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Texas Brine Co. LLC v. American Arbitration Association, Inc.

United States District Court, E.D. Louisiana

November 2, 2018

TEXAS BRINE COMPANY, LLC
v.
AMERICAN ARBITRATION ASSOCIATION, INC., ET AL

         SECTION “R” (5)

          ORDER AND REASONS

          SARAH S. VANCE UNITED STATES DISTRICT JUDGE.

         Before the Court are motions for judgment on the pleadings filed by defendant American Arbitration Association (AAA), defendant Anthony DiLeo, and defendant Charles Minyard.[1] The court grants these motions because defendants' arbitral immunity 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. BACKGROUND

         This case arises out of an arbitration dispute.[2] Plaintiff Texas Brine Company entered into arbitration with Occidental Chemical Corporation, the owner of one of the brine wells that it operated, after a sink hole caused significant damage in 2012.[3] In February of 2018, 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 June 19, 2018.[5] Texas Brine then filed this suit in Louisiana state court on July 6, 2018.[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 July 10, 2018, the AAA removed this action to federal court.[9]Defendants now seek judgment on the pleadings on the basis of arbitral immunity and the FAA.[10]

         II. LEGAL STANDARD

         A motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) is appropriate if the matter can be adjudicated by deciding questions of law rather than factual disputes. Brittan Commc'ns Int'l Corp. v. Sw. Bell Tel. Co., 313 F.3d 899, 904 (5th Cir. 2002). It is subject to the same standard as a motion to dismiss under Rule 12(b)(6). Doe v. MySpace, Inc., 528 F.3d 413, 418 (5th Cir. 2008). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead enough facts “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 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 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must look only to the pleadings, Brittan, 313 F.3d at 904, 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 must accept all well-pleaded facts as true and must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir. 2009). But the Court is not bound to accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 678.

         A legally sufficient complaint must establish more than a “sheer possibility” that plaintiff's claim is true. Id. It need not contain detailed factual allegations, but it must go beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Id. In other words, the face of the complaint must contain enough factual matter to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiff's claim. Lormand, 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 complaint that there is an insuperable bar to relief, the claim must be dismissed. Twombly, 550 U.S. at 555.

         III. DISCUSSION

         A. Arbitral Immunity

         Defendants argue that Texas Brine's claims against all defendants are barred by arbitral immunity. Arbitral immunity, an absolute immunity related to judicial immunity, applies to arbitrators because their role “is functionally equivalent to a judge's role.” Olson v. Nat'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 immunity would be almost meaningless” if litigants could simply shift liability to the organization rather than the individual); see also Jason v. Am. Arbitration Ass'n, 62 Fed.Appx. 557, 558 (5th Cir. 2003) (“The organizations that sponsor arbitrations are entitled to immunity 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. 2003) (relying on federal precedent to come to the conclusion that failure to disclose a business relationship is covered by arbitral immunity 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 immunity); Jason, 62 Fed.Appx. 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 claims are therefore protected by arbitral immunity.

         Texas Brine argues that because this case is in federal court under diversity jurisdiction, and because there is no Louisiana statute conferring arbitral immunity, the Court should “apply Louisiana substantive law to this dispute” and hold that no arbitral immunity exists.[11] But the arbitration giving rise to this action is governed by the Federal Arbitration Act (FAA), [12] and federal courts apply federal immunity laws in cases where the act applies. The FAA preempts state law “to the extent necessary to protect the achievement of the aims of the FAA.” Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058, 1062 (5th Cir. 1990); FIA Card Servs., N.A. v. Weaver, 62 So.3d 709, 712 (La. 2011) (“[A]ny ‘inconsistency between the [FAA] and Louisiana law must be resolved in favor of the federal act as federal law preempts contrary state law.'”) (quoting Blount v. Smith Barney Shearson, Inc., 695 So.2d 1001, 1003 (La.App. 4 Cir. 1997)). Courts must therefore apply federal law whenever state law could undermine a federal policy favoring arbitration. Wasyl, Inc. v. First Bos. Corp., 813 F.2d 1579, 1582 (9th Cir. 1987). In Wasyl, the Ninth Circuit, relying on federal precedent, held that arbitral immunity is an area in which courts should apply federal law because it is necessary to protect the aims of the FAA. It stated:

As with judicial and quasi-judicial immunity, arbitral immunity is essential to protect the decision-maker from undue influence and protect the decision-making process from reprisals by dissatisfied litigants. Because federal policy encourages arbitration and arbitrators are essential to furthering that policy, it is appropriate that immunity be ...

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