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Eberle v. Smith

January 29, 2008

MICHAEL L. EBERLE, ET. AL., PLAINTIFFS,
v.
JEFF SMITH ET. AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Thomas J. Whelan United States District Judge

ORDER GRANTING DEFENDANTS' MOTION FOR STAY PENDING APPEAL (Doc. No. 61.)

On January 18, 2007 Defendants Jeff Smith, et. al. ("Defendant") removed this case from San Diego Superior Court, which alleged breach of contract and sought accounting and contribution by Plaintiffs Michael L. Eberle, et. al. ("Plaintiffs"). (Doc. No. 1.) On May 15, 2007 the Court denied Defendants' motion to compel arbitration and allowed limited discovery on whether the parties were bound to arbitration. (Doc. No. 30.) On July 24, 2007 Defendants renewed their motion to compel arbitration, and on October 26, 2007 the Court denied Defendants' renewed motion. (Doc. Nos. 43, 55.) On November 20, 2007 Defendants filed an interlocutory appeal as to the order denying the renewed arbitration motion. (Doc. No. 60.) Pending before the Court is Defendants' motion to stay the case pending the outcome of the interlocutory appeal. (Doc. No. 61.) The Court decides the matter on the papers submitted and without oral argument. See S.D. Cal. Civ. R. 7.1(d.1). For the following reasons, Defendants' motion to stay is GRANTED. (Doc. No. 61.)

I. BACKGROUND

A full recitation of the facts and circumstances underlying this lawsuit is not necessary here, and the Court will simply review the procedural history giving rise to the present motion.

On December 11, 2006 Plaintiff Eberle filed suit for breach of contract in San Diego Superior Court against Defendant Smith. (Doc. No. 1.) On January 25, 2007, after removing to this Court, Defendant Smith (along with his company dX/dY Voice Processing, Inc.) counterclaimed for breach of contract, fraud, and other claims. (Doc. No. 6.)

On March 26, 2007 Defendants moved to compel arbitration, arguing that prior agreements between the parties provided arbitration as the sole means to settle the claims at issue. (Doc. No. 18.) On May 15, 2007 the Court denied Defendants' motion to compel for two reasons. First, a December 2005 email may have superseded the prior 2002 and 2003 Agreements between the parties, which had contained arbitration clauses. (Order Den. Mot. to Compel Arb'n 2--3.) Second, the agent who signed the 2003 Agreement may have lacked authority. (Id. 3--5.) However, the Court permitted limited discovery on two issues: (1) whether the parties intended to incorporate an arbitration provision in the December 2005 emails; and (2) whether the agent had authority to sign the 2003 Agreement. (Id.)

On July 24, 2007, after conducting the limited discovery, Defendants renewed their motion to compel arbitration. (Doc. No. 43.) On October 26, 2007 the Court again denied the motion to compel, finding that the December 2005 email exchange was indeed a new contract that superseded all other agreements and did not evidence an intent to include an arbitration provision. (Order Den. Renewed Mot. to Compel Arb'n 2--7.) On November 20, 2007 Defendants exercised their right under 9 U.S.C. § 16(a)(1)(B) to immediately appeal the Court's October 26, 2007 Order denying Defendants' renewed motion to compel arbitration.

On December 17, 2007 Defendants moved to stay this action pending the outcome of their interlocutory appeal. (Doc. No. 61.) On January 14, 2008 Plaintiffs timely opposed, and on January 18, 2008 Defendants replied. (Doc. Nos. 66, 67.)

II. LEGAL STANDARD

The Federal Arbitration Act (FAA) reflects a strong federal policy favoring arbitration. 9 U.S.C. § 16(a); A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 n. 2 (9th Cir. 1992). To further this federal policy, section 16 of the FAA "endeavors to promote appeals from orders barring arbitration and limit appeals from orders directing arbitration." Sanford v. Memberworks, Inc., 483 F.3d 956, 961 (9th Cir. 2007) (quoting Bushley v. Credit Suisse First Boston., 360 F.3d 1149, 1153 (2d. Cir. 2004)). Accordingly, under the FAA, a party may immediately appeal a court order denying a motion to compel arbitration. 9 U.S.C. § 16(a). This ensures that the issue of whether a dispute is to be resolved through arbitration is decided before excess time, money, and judicial resources are spent in litigation. C.B.S. Employee Federal Credit Union v. Donaldson, 716 F.Supp. 307, 310 (W.D. Tenn. 1989).

The system created by the FAA allows the district court to stay the proceedings pending an appeal from its refusal to compel arbitration if the court finds that the motion presents a substantial question for the court of appeal to consider. See Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). Courts generally consider four factors when determining whether to grant a stay pending the appeal of a civil order: first, whether the applicant has made a strong showing that he is likely to succeed on the merits; second, whether the moving party will be irreparably injured absent a stay; third, whether a stay will substantially injure the opposing party; and fourth, whether the public interest favors a stay. See Id. (approving C.B.S., 716 F. Supp. at 309 (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1986))[hereinafter "Hilton test"]). The decision to stay proceedings is a "proper subject for the exercise of discretion by the trial court." Britton, 916 F.2d at 1412.

III. DISCUSSION

A. Likelihood of Success, or Substantial Legal Questions

Defendants argue that their pending interlocutory action involves serious legal questions which carry a substantial likelihood of success on appeal. (Defs.' Mot. 4--6.) Plaintiffs, on the other hand, argue that this Court's prior order refusing to compel arbitration was "not a close call" ...


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