Mulcahy v. Nabors Well Services Co.

Filing 11

ORDER denying 4 Nabors Well Services Motion to Compel Arbitration. Signed by Judge Richard F. Cebull on 5/7/2010. (EMA)

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IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF MONTANA B I L L I N G S DIVISION J A M E S MULCAHY, ) ) P l a i n t if f , ) ) v. ) ) N A B O R S WELL SERVICES CO., ) ) D e f e nd a n t . ) ______________________________ ) C a us e No. CV-10-21-BLG-RFC ORDER DENYING MOTION T O COMPEL ARBITRATION P la intiff James Mulcahy filed the instant action for wrongful termination a ga ins t his former employer, Defendant Nabors Well Services. Doc. 8. The suit w a s initially filed in Montana's Thirteenth Judicial District Court, Yellowstone C o unty, but Nabors subsequently removed to this Court. Doc. 1. Presently before the Court is Nabors' Motion to Compel Arbitration. Doc. 4. Nabors argues Mulcahy agreed to arbitrate all disputes with Nabors as a condition o f his employment and that arbitration contracts are valid under Montana and fe d e ra l law. Mulcahy responds with two arguments: (1) his employment contract is a mb iguo us as to arbitration and therefore it must be construed against Nabors; and 1 (2) the arbitration provision is void because it was contained within a contract of a d he s io n and a waiver of his constitutional rights to a jury trail and to access the c o urts1 was not within his reasonable contemplation when he signed the contracts. Fo r the following reasons, the Court concludes that both of Mulcahy's arguments a re persuasive. Nabors' motion to compel arbitration must therefore be denied. It is undisputed that when he applied for employment with Nabors in January o f 2004, Mulcahy signed and initialed an "Application for Hourly and Daily E mp lo yme nt" ("the Application") providing: I acknowledge that a copy of the Company's Dispute Resolution P ro gra m ["DRP"] was available for my review at the location where I s ub mitte d this application. I acknowledge and understand that I am re q uire d to adhere to the Dispute Resolution Program and its re q uire me nts for submission of all claims to a process that may include me d ia tio n and/or arbitration and that if I refuse to sign below that my a p p lic a tio n will not be considered for employment. I further und e rs ta nd that my employment application submission with the C o mp a ny constitutes my acceptance of the terms of this provision as a c o nd itio n of my employment consideration. Doc. 5, Ex. C. Mulcahy does not recall being provided with a copy of the DRP at the time. Mulcahy Aff., ¶3; Ex. A. To Doc. 9. In addition, shortly after he was hired by Nabors, Mulcahy signed an In addition to the U.S. Constitution's Seventh Amendment preserving a the right to a jury trial in civil actions, Article II § 16 of the Montana Constitution guarantees access to the courts for full legal redress and Article II § 26 secures the right to jury trial in civil actions. 2 1 "Employee Acknowledgment Concerning Nabors Dispute Resolution Program" (" E mp lo ye e Acknowledgment"): By my signature below, I acknowledge and understand that I am re q uire d to adhere to the Dispute Resolution Program and its re q uire me nt for submission of disputes to a process that may include me d ia tio n and/or arbitration. I further understand that my employment o r continued employment with the Company constitutes my acceptance o f the terms of this provision as a condition of my employment or c o ntinue d employment. Doc. 5, Ex. B. Mulcahy asserts the Employee Acknowledgment was presented to him "on a take-it-or-leave-it basis" as a document that all Nabors' employees must s ign and that there was no discussion about the significance of the Dispute R e s o lutio n Program ("DRP"). Mulcahy Aff., ¶¶ 4,5. W ith respect to his first argument, Mulcahy notes that immediately preceding the acknowledgment quoted above, the Employee Acknowledgment also states that " no thing contained in the Employee Dispute Resolution Program is intended to vio la te or restrict any rights of employees guaranteed by state or federal laws." Further, the DRP itself advises that "[o]ther than as expressly provided, herein, or in the Rules, the substantive legal rights, remedies and defenses of all parties are p re s e rve d . DRP, ¶ 8.C, Doc. 5, Ex. A. Mulcahy argues these provisions are d ire c tly contrary to provisions in the DRP stating that all disputes not otherwise s e ttle d shall be resolved by binding arbitration. Mulcahy also stresses that there is 3 no explanation as to how these conflicting provisions can be reconciled. According to Mulcahy, his employment contract is therefore ambiguous as to arbitration b e c a us e it susceptible to at least two reasonable but conflicting interpretations: (1) tha t it preserves a party's constitutional right to a jury trial and access to the Courts a nd (2), that it restricts that right by mandating binding arbitration. In support, Mulcahy cites the recent Montana Supreme Court decision in R ie h l v. Camebridge Court GF, LLC, 226 P.3d 581 (Mont. 2010). In Riehl, the C o urt found that an arbitration provision in a nursing home contract was invalid and une nfo rc e a b le because it was ambiguous as to whether the plaintiff agreed to waive he r right to a jury trial. 226 P.3d at 587. Noting that the presence of ambiguities w ithin a contract is a question of law and that an ambiguity exists when the language o f a contract as a whole is susceptible to two or more reasonable but conflicting me a nings , the Riehl Court found that when the agreement was considered as a w ho le , it was ambiguous as to whether the plaintiff agreed to waive her right to a c c e s s the courts: W e agree with Riehl that the Agreement, as a whole, is ambiguous re ga rd ing the scope and applicability of the arbitration provision. S e c tio n 6.12, entitled "Legal rights," states that "[n]othing in this a gre e me nt shall construe any limit of Resident's or Owner's inalienable le ga l rights." Neither the Agreement itself, nor the laws of Montana or O re go n, specifically define the term "inalienable legal rights." 4 However, Section 8.10 states that the parties to the Agreement " und e rs ta nd and acknowledge that, by entering into this binding a rb itra tio n agreement, they are giving up and waiving their right to ha ve claims decided in a court of law before a judge and a jury." The A gre e me nt itself never explains how these two provisions are to be re c o nc ile d . Section 8.10 informs the parties that they are "waiving" the ir legal rights to access to the courts. Section 6.12 informs the re s id e nt that "nothing in this agreement" limits any of their "inalienable le ga l rights." R ie h l, 226 P.3d at 587. H a ving concluded that the agreement was ambiguous, the next step was to inte rp re t the contract "most strongly" against the party who drafted it; this process " invo lve s determining a question of fact regarding the intent of the parties to the c o ntra c t." Riehl, 226 P.3d at 587 (internal quotations omitted). In holding that the a rb itra tio n provision was invalid because there was no "mutual intent" or "meeting o f the minds" between the parties as to arbitration, the Court noted that not only did the plaintiff testify she had "no idea" she had waived her right to sue, but the d e fe nd a nt had told Riehl that they "preferred" arbitration as opposed to requiring it. Riehl, 226 P.3d at 588. Nabors responds that a division of the Texas Court of Appeals has found the D R P and the Employee Acknowledgment to be unambiguous and enforceable, c iting Nabors Drilling USA, LP v. Carpenter, 198 S.W.3d 240 (Tex. App. San 5 Antonio 2006). Not only is the Court not required to follow the opinion of a Texas c o urt applying Texas law, but Carpenter does not address the issue raised by M ulc a hy and the Riehl opinion­that the provisions preserving all federal and state rights are contrary to the provisions requiring all disputes to be resolved by binding a rb itra tio n. T he only reference Nabors makes to Riehl is to argue that it is distinguishable b e c a us e it does not address an arbitration agreement in an employment contract. Regardless, all of the recent Montana Supreme Court opinions on arbitration a gre e me nts employ the same line of reasoning and there is no indication that the p rinc ip le s within apply only to certain categories of arbitration agreements. See R ie h l, supra; Kortum-Managhan v. Herbergers NBGL, 204 P.3d 693 (Mont. 2009); Iwe n v. U.S. West Direct, 977 P.2d 989, 994-95 (Mont. 1999); Kloss v. Edward D. J o n e s & Co., 54 P.3d 1 (Mont. 2002). Moreover, while Nabors is correct that the M o nta na Supreme Court has not expressly overruled Vukasin v. D.A. Davidson & C o ., 785 P.2d 713 (Mont. 1990) (upholding arbitration provision in employment c o ntra c t), none of the issues raised by Mulcahy were addressed in that case and no re c e nt Montana Supreme Court decisions cite Vukasin. Nabors offers no other c o u n te r a r g um e n t s . 6 Riehl instructs that the first question is whether the agreement as a whole is a mb iguo us regarding the scope and applicability of the arbitration provision. 226 P .3 d at 587. After reviewing the contract documents as a whole, the Court agrees w ith Mulcahy that the employment contract purports to uphold the rights of e mp lo ye e s guaranteed by state or federal laws at the same time it mandates that all d is p ute s be resolved by binding arbitration. Moreover, there is no attempt to re c o nc ile this contradiction. Accordingly, Riehl is not distinguishable and compels the conclusion that the contract at issue in this case is ambiguous as to arbitration. T he agreement must therefore be construed "most strongly" against Nabors. R ie h l, 226 P.3d at 587. With respect to the factual inquiry as to the intent of the p a rtie s regarding to the arbitration provision, Id., Mulcahy avers that based on la ngua ge of the Employee Acknowledgment stating that "nothing contained in the [D R P ] is intended to violate or restrict any rights of employees guaranteed by state o r federal laws," he did not contemplate a waiver of his rights to sue. Mulcahy Aff., ¶ ¶ 7,8. Although this case is unlike Riehl in that Nabors did not tell Mulcahy that a rb itra tio n was the preferred forum for disputes rather than the mandatory forum, M ulc a hy' s sworn statement that he did not contemplate arbitration is sufficient p ro o f that there was no mutual consent as to arbitration. Construing the agreement " mo s t strongly" against Nabors, Riehl, 226 P.3d at 587, the arbitration provision is 7 unenforceable. As to Mulcahy's second argument, the arbitration agreement is also une nfo rc e a b le because it is contained within a contract of adhesion and a waiver of the right to sue was not within Mulcahy's reasonable expectations. Under Montana la w , a contract of adhesion containing an arbitration provision will not be enforced a ga ins t a weaker party if (1) arbitration is not within the party's reasonable e xp e c ta tio ns or (2) arbitration is within the party's expectations but it is unduly o p p re s s ive , unconscionable, or against public policy. Iwen v. U.S. West Direct, 977 P .2 d 989, 994-95 (Mont. 1999). A contract of adhesion arises when a party possessing superior bargaining p o w e r presents a standardized form contract to a party whose only choice is to a c c e p t or reject the contract with no opportunity to negotiate its terms. KortumM a n a g h a n v. Herbergers NBGL, 204 P.3d 693, 698 (Mont. 2009). Although N a b o rs has a heading in its reply brief stating that the DRP is not a contract of a d he s io n, it does not develop this argument. Rather, Nabors continues to argue that the Montana Supreme Court upheld an arbitration agreement twenty years ago in Vu k a s in and that courts in other jurisdictions routinely enforce arbitration a gre e me nts . 8 Mulcahy's affidavit states that when he was hired by Nabors Well Services in 2 0 0 4 , he was presented with the Application (Doc. 5, Ex. C) and told to sign it. Mulcahy Aff., ¶ 3; Doc. 9, Ex, A. There was no negotiation of the terms of e mp lo yme nt and the arbitration requirement was not mentioned. Id. Although he initia le d a section of that document indicating a copy of the DRP was available for his review, he does not recall being shown a copy of the DRP or that it was a va ila b le . Id. A short time later, Mulcahy was presented with the Employee A c k no w le d gme nt on a "take-it-or-leave-it basis." He was told it was a standard fo rm that all Nabors employees were required to sign as a condition of employment. Mulcahy Aff., ¶¶ 4-5. Again, Mulcahy avers that he was not told about the DRP, the arbitration requirement contained within it, and was not given an opportunity to ne go tia te its terms. Mulcahy Aff., ¶¶ 6. Although the DRP and associated documents clearly constitute a contract of a d he s io n, the arbitration provision is nonetheless valid unless arbitration was not w ithin Mulcahy's reasonable expectations or (2) arbitration was within his e xp e c ta tio ns but it is unduly oppressive, unconscionable, or against public policy. Iwen, 977 P.2d at 994-95. Mulcahy asserts he did not know accepting employment w ith Nabors meant he was waiving fundamental constitutional rights. Under M o nta na law, the rights to trial by jury and access to the courts are fundamental 9 constitutional rights. Although these rights can be waived, the waiver must be k no w ing, intelligent, and voluntary. Kortum-Managhan, 204 P.3d at 699. Before a fund a me nta l right can be effectively waived, the person must personally consent to the waiver after being advised of the consequences; "the contractual waiver of fund a me nta l constitutional rights must be deliberately and understandingly made." Id . (internal quotations omitted). W he n determining whether a waiver of fundamental right was deliberately ma d e , Montana courts consider the following factors: w he the r there were any actual negotiations over the waiver provision; w he the r the clause was included on a take-it-or-leave-it basis as part of a standard-form contract; whether the waiver clause was conspicuous a nd explained the consequences of the provision (e.g. waiver of the right to trial by jury and right of access to the courts); whether there w a s disparity in the bargaining power of the contracting parties; w he the r there was a difference in business experience and s o p his tic a tio n of the parties; whether the party charged with the waiver w a s represented by counsel at the time the agreement was executed; w he the r economic, social or practical duress compelled a party to e xe c ute the contract (e.g. where a consumer needs phone service and the only company or companies providing that service require e xe c utio n of an adhesion contract with a binding arbitration clause b e fo re service will be extended); whether the agreement was actually s igne d or the waiver provision separately initialed; whether the waiver c la us e was ambiguous or misleading; and whether the party with the s up e rio r bargaining power lulled the inferior party into a belief that the w a ive r would not be enforced. K o r tu m -M a n a g h a n , 204 P.3d at 699. 10 In addition to the facts cited in the contract of adhesion discussion above, M ulc a hy cites the following facts as relevant to these factors: (1 ) T he arbitration clauses in the Employee Acknowledgment and DRP are inc o ns p ic io us . The specific arbitration provisions do not contain bold typ e fa c e or underlined text. The arbitration provisions further fail to d e s c rib e the fundamental liberties that Plaintiff was purportedly w a iving by agreeing to be bound by the Employee Acknowledgment a nd DRP. P la intiff was an ordinary citizen, not represented by counsel, living and w o rk ing in Dawson County, Montana and had nowhere near the re s o urc e s , business experience or sophistication that Nabors, a large multina tio na l corporation, had at its disposal. P la intiff did not initial or sign the DRP containing the arbitration c la us e s , but instead signed an Employee Acknowledgment consisting o f conflicting and ambiguous terms. B y express language of the Employment Acknowledgment, Plaintiff w a s required to submit to the terms of the DRP as a condition of his e mp lo yme nt with Nabors. Had Plaintiff refused to accept the terms of the documents presented to him, he would have been without e mp lo yme nt. When he entered into the agreement, Plaintiff had no o the r source of income. (2) (3 ) (4 ) O nly two factors even marginally weigh in favor of Nabors. First, there is no e vid e nc e Nabors represented the arbitration requirement would not be enforced. In fa c t, Mulcahy claims the arbitration requirement was never discussed. Second, the re is no question that Mulcahy signed and initialed the Application and the 11 Employee Acknowledgment, both of which stated his agreement to the DRP. Doc. 5 , Exs. B & C. Neither of these documents, however, and the same is true of the D R P itself, ever mention that agreeing to the DRP means waiving the right to re d re s s wrongs through the judicial system. Finally, as discussed above, the E mp lo ye e Acknowledgment is contradictory, stating both that the DRP is not inte nd e d to violate or restrict any rights guaranteed by law and that all disputes must b e mediated or arbitrated. Nabors does not discuss these factors, but continues its reliance on Vukasin a nd out-of- state decisions upholding arbitration agreements in employment c o ntra c ts . C o ns id e ring that none of the contract documents inform Mulcahy that a gre e ing to the DRP means he is waiving his right to resolve disputes in a court of la w , the Court cannot conclude the waiver was deliberately and understandingly ma d e . Almost every factor identified by Kortum-Managhan supports this c o nc lus io n. Fo r those reasons, IT IS HEREBY ORDERED that Nabors' Motion to C o mp e l Arbitration (Doc. 4) is DENIED. / // 12 Dated this 7th day of May 2010. /s / Richard F. Cebull______ R ic ha rd F. Cebull U nite d States District Judge 13

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