Felicia Cipolla v. Team Enterprises, LLC

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 24, 2020
• Docket: 19-15964
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUN 24 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

FELICIA CIPOLLA; ALEXIS WOOD, No. 19-15964

Plaintiffs-Appellees, D.C. No. 3:18-cv-06867-WHA

v. MEMORANDUM* TEAM ENTERPRISES, LLC; NEW TEAM, LLC, DBA Team Enterprises,

Defendants-Appellants.

Appeal from the United States District Court for the Northern District of California William Alsup, District Judge, Presiding

Argued and Submitted April 30, 2020 San Francisco, California

Before: WALLACE, GRABER, and COLLINS, Circuit Judges.

Team Enterprises LLC and New Team LLC (collectively, Team Enterprises)

appeal from a district court order denying their motion to compel arbitration. We

have jurisdiction pursuant to 9 U.S.C. § 16(a)(1), and we vacate and remand.

Applying de novo review, Pokorny v. Quixtar, Inc., 601 F.3d 987, 996 (9th

Cir. 2010), we conclude that the district court erred in denying Team Enterprises’

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. motion without addressing the effect of the delegation clause contained in the

arbitration agreement. That clause reads: “Any questions regarding the validity or

enforcement of these Dispute Policies shall be delegated and submitted to the

arbitrator, including whether the scope of the claim or dispute is subject to

arbitration, and whether these Dispute Policies are enforceable as a matter of law.”

In contravention of this delegation clause, however, the district court itself

considered the “validity” and enforceability of the arbitration agreement by

analyzing the unconscionability of portions of the agreement other than the

delegation clause. This was error. The Supreme Court has held that “parties can

agree to arbitrate gateway questions of arbitrability” through a delegation clause.

Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010) (internal quotation

marks omitted). When such a clause exists, a court should not consider challenges

to the agreement—including “substantive unconscionability challenges”—except

for “arguments specific to the delegation provision.” Id. at 73–74. As a result,

“unless [the party opposing arbitration] challenged the delegation provision

specifically, we must treat it as valid under § 2 [of the Federal Arbitration Act], and

must enforce it under §§ 3 and 4, leaving any challenge to the validity of the

Agreement as a whole for the arbitrator.” Id. at 72.

Cipolla and Wood do not challenge the enforceability or validity of the

delegation clause, except to argue that Team Enterprises has abandoned any

2 argument relying on the delegation clause because they did not adequately raise the

issue before the district court. We disagree. In their moving brief in support of their

motion to compel, Team Enterprises explicitly quoted the delegation clause and

argued that, apart from issues pertaining to a class-action waiver in the agreement,

“all other questions regarding the enforceability and scope of the Agreement must

be decided by the arbitrator.”

Cipolla and Wood fault Team Enterprises for failing to raise the issue in a

more conspicuous manner and for failing to “re-raise or further develop the

argument” in their reply brief or during oral argument, but have adduced no authority

for the proposition that doing so was required. In any case, Team Enterprises’

delegation clause argument was conspicuously set forth in their moving brief

beneath a heading titled: “The Arbitrator Is Required To Determine The Validity Or

Enforcement Of The Agreement Including Questions Of Scope And Enforceability.”

Cipolla and Wood also argue that the district court made a finding of waiver,

which we must review for abuse of discretion. We disagree. The district court

addressed neither the delegation clause nor Team Enterprises’ argument concerning

the clause in its order denying their motion to compel. And when the district court’s

failure to address the argument was made apparent, it expressly indicated it was

uncertain as to whether “abandonment or waiver” applied “because of the lack of

precedent directly on point.”

3 Because Cipolla and Wood “did not make any arguments specific to the

delegation provision,” Rent-A-Ctr., 561 U.S. at 74, they failed to meet their burden

of “proving any defense” to the enforceability of the delegation clause, Pinnacle

Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012);

see also Greenawalt v. Ricketts, 943 F.2d 1020, 1027 (9th Cir. 1991) (party conceded

issue by failing to respond to it in the answering briefing on appeal).

However, because the district court did not address the argument raised, and

“a full analysis by the district court may assist us in our review,” Sorosky v.

Burroughs Corp., 826 F.2d 794, 802 (9th Cir. 1987), we will “remand to the district

court for consideration” of this argument “in the first instance,” Douglas v. Noelle,

567 F.3d 1103, 1109 (9th Cir. 2009). See Christian Legal Soc. Chapter of the Univ.

of California, Hastings Coll. of the Law v. Martinez, 561 U.S. 661, 698 n.28 (2010)

(“When the lower courts have failed to address an argument that deserved their

attention, our usual practice is to remand for further consideration, not to seize the

opportunity to decide the question ourselves”).

VACATED AND REMANDED.

4 FILED Cipolla v. Team Enterprises, LLC, No. 19-15964 JUN 24 2020

COLLINS, Circuit Judge, dissenting: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

The majority concludes that Appellants Team Enterprises, LLC and New

Team, LLC (collectively, “Team”) properly raised and preserved their contention

that so-called “gateway” issues concerning the enforceability of their arbitration

agreement with Plaintiffs had to be submitted to an arbitrator, and that the district

court erred in failing to address this threshold contention. While I agree that Team

adequately raised this issue of who should decide enforceability by briefly

mentioning it in Team’s motion to compel arbitration, in my view Team

subsequently abandoned the issue by never mentioning it again and instead

affirmatively pressing for the district court to decide the matter of enforceability

itself. I respectfully dissent.

The Supreme Court has held that a provision in an agreement delegating

“‘gateway’ questions of ‘arbitrability’” to an arbitrator is simply an “additional

arbitration agreement,” and the Federal Arbitration Act “operates on this additional

arbitration agreement just as it does on any other.” Rent-A-Center, West, Inc. v.

Jackson, 561 U.S. 63, 68–70 (2010). Accordingly, unless the plaintiff “challenge[s]

the delegation provision specifically,” that provision will be treated as valid, thereby

“leaving any challenge to the validity of the Agreement as a whole for the arbitrator.”

Id. at 72. In its memorandum of points and authorities in support of its motion to

5 compel arbitration, Team did assert that (with one exception not relevant here) “all

other questions regarding the enforceability and scope of the Agreement must be

decided by the arbitrator.” I agree that this was sufficient to raise the “delegation”

issue—i.e., that the gateway questions of arbitrability had to be submitted to the

arbitrator—but just barely so.

Team’s notice of motion—which under the rules had to include a “concise

statement of what relief or Court action the movant seeks,” N.D. CAL. CIV. L. R.

7-2(b)(3)—did not specifically ask the district court to order the gateway issue of

enforceability to be given to the arbitrator; it instead asked the court to enter an order

compelling arbitration of the underlying claims. The proposed order accompanying

the motion likewise made no mention whatsoever of submitting enforceability to the

arbitrator but instead affirmatively asked the district court to hold that the arbitration

agreement was “legally enforceable and binding.” And even the mention of the

delegation issue in Team’s memorandum of points and authorities was oddly out of

place: the three-sentence subsection addressing the delegation issue was confusingly

buried as a final subsection in a larger section entitled “The Arbitration Agreement

Is Valid and Enforceable.” So while it is literally true that the delegation issue was

“raised” by Team, it was raised in such a minimalist and peculiar way that it could

easily be overlooked. And perhaps that was the point.

Plaintiffs’ opposition did not address the delegation issue, and indeed, it was

6 never mentioned by anyone again—until Team lost on the merits of the

enforceability of the arbitration agreement. At that point—having already

participated in extensive briefing and oral argument in which it affirmatively urged

the district court to rule on the merits of the enforceability arguments that were

supposedly to be reserved for the arbitrator—Team suddenly rediscovered the

delegation issue and insisted that the district court had erred by overlooking it. At

oral argument on appeal, Team’s counsel had the candor to admit to us that, had the

district court upheld the arbitration agreement, Team would not have raised the

delegation issue to overturn its win. The passing invocation of this delegation issue

thus later became the ace in the hole for Team to play when the ruling on the merits

of the enforceability issue did not go its way. Having thus been whipsawed, the

district court understandably concluded that, by its course of conduct, Team had

“abandoned” the delegation issue.

The majority nonetheless lets Team get away with resurrecting the delegation

issue, because in the majority’s view, there is no authority to support the proposition

that Team had to do anything more than simply raise the issue once in its moving

papers. See Mem. Dispo. at 3. I disagree. Under Rent-A-Center, the agreement

delegating gateway issues of arbitrability to the arbitrator is to be treated as a

separate arbitral agreement, and here Team acted in a manner that was flatly

inconsistent with its professed desire to have the arbitrator decide those gateway

7 issues. After making its perfunctory placeholder objection to having the district

court decide the gateway issues, Team never mentioned the issue again and instead

vigorously pursued a “‘judicial judgment on the merits of [those] arbitrable claims.’”

Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759 (9th Cir. 1988)

(emphasis added) (citation omitted). Such conduct was “‘inconsistent with the

agreement to arbitrate those claims’” and operates to forfeit any right to arbitrate

those issues. Id. Team essentially pursued a highly prejudicial heads-I-win-tails-

you-lose strategy against the Plaintiffs: under Team’s view of the matter, Team

could pocket a win on the merits of the gateway issues, but Team would get an

automatic do-over if the district court ruled against it on the merits. Under these

circumstances, all of the elements of a waiver of arbitration are satisfied, and Team

cannot now insist that only an arbitrator may decide these gateway issues. Martin

v. Yasuda, 829 F.3d 1118, 1124 (9th Cir. 2016).

In this regard, it is important to underscore that the judicial ruling that Team

sought was not a tentative or preliminary one; it was the complete resolution of the

merits of the gateway issues. “Seeking a decision on the merits of a key issue in a

case indicates an intentional and strategic decision to take advantage of the judicial

forum,” and such conduct is inconsistent with preservation of the right to have only

an arbitrator decide those issues. Newirth ex rel. Newirth v. Aegis Senior Cmtys.,

LLC, 931 F.3d 935, 941 (9th Cir. 2019). I am not aware of any context in which we

8 permit a party to litigate a matter on the merits to completion only then to allow the

party—if it loses—to resurrect its threshold objection to the forum. Instead, the rule

in the analogous context of personal jurisdiction is to the contrary. See, e.g.,

InfoSpan, Inc. v. Emirates NBD Bank PJSC, 903 F.3d 896, 901 (9th Cir. 2018)

(personal jurisdiction defense is waived if, after asserting the objection, the

defendant “never affirmatively litigate[s]” it, does nothing “to properly request a

ruling on the issue of personal jurisdiction,” and instead litigates the merits); see also

SEC v. Ross, 504 F.3d 1130, 1148 (9th Cir. 2007) (“a party cannot simultaneously

seek affirmative relief from a court and object to that court’s exercise of

jurisdiction”).

We should not countenance the sort of “manifestly unfair” sandbagging in

which Team engaged here, which involves a significant “waste of resources for the

parties and the courts.” Martin, 829 F.3d at 1128. I respectfully dissent. 1

1 In view of its disposition of the case, the majority does not address the merits of the gateway issues. Although in my view this court should reach those issues, the majority has decided otherwise and, under the circumstances presented here, I likewise decline to express any view on those issues.