Altenhofen v. S. Star Cent. Gas Pipeline, Inc.
| Decision Date | 23 November 2020 |
| Docket Number | CIVIL ACTION NO. 4:20CV-00030-JHM |
| Parties | JASON ALTENHOFEN, individually and on behalf of others similarly situated PLAINTIFF v. SOUTHERN STAR CENTRAL GAS PIPELINE, INC. DEFENDANT v. CLEVELAND INTEGRITY SERVICES, INC. INTERVENOR-DEFENDANT |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on motions by Defendant, Southern Star Central Gas Pipeline, Inc., and Intervenor-Defendant, Cleveland Integrity Services, Inc., to compel arbitration pursuant to the Federal Arbitration Act and to dismiss this action. [DN 13, DN 37]. Fully briefed, these motions are ripe for decision.
Plaintiff, Jason Altenhofen, brings this case under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., asserting that Defendant, Southern Star Central Gas Pipeline, Inc. ("Southern Star"), failed to pay him overtime. Altenhofen alleges that he was employed by Southern Star as an inspector and that he worked in excess of 40 hours each week, but was not paid overtime as required by the FLSA. [DN 1].
Southern Star denies that it had an employment relationship with Altenhofen insisting that he was employed by and paid by Intervenor-Defendant, Cleveland Integrity Services, Inc. ("CIS"), which assigned him to work for CIS's customer, Southern Star. CIS employs inspection personnel to provide third-party inspection services to its customers. [DN 22-1, Frye Decl. at ¶ 3]. Southern Star is one of CIS's customers. [Id. at ¶ 4]. Southern Star hired CIS to provide third-party inspection services for its Welda Station project in Welda, Kansas. [Id. at ¶¶ 4, 10]. Southern Star pays CIS a stipulated rate to compensate for the services CIS provides. CIS then pays its inspectors in a manner that it determines. [Id. at ¶ 6].
CIS represents that it employed Altenhofen and assigned him to provide inspection services to various CIS clients. According to CIS, it assigned Altenhofen as a Chief Inspector to its team providing services to Southern Star at the Welda Station in Kansas. [Id at ¶¶ 8-10]. CIS determined that Altenhofen's pay and duties qualified him as overtime exempt under the FLSA and instead paid him "a guaranteed minimum weekly salary equal to four times the daily salary amount" based on FLSA regulations, 29 C.F.R. § 541.604(b). [Id. at ¶¶ 12, 17]. While employed at CIS, Altenhofen signed ten separate documents that identified him as an employee of CIS. [Id. at Frye Decl., Ex. A-B, E-K, M]. Altenhofen also signed an arbitration agreement as a condition of his employment agreeing to "arbitrate all claims that have arisen or will arise out of [his] employment with or termination from the Company regardless of whether those are claims under common law or under statutory law. . . ." [Id. at Frye Decl., Ex. A ¶ 2]. The agreement also provides that "[a]rbitration shall be conducted in accordance with the American Arbitration Association Employment Arbitration Rules ('AAA Rules')." [Id.]. Between July 5, 2018, to October 20, 2018, while Altenhofen was assigned to the Southern Star Kansas project, CIS paid Altenhofen $ 22,100.00. Altenhofen earned an additional $ 39,159.82 from CIS in 2018 for work done while assigned to a different CIS customer. [Id. at ¶ 16].
On April 20, 2020, CIS filed a motion to intervene pursuant to Federal Rule of Civil Procedure 24 claiming that it was Altenhofen's employer during the time period. On June 30, 2020, the Court granted CIS's motion to intervene. [DN 36]. Both Southern Star and CIS havenow moved to compel Altenhofen to arbitrate all claims arising out of his employment. [DN 13, DN 37].
In evaluating a motion to compel arbitration, courts apply the summary judgment standard in Fed. R. Civ. P. 56(c). See McCoy v. Cambridge Franchise Holdings, LLC, No. 3:18-CV-00856-GNS, 2019 WL 4280597, at *1 (W.D. Ky. Sept. 10, 2019); Weddle Enters., Inc. v. Treviicos-Soletanche, J.V., No. 1:14CV-00061-JHM, 2014 WL 5242904, at *2 (W.D. Ky. Oct. 15, 2014) ( . "In order to show that the validity of the agreement is in issue, the party opposing arbitration must show a genuine issue of material fact as to the validity of the agreement to arbitrate," a showing that mirrors the summary judgment standard. Great Earth Cos. v. Simons, 288 F.3d 878, 889 (6th Cir. 2002) (internal quotation marks omitted).
The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, "'manifests a liberal federal policy favoring arbitration agreements.'" Yaroma v. Cashcall, Inc., 130 F. Supp. 3d 1055, 1061 (E.D. Ky. 2015) (quoting Masco Corp. v. Zurich American Ins. Co., 382 F.3d 624, 626 (6th Cir. 2004)). "Section 2 of the FAA states that arbitration clauses in commercial contracts 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Id. (quoting 9 U.S.C. § 2). "Under § 4, when a party is 'aggrieved by the failure of another party to arbitrate under a written agreement for arbitration,' that party 'may petition a federal court for an order directing that such arbitration proceed in the manner provided for' bythe contract." Id. (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (quoting 9 U.S.C. § 4) (internal quotation marks omitted)). The FAA "places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms." Rent-A-Center, 561 U.S. at 67 (internal citation omitted).
Parties may agree to arbitrate disputes over gateway issues such as the validity or enforceability of an arbitration provision. Rent-A-Center, 561 U.S. at 68-69. This type of provision is known as a delegation provision. "The court regards the Delegation Provision as a 'clear and unmistakable' delegation of those threshold issues, which include the plaintiffs' enforceability challenges, to the arbitrator." Wynn v. Five Star Quality Care Trust, No. 3:13-CV-01338, 2014 WL 2560603, *7 (M.D. Tenn. June 5, 2014) (citing Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC, 485 F. App'x 821, 823 (6th Cir. 2012). "The Supreme Court has expressly found that delegation clauses must be enforced, absent a valid challenge specific to the delegation clause—as opposed to a challenge to the enforceability of the Agreement as a whole." Wynn, 2014 WL 2560603, *7 (citing Rent-A-Center, 561 U.S. at 70, 72). As noted by the Supreme Court in Henry Schein, Inc. v. Archer and White Sales, Inc., "[w]hen the parties' contract delegates the arbitrability question to an arbitrator, a court may not override the contract." Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524, 529 (2019). "However, if the party opposing arbitration challenges the validity or enforceability of the delegation provision per se, then the court, rather than the arbitrator, must address those challenges." Becker v. Delek US Energy, Inc., No. 3:20-CV-00285, 2020 WL 5983115, at *3 (M.D. Tenn. Oct. 8, 2020) (citing Rent-A-Ctr., 561 U.S. at 71).
In the present case, the arbitration agreement between Altenhofen and CIS provided that "[t]he Employee and the Company agree to arbitrate all claims that have arisen or will arise out ofEmployee's employment with or termination from the Company regardless of whether those are claims under common law or under statutory law." [DN 13-1 at Frye Decl., Ex. A ¶ 2]. Altenhofen does not dispute that CIS is a signatory to the arbitration agreement and that he is compelled to arbitrate with CIS. However, Altenhofen maintains that he cannot be compelled to arbitrate with an entity—Southern Star—that was not a party to the arbitration agreement. Thus, the overall issue raised here is whether Altenhofen, a signatory, can be compelled to arbitrate his FLSA claim against Southern Star, a non-signatory. Before examining the overall issue, the Court must first determine whether the Court or the arbitrator should decide whether Altenhofen must arbitrate his FLSA claim against Southern Star.
Defendants argue that the question of whether Altenhofen's claim against Southern Star is subject to arbitration must be decided by the arbitrator. Defendants contend that there is no question that Altenhofen's arbitration agreement is valid: i.e., he does not dispute that he actually entered into the arbitration agreement. Likewise, Defendants point out that Altenhofen does not dispute that his arbitration agreement incorporates the AAA Rules, which delegate to the arbitrator any questions of arbitrability under the agreement. Blanton v. Domino's Pizza Franchising LLC, 962 F.3d 842, 846 (6th Cir. 2020). Defendants further argue that this principle applies even where, as here, a non-signatory seeks to enforce the agreement. See, e.g., Eckert/Wordell Architects, Inc. v. FJM Properties of Willmar, LLC, 756 F.3d 1098, 1100 (8th Cir. 2014) (); Turner v. PillPack, Inc., No. 5:18-CV-66-TBR, 2019 WL 2314673, at *6 (W.D. Ky. May 30, 2019) (same). According toDefendants, the United States Supreme Court's recent decision in Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524 (2019), mandates referral of the dispute to the arbitrator.
To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. See 9 U.S.C. § 2. But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.
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