Alvarez v. Emergency Site Protection, LLC et al

Western District of Texas, txwd-5:2018-cv-01298

PLAINTIFF'S RESPONSE to Motion, filed by Josue Alvarez, re {{30}} MOTION to Dismiss and Compel Arbitration filed by Defendant GRYPHON HOLDCO, LLC

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UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION JOSUE ALVAREZ, § individually and on behalf of all § others similarly situated, § No. 5:18-CV-01298-FB-ESC § Plaintiff § § JURY TRIAL DEMANDED v. § § GRYPHON HOLDCO, LLC; and § COLLECTIVE ACTION SANCHEZ OIL & GAS CORPORATION § PURSUANT TO 29 U.S.C. § 216(B) § Defendants § PLAINTIFF'S RESPONSE TO DEFENDANT GRYPHON HOLDCO, LLC'S MOTION TO DISMISS AND COMPEL ARBITRATION TO THE HONORABLE FRED BIERY, DISTRICT JUDGE: Plaintiff¾Josue Alvarez, individually and on behalf of all opt-in Plaintiffs and all others similarly situated¾files his Response to Defendant Gryphon Holdco, LLC's Motion to Dismiss and Compel Arbitration (ECF No. 30; "MTC Arbitration"). Movant will be referred as "Gryphon." I. Summary of the Response Plaintiff agrees that he and the opt-in Plaintiffs must arbitrate their claims against Gryphon (only Gryphon) and must do so on an individual basis. However, several provisions in the two forms of contracts in issue are unconscionable, prevent Plaintiff and the opt-in Plaintiffs from vindicating their FLSA rights in arbitration, and should be stricken and severed before compelling arbitration. Further, Defendant Sanchez Oil & Gas ("Sanchez Oil") is a nonsignatory that has not moved to compel arbitration and cannot be compelled to arbitrate absent its consent. Gryphon's MTC Arbitration simply assumes that Sanchez Oil is willing to arbitrate. Thus, it would be improper to compel arbitration of Plaintiff and the opt-in Plaintiffs' claims against nonsignatory Sanchez Oil, and, thus, dismissing this case¾including the claims against Sanchez Oil¾would be equally improper. II. The applicable legal standards mandate that the Court strike any unconscionable provisions from the contracts that prevent Plaintiff and the opt-in Plaintiffs from vindicating their FLSA rights in arbitration. "An arbitration agreement covering statutory claims is valid so long as the arbitration agreement does not waive the substantive rights and remedies the statute affords and the arbitration procedures are fair, such that the employee may effectively vindicate his statutory rights." Dreibrodt v. McClinton Energy Group, LLC, No. MO:16-CV-00340-RAJ, 2017 WL 7805761, at *3 (W.D. Tex. Jan. 3, 2017) (quoting In re Poly-Am., L.P., 262 S.W.3d 337 (Tex. 2008)). A court may invalidate a contract provision that, while not explicitly a part of the parties' agreement to arbitrate, becomes unconscionable when applied to the arbitration agreement. See, e.g., Coronado v. D.N. W. Houston, Inc., No. H-13-2179, 2015 WL 5781375, at *9 (S.D. Tex. Sept. 30, 2015) ("Although a fee-shifting contract provision is not part of an arbitration clause, the court may consider that provision in deciding if the clause is unconscionable."; citing Rent–A–Center, West Inc. v. Jackson, 561 U.S. 63, 73–74 (2010)). The public policies underpinning the FLSA are triggered when FLSA claims are filed—not just when the plaintiff prevails. Cummings v. Cenergy Int'l Servs., LLC, 271 F. Supp. 3d 1182, 1193–94 (E.D. Cal. 2017) (citing Fernandez v. Kinray, Inc., No. 1:13–cv–04938–LDH–SMG, 2014 WL 12778829 (E.D.N.Y. Feb. 5, 2014), and Abdul–Rasheed v. KableLink Commc'ns, LLC, No. 8:13-cv-00879-MAP, 2013 WL 6182321 (M.D. Fla. Nov. 25, 2013)). Thus, contracts which penalize an unsuccessful FLSA plaintiff by allowing the prevailing employer to recover its attorney's fees are unenforceable. Id. (invalidating indemnity provisions in independent contractor agreements that allowed employers to recover fees from unsuccessful FLSA plaintiffs). This is especially true in the context of misclassification claims, such as those before the Court here¾ The court noted that in enacting the FLSA, Congress intended to protect plaintiffs' ability to bring claims and encourage private enforcement of the statute—"a policy that applies before the parties know whether or not the claim will be successful." Id. As indicia of this public policy, the court observed that the FLSA provides for prevailing plaintiffs to recover attorney's fees, but does not permit fee shifting for Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 2 of 9 Motion to Dismiss and Compel Arbitration prevailing defendants. Id. This was designed to curb a deterrent to private enforcement by eliminating the financial risk of filing a claim. Id. Allowing a prevailing defendant to shift attorney's fees pursuant to a contractual indemnity provision would have a chilling effect on private enforcement. Id. The court concluded the defendant's indemnity claim was therefore contrary to the FLSA's public policy, whether or not the plaintiffs ultimately were determined to be employees under the statute. Cummings, at 1193 (discussing Fernandez). Further, when the contract containing an arbitration agreement also has a severability clause, courts usually strike and sever any unconscionable provisions before compelling arbitration. E.g., Dreibrodt, No. MO:16-CV-00340-RAJ, 2017 WL 7805761, at *4. III. The Unconscionable Provisions in the Two Contracts Named Plaintiff Alvarez (ECF No. 30-2, at 2) and three opt-in Plaintiffs (Garcia [id. at 22]; D. Silva [id. at 40; and Fr. Perez [id. at 58]) signed substantially similar contacts entitled "Independent Contractor Agreement¾Security" with Emergency Sphinx Protection, LLC d/b/a Emergency Site Protection ("the Sphinx Contracts"). Gryphon is the parent company of Emergency Sphinx Protection (ECF No. 30-1, ¶ 3) and claims to be the successor-in-interest to Emergency Site Protection (ECF No. 30, at 2). Opt-in Plaintiffs Lopez (ECF No. 30-2, at 76], Fe. Perez [id. at 83], and S. Silva [id. at 90]) signed substantially similar contracts entitled "Contractor Agreement" with Emergency Site Protection ("the Site Contracts"). The Sphinx Contracts, signed in 2018, are longer and more detailed than the Site Contracts, signed in 2017. But the Contracts share similar structures and contain arbitration and other provisions designed to defeat or diminish the FLSA rights of Plaintiff and the opt-in Plaintiffs. A. The Unconscionable Provisions of the Sphinx Contracts The Sphinx Contracts signed by Plaintiff Alvarez, Garcia, D. Silva, and Fr. Perez contain Arbitration (§ 14, ECF No. 30-2, at 14) and Severability provisions (§ 19, ECF No. 30-2, at 16). Thus, Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 3 of 9 Motion to Dismiss and Compel Arbitration the Court should strike and sever the following unconscionable provisions that prevent them from effectively vindicating their FLSA rights in arbitration1: 1. Indemnification (§ 9 [ECF No. 30-2, at 11]) (a) Contractor shall defend, indemnify, and hold harmless the Company. . . from and against any and all claims. . . (ii) resulting from any claim that Contractor is not an independent contractor; . . . or (iv) resulting from a breach by Contractor of any representation, warranty, covenants, or obligation under this Agreement. This indemnity provision would force these claimants to indemnify Gryphon against their own FLSA claims, which apply only to employers of employees (e.g., 29 U.S.C. § 207(a)), regardless whether these claimants successfully prove that they were misclassified as independent contractors and Gryphon violated the FLSA. This provision, in short, constitutes a complete waiver of these claimants' rights under the FLSA and is unconscionable. See Dreibrodt v. McClinton Energy Group, LLC, 2017 WL 7805761, at *3 (substantive unconscionability arises if claimant cannot effectively vindicate right under FLSA); see also, e.g., Hiser v. NZone Guidance, LLC, No. 1:18-CV-1056-RP, 2019 WL 2098110, at *6 (W.D. Tex. Apr. 23, 2019) (general rule establishes that FLSA claims cannot be waived) (citing Bodle v. TXL Mortg. Corp., 788 F.3d 159, 164 (5th Cir. 2015). Further, the possibility that these FLSA claimants would have to "defend, indemnify, and hold harmless" Gryphon for simply failing to prove these claims would also be unconscionable because the FLSA prohibits oppressing an FLSA claimant with the risk of financial loss merely for filing a claim. Cummings, 271 F. Supp. 3d at 1193. In fact, no part of the Indemnity provision can properly inflict any risk of financial loss on claimants from bringing and litigating, in arbitration or otherwise, any FLSA case. As it pertains to this FLSA case, the Indemnity provision is unconscionable and should be stricken. 1The section numbers are the same for the relevant provisions in the Sphinx Contracts, and this Response will cite only to the page number of the first such contract filed as part of ECF No. 30-2, starting at page 2. Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 4 of 9 Motion to Dismiss and Compel Arbitration 2. Waiver of Claims Against Company Clients (§ 14(g) [ECF No. 30- 2, at 15]) (g) Contractor agrees to seek recourse solely against Company, and not against Company's client, in any of its capacities, for any claims arising under this Agreement. If not stricken, this provision would preclude these claimants from pursuing any client of Gryphon found to be a joint employer, as Plaintiff has alleged of Defendant Sanchez Oil in the Original Complaint. E.g., ECF No. 1, ¶ 14; see also ECF No. 30-2, at 20 (Schedule identifying Sanchez Oil as "Client"). This provision, thus, effective waives any FLSA claim that these claimants have against Defendant (and alleged joint employer) Sanchez Oil. Accordingly, this provision prevents these claimants from effectively vindicating their FLSA rights in arbitration, is unconscionable, and should be stricken. 3. Waiver of Claims Against Company Personnel (§ 26 [ECF No. 30- 2, at 26]) It is expressly understood and agreed by Contractor that. . . any liability of Company. . . arising under or in connection with this Agreement is hereby expressly waived by Contractor against each and every one of its employees, members, officers or director of Company and its assets. . . . Similar to the provision above, this waiver would prevent these claimants from pursuing any individual at Gryphon found to be a joint employer along with Gryphon or who claimants might have to pursue to collect any judgment against Gryphon. Although claimants have made no such allegations yet, they should be free to do so under the FLSA. Again, this provision undermines the FLSA, is unconscionable, and should be stricken. B. The Unconscionable Provisions of the Site Contracts The more abbreviated Sphinx Contracts signed by opt-in Plaintiffs Lopez, Fe. Perez, and S, Silva also contain Arbitration (§ 19, ECF No. 30-2, at 81) and Severability provisions (§ 17, id.). Thus, Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 5 of 9 Motion to Dismiss and Compel Arbitration the Court should strike and sever the following unconscionable provisions that prevent them from effectively vindicating their FLSA rights in arbitration2: 1. The Provisions for Indemnification and Waiver of Claims against Company Clients and Personnel Similar to Those in the Sphinx Contracts Although not identical their unconscionable counterparts in the Sphinx Contracts, discussed above in § III(A), the Site Contracts contain three substantially similar and equally unconscionable provisions for indemnity and waiver of claims against Company clients and personnel. 10. Indemnification Contractor shall indemnify and hold Company. . . harmless from and against any claims. . . (ii) resulting from any claim that Contractor is not an independent contractor, . . . or (iv) resulting from a breach by Contractor of the covenants contained in this Agreement. *** 19. Disputes (a) Contractor agrees to seek recourse solely against Company, and not against Company client. . . for any claim arising under this Agreement. *** 22. Company Employee, Officer and Director Nonrecourse It is expressly understood and agreed by Contractor that. . . any liability of Company. . . arising under or in connection with this Agreement is hereby expressly waived by Contractor against each and every one of the employees, officers, or directors of the Company. . . . ECF No. 30-2, at 79-82. For these same reasons expressed in this Response above in § III(A)(1)(2) and (3), these provisions in the Site Contract are also unconscionable and should be stricken. 2. Limitation on Damages (§ 19(b) [ECF No. 30-2, at 81]) [I]n no event is the arbitrator authorized or empowered to award punitive damages or damages in excess of actual direct damages. This provision, unless stricken, would prohibit the arbitrator from awarding liquidated damages and attorney's fees in contravention of the FLSA, 29 U.S.C. § 216(b). Such damages are not punitive, but 2 The section numbers are the same for the relevant provisions in the Site Contracts, and this Response will cite only to the page number of the first such contract filed as part of ECF No. 30-2, starting at page 76. Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 6 of 9 Motion to Dismiss and Compel Arbitration they are likely neither "actual direct damages" under the FLSA. Clark v. Centene Co. of Texas, L.P., 104 F. Supp. 3d 813, 833 (W.D. Tex. 2015) (liquidated damages under the FLSA compensate for damages likely too difficult to prove, such as retention of a worker's pay); City of Waco v. Kleinfelder Cent., Inc., No. 6:15-CV-310 RP, 2016 WL 5854290, at *6 (W.D. Tex. Oct. 6, 2016) ("Direct damages. . . flow naturally and necessarily from a defendant's wrongful act, [and] compensate the plaintiff for a loss that is conclusively presumed to have been foreseen by the defendant as a usual and necessary consequence of its wrongdoing."); Haubold v. Med. Carbon Research Inst., LLC, No. 03-11-00115-CV, 2014 WL 1018008, at *6 (Tex. App.—Austin Mar. 14, 2014, no pet.) ("Texas law distinguishes between recovery of attorney's fees as actual damages and recovery of attorney's fees incident to recovery of other actual damages.") IV. The Court cannot summarily compel arbitration of Plaintiff and the opt-in Plaintiffs' claims against Defendant Sanchez Oil, a nonsignatory to the Sphinx and Site Contracts who has not moved to compel arbitration. Gryphon's MTC Arbitration requests that the Court "to compel the claims of all Plaintiffs to individual arbitration. . . and, once so compelled, dismiss this action." Thus, Gryphon implicitly seeks to have the Court compel to Plaintiff and the opt-in Plaintiffs to arbitrate with Sanchez Oil and dismiss those claims against Sanchez Oil from this action. But Gryphon cannot compel a nonsignatory¾like Sanchez Oil¾to arbitrate who is merely a defendant and has not elected to arbitrate. All of Gryphon's authorities speak in terms of a nonsignatory compelling arbitration. MTC Arbitration, at 8-9. Nowhere does Gryphon's MTC Arbitration explicitly explain why the Court should dismiss Plaintiff and the opt-in Plaintiffs' claims against Sanchez Oil. Canned briefing can be tricksy. Thus, the Court should deny Gryphon's request to dismiss this action or to implicitly compel arbitration with Sanchez Oil. V. Conclusion and Prayer For these reasons, Plaintiff and the opt-in Plaintiffs request that the Court enter an order that (1) strikes and severs the unconscionable provisions of the Sphinx and Site Contracts before Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 7 of 9 Motion to Dismiss and Compel Arbitration compelling them to arbitrate their claims with Gryphon, (2) stays the claims against Gryphon pending arbitration; (3) denies Gryphon's MTC Arbitration to the extent it seeks to compel Plaintiff and the opt-in Plaintiffs to arbitrate their claims with Defendant Sanchez Oil, (4) denies Gryphon's MTC Arbitration to the extent it seeks to dismiss Plaintiff and the opt-in Plaintiffs' claims against Sanchez Oil; and (5) grants Plaintiff and the opt-in Plaintiffs all other proper relief. Date: June 6, 2019 Respectfully submitted, ANDERSON ALEXANDER, PLLC By: /s/ Clif Alexander Clif Alexander Texas Bar No. 24064805 clif@a2xlaw.com Lauren E. Braddy Texas Bar No. 24071993 lauren@a2xlaw.com Alan Clifton Gordon Texas Bar No. 00793838 cgordon@a2xlaw.com Carter T. Hastings Texas Bar No. 24101879 carter@a2xlaw.com Corpus Christi, Texas 78401 Telephone: (361) 452-1279 Facsimile: (361) 452-1284 Attorneys for Plaintiff and the Putative Class Members Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 8 of 9 Motion to Dismiss and Compel Arbitration CERTIFICATE OF SERVICE I hereby certify that on June 6, 2019, I electronically filed the foregoing document with the clerk of the court for the U.S. District Court, Western District of Texas, using the electronic case filing system of the court. The electronic case filing system sent a "Notice of Electronic Filing" to the attorneys of record who have consented in writing to accept this Notice as service of this document by electronic means. /s/ Clif Alexander Clif Alexander Plaintiff's Response to Defendant Gryphon Holdco, LLC's Page 9 of 9 Motion to Dismiss and Compel Arbitration