Opinion
No. 1 CA-CV 16-0029
09-19-2017
THOMAS LINNEN, Plaintiff/Appellee, v. ATP FLIGHT ACADEMY OF ARIZONA, LLC; JOSH KLEIN, Defendants/Appellants.
COUNSEL Hinshaw & Culbertson, LLP, Phoenix By Timothy I. McCulloch, Bradley L. Dunn Counsel for Plaintiff/Appellee Jennings Strouss & Salmon, PLC, Phoenix By John J. Egbert Counsel for Defendants/Appellants
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2015-004035
The Honorable Roger E. Brodman, Judge
REVERSED
COUNSEL Hinshaw & Culbertson, LLP, Phoenix
By Timothy I. McCulloch, Bradley L. Dunn
Counsel for Plaintiff/Appellee Jennings Strouss & Salmon, PLC, Phoenix
By John J. Egbert
Counsel for Defendants/Appellants
MEMORANDUM DECISION
Presiding Judge Peter B. Swann delivered the decision of the court, in which Judge Donn Kessler (retired) and Judge Randall M. Howe joined. SWANN, Judge:
¶1 This is an appeal from the superior court's refusal to enforce an arbitration clause. Because the contract at issue clearly and unambiguously delegates arbitrability determinations to the arbitrators, and the appellee did not specifically challenge the delegation provision as required under Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), we reverse.
FACTS AND PROCEDURAL HISTORY
¶2 Thomas Linnen attended Arizona State University's professional flight program, for which ATP Flight Academy of Arizona, LLC, manages flight training. After being dismissed from the program in 2014, Linnen filed a contract and tort action against, as relevant to this appeal, ATP and ATP employee Josh Klein.
¶3 ATP and Klein filed a motion to dismiss and compel arbitration, arguing that the claims against them were subject to arbitration by a three-person panel under the arbitration clause of a Flight School Agreement, Waiver of Liability, Release, and Agreement to Arbitrate that Linnen and ATP entered in 2012. Linnen responded that the agreement and the arbitration clause were unconscionable and adhesionary, and therefore unenforceable. ATP and Klein replied that the court could not consider Linnen's arguments because a provision in the arbitration clause expressly delegated to the arbitrators all questions regarding enforceability. They also argued, in the alternative, that Linnen's arguments failed on the merits.
¶4 The superior court addressed Linnen's enforceability arguments and concluded that the arbitration clause was substantively unconscionable. Accordingly, the court refused to enforce the arbitration clause, and it denied ATP and Klein's motion to dismiss and compel arbitration. The court then denied ATP and Klein's motion for reconsideration.
¶5 ATP and Klein appeal. They challenge only the court's determination that it could decide the arbitration clause's enforceability.
DISCUSSION
¶6 The arbitration clause states that the agreement is governed by the Federal Arbitration Act, and the parties do not dispute that federal law therefore governs the dispute. See Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th Cir. 2015). Our standard of review is de novo. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999).
¶7 Questions of arbitrability typically are decided by the court. AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986). But because arbitration is a matter of contract, parties may agree to delegate arbitrability determinations to the arbitrator. Rent-A-Center, 561 U.S. at 68-69. An effective delegation requires "'clea[r] and unmistakabl[e]' evidence" that the parties agreed to arbitrate arbitrability. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (alteration in original) (citation omitted); see also Rent-A-Center, 561 U.S. at 69 n.1. The parties dispute whether such evidence is present here.
¶8 The delegation provision provides:
[Linnen] agrees that any claim, dispute, or controversy (whether in contract, tort, or otherwise) arising from or relating to this Flight School Agreement and Waiver of Liability or the relationships which result from this contract, including the validity or enforceability of this arbitration clause or any part thereof or the entire contract, shall be resolved by binding arbitration under the Rules of the American Arbitration Association and the Federal Arbitration Act in Atlanta, Georgia.(Emphasis added). The delegation provision clearly and unambiguously provides that the enforceability of the agreement, and the arbitration clause, are to be decided by arbitration. The delegation provision's reference to the Rules of the American Arbitration Association, which authorize arbitrators to determine the enforceability of arbitration agreements, also is consistent with delegation. See Brennan, 796 F.3d at 1128, 1130 (joining "[v]irtually every circuit" in holding that "incorporation of the [AAA] rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability" (alteration in original)).
¶9 Linnen contends that the delegation provision is undercut by the arbitration clause's final sentence, which states:
In the event of any litigation arising from or related to this agreement or any other agreements or dealings between the parties, the parties select as the sole and exclusive venue for any such litigation the state and federal courts in Atlanta, Georgia.Linnen argues that this venue provision conflicts with the delegation provision and creates ambiguity regarding whether the parties intended to submit arbitrability issues to arbitration. We perceive no conflict and no ambiguity. As the Ninth Circuit aptly observed in Mohamed v. Uber Technologies, Inc., "[n]o matter how broad the arbitration clause, it may be necessary to file an action in court to enforce an arbitration agreement, or to obtain a judgment enforcing an arbitration award, and the parties may need to invoke the jurisdiction of a court to obtain other remedies." 848 F.3d 1201, 1209 (9th Cir. 2016) (alteration in original) (quoting Dream Theater, Inc. v. Dream Theater, 124 Cal. App. 4th 547, 556 (2004)). A venue provision intended for such purposes does not undermine an unambiguous arbitrability delegation. Id. Here, nothing in the venue provision directs the courts to decide arbitrability disputes — or, indeed, any particular type of dispute. The venue provision simply states that if any litigation occurs, it must be conducted in Georgia courts.
¶10 Linnen also implies that the delegation provision is undercut by the agreement's severability provision, which states:
If any of the provisions of this Agreement are declared to be invalid or unenforceable, such provisions shall be severed from this Agreement and the remaining provisions shall remain in full force and effect.The severability provision creates no conflict. It does not state or even suggest that the court shall decide arbitrability. It merely provides that severability principles apply to the decision itself.
¶11 Because the agreement invoked the Federal Arbitration Act, we are bound by the Supreme Court's decision in Rent-A-Center. There, the Court held that a delegation provision must be treated as valid and enforceable unless the party seeking to avoid arbitration challenges the delegation provision specifically — it is not enough merely to challenge the contract, or even the arbitration clause. Rent-A-Center, 561 U.S. at 72-76. Here, Linnen argued in response to the motion to compel arbitration that the "Agreement and its arbitration clause" were unenforceable. Linnen contends on appeal that he was not obligated to use the "magical words 'delegation provision'" to challenge the delegation provision. We agree that no specific terminology is required to create a challenge to a delegation provision. But it is clear from the substance of Linnen's arguments that he made no distinct challenge to the delegation of enforceability determinations — as opposed to decisions generally. Though Linnen's argument is not unpersuasive, it cannot succeed under the clear holding of Rent-A-Center.
At oral argument on appeal, Linnen relied on Rent-A-Center and Mercadante v. XE Services, LLC, 864 F. Supp. 2d 54 (D.D.C. 2012), to contend that the party seeking to compel arbitration must first specifically assert that there is an enforceable delegation provision. Rent-A-Center, however, held only that the party opposing arbitration must challenge delegation. 561 U.S. at 72-76. Mercadante, delving into Rent-A-Center's procedural history, concluded that Rent-A-Center so held because the party seeking arbitration in that case had specifically sought enforcement of the delegation agreement. In Mercadante, the parties seeking arbitration did not mention the delegation agreement until after the opposing parties' opportunity to respond had passed. 864 F. Supp. 2d at 56-57. But Rent-A-Center did not so limit its holding, see 561 U.S. at 72-76, and it mentions the procedural fact on which Mercadante relies only obliquely and in passing, see id. at 73 (quoting portion of reply describing argument made in motion). We further note that the court in Mercadante denied the motion to compel without prejudice, and ordered renewed briefing on the delegation-agreement issue. 864 F. Supp. 2d at 57. Here, reconsideration proceedings gave Linnen ample opportunity to respond to ATP and Klein's specific arguments concerning the delegation provision. --------
¶12 The cases that Linnen cites are distinguishable. In those cases, the arbitration agreements included language expressly contemplating that the court would decide arbitrability. See Ajamian v. CantorCO2e, L.P., 203 Cal. App. 4th 771, 792-93 (Cal. Ct. App. 2012) (even assuming that other provisions showed intent to delegate, ambiguity was created by provision contemplating that a "court of competent jurisdiction" could decide arbitrability); Hartley v. Superior Court, 196 Cal. App. 4th 1249, 1257-58 (Cal. Ct. App. 2011) (delegation provision was rendered ambiguous by severability provision stating that it would apply in the event of a determination of unenforceability "by a trier of fact of competent jurisdiction"); Baker v. Osborne Dev. Corp., 159 Cal. App. 4th 884, 891, 893-94 (Cal. Ct. App. 2008) (delegation provision was rendered ambiguous by severability provision stating that it would apply in the event of a determination of unenforceability "by the arbitrator or by any court"). No such language is present here, either in the venue provision, the severability provision, or the balance of the agreement. The delegation provision in this case clearly and unmistakably indicates that the parties intended arbitrability to be decided by arbitration.
¶13 The superior court relied on WB, The Building Co. v. El Destino, LP, 227 Ariz. 302 (App. 2011). We do not find that opinion applicable here. WB held that an arbitration clause may be challenged on the same grounds as the underlying contract, so long as the arbitration-clause challenge is separate and distinct. Id. at 307, ¶ 13. WB did not address delegation provisions, and nothing in its holding is inconsistent with Rent-A-Center's requirement that delegation provisions be distinctly challenged.
CONCLUSION
¶14 For the reasons set forth above, we reverse the superior court's denial of ATP and Klein's motion to dismiss and compel arbitration.