration Agreement That Applies To The Instant Dispute, Thereby Requiring This Court To Compel Arbitration And Stay Any Further Proceedings. “A motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement.” 21 A valid agreement to arbitrate exists here. The parties do not dispute that. What is disputed, however, is the extent to which this dispute falls within the scope of that agreement given Defendant's position as a nonsignatory to that document. As the law would have it, Defendant may step into the shoes of its predecessor-in-interest and enforce the agreement to arbitrate as against Plaintiff. 21 Trippe, 401 F.3d at 532. The Arbitration Clause at issue provides as follows: ARBITRATION OF DISPUTES AND WAIVER OF JURY TRIAL: a. Dispute Resolution. Any controversy or claim between or among you [Seller] and me [Herndon] or our assignees arising out of or relating to this Contract or any agreements or instruments relating to or delivered in connection with this Contract, including any claim based on or arising from an alleged tort, shall, if required by either you or me, be determined by arbitration, reference, or trial by a judge as provided below. A controversy involving only a single claimant, or claimants who are related or asserting claims arising from a single transaction shall be determined by arbitration as described below. Any other controversy shall be determined by judicial reference of the controversy to a referee appointed by the court or, if the court where the controversy is venued lacks the power to appoint a referee, by a judge without a jury, as described below. YOU AND I AGREE AND UNDERSTAND THAT WE ARE GIVING UP THE RIGHT TO TRIAL BY JURY, AND THERE SHALL BE NO JURY WHETHER THE CONTROVERSY OR CLAIM IS DECIDED BY ARBITRATION, BY JUDICIAL REFERENCE, OR BY TRIAL BY A JUDGE. b. Arbitration. Since this Contract touches and concerns interstate commerce, an arbitration under this Contract shall be in accordance with the United States Arbitration Act (Title 9, United States Code), notwithstanding any choice of law provision in this Contract. The Commercial Rules of the [AAA] also shall apply. The arbitrator(s) shall follow the law and shall give effect to the statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). The award of the arbitrator(s) shall be in writing and include a statement of reasons for the award. The award shall be final. Judgment upon the award may be entered in any court having jurisdiction, and no challenge to entry of judgment upon the award shall be entertained except as provided by Section 10 of the United States Arbitration Act or upon a finding of manifest injustice. 22 22 ECF No. 12 Ex. 1 at 7. In addition to these broad arbitration provisions, the original agreement between Plaintiff and the original seller of the manufactured home also contains a form “Holder Notice” provision, which reads: NOTICE ANY HOLDER OF THIS CONSUMER CONTRACT IS SUBJECT TO ALL CLAIMS Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 68 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF, RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. 23 23 ECF No. 12 Ex. 1 at 8. *5 In contrast to these clear textual provisions, Plaintiff's primary contention as to the applicability of the agreement is that Defendant may not seek to enforce the arbitration provision because it was not an original signatory to the document. Predictably, this case is not the first time that the nonsignatory issue has arisen in the contractual context. In fact, it is not even the first time the issue has arisen involving similar arbitration clauses sought to be enforced by Defendant here. Instead, a clear path of legal precedent permits Defendant to exercise those rights and remedies that its predecessor-in-interest bargained for during the agreement's formation. “Ordinary principles of contract and agency law may be called upon to bind a nonsignatory to an agreement whose terms have not clearly done so.” 24 Applying ordinary principals of contract law to a very similar arbitration agreement, the United States Court of Appeals for the Fifth Circuit in Sherer v. Green Tree Servicing LLC held that Green Tree was able to compel arbitration even though it had not been a signatory in the first instance. 25 “Indeed, without the Loan Agreement, there would be no loan for Green Tree to service, and no party argues to the contrary,” the Fifth Circuit noted. 26 Importantly, in Sherer, the Plaintiff's claims arose “from Green Tree's conduct as Sherer's loan servicer” and therefore fell “within the terms of the Loan Agreement's arbitration clause.” 27 The court therefore concluded that the plaintiff “ha[d] validly agreed to arbitrate with a nonsignatory, such as the loan servicer Green Tree.” 28 24 Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 382 (5th Cir. 2008) 25 Id. 26 Id. 27 Id. 28 Id. The plain text of the arbitration clause here mimics that found in the Sherer case. “Any controversy or claim between or among you [Seller] and me [Herndon] or our assignees” is subject to arbitration here, so long as the dispute “aris[es] out of or relat[es] to” the initial purchase agreement. The instant dispute is covered by that broad language. It is a claim between Herndon and an assignee of the originating institution, and it clearly has arisen from the purchase agreement. Thus, were the dispute only between Plaintiff and Chesapeake, this would be a rather straightforward case, but as it turns out, that the dispute is now between Plaintiff and Chesapeake's successor-in- interest makes little difference. In discerning whether Defendant may step into the original seller's shoes as its assignee or successor-in- interest, the parties seem to dispute the state contract law applicable to this dispute. The Court is unconvinced that application of the law of Maryland rather than that of Pennsylvania makes much difference here; nevertheless, as Defendant correctly points out, the purchase agreement contains a Maryland choice-of-law provisions, and so that is the law to which the Court must turn. 29 29 See, e.g., Gay v. CreditInform, 511 F.3d 369, 389 (3d Cir. 2007) (“Pennsylvania courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them.”). “Under Maryland law, an agreement to arbitrate disputes is enforceable if it is a valid contract.” 30 Accordingly, federal courts interpreting Maryland law have held that where one party “is the assignee” as to “[another party's] debt,” an arbitration clause that covers “subsidiaries, affiliates, agents, employees, predecessors in interests, successors, and assigns” is sufficient to permit an assignee, such as a collection agency, to compel arbitration of an action arising out of debt collection. 31 This result is unavoidable because “an assignment transfers all of the assignor's rights and interests to the assignee.” 32 For instance, an “assignee of a mortgage loan agreement [can] invoke [the loan agreement's] arbitration clause.” 33 Thus, Maryland law permits a seller's assignee to invoke the original sales agreement's arbitration clause. 34 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 69 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 30 Grant-Fletcher v. Collecto, Inc., No. CIV.A. RDB-13-3505, 2014 WL 1877410, at *5 (D. Md. May 9, 2014). 31 Id. at *5. 32 Rota-McLarty v. Santander Consumer USA, Inc., No. CIV. WDQ-10-0908, 2011 WL 2133698, at *4 n.15 (D. Md. May 26, 2011) (citing James v. Goldberg, 256 Md. 520, 527, 261 A.2d 753, 757 (1970)). 33 Rota-McLarty, 2011 WL 2133698, at *4 n.15 (citing Walther v. Sovereign Bank, 386 Md. 412, 418, 450, 872 A.2d 735, 739, 758 (2005)). 34 Rota-McLarty, 2011 WL 2133698, at *4. *6 Plaintiff contends that she could have never surmised that a debt servicer such as Defendant here would ever be party to the arbitration agreement when she signed it. Instead, Plaintiff argues that the agreement could only ever be operable between herself and other mobile home companies—the closed universe of parties from which she could ever subjectively foresee drawing an assignee to Chesapeake. That is a strained argument. When Plaintiff agreed to arbitrate “any controversy or claim...arising out of or relating to” the purchase of her manufactured home, any reasonable purchaser would have understood the scope of such an agreement to extend to debt collection upon default of the purchase agreement's terms. As one other court has observed in a similar action, “Indeed, it is difficult to understand how Green Tree could be a servicer if there were no Note, and more importantly, how Green Tree could face statutory servicer liability if there were no Note to service. In light of this conclusion and strong federal policy favoring arbitration, it is appropriate to compel arbitration of the [Plaintiff's] claims.” 35 35 Blinco v. Green Tree Servicing LLC, 400 F.3d 1308, 1311 (11th Cir. 2005). In addition, Plaintiff cites to law suggesting that an assignee should be unable to enforce a given contractual provision if enforcement of that provision post-assignment would work a “material change” on the existing party's duties. The Court perceives no “material change” having taken place when a purchase agreement is assigned to a servicing agency. Quite the opposite, as Plaintiff herself characterizes the legal transaction here, “substitution of a new party as holder of the right” precisely suggests that if the original party had the right to enforce the agreement to arbitrate in an effort to collect past due payments, then the existence of such a right now belongs to the Defendant. 36 36 ECF No. 11 at 17. Plaintiff suggests to the contrary that her “risk with respect to the agreement significantly and materially increased” post-assignment. 37 She essentially claims that she was purchasing a home—legally, financing the purchase of a home via a security agreement—but did not foresee the prospect of debt collection following past due payments. That argument strains credulity. To illustrate, Plaintiff suggests that such momentous changes in her contractual obligations stem from her having to deal with “a new company” that operates under “new policies and procedures.” If those changes were sufficient to engender a material hardship, then nearly every commercial assignment would work a material change, rendering the terms of just about any commercial agreement unenforceable. That rule would result in an inefficiently low number of assignments occurring naturally in the marketplace. 37 Id. at 18. Further, one might argue that Plaintiff's duty has not changed at all, let alone in a material fashion. Under that contention, a contention to which Defendant hints, Plaintiff's sole duty under the agreement was to make her payments on time, regardless of the identity of the loan's ultimate servicer. Under that characterization of the relationship, whatever changes the assignment might have on the collection process should be immaterial to Plaintiff's continued obligation to repay her debt. At no time, for instance, does Plaintiff contend that the assignment ever accelerated her payments, altered her interest rate, or effected any other change on her payment schedule or amount due. Suggesting that a mere substitution of mortgage servicers causes a material change in a purchase agreement leads this Court toward murky water into which it would rather not tread. IV. CONCLUSION Because the arbitration clause in the original purchase agreement is valid and enforceable by Defendant and because it applies to the instant dispute, Defendant's Motion to Compel Arbitration and Stay Proceedings is granted and so clarified. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 70 of 133 Herndon v. Green Tree Servicing LLC, Slip Copy (2016) 2016 WL 1613973 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 An appropriate Order follows. All Citations Slip Copy, 2016 WL 1613973 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 71 of 133 J Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 72 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2012 WL 2849414 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. Melissa LANGLAIS, et al. v. PENNMONT BENEFIT SERVICES, INC., et al. Civil Action No. 11–5275. | July 11, 2012. Attorneys and Law Firms Ira B. Silverstein, Ballard Spahr, LLP, Philadelphia, PA, for Melissa Langlais, et al. John J. Koresko, V, Koresko Law Firm, Bridgeport, PA, for Pennmont Benefit Services, Inc., et al. MEMORANDUM McLAUGHLIN, District Judge. *1 This case arises from a $3.8 million arbitration award that petitioners Melissa Langlais, Rebecca Edmundson, Rob Peritz, Rachel Martone, Jaime Farrel, Katrina Kniest, and George McLain (the “Petitioners” or the “McLain Family”) procured against respondents John J. Koresko, V (“Koresko”), the Koresko Law Firm, P.C., PennMont Benefit Services, Inc. (“PennMont”), and Regional Employers Assurance Leagues Voluntary Employee Beneficiary Association Trust (“REAL VEBA Trust”) (collectively “Respondents” or the “Koresko Parties”). Petitioners have moved to confirm the arbitration award issued in their favor and against the Koresko Parties. The Court will grant the motion as to PennMont, as to the corpus of the REAL VEBA Trust, but deny it as to the other respondents. I. Factual & Procedural History The arbitration in this case arose out of the denial of the McLain Family's claim for $3.8 million in death benefits under an employee benefit arrangement that the Koresko Parties are involved in administering. See Mot. to Confirm Arbitration Award, Ex. 2. Following the denial of their benefits claim, the McLain Family made an arbitration demand through counsel with the American Arbitration Association (“AAA”) on November 11, 2010. Koresko informed the AAA by letter dated December 1, 2010 of his position that the McLain Family's “demand for arbitration [was] premature. The documents governing this matter provide that a decision of the Board of Trustees, after administrative process is first required.” ECF No. 13, Ex. D. When the AAA did not terminate the arbitration, Koresko emailed Claire Connelly, an assistant supervisor at the AAA. He again informed the AAA of his position that he “reject[s] AAA at this point,” and that “there will be no arbitration.” When Ms. Connelly replied that AAA would cease administration if Koresko presented the AAA with a court order that stays the matter, Koresko responded: It is not my responsibility to do any such thing. What you are doing is meddling in the affairs of another person. How dare you purport to give us any instructions. If you do not stop, we will sue you, personally, and AAA for tortuous interference with contract. We will then force you to get a court order. While you are doing this, you are violating the “bad boy” clause of the trust instrument ... There was no decision of any Board of Trustees. Therefore, [the McLain Family's counsel] never had any right to contact you. Kindly get your nose out of our affairs.... There will be no further warnings. ECF No. 13, Ex. E. According to the findings of fact in the arbitration award, Koresko subsequently made an ex parte phone call to the AAA-appointed arbitrator and said that he would name the arbitrator in a lawsuit for allegedly interfering with a business if he did not withdraw as arbitrator. See Mot. to Confirm Arb. Award, Ex. 3 (“Arbitration Award”), at 2. Koresko then advised AAA again that the Koresko Parties would not participate in the arbitration, maintaining that no decision of a Board of Trustees had triggered an arbitration. The Koresko Parties did not participate in the arbitration hearing, which was held on June 21, 2011. Id. *2 Rather than present his objections to the arbitrator or move to enjoin the McLain Family from proceeding with the arbitration, Koresko sued the AAA, the arbitrator, Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 73 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 and Ms. Connelly (an AAA employee) on behalf of the Koresko Parties. Those cases were ultimately removed to this Court. See Case Nos. 11–cv–5276, 11–cv–5276, 11– cv–5277, 11–cv–5431 (collectively the “AAA cases”). The Koresko Parties requested that this Court enjoin the AAA from proceeding with arbitration, claiming that no Board of Trustees decision had triggered arbitration and that the arbitration violated plan documents. The Court dismissed the AAA cases on the basis of arbitral immunity. The Koresko Parties appealed, and the Court of Appeals for the Third Circuit granted a motion by the appellees to dismiss the appeals as moot. See ECF No. 27 in 11–cv– 5276; ECF No. 20 in 11–cv–5277. In the meantime, after the AAA cases were dismissed, the arbitrator entered an arbitration award for $3.8 million and attorneys' fees in favor of the Petitioners and against the Koresko Parties on September 20, 2011. 1 The McLain Family moved to confirm the award on September 26, 2011. ECF No. 10. This Court rejected the Koresko Parties' request for additional discovery as inappropriate and permitted the Koresko Parties to oppose the motion to confirm. ECF Nos. 19, 21. Shortly thereafter, the Court requested and the parties submitted supplemental briefing on the issue of whether non-signatories to an arbitration agreement could be bound to the award. ECF Nos. 24, 29, 30. The Koresko Parties have not moved to vacate the arbitration award, but have asserted in opposition that vacatur is appropriate. 1 Three days later, Koresko filed a state court petition to enjoin the McLain Family from recording or enforcing the award. That suit was subsequently removed to this Court on October 6, 2011, and has been inactive since removal. See Case No. 11–cv6290. II. Legal Framework A. Judicial Review of Arbitration Awards Judicial review of arbitration awards is very limited. See, e.g., Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir.2003); Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625 (6th Cir.2002) (“When courts are called on to review an arbitrator's decision, the review is very narrow; one of the narrowest standards of judicial review in all of American jurisprudence.”) (citation omitted). There is a strong presumption in favor of enforcing awards. Brentwood Med. Assocs. v. United Mine Workers, 396 F.3d 237, 241 (3d Cir.2005). Courts are not authorized to review arbitration decisions on the merits even if the decision rests on factual errors or misinterpretations of the parties' agreement. See Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001). The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., provides for judicial review to confirm, vacate, or modify arbitration awards. Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 578, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Under the terms of § 9 of the FAA, a court must confirm an arbitration award unless it is vacated, modified, or corrected as prescribed in §§ 10 and 11. Section 10 lists statutory grounds for vacating an award, and § 11 lists those for modifying or correcting one. Id. at 582. *3 Under § 10 of the FAA, a court may vacate an award in four limited circumstances: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10. There may also be a fifth, judicially-created basis for vacatur. 2 To the extent manifest disregard of the law survives Hall Street, it is available only in those “exceedingly narrow” circumstances in which an “arbitrator (1) knew of the relevant legal principle, (2) appreciated that this principle controlled the outcome of the disputed issue, and (3) nonetheless willfully flouted the governing law by refusing to apply it.” Paul Green, 389 F. App'x at 176; Metromedia Energy, Inc. v. Enserch Energy Servs., Inc., 409 F.3d 574, 578 (3d Cir.2005). Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 74 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 An arbitrator's manifest disregard for the law is distinct from a merely erroneous application of the law. Even an arbitrator's incorrect legal conclusion is entitled to deference. Local 863 Int'l Bhd. v. Jersey Coast Egg Producers, 773 F.2d 530, 533 (3d Cir.1985); Commc'n Consultant, Inc. v. Nextel Commc'n of Mid–A., Inc., 146 F. App'x 550, 553 (3d Cir.2005). “[T]here must be absolutely no support at all in the record justifying the arbitrator's determinations for a court to deny enforcement of an award.” News Am. Publ'ns, Inc. Daily Racing Form Div. v. Newark Typographical Union, 918 F.2d 21, 24 (3d Cir.1990) (internal citations omitted). 2 Prior to the Supreme Court's decision in Hall Street, the Third Circuit, along with other circuit courts, had held that an arbitrator's decision could also be vacated on the ground that the arbitrator exhibited “manifest disregard for the law.” Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir.2003). In Hall Street, the Supreme Court held that the statutory grounds for vacatur established in the FAA are exclusive and may not be supplemented by contract. 552 U.S. at 580. However, Hall Street left open the question of whether manifest disregard remains a valid basis for vacatur. Subsequent to Hall Street, both the Supreme Court and the Third Circuit have declined to resolve the question of whether manifest disregard of the law remains a valid basis for vacatur. Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., ––– U.S. ––––, 130 S.Ct. 1758, 1768 n. 3, 176 L.Ed.2d 605 (2010); Paul Green Sch. of Rock Music Franchising, LLC v. Smith, 389 F. App'x 172, 176 n. 5, 177 (3d Cir.2010). In the absence of controlling authority stating otherwise, at least one court in this district has assumed without deciding that manifest disregard remains a valid ground for vacating an arbitration award. See Fluke v. CashCall, Inc., 792 F.Supp.2d 782, 785–86 (E.D.Pa.2011). B. Procedural v. Substantive Arbitrability “[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). The question of whether the parties have submitted a particular dispute to arbitration-i.e., the question of substantive arbitrability-is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise. 3 AT & T Tech., Inc. v. Commc'ns Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); Howsam, 537 U.S. at 83–84. 3 Parties may, as a matter of contract, agree to arbitrate the question of substantive arbitrability. Whether they have so agreed, however, is a question for a court, not an arbitrator, to decide. A court will not assume that a party has agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that it did so. Howsam, 537 U.S. at 83–84; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943–45, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir.2000). The Third Circuit has explained that a question of substantive arbitrability arises in two circumstances: (1) first, when there is a threshold dispute over whether the parties have a valid arbitration agreement, and (2) second, when the parties dispute whether a concededly binding arbitration clause applies to a certain type of controversy. See Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178– 79 (3d Cir.2010). The first is a question of whether there is a valid contract, and the second is a question of whether the dispute falls within the scope of that contract. As to the first question, the Third Circuit applies ordinary state law principles of contract law. See Century Indem. Co. v. Certain Underwriters at Lloyd's, 584 F.3d 513, 532 (3d Cir.2009). *4 The Supreme Court has contrasted questions of substantive arbitrability, which are questions for the court, with disputes over procedure. Procedural questions over whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met are matters for the arbitrator. Puleo, 605 F.3d at 179, 183 (citing Howsam, 537 U.S. at 85) (internal quotation marks omitted). Procedural questions include whether prerequisites such as internal grievance procedures have been followed. See John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 555– 59, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (holding that an arbitrator should decide whether the first two steps of a grievance procedure were completed, where these steps are prerequisites to arbitration). III. Analysis Much of the Koresko Parties' briefing in this case amounts to a request for judicial review of the merits of the arbitration award. However, the Court's role in reviewing Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 75 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 the merits of arbitration awards is extraordinarily limited. Major League Umpires Ass'n v. Am. League of Prof. Baseball Clubs, 357 F.3d 272, 289 (3d Cir.2004). The Court cannot refuse to enforce an award even if based on factual errors or misinterpretations of the parties' agreements. To do so would impermissibly substitute a judicial determination for the arbitrator's decision that was bargained for. See Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S.Ct. 1724, 149 L.Ed.2d 740 (2001); Arco–Polymers, Inc. v. Local 8–74, 671 F.2d 752, 755 (3d Cir.1982). Furthermore, where the Koresko Parties were notified of but did not appear at the arbitration hearing, review of the merits is foreclosed entirely. See Teamsters Local Union No. 764 v. J.H. Merritt & Co., 770 F.2d 40, 42–43 (3d Cir.1985); see also Dean v. Sullivan, 118 F.3d 1170, 1172 (7th Cir.1997) ( “The scope for a federal court to review tardy arguments is compressed still further, to nil. Such Johnny-come-lately arguments are prohibited.”). The Court thus does not consider, for example, the following arguments, which occupy a substantial portion of the Koresko Parties' opposition to the motion to confirm: that the award was not based on the governing documents and exceeded the multiple set forth in the Adoption Agreement; that the arbitrator based his decision on parol evidence; that the arbitrator manifestly disregarded the record and the evidence; that the arbitrator disregarded releases of liability signed by employees; that the McLain Family did not have any vested property right; that it was in the plan administrator's discretion to choose the alternative dispute resolution provider; that venue should have been in Montgomery County, Pennsylvania; or that the arbitrator misinterpreted the plan documents. Nor does the Court consider the Koresko Parties' arguments that prerequisites to or triggers for arbitration- such as a decision from the Board of Trustees and exhaustion of the administrative process-were not met and that the matter was not ripe for arbitration. Such arguments are questions of procedural arbitrability, which lie in the province of the arbitrator. 4 See John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 555–59, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964); Puleo, 605 F.3d at 179, 183 (citing Howsam, 537 U.S. at 85). The Koresko Parties cannot refuse to participate in the arbitration and then raise procedural arbitrability objections for the first time in federal court. See Int'l Brotherhood of Elec. Wkrs. v. Hope Elec. Corp., 380 F.3d 1084, 1101 (8th Cir.2004); Dean v. Sullivan, 118 F.3d 1170, 1172 (7th Cir.1997); see also Able Bldg. Maintenance Co. v. Bd. of Trustees, 175 F. App'x 118, 119–20 (9th Cir.2006) (finding procedural arbitrability questions waived after party failed to appear at arbitration). 4 The Koresko Parties suggests that in the ERISA context, the notion that procedural arbitrability questions should be decided by arbitrators does not apply. See Koresko Opp. to Mot. to Confirm 47– 48. However, they cite no cases that stand for this proposition, and the Court has not found any. *5 The McLain Family suggests that the Koresko Parties have, in fact, waived all of their arguments-including substantive challenges to the arbitrator's jurisdiction-by failing to appear at the arbitration hearing. Pet'rs.' Reply 4 n. 1 (ECF No. 23). The Court considers and rejects this argument before analyzing the Koresko Parties' substantive arbitrability objection to the arbitration award. A. Waiver The Court finds that the Koresko Parties did not waive their substantive challenge to the arbitrator's jurisdiction by failing to appear and raise it at the arbitration hearing. The McLain Family cites Teamsters Local No. 764 v. J.H. Merritt & Co., 770 F.2d 40 (3d Cir.1985), in support of their waiver argument, but Merritt is distinguishable. In Merritt, a labor union arbitrated an employee's claim of unfair discharge against an employer. The employer contested the merits of the employee's claim at the arbitration hearing, but did not argue that the arbitration board lacked jurisdiction. The employer challenged the board's jurisdiction for the first time only after the board ruled in favor of the employee and the union moved to confirm the award in district court. Merritt, 770 F.2d at 41–42. The Court of Appeals for the Third Circuit held that Merritt was bound by the arbitration board's decision based on either (1) an implied contract theory or (2) a waiver theory. The Merritt court found that the employer's conduct manifested a clear intent to arbitrate. Id. at 42. Alternatively, the court stated that “a party may waive its right to raise on appeal an objection to the decision of an arbitrator when the party failed to address the objection before the arbitrator in the first instance.” Id. at 42–43. In doing so, the court specifically rejected the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 76 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 employer's argument that the waiver rule did not extend to a jurisdictional objection. Id. at 43. Although the Merritt court set forth waiver as an alternative basis for its decision, this Court does not read Merritt to extend to cases, as here, where the party resisting arbitration has not manifested clear intent to arbitrate by, for example, appearing at arbitration. Such a reading of Merritt is consistent with the legal framework outlined above regarding the difference between procedural and substantive arbitrability, and the apportionment of authority between judges and arbitrators. See supra. Because the arbitration agreement in this case does not clearly and unmistakably specify who determines the arbitrability question, substantive arbitrability is a question for judicial determination. AT & T Tech., 475 U.S. at 649; Howsam, 537 U.S. at 83–84. It would thus make little sense to require the Koresko Parties to appear before the arbitrator and raise their substantive jurisdictional challenges in order to preserve them. See Int'l Brotherhood of Elec. Wkrs. v. Hope Elec., 380 F.3d 1084, 1103 (8th Cir.2004) ( “[P]resentation and preservation of the issue before the courts is sufficient because only the courts are empowered to decide the issue of arbitrability....”); MCI Telecommunc'ns Corp. v. Exalon Indus., Inc., 138 F.3d 426, 429–30 (1st Cir.1998) (holding that a party that contends it is not bound by an arbitration agreement can simply abstain from participation in the proceedings and raise the lack of agreement as a defense to confirmation). But see Comprehensive Accounting Corp. v. Rudell, 760 F.2d 138, 140 (7th Cir.1985) (holding that it was too late at the confirmation stage to challenge the validity of signatures on the arbitration agreement, where respondents were notified of arbitration, did not participate, and did not put the arbitrator on notice of their substantive jurisdictional objections). *6 Therefore, Merritt does not control the outcome in this case, and the Court will analyze the Koresko Parties' substantive jurisdictional challenges to the arbitration award. B. The Arbitration Clause The Koresko Parties argue that the arbitration clause did not include any agreement to arbitrate by Koresko, PennMont, or Koresko Law Firm, P.C. Koresko Opp. 65. The Court considers this argument to be a substantive arbitrability challenge to the arbitrator's jurisdiction. The arbitration clause at issue is located in section 10.24 of a July 29, 2009 amendment to the REAL VEBA Plan and Trust documents. 5 The signature page states that Pennmont executed the amendment, and is signed by Larry Koresko as PennMont's vice president. John Koresko also signed the amendment twice with the title “President, Pennmont Benefit Services, Inc.,” but “AS ATTORNEY IN FACT FOR ALL PARTICIPATING EMPLOYEES” and “AS ATTORNEY IN FACT FOR ALL PARTICIPATING EMPLOYERS.” There is a signature line for F & M Trust Co., the trustee for the REAL VEBA Trust, but it is unsigned. See Koresko Opp. to Pet'rs.' Supp. Brief, Ex. 1 (“Amendment”) (ECF No. 30). The arbitration clause states, in relevant part: 5 The Koresko Parties note that the Department of Labor challenges the validity of the amendment in other litigation surrounding this employee welfare benefits arrangement. Koresko Opp. 66 (referring to Solis v. Koresko, Case No. 09–cv–988). However, none of the parties actually challenges the validity of the amendment containing the arbitration clause in this case. The Court therefore expresses no view on the validity of the amendment for the purposes of this litigation. Section 10.24 Arbitration—Each Participant, Participating Employer, Beneficiary, and Trustees of the Fund hereby agrees to submit any appeal from an adverse decision of the Trustees or Administrator to an arbitrator. Any arbitration request shall include, as a mandatory part thereof, any assertions of any claims under any federal or state law arising with reference to the claimant's association or participation with any plan or trust arrangement of the Administrator, its employees, officers, agents, attorneys, directors successors and assigns.... The Trustees, Participants, Beneficiaries and Employers who are the subject to the Plan are bound by the decision of the arbitrator; and the arbitrator's decision may be recorded in any court of competent jurisdiction as a judgment. Id. (emphasis added). Despite the fact that only PennMont and John Koresko signed the amendment containing the arbitration clause, the arbitrator entered the award against PennMont, the “Regional Employers Insurance Trust,” the “Employer's Health & Welfare Benefit Plan,” John Koresko, and the Koresko Law Firm, P.C. Arbitration Award, caption (ECF No. 10–3). The McLain Family now moves to Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 77 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 confirm the award against PennMont, the Regional Employers Assurance Leagues Voluntary Employee Beneficiary Association Trust (“REAL VEBA Trust”), John Koresko, the Koresko Law Firm, P.C. 6 Mot. to Confirm Arb. Award (ECF No. 10). 6 In their reply and supplemental briefing, the McLain Family asserts that they also move to confirm against Single Employer Welfare Benefit Plan Trust and Penn Public Trust. Pet' rs. ‘ Reply 1 (ECF No. 23); Pet’ rs. ‘ Supp. Br. 12 (ECF No. 28). However, neither their opening motion to confirm nor the arbitration award names them. The Court therefore does not consider confirming the award as to Single Employer Welfare Benefit Plan Trust and Penn Public Trust. The facts above and the language of the arbitration clause raise the question of whether the Court can confirm an arbitration award against: (1) non-signatories to the amendment containing the arbitration clause; (2) John Koresko, individually, when the signature page indicates that he signed as attorney in fact for employers and participating employees; and (3) PennMont, which executed the amendment containing the clause but is not named in the clause itself. The Court examines each of these questions below. 1. Non–Signatories *7 Although courts, not arbitrators, generally decide whether non-signatories to an arbitration agreement can be bound thereby, 7 persuasive case law suggests that a motion to confirm is not the proper time or procedural vehicle to make such determinations. 7 See Laborers Int'l Union v. Foster Wheeler Corp., 26 F.3d 375, 399 n. 27 (3d Cir.1994); N.J. Regional Council of Carpenters v. K & M Gen., No. 11– 1645, 2011 WL 3475532, at *3 (D.N.J. Aug.9, 2011); Bricklayers & Allied Craftwkrs. Admin. Dist. Council v. Kal–Tech Engineering, No. 10–4467, 2011 WL 32509, at *1–2 (D.N.J. Jan.4, 2011). In Orion Shipping & Trading Co. v. E. States Petroleum Corp., 312 F.2d 299 (2d Cir.1963), the Second Circuit held that an arbitration award could not be enforced under an alter-ego theory against the parent corporation of one of the parties subject to the award. The parent corporation was not party to the arbitration. Although the court recognized that it “may well be” that the subsidiary was completely dominated by the parent corporation, the court reasoned that a confirmation action was not the proper time to attempt to pierce the corporate veil, due to the potentially complex fact-finding involved: The usual officer of the confirmation action under 9 U.S.C. § 9 is simply to determine whether the arbitrator's award falls within the four corners of the dispute as submitted to him. This action is one where the judge's powers are narrowly circumscribed and best exercised with expedition. Id. at 301. The court noted that the party seeking confirmation could prosecute an action against the parent corporation as guarantor of the subsidiary's obligations, or initiate a separate action against the parent to enforce the award confirmed against the subsidiary. “But an action to confirm the arbitrator's award cannot be employed as a substitute for either of these two quite distinct causes of action.” Id. Similarly, in Truck Drivers, Chauffeurs & Helpers, Local Union No. 384 v. Stearly Motor Freight, Inc., 544 F.Supp. 623 (E.D.Pa.1982), a labor arbitration case, a local union attempted to enforce an arbitration award as to three defendants: (1) an employer named Stearly, with which the union had entered into a collective bargaining agreement and against which the award was entered, and (2) Rex and Kelly, two other companies that were not named in the arbitration proceedings. The union argued that Stearly, Rex, and Kelly were in fact a “single employer.” Although the Truck Drivers court agreed that the three companies might well be found to be a single employer, it held that it could not enforce the arbitration award against Rex and Kelly because they were not parties to the arbitration. Id. at 625. But cf. Serv. Empl. Int'l Union v. Legacy Health Network, LLC, No. 08–138, 2008 WL 2942140 (W.D.Pa. July 30, 2008) (distinguishing Stearly ). The Court finds the reasoning in Orion Shipping and Truck Drivers persuasive. Determining at this point whether the non-signatory respondents in this case are bound to the arbitration clause would overly complicate the confirmation proceedings. The McLain Family claims that the non-signatory respondents are bound under agency, veil piercing/alter ego, or estoppel theories, but they have not set forth sufficient facts in support of those theories. It may well be that one or more of the above theories could support liability as to the non-signatories. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 78 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 But a confirmation proceeding is not the appropriate time to delve into those potentially fact-based determinations, particularly in light of the federal policy in favor of speedy confirmation of arbitration awards. Therefore, the Court declines to consider confirming the award against anyone except PennMont or John Koresko, who are the only respondents named in the award whose signatures appear on the face of the arbitration agreement. 2. John Koresko *8 The McLain Family puts forth three theories in an attempt to confirm the arbitration award as to John Koresko personally even though he signed the amendment containing the arbitration clause as attorney in fact for participating employers and employees: (1) agency; (2) veil-piercing; and (3) estoppel. The Court is not convinced that any of the theories support the confirmation of the award against Koresko personally. The McLain Family cites Pritzker v. Merrill Lynch, Peirce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir.1993), for the proposition that if “a principal is bound under the terms of a valid arbitration clause, its agents, employees, and representatives are also covered under the terms of such agreements.” Pet'rs.' Supp. Br. 12 (ECF No. 28) (citing Pritzker, 7 F.3d at 1121). However, Pritzker does not control here. As the Third Circuit explained in Bel–Ray Co., Inc. v. Chemrite (Pty) Ltd., the issue in Pritzker was whether a signatory to an arbitration agreement could be compelled to arbitrate claims it had against the non- signatory agents of the other signatory to the agreement. 181 F.3d 435, 444 (3d Cir.1999). In that case, the trustees of a pension plan executed an agreement containing an arbitration clause with Merrill Lynch. The trustees then argued that they could not be compelled to arbitrate their claims against a Merrill Lynch employee and a sister company of Merrill Lynch. The Third Circuit disagreed, holding that under the agreement they signed with Merrill Lynch, the trustees had committed themselves to arbitrate claims against Merrill Lynch as well as its agents. 7 F.3d at 1121–22. Pritzker thus does not stand for the proposition that agents are personally bound by agreements they sign on behalf of principals. Rather, as the Bel–Ray court pointed out, Pritzker was based on the interpretation of an arbitration agreement. 181 F.3d at 444. In this case, the issue with respect to Koresko is not whether the arbitration clause can be interpreted to compel a signatory to arbitrate against a non-signatory, but rather whether Koresko can be bound under traditional agency principles by the terms of a contract which he signed with the title “President, PennMont Benefit Services, Inc.” but with the designations “AS ATTORNEY IN FACT FOR ALL PARTICIPATING EMPLOYEES” and “AS ATTORNEY IN FACT FOR ALL PARTICIPATING EMPLOYERS.” The arbitration clause evinces no agreement by John Koresko to arbitrate matters in his individual capacity and relating to his individual liability. As stated in the signature block, he signed and agreed as attorney in fact for the participating employers and employees. Restatement (Third) of Agency states: When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, (1) the principal and the third party are parties to the contract; and (2) the agent is not a party to the contract unless the agent and third party agree otherwise. *9 Restatement (Third) of Agency § 6.01 (2006) (emphasis added); see also Restatement (Second) of Agency § 320 (1958) (“Unless otherwise agreed, a person making or purporting to make a contract with another as agent for a disclosed principal does not become a party to the contract.”); DK Joint Venture 1 v. Weyand, 649 F.3d 310, 314–15 (5th Cir.2011) (holding that the fact that defendant corporations entered into the agreement did not cause their agents, directors and officers of the corporation, to be personally bound by those agreements). The arbitration clause in this case does state that the arbitration request shall include: any assertions of claims under any federal or state law arising with reference to the claimant's association or participation with any plan or trust arrangement of the Administrator, its employees, officers, agents, attorneys, directors successors and assigns. Koresko Opp. to Pet'rs' Supp. Brief, Ex. 1 § 10.24 (ECF No. 30). However, under Pritzker and Bel–Ray, this language would be a potential basis for Koresko to compel Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 79 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 signatories to arbitrate their claims against Koresko, not vice versa. As several circuit courts have recognized, “it matters whether the party resisting arbitration is a signatory or not.” Merrill Lynch Investment Mngrs. v. Optibase, Ltd., 337 F.3d 125, 131 (2d Cir.2003); see also DK Joint Venture 1 v. Weyand, 649 F.3d 310, 316 (5th Cir.2011). There is thus no basis under traditional agency principles to confirm the award against John Koresko personally. The McLain Family next proffers a veil piercing/alter ego theory for why the non-signatory respondents are bound by the award. However, although they claim that John Koresko completely dominates the various entities involved in the REAL VEBA welfare benefits arrangement, they never actually specify whose veil they want pierced. Nor do they set forth facts in support of this theory. Lastly, the McLain Family argues that because the respondents have “actively exploited” the terms of the amendment, they should be equitably estopped from asserting that the lack of signature precludes enforcement of the arbitration clause. Courts can “prevent a non- signatory from embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin, 269 F.3d 187, 200 (3d Cir.2001). However, to find Koresko equitably estopped from asserting that he is not personally bound by the arbitration clause, this Court would have to find that he personally benefitted from other portions of the amendment containing the clause. The McLain Family has cited nothing except the entirety of the ongoing litigation in Solis v. Koresko, Case No. 09–cv– 988 and REAL VEBA v. Castellano, Case No. 03–cv– 6903, in support of their claim that Koresko has benefitted personally from other terms in the amendment. See Pet'rs' Supp. Brief 21. This general citation is not enough to confirm a $3.8 million award against Koresko personally. 3. PennMont *10 The Court confirms the award against PennMont, as to the corpus of the REAL VEBA Trust (and not as to its corporate assets) because, as Koresko concedes, PennMont signed the amendment as plan administrator with respect to the corpus of the trust. See Koresko Opp. to Pet'rs' Supp. Br. 5. The REAL VEBA trust documents cede to PennMont any of the trustees' powers concerning plan administration. Article III of the REAL VEBA Master Trust Agreement states: 3.1 Payment of Benefit. At the direction of the Plan Administrator, the Trustee shall pay such portion of the Trust Fund as the Plan Administrator shall direct, to be paid directly to or for the benefit of Employees of the Adopting Employers and their beneficiaries. .... 3.4 Trustee Not Responsible for Plan Administration. The Trustee shall not be responsible under this Trust Agreement ... in any way respecting the determination, computation, payment or application of any benefit ... or for any other matter affecting the administration of the Plan by the Adopting Employers, Advisory Committee, Plan Administrator.... REAL VEBA Master Trust Agreement §§ 3.1, 3.4 (Pet'rs' Supp. Br., Ex. C) (emphasis added). Under these provisions, the trustee is a directed trustee and pays benefits as directed by PennMont as the plan administrator. These provisions explain the disconnect in the amendment with respect to PennMont. Larry Koresko, Vice President of PennMont, executed the amendment on behalf of PennMont, but the text of the arbitration clause itself states only that participants, participating employers, beneficiaries, and the trustee have agreed to “submit any appeal from an adverse decision of the Trustees or Administrator to an arbitration.” 8 The language and context of the amendment suggest that the intent of the arbitration clause was to submit disputes over PennMont's claim determination decisions to an arbitrator. The trustee, as directed trustee, would then pay whatever benefits the arbitrator determined should have been paid out of the corpus of the REAL VEBA Trust. 8 At the time the amendment was executed, the trustee was F & M Trust, which is neither named in the arbitration award nor a signatory to the amendment (although there is a blank signature block for F & M Trust). Although the above is not sufficient to confirm the award against PennMont with respect to PennMont's corporate assets, the Court finds that PennMont's signature enables Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 80 of 133 Langlais v. PennMont Ben. Services, Inc., Not Reported in F.Supp.2d (2012) 2012 WL 2849414 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 confirmation of the arbitration award against PennMont in its capacity as plan administrator and with respect to the corpus of the REAL VEBA Trust. An appropriate order follows. All Citations Not Reported in F.Supp.2d, 2012 WL 2849414 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 81 of 133 K Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 82 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2013 WL 6191739 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. Michael L. LEIGHTON and Nancy A. Leighton, Plaintiffs v. CHESAPEAKE APPALACHIA, LLC, et al., Defendants. Civil No. 1:13–CV–2018. | Nov. 26, 2013. Attorneys and Law Firms Tate J. Kunkle, Napoli Bern Ripka & Associates LLP, W. Steven Berman, New York, NY, William S. Berman, Napoli Bern Ripka, LLP, Marlton, NJ, for Plaintiffs. Jesse R. Pierce, Nugent D. Beaty, Jr., Pierce & O'Neill, LLP, Houston, TX, Daniel T. Brier, Myers Brier & Kelly, LLP, Scranton, PA, for Defendants. MEMORANDUM WILLIAM W. CALDWELL, District Judge. I. Introduction *1 Plaintiffs, Michael L. Leighton and Nancy A. Leighton, filed this suit in state court, seeking damages and declaratory relief arising from Defendants' natural-gas drilling operations near Plaintiffs' property, operations commonly known as “fracking.” Defendants removed the case here on the basis of diversity jurisdiction. Defendants are Chesapeake Appalachia, LLC (“Chesapeake Appalachia”); Chesapeake Energy Corporation (“Chesapeake Energy”); Nomac Drilling, LLC; and Schlumberger Technology Corporation. 1 1 Defendants say that Plaintiffs incorrectly identified Schlumberger Technology Corporation as “Schlumberger Technology Corporation d/b/a/ Schlumberger Well Services.” (Defs.' Mot. n. 2). Plaintiffs leased their land to Chesapeake Appalachia for the purpose of extracting the natural gas, and the Lease has an arbitration clause. We are considering Defendants' motion to compel arbitration and to stay the case while the arbitration proceeds. One of the issues presented is whether defendants, Chesapeake Energy, Nomac, and Schlumberger, as nonsignatories to the Lease, can require the signatory plaintiffs to arbitrate the claims they have against these defendants. II. Standard of Review The parties rely on different standards of review in arguing the merits of the motion to compel. Defendants contend they can establish their right to arbitrate Plaintiffs' claims by the allegations of the complaint and the provisions of the Lease. They therefore bring their motion to compel under Fed.R.Civ.P. 12(b) (6). Rule 12(b)(6) deals with the legal sufficiency of the complaint by focusing on its factual allegations and, as relevant here, examining the Lease, because Plaintiffs' complaint contains a breach-ofcontract claim based on that document. Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764, 772 (3d Cir.2013) (on a Rule 12(b)(6) motion, the court looks at the complaint and authentic documents if the claims are based on those documents). On the other hand, Plaintiffs maintain the motion should be evaluated under Fed.R.Civ.P. 56, which deals with motions for summary judgment and allows consideration of evidence that goes beyond the pleadings and supporting documents. Id. (citing Rule 56(c)). Guidotti tells us how to proceed. First, if the defendants can satisfy the Rule 12(b)(6) standard, then the parties should be sent to arbitration without further proceedings. Guidotti, 716 F.3d at 773–74. However, “if the complaint and its supporting documents are unclear regarding the agreement to arbitrate,” id. at 776, the motion to compel must be denied pending development of a factual record. Id. at 774. Similarly, even if “the complaint and incorporated documents facially establish arbitrability,” id., if the plaintiff, in opposing the motion, presents evidence “sufficient to place the agreement to arbitrate in issue,” id. at 776, the motion to compel should not be granted. Id. at 774. At that point, the parties are entitled to discovery on the question of arbitrability, id. at 776, and the issue should be decided under the Rule 56 summary- judgment standard, not the motion-to-dismiss standard. Id. at 774. *2 We thus start with the standard of review for a Rule 12(b)(6) motion. Under Rule 12(b)(6), “[w]e ‘accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 83 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 the plaintiff may be entitled to relief.’ ” Byers v. Intuit, Inc., 600 F.3d 286, 291 (3d Cir.2010) (quoted case omitted). As noted, this inquiry also includes examining the Lease because Plaintiffs base their breach-of-contract claim on the Lease. With this standard in mind, we set forth the background to this litigation, as Plaintiffs allege it. III. Background Plaintiffs are the owners of real property located in Granville Summit, Bradford County, Pennsylvania (the “Property”). (Compl.¶ 2). On August 15, 2008, they entered into an “Oil & Gas Lease” with defendant Chesapeake Appalachia so that Chesapeake Appalachia could “obtain the legal right to drill on or near Plaintiffs' Property and extract natural gas from Plaintiffs' Property.” (Id.). The Lease was for a five-year term, beginning on August 15, 2008. (Doc. 19–1, ECF p. 3, Lease, Ex. A to Defs.' Motion). It contained the following pertinent provisions. (Each plaintiff is the “Lessor” and Chesapeake Appalachia is the “Lessee.”) First, the Lease allowed Chesapeake Appalachia to search and drill for natural gas on Plaintiff's Property: Leasing Clause. Lessor hereby leases exclusively to Lessee all the oil and gas ... underlying the land herein leased, together with such exclusive rights as may be necessary or convenient for Lessor, at its election, to explore for, develop, produce, measure, and market production from the Leasehold, and from adjoining lands, using methods and techniques which are not restricted to current technology, including the right to conduct geophysical and other exploratory tests; to drill, maintain, operate, plug, abandon, and remove wells; ... (Id.). An Addendum to the Lease required Chesapeake Appalachia to correct any damage to Plaintiffs' water supply. The Addendum's “Water Damage Clause” provided as follows: In the event any activity carried on by Lessee pursuant to the terms of this lease damages, disturbs, or injures Lessor's potable water well or source located on these leased premises, Lessee shall at its sole cost and expense use its best efforts to correct any such damage, disturbance or injury. (Id., ECF p. 6). Finally, the Lease contained an arbitration clause, providing: Arbitration. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee's operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee. (Id., ECF p. 4). *3 Plaintiffs allege that Chesapeake Appalachia and Nomac are “wholly owned and operated subsidiaries and/ or divisions of Defendant Chesapeake Energy.” (Compl.¶ 14). Defendant Schlumberger is a Texas corporation. (Id. ¶ 22). Chesapeake Appalachia, Nomac and Chesapeake Energy engage in “fracking” or “hydraulic fracking” activity, which includes drilling, building and operating wells, and producing, processing and transporting natural gas. (Id. ¶ 18). Schlumberger engages “in the business of providing an array of fracking-related natural gas well services to oil and gas drillers across the United States,” including Chesapeake Appalachia, Nomac and Chesapeake Energy. (Id . ¶ 25). Chesapeake Appalachia owned two wells, the Morse 3H Gas Well, and the Morse 5H Gas Well, (id. ¶ 16), which were “in close proximity” to the Property, (id. ¶ 48), located about one-half mile from Plaintiffs' residence and water supply well. (Id. ¶ 35). Chesapeake Appalachia and Chesapeake Energy owned, designed, constructed and operated the wells. (Id. ¶¶ 36 and 37). Nomac “carried out fracking related drilling, cementing, perforating, squeezing and other well servicing activities at the Wells.” (Id. ¶ 38). Schlumberger “carried out drilling, cementing, perforating, squeezing and other fracking- related well servicing activities at the Wells.” (Id. ¶ 39). In or about July 2010, Defendants 2 began constructing the wells and continued their construction through Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 84 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 November 2011. (Id . ¶¶ 42 and 49). In November 2011, Defendants, either individually or jointly, “conducted remedial perforations and cement squeeze operations” on the Morse 5H well. (Id. ¶ 50). In May 2012, Defendants, either individually or jointly, were performing remedial activities at the Morse 5H well when “squeeze perforations ... were exposed to formation pressures, allowing contaminants ... to escape from the well bore for as many as 7 days.” (Id. ¶ 51). The remedial activities were required because Defendants had negligently constructed the wells. (Id. ¶ 52). The construction violated industry standards. (Id. ¶ 53). 2 “Defendants” refers to all four defendants. (Compl.¶ 29). Before the gas wells were drilled, “on or about May 25, 2011, defendant Chesapeake Appalachia conducted pre-drill sampling of Plaintiffs' water supply.” (Id. ¶ 46). The sampling showed Plaintiffs' water supply to be of good quality. (Id. ¶ 47). In May 2012, following the escape of contaminants, the Pennsylvania Department of Environmental Protection and Chesapeake Appalachia took groundwater samples from the Property. (Id. ¶¶ 54 and 58). The samples showed substantial increases in the levels of methane, ethane, propane, iron, and manganese. (Id. ¶¶ 57–63). The groundwater located at the Property had also “drastically changed in clarity and color, it had a foul odor and contained noticeable levels of natural gas.” (Id. ¶ 55). Additionally, “[w]ater drawn from Plaintiffs' groundwater supplies had also become flammable and surface water running through the creek on [the] Property had begun bubbling.” Id. 3 3 Chesapeake Appalachia attempted some remedial measures. In or about June 2012, it installed a temporary water treatment system that made the water safe for residential uses, “but not for drinking.” (Id. ¶ 67). In or about June 2012, it installed a “sub-slab air insertion system into Plaintiffs' basement to keep the natural gas from infiltrating Plaintiffs' Property at dangerous and explosive levels.” (Id. ¶ 68). *4 The complaint presents eight causes of action. In the first seven, all Defendants are named. The first cause of action alleges Defendants violated the Pennsylvania Hazardous Sites Cleanup Act (HSCA), 35 Pa. Stat. Ann. § 6020.101 et seq., by “caus[ing] the spill, release and/or discharge of ‘hazardous substances' “ as defined in the HSCA. (Compl.¶ 78). The second cause of action alleges negligence in the manner in which Defendants drilled, owned, and operated the wells. The third cause of action alleges negligence per se because Defendants violated several Pennsylvania statutes and regulations applicable to their activity. The fourth cause of action alleges private nuisance. The fifth cause of action alleges strict liability for abnormally dangerous and ultra-hazardous activities. The sixth cause of action alleges trespass. The seventh cause of action alleges a claim for “inconvenience and discomfort.” The eighth cause of action is for breach of contract and names only Chesapeake Appalachia. Plaintiffs allege Chesapeake Appalachia breached the Lease in the following ways: (1) it failed to drill, construct and install the wells to minimize effects on the Property; (2) it failed to restore the Property and water supply to their pre-drilling condition; and (3) it failed to conduct its operations in accordance with the laws of Pennsylvania and regulations promulgated by the Pennsylvania Department of Environmental Protection. In their prayer for relief, Plaintiffs seek damages in the form of the costs of remediating the Property, other compensatory damages, punitive damages, and an injunction requiring Defendants to stop the activity that was contaminating the Property. IV. Discussion A. The Scope of the Arbitration Clause Covers Plaintiffs' Claims Under either federal or state law, arbitration will be required if: (1) there is a valid agreement to arbitrate; and (2) the dispute comes within the scope of the agreement. Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.2009); Pisano v. Extendicare Homes, Inc., 77 A.3d 651, ––––, 2013 WL 4046673, at *2 (Pa.Super.Ct.2013). 4 4 Defendants assert that no decision has to be made about whether the Federal Arbitration Act, 9 U.S.C. §§ 1–16, or state arbitration law controls because the law is the same. Plaintiffs cite both federal and state cases. In these circumstances, we also make no decision as to which law controls. Plaintiffs do not argue there is no agreement to arbitrate (at least as to Chesapeake Appalachia, a signatory to the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 85 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Lease) but do dispute that their claims come within the scope of the agreement. Defendants argue that the arbitration clause covers the Plaintiff's claims because it is expansive, requiring arbitration of disputes “concerning this Lease,” “performance” under the Lease, or “damages caused by Lessee's operations.” Defendants argue that Plaintiffs' claims fall within these provisions since all of them arise from Chesapeake Appalachia's operations authorized by the Lease. As further support, they note that under federal and state law, courts will find that a dispute comes within the scope of an arbitration clause “unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Century Indem. Co. v. Certain Underwriters at Lloyds, 584 F.3d 513, 524 (3d Cir.2009) (quoted Supreme Court case omitted). See also Callan v. Oxford Land Dev., Inc., 858 A.2d 1229, 1233 (Pa.Super.Ct.2004). *5 We agree with Defendants that Plaintiffs' claims are within the scope of the arbitration agreement. As they assert, the clause covers disagreements broadly worded to include disagreements about performance under the Lease and Chesapeake Appalachia's operations. See Roman v. Chesapeake Appalachia, LLC, No. 11–CV–1614, 2012 WL 2076846, at *4 (M.D. Pa. June 28, 2012) (observing that the same arbitration clause was broadly written, although dealing with a different type of claim). We add that the clause requires arbitration of “all such disputes.” Since Plaintiffs' claims are based on Defendants' drilling activities, they come within the scope of the arbitration clause, as either disputing Defendants' performance or damages resulting from their operations. In reaching this conclusion, we recognize that Plaintiffs rely on language in Pennsylvania cases saying that “arbitration agreements are to be strictly construed and such agreements should not be extended by implication.” Pisano, supra, 2013 WL 4046673, at *9. The Pennsylvania Superior Court has acknowledged that this language is in “tension” with the language we quoted above, that a dispute should be construed as being covered by the arbitration agreement unless it can be “said with positive assurance” that it is not. The superior court said the solution is to look to state law on contract construction and to interpret the clause to give effect to the parties' intent as manifested by the contractual language. Callan, supra, 858 A.2d at 1233. Here, the contractual language establishes that Plaintiffs' claims are covered by the arbitration clause. Cf. Callan, 858 A.2d at 1233 (in sending a case to arbitration, noting that “ ‘all’ contract disputes does mean ‘all’ contract disputes”). The result is the same under federal law. “The FAA instructs courts to refer to principles of applicable state law when determining the existence and scope of an agreement to arbitrate.” Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.2005). “Under Pennsylvania law ... the scope of [an] arbitration [agreement] ‘is determined by the intention of the parties as ascertained in accordance with the rules governing contracts generally.’ ” State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 716 (3d Cir.2000) (quoted case omitted). Plaintiffs make the following arguments that their claims are not within the scope of the arbitration clause. First, they argue that the Lease “is simply an instrument that created an agreement between the Plaintiff and defendant Chesapeake Appalachia and outlined responsibilities of each party to the other,” (Doc. 20, ECF p. 7, Pls.' Opp'n Brief), while their claims “fall well outside the parameters of the Lease” and are “extraneous” to it. (Id.). This argument fails because it just says in another way that the Lease is a contract, but without acknowledging that it contains an arbitration clause which also governs the relationship between the parties. *6 Second, Plaintiffs argue that the arbitration agreement is inapplicable because the damages did not arise from activities performed on the Property. Instead, the damages arose from wells on land in close proximity to the Property, but not on it. They principally rely on Armstrong v. Chesapeake Appalachia, LLC, No. 10–CV– 0681, (Pa. Common Pleas Ct.—Bradford Cnty. June 27, 2012) (unpublished disposition), in support. 5 5 Armstrong is attached to Plaintiffs' opposition brief as Ex. A. In Armstrong, as here, the plaintiffs were suing Chesapeake Appalachia for damage to their property from the defendant's natural-gas drilling operations on land adjoining the property. Chesapeake Appalachia moved to compel arbitration based on a clause materially identical to the one in the instant case. Denying the motion, the court said that the lease was intended to apply Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 86 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 only “to operations involving a gas well drilling on [the plaintiff's] property.” (Doc. 21–1, ECF p. 4). Armstrong is distinguishable. The plaintiffs there brought only tort claims. Here, in contrast, Plaintiffs have, in addition to tort claims, sued for breach of the Lease. In doing so, they have alleged that their Property and water supply were damaged by Defendants' operations on nearby land. Thus Plaintiffs have themselves alleged that the Lease applies to activities on adjoining land. 6 6 This position is supported by the language of the Lease itself which gives Chesapeake Appalachia the right, among other things, to “explore, develop, produce, measure, and market production from the [Property], and from adjoining lands.” (Doc. 19–1, ECF p. 3) (emphasis added). Again relying on Armstrong, Plaintiffs argue the arbitration clause does not apply to their claims because the clause was intended to apply to disagreements between the parties in their capacities as lessor and lessee. As the court in Armstrong reasoned: [T]he arbitration clause, which identifies the principals as “Lessor” and “Lessee”, was intended by the parties to govern disagreements which arise between them qua lessor and lessee. That is not the case here. All of Plaintiffs' claims, sounding in trespass, would be viable in the absence of a lease. The lease is wholly incidental to the alleged causes of action. (Doc. 21–1, ECF P. p. 4). We disagree with this reasoning. The court does not explain why the tort claims are not disagreements that have arisen between the parties in their capacities as lessor and lessee. The court is essentially saying that the arbitration clause cannot cover tort claims. But an arbitration clause can cover such claims. See Roman, supra, 2012 WL 2076846, at *4; Callan, supra, 858 A.2d at 1233. Having decided that the claims come within the scope of the arbitration clause, we turn to the parties' arguments on whether Defendants can enforce the clause against Plaintiffs. B. Enforceability of the Arbitration Clause All the defendants move to compel Plaintiffs to arbitrate their claims even though only Chesapeake Appalachia is a signatory to the Lease. The nonsignatory defendants, Chesapeake Energy, Nomac, and Schlumberger, assert they can require Plaintiffs to arbitrate based on theories of agency and equitable estoppel. Before we get to Defendants' arguments, however, we will address Plaintiffs' position that none of Defendants can insist on arbitration, even Chesapeake Appalachia, because “arbitration clauses are not enforced ‘when, as here, a plaintiff also has claims arising from the same set of facts against several defendants who are not bound by an arbitration agreement,’ ” (Doc. 20, ECF p. 10, Pls.' Opp'n Br.). This is a quotation from the undersigned's opinion in Scott v. LTS Builders LLC, No. 10–CV–0581, 2011 WL 6294490, at *5 (M.D.Pa. Dec. 5, 2011) (Caldwell, J.). If Scott applies here, we need not address Defendants' reliance on agency or equitable estoppel. We can deny the motion to arbitrate, even as to the signatory Chesapeake Appalachia. *7 Scott does not apply here. In Scott, we denied a motion to compel arbitration, but the facts were materially different. Only one defendant, the signatory to the arbitration agreement, sought arbitration, and there were ten other defendants, with five of those insisting that the claims against them be resolved in court.2011 WL 6294490, at *5. Relying on School District of Philadelphia v. Livingston–Rosenwinkel, P.C., 690 A.2d 1321 (Pa.Commw.Ct.1997), we ruled that sending the case against the signatory to arbitration would not satisfy Pennsylvania's public policy of enforcing arbitration agreements “as a means of promoting swift and orderly disposition of claims” Id. (quoting Livingston– Rosenwinkel, 690 A.2d at 1322–23). As that case noted, it would result in litigating the same claims twice and in a “ ‘protracted, piecemeal disposition of the dispute.’ ” Id. (quoting Livingston–Rosenwinkel, 690 A.2d at 1323). Here, on the other hand, all Defendants are moving for arbitration, so a public policy against duplicative and piecemeal disposition of disputes is not implicated. We thus turn to Defendants' arguments for arbitration. 1. Agency–Type Relationship Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 87 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 It is apparent that Chesapeake Appalachia as a signatory to the arbitration agreement can enforce it against Plaintiffs. Defendants argue that the nonsignatories to the arbitration agreement can also enforce it because Plaintiffs allege the nonsignatory defendants were the agents of Chesapeake Appalachia, carrying out the latter's obligations under the Lease. Defendants cite in support Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir.1993); Amato v. KPMG LLP, 433 F.Supp.2d 460 (M.D.Pa.2006); and Weiner v. Pritzker, 2001 WL 1807929 (Pa. Common Pleas Ct.—Phila. Cnty.). In making this argument, Defendants rely on “traditional agency theory,” Pritzker, 7 F.3d at 1121, as in material part they quote in support of their argument the following language from Pritzker: “Because a principal is bound under the terms of a valid arbitration agreement, its agents, employees, and representatives are also covered under the terms of such agreements.” Id. We do not believe that Plaintiffs have alleged that the nonsignatory defendants are agents of Chesapeake Appalachia in connection with the latter's natural-gas operations. However, another portion of Pritzker does support Chesapeake Energy's and Nomac's right to arbitrate Plaintiffs' claims against them. 7 7 Since Chesapeake Energy and Nomac can compel arbitration, we only state why the allegations about Schlumberger do not establish it was Chesapeake Appalachia's agent. One of the elements of agency is the principal's control of the undertaking. Walton v. Johnson, 66 A.3d 782, 787 (Pa.Super.Ct.2013). Plaintiffs' allegations are insufficient to establish that Chesapeake Appalachia controlled Schlumberger. In Pritzker, the plaintiff trustees of a pension plan had entered into cash management agreements with Merrill Lynch, Pierce, Fenner & Smith, Inc. (MLPF & S). The agreements contained arbitration clauses. 7 F.3d at 1112. Belinda P. Stewart, a financial consultant employed by MLPF & S, advised about, and made, purchases for the plan. Id. Merrill Lynch Asset Management, Inc. (MLAM) was the custodian of the assets. Id. at 1113. MLAM and MLPF & S were wholly-owned subsidiaries of Merrill Lynch & Co., Inc. Id. at 1112. The trustees sued over Stewart's unauthorized purchase of certain assets for the plan. Id. at 1112. Defendants moved to compel arbitration. In relevant part, the Third Circuit ruled that the trustees had to arbitrate their claims against Stewart because as an employee of MLPF & S she was an agent of the company and hence bound by the arbitration clause in the agreements “[u]nder traditional agency theory.” Id. at 1121. *8 In regard to MLAM, the court of appeals ruled that “analogous reasons” supported arbitration of the claims against it, describing MLAM as the “corporate sister of MLPF & S.” Id. at 1122. It was significant that MLAM had to perform certain services in connection with the accounts and that it and MLPF & S were subsidiaries of Merrill Lynch & Co., Inc. Id. Citing Isidor Palewonsky Associates, Inc. v. Sharp Properties, Inc., 998 F.2d 145 (3d Cir.1993), the court stated “that arbitration agreements may be upheld against non-parties where the interests of such parties are directly related to, if not congruent with, those of a signatory.” Pritzker, 7 F.3d at 1122. It then concluded that the claims against MLAM had to go to arbitration because the trustees' “own theory of liability demonstrate[d] that MLAM's interests are directly related to, if not predicated upon, MLPF & S' conduct.” Id. at 1122. The court of appeals summarized as follows: “Where the parties to [a valid arbitration] clause unmistakably intend to arbitrate all controversies which might arise between them, their agreement should be applied to claims against agents or entities related to the signatories.” Id. at 1122. Pritzker indicates that Chesapeake Energy and Nomac can enforce the arbitration agreement against Plaintiffs. Plaintiffs allege that Chesapeake Appalachia and Nomac are “wholly owned and operated subsidiaries and/or divisions of Defendant Chesapeake Energy.” (Compl.¶ 14). 8 Chesapeake Appalachia, Chesapeake Energy and Nomac are thus related entities. 9 Additionally, since Chesapeake Energy and Nomac are alleged to have engaged in the conduct with Chesapeake Appalachia that damaged Plaintiffs' Property, their interests are directly related to those of Chesapeake Appalachia, the signatory. It follows that Chesapeake Energy and Nomac, as nonsignatories, can enforce the arbitration agreement against the plaintiff signatories. 8 Defendant Schlumberger is alleged to be a Texas corporation. (Id. ¶ 22). Plaintiffs do not allege any relationship to the other defendants. 9 We note that Defendants' “Corporate Disclosures” are consistent with Plaintiffs' allegations except that none of the entities is a division of any other. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 88 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 Defendants affirm that Chesapeake Appalachia is a wholly-owned subsidiary of Chesapeake Energy. Nomac is “ultimately owned by Chesapeake Operating, Inc., a wholly-owned subsidiary” of Chesapeake Energy. (Doc. 25). 2. Equitable Estoppel Since Defendants have not established that Plaintiffs must arbitrate their claims against Schlumberger under an agency theory, we address their argument based on equitable estoppel. Defendants argue that equitable estoppel requires Plaintiffs to arbitrate their claims against them. Nonsignatories to an arbitration agreement can rely on equitable estoppel to compel signatories to arbitrate. Miron v. BDO Seidman, LLP, 342 F.Supp.2d 324, 333 (E.D.Pa.2004). 10 10 In E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, SAS, 269 F.3d 187, 201– 02 (3d Cir.2001), the Third Circuit observed that the doctrine existed but did not apply it there because a signatory was attempting to use it to compel a nonsignatory to arbitrate, when the doctrine only applies in the opposite circumstances. In the instant case, Defendants rely on Bannett v. Hankin, 331 F.Supp.2d 354 (E.D.Pa.2004). Bannett contains the following language concerning estoppel of a signatory: [N]onsignatories to an arbitration agreement have standing to compel arbitration against a signatory and the signatory is estopped from avoiding arbitration with a nonsignatory when the issues which the nonsignatory wants to resolve are intertwined with the agreement that the signatory signed. [citations omitted]. This theory applies when a signatory to the written agreement must rely on the terms of the agreement to assert its claims against the nonsignatory such that the signatory's claims make reference to or presume the existence of the written agreement, or the signatory's claims arise out of and relate directly to the written agreement. [citations omitted]. *9 Id. at 359–60 (brackets added) (footnote omitted). Defendants argue that this standard is satisfied here because Plaintiffs allege the nonsignatory defendants' conduct was pursuant to the Lease and that they were acting jointly with Chesapeake Appalachia, a signatory to the Lease. According to Defendants, this makes the issues presented in this case intertwined with the Lease and directly related to the Lease. Thus, Plaintiffs are estopped from not honoring their commitment to arbitrate. We disagree. A fuller presentation of the standard to be employed can be found in In re: Humana Inc. Managed Care Litigation, 285 F.3d 971 (11th Cir.2002), where the Eleventh Circuit stated that allowing a nonsignatory to compel arbitration under an estoppel theory is based on fairness. Id. at 876. More specifically, estoppel applies when the signatory relies on the agreement containing the arbitration clause to establish his claim against the nonsignatory, and then repudiates the agreement when it would require arbitration. Id. “The plaintiff's actual dependance on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.” Id. See also Miron, supra, 342 F.Supp.2d at 333 (quoting In re Humana ). In the instant case, Plaintiffs are not relying on the Lease to establish their claims against the nonsignatory defendants, Chesapeake Energy, Nomac and Schlumberger. Nowhere in their complaint do they allege that a provision of the Lease entitles them to relief against these defendants. Instead, their claims against these defendants are statutory and common-law ones, claims they can assert against the nonsignatories independently of the Lease. Plaintiffs are alleging a claim for breach of the Lease, but only against Chesapeake Appalachia. Since Plaintiffs are not relying on the provisions of the Lease to make their claims against the nonsignatory defendants, fairness does not dictate that they be estopped from litigating their claims against them in court and requiring them to go to arbitration instead. V. Further Discovery At this point, we should order Plaintiffs to arbitrate their clams against defendants, Chesapeake Appalachia, Chesapeake Energy and Nomac while staying judicial proceedings involving Schlumberger. See Amato, supra, 433 F.Supp.2d at 492 (granting stay of judicial Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 89 of 133 Leighton v. Chesapeake Appalachia, LLC, Not Reported in F.Supp.2d (2013) 2013 WL 6191739 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 proceedings against defendants not subject to arbitration) (citing Berkery v. Cross Country Bank, 256 F.Supp.2d 359, 370 (E.D.Pa.2003)); Sew Clean Drycleaners & Launders, Inc. v. Dress For Success Cleaners, Inc., 903 A.2d 1254, 1258 (Pa.Super.Ct.2006) (under state law a court action against the party not subject to the arbitration agreement should have been stayed pending the resolution of the arbitration proceedings). However, Guidotti instructs us to allow a period of discovery to determine if Defendants can show that Schlumberger was an agent of Chesapeake Appalachia. Guidotti, 716 F.3d at 774. If so, the claims against Schlumberger should also be arbitrated. A period of discovery on whether Chesapeake Energy and Nomac can satisfy a traditional agency status would also be appropriate, as well as discovery on facts that would support whether this case involves interstate commerce and hence that the FAA controls arbitrability of the claims. 11 11 Two of my colleagues have ruled that an oil-and- gas lease is not part of interstate commerce. See Eisenberger v. Chesapeake Appalachia, LLC, No. 09– CV–1415, 2010 WL 457139, at*2 (M.D.Pa. Feb. 4, 2010) (Caputo, J.); Ulmer v. Chesapeake Appalachia, LLC, No. 08–CV–2062 (M.D.Pa. Jan. 16, 2009) (Jones, J.). Other courts disagree. See Sonda v. Chesapeake Appalachia, LLC, No. 12–CV–0103, 2012 WL 5471763, at *2 (N. D.W.Va. Nov. 9, 2012); Heller v. TriEnergy, Inc., No. 12–CV–0045, 2012 WL 2740870, at *11 (N.D.W.Va. July 9, 2012); Alexander v. Chesapeake Appalachia, LLC, 839 F.Supp.2d 544, 550 (N.D.N.Y.2012). *10 We will issue an appropriate order. ORDER AND NOW, this 26th day of November, 2013, it is ORDERED that: 1. Defendants' motion (Doc. 5) to compel arbitration is stayed. 2. The parties are granted ninety (90) days to conduct discovery on the following: (1) whether Schlumberger is an agent of Chesapeake Appalachia under Pennsylvania agency principles; (2) whether Chesapeake Energy and Nomac can also be agents; and (3) whether this case involves interstate commerce. 3. The parties shall thereafter have thirty days to file briefs on the impact of the discovery on the law to be applied and whether the discovery alters our conclusion that Plaintiffs and Chesapeake Appalachia, Chesapeake Energy, and Nomac should proceed to arbitration and that the claims against Schlumberger should be stayed pending resolution of the arbitration proceedings. All Citations Not Reported in F.Supp.2d, 2013 WL 6191739 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 90 of 133 L Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 91 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2011 WL 6130599 Only the Westlaw citation is currently available. NOT FOR PUBLICATION United States District Court, D. New Jersey. ORAL CANCER PREVENTION INTERNATIONAL, INC., Plaintiff, v. JOHNSON & JOHNSON, and Johnson & Johnson Consumer Companies, Inc., Defendants. Civil Action No. 3:11–cv–3878 (PGS). | Dec. 7, 2011. Attorneys and Law Firms Robert W. Ray, Pryor Cashman LLP, New York, NY, for Plaintiff. Peter C. Harvey, Patterson, Belknap, Webb & Tyler, LLP, New York, NY, for Defendants. MEMORANDUM & ORDER SHERIDAN, District Judge. *1 This matter comes before the Court by Defendants', Johnson & Johnson (“J & J”) and Johnson & Johnson Consumer Companies, Inc., (“JJCCI”), motion to compel arbitration and stay the litigation. Plaintiff, Oral Cancer Prevention International (“OCPI”), has opposed this motion in favor of allowing its claims to proceed in this litigation rather than arbitration. OCPI's diversity action has raised three common law claims in the complaint: (1) fraud; (2) tortious interference with contract; and (3) civil conspiracy. OCPI argues that its claims are outside the scope of the arbitration agreement of which defendants are non-signatories, and it would be inequitable to allow the defendants to compel arbitration. For the reasons set forth below, the Court will grant Defendants' motion to compel arbitration and stay this litigation. I. FACTUAL BACKGROUND The following facts are alleged in OCPI's complaint. OCPI has developed and patented a product known as the OralCDx Brush Test that is used for early detection of oral cancer. At the time of the product's development, OCPI recognized that oral cancer is on the rise worldwide and only a few simple tests for early detection existed. OCPI has worked with the American Dental Association to advertise its OralCDx Brush as a quick, painless, and inexpensive test that uses a patented brush to collect cells that are analyzed at OCPI laboratories for preventative pre-cancer screening and detection. OCPI intended to market and distribute its product among dentists to be used for routine screening of patients. In 2008 and 2009 OCPI had a four person sales team that generated 2,000 laboratory tests per month. In 2009, OCPI was approached by OraPharma, a subsidiary of J & J, to be the exclusive sales representative for the OralCDx Brush Test. OraPharma was reputed to have an expertly trained and well-managed sales force within the dental industry with approximately 100 sales representatives reaching 50,000 dental practices nationwide, and selling products like Arestin (antibiotic treatment of periodontal disease) and Listerine 1 that aimed to protect and improve the health of oral soft tissue. Of OraPharma's 50,000 dental practice customers, 20,000 accounted for 80% of sales, and were known as OraPharma's “Prime Customers.” Since OCPI's OralCDx Brush also relates to healthy maintenance of oral soft tissue, OraPharma was capable of selling the OralCDx Brush alongside its existing products. 1 J & J acquired Listerine through its purchase of Pfizer's consumer health care unit in 2006. On February 5, 2010, OCPI entered into a Sales Services Agreement (“Sales Agreement” or “Agreement”) with OraPharma after a year of extensive negotiations. The Sales Agreement provided that OraPharma would exclusively market the OralCDx Brush. Sales Agreement § 2.01. The provisions at issue in the Sales Agreement are the assignment clause and the arbitration clause. Sales Agreement §§ 14.02, 14.06. Once the Sales Agreement was executed, OraPharma's marketing projections required OCPI to handle at least 20,000 laboratory tests per month within the first six months of the Agreement. In reliance on these projections, OCPI raised $5 million to expand its laboratories. However, in the first six months of the Agreement, OCPI alleges that the OralCDx Brush was only marketed to a Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 92 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 small percentage of OraPharma's dental customers who were least likely to purchase products relating to oral soft tissue care. OCPI suggests that the reason for the limited roll out of the OralCDx Brush was because of a study published in 2008 in the Dental Journal of Australia (“Australian study”). The Australian study identified a potential link between mouthwash with high alcohol content to an increased risk of oral cancer. OCPI contends that Listerine has the highest alcohol content of any over- the-counter mouthwash, and J & J was concerned that if OraPharma were to sell both Listerine and the OralCDx Brush, J & J would be tacitly validating the Australian study. *2 OCPI asserts that J & J also launched Listerine Zero, an alcohol-free mouthwash, soon after the Sales Agreement was executed, which was in direct response to the concerns raised in the Australian study. OCPI contends that OraPharma never executed a nationwide launch of the OralCDx Brush to its 50,000 dental customers because of J & J's tortious conduct. J & J sold OraPharma in December 2010 to Water Street Healthcare Partners. In Early 2011, OraPharma terminated the Sales Agreement with OCPI consistent with the termination clause. Thereafter in July 2011, OCPI filed the instant action against defendants in this Court; notably, OraPharma is not named as a defendant. II. DISCUSSION A. Legal Standard A motion to compel arbitration and stay the litigation may be treated as a motion for summary judgment. Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 620 (3d Cir.2009). Accordingly, the issue of whether the defendants, as non- signatories to the Sales Agreement, can compel OCPI to arbitrate its claims will be decided under the summary judgment standard. All reasonable doubts and inferences will be in favor of OCPI as the party opposing arbitration. Id. Summary judgment is appropriate under Fed.R.Civ.P. 56(c) when the moving party demonstrates that there is no genuine issue of material fact and the evidence establishes the moving party's entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence ‘is to be believed and all justifiable inferences are to be drawn in his favor.’ “ Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir.2004) (quoting Anderson, 477 U.S. at 255). Once the moving party has satisfied its initial burden, the party opposing the motion must establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v. Lacey Twp., 772 F.2d 1103, 1109 (3d Cir.1985). The party opposing the motion for summary judgment cannot rest on mere allegations and instead must present actual evidence that creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130–31 (3d Cir.1995). “[U]nsupported allegations ... and pleadings are insufficient to repel summary judgment.” Schoch v. First Fidelity Bancorp., 912 F.2d 654, 657 (3d Cir.1990); see also Fed.R.Civ.P. 56(e) (requiring nonmoving party to “set forth specific facts showing that there is a genuine issue for trial”). Moreover, only disputes over facts that might affect the outcome of the lawsuit under governing law will preclude the entry of summary judgement. Anderson, 477 U.S. at 247–48. If a court determines, “after drawing all inferences in favor of [the non-moving party], and making all credibility determinations in his favor—that no reasonable jury could find for him, summary judgment is appropriate.” Alevras v. Tacopina, 226 Fed. App'x. 222, 227 (3d Cir.2007). The court will apply this standard to each of the Plaintiff's claims. B. The Federal Arbitration Act *3 The Federal Arbitration Act (FAA) governs whether an arbitration agreement is valid and enforceable, and whether a dispute that gave rise to litigation falls within the scope of an arbitration agreement. 9 U.S.C. §§ 1, 2; Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); see also Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir.1978). The FAA establishes a strong federal policy in favor Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 93 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 of arbitration by providing that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2. The rationale behind this policy is to enforce private contractual agreements. E.I. DuPont de Nemours and Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 194 (3d Cir.2001). Before parties are compelled to arbitrate, the court must determine if (1) there is a valid agreement to arbitrate; and (2) the dispute at issue falls within the scope of that agreement. Century Indem. Co. v. Certain Underwriters at Lloyd's, 584 F.3d 513, 523 (3d Cir.2009). This Circuit has held that under the FAA “a court may only compel a party to arbitrate where that party has entered into a written agreement to arbitrate that covers the dispute.” E.I. DuPont, 269 F.3d at 194 (quoting Bel–Ray Co., Inc. v. Chemrite (Pty) Ltd., 181 F.3d 435, 444 (3d Cir.1999)); see also Smith/Enron Cogeneration LP, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 95 (2d Cir.1999) (“whether an entity is a party to the arbitration agreement [ ] is included within the broader issue of whether the parties agreed to arbitrate.”). It is undisputed that the Sales Agreement contains a valid and enforceable arbitration clause that requires OCPI and OraPharma to submit to binding arbitration in New York for “any controversy or claim arising out of or relating” to the Agreement. The issue here is whether the defendants, as non-signatories to the Sales Agreement, may compel OCPI to arbitrate its claims. C. Did the Arbitration Agreement Terminate with the Sales Agreement? Neither of the parties raised the issue of whether J & J's transfer of the Sales Agreement to a third party, Water Street Healthcare Partners 2 , and the Agreement's subsequent termination rendered the arbitration clause to be void and unenforceable by J & J. This is a preliminary issue that should be addressed before determining whether there is a valid agreement to arbitrate. In the context of disputes arising under collective bargaining agreements, the U.S. Supreme Court has held that an arbitration clause within a contract does not terminate when the contract is terminated. Specifically, 2 By way of J & J's divestiture of OraPharma to Water Street Healthcare Partners. If the contract does not state that the duty to arbitrate ends with the termination of the contract, the strong policies favoring arbitration should ordinarily lead the court to conclude that the obligation to arbitrateespecially as to claims that accrued during the term of the contractsurvives the expiration of the contract. Butchers, Food Handlers and Allied Workers Union v. Hebrew Nat'l Kosher Foods, Inc., 818 F.2d 283, 287 (2d Cir.1987) (citing Nolde Bros. v. Local No. 358, Bakery & confectionary Workers Union, 430 U.S. 243, 250–51, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977). See also Emery Air Freight Corp. v. Local Union 295, 786 F.2d 93, 97–98 (2d Cir.1986). 3 3 See infra D.1. New York law governs contract formation and interpretation of the Sales Agreement. *4 Here, the arbitration clause does not expressly state that the right to arbitrate terminates once the Sales Agreement is terminated. Additionally, OCPI's claims against defendants arose during the term of the Agreement. Thus, consistent with the strong policy in favor of arbitration, the arbitration clause in the Sales Agreement is still enforceable for OCPI's claims arising during the term of the Agreement, even though the Agreement has since terminated. D. Is There A Valid Agreement to Arbitrate? The defendants acknowledge that they are not signatories to the Sales Agreement, but argue that they can compel OCPI to arbitrate on two grounds: (1) JJCCI is a party to the Sales Agreement by virtue of OraPharma's oral assignment of certain rights and obligations under the Agreement to JJCCI, and (2) the principle of equitable estoppel applies to prevent OPCI from avoiding the arbitration clause, and allows defendants to compel arbitration as non-signatories to the Sales Agreement. 1. Assignment to JJCCI Defendants argue that OraPharma orally assigned certain rights and obligations under the Sales Agreement to JJCCI as an Affiliate, which establishes JJCCI as a party under the Agreement. The defendants rely on the assignment clause, which, in relevant part, provides that This Agreement, or any of the rights and obligations created herein, shall not be assigned or transferred, in whole or in part, by either Party hereto without the prior written consent of the other Party; provided, however, that OraPharma shall have Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 94 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 the right to assign any or all of its rights or obligations under this Agreement to any Affiliate, or a successor to that part of its business to which this Agreement relates, without such prior written consent ... [T]his Agreement shall bind and inure to the benefit of the Parties hereto and their respective successors and assigns. OCPI argues that there is no evidence that an oral assignment was ever made from OraPharma to JJCCI. OCPI relies on Property Asset Mgmt., Inc. v. Chicago Title Ins. Co. to demonstrate that defendants have not satisfied their burden of proving the existence of an assignment because under New York law “there is a need for some ‘act or words' that manifest an intent to assign.” 173 F.3d 84, 87 (2d Cir.1999). To decide the construction of the contract language, the Court will look to the state law principles that governed contract formation. Century Indem. Co., 584 F.3d at 524. Here, New York law governs the Sales Agreement. Sales Agreement § 14.12. Under New York law, an oral assignment of contractual rights is valid provided there is consideration between the parties. Martha Graham Sch. & Dance Found., Inc. v. Martha Graham Ctr. Of Contemporary Dance, Inc., 380 F.3d 624, 643–44 (2d Cir.2004). In the absence of a written assignment agreement, the court can look to other evidence of the assignment including testimony from an employee regarding the contractual rights that had been assigned. Id. Additionally, for an assignment to be valid under New York law, “no particular words are necessary ... it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned.” Leon v. Martinez, 84 N.Y.2d 83, 88, 614 N.Y.S.2d 972, 638 N.E.2d 511 (N.Y.Ct.App.1994) (emphasis added). *5 The Sales Agreement permits OraPharma to assign its rights to any Affiliate without prior written consent. The Agreement defines “Affiliate” as “any Person [including corporations] that directly or indirectly controls, is controlled by or is under common control with such Party.” Sales Agreement § 1.01(c). JJCCI, as an operating subsidiary for J & J's consumer healthcare products unit, is under common control by J & J, as is OraPharma, and can be deemed an “Affiliate” within the meaning of the Agreement. Furthermore, a JJCCI employee certified to the functions that were assigned from OraPharma to JJCCI while the Agreement was in effect, and even after J & J's divestiture of OraPharma. The assigned functions included the development of marketing plans (Sales Agreement § 2.01); review of marketing materials (Sales Agreement § 2.03(b)(vii), 6.01(b)); regulatory compliance (Sales Agreement § 2.03(c) (iv); customer information (Sales Agreement § 2.05); and quality control (Sales Agreement Ex. E). JJCCI also certified that OraPharma reimbursed JJCCI for the assigned functions that JJCCI employees performed, which constitutes valid consideration for the assignment. Thus, JJCCI has demonstrated a “perfected transaction” between OraPharma, as the assignor, and JJCCI, as the assignee, to perform certain rights and obligations during the course of the Sales Agreement. Accordingly, JJCCI is bound to the Sales Agreement by virtue of the assignment. 2. Equitable Estoppel Courts have held that a non-signatory may compel a signatory to arbitration so long as the non-signatory is bound to the arbitration agreement by ordinary principles of contract and agency law such as third party beneficiary, a principal-agent relationship, and equitable estoppel. E.I. DuPont, 269 F.3d at 194; see also Thomson–CSF, S.A. v. American Arbitration Assoc., 64 F.3d 773, 778 (2d Cir.1995). Here, the defendants argue that they can compel OCPI to arbitration based on the principle of equitable estoppel. OCPI argues that it would be inequitable to allow the defendants to enforce an arbitration agreement as a non-signatory when OCPI's claims are a result of defendants' alleged tortious conduct, which is independent of the Sales Agreement. Courts generally follow one of two theories to bind a non- signatory to an arbitration agreement under the principle of equitable estoppel. See, e.g., E.I. DuPont, 269 F.3d at 199. Under the first theory, courts have bound a non- signatory to an arbitration agreement where the non- signatory attempts to exploit certain provisions within a contract, but denies being bound to the arbitration clause within that contract. Id. at 200. Under this theory, the non- signatory is estopped from rejecting the arbitration clause while accepting other provisions within the contract. Id. Under the second theory, a non-signatory to the arbitration agreement may compel a signatory to arbitrate a dispute once the court has assessed that (1) there is a close relationship between the entities involved, (2) the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 95 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 relationship of the alleged wrongs to the non-signatory's obligations and duties in the contract, and (3) the claims were intertwined with the underlying contractual obligations. Id. at 201 (citing Thomson–CSF, S.A., 64 F.3d at 776. The second theory of equitable estoppel requires a fact specific analysis of those three factors. JLM Indus. v. Stolt–Nielsen, S.A., 387 F.3d 163, 177–78 (2d Cir.2004). The Court will evaluate whether equitable estoppel under the second theory applies to the present matter. *6 Courts have applied the second theory of equitable estoppel to cases that are factually similar to the present matter. The defendants relied on the following cases in support of its argument that they may compel OCPI to arbitration. In most of these cases, the court declined to apply equitable estoppel, but the cases establish the general proposition that a non-signatory may compel a signatory to arbitrate a dispute after careful review of the relationship among the parties, the contracts they signed, and whether the dispute is related to that contract. See JLM Indus., 387 F.3d at 177. OCPI's attempts to distinguish each of these cases from the present matter is unavailing because each case is analyzed on its own set of facts. In E.I. Dupont, the court held that a signatory can be estopped from avoiding arbitration with a non- signatory when the issues to be resolved in arbitration are intertwined with the contract. 269 F.3d at. 202; see also Thomson–CSF, 64 F.3d at 779. The court declined to apply equitable estoppel because the court found that the plaintiff's claims for breach of an oral agreement and fraudulent misrepresentations occurred much later in time than the execution of the contract, and therefore the claims were not sufficiently intertwined with the contract containing the arbitration clause. Id. In PNY Technologies v. Samsung Elec. Co., Ltd., the court applied the fact specific analysis and held that a non-signatory, that was an affiliate of a signatory, may compel arbitration where the arbitration clause in one agreement extended to the dispute that arose under another agreement between the parties. No. 10–4587, 2011 WL 900154 (D.N.J. March 14, 2011). The court estopped PNY from avoiding arbitration because PNY selectively chose to differentiate its claims against Samsung and its affiliates in an effort to avoid the arbitration clause. Id. at *8. Defendants also rely on Orange Chicken, L.L.C. v. Nambe Mills, Inc., to demonstrate that equitable estoppel under the second theory is recognized in the Second Circuit. No. No. 00 civ. 4730, 2000 WL 1858556 (S.D.N.Y. Dec.19, 2000). After applying the fact specific analysis, the court held that equitable estoppel did not apply because plaintiff's claims for false advertising and disparagement against its retail competitor defendants were unrelated to plaintiff's license and sales agreement with a mutual third party. In Denney v. Jenkens & Gilchrist, the court held that for claims to be intertwined with the contract then “[a]t a minimum, the signatory's claims must ‘make [ ] reference to or presume [ ] the existence of the written agreement.’ “ 412 F. Supp .2d 293, 298 (S.D.N.Y.2005) (quoting JLM Indus., 387 F.3d at 178). The court also noted that the purpose of equitable estoppel is to prevent a plaintiff from relying on a contract to establish a claim, but then rejecting that contract's arbitration clause. Id. at 298. Ultimately, the court held that the plaintiff's claims were not intertwined with the contract because even if the contract was void, invalid or unenforceable, the plaintiff's claims against the non- signatory could still proceed. *7 Upon review of OCPI's allegations in its complaint, the relationship of the parties, the Sales Agreement, and the issues in dispute, the Court finds that the defendants may compel OCPI to arbitration based on the principle of equitable estoppel. First, as to the relationship between the entities involved, OCPI entered into the Sales Agreement with OraPharma, a subsidiary of J & J, and OraPharma assigned certain rights and obligations under the Agreement to JJCCI, also a subsidiary of J & J, and an Affiliate to OraPharma within the meaning of the Sales Agreement. Therefore, a “close relationship” exists among OCPI, J & J and JJCCI. Second, the alleged wrongs of defendants, as non-signatories to the Agreement, are directly related to OraPharma's obligations under the Agreement. Specifically, OCPI's fundamental argument is that OraPharma was unable to perform its obligations under the Agreement because of defendants' tortious conduct. Third, OCPI has asserted three common law claims against defendants for fraudulent inducement to enter into the Sales Agreement, tortious interference with the Sales Agreement, and civil conspiracy. Each of OCPI's claims make reference to and requires the existence of the Sales Agreement. See Denney, 412 F.Supp.2d at 298; JLM Indus., 387 F.3d at 178. Thus, OCPI's claims are sufficiently intertwined with the underlying contractual obligations in the Sales Agreement. The court finds that the facts in this case satisfy the three factor analysis to equitably estop OCPI from avoiding arbitration with the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 96 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 defendants. Accordingly, there is a valid agreement to arbitrate between the parties in this action. E. The Scope of the Agreement Having determined that there is a valid agreement to arbitrate that can be enforced between OCPI and the defendants, the next inquiry is whether OCPI's claims fall within the scope of the arbitration clause. To determine whether particular claims fall within the scope of an arbitration clause, courts focus on the factual allegations in the complaint rather than the legal causes of action asserted. Mitsubishi Motors Corp. v. Soler Chrysler– Plymouth Inc., 473 U.S. 614, 622 n. 9, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). If the underlying factual allegations in the complaint “touch matters” covered by the contract containing the arbitration clause, then those claims are arbitrable, notwithstanding the legal labels for those claims. Id. at 625 n. 13. Applying this standard to the present matter, the Court finds that each of OCPI's claims are arbitrable as a matter of law. OCPI's complaint alleges that J & J fraudulently induced OCPI to enter into the Sales Agreement with OraPharma; J & J tortiously interfered with the Sales Agreement causing OraPharma to breach that Agreement; and J & J and JJCCI conspired to fraudulently induce OCPI to enter into the Sales Agreement. Compl. ¶¶¶ 64, 69–70, 76–77. OCPI alleges that defendants' tortious conduct was for the purpose of suppressing sales and public awareness of the OralCDx Brush in order to protect sales of Listerine, which may have a causal link to oral cancer. Compl. ¶ 1. Legal labels aside, the essence of OCPI's complaint is that because of defendants' actions, OraPharma breached the terms of the Sales Agreement by not marketing and distributing the OralCDx Brush. These factual allegations necessarily “touch matters” covered by the Sales Agreement, including contract formation, interpretation, and performance. *8 The Court further finds that the arbitration clause is sufficiently broad to encompass all of OCPI's claims against defendants. The arbitration clause states in relevant part, Any controversy or claim arising out of or relating to this Agreement shall be resolved by arbitration before a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association ... The arbitration shall be held in New York and the arbitrator shall apply the substantive law of New York, except that the interpretation and enforcement of this arbitration provision shall be governed by the Federal Arbitration Act ... EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL O F ANY ISSUE BY JURY. Sales Agreement § 14.02. In furtherance of the strong policy in favor of arbitration, any doubts as to whether a dispute is covered by an arbitration agreement is resolved in favor of arbitration. Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir.2000) (citing A T & T Techs., Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). The arbitration clause provides that “any controversy or claim arising out of or relating to this Agreement” must be resolved by arbitration. Sales Agreement § 14.01. Generally, arbitration clauses that have phrases such as ‘arising under’ and ‘arising out of’ are given broad construction. Id. In light of the presumption in favor of arbitration and the broad construction of the arbitration clause under the Sales Agreement, OCPI's claims are properly within the scope of the arbitration clause. OCPI has attempted to distinguish its claims against defendants as independent tort claims that are unrelated to the Sales Agreement and therefore not subject to the Agreement's arbitration clause. The Second and Third Circuits have rejected OCPI's strategy to distinguish tort claims from breach of contract claims to avoid arbitration agreements. The Third Circuit has held that “[i]t is well established that where separate tort claims arise out of the same facts as the breach of contract claim, a broadly worded arbitration provision covers such claims.” U.S. Claims, Inc. v. Saffren & Weinberg, LLP, No. 07–0543, 2007 WL 4225536 (E.D.Pa. Nov.29, 2007). The Second Circuit has held that a “[p]laintiff cannot avoid the broad language of the arbitration clause by casting its complaint in tort” when the claim is based on a breach of contract. Altshul Stern & Co., Inc. v. Mitsui Bussan Kaisha, Ltd., 385 F.2d 158, 159 (2d Cir.1967) (holding that a civil conspiracy claim was arbitrable because it was based on a breach of contract claim). It is also well established that fraudulent inducement claims have been held to be arbitrable as a Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 97 of 133 Oral Cancer Prevention Intern., Inc. v. Johnson & Johnson, Not Reported in F.Supp.2d... 2011 WL 6130599 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 matter of law. Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 854 (2d Cir.1987) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402–07, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)); see also Smith/Enron Cogeneration L.P., Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 99 (2d Cir.1999). Accordingly, OCPI's claims of fraudulent inducement, tortious interference, and civil conspiracy against defendants are common law torts that are directly related to OraPharma's breach of the contract. OCPI cannot avoid the Agreement's mandate to arbitrate claims by simply failing to bring a breach of contract claim against OraPharma. The court finds that without an alleged breach of the Agreement, OCPI would not have a foundation for its present claims against defendants. III. CONCLUSION *9 For the reasons set forth above, the defendants' motion to compel arbitration and stay this litigation is granted. The defendants, as non-signatories to the Sales Agreement can compel plaintiff to arbitrate its claims consistent with the arbitration clause under the Sales Agreement under a theory of equitable estoppel. The Court will enter an order enforcing the arbitration clause in the Sales Agreement so that plaintiff's claims for fraudulent inducement, tortious interference, and civil conspiracy against defendants are held to be arbitrable as a matter of law. ORDER IT IS on this 7th day of December, 2011 ORDERED that defendants' motion to compel arbitration and stay the litigation is GRANTED. The arbitration clause in the Sales Agreement is enforced and plaintiff's claims are arbitrable as a matter of law; and it is further ORDERED that the Clerk administratively terminate this action without prejudice. The parties have the right to reopen the proceedings for good cause shown for the entry of any stipulation or order, or for any other purpose required to obtain a final determination of the litigation. All Citations Not Reported in F.Supp.2d, 2011 WL 6130599 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 98 of 133 M Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 99 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2011 WL 900154 Only the Westlaw citation is currently available. NOT FOR PUBLICATION United States District Court, D. New Jersey. PNY TECHNOLOGIES, INC., Plaintiff, v. SAMSUNG ELECTRONICS CO., LTD. and Samsung Semiconductor Europe GmbH, Defendants. PNY Technologies, Inc., Plaintiff, v. Samsung Electronics America, Inc., Defendant. Civil Action Nos. 10–4587 (SRC) (MAS), 10–6803(SRC)(MAS). | March 14, 2011. Attorneys and Law Firms James S. Richter, Jeffrey P. Catenacci, Winston & Strawn, LLP, Newark, NJ, Michael S. Elkin, Winston & Strawn LLP, New York, NY, for Plaintiff. Jason O. Braiman, Glenn S. Kerner, Goodwin Procter LLP, New York, NY, for Defendants. OPINION CHESLER, District Judge. *1 This matter comes before the Court on four motions in these two cases: 1) in Civil Action No. 10–4587, the motion to dismiss by Defendant Samsung Semiconductor Europe GmbH (“SSEG”); 2) in Civil Action No. 10– 4587, the motion to dismiss by Defendant Samsung Electronics Co., Ltd. (“SECL”); 3) in Civil Action No. 10–6803, the motion to dismiss by Defendant Samsung Electronics America, Inc. (“SEAI”); and 4) in Civil Action No. 10–6803, the motion to remand by Plaintiff PNY Technologies, Inc. (“PNY”). This Court heard oral argument on these motions on February 15, 2011. For the reasons stated below, the three motions to dismiss will be granted to the extent that these cases shall be stayed pending arbitration, and the motion to remand will be denied. BACKGROUND These two cases arise from a dispute between two electronics manufacturers, Samsung and PNY Technologies, Inc. (“PNY.”) SSEG, SECL, and SEAI are all Samsung companies, and for convenience in this Opinion, unless the distinction between these entities is material, they will be generally referred to as “Samsung.” The complaints in both cases allege that a nondisclosure agreement was executed by PNY and SSEG in 2008. On September 8, 2010, PNY filed a complaint (the “FC Complaint”) against SSEG and SECL in this Court, Civil Action No. 10–4587, complaining generally of disclosure of confidential information in breach of the agreement. On October 19, 2010, PNY filed a complaint (the “SC Complaint”) against SEAI in the Superior Court of New Jersey, making generally similar allegations. On December 22, 2010, SEAI removed the pending state court action to this Court, and it became Civil Action No. 10– 6803. The Samsung entities have brought three motions to dismiss in the two cases, generally contending that the complaints must be dismissed because PNY is obligated to arbitrate these disputes. PNY has moved to remand the removed case. ANALYSIS I. Relevant legal standard A. Motions for summary judgment Summary judgment is appropriate under FED. R. CIV. P. 56(a) when the moving party demonstrates that there is no genuine issue of material fact and the evidence establishes the moving party's entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence ‘is to be believed and all justifiable inferences are to be Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 100 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 drawn in his favor.’ ” Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir.2004) (quoting Anderson, 477 U.S. at 255). “When the moving party has the burden of proof at trial, that party must show affirmatively the absence of a genuine issue of material fact: it must show that, on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the non-moving party.” In re Bressman, 327 F.3d 229, 238 (3d Cir.2003) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir.1991)). “[W]ith respect to an issue on which the nonmoving party bears the burden of proof ... the burden on the moving party may be discharged by ‘showing’—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case.” Celotex, 477 U.S. at 325. *2 Once the moving party has satisfied its initial burden, the party opposing the motion must establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v. Lacey Township, 772 F.2d 1103, 1109 (3d Cir.1985). The party opposing the motion for summary judgment cannot rest on mere allegations and instead must present actual evidence that creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130–31 (3d Cir.1995). “[U]nsupported allegations ... and pleadings are insufficient to repel summary judgment.” Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir.1990). “A nonmoving party has created a genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at trial.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir.2001). If the nonmoving party has failed “to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial, ... there can be ‘no genuine issue of material fact,’ since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir.1992) (quoting Celotex, 477 U.S. at 322–23). II. The motions to dismiss Although Defendants have framed their motions as motions to dismiss, this Court finds them to be motions to compel arbitration. “A district court decides a motion to compel arbitration under the same standard it applies to a motion for summary judgment.” Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 620 (3d Cir.2009). These motions will be decided under the summary judgment standard. As to the motion to dismiss in the removed case, PNY opposes it as, inter alia, an unwarranted motion for reconsideration of a motion to dismiss which was already made in state court and denied. As Samsung contends, however: Federal courts are courts of limited jurisdiction, and when there is a question as to our authority to hear a dispute, it is incumbent upon the courts to resolve such doubts, one way or the other, before proceeding to a disposition on the merits. Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418 (3d Cir.2010) (quotation omitted). Because Defendants' motions question this Court's authority to hear these disputes, it is appropriate for this Court to consider this matter and to decide the motions before it. 1 1 The Court notes that the state court action was removed based on federal question jurisdiction, pursuant to 9 U.S.C. § 205, as a case relating to the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards.” Thus, in order to determine whether “arising under” jurisdiction exists, this Court must necessarily determine whether the parties are covered by the arbitration provisions. In making a jurisdictional decision, this Court cannot be bound by the state court's prior denial without prejudice of a motion to dismiss. “Before compelling a party to arbitrate pursuant to the FAA, a court must determine that (1) there is an agreement to arbitrate and (2) the dispute at issue falls within the scope of that agreement.” Century Indem. Co. v. Certain Underwriters at Lloyd's, 584 F.3d 513, 523 (3d Cir.2009). The parties do not dispute the relevant history of executed agreements: 1) on May 6 and July 17, 2008, PNY and SSEG executed the Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 101 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 “PNY Mutual Confidentiality and Non–Disclosure Agreement” (“NDA”); 2) on July 7, 2008, the parties executed the “Memorandum of Understanding Regarding Strategic Supply Cooperation” (“MOU”); 3) on February 6, 2009, the parties executed the “Business Agreement Regarding Strategic Supply Cooperation” (“2009 Agreement”); and 4) on or about January 21, 2010, the parties executed the “Volume Agreement for Memory Products” (“2010 Agreement.”) The NDA contains no express arbitration provision, while the three other agreements contain express arbitration provisions. *3 In short, Samsung moves to compel arbitration on the basis of the arbitration provisions in the three agreements that contain them. PNY, in short, opposes the motions on the ground that it has filed suit for breach only of the NDA, which contains no arbitration provision. Thus, PNY contends, it did not agree to arbitrate this dispute. This Court finds PNY's position unpersuasive, for the following reasons. The FC Complaint, filed in Civil Action No. 10– 4587, in summary, alleges that PNY disclosed to Samsung confidential information which Samsung has misappropriated, in breach of the NDA. The FC Complaint alleges specific disclosures to Samsung during the period from March 3, 2009 through April 21, 2010. The SC Complaint, filed in state court, and removed to this Court, makes similar general allegations but does not allege specific disclosures on specific dates. PNY does not contend, however, that the removed case concerns conduct that differs from that alleged in Civil Action No. 10–4587. PNY seeks, by artful pleading, to prevent this Court from considering any agreement other than the NDA. As Samsung contends, however, the claims PNY makes against it cannot be divorced from the subsequent agreements: the MOU, the 2009 Agreement, and the 2010 Agreement. The primary problem for PNY is that, as alleged in the FC Complaint, the disclosures made in 2009 and 2010 appear to come within the scope of the confidentiality provisions contained in the MOU and in the 2009 and 2010 Agreements. PNY has agreed to arbitrate disputes arising from those agreements. It appears that PNY wishes to argue that the disclosures it complains of do not come within the scope of those agreements, and yet PNY has not given this Court any basis to arrive at this conclusion—except for the fact that its complaints do not mention any agreements subsequent to the NDA. As already stated, there is no dispute that PNY entered into the subsequent agreements. In support of its position, Samsung cites the nonprecedential decision in In re NBR Antitrust Litig., 207 Fed. Appx. 166, 171 (3d Cir.2006), in which the Third Circuit held: “Even when a claim arises under a contract which contains no arbitration clause, that claim still may be arbitrated when the allegations underlying it ‘touch matters' covered by an arbitration clause.” While NBR may be nonprecedential, the Third Circuit has held the same in precedential cases, such as Brayman Constr. Corp. V. Home Ins. Co. ., 319 F.3d 622, 626 (3d Cir.2003). In Brayman, an insurance policy contained no arbitration provision, but a subsequent separate agreement between the insurer and the insured contained one. Id. at 623. The district court denied a motion to compel arbitration, and the Third Circuit reversed. Id. at 624. The Third Circuit examined the arbitration provision and determined that it was “broad in scope,” and that the dispute between the parties came within its scope. Id. at 625. Moreover, the Third Circuit held that any ambiguities or uncertainties surrounding the question of whether a particular dispute comes within the scope of an arbitration clause should be resolved in favor of arbitration. Id. *4 The insured in Brayman argued that its claims arose under the insurance policy, rather than under the subsequent agreement, and that, therefore, its claims were not within the scope of the arbitration provision. Id. The Third Circuit rejected this argument, holding: “If the allegations underlying the claims touch matters covered by an arbitration clause in a contract, then those claims must be arbitrated, whatever the legal labels attached to them.” Id. at 626 (quotation omitted). Because the Third Circuit determined that the allegations underlying the claims touched matters covered by the arbitration clause in the later agreement, it found that the dispute was arbitrable and that arbitration was mandatory. Id. Brayman controls the outcome of the instant matter. Following Brayman, this Court first inquires as to whether the allegations underlying the claims touch matters covered by an arbitration clause in a contract. The allegations underlying Plaintiff's claims in both cases concern breach of duties to keep information confidential in 2009 and 2010. The MOU provides for confidentiality Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 102 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 obligations regarding information exchanged during the period from July 7, 2008 through March 31, 2009, and the definition of confidential information is broad in scope: “ ‘Confidential Information’ means any non-public information, data, and other materials regarding the products, services or business of a party ...” (Kerner Dec. Ex. B at § 4) (emphasis added). The arbitration provision is similarly broad in scope: “If a dispute, controversy or difference is not amicably settled, it shall be finally resolved in accordance with the Rules of Arbitration of the International Chamber of Commerce.” 2 (Kerner Dec. Ex. B at § 6(f).) Plaintiff's allegations regarding the disclosure of confidential information exchanged in March of 2009 touch matters covered by the MOU's arbitration clause. 2 The three agreements which contain arbitration provisions contain this identical sentence. The 2009 Agreement also provides for confidentiality obligations regarding information exchanged during the period from January 1, 2009 through December 31, 2009, and uses the same definition of confidential information and the same arbitration provision. (Kerner Dec. Ex. C.) Plaintiff's allegations regarding the disclosure of confidential information exchanged in 2009 touch matters covered by the 2009 Agreement's arbitration clause. The 2010 Agreement also provides for confidentiality obligations regarding information exchanged during the period from January 1, 2010 through December 31, 2010, but does so by incorporating by reference the NDA, which contains the same definition of confidential information as the other agreements. (Kerner Dec. Ex. D .) The 2010 Agreement contains the same arbitration provision as the 2009 Agreement. (Id.) Plaintiff's allegations regarding the disclosure of confidential information exchanged in 2010 touch matters covered by the 2010 Agreement's arbitration clause. This Court finds that Plaintiff's allegations regarding the disclosure of confidential information touch matters covered by an arbitration clause in three agreements. Under Brayman, both of Plaintiff's cases before this Court are arbitrable and arbitration is mandatory. *5 Furthermore, the Supreme Court has established that: where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that [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. Doubts should be resolved in favor of coverage. AT & T Techs. v. Communs. Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quotation omitted). Plaintiff here has failed to rebut the presumption of arbitrability: it has not persuaded this Court that it may be said with positive assurance that none of the arbitration provisions in the three agreements are susceptible of an interpretation that covers the asserted dispute. Rather, Plaintiff has offered nothing that even raises a doubt or question as to whether the conduct complained of comes within the scope of the arbitration provisions in the three agreements. Plaintiff's disputes are arbitrable and an order to arbitrate may not be denied. Plaintiff's opposition briefs relegate Brayman to a footnote, relying primarily on the Third Circuit's decision in Battaglia v. McKendry, 233 F.3d 720, 728 (3d Cir.2000). Like Brayman, Battaglia involved two agreements, one containing and one lacking an arbitration provision. Id. At issue was the question of whether the arbitration clause in one agreement reached disputes which arose under the other agreement—a question which, in the abstract, seems to be the same as the question presently before this Court. There is, however, a crucial distinction, since the issue on appeal in Battaglia turned on the question of whether the agreements were interdependent documents: [T]he District Court found that all disputes between the parties —including those relating to the Consulting Agreement—were subject to the Arbitration Clause. The Court's decision was based on the breadth of the Arbitration Clause and the Court's conclusion, based on the language of the Agreements, that the parties intended for the Settlement and Consulting Agreements to be interdependent and interrelated documents. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 103 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Id. The Third Circuit agreed with the district court that the question at issue was whether the two agreements should be construed as a single integrated agreement, but found that material factual disputes precluded judgment on that question. Id. In the instant case, in contrast, no one has argued that two or more of the agreements should be construed as a single integrated agreement. Battaglia is inapposite. It does not, as Plaintiff implies, stand for the proposition that, as a general rule, factual disputes over the integration of multiple agreements, some of which require arbitration and others of which do not, preclude the grant of a motion to compel arbitration. Brayman, on the other hand, is on point. Even if Plaintiff had raised a substantial question about whether the allegations underlying the claims touch matters covered by an arbitration clause in another contract—which it has not done—the presumption in favor of arbitrability would require that this Court grant the motion to compel arbitration. *6 This Court finds further support for this conclusion in looking at the integration clauses in the agreements. The MOU states: “This MoU constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof.” (Kerner Dec. Ex. B at § 6(j).) A parallel provision appears in the 2009 Agreement. (Kerner Dec. Ex. C at § 6(j).) The 2010 Agreement contains no integration clause. The integration clauses in the MOU and 2009 Agreement show that, for the time period covered by these agreements, July 7, 2008 through December 31, 2009, the NDA was superceded by these agreements. This precludes PNY from persuading that the NDA was the operative agreement during that period. For the period from July 7, 2008 through December 31, 2009, the parties agreed that their entire agreement regarding, inter alia, the disclosure of confidential information, was embodied in two documents, both of which contained arbitration provisions. This Court is authorized by the Federal Arbitration Act to compel arbitration in these two cases: Pursuant to 9 U.S.C. §§ 3–4, a federal court is authorized to compel arbitration if a party to an arbitration agreement institutes an action that involves an arbitrable issue and one party to the agreement has failed to enter arbitration. Harris v. Green Tree Fin. Corp., 183 F.3d 173, 178–179 (3d Cir.1999). These requirements have been met. The motions to compel arbitration will be granted, and the cases will be stayed pending completion of arbitration. PNY contends that, because only SSEG is a signatory to the agreements at issue, SEAI and SECL cannot compel it to arbitrate the disputes against them. PNY alleges that SSEG is a wholly owned subsidiary of SECL. 3 (FC Compl. ¶ 4.) In opposition, Samsung cites E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 201 (3d Cir.2001), as authority for the proposition that, under an equitable estoppel theory, PNY may be obliged to arbitrate claims against non-signatory entities related to the signatory. In DuPont, the Third Circuit summarized the relevant case law as follows: 3 The complaint filed in state court identifies SECL, SSEG, and SEAI as “affiliates.” (SC Compl. ¶ 1.) With reference to the second theory of equitable estoppel, appellants rely on a series of cases in which signatories were held to arbitrate related claims against parent companies who were not signatories to the arbitration clause. In each of these cases, a signatory was bound to arbitrate claims brought by a non- signatory because of the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the non-signatory's obligations and duties in the contract and the fact that the claims were intertwined with the underlying contractual obligations. Id. The Third Circuit then quoted approvingly this language in a decision from the Second Circuit: As these cases indicate, the circuits have been willing to estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 104 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 *7 DuPont, 269 F.3d at 202 (quoting Thomson–CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 779 (2d Cir.1995.)) 4 Such is the case here. PNY and SSEG are the signatories to the agreements. In moving to compel arbitration, non-signatories SECL and SEAI ask this Court to estop a signatory from avoiding arbitration with a non-signatory, and the issues that the non- signatories seek to resolve in arbitration are intertwined with agreements that the signatory has made. PNY does not argue—nor could it reasonably—that its disputes with SECL and SEAI are not intertwined with the agreements between PNY and SSEG. 4 In Thomson, the Second Circuit, after reviewing the cases as quoted above, also stated: “In the line of cases discussed above, the courts held that the parties were estopped from avoiding arbitration because they had entered into written arbitration agreements, albeit with the affiliates of those parties asserting the arbitration and not the parties themselves.” 64 F.3d at 779. This is on all fours with the present case. The SC Complaint alleges that SEAI “intentionally misappropriated PNY's confidential information and trade secrets by inducing Samsung's affiliates—in breach of its Non–Disclosure Agreement with PNY—to disclose PNY's proprietary and confidential information to Samsung.” (SC Compl. ¶ 1.) The gist of the state court complaint is that SEAI misappropriated PNY's confidential information “through its affiliates” and that SEAI “intentionally encouraged its affiliate to breach the NDA by misappropriating PNY's confidential, proprietary and trade secret information.” (SC Compl. ¶¶ 14, 23.) The allegations in the SC Complaint easily fit the pattern of cases identified by the Third Circuit in DuPont: 1) PNY has alleged a close relationship between the entities involved (“affiliates”); 2) the wrongs of SEAI alleged by PNY are directly related to the obligations of SSEG under the contract; and 3) the claims against SEAI are intertwined with the underlying contractual obligations of SSEG. Under DuPont, it is equitable to estop PNY from avoiding arbitration with SEAI, given that the issues that SEAI seeks to resolve in arbitration are intertwined with the agreements that PNY has signed. As for the FC Complaint, although it initially identifies SSEG as a wholly owned subsidiary of SECL, after alleging that the NDA was signed by SSEG, the distinction between the Samsung entities vanishes, and all subsequent factual allegations refer only to “Samsung,” the FC Complaint's term for SSEG and SECL collectively. Turning to the claims, PNY brings Counts One, Two, Three, and Five against SSEG only. PNY brings the Fourth Count, for tortious interference, against both SSEG and SECL, but does not distinguish the two entities in the claim, referring only to “Samsung.” PNY brings the Sixth Count, for misappropriation of trade secrets, against SECL only, contending that SSEG disclosed confidential information, protected by the NDA, to SECL, which has misused the information. PNY brings the Seventh Count, for unfair competition, against both SSEG and SECL, but does not distinguish the two entities in the claim, referring only to “Samsung.” On the whole, then, the FC Complaint substantially blurs the identities of SECL and SSEG. It is only in asserting the Sixth Count that PNY differentiates the wrongful conduct of SSEG from the wrongful conduct of SECL. *8 Considering the FC Complaint in light of DuPont, this case fits the equitable estoppel case pattern identified by the Third Circuit. First, PNY has alleged a close relationship between the entities involved: either they are parent and subsidiary, or they are undifferentiated and treated as a single entity. Second, the wrongs attributed to SECL in Count Six are directly related to the obligations of SSEG under the contract, as are all the other wrongs alleged against the undifferentiated “Samsung.” Third, the claims against SECL are intertwined with the underlying contractual obligations of SSEG. Under DuPont, it is equitable to estop PNY from avoiding arbitration with SECL, given that the issues that SECL seeks to resolve in arbitration are intertwined with the agreements that PNY has signed. In short, PNY asks this Court to differentiate the Samsung affiliate entities when it is beneficial to its legal strategy and to pierce the corporate structure when differentiating the entities is not beneficial to it. PNY cannot have it both ways. This is not equitable and this Court will not allow it. The argument for equitable estoppel here is quite straightforward: PNY is equitably estopped from asserting that the scope of the NDA, an agreement between PNY and SSEG, extends far enough to touch SSEG's corporate relatives SECL and SEAI, but that those corporate relatives may not compel PNY Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 105 of 133 PNY Technologies, Inc. v. Samsung Electronics Co., Ltd., Not Reported in F.Supp.2d... 2011 WL 900154 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 to arbitrate disputes within the scope of its related agreements with SSEG. The entities, agreements, and obligations in these two cases are so interconnected and intertwined that any other decision would promote the chaos and inefficiency of piecemeal litigation. It is both fair and in the interests of justice to require PNY to resolve all of these interconnected disputes in a single arbitration. Having found that the SC Complaint relates to an arbitration agreement which falls under the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” this Court concludes that, pursuant to 9 U.S.C. § 205, removal was proper. The motion to remand will be denied. CONCLUSIONS For the reasons stated above, this Court concludes that the disputes raised by Plaintiff in Civil Action No. 10– 4587 and in Civil Action No. 10–6803 are arbitrable, and are subject to mandatory arbitration. Defendants' three motions to dismiss, construed as motions to compel arbitration, will be granted, and these cases shall be stayed pending completion of arbitration. The motion to remand is denied. All Citations Not Reported in F.Supp.2d, 2011 WL 900154 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 106 of 133 N Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 107 of 133 Roman v. Chesapeake Appalachia, L.L.C., Not Reported in F.Supp.2d (2012) 2012 WL 2076846 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2012 WL 2076846 Only the Westlaw citation is currently available. United States District Court, M.D. Pennsylvania. Larry E. ROMAN and Roberta D. Roman, Plaintiffs v. CHESAPEAKE APPALACHIA, L.L.C., Defendant. No. 3:11cv1614. | June 8, 2012. Attorneys and Law Firms Taunya M. Rosenbloom, Law Office of Taunya Knolles Rosenbloom, Athens, PA, Todd J. O‘Malley, O'Malley & Langan P.C., Scranton, PA, William S. Friedlander, Friedlander, Friedlander & Assoc., Waverly, NY, for Plaintiffs. David R. Fine, Harrisburg, PA, for Defendant. MEMORANDUM JAMES M. MUNLEY, District Judge. *1 Before the court for disposition is Defendant Chesapeake Appalachia, L.L.C.'s motion to compel arbitration or, in the alternative, to dismiss counts II and III and the demands for punitive damages and attorneys fees. (Doc. 3). The matter is fully briefed and ripe for disposition. For the following reasons, the court will compel arbitration. Background Plaintiffs Larry E. Roman and Roberta D. Roman (collectively “plaintiffs”) initiated the instant action on August 29, 2011 with a three count complaint against Defendant Chesapeake Appalachia, L.L .C. (hereinafter “defendant”). (See Doc. 1, Compl. (hereinafter “Compl.”)). In Count I, plaintiffs seek a declaration, pursuant to the Declaratory Judgment Act, 28 U.S.C § 2201, that their oil and gas lease with defendant is no longer in effect. (Id. ¶¶ 29–42). Count I I is a Pennsylvania state law claim for slander of title, in which plaintiffs seek $250,000.00 in damages. (Id. ¶¶ 43–51). Count III is a Pennsylvania state law claim for breach of covenant of good faith and fair dealing, in which plaintiffs demand $250,000.00 in compensatory damages and $250,000.00 in punitive damages for defendant's alleged bad faith. (Id. ¶¶ 52–62). The well-pleaded facts alleged in the complaint are summarized as follows. On January 19, 2001, plaintiffs executed an “Oil and Gas Lease” (hereinafter “the lease”) with Central Appalachian Petroleum. (Id. ¶ 7; Doc. 1–2, Ex. A, Oil & Gas Lease). This lease provides the lessee with exclusive rights to “all the oil and gas and their constituents, whether hydrocarbon or non-hydrocarbon, underlying” plaintiffs land in Ulster Township, Bradford County, Pennsylvania. (Doc. 1–2, Ex. A, Oil & Gas Lease). The lease also grants the lessee with the rights to drill, explore, construct roads, lay pipelines, store natural resources and otherwise make use of its right to the oil and natural gas on the land. (Id.) Approximately 135.88 acres of plaintiffs' property is subject to this lease. (Id.; Compl. ¶ 10). Some time after executing the lease, Central Appalachian Petroleum assigned its interest in the lease to defendant. (Compl.¶ ¶ 8–9). The lease has a primary term of ten years, commencing on January 19, 2001. (Id. ¶ 12; Doc. 1–2, Ex. A, Oil & Gas Lease). The lease provides that the primary term of ten years would be extended “for as long thereafter as operations are conducted on the Leasehold in search of or production of oil, gas, or their constituents, or for as long as a well capable of production is located on the Leasehold, or for as long as extended by provision herein, or for as long as the Leasehold is used for underground storage of gas, or for the protection of stored gas.” (Doc. 1–2, Ex. A, Oil & Gas Lease). Plaintiffs contend that “[n]o drilling, exploration, production, transportation or storage operation sufficient to extend the Lease has been conducted on the plaintiffs' leasehold by the Lessee or any successor including defendant Chesapeake” since the lease was executed. (Compl.¶ 14). *2 The lease contains two other provisions that are particularly pertinent to this action. The first of these provisions provides that the leasehold, or a portion of the leasehold, could be “unitized.” (Id. ¶ 15). This unitization provision grants the lessee the “right to pool, unitize, or combine all or parts of the Leasehold with other lands, whether contiguous or not contiguous, leased or unleased, whether owned by Lessee or by others, at a time before or after drilling to create drilling or production units either by contact right or pursuant to government ase 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 108 of 133 Roman v. Chesapeake Appalachia, L.L.C., Not Reported in F.Supp.2d (2012) 2012 WL 2076846 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 authorization.” (Doc. 1–2, Ex. A, Oil & Gas Lease). The lease provides that the lessor will receive a proportional share of the royalties if the lessor's property is unitized. (Id.; Compl. ¶ 17). If the lessor's property is placed into a unit, “the drilling, operations in preparation for drilling, production from, or payment for Royalty, Shut- in Royalty, or Delay in Marketing for a well on such a unit shall have the same effect upon the terms of this Lease as if a well were located on the Leasehold.” (Doc. 1–2, Ex. A, Oil & Gas Lease). The second provision of this lease that is pertinent to this action is the arbitration clause, which provides as follows: ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this lease, performance thereunder, or damages caused by Lessee's operations, settlement shall be by a panel of three disinterested arbitrators. Lessor and Lessee shall appoint and pay the fee of one each, and the two so appointed shall appoint the third, whose fee shall be borne equally by Lessor and Lessee. The award shall be by unanimous decision of the arbitrators and shall be final. (Doc. 1–2, Ex. A, Oil & Gas Lease). On January 18, 2011, at 4:56 p.m., defendant filed a unitization declaration with the Bradford County Recorder of Deeds. (Compl. ¶ 19; Doc. 1–3, Ex. B, Decl. & Notice of Pooled Unit). This pooled unit, named the “Wasyl Unit,” includes a portion of plaintiffs' leased property. (Compl.¶¶ 19–20). Plaintiffs allege that defendant was aware, or should have been aware, that the primary term of the lease was going to expire and no “operations” triggering an extension of the lease had been conducted. (Id. ¶ 22). Plaintiffs contend that defendant filed the declaration of the Wasyl Unit on the eve of the expiration of the primary term of the lease in an attempt to extend the term. (Id. ¶¶ 21–22). Plaintiffs further posit that insufficient operations were conducted on the leasehold property and on the Wasyl Unit to trigger an automatic extension under the lease, that their property cannot be considered a part of the Wasyl Unit as a matter of law and public policy, and that defendant's unlawfully clouded the title to plaintiffs' property. (Id. ¶¶ 23–25). Defendant responded to plaintiffs complaint with a motion to compel arbitration, or, in the alternative, to dismiss plaintiffs' Pennsylvania state law claims for slander of title and bad faith and to strike plaintiffs' requests for attorney's fees and punitive damages. (See Doc. 3). The parties fully briefed the issues, bringing the case to its current posture. Jurisdiction *3 The court has jurisdiction pursuant to the diversity statute, 28 U.S.C. § 1332. Plaintiffs Larry Roman and Roberta Roman are citizens and residents of the Commonwealth of Pennsylvania. (Compl.¶ 1). Defendant Chesapeake Appalachia, L.L.C. is an Oklahoma limited liability company with a business address in Oklahoma. (Id. ¶ 2). Because complete diversity of citizenship exists among the parties and the amount in controversy exceeds $75,000.00, the court has jurisdiction over the case. See 28 U.S.C. § 1332. Because we are sitting in diversity, the substantive law of Pennsylvania shall apply to the instant case. Chamberlain v. Giampapa, 210 F.3d 154, 158 (3d Cir.2000) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). Legal Standard The question in this case is whether the parties should be compelled to arbitrate this dispute. Both Federal and Pennsylvania state law strongly favor the enforcement of arbitration provisions. 1 See Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.2009) (“It is well established that the Federal Arbitration Act (FAA), reflects a ‘strong federal policy in favor of resolution of disputes through arbitration.’ ” (quoting Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir.2003))); Dodds v. Pulte Home Corp., 909 A.2d 348, 351 (Pa.Super.Ct.2006) (“It is hornbook law that Pennsylvania favors the enforceability of agreements to arbitrate.” (citing Quiles v. Fin. Exch. Co., 897 A.2d 281, 285 (Pa. Super.Ct.2005))). Contracts with an arbitration clause are treated with a “presumption of arbitrability in the sense that ‘[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not suceptible to an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.’ ” AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582–83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). ase 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 109 of 133 Roman v. Chesapeake Appalachia, L.L.C., Not Reported in F.Supp.2d (2012) 2012 WL 2076846 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 1 Another court sitting in this district has held that, when it comes to oil and gas leases, Pennsylvania law, and not the FAA, applies. See Ulmer v. Chesapeake Appalachia, L.L.C., No. 4:08–cv–2062 (Doc. 11), slip op. at 4 (M.D.Pa. Jan. 16, 2009). Defendant disputes whether the holding in Ulmer is applicable in the instant case. (See Doc. 5, Br. in Supp. of Def.'s Mot. to Compel Arbitration at 5 n.2). The court need not resolve this dispute because the FAA and the Pennsylvania Uniform Arbitration Act determine the scope of arbitration provisions similarly. See State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 n. 1 (3d Cir.2000) (“[T]here is no meaningful difference between federal and Pennsylvania law when reviewing the scope of an arbitration clause.”). Courts applying either Federal and Pennsylvania state law conduct the same two part inquiry to determine the enforceability of arbitration provisions. First, the court must determine whether “a valid agreement to arbitrate exists,” and, second, whether “the particular dispute falls within the scope of the agreement.” Kirleis, 560 F.3d at 160; see also Messa v. State Farm Ins. Co., 433 Pa.Super. 594, 641 A.2d 1167, 1168 (Pa.Super.Ct.1994). “A party to a valid and enforceable arbitration agreement is entitled to a stay of federal court proceedings pending arbitration as well as an order compelling such arbitration.” Alexander, 341 F.3d at 263–64; see also 9 U.S.C. §§ 3, 4. Discussion The parties to the instant dispute agree that a valid agreement to arbitrate exists, thus satisfying the first step of the two-step process described in Kireleis v. Dickies, McCamey & Chikote, P.C. and Messa v. State Farm Insurance Company. (See Doc. 5, Br. in Supp. of Def.'s Mot. to Compel Arbitration at 6; Doc. 7, Br. in Opp'n to Def.'s Mot. to Compel Arbitration at 3). The parties dispute the second prong, whether the particular dispute falls within the scope of the arbitration agreement. *4 First, plaintiffs argue that the issue of arbitration is moot because the primary lease term expired on January 18, 2011 and because “plaintiffs' claims relate to conduct independent of the lease....” (Doc. 7, Br. in Opp'n to Def.'s Mot. to Compel Arbitration at 3). Plaintiffs do not support this argument with case law. In fact, plaintiffs temper their contention that the expiration of the lease term voids the arbitration clause by recognizing precedent from this district in direct contrast with their position. See Beinlich v. Chesapeake Appalachia LLC, No. 3:11–cv–566 (Doc. 13) (M.D.Pa. May 31, 2011) (order granting motion to compel arbitration). Like the court in Beinlich, we find that the agreement to arbitrate does not expire with the alleged termination of the lease term. The court further agrees that “it makes no sense to allow a plaintiff (sic) to avoid arbitration by arguing that the lease has expired when the very issue of the litigation is whether the lease remains in effect.” (Doc. 9, Reply Br. in Supp. of Def.'s Mot. to Compel Arbitration at 2). Second, plaintiffs contend that the arbitration clause at issue does not cover their tort claims. Plaintiffs essentially concede that their claim for declaratory judgment should be compelled to arbitration; plaintiffs instead focus on characterizing their tort claims as falling outside the scope of the arbitration clause. (Doc. 7, Br. in Opp'n to Def.'s Mot. to Compel Arbitration at 4). Defendant counters plaintiffs' argument by pointing to the broad language of the arbitration provision, which requires arbitration of any disagreement “concerning this lease, performance thereunder, or damages caused by Lessee's operations....” (Doc. 1–2, Ex. A, Oil & Gas Lease). Defendant maintains that courts have broadly interpreted arbitration clauses covering claims “relating to” or “concerning” the agreement and that tort claims, such as the ones plaintiffs allege, fit under these broad arbitration claims. See U.S. Claims, Inc. v. Saffren & Weinberg, LLP, No. 07–0543, 2007 WL 4225536, at *7 (E.D.Pa. Nov.29, 2007) (“It is well-established that where separate tort claims arise out of the same facts as the breach of contract claim, a broadly worded arbitration provision covers such claims.”); Hearon v. AstraZeneca LP, No. 02–3189, 2003 WL 21250640, at *5 (E.D.Pa. Mar.24, 2003) (finding that “the breadth of the language of the arbitration clause establishes that it was intended to apply to all disputes related to Plaintiff's termination” and not merely disputes concerning the specific provisions of her employment agreement). The court agrees with defendant that all of plaintiffs' claims in the complaint should be compelled to arbitration. The language of the arbitration provision, which requires the arbitration of “disagreement[s] between Lessor and Lessee concerning this lease, performance thereunder, or damages caused by Lessee's operations,” is broad. (See Doc. 1–2, Ex. A, Oil & Gas Lease). The arbitration clause does not exclude tort claims or claims concerning the lease from compulsory arbitration. It is settled that courts in Pennsylvania compel tort ase 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 110 of 133 Roman v. Chesapeake Appalachia, L.L.C., Not Reported in F.Supp.2d (2012) 2012 WL 2076846 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 claims to arbitrate if the arbitration clause at issue is broad enough. See Muhlenberg Twp. Sch. Dist. Auth. v. Pa. Fortunato Constr. Co., 460 Pa. 260, 333 A.2d 184, 186 (Pa.1975). The cases plaintiffs rely on for support involve tort claims unrelated to the underlying contract and arbitration provisions that are narrower than the instant arbitration clause. Compare (Doc. 1–2, Ex. A, Oil & Gas Lease) (stating that “concerning this lease, performance thereunder, or damages caused by Lessee's operations” are to be compelled to arbitration), with Hazleton Area Sch. Dist. v. Bosak, 671 A.2d 277, 279, 282 (Pa.Commw.Ct.1996) (holding that an arbitration provision providing that the parties will arbitrate disputes “arising out of or relating to this Agreement or breach thereof” is not inclusive of negligence claims for defects in a structure), and Edelstein v. Martin, No. 1849, slip op. (Pa.Ct.Comm.Pls.Phila.Co. Mar. 18, 2008) (finding that the “wrongful act” torts alleged against a former partner are not subject to compulsory arbitration because these torts did not fall under the arbitration agreement, which covers disputes that “arise out of” or “relate to” the partnership agreement). *5 With respect to plaintiffs' first tort claim, slander of title, the court finds that this claim falls under this arbitration clause. Plaintiffs themselves describe this claim as “rest[ing] on allegations regarding defendant's bad faith recording of a declaration of unitization on January 18, 2011, only hours before the ten-year primary term of plaintiff's (sic) lease was to expire, and on defendant's failure, within the primary term of the lease, to conduct operations on the leasehold or the unitized lands sufficient to extend the lease past the primary term.” (Doc. 7, Br. in Opp'n to Def.'s Mot. to Compel Arbitration at 6). Thus, plaintiffs' own description of this claim explains that it concerns the unitization provision of the lease and whether the lease was validly extended. Plaintiffs' second tort claim for breach of the covenant of good faith and fair dealing similarly falls under the arbitration clause and will be compelled to arbitration. Plaintiffs point to the “terms of the parties' lease in the instant case” to support their contention that defendant undertook the unitization of plaintiffs' property in bad faith. (Doc. 7, Br. in Opp'n to Def.'s Mot. to Compel Arbitration at 13). Furthermore, when it comes to this tort claim, plaintiffs explained that their “grievance is ... with the bad faith recording of the declaration in light of defendant's failure and inability to develop the leasehold or the unit prior to the expiration of plaintiff's (sic) lease.” (Id.) Therefore, plaintiffs' summary of this claim establishes that the bad faith claim concerns the terms of the lease and whether the unitization was a valid exercise of defendant's rights under the lease. 2 2 Our decision to compel all of plaintiffs' claims to arbitration is consistent with recent precedent in this district in which another court compelled nearly identical claims to arbitration pursuant to a nearly identical arbitration clause. See generally Vosburg v. Chesapeake Appalachia, L.L.C., No. 3:11–cv– 1615 (Doc. 10), slip op. (M.D.Pa. Nov. 16, 2011). The plaintiffs in Vosburg and the instant case are represented by the same attorney, who raised the same arguments in opposition to compelled arbitration. The court in Vosburg rejected plaintiffs' arguments against compelled arbitration and noted that this case is similar to other cases in which separate tort claims were compelled to arbitration. See id. at 9 (quoting U.S. Claims, Inc., 2007 WL 4225536, at *7). Therefore, like the court in Vosburg, we will compel this case to arbitration. Conclusion For the reasons stated above, the court will compel arbitration in this case. In light of the court's ruling compelling arbitration, it is not necessary to address defendant's argument in the alternative. An appropriate Order follows. ORDER AND NOW, to wit, this 7th day of June 2012, it is hereby ORDERED that: 1. Defendant Chesapeake Appalachia, L.L.C.'s motion to compel arbitration or, in the alternative, to dismiss counts II and III and the demands for punitive damages and attorney's fees (Doc. 3) is GRANTED; 2. Plaintiffs are COMPELLED TO ARBITRATE all claims contained in their complaint (Doc. 1); and 3. The Clerk of Court is directed to ADMINISTRATIVELY CLOSE this case. ase 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 111 of 133 Roman v. Chesapeake Appalachia, L.L.C., Not Reported in F.Supp.2d (2012) 2012 WL 2076846 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 All Citations Not Reported in F.Supp.2d, 2012 WL 2076846 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. ase 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 112 of 133 O Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 113 of 133 JAN L. VOSBURG and JENNIFER L. VOSBURG, Plaintiffs, v. CHESAPEAKE APPALACHIA, L.L.C., Defendants. CIVIL ACTION NO. 3:11-CV-1615 UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA 2011 U.S. Dist. LEXIS 155364 November 16, 2011, Decided November 16, 2011, Filed COUNSEL: [*1] For Jan L. Vosburg, Jennifer L. Vosburg, Plaintiffs: Todd J. O'Malley, O'Malley & Langan P.C., Scranton, PA; William S. Friedlander, Friedlander, Friedlander & Assoc., Waverly, NY. For Chesapeake Appalachia, L.L.C., Defendant: David R. Fine, K&L Gates LLP, Harrisburg, PA. JUDGES: RICHARD P. CONABOY, United States District Judge. OPINION BY: RICHARD P. CONABOY OPINION MEMORANDUM Here we consider Defendant's Motion to Compel Arbitration or, in the Alternative, to Dismiss Counts II and III and the Demands for Punitive Damages and Attorneys' Fees (Doc. 6). Defendant filed this motion on October 6, 2011, accompanied by a supporting brief (Doc. 7). Plaintiffs filed a responsive brief on October 19, 2011 (Doc. 8), and Defendant filed a reply brief on November 4, 2011 (Doc. 9). Therefore this matter is fully briefed and ripe for disposition. For the reasons discussed below, we grant Defendant's motion. I. Background1 1 In their opposition brief (Doc. 8), Plaintiffs neither provide a factual background section nor present any disagreement with the Factual and Procedural Background section of Defendant's supporting brief (Doc. 7 at 1-4). Therefore, the factual background is derived from Plaintiffs' Complaint (Doc. 1) and Defendant's [*2] Brief in Support of Defendant's Motion to Compel Arbitration or, in the Alternative, to Dismiss Counts II and III and the Demands for Punitive Damages and Attorney's Fees (Doc. 7 at 1-4). Plaintiffs commenced this action on August 29, 2011, with the filing of a three count Complaint. (Doc. 1.) Count I is a Declaratory Judgment Action pursuant to 28 U.S.C. § 2201 with which Plaintiffs seek a declaration that the Oil and Gas Lease between Plaintiffs and Defendant is no longer in effect in that "the primary term has expired and no operations sufficient to extend the Lease have been conducted by the Lessee or its successor on the leasehold lands or on premises unitized under the terms of the Lease." (Doc. 1 at 5.) Count II is a state law claim for Slander of Title. (Doc. 1 at 9.) Count III is a state law claim for Breach of Covenant of Good Faith and Fair Dealing. (Doc. 1 at 10.) In addition to declaratory relief, Plaintiffs seek compensatory damages, punitive damages, attorneys fees and further costs. (Doc. 1 ¶¶ 42, Page 1 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 114 of 133 50, 51, 61, 62.) Defendant is the successor to Columbia Natural Resources, the company with which Plaintiff entered into a natural-gas Lease. (Doc. 7 at 1.) The Lease provides [*3] for a primary term of five years, beginning on January 15, 2006, and ending on January 15, 2011. (Doc. 1 ¶ 32; Doc. 7 at 1.) It provides that the lease term would be extended "for as long thereunder as operations are conducted on the Leasehold in search of or in production of oil, gas, or their constituents, or for as long as a well capable of production is located on the Leasehold . . . ." (Doc. 1 ¶ 32.) The Lease also contains a provision which allows for the Leasehold, or a portion thereof, to be placed in a unit, a practice whereby a number of leaseholds are gathered into a unit and each lessor is entitled to a proportionate share of royalties. (Doc. 1 ¶ 34; Doc. 7 at 2 & n.1.) The unitization provision states that "the drilling, operation in preparation for drilling, production from, or payment for Royalty, Shut-in Royalty, or Delay in Marketing for a well on such unit shall have the same effect upon the terms of this Lease as if a well were located on the Leasehold." (Doc. 1 ¶ 34.) On January 6, 2011, Defendant filed a unitization declaration with the Bradford County Recorder of Deeds. (Doc. 1 ¶ 18.) The document, titled "Declaration and Notice of Pooled Unit, DGSM Unit," was executed [*4] on or about January 4, 2011, in Oklahoma by Henry J. Hood, identified as "Senior Vice President - Land and Legal & General Counsel" of Defendant Chesapeake. (Id.) Plaintiffs allege that Defendant filed the unitization declaration "negligently and/or in bad faith, on the eve of expiration of the five-year term of plaintiffs' 'Oil and Gas Lease" and with no drilling, 'operations' or other conduct sufficient to extend the Lease then having been performed either on the leasehold lands or in the designated Unit." (Doc. 1 ¶ 20.) Plaintiffs also allege that in the ten-day period between the recording of the unitization declaration and the expiration of the primary term of the lease, Defendant conducted no further activities which would have extended the lease. (Doc. 1 ¶ 23.) The Lease also contains an Arbitration provision which states the following. In the event of a disagreement between Lessor and Lessee concerning this lease, performance thereunder, or damages created by Lessee's operations, settlement shall be by panel of three disinterested arbitrators. Lessor and Lessee shall appoint and pay the fee of one each, and the two so appointed shall appoint the third, whose fee shall be borne [*5] equally by Lessor and Lessee. The award shall be by unanimous decision of the arbitrators and shall be final. (Doc. 1-2 at 3-4.) Defendant makes four arguments with this motion to dismiss. First Defendant argues the Court should stay this case and compel Plaintiffs to arbitrate their claims in accordance with the lease's arbitration provision. (Doc. 7 at 3.) Defendant alternatively argues that the Court should dismiss Counts II and III and dismiss the demands for punitive damages and attorneys fees. (Id.) As noted above, Defendant's motion is fully briefed and ripe for disposition. II. Discussion Defendant first argues the Court should stay the case and compel arbitration. For the reasons discussed below, we agree. Both Federal and Pennsylvania law strongly favor enforcement of arbitration provisions. 2 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002); Dodds v. Pulte Home Corp., 2006 PA Super 268, 909 A.2d 348, 351 (Pa. Super. 2006). [W]here the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that "[a]n 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 [*6] of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." AT & T Techs. Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650, 106 S. Ct. 1415, 89 L. Ed. 2d 648 (1986) Page 2 2011 U.S. Dist. LEXIS 155364, *2 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 115 of 133 (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)). The Court added that such a presumption is particularly applicable where the arbitration clause is worded broadly. Id. Where an arbitration clause provides that "'any difference arising with respect to the interpretation of the contract or the performance of any obligation hereunder . . . .,'" the Court concluded that "'[i]n the absence of any express provision excluding a particular grievance from arbitration, we think only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail." Id. (quoting Warrior & Gulf, 363 U.S. at 584-85). 2 Defendant notes this Court has held that Pennsylvania law applies when considering a motion to compel arbitration of disputes concerning an oil and gas lease for property in Pennsylvania. (Doc. 7 at 4 (citing Ulmer v. Chesapeake Appalachia, L.L.C., 2009 U.S. Dist. LEXIS 124650 at *2 (M.D. Pa. Jan. 16, 2009; 42 Pa. C.S. § 7301, et seq.)).) While Defendant questions this [*7] determination, it acknowledges that, for present purposes, "the dispute need not be resolved because both FAA and Pennsylvania law determine the scope of arbitration provisions similarly." (Doc. 7 at 5 n.2 (citing State Farm Mutual Automobile Insur. Co. v. Coviello, 233 F.3d 710, at 710 n.1.) The parties agree that a court uses a two-step process to determine the enforceability of an arbitration provision. (Doc. 7 at 5-6; Doc. 8 at 2-3.) First, the court must determine if a valid agreement to arbitrate exists. Messa v. State Farm Ins. Co., 433 Pa. Super. 594, 641 A.2d 1167, 1168 (Pa. Super. 1994). Second, if such an agreement exists, the court must decide if the dispute falls within the scope of the agreement. Id. Here the disagreement relates to the second prong. Plaintiffs initially assert that the primary term of the lease expired on January 15, 2011, and, therefore, the issue of arbitration is arguably moot. (Doc. 8 at 3.) However, following this assertion, Plaintiffs recognize that this Court has determined that an agreement to arbitrate does not expire with the expiration of the lease. (Doc. 8 at 3-4 (citing Beinlich v. Chesapeake Appalachia LLC, Civil No. 03:11-CV-566, 2011 U.S. Dist. LEXIS 154301).) With this recognition, Plaintiffs [*8] focus their argument on a challenge to the application of the arbitration provision to Plaintiffs' claims for tortious slander of title and bad faith arising from Defendant's filing of a unit declaration. (Doc. 8 at 4.) Plaintiffs cite Hazleton Area Sch. Dist. v. Bosak, 671 A.2d 277 (Pa. Commw. 1995), and Edelstein v. Martin, 2008 Phila. Ct. Com. Pl. LEXIS 77 (Ct. Comm. Pls. Philadelphia Co. 2008), in support of their position that the Court should not compel arbitration of Plaintiffs' tort claims. (Doc. 8 at 4.) Defendant counters with the assertion that the arbitration provision in the lease at issue requires arbitration of any disagreement "concerning this lease, performance thereunder, or damages created by Lessee's operations . . ." and that courts have held that this type of language should be construed broadly. (Doc. 9 at 2 (citing Hearon v. AstraZeneca LP, 02-3189, 2003 U.S. Dist. LEXIS 6628, (E.D. Pa. Mar. 24, 2003)).) Defendant further maintains that courts have held that tort claims arising from the same set of facts as arbitrable contract claims should be arbitrated when there is a broad arbitration provision. (Doc. 9 at 2 (citing U.S. Claims, Inc. v. Saffren & Weinberg, LLP., No. 07-0543, 2007 U.S. Dist. LEXIS 88022, at *18 (E.D. Pa. Nov. 30, 2007)).) After [*9] reviewing relevant caselaw, including the cases cited by the parties in support of their positions, the Court concludes that the facts of this case and the language in the arbitration provision indicate all of Plaintiffs' claims should be arbitrated. First, the language of this arbitration provision is broad and does not exclude tort claims related to the Lease. Thus, this is a case where the presumption of arbitrability is particularly applicable. AT & T Techs., 475 U.S. at 650. Further, we cannot say "with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. These findings require that doubts be resolved in favor of arbitration. Id. The arbitration clause in the Lease can be read to include Plaintiffs' slander of title and bad faith claims in that they concern the lease and performance thereunder. Though Plaintiff asserts that "[t]hese claims do not readily fit within the parameters" of this language (Doc. 8 at 4), the provision can be interpreted to cover the claims. Plaintiffs state their slander of title claim "rests on allegations of defendant's bad faith recording of a declaration of unitization on January [*10] 5, 2011, ten days before the five-year primary term of plaintiff's [sic] Page 3 2011 U.S. Dist. LEXIS 155364, *6 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 116 of 133 lease was to expire, and on defendant's failure, within the primary term of the lease, to conduct operations on the leasehold or the unitized lands sufficient to extend the lease past the primary term." (Doc. 8 at 6.) Thus, by Plaintiffs' own description of the grounds of the claim, the unitization and failure to conduct operations are matters "concerning this lease" in that they relate to Defendant's asserted inability to extend the lease beyond the primary term. Similarly, Plaintiffs' claim for breach of covenant of good faith and fair dealing is properly construed as "concerning this lease." Plaintiffs argue that their "grievance is, precisely, with the bad faith recording of the [unitization] declaration in light of defendant's failure and inability to develop the leasehold or the unit prior to the expiration of plaintiff's [sic] lease." (Doc. 8 at 13.) With this statement, Plaintiffs make clear it is the conditions of the Lease regarding unitization that give rise to Plaintiff's bad faith claim. Plaintiffs' further assertion that "[a]t the least, such claim is actionable as a breach of contract claim, . . [*11] . as a tortious breach of contract" (Doc. 8 at 13) reinforces our conclusion that this claim is "concerning this lease," the lease being the contract in this case. Our conclusion is consistent with those cases which have found that "where separate tort claims arise out of the same facts as the breach of contract claim, a broadly worded arbitration provision covers such claims." U.S. Claims, Inc. v. Saffren & Weinberg, Civil Action No. 07-0543, 2007 U.S. Dist. LEXIS 88022, 2007 WL 4225536, at *7 (E.D. Pa. Nov. 29, 2007) (citing CD Partners, LLC v. Grizzle, 424 F.3d 795, 800 (8th Cir. 2005); P & P Indus. v. Sutter Corp., 179 F.3d 861,871-72 (10th Cir. 1999); Nova CTI Caribbean v. Edwards, Civ. A. No. 03-5319, 2004 U.S. Dist. LEXIS 41, 2004 WL 35759, at *4 (E.D. Pa. Jan. 8, 2004); Troshak, II v. Terminix Int'l Co., L.P., Civ. A. No. 98-1727, 1998 U.S. Dist. LEXIS 9890, 1998 WL 401693, at *6 (E.D. Pa. July 2, 1998); Pa. Data Entry, Inc. v. Nixdorf Computer Corp., 762 F. Supp. 96 (E.D. Pa. 1990)). Here Plaintiffs' request for Declaratory Judgment in Count I of the Complaint (Doc. 1 at 5) is essentially a request for the Court to conclude that Defendant violated the terms of the Lease (breached the contract) when it filed the unitization declaration including part of Plaintiffs' [*12] leasehold without sufficient activity on the unitized land or leasehold to prevent the expiration of the Lease under the terms of the Lease. Therefore, although Plaintiffs' Complaint does not specifically include a breach of contract claim, the facts upon which the case is grounded are sufficiently analogous to such a claim that the Court properly applies the law set out above. 3 3 Plaintiff's cited cases do not persuade the Court otherwise. In Hazleton Area School District v. Bosak, the court specifically stated that the plaintiff "has not asserted claims against Bosak concerning agreements or their breach." 671 A.2d at 282. In Margolis Edelstein v. Martin, Plaintiff did not raise a breach of contract claim, 2008 Phila. Ct. Comm. Pl. LEXIS 77, at *2, and the court did not discuss the basis for its previous decision that the plaintiff's claims were not subject to the arbitration provision at issue, id. at *7-8. Therefore, both cases are distinguishable from this case where all of Plaintiffs' claims relate to language found in the Lease. III. Conclusion For the reasons discussed above, we conclude that Defendant properly requests that this case be stayed and that Plaintiffs be compelled [*13] to arbitrate all claims. Therefore, Defendant's Motion to Compel Arbitration or, in the Alternative, to Dismiss Counts II and III and the Demands for Punitive Damages and Attorneys' Fees (Doc. 6) is GRANTED. An appropriate Order follows. /s/ Richard P. Conaboy RICHARD P. CONABOY United States District Judge ORDER NOW, THEREFORE, THIS 16th DAY OF NOVEMBER 2011, FOR THE REASONS DISCUSSED IN THE ACCOMPANYING MEMORANDUM, IT IS HEREBY ORDERED THAT: 1. Defendant's Motion to Compel Arbitration or, in the Alternative, to Dismiss Counts II and III and the Demands for Punitive Damages and Attorneys' Fees (Doc. 6) is GRANTED; 2. Plaintiffs are compelled to arbitrate all claims contained in their Complaint Page 4 2011 U.S. Dist. LEXIS 155364, *10 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 117 of 133 (Doc. 1); 3. The Clerk of Court is directed to ADMINISTRATIVELY CLOSE this case, to be reopened by either party if such a need arises following arbitration. /s/ Richard P. Conaboy RICHARD P. CONABOY United States District Judge Page 5 2011 U.S. Dist. LEXIS 155364, *13 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 118 of 133 P Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 119 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2009 WL 3209930 Only the Westlaw citation is currently available. United States District Court, E.D. Pennsylvania. Larry WALD, Plaintiff, v. 1 FINANCIAL MARKETPLACE SECURITIES, LLC, and Kevin M. Ross, Defendants. Civil Action No. 2:09–cv–1116–WY. | Oct. 5, 2009. West KeySummary 1 Alternative Dispute Resolution Agreements to Arbitrate Arbitration was compelled as a claim regarding hedge fund losses an investor suffered allegedly due to a financial advisor's advice fell within the scope of their arbitration agreement. The advisor's business was not limited to the investor's IRA account, as the customer agreement contemplated that the advisor might buy or sell a broad range of securities on the investor's behalf. Cases that cite this headnote Attorneys and Law Firms Margaret Sherry Lurio, Lurio & Assoc., P.C., Philadelphia, PA, for Plaintiff. Richard A. Levan, Levan and Friedman, LLP, Philadelphia, PA, for Defendants. Memorandum YOHN, District Judge. *1 Plaintiff, Larry Wald, brings the instant dispute against 1 Financial Marketplace Securities, LLC (“1 Financial Securities”), and its Chief Executive Officer, Kevin M. Ross. Defendants move to compel arbitration and to stay the proceedings in this court pending the completion of the arbitration. For the reasons discussed below, I will grant defendants' motion. I. Factual And Procedural Background Wald raises a variety of claims related to the loss of his investment in a hedge fund named Securion I, L.P. (“Securion”), a fund that Ross, Wald's investment advisor, recommended to him. In support of their motion, defendants cite an arbitration clause in a Client Account Record Form and Customer Agreement that Wald signed, requiring that the Financial Industry Regulatory Authority (“FINRA”) arbitrate all disputes between Wald and 1 Financial Securities “arising out of or relating to” 1 Financial Securities' “business” or “this agreement.” (Defendants' Memorandum of Law in Support of Motion (“Defs.' Mem.”) Ex. A.) Wald and defendants disagree about whether this arbitration clause applies to the instant dispute. Wald describes his business relationship with defendants as long-standing. According to his complaint, he and Ross first established their business relationship in 1990. (Compl.¶¶ 13–14.) Wald states that, since then, he has relied on the advice of Ross for investment of his pension and Individual Retirement Account (“IRA”). (Id. at ¶ 14.) Wald states that (1) Ross was the Chief Compliance Officer and Chief Executive Officer of 1 Financial Securities, (2) Ross was a registered representative of 1 Financial Securities, (3) Ross controlled 1 Financial Securities, and (4) 1 Financial Securities acted through Ross as its agent. (Id. at ¶¶ 6–8, 43, 45, 47, 49, 51, 54–56, and 61–63.) Wald states that 1 Financial Securities was a broker-dealer registered with the United States Securities and Exchange Commission and the Pennsylvania Securities Commission “to conduct the following business mutual fund retailer; and broker or dealer selling variable life insurance or annuities.” (Id. at ¶¶ 3–4.) Wald describes his business relationship with defendants as encompassing a broad range of activities. Wald states that defendants are his “financial and investment advisors” and “registered representatives.” (Id. at ¶¶ 67, 70, and 93.) He states that 1 Financial Securities and Ross “entered into a contract with Plaintiff Wald to provide investment services that were in Plaintiff Wald's best interests.” (Id. at ¶ 98.) Wald does not provide additional details about the formation of this contract or its terms or Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 120 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 whether it differs from the Client Account Record Form and Customer Agreement. Defendants attached the Client Account Record Form and Customer Agreement as an exhibit to their motion. (Defs.' Mem. Ex. A.) Wald signed the Client Account Record Form on May 22, 2002, in the block requiring his signature. 1 (Id.; Plaintiff's Answer to Defendants' Motion (“Pl.'s Ans.”) ¶ 22.) Through the Client Account Record Form, Wald registered an IRA account with 1 Financial Securities. (Defs.' Mem. Ex. A.) He also acknowledged that he had read, understood, and agreed to the terms set forth in the Customer Agreement on the reverse side of the Client Account Record Form. (Id.) The Client Account Record Form specifically reflects Wald's understanding that the Customer Agreement contains an arbitration clause: 1 The document does not include signature blocks for either 1 Financial Securities or Ross. (Id.) *2 This Agreement contains a pre-dispute arbitration clause in paragraph 9 on the reverse side of this page. I/ we acknowledge receiving a copy of this Agreement. (Id.) (Emphasis in original.) The arbitration clause in the Customer Agreement states as follows Any controversy arising out of or relating to your business or this agreement shall be subject to arbitration. This agreement and its enforcement shall be governed by the laws of the State of Pennsylvania. Arbitration shall be conducted under the provisions of the Code of Arbitration Procedures of the National Association of Securities Dealers. 2 Arbitration must be commenced by service upon the other party of a written demand for arbitration or a written notice of an intention to arbitrate. 2 The National Association of Securities Dealers (the “NASD”) changed its name to FINRA in July 2007. (Plaintiff's Memorandum of Law Contra Defendants' Motion (“Pl.'s Mem.”) 6 n. 2.) (Id.) (Emphasis in original.) 3 The Customer Agreement also requires that Wald not “place any order to purchase securities unless I have received and read a copy of the prospectus, private placement memorandum (PPM) or offering circular (OC) for the security being purchased (except for brokerage account transactions for which no prospectus, PPM or OC is required), and I understand that any investments that I make will be on and subject to the terms and conditions set forth in the prospectus, PPM or OC.” (Id.) 4 3 The Customer Agreement defines the term “you” as 1 Financial Securities. (Id.) 4 The Customer Agreement defines the terms “I, me and my” as Wald. (Id.) The controversy in this lawsuit arises out of Wald's investment in Securion. Wald alleges that Ross established Securion in early 2007. (Id. at ¶ 15.) Wald claims that Ross is the Chief Executive Officer of the general partner of Securion—1 Financial Marketplace, LLC (“1 Financial Markeptlace”)—and that Ross controls 1 Financial Marketplace, as he does defendant 1 Financial Securities. 5 (Pl.'s Ans. ¶¶ 7–9; Compl. ¶ 6, 8.) Wald alleges that from early 2007 through February 2008, Ross solicited him to invest a total of $350,000 in Securion. (Compl.¶ 19.) 6 Wald claims that Ross informed him in mid-December 2008 that the entire $350,000 investment in Securion had been lost. (Id. at ¶ 20.) Defendants claim that New York investment advisor Bernard Madoff misappropriated the majority of Securion's assets. (Defs.' Mem. 3.) 5 In an “ERISA Disclosure Statement,” the Customer Agreement discloses that 1 Financial Marketplace, along with 1 Financial Securities and 1 Financial Marketplace Holding Company, LLC, may be involved in a customer's investments. (Defs.' Mem. Ex. A.) 6 Wald has not sued 1 Financial Marketplace here. He does, however, allege that he has initiated an arbitration proceeding against 1 Financial Marketplace and Ross. (Pl.'s Ans. ¶ 27.) Wald claims that he is an unsophisticated investor who has never invested in a hedge fund and who invested in Securion only in reliance upon the repeated assurances of Ross that Securion was a suitable, safe investment for him. (Compl. ¶¶ 18, 24, 26, 28, 30, 32, 34, and 36.) 7 Wald claims that Ross's assurances were misstatements “made negligently or knowingly with the intent to deceive Plaintiff Wald.” (Id. at ¶¶ 27, 29, 31, 33, 35, and 37.) He claims that 1 Financial Securities, “acting through Defendant Ross,” knew or should have known that Wald was not a sufficiently sophisticated investor for Securion Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 121 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 to be an appropriate investment for him. (Id. at ¶¶ 43, 45, 47, 49, and 51.) 7 On the Client Account Record Form, Wald listed his risk tolerance as “moderate,” his investment experience as “moderate,” and his investment objective as “growth.” (Defs.' Mem. Ex. A.) Wald filed the current action against defendants on March 13, 2009. Wald's complaint contains eight counts: *3 (1) Count I alleges that Ross, and 1 Financial Securities “acting by and through Defendant Ross,” violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b–5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b–5. (Compl.¶¶ 53–59.) (2) Count II alleges that Ross, and 1 Financial Securities “acting by and through Defendant Ross,” violated the Pennsylvania Securities Law, 70 Pa.C.S. §§ 1– 301(c), 501(a)(ii), and 503. (Id . at ¶¶ 60–65.) (3) Count III alleges that defendants, as Wald's “financial and investment advisors,” breached their fiduciary duties of good faith and loyalty by inducing Wald to invest in Securion. (Id. at ¶¶ 66–78.) (4) Count IV alleges that, in the event that one of defendants did not owe Wald a fiduciary duty, each is nevertheless liable for knowingly aiding and abetting in the other's breaches of fiduciary duties. (Id. at ¶¶ 79–84.) (5) Count V alleges that defendants committed fraud. (Id. at ¶¶ 85–91.) Among other things, Wald claims that defendants “intentionally, or with reckless indifference to the truth, misrepresented the nature of the Securion I, L.P. investment when they prepared and delivered to Plaintiff Wald the Offering Memorandum.” (Id. at ¶ 87.) (6) Count VI alleges negligence. (Id. at ¶¶ 92–96.) Wald claims that, as his “financial and investment advisors and registered representatives,” defendants had a duty to act with reasonable care, skill, and diligence, and that Wald suffered damages as a direct result of defendants' breaches of that duty. (Id.) (7) Count VII alleges that defendants' breached their contract with Wald “to provide investment services that were in Plaintiff Wald's best interests” by failing to recommend a suitable, safe investment and by failing to conduct due diligence with regard to the investment. (Id. at ¶¶ 97–100.) (8) Count VIII, alleges that defendants violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa.C.S. § 201, et seq., by deceiving Wald concerning the quality and characteristics of Securion. (Id. at ¶¶ 101–109.) In addition, Wald alleges that defendants were never licensed to sell investments in Securion. (Pl.'s Ans. ¶¶ 2, 5.) He alleges that FINRA licensed Ross only to sell “investment company products and variable contracts.” (Id. at ¶¶ 13–14.) He alleges that FINRA licensed 1 Financial Securities “to conduct only two businesses: mutual funds and life insurance and annuities.” (Id. at ¶ 15.) He states that his investment in Securion was not, in fact, held in his account with 1 Financial Securities. (Id. at ¶ 3.) He states that only 1 Financial Marketplace, the general partner of Securion, had the authority to receive a management fee from Wald's investment in Securion, not either of defendants. (Id. at ¶ 6.) Defendants filed the pending motion on May 20, 2009. The parties' central disagreement for purposes of the motion is whether Wald is required to arbitrate his claims through FINRA. II. Standard Of Review *4 Defendants rely upon the Federal Arbitration Act (“FAA”), 9 U.S .C. § 1, et seq., as the basis for their motion. They argue that “[u]nder the FAA, if a court determines that a valid arbitration agreement exists and the claims fall within the scope of the agreement, the court must submit the matter to arbitration and stay the proceedings until the arbitration has concluded.” (Defs.' Mem. 5.) The FAA “provides two parallel devices for enforcing an arbitration agreement a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4.” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 23, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). 8 The threshold question of whether a dispute is arbitrable is a matter properly decided by this court. AT & T Techs., Inc. v. Commc'n Workers of Am., 475 Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 122 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986.) When confronted with a motion to compel arbitration and to stay proceedings pursuant to 9 U.S.C. §§ 3 and 4, the appropriate standard of review for the district court is that employed in evaluating motions for summaryjudgment under Fed.R.Civ.P. 56(c). Par– Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n. 9(3d Cir.1980). Accordingly, the court's task is limited to determining whether there is a genuine, material factual question as to the applicability of the arbitration agreement to plaintiff's claims; if such a disputed factual question does exist, the court will not resolve it at this time. See generally Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202(1986). If, however, the arbitration clause clearly applies to the instant dispute, then defendants will be entitled to arbitration and the stay that they seek. Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”) (emphasis in original). 8 9 U.S.C. § 3 states as follows: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration. 9 U.S.C. § 4 states as follows: A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner prescribed for in such agreement. The Third Circuit has set forth a two-prong inquiry for determining whether to compel arbitration under the FAA and to stay federal proceedings. 9 Under this two- prong test, the issues are “(1) Did the parties seeking or resisting arbitration enter into a valid arbitration agreement? [and] (2) Does the dispute between those parties fall within the language of the arbitration agreement?” John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir.1998) (citing In re Prudential Ins. Co. of Am. Sales Practice Litig., 133 F.3d 225, 233 (3d Cir.1998)); see also Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 54–55 (3d Cir.2001) (“[A] court asked to stay proceedings pending arbitration must determine whether there is a valid agreement to arbitrate and, if so, whether the specific dispute falls within the substantive scope of that agreement.”) (citations omitted). 9 The FAA applies to any “written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof....” 9 U.S.C. § 2 (1994). The FAA applies to the arbitration clause because the Customer Agreement involves the purchase and sale of securities, which is significantly more than the “slightest nexus” with commerce that the FAA requires. B.G. Balmer & Co., Inc. v. U.S. Fidelity & Guar. Co., 1998 WL 764669, at *3 (E.D.Pa. Oct.30, 1998); see also Zink v. Merrill Lynch, 13 F.3d 330, 333 (10th Cir.1993) (agreements involving trade in securities “patently do involve ‘commerce’ as defined under the Act”) (emphasis in original). When an arbitration clause is subject to the FAA, questions concerning the interpretation of the clause should be determined by reference to federal substantive law. Harris v. Green Tree Financial Corp., 183 F.3d 173, 179 (3d Cir.1999). Federal law would apply in construing and enforcing the arbitration clause, even in those cases in which jurisdiction is based on diversity, such as the instant dispute. Goodwin v. Elkins & Co., 730 F.2d 99, 108 (3d Cir.1984). Nevertheless, in interpreting an arbitration agreement, a court may look to state law for “generally applicable contract defenses.” Harris, 183 F.3d at 179. Furthermore, the relevant state's law of contracts guides the determination of whether the parties entered a valid agreement to arbitrate. Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir.2002). Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 123 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Regardless, the parties agree (Pl.'s Mem., 4; Defs.' Mem., 4 n. 4) that there is no meaningful difference between federal and Pennsylvania substantive law with respect to the scope of the arbitration agreement in the instant dispute. State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 n. 1 (3d Cir.2000). *5 The Third Circuit has articulated a “strong presumption in favor of arbitration,” holding that “doubts ‘concerning the scope of arbitrable issues should be resolved in favor of arbitration.’ “ Great Western Mortg. Corp. v. Peacock, 110 F.3d 222, 228 (3d Cir.1997) (quoting Moses H. Cone, 460 U.S. at 24). 10 “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.” AT & T Techs., 475 U.S. at 650; see also Battaglia v. McKendry, 233 F.3d 720, 727(3d Cir.2000). This presumption in favor of arbitrability is particularly applicable where the arbitration clause is broad. AT & T Techs., 475 U.S. at 650. It should be emphasized as to the instant dispute, however, that arbitrability is a matter of contract and that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Id. at 648 (citations omitted). 10 The presumption in favor of arbitration, however, “does not apply to the determination of whether there is a valid agreement to arbitrate between the parties.” Kerleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.2009) (citation omitted). “To determine whether a claim falls within the scope of an arbitration agreement, the focus is on the factual underpinnings of the claim rather than the legal theory alleged in the complaint.” Medtronic, 247 F.3d at 55 (citations omitted). In addition, due to the “federal policy in favor of arbitration,” courts need only engage in a “limited review” to ensure that a dispute is arbitrable. John Hancock, 151 F.3d at 137 (citations omitted). Courts are not to decide the merits of the dispute. AT & T Tech., Inc., 475 U.S. at 649–50. My inquiry is therefore limited to consideration of the narrow issue of arbitrability. Nothing in this memorandum should be construed as consideration of the substance of Wald's claims. III. Discussion A. A Valid Arbitration Agreement Exists Wald argues that the Client Account Record Form and Customer Agreement containing the arbitration clause at issue here is not a valid contract because it does not contain signatures for either 1 Financial Securities or Ross. (Plaintiff's Surreply (“Pl.'s Sur.”) 2–3.) 11 Wald appears to be claiming that defendants therefore do not have standing to enforce the arbitration clause contained in the Customer Agreement. 12 11 Wald does not contest the authenticity of the document. 12 Wald also states in his surreply that defendants, who cite only to the Client Account Record Form and Customer Agreement as evidence of a contractual relationship between the parties, “overlook the fact that a contractual relationship can be established by an oral contract.” (Pl.'s Sur., 2.) Wald does not, however, provide any evidence of any oral contract or argue that any oral contract actually applies to the instant dispute. “As a general rule, signatures are not required for a binding contract unless such signing is expressly required by law or by the intent of the parties.” Shovel Transfer & Storage, Inc., v. Pa. Liquor Control Bd., 559 Pa. 56, 739 A.2d 133, 136 (Pa.1999); see also American Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 2009 WL 2902250(3d Cir. Sept.11, 2009) (“Signatures are not dispositive evidence of contractual intent.”). Wald does not argue or produce evidence that a statute required an authorized signature on behalf of 1 Financial Securities on the Client Account Record Form and Customer Agreement to render the document an enforceable contract. In addition, Wald offers no evidence that the parties intended to require a signature on behalf of 1 Financial Securities in order for the document to be binding. To the contrary, the document signals prominently and throughout that 1 Financial Securities is a party, including by specifically defining 1 Financial Securities as “you.” (Defs.' Mem. Ex. A.) The document also states that Wald's assent to be bound by its terms is in “consideration” of 1 Financial Securities accepting his account. (Id.) There is a signature block for Wald on the Client Account Record Form but no signature block for 1 Financial Securities. (Id.) In these circumstances, the lack of a signature block for 1 Financial Securities evidences not that the agreement is unenforceable, but instead that the parties did not intend to require a signature on behalf Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 124 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 6 of 1 Financial Securities in order to consummate the contract. Even viewing the facts in the light most favorable to Wald, reasonable people could not disagree that the Client Account Record Form and Customer Agreement was intended to bind 1 Financial Securities. Accordingly, I find that 1 Financial Securities is bound by the arbitration clause and may enforce its terms. *6 I also find, based on Wald's allegations that Ross acted as an agent of 1 Financial Securities, that Ross too is bound by the arbitration clause. It is well-settled that “[t]raditional principles of agency law may bind a non-signatory to an arbitration agreement.” E.I. Dupont De Nemours & Co. v. Phone Poulenc Fiber & Resin Intermediates, S.A.A., 269 F.3d 187,198 (3d Cir.2001). In Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1121 (3d Cir.1993), the Third Circuit found that where a principal is bound to arbitration and the complaints arise out of the agent's conduct on behalf of that principal, the agent is bound by the principal's agreement to arbitrate disputes. In the instant dispute, Wald's allegations establish that there is a clear and close nexus between Ross and 1 Financial Securities and that Wald's claims arise in large part out of Ross's alleged conduct. Ross is therefore entitled to enforce the arbitration clause to the same extent as his principal, 1 Financial Securities. In support of his argument, Wald cites McNulty v. H & R Block, Inc., 2004 Pa.Super. 45, 843 A.2d 1267 (Pa.Super.2004). In that case, the Pennsylvania Superior Court held that H & R Block could not enforce an arbitration clause in part because the contract containing the clause did not require a signature from H & R Block. Unlike 1 Financial Securities, however, H & R Block was not a party to the contract at issue. The court found that “[a]t most, Block is a third-party beneficiary solely to the arbitration clause of [the contract].” Id. at 1272. The court relied on the lack of a requirement of H & R Block's signature as one piece of evidence that H & R Block did not have any “direct connection” to the arbitration clause and concluded that “[i]t simply makes no sense to provide Block with independent rights to enforce the arbitration provision of a contract it is not a party to, concerning an issue not covered by the contract.” Id. Here, as explained above, it is clear that both defendants have a “direct connection” to the Client Account Record Form and Customer Agreement and the arbitration clause contained therein. Wald also cites, Jairett v. First Montauk Securities, 153 F.Supp.2d 562 (E.D.Pa.2001), but Jairett is similarly inapposite. To begin with, the court in Jairett, confronted with a motion to dismiss, declined to rule on the arbitrability of the dispute because the purported arbitration agreements were not a part of the pleadings. Id. at 575. Regardless, the court stated, in dicta, that the reason the purported arbitration agreements would be inapplicable was because they were not between the parties to the dispute but instead between the plaintiffs and another entity. Id. Here, the Customer Agreement is between all the parties to the instant dispute. Accordingly, I find that the Client Account Record Form and Customer Agreement is a valid contract that binds both defendants, who therefore are entitled to enforce the arbitration clause contained therein. B. The Instant Dispute Falls Within The Scope Of The Arbitration Clause *7 The remaining question is whether this dispute falls within the scope of the arbitration clause contained in the Customer Agreement. By its terms, the arbitration clause applies to the instant dispute if Wald's claims arise out of, or are related to, 1 Financial Securities' “business” or the “agreement” itself. I find that they are. 1. Wald's Claims Arise Out Of And Are Related To 1 Financial Securities' Business Wald argues that the arbitration clause does not apply to the instant dispute because 1 Financial Securities' “business” did not involve the marketing to Wald of hedge fund securities like Securion. In support of this argument, Wald asserts that (1) he only registered an IRA account with 1 Financial Securities, not an account that would involve investment in a hedge fund; (2) FINRA did not license 1 Financial Securities or Ross to market hedge funds; and (3) 1 Financial Securities and Ross did not gain any direct benefit from Wald's investment in Securion because only the general partner of Securion, 1 Financial Marketplace, had authority to receive management fees. Wald's argument that the Customer Agreement contemplates 1 Financial Securities' “business” to be limited to Wald's IRA account contrasts with the explicit terms of the Customer Agreement. The Customer Agreement contemplates that defendants might buy or Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 125 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 sell on Wald's behalf a broad range of “securities,” without any apparent limit on the types of such securities. (Defs.' Mem. Ex. A.) In fact, such securities expressly include securities offered through a “private placement memorandum” such as the one defendants prepared and provided to Wald regarding Securion. (Defs.' Mem. Ex. A; Compl. ¶¶ 16–17, 87.) Wald's investment in Securion appears to be squarely within the broad business relationship contemplated by the Customer Agreement. Wald also argues that, because his IRA account never contained the Securion investment, the investment was never a part of 1 Financial Securities' “business.” The Customer Agreement does not, however, contain any language that confines 1 Financial Securities' “business” to the IRA. Rather, the Customer Agreement appears to contemplate a broad range of investment activity. Indeed, the Third Circuit has interpreted an arbitration clause that used similar language as applying broadly to the “business relationship” between the parties, not as applying narrowly to the type of business in which one party was supposedly involved. Hays & Co. v. Merrill Lynch, 885 F.2d 1149, 1153 (3d Cir.1989). In Hays, the arbitration clause stated, in pertinent part, that “[i]t is agreed that any controversy between us arising out of your business or this agreement shall be submitted to arbitration....” Id. The Third Circuit found that “[t]hus, the Customer Agreement purports to compel arbitration over all controversies that arise out of the business relationship between [the parties].” Id. (emphasis added). 13 Furthermore, the Third Circuit has held that “when phrases such as ‘arising under’ and ‘arising out of’ appear in arbitration provisions, they are normally given broad construction.” Battaglia, 233 F.3d at 727. 13 Other courts have similarly held that arbitration clauses that apply to controversies arising out of or related to “your business” or “this agreement” are broad. See, e.g., Zink, 13 F.3d at 331–32 (10th Cir.1993) (inclusion of language “arising out of your business or this agreement shall be submitted to arbitration” evidences intent to cover more than just those matters stated in contract) (citing Belke v. Merrill Lynch, 693 F.2d 1023, 1028 (11th Cir.1982) (same)); Trott v. Paciolla, 748 F.Supp. 305, 308–309(E.D.Pa.1990) (compelling arbitration of dispute arising before brokerage customers signed account agreement, where agreement contained clause with “broad” and “sweeping” terms that required arbitration of “any controversy between us arising out of your business”). The Delaware Chancery Court went so far as to wonder whether there are any disputes that such language would not cover, even where, as here, the transaction at issue might not have involved the account that the customer had registered: It is true that plaintiff's grievance does not directly involve the maintenance of a margin account, which is but one aspect of the broker- customer relationship. The agreement, however, is all encompassing and does not seek to limit its scope to margin transactions. It is difficult to envision any transaction which would not be covered by the language “any controversy between us arising out of [Merrill Lynch's] business or this agreement.” Although the question is not free of doubt, such doubts must be resolved in favor of arbitrability where the arbitration agreement seeks to embrace a general relationship. Leason v. Merrill Lynch, Pierce, Fenner & Smith, No. 6914, 1984 WL 8232, at *3 (Del.Ch. Aug.23, 1984.) *8 The “factual underpinnings” of Wald's complaint evidence his belief, at the time that he signed the Customer Agreement, that he was hiring defendants to conduct a broad range of business. His current argument that he hired defendants solely with respect to his IRA account contrasts with the allegations of his complaint. In the complaint, he pleaded that he hired defendants as his “financial and investment advisors” and “registered representatives.” (Id . at ¶¶ 67, 70, and 93.) He further pleaded that 1 Financial Securities and Ross “entered into a contract with Plaintiff Wald to provide investment services that were in Plaintiff Wald's best interests.” (Id. at ¶ 98.) In other words, Wald's complaint reflects that he hired defendants to provide a broad range of financial and investment advice. The “factual underpinnings” of Wald's complaint therefore clearly arise out of and are related to the business relationship between the parties. Wald next argues that defendants could not have been in the “business” of marketing Securion because FINRA did not license defendants to market a hedge fund. Whether defendants ought to have been engaging in this activity, however, is a merits determination that is not for the court to decide for purposes of the current motion. See AT & T Tech., Inc., 475 U.S. at 649–50. Wald's argument does not ask the court to determine what the parties believed, at the time that Wald signed the Customer Agreement, Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 126 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 8 that defendants' “business” would be. Rather, Wald's argument asks the court to determine whether it was legally appropriate for defendants to market Securion to Wald at the time that they did so. In Prtizker, the Third Circuit held that when an arbitration clause is broad, like the one here, an issue concerning whether a defendant acted within the scope of its authority must be arbitrated because it relates to whether the defendant breached the agreement. 7 F.3d at 1115. The contention that the arbitration clause does not apply “because the defendants allegedly acted outside the scope of their authority under the agreement flatly contradicts the inclusive language contained in the clauses in question.” Id. Similarly, given the broad scope of the arbitration clause at issue here, Wald's claims that defendants acted outside of the scope of their authority must be arbitrated. “[I]ndeed one is left to ponder what purpose an arbitration clause would serve if it did not encompass claims that the terms of the parties' agreement had been breached.” Id. Wald further argues that defendants were not in the business of marketing Securion because only the general partner of Securion, 1 Financial Marketplace—a separate entity from defendants—had the authority to receive management fees from the security. It is apparent, however, that 1 Financial Marketplace is an entity related to defendants. Wald has alleged that Ross controls both 1 Financial Securities and 1 Financial Marketplace. (Compl. ¶ 8; Pl.'s Ans. ¶ 7.) The Customer Agreement discloses that 1 Financial Marketplace, along with 1 Financial Securities and 1 Financial Marketplace Holding Company, LLC, may be involved in a customer's investments. (Defs.' Mem. Ex. A.) Accordingly, even if defendants did not directly benefit from the management of Securion, defendants appear to have benefitted indirectly. Given the broad business relationship that the Customer Agreement contemplates, Wald's argument that defendants did not directly receive a management fee for Securion does not provide the “positive assurance” of non-arbitrability necessary to overcome the strong presumption in favor or arbitration. AT & T Techs., 475 U.S. at 650; Battaglia, 233 F.3d at 727. 14 14 Whether 1 Financial Securities or Ross as an agent for 1 Financial Securities had anything to do with the Securion transaction relates to the merits of plaintiff's claims, which must be decided by the arbitrator. *9 In support of his argument, Wald cites, Vertical Resources Inc. v. Bramlett, 837 A.2d 1193 (Pa.Super.2003). Vertical Resources is inapposite because the court did not actually rule on the issue of arbitrability. The Pennsylvania Superior Court declined to find that the trial court abused its discretion in deciding that the dispute was not within the scope of an arbitration agreement, but declined to do so only because the entire agreement was not a part of the appellate record. Id. at 1203. Without the entire agreement, the court found that the issue was not properly before the court to examine. Id. Accordingly, I find that the claims in the instant dispute are within the scope of the arbitration clause because they arise out of, and are related to, defendants' “business.” 2. Wald's Claims Arise Out Of And Are Related To The Customer Agreement Wald's claims also fall within the scope of the second prong of the arbitration clause controversies “arising out of or relating to ... this agreement.” As noted above, the Third Circuit has interpreted a similar arbitration clause as applying broadly to the “business relationship” between the parties, not as applying narrowly to the type of business to which one party was supposedly involved. Hays, 885 F.2d at 1153. Furthermore, the Third Circuit has held that “when phrases such as ‘arising under’ and ‘arising out of’ appear in arbitration provisions, they are normally given broad construction.” Battaglia, 233 F.3d at 727. The “factual underpinnings” of Wald's complaint clearly arise out of and are related to “the agreement” between Wald, Ross, and 1 Financial Securities. The Customer Agreement provides terms concerning the responsibilities of the parties, including that Wald understood that he was to read and understand the terms of a private placement memorandum regarding a security before placing any purchase order for it. (Defs.' Mem. Ex. A.) Wald alleges that defendants prepared and delivered to him a private placement memorandum regarding Securion. (Compl. ¶¶ 16–17, and 87.) Wald alleges, however, that defendants deceived him into investing in Securion and that he was too unsophisticated to be responsible for the loss of his investment. (Id. at ¶¶ 18, 24, 26–37, 43, 45, 47, 49, and 51.) In light of the Third Circuit's holdings that (1) language similar to that used in the instant arbitration clause should be read broadly as relating to the “business relationship” between the parties and (2) the phrase “arising out of,” when used in a similar arbitration clause, should be given broad construction, the court cannot say with the positive Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 127 of 133 Wald v. 1 Financial Marketplace Securities, LLC, Not Reported in F.Supp.2d (2009) 2009 WL 3209930 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 assurance required of it by the Third Circuit that Wald's claims do not fall within the scope of his agreement to arbitrate. Hays, 885 F.2d at 1153; Battaglia, 233 F.3d at 727. IV. Conclusion For the foregoing reasons, I find that there is a valid arbitration agreement between Wald and defendants and that the instant dispute is within the scope of that agreement. I will therefore grant defendants' motion to compel arbitration and stay the proceedings in this court pending completion of that arbitration. An appropriate order follows. ORDER *10 AND NOW, this day of OCTOBER, 2009, upon consideration of Defendants' Motion to Compel Arbitration and Stay Proceedings (Dkt. No. 7), Plaintiff's Response, Defendants' Reply and Plaintiff's Sur-reply, IT IS HEREBY ED that the Motion is GRANTED and this dispute shall be submitted to FINRA Arbitration and the action is STAYED pending completion of the Arbitration. All Citations Not Reported in F.Supp.2d, 2009 WL 3209930 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 128 of 133 Q Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 129 of 133 Wellington v. Westrum Development Co., Not Reported in A.3d (2011) 2011 WL 9933457, 23 Pa. D. & C. 5th 353 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 1 2011 WL 9933457 Court of Common Pleas of Pennsylvania, First Judicial District, Civil Action—Law. Dashika R. WELLINGTON, Ann Marie Flynn, Michael Flynn v. WESTRUM DEVELOPMENT COMPANY d/b/a, Westrum Bt, L.P., Westrum Urban Construction LLC. December Term, 2009 No. 00992. | March 17, 2011. OPINION D. WEBSTER KEOGH, J. *1 The Plaintiffs filed an appeal of this Court's January 11, 2011 Order granting Defendants' Petition to Compel Arbitration. I. PROCEDURAL/FACTUAL HISTORY 1. On December 11,2009, Plaintiffs filed a praecipe for writ of summons against Defendants. The praecipe was reissued on January 11, 2010. After the filing of the Complaint the parties stipulated to the filing of an Amended Complaint, which occurred on November 19, 2010. In response, Defendants filed a Petition To Compel Arbitration. 2. The Westrum Defendants were responsible for the sale and construction of a condominium development, Brewerytown Square, located at 1300 North 31st Street, Philadelphia, PA. The Wellington Plaintiff entered into an Agreement of Sale for a unit in the development with the seller, Westrum Development Company d/b/a Westrum BT LP, on October 20, 2005. The Flynn Plaintiffs did the same on April 29, 2006. The contractor for the project was Defendant, Westrum Urban Construction LLC, and a “Homeowners Limited Warranty” was issued by the contractor to both buyers. 1 The principal place of business for both Defendants is 370 Commerce Drive, Fort Washington, Pennsylvania. 1 Copies of the Sales Agreement and Warranty were attached as exhibits to both the Amended Complaint and the Petition to Compel Arbitration. 3. Plaintiffs' Amended Complaint includes four counts: 1) A Violation of the Unfair Trade Practices Consumer Protection Law 2) Breach of Contract 3) Breach of Express Warranty and 4) Breach of Statutory Warranty, 68 Pa. § 3411; the essence of Plaintiffs' claims is that the HVAC heating system in the newly constructed units did not work properly on the first floor and that the Defendants failed to make the necessary repairs to the units. 4. The Sales Agreement contains an Arbitration clause. 5. On December 9, 2010, Defendants filed a Petition to Compel Arbitration to enforce the Arbitration clause. Plaintiffs opposed the request. The Court entered an Order on January 11, 2011 granting the Petition and directing the parties to arbitrate Plaintiffs' claims. 6. On January 26, 2011, Petitioners filed a Notice of Appeal. II. DISCUSSION Arbitration agreements are governed by the Pennsylvania Uniform Arbitration Act, 42 Pa.C.S. § 7301, et. seq. An agreement to arbitrate can be asserted by Preliminary Objections or by Petition. Such agreements are favored as an effective method of dispute resolution. Pursuant to section 7304 of the Act, entitled “Court Proceedings to Compel or Stay Arbitration”, if a challenge to the agreement is raised the Court shall proceed summarily to determine the issue so raised and shall order the parties to proceed with arbitration if it finds for the moving party ”. The party seeking to enforce an agreement to arbitrate must establish that 1) the parties entered into an agreement to arbitrate their disputes and that 2) the dispute at issue falls within the scope of the arbitration agreement. Ross Dev. Co. v. Advanced Bldg. Dev. Inc, 2002 PA Super 219, 803 A.2d 194, 2002 Pa.Super. LEXIS 1510. The Ross Court noted that: *2 We begin our analysis by noting that Pennsylvania courts have long strongly favored arbitration for Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 130 of 133 Wellington v. Westrum Development Co., Not Reported in A.3d (2011) 2011 WL 9933457, 23 Pa. D. & C. 5th 353 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 2 the resolution of legal disputes. See Bashford v. West Miami Land Co., 295 Pa. 560, 145 A. 678 (1928) (holding that parties to a contract which provides for arbitration are bound by their contract to arbitrate disputes and cannot seek redress elsewhere, and every reasonable intendment will be made in favor of the validity of such agreements); Nippon Ki–Ito Kaisha, Ltd. v. Ewing–Thomas Corp., 313 Pa. 442, 170 A. 286 (1934) (holding settlements by arbitration are no longer deemed contrary to public policy) and Smith v. Cumberland Group, Ltd., 455 Pa.Super. 276. 687 A.2d 1167, 1171 (Pa.Super.1997) (holding that when parties agree to arbitrate in a clear and unmistakable manner, the court will make every reasonable effort to favor such agreements). 803 A.2d at 196 The Arbitration clause at paragraph 26 of the Sales Agreement states, in relevant part, that: Buyer hereby agrees that any and all disputes arising out of this Agreement, the Home Warranty or the construction or condition of the Premises, including, but not limited to, disputes concerning breach of contract, express and implied warranties, representations and/or omissions by Seller, on- site and off-site conditions and all other torts and statutory causes of action (“Claims”) shall be resolved by binding arbitration pursuant to the Construction Rules of Arbitration of the American Arbitration Association or its successor or an equivalent organization selected by the Seller This agreement to arbitrate shall be specifically enforceable by the parties, and each of them hereby confirm that they intend that all disputes, controversies or claims of any kind shall be arbitrated. Plaintiffs do not challenge the validity of the Arbitration clause, rather they assert that since the clause is only contained in the Sales Agreement and not in the Limited Warranty, and since the Contractor was not a signatory to the Sales Agreement, they cannot be required to arbitrate the claims that they have asserted against the Contractor. In the Answer in Opposition to the Petition to Compel Arbitration, Plaintiffs state at ¶ 17 “Indeed, the arbitration clause in the Agreement of Sale specifically references only the “seller”, which is not Westrum Urban Construction, LLC The inclusion of a section providing for the resolution of disputes, coupled with the noticeable absence of any reference to arbitration, makes it abundantly clear that the parties did not agree to arbitrate the claims against a defendant where no such contractual agreement exists, this Court must retain jurisdiction over all claims asserted against Westrum Urban Construction, LLC. The remaining claims against Westrum BT. L.P. are based on the exact same common nucleus of operative facts, and it would be an extraordinary waste of resources, and a great financial strain to Plaintiffs, to require dual litigation of the same claims in two different venues.... ” *3 Plaintiffs' logic supports the Court's contrary finding as it would be an extraordinary waste of resources, not to mention an affront to the policy of judicial economy to require litigation where the parties clearly intended for the arbitration of “any and all disputes arising out of this Agreement, the Home Warranty or the construction or condition of the Premises.... ” The fact that the Contractor is not a signatory of the Sales Agreement does not undermine the agreement to arbitrate. Dodds v. Pulte Home Corporation, et. al 2006 PA Super 268; 909 A.2d 348; 2006 Pa.Super. LEXIS 3050 is instructive on this point and compels the Court's finding that the disputes at issue should be arbitrated. In Dodds, homeowners filed suit against the builders and sellers of their homes. The defendants appealed the trial court's denial of their motion for summary judgment, which requested that the matter be remanded for arbitration. The plaintiffs argued that the inclusion of claims alleging fraud and violation of the UTPCPL, as well as the fact that a non-signatory to the arbitration agreement was named as a defendant took their litigation out of the ambit of Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 131 of 133 Wellington v. Westrum Development Co., Not Reported in A.3d (2011) 2011 WL 9933457, 23 Pa. D. & C. 5th 353 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 3 arbitration. The Superior Court disagreed and reversed the trial court's order relying upon an earlier 1998 decision in Shadduck v. Christopher J. Kaclik, Inc., 713 A.2d 635; 1998 Pa.Super LEXIS 830, and held: The parties to an agreement cannot attempt to defeat an arbitration clause simply by adding fraud allegations to what is essentially a contract claim or by adding a principal as a defendant who was not a party to the agreement. The gist of these actions is in contract, and, therefore, we conclude that the parties are bound by their arbitration agreements. 909 A.2d at 350. On the issue of a non-signatory to the arbitration agreement, the Dodds Court noted that non-signatories to a contract may be covered by an arbitration clause if that is the signing parties' intent: Here, the interests of PHC are the same as those of PHCDV 2 . An arbitration agreement would be of little value if a party could obviate the effect of the agreement merely by finding a way to join another party. In no event could the arbitration clause of PHCDV be defeated by adding PHC to the complaint, and because PHC wishes to enforce the arbitration agreement rather than avoid it, Plaintiffs, as signatories to the arbitration agreement, should not be able to avoid the requirement to arbitrate by a non-signatory when the non-signatory wants to arbitrate. 2 PHC was the parent corporation of PHCDV, against whom the breach of contract claim was asserted. The defendants were identified as the builder and seller of the homes. Id. at 352. Plaintiffs are attempting to avoid arbitration by claiming that the contractor, Westrum Urban Construction LLC, was not a signatory to the Sales Agreement, thus removing any claims against the Contractor out of the ambit of arbitration. This argument is disingenuous; the Plaintiffs collectively refer to the Defendants as “Westrum” throughout the Amended Complaint, also noting that the Defendants share the same business address. Additionally, the contractual documents at issue, the Agreement of Sale and the Limited Warranty, reference that the seller, Westrum BT, L.P., will have the Contractor provide a Limited Warranty of construction of the premises. The Sales Agreement includes verbatim the warranty language contained in the Limited Warranty. *4 The Arbitration clause in the Agreement of Sale encompasses the Limited Warranty as it references that all disputes arising out of the “Home Warranty” will be arbitrated and as no other warranties have been referenced by the parties, the reasonable conclusion is that the Limited Warranty is the warranty referenced in the Arbitration clause. The Agreement of Sale further references Westrum Urban Construction, LLC, as the contractor/builder. And, although the Sales Agreement was executed prior to the extension of the Limited Warranty, which by agreement could not have occurred until settlement, the Sales Agreement repeatedly references construction of the units and sets forth a construction schedule. Moreover, Plaintiffs' argument that the Contractor's status as “non-signatory” prevents arbitration of their claims against the contractor is undercut by the Dodds decision. Plaintiffs, as signatories to the Arbitration clause, should not be able to avoid arbitration, especially in light of the fact that both Defendants are seeking arbitration and the clause at issue covers the claims raised by Plaintiffs in their Amended Complaint. Two final points that need to be addressed include the Plaintiffs' assertion, not raised in their Answer in Opposition to the Petition to Compel Arbitration but in the supporting Memorandum of Law, that the Sales Agreement is a contract of adhesion. The fact that a contract may be found to be one of adhesion, a standard form contract prepared by one party to be signed by the party in a weaker position who has little choice about the terms, does not void the agreement. Rather, the party challenging a contract on that basis must establish that the contract is unconscionable on the basis that one of the parties must lack a meaningful choice about whether Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 132 of 133 Wellington v. Westrum Development Co., Not Reported in A.3d (2011) 2011 WL 9933457, 23 Pa. D. & C. 5th 353 © 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 to accept the provision in question and the challenged provision must unreasonable favor the other party to the contract. See Salley v. Option One Mortg. Corp., 592 Pa. 323; 925 a.2d 115; 2007 Pa. LEXIS 1195. This Court finds that the Sales Agreement is not unconscionable so as to void it; thus the Arbitration clause is enforceable. 3 3 Factors that are considered in determining the unconscionability of an arbitration agreement include the educational background of a party and whether there was any challenge raised to the agreement. Plaintiffs have not claimed that they attempted to negotiate the elimination of the clause from the Sales Agreement. Additionally, Plaintiff, Dashika Wellington is an attorney and has been since 2001. She is representing herself as well as the Flynns in this matter. Secondly, Plaintiffs assert that arbitration is not a viable option in this matter since “AAA, on its own ceased hearing certain consumer claims due to concerns of institutional bias against consumers ” 4 . The Arbitration clause provides that the arbitration will be conducted “pursuant to the Construction Rules of Arbitration of the American Arbitration Association ”. In July of 2009, AAA voluntarily decided to suspend arbitration of consumer debt collection cases. At that time, AAA recommended to the House of Representatives that additional due process protocols where necessary for these types of cases 5 . The matter at issue is not subject to AAA's self-imposed suspension. Thus, the suspension provides no bar to the arbitration of Plaintiffs' claims pursuant to AAA's construction rules of arbitration. 4 ¶ 17 of Plaintiffs' Answer in Opposition to the Petition to Compel Arbitration. 5 A copy of the announcement is attached as an exhibit to this Opinion. III. CONCLUSION *5 The Sales Agreement between the Plaintiffs and the Defendant–Seller includes an Arbitration clause, which this Court finds addresses all of the claims raised in the Amended Complaint, including those directed to the Defendant–Contractor. Plaintiffs' argument that the Defendant–Contractor is a non-signatory to the Agreement, and thus arbitration of the claims against that party cannot be required, is undercut by the Dodds decision. There is an obvious and close nexus between the Defendants, who share a business address and whom the Plaintiffs collectively referred to as the Defendants and/or Westrum in the Amended Complaint. The Court properly granted Defendants' Petition to Compel Arbitration. Accordingly, appellate relief is not warranted. All Citations Not Reported in A.3d, 2011 WL 9933457, 23 Pa. D. & C. 5th 353 End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works. Case 4:16-cv-01345-MWB Document 59-1 Filed 05/01/17 Page 133 of 133