Henderson v. A & D Interests, Inc. d/b/a Heartbreakers Gentlemen's Club
MEMORANDUM AND OPINION Granting 20 MOTION to Dismiss Pursuant to 9 U.S.C. § 4 (Signed by Judge George C Hanks, Jr) Parties notified.(lusmith, 3)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
FRANKIE HENDERSON, et al,
A & D INTERESTS, INC.; dba
CLUB, et al,
March 09, 2018
David J. Bradley, Clerk
§ CIVIL ACTION NO. 3:17-CV-096
Memorandum Opinion and Order
Pending before the Court is the Motion to Dismiss Pursuant to 9 U.S.C. § 4 filed
by Defendant A&D Interests, Inc. d/b/a Heartbreakers (“Heartbreakers”). Dkt. 20.
Defendant Mike Armstrong (“Armstrong”) has joined the motion to dismiss. Dkt. 32.
After considering the law, the evidence, and the record of this case as a whole, the Court
GRANTS Heartbreakers’ motion to dismiss.
Heartbreakers operate an adult entertainment club in Dickinson, Texas. Plaintiffs
Frankie Henderson (“Henderson”) and Kaitlyn Jersey (“Jersey”) worked as exotic
dancers at Heartbreakers. They signed and executed the Independent Contractor/License
Agreement Between A&D Interests, Inc. d/b/a Heartbreakers and Independent Contractor
(“License Agreement”). The License Agreement contains an arbitration provision. Within
this provision is a delegation clause that requires the licensor and licensee to proceed to
arbitration for “any controversy or claim arising out of or relating to” the License
Agreement and for any disputes regarding the validity of the arbitration provision itself.1
Heartbreakers argue the Court should dismiss the case in favor of the arbitration
procedures set forth in the License Agreement. Henderson and Jersey contend the
License Agreement is illusory and unconscionable and thus unenforceable. For the
reasons stated below, the Court finds that Heartbreakers’ motion to dismiss should be
Standard of Review
When the party seeking arbitration points to a purported delegation clause, the
Court performs a two-step analysis in determining whether to submit the question of
arbitrability to arbitration. First, the Court decides “whether the parties entered into any
arbitration agreement at all.” Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201
(5th Cir. 2016). This inquiry is a question of contract formation that looks at whether the
parties formed a valid agreement to arbitrate some set of claims. Id. at 201-02. Validity of
an arbitration agreement turns on state contract law. Id. at 202 (citing Carey v. 24 Hour
Fitness, USA, Inc., 669 F.3d 202, 205 (5th Cir. 2012)). The Court considers whether the
arbitration agreement may be invalidated by contract defenses such illusory promise or
unconscionability. See Poole-Ward v. Affiliates for Women’s Health, P.A., No. H-17-885,
Henderson and Jersey do not contest that the arbitration provision contains a delegation clause.
Even if they did, an “express delegation clause” is not necessary in order to delegate the issue of
arbitrability to an arbitrator. Archer & White Sales, Inc. v. Henry Schein, Inc., 878 F.3d 488, 493
(5th Cir. 2017). The License Agreement’s express incorporation of the rules of the American
Arbitration Association serves as “clear and unmistakable evidence that the parties agreed to
arbitrate arbitrability.” Id. (quoting Petrofac, Inc. v. DynMcDermott Petroleum Operations Co.,
687 F.3d 671, 675 (5th Cir. 2012)).
2017 WL 3923547, at *3 (S.D. Tex. Sept. 7, 2017). Second, the Court determines
whether the arbitration agreement contains a valid delegation clause—“that is, if it
evinces an intent to have the arbitrator decide whether a given claim must be arbitrated.”
Kubala, 830 F.3d at 202.
This second step applies a two-step inquiry adopted in Douglas v. Regions Bank,
757 F.3d 460, 464 (5th Cir. 2014). The Court looks at whether (1) the parties “clearly and
unmistakably” intended to delegate the question of arbitrability to an arbitrator and (2)
the assertion of arbitrability is not “wholly groundless.” Id. at 462, 463. The second step
of the Douglas inquiry asks “whether there is a plausible argument for the arbitrability of
the dispute.” Archer, 878 F.3d at 492 (5th Cir. 2017).
Henderson and Jersey argue the License Agreement is unenforceable because it is
illusory. The Court disagrees. The Fifth Circuit has held that an arbitration agreement is
illusory “[w]here one party has the unrestrained unilateral authority to terminate its
obligation to arbitrate.” Nelson v. Watch House Int’l, L.L.C., 815 F.3d 190, 193 (5th Cir.
2016) (quoting Lizalde v. Vista Quality Markets, 746 F.3d 222, 225 (5th Cir. 2014)).
Here, the License Agreement does not give such unilateral authority to either party.
Section 8 of the License Agreement gives both the Licensor and Licensee the power to
“terminate the agreement at any time with or without notice.” As both parties were
provided termination rights, the Court finds that the License Agreement is not illusory.
In addition, Henderson and Jersey contend the License Agreement is
unconscionable. Under Texas law, unconscionability includes two aspects: “(1)
procedural unconscionability, which refers to the circumstances surrounding the adoption
of the arbitration provision, and (2) substantive unconscionability, which refers to the
fairness of the arbitration provision itself.” In re Halliburton Co., 80 S.W.3d 566, 571
(Tex. 2002). Henderson and Jersey’s arguments are twofold. First, they argue the feesplitting provision makes the License Agreement unconscionable. Since they “complain
of the prohibitive cost of arbitration, their claim is grounded in substantive
unconscionability.” In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883, 892 (Tex.
2010). When a party seeks to invalidate an arbitration agreement, as here, “on the ground
that arbitration would be prohibitively expensive, that party bears the burden of showing
the likelihood of incurring such costs.” Green Tree Fin. Corp.-Ala. V. Randolph, 531
U.S. 79, 92, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000). The Court engages in a “case-bycase analysis that focuses, among other things, upon the claimant’s ability to pay the
arbitration fees and costs, the expected cost differential between arbitration and litigation
in court, and whether that cost differential is so substantial as to deter the bringing of
claims.” Olshan, 328 S.W.3d at 893 (citation and quotation omitted).
As evidence of the likely prohibitive cost of arbitration, Henderson and Jersey
present the declaration of Peter Costea, an attorney. Explaining the basis of his cost
estimates, Costea states in just two sentences that he has handled similar cases and that he
reviewed Henderson and Jersey’s pleadings and discussed them with the their lawyer.
Costea then estimates that this case would take an arbitrator anywhere between 50 and 70
hours to resolve. What is lacking from Costea’s declaration, however, is any comparison
of this case to a comparable claim that took approximately the same time to resolve.
Indeed, besides his own experience and judgment, Costea offers no logical basis for
arriving at his time estimates of arbitration. Thus, the Court finds that Henderson and
Jersey’s evidence “merely speculates about the risk of [the] possible cost” of arbitration
and thus is “insufficient.” Id. at 895. Even if Costea’s declaration constituted sufficient
evidence, Henderson and Jersey have failed to present evidence of their ability to pay at
the time the parties entered into the License Agreement. Unconscionability is examined
based on “the circumstances [that] exist[ed] when the parties made the contract.” Id. at
892 (quoting In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001)). Jersey offers
no evidence of her ability to pay for arbitration, whether past or present. Henderson states
in her declaration that her present financial circumstances would not allow her to pay for
arbitration. Henderson signed the License Agreement in August 2014. Her undated
declaration, presumably from 2017, describes a financial condition she may or may not
have had at the time she entered into the License Agreement. Therefore, Henderson and
Jersey have not offered adequate evidence for the Court to find that the License
Agreement is unconscionable.
Next, Henderson and Jersey assert the License Agreement is unconscionable
because it waives substantive statutory remedies. The final provision of the License
Agreement states, “Licensee agrees that she is an independent contractor and not an
employee and waives any claims for minimum wage or for overtime compensation.”
Henderson and Jersey argue this constitutes an unenforceable waiver of substantive rights
under the Fair Labor Standards Act. The Court disagrees. The quoted language merely
codifies an independent contractor relationship and thus does not constitute a waiver of
substantive statutory rights.
Henderson and Jersey also find problematic the part of the arbitration clause that
states, “The only parties to the arbitration shall be the Licensor and Licensee.” They
argue that since they are precluded from pursuing any claims in arbitration against
Armstrong, the owner of Heartbreakers, the License Agreement is unconscionable as it
prevents them from pursuing statutory remedies under the Fair Labor Standards Act. The
Court takes judicial notice of the fact that when Henderson filed her original complaint,
Armstrong was not named as a defendant. It was only after Heartbreakers filed the
current motion to dismiss that Henderson and Jersey amended their complaint to add
Armstrong as a defendant. Henderson and Jersey now argue that the Court cannot dismiss
the case in favor of arbitration because doing so would prevent them from pursuing
claims against Armstrong, the newly-added defendant The Court finds this reasoning
unpersuasive. Henderson and Jersey “may not evade arbitration through artful pleading,
such as by naming individual agents of the party to the arbitration clause and suing them
in their individual capacity.” In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 188
(Tex. 2007) (citation and quotation omitted). The Court thus finds that the License
Agreement is not unconscionable.
Having found that the parties entered into a valid arbitration agreement, the Court
now turns to whether the License Agreement contains a valid delegation clause. Under
the Douglas two-step inquiry, Henderson and Jersey have not made any argument that the
delegation clause does not evince an intent to have the arbitrator decide the question of
arbitrability. The incorporation of the American Arbitration Association rules in the
License Agreement serves as clear evidence that the parties intended to arbitrate
arbitrability. Archer, 878 F.3d at 493. Also, Henderson and Jersey do not argue that the
assertion of arbitrability is wholly groundless. The Court thus finds that the License
Agreement contains a valid and enforceable delegation clause.
For the foregoing reasons, the Court GRANTS Heartbreakers’ motion to dismiss
as the License Agreement is enforceable. Accordingly, the case is DISMISSED
SIGNED at Galveston, Texas, this 9th day of March, 2018.
George C. Hanks Jr.
United States District Judge
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