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Lenhardt v. Sysco Corp.

United States District Court, D. Montana, Billings Division

March 28, 2017

TRACY LENHARDT, Plaintiff,
v.
SYSCO CORPORATION, Defendant.

          ORDER

          SUSAN P. WATTERS United States District Judge

         I. Introduction

         Sysco has moved to dismiss Lenhardt's Second Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), or in the alternative, to stay the case pending mandatory arbitration. (Doc. 12). On February 9, 2017, Magistrate Judge Timothy Cavan issued his Findings and Recommendation recommending that this Court deny Sysco's motion to dismiss but grant Sysco's motion to stay pending arbitration. (Doc. 21).

         When a party timely objects to any portion of the magistrate judge's Findings and Recommendations, the district court must conduct a de novo review of the portions of the Findings and Recommendations to which objections are made. 28 U.S.C. § 636(b)(1)(C); McDonnell Douglas Corp, v. Commodore Business Machines, 656 F.2d 1309, 1313 (9th Cir. 1981). The district court may then "accept, reject, or modify the recommended decision, receive further evidence, or recommit the matter to the magistrate with instructions." 28 U.S.C. § 636(b)(1). The district court is not required to review the factual and legal conclusions of the magistrate judge to which the parties do not object. United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003).

         Both parties filed timely objections and responses to Judge Cavan's Findings and Recommendation. (Docs. 23-26). After independently reviewing and considering the filings, this Court adopts Judge Cavan's findings and recommendations in part and modifies them in part, as set out below.

         II. Relevant Background[1]

         Lenhardt was employed by Sysco. (Doc. 1-2, ¶2). During her employment, Sysco granted Lenhardt certain long term incentives called restrictive stock units ("RSUs"). (Id. at ¶ 8; Doc. 1-1 at 6-12). In consideration for the RSUs, Lenhardt agreed to abide by certain restrictive covenants ("Protective Covenants") during and after her employment with Sysco. (Doc. 1-2 at ¶ 8). The Protective Covenants included a non-compete agreement in which Lenhardt agreed, in pertinent part, that:

for a period of one year following the end of [her] employment with [Sysco], [she] will not: accept a job that involves, participate in, provide, supervise, or manage . . . any activities or services for a [c]ompetitor that are the same as, or similar in function or purpose to those [she] performed or participated in during the [two years prior to the end of her employment with Sysco] on behalf of [Sysco]. This restriction is limited to assisting in the business activities of a [c]ompetitor within the [geographic area where she worked].

         (Id.; Doc. 1-1 at 22). The Protective Covenants also provide that all disputes related to enforceability are subject to mandatory arbitration. (Id.; Doc. 1-1 at 11- 12).

         On April 7, 2016, Sysco informed Lenhardt by letter ("termination letter") that her job would be eliminated on July 2, 2016. (Doc. 7 at ¶¶ 2, 3; Doc. 15-1). Sysco gave Lenhardt the option of accepting a new position at Sysco effective July 3, 2016, or accepting an involuntary severance benefits package ("Severance Package."). (Doc. 1-2 at ¶¶ 4-5). According to the termination letter, the Severance Package was conditioned on Lenhardt executing a "Separation Agreement and General Release" ("Separation Agreement") at the time of her termination. (Doc. 7 at ¶ 4). Also, according to the letter, the Severance Package was conditioned on Lenhardt's "adherence to her ongoing obligations to [Sysco], " including adherence to the non-compete agreement in the Protective Covenants. (Id. at ¶¶ 5-8). Finally, the termination letter explained that Lenhardt's severance payment, included as part of the Severance Package, would "be made in accordance with the terms of the Sysco Involuntary Severance Plan" ("Sysco Plan"). Lenhardt chose the Severance Package, (/at at ¶¶ 14, 16). She did not, however, execute the Separation Agreement. (Doc. 24 at 11).

         Lenhardt filed her original complaint in the Montana Thirteenth Judicial District on June 27, 2016, prior to the effective date of her job elimination, seeking adjudication of her rights with respect to, and relief from, the non-compete agreement. (See Doc. 5). Sysco interpreted Lenhardt's lawsuit as a threat to violate the non-compete agreement and rescinded Lenhardt's Severance Package. (Doc. 7 at ¶ 10). In response, Lenhardt amended her complaint and requested the Court enjoin Sysco from (1) enforcing or threatening to enforce the non-compete agreement and (2) withholding severance benefits, in addition to adjudicating the parties rights with respect to the non-compete agreement. (See gen. id.). She also seeks to recover payment of the withheld severance benefits and damages. (Id.).

         Sysco removed the action to Federal Court on October 24, 2016. (Doc. 1). Thereafter, Sysco filed the current motion to dismiss Lenhardt's Second Amended Complaint under Rule 12(b)(6), or in the alternative, to stay the case pending mandatory arbitration. (Doc. 12). In his Findings and Recommendations, Judge Cavan determined that because the Second Amended Complaint did not incorporate or otherwise refer by reference to the Sysco Plan, he could not consider it in the motion to dismiss context. (Doc. 21 at 15). Without the Sysco Plan, Judge Cavan ruled that he did not have enough information to determine if ERISA preempted Lenhardt's claims. (Id. at 15). Even assuming he could consider the Sysco Plan, Judge Cavan determined that Sysco and Lenhardt's Separation Agreement (which the court also does not have) superseded the Sysco Plan and represented the final say on Lenhardt's benefits. Without the Separation Agreement, Judge Cavan determined the court still lacked the necessary information to decide whether the agreement constituted an ERISA plan, so the court could not conclude that Lenhardt's claims were preempted by ERISA. (Id. at 18). On that basis, Judge Cavan recommended denying Sysco's motion to dismiss. (Id.).

         Next, Judge Cavan addressed Sysco's alternative argument to stay the case pending mandatory arbitration. (Id. at 19). Judge Cavan determined that the arbitration clause found in the Protective Covenants encompassed the non-compete agreement Lenhardt placed at issue in the Second Amended Complaint. (Id. at 20). Lenhardt did not argue that the arbitration agreement was invalid, nor did she argue that the present dispute was outside the arbitration agreement. (Id. at 21). Accordingly, Judge Cavan found that § 3 of the Federal Arbitration Act mandated that the court stay the action until the parties arbitrated the non-compete agreement, and recommended the same. (Id. at 21).

         In its objection, Sysco argues that Judge Cavan erred by not considering the Sysco Plan in determining whether ERISA preempted Lenhardt's claims, (Doc. 24 at 6-9), Sysco also argues that neither party executed the Separation Agreement, so it does not supersede the Sysco Plan, and cannot represent the final agreement between the parties. (Doc. 24 at 11). Sysco contends that the Court has all ...


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