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Cummings v. Cenergy International Services, LLC

United States District Court, E.D. California

June 15, 2017

DONNIE CUMMINGS, et al., Plaintiffs,
v.
CENERGY INTERNATIONAL SERVICES, LLC, Defendant.

          MEMORANDUM DECISION AND ORDER (DOC. 7)

          LAWRENCE J. O'NEILL UNITED STATES CHIEF DISTRICT JUDGE

         I. INTRODUCTION

         Currently pending before the Court are Plaintiffs' Donnie Cummings, Christopher Jones, and Charles Beaty ("Plaintiffs") motion for a preliminary injunction against Defendant Cenergy International Services, LLC ("Cenergy") and Cenergy's motion to dismiss Plaintiffs' complaint for lack of subject matter jurisdiction and failure to state a claim under Federal Rules of Civil Procedure 12(b)(1) and (b)(6), respectively. The hearings on these motions were vacated and the motions were taken under submission. For the reasons set forth below, Cenergy's motion to dismiss is GRANTED, and Plaintiffs shall file an amended complaint within 14 days from the date of this order. Plaintiffs' motion for a preliminary injunction will be held in abeyance until after an amended complaint and responsive pleading have been filed.

         II. FACTUAL BACKGROUND

         Plaintiffs performed work for the Chevron corporation as well site/drill site managers, and allege they were intentionally misclassified as independent contractors by Chevron and impermissibly denied overtime wages pursuant to the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 216(b). Plaintiffs are pursuing claims in collective actions under the FLSA against Chevron in separate proceedings: McQueen, et al. v. Chevron, No. 4:16-cv-02089-JSW (N.D. Cal.), filed on April 20, 2016, and Cummings v. Chevron, JAMS Arbitration Reference No. 1100086694.

         According to Plaintiffs, although Chevron controlled Plaintiffs' work and directly supervised Plaintiffs, Chevron attempted to insulate itself from FLSA liability by creating an artificially complex structure to employ Plaintiffs. (Doc. 1, ¶ 3.) Specifically, Chevron contracted with Cenergy to be an intermediary between Chevron and Plaintiffs. As a condition of working for Chevron through Cenergy, Plaintiffs and others were required to form corporate entities through which they received wages. Plaintiff Donnie Cummings created Cummings Consulting LLC, through which he was paid for part of his employment with Chevron; Plaintiff Christopher Jones created Chris Jones DMS, LLC through which he received payments for his work from Chevron; and Plaintiff Charles Beaty created Drilling Consultants, Inc. through which he received payments for his work for Chevron. (Doc. 1, ¶¶ 9-11.)

         Through these newly formed corporate entities, Plaintiffs entered into Master Service Agreements ("MSAs") with Cenergy under which they agreed (1) to be classified as independent contractors and not employees; (2) that these corporate entities would be solely responsible for payment of all wages to Plaintiffs; and (3) to indemnify Cenergy and Chevron against any loss arising out of the agreement. These MSAs were presented to Plaintiffs as-is with no negotiation, and signing the MSAs was a condition of working for Chevron through Cenergy. An indemnity provision contained in the MSAs required the following:

Contractor [corporate entity] shall be liable for any claim arising out of any illness, injury or death to Contractor employees, agents or vendors, or for any claim arising out of any loss or damage to the property of Contractor, its employees agents or vendors arising out of or relating to the Agreement or performance of the Services under this Agreement and REGARDLESS OF WHETHER CAUSED OR BROUGHT ABOUT BY CIS [Cenergy] OR CIS CUMSTOER'S [Chevron] NEGLIGENCE OR FAULT (INCLUDING ACTIVE, PASSIVE, SOLE, JOINT OR CONTRIBUTORY NEGLIGENCE) OR ANY OTHER THEORY OF LEGAL LIABILITY, INCLUDING BREACH OF WARRANTY, BREACH OF AGREEMENT, STATUTE OR STRICT LIABILITY and Contractor shall defend, protect, indemnify and hold harmless CIS, its parent, subsidiary and affiliated companies and all of their officers, directors, employees and representatives and Customers from and against any loss, cost, claim, obligation to indemnify another, suit, judgment, award or damage (including reasonable attorney's fees and costs) on account of such illness, injury, death, loss or damage.

(Doc. 1-1, p. 10; Doc. 1-2, p. 9; Doc. 1-3, p. 10.) The MSAs also contained an arbitration provision that requires all disputes be resolved through arbitration in Texas under the American Arbitration Association's "Construction Industry Rules":

Arbitration. All claims, disputes or controversies arising out of, in connection with or in relation to this Agreement or the Services, including any and all issues of arbitration of such claim, dispute or controversy (hereinafter "Dispute"), and regardless of whether the Dispute is based or claimed to be based in whole or in part on a claim by either Party of breach of this Agreement shall be subject to the following dispute resolution procedure:
(a) Notice. In the event that a Dispute arises between Contractor and [Cenergy], and/or between Contractor and a [Cenergy] Customer, Contractor shall immediately notify [Cenergy] of such Dipuste in writing in order to provide [Cenergy] with an opportunity to informally resolve the Dispute.
(b) Mediation. In the event that the informal dispute resolution efforts set out in 21 (a) above fail to settle the Dispute between Contractor and [Cenergy] within 30-days of such written notice the parties shall submit the Dispute to formal mediation which shall be conducted by the American Arbitration Association ("AAA") in Houston, Texas in accordance with the AAA Energy Industry Rules for Mediation then in effect.
(c) Arbitration. In the event that the mediation fails to settle the Dispute, then, subject to Article 20(d) below, the Dispute shall be submitted to mandatory and binding arbitration conducted by the AAA in accordance with its Construction Industry Rules then in effect. Such arbitration shall be conducted before a single arbitrator in Houston, Texas. The arbitration shall be conducted in accordance with the International Institute for Conflict Prevention and Resolutions Rules at present in force, exclusive of its principles of conflicts of laws for the determination of the rights and remedies under the Agreement and for all aspects of the award hereunder, except to the extent that United States General Maritime law, exclusive of its principles of conflicts of laws governs the Dispute at issue. The arbitrator shall have the power to award reasonable attorney's fees, costs and expenses to the prevailing party in any such arbitration proceeding.

(Doc. 1-1, p. 11-12; Doc. 1-2, p. 8; Doc. 1-3, p. 11.)

         On March 21, 2017, Cenergy sent a demand letter to Cummings Consulting, LLC ("CCLLC"), indicating it had become aware that "an employee of Cummings Consulting, LLC" (i.e., Plaintiff Donnie Cummings) had opted to be a member of the purported FLSA class action against Chevron pending before the U.S. District Court for the Northern District of California in case number 4:16-cv-02089-JSW. (Doc. 1-4, Exh. D, p. 2.) Cenergy advised CCLLC that, "pursuant to a separate agreement, " Cenergy "may be obligated to defend and indemnify Chevron Corporation for any costs, expenses, or other damages sustained as a result of that lawsuit" and that Chevron had already demanded that Cenregy pay for legal fees and costs incurred in the defense of that FLSA lawsuit. (Id. at 4.) Citing the MSA agreement between CCLLC and Cenergy executed in January 2014, Cenergy demanded that CCLLC "reimburse [Cenergy] for any and all costs that it incurs or owes as a result of the Lawsuit, " including any attorneys' fees, amounts reimbursed to Chevron, costs, penalties, damages, or any other losses. (Id.) Cenergy indicated it had already incurred $15, 488.50 in costs and fees related to the FLSA lawsuit against Chevron, and demanded that CCLLC remit that amount within 15 days of the date of the demand letter. (Id.) If CCLLC failed to remit that amount within the 15-day window, Cenergy stated it would "take immediate action to enforce its rights under the MSA" and would initiate legal proceeds against CCLLC in Houston, Texas. (Id.)

         On April 5, 2017, Plaintiffs filed suit in this Court, on behalf of themselves and all others similarly situated, seeking a declaration under 28 U.S.C. § 2201, the Declaratory Judgment Act ("DJA"), that Cenergy has no legal right to attempt to collect or obtain, through court or arbitration, the wages that Plaintiffs seek from Chevron or associated penalties, damages, and interest, or Chevron's or Cenergy's defenses costs, including attorneys' fees. Plaintiffs contend Chevron and Cenergy have improperly attempted to "contract around the FLSA" by insisting Plaintiffs pay, through their corporate entities, the wages Chevron is legally obligated to pay Plaintiffs under the FLSA and the costs of Chevron's defense in the separate FLSA collective action.

         On May 1, 2017, Plaintiffs filed a motion for preliminary injunction asserting that Cenergy has commenced arbitration against Plaintiffs' corporate entities proceedings pursuant to the MSAs. Plaintiffs seek to enjoin those arbitration proceedings and to halt Cenergy from attempting to collect indemnification. On May 2, 2017, Cenergy filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

         III. LEGAL STANDARD

         A. Rule 12(b)(1)

         A defendant may move for dismissal of an action for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). A motion to dismiss for lack of subject matter jurisdiction will be granted if the complaint, on its face, fails to allege facts sufficient to establish subject matter jurisdiction. See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). If a plaintiff lacks standing under Article III of the U.S. Constitution, then the court lacks subject matter jurisdiction and the case must be dismissed. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101-02 (1998).

         A jurisdictional challenge may be facial or factual in nature. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). In a facial attack, the court determines whether the allegations in the complaint are facially sufficient to invoke federal jurisdiction, accepting all material allegations in the complaint as true and construing them in favor of the party asserting jurisdiction. See Warth v. Seldin, 422 U.S. 490, 501 (1975). Where the attack is factual, however, "[n]o presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (internal quotation marks and citations omitted); accord Safe Air for Everyone, 373 F.3d at 1039.

         In resolving a factual dispute as to the existence of subject matter jurisdiction, a court may review extrinsic evidence beyond the complaint without converting a motion to dismiss into one for summary judgment. See Safe Air for Everyone, 373 F.3d at 1039; McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) (holding that a court "may review any evidence, such as affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction."). Once a party has moved to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the opposing party bears the burden of establishing the Court's jurisdiction. See Kokkonen v. Guardian Life Ins. ...


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