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Joseph v. Quality Dining, Inc.

United States District Court, E.D. Pennsylvania

March 21, 2017

STEPHANIE JOSEPH and RYAN RUTHERFORD, on behalf of themselves and similarly situated employees, Plaintiffs,


          SCHMEHL, J. JLS

         Plaintiffs, who worked as servers at Chili's restaurants operated in Pennsylvania by Defendants, and who intend to represent a class of similar plaintiffs, brought suit challenging a particular tip-pooling practice as in violation of the Fair Labor Standards Act (FLSA) and the Pennsylvania Minimum Wage Act (PMWA). Defendants moved to dismiss on the basis of arbitration agreements signed by Plaintiffs. The Court must consider several issues: questions related to which agreement documents actually apply to each lead Plaintiff; whether the Court or the arbitrator should determine the availability of class-based arbitration; if that matter is for the Court, whether class arbitration is available; and what to do about numerous opt-in plaintiffs if the lead plaintiffs' claims are dismissed in favor of individual arbitration.

         Factual and Procedural Background

         Because the issues at hand concern only the arbitration agreements, the facts of the underlying claims are not of great importance. Suffice it to say that Plaintiffs were servers paid below minimum wage with the difference to be made up by tips; the tip funds were pooled and shared not only by servers, but also by employees called “expediters.” Plaintiffs argue this violated the FLSA and PMWA because expediters do not have sufficient interaction with customers.

         Lead Plaintiffs Stephanie Joseph and Ryan Rutherford originally filed in Lehigh County, pursuing only a PMWA claim. After Defendants removed the action to this Court under the Class Action Fairness Act, Plaintiffs amended their complaint to include the FLSA claim. Defendants filed a motion to dismiss on the basis of signed arbitration agreements. Plaintiffs then filed forms signed by fifteen additional individuals (and later a sixteenth) expressing their consent under Section 16(b) of the FLSA, 29 U.S.C. § 216(b), to become party plaintiffs in this action. Defendants also filed a motion regarding their rights to communicate with putative class members, which the Court has previously resolved. The Court heard oral argument on the motion to dismiss, and Plaintiffs have since filed a motion for conditional class certification.

         Some of the key issues for the motion to dismiss are currently on appeal in other cases pending before both the Third Circuit and the United States Supreme Court. It is not clear if the Third Circuit is awaiting the Supreme Court's ruling, but briefing before the Supreme Court has been extended to at least late July; therefore, because the motion in this case has already been pending for some time, the Court thinks it best to issue a ruling now rather than delay further.


         It seems clear and agreed that the two lead Plaintiffs have valid arbitration agreements, so their claims must be dismissed in favor of arbitration.[1] But several legal issues must be resolved first: Who decides whether Plaintiffs may proceed as a class in arbitration, the Court or the arbitrator? If the Court decides, is class arbitration available or not? And finally, what happens to the claims of the sixteen opt-in plaintiffs when the lead Plaintiffs' claims are dismissed?

         Before considering these legal questions, the Court must consider the threshold factual matter of what agreement documents are applicable to Plaintiffs, in particular Ms. Joseph. Defendants have offered copies of both lead Plaintiffs' two-page arbitration agreements, each of which incorporates by reference the “Company Rules for the Resolution of Employment Disputes” (“Rules”). Defendants have presented a single copy of the latter document. Plaintiffs argue that because Ms. Joseph's arbitration agreement has a computer file footer suggesting it is a 2001 version of the agreement and the Rules document Defendants have offered bears a footer marking it as a September 2002 version, the Court should conclude that Ms. Joseph was shown a different, earlier version of the Rules, even though she actually signed in 2009. The issue is important because while Mr. Rutherford's arbitration agreement (a 2012 version) expressly calls for only individual arbitration, Ms. Joseph's does not and can be read to waive class arbitration only based on the class waiver in the Rules.

         Because enforcement of an arbitration agreement is essentially a final determination on a factual issue, factual disputes must be decided by a summary judgment standard or go to a jury. See Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n.9 (3d Cir. 1980). But as the very case Plaintiffs cite for use of the summary judgment standard recognizes, “‘an inference based upon ... speculation or conjecture does not create a material factual dispute sufficient to defeat entry of summary judgment.'” Choice v. Option One Mortg. Corp., No. CIV.A. 02-6626, 2003 WL 22097455, at *4 (E.D. Pa. May 13, 2003) (quoting Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n. 12 (3d Cir. 1990)). Here, the idea that Ms. Joseph may have agreed to an older version of the Rules and that such an older version may not have waived class arbitration is based on speculation. Plaintiffs's theory does not explain why Defendants would create a version of the Rules in 2002 but not be using it seven years later when Ms. Joseph signed her arbitration agreement; it is at least equally reasonable that Defendants began using the revised Rules in 2002 along with the 2001 version of the arbitration agreement until that document was updated in 2012. And the older version of the Rules may also have waived class arbitration anyway. Further, both versions of the arbitration agreement provide that the employee may inspect the Rules upon request: given that Ms. Joseph would presumably have been shown the 2002 Rules if she asked to see them and that the incorporation of the Rules is valid even if she never read them, see Friedman v. Yula, 679 F.Supp.2d 617, 624 n.15 (E.D. Pa. 2010), it is far too speculative to apply to Ms. Joseph an older version of the Rules that she may have been shown at the time she signed, that has not been presented, and that may not even have differed in the relevant respect. It is worth noting that the present Rules also provide that the version of the Rules in effect at the time of the demand for arbitration will apply (Rules at 7-8, para. C1). All things considered, Plaintiffs have not raised a genuine issue of fact and the Court will apply the 2002 Rules to Ms. Joseph's claim.

         Moving on to the main legal issues, precedent answers the first question quite clearly. An issue relating to an arbitration agreement is presumptively for the court to decide if it is a “question of arbitrability.” Opalinski v. Robert Half Int'l Inc., 761 F.3d 326, 330 (3d Cir. 2014) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). The Third Circuit held in Opalinski that “whether an agreement provides for classwide arbitration is a ‘question of arbitrability' to be decided by the District Court.” Id. at 332; see also Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746, 753 (3d Cir.), cert. denied, 137 S.Ct. 40, 196 L.Ed.2d 27 (2016).

         The presumption that the Court decides a question of arbitrability can only be overcome if “the parties clearly and unmistakably provide otherwise.” Opalinski, 761 F.3d at 330 (quoting Howsam, 537 U.S. at 83). “The burden of overcoming the presumption is onerous, as it requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator. Silence or ambiguous contractual language is insufficient to rebut the presumption.” Id. at 335 (citations omitted). In Chesapeake Appalachia, the Court extensively analyzed a set of leases and American Arbitration Association rules, and concluded the presumption was not overcome because the chain of incorporation by reference was too tenuous and the relevant language at the end of the chain was insufficiently concrete. See 809 F.3d at 758-66.

         The only language in either the arbitration agreements or the Rules that might indicate a delegation of class availability to the arbitrator is found in section C8 of the Rules, “Power of the Arbitrator.” That section provides in part:

The Arbitrator will have all the powers a judge would have in dealing with any question or dispute that may arise before, during, and after the arbitration hearing, including but not limited to issues relating to the validity, enforceability, formation, or scope of these arbitration provisions, whether an enforceable arbitration agreement exists between the parties … or any other matter relating to the arbitrability of the dispute at issue. … The Arbitrator will have no power to change the lawful policies and procedures of the Company (including those ...

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