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Rappaport v. Federal Savings Bank

United States District Court, D. Arizona

July 31, 2018

Jason E. Rappaport, Plaintiff,
Federal Savings Bank, et al., Defendants.



         Pending before the Court are Defendants' Motion to Stay, (Doc. 12), and Plaintiff's Motion to Strike, (Doc. 33). The Court grants both motions.


         Plaintiff Jason E. Rappaport brought suit against his former employer, Defendant The Federal Savings Bank (“TFSB”), and its CEO, Stephen M. Calk. (Doc. 1). Mr. Rappaport alleges that TFSB illegally terminated his employment after he developed leukemia, and that TFSB and Mr. Calk lied to Mr. Rappaport's clients about his dismissal. (Doc. 1). The first four counts of Mr. Rappaport's Complaint concern the defamation and intentional interference with a business relationship claims, and the last two counts concern the wrongful dismissal and retaliation claims. (Doc. 1).

         Mr. Rappaport's employment contract with TFSB included an arbitration agreement. (Doc. 12, Exh. A ¶ 10). It states that any dispute “concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship . . . shall be resolved through binding arbitration in accordance with the rules of JAMS Arbitration . . . .” (Doc. 12, Exh. A ¶ 10). Pursuant to this clause and the Federal Arbitration Act, Defendants have requested the Court to stay this case until arbitration is completed. (Doc. 12).


         I. Legal Standard

         Under the Federal Arbitration Act (“FAA”), an arbitration provision in an employment contract “shall be valid, irrevocable, and enforceable . . . .” 9 U.S.C. § 2; see, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 113-19 (2001) (holding that the FAA applies to employment contracts except those of transportation workers); Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir. 1994), cert. dismissed, 515 U.S. 1187 (1995). “Although [a] contract provides that [state] law will govern the contract's construction, the scope of the arbitration clause is governed by federal law.” Tracer Research Corp, 42 F.3d at 1294 (citing Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1463 (9th Cir. 1983)); see Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002) (holding that FAA “not only placed arbitration agreements on equal footing with other contracts, but established . . . a federal common law of arbitrability which preempts state law”); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999) (“Federal substantive law governs the question of arbitrability.”).

         “Notwithstanding the federal policy favoring it, ‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'” Tracer Research Corp., 42 F.3d at 1294 (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960)); see French v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 784 F.2d 902, 908 (9th Cir. 1986). Where the arbitrability of a dispute is in question, a court must look to the terms of the contract. See Chiron Corp., 207 F.3d at 1130. “Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Simula, 175 F.3d at 719 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 20 (1983)). However, a court “cannot expand the parties' agreement to arbitrate in order to achieve greater efficiency.” Tracer Research Corp., 42 F.3d at 1294. “[T]he judicial inquiry . . . must be strictly confined to the question whether the reluctant party did agree to arbitrate . . . .” United Steelworkers, 363 U.S. at 582. “The court's role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp., 207 F.3d at 1130 (citations omitted); see Simula, 175 F.3d at 720 (stating that “the district court can determine only whether a written arbitration agreement exists, and if it does, enforce it in accordance with its terms”) (citation omitted).

         II. Analysis

         A. Conscionability of Arbitration Provision

         In evaluating whether the parties intended to arbitrate, courts apply ordinary state-law contract principles. Wynn Resorts, Ltd. v. Atlantic-Pacific Capital, Inc., 497 Fed.Appx. 740, 741 (9th Cir. 2012) (applying New York law in arbitrability determination) (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The arbitration agreement states that the terms were “made and entered into in the State of Illinois” and shall be governed by “the laws of the State of Illinois.” (Doc. 12, Exh. A ¶ 10).

         Illinois law favors arbitration and enforces valid arbitration agreements. Williams v. Jo-Carroll Energy, Inc., 382 Ill.App.3d 781, 784 (2d Dist. 2008) (citations omitted). An arbitration agreement is not enforceable if it is unconscionable. Id. “Unconscionability may be either procedural or substantive, or a combination of both.” Id. (citation omitted).

         1. Procedural ...

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