Stahl v. Mehlhaff

574 F.Supp.3d 700

Kathy STAHL, Plaintiff

v.Charles MEHLHAFF, et al., Defendants

4:21-cv-4080

United States District Court, D. South Dakota, Southern Division.

Signed December 7, 2021

Stephanie E. Pochop, Johnson Pochop & Bartling Law Office, Gregory, SD, for Plaintiff.

Jack H. Hieb, Kimberly A. Dorsett, Richardson, Wyly, Wise, Sauck & Hieb, LLP, Aberdeen, SD, for Defendant Subway of Huron, Inc.

MEMORANDUM OPINION AND ORDER

Lawrence L. Piersol, United States District Judge

Pending before the Court is Defendants’ Motion to Compel Arbitration and Motion to Dismiss. (Doc. 17). Defendant claims the employment contract Plaintiff entered into with Defendants requires that the parties arbitrate certain disputes. Plaintiff resists the Motion, primarily by challenging whether a valid arbitration agreement exists. (Doc. 22).

BACKGROUND

Although Plaintiff now disputes who employed her, there is substantial evidence to support that she was employed by Subway of Huron South, Inc., from April 26, 2019 until, as she alleges, she was constructively discharged on March 3, 2020. (Doc. 9) She has filed suit alleging Defendants violated the Americans with Disabilities Act, Age Discrimination in Employment Act, and other claims. Id. Plaintiff alleges she is over the age of 40 and has a hearing impairment, of which Defendants were aware based on Plaintiff's previous employment with them at a different Subway. Id. In response to Plaintiff's allegations, Defendants argue Plaintiff was not fired in violation of these statutes, but for conduct at the workplace, including her inability to get along with co-workers. (Doc. 16, PgID 71-73, 78).

As pertinent to this case, when Plaintiff applied for a position with Defendants, she was asked to complete an employment application. The five-page application including, a two-page Agreement to be Bound by Alternative Dispute Resolution Policy, (Doc. 19-1) is part of a lengthy Employee Hire Packet. (Doc. 27-1). Among other provisions, such as agreeing to a background check and to drug testing, the application includes provisions which require the applicant to agree to arbitration to resolve certain employment disputes. (Doc. 19-1, PgID 110; Doc. 27-1, PgID 163). The document shows Plaintiff initialed these provisions and signed the page indicating agreement to submit disputes to arbitration. Id. Following those provisions is a two-page Agreement to be Bound by Alternative Dispute Resolution Policy (Doc. 19-1, PgID 111-112; Doc. 27-1, PgID 164-165). Plaintiff signed in all designated sites for the prospective employee's signature but the employer's signature does not appear on the document. Id.

STANDARD OF REVIEW

The Federal Arbitration Act does not identity the evidentiary standard a party seeking to avoid arbitration must meet. Neb. Mach. Co. v. Cargotec Solutions, LLC , 762 F.3d 737, 741-42 (8th Cir. 2014) ; Claussen v. American Family Life Assurance Co. , 2018 WL 4972565, *1 (D.S.D. 2018). In addressing the issue, courts have concluded that a summary judgment standard is appropriate. Schwalm v. TCF Nat'l Bank , 226 F.Supp.3d 937, 940 (D.S.D. 2016) ; Rahm v. TCF Nat'l Bank , 2017 WL 3605359, *2 (D.S.D. 2017) ; Technetronics, Inc. v. Leybold-Graeus GmbH , 1993 WL 197028, at *2 (E.D. Pa. 1993). In accordance with the summary judgment standard of Federal Rule of Civil Procedure 56(c), the court may consider all evidence in the record, viewing the evidence in the light most favorable to the non-moving party. Rahm , 2017 WL 3605359, *2 ; Lee v. Credit Acceptance Corp. , 2015 WL 7176374, at *1 (W.D. Wis. 2015).

ANALYSIS

1. Arbitration

Both the federal and state governments have recognized that arbitration is a permissible means of resolving disputes, and have adopted strong policies favoring it. Green Tree Fin. Corp.-Alabama v. Randolph , 531 U.S. 79, 89-90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) ; Rossi Fine Jewelers, Inc. v. Gunderson , 648 N.W.2d 812, 814 (S.D. 2002) ("We have consistently favored the resolution of disputes by arbitration."). The Federal Arbitration Act (FAA), 9 U.S.C.§ 1, et seq , governs arbitration and embodies the policy of treating arbitration agreements like any other contract. Green Tree , 531 U.S. at 89, 121 S.Ct. 513. See also Northport Health Services of Arkansas, LLC v. US Dept. of Health and Human Services , 14 F.4th 856, 866 (8th Cir. 2021). South Dakota has adopted the Uniform Arbitration Act, and provides at S.D.C.L. § 21-25A-1 as follows:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives.

S.D.C.L. § 21-25A-1.

In determining whether the parties agreed to arbitrate, the court ordinarily applies "state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). While doing so, the court must give "due regard" to the policies favoring arbitration. Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ. , 489 U.S. 468, 475-76, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). The FAA "mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd , 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (citing 9 U.S.C. §§ 3, 4 ). The "court's role under the FAA is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute." Pro Tech Indus., Inc. v. URS Corp. , 377 F.3d 868, 871 (8th Cir. 2004). See also Foster v. Walmart , 15 F.4th 860, 862 (8th Cir. 2021). As the Eighth Circuit has noted, an arbitration agreement can "be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Northport , 14 F.4th at 867 (cleaned up).

In the present case, South Dakota's contract law governs in determining whether the parties formed a valid agreement to arbitrate. South Dakota courts apply ordinary contract principles to arbitration agreements. Masteller v. Champion Home Builders, Co. 723 N.W.2d 561 (S.D. 2006). The required elements to form a valid contract in South Dakota are (1) parties capable of contracting; (2) their Consent; (3) a lawful purpose; and (4) sufficient consideration. Setliff v. Akins , 616 N.W.2d 878 (S.D. 2000) (citing S.D.C.L. § 53-1-2 ). In Mastellar , the problem before the Court was the interpretation of documents submitted to plaintiff homebuyers in the course of purchasing and seeking subsequent repairs to a manufactured home. 723 N.W.2d at 562. There was no dispute that the initial contract between the parties did not contain an arbitration clause, but that a subsequent "Homeowners Guide, Limited Warranty and Arbitration Agreement" was given to the homeowners by the homebuilders. Id. at 563. Despite Defendant's claim that this document and the plaintiffs’ seeking additional work on the house constituted acceptance of the arbitration provision, the South Dakota Supreme Court disagreed. In the court's view, "there was no unambiguous conduct evincing acceptance of the benefits of the Homeowner's Guide with its mandatory arbitration clause." Id. at 566. Plaintiffs had signed only the initial contract for the home and there was "no mutual assent" with respect to the arbitration agreement the Defendants sought to enforce. Id.

In the case before this court, there is no dispute that the parties were capable of contracting, that the employment contract with its arbitration agreement had a lawful purpose, and that the consideration was sufficient. S.D.C.L. § 53-1-2. The court finds these aspects of South Dakota law are met. As Masteller notes, however, "mutual assent" is necessary, id. at 563, and that is pertinent to the issues before the court. Plaintiff contests whether there was consent to the agreement because the employer apparently did not sign the agreement, and did not "condition the initialing of her application form as an agreement to arbitrate." (Doc. 22, PgID 125). Plaintiff's position is that absent the signature of the employer, mutual assent was lacking and the agreement was not valid. Id.

Plaintiff relies on Huckaba v. Ref-Chem, L.P. , 892 F.3d 686 (5th Cir. 2018) where the court invalidated an arbitration agreement that the employer had failed to sign. The task before the court was to interpret Texas contract law, and in doing so, the court made a number of observations. First, in determining whether a signature on a contract is necessary, ascertaining the intent of the parties is crucial. Id. at 689. Further, Texas contract law has been interpreted not to require the signatures of the parties, as long as the parties consent to the terms and do not otherwise require signatures on the document. Id. Furthermore, a signature block is not sufficient to impose a requirement that the parties sign the document. Id. In the case before it, the court noted, the language of the contract prepared by the employer provided that by "signing the agreement the parties are giving up any right they may have to sue each other," id. , and that the agreement could not be modified except if any change was in writing and "signed by all parties." Id. at 688. In the court's view, this express language clearly indicated an intent for the parties to be bound to the arbitration agreement only by signing it. Id. at 691. As the court concluded, "in this case, we have more than a blank signature block that speaks to...