Judge Largely Rejects Defendants’ Attempts to Force Confidential Arbitration in In re Pacific Fertility Center

03.26.2019

Girard Sharp LLP and Gibbs Law Group are pleased to announce that the Court has denied in large part Defendants’ motion to compel their clients’ claims to arbitration in In re Pacific Fertility Center Litigation, a case pending in the Northern District of California.

After a tank at Pacific Fertility Center’s San Francisco facilities failed, thousands of eggs and embryos belonging to hundreds of families were compromised or destroyed. Plaintiffs filed a class action lawsuit against: (1) Pacific Fertility Center, with whom they had purchased egg and embryo storage and signed documents; (2) Prelude Fertility Inc., who—after Plaintiffs purchased the storage—entered into a contract with Pacific Fertility to take over storage service; and (3) Chart, the manufacturer of the tank. 

Early in the case, Pacific Fertility moved to compel arbitration, based on an arbitration clause that was included in the documents the Plaintiffs signed before contracting for egg and embryo storage. Prelude and Chart joined in Pacific Fertility’s Motion. Both defendants argued that Plaintiffs are estopped from arguing the arbitration clause doesn’t apply to non-signatories because there would be no claim if Plaintiffs had not signed up for egg and embryo storage in the first place. Prelude also argued that it was a third party beneficiary of the contracts containing the arbitration clause for a variety of reasons. 

Plaintiffs opposed Prelude and Chart’s attempts to move the case out of federal court and into arbitration on grounds that neither Prelude nor Chart ever signed any contracts with Plaintiffs, and that the causes of action Plaintiffs alleged arose independent from any documents Plaintiffs signed—Chart, for example, has a duty to recall a known problem with a tank, regardless of whether the tank is subject to a contract (or many contracts). As to Prelude, Plaintiffs argued that it was not an intended third party beneficiary of the documents with the arbitration clause because it had entered into contracts with Pacific Fertility that distanced itself from Pacific Fertility and clarified its status as an independent contractor.

While the Court granted Pacific Fertility’s motion to compel arbitration, the Court denied the motion as to both Prelude and Chart, confirming the established principle that, for a non-signatory to successfully avail itself of an arbitration clause, it has the burden of establishing that the claim it argues should be arbitrated is founded in and intertwined with the document containing the arbitration clause. The court went on to hold that a defendant cannot compel arbitration by merely arguing that absent the document with the arbitration clause, there would be no dispute, finding that “[t]his factual but-for argument . . . is contrary to the law as it ignores that the duty allegedly violated must arise from the agreement containing the written arbitration clause.” With respect to Prelude’s third party beneficiary arguments, the Court found that Prelude failed to meet its burden of showing Pacific Fertility had intended to cover Prelude with its arbitration clause under any of its theories.

The Court’s order marshals recent Ninth Circuit and district court precedent on the issue. A copy of the order can be found here.

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