Mode v. S-L Distribution Company, LLC et al
Filing
532
ORDER granting 514 S-L's Motion to Compel Arbitration. The 255 Plaintiffs with arbitration clauses in their Distributor Agreements shall arbitrate their claims as provided in their agreements. Signed by District Judge Kenneth D. Bell on 4/9/2020. (tmg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
CIVIL ACTION NO. 3:18-CV-150
JARED MODE, on behalf of himself
and all others similarly situated,
Plaintiffs,
v.
ORDER
S-L DISTRIBUTION COMPANY,
LLC,
S-L DISTRIBUTION COMPANY,
INC, and
S-L ROUTES, LCC,
Defendants.
THIS MATTER is before the Court on Defendants S-L Distribution Company, LLC, S-L
Distribution Company, Inc., and S-L Routes, LLC’s (collectively, “S-L”) Motion to Compel
Arbitration. (Doc. No. 514). This case is a class action suit under the Fair Labor Standards Act
(“FLSA”), in which Plaintiffs allege that Defendants intentionally misclassified them. Defendants
now move to compel 255 of the over 700 opt-in Plaintiffs to arbitration based on the arbitration
provisions in the parties’ contractual agreements. Having reviewed and considered the written
arguments and applicable authority, and for the reasons set forth below, the Court finds that the
parties contractually agreed to arbitrate this dispute and finds no reason that prohibits the Court
from enforcing the arbitration provisions. Accordingly, the Court will grant Defendants’ Motion
to Compel Arbitration.
I. FACTS AND PROCEDURAL HISTORY
S-L collectively manufactures, markets, and distributes snack foods to retail stores in North
Carolina and other states. (Doc. No. 515-1, at 1). While S-L sells some of its own products to
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stores, it contracts with independent business owners (“IBOs”) to sell its products in more than
3,200 different geographic territories across the country. (Doc. No. 515-1, at 2). The parties refer
to these agreements as “Distributor Agreements.” The Distributor Agreements state that the
distribution companies are independent contractors and further provides that in the event a court
finds that the parties did not have an independent contractor relationship, either party would be
entitled to declare the Distributor Agreement null and void. (See, e.g., Doc. No. 23-1).
On March 22, 2018, Plaintiff Jared Mode filed this action alleging that he and a putative class
of S-L’s distributors are entitled to various protections under the FLSA, 29 U.S.C. §§ 201, et seq.
(Doc. No. 1). The Plaintiffs make up various principals, officers, and/or employees of these
distribution companies who allege that S-L intentionally misclassified them as independent
contractors rather than employees, and by doing so, failed to pay minimum wage and overtime pay
as required under the FLSA. Id. at ¶¶ 27-39. In response to these allegations, S-L filed
counterclaims for unjust enrichment against certain Plaintiffs in the event the Court determines
that (1) Plaintiffs and/or their distribution companies were misclassified as independent contractors
and (2) the Distributor Agreements are voided. (Doc. No. 25, at ¶¶ 27-39). Additionally, S-L filed
Third-Party Complaints stating claims for indemnification and unjust enrichment against certain
distribution companies. (Doc. Nos. 26-47, 52-56).
On March 15, 2019, this Court conditionally certified a collective class action under the FLSA.
(Doc. No. 143). Of the approximately 700 opt-in Plaintiffs in this lawsuit, 255 Plaintiffs
(“Arbitration Plaintiffs”) have Distributor Agreements that include an arbitration clause. (Doc.
Nos. 515-1, at 3, 6-12; 515-2, at 23; 515-3, at 23; 515-4, at 20). Although there are several different
versions of the Distributor Agreements at issue in this case, and each agreement contains materially
different terms governing each IBO, all of the Arbitration Plaintiffs entered into one of three
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versions of these agreements. (Doc. No. 515-1, at ¶¶ 11-12). All three versions contain materially
identical arbitration provisions.
The arbitration clauses each state that the parties “agree that the dispute resolution process set
forth below shall be the sole and exclusive method by which any and all Covered Disputes . . .
shall be resolved and decided.” (Doc. Nos. 515-2, at 23; 515-3, at 23; 515-4, at 20).1 “Covered
disputes” are defined in part as “all claims and disputes arising out of or under or in any way
relating to this Agreement or any other agreement between the parties” and “all claims and disputes
relating to any allegation of any employment, franchise or other nonindependent contractor
relationship or misclassification between any of the Distributor Parties and any of the S-L Parties.”
(Doc. Nos. 515-2, at 24; 515-3, at 23; 515-4, at 20-21).
Notably, each arbitration clause also states: “Any dispute regarding the scope, application,
enforcement or interpretation of the dispute resolution provisions and other procedures set forth in
this [arbitration clause] shall be governed by the FAA and to the extent the FAA is inapplicable,
the laws of the Commonwealth of Pennsylvania shall apply.” (Doc. Nos. 515-2 at 30; 515-3, at 29;
515-4, at 27).
II. LEGAL STANDARD
The Federal Arbitration Act (“FAA”) represents “a liberal federal policy favoring arbitration
agreements” and applies “to any arbitration agreement within the coverage of the [FAA].” Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Under Section 2 of the
FAA, a written provision “shall be valid, irrevocable, and enforceable, save upon such grounds as
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In an effort to streamline attachments to filings in this case, as requested by the Court, S-L
attached an example of each version of the pertinent Distributor Agreements to its memorandum,
along with a list of which Arbitration Plaintiffs entered into each version. See Doc. Nos. 515-2,
515-3, 515-4.
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exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2 (2012). Furthermore, the
Supreme Court has held that “courts must rigorously enforce arbitration agreements according to
their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).
In the Fourth Circuit, a litigant can compel arbitration under the FAA if he can demonstrate:
(1) the existence of a dispute between the parties, (2) a written agreement that includes an
arbitration provision which purports to cover the dispute, (3) a relationship of the transaction,
which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect
or refusal of [a party] to arbitrate the dispute. Galloway v. Santander Consumer USA, Inc., 819
F.3d 79, 84 (4th Cir. 2016); see also Chorley Enters., Inc. v. Dickey’s Barbecue Rests., Inc., 807
F.3d 553, 563 (4th Cir. 2015). Agreements to arbitrate are construed according to ordinary rules
of contract interpretation, as augmented by a federal policy requiring that all ambiguities be
resolved in favor of arbitration. Choice Hotels Int’l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d
707, 710 (4th Cir. 2011). Whether a party agreed to arbitrate a particular dispute is a question of
state law governing contract formation. Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01 (4th
Cir. 2002). “[T]he party resisting arbitration bears the burden of proving that the claims at issue
are unsuitable for arbitration.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 81 (2000).
III. DISCUSSION
Plaintiffs do not dispute the validity or scope of the arbitration agreement. Rather, Plaintiffs’
sole argument in response to S-L’s motion to compel arbitration is that this Court’s previous
“holding” in its conditional certification order bars S-L from now arguing that the dispute should
be subject to arbitration under the “law of the case” doctrine. See (Doc. No. 520, at 1) (“S-L’s
motion should fail because it contradicts this Court’s previous holding that arbitrability
determinations are premature until after the Court resolves S-L’s counterclaims and third-party
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complaints, both of which ask that the Distributor Agreements be declared ‘null and void.’”). As
discussed more fully below, the Court’s previous order does not prevent the Court from enforcing
the arbitration provisions, and absent any other reason that the Court should not hold the arbitration
provisions valid and enforceable, the Court will grant S-L’s motion as to the 255 Arbitration
Plaintiffs.
A. The Conditional Certification Order
Plaintiffs contend that this Court previously “held” that “arbitrability determinations are
premature until after the Court resolves [S-L’s] counterclaims and third-party complaints.” (Doc.
No. 520, at 1). However, the Plaintiffs misconstrue the Court’s prior holding. The issue before the
Court in its previous order was whether “some of the putative collective should receive courtapproved notice,” not whether the Court should enforce the arbitration provisions pursuant to the
Distributor Agreements. (Doc. No. 143, at 8-9). At that time, S-L argued that the Court should not
approve notice to potential plaintiffs who had arbitration agreements. The Court, at the conditional
certification stage, thought it “improper to preclude sending notice to those potential plaintiffs
whose Distributor Agreements contained arbitration provisions” if there was any chance that the
Distributor Agreements could be declared void later in the proceedings. Id. at 9 n.3 (emphasis
added). Thus, this Court determined that it would be “premature . . . to preclude potential plaintiffs
from participating in this lawsuit solely based on arbitration provisions.” (Doc. No. 143, at 9).
The Court made no decision on the enforceability of the arbitration clauses at that time, and
certainly did not bar S-L from arguing that the arbitration agreements are enforceable.
Thus, because the Court was only considering the issue of Court-approved notice at the
conditional certification stage and not the enforceability of the arbitration agreements, the order
does not preclude the Court from ordering arbitration now. At most, such language was dicta. See,
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e.g., Alexander v. Sandoval, 532 U.S. 275, 282 (2001) (“[T]his Court is bound by holdings, not
language.”); Stiltner v. Island Creek Coal Co., 86 F.3d 337, 342 n.2 (4th Cir. 1996) (“This
comment was dicta because it was not essential to the holdings in [a prior decision].”); United
States v. Pasquantino, 336 F.3d 321, 329 (4th Cir. 2003) (“[D]icta . . . cannot serve as a source of
binding authority in American jurisprudence.”).
B. Arbitration
Plaintiffs do not dispute S-L’s claims regarding the validity of the arbitration clauses or the
applicability of the FAA to the arbitration clauses. Plaintiffs’ only defense asserted in their
response is that the Court’s previous order bars the Court from compelling arbitration now, which
this Court has already explained is not the case. If Plaintiffs disputed the validity of the arbitration
clause, this Court would have to determine if the arbitration clause was in fact valid before
compelling arbitration. See Lorenzo v. Prime Commc’ns, L.P., 806 F.3d 777, 781 (4th Cir. 2015)
(quoting Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 297 (2010)) (“[A] court may
order arbitration only when it ‘is satisfied that the parties agreed to arbitrate.’ And the question of
whether the parties agreed to arbitrate is resolved by application of state contract law.”). The Court
construes Plaintiffs failure to address these points as a concession that the arbitration agreements
are valid and that the FAA applies. See, e.g., Kinetic Concepts, Inc. v. Convatec Inc., No.
1:08CV00918, 2010 WL 1667285, at *8 (M.D.N.C. Apr. 23, 2010) (citing cases from “a large
number of courts” from several jurisdictions which have held that failure to address an issue in the
party’s memorandum is a concession).
Even if the Plaintiffs did contest the validity of the arbitration clause, the Court concludes that
S-L has shown that the 255 Arbitration Plaintiffs entered into valid agreements to arbitrate under
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Pennsylvania law.2 See Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982) (“It is well established
that the intent of the parties to a written contract is to be regarded as being embodied in the writing
itself.”).
The Court also finds that the arbitration clauses are enforceable under the FAA, which again
Plaintiffs do not contest. It is well-established that a defendant may contend that an arbitration
clause is enforceable while also contesting the contract’s validity, and subsequently arbitrate the
validity of that contract as a whole. See, e.g., New Prime Inc. v. Oliveira, 139 S. Ct. 532, 538
(2019) (“Unless a party specifically challenges the validity of the agreement to arbitrate, both sides
may be required to take all their disputes—including disputes about the validity of their broader
contract—to arbitration.”); Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (“[A] party’s
challenge to another provision of the contract, or to the contract as a whole, does not prevent a
court from enforcing a specific agreement to arbitrate.”); Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 449 (2006) (“We reaffirm today that . . . a challenge to the validity of the
contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.”).
Moreover, Plaintiffs’ argument that S-L is trying “to ‘have it both ways’ by asserting that the
Distributor Agreements might be ‘null and void’ while simultaneously seeking to enforce the
Distributor Agreements’ arbitration provisions” is unconvincing. With respect to S-L’s
counterclaims and third-party complaints, S-L is making an alternative argument. S-L’s defense
in this case is that Plaintiffs are independent contractors. However, in their counterclaims and
third-party complaints, S-L asks that if the Court finds that some or all of the counterclaimdefendants (or their entities) should have been classified as employees, “it should then conclude
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S-L asserts that Pennsylvania law applies to determine the validity of the contract and
Plaintiffs do not dispute this assertion.
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that the Counterclaim-Defendants’ Distributor Agreements are void and/or that CounterclaimDefendants are and were not governed by the terms of the Distributor Agreement.” See, e.g., (Doc.
Nos. 25, at ¶ 72; 31, at ¶ 25). Parties are entitled to plead in the alternative, and the Court will not
construe S-L’s alternative argument as prohibiting enforcement of otherwise valid arbitration
agreements. See Fed. R. Civ. Pro. 8(d)(2)-(3).
Given that the parties entered into valid arbitration agreements with the 255 Arbitration
Plaintiffs, that the FAA governs these arbitration clauses, and that Arbitration Plaintiffs have not
shown that arbitration is unsuitable, this Court holds that the arbitration clauses are enforceable
and will grant S-L’s motion to compel arbitration.
V. ORDER
S-L’s Motion to Compel Arbitration, (Doc. No. 514), is GRANTED. The 255 Plaintiffs with
arbitration clauses in their Distributor Agreements shall arbitrate their claims as provided in their
agreements.
SO ORDERED.
Signed: April 9, 2020
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