Knowles v. Community Loans of America, Inc. et al
Filing
27
Order granting 11 Motion to Compel Arbitration and denying Motion to Dismiss. The defendants are ordered to file a Status Report re: arbitration proceedings by 12/10/2012 and by the 10th of every second month thereafter. Signed by Chief Judge William H. Steele on 11/20/2012. (tgw)
THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
SONJA KNOWLES,
)
)
Plaintiff,
)
)
v.
) CIVIL ACTION 12-0464-WS-B
)
COMMUNITY LOANS OF AMERICA, )
INC., et al.,
)
)
Defendants.
)
ORDER
This matter is before the Court on the defendants’ motion to dismiss and compel
arbitration. (Doc. 11). The parties have filed briefs and other materials in support of
their respective positions, (Docs. 12, 17, 20),1 and the motion is ripe for resolution.
BACKGROUND
According to the complaint, defendants Community Loans of America, Inc.
(“Community Loans”), U.S. Title Loans, Inc. (“U.S. Title”), and Alabama Title Loans,
Inc. (“Alabama Title”), were at all relevant times the plaintiff’s employer. Defendants
Elaine McLeod and Jodi Ward were persons who acted directly or indirectly in the
employers’ interests with respect to employment and compensation decisions as to the
plaintiff and were thus her employer by statute. Count One of the complaint alleges
violations of the Fair Labor Standards Act (“FLSA”), Count Two alleges breach of
employment contracts, and Count Three seeks declaratory relief concerning FLSA
violations. (Doc. 1).
1
The defendants filed two versions of their reply brief. (Docs. 19, 20). The Court
considers only the most recent version, which the Court deems to supersede its predecessor.
The plaintiff and Alabama Title signed a “Mediation and Arbitration Procedure”
(“the Agreement”), (Doc. 11, Exhibit A), which the defendants seek to enforce. The
plaintiff raises the following objections: (1) the individual defendants are not parties to
the agreement; (2) several provisions are unconscionable under Alabama law; (3) several
provisions are void under federal law; (4) conditions precedent to arbitration have not
occurred; and (5) the possibility of excessive costs may render the agreement
unconscionable and/or void. (Doc. 17 at 2). The defendants respond that the plaintiff’s
objections must be resolved by the arbitrator rather than the Court and that they are in any
event unfounded.2
DISCUSSION
The Agreement submits to arbitration “any controversy or claim arising out of or
relating to your employment relationship with the Company or the termination of that
relationship.” (Doc.11, Exhibit A, ¶ 1). “Claims covered” is defined to include “any
claim that could be asserted in court … or claims for which the employee has an alleged
cause of action, including without limitation claims for breach of any contract … and/or
claims for violation of any federal … statute ….” (Id., ¶ 1.a.ii). The plaintiff’s claims
fall squarely within this provision, and she does not assert otherwise.
I. Validity.
The plaintiff argues that the Agreement is procedurally unconscionable because
she lacked meaningful choice regarding whether to enter it. (Doc. 17 at 5, 7, 10). She
also agues the Agreement is substantively unconscionable because it requires her to pay
2
“There is no burden upon the district court to distill every potential argument that could
be made based upon the materials before it on summary judgment.” Resolution Trust Corp. v.
Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995). The Court applies the same principle here and
accordingly limits its review to those arguments the parties have expressly advanced. The Court
has and expresses no opinion concerning whether the result could have been different had other
arguments been raised or the same arguments presented more effectively.
2
her own attorney’s fees and costs even though, under the FLSA, a losing defendant must
pay the prevailing plaintiff’s fees and costs. (Id. at 6-9). She argues as well that the
Agreement is substantively unconscionable because it provides for waiver of any claim as
to which written notice is not given the employer within three months, effectively cutting
short the six-year limitations period governing her contract claim and the two- or threeyear limitations period governing her FLSA claim. (Id. at 9-11). The plaintiff further
argues that the attorney’s fee and notice-and-waiver provisions render the Agreement
void under federal law. (Id. at 11-14).
Challenges to an arbitration agreement based on unconscionability address the
agreement’s validity. Rent-A-Center, Inc. v. Jackson, 130 S. Ct. 2772, 2783 (2010).
Likewise, objections that the agreement contains unenforceable remedial restrictions that
are not severable from the remainder of the agreement go to the agreement’s validity.
Terminix International Co. v. Palmer Ranch Limited Partnership, 432 F.3d 1327, 1331
(11th Cir. 2005). The threshold question is whether the Court or the arbitrator should
resolve the plaintiff’s objections to validity.
“Unless the parties clearly and unmistakably provide otherwise, the question of
whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.”
AT&T Technologies, Inc. v. Communication Workers of America, 475 U.S. 643, 649
(1986). This rule extends to the determination of whether the parties agreed to arbitrate
the question of arbitrability. Id.; accord First Options, Inc. v. Kaplan, 514 U.S. 938, 944
(1995).
One way to show a clear and unmistakable intent to arbitrate arbitrability is by
agreeing that the arbitration will be conducted in accordance with formalized arbitration
rules, which rules provide for arbitration of arbitrability. In Terminix, the arbitration
agreement provided that “arbitration shall be conducted in accordance with the
Commercial Arbitration Rules then in force of the American Arbitration Association
(AAA).” 432 F.3d at 1332. Those rules were not quoted in the agreement, but the
Eleventh Circuit quoted them as they appear online, viz.: “[T]he arbitrator shall have the
power to rule on his or her own jurisdiction, including any objections with respect to the
3
existence, scope or validity of the arbitration agreement.” Id. The Terminix Court held
that, “[b]y incorporating the AAA Rules, including Rule 8, into their agreement, the
parties clearly and unmistakably agreed that the arbitrator should decide whether the
arbitration clause is valid.” Id. While the validity of an arbitration agreement “is by
default an issue for the court, not the arbitrator,” the parties may “contrac[t] around that
default rule,” and by incorporating the AAA rules, the parties did so. Id. at 1333.3
The Agreement provides that “[t]he arbitration will be conducted and administered
by the American Arbitration Association (“AAA”) under its National Rules for the
Resolution of Employment Disputes – Arbitration and Mediation, effective June 1, 1996,
as may be amended.” (Doc. 11, Exhibit A, ¶ 1.e). “These Rules [are] incorporated by
reference into this Procedure ….” (Id.). Those rules provide, in language identical to
that considered in Terminix, that “[t]he arbitrator shall have the power to rule on his or
her own jurisdiction, including any objections with respect to the existence, scope or
validity of the arbitration agreement.” www.adr.org/aaa.4 Under Terminix, the parties
thus clearly and unmistakably agreed that an arbitrator rather than a court would decide
any challenges to the Agreement’s validity. Under First Options and other precedents,
that agreement is to be honored.
The plaintiff argues that her challenges to the attorney’s fee and notice-and-waiver
provisions of the Agreement nevertheless must be resolved by the Court. These
provisions, she says, amount to waivers of statutory rights under the FLSA, and both the
statute and decisions applying it preclude such waivers. “An arbitrator cannot decide the
validity of a waiver of rights under the FLSA, because the submission of that question to
3
Other Circuits follow the same rule. Petrofac, Inc. v. DynMcDermott Petroleum
Operations Co., 687 F.3d 671, 675 (5th Cir. 2012); Fallo v. High-Tech Institute, 559 F.3d 874,
878 (8th Cir. 2009); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2006);
Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208-09 (2nd Cir. 2005).
4
As the Eleventh Circuit relied on the AAA’s website to demonstrate the content of the
relevant rule, the Court does so as well.
4
an arbitrator would carry with it an implicit presumption that the arbitrator has the power
to approve such waivers.” (Doc. 17 at 14-15). This statement is unexplained, but it must
be rejected whatever its import. If it is intended to suggest an arbitrator has no “power”
to make a mistake, the plaintiff is obviously wrong, since no tribunal is either perfect or a
guarantor of perfection. If it is intended to suggest that the mere act of submitting the
issue to an arbitrator carries with it an unspoken blessing to rule by whim rather than by
law, the Court expressly disavows any such sanction, and the plaintiff provides no
grounds for believing the arbitrator would nevertheless proceed on such an unprincipled
basis.
The plaintiff’s argument, if accepted, would apply as forcefully to the courts as to
arbitrators, for if submission of an issue to an arbitrator suggests the arbitrator’s power to
approve an illegal waiver of FLSA rights, then submission of the same issue to a court
would suggest an equal power, and courts would be as disqualified as arbitrators from
ruling on such issues. Moreover, were the plaintiff’s argument accepted, its reasoning
could not be limited to the validity of FLSA waivers. No issue of validity could ever be
submitted to an arbitrator, because the very act of submission would be deemed to
encourage innocently or purposefully erroneous decisions. Finally, the plaintiff neither
offers authority in support of her position nor explains how First Options and other
controlling precedents could be read to accommodate it. For all these reasons, the Court
rejects the plaintiff’s unsupported proposal.
The plaintiff’s only other argument against arbitral resolution of her challenges to
validity is that the Agreement “does not contain a clause empowering the arbitrator to
determine the validity of the provisions in the agreement.” (Doc. 17 at 15). As discussed
above, under Terminix (which the plaintiff does not address) the Agreement does in fact
contain such a provision, by virtue of its incorporation of the AAA rules.5
5
In addition to their Terminix argument, the defendants argue that the Agreement leaves
to the arbitrator challenges to validity because it “[c]overs any dispute concerning the
arbitrability of any such controversy or claim.” (Doc. 11, Exhibit A, ¶ 1.a.i). The plaintiff
(Continued)
5
II. Conditions Precedent.
The Agreement provides that, “[a]s a prerequisite for submitting an employment
dispute to mediation and, if necessary arbitration, both you and the Company agree to
make good faith efforts at resolving any dispute internally on an informal basis …. Only
when those internal efforts fail, may an employment dispute be submitted to mediation
and (if necessary) final and binding arbitration ….” (Doc. 11, Exhibit A, ¶ c). “If efforts
at informal resolution fail, disputes arising under this Agreement must first be submitted
for non-binding mediation before a neutral third party.” (Id., ¶ d). “If a covered dispute
remains unresolved at the conclusion of the mediation process, either party may submit
the dispute for resolution by final binding arbitration ….” (Id., ¶ e). The plaintiff argues
that the Agreement makes informal negotiation and non-binding mediation conditions
precedent to arbitration, and she denies that these conditions have been fulfilled. (Id. at
20-21).
Again, the threshold question is whether the Court or the arbitrator is to resolve
the objection. In Kemiron Atlantic, Inc. v. Aguakem International, Inc., 290 F.3d 1287
(11th Cir. 2002), the parties agreed that disputes would be resolved by mediation or,
should mediation fail, by arbitration, each alternate dispute resolution mechanism to be
preceded by notice. Id. at 1289. The trial court denied the defendant’s motion to stay
pending arbitration, on the grounds the parties had not given notice to mediate, had not
mediated, and had not given notice to arbitrate. Id. at 1290. The Eleventh Circuit
affirmed on the same grounds. Id. at 1291. The plaintiff relies on Kemiron for the
proposition that her objection is for judicial resolution. (Doc. 17 at 20).
argues that this clause addresses only whether a particular claim falls within the Agreement.
(Doc. 17 at 15 n.7). The defendants contend it extends to questions of the Agreement’s validity.
(Doc. 20 at 3). Because the incorporation of the AAA rules suffices to direct issues of validity to
the arbitrator, the Court pretermits discussion of the “arbitrability” clause.
6
Unlike questions concerning the validity of an arbitration agreement, “procedural
questions which grow out of the dispute and bear on its final disposition are
presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 84 (2002) (emphasis in original; internal quotes omitted).
Thus, “an arbitrator should decide whether the first two steps of a grievance procedure
were completed, where these steps are prerequisites to arbitration.” Id. (explaining John
Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)). More generally, absent an
agreement to the contrary, “an arbitrator shall decide whether a condition precedent to
arbitrability has been fulfilled.” Id. at 85 (internal quotes omitted); accord Klay v. United
Healthgroup, Inc., 376 F.3d 1092, 1107 (11th Cir. 2004).6
Kemiron is not inconsistent with Howsam and John Wiley, because there is no
indication either party argued that an arbitrator should decide the issue, leaving the trial
and appellate courts free to rule on the issue themselves. But even if Kemiron supported
the proposition for which the plaintiff contends, it could not carry the field against
controlling Supreme Court precedent.
III. Costs.
The plaintiff purports to reserve the right to argue in a judicial forum that
excessive costs of arbitration render the Agreement unconscionable under Alabama law.
(Doc. 17 at 16-17).7 As discussed in Part I, the Agreement assigns to the arbitrator the
task of resolving challenges based on unconscionability.
6
When mediation must be attempted prior to arbitration, mediation is a condition
precedent to arbitration. Kemiron, 290 F.3d at 1291. The plaintiff expressly recognizes informal
efforts and mediation as conditions precedent to arbitration. (Doc. 17 at 20).
7
The viability of this argument, she says, depends on whether the AAA or the arbitrator
ultimately construes the Agreement as an individually-negotiated employment agreement (with
higher costs assessed the employee) or as an employer-promulgated plan (with lesser costs
assessed the employee). (Doc. 17 at 16). Since the defendants have presented the Court with
two trial court decisions involving one or more of the entity defendants herein, and since they
(Continued)
7
IV. Non-Signatories.
The Agreement is signed by the plaintiff and “The Company.” (Doc. 11, Exhibit
A at 4). “The Company” is defined as Alabama Title. (Id., ¶ 1). Neither McLeod nor
Ward is a signatory.8 The plaintiff argues that they thus may not enforce the Agreement.
(Doc. 17 at 3-5). The defendants again argue that the issue is for the arbitrator. (Doc. 20
at 1).
A question as to “whether the arbitration contract bound parties who did not sign
the agreement” is one that “raises a ‘question of arbitrability’ for a court to decide.”
Howsam, 537 U.S. at 84. But, as discussed in Part I, that presumptive division of labor
can be altered by agreement. As also discussed in Part I, the parties agreed to have an
arbitrator determine issues concerning the “existence, scope or validity” of the
Agreement. The “question of who is bound by” an arbitration agreement, including
“nonparties,” is a question “regarding the scope” of the agreement. Arthur Andersen LLP
v. Carlisle, 556 U.S. 624, 630-31 (2009). Thus, this issue as well must be resolved by the
arbitrator.
V. Dismissal.
The defendants move for dismissal of this action in favor of arbitration. While
requesting such relief, they do not explain why they should receive it.
“If any suit or proceeding be brought ... upon any issue referable to arbitration ...,
the court in which such suit is pending, upon being satisfied that the issue involved in
have represented to the Court that the plaintiffs in those cases “signed the same, identical
Arbitration Agreement” as did the plaintiff herein, (Doc. 12 at 10; Doc. 20 at 2), it would appear
extremely unlikely that the Agreement could be found to be an individually negotiated
agreement.
8
Ward did sign the Agreement, but only on behalf of “The Company.” (Doc. 11, Exhibit
A at 4).
8
such suit or proceeding is referable to arbitration ..., shall on application of one of the
parties stay the trial of the action until such arbitration has been had ....” 9 U.S.C. § 3
(emphasis added). As this Court has observed, “[w]here a plaintiff initiates litigation
without satisfying arbitration requirements, courts routinely stay rather than dismiss the
proceedings to allow for implementation of the agreed-upon dispute resolution
mechanism.” Campbell v. Pilot Catastrophe Services, Inc., 2010 WL 3306935 at *7
(S.D. Ala. 2010). Given the pendency of the multiple threshold challenges the arbitrator
must resolve favorably to the defendants before even reaching the merits of the dispute,
and the corresponding possibility the plaintiff ultimately will be permitted to pursue
litigation, a stay appears especially preferable to dismissal. That a dismissal would
implicate statute of limitations considerations underscores the preference for a stay.9 As
the defendants offer no justification for dismissal, such relief will be denied them.
CONCLUSION
For the reasons set forth above, the defendants’ motion to compel arbitration is
granted and their motion to dismiss is denied. This action is stayed pending resolution
of the arbitration proceedings. The defendants are ordered to file and serve, on or before
December 10, 2012 and on or before the tenth day of every second month thereafter, a
report detailing the status of the arbitration proceedings. The defendants are furthered
ordered to file and serve, within 14 days of the conclusion of arbitration proceedings,
notification of same.
DONE and ORDERED this 20th day of November, 2012.
s/WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
9
See generally N-Tron Corp. v. Rockwell Automation, Inc., 2010 WL 653760 at *8 (S.D.
Ala. 2010) (considering the effect of the statute of limitations in staying rather than dismissing
claims subject to a mediation requirement).
9
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