Alvarez v. Emergency Site Protection, LLC et al

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

REPLY to Response to Motion, filed by GRYPHON HOLDCO, LLC, 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, § § Plaintiff, § § vs. § NO. 5:18-CV-01298-FB-ESC § GRYPHON HOLDCO, LLC, and § SANCHEZ OIL & GAS CORPORATION, § § Defendants. § § DEFENDANT GRYPHON HOLDCO, LLC'S REPLY IN SUPPORT OF ITS MOTION TO DISMISS AND TO COMPEL ARBITRATION "Plaintiff agrees that he and the opt-in Plaintiffs must arbitrate their claims against Gryphon … and must do so on an individual basis." Pl. Resp., ECF 31 at 1. With this admission, the Court's inquiry should end and Gryphon's Motion to Compel Arbitration [ECF 30] should be granted. Plaintiff's arguments seeking to have the Court prematurely consider and invalidate various defenses that might be asserted in future arbitrations is improper and should be disregarded. This is beyond the scope of the Court's jurisdiction on Gryphon's Motion to Compel Arbitration, and the Court should decline Plaintiffs' invitation to render an advisory opinion. Any issues related to the potential defenses should be addressed by the arbitrator, who can determine whether or not the defense is based on an enforceable contractual provision. I. Plaintiffs Concede Their Claims Against Gryphon Must Be Arbitrated. Under the Federal Arbitration Act, 9 U.S.C. § 4, the Court, "upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the 1 3244185 court shall make an order directing the parties to proceed in arbitration in accordance with the terms of the agreement." Because Plaintiffs concede that they must arbitrate, neither the making of the arbitration agreement nor Plaintiffs' failure to comply therewith is "in issue." Accordingly, the Court "shall make an order directing the parties to proceed in arbitration in accordance with the terms of the agreement." 9 U.S.C. § 4. This provision admits of no discretion or exceptions, and the Court therefore must grant Gryphon's Motion. II. Plaintiffs' Allegations of Unconscionability Are Premature and Should be Decided by the Arbitrator if and When an Arbitration Demand is Filed. The majority of Plaintiffs' Response is spent needlessly arguing that four provisions in the Site and/or Sphinx Agreements —unconnected to and severable from the arbitration provision—are unconscionable, and that the Court should rule on these separate unconscionability questions before sending the parties to arbitration. (Pl. Resp. at 2-7). But as the Fifth Circuit has held, "generally, allegations of unconscionability, related to the formation of the contract as a whole, are for the arbitrator." Begole v. N. Mississippi Med. Ctr., Inc., 761 F. App'x 248, 251 (5th Cir. 2019) (citing 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) (challenges of unconscionability unrelated to arbitration clause itself are for the arbitrator, not the court). In 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. As the Supreme Court has held, however, courts may not wade into the merits of an arbitration once it is determined (or, as here, admitted) that the parties agreed to arbitrate. In United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 568 (1960), the Supreme Court held that "courts … have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is 2 3244185 particular language in the written instrument which will support the claim. The agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious." (emphasis added). The Supreme Court reaffirmed the principle that merits questions are off-limits to courts in AT&T Tech., Inc. v. Communications Workers of America, 475 U.S. 643, 649-50 (1986), when it held that "[w]hether 'arguable' or not, indeed even if it appears to the court to be frivolous, the [underlying claim] is to be decided, not by the court asked to order arbitration, but as the parties have agreed, by the arbitrator." And most recently, the Supreme Court held in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019), that "a court may not decide a merits question that the parties have delegated to an arbitrator." In short, under clear Supreme Court authority, this Court may not rule on Plaintiffs' unconscionability challenges. Because they go to the merits of defenses that may or may not be asserted in arbitration, these issues are for the arbitrators to decide. Plaintiffs' argument that the Court should nevertheless strike these allegedly unconscionable provisions is based on distinguishable case law addressing the question of whether unconscionable provisions prevent compelling arbitration in the first place. Pl. Resp. at 2-3. For example, in Dreibrodt, the plaintiff argued that he was not required to arbitrate his claims because the arbitration agreement contained an unconscionable fee-splitting provision. Dreibrodt v. McClinton Energy Group, LLC, No. MO:16-cv-00340-RAJ, 2017 WL 7805761 (W.D. Tex. Jan. 3, 2017). Likewise, in Coronado, the question was the enforceability vel non of the arbitration agreement in light of various other allegedly unconscionable provisions. Coronado v. DNW Houston, Inc., No. H-13-2179, 2015 WL 5781375 (S.D. Tex. Sept. 30, 2015). In both cases, the plaintiffs argued that arbitration could not be compelled because of the 3 3244185 allegedly unconscionable provisions, requiring the Court to analyze and rule on unconscionability to reach the question of arbitrability. See id. at *10 (holding that "the arbitration clauses are unenforceable unless those [unconscionable] provisions are severable."). That is not the case here because the Plaintiffs have conceded that they must arbitrate, notwithstanding the allegedly unconscionable provisions. Pl. Resp. at 1. Plaintiffs have cited to no case where the plaintiff conceded an obligation to arbitrate, but the Court nevertheless prophylactically ruled on the alleged unconscionability of unrelated contractual provisions. III. The Court Lacks Jurisdiction to Render an Advisory Opinion on Potential Defenses in Arbitration Before They Are Raised. Plaintiffs challenge four provisions of the Site and/or Sphinx Agreements as unconscionable: (1) indemnification; (2) limitation of recovery to parties; (3) waiver of individual liability; and (4) limitation of damages. However, Plaintiffs' admission that they must arbitrate notwithstanding those provisions means that Plaintiffs are, in effect, asking the Court to render an advisory opinion as to unconscionability that will bind the arbitrators ultimately appointed. The Court, however, lacks jurisdiction to grant Plaintiffs' request for an advisory opinion. See Flast v. Cohen, 392 U.S. 83, 96 (1968) (holding that "no justiciable controversy is presented … when the parties are asking for an advisory opinion"). That Plaintiffs are effectively asking for an advisory opinion is plain from Plaintiffs' own arguments as to unconscionability. For example, Plaintiffs argue that a provision allegedly waiving claims against individuals is unconscionable. Pl. Resp. at 5. But Plaintiffs also admit that they "have made no such allegations yet." Id. Of course, even if they did make such an allegation, it would still be up to those hypothetical defendants to decide whether to assert a contractual waiver defense or not. See Fed. R. Civ. P. 8(c)(1) ("waiver" is an affirmative defense). Similarly, Plaintiffs argue that their limitation of recourse allegedly waives their claims 4 3244185 against co-defendant Sanchez. Id. But again, Sanchez must first assert this affirmative defense before the Court may rule on it. It is certainly not proper for the Court to rule on a potential defense that might be asserted by Sanchez in a Motion to Compel arbitration filed by Gryphon. Finally, Plaintiffs' indemnification argument is also based on a hypothetical defense—viz. that Gryphon would make the argument that Plaintiffs must indemnify Gryphon for any damages arising from Plaintiffs' own overtime claims against Gryphon. Even if such an argument were not utter nonsense in the first place,1 unless and until Gryphon raises such a defense, any foray by the Court into its validity would be an advisory opinion. Plaintiffs cannot obtain advance rulings on hypothetical defenses against either current or nonexistent defendants. See Calderon v. Ashmus, 523 U.S. 740, 741 (1998) (rejecting litigant's attempt to obtain an "advance ruling" on an affirmative defense); Coffman v. Breeze Corp., 323 U.S. 316, 324 (1945) (federal courts do not have jurisdiction where party is trying to "secur[e] an advisory opinion in a controversy which has not arisen"). Rather, the defenses must first be asserted before their validity can be ruled upon. And, since Plaintiffs concede they must arbitrate their claims, the defenses at issue must be raised and decided in the first instance in arbitration. IV. Whether Plaintiffs Must Arbitrate Their Claims against Sanchez Is Not Before This Court. Plaintiffs' final argument is against a straw man. Gryphon was the only movant in the Motion to Compel Arbitration, ECF 30, and did not request that the Court compel Plaintiffs claims against Sanchez to arbitration. Whether to move to compel arbitration of the claims 1 Using common sense, indemnity requires at least three parties (the claimant, the indemnitee, and the indemnitor). See Smith v. Hillside Village, 2018 WL 588923, *8 (D.N.J. Jan. 26, 2018) (indemnity, ordinarily "is an undertaking by A to reimburse B for its liability to C. … 'Indemnity' is not ordinarily understood as an agreement that if C successfully sues B for damages, C must immediately pay back an identical amount to B."). 5 3244185 against Sanchez is up to Sanchez. Accordingly, the arbitrability of Plaintiffs' claims against Sanchez is not properly before the Court unless and until Sanchez seeks such relief. The Court should, however, avoid conducting a parallel proceeding that threatens to trample upon Gryphon's arbitration rights. Specifically, Plaintiffs' claims against Sanchez are premised upon the (erroneous) theory that Gryphon and Sanchez were "joint employers." Am. Compl, ECF 25, ¶ 14. Any ruling by this Court on whether Sanchez was a "joint employer" with Gryphon, while Gryphon's claims that it was not an employer at all are in arbitration, threatens to undermine the arbitration. Accordingly, the Court should grant Gryphon's Motion, compel arbitration, and stay this litigation—including the claims against Sanchez—while arbitration takes place. Of course, if Sanchez also seeks to arbitrate, then the Court can dismiss this entire action in deference to arbitration. V. Conclusion WHEREFORE, for all the foregoing reasons, Defendant Gryphon respectfully requests that its Motion to Compel be granted and all claims against it be compelled to individual arbitration pursuant to the terms of its agreements with Plaintiffs. CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY By: /s/ Annette A. Idalski Annette A. Idalski Texas Bar No. 00793235 191 Peachtree Street, N.E. Thirty-Fourth Floor Atlanta, GA 30303-1747 Telephone: (404) 659-1410 Facsimile: (404) 659-1852 and Stephanie M. Gilliam Texas Bar No. 24083071 6 3244185 1200 Smith Street, Suite 1400 Houston, Texas 77002 Telephone: (713) 654-9608 Facsimile: (713) 658-2553 Attorneys for Defendant Gryphon Holdco, LLC CERTIFICATE OF SERVICE On June 13, 2019, I electronically submitted the foregoing document with the clerk of court for the U.S. District Court, Western District of Texas, using the electronic case filing system of the court. I hereby certify that I have served all counsel of record electronically. /s/ Annette A. Idalski 7 3244185