Opinion
1:23-CV-734-RP
02-26-2024
TIMOTHY GRAHAM, Plaintiff, v. LEISURE POOLS USA TRADING, INC., Defendant.
REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
MARK LANE UNITED STATES MAGISTRATE JUDGE
TO THE HONORABLE ROBERT PITMAN UNITED STATES DISTRICT JUDGE:
Before the court is Defendant Leisure Pools USA Trading, Inc.'s (Leisure Pools) Motion to Dismiss Pursuant to 12(b)(1), 12(b)(3), 12(b)(6), and the Federal Arbitration Act (Dkt. 8) and all related briefing. Having reviewed the pleadings, the relevant case law, as well as the entire case file, and determined that oral arguments are not necessary, the undersigned issues the following Report and Recommendation.
United States District Judge Robert Pitman referred to the Motion to the undersigned for a Report and Recommendation as to the merits pursuant to 28 U.S.C. § 636(b)(1)(B), Rule 72 of the Federal Rules of Civil Procedure, and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas. Text order, Nov. 1, 2023.
I. Background
Plaintiff Timothy Graham worked for Leisure Pools in Texas as a construction manager, managing employees installing pools. Dkt. 1 (Complaint) ¶8. Graham worked for Leisure Pools from May 2019 through April 2022. Id. ¶7. Beginning in April 2020 and continuing through April 2022, his role changed from construction manager to pool technician. Id. ¶10. Graham alleges Leisure Pools failed to pay him time-and-a-half his rate of pay for overtime hours during the time he worked as a pool technician. Id. ¶¶ 2, 22. He alleges that the entire time he worked for Leisure Pools he was paid bi-weekly a flat salary but was entitled to overtime pay under the FLSA from April 2020, when his duties changed, onward. Id. ¶¶13-14. He asserts a single claim under the Fair Labor Standards Act. Id. ¶23.
On April 6, 2019, Graham signed a document titled “EMPLOYMENT AGREEMENT” (the “Agreement”). Dkt. 8-1 3, 15. Just below Leisure Pools's logo and above the document title is a sentence: DISPUTES RELATING TO THIS AGREEMENT ARE REQUIRED TO BE SETTLED PURSUANT TO CERTAIN DISPUTE RESOLUTION PROCEDURES AS PROVIDED IN ARTICLE 7 OF THIS AGREEMENT. Id. at 3 (emphasis in original). Article 7 contains a arbitration provision. Id. at 11.
Leisure Pools seeks to dismiss the lawsuit without prejudice, contending that the parties must arbitrate their dispute but that this court lacks jurisdiction to compel Graham to arbitration. Dkt. 8 at 9. In response, Graham argues Leisure Pools “failed to produce-and cannot produce- a valid, enforceable executed agreement to arbitrate.” Dkt. 9 at 1.
Graham also contends that Leisure Pools's argument that this court lacks jurisdiction to compel parties to arbitration outside the judicial district in which the court sits is incorrect. Dkt. 9 at 1.
II. Arbitration Agreements
“The purpose of the FAA is to give arbitration agreements the same force and effect as other contracts.” Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004) (citing 9 U.S.C. § 2); see Pennzoil Expl. and Production Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1064 (5th Cir. 1998) (“Arbitration is a matter of contract between the parties”). Enforcement of an arbitration agreement involves two analytical steps: (1) whether there is a valid agreement to arbitrate; and (2) whether the dispute falls within the scope of that agreement. Huckaba v. RefChem, L.P., 892 F.3d 686, 688 (5th Cir. 2018) (citing Klein v. Nabors Drilling USA L.P., 710 F.3d 234, 236 (5th Cir. 2013)). Here, the first step is at issue.
Courts apply the contract law of the state that governs the agreement to determine whether the parties agreed to arbitrate a certain matter. Bailey, 364 F.3d at 264 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). “Although there is a strong federal policy favoring arbitration, ‘this federal policy favoring arbitration does not apply to the determination of whether there is a valid agreement to arbitrate between the parties.'” Will-Drill Res. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir. 2003) (quoting Fleetwood Enters. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002)). Determining whether there is a valid arbitration agreement is a question of state contract law and is for the court. Huckaba, 892 F.3d at 688 (citing Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 202 (5th Cir. 2016)).
III. Analysis
To begin, this court must apply the contract law of the state that governs the agreement to determine whether the parties agreed to arbitrate. Bailey, 364 F.3d at 264. The parties disagree about which state law applies. Leisure Pools asserts that “the Agreement is governed by Tennessee law.” Dkt. 8 at 3 (quoting the Agreement). Graham contends that Texas law governs. Dkt. 9 at 34 (citing Huckaba 892 F.3d at 689).
Courts in the Fifth Circuit, “do not resort to any contractual choice-of-law provision” when determining the preliminary question of contract formation. Realogy Holdings Corp. v. Jongebloed, 957 F.3d 523, 531 n.11 (5th Cir. 2020) (quoting Edminster, Hinshaw, Russ and Assoc. v. Downe Twp., 953 F.3d 348, 351 (5th Cir. 2020) (“[T]he choice-of-law provision has force only if the parties validly formed a contract.”)). Accordingly, the court will use Texas law to determine whether the parties formed a contract.
A. Choice of law
The Agreement contains the following provision: “This Agreement shall be subject to and governed by the laws of the State of Tennessee ....” Dkt. 8-1 ¶ 9.2.
The choice-of-law clause refers to “This Agreement,” id., which indicates the parties intended to restrict the clause to the interpretation or construction of the agreement itself. Tex. Taco Cabana v. Taco Cabana of N.M., 304 F.Supp.2d 903, 908 (W.D. Tex. 2003) (citing America's Favorite Chicken Co. v. Cajun Enterprises, Inc., 130 F.3d 180, 182 (5th Cir. 1997)). Thus, the choice-of-law clause is narrow and does not address the whole of the parties' relationship. The choice-of-law clause does not address the general rights and liabilities of the parties, so this court must apply Texas choice-of-law rules to determine which law applies to the FLSA claim in the Complaint. See Caton v. Leach Corp., 896 F.2d 939, 943 (5th Cir. 1990).
Texas has adopted the Restatement (Second) of Conflicts approach to contractual choice-of-law provisions. See DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677-78 (Tex. 1990). Under Texas law, the parties' choice-of-law will be enforced unless the chosen law has no substantial relationship to the parties or the transaction or unless application of the law chosen would conflict with a fundamental policy of a state that has a materially greater interest than the chosen state in the determination of a particular issue. See Lemmon v. United Waste Sys., 958 S.W.2d 493, 49899 (Tex. App-Fort Worth 1997, pet. denied). Texas applies the “most significant relationship” test as enunciated in the Restatement (Second) of Conflicts. See Gutierrez v. Collins, 583 S.W.2d 312, 318 (Tex. 1979). Section 145 states:
(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.
(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.Restatement (Second) of Conflicts § 145 (Am. Law Inst. 1971). This court must evaluate these contacts according to their relative importance with respect to the particular issue. Id.
Graham's FLSA claim-his sole claim-arises out of his employment by Leisure Pools in Texas. See, e.g., Dkt 1 at ¶¶9-10. Neither party asserts Graham worked for Leisure Pools anywhere but Texas. Dkt. 8 at 2. Graham is a citizen of Texas. Dkt. 1 ¶3. Leisure Pools is “a Texas corporation [] with executive offices in Knoxville, Tennessee.” Dkt 8-1 (Employment Agreement) at 3.
Taken together, these contacts show Texas law applies to the issue of contract formation because the plaintiff is a citizen of Texas, the defendant is a Texas corporation, the conduct that caused the alleged injury occurred in Texas, and the relationship between the parties is centered in Texas. Accordingly, the undersigned will apply Texas contract law to the formation issue.
B. Whether there is an agreement
Under Texas law, a contract requires: “(1) an offer; (2) an acceptance in strict compliance with the terms of the offer; (3) a meeting of the minds; (4) each party's consent to the terms; and (5) execution and delivery of the contract with intent that it be mutual and binding.” Id. at 689; In re Capco Energy, Inc., 669 F.3d 274, 279-80 (5th Cir. 2012). As to the last element, whether a signature is needed to bind the parties is a question of the parties' intent. Huckaba, 892 F.3d at 689; Tricon Energy Ltd. v. Vinmar Int'l, Ltd., 718 F.3d 448, 454 (5th Cir. 2013). Signatures are not required “[a]s long as the parties give their consent to the terms of the contract, and there is no evidence of an intent to require both signatures as a condition precedent to it becoming effective as a contract.” Huckaba, 892 F.3d at 689.
A court can decide intent as a matter of law. Id.; Tricon Energy, 718 F.3d at 454. “In construing a contract, a court must ascertain the true intentions of the parties as expressed in the writing itself.” Huckaba, 892 F.3d at 689 (quoting Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011)). “In identifying such intent, ‘we must examine and consider the entire writing in an effort to harmonize and give effect to all the provisions of the contract so that none will be rendered meaningless.'” Huckaba, 892 F.3d at 689 (quoting Italian Cowboy Partners, Ltd., 341 S.W.3d at 333). Courts “begin this analysis with the contract's express language.” Id.
Graham argues there is no contract-and thus no arbitration agreement-because Leisure Pools did not sign the Employment Agreement. Dkt. 9 at 4-5. Neither party contests that Leisure Pools did not sign the Employment Agreement. Thus, this case hinges on the final contract element: whether there was a validly executed contract in the absence of Leisure Pool's signature. Graham cites on-point Fifth Circuit case law in support of his argument.
In Huckaba, the Fifth Circuit reversed the district court's judgment compelling arbitration “[b]ecause the express language of the agreement at issue requires for it to be signed by both parties and because it is undisputed that [the employer defendant] did not sign the agreement.” Huckaba, 892 F.3d at 687.
In that case, plaintiff “sued her former employer [] in federal district court.” Id. The former employer “moved to dismiss and compel arbitration.” Id. “In support of its motion, [the former employer] provided the court with an arbitration agreement that had been signed by [the plaintiff].” Id. at 688. “Next to [the plaintiff's] signature is a signature block for [the former employer].” Id. The former employer, “however, did not sign the agreement.” Id.
The relevant provision of the agreement at issue in Huckaba is nearly identical to the relevant provision of the Employment Agreement. The agreement in Huckaba included a provision that it “may not be changed, except in writing and signed by all parties.” Id. (internal quotations omitted). The agreement here provides it “may not be amended or modified except by an agreement in writing . . . and is signed by both parties.” Dkt. 8-1 at 14 (Employment Agreement § 9.8 cl. 2).
Leisure Pools's actions are very similar to the former employer's in Huckaba. In both cases, the company's human resources director submitted an affidavit, attesting the companies kept the unsigned agreements as business records in connection with the former employees' employment. Huckaba, 892 F.3d at 688; Dkt. 8-1 at 1-2 (Johanna Starrett affidavit). The plaintiffs' actions likewise are similar. In both cases, the plaintiffs contend that they did not intend to be bound by the arbitration agreements until a company representative countersigned the agreements and provided a countersigned copy to them. Huckaba, 892 F.3d at 688; Dkt. 9-1 ¶¶2-6.
Because of the highly analogous facts, the undersigned incorporates the Fifth Circuit's analysis. Just like the employer in Huckaba, Leisure Pools “is right when it notes that Texas courts have held that a signature block by itself is insufficient to establish the parties' intent to require signatures.” Huckaba, 892 F.3d at 689-90 (citing Tricon Energy, 718 F.3d at 455; Firstlight Fed. Credit Union v. Loya, 478 S.W.3d 157, 168 (Tex. App.-El Paso 2015, no pet.)).” Just like in Huckaba, “in this case, we have more than a blank signature block that speaks to the parties' intent.” Id. at 690. And just as there, “[t]he agreement also contains language that the parties needed to sign the agreement to give it effect or to modify it.” Id.
A clause indicating the parties intention that only the employee would sign it but not the employer, “does not negate the other references to all parties signing.” Huckaba, 892 F.3d at 689. Furthermore, the presence of a logo or letterhead or the company's name at the top of the document is not dispositive of its intentions. Id. n.2.
In Huckaba, “the question of [the employer's] intention [was] answered by the agreement it drafted.” Id. Likewise, the question of Leisure Pools's intention is answered by the agreement it drafted. Just as in Huckaba, “we have more than a blank signature block that speaks to the parties' intent.” Id. “The agreement also contains language that the parties needed to sign the agreement to give it effect or to modify it.” Id.; see In re Bunzl USA, 155 S.W.3d 202 (Tex. App.-El Paso 2004, orig. proceeding [mand. denied]) (holding the trial court did not abuse its discretion denying employer's motion to compel arbitration where the employer failed to sign the arbitration agreement and show that the parties intended to be bound without the employer's signature).
A blank signature block is relevant to the undersigned's analysis as illuminated in a recent unpublished: Flores v. BJ's Restaurant Operations Company. No. 23-50038, 2023 U.S. App. LEXIS 26711, at *3 (5th Cir. 2023) (unpublished). In BJ's Restaurant, “[t]he employer prepared [the employee's] arbitration agreement on its letterhead .... [The employer] presented the agreement to [the employee] for signature, as part of his onboarding. process, and required that he complete it before starting employment. The company kept the agreement in his personnel file, and then sought to enforce it against him upon the filing of this suit.” Id. at 4. Those actions, “decisively favor[ed]” the employer, seeking to enforce the arbitration agreement. Id. “Texas courts have found that these considerations evince an employers' intent to be bound even when they did not sign arbitration agreements.” Id. (citing cases). But the court analyzed the parties' conduct to determine their intent because a signature block was entirely absent. Id. at *3. Graham's argument is similar to the one asserted in BJ's Restaurant: the Employment Agreement contains references to signing and is unsigned by Leisure Pools. In BJ's Restaurant, the employee “argue[d] the plain language references to ‘signing' show that [employer] BJ's signature was a condition precedent for contract execution.” BJ's Rest., 2023 U.S. App. LEXIS 26711, at *4. “Texas law commands looking to the instrument as a whole, harmonizing all the clauses.” Id. (citing J.M. Davidson v. Webster, 128 S.W.3d 223, 229 (Tex. 2003)). And the court concluded mentions of “signing” did not “clearly and explicitly require a signature.” Id. (citing Firstlight, 478 S.W.3d at 170 (quotations omitted)). But there is a signature block in the Employment Agreement, thus a different result obtains. “[A]n unpublished decision issued after 1 January 1996 is ‘not precedent,'” Hinkley v. Envoy Air, 968 F.3d 544, 554 (5th Cir. 2020) (quoting 5th Cir. R. 47.5.4). And “fundamentally, a published opinion controls over an unpublished opinion, regardless of the opinions' timing.” Id.
The facts do not satisfy Leisure Pools's burden to show that it intended to be bound without signing the agreement. See Huckaba, 892 F.3d at 691. As the Fifth Circuit concluded in Huckaba, if this court concluded otherwise, then Leisure Pools could have it both ways-argue that it did not intend to be bound because it did not sign the agreement or it did because it kept the agreement and sought to compel arbitration. See id. Thus, the undersigned will give meaning to the words Leisure Pools used in the agreement it drafted. See id.
The Employment Agreement evinced an intent that the parties would sign it to give it effect. But it was unexecuted. The arbitration provision was contained in the unexecuted Employment Agreement. Thus, the undersigned concludes that there is not a valid agreement to arbitrate.
IV. Recommendations
For the reasons above, the undersigned RECOMMENDS the District Court DENY Defendant Leisure Pools USA Trading, Inc.'s Motion to Dismiss Pursuant to Rule 12(b)(1), 12(b)(3), 12(b)(6) and the Federal Arbitration Act (Dkt. 8).
V. Objections
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battles v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations contained in this Report within 14 days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Services Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996) (en banc).