Plintron Technologies USA LLC v. Phillips

Opinion

1 2 3 4

5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 PLINTRON TECHNOLOGIES USA, CASE NO. C24-93 MJP LLC, 11 ORDER DENYING MOTION TO Plaintiff, COMPEL ARBITRATION 12 v. 13 JOSEPH PHILLIPS, RICHARD 14 PELLY, THOMAS MATHEW, GREG MCKERVEY, and DESIREE 15 MCHIELLE GRAY , 16 Defendant. 17 18 This matter comes before the Court on Defendant Joseph Phillips’ Motion to Compel 19 Arbitration. (Dkt. No. 5.) Having reviewed the Motion, the Response (Dkt. No. 37), the Reply 20 (Dkt. No. 40), and all supporting materials, the Court DENIES the Motion. 21 BACKGROUND 22 This case arises out of Defendants employment with Plaintiff Plintron Technologies USA 23 LLC (“Plintron”). Defendants are all former employees of Plintron who resigned or were 24 1 terminated in the last six months. (Complaint ¶¶ 13-17.) Plintron alleges Defendants breached 2 their contract and fiduciary duties, committed fraud and misappropriated trade secrets. (Id. at ¶¶ 3 137-222.) 4 Though Plintron names five defendants in the suit, the current motion only pertains to

5 Defendant Joseph Phillips and whether any claims against him should be sent to arbitration. 6 Phillips executed an Employment Agreement when he began his employment with Plintron. 7 (Declaration of Joseph Phillips, Exhibit 1 (Dkt. No. 6).) The Agreement contains a mediation and 8 arbitration clause that states: 9 Employer and Executive agree to first mediate and may then submit to binding arbitration any claims that they may have against each other, of any nature 10 whatsoever, other than those prohibited by law or for workers compensation, unemployment or disability benefits, and pursuit [sic] to the rules of the 11 American Arbitration Association.

12 (Phillips Decl., Ex. 1 at 8.)

13 The Agreement also contains a choice of law, jurisdiction and venue agreement. (Phillips. 14 Decl., Ex. 1 at 14.) 15 Phillips now brings a motion to compel arbitration pursuant to the Agreement. (Dkt. No. 16 5.) Phillips argues the language in the clause mandates the parties to submit their dispute to 17 arbitration. Plintron disagrees arguing the word “may” in the clause makes arbitration 18 permissive, not mandatory. (Response at 4 (Dkt. No. 37).) 19 ANALYSIS 20 A. Whether the Court has the Authority to Determine Arbitrability 21 The Federal Arbitration Act (“FAA”) provides that agreements to arbitrate “shall be 22 valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the 23 revocation of any contract.” AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 24 1 (citation and quotation omitted). “Both the arbitrability of the merits of a dispute and the 2 question of who has the primary power to decide arbitrability depend on the agreement of the 3 parties.” Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 738 (9th Cir. 2014) (citation 4 omitted). “But, unlike the arbitrability of claim in general, whether the court or the arbitrator

5 decides arbitrability is an issue for judicial determination unless the parties clearly and 6 unmistakably provide otherwise.” Id. (citing Oracle Am., Inc. v. Myriad Group A.G., 742 F.3d 7 1069, 1072 (9th Cir. 2013). “Thus, there is a presumption that courts will decide which issues are 8 arbitrable.” Id. 9 The Court finds it has the authority to determine arbitrability. Plintron argues the 10 arbitration clause in the Employment Agreement creates a clear and unmistakable agreement to 11 allow threshold questions of arbitrability to go to the arbitrator. (Mot. at 8.) Plintron bases this 12 argument on Agreement’s phrasing that any claims may be submitted to arbitration “[pursuant] 13 to the rules of the American Arbitration Association.” (Id.) AAA Employment Rule 6(a) states 14 that the “arbitrator shall have the power to rule on his or her own jurisdiction including any

15 objections with respect to the existence, scope, or validity of the arbitration agreement.” But, as 16 discussed in more detail below, whether there is an agreement to arbitrate depends on how the 17 Court interprets the word “may.” Because that is up for interpretation, it is not a clear and 18 unmistakable agreement to send the issue to an arbitrator. 19 B. Whether there is an Agreement to Arbitrate 20 Arbitration is a matter of contract, meaning that a “a party cannot be required to submit to 21 arbitration any dispute which he has not agreed to submit.” Howsam v. Dean Witter Reynolds, 22 Inc., 537 U.S. 79, 83 (2002). While there is a “liberal federal policy” favoring arbitration 23 agreements, see id., that policy was intended “to overrule the judiciary’s longstanding refusal to

24 1 enforce agreements to arbitrate and to place such agreements upon the same footing as other 2 contracts.” Morgan v. Sundance, Inc., 596 U.S. 411, 418 (2002) (internal quotation and citation 3 omitted). Put another way, “[t]he policy is to make arbitration agreements as enforceable as other 4 contracts, but not more so.” Id. (internal quotation and citation omitted). This means “a court

5 must hold a party to its arbitration contract just as the court would to any other kind.” Id. “But a 6 court may not devise novel rules to favor arbitration over litigation.” Id. 7 In deciding whether to compel arbitration, a court must determine two “gateway” issues: 8 (1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement 9 covers the dispute. Howsam, 537 U.S. at 84. “If the response is affirmative on both counts, then 10 the [FAA] requires the court to enforce the arbitration agreement in accordance with its terms.” 11 Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). In order to 12 determine whether parties agreed to arbitrate, Courts apply ordinary state-law contract principals. 13 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Washington courts apply the 14 manifest theory of contract interpretation: “[t]he role of the court is to determine the mutual

15 intentions of the parties according to the reasonable meaning of their words and acts.” Fisher 16 Props. Inc. v. Arden-Mayfair, Inc., 106 Wn.2d 826, 837 (1986). 17 The party seeking to compel arbitration “bears the burden of proving the existence of an 18 agreement to arbitrate by a preponderance of the evidence.” Norcia v. Samsun Telecomm. Am., 19 LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). This burden is substantial, and the Court must give 20 the party denying the existence of an agreement to arbitrate “the benefit of all reasonable doubts 21 and inferences that may arise.” Three Valleys Mun. Water Dist. V. E.F. Hutton & Co., 925 F.2d 22 1136, 1141 (9th Cir. 1991) (internal quotations omitted). Because Phillips is the one who seeks 23 to compel arbitration, he has the burden.

24 1 The parties do not dispute the Agreement covers the claims brought by Plintron, but 2 instead focus their argument on whether there is an agreement to arbitrate. 3 The Court finds there is no binding agreement. In determining whether there is an 4 agreement to arbitrate, the Court focuses on the word “may” and whether it makes arbitration

5 permissive or mandatory. Because interpretation of the word depends on how it is used in 6 context, there is no binding case law for the Court to rely on and each case is different. Thus, the 7 context and language in the clause is critical to the Court in making its determination. 8 The Court finds there is no binding agreement to arbitrate for two reasons. First, words in 9 a contract should be given their ordinary meaning. Corbray v. Stevenson, 98 Wn.2d 410, 415 10 (1982). The word “may” is a modal verb that is “used to say that something is possible.” May, 11 Oxford English Dictionary (2024). The ordinary meaning of “may” suggests permission or 12 possibility, not requirement. Second, the Agreement states that “Employer and Executive agree 13 to first mediate and may then submit to binding arbitration . . .” (Phillips Decl., Ex. 1 at 8.) The 14 Court notes that the parties involved here are both sophisticated and arguably know how to

15 negotiate a contract and make binding agreements. This is evidenced by the parties clear and 16 unmistakable intent to first mediate any dispute that arises. Had the parties wished to make 17 arbitration mandatory, they could have used the term “shall” instead of “may.” Because they use 18 the word “may,” the parties preserved other options to resolve disputes, including litigation. This 19 is further supported by the parties’ inclusion of a choice of law, jurisdiction and venue clause in 20 the Agreement. Clearly, the parties contemplated litigation as a possible means to resolving 21 disputes otherwise this clause would not have been necessary. 22 Phillips makes two arguments in response. First, Phillips encourages the Court to follow 23 the rationale in Health Integrated, Inc. v. Community Health Plan of Washington, No. C18-1522

24 1 RSM, 2019 WL 399027 (W.D. Wash. Jan. 31, 2019), and argues the facts in that case are similar 2 to those here. The Court disagrees. In Health Integrated the court interpreted an arbitration clause 3 to require arbitration. There, the arbitration clause stated “[i]f the dispute is not resolved through 4 mediation, either Party may request binding arbitration . . .” 2019 WL 399027 at *2. This

5 language differs from the language at issue here in that “either Party may request binding 6 arbitration.” This suggests, and indeed the Health Integrated court found, that even though the 7 permissive “may” was used, when read it context, it makes arbitration binding once one party 8 requests it. Id. at *4. Critically, the Health Integrated court noted that “may” is permissive, but 9 can be changed depending on the context. There, “may” was permissive in that it allowed one 10 party to request arbitration, but neither party was required to. However, once one party requested 11 arbitration then arbitration became mandatory. That is not the case here. The Court agrees the 12 outcome in Health Integrated was the correct one, but disagrees that the facts here are similar. 13 Phillips also argues that an arbitration clause would “be meaningless if it was interpreted 14 as permissive, because parties may always arbitrate their dispute if both parties consent.”

15 (Response at 8.) Phillips cites to several district court cases in support of this assertion. But the 16 Court is not persuaded by these cases as context is critical. For example, Phillips cites to 17 Casiano-Bel Air Homeowners Ass’n v. Phila. Indem. Ins., No. 2:16-v-8549-SVW, 2017 WL 18 3273654 (C.D. Cal. Feb. 22, 2017) in support of its argument. Casiano, however, has an 19 arbitration clause similar to Health Integrated wherein “either party may make a written demand 20 for arbitration.” 2017 WL 327654 at *2. Again, the court found the use of the word “may” 21 referred to the parties’ option to demand arbitration, but once a demand was made, the arbitration 22 clause became mandatory. Put in context, there, the term “may” modified and made permissive 23 the parties’ ability to “make a written demand.” In contrast, here, “may” modifies and makes

24 1 permissive the parties’ ability to “submit to binding arbitration.” Therefore, the use of the word 2 “may” in each case modifies a different part of the arbitration clause. Phillips citations to other 3 district court cases similarly fails to persuade the Court because as one of the cases Phillips cites 4 to points out:

5 “A plain reading of the term ‘may’ is that it is used to indicate possibility or probability. However, as is almost always the case, the meaning of a word is 6 greatly affected by the context in which it is used.”

7 Tolentino v. Saito, No CV 23-00280 SOM-KJM, 2023 WL 7090375, at *8 (D. Haw. Oct. 26, 8 2023). 9 Given the structure of the arbitration clause, the Court finds the Agreement does not 10 mandate the parties resolve their disputes by arbitration; there is no agreement reflected 11 anywhere in the contract to submit disputed to binding arbitration. The section of the Agreement 12 discussing mediation and arbitration clearly indicates that mediation is mandatory before any 13 other dispute resolution, after which the parties “may” rather than “shall” have their disputes 14 resolved via arbitration. Because “may” requires the parties to agree to arbitration, the possibility 15 is left open for the parties to resolve any outstanding disputes through the court system. For these 16 reasons, the Court DENIES Phillips’ Motion. 17 CONCLUSION 18 Given the language in the Employment Agreement, the Court finds the parties are not 19 obligated to resolve their disputed issues by arbitration. The Court DENIES Phillips’ Motion. 20 The clerk is ordered to provide copies of this order to all counsel. 21 Dated April 10, 2024. A 22 23 Marsha J. Pechman United States Senior District Judge 24