Sanchez v. Nitro-Lift Technologies, L.L.C.

FILED
United States Court of Appeals
Tenth Circuit
August 8, 2014
Elisabeth A. Shumaker
PUBLISH Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
MIGUEL SANCHEZ; SHANE
SCHNEIDER; EDDIE HOWARD, on
behalf of themselves and others similarly
situated,
Plaintiffs - Appellees,
Nos. 12-7046 and 12-7057
v.
NITRO-LIFT TECHNOLOGIES, L.L.C.,
Defendant - Appellant.
Appeal from the United States District Court
for the Eastern District of Oklahoma
(D.C. No. 6:12-CV-00128-RAW)
Kelli M. Masters (Kevin R. Donelson, Jay P. Walters, and Regina M. Marsh, with
her on the briefs) of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma
City, Oklahoma, for Defendant-Appellant.
Mark Hammons of Hammons, Gowens & Hurst, Oklahoma City, Oklahoma, for
Plaintiffs-Appellees.
Before TYMKOVICH, SEYMOUR, and GORSUCH, Circuit Judges.
SEYMOUR, Circuit Judge.
This appeal involves a dispute concerning the scope of an arbitration clause
between Nitro-Lift Technologies, L.L.C. (“Nitro-Lift”), and three of its former
employees, Miguel Sanchez, Shane Schneider, and Eddie Howard (collectively,
“plaintiffs”). Plaintiffs filed suit against Nitro-Lift, claiming it failed to pay
overtime wages in violation of both the Fair Labor Standards Act (“FLSA”), 29
U.S.C. § 201 et seq., and the Oklahoma Protection of Labor Act (“OPLA”), Okla.
Stat. tit. 40, § 165.1 et seq. Nitro-Lift appeals from two district court orders
denying its motions to dismiss and compel arbitration, or in the alternative to stay
the proceeding pending arbitration, arguing plaintiffs’ wage disputes fall within
the scope of the arbitration clause. We reverse.
I
Nitro-Lift is a Louisiana corporation that services oil rigs across the nation,
including in the state of Oklahoma. Nitro-Lift hired plaintiffs to work in and
around Johnston County, Oklahoma, where it has an office. Mr. Schneider
worked for Nitro-Lift from July 31, 2008, to June 11, 2010; Mr. Sanchez from
approximately December 2009 until February 27, 2012; and Mr. Howard from
approximately August 2008 until the end of May 2012. Their job duties included
connecting nitrogen generator units to oil rigs to allow nitrogen to be pumped into
the rigs, and monitoring the oil rigs to determine if and how much oil or natural
gas the wells produced.
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At the beginning of their employment relationship with Nitro-Lift, each
plaintiff signed an identical document labeled “Confidentiality/Non-Compete
Agreement,” which contains the arbitration clause at issue in this case. As the
title of the agreement suggests, the language is generally limited to matters
involving confidentiality and competition. Section 1 of the agreement adds the
phrase “corporate property” to its subheading, and thereafter all the rights,
obligations, and duties set forth in section 1 concern confidentiality, competition,
and the return of corporate documents.
This is the only agreement between the parties and despite its title, Nitro-
Lift claims it is an employment agreement because it was “essential” to plaintiffs’
“relationship[] with Nitro-Lift,” that “Nitro-Lift would not have hired Plaintiffs
without their consent to the Agreements,” and that “Plaintiffs would not have
executed the Agreements without the assurance of employment by Nitro-Lift.”
Aplt. Br. at 6. But the only language in the contract that discusses compensation
states in section 1(k) that “[i]n consideration of the receipt of Confidential
Information during employment, the receipt of compensation, each element of
compensation being hereby acknowledged by the Employee as adequate,” the
employee agrees not to compete. Aplt. App. at 238. 1 Other than that specific
clause, section 1 contains no language dealing with wages, hours, overtime
1
We cite only Mr. Sanchez’s agreement for purposes of citation to the record
because each plaintiff signed identical agreements.
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compensation, or other rights, duties, and responsibilities regarding wages
generally found in an employment contract.
Section 1 also references a “Section 4” and “Section 4(k),” but the
agreement neither contains a section 4 nor explains what topics, rights,
restrictions, or duties section 4 sets forth. 2 Notably, section 1(m) explains that
only Nitro-Lift may seek remedies in court, including injunctive relief and “any
other remedies available to it . . . at law or in equity for any such breach or
threatened breach” by the employee. Id. at 239. Also, sections 1(k), (m), and (n)
2
For example, the agreement on page 3 states in section 1(k) “[t]he parties
agree and acknowledge that the limitations as to time, geographical area and
scope of activity to be restrained as set forth in section 4(k) are reasonable and do
not impose any greater restraint than is necessary to protect the legitimate
business interests of Nitro-Lift.” Aplt. App. at 238. This section further notes
that
[t]o the extent that any part of this Section 4(k) may be invalid,
illegal or unenforceable for any reason, it is intended that such part
shall be enforceable to the extent that a court of competent
jurisdiction shall determine that such part, if more limited in scope,
would have been enforceable, and such part shall be deemed to have
been so written and the remaining parts shall as written be effective
and enforceable in all events.
Id.
Section 1(l) explains that “[i]n the event of a breach by Employee of any
covenant set forth in section 4 of this Agreement, the term of such covenant will
be extended by the period of the duration of such breach.” Id. at 239. Section
1(m) states “[t]he parties hereto agree and acknowledge that Nitro-Lift would not
have an adequate remedy at law for the breach or threatened breach by the
Employee of the covenants and agreements set forth in this Section 4.” Id.
Section 1(n) also explains that “[a]ll of the covenants in this Section 4 shall be
construed as an agreement independent of any other provision in this Agreement
and the existence of any claim or cause of action of Employee against Nitro-Lift,
whether predicated on this Agreement or otherwise, shall not constitute a defense
to the enforcement by Nitro-Lift of such covenants.” Id.
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refer to section 4 self-referentially by stating “in this Section 4,” suggesting some
of the agreement contains boilerplate language copied from some other contract
or agreement. Id.
Section 2 of the agreement contains the arbitration clause at issue and states
in pertinent part in 2(a):
Any dispute, difference or unresolved question between Nitro-Lift
and the Employee (collectively, the “Disputing Parties”) shall be
settled by arbitration by a single arbitrator mutually agreeable to the
Disputing Parties in an arbitration proceeding conducted in Houston,
Texas in accordance with the rules existing at the date hereof of the
American Arbitration Association . . . and the costs (including,
without limitation, reasonable fees and expenses of counsel and
experts for the Disputing Parties) of such arbitration (including the
costs to enforce or preserve the rights awarded in the arbitration)
shall be borne by the Disputing Party whom the decision of the
arbitrator is against. If the decision of the arbitrator is not clearly
against one of the Disputing Parties or the decision of the arbitrator
is against more than one Disputing Party on one or more issues, the
costs of such arbitration shall be borne equally by the Disputing
Parties.
Id. at 239 (emphasis added). In addition, section 2(b) references “Section 4” as
well as “Section 18,” neither of which appear in the document, stating that
“[n]otwithstanding the foregoing, Nitro-Lift may apply to any court of competent
jurisdiction for injunctive relief to enforce its rights under this Agreement,
including, without limitation, its rights under Section 4, without breach of this
Section 18.” Id. Nitro-Lift offers no explanation for why the contract references
multiple sections that do not exist in the agreement.
In sworn affidavits, plaintiffs claim that when they were required to sign
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the contract, it was presented to them as an agreement specifically about
confidentiality and competition. They contend Nitro-Lift did not explain the
arbitration provision, did not allow them to read the document or the arbitration
clause it contained, and did not allow them to ask questions or consult an attorney
before signing the document. Plaintiffs allege they were never told that by
signing the agreement, they would be waiving their right to a jury trial for claims
of unpaid wages or that they would be required to arbitrate wage disputes.
Finally, plaintiffs claim they never agreed to arbitrate any wage disputes with
Nitro-Lift.
Plaintiffs allege that almost every week they worked for Nitro-Lift, they
each worked in excess of forty hours per week and Nitro-Lift refused to pay them
“overtime compensation for the hours they worked in excess of forty,” in
violation of the FLSA. Aplt. App. at 170. When Mr. Sanchez discussed the issue
with his supervisor, he was told that if he had a problem with the money, he
should quit. 3 Mr. Sanchez and Mr. Schneider initially filed suit against Nitro-Lift
in the Eastern District of Oklahoma on March 21, 2012, claiming the company
failed to pay overtime wages in violation of the FLSA and the OPLA. They
sought their “unpaid wages, prejudgment interest, attorney fees and costs,” a
declaration that Nitro-Lift’s “wage policy is unlawful” and an injunction against
3
Mr. Sanchez also asserts a claim for retaliation under both the FLSA and
Oklahoma law, alleging Nitro-Lift fired him after he complained of its failure to
pay overtime wages. This issue is not before us on appeal.
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its use and enforcement. Id. at 11-12. They also sought liquidated damages, and
class certification if other similarly situated employees were found.
In response, Nitro-Lift filed a motion to dismiss and compel arbitration, or
alternatively to stay the proceeding pending arbitration. It argued that the
arbitration clause contained in the agreement contractually obligated plaintiffs to
submit their FLSA claims to arbitration under the Federal Arbitration Act
(“FAA”) and the Oklahoma Uniform Arbitration Act (“OUAA”), citing the liberal
federal policy favoring arbitration, and the strong presumption in favor of
arbitration under Oklahoma law. Nitro-Lift asserted the wage disputes are clearly
within the scope of the arbitration clause, which mandates that “any dispute” be
submitted to arbitration under the rules of the American Arbitration Association
(“AAA”). In its motion, Nitro-Lift waived the originally agreed upon venue of
Houston for arbitration, suggesting arbitration should take place in the Eastern
District of Oklahoma.
Mr. Sanchez and Mr. Schneider filed a brief in opposition to Nitro-Lift’s
motion contending the arbitration provision is unenforceable with respect to their
FLSA claim for a variety of reasons. They contended their wage disputes do not
fall within the scope of the arbitration clause. 4 They also asserted that the
4
Plaintiffs also pointed out that the Oklahoma Supreme Court addressed the
same contract and arbitration clause in Howard v. Nitro-Lift Techs., L.L.C., 273
P.3d 20 (Okla. 2011), which involved a dispute concerning an issue of
competition unrelated to plaintiffs’ wage disputes in this appeal. Id. at 23. The
(continued...)
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arbitration clause’s fee-shifting provisions violate the substantive rights afforded
to employees by the FLSA because that statute specifically provides for awards of
attorneys fees and costs only to prevailing plaintiffs, not to prevailing defendants.
In addition, they argued that the forum selection clause and the attempted
application of commercial arbitration rules 5 make the arbitration agreement
unconscionable because these provisions would force employees to pay
substantial costs they cannot afford to arbitrate the dispute in an inconvenient
forum.
Before the district court ruled on the pending motion, plaintiffs filed an
amended complaint adding Mr. Howard as a plaintiff. Shortly thereafter, the
district court denied Nitro-Lift’s pending motion to compel arbitration, addressing
only the FLSA claims and the scope of the arbitration clause. The court reasoned
that despite the broad language of the arbitration clause, plaintiffs did not agree to
4
(...continued)
court held that the agreement’s non-competition covenants were void and
unenforceable as against Oklahoma’s public policy, that it could not judicially
modify the agreement, and that the entire contract was therefore void and
unenforceable. Id. at 30. However, the United States Supreme Court
subsequently granted certiorari and vacated the decision of the Oklahoma
Supreme Court, holding that the court assumed the role of the arbitrator in
deciding that the covenants not to compete were invalid under state law, which
was a decision for the arbitrator in the first instance once the state court
determined there was a valid arbitration clause. See Nitro-Lift Techs., L.L.C. v.
Howard, 133 S. Ct. 500, 502-04 (2012).
5
We note the AAA determined that Nitro-Lift’s Demand for Arbitration
would be administered under the Employment Arbitration Rules instead of the
Commercial Arbitration Rules.
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arbitrate wage disputes because the contract’s subject matter was only about
confidentiality and competition. The court did not address any of the other
arguments raised concerning the validity of the contract. Nitro-Lift immediately
filed an interlocutory appeal from the district court’s decision.
On the same day that Nitro-Lift filed its appeal, it filed a motion to dismiss
the amended complaint and to compel arbitration, essentially reiterating the
arguments it made in its first motion. It also pointed out that, in denying its first
motion to compel arbitration, the district court cited Cummings v. FedEx Ground
Package System, Inc., 404 F.3d 1258 (10th Cir. 2005), the controlling Tenth
Circuit case concerning the scope of an arbitration clause, but failed to apply
Cummings’ three-part test in determining the arbitration clause did not cover
plaintiffs’ wage disputes. It argued that because the arbitration clause is broad,
under Cummings there was a presumption of arbitrability and accordingly
plaintiffs’ claims were required to be submitted to arbitration. Plaintiffs filed a
second brief in opposition to arbitration, reiterating arguments from their first
brief.
The district court construed Nitro-Lift’s second motion to compel
arbitration as a Rule 60(b) motion to reconsider because Nitro-Lift had already
filed an interlocutory appeal from the court’s first order. The court again
reasoned that plaintiffs’ wage disputes fall outside the scope of the arbitration
clause. It explained that although the clause is broad in scope and “there of
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course arises a presumption of arbitrability,” Aplt. App. at 436, the presumption
was overcome because “the arbitration clause is nestled within a narrow contract
pertaining only to Plaintiffs’ promises regarding confidentiality and competition
with Defendant.” Id. Nitro-Lift timely appealed from the district court’s second
order, and we consolidated the two appeals for purposes of review.
II
We review de novo both the district court’s denial of a motion to compel
arbitration, Cummings, 404 F.3d at 1261, and the denial of a stay pending
arbitration, Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc.,
567 F.3d 1191, 1196 (10th Cir. 2009). When both parties dispute whether an
arbitration clause in a contract “applies to a particular type of controversy, [the
question] is for the court.” Cummings, 404 F.3d at 1261 (alteration in original)
(quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)).
The central issue raised on appeal is whether plaintiffs’ statutory wage
disputes fall within the scope of an arbitration clause contained in a contract
labeled Confidentiality/Non-Compete Agreement, that is, whether plaintiffs
agreed to submit their FLSA wage disputes to binding arbitration by signing the
agreement at issue. Nitro-Lift contends, as it did below, that the language in the
arbitration clause is broad and covers any disputes between it and plaintiffs,
including their current wage claims. Plaintiffs counter that because the contract
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relates solely to issues of confidentiality and competition and was presented to
them as such, the arbitration clause covers only disputes relating to the subject
matter of the contract. They contend they never agreed to arbitrate wage disputes
and to force them to do so would be contrary to the FAA and Supreme Court
precedent. Our task is therefore to determine the scope of the arbitration clause at
issue and whether plaintiffs’ FLSA “claims fall within its scope.” Nat’l Am. Ins.
Co. v. SCOR Reinsurance Co., 362 F.3d 1288, 1290 (10th Cir. 2004). To do so,
we first turn to the purpose of the FAA and the basic principles underlying
arbitration.
Congress enacted the FAA “in response to widespread judicial hostility to
arbitration.” Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308-09
(2013). As is relevant here, section 2 of the FAA provides that arbitration
agreements “shall be valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.” 6 9 U.S.C. § 2.
The Supreme Court has described “this provision as reflecting both a liberal
federal policy favoring arbitration and the fundamental principle that arbitration
is a matter of contract.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740,
1745 (2011) (internal quotation marks and citations omitted). Consistent with
6
“The FAA also provides for stays of proceedings in federal district courts
when an issue in the proceeding is referable to arbitration, § 3, and for orders
compelling arbitration when one party has failed, neglected, or refused to comply
with an arbitration agreement, § 4.” Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 25 (1991).
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these principles, the Court has stated that “courts must place arbitration
agreements on equal footing with other contracts,” id., and “‘rigorously enforce’
arbitration agreements according to their terms.” Italian Colors, 133 S. Ct. at
2309 (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985)).
In line with its liberal policy favoring arbitration, the Court has noted that
“any doubts concerning the scope of arbitrable issues should be resolved in favor
of arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to
arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983); see also Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793 (10th
Cir. 1995) (“[Q]uestions of arbitrability must be addressed with a healthy regard
for the federal policy favoring arbitration, and thus, any doubts concerning the
scope of arbitrable issues should be resolved in favor of arbitration.” (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626
(1985))). Indeed, the FAA and common law have created a presumption in favor
of arbitration. See Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d
775, 779 (10th Cir. 1998). “This presumption in favor of arbitrability also applies
where a party bound by an arbitration agreement raises claims founded on
statutory rights.” Armijo, 72 F.3d at 797 (internal quotation marks and citation
omitted).
Nevertheless, because “arbitration is a matter of contract” and the authority
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of an arbitrator arises only from the parties agreement to that forum in advance,
“a party cannot be required to submit to arbitration any dispute which [it] has not
agreed so to submit.” AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S.
643, 648-49 (1986) (internal quotation marks and citations omitted). Federal law
“simply requires courts to enforce privately negotiated agreements to arbitrate,
like other contracts, in accordance with their terms.” Volt Info. Sciences, Inc. v.
Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989).
Our circuit applies a three-part test when determining whether an issue falls
within the scope of an arbitration clause. Cummings, 404 F.3d at 1261.
First, recognizing there is some range in the breadth of arbitration
clauses, a court should classify the particular clause as either broad
or narrow. Next, if reviewing a narrow clause, the court must
determine whether the dispute is over an issue that is on its face
within the purview of the clause, or over a collateral issue that is
somehow connected to the main agreement that contains the
arbitration clause. Where the arbitration clause is narrow, a
collateral matter will generally be ruled beyond its purview. Where
the arbitration clause is broad, there arises a presumption of
arbitrability and arbitration of even a collateral matter will be
ordered if the claim alleged implicates issues of contract
construction or the parties’ rights and obligations under it.
Id. (second emphasis added) (quoting Louis Dreyfus Negoce S.A. v. Blystad
Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001)).
Applying Cummings’ first step, we agree with the district court that the
arbitration clause at issue here is broad. In fact, we have not found any case with
an arbitration clause as broad as this, stating that “[a]ny dispute, difference or
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unresolved question between” the parties must be arbitrated. Aplt. App. at 239
(emphasis added). This clause contains no limiting language, either restricting
arbitration to any specific disputes or to the agreement itself. Many courts have
concluded that an arbitration clause applying to disputes “arising under” or “in
connection with” the agreement constitutes a broad arbitration clause. See, e.g.,
Brown v. Coleman Co., 220 F.3d 1180, 1184 (10th Cir. 2000) (explaining that
arbitration clause stating “all disputes or controversies arising under or in
connection with this Agreement . . . will be settled exclusively by arbitration”
was “the very definition of a broad arbitration clause” (omission in original)); P
& P Indus., Inc. v. Sutter Corp., 179 F.3d 861, 871 (10th Cir. 1999) (stating that
arbitration clause covering “[a]ny controversy, claim, or breach arising out of or
relating to this Agreement . . . is a ‘broad’ one”); Louis Dreyfus, 252 F.3d at 225-
27 (noting that phrase “[a]ny dispute arising from the making, performance or
termination of this [agreement],” while containing limiting language, was “a
broad arbitration clause”); Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58
F.3d 16, 20 (2nd Cir. 1995) (explaining that phrase “‘[a]ny claim or controversy
arising out of or relating to th[e] agreement,’ is the paradigm of a broad clause”).
We are not as convinced as the district court that the narrow context of the
contract rebuts the presumption of arbitrability because “the strong presumption
in favor of arbitrability applies with even greater force when such a broad
arbitration clause is at issue.” P & P Indus., 179 F.3d at 871 (internal quotation
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marks and citation omitted). In Cummings, we examined an arbitration clause
that covered only “acts to terminate this Agreement,” 404 F.3d at 1260, and
explained that “the parties clearly manifested an intent to narrowly limit
arbitration to specific disputes regarding the termination of the Operating
Agreement,” id. at 1262. Here, there is no manifestation of an intent to limit the
arbitration agreement.
Even so, a contract “must be considered as a whole so as to give effect to
all of its provisions without narrowly concentrating upon some clause or language
taken out of context.” Eureka Water Co. v. Nestle Waters N. Am., Inc., 690 F.3d
1139, 1151 (10th Cir. 2012) (quoting Mercury Inv. Co. v. F.W. Woolworth Co.,
706 P.2d 523, 529 (Okla. 1985)). Plaintiffs contend we cannot ignore the narrow
context of the agreement in which the arbitration clause is found and urge us not
to read the broad arbitration clause in isolation. Although we agree with
plaintiffs’ argument, at best this contention makes the arbitration clause
ambiguous. A contract “is ambiguous if it is reasonably susceptible to at least
two different constructions,” and to determine whether a contract is ambiguous
“we look to the language of the entire agreement.” Id. at 1149 (internal quotation
marks omitted). In our view, when the broad arbitration clause is considered
together with the entire language of the narrow contract, two reasonable
constructions emerge—either the parties agreed to arbitrate all disputes arising
between them, or they agreed to arbitrate all disputes concerning only those issues
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covered in the agreement.
We need not decide this difficult question, for we have stated that “to
acknowledge the ambiguity is to resolve the issue, because all ambiguities must
be resolved in favor of arbitrability.” Armijo, 72 F.3d at 798. As we explained in
Local 5-857 Paper, Allied-Industrial, Chemical & Energy Workers International
Union v. Conoco, Inc.:
[W]hen a contract contains an arbitration clause, there is a
presumption in favor of arbitrability; that is, an order to arbitrate the
particular grievance should not be denied unless it may be said with
positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute. Doubts should be
resolved in favor of coverage. The Supreme Court has held that the
presumption is particularly applicable where, as in the case before us
now, there is a broad arbitration clause. In such cases, in the
absence of any express provision excluding a particular grievance
from arbitration, we think only the most forceful evidence of a
purpose to exclude the claim from arbitration can prevail.
320 F.3d 1123, 1126 (10th Cir. 2003) (emphasis added) (internal footnote,
citation, and quotation marks omitted).
Here, we cannot say the ambiguity created by the admittedly narrow
contract containing the broad arbitration clause provides “forceful evidence” to
support plaintiffs’ claim that their wage disputes do not fall within the scope of
the arbitration clause. While the fact that the contract discusses only issues
relating to competition, confidentiality, and retention of corporate documents
certainly raises doubts as to whether plaintiffs agreed to arbitrate their wage
disputes, “all doubts must be resolved in favor of coverage.” Id.; see also Moses,
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460 U.S. at 24-25 (“[A]ny doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration . . . .”). We therefore hold that plaintiffs’
FLSA wage disputes fall within the scope of the arbitration clause.
III
This does not end the matter, however. Notwithstanding the “liberal
federal policy favoring arbitration agreements,” Moses, 460 U.S. at 24,
agreements which require the arbitration of statutory claims are only enforceable
under the FAA so “long as the prospective litigant effectively may vindicate [his
or her] statutory cause of action in the arbitral forum,” Gilmer, 500 U.S. at 28
(alteration in original). The Court in Gilmer reasoned that by submitting statutory
claims to arbitration, a plaintiff does not lose the protection of the substantive
rights afforded by the statute, but rather submits their resolution to an alternative
forum. Id. at 26.
Plaintiffs contend the arbitration provision here does exactly what Gilmer
forbids, that is, it denies them the substantive rights afforded by the FLSA
because it specifically provides that “the costs (including, without limitation,
reasonable fees and expenses of counsel and experts for the Disputing Parties) of
such arbitration . . . shall be borne by [the losing party],” or, at a minimum,
requires the parties to split the costs of arbitration. Aplt. App. at 239. Contrary
to the arbitration provision, the FLSA provides: “The court in such action shall, in
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addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable
attorney’s fee to be paid by the defendant, and costs of the action.” 29 U.S.C. §
216(b). “The FLSA’s fee-shifting provision refers only to a prevailing plaintiff
. . . and says nothing of a prevailing defendant.” Mach v. Will Cnty. Sheriff, 580
F.3d 495, 501 (7th Cir. 2009). Indeed, the “FLSA entitles a prevailing defendant
to attorney’s fees only where the district court finds that the plaintiff litigated in
bad faith.” Turlington v. Atlanta Gas Light Co., 135 F.3d 1428, 1437 (11th Cir.
1998).
Plaintiffs rely on several cases, including our decision in Shankle v. B–G
Maintenance Management of Colorado, Inc., 163 F.3d 1230 (10th Cir. 1999), for
the proposition that the fee- and cost-shifting provisions in the arbitration
provision are unenforceable. In Shankle, the arbitration agreement required the
employee to pay one-half of the arbitrator’s fees, which would have cost Mr.
Shankle “between $1,875 and $5,000 to resolve his claims.” Id. at 1234. We
noted that “Mr. Shankle could not afford such a fee, and it is unlikely other
similarly situated employees could either.” Id. at 1234-35 (emphasis added).
Accordingly, we explained:
The Agreement thus placed Mr. Shankle between the proverbial rock
and a hard place—it prohibited use of the judicial forum, where a
litigant is not required to pay for a judge’s services, and the
prohibitive cost substantially limited use of the arbitral forum.
Essentially, B–G Maintenance required Mr. Shankle to agree to
mandatory arbitration as a term of continued employment, yet failed
to provide an accessible forum in which he could resolve his
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statutory rights. Such a result clearly undermines the remedial and
deterrent functions of the federal anti-discrimination laws. Given
this deficiency, we conclude the Agreement is unenforceable under
the Federal Arbitration Act.
Id. at 1235 (internal footnote and citations omitted). 7
Subsequent to our decision in Shankle, the Supreme Court recognized that
“the existence of large arbitration costs could preclude a litigant . . . from
effectively vindicating her federal statutory rights in the arbitral forum.” Green
Tree Fin. Corp.–Ala. v. Randolph, 531 U.S. 79, 90 (2000). However, in Green
Tree, although it was “undisputed that the parties agreed to arbitrate all claims
relating to their contract, including claims involving statutory rights,” id. at 90,
the arbitration agreement was silent on the allocation of fees between the parties,
id. at 91, unlike in Shankle or in this case. The Court concluded that silence on
the subject of fees was insufficient to render the arbitration provision
unenforceable because the risk that the employee would have been “saddled with
prohibitive costs [was] too speculative to justify the invalidation of [the]
arbitration agreement.” Id. The Court declined to decide “[h]ow detailed the
showing of prohibitive expense must be before the party seeking arbitration must
come forward with contrary evidence” because “neither during discovery nor
when the case was presented on the merits was there any timely showing at all on
7
We distinguished Shankle in Hill v. Ricoh Americas Corp., 603 F.3d 766,
779-80 (10th Cir. 2010), where the arbitration provision did not require that
attorneys fees be awarded to the losing party but left the matter to the discretion
of the arbitrator.
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the point.” Id. at 92. Nevertheless, the Court made it clear that a party resisting
arbitration had the initial burden of proof to demonstrate that arbitration would be
prohibitively expensive “by showing the likelihood of incurring such costs.” Id.
It is thus unclear from Green Tree “‘[h]ow detailed the showing of
prohibitive expense must be’ to support the conclusion that the provision, at a
minimum, is unenforceable.” Morrison v. Circuit City Stores, Inc., 317 F.3d 646,
660 (6th Cir. 2003) (en banc) (alteration in original) (quoting Green Tree, 531
U.S. at 92). In Morrison, the Sixth Circuit set forth a case-by-case approach to
determine whether fee- and cost-splitting provisions in employment arbitration
agreements are enforceable. Id. at 663-65. The court held that “potential litigants
must be given an opportunity, prior to arbitration on the merits, to demonstrate
that the potential costs of arbitration are great enough to deter them and similarly
situated individuals from seeking to vindicate their federal statutory rights in the
arbitral forum.” Id. at 663. Agreeing with Shankle, the court added, “if the
reviewing court finds that the cost-splitting provision would deter a substantial
number of similarly situated potential litigants, it should refuse to enforce the
cost-splitting provision in order to serve the underlying functions of the federal
statute.” Id.
In response to Nitro-Lift’s motion to compel arbitration, plaintiffs filed
affidavits claiming inability to pay the arbitration costs and fees. The district
court did not address this issue, however, because it determined that the FLSA
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claim was not within the arbitration provision. Given our reversal of the district
court, it will need to determine on remand the effect of the cost-shifting provision
in the arbitration clause in light of Shankle and Green Tree.
Plaintiffs further claim that Nitro-Lift’s attempt to waive the fee- and
cost-shifting provisions of the arbitration agreement makes the agreement
illusory. They argue, as they did below, that Nitro-Lift is unilaterally changing
the contract in an effort to make it enforceable. 8 Plaintiffs rely on Dumais v.
American Golf Corp., 299 F.3d 1216 (10th Cir. 2002), where we held that “an
arbitration agreement allowing one party the unfettered right to alter the
arbitration agreement’s existence or its scope is illusory.” 9 Id. at 1219. There,
8
Nitro-Lift counters that if any of these provisions are found to be
unlawful, the court should sever the provisions. Section 1(k) of the agreement
regarding non-competition and confidentiality contains a severance clause which
states: “[t]o the extent that any part of this Section 4(k) may be invalid, illegal or
unenforceable,” the court may strike the unenforceable provisions and enforce the
remaining parts. Aplt. App. at 238 (emphasis added). In context, however, it is
apparent that “this Section 4(k)” is intended to be “this Section 1(k).”
Accordingly, the severance clause is by its terms applicable only to the section 1
provision on non-competition and corporate property. Because the arbitration
provision at issue is in Section 2 of the agreement, the severance clause does not
apply to the arbitration provision.
9
In determining whether an agreement to arbitrate is illusory, a court
applies the state law of contracts. See Perry v. Thomas, 482 U.S. 483, 492 n.9
(1987) (“[S]tate law . . . is applicable if that law arose to govern issues
concerning the validity, revocability, and enforceability of contracts generally.”).
In Hardin v. First Cash Financial Services, Inc., 465 F.3d 470 (10th Cir. 2006),
applying Oklahoma law, we held that the arbitration agreement there was not
illusory because the employer’s right to unilaterally change its terms was not
unlimited. Id. at 478-79 (distinguishing Dumais).
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the employees’ handbook contained an arbitration clause requiring all
employment disputes to be arbitrated but on the page of the handbook where the
employees were required to sign, the employer reserved “the right to amend,
supplement, or revise everything in the Handbook with the exception of the
employees’ at-will status.” Id. at 1217. 10
Nitro-Lift argues that its willingness to waive the forum selection clause,
the fee-shifting provision, and the rules governing arbitration differ from the facts
in Dumais in that nothing in the contract in this case expressly allows “one party
the ‘unfettered right to alter the arbitration agreement’s existence or scope’
without notice.” Reply Br. at 20 (quoting Dumais, 299 F.3d at 1219). Plaintiffs
counter that Nitro-Lift’s conduct raises a question as to whether the necessity of
Nitro-Lift having to waive several provisions of the agreement in order to make it
enforceable effectively constitutes a unilateral right to change the agreement as it
sees fit. Plaintiffs contend Nitro-Lift should not get a free pass to draft an
unlawful contract, strategically waive unenforceable provisions, 11 and then count
10
While a different provision of the handbook stated the employer
“reserves the right to at any time change, delete, modify, or add to any of the
provisions contained in this handbook at its sole discretion,” except the
employees’ at-will status and the arbitration provision, Dumais, 299 F.3d at 1217,
we construed the ambiguity created by the conflicting provisions “as allowing
[the employer] to change the arbitration provision at will,” id. at 1219.
11
We note that Nitro-Lift did not offer to waive the provision requiring the
losing party to pay the other party’s attorney’s fees until its Reply Brief on
Appeal. Reply Br. at 17.
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on the court to bail it out. Aple. Br. at 29-31. See, e.g., Pérez v. Hospitality
Ventures–Denver LLC, 245 F. Supp. 2d 1172, 1173-75 (D. Colo. 2003) (applying
Green Tree, declining to sever fee-splitting provision in absence of severance
clause, and holding arbitration provision unenforceable under our decision in
Shankle because plaintiff presented evidence that she could not afford the costs,
notwithstanding that employer offered to waive costs); see also Gourley v. Yellow
Transp., LLC, 178 F. Supp. 2d 1196, 1203-05 (D. Colo. 2001) (noting that
because arbitration agreement contained no severance clause, court could not
entertain defendant’s offer to waive fee-shifting provision, which the court found
invalid under Shankle).
We decline to decide these issues for the first time on appeal. Because the
district court found the arbitration agreement did not cover plaintiffs’ FLSA
claims, it did not address any of these issues. Accordingly, we remand to the
district court for further consideration of these issues in light of this opinion.
IV
Because we are reversing the district court’s denial of the motion to dismiss
and remanding for further proceedings, we must address an additional issue raised
by plaintiffs claiming that the district court lacks jurisdiction to enforce the
arbitration provision here. This is so, plaintiffs argue, because the forum
selection clause requires arbitration in Houston and in Ansari v. Qwest
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Communications Corp., 414 F.3d 1214 (10th Cir. 2005), we held that section 4 of
the FAA requires district courts to compel arbitration in accordance with the
parties’ agreement but prohibits courts from ordering arbitration in other districts.
Id. at 1220-21. We said that “a district court lacks authority to compel arbitration
in other districts, or in its own district if another has been specified,” and that
“[a]ny other result renders meaningless the § 4 mandate that arbitration and the
order compelling arbitration issue from the same district.” Id. at 1220 (internal
quotation marks omitted). Relying on Ansari, plaintiffs contend there would not
be jurisdiction in the district court to compel arbitration if we reverse and remand.
In 1mage Software, Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044 (10th
Cir. 2006), however, we held that the rule announced in Ansari is not
jurisdictional but “one of venue which the parties” waived “by not raising the
issue before the district court.” Id. at 1051-52. In that case, “the Colorado
district court granted Reynolds’s motion to compel arbitration in Ohio,” but
“neither party questioned the district court’s authority to do so.” Id. at 1052. The
key issue on appeal was “whether the rule announced in Ansari is jurisdictional;
that is, whether the district court was without any power to adjudicate Reynolds’s
motion to compel arbitration.” Id. After examining the language of section 4 and
how other courts have interpreted its meaning and the meaning of similar FAA
provisions, we concluded that section 4 is a venue provision and that parties may
waive objections to such venue provisions. Id. at 1052-54. Accordingly, we
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explained: “Ansari’s holding that a district court does not have authority to
compel arbitration in another district is a statement addressing venue under the
FAA. And the parties in this case have waived any objection to venue because
they failed to raise the issue in the district court.” Id. at 1055 (footnote omitted).
Here, as plaintiffs recognize, Nitro-Lift disclaimed the forum/venue
provisions of its agreement and moved the district court to order arbitration in the
Eastern District of Oklahoma. In any event, plaintiffs themselves waived any
issue of venue in the Eastern District of Oklahoma by failing to raise it in the
district court. See 1mage Software, 459 F.3d at 1055.
V
In sum, we REVERSE the district court’s denial of Nitro-Lift’s motion to
compel arbitration and REMAND for further proceedings.
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