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S.D. Texas Orders Independent Contractor’s Lawsuit Filed Against Nonsignatory to Arbitration

Originally published by Beth Graham.


The Southern District of Texas has ordered a proposed class action lawsuit that was filed over an organization’s alleged violations of the Fair Labor Standards Act (“FLSA”) to arbitration.  In Randle v. Metropolitan Transit Authority of Harris County, No. H-18-1770 (S.D. Tex., Oct. 1, 2018), a Texas man, Randle, signed a series of independent contractor agreements to lease equipment from and drive for Yellow Cab Paratransit Services (“Yellow Cab”).  Each of the independent contractor agreements contained an arbitration provision stating all future disputes “arising out of or in any way relating to” the contract must be resolved through binding arbitration.

Meanwhile, Yellow Cab also contracted with the Greater Houston Transportation Company (“GHTC”) to provide van drivers for METROLift.  METROLift provides Houston-area residents who are disabled or elderly with free or subsidized local transportation services.

Randle operated a METROLift van as an independent contractor for Yellow Cab for a period of approximately seven years.  Despite that Randle contracted directly with Yellow Cab, he filed a proposed class action lawsuit against GHTC in May 2018.  According to Randle, he and other similarly situated drivers were misclassified as independent contractors.  In addition, Randle claimed he was denied overtime pay as required by the FLSA.  In response, the GHTC filed a motion to compel the case to arbitration based on Randle’s independent contractor agreement with Yellow Cab.

According to Randle, the dispute was not subject to arbitration due to the transportation worker exception included in Section 1 of the Federal Arbitration Act (“FAA”).  Randle also argued the arbitration provision was unconscionable because it required him to waive his FLSA rights.  In addition, Randle claimed GHTC did not have a right to enforce the arbitration provision included in his independent contractor agreement with Yellow Cab because the organization was not a party to the contract.

The Southern District of Texas first dismissed Randle’s transportation worker claim because he was not engaged in interstate commerce while executing his METROLift van driving duties.  The federal court said:

Circuit City Stores clarified that § 1 applies to a small class of workers. Circuit City Stores, 532 U.S. at 110. The Supreme Court explained that the proper interpretation of “transportation worker” relies on § 1’s residual clause. The phrase, “any other class of workers engaged in foreign or interstate commerce,” should be understood “to give effect to the terms `seamen’ and `railroad employees,’ and should itself be controlled and defined by reference” to those terms. Id. at 115. Only those “transportation workers” involved in interstate commerce fall under the § 1 exclusionary clause. Id. at 119.

Fifth Circuit precedent also makes the limited applicability of § 1’s exclusionary clause clear. In Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996), the Fifth Circuit explained that “[t]he exclusionary clause . . . should be narrowly construed to 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.” Id. at 748. The Fifth Circuit described the Supreme Court’s holding in Circuit City Stores as “fully consistent with [the] reasoning in Rojas.” Brown v. Nabors Offshore Corp., 339 F.3d 391, 394 (5th Cir. 2003).

Under the Fifth Circuit’s decisions in Rojas and Brown, Randle is not “actually engaged in the movement of goods in interstate commerce in the same way that seamen and railroad workers are.” Rojas, 87 F.3d at 748. He cannot be excepted from the FAA on this basis. See, e.g., Calderone v. Sonic Houston JLR, LP, No. H-15-3699, 2016 WL 738642, at *3 (S.D. Tex. Dec. 21, 2016); Tran v. Texan Lincoln Mercury, Inc., No. H-07-1815, 2007 WL 2471616, at *5 (S.D. Tex. Aug. 29, 2007). The § 1 exception excludes specific workers—those in the transportation industry with a “necessary role in the free flow of goods”—for whom Congress had or was developing specific statutory dispute-resolution schemes. Circuit City Stores, 532 U.S. at 121. The defining quality of a § 1 “transportation worker” is moving goods through interstate commerce. Tran, 2007 WL 2471616, at *5. Randle’s work for METROLift involves transporting passengers locally in Harris County. He does not move goods on behalf of a carrier like a railroad or a vessel like a ship. Randle cites no cases in which a court has found that a public-transportation driver qualifies as a “transportation worker” within §1 of the FAA. Randle’s work does not qualify him as a “transportation worker” under the § 1 exception.

Next, the district court applied a two-step analysis to assess whether a valid agreement to arbitrate existed and, if so, whether the dispute before the court fell within the scope of that agreement.  After finding the arbitration agreement was neither illusory nor unconscionable, the Southern District of Texas held nonsignatory GHTC was permitted to enforce the arbitration provision based on a theory of direct-benefits estoppel.  Likewise, the court held Randle’s FLSA claims against GHTC fell within the scope of the agreement because the arbitration provision included in his signed independent contractor agreement was broad.

The Southern District of Texas concluded:

The arbitration clauses contained within Randle’s Agreements with Yellow Cab are valid, and Randle’s claims against Metro fall within the scope of those clauses. Under § 3 of the FAA, “a stay is mandatory upon a showing that the opposing party has commenced suit upon any issue referable to arbitration under an agreement in writing for such arbitration.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). The Fifth Circuit has interpreted this language to mean that the district court cannot deny a stay when one is properly requested, not “to limit dismissal of a case in the proper circumstances.” Id. If all of the issues raised before the district court are arbitrable, dismissal is appropriate. Id. Because all of Randle’s claims are subject to arbitration, dismissal is proper.

Finally, the federal district court granted GHTC’s motions to compel the dispute to arbitration and dismiss the case.

Photo by: Mahdiar Mahmoodi on Unsplash

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

Original author: Beth Graham
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