Lifescan, Inc. v. Premier Diabetic Servs.

• Decision Date: 13 April 2004
• Docket Number: No. 01-16124.,01-16124.
• Citation: 363 F.3d 1010
• Parties: LIFESCAN, INC., Plaintiff-Appellee, v. PREMIER DIABETIC SERVICES, INC., a Florida Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

363 F.3d 1010

LIFESCAN, INC., Plaintiff-Appellee, v. PREMIER DIABETIC SERVICES, INC., a Florida Corporation, Defendant-Appellant.

No. 01-16124.

United States Court of Appeals, Ninth Circuit.

Argued March 12, 2003.

Submitted November 4, 2003.

Filed April 13, 2004.

Leon M. Bloomfield, Oakland, CA, argued for the defendant-appellant; Richard S. Rachlin, North Palm Beach, FL, joined him on the brief.

Gary T. Lafayette, San Francisco, CA, argued for the plaintiff-appellee; Susan T. Kumagai, San Francisco, CA, joined him on the brief.

Appeal from the United States District Court for the Northern District of California; Vaughn R. Walker, District Judge, Presiding. D.C. No. CV-00-04472-VRW.

Before: KOZINSKI, GRABER and BERZON, Circuit Judges.

KOZINSKI, Circuit Judge:

What happens when a party to an arbitration is unable to pay its pro-rata share of the arbitration fees?

Background

Premier Diabetic Services, Inc., is a Florida-based company that purchases diabetic products from manufacturers and resells them across the country to customers. In 1997, Premier contracted with Lifescan, Inc., a Johnson & Johnson subsidiary, to buy glucose monitoring strips and meters at a discount, on the condition that all products be sold to Medicare patients. In early 1998, Lifescan stopped shipping because it became convinced that Premier was selling to non-Medicare customers.

Pursuant to the terms of their agreement, the parties submitted the dispute to arbitration before a panel of three arbitrators from the American Arbitration Association (AAA). The parties participated in the initial stages of the arbitration process but, a few days before the final hearings, Premier announced that it would be unable to pay its pro-rata share of the arbitrators' estimated fees and costs for the remainder of the proceedings. The arbitrators gave Lifescan the option of advancing the fees owed by Premier so the final arbitration hearings could proceed, with an expectation that Lifescan would recoup the advance as part of any award. Lifescan refused and requested, instead, that the arbitration go forward, with Premier barred from presenting evidence. The AAA declined to proceed without Premier and suspended the proceedings.

Lifescan petitioned the district court to compel arbitration and order Premier to pay its pro-rata share of the fees. Lifescan also requested that the district court enter judgment against Premier on the underlying arbitration if Premier failed to pay the fees.

The district court granted Lifescan's petition to compel and ordered Premier to pay its pro-rata share of the fees. It also held that Premier's failure to pay amounted to its "failure, neglect, or refusal" to arbitrate, within the terms of section 4 of the Federal Arbitration Act (FAA).

Analysis

Arbitration provides a forum for resolving disputes more expeditiously and with greater flexibility than litigation. See Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th Cir. 2003) (en banc) (noting the benefits of arbitration). "[A]rbitration is a matter of contract." Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1170 (9th Cir.2003) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). Congress crafted the FAA to "overrule the judiciary's longstanding refusal to enforce agreements to arbitrate... and place such agreements upon the same footing as other contracts." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 474, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (internal quotation marks and citations omitted). The FAA gives federal courts only limited authority to review arbitration decisions, because broad judicial review would diminish the benefits of arbitration. See Kyocera, 341 F.3d at 998.

A party to a valid arbitration agreement may "petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4. By its terms, section 4 of the FAA limits the court's discretion; the court must order the parties to proceed to arbitration only in accordance with the terms of their agreement. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Thus, the district court's role is limited to determining whether a valid arbitration agreement exists and, if so, whether the agreement encompasses the dispute at issue. If the answer is yes to both questions, the court must enforce the agreement. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir.2000).

Faithful to the statute, we first look to the agreement between Premier and Lifescan. In relevant part, the agreement states: "[A]ny and all unresolved disputes between the parties relating to this agreement shall be settled by binding arbitration.... Such arbitration shall be conducted in accordance with the then-current rules of the American Arbitration Association...." The parties thus incorporated the AAA Rules into their agreement. The AAA Commercial Arbitration Rules, in turn, recognize the arbitrators' discretion to interpret the scope of their authority: "The arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator's powers and duties." AAA Rule R-55. The rules also allow for flexibility, one of the noted benefits of arbitration. Rule R-45 gives arbitrators broad discretion to allocate fees and...