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discussing a consultant agreement between the plaintiff and a third-party company that was attached as an exhibit to the defendant's motion to dismiss and compel arbitration
Summary of this case from Spencer v. TICI LLCOpinion
Civil Action No. 18-cv-03117-CMA-STV
2019-12-03
Larry SCHNEIDER, Plaintiff, v. SRC ENERGY, INC., Defendant.
ORDER ADOPTING RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
This matter is before the Court on the November 15, 2019 Recommendation by United States Magistrate Judge Scott T. Varholak, wherein he recommends that this Court deny Defendant's Second Motion to Compel Arbitration (Doc. # 41). (Doc. # 57.) The Recommendation is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B) ; Fed. R. Civ. P. 72(b).
The Recommendation advised the parties that specific written objections were due within fourteen (14) days after being served with a copy of the Recommendation. (Doc. # 57 at 10–11 n.4.) Despite this advisement, neither party filed an objection to the Recommendation.
"[T]he district court is accorded considerable discretion with respect to the treatment of unchallenged magistrate reports. In the absence of timely objection, the district court may review a magistrate [judge's] report under any standard it deems appropriate." Summers v. Utah , 927 F.2d 1165, 1167 (10th Cir. 1991) (citing Thomas v. Arn , 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985) (stating that "[i]t does not appear that Congress intended to require district court review of a magistrate's factual or legal conclusions, under a de novo or any other standard, when neither party objects to those findings.")).
After reviewing the Recommendation of Magistrate Judge Varholak, in addition to applicable portions of the record and relevant legal authority, the Court is satisfied that the Recommendation is sound and not clearly erroneous or contrary to law. See Fed. R. Civ. P. 72(a). Accordingly, the Court ORDERS that the Recommendation of United States Magistrate Judge Scott T. Varholak (Doc. # 57) is AFFIRMED and ADOPTED as an Order of this Court. It is
FURTHER ORDERED that Defendant's Second Motion to Compel Arbitration (Doc. # 41) is DENIED.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Magistrate Judge Scott T. Varholak
This matter comes before the Court on Defendant's Second Motion to Compel Arbitration [#41] (the "Motion"), which has been referred to this Court [#42]. This Court has carefully considered the Motion and related briefing, the case file, and the applicable case law, and has determined that oral argument would not materially assist in the disposition of the Motion. For the following reasons, the Court respectfully RECOMMENDS that the Motion be DENIED .
I. BACKGROUND
As alleged in the Complaint, Defendant SRC Energy Inc. ("SRC") operates oil and gas well sites primarily in the Denver-Julesberg Basin of Colorado. [#1 at ¶ 13] Defendant employed Plaintiff as a consultant. [Id. at ¶ 15] Plaintiff initiated this Fair Labor Standards Act ("FLSA") collective action lawsuit to recover unpaid overtime compensation, owed to him individually and on behalf of all current and former day-rate workers, who performed work for Defendant associated with monitoring and maintaining oil and gas wells throughout the United States during the three-year period before the filing of this lawsuit. [Id. at ¶ 3]
Of relevance to the instant Motion are three separate contracts. First, on July 28, 2015, Plaintiff and SRC entered into a Master Services Contract (the "Plaintiff/SRC Contract") whereby Plaintiff agreed to provide certain contract work for SRC. [#47-1] Pursuant to the Plaintiff/SRC Contract, Plaintiff and SRC "consent[ed] to the exclusive jurisdiction of any state or federal court located within the county of Denver, State of Colorado" and that "all actions or proceedings related to [the Plaintiff/SRC Contract] or the parties' activities hereunder shall be litigated in such courts." [Id. at ¶ 23(b) (capitalization omitted) ]
SRC formerly conducted business as "Synergy Resources Corporation" [#41-2 at ¶ 8], and thus SRC is referred to as Synergy Resources Corporation in the contracts at issue here.
Second, on December 3, 2015, SRC and New Tech Global Ventures, LLC ("New Tech") entered into a Master Services Contract (the "SRC/New Tech Contract"). [#41-3] Pursuant to the SRC/New Tech Contract, New Tech agreed to provide both personnel and equipment to SRC. [Id. at 2] The SRC/New Tech Contract provided that "[a]ny suit or proceeding hereunder shall be brought exclusively in the state or federal courts located in the City and County of Denver, Colorado." [Id. at ¶ 33]
Finally, on January 18, 2016, Plaintiff's consulting company, Sneidco Consulting, LLC ("Sneidco"), entered into a Consultant Agreement with New Tech (the "Sneidco/New Tech Contract"). [#41-1] The Sneidco/New Tech Contract provided that New Tech would provide marketing services for Sneidco, and Sneidco would provide professional consulting services and personnel for well site operations, engineering, and project management activities in the oil and gas industry. [Id. at ¶ 1] The Sneidco/New Tech Contract further provided that Sneidco appointed New Tech as its "non-exclusive marketing agent, and acknowledge[d] that [New Tech's] services [we]re limited to marketing and billing only." [Id. at ¶ 2] With exceptions not relevant to the instant Motion, the Sneidco/New Tech Contract stated that "there are no third[-]party beneficiaries to [the Sneidco/New Tech Contract]." [Id. at ¶ 24] The Sneidco/New Tech Contract further provided that, with one exception not relevant here, "[i]f the parties (or their respective directors, officers, employees, consultants and contractors) have a dispute related to [the Sneidco/New Tech Contract] that cannot be resolved amicably, either party may invoke arbitration with respect to any claim, dispute or controversy." [Id. at ¶ 21]
On October 30, 2017, Plaintiff opted-in to a FLSA collective action against New Tech filed in the Southern District of Texas. Bercier v. New Tech Global Ventures, LLC , Civil Action No. 4:17-cv-00908 (S.D. Tex. Oct. 30, 2017) (the "Bercier Action"). After New Tech moved to compel arbitration in the Bercier Action, the Bercier plaintiffs dismissed that case and Plaintiff filed a Demand for Arbitration against New Tech, alleging violations of the FLSA. [#41-2] On December 4, 2018, Plaintiff initiated the instant action against SRC, alleging SRC violated the FLSA. [#1]
On January 28, 2019, SRC filed a Motion to Dismiss and/or to Compel Arbitration (the "Original Motion"). [#17] SRC made three arguments in support of the Original Motion. First, SRC argued that the Complaint must be dismissed pursuant to the rule against claim-splitting. [Id. at 4-10] Specifically, SRC argued that Plaintiff could not simultaneously pursue his FLSA claims against New Tech in arbitration while also pursuing his FLSA claims against SRC in the instant litigation. [Id. ] Second, and relatedly, SRC argued that the Complaint should be dismissed pursuant to the "first-filed" rule and that the Court should decline to exercise jurisdiction in light of the first-filed arbitration case against New Tech. [Id. at 10-11] Finally, SRC argued that Plaintiff was bound by the arbitration provision in the Sneidco/New Tech Contract and, accordingly, was required to pursue his claims against SRC in arbitration. [Id. at 11-15] With respect to this third argument, SRC primarily relied upon the theory that Plaintiff's FLSA claims were interconnected with obligations arising from the Sneidco/New Tech Contract and that Plaintiff was thereby equitably estopped from avoiding the arbitration provision of that contract. [Id. at 13-15; #29 at 2-5] The interconnectedness theory of equitable estoppel relied upon by SRC had been adopted by the Colorado Court of Appeals in Meister v. Stout, 353 P.3d 916 (Colo. App. 2015).
After SRC filed its Original Motion, two changes occurred that impacted the arguments made in the Original Motion. First, Plaintiff dismissed his arbitration claims against New Tech. [#24-2] Second, the Colorado Supreme Court issued its opinion in Santich v. VCG Holding Corp. , 443 P.3d 62 (Colo. 2019). In Santich , the Colorado Supreme Court rejected the analysis of the Meister Court. Id. at 66. In light of these two developments, this Court scheduled the Original Motion for oral argument [#38], which it held on July 11, 2019 [#39]. At the conclusion of that oral argument, the Court denied the Original Motion without prejudice with leave to refile in light of the Santich opinion. [Id. ]
On July 29, 2019, SRC filed the instant Motion. [#41] Plaintiff has responded to the Motion [#47], and SRC has replied [#52].
II. ANALYSIS
The Motion first argues that Plaintiff agreed to arbitration through the Sneidco/New Tech Contract and that the arbitration provision from that contract directly applies to the claims brought in this lawsuit. [#41 at 4-6] Next, the Motion argues that SRC is a third-party beneficiary of the Sneidco/New Tech Contract and that it may therefore enforce the arbitration provision of that contract. [Id. at 6-9] Finally, the Motion argues that Plaintiff should be equitably estopped from asserting that SRC is not a third-party beneficiary to the Sneidco/New Tech Contract. [Id. at 9-13] The Court addresses each argument below.
A. Direct Enforcement of the Arbitration Provision
Relying upon Paragraph 21 of the Sneidco/New Tech Contract, SRC argues that "any claims ‘related to’ [the Sneidco/New Tech Contract] ‘shall be decided by binding arbitration’ and that ‘[a]ll arbitration claims must be brought in an individual capacity, not as a plaintiff or class member in any purported class or representative proceeding.’ " [#41 at 4 (quoting #41-1, ¶ 21) ] According to SRC, the instant lawsuit involves claims "related to" the Sneidco/New Tech Contract and therefore the arbitration provision applies. [Id. at 5-6]
The issue of whether a non-signatory can enforce an arbitration agreement is governed by state law contract interpretation principles. See Belnap v. Iasis Healthcare , 844 F.3d 1272, 1293 (10th Cir. 2017) (citing Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 630-31, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) ); see also N.A. Rugby Union LLC v. U.S. Rugby Football Union , 442 P.3d 859, 863 (Colo. 2019) (providing that arbitration is a matter of contract and subject to principles of contract interpretation). Under Colorado law, the Court must "attempt to give the words in the contract their plain and ordinary meaning, unless a contrary intent is evidenced." Commc'ns Techs., Inc. v. Spiral Aviation Training Co., LLC , No. 06 CV 00666 MSK BNB, 2007 WL 572121, at *1 (D. Colo. Feb. 20, 2007) (citing Cyprus Amax Minerals Co. v. Lexington Ins. Co. , 74 P.3d 294, 299 (Colo. 2003) ).
The Sneidco/New Tech Contract states that the contract "shall be governed by the laws of the state of Texas." [#41-1 at ¶ 20; see also id. at ¶¶ 1, 11] Nevertheless, the parties apply Colorado law in their briefing, and Colorado law applies to the other two contracts—the Plaintiff/SRC Contract [#47-1 at ¶¶ 7, 23] and the SRC/New Tech Contract [#41-3 at ¶ 33]. The Court follows the parties' briefing and applies Colorado law to the analysis here, and notes that regardless, contract interpretation principles for determining enforcement of an arbitration agreement are largely identical under both Texas and Colorado law. See, e.g. , Coffman v. Provost * Umphrey Law Firm, L.L.P. , 161 F. Supp. 2d 720, 724 (E.D. Tex. 2001) ("Texas contract law requires the court to determine the intent of the parties by interpreting the language of the contract in its plain grammatical meaning unless doing so would defeat the parties' intentions." (collecting Texas state law cases)); In re Brookshire Bros., Ltd. , 198 S.W.3d 381, 386 (Tex. App. 2006) (interpreting arbitration provisions based on general contract interpretation principles).
In making its argument on direct enforcement of the arbitration agreement, SRC has selectively quoted Paragraph 21 of the Sneidco/New Tech Contract. The sentence referenced by SRC provides in its entirety as follows: "If the parties (or their respective directors, officers, employees, consultants and contractors) have a dispute related to [the Sneidco/New Tech Contract] that cannot be resolved amicably, either party may invoke arbitration with respect to any claim, dispute or controversy." [#41-1 at ¶ 21 (emphasis added) ] Here, neither party to the Sneidco/New Tech Contract is attempting to invoke the arbitration provision. Rather, SRC, who was not a party to the contract, seeks to enforce the arbitration provision. But because Paragraph 21 only provides parties to the contract the right to invoke the arbitration provision, SRC cannot directly enforce that provision to compel arbitration, and SRC's first argument fails. See N.A. Rugby Union , 442 P.3d 859 at 863.
B. Third-Party Beneficiary
Perhaps recognizing the limits of its ability to directly enforce Paragraph 21 of the Sneidco/New Tech Contract, SRC also argues that it is a third-party beneficiary of that contract and that Plaintiff is therefore bound by the arbitration provision in that contract. [#41 at 6-9] "It is well-settled that ‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ " N.A. Rugby Union , 442 P.3d at 863 (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ). Nonetheless, Colorado and Texas courts have recognized certain exceptions to this general rule. Id. ; Glassell Producing Co., Inc. v. Jared Res., Ltd. , 422 S.W.3d 68, 80-81 (Tex. App. 2014). One such exception is that of a third-party beneficiary. N.A. Rugby Union , 442 P.3d at 864 ; Glassell Producing Co. , 422 S.W.3d at 81.
"A third-party beneficiary may enforce a contract only if the parties to that contract intended to confer a benefit on the third party when contracting; it is not enough that some benefit incidental to the performance of the contract may accrue to the third party." Everett v. Dickinson & Co., Inc. , 929 P.2d 10, 12 (Colo. App. 1996). "Such an intent to benefit a third party must be apparent from the construction of the contract in light of all surrounding circumstances, and the intent of the parties is the key inquiry when determining whether a nonsignatory is a third-party beneficiary entitled to enforce the agreement." Id. "While the intent to benefit the non-party need not be expressly recited in the contract, the intent must be apparent from the terms of the agreement, the surrounding circumstances, or both." Parrish Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co. , 874 P.2d 1049, 1056 (Colo. 1994). "To determine the intent of the parties, the court should give effect to the plain and generally accepted meaning of the contractual language." Copper Mountain Inc. v. Indus. Sys., Inc. , 208 P.3d 692, 697 (Colo. 2009).
Here, the plain meaning of the Sneidco/New Tech Contract demonstrates that neither Sneidco nor New Tech intended to make SRC a third-party beneficiary of the contract. Indeed, with exceptions not relevant to the instant Motion, the Sneidco/New Tech Contract specifically stated that "there are no third[-]party beneficiaries" to the contract. [#41-1 at ¶ 24] The parties to the Sneidco/New Tech Contract could not have been any clearer in evidencing their intent not to create any third-party beneficiaries. Chandler-McPhail v. Duffey , 194 P.3d 434, 438 (Colo. App. 2008) ("Although the factor is not necessarily dispositive, courts have relied heavily on the existence or non-existence of express terms in an agreement that refer to certain classes of nonparties when determining whether parties intended their agreement to directly benefit certain classes of nonparties."). Indeed, SRC did not even advance this argument in its Original Motion [#17], and explicitly disavowed the argument in its reply in support of the Original Motion [#29 at 8 ("SRC has not argued that it can enforce the arbitration agreement as a third-party beneficiary.") ]. Thus, the Court finds unpersuasive SRC's argument that it is a third-party beneficiary of the Sneidco/New Tech Contract.
C. Equitable Estoppel
Finally, SRC argues that Plaintiff should be equitably estopped from arguing that SRC is not a third-party beneficiary of the Sneidco/New Tech Contract. [#41 at 9-13] "[E]quitable estoppel is generally understood as arising where one party induces another to detrimentally change position in reasonable reliance on that party's actions through words, conduct, or silence." Santich , 443 P.3d at 65 (quotation omitted); see also Van Zanten v. Energy Transfer Partners, L.P. , 320 S.W.3d 845, 847-49 (Tex. App. 2010). Colorado law disfavors estoppel and "the doctrine will be applied only when all of the elements constituting an estoppel are clearly shown." Santich , 443 P.3d at 65 (quotation omitted).
A party arguing estoppel must make a clear showing of four elements: (1) "[t]he party against whom the estoppel is asserted must know the [relevant] facts;" (2) "that party must also intend that its conduct be acted upon or must lead the other party to believe that its conduct is so intended;" (3) "the party claiming estoppel must be ignorant of the true facts;" and (4) "the party asserting the estoppel must detrimentally rely on the other party's conduct." Id.
Here, SRC has failed to make a clear showing that it detrimentally relied upon any conduct by Plaintiff. SRC argues that it "was not aware that Plaintiff's agreement with New Tech provided—contrary to all other indications—that SRC was not a third-party beneficiary," and thus SRC could not enforce the arbitration agreement. [#41 at 12] But SRC has failed to present any evidence that it was even aware that the Sneidco/New Tech Contract had an arbitration provision at all, or that it relied upon that provision to engage Plaintiff as a consultant. Indeed, in its reply, SRC acknowledges that it never viewed the Sneidco/New Tech Contract. [#52 at 9] Simply put, without any awareness of the arbitration provision in the Sneidco/New Tech Contract, SRC cannot demonstrate that it relied on that provision to its own detriment. In other words, SRC has not made any showing that Plaintiff "induce[d] [SRC] to detrimentally change position in reasonable reliance on [Plaintiff's] actions through words, conduct, or silence." Santich , 443 P.3d at 65 ; see also Hirsch v. Amper Fin. Servs., LLC , 215 N.J. 174, 71 A.3d 849, 861 (2013) (finding "nothing in the record to suggest that [defendants] knew about the arbitration clause in plaintiffs' agreement with [another party], let alone expected to reap the benefits that accompany arbitration," prior to the arbitration provision being raised in litigation); B.C. Rogers Poultry, Inc. v. Wedgeworth , 911 So.2d 483, 492-93 (Miss. 2005) (declining to apply equitable estoppel to compel arbitration where there was no evidence that the non-signatory defendant detrimentally relied upon the arbitration provision found in a contract between the plaintiff and a non-party to the litigation). Because SRC has not made a clear showing that it detrimentally relied upon Plaintiff's actions, its equitable estoppel argument fails.
Alternatively, SRC's argument about its ignorance is confusing and contradictory at best, because it is unclear to the Court how SRC could be aware of the arbitration clause in the Sneidco/New Tech Contract, but yet not know that it was not a third-party beneficiary to that contract.
III. CONCLUSION
For the foregoing reasons, the Court respectfully RECOMMENDS that Defendant's Second Motion to Compel Arbitration [#41] be DENIED .
Within fourteen days after service of a copy of the Recommendation, any party may serve and file written objections to the Magistrate Judge's proposed findings and recommendations with the Clerk of the United States District Court for the District of Colorado. 28 U.S.C. § 636(b)(1) ; Fed. R. Civ. P. 72(b) ; In re Griego , 64 F.3d 580, 583 (10th Cir. 1995). A general objection that does not put the district court on notice of the basis for the objection will not preserve the objection for de novo review. "[A] party's objections to the magistrate judge's report and recommendation must be both timely and specific to preserve an issue for de novo review by the district court or for appellate review." United States v. 2121 East 30th Street , 73 F.3d 1057, 1060 (10th Cir. 1996). Failure to make timely objections may bar de novo review by the District Judge of the Magistrate Judge's proposed findings and recommendations and will result in a waiver of the right to appeal from a judgment of the district court based on the proposed findings and recommendations of the Magistrate Judge. See Vega v. Suthers , 195 F.3d 573, 579-80 (10th Cir. 1999) (district court's decision to review a Magistrate Judge's recommendation de novo despite the lack of an objection does not preclude application of the "firm waiver rule"); Int'l Surplus Lines Ins. Co. v. Wyoming Coal Refining Sys., Inc. , 52 F.3d 901, 904 (10th Cir. 1995) (by failing to object to certain portions of the Magistrate Judge's order, cross-claimant had waived its right to appeal those portions of the ruling); Ayala v. United States , 980 F.2d 1342, 1352 (10th Cir. 1992) (by their failure to file objections, plaintiffs waived their right to appeal the Magistrate Judge's ruling). But see , Morales-Fernandez v. INS , 418 F.3d 1116, 1122 (10th Cir. 2005) (firm waiver rule does not apply when the interests of justice require review).
DATED: November 15, 2019