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Herrington v. Waterstone Mortgage Corp.

United States District Court, W.D. Wisconsin

December 4, 2017

PAMELA HERRINGTON, individually and on behalf of all other similarly situated persons, Plaintiffs,



         Plaintiff Pamela Herrington filed this proposed class action under the Fair Labor Standards Act and state law, alleging that defendant Waterstone Mortgage Corporation failed to pay its loan officers for overtime work. Shortly thereafter, defendant moved to dismiss or stay the action on the ground that plaintiff's claims were subject to arbitration. In an order dated March 16, 2012, dkt. #57, I concluded that plaintiff's claims would have to be resolved through arbitration under an agreement between the parties, but that the National Labor Relations Act gave plaintiff the right to join other employees in her case. I closed the case administratively to allow the parties to proceed with arbitration.

         Plaintiff commenced arbitration on March 23, 2012. George Pratt, a former judge for the Court of Appeals for the Second Circuit, was chosen as arbitrator. Arbitrator Pratt issued an order determining that the arbitration could proceed as a collective action. Ultimately, 174 class members opted into the arbitration. While arbitration was pending, I denied several motions by defendant seeking review of the arbitrator's decisions and of this court's initial order regarding arbitration. Dkt. ##72, 89, 92, 97. The arbitrator issued several interim orders relating to liability and held a hearing in two parts on October 17, 19-21, 2016, and December 20-21, 2016. On July 5, 2017, the arbitrator issued a final decision, holding that defendant was liable under the Fair Labor Standards Act for unpaid minimum wages and overtime and attorney fees and costs, but not liable under Wisconsin statutory or contract law. Arbitrator Pratt ordered that defendant owed $7, 267, 919.00 in damages, $3, 318, 851.00 in attorney fees and costs and an incentive fee in the sum of $20, 000 to be paid to named plaintiff Herrington.

         Now before the court are several motions relating to the arbitrator's final award. Plaintiff has moved for confirmation of the award under 9 U.S.C. § 9, dkt. #99, while defendant has moved to vacate or modify the award. Dkt. #112. Plaintiff has moved for sanctions against defendant, arguing that defendant's objections to confirmation of the award are frivolous. Dkt. #125. Finally, defendant has moved to stay any action relating to the award until the United States Supreme Court reaches a decision in the consolidated cases of Ernst & Young, LLP v. Morris, 137 S.Ct. 809 (2017); Epic Systems Corp. v. Lewis, 137 S.Ct. 809 (2017); and National Labor Relations Board v. Murphy Oil USA, Inc., 137 S.Ct. 809 (2017) (collectively “Morris”), in which the Court is considering whether class and collective action waivers in arbitration agreements violate the National Labor Relations Act. Dkt. #118.

         For the reasons below, I am denying defendant's motion to stay, defendant's motion to vacate the arbitration award and plaintiff's motion for sanctions. I am confirming the arbitration award, with one modification to correct the mathematical error identified by both parties.


         A. Motion to Stay

         In March 2012, I concluded that plaintiff's employment agreement required that her wage claims be resolved through arbitration, but that the provision of the employment agreement prohibiting collective arbitration violated the National Labor Relations Act, as set forth in In re D.R. Horton, Inc., 357 NLRB No. 184 (2012), available at 2012 WL 36274. Dkt. #57. Since that time, multiple courts of appeal have considered whether class or collective action waivers in employment agreements violate the National Labor Relations Act. The Eighth, Fifth and Second Circuits have upheld class and collective action waivers in arbitration agreements and found that these waivers do not violate the Act. Cellular Sales of Missouri, LLC v. National Labor Relations Board, 824 F.3d 772 (8th Cir. 2016); Murphy Oil USA, Inc. v. National Labor Relations Board, 808 F.3d 1013 (5th Cir. 2015); D.R. Horton, Inc. v. National Labor Relations Board, 737 F.3d 344, 362 (5th Cir. 2013); Patterson v. Raymours Furniture Co., 659 F.Appx. 40 (2d Cir. 2016). The Ninth, Sixth and Seventh Circuits have held that such class action waivers violate the Act and are unenforceable. Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016); National Labor Relations Board v. Alternative Entertainment, Inc., 858 F.3d 393 (6th Cir. 2017); Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016). The Supreme Court granted certiorari to review this issue in the consolidated Morris cases, and arguments were held in October 2017. Defendant argues that this court should stay all proceedings pending the outcome of Morris.

         Defendant has moved for a stay pursuant to the court's inherent power to stay cases before it. Landis v. North American Co., 299 U.S. 248, 254-55 (1936) (“The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants.”). In determining whether to issue a stay, courts often consider the following factors: “(1) whether the litigation is at an early stage; (2) whether a stay will unduly prejudice or tactically disadvantage the non-moving party; (3) whether a stay will simplify the issues in question and streamline the trial; and (4) whether a stay will reduce the burden of litigation on the parties and on the court.” Grice Engineering, Inc. v. JG Innovations, Inc., 691 F.Supp.2d 915, 920 (W.D. Wis. 2010) (citations omitted). In this instance, defendant argues that the Supreme Court's decision will confirm whether this case properly proceeded as a collective action during arbitration.

         Defendant has not shown that a stay is warranted. Nken v. Holder, 556 U.S. 418, 433-34 (2009) (“The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion.”) This case has been pending since 2011 and is not at an early stage. A further delay would prejudice plaintiff, who has been waiting several years through numerous delays to recover unpaid wages. Additionally, despite defendant's assertion that a stay would “greatly simplify the issues and reduce the burden of litigation, ” Dft.'s Br., dkt. #119, at 6, I am not persuaded that the Supreme Court's decision will necessarily simplify the issues in this case, however it rules.

         Defendant suggests that if the Supreme Court concludes that class and collective action waivers do not violate the National Labor Relations Act, defendant will be able to rely on that decision to file a motion under Federal Rule of Civil Procedure 60(b)(6) challenging this court's March 2012 decision. But defendant's assumption is flawed. As I explained previously when denying a similar Rule 60 motion filed by defendant, “a change in law showing that a previous judgment may have been incorrect is not an ‘extraordinary circumstance' justifying relief under Rule 60(b)(6).” Dkt. #92 at 4 (quoting Nash v. Hepp, 740 F.3d 1075, 1078 (7th Cir. 2014)). See also Selective Insurance Co. of South Carolina v. City of Paris, 769 F.3d 501, 509 (7th Cir. 2014) (“Rule 60(b) cannot be used to reopen the judgment in a civil case just because later authority shows that the judgment may have been incorrect.”) Defendant has made no attempt to explain why a change in the law would justify reconsideration of a decision made in this case five years ago.

         Moreover, the ultimate decision whether to allow this case to proceed on a collective basis was made by the arbitrator, not this court. In concluding that plaintiff should be permitted to proceed with arbitration on a collective basis, the arbitrator noted that this court had held that the class waiver provision was invalid under the National Labor Relations Act and that he was bound by that decision. Dkt. #99-3 at 8. However, the arbitrator also noted that the arbitration clause in the employment agreement was ambiguous: although it contained a waiver clause, it also stated that arbitration should proceed “in accordance with the rules of the American Arbitration Association, ” which permits class arbitration. Id. at 9. The arbitrator noted that defendant “at the very least created an ambiguity, which must be construed against [defendant, ] the party who drafted the Agreement.” Id. The arbitrator also noted plaintiff's argument that the language of the so-called “waiver” clause should actually be read as permitting class or collective arbitration, rather than prohibiting it, though the arbitrator chose not to resolve that dispute. Id. at 8. In other words, the arbitrator's discussion suggests that he believed there were independent bases for permitting collective arbitration, aside from this court's previous decision. Thus, it is far from clear that the Supreme Court's decision in the Morris cases would cause the arbitrator to change his decision to permit collective arbitration.

         Finally, regardless whether this case should have proceeded on a collective basis, it would have been necessary to take up defendant's claims of arbitrator bias and misconduct as they relate to plaintiff's individual claim. Additionally, it is possible that the arbitrator's merits decisions would apply in subsequent individual arbitrations under the doctrine of issue preclusion. E.g., Brown v. R.J. Reynolds Tobacco Co., 611 F.3d 1324, 1332 (11th Cir. 2010) (holding that factual findings in prior class action that had been decertified could have preclusive effect on subsequent individual actions). In short, the Supreme Court's decision will not clearly simplify the issues in this case. Under these circumstances, I decline to grant defendant's request for a discretionary stay of this case.

         B. Arbi ...

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