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Employer That Was Not Named In Arbitration Agreement Could Not Enforce It Against Employee


Goplin v. WeConnect, Inc. - Seventh Circuit Court of Appeals


Facts:  Brooks Goplin ("Goplin") worked for WeConnect, Inc.  At the start of his employment, he signed an arbitration agreement called the "AEI Alternative Entertainment Inc. Open Door Policy and Arbitration Program".  The arbitration agreement referred to AEI throughout but never mentioned WeConnect.

Goplin proceeded to file a Fair Labor Standards Act and a class action under Wisconsin law, however WeConnect filed a motion to dismiss and compel arbitration.  Included in its motion, WeConnect included an affidavit from its Director of Human Resources that stated, among other things, "I am employed by WeConnect, Inc. - formerly known as Alternative Entertainment, Inc. or AEI - as Director of Human Resources."  Goplin countered and argued that since WeConnect was not a party to the agreement, the arbitration provision could not be enforced.  Goplin pointed the district court to WeConnect's website which identified WeConnect and Alternative Entertainment Inc. as two privately held companies that combined in 2016.  As a result, Goplin argued the arbitration agreement was with the now-defunct Alternative Entertainment, Inc. and therefore WeConnect could not enforce an agreement that had been entered into with another company.  WeConnect countered that the 2016 "event" was only a name change and not a merger.  Therefore, the arbitration agreement could still be enforced against Goplin.

The district court disagreed with WeConnect's reasoning and held that WeConnect failed to establish it was a party to the arbitration agreement or that it could enforce the agreement itself.  WeConnect proceeded to file a motion for reconsideration and attached additional evidence, including some corporate form documents and affidavits from its lawyers and CEO, to support its argument that Alternative Entertainment, Inc. had undergone a name change rather than a merger.  The district court found that this new evidence was not admissible and therefore denied the motion.  WeConnect subsequently appealed.

Holding:  Wisconsin has long held that "[t]he general rule is that only a party to a contract may enforce it."  Using this reasoning, the Court of Appeals turned to the evidence and noted that it would only consider what had been properly admitted into the record when the district court ruled.

In this instance, WeConnect argued that the district court should not have taken the website information into account when ruling on the motion to dismiss.  While WeConnect suggested that without this website information, the district court's factual finding lacked any basis, the Court disagreed.  The website was not found to be the determinative factor in the district court's decision.  As the party that sought to enforce the arbitration agreement, WeConnect was required to show its right to do so.  However, the only evidence properly admitted into the record about WeConnect's relationship to Alternative Entertainment, Inc. was one sentence in the affidavit from its Director of Human Resources.  Had WeConnect introduced its strongest evidence at the get-go (the corporate form documents and additional affidavits), the Court held that the district court may have been convinced that the two names referred to the same entity.  However, based upon the evidence before the district court, the Court of Appeals found that the ruling to deny the motion to dismiss and compel arbitration was not clearly erroneous.

Judgment:  The Court of Appeals upheld the district court's denial of the employer's motion to dismiss and compel arbitration on the grounds that since the employee signed an arbitration agreement that did not include the employer's name anywhere in the document, the employer did not have grounds to enforce the arbitration agreement.

The Takeaway:  Employers, let this case be a lesson for you.  As the Court of Appeals noted, had the employer introduced its strongest evidence at the get-go to establish there was a name change rather than a merger, it is possible the district court would have ruled in favor of the motion to dismiss and compel arbitration.  However, for somewhat inexplicable reasons, WeConnect held back some of its strongest documentation until the motion for reconsideration.  As this was not newly discovered or unknown evidence (which could have allowed it to be admitted into evidence), WeConnect found itself in the untenable position of having potentially significant evidence which would have supported its claim...but no procedural avenue to actually have it admitted into the record.  Without this crucial evidence before the district court originally, I think the district court got it right and held that WeConnect could not enforce the arbitration agreement as it was not a party to the agreement itself. 

Majority Opinion Judge:  Judge Barrett

Date:  June 21, 2018

Opinion:  http://hr.cch.com/eld/GoplinWeConnect062118.pdf
 

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