United States District Court, S.D. Texas, Houston Division
MEMORANDUM & ORDER
KEITH P. ELLISON UNITED STATES DISTRICT JUDGE
before the Court is Defendant Kennedy Rig Services, LLC's
Motion to Dismiss or Compel Arbitration. (Doc. No. 11.)
Having heard oral argument and having considered the filings,
the responses thereto, and applicable law, the Court
DENIES the motion.
Jose Andrio (“Andrio”) filed this Fair Labor
Standards Act (“FLSA”) case against his employer,
Defendant Kennedy Rig Services, LLC (“Kennedy Rig
Services”), on behalf of himself and other similarly
situated welders. Compl. ¶¶ 1, 9. Kennedy Rig
Services is a company that services drilling rig
manufacturers. (Doc. No. 11.) Andrio alleges that Kennedy Rig
Services does not pay its employee welders overtime pay for
time worked in excess of forty hours per week. Compl. at
¶¶ 1, 2, 6, 18.
Rig Services has moved to dismiss or, in the alternative,
compel arbitration under the Federal Arbitration Act, 9
U.S.C. § 4. (Doc. No. 11.) Kennedy Rig Services supplied
the Court with a copy of an “Independent Contractor
Agreement” (“Contract”) signed by Andrio
and dated August 12, 2015. (Doc. No. 16-1, Exh. A-1.) The
Contract is two pages, with six sections. Id.
Section Six of the Contract provides for binding arbitration
(“Arbitration Agreement”). Id.
Specifically, the Arbitration Agreement states:
Any controversy or claim arising out of or relating to work
performed by Contractor for Company shall be submitted to and
resolved by a single arbitrator (the
“Arbitrator”) who shall be appointed by the
American Arbitration Association. The arbitration proceeding
will be conducted pursuant to the then current construction
rules of the American Arbitration Association.
Id. Section Four, entitled “Liability,
Insurance & Indemnity” (“Indemnity
Provision”), is on the same page of the Contract.
Id. In all capital letters and bold font, the
Indemnity Provision states:
CONTRACTOR HEREBY AGREES TO PROTECT, REIMBURSE, INDEMNIFY,
AND SAVE HARMLESS THE COMPANY . . . AGAINST ANY AND ALL
CLAIMS, DEMANDS . . . CAUSES OF ACTION, LOSSES, DAMAGES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING COURT COSTS AND
ATTORNEYS' FEES) ARISING OUT OF A BREACH OF THIS
AGREEMENT AND/OR THE PERFORMANCE OF THIS AGREEMENT BY
CONTRACTOR . . . ASSERTED AGAINST OR INCURRED BY THE COMPANY
OR THE OTHER INDEMNITIES, AT ANY TIME AND FROM TIME TO TIME,
UNLESS DUE TO THE COMPANY'S SOLE NEGLIGENCE.
Id. The Indemnity Provision concludes, “THE
PROVISIONS OF THIS SECTION SHALL SURVIVE TERMINATION OF THIS
argues that the Indemnity Provision is unconscionable,
pollutes the entire Contract, and cannot be severed. (Doc.
No. 22.) Also, Andrio contends that the Court, rather than an
arbitrator, must resolve unconscionability. (Doc. No. 30.)
Kennedy Rig Services responds that the parties have delegated
all issues to arbitration. (Doc. No. 29.)
4 of the Federal Arbitration Act (“FAA”)
A party aggrieved by the alleged failure, neglect, or refusal
of another to arbitrate under a written agreement for
arbitration may petition any United States district court
which, save for such agreement, would have jurisdiction . . .
for an order directing that such arbitration proceed in the
manner provided for in such agreement.
9 U.S.C. § 2. The FAA “expresses a strong national
policy favoring arbitration of disputes, and all doubts
concerning the arbitrability of claims should be resolved in
favor of arbitration.” Wash. Mut. Fin. Grp., LLC v.
Bailey, 364 F.3d 260, 263 (5th Cir. 2004) (citation
omitted). The FAA “leaves no place” for the court
to exercise discretion. Dean Witter Reynolds, Inc. v.
Byrd, 470 U.S. 213, 218 (1985). The court must order the
parties to arbitrate issues covered by a valid arbitration
agreements are enforceable like any other contract. 9 U.S.C.
§ 2; see also Capital Income Properties-LXXX v.
Blackmon, 843 S.W.2d 22, 23 (Tex. 1992) (“The
Federal [Arbitration] Act is part of the substantive law of
Texas.”). Courts apply state law to determine contract
validity. First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 944 (1995). Under Fifth Circuit precedent, a
motion to compel arbitration in Texas requires two findings
from the court: (1) applying Texas rules of contract
interpretation, the parties agreed to arbitrate the dispute
in question; and (2) no legal constraints external to the
arbitration agreement exist that foreclose the possibility of
arbitration. Tittle v. Enron Corp., 463 F.3d 410,
418 (5th Cir. 2006). State law contract defenses, such as
unconscionability, may invalidate an arbitration agreement.
Doctor's Assocs., Inc. v. Casarotto, 517 U.S.
681, 687 (1996). The party seeking to compel arbitration has
the burden to establish that a valid arbitration agreement
exists. In re Oakwood Mobile Homes, Inc., 987 S.W.2d
571, 573 (Tex. 1999) (abrogated on other grounds by In re
Halliburton Co., 80 S.W.3d 566, 568 (Tex. 2002)).
may agree to delegate gateway issues of arbitrability, such
as contract validity, to an arbitrator. Rent-A-Ctr., W.,
Inc. v. Jackson, 561 U.S. 63, 69 (2010). “The law
presumes courts have plenary power to decide the gateway
questions of a dispute's arbitrability”; where a
party contends otherwise, that party bears the burden of
demonstrating clearly and unmistakably that the parties
agreed to have the arbitrator decide that threshold question.
Houston Refining, L.P. v. United Steel, Paper and
Forestry, Rubber, Mfg., 765 F.3d 396, 408 (5th Cir.
2014). The court retains jurisdiction over gateway issues
where the argument in favor of arbitration is “wholly
groundless.” Douglas v. Regions Bank, 757 F.3d
460, 463 (5th Cir. 2014).
Court must begin by addressing the parties' arguments
concerning whether the gateway issues of arbitrability must
be determined by an arbitrator. Kennedy Rig Services argues
the parties delegated arbitrability by incorporating the
American Arbitration Association (“AAA”)
Rules-which leave arbitrability to the arbitrator-into the
arbitration clause. Andrio's position is that (1) the
entire agreement to arbitrate is unconscionable because it
forces him to forego substantive FLSA rights, so it cannot
delegate the job of determining unconscionability to an
arbitrator; and ...