LEE H. ROSENTHAL, District Judge.
This is a suit alleging a failure to pay the overtime required under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq. Christian Vallejo sued his former employer, Garda CL Southwest, Inc. (Garda), asserting a right to relief for himself and on behalf of other similarly situated employees. Garda moved to dismiss or stay and compel arbitration under an arbitration clause contained in a collective-bargaining agreement that Vallejo signed. (Docket Entry No. 15). On October 18, 2012, three other Garda employees — Artemio Caballero,
On January 30, 2013, 2013 WL 391163, this court granted the motion to dismiss in part and denied it in part. The motion was granted to the extent that Vallejo was compelled to arbitrate his own claims, which were dismissed. (Docket Entry No. 36). The motion to intervene was granted. On March 8, 2013, Garda moved to dismiss or stay the proceedings and compel arbitration as to the three intervenors, who filed a response, to which Garda replied. (Docket Entry No. 39, 43, 44). Based on the pleadings, the motion and response, and the relevant law, this court denies the motion to dismiss or to stay and compel arbitration as to the intervenors' claims. The reasons for this ruling are explained below.
Although this court has ruled that Christian Vallejo must arbitrate his claims against Garda, his claims are helpful to understanding the present motion seeking to require the intervenors to arbitrate. Christian Vallejo worked as an armored-car driver and guard for Garda in Houston, Texas from July 2008 until Garda terminated his employment on January 26, 2012. Vallejo was a member of the Houston /North Houston Drivers Association, which Garda alleges is the employees' union for Garda armored-car personnel. Vallejo was subject to a collective-bargaining agreement between the union and Garda. The agreement, which Vallejo signed on October 21, 2011, stated that the union is the exclusive representative for collective-bargaining purposes. The agreement contained an arbitration clause covering "grievances," which were defined as follows:
(Docket Entry No. 15, Ex. A, Collective-Bargaining Agreement, Art. 5(a)). The agreement required employees to submit grievances first to Garda and then to an arbitrator, whose decision would be final and binding. The agreement also required any dispute about the "interpretation or application of this Agreement" to be arbitrated. (Id.) The agreement had an effective date of November 1, 2011.
The agreement stated that it was between Garda and the drivers' association, identified as the union for, and the exclusive bargaining representative of, the armored car guards and drivers. It is undisputed that Vallejo signed the agreement. The signature line was below language stating that by signing, the employee had (1) read and understood the agreement, (2) signed it "freely and voluntarily," and (3) expressly "agree[d] to its terms and conditions." (Id., at 16-17). Vallejo continued to work for Garda after receiving notice of the agreement with the arbitration provision and signing it.
Jason Winn was employed by Garda as a driver, messenger, and guard at Garda's Houston facility until his employment was terminated on September 14, 2010. Karlnetta Coleman was employed by Garda from January 17, 2011 to January 31, 2012, when Garda terminated her employment.
According to Garda, the intervenors were all members of the drivers' association during the time they worked for Garda. (Docket Entry No. 39, at 5). But Garda has not produced collective-bargaining agreements signed by the intervenors. Instead, Garda explains that all drivers who worked during the same period were automatically members of the union and subject to the terms of the collective-bargaining agreement. According to Garda, "[a]n Agreement setting forth terms and conditions of employment for the drivers/messengers/guards and Garda (as well as its predecessors) has been negotiated and in effect since at least 2006. (Id. (citing Docket Entry No. 40, App. at 5, Decl. of Winton Blackmon, ¶ 5)). "These Agreements are negotiated and bargained for by an exclusive bargaining representative (the Houston/North Houston Drivers Association) on all drivers/messengers/guards' behalf." (Id.)
The intervenors asserted that they never agreed to be part of the drivers' association or any union while at Garda. They deny signing a collective-bargaining agreement that contained an arbitration provision. Each intervenor submitted an affidavit supporting these assertions. (Docket Entry No. 43, Exs. A-D). The intervenors also point out that while Vallejo's signature is among the signatures on the Labor Agreement Garda produced, their signatures are not. In addition, Winn's employment terminated before the 2011 Labor Agreement's effective date. Finally, the intervenors argue that there is no evidence that they knew about the Labor Agreement during the time they worked for Garda. (Docket Entry No. 43, ¶ 6).
Vallejo claimed that he and other employees were entitled to overtime pay for their work at Garda. Vallejo proposed a class defined as "[a]ll individuals who were employed or are currently employed by one or more of the following: Defendant, its subsidiaries or affiliated companies as armored transport employees or in any other similarly titled position at any time during the relevant statute of limitations period." (Docket Entry No. 16, ¶ 32). In his amended complaint, Vallejo alleged, among other things, that the drivers' association was a fraudulent or fictitious union, making the Labor Agreement containing the arbitration clause fraudulent as well. Vallejo asserted state-law claims, including for fraud, fraudulent inducement, negligence, and negligent misrepresentation, based on those factual allegations.
Garda moved to dismiss or in the alternative to stay the litigation and compel arbitration. (Docket Entry No. 15). Garda argued that Vallejo's claims were expressly covered by the grievance and arbitration provisions of the collective-bargaining agreement. Vallejo's claim that the collective-bargaining agreement was fraudulent was, according to Garda, a challenge to the validity of the contract as a whole rather than to the arbitration clause, and therefore was an issue for the arbitrator to decide. (Id. at 12-13).
On October 18, 2012, Winn, Coleman, and Caballero filed notices of consent to join this collective action. (Docket Entries No. 19, 20, 21). Vallejo responded to Garda's motion to dismiss or to compel arbitration and moved for class certification. (Docket Entries No. 22, 23). Vallejo sought to divide the putative class into two subclasses. One would include employees
On November 14, 2012, this court held a hearing on the parties' motions. (Docket Entry No. 30). On December 10, 2012, Winn, Coleman, and Caballero moved to intervene with a proposed complaint. (Docket Entries No. 32, 33). On January 30, 2013, this court dismissed Vallejo's claims on the basis of the arbitration clause and granted Winn, Coleman, and Caballero leave to intervene. (Docket Entry No. 36). Garda moved to dismiss or to stay and compel arbitration as to the claims of Winn, Coleman, and Caballero. (Docket Entry No. 39). As with Vallejo, Garda argued that the Labor Agreement's arbitration clause mandated arbitration of the intervenors' claims. Garda also argued that arguments about the union's validity did not affect the validity of the arbitration clause and were for an arbitrator to decide. In response, the intervenors argued that Garda had not presented evidence that they assented to the arbitration clause in the Labor Agreement and repeated Vallejo's argument that the union itself was fictitious and fraudulent. (Docket Entry No. 43). Garda replied that the legal status of the union was irrelevant to whether the Labor Agreement's arbitration clause applied to employees such as Winn, Coleman, and Caballero. (Docket Entry No. 44).
These arguments and their responses are discussed below.
The Federal Arbitration Act ("FAA") requires district courts to direct parties to arbitrate issues covered by a valid arbitration agreement. 9 U.S.C. §§ 3, 4; see also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Federal policy strongly favors enforcing arbitration agreements. Dean Witter Reynolds, 470 U.S. at 217, 105 S.Ct. 1238; Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). When a party moves to compel arbitration, the FAA requires district courts to order arbitration of arbitrable claims. Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co. (In re Sedco, Inc.), 767 F.2d 1140, 1147 (5th Cir. 1985). The first task of a court asked to compel arbitration is to determine whether the parties entered into a binding agreement to arbitrate the dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); JP Morgan Chase & Co. v. Conegie ex rel. Lee, 492 F.3d 596, 598 (5th Cir.2007). Making this determination requires the court to consider two issues: (1) validity — i.e., "whether there is a valid agreement to arbitrate between the parties" — and (2) scope — i.e., "whether the dispute in question falls within the scope of that arbitration agreement." Conegie, 492 F.3d at 598. Because arbitration agreements are matters of contract, the validity and scope of such an agreement are governed by state contract law. Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. 2008). If the parties have entered into a binding agreement to arbitrate the dispute, the court must determine whether any federal statute or policy renders the claims nonarbitrable. Conegie, 492 F.3d at 598. Arbitration agreements, like other
Arbitration is a matter of contract. Generally, a party cannot be required to arbitrate absent an agreement to do so. First Options of Chi. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). A threshold issue is what challenges to arbitrability are for the court to determine, and what challenges are for the arbitrator. As with Vallejo, the intervenors' arguments against arbitration rest largely on arguments that the drivers' association was a fraudulent union and that any arbitration agreement that association purported to make could not bind the intervenors. As this court's previous order made clear, the intervenors' arguments about the union's overall validity are separate from the arguments about whether the parties agreed to arbitrate.
Under the FAA, a written agreement to arbitrate "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. Section 3 allows a party to request a stay of a federal action pending arbitration if a valid arbitration clause exists; § 4 allows a party to seek an order compelling arbitration under the parties' contract. The Supreme Court has issued a series of decisions addressing which so-called gateway challenges to an arbitration clause are for arbitrators to decide and which a court must first decide. A challenge to the validity of the parties' contract as a whole, as opposed to the arbitration clause contained in the contract, is for the arbitrator to decide. In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the Supreme Court held that a challenge to the validity of the entire agreement as having been fraudulently induced was for the arbitrator to resolve, not the court. Regardless of whether a contract as a whole is valid, agreements to arbitrate are severable from a larger contract and may be separately enforced and their validity separately determined. Id. at 406, 87 S.Ct. 1801. This result was recently affirmed in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). The Court held that a challenge to an agreement containing the arbitration clause, as opposed to a challenge to the arbitration provision specifically, is for the arbitrator to decide. Id. at 445-46, 126 S.Ct. 1204.
In Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010), the plaintiff challenged an arbitration agreement as unconscionable because he had been required to sign it as a condition of his employment. The contract contained a delegation clause, in which the contracting parties themselves decided whether the court or arbitrator will decide challenges to arbitrability. The delegation clause stated that "[t]he Arbitrator, and not any federal, state, or local
Challenges to contract formation — including whether the plaintiff signed the contract or, if not, can nonetheless be bound under principles of contract or agency law, or whether the signor lacked authority to commit the alleged principal — are different from the challenges to contract validity addressed in Buckeye and Rent-A-Center. Federal substantive law governs questions of arbitrability, including in diversity cases. Moses H. Cone, 460 U.S. at 24, 103 S.Ct. 927. State-law contract principles govern questions of contract formation. First Options, 514 U.S. at 944, 115 S.Ct. 1920; see also 9 U.S.C. § 2 (providing that written agreements to arbitrate "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract"). Challenges to the existence — as opposed to the enforceability or validity or scope — of an agreement to arbitrate, are for a court to decide. E.g., DK Joint Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir.2011) ("[It] is for the courts and not the arbitrator to decide in the first instance[] a dispute over whether the parties entered into any arbitration agreement in the first place."); Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 212 (5th Cir.2003) ("We vacate the order compelling arbitration and remand the case to the district court, concluding that where the very existence of any agreement to arbitrate is at issue, it is for the courts to decide based on state-law contract formation principles."). The Supreme Court did not address that aspect of the which-tribunal-decides-arbitrability issue in Buckeye or Rent-A Center.
The Court did address that issue in Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010). The central dispute was whether a collective-bargaining agreement had been ratified on a specific date. If the ratification occurred
Several lower court decisions applying Rent-A-Center and Granite Rock are instructive. In Allen v. Regions Bank, 389 Fed.Appx. 441 (5th Cir.2010) (per curiam), the court addressed an arbitration provision in a home equity loan contract. The arbitration agreement contained a delegation provision stating, "[A] dispute regarding whether a particular controversy is subject to arbitration, including any claim of unconscionability and any dispute over the scope or validity of this agreement to arbitrate disputes or of this entire Agreement, shall be decided by the arbitrator(s)." Id. at 443. The court of appeals found that the provision "clearly and unmistakably" called for the arbitrator to decide arbitrability issues. Id. at 446; see also Petrofac, Inc. v. DynMcDermott Petrol, Operations Co., 687 F.3d 671, 675 (5th Cir.2012) ("[The] arbitration agreement.... state[s] that `[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.' We agree with most of our sister circuits that [this] presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability."); Schneider v. Kingdom of Thailand, 688 F.3d 68, 72 (2d Cir.2012) ("[W]hether the district court properly declined to determine independently whether the [lawsuit] involved `approved investments' [under the arbitration agreement] does not turn on whether that question was one of scope or formation. It turns on whether there was clear and unmistakable evidence of the parties' intent to commit that question to arbitration. For in the absence of such clear and unmistakable evidence, questions of arbitrability are presumptively resolved by the court, regardless of whether they are related to scope or formation.... The district court should not have refused to determine independently whether the [lawsuit] involved `approved investments' without first finding clear and unmistakable evidence of the parties' intent to submit that question to arbitration." (citing Granite Rock, 130 S.Ct. at 2858-59)).
In Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir.2013), the court found that the arbitration agreement did not contain "clear and unmistakable evidence that Plaintiffs and Toyota agreed to arbitrate arbitrability." Id. at 1127. The plaintiffs agreed to arbitrate arbitrability in disputes with Toyota dealerships, but the dealerships were not parties to the suit and Toyota was not a signatory to the arbitration agreements. Id. "Given the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable." Id.
In Janiga v. Questar Capital Corp., 615 F.3d 735 (7th Cir.2010), the court addressed
In the present suit, the intervenors challenge not only the validity of the collective-bargaining agreement, but also whether they assented to the arbitration provision. If there is an enforceable arbitration provision, the invalidity challenge is for an arbitrator to decide under Prima Paint and similar cases. But under Granite Rock and similar cases, the intervenors' arguments that they never signed the agreement containing the arbitration provision or otherwise assented to it at all raise threshold issues of arbitrability that this court must first decide.
In contrast to the evidence as to Vallejo, the present record does not show that the intervenors signed the Labor Agreement. Texas law — which applies to the contract-formation issues — recognizes that an employee who has received notice of an arbitration policy accepts it by continuing to work with knowledge of the provisions. In re Halliburton Co., 80 S.W.3d 566, 568 (Tex.2002) (citing Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 229 (1986)). "`To prove notice, an employer asserting modification must prove that he unequivocally notified the employee of definite changes in employment terms.'" Id. (quotation omitted). "[W]hen an employer notifies an employee of changes to the at-will employment contract and the employee `continues working with knowledge of the changes, he has accepted the changes as a matter of law.'" Id. (quotation omitted); see also In re Dillard Dep't Stores, Inc., 198 S.W.3d 778, 780 (Tex. 2006) (per curiam) (holding that the absence of a signed agreement is not an obstacle to enforcement of the arbitration agreement); Munoz v. Luby's Inc., 2011 WL 6291966, at *4-6 (S.D.Tex. Dec. 14, 2011). Garda relies on evidence that a Labor Agreement that covered the intervenors was in place during their employment. But Garda has not pointed to evidence that the intervenors had notice of the Labor Agreement and the arbitration clause it contained and continued to work after receiving that notice. To the contrary, the intervenors have stated that they did not know about the Labor Agreement and did not assent to membership in the drivers' association.
Based on the present record, this court cannot conclude that the intervenors consented to arbitration or are otherwise bound by the arbitration clause. See, e.g., Moran v. Ceiling Fans Direct, Inc., 2006 WL 2478837, at *5 (S.D.Tex. Aug. 25, 2006) ("CFD [Ceiling Fans Direct] failed to give its employees unequivocal notice that it was implementing an arbitration policy and that an employee agreed to be bound by the arbitration policy if he continued to work for CFD. The employees, on the other hand, .... stated verbally
The motion to dismiss or to stay proceedings and compel arbitration as to the intervenors is denied. A status conference is set for