LITTLER MENDELSON, P.C. A PROFESSIONAL CORPORATION 333 Bush Street 34th Floor San Francisco, CA 94104 415.433.1940 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Robert G. Hulteng, CA Bar No. 071293 (pro hac vice) Damon M. Ott, CA Bar No. 215392 (pro hac vice) Danton W. Liang, CA Bar No. 303487 (pro hac vice) LITTLER MENDELSON, P.C. 333 Bush Street, 34th Floor San Francisco, CA 94104 Telephone: 415.433.1940 Facsimile: 415.399.8490 Peter C. Prynkiewicz, AZ Bar No. 015256 LITTLER MENDELSON, P.C. Camelback Esplanade 2425 East Camelback Road, Suite 900 Phoenix, AZ 85016 Telephone: 602.474.3600 Facsimile: 602.957.1801 Attorneys for Defendant EXPRESS MESSENGER SYSTEMS, INC. DBA ONTRAC UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA (PHOENIX DIVISION) Christerphor Ziglar, Leah Candelaria, and Maurice Meintzer, individually and on behalf of all others similarly situated, Plaintiffs, v. Express Messenger Systems, Inc., a Delaware corporation, d/b/a ONTRAC, ABC Entities 1-20, and John and Jane Does 1-20 Defendants. Case No. 2:16-cv-02726-PHX-SRB DEFENDANT’S MOTION TO DISMISS OR, ALTERNATIVELY, STAY PROCEEDINGS, AND COMPEL ARBITRATION Case 2:16-cv-02726-SRB Document 35 Filed 11/21/16 Page 1 of 22
Transcript
LITTLER MENDELSON, P.C. A P R O F E S S I O N A L C O R P O R A T I O N
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Robert G. Hulteng, CA Bar No. 071293 (pro hac vice)Damon M. Ott, CA Bar No. 215392 (pro hac vice) Danton W. Liang, CA Bar No. 303487 (pro hac vice) LITTLER MENDELSON, P.C. 333 Bush Street, 34th Floor San Francisco, CA 94104 Telephone: 415.433.1940 Facsimile: 415.399.8490 Peter C. Prynkiewicz, AZ Bar No. 015256 LITTLER MENDELSON, P.C. Camelback Esplanade 2425 East Camelback Road, Suite 900 Phoenix, AZ 85016 Telephone: 602.474.3600 Facsimile: 602.957.1801
Attorneys for Defendant EXPRESS MESSENGER SYSTEMS, INC. DBA ONTRAC
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA (PHOENIX DIVISION)
Christerphor Ziglar, Leah Candelaria, and Maurice Meintzer, individually and on behalf of all others similarly situated,
Plaintiffs,
v.
Express Messenger Systems, Inc., a Delaware corporation, d/b/a ONTRAC, ABC Entities 1-20, and John and Jane Does 1-20
Defendants.
Case No. 2:16-cv-02726-PHX-SRB
DEFENDANT’S MOTION TO DISMISS OR, ALTERNATIVELY, STAY PROCEEDINGS, AND COMPEL ARBITRATION
Case 2:16-cv-02726-SRB Document 35 Filed 11/21/16 Page 1 of 22
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TABLE OF CONTENTS
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I. INTRODUCTION ................................................................................................................... 1
II. PROCEDURAL HISTORY ..................................................................................................... 2
III. RELEVANT FACTS ............................................................................................................... 3
A. OnTrac And The Regional Service Providers ............................................................. 3
B. SCI And The Services It Provides ............................................................................... 4
C. The Arbitration Provision ............................................................................................ 6
IV. LEGAL ARGUMENT ............................................................................................................. 8
A. The Court Should Order Plaintiffs To Arbitrate Their Claims On An Individual Basis And Dismiss Or Alternatively Stay The Action Pending Arbitration .................................................................................................................... 8
1. The Federal Arbitration Act Applies to Plaintiff’s Arbitration Provisions And Favors Arbitration Of Plaintiffs’ Claims................................ 8
2. Plaintiffs’ Claims Are Subject to Binding Agreements To Arbitrate ............ 10
3. Plaintiffs’ Agreement To The Arbitration Provision Constitutes An Enforceable Agreement To Arbitrate ............................................................. 11
4. Plaintiffs’ Claims Fall Within the Scope of the Arbitration Provision .......... 12
5. OnTrac is a Third Party Beneficiary Entitled to Enforce the Arbitration Provisions Against Plaintiffs.......................................................................... 13
B. The FAA Requires that Plaintiffs’ Claims Be Dismissed in Favor of Arbitration .................................................................................................................. 15
V. CONCLUSION ...................................................................................................................... 16
Case 2:16-cv-02726-SRB Document 35 Filed 11/21/16 Page 2 of 22
LITTLER MENDELSON, P.C. A P R O F E S S I O N A L C O R P O R A T I O N
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TABLE OF AUTHORITIES
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Cases
Alvarado v. Pacific Motor Trucking Co., No. EDCV 14-0504-DOC (DTBx), 2014 WL 3888184 (C.D. Cal. Aug. 7, 2014) .......................10
AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011) .....................................................................................................................8
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) .........................................................................................................................9
Circuit City Stores, Inc. v. Najd, 294 F.3d 1104 (9th Cir. 2002) .......................................................................................................12
Citizens Bank v. Alafabco, Inc., 539 U.S. 52 (2003) .........................................................................................................................10
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) .......................................................................................................................11
In re Express Messenger Systems Wage and Hour Cases, No. JCCP 4789, Slip Op. (Cal. Super. Ct. Aug. 21, 2015) ............................................................15
First Options v. Kaplan, 514 U.S. 938 (1995) .......................................................................................................................11
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) ...........................................................................................................................9
Greene v. Subcontracting Concepts, L.L.C., No. 1:13-CV-01500-AJN, Slip Op. (S.D.N.Y. Mar. 19, 2014) .....................................................15
Hall St. Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) .........................................................................................................................9
Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016) ...................................................................................................8, 12
Michalski v. Circuit City Stores, Inc., 177 F.3d 634 (7th Cir. 1999) .........................................................................................................11
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LITTLER MENDELSON, P.C. A P R O F E S S I O N A L C O R P O R A T I O N
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TABLE OF AUTHORITIES (CONTINUED)
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Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) .....................................................................................................8, 12
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) .............................................................................................................................9
Nahom v. Blue Cross and Blue Shield of Arizona, 180 Ariz. 548 (1994) ......................................................................................................................14
Norton v. First Fed. Sav., 128 Ariz. 176 (1981) ......................................................................................................................13
Ouedraogo v. A-1 International Courier Service, Inc., No. 1:12-cv-05651-AJN-AJP, Slip Op. (S.D.N.Y. May 13, 2014) ...............................................15
Owner-Operator Indep. Drivers Ass’n, Inc. v. Swift Transp. Co., 288 F. Supp. 2d 1033 (D. Ariz. 2003) ...........................................................................................10
Perry v. Thomas, 482 U.S. 483 (1987) .........................................................................................................................9
Preston v. Ferrer, 552 U.S. 346 (2008) .........................................................................................................................9
Sanchez v. 4SameDay Transportation, et al., No. RIC1500023, Slip Op. (Cal. Super. Ct. 2015) ........................................................................15
Southerland v. Corporate Transit of America, No. 13-14462, Slip Op. (E.D. Mich. Sept. 30, 2014) ....................................................................15
Totten v. Kellogg Brown & Root, LLC, 152 F.Supp.3d 1243 (C.D. Cal. 2016) .......................................................................................8, 12
Two Brothers Distributing Inc. v. Valero Marketing and Supply Co., No. CV-15-05109-PHX-DGC, 2015 WL 7567487 (D. Ariz. Nov. 25, 2015) ...............................13
Villalpando v. Transguard Insurance Company of America, 17 F.Supp.3d 1969 (N.D. Cal. 2014) .............................................................................................10
Federal Arbitration Act ................................................................................................................ passim
National Labor Relations Act ..........................................................................................................8, 12
Other Authorities
Fed. R. Civ. P. 12(b)(1)..........................................................................................................................1
Fed. R. Civ. P. 12(b)(3)..........................................................................................................................1
Fed. R. Civ. P. 12(b)(6)..........................................................................................................................1
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Pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(3), and 12(b)(6), the Federal Arbitration
Act, 9 U.S.C. § 1 et seq.; and valid and enforceable arbitration agreements, Defendant
Express Messenger Systems, Inc. d/b/a OnTrac (“Defendant” or “OnTrac”) respectfully
moves this Court for an Order dismissing Plaintiffs Christerphor Ziglar’s, Leah Candelaria’s,
and Maurice Meintzer’s (collectively “Plaintiffs”) claims and compelling individual
arbitration. Alternatively, Defendant moves for an Order staying these proceedings pending
arbitration. As explained below, Plaintiffs have contractual obligations to bring their claims
in an arbitral forum in lieu of litigating in a court of law; accordingly, this Court lacks
subject matter jurisdiction, this is an improper venue in which to litigate Plaintiffs’ claims,
and Plaintiffs fail to state a claim upon which relief may be granted. This Motion is
supported by the following Memorandum of Points and Authorities and the pleadings and
documents contained in the Court’s record, all of which are incorporated by reference herein.
MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION
Plaintiffs bring this putative class and collective action against OnTrac asserting
various wage and hour claims under the Fair Labor Standards Act (“FLSA”) and Arizona
law on behalf of all “drivers” who performed OnTrac-related delivery services anywhere in
Arizona and the surrounding states from August 11, 2013 to the present. Plaintiffs assert that
despite their express agreement to perform commercial transportation services as
independent contractors, they should have been classified as employees. And despite
contracting with separate businesses to which OnTrac subcontracts regional transportation
services (“Regional Service Providers” or “RSPs”), Plaintiffs contend they were employed
not by the RSPs, but by OnTrac based solely on its alleged exercise of control over Plaintiffs.
Whatever the merits of the case, Plaintiffs cannot litigate their claims in court because
Plaintiffs have agreed that their claims must be resolved through individual arbitration.
Specifically, Plaintiffs entered into written owner-operator agreements with Subcontracting
Concepts CT LLC (“SCI”) for the purpose of performing OnTrac-related services for the
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RSPs with which they contracted. These agreements contained an express “Arbitration”
provision whereby Plaintiffs agreed to arbitrate any dispute relating to any claim relating to,
among other things, the service arrangement between Plaintiffs and “SCI’s clients.” While
not a signatory to the owner-operator agreements, OnTrac may compel Plaintiffs to arbitrate
their claims as a third-party beneficiary under arbitration provisions contained in the
agreements. Accordingly, because Plaintiffs have refused to honor the terms of the
Arbitration provisions, OnTrac now moves to compel arbitration of Plaintiffs’ claims and for
the instant action to be dismissed or, alternatively, stayed pending arbitration.
II. PROCEDURAL HISTORY
On August 11, 2016, Plaintiff Christerphor Ziglar (“Ziglar”) initiated the instant
putative collective and class action against OnTrac by filing his Complaint and asserting
claims for failure to pay overtime, failure to pay minimum wages, and unlawful deductions,
on behalf of a proposed class of alleged current and former delivery drivers who performed
services in Arizona and neighboring states during the period of August 11, 2013 to the
present.1 Ziglar brings these claims based on the contention that he and the other owner
operators he seeks to represent qualified as OnTrac’s employees and were denied the
benefits afforded employees by OnTrac’s misclassification of them as independent
contractors.
On November 4, 2016, Plaintiff Ziglar filed a First Amended Complaint (“FAC”),
adding two additional named Plaintiffs: Leah Candelaria and Murice Meintzer. In their
FAC, Plaintiffs Ziglar, Candelaria, and Meintzer (collectively “Plaintiffs”) assert the same
claims as the original Complaint.
1 Plaintiff also initially brought his Complaint against ABC Entities 1-20 and John and Jane Does 1-20, however, in its Order dated October 25, 2016 (Document 25), the Court dismissed the fictitiously-named defendants, leaving OnTrac the only defendant.
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III. RELEVANT FACTS
A. OnTrac And The Regional Service Providers
OnTrac is a shipping and transportation logistics company that specializes in the
arranging of regional shipping services in the Western United States, including Arizona,
where it is headquartered. (Declaration of Richard W. Chase in support of Defendant’s
Motion to Compel Arbitration ((“Chase Dec.”), ¶ 2.) Throughout the period relevant here,
OnTrac has contracted or brokered all local and regional cartage service – known in the
transportation industry as “first and last mile service” – to independent motor carriers in the
business of providing regional transportation services in the locations where needed. (Chase
Dec., ¶ 3; see also, Amend. Comp. ¶¶ 1, 14 (alleging “OnTrac ... contracts with various
companies, called Regional Service Providers (“RSPs”), who in turn contract with drivers
who physically deliver packages...).)
OnTrac generally awards contracts for regional first and last mile service through an
open bid process, in which contract bids are solicited by the posting of a request for proposal
detailing the service to be contracted, and the service awarded to the carrier selected by
OnTrac. (Chase Dec., ¶ 4.) Because these contracts award first and last mile service for
entire regions, their terms are memorialized in a “Regional Service Agreement” (or “RSA”)
and the carrier awarded the contract is often referred to as a “Regional Service Provider” (or
“RSP”). (Id.) RSPs vary in size, scope of services offered, manner of operation, and
business form, as OnTrac imposes no restrictions on the types of entities that may bid for or
be awarded an RSA (so long as they can legally perform the services being contracted).
(Chase Dec., ¶ 5.)
The “various companies” to which OnTrac contracts regional service operate separate
businesses solely responsible for their own business decisions. (Chase Dec., ¶ 9; Amend.
Comp. ¶ 1.) This includes all decisions relating to the performance of the services contracted
pursuant to an RSA, including whether to utilize employee drivers, subcontracted motor
carriers, independent contractor owner-operators, or any combination thereof. (Id.)
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B. SCI And The Services It Provides
Subcontracting Concepts CT LLC (“SCI”) is a third party administrator that provides
various types of administrative services to clients in the transportation industry. SCI services
two categories of clients: (1) entities in the business of providing, arranging, or brokering
transportation services (“Carrier and Logistics Clients”), which often contract actual
transport and hauling service to motor carriers; and (2) independent contractor motor carriers
that provide actual transport and hauling service, which often obtain service engagements
through contracts with other transportation entities like the Carrier and Logistics Clients
(“Owner Operator Clients”). (See Declaration of Dominick Simone, in support of
Defendant’s Motion to Compel Arbitration, (“Simone Dec.”), ¶ 2.) In addition to the
payment processing and other administrative services SCI offers, it also offers “matchmaker”
services whereby it seeks to connect clients of one category type with clients of the other
type to establish service arrangements (i.e., pairing Carrier and Logistics Clients that need
independent motor carrier service with Owner Operator Clients seeking contract
engagements). (Simone Dec., ¶ 3.)
For its Owner Operator Clients, SCI offers various optional services designed to
support their operation as an independent motor carrier, including access to discounted
insurance programs, equipment purchasing options, and tax escrow accounts for quarterly
reporting and payment of taxes. (Simone Dec., ¶4.) SCI also performs a verification service
that confirms an Owner Operator Client is capable of legally performing the transportation
services to be contracted by SCI’s Carrier and Logistics Clients, including verifying that the
Owner Operator Client possesses the necessary equipment, insurance policies/coverage,
operating authority/licensure, etc. (Simone Dec., ¶ 5.)
For its Carrier and Logistics Clients, SCI provides a similar sourcing function by
giving these clients access to a large pool of qualified independent motor carriers. (Simone
Dec., ¶ 6.) SCI also provides a payment processing function that its Carrier and Logistics
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Clients can use to issue payments to SCI-affiliated drivers. (Simone Dec., ¶ 7.) In this
capacity, SCI serves as the payor of the payments and is also responsible for issuing and
filing the related tax documentation. (Id.)
SCI seeks to simplify the contracting process by handling the contracting for both
sides of the relationship. It does this by entering into independent owner-operator
agreements (“Owner Operator Agreements”) with each Owner Operator Client, as well as
written agreements with each Carrier and Logistics Client. (Simone Dec., ¶ 8.) The Owner
Operator Agreement sets forth the general terms under which an Owner Operator (e.g.,
Plaintiffs) agrees to provide services for (or arranged by) any Carrier or Logistics Client.
(Id.) Each Carrier and Logistics Client likewise agrees to be bound by the terms of the
Owner Operator Agreement by entering into a separate agreement directly with SCI. (Id.)
OnTrac and each of the RSPs with which Plaintiffs contracted directly have entered into such
agreements with SCI and at all times relevant were SCI clients.2 This contracting process
allows Owner Operators to perform services for (or arranged by) any Carrier and Logistics
Client without needing to enter into separate agreements in each instance. (Simone Dec., ¶
9.) SCI clients are free to enter into additional agreements directly with one another
provided they are consistent with the terms of the SCI agreements, and some do so. (Id.)
OnTrac contracts with SCI to handle the processing of payments to RSPs, including
the RSPs with which Plaintiffs contracted. (See Chase Decl., ¶ 10.) The payments SCI
processes include the entire amount owed for the RSP’s regional delivery services (as
negotiated between OnTrac and the RSP), as well as any other amounts OnTrac owes the
2 ZIGLAR: SCI processed payments to Plaintiff Ziglar on behalf of the following three RSPs during the periods indicated: Silverback Industries, LLC (12/15/15 – 3/15/16); AZ Transport Group LLC (3/15/16 – 4/15/16); and Damason Co. (4/15/16 – 5/6/16). (Simone Dec., ¶ 12.) CANDELARIA: SCI processed payments to Plaintiff Candelaria on behalf of the following three RSPs during the periods indicated: B&G Courier (11/1/14 – 11/15/14); Steven Toufic Jisr (11/16/14 – 1/15/16); and AZ Transport Group LLC (1/1/16 – 4/30/16). (Simone Dec., ¶ 14.) MEINTZER: SCI processed payments to Plaintiff Meintzer on behalf of the following two RSPs during the periods indicated: B&G Courier (5/16/14 – 1/15/15) and Steven Toufic Jisr (12/1/14 – 10/15/16). (Simone Dec., ¶ 16.)
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RSP, such as marketing payments owed for the RSP’s performance of marketing activities
pursuant to a separate marketing agreement directly between OnTrac and the RSP. (Chase
Decl., ¶¶ 10,11,12.) Similarly, RSPs that contract with SCI use SCI to process payments to
the Owner Operator Clients with which they contract for transportation services. (Simone
Decl., ¶ 7.)
C. The Arbitration Provision
Plaintiffs Ziglar, Candelaria, and Meintzer each contracted to perform OnTrac-related
transportation services for RSPs that contract with SCI as Carrier and Logistics Clients.
(Amend. Comp. ¶¶ 1,12, 14, 15; Simone Dec., ¶¶ 10, 11, 13, 15.) To establish the service
arrangements with the RSPs, each Plaintiff entered into a contractual relationship with SCI
by voluntarily entering into an Owner Operator Agreement. The Owner Operator
Agreements Plaintiffs initially entered into to establish their relationships with SCI and its
clients all contained the following identical “Arbitration Provision”:
ARBITRATION:
In the event of any dispute, claim, question, or disagreement arising from or relating to this agreement or the breach thereof, or service arrangement between Owner/Operator and SCI’s clients, the parties hereto shall use their best efforts to settle the dispute, claim, question, or disagreement. To this effect, the parties shall consult and negotiate with one another in good faith, in an attempt to reach a just and equitable solution, satisfactory to both parties. If resolution of the dispute, claim, question, or disagreement is not reached within a period of 60 days, then upon notice by either party, disputes that are within the jurisdictional maximum for small claims will be settled in the small claims court where the Owner/Operator resides.
All other disputes, claims, questions, or differences beyond the jurisdictional maximum for small claims courts within the locality of the Owner/Operator's residence shall be finally settled by arbitration in accordance with the Federal Arbitration Act.
Neither you nor SCI shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity.
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The arbitration panel shall be made up of three (3) people. Each party shall choose one arbitrator that will serve on the panel in a non-neutral capacity. The two chosen arbitrators will select a third arbitrator who will be neutral. If the chosen arbitrators are unable to select a third arbitrator within ten (10) days of their selection, a third arbitrator shall be appointed by the American Arbitration Association. Each arbitrator shall have experience in the transportation industry and have a legal background.
Consistent with the expedited nature of arbitration, each party will upon written request of the other party promptly provide copies of any relevant documents necessary to support any claim or defense. All parties shall have the discretion to examine up to three (3) witnesses per party. Each deposition shall be limited to a maximum of two (2) hours. Any objections based on privilege and/or confidential information will be reserved for arbitration. The arbitration and any discovery prior to the arbitration will take place in a location convenient to both parties. The parties may submit briefs in lieu of any formal gathering for arbitration.
The arbitrators will have authority to award actual monetary damages only. No punitive or equitable relief is authorized. All parties shall bear their own costs for arbitration and no attorney's fees or other costs shall be granted to either party.
The arbitrators' decision shall be final and legally binding and judgment may be entered thereon.
(Simone Dec., ¶¶ 10, 11, 13, 15, Exhs. A, C, E, at section Twenty-Sixth.)
At the time Plaintiffs executed their Owner Operator Agreements with SCI, they also
signed a one-page document entitled Independent Contractor Acknowledgement form,
whereby they further acknowledged their understanding and agreement to sixteen points
encompassed by or relating to the terms of Owner Operator Agreement. (Simone Decl., ¶
10.) Point sixteen of the Acknowledgement form specifically provides: “You understand
you may opt of the Arbitration provisions within the Owner Operator Agreement by
notifying SCI in writing, and by not opting out you are subject to the arbitration and class
Like the other fifteen points addressed in the Acknowledgment form, Plaintiffs each
indicated their understanding of the opt-out provision contained in point sixteen by initialing
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next to it (in addition to executing the form at the bottom).3 (Id.) None of the Plaintiffs
chose to opt-out.
IV. LEGAL ARGUMENT
A. The Court Should Order Plaintiffs To Arbitrate Their Claims On An Individual Basis And Dismiss Or Alternatively Stay The Action Pending Arbitration
1. The Federal Arbitration Act Applies to Plaintiff’s Arbitration Provisions And Favors Arbitration Of Plaintiffs’ Claims
As affirmed by the United States Supreme Court in AT&T Mobility, LLC v.
Concepcion, 131 S. Ct. 1740, 1745 (2011) (“Concepcion”), the Federal Arbitration Act
(“FAA”) declares a liberal policy favoring the enforcement of arbitration agreements. “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 FAA preempts all
3 In opposition to this motion, Defendant anticipates Plaintiffs will rely upon the Seventh Circuit’s holding in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016), and the Ninth Circuit’s more recent holding in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), wherein the Courts adopted the National Labor Relations Board’s holding in D.R. Horton to deny a motion to compel based on the arbitration provision’s requirement that claims be arbitrated on an individual basis (i.e., a class action waiver), because the mandatory waiver violates the National Labor Relations Act (“NLRA”) making the agreement unlawful and, therefore, unenforceable. Plaintiffs’ reliance on Morris and Lewis would, however, be misplaced as they have no application here. First, Morris, and cases adopting this argument in both circuits have all been cases predicated on the existence of an admitted or otherwise established employment relationship. See Totten v. Kellogg Brown & Root, LLC, 152 F.Supp.3d 1243 (C.D. Cal. 2016) (finding that arbitration agreement entered into between mining company and its employee interfered with the exercise of the employee's substantive rights under NLRA), Mackall v. Healthsource Glob. Staffing, Inc., No. 16-CV-03810-WHO, 2016 WL 6462089, at *1 (N.D. Cal. Nov. 1, 2016) (concluding the class waiver is invalid under the NLRA and Morris v. Ernst & Young where Plaintiffs were non-exempt hourly registered nurses).; Gonzalez v. Ceva Logistics U.S., Inc., No. 16-CV-04282-WHO, 2016 WL 6427866 (N.D. Cal. Oct. 31, 2016) (holding non-exempt hourly employees’ class waiver agreement violated the NLRA where Plaintiff worked as a non-exempt hourly employee).
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conflicting state laws intended to frustrate the purpose of the FAA (e.g., laws that apply
stricter requirements to arbitration agreements than contracts generally). Preston v. Ferrer,
552 U.S. 346, 356-357 (2008) (“The FAA’s displacement of conflicting state law is now
well-established, and has been repeatedly reaffirmed”); Perry v. Thomas, 482 U.S. 483, 492-
93, fn. 9 (1987).
In enacting the FAA, Congress sought to overcome widespread judicial hostility to
the enforcement of arbitration agreements. See Hall St. Assoc., L.L.C. v. Mattel, Inc., 552
U.S. 576, 581 (2008); see also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443
(2006) (explaining that FAA was enacted “[t]o overcome judicial resistance to arbitration”).
The Court explained that the FAA permits private parties to “trade[] the procedures . . . of
the courtroom for the simplicity, informality, and expedition of arbitration.” Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991) (citing Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
The FAA is designed “to move the parties to an arbitrable dispute out of court and
into arbitration as quickly and easily as possible.” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 22 (1983). To this end, the FAA not only placed arbitration
agreements on equal footing with other contracts, but amounts to a “congressional
declaration of a liberal federal policy favoring arbitration agreements.” Perry, 482 U.S. at
489 (quoting Moses H. Cone, 460 U.S. at 24).
The identical arbitration provision in Plaintiff’s Owner Operator Agreements (for
brevity, the “Arbitration Provision” or “Provision”) is clearly governed by the FAA. As a
preliminary matter, the Arbitration Provision itself explicitly confirms the FAA’s
applicability. Specifically, the Provision expressly states that “all other disputes, claims,
questions, or differences beyond the jurisdictional maximum of small claims courts within
the locality of the Owner / Operator’s residence shall be finally settled by arbitration in
accordance with the Federal Arbitration Act.” Id. (emphasis supplied).
The FAA also governs because the Arbitration Provision is contained in contracts
“evidencing a transaction involving commerce.” The term “involving commerce” is
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interpreted as broadly as constitutionally permissible, and does not require “showing any
specific effect upon interstate commerce.” See, e.g., Citizens Bank v. Alafabco, Inc., 539
U.S. 52, 56 (2003) (finding the requisite commerce for FAA coverage even when the
individual transaction did not have a substantial effect on commerce). Here, Plaintiffs
performed commercial transportation services that they specifically allege included the
transport of OnTrac-related shipments in interstate commerce, and were compensated for
such services by RSPs through payments processed by SCI (in accordance with the terms of
the Owner Operator Agreements containing the Arbitration Provision). (Amend. Comp. ¶
11.) Plaintiffs’ economic activity therefore bears on interstate commerce, rendering the FAA
applicable.4 And consistent with the United States Supreme Court’s repeated holdings
regarding the FAA, the Arbitration Provision should be read liberally to effectuate the
Provision’s purpose of requiring arbitration of claims like those alleged here by Plaintiffs.
2. Plaintiffs’ Claims Are Subject to Binding Agreements To Arbitrate
Plaintiffs each voluntarily entered into the Owner Operator Agreements containing
the Arbitration Agreement, thereby expressly agreeing to arbitrate “any dispute, claim,
question, or disagreement arising from or relating to” the agreement. As demonstrated
below, this arbitration provision is valid and enforceable, and covers Plaintiffs’ claims.
4 Defendant anticipates Plaintiffs may seek to avoid application of the FAA based on the “transportation worker exemption” found in 9 U.S.C. section 1, which requires a contract of employment. While this argument is best addressed, if at all, in Defendant’s Reply, Defendant notes that there is no basis for application of the exemption here. As they admit, Plaintiffs did not enter into contracts of employment, but rather entered into written agreements with the RSPs that “state[d] that the drivers (including Plaintiffs) are hired by the RSPs as independent contractors...” Plaintiffs may argue that the “economic reality” of the relationship differs from the characterization given by the parties, but they cannot refute that the parties expressly characterized the agreement as being an independent contractor agreement and not an employment agreement. Additionally, district courts within the Ninth Circuit, including the District of Arizona, have routinely honored the parties’ characterization of their relationship without resorting to discovery or a merits-based determination. See Owner-Operator Indep. Drivers Ass’n, Inc. v. Swift Transp. Co., 288 F. Supp. 2d 1033 (D. Ariz. 2003); Villalpando v. Transguard Insurance Company of America, 17 F.Supp.3d 1969 (N.D. Cal. 2014); Alvarado v. Pacific Motor Trucking Co., No. EDCV 14-0504-DOC (DTBx), 2014 WL 3888184 (C.D. Cal. Aug. 7, 2014).
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Furthermore, as a third-party beneficiary of the Owner Operator Agreements, specifically the
Arbitration Provision, OnTrac is legally entitled to require Plaintiffs to pursue their claims
against it in individual arbitration.
3. Plaintiffs’ Agreement To The Arbitration Provision Constitutes An Enforceable Agreement To Arbitrate
In considering the enforceability of an arbitration agreement, the Court must conduct
a two-step inquiry to answer the following: (1) have the parties formed a valid and
enforceable agreement to arbitrate; and (2) does the agreement to arbitrate encompass the
underlying dispute. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985); 9 U.S.C.
§§ 2, 3. In making the determination as to validity, courts “should apply ordinary state-law
principles that govern the formation of contracts” to determine whether a party has agreed to
arbitrate a dispute. First Options v. Kaplan, 514 U.S. 938, 944 (1995). Thus, Arizona
contract law applies as to whether offer, acceptance, and consideration exist. In conducting
its analysis, the Court is required to resolve any doubts in favor of arbitration. Dean Witter,
470 U.S. at 218. If the Court concludes that a valid contract exists, then it must order the
parties to arbitration. See 9 U.S.C. § 3.
SCI offered the Owner Operator Agreements to Plaintiffs. Plaintiffs clearly
communicated their acceptance of the Arbitration Agreements by signing and returning them
to SCI. Plaintiffs further demonstrated their understanding and acceptance of the terms of
the Owner Operator Agreements by executing the Independent Contractor Acknowledgment
form, which expressly advised Plaintiffs that: “THIS CONTRACT CONTAINS A
BINDING ARBITRATION PROVISION AND CLASS ACTION WAIVER WHICH
AFFECTS YOUR LEGAL RIGHTS AND MAY BE ENFORCED BY THE PARTIES.” Id.
(emphasis in original).
In the Owner Operator Agreements, both SCI and Plaintiffs agreed to arbitrate any
disputes they have against one another, supplying consideration for the arbitration
agreements. Id. “A mutual promise to arbitrate, binding both parties . . . constitutes
sufficient consideration.” Michalski v. Circuit City Stores, Inc., 177 F.3d 634, 637 (7th Cir.
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1999); see also Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir. 2002)
(“Circuit City’s promise to be bound by the arbitration process itself serves as adequate
consideration.”) (internal citations omitted).
Accordingly, there was offer, acceptance, and consideration and, as a result, the
Arbitration Provision in Plaintiffs’ Owner Operator Agreements are valid and enforceable.5
And as further clarified by the Acknowledgment form, Plaintiffs had the right to opt-out of
the Arbitration Provision is they wished; a right none of the Plaintiffs exercised.
4. Plaintiffs’ Claims Fall Within the Scope of the Arbitration Provision
It is clear that all of Plaintiffs’ claims fall within the scope of the arbitration
provisions. The arbitration provision first begins by urging the parties to use their best
efforts to settle “any dispute, claim, or question, or disagreement arising from or relating to
5 Defendant anticipates Plaintiffs may rely upon the Ninth Circuit’s holding in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) (and possibly the Seventh Circuit’s prior holding in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016)) to argue Plaintiffs’ Arbitration Provisions are unenforceable because they require Plaintiffs to arbitrate claims on an individual basis in violation of the National Labor Relations Act (“NLRA”), as opined by the National Labor Relations Board’s in D.R. Horton. Again, this argument is best addressed, if at all, in Defendant’s Reply. Regardless, it is worth briefly addressing. First, Plaintiffs’ reliance on Morris and Lewis would be misplaced, as they have no application here. Morris and all cases in both the Ninth and Seventh circuits in which the NLRB’s D.R. Horton rationale has been adopted involved acknowledged employment relationships, not alleged employment relationships based on the supposed “economic reality”, and certainly did not involve instances in which the parties entered into written agreements expressly characterizing the plaintiff as an independent contractor. See Totten v. Kellogg Brown & Root, LLC, 152 F.Supp.3d 1243 (C.D. Cal. 2016) (finding that arbitration agreement entered into between mining company and its employee interfered with the exercise of the employee's substantive rights under NLRA), Mackall v. Healthsource Glob. Staffing, Inc., No. 16-CV-03810-WHO, 2016 WL 6462089, at *1 (N.D. Cal. Nov. 1, 2016) (concluding the class waiver is invalid under the NLRA and Morris v. Ernst & Young where Plaintiffs were non-exempt hourly registered nurses).; Gonzalez v. Ceva Logistics U.S., Inc., No. 16-CV-04282-WHO, 2016 WL 6427866 (N.D. Cal. Oct. 31, 2016) (holding non-exempt hourly employees’ class waiver agreement violated the NLRA where Plaintiff worked as a non-exempt hourly employee). Second, even if the holding of Morris was somehow applied here, Plaintiffs’ agreements to arbitrate would not be invalidated by the NLRA because Plaintiffs had the right to opt-out of the Arbitration Provision.
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this agreement or the breach thereof . . .” Only if the parties’ best efforts fail can either party
seek arbitration for “disputes, claims, questions, or differences beyond the jurisdictional
maximum for small claims courts within the locality of the Owner / Operator’s residence . . .
.” Id. The broadly worded language of the Arbitration Provision is therefore meant to
capture “any dispute, claim, or question, or disagreement” that arises out of the agreement.
All of Plaintiffs’ claims directly relate to and arise from Plaintiffs’ performance of
services under their Owner Operator Agreements. This is clearly demonstrated by the
language of the Owner Operator Agreement itself. Specifically, section “Sixth” not only
describes the nature of the relationship between Plaintiffs and SCI, but also the relationship
with SCI’s “Customers”, i.e., SCI’s Carrier and Logistics Clients, which specifically include
OnTrac and the RSPs for which Plaintiffs directly performed services.6 Thus, because
Plaintiffs’ claims in this lawsuit stem from an alleged employment relationship with OnTrac,
one of SCI’s customers, their claims “arise from or relate to” their Owner Operator
Agreements with SCI and must be arbitrated subject to the Arbitration Provision.
5. OnTrac is a Third Party Beneficiary Entitled to Enforce the Arbitration Provisions Against Plaintiffs.
Although not a signatory to the Owner Operator Agreements, OnTrac may compel
Plaintiffs to arbitrate their claims in this lawsuit based on the Agreements’ arbitration
provisions, as it is a third party beneficiary under the Agreements. In Arizona, to recover as
a third-party beneficiary, the person must demonstrate that the parties to the contract
intended to recognize him as the primary party in interest. Two Brothers Distributing Inc. v.
Valero Marketing and Supply Co., No. CV-15-05109-PHX-DGC, 2015 WL 7567487 (D.
Ariz. Nov. 25, 2015); Norton v. First Fed. Sav., 128 Ariz. 176, 178 (1981). The intended
beneficiary does not have to be mentioned by name, and the intended beneficiary does not
have to be the only beneficiary, as the beneficiary may belong to a class of beneficiaries
6 Section “Sixth” specifically: “The Owner / Operator agrees that no employer/employee relationship is created under this Agreement as a result of the relationship between SCI and the Owner / Operator or its Customers . . . .”
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intended by the parties. Nahom v. Blue Cross and Blue Shield of Arizona, 180 Ariz. 548,
552-53 (1994).
Here, Plaintiffs entered into the Owner Operator Agreements with SCI in order to
perform commercial transportation services for and in connection with SCI’s customers,
including the RSPs and OnTrac. Each Owner Operator Agreement begins with a Definitions
section defining “Logistics Brokers” as “businesses that market, sell, and provide logistical
support for the delivery of tangible items”; “Delivery Customers” as “receivers of any
tangible items by an Owner/Operator”; and “Customers” collectively as “Logistics Brokers
and Delivery Customers.” In the instant case, OnTrac is a Customer as defined under the
Agreements, as OnTrac belongs to the “class of beneficiaries” for which the Agreements
were made to benefit. Specifically, OnTrac is a licensed transportation broker and motor
carrier that contracts “first and last mile” service to independent motor carriers, and OnTrac
contracts with SCI and uses SCI to, inter alia, contract with and process payments to motor
carriers that are also SCI clients, including the RSPs for which Plaintiffs performed services
pursuant to their Owner Operator Agreements. Accordingly, OnTrac falls squarely within
the definition of “Logistics Brokers” set forth in the Owner Operator Agreement and,
therefore, clearly qualifies as an “SCI client” covered by the Arbitration Provision. In sum,
OnTrac is exactly the type of party SCI and Plaintiffs had in mind when they agreed to enter
into the Arbitration Provision.
This intent to contract to benefit OnTrac is further evidenced by the fact that SCI
operates as a “third party administrator” to facilitate contracting between Owner Operator
Clients (like Plaintiffs) with SCI’s Carrier and Logistics Clients (like the RSPs and OnTrac).
Specifically, SCI designed its contracting system to allow Owner Operator Clients to
perform services for any Carrier and Logistics Client without the need to enter into a
separate contract in each instance. The language in each Owner Operator Agreement, as a
whole, therefore reflects a distinct intent and agreement for OnTrac and all other SCI clients
like it to be covered by Plaintiffs’ Arbitration Provision.
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Notably, OnTrac has successfully compelled arbitration of claims like those asserted
by Plaintiffs based on the same Owner Operator Agreement and Arbitration Provision in
other actions. (See Declaration of Danton Liang (“Liang Dec., ¶ 1.”) (attaching order
compelling arbitration of claims based on SCI Owner Operator Agreement and Arbitration
Provision identical to that at issue here in In re Express Messenger Systems Wage and Hour
Cases, No. JCCP 4789, Slip Op. (Cal. Super. Ct. Aug. 21, 2015) (ECF No. 4-3, pp. 28-41)).)
Other SCI clients have likewise successfully compelled arbitration of claims as third-party
beneficiaries of the arbitration provision set forth in an SCI Owner Operator Agreement.
(See Liang Dec., ¶¶ 2-4 (attaching orders compelling arbitration in Greene v. Subcontracting
Accordingly, as an intended third party beneficiary to Plaintiffs’ Owner Operator
Agreements with SCI, OnTrac is entitled to enforce Plaintiffs’ Arbitration Provision, as it
and other SCI clients have done in other similar circumstances.
B. The FAA Requires that Plaintiffs’ Claims Be Dismissed in Favor of Arbitration.
The FAA provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . .
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9 U.S.C. § 3. In addition, section 4 of the FAA empowers the Court to compel
arbitration when one party has failed or refused to comply with the arbitration agreement. 9
U.S.C. § 4. Where all of the claims in the complaint are subject to arbitration, however, a
stay is not necessary, and the action should be dismissed. Sparling v. Hoffman Const. Co.,
Inc., 864 F.2d 635, 636, 639 (9th Cir. 1988). Accordingly, OnTrac moves the Court to
dismiss the action.
V. CONCLUSION
Plaintiffs’ claims are subject to the unambiguous terms of the Arbitration Provision
contained in Plaintiffs’ Owner Operator Agreements with SCI, which OnTrac may enforce
as a third party beneficiary. Accordingly, Defendant requests that this Court dismiss
Plaintiffs’ First Amended Complaint in favor of arbitration, or in the alternative, compel
arbitration and stay the case pending arbitration.
RESPECTFULLY SUBMITTED this 21st day of November 2016.
/s/ Damon M. Ott Peter C. Prynkiewicz Robert G. Hulteng Damon M. Ott Danton W. Liang LITTLER MENDELSON, P.C. Attorneys for Defendant Express Messenger Systems, Inc. dba OnTrac
// // // // //
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I hereby certify that I electronically transmitted the attached document to the Clerk’s Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants, and mailed a copy of same to the following if non-registrants, this 21st day of November 2016: /s/David T. Casey Firmwide:143932158.3 023721.1144
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