Opinion
CIVIL NO. SA-14-CA-769-OLG
07-08-2015
THE LAW OFFICES OF ERNESTO MARTINEZ, JR., PLLC Plaintiff, v. HELLMICH LAW GROUP, PC, and KENNIE ARRIOLA AND ASSOC. Defendants.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
TO: Honorable Orlando L. Garcia United States District Judge
Pursuant to the order of referral in the above-styled and numbered cause of action to the undersigned United States Magistrate Judge and consistent with the authority vested in United States Magistrate Judges under the provisions of 28 U.S.C. § 636(b) and rule 1 of the Local Rules for the Assignment of Duties to United States Magistrate Judges in the Western District of Texas, the following report is submitted for your review and consideration.
Docket no. 19 (May 14, 2015) (referring only the motions docketed as docket numbers 15 and 16).
I. JURISDICTION
On August 29, 2014, defendant Hellmich Law Group ("HLG") removed plaintiff's original petition to this Court from the District Court for the 131st Judicial District Court in Bexar County, Texas, based on federal diversity subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Defendant Kenny Arriola and Associates ("KAA") filed its consent to removal on September 9, 2014. Plaintiff, Law Offices of Ernesto Martinez, Jr., PLLC ("plaintiff") has not challenged federal subject matter jurisdiction.
Docket no. 1 at 2.
Docket no. 3. This report uses the spelling of "Arriola" provided by defendant Arriola in the signature block to his consent to removal. Id.
II. SUMMARY of PROCEDURAL HISTORY, CLAIMS, and ARGUMENTS
Plaintiff initiated this case in the 131st Judicial District Court of Bexar County on August 19, 2014, when it filed its original petition naming as defendants HLG and AKA (collectively, "defendants"). Plaintiff alleges defendants "ha[ve] been communicating and improperly soliciting clients of the Plaintiff in an attempt to join defendant [HLG] against [plaintiff], in an attempt to file a baseless and fraudulent claim against [plaintiff]" and "interfere with their representation." Plaintiff alleges AKA "has made defamatory and false statements along with disparaging remarks to third parties" including "disparaging words about the Plaintiff's economic interest, based on false allegations." Plaintiff alleges defendants have "suffered as a result of [defendants'] actions of communicating and contacting our clients to join in Defendants['] representation based on baseless and fraudulent claims."
Docket no. 1, exhibit A at 18-30 ("original petition").
Original petition at 2.
Id. at 2, 3.
Id. at 3.
Based on the factual allegations, plaintiff asserts four state law causes of action: (1) tortious interference with the contract between plaintiff and its clients regarding the FDIC litigation; (2) "Conspiracy to Interfere with a Business Relationship;" (3) business disparagement; and (4) defamation. As relief, plaintiff seeks damages pre- and post-judgment interest, costs, and injunctive relief. Plaintiff attaches to its original petition a single exhibit, the affidavit of Ernesto Martinez, which he incorporates by reference into the complaint.
Original petition at 2-4.
Id. at 6.
Docket no. 1, exhibit A at 27-30 ("Martinez Aff."). See also id. at 2 ("Plaintiff attaches an affidavit as Exhibit 'A' that proves the allegations in this application for injunctive relief and incorporates it by reference."). Mr. Martinez testifies, in sum and in part:
• he is lead counsel for several plaintiffs in "active litigation in the Western District of Texas (San Antonio) ["the FDIC litigation"]" (Martinez Aff. at 1-2);
• on or about August 8, 2014, he received correspondence from HLG indicating that HLG had communicated with individuals whom plaintiff represents in the FDIC litigation, and had been "retained to initiate litigation and/or arbitration against [plaintiff]" unless HLG's settlement demands were met (id.); and
• in the ten days following his receipt of the letter, certain unnamed FDIC litigation plaintiffs reported to him, in sum: (1) Hellmich and Kennie Arriola "have made attempts to contact them and solicit them into agreeing to join the representation of [HLG] against [plaintiff];" and (2) in their solicitation attempts, Hellmich and Arriola falsely represented that "at least 10 other [FDIC litigation] Plaintiffs ceased their representation with [Martinez] and have joined in [the] litigation" against plaintiff (id. at 2).
On August 29, 2014, HLG removed plaintiff's state case to this Court, asserting diversity jurisdiction exists over plaintiff's claims. On September 2, 2014, KAA filed its consent to removal. AKA's consent is filed pro se and is signed by Kennie Arriola, who represents that "the name 'Kennie Arriola and Associates' is a name used for the business and is not the name of a legally formed organization or entity."
Docket no. 1.
Docket no. 3.
Id.
On September 19, 2014, HLG filed an unopposed motion to stay the case for 120 days "to assist the parties' efforts to reach an early resolution of the underlying disputes." On September 22, 2014, the District Court granted the motion. On March 17, 2015 the District Court entered an order stating "[t]he Court has been notified that the parties are deciding whether to submit all claims in this lawsuit to arbitration, to be joined with related arbitration proceedings" and ordering the parties to "either file a motion to dismiss this lawsuit in lieu of binding arbitration or a written advisory stating they could not agree to binding arbitration" within twenty days of the order. On April 6, 2015, plaintiff filed a "Notice of Continuation of Action," representing that the parties did not agree to binding arbitration and requesting a lift of the stay. On April 8, 2015, the District Court entered an order lifting the stay.
Docket no. 5 at 1.
Docket no. 6.
Docket no. 7 at 1.
Docket no. 8 at 1.
Docket no. 10.
On April 28, 2015, HLG filed a motion to dismiss plaintiff's claims for failure to state a claim for relief and, in the alternative, a motion for summary judgment. In support, HLG attaches a total of five exhibits to its combined motion. On April 29, 2015, AKA filed a motion to dismiss and compel arbitration.
Docket no. 15.
The five exhibits are: correspondence dated August 8, 2014, from HLG to plaintiff, captioned "Offer of Settlement" (exhibit 1); correspondence dated August 15, 2014, from HLG to plaintiff, captioned "Notice of Intent to File Arbitration Action" (exhibit 2); correspondence dated August 16, 2014, from HLG to plaintiff, captioned "Cease and Desist" (exhibit 3); affidavit of Christopher Hellmich ("Hellmich aff.") (exhibit 4); and affidavit of Kennie Arriola ("Arriola aff.") (exhibit 5).
Docket no. 16.
On May 11, 2015, plaintiff filed its response to HLG's motion to dismiss or for summary judgment. On May 12, plaintiff filed its response to AKA's motion to dismiss and compel arbitration.
Docket no. 17.
Docket no. 18.
On May 18, 2015, HLG filed a reply in support of its Rule 12(b)(6) motion to dismiss and alternative Rule 56 motion for summary judgment. On the same day, AKA filed a reply in support of its motion to dismiss and compel arbitration.
Docket no. 20.
Docket no. 21.
III. STANDARDS
A. Statement of a Claim Upon Which Relief Can Be Granted
Rule 12(b)(6) of the Federal Rules of Civil Procedure, in turn, requires the plaintiff to state a claim upon which relief can be granted or the complaint may be dismissed with prejudice as a matter of law. When considering whether the plaintiff has failed to state a claim, the "court accepts 'all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" To withstand a Rule 12(b)(6) motion, "the plaintiff must plead 'enough facts to state a claim to relief that is plausible on its face.'"
In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999); Chehardy v. Allstate Indem. Co., 552 U.S. 1182, 128 S. Ct. 1231 (2008)), cert. denied sub nom, Xavier Univ. of La. v. Travelers Cas. Prop. Co. of Am, 552 U.S. 1182, 128 S. Ct. 1230 and Chehardy v. Allstate Idem. Co., 552 U.S. 1182, 128 S. Ct. 1231 (2008).
In Katrina Canal Breaches, 495 F.3d at 205 n.10, the United States Court of Appeals for the Fifth Circuit acknowledged the United States Supreme Court's abrogation of the "no set of facts" standard for determining the adequacy of a pleading in Bell Atlantic Corp. v. Twombly, a Sherman Act case:
We have often stated that a claim should not be dismissed under Rule 12(b)(6) unless the plaintiff would not be entitled to relief under any set of facts or any possible theory he may prove consistent with the allegations in the complaint. See, e.g., Martin K. Eby Constr., 369 F.3d at 467 (quoting Jones, 188 F.3d at 324). This standard derived from Conley v. Gibson, which stated that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L.Ed.2d 80 (1957). But recently in Bell Atlantic, the Supreme Court made clear that the Conley rule is not "the minimum standard of adequate pleading to govern a complaint's survival." 127 S.Ct. at 1968-69.
Id. at 205 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570-72, 127 S. Ct. 1955, 1974 (2007)).
Rule 8(a)(2) of the Federal Rules of Civil Procedure sets out the fundamental pleading standard for civil litigation and governs all claims in a civil suit, requiring "a short plain statement of the claim showing that the pleader is entitled to relief." Although "heightened fact pleading of specifics" may not be adopted when not authorized by the Federal Rules of Civil Procedure, the complaint taken as a whole "must contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory" and a plaintiff's pleading obligation includes the twin requirements of fact-based pleading and plausibility. More specifically, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." "Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Although the Supreme Court in Twombly stressed that it did not impose a probability standard at the pleading stage, nevertheless, the allegation of a mere possibility of relief does not satisfy the threshold requirement of Rule 8(a)(2) that the "plain statement" of a claim include factual "allegations plausibly suggesting (not merely consistent with)" an entitlement to relief.
Twombly, 550 U.S. at 570, 127 S.Ct. at 1974.
See, e.g., Fed. R. Civ. P. 9(b) (allegations of fraud or mistake to be stated with particularity); Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 508, 122 S. Ct. 992 (2002) ("[A] complaint in an employment discrimination lawsuit [need] not contain specific facts establishing a prima facie case of discrimination under the framework set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792[, 93 S. Ct. 1817, 36 L.Ed.2d 668] (1973).").
Twombly, 550 U.S. at 562, 127 S. Ct. at 1969 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984) (internal quotation marks omitted; emphasis and omission in original)).
Twombly, 550 U.S. at 555, 127 S. Ct. at 1964-65 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 2944 (2007)).
Id. at 555, 127 S. Ct. at 1965 (as quoted in Katrina Canal Breaches, 495 F.3d at 205).
Id. at 557, 127 S. Ct. at 1966. See also Ashcroft v. Iqbal, 556 U.S. 662, 684, 129 S. Ct. 1937, 1953 (2009) (rejecting the argument that the Twombly plausibility pleading standard applied only in antitrust cases and expressly holding the standard applies "all civil actions.").
When ruling on a motion to dismiss under Rule 12(b)(6), a court must accept as true all of the factual allegations contained in the complaint. But, a court need not accept as true "conclusory allegations, unwarranted factual inferences, or legal conclusions," which will not defeat a Rule 12(b)(6) motion to dismiss. In Iqbal, the Court formalized a two-pronged approach to apply the underlying jurisprudential principles of Twombly. The first prong required the Court to separate factual allegations from legal conclusions. The Court dismissed those allegations deemed to be "conclusory" on the basis that bare legal conclusions are not entitled to the privilege that all well-pleaded facts be taken as true at the motion to dismiss stage. The second prong then applied the plausibility test to the remaining allegations. That two-pronged approach is now the standard for evaluating the plausibility of a complaint under Rule 8(a)(2).
550 U.S. at 555, 127 S. Ct. at 1965 (citing Swierkiewicz, 534 U.S. at 508 n.1, 122 S. Ct. at 996 n.1; Neitzke v. Williams, 490 U.S. 319, 326-37, 109 S. Ct. 1827, 1832 (1989); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 1686 (1974)).
Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005) (citing Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir. 2004)).
Twombly, 556 U.S. at 677-79, 129 S. Ct. at 1949-50.
Id. Iqbal illustrated its analysis of the first prong as follows:
We begin our analysis by identifying the allegations in the complaint that are not entitled to the assumption of truth. Respondent pleads that petitioners "knew of, condoned, and willfully and maliciously agreed to subject [him]" to harsh conditions of confinement "as a matter of policy, solely on account of [his] religion, race, and/or national origin and for no legitimate penological interest." Complaint ¶ 96, App. to Pet. for Cert. 173a-174a. The complaint alleges that Ashcroft was the "principal architect" of this invidious policy, id., ¶ 10, at 157a, and that Mueller was "instrumental" in adopting and executing it, id., ¶ 11, at 157a. These bare assertions, much like the pleading of conspiracy in Twombly, amount to nothing more than a "formulaic recitation of the elements" of a constitutional discrimination claim, 550 U.S., at 555, 127 S. Ct. 1955, namely, that petitioners adopted a policy " 'because of,' not merely 'in spite of,' its adverse effects upon an identifiable group." Feeney, 442 U.S., at 279, 99 S. Ct. 2282. As such, the allegations are conclusory and not entitled to be assumed true. Twombly, supra, 550 U.S., at 554-555, 127 S. Ct. 1955. To be clear, we do not reject these bald allegations on the ground that they are unrealistic or nonsensical. We do not so characterize them any more than the Court in Twombly rejected the plaintiffs' express allegation of a " 'contract, combination or conspiracy to prevent competitive entry,'" id., at 551, 127 S. Ct. 1955, because it thought that claim too chimerical to be maintained. It is the conclusory nature of respondent's allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth.Id. at 680-81, 129 S. Ct. at 1951.
Id. (although the Court must "take all of the factual allegations in the complaint as true," it is "not bound to accept as true a legal conclusion couched as a factual allegation" (internal quotation marks omitted)).
B. Summary Judgment
The standard to be applied in deciding a motion for summary judgment is set forth in Rule 56 of the Federal Rules of Civil Procedure, which provides in pertinent part as follows:
The court shall grant summary judgment 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.Mere allegations of a factual dispute between the parties will not defeat an otherwise proper motion for summary judgment. Rule 56 requires that there be no genuine issue of material fact. A fact is material if it might affect the outcome of the lawsuit under the governing law. A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Therefore, summary judgment is proper if, under governing laws, there is only one reasonable conclusion as to the verdict; if reasonable finders of fact could resolve a factual issue in favor of either party, summary judgment should not be granted.
FED. R. CIV. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2510 (1986).
Id. at 248, 106 S.Ct. at 2510; Thomas v. LTV Corp., 39 F.3d 611, 616 (5th Cir. 1994).
Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Wise v. E.I. DuPont De Nemours & Co., 58 F.3d 193, 195 (5th Cir. 1995).
Anderson, 477 U.S. at 249, 106 S.Ct. at 2510.
The movant on a summary judgment motion bears the initial burden of providing the court with a legal basis for its motion and identifying those portions of the record which it alleges demonstrate the absence of a genuine issue of material fact. The burden then shifts to the party opposing the motion to present affirmative evidence to defeat a properly supported motion for summary judgment. All facts and inferences drawn from those facts must be viewed in the light favorable to the party resisting the motion for summary judgment. "The court need consider only the cited materials, but it may consider other materials in the record." Summary judgment motions permit the Court to resolve a lawsuit without the necessity of a trial if there is no genuine dispute as to any material facts and the moving party is entitled to judgment as a matter of law. "A party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence."
Fed. R. Civ. P. 56(c)(1) provides:
Supporting Factual Positions. A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
Fed. R. Civ. P. 56(c)(1). See also Celotex, 477 U.S. at 323, 106 S.Ct. at 2552-53.(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or
(B) 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.
Anderson, 477 U.S. at 257, 106 S.Ct. at 2514-15.
Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 1774 (2007); Hibernia Nat'l Bank v. Carner, 997 F.2d 94, 97 (5th Cir. 1993). The Supreme Court explained in Scott that:
At the summary judgment stage, facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to [the] facts. As we have emphasized, "[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmonving party, there is no 'genuine issue for trial.'" "The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." "When opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment."550 U.S. at 380, 127 S.Ct. at 1776 (emphasis in original) (quoting FED. R. CIV. P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1356 (1986); Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510).
See Fields v. City of South Houston, Tex., 922 F.2d 1183, 1187 (5th Cir. 1991).
If "the burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial burden by showing - that is, pointing out to the district court - that there is an absence of evidence to support the nonmoving party's case." The movant "must demonstrate the absence of a genuine issue of material fact," but does not have "to negate the elements of the nonmovant's case." "If the moving party fails to meet its initial burden, the motion for summary judgment must be denied, regardless of the nonmovant's response." On the other hand, if the movant meets its burden and the non-movant cannot provide some evidence to support its claim, summary judgment is appropriate. The Court may enter an order that does not grant all the relief requested by the motion, but states that "any material fact—including an item of damages or other relief—that is not genuinely in dispute and treating the fact as established in the case."
Duffie v. United States, 600 F.3d 362, 371 (5th Cir.) (citing Celotex, 477 U.S. at 325, 106 S.Ct. at 2554) (internal punctuation omitted), cert. denied ___ U.S. ___, 131 S.Ct. 355 (2010).
Duffie, 600 F.2d at 371; Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005).
Quorum Health Res., L.L.C. v. Maverick County Hosp. Dist., 308 F.3d 451, 471 (5th Cir. 2002) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
FED. R. CIV. P. 56(e); Stahl v. Novartis Pharm. Corp., 283 F.3d 254, 263 (5th Cir.), cert. denied, 537 U.S. 824, 123 S.Ct. 111 (2002).
If the nonmovant cannot adequately defend against a motion for summary judgment, the remedy is a motion for relief under Rule 56(d), which provides:
(d) When Facts Are Unavailable to the Nonmovant. If a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may:Discovery motions under Rule 56(d) are "broadly favored and should be liberally granted because the rule is designed to safeguard non-moving parties from summary judgment motions that they cannot adequately oppose." To be entitled to a continuance of a summary judgment proceeding to obtain further discovery prior to a ruling on a motion for summary judgment, the party opposing the motion must demonstrate how additional time and discovery will enable the party to rebut the movants' allegations there are no genuine issue of material fact.
(1) defer considering the motion or deny it;
(2) allow time to obtain affidavits or declarations or to take discovery; or
(3) issue any other appropriate order.
Raby v. Livingston, 600 F.3d 552, 561 (5th Cir. 2010) (discussing Rule 56(f)) (internal punctuation omitted); Culwell v. City of Fort Worth, 468 F.3d 868, 871 (5th Cir.2006) (same); International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1267 (5th Cir. 1991) (explaining that under Rule 56(f), "[w]here the party opposing the summary judgment informs the court that its diligent efforts to obtain evidence from the moving party have been unsuccessful, a continuance of a motion for summary judgment for purposes of discovery should be granted almost as a matter of course") (citation and internal punctuation omitted), cert. denied, 502 U.S. 1059, 112 S.Ct. 936 (1992); see also Sapp v. Memorial Hermann Healthcare Sys., 406 Fed. App'x 866, 869 (5th Cir. 2010).
See Raby, 600 F.3d at 561 (request for stay "must set forth a plausible basis for believing that specified facts, susceptible of collection within a reasonable time frame, probably exist and indicate how the emergent facts, if adduced, will influence the outcome of the pending summary judgment motion") (citations and internal punctuation omitted).
C. Arbitration
The Federal Arbitration Act ("FAA") generally governs arbitration provisions in contracts involving interstate commerce and creates a "federal policy favoring arbitration." The FAA provides 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." The FAA authorizes the court to compel arbitration when "there has been a failure, neglect, or refusal to comply with the arbitration agreement." The FAA allows for a stay of proceedings if a court finds an issue is arbitrable under the terms of the arbitration agreement, and, if all issues are subject to arbitration, the claims can be dismissed in favor of the arbitration proceedings.
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941 (1983).
Fedmet Corp. v. M/V BUYALYK, 194 F.3d 674, 679 (5th Cir. 1999); Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
Generally, when determining whether to compel arbitration, the court should first determine whether the parties agreed to arbitrate the dispute and then whether the issues raised are within the scope of that agreement. "When deciding whether the parties agreed to arbitrate the dispute in question, 'courts generally . . . should apply ordinary state-law principles that govern the formation of contracts.'" Nevertheless, "'due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself must be resolved in favor of arbitration.'"
Texaco Exploration & Prod. Co. v. AmClyde Engineered Prod. Co. Inc., 243 F.3d 906, 909 (5th Cir. 2001); Harvey v. Joyce, 199 F.3d 790, 793 (5th Cir. 2000).
Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 1924 (1995)).
Id. (quoting Volt Info. Sci., Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S.Ct. 1248, 1253-54 (1989); see also Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. at 941 ("The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.").
IV. ANALYSIS
A. Litigation Privilege
1. summary of arguments
HLG argues "[e]ach cause of action" in plaintiff's original complaint "is premised on alleged communications by HLG that Plaintiff contends were designed to defame Plaintiff or injure its business." HLG argues the original petition "relies upon . . . three written communications HLG provided to Plaintiff that form the basis of [plaintiff's] claims." HLG attaches the three written communications to its motion. HLG argues the original petition "concedes the alleged offending communications were pursuant to HLG's retention by multiple parties [who were] concerned with the manner Plaintiff . . . was billing its clients" and "admits the purpose of HLG's communications was related to bringing an arbitration action against plaintiff." HLG argues it is therefore entitled to immunity because "a lawyer is immune from claims based on communications he makes that are related to a contemplated or ongoing litigation."
Docket no. 15 at 1.
Id. at 2.
Id., exhibits 1-3. HLG argues the Court properly can consider the correspondence without converting HLG's motion to a motion for summary judgment because the correspondence is central to and incorporated into plaintiff's original petition. Id. at 2 n.1. Plaintiff does not present argument or authority to show the Court's consideration of the three documents written communications at issue without converting the motion to dismiss to one for summary judgment. This report considers the three documents as they are referenced in the petition as well as Mr. Martinez's affidavit which is incorporated by reference into the original petition, and are "central" to plaintiff's claims. See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Each of the documents contains a service list indicating HLG communicated with plaintiff's clients and identifies the clients whom HLG represents have retained HLG to pursue claims against plaintiff (See Martinez aff. at 2 (asserting HLG improperly communicated with plaintiff's clients and misrepresented that a certain client on the service list retained HLG when he had not)). The submission of the documents does not convert defendant's motion to dismiss to a motion for summary judgment. See FED.R.CIV.P. 12(d).
Id. at 1-2.
Id. at 2.
Id. at 1.
Further with regard to immunity, HLG argues its communications are "'absolutely privileged,'" and the privilege extends to out-of-court statements and statements related to contemplated (but not necessarily initiated) judicial proceedings. HLG argues the privilege extends not just to claims for libel and slander, but to all "'claims arising out of communications made in the course of judicial proceedings, regardless of the label placed on the claim,'" including claims for tortious interference, civil conspiracy, and business disparagement. HLG argues it is entitled to immunity because its communications to the FDIC litigation plaintiffs were "expressly about a contemplated proceeding that came to fruition" and "based on Plaintiff's actions in the ongoing FDIC Litigation." HLG argues that, accordingly, plaintiff "cannot possibly state a cause of action against HLG that does not rely on HLG's absolutely protected communications," and its immunity is established on the face of the original petition.
Id. at 7-8 (quoting Reagan, 140 Tex. at 110)
Id. at 8 (citing Russell v. Clark, 620 S.W.2d 865, 868 (Tex.App.—Dallas 1981, writ ref'd n.r.e., and )
Id. at 8-9 (citing HMC Hotel Properties II Ltd. Partnership v. Keystone-Texas Property Holding Corp. , No. 04-10-00620-CV, 2011 WL 5869608, at *14 (Tex.App.-San Antonio 2011) rev'd on other grounds, 439 S.W.3d 910 (Tex. 2014), Krishnan v. Law Offices of Preston Henrichson, P.C., 83 S.W.3d 295, 302-03 (Tex.App.-Corpus Christi 2002, pet. denied), and Bell v. Lee, 49 S.W.3d 8, 11 (Tex.App.—San Antonio 2001, no pet.)).
Id. at 10 (quoting Crain v. Unauthorized Practice of Law Comm., 11 S.W.3d 328, 335 (Tex.App.—Houston [1 Dist.] 1999, pet. denied).
Id. (citing Daystar Residential, Inc. v. Collmer, 176 S.W.3d 24, 27-29 (Tex.App.—Houston [1 Dist.] 2004, pet. denied); Griffin v. Rowden, 702 S.W.2d 692, 694-95 (Tex.App.—Dallas 1985, writ ref'd n.r.e.); and Laub v. Pesikoff, 979 S.W.2d 686, 691-92 (Tex.App.—Houston [1 Dist.] 1998, writ denied).
Id. at 11.
Id.
In response, plaintiff does not specifically address HLG's arguments, but generally reasserts the factual allegations in Martinez's affidavit, and attaches to its response a verification signed by Mr. Martinez asserting "each and every statement contained [in the response] is within [Mr. Martinez's] personal knowledge and is true and correct." Plaintiff argues the original petition "provides defendant with fair notice of the claim[s]," "provides more than labels and conclusions and is more than a formulaic recitation of the elements" and "plausibly suggest[s] a claim for relief." In the alternative, plaintiff seeks leave to amend its pleadings if the Court grants HLG's motion.
Docket no. 17 at 2-5.
Id. at 10.
Id. at 6, 7.
Id. at 7-8.
In reply, HLG argues plaintiff's response "ignor[es] the entire basis for . . . HLG's motion to dismiss, i.e., HLG's communications are absolutely privileged and therefore they cannot be used in forming any cause of action." HLG further argues plaintiff failed to marshal any summary judgment evidence and therefore cannot contest HLG's summary judgment evidence that "every person with whom HLG communicated: (1) actually retained HLG; (2) paid HLG a retainer to bring an action against Plaintiff; and (3) that action is ongoing."
Docket no. 20 at 1.
Id. at 3-4.
2. analysis
a. motion to dismiss
As the movant seeking to dismiss plaintiff's claims, HLG bears the burden to show its motion to dismiss should be granted. Under Texas law, the litigation privilege, an affirmative defense, is expressed as follows:
HLG asserts that the litigation privilege is an affirmative defense (docket no. 15 at 9), and plaintiff does not contest the assertion. Although a party asserting an affirmative defense may bear the ultimate burden of establishing an affirmative defense, the party moving to dismiss a claim bears the burden to establish its motion. See U.S. Enercorp, Ltd. v. SDC Montana Bakken Explor., LLC, 966 F.Supp.2d 690, 707 (W.D.Tex. 2013) (J. Ezra) (identifying litigation privilege as affirmative defense and denying motion to dismiss because complaint "d[id] not show on its face that all of Defendants' alleged wrongful actions are protected by the litigation privilege[.]").
An attorney at law is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as part of, a judicial proceeding in which he participates as counsel, if it has some relation to the proceeding.Further, "'the act to which the privilege applies must bear some relationship to a judicial proceeding in which the attorney is employed, and must be in furtherance of that representation.'" Thus, it is HLG's burden to show the communications that form the basis of plaintiff's original petition—HLG's solicitations of FDIC litigation plaintiffs represented by plaintiff—bear some relationship to a judicial proceeding in which HLG was employed at the relevant time and were made in furtherance of HLG's representation.
Russell v. Clark, 620 S.W.2d 865, 869 (Tex.App.—Dallas 1981, writ ref'd n.r.e.) (quoting RESTATEMENT (SECOND) OF TORTS § 586 (1977)). HLG argues, and plaintiff does not dispute, that Texas law controls.
Matta v. May, 118 F.3d 410, 415 (5th Cir. 1997) (quoting Russell, 620 S.W.2d at 870).
i. judicial proceeding
HLG argues the litigation privilege applies because plaintiff's claims in this case are "based on Plaintiff's actions in the ongoing FDIC litigation." But, the allegations of plaintiff's original petition, which are accepted as true for the purposes of HLG's motion to dismiss, do not allege HLG participated as counsel in the FDIC litigation. With respect to at least one of the plaintiffs in the FDIC litigation, HLG's motion concedes it "refused" to represent that FDIC plaintiff. HLG has provided no authority to show the litigation privilege correctly can be applied to HLG's communications relating to the FDIC litigation. To be clear, although HLG references only the FDIC litigation, plaintiff's complaint initiated the proceedings in this case such that the earlier communications involving HLG could not have been in connection with this judicial proceeding.
Docket no. 15 at 11 (emphasis added). HLG relates its argument to the FDIC litigation, not the litigation by the FDIC plaintiffs against plaintiff in California.
Id. at 5 and exhibit 4 at 3.
ii. furtherance of representation
HLG's also argues its motion to dismiss based on the litigation privilege should be granted and the litigation privilege applies because its communications with FDIC plaintiffs were "expressly about a contemplated proceeding that came to fruition" (that is, HLG's proceeding against plaintiff). Accepting as true the well-pleaded facts in the original petition, HLG's communications at issue were attempts to solicit persons/entities who were not clients of HLG. Thus, based on the allegations in the complaint, the communications were not in "relation to" or "in furtherance of" representation of an existing client.
Id. at 11.
See Rhodes Colleges, Inc. v. Johnson, No. 3:10-CV-0031-D, 2012 WL 627273, at *5, *7 (N.D.Tex. Feb. 27, 2012) (denying summary judgment on basis of privilege to attorneys who posted defamatory statements about a for-profit school on website, holding trier of fact could find the statements were meant "to attract new clients, not to gather evidence (or locate corroborating witnesses) for . . . existing cases.") (original emphasis). See also Matta, 118 F.3d at 415 (attorney's "untruthful statement about what the pending complaint alleged can hardly be said to have furthered her representation of [her client].")
iii. applicability of privilege to claims for tortious interference and conspiracy to interfere with a business relationship
Even if HLG has demonstrated its communications at issue were made in relation to, or in furtherance of, a judicial proceeding in which it participated as counsel, case authority contradicts HLG's argument that the litigation privilege bars plaintiff's claim for tortious interference with the contract between plaintiff and its clients regarding the FDIC litigation. In International Shortstop, Inc. v. Rally's, Inc., the United States Court of Appeals for the Fifth Circuit rejected a Texas Appellate Court's decision in Griffin, a case cited by HLG, in which the Texas court had held that the act of filing a lis pendens is absolutely privileged. The Fifth Circuit noted that "[l]itigation is a powerful weapon, and when instituted in bad faith for the purpose of causing damage or loss, it is a wrongful method of interference." The Fifth Circuit agreed with the district court that a party is privileged to file—or threaten to file—a lawsuit that interferes with the contract of another only if the party's assertion of rights is made in good faith. Taking as true plaintiff's allegations in its original petition, plaintiff alleges that HLG made untrue statements in its attempt to solicit plaintiff's clients and, based on the Fifth Circuit's teaching in International Shortstop, this Court will be required to address whether HLG actions were taken in good faith or in bad faith with respect to the applicability of the privilege to the two claims at issue. Thus, whether HLG will prevail on its litigation privilege affirmative defense to plaintiff's claims of tortious interference will require resolution in later proceedings, or by a finder of fact, but cannot be resolved through HLG's motion to dismiss the two claims at issue.
Docket no. 15 at 10, 11 ("Plaintiff's tortious interference claim is no different than the one barred in Griffin[,]" [702 S.W.2d at 694-95]).
939 F.2d 1257, 1269 n.12 (5th Cir. 1991).
Id. (quoting Garza v. Mitchell, 607 S.W.2d 593, 600 (Tex.App.-Tyler 1980, no writ).
Id. at 1268-70. Further case authority supports the Fifth Circuit's decision in International Shortstop. In McCall v. Tana Oil & Gas Corp., a Texas appeals court reversed the trial court's take-nothing judgment against attorneys who alleged an oil and gas company tortiously interfered with the contract between themselves and their client. 82 S.W.3d 337, 348 (Tex.App.—Austin 2001), rev'd on other grounds 10 S.W.3d 80 (Tex. 2003). Initially the attorneys sued the company on behalf of their client for recovery of mineral royalties. Id. at 341. The company then sued the attorneys, the client, and members of the client's family in a different court, asserting "various causes of action." Id. The attorneys asserted a claim for tortious interference, asserting the company's lawsuit was brought "for the express purpose of disrupting" the initial lawsuit "by interfering with [their] representation of" the client. Id. The court rejected the company's assertion that "'the filing of suit or assertion of a claim was privileged,'" stating:
Certain remarks in appellees' brief perhaps suggest a theory that any and all lawsuits are privileged as a matter of law and cannot, therefore, constitute grounds for a tortious-interference cause of action. We reject the theory.Id. at 347. Similarly, in Strategic Capital Corp. v. New Strong Grp., Ltd., the United States District Court for the Southern District of Texas held that various intervenors in an interpleader action were liable for tortious interference of a settlement agreement. No. 4:08-CV1651, 2012 WL 6202182, at *11 (S.D.Tex. Dec. 12, 2012). The court held that the intervenors failed to prove their affirmative defense of justifiable interference and were "not immune from the suit merely because that tortious interference took the form of filing an intervention lawsuit." Id. at 9.
iv. conclusion
Based on the foregoing discussion, HLG has not met its burden to show that, as a matter of law, the litigation privilege bars plaintiff's claims as alleged in plaintiff's original petition. Accordingly, HLG's motion to dismiss should be denied.
b. motion for summary judgment
HLG alternatively seeks summary judgment on plaintiff's claim for tortious interference on the basis HLG's summary judgment evidence which, HLG argues, shows "the FDIC plaintiffs themselves affirmatively sought out HLG." HLG argues that the "supplemental facts it proffers under Rules 12(d) and 56"—in the exhibits attached to its motion—"demonstrate that HLG could not have tortiously interfered with Plaintiff's business . . . [because] . . . the FDIC Plaintiffs themselves affirmatively sought out HLG" and, in any event, the communications between HLG and the FDIC litigation plaintiffs are "absolutely privileged."
Docket no. 15 at 11.
Id. at 11.
In support of its motion for summary judgment, HLG submits two exhibits. First, it submits the affidavit of Christopher Hellmich, who testifies, in sum and in part: (1) he "never initiated a single communication with any FDIC Plaintiff;" (2) his "communications with any particular FDIC Plaintiff occurred only after that FDIC Plaintiff first contacted [him] or requested that [he] contact them;" and (3) "[e]very FDIC Plaintiff with whom I communicated actually retained HLG and paid it a $1,000 retainer to pursue the Overcharge Arbitration on their behalf." Second, HLG attaches the affidavit of Kennie Arriola, who testifies, in sum, Hellmich "did [not] know which of the FDIC Plaintiffs were interested in learning more about the apparent overcharges" by plaintiff and "[a]lmost all of the FDIC Plaintiffs" wanted to speak with Hellmich about the possibility of arbitration against plaintiff.
Id., exhibit 4 at 4.
Id., exhibit 5 at 4.
Plaintiff's response does not expressly address HLG's arguments in support of its motion for summary judgment nor does it object to HLG's summary judgment evidence. Plaintiff does attach to its response a verification page signed by Ernest Martinez, affirming that Mr. Martinez has personal knowledge of "each and every statement contained" in the motion. The Court therefore can consider the statements made in plaintiff's response as evidence to oppose HLG's motion for summary judgment. Plaintiff's verified response, represents, in part: (1) two FDIC litigation plaintiffs informed Martinez that Hellmich falsely reported that ten other FDIC litigation plaintiffs "had ceased their representation" with plaintiff and joined in a proceeding against plaintiff; (2) another FDIC litigation plaintiff reported being "bombarded" with calls from Hellmich; and (3) yet another FDIC litigation plaintiff reported his name improperly was used in correspondence HLG sent to plaintiff, with a copy to other FDIC litigation plaintiffs, and had never spoken to HLG. HLG's reply in support of its motions does not object to plaintiff's verification/summary judgment evidence.
Docket no. 17 at 10.
See Broughton v. Livingston Indep. School Dist., Civ. Action No. 9:08-CV-175, 2010 WL 4453763, at *4-*5 (E.D.Tex. Nov. 3, 2010).
Docket no. 17 at 3.
Id. at 4.
Id. at 3; see also docket no. 15, exhibit 1 at 4.
HLG presents no authority in support of its argument it is entitled to summary judgment on plaintiff's tortious interference claim because "the FDIC Plaintiffs themselves affirmatively sought out HLG." Even if such authority were presented, plaintiff proffers summary judgment evidence to show that certain FDIC litigation plaintiffs did not seek out HLG, but that HLG initiated contact, creating a genuine issue of fact that would prohibit summary judgment.
Docket no. 15 at 11.
HLG also seeks summary judgment on the basis its communications with the HLG plaintiffs are 'absolutely privileged" and "Plaintiff simply cannot establish a material factual dispute without the need to rely on immunized communications thereby dooming its lawsuit." But, as discussed above, HLG has not shown that its communications were made in relation to, or in furtherance of, a judicial proceeding in which it participates as counsel, and therefore HLG has not shown that the litigation privilege applies.
Id. at 11, 12.
Based on the foregoing discussion, HLG has not met its burden to show there is no genuine issue of material fact as to any of plaintiff's claims and that it is entitled to judgment as a matter of law. Accordingly, HLG's motion for summary judgment should be denied at this time and on this record.
c. plaintiff's request for leave to amend
Plaintiff seeks leave to amend in the event "the court should find Defendants claim valid," an apparent reference to the litigation privilege and HLG's motion to dismiss or for summary judgment. Because this report recommends HLG's motion to dismiss and alternative motion for summary judgment should be denied, plaintiff's motion for leave to amend can be denied on its terms. Additionally, it is the practice of the Court to require a party seeking to amend to tender the proposed amended pleading as an attachment to the motion. Because plaintiff has not tendered a copy of its proposed amended complaint and otherwise has not demonstrated how the amendment would not be futile, plaintiff's motion for leave to amend should be denied.
Docket no. 17 at 7. Although the District Judge did not expressly refer plaintiff's embedded motion to amend, because the request for leave to amend is included in a response filed to a referred motion and otherwise is closely related to the referred motions, this report addresses the motion for leave to amend.
Local Court Rule CV-7 (b) ("Leave to File. When a motion for leave to file a pleading, motion, or other submission is required, an executed copy of the proposed pleading, motion, or other submission shall be filed as an exhibit to the motion for leave.").
B. AKA's Motion to Compel Arbitration
1. summary of arguments
AKA moves to compel arbitration of plaintiff's claims, arguing there is a binding arbitration agreement, and the dispute falls within the scope of the agreement. In support, AKA attaches a copy of a document captioned "Contingent Attorney Fee Contract" ("retainer agreement") between "Kenny Arriola" and "Martinez & Nelson, L.L.P." with regard to the FDIC litigation.
Docket no. 16 at 4-5.
Id., exhibit 1. AKA argues "As sued, 'Kennie Arriola and Assoc.' is a misnomer as no such entity exists. Arriola reasonably believes he is the intended defendant." Id. at 1. In its response, plaintiff does not address this argument. Further, neither party addresses the significance, if any, of the lack of signature by Martinez on the retainer agreement, or that the retainer agreement purports to bind "Martinez & Nelson, L.L.P" and not The Law Offices of Ernesto Martinez. See Id., exhibit 1 at 6. Plaintiff itself attaches the same copy of the retainer agreement, also unsigned by Martinez or any representative of "Martinez & Nelson, L.L.P." Docket no. 18, exhibit E.
In response, plaintiff presents three arguments the motion to compel arbitration should be denied. First, plaintiff argues no valid agreement exists because "[i]n January of 2013, Plaintiff and Defendant reached an agreement to enter into a new agreement for services," and when plaintiff could not secure a signature on a proposed new agreement, "Plaintiff was forced to release Defendant" in May 2014. Second, plaintiff argues the arbitration provision covers only "'any controversy arising out of or in any way related to, legal services provided to Client,'" and plaintiff's claims "stem[] from the action of Defendant after he failed to sign a written contract with Plaintiff, and after Plaintiff released Defendant from any contractual legal services." Third, plaintiff argues Arriola "has waived his right to arbitration by pursuing litigation," filing suit "in the Central California District Court . . . in order to litigate the issues he is now seeking to compel into arbitration."
Docket no. 18 at 2-3.
Id. at 3-4.
Id. at 4.
In reply, AKA first argues plaintiff's terminating the contract does not affect the enforceability of the arbitration clause. Second, AKA argues the claims fall within the scope of the agreement, as evidenced by plaintiff's pursuit of these claims in pending arbitration between plaintiff and certain FDIC litigation plaintiffs. Third, AKA argues the California lawsuit "forthrightly discloses the ongoing arbitration and explains it was necessary to sue . . . to prophylactically ensure they would not default in the arbitration by refusing to pay the arbitrator's fees."
Docket no. 21 at 2.
Id. at 2-3.
Id. at 5.
2. analysis
a. validity
The threshold question is whether there is a valid written agreement to arbitrate the claims in this case. The parties do not dispute the existence of the arbitration agreement; both AKA and plaintiff submit the retainer agreement containing the arbitration provision. Plaintiff argues the arbitration provision is invalid because the retainer agreement was terminated in May 2014. But, "an arbitration agreement contained within a contract survives the termination or repudiation of the contract as a whole." Because plaintiff's only argument concerning the validity of the arbitration provision is not persuasive, the Court considers the arbitration provision valid.
Docket no. 16, exhibit 1; docket no. 18, exhibit E.
County of El Paso, Texas v. Jones, No. EP-09-CV-00119-KC, 2010 WL 417408, at *5 (W.D.Tex. Jan. 28, 2010) (J. Cardone) (quoting Henry v. Gonzalez, 18 S.W.3d 684, 690 (Tex.App.—San Antonio 2000, pet. dism'd by arg.).
b. scope of provision
Having found that the arbitration agreement is valid, the next area of analysis is whether plaintiff's claims are within the scope of the retainer agreement's arbitration provision. The arbitration provision applies to "[a]ny controversy arising out of, or in any way related to, legal services provided to [Arriola][.]" Critical here is the phrase "arising out of, or in any way related to." The Fifth Circuit interprets arbitration provisions with similar language as "broad [and] capable of expansive reach," and intended "to reach all aspects of the relationship." A broad arbitration clause like this one "[is] not limited to claims that literally 'arise under the contract,' but rather embrace[s] all disputes between the parties having a significant relationship to the contract regardless of the label attached to the dispute." The Fifth Circuit further has held that "[w]ith such a broad arbitration clause, it is only necessary that the dispute 'touch' matters covered by the [contract] to be arbitrable." And, interpreting the specific term "relate to," the Fifth Circuit held that a claim "relates to" the contract if "the subject matter of the litigation has some connection, has some relation, [or] has some reference" to the contract.
Docket no. 16, exhibit 1 at 6.
Pennzoil Exploration & Production Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998).
Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 165 (5th Cir. 1998) (citation omitted).
Pennzoil Exploration, 139 F.3d at 1067.
Id. at 1068.
Acosta v. Master Maintenance & Constr., Inc., 452 F.3d 373, 378-79 (5th Cir. 2006).
As stated, the arbitration provision applies to "[a]ny controversy arising out of, or in any way related to, legal services provided to [Arriola][.]" Plaintiff's claims—generally, tortious interference and defamation related to Arriola's communications with other FDIC litigation plaintiffs concerning plaintiff's conduct "in the ongoing [FDIC] litigation"— clearly meet the very low threshold for touching matters covered by the contract because they have some connection and relation to, and reference, the provision of legal services to Arriola. Accordingly, plaintiff's claims are within the scope of the arbitration provision.
Docket no. 16, exhibit 1 at 6.
Original petition, exhibit A (Martinez aff.) at 2.
c. waiver
Under the FAA, "[t]here is a strong presumption against finding a waiver of arbitration, and the party claiming that the right to arbitrate has been waived bears a heavy burden." "The question of what constitutes a waiver of the right of arbitration depends on the facts of each case." To demonstrate waiver requires satisfying a two-prong inquiry: "Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party."
Republic Ins. Co. v. Paico Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004) (citing Subway Equip. Leasing Corp. v. Forte, 169 F.3d. 324, 326 (5th Cir. 1999)).
Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir. 1985).
Republic Ins. Co., 383 F.3d at 344 (quoting Subway Equip Leasing Corp., 169 F.3d at 326).
As to the first prong of the test, "a party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate." In the Fifth Circuit, "the act of . . . filing suit without asserting an arbitration clause constitutes substantial invocation of the judicial process, unless an exception applies." As further explained by the Fifth Circuit, an exception can include a suit to determine whether a valid arbitration clause exists, a suit to obtain injunctive relief pending arbitration, or "[any] other situation[] [that] may arise justifying an exception." The Court takes judicial notice of the complaint filed in the Central District of California on April 29, 2015, and observes that, consistent with AKA's arguments in its reply, the complaint mentions the pending arbitration and the concern that plaintiff will default on the arbitration. The Court determines that AKA did not substantially invoke the judicial process.
Id. (quoting Subway Equip Leasing Corp., 169 F.3d at 328).
Nicholas v. KBR, Inc., 565 F.3d 904, 908 (5th Cir. 2009).
Id. at 908-09.
See Klingerman v. Law Offices of Ernesto Martinez, No. 8:15-CV-00687 (C.D.Cal. Apr. 29, 2015) (docket no. 1 at 4).
See Tenneco Resins v. Davy Int'l, AG, 770 F.2d 416, 420-21 (5th Cir. 1989) (no substantial invocation where defendant's answer alleged that the claims were covered by a valid arbitration clause).
As to the second prong, the detriment or prejudice to plaintiff, "[t]hree factors are particularly relevant:"
First, while discovery relating to non-arbitrable claims is not prejudicial, where the pretrial activity was related to all of the parties' claims, including those that were conceded to be arbitrable, arbitration would result in prejudice[;] Second, the time and expense incurred in defending against a motion for summary judgment could prejudice the party opposing arbitration[;] Third, a party's failure to timely assert its right to arbitrate a dispute is also relevant to the prejudice determination.The docket sheets in the lawsuit before the Central District of California indicate that the lawsuit was filed less than two months ago and that, as of the date of entry of this order, no motion for summary judgment has been filed. Neither AKA nor plaintiff argues discovery has been undertaken in the Central District of California lawsuit. Therefore, the Court determines that there is no detriment or prejudice to plaintiff as a result of the proceedings in the Central District of California.
Republic Ins. Co., 383 F.3d at 346 (internal citations omitted).
Klingerman v. Law Offices of Ernesto Martinez, No. 8:15-CV-00687 (C.D.Cal. Apr. 29, 2015).
c. conclusion
Based on the analysis above, the Court determines that a valid and enforceable arbitration agreement exists, that plaintiff's claims are within the scope of the arbitration agreement, and that AKA did not waive its right to arbitration. Accordingly, AKA's motion to compel arbitration should be granted.
d. stay pending arbitration
Plaintiff argues AKA's "request to dismiss the lawsuit pending resolution of the arbitration proceeding" is "an improper request" and "[t]he motion should request a stay of the lawsuit pending resolution of the arbitration proceeding." Section 3 of the FAA provides:
Docket no. 18 at 4.
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.If arbitration is required and a lawsuit has been filed, § 3 mandates the lawsuit be stayed. But, if all claims must be arbitrated, there is no purpose for a stay. Because each of plaintiff's claims against AKA must be arbitrated, and the arbitration clause provides for "binding arbitration," there is no purpose for a stay. Therefore, a stay is not appropriate. Plaintiff's implicit request for a stay pending arbitration should be denied and AKA's request the action be dismissed in favor of arbitration should be granted.
See Alford, 975 F.2d at 1164.
See Fedmet Corp., 194 F.3d at 678 (citing Alford, 975 F.2d at 1164 ("Although we understand that plaintiff's motion to compel arbitration must be granted, we do not believe the proper course is to stay the action pending arbitration. Given our ruling that all issues raised in this action are arbitrable and must be submitted to arbitration, retaining jurisdiction and staying the action will serve no purpose. Any post-arbitration remedies sought by the parties will not entail renewed consideration and adjudication of the merits of the controversy but would be circumscribed to a judicial review of the arbitrator's award in the limited manner prescribed by law.")); see also Esta Brook v. Piper Jaffray Co., 492 F.Supp.2d 922, 928 (N.D. Ill. 2007); Sea-Land Service, Inc. v. Sea-Land of Puerto Rico, Inc., 636 F.Supp. 750, 757 (D. Puerto Rico 1986).
As in Alford, a case in which the Fifth Circuit affirmed a district court's dismissal with prejudice, no party has demonstrated that a dismissal with prejudice would preclude the parties from initiating any new cause of action to seek judicial review of the arbitrator's award in any manner prescribed by law. 975 F.2d at 1164.
V. RECOMMENDATIONS
Based on the foregoing discussion, it is recommended that:
• HLG's motion to dismiss for failure to state a claim and alternative motion for summary judgment should be DENIED;If, after consideration of objections, the District Judge accepts the recommendations in this report, none of plaintiff's claims against AKA will remain pending for disposition in this Court, but each of plaintiff's claims against HLG will remain pending for disposition. Under the circumstances of this case, the District Clerk's Office can be directed to enter final judgment in favor of AKA on each of plaintiff's claims against AKA in accordance with the order to be entered by the District Judge.
• plaintiff's embedded motion for leave to amend should be DENIED;
• AKA's motion to dismiss and compel arbitration should be GRANTED and, in accordance with the terms of the retainer agreement, each of plaintiff's claims against AKA should be submitted to final and binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association under its rules then applicable to the dispute in San Antonio, Texas, or as otherwise mutually agreed by the parties; and
• any other requests for relief not expressly granted should be DENIED.
Docket no. 15.
Docket no. 17 at 7.
Docket no. 16.
VI. INSTRUCTIONS FOR SERVICE AND NOTICE
OF RIGHT TO OBJECT/APPEAL
The United States District Clerk shall serve a copy of this Report and Recommendation on all parties by either: (1) electronic transmittal to all parties represented by an attorney registered as a Filing User with the Clerk of Court pursuant to the Court's Procedural Rules for Electronic Filing in Civil and Criminal Cases; or (2) by certified mail, return receipt requested, to any party not represented by an attorney registered as a Filing User. As provided in 28 U.S.C. § 636(b)(1) and FED. R. CIV. P. 72(a) and (b), any party who desires to object to this Report must file with the District Clerk and serve on all parties and the Magistrate Judge written Objections to the Report and Recommendation within 14 days after being served with a copy, unless this time period is modified by the District Court. A party filing Objections must specifically identify those findings, conclusions or recommendations to which objections are being made and the basis for such objections; the District Court need not consider frivolous, conclusive or general objections. A party's failure to file timely written objections to the proposed findings, conclusions and recommendations contained in this Report will bar the party from receiving a de novo determination by the District Court. Additionally, a party's failure to file timely written objections to the proposed findings, conclusions and recommendations contained in this Report will bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court.
See Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 472 (1985).
Acuna v. Brown & Root Inc., 200 F.3d 335, 340 (5th Cir. 2000); Douglass v. United Serv. Auto. Ass'n., 79 F.3d 1415, 1428 (5th Cir.1996).
SIGNED and ENTERED this 8th day of July, 2015.
/s/ _________
PAMELA A. MATHY
UNITED STATES MAGISTRATE JUDGE