Werner, Doug v. Waterstone Mortgage Corporation
Filing
110
OPINION and ORDER denying 104 Motion to Compel Arbitration; denying 109 Motion for Leave to File Sur-Reply. Signed by District Judge James D. Peterson on 12/13/2018. (kwf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
DOUG WERNER and WILLIAM
WIESNESKI, both individually and on behalf
of all other similarly situated persons,
Plaintiffs,
OPINION and ORDER
v.
17-cv-608-jdp
WATERSTONE MORTGAGE
CORPORATION,
Defendant.
Plaintiffs Doug Werner and William Wiesneski are suing their former employer,
Waterstone Mortgage Corporation, for violating the Fair Labor Standards Act. More than a
year after filing this lawsuit, plaintiffs move to dismiss the case and compel arbitration under
the Federal Arbitration Act, 9 U.S.C. §§ 3–4. Dkt. 104. Plaintiffs say that they could not move
to compel arbitration earlier because their arbitration agreements include class waivers, which
Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), found to be unlawful. Now that the
Supreme Court has overturned Lewis, plaintiffs believe that their motion to compel is timely.
Also before the court is Waterstone’s motion for leave to file a surreply brief. Dkt. 109.
The court will deny both motions. The court did not invite Waterstone’s surreply brief
and concludes that it is not necessary. The court also concludes that Lewis did not prevent
plaintiffs from seeking arbitration when they filed this case in 2017, so they waived their right
to arbitrate by waiting so long to exercise it.
Lewis is not the controlling case, Herrington v. Waterstone Mortgage Corp., No. 11-cv-779bbc (W.D. Wis.) is. Judge Crabb made it clear in Herrington that an arbitration agreement may
be enforceable even if the agreement includes an unenforceable class waiver, a conclusion that
is not inconsistent with Lewis. Because Judge Crabb compelled arbitration in Herrington, and
Herrington involved the same counsel (on plaintiffs’ side), the same claims, the same defendant,
and the same type of arbitration agreement as this case, it is puzzling why plaintiffs believe
that arbitration was not available to them at the time they filed this lawsuit. Regardless,
plaintiffs have no excuse for waiting more than a year to invoke their right to arbitrate, so the
court will deny their motion to compel.
BACKGROUND
Werner and Wiesneski were mortgage loan originators for Waterstone, which is a
mortgage lender based in Wisconsin. Plaintiffs contend that Waterstone violated their rights
under the FLSA in two ways: (1) failing to pay them overtime when they worked more than
40 hours in a week; and (2) requiring them to pay their own business expenses, which reduced
their pay below minimum wage.
Plaintiffs filed this lawsuit on behalf of similarly situated employees. They moved for
conditional certification of a collective under 29 U.S.C. § 216(b), but the court denied that
request. Dkt. 78. The court relied in part on Herrington v. Waterstone Mortgage Corp., a class
arbitration that included loan originators suing Waterstone for the same alleged FLSA
violations at issue in this case.1 Among other reasons, the court noted that plaintiffs’ proposed
1
The arbitrator in Herrington found in favor of the class and Judge Crabb confirmed the
arbitrator’s award, which was more than $10,000,000. Herrington v. Waterstone Mortgage Corp.,
11-cv-779-bbc (W.D. Wis. Dec. 4, 2017), Dkt. 133. The court of appeals recently vacated the
judgment in Herrington in light of Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), because
Judge Crabb had invalidated a class waiver before sending the case to arbitration and the
Supreme Court concluded in Epic that a class waiver was permissible in a similar context.
Herrington v. Waterstone Mortg. Corp., 907 F.3d 502 (7th Cir. 2018). In accordance with the
decision of the court of appeals, the parties in Herrington are now briefing the question whether
the arbitration agreement may be construed to allow class or collective arbitration. Herrington,
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collective overlapped substantially with the class arbitration in Herrington, so any employee
with a claim that accrued during the period covered by Herrington already had an opportunity
to bring a claim but declined to do so. Plaintiffs failed to identify any reason to believe that
employees who received notice in Herrington and declined to opt in would be any more likely
to join this case.2
Waterstone then filed two motions of its own: (1) a motion for partial summary
judgment, Dkt. 83; and (2) a motion “for order declaring plaintiffs have waived right to
arbitrate and enjoining plaintiffs from pursuing arbitration,” Dkt. 88. As to the first motion,
Waterstone asked the court to dismiss the claims of employees who had filed notices of consent
to join the lawsuit in accordance with 29 U.S.C. § 256. Because the court denied plaintiffs’
motion for conditional certification, those employees never became parties to the case, so the
court denied the motion for partial summary judgment as moot. As to the request for a
declaration, the court denied it as premature on the ground that Waterstone did not allege that
plaintiffs had submitted an arbitration demand or threatened to do so. Plaintiffs filed their
motion to compel arbitration shortly after the court denied Waterstone’s motions.
ANALYSIS
There is no dispute that both Werner and Wiesneski have an arbitration agreement
with Waterstone that covers the disputes in this case and that the arbitration agreements are
valid under current law. The question is whether plaintiffs waived their right to arbitrate by
No. 11-cv-779-bbc, Dkt. 159.
2
The court also concluded that plaintiffs had failed to make a modest factual showing that
they were similarly situated to other employees who had timely claims.
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failing to invoke the right sooner. A party may waive his right to arbitrate expressly or by simply
“act[ing] inconsistently” with the right. Kawasaki Heavy Industries, Ltd. v. Bombardier Recreational
Products, Inc., 660 F.3d 988, 994 (7th Cir. 2011). The latter type of waiver is at issue in the
case. Both parties assume that the court rather than the arbitrator decides the issue of waiver,
so the court will make the same assumption.3
There are no rigid rules for determining when a party waives his right to arbitrate
through inconsistent conduct. Rather, courts consider several factors, including the party’s
diligence in invoking his right, which “should weigh heavily in the decision.” Id. Also relevant
are the extent to which the party has participated in the litigation and whether the non-moving
party will be prejudiced by a change in forum. Id. But a showing of prejudice is not required.
“[W]hen a party chooses to proceed in a judicial forum, there is a rebuttable presumption that
the party has waived its right to arbitrate.” Id. at 995.
In this case, plaintiffs filed their complaint in this court. It is undisputed that they did
not submit an arbitration demand before filing their lawsuit and did not otherwise discuss with
Waterstone at the time the possibility of arbitrating the claims. Since the filing of the complaint
in August 2017, plaintiffs have filed an amended complaint, filed notices of consent to sue by
several additional employees, moved (unsuccessfully) to conditionally certify the class, moved
(again, unsuccessfully) to toll the statute of limitations, submitted a pretrial report, and
3
In an earlier brief, plaintiffs contended that the parties had delegated the issue of waiver to
the arbitrator. Dkt. 100, at 11–14. Plaintiffs’ motion to compel does not include the same
assertion, which would be inconsistent with a request that the court compel arbitration.
Regardless, plaintiffs do not respond to Waterstone’s argument that the court rather than the
arbitrator decides the issue of waiver, Dkt. 105, at 9–10, so that issue is forfeited.
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responded to various motions filed by Waterstone. Plaintiffs have also engaged in extended
settlement negotiations and submitted discovery requests.
Plaintiffs do not deny that their conduct in this case is inconsistent with their right to
arbitrate and would ordinarily qualify as waiver. And they do not make any attempt to
distinguish the cases that Waterstone cites in support of its waiver argument. Grumhaus v.
Comerica Sec., Inc., 223 F.3d 648, 651 (7th Cir. 2000) (the plaintiffs’ “knowing selection of one
forum over another and willing participation in the ensuing litigation was plainly inconsistent
with a desire to arbitrate”); Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388,
391 (7th Cir. 1995) (“Parties know how important it is to settle on a forum at the earliest
possible opportunity, and the failure of either of them to move promptly for arbitration is
powerful evidence that they made their election—against arbitration. Except in extraordinary
circumstances not here presented, they should be bound by their election.”); St. Mary's Med.
Ctr. of Evansville, Inc. v. Disco Aluminum Prod. Co., 969 F.2d 585 (7th Cir. 1992) (defendant
waived right to arbitrate by participating in litigation during ten-month period and party did
not move to compel summary judgment until after the court denied motion to dismiss and
motion for summary judgment). St. Mary’s seems particularly on point. Like the moving party
in that case, plaintiffs chose to litigate their claims in this court until they began receiving
adverse rulings and then decided that they wanted to take their chances in a different forum.
Plaintiffs’ only argument against a finding of waiver is that they were legally prohibited
from arbitrating their claims when they filed this lawsuit in 2017. They say that, under Lewis
v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), their arbitration agreements were “invalid
and unenforceable” because they include class waivers. So plaintiffs could not enforce their
arbitration agreement until the Supreme Court reversed Lewis and held that class and collective
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action waivers were permitted under federal law. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612
(2018). But plaintiffs waited several more months to file a motion to compel after the Supreme
Court decided Epic, which would be reason enough to conclude that they waived their right to
arbitration. Plaintiffs say that they were entitled to wait because the parties were in the midst
of settlement negotiations at the time, and then Waterstone filed a motion for partial summary
judgment and a motion for a declaration that plaintiffs had waived their right to arbitrate.
Plaintiffs filed their motion to compel 17 days after the court denied Waterstone’s motions.
Even if the court assumes that plaintiffs acted diligently after the Supreme Court
decided Epic, the court is not persuaded that plaintiffs could not have arbitrated their claims
before the ruling in Epic. To begin with, even assuming that Epic rendered the arbitration
agreements unenforceable, that would mean only that plaintiffs could not compel Waterstone
to arbitrate. Plaintiffs identify no reason that the parties could not agree to arbitrate their
claims. And there would have been strong reasons to believe that Waterstone would have been
amenable to such an agreement. After all, it was Waterstone that moved to compel arbitration
in an earlier case involving similar claims brought by the same counsel. Herrington v. Waterstone
Mortgage Corp., No. 11-cv-779 (W.D. Wis.), Dkt. 13. And if Lewis called into question whether
Waterstone would resist arbitration in this case, that question was resolved by Waterstone’s
answer to the complaint in this case, in which Waterstone asserted that plaintiffs’ claims were
subject to arbitration. Dkt. 73, at 21. If plaintiffs really wanted to submit their claims to
arbitration all along, then it is not clear why they did not ask Waterstone to submit to
arbitration then. If the answer is that plaintiffs preferred to litigate their claims in federal court
so long as there was a chance to proceed collectively (Waterstone filed its answer before this
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court denied plaintiffs’ motion for conditional certification of a collective), then that is simply
an acknowledgment that their decision was a strategic choice and was not governed by Lewis.
But there is a more fundamental problem with plaintiffs’ argument, which is that Lewis
did not render the parties’ entire arbitration agreement unenforceable. Rather, the question in
Lewis was limited to whether the class action waiver in the arbitration agreement was enforceable.
A review of the district court proceedings confirms this. The arbitration agreement at issue in
Lewis included another important provision that was related to the class action waiver: “[I]f the
Waiver of Class and Collective Claims is found to be unenforceable, then any claim brought
on a class, collective or representative action basis must be filed in a court of competent
jurisdiction, and such court shall be the exclusive forum for such claims.” Lewis v. Epic Sys.
Corp., No. 15-cv-82-bbc, Dkt. 22-1 at 3. As explained by Judge Crabb in her decision denying
the motion to compel arbitration in Lewis, that clause had the effect of collapsing the class
waiver issue and the arbitrability issue into a single inquiry. Id., Dkt. 54, at 2 (“[I]f I conclude
that the waiver is invalid, plaintiff’s challenge to the rest of the arbitration agreement is
moot.”). Thus, when the court of appeals affirmed Judge Crabb’s decision, it was deciding only
that class action waivers were unenforceable; it was not holding that all aspects of an arbitration
agreement are invalid if the agreement includes a class waiver. That broader question was not
before the court.
Plaintiffs should appreciate the importance of this distinction because the arbitration
agreements at issue in Herrington did not include language requiring class or collective actions
to proceed in court rather than in arbitration in the event that the class waivers were
invalidated. And the absence of that language led to a different result in Herrington. Specifically,
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Judge Crabb granted Waterstone’s motion to compel arbitration because she concluded that the
class waiver was severable from the remainder of the arbitration agreement:
[C]ourts may sever invalid clauses in an otherwise valid
arbitration agreement under some circumstances. E.g., Kristian
v.Comcast Corp., 446 F.3d 25, 62 (1st Cir. 2006) (severing class
action waiver from arbitration agreement). Generally, courts focus
on two factors in making this determination: whether the
unlawful provision is essential to the agreement as a whole and
whether multiple unlawful provisions support the conclusion that
the drafter of the agreement was attempting to undermine the
other party’s rights.
Neither party argues that the collective action waiver is integral
to the arbitration agreement or that a collective action could not
be pursued in an arbitration proceeding. In fact, plaintiff says that
“collective action procedures are not inherently incompatible with
arbitration and at least some AAA arbitrators have approved
collective actions and those decisions have been affirmed by the
Courts.” This is consistent with the practice of the American
Arbitration Association, which has published rules for class
arbitration.
Herrington, No. 11-cv-779-bbc, Dkt. 57, at 2 (some citations omitted).
In light of Herrington, the court sees no reason why plaintiffs could not have moved to
compel arbitration at the outset of this case. Like the agreements at issue in Herrington,
plaintiffs’ agreements include a severability clause. Dkt. 45-1, at 9 and Dkt. 45-3, at 10.4 Unlike
the agreements in Lewis, plaintiffs’ agreements do not require the plaintiffs’ claims to proceed
in court if the class action waivers are invalidated.
Plaintiffs do not identify any basis for distinguishing Herrington. And plaintiffs cannot
argue plausibly that they were unaware of the facts or rulings in that case. Herrington involves
the same counsel raising the same claims against the same defendant. Because Herrington shows
4
The agreements are not identical in all respects. It appears that Waterstone had multiple
versions of the agreement, but those differences are not at issue in this case.
8
that plaintiffs could have arbitrated their claims despite Lewis, the court concludes that
plaintiffs waived their right to arbitrate by filing this case in federal court and litigating it for
more than a year. The court will deny plaintiffs’ motion to compel arbitration.
Near the end of its brief in opposition, Waterstone asks the court to impose sanctions
on plaintiffs for filing a “frivolous” motion. Dkt. 105, at 15. But Waterstone did not file a
separate motion for sanctions or otherwise develop an argument in favor of awarding sanctions,
so the court declines to consider the request. If filing a motion of questionable merit required
the court to impose sanctions, Waterstone would be in no better position than plaintiffs. E.g.,
Dkt. 42, at 2–3 (“The court will deny Waterstone’s motion, which was a waste of both the
parties’ and court’s time and resources. . . . The court expects Waterstone to use better
judgment when deciding whether to file future motions.”).
ORDER
IT IS ORDERED that
1. The motion to compel arbitration filed by plaintiffs Doug Werner and William
Wiesneski, Dkt. 104, is DENIED.
2. Defendant Waterstone Mortgage Corporation’s motion for leave to file a surreply
brief, Dkt. 109, is DENIED.
Entered December 13, 2018.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge
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