Teske v. Paparazzi, LLC
| Decision Date | 03 April 2023 |
| Docket Number | CIVIL 4:22-cv-00035-DN-PK |
| Parties | LORI TESKE and TERRI FRANKLIN, Plaintiffs, v. PAPARAZZI, LLC, MISTY KIRBY, TRENT KIRBY, CHANEL REEVE, and RYAN REVE, Defendants. |
| Court | U.S. District Court — District of Utah |
MEMORANDUM DECISION AND ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION
This matter is before the Court on a Motion to Compel Arbitration filed by Paparazzi, LLC (“Paparazzi”) and Misty Kirby, Trent Kirby, Chantel Reeve, and Ryan Reeve (the “Paparazzi Individuals”) (collectively, the “Paparazzi Parties”).[1]The Paparazzi Parties seek to compel arbitration as to the claims brought by Lori Teske and Terri Franklin (the “Teske Plaintiffs”) in this action. For the reasons discussed below, the Court grants the Motion.
The Teske Plaintiffs are former “consultants” for Defendant Paparazzi, who agreed to sell Paparazzi's products. The Teske Plaintiffs bring claims alleging that Paparazzi's products were contaminated and that the Paparazzi Parties made false assurances about the quality and materials of its products.
The Teske Plaintiffs filed suit in June 2022.[2]The Paparazzi Parties appeared through counsel and obtained an extension until August 12, 2022, to file a responsive pleading.[3]The parties submitted an attorney planning meeting report on July 13, 2022,[4] providing the parties' respective positions on scheduling and the Court held a scheduling conference on July 29, 2022.[5]
At the conclusion of that scheduling conference, the Court stayed this case until September 9, 2022, to allow the Paparazzi Parties to seek the transfer of related cases into this Court. Thereafter, the Paparazzi Parties sought to consolidate those transferred cases into this case.[6] At a September 9th Scheduling Conference the Court continued the stay until resolution of the motion to consolidate.[7]
On November 22, 2022, the Honorable David Barlow denied the Paparazzi Parties' motion to consolidate and instead transferred all Paparazzi cases to himself and referred them to the undersigned.[8]On January 18, 2023, the Court conducted another scheduling conference during which the Paparazzi Parties explained that they intended to file a motion to dismiss or to compel arbitration.[9] The Court set a briefing schedule for the instant motion.[10]The Motion to Compel Arbitration is now fully briefed and the Court held argument on March 28, 2023.
The parties acknowledge that prior to becoming consultants for Paparazzi, the Teske Plaintiffs agreed to an Independent Consulting Agreement. The Independent Consulting Agreement contained an arbitration clause. The arbitration clause required the parties to mediate any dispute arising from or related to the Independent Consulting Agreement and, if unsuccessful, submit to arbitration. Through their Motion, the Paparazzi Parties seek enforcement of that provision.
The Federal Arbitration Act[11](“FAA”) allows a party aggrieved by the failure of another to arbitrate under a written agreement to petition any district court which, “save for such agreement, would have jurisdiction . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.”[12]If the Court is “satisfied that the issue involved . . . is referable to arbitration under such an agreement,” the Court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement.”[13]
The Court's role under the FAA is limited to determining: (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.[14]Here, the Teske Plaintiffs do not contest that an agreement exists or that the agreement encompasses this dispute. However, the Teske Plaintiffs argue that the Paparazzi Parties' Motion should be denied because the Paparazzi Parties waived their right to pursue arbitration and the arbitration provision is substantively unconscionable. Each argument is addressed below.
“It is axiomatic that ‘the right to arbitration, like any other contract right, can be waived.'”[16]The Tenth Circuit considers the following factors to determine whether a party has waived the right to arbitrate:
(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.[17]
“A party asserting a waiver of arbitration has a heavy burden of proof.”[18]“[I]n assessing whether that burden has been met, we give substantial weight to the ‘strong federal policy encouraging the expeditious and inexpensive resolution of disputes through arbitration.'”[19]
Considering these factors, the Court concludes that the Paparazzi Parties have not waived their right to arbitrate. The Teske Plaintiffs contend that the Paparazzi Parties' actions in this case have been inconsistent with the right to arbitrate. The Teske Plaintiffs point to the Paparazzi Parties' attempts to consolidate all actions related to it, as well as the Paparazzi Parties participation in court hearings and initial scheduling efforts. However, as the Paparazzi Parties correctly note, they have not answered, moved for dismissal, propounded discovery requests, answered discovery requests, or taken or defended depositions. As for the Paparazzi Parties' participation in hearings and scheduling, that participation was required by Court order. While the Paparazzi Parties certainly could have moved to compel arbitration at an earlier point, their decision to first seek consolidation is understandable given the related issues in these cases. And there is nothing to suggest that seeking consolidation is inconsistent with the right to arbitrate. In fact, the Court is convinced seeking transfer and consolidation before seeking arbitration likely created efficiencies given the possibility that various courts could have decided issues related to arbitration differently leaving the Paparazzi Parties arbitrating and litigating simultaneously.
The remaining factors do not support a finding of waiver. The “litigation machinery” has not been substantially invoked and the parties were not well into preparation of this lawsuit before the Paparazzi Parties sought to compel arbitration. This case was filed in June 2022 and little substantive progress has been made due to the procedural issues litigated at the outset. The Paparazzi Parties did not seek arbitration close to the trial date, as there is no trial date set. Nor did they delay for a long period before seeking a stay. The delay in seeking to compel arbitration is reasonable considering the procedural history of this case. The Paparazzi Parties have not filed a counterclaim, nor have they answered the Teske Plaintiffs' Complaint. Finally, there are no important intervening steps that have taken place. No substantive discovery has occurred, and the Paparazzi Parties have not used this litigation to gain rights they would not have in arbitration. Based on these considerations, the Court finds Paparazzi Parties have not waived their right to arbitrate.
The Teske Plaintiffs next argue that the arbitration provision is unconscionable. Under the FAA, “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”[20] “This saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.'”[21]“The enforceability of the agreement is a matter of state law.”[22]
The Independent Consulting Agreement is governed by Utah law.[23]Under Utah law, arbitration agreements, generally speaking, are not substantively unconscionable. The Utah Supreme Court has emphasized “that arbitration agreements are favored in Utah.”[24] However, certain terms may be unconscionable.
The arguments for and against substantive unconscionability focus on the contents of the agreement, examining the relative fairness of the obligations assumed. When determining whether a contract is substantively unconscionable, we have considered whether its terms [are] so one-sided as to oppress or unfairly surprise an innocent party or whether there exists an overall imbalance in the obligations and rights imposed by the bargain.[25]
Here the Teske Plaintiffs contend that the arbitration provision is unconscionable because it: (1) requires mediation and arbitration in Utah; (2) imposes one-sided burdens on the Teske Plaintiffs to mediate/arbitrate while allowing Paparazzi to seek injunctive relief; (3) contains a one-year limitations period; and (4) has fee-splitting and expense-shifting clauses. The Paparazzi Parties disagree that these provisions are unconscionable and, in the alternative, argue that any unconscionable provisions can be severed from the...
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