Jackson v. The Aliera Companies Inc

Opinion

6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 JACKSON, et al. Case No.: 19-cv-01281-BJR 9 Plaintiffs, ORDER STRIKING AS MOOT 10 v. MOTION TO STAY PROCEEDINGS PENDING APPEAL, VACATING JULY 11 THE ALIERA COMPANIES, INC., et al. 20, 2020 ORDER DENYING MOTION TO COMPEL ARBITRATION, AND 12 Defendants. GRANTING MOTION TO COMPEL ARBITRATION AND STAY 13 PROCEEDINGS

14 I. INTRODUCTION 15 Plaintiffs bring this putative class action suit against Defendants Aliera Companies, Inc., 16 its now-defunct subsidiary Aliera Healthcare, Inc. (collectively “Aliera”), and Trinity 17 HealthShare, Inc. (“Trinity”). Plaintiffs allege that Defendants sold unauthorized health 18 insurance plans in violation of Washington law and engaged in unfair and deceptive practices in 19 violation of the Washington Consumer Protection Act, RCW 19.86.010 et seq. Currently before 20 the Court are Aliera’s and Trinity’s motions to stay proceedings pending appeal of this Court’s 21 order denying Defendants’ motion to compel arbitration. Dkt. Nos. 101 and 103. Plaintiffs 22 oppose the motion. Dkt. No. 116. 23 1 II. BACKGROUND 2 A. Factual Background 3 Defendant Trinity offers a healthcare cost sharing plan known as “AlieraCare” and 4 Defendant Aliera markets, sells, and administers AlieraCare in Washington State on behalf of

5 Trinity. See Dkt. 57, Second Amend. Comp. (“SAC”). According to Plaintiffs, Trinity is a health 6 insurance company and AlieraCare is a health insurance plan, and therefore subject to federal 7 and state laws governing health insurance. See id. Defendants counter that Trinity is not an 8 insurance company and does not provide health insurance. See Dkt. Nos. 62, 63, Defs.’ Answers 9 to Pls.’ SAC. Instead, Defendants assert that Trinity qualifies as a healthcare sharing ministry 10 (“HCSM”) under the Affordable Care Act (“ACA”) that facilitates the sharing of healthcare 11 expenses among its members. Regardless, the parties agree that AlieraCare provides members 12 with benefits for medical coverage in exchange for their monthly premiums. 13 Plaintiffs enrolled in AlieraCare in 2018 and 2019. Dkt. No. 57 Plaintiffs, all of whom

14 paid their monthly premiums and met their standard deductibles, expected that Trinity would pay 15 their medical claims as detailed by the AlieraCare benefits booklet (“Member Guide”), which the 16 parties agree is a binding contract. See Member Guide, Dkt. No. 57, Ex. B. However, each 17 Plaintiff was denied healthcare coverage after submitting their claims to Trinity. Dkt. No. 57 18 B. Procedural History 19 Plaintiffs Gerald Jackson, Roslyn Jackson, and Dean Mellom (“the Original Plaintiffs”) 20 initiated this lawsuit in August 2019. Dkt. No. 1. The complaint, later amended in October 2019 21 (“the First Amended Complaint”), has two counts: Count I “Illegal Contract” and Count II 22 violation of the Washington Consumer Protection Act. Id. at 12-13. The First Amended 23 1 Complaint was amended in June 2020. Dkt. Nos. 57, 67. It asserts the same two counts but adds 2 Plaintiffs Jon and Julie Perrin (“the Perrins”) as named plaintiffs to the lawsuit. Dkt. No. 57. 3 1. Defendants’ Motions to Dismiss the First Amended Complaint 4 In November 2019 and before the Perrins were added to the lawsuit, Defendants moved

5 to dismiss the First Amended Complaint. Dkt. Nos. 21, 23. Both Defendants argued that the 6 claims raised in the First Amended Complaint were premature and not yet subject to review by a 7 tribunal because the Original Plaintiffs had not exhausted the dispute resolution procedures 8 outlined in the Member Guide. Dkt. Nos. 21, 23. Defendants urged this Court to dismiss the First 9 Amended Complaint in its entirety; they did not, however, seek dismissal with prejudice on this 10 basis. 11 Aliera also moved to dismiss Count I of the First Amendment Complaint pursuant to 12 Federal Rule 12(b)(6) for failure to state a claim on which relief can be granted. Dkt. No. 23 at 2. 13 It is important to note that Aliera did not seek to dismiss Count I with prejudice. Trinity moved

14 to dismiss both Counts I & II—with prejudice—as preempted by federal agency action. Dkt. No. 15 21 at 2. Specifically, Trinity argued that the claims in the First Amended Complaint depended on 16 a finding that Trinity is not a HCSM under the ACA. According to Trinity, the Internal Revenue 17 Service (“IRS”) has already determined that Trinity is an HCSM and, as such, the claims were 18 preempted by the IRS’s conclusion. Dkt. No. 21 at 2. 19 2. Order Denying the Motions to Dismiss 20 The Court denied Defendants’ motions to dismiss on May 26, 2020. Dkt. No. 47. In 21 doing so, the Court reached the following conclusions. With respect to Defendants’ argument 22 that Counts I & II should be dismissed as premature because the Original Plaintiffs had not 23 exhausted the dispute resolution procedures outlined in the Member Guide, this Court 1 determined that the First Amended Complaint contained sufficient factual matter, accepted as 2 true, to plausibly allege that AlieraCare is a health insurance policy governed by Washington 3 State law. Dkt. No. 47 at 8. This Court further determined that the First Amended Complaint also 4 plausibly alleged that the dispute resolution procedures outlined in the Member Guide are void

5 under Washington insurance law and, if such allegations were proven true, the Original Plaintiffs 6 did not have to exhaust the procedures before filing their lawsuit. Id. at 12. Thus, the Court 7 denied Defendants’ motions to dismiss the First Amended Complaint on the basis that Counts I 8 & II were prematurely filed. 9 Next, with respect to Trinity’s contention that Counts I & II were preempted by federal 10 agency action because the IRS has allegedly determined that Trinity is a HCSM, the Court once 11 again concluded that the First Amended Complaint contained sufficient factual matter that 12 accepted as true, plausibly alleged that Trinity does not qualify as a HCSM. Id. at 8. Thus, 13 Counts I & II survived Trinity’s motion to dismiss based on federal preemption.1

14 3. Defendants’ motions to compel arbitration

15 Less than two weeks after this Court issued the order denying Defendants’ motions to 16 dismiss, Trinity and Aliera jointly moved to compel arbitration and stay proceedings pending 17 completion of arbitration. Dkt. No. 52. Defendants argued that they had not moved to compel the 18 matter to arbitration earlier because the Original Plaintiffs had not yet completed all stages of the 19 dispute resolution procedures. Dkt. No. 52 at 2. According to Defendants, those procedures 20 required the parties to complete several steps before the matter could be referred to binding 21 arbitration. Id. However, Defendants argued, because the Court determined that the complaint 22 sufficiently alleged allegations, that if proven true, would mean the dispute resolution procedures 23 1 The Court did not directly address Aliera’s argument that Count I was not sufficiently pled to raise the right to relief on this claim above the speculative level, but implicitly denied Aliera’s motion as to this issue. 1 are invalid under Washington law and therefore the Original Plaintiffs did not have to exhaust 2 those procedures before filing the lawsuit, the issue of arbitration was now ripe. Id. at 3. 3 After the motion was fully briefed, but before the Court decided the issue, the Original 4 Plaintiffs filed the Second Amended Complaint in which they added the Perrins as named

5 plaintiffs. Dkt. No. 57. In response, Defendants filed a motion to compel the Perrins to arbitrate 6 their claims as well. Dkt. No. 61. On July 20, 2020, the Court denied Defendants’ motion to 7 compel the Original Plaintiffs to arbitrate their claims, determining that Defendants waived their 8 right to arbitrate those claims. Dkt. No. 90. On August 18, 2020, the Court granted Defendants’ 9 motion to compel the Perrins to arbitrate their claims and stayed the proceedings as to the 10 Perrins’ claims only. Dkt. No. 105. 11 4. Defendants’ motions to stay proceedings pending appeal 12 On August 17, 2020, Defendants filed notices of appeal to the Ninth Circuit regarding the 13 July 20, 2020 order denying Defendants’ motion to compel the Original Plaintiffs to arbitrate

14 their claims. Dkt. Nos. 102, 104. That same day Defendants filed the instant motions to stay 15 proceedings in this case pending the Ninth Circuit’s resolution of their appeals, which Plaintiffs 16 oppose. Dkt. Nos. 101, 103, and 116. 17 III. DISCUSSION 18 The Federal Arbitration Act (“FAA”) permits interlocutory appeal from the denial of a 19 motion to compel arbitration. 9 U.S.C. § 16; Bushley v. Credit Suisse First Boston, 360 F.3d 20 1149, 1153 (9th Cir. 2004) (noting that the FAA generally “promotes appeals from orders 21 barring arbitration and limits appeals from orders directing arbitration”). An appeal does not 22 trigger an automatic stay of the lower court proceedings; rather, staying the proceedings is a 23 matter of judicial discretion for the lower court. Nken v. Holder, 556 U.S. 418, 433 (2009); 1 Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). In the Ninth Circuit, 2 courts consider four factors in exercising this discretion: (1) whether the applicant has made a 3 strong showing that it is likely to succeed on the merits; (2) whether the moving party will be 4 irreparably injured absent a stay; (3) whether a stay will substantially injure the opposing party;

5 and (4) whether the public interest favors a stay. See Britton, 916 F.2d at 1412. “The first two 6 factors ... are the most critical.” Nken, 557 U.S. at 434. 7 The Court having reviewed the parties’ arguments regarding Defendants’ likelihood of 8 success on the merits of their appeal, has determined that revisiting the issue of whether 9 Defendants waived their right to arbitration is warranted, and does so here. 10 A. Whether Defendants Waived Their Right to Compel Arbitration 11 “Waiver of a contractual right to arbitration is not favored” and any waiver assessment 12 must be “conducted in light of the strong federal policy favoring enforcement of arbitration 13 agreements.” Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 694 (1986). Doubt regarding

14 whether a party has waived the right to arbitration must be construed in favor of arbitration. See 15 Moses H. Cone Mem’l Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983). To 16 this end, the “party arguing waiver of arbitration bears a heavy burden of proof.” Fisher, 791 17 F.2d at 964 (quoting Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1025 (11th 18 Cir. 1982). 19 A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge 20 of an existing right to compel arbitration; (2) acts inconsistently with that existing right; and (3) 21 prejudice to the party opposing arbitration resulting from the inconsistent acts. Newirth v. Aegis 22 Senior Communities, LLC, 931 F.3d 935, 940 (9th Cir. 2019); see also Shinto Shipping Co., Ltd. 23 v. Fibrex & Shipping Co., 572 F.2d 1328, 1330 (9th Cir. 1978) (the court “must be convinced not 1 only that the appellee acted inconsistently with that arbitration right, but that the appellant was 2 prejudiced by this action before we can find a waiver”). 3 Defendants focus their criticism of the Court’s decision to deny their motion to compel 4 on the second and third elements of waiver. Therefore, the Court will do so as well.

5 1. Whether Defendants Acted Inconsistently with the Right to Arbitrate 6 A party acts inconsistently with the right to arbitrate when it “(1) makes an intentional 7 decision not to move to compel arbitration and (2) actively litigates the merits of a case for a 8 prolonged period of time in order to take advantage of being in court.” Newirth, 931 F.3d at 941 9 (quoting Martin v. Yasuda, 829 F.3d 1118, 1125 (9th Cir. 2016)). The Ninth Circuit has further 10 clarified that “[s]eeking a decision on the merits of a key issue in a case indicates an intentional 11 and strategic decision to take advantage of the judicial forum.” Id. Thus, the Ninth Circuit has 12 ruled that a defendant waived the right to arbitration when it intentionally refrained from filing a 13 motion to compel arbitration because it did not want to sever the arbitrable and non-arbitrable 14 claims, and litigated the arbitrable claims for two years in federal court. Van Ness Townhouses v. 15 Mar Indus. Corp., 862 F.2d 754, 756, 759 (9th Cir. 1988). Likewise, the Ninth Circuit has ruled 16 that defendants waived their right to arbitration when they spent seventeen months litigating their 17 case in federal court, including filing a motion to dismiss on a key merits issue. Martin, 829 F.3d 18 at 1126-28. 19 On the other hand, when a party’s actions do not “evince an intentional decision to forgo 20 arbitration in favor of a judicial forum” the Ninth Circuit has not found waiver. Thus, in Britton 21 v. Co-Op Banking Group, the Ninth Circuit ruled that the defendant did not waive his right to 22 arbitration even though he sought a court-appointed attorney and in forma pauperis status and 23 failed to raise as an affirmative defense his right to arbitrate. 916 F.2d 1405, 1413-14 (9th Cir. 1 1990). The Ninth Circuit concluded that such actions combined with defendant’s resistance to 2 discovery “reflected only a ‘determination to avoid or frustrate the litigation’ rather than a 3 strategic decision to ‘active[ly] litigat[e],’ i.e., to forgo the right to compel arbitration and take 4 advantage of a judicial forum.” Newirth, 931 F.3d at 941 (quoting Britton, 916 F.2d at 1413).

5 Similarly, the Ninth Circuit has clarified that “filing a motion to dismiss that does not 6 address the merits of the case is not sufficient to constitute an inconsistent act” that indicates a 7 decision to take advantage of the judicial system. Id. at 941-42. (quoting Martin, 829 F.3d at 8 1125). “Thus, moving to dismiss a complaint without prejudice or moving to dismiss an action 9 on jurisdictional or res judicata grounds is not inconsistent with a known right to compel 10 arbitration because such motions do not seek a judicial determination on the merits.” Id. at 942 n. 11 10; see also, United Computer Sys., Inc. v. AT &T Corp., 298 F.3d 756, 765 (9th Cir. 2002) 12 (holding that defendant did not waive arbitration by bringing a motion to dismiss based on res 13 judicata); Lake Commc’ns, Inc. v. ICC Corp, 738 F.2d 1473, 1476-77 (9th Cir. 1984) overruled

14 on other grounds by Mitsubishi Motors Corp. v. Solar Chrysler-Plymouth, Inc., 473 U.S. 614 15 (1985) (holding that defendant did not act inconsistently with right to arbitrate by filing a motion 16 to dismiss for lack of personal jurisdiction, in which it alluded to its right to arbitrate and its 17 intention to rely upon the right). 18 In denying Defendants’ motion to compel, this Court placed significant emphasis on the 19 fact that each Defendant had previously moved to dismiss this case “on the merits of several key 20 issues.” Dkt. No. 90 at 8 (stating that Defendants sought a determination on “Trinity’s status as 21 an insurer”); 9 (stating Defendants “sought a determination from this Court” regarding the 22 validity and applicability of the dispute resolution procedures); 10 (noting that the motions to 23 dismiss “require[ed] the Court to rule on the merits of a dispositive issue”). Thus, this Court 1 concluded that Defendants waived their right to arbitration because, in seeking this Court’s 2 determination on the merits of several key issues, each had made the strategic decision to forego 3 arbitration and take advantage of this judicial forum. The Court now reconsiders this position 4 and reviews each Defendant’s motion to dismiss separately.

5 a. Whether Aliera sought a judicial determination on the merits when it moved to dismiss the First Amended Complaint 6 As stated above, Aliera moved to dismiss the First Amended Complaint on two grounds. 7 First, it moved to dismiss Counts I & II (i.e. the complaint in its entirety), arguing that the 8 Original Plaintiffs filed the lawsuit prematurely because the parties had not yet exhausted the 9 alternative dispute resolution procedures set forth in the AlieraCare Member Guide. Second and 10 alternatively, it moved to dismiss Count I “Illegal Contract” as containing only “[c]onclusory 11 allegations of law and unwarranted inferences” that are “insufficient to avoid a Rule 12(b)(6) 12 dismissal.” Dkt. No. 23 at 2. Aliera did not request dismissal with prejudice on either ground. 13 The Court will address the easier issue first—whether Aliera moved to dismiss Count I 14 on the merits. The Court concludes it did not. The motion to dismiss Count I did not require the 15 Court to reach a legal conclusion to resolve the issue; it simply required the Court to assess 16 whether Count I was pled with sufficiently defined allegations that lifted the “Illegal Contract” 17 claim “above the speculative level.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007). The 18 fact that Aliera did not seek to dismiss Count I on the merits is further substantiated by the fact 19 that it did not seek dismissal with prejudice. Thus, this Court concludes that Aliera did not seek 20 to dismiss Count I on the merits and, as such, Aliera did not act inconsistently with its right to 21 compel arbitration when it moved to dismiss Count I. See Newirth, 931 F.2d at 942 n. 10 22 (holding that moving to dismiss a complaint without prejudice does not seek a judicial 23 1 determination on the merits and therefore does not constitute an act that is inconsistent with the 2 right to arbitrate). 3 Next the Court addresses whether Aliera sought a judicial determination on the merits 4 when it moved to dismiss both Counts I & II (i.e. the First Amended Complaint in its entirety),

5 arguing that the Original Plaintiffs had filed the claims prematurely. As stated earlier, the parties 6 agree that AlieraCare’s Member Guide constitutes a contract between the parties. The parties 7 further agree that the Member Guide, which defines the obligations of each party, includes a 8 mandatory, multi-tiered “Dispute Resolution and Appeal” process that the parties were expected 9 to complete in the event of a dispute. Aliera moved to dismiss the First Amended Complaint as 10 filed prematurely because the Original Plaintiffs had “not exhausted the steps in the dispute 11 resolution procedure to which they agreed” before filing the lawsuit, noting that “Washington 12 courts have long required parties to follow dispute resolving methods they have contracted to 13 before they may resort to the courts.” Dkt. No. 23 at 5 (emphasis omitted) (quoting Yaw v. Walla

14 Walla Sch. Dist. No. 140, 106 Wash. 2d 408, 411 (1986). The Original Plaintiffs countered that 15 AlieraCare is an insurance plan governed by Washington State insurance law and, as such, they 16 were not required to exhaust the dispute resolution procedures in the Member Guide before filing 17 the lawsuit because those procedures violate Washington law. Dkt. No. 27. 18 In denying Aliera’s motion to dismiss the First Amended Complaint as premature, the 19 Court determined that “[t]aking [the Original] Plaintiffs’ plausible allegations as true” as is 20 required on a motion to dismiss, the First Amended Complaint “sufficiently established that 21 AlieraCare is an insurance plan.” Dkt. No. 47 at 9. The Court further determined that the 22 complaint “sufficiently pled” that the Member Guide’s dispute resolution procedures “are illegal 23 under [] Washington insurance law.” Id. at 12. “As such, [the Original] Plaintiffs are relieved of 1 any obligation to follow the dispute resolution procedures at issue.” Id. However, the Court was 2 careful to note that it reached this conclusion under the legal standard applicable to Rule 12(b)(6) 3 motions. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (holding that in deciding a motion to 4 dismiss under Rule 12(b)(6), courts must accept as true all well-pled factual allegations in a

5 complaint). The Court did not reach the merits of the claims—i.e. whether AlieraCare constitutes 6 insurance under Washington insurance law and whether the dispute resolution procedures are 7 unenforceable under the law—the Court simply determined that the claims were sufficiently pled 8 to survive Aliera’s motion to dismiss. Moreover, in bringing the motion to dismiss the First 9 Amended Complaint as premature, rather than seeking to avail itself of the judicial forum and 10 “actively litigate[] the merits of [the] case for a prolonged period of time,” Aliera argued that this 11 Court was not the proper forum in which to bring the claims and that this Court could not 12 adjudicate the merits of the claims because Plaintiffs had not yet exhausted the dispute resolution 13 procedures. Thus, Aliera did not seek a ruling on the merits when it moved to dismiss the First

14 Amended Complaint as prematurely filed and therefore did not act inconsistently with its right to 15 compel arbitration. Since the Court finds that Aliera did not act inconsistently with its right to 16 compel arbitration, the Court reconsiders whether Aliera’s acts constitute waiver and finds they 17 do not. 18 b. Whether Trinity sought a judicial determination on the merits when it moved to dismiss the First Amended Complaint 19 Trinity also moved to dismiss the First Amended Complaint, alleging that the Original 20 Plaintiffs filed the claims prematurely. Dkt. No. 21. The foregoing reasoning in the previous 21 section applies equally to Trinity’s motion to dismiss; as such, the Court concludes that Trinity 22 did not act inconsistently with its right to compel arbitration when it moved to dismiss the First 23 Amended Complaint as premature. 1 However, Trinity also moved to dismiss the First Amended Complaint—with prejudice— 2 as “preempted by federal agency action.” Id. at 2. This requires a different analysis. The 3 gravamen of the First Amended Complaint is that Trinity is a health insurance company and 4 AlieraCare is a health insurance plan governed by Washington state insurance law. It alleges that

5 AlieraCare runs afoul of Washington insurance law and seeks either rescission or reformation of 6 AlieraCare. In moving to dismiss the complaint, Trinity argued that the Internal Revenue Service 7 has already determined that Trinity is an HCSM under 26 U.S.C. § 5000A. Dkt. No. 21 at 11. 8 This is significant because Trinity alleges that an organization that is recognized as an HCSM is 9 exempt from Washington insurance law. Therefore, Trinity argued, the IRS’s determination that 10 Trinity is a HCSM “preempts Plaintiffs’ state law claims as a matter of settled law” and the 11 claims must be “dismissed with prejudice.” Id. at 2. 12 The Original Plaintiffs countered that Trinity does not meet the definition of an HCSM 13 under 26 U.S.C. § 5000A because Trinity did not exist prior to December 31, 1999, as required

14 by the statute. In denying Trinity’s motion as to the preemption argument, this Court stated: 15 Plaintiffs’ allegations, taken as true for purposes of [this] motion[], raise serious questions regarding Trinity’s status as a legitimate HCSM. Defendant Trinity has 16 failed in its motion to address, let alone dispute, Plaintiffs’ allegation that [Trinity] was not in existence as of December 31, 1999, as required by [26 U.S.C. § 5000A]. 17 Taking this allegation as true, as it must at this stage, the Court concludes, for purposes of [this] motion[], that Trinity does not qualify as an HCSM under [26 18 U.S.C. § 5000A].

19 Dkt. No. 47 at 7-8. Thus, once again this Court did not reach a determination on the merits; it 20 simply determined that the First Amended Complaint pled sufficient factual allegations to defeat 21 Trinity’s motion to dismiss. However, unlike its argument to dismiss the complaint as 22 prematurely filed, here Trinity urged this Court to dismiss the complaint as “a matter of settled 23 law” with prejudice. The only reason the Court did not reach the issue of whether Trinity is a 1 HCSM under 26 U.S.C. § 5000A—the key issue in this lawsuit—is because Trinity failed to 2 sufficiently refute the Original Plaintiffs’ allegation that Trinity did not exist before December 3 31, 1999. If Trinity had successfully responded to the allegation, this Court may have reached the 4 issue and may have dismissed the claims—with prejudice—as urged by Trinity. Therefore,

5 Trinity sought a decision on the merits of a key issue in this case, thereby taking advantage of 6 this judicial forum. In doing so, Trinity acted inconsistently with its right to compel arbitration.2 7 See Hooper v. Advance Am. Cash Advance Ctrs. of Missouri, Inc., 589 F.3d 917, 922 (8th Cir. 8 2009) (holding that defendant acted inconsistently by seeking a decision on the merits, which 9 resulted in a game of “heads I win, tails you lose”) (citations omitted). 10 2. Whether the Original Plaintiffs Were Prejudiced by Trinity’s Inconsistent Actions 11 To demonstrate waiver, “[m]ore is required than action inconsistent with an arbitration 12 provision; prejudice to the party opposing arbitration must also be shown”. Lake Commc’ns, 738 13 F.2d at 1477. A plaintiff can make this showing by demonstrating that it has “incurred costs that 14 [it] would not otherwise have incurred” or that it “would be forced to relitigate an issue on the 15 merits on which [it has] already prevailed in court.” Martin, 829 F.3d at 1126. 16 In denying Defendants’ motion to compel arbitration, the Court concluded that if it were 17 to grant the motion, the Original Plaintiffs would be forced to arbitrate “a key legal issue on the 18 merits” that this Court has already ruled on in their favor. Dkt. No. 90 at 12. In light of the 19 foregoing analysis, the Court no longer holds this view. The Original Plaintiffs have not yet 20 prevailed on the merits of a legal issue in this case. To date, the Court has only determined that 21 the Original Plaintiffs’ claims satisfy the Rule 12(b)(6) standard of review. Moreover, the cost 22

23 2 The Original Plaintiffs argue that Aliera “joined in Trinity’s motions to dismiss Plaintiffs’ claims based upon ‘federal pre-emption.’” Dkt. No. 116 at 2. The Court disagrees. Aliera filed a separate motion to dismiss and did not file a notice of joinder with Trinity’s motion to dismiss. 1 of defending against a motion to dismiss is not always sufficient, in and of itself, to establish 2 prejudice. United Computer Sys.,Inc., 298 F.3d at765 (finding no prejudice despite having to 3 defend against a motion to dismiss on res judicata grounds); see also, Airbus S.A.S. v. Aviation 4 Partners, Inc., No. 12-1228JLR, 2012 WL 5295145, *4 (W.D. Wash. Oct. 25, 2012) (noting that

5 the Ninth Circuit has held “that there is no prejudice where a defendant had incurred substantial 6 litigation costs but the case had only progressed to the pleadings states (including a motion to 7 dismiss)”).3 8 Therefore, the Original Plaintiffs failed to meet their “heavy burden” of establishing 9 prejudice.4 10 B. The Original Plaintiffs’ Challenge to the Arbitration Clause Must Be Decided by the Arbitrator 11 In addition to alleging that Defendants had waived their right to arbitration, the Original 12 Plaintiffs also challenged Defendants’ motion to compel arbitration on the basis that the 13 arbitration clause is unenforceable under Washington law. The Perrins raised the same issue in 14 their opposition to Defendants’ motion to compel their claims to arbitration. In resolving that 15 motion, this Court determined that the Perrins’ challenge to the arbitration clause must be 16 17 3 Nor have the Original Plaintiffs been prejudiced by any costs they incurred in responding to initial schedule or discovery related proceedings. Such costs were incurred as a direct result of bringing this action in federal court. 18 Martin, 829 F.3d at 1126; see also Fisher, 791 F.2d at 698 (holding “[a]ny extra expense incurred as a result of [plaintiffs’] deliberate choice of an improper forum, in contravention of their contract, cannot be charged to 19 [defendant].”); Newirth, 931 F.3d at 943 (holding “a plaintiff that has breached its arbitration agreement is not prejudiced by costs incurred in preparing the complaint, serving notice, and litigating non-merits issues … Nor is 20 such a plaintiff prejudiced by costs incurred due to substantial discovery in federal court, even though such discovery ‘would be rendered nugatory by a direction that arbitration now be had.’”) (internal citations omitted). 4 Although Defendants do not here challenge this Court’s prior determination that they had “knowledge of an 21 existing right to compel arbitration”—the first requirement for establishing waiver—the Court reconsiders that determination as well. Defendants argued in their motion to compel arbitration that they had not moved to compel 22 arbitration earlier because they believed the issue was not yet ripe. See e.g., Dkt. No. 21 at 6 n. 2. In their view, the parties were required to complete each step of the dispute resolution proceedings before moving to binding arbitration. While the Court disagrees with this analysis because it introduces an artificial separation between the 23 earlier levels of dispute resolution and binding arbitration, the Court finds that Defendants’ failure to move to compel arbitration does not evidence “an intentional and strategic” decision to delay arbitration to “take advantage of the judicial forum.” Newirth, 931 F.3d at 941. 1 decided by the arbitrator. See Dkt. No. 105 at 7. The same reasoning applies to the Original 2 Plaintiffs’ claims. Thus, the Court incorporates that reasoning and grants Defendants’ motion to 3 compel the Original Plaintiffs’ claims to arbitration and stays these proceedings as to those 4 claims pending arbitration.

5 IV. CONCLUSION 6 Based on the foregoing reasoning, the Court HEREBY: 7 (1) STRIKES as moot Defendants’ motions to stay proceedings pending appeal to the 8 Ninth Circuit (Dkt. Nos. 101, 103); 9 (2) VACATES the July 20, 2020 Order Denying Defendants’ Consolidated Motion to 10 Compel Arbitration and Stay Proceedings Pending Arbitration pursuant to 9 U.S.C. §§ 3-4 and 11 Motion to Stay Discovery Pending Decision on Motion to Compel (Dkt. No. 90); 12 (3) GRANTS Defendants’ Consolidated Motion to Compel Arbitration and Stay 13 Proceedings Pending Arbitration pursuant to 9 U.S.C. §§ 3-4 (Dkt. No. 52);

14 (4) STRIKES as moot Defendants’ Motion to Stay Discovery Pending Decision on 15 Motion to Compel (Dkt. No. 52); and 16 (5) STAYS this matter pending arbitration. 17 Dated 6th day of October 2020. 18 A 19 B arbara Jacobs Rothstein U.S. District Court Judge 20 21 22 23