October 23, 2014

Tenth Circuit: Ambiguities in Arbitration Agreement Must Be Resolved in Favor of Arbitration

The Tenth Circuit Court of Appeals issued its opinion in Sanchez v. Nitro-Lift Technologies, L.L.C. on Friday, August 8, 2014.

Miguel Sanchez, along with co-plaintiffs Shane Schneider and Eddie Howard, worked for Nitro-Lift Technologies in and around Johnston County, Oklahoma, servicing and monitoring oil rigs. At the beginning of their employment, they signed a “Confidentiality/Non-Compete Agreement.” They claim they were not allowed to read the document, ask questions, or have an attorney review it before signing. The agreement, which Nitro-Lift alleges is an employment agreement despite its title, contains a broad arbitration clause requiring arbitration for “any dispute, difference or unresolved question” between Nitro-Lift and the employee.

The employees brought suit against Nitro-Lift in the Eastern District of Oklahoma, alleging violations of the FLSA because they were forced to work more than forty hours nearly every week and did not receive overtime compensation from Nitro-Lift for the hours they worked in excess of forty hours per week. In response, Nitro-Lift filed a motion to dismiss and compel arbitration pursuant to the provision in the purported employment agreement, or, alternatively, a motion to stay pending arbitration. Plaintiffs argued the arbitration agreement was unenforceable as to their FLSA claims for a variety of reasons, their wage disputes did not fall under the scope of the arbitration clause, the arbitration clause’s fee-shifting provisions were impermissible as to their employment dispute, and the forum selection clause and application of commercial arbitration rules make the clause unenforceable because they would force employees to pay substantial costs they cannot afford. The district court denied Nitro-Lift’s motion to compel arbitration, ruling that the contract’s broad arbitration clause did not encompass wage disputes because the contract only applied to confidentiality and non-competition. Nitro-Lift filed an interlocutory appeal, and on the same day filed a new motion to dismiss based on plaintiffs’ amended complaint adding Howard and reasserting the same issues contained in its original motion. The district court denied Nitro-Lift’s second motion as a motion for reconsideration. Nitro-Lift timely appealed and the appeals were consolidated for Tenth Circuit review.

The Tenth Circuit first addressed the dispute regarding the applicability of the arbitration clause. The Tenth Circuit found a strong presumption in favor of arbitration, noting that any ambiguities must be resolved in favor of arbitration. Because the Tenth Circuit found ambiguity regarding whether the arbitration clause applied to the dispute at hand, it ruled that arbitration was required and reversed the district court’s denial of the motion to compel arbitration.

The district court did not address plaintiffs’ FLSA claims, and the Tenth Circuit declined to address them for the first time on review, instead remanding to the district court for determination of plaintiffs’ unresolved issues. The Tenth Circuit also left for the district court determination of whether the fee-shifting provision in the arbitration clause rendered the agreement unenforceable in light of U.S. Supreme Court and Tenth Circuit precedent. The Tenth Circuit also declined to address plaintiffs’ argument that Nitro-Lift’s willingness to waive the fee-shifting provision, the forum selection clause, and the rules governing arbitration constituted an impermissible unilateral contract amendment, instead leaving this issue for the district court’s determination.

The district court’s denial of Nitro-Lift’s motion to compel arbitration was reversed and the case was remanded for further findings consistent with the Tenth Circuit’s opinion.

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