Khan v. Parsons Global Services, Ltd.

• Decision Date: 11 April 2008
• Docket Number: No. 07-7059.,07-7059.
• Citation: 521 F.3d 421
• Parties: Azhar Ali KHAN and Asma Azhar Khan, Appellants v. PARSONS GLOBAL SERVICES, Ltd., et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

521 F.3d 421

Azhar Ali KHAN and Asma Azhar Khan, Appellants v. PARSONS GLOBAL SERVICES, Ltd., et al., Appellees.

No. 07-7059.

United States Court of Appeals, District of Columbia Circuit.

Argued January 17, 2008.

Decided April 11, 2008.

Appeal from the United States District Court for the District of Columbia (No. 03cv01574).

Cyril V. Smith argued the cause for appellants. With him on the briefs was Elaine Charlson Bredehoft.

Matthew D. McGill argued the cause for appellees. With him on the brief was Eugene Scalia.

Before: GINSBURG, ROGERS and GRIFFITH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

This is the second appeal by Azhar Ali Khan and his wife, Asma Azhar Khan, from a judgment on their claims against his employer and its agents (collectively "Parsons") to recover for injuries sustained as a result of Parsons' alleged mishandling of ransom demands by Mr. Khan's kidnappers. In the first appeal, the court reversed the grant of summary judgment for Parsons, holding that the Khans' recovery on their tort claims was hot limited by Mr. Khan's employment contract to workers' compensation insurance. Khan v. Parsons Global Servs., Ltd., 428 F.3d 1079 (D.C.Cir.2005) ("Khan I"). In this appeal, the Khans contend that the district court erred in granting Parsons' motion to compel arbitration, denying their discovery requests for lack of jurisdiction, and dismissing Mrs. Khan's claim for intentional infliction of emotional distress. We hold that Parsons waived its right to enforce the arbitration clause in Mr. Khan's employment contract. We further hold that the complaint stated a cause of action for Mrs. Khan's claim of intentional infliction of emotional distress. Accordingly, we reverse.

I.

The events underlying the Khans' complaint arose during Mr. Khan's employment by Parsons in the Philippines. On one of his days off, when Parsons' offices were closed, he was kidnaped and subsequently tortured. Parsons allegedly delayed paying the ransom that was demanded until after Mr. Khan's kidnapers carried out their threat to cut off part of his ear. The allegations in the complaint are set forth in Khan I, 428 F.3d at 1081-82. At the time of his kidnapping, the terms of Mr. Khan's employment contract ("the Agreement") included a broadly worded arbitration clause, applicable to "any controversy or claim [arising] out of [the Agreement,] the breach hereof or in any other way related hereto or otherwise related to or arising out of employment by [Parsons]." Agreement at A-3. The Agreement also included a separate clause specifying that the "worker's compensation insurance" carried by Parsons should serve as "full and exclusive compensation for any compensable bodily injury ... arising out of and in the course of Employee's employment hereunder." Id. at A-2.

In May 2003, the Khans filed negligence and intentional infliction of emotional distress claims against Parsons in the D.C. Superior Court. Parsons removed the case to the federal district court pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38. See also 9 U.S.C. §§ 202-03; 205. On July 29, 2003 Parsons filed a single motion to dismiss or, alternatively, for summary judgment or to compel arbitration. Specifically, Parsons argued in its motion that all of the Khans' claims were addressed by the workers' compensation clause. In support of its motion, Parsons submitted testimony on its behalf, including two declarations by its employees, one of which stated that workers compensation had covered part of Mr. Khan's lost wages, and an email from Parsons to Mrs. Khan on the applicability of workers' compensation, asserting that Parsons' insurer agreed with its position that Mr. Khan's injuries were work related. The motion independently sought dismissal of the complaint against four Parsons entities for alleged pleading defects. The Khans filed an opposition, set forth material issues of disputed fact, and submitted two declarations, one of which outlined potential discovery pursuant to FED. R.CIV.P. 56(f). Parsons filed a reply reiterating its argument regarding workers' compensation. On March 22, 2004, the district court granted summary judgment to Parsons on the ground that workers' compensation was the Khans' exclusive remedy; it denied Parsons' motion to compel arbitration as moot. The district court denied the Khans' motion for reconsideration, which was opposed by Parsons, on September 2, 2004.

This court, over Parsons' objections, reversed the grant of summary judgment. Khan I, 428 F.3d at 1081. Parsons then filed with the district court a motion to compel arbitration with a supporting memorandum on April 17, 2006. Over the Khans' opposition, including their argument that Parsons had waived its right to arbitrate by having engaged in litigation on the merits of their claims, the district court granted the motion to compel, ruling that all but one of the Khans' claims were subject to arbitration. Khan v. Parsons Global Servs., Ltd., 480 F.Supp.2d 327, 332-43 (D.D.C.2007) ("Khan II"). The district court rejected the Khans' arguments that the arbitration clause was waived or unenforceable or could not be invoked by defendants that had not signed the Agreement. It also ruled that Mrs. Khan's negligence claim was subject to the arbitration clause and, sua sponte, dismissed with prejudice her claim for intentional infliction of emotional distress. The district court then denied the Khans' motion for discovery for lack of jurisdiction. The Khans appeal, and our review is de novo. See Stewart v. Nat'l Educ. Ass'n, 471 F.3d 169, 173 (D.C.Cir.2006); Colbert v. Potter, 471 F.3d 158, 164 (D.C.Cir.2006).

II.

The Supreme Court has held that "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration .... whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). However, consistent with arbitration's contractual basis, a party may waive its right to arbitration by acting "inconsistently with the arbitration right." National Foundation for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C.Cir.1987).¹ The Khans contend that because Parsons actively participated in their lawsuit by seeking judicial resolution of the substance of the arbitrable claims, it acted inconsistently with its right to compel arbitration and thus waived that right. In particular, they maintain that, by definition, Parsons' motion for summary judgment should constitute a waiver. The Khans also contend that they suffered delay and prejudice as a result of Parsons' litigation activities, and given that the gravamen of their claims concern Parsons' conduct in responding to Mr. Khan's kidnapping, imprisonment, and torture, Parsons' non-pursuit of discovery should not figure in any waiver analysis because "discovery will likely focus almost entirely on documents and testimony in the possession and control of [Parsons]." Appellants' Br. at 20.

In this circuit, the court views "the totality of the circumstances [in deciding whether] the defaulting party has acted inconsistently with the arbitration right.... [O]ne example of [such] conduct ... is active participation in a lawsuit." National Foundation, 821 F.2d at 774-75 (citing Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 513 (D.C.Cir.1966)). A finding of prejudice is not necessary in order to conclude that a right to compel arbitration has been waived, although "a court may consider prejudice to the objecting party as a relevant factor" in its waiver analysis. Id. at 777. The facts of Parsons' pretrial participation in the litigation of the Khans' claims are undisputed; the only question is whether that participation waived its right to compel arbitration. "The question of waiver is one of law, which we review de novo." Id. at 774.

A.

As an initial matter, Parsons' contention that its right to compel arbitration was originally "unknown or inchoate" and thus could not be waived until this court's decision in Khan I clarified that the Khans' claims were arbitrable because workers' compensation did not apply, Appellees' Br. at 18, is not credible. Parsons understood that it possessed a potential right to arbitration prior to Khan I. Its removal of the Khans' lawsuit to federal court was based on the New York Convention addressing foreign arbitration, and its motion in the district court included arbitration as an alternative to summary judgment and dismissal. In addition, before the district court ruled on its motion, Parsons' counsel proposed that the Khans submit to arbitration, advising that the Agreement specified "arbitration of disputes related to [Mr. Khan's] employment." Letter from Eugene Scalia, Esq., to Cyril V. Smith, Esq. (July 21, 2003). These actions do not suggest any confusion over the right to compel arbitration.

The court has not previously held that a motion for summary judgment, standing alone, suffices to constitute a waiver of colorably arbitrable claims. In National Foundation the court held that a motion for summary judgment, pursued until denied by the district court despite intervening legal decisions clarifying that arbitration was possible, 821 F.2d at 776-77, constituted a demand for "resolution on the merits" and was the final indicator of "a conscious decision to exploit the benefits of pretrial discovery and motion practice, ... [an] election [] wholly inconsistent with an intent to arbitrate and constitut[ing] an abandonment of the right to seek arbitration," id. at 776. However, this holding arose in a context of long delay before invocation of the right to...