Brennan v. Opus Bank

• Decision Date: 11 August 2015
• Docket Number: 13–35598.,Nos. 13–35580,s. 13–35580
• Citation: 796 F.3d 1125
• Parties: Carey M. BRENNAN, Plaintiff–Appellant, v. OPUS BANK, a California corporation; Stephen H. Gordon, Defendants–Appellees. Carey M. Brennan, Plaintiff–Appellee, v. Opus Bank, a California corporation, Defendant–Appellant, and Stephen H. Gordon, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

796 F.3d 1125

Carey M. BRENNAN, Plaintiff–Appellant

v.OPUS BANK, a California corporation;

Stephen H. Gordon, Defendants–Appellees.

Carey M. Brennan, Plaintiff–Appellee

v.Opus Bank, a California corporation, Defendant–AppellantandStephen H. Gordon, Defendant.

Nos. 13–35580

13–35598.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 8, 2015.

Filed Aug. 11, 2015.

Michael David Hunsinger (argued), The Hunsinger Law Firm, Seattle, WA, for Plaintiff–Appellant/Cross–Appellee.

Daniel L. Thieme (argued) and Jennifer S. Pirozzi, Littler Mendelson, P.C., Seattle, WA, for Defendant–Appellee/Cross–Appellant Opus Bank.

Julian Mack (argued), San Francisco, CA; Patrick M. Madden and Mark. S. Filipini, K & L Gates LLP, Seattle, WA, for Defendant–Appellee Stephen Gordon.

Appeal from the United States District Court for the Western District of Washington, Ricardo S. Martinez, District Judge, Presiding. D.C. No. 2:13–cv–00094–RSM.

Before: J. CLIFFORD WALLACE, ANDREW J. KLEINFELD, and RONALD M. GOULD, Circuit Judges.

OPINION

WALLACE, Senior Circuit Judge:

Brennan appeals from the district court's order dismissing his action in favor of arbitration. Opus Bank cross appeals from the district court's implicit denial of its motion to seal Brennan's complaint, and the district court's denial of its motion for reconsideration as moot. We have jurisdiction of both appeals pursuant to 28 U.S.C. § 1291. We affirm the district court's dismissal in favor of arbitration, but we reverse the district court's denial of Opus Bank's motion for reconsideration as moot. Because the district court has inherent supervisory authority over its own records even after final judgment and the filing of a notice of appeal, we remand for the district court to decide Opus Bank's motion to seal in the first instance.

I.

Brennan became the Executive Vice President and Director for Strategy and Corporate Development for Opus Bank in December 2010, when he signed an Employment Agreement with Opus Bank. The Employment Agreement described Brennan's duties in section 2 as those “customary, appropriate and reasonable executive duties ... normally assigned to a person with such position at other similarly situated banks, including such duties as are delegated to him from time to time by the Chief Executive Officer,” Stephen Gordon, to whom he was to report directly.

For the first several months of his employment, Brennan performed executive-level duties that he considered consistent with his position as Executive Vice President. But by late 2011, Brennan said that he was beginning to be excluded from many of the activities he had been hired to perform, and that his involvement in important business transactions had “steadily diminished.” Brennan also alleged that although it was his responsibility to formulate Opus Bank's long-range strategic and financial objectives, Gordon “began dismissing or rejecting Brennan's ... analyses of the Bank's ... financial condition,” and “frequently relegate[d] mundane tasks to Brennan that were not customary, appropriate, and reasonable executive duties ... normally assigned to a person with such position at other similarly situated banks.”

The Employment Agreement contained a provision granting Brennan the right to terminate his employment for “Good Reason,” whereupon he would be entitled to a generous severance payment. “Good Reason” was defined in the Employment Agreement to include a “material change in [Brennan's] function, duties, or responsibilities with the Bank,” that “would cause [Brennan's] position to become one of substantially lesser responsibility or scope from the position and attributes described in [s]ection 2 above, unless consented to by [Brennan].” Believing that such a “material change” had occurred with respect to his work responsibilities, Brennan sent Opus Bank a Notice of Termination with Good Reason on March 19, 2012.

Opus Bank subsequently placed Brennan on “administrative investigatory suspension” while it retained an independent attorney to investigate whether Brennan's termination was in fact for “Good Reason,” and whether, based upon Brennan's failure to attend certain mandatory meetings, Opus Bank could terminate Brennan for “Cause,” as defined in the Employment Agreement. After receiving the attorney's report, Opus Bank wrote a letter to Brennan on April 18, 2012, notifying him that it was adopting the attorney's conclusions that Brennan did not have “Good Reason” to terminate his employment, but that Opus Bank also lacked “Cause” to terminate Brennan. Nonetheless, Opus Bank told Brennan it was construing his March 19 Notice of Termination as a voluntary resignation, and that Brennan therefore was not entitled to a severance payment or other termination benefits.

In January of the following year, Brennan sued Opus Bank in federal district court under diversity jurisdiction. See 28 U.S.C. § 1332. Brennan's complaint alleged that Opus Bank breached the Employment Agreement and wrongfully terminated him in violation of both California and Washington state law. It also alleged that Opus Bank and Gordon unlawfully withheld wages in violation of Washington state law.

Brennan's complaint acknowledged that section 16 of the Employment Agreement (the Arbitration Clause), entitled “Dispute Resolution Procedures,” was a mandatory arbitration provision which provided in relevant part: “Except with respect to any claim for equitable relief ... any controversy or claim arising out of this [Employment] Agreement or [Brennan's] employment with the Bank or the termination thereof ... shall be settled by binding arbitration in accordance with the Rules of the American Arbitration Association.” Nevertheless, Brennan argued that his “causes of action should be resolved by litigation, rather than arbitration,” because the Arbitration Clause was both procedurally and substantively unconscionable, and therefore unenforceable.

Opus Bank responded to Brennan's complaint with a motion to seal and to strike Brennan's complaint, as well as a motion to compel arbitration under the Arbitration Clause and the Federal Arbitration Act (FAA). In its motion to compel arbitration, Opus Bank argued that both the employment dispute and the question whether the Arbitration Clause was unconscionable had to be decided by the arbitrator instead of the court. Opus Bank argued that the unconscionability of the Arbitration Clause also had to be decided by the arbitrator because the Employment Agreement expressly incorporated the Rules of the American Arbitration Association (AAA), one of which states that the “arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the ... validity of the arbitration agreement.” Incorporation of the AAA rules, Opus Bank contended, constituted clear and unmistakable evidence that the parties intended to have this unconscionability question decided by an arbitrator. The district court agreed with Opus Bank, and, applying federal arbitrability law, dismissed the action in favor of arbitration.

The district court's dismissal order, however, did not address Opus Bank's motion to seal Brennan's complaint. Consequently, Opus Bank filed a motion for reconsideration of that issue, but the district court denied the motion as “moot[ ],” given the district court's earlier dismissal of the underlying action.

Brennan timely appealed from the district court's dismissal in favor of arbitration, and Opus Bank timely cross-appealed from the district court's denial of Opus Bank's motion for reconsideration regarding the request to seal Brennan's complaint.

“We review de novo the district court's decisions about the arbitrability of claims.” Momot v. Mastro, 652 F.3d 982, 986 (9th Cir.2011). Moreover, although we typically “review for abuse of discretion the district court's decision not to seal the judicial record,” Oliner v. Kontrabecki, 745 F.3d 1024, 1025 (9th Cir.2014), here we review de novo because “the district court failed to exercise its discretion” by “denying as moot the bulk of [Opus Bank's] motion without considering its merits.” Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162, 1178 (9th Cir.2006).

II.

Brennan's opening brief narrows his appeal to a single issue: “[t]he only issue before this Court is who—an arbitrator or a judge—should decide” whether the Arbitration Clause is unconscionable. The thrust of Brennan's appeal is that California law should apply, and that under California law the district court erred in concluding that the specific provision of the Arbitration Clause incorporating the AAA rules of arbitration (Delegation Provision) “clearly and unmistakably” delegated to an arbitrator the question whether the Arbitration Clause was unconscionable and therefore unenforceable.

A.

We begin by addressing the applicable law. Brennan argues that the district court erred in applying federal law—rather than California law—to decide this question. However, federal law governs the arbitrability question by default because the Agreement is covered by the FAA, Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), and the parties have not clearly and unmistakably designated that nonfederal arbitrability law applies, see Cape Flattery Ltd. v. Titan Maritime, 647 F.3d 914, 921 (9th Cir.2011).

Brennan concedes, as he must, that the FAA governs the Employment Agreement because the FAA applies to any contract, like the present one, “evidencing a transaction involving commerce.” 9 U.S.C. § 2. For “any arbitration agreement within the coverage of the [FAA],” “[t]he court is to make th[e] [arbitrability] determination by applying the federal substantive law of arbitrability,” Mitsubishi Motors, 473 U.S. at 626, 105 S.Ct. 3346 “absent clear and unmistakable evidence that the parties agreed to apply non-federal arbitrability law.” Cape Flattery, 647 F.3d at 921 (internal quotation marks omitted...