Lewis v. Keiser Sch., Inc.

CHANDRA LEWIS, Plaintiff, v. THE KEISER SCHOOL, INC., et al., Defendants.

Case No. 11-62176-Civ-SCOLA

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

Dated: September 18, 2012

ORDER DENYING MOTION TO COMPEL ARBITRATION

THIS MATTER is before the Court upon the Defendants' Opposed Motion to Compel Arbitration and Stay Proceedings [ECF No. 56], filed by the Keiser School, Inc. ("Keiser") and Everglades College, Inc. ("Everglades"). For the reasons explained below, this motion is denied.

Introduction

Plaintiff Chandra Lewis was employed as a Community Relations Coordinator at Keiser's Pembroke Pines campus from April 25, 2008 through September 2, 2011. On October 7, 2011, Plaintiff sued Keiser in federal district court seeking unpaid overtime compensation under the Fair Labor Standards Act ("FLSA"). Keiser answered on November 17, 2011, without raising the right to arbitrate. Subsequently, on January 4, 2012, Plaintiff filed an Amended Complaint that added Everglades College as a Defendant. The Defendants answered the Amended Complaint on January 23, 2012, again without raising the issue of arbitration.

Nearly five months later (and seven months after the lawsuit's inception), Defendants moved to compel arbitration. In their motion, the Defendants maintain that Plaintiff signed an arbitration agreement covering all claims arising out of her employment, but that they had been unable to find the agreement (and, therefore, were not "aware" of it) until April 26, 2012. In attempting to explain why they lacked awareness of an agreement they allegedly caused their own employee to sign, Defendants state that they searched their personnel files at the beginning of the lawsuit, but did not find any arbitration agreement at that time. Only months later, in April 2012, was the agreement found in the course of an audit of paper files (prompted by unrelated litigation) at various campuses and the office of the chancellor. According to Defendants, this constitutes a reasonable explanation for their delay in seeking to arbitrate.

Between the initiation of this lawsuit and the Defendants' invocation of the right to arbitrate, the Defendants answered the Complaint and Amended Complaint, responded to Plaintiff's Statement of FLSA Claim, provided mandatory Rule 26 disclosures, propounded discovery requests upon the Plaintiff, responded to Plaintiff's discovery requests, took her deposition, participated in discovery motions practice, obtained additional time to schedule depositions and complete discovery, and obtained an extension of the trial date. See Mot. at 8 (describing Defendants' litigation activity during the seven months preceding the request to arbitrate). In addition, when the parties filed their Joint Status Report in January 2012, Defendants indicated that they were actively engaged in discovery, but did not mention any possibility of arbitration. Instead, in response to whether there were "any other issues that the Court should be aware of that may affect the resolution of this matter or the schedule as currently set," the parties (including Defendants) answered with the statement, "[n]one at this time." See Jt. Rep. at 3.

Upon discovering the agreement in April 2012, Defendants promptly reached out to Plaintiff to see if she would consent to arbitration. The Plaintiff declined. After becoming "aware" of the agreement to arbitrate, Defendants waited an additional three weeks before moving to compel arbitration, purportedly because "[they] were working with Plaintiff's Counsel to determine Plaintiff's position concerning enforcement of the Parties' Agreement and defending previously scheduled depositions taken by Plaintiff after Defendants had demanded that she arbitrate her claims." Reply at 5. Plaintiff maintains that Defendants acted inconsistently with the right to arbitrate and that she would be prejudiced if forced to arbitrate at this time, "as a result of the expenses and delay incurred during the litigation and discovery periods." Resp. at 11. Thus, she argues, Defendants have waived their right to arbitrate.

Legal Standards

Federal law governs the enforceability of arbitration agreements. See Employers Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1322 (11th Cir. 2001). Under the Federal Arbitration Act ("FAA"), the federal courts are required to "rigorously enforce" agreements to arbitrate. See Hemispherx Biopharma, Inc. v. Johannesburg Consol. Invs., 553 F.3d 1351, 1366 (11th Cir. 2008). Of course, where the parties have not agreed to arbitrate a particular dispute, arbitration should not be compelled. See Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1315 (11th Cir. 2002). But, "when in doubt, questions of arbitrability should be resolved in favor of arbitration." Beaver v. Inkmart, LLC, 2012 WL 3834944, at *2 (S.D. Fla. Sept. 4, 2012) (Middlebrooks, J.); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

In addition to deciding whether a valid agreement to arbitrate exists, sometimes courts must also determine whether the right to arbitrate has been waived. See Ivax Corp., 286 F.3d at 1315. "The party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 92 (2000). Given the strong policy favoring arbitration, any party arguing waiver bears a heavy burden. See Stone v. E.F. Hutton & Co., 898 F.2d 1542, 1543 (11th Cir. 1990). "Nevertheless, the doctrine of waiver is not an empty shell. Waiver occurs when a party seeking arbitration substantially participates in litigation to a point inconsistent with an intent to arbitrate and this participation results in prejudice to the opposing party." Morewitz v. W. of England Ship Owners Mut. Prot. & Indem. Ass'n, 62 F.3d 1356, 1366 (11th Cir. 1995). "Waiver of a right to compel arbitration through delay is consistent with 'Congress'[s] clear intent, in the Arbitration Act, to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible[.]'" See In re Checking Account Overdraft Litig., 829 F. Supp. 2d 1316, 1323 (S.D. Fla. 2011) (King, J.) (citation omitted).

Legal Analysis

The Eleventh Circuit has prescribed a two-part inquiry to determine whether a party has waived its right to arbitrate. See Ivax Corp., 286 F.3d at 1315-16. The Court must first consider whether "under the totality of the circumstances," the party "has acted inconsistently with the arbitration right"; and second, whether by doing so, that party "has in some way prejudiced the other party." See S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990). Assuming a valid agreement to arbitrate exists between the parties in this case,¹ the Court finds that Defendants waived the right to arbitrate.

As to the first prong, Defendants acted inconsistently with their arbitration right because they waited more than seven months before moving to arbitrate under the very agreement that they purportedly made their own employee sign. They should have known whether or not, forcertain, this employee had signed an agreement and, if so, where to find it. See Plows v. Rockwell Collins, Inc., 812 F. Supp. 2d 1063, 1066 (C.D. Cal. 2011) ("Knowledge of a contractual right to arbitrate is imputed to the contract's drafter"); Ritzel Commc'ns, Inc. v. Mid-Am. Cell. Tel. Co, 989 F.2d 966, 969 (8th Cir. 1993) (party that drafted arbitration agreement is charged with knowledge of its existence). In the seven months of litigation preceding the motion to compel arbitration, the record reveals that Defendants never once raised to the Plaintiff or the Court that this dispute might potentially be subject to arbitration. If Defendants were certain that Plaintiff had signed such an agreement, but simply could not immediately find it, Defendants could reasonably be expected to mention the issue at an early point in the case. They did not. Instead, Defendants affirmatively indicated in a joint status report that there were no "other issues that the Court should be aware of that may affect the resolution of this matter or the schedule as currently set" - a strange statement from a party wishing to preserve a potential right to arbitrate. See Dockeray v. Carnival Corp., 724 F. Supp. 2d 1216, 1222 (S.D. Fla. 2010) (Altonaga, J.) ("'not pleading arbitration in the answer can be used as evidence towards finding of waiver.' An early arbitration demand notifies a party that arbitration may be forthcoming, and therefore the party may prepare accordingly. It is for this reason that '[o]nce the defendant, by answer, has given notice of insisting on arbitration[,] the burden is heavy on the party seeking to prove waiver'") (citations omitted).

It is no answer, either, to say that Defendants did not know about the agreement until three weeks before moving to compel arbitration. See Plows, 812 F. Supp. 2d at 1066; Ritzel Commc'ns, Inc., 989 F.2d at 969. That they were apparently subjectively unaware of where the arbitration agreement was located, and did not in fact find it until they undertook a paper file audit in connection with an unrelated case some seven months after this case began, does not help their argument. The fact that Defendants' files were disorganized and the form was not where it was supposed to be is no excuse. It does not reflect diligence. See, e.g., Kawasaki Heavy Indus., Ltd. v. Bombardier Recreat'l Prods., Inc., 660 F.3d 988, 995 (7th Cir. 2011) ("While several factors are considered in the waiver analysis, diligence or the lack thereof should weigh heavily in the decision.").

More significantly, for seven months, the record reveals that Defendants actively litigated the case by participating in discovery, successfully obtaining an extension of the discovery period and trial date, and engaging in discovery motions practice. In the joint status report, the Defendants represented to the...