Velez v. Robert J. DeBry & Associates, PC

2015 UT App 15_________________________________________________________
THE UTAH COURT OF APPEALS
A. JASON VELEZ,
Plaintiff and Appellant,
v.
ROBERT J. DEBRY & ASSOCIATES, PC,
Defendant and Appellee.
Memorandum Decision
No. 20131080-CA
Filed January 23, 2015
Fifth District Court, St. George Department
The Honorable Jeffrey C. Wilcox
No. 100503975
Michael R. Labrum, Attorney for Appellant
A. Jason Velez, Appellant Pro Se
Lynn P. Heward, Attorney for Appellee
JUDGE JOHN A. PEARCE authored this Memorandum Decision, in
which JUDGES GREGORY K. ORME and MICHELE M. CHRISTIANSEN
concurred.
PEARCE, Judge:
¶1 A. Jason Velez appeals from a district court order
concluding that he could have asserted his wage-payment
penalty claim in a prior arbitration and that his failure to do so
precluded him from asserting that claim in a later court
proceeding. We agree with the district court and affirm.
¶2 Velez practiced law at Robert J. DeBry & Associates
(DeBry) pursuant to a written employment agreement (the
Employment Agreement). On July 9, 2010, DeBry exercised its
Velez v. Robert J. DeBry & Associates, PC
contractual right to terminate Velez’s employment without cause
by giving him sixty days’ written notice. After Velez received the
termination notice, Velez and DeBry agreed that Velez could
keep thirteen of the more than 200 clients whose cases he
handled so long as he did not contact the other clients. DeBry
paid Velez his salary for the first month of the sixty-day
termination period but refused to pay the second month’s.
DeBry justified its nonpayment by claiming that Velez had
violated their separation agreement by contacting clients and by
renting a billboard to display a sign announcing his departure.
¶3 Velez demanded in writing that DeBry pay the second
month’s salary. When DeBry refused, Velez filed a complaint in
the district court, asserting causes of action for breach of
contract, defamation, and violation of Utah’s wage-payment
statute. The complaint explicitly sought the award of a penalty
equal to sixty days’ wages pursuant to Utah Code section 34-28-
5.1
1. The wage-payment statute provides, ‚Whenever an employer
separates an employee from the employer’s payroll the unpaid
wages of the employee become due immediately, and the
employer shall pay the wages to the employee within 24 hours
of the time of separation at the specified place of payment.‛ Utah
Code Ann. § 34-28-5(1)(a) (LexisNexis 2011). If the employer fails
to ‚pay wages due an employee within 24 hours of written
demand, the wages of the employee shall continue from the date
of demand until paid, but in no event to exceed 60 days, at the
same rate that the employee received at the time of separation.‛
Id. § 34-28-5(1)(b)(i). The employee may recover this penalty ‚in
a civil action,‛ which must be brought within sixty days of the
date of separation. Id. § 34-28-5(1)(b)(ii).
20131080-CA 2 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
¶4 DeBry moved to compel arbitration because the
Employment Agreement contained a clause requiring arbitration
of ‚[a]ny controversy or claim arising out of or directly or
indirectly relating to this Agreement or *Velez’s+ association
with *DeBry+.‛ Velez agreed to arbitrate but expressed concern
about the arbitration process in a letter sent to the American
Arbitration Association (the AAA), which was to conduct the
arbitration. In that letter, Velez asserted that he did not believe
that all of his claims arose out of the Employment Agreement.
He referenced ‚a minimum of [two] claims‛ that ‚are subject to a
filing requirement under state statute.‛ Velez confessed that he
was ‚unclear as to how raising the issue in an arbitration setting
could affect *those+ claims in another venue,‛ and asked for
clarification. He also asked that ‚no adverse action, such as
foreclosure of *his+ counterclaims be taken‛ until he could raise
them in an appropriate venue. The AAA did not respond to
Velez’s letter.
¶5 Velez and DeBry participated in an arbitration hearing,
which resulted in a written ruling that, among other things, (1)
required DeBry to pay Velez the second month’s salary and (2)
set a mechanism for splitting the fees on Velez’s cases that DeBry
kept. Velez did not ask the arbitrator to award him the statutory
penalty he now contends DeBry owed for failing to pay his
salary when due, nor did he renew the concerns expressed in the
letter to the AAA that had gone unanswered.
¶6 DeBry filed a motion to confirm the arbitration award in
district court. Velez did not oppose the motion but asserted that
the court should also impose the statutory penalty and include it
in the order confirming the award. The district court heard
argument on the motion to confirm and the question of Velez’s
ability to recover the statutory penalty. The court denied Velez’s
request to include the penalty in the confirmed award, finding,
‚I do believe that even though it was statutorily [required that]
you’ve got to bring the cause of action, you did, and then it went
20131080-CA 3 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
into arbitration. It could have and should have been handled
there, so I’m simply going to confirm the arbiter’s final award.‛
In other words, the district court found that res judicata
prevented Velez from litigating the issue in the district court.
¶7 We review the district court’s application of principles of
res judicata for correctness. Gillmor v. Family Link, LLC, 2012 UT
38, ¶ 9, 284 P.3d 622. Res judicata takes two forms: claim
preclusion and issue preclusion. Macris & Assocs., Inc. v. Neways,
Inc., 2000 UT 93, ¶ 19, 16 P.3d 1214. For claim preclusion to bar a
subsequent cause of action, a party must show that: (1) both
cases involve the same parties or their privies; (2) the claim
alleged to be barred was raised in the first action or could and
should have been raised in the first action; and (3) the first action
resulted in a final judgment on the merits. Id. ¶ 20.
¶8 Velez does not dispute that the arbitration involved the
same parties as his subsequent attempt to have the court award
the statutory penalty. Nor does Velez contend that the
arbitration did not result in a final judgment on the merits. Velez
focuses his argument on the second element, claiming that the
district court erred because his statutory wage-payment penalty
claim was not one that he could or should have raised in
arbitration. Indeed, he argues that he could not have arbitrated
the issue, because the arbitrator lacked jurisdiction over the
claim.
¶9 Velez roots that argument in the language of Utah Code
section 34-28-7. Section 34-28-7 provides, in relevant part, that
‚no provisions of this chapter can in any way be contravened or
set aside by a mutual agreement unless the agreement is
approved‛ by the Utah Antidiscrimination & Labor Division (the
Division). Utah Code Ann. § 34-28-7 (LexisNexis 2011). The
penalty section of the wage-payment statute explains that an
‚employee may recover the penalty thus accruing to the
employee in a civil action.‛ Id. § 34-28-5(1)(b)(ii). Velez reads
20131080-CA 4 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
these provisions together and concludes that an agreement to
arbitrate necessarily contravenes or sets aside the provision
allowing the employee to recover the penalty by filing a civil
action. In Velez’s view, this renders the arbitration clause in his
Employment Agreement invalid as to claims arising out of the
wage-payment statute unless the Division has approved the
clause.
¶10 There are two problems with Velez’s reading of the
statutes. First, his reading does not comport with the plain
language of section 34-28-7. When presented with a question of a
statute’s meaning, we presume the Utah Legislature chose its
words carefully and used each term advisedly and according to
its ordinary meaning. See D.A. v. D.H., 2014 UT App 138, ¶ 6, 329
P.3d 828. Here, the Legislature chose to use the terms
‚contravene*s+‛ and ‚set*s+ aside‛ to describe the content of an
agreement that would need the Division’s approval to be
enforceable. See Utah Code Ann. § 34-28-7. Thus, the question
before us is, ‚Does an agreement to arbitrate contravene or set
aside the ability of an employee to collect the penalty provided
for by the wage-payment statute?‛
¶11 Velez suggests that his arbitration agreement with DeBry
sets aside the wage-payment statute’s language providing that
an aggrieved employee ‚may recover the penalty . . . in a civil
action.‛ See id. § 34-28-5(1)(b)(ii). Velez does not elucidate how
arbitrating the claim would run afoul of that provision, nor does
he cite any case law to support his argument that arbitrating a
statutory penalty sets aside or contravenes the wage-payment
statute.
¶12 The United States Supreme Court rejected a similar
argument in Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477 (1989). Rodriguez de Quijas involved investors
who sought recovery from their brokers for alleged violations of
the Securities Act of 1933 (the ‘33 Act). The ‘33 Act provided that
20131080-CA 5 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
‚*n+o action shall be maintained to enforce any liability created
[under certain sections of Title 15] unless brought within one
year after the discovery of the untrue statement‛ or material
omission. See 15 U.S.C. § 77m (1988). The ‘33 Act also instructed
that ‚*a+ny condition, stipulation, or provision binding any
person acquiring any security to waive compliance with any
provision of this subchapter or of the rules and regulations of the
[Securities and Exchange] Commission shall be void.‛ Id. § 77n.
¶13 The Rodriguez de Quijas petitioners argued that the
arbitration clause in their brokerage agreements required them
to waive compliance with section 77m. See 490 U.S. at 481–82.
The Supreme Court rejected that reading of the statute. The
Court noted, ‚By agreeing to arbitrate a statutory claim, a party
does not forgo the substantive rights afforded by the statute; it
only submits to their resolution in an arbitral, rather than a
judicial, forum.‛ Id. at 481 (citation and internal quotation marks
omitted). The Court then reasoned that there existed ‚no sound
basis for construing the prohibition in [section 77n] on waiving
‘compliance with any provision’ of the *’33 Act+ to apply to . . .
procedural provisions.‛ Id. at 482. The Court concluded that
‚resort to the arbitration process does not inherently undermine
any of the substantive rights afforded to the petitioners under
*the ‘33 Act]‛ and allowed the arbitration clause to be enforced.
Id. at 485–86.
¶14 Here, Velez has not offered any argument or pointed to
any record evidence demonstrating that arbitration of his claim
for a statutory penalty would undermine any substantive right
the wage-payment statute affords employees. Although Velez’s
original complaint sought recovery of the penalty and his letter
to the AAA referenced the claim, it appears he failed to press
that claim in the arbitration proceeding. There is therefore no
suggestion in the record that arbitrating the matter would have
somehow contravened or set aside Velez’s ability to recover the
statutory penalty.
20131080-CA 6 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
¶15 The second problem with Velez’s reading of Utah Code
section 34-28-7 is that it conflicts with the Federal Arbitration
Act’s (the FAA) preemption clause. Section 2 of the FAA
provides:
A written provision in . . . a contract evidencing a
transaction involving commerce to settle by
arbitration a controversy arising out of such
contract or transaction, or the refusal to perform
the whole or any part thereof, . . . shall be valid,
irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 2 (2012). ‚Section 2 is a congressional declaration of a
liberal federal policy favoring arbitration agreements,
notwithstanding any state substantive or procedural policies to
the contrary.‛ Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983). The Supreme Court has explained
that, ‚[i]n enacting § 2 of [the FAA], Congress declared a
national policy favoring arbitration and withdrew the power of
the states to require a judicial forum for the resolution of claims
which the contracting parties agreed to resolve by arbitration.‛
Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).
¶16 The United States Supreme Court has employed this
reasoning to conclude that the FAA preempted various state law
provisions that purported to foreclose the ability of the parties to
agree to arbitrate. For example, the Court held that the FAA
preempted a California Labor Code provision that provided that
claims for unpaid wages could be maintained in a California
court even if the parties had entered into an arbitration
agreement. See Perry v. Thomas, 482 U.S. 483, 492 (1987). The
Court has also declared preempted a section of the California
Franchise Investment Law that read, ‚Any condition, stipulation
20131080-CA 7 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
or provision purporting to bind any person acquiring any
franchise to waive compliance with any provision of this law or
any rule or order hereunder is void.‛ Southland, 465 U.S. at 10, 16(citation and internal quotation marks omitted).
¶17 Velez acknowledges this case law but attempts to
distinguish it, arguing that the United States Supreme Court has
held that ‚state courts cannot ‘invalidate arbitration agreements
under state laws applicable only to arbitration proceedings’‛ and
that the FAA does not preempt state laws that ‚‘arose to govern
issues concerning the validity, revocability, and enforceability of
contracts generally.’‛ (Quoting Doctor’s Assocs., Inc. v. Casarotto,
517 U.S. 681, 685–87 (1996).) This language speaks to ‚generally
applicable contract defenses, such as fraud, duress, or
unconscionability,‛ which ‚may be applied to invalidate
arbitration agreements without‛ risking FAA preemption.
Casarotto, 517 U.S. at 686–87. Although Utah Code section 34-28-
7 does not explicitly single out arbitration agreements, if read as
Velez urges, it would remove an entire category of claims from
the reach of arbitration and conflict with what the Court in
Casarotto articulated as ‚the very purpose of *the FAA+‛—to
ensure that ‚private agreements to arbitrate are enforced
according to their terms.‛ Id. at 688 (citation and internal
quotation marks omitted).
¶18 When presented with competing interpretations of a
statute, we avoid an interpretation that would ‚render the
statute invalid under an explicitly preemptive federal law.‛ See
State v. Mooney, 2004 UT 49, ¶ 13, 98 P.3d 420. If we were to
conclude that an agreement to arbitrate the statutory penalty of
the wage-payment provisions circumvents or sets aside those
provisions, section 34-28-7 would likely be preempted under the
FAA. This lends support to our ultimate conclusion that the
Employment Agreement’s arbitration provision, when applied
to Velez’s attempt to recover the wage-payment penalty, neither
20131080-CA 8 2015 UT App 15Velez v. Robert J. DeBry & Associates, PC
circumvents nor sets aside the protections of Utah Code section
34-28-5.
¶19 The Employment Agreement required Velez and DeBry
to arbitrate ‚[a]ny controversy or claim arising out of or directly
or indirectly relating‛ to the Employment Agreement. Velez had
the opportunity to pursue his statutory wage-payment penalty
claim in the resulting arbitration. He did not avail himself of that
opportunity. Velez has not met his burden on appeal of
demonstrating that the district court erred in finding that
principles of res judicata prevented him from subsequently
litigating that claim in the district court. We affirm.
20131080-CA 9 2015 UT App 15