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 {{41}} MOTION to Compel Arbitration filed by Defendant Sanchez Oil & Gas Corporation

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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 § PLAINTIFFS' RESPONSE TO DEFENDANT SANCHEZ OIL AND GAS CORPORATION'S MOTION TO COMPEL ARBITRATION TO THE HONORABLE ELIZABETH S. CHESTNEY, MAGISTRATE JUDGE: Plaintiff¾Josue Alvarez, individually and on behalf of all opt-in Plaintiffs and all others similarly situated (collectively, "Plaintiffs")¾file their Response to Defendant Sanchez Oil & Gas Corporation's Motion to Compel Arbitration (ECF No. 41; "MTC Arbitration"). This Defendant will be referred to as "Sanchez," and Defendant Gryphon Holdco, LLC will be referred to as "Gryphon." I. Plaintiffs' position remains the same as set forth in Plaintiffs' counsel's email (ECF No. 41-1) and Plaintiff's Response (ECF No. 31) to Gryphon's MTC Arbitration (ECF No. 30). As set forth in the email from Plaintiff's counsel to Sanchez's counsel dated June 24, 2019 (ECF No. 41-1), "[w]ith respect to both Gryphon and Sanchez, Plaintiffs dispute only having to arbitrate without the Court first striking and severing the unconscionable provisions that prevent Plaintiffs from effectively vindicating their statutory rights in arbitration." That is the position that Plaintiffs took with respect to Gryphon in Response to Gryphon's MTC Arbitration. See generally ECF No. 31. II. Defendants do not dispute that the challenged provisions are unconscionable and prevent Plaintiffs from vindicating their FLSA rights in arbitration. In Sanchez's MTC Arbitration (ECF No. 41 at 1), Sanchez adopts the arguments and authorities contained in Gryphon's MTC Arbitration (ECF No. 30) and Reply (ECF No. 32). Thus, neither Defendant disputes that the provisions attacked by Plaintiffs as unconscionable in Response to Gryphon's MTC Arbitration are, in fact, unconscionable because they operate prospectively to prevent Plaintiffs from effectively vindicating their FLSA rights arbitration. See ECF No. 31 at 3-7 (Response specifying unconscionable provisions and explaining why they should be stricken and severed before arbitration). In Gryphon's Reply (ECF No. 32), joined by Sanchez in its MTC Arbitration (ECF No. 41), Defendants have taken the position that, because Plaintiffs agree they must arbitrate once the Court strikes and severs the unconscionable provisions from the Sphinx and Site Contracts, Plaintiffs' arguments are premature and that the Court can only compel arbitration under 9 U.S.C. § 4. III. The cases relied on by Defendants, like those cited in Plaintiffs' Response, support striking and severing the unconscionable provisions before compelling arbitration. Defendants argue that questions of unconscionability that go to the formation of the contract as a whole are for the arbitrator. ECF No. 32 at 2 (citing Begole v. N. Mississippi Med. Ctr., Inc., 761 F. App'x 248, 251 (5th Cir. 2019); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04 (1967)); see also Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 71 (2010)). But Plaintiffs have not argued that the Sphinx and Site Contracts as a whole are invalid as unconscionable. Plaintiffs' Response argues that discrete parts in the Sphinx and Site Contracts, either within the arbitration provision or as applied to the arbitration provision, are unconscionable because they prevent Plaintiffs from effectively vindicating their rights in arbitration. ECF No. 31, at 2-3. And once severed from the Sphinx and Site Contracts, no unconscionability remains that would preclude arbitration. Id. at 3. Plaintiffs' Response to Defendant Sanchez's Motion to Compel Arbitration Page 2 of 6 Not surprisingly, the Begole opinion from the Fifth Circuit (relied on by Defendants (ECF No. 32 at 2)) affirmed a district court that compelled arbitration after first severing the unconscionable limitation on punitive damages¾ Begole has not shown that the offending punitive damages provision undermines the agreement as a whole. Consequently, consistent with the Mississippi statute, the district court correctly concluded that it could be severed, and the agreement to arbitrate disputes enforced. *** For the foregoing reasons, Begole's claims are subject to arbitration—we AFFIRM. 761 Fed. Appx. at 252, 253. Thus, the Fifth Circuit¾in a case relied on by Defendants¾affirmed the precise relief that Plaintiffs seek from this Court¾striking and severing discrete, unconscionable provisions before compelling arbitration. This is similar to the Texas Supreme Court's treatment of unconscionable provisions under Texas law, a treatment which does not defeat the purpose of arbitration¾ An arbitration agreement covering statutory claims is valid so long as "the arbitration agreement does not waive substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory rights." In re Halliburton, 80 S.W.3d at 572. " '[B]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.' " Gilmer, 500 U.S. at 26, 111 S.Ct. 1647 (quoting Mitsubishi, 473 U.S. at 628, 105 S.Ct. 3346). In this case, Luna contends Poly–America acted with actual malice in unlawfully discharging him, a claim for which the Workers' Compensation Act allows punitive damages. *** We have determined, however, that the remedies-limitation provisions are individually unconscionable and void, and see no reason why they cannot be easily excised from the contract without defeating its underlying purpose. In re Poly-Am., L.P., 262 S.W.3d 337, 352, 360 (Tex. 2008) (emphasis added). Moreover, the Fifth Circuit has gone even further and held that striking and severing unconscionable provisions that prevent vindication of statutory rights before compelling arbitration advances the purpose of an arbitration agreement¾ Plaintiffs' Response to Defendant Sanchez's Motion to Compel Arbitration Page 3 of 6 Even with its unlawful limitation on the types or permissible damage awards lifted, so that the decision maker is free to address punitive damages, the arbitration clause remains capable of achieving this goal. In fact, the lifting of that illegal restriction enhances the ability of the arbitration provision to function fully and adequately under the law. As a potential arbitrator in this case is now authorized to award punitive damages, as well as compensatory damages, Hadnot's rights under Title VII are fully protected. The severing of such a prohibition or restriction serves to expand the scope of arbitration rather than reduce or impair it, thereby freeing that provision to fulfill its intended function. Hadnot v. Bay, Ltd., 344 F.3d 474, 478 (5th Cir. 2003) (emphasis added). Plaintiffs' counsel has found no case which supports Defendants' position¾that discrete, unconscionable provisions that would prevent effective vindication of statutory rights in arbitration should be analyzed as nothing more than merits-based defenses that are for the arbitrator, if and when such unconscionable provisions are asserted. See, e.g., ECF No. 32 at (arguing "[i]n essence, Plaintiffs ask this Court to rule on the merits of various substantive defenses to their overtime claims that might be raised after this matter is compelled to arbitration or not at all."). To the contrary, many courts within and including the Fifth Circuit have stricken and severed discrete, unconscionable provisions within, or applicable to, an arbitration agreement concerning statutory claims to protect the claimant's statutory rights and further the goals of arbitration See, e.g., Begole, 761 Fed. Appx. at 252, 253; Hadnot, 344 F.3d at 478; The Shipman Agency, Inc. v. TheBlaze Inc., 315 F. Supp. 3d 967, 974–75 (S.D. Tex. 2018) (in Lanham Act case, "the court will sever the limitation of remedies from the Arbitration Provision."); Thomas v. Nat'l Collector's Mint, Inc., No. CV H-18-0348, 2018 WL 6329841, at *10 (S.D. Tex. Dec. 4, 2018) (in DTPA case, "[t]he court concludes that the Agreement's restriction on recovery of attorney's fees may be severed while preserving the parties' choice of arbitration as the forum for resolving disputes."). See also In re Am. Exp. Merchants' Litig., 681 F.3d 139, 140–41 (2d Cir. 2012) (tracing history of FAA in connection with limitations on statutory rights). Plaintiffs' Response to Defendant Sanchez's Motion to Compel Arbitration Page 4 of 6 Here, Plaintiffs, rather than fight a losing battle, started with the conclusion that the Court should ultimately reach¾agreeing that arbitration was proper after the Court struck and severed the unconscionable provisions. Plaintiffs' statutory rights cannot be undermined simply because they followed controlling law. IV. The proper remedy is a stay and/or administrative closure. Defendants seek dismissal in favor of arbitration, but the proper remedy is administrative closure, which will not affect the statute of limitations on Plaintiffs' claims should arbitration not go as would be expected. See Steadfast Ins. Co. v. Frost Bank, No. SA-17-CV-1222-XR, 2018 WL 3865415, at *1–2 (W.D. Tex. Aug. 14, 2018). Further, the FAA supports only a stay, while dismissal under Fifth Circuit authority is discretionary. Id. V. Conclusion and Prayer For these reasons, Plaintiffs request that the Court enter an order that (1) strikes and severs the unconscionable provisions of the Sphinx and Site Contracts before compelling Plaintiffs to arbitrate their claims, (2) stays and/or administratively closes Plaintiffs' claims pending arbitration; and (3) grants Plaintiffs all other proper relief. Date: July 2, 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 Plaintiffs' Response to Defendant Sanchez's Motion to Compel Arbitration Page 5 of 6 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 CERTIFICATE OF SERVICE I hereby certify that on July 2, 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 Plaintiffs' Response to Defendant Sanchez's Motion to Compel Arbitration Page 6 of 6