Gundrum et al v. Cleveland Integrity Services, Inc.
Filing
51
OPINION AND ORDER granting 18 Motion to Transfer to Northern District of Oklahoma. Signed by District Judge William M. Conley on 1/31/2017. (kwf) [Transferred from Wisconsin Western on 2/1/2017.]
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
ERIC GUNDRUM and MICHAEL KING,
individually and on behalf of those similarly
situated,
Plaintiff,
OPINION AND ORDER
v.
16-cv-369-wmc
CLEVELAND INTEGRITY SERVICES, INC.,
Defendant.
In this lawsuit, plaintiffs Eric Gundrum and Michael King bring a putative
collective action under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq.,
against defendant Cleveland Integrity Services, Inc. (“Cleveland”). Plaintiffs allege that
Cleveland underpaid them and other similarly situated employees overtime as required
by the FLSA. This opinion addresses defendant’s threshold motion to transfer this case
to the District Court for the Northern District of Oklahoma pursuant to a forum
selection clause contained in an arbitration agreement between the parties (dkt. #18),
which plaintiffs oppose on the basis that the arbitration agreement is illegal and
unenforceable. Because plaintiffs have failed to establish that the forum selection clause
is invalid for the reasons explained below, defendant’s motion will be granted.
BACKGROUND
Defendant Cleveland is incorporated in Oklahoma and has its headquarters in
Cleveland, Oklahoma. (Compl. (dkt. #1) ¶ 6.) Cleveland is in the business of “providing
third party inspection services for the construction and maintenance of oil and natural
gas transmission, midstream and gathering lines, facility construction, meter runs and
many other types of oil and gas construction throughout the United States.” (Id. at ¶ 5.)
Plaintiffs Gundrum and King are both residents of Nevada who were employed by
Cleveland as “pipeline inspectors.” (Id. at ¶¶ 3, 4.) Both plaintiffs worked in Wisconsin
and Illinois as part of something called the “Line 66 Pipeline Project.”1 (Id. at ¶ 19.)
Although they “routinely worked between six (6) days to seven (7) days per week
and typically more than ten (10) hours per day, up to fifteen (15) hours,” plaintiffs allege
that Cleveland willfully ignored its obligation to compensate them properly for overtime.
(Id. at ¶¶ 28, 33.) Instead, plaintiffs allege, Cleveland used a “daily rate compensation
system that did not take into account all hours worked in a workweek or overtime
hours.” (Id. at ¶ 25.) Cleveland denies plaintiffs’ allegations.
Plaintiffs have moved for conditional certification of a collective FSLA action
under 29 U.S.C. § 216(b) (dkt. #6), but before determining whether conditional
certification is appropriate, the court must first address defendant’s motion to transfer
this case to the Northern District of Oklahoma as called for by a forum selection clause
in the arbitration agreement signed by plaintiffs at the outset of their employment. By
signing Cleveland’s “Agreement to Arbitrate Disputes,” plaintiffs Gundrum and King
agreed to “submit to binding arbitration any dispute, claim or controversy arising from
Invoking this court’s federal question jurisdiction under the FLSA, plaintiffs assert that venue is
proper here because “a substantial part of the events giving rise to” the FLSA claims took place in
this district. 28 U.S.C. § 1391(b)(2). In particular, plaintiffs allege that they and the other
putative class members performed work and were paid pursuant to defendant’s policies in this
district and that defendant “routinely conducts business in this judicial district.” (Compl. (dkt.
#1) ¶ 2.)
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[their] employment with Cleveland Integrity Services, Inc., including, but not limited
to, . . . all
employment
disputes,
including,
but
not
limited
to,
those
arising
under . . . [the] FLSA[.]” (Def.’s Exs. (dkt. ##21-1, 23).) The arbitration agreements
further state that “[a]ny Arbitration shall be conducted by one (1) arbitrator under the
rules of the American Arbitration Association and shall be held at the offices of Cleveland
Integrity Services, Inc. of Cleveland, Oklahoma.” (Id.)
OPINION
The U.S. Supreme Court recently clarified that “the appropriate way to enforce a
forum-selection clause pointing to a state or foreign forum is through the doctrine of
forum non conveniens,” which is codified in 28 U.S.C. § 1404(a) “for the subset of cases in
which the transferee forum is within the federal court system[.]” Atl. Marine Constr. Co.
v. U.S. Dist. Ct. for the W. Dist. of Tex., 571 U.S. ___, 134 S. Ct. 568, 580 (2013). The
Court also clarified that the § 1404(a) analysis must be adjusted when a valid forum
selection clause is the basis for a motion to transfer; specifically, (1) “the plaintiff’s choice
of forum merits no weight,” (2) the parties’ private interests are immaterial and (3) the
court should not weigh the transferee court’s familiarity with the law that would be
determined by the transferor court’s choice of law rules, since those rules will not be
transferred along with a § 1404(a) transfer. Id. at 581-82.
Consequently, “[w]hen the parties have agreed to a valid forum-selection clause, a
district court should ordinarily transfer the case to the forum specified in that clause.
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Only under extraordinary circumstances unrelated to the convenience of the parties
should a § 1404(a) motion be denied.” Id. at 581 (footnote omitted).
In support of its transfer motion, defendant also points to Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Lauer, 49 F.3d 323 (7th Cir. 1995), which held that when “the
location of arbitration is preordained,” motions to compel arbitration under § 4 of the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, must be brought in the district where
arbitration is to take place. Id. at 327 (citing Lawn v. Franklin, 328 F. Supp. 791, 793
(S.D.N.Y. 1971) (“The proper District within which the petition for [a § 4] order should
be filed is the District where the ‘proceedings’ by virtue of the contract of the parties are
to take place.”)); see also Daniels v. Painter, Case No. 15-CV-1334, 2016 WL 3034246, at
*5 (granting the defendants’ § 1404(a) motion to transfer the case to the Central District
of California pursuant to arbitration agreements providing for exclusive arbitration in Los
Angeles, despite the plaintiffs’ challenge to the scope of the arbitration clause). Here, the
Seventh Circuit’s Merrill Lynch decision, therefore, would appear to dictate a direct
transfer to the Northern District of Oklahoma.
Plaintiffs oppose defendant’s motion to transfer on the grounds that the Atlantic
Marine, Merrill Lynch and Daniels decisions are all factually distinguishable because the
validity of the forum selection clauses in those cases was not in dispute.2 Plaintiffs assert
Since the Supreme Court acknowledged that its “analysis presupposes a contractually valid
forum-selection clause,” 134 S. Ct. at 581 n.5, commenters have criticized Atlantic Marine for
leaving open significant questions, including “which court should determine the validity of a
forum-selection clause, subject to what law, and when.” See Linda S. Mullenix, Gaming the System:
Protecting Consumers from Unconscionable Contractual Forum-Selection and Arbitration Clauses, 66
Hastings L.J. 719, 721 (2014); Stephen E. Sachs, Five Questions after Atlantic Marine, 66 Hastings
L.J. 761 (2014). Neither the Supreme Court nor the Seventh Circuit has addressed those
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that here, in contrast, Cleveland’s arbitration agreement is “illegal and unenforceable on
its face,” in light of the Seventh Circuit’s decision in Lewis v. Epic Systems Corp., 823 F.3d
1147 (7th Cir. 2016). In Lewis, the Seventh Circuit affirmed the district court’s denial of
defendant Epic’s motion to compel arbitration, holding that “[b]ecause it precludes
employees from seeking any class, collective, or representative remedies to wage-and-hour
disputes, Epic’s arbitration provision violates Sections 7 and 8 of the NLRA [(“National
Labor Relations Act”)].” Id. at 1161.
Here, in contrast, Cleveland’s arbitration agreement contains no term precluding
class or collective remedies. Even so, plaintiffs contend that the holding in Lewis applies
here because Cleveland argued in a motion to compel individual arbitration in a similar
collective action in the District of Kansas, that the same arbitration language at issue
here “does not provide for class or collective actions, [so] none are permitted[.]”3 (Pls.’
Opp’n Br. (dkt. #31) at 4-5.)
questions, and so they remain open. Since the Atlantic Marine decision, however, a court
addressing a § 1404(a) motion to transfer based on a forum selection clause must at least still
analyze whether “extraordinary circumstances unrelated to the convenience of the parties” exist
before transferring a case even when the forum selection clause is valid. 134 S. Ct. at 581; see also
Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83 (1982) (it is “well established” that “a federal court
has a duty to determine whether a contract violates federal law before enforcing it”). Accordingly,
the court will address the merits of plaintiffs’ challenge to the forum selection provision in
Cleveland’s arbitration agreement below.
Plaintiffs add that when the plaintiff in the District of Kansas case “refiled his collective action
in arbitration” in response to Cleveland’s motion to compel individual arbitration, Cleveland
“filed a Complaint for Declaratory Judgment against Plaintiff Albee, requesting that the District
of Kansas declare that Albee was precluded from proceeding on a collective action basis in
arbitration.” (Pls.’ Opp’n Br. (dkt. #31) at 5.) According to plaintiffs, Albee’s collective action
and Cleveland’s declaratory judgment in the District of Kansas “were thereafter resolved on an
individual basis.” (Id.)
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Under this interpretation, plaintiffs argue, the arbitration agreement is unlawful,
because “[t]he [National Labor Relations] Board [(“NLRB”)] has held in a number of
cases that the maintenance of a mandatory arbitration agreement is unlawful, even if it is
silent regarding class or collective claims, if the employer has applied the agreement to
preclude employees from pursuing employment-related claims on a class or collective
basis in any forum.” Rim Hosp. & Nelson Chico, an Individual, Case 21-CA-137250, 2016
WL 3626603 (N.L.R.B. Div. of Judges June 15, 2016) (collecting cases); see also Haynes
Bldg. Servs., LLC & J. Tadeo Gomez-Flores, 363 N.L.R.B. No. 125, at *4 (2016) (“[W]e
find that by threatening to compel arbitration on an individual rather than a class or
collective basis, the Respondent has applied the Notice to Applicant and Arbitration
Agreement to restrict Section 7 rights, in violation of Section 8(a)(1)[.]”).
In other words, plaintiffs contend that Cleveland’s attempt to read an implied
collective action waiver into its arbitration agreement in the District of Kansas litigation
violates the NLRA. As such, that reading would also run afoul of the savings clause of
the FAA, which “provides that any written contract ‘evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such contract or
transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.’” Lewis, 823 F.3d at 1156
(alteration in original) (quoting 9 U.S.C. § 2).
Plaintiffs’ arguments against transfer are unavailing for at least two reasons. First,
plaintiffs offer no authority to suggest that the NLRB’s decisions declaring that
employers commit unfair labor practices by threatening to apply arbitration agreements
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to prohibit collective actions alter the actual, written terms of the parties’ arbitration
agreement, which in this case is silent with respect to class or collective remedies in
arbitration.
In Lewis, the Seventh Circuit explained that if “concerted activities” in
Section 7 of the NLRA could be “read as ambiguous as applied to collective lawsuits,”
then the NLRB’s interpretation of that language as encompassing both class and
collective remedies would be entitled to Chevron deference, but it did not look to the
NLRB to interpret the arbitration agreement itself, which is essentially what plaintiffs are
asking the court to do here. 823 F.3d at 1153. Also in contrast to Lewis, plaintiffs point
to no arguably ambiguous language in the NLRA that the court must first interpret
before determining whether Cleveland’s arbitration agreement is enforceable.
Absent
binding authority suggesting that an implied class action waiver should be read into
Cleveland’s arbitration agreement, the plain language will control, which does not
preclude collective remedies.
See Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67
(2010) (“The FAA thereby places arbitration agreements on an equal footing with other
contracts and requires courts to enforce them according to their terms.”) (internal
citations omitted).
Second, even if Cleveland’s arbitration agreement could be interpreted to contain a
collective action waiver, material differences between this case and Lewis would still weigh
strongly in favor of transfer. Critically, the arbitration agreement in Lewis “combine[d]
two distinct rules: first, any wage-and-hour dispute must be submitted to arbitration
rather than pursued in court; and second, no matter where the claim is brought, the
plaintiff may not take advantage of any collective procedures available in the tribunal.”
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823 F.3d at 1155. The agreement also “state[d] that if the collective-action waiver is
unenforceable, then any collective claim must proceed in court, not arbitration.” Id. at
1156. As a result, after invalidating the collective action waiver, the district court and
Seventh Circuit could still enforce the parties’ contracted-for outcome -- litigating the
collective action in federal court.
As defendant points out, the arbitration agreement here does not dictate what is
to happen if any of its terms are found to be unenforceable. As a result, questions about
what, if anything, remains for arbitration still need to be decided. Thus, Lewis does not
support the central premise underlying plaintiffs’ challenge to transfer.
Specifically,
plaintiffs rely on language in Lewis that “the very formation of the contract was illegal” in
support of their argument that Cleveland’s entire arbitration agreement would be
unenforceable if it contained an illegal class action waiver. (Pls.’ Opp’n Br. (dkt. #31) at
12.) In its proper context, however, that language does not suggest that other provisions
in arbitration agreements containing class action waivers are necessarily unenforceable.
Rather, it undercuts the reasoning, employed by the Fifth Circuit to reach a contrary
holding as to the enforceability of collective action waivers in arbitration agreements, that
Sections 7 and 8 of the NLRA conflict with the FAA by “burden[ing] arbitration.” See
Lewis, 823 F.3d at 1157-58 (citing D.R. Horton v. NLRB, 737 F.3d 344, 357 (5th Cir.
2013)). In other words, the Seventh Circuit was merely explaining that Sections 7 and 8
of the NLRA “say nothing about class arbitration or even arbitration generally,” but
rather impose substantive restrictions on employers that give rise to a defense to contract
formation, which can trigger the savings clause of the FAA to block motions to compel
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individual arbitration. Id. at 1158-59.
From the Supreme Court on down, other courts have similarly held that an illegal
collective action waiver does not inevitably render the remainder of its provisions
unenforceable. See Rent-A-Center, 561 U.S. at 70 (“As a matter of substantive federal
arbitration law, an arbitration provision is severable from the remainder of the contract.”)
(citation omitted); Morris v. Ernst & Young, LLP, 834 F.3d 975, 989-90 (9th Cir. 2016)
(reaching same holding as Lewis that collective action waivers in arbitration agreements
are invalid under § 7 of the NLRA but “tak[ing] no position on whether arbitration may
ultimately be required” and remanding to district court to determine whether the waiver
was severable from the contract); Herrington v. Waterstone Mortg. Corp., No.
11-cv-779-bbc, 2012 WL 1242318, at *6 (W.D. Wis. Mar. 16, 2012) (“Because the bar
on collective actions is the only aspect of the arbitration agreement that violates the
NLRA, this raises the question whether that provision is severable from the rest of the
arbitration agreement, so that the matter can be resolved in arbitration, but in the
context of a collective action.”).
While plaintiffs are correct that the parties in Lauer and Daniels did not dispute
the validity of the forum selection clauses at issue in those cases, the lingering questions
about the scope and unenforceability of Cleveland’s arbitration agreement bring this case
in line with Lauer. 49 F.3d at 327 (§ 4 of the FAA “clearly requires a geographic link
between the site of arbitration and the district which, by compelling arbitration or
directing its scope, exercises preliminary control”).
control.
Similarly, this court lacks that
See Daniels, 2016 WL 3034246, at *5 (granting the defendants’ motion to
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transfer over the plaintiffs’ challenge to the scope of the arbitration clause “because the
California court can determine whether and to what extent the parties’ disputes are
subject to arbitration and, if appropriate, enter a corresponding order compelling
arbitration”).
Plaintiffs’ last two, undeveloped arguments challenging the forum selection
provision are also unavailing. Plaintiffs’ argument that transferring the case pursuant to
the forum selection clause would “contravene the precedent established by the Seventh
Circuit in Lewis, which furthers the important public policy of rejecting employers’
attempts to restrict employees’ substantive right to engage in concerted activity under the
NLRA” (Pls.’ Opp’n Br. (dkt. #31) at 14), falls short for the reasons already discussed,
even assuming Lewis can be interpreted as declaring a “strong public policy of the
forum.”4 See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972) (“A contractual
choice-of-forum clause should be held unenforceable if enforcement would contravene a
strong public policy of the forum in which suit is brought, whether declared by statute or
judicial decision.”); see also Atl. Marine, 134 S. Ct. at 581-82 (placing “the burden of
In a footnote, which the court interprets as support for their public policy argument, plaintiffs
point out that although the “Tenth Circuit has not invalidated employment-based arbitration
agreements that require individual arbitration, . . . a recent decision from the Western District of
Oklahoma infers that at least one court in the Tenth Circuit may not agree with the Seventh
Circuit and the NLRB in holding illegal arbitration agreements that contain class and collective
waivers.” (Pls.’ Opp’n Br. (dkt. #31) at 14 n.8 (citing Tiffany v. KO Huts, Inc., 178 F. Supp. 3d
1140 (W.D. Okla. 2016).) At most, plaintiffs argue that “the practical effect of transferring this
action would be to potentially risk another court holding enforceable an Arbitration Agreement that
under Seventh Circuit precedent is squarely illegal and unenforceable.” (Id. (emphasis added).)
Even leaving aside that plaintiffs have failed to show that Cleveland’s arbitration agreement is
“squarely illegal and unenforceable” under Lewis for the reasons already explained, plaintiffs cite
no authority that such a “potential risk” would justify invalidating the forum selection provision
on public policy grounds. Cf. Jackson v. Payday Fin., LLC, 764 F.3d 765, (7th Cir. 2014)
(concluding that a forum selection clause pointing to an arbitral tribal forum was unenforceable
when the “record clearly establishe[d]” that the forum was “illusory”).
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establishing that transfer to the forum for which the parties bargained is unwarranted” on
the party “defying the forum-selection clause”).
Finally, plaintiffs assert in a footnote that the forum selection clause in
Cleveland’s arbitration agreement is ambiguous and inadequate because it states that
arbitration “shall be held at the offices of Cleveland Integrity Services, Inc. of Cleveland,
Oklahoma,” rather than “affirm ‘in’ which locale in arbitration is to occur,” unlike the
“traditional” forum selection clause in Daniels. (Pls.’ Opp’n Br. (dkt. #31) at 17 n.11
(emphasis in original).) On its face, this undeveloped assertion is really no challenge at
all. See Gross v. Town of Cicero, Ill., 619 F.3d 697, 704-05 (7th Cir. 2010) (finding waiver
of party’s argument that “came in a three-sentence footnote that lacked any citation to
legal authority”); see also Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753,
756-57 (7th Cir. 1992) (stating that courts will enforce forum selection clauses specifying
venue with “mandatory” terms, such as “shall”). Regardless, the court finds no logic,
much less legal authority to support plaintiffs’ argument that the distinction between
“at” and “in” is material.
Having failed to demonstrate that the parties’ forum selection clause is invalid,
plaintiffs “bear the burden of showing that public-interest factors overwhelmingly
disfavor a transfer.” Atl. Marine, 134 S. Ct. 583. Plaintiffs have not met that burden
here. Public interest factors ordinarily include “the administrative difficulties flowing
from court congestion; the local interest in having localized controversies decided at
home; and the interest in having the trial of a diversity case in a forum that is at home
with the law.” Id. at 581 n.6 (brackets omitted) (quoting Piper Aircraft Co. v. Reyno, 454
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U.S. 235, 241 n.6 (1981)). Plaintiffs cite Kelly v. Bluegreen Corp., No. 08-cv-401-bbc,
2008 WL 4962672 (W.D. Wis. Nov. 19, 2008), to argue that the “interests of justice”
weigh against transfer because the clock on the putative class members’ claims is running,
but in light of the Supreme Court’s vigorous endorsement of forum selection provisions
in Atlantic Marine, that factor alone is not enough to deny transfer here. Id. at 581 (“[A]
valid forum-selection clause [should be] given controlling weight in all but the most
exceptional cases.”) (second alteration in original) (internal quotation marks and citation
omitted).
Plaintiffs do not identify any other public interest factor that even arguably weighs
strongly, if at all, in favor of trying plaintiffs’ case in this district.
Having failed to
establish that the forum selection clauses in their arbitration agreements with defendant
are invalid, or to demonstrate that there are any “exceptional factors” weighing against
transfer, defendant’s motion to transfer to the Northern District of Oklahoma will be
granted.
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ORDER
IT IS ORDERED that:
1) Defendant’s motion to transfer (dkt. #18) is GRANTED.
2) This case is TRANSFERRED to the United States District Court for the
Northern District of Oklahoma.
Entered this 31st day of January, 2017.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge
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