Court Opinion

ID: 9951725
Source: CourtListenerOpinion
Date Created: 2024-03-18 21:00:42.562132+00
Date Added: 2024-06-11T14:42:16.767831
License: Public Domain

RECOMMENDED FOR PUBLICATION
                                Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                       File Name: 24a0058p.06

                   UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT

                                                               ┐
 TILLMAN TRANSPORTATION, LLC dba Midnite Trucking,
                                                               │
                                Plaintiff-Appellant,           │
                                                               │
        v.                                                      >      No. 23-1777
                                                               │
                                                               │
 MI BUSINESS INCORPORATED dba Red D Transport; RED             │
 D FREIGHT, INC.; EDWARD SCOTT DESBROUGH; NATALIE              │
 DESBROUGH,                                                    │
                               Defendants-Appellees.           │
                                                               ┘

  Appeal from the United States District Court for the Eastern District of Michigan at Detroit.
                  No. 2:23-cv-10197—Mark A. Goldsmith, District Judge.

                              Decided and Filed: March 18, 2024

                    Before: SILER, COLE, and MATHIS, Circuit Judges.
                                   _________________

                                            COUNSEL

ON BRIEF: R.J. Cronkhite, DINSMORE & SHOHL LLP, Troy, Michigan, for Appellant. Erik
G. Chappell, Julie A. Douglas, LYDEN, CHAPPELL & DEWHIRST, LTD., Lambertville,
Michigan, for Appellees.
                                      _________________

                                             OPINION
                                      _________________

       COLE, Circuit Judge. The plaintiff, Tillman Transportation, LLC, engaged in Trucking
Contracts with the defendant, MI Business, Inc. (operating as affiliate companies RDT and
RDF). In 2019 and 2020, Tillman and RDT entered into three contracts, where Tillman leased
trucks to RDT and transported shipments for RDT. At issue in this case, each contract included
 No. 23-1777                Tillman Transp., LLC v. MI Bus. Inc.                         Page 2

binding arbitration clauses. After the contracts terminated, the companies had multiple disputes
resulting in this lawsuit and a separate ongoing arbitration.

       The defendants moved to compel arbitration, but Tillman argued that Section 1 of the
Federal Arbitration Act (FAA) exempted it from compulsory arbitration. The district court
granted the defendants’ motion to compel arbitration, finding that Section 1 did not apply to the
agreements’ arbitration clauses because Tillman was a limited liability company in contract with
another corporate entity. Tillman appealed the decision. We affirm.

                                                 I.

                                                 A.

       The plaintiff, Tillman Transportation, LLC (Tillman), is incorporated in Michigan. The
defendants are two Michigan corporations—i.e., MI Business Inc., doing business as RDT and
RDF—and two individuals, Edward Scott Desbrough and Natalie Desbrough, a married couple
residing in Michigan. The Desbroughs are equal owners of RDT, while Natalie Desbrough is the
sole owner of RDF.

       Tillman and RDT are both motor carriers under the Motor Carrier Act (MCA), 49 U.S.C.
§ 10101 et seq.     Both are licensed and registered with the United States Department of
Transportation (DOT) and the Federal Motor Carrier Safety Administration (FMCSA). RDF is a
broker under the MCA and was licensed and registered with the DOT and FMCSA during the
times relevant to the parties’ dispute.

       In 2019 and 2020, Tillman and RDT entered into three “Trucking Contracts,” where
Tillman leased three of its trucks to RDT and transported shipments or “loads” for RDT. The
contracts identify Tillman as an “independent contractor,” and one of the contracts names
Vernon Tillman—rather than Tillman Transportation—as a party to the contract.

       Under the contracts, RDT agreed to pay Tillman 75 percent of the gross “load haul
revenue” earned by Tillman’s equipment minus advances to Tillman from RDT and charges to
RDT’s account by Tillman. Importantly, each contract included a clause binding the parties to
arbitration in the event of any “controversy or dispute . . . arising from [the] agreement.”
 No. 23-1777                Tillman Transp., LLC v. MI Bus. Inc.                          Page 3

The parties also agreed that Tillman would not solicit or haul any account that it had hauled on
RDT’s behalf for one year after the termination of the contracts (the “noncompete provision”). If
Tillman breached the noncompete provision, it would be required to pay RDT ten percent of all
revenues Tillman invoiced for that account during its relationship with the account.

       Tillman used three trucks to transport loads for RDT. In turn, RDT shared weekly pay
summaries that showed gross and net pay, including charges, deductions, and other offsets.
After the contracts terminated, RDT alleged that Tillman violated the noncompete provision by
soliciting and/or hauling goods for accounts it had hauled for RDT under the contracts.

       Tillman later alleged that RDT provided false weekly pay summaries that omitted the
broker fees that RDF charged RDT on each load. It also alleged that RDT violated Truth-in-
Leasing regulations when it did not provide Tillman with documentation identifying the broker
fee arrangement or showing that its pay was reduced in turn. Tillman claims it only discovered
the companies’ misconduct in 2022, when a former RDT employee joined Tillman and informed
the company about the fees being charged and “that RDT and RDF were passing this ‘cost’ on to
Tillman, without notice.”

                                                B.

       The litigation surrounding this case is extensive, resulting in two separate lawsuits—one
in state court, and the case in federal court we address here—and one ongoing arbitration.
We briefly summarize the various proceedings below.

       First, in November 2021, RDT filed a complaint against Tillman in Monroe County
Circuit Court, Michigan, alleging breach of contract and asserting that Tillman violated the
noncompete provision of the second contract. Red D Transp., Inc. v. Tillman Transp., LLC, et
al., Case No. 2021-144611 (Monroe Cnty. Cir. Ct. 2021). Tillman requested dismissal in a
motion for summary disposition, asking the court to compel arbitration. In March 2022, the
Monroe County Circuit Court granted Tillman’s motion, dismissing the case without prejudice.

       Then, on May 17, 2022, RDT filed a demand for arbitration against Tillman, asserting
that Tillman breached their agreements. Arbitration Case No. 01-22-0002-1028, Red D Transp.,
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Inc. v. Tillman Transp., LLC d/b/a Midnite Trucking, American Arbitration Association (2022).
Tillman filed a counterclaim on June 1, claiming RDT materially breached the contracts.
Tillman alleged that RDT failed to pay money due, undercompensated Tillman on all three
contracts by underreporting gross income and not disclosing RDF’s broker fees, and fraudulently
concealed the existence of Tillman’s claim through “affirmative misrepresentations” of gross
haul revenue. Tillman also alleged that RDF “suddenly deactivated its brokerage license with
the DOT and the FMCSA” in the last quarter of 2022, after Tillman became aware of these
issues.

          Finally, Tillman brought suit against RDT, RDF, and the Desbroughs in the Eastern
District of Michigan on January 25, 2023. Tillman Transp., LLC v. MI Bus. Inc., Case No. 2:23-
cv-10197 (E.D. Mich. Jan. 25, 2023). Tillman alleged that the defendants participated in a
“successful conspiracy” to underreport payments and underpay Tillman in violation of the Motor
Carrier Act.” The complaint alleged, among other things, that the defendants violated the
MCA’s Truth-in-Leasing regulations because they (1) did not pay Tillman certain amounts,
(2) did not inform Tillman of their actual compensation for related work, and (3) failed to
identify relevant identify relevant documents showing these compensatory failures. In February
2023, the defendants—RDT and RDF—filed a motion to compel arbitration and a motion to
dismiss or stay proceedings in the federal case. Tillman responded, asserting that Section 1 of
the FAA exempted Tillman from compulsory arbitration.              Here, Tillman argues against
arbitration despite its successful effort to compel arbitration and dismiss RDT’s case in the
Monroe County Circuit Court.

          The district court ordered supplemental briefing on whether the Section 1 exemption
applied to Tillman because it is a limited liability company and not an individual. The court
issued its opinion and order on July 31, 2023, granting the defendants’ motion to compel
arbitration and to dismiss the case, but denying their request to do so with prejudice. Tillman
Transp., LLC v. MI Bus. Inc., No. 2:23-cv-10197, 2023 WL 4875872, at *1 (E.D. Mich. July 31,
2023). The district court noted that although one contract was between RDT and Vernon
Tillman (Tillman Transportation’s owner) in his capacity as an individual, Vernon Tillman did
not bring the federal suit—his company did. Id. at *5. The court concluded that, as a limited
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liability company in commercial contract with another corporate entity, Tillman did not qualify
for the Section 1 exemption. It also held that non-signatories to the contract (i.e., RDF and the
Desbroughs) could compel Tillman to arbitrate, and that the entirety of Tillman’s complaint was
subject to arbitration. The arbitrator subsequently joined RDF and the Desbroughs as parties to
the ongoing arbitration.

       Tillman filed the instant appeal, requesting that we reverse the district court’s order, find
as a matter of law that Tillman “is exempt from being compelled to arbitration under the
Trucking Contracts,” and remand to the district court for further proceedings. (Appellant Br. 6,
30, 32.) Tillman asserts that the contract falls under Section 1’s exemption to the enforceability
of arbitration agreements because the company was engaged in interstate commerce. Tillman
also argues that the district court erred in finding the Trucking Contracts were not contracts of
employment or “work.” (Id. at 20.) Tillman supports this argument by relying on the history
and context of the FAA, where the term “contracts of employment” (at the time of enactment in
1925) referred to “agreements to perform work” and “did not necessarily imply existence of an
employer-employee or master-servant relationship.” (Id. at 23.)

       The defendants contend that the Section 1 exemption does not apply, and that the FAA
does require enforcement of the arbitration clause at issue here. They argue that Tillman is
“attempting to avoid its contractual obligation to arbitrate” while simultaneously litigating the
same claims in pending AAA arbitration, noting that the parties have already exchanged
discovery in arbitration and that Tillman’s counsel has taken depositions.

       The defendants also argue that Michigan law—which has similar language to the FAA
but no exemption for transportation workers—“independently compels arbitration.”                The
defendants note that in Tillman’s initial brief, Tillman neither argued it was exempt under
Michigan law, nor did it challenge the district court’s finding that the non-signatories could
compel arbitration. The defendants therefore argue that these issues are “abandoned and are not
reviewable.” Tillman filed a reply, reiterating its initial arguments, but now also asserting that
the U.S. Constitution’s Supremacy Clause bars compelling arbitration under Michigan law.
 No. 23-1777                Tillman Transp., LLC v. MI Bus. Inc.                           Page 6

                                                 II.

         This court “review[s] a District Court’s decision to compel arbitration, including the
arbitrability of a dispute, de novo.” McGee v. Armstrong, 941 F.3d 859, 865 (6th Cir. 2019)
(citing Huffman v. Hilltop Cos., 747 F.3d 391, 394 (6th Cir. 2014)). In addressing the question
of whether the Section 1 exemption applies, we also “review a district court’s [application of]
statutory interpretation de novo.” Wilson v. Safelite Grp., Inc., 930 F.3d 429, 433 (6th Cir.
2019).

                                                III.

         The FAA’s history and the current landscape of litigation relating to Section 1 is
necessary context. The Federal Arbitration Act, 9 U.S.C. § 1 et seq., dates back to 1925, and was
“a response to hostility of American courts to the enforcement of arbitration agreements, a
judicial disposition inherited from then-longstanding English practice.” Cir. City Stores, Inc. v.
Adams, 532 U.S. 105, 111 (2001). Section 2 of the FAA “embodies the national policy favoring
arbitration and places arbitration agreements on equal footing with all other contracts[.]”
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006). It “makes agreements to
arbitrate ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.’” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 336
(2011) (quoting 9 U.S.C. § 2). “The FAA reflects the fundamental principle that arbitration is a
matter of contract.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). Thus, “[l]ike other
contracts . . . [arbitration agreements] may be invalidated by ‘generally applicable contract
defenses, such as fraud, duress, or unconscionability.’” Id. at 68 (citation omitted). “In the
Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements
according to their terms—including terms providing for individualized proceedings.” Epic Sys.
Corp. v. Lewis, 584 U.S. 497, 502 (2018).

         At issue here is Section 1, the FAA’s exemption clause, which states that the Act does not
“apply to contracts of employment of seamen, railroad employees, or any other class of workers
engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (emphasis added). Before proceeding
under the FAA, then, “a court must first know whether the contract itself falls within or beyond
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the boundaries of §§ 1 and 2.” New Prime Inc. v. Oliveira, 139 S. Ct. 532, 537 (2019). The
Supreme Court has construed this provision narrowly “with reference to the statutory context in
which it is found and in a manner consistent with the FAA’s purpose.” Cir. City Stores, Inc.,
532 U.S. at 118 (“[T]he location of the phrase ‘any other class of workers engaged
in . . . commerce’ in a residual provision, after specific categories of workers have been
enumerated, undermines any attempt to give the provision a sweeping, open-ended
construction.”). The Court, for example, observed in Cir. City Stores that the FAA’s text
“foreclose[d]” a broader construction of § 1 that sought to “exclude all employment contracts”
from its reach, adding, “Section 1 exempts from the FAA only contracts of employment of
transportation workers.” Id. at 119.

       The Court further analyzed Section 1’s language in New Prime Inc. v. Oliveira,
addressing whether the term “contracts of employment” could encompass agreements involving
independent contractors.    139 S. Ct. at 536.      In holding that it did include independent
contractors, the Court interpreted the phrase as it would have been understood at the time of
enactment in 1925, noting that contemporaneous dictionaries “tended to treat ‘employment’
more or less as a synonym for ‘work.’” Id. at 539–40. Early 20th-century cases before the Court
supported that definition, using the phrase “to describe work agreements involving independent
contractors.” Id. at 540.

                                               A.

       New Prime did not address whether corporate entities such as limited liability companies
are covered under Section 1’s exemption. This is also an issue of first impression in our circuit.
We generally endorsed a narrow construction of Section 1 based on the statute’s language and
Congress’s apparent intent, holding that it should only “apply to employment contracts of
seamen, railroad workers, and any other class of workers actually engaged in the movement of
goods in interstate commerce in the same way that seamen and railroad workers are.” Asplundh
Tree Expert Co. v. Bates, 71 F.3d 592, 600–01 (6th Cir. 1995) (noting “an obvious difference
between the wording of § 2 of the Act, which defines what the Act covers, and the exclusionary
clause of § 1 . . . . If Congress had intended the exclusion to be as broad as the coverage, it
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would have used the same language in the exclusion clause.”).                This accords “with the
underlying purpose of the Act, which is to favor arbitration.” Id. at 601.

       The persuasive authority before us aligns with our narrow application of Section 1, and
other circuits have also interpreted Section 1 narrowly and declined to apply the exemption to
contractual agreements between corporate entities. Indeed, when “courts have been asked to
extend the reach of the ‘transportation worker’ exemption to contracts between business entities,
they have uniformly declined to do so.” Amos v. Amazon Logistics, Inc., 74 F.4th 591, 596 (4th
Cir. 2023); see also R&C Oilfield Servs. LLC v. Am. Wind Transp. Grp. LLC, 45 F.4th 655, 658
(3d Cir. 2022) (affirming the district court’s decision to compel arbitration where “the agreement
was a vendor-vendee contract between two businesses, rather than a contract of employment”)
(emphasis added).

       The Fourth Circuit’s recent holding in Amos provides a helpful comparison. 74 F.4th at
596.   There, a delivery company “directly employed” hundreds of drivers and “a fleet of
Amazon-branded vehicles” to carry out a contract with Amazon in North Carolina. Id. at 593.
Amazon later terminated the contract, alleging “material breaches,” after which the delivery
company sued Amazon in federal court in North Carolina. Id. Amazon sought to compel
arbitration under the FAA—or alternatively, under Washington law—which the agreement itself
invoked. Id. at 593–94. The delivery company and its owner objected, claiming the owner (a
lawyer) was a transportation worker within the meaning of the FAA and an Amazon employee
under state law; the delivery company consequently argued that exemptions to both the FAA and
Washington law voided the arbitration clause. Id. at 594. The agreement itself did not name the
owner as a party. Id. at 593.

       The Fourth Circuit held that the Section 1 exemption did not apply, in large part because
“the binding commercial contract” at issue was “a business services deal struck between two
corporate entities[.]” Id. at 593. The agreement could not be considered a “contract of
employment,” as it did “not promise work and compensation to an individual employee, and it
contain[ed] none of the hallmarks of a traditional employment contract, such as provisions
regarding salary, benefits, and leave time.” Id. at 596. Relying on New Prime, the Fourth
Circuit explained that employment agreements between the delivery company and its drivers
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(“i.e., workers performing work”) would qualify for the “transportation worker” exemption, but
the agreement between the delivery company and Amazon did not. Id.

       Even if this were a “contract of employment,” the court added, “[s]eamen and railroad
employees, of course, are natural persons—individual workers carrying out work. Sizable
corporate entities are not ‘similar in nature’ to the actual human workers enumerated by the text
of the . . . exemption[.]”   Id. at 596–97.    Finally, the owner’s status as a nonparty to the
agreement was important to the analysis; the court also explained that the delivery company
“was not some legal fiction existing only to shield Amazon from unwanted liabilities—it was not
a ‘nominal party’ or ‘mere window dressing’ that could be swept aside.” Id. at 597.

                                                 B.

       Tillman relies heavily on New Prime to support its proposed interpretation of Section 1’s
exemption. The New Prime Court did conclude that “[w]hen Congress enacted the Arbitration
Act in 1925, the term ‘contracts of employment’ referred to agreements to perform work.” New
Prime Inc., 139 S. Ct. at 543–44. But New Prime did not address whether corporate entities
could qualify as transportation workers under Section 1. Nor was this issue addressed by the
First Circuit in its decision prior to Supreme Court review. Oliveira v. New Prime, Inc., 857
F.3d 7, 17 (1st Cir. 2017) (“[B]ecause the parties do not dispute that Oliveira is a transportation
worker under § 1, we need not address whether an LLC or other corporate entity can itself
qualify as a transportation worker. We also need not address the scope of the word ‘worker’ in
the residual clause of the § 1 exemption.”).

       The First Circuit instead constrained its analysis to a single issue: “whether an agreement
between a trucking company and an individual transportation worker cannot be a ‘contract of
employment’ within the meaning of § 1 if the agreement establishes or purports to establish an
independent-contractor relationship.” Id. The court concluded that Oliveira’s contract was
exempt from the FAA due to “the combination of the ordinary meaning of the phrase ‘contracts
of employment’ and Prime’s concession that Oliveira is a transportation worker[.]” Id. at 22.
Defendants have made no such concession here, so the issue in this case turns on whether the
Section 1 exemption applies to an agreement between two corporate entities.
 No. 23-1777               Tillman Transp., LLC v. MI Bus. Inc.                         Page 10

       The persuasive authority before us rebuts Tillman’s argument. True, unlike the owner in
Amos, Vernon Tillman (Tillman Transportation’s owner) was a party to one of the three
Trucking contracts. But as the district court observed, “[m]ore importantly, Vernon Tillman
individually did not bring this lawsuit. His company did.” Tillman Transp., LLC, 2023 WL
4875872, at *5. Further, even if Vernon Tillman had brought the suit in his individual capacity,
he offers no evidence that he is a truck driver or transportation worker. See, e.g., Cir. City
Stores, Inc., 532 U.S. at 118 (construing Section 1 narrowly and explaining “the location of the
phrase ‘any other class of workers engaged in . . . commerce’ . . . undermines any attempt to give
the provision a sweeping, open-ended construction.”).

       Here, the district court correctly concluded that Section 1’s exemption did not apply to
limited liability companies like Tillman Transportation:

       Every case that the Court has located that addresses whether an LLC or corporate
       entity can itself qualify as a “transportation worker” or whether a commercial
       contract between corporate entities can constitute a “contract of employment” has
       found that a business entity is not a transportation worker, and that a commercial
       contract between two business entities is not a contract of employment.

Tillman Transp., LLC, 2023 WL 4875872, at *4. This conclusion aligns with our narrow
interpretation of Section 1, and the approaches of other circuits that have addressed this issue.
To the extent Tillman relies on New Prime, that reliance is misplaced given (1) the concessions
by the defendants in New Prime that are not present here, and (2) the fact that the New Prime
Court did not address whether corporate entities may be covered under Section 1. Tillman has
not provided any authority—binding or otherwise—to support its position. As such, it should
not be exempt from arbitration under Section 1.

                                               C.

       Finally, the defendants correctly argue that Tillman did not properly raise for review
whether Michigan law independently compels arbitration, whether non-signatories (RDF and the
Desbroughs) could compel Tillman to arbitrate, or whether Tillman’s entire complaint was
subject to arbitration and dismissal without prejudice. “[A]n ‘appellant abandons all issues not
raised and argued in its initial brief on appeal.’” J. B-K. by E.B. v. Sec’y of Ky. Cabinet for
Health & Fam. Servs., 48 F.4th 721, 730 (6th Cir. 2022) (citation omitted). And “it is a settled
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appellate rule that issues adverted to in a perfunctory manner, unaccompanied by some effort at
developed argumentation, are deemed waived.” Id. (citation omitted); see also United States v.
Russell, 26 F.4th 371, 374−75 (6th Cir. 2022) (“[I]f an argument is waived, we don’t consider it .
. . [And] to waive the argument, the [party] must either (1) take some step to expressly abandon
it or (2) fail to raise it in its first brief on appeal.”) (internal citation and quotation omitted). As
such, because Tillman waived these arguments, we do not consider them.

                                                  IV.

        For the foregoing reasons, we affirm the judgment of the district court.