Judd v. Keypoint Government Solutions Incorporated

Filing 91

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE by Magistrate Judge Scott T. Varholak on 7/23/18 re 51 MOTION to Compel Arbitration of Opt-In Kristin Hettler's Claims filed by Keypoint Government Solutions Incorporated. This Court respectfully RECOMMENDS that KeyPoints Motion to Compel Arbitration [#51] be GRANTED and that Kristin Hettler be ordered to proceed individually to arbitration on her claims against KeyPoint.6 (nmarb, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 18-cv-00327-RM-STV
ORSON JUDD,
Plaintiff,
v.
KEYPOINT GOVERNMENT SOLUTIONS, INC.,
Defendant.
______________________________________________________________________
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
______________________________________________________________________
Magistrate Judge Scott T. Varholak
This matter comes before the Court on the Motion to Compel Arbitration of Opt-In
Kristin Hettler’s Claims (the “Motion”) [#51], filed by Defendant KeyPoint Government
Solutions, Inc. (“KeyPoint”).

The Court has considered the Motion and the related

briefing, the entire case file, and the applicable case law. The Court also held oral
argument on the Motion on July 20, 2018. [#90] For the following reasons, this Court
respectfully RECOMMENDS that KeyPoint’s Motion to Compel Arbitration be
GRANTED.1
I.

BACKGROUND
KeyPoint provides background checks for the federal government. [#1 at ¶ 4] As

investigators for KeyPoint, Plaintiff Orson Judd and others performed investigations,
1

“[T]he law in the Tenth Circuit is unclear as to whether motions to compel arbitration
are dispositive for purposes of 28 U.S.C. § 636(b)(1).” Bohart v. CBRE, Inc., No. 17-cv00355-RM-KMT, 2018 WL 1135535, at *2 (D. Colo. Feb. 28, 2018) (comparing cases).
Out of an abundance of caution, the Court will issue a recommendation on the instant
Motion.

including acquiring and interviewing witnesses and reviewing public records, and
preparing reports on those investigations for KeyPoint to submit to the government. [Id.]
Investigators, including Judd, routinely worked in excess of 40 hours per week. [Id.]
Judd alleges that KeyPoint violated the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §
216(b), by improperly classifying him and other investigators as independent
contractors, enabling KeyPoint to withhold overtime wages due to them for working over
40 hours a week. [See generally #1]
Kristin Hettler is also a former investigator who worked for KeyPoint. [#21-1 at 3]
Ms. Hettler filed her consent to join Judd’s suit on September 27, 2017. [Id.]
A. 2015 Smith Action and KeyPoint’s Independent Contractor Engagement
Agreement
In 2015, Richard Smith, a former KeyPoint investigator, filed a FLSA action
against KeyPoint on behalf of a nationwide proposed class of similarly situated
investigators in the United States. Smith v. KeyPoint Government Solutions, Inc., Civil
Action No. 15-cv-00865-REB-KLM (D. Colo. 2015) (“Smith Action”), Docket No. 1-1.2
On April 24, 2015, that suit was transferred to the U.S. District Court for the District of
Colorado. Id., Docket No. 1.
In June 2015, while the Smith Action remained pending, KeyPoint revised its
Independent Contractor Engagement Agreement (“ICEA”). [#51-5] KeyPoint emailed
its independent contractors, including Ms. Hettler, notifying them of the ICEA changes.
[#51-5 at 2] KeyPoint included the following documents with the email: a cover letter
2

The Court takes judicial notice of the proceedings in the Smith Action. See, e.g.,
Hodgson v. Farmington City, 675 F. App’x 838, 841 (10th Cir. 2017) (Facts that may be
judicially noticed include “another court’s publicly filed records ‘concerning matters that
bear directly upon the disposition of the case at hand.’”) (quoting United States v.
Ahidley, 486 F.3d 1184, 1192 n.5 (10th Cir. 2007)).
2

highlighting an arbitration agreement within the ICEA and options for the independent
contractors to opt-out of arbitration; the ICEA with the attached opt-out form; a copy of
the complaint in the Smith Action; and an auto insurance form. [#51-5]
The ICEA arbitration agreement stated that “KeyPoint and Contractor mutually
agree to resolve any justiciable disputes between them exclusively through final and
binding arbitration instead of filing a lawsuit in court.”

[Id. at 7]

The arbitration

agreement applied to “any and all claims arising out of or relating to [the ICEA], the
Contactor’s classification as an independent contractor, . . . and claims arising under or
related to the . . . Fair Labor Standards Act,” among other statutes and causes of action.
[Id.] Furthermore, the agreement applied to “all pending and future litigation between
Contractor and KeyPoint in state or federal courts,” as of the date the agreement was
executed by the contractor [id.], with the exception of contractors completing the opt-out
form in order to “opt out of mandatory arbitration of litigation pending at the time of
execution” of the ICEA [id. at 9 (emphasis omitted)]. The ICEA arbitration agreement
also explicitly stated that “[a]ny arbitration shall be governed by the American Arbitration
Association Commercial Arbitration Rules (“AAA Rules”),” with some limited exceptions.
[Id. at 7]
In October 2015, Ms. Hettler executed the ICEA and also completed the opt-out
form. [#51-2] By completing both forms, the ICEA arbitration provision would not have
impacted Ms. Hettler’s “ability to participate in the Smith collective action” [#51-5 at 3],
but she never sought to join the Smith Action.

Smith’s motion for conditional

certification was ultimately denied, Smith Action, Docket No. 83, and the Court granted
KeyPoint’s Motion for Summary Judgment, finding that Smith’s claims were barred by

3

the FLSA statute of limitations, id., Docket No. 95. The Court entered final judgment in
favor of KeyPoint. Id., Docket No. 97.
B. Instant Suit
Judd filed the instant suit in the United States District Court for the District of
Arizona on March 10, 2017. [#1] Judd requests that this matter be certified as a
collective action. [#1 at 18; #43] Judd seeks compensatory and statutory damages,
including lost wages, earnings, and all other money owed to him and members of the
collective, and an order directing KeyPoint to identify and restore restitution and
compensation for lost wages to all current and former investigators classified as
independent contractors, among other relief. [#1 at 18-19]
In April 2017, KeyPoint moved to transfer the action to this Court. [#9] Ms.
Hettler filed her consent to join the instant suit on September 27, 2017, while the case
remained pending in the District of Arizona. [#21-1] On November 8, 2017, counsel for
KeyPoint sent a letter to Ms. Hettler’s counsel, indicating that they were in receipt of her
consent to join, and requesting that she withdraw her consent and “submit her claims to
binding arbitration pursuant to the terms of her ICEA.” [#51-7]
A few months later, the Arizona federal district court granted KeyPoint’s motion to
transfer and transferred the instant suit to this Court. [#24] Judd refiled his Motion for
Conditional Certification in this Court on February 16, 2018.3 [#43] KeyPoint filed its
Motion to Compel Arbitration [#51] in March 2018. The Motion is fully briefed. [##59,
62] Additionally, the parties addressed the Motion to Compel Arbitration at a status

3

Also on February 16, 2018, KeyPoint moved to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6). [#41] This Court has issued a Recommendation that
KeyPoint’s Motion to Dismiss be denied. [#83]
4

conference before this Court on April 10, 2018. [#64] As ordered by the Court [#73],
the parties filed supplemental briefing, addressing the impact of the United States
Supreme Court’s decision in Epic Systems Corporation v. Lewis, 138 S. Ct. 1612 (2018)
on the pending Motions in this matter [##76-77]. The Court held oral argument on the
instant Motion on July 20, 2018. [#90]
II.

LEGAL STANDARDS
Arbitration agreements are governed by the Federal Arbitration Act (“FAA”). See

9 § U.S.C. § 2. But “[t]he existence of an agreement to arbitrate is a threshold matter
which must be established before the FAA can be invoked.” Avedone Eng’g, Inc. v.
Seatex, 126 F.3d 1279, 1287 (10th Cir. 1997). “[U]nlike the general presumption that a
particular issue is arbitrable when the existence of an arbitration agreement is not in
dispute, when the dispute is whether there is a valid and enforceable arbitration
agreement in the first place, the presumption of arbitrability falls away.”

Nesbitt v.

FCNH, Inc., 74 F. Supp. 3d 1366, 1370 (D. Colo. 2014) (quoting Riley Mfg. Co. v.
Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998)), aff’d, 811 F.3d 371
(10th Cir. 2016) (“Nesbitt II”); see also Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220
(10th Cir. 2002).

“A federal court must apply state contract law principles when

determining whether an arbitration agreement is valid and enforceable.” Nesbitt, 74 F.
Supp. 3d at 1371 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995)).
Once the court determines the existence of a valid and enforceable arbitration
agreement, the FAA applies. Under the FAA, arbitration agreements “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the

5

revocation of any contract.” 9 U.S.C. § 2. The FAA “leaves no place for the exercise of
discretion by a district court, but instead mandates that district courts shall direct the
parties to proceed to arbitration on issues as to which an arbitration agreement has
been signed.” Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985); see also
Nesbitt, 74 F. Supp. 3d at 1370 (same). Accordingly, the FAA requires the court to
“rigorously enforce agreements to arbitrate,” Dean Witter Reynolds, 470 U.S. at 221,
unless the agreement to arbitrate is invalidated by “generally applicable contract
defenses, such as fraud, duress, or unconscionability,” Nesbitt II, 811 F.3d at 376
(quoting AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)); see also Epic
Sys., 138 S. Ct. at 1622. But an arbitration agreement will not be nullified by “defenses
that apply only to arbitration or that derive their meaning from the fact that an agreement
to arbitrate is at issue.” Id.
In considering a motion to compel arbitration under the FAA, the court applies “a
standard similar to that governing motions for summary judgment.” Stein v. Burt-Kuni
One, LLC, 396 F. Supp. 2d 1211, 1213 (D. Colo. 2005). Accordingly, first KeyPoint
“must present evidence sufficient to demonstrate an enforceable arbitration agreement.”
Id. Then, the burden shifts to Ms. Hettler “to raise a genuine issue of material fact as to
the making of the agreement, using evidence comparable to that identified in Fed. R.
Civ. P. 56.” Id.
III.

ANALYSIS
In support of its Motion to Compel Arbitration, KeyPoint argues that 1) Ms.

Hettler’s arbitration agreement is valid under state law and thus the FAA governs the
agreement [#51 at 7-11]; 2) Ms. Hettler’s FLSA claims are within the scope of disputes
subject to arbitration [id. at 12-13]; and 3) Ms. Hettler must arbitrate her claims on an
6

individual basis [id. at 13-14]. Because the Court finds that the arbitration agreement is
valid, and because the parties have agreed to arbitrate the scope of the agreement, the
Court only addresses KeyPoint’s first argument below.4
A. Validity of Arbitration Agreement
As a threshold matter, the Court must determine whether an agreement to
arbitrate existed in the first place. Avedone, 126 F.3d at 1287. While Ms. Hettler cites
to case law stating that the presumption in favor of arbitration falls away when the
parties dispute the existence of a valid arbitration agreement at the outset [#59 at 9], the
parties do not in fact dispute that they entered into the ICEA, which included their
agreement to arbitrate and the opt-out form. [See, e.g., #51 at 7 (“Hettler executed her
ICEA, as well as the Arbitration of Pending Litigation Opt-Out Form.”); #59 at 9 (“[I]n
addition to executing the required 2015 ICEA, which contains an arbitration provision,
Ms. Hettler also executed and submitted an opt-out form . . . .”)] In any event, the ICEA
arbitration agreement is clearly a valid and enforceable arbitration agreement under
Colorado contract law.5

4

And regardless, with respect to KeyPoint’s third argument, the parties are now in
agreement that in light of the United States Supreme Court’s holding in Epic Systems—
that the National Labor Relations Act (“NLRA”) does not provide a basis for refusing to
enforce arbitration agreements that waive FLSA collective actions, 138 S. Ct. at 162332—Ms. Hettler “will no longer be able to challenge mandatory arbitration agreements
based on there being a collective action waiver.” [#77 at 3; see also id. at 6 (describing
Ms. Hettler’s three arguments against compelling arbitration and stating that Ms. Hettler
“withdraw[s]” the third argument related to Epic Systems)] Thus, Ms. Hettler is no
longer arguing that the class action waiver renders the arbitration agreement
“unenforceable, unconscionable, void, or voidable,” which was the only relevant scope
issue that the ICEA arbitration agreement reserved for this Court. [#51-2 at 3-4]
5
The parties do not dispute whether Colorado law applies, and the ICEA states that it
“shall be governed by and construed in accordance with the laws of the state of
Colorado (without regard to that jurisdiction’s choice of laws and principles).” [#51-2 at
7; see also #51 at 9-10; #59 at 8-12] Even if the Court were to apply the law of Ohio,
7

Under Colorado law, a valid contract, including an arbitration agreement,
“requires a bargain in which there is a manifestation of mutual assent to the exchange
and a consideration.” Vernon v. Qwest Commc'ns Int'l, Inc., 857 F. Supp. 2d 1135,
1149 (D. Colo. 2012) (quoting Pierce v. St. Vrain Valley School Dist. RE-1J, 981 P.2d
600, 603 (Colo. 1999)), aff'd, 925 F. Supp. 2d 1185 (D. Colo. 2013); see also
Lumuenemo v. Citigroup Inc., No. 08-cv-00830-WYD-BNB, 2009 WL 371901, at *3 (D.
Colo. Feb. 12, 2009) (“In determining whether a valid arbitration clause exists,
. . . . courts generally apply ordinary state-law principals that govern the formation of
contracts.”). KeyPoint and Ms. Hettler both executed the ICEA [#51-2 at 7], evidencing
their mutual assent to be bound by the agreement, and Ms. Hettler also manifested her
assent by agreeing to provide services for KeyPoint, while accepting the arbitration
agreement as a condition of her work [id. at 1, 3]. The arbitration agreement was
supported by the consideration of KeyPoint and Ms. Hettler mutually promising to be
bound by the terms of the agreement, including “resolv[ing] any justiciable disputes
between them exclusively through final and binding arbitration instead of filing a lawsuit
in court.” [Id. at 3]; See Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 544 (4th Cir. 2005)
(“Because the Arbitration Agreement, on its face, unambiguously requires both parties
to arbitrate, the district court erred when it concluded that the Arbitration Agreement was
not supported by consideration.”); see also PayoutOne v. Coral Mortg. Bankers, 602 F.
Supp. 2d 1219, 1224 (D. Colo. 2009) (finding “an exchange of one party’s promise or

where Ms. Hettler signed the contract and worked as an investigator, Ohio contract law
is essentially identical to Colorado law, and thus the analysis would be the same. [See
#51 at 10-11; #59 at 8-12] Accordingly, for simplicity, and consistent with the language
of the ICEA, the Court applies a Colorado contract law analysis.
8

performance for the other party’s promise or performance” constitutes “consideration for
creating an enforceable contract”).
KeyPoint has presented evidence of the agreement, including Ms. Hettler’s ICEA
itself, initialed on every page, including the sections describing the arbitration
agreement and the opt-out form. [#51-2] The ICEA is signed and dated by Ms. Hettler
and KeyPoint. [Id. at 7] See Axis Venture Grp., LLC v. 1111 Tower, LLC, No. 09-cv01636-PAB-KMT, 2010 WL 1278306, at *3 (D. Colo. Mar. 30, 2010) (finding defendants
had “met their initial burden” of providing “sufficient evidence that the parties agreed” to
arbitrate, including by presenting an initialed copy of the agreement, which incorporated
the arbitration clause by reference, and a signed form indicating receipt of the arbitration
agreement). KeyPoint also has presented evidence of the opt-out form, signed, dated,
and initialed by Ms. Hettler, which states Ms. Hettler’s understanding “that by opting out,
[the ICEA] does not require me to arbitrate any claims I may have in pending litigation.”
[Id. at 8]
The burden then shifts to Ms. Hettler to demonstrate that there is a “genuine
issue of material fact as to the making of the agreement, using evidence comparable to
that identified in Fed. R. Civ. P. 56.” Stein, 396 F. Supp. 2d at 1213. But again, Ms.
Hettler does not contest the making of the arbitration agreement. Instead, she argues
that pursuant to the opt-out form, her “claims based on misclassification as an
independent contractor and for overtime under the FLSA, which were asserted in the
Smith action, are not subject to arbitration.” [#59 at 10] But, that argument goes to the
the scope, not the validity of the arbitration agreement.
arbitration agreement is valid and enforceable.

9

Accordingly, the ICEA

B. Scope of the Arbitration Agreement Must Be Decided by an Arbitrator
At the heart of the instant Motion is the parties’ disagreement with regard to the
scope of the opt-out form executed by Ms. Hettler. [#51 at 12-13; #59 at 10-12] Ms.
Hettler argues that by executing the opt-out form, she opted out of arbitrating any claims
pending at the time she signed the form, as well as any identical claims in future
litigation. [#59 at 10-12] More specifically, because the claims pending in the Smith
Action at the time were for misclassification and overtime pay under the FLSA, Ms.
Hettler argues that by extension she should not have to arbitrate her misclassification
and overtime FLSA claims here. [Id. at 11] KeyPoint counters that Ms. Hettler reads an
ambiguity that does not exist into the ICEA, and that the opt-out provision by its terms
only applied to litigation pending at the time the agreement was signed. [#62 at 3-5]
KeyPoint argues that opting out of arbitration in the Smith Action, which was pending
when the parties executed the ICEA, does not extend to opting out of arbitration with
respect to the instant action, filed nearly a year and a half later. [Id.]
As the Tenth Circuit recently reaffirmed, The Tenth Circuit, and “all of [its] sister
circuits to address the issue[,] have unanimously concluded that incorporation of the . . .
AAA Rules” in an arbitration agreement “constitutes clear and unmistakable evidence of
an agreement to arbitrate arbitrability.” Belnap v. Iasis Healthcare, 844 F.3d 1272, 1283
(10th Cir. 2017) (collecting cases). Therefore, “when parties clearly and unmistakably
agree[] to arbitrate arbitrability,” including by incorporating the AAA Rules into their
agreement, “all questions of arbitrability—including the question of whether claims fall
within the scope of the agreement to arbitrate—ha[ve] to be resolved by an arbitrator.”
Id. at 1284.

10

Here, the ICEA arbitration agreement explicitly states that “[a]ny arbitration shall
be governed by the [AAA Rules],” with limited exceptions that are not applicable here.
[#51-2 at 4] Rule 7 of the AAA Commercial Arbitration Rules empowers the arbitrator
“to rule on his or her own jurisdiction, including any objections with respect to the . . .
scope . . . of the arbitration agreement or the arbitrability of any claim or counterclaim.”
AAA

Commercial

Arbitration

Rules,

R-7

(Oct.

1,

2013),

available

at

https://adr.org/sites/default/files/CommercialRules_Web.pdf; see also #51-2 at 5 (“The
AAA Rules may be found at www.adr.org or by searching for ‘AAA Commercial
Arbitration Rules.’”).

Moreover, at oral argument on July 20, 2018, both parties

confirmed that the scope of the arbitration agreement, including the parties’
disagreement with respect to whether Ms. Hettler must arbitrate any claims in the
instant action that were also at issue in the Smith Action, must be determined by an
arbitrator.

Accordingly, the scope of the instant arbitration agreement must be

determined by an arbitrator, not this Court.
IV.

CONCLUSION
For the foregoing reasons, this Court respectfully RECOMMENDS that

KeyPoint’s Motion to Compel Arbitration [#51] be GRANTED and that Kristin Hettler be
ordered to proceed individually to arbitration on her claims against KeyPoint.6

6

Within fourteen days after service of a copy of the Recommendation, any party may
serve and file written objections to the magistrate judge’s proposed findings and
recommendations with the Clerk of the United States District Court for the District of
Colorado. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); In re Griego, 64 F.3d 580, 583
(10th Cir. 1995). A general objection that does not put the district court on notice of the
basis for the objection will not preserve the objection for de novo review. “[A] party’s
objections to the magistrate judge’s report and recommendation must be both timely
and specific to preserve an issue for de novo review by the district court or for appellate
review.” United States v. 2121 East 30th Street, 73 F.3d 1057, 1060 (10th Cir. 1996).
Failure to make timely objections may bar de novo review by the district judge of the
11

DATED: July 23, 2018

BY THE COURT:
s/Scott T. Varholak
United States Magistrate Judge

magistrate judge’s proposed findings and recommendations and will result in a waiver of
the right to appeal from a judgment of the district court based on the proposed findings
and recommendations of the magistrate judge. See Vega v. Suthers, 195 F.3d 573,
579-80 (10th Cir. 1999) (District court’s decision to review a magistrate judge’s
recommendation de novo despite the lack of an objection does not preclude application
of the “firm waiver rule”); Int’l Surplus Lines Ins. Co. v. Wyo. Coal Ref. Sys., Inc., 52
F.3d 901, 904 (10th Cir. 1995) (by failing to object to certain portions of the magistrate
judge’s order, cross-claimant had waived its right to appeal those portions of the ruling);
Ayala v. United States, 980 F.2d 1342, 1352 (10th Cir. 1992) (by their failure to file
objections, plaintiffs waived their right to appeal the magistrate judge’s ruling). But see,
Morales-Fernandez v. INS, 418 F.3d 1116, 1122 (10th Cir. 2005) (firm waiver rule does
not apply when the interests of justice require review).
12