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Davis v. Vanguard Home Care, LLC

United States District Court, N.D. Illinois, Eastern Division

November 22, 2016

SCHARMAINE DAVIS, on behalf of herself, individually, and on behalf of all others similarly situated, Plaintiff,



         Before the court is Defendants' Motion to Dismiss and Compel Compliance with Open Door and Fair Treatment Process and Arbitration. Plaintiff contends that the Seventh Circuit's decision in Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016) is controlling and requires the denial of Defendants' Motion. Defendants Vanguard Home Care, LLC, VHS of Illinois, Inc., and Vanguard Health Systems, Inc. (collectively “Defendants” or “Vanguard”), contend that Lewis is inapplicable because plaintiff Scharmaine Davis (“Plaintiff” or “Davis”) does not challenge an arbitration clause alone (presumably Vanguard would concede that Lewis would control if that were the case) but challenges the entire Fair Treatment Process (“FTP”). Since Davis is attacking an entire dispute resolution contract and not just an arbitration provision, Vanguard argues, the court must grant the motion to dismiss in favor of arbitration, and Davis must make her arguments about the arbitration bar in Lewis before an arbitrator.[1]


         Davis alleges in her class-action complaint that Defendants have systematically wrongly classified her and other similarly situated home health care clinicians as exempt from the overtime compensation requirements of the Fair Labor Standards Act (“FLSA”) and the Illinois Minimum Wage Law (“IMWL”). Further, Davis alleges that Defendants failed to keep accurate records of the hours worked by Davis and other class members. Davis' complaint thus pleads a typical FLSA action.

         According to the affidavit of Donna Sierzega McNally (ECF No. 31-1), provided in support of the instant Motion, all Vanguard employees, including Davis, are subject to Vanguard's Tenet[2] Employee Handbook, which includes an “independent Open Door and Fair Treatment Process (“FTP”).” (McNally Aff. ¶ 6, ECF No. 31-1.) McNally avers that Davis completed an internal training module on the Handbook, and electronically signed an acknowledgement statement on July 28, 2014. (See Certificate of Completion, ECF No. 31-1 at Page ID 331.) Under this program, before an employee can take a dispute to individual binding arbitration (as described more fully below, class litigation is prohibited) “he or she is encouraged to use the Company's Open Door Policy, ” which involves “discussing any problems, concerns or disputes with the relevant supervisor.” (McNally Aff. ¶ 6, ECF No. 31-1.) If this informal Open Door Policy does not resolve the employee's problem, “employees are then invited to initiate the more formal FTP process.” (Id. ¶ 7.) The FTP process thus involves five steps: (1) submit dispute to supervisor via FTP Dispute Resolution Form; (2) appeal supervisor's decision to department head using Step 2 of FTP Dispute Resolution Form; (3) appeal department head's decision to administration by completing Step 3 of the FTP Dispute Resolution Form; (4) appeal administration's decision by submitting the problem to the FTP Committee; and (5) if the employee does not agree with the decision reached at Step 4, he or she may submit the dispute to binding arbitration. (Id.) According to Ms. McNally's affidavit, Vanguard's records show no attempt on Davis' part to pursue her claims through the FTP. (Id. ¶ 10.) Davis does not argue to the contrary.

         With respect to the issue of class litigation, Vanguard's Tenet policy statement entitled “Open Door Policy and Fair Treatment Process, ” effective November 21, 2013, states that “[t]he parties specifically agree that no employee's dispute may be joined with the dispute of another employee in a class, collective or group actions [sic]. The FTP's arbitration process is limited to individual disputes, claims or controversies that a court of law would be authorized or have jurisdiction over [sic] to grant relief and that in any way arise out of, relate to or are associated with the individual employee's employment with the Company or termination of employment.” (ECF No. 31-1 at Page ID 144.) The acknowledgement form accompanying Vanguard's employee handbook revised September 18, 2012, which an employee must electronically sign, recites that “I understand that final and binding arbitration will be the sole and exclusive remedy for [any and all claims and disputes that are related in any way to my employment or the termination of my employment] . . . and, that to the extent permitted by law, I may not join any such claim or dispute with the dispute of another employee in a class, collective, representative or group action.” (Id. at Page ID 322.)


         In Lewis v. Epic Systems Corp., 823 F.3d 1147, 1161 (7th Cir. 2016), the Seventh Circuit held that a motion to enforce an arbitration clause that “precludes employees from seeking any class, collective, or representative remedies to wage-and-hour disputes” must be denied because the clause “violates Sections 7 and 8 of the NLRA.” Section 7 of the NLRA, Lewis reasons, provides that employees have the right to engage in concerted activities, and concerted activities “have long been held to include ‘resort to . . . judicial forums.'” Id. at 1152 (quoting Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978)). A lawsuit filed by a group of employees to achieve more favorable employment terms or conditions is concerted activity. Id. A provision that claims covered by the NLRA may be arbitrated only on an individual basis violates Section 7 rights. Id. at 1155.

         Lewis applies here. Under Lewis, an agreement prohibiting class litigation and requiring individual arbitration is a per se violation of the NLRA and cannot be legalized, even if the contract was entered into without coercion. Id. at 1155. Where, as in the case at bar, an arbitration provision is a condition of continued employment (“An employee's decision to accept employment or to continue employment constitutes his or her agreement to be bound by the FTP, ” Open Door Policy, ECF No. 31-1 at Page ID 141), a mandatory arbitration provision interferes with or restrains employees in the exercise of their NRLA rights. Lewis, 823 F.3d at 1156 (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006)).

         A. The Parties' Dispute Over Lewis Is Not Arbitrable

         Vanguard maintains that Davis' contentions about Lewis must themselves be submitted to an arbitrator because she purportedly challenges the validity of the “Open Door Policy and Fair Treatment Process” as a whole. The plaintiffs in Buckeye Check Cashing took the position that the contract containing the arbitration clause the defendants sought to enforce was void “as a whole (including its arbitration provision)” because it contained a “usurious finance charge.” Buckeye Check Cashing, 546 U.S. at 444 (alteration in original). The Buckeye court distinguished between two types of challenges: (1) “challenges specifically [to] the validity of the agreement to arbitrate;” and (2) “challenges [to] the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid.” Id. (citation and footnote omitted). An arbitration clause may be severable from the remainder of the contract, and if the legality of the contract in its entirety, rather than “the arbitration clause itself” is at issue, that question goes to the arbitrator. Id. at 444-45, 449. As used here, the concept of severability means that a provision of an arbitration agreement “may be valid even if the rest of the contract is invalid.” Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir.1985). Here, however, Davis' claims under Lewis need not be arbitrated for two reasons.

         First, unlike the contract in Buckeye Check Cashing, the FTP document in the record includes no delegation clause. A delegation clause refers questions of “arbitrability to an arbitrator.” Lee v. Uber Technologies, Inc., No 15 C 11756, 2016 WL 5417215, at *2 (N.D. Ill. Sept. 21, 2016). Vanguard asserts that this the question of whether the “Open Door Policy and Fair Treatment Process” contains a delegation clause must also be sent to an arbitrator, but as the Seventh Circuit has recently reiterated, “[c]ourts, not arbitrators, are charged with deciding “gateway matters, such as whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy.” Wis. Local Gov't Prop. Ins. Fund v. Lexington Ins. Co., No. 15-1973, 2016 WL 6134857, at *2 (7th Cir. Oct. 21, 2016) (quoting Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452 (2003)) (citation omitted). The “Open Door Policy and Fair Treatment Process” Vanguard seeks to enforce includes a list of examples of claims it covers, but questions of the FTP's scope, validity, and enforceability do not appear among them. (See ECF No. 31-1 at 2.) Vanguard points to no language in the FTP policy delegating a dispute over scope, validity, or enforceability to an arbitrator. It instead argues that, under Buckeye Check Cashing, any claim that calls the validity of a contract as a whole into question must always be arbitrated. Even assuming, for the sake of argument only, that Davis challenges the contract as a whole rather than the validity of the arbitration clause, Vanguard's argument sidesteps the fact that the contract at issue in Buckeye Check Cashing included a delegation clause. See 546 U.S. at 442 (delegating to arbitrator “[a]ny claim, dispute, or controversy . . . arising from or relating to this agreement . . . or the validity, enforceability, or scope of this Arbitration Provision or the entire Agreement” (ellipses in original)). The FTP policy at issue here has no clause delegating questions of its scope, validity, or enforceability to an arbitrator, and Davis' claims under Lewis remain for the court to resolve. See, e.g., Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 307-08 (2010) (refusing to enforce arbitration provision because clause requiring arbitration of claims “arising under” agreement did not reach dispute over when the agreement was formed).[3]

         Second, assuming for the sake of argument that the FTP is a standalone arbitration contract, Davis does not seek to invalidate the FTP process in its entirety by invoking Lewis. That the underlying contract on which a motion to compel arbitration is based is an arbitration agreement, rather than some other kind of contract, “makes no difference. Application of the severability rule does not depend on the substance of the remainder of the contract.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 72 (2010) (footnote omitted) (analyzing severability of terms of arbitration contract). Here, Vanguard seeks an order “directing Ms. Davis to resolve her claims through the FTP, up to and including final and binding arbitration.” (ECF No. 31 at 10.) Like Davis, the plaintiff in Lewis sought to avoid a self-contained arbitration agreement under the NLRA. See 823 F.3d at 1151. Vanguard's severability arguments would apparently apply to the arbitration agreement in Lewis as well, yet though severability was not discussed, the Lewis court found the arbitration agreement there unenforceable. Vanguard makes no effort to distinguish Lewis on severability grounds. The flaw in the agreement in Lewis did not infect the entire arbitration agreement; it concerned only the preclusion of a plaintiff's ability to proceed collectively. That is, it was severable in the sense of that word as used by the Supreme Court in cases like Buckeye Check Cashing, even though the plaintiff there completely avoided arbitration of his collective claims. See Rent-A-Center, 561 U.S. at 72 n.3 (finding delegation clause and clause requiring arbitration of substantive disputes to be severable); see also Matterhorn, Inc., 763 F.2d at 868-69 (discussing purpose of severability doctrine). The terms of the “Open Door Policy and Fair Treatment Process” precluding employees from proceeding collectively can be severed from the terms governing arbitration of purely individual claims as cleanly as the terms invalidated in Lewis. As such, the result in Lewis obtains here as well.

         B. The Parties Have Not Briefed the Effect of L ...

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