602 F. App'x 945
5th Cir.2015Background
- Former PCM employees sued under the FLSA for unpaid overtime and retaliation; their employment agreements contained a mandatory individual-arbitration clause forbidding class or representative actions.
- Pacheco filed the original complaint; PCM answered but did not invoke arbitration in its answer and later filed multiple Rule 12(b)(6) motions challenging whether individual defendants were "employers."
- Plaintiffs moved for collective/class certification under 29 U.S.C. § 216(b); the parties exchanged a Joint Status Report and litigated brief motions before PCM moved to compel arbitration 13 months after suit was filed.
- PCM moved to compel arbitration on November 14, 2013; the district court granted the motion and dismissed the case with prejudice, finding PCM had not waived arbitration by substantially invoking the judicial process and plaintiffs had not shown prejudice.
- On appeal, plaintiffs argued (1) the arbitration provision was unenforceable (illusory/lack of consideration) and (2) PCM waived arbitration by substantially invoking the judicial process; the court declined to consider arguments not raised below and reviewed waiver de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clause | Clause illusory / lacked consideration; unconscionable; imposed prohibitive costs; waived FLSA rights | Clause valid, governs claims; plaintiffs waived some arguments by not raising them below | Court: plaintiffs waived illusory/consideration claims by not raising them below; district court's compulsion reviewed de novo and clause enforced |
| Waiver by substantially invoking judicial process | PCM litigated motions, participated in status reports, opposed class cert, and delayed moving to compel — thus waived arbitration | PCM's litigation activity was limited (brief 12(b)(6) motions on a single issue), no discovery propounded by PCM, motion to compel filed before rulings on key matters | Court: No waiver; PCM did not substantially invoke the judicial process given limited, defensive actions and timing of motion to compel |
| Prejudice requirement for waiver | Plaintiffs asserted delay and litigation activity caused prejudice (incurred fees, litigation disadvantage) | Plaintiffs failed to show specific prejudice; briefing was limited and arbitral forum would pose same employer-issue burden | Court: Did not reach prejudice because no substantial invocation; district court correctly found plaintiffs failed to show prejudice if reached |
| Dismissal with prejudice vs stay pending arbitration | Plaintiffs urged stay or dismissal without prejudice to preserve rights | Defendant supported dismissal because all claims were arbitrable | Court: Circuit precedent allows dismissal with prejudice when all claims are subject to arbitration; dismissal affirmed |
Key Cases Cited
- Covington v. Aban Offshore Ltd., 650 F.3d 556 (5th Cir. 2011) (standard of review for motion to compel arbitration)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (state-law principles govern formation of arbitration agreements)
- Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir. 2014) (issues not raised below are waived on appeal)
- In re Mirant Corp., 613 F.3d 584 (5th Cir. 2010) (waiver analysis and timeliness concerns regarding motions to compel arbitration)
- Tenneco Resins, Inc. v. Davy Int’l, AG, 770 F.2d 416 (5th Cir. 1985) (acts constituting waiver and relevance of discovery activity)
- Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341 (5th Cir. 2004) (strong presumption against finding waiver of arbitration)
- Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891 (5th Cir. 2005) (burden heavier to show waiver after party gives notice of intent to arbitrate)
- Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161 (5th Cir. 1991) (district court may dismiss with prejudice when all claims are arbitrable)