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Defendant fails to show arbitration agreements are enforceable

Employers often force their workers to sign arbitration agreements, believing that such provisions limit the company’s exposure if the workers later sue. However, courts have found many reasons why an arbitration agreement may not be enforceable.  A recent case in the District of New Mexico answers this question. In LeBlanc v. Halliburton Comp., No. 17-718 KG/GJF (D. NM 2019), a plaintiff filed a class and collective action complaint against his former employer, Halliburton Company, alleging that he and others similarly situated were denied overtime pay in violation of the Fair Labor Standards Act (“FLSA”) and the New Mexico Minimum Wage Act (“NMMWA”). The court granted the plaintiff’s motion to certify a collective action and conditionally certified a class. As a result, thirty-six additional individuals filed consents to join the lawsuit, which brought the total number of plaintiffs, in addition to the named plaintiffs, to thirty-eight. Id. Subsequently, the defendant filed two motions to compel arbitration, the first against fourteen plaintiffs who all signed contracts with the defendant agreeing to arbitrate their claims and waiving their right to participate in a collective action, and the second against sixteen plaintiffs who all signed binding arbitration agreements with a third party service provider, Upstream Directional Consultants, agreeing to arbitrate their claims with the defendant and agreeing to waive their rights to participate in a collective action. Id. 

In order to determine whether the arbitration agreements were valid, the court analyzed the agreements under the following lense: Under the Federal Arbitration Act (“FAA”), written agreements to submit to arbitration are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The Tenth Circuit has recognized that waiver by conduct in litigation is grounds to deny enforcement of an arbitration agreement. See Reid Burton Constr., Inc. v. Carpenters Dist. Council of S. Colo., 535 F.2d 598, 604 (10th Cir. 1976). 

Here, the defendant said that thirty of the thirty-eight plaintiffs signed agreements to arbitrate their claims, and, as a result, asked the court to dismiss the plaintiff’s claims with prejudice because they agreed to arbitrate their claims and waived their right to participate in a collective or class action. LeBlanc v. Halliburton Comp., No. 17-718 KG/GJF (D. NM 2019). In response, the plaintiff argued that the defendant waived its right to arbitrate by undertaking actions inconsistent with that right, stating further that fourteen of the agreements were unenforceable because the defendant solicited the agreements after the lawsuit was underway. Id. In reply, the defendant said that it sought to enforce arbitration as soon as the agreements were signed and said they are enforceable because they were executed as part of the defendant’s ordinary course of business before the plaintiffs were notified of the collective action. Id.

The main issue was whether the arbitration agreements were enforceable and whether the defendant waived its right to enforce them, and whether that was a question for the arbitrator to decide, or the court. Id. The Tenth Circuit has not issued a controlling decision on whether arbitrability is an issue for the arbitrator or the court to decide. However, in Pre-Paid Legal Servs. v. Cahill, the Tenth Circuit indicated courts should decide the question of whether a party waived its right to arbitrate. 786 F.3d 1287 (10th Cir. 2015). The Tenth Circuit found the issue was for the court, reasoning that this question required interpretation of a federal statute (Section 3 of the FAA), and not of the “arbitrator’s own rules.” Id. In accordance with this ruling, other courts in this district have held that the question of waiver is for courts to decide. See, e.g., Goldgroup Res., Inc. v. DynaResource De Mexico, S.A. De C.V., 381 F. Supp. 3d 1332, 1347-49 (D. Colo. 2019). Based on this, the court agreed that the question of whether the defendant’s conduct constituted waiver of its right to arbitrate was properly for the court to decide.

Next, the court analyzed six factors to determine whether a party waived its right to enforce arbitration, which are: 

  1. whether the party’s actions are inconsistent with the right to arbitrate; 
  2. whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate;
  3. whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; 
  4. whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; 
  5. whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and 
  6. whether the delay affected, misled, or prejudiced the opposing party. Peterson v. Shearson/American Express, Inc., 849 F.2d 464, 467-68 (10th Cir. 1988).

The defendant said its actions were not inconsistent with its right to arbitrate because it promptly sought arbitration as soon as it received and reviewed the plaintiffs’ opt-in notices and arbitration agreements. The plaintiffs said that because they provided services through Upstream Directional Consultants, some plaintiffs signed similar agreements as employees of the same third-party provider. LeBlanc v. Halliburton Comp., No. 17-718 KG/GJF (D. NM 2019). For example, in Healy, the Tenth Circuit found the defendant waived its right to seek arbitration when it failed to assert that right until after the class had been ascertained. 790 F.3d at 1119-20. Even though the district court may not have been able to compel arbitration of absent class members, an earlier assertion of the right would have “ensured a more expedient and efficient resolution” and prevented “improper gamesmanship.” Id. Moreover, this court said that the defendant did not need to wait for all parties to enter the case to assert its right to arbitrate reasoning that the defendant’s motion to compel claims individually undermined the explanation as to why it waited to demand arbitration until after the opt-in period had closed. LeBlanc v. Halliburton Comp., No. 17-718 KG/GJF (D. NM 2019). The defendant should have sought to compel arbitration of individual plaintiffs as they opted in. Even though the court may not have been able to compel arbitration of absent class members, an earlier assertion of the right “would have ensured a more expedient and efficient resolution” of the issue. Id. Thus, the court construed the defendant’s delay in seeking to enforce the arbitration agreements until after the opt-in period was inconsistent with its right to arbitrate. Id.

Moreover, the plaintiff stated that the defendant did not file its motions to compel arbitration until two years after the complaint was filed, during which time the defendant filed its answer, initial disclosures, initial discovery requests, including discovery documents, conducted depositions, and opposed the plaintiff’s motion for conditional certification. Id. The Tenth Circuit found that a party waived its right to arbitrate when it did not seek arbitration until two years after the action was filed and the parties had engaged in pretrial discovery including exchanging thousands of documents, hiring experts, and deposing witnesses. Healy, 790 F.3d at 1115. The Tenth Circuit agreed with the district court’s finding that the defendant’s actions “suggested an attempt to manipulate the [judicial] process, or at least to attempt multiple bites at the apple.” Id. at 1116. Similarly, in Goodly, the district court found the defendant substantially invoked the judicial process and delayed for too long when it waited until fourteen months after it answered the complaint to seek arbitration. 2017 WL 3269080, at *2. Therefore, consistent with Healy and Goodly, this court found the Peterson factors 1, 2, 3, and 6 established that the defendant waived its right to arbitrate. LeBlanc v. Halliburton Comp., No. 17-718 KG/GJF (D. NM 2019). 

Arbitration agreements can be quite common, especially in the oil and gas industry. If you are an oilfield worker who has or has not signed an arbitration agreement and have questions regarding your unpaid overtime, consider speaking with an attorney today. Josh Borsellino is a Texas FLSA attorney that understands how arbitrations work in the FLSA context. Call him today at 817.908.9861 or 432.242.7118.