Daniel Newbanks v. Cellular Sales of Knoxville
Filing
UNPUBLISHED AUTHORED OPINION filed. Originating case number: 3:12-cv-01420-CMC. Copies to all parties and the district court/agency. [999250722].. [12-2389]
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UNPUBLISHED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Affirmed by unpublished opinion.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
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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Unpublished opinions are not binding precedent in this circuit.
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DAVIS, Circuit Judge:
This
interlocutory
arbitration
provision
appeal
signed
involves
by
Daniel
the
scope
Newbanks
and
of
an
Jennifer
Walton (collectively “Appellees”) at the beginning of their atwill
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
Walton
in
originated
October
with
2011.
At
Newbanks
that
in
point,
May
2011
limited
and
with
liability
companies owned by Newbanks and Walton (“Sales Corporations”)
entered into sales contracts with Cellular Sales (“Independent
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Sales
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Agreements”).
The
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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
covenanted
Sales.
The
that
Independent
“[e]ach
person
Sales
who
is
Agreements
engaged
by
expressly
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.
Walton
Pursuant
became
to
the
at-will
Compensation
employees
compensation
was
to
Compensation
Agreements
be
paid
did
not
4
of
Agreements,
Cellular
to
Newbanks
Sales
and
and
their
them
individually.
reference
Cellular
The
Sales’
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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.
Cellular
In
their
Sales
complaint,
had,
Newbanks
pursuant
5
to
and
the
Walton
allege
Independent
that
Sales
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Agreements,
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improperly
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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
requirement,
Cellular
to
nor
Sales’
the
had
Compensation
it
alleged
violations.
In
a
Agreements’
specific
response
to
time
arbitration
frame
Cellular
for
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’
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proposed complaint was not futile. 1 J.A. 146. Having accepted the
amended pleading, the district court declined to send the newlytailored dispute to arbitration. In particular, it relied on the
arbitration provision’s language directing to arbitration those
“claims,
disputes,
or
relation
to
document
Company.”
J.A.
contemplate
this
150.
controversies
It
disputes
or
Employee’s
concluded
arising
arising
when
that
of,
or
employment
this
Newbanks
out
language
and
did
Walton’s
in
with
not
Sale
Corporations were independent contractors of Cellular Sales –
that is, prior to their execution of the Compensation Agreements
in
December
limited
its
2011.
Because
claims
to
the
those
plaintiffs’
pre-dating
the
amended
complaint
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
1
Agreements’
arbitration
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).
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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).
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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
state-law
of
contract
principles
that
interpretation,
govern
the
however,
formation
of
“ordinary
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
Walton’s
added).
amended
We
now
complaint,
consider
which
is
whether
limited
Newbanks
to
and
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
9
Company”
clause,
does
not
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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
2011,
Agreements
however,
Cellular
Sales.
in
Newbanks
In
December
and
fact,
2011.
Walton
they
did
were
not
Prior
not
have
to
December
employees
any
formal
of
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
covenanted
contractor,”
that
“[e]ach
not
employee.
person
who
is
J.A.
30.
engaged
by
It
further
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.
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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.
informed
The
the
first
signer
paragraph
that
he
of
or
the
she
Compensation
had
become
Agreement
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
previous
Sales
that
the
relationship
Corporations
arbitration
with
(and/or
provision
Newbanks
the
4
and
encompassed
Walton
employees
of
its
and/or
their
their
Sales
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,
open-ended
dispute,
Cellular
arbitration
but
arbitration
qualification,
it
did
Sales
provision
not
requirement
it
is
could
do
that
have
encompassed
that,
did
not
qualified
by
crafted
either.
the
broad,
instant
Although
contain
its
a
a
reference
the
temporal
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 26667. “[G]iven the broad scope of the arbitration clause applying
to
‘any
dispute’
arbitrability
broadly
between
presumption
written
clauses,”
the
parties,
and
that
applies
with
we
held
that
in
light
special
claims
that
of
force
the
to
accrued
before the provision’s execution were subject to arbitration.
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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 laterexecuted 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 preDecember 2011 claims to have “aris[en] out of,” or been
“relat[ed] to” “Employee’s employment with Company.” J.A. 70.
13
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Cellular
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Sales
urges
us
Pg: 14 of 16
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
contractors
when
Sales
they
misclassified
in
fact
met
them
the
as
criteria
independent
of
actual
employees under the FLSA’s definition. See, e.g., J.A. 21. The
14
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complaint
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underscores
contractually-defined
the
Pg: 15 of 16
legal
distinction
employee-employer
between
relationship
a
and
a
statutorily-defined one. 7 Cf. Barrentine v. Arkansas-Best Freight
System, Inc., 450 U.S. 728, 740 (1981).
Second,
and
overemphasizes
pleadings.
more
the
Our
significance
role
interpretation,
of
fundamentally,
in
this
determining
of
the
dispute
what
Cellular
is
the
Sales
Appellees’
legal
one
parties
of
contract
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
7
and
Walton
were
not
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
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employees
of
Filed: 12/03/2013
Cellular
Sales
Pg: 16 of 16
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.
16
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