Holden v. Raleigh Restaurant Concepts Inc
ORDER granting in part and denying in part 7 Motion to Dismiss and/or to Stay and to Compel Arbitration and Motion to Dismiss All Class and Collective Action Allegations and denying 12 Motion for Leave to File - Raleigh Restaurant Concep ts, Inc.'s Motion to Dismiss and/or to Stay and to Compel Arbitration and Motion to Dismiss all Class and Collective Action Allegations is ALLOWED IN PART and DENIED in part. To the extent the Motion seeks to compel arbitration, the Motion is A LLOWED and this proceeding will be STAYED pending arbitration. The parties are DIRECTED to submit a status report of the arbitration proceedings no later than 90 days from the filing date of this order, and every 90 days thereafter, until such proceedings are concluded. To the extent the Motion seeks to dismiss all class and collective action allegations, the Motion is DENIED without prejudice. Signed by Senior Judge James C. Fox on 11/20/2014. (Tripp, S.)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH RESTAURANT CONCEPTS,
This matter is before the court on Defendant's Motion to Dismiss and/or to Stay and to
Compel Arbitration and Motion to Dismiss all Class and Collective Action Allegations [DE-7].
Plaintiff filed a response [DE-l 0], to which Defendant replied [DE-ll]. Additionally, Plaintiff has
filed a Motion for Leave fo File Sur-Reply [DE-12]. Defendant has filed a Response to Plaintiffs
Motion for Leave [DE-15]. For reasons for fully stated below, the Defendant's Motion to Dismiss
and/or to Stay and to Compel Arbitration and Motion to Dismiss all Class and Collective Action
Allegations is ALLOWED in part and DENIED in part. Plaintiffs Motion for Leave to File SurReply is DENIED.
I. STATEMENT OF THE CASE
Plaintiff Leslie Holden ("Holden") filed the instant collective and class action on June 13,
2014, alleging that Defendant Raleigh Restaurant Concepts, Inc. ("RRC") violated the Fair Labor
Standards Act ("FLSA"), 29 U.S.C. §§ 201, et seq., and the North Carolina Wage and Hour Act
("NCWHA"), N.C. Gen. Stat.§§ 95-25.1, et seq. Compl.
RRC operates a gentlemen's club under the trade name "The Men's Club of Raleigh"
("Men's Club"), where Holden worked as an exotic dancer. Compl.
2-3. Holden and RRC
executed an "Entertainment Lease" ("agreement") which states that the parties' business relationship
is that of landlord and tenant, rather than employer and employee. Pl.'s Response in Opp., Ex. I
12. Holden claims that RRC misclassified her and the members of the putative class
as independent contractors rather than employees, resulting in violations of statutory minimum wage
and overtime requirements. Compl. ~ 17.
The parties' agreement contains an arbitration clause which states that "any and all
controversies between the entertainer and club ... shall be exclusively decided by binding arbitration
.... "Pl.'s Response in Opp., Ex. 1 [DE-10-1] ~21. The agreement also purports to waive Holden's
right to initiate or join a class or collective action against the Men's Club. !d. Based on these
provisions of the agreement, RRC argues that "arbitration is the proper and exclusive forum for
resolving [this] dispute." Def. 's Mot. to Dismiss [DE-7] at 1. RRC urges the court to dismiss or,
alternatively, stay Holden's individual claims and compel arbitration, and to "dismiss, with
prejudice, the class and collective allegations from the Complaint as the party's [sic] agreement
contains an unambiguous class and collective action waiver." !d. Holden, in tum, contends that the
arbitration clause is unenforceable and that the class and collective action waiver "is invalid under
the law." Pl.'s Response in Opp. [DE-10] at 3, 15.
Holden's Motion to File a Sur-Reply
At the outset, the court considers Holden's Motion to File a Sur-Reply [DE-12]. She states
that a sur-reply is necessary in order to further explain how the parties' "arbitration agreement
operates to establish a contractual set-off' and to "provide additional commentary" on the Fourth
Circuit's unconscionability analysis. Id at 2. RRC, in tum, argues that Holden's "Motion is
improper and in violation of the Local Rules of this Court." Def.'s Resp. in Opp. [DE-15] at 1.
The Local Civil Rules for the Eastern District ofNorth Carolina only allow for the filing of
a motion, a response to a motion, and a reply. See Local Civil Rule 7.1; Freeman v. City of
Fayetteville, 971 F. Supp. 971,973 n.l (E.D.N.C. 1997)("TheLocal Rules ofthis court do not allow
for the submission of sur-replies."). Accordingly, courts generally allow a party to file a sur-reply
"only when fairness dictates based on new arguments raised in the previous reply." DiPaulo v.
Potter, 733 F. Supp. 2d 666,670 (M.D.N.C. 2010).
Holden does not seek to file a sur-reply in response to new arguments raised by RRC in its
reply. Rather, she requests leave in order "to provide full briefing to the Court so that it can make
an informed decision." Mot. to File Sur-Reply [DE-12] at 3. Holden may not file a sur-reply merely
to supply the court with additional explanation and commentary. Therefore, her Motion to File a
Sur-Reply is denied.
RRC's Motion to Compel Arbitration
The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, reflects a liberal policy in favor of
arbitration agreements. See Moses H Cone Mem '/ Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983). The Act requires a court to stay an action and compel arbitration "upon being satisfied that
the issue involved ... is referable to arbitration under [an agreement in writing]." Id § 3. "A district
court therefore has no choice but to grant a motion to compel arbitration where a valid arbitration
agreement exists and the issues in a case fall within its purview." Adkins v. Labor Ready, Inc., 303
F .3d 496, 500 (4th Cir. 2002) (citing United States v. Bankers Ins. Co., 245 F .3d 315, 319 (4th Cir.
A party can compel arbitration by showing:
( 1) the existence of a dispute between the parties;
(2) a written agreement that includes an arbitration provision which purports to cover
(3) the relationship of the transaction, which is evidenced by the agreement, to
interstate or foreign commerce; and
4) the failure, neglect or refusal of [a party] to arbitrate the dispute.
Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1991). The opposing party "may seek
revocation of an arbitration agreement 'upon such grounds as exist at law or in equity for the
revocation of any contract,' including 'generally applicable contract defenses, such as fraud, duress,
or unconscionability ...." AT&T Mobility v. Concepcion,_ U.S. _131 S. Ct. 1740, 1746
(20 11) (internal citations omitted).
Holden does not contend that RRC has failed to establish any of the four elements for
compelling arbitration outlined above.
Rather, she argues that the arbitration provision is
unenforceable because 1) its terms are unconscionable; 2) it seeks to strip her of substantive rights
that the FLSA provides; and 3) RRC has breached its covenant of good faith. Pl.'s Response in Opp.
[DE-10] at 3. Each of Holden's arguments is premised upon her contention that the arbitration
agreement "prevents the Arbitrator from rendering a decision adverse to Defendant." /d. at 8.
Holden's arguments are unpersuasive for several reasons.
First, Holden's assertion that the agreement prevents the arbitrator from finding in her favor
is false. A central dispute in this case is whether "entertainment fees" that patrons paid to dancers
are properly characterized as "service fees"- which would be property of the club- or "tips"which would be property of the dancers. /d. Paragraphs 12 and 19 of the agreement contain
provisions which state that if a judge or arbitrator determines that the parties' business relationship
is that of employer-employee, then "all entertainment fees would, both contractually and as a matter
oflaw, be the property of the Club and would not be the property of the Entertainer." Decl. of Brett
Amack, Ex. C [DE-8-2]
12, 19. However, in arbitration, Holden will have the opportunity to
argue that these provisions are unlawful under the FLSA, as it is within the province of the arbitrator
to make such a finding. See Preston v. Ferrer, 552 U.S. 346,353 (2008) ("[A]ttacks on the validity
of [a] contract ... are within the arbitrator's ken.").
Further, the arbitration agreement itself states that the arbitrator "shall be permitted to award,
subject only to the restrictions contained in [the arbitration provision], any relief available in a
court." Decl. of Brett Amack, Ex. C [DE-8-2]
21. Holden argues that the arbitration provision
limits what relief the arbitrator can award her by incorporating paragraphs 12 and 19 of the
agreement. Pl.'s Response in Opp. [DE-10] at 6-8. Although the arbitration provision states that
the rules of the American Arbitration Association will govern "except as expressly or implicitly
modified by [the parties'} agreement," the court does not read this language as incorporating other
potentially unlawful provisions of the contract into the arbitration agreement, thereby binding the
hands of the arbitrator. Id (emphasis added). Consequently, the premise upon which Holden bases
her arguments is faulty.
Second, Holden does not challenge the arbitration provision itself. The Supreme Court has
stated that "a party's challenge to another provision of the contract, or to the contract as a whole,
does not prevent a court from enforcing a specific agreement to arbitrate." Rent-A -Center, West, Inc.
v. Jackson, 561 U.S. 63, 70 (2010). "A party challenging the enforceability of an arbitration clause
... must rely on grounds that 'relate specifically to the arbitration clause and not just to the contract
as a whole."' Muriithi v. Shuttle Express, Inc., 712 F.3d 173, 183 (4th Cir. 2013) (internal citations
omitted). In the case at hand, Holden argues that the arbitration provision is unenforceable by
pointing to other provisions of the contract. Namely, she challenges the validity of paragraphs 12B,
12C, and 19 of the agreement which relate to "entertainment fees" and whether such fees are the
rightful property of the entertainers or the Men's Club. Pl.'s Response in Opp. [DE-10] at 6-8.
Holden's challenges to these contract provisions, which are separate from the arbitration provision,
must be submitted to an arbitrator. 1 See Jeske v. Brooks, 875 F.2d 71, 75 (4th Cir. 1989)("Because
the alleged defects pertain to the entire contract, rather than specifically to the arbitration clause, they
are properly left to the arbitrator for resolution.").
Lastly, with regard to Holden's unconscionability argument, she has failed to allege that the
arbitration agreement is both procedurally and substantively unconscionable. See Tillman v.
Commercial Credit Loans, Inc., 362 N.C. 93, 102, 655 S.E.2d 362, 370 (2008) ("A party asserting
that a contract is unconscionable must prove both procedural and substantive unconscionability.").
Substantive unconscionability refers to one-sided contract terms, while procedural unconscionability
"involves 'bargaining naughtiness' in the form of unfair surprise, lack of meaningful choice, and an
inequality ofbargaining power." Id (internal citations omitted). Holden has presented no evidence
of "bargaining naughtiness." In fact, as RRC notes, Holden on three different occasions signed
contracts that contained this arbitration provision, the last of which occurred after this suit was filed
when she was represented by counsel. Reply [DE-ll] at 3. Moreover, the arbitration provision is
prominently displayed in bold and capitalized font, suggesting that Holden was not subject to unfair
surprise. Decl. of Brett Amack, Ex. C [DE-8-2]
Thus, Holden's unconscionability argument
As indicated above, the court does not read the arbitration clause to incorporate the separate
contract clauses at issue in such a way that would prohibit the arbitrator from finding the terms of those
clauses to be unlawful.
Based on the above analysis, the court will compel arbitration. However, the Fourth Circuit
has not conclusively decided whether a stay or dismissal for lack of subject matter jurisdiction is
proper when a dispute is subject to arbitration. See Aggarao v. MOL Ship Mgmt. Co., Ltd., 675 F.3d
355, 376 n.l8 (4th Cir. 2012); Bayer CropScience AG v. Dow AgroSciences LLC, No. 2:12CV47,
2012 WL 2878495, at *7-8 (E.D. Va. July 13, 2012) (outlining conflicting Fourth Circuit precedent
on the issue). While recognizing the disparate approaches the Fourth Circuit has taken on this issue,
the court finds that RRC has failed to demonstrate why the arbitration clause, which is a contractual
arrangement between the parties, divests this court of subject matter jurisdiction. See DiMercurio
v. Sphere Drake Ins., PLC, 202 F.3d 71, 76 (1st Cir. 2000) ("Agreements to arbitrate are now
typically viewed as contractual arrangements for resolving disputes rather than as an appropriation
of a court's jurisdiction."). Thus, pursuant to § 3 of the FAA, the court will stay this matter pending
RRC's Motion to Dismiss the Class and Collective Action Claims
RRC urges the court to dismiss Holden's class and collective action allegations based on the
class and collective action waivers that are included in the parties' arbitration agreement. Mem. in
Support of Mot. to Dismiss [DE-8] at 2. Holden responds that the waivers are unlawful, and points
to Sixth Circuit precedent in support of her argument. Pl.'s Response in Opp. [DE-10] at 15.
Whether a party may pursue a class or collective action is a question for the arbitrator. See
Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003) (plurality opinion). This issue
"concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute
between the parties." !d. at 452. "Rather [it concerns] what kind of arbitration proceeding the
parties agreed to." ld at 453. Answering this question involves "contract interpretation and
arbitration procedures [which] [a]rbitrators are well suited to answer .... " ld The Fourth Circuit
appears to be in step with this reasoning, having stated that "the issue of whether [a] collective action
waiver is unconscionable must be decided in arbitration." Davis v. ECPI Col/. ofTech., L.C., 227
F.App'x 250, 251 (4th Cir. 2007) (unpublished).
The court concludes that the issue of whether Holden may properly bring class or collective
action claims should be determined by the arbitrator. Accordingly, RRC's Motion to Dismiss the
Class and Collective Action Claims is denied without prejudice.
Based on the foregoing, RRC's Motion to Dismiss and/or to Stay and to Compel
Arbitration and Motion to Dismiss all Class and Collective Action Allegations [DE-7] is
ALLOWED in part and DENIED in part. To the extent the Motion seeks to compel arbitration,
the Motion is ALLOWED and this proceeding will be STAYED pending arbitration. The parties
are DIRECTED to submit a status report of the arbitration proceedings no later than 90 days from
the filing date of this order, and every 90 days thereafter, until such proceedings are concluded.
To the extent the Motion seeks to dismiss all class and collective action allegations, the Motion
is DENIED without prejudice. Additionally, Holden's Motion for Leave fo File Sur-Reply [DE12] is DENIED.
This the l. o day ofNovember, 2014.
ior United States District Judge
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