Oldham v. Nova Mud, Inc.

JAMES OLDHAM, individually and on behalf of all others similarly situated, Plaintiff, v. NOVA MUD, INC., Defendant.

Civ. No. 2:20-cv-01166 MIS/GBW

United States District Court, D. New Mexico

December 13, 2022

MEMORANDUM OPINION AND ORDER DENYING MOTION TO COMPEL ARBITRATION

MARGARET STRICKLAND, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on the Motion to Compel Arbitration (“Motion”) filed by Third Party Defendant RUSCO Operating, LLC (“RUSCO”). ECF No 27. The Plaintiff, James Oldham, filed a response, and RUSCO filed a reply. ECF Nos. 44, 45. Having considered the parties' submissions, the record, and the relevant law the Motion is DENIED.

BACKGROUND

Plaintiff filed this action on November 9, 2020, on behalf of himself and all others similarly situated, asserting claims against Defendants Nova Mud, RUSCO, and RigUp, Inc. (“RigUp”) for failure to pay overtime in violation of the Fair Labor Standards Act (“FLSA”) and the New Mexico Minimum Wage Act (“NMMWA”). ECF No. 1. RUSCO and RigUp run a workplace bidding platform in the oil and gas industry, and Nova Mud is an oil and gas operator. See id.

RUSCO explains that their business model of providing customers with independent contractors allows oil and gas operators to adjust their workforce seasonally based on demand as “[t]he industry is characterized by its boom-bust cycles.” ECF No. 27 at 4. Nova Mud is one such customer of RUSCO. ECF No. 27 at 1. RUSCO explains that it benefits from broad arbitration clauses in its independent contractor agreements due to the private and relatively affordable nature of arbitration as compared to litigation. ECF No. 27 at 5. Plaintiff alleges instead that RigUp and RUSCO, its wholly owned subsidiary, “perform certain human resources tasks, such as running background checks and payroll functions” for third-party companies like Nova Mud as an “intentional ruse” to evade accountability under FLSA by improperly classifying workers as independent contractors. ECF No. 11 at 9-10.

Plaintiff, prior to performing work for Nova Mud in both New Mexico and Texas, executed an independent contractor agreement with RigUp. ECF No. 18 at 1-2. The operative agreement provides that “[a]ny interactions or disputes between you and a Company are solely between you and that Company.” ECF No. 9-1 at 5. The agreement also indicates that its terms are subject to “Section 24” of RigUp's Terms of Service, which provides for arbitration. Id. at 7; ECF No. 18 at 3-4. The Terms of Service also indicates as follows:

RIGUP IS NOT AFFILIATED WITH ANY SERVICE PROVIDER, OPERATOR, VENDOR, OR THIRD PARTY SERVICE, AND ANY DISPUTE YOU HAVE WITH ANY SERVICE PROVIDER, OPERATOR, VENDOR, THIRD PARTY SERVICE, OR OTHER THIRD PARTY, INCLUDING, WITHOUT LIMITATION, ANY OTHER USER OF THE SERVICE, IS DIRECTLY BETWEEN YOU AND THAT THIRD PARTY . . .

ECF No. 18 at 4.

On January 8, 2021, Plaintiff voluntarily dismissed his claims against RUSCO and RigUp, leaving Nova Mud as the only remaining Defendant. ECF No. 7. Nova Mud then filed a Motion to Dismiss and/or Compel Arbitration, ECF No. 8, which the Court denied, ECF No. 18. In its order, the Court found that non-signatory Nova Mud, as a third-party contract beneficiary, could not equitably estop Plaintiff from avoiding arbitration of his claims under either Texas or New Mexico Law, as Plaintiff's claims do not arise from the contract that contains the arbitration provision but instead from statute, and that the other relevant estoppel doctrines do not apply. ECF No.18 at 20-22.

Nova Mud filed its Answer and Original Third-Party Complaint on September 21, 2021, asserting claims for declaratory judgment and breach of contract against RUSCO. ECF No. 19. Plaintiff filed a motion to strike or sever Nova Mud's Third-Party Complaint, which the Court denied. ECF Nos. 20, 38.

RUSCO filed the instant Motion to Compel Arbitration on December 7, 2021, asking the Court to compel arbitration of the threshold question of arbitrability of Plaintiff's claims. ECF No. 27 at 8. In the alternative, RUSCO argues the Court should compel arbitration of Plaintiff's claims as Plaintiff has consented to arbitration, and also under the theory of intertwined claims. Id. RUSCO further contends that Plaintiff's class action claims should be dismissed as the same agreement contains a class action waiver. Id. at 19.

LEGAL STANDARD

I. Choice of Law

Courts look to state law to determine the applicability of an arbitration provision. See, e.g., Arthur Andersen, 556 U.S. at 624; Wood v. PennTex Res., L.P., 458 F.Supp.2d 355, 361 (S.D. Tex. 2006), aff'd sub nom. Wood v. Penntex Res. LP., 322 Fed.Appx. 410 (5th Cir. 2009) (“[S]tate law governs whether a litigant agreed to arbitrate.”). When faced with a federal question, such as a claim arising under FLSA, a court must apply federal choice-of-law principles. Ellis v. Liberty Life Assurance Co. of Boston, 958 F.3d 1271, 1283 (10th Cir. 2020), cert. denied, Ellis v. Liberty Life Assurance Co. of Boston, 141 S.Ct. 2567 (2021). “[C]ourts have relied upon the Restatement (Second) of Conflicts of the Law for the content of federal common law.” Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778, 809 n.39 (5th Cir. 2009) (Owen, J., dissenting) (collecting cases). The Restatement (Second) of Conflicts applies the “most significant contacts” test when the agreement does not contain a choice of law provision. Restatement (Second) of Conflict of Laws § 188 (1971); see also Bock v. Salt Creek Midstream LLC, No. 19-cv-1163, 2020 WL 3989646, at *17 (D.N.M. July 15, 2020), report and recommendation adopted, 2020 WL 5640669 (D.N.M. Sept. 22, 2020).

II. The Federal Arbitration Act

When a party refuses to arbitrate claims covered by a valid arbitration agreement, the Federal Arbitration Act (“FAA”) permits a party to move to compel arbitration. 9 U.S.C. § 4. However, “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Spahr v. Secco, 330 F.3d 1266, 1269 (10th Cir. 2003) (quoting AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986)). “Accordingly, the first task of a court asked to compel arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (emphasis added). “[T]o determine whether a party has agreed to arbitrate a dispute,” the Court applies “ordinary state-law principles that govern the formation of contracts ....” Walker v. BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir. 2013).

Generally, mutual assent is essential to a contract. Jacks v. CMH Homes, Inc., 856 F.3d 1301, 1304 (10th Cir. 2017). Arbitration including a non-signatory may, however, be required under the following theories: (1) incorporation by reference; (2) assumption, (3) agency, (4) veil-piercing/alter ego, (5) estoppel, and (6) third-party beneficiary. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009); In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 738 (Tex. 2005).

Although the presence of an arbitration clause generally creates a presumption in favor of arbitration, see ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir. 1995), “this presumption disappears when the parties dispute the existence of a valid arbitration agreement,” Dumais v. Am. Golf Corp., 299 F.3d 1216, 1220 (10th Cir. 2002). A motion to compel arbitration is treated similarly to a motion for summary judgment, in that “the party moving to compel arbitration bears the initial burden of presenting evidence sufficient to demonstrate the existence of an enforceable agreement; if it does so, the burden shifts to the nonmoving party to raise a genuine dispute of material fact regarding the existence of an agreement.” Bellman v. i3Carbon, LLC, 563 Fed.Appx. 608, 612 (10th Cir. 2014).

III. The Federal Labor Standards Act

Pursuant to FLSA, determining a plaintiff's status as either an independent contractor or an employee is not guided by any contract the worker may have signed. See Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 570 (10th Cir. 1994) (citing Dole v. Snell, 875 F.2d 802, 804 (10th Cir. 1989)) (“[O]ur inquiry is not limited by any contractual terminology or by traditional common law concepts of ‘employee' or ‘independent contractor.'”). Instead, the inquiry delves into the economic reality of the relationship, including (1) the degree of control exerted by the alleged employer over the worker; (2) the worker's opportunity for profit or loss; (3) the worker's investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which the work is an integral part of the alleged employer's business. Henderson, 41 F.3d at 570. A worker cannot waive her rights under FLSA. Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 69 (2013) (“The FLSA establishes federal minimum-wage, maximum-hour, and overtime guarantees that cannot be modified by contract.”); Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 740 (1981).

DISCUSSION

In the earlier motion to compel arbitration, Nova Mud-a non-signatory to the agreement-argued that it could enforce the arbitration provision against Plaintiff as an intended third-party beneficiary of the contract between Plaintiff and RigUp. See generally ECF No. 8. The Court denied this motion as, among other things, it found no indication that Plaintiff and RigUp intended to give Nova Mud-or indeed, any third party-the benefit of the arbitration agreement. ECF No. 18 at 13. The question now before the Court is whether a staffing agency whose wholly-owned...