Guglielmo v. LG&M Holdings LLC et al, No. 2:2018cv03718 - Document 35 (D. Ariz. 2019)
Court Description: ORDER denying 23 Motion to Dismiss for Lack of Jurisdiction.Defendants alternative motion to compel arbitration and stay proceedings is GRANTED as to all Plaintiffs that signed either the Contractor Lease or the Entertainment Lease.The case is stayed for a period of one year, until July 19, 2020. The matter will be dismissed on that date and without further notice unless the parties request an extension of the stay before July 19, 2020. Signed by Judge Susan M Brnovich on 7/19/2019. (TCA)
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Guglielmo v. LG&M Holdings LLC et al 1 Doc. 35 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Kristina Guglielmo, et al., Plaintiffs, 10 11 v. 12 LG&M Holdings LLC, et al., 13 No. CV-18-03718-PHX-SMB ORDER Defendants. 14 15 At issue is Defendants LG&M Holdings, LLC d/b/a Xplicit Showclub, (“Defendant 16 Company”), Fred Martori, Kevin Owensori, Jeffrey Bertoncino, and Michael Scott’s 17 (collectively, “Defendants”) Motion to Dismiss for Lack of Subject Matter Jurisdiction or, 18 alternatively, Motion to Stay These Proceedings and Compel Arbitration. (Doc. 23). 19 Kristina Guglielmo (“Plaintiff”) has filed a Response (Doc. 27, “Resp.”), to which 20 Defendants replied (Doc. 29, “Reply”). Plaintiff alleges violations of state and federal 21 employment law and brought this action on behalf of all others similarly situated. (Doc. 1). 22 Six people claiming they are similarly situated—Mehlihia Saralehui, Stacee Landenberger, 23 Emily Litcoff, Brandi Egnash, and Demaje Jeter (collectively, “Plaintiffs”)—have opted 24 into the lawsuit. (Docs. 22, 24, 25). Defendants argue the case should be dismissed for lack 25 of jurisdiction or, alternatively, stayed because Plaintiffs signed arbitration agreements but 26 have not yet arbitrated. For the reasons that follow, the Court will deny Defendants’ motion 27 to dismiss for lack of jurisdiction but grant the alternative motion to stay the proceeding 28 and compel arbitration. Dockets.Justia.com 1 I. Background 2 The Motion at issue concerns whether Defendants can compel Plaintiff to arbitrate 3 her claims before bringing this action. The Federal Arbitration Act (the “FAA”) provides 4 “an agreement in writing to submit to arbitration an existing controversy arising out of such 5 a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon 6 such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. 7 “The Court’s role under the act is . . . limited to determining (1) whether a valid agreement 8 to arbitrate exists, and if it does, (2) whether the agreement encompasses the dispute at 9 issue.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 10 Plaintiff alleges she represents a class of current or former exotic dancers that 11 worked at Defendant Company, which is owned by Martori, Owensori, Bertoncino, and 12 Scott. She brings claims under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et 13 seq., the Arizona Wage Act (“AWA”), A.R.S. § 23-350 et seq., and the Arizona Minimum 14 Wage Act (“AMWA”), A.R.S. § 23-363 et seq. Defendants’ motion argues this Court does 15 not have jurisdiction to hear the case because Plaintiffs signed arbitration agreements. 16 Alternatively, Defendants ask the Court to stay the proceeding and compel arbitration. 17 Plaintiffs argue that the arbitration agreements cannot be enforced because they are 18 unconscionable and cannot be severed from the agreements. 19 There are two different agreements at issue in this case. Both include arbitration 20 clauses. All Plaintiffs signed at least one of these agreements and some signed both. A 21 manager signed the agreements on behalf of the Defendant Company. The first is titled 22 “Xplicit Showclub Entertainment Performance Lease” (“Contractor Lease”). Plaintiffs 23 Guiglielmo, Litcof, Cabiles, Landenberger, Saralehui, and Egnash signed a Contractor 24 Lease. The second agreement does not have a title, but the Court will refer to it as the 25 “Entertainment Lease.” Plaintiffs Guglielmo, Litcof, Cabiles, and Jeter signed an 26 Entertainment Lease. Defendants included a copy of Guglielmo’s agreements as 27 attachments to their motion. Plaintiffs submitted Gugliemo’s and the other plaintiffs’ 28 agreements as exhibits to a declaration filed with the Court. (Doc. 28). The Contractor -2- 1 Lease is a short, two-page document, and the Entertainment Lease is a more comprehensive 2 eight-page document. (Doc. 28). 3 II. Legal Standards 4 Courts apply state-law principles to determine whether an agreement to arbitrate is 5 valid. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Circuit City Stores, 6 Inc. v. Adams, 279 F.3d 889, 892 (9th Cir. 2002). Neither party contests that Arizona state 7 law governs the agreements. “Arizona law . . . clearly provides that the determination of 8 unconscionability is to be made by the court as a matter of law.” Maxwell v. Fidelity Fin. 9 Serv., Inc., 907 P.2d 51, 56 (Ariz. 1995). The test for unconscionability comes from 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 comment 1 to the Uniform Commercial Code § 2-302: The basic test (for unconscionability) is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so onesided as to be unconscionable under the circumstances existing at the time of the making of the contract. . . . The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power. Seekings v. Jimmy GMC of Tucson, Inc., 638 P.2d 210, 216 (Ariz. 1981); accord Maxwell, 907 P.2d at 57. The Arizona Supreme Court in Maxwell further explained that most jurisdictions, including Arizona, divide the unconscionability doctrine into substantive and procedural parts. Procedural unconscionability concerns “‘unfair surprise,’ fine print clauses, mistakes or ignorance of important facts or other things that mean bargaining did not proceed as it should.” Maxwell, 907 P.2d at 57–58 (quoting Dan B. Dobbs, 2 Law of Remedies 406 (2d ed. 1993)). Substantive unconscionability, on the other hand, considers whether a contract is “unjust or ‘one-sided.’” Id. If a term of a contract is unconscionable, a court may enforce the remainder of the contract without the unconscionable term or “refuse enforcement of the contract altogether.” Id. at 60 (quoting Dobbs, 2 Law of Remedies 705); accord Restatement (Second) of Contracts § 208 (1981)). Here, Plaintiffs argue the agreements are substantively unconscionable, but do not argue they are procedurally unconscionable. While some courts require “some quantum of -3- 1 both procedural and substantive unconscionability to establish a claim,” Arizona allows 2 unconscionability to be established “with a showing of substantive unconscionability 3 alone, especially in cases involving either price-cost disparity or limitation of remedies.” 4 Id. at 58–59. Accordingly, the Court will consider whether the agreements are substantively 5 unconscionable. 6 “[T]he actual terms of the contract” determine whether a contract is substantively 7 unconscionable. Id. at 58. They must be “so one-sided as to oppress or unfairly surprise an 8 innocent party, [have] an overall imbalance in the obligations and rights imposed by the 9 bargain, [or have] a significant cost-price disparity.” Id. (citing Resource Mgmt. Co. v. 10 Weston Ranch & Livestock Co., 706 P.2d 1028, 1041 (Utah 1985)). An example of an 11 unconscionable provision in the context of arbitration is if it makes the cost to arbitrate so 12 high that it effectively denies a person the opportunity to vindicate her rights. Clark v. 13 Renaissance West, LLC, 307 P.3d 77, 79 (Ariz. Ct. App. 2013). 14 Defendants argue that even if Plaintiffs are correct about portions of the agreements 15 being unconscionable, those portions are severable. In Arizona, the “primary” determinant 16 of whether provisions of a contract are severable is “the contractual language.” Kahl v. 17 Winfrey, 303 P.2d 526, 529 (Ariz. 1956). “If it is clear from its terms that a contract was 18 intended to be severable, the court can enforce the lawful part and ignore the unlawful 19 part.” Olliver/Pilcher Ins., Inc. v. Daniels, 715 P.2d 1218, 1221 (Ariz. 1986). “A lawful 20 promise made for lawful consideration is not invalid merely because an unlawful promise 21 was made at the same time for the same consideration.” Hackin v. Pioneer Plumbing 22 Supply Co., 457 P.2d 312, 319 (Ariz. Ct. App. 1969). 23 III. 24 1. Subject Matter Jurisdiction Analysis 25 As a preliminary matter, Defendants have not provided any authority to support the 26 contention that a valid arbitration agreement divests this Court of jurisdiction. As the 27 District of Connecticut has explained: 28 While the FAA may require the Court to enforce the disputed -4- 1 5 arbitration agreement as a matter of contract, see 9 U.S.C. § 2, Defendants have provided no authority to support the proposition that a valid arbitration agreement divests a federal court of its subject-matter jurisdiction. It would be odd if a valid arbitration agreement could have that effect, as “arbitration is simply a [private] matter of contract between the parties.” 6 D’Antuono v. Serv. Rd. Corp., 789 F. Supp. 308, 318 (D. Conn. 2011) (quoting Stolt- 7 Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010)). Plaintiffs’ FLSA 8 claims are federal law claims, which this Court has subject matter jurisdiction over 9 pursuant to 28 U.S.C. § 1331. The Court has supplemental jurisdiction over the related 10 state law claims pursuant to 28 U.S.C. § 1367(a). Accordingly, the Court will only consider 11 the alternative motion to stay and compel arbitration. 2 3 4 12 13 14 15 16 17 18 19 20 2. The Contractor Lease The Contractor Lease’s arbitration clause reads as follows: Any dispute or claim under or with respect to this Lease which is incapable of resolution will be resolved by arbitration before one (1) arbitrator in Phoenix, Arizona in accordance with the Rules for Commercial Arbitration of the American Arbitration Association (“AAA”). The appointing Agency shall be the AAA and the arbitrator shall apply Arizona Law to both interpret this Lease and fashion an award. In no event will Company be liable for any direct, indirect punitive, incidental, special, or consequential damages arising out of this Lease, even if said party has been advised of the possibility of such damages. 21 22 23 24 25 26 27 28 (Contractor Lease ¶ 10) (italics added). It also has a severability clause: If any provision of this Lease, as applied to either party or to any circumstances, shall be adjudged to be void or unenforceable, the same shall be deemed stricken from this Agreement and shall in no way affect any other provision of this Lease or the validity or enforceability of this Lease. In the event any such provision (the “Applicable Provision”) is so adjudged void or unenforceable, Company and Contractor shall take the following actions in the following order: (i) seek judicial reformation of the Applicable Provision: (ii) negotiate in good faith with each other to replace the Applicable -5- 1 2 3 4 Provision with a lawful provision; and (iii) have an arbitration as provided herein to determine a lawful replacement provision for the Applicable Provision; provided, however, that no such action pursuit to either clauses (i) or (ii) above shall increase in any respect the obligations pursuit to the applicable provision. 5 (Id. ¶ 12). A portion of the Contractor Lease states, “Company and contractor shall not be 6 construed as . . . employer-employee.” (Id. ¶ 1). 7 Plaintiffs argue the Contractor Lease is unconscionable and cannot be enforced 8 because it requires them to waive any damages against the Company resulting from the 9 agreement. (Resp. at 4). Within the arbitration provision it states, “in no event will 10 Company be liable for any direct, indirect, punitive, incidental, special, or consequential 11 damages arising out of this Lease[.]” (Id. ¶ 10). Plaintiffs correctly note that “FLSA rights 12 cannot be abridged by contract or otherwise waived.” Barrentine v. Arkansas-Best Freight 13 System, Inc., 450 U.S. 728, 740 (1981). They argue that this provision cannot be severed 14 because the severability clause does not allow the contract to be judicially reformed or 15 privately negotiated in any way that increases the obligations of Defendant Company. 16 (Resp. at 4–5). Defendants reply that the waiver portion of the arbitration provision is 17 irrelevant because it does not preclude the type of damages sought by Plaintiffs, which 18 arise out of statute and are compensatory in nature, and, if not, that provision is severable. 19 (Reply at 2–3). 20 Plaintiffs seek damages arising out of state and federal wage laws. Specifically, 21 under the FLSA, 29 U.S.C. § 216(b), a successful plaintiff is entitled to “the amount of 22 their unpaid minimum wages, or their unpaid overtime compensation.” As the 11th Circuit 23 has explained, “It is clear that all of the relief provided in section 216(b) is compensatory 24 in nature.” Snapp v. Unlimited Concepts, Inc., 208 F.3d 928, 934 (11th Cir. 2000). Under 25 the AWA, a successful Plaintiff “may recover . . . treble the amount of the unpaid wages,” 26 A.R.S. § 23-355(A), and under the AMWA, A.R.S. § 23-364(G), she may recover “the 27 balance of the wages or earned paid sick time owed, including interest thereon, and an 28 additional amount equal to twice the underpaid wages or earned paid sick time,” A.R.S. -6- 1 § 23-364(G). 2 Plaintiffs are correct a contract that waives FLSA rights is unconscionable and 3 unenforceable under Barrentine. Defendants essentially agree. They do not argue that the 4 provision is an enforceable waiver of damages under the FLSA, AWA, and AMWA, but 5 rather that the provision does not waive the type of damages Plaintiffs seek. For the 6 purposes of this case, the Court finds the distinction between their arguments irrelevant. If 7 Defendants are correct, the provision does not preclude damages under the FLSA, AWA, 8 or AMWA, and is therefore not unconscionable. If Plaintiffs are correct, the provision is 9 unenforceable and stricken from the agreement, because, as explained below, it can be 10 severed from the rest of the contract. 11 A contract provision can be severed “[i]f it is clear from its terms that a contract was 12 intended to be severable.” Daniels, 715 P.2d at 1221. Then, “the court can enforce the 13 lawful part and ignore the unlawful part.” Id. To determine the parties’ intent, the court 14 looks to the “contractual language and the subject matter.” Mousa v. Saba, 218 P.3d 1038, 15 1044 (Ariz. Ct. App. 2009) (quoting Kahl, 303 P.2d at 529). Here, the language of the 16 severance provision is clear: “If any provision of this Lease . . . shall be adjudged to be 17 void or unenforceable, the same shall be deemed stricken from this Agreement and shall in 18 no way affect any other provision of this Lease or the validity or enforceability of this 19 Lease.” (Contractor Lease ¶ 12). The parties’ intent in this case is that the contract be 20 severable. 21 Plaintiffs’ argument that the severability clause taken as a whole is unconscionable 22 is unpersuasive. Per the severability provision, once a provision has been found to be 23 unenforceable, the parties are to, in the following order, (1) seek judicial reformation of the 24 applicable provision, (2) negotiate in good faith to replace it, and (3) have an arbitration as 25 provided by the contract to determine a lawful replacement provision. Neither of the first 26 two actions, however, “shall increase in any respect the obligations pursuit1 [sic] to the 27 applicable provision.” Id. (emphasis added). 28 1 The Court believes this is a clerical error, and the word the parties intended to use was “pursuant.” -7- 1 Plaintiffs argue this provision means that the prohibition on increasing obligations 2 in the Contractor Lease can never be modified to allow for statutory damages under state 3 and federal wage laws. While the severability clause is not a model of clarity, Plaintiffs’ 4 interpretation misreads the prohibition on increasing obligations. An “obligation” is a 5 “legal or moral duty to do or not do something.” Black’s Law Dictionary (9th ed. 2019). 6 “It may refer to anything that a person is bound to do or forbear from doing, whether the 7 duty is imposed by law, contract, promise, social relations, courtesy, kindness, or 8 morality.” Id. Removing the waiver of damages provision and requiring Defendants to be 9 liable under the FLSA, AWA, or AMWA if Plaintiffs can prove their claims does not 10 increase their obligations, as it does not require them to do or not do something. It merely 11 makes them liable to the same employment laws that govern everybody else. Accordingly, 12 the severability provision is not unconscionable and can be used to strike any provision 13 that waives damages under the FLSA, AWA, or AMWA. 14 Having found that the agreement is valid, the Court turns to the second step under 15 Chiron Corporation: whether the arbitration clause covers the dispute at issue. The Court 16 finds that it does. The arbitration clause says any dispute or claim with respect to the lease 17 will be resolved by arbitration. To determine whether Plaintiffs have a claim, they will 18 have to show they were an employee of Defendants. The Contractor Lease explicitly rejects 19 an employment relationship and defines the relationship between Plaintiffs and Defendants 20 as lessor-lessee. In order to win her FLSA, AWA, or AMWA claims, Plaintiffs will have 21 to show that portion of the Contractor Lease is false. Therefore, the arbitration clause 22 covers the dispute at issue. 23 3. The Individual (non-Company) Defendants 24 Plaintiffs contend that even if the Arbitration provision in the Contractor Lease is 25 binding, it is not binding as to the individual defendants Martori, Owensori, Bertoncino, 26 and Scott (“Individual Defendants”) because the Individual Defendants did not sign and 27 are not parties to the agreement. (Resp. at 13). Unlike the Entertainment Lease, the 28 Contractor Lease does not contemplate whether agents, members, or officers of the -8- 1 Defendant Company are covered by the arbitration clause. Defendants argue that the 2 arbitration agreement is binding as to them under theories of estoppel and agency. (Reply 3 at 4–6). Generally, a party is only bound to arbitrate disputes which it has contractually 4 agreed to arbitrate. Smith v. Pinnameni, 254 P.3d 409, 415 (Ariz. Ct. App. 2011). There 5 are some exceptions to this rule under theories of incorporation by reference, assumption, 6 agency, veil-piercing or alter ego, equitable estoppel, and third-party beneficiary. Duenas 7 v. Life Care Centers of Am., Inc., 336 P.3d 763, 772 (Ariz. Ct. App. 2014) (citing Bridas 8 S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, (5th Cir. 2003). The Court agrees with 9 Defendants that this situation is one such exception and Plaintiffs must arbitrate against 10 Individual Defendants. 11 The Arizona Court of Appeals considered a similar issue in Sun Valley Ranch 12 Properties, Inc. v. Robson, 294 P.3d 125 (Ariz. Ct. App. 2012). There, former business 13 partners were disputing whether nonsignatory defendants could compel plaintiffs to 14 arbitrate using an arbitration clause in a partnership agreement. The court instructed that 15 doubts about the arbitrability of disputes should be resolved in favor of arbitration, and 16 held that nonsignatories could compel signatories to arbitrate “when the relationship 17 between the signatory and nonsignatory defendants is sufficiently close that only by 18 permitting the nonsignatory to invoke arbitration may evisceration of the underlying 19 arbitration agreement between the signatories be avoided.” Id. at 130, 134–35 (quoting CD 20 Partners, LLC v. Grizzle, 424 F.3d 795, 798 (8th Cir. 2005)). This means of compelling 21 arbitration is sometimes called an “alternative estoppel theory, which takes into 22 consideration the relationships of persons, wrongs, and issues.” Id. at 134 (quoting Merrill 23 Lynch Inv. Managers v. Optibase Ltd., 337 F.3d 125, 131 (2d Cir. 2003)); accord Comer 24 v. Micor, Inc., 436 F.3d 1098, 1104 n.10 (9th Cir. 2006) (“We thus join many of our sister 25 circuits who . . . have recognized that contract and agency principles continue to bind 26 nonsignatories to arbitration agreements.”). When the relationship between the persons, 27 wrongs, and issues is a close one, nonsignatories can “force a signatory into arbitration.” 28 CD Partners, 424 F.3d at 799. -9- 1 Here, the relationship between the signatory and nonsignatory defendants is 2 “sufficiently close” that not allowing Individual Defendants to compel Plaintiffs into 3 arbitration would eviscerate the underlying agreement. Individual Defendants are owners 4 of Defendant Company and the issues between them and Plaintiffs are the same as between 5 Plaintiffs and Defendant Company. The people, alleged wrongs, and legal issues are deeply 6 intertwined. Therefore, Individual Defendants can compel the Plaintiffs who signed the 7 Contractor Lease to arbitrate. 8 4. The Entertainment Lease 9 Within the Entertainment Lease, the Plaintiffs who signed it are referred to as 10 “Entertainers” and Defendant Company is referred to as “Club.” A portion of the 11 Entertainment Lease’s arbitration clause: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 A. Binding Arbitration. Any and all controversies between the Entertainer and Club (and any other persons or entities associated with the Club, including but not limited to related corporations, subsidiaries, and affiliates, officers, directors, shareholders, members, employees, and/or agents), regardless of whether such claims sound in contract, tort, and/or are based upon a federal or state statute, shall be exclusively decided by binding arbitration held pursuant to and in accordance with the [FAA], . . . . All parties waive any right to litigate such controversies, disputes or claims in a court of law, and waive the right to trial by jury. (Entertainment Lease ¶ 21) (emphasis in original). The agreement allows the parties to mutually agree on an arbitrator or apply to the American Arbitration Association. (Id. ¶ 21). The Entertainment Lease’s severability clause: 19. Severability. In the event that any term, paragraph, subparagraph, or portion for this Lease is declared to be illegal or unenforceable, this Lease shall, to the extent possible, be interpreted as if that provision was not a part of this Lease; it being the intent of the parties that any illegal or unenforceable portion of this Lease, to the extent possible, be severable from this Lease as a whole. 27 (Id. ¶ 19) (emphasis in originals). The Entertainment Lease states in paragraph 20 that it 28 “shall be interpreted pursuant to the laws of the State of Arizona.” Additionally, Plaintiffs - 10 - 1 have described Cabiles’s and Jeter’s signed Entertainment Leases as “minorly altered” 2 from the other agreements, but do not argue they are materially different. 3 The Entertainment Lease includes “THE PARTIES SPECIFICALLY DISAVOW 4 ANY EMPLOYMENT RELATIONSHIP BETWEEN THEM.” (Id. ¶ 12) (underline and 5 caps in original). Nevertheless, the Entertainment Lease includes a provision that says 6 Defendant Company will pay all arbitration fees in an “Employment Related Claim” that 7 Plaintiffs would not have had to pay had they brought the case in a court proceeding. (Id. 8 ¶ 21). And, while it has a cost-shifting provision awarding fees to the prevailing party, that 9 provision explicitly excludes “an Employment Related Claim prosecuted under a federal 10 or state statute which provides for the award of fees and costs to a prevailing party. In such 11 circumstances, the federal or state statute which provides for the award of fees and/or costs 12 for the statutory claims and this provision shall only govern the award of fees and costs 13 related to any non-statutory claims.” (Id. ¶ 21). In other words, the agreement is consistent 14 with cost-shifting provisions found in federal and state statute. 15 The Entertainment Lease also includes a provision that lays out the consequences 16 of a court, tribunal, arbitrator, or governmental agency determines Entertainers are 17 employees. (Id. ¶ 12). It says they will be paid minimum wage reduced by any “maximum 18 ‘tip credit’ as may be allowed by law,” and it requires Plaintiffs to return “entertainment 19 fees” if they are ever classified as an employee. (Id.). If Plaintiffs do not return the fees, 20 the contract calls for them to be considered wage credit. (Id.) An entertainment fee is what 21 Plaintiffs charged for “certain performances” and are “neither tips nor gratuities.” (Id. 22 ¶ 11). The minimum price for these performances was fixed by the Defendant Company, 23 though Plaintiffs could charge less if they notified Defendant Company in writing and 24 could receive more than the fixed price in the form of tips or gratuities. (Id.). Plaintiff 25 argues that these are unconscionable provisions. 26 Plaintiff argues the Entertainment Lease is void for similar reasons she believed the 27 Contractor Lease was void. She particularly homes in on paragraph 12, which calls for 28 Plaintiffs to return entertainment fees if they are ever re-classified as employees. Plaintiff - 11 - 1 says these are functionally indemnity and waiver provisions—provisions that chill 2 Plaintiffs from vindicating their statutory rights. (Resp. at 14–16). Plaintiffs argue that 3 much less severe and much less punitive forms of indemnity have been held 4 unconscionable. (Resp. at 15–16). Once again, Plaintiffs overstates their case. 5 These clauses in the Entertainment Lease are not indemnity or waiver provisions, 6 but rather the consequences of a new economic relationship. As the Entertainment Lease 7 is written, it establishes a relationship of “landlord and tenant” and “specifically 8 disavow[s]” the existence of an employment relationship. Under the terms of the Lease, 9 Entertainers keep the entertainment fees plus any money they receives in addition to the 10 fees. If an Entertainer can show she was a bona fide employee, however, she would be 11 entitled to wages and the entire business arrangement between the parties is transformed in 12 accordance with the minimum wage “as may be allowed by law.” It is unclear to the Court 13 why this would create such a one-sided agreement that it unfairly oppresses Plaintiffs. Nor 14 does the Court believe the provision “unfairly surprise[s]” Plaintiffs, as the provision was 15 in the contract, often capitalized or underlined, and complete with information about 16 minimum wage and what rate they would be paid if she were considered an employee. 17 Plaintiffs provide no authority for the Court to hold such an arrangement is unconscionable, 18 as every case she provides is easily distinguishable. 19 For example, Plaintiffs argue that an arbitration agreement is void where 20 “unconscionable terms permeate the agreement.” (Resp. at 10) (citing Longnecker v. Am. 21 Exp. Co., 23 F. Supp. 3d 1099, 1111 (D. Ariz. 2014)). But the only offending provision she 22 points to is the above provision. Even assuming the provision is unconscionable, one 23 provision surely does not “permeate” the entirety of an 8-page, 21-paragraph contract. 24 Andrio v. Kennedy Rig Services, where the court held that a provision that required the 25 plaintiff to indemnify the defendant was unconscionable, is also distinguishable because it 26 was a literal indemnity agreement. Civil Action No. 4:17-CV-1194, 2017 WL 6034125 27 (S.D. Tex. Dec. 6, 2017). Additionally, the agreement at issue there was only two pages 28 and six paragraphs long and did not contain a severance clause. Id., at *1, *6. Plaintiff’s - 12 - 1 reliance on Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002), is also 2 misplaced. That case was both based on California law and held to be one-sided because it 3 required the employee to go to arbitration but allowed the employer to choose whether to 4 bring its claims in court or arbitrate a dispute. Id. at 893. That is not the case here, as both 5 parties are required to arbitrate disputes under the Entertainment Lease. 6 This case is also not like Zaborowski v. MHN Government Services, Inc., 601 Fed. 7 App’x 461 (9th Cir. 2014). The Ninth Circuit’s memorandum decision in Zaborowski 8 involved an FLSA claim against a former employer. There, the challenged arbitration 9 provision that was ruled substantively unconscionable included clauses that gave the 10 employer power to control arbitration candidates, shortened the statute of limitations 11 period, required a $2600 filing fee, waived punitive damages, and shifted costs and fees 12 “contrary to the applicable statutory cost-shifting regimes provided by California and 13 federal law, which entitle only the prevailing plaintiff to an award of costs and fees.” Id. at 14 463 (citing 29 U.S.C. § 216(b); Cal. Lab. Code § 1194(a)). None of these unconscionable 15 clauses are present in the Entertainment Lease. It allows for a neutral arbitrator 16 appointment, does not shorten the statute of limitations, and has cost-shifting provisions 17 with requirements that they comply with relevant statutes. That is to say, it explicitly carves 18 out exceptions to comply with state and federal employment statutes. 19 Because the Court finds the arbitration provision valid, the only remaining question 20 is whether it covers the dispute at issue. Similar to the Contractor Lease, the Court finds 21 that it does. The Entertainment Lease’s arbitration provision applies to “Any and all 22 controversies between the [plaintiff] and [Defendant Company] . . . , regardless of whether 23 such claims sound in contract, tort, and/or are based upon a federal or state statute, shall be 24 exclusively decided by binding arbitration.” Plaintiff’s claims are based on federal and 25 state statute. Therefore, the arbitration clause covers the dispute at issue. 26 IV. Conclusion 27 The arbitration provisions in the Entertainment Lease and the Contractor Lease are 28 enforceable. Any unconscionable terms within the agreements are severable. Additionally, - 13 - 1 the Individual Defendants are able to compel Plaintiffs to arbitrate. 2 3 Therefore, IT IS ORDERED: 4 1. Defendants’ motion to dismiss for lack of jurisdiction (Doc. 23) is DENIED; 5 2. Defendants’ alternative motion to compel arbitration and stay proceedings is 6 GRANTED as to all Plaintiffs that signed either the Contractor Lease or the 7 Entertainment Lease. 8 3. The case is stayed for a period of one year, until July 19, 2020. The matter will be 9 dismissed on that date and without further notice unless the parties request an 10 extension of the stay before July 19, 2020. 11 12 Dated this 19th day of July, 2019. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 14 -
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