Seibert v. Precision Contracting Solutions, Lp

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
MICHAEL SEIBERT, )
)
Plaintiff, )
)
v. ) Civil Action No. 18-818 (RMC)
)
PRECISION CONTRACTING )
SOLUTIONS, LP, et al., )
)
Defendants. )
____________________________________)
MEMORANDUM OPINION
Michael Seibert seeks a stay of arbitration demanded by Precision Contracting
Solutions, LP and its sole owner and partner, Derrick Sieber, arising out of a construction
contract dispute. Defendants both oppose the stay and move to dismiss for lack of subject-matter
jurisdiction. Defendant Precision Contracting Solutions, LP also moves to dismiss for lack of
personal jurisdiction due to insufficient service. Under the Federal Arbitration Act, the Court’s
authority is distinctly limited. Here, however, Mr. Seibert alleges that the arbitration clause in
the construction contract contains illegal and unconscionable terms that render it unenforceable.
In such a case, the saving clause of the Federal Arbitration Act “allows courts to refuse to
enforce arbitration agreements.” Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622 (2018).
Because the Court finds that service was made and the arbitration clause is unconscionable and
unenforceable, it will enter a stay of the arbitration and any award and will deny Defendants’
motions to dismiss.
1
I. FACTS
Michael Seibert and Precision Contracting Solutions, LP (PCS), signed a contract
on December 8, 2017, by which PCS agreed to make certain upgrades to Mr. Seibert’s residential
property in Washington, D.C. Compl. [Dkt. 1] ¶ 6; see also Ex. 1, Compl., Precision
Construction Contract (Contract) [Dkt. 1-1]. Mr. Seibert paid for most of the work but refused to
make the last payment because the work was allegedly shoddy, incomplete, and performed
without the necessary permits. See Compl. ¶¶ 11-15. PCS initiated arbitration to collect the
unpaid balance of the Contract under the following clause:
Binding Arbitration: The parties to this contract agree that any and
all disputes that cannot be settled in good faith by the parties shall
be resolved through binding arbitration that is initiated under the
Construction Industry Arbitration Rules of the American Arbitration
Association (“AAA”) within 30 days of such dispute. No legal
action may be initiated before the AAA or in any other arbitral or
judicial forum against any director, officer, employee or agent of, or
anyone else associated with, one of the principals to this contract in
connection with any dispute related to this contract. The party’s
[sic] sole recourse under this contract shall be against each other
before the AAA. If the parties do not file a claim with the AAA
within the 30-day period stated herein, then all claims are barred
from being brought by the parties in any and all legal forums. It is
further agreed that the cost of binding arbitration shall be shared
equally by PCS and the Client. It shall be clearly understood that
any disputes that may arise are confidential with no public comment
permitted in any form by either party relating to the dispute. The
results of any Arbitration proceeding shall also be confidential with
no public comment by either party permitted in any form relating to
any award. The parties agree that any breach of this provision shall
constitute a willful breach of contract.
Contract at 3. The Contract was signed by Derrick S. Sieber, “Owner, Precision Contracting
Solutions,” and Mr. Seibert. See id. at 4.
2
Mr. Seibert sued PCS, Derrick Sieber, and Stephen Sieber1 on April 10, 2018,
seeking a declaratory judgment that the arbitration clause is unenforceable and raising claims of
fraud in the inducement, reformation, breach of contract, and unlawful trade practices. See
Compl. ¶¶ 17-43. Mr. Seibert moved to stay the arbitration initiated by PCS on the same day.
Mot. to Stay Arbitration [Dkt. 2]; Mem. of P. & A. in Supp. of Mot. to Stay Arbitration (Stay
Mem.) [Dkt. 2-1]. Defendants oppose. Opp’n of Defs. to Pl.’s Mot. to Stay [Dkt. 34].
Multiple procedural motions have been filed. The Clerk of Court entered default
against PCS after Mr. Seibert filed a motion alleging that PCS had been served and failed timely
to answer or otherwise respond. See Mot. for Entry of Default as to PCS [Dkt. 8]; Clerk’s Entry
of Default as to PCS [Dkt. 9]. PCS moves to vacate the Clerk’s entry of default and argues it had
not been properly served. Mot. to Vacate Clerk’s Entry of Default [Dkt. 11].2 That motion is
fully briefed.
Additionally, both Defendants separately moved to dismiss for lack of subject-
matter jurisdiction. Mot. of Def. Derrick S. Sieber to Dismiss or Stay this Proceeding for Lack
of Subject-Matter Jurisdiction (D. Sieber MTD) [Dkt. 14]; Mot. of Def. PCS to Dismiss this
Proceeding for Lack of Subject-Matter Jurisdiction (PCS MTD) [Dkt. 24]. 3 Both motions are
ripe for review.
1
Stephen Sieber is no longer a defendant as the parties voluntarily dismissed him on May 23,
2018. See Notice of Voluntary Dismissal [Dkt. 7].
2
See also Mem. in Opp’n to Mot. of PCS to Vacate the Pending Default Notice (Opp’n to
Vacate) [Dkt. 15]; Reply of Def. PCS in Supp. of its Mot. to Vacate [Dkt. 17].
3
See also Mem. in Opp’n to Mot. of Derrick S. Sieber to Dismiss or Stay (Opp’n to D. Sieber
MTD) [Dkt. 16]; Reply of Def. Derrick S. Sieber in Supp. of his Mot. to Dismiss or Stay (D.
Sieber Reply) [Dkt. 18]; Mem. in Opp’n to Mot. of PCS to Dismiss or Stay [Dkt. 29].
3
II. LEGAL STANDARDS
A. Federal Arbitration Act
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., states the direction of
Congress that “federal courts [are] to enforce arbitration agreements according to their
terms . . . .” Epic Sys., 138 S. Ct. at 1619. Section 2 of the FAA makes arbitration agreements
“valid, irrevocable, and enforceable.” 9 U.S.C. § 2. Section 2 also provides a “saving clause
[that] allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law
or in equity for the revocation of any contract.’” Epic Sys., 138 S. Ct. at 1622 (quoting 9 U.S.C.
§ 2). The saving clause “permits agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or unconscionability.” Id. (quoting AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).
The saving clause of Section 2 of the FAA has been given a limited reading by the
Supreme Court.
[I]f the claim is fraud in the inducement of the arbitration clause
itself—an issue which goes to the ‘making’ of the agreement to
arbitrate—the federal court may proceed to adjudicate it. But the
statutory language does not permit the federal court to consider
claims of fraud in the inducement of the contract generally. . . . We
hold, therefore, that in passing upon [an FAA] § 3 application for a
stay [of litigation] while the parties arbitrate, a federal court may
consider only issues relating to the making and performance of the
agreement to arbitrate.
Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967); see also Kindred
Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1426 (2017) (“A court may invalidate an
arbitration agreement based on ‘generally applicable contract defenses’ like fraud or
unconscionability, but not on legal rules that ‘apply only to arbitration or that derive their
meaning from the fact that an agreement to arbitrate is at issue.’”) (quoting Concepcion, 563
U.S. at 339).
4
Because they direct the Court’s analysis, the relevant sections of the FAA are
quoted in full below:
§ 2: A written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract.
§ 3: If any suit or proceeding be brought in any of the courts of the
United States upon any issue referable to arbitration under an
agreement in writing for such arbitration, the court in which such
suit is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under such an
agreement, shall on application of one of the parties stay the trial of
the action until such arbitration has been had . . . .
§ 4: A party aggrieved by the alleged failure, neglect, or refusal of
another to arbitrate under a written agreement for arbitration may
petition . . . for an order directing that such arbitration proceed in the
manner provided for in such agreement. . . . The court shall hear the
parties, and upon being satisfied that the making of the agreement
for arbitration or the failure to comply therewith is not in issue, the
court shall make an order directing the parties to proceed to
arbitration . . . . If the making of the arbitration agreement or the
failure, neglect, or refusal to perform the same be in issue, the court
shall proceed summarily to the trial thereof. If no jury trial be
demanded by the party alleged to be in default, . . . the court shall
hear and determine such issue.
§ 9: . . . If no court is specified in the agreement of the parties [to
confirm an award], then such application may be made to the United
States court in and for the district within which such award was
made. . . .
§ 16
(a) An appeal may be taken from –
(1) An order –
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order
arbitration to proceed,
(C) denying an application under section 206 of this title to
compel arbitration,
(D) confirming or denying confirmation of an award or
partial award, or
5
(E) modifying, correcting, or vacating an award;
...
(b) Except as otherwise provided . . . , an appeal may not be taken
from an interlocutory order –
(1) granting a stay of any action under section 3 of this title;
(2) directing arbitration to proceed under section 4 of this title;
(3) compelling arbitration under section 206 of this title; or
(4) refusing to enjoin an arbitration that is subject to this title.
9 U.S.C. §§ 2, 3, 4, 9, 16.
The FAA creates a strong presumption in favor of enforcing arbitration
agreements and “any doubts concerning the scope of arbitrable issues should be resolved in favor
of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25
(1983). However, parties cannot be forced into arbitration to which they have not agreed. See
AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648-49 (1986). Courts have the
authority to decide whether the parties are bound by a given arbitration clause. See Howsam v.
Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (holding that, absent the parties’ clear
agreement otherwise, “a gateway dispute about whether the parties are bound by a given
arbitration clause raises a question of arbitrability for a court to decide”) (internal quotation
omitted).
B. Motion to Stay Arbitration
A motion to compel arbitration pursuant to § 4 of the FAA is evaluated through
the summary judgment standard of Federal Rule of Civil Procedure 56, “as if it were a request
for ‘summary disposition of the issue of whether or not there had been a meeting of the minds on
the agreement to arbitrate.’” Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863, 865
(D.C. Cir. 2008) (citations omitted). Although motions to stay arbitration proceedings are not
specifically addressed in § 4, the analysis is essentially the same as a motion to compel because
the argument that “no agreement to arbitrate was entered . . . effectively raises the issue whether
6
there was a meeting of the minds on the agreement to arbitrate.” Booker v. Robert Half Int’l,
Inc., 315 F. Supp. 2d 94, 99 (D.D.C. 2004), aff’d, 413 F.3d 77 (D.C. Cir. 2005); see also
Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (“[T]he summary judgment standard
is appropriate in cases where the District Court is required to determine arbitrability, regardless
of whether the relief sought is an order to compel arbitration or to prevent arbitration.”).
Summary judgment shall be granted “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). A fact is “material” if it is capable of affecting the substantive outcome of the
litigation. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is
“genuine” if there is sufficient admissible evidence such that a reasonable jury could return a
verdict for the non-moving party. See Scott v. Harris, 550 U.S. 372, 380 (2007).
The moving party bears the initial burden of showing the absence of a disputed material fact.
See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In determining whether there is a
genuine issue of material fact which would preclude summary judgment, “[t]he evidence is to be
viewed in the light most favorable to the nonmoving party and the court must draw all reasonable
inferences in favor of the nonmoving party.” Talavera v. Shah, 638 F.3d 303, 308 (D.C. Cir.
2011) (citing Anderson, 477 U.S. at 255). “The mere existence of a scintilla of evidence in
support of the plaintiff’s position will be insufficient” to avoid summary judgment. Anderson,
477 U.S. at 252.
C. Motion to Dismiss – Personal Jurisdiction/Inadequate Service
Pursuant to Federal Rule of Civil Procedure 12(b)(5), “[i]f the plaintiff does not
properly effect service on a defendant, then the defendant may move to dismiss the
complaint . . . . Upon such a motion, the plaintiff carries the burden of establishing that he has
7
properly effected service.” Hilska v. Jones, 217 F.R.D. 16, 20 (D.D.C. 2003). Personal service
of process (or waiver of service) is a prerequisite to the Court’s exercise of personal jurisdiction
over a defendant. See Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 350
(1999). The requirement is meant to ensure that defendants receive adequate notice of
proceedings against them. See Dusenbery v. United States, 534 U.S. 161, 167 (2002). To satisfy
the constitutional requirements, notice must be “reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S.
306, 314 (1950). Actual receipt of notice is constitutionally sufficient, though not required. See
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 272 (2010). In addition, service of
process must satisfy the requirements imposed by the Federal Rules of Civil Procedure. See Fed.
R. Civ. P. 4.
D. Motion to Dismiss – Subject Matter Jurisdiction
Pursuant to Federal Rule of Civil Procedure 12(b)(1), a defendant may move to
dismiss a complaint, or any portion thereof, for lack of subject-matter jurisdiction. Fed. R. Civ.
P. 12(b)(1). The party claiming subject-matter jurisdiction bears the burden of demonstrating
that such jurisdiction exists. See Khadr v. United States, 529 F.3d 1112, 1115 (D.C. Cir. 2008).
When reviewing a motion to dismiss for lack of jurisdiction under Rule 12(b)(1), a court must
“assume the truth of all material factual allegations in the complaint and ‘construe the complaint
liberally, granting plaintiff the benefit of all inferences that can be derived from the facts
alleged.’” Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011) (quoting Thomas v.
Principi, 394 F.3d 970, 972 (D.C. Cir. 2005)). Nevertheless, “the court need not accept factual
inferences drawn by plaintiffs if those inferences are not supported by facts alleged in the
8
complaint, nor must the Court accept plaintiffs’ legal conclusions.” Speelman v. United States,
461 F. Supp. 2d 71, 73 (D.D.C. 2006).
III. ANALYSIS
A. Jurisdiction and Motion to Vacate Default
The Court has subject-matter jurisdiction over this matter under 28 U.S.C. § 1332,
as the claim arises between citizens of different states and the amount in controversy exceeds
$75,000. 28 U.S.C. § 1332(a)(1). Mr. Seibert is a citizen of the District of Columbia, and
Derrick Sieber, PCS’s sole partner, is a citizen of Maryland as is, therefore, PCS. See Carden v.
Arkoma Assocs., 494 U.S. 185, 195-96 (1990) (finding a limited partnership is a citizen of the
state or states of which its partners are citizens). Venue is proper in the District of Columbia
because a substantial part of the events at issue occurred in the District because the home under
renovation is located in the District. See 28 U.S.C. § 1391(b)(2).
PCS challenges this Court’s personal jurisdiction over the partnership, arguing
that improper service resulted in no personal jurisdiction. Mr. Seibert responds that service was
completed by sending a copy of the summons and complaint via certified mail to Edward Lyle,
PCS’s registered agent, at his home, the registered office for PCS.
PCS is a partnership and must be served as defined in Federal Rule of Civil
Procedure 4(h):
Unless federal law provides otherwise or the defendant’s waiver has
been filed, a domestic or foreign corporation, or a partnership or
other unincorporated association that is subject to suit under a
common name, must be served:
(1) in a judicial district of the United States:
(A) in the manner prescribed by Rule 4(e)(1) for serving an
individual; or
(B) by delivering a copy of the summons and of the
complaint to an officer, a managing or general agent, or
any other agent authorized by appointment or by law to
9
receive service of process and—if the agent is one
authorized by statute and the statute so requires—by also
mailing a copy of each to the defendant.
Fed. R. Civ. P. 4(h). Federal Rule of Civil Procedure 4(e)(1) provides that an individual may be
served “following state law for serving a summons in an action brought in courts of general
jurisdiction in the state where the district court is located or where service is made.” Fed. R. Civ.
P. 4(e)(1). The District of Columbia Superior Court Rule of Civil Procedure for serving a
partnership substantially embodies the Federal Rule of Civil Procedure:
Unless applicable law provides otherwise or the defendant’s
acknowledgment has been filed, a domestic or foreign corporation,
or a partnership or other unincorporated association that is subject
to suit under a common name, must be served:
(1) in the United States:
(A) in the manner prescribed by Rule 4(e)(1) for serving an
individual; or
(B) by delivering a copy of the summons, complaint, Initial
Order, any addendum to that order, and any other order
directed by the court to the parties at the time of filing to
an officer, a managing or general agent, or any other
agent authorized by appointment or by law to receive
service of process and if the agent is one authorized by
statute and the statute so requires by also mailing a copy
of each to the defendant.
D.C. R. R.C.P. Rule 4(h). District of Columbia Rule 4(c)(4) permits service on any defendant
described in Rule 4(h), which includes a partnership like PCS, via registered or certified mail:
Any defendant described in Rule 4(e), (f), (h), (i), (j)(1), or (j)(3)
may be served by mailing a copy of the summons, complaint, Initial
Order, any addendum to that order, and any other order directed by
the court to the parties at the time of filing to the person to be served
by registered or certified mail, return receipt requested . . . .
D.C. R. R.C.P. Rule 4(c)(4). Rule 4 also details how service via registered or certified mail may
be proved:
If service is made by registered or certified mail under Rule 4(c)(4),
the return must be accompanied by the signed receipt attached to an
affidavit which must specifically state:
10
(i) the caption and number of the case;
(ii) the name and address of the person who posted the registered
or certified letter;
(iii) the fact that the letter contained the summons, complaint,
Initial Order, any addendum to that order, and any other
order directed by the court to the parties at the time of filing;
and
(iv) if the return receipt does not purport to be signed by the party
named in the summons, then specific facts from which the
court can determine that the person who signed the receipt
meets the appropriate qualifications for receipt of process set
out in Rule 4(e) . . . .
D.C. R. R.C.P. Rule 4(l)(1)(B). However, “[f]ailure to prove service does not affect the validity
of service. The court may permit proof of service to be amended.” D.C. R. R.C.P. Rule 4(l)(3).
Mr. Seibert filed an Affidavit of Service on May 14, 2018, stating under oath that
a copy of the summons and complaint had been sent via certified mail on April 27, 2018 and that
United States Postal Service records show that the “item was delivered to an individual at the
address at 4:53 pm on May 2, 2018.” Aff. of Service – PCS [Dkt. 5]. Additionally, counsel for
Mr. Seibert received a voicemail from Stephen Sieber on May 3, 2018, which stated that Stephen
Sieber accepted service of the summons delivered to Mr. Lyle’s address. See Opp’n to Vacate at
2-3. Stephen Sieber is an adult living at the residence of Mr. Lyle and has also put himself
forward to Mr. Seibert’s counsel in the pending arbitration as Mr. Lyle’s “co-counsel” for PCS.
Id.
PCS submitted a declaration from Stephen Sieber in which he states that he
believed the copy of the Complaint and summons delivered to PCS at Mr. Lyle’s residence was
intended for him personally and that when he accepted service via voicemail, he was accepting
as an individual. Second Decl. of Stephen Sieber [Dkt. 17-1] ¶ 2. Mr. Sieber further declares
that he put the documents aside and did not share them with Mr. Lyle until after default was
entered against PCS. Id. ¶ 3. Mr. Sieber also denies having any employment or counsel
11
relationship with PCS, id. ¶ 5, which directly contradicts his statement in an email to counsel for
Mr. Seibert. See Opp’n to Vacate at 2; see also Ex. 1, Opp’n to Vacate, Email from Stevie
Marco (Stephen Sieber) to Timothy Hyland (S. Sieber Email) [Dkt. 15-1]. The Court accepts
statements in briefs submitted for PCS by its counsel Edward Lyle because an officer of the
Court is required to address the Court with candor and the Court assumes that Mr. Lyle is
abiding by that professional obligation. Mr. Sieber’s statements about the delivery of the
Complaint and summons—addressed to PCS but which he thought were intended for him
personally—were made under penalty of perjury in his declaration. Nonetheless, it is evident
from the information before the Court that at some point Mr. Sieber prevaricated. He either
failed to speak the truth when he left a voicemail for Mr. Seibert’s counsel accepting service and
when he claimed in a written email that he was co-counsel for PCS, or he has prevaricated in his
declaration to this Court, or both. Having no way to determine which statement is a falsehood,
the Court finds that service on PCS was proper and attributes Mr. Sieber’s confusion about the
documents to PCS as good cause for its failure to appear timely. Therefore, the Court has
personal jurisdiction over PCS. The Court will grant PCS’s motion to vacate default and deny its
motion to dismiss for lack of personal jurisdiction. 4
B. Motion to Stay
Mr. Seibert moves to stay the arbitration, arguing that the Contract was procured
by fraud because PCS concealed the true identity of Stephen Sieber, who presented himself as
4
The Court also notes that Mr. Seibert filed an Amended Affidavit of Service as to PCS on May
31, 2018 and a Second Amended Affidavit of Service as to PCS on July 9, 2018. See Amended
Affidavit of Service [Dkt. 13]; Second Amended Affidavit of Service [Dkt. 22]. The First
Amended Affidavit explained Stephen Sieber’s acceptance of service and the Second Amended
Affidavit indicated that Mr. Seibert sent a second copy of the summons and complaint via
certified mail to Mr. Lyle, PCS’s registered agent, at the address of record and the delivery was
refused.
12
Stevie Marco, the PCS professional designer. Because Mr. Seibert was unable to discover Stevie
Marco’s true identity, he was unaware that he was contracting with Stephen Sieber who “has
been adjudicated to have committed fraud and dishonesty in the past,” and with whom Mr.
Seibert would never have agreed to contract. See Stay Mem. at 3. Mr. Seibert also argues that
by concealing Stephen Sieber’s identity, PCS violated District of Columbia Municipal
Regulation, 16 DCMR § 808, which governs the mandatory contents of home improvement
contracts and requires parties to include the names and license number of “salespersons who
participated in negotiating the contract.” 16 DCMR § 808.4. 5 However, under the FAA, the
Court can only be concerned now with challenges specific to the enforceability of the arbitration
clause. As Prima Paint makes clear, general complaints about the terms of the underlying
contract do not obviate a written agreement to arbitrate. See Prima Paint, 388 U.S. at 403-04.
In addition to his general complaints, Mr. Seibert specifically challenges the
arbitration provision itself. He contends: (1) that the 30-day limitations period to seek
arbitration is “unreasonable, unenforceable, unconscionable, and void as against public policy”
because its “practical effect” would bar Mr. Seibert from proceeding, “thereby destroying
mutuality of obligation,” Stay Mem. at 6-7; (2) that the bar against bringing actions against PCS
partners directly “has the effect of barring any action by Mr. Seibert, and thereby again destroys
mutuality of contract,” id. at 7; and (3) that the confidentiality mandate in the PCS arbitration
clause is void and unenforceable under the Federal Trade Commission Act (FTCA), 15 U.S.C. §
45b. Id. at 7-8.6
5
Mr. Seibert also complains that PCS “failed to obtain required permits to perform the work and
intentionally misrepresented this fact.” Stay Mem. at 6.
6
Because it resolves these motions on other grounds, the Court does not address the 30-day
limitation on bringing claims against the contractor.
13
The confidentiality mandate in the contract states:
It shall be clearly understood that any disputes that may arise are
confidential with no public comment permitted in any form by either
party relating to the dispute. The results of any Arbitration
proceeding shall also be confidential with no public comment by
either party permitted in any form relating to any award. The parties
agree that any breach of this provision shall constitute a willful
breach of contract.
Contract at 3. Arbitration agreements construed under the FAA “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. Mr. Seibert argues that the confidentiality mandate in the PCS
arbitration clause violates public policy as expressed in § 45b(b), which explicitly protects
consumers’ rights to communicate their opinions on work or services provided under a form
contract and that the confidentiality mandate is, therefore, unenforceable. Stay Mem. at 7-8. 7
Section 45b, upon which Mr. Seibert relies, is a section of the law that established
the Federal Trade Commission and prevents unfair methods of competition. Section 45b
explicitly protects consumer reviews related to the provision of goods and services when the
consumer agrees to a form contract. See 15 U.S.C. § 45b(a)(2) (defining “covered
communication”). The law defines a form contract as one with “standardized terms” that is
“used by a person in the course of selling” his services and “imposed on an individual without
meaningful opportunity for such individual to negotiate the standardized terms.” Id.
7
Mr. Seibert further claims that PCS aggressively threatens to employ the confidentiality
provisions against unhappy consumers. Stay Mem. at 7-8; see also S. Sieber Email at 2 (warning
that “PCS’s statement of claims in the AAA matter calls for Mr. Siebert [sic] to pay not only for
the extra work he ordered, but also $200,000 in damages caused by the public filing of the
Federal lawsuit . . . . As the damage increases we will amend our claim upwards accordingly.”)
(emphasis in original); see also Opp’n to D. Sieber MTD at 13 (referencing litigation in D.C.
Superior Court, see infra, in which Derrick Sieber counterclaimed under the confidentiality
provision when a client attempted to sue to enforce an arbitration award).
14
§ 45b(a)(3)(A).8 Congress has directed that “a provision of a form contract is void from the
inception of such contract if such provision (A) prohibits or restricts the ability of an individual
who is a party to the form contract to engage in a covered communication [or, as relevant] (B)
imposes a penalty or fee against an individual who is a party to the form contract for engaging in
a covered communication . . . .” Id. § 45b(b)(1). It is “unlawful for a person to offer a form
contract containing a provision described as void in subsection (b).” Id. § 45b(c).
While § 45b is subject to enforcement by the Federal Trade Commission or the
States, no private right of action is suggested. See id. § 45b(d) (enforcement by the Commission)
and 45b(e) (enforcement by the States). Nonetheless, § 45b speaks clearly to the public policy of
the United States. The Court also finds that there is no conflict between § 45b and the FAA
since the broad confidentiality condition in the contract under review is neither “fundamental” to
arbitration, Concepcion, 563 U.S. at 339, nor consistent with the public nature of federal court
dockets, except in limited instances which do not apply, should an award need confirmation. See
LCvR 5.1(h)(1) (“Absent statutory authority, no case or document may be sealed without an
order from the Court.”); LCvR 5.4(f) (requiring parties to exclude personal identifiers such as
Social Security numbers, names of minor children, dates of birth, and financial account numbers
from filings with the Court).
It appears that PCS and Derrick Sieber mean every word of the confidentiality
provision and it is no small part of the arbitration clause in the contract. Mr. Seibert cites Toland
v. Derrick Sieber, et al., D.C. Superior Court, Case No. 16-6458, a suit in which Lamar Toland
sought confirmation of an arbitration award against Derrick and Stephen Sieber. PCS responded
8
There is no contention that the clause for binding arbitration in the construction contract at
issue here was not form language (as is obvious from its appearance) and presented to Mr.
Seibert without individual negotiation.
15
with a counterclaim against Mr. Toland, the Law Firm of Bar-Adon & Vogel which was
representing Mr. Toland, and the Law Firm’s individual attorneys in a motion to vacate the
arbitration award for “intentionally violating the confidentially [sic] provision in the contract.”
Opp’n to D. Sieber MTD at 13; see also Ex. C, Opp’n to D. Sieber MTD, D. Sieber Toland
Counterclaim [Dkt. 16-3] at 37. Because the FAA permits a clause to be voided for any reason
in law or in equity, and the relevant facts surrounding the arbitration clause and confidentiality
agreement are not in dispute, the Court finds that violation of § 45b provides an equitable and
public policy reason to void the arbitration clause in the contract between Mr. Seibert and PCS.
The arbitration clause further bars any legal action against “any director, officer,
partner, employee or agent of, or anyone else associated with, one of the principals to this
contract.” Contract at 3. Mr. Seibert argues that “[t]his sentence purports to, in effect, change
PCS to a corporation, and to insulate its partner from liability, even for fraud.” Opp’n to D.
Sieber MTD at 14. Contrary to the expansive protection of the arbitration clause, Derrick Sieber
is a necessary party to any claim against the partnership, such as an effort to confirm an
arbitration award. See Country Club Assocs. Ltd. P’ship v. FDIC, 918 F. Supp. 429, 438-39
(D.D.C. 1996) (“The settled rule in the District of Columbia is that a partnership is not a jural
entity capable of suing or being sued. Therefore, individual partners have been held to be proper
and perhaps necessary plaintiffs in any lawsuit brought by a partnership.”). Mr. Seibert
emphasizes that the arbitration clause attempts to make it impossible for him to bring a valid
claim against PCS, including for fraud, because Derrick Sieber would be required by law to be a
party to any lawsuit against PCS, but the contract with PCS prohibits suing Mr. Sieber. See
Mero v. City Segway Tours of Washington DC, LLC, 962 F. Supp. 2d 92, 97 (D.D.C. 2013)
(noting that a prospective waiver of tort liability is unenforceable in D.C. unless clearly and
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unambiguously stated and only to the extent conduct is not grossly negligent, reckless, or
intentional). As with the confidentiality provision, Defendants state that this portion of the
arbitration clause is indispensable. See Pl.’s Suppl. Info, Aug. 1, 2018 email from Defendants’
counsel to AAA [Dkt. 28-1] (stating that “the disputes provision of Mr. Seibert’s contract with
PCS prohibits any attempt to join in the arbitration any individual associated with either of the
parties therein. . . . PCS would not have entered into that contract with Mr. Seibert if that
disputes provision and its protections for individual personnel had not been included in the
contract”). This provision in the arbitration clause is also undisputed and weighs in favor of its
unconscionability.
C. Motion to Dismiss
Defendants insist that since the contract contains an arbitration provision, the
Court is required to dismiss Mr. Seibert’s Complaint for lack of subject-matter jurisdiction.
However, the arbitration provision in the contract does not divest the Court of subject-matter
jurisdiction to determine whether the parties must submit their claims to arbitration. See Nelson
v. Insignia/ESG, Inc., 215 F. Supp. 2d 143, 146 (D.D.C. 2002). As the above discussion of the
FAA, FTCA § 45b, and Mr. Seibert’s arguments demonstrates, while arbitration is generally
preferred, courts may review the validity of an arbitration agreement. Epic Sys., 138 S. Ct. at
1622 (noting the saving clause “permits agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or unconscionability”) (citation omitted).
Derrick Sieber advanced numerous additional arguments, which PCS adopted in
full. See PCS MTD at 4 (“Defendant PCS now adopts all arguments that Derrick Sieber has
made in [his] filings and makes them part of this Motion.”). Mr. Sieber’s additional arguments
are that: (1) the parties intended to arbitrate “any and all disputes” and a valid arbitration has
been initiated, D. Sieber MTD at 5-6; (2) there is no basis to revoke or reform the contract, id. at
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6-7; (3) once arbitration is underway, questions of arbitrability belong to the arbitrator, D. Sieber
Reply at 3-4 (citing Howsam, 537 U.S. at 84); (4) the confidentiality provision in the contract
would not “prevent [Mr. Seibert] from seeking . . . relief in either this Court or the D.C. Superior
Court through a motion to proceed under seal . . . ,” id. at 6; (5) a “special arbitrator” could be
authorized to join Derrick Sieber to the arbitration if needed, id. at 6-8; (6) the merits arbitrator
could declare the confidentiality provision unenforceable, id. at 8; (7) the merits arbitrator could
declare the 30-day period for making claims unenforceable, id. at 8-9; and (8) the merits
arbitrator could order appropriate relief if allegations of fraud, threats, or intimidation were
found convincing. Id. at 9.
The Court is unpersuaded. It finds, as counsel for Defendants and Defendants’
past conduct have made clear, that the confidentiality provision in the arbitration clause was
critical to the Contract’s acceptance by PCS. However, as enforced by Defendants, such a
confidentiality provision interferes with a client’s right to challenge its obligation to arbitrate, as
here, or to get any arbitral award enforced.9 Since both of these rights are part and parcel of the
FAA §§ 4 and 9, availing oneself of these rights in court does not and cannot interfere with the
policy goals of the statute. The attempted protection of “any director, officer, employee or agent
of, or anyone else associated with, one of the principals to this contract” interferes with the same
client rights under the FAA because Derrick Sieber is a necessary party to actions under §§ 4 or
9.
9
Defendants suggest access to the courts for enforcement of an award can be obtained by filing
under seal. But the federal courts are public places. Sealed cases are highly unusual in the
federal courts and nothing about a run-of-the-mill arbitration award enforcement would easily
receive such treatment.
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Further, Defendants have misread Howsam v. Dean Witter Reynolds, Inc. What
the Supreme Court held was that “a gateway dispute about whether the parties are bound by a
given arbitration clause raises a ‘question of arbitrability’ for a court to decide.” 537 U.S. at 84
(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943-46 (1995)). Thus, “[t]he
question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question
of arbitrability,’ is ‘an issue for judicial determination unless the parties clearly and
unmistakably provide otherwise.’” Id. at 83 (quoting AT&T Techs., 475 U.S. at 649). Howsam
distinguished “‘procedural’ questions which grow out of the dispute” which are presumptively
for an arbitrator to decide. Id. at 84. Inasmuch as Mr. Seibert seeks to benefit from the express
provisions of the FAA, his Complaint arises under federal law and asks the most fundamental of
questions, that is, is the arbitration clause in the PCS contract enforceable as a matter of law?
IV. CONCLUSION
The Court concludes, for the reasons stated, that this particular arbitration clause
is unconscionable and in violation of federal law. It cannot be enforced. The Court will grant
Mr. Seibert’s Motion to Stay [Dkt. 2] and order a stay of the arbitration and any award. The
Court will also grant PCS’s Motion to Vacate Clerk’s Entry of Default [Dkt. 11] and deny
Defendants’ Motions to Dismiss [Dkts. 14 and 24]. A memorializing Order accompanies this
Memorandum Opinion.
Date: February 26, 2019
ROSEMARY M. COLLYER
United States District Judge
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