Abugeith et al v. Flowers Foods, Inc et al, No. 4:2017cv02934 - Document 22 (S.D. Tex. 2018)
Court Description: MEMORANDUM OPINION AND ORDER granting 5 MOTION to Dismiss or, In the Alternative, to Compel Individual Arbitration (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
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Abugeith et al v. Flowers Foods, Inc et al Doc. 22 United States District Court Southern District of Texas ENTERED IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION MAJDI ABUGEITH and JIMMY BREWER, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. FLOWERS FOODS, INC. and FLOWERS BAKING CO. OF HOUSTON, LLC, Defendants. § § § § § § § § May 15, 2018 David J. Bradley, Clerk CIVIL ACTION NO. H-17-2934 § § § § MEMORANDUM OPINION AND ORDER Plaintiffs Majdi Abugeith and Jimmy Brewer ("Plaintiffs"), on behalf of bring themselves and other similarly situated indi victuals, this Flowers action against Baking Co. "Defendants") of under defendants Houston, the Fair LLC Flowers Foods, (collectively Labor Standards Inc. and "Flowers" Act or ("FLSA") . 1 Pending before the court is Defendants' Motion to Dismiss or, in the Alternative, to Compel Individual Arbitration Motion to Dismiss") (Docket Entry No. 5). ("Defendants' For the reasons stated below, the court will grant Defendants' Motion to Dismiss. I. Flowers Foods, Inc. products to warehouses. 1 See Plaintiffs' Entry No. 1. 2 See id. at 6-11 Background 2 ("Flowers Foods") ships bakery and snack Flowers Original ~~ Baking Complaint Co. of Houston ("Complaint") , is a Docket 23-50. Dockets.Justia.com subsidiary of Flowers Foods that operates one of Flowers Foods' bakeries and several of its warehouses. Defendants market their bakery and snack products to retailers such as Wal-Mart, Target, Dollar General, and other grocery stores and merchants. Plaintiffs and members of the proposed class distribute Defendants' products to Defendants' retail customers and place, remove, Defendants' products on the retailers' shelves. that "[b]ecause they were misclassified and organize Plaintiffs allege as non-employees, Plaintiffs and members of the proposed Federal Collective Group were denied the rights and benefits of employment, including, but not limited to overtime premium wages." 3 Plaintiffs executed a distributor agreement and signed Flowers Baking Co. of Houston, Agreement ("Amendment") LLC 4 ("Company") The Amendment to Distributor Amendment contains an arbitration provision that states: All claims, disputes, and controversies arising out of or in any manner relating to this Agreement or any other agreement executed in connection with this Agreement, or to the performance, interpretation, application or enforcement hereof, including, but not limited to breach hereof and/or termination hereof, which has not been resolved pursuant to any negotiation and mediation provisions in the Agreement or otherwise shall be submitted to individual binding arbitration in accordance with the terms and conditions set forth in the Arbitration Mandatory and Binding Arbitration: 3 Id. at 11 ~ 47. 4 Exhibits A and B to Appendix of Motion to Dismiss, or in the Alternative, to Compel Individual Arbitration ("Defendants' Appendix"), Docket Entry No. 5-1, pp. 4-7, 13-16. -2- such claims, disputes, and controversies as specifically excluded therein. 5 Plaintiffs each signed an Arbitration Agreement contained in Exhibit 2 of the Amendment. 6 Plaintiffs filed this action on September 29, 2017, seeking overtime wages under the FLSA, liquidated damages, attorney's fees, and costs on distributors. 7 behalf of themselves and a putative class of Defendants-filed a motion pursuant to Federal Rules of Civil Procedure 12 (b) ( 1) , 12 (b) ( 3) , and 12 (b) ( 6) seeking an order dismissing the lawsuit and requiring Plaintiffs to arbitrate their claims with Defendants. 8 II. Analysis Defendants argue that because Plaintiffs signed the Amendment and the Arbitration Agreement which require mandatory, individual arbitration of the claims and delegate the power to decide questions of arbitrability to the arbitrator -- the court should dismiss arbitration. 9 5 Id. Plaintiffs' claims and compel individual Plaintiffs respond that the arbitration agreements at 6, 15. 6 See Arbitration Agreement, Entry No. 5-1, pp. 8-10, 17-19. 7 Exhibit 2 to Amendment, Complaint, Docket Entry No. 1, pp. 12-13 Relief. ~ 59 and Prayer for 8 See Defendants' Motion to Dismiss, Docket Entry No. 5. 9 Id. at 10-17. -3- Docket are illusory and thus invalid, and that the collective action procedure cannot be waived. 10 A. Enforceability of the Arbitration Agreement and the Delegation Clause 1. Applicable Law Under agreement the in Federal a Arbitration Act contract evidencing a ("FAA") an arbitration transaction involving interstate commerce is "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. § Underlying the FAA is 2. "the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion, (internal quotation marks omitted) Group, LLC v. Bailey, 131 S. i Ct. 1740, 1745 (2011) see Washington Mutual Finance 364 F.3d 260, 264 (5th Cir. 2004) ("The purpose of the FAA is to give arbitration agreements the same force and effect as other contracts -- no more and no less."). Arbitrability is a threshold question to be determined at the outset, prior to deciding conditional certification. Edwards v. Doordash, Inc., Civil Action No. 17-20082, 2018 WL 1954090, at *3 (5th Cir. April 25, 2018) (citing Reyna v. International Bank of Commerce, 839 F.3d 373, 377-78 (5th Cir. 2016)). In determining whether to enforce an arbitration agreement "[f]irst, 10 the court Plaintiffs' Response in Opposition to Defendants' Motion to Dismiss, or in the Alternative, to Compel Individual Arbitration ("Plaintiffs' Response"), Docket Entry No. 9, pp. 3-5. -4- asks whether there is a valid agreement to arbitrate and, second, whether the current dispute agreement." Id. falls within the scope of a valid (citing Klein v. Nabors Drilling USA L.P., F. 3d 234, 236 (5th Cir. 2013)). 710 If the party seeking arbitration argues that there is a delegation clause, the court performs the first step arbitrate of was the analysis formed, delegation clause. to determine then determines if if it an agreement contains a to valid Id. at *3-4. If there is an agreement to arbitrate with a delegation clause, and absent a challenge to the delegation clause itself, we will consider that clause to be valid and compel arbitration. Challenges to the arbitration agreement as a whole are to be heard by the arbitrator. Arguments that an agreement to arbitrate was never formed, though, are to be heard by the court even where a delegation clause exists. See Kubala v. Supreme Products Services, Inc., 830 F.3d 199, 202 (5th Cir. 2016) . Since Kubala, we have reiterated that the first step of the test is limited to contract formation. Id. at *4. If the parties have entered into a binding agreement to arbitrate, the court must determine whether any federal statute or policy renders the claims nonarbitrable. v. Conegie ex rel. Lee, 492 F.3d 596, JP Morgan Chase & Co. 598 (5th Cir. 2007). The party seeking to invalidate an arbitration agreement bears the burden of establishing Credit Industries, Inc., its invalidity. 362 F. 3d 294, Carter v. 297 (5th Cir. Countrywide 2004). A court should resolve all doubts concerning the arbitrability of claims in favor of arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3353-54 (1985). -5- 2. Application The court must first decide whether an agreement to arbitrate was formed. Plaintiffs argue that the Arbitration Agreement is illusory because it states that "[t]his Arbitration Agreement may be modified or terminated by COMPANY after thirty (30) days written notice to DISTRIBUTOR." 11 Plaintiffs argue that by this provision Defendants have "retained the power to terminate the contract atwill." 12 Defendants respond that the Arbitration Agreement is not illusory because the next sentence states that "[a] ny modifications or terminations shall be prospective only and shall not apply to any claims or disputes that are pending in arbitration or that have been initiated by either party pursuant to the AAA Rules. " 13 Since arbitration agreements are matters of validity and contract law. 2008). scope of such agreements are contract, governed by the state Morrison v. Amway Corp., 517 F.3d 248, 254 (5th Cir. An arbitration agreement is not illusory under Texas law if it requires "notice of any modification or termination and state [s] that any such amendment would apply prospectively only." Davidson, Inc. v. Webster, 128 S.W.3d 223, 230 (Tex. 2003) urd. at 3; Arbitration Agreement, Docket Entry No. 5-1, p. 10. 12 J. M. (citing Exhibit 2 to Amendment, Plaintiffs' Response, Docket Entry No. 9, p. 4. 13 Defendants' Reply to Plaintiffs' Response Regarding Defendants' Motion to Dismiss or to Compel Arbitration ("Defendants' Reply), Docket Entry No. 11, p. 4; Arbitration Agreement, Exhibit 2 to Amendment, Docket Entry No. 5-1, p. 10. -6- In re Halliburton Because the Co. , 80 S. W. 3d 56 6, 56 9- 7 0 (Tex. 2 0 0 2) ) . 14 termination provision in the Arbitration Agreement requires thirty days written notice and because any modifications or terminations will be prospective only, the Arbitration Agreement is not illusory under Texas law. Plaintiffs have therefore failed to carry their burden of showing that the Arbitration Agreement is invalid. The court concludes that the parties have entered into a binding agreement to arbitrate their dispute and that no federal statute or policy renders the claim nonarbitrable. The court must next decide whether the Arbitration Agreement contains an enforceable delegation clause. The Arbitration Agreement states: Any issues concerning arbitrability of a particular issue or claim under this Arbitration Agreement (except for those concerning the validity or enforceability of the prohibition against class, collective, representative, or multi-plaintiff action arbitration and/or applicability 14 In Halliburton the Texas Supreme Court confronted facts and arguments similar to those now before the court. An employee argued that a mandatory arbitration clause was illusory because Halliburton, the employer, had retained the right to modify or terminate the program. Id. at 569. Rejecting this argument, the Texas Supreme Court relied on two key provisions: One stated that "no amendment shall apply to a Dispute of which the Sponsor [Halliburton] had actual notice on the date of amendment"; the other stated that any termination of the arbitration program "shall not be effective until 10 days after reasonable notice of termination is given to Employees or as to Disputes which arose prior to the date of termination." Id. at 569-70 (internal quotation marks omitted) . Because of this language, the court held that Halliburton could not "avoid its promise to arbitrate" by amending or terminating the agreement. Id. at 570. The agreement was therefore not illusory. Id. -7- of the FAA) court . 15 The shall be resolved by the arbitrator, not a Arbitration Agreement also Arbitration Association ("AAA 11 incorporates Rules AssociATION, p. 13 and Mediation (2013) American rules, which give the arbitrator ) the power to determine arbi trabili ty. Arbitration the 16 See Rule 7, Procedures, Commercial AMERICAN ARBITRATION ("The arbitrator shall have the power to rule on his or her own jurisdiction, . . . 11 ); Crawford Professional Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 262-63 (5th Cir. 2014) ("express incorporation of the same AAA Rules constitutes clear and unmistakable arbitrate arbitrability. evidence 11 ). that the parties agreed to The court "must treat [the delegation clause] as valid absent any specific challenge to the delegation clause by [Plaintiff] . Edwards, 11 2018 WL 1954090, at *5. Plaintiffs challenge the Arbitration Agreement as a whole, but do not specifically challenge the delegation clause. The court concludes that the Arbitration Agreement and the delegation clause submitting any issues of arbitrability to the arbitrator except the enumerated exceptions -- are valid, and Plaintiffs should be compelled to arbitrate. 15 Arbitration Agreement, Exhibit 2 to Amendment, Docket Entry No. 5-1, pp. 9, 18. 16 Id. at 8, 17 Arbitration Rules of ( 1\. • II ) the in conformity with the Commercial American Arbitration Association • -8- B. Class Action Waiver The Arbitration Agreement EXPLICIT [L] Y WAIVE ANY RIGHT TO: COVERED CLAIM ON A CLASS, states {1} COLLECTIVE, that INITIATE "concerning the prohibition against class, plaintiff action validity or collective, arbitration" are not PARTIES OR MAINTAIN ANY REPRESENTATIVE, PLAINTIFF BASIS EITHER IN COURT OR ARBITRATION; matters "BOTH OR MULTI- . . . . " 17 enforceability Because of th[e] representative, or multito be resolved by the arbitrator, the court must determine whether Plaintiffs have waived class arbitration. 18 Defendants argue that Plaintiffs' claims are subject to individual arbitration because the Amendment and the Arbitration Agreement state arbitration" and because arbitration and litigation that the parties parties in the agree to explicitly "individual waived Arbitration class Agreement . 19 Plaintiffs respond that they "should not be forced to implicitly sacrifice presumably non-waivable rights to collective action under the Act simply because their claims will be heard in an arbitration forum." 20 Defendants reply that the collective action procedure is 17 Id. at 9, 18. 18 Id. Neither party disputes that the court should decide this issue. 19 Defendants' Motion to Dismiss, Docket Entry No. 5, pp. 13-14 i Amendment, Exhibits A and B to Defendants' Appendix, Docket Entry No. 5-l, pp. 2, 4i Arbitration Agreement, Exhibit 2 to Amendment, Docket Entry No. 5-1, pp. 9, 18. 20 Plaintiffs' Response, Docket Entry No. 9, p. 5. -9- not a substantive right and it can be waived in an arbitration agreement. 21 The Supreme Court has arbitration agreements. upheld class-action See Concepcion, 131 S. waivers Ct. (invalidating the Supreme Court of California's rule, classified most collective-arbitration waivers in in at 1746-47 which had consumer contracts as unconscionable and holding that the rule was preempted by the Federal Arbitration Act); DIRECTV, S. Ct. 463, 467, 471 (2015) (holding Inc. v. that Imburgia, the 136 FAA preempted California law, making the class-action waiver in the arbitration agreement enforceable); see also D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344, 357, 363 (5th Cir. 2013) (holding that "[t]he use of class action procedures . . . is not a substantive right" and that arbitration agreements containing class waivers are enforceable) . Because the Arbitration Agreement contains a class-action waiver and because the Arbitration Agreement and the class-action waiver are enforceable, the court concludes that Plaintiffs must submit to individual arbitration. The court will therefore grant Defendants' Motion to Dismiss and compel Plaintiffs to arbitrate this dispute individually. See Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992) ("The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration."). 21 Defendants' Reply, Docket Entry No. 11, pp. 6-7. -10- III. Conclusion For the reasons set forth above, Defendants' Motion to Dismiss or, in the Alternative, to Compel Individual Arbitration (Docket Entry No. 5) is GRANTED. SIGNED at Houston, Texas, on this the 15th day of May, 2018. SIM LAKE UNITED STATES DISTRICT JUDGE -11-
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