Shalaby v. Arctic Sand Technologies, Inc.

32 Mass. L. Rptr. 401
CourtMassachusetts Superior Court
DecidedDecember 16, 2014
DocketNo. MICV201403621
StatusPublished
Cited by1 cases

This text of 32 Mass. L. Rptr. 401 (Shalaby v. Arctic Sand Technologies, Inc.) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Shalaby v. Arctic Sand Technologies, Inc., 32 Mass. L. Rptr. 401 (Mass. Ct. App. 2014).

Opinion

Salinger, Kenneth W., J.

This action concerns, among other things, whether Arctic Sand Technologies, Inc. fired Dr. Nadia Shalaby for cause and thus has a right to repurchase her Arctic Sand stock. Dr. Shalaby is the former chief executive officer of Arctic Sand. She was replaced as CEO by Gary Davison in October 2013, and fired in March 2014. John Major served as Chairman of the Board of Directors when Arctic Sand took the actions challenged here by Shalaby. The court (Wilkins, J.) has dismissed five of the nine claims against Arctic Sand and all claims against Davison and Major.

Arctic Sand has moved to compel binding arbitration. It did so only after learning that not all of Shalaby’s claims would be dismissed. Arctic Sand waived any right to compel arbitration by actively litigating this civil action and repeatedly seeking to invoke the court’s jurisdiction to its benefit for six months, before abruptly changing course and attempting to force Shalaby into binding arbitration. The Court will therefore DENY Arctic Sand’s motion to compel arbitration.

Dr. Shalaby, in turn, has moved for leave to file a second amended complaint to add claims that all three defendants discriminated against Shalaby because of her sex and retaliated against Shalaby for making internal complaints about sex discrimination, in violation of G.L.c. 151B, §4. Dr. Shalaby’s second amended complaint alleges facts plausibly suggesting that Defendants took adverse actions against Shalaby because of her sex and retaliated against her because she opposed practices forbidden under this statute. Defendants will not be unfairly prejudiced by the addition of these claims at this time. The Court will therefore ALLOW Dr. Shalaby’s motion for leave to further amend her complaint.

1. Waiver of Arbitration by Litigation Conduct.

1.1. Question for the Court

The Court must decide whether Arctic Sand waived arbitration by litigating this dispute in court. This is presumptively a threshold issue to be decided by a judge, and the parties did not clearly and unmistakably agree that this issue will instead be decided by an arbitrator.

1.1.1. Presumption Under Federal Arbitration Act

Courts must presume that whether a contracting party has waived arbitration by participating in a civil action concerning the same dispute is to be determined by the court. Under Massachusetts law, the presumption is that all questions regarding the waiver of arbitration are to be decided by a judge, not an arbitrator. See O’Brien v. Hanover Ins. Co., 427 Mass. 194, 199 (1998) (“Whether a party has waived arbitration is [usually] a question of arbitrability for the court to determine” (applying the Massachusetts Arbitration Act and quoting Martin v. Norwood, 395 Mass. 159, 162 (1985)). Federal law is now more nuanced, but continues to presume that the particular kind of waiver at issue here is to be decided by a court.

Under the Federal Arbitration Act, “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and un~ mistakabl[e]’ evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), quoting AT&T Technologies, Inc. v. Communications Wkrs. of America, 475 U.S. 643, 649 (1986). Thus, when it comes to substantive questions of arbitrability, “the usual presumption in favor of arbitration is reversed.” Massachusetts Highway Dept. v. Perini Corp., 83 Mass.App.Ct. 96, 100-01, rev. denied, 465 Mass. 1107 (2013). “In this manner the law treats silence or ambiguity about the question “who (primar[402]*402ily) should decide arbitrability’ differently from the way it treats silence or ambiguity about the question ‘whether a particular merits-related dispute is arbitra-ble because it is within the scope of a valid arbitration agreement!.]’ ” First Options at 944-45. Since the ques- ' tion of “ ‘who (primarily) should decide arbitrability’ ... is rather arcane],] [a] party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers.” First Options, 514 U.S. at 945. “And given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, [courts should] hesitate to interpret silence or ambiguity on the ‘who should decide arbitrability’ point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.” Id.

More recently, the Supreme Court moved the line drawn in First Options by deciding that under federal law “the presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’ ” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 85 (2002), quoting Moses H. Cone Mem. Hospital v. Mercury Cortstr. Corp., 460 U.S. 1, 24-25 (1983).1 The Court explained that such questions are not “issues of substantive arbitrability” that presumptively should be decided by a court, but instead are “issues of procedural arbitrabiity” concerning “conditions precedent to an obligation to arbitrate” that presumptively should be decided by an arbitrator. Id. at 85, quoting Revised Uniform Arbitration Act of 2000, §6, comment 2, 7 U.L.A. 13 (Sup. 2002). The actual holding in Howsam was that the question of whether a claim is barred by the six-year limitations period established in the National Association of Securities Dealers’ Code of Arbitration Procedure “is a matter presumptively for the arbitrator, not for the judge.” 537U.S. at85.The Court reasoned in part that “the NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it,” and that courts should “infer that the parties intended the agreement to reflect that understanding,” at least “[i]n the absence of any statement to the contrary in the arbitration agreement.” Id. The Court has applied Howsam to other situations several times. Cf. BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198, 1207-10(2014) (arbitrator should decide whether plaintiff investor complied with prerequisite, established by treaty governing investments in foreign nations, of first commencing litigation in local court where investment was made); Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003) (arbitrator should decide whether contracts forbid class arbitration). But it has not yet grappled with who should decide whether a party’s litigation conduct constitutes waiver of a contractual right to compel arbitration.

Virtually every appellate court to address the issue has concluded that “the Supreme Court in Howsam and Green Tree did not intend to disturb the traditional rule that waiver by conduct, at least where due to litigation-related activity, is presumptively an issue for the court,” and not the arbitrator, to decide. Marie v. Allied Home Mortgage Corp.,

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Bluebook (online)
32 Mass. L. Rptr. 401, Counsel Stack Legal Research, https://law.counselstack.com/opinion/shalaby-v-arctic-sand-technologies-inc-masssuperct-2014.