Reyna v. Int'l Bank of Commerce

• Decision Date: 04 October 2016
• Docket Number: No. 16-40057,16-40057
• Parties: Carlos Reyna, individually and on behalf of all other similarly situated, Plaintiff–Appellee, v. International Bank of Commerce, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

839 F.3d 373

Carlos Reyna, individually and on behalf of all other similarly situated, Plaintiff–Appellee,

v.International Bank of Commerce, Defendant–Appellant.

No. 16-40057

United States Court of Appeals, Fifth Circuit.

FILED October 4, 2016

Gurdip Atwal, Jacob Rusch, Timothy J. Becker, Esq., David H. Grounds, Esq., Johnson Becker, P.L.L.C., Saint Paul, MN, James Rick Holstein, Corpus Christi, TX, for Plaintiff–Appellee.

Donna Kay McElroy, Melanie Lynn Fry, Dykema Cox Smith, San Antonio, TX, Christopher D. Kratovil, Esq., Dykema Cox Smith, Dallas, TX, Kristina Marie Williams, Dykema Cox Smith, Austin, TX, for Defendant–Appellant.

Before KING, SMITH, and COSTA, Circuit Judges.

KING

, Circuit Judge:

Plaintiff–Appellee Carlos Reyna brought an action on his own behalf and on behalf of other similarly situated individuals against his former employer, Defendant–Appellant International Bank of Commerce, contending that IBC violated the Fair Labor Standards Act by failing to pay proper overtime rates. IBC moved to compel arbitration of Reyna's claim, but the district court denied the motion, concluding that it could not consider the applicability of any arbitration agreement until later in the certification process for a FLSA collective action. IBC now brings this interlocutory appeal, arguing that the district court erred in denying its motion to compel arbitration. For the following reasons we REVERSE the district court's denial of the motion to compel arbitration and REMAND the case to the district court with instructions to refer the dispute to arbitration.

I. FACTUAL AND PROCEDURAL BACKGROUND

On August 31, 2015, Plaintiff–Appellee Carlos Reyna filed suit against Defendant–Appellant International Bank of Commerce (IBC) alleging that IBC violated the Fair Labor Standards Act (FLSA) by failing to properly pay overtime to its bank teller employees. From July 2012 through August 2013, Reyna was employed as a bank teller by IBC. Reyna alleged that when he worked overtime, IBC only paid him “a rate of one-half times his regular rate,” rather than the “premium overtime pay at a rate of not less than one and one-half times his regular rate of pay” required by the FLSA. See 29 U.S.C. § 207(a)

(requiring that employees receive “a rate not less than one and one-half times the regular rate at which [the employee] is employed” for overtime hours). He also sought to bring his suit as a collective action pursuant to the FLSA.¹

See 29 U.S.C. § 216(b). Such collective actions under the FLSA usually proceed in two stages, a conditional certification stage and a final certification stage.² 7B Charles Alan Wright et al., Federal Practice & Procedure § 1807 (3d ed. 2016)

. Reyna defined his proposed collective as:

All persons who are or have been employed by IBC as Bank Tellers, or other job titles performing similar job duties, who did not receive premium overtime pay at a rate of not less than one and one-half times the regular rate of pay when they worked more than forty (40) hours in a week, at any time from three years prior to the filing of this Complaint and through the entry of final judgment....

On November 13, 2015, IBC moved to dismiss Reyna's complaint or, in the alternative, moved to compel arbitration, strike class claims, and stay or dismiss the proceeding. IBC argued that Reyna agreed to be bound by IBC's Open Door Policy for Dispute Resolution (the Policy), which provides that the “exclusive remedy for challenging employment actions” is a four-step grievance process, culminating in binding arbitration. The Policy states that it applies to “all disputes arising out of [the employee's] relationship with IBC or any IBC Entity, including but not limited to ... [c]laims regarding wages or other compensation due under the [FLSA] ... including, ... claims for non-payment or untimely payment of wages and overtime....” The Policy does not mention FLSA collective actions but does provide that employees may bring class actions “only ... upon the agreement of all the parties.” The Policy contains a delegation clause giving the arbitrator “the exclusive authority” to both “determine the arbitrability of any dispute” and “resolve any dispute relating to the interpretation, applicability, enforceability or formation of the [Policy].” Finally, the Policy forecloses employees from seeking remedies for covered claims outside of the four-step grievance process, instructing:

By continuing or beginning employment after the effective date [of the Policy], you are agreeing that this Policy shall be your exclusive remedy for challenging employment actions and seeking redress for all claims covered by this Policy. In so agreeing, you are also waiving your right to seek any remedy for those claims covered by this Policy outside of the grievance and arbitration procedures established by this Policy.

In its motion, IBC contended that the suit should be dismissed because Reyna failed to exhaust the four-step grievance process provided for in the Policy or, alternatively, that the district court should compel arbitration of Reyna's FLSA claim per the terms of the Policy. IBC also argued that any compelled arbitration must be done on an individual basis because both parties did not consent to bringing the claim as a collective action, as required under the Policy. Reyna opposed the motion, arguing that “[i]n collective action suits brought under the FLSA, courts rule on first-stage conditional certification and notice before ruling on the validity and enforceability of any purported arbitration agreement.”

After converting IBC's motion to a motion for summary judgment, the district court held a hearing on the motion on January 6, 2016. After hearing the parties' arguments, the district court denied IBC's motion. The district court agreed with Reyna that “at this stage [of the litigation] the only issue is whether the plaintiff is similarly situated to potential class members so that notice should be authorized.” The district court declined to address the merits of whether Reyna should be compelled to arbitrate his claim because the question of whether the Policy requires arbitration is a “merits-based argument” that should not be addressed until “the second stage” of the FLSA collective action litigation. Based on the district court's refusal to send the matter to arbitration, IBC timely filed its notice of interlocutory appeal pursuant to the Federal Arbitration Act (FAA).³ Despite subsequent developments in the case,⁴ our review on appeal is limited to whether the district court erred in denying IBC's motion to compel arbitration.

II. ARBITRABILITY

IBC argues that the district court erred in denying its motion to compel Reyna to arbitrate his claim. “We review a district court's denial of a motion to compel arbitration ... de novo.” Auto Parts Mfg. Miss., Inc. v. King Constr. of Hous., L.L.C. , 782 F.3d 186, 196 (5th Cir. 2015)

. We agree with IBC that, upon being presented with IBC's motion to compel arbitration, the district court was required to address the arbitrability of Reyna's claim at the outset of the proceedings, prior to considering conditional certification. We also conclude that the Policy required that Reyna's claim be referred to arbitration for determination of arbitrability issues.

A. Arbitrability is a gateway issue

Reyna argues that district courts “consistently” conditionally certify a collective action before determining the arbitrability of a claim, but the cases he relies on have distinct procedural postures from that at issue here. In particular, he cites cases where (1) the district court declined to determine the validity of arbitration agreements with potential opt-in plaintiffs , not arbitration agreements with the sole named plaintiff;⁵ (2) the named plaintiff was potentially covered by an arbitration agreement, but the defendant failed to move to compel that plaintiff to arbitrate his claim;⁶ (3) the court was not addressing a motion to compel arbitration;⁷ and (4) the district court had already compelled those named plaintiffs who had signed arbitration agreements to arbitrate their claims but nonetheless granted conditional certification of the collective because there existed at least one remaining plaintiff not subject to arbitration.⁸

None of the cases cited by Reyna presented the same posture as this case: a defendant who promptly moved to compel the sole plaintiff to arbitrate his claim, pursuant to an arbitration agreement that undisputedly exists. Those courts that have addressed cases with similar postures are in agreement that “whether the named plaintiffs must arbitrate their claims should be decided well before the nationwide notification issue is reached.” Carter v. Countrywide Credit Indus., Inc. , 189 F.Supp.2d 606, 618 (N.D. Tex. 2002)

, dismissed on other grounds , 57 Fed.Appx. 212 (5th Cir. 2003) ; see also, e.g. , White v. Turner , No. H–15–1485, 2016 WL 1090107, at *3–6 (S.D. Tex. Mar. 21, 2016) (rejecting plaintiffs' argument that the court should defer consideration of arbitration agreements until after the conditional certification stage); Dixon v. NBCUniversal Media, LLC , 947 F.Supp.2d 390, 405–06 (S.D.N.Y. 2013) (denying the motion for conditional certification as moot because the only named plaintiff “ha[d] agreed to arbitrate her FLSA claims, and ha[d] waived the right to bring a collective action with regard to those claims”). We therefore disagree with Reyna's argument that courts typically delay consideration of the arbitrability of a claim until after conditional certification is granted.

In addition, we have instructed that a district court must consider an agreement to arbitrate as a “threshold question.” Auto Parts , 782 F.3d at 196

. To hold otherwise would present a justiciability issue: a court could conditionally certify a collective action solely on the basis of a claim that the plaintiff was bound to arbitrate and was therefore barred from bringing it in court in the first place. Cf.

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