Does a party’s failure to sign an arbitration agreement make it unenforceable?

Sign Arbitration Agreement

Mike v. Eighth Jud. Dist. Ct. (Nev. Supreme Ct. – Sep. 24, 2015)

Petitioners Mika, Harter, and Tallman sought writs of mandamus directing the district court to vacate its orders compelling arbitration of their claims against their former employer, CPS Security (USA), Inc., and certain of its agents and associates (collectively, CPS). All three petitioners signed the same long- form arbitration agreement, which included a clause waiving the right to initiate or participate in class actions. They urged the Supreme Court of Nevada to invalidate the agreement because, among other issues, it was not countersigned by CPS.

The issue is whether CPS’s failure to sign the long-form agreement made it unenforceable and that the short-form agreement, which CPS did sign and which did not include a class action waiver clause, therefore controlled.

CPS provided security services to construction companies in Nevada and elsewhere. Petitioners worked 50 to 70 hours per week for CPS as trailer guards. As a condition of their employment, CPS required petitioners to sleep overnight in small trailers located at its work sites. CPS did not pay petitioners for their sleep time except when they were called out to respond to an alarm or other activity at the site. Petitioners alleged, and CPS denied, that they are owed at least the minimum wage for the required on-site sleep time, whether called out during the night or not, as well as overtime pay.

Petitioners signed both short- and long-form arbitration agreements with CPS. The short-form agreement is entitled “Arbitration Agreement (Outside CA)” and included concise language assenting to binding arbitration and providing that it can only be modified “by a written instrument executed by EMPLOYEE and Chris Coffey, on behalf of the COMPANY.” The long-form agreement was entitled “Offer to Participate in Arbitration of Disputes” and was much more detailed. It specified that arbitration shall be conducted pursuant to the JAMS Employment Arbitration Rules at a location convenient to the employee and provides for a written award, judicial review of the award, and for CPS to bear the costs of arbitration, including the arbitrators’ fees.

The long-form agreement had two signature pages. Each of the petitioners signed both pages of his or her long-form agreement. The first signature page of the long-form agreement also included a signature line for CPS, which CPS left blank and never signed. The second and final signature page was set up for only the employee to sign. It contained three paragraphs, all in capital letters, headed “VOLUNTARY AGREEMENT,” “RIGHT TO CONSULT COUNSEL,” and “30 DAY PERIOD TO OPT- OUT.” The paragraph headed “OPT-OUT” acknowledges “THAT I WAS ADVISED THAT CHOOSING TO SIGN THIS AGREEMENT IS NOT A CONDITION OF MY EMPLOYMENT,” and that “I HAVE BEEN GIVEN A COPY OF MY SIGNED AGREEMENT AND HAVE A FULL THIRTY (30) DAY PERIOD TO OPT-OUT OF THE AGREEMENT IF I CHANGE MY MIND.”

Tallman sued CPS in state court, asserting minimum wage and overtime claims individually and on behalf of others similarly situated under Nevada law, NRS Chapter 608, and the federal Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219 (2014). CPS removed Tallman’s complaint to federal court, which retained jurisdiction of the FLSA claims but declined to exercise supplemental jurisdiction over, and therefore remanded, the Nevada-law-based claims. Thereafter, Mika and Harter filed a second state court suit against CPS. Their complaint, also styled as a class action, reasserts Tallman’s NRS Chapter 608 claims against CPS but added new defendants and civil racketeering claims under NRS Chapter 207. The two suits were assigned to the same district court judge who, after briefing and argument, entered orders compelling individual arbitration of Tallman’s, Mika’s, and Harter’s claims and denying their motions for class certification. It is from these orders that Tallman, Mika, and Harter sought extraordinary writ relief.

Petitioners raised the question of whether the long-form arbitration agreement, which contained the objected-to class action waiver, constituted a valid contract. They contended that CPS’s failure to sign the long-form agreement made it unenforceable and that the short-form agreement, which CPS did sign and which did not include a class action waiver clause, therefore controlled. Petitioners Mika and Harter separately argued that the additional defendants they sued, certain individuals and entities associated with CPS, were not party to and cannot enforce either form of arbitration agreement.

The Supreme Court of Nevada explained that NRS 38.219(1) expresses Nevada’s fundamental policy favoring the enforceability of arbitration agreements. Similar to § 2 of the Federal Arbitration Act (FAA), 9 U.S.C. § 2 (2013), it provides that an agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract. Whether a dispute arising under a contract is arbitrable is a matter of contract interpretation. The Court noted that as a matter of public policy, Nevada courts encourage arbitration and liberally construe arbitration clauses in favor of granting arbitration.

The Court explained that Petitioners dated and signed the short- and long-form agreements together; that CPS did not pre-sign the latter made sense given the 30-day opt-out period the long-form agreement extended the signing employee. The Court agreed with the district court, which held that the petitioners accepted the offer that was the long-form agreement when they signed it and did not thereafter timely opt out. The clause in the fully executed short-form agreement stating that “This Agreement can be modified only by a written instrument executed by EMPLOYEE and Chris Coffey, on behalf of the COMPANY,” did not alter the Court’s analysis.

The Court also found unavailing the argument by petitioners Mika and Harter that the additional defendants they sued did not sign and so cannot enforce the CPS arbitration agreements. The Court noted that by its terms, the long- form arbitration agreement covered claims not only against CPS but also against its officers, directors, managers, employees or agents. When the non-signatory party is an employee of the signatory corporation and the underlying action in the dispute was undertaken in the course of the employee’s employment, there is a uniform federal rule, founded on general state law principles of agency: if a principal is bound under the terms of a valid arbitration clause, its agents, employees, and representatives are also covered under the terms of such agreements. The Court explained that the wrong that Mika and Harter allege they suffered tied directly to CPS’s trailer guard compensation and arbitration policies, which they alleged the additional defendants, as CPS’s managers, officers, directors and/or controlling agents and agent or alter ego, devised and carried out. Given this record, the Court found that the district court correctly treated Mika’s and Harter’s asserted claims against the additional defendants named in their complaint as covered by the long-form arbitration agreement they signed with CPS.

The Court explained that while NRS 38.219(1) requires that the arbitration agreement be contained in a record, it does not require that the written record of the agreement to arbitrate be signed. Thus, the Court found that CPS’s failure to sign the long-form arbitration agreement did not invalidate the agreement.

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