Daugherty et al v. Encana Oil & Gas (USA), Inc.

Filing 63

ORDER granting 32 Defendants Motion to Compel Arbitration of the claims of Plaintiffs Matthew Daugherty, Darwin Harper, Daniel Gaston, Guillermo Grado, Charles Grimsley, and Jared Langley. Arbitration of Plaintiffs claims may take place only in a m anner not inconsistent with this Courts Order; and The claims of Plaintiffs Matthew Daugherty, Darwin Harper, Daniel Gaston, Guillermo Grado, Charles Grimsley, and Jared Langley are STAYED pending completion of arbitration. by Judge William J. Martinez on 7/15/2011.(erv, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 10-cv-02272-WJM-KLM
MATTHEW DAUGHERTY,
DARWIN L. HARPER,
DANIEL GASTON,
DAVID GASTON,
GUILLERMO GRADO,
CHARLES GRIMSLEY, and
JARED LANGLEY, on their behalf and on behalf of those similarly situated,
Plaintiffs,
v.
ENCANA OIL & GAS (USA), INC., a Delaware corporation,
Defendant.

ORDER GRANTING DEFENDANT’S MOTION TO COMPEL ARBITRATION

THIS MATTER is before the Court on Defendant Encana Oil & Gas (USA) Inc.’s
(“Encana”) Amended Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(1) or, in the
alternative, Motion to Compel Arbitration and Stay the Proceedings Pending Arbitration
(“Motion to Compel Arbitration”). (ECF No. 32.) For the reasons set forth below, the
Motion to Compel Arbitration is GRANTED and the case is STAYED pending
completion of arbitration between Encana and Plaintiffs Matthew Daugherty
(“Daugherty”), Darwin Harper (“Harper”), Daniel Gaston (“Gaston”), Guillermo Grado
(“Grado”), Charles Grimsley (“Grimsley”), and Jared Langley (“Langley”) (collectively

“Plaintiffs”).1
BACKGROUND
The following facts established in the record, unless otherwise noted, do not
appear to be in material dispute. Encana develops and produces natural gas in North
America, including Colorado and Texas. (Amend. Compl., ECF No. 25 at ¶ 4.) As part
of the production of natural gas, Encana employs the services of oil pumpers to service
and maintain its gas wells. (Id. at ¶ 5, 7.)
Plaintiffs are all pumpers who worked as contractors for Encana in either the
Piceance Basin in Western Colorado or in Texas. (Id. at 7.) Most of the Plaintiffs have
minimal education. Grimsley dropped out of high school. (Grimsley Aff., ECF No. 43-1
at 9 ¶ 3.) Gaston is a high school graduate. (Gaston Aff., ECF No. 43-1 at 5 ¶ 2.)
Daugherty began at Fort Lewis College in Durango but left after two years. (Daugherty
Aff., ECF No. 40-1 at 1 ¶ 2.) Langley graduated from New Mexico Junior College.
(Langley Aff., ECF No. 43-2 at 1.)
In order to work for Encana, Plaintiffs allege Encana required them to set up a
business, carry insurance policies, and sign an Independent Contractor Agreement
(“ICA”). (ECF No. 25 at ¶¶ 32, 35; see Daugherty Aff.,ECF No. 43-1 at 2.) Each of the
Plaintiffs contracted with Encana through a separate ICA. (Rice Decl., ECF No. 32-1 at
¶¶ 2-8.) Gaston’s ICA with Encana was direct. (Gaston ICA, ECF No. 32-2 at 42.) The

1

The claims of Plaintiff David Gaston were the subject of a separate motion to dismiss,
which has been denied. (ECF No. 51.) Plaintiff David Gaston did not sign an arbitration
agreement with Defendant. (ECF No. 25 at ¶ 33.) As a result, his claims are not affected by this
Order, and they will proceed in this action not subject to the stay imposed herein on the claims of
the other six named plaintiffs.
2

other Plaintiffs, however, contracted with Encana through separate entities. Daugherty
signed the ICA in his official capacity as sole proprietor of Daugherty Consulting.
(Daugherty ICA, ECF No. 32-2 at 8). Harper signed the ICA in his official capacity as
sole proprietor of LB Pumping. (Harper ICA, ECF No. 32-2 at 28.) Grado signed the
ICA in his official capacity as owner of W. Grado LLC. (Grado ICA, ECF No. 32-2 at
36.) Langley signed the ICA in his official capacity as owner of JL Productions, LLC.
(Langley ICA, ECF No. 32-3 at 8.) Grimsley signed the ICA in his official capacity as
president of FloRite Testing, Inc. (“FloRite”). (Grimsley ICA, ECF No. 32-2 at 25.)
The terms of Plaintiffs’ ICAs are identical. (See ECF No. 32-2; ECF No. 32-3.)
The term of each ICA was for 30 days, and could be renewed by mutual agreement of
the parties. (See Daugherty ICA, ECF No. 32-2 at 2 ¶ 2(a).) Plaintiffs were given
discretion in the methods and means of performing their services while Encana retained
control over the nature of services and results to be achieved. (Id. at 3 ¶ 4(c).) As
independent contractors, Plaintiffs were not entitled to employee benefits or
compensation. (Id. at 2 ¶ 4(A).) Similarly, Plaintiffs were not entitled to overtime pay.
(Id. at 3 ¶ 4(B).)
The ICAs each contain a severability provision stating: “If any provision of this
Agreement is held to be illegal, invalid or unenforceable under applicable laws, such
provision shall be severable from the remainder of this Agreement, which shall remain
in full force and effect.” (Id. at 7 ¶ 22.) Further, the ICAs contain a dispute resolution
provision stating:
Any dispute arising out of or related to this agreement (including any
amendments or extensions,) or the breach or termination thereof, shall be
settled by arbitration in accordance with the most current American
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Arbitration Association Rules. The prevailing party shall be entitled to
recover its reasonable attorneys’ fees.
(Id. at ¶ 24.) Plaintiffs have all submitted affidavits stating that the provision allowing for
recovery of attorneys’ fees by the prevailing party creates concern that they will not be
able to afford arbitration and will have to abandon their claims. (ECF No. 43-1 at 2 ¶ 4,
3 ¶ 3, 5 ¶ 3, 7, ¶ 3, 10, ¶ 5; ECF No. 43-2 ¶ 3.)
Despite the terms of the ICA denying employee benefits such as overtime
compensation, Plaintiffs allege they regularly worked six or seven days per week, with
ten to twelve hours each day. (ECF No. 43 at 4.) From September 16, 2007 until his
termination in 2010, Daugherty worked approximately 3,949 overtime hours. (ECF No.
25 at ¶ 38.) Similarly, Grado worked approximately 3,962 hours of overtime. (Id.)
Encana alleges the ICAs were automatically renewed after each 30-day period
by mutual agreement. (ECF No. 32 at 4.) Additionally, Daugherty signed an
amendment to his ICA on August 26, 2008, increasing his hourly pay rate. (ECF No.
32-2 at 12.) Harper signed amendments to LB Pumping’s ICA on August 10, 2007 and
on February 17, 2009, in order to adjust his hourly pay rate. (ECF No. 32-2 at 25, 28.)
Langley also signed an amendment to JL Productions’ ICA on May 29, 2008 and again
on February 17, 2009. (ECF No. 32-2 at 11, 14.) Plaintiffs submitted invoices to
Encana pursuant to the terms of their ICAs and provided proof that they were carrying
general liability insurance pursuant to the ICAs. (ECF Nos. 32-3 at 45-50; 32-4.)
Langley ended his relationship with Encana in July 2009. (ECF No. 43-2 at ¶ 1.)
Daugherty was terminated on April 6, 2010 for allegedly failing to follow orders. (ECF
No. 1 at ¶ 37.) On July 7, 2010, Plaintiffs’ counsel contacted Encana regarding

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Plaintiffs’ potential lawsuit against Encana. (ECF No. 1-1.) Encana treated this contact
as a repudiation of the ICAs, and on September 10, 2010, submitted letters to Harper,
Grimsley, Gaston and Grado informing them that their ICAs were terminated effective
September 15, 2010. (See ECF No. 1-2; ECF No. 25 at ¶ 42.)
Plaintiffs filed this lawsuit on September 16, 2010. (ECF No. 1.) On November
18, 2010 Plaintiffs filed a First Amended Complaint, asserting employee status and
bringing two claims for relief under the Fair Labor Standards Act (“FLSA”), 29 U.S.C.A.
§ 201, et. seq.: (1) refusing to pay overtime in violation of 29 U.S.C.A. § 207(a)(1); and
(2) termination of employment as retaliation in violation of 29 U.S.C.A. § 218c. (ECF
No. 25.) On November 19, 2010, Encana filed a Demand for Arbitration under the
Commercial Arbitration Rules. (ECF No. 32-6.) Encana filed the present Motion to
Compel Arbitration on December 6, 2010, requesting the Court either dismiss the suit
because of jurisdictional questions pending arbitration, or requesting the Court compel
arbitration and stay the case until arbitration is complete. (ECF No. 32.) On November
16, 2010, the Court stayed discovery in the case pending resolution of a previously-filed
motion to dismiss that had been made moot on the filing of the amended complaint.
(ECF No. 24.) The stay on discovery, however, is still in effect. On December 16,
2010, the Court stayed action on Plaintiffs’ Motion for Collective Action Certification
pending resolution of the Motion to Compel Arbitration. (ECF No. 35.) The Court heard
oral argument on the Motion to Compel Arbitration on June 20, 2011 and took the
matter under advisement. (ECF No. 62.)

5

DISCUSSION
Determination of the Applicability of the Federal Arbitration Act
The Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., mandates a stay of a
judicial proceeding where the parties have executed a written arbitration agreement
covering the dispute:
If any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration under an agreement in
writing for such arbitration, the court in which such suit is pending, upon
being satisfied that the issue involved in such suit or proceeding is
referable to arbitration under such an agreement, shall on application of
one of the parties stay the trial of the action until such arbitration has been
had in accordance with the terms of the agreement, providing the
applicant for the stay is not in default in proceeding with such arbitration.
9 U.S.C. § 3.
“The Supreme Court has long recognized and enforced a liberal federal policy
favoring arbitration agreements,” and “[u]nder this policy, the doubts concerning the
scope of arbitrable issues should be resolved in favor of arbitration.” Nat'l Am. Ins. Co.
v. SCOR Reinsurance Co., 362 F.3d 1288, 1290 (10th Cir.2004) (quotations omitted).
Common law and the FAA have created a presumption in favor of arbitration. Riley
Manuf. Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998).
Where the Court is satisfied that (1) a valid arbitration agreement exists and (2) the
arbitration agreement covers the parties’ dispute, the Court “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; Encore Prods. Inc. v. Promise Keepers, 53 F. Supp. 2d 1101, 1107-08 (D. Colo.
1999).

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However, “the question of arbitrability – whether a [contract] creates a duty for
the parties to arbitrate the particular grievance – is undeniably an issue for judicial
determination.” Riley, 157 F.3d at 779. “[W]hen the dispute is whether there is a valid
and enforceable arbitration agreement in the first place, the presumption of arbitrability
falls away.” Id. (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944-45
(1995)). As the Supreme Court explained,
Courts should not assume that the parties agreed to arbitrate arbitrability
unless there is “clear and unmistakable” evidence that they did so. In this
manner, the law treats silence or ambiguity about the question “ who
(primarily) should decide arbitrability” differently from the way it treats
silence or ambiguity about the question “whether a particular
merits-related dispute is arbitrable because it is within the scope of a valid
arbitration agreement” – for in respect to this latter question the law
reverses the presumption.
Riley, 157 F.3d at 779 (quoting First Options of Chicago, 514 U.S. at 944-45).
Whether parties have agreed to arbitration, and the scope of that agreement, is
generally determined under contract principles. First Options of Chicago, 514 U.S. 938,
944 (1995). In this determination, a federal court relies on state law principles of
contract formation. Id. at 944; Avedon Engineering, Inc. v. Seatex, 126 F.3d 1279, 1287
(10th Cir. 1997). Thus, the Court here applies Colorado law in reviewing the ICAs.
Under Colorado law, interpretation of a contract is a question of law. Ad Two, Inc. v.
City and County of Denver, ex rel Manager of Aviation, 9 P.3d 373, 376 (Colo. 2000).
The Supreme Court has held that the determination of “whether legal constraints
external to the parties’ agreement foreclosed the arbitration of [certain] claims” is
appropriately decided by a court. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 628 (1985); see also Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163

7

F.3d 1230, 1235 (10th Cir. 1999). Thus, the questions raised by the parties in their
briefs relating to whether there is a valid and enforceable arbitration agreement in effect
between the parties is for the Court, and not an arbitrator, to decide.
Survival of the Arbitration Agreement Upon Expiration of ICA
Plaintiffs argue that the ICAs at issue with Encana have expired. (ECF No. 43 at
9.) Each of the ICAs were for a term of 30 days, and although renewable by mutual
agreement, Plaintiffs argue they were not renewed. (See ECF No 32-2 at 2 ¶ 2(a);
Daugherty Aff., ECF No. 43-1 at 2 ¶ 6; Harper Aff., ECF No. 43-1 at 5 ¶ 5;Gaston Aff.,
ECF No. 43-1 at 6 ¶ 4; Grado Aff., ECF No. 43-1 at 8 ¶ 4; Grimsley Aff., ECF No. 43-1
at 10, ¶ 4; Langley Aff., ECF No. 43-2 at 2 ¶ 5.) Plaintiff therefore argues that the
arbitration agreements within the ICAs have likewise expired. (ECF No. 43 at 9.)
However, the Tenth Circuit has held that in these circumstances an arbitration
provision survives the expiration of a contract:
Under the federal common law of arbitrability, an arbitration provision in a
contract is presumed to survive the expiration of that contract unless there
is some express or implied evidence that the parties intend to override this
presumption: In short, where the dispute is over a provision of the expired
agreement, the presumptions favoring arbitrability must be negated
expressly or by clear implication. Thus, when a dispute arises under an
expired contract that contained a broad arbitration provision, courts must
presume that the parties intended to arbitrate their dispute. This is so
even if the facts of the dispute occurred after the contract expired.
Riley, 157 F.3d at 781 (citation and internal quotation omitted). See also Newmont
U.S.A. Ltd. v. Ins. Co. of N. Am., 615 F.3d 1268, 1275 (10th Cir. 2010) (holding
arbitration clause survives expiration of reinsurance agreement and subsequent
settlement agreement); Putnam v. Teletech Holdings, 2007 WL 678619 *4 (D. Colo.
Feb. 28, 2007) (unpublished) (finding arbitration clause terminated by second
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agreement that expressly terminated the arbitration clause in the earlier agreement);
GATX Mgmt. Servs., LLC v. Weakland, 171 F. Supp. 2d 1159, 1164 (D. Colo. 2001)
(holding arbitration clause in individual employment contract survives termination of
employment when the action complained of related to the employment contract).
The Riley court stated that the presumption of survival disappears (1) “if the
parties express or clearly imply an intent to repudiate post-expiration arbitrability;” or (2)
“if the dispute cannot be said to arise under the previous contract.” Riley, 157 F.3d at
781 (citing Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery Workers Union,
430 U.S. 243, 254-55 (1977)).
The questions for this Court thus becomes not whether the arbitration agreement
survives the expiration of the ICA, but (1) whether the arbitration agreement was
repudiated by the parties either expressly, or by clear implication, or (2) where there
was no waiver, whether the dispute arises under the contract.
Here, the Court finds no evidence of an express or clearly implied intent to
repudiate post-expiration arbitrability. An examination of the letter sent by Plaintiffs’
counsel to Encana asserting that Plaintiffs were “employees” rather than “contractors”
does not terminate the ICAs, nor does it repudiate post-expiration arbitrability. (ECF
No. 1-1.) Further, Encana’s response individually addressed to each current Encana
contractor establishes that while in its view the ICAs terminated effective September 15,
2010, this communication was wholly silent on the issue of the expiration of the
arbitration clause. (ECF No. 1-2.) In addition, on September 21, 2010, Plaintiffs
Grimsley, Harper, Gaston, and Grado were offered employee status. (ECF No. 32-5.)
Here, too, however, there was likewise no mention whatsoever of it being the intent of
9

either party to waive the arbitration clause in the ICA. (Id.)
The Court next looks to whether the actions complained of arose under the ICA.
A dispute “arises under” the previous contract when it “either involve[s] rights which to
some degree have vested or accrued during the life of the contract and merely ripened
after termination, or relate to events which have occurred at least in part while the
agreement was still in effect.” Id. (quoting United Food & Commercial Workers Int’l
Union v. Gold Star Sausage Co., 897 F.2d 1022, 1024-25 (10th Cir. 1990)).
The Tenth Circuit has established a three-part inquiry to determine whether a
particular dispute arises under a contract’s arbitration clause:
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.
Cummings v. Fedex Ground Package Sys., Inc., 404 F.3d 1258, 1261 (10th Cir. 2005)
(emphasis removed) (quoting Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading
Inc., 252 F.3d 218, 224 (2d Cir. 2001), cert denied, 534 U.S. 1020 (2001)).
Here, the Court first determines that the ICA’s arbitration clause is broad in that it
covers “any dispute arising out of or related to this agreement (including any
amendments or extensions) . . . .” (See ECF No. 32-2 at 7 ¶ 24.) See GATX, 171 F.
Supp. 2d at 1163 (“This is undoubtedly a broad arbitration clause as it covers not only
those issues arising out of the employment contract, but even those issues with any
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connection to the contract or to the relationship between the parties.”).
Because the arbitration clause is broad, the Court need not address when the
ICAs expired to determine whether the actions complained of by Plaintiffs arose under
the ICAs. The overtime pay sought by Plaintiffs is an employee benefit directly
addressed by Section 4(A) of the ICA. (See ECF No. 32-2 at ¶ 4(A).) The overtime pay
issue arose, at least in part, while the ICA was still in effect.2 Riley, 157 F.3d at 781.
Plaintiffs’ retaliation claims arise out the fact they were terminated by Encana allegedly
after they asserted a claim right for overtime pay, in potential violation of Section 4(A).
(ECF No. 25 at ¶ 53.) Encana justified the termination of the ICAs, in part, by pointing
to Section 2(a) of the contract, which states that the ICA may be terminated if the
contractor violates the agreement. (ECF No. 32-2 at ¶ 2(a). Thus, these disputed
issues arise out of the ICA.3
In sum, the Court finds that: (1) the arbitration agreement was neither expressly
or by clear implication repudiated by the parties; and (2) the disputes at issue in this
action arise under the parties’ contract. The Court concludes, therefore, that the
arbitration provision between the parties survived expiration of the relevant ICAs.
Enforcement of the Arbitration Agreement Personally Against Plaintiffs
Plaintiffs argue that 5 of the 6 Plaintiffs signed the ICAs in their official capacity

2

The Court notes that Daugherty signed an amendment to his ICA in August 2008, and
Harper and Langley each signed amendments to their individual ICAs as recently as February
2009, indicating that the ICAs had not expired at that time.
3

Even if Plaintiffs were “employees” and not “contractors,” the Court finds the
retaliation claim is related to the ICA because of the broadness of the arbitration clause.
11

as agent for a company they either owned or controlled, and thereby are not, in their
individual capacities, parties to the arbitration clauses. (ECF No. 43 at 13.) Plaintiffs do
not dispute that Gaston signed his ICA in his individual capacity. (ECF No. 32-2 at 48.)
All other Plaintiffs entered into a contractual agreement with Encana in their official
capacities as signatories on behalf of a business entity.4 (ECF No. 32-1 at ¶¶ 3-5, 7, 8.)
While an individual not a party to the contract generally cannot be compelled to
arbitration, “a nonparty, such as a third-party beneficiary, may fall within the scope of an
arbitration agreement if the parties to the contract so intend.” Id. (citing Everett v.
Dickinson & Co., 929 P.2d 10 (Colo. App. 1996); Eychner v. Van Vleet, 870 P.2d 486
(Colo. App. 1993)). See also Hicks v. Cadle Co., 355 Fed. Appx. 186, 193 (10th Cir.
2009) (unpublished) (citing Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d
1110, 1121 (3d Cir. 1993) (“Because a principal is bound under the terms of a valid
arbitration clause, its agents, employees, and representatives are also covered under
the terms of such agreements.”)); Smith v. Multi-Financial Securities Corp, 171 P.3d
1267, 1272 (Colo. App. 2007) (compiling cases). In Everett, the court explained that
[a] third-party beneficiary may enforce a contract only if the parties to that
contract intended to confer a benefit on the third party when contracting; it
is not enough that some benefit incidental to the performance of the
contract may accrue to the third party. . . . Such an intent to benefit a third
party must be apparent from the construction of the contract in light of all
surrounding circumstances, and the intent of the parties is the key inquiry
when determining whether a nonsignatory is a third-party beneficiary
entitled to enforce the agreement.
4

Encana initially entered into a Master Services Agreement with FloRite in 2004, of
which Grimsley served as President. (ECF No. 32-1 at ¶ 8) In 2009, Encana entered into an ICA
with FloRite. (Id.) Grimsley signed this ICA. (Id.)

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Everett, 929 P.2d at 12 (citations omitted).
The Colorado Court of Appeals has held that an arbitration provision was
enforceable where the plaintiff, an employee whose employer signed the contract at
issue, wished to enforce duties and obligations arising from the agreement. Parker v.
Center for Creative Leadership, 15 P.3d 297, 298-99 (Colo. App. 2000) (citing Lee v.
Grandcor Medical Sys., Inc., 702 F. Supp. 252 (D. Colo. 1988) (third-party beneficiary
must accept contract’s burdens along with its benefits); Ga. Power Co. v. Partin, 727
So. 2d 2 (Ala. 1998) (same). Thus, where a party signs a contract as an agent for a
company and not in an individual capacity, if that individual is an intended beneficiary of
the contract, he should be held to all provisions of the contract, including an arbitration
agreement.
Here, each of the plaintiffs signing an ICA in his official capacity did so as an
intended beneficiary of the contract. Within the terms of the ICA there was included the
rate of pay, which Plaintiffs assert was a reason for signing the ICA. (Daugherty Aff.,
ECF No. 43-1 at 2 ¶ 5; Harper Aff., ECF No. 43-1 at 4 ¶ 5; Grado Aff., ECF No. 43-1 at
8 ¶ 4; Grimsley Aff., ECF No. 43-1 at 10 ¶ 4; Langley Aff., ECF No. 43-2 at ¶ 5.) In
signing the ICAs, each plaintiff sought “the burdens along with [the] benefits” of being a
Pumper for Encana. The ICAs are thus personally enforceable against each of the
Plaintiffs.
The Purported Unconscionable Nature of the Arbitration Agreement
The arbitration agreement in Plaintiffs’ ICAs states:
Any dispute arising out of or related to this agreement (including any
amendments or extensions,) or the breach or termination thereof, shall be
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settled by arbitration in accordance with the most current American
Arbitration Association Rules. The prevailing party shall be entitled to
recover its reasonable attorneys’ fees.
(See ECF No. 3202 at 7 ¶ 24.)
Plaintiffs argue that this arbitration agreement is unconscionable. (ECF No. 43 at
12.) Plaintiffs assert they had no meaningful choice but to accept Encana’s terms and
had no opportunity to negotiate the ICA’s provisions. (Id.) Plaintiffs were not given an
opportunity to have outside counsel review the arbitration provision, nor was the
provision explained to them. (Id. at 13.)
In Colorado, a contract may be revoked if it is unconscionable. Univ. Hills Beauty
Acad. Inc. v. Mountain States Tel. & Tel. Co., 554 P.2d 723, 726 (Colo. 1976). “[A]s a
matter of substantive federal arbitration law, an arbitration provision is severable from
the remainder of the contract.” Buckeye Check Cashing v. Cardegna, 546 U.S. 440,
445 (2006). Therefore, to defeat Encana’s Motion to Compel Arbitration, Plaintiffs must
show that the arbitration clause itself – and not the contract in general – is
unconscionable and, therefore, unenforceable. See Rent-A-Center, W., Inc. v. Jackson,
--- U.S. ---, 130 S. Ct. 2772, 2778 (2010) (“If a party challenges the validity under § 2 of
the precise agreement to arbitrate at issue, the federal court must consider the
challenge before ordering compliance with that agreement under § 4.”).
Colorado courts consider several factors in determining whether a contractual
provision is unconscionable, including: (1) the use of a standardized agreement
executed by parties of unequal bargaining power; (2) the lack of an opportunity for the
customer to read or become familiar with the document before signing it; (3) the use of
fine print in the portion of the contract containing the provision in question; (4) the
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absence of evidence that the provision was commercially reasonable or should
reasonably have been anticipated; (5) the terms of the contract, including substantive
fairness; (6) the relationship of the parties, including factors of assent, unfair surprise,
and notice; and (7) the circumstances surrounding the formation of the contract,
including setting, purpose, and effect. Davis v. M.L.G. Group, 712 P.2d 985, 991 (Colo.
1986).
In AT&T Mobility v. Concepcion, the Supreme Court held a state may not apply
its own law on contract interpretation and formation – including unconscionability – in a
manner that interferes with the FAA’s presumption in favor of arbitration. --- U.S. ---,
131 S. Ct. 1740 (2011). The Court held:
When state law prohibits outright the arbitration of a particular type of
claim, the analysis is straightforward: The conflicting rule is displaced by
the FAA. But the inquiry becomes more complex when a doctrine
normally thought to be generally applicable, such as duress or, as relevant
here, unconscionability, is alleged to have been applied in a fashion that
disfavors arbitration.
Id. at 1747. The Court struck down California’s so-called Discover Bank rule which
provided:
When the waiver [of class proceedings] is found in a consumer contract of
adhesion in a setting in which disputes between the contracting parties
predictably involve small amounts of damages, and when it is alleged that
the party with the superior bargaining power has carried out a scheme to
deliberately cheat large numbers of consumers out of individually small
sums of money, then . . . the waiver becomes in practice the exemption of
the party “from responsibility for its own fraud, or willful injury to the person
or property of another.” Under these circumstances, such waivers are
unconscionable under California law and should not be enforced.
Discover Bank v. Superior Court, 36 Cal. 4th 148, 162 (Cal. 2005) (quoting Cal. Civ.
Code § 1668).

15

The Court stated that “[t]he ‘principal purpose’ of the FAA is to ‘ensure that
private arbitration agreements are enforced according to their terms.’” Id. at 1748
(quoting Volt Info. Sciences v. Bd. of Trustees, 489 U.S. 468, 478 (1989)). The Court
acknowledged that parties may agree to limit the subject of their arbitration, may agree
to arbitrate according to specific rules, and may limit with whom they arbitrate. “The
point of affording parties discretion in designing arbitration processes is to allow for
efficient, streamlined procedures tailored to the type of dispute.” Id. at 1749. However,
the Court emphasized that there is “a liberal federal policy favoring arbitration
agreements, notwithstanding any state substantive or procedural policies to the
contrary.” Id. The Court concluded that “class arbitration, to the extent it is
manufactured by Discover Bank rather than consensual, is inconsistent with the FAA.”
Id. at 1751. Thus, because the Discover Bank rule disfavored arbitration, it was
preempted by the FAA. Id.
Because Colorado’s test for unconscionability of a contract provision does not
explicitly disfavor arbitration (class or otherwise), the degree to which Concepcion
changes the legal landscape in Colorado is unclear. There does not appear to be any
reason why the Davis factors are not still good law. Thus, the Court will consider the
facts of this case under that structure, keeping in mind the Supreme Court’s statements
and observations in Concepcion.
The ICA’s arbitration provision was contained within a standardized agreement
prepared by Encana. Plaintiffs have submitted affidavits stating that they did not know
there was an arbitration provision in the ICA, that no one pointed out the arbitration
clause or explained what it meant; and that they did not believe they had the ability to
16

negotiate the terms of their contracts. (Daugherty Aff., ECF No. 43-1 at 2 ¶ 5; Harper
Aff., ECF No. 43-1 at 4 ¶ 5; Gaston Aff., ECF No. 43-1 at 6 ¶ 5; Grado Aff., ECF No. 431 at 8 ¶ 4; Grimsley Aff., ECF No. 43-1 at 10 ¶ 4; Langley Aff., ECF No. 43-2 at ¶ 5.)
Plaintiffs were not advised to have a lawyer review the ICAs before signing them. (Id.)
Plaintiffs argue Encana used its superior bargaining strength to impose terms on a takeit or leave-it basis. All of these factors weigh in favor of finding the ICAs
unconscionable.
Plaintiffs’ argument has some validity and the Court would likely have found that
the arbitration agreement at issue here unconscionable pursuant to the Davis analysis if
it were issuing this decision pre-Concepcion. But the Court has to take the legal
landscape as it lies and cannot ignore the Supreme Court’s clear message. Plaintiffs
are essentially arguing that the adhesive nature of the contracts at issue here (i.e.,
standardized forms, lack of ability to negotiate, power disadvantage, etc.) makes the
arbitration agreement unconscionable.
In Concepcion, the Supreme Court rejected the idea that arbitration agreements
are per se unconscionable when found in adhesion contracts. The Court recognized
that California’s rule applied only to adhesion contracts and observed that “the times in
which consumer contracts were anything other than adhesive are long past.” Id. at
1750. The Court noted that states were “free to take steps addressing the concerns
that attend contracts of adhesion – for example, requiring class-action-waiver provisions
in adhesive arbitration agreements to be highlighted” but ruled that “[s]uch steps cannot,
however, conflict with the FAA or frustrate its purpose to ensure that private arbitration
agreements are enforced according to their terms.” Id. at 1750 n.6.
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The fact that the contract at issue in Concepcion was an adhesion contract did
not affect the Supreme Court’s analysis and, indeed, the majority in Concepcion
appeared to be little troubled by that fact. As a result, this Court has no alternative but
to discount the weight to be attributed to the adhesive nature of the arbitration clause at
issue here. Accordingly, the Court finds that the arbitration agreement contained within
the ICAs is not unconscionable.
Unenforceable Provisions Within the Arbitration Agreement
Plaintiffs argue that the arbitration clause thwarts the policy of the FLSA by
denying Plaintiffs access to a judicial forum without fear of unbearable costs. (ECF No.
43 at 16.) Plaintiffs also argue that the arbitration provision providing that the prevailing
party is entitled to recover attorneys’ fees requires Plaintiffs to forgo their FLSA right to
pursue their claims without risking an award of attorneys’ fees against them. (Id.)
In Gilmer v. Interstate/Johnson Lane Corporation, the Supreme Court held that
statutory claims are arbitrable under the FAA. 500 U.S. 20, 26 (1991). See also
Shankle, 163 F.3d at 1233. The Court reasoned that “[b]y 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.” Gilmer, 500
U.S. at 26 (quoting Mitsubishi Motors, 473 U.S. at 628). “[S]o long as the prospective
litigant effectively may vindicate [his or her] statutory cause of action in the arbitral
forum, the statute will continue to serve both its remedial and deterrent function.”
Gilmer, 500 U.S. at 28 (quoting Mitsubishi Motors, 473 U.S. at 637).
However, where the terms of an arbitration agreement prevent an individual from
vindicating his or her statutory rights, the arbitration agreement is unenforceable. See
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Shankle, 163 F.3d at 1234. The Tenth Circuit has held that “an arbitration agreement
that prohibits use of the judicial forum as a means of resolving statutory claims must
also provide for an effective and accessible alternative forum.” Id. (emphasis added).
In Shankle, the court found an arbitration agreement unenforceable when it “placed
[Plaintiff] 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.” 163 F.3d at 1235. The court
reasoned that the employer “required [Plaintiff] to agree to mandatory arbitration as a
term of continued employment, yet failed to provide an accessible forum in which he
could resolve his statutory rights. Such a result clearly undermines the remedial and
deterrent functions of the federal anti-discrimination laws.” Id.
Shankle set the standard in this Circuit that an arbitration agreement requiring a
plaintiff to share in the costs of arbitration is unenforceable when the agreement
effectively deprives the plaintiff of an accessible forum to resolve his statutory claim and
vindicate his statutory rights. Id. See also Perez v. Hospitality Ventures-Denver LLC,
245 F. Supp. 2d 1172, 1173-74 (D. Colo. 2003) (finding arbitration clause unenforceable
where plaintiff cannot afford arbitration costs); Gourley v. Yellow Transp., 178 F. Supp.
2d 1196, 1204 (D. Colo. 2001) (same).
Here, Plaintiffs signed the ICAs as a condition of working as pumpers for
Encana. The ICAs contain an arbitration clause requiring Plaintiffs to arbitrate all
disputes arising out of or related to the terms of the ICAs under the rules of the
American Arbitration Association (“AAA”). Further, the prevailing party in the arbitration
is entitled to recover attorneys’ fees. Plaintiffs have filed affidavits stating that they are
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unable to pay costs associated with arbitration, and that if they could be faced with
paying Encana’s attorneys’ fees, they will have to abandon their claims against Encana.
In accordance with the arbitration provision and in response to the filing of this
suit, Encana filed a Demand for Arbitration with the AAA under the Commercial
Arbitration Rules. (ECF No. 32-6.) Under these rules, a claim between $300,000 and
$500,000, which Encana estimated in its application, requires an initial filing fee of
$4,350 and a final fee of $1,750. Commercial Arbitration Rules and Mediation
Procedures, American Arbitration Association, June 1, 2010 at 54, http://www.adr.org
/si.asp?id=6447 [hereinafter Commercial Arbitration Rules]. Under Rule 50, the parties
may be required to share in the cost of producing any witnesses or other proof
requested by the arbitrator. Id., R-50 at 40.5 Based on an approximate calculation of
arbitrator fees provided by counsel, Plaintiffs estimate arbitration fees could be between
$15,000 and $76,000. (ECF No. 43 at 20 n.15.)
Further, under Commercial Arbitration Rules 43(b) and (c), an arbitrator may
assess and apportion fees, expenses, and other compensation between the parties.
Commercial Arbitration Rules, R-43 at 37. This approach would be consistent with the
language in the arbitration agreement which allows for an award of attorney’s fees to

5

The Court notes that the AAA Employment Arbitration Rules provide that in regard to
disputes arising out of employer-promulgated plans, an employee filing a claim pays a filing fee
of no more than $175. Employment Arbitration Rules, American Arbitration Association, June
1, 2010 at 40 ¶ (i), http://www.adr.org/si.asp?id-6450. All other expenses are borne by the
employer. See id. at 40-42. However, these Employment Arbitration Rules specifically do not
apply to independent contractor agreements. Id. at 16.

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the prevailing party in the arbitration. The FLSA, on the other hand, provides that where
judgment is awarded to the plaintiff, the court shall “allow a reasonable attorney’s fee to
be paid by the defendant, and costs of the action.” 29 U.S.C.A. § 216(b). The statute
does not allow for attorneys’ fees to be paid to a defendant by virtue solely of being the
prevailing party. Id.
The Court finds that these two provisions of the arbitration agreement are
unenforceable. First, the requirement that arbitration of issues arising out of the ICAs
follow the Commercial Rules of the AAA would require Plaintiffs to be assessed one-half
of the total costs of arbitration, including the fees of the arbitrator. The Plaintiffs’
affidavits establish clearly that they cannot afford these forum costs. (Daugherty Aff.,
ECF No. 43-1 at 1 ¶ 3; Harper Aff., ECF No. 43-1 at 3 ¶ 3;Gaston Aff., ECF No. 43-1 at
5 ¶ 3; Grado Aff., ECF No. 43-1 at 7 ¶ 3; Grimsley Aff., ECF No. 43-1 at 10 ¶ 5; Langley
Aff., ECF No. 43-2 at 1 ¶ 3.) Enforcement of this provision would, therefore, effectively
preclude them from pursuing their claims. Shankle, 163 F.3d at 1235.
Second, by providing for an award of attorneys’ fees to the prevailing party,
instead of a prevailing plaintiff, this clause in the arbitration agreement substantially
thwarts the statutory enforcement scheme erected by the FLSA. This enforcement
scheme includes, most notably in these circumstances, the private attorney general
mechanism set up by Congress to enforce the policies and objectives of the FLSA.
Soler v. G & U, Inc., 658 F. Supp. 1093, 1097 (S.D.N.Y. 1987) (quoting Laffey v.
Northwest Airlines, Inc., 746 F.2d 4, 11 (D.C. Cir. 1984)). Plaintiffs’ affidavits make
plain they have no financial ability to pay Encana’s attorneys’ fees were Defendant to
prevail before the arbitrator. The chilling effect of this fee-shifting provision on Plaintiffs’
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ability and willingness to attempt to press their claims under the FLSA is clear.
Arbitration provisions like the two discussed here erect impermissible obstacles
to Plaintiffs’ ability to avail themselves of the rights and protections afforded by the
FLSA. See Barrentine v. Arkansas-Best Freight System, Inc. 450 U.S. 728, 740 (1981)
(a waiver of substantive rights would thwart policy behind FLSA); Wirtz v. Bledsoe, 365
F.2d 277, 278 (10th Cir. 1966) (the purposes of the FLSA may not be frustrated by
contract); Handler v. Thrasher, 191 F.2d 120, 123 (10th Cir. 1951) (a contract that
circumvents the Wage and Hour Act (FLSA’s predecessor) is unenforceable). With this
in mind, the Court will not enforce, and will not permit the arbitrator to enforce and give
effect to, these two provisions in the arbitration agreement.
Severability of the Unenforceable Provisions in the Arbitration Agreement
Under Colorado law, “[a] court’s duty is to interpret a contract in a manner that
effectuates the manifest intention of the parties at the time the contract was signed.”
Randall & Blake , Inc. v. Metro Wastewater Reclamation Dist., 77 P.3d 804, 806 (Colo.
App. 2003) A court looks to the language of the contract to determine the intention of
the parties. Id. Where a contract contains a “severability” or “savings” clause, void or
otherwise unenforceable provisions may be severed from the contract. Fuller v. Pep
Boys-Manny, Moe & Jack of Del., Inc., 88 F. Supp. 2d 1158, 1162 (D. Colo. 2000) (“The
savings clause . . . allows me to disregard the fee-splitting provision so as to uphold the
validity of the agreement.”) See also Shankle, 163 F.3d at 1235 n.6; Perez, 245 F.
Supp. 2d at 1174 (comparing cases); Gourley, 178 F. Supp. 2d at 1204.
In Fuller, the court struck a portion of the contract at issue entitled “Arbitration
Fees and Costs” as unenforceable because the terms required an equal share of
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arbitration costs between the parties. Fuller, 88 F. Supp. 2d at 1161-62. However,
because there was a savings clause in the contract, the court upheld the remainder of
the arbitration provision, citing support of the FAA: “Federal case law and statutory law
clearly creates a presumption in favor of arbitrability. . . . Thus, [the court] must resolve
all doubts in favor of arbitration and the Arbitration Agreement must be liberally read.”
Id. at 1162 (citations omitted). Further, the Tenth Circuit has held that “where an
agreement contains a ‘savings and severability’ clause, the agreement ‘should not be
completely obliterated because some provisions are beyond the legal limits . . ., unless
such illegal provisions permeate the complete contract to such an extent as to affect its
enforceability entirely.’ ” Id. (quoting N.L.R.B. v. Tulsa Sheet Metal Works, Inc., 367
F.2d 55, 59 (10th Cir. 1966)).
Accordingly, where a contract contains a void arbitration provision, it must either
be deemed unenforceable where there is no savings clause to the contract or, in
keeping with the presumption in favor of arbitrability in the case of a contract with a
savings clause, the void language may be stricken and the arbitration agreement
otherwise enforced. Here, as discussed previously, the ICAs do in fact include a
severability or savings clause. The offending provisions will therefore be stricken, and
the remaining terms of the arbitration agreement will be given effect.
To the extent, therefore, that any term or clause of the arbitration agreement in
the ICAs requires application of the AAA Commercial Rules, and such rules in turn
permit assessment of any costs of the arbitration to be borne by Plaintiffs, it is
unenforceable, and is hereby stricken. In addition, to the extent that any term or clause
of the arbitration agreement allows for the award of attorney’s fees to Encana in the
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event it is the prevailing party in an arbitration, it is also unenforceable, and is hereby
likewise stricken. All other provisions of the arbitration agreement are to be enforced at
arbitration as written.
CONCLUSION
Based on the foregoing findings and analysis, it is hereby ORDERED that:
1)

Defendant’s Motion to Compel Arbitration of the claims of Plaintiffs
Matthew Daugherty, Darwin Harper, Daniel Gaston, Guillermo Grado,
Charles Grimsley, and Jared Langley, ECF No. 32, is GRANTED;

2)

Arbitration of Plaintiffs’ claims may take place only in a manner not
inconsistent with this Court’s Order; and

3)

The claims of Plaintiffs Matthew Daugherty, Darwin Harper, Daniel
Gaston, Guillermo Grado, Charles Grimsley, and Jared Langley are
STAYED pending completion of arbitration.

Dated this 15th day of July, 2011.
BY THE COURT:

William J. Martínez
United States District Judge

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