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Santich v. VCG Holding Corp.

United States District Court, D. Colorado

August 20, 2018

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,
v.
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.

          ORDER: ON RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION TO CERTIFY QUESTION TO THE COLORADO SUPREME COURT

          RAYMOND P. MOORE, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Recommendation of United States Magistrate Judge Michael E. Hegarty (the “Recommendation”) (ECF No. 149) on “Defendants' Motion to Stay or Dismiss Proceedings Pursuant to Sections 3 and 4 of the Federal Arbitration Act, to Compel Plaintiffs[] to Arbitration, and to Strike Class and Collective Action Allegations” (the “Motion to Compel”) (ECF No. 74). In the Recommendation, the Magistrate Judge recommended granting Defendants VCG Holding Corp. (“VCG”), Lowrie Management, LLLP (“Lowrie”), and Denver Restaurant Concepts LP d/b/a PTs Showclub's[1] (collectively, “Defendants”) Motion to Compel; ordering Plaintiffs to arbitrate; severing the fee-shifting provisions in certain agreements between some of the parties; and allowing two nonsignatory Defendants (VCG and Lowrie) to enforce these agreements. Plaintiffs filed a “Combined Objection to Magist[r]ate Judge's Recommendation on Defendants' Motion to Compel Arbitration [Doc. 149] and Motion to Certify to the Colorado Supreme Court” (the “Objection”) (ECF No. 162), to which Defendants filed a response and Plaintiffs filed a reply (ECF Nos. 171 & 178). Thereafter, the parties filed supplemental authorities for the Court's consideration (ECF Nos. 180 & 182). These matters are ripe for the Court's determination.

         I. BACKGROUND

         A. The Amended Complaint

         Briefly, [2] at issue in this case is whether Plaintiffs, women working as dancers in adult entertainment establishments, are independent contractors or employees, notwithstanding Plaintiffs having signed documents allegedly “electing” to be independent contractors and titled as an “Entertainment Lease” (hereafter, “Lease” or “Leases”). Plaintiffs allege Defendants engaged in various wrongful actions, such as denying them earned minimum wages, overtime pay, and the full retention of their tips; charging them fees to work; and subjecting them to fines. They bring claims under the Fair Labor Standards Act (“FLSA”); the Colorado Wage Claim Act; the Colorado Minimum Wage Act; the Maine Independent Contractor Law; the Maine Employment Practices Laws; the Indiana Minimum Wage Law; and common law (unjust enrichment).

         B. The Motion to Compel and Recommendation

         The Leases contain arbitration clauses and delegation clauses.[3] Thus, Defendants' Motion to Compel followed seeking to compel arbitration, including arbitrating the issue of arbitrability.[4] Plaintiffs, of course, opposed the Motion to Compel. The parties submitted papers, including affidavits, for consideration. The Magistrate Judge recommended the following:

(1) That the arbitrator determine the arbitrability and validity of the arbitration agreements because:
(a) Each Plaintiff signed an arbitration agreement that clearly and unmistakably permits the arbitrator to determine the issues of arbitrability[5] and validity;
(b) The Plaintiffs' procedural unconscionability arguments challenge the entire agreement (Leases) or the arbitration provision, not the specific delegation clause. Therefore, the delegation clause may be severed and the arbitrator should decide the procedural unconscionability arguments;
(c) The Plaintiffs' substantive unconscionability arguments challenge provisions of the arbitration agreement other than the delegation clause, thus such arguments are also for the arbitrator to determine; and (d) The Plaintiffs' statutory validity challenges (i.e., that the arbitration provision is unenforceable because the class action waiver violates the NLRA[6] and FLSA) do not specifically pertain to the delegation clause and, therefore, the validity of the class action waiver is also for the arbitrator to decide;
(2) That the cost-sharing and fee-shifting provisions in the arbitration agreements[7] preclude Plaintiffs from effectively vindicating their claims, but they are severable from the agreements because:
(a) This is an issue for the court to decide, regardless of whether the parties agreed to delegate arbitrability to the arbitrator;
(b) The Leases have a severability or savings clause where the parties agreed to sever any invalid provisions and enforce the remainder; and
(c) These provisions do not rise to a blatant misuse of the arbitration procedure or a scheme to chill Plaintiffs from exercising their rights; and
(3) That the nonsignatory Defendants (VCG and Lowrie) may enforce the arbitration agreement because:
(a) This is an issue for the court to decide; and
(b) The claims against the signatory Defendants are interdependent with those against the nonsignatory Defendants, and the claims are intertwined with duties and obligations in the Leases.

         The Magistrate Judge also recommended that this Court stay this litigation at least until the arbitrator determines the validity of the arbitration agreement. In light of his Recommendation, the Magistrate Judge also recommended that Plaintiffs' Expedited Motion to Proceed as a Conditional Collective Action, to Provide Notice, and to Toll all Statute of Limitations (ECF No. 61) be denied as moot. Plaintiffs' Objection followed.

         II. LEGAL STANDARD

         A. Dispositive/Non-dispositive Motions

         To start, the parties disagree over whether the Magistrate Judge's Recommendation is on a dispositive or non-dispositive motion. As such, they disagree over the standard of review to be applied by this Court. The Magistrate Judge treated the Motion to Compel as dispositive, and Plaintiffs assert it is in fact dispositive but acknowledge that courts are divided on the issue. Regardless, Plaintiffs assert that because the Magistrate Judge's recommendations depend on the interpretation of the Leases and application of law, the review is plenary under the “contrary to law” branch of the Rule 72(a) standard which review has no practical difference under the de novo standard of Rule 72(b). Defendants contend the Motion to Compel is not dispositive, [8]relying principally on Vernon v. Qwest Communs. Int'l, Inc., 857 F.Supp.2d 1135 (D. Colo. 2012) (“Qwest I”) issued by Magistrate Judge Craig B. Shaffer, but do not challenge Plaintiff's plenary review assertion.

         The Court's review shows the Tenth Circuit has apparently not decided the issue, and finds it need not do so here. As Plaintiffs observe, Defendants rely on Qwest I but fail to inform the Court that Judge R. Brooke Jackson thereafter “elect[ed] to assume that the motion [to compel arbitration] was dispositive” and reviewed Magistrate Judge Shaffer's Qwest I order de novo. Vernon v. Quest Communs. Int'l, Inc., 925 F.Supp.2d 1185, 1189 (D. Colo. 2013) (emphasis added). Further, both parties rely on PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 15 (1st Cir. 2010) with which, upon review, the Court agrees. There, the First Circuit determined there is no practical difference between review under Rule 72(b) and the “contrary to law” standard under Rule 72(a). Accordingly, this Court need not decide whether the Motion to Compel in this case is dispositive or nondispositive.[9]

         B. FAA and Arbitration Agreements

         As no party objects to the legal standard[10] set forth by the Magistrate Judge, and the Court finds the standard is correctly stated, the legal standard set forth in the Recommendation is incorporated herein by reference. Where appropriate or necessary to do so, the Court addresses or applies such standard as set forth herein.

         III. ANALYSIS

         A. Plaintiffs' Objection - General

         Plaintiffs assert the Magistrate Judge made three errors of law. Specifically, Plaintiffs argue that, contrary to the recommendation: (1) this court, not an arbitrator, must decide whether the arbitration clause[11] is enforceable; (2) the unconscionable cost-sharing and fee-shifting provisions invalidate the Leases in their entirety, including the arbitration clauses at issue; and (3) Defendants VCG and Lowrie, as nonsignatories to the Leases, may not enforce the arbitration clause. As such, Plaintiffs argue, this Court should reject the Recommendation. In the alternative, Plaintiffs request this Court to certify the following two questions to the Colorado Supreme Court: (1) “How should courts determine whether a severability clause in a contract of adhesion should be enforced, unenforceable terms severed from the contract, and the contract enforced in their absence?”; and (2) “What principles should courts apply in determining whether a signatory is equitably estopped from avoiding arbitration on claims brought against a nonsignatory?” (ECF No. 162, pp. 14-15, 17.) Defendants filed no objection, but argue the Magistrate Judge correctly compelled arbitration. In addition, Defendants assert that certification is not warranted.

         B. Matters to which no Objection has been filed.

         Based on the parties' papers, no party objects to the following recommended findings and conclusions:

1) That each Plaintiff signed an arbitration agreement that clearly and unmistakably permits the arbitrator to determine the issues of arbitrability and validity;
2) That the court decides, regardless of whether the parties agreed to delegate arbitrability to the arbitrator, whether the cost-sharing and fee-shifting provisions preclude Plaintiffs from effectively vindicating their claims;
3) That the cost-sharing and fee-shifting provisions in the Leases preclude Plaintiffs from effectively vindicating their claims; and
4) That the Leases have a severability or savings clause where the parties agreed to sever any invalid provisions and enforce the remainder.

         As no objection has been filed, the Court reviews these recommendations for clear error. See Fed. R. Civ. P. 72 (b) advisory committee's note (“When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.”); see also Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir. 1991) (“In the absence of timely objection, the district court may review a magistrate's report under any standard it deems appropriate.”). Finding no clear error, the above recommendations are accepted.

         C. Matters to which any “objection” has been waived

         In footnote 5 of the Objection, Plaintiffs argue they specifically challenged the delegation clause in footnote 19 of their response (the “Response”) to the Motion to Compel (addressing the enforceability or unenforceability of the class and collective action waiver as illegal), but the Magistrate Judge allegedly failed to address this argument. It cannot be said that simply using the word “delegate” in such a footnote constitutes a specific challenge to the delegation provision, or that a footnote constitutes an objection or “specific objection” to the Recommendation as required under Fed.R.Civ.P. 72(a) and 72(b)(2). Instead, any such argument, contained in a perfunctory manner in footnotes, is waived. See, e.g., San Juan Citizens Alliance v. Stiles, 654 F.3d 1038, 1056 (10th Cir. 2011) (collecting cases). Accordingly, the Court finds unchallenged the Magistrate Judge's recommended finding that Plaintiffs' statutory validity challenges (i.e., that the arbitration provision is unenforceable because the class action waiver violates the NLRA and FLSA) do not specifically pertain to the delegation clause and, therefore, the validity of the class action waiver is also for the arbitrator. For this same reason, Defendants' request to strike the class and collective action allegations is denied.

         D. Matters to which an objection has been filed.

         1. Who decides arbitrability? The Arbitrator.

         Plaintiffs assert that this Court should decide whether the arbitration clause is enforceable. Plaintiffs contend that, in deciding whether Plaintiffs' arguments challenged the delegation clause, the Magistrate Judge incorrectly applied the principle that, in determining whether parties agreed to arbitrate arbitrability, the law reverses the presumption in favor of arbitrability. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Spahr v. Secco, 330 F.3d 1266, 1270 (10th Cir. 2003). In other words, Plaintiffs contend the Magistrate Judge failed to resolve all doubts in favor of Plaintiffs in determining whether they challenged the delegation clause.

         Here, Plaintiffs argue, their procedural and substantive unconscionability arguments specifically challenged the delegation clause; that those arguments also applied to the Lease or arbitration clause as a whole is irrelevant. Specifically, as to their procedural unconscionability argument, Plaintiffs contend the manner in which Defendants presented the Leases to Plaintiffs precluded them from validly assenting to any of the contract terms, including the arbitration clause and delegation provision; therefore, Plaintiffs assert, their case is analogous to Spahr, supra. As to their substantive unconscionability argument, relying on Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 74 (2010), Plaintiffs contend they have challenged the delegation clause. Referring to their Response to Defendants' Motion to Compel, Plaintiffs assert they argued there that if the delegation provision were enforced, they would be unable to vindicate their rights due to the fee-shifting and cost-sharing provision. The Court addresses - and rejects - each argument in turn.

         Procedural ...


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