Opinion
PC-2008-9999
10-22-2020
IN RE: ALL INDIVIDUAL KUGEL MESH CASES
For Plaintiff: John E. Deaton, Esq.; Donald A. Migliori, Esq.; Vincent L. Greene, IV, Esq. For Defendant: Thomas M. Robinson, Esq.; Mark T. Nugent, Esq. For Intervenor: Michael J. Daly, Esq.; Nicole M. Matteo, Esq.
For Plaintiff: John E. Deaton, Esq.; Donald A. Migliori, Esq.; Vincent L. Greene, IV, Esq.
For Defendant: Thomas M. Robinson, Esq.; Mark T. Nugent, Esq.
For Intervenor: Michael J. Daly, Esq.; Nicole M. Matteo, Esq.
DECISION
GIBNEY, P.J.
Before this Court is a Motion to Stay Proceedings (the Motion) brought by Steven M. Johnson and the Law Offices of Steven M. Johnson, P.C., d/b/a The Johnson Law Firm (collectively, Defendants or JLF) concerning disputes between Defendants and Attorney John Deaton (Plaintiff or Deaton), who together represented multiple claimants in the Kugel Mesh litigation before this Court. Defendants seek to stay this case (the Rhode Island proceedings) in favor of pending arbitration in Texas (the Texas arbitration). Plaintiff opposes Defendants' Motion, arguing that Defendants have not met their burden to mandate a stay and compel arbitration. Jurisdiction is pursuant to 9 U.S.C. §§ 2 and 3, as well as G.L. 1956 §§ 8-2-14, 10-3-2, and 10-3-3.
I
Facts and Travel
Defendants are a Texas attorney and law firm that represent over 300 claimants in multiple forums pressing personal injury claims based on the allegation that Kugel Mesh implants manufactured by Davol, Inc., a Rhode Island entity, were defective. (Defs.' Mot. Stay 3.) Defendants signed Attorney Representation Agreements (ARAs) with each of their clients, which included contingency fee, Texas choice of law, and mandatory Texas arbitration provisions. (Defs.' Mot. Stay 3; Defs.' Mot. Stay, Ex. Q (ARA).) Beginning in 2008, Defendants engaged Plaintiff, a Rhode Island attorney, to serve as local representation for 176 Kugel Mesh cases filed in this Court. (Defs.' Mot. Stay 3; Defs.' Mot. Stay, Exs. H, I.) JLF also engaged Plaintiff to serve as trial counsel in an additional case in the United States District Court for the District of Rhode Island, Patton v. Davol, Inc., C. A. No. 08-2316ML (Patton). (Defs.' Mot. Stay 4; Defs.' Mot. Stay, Ex. J (2012 Referral Agreement).) For the 176 cases filed in this Court and for Patton, Defendants agreed to pay Plaintiff a percentage of the contingency fees recovered under the ARAs.
The Rhode Island proceedings went through an extended mediation process before this Court and a global settlement agreement was reached in June 2014. Defs.' Mot. Stay 4; see Deaton v. Johnson, No. 20-78WES, 2020 WL 4673834, at *3 (D.R.I. Aug. 12, 2020). To facilitate that agreement, a Qualified Settlement Fund (QSF) was created pursuant to Internal Revenue Code § 468B. (Deposit Order (Mar. 11, 2016) (Gibney, P.J.).) The venue for all disputes related to the settlement was established as the "Superior Court of Rhode Island[, ]" and the global settlement agreement explicitly provided that all "Counsel and/or Co-Counsel hereby submit himself, herself, itself or themselves to the personal jurisdiction of the Superior Court of Rhode Island." Deaton, 2020 WL 4673834, at *3.
It is an understatement to say that a dispute then arose between the parties. At base, however, the dispute concerns Plaintiff's contractual claim of entitlement to his share of the attorneys' fees generated by the Kugel Mesh cases where he served as co-counsel. See Pls.' Mot. Compel (Mar. 7, 2016); Pl.'s Mot. Enforce (Jan. 24, 2020); Pl.'s Mem. Opp'n Mot. Stay (Aug. 31, 2020) (Pl.'s Mem.) 1 ("Deaton seeks the disbursement to pay him the attorney fees to which he is entitled for having represented multiple claimants in the Kugel Mesh litigation."). Both Plaintiff and Defendants have cast aspersions on each other's work, character, and conduct before this and other courts.
On March 7, 2016, Plaintiff filed a motion to compel Defendants to disclose the settlement amounts and allocations and to enforce an attorneys' lien on the QSF. (Pl.'s Mot. Compel (Mar. 7, 2016).) Acknowledging the work by Attorney Deaton witnessed by this Court and performed relative to the mediation overseen by this Court, an order was entered on March 11, 2016 providing that $1 million be segregated within the QSF to be distributed only upon further order of this Court. Deposit Order (Mar. 11, 2016) (Gibney, P.J.); see Deaton, 2020 WL 4673834, at *4. As part of those proceedings, Defendants were also ordered to provide to Plaintiff the information regarding the JLF Kugel Mesh case settlements Defendants had previously withheld. (Deposit Order (Mar. 11, 2016) (Gibney, P.J.).)
Meanwhile, in Texas, two separate disputes arising from the Kugel Mesh litigation proceeded toward arbitration. The Patton and Moreno arbitration matters each have their own intricate travel and facts but are relevant here as justification for Defendants' argument to stay proceedings. Both the Dallas and Fort Worth Courts of Appeals have held that Plaintiff is a party to those arbitrations. See Deaton v. Johnson, No. 05-16-01221-CV, 2017 WL 2991939 (Tex. App. July 14, 2017); Deaton v. Moreno, No. 02-16-00188-CV, 2017 WL 4683940, at *5 (Tex. App. Oct. 19, 2017) (holding that "the forum-selection clause in the ARA is enforceable under the doctrine of direct-benefits estoppel as to the nonsignatory parties in this case, Deaton and DLF, and they therefore consented to jurisdiction in Fort Worth"). But see Patton v. Johnson, No. 17-259WES, 2018 WL 3655785, at *3 (D.R.I. Aug. 2, 2018), aff'd, 915 F.3d 827 (1st Cir. 2019) (denying motion to stay proceedings and compel arbitration where a Texas arbitrator already found that no agreement to arbitrate existed between Patton and JLF).
Plaintiff filed a motion with this Court for disbursal from the QSF on January 24, 2020, seeking an order that the entire segregated portion of the QSF be disbursed to him. (Pl.'s Mot. Enforce.) This claim was based on Plaintiff's share of the contingency fees for the 176 Rhode Island Kugel Mesh cases and the Patton case, and also as reimbursement for what Plaintiff spent supporting Patton's post-settlement suit against JLF. Defendants filed a motion to intervene, which was granted, and then attempted to remove the disbursal motion to federal court on February 13, 2020. (Defs.' Mot. Intervene (Feb. 7, 2020); Order (Feb. 11, 2020); Notice Removal (Feb. 13, 2020).) Plaintiff filed his motion to remand, which the District Court granted because that court decided it was not a "civil action" pursuant to 28 U.S.C. § 1441(a) and lacked diversity pursuant to 28 U.S.C. § 1332. Deaton, 2020 WL 4673834, at *9. Additionally, the District Court found that the motion for disbursal "amounts to the latest chapter - a quintessential 'continuation' - of the ongoing Superior Court proceeding" and that Plaintiff's entitlement to his share of the attorneys' fees was "inextricably intertwined with the proceedings over which the Superior Court has already presided, including ordering discovery and issuing preliminary rulings about Deaton's fee entitlement." Id., at *8.
Defendants argue that the dispute between the former co-counsel as to Deaton's entitlement to attorneys' fees and other amounts should properly be part of the pending Texas arbitrations. (Defs.' Mot. Stay 3.) Plaintiff contends that JLF does not meet any of the three requirements for a mandatory stay of court proceedings in favor of arbitration. (Pl.'s Mem. 2-8.) In response, Defendants attempt to invoke the equitable doctrine of estoppel in support of the imposition of a duty to arbitrate in this case, despite the absence of an arbitration agreement between the parties. (Defs.' Reply Mem. Supp. Mot. Stay (Defs.' Reply) 1-3.)
II
Discussion
A
Rhode Island & Federal Arbitration Acts
Defendants argue that Plaintiff's entitlement to the segregated funds should be determined through the pending Texas arbitration, under the Rhode Island Arbitration Act (RIAA) and the Federal Arbitration Act (FAA). (Defs.' Mot. Stay 2-3.) Defendants contend that this Court is required to issue a statutorily mandated stay in these proceedings as a result. Id. at 3, 7-8.
Plaintiff responds that Defendants have not met their burden to establish the three requirements for a mandatory stay of court proceedings under the RIAA and FAA. (Pl.'s Mem. 2-8.) First, Plaintiff claims that there is no arbitration agreement between him and Defendants. Id. at 3-5. Second, Plaintiff argues that their dispute cannot fall within the scope of an arbitration agreement that does not exist. Id. at 5-6. Finally, Plaintiff claims that JLF waived its right to seek arbitration by showing its intention to litigate through forum-shopping when it attempted to remove the matter to federal court. Id. at 6-8.
1
Compelling Arbitration
Under Section 3 of both the FAA and the RIAA, this Court is required to stay its proceedings and compel arbitration provided it makes certain findings as to the arbitrability of the dispute in question. See 9 U.S.C. § 3; § 10-3-3; see also Baggesen v. American Skandia Life Assurance Corp., 235 F.Supp.2d 30, 32 (D. Mass. 2002); Brennan v. King, 139 F.3d 258, 264-67 (1st Cir. 1998). The Court's inquiry is "limited to ascertaining the existence of an agreement to arbitrate and the viability of the arbitration clause." Baggesen, 235 F.Supp.2d at 32 (citing Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 403-04 (1967)). "A party who attempts to compel arbitration must show that a valid agreement to arbitrate exists, that the movant is entitled to invoke the arbitration clause, that the other party is bound by that clause, and that the claim asserted comes within the clause's scope." InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003); see Baggesen, 235 F.Supp.2d at 32 (stating that, under the FAA, "this Court must find that a written agreement to arbitrate exists between the parties, the dispute in question falls within the scope of that agreement, and the party seeking arbitration has not waived its right to arbitration"). However, "courts should be extremely cautious about forcing arbitration in 'situations in which the identity of the parties who have agreed to arbitrate is unclear.'" InterGen N.V., 344 F.3d at 143 (quoting McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994)).
"'The issue of whether a dispute is arbitrable is a question of law. . .'" Rhode Island Council on Postsecondary Education v. Hellenic Society Paideia - Rhode Island Chapter, 202 A.3d 931, 934 (R.I. 2019) (quoting Town of Johnston v. Rhode Island Council 94, AFSCME, Local 1491, 159 A.3d 83, 85 (R.I. 2017)). As an initial matter, because both parties have primarily framed their arguments in terms of federal and Rhode Island law, the Court addresses these questions of arbitrability under the parties' chosen law. See Pl.'s Mem. 3, n.1 (noting that the operative language of the stay provision is identical under both the FAA and the RIAA and that "this Court would look to federal precedents . . . for guidance and interpretation in the application of 10-3-3"); Defs.' Mot. Stay 7-8 (stating that the "FAA governs arbitration clauses that involves [sic] interstate commerce" in a footnote, as well as citing to Rhode Island and First Circuit precedent extensively in the body of their argument). See also Patton v. Johnson, 915 F.3d 827, 837 (1st Cir. 2019) ("When the parties agree on the substantive law that should govern, 'we may hold the parties to their plausible choice of law.'") (quoting Lluberes v. Uncommon Productions, LLC, 663 F.3d 6, 23 (1st Cir. 2011) (internal quotations omitted)); DeFontes v. Dell, Inc., 984 A.2d 1061, 1066 (R.I. 2009) ("Generally, 'parties are permitted to agree that the law of a particular jurisdiction will govern their transaction.'") (quoting Terrace Group v. Vermont Castings, Inc., 753 A.2d 350, 353 (R.I. 2000)).
2
Existence of an Agreement Between the Parties
Because "'[a]rbitration is a matter of contract,' the Court applies '[g]eneral rules of contract construction.'" Baker v. Pawtucket Skilled Nursing and Rehabilitation, LLC, No. PC 15-0181, 2016 WL 4410002, at *7 (R.I. Super. Aug. 16, 2016) (quoting Radiation Oncology Associates, Inc. v. Roger Williams Hospital, 899 A.2d 511, 514 (R.I. 2006)); see DeFontes, 984 A.2d at 1066. The Rhode Island Supreme Court has stated that a "'duty to arbitrate a dispute arises only when a party agrees to arbitration in clear and unequivocal language, and even then, the party is only obligated to arbitrate issues that it explicitly agreed to arbitrate.'" Rhode Island Council, 202 A.3d at 934 (quoting State Department of Corrections v. Rhode Island Brotherhood of Correctional Officers, 866 A.2d 1241, 1247 (R.I. 2005)); see DeFontes, 984 A.2d at 1066. Furthermore, "[a]lthough it is true that [the Rhode Island Supreme] Court adheres to 'a policy in favor of resolving any doubt in favor of arbitration[, ]' . . . it is also true that '[a]rbitration 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.'" Id. at 940-41 (Suttell, C.J., dissenting) (quoting School Committee of the Town of North Kingstown v. Crouch, 808 A.2d 1074, 1078 (R.I. 2002) (internal citations omitted)). "[C]onsequently, 'a finding that contracting parties have agreed to substitute arbitration for adjudication must rest on clear contract language as evidence of definite intent to do so.'" Weeks v. 735 Putnam Pike Operations, LLC, 85 A.3d 1147, 1153 (R.I. 2014) (quoting Polytop Corp. v. Chipsco, Inc., 826 A.2d 945, 947 (R.I. 2003)). However, absent such clear language and agreement, the motion must fail.
Here, no written agreement to arbitrate exists between the parties. In fact, both the settlement agreement and the ruling of this Court created the right of Plaintiff to a judicial forum herein for the resolution of claims arising from that settlement. See Deaton, 2020 WL 4673834, at *3; see also Weeks, 85 A.3d at 1153, 1160 (finding that plaintiff had not waived her statutory right to a judicial forum under collective bargaining agreement). The pending Texas arbitration matters relate only to issues raised by the Moreno and Patton ARAs. Plaintiff was not a signatory to either agreement. The First Circuit has already affirmed the finding that the arbitration clause in the Patton ARA was not enforceable for want of appropriate initialing by Patton, a signatory of that contract. Patton, 915 F.3d at 832. The referral agreements between Plaintiff and JLF contain no provision for arbitration. See Defs.' Mot. Stay, Exs. I and J. Because there was no agreement between the parties to arbitrate, there is no question that this dispute is outside of the scope of such a nonexistent agreement, and it is unnecessary to address Plaintiff's waiver argument. Defendants' only remaining argument is based on the applicability of the Moreno ARA arbitration clause to Plaintiff through direct-benefits estoppel vis-à-vis an appeal to this Court's discretion.
B
Equitable Estoppel
Defendants also argue that Plaintiff must arbitrate under a theory of direct-benefits estoppel, despite the absence of an arbitration agreement between the parties. (Defs.' Reply 1-3.) In making this argument, Defendants rely primarily on the holdings of the two Texas Courts of Appeals in Deaton v. Moreno, 2017 WL 4683940 and Deaton v. Johnson, 2017 WL 2991939. (Defs.' Mot. Stay 1-2.) Defendants also claim that the Court should exercise its discretionary powers to stay consideration of Plaintiff's motion to disburse. Id. at 3, 8-11.
Plaintiff responds to this argument first by disputing that the application of direct-benefits estoppel by the Dallas Court of Appeals found any obligation for him to arbitrate. (Pl.'s Mem. 4, n.3.) Instead, Plaintiff claims that the court utilized the doctrine to determine that he was subject to personal jurisdiction in Texas. Id. Plaintiff also points out that the First Circuit has ruled that the arbitration clause in the Patton ARA at issue in that case is unenforceable as to the client signatory. Id. (citing Patton, 915 F.3d at 832). Plaintiff additionally contends that the direct-benefits estoppel argument recognized in the Texas courts has no bearing on Defendants' burden when advancing a motion to stay, which requires that a written agreement to arbitrate exist between the parties. Id.
It is true that there is a body of federal law that utilizes equitable estoppel in order to compel nonsignatories to "arbitrate their claims with a signatory in certain circumstances, such as where the nonsignatory is suing directly under the agreement containing the arbitration clause or has directly benefited from such agreement." 43 A.L.R. Fed. 2d 275 (Originally published in 2010) (Application of Equitable Estoppel Against Nonsignatory to Compel Arbitration Under Federal Law). However, direct-benefits estoppel is premised on the nonsignatory having received a direct benefit from the contract containing the arbitration agreement, such that it would be inequitable for them to both profit from and deny that they are bound by the agreement. Id. In other words, "the doctrine of equitable estoppel precludes a party from enjoying rights and benefits under a contract while at the same time avoiding its burdens and obligations." InterGen N.V., 344 F.3d at 145.
To date, Plaintiff has received no benefits from the referral agreements that he signed, and which contained no arbitration clauses. See Pls.' Mot. Compel (Mar. 7, 2016); Pl.'s Mot. Enforce (Jan. 24, 2020); Pl.'s Mem. 1 ("Deaton seeks the disbursement to pay him the attorney fees to which he is entitled for having represented multiple claimants in the Kugel Mesh litigation."). It seems Defendants want this Court to compel Plaintiff to arbitrate before he can receive the direct benefit of his agreement to serve as co-counsel based on the idea that Plaintiff has derived direct benefits from the agreements of the Kugel Mesh litigants to engage JLF. These two kinds of agreements are distinct and Defendants' attempts to conflate them are unavailing. Furthermore, Plaintiff has properly brought his motion to disburse here, to this Court, as the Defendants agreed to do under the master settlement agreement, the stipulation filed as to the master settlement agreement, and the March 11, 2016 order of this Court. See Deaton, 2020 WL 4673834, at *3; Stipulation (Mar. 14, 2016) (establishing "continuing jurisdiction" of this Court as to QSF); Deposit Order (Gibney, P.J.).
It is also important to note that federal courts "have been hesitant to estop a nonsignatory seeking to avoid arbitration," limiting themselves to doing so in "cases [that] involve non-signatories who, during the life of the contract, have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract." InterGen N.V., 344 F.3d at 145-46 (internal quotation omitted). Plaintiff has not attempted to repudiate the arbitration clause in Defendants' ARAs, he has simply pointed out that he was not a party to them. (Pl.'s Mem. 3-5.) To call on this Court to utilize its discretion in order to compel Plaintiff to arbitrate elsewhere, despite his status as a nonsignatory and all parties' prior consent to the continuing jurisdiction of this Court, requires more than the circular arguments and shell games offered here.
III
Conclusion
This Court finds that Defendants have failed to demonstrate that a stay of proceedings in the Rhode Island matter is warranted under the RIAA and FAA because there was no agreement to arbitrate between the parties. Moreover, this Court declines to exercise its discretion to impose an obligation to arbitrate on Plaintiff, a nonsignatory. Defendants agreed as part of their negotiated settlement that the venue for all disputes arising from this matter would be the Superior Court of Rhode Island. This Court therefore denies Defendants' Motion to Stay Proceedings.
Counsel shall submit the appropriate order for entry.