Tsatas v. Airborne Wireless Network, Inc.

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MARIA TSATAS, et al. Plaintiff, v. AIRBORNE WIRELESS NETWORK, INC., et al. Defendants.

No. 2:20-cv-02045-RFB-BNW

United States District Court, D. Nevada

March 31, 2023

ORDER

RICHARD F. BOULWARE, II UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Before the Court are Defendants' Motion to Compel Arbitration (ECF No. 122) Motion to Dismiss (ECF No. 153).

For the foregoing reasons, the motions are denied.

II. PROCEDURAL BACKGROUND

Plaintiffs filed a Complaint on November 5, 2020. ECF No. 1. Defendants filed a Motion to Dismiss on January 22, 2021. ECF No. 39. The parties briefed the motion. ECF Nos. 40, 42. The Court denied Defendants' Motion to Dismiss. ECF No. 76.

On March 8, 2022, Defendants filed the instant Motion to Compel Arbitration. ECF No. 122. Defendant Kelly Kabilafkas filed a Joinder. ECF No. 123. Plaintiffs filed a Response. ECF No. 125. Defendants filed a Reply on March 29, 2022, ECF No. 128, and Defendant Kabilafkas filed a Joinder, ECF No. 129.

On July 19, 2022, Plaintiffs filed a First Amended Complaint (“FAC”). ECF No. 152. On August 2, 2022, Defendants filed a Motion to Dismiss. ECF No. 153. Defendant Kabilafkas filed a joinder. ECF No. 154. Plaintiffs filed a Response, ECF No. 155, and objected to Defendants' request for judicial notice in support of their motion to dismiss, ECF No. 156. Defendants filed a Reply. ECF No. 157.

The Court held a motion hearing on the pending motion to compel arbitration and motion to dismiss on March 23, 2023. ECF No. 200.

III. MOTION TO COMPEL ARBITRATION, ECF NO. 122

a. Legal Standard

The Federal Arbitration Act (“FAA”) provides that a “written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising . . . 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. The FAA provides two methods for enforcing arbitration: (1) an order compelling arbitration of a dispute; and (2) a stay of pending litigation raising a dispute referable to arbitration. Id. §§ 3, 4.

The FAA limits the district court's role to determining (1) whether the parties agreed to arbitrate, and, if so, (2) whether the scope of that agreement to arbitrate encompasses the claims at issue. Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014). “The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983). Thus, “[t]he standard for demonstrating arbitrability is not a high one; in fact, a district court has little discretion to deny an arbitration motion, since the Act is phrased in mandatory terms.” Republic of Nicar. v. Std. Fruit Co., 937 F.2d 469, 475 (9th Cir. 1991). Accordingly, “district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (emphasis in original); 9 U.S.C. § 4.

Lastly, section 3 of the FAA provides for a stay of legal proceedings whenever the issues in a case are within the reach of an arbitration agreement. 9 U.S.C. § 3. Although the statutory language supports a mandatory stay, the Ninth Circuit has interpreted this provision to allow a district court to dismiss the action. See Sparling v. Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir. 1988). A request for a stay is not mandatory. Martin Marietta Aluminum, Inc. v. Gen. Elec. Co., 586 F.2d 143, 147 (9th Cir. 1978).

b. Discussion

i. The Agreement to Arbitrate

Defendants seek to compel to compel arbitration only as to Plaintiff Leonidas Valkanas as Trustee of the Keet Trust dated August 1, 2015 and its causes of action for Intentional Interference with Contractual Relations and Breach of Contract.^[1]For the reasons discussed below, the Court denies Defendants' motion to compel arbitration.

On August 31, 2015, the Keet Trust entered into a written consulting agreement with Apcentive, Inc. Pursuant to that agreement, Keet would provide Apcentive strategic advisory services, for at least 18 months. These services included, but were not limited to, helping Apcentive with various business related strategies and development and introducing it to potential funding sources and customers. Apcentive agreed to compensate Keet for these services, including, among other things, compensating Keet with a finder's fee, cash payments, and “one (1) option per each share purchased.” Paragraph 10, Exhibit A of the Consulting Agreement provided the following arbitration provision:

“10. Governing Law. Regardless of the place of execution or performance, this Agreement and any related indemnification and confidentiality agreements between the parties will be deemed made in California. All actions arising hereunder or in connection herewith will fall under the exclusive jurisdiction and venue of the American Arbitration Association located in Los Angeles. CA and each of the parties hereto hereby agrees to the personal jurisdiction and venue of said arbitrator. The parties hereto agree to service of process by certified mail or receipted courier. Any right to trial by jury with respect to any claim or proceeding related to or arising out of this engagement, or any transaction or conduct in connection herewith, is waived.”

ECF No. 122-1 at 9 (emphasis added). The parties do not dispute that this is a valid, binding agreement to arbitrate between Plaintiff Keet and Defendant Apcentive. Rather, the parties disagree over whether Defendants waived their right to enforce the Consulting Agreement's arbitration provision. For the reasons discussed below, the Court finds that Defendants indeed did.

ii. Applicable Law

“A party seeking to prove waiver of a right to arbitration must demonstrate: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986). As the right to arbitrate is a contractual one, waivers of the right to arbitrate are disfavored, and “any party arguing waiver . . . bears a heavy burden of proof.” Id.

iii. Application

1. Knowledge of Existing Right

First, the Court finds that both parties knew of the existing right to arbitrate pursuant to the Consulting Agreement, as early as August 31, 2015, when the agreement was signed by both parties. Indeed, after the agreement was drafted, Leonidas Valkanas was told to return a fully executed version of the agreement by mailing a signed version to Robert Bruce Harris. Valkanas, on Keet's behalf, and Harris, on Apcentive's behalf, signed the Consulting Agreement on or around August 31, 2015. Defendants' argument that they did not know of this arbitration provision because Harris forgot it existed is of no moment. “[I]t cannot be said that [either party] lacked knowledge of the right to compel arbitration. The contract itself called for arbitration of disputes.” Hoffman Const. Co. of Oregon v. Active Erectors & Installers, Inc., 969 F.2d 796, 798 (9th Cir. 1992); accord Mitchell v. CoreLogic, Inc., No. 17-CV-2274, 2019 WL 6481306, at *5 (C.D. Cal. April 9, 2019) (“Knowledge of a contractual right to arbitrate is imputed to the contract's drafter.”); Hansen v. Musk, No. 19-CV-00413, 2020 WL 4004800, at *5 (D. Nev. July 15, 2020) (finding that “all parties have been aware of defendants' right to compel arbitration since December 17, 2019, at the earliest” because “[b]oth the Tesla Parties and Hansen knew of the arbitration agreement when it was signed by Hansen on July 7, 2018”).

This element is satisfied.

2. Acts Inconsistent with that Existing Right

Second, the Court finds that Defendants engaged in acts inconsistent with the existing right to arbitrate. “[T]his element [is] satisfied when a party chooses to delay his right to compel arbitration by actively litigating his case to take advantage of being in federal court.” Martin v. Yasuda, 829 F.3d 1118, 1125 (9th Cir. 2016). A “party's extended silence and delay in moving for arbitration may indicate a conscious decision to continue to seek judicial judgment on the merits of [the] arbitrable claims, which would be inconsistent with a right to arbitrate.” Id.; see, e.g., Id. (“finding waiver when party answered complaints, moved to dismiss the action, and did not claim a right to arbitration in any of the pleadings”). This case was filed on November 5, 2020. Defendants were served with the summons and complaint, in December 2020. On January 22, 2021, Defendants filed a Motion to Dismiss all claims on the merits. On September 3, 2021, the Court denied Defendants' motion to dismiss the Complaint. Shortly after, and even though Defendants unsuccessfully attempted to stay discovery pending the outcome of the motion to dismiss, the Defendants engaged in discovery. Defendants also answered the Complaint on November 2, 2021. The motion to compel was finally filed on March 8, 2022. The Court finds that Defendants, over the span of fourteen months, starting with their January 2021 motion to dismiss, sought to take advantage of litigating in federal court by attempting to get this case dismissed on the merits.

This element is also satisfied.

3. Prejudice Against Plaintiffs

Finally the Court finds that Plaintiffs have met their burden of proof showing that they will be prejudiced if Plaintiff Keet is compelled to arbitrate its Sixth and Seventh Causes of Action against Defendants. “To prove prejudice, plaintiffs must show more than...