United States District Court, D. Colorado
GEORGINA SANTICH, JANEL ANDERSON, JESSICA SAULTERS ARCHULETTA, ADRIANNE AXELSON, EMILY BACHELDER, ALENA BAILEY, RACHEL BERRY, NICOLE BUJOK, BRANDI CAMPBELL, TALITA CATTO, MELISSA CHAVEZ, ARIEL CLINE, MEGAN FITZGERALD, AMANDA GABRIEL, AMY GLINES, JOHANNA GRISSOM, AMANDA LIVINGSTON, ARIELLE MANSFIELD, CHADA MANTOOTH, KARLA MARTINEZ, CHRISTINA MASSARO, ALEXIS NAGLE, LAPORTIA OAKLEY, GALE RAFFAELE, AMRICA TERRELL, PENNY WATKINS, CASANDRA WINDECKER, MELANIE TRACY, PORSCHA GREEN, AMANDA SHAFER, ASHLEY WOZNEAK, REBECCA RAIL, ANDREA ABBOTT, and KIMBERY HALE, all individually and on behalf of all others similarly situated, Plaintiffs,
VCG HOLDING CORP., LOWRIE MANAGEMENT, LLLP, TROY LOWRIE, MICHAEL OCELLO, DENVER RESTAURANT CONCEPTS LP d/b/a PTs Showclub, KENKEV II, INC. d/b/a PTs Showclub Portland, INDY RESTAURANT CONCEPTS, INC. d/b/a PTs Showclub Indy, GLENARM RESTAURANT, LLC d/b/a Diamond Cabaret, GLENDALE RESTAURANT CONCEPTS, LP d/b/a The Penthouse Club, STOUT RESTAURANT CONCEPTS, INC. d/b/a La Boheme, and VCG RESTAURANTS DENVER, INC. d/b/a PT's All Nude, Defendants.
RECOMMENDATION OF UNITED STATES MAGISTRATE
Michael E. Hegarty United States Magistrate Judge
seek to compel Plaintiffs to arbitrate this Fair Labor
Standards Act (“FLSA”) collective action case.
Mot. to Compel Arbitration, ECF No. 74. According to
Defendants, every Plaintiff signed binding arbitration
agreements containing class-action waivers. Although
Plaintiffs do not dispute this, they contend the arbitration
agreements are unconscionable and invalid under two federal
statutes. Because Plaintiffs' unenforceability arguments
do not specifically challenge the clause delegating questions
of validity to the arbitrator, the Court agrees with
Defendants that the arbitrator must decide whether the
parties' arbitration provision is unconscionable and
invalid based on federal statutes. Furthermore, although the
Court recommends holding that the fee-shifting and
cost-sharing provisions in the parties' agreement
effectively preclude Plaintiffs from asserting their claims,
these provisions are severable from the agreement as a whole.
Lastly, the Court recommends holding that the two Defendants
who did not sign the arbitration agreements may nevertheless
light of the Court's recommendation on Defendants'
motion to compel arbitration, the Court recommends denying as
moot Plaintiffs' motion for conditional certification.
exotic dancers-initiated this FLSA collective action on March
10, 2017. Compl., ECF No. 1. In an Amended Complaint,
Plaintiffs assert that Defendants-adult entertainment clubs
and entities that own the clubs-required them to sign
contracts, called “leases, ” that improperly
classified them as independent contractors. Am. Compl.
¶¶ 125-94, ECF No. 65. As independent contractors,
Plaintiffs did not receive a wage, but instead paid
Defendants a fee ranging from $120.00 to $200.00 each time
they worked. Id. at ¶¶ 23-24. Further,
Defendants allegedly required Plaintiffs to pay them a
portion of the tips and other income Plaintiffs received.
Id. at ¶ 28. Because Plaintiffs believe they
are employees under the FLSA and various state wage acts,
they seek “unpaid wages, fees, fines, tips, [and]
interest . . . .” Id. at ¶ 141.
responded to the Amended Complaint by filing the present
Motion to Compel Arbitration, which contends that each
Plaintiff signed valid arbitration agreements containing
collective action waivers. Mot. to Compel Arbitration 2, ECF
No. 74. On June 19, 2017, Plaintiffs submitted their Response
to Defendants' Motion to Compel Arbitration, ECF No. 105.
Plaintiffs first argue that Defendants VCG Holding Corp and
Lowrie Management cannot compel them to arbitration, because
these Defendants are not parties to the leases. Id.
at 4-6. Next, Plaintiffs assert the arbitration provision is
unenforceable, because it is procedurally and substantively
unconscionable. Id. at 8-19. In support of their
procedural unconscionability argument, Plaintiffs attach
their own affidavits, which discuss the conditions
surrounding their assent to the leases. See ECF Nos.
106-1-106-12. Regarding substantive unconscionability,
Plaintiffs assert the fee-shifting and cost-sharing
provisions preclude them from pursuing their claims.
Id. at 14-19. Importantly, Plaintiffs argue the
Court, not the arbitrator, must decide whether the
arbitration provision is unconscionable. Id. at 7-8.
Plaintiffs then assert the Court cannot sever the
unconscionable provisions, because the arbitration provision
“is plainly part of Defendants' scheme to violate
the FLSA and other wage laws and to discourage Plaintiffs
from enforcing their rights.” Id. at 24.
Finally, Plaintiffs contend the class-action waiver is
illegal under the National Labor Relations Act
(“NLRA”) and the Fair Labor Standards Act
(“FLSA”). Id. at 24-29. Although
Plaintiffs contend this case undisputedly belongs in federal
court, they seek a jury trial under 9 U.S.C. § 4 in the
event they have only shown a disputed issue of material fact
as to the making of the agreement. Id. at 30.
10, 2017, Defendants filed their Reply in Support of their
Motion to Compel Arbitration, ECF No. 120. Defendants first
argue that the arbitrator must decide the validity of the
leases, because the arbitration provision contains a clause
delegating issues of arbitrability to the arbitrator.
Id. at 2-4. Next, assuming the Court disagrees with
its delegation argument, Defendants contend that many
Plaintiffs have not submitted evidence challenging the
validity of their leases, and regardless, the arbitration
provision is not unconscionable. Id. at 5-18.
Defendants then argue that VCG and Lowrie can compel
Plaintiffs to arbitration, because the Amended Complaint
relies on the leases and alleges interconnected misconduct
between the signatory and nonsignatory Defendants.
Id. at 21. Finally, Defendants argue the NLRA and
FLSA do not conflict with the leases' class-action
waivers. Id. at 21-25.
filed a Motion for Leave to File Surreply on July 21, 2017,
ECF No. 131. This Court denied Plaintiffs' motion in an
August 10, 2018 order. ECF No. 139. The Court held that each
of the arguments in Defendants' reply directly rebuts the
contentions Plaintiffs asserted in their response.
Id. at 4-5. Additionally, although Defendants
submitted reply declarations in support of their arguments,
those statements directly refuted the statements Plaintiffs
made in response. Id. at 5. Plaintiffs subsequently
objected to this Court's order denying them leave to file
a surreply. ECF No. 142. On September 25, 2017, the Honorable
Raymond P. Moore overruled Plaintiffs' objections and
affirmed this Court's order. ECF No. 148.
of arbitrability are governed by the Federal Arbitration Act
(“FAA”). Belnap v. Iasis Healthcare, 844
F.3d 1272, 1279 (10th Cir. 2017). Under the FAA, when parties
agree to settle a controversy by arbitration, courts must
enforce that agreement “save upon grounds as exist at
law or in equity for the revocation of any contract.” 9
U.S.C. § 2. Such grounds include “generally
applicable contract defenses, such as fraud, duress, or
unconscionability.” Rent-A-Center, W., Inc. v.
Jackson, 561 U.S. 63, 68 (2010) (quoting
Doctor's Assocs., Inc. v. Casarotto, 517 U.S.
681, 687 (1996)). Importantly, if a contract contains an
arbitration provision, the party opposing arbitration must
assert his validity challenges against the arbitration
provision, not the contract as a whole. See, e.g.,
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 405 (1967) (holding that the arbitrator must
decide whether the defendant fraudulently induced the
plaintiff to enter into the contract, because the plaintiff
did not argue that the defendant fraudulently induced it to
agree to the arbitration provision). This is because, if the
party opposing arbitration does not contest the validity of
the arbitration provision, the agreement to arbitrate
“is severable from the remainder of the
contract.” Rent-A-Center, W., Inc., 561 U.S.
parties can agree to arbitrate the merits of a dispute, they
can agree to arbitrate arbitrability-i.e. the
validity and scope of an arbitration provision. Id.
at 69 (“An agreement to arbitrate a gateway issue is
simply an additional, antecedent agreement 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.”). If the parties' contract
delegates issues of arbitrability, the party opposing
arbitration must specifically dispute the validity of the
delegation clause. Id. at 72. Otherwise, the
delegation clause is severable from the arbitration provision
as a whole, and the arbitrator must decide arbitrability
analyzing whether the parties agreed to submit a specific
dispute to arbitration, “[a]ll ‘doubts are to be
resolved in favor of arbitrability.'” Coors
Brewing Co. v. Molson Breweries, 51 F.3d 1511, 1514
(10th Cir. 1995) (quoting Oil, Chem., & Atomic
Workers Int'l Union, Local 2-124 v. Am. Oil Co., 528
F.2d 252, 254 (10th Cir. 1976)). However, the law reverses
the presumption when determining whether parties agreed to
arbitrate arbitrability. See, e.g., First
Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 945
(1995) (“[T]he law treats silence or ambiguity about
the question ‘who (primarily) should decide
arbitrability' differently from the way it treats silence
or ambiguity about the question ‘whether a
particular merits-related dispute is arbitrable because it is
within the scope of a valid arbitration agreement.”).
Upon reviewing the parties' arguments and being satisfied
that the making of the agreement to arbitrate (or the
agreement to delegate arbitrability) is not in issue,
“the court shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement.” 9 U.S.C. § 4.
the question of who should decide arbitrability is a
threshold issue, the Court will address it first.
Commc'n Workers of Am. v. Avaya, Inc., 693 F.3d
1295, 1303 (10th Cir. 2012) (“The Court should have
begun its analysis by asking whether the parties did or said
anything to rebut the presumption that questions about the
arbitrability of an arbitration dispute will be resolved by
the courts.”). The Court recommends reserving
Plaintiffs' unconscionability and statutory validity
arguments for the arbitrator. The Court will then analyze
whether the agreements' fee-shifting clause thwarts
Plaintiffs' ability to pursue their FLSA claims. Although
the Court finds that shifting fees in the event Defendants
prevail would prevent Plaintiffs from pursuing their claims,
the Court recommends holding that the invalid provision is
severable from the agreement. Finally, the Court recommends
permitting the nonsignatory Defendants to compel Plaintiffs
The Arbitrator Must Decide Arbitrability.
contend the Court should decide arbitrability, because they
“challenge the enforceability of the entire Arbitration
Clause, including the ‘delegation'
provision.” Resp. to Mot. to Compel Arbitration 7, ECF
No. 105. Defendants respond that by relying on the
circumstances surrounding the signing of the leases,
Plaintiffs' unconscionability arguments challenge the
entire agreement, not just the delegation clause. Reply in
Support of Mot. to Compel Arbitration 3, ECF No. 120. As
such, Defendants assert the arbitrator, not the Court, must
decide the validity of the leases. Id. at 4.
have identified two subissues when analyzing whether an
arbitration agreement properly delegates arbitrability
disputes. First, the parties must clearly and unmistakably
demonstrate their intent to delegate validity disputes to the
arbitrator. First Options of Chi. v. Kaplan, 514
U.S. 938, 944 (1995) (“Courts should not assume that
the parties agreed to arbitrate arbitrability unless there is
‘clear and unmistakable' evidence that they did
so.” (quoting AT&T Techs., Inc. v. Commc'ns
Workers, 475 U.S. 643, 649 (1986))). The parties can
demonstrate such intent through express language or a course
of conduct. Rent-A-Center, W., Inc. v. Jackson, 561
U.S. 63, 79-80 (2010) (Stevens, J., dissenting) (citing
First Options of Chi., 514 U.S. at 946).
courts must analyze whether the party opposing arbitration
contests the validity of the agreement as a whole or the
arbitration and delegation provisions specifically. Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.
395, 403 (1967) (holding that a court may consider claims for
fraudulent inducement as to the arbitration provision itself,
but not “claims of fraud in the inducement of the
contract generally”); Rent-A-Center, W., Inc.,
561 U.S. at 72 (holding that courts may not determine
challenges to an arbitration provision when the party
opposing arbitration failed to specifically dispute the
validity of the clause delegating arbitrability issues to the
arbitrator). Challenges to the contract as a whole (or to the
arbitration provision as a whole when the provision contains
a delegation clause) are for the arbitrator to decide. If the
party resisting arbitration does not specifically dispute the
validity of the delegation clause, the court must sever that
clause and allow the arbitrator to determine the validity of
the arbitration provision. Rent-A-Center, W., Inc.,
561 U.S. at 72 (“[U]nless [the plaintiff] challenged
the delegation provision specifically, [the court] must treat
it as valid under § 2, and must enforce it under
§§ 3 and 4, leaving any challenge to the validity
of the Agreement as a whole to the arbitrator.”).
Court first finds the leases clearly and unmistakably agree
to arbitrate issues of arbitrability. Then, the Court holds
that Plaintiffs' challenges to the leases attack either
the agreements as a whole or separate provisions of the
agreements. They do not specifically challenge the delegation
clause. As such, the Court recommends permitting the
arbitrator to determine the validity of the arbitration
Clear and Unmistakable Intent to Delegate Arbitrability to
parties clearly and unmistakably demonstrate their intent to
delegate questions of validity to the arbitrator. Indeed,
Plaintiffs do not argue to the contrary. Of the thirty-four
plaintiffs in this lawsuit, twenty-seven signed leases
containing identical express delegation
clauses. These clauses provide: “THE
ARBITRATOR SHALL HAVE EXCLUSIVE AUTHORITY TO RESOLVE ANY
DISPUTES OVER THE FORMATION, VALIDITY, INTERPRETATION, AND/OR
ENFORCEABILITY OF ANY PART OF THIS LEASE, INCLUDING THESE
ARBITRATION PROVISIONS.” See,
e.g., ECF No. 74-13, at 15.
remaining seven Plaintiffs' operative leases include
provisions incorporating the American Arbitration Association
(“AAA”) rules, which permit the arbitrator to
determine issues of his own jurisdiction.See Belnap v.
Iasis Healthcare, 844 F.3d 1272, 1283 (10th Cir. 2017)
(holding that incorporation of the JAMS rules, which are
“substantially identical” to the AAA rules,
demonstrated clear and unmistakable evidence of intent to
arbitrate arbitrability); Dish Network LLC v. Ray,
226 F.Supp.3d 1168, 1173 (D. Colo. 2016) (holding that the
parties' “incorporation of the AAA rules
constitutes clear and unmistakable evidence of their intent
to delegate questions of arbitrability to the