De Angelis v. Nolan Enterprises, Inc.

Filing 55

ORDER denying 15 Motion to Compel. Signed by Judge Algenon L. Marbley on 9/24/2018. (cw)

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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
STEPHANIE DE ANGELIS,
Plaintiff,
v.
NOLAN ENTERPRISES, INC.,
Defendant.

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Case No. 2:17-cv-926
JUDGE ALGENON L. MARBLEY
Magistrate Judge Deavers

OPINION & ORDER
This matter is before the Court on Defendant Nolan Enterprises, Inc., d/b/a Centerfold Club
(“Centerfold”)’s Motion to Dismiss or to Stay and Motion to Compel Arbitration. (ECF No. 15).
For the reasons stated below, Centerfold’s Motion is DENIED.
I. BACKGROUND
Centerfold is an adult entertainment club in Columbus, Ohio. (ECF No. 1 at ¶ 3). Plaintiff,
Ms. Stephanie De Angelis, alleges that she worked at Centerfold as a dancer from April 2016 to
February 2017. (Id. at ¶¶ 16, 18). Ms. De Angelis alleges that Centerfold did not pay its dancers
any wages. (Id. at ¶ 1). Instead, she avers that Centerfold misclassified all of its dancers as
independent contractors, rather than employees, and that the dancers are only compensated through
tips from customers. (Id. at ¶¶ 17, 21). She further alleges that at the end of each night, Centerfold
took a cut from all tips made by the dancers, and the dancers were required to divide their tips with
other employees. (Id. at ¶¶ 5, 30).
On June 14, 2016, Ms. De Angelis filled out a document purporting to be an application to
lease space at Centerfold. (ECF No. 44 at 1-4). Two days later, on June 16, 2018, Ms. De Angelis
signed a two-part agreement (the “Agreement”): Part 1 is titled “Preliminary Lease Information

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Agreement to Lease Space as an Entertainer Tenant and Not to Be an Employee,” and Part 2 is
titled “Entertainer Tenant Space Lease Agreement.” (ECF No. 44 at 6-7). Part 1 states in relevant
part:
During the time I lease Space here, should there be any disputes or issues, I agree to resolve
or litigate them individually with the club and settle with binding arbitration without
seeking class treatment or consolidate my issues with others. This paragraph (12) survives
termination of my space lease.
(Id. at 6, ¶ 12). Part 2 contains a provision entitled “Arbitration/Waiver of Class and Collective
Actions/Attorney Fees and Costs,” which reads in relevant part:
Binding Arbitration. Any and all claims and/or controversies between the Entertainer
Tenant and the Club (and any other persons or entities associated the Club [sic], including
but not limited to related corporations, parent corporations, subsidiaries, affiliates, officers,
directors, shareholders, members, managers, employees, and/or agents), including any and
all claims that arise from conduct that predates this Agreement or which arises hereafter,
and regardless of whether such claims sound in statute, a local regulation or arise from any
other source, (except for an administrative charge before an administrative agency) shall
be exclusively decided by binding arbitration held pursuant to and in accordance with the
Federal Arbitration Act (“FAA”) and shall be decided by a single neutral arbitrator agreed
upon by the parties, who shall be permitted to award, subject only to the restrictions
contained in this Paragraph 19 and in accordance with the severability provisions of
Paragraph 19, any relief available in a court. All parties waive any right to litigate such
controversies, disputes, or claims in a court of law, and waive the right to trial by
jury.
(Id. at 13 ¶ 19 A.) (emphasis in original). The agreement further provides that, “[t]he arbitrator
shall have the exclusive authority to resolve any and all disputes over the validity of any part of
this agreement and any award by the arbitrator may be entered as a judgment in any court having
jurisdiction.” (the “Delegation Provision”) (Id. at 14).
Finally, the Agreement contains the following relevant language at the end of Part 2:
THE CLUB RESERVES THE RIGHT TO MODIFY, DELETE, OR ADD TO ANY OF
THE CONDITIONS CONTAINED HEREIN WITHOUT NOTICE, AND RESERVES
THE RIGHT TO CANCEL ENTERTAINER TENANT SPACE LEASE AT ANY TIME,
WITH OR WITHOUT NOTICE OR CAUSE UPON BREACH OF THIS SPACE LEASE
AGREEMENT OR SPACE LEASE USAGE TERMS.
(the “Amendment Provision”) (ECF No. 44 at 15).
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Ms. De Angelis filed this lawsuit as a collective and class action against Centerfold on
October 23, 2017, alleging violations of the Fair Labor Standards Act of 1983 (“FLSA”), 29 U.S.C.
§§ 201, et seq., the Ohio Minimum Fair Wage Standards Act (“OMFSWA”), O.R.C. §§ 4111.01,
et seq., and the Ohio Semi-Monthly Payment Act, O.R.C. § 4113.15, as well as common law unjust
enrichment by failing to pay dancers minimum wage for all hours worked, including failure to pay
overtime. (ECF No. 1). On January 22, 2018, Centerfold filed the Motion to Dismiss or Stay and
Motion to Compel Arbitration (ECF No. 15). The Motion is fully briefed and ripe for review.
II. LAW AND ANALYSIS
Under the Federal Arbitration Act (“FAA”), arbitration contracts “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract.” 9 U.S.C. § 2. If a party who signed an arbitration contract fails or refuses to
arbitrate, the aggrieved party may petition the court for an order directing the parties to proceed in
arbitration in accordance with the terms of an arbitration agreement. 9 U.S.C. § 4. The Court must
then “determine whether the parties agreed to arbitrate the dispute at issue.” Ackison Surveying,
LLC v. Focus Fiber Sols., LLC, No. 2:15-CV-02044, 2016 WL 4208145, at *1 (S.D. Ohio Aug.
10, 2016) (citing Stout v. J.D. Byrider, 228 F.3d 09, 714 (6th Cir. 2000)). Any doubts concerning
the scope of arbitrable issues should be resolved in favor of arbitration. Id. at *1. Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983). In evaluating motions to
compel arbitration, “courts treat the facts as they would in ruling on a summary judgment motion,
construing all facts and reasonable inferences that can be drawn therefrom in light most favorable
to the non-moving party.” Jones v. U-Haul Co. of Massachusetts & Ohio Inc., 16 F. Supp. 3d 922,
930 (S.D. Ohio 2014). The court has four tasks:
[F]irst, it must determine whether the parties agreed to arbitrate; second, it must determine
the scope of that agreement; third, if federal statutory claims are asserted, it must consider
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whether Congress intended those claims to be nonarbitrable; and fourth, if the court
concludes that some, but not all, of the claims in the action are subject to arbitration, it
must determine whether to stay the remainder of the proceedings pending arbitration.
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
In determining whether the parties agreed to arbitrate under the first prong of the Stout test,
the Court must apply state law of contract formation. Prachun v. CBIZ Benefits & Ins. Servs., Inc.,
No. 2:14-CV-2251, 2015 WL 5162522, at *3 (S.D. Ohio Sept. 3, 2015); see also Ackison
Surveying, LLC v. Focus Fiber Sols., LLC, No. 2:15-CV-02044, 2016 WL 4208145, at *1 (S.D.
Ohio Aug. 10, 2016) (Marbley, J.) (“Whether the parties’ contract evinces an agreement to arbitrate
is governed by principles of state contract law.”). Thus, “state-law contract defenses like fraud,
forgery, duress, mistake, lack of consideration or mutual obligation, or unconscionability, may
invalidate arbitration agreements.” Cooper v. MRM Inv. Co., 367 F.3d 493, 498 (6th Cir. 2004).
The parties agree that Ohio law applies to this action. (See ECF No. 45 at 5; ECF No. 47 at 10).
Centerfold argues that the Agreement is a valid agreement to arbitrate, satisfying the first
element of the Stout test. (ECF No. 15 at 9). Further, Centerfold argues that the threshold question
of validity must be resolved by the arbitrator, pursuant to the Agreement’s Delegation Provision.
(ECF No. 15 at 10). In response, Ms. De Angelis contends that Centerfold does not specifically
identify any delegation clause. 1 (ECF No. 45 at 13). That is plainly false. (See ECF No. 15 at
7) (“[C]lause 19 provides an unequivocal ‘delegation provision’, that states: ‘the arbitrator shall

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Ms. De Angelis makes two initial arguments in its Response in Opposition that are unpersuasive. First, she argues
that the Court cannot dismiss Centerfold in this action because they are jointly and severally liable for the actions of
co-conspirators in Doe 1, et al. v. VM2015 Inc., et al., Case No. 2:18-cv-443 (S.D. Ohio 2018). The Court is aware
of no doctrine that would permit the Court to consider Centerfold’s role in a different case in determining whether
Ms. De Angelis is bound by an arbitration agreement in this matter, where the alleged co-conspirators are not
parties. Ms. De Angelis cites no law to support her argument, and the Court rejects it outright. Second, Ms. De
Angelis argues that the Court should grant conditional certification before ruling on the instant motion, but this
Court already held that it was more efficient and in the interest of judicial economy to consider the pending
dispositive motions before considering a motion to conditionally certify the class. (ECF No. 35).
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have the exclusive authority to resolve any and all disputes over the validity of any part of this
agreement . . . .’”).2
A delegation provision is an “agreement[] to arbitrate threshold issues concerning the
arbitration agreement.” Danley v. Encore Capital Grp., Inc., 680 Fed. Appx. 394, 395-96 (6th Cir.
2017) (quoting Rent-A-Centr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010)). 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.” Rent-A-Centr., 561 U.S. at 68-69. In
Rent-A-Center, the Supreme Court explained that such a delegation provision is “simply an
additional, antecedent agreement that the party seeking arbitration asks the federal court to enforce,
and the FAA operates on this additional arbitration agreement just as it does on any other.” Id. at
70. Thus, a delegation provision is severable from the remainder of the contract, and “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”—here, the delegation provision. Id. In
other words, when there is a delegation provision, the Court will only intervene if the party seeking
to avoid arbitration challenges the delegation provision itself. Id. at 71-72.
Centerfold argues that because there is a delegation provision in the Agreement, any
challenge Ms. De Angelis asserts to the validity or enforceability of her consent to arbitrate must
be submitted to the arbitrator. (ECF No. 15 at 11) (emphasis in original). The inclusion of a
delegation provision, however, “does not mean that a federal court should automatically grant a
motion to compel arbitration, because the party seeking to avoid arbitration may still raise defenses
to the agreement to delegate.” Danley, 680 F. App’x at 398. That is precisely what Ms. De Angelis
has done. Unlike in the plaintiff in Rent-A-Center or Danley, Ms. De Angelis does assert specific

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Given the Court’s discussion of lack of mutuality of obligation below, the Court need not decide whether the
quoted language is a sufficiently definite delegation provision.
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challenges to the delegation provision itself. As such, the Court must “resolve any issue that calls
into question the formation or applicability of” the delegation provision, to satisfy itself that the
“parties agreed to arbitrate” threshold issues. Granite Rock Co. v. Int’l Bhd. of Teamsters, 561
U.S. 287, 297, 130 S. Ct. 2847, 2856, 177 L. Ed. 2d 567 (2010).
One challenge that Ms. De Angelis asserts that calls into question the formation of the
delegation provision itself is that it lacks mutuality of obligation. (ECF No. 45 at 16) (Ms. De
Angelis specifically attacks “any purported delegation clause” for lack of mutuality). In Ohio,
“consideration is, of course, an element necessary for a binding contract.” Harmon v. Philip
Morris Inc., 120 Ohio App. 3d 187, 190, 697 N.E.2d 270, 272 (1997). Consideration “requires
mutuality of obligation.” Stanich v. Hissong Grp., Inc., No. 2:09-CV-0143, 2010 WL 3732129,
at *5 (S.D. Ohio Sept. 20, 2010); see also Raasch v. NCR Corp., 254 F.Supp.2d 847, 855 (S.D.
Ohio 2003) (noting that mutuality of obligation “goes hand in hand with the concepts of
consideration and illusory promise”). Absent “mutuality of obligation, a contract based on
reciprocal promises lacks consideration.” Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d
306, 315 (6th Cir. 2000). In other words, “a contract must be binding on both or else it is binding
on neither.” Id.
A promise is not binding if it is illusory. A promise is illusory when the promisor “retains
the right to decide whether or not to perform the promised act.” Id. Illusory promises do not
creating binding obligations, and in such a case the contract lacks consideration. See id. When
one party to an agreement retains the right to modify any term of the agreement at any time, its
promises are illusory and the contract is therefore void and unenforceable for lack of consideration.
Day v. Fortune Hi-Tech Mktg., Inc., 536 F. App’x 600, 604 (6th Cir. 2013) (holding that “[b]ecause
Defendant retained the ability to modify any term of the contract, at any time, its promises were

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illusory” and therefore finding the entire contract, including the arbitration clause, void and
unenforceable).
Courts “have consistently held that arbitration agreements fail to bind employees where
the employer reserves the unilateral right to modify or cancel the terms of the deal at any time.”
Stanich, 2010 WL 3732129, at *5; see also Floss, 211 F.3d 306 at 315-16 (holding that arbitration
contract lacked mutuality of obligation and accordingly did not constitute an enforceable
arbitration agreement when agreement gave company the unlimited right to modify the arbitration
rules without the employee’s consent); Stepp v. NCR Corp., 494 F. Supp. 2d 826, 834 (S.D. Ohio
2007) (finding that because company reserved the right to amend unilaterally the arbitration
agreement, the contract lacked mutuality of obligation, and thus there was no consideration, and
therefore no contract); Trumbull v. Century Mktg. Corp., 12 F. Supp. 2d 683, 686 (N.D. Ohio
1998) (finding arbitration clause in employee handbook not enforceable because handbook
purported to bind plaintiff by all of its terms “while defendant could simply revoke any term
(including the arbitration clause) whenever it desired”); Harmon v. Philip Morris Inc., 120 Ohio
App. 3d 187, 191, 697 N.E.2d 270, 272 (1997) (finding no consideration when employer reserved
the right to amend or terminate the arbitration program at any time).
Here, Ms. De Angelis argues that the Amendment Provision is an attempt to retain the
ability to modify the agreement at any time, making Centerfold’s promises illusory. (ECF No. 45
at 16). This Court agrees. The Amendment Provision reads:
THE CLUB RESERVES THE RIGHT TO MODIFY, DELETE, OR ADD TO ANY OF
THE CONDITIONS CONTAINED HEREIN WITHOUT NOTICE, AND RESERVES
THE RIGHT TO CANCEL ENTERTAINER TENANT SPACE LEASE AT ANY TIME,
WITH OR WITHOUT NOTICE OR CAUSE UPON BREACH OF THIS SPACE LEASE
AGREEMENT OR SPACE LEASE USAGE TERMS.
(ECF No. 44 at 15). With this language, Centerfold reserved the right to modify or cancel the
terms of the Agreement at any time without notice, and its promise was therefore illusory. An
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illusory contract is not binding obligation, and the Agreement, including the delegation provision,
thus lacks mutuality of obligation and consideration. As such, the delegation provision and the
arbitration agreement are void and unenforceable.

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See Day, 536 F. App’x at 604 (finding

arbitration agreement and entire contract void and unenforceable because Defendant retained the
ability to modify any of the contractual terms).
Centerfold relies on Blakley v. UBS Fin. Servs. Inc., No. 1: 12-CV-30, 2013 WL 360378,
at *7 (S.D. Ohio Jan. 30, 2013), report and recommendation adopted, No. C-1-12-30, 2013 WL
866470 (S.D. Ohio Mar. 7, 2013) to argue that the arbitration agreement is enforceable because
the amendment provision appears in a separate section from the arbitration provision, and the duty
of good faith and fair dealing prohibits them from actually amending the arbitration agreement.
(ECF No. 47 at 11-12). In Blakley, the Magistrate Judge recommended finding that the clause
giving the employer the right to modify the agreement did not make the arbitration agreement
unenforceable. Blakley is distinguishable, however, because there the employer was required to
provide notice of any changes by posting them on its internal intranet. 2013 WL 864470, at *7
(“[T]he amendment provision of the FMCP does not make the arbitration provision unenforceable
as defendant is required to provide notice by posting any changes on its internal intranet.”); see
also Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 667–68 (6th Cir. 2003) (concluding that
arbitration agreement was supported by sufficient consideration and mutuality of obligation when
amendment provision gave the employer the authority to alter the agreement on only one day of
each year and required them to provide its employees with thirty days’ notice before doing so).
The Blakley court acknowledged that advanced notice, rather than just notice, was required
in Morrison, but found that the lack of advanced notice in the agreement did not make the

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As a result of this finding, the remainder of the parties’ arguments need not be addressed.
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arbitration agreement unenforceable because the amendment provision was not specific to the
arbitration provision and was instead contained in a different section. 2013 WL 864470, at *7. As
an initial note, the Amendment Provision at issue here requires no notice, so whether mere notice
is sufficient or notice must be given in advance is neither relevant nor decided here. Additionally,
this Court disagrees that the location of the Amendment Provision is relevant to whether such a
provision makes the employers’ promise illusory under Ohio law. In Stanich, this Court held that
an amendment provision on the first page of an employee handbook rendered the employer’s
promise illusory and the entire contract, including the arbitration provision, unenforceable under
Ohio law. 2010 WL 3732129, at *6. The Northern District of Ohio came to the same result in
Trumbell, invalidating an arbitration agreement contained in an employee handbook because the
handbook’s introduction contained an amendment provision. 12 F. Supp. 2d at 686. The Sixth
Circuit reached the same conclusion in a similar case under Kentucky law, finding that an
amendment provision in a contract rendered the entire contract, including the arbitration provision
contained in a different section, void and unenforceable. Day, 536 Fed. Appx. at 604. The Court
therefore rejects Centerfold’s argument that because the amendment provision appears in a
separate section as the arbitration provision, the arbitration clause should not be invalidated and
finds Blakley unpersuasive.4
III. CONCLUSION
For the reasons set forth above, the Court finds that the Amendment Provision in the
Agreement renders Centerfold’s promise to arbitrate (including the promise to arbitrate threshold
issues) illusory, and no mutuality of obligation exists, rendering the Agreement void and

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The Court therefore declines to follow Blakley’s finding that the duty of good faith and fair dealing can save an
agreement from the dangers of an illusory promise. The cited precedent indicates otherwise.
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unenforceable for lack of consideration. Defendants’ Motion to Dismiss or Stay and Motion to
Compel Arbitration (ECF No. 15) is therefore DENIED.
IT IS SO ORDERED.

s/Algenon L. Marbley
ALGENON L. MARBLEY
United States District Court Judge
DATED: September 24, 2018

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