Circuit City Storesv.McLemore

United States District Court, N.D. CaliforniaDec 3, 2001
No. C 01-03309 SBA (N.D. Cal. Dec. 3, 2001)

Cases citing this case

3 Citing Cases

No. C 01-03309 SBA

December 3, 2001


ORDER


This matter comes before the Court on Circuit City Store's Petition to Compel Arbitration and to Dismiss or Stay Lawsuit Pending Arbitration [Docket No. 1-1]. On November 6, 2001, the Court ordered supplemental briefing by the parties on the applicability of the Rooker-Feldman doctrine. The Court has read and considered all of the papers submitted and considered the arguments of counsel and finds the matter is suitable for resolution without a hearing. The Court hereby DENIES Circuit City Store's Petition and DISMISSES the action for lack of subject matter jurisdiction.

I. BACKGROUND A. Factual Allegations

This action arises out of an employment dispute. The Plaintiff-Respondent, Joanne Michelle McLemore ("McLemore"), began working for the Defendant-Petitioner, Circuit City Stores, Inc. ("Circuit City"), in 1990. She originally worked as a Customer Service Manager in Calumet City, Illinois. She left the company in 1993. However, in September of 1997, McLemore returned to work for Circuit City as a Sales Manager for the Circuit City store in Hayward, California.

McLemore alleges that beginning in March of 1998, a manager at the Hayward Store, Michael McGuiness ("McGuiness"), began making sexual advances towards the Respondent. According to McLemore, this behavior became an aggressive pattern of sexual harassment and demands for sexual favors. Having repeatedly rejected his demands, the McLemore allegedly complained to the Store Manager, Shelia Francis ("Francis"), and to other employees of the Circuit City. McLemore contends that on at least six different occasions, she complained to Francis about McGuiness' conduct and Circuit City's failure to intervene. In November of 1998, McLemore went on medical leave, allegedly due to the harassment. In December of 1998, she filed a complaint with the Department of Fair Employment and Housing ("DFEH"). Circuit City eventually terminated McLemore's employment in June of 1999 while she was on sick leave.

B. Procedural History

On May 9, 2000, the Plaintiff-Respondent McLemore filed a complaint in California state court against Defendant-Petitioner Circuit City, and Defendants McGuiness and Francis. She alleged seven causes of action based on the alleged sexual harassment, all based on violations of California statutory and common law. On September 1, 2000, Defendant-Petitioner Circuit filed a petition to compel arbitration and to dismiss or stay the lawsuit pending arbitration. Circuit City contended that McLemore had signed a Dispute Resolution Agreement ("DRA") which included provisions requiring mandatory, binding arbitration pursuant to the Federal Arbitration Act ("FAA") and the Virginia Arbitration Act ("VAA"). On November 26, 2000, the superior court granted Circuit City's petition to compel arbitration and stayed the case.

Circuit City, McGuiness and Francis are defendants in the state case. For sake of convenience, the Court shall refer to Circuit City, McGuiness and Francis as "Defendants" even though they are not defendants in the action before this Court. To the extent it is necessary, the Court shall also refer to Circuit City as "Petitioner" in order to emphasize its status in the present motion.

Circuit City apparently filed a petition to compel arbitration on August 3, 2000, but it was withdrawn and replaced with the petition filed on September 1, 2000.

Subsequently, on January 25, 2001, McLemore filed a petition for a writ of mandate with the California Court of Appeal. On February 15, 2001, that court issued an alternative writ reversing the superior court. Circuit City then filed a return to the alternative writ of mandate with the appellate court on March 16, 2001. Following briefing, on May 21, 2001, the Court of Appeal issued its opinion directing an evidentiary hearing to determine which DRA, if any, was applicable and whether it was enforceable. This was followed on July 26, 2001, by a peremptory writ of mandate by the appellate court directing the superior court to set aside its order to compel arbitration and to conduct an evidentiary hearing. On August 30, 2001, before that hearing was held, Circuit City filed the present action with this Court.

II. DISCUSSION A. Legal Standard

Defendant-Petitioner Circuit City seeks an order compelling arbitration and staying the pending state court proceeding pending arbitration. The Federal Arbitration Act ("FAA") provides that arbitration agreements governed by the Act "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA was created to "reverse the longstanding judicial hostility to arbitration agreements" and "to place arbitration agreements on the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651 (1991) (citations omitted). The Supreme Court has held that the FAA is applicable to both commercial and employment contracts and covers employment-related claims. See Circuit City Stores v. Adams, 532 U.S. 105, ___, 121 S.Ct. 1302, 1312 (2001).

The role of a district court in determining whether to compel arbitration is limited. "[T]he sole question is whether the arbitration clause at issue is valid and enforceable under § 2 of the Federal Arbitration Act." Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 937 (9th Cir. 2001), citing Chiron Corp. v. Ortho Diagnostic Sys. Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 680 (8th Cir. 2001). In determining whether the clause is valid and enforceable under the FAA, a district court may enforce state law defenses "concerning the validity, recoverability, and enforceability of contracts" so long as those defenses apply to all contracts and not just arbitration contracts. See Ticknor, 265 F.3d at 937, citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652 (1996). However, in making this determination, "federal courts may not address the validity or enforceability of the contract as a whole." Ticknor, 265 F.3d at 937, citing Prima Paint v. Flood Conklin Mfg. Co., 388 U.S. 395, 401, 87 S.Ct. 1801 (1967).

Section 2 of the FAA evinces "a liberal federal policy favoring arbitration agreements, not withstanding any state substantive or procedural polices to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941 (1983). Thus, in creating the FAA, Congress created a "body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Id. While this body of law was meant to pre-empt state laws or policies which are contrary to the FAA, "state law is not entirely displaced under the arbitration analysis." Ticknor, 265 F.3d 936-37, citing Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 285, Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520 (1987). Rather, as noted above, state law governing the validity and enforceability of contracts is applicable to arbitration agreements under the FAA so long as those state laws are not particularly aimed at arbitration agreements. See id., citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652 (1996).

B. Jurisdiction

Before the district court can determine whether or not there is a valid and enforceable arbitration agreement, the Court must first determine whether it has jurisdiction to entertain the matter. Pursuant to the FAA, "[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 court which, save for such agreement would have jurisdiction under Title 28 . . . 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 provided by the agreement." 9 U.S.C. § 4. The FAA does not itself provide a basis for jurisdiction. See Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 860, n. 9 (1984). "Rather, § 4 of the FAA `provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue.'" Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d 1045, 1050 (9th Cir. 1999), citing Moses H. Cone, 460 U.S. at 25 n. 32, 103 S.Ct. 927.

1. Diversity Jurisdiction

A district court has original jurisdiction over a civil action where the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and there is diversity of citizenship between the parties. See 28 U.S.C. § 1332.

a. Diversity of Citizenship

Section 1332 has been interpreted to require complete diversity. See Strawbridge v. Curtiss, 3 Cranch 267, 2 L.Ed. 435 (1806). McLemore contends that there is no complete diversity in this case. McLemore is a citizen of California. Circuit City is a corporation incorporated in the state of Virginia and, therefore, is considered a citizen of Virginia for purposes of diversity jurisdiction. See 28 U.S.C. § 1332(c). However, Defendants McGuiness and Francis are citizens of California. Thus, for purposes of the underlying state court action, there is not complete diversity between McLemore and the Defendants and, therefore, this Court would not have jurisdiction over McLemore's complaint for damages.

Section 1332 provides that "a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c). No information has been provided about Circuit City's principal place of business. However, McLemore does not contest the fact that there is diversity between McLemore and Circuit City.

However, Circuit City claims that for purposes of determining diversity jurisdiction in a motion to compel arbitration, the district court only looks to the parties to the petition. Thus, since the only parties involved in the petition are McLemore and Circuit City, there is complete diversity. The Ninth Circuit has not yet decided the issue of diversity in a petition to compel arbitration. Other Circuits, however, have found that diversity is determined by reference to the parties to the petition to compel arbitration and not the underlying state court action. See MS Dealer Service Corp. v. Franklin, 177 F.3d 942, 945 (11th Cir. 1999) (noting that "as a matter of both § 1332's language and common sense" whether the related state cause of action is removable "`does not affect jurisdiction in this, an independent action' to compel arbitration." (citations omitted)); Doctors Assocs., Inc. v. Hamilton, 150 F.3d 157, 161 (2d Cir. 1998) (diversity jurisdiction based on reference to parties to petition to compel arbitration, not state court action);Prudential-Bache Secs. v. Fitch, 966 F.2d 981, 988-89 (5th Cir. 1993) (jurisdiction for petition to compel arbitration determined by petitions's face).

As the Second Circuit explained in Doctor's Assocs., section 4 of the FAA refers to jurisdiction over a suit "arising out of the controversy between the parties." See Doctor's Assocs., 150 F.3d at 161, citing 9 U.S.C. § 4. The court interpreted this language to refer to the dispute between the parties to the petition to compel arbitration. See id., citing Doctor's Assocs v. Distajo, 66 F.3d 438, 445 (2d Cir. 1995). The Second Circuit "declined to determine diversity of citizenship by reference to the parties named in a parallel state action `because a party resisting arbitration could defeat federal jurisdiction simply by suing someone from the same state, plus the party seeking to compel arbitration, in a separate state lawsuit.'" Id., citing Distajo, 66 F.3d at 445.

The reasoning of the Second Circuit in Doctor's Assocs. is persuasive. As with any other action before a federal court, in determining whether there is jurisdiction under section 1332, the court looks to the named parties as well as any indispensable or necessary parties as determined under Federal Rule of Civil Procedure 19. See Doctor's Assocs., 150 F.3d at 161. Indeed, as noted by that court, a plaintiff could always defeat federal court jurisdiction by suing a non-diverse party and so effectively render section 4 meaningless. See id. McLemore contends that limiting a jurisdictional analysis only to the petition may force plaintiffs to split a cause of action since the cause of action may be pursued in court only against those defendants not covered by the arbitration agreement. However, the Supreme Court has rejected such an argument, noting that the "misfortune" of resolving the same dispute in different forums — state court and arbitration — is an unfortunate result of the FAA which " requires piecemeal resolution when necessary to give effect to an arbitration agreement." Moses H. Cone, 460 U.S. at 20, 103 S.Ct. at 939.

McLemore also contends that under Federal Rule of Civil Procedure 19, both Defendants McGuiness and Francis are necessary and indispensable parties to the petition to compel arbitration. If McLemore is correct, the Court would need to determine whether to dismiss because the parties are indispensable or proceed without McGuiness or Francis. See Fed.R.Civ.P. 19(b). In particular, McLemore argues that McGuiness is particularly indispensable because Circuit City is likely to claim that McGuiness' conduct was unauthorized and beyond the scope of his employment and, as such, there is no obligation for indemnification.

However, it appears the only issue to be resolved in arbitration is Circuit City's potential liability based on McLemore's allegations. Should Circuit City attempt to deflect liability solely to McGuiness, McGuiness' presence as a party — and not as a witness — is not necessary for the determination of Circuit City's liability. As to any individual liability of McGuiness, this may be resolved in the separate state court proceeding. Whether McGuiness would be entitled to indemnification from Circuit City would be an issue separate from Circuit City's liability to McLemore. As the Fifth Circuit has noted, such a piecemeal resolution is the result of the FAA and so Rule 19 should not be used to defeat jurisdiction under section 4 of the FAA simply because the same claim must be pursued in separate forums. See e.g., Snap-On Tools Corp. v. Mason, 18 F.3d 1261, 1267 (5th Cir. 1994). Neither McGuiness nor Francis is indispensable to Circuit City's petition to compel arbitration.

Circuit City has also contended that this Court has the authority to order McLemore to arbitrate all her claims against all of the defendants because McGuiness and Francis are being sued in their managerial capacity. The authority cited by Circuit City, Britton v. Co-op Banking Group, 4 F.3d 742, 745 (9th Cir. 1993), provides that a non-signatory (1) third-party beneficiary; (2) successor-in-interest; or (3) agent may be able to enforce the arbitration agreement. The non-signatories — McGuiness and Francis — have not petitioned the Court and, therefore, whether the Court has authority to compel arbitration of their claims is not before the Court. More importantly, if Circuit City is correct, then both McGuiness and Francis would be parties to this action and there would be no diversity of citizenship resulting in a lack jurisdiction.

b. Amount in Controversy

The issue of amount in controversy in the context of a petition to compel arbitration has apparently not been addressed by the Ninth Circuit. The Second Circuit stated in Doctor's Assocs. that "in the context of a petition to compel arbitration, we have advised district courts to `look through to the possible award resulting from the desired arbitration, since the petition to compel arbitration is only the initial step in a litigation which seeks as its goal a judgment affirming the award.'" Doctor's Assocs., 150 F.3d at 160, citing Davenport v. Procter Gamble Mfg. Co., 241 F.2d 511, 514 (2d Cir. 1957). Both the Third Circuit and the Fifth Circuit have followed Davenport in determining that the amount in controversy in a petition to compel arbitration is the amount of the potential award in the underlying arbitration proceeding.See Jumara v. State Farm Ins. Co., 55 F.3d 873, 877 (3d Cir. 1995); Webb v. Investacorp, Inc., 89 F.3d 252, 256 (5th Cir. 1996). The reasoning ofDavenport is persuasive. Since the petition to compel arbitration is solely aimed to ensure the arbitrator, not the courts, determines any potential award, the amount of the potential award in arbitration is the relevant amount in controversy.

In its petition, Circuit City has asserted that the amount in controversy exceeds $75,000. The amount claimed by the petitioner will control so long as the claim is made in good faith. See Crum v. Circus, Circus Enters., 231 F.3d 1129, 1131 (9th Cir. 2000) (citations omitted). In order to justify a dismissal based on a failure to allege an amount in controversy in excess of $75,000, it must "appear to a legal certainty" that the claim is actually less than the jurisdictional amount. See id. (citations omitted). McLemore has not challenged this amount and the Court has no reason to doubt the claim is in good faith. Therefore, it appears the amount in controversy requirement has been satisfied under 28 U.S.C. § 1332.

Based on Circuit City's petition to compel arbitration, there is diversity of citizenship and an amount in controversy in excess of $75,000. Therefore, there is an ostensible jurisdictional basis to entertain Circuit City's petitioner under the FAA. See 28 U.S.C. § 1332, 9 U.S.C. § 4. Ultimately, however, under theRooker-Feldman doctrine this Court lacks subject matter jurisdiction over Circuit City's petition to compel arbitration.

2. Rooker-Feldman Doctrine a. Legal Standard

Because the Rooker-Feldman doctrine relates to the Court's subject matter jurisdiction, the Court is obligated to address the issue sua sponte. See Worldwide Church of God v. McNair, 805 F.2d 888, 890 (9th Cir. 1986), citing Solano v. Beilby, 761 F.2d 1369, 1370 (9th Cir. 1985); Roberts v. Los Angeles City Fire Dept., 86 F. Supp.2d 990, 993 (C.D.Cal. 2000). For this reason, the Court ordered supplemental briefing by the parties on the applicability of the Rooker-Feldman doctrine.

The Rooker-Feldman doctrine provides that a federal district court may exercise only original jurisdiction and thus may not exercise appellate jurisdiction over state court decisions. See Dubinka v. Judges of the Superior Court of California, 23 F.3d 218, 221 (9th Cir. 1994), citingDistrict of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482-86, 103 S.Ct. 1303, 1314-17 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16, 44 S.Ct. 149, 150 (1923); see also 28 U.S.C. § 1257(a). "The purpose of the doctrine is to protect state judgments from collateral federal attack. Because district courts lack power to hear direct appeals from state court decisions, they must decline jurisdiction whenever they are `in essence called upon to review the state court decision.'" Doe Associates Law Offices v. Napolitano, 252 F.3d 1026, 1029 (9th Cir. 2001); see also Board of Trustees of Leland Stanford Junior University v. Modual A/C Systems, Inc., 54 F. Supp.2d 965, 969 (N.D.Cal. 1999) (noting that Rooker-Feldman doctrine derived from both federalism and comity), citing Howlett v. Rose, 496 U.S. 356, 372-73, 110 S.Ct. 2430 (1990), Martin v. Wilks, 490 U.S. 755, 783, 109 S.Ct. 2180 (1989).

The doctrine applies even if the state court decision involves a resolution of federal law. See Feldman, 460 U.S. at 484-86, 103 S.Ct. at 1316 (no jurisdiction even when challenge to constitutional guarantees to due process and equal protection) (citations omitted); McNair, 805 F.2d at 891. This is because state courts are considered as competent as the federal courts to decide issues of federal law. See McNair, 805 F.2d at 891, citing Allen v. McCurry, 449 U.S. 90, 105, 101 S.Ct. 411, 420 (1980), Huffman v. Pursue, Ltd., 420 U.S. 592, 611, 95 S.Ct. 1200, 1211 (1975). The Rooker-Feldman doctrine applies to decisions by both the state's highest court as well as lower state courts. See McNair, 805 F.2d at 893 n. 3 ("We agree with the Second and Fifth Circuits that the Feldman doctrine should apply to state judgments even though state court appeals are not final."). Additionally, since federal review of an interlocutory decision would be a collateral federal attack on a state court decision, the Rooker-Feldman doctrine applies to interlocutory decisions by state courts as well as final decisions. Doe Associates Law Offices, 252 F.3d at 1029, citing Richardson v. D.C. Ct. of App., 83 F.3d 1513, 1515 (D.C. Cir. 1996).

While the Rooker-Feldman doctrine precludes a district court from reviewing state court decisions, "the court does have jurisdiction over a general constitutional challenge that does not require review of a final state court decision in a particular case." Dubinka, 23 F.3d at 221, citing Feldman, 40 U.S. at 482-86, 103 S.Ct. at 1314-17; McNair, 805 F.2d at 891. The determination of whether the challenge is an impermissible challenge of a particular state court decision or a permissible general constitutional challenge is "subtle, and difficult to make," McNair, 805 F.2d at 891 (citations omitted), and turns on whether the "constitutional claims are `inextricably intertwined' with the state court's ruling in a particular plaintiff's state case." Dubinka, 23 F.3d at 221, citingFeldman, 460 U.S. at 483-84 n. 16, 103 S.Ct. at 1315-16 n. 16; McNair, 805 F.2d at 892. Generally, courts have found a case is inextricably intertwined if a district court must scrutinize not only the challenged rule, but also the state court's application of the rule to the particular plaintiff. See McNair, 805 F.2d at 892, citing Razatos v. Colorado Supreme Court, 746 F.2d 1429, 1433 (10th Cir. 1984).

b. Analysis

The Rooker-Feldman doctrine is applicable to this case as Circuit City is essentially seeking a review of the California Court of Appeal's decision reversing the superior court's order granting Circuit City's petition to compel arbitration and stay the case. While there is no Ninth Circuit opinion on point, other court's confronting this issue have consistently found that there was no subject matter jurisdiction over a petition to compel arbitration after the petitioner had previously sought a petition in state court and the state court had ruled on the merits of the petition. See Brown Root, Inc. v. Breckenridge, 211 F.3d 194 (4th Cir. 2000); Wanderlust Pictures, Inc. v. Empire Entertainment Group, LLC, 2001 WL 82095, at *4-6 (S.D.N.Y., July 19, 2001);International Cement Aggregates, Inc. v. Antilles Cement Corp., 62 F. Supp.2d 412, 414-16 (D.P.R. 1999); Brown Root, Inc. v. Breckenridge, 187 F.R.D. 259, 261-62 (S.D.W. Va. 1999), affirmed in 211 F.3d 194. In those cases involving a petition to compel arbitration where courts have found the Rooker-Feldman doctrine did not bar the claim, the petition was filed in federal court before the state courts had yet to rule on the merits. See Doctor's Assocs. v. Distajo, 107 F.3d 126, 138 (2d Cir. 1997); Central Reserve Life Ins. Co. v. Marello, 2001 WL 41229, at *4 (E.D.Pa., Jan. 17, 2001). Thus the critical question is whether a state court had yet ruled on the merits of the issues.

There is one case from the Northern District in which the court rejected the plaintiff's argument that Rooker-Feldman barred the petition to compel. See Nadeau v. Thomas, 1997 WL 542708, at *2 (N.D.Cal., Aug. 21, 1997). However, in that case the plaintiff had filed actions in both state and federal court and the defendant filed a responsive petition to compel arbitration in each of those courts. As Judge Williams noted, the defendants were entitled to defend both actions and found that neither party filed the case in an attempt to have the district court review a state court decision. See id. As there are no concurrent cases involved in this action, Nadeau offers little guidance for the resolution of this case.

In Doctor's Assocs. v. Distajo, the Second Circuit noted that it had not found any cases which applied Rooker-Feldman to a petition for compel arbitration. See Doctors Assocs., 107 F.3d at 138. However, since that decision, the Fourth Circuit and numerous district court cases have applied Rooker-Feldman to situations similar to the present action.

The Fourth Circuit's opinion in Brown Root is particularly instructive. In Brown Root, the district court found it lacked subject matter jurisdiction under the Rooker-Feldman doctrine and the Fourth Circuit affirmed. The Fourth Circuit rejected the defendant's argument that it raised unresolved and independent claims in the federal court based on the FAA. See Brown Root, 211 F.3d at 199. The court reviewed the state court proceedings and determined that "the defendant raised and the state court actually decided the question of the FAA's application to this case" and that the petition sought "precisely the same relief denied by the state trial court." Id. at 199-200. The Fourth Circuit also found that the defendant had a reasonable opportunity to raise its federal claims and took advantage of that opportunity, although unsuccessfully. See id. at 201-201. As the Fourth Circuit concluded,

In Brown Root, the plaintiff had filed an employment discrimination claim in state court. The defendant filed a petition to compel arbitration which the state court denied. The defendant then sought appellate review and ultimately filed a petition for a writ of certiorari with the United States Supreme Court. While the petition for certiorari was still pending, the defendant filed a petition to compel arbitration in federal court.

Brown Root took its best shot on its motion to compel arbitration in the state courts. It lost in that effort and now seeks to avoid the Rooker-Feldman bar by attempting to recast in various ways what occurred in the state trial court. But no matter how many ways Brown Root tries to renovate its claim, the result is the same: Brown Root cannot obtain what amounts to appellate review of a state court decision in federal district court. Respect for state judicial processes and deference to congressional judgment require no less.
Id. at 202.

As in Brown Root, Circuit City is effectively seeking review of the decision by the California Court of Appeal. Circuit City filed essentially the same petition now pending before this court with the California superior court approximately one year ago. In its petition, Circuit City made most of the same arguments presented here, save the arguments about federal court jurisdiction which were obviously irrelevant to the state court proceeding. In particular, in its original petition, Circuit City contended that the arbitration agreement was governed by the FAA and the VAA, not California law, and thus cited most of the same federal authority which it now presents. It further argued that even if California law was applied the contract was still enforceable. Based on these arguments, the superior court granted Circuit City's the petition.

A comparison of the petition before this court with the original petition and memorandum before the superior court, as well as both the return to the alternative writ filed by the appellate court and the supplemental briefing on the applicability of Circuit City v. Adams, reveals strong similarities between the arguments and authority cited by Circuit City to the California state courts and the arguments and authority presented to this Court in the petition and reply brief. For example, Circuit City cites nearly all of the same federal cases on the issue of enforcing the DRA. Additionally, the arguments on the enforceability of the DRA under California law are identical. The critical question is whether there was an opportunity to present the federal claims, not whether the)) actually were presented. However, a review of the briefs demonstrates that Circuit City did in fact present most of the same arguments to the state court which are now made to this Court.

However, McLemore sought review by the California Court of Appeal. Again Circuit City had an opportunity to raise the same arguments and it took advantage of that opportunity. Indeed, following the Supreme Court's decision in Circuit City v. Adams, the appellate court directed the parties to submit supplemental briefing on the effect of Adams on the issues before the appellate court. Ultimately the appellate court decided arbitration agreements in employment contracts were enforceable under both the FAA and California law. However, the Court of Appeals decided it was necessary to determine whether this particular arbitration agreement was enforceable. Thus, it directed the superior court to determine which DRA applied to the controversy and also whether it was enforceable under California law. Additionally, the appellate court reversed the order compelling arbitration. It was at this point that Circuit City filed its petition with this Court.

Without addressing the merits of the petition, these very same issues may require resolution by this Court. This underscores the similarity between the previous state court proceedings and the present petition before this Court.

Thus there were two California state court decisions on the same petition which is now presented to this Court. Circuit City had the opportunity, and availed itself thereof, to raise the arguments it is now presenting to this Court to both the state superior and appellate courts. In fact, some of the arguments appearing in Circuit City's briefs before this Court are identical to those made in its original petition before the California state courts. It was only after the unfavorable ruling by the California Court of Appeal that Circuit City filed its petition with this Court. It would be difficult for this Court to decide the issue without implicitly or explicitly reviewing the state courts' decision. The principles of comity and federalism on whichRooker-Feldman are based preclude the very result Circuit City now seeks. As such, this Court lacks subject matter jurisdiction over Circuit City's petition to compel arbitration.

The fact that the issue is still before the California superior court does not obviate the effect of Rooker-Feldman. It is true that, based on the appellate court's decision, the issue of whether the parties should be compelled to arbitrate the claims is still before that court. However, the appellate court has ruled on the federal issues — e.g., deciding that the FAA applies to employment contracts — and now all that is left is the determination of which DRA applies and whether it is enforceable. Since Circuit City had the opportunity to present the federal issues, Rooker-Feldman is implicated even though the ultimate issue an order compelling arbitration remains before the state court.

The Defendant-Petitioner's arguments do not persuade otherwise. As a preliminary matter, Circuit City relies upon Bates v. Jones, 131 F.3d 843 (9th Cir. 1997) to support its position that Rooker-Feldman does not apply to the case at bar. Bates stands for the proposition thatRooker-Feldman does not apply when there are different parties to the state and federal suits. See Bates, 131 F.3d at 862-64. Despite Circuit City's focus on the language in Bates that Rooker-Feldman applies to "judgments," not decisions on "issues," the key to Bates' analysis is the fact that the state and federal cases were "unrelated." See id. at 862. The Ninth Circuit noted that Rooker-Feldman would only be applicable when a party files a federal suit seeking review of the state court decision involving the same parties since only a party to an action can seek appellate review. See Bates, 131 F.3d at 862. In this case, the parties are identical in both the state and federal suits. Thus, Bates is inapposite.

As discussed above, the Ninth Circuit has recognized thatRooker-Feldman applies to interlocutory orders as well as final judgments. See Doe Associates Law Offices, 252 F.3d at 1029. The use of "judgments" as opposed to "issues" in Bates, which preceded Doe Law Associates, was clearly intended to stress the fact that the state court decision was only binding upon parties to the action and not others who filed unrelated claims concerning the same legal issues. See Bates, 131 F.3d at 862.

Circuit City also contends that the "unique procedural posture" of this case renders Rooker-Feldman inapplicable. According to Circuit City, it was "forced" to file it's petition to compel arbitration in state court rather than federal court based on the law in the Ninth Circuit at the time McLemore filed her state court complaint. Circuit City contends that it filed this "independent" petition after the Supreme Court's ruling inCircuit City v. Adams and that there was no attempt to appeal any state court decision.

As a preliminary matter, Circuit City's characterization of the situation is not accurate. The Ninth Circuit did not hold that a motion to compel arbitration could only be brought in state court or that federal courts lack jurisdiction to hear a petition to compel arbitration. Rather, the Ninth Circuit's interpretation of the FAA was unfavorable to the Petitioner's position; the Ninth Circuit held inCircuit City Stores, Inc. v. Adams, 194 F.3d 1070 (9th Cir. 1999), that the FAA was not applicable to employment-related claims. Thus the Petitioner elected to seek a motion to compel arbitration in state court were the law was more receptive to the Petitioner's desired result. During this period, the Supreme Court's ruling in Circuit City v. Adams changed the law in the Ninth Circuit by finding that the FAA is applicable to employment related claims. See Adams, 532 U.S. at ___, 121 S.Ct. at 1312. Thus, the law in the Ninth Circuit suddenly became favorable to Circuit City. However, Circuit City did not immediately file the petition to compel following the Supreme Court's ruling. Rather, it was only after this second unfavorable decision by the California appellate court that Circuit City filed this action in federal court.

The United States Supreme Court handed down its decision inCircuit City v. Adams on March 21, 2001. On March 23, 2001, the California Court of Appeal directed the parties to file supplemental briefs on the effect of Adams. Circuit City complied. The appellate court issued its decision in late May 21, 2001, and later issued its mandate to the superior court on June 26, 2001. The present petition was filed on August 30, 2001, five months after Circuit City v. Adams.

More importantly, Rooker-Feldman does not turn on the availability of a federal court or the favorableness of federal versus state law. The only issue is whether the party had an opportunity to present its federal claims to the state court which decided the case. Circuit City has had at least two opportunities to make its arguments to the state courts and in fact has taken full advantage of those opportunities. The fact that it elected not to initially make those arguments in federal court because Ninth Circuit law was unfavorable to Defendant-Petitioner was a strategic decision which does not negate the application of the Rooker-Feldman doctrine.

The United States Supreme Court has noted that the fact that the nation has two independent judicial systems which may afford a litigant differing chances of success is one of the reasons that the lower federal courts were not given the power to directly review state court decisions. In discussing the matter in the context of the 1793 Anti-Injunction Act, the Court stated,

[F]rom the beginning we have had in this country two essentially separate legal systems. Each system proceeds independently of the other with ultimate review in this Court of the federal questions raised in either system. Understandably this dual court system is bound to lead to conflicts and frictions. Litigants who foresaw the possibility of more favorable treatment in one or the other system would predictably hasten to invoke the powers of whichever court it was believed would present the best chance of success. Obviously this dual system could not function if state and federal courts were free to fight each other for control of a particular case. Thus, in order to make the dual system work and "to prevent needless friction between state and federal courts," Oklahoma Packing Co. v. Oklahoma Gas Electric Co., 309 U.S. 4, 9, 60 S.Ct. 215, 218, 84 L.Ed. 537 (1940), it was necessary to work out some lines of demarcation between the two systems.
Atlantic Coast Line RR Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 286, 90 S.Ct. 1739, 1743 (1970) (emphasis added).

Circuit City's characterization of the present action as "independent" is also inappropriate. The superior court granted the very same motion premised on essentially the same arguments. The appellate court decided to review the decision and Circuit City again raised most of the same arguments it now presents to this Court. The California Court of Appeal found that the FAA does apply to employment contracts under both California and federal law; thus essentially deciding the key federal issue of the applicability of the FAA to the DRA. See Response of Petitioner Circuit City Stores, Inc. to Request for Supplemental Briefing, Ex. B at 4. However, it remanded the action to the superior court to determine whether the DRA was itself an enforceable agreement. The issues presented to this court are "inextricably intertwined" with the state court's decision concerning both the federal issues and the enforceability of the particular DRA. The Rooker-Feldman doctrine cannot be circumvented by characterizing a subsequent federal action as independent of the first when the same parties seek resolution of the same legal and factual questions presented to a state court. However, elevating a party's characterization of an action over the substance of what has transpired would effectively emasculate the Rooker-Feldman doctrine.

The fact that Circuit City stresses that it does not seek appellate review of the superior court's decision because that decision was "wholly" favorable both misses the point and undermines it argument.Rooker-Feldman is not limited only to decisions by trial courts. In this case Circuit City filed this petition only after the appellate court reversed the superior court's decision. Indeed, since the superior court's decision was favorable, it makes it would be nonsensical for Circuit City to abandon that gain by filing in federal court. Rather, it was only after the appellate court reversed this initial success that Circuit City filed the current action. Thus it is clear from the facts that Circuit City is truly seeking review of the appellate court's decision; something which this Court lacks subject matter jurisdiction to accommodate.
Circuit City's argument that it elected to file this federal action rather than "begin the petition process all over again" is equally implausible. The state courts have already ruled on the applicability of federal law and the fact that under federal law an enforceable arbitration agreement mandates a stay or dismissal. The only issue remaining is whether the DRA is enforceable and the Court of Appeal has indicated what issues the superior court must address in deciding that issue. Rather than starting over at the beginning — as would be the case in this Court — the dispute in the California state court system seems near an end.

As it stands, this Court cannot rule on Circuit City's petition without reviewing, relying on or reversing the California state court decisions. That is the very essence of the Rooker-Feldman doctrine. Based on principles of federalism and comity, this Court must assume that the state courts were and are competent to resolve the federal issues which Circuit City has raised. Under the Rooker-Feldman doctrine, this Court lacks subject matter jurisdiction and, therefore, must dismiss the action.

III. CONCLUSION

For the reasons stated above, the Court DENIES the Petition to Compel Arbitration and Stay or Dismiss the State Court Proceedings and DISMISSES the Petition FOR LACK OF SUBJECT MATTER JURISDICTION.