A. B. v. Chart Industries, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 15, 2020
• Docket: 19-15885
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 15 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: PACIFIC FERTILITY CENTER No. 19-15885 LITIGATION, ______________________________ D.C. No. 3:18-cv-01586-JSC

A. B.; et al., MEMORANDUM* Plaintiffs-Appellees,

SHERLENE WONG; LAWRENCE WONG,

Objectors-Appellees,

v.

CHART INDUSTRIES, INC.,

Defendant-Appellant,

and

PACIFIC FERTILITY CENTER; et al.,

Defendants.

In re: PACIFIC FERTILITY CENTER No. 19-15886 LITIGATION, ______________________________ D.C. No. 3:18-cv-01586-JSC

A. B.; et al.,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Plaintiffs-Appellees,

PACIFIC MSO, LLC,

CHART INDUSTRIES, INC.; et al.,

In re: PACIFIC FERTILITY CENTER No. 19-15888 LITIGATION, ______________________________ D.C. No. 3:18-cv-01586-JSC

Plaintiffs-Appellees,

PRELUDE FERTILITY, INC.,

2 and

Appeal from the United States District Court for the Northern District of California Jacqueline Scott Corley, Magistrate Judge, Presiding

Submitted April 16, 2020** San Francisco, California

Before: HAWKINS and PAEZ, Circuit Judges, and RESTANI,*** Judge.

In this consolidated appeal, Appellants Chart Industries, Inc. (“Chart”),

Pacific MSO, LLC (“MSO”), and Prelude Fertility, Inc. (“Prelude”) seek review of

the district court’s order denying their motions to compel arbitration. We have

jurisdiction over this interlocutory appeal under 9 U.S.C. § 16(a)(1)(C), and our

review is de novo. Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1124, 1127 (9th

Cir. 2013). We affirm as to Chart and reverse as to MSO and Prelude.

Appellants are non-signatories to the Informed Consent Agreements (“ICA”)

Plaintiffs signed with Pacific Fertility Center (“PFC”), which contained an

arbitration provision and a separate arbitration agreement for any dispute related to

** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Jane A. Restani, Judge for the United States Court of International Trade, sitting by designation.

3 medical services Plaintiffs received. As relevant here, Appellants contend they are

entitled to arbitration through equitable estoppel and, as to Prelude and MSO, as

third-party beneficiaries and assignees. We start and end with equitable estoppel.

The Federal Arbitration Act (“FAA”) governs the enforceability of arbitration

agreements in contracts involving interstate commerce. Kramer, 705 F.3d at 1126

(citing 9 U.S.C. § 1 et seq.). The right to compel arbitration is generally limited to

parties to the contract, but non-signatories “may invoke arbitration under the FAA

if the relevant state contract law allows the litigant to enforce the agreement.” Id. at

1126, 1128 (citations omitted). Under California law, applicable here, non-

signatories may seek arbitration through equitable estoppel in two scenarios:

(1) [W]hen a signatory must rely on the terms of the written agreement in asserting its claims against the nonsignatory or the claims are “intimately founded in and intertwined with” the underlying contract, and (2) when the signatory alleges substantially interdependent and concerted misconduct by the nonsignatory and another signatory and “the allegations of interdependent misconduct [are] founded in or intimately connected with the obligations of the underlying agreement.”

Id. at 1128–29 (quoting Goldman v. KPMG LLP, 92 Cal. Rptr. 3d 534, 541, 543

(Cal. Ct. App. 2009)).

Applying equitable estoppel against a signatory requires looking to “the

relationships of persons, wrongs and issues,” with a particular focus on whether the

claims the non-signatory seeks to arbitrate are “intimately founded in and

intertwined with the underlying contract obligations.” Goldman, 92 Cal. Rptr. 3d at

4 543 (citing Metalclad Corp. v. Ventana Envtl. Organizational P’ship, 1 Cal. Rptr.

3d 328, 334 (Cal. Ct. App. 2003)). This involves examining the facts alleged in the

complaint and whether they rely or depend on the terms, duties, or obligations in the

contract containing the arbitration provision in asserting the claims. See id. at 550–

51. Also considered is whether the allegations “are in any way founded in or bound

up with the terms or obligations” in the contract. Id. at 550. If the claims “are fully

viable without reference to the terms of [the contract],” equitable estoppel does not

apply. See id. at 551.

Starting with Chart, the operative complaint brings claims for negligent failure

to recall; unfair competition under California’s Unfair Competition Law (“UCL”)

based on failure to adequately design, manufacture, warn, and recall; and strict

products liability for failure to warn, manufacturing defect, and design defect under

the consumer expectations and risk-utility tests. These claims are based on factual

allegations that: (1) Chart manufactured the storage tank at PFC; (2) it recalled

several tanks after the tank at PFC failed; (3) its recall notice stated it was

investigating the possible cause of vacuum failure in the tank based on a binding

agent used during the manufacturing process; and (4) it made claims on its website

regarding the superior quality of its equipment. None of Plaintiffs’ claims against

Chart, therefore, rely on the terms of the ICA, nor are they intimately founded in or

intertwined with the terms of the ICA. Plaintiffs also do not allege collusion between

5 Chart and the other defendants, or a pattern of concealment involving Chart.

Accordingly, neither Goldman scenario applies, so Chart cannot invoke equitable

estoppel to compel arbitration as to these claims.

As to Prelude and MSO, however, we determine the first Goldman scenario

applies and equitable estoppel compels arbitration of Plaintiffs’ claims against these

defendants. As before, we base this on a close examination of Plaintiffs’ claims

against Prelude and MSO and the factual allegations underpinning those claims. The

operative complaint brings six claims against Prelude and MSO: (1) negligence

and/or gross negligence; (2) bailment; (3) premises liability; (4) UCL violations; (5)

violations of the Consumers Legal Remedies Act; and (6) fraudulent concealment.

Underlying each claim are allegations about PFC’s conduct, not just Prelude and

MSO’s. And Plaintiffs’ allegations concerning their expectations about the service

PFC provided—then imputed onto Prelude and MSO—are exactly the terms and

duties of the ICA. Even though Plaintiffs do not mention the ICA, the claims they

raise against Prelude and MSO are founded in and inextricably intertwined with the

terms and obligations of the ICA. Under the first Goldman scenario then, Prelude

and MSO can invoke equitable estoppel to compel Plaintiffs to arbitrate these claims.

AFFIRMED IN PART, REVERSED IN PART. Each party to bear its own

costs on appeal.

6 FILED A.B. v. Chart Industries, Inc., et al., 19-15885, 19-15886, 19-15888 MAY 15 2020 PAEZ, concurring in part and dissenting in part: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

Although the majority, relying on Kramer v. Toyota Motor Corp., 705 F.3d

1122, 1127 (9th Cir. 2013), reviews de novo, there appears to be some

inconsistency in our caselaw regarding whether that standard applies to an

application of equitable estoppel in the arbitration context. In Nguyen v. Barnes &

Noble Inc., 763 F.3d 1171, 1179 (9th Cir. 2014), we reviewed for abuse of

discretion the district court’s rejection of the defendant’s equitable estoppel

argument to compel arbitration. I see no need to reconcile this inconsistency

because under either standard, I would affirm the district court’s ruling as to all

Appellants.1 Accordingly, I concur in the majority’s disposition as to Chart, but

dissent as to Prelude and MSO.

As the name suggests, equitable estoppel is fundamentally about fairness.

Goldman v. KPMG LLP, 92 Cal. Rptr. 3d 534, 543 (Cal. Ct. App. 2009). In the

arbitration context, courts apply the doctrine to prevent the unfairness that arises

when a signatory to an agreement seeks to “have it both ways” by holding a non-

signatory liable for the terms of the agreement while simultaneously avoiding that

agreement’s arbitration requirement. See Kramer, 705 F.3d at 1129 (citing Jones

1 See Waymo LLC v. Uber Techs., Inc., 870 F.3d 1342, 1345 (Fed. Cir. 2017) (noting the inconsistency in Ninth Circuit caselaw on the standard of review of equitable estoppel ruling in the arbitration context and affirming under either standard). 1 v. Jacobson, 125 Cal. Rptr. 3d 522, 538 (Cal. Ct. App. 2011)). And because

equitable estoppel forces a signatory to arbitrate with a nonsignatory party, the

signatory may be estopped from asserting rights in the agreement only where her

“own conduct renders assertion of those rights contrary to equity.” Id. at 1133

(quoting Goldman, 92 Cal. Rptr. 3d at 542 (quoting Metalclad Corp. v. Ventana

Envtl. Organizational P’ship, 1 Cal. Rptr. 3d 328, 334 (Cal. Ct. App. 2003))). The

“sine qua non” for equitable estoppel to apply is that the plaintiff’s claims “must be

dependent upon, or founded in and inextricably intertwined with,” the agreement

she signed. Goldman, 92 Cal. Rptr. 3d at 540; id. at 550 (estoppel is triggered by

“[t]he plaintiff’s actual dependence on the underlying contract in making out the

claim against the nonsignatory defendant” (citation omitted) (alteration in

original)). The doctrine applies only in “narrow situations.” Waymo, 870 F.3d at

1345 (applying California substantive law).

In my view, the district court correctly concluded that Plaintiffs should not

be estopped from avoiding arbitration with Prelude and MSO. Initially, as the

majority points out, in bringing their claims against Prelude and MSO, Plaintiffs do

not expressly mention their agreement with PFC. Although not dispositive, that

fact alone supports the district court’s conclusion here, see Jones, 125 Cal. Rptr. 3d

at 527 & n.3, and also distinguishes this case from the only case cited by the

majority in which the court held that equitable estoppel applies, see Metalclad, 1

2 Cal. Rptr. 3d at 337. Indeed, it is difficult to see how Plaintiffs’ claims can be

“intimately founded in and intertwined with” the obligations of an agreement that

Plaintiffs’ complaint completely fails to mention.

In any event, a careful review of the complaint reveals that Plaintiffs’ claims

against Prelude and MSO do not actually depend on Plaintiffs’ agreements with

PFC. Plaintiffs bring several claims based on Prelude and MSO’s failure to

exercise appropriate care in the handling of Plaintiffs’ eggs and embryos,

culminating in the tank failure. Plaintiffs allege that Prelude and MSO owed them

such a duty not because of Plaintiffs’ agreements with PFC, but rather because of

Prelude and MSO’s separate agreements with PFC. Plaintiffs’ negligence claim,

for example, is based on Prelude and MSO’s “special relationship with Plaintiffs

arising from the sensitive services Defendants undertook to perform.” Framed in

this way, Plaintiffs here are similar to the plaintiffs in Kramer—third-party

beneficiaries of the contracts signed among the defendants. 705 F.3d at 1131. And

although Prelude and MSO’s exercise of reasonable care may encompass many of

the same duties that PFC expressly agreed to undertake, Plaintiffs’ claims are in no

way “dependent upon, or founded in and inextricably intertwined with” those

agreements.

The district court’s recent order partially granting and partially denying

Prelude and MSO’s motions to dismiss the complaint only confirms that Plaintiffs’

3 claims do not rely on their written agreements with PFC. See In re Pac. Fertility

Ctr. Litig., No. 18-CV-01586-JSC, 2019 WL 3753456 (N.D. Cal. Aug. 8, 2019).

Indeed, many of Plaintiffs’ claims failed precisely for that reason. For example,

the district court dismissed Plaintiffs’ claims premised on Prelude and MSO’s

failure to disclose their role in the tissue storage because, without any contract

between them, Plaintiffs had not adequately alleged Prelude or MSO owed them

such a duty. Id. at *6–*8. Similarly, the district court dismissed Plaintiffs’

bailment claim, a contractual theory, where Plaintiffs specifically disavowed any

reliance on an express or implied contract with Prelude. Id. at *4–*5. Conversely,

but nonetheless proving the point, the district court upheld Plaintiffs’ claim for

premises liability because “mere possession with its attendant right to control

conditions on the premises is a sufficient basis for the imposition of an affirmative

duty to act.” Id. at *5–*6. In other words, Prelude and MSO owed a duty of care

to Plaintiffs regardless of Plaintiffs’ agreements with PFC.

The majority—and not the Plaintiffs—impute the terms of the written

agreement onto parties who were not signatories to that agreement. The better

course for us to follow would be to leave the parties “bound by the agreements

they made and not by any they did not make.” Murphy v. DirecTV, Inc., 724 F.3d

1218 (9th Cir. 2013). Plaintiffs should not, in equity, be required to arbitrate

4 against any of the appellants. Accordingly, I respectfully concur in part and

dissent in part.