Bock v. Salt Creek Midstream LLC
| Decision Date | 15 July 2020 |
| Docket Number | Civ. No. 19-1163 WJ/GJF |
| Parties | THOMAS BOCK, on behalf of himself and all others similarly situated, Plaintiff, v. SALT CREEK MIDSTREAM LLC, Defendant. |
| Court | U.S. District Court — District of New Mexico |
At first blush, this lawsuit might pass as one in a wave of garden-variety, wage-and-hour disputes between workers in the oil and gas industry and the business entities they allege to be their employers. But it doesn't take the informed reader long to get the sense that this case is only the latest skirmish in a running battle between interest groups in employment litigation, with one side looking to weaponize the sweeping effect of mandatory individual arbitration while the other side seeks to neutralize it. In the oil and gas industry alone, federal courts across the country are being asked with increasing regularity to parse the language of arbitration agreements and waivers of collective action to determine whether and how they apply to the claims and parties before them. The stakes are high, for the threat posed to an oil and gas employer by a two-hundred-plaintiff class action in a courtroom is much more ominous than if those plaintiffs were splintered up and compelled to pursue their claims in individual arbitrations. The flip side is severe, too, for the financial incentive of workers (and their counsel) to bring these cases is vastly different depending on whether they are class actions heard by judges and juries or individual disputes decided by arbitrators.
Soon enough, if they haven't already, oil patch employers will fine-tune their arbitration agreements and collective action waivers to eliminate the ambiguities, gray areas, oversights, and loopholes that the current generation of lawsuits - including this one - have slid under the judicial microscope. In the meantime, however, the three motions before this Court for a recommended disposition raise novel and difficult questions about choice of law, contract interpretation, and the elasticity of a state supreme court's estoppel doctrine. It is not often in this Court's experience that the legal questions in a case are as close and as debatable as they are here. Nevertheless, after entertaining extensive oral argument, reviewing the parties' written submissions, and considering relevant legal authorities, the Court recommends that (1) Kestrel's MTI be GRANTED, (2) Kestrel's MTC be GRANTED IN PART and DENIED IN PART, and (3) Defendant's MTC be DENIED.
Defendant is a midstream operator in the oil and gas industry. To expand its transportation capacity, Defendant commissioned in 2018 the construction of a pipeline project in the Permian Basin, with a portion of the pipeline originating in New Mexico and the lion's share of the project to be built in Texas. For its part, Kestrel is best thought of as a staffing company that furnishes skilled employees to customers whose projects exceed the capability of their in-house workforce. Here, Defendant contracted with Kestrel to provide platoons of personnel qualified to inspect pipeline-related features like welding and coating. Under the contract, formally known as a Master Service Agreement ("MSA"), Kestrel provided Defendant with inspection services at various job sites throughout west Texas and southeast New Mexico.
The inspectors, two of whom are Plaintiffs Thomas Bock and Brett Rice, were hired by Kestrel as its employees. Kestrel created and stored all human resource-related documents that Plaintiffs completed at the onset of their employment. As a condition of the inspectors' employment, Kestrel required each of them to execute a bilateral Arbitration Agreement ("AA") and class action waiver. Once the inspectors signed all the paperwork and executed their AAs, Kestrel then directed the inspectors to specific job sites of Defendant to provide inspection services. Plaintiffs submitted their time sheets to Kestrel and were paid by Kestrel. As has been common in the oil and gas industry, Kestrel paid Plaintiffs a "day rate" as opposed to a straight salary or an hourly wage. Viewing the inspectors as exempt under federal and state wage-and-hour laws, Kestrel did not pay its inspectors overtime, no matter how many hours they worked in a given week.
This pay configuration gave rise to the instant lawsuit. But rather than bringing claims against Kestrel, which hired and paid them, Plaintiffs instead have sued only Kestrel's customer, Defendant Salt Creek. As explained in greater detail infra, Plaintiffs allege that Defendant - not Kestrel - is their "true" employer. Plaintiffs have affirmatively disclaimed the theory that Defendant and Kestrel were their "joint employers," opting instead to proceed on the single legal theory that Defendant was their actual employer and that its pay structure and policy violated both the Fair Labor Standards Act and the New Mexico Minimum Wage Act.2 In response, Defendant and Kestrel accuse Plaintiffs of "artfully pleading" their complaint to omit any mention whatsoever of their employment with Kestrel - indeed, to omit any mention of Kestrel at all.3 They assert that Plaintiffs have done so for one purpose only: to circumvent, avoid, and frustrate the AA they each executed with Kestrel. To vindicate its own interests and perhaps to keep faith with a customer, Kestrel has moved to intervene and to compel Plaintiffs to individually arbitrate all of their claims, including those against Defendant. As a non-signatory to the AAs, Defendant has moved to compel Plaintiffs to individual arbitration on the theory of equitable estoppel.
The Court first determines whether Federal Rule of Civil Procedure 24 permits Kestrel to intervene in the action. Because the Court recommends that intervention be allowed, the Court next will address Kestrel's request to compel Plaintiffs to individually arbitrate their claims against Defendant. The Court will finish by analyzing whether equitable estoppel permits Defendant as a non-signatory to the AA to compel Plaintiffs into individual arbitration.
Federal Rule of Civil Procedure 24 recognizes two types of intervention: intervention as of right under Rule 24(a) and permissive intervention under Rule 24(b). The Court recommends that Kestrel be permitted to intervene on both grounds.
"A nonparty seeking to intervene as of right must establish (1) timeliness, (2) an interest relating to the property or transaction that is the subject of the action, (3) the potential impairment of that interest, and (4) inadequate representation by existing parties." Kane Cty., Utah v. United States, 928 F.3d 877, 889 (10th Cir. 2019) (citing W. Energy All. v. Zinke, 877 F.3d 1157, 1164 (10th Cir. 2017)); see also Fed. R. Civ. P. 24(a)(2) (same). The Tenth Circuit takes a "liberal approach to intervention and thus favors the granting of motions to intervene." Zinke, 877 F.3d at 1164 ().
At the outset, the Court notes that Plaintiffs do not challenge the timeliness of Kestrel's MTI. Not only was Plaintiffs' response silent on the topic, Plaintiffs' counsel confirmed at oral argument that Plaintiffs were not disputing the timeliness with which Kestrel filed its motion. See Tr. at 100. Furthermore, the Court notes that Kestrel filed its MTI approximately three months after this lawsuit was filed, which was before discovery commenced, before a pretrial schedule was imposed, and before any meaningful hearings were held. Consequently, in addition to Plaintiffs' concession, the Court finds the MTI timely as a matter of law.
"Whether an applicant has an interest sufficient to warrant intervention as a matter of right is a highly fact-specific determination, and the interest test is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process." Barnes v. Sec. Life of Denver Ins. Co., 945 F.3d 1112, 1121 (10th Cir. 2019) (quoting Kane Cty., 928 F.3d at 889). The interest claimed in the litigation must be "direct, substantial, and legally protectable." Id. But the "threshold for finding the requisite legally protectable interest is not high." Am. Ass'n of People with Disabilities v. Herrera, 257 F.R.D. 236, 246 (D.N.M. 2008).
Kestrel identifies four protectable interests: (1) enforcing Plaintiffs' arbitration agreement (and class action waiver), (2) protecting its business model and pay structure, (3) defending its position as Plaintiffs' sole or joint employer, and (4) limiting its financial exposure occasioned by the indemnity provision in its MSA with Defendant. Kestrel's MTI at 7. In Kestrel's view, Plaintiffs' claims against Defendant impact each of these interests, and proceeding without Kestrel being heard "places th[ese] interest[s] at risk." Id. at 9. Kestrel also emphasizes that, at this stage, the Court need not assess the merits of whether an alleged interest is impaired because such an impairment may be "contingent upon the outcome of [] litigation." Reply 6, ECF 54 (quoting Kane Cty., 928 F.3d at 891).
Plaintiffs counter that Kestrel's arbitration agreement does not affect their claims against Defendant and Kestrel therefore lacks a valid interest in the current litigation. Resp. Kestrel's MTI at 3-4. Plaintiffs also argue that Kestrel's business practices - providing employees to Defendant through the MSA - and any interest in protecting this practice is purely economic in nature and thus insufficient to support intervention. Id. at 5. Plaintiffs allege that "the sole question before this Court [] is whether [Defendant] owes overtime wages under the FLSA and NMMWA," and not Kestrel. Id. at 6. Plaintiffs emphasize that no damages can be imposed against...
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