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Edvard Eshagh, On Behalf of Himself and All Others Similarly Situated v. the Terminix International Company L.P.

May 10, 2012

EDVARD ESHAGH, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF,
v.
THE TERMINIX INTERNATIONAL COMPANY L.P., A LIMITED PARTNERSHIP; TERMINIX INTERNATIONAL, INC.,
DEFENDANTS.



The opinion of the court was delivered by: Dennis L. Beck United States Magistrate Judge

FINDINGS AND RECOMMENDATIONS REGARDING MOTION TO STAY LITIGATION, COMPEL ARBITRATION AND STRIKE CLASS CLAIMS (Document 35)

Defendants Terminix International, Inc. and The Terminix International Company Limited Partnership ("Defendants") filed the instant motion to stay litigation, compel arbitration and strike class claims on August 30, 2011. The motion was heard on April 13, 2012, before the Honorable Dennis L. Beck, United States Magistrate Judge. David Creagh appeared on behalf of Defendants. Thomas Campbell and W. Scott Simpson*fn1 appeared on behalf of Plaintiff Edvard Eshagh.

PROCEDURAL BACKGROUND

Plaintiff Edvard Eshagh ("Plaintiff"), purportedly on behalf of himself and all others similarly situated, filed this action against Defendants The Terminix International Company L.P. and Terminix International, Inc. (collectively "Terminix" or "Defendants") on February 8, 2011.

On April 7, 2011, Terminix filed a motion to dismiss the complaint. The Court granted the motion to dismiss, ordering Plaintiff to file an amended complaint regarding certain claims and dismissing with prejudice Plaintiff's tort claims for breach of professional duty and assumpsit as time barred. Docs. 27 and 30.

On August 16, 2011, Plaintiff filed a First Amended Complaint ("FAC"). Pursuant to the FAC, Plaintiff seeks recovery for breach of a California Subterranean Termite Plan and Agreement, and for violations of California's Unfair Competition Law ("UCL") and False Advertising Law ("FAL"). Doc. 32.

On August 30, 2011, Terminix filed an answer to the breach of contract allegations in the FAC. Doc. 33. Concurrent with the answer, Terminix also filed: (1) a motion to dismiss the UCL and FAL causes of action; and (2) the instant motion to stay litigation, compel arbitration and strike class claims. Docs. 34 and 35.

On February 20, 2012, Plaintiff filed an opposition to the motion to stay litigation, compel arbitration and strike class claims. Doc. 43. Terminix replied on February 27, 2012. Doc. 49. The motion was referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1) for Findings and Recommendations to the District Court.

DISCUSSION

I. MOTION TO COMPEL ARBITRATION

A. Applicable Legal Standard

Terminix moves to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. In relevant part, the FAA provides:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . .The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. . . . 9 U.S.C. § 4.

Plaintiff challenges the application of the FAA, arguing that the California Arbitration Act ("CAA") is the operable law. Cal. Civ. Proc. Code § 1281.2. To support this assertion, Plaintiff claims that Terminix did not invoke the FAA in its motion, but instead demanded arbitration based on unidentified state law. Doc. 43, p. 9. Plaintiff points to a phrase contained in Terminix's prayer for relief, which requests arbitration "pursuant to applicable California law and the parties' arbitration agreement." Doc. 35-1, p. 6. However, it is evident from Terminix's moving papers that the demand for arbitration is based on the FAA. Doc. 35-1, p. 2.

Plaintiff also claims that Terminix offers no evidence to support application of the FAA. Specifically, Plaintiff argues that Terminix has not met its burden of proving that the agreement involves interstate commerce. The FAA provides that a "written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

9 U.S.C. § 2 (emphasis added). Plaintiff suggests that this action does not involve interstate commerce. This argument is unpersuasive in light of Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265 (1995). In Allied-Bruce, the United States Supreme Court reaffirmed that the FAA's "interstate commerce" provision is interpreted broadly and that the FAA's reach coincides with that of the Commerce Clause. Considering the broad interpretation, the Supreme Court concluded that a termite protection contract "involved commerce" under the FAA based on the multi-state nature of Terminix and the shipping of materials from out-of-state. Allied-Bruce, 513 U.S. at 282.

Plaintiff does not reference Allied-Bruce and instead argues that state law controls because the parties entered the agreement in California, the contract is expressly designated "California Subterranean Termite Plan and Agreement" and California maintains a regulatory scheme regarding structural pest control services. Cal. Civ. Code § 1646; Cal Bus. & Prof. Code §§ 8505 et seq.; Cal. Bus. & Prof. Code §§ 8525 et seq.; Cal. Food & Agric. Code §§ 15201 et seq. However, these facts alone do not remove this transaction from interstate commerce. Courts construing the "transaction involving commerce" language of section 2 have focused on the nature of the defendant's business. See, e.g., Nicholson v. Labor Ready, Inc., 1997 WL 294393, *3 (N.D. Cal. 1997). The interstate nature of Terminix is enough to satisfy the interstate commerce element of the FAA. See Allied-Bruce, 513 U.S. at 281-82; Terminix Intern. Co. Ltd. P'ship v. Jackson, 669 So.2d 893, 895-96 (Ala. 1995); Baer v. Terminix Intern. Co., Ltd. P'ship (975 F.Supp. 1272, 1278 (D. Kan. 1997). Therefore, the FAA is applicable to the request for arbitration in this case.

B. FAA

The FAA creates "a body of federal substantive law of arbitrability." Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983). Thus, unless the agreement provides otherwise, all questions regarding interpretation of arbitration agreements are determined by federal standards. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006); Moses H. Cone Mem. Hosp., 460 U.S. at 22-24. Any question concerning arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999).

"[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT & T Techs., Inc. v. Commc'ns Workers of America, 475 U.S. 643, 648 (1986) (citations omitted);Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., Inc., 925 F.2d 1136, 1139 (9th Cir. 1991). As with any contract, the parties' intentions control. Three Valleys Mun. Water Dist., 925 F.2d at 1139. However, the parties' intentions are ...


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