Mantooth et al v. Bavaria Inn Restaurant Inc. et al
Filing
124
ORDER Granting in part Defendants' Renewed Motion to Compel Individual Arbitration and Dismiss or Stay Proceedings. Defendants' Motion to Compel (ECF No. 57 ) is GRANTED IN PART and DENIED IN PART. Plaintiffs' Expedited Motion to Pr oceed as a Conditional Collective Action, Provide Notice, and Toll All Statutes of Limitations (ECF No. 43 ) is DENIED AS MOOT without prejudice to refilling, subject to the disposition of the arbitration. Defendants' Motion to Continue Procee dings Pursuant to FRCP 6(b) on Plaintiffs' Expedited Motion to Proceed as a Conditional Collective Action, Provide Notice, and Toll All Statutes of Limitations (ECF No. 44 ) is DENIED AS MOOT. Plaintiffs' Motion to Certify to the Colora do Supreme Court (ECF No. 83 ) is DENIED AS MOOT. Pursuant to D.C.COLO.LCivR 41.2, the Clerk shall ADMINISTRATIVELY CLOSE this case, subject to a motion to reopen for good cause subsequent to the conclusion of all of the Plaintiffs individual arbitration proceedings. ORDERED by Judge William J. Martinez on 5/16/2018. (angar, ) (angar, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 17-cv-1150-WJM-MEH
CHADA MANTOOTH,
GALE RAFFAELE,
ALEXIS NAGLE, and
NICOLE BUJOK, individually and on behalf of all others similarly situated,
Plaintiffs,
v.
BAVARIA INN RESTAURANT, INC., d/b/a Shotgun Willie’s, and
DEBRA MATTHEWS,
Defendants.
ORDER GRANTING IN PART DEFENDANTS’ RENEWED MOTION TO COMPEL
INDIVIDUAL ARBITRATION AND DISMISS OR STAY PROCEEDINGS
Plaintiffs Chada Mantooth, Gale Raffaele, Alexis Nagle, and Nicole Bujok
(“Plaintiffs”) allege that Defendants Bavaria Inn Restaurant Inc. d/b/a Shotgun Willie’s
(“Shotgun Willie’s”) and its owner Debra Matthews (“Matthews”) (jointly, “Defendants”)
improperly classified Plaintiffs as independent contractors and violated the Fair Labor
Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), the Colorado Wage Claim Act, Colo.
Rev. Stat. §§ 8-4-101 et seq. (“CWCA”), and Colorado common law. (ECF. No. 1.)
Currently before the Court are four motions, including Defendants’ Renewed Motion to
Compel Individual Arbitration and Dismiss or Stay Proceedings (“Motion to Compel”).
(ECF No. 57.) Defendants argue that the terms of contracts between Plaintiffs and
Shotgun Willie’s and the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., require Plaintiffs
to bring their claims in individual arbitration proceedings.
For the reasons explained below, the Court grants in part Defendants’ Motion to
Compel. The Court finds that Plaintiffs’ claims must be submitted to individual
arbitration, although certain provisions of the arbitration clause must in the interest of
justice be severed. Because this dispute must be submitted to arbitration, the Court
denies the other pending motions, ECF Nos. 43, 44, and 83, as moot. However, with
respect to ECF No. 43, Plaintiffs’ Expedited Motion to Proceed as a Conditional
Collective Action, Provide Notice, and Toll All Statutes of Limitations, dismissal is
without prejudice to the refiling of the motion if there is a legal basis to do so after the
disposition of the arbitration.
I. BACKGROUND
Plaintiffs are four individuals who, on behalf of themselves and those similarly
situated, sued Defendants for violations of the FLSA, the CWCA, and Colorado
common law. (ECF No. 1.) In their Complaint, Plaintiffs allege that Defendants—an
adult entertainment club and its owner—improperly classified them as independent
contractors rather than employees. Specifically, Plaintiffs allege that, because they
were actually employees and not independent contractors, Def endants violated the
FLSA and CWCA by failing to pay a proper minimum wage or overtime, requiring that
Plaintiffs share tips, charging fees for Plaintiffs to work at Shotgun Willie’s, and charging
Plaintiffs “inappropriate fines.” (ECF No. 1 ¶¶ 110, 116–120, 128, 133–138.)
Though not alleged in the Complaint, both parties acknowledge in their briefing
that Plaintiffs signed “Entertainment License Agreements” (“Agreements”). (ECF Nos.
57 & 86.) These Agreements disclaim any employer-employee relationship and classify
Plaintiffs as licensees. (ECF No. 57-2 ¶ 13.C.)
2
The Agreements also contain an arbitration provision (“arbitration clause”),
written in bold and all capital letters, that commits the parties to arbitrate “any
controversy, dispute, or claim . . . arising out of this agreement.” (Id. ¶ 22.)1 The parties
also delegate exclusive authority regarding arbitrability to an arbitrator: “The arbitrator
shall have exclusive authority to resolve any disputes over the validity and/or
enforceability of any part of this agreement, including this paragraph 22 to arbitrate any
and all claims.” (“delegation clause”) (Id. ¶ 22.A.)
The parties also agreed to certain terms related to the arbitrator and costs of the
arbitration. The arbitration “shall be administered by a neutral arbitrator agreed upon by
the parties.” (Id. ¶ 22.A.) The only other condition for selecting the arbitrator is that
either party may “request an arbitrator experienced in the adult entertainment industry.”
(Id. ¶ 22.A.) The arbitration clause also contains four provisions concerning the cost
and fees arising out of the arbitration:
•
“The costs of the arbitration shall be borne equally by the entertainer and
the club unless the arbitrator concludes that a dif ferent allocation is
required by law.” (Id. ¶ 22.A.)
•
“In the event that any party challenges, or is required to initiate
proceedings to enforce, the arbitration requirements of this paragraph 22,
the prevailing party to such challenges and/or enforcement proceedings
shall be entitle to an award of all costs, including actual and reasonable
attorney fees, incurred in litigation such issues.” (Id. ¶ 22.D.)
•
“Any ruling arising out of a claim between the parties shall, to the extent
not precluded by applicable law, award costs incurred for the proceedings
and reasonable attorney fees to the prevailing party.” (Id. ¶ 22.E.)
1
The arbitration provisions in the operative versions of the Agreements are identical.
(ECF Nos. 57-2, 57-4, 57-8, 57-10.)
3
•
The arbitrator “shall be permitted to award, subject only to the restrictions
contained in this paragraph 22, any relief available in a court.” (Id. ¶ A.)
Less than two months after Plaintiffs filed their Complaint (ECF No. 1), in late
June 2017, Defendants moved to compel arbitration. (ECF No. 23.) Before this Court
ruled on the motion, the parties agreed to limited discovery regarding the formation of
the Agreements. (ECF No. 34.) The Court granted an unopposed request to defer
briefing and consideration of the initial motion to compel and denied that motion without
prejudice, subject to later re-filing. (ECF No. 38.) In October 2017, Defendants
renewed their motion to compel (ECF No. 57), and it is that motion which is now before
the Court.
II. LEGAL STANDARD
Pursuant to § 2 of the Federal Arbitration Act (“FAA”), a written agreement to
submit a controversy to arbitration “shall be valid, irrevocable, and enforceable.”
9 U.S.C. § 2. Congress enacted the FAA to statutorily enshrine a “liberal federal policy
favoring arbitration” in response to judicial hostility to arbitration agreements. AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011); see also Hall Street Assocs.
LLC v. Mattel, Inc., 552 U.S. 576, 581 (2008). An arbitration agreement stands on
equal footing with other contracts and a court is required to enforce such an agreement
according to its terms. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010).
Such an agreement is generally enforced as written, “save upon such grounds as exist
at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Grounds for
invalidation of an arbitration agreement include contract defenses, such as fraud,
duress, or unconscionability. Rent-A-Center, 561 U.S. at 68.
4
The Court looks to Colorado contract law to determine whether an arbitration
agreement is enforceable. THI of New Mexico at Hobbs Center, LLC v. Patton, 741
F.3d 1162, 1167 (10th Cir. 2014) (stating that an arbitration can be voided on state law
grounds for revoking a contract). Colorado courts consider the following to decide
whether a contract or provisions thereof are unconscionable:
(1) the use of a standardized agreement executed by parties
of unequal bargaining power; (2) the lack of an opportunity
for the customer to read or become familiar with the
document before signing it; (3) the use of fine print in the
portion of the contract containing the provision in question;
(4) the absence of evidence that the provision was
commercially reasonable or should reasonably have been
anticipated; (5) the terms of the contract, including
substantive fairness; (6) the relationship of the parties,
including factors of assent, unfair surprise, and notice; and
(7) the circumstances surrounding the formation of the
contract, including setting, purpose, and effect.
Bernal v. Burnett, 793 F. Supp. 2d 1280, 1286 (D. Colo. 2011) (citing Davis v. M.L.G.
Corp., 712 P.2d 985, 991 (Colo. 1986)). The Davis factors, so named for the Colorado
Supreme Court case which set forth the relevant factors to be considered on this issue,
require both procedural and substantive unconscionability for a contract to be
unenforceable. Vernon v. Qwest Commc’ns. Int’l, Inc., 857 F. Supp. 2d 1135, 1157 (D.
Colo. 2012).
Challenges to an arbitration agreement must specifically contest the formation of
the arbitration clause; a challenge to the contract as a whole is not sufficient. Rent-ACenter, 561 U.S. at 72 (“[U]nless [plaintiff] challenged the delegation provision
specifically, we must treat it as valid under § 2 [of the FAA], and must enforce it under
§§ 3 and 4, leaving any challenge to the validity of the Agreement as a whole for the
5
arbitrator.”); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967).
If the party opposing arbitration does not specifically challenge the validity of the
arbitration provision and the contract contains a savings clause, the agreement to
arbitrate may be severed from the remainder of an otherwise-unenforceable contract.
Rent-A-Center, 561 U.S. at 70–71; see Santich v. VCG Holding Corp., 2017 WL
4251944 (D. Colo. Sept. 26, 2017). “[D]oubts are to be resolv ed in favor of arbitrability.”
Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1514 (10th Cir. 1995).
An arbitration agreement may delegate issues of arbitrability to an arbitrator.
Rent-A-Center, 561 U.S. at 68–69 (“We have recognized that parties 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.”). A so-called
“delegation clause” is “simply an additional, antecedent agreement the party seeking
arbitration asks the federal court to enforce,” and is generally enforced as any other
arbitration agreement under the FAA. Id. at 70. As with challenges to an arbitration
clause, a party resisting delegation of arbitrability must specifically direct arguments at
the delegation clause; otherwise the argument is for the arbitrator to resolve. See id. at
72. However, rather than resolving all doubts in favor of arbitrability, a court “should not
assume that the parties agreed to arbitrate arbitrability unless there is clear and
unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938 (1995) (internal citations omitted). The “clear and unmistakable” standard
applies to the parties’ intent to arbitrate, not the validity of the agreement. See Rent-ACenter, 561 U.S. at 69 n.1.
6
In addition to considering contract defenses, a court must also evaluate whether
arbitration will allow for effective vindication of a party’s claims. Nesbitt v. FCHN, Inc.,
811 F.3d 371, 376–77 (10th Cir. 2016); Sanchez v. Nitro-Lift Techs, L.L.C., 762 F.3d
1139, 1149 (10th Cir. 2014). If the terms of the arbitration clause would prevent a
party’s effective vindication of its claims, a court may strike the portion which prevents
effective vindication and compel arbitration on the remaining terms. Pollard v. ETS PC,
Inc., 186 F. Supp. 3d 1166, 1176–78 (D. Colo. 2016). If the party resisting arbitration
argues that the cost of arbitration would prevent effective vindication, that party has the
burden to show that arbitration would be “prohibitively expensive.” Sanchez, 762 F.3d
at 1149.
III. ANALYSIS
The Court will first consider who has the power to decide whether the dispute is
arbitrable. See Belnap v. Iasis Healthcare, 844 F.3d 1272, 1281 (10th Cir. 2017)
(“[T]he question of who should decide arbitrability precedes the question of whether a
dispute is arbitrable.”) (emphasis in original). Based on the plain language of the
Agreements, the parties clearly and unmistakably intended to delegate arbitrability to
the arbitrator. See Rent-A-Center, 561 U.S. at 69 n.1; Santich, 2017 WL 4251944,
at *4. Despite Plaintiffs’ arguments that the Agreements are unconscionable, as will be
discussed in greater detail below, the Court finds that Plaintiffs do not specifically attack
the delegation clause, and therefore, it is the arbitrator who must resolve any challenge
to the enforceability of the Agreements. See Rent-A-Center, 561 U.S. at 72. However,
the Court also finds that several provisions of the arbitration and delegation clauses
7
prevent Plaintiffs’ effective vindication of their statutory rights in arbitration. Because
the Agreements contain a severability clause, the Court finds that the invalid portions
are severable from the arbitration clause.
Accordingly, for the reasons explained below, the Court strikes from the
arbitration clause the fee-shifting provisions, the cost-sharing requirement for certain
Plaintiffs, and the industry expert arbitrator selection requirement. Subject to the
severance of these provisions, all disputes regarding the validity of the contracts,
unconscionability, and the class action waiver are properly delegated to the arbitrator to
decide the arbitrability of the claim. Finally, the Court also finds that nonsignatory
Defendant Matthews may compel arbitration.
A.
Arbitrability
Before deciding any issues of the arbitrability of the dispute, the Court must first
consider who should decide questions of arbitrability. Belnap, 844 F.3d at 1281 (“The
question of who should decide arbitrability precedes the question of whether a dispute
is arbitrable.”). The Court first considers whether the parties evinced a clear and
unmistakable intent to delegate validity disputes to the arbitrator. First Options of
Chicago, 514 U.S. at 944. The Court then considers the challenges to the Agreements
raised by Plaintiffs. Santich, 2017 WL 4251944, at *4.
1.
Clear and Unmistakable Intent to Arbitrate
The parties clearly and unmistakably intended to delegate questions of
arbitrability to an arbitrator. The parties do not dispute that the Plaintif fs signed the
Agreements or that the Agreements contained an arbitration and delegation clause.
8
The delegation clause states that “[t]he arbitrator shall have exclusive authority to
resolve any disputes over the validity and/or enforceability of any part of this
agreement, including this paragraph 22 to arbitrate any and all claims.” (ECF No. 57-2
¶ 22.A.) Plaintiffs do not argue that the text of the delegation provision is in someway
ambiguous or unclear. Absent any argument from the parties or evidence to the
contrary, the Court holds that the delegation clause is a “clear and unmistakable”
delegation of arbitrability to the arbitrator. See Rent-A-Center, 561 U.S. at 69 n.1;
Santich, 2017 WL 4251944, at *4. Thus, the Court will enforce the arbitration
agreement as written unless, as discussed below, the FAA permits the Court to do
otherwise.
2.
Unconscionability Arguments
Consistent with the dictates of the FAA, courts normally enforce arbitration
agreements as written, unless there are grounds “at law or in equity for revocation of
any contract.” 9 U.S.C. § 2. Here, Plaintiffs contend that the Agreements, as well as
the arbitration and delegation clauses therein, are unconscionable and so they should
not be compelled to arbitrate their claims.
Plaintiffs mount multiple attacks on the procedural unconscionability of the
Agreements. Specifically, Plaintiffs criticize: (1) the way in which Defendants presented
the Agreements to Plaintiffs directly after auditions while Plaintiffs were in a state of
undress; (2) formation of contracts while Defendants likely knew that Plaintiffs were
under the influence of drugs or alcohol; (3) the “take it or leave it” nature of the
Agreements; and (4) Plaintiffs’ limited opportunities to read, review, or ask questions
about the Agreements. (ECF No. 86 at 6–10.) W hile the Court has serious concerns
9
about the circumstances under which the Agreements were signed, each of Plaintiffs’
challenges are directed to the contract as a whole, rather than the arbitration and
delegation provisions. See Rent-A-Center, 561 U.S. at 71–72 (holding that a party may
challenge the validity of an agreement to arbitrate, but that challenges must be directed
specifically to the agreement to arbitrate, not the agreement as a whole); Prima Paint,
388 U.S. at 404. However, absent a challenge to the procedural unconscionability of
the delegation or arbitration clauses, this Court cannot ignore the plain language of the
contract. See Davis, 712 P.2d at 991 (“In order to support a f inding of
unconscionability, there must be evidence of some overreaching on the part of one of
the parties . . . together with contract terms which are unreasonably favorable to that
party.”); Vernon, 857 F. Supp. 2d at 1157 (“both procedural and substantiv e
unconscionability are required for a contract to be unenforceable”).
To the extent that the Plaintiffs specifically challenge the agreement to arbitrate
(as opposed to the agreement as a whole), they have failed to tailor their arguments to
the delegation clause, rather than the arbitration clause as a whole. See Rent-ACenter, 561 U.S. at 72-73. For example, Plaintiffs argue that, even if they were aware
of the arbitration clause, they would have been unable to understand the arbitration
provision because they (a) had only a high school diploma; (b) were teenagers when
they first began working in similar establishments; (c) suffered anxiety; (d) were
strapped for cash; and generally (e) “didn’t know what they’re doing.” (ECF No. 86 at
8–9.) These criticisms address only the arbitration clause, not the delegation clause,
which is separate and distinct. See Rent-A-Center , 561 U.S. at 70–73; Getzelman v.
Trustwave Holdings, Inc., 2014 WL 3809736 (D. Colo. Aug. 1, 2014).
10
Moreover, Plaintiffs have failed to show that the arbitration clause alone is
procedurally unconscionable. See Davis, 712 P.2d at 991 (outlining factors of
procedural unconscionability). For example, Plaintiffs criticize the entire arbitration
clause (but not specifically the delegation clause) as commercially unreasonable
because Plaintiffs did not recall other contracts containing such a clause and the
managers failed to mention the arbitration clause. However, courts in this District have
held that “there is nothing inherently unfair about an agreement to arbitrate,” Bernal,
793 F. Supp. 2d at 1288, and many employment agreements contain arbitration
provisions, see, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 122–23 (2001)
(holding that the FAA allows arbitration clauses in employment agreements and
recognizing the potential benefits of arbitration of employment disputes). Indeed,
contracts between strip clubs and exotic dancers frequently include arbitration
requirements. See Santich, 2017 WL 4251944, at *1; Wilson v. 59th St. LD Okla. City,
LLC, 2017 WL 722060, at *2 (W.D. Okla. Feb. 23, 2017); McGrew v. VCG Holding
Corp., 244 F. Supp. 3d 580, 584 (W.D. Ky. 2017); Evering v. Tampa Food & Hospitality,
Inc., 2016 WL 8943314, at *1 (M.D. Fla. Aug. 4, 2016).
While the Plaintiffs make strong arguments regarding the procedural
unconscionability of the Agreements, most challenges are directed to the contract as a
whole, rather than the arbitration and delegation provisions. Those arguments directed
at the arbitration provision do not specifically address the delegation clause, nor do they
establish procedural unconscionability with respect to the agreement to arbitrate.
Colorado law requires both procedural and substantive unconscionability to invalidate a
contract. Because Plaintiffs have failed to show any procedural unconscionability in the
11
formation of the delegation clause, this Court need not consider Plaintif fs’ substantive
unconscionability arguments.2
Consistent with Supreme Court precedent and the terms of the Agreements, this
Court must compel the parties to arbitration. The arbitrator has sole authority to
determine arbitrability and resolve the parties’ dispute. One of the first considerations
for the arbitrator, assuming Plaintiffs demand arbitration, will be to examine Plaintiffs’
unconscionability arguments as they relate to the Agreements as a whole and
determine if there exist valid contracts between the parties.
B.
Effective Vindication of Rights Under Arbitration Clause
In addition to any contract defenses, the Court must consider whether arbitration
under the terms of the Agreements will thwart Plaintiffs ability to effectively vindicate
their rights. Nesbitt, 811 F.3d at 378 (stating that precedent suggested that the
effective vindication exception “stands apart from the issue of whether the parties
voluntarily agreed to submit their claims to arbitration”). Under the effective vindication
doctrine, a court will not enforce an arbitration agreement that “operates as a
prospective waiver of a party’s right to pursue statutory remedies.” Santich, 2017 WL
4251944, at * 8.
Though under the guise of unconscionability, Plaintiffs raise several arguments
that particular provisions of the arbitration clause will prevent effective vindication of
2
The Court notes Plaintiffs’ arguments regarding the substantive unconscionability of
the grievance procedure. However, the grievance procedure has nothing to do with the
enforceability of the delegation provision in the Agreements, and Plaintiffs possible failure to
satisfy a condition precedent does not implicate whether this dispute must proceed in arbitration
or litigation.
12
their statutory claims. Specifically, Plaintiffs argue that the fee sharing and cost-shifting
provisions are unfair because Plaintiffs have limited means and are unable to afford the
cost of arbitration or the risks of an adverse outcome. The fee-shifting and cost-sharing
provisions somewhat conflict in that they require the costs to be shared equally (unless
a different allocation is required by law) and that a rule “shall, to the extent not
precluded by applicable law, award costs . . . and reasonable attorney fees to the
prevailing party.” (ECF No. 57-2 ¶ 22.A and E.)
The Court need not resolve this conflict, but will separately evaluate the
provisions to determine their independent impact on Plaintiffs’ ability to effectively
pursue their claims in arbitration. Plaintiffs also raise a concern about a provision that
allows either party to request an arbitrator with experience in the adult entertainment
industry. The Court will consider Plaintiffs’ concerns about each clause in turn.
1.
Fee Shifting
Plaintiffs argue that the fee-shifting provision prevents effective vindication of
their statutory rights under the FLSA. (ECF No. 86 at 11.) Under the FLSA, a
prevailing plaintiff may recover prevailing party attorneys’ fees and costs. 29 U.S.C.
§ 216(b). One fee-shifting clause in the arbitration agreement states that the prevailing
party on a challenge to the arbitration requirements “shall be entitled” to fees and costs.
(ECF 57-2 ¶ 22.D.) The other fee-shifting clause requires the arbitrator to award fees
and costs to the prevailing party “to the extent not precluded by applicable law.” (Id. ¶
22.E.) The arbitration clause also states that the arbitrator “shall be perm itted to award
. . . any relief available in a court.” (Id. ¶ 22.A.) Plaintiffs argue that the FLSA creates a
statutory entitlement for a prevailing plaintiff to recover fees and costs, but does not
13
preclude a defendant from receiving the same. (ECF No. 86 at 11 n.6.)
Federal courts, including this Court, have found that arbitration clauses that hold
a plaintiff liable for a prevailing defendant’s fees and costs would thwart effective
vindication of statutory rights under the FLSA. Nesbitt, 881 F.3d at 380; Pollard, 186 F.
Supp. 3d at 1176; Daugherty v. Encana Oil & Gas (USA), Inc., 2011 WL 2791338 (D.
Colo. July 15, 2011) (holding that fee-shifting and cost-splitting clauses in an arbitration
agreement “erect impermissible obstacles to Plaintiffs’ ability to avail themselves of the
rights and protections afforded by the FLSA”). “Clauses which undermine the FLSA’s
award of fees to a prevailing employee interfere with employees’ effective vindication of
FLSA rights through arbitration.” Pollard, 185 F. Supp. 3d at 1176.
The three fee-shifting provisions contain some qualifying language that may limit
the arbitrator’s ability to award fees and costs to the Defendants. However, for the sake
of clarity, to the extent that the fee-shifting provisions would allow Defendants to
recover fees and costs arbitrating Plaintiffs’ FLSA claims, the Court finds that these
provisions erect a barrier to the effective vindication of FLSA rights. Therefore, the feeshifting provisions in the arbitration clause are unenforceable and will be severed.
2.
Cost Sharing
In addition to the fee-shifting provisions, Plaintiffs argue that the cost-sharing
requirement makes it prohibitively expensive for Plaintiffs to bring claims. See Gourley
v. Yellow Transp., LLC, 178 F. Supp. 2d 1196, 1204 (D. Colo. 2001) (f inding that,
where plaintiffs “aver that they cannot afford the costs associated with arbitration, and
do not foresee the ability to pay in the future,” enforcement of a cost-sharing provision
would prevent effective vindication). The Court agrees.
14
Plaintiffs present minimal evidence of financial hardship of the arbitration
clause’s cost-sharing provision. Plaintiffs cite case law referencing the “potential” or
“typical” costs of arbitration, ranging from thousands to tens of thousand of dollars, to
“fifty times the basic costs of litigating in a judicial, rather than arbitral forum.” (ECF No.
86 at 12 (emphasis in original).) Plaintiffs then assume that arbitration costs will be
consistent with these statements from prior court opinions, claim that “Plaintiffs cannot
risk arbitration,” and cite to sworn declarations of Ms. Bujok, Ms. Darr,3 Ms. Nagle, and
Ms. Raffaele.4 (Id. at 10–12.) In the declarations, each woman explains her current
income and/or financial obligations and attests that she cannot pay the costs of
individual arbitration. (ECF Nos. 86-5 ¶ 35 (Bujok) (“Currently, I make $11/hr. There is
no way I could afford to pay the costs of individual arbitration.”); 86-6 ¶ 69 (Darr)
(“Within the last year, I invested a lot of my money in starting my own business and I
am still in the process of trying to get it off the ground. There is no way I could afford to
pay the costs of individual arbitration.”); 86-8 ¶ 33 (Nagle) (“Currently, I earn fifteen
dollars an hour, and with that money, I have to support my family, including my two
kids. There is no way I could afford to pay the costs of individual arbitration.”); 86-9 ¶
51 ( Raffaele) (“Currently, I make $200 per month. There is no way I could afford to
pay the costs of individual arbitration.”).)
Defendants, however, fail to present any evidence to contradict Plaintiffs’
3
Ms. Darr is not a named plaintiff in this case. On July 12, 2017, the Plaintiffs filed a
Notice of Consent to Join, whereby Ms. Darr consented to be a plaintiff in the case. (ECF No.
32.)
4
Plaintiffs did not submit a declaration from Ms. Mantooth about her ability to pay the
costs of arbitration. Nor did Plaintiffs submit declarations from any other party who filed a
Consent to Join. (ECF Nos. 12, 15, 16, 17, 42.)
15
otherwise limited assertions of financial hardship. Cf. Daniels v. Encana Oil & Gas
(USA) Inc., 2017 WL 3253228, at *5 (D. Colo. Aug. 1, 2017) (weighing the plaintiff’s
conclusory statement of financial hardship against the defendant’s statement that it
paid plaintiff between $1.3 and $1.8 million over seven years). Instead, Defendants
merely suggest that Plaintiffs may never have to pay costs because of a contingent fee
agreement with their counsel, and cite to a declaration of Plaintiffs’ counsel detailing the
contingency fee agreement. (ECF No. 97 at 13.) This declaration contradicts
Defendants’ suggestion that Plaintiffs may not incur costs; it specifically states that “all
costs in this case will be evenly split among the plaintiffs to this action,” though counsel
will advance “all expenses reasonably necessary to prosecute” the claim.5 (ECF No. 99
(Ex. E, Newman Decl.).)6 Plaintiffs are plainly responsible for costs of arbitration, and
have provided declarations stating that they cannot afford such costs.
Although Plaintiffs have provided only limited financial information or evidence on
this issue, the Court finds it sufficient to conclude that Plaintiffs Bujok, Darr, Nagle, and
Raffaele have demonstrated that they would be unable to vindicate their rights were
they required to share the costs of arbitration. Thus, for those Plaintiffs, the Court finds
5
This document was filed under Restricted Access, Level 1. See D.C. COLO.LCivR
7.2. To the extent such a filing is quoted or summarized below, the Court has determine that
the portion quoted or summarized does not meet the standards for Restricted Access set forth
in D.C.COLO.LCivR 7.2(c)(2)–(4).
6
Defendants provide no authority for considering contingency payment arrangements
between Plaintiffs and their counsel when evaluating whether arbitration would be cost
prohibitive. Defendants further suggest that Plaintiffs’ counsel may, in the future, waive the
requirement to pay costs, but provide no legal support for considering that possibility. Were the
Court to seriously consider Defendants argument, it would defeat the rationale for statutory feeshifting provisions and disincentivize meritorious plaintiffs from retaining counsel with
contingency fee agreements.
16
that the cost-sharing provisions of the arbitration clause would prevent effective
vindication of their claims.
3.
Arbitrator with Experience in the Industry
Plaintiffs raise a concern about the ability of either party to demand an arbitrator
“experienced in the adult entertainment industry.” (ECF Nos. 86 at 14; 57-2 ¶ 22.A.)
Defendants characterize Plaintiffs’ concern as “mere speculation” and point to the
requirement that both parties agree to the arbitrator. (ECF No. 97 at 12–13.)
Arbitration requires a fair forum and an unbiased arbitrator. Hooters of America,
Inc. v. Phillips, 39 F. Supp. 2d 582, 618 (D.S.C. 1998) (quoting Commonwealth
Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145 (1968)). Courts do not generally
speculate whether an arbitrator would be biased. Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20, 30 (1991) (refusing to speculate about bias where applicable
arbitration rules would provide protection against a biased arbitrator). While courts
generally reserve allegations of arbitrator bias until after the arbitration, they will
consider potential bias where the arbitrator selection provisions are “fundamentally
unfair.” McMullen v. Meijer, Inc., 355 F.3d 485, 490 (6th Cir. 2004).
For instance, when an arbitration agreement grants one party “unilateral control
over the pool of potential arbitrators,” arbitration is not “an effective substitute for a
judicial forum because it inherently lacks neutrality.” Id. at 488, 494 (holding that a
process whereby one party unilaterally selected a pool of potential arbitrators with
certain characteristics from which the parties mutually selected an arbitrator by striking
names until one remained was “fundamentally unfair”) (emphasis added); see also
Hooters of America, Inc. v. Phillips, 173 F.3d 933, 939 (4th Cir. 1999) (noting that “given
17
the unrestricted control that one party (Hooters) has over the panel [of potential
arbitrators], the selection of an impartial decision maker would be a surprising result”).
Similarly, in Littlejohn v. TimberQuest Park at Magic, LLC, the court struck an
arbitration requirement that a “neutral arbitrator” be drawn from the zip-line industry
where the party seeking to compel arbitration operated an “aerial adventure course.”
116 F. Supp. 3d 422, 431 (D. Vt. 2015). T he court explained that the clause was
“unfair” because it was “not more than a requirement that the arbitration be conducted
among friends—or at least people who share the same concerns about defending
against claims by injured customers.” Id. Though the court in Littlejohn struck the
arbitrator selection clause on grounds of substantive unconscionability, it could have
equally done so on the grounds of effective vindication: because one party could restrict
the pool of potential arbitrators, arbitration in that forum would “inherently lack
neutrality.” See McMullen, 355 F.3d at 494.
If Defendants insist on an arbitrator from the adult entertainment industry, it is
reasonable that, as in Littlejohn, an arbitrator with an institutional stake in the outcome
would decide the dispute. Unlike the court in Gilmer, there are no other arbitration rules
that would protect against an unbiased arbitrator. See 500 U.S. at 30.
Defendants rightfully point out that both parties must agree to the arbitrator.
(ECF No. 97 at 13.) Indeed, there is a degree of mutuality in that either party may
demand an arbitrator from the adult entertainment industry, and both parties must
assent to the arbitrator. (ECF No. 57-2 ¶ 22.A.) However, if one party exercises that
option and the other party does not want such an arbitrator, the situation would be
analogous to that in Littlejohn—one party would, against their will, have no choice but to
18
select an arbitrator from a particular industry. Though the arbitration selection provision
here is not as restrictive as those in McMullen or Hooters, it still grants Defendants a
degree of unilateral control that would render arbitration before any arbitrator selected
“fundamentally unfair.” See McMullen, 355 F.3d at 494; Hooters, 173 F.3d at 939. The
ability of Defendants to unilaterally restrict the range of background of the arbitrator
would taint the selection process and make arbitration an ineffective forum to litigate
Plaintiffs FLSA claims. See McMullen, 355 F.3d at 494. The Court thus finds that the
provision allowing either party to insist on an arbitrator from the adult entertainment
industry would prevent effective vindication of claims.
C.
Severability of Invalid Clauses
“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 1178 (quoting Daugherty, 2011 WL 2791338, at *12). 7 The Agreements contain a
severability clause that states if any portion of the Agreement is unenforceable “this
Agreement shall, to the extent possible, be interpreted as if that provision was not a
part of this Agreement.” (ECF 57-2 ¶ 20.) The Court will thus sever the fee-shifting
portions of the arbitrability clause to the extent that they impose obligations different
from those established in 29 U.S.C. § 216. Similarly, the Court will sever cost-splitting
portions to the extent that they impost obligations different from those established in 29
U.S.C. § 216, but only for those Plaintiffs (Ms. Bujok, Ms. Darr, Ms. Nagle, and Ms.
Raffaele) who established that cost-splitting would make it prohibitively expensive to
7
The Court rejects Plaintiffs’ suggestion that Daugherty was wrongly decided.
19
bring claims in arbitration.
The Court will also sever the provision allowing either party to demand an
arbitrator “experienced” in the adult entertainment industry. The Court emphasizes the
important of a neutral arbitrator and strongly suggests that the parties consider using
established arbitral forums with experience in arbitrating employment disputes, such as
the American Arbitration Association (www.adr.org) or JAMS (www.jamsadr.com).
D.
Application of Arbitration Clause to Non-Signatory Defendant Matthews
Defendants contend that Defendant Matthews, a non-signatory to the
Agreements, may nonetheless enforce the arbitration clauses therein against the
signatory Plaintiffs. Plaintiffs do not seriously contest Defendants’ assertion. Indeed,
Plaintiffs’ entire argument against compelling arbitration with Matthews is contained in a
footnote toward the end of the brief and only addresses one of the two scenarios in
which a non-signatory may enforce an arbitration agreement. While the Court could
consider the matter waived,8 it will nonetheless briefly consider whether Matthews may
proceed in the arbitration.
A contract, including an agreement to arbitrate, may “be enforced by or against
non parties to the contract through . . . estoppel.” Arthur Anderson LLP v. Carlisle, 556
U.S. 624, 631 (2009) (internal quotation marks omitted). Where the contract rights
8
See United States v. Martinez, 518 F.3d 763, 768 (10th Cir. 2008) (“But this contention
appears only in a fleeting sentence at the conclusion of Mr. Martinez’s opening brief, supported
by no analysis or citation; without any such development, our precedent instructs us to deem
the point waived and leave any such challenge for another day.”); see also United States v.
Hunter, 739 F.3d 492, 495 (10th Cir. 2013) (deeming waived an argument inadequately
developed in opening brief); Thompson R2-J Sch. Dist. v. Luke P., ex rel. Jeff P., 540 F.3d
1143, 1148 n.3 (10th Cir. 2008) (same); Rojem v. Gibson, 245 F.3d 1130, 1141 n.8 (10th Cir.
2001) (same).
20
arise out of state law, application of estoppel is likewise a matter of state law. Id. at
630–32. The Court thus looks to Colorado law to determine whether Defendant
Matthews may enforce the arbitration provision against the Plaintiffs through estoppel.
Belnap, 844 F.3d at 1293.
“The Colorado Supreme Court has not addressed whether and under what
circumstances equitable estoppel might apply to compel arbitration between a signatory
and a nonsignatory.” Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 449 F. App’x
704, 709 (10th Cir. 2011); Santich, 2017 WL 4251944, at *10. In the absence of a
decision from the Colorado Supreme Court, this Court “must attempt to predict what the
state’s highest court would do.” Wade v. EMCASCO Ins. Co., 483 F.3d 657, 666 (10th
Cir. 2007) (internal quotation marks omitted). Various judges in this District, including
the undersigned, have concluded that the Colorado Supreme Court would likely adopt
the 2015 Colorado Court of Appeals decision on the relevant issue in Meister v. Stout,
353 P.3d 916 (Colo. App. 2015). See Gidding v. Fitz, 2018 WL 480607 (D. Colo. Jan.
19, 2018); Santich, 2017 WL 4251944, at *10; Pollard v. ETS PC, Inc., 186 F. Supp. 3d
1166 (Martinez, J.). This undersigned continues to believe that Meister correctly states
Colorado law on the relevant issue.
In Meister, the Colorado Court of Appeals addressed the circumstances in which
a nonsignatory may use equitable estoppel to enforce an arbitration agreement against
a signatory to the contract containing the arbitration provision. 353 P.3d 916. Relevant
here, equitable estoppel applies (1) “when a signatory alleges substantially
interdependent and concerted misconduct by a nonsignatory and one or more
signatories to the agreement” and the misconduct is “intertwined with duties or
21
obligations arising from the contract,” or (2) “where a signatory must rely on the terms of
a written agreement containing an arbitration provision to assert its claims against a
nonsignatory.” Id. at 921. In a footnote, Plaintiffs address only the second scenario
and argue that their FLSA claims do not rely on the Agreements because they conflict
with the contents of the Agreements.9 Defendants contend that Plaintiffs’ claims
against Matthews are intertwined with the allegations against Shotgun Willie’s and that
Plaintiffs rely on the Agreements to assert claims against Matthews.
Plaintiffs’ claims allege “substantially interdependent and concerted misconduct”
against Matthews (a nonsignatory to the Agreements) and Shotgun Willie’s (a
signatory). Plaintiffs repeatedly refer to “Defendants” collectively and do not distinguish
between the actions of the two Defendants. (See, e.g., ECF No. 1 ¶¶ 12, 24, 28, 30,
77, 83.) In the claims for relief, the allegations against Shotgun Willie’s and Matthews
are indistinguishable. (See, e.g., ECF No. 1 at 20–26.) Moreover, in the limited
instances where Plaintiffs address Matthews separately from Shotgun Willie’s, Plaintiffs
explain the close relationship between the two Defendants. (ECF No. 1 ¶¶ 8, 10, 29.)
Thus, the Court finds that Plaintiffs’ claims against the signatory Shotgun Willie’s are
interdependent with those with those against nonsignatory Matthews.
The Court further finds that the interdependent claims against Matthews are
intertwined with “duties or obligations arising from the underlying contract.” See
Meister, 353 P.3d at 921–22. In Santich, U.S. Magistrate Judge Michael E. Hegarty
9
Plaintiffs fail to address the first scenario in its entirety. Any challenge that Plaintiffs
could have brought under the first scenario is deemed waived. See United States v. Martinez,
518 F.3d at 768.
22
found that claims were intertwined because the arbitrator would have to reference the
parties’ agreement, including terms, requirements, and duties, to adjudicate Plaintiffs’
claims. 2017 WL 4251944, at *11; see also Pollard, 186 F. Supp. 3d at 1175 (finding
that plaintiffs’ FLSA claims were intertwined with their employment agreements
because an arbitrator would have to review the agreements to determine the
relationship of plaintiffs’ claims to the agreements).
Like the claims at issue in Santich and Pollard, an arbitrator here will have to
review the Agreements to determine whether Plaintiffs were employees or independent
contractors. Plaintiffs’ FLSA claims are intertwined with the Agreements, and Plaintiffs
are thus are equitably estopped from preventing Matthews from proceeding in
arbitration of the claims in the Complaint. The Court thus compels arbitration of claims
against both Defendants.
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.
Defendants’ Motion to Compel (ECF No. 57) is GRANTED IN PART and
DENIED IN PART as follows:
a.
Each Plaintiff, to the extent she wishes to pursue her claim, must
individually arbitrate with both Defendants;
b.
Any portion of any Agreement that any Plaintiff may have with Defendants
is SEVERED to the extent it (a) establishes a fee-shifting obligation
different from those established in 29 U.S.C. § 216(b), or (b) allows either
party to request an arbitrator experienced in the adult entertainment
industry;
23
c.
Any portion of any Agreement that Plaintiffs Bujok, Darr, Nagle, and
Rafaele may have with Defendants is SEVERED to the extent that it
establishes a cost-splitting obligation different from that established in 29
U.S.C. § 216(b);
d.
This action is hereby STAYED pending the conclusion of Plaintiffs’
individual arbitration proceedings; and
e.
2.
Defendants’ Motion to Compel is otherwise DENIED;
Plaintiffs’ Expedited Motion to Proceed as a Conditional Collective Action,
Provide Notice, and Toll All Statutes of Limitations (ECF No. 43) is DENIED AS
MOOT without prejudice to refiling, subject to the disposition of the arbitration;
3.
Defendants’ Motion to Continue Proceedings Pursuant to FRCP 6(b) on
Plaintiffs’ Expedited Motion to Proceed as a Conditional Collective Action,
Provide Notice, and Toll All Statutes of Limitations (ECF No. 44) is DENIED AS
MOOT;
4.
Plaintiffs’ Motion to Certify to the Colorado Supreme Court (ECF No. 83) is
DENIED AS MOOT; and
5.
Pursuant to D.C.COLO.LCivR 41.2, the Clerk shall ADMINISTRATIVELY CLOSE
this case, subject to a motion to reopen for good cause subsequent to the
conclusion of all of the Plaintiffs’ individual arbitration proceedings.
24
Dated this 16th day of May, 2018.
BY THE COURT:
William J. Martínez
United States District Judge
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