MHHC Warranty and Services Inc v. Consumer Priority Service Corp

• Court: District Court, W.D. Washington
• Decided: September 26, 2025
• Docket: 3:25-cv-05478
• Status: Unknown

Opinion

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4 5 UNITED STATES DISTRICT COURT 6 WESTERN DISTRICT OF WASHINGTON AT TACOMA 7 MHHC WARRANTY AND SERVICES Case No. 3:25-cv-05478-TMC 8 INC., ORDER GRANTING DEFENDANTS’ 9 MOTION TO COMPEL ARBITRATION Plaintiff, AND DENYING MOTION FOR FEES 10 v. 11 CONSUMER PRIORITY SERVICE CORP. 12 et al., 13 Defendant. 14

15 Before the Court is Defendants’ motion to compel arbitration of Plaintiff MHHC 16 Warranty and Services Inc. (“MHHC”)’s claims and stay or dismiss this case. Dkt. 6. Because 17 the parties agreed to an arbitration clause that covers all of MHHC’s claims against all 18 Defendants, the Court GRANTS Defendants’ motion to compel arbitration and the case is 19 STAYED pending the parties’ arbitration of this matter. The Court DENIES Defendants’ motion 20 for fees pursuant to Rule 11 and RCW 4.84.185. 21 / 22 / 23

24 1 I. BACKGROUND1 MHHC is a Washington corporation that administers extended warranty and service 2 contract programs. Dkt. 1 ¶ 5. Consumer Priority Service Corp. (“CPS”) is a New York 3 corporation that sells extended warranty and service plans for consumer products, and Max Zalta 4 and Larry Heffez are senior executives at CPS. Id. ¶¶ 6–8. On March 25, 2019, MHHC and CPS 5 entered into a Reseller Agreement (the “Agreement”) under which CPS was authorized to sell 6 warranty products backed by MHHC. Id. ¶ 10. While selling these programs, CPS was permitted 7 to use MHHC’s “trademarks, licenses, warranty, and insurance credentials only within the scope 8 of MHHC-approved programs.” Id. ¶ 11. CPS could not sell warranty plans without approval by 9 MHHC and was required to pay MHHC any sales revenue it collected from MHHC programs. 10 Id. 11 MHHC notified CPS it was terminating the agreement on December 29, 2024, effective 12 April 5, 2025. Id. ¶ 12. CPS did not contest the termination notice, and the Agreement expired on 13 April 5, 2025. Id. After termination of the Agreement, CPS allegedly: 14 15 • marketed, sold, and administered extended warranty products under MHHC’s name 16 and credentials without MHHC’s consent; 17 • held itself out as a representative or partner of MHHC; 18 • used MHHC’s name, logos, and insurance certificate; 19 • exploited MHHC’s coverage under regulatory licenses to lend legitimacy to its 20 warranty sales; 21

22 1 “In reviewing motions to compel arbitration . . . a court must consider all relevant, admissible evidence submitted by the parties and contained in pleadings, depositions, answers to 23 interrogatories, and admissions on file, together with affidavits.” Herrera v. Cathay Pacific Airways Limited, 94 F.4th 1083, 1085 (9th Cir. 2024) (citation modified). The Court assumes the 24 allegations in the complaint to be true. Id. 1 • issued new warranty products under the guise of MHHC’s licensed programs, 2 unapproved by MHHC; and 3 • failed to obtain regulatory approval for the warranty products that it sold under

4 MHHC’s name. 5 Dkt. 1 ¶¶ 14–17. MHHC also alleges that, both during and after termination, CPS wrongfully 6 withheld “the vast majority (in most cases 100%) of the revenue” from sales of MHHC-backed 7 warranties. Id. ¶ 18. MHHC’s claims include: (1) Civil RICO pursuant to 18 U.S.C. § 1962(c); 8 (2) civil RICO conspiracy pursuant to 18 U.S.C. § 1962(d); (3) breach of contract; (4) fraudulent 9 concealment and misrepresentation; (5) unjust enrichment; and (6) violations of state warranty, 10 insurance, and consumer protection laws. Dkt at 1 ¶¶ 26–59. 11 On July 15, 2025, CPS filed a motion to compel arbitration of MHHC’s claims and 12 dismiss or stay the action pending the outcome of the arbitration. Dkt. 6. CPS contends that

13 MHHC entered into a valid agreement to arbitrate under the Federal Arbitration Act (“FAA”). 14 Dkt. 6 at 8. CPS cites the following provision from the Agreement: 15 15 Arbitration and Choice of Law 16 This Agreement shall be interpreted under the laws of the State of Washington. Any controversy or claim arising out of or relating to this Agreement or the breach 17 thereof shall be settled in Thurston County, Washington [. . .] by arbitration in accordance with the rules of the American Arbitration Association and judgment 18 upon the award rendered by the arbitrator may be entered in any court having authority [. . .] 19 20 Dkt. 6 at 2 (quoting Dkt. 7-1 at 11). In its motion, CPS also asks the Court to dismiss Zalta and 21 Heffez for lack of personal jurisdiction and grant CPS fees pursuant to Rule 11 and RCW 22 4.84.185. Id. at 10–16. 23 In response, MHHC argues: (1) that MHHC was fraudulently induced into signing the 24 Agreement because CPS was already abusing MHHC’s credentials and concealing unapproved 1 sales “at contract formation”; (2) public policy interests make the contract unenforceable; and 2 (3) MHHC’s statutory and tort claims are independent of the contract and fall outside the 3 arbitration provision. Dkt. 13 at 6–8.2 4 II. LEGAL STANDARD The FAA makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon 5 such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “A 6 party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written 7 agreement for arbitration may petition any [appropriate] United States district court . . . for an 8 order directing that such arbitration proceed in the manner provided for in such agreement.” 9 9 U.S.C. § 4. “A party seeking to compel arbitration has the burden under the FAA to show (1) the 10 existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the agreement to 11 arbitrate encompasses the dispute at issue.” Ashbey v. Archstone Prop. Mgmt., Inc., 785 F.3d 12 1320, 1323 (9th Cir. 2015) (citing Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 13 2008)). 14 As to the former, the Court must make the threshold determination that a valid contract 15 was formed before ordering arbitration. See Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1217 16 (9th Cir. 2008). Courts apply state contract law to determine whether the parties formed a valid 17 agreement to arbitrate. Lowden, 512 F.3d at 1217 (citing First Options of Chi., Inc. v. Kaplan, 18 514 U.S. 938, 944 (1995)). Defendants assert, and MHHC does not contest, that Washington 19 contract law applies. Dkt. 6 at 4; Dkts. 13, 18-1. In Washington, “[a]rbitration agreements stand 20 21 2 MHHC filed its response three days after the August 5, 2025, deadline. Dkt. 13; LCR 7(d)(4). 22 MHHC did not explain the late filing until August 15, 2025, arguing in its surreply that the lateness was due to “Plaintiff’s counsel being overseas at the time of the deadline [and] 23 encountering technical difficulties” constituting excusable neglect. Dkt. 18-1 at 1–2. Even if the Court considered MHHC’s arguments in its late response, however, they fail for the reasons 24 stated in this Order. 1 on equal footing with other contracts.” Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 47, 470 2 P.3d 486 (2020) (citations omitted). And “mutual assent is required for the formation of a valid 3 contract. It is essential to the formation of a contract that the parties manifest to each other their

4 mutual assent to the same bargain at the same time.” Id. at 48 (citation modified). 5 III. DISCUSSION 6 A. Motion to Compel Arbitration 7 1. The arbitration agreement was validly formed between MHHC and CPS. 8 The formation of an arbitration agreement depends on mutual assent to “the same bargain 9 at the same time.” Burnett, 196 Wn.2d at 48 (citation modified). “Mutual assent is gleaned from 10 outward manifestations and circumstances surrounding the transaction.” Id. at 50. Here, the 11 Agreement contains signatures from both Max Zalta, CEO of CPS, and an individual noted as 12 the President and CEO of MHHC. Dkt. 7-1 at 11. These signatures sit directly below, and on the

13 same page as, the arbitration clause detailed above. Id. 14 MHHC asserts the arbitration clause was the result of fraudulent inducement—that CPS 15 “concealed, at contract formation, that it was already selling unapproved [extended warranty 16 programs], leveraging MHHC’s credentials, and operating without required authority in multiple 17 states.” Dkt. 13 at 6. MHHC further claims “the record shows fraudulent inducement,” id. at 2, 18 and that the arbitration clause was “held out as a liability shield for a pre-existing scheme.” Id. at 19 6. But MHHC has neither pointed to such record evidence nor explained how arbitration would 20 shield CPS from liability. MHHC’s complaint does not appear to allege fraudulent inducement, 21 and to the contrary it claims that CPS’s misconduct began at “the inception of the [Agreement].” 22 Dkt. 1 ¶ 14. MHHC has not demonstrated fraudulent inducement, and the Court finds MHHC is

23 bound by the arbitration agreement. 24 1 2. The arbitration agreement applies to Zalta and Heffez. 2 Because the FAA does not “alter background principles of state contract law,” a non- 3 signatory may compel arbitration “if so dictated by the ordinary principles of contract and

4 agency.” Knapke v. PeopleConnect, Inc., 38 F.4th 824, 831–32 (9th Cir. 2022) (citations 5 omitted). Under Washington law, non-signatory agents may generally enforce arbitration clauses 6 signed by their principal employer. See McClure v. Davis Wright Tremaine, 77 Wn. App. 312, 7 316, 890 P.2d 466 (1995) (“[Plaintiff] does not dispute [defendant’s] contention that agents can 8 enforce arbitration agreements made by their principles.”); All for Kidz, Inc. v. Around the World 9 Yoyo Ent. Co., No. C13-2001RAJ, 2014 WL 1870821, at *3 (W.D. Wash. May 8, 2014) 10 (“Although no Washington court has squarely decided the issue, the court is convinced that 11 Washington law permits the [e]mployee [d]efendants to invoke the settlement agreement’s 12 arbitration clause as agents of [defendant].”). Arbitration is appropriate where claims against the

13 principal and agent are “based on the same facts” and “inherently inseparable.” Loyola v. Am. 14 Credit Acceptance LLC, No. 2:19-CV-00002-SMJ, 2019 WL 1601362, at *8 (E.D. Wash. Apr. 15 15, 2019) (quoting Wiese v. Cach, LLC, 189 Wn. App. 466, 482, 358 P.3d 1213 (2015)). 16 MHHC agreed to an arbitration clause covering “[a]ny controversy or claim arising out of 17 or relating to” the Agreement. Dkt. 7-1 at 11. This language is “broader than language covering 18 only claims ‘arising out’ of a contract.” McClure, 77 Wn. App. at 314. MHHC now attempts to 19 exclude Zalta and Heffez from arbitration because they are being sued “[not] for breach of [the 20 Agreement], but for their independent torts and statutory violations.” Dkt. 13 at 7. Those claims, 21 however, stem from Zalta and Heffez’s actions as CPS’s agents and are “intertwined with the 22 contract providing for arbitration[.]” Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1047 (9th

23 Cir. 2009) (citation omitted). 24 1 For example, MHHC alleges that Zalta and Heffez knowingly “shave[d] warranty policy 2 proceeds” that were due to MHHC pursuant to the terms of the contract. Dkt. 1 at 5, 11. MHHC 3 further alleges that Heffez “coordinated with sales agents and dealers, instructing them that CPS

4 ‘has everything handled’ with MHHC so that they would continue selling the plans [after 5 termination.]” Dkt. 1 at 19. “A plaintiff cannot ‘avoid an otherwise valid arbitration provision 6 merely by casting its complaint in tort[.]’” Blanchat v. Smash Franchise Partners, LLC, No. 7 2:20-CV-0380-TOR, 2020 WL 7364978, at *4 (E.D. Wash. Dec. 15, 2020) (quoting Kroll v. 8 Doctor’s Assocs., 3 F.3d 1167, 1170 (7th Cir. 1993)). A broad arbitration clause “embraces every 9 dispute between the parties having a significant relationship to the contract regardless of the label 10 attached to the dispute.” Id. (quoting JJ Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d 11 315, 321 (4th Cir. 1988)). Thus, Zalta and Heffez may benefit from the arbitration clause here. 12 3. MHHC’s claims fall within the arbitration agreement.

13 MHHC argues that its statutory and tort claims against CPS would exist without the 14 contract and are therefore not subject to arbitration. Dkt. 13 at 7 (first citing Kramer v. Toyota 15 Motor Corp., 705 F.3d 1122, 1130–32 (9th Cir. 2013); then citing Mundi, 555 F.3d at 1046–47). 16 As discussed above, this argument fails because all statutory and tort claims arise out of or relate 17 to the Agreement—namely, that Defendants violated the Agreement or continued to use 18 MHHC’s licenses or other resources after Defendants’ permission to do so under the Agreement 19 expired. Dkt. 1 ¶¶ 27–38, 57–59. 20 MHHC also argues that claims “involv[ing] the public interest and potential impact of 21 consumers” are uniquely subject to public policy concerns and, therefore, should not be 22 addressed in a private arbitral proceeding. Dkt. 18-1 at 4; Dkt 13 at 7–8. The Supreme Court has

23 consistently held, however, that public policy interests support binding parties to their 24 agreements to arbitrate. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 1 (describing that the FAA embraces a “liberal federal policy favoring arbitration”) (quoting Moses 2 H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). The Court has 3 upheld such agreements even in cases concerning consumer protection, employment, or other

4 areas with similar public policy concerns. See, e.g., id. at 340–43 (holding that the FAA “pre- 5 empts California’s rule classifying most collective-arbitration waivers in consumer contracts as 6 unconscionable”); Viking River Cruises, Inc. v. Moriana, 596 U.S. 639, 662 (2022) (rejecting 7 California’s prohibition on arbitration of employment claims); Marmet Health Care Ctr., Inc. v. 8 Brown, 565 U.S. 530, 532–33 (2012) (rejecting West Virginia’s prohibition on arbitration of 9 wrongful-death claims). MHHC has cited no authority demonstrating that its claims should be 10 treated differently. 11 The Agreement contains an arbitration provision that encompasses the parties and claims 12 here. The Court grants Defendants’ motion to compel arbitration. Dkt. 6. The Court will stay

13 these proceedings pending resolution of the parties’ arbitration. See Smith v. Spizzirri, 601 U.S. 14 472, 478 (2024) (when a federal court finds a dispute subject to arbitration and a party has 15 requested a stay of the court proceeding pending arbitration, the FAA compels the court to stay 16 the proceeding). 17 B. Motion to Dismiss for Lack of Personal Jurisdiction 18 Zalta and Heffez also moved to dismiss this case for a lack of personal jurisdiction. Dkt. 19 6 at 8 (citing Fed. R. Civ. P. 12(b)(2)). Since this Court has already agreed with Defendants that 20 the parties’ Agreement requires the claims against Zalta and Heffez be brought in arbitration, it 21 need not address whether it could exercise personal jurisdiction over the claims against Zalta and 22 Heffez in this forum.

23 24 1 C. Motion for Fees Under Rule 11 and RCW 4.84.185 2 Finally, Defendants argue that the Court should award the fees and costs associated with 3 bringing their motion to compel because MHHC’s suit here was frivolous. Dkt. 6 at 14–15 (first

4 citing Fed. R. Civ. P. 11; then citing RCW 4.84.185).3 Both arguments fail. 5 First, Defendants’ motion for sanctions under Rule 11 fails because Defendants did not 6 comply with Rule 11’s safe harbor provision requiring them to serve a motion for sanctions on 7 MHHC at least 21 days before filing the motion with the Court. Fed. R. Civ. P. 11(c)(2); 8 Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 789 (9th Cir. 2001) (explaining that the 9 procedural requirements of Rule 11’s safe harbor are “mandatory”) (quoting Barber v. Miller, 10 146 F.3d 707, 710–11 (9th Cir. 1998)). Nor did Defendants comply with Rule 11’s requirement 11 that “a motion for sanctions must be made separately from any other motion.” Olive v. Robinson, 12 No. 220CV00356JLRBAT, 2021 WL 2810042, at *2 (W.D. Wash. June 11, 2021), report and 13 recommendation adopted, No. C20-0356JLR-BAT, 2021 WL 2809985 (W.D. Wash. July 6, 14 2021) (quoting Fed. R. Civ. P. 11(c)(2)). 15 Second, Defendants’ motion for fees pursuant to RCW 4.84.185 fails because recovery 16 under this statute only becomes available “after a voluntary or involuntary order of dismissal, 17 order on summary judgment, final judgment after trial, or other final order terminating the action 18 as to the prevailing party.” Any argument for fees under RCW 4.84.185 is therefore premature 19 because the Court has not issued such an order. See Olive, 2021 WL 2810042, at *3. 20 3 Defendants also cite Washington’s Civil Rule 11, which does not include a safe harbor 21 provision, as an independent basis for fees. Dkt. 6 at 14–15. Because “CR 11 was modeled after and is substantially similar to” the federal Rule 11, the Court finds CR 11 is procedural and 22 preempted by Rule 11 pursuant to Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). See Vorhees v. Esurance Ins. Servs., Inc., No. 2:23-CV-00420-RAJ, 2024 WL 3069977, at *8 n.2 (W.D. Wash. 23 June 20, 2024), aff’d, No. 24-4512, 2025 WL 1682180 (9th Cir. June 16, 2025); see also Chambers v. NASCO, Inc., 501 U.S. 32, 52–53 (1991) (fee statutes are generally substantive if 24 tied to the outcome of the litigation, but procedural if based on a litigant’s bad-faith conduct). l IV. CONCLUSION For the reasons stated above, the Court GRANTS CPS’s motion to compel arbitration and

3 DENIES CPS’s motion for fees pursuant to Rule 11 and RCW 4.84.185. Dkt. 6. This case is

4 STAYED pending the completion of arbitration proceedings. The parties are ORDERED to file a

5 joint status report by March 26, 2026, or within 14 days of completing arbitration, whichever

6 comes first.

7 Dated this 26th day of September, 2025. CE “