Lynch v. Tesla, Inc.

1

JOHN LYNCH, DAXTON HARTSFIELD, and SHAWN SAKHIZADA, individually and on behalf of all others similarly situated, Plaintiffs v. TESLA, INC., Defendant

No. 1:22-cv-00597-RP

United States District Court, W.D. Texas, Austin Division

September 26, 2022

TO THE HONORABLE ROBERT PITMAN, UNITED STATES DISTRICT JUDGE.

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

SUSAN HIGHTOWER, UNITED STATES MAGISTRATE JUDGE.

Before the Court are Defendant's Renewed Motion to Dismiss and Compel Individual Arbitration Under Rules 12(b)(1) and 12(b)(3), filed August 2, 2022 (Dkt. 28); Plaintiffs' Opposition to Tesla's Renewed Motion to Dismiss and Compel Individual Arbitration Under Rules 12(b)(1) and 12(b)(3), filed August 16, 2022 (Dkt. 31); and Defendant's Reply, filed August 23, 2022 (Dkt 32).^[1]

I. Background

Plaintiffs John Lynch, Daxton Hartsfield, and Shawn Sakhizada^[2] bring this putative class action lawsuit, individually and on behalf of all others similarly situated, against their former employer Tesla, Inc.^[3] under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et sq. (the “WARN Act”), and Section 1400 of the California Labor Code. Plaintiffs allege that Tesla violated the WARN Act by failing to provide them and other potential class members with sixty days advance written notice before it terminated their employment in a “mass layoff.” First Amended Complaint, Dkt. 26 ¶ 2. Plaintiffs ask the Court to certify this action as a class action under Federal Rule of Civil Procedure 23 and be designated class representatives. Plaintiffs also seek compensatory damages, attorneys' fees, and costs.

In the instant Motion, Tesla moves to dismiss this lawsuit under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(3)^[4] and compel this case to arbitration based on the arbitration clauses in Plaintiffs' employment agreements. Plaintiffs argue that the Court should not enforce the Arbitration Agreements because they are unconscionable under California law.

II. Legal Standards

Congress enacted the Federal Arbitration Act (“FAA”) in 1925 “in response to widespread judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). Section 2 of the FAA provides, in relevant part:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. The Supreme Court has described this provision as reflecting both a “liberal federal policy favoring arbitration” and the “fundamental principle that arbitration is a matter of contract.” AT&T Mobility, 563 U.S. at 339. “In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms.” Id. (citations omitted). Other than those for workers engaged in transportation, employment contracts are covered by the FAA. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002).

Parties may agree to have an arbitrator decide not only the merits of a particular dispute but also gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 529 (2019). An “agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.” RentA-Center, West, Inc. v. Jackson, 561 U.S. 63, 70 (2010). Thus, “parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties' agreement does so by ‘clear and unmistakable' evidence.” Henry Schein, 139 S.Ct. at 530 (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)).

Courts apply a two-step analysis to determine whether parties should be compelled to arbitrate a dispute.

The first is contract formation-whether the parties entered into any arbitration agreement at all. The second involves contract interpretation to determine whether this claim is covered by the arbitration agreement. Ordinarily both steps are questions for the court. But where the arbitration agreement contains a delegation clause giving the arbitrator the primary power to rule on the arbitrability of a specific claim, the analysis changes.

Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016) (citations omitted). In the latter case, “the court asks only whether there is a valid delegation clause. If there is, then the arbitrator decides whether the claim is arbitrable.” In re Willis, 944 F.3d 577, 579 (5th Cir. 2019).

“If there is a delegation clause, the motion to compel arbitration should be granted in almost all cases.” Kubala, 830 F.3d at 202.

Like other contracts, arbitration agreements may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability. Rent-A-Center, 561 U.S. at 66. The party seeking to invalidate an arbitration agreement bears the burden of establishing its invalidity. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir. 2004).

III. Analysis

In this case, the Court's analysis begins and ends with the determination that the parties have entered into a valid delegation clause. Willis, 944 F.3d at 579.

A. Arbitrability

When they were hired, Plaintiffs Lynch and Hartsfield agreed to the following arbitration provision, which was contained in their offer letters (the “Employment Agreements”):

[Y]ou and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in your city and state of employment conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

a. Any claim, dispute, or cause of action must be brought in a party's individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding; and

b. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

c. The arbitrator shall not have the authority to consolidate the claims of other employees and shall not have the authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding; and

d. The arbitrator shall issue a written arbitration decision including the arbitrator's essential findings and conclusions and a statement of the award; and e. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and f. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including discrimination and/or retaliation claims filed with the Equal Employment Opportunity Commission and unfair labor practice charges filed with the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.

***

This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

***

If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me prior to June 19, 2017 [for Lynch; August 31, 2017 for Hartsfield] after which date this offer will expire.

Dkt. 28-1 at 11-12, 20-21. Plaintiff Sakhizada agreed to a substantially similar provision in his Employment Agreement. Id. at 28-30.

As stated, parties may agree to delegate threshold arbitrability questions to the arbitrator, if they do so by “clear and unmistakable' evidence.” Henry Schein, 139 S.Ct. at 530. The Fifth Circuit has held that an arbitration agreement “need not contain an express delegation clause to meet this standard; rather, an arbitration agreement that incorporates the AAA Rules or JAMS Rules ‘presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.'” Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274, 279 (5th Cir. 2019) (opinion on remand) (quoting Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012)), cert. denied, 141 S.Ct. 656 (2021); accord Cooper v. WestEnd Cap. Mgmt., L.L.C., 832 F.3d 534, 546 (5th Cir. 2016) (holding that express adoption of JAMS Rules “presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability”).

The Arbitration Agreements here expressly...