Santich v. VCG Holding Corp. et al
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 74 MOTION to Dismiss or Stay Proceedings Pursuant to Sections 3 and 4 of the Federal Arbitration Act, to Compel Plaintiffs to Arbitration, and to Strike Class and Collective Action Allegati ons filed by Denver Restaurant Concepts LP, VCG Holding Corp., Lowrie Management, LLLP, 61 MOTION for Leave to Proceed as a Conditional Collective Action, To Provide Notice, and To Toll All Statutes of Limitations (Expedited) fi led by Georgina Santich by Magistrate Judge Michael E. Hegarty on 09/26/2017. The Court respectfully recommends that Defendants Motion to Stay or Dismiss Proceedings Pursuant to Section 3 and 4 of the Federal Arbitration Act, to Compel Plaintif fs to Arbitration, and to Strike Class and Collective Allegations [filed 5/26/2017; ECF No. 74] be granted. The Court recommends that the District Court stay this litigation at least until the arbitrator determines the validity of the arbitration ag reements. In light of the Courts holding on Defendants Motion to Compel Arbitration, the Court recommends that Plaintiffs Expedited Motion to Proceed as a Conditional Collective Action, to Provide Notice, and to Toll all Statute of Limitations [filed 5/12/2017; ECF No. 61] be denied as moot. (mdave, )
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 1 of 27
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 17-cv-00631-RM-MEH
JESSICA SAULTERS ARCHULETTA,
ANDREA ABBOTT, and
KIMBERY HALE, all individually and on behalf of all others similarly situated,
VCG HOLDING CORP.,
LOWRIE MANAGEMENT, LLLP,
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DENVER RESTAURANT CONCEPTS LP d/b/a PTs Showclub,
KENKEV II, INC. d/b/a PTs Showclub Portland,
INDY RESTAURANT CONCEPTS, INC. d/b/a PTs Showclub Indy,
GLENARM RESTAURANT, LLC d/b/a Diamond Cabaret,
GLENDALE RESTAURANT CONCEPTS, LP d/b/a The Penthouse Club,
STOUT RESTAURANT CONCEPTS, INC. d/b/a La Boheme, and
VCG RESTAURANTS DENVER, INC. d/b/a PT’s All Nude,
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Defendants seek to compel Plaintiffs to arbitrate this Fair Labor Standards Act (“FLSA”)
collective action case. Mot. to Compel Arbitration, ECF No. 74. According to Defendants, every
Plaintiff signed binding arbitration agreements containing class-action waivers. Although Plaintiffs
do not dispute this, they contend the arbitration agreements are unconscionable and invalid under
two federal statutes. Because Plaintiffs’ unenforceability arguments do not specifically challenge
the clause delegating questions of validity to the arbitrator, the Court agrees with Defendants that
the arbitrator must decide whether the parties’ arbitration provision is unconscionable and invalid
based on federal statutes. Furthermore, although the Court recommends holding that the fee-shifting
and cost-sharing provisions in the parties’ agreement effectively preclude Plaintiffs from asserting
their claims, these provisions are severable from the agreement as a whole. Lastly, the Court
recommends holding that the two Defendants who did not sign the arbitration agreements may
nevertheless enforce them.
In light of the Court’s recommendation on Defendants’ motion to compel arbitration, the
Court recommends denying as moot Plaintiffs’ motion for conditional certification.
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Plaintiffs—thirty-four exotic dancers—initiated this FLSA collective action on March 10,
2017. Compl., ECF No. 1. In an Amended Complaint, Plaintiffs assert that Defendants—adult
entertainment clubs and entities that own the clubs—required them to sign contracts, called “leases,”
that improperly classified them as independent contractors. Am. Compl. ¶¶ 125–94, ECF No. 65.
As independent contractors, Plaintiffs did not receive a wage, but instead paid Defendants a fee
ranging from $120.00 to $200.00 each time they worked. Id. at ¶¶ 23–24. Further, Defendants
allegedly required Plaintiffs to pay them a portion of the tips and other income Plaintiffs received.
Id. at ¶ 28. Because Plaintiffs believe they are employees under the FLSA and various state wage
acts, they seek “unpaid wages, fees, fines, tips, [and] interest . . . .” Id. at ¶ 141.
Defendants responded to the Amended Complaint by filing the present Motion to Compel
Arbitration, which contends that each Plaintiff signed valid arbitration agreements containing
collective action waivers. Mot. to Compel Arbitration 2, ECF No. 74. On June 19, 2017, Plaintiffs
submitted their Response to Defendants’ Motion to Compel Arbitration, ECF No. 105. Plaintiffs
first argue that Defendants VCG Holding Corp and Lowrie Management cannot compel them to
arbitration, because these Defendants are not parties to the leases. Id. at 4–6. Next, Plaintiffs assert
the arbitration provision is unenforceable, because it is procedurally and substantively
unconscionable. Id. at 8–19. In support of their procedural unconscionability argument, Plaintiffs
attach their own affidavits, which discuss the conditions surrounding their assent to the leases. See
ECF Nos. 106-1–106-12. Regarding substantive unconscionability, Plaintiffs assert the fee-shifting
and cost-sharing provisions preclude them from pursuing their claims. Id. at 14–19. Importantly,
Plaintiffs argue the Court, not the arbitrator, must decide whether the arbitration provision is
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unconscionable. Id. at 7–8. Plaintiffs then assert the Court cannot sever the unconscionable
provisions, because the arbitration provision “is plainly part of Defendants’ scheme to violate the
FLSA and other wage laws and to discourage Plaintiffs from enforcing their rights.” Id. at 24.
Finally, Plaintiffs contend the class-action waiver is illegal under the National Labor Relations Act
(“NLRA”) and the Fair Labor Standards Act (“FLSA”). Id. at 24–29. Although Plaintiffs contend
this case undisputedly belongs in federal court, they seek a jury trial under 9 U.S.C. § 4 in the event
they have only shown a disputed issue of material fact as to the making of the agreement. Id. at 30.
On July 10, 2017, Defendants filed their Reply in Support of their Motion to Compel
Arbitration, ECF No. 120. Defendants first argue that the arbitrator must decide the validity of the
leases, because the arbitration provision contains a clause delegating issues of arbitrability to the
arbitrator. Id. at 2–4. Next, assuming the Court disagrees with its delegation argument, Defendants
contend that many Plaintiffs have not submitted evidence challenging the validity of their leases,
and regardless, the arbitration provision is not unconscionable. Id. at 5–18. Defendants then argue
that VCG and Lowrie can compel Plaintiffs to arbitration, because the Amended Complaint relies
on the leases and alleges interconnected misconduct between the signatory and nonsignatory
Defendants. Id. at 21. Finally, Defendants argue the NLRA and FLSA do not conflict with the
leases’ class-action waivers. Id. at 21–25.
Plaintiffs filed a Motion for Leave to File Surreply on July 21, 2017, ECF No. 131. This
Court denied Plaintiffs’ motion in an August 10, 2018 order. ECF No. 139. The Court held that
each of the arguments in Defendants’ reply directly rebuts the contentions Plaintiffs asserted in their
response. Id. at 4–5. Additionally, although Defendants submitted reply declarations in support of
their arguments, those statements directly refuted the statements Plaintiffs made in response. Id. at
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5. Plaintiffs subsequently objected to this Court’s order denying them leave to file a surreply. ECF
No. 142. On September 25, 2017, the Honorable Raymond P. Moore overruled Plaintiffs’ objections
and affirmed this Court’s order. ECF No. 148.
Issues of arbitrability are governed by the Federal Arbitration Act (“FAA”). Belnap v. Iasis
Healthcare, 844 F.3d 1272, 1279 (10th Cir. 2017). Under the FAA, when parties agree to settle a
controversy by arbitration, courts must enforce that agreement “save upon grounds as exist at law
or in equity for the revocation of any contract.” 9 U.S.C. § 2. Such grounds include “generally
applicable contract defenses, such as fraud, duress, or unconscionability.” Rent-A-Center, W., Inc.
v. Jackson, 561 U.S. 63, 68 (2010) (quoting Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687
(1996)). Importantly, if a contract contains an arbitration provision, the party opposing arbitration
must assert his validity challenges against the arbitration provision, not the contract as a whole. See,
e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 405 (1967) (holding that the
arbitrator must decide whether the defendant fraudulently induced the plaintiff to enter into the
contract, because the plaintiff did not argue that the defendant fraudulently induced it to agree to the
arbitration provision). This is because, if the party opposing arbitration does not contest the validity
of the arbitration provision, the agreement to arbitrate “is severable from the remainder of the
contract.” Rent-A-Center, W., Inc., 561 U.S. at 70–71.
Just as parties can agree to arbitrate the merits of a dispute, they can agree to arbitrate
arbitrability—i.e. the validity and scope of an arbitration provision. Id. at 69 (“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
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as it does on any other.”). If the parties’ contract delegates issues of arbitrability, the party opposing
arbitration must specifically dispute the validity of the delegation clause. Id. at 72. Otherwise, the
delegation clause is severable from the arbitration provision as a whole, and the arbitrator must
decide arbitrability disputes. Id.
When analyzing whether the parties agreed to submit a specific dispute to arbitration, “[a]ll
‘doubts are to be resolved in favor of arbitrability.’” Coors Brewing Co. v. Molson Breweries, 51
F.3d 1511, 1514 (10th Cir. 1995) (quoting Oil, Chem., & Atomic Workers Int’l Union, Local 2-124
v. Am. Oil Co., 528 F.2d 252, 254 (10th Cir. 1976)). However, the law reverses the presumption
when determining whether parties agreed to arbitrate arbitrability. See, e.g., First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 945 (1995) (“[T]he law treats silence or ambiguity about the question
‘who (primarily) should decide arbitrability’ differently from the way it treats silence or ambiguity
about the question ‘whether a particular merits-related dispute is arbitrable because it is within the
scope of a valid arbitration agreement.”). Upon reviewing the parties’ arguments and being satisfied
that the making of the agreement to arbitrate (or the agreement to delegate arbitrability) is not in
issue, “the court shall make an order directing the parties to proceed to arbitration in accordance
with the terms of the agreement.” 9 U.S.C. § 4.
Because the question of who should decide arbitrability is a threshold issue, the Court will
address it first. Commc’n Workers of Am. v. Avaya, Inc., 693 F.3d 1295, 1303 (10th Cir. 2012)
(“The Court should have begun its analysis by asking whether the parties did or said anything to
rebut the presumption that questions about the arbitrability of an arbitration dispute will be resolved
by the courts.”). The Court recommends reserving Plaintiffs’ unconscionability and statutory
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validity arguments for the arbitrator. The Court will then analyze whether the agreements’ feeshifting clause thwarts Plaintiffs’ ability to pursue their FLSA claims. Although the Court finds that
shifting fees in the event Defendants prevail would prevent Plaintiffs from pursuing their claims, the
Court recommends holding that the invalid provision is severable from the agreement. Finally, the
Court recommends permitting the nonsignatory Defendants to compel Plaintiffs to arbitration.
The Arbitrator Must Decide Arbitrability.
Plaintiffs contend the Court should decide arbitrability, because they “challenge the
enforceability of the entire Arbitration Clause, including the ‘delegation’ provision.” Resp. to Mot.
to Compel Arbitration 7, ECF No. 105. Defendants respond that by relying on the circumstances
surrounding the signing of the leases, Plaintiffs’ unconscionability arguments challenge the entire
agreement, not just the delegation clause. Reply in Support of Mot. to Compel Arbitration 3, ECF
No. 120. As such, Defendants assert the arbitrator, not the Court, must decide the validity of the
leases. Id. at 4.
Courts have identified two subissues when analyzing whether an arbitration agreement
properly delegates arbitrability disputes.
First, the parties must clearly and unmistakably
demonstrate their intent to delegate validity disputes to the arbitrator. First Options of Chi. v.
Kaplan, 514 U.S. 938, 944 (1995) (“Courts should not assume that the parties agreed to arbitrate
arbitrability unless there is ‘clear and unmistakable’ evidence that they did so.” (quoting AT&T
Techs., Inc. v. Commc’ns Workers, 475 U.S. 643, 649 (1986))). The parties can demonstrate such
intent through express language or a course of conduct. Rent-A-Center, W., Inc. v. Jackson, 561
U.S. 63, 79–80 (2010) (Stevens, J., dissenting) (citing First Options of Chi., 514 U.S. at 946).
Second, courts must analyze whether the party opposing arbitration contests the validity of
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the agreement as a whole or the arbitration and delegation provisions specifically. Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403 (1967) (holding that a court may consider
claims for fraudulent inducement as to the arbitration provision itself, but not “claims of fraud in the
inducement of the contract generally”); Rent-A-Center, W., Inc., 561 U.S. at 72 (holding that courts
may not determine challenges to an arbitration provision when the party opposing arbitration failed
to specifically dispute the validity of the clause delegating arbitrability issues to the arbitrator).
Challenges to the contract as a whole (or to the arbitration provision as a whole when the provision
contains a delegation clause) are for the arbitrator to decide. If the party resisting arbitration does
not specifically dispute the validity of the delegation clause, the court must sever that clause and
allow the arbitrator to determine the validity of the arbitration provision. Rent-A-Center, W., Inc.,
561 U.S. at 72 (“[U]nless [the plaintiff] challenged the delegation provision specifically, [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 to the arbitrator.”).
The Court first finds the leases clearly and unmistakably agree to arbitrate issues of
arbitrability. Then, the Court holds that Plaintiffs’ challenges to the leases attack either the
agreements as a whole or separate provisions of the agreements. They do not specifically challenge
the delegation clause. As such, the Court recommends permitting the arbitrator to determine the
validity of the arbitration agreements.
Clear and Unmistakable Intent to Delegate Arbitrability to the Arbitrator
The parties clearly and unmistakably demonstrate their intent to delegate questions of
validity to the arbitrator. Indeed, Plaintiffs do not argue to the contrary. Of the thirty-four plaintiffs
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in this lawsuit, twenty-seven signed leases containing identical express delegation clauses.1 These
clauses provide: “THE ARBITRATOR SHALL HAVE EXCLUSIVE AUTHORITY TO
RESOLVE ANY DISPUTES OVER THE FORMATION, VALIDITY, INTERPRETATION,
AND/OR ENFORCEABILITY OF ANY PART OF THIS LEASE, INCLUDING THESE
ARBITRATION PROVISIONS.”2 See, e.g., ECF No. 74-13, at 15.
The remaining seven Plaintiffs’ operative leases include provisions incorporating the
American Arbitration Association (“AAA”) rules, which permit the arbitrator to determine issues
of his own jurisdiction.3 See Belnap v. Iasis Healthcare, 844 F.3d 1272, 1283 (10th Cir. 2017)
Many of these Plaintiffs also signed prior agreements that did not have this language.
However, the leases contain a superseding effects clause, which terminated any similar leases or
contracts then in effect. Therefore, the leases on which these Plaintiffs base their claims include
a delegation clause. Further, even if the operative leases did not contain superseding effects
clauses, the prior leases incorporate the AAA rules, which, as the Court discusses, also
demonstrates clear and unmistakable intent to arbitrate arbitrability.
The Plaintiffs who signed leases containing express delegation clauses are: (1)
Georgina Santich, ECF No. 74-13, at 15; (2) Janel Anderson, ECF No. 74-21, at 14; (3)
Adrianne Axelson, ECF No. 74-30, at 12; (4) Emily Bachelder, ECF No. 74-30, at 12; (5) Alena
Bailey, ECF No. 74-36, at 11; (6) Rachel Berry, ECF No. 74-37, at 12; (7) Nicole Bujok, ECF
No. 74-38, at 12; (8) Talita Catto, ECF No. 74-42, at 10; (9) Ariel Cline, ECF No. 74-47, at 12;
(10) Megan Fitzgerald, ECF No. 74-53, at 14; (11) Amanda Gabriel, ECF No. 74-57, at 13; (12)
Amy Glines, ECF No. 74-62, at 11; (13) Johanna Grissom, ECF No. 74-63, at 14; (14) Amanda
Livingston, ECF No. 74-64, at 13; (15) Arielle Mansfield, ECF No. 74-66, at 12; (16) Chada
Mantooth, ECF No. 74-69, at 14; (17) Karla Martinez, ECF No. 74-78, at 15; (18) Alexis Nagle,
ECF No. 74-85, at 14; (19) Gale Raffaele, ECF No. 74-88, at 13; (20) Amrica Terrell, ECF No.
74-103, at 11; (21) Casandra Windecker, ECF No. 74-107, at 14; (22) Melanie Tracy, ECF No.
74-110, at 13; (23) Porscha Green, ECF No. 74-111, at 14; (24) Ashley Wozneak, ECF No. 74115, at 14; (25) Rebecca Rail, ECF No. 74-119, at 13; (26) Andrea Abbott, ECF No. 74-120, at
13; and (27) Kimberly Hale, ECF No. 74-112, at 13.
The Plaintiffs who signed leases incorporating the AAA rules are: (1) Jessica Saulters
Archuletta, ECF No. 74-23, at 13; (2) Brandi Campbell, ECF No. 74-39, at 12; (3) Melissa
Chavez, ECF No. 74-46, at 13; (4) Christina Massaro, ECF No. 74-83, at 13; (5) Laportia
Oakley, ECF No. 74-86, at 13; (6) Penny Watkins, ECF No. 74-105, at 7; and (7) Amanda
Shafer, ECF No. 74-112, at 14.
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(holding that incorporation of the JAMS rules, which are “substantially identical” to the AAA rules,
demonstrated clear and unmistakable evidence of intent to arbitrate arbitrability); Dish Network LLC
v. Ray, 226 F. Supp. 3d 1168, 1173 (D. Colo. 2016) (holding that the parties’ “incorporation of the
AAA rules constitutes clear and unmistakable evidence of their intent to delegate questions of
arbitrability to the arbitrator.”). Accordingly, the Court recommends holding that each Plaintiff
signed an arbitration agreement that clearly and unmistakably permits the arbitrator to determine
issues of validity.4
Plaintiffs claim the leases are procedurally and substantively unconscionable. Resp. to Mot.
to Compel Arbitration 8–19. Regarding procedural unconscionability, Plaintiffs assert: (1) the leases
constituted standardized agreements executed by parties of unequal bargaining strength, (2)
Defendants did not give Plaintiffs an opportunity to become familiar with the lease provisions, (3)
Defendants presented Plaintiffs with the leases after they auditioned at the club and while they were
undressed or wearing lingerie, (4) Plaintiffs frequently had at least a few drinks before signing the
contracts, (5) Plaintiffs had no opportunity to modify or negotiate the lease terms, (6) Defendants’
managers rushed Plaintiffs to sign the leases and did not allow them to ask questions, and (7)
Defendants held a unilateral right to modify the leases at their discretion. Id. at 9–13.
As previously stated, arbitrability disputes are for the arbitrator unless the party contesting
arbitration specifically challenges the delegation clause included in the parties’ agreement. Rent-A-
To the extent Plaintiffs believe their unconscionability challenges indicate a lack of
clear and unmistakable intent, the Supreme Court has rejected this argument. In Rent-A-Center,
West, Inc., the Court stated that the clear and unmistakable requirement “pertains to the parties’
manifestation of intent, not the agreement’s validity.” 561 U.S. at 69–70 n.1.
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Center, W., Inc., 561 U.S. at 72. The Court finds that all of Plaintiffs’ procedural unconscionability
arguments challenge the entire agreement, not the specific delegation clause. In Buckeye Check
Cashing, Inc. v. Cardegna, the Supreme Court defined a challenge to the contract as a whole as one
that “directly affects the entire agreement (e.g., the agreement was fraudulently induced), or . . .
[states] that the illegality of one of the contract’s provisions renders the whole contract invalid.” 546
U.S. 440, 444 (2006). Each of Plaintiffs’ arguments affects the entire agreement. For example,
Plaintiffs do not assert that the delegation clause was standardized and one-sided; they claim the
entire lease was a one-sided agreement. Resp. to Mot. to Compel Arbitration 9. In Colon v.
Conchetta, Inc., the court reserved for the arbitrator the determination of whether the “arbitration
clause [is] unconscionable due to [its] one-sided nature.” No. 17-0959, 2017 WL 2572517, at *4
(E.D. Pa. June 14, 2017). According to the court, the challenge “related to the enforceability of the
arbitration agreement as a whole, rather than a specific challenge to the arbitration agreement’s
delegation clause”. Id. Similar to its standardized agreement argument, Plaintiffs assert they did
not have an opportunity to negotiate “any terms”; they do not contend Defendants specifically
denied them the opportunity to negotiate the delegation clause. Resp. to Mot. to Compel Arbitration
Although some of Plaintiffs’ procedural unconscionability arguments attack the validity of
the arbitration provision, they do not specifically challenge the delegation clause. For example,
Plaintiffs cite to their affidavits, which assert Defendants’ managers were told to never mention the
arbitration provision and class-action waiver. Id. at 12. However, Plaintiffs do not assert the
managers were told not to mention or explain the meaning of the delegation clause. Therefore, the
Court must sever the delegation clause and permit the arbitrator to decide Plaintiffs’ procedural
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Plaintiffs repeatedly attempt to frame their arguments as to the delegation clause by asserting
that the invalid leases include the arbitration provision and delegation clause. For example,
Plaintiffs state, “the manner in which Defendants presented the Leases to Plaintiffs precluded
Plaintiffs from validly assenting to any of the contract terms, including the Arbitration Clause and
the delegation provision within it.” Resp. to Mot. to Compel Arbitration 7. However, the Supreme
Court, and many courts below it, have rejected a party’s attempt to require the court to determine
the validity of a delegation clause only by stating that the clause is included in an invalid agreement.
Rent-A-Center, W., Inc., 561 U.S. at 73 (affirming the district court’s order compelling arbitration,
because the plaintiff “opposed the motion to compel on the ground that the entire arbitration
agreement, including the delegation clause, was unconscionable”); Wiles v. Palm Springs Grill,
LLC, No. 15-cv-81597-KAM, 2016 WL 4248315, at *2 (S.D. Fla. Aug. 11, 2016 ) (“Although [the]
[p]laintiff labels her validity arguments as challenges to the arbitration agreement itself, a closer
inspection reveals that at least some of those challenges are actually challenges to the contract as
a whole.”). Therefore, although the delegation clause is part of a potentially unconscionable lease
agreement and arbitration provision, Plaintiffs’ failure to specifically challenge the delegation clause
requires that the Court sever and enforce that clause.
Plaintiffs’ substantive unconscionability argument suffers from a similar flaw as does the
procedural unconscionability argument—it challenges a provision of the arbitration agreement other
than the delegation clause.5
Plaintiffs argue the arbitration provision is substantively
Plaintiffs separately argue that the Court must determine arbitrability, because Plaintiffs
“cannot afford the proceeding necessary for a determination whether the Arbitration Clause is
valid, and are unlikely to risk doing so given that they would have to pay Defendants’ costs and
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unconscionable, because the cost-sharing and fee-shifting provisions limit their access to a forum
for resolution of their claims. Resp. to Mot. to Compel Arbitration 15–18. According to Plaintiffs,
the costs of in-person hearings, discovery requests, routine motions, and decisions could easily reach
thousands, if not tens of thousands, of dollars. Id. at 17. These costs are allegedly too substantial
for Plaintiffs to risk incurring. Id. Importantly, these arguments discuss the cost of arbitrating the
entire dispute, not the cost of permitting the arbitrator to determine only arbitrability. Therefore,
they are for the arbitrator to decide. See Rent-A-Center, W., Inc., 561 U.S. at 74 (affirming the
district court’s order compelling arbitration, because the plaintiff “did not make any arguments
specific to the delegation provision; he argued that the fee-sharing and discovery procedures
rendered the entire [arbitration] [a]greement invalid”).
In addition to Rent-A-Center, West, Inc., case law from the Tenth Circuit and other district
courts supports the Court’s holding that Plaintiffs’ procedural and substantive unconscionability
arguments are for the arbitrator to determine. In a 2016 case, the plaintiffs argued that the
arbitration agreement between them and the defendant was illusory, because the contract containing
the arbitration provision allowed the defendant to modify its terms at any time. In re Cox Enters.,
Inc. Set-top Cable Television Box Antitrust Litig., 835 F.3d 1195, 1209–11 (10th Cir. 2016). The
Tenth Circuit held that the plaintiffs’ challenge was “to the entire agreement, because the arbitration
provision would be unenforceable only if the entire agreement is unenforceable.” Id. at 1211.
Similarly, Plaintiffs’ arguments that Defendants did not give Plaintiffs an opportunity to become
fees if the arbitrator rules that it is.” Resp. to Mot. to Compel Arbitration 8, ECF No. 105.
Unlike Plaintiffs’ substantive unconscionability argument discussed here, the Court construes
this argument as specifically challenging the delegation clause under the effective vindication
doctrine. Because the effective vindication doctrine is a separate issue from arbitrability, the
Court analyzes this argument in Section II, infra.
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familiar with the lease provisions and that Defendants presented the leases to Plaintiffs while
Plaintiffs were wearing lingerie will render the delegation clause invalid only if the entire agreement
is unenforceable. Because “Plaintiffs’ [unconscionability] argument . . . can prevail only as an
attack on the [lease] as a whole, [it] must be resolved by the arbitrator.” Id.
In Getzelman v. Trustwave Holdings, Inc., the plaintiff argued that the agreement was
unconscionable, because “he was forced to sign the agreement or lose his job, [he] lacked bargaining
power, [he] could not understand the contract, [he] was unable to seek legal counsel, and [he] was
not provided a copy of the agreement.” No. 13-cv-02987-CMA-KMT, 2014 WL 3809736, at *4 (D.
Colo. Aug. 1, 2014). Additionally, the plaintiff claimed the arbitration provision was standardized
and deprived the plaintiff of financial protection. Id. The Honorable Christine M. Arguello held
that the arbitrator must decide these issues, because the “[p]laintiff [did] not allege that the
incorporation of the AAA Rules, which delegate the threshold issue of validity to the arbitrator, was
procedurally or substantively unconscionable.” Id. at *5. Here, Plaintiffs make many of the same
unconscionability arguments as did the plaintiff in Getzelman. Indeed, Plaintiffs argue they were
unable to seek legal counsel, lacked bargaining power, and did not have sufficient education to
understand the agreement. Resp. to Mot. to Compel Arbitration 9–13. Because Plaintiffs do not
present evidence that the express delegation clauses and the incorporation of the AAA Rules were
procedurally and substantively unconscionable, Plaintiffs’ arguments are for the arbitrator to decide.
In McGrew v. VCG Holding Corp., a court in the Western District of Kentucky was faced
with a substantially similar issue. No. 3:16-cv-00397-TBR, 2017 WL 1147489 (W.D. Ky. Mar. 27,
The plaintiffs—exotic dancers at clubs owned by some of the Defendants in this
case—argued that the arbitration agreements were invalid, because they were encouraged to drink
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during their shifts, they were given little or no time to review the agreements, and the agreements
were contracts of adhesion. Id. at *8. The court held that:
Plaintiffs’ procedural unconscionability arguments unquestionably go to the validity
of their lease agreements as a whole, rather than the arbitration provisions
specifically. Plaintiffs do not contend that Defendants encouraged them to drink
only when they were considering the arbitration clauses. They do not state that
Defendants provided them ample time to review the portions of the agreements not
dealing with arbitration. Rather, Plaintiffs allege that their lease agreements are
procedurally unconscionable in their entirety because of the suggestive
circumstances surrounding their execution. If Plaintiffs’ allegations prove true, they
may very well be entitled to have the agreements set aside. But that is for the
arbitrator, not this Court, to decide in the first instance.
Id. The Court agrees with the holding in McGrew and recommends adopting its rationale here.
Plaintiff’s reliance on Spahr v. Secco, 330 F.3d 1266 (10th Cir. 2003) is misplaced. In that
case, the plaintiff claimed that the arbitration provision was unenforceable, because she did not have
the mental capacity to enter into the entire contract. Spahr, 330 F.3d at 1273. The Tenth Circuit
held that the challenge went to the entire contract and the specific agreement to arbitrate, because
“a mental capacity challenge can logically be directly only at the entire contract.” Id. However, the
court explicitly limited its holding to challenges based on the status of the party opposing arbitration,
such as his mental capacity. Id. at 1273 n.8. The court explained that challenges based on the
conduct of the bargaining parties, such as fraud in the inducement, can be directed at specific
provisions in the contract. Id. at 1273. Similar to fraud in the inducement, unconscionability is
based on the conduct of the bargaining parties or the terms of the contract. Therefore, a party
resisting arbitration can direct such a challenge at specific provisions of the agreement. Indeed, the
Supreme Court has recognized as much by requiring that an arbitrator decide whether an arbitration
agreement is unconscionable. See Rent-A-Center, W., Inc. 561 U.S. at 73.
In sum, the Court recommends holding that Plaintiffs’ procedural and substantive
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 16 of 27
unconscionability arguments challenge the validity of the lease as a whole. Because Plaintiffs do
not separately contend the delegation clause is unconscionable, the Court recommends severing that
clause and allowing the arbitrator to decide Plaintiffs’ unconscionability arguments.
Arguments Regarding the Validity of the Class-Action Waiver
Plaintiffs’ final argument asserts the arbitration provision is unenforceable, because the classaction waiver violates the NLRA and FLSA. Resp. to Mot. to Compel Arbitration 24–29. The
Court also recommends reserving these issues for the arbitrator. Just as was true with Plaintiffs’
unconscionability arguments, Plaintiffs’ statutory validity challenges do not pertain specifically to
the delegation clause. Instead, Plaintiffs argue that the illegality of the class-action waiver renders
the entire arbitration agreement invalid. Id. at 28 (“[T]his Court may not enforce the [Arbitration]
Clause because the illegal class/collective action wavier may not be severed from the Arbitration
Clause.”). The arbitrator must determine whether “the illegality of one of the contract’s provisions
renders the whole contract invalid.” Buckeye Check Cashing, Inc., 546 U.S. at 444.
Other courts have reserved similar issues for the arbitrator. In Colon, the court held that the
plaintiff’s “arguments regarding scope, whether the Agreement is illusory, unconscionability, and
any violation of the NLRA miss the mark because a valid delegation clause is severable from the
remainder of the contract and is unaffected by the contract’s validity. 2017 WL 2572517, at *4.
Additionally, in Torgenson v. LLC International, Inc., the court stated that the determination of
whether the plaintiffs can arbitrate as a class is for the arbitrator to determine. No. 16-cv-2495DDC-TJJ, 2016 WL 4208103, at *4–5 (D. Kan. Aug. 10, 2016). The Court agrees with the analysis
in these cases and recommends holding that the validity of the class-action waiver is for the
arbitrator to determine.
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Although the Cost-Sharing and Fee-Shifting Provisions Thwart Effective Vindication
of Plaintiffs’ Ability to Pursue Their Claims, These Provisions Are Severable From the
Agreement as a Whole.
Plaintiffs argue the Court cannot enforce the delegation clause, because the fee-shifting and
cost-sharing provisions would effectively preclude Plaintiffs from pursuing their claims. Resp. to
Mot. to Compel Arbitration 8, ECF No. 105. Pursuant to the effective vindication doctrine, “an
arbitration agreement that prohibits use of the judicial forum as a means of resolving statutory claims
must also provide for an effective and accessible alternative forum.” Shankle v. B-G Maint. &
Mgmt. of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir. 1999). In other words, courts cannot enforce
an arbitration agreement that operates as a prospective waiver of a party’s right to pursue statutory
remedies. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19
(1985). Importantly, whether an agreement effectively precludes a litigant’s ability to pursue her
claims is a matter for the court to determine, regardless of the fact that the parties agreed to delegate
arbitrability to the arbitrator. See Nesbitt v. FCNH, Inc., 811 F.3d 371, 378 (10th Cir. 2016) (“The
effective vindication exception can apply even in situations where both parties voluntarily agreed,
at the outset of their relationship, to arbitrate any claims that might arise between them.”); see also
Erik Daniels v. Encana Oil & Gas (USA), Inc., No. 16-cv-01851-CBS, 2017 WL 3263228, at *4 (D.
Colo. Aug. 1, 2017) (“[C]ourts can decide the enforceability of an arbitration agreement if it
implicates the effective vindication doctrine, notwithstanding the arbitrability doctrine . . . .”).
Therefore, although the leases validly delegate arbitrability issues to the arbitrator, the Court must
determine whether the fee-shifting provision effectively precludes Plaintiffs’ ability to pursue their
According to Plaintiffs, “[i]f the delegation provision is enforced, [they] will not be able to
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 18 of 27
effectively vindicate their rights because they cannot afford the proceeding necessary for a
determination whether the Arbitration Clause is valid, and are unlikely to risk doing so given that
they would have to pay Defendants’ costs and fees if the arbitrator rules that it is.” Resp. to Mot.
to Compel Arbitration 8. Defendants contend Plaintiffs have not presented sufficient evidence to
demonstrate that they would be unable to bear the costs of arbitration. Reply in Support of Mot. to
Compel Arbitration 12. The Court recommends finding that the cost-sharing and fee-shifting
provisions thwart effective vindication of Plaintiffs’ ability to pursue their claims. Nevertheless, the
Court recommends compelling Plaintiffs to arbitration, because the provisions are severable from
the agreement as a whole.
First, although it is a close question, Plaintiffs have met their burden of demonstrating that
enforcing the delegation clause with the fee-shifting provision would effectively preclude them from
seeking redress under the FLSA. Many Plaintiffs have submitted affidavits asserting that based on
their weekly income, they would be unable to afford the cost of arbitration. See Aff. of Andrea
Abbot ¶ 35, ECF No. 106-2; see also Aff. of Melissa Chavez ¶ 36, ECF No. 106-5. Furthermore,
the costs and fees of arbitrating even a minor dispute, such as arbitrability, could reach well into the
thousands of dollars. To be sure, Plaintiffs could have provided substantially more information
regarding their income, expenses, and the specific costs of arbitrating validity issues. However, the
Court holds that the affidavits Plaintiffs submitted sufficiently demonstrate that enforcing the feeshifting and cost-sharing provisions would effectively preclude Plaintiffs from asserting their claims.
See Pollard v. ETS PC, Inc., 186 F. Supp. 3d 1166, 1176 (D. Colo. 2016) (“[T]he most common
examples of arbitrable provisions that thwart effective vindication of federal statutory rights,
particularly FLSA rights, are those that impose prohibitive costs on the plaintiff (such as paying or
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 19 of 27
splitting the arbitrator’s fee), or that would hold the plaintiff liable for the defendant’s attorneys’ fees
and costs if the plaintiff is unsuccessful.”).
The court’s holding in Daugherty v. Encana Oil & Gas (USA), Inc. supports this Court’s
finding. No. 10-cv-02272-WJM-KLM, 2011 WL 2791338, at *10–11 (D. Colo. July 15, 2011). In
that case, the parties’ contract contained a fee-shifting provision, and the plaintiffs filed affidavits
stating that they would be unable to risk paying the substantial costs and fees associated with
arbitrating their claims in the event they were unsuccessful. Id. at *10. The court held that this
provision effectively precluded the plaintiffs from pursuing their FLSA claims. Id. at *11.
According to the court, the plaintiffs’ “affidavits make plain they have no financial ability to pay
[the defendant’s] attorneys’ fees were [the] [d]efendant to prevail before the arbitrator. The chilling
effect of this fee-shifting provision on [the] [p]laintiffs’ ability and willingness to attempt to press
their claims under the FLSA is clear.” Id. Similarly, Plaintiffs’ affidavits here clearly establish that
at their income level, they would be unable to afford the substantial attorney’s fees that would be
incurred in determining the arbitrability of their claims. Therefore, the Court recommends refusing
to enforce these provisions.
That an arbitration provision contains an invalid clause does not necessarily prohibit the
court from compelling arbitration. “Where a contract contains a ‘severability’ or ‘savings’ clause,
void or otherwise unenforceable provisions may be severed from the contract.” Pollard, 186 F.
Supp. 3d at 1179 (quoting Daugherty, 2011 WL 2791338, at *12). Here, the lease agreements
provide that, “if any provision of this Lease is declared to be illegal or unenforceable, this Lease
shall, to the extent possible, be interpreted as if that provision was not part of this Lease; it being the
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 20 of 27
intent of the parties that such part be, to the extent possible, severable from this Lease as a whole.”6
ECF No. 74-13, at 14. As such, the parties specifically agreed to sever any invalid provisions and
enforce the remainder of the agreement.
Plaintiffs argue that the Court cannot enforce the severability clause, because “the
Arbitration Clause and the Lease as a whole represent an integrated scheme to chill Plaintiffs from
exercising their legal rights.” Resp. to Mot. to Compel Arbitration 19. The Court disagrees. First,
Plaintiffs cite only to a Montana state court case and a Ninth Circuit Court of Appeals case in
support of their proposition that a scheme to chill a party from exercising his rights voids a
severability clause. Id. The Court is unaware of any binding precedent holding the same.
Moreover, in the Ninth Circuit case, the court reached the merits of many of the plaintiffs’
validity challenges and held that the invalid provisions, taken together, required that the court refuse
to enforce the severability provision. Graham Oil Co. v. ARCO Prods. Co., 43 F.3d 1244, 1248 (9th
Cir. 1994) (“[T]he offending parts of the arbitration clause do not merely involve a single, isolated
provision; the arbitration clause in this case is a highly integrated unit containing three different
illegal provisions.”). Here, because the Court reserved the merits of Plaintiffs’ unconscionability
challenges for the arbitrator, the Court may analyze only whether the invalid cost-sharing and feeshifting provisions constitute an integrated scheme to chill Plaintiffs from exercising their legal
rights. The lease agreements’ requirement that Plaintiffs pay Defendants’ fees if Defendants prevail,
although invalid, does not rise to the level of blatant misuse of the arbitration procedure or a scheme
to chill Plaintiffs from exercising their rights. See Pollard, 186 F. Supp. 3d at 1179 (severing a fee-
The other two versions of the lease agreements contain identical language. See ECF
No. 74-23, at 13; ECF No. 74-42, at 8.
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 21 of 27
shifting provision in an FLSA case); Daugherty, 2011 WL 2791338, at *12 (striking a fee-shifting
provision from an arbitration agreement, because the parties’ contract included a severability
clause). Therefore, the Court recommends severing the fee-shifting and cost-sharing provisions
from the lease agreements to the extent they differ from those contained in the FLSA.
The Nonsignatory Defendants May Enforce the Arbitration Agreement.
Plaintiffs contend that even if this Court requires them to arbitrate their claims with the
Defendants who signed the leases, the Court should not compel arbitration with the nonsignatory
Defendants (VCG and Lowrie). Resp. to Mot. to Compel Arbitration 4–6, ECF No. 105.
Defendants assert that Plaintiffs are equitably estopped from avoiding arbitration with VCG and
Lowrie.7 Mot. to Compel Arbitration 14–16, ECF No. 74; Reply in Support of Mot. to Compel
Arbitration 18–21, ECF No. 120. Because this is an issue of the Court’s authority to compel
arbitration, it is for the Court, not the arbitrator, to determine. See Belnap v. Iasis Healthcare, 844
F.3d 1272 (10th Cir. 2017) (analyzing whether nonsignatory defendants could enforce an arbitration
agreement notwithstanding that the parties clearly and unmistakably intended to delegate issues of
arbitrability to the arbitrator).
Colorado law governs whether VCG and Lowrie can compel Plaintiffs to arbitration. See
id. at 1293. Accordingly, the Court must follow the most recent relevant decisions of the Colorado
Defendants contend in a footnote that in addition to equitable estoppel, the leases
explicitly require arbitration of all claims against companies affiliated with the signatory
Defendants. Reply in Support of Mot. to Compel Arbitration 20 n.14. In support of their
argument, Defendants cite ECF No. 74-12 as the contract with this provision. Id. Although ECF
No. 74-12 contains this language, the most recent version of the lease, which the parties signed
in 2015, does not include this provision. ECF No. 74-13. Because the 2015 lease includes a
superseding effects clause, provisions only in prior leases are not relevant to determining
whether the nonsignatory Defendants may compel arbitration.
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 22 of 27
Supreme Court, and if no such decisions exist, the Court must attempt to predict what Colorado’s
highest court would do. Wade v. EMCASCO Ins. Co., 483 F.3d 657, 665–66 (10th Cir. 2007). “In
doing so, [the Court] may seek guidance from decisions rendered by lower courts in [Colorado],
appellate decisions in other states with similar legal principles, [and] district court decisions
interpreting the law of [Colorado].” Id. at 666.
The Colorado Supreme Court has not discussed the circumstances in which a nonsignatory
can compel a signatory to arbitration. However, the Colorado Court of Appeals has stated at least
two circumstances in which the doctrine of equitable estoppel permits a nonsignatory to enforce an
arbitration agreement. Meister v. Stout, 353 P.3d 916, 920 (Colo. App. 2015). First, a court may
compel a nonsignatory plaintiff to arbitrate with a signatory defendant when “the [plaintiff’s] claim
arises from the agreement containing the arbitration provision.” Id. The second scenario, under
which there are two subsets, applies when a nonsignatory defendant attempts to bind a signatory
plaintiff to an arbitration agreement. Id. Under this scenario, a defendant may compel arbitration
when the plaintiff relies on the terms of a written agreement to assert his claims or when the plaintiff
alleges interconnected misconduct between the signatory and nonsignatory defendants and the
misconduct is intertwined with duties or obligations arising from the parties’ contract. Id. at
920–21; Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 449 F. App’x 704, 710 (10th Cir. 2011)
(“[A]llegations of collusion will support estoppel ‘only when they establish that the claims against
the nonsignatory are intimately founded in and intertwined with the obligations imposed by the
contract containing the arbitration clause.’” (quoting In re Humana, Inc. Managed Care Litig., 285
F.3d 971, 975 (11th Cir. 2002))). Because this case involves nonsignatory defendants compelling
signatory plaintiffs to arbitration, only the second scenario is relevant. Just as did the Honorable
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 23 of 27
William J. Martinez in Pollard, this Court predicts that the Colorado Supreme Court would adopt
Meister’s holding and find that allegations of interdependent misconduct that is intertwined with
duties in the underlying contract will estop a plaintiff from avoiding arbitration. Pollard v. ETS PC,
Inc., 186 F. Supp. 3d 1166, 1174–75 (quoting Meister, 353 P.3d at 921).
The Court recommends holding that the nonsignatory Defendants may compel Plaintiffs to
arbitration, because Plaintiffs’ claims against the signatory Defendants are interdependent on those
against VCG and Lowrie, and the claims are intertwined with duties and obligations in the lease
agreements.8 First, the claims against the signatory and nonsignatory Defendants are interdependent.
Plaintiffs make their allegations collectively against all Defendants. Am. Compl. ¶ 20, ECF No. 65
(“Defendants improperly classified Plaintiffs and other Class members as independent contractors
. . . .”); id. at ¶¶ 125–42 (asserting the FLSA claim against all Defendants). Indeed, Plaintiffs
concede their claims allege substantially interdependent misconduct. Resp. to Mot. to Compel
Arbitration 5. As such, the Court finds that Plaintiffs’ claims against the signatory Defendants are
interdependent with those against VCG and Lowrie, and the only remaining issue is whether the
allegations are intertwined with duties and obligations in the lease agreements.
The Court recommends holding that, although again a close call, Plaintiffs’ claims are
intertwined with duties and obligations arising from the agreements. As the main document
governing the parties’ relationship, the arbitrator will have to reference the leases’ terms,
requirements, and duties in adjudicating Plaintiffs’ claims. For example, in deciding whether
Because the Court finds that Plaintiffs are equitably estopped on these grounds, it is
unnecessary for the Court to reach Defendants’ reliance argument. Additionally, the Court need
not discuss Defendants’ argument that the signatory Defendants are agents of the nonsignatory
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 24 of 27
Plaintiffs were employees or independent contractors, the arbitrator will have to examine whether
the leases gave Defendants a significant level of control over Plaintiffs’ actions. Indeed, Plaintiffs
recognize as much by relying on requirements in the leases to demonstrate Defendants exercised
control over Plaintiffs. See Am. Compl. ¶¶ 46–48.
Judge Martinez’ decision in Pollard supports this Court’s holding. In that case, the plaintiffs
asserted FLSA claims against the defendants for failing to pay overtime wages. Pollard, 186 F.
Supp. 3d at 1169. The court held that the claims against the nonsignatory defendants were
intertwined with duties or obligations arising from the parties’ employment agreement. Id. at 1175.
This was so, because “an arbitrator will need to examine and interpret the [employment agreements]
to determine whether [the] [p]laintiffs’ claims implicate or are affected by those Agreements.” Id.
Similarly, the arbitrator in this case will need to analyze the duties and obligations contained in the
lease agreements to determine whether Plaintiffs were employees or independent contractors.9
The cases Plaintiffs rely on do not persuade the Court to the contrary. In Lenox MacLaren
Surgical Corp. v. Medtronic, Inc., the plaintiff asserted antitrust claims against a signatory to a
licensing and distributorship agreement and the signatory’s parent company. 449 F. App’x at
710–11. The Tenth Circuit held that the antitrust claims were not intertwined with the obligations
of the licensing and distributorship agreement. Id. As such, the parent company could not compel
the plaintiff to arbitration. Id. at 711. However, in that case, the arbitrator would not have needed
to analyze the terms and obligations of the licensing agreement to determine whether the signatory
Although the parties in Pollard did not dispute that the plaintiffs were employees, the
duties imposed by an agreement are just as relevant for determining whether employees are
entitled to overtime as they are for determining whether individuals are employees or
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and nonsignatory defendants agreed to engage in anticompetitive conduct. Here, in contrast, the
restrictions and requirements in the lease agreements will be extremely relevant in determining the
type of relationship the parties had.10
Plaintiffs cite Peck v. Encana Oil & Gas, Inc., 224 F. Supp. 3d 1181 (D. Colo. 2016) for the
proposition that equitable estoppel does not apply, because they are not “seeking to hold
[Defendants] ‘liable pursuant to duties imposed’ by the Lease, while simultaneously denying the
Clause’s applicability because they are nonsignatories.” Resp. to Mot. to Compel Arbitration 5
(quoting Peck, 224 F. Supp. 3d at 1184). However, that case involved a signatory defendant
compelling a nonsignatory plaintiff to arbitration. Peck, 224 F. Supp. 3d at 1183. Thus, the facts
in Peck implicated the first scenario discussed in Meister, which requires that “the [plaintiff’s] claim
arises from the agreement containing the arbitration provision.” Meister, 353 P.3d at 920. As
previously stated, a different standard exists when a nonsignatory defendant wishes to compel a
signatory plaintiff to arbitration. Indeed, the court recognized this distinction in Peck:
[T]he test applied by the court in Pollard is not the same test applicable to this case.
In Pollard, the question was when non-signatory defendants could compel plaintiffs,
who agreed to arbitrate their claims, to arbitrate their claims against the non-signing
defendants. In making that determination, the court determines whether the signatory
defendants and non-signatory defendants engaged in “interdependent and concerted
misconduct” and whether that misconduct is “intertwined with duties or obligations
The Court does not read Lenox MacLaren Surgical Corp. as requiring that a plaintiff
plead a breach of obligations in a contract for his claims to be intertwined with the agreement.
Indeed, such a holding would conflate the two situations in which a nonsignatory defendant can
compel a signatory plaintiff to arbitration. Apart from claims intertwined with the agreement, a
nonsignatory defendant can require a signatory plaintiff to arbitrate her claims when the
plaintiff’s claims rely on the agreement. Meister, 353 P.3d at 920. “For a plaintiff’s claims to
rely on the contract containing the arbitration provision, the contract must form the legal basis of
those claims . . . .” Lenox MacLaren Surgical Corp., 449 F. App’x at 710. Therefore, if
intertwined misconduct existed only upon a breach of contract obligations, the requirement
would be the same as that for the reliance scenario.
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 26 of 27
arising from the underlying contract.” This is a different question than the question
this Court must reach, which is whether [the] [p]laintiff’s claims “arise from” the
contract containing the arbitration agreement and whether [the] [p]laintiff seeks the
benefit of the agreement.
224 F. Supp. 3d at 1185.
In sum, the Court finds that Plaintiffs’ claims against the signatory Defendants are
interdependent with those against the nonsignatory Defendants and intertwined with the lease
agreements. As such, the Court recommends holding that VCG and Lowrie can compel Plaintiffs
The Court first recommends severing the delegation clause from the arbitration agreement
and reserving Plaintiffs’ unconscionability and statutory validity challenges for the arbitrator. Next,
the Court recommends holding that the fee-shifting and cost-sharing provisions in the lease
agreements violate the effective vindication doctrine. However, because the leases contain a
severability clause, the Court recommends severing the provisions from the remainder of the
agreement. Finally, the Court recommends holding that Defendants VCG and Lowrie may enforce
the arbitration agreement, because Plaintiffs’ claims against them are interdependent with those
against the signatory Defendants and intertwined with the lease agreements.
As such, the Court respectfully recommends that Defendants’ Motion to Stay or Dismiss
Proceedings Pursuant to Section 3 and 4 of the Federal Arbitration Act, to Compel Plaintiffs to
Arbitration, and to Strike Class and Collective Allegations [filed May 26, 2017; ECF No. 74] be
granted. The Court recommends that the District Court stay this litigation at least until the
arbitrator determines the validity of the arbitration agreements.
In light of the Court’s holding on Defendants’ Motion to Compel Arbitration, the Court
Case 1:17-cv-00631-RM-MEH Document 149 Filed 09/26/17 USDC Colorado Page 27 of 27
recommends that Plaintiffs’ Expedited Motion to Proceed as a Conditional Collective Action, to
Provide Notice, and to Toll all Statute of Limitations [filed May 12, 2017; ECF No. 61] be denied
Entered and dated at Denver, Colorado, this 26th day of September, 2017.
BY THE COURT:
Michael E. Hegarty
United States Magistrate Judge
Be advised that all parties shall have fourteen days after service to serve and file any
written objections in order to obtain reconsideration by the District Judge to whom this case is
assigned. Fed. R. Civ. P. 72. The party filing objections must specifically identify those
findings or recommendations to which the objections are being made. The District Court need
not consider frivolous, conclusive or general objections. A party’s failure to file such written
objections to proposed findings and recommendations contained in this report may bar the party
from a de novo determination by the District Judge of the proposed findings and
recommendations. United States v. Raddatz, 447 U.S. 667, 676–83 (1980); 28 U.S.C. §
636(b)(1). Additionally, the failure to file written objections to the proposed findings and
recommendations within fourteen days after being served with a copy may bar the aggrieved
party from appealing the factual and legal findings of the Magistrate Judge that are accepted or
adopted by the District Court. Duffield v. Jackson, 545 F.3d 1234, 1237 (10th Cir. 2008)
(quoting Moore v. United States, 950 F.2d 656, 659 (10th Cir. 1991)).
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