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Flynn v. Sanchez Oil & Gas Corp.

United States District Court, W.D. Texas, San Antonio Division

December 5, 2019




         Before the Court in the above-styled cause of action are Defendant's Motion to Dismiss and Compel Arbitration [#12] and Plaintiff's Motion for Conditional Certification [#18]. This case was referred to the undersigned for all non-dispositive pretrial matters on September 30, 2019 [#15]. The District Court subsequently clarified that Defendant's Motion to Dismiss and Compel Arbitration was referred to the undersigned but that the District Court would take up the portion of the motion asking for dismissal, if necessary, after the undersigned issues a ruling on the request for arbitration. Accordingly, this Court has authority to enter this order pursuant to 28 U.S.C. § 636(b)(1)(A).

         The Court held an Initial Pretrial Conference and motions hearing in this case on October 30, 2019, at which all parties appeared through counsel. Although the Court heard argument on Plaintiff's Motion for Conditional Certification at the hearing, the Court previously stayed Defendant's obligation to respond to the motion until after the Court resolved the issue of whether Plaintiff is required to arbitrate his claims against Defendant. After considering Defendant's Motion to Compel, Plaintiffs' Response [#13], Defendant's Reply [#14], the arguments of counsel at the hearing, and the governing law, and for the reasons set forth below, the Court will deny Defendant's Motion to Compel; order the parties to confer and submit revised scheduling recommendations; and order Defendant to respond to Plaintiff's Motion for Conditional Certification within seven days of this Order.

         I. Background

         This putative collective action was filed by Plaintiff Mark Flynn on behalf of himself and all others similarly situated to recover unpaid overtime compensation under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b). Flynn alleges that he formerly worked as a Lease Operator for Defendant Sanchez Oil & Gas Corporation (“Sanchez”) and was paid a day-rate with no overtime compensation. (Compl. [#1] at ¶ 9.) Since Flynn filed his Complaint, two other Plaintiffs have consented to join this suit-William Howell and William Ryan. (Consents [#8].) Flynn has moved to conditionally certify a class of “All Operators who worked for, or on behalf of, Sanchez, who were staffed through Tulsa Inspection Resources and paid a day rate at any time during the last three years.” (Mot. [#18].) Sanchez has moved to dismiss Flynn's Complaint and to compel him to arbitrate his claims against Sanchez.

         Sanchez's motion to compel argues that it is a third-party beneficiary of an arbitration agreement between Flynn and Cypress Energy Management-TIR, LLC (“Cypress-TIR”), the staffing company that provided Flynn to work for Sanchez. The record before the Court reflects that Flynn entered into an Employment Agreement with Cypress-TIR on July 21, 2017, which contains an arbitration clause. (Employment Agreement [#12-2] at ¶ 5.) The arbitration clause provides as follows:

The parties agree that any dispute, controversy or claim arising out of or related to in any way to the parties' employment relationship or termination of that relationship, including this Employment Agreement or any breach of this agreement, shall be submitted to and decided by binding arbitration in Tulsa, Tulsa County, Oklahoma. Arbitration shall be administered under the laws of the American Arbitration Association in accordance with American Arbitration Association Employment Arbitration Rules and Mediation Procedures in effect at the time the arbitration is commenced.

(Id.) There is also a provision in the Employment Agreement waiving class claims, providing that Flynn and Cypress-TIR “will not assert class action or representative action claims against the other in arbitration or otherwise . . . .” (Id. at ¶ 6.)

         Tulsa Inspection Resources, LLC (“TIR”), an affiliate of Cypress-TIR, and its affiliates previously had entered into a Master Services Agreement with Sanchez, in which TIR agreed to perform personnel-related obligations for Sanchez and to indemnify Sanchez from and against certain claims. (Moyer Decl. [#12-2] at ¶ 2; Master Service Agreement [#12-1] at ¶ 11.) Flynn's Employment Agreement indicates that his employment was “based on a specific project to be performed for a designated customer” but does not reference Sanchez or any other customer by name. (Employment Agreement [#12-2] at ¶ 2.) The parties agree, however, that Flynn's duties as an employee of Cypress-TIR were to perform services for Sanchez. (Dunlap Decl. [#12-3] at ¶ 3.)

         Before initiating this lawsuit, Sanchez previously sued TIR for the same FLSA claims raised here.[1] (Complaint [#12-4].) After TIR raised the arbitration agreement with Flynn's counsel, the parties filed a stipulation of dismissal and the case was dismissed without prejudice. (Email Correspondence [#12-5], Stipulation [#12-6].) Several months later Flynn filed this action against Sanchez.

         Sanchez concedes it was not a party to the Employment Agreement between Cypress-TIR and Flynn. Sanchez nonetheless maintains it is entitled to enforce the arbitration agreement as a third-party beneficiary and that this case should be dismissed. Alternatively, Sanchez argues that Flynn is prohibited from avoiding his obligation to arbitrate by direct-benefits estoppel. The Court disagrees with both of Sanchez's contentions.

         II. Analysis

         Sanchez's motion to compel arbitration is denied because Sanchez has not convinced the Court that Flynn and Cypress-TIR intended to make Sanchez a beneficiary of their arbitration agreement. Although Flynn indisputably entered an arbitration agreement with Cypress-TIR, he did not enter one with Sanchez, and nothing in the language of his agreement with Cypress-TIR evinces the parties' intent to extend the agreement to arbitrate to Cypress-TIR's customers generally or Sanchez specifically. Finally, Flynn's lawsuit is not barred by the doctrine of direct-benefits estoppel.

         A. Sanchez is not a third-party beneficiary of the ...

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