14‐4323
Holick v. Cellular Sales of New York, LLC
14‐4323
Holick v. Cellular Sales of New York, LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2014
(Argued: June 4, 2015 Decided: September 22, 2015)
Docket No. 14‐4323
JAN P. HOLICK, JR., STEVEN MOFFITT, JUSTIN MOFFITT, GURWINDER
SINGH, JASON MACK, TIMOTHY M. PRATT, and WILLIAM BURRELL, on
behalf of themselves and all others similarly situated,
Plaintiffs‐Appellees,
‐v.‐
CELLULAR SALES OF NEW YORK, LLC, CELLULAR SALES OF KNOXVILLE,
INC.,
Defendants‐Appellants.1
Before: WESLEY, HALL, and CARNEY, Circuit Judges.
1 The Clerk of the Court is respectfully directed to amend the caption to conform to the
above.
Plaintiffs‐Appellees Timothy Pratt and William Burrell are two of the
named plaintiffs in this putative class action lawsuit against Defendants‐
Appellants Cellular Sales of New York, LLC and its parent company Cellular
Sales of Knoxville, Inc. In their suit brought under state and federal labor laws,
Plaintiffs allege that, during 2010 and 2011, they were unlawfully denied various
forms of compensation and benefits because Defendants improperly classified
them as independent contractors rather than employees. Defendants moved to
compel arbitration based on an arbitration clause contained in Plaintiffs’
subsequent employment agreements. The district court denied the motion to
compel arbitration, finding that another contract that was in effect during the
time when Plaintiffs’ claims arose supported a finding of non‐arbitrability.
Defendants now pursue this interlocutory appeal. We AFFIRM.
C. LARRY CARBO, III, Chamberlain, Hrdlicka, White, Williams &
Aughtry, Houston, TX (Julie R. Offerman, Chamberlain, Hrdlicka,
White, Williams & Aughtry, Houston, TX; Joseph M. Dougherty,
Hinman Straub, P.C., Albany, NY, on the brief), for Defendants‐
Appellants.
RONALD G. DUNN (Daniel A. Jacobs, on the brief), Gleason, Dunn,
Walsh & O’Shea, Albany, NY, for Plaintiffs‐Appellees.
WESLEY, Circuit Judge:
Plaintiffs‐Appellees Timothy Pratt and William Burrell are two of the
named plaintiffs in this putative class action lawsuit against Defendants‐
Appellants Cellular Sales of New York, LLC (“Cellular Sales”) and its parent
company Cellular Sales of Knoxville, Inc. (“Cellular Sales of Knoxville”). In their
suit brought under state and federal labor laws, Plaintiffs allege that, during 2010
and 2011, they were unlawfully denied various forms of compensation and
2
benefits because Defendants improperly classified them as independent
contractors rather than employees. Defendants moved to compel arbitration
based on an arbitration clause contained in Plaintiffs’ subsequent employment
agreements. The United States District Court for the Northern District of New
York (Mordue, J.) denied the motion to compel arbitration, finding that another
contract that was in effect during the time when Plaintiffs’ claims arose
supported a finding of non‐arbitrability. Defendants now pursue this
interlocutory appeal.
For the reasons stated below, the judgment of the district court is
AFFIRMED.
BACKGROUND2
Cellular Sales is in the business of selling Verizon Wireless cellular service
plans and merchandise. Plaintiffs‐Appellees Timothy Pratt and William Burrell
both began their relationship with Cellular Sales in 2010. At that time, Cellular
Sales required Plaintiffs to form a corporate entity (such as a limited liability
company) and sign a “Non‐Exclusive Independent Sales Agreement” (“Sales
2 The facts are drawn from the district court’s memorandum, supplemented as
necessary by the record. The facts provided relate only to Pratt and Burrell because
Defendants Cellular Sales and its parent company have appealed the district court’s
denial of the motion to compel arbitration only as to those Plaintiffs.
3
Agreement”) in order to be sales representatives. Joint App. 231, 241.3 Each
Plaintiff signed a Sales Agreement as the representative of his respective
company; the Sales Agreements established a formal relationship between
Cellular Sales and Plaintiffs’ companies. Relevant for this appeal, each Sales
Agreement stated that the respective Plaintiff’s company was an “independent
contractor” of Cellular Sales. Joint App. 233. In turn, each Plaintiff was an
employee of his own company (referred to as a “Sales Company”): “Each person
who is engaged by the Sales Company to render services with respect to those
activities for which Sales Company receives Sales Commissions shall be an
employee of the Sales Company and not of [Cellular Sales].” Id. (emphases added).
The Sales Agreements went on to state that Cellular Sales would not
withhold taxes on the commissions Plaintiffs earned and that Plaintiffs were not
entitled to “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].” Joint App. 234.
Each Sales Agreement included a dispute resolution mechanism that required
the parties to submit “a dispute aris[ing] under th[e] Agreement . . . to
3 For convenience, we cite to the contracts Burrell signed. The contracts Pratt signed
contain contractual provisions that are identical to the provisions cited in this opinion.
See Joint App. 225–28 (Sales Agreement); Joint App. 211–17 (Compensation Agreement).
4
mediation.” Joint App. 235. Should mediation fail to resolve the dispute, the
parties retained “the right to pursue any appropriate legal actions against the
other Party in a court of competent jurisdiction.” Joint App. 235–36.
In 2011, Cellular Sales offered Plaintiffs‐Appellees full‐time employment.
On or about January 1, 2012, both Pratt and Burrell signed Compensation
Agreements with Cellular Sales that, in contrast with the prior Sales Agreements,
contained an arbitration clause. This provision states, in relevant part: “All
claims, disputes, or controversies arising out of, or in relation to this document or
Employee’s employment with [Cellular Sales] shall be decided by arbitration . .
. .” Joint App. 219. The first paragraph of the Compensation Agreement
provides for an at‐will employment relationship, stating that “[Cellular Sales]
has employed you (‘Employee’) to sell [Verizon Wireless services and related
equipment].” Joint App. 218. Plaintiffs‐Appellees allege that, after the
Compensation Agreements were signed, Cellular Sales began to treat them
differently by, inter alia, directly paying commissions to Plaintiffs‐Appellees and
withholding federal taxes from those commissions.
Plaintiffs‐Appellees have temporally confined their claims to events that
transpired prior to January 1, 2012. They allege that before the execution of the
5
Compensation Agreements, Cellular Sales misclassified them as independent
contractors when they were actually employees (within the meaning of various
labor laws) because Cellular Sales controlled their work performance. As a
result, Plaintiffs‐Appellees were allegedly deprived of, among other things,
overtime compensation and minimum wage. Plaintiffs‐Appellees seek
compensation owed under the Fair Labor Standards Act of 1938 (“FLSA”), 29
U.S.C. § 201 et seq., New York common law, and various provisions of New
York’s Labor Law, N.Y. Lab. Law §§ 190 et seq., 650 et seq. (McKinney).
DISCUSSION4
Defendants‐Appellants Cellular Sales and Cellular Sales of Knoxville, Inc.
argue that the denial of their motion to compel arbitration “conflicts with long‐
standing federal precedent under which all doubts as to the intent of the parties
and the scope of an arbitration clause must be resolved generously in favor of
arbitration.”5 Appellants’ Br. 10. Plaintiffs‐Appellees Pratt and Burrell respond
that this Court need not reach Defendants‐Appellants’ argument because the
Compensation Agreement is unambiguous. Under Plaintiffs‐Appellees’ view,
4 This Court reviews de novo the district court’s decision to deny a motion to compel
arbitration. Motorola Credit Corp. v. Uzan, 388 F.3d 39, 49 (2d Cir. 2004).
5 We have jurisdiction over this interlocutory appeal pursuant to 9 U.S.C. § 16(a)(1)(C).
6
the plain language of the contract reveals that the parties did not intend the
arbitration clause to have a retroactive scope because Plaintiffs‐Appellees’
employment started the day the Compensation Agreements were signed.
“In deciding whether a dispute is arbitrable, we must answer two
questions: (1) whether the parties agreed to arbitrate, and, if so, (2) whether the
scope of that agreement encompasses the claims at issue.” Bank Julius Baer & Co.
v. Waxfield Ltd., 424 F.3d 278, 281 (2d Cir. 2005) (alteration and internal quotation
marks omitted), abrogated on other grounds by Granite Rock Co. v. Intʹl Bhd. of
Teamsters, 561 U.S. 287 (2010). In this case, the parties agreed in the
Compensation Agreement to arbitrate. Thus, our discussion focuses on the scope
of that agreement. The district court correctly determined that the arbitration
clause at issue here is broad because it applies to “[a]ll claims, disputes, or
controversies arising out of, or in relation to this document or Employee’s
employment with [Cellular Sales],” Joint App. 219. See JLM Indus. v. Stolt‐Nielsen
SA, 387 F.3d 163, 172 (2d Cir. 2004). Further, since the arbitration clause has no
explicit temporal limitation, our task is to analyze whether the claims “aris[e] out
of, or [relate] to . . . Employee’s employment with [Cellular Sales],” Joint App.
7
219.6 See Smith/Enron Cogeneration Ltd. P’ship v. Smith Cogeneration Int’l, 198 F.3d
88, 99 (2d Cir. 1999).
“[I]n light of the strong federal policy in favor of arbitration, the existence
of a broad agreement to arbitrate creates a presumption of arbitrability which is
only overcome if it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the asserted dispute.
Doubts should be resolved in favor of coverage.”7 Id. (internal quotation marks
omitted). However, the Federal Arbitration Act’s8 liberal policy in favor of
6 We do not analyze the portion of the arbitration agreement that references “disputes
. . . arising out of, or in relation to this document,” Joint App. 219, because Defendants‐
Appellants have not argued that Plaintiffs‐Appellees’ claims arose out of the
Compensation Agreements.
7 Plaintiffs‐Appellees contend that a recent Second Circuit decision, Lloyd v. J.P. Morgan
Chase & Co., 791 F.3d 265, 269–70 (2d Cir. 2015), undermines prior cases in which this
Court has required positive assurance to rebut the presumption of arbitrability. The
Lloyd Court labeled the presumption of arbitrability “soft,” and, in Plaintiffs‐Appellees’
view, discarded the requirement for positive assurance to rebut the presumption of
arbitrability. Id. at 270. We find Plaintiffs‐Appellees’ argument unpersuasive for two
reasons. First, since “one panel of this Court [typically] cannot overrule a prior decision
of another panel,” Gelman v. Ashcroft, 372 F.3d 495, 499 (2d Cir. 2004) (internal quotation
marks omitted), we are bound by this Circuit’s cases that require positive assurance to
rebut the presumption of arbitrability. Second, the analysis in Lloyd did not turn on the
presumption of arbitrability, see 791 F.3d at 270–71, making its characterization of the
presumption dicta.
8 The Federal Arbitration Act provides: “A written provision in any . . . contract
evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction, or the refusal to perform the whole
or any part thereof, or an agreement in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction, or refusal, shall be valid,
8
arbitration is limited by the principle that “arbitration is a matter of consent, not
coercion. Specifically, arbitration is a matter of contract, and therefore a party
cannot be required to submit to arbitration any dispute which [it] has not agreed
so to submit.” JLM Indus., 387 F.3d at 171 (alteration in original) (citations and
internal quotation marks omitted). It is axiomatic that “[w]hether enforcing an
agreement to arbitrate or construing an arbitration clause, courts and arbitrators
must give effect to the contractual rights and expectations of the parties. In this
endeavor, as with any other contract, the parties’ intentions control.” Stolt‐
Nielsen S.A. v. AnimalFeeds Intʹl Corp., 559 U.S. 662, 682 (2010) (citations and
internal quotation marks omitted).
When considering whether claims fall within the scope of an arbitration
clause, therefore, we analyze the factual allegations made in the plaintiff’s
complaint. Smith/Enron, 198 F.3d at 99. “If the allegations underlying the claims
touch matters covered by the parties’ . . . agreements, then those claims must be
arbitrated, whatever the legal labels attached to them.” Id. (internal quotation
marks omitted).9
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2.
9 “When deciding whether the parties agreed to arbitrate a certain matter . . . , courts
generally . . . apply ordinary state‐law principles that govern the formation of
9
To support their argument that the Compensation Agreement’s arbitration
clause applies only prospectively, Pratt and Burrell rely heavily on an
unpublished opinion in which the Fourth Circuit interpreted an arbitration
agreement in a context quite similar to this case. See Newbanks v. Cellular Sales of
Knoxville, Inc., 548 F. App’x 851(4th Cir. 2013). As newly hired employees of the
defendants (one of which was Cellular Sales of Knoxville, Inc.), the Newbanks
plaintiffs signed compensation agreements that contained an arbitration clause.
Id. at 852. As in this case, the plaintiffs had previously been employees of their
own sales companies, which, in turn, were independent contractors for the
defendants pursuant to a sales agreement between the sales companies and the
defendants. Id. at 852, 855. Also similar to our case, the execution of the new
compensation agreements was the first time the plaintiffs had bound themselves
individually in a contract with the defendants. Id.
contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). We interpret
a contract “to give full meaning and effect to all of its provisions.” LaSalle Bank Nat’l
Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005) (internal quotation
marks omitted). On appeal, both parties cite to New York law, and neither party has
argued that the law of any other state applies to this dispute. In New York, a contract’s
clauses “should be read together contextually in order to give them meaning.” Diamond
Castle Partners IV PRC, L.P. v. IAC/InterActiveCorp, 82 A.D.3d 421, 422 (N.Y. App. Div.
2011) (internal quotation marks omitted). “It is a fundamental principle of contract
interpretation that, in the absence of ambiguity, the intent of the parties must be
determined from their final writing and no parol evidence or extrinsic evidence is
admissible.” Int’l Klafter Co. v. Cont’l Cas. Co., 869 F.2d 96, 100 (2d Cir. 1989).
10
Based on the contract’s plain language, the Newbanks court determined
that “th[e] arbitration requirement only applies to causes of action accruing from
the execution of the [c]ompensation [a]greements and onward.” Id. at 855. The
Fourth Circuit grounded its analysis in the compensation agreements’ first
paragraph, which “informed the signer that he or she had become an at‐will
employee of Cellular Sales.” Id. The court went on to support its conclusion by
noting that the plaintiffs had limited their claims to the time period prior to when
they signed the compensation agreements and that, during that period, the
plaintiffs “did not have any formal or contractual relationship with Cellular Sales
at all.” Id. Although acknowledging that the compensation agreements did not
reference the prior sales agreement, the court nevertheless deemed the sales
agreement the “only relevant document” that existed during the time period to
which the plaintiffs had confined their claims. Id.
Unlike the Fourth Circuit, we are not persuaded that this case begins and
ends with the plain language of the Compensation Agreements. The first
paragraph of the Compensation Agreement states in full:
Cellular Sales (“Company”) is in the business of retail sales of
Verizon Wireless services and related equipment and accessories
(“Products”). Company has employed you (“Employee”) to sell the
Products. Employee’s employment with Company is, and shall
11
remain at all times, “at‐will,” and Company may terminate
Employee’s employment at any time for any reason or for no reason,
and Employee may terminate employment at any time for any
reason or for no reason.
Joint App. 218 (emphases omitted). Neither this paragraph nor any other
provision of the contract states that the employer‐employee relationship
commenced with the execution of the Compensation Agreement or otherwise
uses language stating that the employment relationship replaced a prior
contractual arrangement. The use of the phrase “has employed you” does not
indicate specifically when the employment relationship commenced. Although
contractual language referring to the payment of commissions “beginning on the
third month after commencement of employment” and an example concerning
January sales commissions might suggest an understanding that the contractual
employment relationship began in January 2012, Joint App. 219, they are not
determinative of the start date for Plaintiffs‐Appelleesʹ employment. Instead, it
is only through parol evidence that we know that the employer‐employee
relationship commenced when Pratt and Burrell signed the Compensation
Agreements. Solely reading within the four corners of the contract, we cannot
discern whether the parties intended for the arbitration agreement’s scope to
cover the current dispute. Since the plain language of the Compensation
12
Agreement is ambiguous, we turn to whether parol evidence sheds light on the
parties’ intent.
Defendants‐Appellants contend that the arbitration clause here is
susceptible of an interpretation that covers the dispute at issue here because Pratt
and Burrell allege that they were Cellular Sales employees prior to signing the
Compensation Agreements.10 In response, Plaintiffs‐Appellees contend that the
prior Sales Agreements and the conduct of the parties reveals positive assurance
that the parties did not intend for the arbitration agreement to apply to claims
that arose during the time period when Defendants‐Appellants affirmatively
labeled Plaintiffs‐Appellees as non‐employees.11
10 Defendants‐Appellants also submit that Pratt and Burrell have not proffered forceful
evidence that supports a finding of non‐arbitrability. Their argument is rooted in a line
of Supreme Court cases that relate to arbitration clauses in collective bargaining
agreements. See United Steel Workers Local 4‐5025 v. E.I. DuPont de Nemours & Co., 565
F.3d 99, 101–02 (2d Cir. 2009) (per curiam); see, e.g., AT&T Techs. v. Commc’ns Workers of
Am., 475 U.S. 643, 650 (1986). As the Supreme Court has noted, “arbitrators are in a
better position than courts to interpret the terms of a [collective bargaining agreement].”
Wright v. Universal Mar. Serv. Corp., 525 U.S. 70, 78 (1998) (emphasis omitted). Although
this Court has also required forceful evidence to rebut the presumption of arbitrability
in the context of international arbitration agreements, we reasoned that such an
approach was correct because “[t]he policy in favor of arbitration is even stronger in the
context of international business transactions” than the typical case. David L. Threlkeld
& Co. v. Metallgesellschaft, Ltd., 923 F.2d 245, 248 (2d Cir. 1991). Defendants‐Appellants
have not persuaded us that the forceful evidence requirement should be extended to the
contract presently before us.
11 In the alternative, Plaintiffs‐Appellees submit that we can affirm based on the alleged
unconscionability of certain aspects of the arbitration agreement. Our resolution of the
13
Defendants‐Appellants are correct that this Court has held that broad
arbitration provisions that contain no express temporal limitation can apply to
claims that arose prior to the execution of the arbitration agreement. For
example, in Coenen v. R.W. Pressprich & Co., 453 F.2d 1209 (2d Cir. 1972), the
plaintiff had signed an arbitration agreement as part of his application for
membership in the New York Stock Exchange (“NYSE”); it provided that the
parties agreed to arbitrate “[a]ny controversy between . . . members . . . .” Id. at
1211–12 (alteration in original). The plaintiff subsequently brought claims
against another NYSE member named Pressprich. See id. The plaintiff argued
that he should not be required to arbitrate because the claim predated the
arbitration agreement; this Court disagreed. See id. We reasoned that, even
though the claim predated the arbitration agreement, the plaintiff had signed it
“with full knowledge that he had a claim against Pressprich and that Pressprich
was a Stock Exchange member.” Id. at 1212.12 Unfortunately for the Defendants‐
arbitrability issue in Plaintiffs‐Appellees’ favor makes it unnecessary for us to evaluate
the merits of their unconscionability arguments in the first instance.
12 Defendants‐Appellants also cite Arrigo v. Blue Fish Commodities, 408 F. App’x 480 (2d
Cir. 2011) (summary order), a case in which we stated that an arbitration clause that
applied to “all federal and state statutory claims” covered employment‐based claims
that predated the arbitration clause. Id. at 481 (internal quotation marks omitted).
However, in that case, the plaintiff signed a “comprehensive employment agreement”
containing an arbitration clause “three months into his employment.” Id. We conclude
14
Appellants, though, Coenen and cases like it are simply not on point. We are not
persuaded by Defendants‐Appellants’ argument that we must interpret the
arbitration agreement here to have an expansive temporal scope simply because
this Court has done so in other cases. Instead, the correct approach is to assess
whether the parties intended for the arbitration clause to cover the present
dispute.
Based on the parties’ conduct prior to executing the Compensation
Agreements, the presumption of arbitrability is overcome because we find
positive assurance that the arbitration clause’s scope—at least insofar as it
concerns the promise to arbitrate matters arising out of, or in relation to
Employee’s employment—is temporally limited. We reach this conclusion, in
large part, based on the fact that when the Compensation Agreements were
signed, the parties’ contractual positions changed in a way that impacted
arbitrability. In the Sales Agreements, Defendants‐Appellants agreed with the
Sales Companies that Pratt and Burrell were not employees of Cellular Sales.
However, about a year and a half later, Defendants‐Appellants agreed to employ
that Arrigo is distinguishable because there was no allegation in that case, as there is
here, that the parties’ contractual relationship changed in a way that implicated the
arbitration clause at the time the contract containing the arbitration agreement was
executed.
15
Pratt and Burrell.13 This evolving business relationship is directly relevant to
whether the parties intended to have an employment relationship prior to
executing the Compensation Agreement. It would be inconsistent with the
parties’ conduct to construe the Compensation Agreement, which referenced
“employment,” to apply to a period when the parties themselves did not
contemplate such a relationship. See Mehler v. Terminix Int’l Co., 205 F.3d 44, 49–
50 (2d Cir. 2000) (determining scope of arbitration agreement by the contract’s
“language, the timing of its execution, and the conduct of the parties”).
Defendants‐Appellants’ change in course is just the type of positive assurance
required to show that the parties did not intend for the arbitration clause to cover
the current dispute.
Our conclusion is confirmed by our examination of the allegations in the
complaint. To assess whether these allegations touch matters covered by the
arbitration agreement, Defendants‐Appellants would have us look at the
complaint’s allegation that Pratt and Burrell were in fact Defendants‐Appellants’
As late as December 28, 2011, an office manager at Cellular Sales explained how to fill
13
out the employment application correctly, clarifying that recipients of her e‐mail were
not employees: “Everyone please make sure you answer the Y/N questions correctly on
the Employment Application. You are not currently an employee of Cellular Sales‐‐you are
CONTRACTED with Cellular Sales; you are an employee of your own company (LLC or
Corp).” Joint App. 257 (emphasis added).
16
statutory employees prior to executing the Compensation Agreements. That
argument, although superficially appealing, is wrong. The complaint’s factual
allegations include the manner in which Pratt and Burrell worked for
Defendants‐Appellants and how Defendants‐Appellants exercised control over
that work. These factual allegations do not touch matters covered by the
arbitration clause because they do not evince the parties’ intent to enter into an
employment relationship. Instead, the more salient factual allegation for
assessing the arbitration agreement’s scope is how Defendants‐Appellants labeled
Pratt and Burrell as non‐employees.
For purposes of the FLSA, a company’s decision to label a worker as an
“independent contractor” or a non‐employee will not carry the day. See Irizarry
v. Catsimatidis, 722 F.3d 99, 104 (2d Cir. 2013). Contract law, on the other hand, is
an area of law where labels matter. The focal point of this dispute is not related
to the Compensation Agreements. Defendants‐Appellants have maintained
before the district court that Pratt and Burrell were independent contractors, and
they may attempt to use the Sales Agreements to prove that. This dispute is
about events that transpired when the Sales Agreements were in effect, and these
contracts have their own dispute resolution mechanism. After Defendants‐
17
Appellants affirmatively stated that Pratt and Burrell were not employees for
over a year, it rings hollow for them to now argue that the parties intended the
word “employment” in the Compensation Agreements to apply retroactively as
to this dispute. Finding positive assurance that the parties did not intend for the
arbitration agreement to be retroactive, we affirm the district court’s denial of the
motion to compel arbitration.
CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.
18