Creech v. JEM Pizza Group LLC et al
ORDER denying 9 Motion to Dismiss for Failure to State a Claim without prejudice; granting in part and denying in part 10 Motion to Stay; denying 16 Motion to Dismiss for Failure to State a Claim. Signed by Honorable Patrick Michael Duffy on December 27, 2016.(jmcg, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
Trina Creech, individually and on behalf
of similarly situated persons,
JEM Pizza Group, LLC, JEM Restaurant
Group of Florida, Inc., and Does 1-25,
C.A. No.: 2:16-cv-3087-PMD
This matter is before the Court on Defendants’ motion to dismiss (ECF No. 9);
Defendants’ motion to stay, to compel arbitration, and to strike Plaintiff’s collective action
allegations and jury trial demand (ECF No. 10); and Plaintiff’s motion to dismiss (ECF No. 16).
For the reasons set forth herein, Defendants’ motion to dismiss is denied, while Defendants’
motion to stay, to compel arbitration, and to strike Plaintiff’s collective action allegations and
jury trial demand is granted in part and mooted in part. Finally, Plaintiff’s motion to dismiss is
This action arises out of Trina Creech’s employment with Defendant JEM Pizza Group,
LLC (“JEM Pizza Group”). 1 Creech is a former pizza delivery driver who worked for several
different Pizza Hut franchises. Her lawsuit involves Pizza Hut’s driver-reimbursement program.
Pizza Hut pays its delivery drivers minimum wage, along with a per-delivery reimbursement
designed to cover additional costs to the drivers. That reimbursement allegedly fails to fully
compensate drivers for the vehicle costs they incur, including gas, repairs, insurance, and
The Court will refer to the two entity Defendants collectively as “Pizza Hut.”
depreciation. As a result of those costs, Creech alleges that her effective wage, and the wages of
other similarly-situated delivery drivers, fell below minimum wage.
Creech seeks to bring a collective action on behalf of herself and others similarly situated
seeking relief for Defendants’ alleged violations of the FLSA. The crux of the dispute in the
instant motions is whether Creech must pursue her claim in arbitration and, if so, whether other
drivers may arbitrate with her as a collective. Defendants filed their two motions on October 4,
2016, to which Plaintiff responded on October 18. Defendants filed a reply as to Defendants’
motion to compel arbitration on October 28, to which Plaintiff filed a sur reply on November 9.
Plaintiff filed her motion to dismiss on October 25, and Defendants responded on November 11.
Finally, the Court held a hearing on these motions on December 19. Accordingly, these matters
are now ripe for consideration.
Arbitration Motions (ECF Nos. 10 & 16)
Once a litigant moves to compel arbitration under the Federal Arbitration Act (“FAA”), 9
U.S.C. §§ 1 et seq., the district court determines whether a matter should be resolved through
arbitration depending on (1) whether a valid arbitration agreements exists and, if so, (2) whether
the dispute falls within the scope of the arbitration agreement. AT&T Tech., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643, 651 (1986); see Hooters of Am. v. Phillips, 173 F.3d 933, 938
(4th Cir. 1999). The Supreme Court has consistently encouraged a “healthy regard for the
federal policy favoring arbitration.” Levin v. Alms & Assocs., 634 F.3d 260, 266 (4th Cir. 2011)
(internal quotation marks and citation omitted). “The heavy presumption of arbitrability requires
that when the scope of the arbitration clause is open to question, a court must decide the question
in favor of arbitration.” Id. (citation omitted).
Creech worked at various Pizza Hut locations from 2006 to October 2013, from
September 2015 to December 2015, and in June 2016. On each of those occasions, she allegedly
signed an arbitration agreement as part of her employment application. During the first time
period, she physically signed a paper arbitration agreement. Creech does not dispute that she
signed that agreement, which does not contain a collective-action restriction. For the 2015
employment period, Pizza Hut alleges Creech filled out an online employment application that
did include an arbitration provision.
Pizza Hut contends Creech electronically signed and
acknowledged that she had read and agreed to the arbitration provision in the online application.
Finally, Pizza Hut similarly alleges Creech electronically signed a third arbitration agreement in
connection with her June 2016 employment application. These latter two arbitration agreements
contain collective-action restrictions. Before deciding which agreement applies, the Court will
first determine whether Pizza Hut has waived its right to arbitrate this dispute.
Before filing suit in this Court, Creech initially filed a demand to arbitrate and a
statement of claim with the American Arbitration Association (“AAA”). Creech states that she
filed her demand using a standard form application that Pizza Hut franchisees have used for
several years. The form Creech filed, which is undated, contains no prohibition of class or
collective action arbitration, and it states that “Pizza Hut will pay the arbitrator’s fees, and Pizza
Hut will pay that portion of the arbitration filing fee in excess of the similar court filing fee had I
gone to court.” (Pl.’s Mem. Opp’n Defs.’ Mot., Ex. 5, Arbitration Agreement, ECF No. 13-5, at
2.) In connection with her demand to arbitrate, Creech served JEM Pizza Group with her
arbitration demand and statement of claim.
After Creech filed her demand and paid the AAA’s application fee, the AAA sent a letter
on May 19, 2016, requesting the balance of the $3,250.00 filing fee. According to Creech, the
letter was sent to JEM Pizza Group. Creech also contends that Pizza Hut was responsible for
paying the balance of the filing fee based on the quoted language above. The $3,250.00 filing
fee was never paid and, on July 14, the AAA informed Creech that it was returning her
application fee because the filing fee had not been paid. Finally, on August 5, the AAA
administratively closed the arbitration case for failure to pay the filing fee.
JEM Pizza Group received Creech’s demand for arbitration and statement of claim, sent
by Creech’s counsel, at its corporate address in May 2016. However, neither JEM Pizza Group
nor JEM Restaurant Group of Florida, Inc. (“JEM Florida”) received the AAA’s letter requesting
the balance of the $3,250.00 filing fee. The AAA’s letter is addressed to one of Creech’s
attorneys and to JEM Pizza Group. The letter provides a case number and states that the action
is against both JEM Pizza Group and JEM Florida. While the address information for Creech’s
counsel is correct, the address for JEM Pizza Group is incorrect, as it lists the address for a
Charleston shopping center. Although a Pizza Hut restaurant operates at that shopping center,
that Pizza Hut franchise is neither owned nor operated by JEM Pizza Group or JEM Florida.
JEM Pizza Group’s Vice President of Human Resources, Melissa Eckert, stated in an
affidavit that she never communicated with Creech’s counsel after receiving the demand to
arbitrate, and that she believed that the AAA would notify JEM Pizza Group once it had
accepted the arbitration demand and then JEM Pizza Group would have a chance to respond. On
September 13, Pizza Hut’s counsel sent an e-mail to the AAA requesting information about the
arbitration. The AAA responded, stating that the arbitration was closed because Creech had
submitted insufficient fees.
“[T]he FAA authorizes a party to an arbitration agreement to demand a stay of
proceedings in order to pursue arbitration, ‘provided the applicant for the stay is not in default’
of that right.” Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200, 204 (4th
Cir. 2004) (quoting 9 U.S.C. § 3). “Such default or waiver arises when the party seeking
arbitration ‘so substantially utilized the litigation machinery that to subsequently permit
arbitration would prejudice the party opposing the stay.’” Id. (quoting Maxum Founds., Inc. v.
Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985)). However, in light of the federal policy favoring
arbitration, the Fourth Circuit has held that it “‘will not lightly infer the circumstances
constituting waiver.’” Id. (quoting Am. Recovery Corp. v. Computerized Thermal Imaging, Inc.,
96 F.3d 88, 95 (4th Cir. 1996)). Thus, “[t]he party opposing arbitration on the basis of waiver . .
. bears a heavy burden.” Id. (citation and internal quotations omitted). This Court has noted that
“‘the dispositive question is whether the party objecting to arbitration has suffered actual
prejudice.’” Mozingo v. S. Fin. Grp., Inc., 520 F. Supp. 2d 725, 731 (D.S.C. 2007) (quoting
MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 249 (2001)). “‘Prejudice . . . refers to the inherent
unfairness—in terms of delay, expense, or damage to a party’s legal position—that occurs when
the party’s opponent forces it to litigate an issue and later seeks to arbitrate the same issue.’” Id.
(quoting Am. Reliable Ins. Co. v. Stillwell, 212 F. Supp. 2d 621, 628 (N.D. W. Va. 2002)).
The Court concludes that Pizza Hut has not waived its right to arbitrate. Although Pizza
Hut admits that it never paid the balance of the collective action filing fee, Pizza Hut’s
justifications for that failure defeat Creech’s waiver argument. More importantly, Creech has not
demonstrated actual prejudice. Creech commenced her action in this Court on September 12,
and the Court held its hearing on December 19. During that time, the only issues raised in the
case have been whether arbitration was waived, which arbitration agreement applies, if any, and
whether JEM Florida is a proper defendant. No other issues have been presented to the Court.
That is not the type of substantial utilization of litigation machinery contemplated by the FAA as
a reason to waive arbitration. Although Creech served the demand to arbitrate and the statement
of claim in May, she did not commence this action until September 12. Three months later, the
Court has determined that this action will proceed to arbitration. Although there has been a
slight delay, along with additional costs, neither of those things, individually or collectively, is so
substantial as to overcome the strong federal policy favoring arbitration. For those reasons,
along with Pizza Hut’s reasonable explanations 2 for failing to pay the balance of the filing fee,
the Court concludes that Pizza Hut has not waived its right to arbitrate. Because the arbitration
action was administratively closed, it may still be re-opened.
II. Competing Arbitration Agreements
The Court now turns to the main dispute: which of the three arbitration agreements
applies. Creech argues in favor of the arbitration agreement that she physically signed during her
first period of employment at JEM Pizza Group.
Pizza Hut primarily argues for the
electronically signed 2015 agreement, without conceding its argument that the electronically
signed 2016 agreement is valid. For the reasons set forth herein, the Court concludes that the
2015 agreement is valid and that this action must stayed while the parties proceed to arbitration
2. First, Pizza Hut asserts that they were never notified that any additional balance was owed. The Court agrees.
The AAA’s letter requesting the balance of the collective action filing fee was sent to JEM Pizza Group at the wrong
address, and was not even addressed to JEM Florida at all. Having never received any communications from either
Creech’s counsel or the AAA beyond Creech’s initial demand for arbitration and statement of claim, Pizza Hut’s
failure to pay the balance of the filing fee cannot constitute a waiver of their right to arbitrate. Second, the Court
concludes that Pizza Hut could reasonably have assumed that no additional payment was required. Although
Creech’s demand for arbitration requested an arbitrator with experience in FLSA collective actions, Plaintiff did not
include a copy of the arbitration agreement under which she was seeking to arbitrate. Pizza Hut implemented an
arbitration agreement with a collective action restriction in 2014. Thus, when Creech asserted her claim in 2015
without including the relevant arbitration agreement, Pizza Hut could reasonably have assumed that Creech’s action
was subject to the collective action restriction.
subject to that agreement’s terms, including the collective-action waiver. Having so concluded,
the Court makes no determination about the other two agreements.
Creech objects to the 2015 agreement’s validity because she claims to have neither seen
nor signed it. The Court concludes that Pizza Hut has proffered affirmative evidence of a valid
agreement, 3 and Creech has failed to raise a genuine issue of material fact that the arbitration
agreement is invalid. See Gadberry v. Rental Servs. Corp., No. 0:09-cv-3326-CMC-PJG, 2011
WL 766991, at *2 (D.S.C. Feb. 24, 2011) (finding no genuine issue of material fact where an
employee failed to introduce affirmative evidence that he did not sign the contract containing an
arbitration agreement). As a result, the Court grants Pizza Hut’s motion to stay and to compel
arbitration, in accordance with the provisions of the 2015 agreement.
In light of the above analysis, the Court denies Creech’s motion to dismiss Pizza Hut’s
counterclaim, which seeks to compel arbitration. Additionally, the Court concludes that Pizza
Hut’s request to strike Creech’s jury trial demand is moot. Pursuant to Pizza Hut’s request, the
case is hereby stayed during the pendency of arbitration.
Motion to Dismiss (ECF No. 9)
As the Court stated during the hearing, Pizza Hut’s motion to dismiss JEM Florida is
denied without prejudice. In an FLSA cause of action, the plaintiff bears the initial burden of
proving that an employer–employee relationship exists. Purdham v. Fairfax Cty. Sch. Bd., 637
F. 3d 421, 427 (4th Cir. 2011). Pizza Hut claims that Creech has failed to do so here because
JEM Florida: (1) never paid Creech; (2) never employed Creech; (3) is a distinct and separate
company from JEM Pizza Group; and (4) has its own tax identification number. In contrast,
3. Pizza Hut has provided screen shots of Creech’s 2015 computerized application, which indicate Creech agreed
to all terms of the employment application.
Creech argues that her complaint adequately pleads JEM Florida’s liability based on her
allegations that the JEM entities are joint employers under the FLSA. Separate entities that share
control over an individual worker may be deemed joint employers. Schultz v. Capital Int’l Sec.,
Inc., 466 F.3d 298, 305–06 (4th Cir. 2006). Under the Department of Labor’s regulations, if two
entities are under common control, then they can be deemed joint employers. See 29 U.S.C.
§ 791.2(b)(3). Creech alleged in her complaint that both JEM entities were under common
control, and thus JEM Pizza Group and JEM Florida may be deemed to be joint employers.
Without additional information concerning the question of common control, the Court cannot
make a determination as to whether JEM Florida is a proper defendant at this time. Accordingly,
Pizza Hut’s motion is denied without prejudice.
For the foregoing reasons, it is ORDERED that Defendants’ motion to dismiss is
DENIED WITHOUT PREJUDICE, Defendants’ motion to stay, to compel arbitration, and to
strike Plaintiff’s collective action allegations and jury trial demand is GRANTED IN PART
AND MOOTED IN PART, and Plaintiff’s motion to dismiss is DENIED. Accordingly, this
case is STAYED.
AND IT IS SO ORDERED.
December 27, 2016
Charleston, South Carolina
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