The opinion of the court was delivered by: Chief Judge Kane
Pending before the Court is Plaintiffs' petition to compel arbitration and stay related state court proceedings. (Doc. No. 1.) Defendants Daniel and Matthew Pardine filed a brief in opposition to Plaintiffs' petition on June 27, 2011. (Doc. No. 30.) Plaintiffs filed a reply brief on July 7, 2011. (Doc. No. 31.) For the reasons that follow, the Court will grant Plaintiffs' petition.
This case concerns two former employees of Plaintiff Insurance
Newsnet.com ("INN"). INN terminated Defendants'*fn1
employment on November 22, 2010. On January 10, 2011, Defendants filed
an action against Plaintiffs in the Superior Court of New Jersey. In
the New Jersey complaint, Defendants alleged claims of breach of
contract, breach of implied covenant of good faith and fair dealing,
wrongful discharge under New Jersey's Conscientious Employee
Protection Act ("CEPA"), common law wrongful discharge, unjust
enrichment, fraudulent inducement, and assault. On February 10, 2011,
pursuant to the Federal Arbitration Act, 9 U.S.C. § 4 ("FAA"), Plaintiffs filed the present petition to compel
arbitration and stay related state court proceedings.*fn2
(Doc. No. 1.) Plaintiffs alleged that Defendants were in
violation of paragraph 16 of their employment agreements, which states
that any claim or controversy arising out of or relating to the
employment agreements is to be settled by arbitration.
Plaintiffs filed demands for arbitration with the American Arbitration Association ("AAA"). The demands for arbitration concerned Defendants' alleged breaches of paragraphs 10 and 11 of their employment agreements (including a covenant not to compete and a non-disclosure provision) as well as Defendants' claims in their complaint filed with the Superior Court of New Jersey. On April 1, 2011, the Superior Court of New Jersey granted a stay of seven of the twelve counts contained in Defendants' complaint against Plaintiffs, pending this Court's disposition of Plaintiffs' motion to compel arbitration. (Id. ¶ 7.) The Superior Court did not stay Defendants' claims for wrongful discharge under CEPA, common law wrongful discharge, and assault ("non-contract claims"). (Id.) Plaintiffs have appealed this "limited stay order" to the New Jersey Superior Court Appellate Division. (Doc. No. 31 at 2.) Defendants have filed a request for entry of default judgment on the five claims not stayed by the Superior Court of New Jersey. (Doc. No. 30 at 8; Doc. No. 31 at 2.)
In the meantime, arbitration has begun. (Doc. No. 30 at 1; Doc. No. 21 at 2.) The parties agree that Defendants' contract claims are subject to arbitration. (Id.) The parties also agree that the arbitration clause in Defendants' employment agreements clearly and unmistakably delegates the determination of arbitrability of Defendants' claims to the arbitrator. (Doc. No. 30 at 2; Doc. No. 31 at 5.) Indeed, the parties are currently briefing the issue of arbitrability of Defendants' non-contract claims before the arbitrator, and the arbitrator is scheduled to render a decision on the scope of the arbitration no later than August 12, 2011. (Doc. No. 30-1 at 1.)
Section 4 of the FAA provides that a party may seek an order compelling arbitration in a federal district court which would have jurisdiction over a suit on the underlying dispute. 9 U.S.C. § 4. The Court would have jurisdiction on the underlying dispute because there is complete diversity between the parties and the amount in controversy in the underlying state court action exceeds $75,000. (Doc. No. 1 ¶ 1; Doc. No. 1-3 at 16.)
Upon consideration of a petition to compel arbitration,*fn3
a court applies a standard analogous to that applied to a motion for summary judgment. Par-Knit
Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir.
1980). Accordingly, the court may consider the pleadings, documents of
uncontested validity, and affidavits or depositions submitted by the
parties. Id. While Section 4 of the FAA states that "[t]he Court shall
hear the parties . . .", courts have held that Section 4 does not
require an evidentiary hearing where there is an absence of disputed
facts. See Armstrong Assocs. Int'l Holdings Corp., No. 06-11177, 2007
WL 2114512, at *4 (5th Cir. July 24, 2007); Marks 3-Zet-Ernst Mark
Gmbh & Co. KG v. Presstek, Inc., 455 F.3d 7, 14 (1st Cir. 2006);
Cincinnati Gas & Elec. Co. v. Benjamin F. Shaw Co., 706
F.2d 155, 159 (6th Cir. 1983). Because there are no disputed facts,
the Court declines to hold an evidentiary hearing. See Mowbray v.
Moseley, Hallgarten, Estabrook & Weeden, Inc., 795 F.2d 1111, 1115 n.7
(1st Cir. 1986).
In their petition, Plaintiffs ask the Court to compel Defendants to arbitration and stay the New Jersey action. The Court will address each issue in turn.
A. Petition to Compel Arbitration
The FAA establishes a strong federal policy in favor of arbitration. Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010). When adjudicating a motion to compel arbitration, the Court must address two issues: (1) whether the parties have entered into a valid written agreement to arbitrate, and (2) whether the dispute in question falls within the scope of that agreement. Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005); Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 202 (3d Cir. 2001).
As to part one of the two-step inquiry, the parties do not dispute that Defendants' employment agreements contain a valid written agreement to arbitrate. Paragraph 16 of Defendants' employment agreements states, in pertinent part, that "[a]ny controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration in the appropriate jurisdiction as determined by Company, in accordance with the rules of the American Arbitration Association then in effect." (Doc. No. 1-1 ¶ 16.) The party seeking to avoid arbitration bears the burden of proving the invalidity of an arbitration agreement. Green Tree Fin. Corp. v. Randolph, 531 ...