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RODERICK v. MAZZETTI & ASSOCIATES

November 9, 2004.

ROBIN RODERICK Plaintiff,
v.
MAZZETTI & ASSOCIATES, INC., WALTER VERNON, ALBERT OSTROY, AND ANGELICA GRAHAM Defendants.



The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District

ORDER Motion to Compel Arbitration and Stay Proceedings

On June 21, 2004, plaintiff filed this action against defendants ("Mazzetti") alleging wrongful termination, age discrimination, and breach of fiduciary duty in violation of the Employment Retirement Income Security Act ("ERISA") and the California Fair Employment and Housing Act ("FEHA"). The plaintiff seeks economic damages, injunctive relief to cease a pending arbitration, and declaratory relief to define applicable ERISA protections in his case. Now before the court is Mazzetti's motion to compel arbitration relating to a stock valuation dispute between the parties and stay plaintiff's action pending arbitration and exhaustion of administrative remedies. In the alternative, defendants seek the dismissal without prejudice of plaintiff's ERISA claims pending administrative exhaustion and arbitration. Having considered the parties' arguments and for the reasons set forth below, the court enters the following memorandum and order.

BACKGROUND*fn1

  Robin Roderick was an employee of the consulting and engineering firm Mazzetti & Associates from 1997 until 2003, when he alleges that he was terminated due to his age. At the time of his termination, plaintiff owned 20 shares of Mazzetti common stock. The stock was subject to the company's "1994 Stock Purchase Agreement" ("SPA"), which plaintiff signed on August 4, 1998. The agreement mandated in relevant part that upon termination or retirement, a shareholder must return his shares at a price set by "the most recent annual value determined by the Corporation's Certified Public Accountant or actuary engaged for purposes of the annual valuation of the Corporation's issued and outstanding Shares held and owned by the Corporation's Employee Ownership Plan and Trust." See Rice Dec., Exh. 1 at ¶ 7.1. However, the agreement also stated that if the Plan and Trust were "discontinued and no annual valuation of Shares held and owned by it is made," then the corporation's accountant should apply the "book value" of the issued and outstanding shares, as defined in the agreement. The SPA contained an arbitration section providing that:
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, San Francisco, California, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. The arbitrator shall have the discretion to award costs and attorneys' fees to the prevailing party.
Rice Dec., Exh. 1 ¶ 19. 1. Beyond this language mandating arbitration in the SPA, the parties signed no other arbitration agreement in the course of their employment relationship. Neither party asserts that plaintiff's age discrimination claims must be subject to arbitration. Defs' Mot. at 3.

  The parties dispute the value of the plaintiff's 20 shares, as well as the legality of the SPA generally. Following Roderick's termination, defendants offered $858.37 per share, the "book value" of the shares, because the Employee Stock Ownership Plan ("ESOP") did not own any company stock at the time of plaintiff's termination. In the present complaint, plaintiff alleges that the proper share price was $2,365, based on his understanding of ESOP's holdings as well as representations allegedly made to him regarding his stock value.

  On February 24, 2004, Roderick submitted the parties' dispute over the share repurchase price to arbitration, as instructed in the SPA. Rice Dec., Exh. 2-3. The case commenced in arbitration with the appointment of an arbitrator, Joseph A. Lasky, from the Commercial Panel of the American Arbitration Association ("AAA"). Rice Dec., Exh. 5. Due to an amount in controversy of less than $75,000, as asserted by plaintiff, and the SPA's provision mandating the application of Commercial Rules, the arbitration proceeded under the AAA's Expedited, Commercial Rules. See Rice Dec., Exh. 6; Pl.'s Opp'n, Exh. 22. At the commencement of the AAA procedures, plaintiff objected to the application of the AAA's Expedited Commercial Rules to his dispute based on his concerns about discovery access, risk of bearing costs, and unequal negotiating power before the arbitrator. See Rice Dec., Exh. 8. Subsequently, in their reply to the present motion, defendants conceded that the AAA Employment Rules may govern the parties' dispute at arbitration. Defs' Reply at 8-9.

  On June 21, 2004, plaintiff filed the current action in federal court. He alleges wrongful termination, age discrimination, and breach of fiduciary duty in violation of the Employment Retirement Income Security Act ("ERISA"), as well as age discrimination in violation of the California Fair Employment and Housing Act ("FEHA"). Plaintiff believes that he was terminated from Mazzetti for two reasons: age discrimination and discrimination based on the timing of his entitlement to retirement benefits (so called "benefits-triggered" or ERISA termination). Plaintiff also alleges ERISA violations stemming from the Mazzetti ESOP and the SPA: first, that the ESOP was not a genuine ERISA plan because it failed to acquire company stock in a timely fashion, and second, that the SPA is an employee benefit plan governed by and in violation of ERISA. In his final cause of action, plaintiff seeks declaratory relief to determine the applicable rules and scope of a return to arbitration on the stock dispute.

  The parties have raised before the court numerous issues for resolution, namely: (1) whether the plaintiff has exhausted mandatory administrative procedures for his ERISA claims, (2) whether the SPA itself is governed by ERISA, (3) whether the arbitration clause within the SPA is legally enforceable and thus whether the parties are bound to return to arbitration, (4) what the scope of that arbitration should be, if the parties must complete arbitration, and (5) whether further proceedings in this court should be stayed pending arbitration of the SPA dispute. LEGAL STANDARD

  I. Arbitrability

  Federal substantive law governs the question of arbitrability. See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999). Arbitration is matter of contract and the court cannot require a party to arbitrate a dispute unless the party has agreed to do so. See United Steelworkers of America v. Warrior & Gulf, 363 U.S. 574, 582 (1960). The Federal Arbitration Act ("Act") governs this examination. See 9 U.S.C. § 4.*fn2 The court's role under the Act is limited to (1) determining whether an enforceable agreement to arbitrate exists and, if it does, (2) deciding whether the agreement encompasses the dispute at issue. See id.; Simula, 175 F.3d at 719-20; Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477-78 (9th Cir. 1991). If the finding is affirmative on both counts, then the Act requires the court to enforce the arbitration agreement in accordance with its terms. See Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). The court may only deny arbitration if "it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." Warrior & Gulf, 363 U.S. at 582-83.

  The preference for arbitration is particularly strong when the arbitration clause is broad. See AT&T v. Communication Workers, 475 U.S. 643, 650 (1986). Clauses subjecting claims "arising out of or relating to" a contract are considered broad. See Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1131 (9th Cir. 2000) (terming as "broad and far reaching" an arbitration clause covering "any dispute, controversy or claim arising out of or relating to the validity, construction, enforceability or performance of this Agreement"); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398 (1967) (describing as "broad" an arbitration clause covering "any controversy or claim arising out of or relating to this Agreement, or the breach thereof").

  The threshold for arbitrability is not high. See Simula, 175 F.3d at 719. To trigger an arbitration requirement, the movant's factual allegations need only "touch matters" covered by the contract containing the arbitration clause. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 624 n. 13 (1985) (noting that "insofar as the allegations underlying the statutory claims touch matters covered by the enumerated articles, the Court of Appeals properly resolved any doubts in favor of arbitrability"); Simula, 175 F.3d at 721. Once the arbitration clause is implicated, the court must permit arbitration, "even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985). Once a party has initiated and completed arbitration, he is bound by the outcome, even where he has filed an identical lawsuit prior to the resolution of claims by the arbitrator. See Nghiem v. NEC Electronic, Inc., 25 F.3d 1437, 1440 (9th Cir. 1994).

  II. Stay of Proceedings Pending Arbitration

  Under section 3 of the Federal Arbitration Act, on the application of one of the parties the court must stay proceedings for arbitrable claims pending arbitration, no matter the prospect of inconsistent verdicts. See Dean Witter Reynolds, 470 U.S. at 217; Moses H. Cone, 460 U.S. at 20. However, a district court has the discretion whether to stay non-arbitrable claims pending the arbitration. See Moses H. Cone, 460 U.S. at 21 n. 23 ("In some cases, of course, it may be advisable to stay litigation among the non-arbitrating parties pending the outcome of the arbitration. That decision is one left to the district court . . . as a matter of its discretion to control its docket."). A district court's inherent, discretionary power to control its proceedings should promote economy of time and effort for itself, for counsel, and for litigants. CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962). Where a stay is proposed, the court should weigh the competing interests that will be affected, including: the possible damage which may result from granting the stay, the hardship or inequity which a party may suffer in being required to go forward, and "the orderly course of justice measured in terms of ...


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