COLLEEN KOLLAR-KOTELLY, United States District Judge.
Plaintiffs C.J. Mercadante, Robert Biddle, Johnny Jefferson, and Phillip W. OHara (collectively "Plaintiffs") brought this action on their own behalf and on behalf of a putative class against Defendants XE Services, LLC; U.S. Training Center, Inc.; USTC Security Consulting, LLC f/k/a Blackwater Security Consulting, LLC; and Blackwater Worldwide Trust, Health and Welfare Plan and Trustees (collectively, "Defendants" or "Blackwater"). Plaintiffs assert a series of claims—including breach of contract, fraud, and breach of fiduciary duty under the Employment Retirement Income Security Act of 1974—and allege, among other things, that they were misclassified as independent contractors and denied various employment benefits. See First Am. Compl. for Damages & Declaratory & Injunctive Relief & Class Relief ("First Am. Compl."), ECF No. 11. Presently before the Court is Defendants' [24] Second Renewed Motion to Compel Arbitration. Upon consideration of the pleadings,
The question before the Court is whether the parties have delegated to an arbitrator—through a valid delegation agreement—the question of whether the underlying claims brought by Plaintiffs are arbitrable. Because the Court resolves that gateway question in the affirmative, concluding that the parties have validly delegated questions of arbitrability to an arbitrator, the Court recites only the background that informs the Court's answer to that gateway question.
Between 2006 and 2009, each plaintiff served as a security contractor in Iraq or Afghanistan under contracts that Blackwater held with the U.S. Department of State. See Mercadante Decl. ¶ 2; Biddle Decl. ¶ 2; OHara Decl. ¶ 2; Jefferson Decl. ¶ 2; Defs.' Supp. Statement ¶¶ 62, 108, 144, 194. Each plaintiff signed an Independent Contractor Service Agreement (ICSA) with Blackwater. See Defs.' Statement of Undisputed Material Facts in Support of Defs.' Supp. Br., ECF No. 38-1 ("Defs.' Supp. Statement"), ¶ 31 (Plaintiff Mercadante); id. ¶ 77 (Plaintiff Biddle); id. ¶ 119 (Plaintiff OHara); id. ¶ 154 (Plaintiff Jefferson). Plaintiffs' claims pertain to their work for Blackwater in this period and primarily revolve around their argument that they were inappropriately categorized as independent contractors rather than as employees. See First Am. Compl, ¶¶ 12, 21.
Each ICSA includes an identical arbitration clause. See Pls.' Response to Defs.' Statement of Undisputed Material Facts ("Pls.' Response Facts"), ¶¶ 41 (Mercadante), 76 (Biddle), 125 (OHara), 157 (Jefferson's first ICSA); 163 (Jefferson's second ICSA). The clause reads in full:
Id. (emphasis added). The rules of the American Arbitration Association ("AAA") provide for an arbitrator to decide questions of arbitrability. See AAA Employment Arbitration Rules and Mediation Procedures, Rule 6. Three of the plaintiffs—Mercadante, OHara, and Jefferson—acknowledge that the initials on the pages that include the arbitration clause are theirs; Plaintiff Biddle stated that he did not know whether the initials on those pages were his. Defs.' Supp. Statement ¶ 32 (Mercadante); id. ¶ 120 (OHara); id. ¶¶ 155, 165 (Jefferson); id. ¶ 78 (Biddle). The parties dispute the circumstances that surround the signing of ICSAs, including the dates on which the ICSAs were signed. See, e.g., Pls.' Response Facts ¶ 10.
Each plaintiff also signed one or more additional "schedules" providing further details about each plaintiff's assignment, which were dated after the ICSAs. Each schedule includes the following language:
Defs.' Supp. Statement ¶ 47-48 (Mercadante's Schedule 3.1—Compensation Policy). See id. ¶¶ 52, 55 (Mercadante's Schedule A—Engagement Specific Information); id. ¶¶ 94-95 (Biddle's Schedule 3.1; id. ¶¶ 98-99 (Biddle's second Schedule 3.1); id. ¶ 104 (Biddle's Schedule A); id. ¶ 134 (OHara's first Schedule A); id. ¶ 143 (OHara's second Schedule A); id. ¶¶ 174, 178 (Jefferson's Schedule 3.1); id. ¶¶ 183-84 (Jefferson's first Schedule A); id. ¶¶ 188-89 (Jefferson's second Schedule A). While some of the plaintiffs acknowledge having read this statement regarding incorporation in the ICSA when signing the schedules, others deny having read it. See Defs.' Supp. Statement ¶¶ 47, 50, 55, 94, 135, 141, 179, 184, 189.
Plaintiffs filed a Complaint for Damages and Injunctive and Class Relief. Defs.' Statement of Undisputed Material Facts in Support of Defs.' Supp. Br., ECF No. 38-1 ("Defs.' Supp. Statement"), ¶¶ 1-2. Defendants moved to compel arbitration. Id. ¶ 3. On May 22, 2012, the Court denied that motion without prejudice. See Memorandum Opinion and Order, ECF No. 20 ("2012 Mem. Op. & Order"), at 1. The Court reasoned that, because Defendants had argued for the first time in their reply brief that the parties had delegated the question of arbitrability to an arbitrator, "Defendants deprived Plaintiffs of an opportunity to render a meaningful response." Id. at 5. The Court denied the motion to compel arbitration without prejudice in order to be able to consider a renewed motion to compel with the benefit of additional briefing "on the question of whether Defendants may invoke the delegation agreement in this case in order to compel the arbitration on gateway questions of arbitrability." Id. The Court also
After considering the parties' additional briefing with respect to Defendants' [24] Second Renewed Motion to Compel Arbitration,
A motion to compel arbitration is treated as "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); see also Haire v. Smith, Currie & Hancock LLP, 925 F.Supp.2d 126, 129 (D.D.C.2013). "Under Rule 56(c), summary judgment is appropriate only if `there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.'" Aliron Int'l, 531 F.3d at 865 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "The party seeking to compel arbitration must `present evidence sufficient to demonstrate an enforceable agreement to arbitrate.'" Haire, 925 F.Supp.2d at 129 (quoting Hill v. Wackenhut Servs. Int'l, 865 F.Supp.2d 84, 89 (D.D.C.2012)). "The burden then shifts to plaintiffs to show that there is a genuine issue of material fact as to the making of the agreement." Id. "The Court will compel arbitration if the pleadings and the evidence show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id. (quoting Fox v. Computer World Servs. Corp., 920 F.Supp.2d 90, 96 (D.D.C.2013)).
"[P]arties can agree to arbitrate `gateway' questions of `arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). "[T]he question `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter. Did the parties agree to submit the arbitrability question itself to arbitration?" First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). "The question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability,' is `an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'" Howsam v. Dean Witter Reynolds,
Section 2 of the Federal Arbitration Act ("FAA") "create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act."
"`[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.'" Rent-A-Center, 561 U.S. at 70-71, 130 S.Ct. 2772 (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006)). "[A] a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate." Id. at 70, 130 S.Ct. 2772. Similarly, a challenge to the validity of an arbitration provision rather than to a delegation provision does not prevent a court from enforcing a specific agreement to delegate questions of arbitrability to an arbitrator. See id. at 71-72, 130 S.Ct. 2772; accord Brennan v. Opus Bank, No. 2:13-CV-00094-RSM, 2013 WL 2445430, at *6-7 (W.D.Wash. June 5, 2013) ("It is only when a party challenges the delegation provision itself that the district court intervenes.") However, before an arbitrator can determine the question of arbitrability, the Court must consider any challenges to the validity of the delegation provision. See Rent-A-Center, 561 U.S. at 71-75, 130 S.Ct. 2772; cf. id. at 71, 130 S.Ct. 2772 ("If a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under § 4."). Such challenges, pursuant to the applicable state law, include contract defenses such as fraud in the inducement, duress, and unconscionability. See id. at 68, 70, 73, 130 S.Ct. 2772.
The Court first considers whether the parties have agreed to delegate to an arbitrator questions of arbitrability. The
"The question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability,' is `an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'" Howsam, 537 U.S. at 83, 123 S.Ct. 588 (quoting AT & T Technologies, Inc., 475 U.S. at 649, 106 S.Ct. 1415; First Options, 514 U.S. at 944, 115 S.Ct. 1920). Defendants argue that the parties have clearly and unmistakably submitted questions of arbitrability to an arbitrator by virtue of the incorporation of the rules of the American Arbitration Association in the ICSAs. Plaintiffs argue that the incorporation of these rules is insufficient to satisfy the "clear and unmistakable" standard. The Court agrees with Defendants that the parties have "clearly and unmistakably" submitted questions of arbitrability to an arbitrator.
The arbitration provision in each plaintiff's ICSA states that "any dispute regarding interpretation or enforcement of any of the parties' rights or obligations under this Agreement shall be resolved by binding arbitration according to the rules of the American Arbitration Association." Pls.' Response Facts ¶¶ 41 (Mercadante), 76 (Biddle), 125 (OHara), 157 (Jefferson's first ICSA); 163 (Jefferson's second ICSA). The AAA Employment Arbitration Rules and Mediation Procedures, in turn, provide for the arbitrator to rule on questions of arbitrability. See AAA Employment Arbitration Rules and Mediation Procedures, Rule 6.
Plaintiffs also argue that "Plaintiff-Contractors may bring an action in federal court
Even though the agreement itself provides clear and unmistakable evidence of the parties' intent to delegate questions of arbitrability to an arbitrator, the Court will only compel arbitration of those questions if the delegation agreement survives challenges to its validity. "An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Rent-A-Center, 561 U.S. 70, 130 S.Ct. 2772 (2010). A delegation agreement "shall be valid, irrevocable, and enforceable, save upon such grounds
Although Plaintiffs' briefing is not a model of clarity and precision,
Plaintiffs argue that the agreements between Plaintiffs and Blackwater were invalid because of fraud.
Plaintiffs also argue that the ICSAs are unenforceable because they signed those agreements under duress.
Unlike Plaintiffs' arguments on duress and fraud, Plaintiffs assert that their unilateral
Pursuant to North Carolina law, "[t]he mistake of one party is sufficient to avoid a contract when the other party had reason to know of the mistake or caused the mistake." Creech v. Melnik, 347 N.C. 520, 495 S.E.2d 907, 912 (1998) (quoting Howell v. Waters, 82 N.C. App. 481, 347 S.E.2d 65, 69 (1986), disc. rev. denied, 318 N.C. 694, 351 S.E.2d 747 (1987)). Plaintiffs' argument, on its face, satisfies this initial requirement by claiming that Plaintiffs were mistaken about the nature of the agreement and that this mistake was caused by Blackwater's agents. However, North Carolina law requires more:
Roberts v. Century Contractors, Inc., 162 N.C. App. 688, 592 S.E.2d 215, 219 (2004) (quoting Howell, 347 S.E.2d at 69) (citations omitted). The mistake to which Plaintiffs point—about the nature of the contract and its contents—is not a mistake about an "existing or past fact" that could satisfy this standard. Plaintiffs do not cite any North Carolina case standing for the proposition that a qualifying mistake could be one about the contract itself. Instead, this term appears to be limited to mistakes outside of the four corners of the contract—facts about the world as it existed at the time of the contract or at an earlier time. See, e.g., Roberts, 592 S.E.2d at 218 (mistaken medical diagnosis); Howell, 347 S.E.2d at 72 (mistake concerning property boundaries); Creech, 495 S.E.2d at 912 (mistake concerning past medical treatment); Deans v. Layton, 89 N.C. App. 358, 366 S.E.2d 560, 564 (1988) (mistake concerning percentage of land that would drain properly). This pattern is consistent with the North Carolina Court of Appeals' definition of a mistake as "the efficient cause of the agreement." Roberts, 592 S.E.2d at 219. A fact can only be the cause of the agreement if it exists outside of and independent of the agreement; by contrast, neither the agreement nor its description can be its own cause. Therefore, the purported mistake as to the nature of the contract is not one that
Furthermore, Plaintiffs do not show how this mistake is material to the agreement whose validity is currently before the Court: the delegation agreement. Rent-A-Center allows Plaintiffs to challenge a delegation provision by arguing that a feature in common with the entire agreement—here, the purported mistake about the nature of the ICSA agreement and its contents—renders the delegation provision invalid because of that mistake. See Rent-A-Center, 561 U.S. at 74, 130 S.Ct. 2772 ("It may be that had Jackson challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court.") However, Plaintiffs' argument is missing a necessary link: Plaintiffs do not show how the mistake regarding the nature of the entire contract affects the validity of the delegation provision specifically. Moreover, given that only a material mistake can provide grounds to void an agreement, see Roberts, 592 S.E.2d at 219, Plaintiffs must show that the mistake in question is material to the delegation agreement, and Plaintiffs have not even attempted to do so. Indeed, insofar as Plaintiffs argue that the mistake was concealment of the fact that there was an arbitration clause in the contract, this mistake cannot logically be the cause of the delegation agreement. Accordingly, Plaintiffs do not lodge a successful challenge to the delegation agreement based on the doctrine of unilateral mistake.
Plaintiffs' unconscionability argument survives the threshold inquiry of Rent-A-Center because they assert that the delegation agreement is unconscionable.
To demonstrate unconscionability pursuant to North Carolina law, "a party must demonstrate both procedural unconscionability and substantive unconscionability." Torrence v. Nationwide Budget Finance, 753 S.E.2d 802, 807 (N.C.App. 2014) (citing Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 363, 370 (2008)). "While both elements of unconscionability must be present, a court
Plaintiffs only point to one feature of the delegation agreement that is substantively unconscionable: the shifting of attorneys' fees and expenses from Defendants to Plaintiffs. See Pls.' Supp. Mem. at 23. But this is precisely the sort of provision that the North Carolina Court of Appeals determined could not support an unconscionability claim. See Torrence, 753 S.E.2d at 811-12 ("We can only construe this language as eliminating the type of cost analysis applied by the North Carolina Supreme Court in Tillman."). In Torrence, the North Carolina Court of Appeals analyzed the impact of the Supreme Court's decisions in AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), and American Express Co. v. Italian Colors Restaurant, ___ U.S. ___, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), on Tillman, "[t]he leading case in North Carolina dealing with unconscionability in the context of an agreement to arbitrate." 753 S.E.2d at 807. In Concepcion, the Supreme Court concluded that arbitration agreements could not be invalidated "by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." 131 S.Ct. at 1746. See Italian Colors, 133 S.Ct. at 2311 (holding that "FAA does not sanction such a judicially created superstructure" that requires judicial analysis of individual claims before compelling arbitration). The Torrence court concluded that "underlying those decisions was a broader theme that unconscionability attacks that are directed at the arbitration process itself will no longer be tolerated." Id. at 811. The Torrence court then concluded that the bases for substantive unconscionability found by the North Carolina Supreme Court in Tillman had been undermined by Concepcion and Italian Colors. Id. at 812. Indeed, the Torrence court specifically concluded that high arbitration costs—the only basis on which Plaintiffs argue that there is substantive unconscionability with respect to the delegation agreement—could no longer be a basis for substantive unconscionability. See id.; see also Italian Colors, 133 S.Ct. at 2311 ("But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy."). The shifting of arbitration costs to Plaintiffs does not constitute substantive unconscionability.
Plaintiffs' reliance on King v. Bryant, 763 S.E.2d 338, 2014 WL 3510481
While it is not clear the extent to which Plaintiffs continue to rely on Winston v. Academi Training Center, Inc., 2013 WL 989999 (E.D.Va. Mar 13, 2013), an unpublished decision from the Eastern District of Virginia issued prior to the issuance of Torrence, any such reliance in unavailing.
In sum, because the Court concludes that no substantive unconscionability exists with respect to the delegation agreement, the Court need not evaluate whether or not procedural unconscionability exists. See Torrence, 753 S.E.2d at 807 (at a minimum, some substantive unconscionability is necessary for a successful unconscionability claim).
The Court concludes that none of the contract defenses that Plaintiffs present—fraud, duress, unilateral mistake, and unconscionability—invalidate the arbitration delegation agreements in their respective ICSAs. Accordingly, the Court need not consider Defendants' argument that, even if the delegation clauses in the ICSAs were invalid, that the delegation agreement remains valid due to its purported incorporation in the subsequent schedules that the Plaintiffs signed.
The only question remaining is whether the Court should stay this action or dismiss it upon granting the motion to compel arbitration. Because the Court presently only decides that an arbitrator must decide the gateway questions of arbitrability and does not now compel the arbitration of the substantive claims in this action, the Court concludes that it is appropriate to stay the action during the pendency of the arbitration.
The Court need not resolve the question of whether the Court would dismiss the case if it were compelling arbitration
The language used by several of the Circuits that permit dismissal of an action upon compelling arbitration suggests that such discretion may not extend to circumstances where a district court compels arbitration on arbitrability. See Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir.2001) ("BSR's motion to dismiss was not a proper § 3 motion because the sole remedy available under § 3 is a stay. Notwithstanding the terms of § 3, however, dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable.") (emphasis added); Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir.1992) ("The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.") (emphasis in original); Sparling v. Hoffman Const. Co., 864 F.2d 635, 638 (9th Cir.1988) ("This court held that 9 U.S.C. section 3. . . does not preclude summary judgment when all claims are barred by an arbitration clause.") (emphasis added); see also Sher v. Goldman Sachs, No. CIV. CCB-11-2796, 2012 WL 1377066, at *6 (D.Md. Apr. 19, 2012) ("Importantly, Choice Hotels prescribes the dismissal of actions where the district court finds all claims to be arbitrable. In this case, the court has found that the arbitrator should decide whether TMST's claims are arbitrable. Therefore, the court will stay the action rather than dismiss it while the arbitrator makes that determination.") (emphasis in original). But see Innospec Ltd. v. Ethyl Corp., No. 3:14-CV-158-JAG, 2014 WL 5460413, at *4 (E.D.Va. Oct. 27, 2014) (applying Choice Hotels International and dismissing without prejudice upon compelling arbitration on arbitrability). In this action, the Court has not yet decided that any of the individual claims brought by Plaintiffs are arbitrable—let alone all of those claims; the Court has only decided that an arbitrator must decide whether Plaintiffs' claims are arbitrable. Accordingly, the Court concludes that dismissal at this point is not appropriate.
However, the Court's conclusion that a stay is warranted at this time does not prevent Defendants from seeking dismissal of this action if an arbitrator determines that all the issues in this case are, indeed, arbitrable. See Visibility Corp. v. Schilling Robotics, LLC, No. CIV.A. 10-12280-JGD, 2011 WL 5075816, at *6 (D.Mass. Oct. 25, 2011). In order to facilitate the Court's evaluation of the appropriateness of dismissal at the appropriate time, the parties shall file a notice—after an arbitrator determines the question of arbitrability—informing the Court whether any claims remain for the Court to address.
For the foregoing reasons, Defendants' [24] Second Renewed Motion to Compel Arbitration is GRANTED. In accordance with the parties' "clear and unmistakable" delegation of questions of arbitrability to an arbitrator, the parties must address their arguments as to whether the claims in this dispute are arbitrable to an arbitrator. Accordingly, this action is STAYED during the pendency of the arbitration. An appropriate Order accompanies this Memorandum Opinion.
In an exercise of its discretion, the Court finds that holding oral argument in this action would not be of assistance in rendering a decision. See LCvR 7(f).
9 U.S.C. § 2.
See AAA Employment Arbitration Rules and Mediation Procedures, Rule 6.