Khan v. Parsons Global Services, Ltd.

• Decision Date: 30 March 2007
• Docket Number: Civil Action No. 03-1574 (RCL).
• Citation: 480 F.Supp.2d 327
• Parties: Azhar Ali KHAN, et al., Plaintiffs, v. PARSONS GLOBAL SERVICES, LTD., et al., Defendants.
• Court: U.S. District Court — District of Columbia

480 F.Supp.2d 327

Azhar Ali KHAN, et al., Plaintiffs, v. PARSONS GLOBAL SERVICES, LTD., et al., Defendants.

Civil Action No. 03-1574 (RCL).

United States District Court, District of Columbia.

March 30, 2007.

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Cyril V. Smith, Zuckerman Spaeder LLP, Baltimore, MD, Elaine Charlson Bredehoft, Charlson Bredehoft & Cohen, P.C., Reston, VA, Francis Darron Carter, Zuckerman Spaeder, LLP, Washington, DC, for Plaintiffs.

Eugene Scalia, Gibson, Dunn & Crutcher LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

LAMBERTH, District Judge.

I. INTRODUCTION

"This matter comes before the Court on the defendants' motion [31] to compel arbitration. This case was originally brought before this Court in 2003 by way of removal of the case from the Superior Court of the District of Columbia. Defendants removed this case to this Court pursuant to 9 U.S.C. § 205, the Federal Arbitration Act ("FAA"), on the ground that the case "relates to an arbitration agreement or award falling under the Convention [on the Recognition and Enforcement of Foreign Arbitral Awards]."¹ After removing the case, defendants filed a motion [4] seeking either to dismiss or to obtain summary judgment on the grounds of workers' compensation exclusivity or, in the alternative, to compel arbitration pursuant to the N.Y. Convention. (See Mot. [4].) Plaintiffs opposed this motion, arguing that the arbitration agreement was unconscionable under California law and therefore unenforceable, and contending that the workers' compensation law did not bar plaintiffs' claims. In a March 22, 2004, Order [15], the Court granted the defendants' motion for summary judgment, finding that the workers' compensation law was the exclusive remedy for plaintiffs. In that same Order, the Court denied the motion to compel arbitration as moot. Plaintiffs appealed this Court's decision to the D.C. Circuit.

On appeal, the D.C. Circuit reversed this Court, finding that Mr. Khan did not properly fall within the "traveling employee" category within the workers' compensation law. Khan v. Parsons Global Services, Ltd., 428 F.3d 1079, 108485, 1087 (D.C.Cir. 2005). Therefore, the Court of Appeals found that there was no workers' compensation exclusivity. Id. at 1087. The D.C. Circuit did not rule on the issue of the applicability of the arbitration clause. Id. at 1078. Upon issuance of the mandate from the Court of Appeals, this Court issued a scheduling order [30] directing the parties to brief the issue of whether the claims at issue should be submitted to arbitration.

In response to this scheduling order, defendants filed a motion to compel arbitration [31] and a memorandum [32] in support thereof, on April 17, 2006. Plaintiffs filed their memorandum in opposition to the motion [34] on May 8, 2006, and defendants' reply memorandum [35] was filed ten days later.

Within their pleadings, the parties have four issues for this Court to consider. First, the Court must determine whether defendants waived their right to compel arbitration by filing its motion to dismiss or for summary judgment on grounds of workers' compensation exclusivity or in the alternative to compel arbitration. Second, if the Court decides that the defendants did not waive their right to compel arbitration, the Court must determine whether the arbitration clause at issue in this case is enforceable. This determination carries with it a consideration of whether state or federal law governing enforceability of an arbitration agreement applies, and whether or the arbitration clause is unconscionable under the applicable law. Third, the Court must then assess whether the arbitration clause applies equally to signatories and non-signatories in this case, and which claims brought by or against parties fall within the scope of the arbitration agreement. Finally, the Court must determine whether it should compel discovery concerning the alleged unconscionability of the arbitration clause.

II. DISCUSSION

A. Waiver

In this Circuit, the right to compel arbitration can be waived by a party. National Foundation for Cancer Research v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C.Cir.1987) (citing Cornell & Co. v. Barber & Ross Co., 360 F.2d 512, 513 (D.C.Cir.1966).) The test for determining whether a party has waived its right to arbitration is "whether, under the totality of the circumstances, the defaulting party has acted inconsistently with the arbitration right." National Foundation, 821 F.2d at 774 (citing Cornell, 360 F.2d at 513). If the Court is faced with any ambiguity with regard to the scope of the waiver, the Court must resolve the ambiguity in favor of arbitration. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 2425, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Because this type of determination is one concerning the arbitrability of a claim, the issue of waiver of right to arbitrate should be decided by the Court, not an arbitrator, according to federal law. See id. (stating that issues of waiver are resolved "as a matter of federal law").

One method of determining whether such a right to arbitrate has been waived is to ascertain whether or not the party "actively participates in a lawsuit." Cornell, 360 F.2d at 513. In Cornell, the Court was faced with a party that, prior to filing its motion to compel arbitration, moved to transfer venue to a different federal district, filed both an answer to the plaintiffs complaint as well as its own counterclaim, and engaged in definitive discovery. Id.² The circuit court affirmed the district court's finding that "[t]he litigation machinery had been substantially invoked," and that the defendant's conduct constituted a waiver of its right to arbitrate. Id. at 513-44.

The D.C. Circuit was faced with a similar situation in National Foundation. In that case, the defendant first filed an answer, in which it asserted fifteen assertive defenses, and failed to mention arbitration at all. National Foundation, 821 F.2d at 775. In addition, the defendant "instigated extensive discovery," including deposing six of the plaintiffs officers, directors and employees, and providing its own employees to be deposed by the plaintiff. Id. As if this were not enough, the defendant opposed the plaintiffs motion to amend the complaint, answered the amended complaint with no mention of arbitration, until finally moving for complete summary judgment on a majority of the counts in the amended complaint, and partial summary judgment on the remaining counts. Id. After briefing and oral argument on the summary judgment issue, settlement negotiations between the parties began, and it was only at this point that the defendant moved to compel arbitration. Id. In upholding the district court's finding of waiver due to active participation in the lawsuit, the D.C. Circuit found that the defendant's conduct prior to invoking the arbitration provision "invoked the litigation machinery to an even greater extent" than the defendant in Cornell. National Foundation, 821 F.2d at 775. The defendant's activity "was wholly inconsistent with an intent to arbitrate and constituted an abandonment of the right to seek arbitration." Id. at 776. Allowing the defendant the opportunity to arbitrate these issues after its immersion in the trial mechanism would "squarely confront[] the policy that arbitration may not be used as a strategy to manipulate the legal process." Id.

In a case before this District Court, Judge Harris was also faced with an issue of waiver of the right to compel arbitration in a contract dispute case. See Gordon-Maizel Const. Co. v. Leroy Prods., Inc., 658 F.Supp. 528 (D.D.C.1987). In Gordon-Maizel, the general contract executed by the parties included a broad arbitration clause. Id. at 530. Plaintiffs filed an action in this District Court seeking to enforce liens they had obtained against the defendants for outstanding contract payments. Id. In their answer, defendants raised arbitration as an affirmative defense, then asserted counterclaims against plaintiffs seeking to vacate the liens, compel arbitration of the contract dispute, and recover damages for fraudulent filing of the mechanic's liens. Id. Relying upon this evidence, Judge Harris found that the defendants had not waived their right to compel arbitration. Id. at 531. Accordingly, Judge Harris held that "[a]bsent substantial delay in asserting the contractual right to arbitrate, or other prejudicial conduct on the part of [the defendants], a finding of waiver would be inappropriate." Id. (citing Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 694 (9th Cir.1986); Rush v. Oppenheimer & Co., 779 F.2d 885, 889 (2d Cir.1985)).

The Court takes from these cases three propositions. First, the filing of a motion for summary judgment does not automatically necessitate a finding of "active participation in a lawsuit."³ Second, a party actively participates in a lawsuit if, under the totality of the circumstances, the party has undertaken efforts to utilize the judicial system to dispute the opposing party's claims on their merits. Third, with regard to the timeliness of a defendant's invocation of its right to arbitrate, a defendant does not waive its right to invoke arbitration unless there is a substantial delay in asserting this right. Considering plaintiffs' claims of waiver against this background, the Court finds that the defendants' conduct does not rise to the level of "active participation" found in either National Foundation or Cornell, and that, therefore, the defendants did not waive their right to compel arbitration.

A number of reasons support this decision. First, contrary to the defendants in the aforementioned cases, the defendants in the present case did not engage in any discovery at all before filing their initial response with this Court. Plaintiffs concede this, and the D.C. Circuit pointed out that this case was resolved without...