Daniel Newbanks v. Cellular Sales of Knoxville

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2389
DANIEL J. NEWBANKS, on behalf of themselves and all others
similarly situated; JENNIFER WALTON, on behalf of
themselves and all others similarly situated,
Plaintiffs - Appellees,
v.
CELLULAR SALES OF KNOXVILLE, INC.; CELLULAR SALES OF SOUTH
CAROLINA, LLC,
Defendants - Appellants.
Appeal from the United States District Court for the District of
South Carolina, at Columbia. Cameron McGowan Currie, District
Judge. (3:12-cv-01420-CMC)
Argued: November 6, 2013 Decided: December 3, 2013
Before GREGORY, DAVIS, and THACKER, Circuit Judges.
Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge Gregory and Judge Thacker joined.
ARGUED: Charles Larry Carbo, III, CHAMBERLAIN, HRDLICKA, WHITE,
WILLIAMS & AUGHTRY, Houston, Texas, for Appellants. Robert D.
Dodson, LAW OFFICES OF ROBERT DODSON, P.A., Columbia, South
Carolina, for Appellees. ON BRIEF: Ryan Cantrell, Julie R.
Offerman, CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY,
Houston, Texas; Page M. Kalish, ROBINSON, MCFADDEN & MOORE,
P.C., Columbia, South Carolina, for Appellants. W. Jonathan
Harling, HARLING & WEST, LLC, Lexington, South Carolina; Peter
D. Protopapas, RIKARD & PROTOPAPAS, LLC, Columbia, South
Carolina; Noah M. Hicks II, LAW OFFICES OF NOAH HICKS, LLC,
Columbia, South Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
DAVIS, Circuit Judge:
This interlocutory appeal involves the scope of an
arbitration provision signed by Daniel Newbanks and Jennifer
Walton (collectively “Appellees”) at the beginning of their at-
will employment with Cellular Sales of Knoxville, Inc. and
Cellular Sales of South Carolina, LLC (collectively “Cellular
Sales” or “Appellants”). Newbanks and Walton subsequently filed
suit against their employers, alleging that their relationship
with Cellular Sales violated the Fair Labor Standards Act and
the South Carolina Payment of Wages Act. Cellular Sales now
challenges the district court’s denial of their motion to compel
arbitration of the dispute. We are satisfied that Appellees are
not bound by an agreement to arbitrate their claims in this
case. Accordingly, we affirm the district court’s order and
remand the case for further proceedings.
I.
A.
Appellants own and operate a chain of stores that sell
cellular service plans, equipment, and accessories. Appellants’
relationship originated with Newbanks in May 2011 and with
Walton in October 2011. At that point, limited liability
companies owned by Newbanks and Walton (“Sales Corporations”)
entered into sales contracts with Cellular Sales (“Independent
3
Sales Agreements”). The Independent Sales Agreements did not
name or bind Newbanks and Walton in their individual capacities.
As set forth in the Independent Sales Agreements, each
Sales Corporation became an independent contractor of Cellular
Sales. The Sales Corporations were to market Cellular Sales’
products in certain areas and would be paid sales commissions by
Cellular Sales. The Independent Sales Agreements expressly
covenanted that “[e]ach person who is engaged by the Sales
Corporation to render services . . . shall be an employee of the
Sales Corporation and not of [Cellular Sales].” J.A. 30.
Employees of the Sales Corporations were therefore not “entitled
to receive any compensation, benefits, vacation or vacation pay,
sick leave, participation in a retirement program, health
insurance, disability insurance, unemployment benefits or other
benefits” from Cellular Sales. Id. at 31.
At the end of 2011, however, Cellular Sales revised the
contractual arrangement. The new arrangement was memorialized in
a second set of contracts (“Compensation Agreements”), which
were this time executed between Cellular Sales and Newbanks and
Walton in their individual capacities on or about December 30,
2011. Pursuant to the Compensation Agreements, Newbanks and
Walton became at-will employees of Cellular Sales and their
compensation was to be paid to them individually. The
Compensation Agreements did not reference Cellular Sales’
4
Independent Sales Agreements or its prior business relationship
with the Sales Corporations.
Of relevance to the instant appeal, the Compensation
Agreements included the following arbitration provision:
All claims, disputes, or controversies arising out of,
or in relation to this document or Employee’s
employment with Company shall be decided by
arbitration utilizing a single arbitrator in
accordance with the Expedited Labor Arbitration
Procedures of the American Arbitration Association
(“AAA”). . . . The right to arbitrate shall survive
termination of Employee’s employment with Company.
J.A. 70. The provision further directed that any such disputes
would only be arbitrated in an individual capacity “and not as a
plaintiff or class member in any purported class, collective
action, or representative proceeding.” Id. Each party was to
bear its own legal expenses, and employees would be precluded
from receiving punitive damages.
Newbanks and Walton’s employment with Cellular Sales ended
sometime in March and April 2012, respectively. They filed the
instant putative collective and class action on May 29, 2012.
B.
Newbanks and Walton bring this action under the Fair Labor
Standards Act (FLSA), 29 U.S.C. § 201 et seq., and the South
Carolina Payment of Wages Act (SCPWA), S.C. Code Ann. § 41-10-10
et seq. In their complaint, Newbanks and Walton allege that
Cellular Sales had, pursuant to the Independent Sales
5
Agreements, improperly classified their employment status as
independent contractors in violation of federal and state labor
law. Because of Cellular Sales’ exercise of “actual control”
over their work – specifically their hours, duties, and company
procedures and protocols - Newbanks and Walton contend that they
were acting as employees under the FLSA and corresponding state
law. J.A. 12, 21-23. Cellular Sales denied these allegations.
Relying on the arbitration provision contained in the
Compensation Agreements signed by Newbanks and Walton, Cellular
Sales thereafter moved to dismiss and compel arbitration of the
dispute. Newbanks and Walton’s original complaint had not made
any reference to the Compensation Agreements’ arbitration
requirement, nor had it alleged a specific time frame for
Cellular Sales’ violations. In response to Cellular Sales’
motion to compel arbitration, however, Newbanks and Walton moved
to amend their complaint. The amended complaint limited its
scope “to only those acts occurring prior to the execution of
the compensation agreements[.]” J.A. 111. They attached a
proposed amended complaint to their motion.
On October 18, 2012, the district court granted the motion
to amend the complaint and denied the motion to compel
arbitration. It reasoned that under Fed. R. Civ. P. 15(a)(2),
leave to amend should be “freely given,” and the plaintiffs’
6
proposed complaint was not futile. 1 J.A. 146. Having accepted the
amended pleading, the district court declined to send the newly-
tailored dispute to arbitration. In particular, it relied on the
arbitration provision’s language directing to arbitration those
“claims, disputes, or controversies arising out of, or in
relation to this document or Employee’s employment with
Company.” J.A. 150. It concluded that this language did not
contemplate disputes arising when Newbanks and Walton’s Sale
Corporations were independent contractors of Cellular Sales –
that is, prior to their execution of the Compensation Agreements
in December 2011. Because the plaintiffs’ amended complaint
limited its claims to those pre-dating the execution of the
Compensation Agreements, the court found that the complaint fell
outside the scope of the arbitration provision.
Cellular Sales filed a timely notice of appeal solely as to
the district court’s denial of its motion to compel. Appellate
jurisdiction is proper under Section 16 of the Federal
Arbitration Act, 9 U.S.C. § 16(a)(1)(C).
II.
The primary issue on appeal is whether the district court
properly held that the Compensation Agreements’ arbitration
1
In fact, as Cellular Sales had not yet filed a responsive
pleading, no motion to amend was necessary. Fed. R. Civ. P.
15(a); Galustian v. Peter, 591 F.3d 724, 730 (4th Cir. 2010).
7
provision did not apply to FLSA and SCPWA-based claims arising
before Newbanks and Walton became at-will employees of Cellular
Sales. 2 We review de novo a district court’s conclusions
regarding the arbitrability of a dispute, including a decision
to deny a motion to compel arbitration. Noohi v. Toll Bros.,
Inc., 708 F.3d 599, 605 (4th Cir. 2013); Levin v. Alms &
Assocs., Inc., 634 F.3d 260, 266 (4th Cir. 2011).
The parties agree that the arbitration provision at issue
is governed by the Federal Arbitration Act (FAA), 9 U.S.C. § 1
et seq. The Supreme Court has interpreted the FAA to endorse a
“liberal federal policy favoring arbitration agreements” and has
instructed courts examining arbitration provisions to afford a
2
At oral argument, Appellees put forth an argument
regarding the enforceability of the arbitration provision. They
contended, for the first time, that the provision was
unenforceable because it sought to take away certain rights
afforded by the FLSA, including the right of a prevailing party
to reasonable attorney’s fees, 29 U.S.C. § 216(b). Cf. Muriithi
v. Shuttle Express, Inc., 712 F.3d 173, 181 (4th Cir. 2013) (“A
fee-splitting provision can render an arbitration agreement
unenforceable if, under the terms of the provision, an aggrieved
party must pay arbitration fees and costs that are so
prohibitive as to effectively deny the employee access to the
arbitral forum.”) (internal citation omitted). Appellees did
not, however, make their unenforceability argument in their
briefs before the district court or this court, and Appellants
did not have the opportunity to file a written response. For
this reason, we will not address this argument.
Appellees have also previously contested the
appealability of the district court’s order, but we reject that
argument. See 9 U.S.C. § 16(a)(1)(C).
8
heavy presumption in favor of arbitration. CompuCredit Corp. v.
Greenwood, 132 S. Ct. 665, 669 (2012) (internal citation
omitted). “Doubts should be resolved in favor of coverage.” AT &
T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650
(1986) (internal citation omitted).
Because an arbitration provision’s scope and applicability
is a matter of contract interpretation, however, “ordinary
state-law principles that govern the formation of contracts”
still apply. First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 944 (1995). It is well-settled that a “party cannot be
required to submit to arbitration any dispute which he has not
agreed to so submit[.]” Levin, 634 F.3d at 266.
In the instant case, the scope of the Compensation
Agreements’ arbitration requirement is as follows: “All claims,
disputes, or controversies arising out of, or in relation to
this document [the Compensation Agreement] or Employee’s
employment with Company shall be decided by arbitration[.]” J.A.
70 (emphasis added). We now consider whether Newbanks and
Walton’s amended complaint, which is limited to allegations
based on acts and omissions that occurred prior to the date they
became at-will employees of Cellular Sales, falls within this
provision’s scope.
We conclude that the arbitration provision, in particular
its “Employee’s employment with Company” clause, does not
9
contemplate the allegations contained in the amended complaint. 3
Newbanks and Walton’s amended complaint specifically excludes
any acts of Cellular Sales occurring after the execution of the
Compensation Agreements in December 2011. Prior to December
2011, however, Newbanks and Walton were not employees of
Cellular Sales. In fact, they did not have any formal or
contractual relationship with Cellular Sales at all.
During the time period at issue in the amended complaint,
Newbanks and Walton had never signed any contract with Cellular
Sales in their individual capacities. The only relevant document
was the Independent Sales Agreement, but this document was
executed between Cellular Sales and the Sales Corporations, not
Newbanks and Walton. It expressly designated the relationship
between the Sales Corporations and Cellular Sales as “that of an
independent contractor,” not employee. J.A. 30. It further
covenanted that “[e]ach person who is engaged by the Sales
Corporation to render services . . . shall be an employee of the
Sales Corporation and not of [Cellular Sales].” Id. (emphasis
added).
3
Nor does the instant dispute arise out of or relate to the
Compensation Agreement itself, because Newbanks and Walton’s
amended complaint specifically excludes the time period
following the execution of the Compensation Agreement.
10
Newbanks and Walton did not become at-will employees of
Cellular Sales until December 2011, when they executed the
Compensation Agreements. By that same document, they also agreed
to arbitrate disputes arising from or related to “Employee’s
employment with Company.” We conclude that this arbitration
requirement only applies to causes of action accruing from the
execution of the Compensation Agreements and onward.
We reach this conclusion under the plain language of the
contract. The first paragraph of the Compensation Agreement
informed the signer that he or she had become an at-will
employee of Cellular Sales. 4 It then proceeded to set forth the
parties’ mutual obligations, including, but not limited to, an
employment-related arbitration provision. It did not make any
suggestion that the contract’s repeated references to “Employee”
entailed something more than that established by the instant
document.
Cellular Sales, the drafter of the agreement, could have
specified that the arbitration provision encompassed its
previous relationship with Newbanks and Walton and/or their
Sales Corporations (and/or the employees of their Sales
4
Indeed, Cellular Sales does not dispute that Newbanks and
Walton did not become at-will employees of Cellular Sales until
the execution of the Compensation Agreements in December 2011.
J.A. 67.
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Corporations), but it did not do so. It did not, for example,
covenant that disputes arising from the parties’ independent
contractor-contractee relationship be directed to arbitration.
It also did not incorporate by reference the Independent Sales
Agreements with the Sales Corporations; in fact, it did not
reference the Agreements at all.
Conversely, Cellular Sales could have crafted a broad,
open-ended arbitration provision that encompassed the instant
dispute, but it did not do that, either. Although the
arbitration requirement did not contain a temporal
qualification, it is qualified by its reference to disputes
arising from “Employee’s employment with Company.” The fact that
the provision implicates this contractual relationship is
significant to our analysis.
We have previously held that temporally-broad arbitration
provisions may be retroactively applied to causes of action that
accrued prior to the execution of the arbitration agreement. In
Levin, for example, we considered a provision referring to an
arbitrator “any dispute” between the parties. 634 F.3d at 266-
67. “[G]iven the broad scope of the arbitration clause applying
to ‘any dispute’ between the parties, and in light of the
arbitrability presumption that applies with special force to
broadly written clauses,” we held that claims that accrued
before the provision’s execution were subject to arbitration.
12
Id. at 269; see also Cara’s Notions, Inc. v. Hallmark Cards,
Inc., 140 F.3d 566, 569-70 (4th Cir. 1988).
The case at hand is different. In contrast to the provision
in Levin, which directed “any dispute” between the parties to
arbitration, the instant provision only applies to disputes
related to or arising from “Employee’s employment” with Cellular
Sales. 5 Yet prior to the execution of the Compensation Agreements
in December 2011, there existed no employment relationship
between Cellular Sales and Newbanks and Walton. We will not read
the arbitration agreements to apply to a relationship, a
contractual status, that simply did not exist. 6
5
We have previously suggested that a change in the parties’
contractual relationship may limit the ability of a later-
executed arbitration provision to be applied retroactively. In
Levin, we considered the reasoning of a district court case,
Hendrick v. Brown & Root, Inc., 50 F. Supp. 2d 527 (E.D. Va.
1999), which held that an arbitration clause in the last of a
series of project-by-project contracts did not apply to claims
accruing under previous contracts. We distinguished Hendrick on
the ground that the parties there had “stop-and-go business
dealings that periodically ended completely and began from
scratch again.” Levin, 634 F.3d at 269. In the instant case, the
contractual relationship between Cellular Sales and Newbanks and
Walton was substantially modified by the execution of the
Compensation Agreements.
6
Prior to December 2011, Newbanks and Walton were not
employed by Cellular Sales, and no privity as to their Sales
Corporations has been alleged. Reading the arbitration language
literally, then, it is impossible for Newbanks and Walton’s pre-
December 2011 claims to have “aris[en] out of,” or been
“relat[ed] to” “Employee’s employment with Company.” J.A. 70.
13
Cellular Sales urges us to look beyond the contractual
language in the Compensation Agreements and to rely instead on
the legal arguments made in Newbanks and Walton’s pleadings. In
their complaint, Newbanks and Walton had alleged that they
qualified as “employees” under the standard set forth in the
FLSA and corresponding state law; Cellular Sales argues that the
plaintiffs’ legal position in their complaint should inform our
interpretation of the arbitration provision. In other words, as
Cellular Sales’ argument goes, Newbanks and Walton contended in
their pleadings that they are “employees,” and they should be
treated as such for purposes of their previously-executed
arbitration provision, as well.
We agree with Cellular Sales’ general premise that courts
look to the plaintiff’s complaint to determine if its subject
matter is within the ambit of that negotiated in the arbitration
provision. This analysis, however, does not lead us to Cellular
Sales’ ultimate conclusion.
First, as a technical matter, Cellular Sales misstates a
nuance of the Appellees’ argument. Newbanks and Walton’s
complaint does not allege that they were contractual employees
of Cellular Sales prior to December 2011. Instead, they contend
that Cellular Sales misclassified them as independent
contractors when they in fact met the criteria of actual
employees under the FLSA’s definition. See, e.g., J.A. 21. The
14
complaint underscores the legal distinction between a
contractually-defined employee-employer relationship and a
statutorily-defined one. 7 Cf. Barrentine v. Arkansas-Best Freight
System, Inc., 450 U.S. 728, 740 (1981).
Second, and more fundamentally, Cellular Sales
overemphasizes the significance of the Appellees’ legal
pleadings. Our role in this dispute is one of contract
interpretation, of determining what the parties contemplated
when agreeing to arbitrate, and the legal positions a party may
later take is of minimal utility, if any at all, to our
analysis. The arguments made in a plaintiff’s pleadings do not
supersede the language of the contract, especially when the
plain language of the contract provides a clear and contrary
conclusion.
III.
Here, the arbitration provision plainly stated that
disputes related to “Employee’s employment with Company” were to
be resolved in arbitration. Newbanks and Walton were not
7
Of course, as we have said, our discussion of Newbanks and
Walton’s at-will employment is rooted solely in our task to
review the district court’s interpretation of the relevant
contract: whether Newbanks and Walton were, under the relevant
contracts, employees of Cellular Sales. We express no view as to
whether Appellees were entitled to enjoy the benefits of an
actual employee under the FLSA and corresponding state law, as
they contend in the amended complaint.
15
employees of Cellular Sales until the execution of the
Compensation Agreements. We thus agree with the district court
that the arbitration provision does not apply to claims that
accrued prior to the signing of the Compensation Agreements, and
that the amended complaint’s claims fall outside the scope of
the arbitration provision. Accordingly, the district court’s
order is
AFFIRMED.
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