W.L. Doggett LLC v. Paychex, Inc.
92 F. Supp. 3d 593
S.D. Tex.2015Background
- Paychex and plaintiff companies W.L. Doggett LLC and Doggett Heavy Machinery Services, LLC entered two HR-services contracts in 2010 that include an arbitration clause and an incorporation of the AAA commercial rules.
- Doggett alleges that in 2018 over 1,000 employees/dependents suffered identity theft because Paychex failed to terminate access for a former employee; Doggett filed a first amended complaint asserting tort, statutory, and contract claims.
- Paychex moved to compel arbitration (and to transfer venue in the alternative); Doggett moved for leave to file a second amended complaint adding related claims.
- The contracts contain a delegation provision stating arbitrable disputes include disputes about formation, interpretation, applicability, or enforceability of the contracts; the arbitration clause designates arbitration in Rochester, N.Y., under AAA commercial rules.
- Doggett argued arbitration is contrary to public policy and unconscionable; Paychex argued the delegation clause and arbitration clause require an arbitrator to decide arbitrability.
- The court concluded the delegation provision is clear and unmistakable, Doggett did not specifically challenge the delegation clause, the assertion of arbitrability was not wholly groundless, and thus compelled arbitration and dismissed the case; venue transfer was denied as moot and amendment was denied as futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the parties clearly and unmistakably delegated arbitrability to an arbitrator | Delegation should not bind Doggett for tort claims involving identity theft; delegation insufficient to strip court of decision | Contracts expressly delegate disputes about formation/interpretation/applicability/enforceability and incorporate AAA rules | Delegation provision is clear and unmistakable; arbitrator designated to decide arbitrability |
| Whether arbitrability is "wholly groundless" | Arbitration doesn’t cover massive identity-theft torts not contemplated at contracting; public policy and unconscionability bar enforcement | Contracts contemplated protection of confidential info; arbitration clause sits near confidentiality provisions; Doggett negotiated parts of contract and is sophisticated | Assertion of arbitrability is not wholly groundless; plausible arguments exist on both sides => arbitrator decides scope and defenses |
| Whether Doggett’s public-policy and unconscionability defenses defeat the delegation provision | Arbitration secrecy would undermine public policy to prevent/identify identity theft; clause is boilerplate and imposed by Paychex | Public policy can be served in arbitration; defenses attack the agreement as a whole not the delegation specifically | These defenses challenge the arbitration agreement as a whole, not the delegation provision specifically, so arbitrator decides them |
| Whether to permit amendment to add related claims | Seeks to add Texas Theft Liability Act and harmful computer-access claims based on same facts | Amendment would add claims that are substantially similar and thus also subject to arbitration | Amendment denied as futile because arbitrator must decide arbitrability of proposed claims |
Key Cases Cited
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (delegation clauses can assign arbitrability questions to an arbitrator)
- Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir.) (incorporation of AAA rules and language about enforceability/validity/applicability support clear delegation)
- Douglas v. Regions Bank, 757 F.3d 460 (5th Cir.) (two-step test: clear delegation and not wholly groundless assertion of arbitrability)
- Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir.) (express incorporation of arbitral rules indicates delegation)
- Smith v. EMC Corp., 393 F.3d 590 (5th Cir.) (futility is a valid ground to deny leave to amend)