Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03190/USCOURTS-cand-3_05-cv-03190-9/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.: Employee Benefits

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United States District Court

For the Northern District of California

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The facts surrounding Carr’s disability claim are alleged as follows: Carr claims that

she became unable to perform her regular occupation due to disability around the time of her

August 28, 2001 termination. The Social Security Administration later determined that Carr

became disabled under Social Security rules on August 27, 2001. Carr was seen by a treating

physician for varying complaints, including joint aches, fatigue, rash, headaches, and neck

pain, between February and August 2001. Carr’s treating physician referred her to a

rheumatologist. On October 24, 2001, the rheumatologist diagnosed Carr with fibromyalgia,

a chronic disorder causing muscle and joint pain as well as fatigue, and Sjogren’s syndrome,

an autoimmune disease that may also cause fatigue and whose characteristic symptoms are

dry eyes and dry mouth.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ANITA B. CARR,

Plaintiff,

v.

LIBERTY LIFE ASSURANCE

COMPANY, et al.,

Defendants.

NO. C05-3190 TEH 

ORDER GRANTING

PLAINTIFF’S MOTION TO

COMPEL ARBITRATION

This matter came before the Court on Monday, June 12, 2006, on Plaintiff Anita

Carr’s (“Carr’s”) motion to compel arbitration against Defendant Liberty Life Assurance

Company (“Liberty”). After carefully considering the parties’ written and oral arguments

and governing law, the Court now GRANTS Carr’s motion for the reasons discussed below.

BACKGROUND

This case arises out of Carr’s claim that she was improperly denied long-term

disability benefits.1

 Carr began working as a database manager for Providian Bancorp

Services (“Providian”) in October 1998. On October 19, 1998, Carr signed an employment

agreement with Providian that provided, among other terms, for binding arbitration of

employment disputes:

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BINDING ARBITRATION – ATTORNEYS’ FEES. In case of

any dispute or disagreement arising out of or in any way related

to this Agreement, your employment with us or the termination of

your employment (including, but not limited to, claims of

discrimination, harassment, wrongful discharge, breach of

contract, tortious conduct, statutory violations or unpaid wages or

benefits), you and the Company agree to submit the dispute or

disagreement to binding arbitration before JAMS/Endispute or its

successor, pursuant to the United States Arbitration Act. The

rules of JAMS/Endispute then in effect and applicable to the

resolution of such disputes or disagreements shall apply, except

as set forth in this paragraph. The rules of evidence shall apply to

the arbitration, and any decision or award by the arbitrator shall

be final, binding, and non-appealable, except in cases of gross

fraud or misconduct by the arbitrator. The arbitrator may award

the prevailing party his, her or its reasonable attorneys’ fees,

costs and expenses incurred in the arbitration, consistent with

applicable law, including the fees, costs and expenses charged by

the arbitrator and JAMS/Endispute. By agreeing to this

provision, you acknowledge and agree that you are waiving any

right you may have to a jury trial of all disputes or disagreements

described above and that you are giving up your rights to

discovery and appeal except to the extent that they are

specifically provided for above.

Ex.1 to Compl. at CF000102-03. Carr’s employment agreement with Providian further

contained a “COMPENSATION AND BENEFITS” paragraph that explained that

“[d]escriptions of PTO [paid time off], as well as other Company-sponsored benefits and

their eligibility requirements, are provided in a benefits booklet that you will receive

separately. Please note that the Company may modify your compensation and benefits from

time to time as it deems appropriate.” Id. at CF000101.

Providian terminated Carr’s employment on August 28, 2001, but agreed to maintain

Carr’s status as an active employee, including paying her a regular salary and health and

retirement benefits, until a separation date of November 28, 2001. Carr signed a severance

agreement to that effect on September 21, 2001. The severance agreement contained a

general release provision that applied to all claims against Providian, “its parent, subsidiaries

and affiliates, and their officers, directors, employees and agents, and all others . . . arising

out of or in any way related to agreements, events, acts or conduct at any time prior to and

including the date of this release, including but not limited to all claims or demands directly

or indirectly arising out of or in any way connected with [her] employment, benefits, and/or

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Liberty bases this refusal on its belief that the costs of arbitration would be greater

than the costs of litigation. Carr apparently intends to seek extensive discovery relating to

Carr’s medical condition and the basis for Liberty’s claim determination as part of the

arbitration process. Liberty believes that such discovery would be barred in this Court and

that the Court’s review of those issues would be limited to the administrative record. The

permissible scope of discovery is not before the Court at this time, but the Court notes this

disagreement as the proffered explanation for Liberty’s refusal to consent to arbitration.

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compensation with [Providian].” Id. at CF000094. However, Carr alleges that she never

intended to waive her rights to a long-term disability claim when she signed the release. She

further claims that she was unable to negotiate the terms of the severance agreement and

general release and would not have signed them had she known she was relinquishing her

right to file a disability claim.

Carr originally sued two entities: Providian, her former employer, and Liberty, the

provider of long-term disability benefits under Providian’s group disability insurance policy. 

Carr added Providian Financial Health Plan (“Plan”) as a defendant in her first amended

complaint. On November 28, 2005, both Providian and the Plan moved to dismiss all claims

against them on grounds that Carr’s employment agreement with Providian required Carr to

arbitrate such claims. Carr did not oppose that motion, and the Court accordingly dismissed

all claims against Providian and the Plan from this case on January 10, 2006.

Carr now seeks to compel arbitration of her claims against Liberty so that all of her

claims may be resolved in a single forum. However, because Liberty has already filed an

answer, Carr cannot voluntarily dismiss this case; instead, under Federal Rule of Civil

Procedure 41(a), the case may only be dismissed by stipulation or by order of the Court. 

After the parties met and conferred, Liberty refused to agree to arbitration.2

 Carr

subsequently filed the pending motion to compel arbitration against Liberty. Liberty

acknowledges that “courts have found arbitration agreements to be valid and binding with

respect to resolving disputes that arise under ERISA in certain circumstances,” but the

company argues that those circumstances are not present here because Liberty was not a

signatory to the contract containing the arbitration agreement. Opp’n at 5.

DISCUSSION

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To establish waiver, Liberty would have to show: (1) that Carr knew of her right to

arbitrate; (2) that she acted inconsistently with that right; and (3) that Liberty suffered

prejudice from Carr’s delay in moving to compel arbitration. United Computer Sys., Inc. v.

AT & T Corp., 298 F.3d 756, 765 (9th Cir. 2002). Although the first two prongs appear to be

satisfied here, Liberty has made no showing (or even claim) of prejudice, thus failing to

satisfy the third prong of the waiver analysis. See id. (finding that substantial litigation costs,

including costs on appeal, were insufficient to establish prejudice where the court

proceedings never went past the pleadings stage).

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This case comes before the Court in a unique procedural posture in that Carr

originally chose to file suit in this forum but now wants to move the case to arbitration. 

Typically, the moving party on a motion to compel is a party seeking a change in forum after

being involuntarily brought into court. Nonetheless, Liberty does not assert that Carr is

barred from moving to compel arbitration because she initially chose to litigate her claims in

this Court, nor does it appear that such a waiver argument would be persuasive.3

Turning to the merits of the motion, Carr raises three main arguments, only the third

of which has any merit. First, Carr argues that Liberty cannot attempt to rely on the

severance agreement and at the same time assert that it is not bound by the arbitration clause

in the employment agreement. However, Carr specifically agreed in the severance agreement

to release claims against Providian and its “affiliates, and their officers, directors, employees

and agents, and all others,” whereas the arbitration clause in the employment agreement

referred only to Carr and Providian and made no mention of affiliates or agents. Compare

Ex. 1 to Compl. at CF000094 (general release contained in severance agreement) with id. at

CF000101-03 (employment agreement). Consequently, it is not inconsistent for Liberty to

attempt to rely on the severance agreement while simultaneously arguing that it is not bound

by the employment agreement.

Second, Carr argues that it would be fundamentally unfair to force her to both

arbitrate and litigate her claims. As Liberty points out, however, any unfairness that results

from having two forums is of Carr’s own making. Carr agreed to arbitrate her claims against

Providian and the Plan while her claims against Liberty remained pending before this Court –

where they began because Carr initially chose to file suit in this forum.

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Notably, neither Liberty nor Carr cited Britton in their papers; instead, the Court

uncovered the case in its own research and, on April 10, 2006, ordered the parties to be

prepared to discuss the case at oral argument. During the hearing, both parties conceded that

Britton set forth the critical question in this case and remains good law.

The two Ninth Circuit cases cited by Carr are inapposite on the agency question. 

First, the party seeking to compel arbitration in Comer only argued that Comer was bound by

the arbitration clauses as a matter of equitable estoppel and as a third-party beneficiary, not

as an agent of a signatory. Comer, 436 F.3d at 1101. Second, in Letizia v. Prudential Bache

Securities, Inc., 802 F.2d 1185 (9th Cir. 1986), the Ninth Circuit never explicitly applied

agency principles and instead determined that the nonsignatories seeking to compel

arbitration could do so as third-party beneficiaries: “All of the individual defendants’

allegedly wrongful acts related to their handling of Letizia’s securities account. Bache has

clearly indicated its intention to protect its employees through its Customer Agreement

[which contained an arbitration clause]. We conclude that the arbitration clause is applicable

to Kwee and Selbst [the individual defendant-employees].” Letizia, 802 F.2d at 1188; see

also Britton, 4 F.3d at 745-48 (considering, as two separate questions, whether the parties to

a contract intended to benefit a third party and whether a nonsignatory agent may invoke the

right to arbitrate contained in a contract signed by the agent’s principal). Here, by contrast,

Carr has presented no evidence that Providian clearly indicated its intention to protect thirdparty providers of employee benefits under the arbitration clause. 

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Carr’s third argument, however, is persuasive, and it is on this basis that the Court

grants Carr’s motion. In general, a party is not bound by an arbitration agreement it did not

sign, but a nonsignatory may be bound by an agreement to arbitrate under “ordinary contract

and agency principles.” Comer v. Micor, Inc., 436 F.3d 1098, 1101, 1103-04 & n.10 (9th

Cir. 2006). These principles include incorporation by reference, assumption, agency, veilpiercing or alter ego, estoppel, and third-party beneficiary rules. Id. at 1101 (citations

omitted). Here, Carr contends that Liberty was Providian’s agent for handling disability

claims and that, as such, Liberty is therefore bound by the arbitration clause in the

employment agreement between Providian and Carr. At oral argument, Liberty made clear

that it does not contest that it was Providian’s agent.

Instead, Liberty argues that Carr has not met the standard for binding agents to

arbitration agreements signed by their principals. In Britton v. Co-op Banking Group, the

Ninth Circuit held that an arbitration clause applies to a nonsignatory agent if the “alleged

wrongdoing as agent . . . relate[s] to or arise[s] out of the contract containing the arbitration

clause.”4

 4 F.3d 742, 747 (9th Cir. 1993); see also Pritzker v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993) (“Because a principal is bound under the

terms of a valid arbitration clause, its agents, employees and representatives are also covered

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under the terms of such agreements.”). In Britton, the Ninth Circuit concluded that the

nonsignatory agent could not invoke the arbitration agreement in a sales contract between

plaintiffs and the agent’s principal because the “sum and substance of [the allegations against

the agent] are that he in some way attempted to defraud the investors into not pursuing their

law suits against the persons who originally sold the securities under the contract. These acts

are subsequent, independent acts of fraud, unrelated to any provision or interpretation of the

contract.” Britton, 4 F.3d at 748.

In this case, by contrast, the alleged acts of wrongdoing are not “independent acts”

that are “unrelated to any provision or interpretation of the contract.” Id. As Liberty argued

at the hearing, Liberty’s potential liability may arise out of the long-term disability plan at

issue in this case; this potential additional basis for liability, however, does not alter the

inescapable conclusion that the company’s alleged wrongdoing also “relate[s] to or arise[s]

out of” Carr’s employment agreement with Providian. Id. at 747. Carr alleges that Liberty is

liable for failing to pay long-term disability benefits, which was a term of Carr’s

employment. More significantly, Carr’s employment agreement with Providian contains a

“compensation and benefits” clause, and Liberty’s potential liability to Carr thus relates to or

arises out of that agreement. Under the test set forth by the Ninth Circuit in Britton, Liberty

is therefore bound by the arbitration clause in Carr’s employment agreement as an agent of

Providian.

CONCLUSION

In sum, although parties are not generally bound by arbitration clauses contained in

contracts they did not sign, a nonsignatory may be bound under such a clause according to

“ordinary contract and agency principles.” Comer, 436 F.3d at 1104 n.10. The Ninth Circuit

discussed one such principle in Britton, which held that the relevant question in determining

whether a nonsignatory agent is bound by an arbitration clause is whether any of the agent’s

alleged wrongdoing “relate[s] to or arise[s] out of the contract containing the arbitration

clause.” 4 F.3d at 747. Because Liberty concedes that it was Providian’s agent for purposes

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of providing long-term disability benefits to Providian employees, and because Liberty’s

alleged wrongdoing stems from the provision of such benefits under the employment

agreement’s compensation and benefits clause, the Court finds the Britton test to be satisfied

here. Accordingly, with good cause appearing, the Court hereby GRANTS Carr’s motion to

compel arbitration of her claims against Liberty. This ruling resolves all issues remaining

before the Court in this case, and the Clerk shall therefore close the file.

IT IS SO ORDERED.

Dated: 06/22/06 

THELTON E. HENDERSON, JUDGE

UNITED STATES DISTRICT COURT

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