Darrell Reeves; James King; Todd A. Orcutt v. Enterprise Products Partners, Lp

PUBLISH
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
DARRELL REEVES; JAMES KING;
TODD A. ORCUTT,
Plaintiffs - Appellees,
v.
ENTERPRISE PRODUCTS PARTNERS,
LP,
Defendant - Appellant.
No. 20-5020
_________________________________
Appeal from the United States District Court
for the Northern District of Oklahoma
(D.C. No. 4:19-CV-00570-JED-FHM)
_________________________________
Rachel B. Cowen, McDermott Will & Emery LLP, Chicago, Illinois, for Appellant.
Richard J. Burch, Bruckner Burch PLLC, Houston, Texas, for Appellees.
_________________________________
Before TYMKOVICH, Chief Judge, BALDOCK and CARSON, Circuit Judges.
_________________________________
TYMKOVICH, Chief Circuit Judge.
_________________________________
Darrell Reeves and James King worked as welding inspectors for
Enterprise Products Partners through third party staffing companies, Cypress
Environmental Management and Kestrel Field Services. Reeves brought a
collective action claim to recover unpaid overtime wages under the Fair Labor
FILED
United States Court of Appeals
Tenth Circuit
November 9, 2021
Christopher M. Wolpert
Clerk of Court
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Standards Act, 29 U.S.C. § 216(b). King later consented to join the putative
collective action and was added as a named plaintiff. Enterprise argues that both
Reeves and King signed employment contracts with their respective staffing
companies that should compel arbitration for both parties in this case.
We agree. Under the doctrine of equitable estoppel, we find that these
agreements require the claims to be resolved in arbitration. Because Reeves and
James’s claims allege substantially interdependent and concerted misconduct by
Enterprise and non-defendant signatories, Cypress and Kestrel, arbitration should
be compelled for these claims. We reverse the district court’s denial of
Enterprise’s motions to compel. 1
I. Background
Enterprise is an integrated midstream energy company that gathers, treats,
processes, transports, and stores natural gas. It engages with a variety of
companies for third-party inspection services to assist in its pipeline construction.
Enterprise uses Cypress and Kestrel, among others, for these services.
Reeves performed services for Enterprise through Cypress from April 2017
to December 2017 as a welding inspector. King similarly performed services for
1 Although Enterprise moved against Reeves and King separately, both
motions raise the same issue. Because the district court addressed it as one issue,
we do the same in the following opinion. Although there are certain instances
where we refer only to Reeves and Cypress, the analysis extends to the
relationship between King and Kestrel.
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Enterprise through Kestrel from January 2019 to October 2019 as a welding
inspector.
Reeves and King both entered into separate employment agreements with
their respective staffing companies. Both agreements included clauses that
required them to individually arbitrate claims arising out of their employment
with Cypress and Kestrel. In Reeves’s employment agreement with Cypress,
Reeves agreed to “resolve by arbitration all past, present, or future claims or
controversies, including but not limited to, claims arising out of or related to
my . . . employment . . .” Aplt. App. at 29. In King’s mutual arbitration
agreement with Kestrel, King agreed to “resolve by arbitration all past, present,
or future claims or controversies, including but not limited to, claims arising out
of or related to my . . . employment . . .” Id. at 80.
In July 2019, Reeves brought a collective action against Enterprise for
unpaid overtime wages. He alleged that he and other similarly situated
employees worked for Enterprise in excess of forty hours each week. Instead of
paying them any overtime, Enterprise paid him and others a flat daily rate with no
overtime compensation, regardless of hours worked. Reeves claimed that he is
entitled to the FLSA’s overtime mandate and should be paid overtime. King
opted into the case on November 5, 2019.
Enterprise responded by filing motions to compel arbitration, arguing
Reeves and King’s respective employment agreements required arbitration. The
district court denied the motions to compel, finding that the employment
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agreements were not binding between Reeves or King and Enterprise, who was
not a signatory to the agreement. Enterprise advanced a “concerted misconduct”
or “intertwined-claims” theory of equitable estoppel, asking the district court to
apply the arbitration clauses Reeves and King had agreed to in their employment
agreements. The theory applies equitable estoppel in cases where the signatory
plaintiff’s claims either (1) rely on the terms of the written agreement containing
the arbitration clause, or (2) raise allegations of “substantially interdependent and
concerted misconduct by both the nonsignatory and the signatory to the contract.”
MS Dealer v. Service Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999). The
Oklahoma Court of Civil Appeals has used this theory of equitable estoppel in
two previous cases. See Cinocca v. Orcrist, Inc., 60 P.3d 1073 (Okla. Civ. App.
2002); High Sierra Energy, L.P. v. Hull, 259 P.3d 902 (Okla. Civ. App. 2011).
Still, the district court declined to apply this theory of equitable estoppel because
the Oklahoma Supreme Court has not yet adopted it. The district court found that
even if it did apply the suggested equitable estoppel test, the alleged facts failed
to justify equitable estoppel under either prong in this case. Therefore, the
plaintiffs’ claims were not subject to mandatory arbitration.
II. Analysis
Enterprise argues that (1) Oklahoma contract law requires applying an
expanded equitable estoppel doctrine, and (2) Reeves and King’s claims allege
substantially interdependent and concerted misconduct by Enterprise and Cypress
or Kestrel. We agree and find that the district court incorrectly concluded that
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Reeves and King’s claims did not allege substantially interdependent and
concerted misconduct between Enterprise and the staffing companies.
A. Standard of Review
We review de novo the decision of the district court to grant or deny a
motion to compel arbitration. Avedon Eng’g, Inc. v. Seatex, 126 F.3d 1279, 1283
(10th Cir. 1997) (citing Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 796
(10th Cir. 1995)); see also 1mage Software, Inc. v. Reynolds & Reynolds Co., 459
F.3d 1044, 1055 (10th Cir. 2006). Federal courts have a “liberal federal policy
favoring arbitration agreements.” Nat’l Am. Ins. Co. v. SCOR Reins. Co., 362
F.3d 1288, 1290 (10th Cir. 2004) (internal citation omitted). And “any doubts
concerning the scope of arbitrable issues should be resolved in favor of
arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1,
24–25 (1983).
Because estoppel is an equitable theory, however, some circuits have held
that when a district court rules on a motion to compel that is based on estoppel,
the review should be for an abuse of discretion rather than de novo. See Brantley
v. Republic Mortg. Ins. Co., 424 F.3d 392, 395 (4th Cir. 2005); Grigson v.
Creative Artists Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000). But other
courts continue to apply a de novo standard even when a motion to compel is
based on equitable estoppel. See, e.g., Donaldson Co. v. Burroughs Diesel, Inc.,
581 F.3d 726, 731 (8th Cir. 2009); Mundi v. Union Sec. Life Ins. Co., 555 F.3d
1042, 1044 & n. 1 (9th Cir. 2009); Bouriez v. Carnegie Mellon Univ., 359 F.3d
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292, 294 (3d Cir. 2004); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10
F.3d 753, 757 (11th Cir. 1993).
This court has “not yet decided” what standard applies to a denial of a
motion to compel arbitration based on equitable estoppel. Jack v. CMH Homes
Inc., 856 F.3d 1301, 1304 (10th Cir. 2017) (citing Bellman v. i3Carbon, L.L.C.,
563 F. App’x 608, 612–13 (10th Cir. 2014)). For this case, “there is no reason to
depart from the de novo standard.” Donaldson, 581 F.3d at 731. This case
presents “at least mixed questions of law and fact.” Id. In this circuit, “[w]here a
mixed question primarily involves the consideration of legal principles, then a de
novo review by the appellate court is appropriate” (internal citation omitted).
Osage Nation v. Irby, 597 F.3d 1117, 1122 (10th Cir. 2010). Here, the district
court’s decision turned on whether the concerted misconduct equitable estoppel
test applies, primarily an issue of law. We review this determination de novo.
B. Oklahoma Contract Law
The scope of the arbitration agreement, including the question of who it
binds, is a question of state contract law. Arthur Andersen L.L.P. v. Carlisle, 556
U.S. 624, 630–31 (2009). “[T]raditional principles of state law allow a contract
to be enforced by or against nonparties to the contract through assumption,
piercing the corporate veil, alter ego, incorporation by reference, third-party
beneficiary theories, waiver and estoppel.” Id. (internal quotation marks
omitted). Accordingly, our task in these circumstances is to determine whether
the relevant state’s high court would permit the nonsignatory to enforce the
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arbitration clause. See Wade v. EMCASCO Ins. Co., 483 F.3d 657, 666 (10th Cir.
2007). If the state’s high court has not explicitly decided the issue, the district
court must “attempt to predict what the state’s highest court would do.” Id.
(citing Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003)). The
court may “seek guidance from decisions rendered by lower courts in the relevant
state, appellate decisions in other states with similar legal principles, district
court decisions in interpreting the law of the state in question, and the ‘general
weight and trend of authority’ in the relevant area of law.” Wade, 483 F.3d
at 666 (internal citations omitted).
The Oklahoma Supreme Court has yet to address concerted misconduct
estoppel. See Williams v. TAMKO Bldg. Prods., Inc., 451 P.3d 146, 153–54
(Okla. 2019) (attempt to bind nonsignatory purchasers). But the Oklahoma
Supreme Court has noted that it would be more willing to enforce an arbitration
agreement where “a signatory” was “avoiding arbitration with a nonsignatory”
and the nonsignatory was seeking to resolve issues “that were intertwined with
the agreement.” Carter v. Schuster, 227 P.3d 149, 156 (Okla. 2009). In that
situation, the court reasoned that the “signatory is merely being held to his
previous agreement to arbitrate.” Id.
Although several Oklahoma cases have employed equitable estoppel in the
arbitration context, Reeves argues that the federal court should be “reticent to
expand state law without clear guidance from its highest court.” Aple. Br. at 16
(citing Belnap v. Iasis Healthcare, 844 F.3d 1272, 1295 (10th Cir. 2017)). State
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appeal court decisions, however, are persuasive in determining the applicable
equitable estoppel test. See Wade, 483 F.3d at 666; In re Wholesale Grocery
Products Antitrust Litigation, 707 F.3d 917, 927 (8th Cir. 2013) (Benton, J.,
dissenting) (finding that an unpublished appeals court decision from Minnesota
provided a “persuasive indication” of how the state supreme court would apply
equitable estoppel). Moreover, evidence that state law and law from other
jurisdictions “indicates a clear trend” can help give guidance to how we should
apply state law. Armjio, 843 F.2d at 407. Many other states and circuits have
adopted the Eleventh Circuit’s understanding of equitable estoppel and
nonsignatory parties. See Autonation Fin. Servs. Corp. v. Arain, 592 S.E.2d 96,
100 (Ga. Ct. App. 2003); Grigson, 210 F.3d at 1172, B.C. Rogers Poultry, Inc. v.
Wedgeworth, 911 So.2d 483 (Miss. 2005) (narrowing the “substantially
interdependent” prong to only nonsignatories that have an alter ego,
parent/subsidiary or agency relationship with the signatory); Southern Energy
Homes, Inc. v. Kennedy, 774 So.2d 540 (Ala. 2000); Meyer v. WMCO-GP, L.L.C.,
221 S.W.3d 302 (Tex. 2006); Luke v. Gentry Realty, Ltd., 96 P.3d 261
(Haw. 2004); Hard Rock Hotel, Inc. v. Eighth Jud. Dist. Ct. of State in & for
Cnty. of Clark, 390 P.3d 166 (Nev. 2017); Rossi Fine Jewelers, Inc. v.
Gunderson, 648 N.W.2d 812 (S.D. 2002); Melendez v. Horning, 908 N.W.2d 115
(N.D. 2018); but see Doe v. Caramel Operator, L.L.C., 160 N.E.3d 518
(Ind. 2021) (refusing to endorse alternative theories of equitable estoppel);
Mundi, 555 F.3d at 1046 (finding that “only those who have agreed to arbitrate
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are obliged to do so”); Ervin v. Nokia, Inc., 812 N.E.2d 534, 542–34 (Ill. App. Ct.
2004) (refusing to apply another theory of equitable estoppel because “arbitration
is first a matter of consent”). 2
Here, there are two Oklahoma appellate court cases that affirmatively adopt
the two-prong concerted misconduct equitable estoppel test. See Cinocca, 60
P.3d at 1073; High Sierra Energy, 259 P.3d at 902. In those cases, the court held
that equitable estoppel applied for nonsignatories in two circumstances based on
the Eleventh Circuit decision MS Dealer. See 177 F.3d at 942.
In the first circumstance, equitable estoppel applies when the signatory to a
written agreement containing an arbitration clause must rely on the terms of the
written agreement in asserting its claims against the nonsignatory. When each of
a signatory’s claims against a nonsignatory makes reference to or presumes the
existence of the written agreement, the signatory’s claims arise out of and relate
directly to the written agreement, and arbitration is appropriate. Id. at 947. That
is not the case here, as Reeves and King’s claims do not “arise out of and relate
directly to the written agreement.” Id. Alternatively, equitable estoppel applies
when the signatory raises allegations of substantially interdependent and
2 This court has previously applied the concerted misconduct equitable
estoppel test based on a state appellate court’s opinion. See Lenox MacLaren v.
Medtronic, Inc., 449 F. App’x 704, 709 (10th Cir. 2011) (unpublished). In Lenox,
we did note, however, that we “need not decide whether the Colorado Supreme
Court” would actually adopt the test because “we conclude that neither of those
circumstances is present here.” Id.
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concerted misconduct by both the nonsignatory and one or more of the signatories
to the contract. Id. That is the case here.
C. Application
Reeves and King’s claims allege substantially interdependent and concerted
misconduct by both Cypress or Kestrel and Enterprise. We therefore conclude
that Reeves and King are estopped from avoiding their duty to arbitrate their
claims arising out of their employment relationship with Cypress or Kestrel.
“The linchpin for equitable estoppel is equity—fairness.” Grigson, 210
F.3d at 528. Here, as in Grigson, to “not apply” this understanding of equitable
estoppel “to compel arbitration would fly in the face of fairness.” Id. It is
“especially inequitable” when a “signatory non-defendant” such as Cypress or
Kestrel, “is charged with interdependent and concerted misconduct with a
nonsignatory defendant” such as Enterprise, and the signatory “in essence”
becomes a party to the litigation. Id. Reeves and King cannot “have it both
ways” and on “one hand, seek to hold the nonsignatory liable pursuant to duties
imposed by the agreement, which contains an arbitration provision, but, on the
other hand, deny arbitration’s applicability because defendant is a nonsignatory.”
Id. The alleged “misconduct” in this case is the fact Enterprise did not pay
Reeves overtime wages. Cypress was the one who paid Reeves’s salary and sent
him records of his pay stubs. The same is true for King and Kestrel. Given that
Cypress was the one who actually paid Reeves a flat day rate, the allegations of
misconduct against the nonsignatory and the signatory are substantially
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interdependent. This litigation will require Cypress and Kestrel to become
involved and “in essence” make them parties. See id.
Reeves alleged in his original complaint that Enterprise “paid” him a “flat
sum for each day worked, regardless of the number of hours.” Aplt. App. at 11.
He also wrote he “was required to report the days worked to Enterprise, not the
hours he worked.” Id. The employment agreement Reeves signed with Cypress
stated that “employment is based on a specific project to be performed for a
designated customer,” and that “any concern arising out of the working
relationship must be reported and addressed directly with Cypress.” Id. at 28.
The agreement went on to state Reeves understood Cypress’s relationship with
third-party customers was “critical” to the “employee’s opportunity for
employment.” Id. at 29. Reeves knew that his work for Cypress would be mainly
for its customers, such as Enterprise. This litigation will surely involve facts
regarding the role Cypress had in his employment with Enterprise and the ensuing
dispute. Reeves agreed to bring “any dispute, controversy, or claim arising out of
or related in any way to the parties’ employment relationship” in arbitration. Id.
Reeves has already agreed to arbitrate these claims that would be substantially
intertwined with Enterprise’s alleged nonpayment of his wages.
The purpose of the doctrine of equitable estoppel is to prevent parties
“playing fast and loose with the courts” and also to “protect[] the judicial
system.” In re Coastal Plains Inc., 179 F.3d 197, 205 (5th Cir. 1999); Grigson,
210 F.3d at 530. Reeves and King cannot simply plead around Cypress and
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Kestrel, who would have to become crucial parties to the litigation. While
Reeves may have carefully left out any claims against Cypress in his pleading, his
claims are “inherently inseparable” and integrally related from his relationship,
employment, and agreement with Cypress. Grigson, 210 F.3d at 528.
In Cinocca, the Oklahoma Court of Civil Appeals found that an agreement
between a law firm and a recently terminated employee to “return the computer
back to its condition” was enough for the employee’s claims against a
nonsignatory agent who was hired to clear her computer to be “intertwined” with
her claims against the signatory law firm. 60 P.3d at 1073, 1075. An attorney
argued that the technology contractor hired by her law firm to wipe pertinent
work data off her computer had exceeded his scope of authority by accessing her
computer outside of her presence and deleting material without her approval. The
contractor brought a motion to enforce the arbitration clause found in the
attorney’s separation agreement with the law firm. Even though the contractor
was a nonsignatory, the court found that equitable estoppel compelled the
attorney to arbitrate her claims because her claims against the nonsignatory were
“inherently inseparable” from her claims against the signatory. Id. at 1075. The
court also noted that her claims were within the scope of the agreement and
related to the “rights and obligations arising under” the separation agreement. Id.
at 1074. Surely Reeves’s agreement covering “any concern arising” out of
Reeves’s employment with Cypress would include a payment claim against one of
Cypress’s customers. Aplt. App. at 28. Reeves’s claims against Enterprise
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clearly allege such intertwined claims regarding his employment with Cypress
and Enterprise that Cypress would “in essence, become[] a party, with resulting
loss, among other things, of time and money because it requires participation in
the court proceedings.” Cinocca, 60 P.3d at 1075. Although Reeves and King
did not bring any explicit claims against their staffing companies, they are merely
“seeking to avoid the agreement” by bringing a claim against Enterprise. But
Enterprise is merely a customer of Reeves and King’s main employers, Cypress
and Kestrel. Id. at 1075.
Similarly, in High Sierra, the court found arbitration could be compelled so
long as the claims rested on benefits in the agreement and alleged “substantially
interdependent and concerted misconduct” by the nonsignatories and signatory.
259 P.3d at 902, 908. High Sierra Energy executed a sale agreement with several
individuals for the purchase of multiple energy-services companies which
included an arbitration clause. High Sierra retained some of these individuals as
managers. Later on, High Sierra then sued one of these managers and other
nonsignatory individuals for various claims, including misappropriation of trade
secrets. The court found that because High Sierra’s claims rested upon the
benefits it expected to receive from its sale agreement, it was compelled to
arbitrate its claims, even against the nonsignatories. Id. at 907. Finding the
claims against nonsignatories and the signatory were “substantially ‘intertwined’”
and “aver[red] ‘substantially interdependent and concerted misconduct.’” Id.
at 908, 909.
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Here, Reeves’s claims against Enterprise are “clearly relate[d]” to his
employment agreement and “substantially intertwined” with Cypress’s conduct
because it involves the income he expected to receive from Cypress during his
employment. Id. The agreement states, “the Employer agrees to hire the
Employee” and also authorizes Cypress to “deduct” from Reeves’s salary for any
personal use of company resources or “withhold” salary if Reeves fails to return
company equipment. Aplt. App. at 28–29. Reeves’s claims against Enterprise
for his salary payments relate to Cypress’s duties under his employment
agreement. A party cannot use the lack of one’s signature on a written contract to
preclude enforcement of an arbitration clause, yet “maintain[] that other
provisions of the same contract should be enforced to benefit him.” Lenox, 449
F. App’x at 708. We do not find that the facts here are, as the district court
claims, materially different than those in Cinocca and High Sierra. The district
court even states that in High Sierra, the plaintiff’s claims “rested on the benefits
it had expected to receive under the purchase agreement.” It then states that
Reeves’s claim is different because it relates to Enterprise’s role under FLSA.
However, it fails to acknowledge that Reeves’s claim will be integrally
intertwined to Reeves’s right to his salary as an inspector for Cypress — which
arises out of his employment agreement. We are merely holding Reeves and King
to their “previous agreement to arbitrate.” High Sierra, 259 P.3d at 908 (citing
Carter, 227 P.3d at 156).
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Reeves and King should honor the arbitration agreements that regulate their
rights and benefits arising from their employment with Cypress and Kestrel.
Moreover, Reeves and King have already consented to arbitrate any claims
arising out of their employment, which would obviously include any issues with
their employer’s customers. Their claims against Enterprise are “integrally
related” to their employment agreement with Cypress and Kestrel and allege
“substantially interdependent and concerted misconduct” by both their staffing
companies and Enterprise. High Sierra, 259 P.3d at 908–909.
III. Conclusion
For the foregoing reasons, we REVERSE the district court’s order denying
Enterprise’s motions to compel arbitration and REMAND for proceedings
consistent with this opinion.
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