Ely v. East Coast Restaurant & Nightclubs, LLC et al

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Nicole Ely
v. Civil No. 20-cv-442-JD
Opinion No. 2020 DNH 140
East Coast Restaurant
and Night Clubs, LLC, et al.
O R D E R
Nicole Ely brought suit, as a putative collective action,
alleging claims under the Fair Labor Standards Act (“FLSA”), 29
U.S.C. § 201, et seq., that arose from her work at the Gold Club
(now known as the Millennium Cabaret) in Bedford, New Hampshire.
Defendants East Coast Restaurant and Night Clubs, LLC and
Michael Rose moved to dismiss the claims or compel arbitration.
Rose Enterprises LLC and Matthew Rose filed separate motions to
dismiss the claims or compel arbitration, in which they joined
in the arguments made by East Coast and Michael Rose.1 Ely
objects to the motions.2
1 Default has been entered against a fifth defendant,
Stephanie Rose Cudney. She has not participated in the case.
The moving defendants, East Coast, Rose Enterprises, Michael
Rose, and Matthew Rose, will be referred to as the defendants.
2 Allessandra Clivio filed a consent to sue form and joined
the objections to the motions to dismiss.
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Standard of Review
The defendants move to dismiss the plaintiffs’ claims due
to a lack of subject matter jurisdiction. Ordinarily, a motion
to dismiss for lack of subject matter jurisdiction would be
considered under Federal Rule of Civil Procedure 12(b)(1). See
Alvarez-Mauras v. Banco Popular of P.R., 919 F.3d 617, 623 n.8
(1st Cir. 2019). The First Circuit, however, holds that an
enforceable arbitration agreement does not deprive the court of
jurisdiction.3 Id. Therefore, the motion is considered on the
alternative ground, as a motion to compel arbitration.
“Because [the defendants’] motion to compel arbitration was
made in connection with a motion to dismiss or stay, [the court]
draw[s] the relevant facts from the operative complaint and the
documents submitted to the district court in support of the
motion to compel arbitration.” Cullinane v. Uber Techs., Inc.,
893 F.3d 53, 55 (1st Cir. 2018); accord Waithaka v. Amazon.com,
Inc., --- F.3d ---, 2020 WL 4034997, at *1 (1st Cir. July 17,
3 The First Circuit acknowledges a split of authority on the
standard that governs a motion to compel arbitration. Alvarez-
Mauras, 919 F.3d at 623, n.8; see also Seldin v. Seldin, 879
F.3d 269, 272 (8th Cir. 2018) (holding that an arbitration
agreement does not deprive a district court of subject matter
jurisdiction); FCCI Ins. Co. v. Nicholas County Library, 2019 WL
1234319, at *3-*4 (E.D. Ky. Mar. 15, 2020) (discussing cases
using different standards). As in Alvarez-Mauras, the decision
here does not depend on a factual issue so that the distinctions
among the available standards are not determinative.
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2020). The defendants submitted copies of the contracts signed
by Ely and Clivio, including the arbitration agreements.
Background
Ely alleges that East Coast Restaurant & Nightclubs, LLC,
did business as Gold Club and then Millenium Cabaret, providing
adult-oriented entertainment.4 Ely further alleges that
“ownership of Gold Club has been passed between defendant
Michael L. Rose and his ex-wife, defendant Stephanie Rose Cudney
and his son defendant Matthew Rose, who reside in Florida and
South Carolina respectively.” Comp. Doc. 1, ¶ 11. She
identifies defendant Rose Enterprises, LLC as a South Carolina
company with its business address at Matthew Rose’s residence.
Ely began working as a dancer at the Gold Club in 2015 and
worked there until early 2018. The job of a dancer at the club
is to entertain customers. She alleges that her compensation
was exclusively what she received through customer tips, which
she was required to share with management and other workers at
the club. She alleges that she was never paid wages and that
she worked in excess of ten hours per day without overtime pay.
4 Ely refers to East Coast Restaurant and Nightclubs, LLC,
Gold Club, and Millenium Cabaret together as “Gold Club.” The
court will use the name “East Coast” to refer to the LLC and
“Gold Club” to refer to the entertainment venue to avoid
confusion between the entity and the venue.
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While working at the Gold Club, Ely and Clivio each signed a
“Job Description/Offer,” an “Entertainer Performance Lease,” and
an “Agreement to Arbitrate Business, Lease and Contract
Disputes.”
Ely brings claims on her own behalf and as a collective
action under the FLSA on behalf of:
All of Defendants [sic] current and former exotic
dancers/entertainers who worked at the Gold
Club/Millenium Cabaret located in Bedford, New
Hampshire at any time starting three years before this
Complaint was filed.
Compl., doc. 1, ¶ 99. She alleges that the defendants
mischaracterized her as an independent contractor, when she was
actually an employee, and failed to pay minimum wage in
violation of the FLSA, § 206; failed to pay overtime wages in
violation of § 207; and unlawfully took tips in violation of §
203. She also alleges that the defendants violated 29 C.F.R.
§ 531.35 by imposing fees on and taking tips from the
plaintiffs.
Discussion
Defendants East Coast and Michael Rose, joined by Rose
Enterprises and Matthew Rose, move to compel arbitration based
on an arbitration agreement signed by Ely and Clivio.5 They
5 The defendants also challenged the status of Ely and
Clivio due to a lack of signed consents in writing to be a party
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contend that the plaintiffs agreed to arbitrate the claims they
raise here. In response, the plaintiffs contend that the
arbitration agreement is procedurally and substantively
unconscionable, and therefore, unenforceable. The defendants
reply, arguing that the arbitration agreement delegates the
question of arbitrability, including the issue of whether the
agreement is unconscionable, to the arbitrator.
A. Arbitration Agreement
The arbitration agreement states that the parties agree to
resolve any disputes informally, but “if not resolved
informally, the Parties agree and neither will object to submit
the dispute to final and binding arbitration as explained below
rather than filing a lawsuit in court.” Doc. 14-2, at *5: Doc.
14-3, at *5.6 “All claims must be submitted for the arbitrator
to decide in the first instance.” Doc. 14-2, at *5. “This
Agreement will not apply if an arbitrator determines (1) that
the applicable law prohibits the arbitrator from deciding a
particular matter or (2) that the Agreement restricts either
plaintiff, as required by 29 U.S.C. § 216(b). Ely and Clivio
then filed signed consents, and the defendants did not pursue
the consent issue in their reply. Therefore, the court will not
address that issue.
6 Because the plaintiffs signed the same arbitration
agreement, the court will cite to one rather than both.
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Party from exercising a right that cannot be expressly waived by
an agreement.” Id., at *6.
As is pertinent to the defendants’ motions, the agreement
states that the scope of arbitration and arbitrability is
delegated to the arbitrator. Specifically, the arbitrator is to
decide all gateway questions of arbitrability, including
“whether the arbitration clause is substantively or procedurally
unconscionable.” Id., at *8. In addition, the parties agreed
that if an “Entertainer” attempted to challenge her relationship
with the Gold Club or the classification of the relationship as
a lessee or independent contractor, “such challenges will be
heard exclusively by the arbitrator and not a court.” Id. The
parties also agreed to bring claims only on an individual basis
and not as a class or collective action.
B. Who Decides
The plaintiffs contend that the court must decide whether
an enforceable arbitration agreement exists or whether the
agreement is unenforceable because it is unconscionable. The
defendants argue that the arbitration agreement reserves
questions of arbitrability to the arbitrator. For that reason,
the defendants contend, the arbitrator, not the court, must
decide whether the arbitration agreement is unconscionable.
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Parties may agree to have threshold issues of arbitrability
decided by the arbitrator, as long as that agreement is shown by
“clear and unmistakable evidence.” Henry Schein, Inc. v. Archer
& White Sales, Inc., 139 S. Ct. 524, 530 (2019). Before a court
refers a dispute about whether a claim is arbitrable to an
arbitrator, however, the court must decide whether a valid
arbitration agreement exists. 9 U.S.C. § 2 (providing that an
arbitration agreement “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract”); Schein, 139 S. Ct. at 530.
Arbitration agreements, like other contracts, may be invalidated
by defenses “such as fraud, duress, or unconscionability.”
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68 (2010).
The Supreme Court has interpreted § 2 to mean that
arbitration provisions are severable from the entire contract of
which they are a part and from other provisions in the contract.
Rent-A-Center, 561 U.S. at 70-71. Under the severability
principle, § 2 is applied to each provision of an arbitration
agreement separately. Id. at 71-72. In other words, even if
the party opposing arbitration can show that an arbitration
agreement as a whole is not valid or that some parts of the
agreement are not valid, each provision is considered separately
and will be enforced separately unless shown to be invalid.
Id., at 73-74; Gibbs v. Haynes Investments, LLC, --- F.3d ---,
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2020 WL 4118239, at *3 (4th Cir. July 21, 2020); Tissera v. NRT
New England, 438 F. Supp. 3d 115, 122 (D. Mass. 2020); Clough v.
Brock Servs., LLC, 2019 WL 3806372, at *7-*8 (D. Me. Aug. 13,
2019).
In this case, the plaintiffs assert that the arbitration
agreement is invalid because it is unconscionable.7 The
defendants contend that the arbitration agreement reserves the
determination of whether the agreement is unconscionable to the
arbitrator.
A provision in an arbitration agreement to reserve to the
arbitrator the determination of whether an agreement is
unconscionable is known as a delegation provision. Id. at 70;
see also Tissera, 438 F. Supp. 3d at 122. A delegation
provision in an arbitration agreement will be enforced under
§ 2, even if the opposing party has challenged the entire
arbitration agreement as unconscionable, unless the delegation
provision is challenged separately. Rent-A-Center, 561 U.S. at
7 The plaintiffs cite Massachusetts law on unconscionability
without any explanation for that choice. As the concurrence
noted in a recent First Circuit case, there may be some
disagreement about whether state law or federal common law
governs the issue of unconscionability of an arbitration
agreement under the FAA. Trout v. Organizacion Mundial de
Boxeo, Inc., --- F.3d ---, 2020 WL 3887871, at *8-*9 (1st Cir.
July 10, 2020). This court need not decide the issue here for
the reasons explained below.
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72; Woodmore v. Coldwater, LLC, 2020 WL 4343154, at *2 (C.D.
Cal. Mar. 16, 2020).
The defendants seek to enforce the delegation provision in
the arbitration agreement that reserves to the arbitrator the
determination of whether the agreement is enforceable, including
whether it is procedurally or substantively unconscionable.
Doc. 14-2, at *7-*8. That language demonstrates a clear and
unmistakable intent to submit the question of the validity of
the arbitration agreement, based on an issue of
unconscionability, to the arbitrator.
The plaintiffs have challenged the validity of the
arbitration agreement as a whole, based on unconscionability.
They argue that the agreement is procedurally unconscionable
because they lacked bargaining power to negotiate its terms, and
they argue that it is substantively unconscionable because it
would not allow an award of attorneys’ fees as is provided under
the FLSA. They have not argued that the delegation provision,
by itself, is unconscionable.8 Because the plaintiffs do not
challenge the delegation provision, separate from the
8 The plaintiffs raised the issue of unconscionability in
their objection. The defendants filed a reply, arguing that the
delegation provision in the arbitration agreement required the
determination of unconscionability to be made by the arbitrator.
The plaintiffs, who are represented by counsel, did not file a
surreply to address the issue of the delegation provision.
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arbitration agreement as a whole, they have not shown that it is
unenforceable. Rent-A-Center, 561 U.S., at 73-74.
C. Result
The delegation provision in the arbitration agreement has
not been challenged specifically and, under § 2, must be
enforced. As a result, it is for the arbitrator to decide
whether the arbitration agreement is valid and enforceable.
Under 9 U.S.C. § 3, when a claim in a case is referred to
arbitration and a party requests a stay, the court must stay the
case until arbitration of the referred claim is complete. On
the other hand, however, when all of the claims in a case are
subject to arbitration, it is appropriate to dismiss the case
rather than to stay it. Next Step Med. Co. v. Johnson &
Johnson, 619 F.3d 67, 71 (1st Cir. 2010); Perfect Fit, LLC v.
Aronowitz, 2019 WL 2144800, at *4 (D. Me. May 16, 2019).
Here, the defendants ask the court to dismiss the claims
against them in favor of arbitration rather than to stay the
case pending resolution of arbitration. The plaintiffs have not
requested a stay. As is explained above, the threshold issues
of validity and arbitrability are subject to arbitration under
the delegation provision in the arbitration agreement.
Therefore, the arbitrator will decide whether the arbitration
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agreement is enforceable, whether it applies to the claims
raised here, and, if so, will address the claims.
It is appropriate to dismiss the claims against East Coast,
Michael Rose, Rose Enterprises, and Matthew Rose, without
prejudice to the plaintiffs to refile some or all of the claims
if the arbitrator should decide that the arbitration agreement
is not enforceable or that any claim or claims are not
arbitrable. See, e.g., Anderson v. Charter Comm’ns, 2020 WL
3977664, at *4 (W.D. Ky. July 14, 2020); Williams v. Conduent
Human Servs. LLC, 2020 WL 3268497 (N.D. Ind. June 17, 2020);
Brockie v. Spencer Gifts LLC, 2019 WL 4935616, at *4-*5 (D. Ore.
July 23, 2019); Arment v. Dolgencorp, LLC 2018 WL 5921369, at *2
(E.D. Mo. Nov. 13, 2018).
D. Party in Default
As is noted above, default has been entered against
defendant Stephanie Rose Cudney. Despite the default, entry of
default judgment under Federal Rule of Civil Procedure 55(b) is
entrusted to the sound discretion of the court. 10A Charles A.
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice &
Procedure § 2685 (April 2020). In exercising its discretion,
the court may examine the complaint, taking the well-pleaded
facts as true, to determine whether the plaintiffs have alleged
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a cause of action. Ramos-Falcon v. Autoridad de Energia
Electrica, 301 F.3d 1, 2 (1st Cir. 2002); see also Parise v.
Suarez, 2018 WL 3756427, at *3 (D.N.J. Aug. 8, 2018).
In this case, the plaintiffs bring claims under the FLSA,
based on a theory that they were employees rather than
independent contractors, despite the agreements they signed. As
is explained above, however, those agreements are subject to
arbitration. For that reason, the plaintiffs’ claims must be
pursued, if at all, through arbitration.
Therefore, the plaintiffs shall show cause why their claims
against Stephanie Rose Cudney should not be dismissed without
prejudice in favor of arbitration.
Conclusion
For the foregoing reasons, the defendants’ motions to
compel arbitration (documents nos. 14, 19, and 21) are granted.
The claims against East Coast Restaurant and Night Clubs, LLC,
Michael Rose, Rose Enterprises LLC, and Matthew Rose are
dismissed without prejudice in favor of arbitration.
The plaintiffs shall file a memorandum on or before August
25, 2020, to show cause why their claims against Stephanie Rose
Cudney should not be dismissed without prejudice in favor of
arbitration. If a show cause memorandum is not filed by that
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deadline, the claims against Stephanie Rose Cudney will be
dismissed without prejudice in favor of arbitration.
SO ORDERED.
______________________________
Joseph A. DiClerico, Jr.
United States District Judge
August 11, 2020
cc: Counsel of record.
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