Dimidik v. Hallrich Incorporated et al

Filing 31

DECISION AND ENTRY SUSTAINING DEFENDANTS' FED. R. CIV. P12(b)(1) MOTION TO DISMISS PLAINTIFFS' CLASS AND COLLECTIVE ACTION COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION AND TO COMPEL MEDIATION AND ARBITRATION (DOC. # 14 ); DISMISSING ACTION WITHOUT PREJUDICE; JUDGMENT TO ENTER IN FAVOR OF DEFENDANTS AND AGAINST PLAINTIFF; TERMINATION ENTRY. Signed by Judge Walter H. Rice on 9/14/2022. (bjr)

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IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
COURTNEY DIMIDIK, on behalf
of herself and those similarly
situated,
Plaintiff,

Case No. 3:21-cv-306

JUDGE WALTER H. RICE

V.

HALLRICH \NC.,

eta/..

Defendants.

DECISION AND ENTRY SUSTAINING DEFENDANTS' FED. R. CIV. P
12(b)(1) MOTION TO DISMISS PLAINTIFFS'CLASS AND
COLLECTIVE ACTION COMPLAINT FOR LACK OF SUBJECT
MATTER JURISDICTION AND TO COMPEL MEDIATION AND
ARBITRATION (DOC. #14); DISMISSING ACTION WITHOUT
PREJUDICE; JUDGMENT TO ENTER IN FAVOR OF DEFENDANTS
AND AGAINST PLAINTIFF;TERMINATIONENTRY

Plaintiff Courtney Dimidik filed a Class and Collective Action Complaint,

asserting violations of the Fair Labor Standards Act ("FLSA") and Ohio law. She
alleges that Hallrich, Inc., a Pizza Hut International franchisee, and North Coast
Pizza, Inc., her employer, fail to pay delivery drivers the legally-mandated
minimum wage for all hours worked and fail to reimburse those drivers for workrelated automobile expenses.1

1 Additional defendants include Hallrich's A. E. Szambecki, A. Scott Ritchie (now
deceased), and Scott C. Arbuthnot.

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Defendants have filed a motion to dismiss pursuant to Fed. R. Civ. P.
12(b)(1). Doc. #14 They argue that, because each delivery driver signed a valid

and enforceable agreement requiring these types of disputes to be resolved
through mediation and/or arbitration, this Court lacks subject matter jurisdiction
over Plaintiff's claims. Defendants ask the Court to compel mediation and, after
mediation, binding arbitration, and to dismiss the suit with prejudice. This matter

is currently before the Court on Defendants' motion. Doc. #14, Plaintiff's response,
Doc. #19, Defendants' reply, Doc. #23, and the parties' supplemental briefs. Docs.
##28, 29.
Defendants note that this Court has previously held that Hallrich's Dispute
Resolution Plan is valid and enforceable. SeeJefferisv. Hallrich Corp., No. 1:18cv-687, 2019 WL 3462590 (S. D. Ohio July 31, 2019) (Litkovitz, M. J. ), report and
recommendation adopted, 2019 WL 3975774 (Dlott, J. ). That case, however, is
inapposite given that Plaintiff in the instant case challenges the Dispute
Resolution Plan on different grounds.2
Plaintiff does not dispute that she and the other opt-in plaintiffs signed a

Dispute Resolution Plan, agreeing to mediate and/or arbitrate all employmentrelated claims, including "wage disputes over compensation, expense
reimbursement, [or] wages. " She argues, however, that the agreement is

2 In Jefferis, the plaintiffs argued that the Plan was invalid as an illusory promise
and unenforceable for lack of mutuality of obligation. Plaintiffs also argued that
the Plan's 6-month statute of limitations was unenforceable under the FLSA.

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unenforceable because the FLSA forbids private dispute resolution without the

oversight of a court or the Department of Labor. She also argues that the
agreement is procedurally and substantively unconscionable. For the reasons set
forth below, the Court rejects these arguments.
The Court turns first to Plaintiff's argument that the Dispute Resolution Plan

is incompatible with the FLSA. As a general rule, federal policy favors arbitration
agreements. Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1630(2018). The Federal
Arbitration Act ("FAA") provides that written contracts to arbitrate "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. Such grounds may include
fraud, duress, or unconscionability. Epic, 138 S. Ct. at 1622.
The Fair Labor Standards Act ("FLSA") sets certain minimum standards for

employment and establishes the rights to a minimum wage and to overtime pay.
29 U. S. C. §§ 206, 207. These rights may be enforced individually or in a collective
action filed in federal or state court. 29 U. S. C. § 216(b). The Secretary of the

Department of Labor ("DOL") is also given authority to "supervise the payment of
the unpaid minimum wages or the unpaid overtime compensation owing to any

employee or employees under section 206 or section 207. " 29 U. S. C. § 216(c). An
employee cannot waive rights established by the FLSA. Barrentine v. Ark. -Best
Freight Sys., Inc., 450 U. S. 728, 740 (1981).
According to Plaintiff, arbitration evades the judicial and public scrutiny that
the FLSA requires. Citing Casso-Lopez v. Beach Time Rental Suncoast, LLC. 335

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F. R. D. 458, 461 (M. D. Fla. 2020), Plaintiff argues that private resolution of an FLSA

dispute is unenforceable without approval by a court or the Department of Labor.3
She notes that arbitration rules do not allow for any such approval, and argues

that, if they did, this would negate the final, binding nature of the arbitration and
defeat the purpose of the contract, rendering it unenforceable.

Plaintiff argues that "[i]ftwo parties represented by counsel are not
permitted to resolve their disputes without Court approval, then those parties
cannot 'agree' to have a third party [d]o that which they cannot. " Doc. #19,
PagelD#286. She further argues that, due to its private and confidential nature,
arbitration frustrates the purposes of the FLSA by sealing the settlement from
public scrutiny.

Plaintiff acknowledges that, in Gaffers v. Kelly Services, Inc., 900 F.3d 293,
295 (6th Cir. 2018), the Sixth Circuit upheld the enforceability of an arbitration

agreement in an FLSA case. However, Gaffers 6\6 not specifically address the
question of whether the judicial or DOL oversight required by the FLSA prevents
arbitration altogether. Instead, it addressed the question of whether an employee
could waive the right to file a collective action.

3 As Plaintiff notes, some circuits require judicial approval of FLSA settlements.
Others do not. The Sixth Circuit has not weighed in on the issue but, absent

oversight by the DOL, most district courts do demand judicial approval and a
court finding that the settlement is fair and reasonable. See, e. g., Lopez v. Silfex,
Inc.. No. 3:21-cv-61, 2021 U. S. Dist. LEXIS 232508, at *8 (S. D. Ohio Dec. 3, 2021)
(Rose, J. ) (collecting cases).

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In Floss v. Ryan's Family Steakhouses, Inc., 211 F. 3d 306 (6th Cir. 2000), the
Sixth Circuit explained that, although arbitration is widely-accepted as a method
for resolving private disputes, its "informality" previously rendered it "suspect as
a forum for resolving statutory claims, which typically implicate important public
interests. " Id. at 312. The court noted, however, that, in the 1980s, the Supreme

Court upheld arbitration agreements covering statutory claims under the Sherman
Act, the Securities Act of 1933, the Securities Exchange Act of 1934, and the

Racketeering Influenced Corrupt Organizations Act. In 1991, it upheld mandatory
arbitration of claims under the Age Discrimination in Employment Act. See
Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 26 (1991) (holding that, by

agreeing to arbitrate a statutory claim, a party did not forgo substantive rights
afforded by the statute; rather, the party simply agreed to resolve those claims in
a different forum).

In Floss, the Sixth Circuit rejected the same argument raised by Plaintiff in
this case - that arbitration thwarted the important social policies implicated by the

FLSA. "Though a claim under the FLSA certainly serves a purpose beyond
providing relief to an individual claimant, we fail to see how the broader policies
furthered by such a claim are hindered when that claim is resolved through
arbitration. " 211 F. 3dat313. Defendants further note that Judge McFarland

recently found that "there can be no dispute that FLSA claims are arbitrable."
Mullen v. Chaac Pizza Midwest. No. 1:20-cv-893, 2022 WL 673187, *3 (S. D. Ohio
Mar^L 2022) (citing_F/05s), __

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Even if Plaintiff's policy arguments were supported by Sixth Circuit law,

they fall outside the scope of the FAA's saving clause. The FAA provides that
arbitration agreements are enforceable "save upon such grounds as exist at law

or in equity for the revocation of any contract. " 9 U. S. C. § 2. This "saving clause"
does not apply to "defenses that apply only to arbitration or that derive their

meaning from the fact that an agreement to arbitrate is at issue. " AT&T Mobility
LLCv. Concepcion, 563 U. S. 333, 339 (2011) (quoting Doctor's Assoc., Inc. v.
Casarotto, 517 U. S. 681, 687 (1996)).

Plaintiff's policy arguments clearly fall outside the scope of the saving
clause. Because these arguments do not apply to "any contract, " but instead
"target arbitration" itself, they are simply not viable. Gaffers, 900 F. 3d at 297

(citing Epic, 138 S. Ct. at 1622). The Court therefore rejects Plaintiff's policy-based
arguments.

The recent case of Morgan v. Sundance, 142 S. Ct. 1708 (May 23, 2022), does
not change the outcome. At Plaintiff's request, the parties were given the
opportunity to submit supplemental briefs concerning the applicability of Morgan
to the pending motion. See Docs. ##28 and 29.

At issue in Morgan was whether the employer waived its right to arbitrate

by waiting eight months after the lawsuit was filed to file its motion to compel
arbitration. Although the federal waiver rules do not include a prejudice
requirement, the Eighth Circuit imposed one, citing the federal policy favoring
arbitration. It held that, because the plaintiff had not shown prejudice, the

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employer had not waived its right to enforce the arbitration agreement. The
Supreme Court held that the Eighth Circuit erred in so holding. It concluded that
courts cannot create arbitration-specific variants of federal procedural rules, like
those concerning waiver, based on the federal policy favoring arbitration.
Morgan, 142 S. Ct. at 1712.
Plaintiff argues that Morgan supports her argument that allowing private
settlements of FLSAclaims in the context of an arbitration, while prohibiting
direct settlements of FLSA claims between employers and employees, "creates an

improper procedural exception to the FLSA based on misplaced excessive
deference to arbitration contracts. " Doc. #29, PagelD#775.
Defendants, however, maintain that Plaintiff reads Morgan\. oo broadly.

Morgan, in fact, affirmed the proposition that arbitration contracts must be
evaluated the same as all other contracts. Defendants contend that Plaintiff is

attempting to use a policy argument to tilt the playing field aga/nst arb\trat\on
agreements, something that Morgan also expressly forbids. See Morgan, 142
S. Ct. at 1713 (quoting Granite Rock Co. v. Teamsters. 561 U. S. 287, 302 (2010))
(holding that arbitration agreements are on the "same footing" as other
contracts).

Defendants have the better argument. Plaintiff and the other opt-in

plaintiffs agreed to mediate and arbitrate all employment-related claims, including
disputes over compensation and expense reimbursement. Absent evidence of

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illegality, fraud, duress, or unconscionability, the Court must enforce that
agreement.

This brings us to Plaintiff's second major argument - that the Dispute
Resolution Plan is unconscionable. In order for an arbitration agreement to be

deemed unconscionable, the plaintiff must prove that it is both substantively and
procedurally unconscionable. Porpora v. GatliffBldg. Co., 2005-0hio-2410, at1T6
(9th Dist. ). "Procedural unconscionability concerns the formation of the

agreement and occurs when no voluntary meeting of the minds is possible. " Id. at
K7. "Substantive unconscionability refers to the actual terms of the agreement."
Id. at 118.

The Court turns first to the question of substantive unconscionability. Most
of Plaintiff's arguments lack merit. For example, her claim that the Dispute
Resolution Plan is substantially unconscionable because it strips employees of the
power to bring a collective action, was rejected in Gaffers. 900 F. 3d at 297.
Likewise, her argument that the Plan is substantively unconscionable because
Defendants can amend the plan at any time was specifically rejected in Jefferis,
2019 WL 3462590, at *4 (holding that, because the employer must notify
employees of any changes to the plan, the promise to arbitrate was not illusory
and did not lack consideration).

Plaintiff further argues that the Plan is substantively unconscionable
because arbitration is not a neutral forum in which employees can effectively

vindicate their rights. She suggests that arbitrators tend to rule in favor of the

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employers, who are repeat customers, and that, under AAA rules, the arbitrator
has unchecked power with respect to conducting proceedings. As Defendants
point out, however, the Dispute Resolution Plan provides for the mutual selection
of a neutral arbitrator and, if there is evidence of partiality or corruption on the

part of the arbitrator, the employee may seek judicial review.
Plaintiff also complains that, with arbitration, employees are unable to
exercise subpoena power to obtain pre-hearing discovery from non-parties.
Courts, however, have repeatedly rejected challenges to limits on pre-hearing

discovery. See, e. g., Gilmer, 500 U. S. at 31; Walker v. Ryan's Family Steak
Houses, Inc.. 400 F. 3d 370, 387 (6th Cir. 2005) (acknowledging that "the

opportunity to undertake extensive discovery is not necessarily appropriate in an
arbitral forum"). Plaintiff further argues that the Dispute Resolution Plan is

substantively unconscionable because it requires the arbitrator to allow motions

for summary judgment to be filed, and said motions are often granted in favor of
the employers. Defendants note, however, that this is indistinguishable from
what takes place in a judicial forum.

Only one of Plaintiff's arguments with respect to substantive
unconscionability warrants further consideration. It concerns the provision in the

Dispute Resolution Plan requiring employees to file a request for mediation within
six months of the date of the event giving rise to the dispute. In Jefferis, the court
severed this provision from the Plan because it was incompatible with the FLSA,
which provides for a two-year statute of limitations for non-willful violations and a

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three-year statute of limitations for willful violations, and interfered with an
employee's substantive rights. 2019 WL 3462590, at **5-6. Plaintiff notes that,
even though Jeffer/swas decided in 2019, Defendants have done nothing to
modify the language in the Dispute Resolution Plan. She suggests that
Defendants want to continue to mislead employees to believe that their FLSA
claims are time-barred.

Defendants acknowledge that the six-month statute of limitations is
unenforceable as to any FLSA claims. They, however, deny any attempt to

mislead employees. They note that courts have upheld a six-month statute of
limitations in connection with o?/7e/-types of claims. They argue that, rather than
list separate statutes of limitations for various types of claims, the Plan simply
establishes a six-month time period and, if it is found to be unenforceable with
respect to a certain claim, it can simply be severed from the Plan as it was in
Jefferis. ^ Plaintiff argues, however, that, because Defendants have been on notice
for three years that this provision is unenforceable with respect to FLSA claims
and still have taken no action to cure the defect, it would be improper to simply
sever this provision again.
In the Court's view. Plaintiff has a colorable argument. Regardless of
whether Defendants' failure to modify the Plan language in response to Jeffers

4 Defendants further argue that, because Plaintiffs Digiorgi and Edmonds signed
the Dispute Resolution Plan before Jefferfswas released, the Court should not
consider Plaintiff's argument with respect to these two opt-in Plaintiffs.
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was motivated by an intent to discourage employees from seeking to arbitrate
FLSA claims, it is problematic that Defendants know that this provision is
unenforceable and they have done nothing about it.
Nevertheless, as discussed in Jefferis, "[wjhere the parties' intention is

clearly expressed in a severability provision and indicates a preference for
severance, the Court should sever the offending provision unless the cumulative
effect of the unenforceable provisions 'taints' the remainder of the agreement and

prevents a court from enforcing the agreement. " 2019 WL3462590, at *6 (citing
Scovill v. WSYX/ABC. 425 F. 3d 1012, 1016-17 (6th Cir. 2005)). Here, the parties

agreed that the unenforceability of any provision shall not affect the application of
any other provision. In the Court's view, the cumulative effect of the offending
statute-of-limitations provision does not render the remainder of the agreement
unenforceable. The Court concludes, as did the Je/?e/-/5court, that the Dispute
Resolution Plan is enforceable once the statute-of-limitations provision is severed.
Plaintiff has failed to show that the Dispute Resolution Plan is substantively
unconscionable. Likewise, she has failed to show that it is procedurally

unconscionable. She argues that the employment relationship is inherently
coercive and notes that employees must agree to the Dispute Resolution Plan if

they want the job. She further notes that the Plan at issue is a standardized form
contract prepared by Defendants, offered to employees who have no choice as to
the terms.

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Nevertheless, standing alone, "[m]ere inequality in bargaining power"
between employers and employees is insufficient to invalidate an arbitration
agreement. Gilmer, 500 U. S. at 33. Moreover, the arbitration agreement is not
rendered procedurally unconscionable just because it is presented to employees
on a pre-printed, standardized form, on a take-it-or-leave-it basis. Cooper v. MRM
Inv. Co., 367 F. 3d 493, 500 (6th Cir. 2004). A job applicant is free to decline an

offer of employment if any terms and conditions are unacceptable, including
binding arbitration of employment disputes. Plaintiff does not allege that the
circumstances surrounding the formation of the contract was such that no

voluntary meeting of the minds was possible. Accordingly, the Court finds that
the Dispute Resolution Plan is not procedurally unconscionable.
For the reasons set forth above, the Court finds that the Dispute Resolution
Plan is enforceable, with the severance of the six-month statute of limitations for

submitting requests for mediation. The Court therefore SUSTAINS Defendants'
Motion to Dismiss for Lack of Subject Matter Jurisdiction and Compel Mediation
and Arbitration, Doc. #14. Given that all of Plaintiff's claims are subject to
mediation and then arbitration, the Court DISMISSES Plaintiff's claims WITHOUT
PREJUDICE. See DeAngelis v. Icon Entm't Grp., Inc., 364 F. Supp. 3d 787, 797
(S. D. Ohio 2019) (Marbley, J. ) (holding that dismissal, rather than a stay, is

appropriate if all claims are subject to arbitration).
Judgment shall be entered in favor of Defendants and against Plaintiff.

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The captioned case is hereby ordered terminated upon the docket records
of the United States District Court for the Southern District of Ohio, Western
Division, at Dayton.

Date: September 14, 2022

L/ ^r ^.
WALTER H. RICE
UNITED STATES DISTRICT JUDGE

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