1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 DRUM LODGE, LLC, No. 2:24-cv-00219 WBS JDP 13 Plaintiff, 14 v. ORDER 15 MARTEL CONSTRUCTION, INC., 16 Defendant. 17 18 ----oo0oo---- 19 Congress passed the Federal Arbitration Act, 9 U.S.C. 20 ch. 1, in 1925, observing that “action should be taken at this 21 time when there is so much agitation against the costliness and 22 delays of litigation . . . these matters can be largely 23 eliminated by agreements for arbitration. . . .” H.R. Rep. No. 24 68-96, at 2 (1924). 25 Alas. What started here as a simple dispute about a 26 contract has morphed into this convoluted dispute about 27 arbitration. After the parties agreed to submit their dispute to 28 arbitration, plaintiff, unhappy with the arbitrators’ decision in 1 favor of defendant, has petitioned this court to vacate the 2 award. (Pet. (Docket No. 1); Mot. to Vacate (Docket No. 8).) 3 The matter is now before the court on defendant’s motion to 4 dismiss the petition. (Mot. to Dismiss (Docket No. 12-1).)1 So 5 much for eliminating the agitation, costliness and delay of 6 litigation. 7 As the parties are familiar with the factual and 8 procedural background, the court proceeds directly to the 9 parties’ arguments. 10 I. Timely Service (Rule 12(b)(5)) 11 As a threshold matter, defendant argues that plaintiff 12 failed to effect proper service pursuant to Federal Rules of 13 Civil Procedure 12(b)(5) and 4(h), thereby creating a 14 jurisdictional bar for the court to consider plaintiff’s 15 petition. (See Mot. to Dismiss at 13-21.) Specifically, 16 defendant argues that plaintiff’s ultimate service upon Rachel 17 Buchner and Keeley Davisworth was defective service. In support, 18 defendant relies on Rule 4(h)(1)(A), which states in relevant 19 part that a foreign corporation must be served in the manner 20 prescribed by Rule 4(e)(1) for serving an individual. See Fed. 21 R. Civ. P. 4(h)(1)(A). (See Mot. to Dismiss at 16-17.) Rule 22 4(e)(1) in turn states in relevant part that an individual may be 23 served by “following state law for serving a summons in an action 24 brought in courts of general jurisdiction in the state where the 25 district court is located or where service is made.” Fed. R. 26 1 Meanwhile, defendant has filed a separate petition in a 27 separate court to confirm the same arbitration award. (See Docket No. 12-2 Ex. 3.) Apparently, however, that petition is 28 beyond this court’s current purview. 1 Civ. P. 4(e)(1). Defendant accordingly argues that under Montana 2 law regarding service, which Montana courts construe strictly, 3 neither Ms. Buchner nor Ms. Davisworth belong in the category of 4 persons empowered to accept service. See Mont. R. Civ. P. 5 4(i)(3). (See Reply (Docket No. 18) at 14 (citing In re Marriage 6 of Zacher, 98 P.3d 309, ¶¶ 16-17 (Mont. 2004).) 7 Here, however, Rule 4(e)(1) also permits service 8 according to California state law. See Fed. R. Civ. P. 4(e)(1) 9 (allowing service pursuant to law “in the state where the 10 district court is located . . . .”).2 Unlike Montana law, 11 California law does not require strict compliance with service 12 requirements. See Ramos v. Homeward Residential, Inc., 223 13 Cal.App.4th 1434, 1442-43 (Cal. App. 4th Dist. 2014) (“It is 14 axiomatic that strict compliance with the [California] code's 15 provisions for service of process is not required. [. . .] 16 [S]ubstantial compliance with the code occurs when, although not 17 properly identified in a proof of service, the person to be 18 served in fact actually received the summons.”).3 4
19 2 See also 1 Moore's Federal Practice - Civil § 4.90 (“If . . . the individual is to be served in some other state [than 20 the forum state], process may be served under either the law of 21 the state where service is made or the law of the forum state.”). 22 3 See also Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 904 (6th Cir. 2006) (service was effective when it 23 substantially complied with state statute, even though summons was mailed by attorney rather than by court clerk as required by 24 statute); Nikwei v. Ross Sch. of Aviation, Inc., 822 F.2d 939, 943–945 (10th Cir. 1987) (although summons was mailed without 25 request for return receipt, defendant’s refusal to accept service 26 by certified mail warranted granting of default judgment for plaintiff). 27 4 This also accords with the federal rule in this circuit 28 that “[s]o long as a party receives sufficient notice of the 1 Defendant does not argue that it did not have actual 2 notice or that it would be prejudiced by maintaining the action 3 notwithstanding allegedly defective service. Further, plaintiff 4 demonstrates that its process server tried several times to 5 personally serve Mr. Tony Martel, defendant’s president and chair 6 of its board, at his home and at defendant’s place of business. 7 (Docket No. 17-4.) The record shows similar repeated efforts to 8 physically serve defendant’s counsel. (Id.) Finally, defendant 9 notes that plaintiff “cannot timely effectuate service on 10 [defendant] within the FAA’s three-month deadline [to move to 11 vacate a final award].”5 (Mot. to Dismiss at 19-20.) This is 12 clear indication that plaintiff would be severely prejudiced if 13 its petition were dismissed, even if given leave to re-attempt 14 service. The court therefore concludes that plaintiff has 15 effected substantially satisfactory service. 16 Accordingly, the court will not dismiss plaintiff’s 17 petition for failure to properly serve defendant.6 18 II. Subject Matter Jurisdiction (Rule 12(b)(1)) 19 Next, defendant argues that this court lacks subject 20 complaint, Rule 4 is to be ‘liberally construed’ to uphold 21 service.” Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir. 2009) (quoting Chan v. Soc'y Expeditions, 22 Inc., 39 F.3d 1398, 1404 (9th Cir. 1994)). 23 5 The final award was issued and delivered on October 25, 2023. The deadline to move to vacate was January 25, 2024. (See 24 Mot. to Dismiss at 20.) 25 6 In its opposition, plaintiff also requests costs 26 associated with service as a sanction for defendant’s purported “evasion of service.” (Opp’n (Docket No. 17) at 17.) The court 27 declines to do so, as the record does not show any behavior anywhere near egregious enough to merit sanctions. 28 1 matter jurisdiction over plaintiff’s petition pursuant to Federal 2 Rule of Civil Procedure 12(b)(1). 3 The court disagrees. The court plainly has diversity 4 jurisdiction because the parties are diverse and the amount in 5 controversy exceeds $75,000.7 See 28 U.S.C. § 1332. (See Pet. ¶ 6 3.) See also Badgerow v. Walters, 596 U.S. 1, 9 (2022) (“The 7 issue here is about where a federal court should look to 8 determine whether an action brought under [FAA] Section 9 or 10 9 has an independent jurisdictional basis. An obvious place is the 10 face of the application itself. If it shows that the contending 11 parties are citizens of different States (with over $75,000 in 12 dispute), then § 1332(a) gives the court diversity 13 jurisdiction.”). None of defendant’s arguments identify any 14 15 7 The final award exceeds $2 million. (Docket No.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 DRUM LODGE, LLC, No. 2:24-cv-00219 WBS JDP 13 Plaintiff, 14 v. ORDER 15 MARTEL CONSTRUCTION, INC., 16 Defendant. 17 18 ----oo0oo---- 19 Congress passed the Federal Arbitration Act, 9 U.S.C. 20 ch. 1, in 1925, observing that “action should be taken at this 21 time when there is so much agitation against the costliness and 22 delays of litigation . . . these matters can be largely 23 eliminated by agreements for arbitration. . . .” H.R. Rep. No. 24 68-96, at 2 (1924). 25 Alas. What started here as a simple dispute about a 26 contract has morphed into this convoluted dispute about 27 arbitration. After the parties agreed to submit their dispute to 28 arbitration, plaintiff, unhappy with the arbitrators’ decision in 1 favor of defendant, has petitioned this court to vacate the 2 award. (Pet. (Docket No. 1); Mot. to Vacate (Docket No. 8).) 3 The matter is now before the court on defendant’s motion to 4 dismiss the petition. (Mot. to Dismiss (Docket No. 12-1).)1 So 5 much for eliminating the agitation, costliness and delay of 6 litigation. 7 As the parties are familiar with the factual and 8 procedural background, the court proceeds directly to the 9 parties’ arguments. 10 I. Timely Service (Rule 12(b)(5)) 11 As a threshold matter, defendant argues that plaintiff 12 failed to effect proper service pursuant to Federal Rules of 13 Civil Procedure 12(b)(5) and 4(h), thereby creating a 14 jurisdictional bar for the court to consider plaintiff’s 15 petition. (See Mot. to Dismiss at 13-21.) Specifically, 16 defendant argues that plaintiff’s ultimate service upon Rachel 17 Buchner and Keeley Davisworth was defective service. In support, 18 defendant relies on Rule 4(h)(1)(A), which states in relevant 19 part that a foreign corporation must be served in the manner 20 prescribed by Rule 4(e)(1) for serving an individual. See Fed. 21 R. Civ. P. 4(h)(1)(A). (See Mot. to Dismiss at 16-17.) Rule 22 4(e)(1) in turn states in relevant part that an individual may be 23 served by “following state law for serving a summons in an action 24 brought in courts of general jurisdiction in the state where the 25 district court is located or where service is made.” Fed. R. 26 1 Meanwhile, defendant has filed a separate petition in a 27 separate court to confirm the same arbitration award. (See Docket No. 12-2 Ex. 3.) Apparently, however, that petition is 28 beyond this court’s current purview. 1 Civ. P. 4(e)(1). Defendant accordingly argues that under Montana 2 law regarding service, which Montana courts construe strictly, 3 neither Ms. Buchner nor Ms. Davisworth belong in the category of 4 persons empowered to accept service. See Mont. R. Civ. P. 5 4(i)(3). (See Reply (Docket No. 18) at 14 (citing In re Marriage 6 of Zacher, 98 P.3d 309, ¶¶ 16-17 (Mont. 2004).) 7 Here, however, Rule 4(e)(1) also permits service 8 according to California state law. See Fed. R. Civ. P. 4(e)(1) 9 (allowing service pursuant to law “in the state where the 10 district court is located . . . .”).2 Unlike Montana law, 11 California law does not require strict compliance with service 12 requirements. See Ramos v. Homeward Residential, Inc., 223 13 Cal.App.4th 1434, 1442-43 (Cal. App. 4th Dist. 2014) (“It is 14 axiomatic that strict compliance with the [California] code's 15 provisions for service of process is not required. [. . .] 16 [S]ubstantial compliance with the code occurs when, although not 17 properly identified in a proof of service, the person to be 18 served in fact actually received the summons.”).3 4
19 2 See also 1 Moore's Federal Practice - Civil § 4.90 (“If . . . the individual is to be served in some other state [than 20 the forum state], process may be served under either the law of 21 the state where service is made or the law of the forum state.”). 22 3 See also Days Inns Worldwide, Inc. v. Patel, 445 F.3d 899, 904 (6th Cir. 2006) (service was effective when it 23 substantially complied with state statute, even though summons was mailed by attorney rather than by court clerk as required by 24 statute); Nikwei v. Ross Sch. of Aviation, Inc., 822 F.2d 939, 943–945 (10th Cir. 1987) (although summons was mailed without 25 request for return receipt, defendant’s refusal to accept service 26 by certified mail warranted granting of default judgment for plaintiff). 27 4 This also accords with the federal rule in this circuit 28 that “[s]o long as a party receives sufficient notice of the 1 Defendant does not argue that it did not have actual 2 notice or that it would be prejudiced by maintaining the action 3 notwithstanding allegedly defective service. Further, plaintiff 4 demonstrates that its process server tried several times to 5 personally serve Mr. Tony Martel, defendant’s president and chair 6 of its board, at his home and at defendant’s place of business. 7 (Docket No. 17-4.) The record shows similar repeated efforts to 8 physically serve defendant’s counsel. (Id.) Finally, defendant 9 notes that plaintiff “cannot timely effectuate service on 10 [defendant] within the FAA’s three-month deadline [to move to 11 vacate a final award].”5 (Mot. to Dismiss at 19-20.) This is 12 clear indication that plaintiff would be severely prejudiced if 13 its petition were dismissed, even if given leave to re-attempt 14 service. The court therefore concludes that plaintiff has 15 effected substantially satisfactory service. 16 Accordingly, the court will not dismiss plaintiff’s 17 petition for failure to properly serve defendant.6 18 II. Subject Matter Jurisdiction (Rule 12(b)(1)) 19 Next, defendant argues that this court lacks subject 20 complaint, Rule 4 is to be ‘liberally construed’ to uphold 21 service.” Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir. 2009) (quoting Chan v. Soc'y Expeditions, 22 Inc., 39 F.3d 1398, 1404 (9th Cir. 1994)). 23 5 The final award was issued and delivered on October 25, 2023. The deadline to move to vacate was January 25, 2024. (See 24 Mot. to Dismiss at 20.) 25 6 In its opposition, plaintiff also requests costs 26 associated with service as a sanction for defendant’s purported “evasion of service.” (Opp’n (Docket No. 17) at 17.) The court 27 declines to do so, as the record does not show any behavior anywhere near egregious enough to merit sanctions. 28 1 matter jurisdiction over plaintiff’s petition pursuant to Federal 2 Rule of Civil Procedure 12(b)(1). 3 The court disagrees. The court plainly has diversity 4 jurisdiction because the parties are diverse and the amount in 5 controversy exceeds $75,000.7 See 28 U.S.C. § 1332. (See Pet. ¶ 6 3.) See also Badgerow v. Walters, 596 U.S. 1, 9 (2022) (“The 7 issue here is about where a federal court should look to 8 determine whether an action brought under [FAA] Section 9 or 10 9 has an independent jurisdictional basis. An obvious place is the 10 face of the application itself. If it shows that the contending 11 parties are citizens of different States (with over $75,000 in 12 dispute), then § 1332(a) gives the court diversity 13 jurisdiction.”). None of defendant’s arguments identify any 14 15 7 The final award exceeds $2 million. (Docket No. 8-3.) 16 In addition, plaintiff’s petition to vacate the arbitration award pursuant to FAA § 10 is a separate proceeding arising from a 17 separate cause of action, not a continuation of the state court 18 action: “[T]he FAA authorizes parties to arbitration agreements to file specified actions in federal court -- most prominently, 19 petitions to compel arbitration (under Section 4) and applications to confirm, vacate, or modify arbitral awards (under 20 Sections 9 through 11).” Badgerow, 596 U.S. at 8 (emphasis added). Cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. 21 Moore, 171 F. App’x 545, 546 (9th Cir. 2006) (“[T]he FAA 22 establishes a cause of action for confirming an arbitration award that is independent of any motion to compel arbitration. [. . .] 23 The district court did not improperly allow Merrill Lynch to remove the case. As mentioned, under the FAA, a motion to 24 confirm an arbitration award is independent of any earlier proceeding to compel arbitration.”). See also Aero Air, L.L.C. 25 v. Sino Swearingen Aircraft Corp., No. CV-07-283-ST, 2007 WL 26 9809067, at *3 (D. Or. Mar. 13, 2007) (“Indeed, section 10 of the FAA creates a separate cause of action to vacate an arbitration 27 award.” (citing Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193, 200-04 (2000)). 28 1 authority vitiating diversity jurisdiction.8 2 Accordingly, the court will not dismiss plaintiff’s 3 petition for lack of subject matter jurisdiction.9 4 III. Failure to State a Claim (Rule 12(b)(6)) 5 Section 10 of the Federal Arbitration Act (“FAA”), 9 6 U.S.C. ch.1, provides the exclusive grounds for a federal court 7 to vacate arbitration awards. Hall Street Associates, L.L.C. v. 8 Mattel, Inc., 552 U.S. 576, 584 (2008). Pursuant to Section 10, 9 the court now examines whether plaintiff’s petition has alleged 10 sufficient facts to secure the relief that it requests: (1) 11 vacation of the entire arbitration award due to allegations of 12 the panel’s partiality; or (2) in the alternative, vacation of 13 the panel’s award of attorneys’ fees to defendant. (See Pet. at 14 3-4.) 15 A. Partiality (FAA § 10(a)(2))10 16 8 Contrary to defendant’s representations, the parties’ 17 joint stipulation to arbitrate contains no waiver of federal jurisdiction. (See Docket No. 17-3 ¶ 9 (“Martel and Drum Lodge 18 will report to the [State] Court as soon as the final arbitration award is issued in this matter or, as the Court directs, Martel 19 and Drum Lodge will provide the Court with periodic updates regarding the status of the arbitration process.”) (emphasis 20 added).) 21 9 Defendant alternatively requests that the court decline 22 jurisdiction pursuant to Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). The court will not do so, 23 as plaintiff’s lack of a guarantee to be heard in state court conclusively tilts the Colorado River analysis in favor of this 24 court retaining jurisdiction. 25 10 Defendant somewhat confusingly styles its partiality 26 argument as a partial dismissal under Rule 12(b)(6) and its attorneys’ fees argument as an argument on the merits. However, 27 the court’s inquiry regarding either argument is the same: Has plaintiff alleged sufficient facts to state a claim for relief? 28 1 Under FAA § 10(a)(2), a federal court may vacate an 2 arbitration award “where there was evident partiality or 3 corruption in the arbitrators, or either of them.” 9 U.S.C. § 4 10(a)(2). However, the Ninth Circuit has held that “a party with 5 constructive knowledge of potential partiality of an arbitrator 6 waives its right to challenge an arbitration award based on 7 evident partiality if it fails to object to . . . his failure to 8 make disclosures until after an award is issued.” Fidelity 9 Federal Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1313 (9th 10 Cir. 2004). 11 Plaintiff’s petition alleges that the panel’s 12 partiality was evident from a May 2, 2023 conversation between 13 the panel and defendant’s counsel, which plaintiff’s counsel also 14 overheard.11 (Pet. ¶¶ 15-16.) However, plaintiff’s petition 15 fails to allege that plaintiff raised any partiality objections, 16 in any form, at any point before the panel issued its final award 17 on October 25, 2023. Indeed, plaintiff’s opposition effectively 18 concedes that its petition to vacate, which it filed on January 19 17, 2024, is the first such objection. (See Opp’n at 37-39 & 20 n.7.) 21 Plaintiff accordingly fails to allege sufficient facts 22 for the court to vacate the entire arbitration award pursuant to 23 FAA § 10(a)(2), and the court will not do so. 24 B. Attorneys’ Fees (FAA § 10(a)(4)) 25
26 11 In its opposition, plaintiff argues that the evident partiality was revealed by the adverse decision itself, thereby 27 precluding plaintiff from making an otherwise timely objection. (See Opp’n at 36-39.) This merely begs the question. 28 1 A district court may vacate an arbitration award under 2 FAA § 10(a)(4) only where “the arbitrators exceeded their powers, 3 or so imperfectly executed them that a mutual, final, and 4 definite award upon the subject matter submitted was not made.” 9 5 U.S.C. § 10(a)(4). See also Kyocera Corp. v. Prudential-Bache 6 Trade Servs., Inc., 341 F.3d 987, 1002-03 (9th Cir. 2003) 7 (Section 10(a)(4) “provides for vacatur only when arbitrators 8 purport to exercise powers that the parties did not intend them 9 to possess or otherwise display a manifest disregard for the 10 law.”); Lagstein v. Certain Underwriters at Lloyd's, London, 607 11 F.3d 634, 641 (9th Cir. 2010) (to vacate an arbitration award for 12 manifest disregard, “[i]t must be clear from the record that the 13 arbitrators recognized the applicable law and then ignored it”) 14 (quoting Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 15 826, 832 (9th Cir. 1995)). Thus, “[i]t is not enough for 16 petitioners to show that the panel committed an error -- or even 17 a serious error.” Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 18 559 U.S. 662, 671 (2010). 19 Accordingly, the court examines only whether the panel 20 demonstrated “manifest disregard for the law.” Kyocera Corp., 21 341 F.3d at 1002-03. It makes no inquiries into the soundness of 22 the panel’s decision. 23 Upon review of the panel’s Interim Decision and Final 24 Award (Pet. Ex. 2), the court concludes that no such “manifest 25 disregard for the law” influenced the panel’s award. The panel 26 explains at length the facts and authorities that it relies upon 27 to justify an award of attorneys’ fees, and explains why it 28 believes an award of attorneys’ fees is reconcilable with the 1 parties’ underlying contract, which proscribes them.12 2 Plaintiff accordingly fails to allege sufficient facts 3 for the court to vacate the panel’s award of attorneys’ fees 4 pursuant to FAA § 10(a)(4), and the court declines to do so. 5 C. No Leave to Amend 6 Courts commonly consider four factors when deciding 7 whether to grant leave to amend under Rule 15(a): bad faith, 8 undue delay, prejudice, and futility of amendment. Roth v. 9 Marquez, 942 F.2d 617, 628 (9th Cir. 1991). Because Rule 16(b)’s 10 “good cause” inquiry essentially incorporates the first three 11 factors, if a court finds that good cause exists, it should then 12 deny leave to amend only if such amendment would be futile. 13 Here, the court concludes that amendment would be 14 futile. Plaintiff concedes that it did not object to the ex 15 parte communication between defendant’s counsel and the panel 16 until after the arbitration ended. The court cannot contemplate 17 any additional allegations which might vitiate such a plainly 18 effected waiver. 19 As to the attorneys’ fee award, the panel’s Final Award 20
21 12 In its Final Award, the panel noted that (1) the parties’ contract includes an arbitration agreement that 22 incorporates the Construction Rules; (2) Construction Rule 48 provides that the panel may grant “an award of attorneys’ fees if 23 all parties have requested such an award”; (3) the panel asked the parties at the conclusion of arbitration whether each side 24 was in fact seeking fees, to which both parties said yes; and (4) both parties then agreed to a proposed two-step briefing schedule 25 where the parties would first brief the merits of their 26 positions, then brief the issue of attorneys’ fees after an interim decision is rendered. (Docket No. 1-2 at 18-20.) 27
28 eee mE III ESI EOE IUD. IEEE IRIE IIS EIR IIE II III ES eee
1 decision conclusively negates any argument that the panel acted 2 in “manifest disregard for the law” for the reasons discussed 3 above. The court again cannot contemplate any additional 4 allegations from outside the four corners of the panel’s decision 5 that would disturb this conclusion. 6 IT IS THEREFORE ORDERED that defendant’s motion to 7 | dismiss plaintiff’s petition to vacate arbitration award (Docket 8 | No. 12) be, and the same hereby is, GRANTED. Plaintiff’s 9 | petition to vacate (Docket No. 1) is DISMISED with prejudice.!% 10 Dated: April 3, 2024 dbitlem (hi. □□□□□□□□□□□□□□□□□□□□□ 12 UNITED STATES DISTRICT JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 13 Plaintiff’s accompanying motion to vacate the 38 arbitration award (Docket No. 8) is also DENIED. 10