Julie O'Shaughnessy v. Young Living Essential Oils ( 2020 )

Case: 19-51169 Document: 00515397461 Page: 1 Date Filed: 04/28/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 28, 2020
No. 19-51169
Lyle W. Cayce
Clerk
JULIE O'SHAUGHNESSY, Individually, and on behalf of all others similarly
situated,
Plaintiff - Appellee
v.
YOUNG LIVING ESSENTIAL OILS, L.C., doing business as Young Living
Essential Oils; YOUNG LIVING FOUNDATION, INCORPORATED; MARY
YOUNG, Co-conspirator; JARED TURNER, Co-conspirator; BENJAMIN
RILEY, Co-conspirator,
Defendants - Appellants
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:19-CV-412
Before STEWART, DENNIS, and HAYNES, Circuit Judges.
PER CURIAM:*
Julie O’Shaughnessy filed suit in federal district court against Young
Living Essential Oils, L.C. and related parties 1 (collectively referred to as
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
The named defendants in the suit are: Young Living Essential Oils, L.C., d/b/a Young
1
Living Essential Oils, Young Living Foundation, Inc., Mary Young, Jared Turner, and
Benjamin Riley.
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“Young Living” or “YL”) asserting various claims under the Racketeer
Influenced Corrupt Organizations Act (“RICO”). In response to
O’Shaughnessy’s suit, Young Living Essential Oils and the Young Living
Foundation filed motions to compel arbitration. The district court denied the
motions and Young Living filed this interlocutory appeal. We AFFIRM.
I. Facts & Procedural Background
In 2015, O’Shaughnessy joined Young Living after attending a party
hosted by a friend. Julie joined the company as a member by signing an online
document titled the Young Living Member Agreement (“Agreement”). The
Agreement contains a “Jurisdiction and Choice of Law” clause that provides:
The Agreement will be interpreted and construed in
accordance with the laws of the State of Utah
applicable to contracts to be performed therein. Any
legal action concerning the Agreement will be brought
in the state and federal courts located in Salt Lake
City, Utah.
The Agreement also contains what is commonly known as a “merger clause” or
“integration clause” that reads:
The Agreement constitutes the entire agreement
between you and Young Living and supersedes all
prior agreements; and no other promises,
representations, guarantees, or agreements of any
kind will be valid unless in writing and signed by both
parties.
The Agreement incorporates by reference two other documents: (1) the Policies
and Procedures (“P&Ps”) and (2) the Compensation Plan. 2 O’Shaughnessy was
2 There are multiple, sometimes updated, versions of these three documents
throughout the record on appeal. We have used the versions of the documents that Young
Living submitted as exhibits to its Motion to Compel Arbitration filed in the district court on
June 11, 2019. Although the language occasionally has minor variations among versions, the
substance of the language relevant to this appeal remains the same throughout.
2
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not required to sign either of these online documents. The Compensation Plan
is silent as to dispute resolution. The P&Ps, however, contain an arbitration
clause that states:
If mediation is unsuccessful, any controversy or claim
arising out of or relating to the Agreement, or the
breach thereof, will be settled by arbitration. The
parties waive all rights to trial by jury or to any court.
The arbitration will be filed with, and administered
by, the American Arbitration Association (“AAA”) or
Judicial Arbitration and Mediation Services (JAMS)
under their respective rules and procedures.
...
Notwithstanding the foregoing, nothing in these
Policies and Procedures will prevent either party from
applying to and obtaining from any court having
jurisdiction a writ of attachment, a temporary
injunction, preliminary injunction, permanent
injunction, or other relief available to safeguard and
protect its intellectual property rights and/or to
enforce its rights under the non-solicitation provision
of Section 3.11.1.2. 3
The P&Ps also provide that:
Jurisdiction and venue of any matter not subject to
arbitration will reside in any state or federal court
located in Salt Lake City, Utah, unless the laws of the
state or country in which the member resides
expressly require otherwise, despite this jurisdiction
clause. By signing the Agreement, you consent to
jurisdiction within these two forums. The laws of the
state of Utah will govern disputes involving the
Agreement. 4
The P&Ps do not contain any language to the effect that they supersede or
trump in the event of a conflict with another document.
3 See P&Ps 13.2.2.
4 See P&Ps 13.2.3.
3
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On April 12, 2019, O’Shaughnessy, individually and on behalf of all those
similarly situated, filed a class action suit in the U.S. District Court for the
Western District of Texas against Young Living for damages and other relief
under RICO. See 18 U.S.C. § 1961, et seq. She alleged that “Young Living
operates an illegal pyramid scheme created under the guise of selling essential
oils for quasi-medicinal purposes.” She argued that hundreds of thousands of
putative class members just like her, paid and lost hundreds (and in some cases
thousands) of dollars to become Young Living Essential Rewards enrollees
based on the promise of financial and physical health, through its brand of
essential oils. She contended that Young Living falsely represents to its
members that joining the company—which requires regular monthly
payments—will result in wealth as long as they continue to solicit additional
recruits to become members of the company. In reality, she asserted, Young
Living has “created nothing more than an unlawful pyramid scheme—the
cornerstone of which is Young Living’s emphasis on new member recruitment
over the sale of products.” According to O’Shaughnessy, Young Living’s
activities violate RICO.
On June 11, 2019, Young Living filed two motions to compel arbitration
arguing that the arbitration provision in the P&Ps required the parties to
arbitrate their dispute. O’Shaughnessy responded on June 18, 2019,
countering that an irreconcilable conflict existed between the Jurisdiction and
Choice of Law clause in the Agreement and the arbitration clause in the P&Ps.
On this basis she argued that there was no “meeting of the minds” between the
parties with regard to arbitration. She also contended that any ambiguities in
the contract should be construed against the drafter, Young Living.
The matter was submitted to the magistrate judge who issued a report
and recommendation that the district court deny Young Living’s motions to
4
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compel on grounds that the Jurisdiction and Choice of Law clause 5 in the
Agreement and the arbitration clause in the P&Ps irreconcilably conflicted
with each other and could not be harmonized. Applying Utah contract law, the
magistrate judge concluded that there could not have been a “meeting of the
minds” between the parties with respect to arbitration. The magistrate judge
also noted that, at best, the documents drafted by Young Living were
ambiguous as to any agreement to arbitrate and the ambiguity should be
construed against the drafter. The district court agreed and adopted the
magistrate judge’s report and recommendation for the reasons stated therein.
In its order denying Young Living’s motions to compel, the district court also
dismissed as meritless Young Living’s argument that a paragraph it calls the
“Arbitration Carve-Out” in the P&Ps clarifies that the Jurisdiction and Choice
of Law clause in the Agreement was only intended to cover a sub-set of disputes
not subject to arbitration, implying that all other disputes between the parties
are subject to arbitration.
Young Living filed this interlocutory appeal requesting expedited
consideration so that the appellate proceedings would take place prior to the
class certification proceedings set for July 2020. The district court has now
stayed all proceedings pending the resolution of this appeal.
II. Discussion
We review the district court’s denial of a motion to compel arbitration de
novo. Morrison v. Amway Corp., 517 F.3d 248, 253 (5th Cir. 2008). In ruling on
a motion to compel arbitration, the court must first determine whether the
parties agreed to arbitrate the particular type of dispute at issue. Carey v. 24
Hour Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012). In answering this
question, we consider: “(1) whether there is a valid agreement to arbitrate
5 The magistrate judge often refers to this clause as the Forum Selection Clause.
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between the parties; and (2) whether the dispute in question falls within the
scope of that arbitration agreement.” Id. (quoting JP Morgan Chase & Co. v.
Conegie ex rel. Lee, 492 F.3d 596, 598 (5th Cir. 2007)). The Federal Arbitration
Act reflects a “liberal federal policy favoring arbitration.” CompuCredit Corp.
v. Greenwood, 565 U.S. 95, 98 (2012). This policy, however, “does not apply to
the determination of whether there is a valid agreement to arbitrate between
the parties.” Id. (quoting Morrison, 517 F.3d at 254). Given the Supreme
Court’s determination “that arbitration is a matter of contract,” AT&T Mobility
L.L.C. v. Concepcion, 563 U.S. 333, 339 (2011), courts apply “ordinary state-
law principles that govern the formation of contracts” in determining whether
an agreement to arbitrate is valid. Carey, 669 F.3d at 205. Both parties agree
that Utah law applies in this case.
Utah law provides that “[t]he formation of a contract requires a bargain
in which there is a manifestation of mutual assent to the exchange and a
consideration. Consideration sufficient to support the formation of a contract
requires that a performance or a return promise must be bargained for.” Trans-
Western Petroleum, Inc. v. United States Gypsum Co., 830 F.3d 1171, 1177
(10th Cir. 2016) (quoting Aquagen Int’l, Inc. v. Calrae Tr., 972 P.2d 411, 413
(Utah 1998)). To form “an enforceable contract, there must be a meeting of the
minds on the essential terms of the agreement.” Trans-Western Petroleum, 830
F.3d at 1176 (citing Zaccardi v. Zale Corp., 856 F.2d 1473, 1478 (10th Cir.
1988)); see also Richard Barton Enters., Inc. v. Tsern, 928 P.2d 368, 373 (Utah
1996) (“It is fundamental that a meeting of the minds on the integral features
of an agreement is essential to the formation of a contract.”).
As the Tenth Circuit has observed, “arbitration is a matter of contract
and a party cannot be required to submit to arbitration any dispute which he
has not agreed so to submit.” Spahr v. Secco, 330 F.3d 1266, 1269 (10th Cir.
2003) (see United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574,
6
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582 (1960)). While “the presence of an arbitration clause generally creates a
presumption in favor of arbitration,” ARW Expl. Corp. v. Aguirre, 45 F.3d 1455,
1462 (10th Cir. 1995), the “presumption disappears when the parties dispute
the existence of a valid arbitration agreement.” Bellman v. i3Carbon, L.L.C.,
563 F. App’x 608, 613 (10th Cir. 2014) (citing Dumais v. Am. Golf Corp., 299
F.3d 1216, 1220 (10th Cir. 2002)); see also Riley Mfg. Co., Inc. v. Anchor Glass
Container Corp., 157 F.3d 775, 779 (10th Cir. 1998) (“[W]hen the dispute is
whether there is a valid and enforceable arbitration agreement in the first
place, the presumption of arbitrability falls away.”). “[C]onflicting details in []
multiple arbitration provisions indicate[s] that there [is] no meeting of the
minds with respect to arbitration.” Ragab v. Howard, 841 F.3d 1134, 1138
(10th Cir. 2016).
Here, the district court agreed with the magistrate judge’s conclusion
that there was no “meeting of the minds” between Young Living and
O’Shaughnessy with respect to arbitration. We also agree. The P&Ps,
incorporated by reference into the Agreement, contain the following pertinent
language: “If mediation is unsuccessful, any controversy or claim arising out of
or relating to the Agreement, or the breach thereof, will be settled by
arbitration.” (emphasis added). This language is in direct conflict with the
Jurisdiction and Choice of Law clause in the Agreement that “Any legal action
concerning the Agreement will be brought in the state and federal courts
located in Salt Lake City, Utah.” Additionally, there is no limiting language in
the Jurisdiction and Choice of Law paragraph, or anywhere else in the
Agreement, suggesting that it only applies to disputes not subject to
arbitration. 6 Moreover, the Agreement, and not the P&Ps, contains the merger
6 Other paragraphs in the P&Ps do contain such limiting language so the absence of
this language in the Jurisdiction and Choice of Law clause in the Agreement is telling. See
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clause with language indicating that it supersedes other agreements.
Consequently, our reading of these two conflicting provisions reveals that they
cannot be harmonized.
The Tenth Circuit addressed a situation like this in Bellman v. i3Carbon,
L.L.C., 563 F. App’x at 610. In Bellman, there were conflicting provisions in
the Operating Agreement and the Subscription Agreement between the
parties. Id. The Operating Agreement contained an arbitration clause stating
that disputes of any kind were to be arbitrated while the Subscription
Agreement contained a forum selection provision that disputes “shall be
adjudicated by a court of competent civil jurisdiction sitting in Denver,
Colorado and nowhere else.” Id. A dispute arose, and the defendants filed a
motion to compel arbitration. Id. at 609. The district court denied the motion
and the Tenth Circuit affirmed concluding that the “[d]efendants have failed
to carry their burden of showing that an enforceable arbitration agreement
exists . . . While the Operating Agreement provided for arbitration, the
Subscription Agreement did not. In our view, the documents . . . do not
demonstrate a meeting of the minds regarding arbitration.” Id. at 614. 7
The Tenth Circuit addressed another similar fact-pattern in Summit
Contractors, Inc. v. Legacy Corner, L.L.C., 147 F. App’x 798 (10th Cir. 2005).
There, the parties entered into a construction contract that contained a clause
providing for arbitration of “[a]ny Claim arising out of or related to the
Contract.” Id. at 799. The parties also signed an agreement that contained a
“Choice of Forum” clause stating that “Any suit, action or proceeding with
P&Ps 13.2.3 (“Jurisdiction and venue of any matter not subject to arbitration will reside in
any state or federal court located in Salt Lake City, Utah[.]”).
7 Although not dispositive, the court noted that the subscription agreement, which
contained the forum selection provision, contained both parties’ signatures while the
operating agreement, which contained the arbitration clause, only contained the defendants’
signatures. Id. at 611.
8
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respect to this Agreement shall be brought in a court located in Oklahoma
County, Oklahoma.” Id. at 800. Again, the Tenth Circuit affirmed the district
court’s order denying the contractor’s motion to compel arbitration. Id. at 802.
It explained that
the Agreement’s choice-of-forum clause is compelling
evidence against an intent to arbitrate breaches of the
Agreement. It states that “[a]ny suit, action or
proceeding with respect to this Agreement shall be
brought in a court located in Oklahoma County,
Oklahoma.” Given the express language of the
documents, we hold that the parties did not intend to
arbitrate disputes arising under the Agreement.
Id. (emphasis in original) (internal citations omitted) (citing Spahr, 330 F.3d
at 1269 (“[A] party cannot be required to submit to arbitration any dispute
which he has not agreed so to submit.”) (citation omitted)).
The same logic the Tenth Circuit applied in Bellman and Summit
Contractors is persuasive here. 8 O’Shaughnessy signed one document provided
to her by Young Living—the Agreement. The Agreement is roughly two pages
and contains the following language with respect to dispute resolution:
Jurisdiction and Choice of Law
The Agreement will be interpreted and construed in
accordance with the laws of the State of Utah
applicable to contracts to be performed therein. Any
legal action concerning the Agreement will be brought
in the state and federal courts located in Salt Lake
City, Utah.
8 Although the Tenth Circuit applied Colorado contract law in Bellman and Oklahoma
contract law in Summit Contractors, for purposes of this appeal there is no significant
distinction between these and Utah contract law.
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(emphasis added). As the court observed in Summit Contractors, this language
is “compelling evidence against an intent to arbitrate breaches of the
Agreement.” Id. at 802.
Nevertheless, as Young Living points out, courts often uphold
agreements incorporating by reference other unsigned documents on grounds
that contracts are to be construed in a way that gives effect to all of their
incorporated parts. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514
U.S. 52, 63 (U.S. 1995) (“[A] document should be read to give effect to all its
provisions and to render them consistent with each other.”); Pers. Sec. & Safety
Sys. Inc. v. Motorola Inc., 297 F.3d 388, 395-96 (5th Cir. 2002) (reading the
arbitration provision and forum selection clause together and noting that
“[w]hen several documents represent one agreement, all must be construed
together in an attempt to discern the intent of the parties, reconciling
apparently conflicting provisions and attempting to give effect to all of them, if
possible.” (quoting Richland Plantation Co. v. Justiss–Mears Oil Co., Inc., 671
F.2d 154, 156 (5th Cir. 1982))). Citing to these cases, Young Living argues that
because the Agreement and the P&Ps can be harmonized, this court should
enforce the arbitration clause in the P&Ps. See Wease v. Ocwen Loan Servicing,
L.L.C., 915 F.3d 987, 993 (5th Cir. 2019) (“We must ‘examine and consider the
entire writing in an effort to harmonize and give effect to all the provisions of
the contract so that none will be rendered meaningless.’” (quoting Italian
Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex.
2011))). In support of its position, Young Living directs us to language in the
arbitration clause that it refers to as the “Arbitration Carve-Out.” It reads as
follows:
Notwithstanding the foregoing, nothing in these
Policies and Procedures will prevent either party from
applying to and obtaining from any court having
jurisdiction a writ of attachment, a temporary
10
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injunction, preliminary injunction, permanent
injunction, or other relief available to safeguard and
protect its intellectual property rights and/or to
enforce its rights under the non-solicitation provision
of Section 3.11.1.2.
According to Young Living, this paragraph “specifically excepts a subset of
disputes from the [arbitration clause].” Young Living argues that the presence
of this “carve-out” means that the Agreement contemplates both litigation and
arbitration. So, Young Living avers, we should read the Forum Selection
Clauses as only dictating the selected forum for disputes under the Agreement
that are not subject to arbitration. Again, we disagree.
First, the Jurisdiction and Choice of Law clause in the Agreement does
not contain any limiting language indicating that it only applies to disputes
not covered by arbitration. In fact, nowhere in the Agreement is the word
“arbitration” even mentioned. Second, the arbitration clause in the P&Ps
remains in total conflict with the Jurisdiction and Choice of Law provision in
the Agreement and the “Arbitration Carve-Out” does nothing to reconcile that
conflict. The arbitration clause’s exemption of certain litigatory rights from its
purview does not cure its inherent conflict with the Jurisdiction and Choice of
Law provision. The two provisions irreconcilably conflict and for this reason,
we agree that there was no “meeting of the minds” with respect to arbitration
in this case. See United Steelworkers, 363 U.S. at 582 (“[A]rbitration is a matter
of contract and a party cannot be required to submit to arbitration any dispute
which he has not agreed so to submit.”); Richard Barton Enters., Inc., 928 P.2d
at 373 (“An agreement cannot be enforced if its terms . . . demonstrate that
there was no intent to contract.”).
Finally, citing Edwards v. Doordash, Inc., 888 F.3d 738 (5th Cir. 2018),
Young Living argues that “because the Agreement contains a valid and
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enforceable delegation clause, this [c]ourt must compel arbitration.” In that
case we explained that
A court makes two determinations when deciding a
motion to enforce an arbitration agreement. First, the
court asks whether there is a valid agreement to
arbitrate and, second, whether the current dispute
falls within the scope of a valid agreement. If the party
seeking arbitration argues that there is a delegation
clause, the court performs the first step—“an analysis
of contract formation”—“[b]ut the only question, after
finding that there is in fact a valid agreement, is
whether the purported delegation clause is in fact a
delegation clause.” “If there is a delegation clause, the
motion to compel arbitration should be granted in
almost all cases.”
Id. at 743-44 (internal citations omitted). Given our determination, however,
that there is no valid agreement to arbitrate between the parties, we do not
reach the secondary issue of the scope of the arbitration agreement and the
effect of the delegation clause on the analysis of that issue. See Carey, 669 F.3d
at 205 (noting that in ruling on a motion to compel arbitration, the court
considers first whether there is a valid agreement to arbitrate and second
whether the dispute in question falls within the scope of that arbitration
agreement).
III. Conclusion
For the aforementioned reasons, the district court’s order denying
Appellants’ motions to compel is AFFIRMED.
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