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Porreca v. The Rose Group

United States District Court, Third Circuit

December 11, 2013

CARLY PORRECA AND CHARLES WALTON, on behalf of themselves and all others similarly situated, Plaintiffs,


Berle M. Schiller, J.

Following a common trend, The Rose Group, a restaurant management company that owns and operates thirty-nine Applebee’s restaurants in Pennsylvania, requires its employees to agree to arbitrate employment disputes. Charles Walton works as a server at an Applebee’s in Jenkintown, Pennsylvania. Trouble arose in the neighborhood, causing Walton and Carly Porreca[1] to sue The Rose Group[2], individually and on behalf of a putative class, claiming that it failed to properly compensate servers in violation of federal and state law. The Rose Group seeks to stay this litigation and to compel Walton to arbitrate his claims—on an individual basis—against it. Walton argues that he should be allowed to proceed in this Court because the arbitration agreement he signed is unconscionable. As unappetizing as the result may be, the state of the law compels this Court to grant Defendant’s motion and stay these proceedings so that Walton can arbitrate his claims on an individual basis against Defendant.


A. Allegations

Plaintiff and putative class members are current and former employees at various Pennsylvania Applebee’s restaurants, all of which are owned and operated by The Rose Group. (Compl. ¶¶ 2-3.) They allege that Applebee’s has a “longstanding policy and practice of paying tipped employees less than the hourly minimum wage yet requiring these tipped employees to spend a substantial amount of time performing an array of duties outside of the duties of their tipped positions for which there is no possibility of earning tips.” (Id. ¶ 4.) Applebee’s required tipped employees, such as servers, bartenders, and hosts, to show up for work a half an hour prior to the start of their shift and to stay at work after their shift ended to clean, dust, sweep, vacuum, wash dishes, stock food supplies and to perform other untipped work. (Id. ¶¶ 5, 16.) According to the Complaint, Plaintiffs spent a significant amount of time performing this untipped work yet were paid subminimum wages. (Id. ¶ 17.)

The litigation is brought as a collective action under the Fair Labor Standards Act (“FLSA”) as well as class action under Federal Rule of Civil Procedure 23. The Class consists of “[c]urrent and former employees of Defendant who are or were working as servers, bartenders, hosts and other tipped hourly employees at an Applebee’s location in Pennsylvania for the three year period prior to the date this complaint is filed through the entry of judgment in this case.” (Compl. ¶ 18.) Plaintiffs bring claims pursuant to the FLSA and the Pennsylvania Minimum Wage Act (“PMWA”).

B. Arbitration Agreement

The merits of the allegations in the Complaint are not currently the Court’s focus. The Court must decide the proper forum, judicial or arbitral, for this dispute.

Walton executed an “Agreement and Receipt for Dispute Resolution Program, ” which includes the following clauses relevant to The Rose Group’s motion:

I have received a copy of the Dispute Resolution Program for Rose Casual Dining, LP, Delaware Valley Rose, LP, CB Rose, LP, and Rose Management Services, Inc. (the “Company”) and have read and understood its contents. . . . I recognize that differences may arise between the Company and me during or following my employment with the Company, and that those differences may or may not be related to employment. I understand and agree that any such differences will be resolved as provided in the Dispute Resolution Policy.

(Def.’s Renewed Mot. to Compel Individual Arb. and Stay Proceedings [Def.’s Renewed Mot.] Ex. A [Agreement and Receipt for Dispute Resolution Program].)


The Company and I agree that all legal claims or disputes covered by the Agreement must be submitted to binding arbitration and that this binding arbitration will be the sole and exclusive final remedy for resolving any such claim or dispute. We also agree that any arbitration between the Company and me is of an individual claim and that any claim subject to arbitration will not be arbitrated on a collective or a class-wide basis; provided however, that this provision shall not apply to any prospective class or collective action based on alleged violations of wage and hour laws if, and only if, such claim should cause the agreement to arbitrate to be unenforceable under the prevailing law.
The mutual obligations set forth in this Agreement shall constitute a contract between the Employee and the Company but shall not change an Employee’s at-will relationship or any term of any other contract or agreement between the Company and Employee. This Policy shall constitute the entire agreement between the Employee and Company for the resolution of Covered Claims. The submission of an application, acceptance of employment or the continuation of employment by an individual shall be deemed to be acceptance of the dispute resolution program. No signature shall be required for the policy to be applicable.
Legally protected rights covered by this Arbitration Agreement are all legal claims, including: claims for wages or other compensation; claims for breach of any contract, covenant or warranty (expressed or implied); tort claims (including, but not limited to, claims for physical, mental or psychological injury, but excluding statutory workers compensation claims); claims for wrongful termination, sexual harassment; discrimination (including, but not limited to, claims based on race, sex, sexual orientation, religion, national origin, age, medical condition or disability, whether under federal, state or local law); claims for benefits or claims for damages or other remedies under any employee benefit program sponsored by the Company (after exhausting administrative remedies under the terms of such plans); “whistleblower” claims under any federal, state or other governmental law, statute, regulation or ordinance; claims for a violation of any other non-criminal federal, state or other governmental law, statute, regulation or ordinance; and claims for retaliation under any law, statute, regulation or ordinance, including retaliation under any workers compensation law or regulation.
I understand and agree that by entering into this Agreement, I anticipate gaining the benefits of a speedy, impartial dispute resolution procedure. This procedure is explained in the Dispute Resolution Program Booklet, which I acknowledge I have received and read or have had an opportunity to read.


The Agreement and Receipt for Dispute Resolution Program also contains the following provision:

I acknowledge that I have carefully read this Agreement, I understand its terms, that all understandings and agreements between the Company and me relating to the subjects covered in this Agreement are contained in it, and that I have entered into the Agreement voluntarily and not in reliance on any other promises or representations by the Company other than those in the Agreement itself and the Dispute Resolution Program.
I further acknowledge and agree that I have been given the opportunity to discuss this Agreement with my own private lawyer and have used that opportunity to the extent that I wish to do so. This Agreement shall apply to me, my representatives, executors, administrators, guardians, heirs and assigns in any action where a claim could be brought.


As outlined in the Dispute Resolution Program Booklet, Defendant follows a five-step process for resolving workplace disputes between Defendant and its employees. Step one is titled “Communication” and encourages an employee to talk directly to an immediate supervisor, talk to management, and contact an associate hotline. (Def.’s Renewed Mot. Ex. B [Dispute Resolution Program Booklet] at 1.) Step two is to contact Defendant’s vice president of human resources; step three is an executive review, in which Defendant’s chief operating officer reviews the issue and attempts to resolve the issue; step four is mediation, in which an “objective, independent third party” helps; and step five is arbitration. (Id. at 2-3.) If appropriate, the employee may skip the communication step; Defendant may skip steps one through three if a legal claim is involved. (Id. at 6.) Legal claims subject to arbitration include claims for wages or other compensation, and claims for violation of non-criminal federal or state laws. (Id. at 4.)

According to the Dispute Resolution Program Booklet, the “arbitration shall apply the substantive law and the laws of remedies, if applicable, in the state in which the claim arose, or federal law or both, depending upon the claims asserted.” (Id. at 5.) With respect to attorneys’ fees, the Dispute Resolution Program Booklet states that “[e]ach party shall be responsible for its own attorneys’ fees and related litigation expenses, if any; however, if any party prevails on a statutory claim which allows the prevailing party to be awarded attorneys’ fees, or if there is a written agreement providing for fees, the arbitrator may award reasonable fees to the prevailing party.” (Id.) The interpretation of the dispute resolution agreement is governed by the Federal Arbitration Act. (Id. at 6.)


C. Unconscionabilty Record

On May 24, 2013, Defendant filed a motion to stay proceedings and compel individual arbitration. In response, Plaintiff argued that the agreement was unconscionable. Following Plaintiffs’ response, the Court determined that it could not decide the issue without a record. The Court therefore ordered the parties to conduct limited discovery to address Plaintiffs’ unconscionability argument.

Walton is twenty-eight years old. (Def.’s Renewed Mot. Ex. C [Walton Dep.] at 8.) He graduated high school in 2003 and attended Columbia University for two years and the University of Miami for one year, but he did not graduate college because he could not afford to continue. (Id. at 14-17.) Dina Morgan, a general manager at Applebee’s prior to her promotion to area director, handed Walton an application for employment on April 5, 2011, had a manager interview him sometime between April 5 and ...

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