Pretty quiet day today. Maybe a combination of the weather and a short week. 

“Should I stay, or should I go?”

In addition to being the title of a hit song by “The Clash,” this theme runs through three cases today. Two of them are from District Courts in the same Circuit, but reach different results.

Chavez v. Creative Impact, Inc. 2021 U.S. Dist. LEXIS 28150 (D. Ariz. Feb. 12, 2021) is another of the many cases discussing whether dancers in “adult-oriented entertainment” venues are employees or independent contractors.  A twist in this case arises because the club gave its entertainers the option of signing an employment contract, which guaranteed a minimum wage and paid vacation, but required that they report tips, pay taxes on them, “tip out” fellow employees, and follow other rules.  A dancer could also choose to be an “Independent Professional Entertainer,” who would provide her own costumes and receive no benefits or guaranteed income.  However, by choosing to waive employee status, the entertainer could keep all tips.   Plaintiffs chose independent contractor status and signed an agreement which included an arbitration clause.  They brought this action, claiming they were denied minimum wages and overtime in violation of the Fair Labor Standards Act.  In response to defendants’ motion to compel arbitration, Magistrate Judge Bibles rejects the plaintiffs’ claims that the arbitration clause is unconscionable.  The court’s discussion of procedural unconscionability analyzes several issues, including the plaintiffs’ option to work as an employee or be employed elsewhere (“Defendants’ club was not, presumably, the only exotic dance venue in the Phoenix area.”)  She also rejects plaintiffs’ claims that the cost of arbitration makes such dispute resolution infeasible for these claimants. While recognizing that Green Tree Finance Corp. v. Randolph, 531 U.S. 79 (2000) holds that “large arbitration costs could preclude a litigant from effectively vindicating her rights,” the court finds that the plaintiffs failed to provide adequate proof as to the cost of arbitration or of their inability to pay those expenses.  Accordingly, the court compels arbitration.

What makes the case interesting is the Magistrate Judge’s decision, having sent all the claims to arbitration, to stay the case.  Several cases reviewed in earlier “Highlights” draw a distinction between matters in which all claims are sent to arbitration, in which case the court generally dismisses the action, and those in which some causes of action are not subject to arbitration, in which case the court merely stays all or part of the action.  Here, the court reads Section 3 of the Federal Arbitration Act, which “commands district courts to ‘stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement,’”  as removing dismissal as an option, citing as support for her position Tillman v. Tillman, 825 F. 3d 1069 (9^th Cir. 2016). In a footnote, the court distinguishes Ninth Circuit authorities which appear to give the court discretion to either stay or dismiss the case as being “pre-Tilman.”  Also, in the same footnote, the court holds that “to the extent it retains discretion to choose between remedies in this scenario, that a stay rather than dismissal is appropriate.” (Emphasis added). However, the Magistrate Judge’s relegation of this comment to a footnote and the absence of any discussion for her reasons for exercising such discretion in favor of a stay make it clear that, in Magistrate Judge Bible’s view, a stay is the remedy that both Section 3 of the FAA and Ninth Circuit precedent require.

McLychok v. Diamond Resorts U.S. Collection Development, LLC, 2021 U.S. Dist. LEXIS, 29051 (S.D. Cal. Feb. 16, 2021) reaches the opposite result, dismissing the action in favor of arbitration. While the parties agreed that the claims should be arbitrated, plaintiff sought a stay of the action, while defendants moved for dismissal. The court, Hayes, J., dismisses the action since all of plaintiff’s claims are subject to an arbitration agreement.  In doing so, he specifically relies upon the cases which Magistrate Judge Bible distinguished as “pre-Tilman,” Kam-Ko Bio-Pharm Trading Co, Ltd. v. Mayne Pharma, Inc., 560 F. 3d 935 (9^th Cir. 2009) and Sparling v. Hoffman Construction Co., 864 F. 2d 635 (9^th Cir. 1988), and does not cite to Tillman at all.

To make things even more interesting, throw into the mix 20/20 Foresight, Inc. V. McGuffin, 2021 U.S. Dist. LEXIS 29396 (N.D. Ill. Feb. 17, 2021).  There, the court, Gettleman, J.,  reads Section 3 of the FAA as does Magistrate Judge Bible.  “Additionally, the power to compel arbitration comes from Section 3 of the FAA, which directs courts to stay proceedings that have been referred to arbitration until arbitration has been completed.” (Emphasis added). Further, he holds that “The Seventh Circuit [which covers the District Courts in Illinois] instructs that the district court should retain jurisdiction when the suit is referred to arbitration for the resolution of an issue.” (Emphasis added).

While the distinction between a stay and dismissal may seem to fall under Thoreau’s quote that “a man’s knowledge, so called, is often times worse than useless. . ,” remember that that the District Court’s remedy directly impacts the losing party’s appellate rights.  Under Section 16(a) of the FAA, an order dismissing an action is appealable, while Section 16(b) provides that the granting of a stay is not. So, the ability to obtain a timely review of an order compelling arbitration is directly affected by the District Court’s choice of remedy.

Tolling of the statute of limitations

Harper v. Charter Communications, LLC, 2021 U.S. Dist. LEXIS 28747 (E.D. Cal. Feb. 16, 2021) arises from Plaintiffs’ claim that defendant mischaracterized them as “outside salespersons” and failed to pay them minimum wages in violation of the California Labor Code. The parties’ agreement contained an arbitration clause and Harper filed with JAMS.  The parties agreed that threshold issues would be delegated to the arbitrator, who, on April 25, 2019, issued a final award holding that the arbitration agreement was null and void and that none of Harper’s claims were arbitrable. On May 3, 2019, Harper commenced this action; Charter moved to dismiss the claims as barred by the statute of limitations.  The court, Shubb, J., applies the doctrine of equitable tolling and finds that the matter was brought timely. Reviewing three factors under California law, he opines that plaintiff gave Charter notice of his claims within the statute of limitations, that there was no prejudice to Charter’s ability to defend the matter in court, and that Harper acted in good faith by filing his arbitration claim within two months of receiving documents advising him of the shortfall in pay and in bringing suit only days after the arbitrator’s award. As such, the court tolls the statute of limitations as of the date of the filing of the arbitration.

Quick Hits

Standard of appellate review

A panel of Circuit Judges King, Keenan and Richardson only needs a per curiam opinion to dismiss the appeal of a District Court’s denial of a petition for vacatur,  Balch v. Oracle Corp., 2021 U.S. App. LEXIS 4523 (4^th Cir. Feb. 17, 2021).  The case is a reminder that the Court of Appeals “review[s]  de novo a district court’s legal rulings regarding the vacatur of an arbitration award. . . In conducting such a review, there is a strong presumption in favor of confirming the award.” [omitting citations]

Attorneys’ fees

Axiall Corp. v. International Chemical Workers, 2021 U.S. Dist. LEXIS 27938 (N.D. W. Va. Feb. 16, 2021) addresses when a party may recover attorney’s fees incurred in defending a challenge to an arbitrator’s award.  In the Fourth Circuit, Judge Bailey opines, such fees “are appropriate in labor relations cases ‘against a party who, without justification refuses to abide by an arbitrator’s award,’” citing to Local 149, Auto Workers of America v. American Brake Shoe Co., 298 F. 2d 212 (4^th Cir. 1962). While challenges to the merits of arbitration awards are “presumptively unjustified,” the court holds that plaintiff’s appeal here, although unsuccessful, was not frivolous.  Perhaps the court was influenced by the fact that the arbitrator ordered that the plaintiff rehire a convicted arsonist to work in its chemical plant.

Have a good weekend.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com