Pruitt et al v. Act Fast Delivery, Inc. et al

Western District of Texas, txwd-5:2019-cv-00049

Response in Opposition to Motion, filed by Sandra Pruitt, re [36] Second MOTION to Compel Arbitration filed by Defendant Act Fast Delivery of Houston, Inc., Defendant Act Fast Delivery of Tyler, Inc., Defendant Act Fast of Coastal Bend, Inc., Defendant Act Fast Courier of Texas, Inc., Defendant Act Fast Delivery, Inc., Defendant Act Fast Delivery of Travis County, Inc., Defendant Act Fast Delivery of S.A., Inc.

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5 WESTERN DISTRICT OF TEXAS UNITED STATES DISTRICT COURT SAN ANTONIO DIVISION SANDRA PRUIT, et al., § § Plaintiffs, § § v. § No. 5:19-cv-00049-DAE § ACT FAST DELIVERY, INC., et al., § § Defendants. § PLAINTIFFS' RESPONSE IN OPPOSITION TO DEFENDANTS' SECOND MOTION TO COMPEL ARBITRATION Defendants Act Fast Delivery, Inc.; Act Fast Courier of Texas, Inc.; Act Fast Delivery of Houston, Inc.; Act Fast of Coastal Bend, Inc.; Act Fast Delivery of S.A., Inc.; Act Fast Delivery of Tyler, Inc.; Act Fast Delivery of Travis County, Inc.; and Mike Miller (collectively referred to as "Defendants" or "Act Fast") have requested that the Court refer the claims asserted by Plaintiffs Sandra Pruitt, Karen Lawson, Ayan Nur, Jasmine Huntsberry, Charmane Nash, Fernando Cabrera, Sheila Chew, Keith Green, Denetria Penfield and Yuvanda Watson (collectively referred to as "Plaintiffs") to binding arbitration. (See generally, Defs.' Second Mot. Compel Arb. (Doc. 36).) Act Fast's arguments are based on an incomprehensible patchwork of inconsistent and conflicting documents. Accordingly, and for the reasons explained below, its Second Motion to Compel Arbitration (Doc. 36) should be denied. 5 I. Introduction Pruitt, Lawson, Nur, Huntsberry, Nash, Cabrera, Chew, Green, Penfield and Watson sued Act Fast claiming that they and others were denied overtime in violation of the Fair Labor Standards Act of 1938, 29 U.S.C. §§ 201-219 ("FLSA"). (See generally, Pl.'s Compl. (Doc. 1).) In response, Act Fast moved to refer the claims asserted by Plaintiffs to binding arbitration. (See generally, Defs.' Second Mot. Compel Arb. (Doc. 36).) It argues that the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ("FAA")—or, alternatively, the Texas Arbitration Act, Tex. Civ. Prac. & Rem. Code ch. 171 ("TAA")—require arbitration of the claims asserted in this lawsuit. (See, e.g., id. at p. 2.) The motion should be denied for several reasons, all of which are explained below. II. Argument & Authorities A. Standard of Review Subject to certain qualifications, the FAA "requires courts to enforce private arbitration agreements." New Prime, Inc. v. Oliveira, 139 S. Ct. 532, 536 (2019); see also, id. at 537 ("While a court's authority under the [FAA] to compel arbitration may be considerable, it isn't unconditional."). But before compelling arbitration, a court must determine gateway issues of arbitrability (for example, whether a valid agreement to arbitrate exists and, if so, whether it covers the parties' disputes). Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003); Tittle v. Enron Corp., 463 F.3d 410, 418-19 (5th Cir. 2006) (quoting Webb v. Investacorp, 89 F.3d 252, 258 (5th Cir. 1996)). In determining whether a valid agreement to arbitrate exists, courts apply ordinary principles of state contract law. First Options of Chicago, Inc. v. Kaplan, 514 U.S. -2- 5 938, 944 (1995). This includes state-law contract defenses, such as unconscionability, which may invalidate an arbitration agreement. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). If the arbitration agreement is valid—in other words, if it qualifies as a contract under state law—"federal law governs the scope of an arbitration clause." In re Weekley Homes, 180 S.W.3d 127, 130-31 (Tex. 2005). If the agreement is valid and covers the dispute, the next step is to determine "whether legal constraints external to the parties' agreement foreclose[s] the arbitration of [the] claims." Tittle, 463 F.3d at 418 (citations and quotations omitted). Some of these gateway issues (for example, contract validity) may be delegated to an arbitrator. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 69 (2010); see also, Houston Refining, L.P. v. United Steel, Paper & Forestry, Rubber Mfg., 765 F.3d 396, 408 (5th Cir. 2014) ("[T]he law presumes that courts have plenary power to decide the gateway question of a dispute's arbitrability—i.e., whether [the parties] agreed to arbitrate the merits." (second alteration in original) (citations and quotations omitted)). "But the party contending that an arbitrator has authority to decide arbitrability bears the burden of demonstrating clearly and unmistakably that the parties agreed to have the arbitrator decide that threshold question." Houston Refining, 765 F.3d at 408 (citations and quotations omitted). And there are limitations on the ability to delegate gateway issues to an arbitrator. For example, "[i]f the argument that the claim at hand is within the scope of the arbitration agreement is wholly groundless," a court may—and should—rule on that gateway issue even where there is a delegation clause. Douglas v. Regions Bank, 757 F. 3d 460, 464 (5th Cir. 2014) (quotations omitted). "[A] court should also decide for itself whether [any of the FAA's] exclusion[s] appl[y] before ordering arbitration." New -3- 5 Prime, Inc., 139 S. Ct. at 537. "After all, to invoke its statutory powers under §§ 3 and 4 [of the FAA] to stay litigation and compel arbitration according to a contract's terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§ 1 and 2." Id.; see also, id. at 537-38 ("The parties' private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum."). Regardless of who decides the gateway issues, the party seeking to compel arbitration has the burden to establish that a valid arbitration agreement exists and that the claim is covered by the agreement. In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex. 1999). And in resolving all of the issues, the Court must be mindful that arbitration is fundamentally a matter of consent; it cannot compel parties to arbitrate issues where they have not agreed to do so. AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986). B. Plaintiffs Object to Jackson's Declaration Because He Does Not Have Firsthand Knowledge About the Nature of Their Duties and Because It Was Not Timely Disclosed In a misplaced effort to establish that the transportation-worker exception to the FAA does not apply Plaintiffs, Act Fast's general counsel, John Jackson, has made various representations to the Court about the work that Plaintiffs performed for the company. (See, Jackson Decl. (Doc. 36-1) ¶¶ 9-13.) He, though, cannot possibly opine on what Plaintiffs did because he did not personally observe them. On top of that, his declaration was not timely disclosed. Regardless, if Act Fast really wanted to establish that Plaintiffs performed no interstate work, it should have produced receipts, bills of lading, documentation required by -4- 5 shippers, copies of manifests, evidence of delivery or similar documents, which, according to its own independent contractor agreements, it has in its possession. (See, e.g., Pruitt Independent Contractor Agmt. (Doc. 36-1) p. 34.) 1. Jackson does not have firsthand knowledge about what Plaintiffs did. An affidavit or declaration submitted as evidence must be based on the affiant or declarant's personal knowledge, and unsubstantiated assertions or statements containing hearsay are to be disregarded. See, e.g., Barker v. Norman, 651 F.2d 1107, 1123 (5th Cir. 1981) (holding that an affidavit for summary judgment purposes must be based on the affiant's personal knowledge); Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994) ("unsubstantiated assertions are not competent summary judgment evidence"); Goodwin v. Johnson, 132 F.3d 162, 186 (5th Cir. 1997) (hearsay statements in an affidavit were "incompetent summary judgment evidence"). Accordingly, any statements that run afoul of the Rules of Evidence may not be considered. Ripple v. Marble Falls Indep. Sch. Dist., 99 F. Supp. 3d 662, 673 (W.D. Tex. 2015). Jackson has not explained the basis for his representations that "all of Plaintiffs' deliveries were in Texas and none of the Plaintiffs crossed state lines while delivering goods for [Act Fast]." Unless he rode with them—and he did not—he is not competent to testify about what they did. The same is true with other parts of Jackson's declaration. (See, Jackson Decl. (Doc. 36- 1) ¶¶ 9-13.) Accordingly, Plaintiffs object to the declaration and request that it be stricken. 2. Jackson's declaration was not timely disclosed. In its Second Motion to Compel Arbitration (Doc. 36), Act Fast relies on the Declaration of John Jackson (Doc. 36-1), its general counsel. That declaration, though, was -5- 5 not previously produced. Under Rule 26(a)(1)(A)(ii), a party must produce "a copy … of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may be used to support its claims or defenses[.]" Fed. R. Civ. P. 26(a)(1)(A)(ii). Plaintiffs did not know about the declaration until Act Fast moved to compel arbitration. And since Act Fast has failed to comply with its obligations under the rules, its evidence must be stricken. Fed. R. Civ. P. 26(c)(1) ("If a party fails to provide information or identity of a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial, unless the failure was substantially justified or is harmless." (emphasis added)). Absent a showing by Act Fast that its conduct was substantially justified or harmless (and it is neither), the sanction is automatic. See, Smith v. Cameron Co., Tex., No. B-05-302, 2007 U.S. Dist. LEXIS 31115, at *9-*11 (S.D. Tex. Apr. 27, 2007) (striking affidavit not disclosed until motion for summary judgment filed). Accordingly, Plaintiffs request that the Court strike the Declaration of John Jackson (Doc. 36-1). C. Act Fast's Second Motion to Compel Arbitration (Doc. 36) Should Be Denied Because the Arbitration Agreements Are Excluded from the FAA and the Court Cannot, Therefore, Compel the Parties to Arbitrate Their Disputes Even assuming that a valid arbitration agreement exists, between Act Fast and Pruitt, Lawson, Nur, Huntsberry, Nash, Cabrera, Chew, Green, Penfield and Watson, it is excluded from FAA coverage—and the Supreme Court says so. In New Prime, Inc., the employer was a transportation company and the employee -6- 5 work[ed] as one of its drivers. But, at least on paper, [the employee was]n't an employee; the parties' contracts label him an independent contractor. Those agreements also instruct that any disputes arising out of the parties' relationship should be resolved by an arbitrator[.] Eventually, of course, a dispute did arise. In a class action lawsuit in federal court, [the employee] argued that [the employer] denies its drivers lawful wages. The company may call its drivers independent contractors. But, [the employee] alleged, in reality [his employer] treats them as employees and fails to pay the statutorily due minimum wage. In response to [the employee]'s complaint, [the employer] asked the court to invoke its statutory authority under the [FAA] and compel arbitration according to the terms found in the parties' agreements. New Prime, Inc., 138 S. Ct. at 536. Ultimately, the New Prime, Inc. court held that it did not matter whether the workers were classified as employees or independent contractors; disputes arising out of their agreements to perform work fell "within § 1's exception[ for contracts of employment of workers engaged in foreign or interstate commerce], [and] the court … lacked authority under the [FAA] to order arbitration[.]" New Prime, Inc., 138 S. Ct. at 544. Like New Prime, Inc., this case involves transportation workers who claim that they were misclassified as independent contractors and denied lawful wages. (See generally, Pl.'s Compl. (Doc. 1).) Citing the factors articulated by the United States Court of Appeals for the Eighth Circuit in Lenz v. Yellow Transp., Inc., 431 F.3d 348 (8th Cir. 2005) and a declaration executed by its general counsel, Act Fast claims that the FAA's transportation- worker exception does not apply. (See, Defs.' Second Mot. Compel Arb. (Doc. 36) pp. 10- 14.) The Lenz factors, though—when properly analyzed—weigh in favor of finding that the transportation-worker exception applies. But before resorting to them, the Court should pause briefly to consider whether doing so is even necessary. As Lenz reminds us, drivers are -7- 5 indisputably transportation workers under § 1 of the FAA. Lenz, 431 F.3d at 351 ("Indisputably, if Lenz were a truck driver, he would be considered a transportation worker under § 1 of the FAA."). In this case, there is no dispute that Pruitt and the opt-ins drove. (See generally, Pruitt Independent Contractor Agmt. (Doc. 36-1) pp. 34-38; see also, id. at p. 36 (listing vehicles used to make deliveries).) They are, therefore, "[i]ndisputably[] … considered … transportation worker[s] under § 1 of the FAA[,]" and there is no need to discuss the factors. Id. Doing that is only necessary when the worker is not a driver and only "tangentially related to the movement of goods[,]" like, for example, a security guard. Id. at 352. That said, the factors weigh in favor of finding that the exception applies. There are eight of them: (1) whether the employee works in the transportation industry; (2) whether the employee is directly responsible for transporting goods in interstate commerce; (3) whether the employee handles goods that travel interstate; (4) whether the employee supervises employees who are themselves transportation workers (for example, drivers); (5) whether, like seamen or railroad employees, the employee is within a class of employees for which special arbitration already existed when Congress enacted the FAA; (6) whether the vehicle itself is vital to the commercial enterprise of the employer; (7) whether a strike by the employee would disrupt interstate commerce; and (8) nexus that exists between the employee's job duties and the vehicle the employee uses in carrying out his duties (for example, a truck driver whose only job is to deliver goods cannot perform his job without a truck). -8- 5 There is no dispute that the first, third and fourth factors weigh in favor of finding that the exception applies. (See, Defs.' Second Mot. Compel Arb. (Doc. 36) pp. 11-12.) And there should be no dispute about the sixth factor—whether the vehicle itself is vital to the commercial enterprise of Act Fast. As the company admits, it a logistics company responsible for the delivery of goods to customers in at least two different states. (See, Jackson Decl. (Doc. 36-1) ¶¶ 3, 5.) It should go without saying, but a logistics company simply cannot operate without a fleet of vehicles. For essentially the same reasons, the same is true of the eighth factor. A nexus absolutely exists between the employee's job duties (the delivery of goods) and the vehicle the employee uses in carrying out his or her duties. In fact the "independent contractor" agreements specifically require Pruitt and the other to provide vehicles "to pick- up, transport, and deliver … cargo[.]" (See, e.g., Pruitt Independent Contractor Agmt. (Doc. 36-1) pp. 34, 36.) In Pruitt's case it was a Chevrolet Venture. (Id.) That only leaves the second, fifth and seventh factors. The second factor is whether the employee is directly responsible for delivering goods in interstate commerce. On this one, Act Fast argues both that Pruitt and the opt-ins only worked in Texas (see, Jackson Decl. (Doc. 36-1) ¶ 9) and that the company "do[es] make some limited deliveries to Oklahoma" (see, id. at ¶ 3). The "independent contractor" agreements, however, expressly acknowledge that Pruitt and the opt-ins are involved in interstate commerce: Company is authorized to withhold payment to Contractor until Company has received all required documents for each delivery. -9- 5 Required documents means the following: all signed receipts; bills of lading; documentation required by shipper; copies of manifest for all work performed; evidence of proper delivery; and such other documents as may be required by the Interstate Commerce Commission, the Department of Transportation, or other governmental authority. (See, e.g., Pruitt Independent Contractor Agmt. (Doc. 36-1) p. 34 (cleaned up) (emphasis added).) There is, of course, no need to reference the Interstate Commerce Commission (which was dissolved in 1996) or the Department of Transportation unless Pruitt and the opt- ins are, in fact, engaged in interstate commerce because those two agencies do not regulate purely local activity. On top of that, the documents described in Act Fast's own independent contractor agreement (receipts, bills of lading, manifests, etc.) would conclusively establish whether Pruitt and the others are directly responsible for delivering goods in interstate commerce. They would naturally show what goods were being transported and where they were travelling two and from. Why haven't they been produced? Indeed, all Act Fast has done in the way of "proving" that this factor weighs in favor of arbitration is to offer conjecture and supposition on the part of its general counsel. That is not good enough, and it is highly prejudicial to Plaintiffs. They therefore request that the Court (1) order Act Fast to produce the documents and (2) permit them to supplement this response after Act Fast has complied. Lastly, the fifth and seventh factor seem to have little utility on the facts of this case. With respect to the fifth factor, Plaintiffs concede that they do not belong to a specific class of employees for which special arbitration existed when Congress enacted the FAA. As for the seventh factor, Plaintiffs simply disagree. In today's economy a strike by workers like Pruitt and the opt-ins would cripple interstate commerce. Think of online retailers like - 10 - 5 Amazon.com that rely on couriers to deliver products (most of which originate from out of state) to consumers. Their business model (indeed, their existence) depends heavily on the services provided by people like Pruitt and the other opt-ins. On balance, the Lenz factors weigh in favor of finding that the exception applies. Therefore, disputes about the wages paid to Pruitt, the opt-ins and the members of the putative class are not subject to arbitration under the FAA. 9 U.S.C. § 1. Accordingly, Act Fast's Second Motion to Compel Arbitration (Doc. 36) should be denied. D. The TAA Does Not Apply Either In an effort to establish that the transportation-worker exception to the FAA does not apply Plaintiffs, Act Fast appears to have argued itself out of the FAA altogether. The FAA applies to transactions involving interstate commerce. 9 U.S.C. §§ 1-2. Act Fast, though, claims that everything that Plaintiffs did—from signing and negotiating their arbitration agreements to where the parties are domiciled to what the work they performed—all took place in Texas. (Jackson Decl. (Doc. 36-1) ¶¶ 7, 9.) Assuming that to be true, the Court can only refer this case to arbitration if the TAA applies—and it does not. In fact, the TAA expressly excludes "agreement[s] for the acquisition by one or more individuals of … services … in which the total consideration to be furnished by the individual is not more than $50,000," unless the agreement to arbitrate is in writing and signed by each party and each party's attorney. Tex. Civ. Prac. & Rem. Code §§ 171.002(a)(2), 171.002(b)(1)-(2). The arbitration agreements in this case are therefore excluded from the TAA, and Act Fast's Second Motion to Compel Arbitration (Doc. 36) should be denied. - 11 - 5 E. Texas Law Likely Does Not Apply at All to Some of the Agreements Several of the independent contractor agreements call for the application of Ohio law. (See, e.g., Huntsberry Independent Contractor Agmt. (Doc. 36-1) p. 61 ("This Agreement shall be governed by the laws of the State of Ohio, both as to interpretation and performance."). Under Ohio law, a dispute is outside the scope of an arbitration agreement if the parties could maintain the action without reference to the contract containing an arbitration clause. Locum Med. Gp. v. VJC Medical, L.L.C., 2015 WL 4599441, at *3 (Ohio App. 8th Dist. Jul. 30, 2015). As explained below, this action can maintained without reference to any of the "contracts" signed by Pruitt or the other opt-ins.1 It depends on an act of Congress—the FLSA—and it alone. Therefore, to the extent Ohio law applies, Act Fast's Second Motion to Compel Arbitration (Doc. 36) must be denied. F. The Arbitration Agreements Are Not Valid The "independent contractor" agreements signed by Pruitt and the opt-ins contain no arbitration provisions, and they have a merger clause: This Agreement, including all exhibits, constitutes the entire agreement and understanding between the parties. This Agreement shall not be modified, altered, changed, or amended in any respect unless in writing and signed by both parties. This agreement supersedes any other agreements between the parties in force on the date of execution of this Agreement. (See, e.g., Lawson Independent Contractor Agmt. (Doc. 36-1) p. 43 (cleaned up).) 1 See infra pages 13-14. - 12 - 5 A "merger clause" is a contractual provision to the effect that the written terms of the contract may not be varied by prior agreements because all such agreements have been merged into the written document. IKON Office Solutions, Inc. v. Eifert, 125 S.W.3d 113, 125 n.6 (Tex. App.—Houston [14th Dist.] 2003, pet. denied) (citing Black's Law Dictionary 989 (6th ed. 1990)). Merger clauses bar claims based on extra-contractual agreements or representations. See, Carousel's Creamery, L.L.C. v. Marble Slab Creamery, Inc., 134 S.W.3d 385, 395 (Tex. App.—Houston [1st Dist.] 2004, pet. dism'd). In other words—and according to its own terms—the Independent Contractor Agreement is the entire agreement between the parties. And since it contains no arbitration provision, Act Fast's Second Motion to Compel Arbitration (Doc. 36) must be denied. G. FLSA Claims Do Not "Arise Under" the Independent Contractor Agreement or "Relate to" any Independent Contractor Relationship The key provisions of the arbitration agreements purport to require arbitration of any disputes that Pruitt, Lawson, Nur, Huntsberry, Nash, Cabrera, Chew, Green, Penfield and Watson have against Act Fast "arising from, related to, or having any relationship or connection whatsoever with [their] independent contractor agreement[s] or relationship[s] … ." Claims for violation of the FLSA do not depend at all on any independent contractor agreement or relationship. As one court explained in the context of construing the applicability of a forum-selection clause: "suits to recover payments due under the FLSA, such as overtime payments, are not dependent on the plaintiff's employment agreement." Pacheco v. St. Luke's Emergency Associates, P.C., 879 F. Supp. 2d 136, 141 (D. Mass. 2012). In Pacheco, the language of the forum-selection clause - 13 - 5 was "limited to disputes which are 'derived out of this [employment] agreement." Id. at 140-41. The court found that where "derive" meant "take, receive, or obtain especially from a specified source," that the plaintiff's FLSA rights were distinct from the employment agreement. Id. at 141. According to the court, where "FLSA claims do not depend on the existence of the employment contract, nor does the resolution of [plaintiff's] FLSA claims related to the interpretation of the employment contract[,]' the forum selection clause which is limited to claims which are derived from the employment contract does not apply." Id. (citing Saunders v. Ace Mortg. Funding, Inc., No. 05-1437, 2005 WL 3054594, at *3 (D. Minn. Nov. 14, 2005)). The court found that the plaintiff's FLSA claims were "not dependent on any provision of the employment agreement, and [thus] not controlled by the forum selection clause." Pacheco, 879 F.Supp.2d at 142. This case is essentially similar to Pacheco. Interpretation of an FLSA claim does not "depend on the existence of [an] employment contract." Id. at 141 (quoting Saunders v. Ace Mortg. Funding, Inc., No. 05-1437, 2005 WL 3054594, at *3 (D. Minn. Nov. 14, 2005)); see also Baker v. Flint Engineering & Const. Co., 137 F.3d 1436, 1440 (10th Cir.1998). Instead, the court must look to the economic reality of the relationship between the parties. Chao v. Hotel Oasis, Inc., 493 F.3d 26, 33-34 (1st Cir.2007). Thus, the service-provider agreement has no bearing on whether the plaintiffs' claims that [the defendant] has improperly classified them as independent contractors, and plaintiffs' FLSA claims are therefore not subject to the forum-selection clause. … Accordingly, [the defendant's] motion to dismiss will be denied. Chebotnikov v. LimoLink, Inc., 150 F. Supp. 3d 128, 131-32 (D. Mass. 2015). For essentially the same reasons, Act Fast's Second Motion to Compel Arbitration (Doc. 36) should be denied. See also, supra note 4. III. Conclusion For the foregoing reasons, Act Fast's Second Motion to Compel Arbitration (Doc. 36) should be denied. - 14 - 5 Respectfully Submitted, MOORE & ASSOCIATES By: Melissa Moore State Bar No. 24013189 Federal Id. No. 25122 Curt Hesse State Bar No. 24065414 Federal Id. No. 968465 Lyric Centre 440 Louisiana Street, Suite 675 Houston, Texas 77002 Telephone: (713) 222-6775 Facsimile: (713) 222-6739 ATTORNEYS FOR PLAINTIFF SANDRA PRUITT CERTIFICATE OF SERVICE As required by Fed. R. Civ. P. 5(a)(1), I certify that I served this document on all parties or their attorney(s) of record on October 17, 2019, in accordance with Fed. R. Civ. P. 5(b) by filing it with the Court's CM/ECF system, which will send notification of such filing to all counsel of record. Melissa Moore - 15 -