Court Opinion

ID: 2644736
Source: CourtListenerOpinion
Date Created: 2013-12-03 19:45:12.58854+00
Date Added: 2024-06-11T12:54:04.486205
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 12-2389

DANIEL J. NEWBANKS, on behalf of themselves and all others
similarly   situated;   JENNIFER   WALTON,  on  behalf  of
themselves and all others similarly situated,

                Plaintiffs - Appellees,

           v.

CELLULAR SALES OF KNOXVILLE, INC.; CELLULAR SALES OF SOUTH
CAROLINA, LLC,

                Defendants - Appellants.

Appeal from the United States District Court for the District of
South Carolina, at Columbia.   Cameron McGowan Currie, District
Judge. (3:12-cv-01420-CMC)

Argued:   November 6, 2013                 Decided:   December 3, 2013

Before GREGORY, DAVIS, and THACKER, Circuit Judges.

Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge Gregory and Judge Thacker joined.

ARGUED: Charles Larry Carbo, III, CHAMBERLAIN, HRDLICKA, WHITE,
WILLIAMS & AUGHTRY, Houston, Texas, for Appellants.   Robert D.
Dodson, LAW OFFICES OF ROBERT DODSON, P.A., Columbia, South
Carolina, for Appellees.   ON BRIEF:   Ryan Cantrell, Julie R.
Offerman, CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY,
Houston, Texas; Page M. Kalish, ROBINSON, MCFADDEN & MOORE,
P.C., Columbia, South Carolina, for Appellants.     W. Jonathan
Harling, HARLING & WEST, LLC, Lexington, South Carolina; Peter
D. Protopapas, RIKARD & PROTOPAPAS, LLC, Columbia, South
Carolina; Noah M. Hicks II, LAW OFFICES OF NOAH HICKS, LLC,
Columbia, South Carolina, for Appellees.

Unpublished opinions are not binding precedent in this circuit.

                                2
DAVIS, Circuit Judge:

       This    interlocutory       appeal           involves       the     scope     of     an

arbitration     provision       signed    by       Daniel       Newbanks    and    Jennifer

Walton (collectively “Appellees”) at the beginning of their at-

will    employment    with      Cellular          Sales    of     Knoxville,      Inc.    and

Cellular Sales of South Carolina, LLC (collectively “Cellular

Sales” or “Appellants”). Newbanks and Walton subsequently filed

suit against their employers, alleging that their relationship

with Cellular Sales violated the Fair Labor Standards Act and

the South      Carolina    Payment       of       Wages    Act.    Cellular       Sales    now

challenges the district court’s denial of their motion to compel

arbitration of the dispute. We are satisfied that Appellees are

not bound by an agreement to arbitrate their claims in this

case.    Accordingly,      we   affirm        the      district        court’s   order    and

remand the case for further proceedings.

                                          I.

                                          A.

       Appellants    own   and    operate          a   chain      of    stores    that    sell

cellular service plans, equipment, and accessories. Appellants’

relationship     originated       with     Newbanks         in     May    2011    and     with

Walton    in   October     2011.     At       that        point,       limited    liability

companies owned by Newbanks and Walton (“Sales Corporations”)

entered into sales contracts with Cellular Sales (“Independent

                                              3
Sales    Agreements”).            The    Independent              Sales    Agreements     did    not

name or bind Newbanks and Walton in their individual capacities.

        As    set     forth      in    the     Independent             Sales   Agreements,      each

Sales Corporation became an independent contractor of Cellular

Sales. The Sales Corporations were to market Cellular Sales’

products in certain areas and would be paid sales commissions by

Cellular        Sales.      The        Independent            Sales      Agreements     expressly

covenanted          that    “[e]ach      person         who       is    engaged   by   the     Sales

Corporation to render services . . . shall be an employee of the

Sales        Corporation         and    not        of       [Cellular      Sales].”     J.A.    30.

Employees of the Sales Corporations were therefore not “entitled

to receive any compensation, benefits, vacation or vacation pay,

sick     leave,       participation            in       a     retirement       program,      health

insurance, disability insurance, unemployment benefits or other

benefits” from Cellular Sales. Id. at 31.

        At the end of 2011, however, Cellular Sales revised the

contractual arrangement. The new arrangement was memorialized in

a   second      set    of       contracts      (“Compensation             Agreements”),        which

were this time executed between Cellular Sales and Newbanks and

Walton in their individual capacities on or about December 30,

2011.    Pursuant          to    the    Compensation              Agreements,     Newbanks      and

Walton       became    at-will         employees            of    Cellular     Sales   and     their

compensation          was        to     be     paid         to     them      individually.       The

Compensation          Agreements             did    not          reference     Cellular      Sales’

                                                    4
Independent Sales Agreements or its prior business relationship

with the Sales Corporations.

      Of    relevance     to    the   instant    appeal,    the   Compensation

Agreements included the following arbitration provision:

      All claims, disputes, or controversies arising out of,
      or in relation to this document or Employee’s
      employment   with    Company   shall    be   decided   by
      arbitration    utilizing    a   single    arbitrator   in
      accordance   with   the   Expedited   Labor   Arbitration
      Procedures of the American Arbitration Association
      (“AAA”). . . . The right to arbitrate shall survive
      termination of Employee’s employment with Company.

J.A. 70. The provision further directed that any such disputes

would only be arbitrated in an individual capacity “and not as a

plaintiff or class member in any purported class, collective

action, or representative proceeding.” Id. Each party was to

bear its own legal expenses, and employees would be precluded

from receiving punitive damages.

      Newbanks and Walton’s employment with Cellular Sales ended

sometime in March and April 2012, respectively. They filed the

instant putative collective and class action on May 29, 2012.

                                       B.

      Newbanks and Walton bring this action under the Fair Labor

Standards Act (FLSA), 29 U.S.C. § 201 et seq., and the South

Carolina Payment of Wages Act (SCPWA), S.C. Code Ann. § 41-10-10

et   seq.   In   their    complaint,   Newbanks    and   Walton   allege   that

Cellular     Sales       had,   pursuant    to    the      Independent     Sales

                                        5
Agreements,      improperly         classified        their    employment         status     as

independent contractors in violation of federal and state labor

law. Because of Cellular Sales’ exercise of “actual control”

over their work – specifically their hours, duties, and company

procedures and protocols - Newbanks and Walton contend that they

were acting as employees under the FLSA and corresponding state

law. J.A. 12, 21-23. Cellular Sales denied these allegations.

       Relying    on    the       arbitration        provision          contained      in   the

Compensation Agreements signed by Newbanks and Walton, Cellular

Sales thereafter moved to dismiss and compel arbitration of the

dispute. Newbanks and Walton’s original complaint had not made

any    reference       to     the      Compensation          Agreements’         arbitration

requirement,      nor       had   it    alleged       a     specific      time    frame     for

Cellular      Sales’    violations.           In    response       to    Cellular      Sales’

motion to compel arbitration, however, Newbanks and Walton moved

to    amend   their     complaint.       The       amended     complaint         limited    its

scope “to only those acts occurring prior to the execution of

the    compensation         agreements[.]”           J.A.     111.      They     attached     a

proposed amended complaint to their motion.

       On October 18, 2012, the district court granted the motion

to    amend    the     complaint        and        denied    the     motion       to   compel

arbitration. It reasoned that under Fed. R. Civ. P. 15(a)(2),

leave to amend should be “freely given,” and the plaintiffs’

                                               6
proposed complaint was not futile. 1 J.A. 146. Having accepted the

amended pleading, the district court declined to send the newly-

tailored dispute to arbitration. In particular, it relied on the

arbitration provision’s language directing to arbitration those

“claims,    disputes,       or     controversies     arising       out    of,    or     in

relation    to     this     document      or     Employee’s       employment          with

Company.”   J.A.    150.     It    concluded      that    this    language      did    not

contemplate      disputes    arising      when    Newbanks       and   Walton’s       Sale

Corporations were independent contractors of Cellular Sales –

that is, prior to their execution of the Compensation Agreements

in   December    2011.     Because     the      plaintiffs’      amended       complaint

limited    its   claims     to    those   pre-dating       the    execution      of    the

Compensation Agreements, the court found that the complaint fell

outside the scope of the arbitration provision.

      Cellular Sales filed a timely notice of appeal solely as to

the district court’s denial of its motion to compel. Appellate

jurisdiction       is    proper      under      Section    16     of     the    Federal

Arbitration Act, 9 U.S.C. § 16(a)(1)(C).

                                          II.

      The primary issue on appeal is whether the district court

properly    held    that     the    Compensation         Agreements’      arbitration

      1
       In fact, as Cellular Sales had not yet filed a responsive
pleading, no motion to amend was necessary. Fed. R. Civ. P.
15(a); Galustian v. Peter, 591 F.3d 724, 730 (4th Cir. 2010).

                                           7
provision did not apply to FLSA and SCPWA-based claims arising

before Newbanks and Walton became at-will employees of Cellular

Sales. 2     We    review   de     novo   a   district    court’s     conclusions

regarding the arbitrability of a dispute, including a decision

to deny a motion to compel arbitration. Noohi v. Toll Bros.,

Inc.,      708 F.3d 599,    605   (4th   Cir.   2013);   Levin   v.   Alms   &

Assocs., Inc., 634 F.3d 260, 266 (4th Cir. 2011).

     The parties agree that the arbitration provision at issue

is governed by the Federal Arbitration Act (FAA), 9 U.S.C. § 1

et seq. The Supreme Court has interpreted the FAA to endorse a

“liberal federal policy favoring arbitration agreements” and has

instructed courts examining arbitration provisions to afford a

     2
        At oral argument, Appellees put forth an argument
regarding the enforceability of the arbitration provision. They
contended,   for  the   first  time,   that  the  provision was
unenforceable because it sought to take away certain rights
afforded by the FLSA, including the right of a prevailing party
to reasonable attorney’s fees, 29 U.S.C. § 216(b). Cf. Muriithi
v. Shuttle Express, Inc., 712 F.3d 173, 181 (4th Cir. 2013) (“A
fee-splitting provision can render an arbitration agreement
unenforceable if, under the terms of the provision, an aggrieved
party must pay arbitration fees and costs that are so
prohibitive as to effectively deny the employee access to the
arbitral forum.”) (internal citation omitted). Appellees did
not, however, make their unenforceability argument in their
briefs before the district court or this court, and Appellants
did not have the opportunity to file a written response. For
this reason, we will not address this argument.

       Appellees    have    also   previously   contested   the
appealability of the district court’s order, but we reject that
argument. See 9 U.S.C. § 16(a)(1)(C).

                                          8
heavy presumption in favor of arbitration. CompuCredit Corp. v.

Greenwood,       132       S.     Ct.     665,     669    (2012)        (internal     citation

omitted). “Doubts should be resolved in favor of coverage.” AT &

T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650

(1986) (internal citation omitted).

       Because an arbitration provision’s scope and applicability

is    a     matter    of     contract       interpretation,             however,     “ordinary

state-law      principles          that    govern        the   formation       of    contracts”

still apply. First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 944 (1995). It is well-settled that a “party cannot be

required to submit to arbitration any dispute which he has not

agreed to so submit[.]” Levin, 634 F.3d at 266.

       In     the     instant       case,        the     scope     of    the     Compensation

Agreements’ arbitration requirement is as follows: “All claims,

disputes, or controversies arising out of, or in relation to

this       document        [the     Compensation           Agreement]       or       Employee’s

employment with Company shall be decided by arbitration[.]” J.A.

70    (emphasis       added).       We     now     consider       whether      Newbanks     and

Walton’s      amended       complaint,           which    is     limited    to      allegations

based on acts and omissions that occurred prior to the date they

became at-will employees of Cellular Sales, falls within this

provision’s scope.

       We conclude that the arbitration provision, in particular

its       “Employee’s       employment       with        Company”       clause,      does   not

                                                  9
contemplate the allegations contained in the amended complaint. 3

Newbanks    and    Walton’s    amended       complaint    specifically           excludes

any acts of Cellular Sales occurring after the execution of the

Compensation      Agreements     in   December      2011.      Prior     to      December

2011,     however,    Newbanks     and    Walton     were      not     employees       of

Cellular    Sales.    In   fact,      they    did   not    have      any     formal    or

contractual relationship with Cellular Sales at all.

      During the time period at issue in the amended complaint,

Newbanks and Walton had never signed any contract with Cellular

Sales in their individual capacities. The only relevant document

was   the   Independent       Sales   Agreement,         but   this     document      was

executed between Cellular Sales and the Sales Corporations, not

Newbanks and Walton. It expressly designated the relationship

between the Sales Corporations and Cellular Sales as “that of an

independent       contractor,”     not   employee.        J.A.    30.       It    further

covenanted    that    “[e]ach    person       who   is    engaged      by     the   Sales

Corporation to render services . . . shall be an employee of the

Sales Corporation and not of [Cellular Sales].” Id. (emphasis

added).

      3
       Nor does the instant dispute arise out of or relate to the
Compensation Agreement itself, because Newbanks and Walton’s
amended   complaint   specifically  excludes   the  time   period
following the execution of the Compensation Agreement.

                                         10
        Newbanks and Walton did not become at-will employees of

Cellular    Sales     until    December      2011,      when   they    executed    the

Compensation Agreements. By that same document, they also agreed

to arbitrate disputes arising from or related to “Employee’s

employment    with     Company.”      We    conclude      that   this    arbitration

requirement only applies to causes of action accruing from the

execution of the Compensation Agreements and onward.

        We reach this conclusion under the plain language of the

contract.    The     first    paragraph      of   the     Compensation     Agreement

informed    the    signer     that    he    or    she    had   become    an     at-will

employee of Cellular Sales. 4 It then proceeded to set forth the

parties’ mutual obligations, including, but not limited to, an

employment-related arbitration provision. It did not make any

suggestion that the contract’s repeated references to “Employee”

entailed something more than that established by the instant

document.

     Cellular Sales, the drafter of the agreement, could have

specified     that     the     arbitration        provision       encompassed       its

previous    relationship       with     Newbanks        and   Walton    and/or   their

Sales     Corporations        (and/or      the    employees      of     their    Sales

     4
       Indeed, Cellular Sales does not dispute that Newbanks and
Walton did not become at-will employees of Cellular Sales until
the execution of the Compensation Agreements in December 2011.
J.A. 67.

                                           11
Corporations), but it did not do so. It did not, for example,

covenant     that   disputes        arising          from     the    parties’         independent

contractor-contractee relationship be directed to arbitration.

It also did not incorporate by reference the Independent Sales

Agreements     with    the       Sales     Corporations;            in    fact,       it       did   not

reference the Agreements at all.

       Conversely,         Cellular      Sales        could      have     crafted          a    broad,

open-ended     arbitration          provision          that    encompassed         the         instant

dispute,      but     it     did     not        do     that,     either.       Although              the

arbitration         requirement            did         not       contain          a        temporal

qualification,        it    is     qualified          by   its     reference       to      disputes

arising from “Employee’s employment with Company.” The fact that

the    provision       implicates          this        contractual         relationship               is

significant to our analysis.

       We have previously held that temporally-broad arbitration

provisions may be retroactively applied to causes of action that

accrued prior to the execution of the arbitration agreement. In

Levin, for example, we considered a provision referring to an

arbitrator “any dispute” between the parties. 634 F.3d at 266-

67. “[G]iven the broad scope of the arbitration clause applying

to    ‘any   dispute’       between      the         parties,       and   in   light           of    the

arbitrability       presumption          that        applies     with     special          force      to

broadly      written       clauses,”       we    held       that     claims       that         accrued

before the provision’s execution were subject to arbitration.

                                                12
Id. at 269; see also Cara’s Notions, Inc. v. Hallmark Cards,

Inc., 140 F.3d 566, 569-70 (4th Cir. 1988).

      The case at hand is different. In contrast to the provision

in Levin, which directed “any dispute” between the parties to

arbitration,     the   instant   provision    only     applies   to   disputes

related to or arising from “Employee’s employment” with Cellular

Sales. 5 Yet prior to the execution of the Compensation Agreements

in    December   2011,   there   existed     no   employment     relationship

between Cellular Sales and Newbanks and Walton. We will not read

the    arbitration     agreements   to    apply   to    a   relationship,   a

contractual status, that simply did not exist. 6

      5
       We have previously suggested that a change in the parties’
contractual relationship may limit the ability of a later-
executed arbitration provision to be applied retroactively. In
Levin, we considered the reasoning of a district court case,
Hendrick v. Brown & Root, Inc., 50 F. Supp. 2d 527 (E.D. Va.
1999), which held that an arbitration clause in the last of a
series of project-by-project contracts did not apply to claims
accruing under previous contracts. We distinguished Hendrick on
the ground that the parties there had “stop-and-go business
dealings that periodically ended completely and began from
scratch again.” Levin, 634 F.3d at 269. In the instant case, the
contractual relationship between Cellular Sales and Newbanks and
Walton was substantially modified by the execution of the
Compensation Agreements.
      6
       Prior to December 2011, Newbanks and Walton were not
employed by Cellular Sales, and no privity as to their Sales
Corporations has been alleged. Reading the arbitration language
literally, then, it is impossible for Newbanks and Walton’s pre-
December 2011 claims to have “aris[en] out of,” or been
“relat[ed] to” “Employee’s employment with Company.” J.A. 70.

                                     13
        Cellular    Sales    urges     us    to    look    beyond    the    contractual

language in the Compensation Agreements and to rely instead on

the legal arguments made in Newbanks and Walton’s pleadings. In

their    complaint,       Newbanks     and       Walton    had    alleged      that   they

qualified as “employees” under the standard set forth in the

FLSA and corresponding state law; Cellular Sales argues that the

plaintiffs’ legal position in their complaint should inform our

interpretation of the arbitration provision. In other words, as

Cellular Sales’ argument goes, Newbanks and Walton contended in

their pleadings that they are “employees,” and they should be

treated     as     such    for    purposes        of    their     previously-executed

arbitration provision, as well.

       We agree with Cellular Sales’ general premise that courts

look to the plaintiff’s complaint to determine if its subject

matter is within the ambit of that negotiated in the arbitration

provision. This analysis, however, does not lead us to Cellular

Sales’ ultimate conclusion.

       First, as a technical matter, Cellular Sales misstates a

nuance     of    the      Appellees’    argument.          Newbanks      and    Walton’s

complaint does not allege that they were contractual employees

of Cellular Sales prior to December 2011. Instead, they contend

that     Cellular         Sales    misclassified           them     as      independent

contractors        when    they   in   fact       met     the    criteria      of   actual

employees under the FLSA’s definition. See, e.g., J.A. 21. The

                                            14
complaint       underscores           the      legal      distinction          between       a

contractually-defined            employee-employer              relationship         and     a

statutorily-defined one. 7 Cf. Barrentine v. Arkansas-Best Freight

System, Inc., 450 U.S. 728, 740 (1981).

     Second,          and      more         fundamentally,            Cellular          Sales

overemphasizes          the    significance          of        the    Appellees’        legal

pleadings.      Our     role     in     this      dispute       is    one   of     contract

interpretation,         of    determining       what      the    parties    contemplated

when agreeing to arbitrate, and the legal positions a party may

later    take   is      of    minimal       utility,      if    any   at    all,    to     our

analysis. The arguments made in a plaintiff’s pleadings do not

supersede    the      language    of     the      contract,      especially        when    the

plain language of the contract provides a clear and contrary

conclusion.

                                            III.

     Here,      the      arbitration         provision          plainly     stated        that

disputes related to “Employee’s employment with Company” were to

be   resolved      in    arbitration.          Newbanks         and   Walton     were      not

     7
       Of course, as we have said, our discussion of Newbanks and
Walton’s at-will employment is rooted solely in our task to
review the district court’s interpretation of the relevant
contract: whether Newbanks and Walton were, under the relevant
contracts, employees of Cellular Sales. We express no view as to
whether Appellees were entitled to enjoy the benefits of an
actual employee under the FLSA and corresponding state law, as
they contend in the amended complaint.

                                             15
employees   of   Cellular   Sales        until   the   execution    of   the

Compensation Agreements. We thus agree with the district court

that the arbitration provision does not apply to claims that

accrued prior to the signing of the Compensation Agreements, and

that the amended complaint’s claims fall outside the scope of

the   arbitration   provision.   Accordingly,      the   district   court’s

order is

                                                                   AFFIRMED.

                                    16