825 F.3d 1069
9th Cir.2016Background
- Renee Tillman hired the Rheingold law firm; their retainer contained an AAA arbitration clause.
- Tillman sued the firm for malpractice after dispute about inclusion of an heir in a prior wrongful-death suit.
- District court compelled arbitration under the retainer and stayed the court action; arbitration proceeded under AAA rules.
- Arbitration was suspended and then terminated because Tillman could not pay required AAA deposits and the firm declined to front the fees. No award was issued.
- The firm asked the district court to lift the stay and dismiss under Fed. R. Civ. P. 41(b); the district court found Tillman financially unable to pay but nevertheless dismissed the case, concluding FAA required dismissal.
- Ninth Circuit reversed dismissal, held stay could be lifted but case should proceed in court because arbitration had been terminated under the agreed AAA rules and Tillman’s nonpayment was excused due to financial incapacity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration termination for nonpayment means §3 stay must remain (i.e., arbitration not “had”) | Tillman: arbitration was terminated but she participated and was unable to pay; stay should be lifted and case proceed | Firm: AAA rules permitted termination; arbitration was conducted per agreement so §3 requires dismissal or continued stay | Arbitration had been “had” under the agreement; stay may be lifted and district court may proceed |
| Whether dismissal under Fed. R. Civ. P. 41(b) for failure to prosecute was appropriate | Tillman: inability to pay was non-culpable and she tried to proceed; dismissal too harsh | Firm: nonpayment violated court order to arbitrate, warranting dismissal | District court did not abuse discretion in excusing Tillman’s nonpayment; dismissal under Rule 41(b) was improper |
| Whether FAA itself requires dismissal when arbitration terminates for nonpayment | Tillman: FAA does not mandate dismissal absent an award or successful motion to compel | Firm: termination under AAA rules means FAA precludes district adjudication | FAA contains no statutory command to dismiss in these circumstances; dismissal erroneous |
| Whether inability to pay excuses compliance with court’s order to arbitrate | Tillman: she lacked resources and notified arbitrator and court; firm could have advanced fees | Firm: parties must bear costs equally; nonpayment justified suspension/termination | District court properly found Tillman unable to pay and excused noncompliance; her case may proceed in court |
Key Cases Cited
- Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010 (9th Cir. 2004) (arbitration suspended/terminated under AAA rules constituted arbitration “had” under §3; no basis to compel further arbitration)
- Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287 (10th Cir. 2015) (AAA-termination for nonpayment removes §3 stay requirement)
- Sink v. Aden Enters., 352 F.3d 1197 (9th Cir. 2003) (courts may refuse to reward willful noncompliance with arbitration obligations)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (federal policy strongly favors enforcement of arbitration agreements)
- Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985) (courts must rigorously enforce arbitration agreements according to their terms)