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5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 MAGUIRE INSURANCE AGENCY, INC. CASE NO. 22-CV-00064-LK 11 d/b/a PHILADELPHIA INSURANCE COMPANIES, ORDER GRANTING IN PART 12 AND DENYING IN PART MAY Plaintiff, AND SPICHER’S MOTION TO 13 v. COMPEL, GRANTING MAY AND SPICHER’S MOTION TO STAY, 14 AMYNTA AGENCY, INC., et al., GRANTING IN PART AND DENYING IN PART 15 Defendants. PHILADELPHIA’S MOTION TO STAY PROCEEDINGS IN PART, 16 AND STAYING PROCEEDINGS
17 This matter comes before the Court on Defendants Stephan May and Christopher Spicher’s 18 Motion to Compel Arbitration, Dkt. No. 59, and Motion to Stay Proceedings Pending Arbitration, 19 Dkt. No. 19. Also before the Court is Plaintiff Philadelphia Insurance Companies’ Motion to Stay 20 Proceedings in Part. Dkt. No. 76. Having reviewed the parties’ pleadings, the record, and the 21 governing law, the Court grants in part and denies in part May and Spicher’s motion to compel, 22 grants May and Spicher’s motion to stay proceedings pending arbitration, and grants in part and 23 denies in part Philadelphia’s motion to stay proceedings in part. 24 1 I. BACKGROUND AND PROCEDURAL HISTORY 2 Philadelphia Insurance Companies (“Philadelphia”) designs, markets, and underwrites 3 commercial property insurance products and surety bonds. Dkt. No. 1 at 5. In April 2015, 4 Philadelphia hired Stephan May to serve as Vice President of its Commercial Surety Division. Id.
5 at 6. Christopher Spicher contemporaneously joined Philadelphia as a Senior Specialty 6 Underwriter and was later promoted to Surety Underwriting Manager. Id. Both worked at 7 Philadelphia’s offices in Seattle, Washington. Dkt. No. 26 at 2; Dkt. No. No. 59 at 6. Spicher 8 reported directly to May and, according to Philadelphia, was his “right-hand man.” Dkt. No. 1 at 9 7; Dkt. No. 8-2 at 7. May’s commercial surety team was responsible for 35% of Philadelphia’s 10 annual commercial surety business revenue for 2020, and was responsible for Philadelphia’s 11 “entire Northwest, Mountain, Central, North Central, and the Ohio Valley West commercial surety 12 business.” Dkt. No. 1 at 8. 13 May and Spicher both executed Philadelphia’s Confidentiality and Noncompetition 14 Agreement (the “Noncompete Agreement”) as a condition of their employment. See Dkt. No. 13-
15 1; Dkt. No. 13-2. In relevant part, they promised not to solicit—for 12 months following their 16 termination from Philadelphia—any current or prospective Philadelphia “agent, broker, insured, 17 policyholder, customer, account, or any lead” that they serviced or learned of during the two years 18 preceding termination “for purposes of inviting or encouraging” the business contact to “transfer 19 its business, business relationship, or patronage” from Philadelphia to a new employer or third 20 party. Dkt. No. 13-1 at 2–3; Dkt. No. 13-2 at 2–3.1 They also agreed not to directly or indirectly 21 1 Importantly, if an employee was “not terminated for Cause,” this provision permitted departing employees to 22 (1) “continue their relationship with the agencies identified in Exhibit A”—an exhibit listing the employee’s preexisting agency contacts, and to (2) “directly or indirectly solicit any surety accounts that Employee maintained a 23 relationship with through such agencies prior to becoming employed with Company,” with the exception of surety accounts “for which [Philadelphia] issues bonds, instruments of guarantee or other surety obligations during Employee’s term with [Philadelphia].” Dkt. No. 13-1 at 3; Dkt. No. 13-2 at 3. May’s and Spicher’s Noncompete 24 Agreements each contain a lengthy Exhibit A. Dkt. No. 13-1 at 6–77; Dkt. No. 13-2 at 6–77. 1 “solicit, aid or induce,” either individually or on behalf of any other person or entity, any 2 Philadelphia employee to leave Philadelphia, or “take any action to materially assist or aid” any 3 other person or entity “in identifying, hiring, or soliciting any such employee[.]” Dkt. No. 13-1 at 4 3; Dkt. No. 13-2 at 3. They signed another contract, too: the Mutual Dispute Resolution Agreement
5 and Waiver of Jury Trial (the “MDR Agreement”), which expressly incorporates the Mutual 6 Dispute Resolution Program – Binding Arbitration, Waiver of Jury Trial, and Collective Actions 7 (the “Program”). Dkt. No. 60 at 5–8, 10–13; Dkt. No. 61 at 5–8. A handful of provisions from 8 these latter two documents form the basis of the parties’ current dispute. 9 First, the MDR Agreement generally requires the parties to arbitrate all disputes arising out 10 of May and Spicher’s employment: 11 Applicant and the Employer agree to resolve any and all claims, disputes or controversies arising out of or relating to Applicant’s . . . employment and/or 12 cessation of employment (other than, if applicable, unfair competition claims as defined below), through final and binding arbitration, pursuant [to the] Federal 13 Arbitration Act (“FAA”) conducted by the American Arbitration Association (the “AAA”) pursuant to [the] Mutual Dispute Resolution Program – Binding 14 Arbitration, Waiver of Jury Trial, and Collective Actions (the “Program”) and the Maguire Insurance Agency Inc. Dispute Resolution Rules and Procedures dated 15 January 1, 2015, as amended from time to time (the “Maguire Dispute Resolution Rules”), which are attached to this Agreement and incorporated herein by reference. 16 To the extent not otherwise provided in the Program or The Maguire Dispute Resolution Rules, the arbitration shall be conducted in accordance with and 17 governed by the [American] Arbitration Association (“AAA”) Employment Arbitration Rules and Mediation Procedures (“AAA Rules”). The AAA 18 Employment Arbitration Rules can be obtained online at www.adr.org, by calling 1-800-778-7879, or upon request to the Employer. 19 Dkt. No. 60 at 5; Dkt. No. 61 at 5.2 The MDR Agreement also lists several types of claims that are 20 21 2 May and Spicher claim that they do not possess any record of the Maguire Dispute Resolution Rules, and “it seems likely that no such document has existed since the time the Arbitration Agreements were signed.” Dkt. No. 59 at 15. 22 May and Spicher characterize this as one of Philadelphia’s many “drafting errors and inconsistencies[.]” Id. at 16. Philadelphia does not counter these assertions or otherwise mention the Maguire Dispute Resolution Rules anywhere 23 in its opposition brief. However, the MDR Agreement contains the following acknowledgement directly above the signature lines and in all capital letters: “Applicant acknowledges that he/she has had an opportunity to fully read and understand this entire Agreement, the Policy, and the Maguire Dispute Resolution Rules. . . . Applicant’s signature 24 1 “[e]mployment-related disputes or claims” and therefore subject to arbitration, including “claims 2 under federal, state and local statutory or common law,” “contract and tort claims” and claims 3 against any employee “that arise out of or relate to their actions on behalf of [Philadelphia].” Dkt. 4 No. 60 at 5; Dkt. No. 61 at 5. As the above provision makes clear, though, the parties carved out
5 an exception to arbitration for “unfair competition claims.” The MDR Agreement goes on to define 6 such claims as those requiring interpretation, application, or enforcement of the Noncompete 7 Agreement: 8 If and only if the Applicant enters into a written confidentiality, intellectual property, nonsolicitation or noncompetition agreement with [Philadelphia], the 9 following claims for equitable relief – including, without limitation, claims for declaratory or injunctive relief – shall not be subject to arbitration, but may be 10 resolved in court: (1) claims to interpret, apply, or enforce the confidentiality, intellectual property, nonsolicitation or noncompetition provisions of the 11 agreement(s) at issue; or (2) claims regarding the possession, use, dissemination, disclosure of or reliance on information alleged to be confidential, including 12 common law or statutory claims for unfair competition and misappropriation of trade secrets. The claims for equitable relief described in this paragraph are all and 13 singularly referred to as “claims for unfair competition.” 14 Dkt. No. 60 at 6; Dkt. No. 61 at 6. 15 The Program more or less echoes the MDR Agreement in form and substance. It too 16 requires employees and applicants to “resolve all of their employment-related disputes or claims 17 . . . through final and binding arbitration.” Dkt. No. 60 at 10. And it too exempts from arbitration 18 “[c]laims for unfair competition” because those “are not covered by th[e] Program and are not 19 considered employment-related disputes or claims within the meaning of th[e] Program.” Id.3 The 20 American Arbitration Association Rules (the “AAA Rules”) are likewise heavily featured in the 21 Program, which repeatedly makes clear that such rules control to the extent not otherwise provided 22 below certifies, that Applicant has read, understands, and voluntarily agrees to the terms of this Agreement, the 23 Program, and the Maguire Dispute Resolution Rules.” Dkt. No. 60 at 7; Dkt. No. 61 at 7. 3 The Program has the same definition of “claims for unfair competition” as the MDR Agreement. Compare Dkt. No. 24 60 at 11, with id. at 6. 1 in the now missing Maguire Dispute Resolution Rules. See id. at 10 (“To the extent not otherwise 2 provided in the Maguire Dispute Resolution Rules, the arbitration shall be conducted in accordance 3 with and governed by the [American] Arbitration Association (‘AAA’) Employment Arbitration 4 Rules and Mediation Procedures (‘AAA Rules’).”); id. at 10–11 (“[Philadelphia] shall arbitrate
5 any of [its] employment-related claims against any employee or applicant who is covered under 6 this Program . . . pursuant to the Maguire Dispute Resolution Rules and to the extent not otherwise 7 provided therein, the AAA Rules.”). 8 From August 2021 to October 2021, May and Spicher allegedly orchestrated a mass exodus 9 from Philadelphia to a competitor, Defendant Amynta Agency.4 Dkt. No. 1 at 2–3, 12–13. 10 Philadelphia claims that for months leading up to the mass departure, May and Spicher sowed 11 discord among the ranks of its Commercial Surety Division and ultimately convinced six other 12 employees to leave for Amynta. Id. at 12–16, 19–22. Although May and Spicher announced their 13 resignations from Philadelphia on October 8th and 11th, respectively, Philadelphia sent them 14 letters on October 22nd terminating their employment for cause. Id. at 12–13, 23. Philadelphia
15 then sued the purported conspirators and Amynta in the United States District Court for the Eastern 16 District of Pennsylvania for breach of the Noncompete Agreement (May and Spicher); breach of 17 fiduciary duty and duty of loyalty (May and Spicher); tortious interference with contractual 18 relations (Amynta); aiding and abetting breach of fiduciary duty and duty of loyalty (Amynta); 19 unfair competition (Amynta); and, finally, declaratory judgment (May and Spicher). Id. at 25–34. 20 Philadelphia also moved for expedited discovery, Dkt. No. 9, and for a preliminary injunction “to 21 enforce the valid restrictive covenants to which May and Spicher agreed in their Confidentiality 22 and Noncompetition Agreements . . . and [to] stop further breaches of those Agreements, Amynta’s 23
4 Amynta Agency and Defendant PDP Group Incorporated d/b/a Amynta Surety Solutions are referred to collectively 24 herein as “Amynta.” 1 tortious interference with the Agreements, and Amynta’s unfair competition.” Dkt. No. 8-2 at 7. 2 Although May and Spicher chide Philadelphia for filing suit in the Eastern District of 3 Pennsylvania, Dkt. No. 59 at 7, their dismissive criticism belies the complexity of the venue issue. 4 The parties litigated this issue before Judge Brody after May and Spicher filed both a Motion to
5 Stay and a Motion to Compel Arbitration or, Alternatively, Dismiss for Improper Venue. Dkt. No. 6 19; Dkt. No. 26. Amynta likewise filed a Motion to Dismiss for Improper Venue. Dkt. No. 27. 7 Judge Brody originally denied both motions to dismiss, Dkt. No. 35 at 1, but then reversed course 8 and granted them as motions to transfer,5 Dkt. No. 36 at 2, 15; Dkt. No. 37 at 1. Judge Brody 9 reserved for this Court a decision on May and Spicher’s Motion to Compel Arbitration. Dkt. No. 10 37 at 1; see also Dkt. No. 36 at 5 n.1. She also left intact their Motion to Stay, Dkt. No. 19-2, and 11 Philadelphia’s Motion for Preliminary Injunction, Dkt. No. 8. See Dkt. No. 36 at 15. 12 After the case was transferred to this district, May and Spicher renewed their Motion to 13 Compel Arbitration. Dkt. No. 59. Philadelphia then filed a Motion to Supplement Briefing and 14 Record for Preliminary Injunction Motion. Dkt. No. 64. In December 2022, however, Philadelphia
15 withdrew that motion and its Motion for Preliminary Injunction, due to “the passage of time” since 16 filing those motions. Dkt. No. 75 at 2. Shortly thereafter, Philadelphia filed a Motion to Stay 17 Proceedings in Part, asking the Court to stay its claims against May and Spicher pending arbitration 18 and to allow its claims against Amynta to proceed in this Court. Dkt. No. 76 at 3. May and Spicher 19 oppose the motion, contending that this case should be stayed in its entirety pending arbitration of 20 Philadelphia’s claims against them. Dkt. No. 77 at 1–2, 4–6. 21 22 23
5 Judge Brody reasoned that because the forum-selection clause in the Noncompete Agreement is permissive, while 24 the forum-selection clause in the Program is mandatory, the latter controls. Dkt. No. 36 at 13. 1 II. DISCUSSION 2 A. Jurisdiction 3 Philadelphia correctly asserts that this Court has jurisdiction over this matter pursuant to 4 28 U.S.C. § 1332. Dkt. No. 1 at 5. For purposes of diversity jurisdiction, Philadelphia is a citizen
5 of Pennsylvania, Amynta Agency is a citizen of Delaware and New York, Amynta Surety 6 Solutions is a citizen of Maryland, and both May and Spicher are citizens of Washington. Id. at 4– 7 5; Dkt. No. 62 at 4. Philadelphia plausibly alleges that the amount in controversy exceeds $75,000. 8 Dkt. No. 1 at 5; see also id. at 8, 13. 9 B. Legal Standard 10 Under the Federal Arbitration Act (“FAA”), “[a] party aggrieved by the alleged failure, 11 neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition” 12 the district court for “an order directing that such arbitration proceed in the manner provided for 13 in such agreement.” 9 U.S.C. § 4. The FAA further provides that the Court “shall” order arbitration 14 “in accordance with the terms of the agreement” once it is “satisfied that the making of the
15 agreement for arbitration or the failure to comply therewith is not in issue[.]” Id. Thus, in a motion 16 to compel arbitration, this Court is limited to determining: (1) whether a valid agreement to 17 arbitrate exists, and, if so, (2) whether the agreement encompasses the claim at issue. Chiron Corp. 18 v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). If the court answers both 19 questions in the affirmative, “then the [FAA] requires the court to enforce the arbitration agreement 20 in accordance with its terms.” Id. But where the parties have “clearly and unmistakably” delegated 21 questions regarding arbitrability to the arbitrator, the Court need not reach the second inquiry. 22 Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). 23 Here, the parties do not dispute that their agreement to arbitrate is valid. But they dispute
24 two things: who decides arbitrability, and whether Philadelphia’s claims against May and Spicher 1 are arbitrable. May and Spicher maintain that an arbitrator—rather than the Court—must 2 determine which of Philadelphia’s claims are arbitrable. Dkt. No. 59 at 7–9, 11, 15–16. And, in 3 any event, they contend that those claims are in fact arbitrable under the MDR Agreement and the 4 Program. Id. at 7–8, 11–13. Philadelphia disagrees on both fronts. In its view, the parties did not
5 clearly and unmistakably agree to delegate the arbitrability determination to the arbitrator. Dkt. 6 No. 67 at 15–18. Likewise, Philadelphia argues that its claims against May and Spicher are for 7 unfair competition and therefore fall squarely within the carve-out provision exempting them from 8 mandatory arbitration. Id. at 11–14. The Court addresses these issues in turn, beginning with 9 whether the parties agreed to arbitrate arbitrability. 10 C. The Parties Did Not Clearly and Unmistakably Agree to Arbitrate Arbitrability 11 Because “arbitration is a matter of contract,” arbitration agreements must be enforced 12 “according to their terms.” Rent-A-Center., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). “[P]arties 13 may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway’ 14 questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their
15 agreement covers a particular controversy.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 16 S. Ct. 524, 529 (2019) (cleaned up). And when parties have agreed to arbitrate “arbitrability,” a 17 court may not disregard their agreement—even if a particular argument for arbitration seems to be 18 “wholly groundless.” Id. at 529–31. 19 Usually, courts look to state law to interpret arbitration agreements. See, e.g., Lamps Plus, 20 Inc. v. Varela, 139 S. Ct. 1407, 1414–15 (2019).6 But for questions of “arbitrability,” the Supreme 21 Court has adopted an additional interpretive rule: there must be “clear and unmistakable” evidence 22 that the parties agreed to have an arbitrator decide such issues. First Options of Chi., Inc. v. Kaplan, 23
6 The parties do not address whether Washington or Pennsylvania law applies, although Philadelphia seems to suggest 24 in passing that Washington law applies. See Dkt. No. 67 at 12. 1 514 U.S. 938, 944 (1995) (cleaned up); see also Rent-A-Center, 561 U.S. at 69 n.1 (describing this 2 “heightened standard”). In effect, this rule reverses the usual presumption in favor of arbitration 3 when it comes to questions of “arbitrability.” See Kaplan, 514 U.S. at 944–45; Oracle Am., Inc. v. 4 Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir. 2013) (“In other words, there is a presumption
5 that courts will decide which issues are arbitrable; the federal policy in favor of arbitration does 6 not extend to deciding questions of arbitrability.”). 7 The Ninth Circuit has held that “incorporation of the AAA rules constitutes clear and 8 unmistakable evidence that contracting parties agreed to arbitrate arbitrability.” Brennan, 796 F.3d 9 at 1130; G.G. v. Valve Corp., 799 Fed. App’x. 557, 558 (9th Cir. 2020). That is because Rule 6(a) 10 of the AAA rules vests the arbitrator with “the power to rule on his or her own jurisdiction[.]” Am. 11 Arb. Ass’n, Employment Arbitration Rules and Mediation Procedures 12 (2009), 12 https://www.adr.org/sites/default/files/EmploymentRules_Web_2.pdf. 13 Here, three agreements are in play: the MDR Agreements, the Program, and the 14 Noncompete Agreements. As noted above, the MDR Agreements and Program expressly
15 incorporate the AAA Rules. See Dkt. No. 60 at 5, 10–12. And Philadelphia does not contest the 16 validity or enforceability of those delegation provisions. See Rent-A-Center, 561 U.S. at 71; 17 Brennan, 796 F.3d at 1133. That is the end of the matter according to May and Spicher. In their 18 view, “the AAA Rules govern without limitation” because “[n]othing within the Arbitration 19 Agreements or Arbitration Program indicates any intent to deviate from the AAA Rules.” Dkt. No. 20 59 at 16. Philadelphia, on the other hand, counters that the parties’ carve-out provision “appl[ies] 21 to both the scope of arbitration and delegation of the issue of arbitrability[.]” Dkt. No. 67 at 16 22 (emphasis in original). It argues that the language of these agreements “indicates that the parties 23 did not intend to delegate to the arbitrator the arbitrability with regard to claims for ‘unfair
24 competition’ (as defined) and equitable relief.” Id. at 17 (“The Dispute Resolution Agreements 1 provide, ‘To the extent not otherwise provided in the Program..., the arbitration shall be conducted 2 in accordance with and governed by the Arbitration Association (‘AAA’) Employment Arbitration 3 Rules and Mediation Procedures (‘AAA Rules’).”). 4 The three agreements at issue do not evince a clear and unmistakable intent to delegate the
5 arbitrability determination to the arbitrator. And nothing in the Ninth Circuit’s jurisprudence 6 suggests that talismanic incorporation of the AAA Rules creates an unqualified delegation of the 7 arbitrability determination, even in the midst of limiting language. Indeed, and consistent with 8 basic principles of contract law, the Ninth Circuit has made clear that parties are free to limit their 9 delegation to specific issues. See Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1209 (9th Cir. 10 2016) (“The delegation provisions clearly and unmistakably delegated the question of arbitrability 11 to the arbitrator for all claims except challenges to the class, collective, and representative action 12 waivers[.]”). The parties here did just that. 13 It is “a basic principle of contract law that two or more agreements executed at the same 14 time by the same parties as a part of the same transaction should be construed together as one
15 contract.” Union Pac. R. Co. v. Chicago M. St. P. & P. R. Co., 549 F.2d 114, 117 (9th Cir. 1976); 16 see also Dkt. No. 36 at 11; Moore v. Moore, 25 A.2d 130, 131 (Pa. 1942); Mead v. Anton, 207 17 P.2d 227, 234 (Wash. 1949). The MDR Agreements and the Program were executed on February 18 12, 2015 (May) and February 23, 2015 (Spicher), and the Noncompete Agreements were executed 19 on February 23, 2015. Dkt. No. 13-1 at 5; Dkt. No. 13-2 at 5; Dkt. No. 60 at 5, 8; Dkt. No. 61 at 20 5, 8. Because they were effectively simultaneously executed as part of the same transaction, the 21 Court construes them together. 22 The Noncompete Agreements make no mention of arbitration. They provide that “the 23 validity, construction, interpretation or performance of this [Agreement] shall be governed by the
24 laws of the Commonwealth of Pennsylvania and the parties hereby irrevocably consent to the 1 jurisdiction of the United States District Court for the Eastern District of Pennsylvania.” Dkt. No. 2 13-1 at 4; Dkt. No. 13-2 at 4. These agreements state that they are the “entire understanding of the 3 parties” and “may not be modified in any way except in writing and with the mutual consent of 4 Employee and Company.” Dkt. No. 13-2 at 4.7 They make no reference to the MDR Agreements
5 or the Program, and they “supersede[] and replace[] any prior agreement of employment, 6 confidentiality, nondisclosure, noncompetition, or nonsolicitation with Company,” except that 7 “the requirements of any other policy regarding Confidential Information . . . shall remain in full 8 force and effect as a supplement but not a replacement of th[ese] Agreement[s].” Dkt. No. 13-1 at 9 4; Dkt. No. 13-2 at 4. 10 The MDR Agreements and Program make no mention of modifying the Noncompete 11 Agreements.8 Indeed, it appears that the parties did not intend that the MDR Agreements and 12 Program do so, as they contain carve-outs exempting from arbitration “claims to interpret, apply 13 or enforce the . . . nonsolicitation or noncompetition provisions of the agreement(s) at issue.” Dkt. 14 No. 60 at 6 (emphasis added); id. at 11. Importantly, the MDR Agreements indicate that, among
15 the three agreements, the provisions governing arbitration are in the Program: “To the extent not 16 otherwise provided in the Program . . . the arbitration shall be conducted in accordance with and 17 governed by the . . . []AAA Rules[].” Dkt. No. 60 at 5; Dkt. No. 61 at 5. And the Program itself 18 supports that interpretation: unlike the MDR Agreement, it references arbitration in its title, and 19 20
21 7 May’s Noncompete Agreement appears to be missing a line; it does not contain the following bolded text: This Agreement constitutes the entire understanding of the parties and it may not be modified or 22 amended in any way except in writing and with the mutual consent of Employee and Company. This Agreement supersedes and replaces any prior agreement of employment, confidentiality, 23 nondisclosure, noncompetition, or nonsolicitation with Company. Compare Dkt. No. 13-2 at 4, with Dkt. No. 13-1 at 4. 24 8 No party argues that the Noncompete Agreements supersede or replace the MDR Agreements or Program. 1 its provisions detail Philadelphia’s arbitration requirements.9 Again, both the Program and MDR 2 Agreement contain carve-outs for unfair competition claims. 3 Specifically, the Program states that it does not apply to “[c]laims for unfair competition,” 4 which “are not covered by this Program and are not considered employment-related disputes or
5 claims within the meaning of this Program.” Dkt. No. 60 at 10. Accordingly, the provisions in the 6 Program referring to “employment-related disputes”—and the AAA Rules that govern them—do 7 not apply to unfair competition claims: 8 • By continuing their employment, “employees agree to resolve all employment- related disputes or claims . . . through final and binding arbitration, pursuant to the 9 . . . Maguire Dispute Resolution Rules” and “[t]o the extent not otherwise provided in the . . . Rules, the arbitration shall be conducted in accordance with and governed 10 by the [AAA Rules].” Id. at 10 (emphasis added).
11 • “[Philadelphia] shall arbitrate any of [its] employment-related claims against any employee or applicant who is covered under this Program . . . pursuant to the 12 Maguire Dispute Resolution Rules and to the extent not otherwise provided therein, the AAA Rules.” Id. at 10–11 (emphasis added). 13 • Philadelphia agrees that “final and binding arbitration” will be the sole and 14 exclusive remedy for claims “covered under this Program[.]” Id. at 11.
15 The MDR Agreements similarly provide that the parties must arbitrate “any and all claims, 16 disputes or controversies arising out of or relating to Applicant’s . . . employment and/or cessation 17 of employment (other than . . . unfair competition claims . . .) pursuant [to the FAA] conducted by 18 the [AAA] pursuant to . . . the []Program[.]” Dkt. No. 60 at 5; Dkt. No. 61 at 5. But pursuant to 19 the Program, “[c]laims for unfair competition . . . are not covered . . . and are not considered 20 employment-related disputes or claims[.]” Dkt. No. 60 at 10. Accordingly, the next sentence in the 21 MDR Program—providing that “[t]o the extent not otherwise provided in the Program[,] . . . the 22 arbitration shall be conducted in accordance with and governed by the [AAA Rules]”—expressly 23
9 The Employee Handbook likewise refers to the Program as the document governing arbitration. Dkt. No. 60 at 16; 24 Dkt. No. 61 at 11. 1 qualifies application of the AAA Rules and, by extension, Rule 6(a)’s jurisdictional-arbitrability 2 delegation. Dkt. No. 60 at 5; Dkt. No. 61 at 5. 3 Other content in the three agreements supports this conclusion. For example, the Program 4 contains a section titled “Procedure for Arbitration.” Dkt. No. 60 at 11. That section provides
5 guidance for prospective plaintiffs regarding, among other things, the procedure for initiating the 6 arbitration process, payment of and responsibility for the filing fee and arbitrator’s fee, the location 7 of the arbitration, and the selection of an arbitrator pursuant to the AAA Rules. Id. at 11–12. Such 8 guidance would be relevant to a plaintiff with an unfair competition claim if an arbitrator were 9 supposed to handle the “gateway issue” of arbitrability, but again, the Program expressly disclaims 10 application to such claims. Furthermore, while the Program requires a plaintiff to “complete a[n] 11 AAA Employment Arbitration Rules Demand for Arbitration Form” and send it to the AAA to 12 invoke arbitration, id. at 11–12, the MDR Agreement indicates that a plaintiff may “file a lawsuit 13 in court” if the claim at issue is an unfair competition claim. Id. at 7 (“Applicant will be required 14 to arbitrate any and all employment related claims he/she may have against the Employer . . . and
15 Applicant may not file a lawsuit in court concerning such claims . . . (other than . . . unfair 16 competition claims . . . .).”); Dkt. No. 61 at 7 (same). 17 In a case involving somewhat weaker facts, Archer & White Sales, Inc. v. Henry Schein, 18 Inc., 935 F.3d 274 (2019) (“Schein II”), the Fifth Circuit concluded that it was for the court—not 19 the arbitrator—to determine arbitrability. That case also involved a carve-out provision: the parties 20 agreed that “[a]ny dispute arising under or related to this Agreement (except for actions seeking 21 injunctive relief and disputes related to trademarks, trade secrets, or other intellectual 22 property . . . ), shall be resolved by binding arbitration in accordance with the arbitration rules of 23 the American Arbitration Association.” 935 F.3d at 280 (cleaned up). The court found the
24 placement of the carve-out provision “dispositive” because the “most natural reading of the 1 arbitration clause” was that “any dispute, except actions seeking injunctive relief, shall be resolved 2 in arbitration in accordance with the AAA Rules.” Id. at 281. Here, too, the “plain language” of 3 the parties’ agreements “incorporates the AAA rules—and therefore delegates arbitrability—for 4 all disputes except those under the carve-out.” Id. (emphasis in original). And like the Schein II
5 court, the Court here cannot say that either the MDR Agreement or the Program “evinces a ‘clear 6 and unmistakable’ intent to delegate arbitrability.” Id. at 281–82; see also Han v. Synergy 7 Homecare Franchising, LLC, No. 16-CV-03759-KAW, 2017 WL 446881, at *5–6 (C.D. Cal. Feb. 8 2, 2017) (parties did not clearly and unmistakably delegate arbitrability with respect to claims 9 excluded by the carve-out provision). 10 The Ninth Circuit’s decision in Oracle America does not alter this result. That case also 11 involved a carve-out provision: 12 Any dispute arising out of or relating to this [Source] License shall be finally settled by arbitration as set out herein, except that either party may bring any action, in a 13 court of competent jurisdiction (which jurisdiction shall be exclusive), with respect to any dispute relating to such party’s Intellectual Property Rights or with respect 14 to Your compliance with the TCK license. Arbitration shall be administered: (i) by the American Arbitration Association (AAA), (ii) in accordance with the rules of 15 the United Nations Commission on International Trade Law (UNCITRAL) (the “Rules”) in effect at the time of arbitration as modified herein[.] 16 724 F.3d at 1071.10 Oracle, the party resisting arbitration, argued that the arbitrability 17 determination with respect to intellectual property claims or claims arising out of the TCK License 18 were “disputes relating to” those claims, and therefore fell within the district court’s exclusive 19 jurisdiction. Id. at 1075–76 The Ninth Circuit disagreed. As the court explained, Oracle’s argument 20 “conflate[d] the scope of the arbitration clause, i.e., which claims fall within the carve-out 21 22
23 10 Like the AAA Rules—specifically, Rule 6(a)—the UNCITRAL Rules delegate to the arbitral tribunal the power to rule on its own jurisdiction. See Oracle Am., 724 F.3d at 1073. Because Oracle America involved the UNCITRAL Rules, it was not until Brennan that “the question regarding incorporation of the AAA rules [came] squarely before” 24 the Ninth Circuit. Brennan, 796 F.3d at 1130. 1 provision, with the question of who decides arbitrability.” Id. at 1076. The court went on to 2 emphasize the distinction: “The decision that a claim relates to intellectual property rights or 3 compliance with the TCK License constitutes an arbitrability determination, which the parties have 4 clearly and unmistakably delegated to the arbitrator by incorporating the UNCITRAL rules.” Id.
5 Although enticing at first blush, the arbitration provision and carve-out in Oracle America 6 involved a circularity that sets them apart from those at issue here. The claims exempted from 7 arbitration under the Oracle America carve-out clause “by definition” arose out of or were related 8 to the Source License, and the agreement expressly stated that claims arising out of the Source 9 License had to be settled by arbitration. See 724 F.3d at 1076. The issue with the Oracle America 10 carve-out provision, then, was that the two categories of exempted claims—disputes relating to 11 intellectual property and the TCK License—“by definition were claims arising out of or relating 12 to the Source License, which were explicitly subject to arbitration.” Schein II, 935 F.3d at 281 13 n.30. 14 Here, no such circularity exists. The parties expressly excluded unfair competition claims
15 from the “employment-related claims” subject to the AAA Rules. And the structure and content 16 of the three agreements in play buttress the parties’ intent to treat unfair competition claims as a 17 separate category subject only to litigation in court. Had the parties wished to wholesale delegate 18 arbitrability to the arbitrator, they would have done so. See Han, 2017 WL 446881, at *6. The 19 Court will not “override” or re-write their contract. Henry Schein, 139 S. Ct. at 529; see also AT&T 20 Mob. LLC v. Concepcion, 563 U.S. 333, 339 (2011) (“[C]ourts must place arbitration agreements 21 on an equal footing with other contracts and enforce them according to their terms.” (internal 22 citations omitted)). The Court now turns to the second issue: whether Philadelphia’s claims against 23 May and Spicher are arbitrable.
24 1 D. One of Philadelphia’s Claims Against May and Spicher Is Arbitrable; Two Are Not 2 May and Spicher contend that Philadelphia’s claims against them (Counts I, II, and VI) are 3 arbitrable under the MDR Agreement and Program because they arise out of and are related to 4 their employment. Dkt. No. 59 at 11–12. They appear to further claim that, because Philadelphia
5 seeks monetary damages, its claims are not “claims for equitable relief” and therefore fall outside 6 the scope of the carve-out provision. See id. at 12–13. Although these arguments are meritless, the 7 Court finds that Count II of Philadelphia’s complaint is arbitrable. Counts I and VI, however, are 8 not. 9 Federal policy favors arbitration, and the Court resolves any ambiguities regarding the 10 scope of arbitrable issues in favor of arbitration. Moses H. Cone Mem’l Hosp. v. Mercury Constr. 11 Corp., 460 U.S. 1, 24–25 (1983); Boardman v. Pac. Seafood Grp., 822 F.3d 1011, 1019 (9th Cir. 12 2016). At the same time, arbitration “is strictly a matter of consent, and thus is a way to resolve 13 those disputes—but only those disputes—that the parties have agreed to submit to arbitration.” 14 Granite Rock Co. v. Int’l Brotherhood of Teamsters, 561 U.S. 287, 299 (2010) (cleaned up)
15 (emphasis in original). The Supreme Court has repeatedly warned that the FAA does not “prevent 16 parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration 17 agreement[.]” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 18 478 (1989). Thus, to determine whether an issue falls within the scope of the parties’ arbitration 19 agreement, the Court looks to state contract law while giving due regard to the federal policy 20 favoring arbitration. Kaplan, 514 U.S. at 944; Goldman, Sachs & Co. v. City of Reno, 747 F.3d 21 733, 742 (9th Cir. 2014). 22 Under the MDR Agreements, the parties must arbitrate “any and all claims, disputes or 23 controversies arising out of or relating to [May and Spicher’s] . . . employment and/or cessation of
24 employment” with the exception of “unfair competition claims” as defined therein. Dkt. No. 60 at 1 5; Dkt. No. 61 at 5. The Program similarly mandates arbitration for employment-related disputes, 2 but it too expressly exempts claims for unfair competition: “Claims for unfair competition . . . are 3 not covered by this Program and are not considered employment-related disputes or claims within 4 the meaning of this Program.” Dkt. No. 60 at 10. May and Spicher’s suggestion that Philadelphia’s
5 claims are arbitrable simply because they arise out of or are related to their employment thus 6 ignores the carve-out provision. The Court need not dwell on that argument any longer. 7 Next, the MDR Agreement and Program include identical definitions for “claims for unfair 8 competition.” Both define that term as encompassing “claims to interpret, apply or enforce the 9 confidentiality, intellectual property, nonsolicitation or noncompetition provisions of the 10 agreement(s) at issue,” as well as “claims regarding the possession, use, dissemination, disclosure 11 of or reliance on information alleged to be confidential,” which in turn includes “common law or 12 statutory claims for unfair competition and misappropriation of trade secrets.” Id. at 6, 11. The 13 carve-out applies to such claims “including, without limitation,” when they seek “equitable relief” 14 such as “declaratory or injunctive relief[.]” Id. The Court has little difficulty concluding that
15 Counts I and VI fall squarely within the plain and unambiguous language of this carve-out 16 provision. This is so regardless of whether Washington or Pennsylvania law applies. See Ley v. 17 Clark Cnty. Pub. Transp. Benefit Area, 386 P.3d 1128, 1133 (Wash. Ct. App. 2016) (“If the 18 contract language is clear and unambiguous, we must enforce the contract as written.”); E.R. Linde 19 Constr. Corp. v. Goodwin, 68 A.3d 346, 349 (Pa. Super. Ct. 2013) (“Where the language of the 20 contract is clear and unambiguous, a court is required to give effect to that language.”). 21 Count I alleges that May and Spicher “breached their obligations” under the Noncompete 22 Agreement by “encouraging Philadelphia[’s] employees to leave Philadelphia [] and/or to join 23 Amynta, soliciting and recruiting Philadelphia[’s] employees to Amynta, and/or aiding Amynta in
24 seeking to recruit and/or hire Philadelphia[’s] employees[.]” Dkt. No. 1 at 25–26. This is a claim 1 “to interpret, apply [and] enforce” the terms of the Noncompete Agreement and is therefore 2 exempted from arbitration. Dkt. No. 60 at 6; Dkt. No. 61 at 6. Count VI likewise falls within the 3 plain language of the carve-out provision. The declaratory judgment that Philadelphia seeks entails 4 the interpretation, application, and enforcement of the Noncompete Agreement:
5 [A] declaratory judgment will terminate the controversy surrounding whether Defendants May and Spicher were terminated for ‘[c]ause’ under their respective 6 Confidentiality and Noncompetition Agreements and are prohibited, in relevant part and without limitation, from soliciting any current or prospective agent, broker, 7 insured, policyholder, customer, account, or any lead derived from Philadelphia [] who they serviced or whose name became known to them during the two (2) years 8 preceding termination of [their] employment for a period of twelve (12) months. 9 Dkt. No. 1 at 32; see also id. at 34 (requesting declaratory judgment that May and Spicher “violated 10 the terms of their respective Confidentiality and Noncompetition Agreements”). 11 Count II, which alleges breach of fiduciary duty and the duty of loyalty, is a different story. 12 Dkt. No. 1 at 26–28. The plain language of the carve-out provision is again dispositive. A common- 13 law tort action for breach of fiduciary duty and the duty of loyalty is not a “claim[] to interpret, 14 apply or enforce the confidentiality, intellectual property, nonsolicitation or noncompetition 15 provisions of the [parties’] agreement(s)[.]” Dkt. No. 60 at 6; Dkt. No. 61 at 6. Nor is it a “claim[] 16 regarding the possession, use, dissemination, disclosure of or reliance on information alleged to 17 be confidential,” a category that includes “common law or statutory claims for unfair competition 18 and misappropriation of trade secrets.” Dkt. No. 60 at 6; Dkt. No. 61 at 6. The parties must 19 therefore arbitrate this claim. Both the plain language of their agreements and the strong federal 20 policy in favor of arbitration compel this result. See Goldman, Sachs & Co., 747 F.3d at 742.11 21 May and Spicher’s motion to compel arbitration is granted in part and denied in part. 22
23 11 Philadelphia has apparently agreed to arbitrate its claims against May and Spicher. Dkt. No. 76 at 3. The parties are of course free to stipulate to the arbitration of any and all claims—including those claims not subject to mandatory 24 arbitration under the parties’ agreements. 1 E. The Court Stays These Proceedings Pending Arbitration on Count II 2 May and Spicher urge the Court to stay this case in its entirety “even if certain claims 3 against May and Spicher [are] not . . . subject to arbitration” and “even though Amynta is not a 4 party to the arbitration agreement.” Dkt. No. 59 at 13–14; see also Dkt. No. 19-2 at 11–12.
5 Philadelphia contends that a wholesale stay is inappropriate in this case because the nonarbitrable 6 claims predominate. Dkt. No. 67 at 13 (citing United Commc’ns Hub, Inc. v. Qwest Commc’ns, 7 Inc., 46 Fed. App’x 412, 415 (9th Cir. 2002)); Dkt. No. 29 at 10–12; see also Dkt. No. 79-1 at 3– 8 8 (arguing that the case should not be stayed as to Amynta). 9 The FAA mandates that the Court stay an action “where [it] is brought by a signatory to an 10 arbitration agreement against another signatory to that agreement, on claims subject to that 11 agreement.” Ballard v. Corinthian Colls., Inc., No. C06-5256-FDB, 2006 WL 2380668, at *2 12 (W.D. Wash. Aug. 16, 2006); see 9 U.S.C. § 3. But it is in the Court’s discretion “whether to stay, 13 for considerations of economy and efficiency, an entire action, including issues not arbitrable, 14 pending arbitration.” Kater v. Churchill Downs Inc., No. C15-612-RBL, 2019 WL 3944323, at *1
15 (W.D. Wash. Aug. 21, 2019) (cleaned up); Winfrey v. Kmart Corp., 692 F. App'x 356, 357 (9th 16 Cir. 2017) (“A party is only entitled to a stay pursuant to section 3 [of the FAA] as to arbitrable 17 claims or issues,” but “[a]s to nonarbitrable claims and issues, . . . the district court has discretion 18 whether to stay the litigation pending arbitration.” (cleaned up)). The Court’s discretion extends 19 to nonarbitrable claims against a nonsignatory defendant like Amynta. See Moses H. Cone, 460 20 U.S. at 20 n.23. 21 Philadelphia correctly notes that staying nonarbitrable claims is generally appropriate only 22 when “the arbitrable claims predominate, or where the outcome of the nonarbitrable claims will 23 depend upon the arbitrator’s decision.” Dkt. No. 67 at 13 (quoting United Communications, 46
24 Fed. App’x at 415). The fact that five of Philadelphia’s six claims are nonarbitrable certainly 1 weighs against a wholesale stay in this case. That, however, is only part of the calculus. As noted, 2 the Court considers whether any nonarbitrable claims depend on the arbitrator’s resolution of the 3 arbitrable claim, i.e., Philadelphia’s common-law claim for breach of fiduciary duty and duty of 4 loyalty. See U.S. for Use & Benefit of Newton v. Neumann Caribbean Int’l, Ltd., 750 F.2d 1422,
5 1427 (9th Cir. 1985) (district court did not err in staying nonarbitrable claims because “there were 6 ample reasons for avoiding a duplication of effort in trying simultaneously, or even successively, 7 the issues” and “[c]onsiderations of economy and efficiency fully support[ed] the District Court’s 8 determination” that the nonarbitrable claims must await the arbitrator’s final determination). 9 Conversely, the Court must consider whether permitting the nonarbitrable claims to go forward 10 might “impair [the] arbitrator’s consideration” of Philadelphia’s lone arbitrable claim. Ballard, 11 2006 WL 2380668, at *2. Both concerns are present here. Count IV, for example, alleges that 12 Amynta aided and abetted May and Spicher in breaching their fiduciary duty and duty of loyalty. 13 Dkt. No. 1 at 29–31. That claim therefore turns directly on the arbitrator’s resolution of Count II: 14 whether May and Spicher breached their fiduciary duty and duty of loyalty in the first place.
15 Compare id. at 27, with id. at 30. Because Amynta’s fate turns on whether May and Spicher 16 breached their common-law fiduciary duties, the claims are intertwined. See Kater, 2019 WL 17 3944323, at *2 (courts “generally grant” stays when “the plaintiff’s claims against a non-signatory 18 defendant are intertwined with their arbitrable claims against another defendant”). 19 There is more. The four corners of Philadelphia’s complaint make clear that Count II 20 “depends upon the same facts [as] and is inherently inseparable from” the remainder of the 21 arbitrable claims. Ballard, 2006 WL 2380668, at *2. A brief review of the allegations supporting 22 Count II shows why. There, Philadelphia contends that May and Spicher breached their fiduciary 23 duty and duty of loyalty by “sowing discontent with Philadelphia [] employees,” “expressing
24 negativity about Philadelphia [] . . . to one or more agents,” and “scheming to . . . recruit others to 1 leave Philadelphia[’s] employment and join them” at Amynta. Dkt. No. 1 at 27. These allegations 2 form the basis of each of Philadelphia’s claims. See Dkt. No. 1 at 25–26 (Count I, alleging that 3 May and Spicher breached the Noncompete Agreement by “encouraging” Philadelphia employees 4 to join Amynta, “soliciting and recruiting” Philadelphia employees to join Amynta, and “aiding
5 Amynta in seeking to recruit and/or hire” Philadelphia employees); id. at 28–29 (Count III, 6 alleging that Amynta “assisted, encouraged, and facilitated May and Spicher to breach their 7 agreements by supporting, encouraging, and/or assisting the unlawful . . . solicitation and 8 recruitment” of Philadelphia employees); id. at 29–31 (Count IV, alleging that Amynta “aided and 9 assisted” May and Spicher in breaching their fiduciary duty and duty of loyalty “by assisting them 10 to . . . recruit the [d]eparting [e]mployees to leave” Philadelphia and begin employment with 11 Amynta); id. at 31 (Count V, alleging that Amynta “willfully and intentionally recruited an entire 12 team of Philadelphia[’s] employees in the Commercial Surety Division to work for Amynta for an 13 improper purpose[.]”); id. at 33–34 (Count VI, requesting declaratory judgment that May and 14 Spicher’s conduct violated the Noncompete Agreement). The arbitrator’s resolution of Count II
15 thus necessarily informs the outcome of the nonarbitrable claims—and vice versa. At the very 16 least, concurrent adjudication of the underlying factual premise would risk inconsistency between 17 the arbitrator’s decision and that of the Court. See Ballard, 2006 WL 2380668, at *2 (“[G]iven the 18 interdependence of the claims, simultaneous litigation of such claims in separate forums would 19 likely lead to a duplication of effort, as well as the risk of inconsistent decisions and 20 inefficiencies.”). 21 Courts typically decline to stay cases when the arbitrable claims have no bearing on the 22 nonarbitrable claims, and when other non-signatory plaintiffs will be prejudiced by a stay. See, 23 e.g., Wolfire Games, LLC v. Valve Corp., No. C21-0563-JCC, 2021 WL 4952220, at *3 (W.D.
24 Wash. Oct. 25, 2021) (declining to stay case because the non-signatory plaintiff alleged ongoing 1 harm from the defendant’s actions, and “the arbitrator’s findings and conclusions on the 2 [signatory] consumers’ claims would not bind the Court” in addressing non-signatory plaintiff’s 3 claims); Congdon v. Uber Techs., Inc., 226 F. Supp. 3d 983, 990 (N.D. Cal. 2016) (denying stay 4 where arbitration of the non-opt-out plaintiffs’ claims had “no bearing” on the court’s resolution
5 of the opt-out plaintiffs’ claims, despite the fact that some claims “involve[d] the same operative 6 facts”). Here, however, Philadelphia is the sole signatory plaintiff and three of its five nonarbitrable 7 claims are against non-signatory defendant Amynta (Counts III, IV, and V). See Kater, 2019 WL 8 3944323, at *2 (“[A] stay is more appropriate when another defendant did not agree to arbitrate 9 but less appropriate when another plaintiff did not.”). Moreover, those claims turn on the same 10 factual basis as Philadelphia’s arbitrable claim against May and Spicher. The Court stays these 11 proceedings in their entirety pending the outcome of arbitration. 12 May and Spicher’s motion to stay is therefore granted. Philadelphia’s motion for a partial 13 stay is granted with respect to its request for an order staying this case while the parties arbitrate 14 its claims against May and Spicher. The motion is denied, however, with respect to Philadelphia’s
15 request to permit its claims against Amynta to proceed before arbitration is complete. The motion 16 is also denied with respect to Philadelphia’s request for an order denying as moot May and 17 Spicher’s motion to compel arbitration, because the parties dispute whether the Court should grant 18 the relief sought. See, e.g., Dkt. No. 59 at 2, 6, 13–14, 16–17 (requesting a stay of the entire case). 19 III. CONCLUSION 20 The Court GRANTS IN PART and DENIES IN PART May and Spicher’s Motion to 21 Compel Arbitration, Dkt. No. 59, GRANTS May and Spicher’s Motion to Stay Judicial 22 Proceedings Pending Arbitration, Dkt. No. 19, and GRANTS IN PART and DENIES IN PART 23 Philadelphia’s Motion to Stay Proceedings In Part, Dkt. No. 76.
24 The Court STAYS these proceedings pending arbitration. The parties are DIRECTED to 1 file a joint status report within ten days of the completion of arbitration proceedings. 2 Dated this 24th day of January, 2023. 3 A 4 Lauren King United States District Judge 5 6 7 8 9 10 11 12 13 14
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