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Zaborowski v. Mhn Government Services, Inc.

United States District Court, Ninth Circuit

May 1, 2013

THOMAS ZABOROWSKI, et. al, on behalf of themselves and a putative class, Plaintiffs,
v.
MHN GOVERNMENT SERVICES, INC. and MANAGED HEALTH NETWORK, INC., Defendants.

ORDER GRANTING PLAINTIFFS' MOTION TO STAY CASE PENDING APPEAL

SUSAN ILLSTON, District Judge.

Currently before the Court is defendants' motion to stay the case pending the appeal of this Court's order denying defendants' motion to compel arbitration ("Arbitration Order"). Pursuant to Civil Local Rule 7-1(b), the Court determines that this matter is appropriate for resolution without oral argument. Having carefully considered the papers submitted, the motion is GRANTED, for the reasons set forth below.

BACKGROUND

Plaintiffs in this putative class action contracted to provided counseling services for defendants MHN Government Services, Inc. and Managed Health Network, Inc. (collectively "MHN"), as Military Family Life Consultants ("MFLCs" or "MFL Consultants"). On November 1, 2012, defendants moved to compel arbitration pursuant to an arbitration clause in the services contract between the MFL Consultants and MHN. The Court heard argument on the motion on March 15, 2013. Before the Court could issue a decision on the motion to compel arbitration, defendants moved to stay the case. On April 3, 2013, the Court denied the motion to compel arbitration, and defendants appealed the Arbitration Order.

On March 14, 2013, plaintiffs filed a motion for conditional FLSA collective action certification. The Court granted plaintiff's motion for conditional FLSA collective action certification, and ordered the parties to jointly file a proposed notice by no later than May 3, 2013. After that order was issued, defendants renoticed their motion to stay the case pending the appeal of the Arbitration Order.

A substantially similar case is pending in the United States District Court for the Western District of Washington, Hiett v. MHN Gov't Servs., Inc., No. 3:12-cv-5428 (filed on May 15, 2012). In that case, as in this case, the MHN defendants moved to compel arbitration, and the court denied the motion. However, that case is stayed pending resolution by the Washington Supreme Court of the "identical" arbitration issue presented in another case against MHN, Brown v. MHN Government Services, Inc., Pierce County No. 11-2-08582-7.

LEGAL STANDARD

A district court's order denying a motion to compel arbitration does not effectuate an automatic stay of proceedings pending appeal. Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). The system created by the Federal Arbitration Act ("FAA") allows a district court to evaluate the merits of the moving party's claim, and to grant or deny a stay as a matter of discretion, dependent on the case's particular facts. Id. The party requesting the stay thus bears the burden of showing that the case's circumstances justify favorable exercise of that discretion. Nken v. Holder, 556 U.S. 418, 433-34 (2009).

To determine whether the moving party has met its burden, the Ninth Circuit adheres to a four-factor test: (1) whether the party has made a strong showing it is likely to succeed on the merits; (2) whether it will be irreparably injured absent a stay; (3) whether issuance of a stay will substantially injure the other parties in the proceeding; and (4) where the public's interest lies. Leiva-Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011); Nken, 556 U.S. at 434.

In weighing these factors, courts apply a "sliding scale, " whereby the elements of the test are balanced "so that a stronger showing of one element may offset a weaker showing of another." Leiva-Perez, 640 F.3d at 964. In particular, a moving party who under the first factor cannot satisfy a strong likelihood of success, must at minimum show that its appeal presents "a substantial case on the merits." Id. at 965. Courts alternatively articulate this lesser threshold as whether "serious legal issues" are raised. See Abbassi v. INS, 143 F.3d 513, 514 (9th Cir. 1998). A party meeting this lower threshold is not required to show that it is more likely than not to win on the merits, but must then demonstrate that the balance of hardships under the second and third factors tilts sharply in its favor. Leiva-Perez, 640 F.3d at 966, 970.

DISCUSSION

1. Likelihood of Success or Substantial Legal Question

Defendants argue that the pending appeal involves serious legal questions because the application of a recent Supreme Court case, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1746 (2011), to California law governing arbitration agreements is still being determined by California and federal courts. Plaintiffs argue that the appeal is not likely to succeed, because the many substantively and procedurally unconscionable aspects of the arbitration agreement make it unlikely that the Ninth Circuit will overturn the Arbitration Order.

To satisfy the first factor, defendants need not show a strong likelihood of success on appeal; a substantial case on the merits exists if there is a serious legal question to be answered by the court of appeals and the "balance of equities" of the final three factors ...


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