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Andrio v. Kennedy Rig Services, LLC

United States District Court, S.D. Texas, Houston Division

December 6, 2017

JOSE ANDRIO, Plaintiff,
v.
KENNEDY RIG SERVICES, LLC, Defendant.

          MEMORANDUM & ORDER

          HON. KEITH P. ELLISON UNITED STATES DISTRICT JUDGE

         Pending 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.

         I. BACKGROUND

         Plaintiff 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.

         Kennedy 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 AGREEMENT.” Id.

         Andrio 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.)

         II. APPLICABLE LAW

         Section 4 of the Federal Arbitration Act (“FAA”) provides:

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 agreement. Id.

         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)).

         Parties 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).

         III. ANALYSIS

         The 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 ...


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