Texas Brine Company, LLC v. American Arbitration Association, Inc. et al, No. 2:2018cv06610 - Document 80 (E.D. La. 2018)

Court Description: ORDER AND REASONS - IT IS ORDERED that the Motions for Judgment on the Pleadings filed by Charles Minyard (Rec. Doc. 12 ), Anthony DiLeo (Rec. Doc. 13 ), and American Arbitration Association (Rec. Doc. 14 ) are GRANTED, as set forth in document. Plaintiff Texas Brine's claims are DISMISSED WITH PREJUDICE. Signed by Judge Sarah S. Vance on 11/2/2018. (sa)
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Texas Brine Company, LLC v. American Arbitration Association, Inc. et al Doc. 80 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA TEXAS BRINE COMPANY, LLC VERSUS CIVIL ACTION NO. 18-6610 AMERICAN ARBITRATION ASSOCIATION, INC., ET AL SECTION “R” (5) ORD ER AN D REASON S Before the Court are m otions for judgm ent on the pleadings filed by defendant Am erican Arbitration Association (AAA), defendant Anthony DiLeo, and defendant Charles Minyard. 1 The court grants these m otions because defendants’ arbitral im m unity bars suit against them , and because vacatur is the exclusive remedy for them to challenge the arbitration award under the Federal Arbitration Act (FAA). I. BACKGROU N D This case arises out of an arbitration dispute. 2 Plaintiff Texas Brine Com pany entered into arbitration with Occidental Chemical Corporation, the owner of one of the brine wells that it operated, after a sink hole caused 1 R. Doc. 14; R. Doc. 13; R. Doc. 12. R. Doc. 1 at 5 ¶ 11. For a m ore detailed account of the facts of this case, see R. Doc. 73. 2 Dockets.Justia.com significant dam age in 20 12. 3 In February of 20 18, Texas Brine sought to disqualify defendants DiLeo and Minyard, two of the arbitrators on the arbitration panel presiding over the dispute, for undisclosed conflicts of interest. 4 A Louisiana state court vacated the panel’s substantive rulings, issued before Texas Brine learned of the conflict, on J une 19, 20 18. 5 Texas Brine then filed this suit in Louisiana state court on J uly 6, 20 18. 6 It sought to recover its arbitration costs and the costs from the state court litigation challenging the arbitration award due to DiLeo and Minyard’s alleged conflicts of interest. 7 It also named the AAA as a defendant for its role in appointing the allegedly conflicted arbitrators and for refusing to remove DiLeo from plaintiff’s arbitration panel, allegedly in violation of its ethics policies. 8 On J uly 10 , 20 18, the AAA rem oved this action to federal court. 9 Defendants now seek judgment on the pleadings on the basis of arbitral im m unity and the FAA. 10 3 4 5 6 7 8 9 10 R. Doc. 1-1 at 4-5 ¶¶ 15-18. Id. at 21 ¶ 76. Manual Attachm ent to R. Doc. 1 at 78. R. Doc. 1-1 at 1. Id. at 30 -31 ¶¶ 112-18. Id. at 22 ¶ 81. R. Doc. 1. R. Doc. 12; R. Doc. 13; R. Doc. 14. 2 II. LEGAL STAN D ARD A m otion for judgm ent on the pleadings under Federal Rule of Civil Procedure 12(c) is appropriate if the m atter can be adjudicated by deciding questions of law rather than factual disputes. Brittan Com m c’ns Int’l Corp. v. Sw . Bell Tel. Co., 313 F.3d 899, 90 4 (5th Cir. 20 0 2). It is subject to the same standard as a m otion to dism iss under Rule 12(b)(6). Doe v. My Space, Inc., 528 F.3d 413, 418 (5th Cir. 20 0 8). To survive a Rule 12(b)(6) m otion to dism iss, the plaintiff m ust plead enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Tw om bly , 550 U.S. 544, 570 (20 0 7). A claim is facially plausible when the plaintiff pleads facts that allow the court to “draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (20 0 9). The Court m ust look only to the pleadings, Brittan, 313 F.3d at 90 4, and exhibits attached to the pleadings, see Voest-Alpine Trading USA Corp. v. Bank of China, 142 F.3d 887, 891 n. 4 (5th Cir. 1998). A court m ust accept all wellpleaded facts as true and m ust draw all reasonable inferences in favor of the plaintiff. Lorm and v. U.S. Unw ired, Inc., 565 F.3d 228, 239 (5th Cir. 20 0 9). But the Court is not bound to accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678. 3 A legally sufficient com plaint m ust establish m ore than a “sheer possibility” that plaintiff’s claim is true. Id. It need not contain detailed factual allegations, but it m ust go beyond labels, legal conclusions, or form ulaic recitations of the elements of a cause of action. Id. In other words, the face of the com plaint m ust contain enough factual m atter to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiff’s claim . Lorm and, 565 F.3d at 257. If there are insufficient factual allegations to raise a right to relief above the speculative level, or if it is apparent from the face of the com plaint that there is an insuperable bar to relief, the claim m ust be dism issed. Tw om bly , 550 U.S. at 555. III. D ISCU SSION A. Arbitral Im m u n ity Defendants argue that Texas Brine’s claim s against all defendants are barred by arbitral im m unity. Arbitral im m unity, an absolute im m unity related to judicial im m unity, applies to arbitrators because their role “is functionally equivalent to a judge’s role.” Olson v. N at’l Ass’n of Sec. Dealers, 85 F.3d 381, 382 (8th Cir. 1996). It extends to “all acts within the scope of the arbitral process” and covers both individual arbitrators and their sponsoring organizations. Id. at 382-383 (holding that “arbitral im m unity 4 would be alm ost meaningless” if litigants could sim ply shift liability to the organization rather than the individual); see also Jason v. Am . Arbitration Ass’n, 62 F. App’x 557, 558 (5th Cir. 20 0 3) (“The organizations that sponsor arbitrations are entitled to im m unity from civil liability as well with regard to the tasks that they perform that are integrally related to arbitration.”). The failure by DiLeo and Minyard to disclose their alleged conflicts is an act within the scope of the arbitral process, as is the AAA’s selection of the arbitrators and refusal to disqualify them . See Blue Cross Blue Shield of Tex. v. Juneau, 114 S.W. 3d 126, 132 (Tex. App. 20 0 3) (relying on federal precedent to com e to the conclusion that failure to disclose a business relationship is covered by arbitral im m unity because “the disclosure requirement [is] directly related to [defendant’s] function as an arbitrator”); Olson, 85 F.3d at 383 (holding that selection of arbitrators is covered by arbitral im m unity); Jason, 62 F. App’x at 558 (holding that AAA’s refusal to disqualify an arbitrator is covered even when doing so violates its internal rules). Under federal law, all of defendants’ acts on which Texas Brine bases its claim s are therefore protected by arbitral im m unity. Texas Brine argues that because this case is in federal court under diversity jurisdiction, and because there is no Louisiana statute conferring arbitral im m unity, the Court should “apply Louisiana substantive law to this 5 dispute” and hold that no arbitral im m unity exists. 11 But the arbitration giving rise to this action is governed by the Federal Arbitration Act (FAA), 12 and federal courts apply federal imm unity laws in cases where the act applies. The FAA preem pts state law “to the extent necessary to protect the achievem ent of the aim s of the FAA.” Hartford Lloy d’s Ins. Co. v. Teachw orth, 898 F.2d 10 58, 10 62 (5th Cir. 1990 ); FIA Card Servs., N .A. v. W eaver, 62 So.3d 70 9, 712 (La. 20 11) (“[A]ny ‘inconsistency between the [FAA] and Louisiana law m ust be resolved in favor of the federal act as federal law preem pts contrary state law.’”) (quoting Blount v. Sm ith Barney Shearson, Inc., 695 So.2d 10 0 1, 10 0 3 (La. App. 4 Cir. 1997)). Courts m ust therefore apply federal law whenever state law could underm ine a federal policy favoring arbitration. W asy l, Inc. v. First Bos. Corp., 813 F.2d 1579, 1582 (9th Cir. 1987). In W asy l, the Ninth Circuit, relying on federal precedent, held that arbitral im m unity is an area in which courts should apply federal law because it is necessary to protect the aim s of the FAA. It stated: As with judicial and quasi-judicial im m unity, arbitral im m unity is essential to protect the decision-m aker from undue influence 11 R. Doc. 56 at 7. Texas Brine’s contract underlying this dispute specifies that any dispute or claim arising out of the agreement m ust be resolved through arbitration, and that the arbitration is governed by the FAA. See Sealed Attachm ent to R. Doc. 1 at 43. 6 12 and protect the decision-m aking process from reprisals by dissatisfied litigants. Because federal policy encourages arbitration and arbitrators are essential to furthering that policy, it is appropriate that im m unity be extended to arbitrators for acts within the scope of their duties and within their jurisdiction. Sim ilarly, in Jason v. Am erican Arbitration Association, the Fifth Circuit looked to federal law when it applied arbitral im m unity in a diversity case governed by the FAA. Jason, 62 F. App’x at 558 (holding that arbitral im m unity applied based on exclusively federal precedent). The state law claim s in J ason were nearly identical to Texas Brine’s claim s in this action. See Jason v. Am . Arbitration Ass’n, No. 0 2-474, 20 0 2 WL 10 590 0 5, at *1 (E.D. La. May 23, 20 0 2) (holding that state law contract and negligence claim s were subject to arbitral im m unity). In fact, every circuit to have considered this question has extended quasi-judicial im m unity to arbitrators acting in the scope of their duties, see Jason, 62 F. App’x at 558, and none of these has applied state law im m unity regardless of the character of the claim s. But even if federal arbitral im m unity rules did not apply to cases governed by the FAA, Louisiana law favors arbitral im m unity. Texas Brine cannot point to any instances in which a Louisiana court refused to recognize arbitral im m unity. While the Louisiana Suprem e Court has not directly addressed the issue of arbitral im m unity, it patterns its interpretations of 7 Louisiana arbitration law on federal law. See Lafleur v. Law Offices of Anthony G. Buzbee, P.C., 960 So. 2d 10 5 (La. App. 1 Cir. 20 0 7) (“J urisprudence has recognized that the FAA and the LBAL are virtually identical; therefore . . . federal jurisprudence interpreting the FAA m ay be considered in construing the LBAL.”) (internal quotation m arks om itted). Louisiana courts also pattern their im munity decisions after federal law. See Cain v. City of N ew Orleans, 184 F. Supp. 3d 379, 391 (E.D. La. 20 16) (holding that quasi-judicial im m unity applied equally under federal law and Louisiana law because they do not differ); Moore v. Tay lor, 541 So. 2d 378, 381 (La. App. 2 Cir. 1989) (“Louisiana jurisprudence on judicial im m unity m irrors the federal doctrine.”). The Louisiana Suprem e Court has also upheld absolute imm unity for witnesses, which is sim ilarly a com m on law im m unity based on the principle of judicial im m unity. See Marrogi v. How ard, 80 5 So. 2d 1118, 1127-28 (La. 20 0 2) (“In Louisiana, the affirmative defense of witness imm unity or privilege has evolved from the jurisprudence.”). There is therefore no reason to think that a Louisiana court would refuse to extend im m unity to these defendants. Finally, the choice of law provision in Texas Brine’s contract that underlies this litigation provides that the agreem ent shall be governed by “the laws of the United States and, to the extent not inconsistent therewith, 8 the laws of the State of Louisiana . . . .”13 Even if there were support for the prem ise that Louisiana does not recognize arbitral im m unity, Louisiana law would then be inconsistent with federal law, and the Court would still be obligated to apply federal law under the terms of the contract. There is therefore no circumstance in which Texas Brine’s claims are not barred. 14 Texas Brine also contends that there is an exception to arbitral im m unity for equitable remedies such as unjust enrichment. 15 It relies on the case Pulliam v. Allen, 466 U.S. 522 (1984), in which the Supreme Court recognized an exception to judicial im m unity for Section 1983 claim s seeking prospective injunctive relief against state court judges acting in their official capacity. Id. at 541-42. The Pulliam decision was statutorily overruled as to 1983 claim s in 1996 by the Federal Courts Im provement Act (FCIA), which am ended Section 1983 to provide that “in any action brought against a judicial officer for an act or om ission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated 13 Sealed Attachm ent to R. Doc. 1 at 43. Texas Brine argues that Louisiana Civil Code Article 20 0 4 prevents the Court from applying arbitral im m unity in this case. R. Doc. 56 at 11. Given that Louisiana law m irrors federal law, under which defendants are subject to absolute arbitral im m unity, and that Louisiana law cannot apply in this action to the extent that it is inconsistent with federal law, there is no reason to think that Article 20 0 4 would apply or would negate arbitral im m unity. 15 Id. at 13-18. 9 14 or declaratory relief is unavailable.” 42 U.S.C. § 1983. Circuits that have addressed the issue have interpreted Pulliam as either not creating an exception to judicial im m unity beyond the 1983 context, or as being entirely overruled by the FCIA. See Mullis v. U.S. Bankr. Court for Dist. of N ev., 828 F.2d 1385 (9th Cir. 1987) (holding that Pulliam never applied to claim s outside of 1983); Bolin v. Story , 225 F.3d 1234, 1242 (11th Cir. 20 0 0 ) (holding that Pulliam is no longer a basis to allow injunctive relief against judges even outside of the 1983 context). The Court thus cannot extend the Pulliam judicial im m unity exception to arbitral im munity because it no longer exists even for judicial im m unity in the 1983 context. Even if the exception to judicial im m unity recognized in Pulliam did apply beyond the 1983 context, had not been statutorily overruled, and this Court were to then extend such a principle to arbitral im m unity, Texas Brine’s claim s would not be covered by this exception because they do not seek injunctive relief. Texas Brine argues that its claim of unjust enrichment is an equitable claim included under the Pulliam exception. 16 But the Pulliam exception was lim ited to injunctive relief and to attorney’s fees under 42 U.S.C. § 1988. It did not include all other types of relief deemed equitable. See Pulliam , 466 U.S. at 543 (hesitating to allow even recovery of attorney’s 16 Id. at 15-18. 10 fees because they are the “functional equivalent of m onetary dam ages and m onetary dam ages indisputably are prohibited by judicial im m unity”). The relief that Texas Brine seeks is paym ent for the losses it suffered as a result of defendants’ alleged failure to disclose conflicts of interest. 17 These are essentially dam ages by another name. The Pulliam exception would therefore not perm it this type of recovery against defendants. B. Plain tiff May N o t Se e k Re m e d ie s Ou ts id e o f th e Fe d e ral Arbitratio n Act Even if arbitral im m unity did not apply to defendants’ actions, plaintiff’s claim s are barred because the FAA is the exclusive rem edy for claim s such as Texas Brine’s that challenge m isconduct in the adm inistration of an arbitration award. Sm ith v. Shell Chem . Co., 333 F. Supp. 2d 579, 583 (5th Cir. 20 0 4); Corey v. N .Y. Stock Exch., 691 F.2d 120 5, 1211-12 (6th Cir. 1982) (holding that “the Federal Arbitration Act provides the exclusive remedy for challenging acts that taint an arbitration award” and challenges to arbitrator selection “are squarely within the scope of section 10 of the Arbitration Act”). Section 10 of the FAA provides that a court m ay “make an order vacating the award” where “there was evident partiality or corruption” by any of the arbitrators. 9 U.S.C. § 10 . This process, which Texas Brine has 17 Id. at 17. 11 already sought and received, 18 is the only challenge that Texas Brine m ay bring for any conduct relating to this arbitration. Corey , 691 F.2d at 1212 (“Barring [a defect in the underlying agreement to arbitrate or a remedy under Section 10 ] the Arbitration Act provides no other avenue by which an arbitration award m ay be challenged.”). Section 10 does not allow litigants to recover costs or attorney’s fees in a vacatur proceeding. See 9 U.S.C. § 10 (b) (allowing a court to order a rehearing by the arbitrators only in the event of vacatur). Texas Brine’s attem pt to reconfigure its claim s as som ething other than a challenge to the arbitration award does not allow it to circum vent the FAA or to recover dam ages and costs unavailable under the act’s provisions. 19 See Corey , 691 F.2d at 1213. Such collateral attacks on arbitrators “circum vent the [provided remedies] and seek relief outside the statutory lim itations, rendering m eaningless the notion that parties can contract to be bound to an arbitrated agreem ent.” Juneau, 114 S.W. 3d at 136 (referring to the Texas Arbitration Act). The FAA prohibits the remedies that plaintiff seeks. 18 See Manual Attachm ent to R. Doc. 1 at 71. See R. Doc. 56 at 18-21. Texas Brine argues that its attem pt to recover the costs of its arbitration are not an im perm issible collateral attack on the arbitration award. 12 19 Finally, Texas Brine argues that even if this Court finds that its claim s are barred, it should allow it to am end its com plaint. 20 But arbitral im m unity bars all civil claim s against defendants in the scope of the arbitral process. Texas Brine challenges only acts that are within the scope of the arbitral process. Therefore, any claim that Texas Brine adds will also be barred by arbitral im m unity. Sim ilarly, plaintiffs have already received the only remedy available under the FAA to challenge the events that resulted in their arbitration award. Because arbitral im m unity and the FAA bar all claim s arising out of this arbitration, allowing plaintiff to am end would be futile. See Im bornone v. Tchefuncta Urgent Care, Inc., No. 11-3195, 20 13 WL 3818331, at *5 (E.D. La. J uly 22, 20 13) (denying leave to am end complaint under Rule 16(b) when the deadline to am end had passed and his proposed am endment would be futile); In re Belle Chasse Marine Transp., Inc., No. 12-1281, 20 13 WL 34220 32, at *4 (E.D. La. J uly 8, 20 13) (sam e). 20 R. Doc. 56 at 24. 13 IV. CON CLU SION For the foregoing reasons, defendants’ m otions for judgm ent on the pleadings are GRANTED. Plaintiff Texas Brine’s claim s are DISMISSED WITH PREJ UDICE. New Orleans, Louisiana, this _ _2nd _ _ _ day of November, 20 18. _____________________ SARAH S. VANCE UNITED STATES DISTRICT J UDGE 14