Middleton v. Halliburton Energy Services, Inc. ( 2023 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 ROBERT MIDDLETON, No. 1:19-cv-01747-ADA-CDB 12 Plaintiff, 13 v. ORDER DENYING MOTION TO COMPEL ARBITRATION 14 HALLIBURTON ENERGY SERVICES, INC., and DOES 1-100, (ECF No. 23) 15 Defendants. 16 17 This matter is before the Court on Defendant Halliburton Energy Services, Inc.’s motion to 18 compel arbitration and dismiss with prejudice. (ECF No. 23.) For the reasons explained below, 19 the Court denies Defendant’s motion. 20 BACKGROUND 21 A. Procedural History 22 On December 16, 2019, Plaintiff Robert Middleton filed a Complaint under diversity 23 jurisdiction in this Court against Defendant Halliburton Energy Services, Inc. and Does 1 to 100, 24 inclusive, alleging six causes of action: (1) failure to pay overtime and double time wages (Cal. 25 Lab. Code §§ 510, 1194); (2) failure to pay proper regular rate of pay;1 (3) failure to timely pay 26 wages due at termination (Cal. Lab. Code §§ 201, 203); (4) failure to comply with itemized 27 1 Plaintiff cites Section 49.2.4.2 of the Department of Industrial Relations’ 2002 Division of 28 Labor Standards of Enforcement Policies and Interpretations Manual. (ECF No. 7 at 4.) 1 employee statement provisions (Cal. Lab. Code § 226); (5) failure to provide rest periods or 2 compensation in lieu thereof (Cal. Lab. Code § 226.7); and (6) Violation of Unfair Competition 3 Law (Cal. Bus. & Prof. Code §§ 17200-08). (ECF No. 1.) Plaintiff filed notice of these alleged 4 violations with the California Labor Workforce Development Agency (LWDA) and the 5 Department of Industrial Relations on December 16, 2019. (ECF No. 7 at 7.) Over 65 days passed 6 from Plaintiff’s notice, and Defendant did not cure the violations. (Id.) Plaintiff then filed his First 7 Amended Complaint (FAC) on February 21, 2020, removing his former fifth cause of action and 8 adding two new causes of action. (Id.) Plaintiff’s new, seventh cause of action (Cause No. 7) seeks 9 Private Attorney General (PAGA) penalties under California Labor Code Sections 2699 and 10 2699.3, and Plaintiff’s new, eighth cause of action seeks civil penalties and equitable relief for his 11 formerly alleged causes of action pursuant to Section 558. (Id.) Plaintiff prays for attorneys fees 12 and equitable relief. (Id. at 9.) 13 On March 27, 2020, the parties filed a Joint Stipulation for Arbitration and Stay of the 14 Action (Stipulation). (ECF No. 10.) In the Stipulation, the parties agreed to “dismiss all pending 15 claims except for Cause No. 7—‘Private Attorney General Penalties Under California Labor Code 16 Section 2699’” so that the other claims could be arbitrated. (Id. at 2.) The Stipulation created “a 17 mutual agreement mandating all claims, but for Cause No. 7, be resolved in arbitration.” (Id.) The 18 parties stipulated that Plaintiff would “pursue his claims on an individual basis only in arbitration 19 pursuant to the terms of the [Arbitrated Agreement,]” to a “stay of this action pending the outcome 20 of arbitration[,]” and requested “the Court reserve jurisdiction of Cause No. 7.” (Id.) Finally, the 21 parties stipulated Defendant would not provide a responsive pleading as Plaintiff’s FAC was not 22 served pursuant to Federal Rule of Civil Procedure 4. (Id.) This Court issued an Order giving 23 effect to the Stipulation on March 31, 2020; staying the action, retaining jurisdiction over Cause 24 No. 7; and directing the parties to notify the Court of the conclusion of arbitration within 30 days 25 following the issuance of the arbitrator’s decision. (ECF No. 11 at 2.) 26 The Court issued a Minute Order on February 12, 2021, nearly a year later, directing the 27 parties to inform the Court of the status of the action due to the length of the stay. (ECF No. 12.) 28 The Parties responded with a Joint Status Report, stating the arbitrator set a starting date for January 1 24, 2022, for a week of arbitration. (ECF No. 13.) The parties estimated the action would need to 2 be stayed for only 90 days after arbitration concluded. (Id.) 3 The Court issued a second Minute Order, upon sua sponte review of the record, on August 4 8, 2022, directing the parties to inform the Court whether a further stay of the action was warranted 5 and the length of any such continuance. (ECF No. 16.) The parties submitted a second Joint status 6 Report stating arbitration had not concluded and three additional hearings were set for August 30, 7 31, and September 1, 2022. (ECF No. 17.) The parties did not anticipate an arbitration award prior 8 to November 1, 2022. (Id.) Defendant substituted representation on August 23, 2022 (ECF No. 9 18), which the Court approved September 13, 2022 (ECF No. 21). 10 On November 10, 2022, Defendant filed this Motion to Compel. (ECF No. 23.) Defendant 11 requests the Court split Cause No. 7 in two, compelling Plaintiff’s individual PAGA action to 12 arbitration and dismissing, or staying, Plaintiff’s representative PAGA action. (Id.) Plaintiff 13 opposed November 21, 2022. (ECF No. 26.) Defendant replied December 1, 2022. (ECF No. 27.) 14 B. Factual Background 15 Plaintiff’s FAC alleges the following: Defendant employed Plaintiff for over four years 16 until December 5, 2019, as a non-exempt directional driller. (ECF No. 7 at 2.) Defendant 17 misclassified him as exempt. (Id. at 6.) Defendant paid Plaintiff a normal salary, hourly wages, 18 and daily flat sum encompassing his bonuses and car allowance; however, Defendant failed to 19 calculate Plaintiff’s daily bonus, car allowance, overtime, and vacation pay into his regular rate of 20 pay. (Id. at 2.) Plaintiff regularly worked overtime and double time. (Id. at 3.) Plaintiff was not 21 paid all due wages at his termination on December 5, 2019. (Id. at 4.) The paystubs Plaintiff 22 received from Defendant failed to state the pay rate he received or was entitled to receive. (Id. at 23 5.) These practices allowed Defendant to save hundreds of thousands of dollars per year in labor 24 costs and to underbid and undercut its competitors that complied with California law. (Id. at 6.) 25 On behalf of similarly aggrieved employees and himself, Plaintiff alleges Defendant committed 26 seven PAGA violations and seeks penalties. (Id. at 8.) Thirty to fifty employees would be 27 encompassed in the statutory period and the seven alleged PAGA violations are worth 28 approximately $1,400.00 in penalties per employee per pay period since 2018. (Id.) 1 C. The Arbitration Agreement 2 This motion relies on the parties’ executed arbitration agreement. (ECF No. 23-4.) The 3 Halliburton Dispute Resolution Plan (Agreement) mandates the parties “finally and conclusively 4 resolve[] through arbitration” all “disputes”2 as defined. (Id. at 9.) The Agreement requires 5 Defendant’s employees to relinquish their legal right to bring any form of class action or 6 representative action, stating, “Each Dispute shall be arbitrated on an individual basis. Neither the 7 Company nor any Employee or Applicant may pursue any Dispute on a class action, collective 8 action or consolidated basis or in a representative capacity on behalf of other persons or entities 9 who are claimed to be similarly situated, or participate as a class member in such a proceeding 10 unless all Parties to the Dispute consent in writing.” (Id. (emphasis added).) The Agreement 11 states that it, “does not apply to claims . . . that, as a matter of law, cannot be arbitrated.” (Id.) 12 LEGAL STANDARDS 13 A. Motion to Compel Arbitration 14 The FAA governs arbitration agreements and affords parties the right to obtain an order 15 directing arbitration proceed in the manner provided for in the agreement. 9 U.S.C. §§ 2, 4. The 16 operative provision of the FAA states: “A written provision in any maritime transaction or a 17 contract evidencing a transaction involving commerce to settle by arbitration a controversy 18 thereafter arising out of such contract or transaction or the refusal to perform the whole or any part 19 thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of 20 such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such 21 grounds as exist at law or in equity for the revocation of any contract or as otherwise provided in 22 chapter 4.” 9 U.S.C. § 2. The Court has “described this provision as reflecting both a ‘liberal 23 federal policy favoring arbitration,’ [citation], and the ‘fundamental principle that arbitration is a 24 matter of contract,’ [citation]. . . The final phrase of § 2, however, permits arbitration agreements 25 to be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of 26 27 2 The Agreement defines “dispute” as “all legal and equitable claims . . . between persons bound by [it] or by an agreement to resolve Disputes under [it], or between a person bound by [it] and a 28 person or entity otherwise entitled to its benefits . . . .” (ECF No. 23-4 at 6.) 1 any contract.’ This saving clause permits agreements to arbitrate to be invalidated by ‘generally 2 applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that 3 apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is 4 at issue.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). 5 To decide a motion to compel arbitration, the Court must determine: “(1) whether a valid 6 agreement to arbitrate exists [within the contract] and, if it does, (2) whether the agreement 7 encompasses the dispute at issue.” Boardman v. Pacific Seafood Group, 822 F.3d 1011, 1017 (9th 8 Cir. 2016) (brackets in original)). “Arbitration is a matter of contract, and the FAA requires courts 9 to honor parties’ expectations.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 351 (2011). 10 “[C]ourts must place arbitration agreements on an equal footing with other contracts, [citation], and 11 enforce them according to their terms.” (Id. at 339.) Parties may use general contract defenses to 12 invalidate an agreement to arbitrate. See id. The Court should order arbitration of a dispute only 13 where satisfied neither the agreement’s formation nor enforceability or applicability to the dispute 14 is in issue. See Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 299-300 (2010). “Where 15 a party contests either or both matters, ‘the court’ must resolve the disagreement” (id.) because 16 “‘[[a]] party cannot be required to submit to arbitration any dispute [it] has not agreed 17 [to].’ [Citation].” (Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014) (Knutson). 18 B. Contracts Law: A Valid Modification to the Agreement via Stipulation. 19 The Court relies on “basic contract principles to interpret [a] Stipulation. An agreement to 20 settle a legal dispute is a contract and familiar principles of contract law govern its enforceability. 21 [(Citations.)] Each party agrees to ‘extinguish those legal rights it sought to enforce through 22 litigation in exchange for those rights secured by the contract.’ [(Citations)].” Jeff D. v. Andrus, 23 899 F.2d 753, 759 (9th Cir. 1989) (Jeff D.). “Local (California) law controls the interpretation of 24 [stipulations], even when the underlying cause of action is federal in nature.” Lamanna v. Comm’r, 25 107 F. App’x 723, 724 (9th Cir. 2004). In California, mutual assent is a required element of contract 26 formation and “‘may be manifested by written or spoken words, or by conduct,’ [citation], and 27 acceptance of contract terms may be implied through action or inaction, [citation]. Thus, ‘an 28 offeree, knowing that an offer has been made to him but not knowing all of its terms, may be held 1 to have accepted, by his conduct, whatever terms the offer contains.’ [Citation]. Courts must 2 determine whether the outward manifestations of consent would lead a reasonable person to believe 3 the offeree has assented to the agreement. [Citation].” Knutson, 771 F.3d at 565. 4 “Under California law, if a contract’s terms are unambiguous, a court may interpret the 5 contract without recourse to extrinsic evidence” (In re Crow Winthrop Operating P’ship, 241 F.3d 6 1121, 1124 (9th Cir. 2001)) and “‘will generally enforce the plain language of a plea agreement if 7 it is clear and unambiguous on its face’” (United States v. Singui, 779 F. App’x 484, 486 (9th Cir. 8 2019) (citing United States v. Lo, 839 F.3d 777, 783 (9th Cir. 2016) and comparing plea agreement 9 to stipulation)). “Like any other contract, we must interpret it so as to carry out the intention of the 10 parties.” United States v. Petty, 80 F.3d 1384, 1387 (9th Cir. 1996) see also CarMax Auto 11 Superstores California LLC v. Hernandez, 94 F. Supp. 3d 1078 (C.D. Cal. 2015) [court applied 12 modified procedures rather than those in effect when employee entered agreement in employer’s 13 FAA motion to compel and stay employee’s action, where employer modified in accordance with 14 agreement’s modification clause]. “As a general rule, ‘all applicable laws in existence when an 15 agreement is made, which laws the parties are presumed to know and to have had in mind, 16 necessarily enter into the contract and form a part of it, without any stipulation to that effect, as if 17 they were expressly referred to and incorporated.’ [(Citation.)] However, laws enacted subsequent 18 to the execution of an agreement are not ordinarily deemed to become part of the agreement unless 19 its language clearly indicates this to have been the intention of the parties.” Harris v. Cnty. of 20 Orange, 17 F.4th 849, 866 (9th Cir. 2021) (quoting Swenson v. File, 3 Cal. 3d 389, 393 (1970)); 21 see also Norfolk & W. Ry. Co. v. Am. Train Dispatchers Ass’n, 499 U.S. 117, 130 (1991). 22 ANALYSIS 23 A. The Parties Formed a Valid Agreement to Arbitrate 24 Defendant argues that “Courts routinely recognize that Halliburton’s arbitration agreement 25 satisfies Armendariz. See, e.g., Brashear [v. Halliburton Energy Servs., Inc.], 2020 WL 4596116, 26 at *15 [(E.D. Cal. Aug. 11, 2020) (Brashear)] (after analyzing the Armendariz factors, concluding 27 that ‘Plaintiffs and Halliburton entered into valid arbitration agreements’) . . . .” (ECF No. 23-1 at 28 1 14.) Plaintiff does not contest whether the Agreement was validly formed.3 2 “When deciding whether the parties agreed to arbitrate a certain matter (including 3 arbitrability), courts . . . apply ordinary state-law principles that govern the formation of contracts.” 4 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); see Brashear, 2020 WL 5 4596116, at *6. State law dictates “the elements for a viable contract are ‘(1) parties capable of 6 contracting; (2) their consent; (3) a lawful object; and (4) sufficient cause or consideration.’” 7 Brashear, 2020 WL 4596116, at *7. 8 Defendant’s offer letter, which Plaintiff executed, evidences consent; it states, “Your 9 acceptance of employment means you also agree to and are bound by the terms of the Halliburton 10 Dispute Resolution Program, effective January 1, 1998. The Halliburton Dispute Resolution 11 Program binds the employee and the Company to handle workplace problems through a series of 12 measures designed to bring timely resolution. This will be true both during your employment and 13 after your employment should you terminate.” “Significantly, an individual ‘who signs a written 14 agreement generally is bound by its terms, even though he neither reads it nor considers the legal 15 consequences of signing it.’” Brashear, 2020 WL 4596116, at *8 (quoting Operating Engineers 16 Pension Trust v. Gilliam, 737 F.2d 1501, 1504 (9th Cir. 1984)). The parties do not contest that the 17 parties were capable of contracting, there was a lawful object to the agreement, nor that there was 18 sufficient consideration. See id. (citing U.S. ex rel. Oliver v. Parsons Co., 195 F.3d 457, 462 (9th 19 Cir. 1999) [“Under California contract law, a contract may be implied from the conduct of the 20 parties . . . a valid []contract exist[s] because the parties’ continued performance under the terms of 21 the written contract [i]s sufficient to prove the continued existence of the contract”]). This Court 22 agrees with the parties. The Agreement is valid, therefore, the parties must be held to the terms of 23 the Agreement to resolve disputes as defined. 24 B. The Agreement Does Not Encompass the Dispute at Issue because The Stipulation 25 3 This dispute does not concern an employee potentially in the transportation industry to which 26 the FAA would not apply under 9 U.S.C. § 1. Romero v. Watkins & Shepard Trucking, Inc., 9 27 F.4th 1097, 1101 (9th Cir. 2021) [“In line with that reasoning, New Prime [Inc. v. Oliveira, 139 S. Ct. 532 (2019) ]directs courts to decide for themselves whether the [§ 1] exemption applies”]; see 28 also id. [“parties could not ‘contract around the FAA’s transportation worker exemption’”]. 1 Modifies the Agreement and Exempts Cause No. 7 from Arbitration. 2 The issue is whether the Court has the power to compel Plaintiff to arbitrate Cause No. 7. 3 To decide, the Court must determine whether the parties stipulated to litigate Cause No. 7 in this 4 Court, exempting Cause No. 7 from arbitration. 5 Defendant argues “in light of a recent ruling by the United States Supreme Court in Viking 6 River Cruises, Inc. v. Moriana, 142 U.S. 1906 (2022) [(Viking)], the binding arbitration agreement 7 executed by Plaintiff obligates him to arbitrate his individual PAGA claim on a bilateral basis with 8 [Defendant].” (ECF No. 23-1 at 7.) Defendant argues “because Plaintiff lacks standing to assert a 9 representative PAGA claim once his individual PAGA claim is compelled to arbitration, Viking 10 requires dismissal of the representative PAGA claim.” (Id.) 11 Defendant argues a stay would be improper, anticipating Plaintiff would argue that a 12 potential contention between pending litigation before the California Supreme Court and Viking 13 would require a stay. (ECF No. 23-1 at 7.) According to Defendant, “the California Supreme Court 14 will determine whether—as a matter of state law standing under PAGA—courts must dismiss a 15 representative PAGA claim after the individual PAGA claim is sent to arbitration.” (ECF No. 23- 16 1 at 7; see Adolph v. Uber Technologies, Inc. (Case No. S274671) [(Adolph)]. Defendant argues 17 the pending decision in Adolph does not justify a stay as waiting for a decision would unnecessarily 18 extend this litigation. (ECF No. 23-1 at 7.) 19 Plaintiff did not address this argument.4 Plaintiff instead argues Defendant is barred from 20 bringing this motion by its own stipulation. (ECF No. 26 at 1.) Plaintiff argues “Defendant 21 stipulated that the PAGA claim, as pled at the time of the stipulation, would be heard in this court 22 after Plaintiff’s individual arbitration.” (Id.) Defendant characterizes the argument as 23 “sidestep[ping] binding US Supreme Court precedent” in Viking and argues “nowhere does the 24 parties’ March 2020 stipulation[] say anything about whether the PAGA claim will be decided in 25 this Court or in arbitration, or whether it may be attacked through a motion to dismiss,” only that 26 the parties agree to stay the action. (ECF No. 27 at 5.) 27 28 4 Because Plaintiff did not address this argument the Court does not address it here. 1 Plaintiff is correct: The Stipulation constitutes a valid modification of the Agreement, 2 requiring the parties to litigate Cause No. 7. The Agreement provides for modification, specifically 3 its provision precluding class and representative actions as it authorizes an Employee to pursue 4 those actions when “all Parties to the Dispute consent in writing.” (ECF No. 23-4 at 9.) The parties’ 5 intention to modify this provision manifests in the plain language of the Stipulation. The 6 Stipulation “dismiss[ed] all pending claims except for Cause No. 7—‘Private Attorney General 7 Penalties Under California Labor Code Section 2699’” (ECF No. 10 at 2) and created “a mutual 8 agreement mandating all claims, but for Cause No. 7, be resolved in arbitration” (Id.). The parties 9 stipulated Plaintiff would pursue “his claims on an individual basis only in arbitration pursuant to 10 the terms of the [Arbitrated Agreement,]” while expressly “request[ing] the Court reserve 11 jurisdiction of Cause No. 7.” (Id.) Furthermore, the conduct of the parties evidences an intention 12 to litigate Cause No. 7: this motion was brought forward only following a substitution in legal 13 counsel by that new counsel, not by counsel constructing the Stipulation in the few months 14 following the release of the Viking opinion. 15 Defendant then argues, in its reply, that because the applicable law has changed, and 16 because there is a new law with a ruling perceived to favor their client, so should the implications 17 of their March 2020 stipulated agreement. (ECF No. 27 at 5.) Plaintiff, in its opposition, argues 18 “Defendant cannot renege more than two and a half years later because of the controversy between 19 Viking and Adolph.” (ECF No. 26 at 1.) 20 While terse, Plaintiff is correct. See Harris, 17 F.4th at 866 [“laws enacted subsequent to 21 the execution of an agreement are not ordinarily deemed to become part of the agreement unless its 22 language clearly indicates this to have been the intention of the parties”]. Furthermore, the conduct 23 of the parties again belies their intentions motivating the Stipulation. The parties did not include 24 any caveat to capture potential changes in case law in the Stipulation, indicating an intention to be 25 bound by the existing law at the time of the Stipulation concerning the entirety of Cause No. 7. 26 Plaintiff’s counsel additionally indicates the parties were well aware of the law in drafting and 27 executing the Stipulation when he states in his declaration, “I entered into this stipulation because 28 it stated, ‘Plaintiff and Defendant are parties to a mutual agreement mandating all claims, but for 1 Cause No. 7, be resolve[d] in arbitration.’ It was my understanding [the parties agreed] this was a 2 stipulation the Claims in Cause No. 7 . . . on file in this court as of March 27, 2020, . . . were not 3 subject to arbitration.” (ECF No. 26 at 10.) 4 The Court finds the Agreement, as modified by the Stipulation, does not encompass Cause 5 No. 7; therefore, this Court does not have the ability to compel Plaintiff to arbitrate that claim. As 6 a result, this Court does not reach the issue of whether these actions should be stayed or compelled. 7 The contention between Viking and Adolph does not constrain this Court: the parties stipulated the 8 Court would reserve jurisdiction of Cause No. 7. The Stipulation manifested consent in writing 9 pursuant to the modification clause of the class action and representative action waiver of the 10 Agreement; therefore, the modification is valid and binding. Unless Defendant can challenge that 11 validity via motion, present good cause to set aside the Stipulation, or present a subsequent joint 12 stipulation that would have similar effect, the validity of this modification requires the parties and 13 this Court to continue “mandating all claims, but for Cause No. 7, be resolved in arbitration” and 14 to “reserve jurisdiction of Cause No. 7.” 15 Thus, the Court DENIES Defendant’s motion to compel arbitration. 16 /// 17 /// 18 /// 19 /// 20 /// 21 /// 22 /// 23 CONCLUSION 24 Accordingly: 25 1. Defendant’s motion to compel arbitration (ECF No. 9) is denied without prejudice; 26 and 27 2. Plaintiff’s action will remain stayed until current arbitration concludes. 28 1 2 | IT IS SO ORDERED. ; Dated: _ January 20, 2023 A UNITED fTATES DISTRICT JUDGE 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11