Escobar v. Nat'l Maint. Contractors, 3:20-cv-01695-SB

• Decision Date: 12 August 2021
• Docket Number: 3:20-cv-01695-SB
• Parties: MAURA ESCOBAR et al., Plaintiffs, v. NATIONAL MAINTENANCE CONTRACTORS, LLC etal, Defendants.
• Court: U.S. District Court — District of Oregon

MAURA ESCOBAR et al., Plaintiffs, v. NATIONAL MAINTENANCE CONTRACTORS, LLC etal, Defendants.

No. 3:20-cv-01695-SB

United States District Court, D. Oregon

August 12, 2021

OPINION AND ORDER

HON STACIE F. BECKERMAN, United States Magistrate Judge.

Plaintiffs thirty-three individual franchise owners and employees, filed this action against defendants National Maintenance Contractors, LLC ("NMC"), NMC Franchising, Marsden Services, LLC ("Marsden"), and NMC Franchising directors and officers Gregg McDonald, Noe Vallardes, Jim Wade, Ryan Lee, Jesse Wilmore, Steven Watkins, Lise Watkins and Guy Mingo (the "D&O Defendants") (together "Defendants"). Plaintiffs allege that Defendants engaged in unlawful franchising practices and assert seventeen claims for violations of state and federal law.

Before the Court is Defendants' motion to compel arbitration. (ECF No. 39.) The Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337, and 1367, and all parties have consented to the jurisdiction of a U.S. Magistrate Judge pursuant to 28 U.S.C. § 636. For the reasons discussed below, the Court grants Defendants' motion to compel arbitration.

BACKGROUND^[1]

I. THE PARTIES

Plaintiffs are thirty-three individuals who either owned or operated an NMC franchise ("Plaintiff-Buyers"), or who worked in the franchised businesses ("Plaintiff-Employees"). (Second Am. Compl. ("SAC") ¶¶ 20-35; id. Ex. 1.)

NMC is a Washington-based janitorial and building maintenance services company. (SAC ¶ 1, 77.) NMC Franchising is the NMC's franchisor. (Id. ¶ 3.) Marsden is an affiliated sister company of NMC Franchising that provides administrative services to several companies within the Marsden family of companies, including NMC Franchising. (Id. ¶ 2; Decl. of Peter Cain ("Cain Decl.") ¶ 8, ECF No. 40.) Marsden acquired NMC in 2006. (SAC ¶ 2.)

The D&O Defendants served in the following capacities for NMC Franchising: Gregg McDonald as the regional director (id. 144); Noe Valladares as the director and chief executive officer ("CEO") (id. ¶ 46); Jim Wade as the director of franchising (id. ¶ 48); Ryan Lee as a district manager (id. ¶ 50); Jesse Wilmore as a regional director for the western Washington branch (id. ¶ 52); Steven Watkins as a director of operations (id. ¶ 54); and Lise Watkins as a quality control manager (id. ¶ 57). Guy Mingo was the CEO for Marsden and a manager of NMC Franchising. (Id. ¶ 58-59.).

II. THE FRANCHISE AGREEMENT

Between 2001 and 2017, Plaintiff-Buyers purchased janitorial service franchises from NMC Franchising. (SAC ¶¶ 416, 438.) Each Plaintiff-Buyer signed a franchise agreement that included the following arbitration agreement:

[A]ll disputes, claims and controversies between the parties arising under or in connection with this Agreement or the making, performance or interpretation thereof (including claims of fraud in the inducement and other claims of fraud in the arbitrability of any matter) will be resolved by arbitration on an individual basis under the authority of the Federal Arbitration Act in Minneapolis, Minnesota.

(Cain Decl. Exs. B-R-l ("Arbitration Agreement").)

III. THE LAWSUIT

On September 30, 2020, Plaintiffs filed this action alleging that Defendants engaged in unlawful franchising practices by misclassifying Plaintiffs as franchisees rather than employees. Plaintiffs assert seventeen claims for violations of federal and state wage and hour laws, the Racketeer Influenced and Corrupt Organizations Act (RICO), and state law claims for fraudulent misrepresentation, economic duress, and breach of contract. On February 9, 2021, Defendants filed a motion to compel arbitration. (Defs.' Mot. to Compel, ECF No. 39.)

DISCUSSION

I. LEGAL STANDARDS

The Federal Arbitration Act ("FAA") "provides that any arbitration agreement within its scope shall be valid, irrevocable, and enforceable, and permits a party aggrieved by the alleged refusal of another to arbitrate to petition any federal district court for an order compelling arbitration in the manner provided for in the agreement." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (simplified). "The FAA requires federal district courts to stay judicial proceedings and compel arbitration of claims covered by a written and enforceable arbitration agreement." Nguyen v. Barnes & Noble Inc., 763 F.3d 1171, 1175 (9th Cir. 2014) (citation omitted); Chiron, 207 F.3d at 1130 ("[T]he Act 'leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.'") (citation omitted).

"The FAA limits the district court's role to determining whether a valid arbitration agreement exists, and whether the agreement encompasses the disputes at issue." Nguyen, 763 F.3d at 1175 (citing Chiron, 207 F.3d at 1130). "Like other contracts, arbitration agreements can be invalidated for fraud, duress, or unconscionability." Chavarria v. Ralphs Grocery Co., 733 F.3d 916, 921 (9th Cir. 2013) (citing AT & T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). In determining whether an arbitration agreement encompasses the dispute at issue, courts must be mindful that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT&T Techs., Inc. v. Commc 'ns Workers of Am., 475 U.S. 643, 648 (1986). "[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Optimum Prods, v. Home Box Off., 839 Fed.Appx. 75, 77 (9th Cir. 2020) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)).

II. ANALYSIS

Plaintiffs oppose Defendants' motion to compel on the following grounds: (1) Plaintiff-Buyers did not consent to the Arbitration Agreement; (2) Plaintiff-Employees cannot be compelled to arbitrate; (3) nonsignatory defendants Marsden and NMC cannot enforce the Arbitration Agreement against Plaintiffs; (4) the Arbitration Agreement is unconscionable; and (5) the franchise agreement is unenforceable due to economic duress and illegality of its terms. The Court addresses each argument in turn.

A. Contract Formation^[2]

1. Plaintiff-Buyers

Plaintiffs argue that the Plaintiff-Buyers did not assent to the Arbitration Agreement because (1) they lacked sufficient English language proficiency to understand the arbitration provisions and (2) Defendants did not explain the Arbitration Agreement or advise them of the consequences of signing it. (Pls.' Opp'n to Defs.' Mot. to Compel ("Pls.' Opp'n") at 7, 11.)

As the party seeking to compel arbitration, Defendants have "the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence." Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 2014). Federal courts determine whether parties have entered into a binding arbitration agreement by "applying] ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (citations omitted). Because Plaintiff-Buyers signed the franchise agreements in both Oregon and Washington, the Court applies Oregon and Washington law to determine if the agreements are valid.

To form a valid contract, the contracting parties must objectively manifest their mutual assent. See Rhoades v. Beck, 260 Or.App. 569, 572 (2014) ("Oregon subscribes to the objective theory of contract, which provides that the existence and terms of a contract are determined by evidence of the parties' communications and acts."); Weimin Chen v. Sierra Trading Post, Inc., No. 2:18-cv-1581-RAJ, 2019 WL 3564659, at *4 (W.D. Wash. Aug. 6, 2019) ("To determine mutual assent, Washington courts follow the objective manifestation theory of contracts, meaning they look to the reasonable meaning of the contract language instead of the subjective intent of the parties." (citing Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash.2d 493, 505 (2005))). In both Oregon and Washington, "the law requires only evidence of 'mutual assent,' whether that assent is expressed through an offer and an acceptance or is manifested by conduct." Citi banks. Dakota N.A. v. Santoro, 210 Or.App. 344, 349 (2006) (citation omitted); accord Keystone Land & Dev. Co. v. Xerox Corp., 152 Wash.2d 171, 177-78 (2004) ("Generally, manifestations of mutual assent will be expressed by an offer and acceptance."); Jacob's Meadow Owners Ass'n v. Plateau 44II, LLC, 139 Wash.App. 743, 765 (2007) ("The existence of mutual assent may be deduced from the circumstances.").

Plaintiff-Buyers argue that they did not assent to the Arbitration Agreement because they did not have "sufficient proficiency to read technical and legal English" when they signed the franchise agreements, Defendants "did not offer any of them a translation of the English language Franchise Agreement[, ]" and Defendants did not "tell any of them that the Franchise Agreement required them to arbitrate disputes." (Pls.' Opp'n at 4-5.)

It is well settled under both Oregon and Washington law that "[a] party's failure to read a contract is no defense to enforcement of the contract absent special circumstances." Torrance v. Aames Funding Corp., 242 F.Supp.2d 862, 869 (D. Or. 2002) (quoting Knappenberger v. Cascade Ins. Co., 259 Or. 392, 398 (1971)); see also First Interstate Bank of Or., N.A. v Wilkerson, 128 Or.App. 328, 337 n.l 1 (1994) ("A person is presumed to be familiar with the contents of any document that...