Ahlstrom v. DHI Mortg. Co.

• Decision Date: 29 December 2021
• Docket Number: No. 20-15114,20-15114
• Citation: 21 F.4th 631
• Parties: Robert W. AHLSTROM, Plaintiff-Appellant, v. DHI MORTGAGE COMPANY, LTD., L.P., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

21 F.4th 631

Robert W. AHLSTROM, Plaintiff-Appellant,

v.DHI MORTGAGE COMPANY, LTD., L.P., Defendant-Appellee.

No. 20-15114

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 2021 San Francisco, California

Filed December 29, 2021

Shaun Setareh (argued) and Thomas Segal, Setareh Law Group, Beverly Hills, California, for Plaintiff-Appellant.

Jennifer L. Katz (argued) and Jack S. Sholkoff, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Los Angeles, California, for Defendant-Appellee.

Before: Kim McLane Wardlaw and Marsha S. Berzon, Circuit Judges, and Dean D. Pregerson,^** District Judge.

PREGERSON, District Judge:

Robert Ahlstrom ("Ahlstrom") appeals the district court's order dismissing his putative class action complaint and granting DHI Mortgage Company, Ltd.'s ("DHIM") motion to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq.

Ahlstrom contends that the arbitration agreement upon which DHIM relies was not properly formed. The district court found that it could not decide the issue because the arbitration agreement delegated issues of contract formation to the arbitrator. Ahlstrom timely appealed the district court's order.

We have jurisdiction under 28 U.S.C. § 1291. For the reasons set forth below, we reverse.

FACTUAL BACKGROUND

DHIM employed Ahlstrom as a loan officer from July 20, 2015 to December 9, 2016. On July 24, 2015, Ahlstrom signed a Mutual Arbitration Agreement ("MAA") as part of the new-hire onboarding process. The MAA provides, in relevant part, that "[t]he undersigned employee (‘Employee’) and D.R. Horton, Inc., (the ‘Company’) voluntarily and knowingly enter into this Mutual Arbitration Agreement ...." Nonparty D.R. Horton, Inc. ("D.R. Horton") is the parent company of Appellee DHIM. Although neither Ahlstrom nor DHIM contends that Ahlstrom was ever an employee of D.R. Horton, DHIM has maintained throughout this action that Ahlstrom entered into the MAA with D.R. Horton.

The MAA goes on to provide that the signatories agree that "all legal disputes and claims between them, including without limitation those relating to Employee's employment with the Company or any separation therefrom and claims by Employee against the Company's parents, subsidiaries, affiliates, directors, employees, or agents, shall be determined exclusively by final and binding arbitration." The MAA also contains a delegation clause providing that the arbitrator "shall have exclusive authority to resolve any dispute relating to the formation, enforceability, applicability, or interpretation of this [MAA]."

PROCEDURAL HISTORY

On August 2, 2017, Ahlstrom filed a putative class action (the "first action") in the Northern District of California alleging various employment-related claims against D.R. Horton and DHI Mortgage Company GP.¹ Although the parties now agree that DHIM was Ahlstrom's only employer, at the time of the first action, Ahlstrom appears to have been unaware that DHIM was his employer and did not name DHIM as a defendant. The defendants in the first action moved to compel arbitration pursuant to the same MAA that is the subject of this appeal, maintaining, as DHIM does here, that Ahlstrom entered into the MAA with D.R. Horton. On November 30, 2018, the district court granted the motion, ordered Ahlstrom's individual claims to arbitration, and dismissed Ahlstrom's putative class action claims pending the resolution of the arbitration. Ahlstrom did not appeal.

On March 27, 2019, Ahlstrom filed a putative state court class action in Alameda County Superior Court, naming DHIM as the defendant-employer. Ahlstrom alleged employment-related causes of action identical to those brought in the first action against D.R. Horton. DHIM timely removed the action to the Northern District of California. On July 22, 2019, relying on the MAA, DHIM moved to compel arbitration and to dismiss the putative class claims. Ahlstrom opposed the motion, contending that the MAA was never properly formed due to a failure to satisfy a condition precedent in the MAA.²

On January 16, 2020, the district court granted DHIM's motion. Citing the MAA's delegation clause, the district court concluded that formation issues, including Ahlstrom's condition precedent argument, could not be decided by the court, and were instead delegated to the arbitrator. Ahlstrom timely appealed the district court's order compelling arbitration.

STANDARD OF REVIEW

We review the district court's order compelling arbitration de novo. Int'l Bhd. of Teamsters v. NASA Servs., Inc. , 957 F.3d 1038, 1041 (9th Cir. 2020). We also review "legal conclusions regarding the existence of a valid, binding contract de novo." Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC , 816 F.3d 1208, 1211 (9th Cir. 2016) (emphasis omitted).

DISCUSSION

I. Delegability of Contract Formation Issues

"The cardinal precept of arbitration is that it is ‘simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration.’ " Local Joint Exec. Bd. v. Mirage Casino-Hotel, Inc. , 911 F.3d 588, 595 (9th Cir. 2018) (quoting First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) ). "Because of this axiomatic principle, a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Int'l Bhd. of Teamsters , 957 F.3d at 1041 (internal alterations and quotation marks omitted) (citation omitted); see also First Options , 514 U.S. at 945, 115 S.Ct. 1920 ("[A] party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration ...."). Accordingly, the Supreme Court has instructed that "courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue." Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010). Thus, "[w]here a party contests either or both matters, the court must resolve the disagreement." Id. at 299–300, 130 S.Ct. 2847 (internal quotation marks omitted) (citation omitted).

It is well-established that some "gateway" issues pertaining to an arbitration agreement, such as issues of validity and arbitrability, can be delegated to an arbitrator by agreement. See Green Tree Fin. Corp. v. Bazzle , 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) ("[G]ateway matters, [include] whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy."); Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) (collecting cases).

DHIM argues that, like issues of validity and arbitrability, parties may also agree to delegate issues of formation to an arbitrator. We do not agree. See Granite Rock , 561 U.S. at 299–300, 130 S.Ct. 2847 ; Sanford v. MemberWorks, Inc. , 483 F.3d 956, 962 (9th Cir. 2007) ; Kum Tat Ltd. v. Linden Ox Pasture, LLC , 845 F.3d 979, 983 (9th Cir. 2017) ("Although challenges to the validity of a contract with an arbitration clause are to be decided by the arbitrator, challenges to the very existence of the contract are, in general, properly directed to the court." (emphasis added) (internal citations omitted)). As the Supreme Court has recognized, a court should order arbitration only if it is convinced an agreement has been formed. See Granite Rock , 561 U.S. at 299–300, 130 S.Ct. 2847 ; First Options , 514 U.S. at 943, 115 S.Ct. 1920.

We are not inclined to disrupt this well-settled principle. Although DHIM argues that "the court does not have the authority to decide" whether an agreement to arbitrate exists "where the parties have ‘clearly and unmistakably’ delegated the arbitrability issues to the arbitrator," the Fifth and Tenth Circuits have rejected that very argument. See, e.g., Edwards v. Doordash, Inc. , 888 F.3d 738, 744 (5th Cir. 2018) ("Arguments that an agreement to arbitrate was never formed, though, are to be heard by the court even where a delegation clause exists.... [This] test is limited to contract formation." (citing Kubala v. Supreme Prod. Servs., Inc. , 830 F.3d 199, 202 (5th Cir. 2016) ); Fedor v. United Healthcare, Inc. , 976 F.3d 1100, 1104 (10th Cir. 2020) ("Courts must ... first determine whether an arbitration agreement was indeed formed before enforcing a delegation clause therein.").

We agree with our sister circuits and hold that parties cannot delegate issues of formation to the arbitrator. Here, where Ahlstrom challenged the very existence of an agreement to arbitrate, the district court was required to address Ahlstrom's challenge and determine whether an agreement existed. See Granite Rock , 561 U.S. at 299–300, 130 S.Ct. 2847. If no agreement to arbitrate was formed, then there is no basis upon which to compel arbitration.

II. Formation of the MAA

We next address whether the MAA constitutes a properly formed agreement between Ahlstrom and D.R. Horton.

On its face, the MAA is plainly drafted to govern an employer-employee relationship. For example, in Paragraph 1, the MAA states that "Employee and the Company both agree all legal disputes and claims between them, including without limitation those relating to Employee's employment with the Company or any separation therefrom ... shall be determined exclusively by final and binding arbitration." Paragraph 4 indicates that notice must be sent to the employee's "most recent residence address reflected in the Company's employment records." Further, an employee initiating a claim must contribute "an amount equal to the filing fee to initiate the claim in the court of general jurisdiction in the state in which Employee is or was last employed...