Tillman v. Tillman

• Decision Date: 15 June 2016
• Docket Number: No. 13-56624,13-56624
• Citation: 825 F.3d 1069
• Parties: Sean Tillman, Plaintiff, v. Renee Tillman, AKA Renee Chicino, Defendant–Appellant, Rheingold, Valet, Rheingold, Shkolnik & McCartney, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

825 F.3d 1069

Sean Tillman, Plaintiff

v.Renee Tillman, AKA Renee Chicino, Defendant–Appellant

Rheingold, Valet, Rheingold, Shkolnik & McCartney, Defendant–Appellee.

No. 13-56624

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 9, 2015 Pasadena, California

Filed June 15, 2016

Stephen C. Johnson (argued) and Arlene M. Turinchak, Dempsey & Johnson P.C., Los Angeles, California, for Defendant–Appellant.

Stephen M. Caine (argued), Frances M. O'Meara, and Holly M. Teel, Thompson Coe & O'Meara, LLP, Los Angeles, California, for Defendant–Appellee.

Before: Ronald M. Gould and Marsha S. Berzon, Circuit Judges and George Caram Steeh III,^** Senior District Judge.

OPINION

BERZON

, Circuit Judge:

When two parties have entered into a valid arbitration agreement, the Federal Arbitration Act requires federal courts to stay lawsuits between them until the arbitration is resolved and then to enforce any arbitration award. Our question is how a federal court is to proceed where one party runs out of funds to pay for its share of the arbitration and the arbitrator thereupon terminates the arbitration proceedings without entering an award or judgment or otherwise resolving the case.

Here, Renee Tillman sued her law firm, Rheingold, Valet, Rheingold, Shkolnik & McCartney (“the firm” or “the Rheingold firm”). Tillman's retainer with the firm contained an arbitration clause, which the firm invoked. Arbitration proceeded for a time, until Tillman ran out of funds. The arbitration was then terminated. The parties disagree about what should now happen to Tillman's federal court case against the Rheingold firm.

Our conclusion is that Tillman's case “has been had in accordance with the terms of the agreement,” so it is no longer appropriate to stay the proceedings below. See 9 U.S.C. § 3

; Lifescan, Inc. v. Premier Diabetic Servs., Inc. , 363 F.3d 1010, 1012–13 (9th Cir. 2004). Further, the district court appropriately excused Tillman's failure to pay for arbitration on the grounds of financial incapacity. Finally, under these circumstances, we hold, the FAA does not require dismissal of Tillman's case; instead, Tillman's case should go forward in federal court. We therefore remand the case with instructions to allow it to proceed.

I

Renee Tillman's husband, Tim Tillman (“Tim”), died in a truck accident in 2002. Tillman hired the Rheingold firm to represent her. The firm filed a wrongful death suit on Tillman's behalf against the manufacturer of the truck Tim was driving. Tillman won the suit and was awarded about eight million dollars, an amount later reduced on appeal.

Tillman and the Rheingold firm were then sued by Sean Tillman (“Sean”), Tim's son from a prior marriage. Sean asserted that Tillman and the firm wrongfully excluded him from the suit against the truck manufacturer, alleging they were negligent and had violated a California requirement that an heir suing in a wrongful death action join all other known heirs. Sean's claims against the Rheingold firm were dismissed but his action against Tillman proceeded. Tillman, in turn, filed a complaint against the firm, alleging it had committed malpractice by not including Sean in the wrongful death action and by failing to advise her of the rights of Tim's other heirs.

In response to Tillman's complaint, the firm moved to compel arbitration, citing the arbitration clause in its retainer agreement with Tillman. Tillman filed her response to the motion late. As a result, the district court declined to consider her response. The court granted the firm's motion to compel arbitration and stayed the federal court proceedings between Tillman and the firm.

Tillman and the firm began arbitration in New York under the rules of the American Arbitration Association (“AAA”), as provided in the retainer agreement. During the arbitration, Tillman objected to several aspects of the arbitration as unnecessarily increasing costs. In particular, she challenged the need for the arbitration to include a “case-within-a-case” adjudication, in which the arbitrator would rehear witnesses and evidence presented in the underlying wrongful death action.

The arbitrator nonetheless scheduled additional dates for a case-within-a-case adjudication. Tillman borrowed money, and her counsel in the arbitration agreed to front certain costs. Nevertheless, Tillman was ultimately unable to provide the required deposit of $18,562.50 the AAA asked for as a condition of continuing the proceedings.

The AAA then “inquir[ed] as to whether [the firm was] willing to cover th[e] deposit,” but the firm declined. Tillman then requested that the AAA require the firm to pay the deposits going forward, under AAA rules authorizing interim relief. The arbitrator responded that it did “not intend to decide the motion for interim relief” until the deposits had been paid; set a deadline for Tillman to submit the funds; and ultimately terminated the arbitration due to the missing deposits.

The Rheingold firm returned to the district court. It moved for the court to lift its stay and to dismiss Tillman's complaint pursuant to Federal Rule of Civil Procedure 41(b)

, which provides that, “[i]f the plaintiff fails to prosecute or to comply with these rules or a court order, a defendant may move to dismiss the action or any claim against it.” According to the firm, Tillman's failure to pay her deposits was a violation of the court's order compelling arbitration. Tillman objected, arguing that she had fully participated in the arbitration and done “everything in her power” to proceed before the arbitrator. Tillman also argued that the firm was at fault as well for the arbitration's termination, because, under the AAA rules, it could have paid to continue the arbitration but chose not to.

Before ruling on the Rule 41(b)

motion, the district court allowed Tillman to submit evidence confirming that her financial situation precluded her from paying her share of the arbitration fees. Tillman did so, submitting a declaration with various exhibits describing how the money from the initial settlement had been exhausted—through a combination of legal fees, payment of outstanding debts, educational payments and set-asides for several family members, vehicle purchases, home improvements, investment losses, and gambling losses. After reviewing the evidence, the district court found Tillman was indeed “unable to pay for her share of arbitration.”

It therefore declined to dismiss her case under Rule 41(b)

and instructed the parties to further brief the issue of how to proceed given Tillman's inability to pay the arbitrator's fees.

The district court ultimately dismissed the case. According to the district court, because the AAA's rules required Tillman and the firm to bear the costs of arbitration equally and allowed the arbitrator to suspend the proceedings, the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq .,

deprived the district court of authority to hear “the claims that would have been subject to the arbitration agreement,” and dismissal was required.

Tillman timely appealed.

II

“[C]ourts must rigorously enforce arbitration agreements according to their terms.” Am. Express Co. v. Italian Colors Rest. , ––– U.S. ––––, 133 S.Ct. 2304, 2309, 186 L.Ed.2d 417 (2013)

(citing Dean Witter Reynolds Inc. v. Byrd , 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) ) (internal quotation marks removed). When a party petitions a court to compel arbitration under the FAA, “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.” Lifescan , 363 F.3d at 1012. Here, there is no dispute that both these conditions were initially met, and no challenge to the original referral of the dispute to arbitration.

Although the validity of the arbitration agreement between Tillman and the Rheingold firm is not at issue, it is not immediately clear what it means to “enforce the agreement,” id.

in the context before us. The firm seeks to lift the district court's stay of proceedings and to dismiss Tillman's complaint. We agree that it is appropriate to lift the stay but conclude that Tillman's case should be allowed to proceed.

A.

The Rheingold firm, invoking the FAA, originally sought to stay the district court proceedings and compel arbitration. The FAA requires courts to stay court proceedings on issues subject to arbitration “until such arbitration has been had in accordance with the terms of the agreement.” 9 U.S.C. § 3

.

But what does it mean for an arbitration to “ha[ve] been had in accordance with the terms of the agreement”? Id. Here, arbitration was “had” in the sense that the parties engaged in arbitration until the arbitrator terminated those proceedings. The arbitration was terminated because Tillman could no longer pay the arbitrator's fee; the arbitrator did not enter any sort of award or judgment. The parties disagree about whether, in these circumstances, her arbitration “has been had in accordance with the terms of the agreement.”

Our decision in Lifescan

goes a long way toward resolving this dispute. See 363 F.3d at 1010. In Lifescan, two parties, Premier and Lifescan, submitted a dispute to arbitration under the AAA's rules. Id. at 1011. Shortly before the final arbitration hearings, Premier advised that it was not able to pay its share of the arbitrators' costs. Id. The arbitrators gave Lifescan the option of paying Premier's share. Id. When Lifescan declined, the AAA suspended the proceedings. Id.

Lifescan petitioned the district court to compel arbitration under the FAA. Id.

On appeal, we directed that the petition be dismissed. Id. at 1013. As the AAA's rules allowed the arbitrators to suspend the proceedings when Lifescan declined to pay Premier's costs, we concluded, “the arbitration ha[d] proceeded pursuant to the parties' agreement.” Id.

Lifescan left matters...