Opinion
2:23-cv-01600-HL
01-26-2024
TYSON HARSHMAN, Plaintiff, v. J-M PIPE COMPANY, INC., and PW EAGLE, INC. dba JM EAGLE, Defendants.
FINDINGS AND RECOMMENDATION
ANDREW HALLMAN, United States Magistrate Judge
Plaintiff Tyson Harshman (“Plaintiff”) brings this diversity action against his former employer, Defendant “J-M Pipe Company” (“Defendant”), alleging retaliation under Oregon Revised Statutes (“ORS”) 659A.030. Defendant now seeks to stay this matter and compel arbitration pursuant to an arbitration agreement between Plaintiff and Defendant. This Court concludes that this motion is appropriate for resolution without oral argument. For the following reasons, Defendant's motion should be granted, and the case should be dismissed without prejudice.
Defendant asserts that it is “erroneously identified” in the complaint and should be correctly identified as “Defendant JM Manufacturing Company, Inc., dba JM Eagle.” Mot. Compel. Arb., ECF 5, 1. This Court will refer to “Defendant” as the corporate entity that employed Plaintiff.
BACKGROUND
Plaintiff was hired by Defendant on or around December 6, 2011. Compl., ECF 2-1, ¶ 4. Plaintiff alleges that during his employment, he was retaliated against for opposing unlawful practices in the workplace. Id. ¶¶ 37-42. Plaintiff was terminated on May 25, 2022. Id. ¶ 4.
On the date he was hired, Plaintiff signed a Non-Disclosure, Invention Assignment, NonCompetition and Arbitration Agreement (hereinafter “agreement”), which required “final and binding arbitration” of “any and all claims or controversies arising out of or relating to [his] employment.” Scott Decl., ECF 6, Ex. 1. This term was included at the end of a four-page document, with the arbitration terms set forth in the last paragraph. Id. Plaintiff does not recall reading the agreement and was not aware of the arbitration provision. Harshman Decl., ECF 10, ¶ 3.
Although not entirely clear from the record, it appears that Plaintiff was not provided a copy of the arbitration agreement when he requested a copy of his personnel file. Mot. Compel Arb. 14-15; Pl. Resp. Mot. Compel Arb. (“Resp.”), ECF 9, 1. The agreement was also not produced in response to the complaint filed by Plaintiff to the Oregon Bureau of Labor and Industries. Def.'s Reply. Mot. Compel Arb. (“Reply”), ECF 13, 20.
Plaintiff initiated this action in Umatilla County Circuit Court on September 20, 2023. ECF 1. Two days later, counsel for Defendant provided counsel for Plaintiff a copy of the agreement via email. Scott Repl. Decl., ECF 14-1, Ex. 1. Defendant filed a notice of removal of this action on October 31, 2023. ECF 1.
This motion followed. Mot. Compel Arb. In opposing Defendant's motion to compel, Plaintiff does not dispute that the FAA applies to the agreement and that the agreement encompasses the disputes in this proceeding. Resp. Instead, Plaintiff asserts that Defendant should be estopped from enforcing the agreement and that the agreement is procedurally unconscionable. Id.
LEGAL STANDARD
The Federal Arbitration Act (“FAA”) provides that arbitration agreements “shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2 (2018). Courts may decline to enforce an arbitration agreement if grounds “exist at law or in equity for the revocation of any contract.” Id. Otherwise, courts must place arbitration agreements upon the same footing as other contracts. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). “Courts strongly favor arbitration and broadly construe arbitration clauses.” Tapley v. Cracker Barrel Old Country Store, Inc., 448 F.Supp.3d 1143, 1147 (D. Or. 2020). “The standard for demonstrating arbitrability is not high.” Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999).
Under the FAA, when evaluating a motion to compel arbitration, courts should determine: “(1) whether a valid agreement to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000). “If the response is affirmative on both counts, then the [FAA] requires the court to enforce the arbitration agreement in accordance with its terms.” Id. Section 2 of the FAA allows arbitration agreements to be invalidated by generally applicable contract defenses, such as duress or unconscionability, but not by defenses that only apply to arbitration agreements. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011); Doctor's Assoc. Inc. v. Casarotto, 517 U.S. 681, 687 (1996). When determining the validity of an agreement to arbitrate, the courts “should apply ordinary state-law principles that govern the formation of contracts.” First Options of Chi. Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
ANALYSIS
I. Defendant did not waive its right to arbitration and is not estopped from asserting that right because it failed to produce the agreement pre-litigation.
Plaintiff first argues that Defendant was required to produce the agreement with Plaintiff's personnel file pursuant to ORS 652.750, and because it failed to do so, it is now estopped from relying on the agreement. Id. 1-2. In response, Defendant asserts that it was not required to produce the agreement under Oregon law and that even if it were, its failure to do so does not give rise to the defenses of waiver or estoppel. Reply 3-10, 17-21.
Plaintiff does not explicitly argue that Defendant waived its right to arbitration. Resp. 1-2. Regardless, this Court agrees with Defendant that Plaintiff's substrative argument - that Defendant cannot assert its right to arbitration due to its failure to produce the agreement - can also be construed as a waiver argument. Reply 19-20.
ORS 652.750(2) requires an employer to produce “the personnel records of the employee that are used or have been used to determine the employee's qualification for employment, promotion, additional compensation, employment termination or other disciplinary action.” The parties dispute whether the agreement constitutes a “personnel record” of Plaintiff that Defendant was required to produce. Resp. 2; Reply 3-10. This Court need not resolve that issue, however. Even assuming that Defendant was required to produce the agreement under ORS 652.750, its failure to do so does not mean that Defendant has waived or is estopped from asserting its right to arbitrate.
A. Waiver
“A determination of whether the right to compel arbitration has been waived must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements.” Martin v. Yasuda, 829 F.3d 1118, 1124 (9th Cir. 2016) (quotations omitted). “[T]he test for waiver of the right to compel arbitration consists of two elements: (1) knowledge of an existing right to compel arbitration; and (2) intentional acts inconsistent with that existing right.” Hill v. Xerox Bus. Servs., LLC, 59 F.4th 457, 468 (9th Cir. 2023). “There is no concrete test to determine whether a party has engaged in acts inconsistent with its right to arbitrate; rather, [the court] consider[s] the totality of the parties' actions.” Id. at 471 (citations omitted). This element will be “satisfied when a party chooses to delay his right to compel arbitration by actively litigating his case to take advantage of being in federal court.” Id. (citing Martin, 829 F.3d at 1125).
As to the first factor, neither party disputes that Defendant had knowledge of its right to compel arbitration.
As to the second, Plaintiff has not shown that Defendant has acted inconsistently with its right to compel arbitration. “[A] party may waive its right to arbitrate where the parties begin to conduct discovery or engage in other motions practice prior to filing a motion to compel arbitration.” Tapley, 448 F.Supp.3d at 1149. But a “[d]efendant's pre-litigation delay in sending [a p]laintiff her personnel file does not constitute conduct inconsistent with [a d]efendant's right to compel arbitration,” at least when a defendant promptly moves to compel arbitration upon the filing of an action. Id. Thus, even if Defendant violated ORS 652.750 by not producing the agreement pre-litigation, it does not follow that Defendant waived its right to compel arbitration. Because Defendant promptly moved to compel arbitration after this action was initiated, Plaintiff cannot meet his burden of demonstrating waiver.
B. Estoppel
To establish an affirmative defense of equitable estoppel, the defendant must show:
(1) a false representation, (2) made with knowledge of the facts, and (3) the other party must have been ignorant of the truth; (4) it must have been made with the intention that it should be acted upon by the other party; and (5) the other party must have been induced to act upon it. Estoppel protects only those who materially change their position in reliance on another's acts or representations. There must be a right to rely, and the reliance must be reasonable.Ross Dress For Less, Inc. v. Makarios-Oregon, LLC, 180 F.Supp.3d 745, 778 (D. Or. 2016) (citing Hess v. Seeger, 55 Or.App. 746, 760-61 (1982)); see also Goergen v. Black Rock Coffee Bar, LLC, No. 3:22-CV-1258-SI, 2023 WL 1777980, at *9-10 (D. Or. Feb. 6, 2023) (discussing equitable estoppel in the context of an arbitration agreement).
Again, even if Plaintiff is correct that production of the agreement was required, it does not follow that Defendant is “estopped” from asserting arbitration provisions through its alleged failure to comply with ORS 652.750. As to the first element, Defendant's alleged failure to comply with ORS 652.750 was an error of omission, not a false representation. As to the third element, Plaintiff cannot demonstrate that he was ignorant of the arbitration agreement because he is presumed to be familiar with the agreement he signed. Motsinger v. Lithia Rose-FT, Inc., 211 Or.App. 610, 616-17 (2007). Finally, as to the fourth and fifth elements, there is also no evidence that Defendant “induced” Plaintiff to file this action in Circuit Court so that they could move to compel arbitration. Accordingly, even if Defendant failed to comply with ORS 652.750, the doctrine of equitable estoppel does not apply.
II. The agreement was not procedurally unconscionable.
Plaintiff next argues that the agreement was procedurally unconscionable because it was “a take-it-or-leave-it” contact between parties of unequal bargaining power. Resp. 3. He also asserts that it was unconscionable because he does not recall signing the agreement, which was at the end of a four-page document. Id. 3-4. In response, Defendant asserts that these allegations are insufficient to demonstrate procedural unconscionability. Reply 11-17.
“Unconscionability is a generally applicable contract defense that may render an agreement to arbitrate unenforceable.” Chalk v. T-Mobile USA, Inc., 560 F.3d 1087, 1092 (9th Cir. 2009) (citing Shroyer v. New Cingular Wireless Servs. Inc., 498 F.3d 976, 981 (9th Cir. 2007)). “[U]nconscionability is a question of law that must be determined based on the facts in existence at the time the contract was made.” Motsinger, 211 Or.App. at 614. The party asserting unconscionability bears the burden of proof. Id. Under Oregon law, unconscionability is comprised of two components: procedural and substantive unconscionability. Id.
As relevant here, procedural unconscionability concerns the conditions under which the contract was formed. Vasquez-Lopez v. Beneficial Or., Inc., 210 Or.App. 553, 567 (2007). The analysis of procedural unconscionability has two prongs: oppression and surprise. Tapley, 448 F.Supp.3d at 1149 (citing Bagley v. Mt. Bachelor, Inc., 356 Or. 543, 555 (2014)). “Oppression exists when there is inequality in bargaining power between the parties, resulting in no real opportunity to negotiate the terms of the contract and the absence of meaningful choice.” Livingston v. Metro. Pediatrics, LLC, 234 Or.App. 137, 151 (2010) (citing Vasquez-Lopez, 210 Or.App. at 566). “Surprise involves whether terms were hidden or obscure from the vantage of the party seeking to avoid them. Generally speaking, factors such as ambiguous contract wording and fine print are the hallmarks of surprise.” Bagley, 356 Or. at 555.
Plaintiff's argument that the agreement is oppressive because of the unequal bargaining power of the parties and the take-it-or-leave-it nature of the agreement is insufficient to establish that the agreement is oppressive. Oregon courts have consistently held that “more than a contract of adhesion and unequal bargaining power is required to void an arbitration [agreement].” Tapley, 448 F.Supp.3d at 1149 (internal citations and quotations omitted).
In addition, whether Plaintiff recalls signing the agreement is not relevant. As noted, Plaintiff is presumed to be familiar with the contents of the document he signed. Motsinger, 211 Or.App. at 616-17. The terms in the agreement were not hidden or obscure. The term “arbitration agreement” was included in the title of the document, and the arbitration terms were set forth in a single paragraph entitled “arbitration.” The agreement states in boldface, “Employee understands and acknowledges that by signing this agreement to arbitrate Employee is waiving his or her right to a jury or other civil trial.” The fact that this language was included at the end of a four-page document is not, standing alone, sufficient to demonstrate that the agreement is procedurally unconscionable. See Tapley, 448 F.Supp.3d at 1149. Accordingly, Plaintiff cannot meet his burden of demonstrating unconscionability.
IV. The proper remedy is to dismiss without prejudice.
Defendant moves for a stay or dismissal of the proceedings pending arbitration, but neither party addresses which remedy would be appropriate.
Defendant asserts that this action should be stayed pending resolution of this motion, Mot. Compel Arb. 15, but does not otherwise address whether the action should be stayed or dismissed if this Court grants the motion to compel arbitration.
Section three of the FAA, on its face, directs that the Court “shall” stay the trial of an action pending arbitration. “Notwithstanding the language of [9 U.S.C.] § 3, a district court may either stay the action or dismiss it outright when, as here, the court determines that all of the claims raised in the action are subject to arbitration.” Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1073-74 (9th Cir. 2014); Forrest v. Spizzirri, 62 F.4th 1201, 1204-05 (9th Cir. 2023) (“[T]he district court had discretion to dismiss Plaintiffs' suit because the parties agreed that all claims were subject to arbitration.”).
The United States Supreme Court allowed certiorari to resolve the issue of whether Section 3 requires district courts to stay a lawsuit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration. Smith v. Spizzirri, No. 22-1218, 2024 WL 133822 (U.S. Jan. 12, 2024).
Here, it is clear from the complaint and the parties' filings that all claims in this action are subject to arbitration. Because the agreement is valid, it follows that all claims in this action are subject to arbitration, and the action should be dismissed without prejudice.
RECOMMENDATION
Defendant's Motion to Compel Arbitration and Stay or Dismiss Claims, ECF 5, should be GRANTED, and this case should be DISMISSED WITHOUT PREJUDICE.
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due fourteen (14) days from service of the Findings and Recommendation. If no objections are filed, then the Findings and Recommendation will go under advisement on that date.
A party's failure to timely file objections to any of these findings will be considered a waiver of that party's right to de novo consideration of the factual issues addressed herein and will constitute a waiver of the party's right to review of the findings of fact in any order or judgment entered by a district judge. These Findings and Recommendation are not immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Rule 4(a)(1) of the Federal Rules of Appellate Procedure should not be filed until entry of judgment.