Hudgins et al v. Total Quality Logistics, LLC
MEMORANDUM OPINION AND ORDER signed by the Honorable Matthew F. Kennelly on 2/8/2017: For the reasons stated in the accompanying Memorandum Opinion and Order, the Court strikes the class action waiver in the arbitration agreements between TQL and Jo nathan Rondeno, Scott Carasik, Amber Cirelli, Evan Finley, Mike Ghebrehiwet, Matthew Hodgson, Christopher McGowan, Christopher Mullen, and Dakota Thornton, and otherwise grants TQL's motion to dismiss these claims [dkt. no. 26]. The Court modif ies its prior ruling on notice to members of the conditionally certified class by (1) limiting notice to those potential members who have not signed arbitration agreements; and (2) directing the parties to promptly develop a list of the potential cla ss members who have not signed arbitration agreements. The parties are to file a joint status report on this issue by no later than February 17, 2017. The status hearing set for February 16, 2017 is vacated and reset to February 21, 2017 at 8:45 AM. Counsel are to jointly call chambers (312-435-5618) at that date and time. (mk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
BRIAN HUDGINS and JONATHAN
RONDENO, on their own behalf and on
behalf of those similarly situated,
TOTAL QUALITY LOGISTICS, LLC
Case No. 16 C 7331
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
In this decision, the Court considers issues left open in its previous order,
Hudgins v. Total Quality Logistics, LLC, No. 16 C 7331, 2016 WL 7426135 (N.D. Ill.
Dec. 23, 2016). The Court assumes familiarity with the factual and procedural
background set out in that order.
In brief summary, Brian Hudgins and Jonathan Rondeno are two former
employees of Total Quality Logistics, Inc. (TQL) who have filed a class action complaint
alleging that TQL failed to pay them overtime in violation of the Fair Labor Standards
Act (FLSA). Plaintiffs moved for conditional certification of two classes and asked the
Court to authorize giving notice to potential class members. At the time of that motion,
twenty-six additional former TQL employees had joined as plaintiffs. TQL then moved
to compel arbitration of the claims brought by nine of these plaintiffs.
The Court conditionally certified plaintiffs' class and authorized notice to potential
class members. See generally id. The Court also ordered supplemental briefing by
both parties on TQL's motion to compel arbitration. In a status conference on January
5, 2017, the Court requested additional briefing regarding whether it should send notice
only to those potential class members who have not signed arbitration agreements.
Since the Court's approval of conditional certification of the classes, over forty-five more
former TQL employees have joined as plaintiffs. Because these employees were not
named plaintiffs at the time that the parties briefed the motion to compel arbitration, their
claims are unaffected by the ruling in this order.
For the reasons stated below, the Court strikes the class action waiver found in
the arbitration agreements of nine plaintiffs and grants TQL's request to dismiss their
claims. The Court also concludes that the authorization to send notice extends only to
those members of the previously approved classes who have not signed arbitration
agreements with TQL.
Motion to compel
TQL moved to compel arbitration for nine of the plaintiffs who joined this action.
In its previous order, the Court held that a court—and not an arbitrator—had the
authority to rule on the enforceability of the arbitration agreements. Id. at *7. The Court
also ruled, however, that even if it determined that the arbitration agreements were
unenforceable, it lacked the authority to compel arbitration because all of the arbitration
agreements at issue provided for arbitration outside of this district. The Court therefore
requested supplemental briefing on three issues:
1. Whether the arbitration agreements are enforceable;
2. If the agreements are enforceable, what courses of action—including
dismissal—are available to the Court, and which should the Court select?
3a. If the Court determines to dismiss the claims, does it have the
authority to rule on the validity of the class action waiver contained in the
3b. If the Court determines to stay the claims, does it have the authority to
rule on the validity of the class action waiver contained in the arbitration
Id. at *8. The Court now concludes that 1) it has the authority to rule on the
enforceability of the nine plaintiffs' arbitration agreements, including the class action
waivers; 2) the class action waivers are invalid as a matter of law; and 3) the class
action waivers must be stricken from the arbitration agreements and the claims must be
dismissed in favor of arbitration.
Enforceability of the arbitration agreements
Each of the arbitration agreements at issue in this motion provides for arbitration
in the county and state where the employee most recently worked for TQL. See, e.g.,
Def.'s Mem. in Supp. of Mot. to Compel Arbitration and Stay Proceedings, Ex. A
(Arbitration Agreements) at 3. None of the nine named plaintiffs who signed such
agreements—and had joined this action at the time of TQL's original motion to compel—
worked for TQL in this district. Pls.' Resp. 3. This Court therefore lacks the authority to
compel arbitration of these claims. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Lauer, 49 F.3d 323, 327 (7th Cir. 1995).
TQL argues that, because this Court lacks authority to compel arbitration, it lacks
authority to apply Seventh Circuit precedent and rule on the enforceability of the
arbitration agreements and the class action waivers contained therein. Def.'s Resp. to
Pls.' Surreply to Def.'s Mot. to Compel Arbitration and Stay Proceedings (Def.'s Resp. to
Surreply) at 2–6. TQL first argues that courts must evaluate the enforceability of forum3
selection clauses, such as an agreement to arbitrate, using the law of the forum
designated in the agreement. Id. at 3. That is, when the parties have selected a
particular forum in which to resolve disputes, this selection dictates the law that applies
when determining enforceability. TQL argues that, because the agreements provide for
arbitration in the locations where the employees worked, the enforceability of the
arbitration agreements must be determined using the law of the federal circuits covering
those locations. Def.'s Resp. to Surreply at 3. This would mean that the law of the
Fourth, Fifth, and Eleventh Circuits governs the enforceability of the various
This argument is unpersuasive. Each of the arbitration agreements signed by
the nine plaintiffs contains a choice-of law provision, which the Court is required to apply
when ruling on enforceability. See Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d
801, 809 (7th Cir. 2011). These provisions state that the arbitration agreements are
governed by the laws of the state of Ohio, except to the extent that federal law preempts
those laws. See, e.g., Arbitration Agreements at 3. Thus in ruling on enforceability, this
Court is required to apply either Ohio law or federal law if it preempts Ohio law.
Plaintiffs have not argued that the agreements are unenforceable under Ohio law.
Instead, plaintiffs have raised only an issue of federal law: that the National Labor
Relations Act (NLRA) prevents the waiver of class action arbitration in employment
contracts. Pl.'s Surreply at 2–3. The Court's determination of enforceability therefore
depends entirely on federal law. And when evaluating an argument based on federal
law, this Court is obligated to follow Seventh Circuit precedent, regardless of whether
other circuits have reached alternative conclusions. See United States v. Wolvin, 62 F.
App'x 667, 669 (7th Cir. 2003).
TQL cites Richmond v. 20/20 Communications, Inc., No. 16 C 6051, 2016 WL
6217107 (N.D. Ill. Oct. 24, 2016), in arguing that, because only a district court covering
the location where arbitration will be held has the authority to compel arbitration, the
federal law binding in that district court governs the determination of enforceability.
Def.'s Resp. to Surreply at 2–7. In Richmond, however, the parties specified not only
that arbitration must occur outside the Northern District of Illinois but also that any
litigation related to the arbitration agreements must be brought outside the district as
well. Richmond, 2016 WL 6217107 at *1. There is no such provision in the arbitration
agreements at issue here. Thus the parties are not required to litigate the issue of
enforceability in the district where arbitration might occur, and the Court is not required
to apply the law of that jurisdiction in assessing enforceability.
This Court therefore applies the law of this circuit in determining whether the
arbitration agreements are enforceable. The Seventh Circuit recently held that waivers
of the right to bring a class claim in arbitration violate the NLRA and that agreements
containing these waivers are unenforceable. Lewis v. Epic Sys. Corp., 823 F.3d 1147,
1154–55, 1160 (7th Cir. 2016). The arbitration agreements signed by TQL employees
indicate that legal claims "shall be brought in an individual capacity" and that the
employee "specifically waives any right to bring any class or collective action claim
against" TQL arising out of the employment agreement. See, e.g., Arbitration
Agreements at 4. This waiver violates the right of employees to pursue collective action
under section 7 of the NLRA and is therefore unenforceable.
As noted by TQL, the arbitration agreements contain a severability clause. Def.'s
Resp. to Surreply at 6. The agreements provide that if any provision is held to be illegal
or unenforceable, the agreement will be reformed and construed in such a manner as to
make the agreement valid and enforceable. Arbitration Agreements at 5. On this
subject, Ohio law applies; there is no federal preemption. Ohio law permits severability
clauses. Thus under Ohio law, a court will sever and enforce the remaining legal terms
of the contract when a provision of a contract containing a severability clause is found to
be illegal. See Toledo Police Patrolmen's Ass'n, Local 10, IUPA v. Toledo, 94 Ohio
App. 3d 734, 641 N.E.2d 799, 803–04 (1994). Plaintiffs have not made any other
arguments under either federal or Ohio law that other provisions of the arbitration
agreements render the agreements unenforceable. The Court therefore severs the
invalid class action waiver from the arbitration agreements and finds that what remains
of the agreements is enforceable.
Disposition of the claims
As noted above, this Court lacks the authority to compel arbitration of these nine
claims, despite the fact that it holds that the arbitration agreements are enforceable.
Both parties agree that this Court can either stay the proceedings in this Court to allow
for arbitration or dismiss the nine claims altogether. Pls.' Surreply at 3; Def.'s Resp. to
Surreply at 7. Plaintiffs prefer a stay so that only one court will preside over this
pending suit as well as any resulting arbitration. Pls.' Surreply at 4. TQL requests
dismissal, arguing that the entirety of the nine plaintiffs' claims will be resolved by
arbitration and therefore nothing will remain for this Court to decide. Def.'s Resp. to
Surreply at 7-8.
The Court concludes that the proper course of action is to dismiss the claims of
the nine plaintiffs at issue in TQL's motion to compel. A court that grants a section 3
order to stay proceedings retains jurisdiction over the matter in order to "effectuate the
decision of an arbitrator or handle additional matters or claims that were not subject to
arbitration." Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prods., Inc., 660
F.3d 988, 997 (7th Cir. 2011). Though courts have the authority to order a stay even
when arbitration must occur outside the district, id., the Seventh Circuit has indicated a
preference for dismissal in this type of situation. Faulkenberg, 637 F.3d at 808.
Because plaintiffs have not shown that their claims will not be fully resolved by
arbitration proceedings, the Court dismisses the claims of the nine plaintiffs at issue in
TQL's motion to compel. The Court notes that this ruling has no impact on the
numerous plaintiffs that have joined this suit since the parties' briefing on the motion to
compel, as TQL has not yet demonstrated that any of these additional plaintiffs are
subject to arbitration agreements.
Scope of notice
The Court also ordered briefing regarding whether those members of the
potential class who have signed arbitration agreements should receive notice of the
pendency of this suit under the Court's conditional certification order of December 23.
See dkt. no. 55. Plaintiffs argue that TQL has waived the ability to exclude such
individuals from notice by failing to make this argument in its briefing on plaintiffs'
motion. Pls.' Brief in Resp. to Dkt. No. 55 at 2–3. Plaintiffs also argue, in the
alternative, that the Court should not consider the arbitration agreements at the
conditional certification stage of a collective action. Id. at 4-6. TQL argues that the
Court has discretion to shape notice and that notifying potential members with
arbitration agreements constitutes unnecessary waste of judicial resources. See
generally Def.'s Resp. in Opp'n to Pls.' Brief in Resp. to Dkt. No. 55.
TQL has not waived this argument by failing to make it in its original briefing.
Courts have discretion to consider arguments that might have been waived. See
Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 749–50 (7th Cir. 1993). The Court
requested supplemental briefing by both parties on this issue, thereby giving plaintiffs
an adequate opportunity to respond and preventing any possible prejudice that might
otherwise arise. See id. Thus plaintiffs are not disadvantaged by permitting TQL's
argument at this stage.
The Court concludes that notice should be limited to only those potential
members who have not signed arbitration agreements. District courts have discretion to
determine the scope and conditions of notice to potential members of a collective action
brought under the FLSA. Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165, 169–70
(1989). The Court's finding that the arbitration agreements—without the class action
waivers—are enforceable virtually eliminates the possibility that any other former
employee of TQL who has signed an arbitration agreement will be able to join this
collective action. See Daugherty v. Encana Oil & Gas (USA), Inc., 838 F. Supp. 2d
1127, 1130 (D. Colo. 2011) (noting the futility of permitting individuals to join as plaintiffs
only to force defendant to move for dismissal based on arbitration agreements
previously found to be enforceable). Further, TQL estimates that at least 5,100 of the
5,800 potential class members have signed arbitration agreements. Def.'s Resp. in
Opp'n to Pls.' Brief in Resp. to Dkt. No. 55 at 1. It does not make sense to notify so
many people about a lawsuit that they almost certainly are unable to join; this would
constitute a waste of resources and would risk misleading those individuals into thinking
they will be able to join the lawsuit.
For these reasons, the Court limits its earlier order permitting notice to potential
class members to only those former employees who meet the other criteria and have
not signed an arbitration agreement with TQL. It is important to make sure, however,
that all those potential class members who have not signed arbitration agreements
receive notice under the previously approved procedure. The Court directs the parties
to promptly confer and develop a list of all TQL employees who meet the class
description and have not signed arbitration agreements.
For the foregoing reasons, the Court strikes the class action waiver in the
arbitration agreements between TQL and Jonathan Rondeno, Scott Carasik, Amber
Cirelli, Evan Finley, Mike Ghebrehiwet, Matthew Hodgson, Christopher McGowan,
Christopher Mullen, and Dakota Thornton, and otherwise grants TQL's motion to
dismiss these claims [dkt. no. 26]. The Court modifies its prior ruling on notice to
members of the conditionally certified class by (1) limiting notice to those potential
members who have not signed arbitration agreements; and (2) directing the parties to
promptly develop a list of the potential class members who have not signed arbitration
agreements. The parties are to file a joint status report on this issue by no later than
February 17, 2017.
MATTHEW F. KENNELLY
United States District Judge
Date: February 8, 2017
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