United States District Court, D. Columbia.
C.J. MERCADANTE, et al., Plaintiffs
XE SERVICES, LLC, et al., Defendant
For C. J. MERCADANTE, ROBERT BIDDLE, JOHNNY JEFFERSON, PHILLIP W. OHARA, Individually and on behalf of Similarly situated persons, Plaintiffs: Michael J. Trevelline, LEAD ATTORNEY, LAW OFFICES OF MICHAEL TREVELLINE, Washington, DC; Scott J. Bloch, LEAD ATTORNEY, LAW OFFICES OF SCOTT J. BLOCH, PA, Washington, DC.
For XE SERVICES, LLC, U.S. TRAINING CENTER, INC., BLACKWATER SECURITY CONSULTING, LLC, BLACKWATER WORLDWIDE, BLACKWATER TRUST AND PLAN TRUSTEES, Defendants: Rene E. Thorne, LEAD ATTORNEY, JACKSON LEWIS LLP, New Orleans, LA; Charles F. Seemann, III, PRO HAC VICE, JACKSON LEWIS LLP, New Orleans, LA; Matthew F. Nieman, JACKSON LEWIS LLP, Reston, VA.
COLLEEN KOLLAR-KOTELLY, United States District Judge.
Plaintiffs C.J. Mercadante, Robert Biddle, Johnny Jefferson, and Phillip W. OHara (collectively " Plaintiffs" ) brought this action on their own behalf and on behalf of a putative class against Defendants XE Services, LLC; U.S. Training Center, Inc.; USTC Security Consulting, LLC f/k/a Blackwater Security Consulting, LLC; and Blackwater Worldwide Trust, Health and Welfare Plan and Trustees (collectively, " Defendants" or " Blackwater" ). Plaintiffs assert a series of claims--including breach of contract, fraud, and breach of fiduciary duty under the Employment Retirement Income Security Act of 1974--and allege, among other things, that they were misclassified as independent contractors and denied various employment benefits. See First Am. Compl. for Damages & Declaratory & Injunctive Relief & Class Relief (" First Am. Compl." ), ECF No. 11. Presently before the Court is Defendants'  Second Renewed Motion to Compel Arbitration. Upon consideration of the pleadings, the relevant legal authorities, and the record as a whole, the Court GRANTS Defendants' motion. The Court concludes that the parties have delegated the authority to determine questions of arbitrability to an arbitrator and that the delegation agreement survives Plaintiffs' challenges to its validity. Having resolved this gateway question, the remainder of Plaintiffs' arguments are for an arbitrator--not the Court--to consider. Accordingly, this action is STAYED during the pendency of the arbitration.
The question before the Court is whether the parties have delegated to an arbitrator--through a valid delegation agreement--the question of whether the underlying claims brought by Plaintiffs are arbitrable. Because the Court resolves that gateway question in the affirmative, concluding that the parties have validly delegated questions of arbitrability to an arbitrator, the Court recites only the background that informs the Court's answer to that gateway question.
A. Factual Background
Between 2006 and 2009, each plaintiff served as a security contractor in Iraq or Afghanistan under contracts that Blackwater held with the U.S. Department of State. See Mercadante Decl. ¶ 2; Biddle Decl. ¶ 2; OHara Decl. ¶ 2; Jefferson Decl. ¶ 2; Defs.' Supp. Statement ¶ ¶ 62, 108, 144, 194. Each plaintiff signed an Independent Contractor Service Agreement (ICSA) with Blackwater. See Defs.' Statement of Undisputed Material Facts in Support of Defs.' Supp. Br., ECF No. 38-1 (" Defs.' Supp. Statement" ), ¶ 31 (Plaintiff Mercadante); id. ¶ 77 (Plaintiff Biddle); id. ¶ 119 (Plaintiff OHara); id. ¶ 154 (Plaintiff Jefferson). Plaintiffs' claims pertain to their work for Blackwater in this period and primarily revolve around their argument that they were inappropriately categorized as independent contractors rather than as employees. See First Am. Compl, ¶ ¶ 12, 21.
Each ICSA includes an identical arbitration clause. See Pls.' Response to Defs.' Statement of Undisputed Material Facts (" Pls.' Response Facts" ), ¶ ¶ 41 (Mercadante), 76 (Biddle), 125 (OHara), 157 (Jefferson's first ICSA); 163 (Jefferson's second ICSA). The clause reads in full:
Law/Exclusive Venue/Arbitration. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina, applicable to contracts made and to be fully performed therein, excluding its conflict of laws principles; provided, however, to the extent that BSC [Blackwater Security Consulting, LLC] provides DBA Insurance to Contractor and Contractor's Group, Contractor and Contractor's Group hereby agree that the remedies and benefits provided by the United States Department of Labor shall be the sole and exclusive remedies in place of all other liability of BSC; provided further, that to the extent an action is brought on behalf of Contractor or Contractor's Group, regardless of what is plead in any complaint, Contractor waives the right to any venue other than the United States Department of Labor or a federal court with jurisdiction to review such matters. Contractor and BSC hereby agree that any dispute regarding interpretation or enforcement of any of the parties' rights or obligations
under this Agreement shall be resolved by binding arbitration according to the rules of the American Arbitration Association. Proceeding to arbitration and obtaining an award thereunder shall be a condition precedent to the bringing or maintaining of any action in any court with respect to any dispute arising under this Agreement, except for the institution of a civil action of a summary nature where the relief sought is predicated on there being no dispute with respect to any fact or relief of an injunctive nature. Contractor hereby waives any rights to seek removal of any dispute to the state or federal courts.
Id. (emphasis added). The rules of the American Arbitration Association (" AAA" ) provide for an arbitrator to decide questions of arbitrability. See AAA Employment Arbitration Rules and Mediation Procedures, Rule 6. Three of the plaintiffs--Mercadante, OHara, and Jefferson--acknowledge that the initials on the pages that include the arbitration clause are theirs; Plaintiff Biddle stated that he did not know whether the initials on those pages were his. Defs.' Supp. Statement ¶ 32 (Mercadante); id. ¶ 120 (OHara); id. ¶ ¶ 155, 165 (Jefferson); id. ¶ 78 (Biddle). The parties dispute the circumstances that surround the signing of ICSAs, including the dates on which the ICSAs were signed. See, e.g., Pls.' Response Facts ¶ 10.
Each plaintiff also signed one or more additional " schedules" providing further details about each plaintiff's assignment, which were dated after the ICSAs. Each schedule includes the following language:
This Schedule  is incorporated into and made part of that certain agreement entitled " Independent Contractor Service Agreement" between Blackwater and Contractor. All other terms and conditions of the Independent Contractor Service Agreement shall remain unchanged.
Defs.' Supp. Statement ¶ 47-48 (Mercadante's Schedule 3.1 -- Compensation Policy). See id. ¶ ¶ 52, 55 (Mercadante's Schedule A -- Engagement Specific Information); id. ¶ ¶ 94-95 (Biddle's Schedule 3.1; id. ¶ ¶ 98-99 (Biddle's second Schedule 3.1); id. ¶ 104 (Biddle's Schedule A); id. ¶ 134 (OHara's first Schedule A); id. ¶ 143 (OHara's second Schedule A); id. ¶ ¶ 174, 178 (Jefferson's Schedule 3.1); id. ¶ ¶ 183-84 (Jefferson's first Schedule A); id. ¶ ¶ 188-89 (Jefferson's second Schedule A). While some of the plaintiffs acknowledge having read this statement regarding incorporation in the ICSA when signing the schedules, others deny having read it. See Defs.' Supp. Statement ¶ ¶ 47, 50, 55, 94, 135, 141, 179, 184, 189.
B. Procedural History
Plaintiffs filed a Complaint for Damages and Injunctive and Class Relief. Defs.' Statement of Undisputed Material Facts in Support of Defs.' Supp. Br., ECF No. 38-1 (" Defs.' Supp. Statement" ), ¶ ¶ 1-2. Defendants moved to compel arbitration. Id. ¶ 3. On May 22, 2012, the Court denied that motion without prejudice. See Memorandum Opinion and Order, ECF No. 20 (" 2012 Mem. Op. & Order" ), at 1. The Court reasoned that, because Defendants had argued for the first time in their reply brief that the parties had delegated the question of arbitrability to an arbitrator, " Defendants deprived Plaintiffs of an opportunity to render a meaningful response." Id. at 5. The Court denied the motion to compel arbitration without prejudice in order to be able to consider a renewed motion to compel with the benefit of additional briefing " on the question of whether Defendants may invoke the delegation agreement in this case in order to compel the arbitration on gateway questions of arbitrability." Id. The Court also
ordered the parties not to incorporate arguments from prior submissions. Id. at 5-6.
After considering the parties' additional briefing with respect to Defendants'  Second Renewed Motion to Compel Arbitration, the Court concluded that " additional fact development on the narrow question of contract formation is appropriate." Order, dated April 22, 2013, ECF No. 29 (" 2013 Order" ), at 7. Accordingly, the Court ordered limited discovery on that narrow question and set a schedule for subsequent additional briefing. Id. at 8. The Court once again ordered the parties not to incorporate by reference arguments from previous submissions. See id. at 9. The Court is now considering that briefing. On November 17, 2014, the Court asked the parties for additional briefing limited to the impact of Torrence v. Nationwide Budget Finance, 753 S.E.2d 802 (N.C.App. 2014), on the unconscionability analysis that the Court must conduct. The Court will consider the briefing in response to that request, as well.
II. LEGAL STANDARD
A. Motion to Compel
A motion to compel arbitration is treated as " a request for summary disposition of the issue of whether or not there had been a meeting of the minds on the agreement to arbitrate." Aliron Int'l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863, 865, 382 U.S.App.D.C. 134 (D.C. Cir. 2008); see also Haire v. Smith, Curie & Hancock LLP, 925 F.Supp.2d 126, 129 (D.D.C. 2013). " Under Rule 56(c), summary judgment is appropriate only if 'there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.'" Aliron Int'l, 531 F.3d at 865 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). " The party seeking to compel arbitration must 'present evidence sufficient to demonstrate an enforceable agreement to arbitrate.'" Haire, 925 F.Supp.2d at 129 (quoting Hill v. Wackenhut Servs. Int'l, 865 F.Supp.2d 84, 89 (D.D.C. 2012)). " The burden then shifts to plaintiffs to show that there is a genuine issue of material fact as to the making of the agreement." Id. " The Court will compel arbitration if the pleadings and the evidence show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id. (quoting Fox v. Computer World Servs. Corp., 920 F.Supp.2d 90, 96 (D.D.C. 2013)).
B. Challenges to Arbitrations Clauses
" [P]arties can agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). " [T]he question 'who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter. Did the parties agree to submit the arbitrability question itself to arbitration?" First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). " The question whether the parties have submitted a particular dispute to arbitration, i.e., the ' question of arbitrability ,' is 'an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'" Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); First Options, 514 U.S. at 944) (emphasis in original)).
Section 2 of the Federal Arbitration Act (" FAA" ) " create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (U.S. 1983). " To the extent there are conflicts between state arbitration law and the FAA that would contravene the pro-arbitration policies embodied in the FAA, the FAA applies and preempts such state laws." Haire, 925 F.Supp.2d at 130 (citing Preston v. Ferrer, 552 U.S. 346, 360-63, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008)). " An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Rent-A-Center, 561 U.S. at 70. Under section 2, such an agreement is valid " save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.
" '[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.'" Rent-A-Center, 561 U.S. at 70-71 (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006)). " [A] a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate." Id. at 70. Similarly, a challenge to the validity of an arbitration provision rather than to a delegation provision does not prevent a court from enforcing a specific agreement to delegate questions of arbitrability to an arbitrator. See id. at 71-72; accord Brennan v. Opus Bank, No. 2:13-CV-00094-RSM, 2013 WL 2445430, at *6-7 (W.D. Wash. June 5, 2013) (" It is only when a party challenges the delegation provision itself that the district court intervenes." ) However, before an arbitrator can determine the question of arbitrability, the Court must consider any challenges to the validity of the delegation provision. See Rent-A-Center, 561 U.S. at 71-75; cf. id. at 71 (" If a party challenges the validity under § 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under § 4." ). Such challenges, pursuant to the applicable state law, include contract defenses such as fraud in the inducement, duress, and unconscionability. See id. at 68, 70, 73.
The Court first considers whether the parties have agreed to delegate to an arbitrator questions of arbitrability. The
Court concludes that they have done so. The Court then considers Plaintiffs' challenges to the validity of those delegation agreements. The Court evaluates these challenges pursuant to North Carolina law, and concludes that none of them succeed. Accordingly, the Court compels the arbitration of the question of arbitrability.
A. Delegation of Arbitrability
" The question whether the parties have submitted a particular dispute to arbitration, i.e., the ' question of arbitrability ,' is 'an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'" Howsam, 537 U.S. at 83 (quoting AT & T Technologies, Inc., 475 U.S. at 649; First Options, 514 U.S. at 944). Defendants argue that the parties have clearly and unmistakably submitted questions of arbitrability to an arbitrator by virtue of the incorporation of the rules of the American Arbitration Association in the ICSAs. Plaintiffs argue that the incorporation of these rules is insufficient to satisfy the " clear and unmistakable" standard. The Court agrees with Defendants that the parties have " clearly and unmistakably" submitted questions of arbitrability to an arbitrator.
The arbitration provision in each plaintiff's ICSA states that " any dispute regarding interpretation or enforcement of any of the parties' rights or obligations under this Agreement shall be resolved by binding arbitration according to the rules of the American Arbitration Association." Pls.' Response Facts ¶ ¶ 41 (Mercadante), 76 (Biddle), 125 (OHara), 157 (Jefferson's first ICSA); 163 (Jefferson's second ICSA). The AAA Employment Arbitration Rules and Mediation Procedures, in turn, provide for the arbitrator to rule on questions of arbitrability. See AAA Employment Arbitration Rules and Mediation Procedures, Rule 6. Although the D.C. Circuit Court of Appeals has not yet directly addressed the question of whether the incorporation of the AAA rules constitutes clear and unmistakable evidence of the parties' intent to delegate questions of arbitrability to an arbitrator, see Haire, 925 F.Supp.2d at 132, numerous other circuits have done so and have concluded that " incorporation of the AAA rules constitutes clear and unmistakable evidence that the parties intended the question of arbitrability be answered by an arbitrator."
Id.; see, e.g., Awuah v. Coverall N. Am., Inc., 554 F.3d 7, 11-12 (1st Cir. 2009); Agere Sys., Inc. v. Samsung Elecs. Ltd., 560 F.3d 337, 339-40 (5th Cir. 2009); Fallo v. High-Tech Inst., 559 F.3d 874, 877-78 (8th Cir. 2009); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1372-73 (Fed. Cir. 2006); Contec Corp. v. Remote Solution Co., Ltd., 398 F.3d 205, 208 (2d Cir. 2005); Terminix Int'l Co., LP v. Palmer Ranch Ltd., 432 F.3d 1327, 1332-33 (11th Cir. 2005). Indeed, a " recent D.C. Circuit opinion strongly suggests that the D.C. Circuit would view incorporation of the AAA Rules as satisfying the requisite standard." Haire, 925 F.Supp.2d at 132 (citing Rep. of Argentina v. BG Group PLC, 665 F.3d 1363, 1371, 398 U.S.App.D.C. 500 (D.C. Cir. 2012)). Others courts in this district have also concluded that the incorporation of the AAA rules is clear and unmistakable evidence of an agreement to delegate questions of arbitrability to an arbitrator. See, e.g., id. at 133; Oehme, van Sweden & Assocs., Inc. v. Maypaul Trading & Servs., 902 F.Supp.2d 87, 97 (D.D.C. 2012); Grynberg v. BP P.L.C., 585 F.Supp.2d 50, 54 (D.D.C. 2008). Accordingly, the Court concludes that the incorporation of the AAA rules constitutes clear and unmistakable evidence of the delegation of questions of arbitrability to an arbitrator.
Plaintiffs also argue that " Plaintiff-Contractors may bring an action in federal court regardless of what is plead in any complaint," relying on the phrase " regardless of what is plead in any complaint" in the sentence preceding the arbitration provision in the ICSAs. Pls.' Supp. Mem. at 15 (emphasis in original). The Court addresses this argument here because, if Plaintiffs were correct, this language would undermine the clear and unmistakable evidence of the parties' delegation of questions of arbitrability to an arbitrator. In fact, however, the cited phrase has no relevance to the question of arbitrability; it only pertains to the provision in the ICSA stating that disputes pertaining to DBA insurance, the workers compensation scheme pursuant to the Defense Base Act (" DBA" ), must be adjudicated in the " the United States Department of Labor or a federal court with jurisdiction to review such matters." Pls.' Response Facts ¶ ¶ 41, 76, 125, 157, 163. In other words, " regardless of what is plead in any complaint," the DBA scheme is the sole avenue for adjudicating workers compensation disputes emerging out of the ICSAs. But the issues in this action do not pertain to workers compensation claims, and Plaintiffs are not seeking review pursuant to the Defense Base Act. While the arbitration provision follows immediately after the sentence describing the DBA scheme, it is wholly independent of it. Notwithstanding Plaintiffs' repeated references to the phrase " regardless of what is plead," the parties have clearly and unmistakably delegated questions of arbitrability to an arbitrator. The Court next considers challenges to the validity of these delegation agreements.
B. Validity Challenges to the Delegation Agreement
Even though the agreement itself provides clear and unmistakable evidence of the parties' intent to delegate questions of arbitrability to an arbitrator, the Court will only compel arbitration of those questions if the delegation agreement survives challenges to its validity. " An agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Rent-A-Center, 561 U.S. at 70 (2010). A delegation agreement " shall be valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. If a party challenges the validity of a delegation agreement, the district court " must consider the challenge before ordering compliance." Rent-A-Center, 561 U.S. at 70. The challenge, however, must be directed specifically at the delegation agreement and not at " another provision of the contract, or to the contract as a whole." Id. Indeed, earlier in the proceedings in this case, the Court denied Defendants' first motion to compel arbitration, without prejudice, in order to allow Plaintiffs to address the enforceability of the delegation agreement specifically. See Mem. Op. and Order, ECF No. 20, at 4-5.
Although Plaintiffs' briefing is not a model of clarity and precision, Plaintiffs raise four contract defenses to the validity of the agreement: fraud in the inducement, duress, unilateral mistake, and unconscionability. Plaintiffs also argue that there was no meeting of the minds with respect to the agreement. However, Plaintiffs' claim that the agreement is invalid due to the absence of a meeting of the minds encompasses the other contract validity challenges rather than posing an independent challenge.See, e.g., Pls.' Supp. Response, at 2 ¶ ¶ 4-5. Yet, each of Plaintiffs' arguments fails either because it does not specifically address the delegation agreement itself as required by Rent-A-Center or because the challenge fails on the merits as a matter of law. Even after several rounds of briefing, Plaintiffs have failed to successfully challenge the enforceability of the delegation agreement. The Court addresses these challenges in turn.
Plaintiffs argue that the agreements between Plaintiffs and Blackwater were invalid because of fraud. In particular,
Plaintiffs argue they were misled to believe that the ICSA was " just Security matters, or basic terms saying you understand you are going into a war zone and can't sue for what happens there" and because they were not given an opportunity to read the agreements. Pls.' Response at 17. Plaintiffs imply--but do not state--that they signed the agreements because of this purportedly fraudulent representation. While fraud is an available contract defense pursuant to North Carolina law, see Massey v. Duke Univ., 130 N.C.App. 461, 503 S.E.2d 155, 158 (1998), this argument fails at the outset because Plaintiffs do not claim that the purported fraud invalidated the delegation agreement, as they must pursuant to Rent-A-Center. See 561 U.S. at 73. In their fraud argument, Plaintiffs only mention the arbitration agreement once and never reference the delegation provision. See Pls.' Response at 16-18. It is significant that, by contrast, Plaintiffs explicitly argue that the defenses of mistake and unconscionability apply to the delegation agreement. See Pls.' Supp. Mem. at 20 (" The mistake concerned a key issue ... . This would apply equally to delegation clauses as to arbitration clauses." ); id. at 21 (" Plaintiffs believe procedural and substantive unconscionability exist on both the question of any agreement to enter into arbitration and on the question of delegation." ) Plaintiffs' arguments as to fraud " clearly [did] not go to the validity of the delegation provision." Rent-A-Center, 561 U.S. at 74. Therefore, the Court " must treat it as valid under § 2, and must enforce it under § § 3 and 4, leaving any challenge to the validity of the Agreement as a whole for the arbitrator." Rent-A-Center, 561 U.S. at 72.
Plaintiffs also argue that the ICSAs are unenforceable because they signed those agreements under duress. Specifically, Plaintiffs argue that the detrimental economic impact of refusing to sign the agreement and the disparity in power between Plaintiffs and Defendants' agents " caused them to sign under duress." Pls.' Supp. Mem. at 19. This argument fails because it does not target the delegation agreement as Rent-A-Center requires. The argument is directed at the signing of the ICSA overall, with no references to the delegation provision. See id. at 18-20. The Court once again finds the absence of a reference to the delegation provision in the duress argument significant given that Plaintiffs reference the delegation provision in their mistake and unconscionability arguments. See id. at 20-21. Because Plaintiffs have not challenged the validity of the delegation provision in their duress argument, the Court " must treat it as valid under § 2." Rent-A-Center, 561 U.S. at 72.
3. Unilateral Mistake
Unlike Plaintiffs' arguments on duress and fraud, Plaintiffs assert that their unilateral
mistake argument " would apply equally to delegation clauses as to arbitration clauses." Pls.' Supp. Mem. at 20. By arguing that the delegation agreement is not valid, Plaintiffs satisfy the threshold requirement established by Rent-A-Center, see 561 U.S. at 72. Plaintiffs argue that the " mistake concerned a key issue that Blackwater knew they were concealing, that the employees would have wanted to know, and were given the mistaken impression the agreement was only about National Security/Confidentiality." Pls.' Supp. Mem. at 20. Plaintiffs further argue, " Plaintiffs mistakenly believed this was not an arbitration agreement but instead had to do with National Security, and general matters related to Blackwater not being liable due to going into a war zone." Id. Even assuming that Plaintiffs' assertions are adequately supported by the record, this argument fails as a matter of law.
Pursuant to North Carolina law, " [t]he mistake of one party is sufficient to avoid a contract when the other party had reason to know of the mistake or caused the mistake." Creech v. Melnik, 347 N.C. 520, 495 S.E.2d 907, 912 (N.C. 1998) (quoting Howell v. Waters, 82 N.C.App. 481, 347 S.E.2d 65, 69 (N.C.App. 1986), disc. rev. denied, 318 N.C. 694, 351 S.E.2d 747 (1987)). Plaintiffs' argument, on its face, satisfies this initial requirement by claiming that Plaintiffs were mistaken about the nature of the agreement and that this mistake was caused by Blackwater's agents. However, North Carolina law requires more:
To afford relief, the mistake must be of a certain nature. The fact about which the parties are mistaken must be " an existing or past fact." The mistaken fact must also be material, which has been described to mean the following: " [I]t must be as to a fact which enters into and forms the basis of the contract, or in other words it must be of the essence of the agreement, the sine qua non, or, as is sometimes said, the efficient cause of the agreement, and must be such that it animates and controls the conduct of the parties."
Roberts v. Century Contractors, Inc., 162 N.C.App. 688, 592 S.E.2d 215, 219 (N.C.App. 2004) (quoting Howell, 347 S.E.2d at 69) (citations omitted). The mistake to which Plaintiffs point--about the nature of the contract and its contents--is not a mistake about an " existing or past fact" that could satisfy this standard. Plaintiffs do not cite any North Carolina case standing for the proposition that a qualifying mistake could be one about the contract itself. Instead, this term appears to be limited to mistakes outside of the four corners of the contract--facts about the world as it existed at the time of the contract or at an earlier time. See, e.g., Roberts, 592 S.E.2d at 218 (mistaken medical diagnosis); Howell, 347 S.E.2d at 72 (mistake concerning property boundaries); Creech, 495 S.E.2d at 912 (mistake concerning past medical treatment); Deans v. Layton, 89 N.C.App. 358, 366 S.E.2d 560, 564 (N.C.App. 1988) (mistake concerning percentage of land that would drain properly). This pattern is consistent with the North Carolina Court of Appeals' definition of a mistake as " the efficient cause of the agreement." Roberts, 592 S.E.2d at 219. A fact can only be the cause of the agreement if it exists outside of and independent of the agreement; by contrast, neither the agreement nor its description can be its own cause. Therefore, the purported mistake as to the nature of the contract is not one that
qualifies for the invalidation of a contract pursuant to North Carolina law.
Furthermore, Plaintiffs do not show how this mistake is material to the agreement whose validity is currently before the Court: the delegation agreement. Rent-A-Center allows Plaintiffs to challenge a delegation provision by arguing that a feature in common with the entire agreement--here, the purported mistake about the nature of the ICSA agreement and its contents--renders the delegation provision invalid because of that mistake. See Rent-A-Center, 561 U.S. at 74 (" It may be that had Jackson challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court." ) However, Plaintiffs' argument is missing a necessary link: Plaintiffs do not show how the mistake regarding the nature of the entire contract affects the validity of the delegation provision specifically. Moreover, given that only a material mistake can provide grounds to void an agreement, see Roberts, 592 S.E.2d at 219, Plaintiffs must show that the mistake in question is material to the delegation agreement, and Plaintiffs have not even attempted to do so. Indeed, insofar as Plaintiffs argue that the mistake was concealment of the fact that there was an arbitration clause in the contract, this mistake cannot logically be the cause of the delegation agreement. Accordingly, Plaintiffs do not lodge a successful challenge to the delegation agreement based on the doctrine of unilateral mistake.
Plaintiffs' unconscionability argument survives the threshold inquiry of Rent-A-Center because they assert that the delegation agreement is unconscionable.See Pls.' Supp. Mem. at 21 (" Plaintiffs believe procedural and substantive unconscionability exist both on the question of any agreement to enter into arbitration and on the question of delegation." ); cf. Rent-A-Center, 561 U.S. at 74 (" It may be that had Jackson challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court." ). The Court, here, considers Plaintiffs' arguments only insofar as Plaintiffs argue that the delegation agreement was unconscionable; insofar as Plaintiffs claim that the agreement as a whole was unconscionable or even that the arbitration provision was unconscionable, the Court cannot consider those arguments at this stage of the proceedings.
To demonstrate unconscionability pursuant to North Carolina law, " a party must demonstrate both procedural unconscionability and substantive unconscionability." Torrence v. Nationwide Budget Finance, 753 S.E.2d 802, 807 (N.C.App. 2014) (citing Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d 362, 370, 362 N.C. 93 (N.C. 2008)). " While both elements of unconscionability must be present, a court
may rule that a contract is unconscionable 'when [the] contract presents pronounced substantive unfairness and a minimal degree of procedural unfairness, or vice versa.'" Id. (quoting Tillman, 655 S.E.2d at 370) (emendations in original). The Court considers substantive unconscionability first. Because the Court concludes that there is no substantive unconscionability with respect to the delegation agreement, the Court does not consider whether or not procedural unconscionability exists with respect to that agreement.
Plaintiffs only point to one feature of the delegation agreement that is substantively unconscionable: the shifting of attorneys' fees and expenses from Defendants to Plaintiffs. See Pls.' Supp. Mem. at 23. But this is precisely the sort of provision that the North Carolina Court of Appeals determined could not support an unconscionability claim. See Torrence, 753 S.E.2d at 811-12 (" We can only construe this language as eliminating the type of cost analysis applied by the North Carolina Supreme Court in Tillman." ). In Torrence, the North Carolina Court of Appeals analyzed the impact of the Supreme Court's decisions in A T & T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), and American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), on Tillman, " [t]he leading case in North Carolina dealing with unconscionability in the context of an agreement to arbitrate." 753 S.E.2d at 807. In Concepcion, the Supreme Court concluded that arbitration agreements could not be invalidated " by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." 131 S.Ct. at 1746. See Italian Colors, 133 S.Ct. at 2311 (holding that " FAA does not sanction such a judicially created superstructure" that requires judicial analysis of individual claims before compelling arbitration). The Torrence court concluded that " underlying those decisions was a broader theme that unconscionability attacks that are directed at the arbitration process itself will no longer be tolerated." Id. at 811. The Torrence court then concluded that the bases for substantive unconscionability found by the North Carolina Supreme Court in Tillman had been undermined by Concepcion and Italian Colors. Id. at 812. Indeed, the Torrence court specifically concluded that high arbitration costs--the only basis on which Plaintiffs argue that there is substantive unconscionability with respect to the delegation agreement--could no longer be a basis for substantive unconscionability. See id.; see also Italian Colors, 133 S.Ct. at 2311 (" But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy." ). The shifting of arbitration costs to Plaintiffs does not constitute substantive unconscionability.
Plaintiffs' reliance on King v. Bryant, 763 S.E.2d 338, 2014 WL 3510481
(N.C.App. 2014) (unpublished disposition), review allowed, No. 294PA14, 367 N.C. 794, 766 S.E.2d 633, 2014 WL 7227976 (N.C. Dec. 18, 2014), in order to distinguish Torrence is unavailing. See Pls.' Torrence Supp. at 5-9; Pls.' Torrence Reply at 3-5. In King v. Bryant, in an unpublished disposition, the North Carolina Court of Appeals held that, in the " limited factual circumstances presented," an arbitration agreement between a medical practice and a patient was unconscionable. 763 S.E.2d 338, 2014 WL 3510481 at *11. The King panel located sufficient substantive unconscionability in, first, the fact that " [t]he agreement does not mention that [the patient] is forfeiting his right to a jury or a judge" and, second, that it did not intelligibly communicate that the patient was not required to accept the agreement to see his physician. 763 S.E.2d 338, Id. at *10. Neither of these circumstances are present here. First, in the present case, each ICSA included a warning that the Plaintiffs were waiving their right to a judge or jury. See Merc. Dep., Ex. 3 ¶ 20.10 (waiver of jury trial); Biddle Dep., Ex. 2 ¶ 20.6 (same); Jefferson Dep. Ex. 3, ¶ 20.10 (same); OHara Dep., Ex. 4 ¶ 19.6 (same). Second, Plaintiffs neither pointed to authority for the proposition that an employment relationship, such as the one at issue here, could not be lawfully contingent on the signing of an arbitration agreement, nor have Plaintiffs argued that the ICSAs are unconscionable because of such a condition. Even if King were precedential, it would not support the conclusion that the delegation agreement before the Court is substantively unconscionable. Indeed, citing Torrence, the King panel confirmed that " the cost of arbitration ... is not relevant to the issue of substantive unconscionability." King, 763 S.E.2d 338, 2014 WL 3510481 at *10. Given that arbitration costs are the only basis for unconscionability that Plaintiffs present with respect to the delegation agreement, King undermines Plaintiffs' arguments. Finally, Plaintiffs emphasize the nature of the war-related employment in which they engaged in order to analogize this case to King. However, an agreement establishing an employment relationship, even a relationship that is colored by the military context of that employment, does not resemble the circumstances in King, where a " confidential, physician-patient, fiduciary relationship" created heightened requirements for notice and disclosure by the medical practice presenting the agreement. 763 S.E.2d 338, Id. at *11. Insofar as King shows that there are some circumstances in which an arbitration agreement is unconscionable, it does not suggest that this action presents those circumstances; in particular, King does not suggest that this is a situation where the delegation agreements at issue are unconscionable.
While it is not clear the extent to which Plaintiffs continue to rely on Winston v. Academi Training Center, Inc., 2013 WL 989999 (E.D.Va. Mar 13. 2013), an unpublished decision from the Eastern District of Virginia issued prior to the issuance of Torrence, any such reliance in unavailing.Winston does ...