Newman v. Plains All Amer Pipel ( 2022 )

Case: 21-50253 Document: 00516158616 Page: 1 Date Filed: 01/07/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
January 7, 2022
No. 21-50253 Lyle W. Cayce
Clerk
Kenneth Newman, individually and, on behalf of All Others
Similarly Situated,
Plaintiff—Appellee,
Cypress Environmental Management-TIR, L.L.C.,
Intervenor—Appellee,
versus
Plains All American Pipeline, L.P.,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 7:19-CV-244
Before King, Costa, and Willett, Circuit Judges.
Don R. Willett, Circuit Judge:
A pipeline-inspection firm hired some inspectors. Their employment
agreement contained an arbitration provision. The firm sent the inspectors
off to work for a client company. The inspectors eventually sued the client
for alleged Fair Labor Standards Act violations. They did not sue their firm.
The client moved to compel arbitration. The district court denied its motion,
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reasoning that the client could not enforce the arbitration agreement between
the inspectors and their firm. The firm intervened, and the client company
appealed. For the reasons below, we AFFIRM.
I
Cypress Environmental Management-TIR, L.L.C. (“Cypress”),
staffs pipeline inspectors to various client-company projects. It hired
Newman and his co-plaintiffs—who we will collectively refer to as Newman,
for simplicity’s sake—to work as independent pipeline inspectors for Plains
All American Pipeline (“Plains”). As part of his job, Newman signed an
Employment Agreement with Cypress. The Employment Agreement
contained an arbitration agreement. Newman and Cypress agreed “that the
Federal Arbitration Act (‘FAA’) applie[d]”; “to arbitrate all claims that
have arisen or will arise out of [his] employment with or termination from
[Cypress]”; and that any “[a]rbitration [would] be conducted in accordance
with the American Arbitration Association Employment Arbitration Rules,”
the AAA Rules. 1
Newman’s Employment Agreement did not expressly mention Plains.
But it did specify that Cypress had hired Newman “based on a specific
project” and “for a designated customer.” It also incorporated by reference
a certain Pay Letter. This Pay Letter named Plains as the designated
customer that Newman was to work for.
Newman never signed any agreement with Plains. But a Cypress
subsidiary did. That subsidiary, Tulsa Inspection Resources, LLC (“TIR”),
signed the contract that governed Cypress’s business relationship with
1
All but one other plaintiff entered into the same Employment Agreement. The
other plaintiff, John Smith, signed a substantively identical arbitration provision as part of
his Employment Agreement.
2
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Plains. As part of that contract, TIR agreed to indemnify Plains for any
claims relating to “any violation or alleged violation of state or federal law
related to the payment, employment, or employment status of any of
[Cypress’s] employees.”
Newman eventually brought a collective action against Plains. He
alleged that Plains owes him unpaid overtime under the FLSA.
Conspicuously absent from his complaint were any claims against Cypress.
After Newman filed suit, Plains moved to compel arbitration. The district
court did not compel arbitration, and in a detailed order it reasoned that our
prior decision in Brittania-U Nigeria, Ltd. v. Chevron USA, Inc. 2 was
distinguishable; that Plains was not a third-party beneficiary to the Newman–
Cypress Employment Agreement under Texas law; and that it would not
allow Plains to enforce the arbitration agreement using intertwined-claims
estoppel.
After the district court denied Plains’s motion to compel arbitration,
Cypress moved to intervene. The district court granted its motion. 3 Plains
then appealed the district court’s denial of its motion to compel arbitration.
2
866 F.3d 709 (5th Cir. 2017).
3
The district court denied Cypress’s motion to compel. Cypress has appealed, but
we denied Plains and Cypress’s motion to consolidate that appeal with this one.
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II
We review the denial of a motion to compel arbitration de novo 4—as
we do contract-interpretation issues generally. 5 As for whether the district
court properly refused to equitably enforce a contract, we review that for
abuse of discretion. 6
III
The parties vigorously dispute whether the district court should have
decided whether Plains can enforce the Newman–Cypress arbitration
agreement. Cypress admits that deciding whether an arbitration agreement
exists between the parties is “always for the court.” 7 But both it and Plains
see a distinction between deciding whether an arbitration agreement exists (a
question for the court) and deciding who it is enforceable against (a question
they say is delegable to the arbitrator). Newman sees no distinction. Under
controlling caselaw, says Newman, we must decide whether Plains can
enforce the Newman–Cypress arbitration agreement; not an arbitrator.
We agree with Newman. When a court decides whether an arbitration
agreement exists, it necessarily decides its enforceability between parties.
Therefore, deciding an arbitration agreement’s enforceability between
parties remains a question for courts.
4
Kubala v. Supreme Prod. Svcs., Inc., 830 F.3d 199, 201 (5th Cir. 2016).
5
Sanchez Oil & Gas Corp. v. Crescent Drilling & Prod., Inc., 7 F.4th 301, 309 (5th
Cir. 2021).
6
See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000)
(“[W]hether to utilize equitable estoppel in this fashion is within the district court’s
discretion; we review to determine only whether it has been abused.”).
7
Plains never squarely admits as much.
4
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A
We have explained before that courts must decide “at the outset”
whether an enforceable arbitration agreement exists at all. 8 The parties
cannot delegate disputes over “the very existence of an[] [arbitration]
agreement.” 9 The Supreme Court recently “reaffirmed” this rule. 10 It
explained in Henry Schein, Inc. v. Archer and White Sales, Inc. that the FAA
requires courts to first “determine[] whether a valid arbitration agreement
exists” before granting motions to compel arbitration. 11
To that end, deciding enforceability between the parties and an
arbitration agreement’s existence are two sides of the same coin. We said as
much in Sherer v. Green Tree Servicing LLC. 12 Under “the first step in
determining whether a valid agreement to arbitrate exists,” we look first to
“the ‘terms of the agreement,’” which “dictate ‘[w]ho is actually bound by
an arbitration agreement.’” 13 Then, “[i]f that fails,” we “look to theories
such as equitable estoppel to determine whether a nonsignatory may compel
arbitration.” 14 Under both the Supreme Court’s and our caselaw, then,
8
Lloyd’s Syndicate 457 v. FloaTEC, L.L.C., 921 F.3d 508, 514 (5th Cir. 2019)
(quoting Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 218 (5th Cir. 2003)).
9
Id. (quoting Will-Drill, 352 F.3d at 218) (emphasis added).
10
Id. at 515 n.4.
11
139 S. Ct. 524, 530 (2019) (citing 9 U.S.C. § 2). At oral argument, Newman’s
counsel contended that state law governs whether enforceability between the parties is a
first-step formation question, for the courts, or a second-step arbitrability question,
potentially for arbitrators. As Henry Schein makes plain, though, it is federal law—the FAA,
itself—that governs. See id. (pointing to the FAA’s text as what compels courts to decide
whether a valid arbitration agreement exists).
12
548 F.3d 379 (5th Cir. 2008) (per curiam).
13
Id. at 382.
14
Id.; see also Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir.
2003) (“Six theories for binding a nonsignatory to an arbitration agreement have been
5
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Newman has the better view. It is up to us—not an arbitrator—to decide
whether Plains can enforce the Newman–Cypress arbitration agreement.
B
Still, Plains and Cypress disagree. They contend that part of our
decision in Brittania-U supports that deciding an arbitration agreement’s
enforceability between the parties is an arbitrability question, which would
make it delegable to an arbitrator. We disagree and, in any event, find that
Brittania-U addressed a distinguishable situation.
In Brittania-U, a disappointed bidder for some oil leases sued the
seller and two of its agents involved in the bidding process. As part of the
bidding process, the bidder and seller had signed an arbitration agreement.
That arbitration agreement contained a delegation clause: a clause that
delegates arbitrability questions to the arbitrator. The seller’s agents never
signed the bidder–seller arbitration agreement. Nonetheless, both the seller
and its nonsignatory agents moved to compel arbitration based on it. 15
We held that they could. 16 We noted that before we could reach
whether the delegation clause was valid, we had to decide the first-step,
formation question. 17 Specific to the agents, that meant looking to
“‘background principles’ of state contract law,” like equitable estoppel, to
see if they could enforce the bidder–seller arbitration agreement as
recognized: (a) incorporation by reference; (b) assumption; (c) agency; (d) veil-
piercing/alter ego; (e) estoppel; and (f) third-party beneficiary.”).
15
See 866 F.3d at 711–12; see also id. at 714 (explaining that “a delegation clause
giv[es] the arbitrator the primary power to rule on the arbitrability [question]” (quoting
Kubala, 830 F.3d at 201)).
16
Id. at 715.
17
Id. at 714.
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nonsignatories. 18 When we looked to those background principles, we found
the Second Circuit’s decision in Contec v. Remote Solution, Co.
“instructive.” 19 In that case the Second Circuit held that a nonsignatory—a
corporation’s successor in interest—could enforce an arbitration agreement
since it had a “sufficient relationship” with both the predecessor-in-interest
signatory “and to the rights created under the agreement.” 20 We found
Contec indistinguishable in Brittania-U: “Like in Contec, the [seller and its
agents]—a signatory and two nonsignatories—are attempting to enforce the
arbitration provision against [the signatory bidder].” 21 Since we also held that
the delegation clause was valid, the seller’s agents could therefore compel
arbitration. 22
But we are not faced today with the same situation we confronted in
Brittania-U. The district court below correctly explained what made
Brittania-U different: in that case, an “agency relationship” existed between
the agents and the seller, and “estoppel principles were at play.” As we
explain more thoroughly below, those facts are not present here. And, even
more unlike Brittania-U, Cypress was not even a party to this suit until it
intervened. Newman has still brought no claims against it.
But to the principal thrust of Plains and Cypress’s argument—that
Brittania-U held that enforceability between the parties is a second-step,
arbitrability question—we cannot agree. We already highlighted above how
18
Id. at 715 (quoting Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d
249, 257 (5th Cir. 2014)).
19
Id. (citing 398 F.3d 205, 211 (2d Cir. 2005)).
20
See 398 F.3d at 209–211.
21
Brittania-U, 866 F.3d at 715.
22
Id. at 714–15.
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Brittania-U supports that we decide that issue as part of the first-step,
formation question. What supports Plains and Cypress’s argument is nothing
more than some imprecise language. True, we did say in Brittania-U that we
had to “first determine whether claims against [the agents] were . . . clearly
and unmistakably delegated to the arbitrator” before we could address
whether the agents could enforce the bidder–seller arbitration agreement as
nonsignatories. 23 But in holding that they could, we explicitly relied on
Contec. 24 And in Contec, the Second Circuit plainly reasoned that
enforceability goes to the first-step, formation question that is determined by
the courts. 25
But even if Brittania-U could not be reconciled with our decision
today, we would still be bound to disagree with Plains and Cypress. In
general, the rule of orderliness binds us to follow a prior panel’s decision on
an issue. 26 But when two published panel decisions conflict, we must follow
the earlier. 27 Plains and Cypress’s reading of Brittania-U would create just
such a conflict between it and our earlier decision in Sherer. 28 So, we are
23
See id. at 709.
24
Id. at 715.
25
398 F.3d at 209 (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944–
45 (1995)); see also id. (“[J]ust because a signatory has agreed to arbitrate issues of
arbitrability with another party does not mean that it must arbitrate with any non-
signatory.”).
26
See, e.g., McClain v. Lufkin Indus., Inc., 649 F.3d 374, 385 (5th Cir. 2011) (“[Our]
rule of orderliness prevents one panel from overruling the decision of a prior panel.”).
27
GlobeRanger Corp. v. Software AG USA, Inc., 836 F.3d 477, 497 (5th Cir. 2016).
28
See Sherer, 548 F.3d at 382 (explaining that “whether a valid agreement to
arbitrate exists” turns on whether it can be enforced in either law or equity). The rule of
orderliness applies as equally to a panel’s implicit reasoning as it does to its express
holdings. See Arnold v. U.S. Dep’t of Interior, 213 F.3d 193, 196 n.4 (5th Cir. 2000) (“[T]o
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hemmed in. We could not read Brittania-U as Plains and Cypress invite us to
even if we were so inclined.
IV
Still, our work is far from done. We explained in Kubala v. Supreme
Production Services, Inc. that the first step to decide a motion to compel
arbitration is to ask a state-law, contract-formation question: Did “the parties
enter[] into any arbitration agreement at all.” 29 In cases like Kubala, where
Texas law deemed that both parties accepted the same arbitration agreement
at issue, that ends our first-step inquiry. 30 But sometimes an arbitration
agreement’s enforceability can reach “strangers to the contract.” 31 In these
so-called “nonsignatory,” 32 “third party,” or “nonpart[y]” cases, 33 we must
inquire further.
In making that further inquiry, the Supreme Court’s decision in
Arthur Andersen LLP v. Carlisle is instructive. There, the Supreme Court
explained that “background principles of state contract law” govern “who is
bound” by an arbitration agreement. 34 And those principles can expand the
arbitration agreement’s enforceability beyond its signatory parties through
“traditional” doctrines; doctrines like “assumption, piercing the corporate
the extent that a more recent case contradicts an older case, the newer language has no
effect.” (citing Teague v. City of Flower Mound, 179 F.3d 377, 383 (5th Cir. 1999))).
29
830 F.3d at 201–02 (first emphasis added, second emphasis original).
30
See id. at 202–03 (explaining that the employee was “deemed” to have accepted
the employer’s arbitration agreement as a contract modification under Texas law).
31
Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 632 (2009).
32
Crawford Prof’l, 748 F.3d at 257.
33
Arthur Andersen, 556 U.S. at 631.
34
Id. at 630 (emphasis added).
9
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veil, alter ego, incorporation by reference, third-party beneficiary theories,
waiver and estoppel.” 35 So in third-party cases we must ask an additional
question: Does “a written arbitration provision” exist that “is made
enforceable against (or for the benefit of) a third party under state contract
law”? 36
The parties agree that Texas law governs our first-step analysis.
Neither Plains nor Cypress contends that Newman actually entered into an
arbitration agreement with Plains. 37 What Plains and Cypress do contend,
though, is that Plains can enforce the Newman–Cypress arbitration
agreement. Newman adamantly disagrees. We agree with Newman.
A
Plains contends that it is a third-party beneficiary to the Newman–
Cypress Employment Agreement. Newman disagrees. As he points out, the
Supreme Court of Texas has explained that Texas law presumes that
noncontracting parties are not third-party beneficiaries. 38 To overcome that
presumption, “the parties to the contract”—Newman and Cypress—must
have “intended to secure a benefit to [a] third party”—Plains—“and
entered into the contract directly for the third party’s benefit.” 39
35
Id.36
Id.; Crawford Prof’l, 748 F.3d at 257.
37
Cypress, for its part, apparently concedes that Newman never entered into an
arbitration agreement with Plains. And Newman, naturally, emphatically denies that he
ever agreed to an arbitration agreement with Plains.
38
Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 420 (Tex. 2011).
39
Jody James Farms, JV v. Altman Group, Inc., 547 S.W.3d 624, 635 (Tex. 2018)
(emphasis added) (quoting In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 677 (Tex.
2006)).
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Still, as Plains accurately notes, we must decide if Newman and
Cypress intended to secure a benefit to it by looking at the “entire”
Employment Agreement, and “giv[ing] effect to all its provisions.” 40 To
secure a benefit to Plains, the Employment Agreement must have “clearly
and fully spelled [it] out.” 41 And the benefit, itself, “must be more than
incidental.” 42 Only a benefit that would confer Plains the status of a
“claimant[]” in the event of breach will do. 43 Whatever Plains’s expectations
were, they are “irrelevant.” 44 Without Newman and Cypress clearly and
fully spelling it out in the contract, whatever benefit Plains hoped it had
“must be denied.” 45 And where third-party-beneficiary status is
“doubt[ful],” it too must be denied. 46 Applying that standard, Plains cannot
overcome the presumption against third-party-beneficiary status for two
reasons. 47
40
City of Houston v. Williams, 353 S.W.3d 128, 145 (Tex. 2011).
41
Jody James, 547 S.W.3d at 635.
42
Id.
43
See Corpus Christi Bank & Tr. v. Smith, 525 S.W.2d 501, 505 (Tex. 1975) (“In our
opinion, it appears that the City intended to protect the materialmen and subcontractors
by its contractual requirement for an Article 5160 payment bond, but it does not ‘clearly
appear,’ as required by Citizens that the City intended to make them claimants against the
City on the contract.”).
44
Jody James, 547 S.W.3d at 635.
45
Id.
46
Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011).
47
A third reason exists, too. In its Reply brief, Plains argues for the first time that
TIR’s separate agreement to indemnify it clearly and fully spelled out a benefit under the
Newman–Cypress Employment agreement. But it did not raise that argument before the
district court in its motion to compel arbitration. And it did not raise that argument before
us in its opening brief. But “we have consistently held [that] ‘arguments not raised before
the district court are waived and cannot be raised for the first time on appeal.’” Sindhi v.
Raina, 905 F.3d 327, 333 (5th Cir. 2018) (quoting LeMaire v. La. Dep’t of Transp. & Dev.,
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First, Newman’s incorporated-by-reference Pay Letter did not clearly
and fully spell out that Plains could take legal action if either Newman or
Cypress breached its terms. To the extent that it named Plains at all, the Pay
Letter merely list “Plains-Pipeline” as the “Client.” 48 Further, the Pay
Letter expressly provided that Cypress—not Plains—controlled Newman’s
pay. Cypress only “based” Newman’s pay on his job “classification” and a
separate “agreement” that it had with Plains. And, as the Employment
Agreement makes plain, Newman’s pay could “be changed over time at the
discretion of [Cypress] whether based on changes in job classification or
assignment, changes in [Cypress’s] agreement with [Plains], or otherwise.”
Cypress agrees that it alone controlled Newman’s pay: “Plains paid Cypress
an all-inclusive rate to compensate it for the services it provided; from that
amount, Cypress, in its sole discretion, determined how much to pay each of
its inspectors.” All that is to say, if Cypress unilaterally decided to pay
Newman more or less, or if Newman, for example, failed to submit “a
mileage log” for reimbursement purposes, Plains had no clearly and fully
spelled out right to sue under the Pay Letter.
Second, the Employment Agreement itself did not clearly and fully
spell out that Plains could take legal action if Newman decided to breach its
other terms. For instance, Newman agreed to protect both Cypress’s and
Plains’s “confidential business and trade secrets.” But if he breached that
agreement, the Employment Agreement did not expressly provide Plains the
480 F.3d 383, 387 (5th Cir. 2007)). Further, we “do[] not entertain arguments raised for
the first time in a reply brief [unless] a new issue is raised in the appellee’s brief and the
appellant responds in his reply brief.” United States v. Ramirez, 557 F.3d 200, 203 (5th Cir.
2009). Because Newman did not raise a new issue in his brief warranting this new argument,
we need not address this argument by Plains.
48
Smith’s Pay Letter similarly named “Plains All American” as the “Client”
without further express reference to Plains.
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right to sue Newman. Rather, it provided that such a breach would
“irreparably injure” Cypress by causing it to “violate the confidentiality
provisions [it had] with its customers.” And if Newman so injured Cypress,
then the Employment Agreement expressly contemplated only Cypress, as
the “Employer,” suing Newman in court on “claims for injunctive relief.” 49
Further, Newman and Cypress both agreed that, although Newman’s
“employment [was] based on a specific project to be performed for [Plains],”
Newman’s employment was “at will.” 50 Newman could have walked off the
job “at any time for any reason,” and Cypress could likewise have fired him.
Nowhere did Newman’s Employment Agreement give Plains a clear and
fully spelled out say in any of that.
For those two reasons, Plains was not a third-party beneficiary under
Newman’s Employment Agreement with Cypress. Plains’s contrary
arguments are unpersuasive. Although it reads Newman’s Employment
Agreement like we do, 51 Plains draws a different conclusion from that
reading. It concludes that its express designation as the specific project client
in Newman’s Employment agreement entitled it to third-party-beneficiary
status. Not so.
Plains hangs its hat here on the Texas Supreme Court’s decision in
City of Houston v. Williams. 52 In that case, firefighters sued their city for not
49
Smith’s Employment Agreement similarly provides that Plains as his
“Employer” could “restrain” him from releasing “any trade secrets or confidential
business information.”
50
Smith’s Employment Agreement is substantively identical, providing for an “at
will” relationship that was terminable “with or without cause and for any reason.”
51
Plains also reads Newman’s Employment Agreement to “explicitly state[] that
[his] employment [was] ‘based on a specific project’ and ‘for a designated customer,’”
with the Pay Letter “identifying Plains as that very customer.”
52
353 S.W.3d 128 (Tex. 2011).
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properly paying “lump sums due upon termination of their employment.” 53
In support, the firefighters pointed to two contracts that their union had
negotiated with the city on their behalf. 54 These contracts expressly stated
that one purpose was “to provide certain wages, hours, and conditions of
employment” to the firefighters as the city’s “employee[s].” 55 Though the
firefighters themselves did not sign these agreements, the Supreme Court of
Texas held that the firefighters had standing to sue the city on them as third-
party beneficiaries. 56 Said the Court, the contracts “reflect[ed] an intent to
benefit the firefighters” because the union had a duty to represent and seek
benefits for them; the contracts’ express purpose was to benefit them; and
the contracts limited pay-related benefits to them, as opposed to offering pay
benefits “to the world at large.” 57
This case is not City of Houston. The City of Houston firefighters sued
to enforce specific “guarantees of compensation . . . not promised to the
[c]ity or to the [u]nion,” but to them. 58 In other words, a right was clearly and
fully spelled out for them in the contract. True, the Pay Letter did identify
Plains as the designated customer that Cypress hired Newman to do work
for. But as we already explained, Newman could have literally walked off the
job at any point. If he had, his Employment Agreement with Cypress did not
provide Plains with any clearly and fully spelled out right to recourse.
Newman’s Employment Agreement, at most, conferred a benefit to Cypress
53
Id. at 131.
54
Id.
55
Id. at 146.
56
Id.
57
Id.
58
Id.
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that was incidental and borderline doubtful. That is not enough to confer
third-party-beneficiary status in Texas. 59
B
Plains and Cypress also contend that intertwined-claims estoppel
allows Plains to enforce the Newman–Cypress arbitration agreement.
Newman denies that intertwined-claims estoppel even exists under Texas
law. He argues that the Texas Supreme Court has repeatedly refused to
recognize intertwined-claims estoppel.
Newman does have some support. In In re Merrill Lynch Trust Co.
FSB, the Supreme Court of Texas acknowledged that federal courts had
applied the theory to allow nonsignatories to enforce arbitration
agreements. 60 But it did not decide if the theory existed in Texas. 61 Over a
decade later, the Texas Supreme Court in Jody James Farms, JV v. Altman
Group, Inc. again acknowledged its existence, as well as our Erie-guess that
intertwined-claims estoppel exists in Texas. 62 Yet the Jody James Court again
declined to decide the question since, even if intertwined-claims estoppel did
exist in Texas, the facts did not support its application. 63
Still, our hands are tied. We already made our Erie-guess, 64 and the
Texas Supreme Court has not changed Texas law since. So, the rule of
59
Tawes, 340 S.W.3d at 425.
60
235 S.W.3d 185, 193–94 (Tex. 2007).
61
Cf. id.; see also Jody James, 547 S.W.3d at 639 (“In In re Merrill Lynch Trust Co.,
we acknowledged the existence of this theory without deciding its validity in Texas.”).
62
547 S.W.3d at 639 (citing Hays v. HCA Holdings, Inc., 838 F.3d 605, 612 (5th Cir.
2016)).
63
Id.64
Hays, 838 F.3d at 612.
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orderliness binds us to assume that intertwined-claims estoppel exists in
Texas. 65 Under our Erie-guess, intertwined-claims estoppel applies when:
(1) “a nonsignatory has a ‘close relationship’ with one of the signatories,”
and (2) “the claims are ‘intimately founded in and intertwined with the
underlying contract obligations.’” 66 But that only gets Plains and Cypress so
far. That is because Plains and Cypress do not have a close relationship.
Therefore, Newman is ultimately right that intertwined-claims estoppel does
not apply.
Newman denies that Plains has a close relationship with Cypress. 67 He
points out that, under Texas law, a close relationship is a term of art, generally
requiring formal corporate affiliation. 68 The relationship between a typical
insurance agency and an “independent broker or salesman,” for instance, is
not close enough in Texas. 69 The relationship “must be closer than merely
independent participants in a business transaction.” 70 The test is one of
“consent, not coercion.” 71 Would a reasonable signatory to the arbitration
agreement anticipate being forced to arbitrate claims against the
65
Jacobs v. Nat’l Drug Intelligence Center, 548 F.3d 375, 378 (5th Cir. 2008) (“It is
a well-settled Fifth Circuit rule of orderliness that one panel of our court may not overturn
another panel’s decision, absent an intervening change in the law . . . .”).
66
Hays, 838 F.3d at 612 (quoting Cotton Com. USA, Inc. v. Clear Creek Indep. Sch.
Dist., 387 S.W.3d 99, 105 (Tex. Ct. App. 2012)); Jody James, 547 S.W.3d at 639.
67
Neither Cypress nor Plains contends that Plains has a close relationship with
Newman.
68
See Jody James, 547 S.W.3d at 640 (“The Second Circuit’s [intertwined-claims-
estoppel] cases compelling arbitration typically involve some corporate affiliation between
a signatory and non-signatory, not just a working relationship.”).
69
Id.
70
Id.
71
Id. at 639.
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nonsignatory? 72 On the other hand, we have said that when plaintiffs treat
multiple defendants “as a single unit” in their pleadings, “raising virtually
indistinguishable factual allegations” against them, then that cuts in favor of
a close relationship. 73
Applying that standard here, Cypress and Plains do not have a close
relationship. Cypress and Plains admit they are independent business
entities. And Newman has not treated Cypress and Plains as a “single unit”
in his pleading. In fact, Newman has not even sued Cypress; it intervened.
Still, Cypress and Plains contend that they have a close relationship under
three different theories. None persuade.
First, Plains theorizes that two facts created a close relationship with
Cypress: “Cypress utilized [Newman] specifically to provide services to
Plains” and Newman has “alleged Plains is liable for [his] FLSA claims
based on [the] allegation that Plains is [his] joint employer, along with
Cypress.” Plains relies on a Second Circuit case—Ragone v. Atlantic Video at
Manhattan Center—in support. 74 Because intertwined-claims estoppel
apparently differs between the Second Circuit and Texas law, though, Ragone
does not change our analysis.
In Ragone, a makeup artist worked as an employee for a digital
broadcaster and signed an arbitration agreement with it. 75 The digital
broadcaster provided the makeup artist to one of its clients, a major sports
72
See id. at 640 (“A reasonable consumer would not anticipate being forced to
litigate complains against an independent insurance agent in the same manner they agreed
to litigate disputes with the insurer.”).
73
Hays, 838 F.3d at 612–613.
74
595 F.3d 115 (2d Cir. 2010).
75
Id. at 118.
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network. There, the makeup artist allegedly experienced “pervasive and
continuous sexual harassment.” 76 The sports network never signed the
arbitration agreement. Nor did any document that the makeup artist signed
ever mention the sports network. 77 Yet the Second Circuit held that the
sports network could compel arbitration, under intertwined-claims estoppel,
when the makeup artist sued it. 78 Said the Second Circuit, the digital
broadcaster and the sports network had a close relationship because the
makeup artist “understood [the sports network] to be, to a considerable
extent, her co-employer.” 79
Whatever Ragone’s persuasive force, though, it does not control here.
Our inquiry is governed by Texas law. It is unclear from Ragone what law the
Second Circuit was applying. Some language in the opinion suggests that it
was applying New York law. 80 But when it came to intertwined-claims
estoppel, the Second Circuit cited intra-circuit caselaw without reference to
what New York law requires. 81 So to the extent the Second Circuit relied on
either New York law or federal common law, we cannot follow its lead. The
Supreme Court in Arthur Andersen was clear: State law governs whether an
arbitration agreement is enforceable between parties, and the parties agree
76
Id. at 119.
77
Id.
78
Id. at 127.
79
Id.
80
See id. at 121 (discussing New York’s unconscionability doctrine).
81
See id. at 126–27 (citing Choctaw Generation Ltd. P’ship v. Am. Home Assurance
Co., 271 F.3d 403, 406 (2d Cir. 2001)).
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that Texas law governs. 82 And when it comes to that state law, the Second
Circuit is apparently at odds with Texas.
Specifically, Texas law weighs the nonsignatory’s status as an
independent business against finding a close relationship heavier than the
Second Circuit does. In Merrill Lynch, which we discuss more below, the
Texas Supreme Court explicitly rejected applying equitable estoppel to allow
two nonsignatory subsidiaries to enforce an arbitration agreement their
corporate parent had with the plaintiff. 83 And it did so even after it discussed
intertwined-claims estoppel as a theory that federal courts had applied
before. 84 That stands in contrast to Ragone, where the Second Circuit found
a close relationship between two non-subsidiary, independent businesses.
And here, no party contends that Plains and Cypress were anything but
completely independent businesses, let alone subsidiaries.
Second, Cypress theorizes that it has a close relationship with Plains
based on Newman’s joint-employment theory alone. In support, it relies on
our unpublished decision in Trujillo v. Volt Management Corp. 85 Yet even if
Trujillo were binding, 86 it remains distinguishable.
In Trujillo, a human-resources professional worked as an employee for
a staffing company. The staffing company leased various employees to a
client, with the human-resources professional providing on-site support for
82
556 U.S. at 630–31.
83
See 235 S.W.3d at 191–95.
84
Id. at 193–94.
85
846 F. App’x 233 (5th Cir. 2021) (per curiam).
86
See United States v. Weatherton, 567 F.3d 149, 153 n.2 (5th Cir. 2009) (“[A]n
unpublished opinion issued after January 1, 1996 is not controlling precedent, [though] it
may be considered as persuasive authority.” (citation omitted)).
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their human-resources needs. As part of her employment with the staffing
company, the human-resources professional signed an arbitration agreement.
She did not, however, ever sign one with the client company. When her
request for a disability accommodation was denied, she sued the client
company. 87 We affirmed the district court’s conclusion that the client
company could compel arbitration. 88 In so doing, we necessarily held that a
close relationship existed between the client company and either or both the
human-resources professional and staffing company. 89
Even so, a critical fact was present in Trujillo that is missing here. In
Trujillo, the district court found that “the parties, contracts, and
controversies” were “tight[ly] related.” 90 The district court did not do so
here. Rather, it found that Plains “does not have any of those relationships
with the signatory (Cypress)” that other courts have found to create a close
relationship. As Newman points out, we must review the district court’s non-
application of intertwined-claims estoppel for abuse of discretion. 91 Cypress
points to no other facts that support the district court abused its discretion in
making this finding. Therefore, Plains and Cypress’s second theory is also
unpersuasive.
Third, Plains theorizes that it has a close relationship with Cypress
because TIR—a Cypress subsidiary—“contractually agreed to indemnify
Plains in connection with [Newman’s] FLSA claims.” As an initial matter,
87
Trujillo, 846 F. App’x at 234–35.
88
Id. at 237.
89
See id.90
Id.91
See Grigson, 210 F.3d at 528 (“[W]hether to utilize equitable estoppel in this
fashion is within the district court’s discretion; we review to determine only whether it has
been abused.”).
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Newman contends that Plains waived this argument by not making it below.
It is true that we “will not consider arguments first raised on appeal.” 92
However, Plains’s motion to compel arbitration plainly argued that one of
the reasons it was entitled to intertwined-claims estoppel was because of the
TIR–Plains indemnity agreement. We can, therefore, review this argument.
That does not mean, though, that we are persuaded by it. The
indemnity agreement in this case does not create a close relationship between
Cypress and Plains for the purposes of estopping Newman. Again, a close
relationship is about “consent, not coercion” in Texas. 93 Would a reasonable
signatory to the arbitration agreement anticipate being forced to arbitrate
claims against the nonsignatory? 94 The answer here is no. Between Newman
and his six other co-plaintiffs, all seven signed their Employment Agreements
directly with Cypress—not TIR. The only one of them that TIR even paid
directly was Michael Crain. Cypress admits that it paid the rest. A reasonable
signatory to an arbitration agreement would not foresee that a corporate
subsidiary—with which he has no affiliation—can unilaterally change his
arbitration rights merely by agreeing to indemnify a client. And even for
Crain, who TIR directly paid, Plains cites no caselaw supporting that an
employer can unilaterally expand the scope of its employee’s consent to
arbitrate—especially in an agreement it is not even a party to—by agreeing
to indemnify a third-party client. Therefore, Plains and Cypress’s third
theory is unpersuasive as well.
92
E.g., Estate of Duncan v. Comm’r of Internal Revenue, 890 F.3d 192, 202 (5th Cir.
2018) (citation omitted).
93
Jody James, 547 S.W.3d at 639.
94
See id. at 640 (“A reasonable consumer would not anticipate being forced to
litigate complains against an independent insurance agent in the same manner they agreed
to litigate disputes with the insurer.”).
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C
Finally, Cypress contends that artful-pleading estoppel applies to
allow Plains to enforce the Newman–Cypress arbitration agreement. Its best
case is the Texas Supreme Court’s decision in Merrill Lynch. 95 Newman
disagrees, contending that decision supports him. Artful-pleading estoppel in
Texas requires two things: (1) “naming individual agents of the party to the
arbitration clause and suing them in their individual capacity”96; and (2)
bringing a suit that in “substance” is against those agents’ principal. 97
Neither element is present here. Newman has not named any individual
agent of Cypress’s in his complaint as a defendant. Rather, he has named a
separate business: Plains. Nor is his suit in substance against Plains as a
principal. He is suing Plains directly for its alleged FLSA violations.
Therefore, we agree with Newman: Artful-pleading estoppel does not apply.
The Texas Supreme Court’s application of this rule in Merrill Lynch
only bolsters our analysis. There the Court explicitly distinguished between
suing a principal’s employees and suing its subsidiaries. 98 When it came to
the former, the principal’s arbitration agreement would cover the employees
so long as the suit’s substance covered actions within the course and scope
of their employment. 99 But when it came to the latter, “a contract with one
corporation—including a contract to arbitrate disputes—is generally not a
95
235 S.W.3d 185 (Tex. 2007).
96
Id. at 188 (quoting Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1318 (11th
Cir. 2002) (internal quotations omitted)).
97
Id. at 189.
98
See id. at 194 (“As discussed above with reference to the employees, allowing
litigation to proceed that is in substance against a signatory though in form against a
nonsignatory would allow indirectly what cannot be done directly.”).
99
Id. at 190.
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contract with any other corporate affiliates.” 100 Although one separate
business can, in theory, act as another’s agent, 101 merely acting as a corporate
subsidiary is not enough to invoke artful-pleading estoppel. 102 Since acting as
a corporate subsidiary is not enough to equitably invoke artful-pleading
estoppel in Texas, then it is beyond doubtful that the Texas Supreme Court
would allow a completely separate business do it.
V
Arbitration under the FAA is “a matter of contract.” 103 But judges
continue to play an important role. Where, as here, the parties dispute
whether an enforceable arbitration agreement exists between them, it takes a
court to decide. Applying Texas contract law and equitable doctrines to this
case compels one conclusion: Plains cannot enforce the Newman–Cypress
arbitration agreement. Accordingly, we AFFIRM the district court.
100
Id. at 191 (citations omitted).
101
See id. at 189 (“The commission on this insurance transaction was paid directly
to Merrill Lynch, not Medina; if the latter was acting as an agent for ML Life or ML Trust,
then so was the former.”).
102
Cf. id. at 195 (holding that the subsidiaries could not enforce their parent
corporation’s arbitration agreement with the plaintiff).
103
Henry Schein, 139 S. Ct. at 529 (citing Rent-A-Center, W., Inc. v. Jackson, 561
U.S. 63, 67 (2010)).
23