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By Pete McElligott
When a party moves to dismiss for failure to state a claim and compel arbitration at the same time, what gets decided first? That was the central question in a recent Minnesota Court of Appeals decision issued on November 26, 2018. In Rodgers v. Silva, the Court of Appeals concluded that under Minnesota Statute § 572B.07(a), the district court must consider and decide a motion to compel arbitration before deciding a motion to dismiss. – N.W.2d –, 2018 WL 6165497 (Minn. Ct. App. Nov. 26, 2018).
Fighting Off the Court/Field
After playing basketball for the Northern Illinois Huskies, Leon Rodgers began a career playing professionally overseas in Germany, France, Netherlands, China, and Puerto Rico. In 2012, Rodgers’ performance led him to Venezuela where he began playing for a Venezuelan professional team called Marinos. The owner of Marinos at the time was former Minnesota Twins pitcher and Venezuelan native, Carlos Silva.
After playing for Marinos for two years, Rodgers signed an employment agreement to play for the team for another two seasons with a team option for a third season. Rodgers alleged that Marinos failed to pay his full salary under that employment agreement. In 2017, Rodgers sued Silva in Hennepin County claiming breach of a personal guaranty and promissory estoppel based on allegations that Silva personally promised to pay Rodgers if Marinos failed to pay his salary. Indeed, Rodgers alleges Silva paid him $70,000 in cash to compensate him for money that Marinos owed to Rodgers.
In response to the complaint, Silva moved to dismiss the complaint under Minnesota Rule of Civil Procedure 12.02(e) for failure to state a claim. Silva simultaneously moved to compel arbitration because Rodgers’ employment agreement with Marinos contained an arbitration clause requiring any dispute arising from or related to the agreement to be submitted to the FIBA Arbitral Tribunal in Geneva, Switzerland. The district court granted Silva’s motion to dismiss on the grounds that Rodgers did not demonstrate the terms necessary to establish Silva guaranteed to pay the debts of Marinos. Having decided the motion to dismiss, the district court did not rule on Silva’s motion to compel arbitration.
Courts Must Decide a Motion to Compel Arbitration Before a Motion to Dismiss
On appeal, the parties actually agreed the district court erred by failing to decide Silva’s motion to compel arbitration. The Court of Appeals agreed as well. Under Minnesota Statute § 572B.07(a), a court “shall” decide whether an arbitration agreement exists and if the dispute falls within the scope of the agreement. The Court of Appeals reasoned that the district court’s failure to consider and decide the motion to compel arbitration contravened § 572B.07 because the arbitrators must decide the merits of the case if the dispute is governed by an arbitration agreement. The Court of Appeals reversed the district court’s dismissal and remanded to determine if Silva is entitled to compel arbitration even though he was not a signatory to the employment agreement.
Impact on Early Litigation Strategy
The Court of Appeals’ decision, as agreed upon by the parties, is an important decision that can have a big impact on litigation strategy early in cases. Although the outcome may seem obvious, this appears to be the first Minnesota case to directly decide the issue whether a district court must decide a motion to compel arbitration before a motion to dismiss. It is no coincidence that the Court of Appeals decided to publish this opinion.
Based on this precedent, defendants must take a very close look at the merits of a motion to dismiss for failure to state a claim. If the argument is promising, defendants may want to take the chance of bringing a motion to dismiss in an attempt to resolve the case early, in court, instead of pursuing arbitration. However, if there is uncertainty, defendants may want to singularly bring a motion to compel arbitration knowing that the court must decide that issue first. After the decision in Rodgers, all parties will now know a motion to compel arbitration must get decided first.
Pete McElligott is an associate at Anthony Ostlund Baer & Louwagie P.A. He regularly advises businesses and represents clients during all phases of commercial litigation. He can be reached at email@example.com, or (612) 492-8233.