Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_10-cv-01447/USCOURTS-cand-3_10-cv-01447-3/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 28:1332 Diversity-Employment Discrimination

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

KEVIN SULLIVAN, an individual and

WHOLESALE WOODFLOOR

WAREHOUSE, a Nevada corporation,

Plaintiffs,

 v.

LUMBER LIQUIDATORS, INC. a Delaware

corporation,

Defendant. /

No. C-10-1447 MMC

ORDER DENYING DEFENDANT’S

MOTION TO DISMISS; GRANTING

DEFENDANT’S ALTERNATIVE MOTION

TO STAY; STAYING ACTION PENDING

RESOLUTION OF ARBITRATION;

VACATING MAY 28, 2010 HEARING

Before the Court is defendant Lumber Liquidators, Inc.’s (“Lumber Liquidators”),

Motion to Dismiss or, in the Alternative, to Stay Pending Arbitration, filed April 22, 2010. 

Plaintiffs Kevin Sullivan (“Sullivan”) and Wholesale Woodfloor Warehouse have filed

opposition, to which Lumber Liquidators has replied. Having read and considered the

papers filed in support of and in opposition to the motion, the Court deems the matter

appropriate for determination on the parties’ written submissions, hereby VACATES the

May 28, 2010 hearing, and rules as follows.

BACKGROUND

This case involves a dispute over a family business. Sullivan’s eldest brother, Tom

Sullivan, is the founder and chairman of Lumber Liquidators, a publicly traded company

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 1 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

with approximately 195 retail stores located throughout the United States. (See FAC ¶ 5.) 

Sullivan was an employee of Lumber Liquidators from 1997 until December 11, 2008. (See

Declaration of Kevin H. Sullivan (“Sullivan Decl.”) ¶ 2.) 

In 1998, Sullivan and Lumber Liquidators executed a stock option agreement. (See

FAC ¶ 8.) A dispute over the terms of the 1998 stock option agreement resulted in a

mediation between the parties in 2005. (See FAC ¶ 8). The mediation, in turn, resulted in

Sullivan and Lumber Liquidators’ entering into a Confidential Release and Settlement

Agreement (“the Settlement Agreement”) on August 1, 2005. (See id.; see also Declaration

of Farhad Aghdami (“Aghdami Decl.”) ¶ 2.) In conjunction with the Settlement Agreement,

Sullivan and Lumber Liquidators also entered into (1) an Employment, Confidentiality, and

Non-Competition Agreement (the “Employment Agreement”) (see Declaration of E.

Livingston B. Haskell, filed April 22, 2010, (“Haskell Decl.”) ¶ 3, Ex. 1A ) and (2) a Stock

Option Agreement (the “Option Agreement”) (see Haskell Decl. ¶ 3, Ex. 1B). The

Settlement Agreement, the Employment Agreement, and the Option Agreement all contain

choice-of-law provisions, selecting the law of the Commonwealth of Massachusetts, and

provide for arbitration in Boston, Massachusetts. (See Haskell Decl. ¶ 5, Ex. 1 ¶¶ 9, 10; id.

Ex. 1A ¶ 18, Ex. 1B ¶ 17.) 

The Employment Agreement prohibits Sullivan from (1) competing directly with

Lumber Liquidators for a period of two years following the end of his employment with

Lumber Liquidators (see Haskell Decl. Ex. 1A ¶ 7), (2) inducing Lumber Liquidators’

employees to terminate their relationships with Lumber Liquidators (see Haskell Decl. Ex.

1A ¶ 6(b)), and (3) using, disclosing, or copying confidential information (see Haskell Decl.

Ex. 1A ¶ 8). Additionally, the Employment Agreement contains an express provision (“the

Arbitration Provision”) that all disputes “arising out of or concerning the interpretation or

application of” said Agreement “shall be resolved timely and exclusively by final and binding

arbitration.” (See Haskel Decl. Ex. 1A ¶ 18.) Sullivan was represented by his own counsel

for the mediation as well as the negotiation and execution of the Settlement Agreement, the

Employment Agreement, and the Option Agreement. (See Affidavit of E. Livingston B.

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 2 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

Haskell, filed May 14, 2010 (“Haskell Aff.”) ¶ 5; see also Aghdami Decl. ¶¶ 6-11, Exs. 1, 2.) 

In December 2007, after Lumber Liquidators’ initial public offering of its stock,

Sullivan demanded arbitration with Lumber Liquidators in Boston, Massachusetts, over a

dispute regarding the amount of compensation he was due under the Option Agreement. 

(See Haskell Aff. ¶ 7.) In 2008, Sullivan filed a civil lawsuit against Lumber Liquidators and

several of its executives in Massachusetts Superior Court. (See Haskell Aff. ¶ 8.) The

substance of Sullivan’s civil suit was later added to the arbitration. (See id.) At the

conclusion of the arbitration, the arbitrator awarded Sullivan an after-tax total of 529,027

shares of Lumber Liquidators stock, which shares are currently worth over $15 million. 

(See Haskell Aff. ¶ 9.) 

On December 11, 2008, Lumber Liquidators terminated Sullivan’s employment. 

(See Declaration of Robert Morrison (“Morrison Decl.”) ¶¶ 13-15.) On the day of his

termination, Sullivan refused to return his company-issued laptop. (See Morrison Decl. ¶¶

16-21.) According to Lumber Liquidators, Sullivan later returned the laptop but copied its

contents before doing so. (See Morrison Decl. ¶ 23.) Thereafter, on January 20, 2009,

Sullivan founded a retail flooring business known as Wholesale Woodfloor Warehouse,

which directly competes with Lumber Liquidators. (See Sullivan Decl. ¶ 7, Exs. B, C). 

Wholesale Woodfloor Warehouse is a Nevada Corporation that presently operates retail

stores in Long Beach and Sacramento, California. (See FAC ¶ 3.) 

On March 5, 2010, Lumber Liquidators filed an arbitration demand with the American

Arbitration Association (“AAA”), seeking damages for alleged breach of the Employment

Agreement based on the above-referenced actions on the part of Sullivan (“the

Arbitration”). (See Sullivan Decl. ¶ 9; see also Haskell Decl. Ex. 4.) Thereafter, on March

15, 2010, Lumber Liquidators filed a civil action in Massachusetts Superior Court, seeking

interim relief pending resolution of the Arbitration. (See Sullivan Decl. ¶ 10, Ex. E; see also

Haskell Decl. Ex. 6.) On April 1, 2010, Sullivan filed in California, in San Francisco

Superior Court, a complaint for injunctive relief, seeking to enjoin Lumber Liquidators from

enforcing the non-competition clause contained in the Employment Agreement, and, on

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 3 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

April 5, 2010, a First Amended Complaint (“FAC”) was filed, adding Sullivan’s corporation,

Wholesale Woodfloor Warehouse, as a party plaintiff to said action. (See Declaration of E.

Livingston B. Haskell in Support of Removal, filed April 6, 2010, Ex. A.) On April 6, 2010,

Lumber Liquidators removed the action to federal district court on the basis of diversity

jurisdiction, pursuant to 28 U.S.C. § 1332. (See id.)

LEGAL STANDARD

Under the Federal Arbitration Act (“FAA”), arbitration agreements “shall be valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the

revocation of any contract.” See 9 U.S.C. § 2. The FAA “not only placed arbitration

agreements on equal footing with other contracts, but established a federal policy in favor

of arbitration.” See Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002). 

In determining the validity of an arbitration agreement, federal courts “‘apply ordinary

state-law principles that govern the formation of contracts.’” See id. at 892 (quoting First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). Thus, “general contract

defenses such as fraud, duress, or unconscionability, grounded in state contract law, may

operate to invalidate arbitration agreements.” Circuit City, 279 F.3d at 892. 

DISCUSSION

Sullivan does not dispute that he is a party to the Employment Agreement or that his

claims fall within the scope of the Arbitration Provision contained therein. Rather, Sullivan

argues, the Arbitration Provision is unenforceable. Specifically, Sullivan argues that the

choice-of-law provision contained in the Employment Agreement is, by its terms, applicable

only in the context of an arbitration or, at best, is ambiguous in that respect, and that even if

the choice-of-law provision is deemed applicable to the entire agreement, California law

applies to the instant action and the Arbitration Provision is unenforceable under California

law as unconscionable and in violation of California public policy. Lumber Liquidators, by

contrast, argues that Massachusetts law governs the Employment Agreement in its entirety

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 4 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 Sullivan makes no argument that the Arbitration Provision would be considered

unconscionable or otherwise unenforceable under Massachusetts law. 

5

and that, in any event, the Arbitration Provision is enforceable under California law.1

 As discussed below, even assuming California law applies, Sullivan fails to show

the Arbitration Provision is unconscionable or otherwise unenforceable thereunder.

A. Unconscionability

“California law, like federal law, favors enforcement of valid arbitration agreements.” 

See Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 97 (2000).

“[U]nder both federal and California law, arbitration agreements are valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in equity for the [rescission] of any

contract.” See id. at 98 & n.4. 

A party moving for arbitration “bears the burden of proving the existence of a valid

arbitration agreement by the preponderance of the evidence, and a party opposing the

[motion] bears the burden of proving by a preponderance of the evidence any fact

necessary to its defense.” See Bruni v. Didion, 160 Cal.App. 4th 1272, 1282 (2008)

(internal quotation and citation omitted). Unconscionability is one of several grounds upon

which a contract, including a contract to arbitrate, may be found unenforceable. See Cal.

Civ.Code § 1670.5(a); see also Szetela v. Discover Bank, 97 Cal.App. 4th 1094, 1099

(2002). Consequently, the party opposing arbitration has the burden of proving the

arbitration provision is unconscionable. See id.

Unconscionability includes both a “procedural” and a “substantive” element. See

Armendariz, 24 Cal. 4th at 114. The focus of the procedural element is on “oppression” or

“surprise.” See id. “‘Oppression’ arises from an inequality of bargaining power which

results in no real negotiation and ‘an absence of meaningful choice.’” A & M Produce Co.

v. F.M.C. Corp., 135 Cal.App. 3d 473, 486 (1982) (internal quotation and citation omitted). 

“‘Surprise’ involves the extent to which the supposedly agreed-upon terms are hidden in a

prolix printed form drafted by the party seeking to enforce them.” Id. “The procedural

element of an unconscionable contract generally takes the form of a contract of adhesion.” 

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 5 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

See Discover Bank v. Superior Court of L.A., 36 Cal. 4th 148, 160 (2005). Substantive

unconscionability focuses on whether the contract or provision thereof leads to “overly

harsh” or “one-sided” results. See Armendariz, 24 Cal. 4th at 114. To be unenforceable, a

contract must be both procedurally and substantively unconscionable. See id. 

California courts apply a “sliding scale” analysis in making determinations of

unconscionability: “the more substantively oppressive the contract term, the less evidence

of procedural unconscionability is required to come to the conclusion that the term is

unenforceable, and vice versa.” See Davis v. O'Melveny & Myers, 485 F.3d 1066, 1072

(9th Cir.2007) (quoting Armendariz, 24 Cal. 4th at 99). Thus, although both procedural and

substantive unconscionability must be present for the contract to be declared

unenforceable, they need not be present to the same degree. See Harper v. Ultimo, 113

Cal.App. 4th 1402 (2003). 

The validity of an arbitration clause, absent an express agreement “clearly and

unmistakably” reserving such issue for the arbitrator, is a question of law to be resolved by

the court. See Howsam v. Dean Whitter Reynolds, Inc., 537 U.S. 79, 83 (2002); Bruni, 160

Cal.App. 4th at 1283, 1286-88. Here, neither party has identified such an agreement. 

Accordingly, the Court next turns to the question of unconscionability. In determining that

issue, the Court “sits as a trier of fact, weighing all the affidavits, declarations, and other

documentary evidence, as well as oral testimony received at the court’s discretion, to reach

a final determination.” See id. (citing Engalla v. Permanente Medical Group, Inc., 15 Cal.

4th 951, 972 (1997). 

1. Procedural Unconscionability

Sullivan argues the Arbitration Provision of the Employment Agreement is

procedurally unconscionable (1) because Sullivan was required by Lumber Liquidators to

execute the agreement “as a condition of continued employment and to receive deferred

compensation” (see Pl.’s Opp’n at 9:15-22) and (2) because the Arbitration Provision

“incorporates by reference the National Rules for the Resolution of Employment Disputes of

the American Arbitration Association (“AAA Rules”) and fails to attach the rules for

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 6 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

Sullivan’s review, or to specify which version of the rules will apply.” (See Pl.’s Opp’n at

9:14-10:2). The Court finds Sullivan’s arguments unpersuasive. 

First, Sullivan fails to aver or otherwise offer evidence to demonstrate he had no

opportunity to negotiate the terms of the Arbitration Provision. Rather, he states he “did not

negotiat[e] the terms of the arbitration clause in paragraph 18.” (See Sullivan Decl. ¶ 6.) 

Such statement is, at best, ambiguous, particularly in light of the uncontroverted evidence

that Sullivan was represented by counsel in the negotiation and execution of all three of the

related agreements. (See Haskell Aff. ¶ 5; Aghdami Decl ¶ 6. ) Indeed, Lumber

Liquidators has offered evidence that Sullivan’s counsel “drafted portions of the

Employment Agreement on Sullivan’s behalf [and] made comments and negotiated

changes to the Employment Agreement on Sullivan’s behalf.” (See Aghdami Decl. ¶¶ 7-10,

Exs. 1, 2). Sullivan has submitted no evidence in contradiction thereof. 

Moreover, even if Lumber Liquidators insisted on inclusion of the Arbitration

Provision, the taking of such position under the circumstances pertaining, namely, in the

course of negotiations over a global resolution of the parties’ disputes concerning their past

and continuing relationship, would not serve to render such provision unconscionable or

otherwise unenforceable under California law. Clearly, neither the Employment Agreement

nor any provision therein constitutes a contract of adhesion. See Circuit City Stores v.

Adams, 279 F.3d 889, 893 (2002) (defining contract of adhesion, under California law, as

“standard-form contract, drafted by the party with superior bargaining power, which

relegates to the other party the option of either adhering to its terms without modification or

rejecting the contract entirely”); see, e.g., Szetela, 97 Cal.App. 4th at 1100 (finding

arbitration clause contained in amendment to cardholder agreement constituted

procedurally unconscionable “bill stuffer”). Sullivan cites to no authority in which a party’s

insistence on the inclusion of any particular term in a negotiated agreement, whether such

term concerns arbitration or otherwise, has resulted in a finding of procedural

unconscionability. Cf. Pokorny v. Quixtar, 601 F.3d 987, 991, 997 (9th Cir. 2010)

(upholding finding of procedural unconscionability where form “registration agreement”

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 7 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

contained form arbitration clause; citing prior authority finding “standardized contract”

unconscionable). 

Sullivan’s argument that the Arbitration Provision is procedurally unconscionable

because it “merely incorporates by reference” the AAA Rules (see Pl.’s Opp’n at 9:7-13)

likewise finds no support in the authority on which Sullivan relies, in this instance, Harper v.

Ultimo, 113 Cal.App. 4th 1402, 1406-07 (2003). As Lumber Liquidators points out, the

rules at issue in Harper not only were incorporated by reference but also limited the

substantive remedies available to the plaintiffs therein, precluding those plaintiffs from

“obtaining tort damages, punitive damages, or any other damages otherwise appropriate in

a court of law.” See id. at 1405. Here, by contrast, Sullivan has made no showing that the

AAA Rules referenced by the Employment Agreement limit his available remedies or

otherwise restrict the scope of his claims. Nor, as distinguished from Harper, is there any

element of surprise. See id. at 1405-06 (noting where customer given “preprinted” contract

providing that controversies thereunder were to be settled in accordance with Better

Business Bureau Arbitration Rules, “customer must inevitably receive a nasty shock when

he or she discovers that no relief is available even if out and out fraud has been

perpetrated”); see also Sullenberger v. Titan Health Corp., 2009 WL 1444210, at *8 (E.D.

Cal. 2009) (rejecting argument that arbitration agreement was procedurally unconscionable

because it “provide[d] that the rules of the American Arbitration Association [would] govern,

but [did] not provide a copy of those rules”; noting “plaintiff ha[d] not shown that the [AAA

rules], referenced in the arbitration agreement, contain provisions that are unfair or

inequitable”). 

Nor is the Court persuaded by Sullivan’s argument that the Arbitration Provision is

unenforceable because it does not specify whether the AAA Rules to be applied are to be

those in effect at the time of execution or those in effect at the time of any claimed breach. 

Although the Harper court did find the unfairness resulting from the above-referenced

“artfully hidden” limitation on relief was compounded by the potential that the Better

Business Bureau’s rules might change, the Ninth Circuit, in so finding, observed that those

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 8 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

 As set forth in Armendariz, in accordance with the “basic principle of nonwaivability

of statutory civil rights,” an arbitration agreement applicable to a statutory claim of such

nature “is lawful if it (1) provides for neutral arbitrators, (2) provides for more than minimal

discovery, (3) requires a written award, (4) provides for all types of relief that would

otherwise be available in court, and (5) does not require employees to pay either

unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the

arbitration forum.” See id. (quoting Cole v. Burns Intern. Security Services, 105 F.3d 1465

(D.C. Cir. 1997).

9

rules were “not just procedural ones” but, rather, had “the effect of substantively limiting the

defendant’s exposure.” See id. at 1406-07 (emphases in original).

Lastly, Sullivan’s argument that the Arbitration Provision is procedurally

unconscionable because “there was [no] clear communication” that opting out of the

Arbitration Provision “would have no effect on his employment relationship” (see Pl.’s Opp’n

at 9:20-22) fares no better. The case on which Sullivan appears to rely for such proposition,

Circuit City Stores, Inc. v. Najd, 294 F.3d 1104 (9th Cir. 2002), is distinguishable, as the

contract at issue therein was not negotiated. See id. at 1106 (noting employer “distributed 

packet of materials to the stores employees which included a Dispute Resolution

Agreement” containing arbitration clause). 

2. Substantive Unconscionability

Sullivan offers no evidence of any overly-harsh or one-sided result arising from the

enforcement of the Arbitration Provision. Instead, Sullivan argues that the Arbitration

Provision fails to comply with certain requirements established by the California Supreme

Court in Armendariz. See Armendariz, 24 Cal. 4th at 102.2 Sullivan’s reliance on such

authority is unavailing, however, as Armendariz concerned the arbitration of nonwaivable

“statutory civil rights.” See id. As discussed therein, when a plaintiff seeks to vindicate

nonwaivable statutory rights, such as those created by such anti-discrimination statutes as

California’s Fair Employment and Housing Act (“FEHA”), the above-referenced

requirements serve to ensure that those rights and protections are not dissipated by the

lack of a judicial forum. See id. (noting “beneficiaries of public statutes are entitled to the

rights and protections provided by law”) (internal quotation and citation omitted); see also

Mercuro v. Superior Court, 96 Cal.App. 4th 167, 179 (2002) (applying Armendariz

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 9 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

 As noted, the Employment Agreement was executed in August 2005.

10

requirements to arbitration of claims brought under California Labor Code §§ 230.8 and

970). Sullivan cites to no authority holding such requirements are more broadly applicable. 

Moreover, as set forth below, not only has Sullivan failed to provide legal authority in

support of his argument, two of the three factual underpinnings thereof find no support in

the instant record. 

Sullivan argues the Arbitration Provision (1) “does not require a written award,” (2)

“does not provide for all types of relief that would otherwise be available in court,” and (3)

“requires [Sullivan] to ‘share equally all costs of arbitration.’” (See Pl.’s Opp’n at 10:21-24.) 

In that regard, the Court first notes that Sullivan, in support of his first two assertions,

neither provides nor cites to any part of the AAA Rules in effect either in 20053 or at

present. Moreover, the relevant AAA rules, available for judicial notice, require that the

arbitrator’s award be in writing. See AAA National Rules for the Resolution of Employment

Disputes, effective January 1, 2004 (“2004 Rules”), Rule 34.c, available at

http://www.adr.org/sp.asp?id=26405#n34 (providing “[t]he award shall be in writing”); AAA

Employment Arbitration Rules and Mediation Procedures, effective November 1, 2009

(“2009 Rules”), Rule 39.d, available at http://www.adr.org/sp.asp?id=32904#39, (providing

“[t]he award shall be in writing”). Next, Sullivan offers no evidence to support his assertion

that the AAA Rules either did not or currently do not provide for all types of relief that

otherwise would be available in district court. Indeed, to the contrary, the relevant AAA

rules provide for all relief available under the law. See 2004 Rules, Rule 34.d (providing

“[t]he arbitrator may grant any remedy or relief that the arbitrator deems just and equitable,

including any remedy or relief that would have been available to the parties had the matter

been heard in court”); 2009 Rules, Rule 39.d (providing “[t]he arbitrator may grant any

remedy or relief that would have been available to the parties had the matter been heard in

court including awards of attorney's fees and costs, in accordance with applicable law”). 

Lastly, although the Arbitration Provision requires the parties to “share equally in all costs of

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 10 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

arbitration” (see Haskell Decl. Ex. 1A at ¶ 18), Sullivan offers no argument or evidence

indicating how such provision would be substantively unconscionable under the

circumstances pertaining. See Armendariz, 24 Cal. 4th at 102 (precluding enforcement of

arbitration agreement where employee required to pay “unreasonable costs”). 

3. Conclusion as to Unconscionability

Accordingly, for the reasons stated above, Sullivan has failed to show the Arbitration

Provision in the Employment Agreement is unenforceable as unconscionable. 

B. Waiver

Sullivan next argues the Arbitration Provision is unenforceable because Lumber

Liquidators has waived its right to arbitration. 

“[W]here a contract provides that arbitration may be demanded within a stated time,

failure to make demand within that time constitutes a waiver of the right to arbitrate.” See

Platt Pacific, Inc. v. Andelson, 6 Cal. -4th 307, 313 (1993) (denying motion to compel;

finding plaintiff had waived right to arbitration by failing to timely demand arbitration

pursuant to terms of arbitration agreement). 

Here, Sullivan argues Lumber Liquidators has waived its right to arbitration by not

making its demand for arbitration “within thirty days of the events alleged.” (See Pl.’s Opp’n

at 13:7-9.) Sullivan’s argument is unpersuasive. As Lumber Liquidators points out, the

Arbitration Provision does not require Lumber Liquidators to make a demand for arbitration

within thirty days of the events giving rise to Lumber Liquidators’ claims, but, rather,

requires Lumber Liquidators to make such demand within thirty days of the parties’ failure

to resolve their dispute through mediation. (See Haskell Decl. Ex. 1A at ¶ 18.) 

Specifically, the Arbitration Provision states, in relevant part: 

Prior to arbitration of any dispute, the parties agree to attempt to settle the

dispute with the assistance of a mutually agreed upon mediator. If the

parties cannot resolve the dispute through mediation, then arbitration must

be demanded within 30 calendar days or the time when the demanding

party knows or should have known of the event or events giving rise to the

claim.

(See id.) (emphasis added).

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 11 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

The Arbitration Provision thus makes clear that attempted mediation of a known

dispute is a condition precedent to starting the thirty-day clock for filing a demand for

arbitration. Sullivan makes no showing that Lumber Liquidators’ demand for arbitration was

made more than thirty calendar days after the parties’ failure to resolve their dispute

through mediation. 

Accordingly, Sullivan has failed to show Lumber Liquidators waived its right to

arbitration under the Employment Agreement. 

C. Available Relief 

Lumber Liquidators seeks an order of dismissal on the ground that “the same issues

. . . are already before the AAA and the state court” in Massachusetts. (See Def.’s Reply at

9:9-13; see also Haskell Decl. Ex. 6.) In particular, Lumber Liquidators, relying on the

Declaratory Judgment Act, 28 U.S.C. § 2201, and Brillhart v. Excess Ins. Co. of America,

316 U.S. 491, 495 (1942), argues, the Court has discretion both to abstain from exercising

jurisdiction over and to dismiss the instant action in its entirety. See id. at 494-95

(recognizing district court’s discretion as to whether to exercise jurisdiction under

Declaratory Judgment Act; setting forth relevant considerations and noting “[g]ratuitous

interference with the orderly and comprehensive disposition of a state court litigation should

be avoided”). 

Lumber Liquidators’ reliance on the above-referenced authority is misplaced, as

Sullivan, by the instant action, seeks not only declaratory relief but also an award of

monetary damages. (See FAC at 8:12-14.) Neither the Declaratory Judgment Act nor

Brillhart encompasses claims of such nature. See Brillhart, 316 U.S. at 493, 495

(describing suit therein as one for “declaratory judgment”; noting federal court ordinarily

should not “proceed in a declaratory judgment suit” where parties litigating same state law

issues in state court); see, e.g., Burlington Ins. Co. v. Devdhara, 2009 WL 2901624, at *4

(N.D. Cal. 2009) (declining to abstain under Brillhart where plaintiffs brought damages

claims; noting Brillhart “only applies to pure declaratory judgment actions”). Rather,

“federal courts may stay actions for damages based on abstention principles, but those

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 12 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

principles do not support the outright dismissal or remand of damages actions.” See

Quakenbush v. Allstate Ins. Co., 517 U.S. 706, 707 (1996). 

Accordingly, the Court declines to dismiss the FAC and will stay the proceedings

pending resolution of the Arbitration in the Commonwealth of Massachusetts. 

CONCLUSION

For the reasons stated, defendant’s motion is hereby GRANTED in part and

DENIED in part as follows:

1. To the extent Lumber Liquidators seeks an order dismissing the instant

action, the motion is DENIED.

2. To the extent Lumber Liquidators seeks in the alternative an order staying

the instant action, the motion is GRANTED and the above-titled action is hereby stayed

pending resolution of the above-referenced Arbitration; 

3. The parties are directed to file a Joint Status Report no later than

December 3, 2010 and every six months thereafter, apprising the Court as to the status of

the proceedings in the Massachusetts litigation. 

IT IS SO ORDERED.

Dated: June 2, 2010 

MAXINE M. CHESNEY

United States District Judge

Case 3:10-cv-01447-MMC Document 18 Filed 06/02/10 Page 13 of 13