Davis v. TMC Rest. of Charlotte, LLC

LEILONNI DAVIS, ASHLEY SAFRIT,and LAUREN WILSON, on behalf of themselvesand all others similarly situated, Plaintiffs, v. TMC RESTAURANT OF CHARLOTTE,LLC d/b/a THE MEN'S CLUB, Defendant.

3:18-CV-00313-RJC-DCK

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION

September 18, 2019

ORDER

THIS MATTER is before the Court on Defendant's Motion to Dismiss or Stay in Favor of Arbitration, (Doc. No. 11); the Magistrate Judge's Memorandum and Recommendation ("M&R"), (Doc. No. 20); Defendant's Objections, (Doc. No. 21); and Plaintiffs' Response to Defendant's Objections, (Doc. No. 24).

I. BACKGROUND

Plaintiffs Leilonni Davis ("Davis"), Ashley Safrit ("Safrit"), and Lauren Wilson ("Wilson" and collectively with Davis and Safrit, "Plaintiffs") are former servers or bartenders at Defendant TMC Restaurant of Charlotte, LLC d/b/a The Men's Club ("Defendant"). (Doc. No. 11-3, at ¶¶ 4-6.) Plaintiffs filed this putative class action against Defendant alleging violations of the Fair Labor Standards Act, the North Carolina Wage and Hour Act, and 26 U.S.C. § 7434. (Doc. No. 1, at 12-13.) Defendant answered by filing the instant Motion to Dismiss or Stay in Favor of Arbitration contending that Plaintiffs entered into an Arbitration Agreement and Waiver of Class/Collective Actions ("Arbitration Agreement") with Defendant that requires Plaintiffs' claims to be resolved through arbitration. (Doc. No. 11, ¶ 4.)

Plaintiffs conceded that Safrit and Wilson entered into the Arbitration Agreement with Defendant and, accordingly, the Magistrate Judge recommended that their claims be stayed pending arbitration. (Doc. No. 16, at 1; Doc. No. 20: M&R, at 4.) However, the Magistrate Judge found that Davis did not enter into the Arbitration Agreement with Defendant and recommended that Defendant's motion be denied as to Davis's claims. (M&R, at 7-8.)

II. STANDARD OF REVIEW

A district court may assign dispositive pretrial matters to a magistrate judge for "proposed findings of fact and recommendations." 28 U.S.C. § 636(b)(1)(B). The Federal Magistrate Act provides that a district court "shall make a de novo determination of those portions of the report or specific proposed findings or recommendations to which objection is made." Id. at § 636(b)(1); Camby v. Davis, 718 F.2d 198, 199 (4th Cir. 1983).

III. DISCUSSION

Defendant objects to the M&R on three grounds. First, Defendant contends that the arbitrator must decide whether an arbitration agreement between Davis and Defendant exists because they validly delegated this issue to the arbitrator. (Doc. No. 21, at 1-2.) Second, Defendant contends that it established that Davis agreed to arbitrate her claims against Defendant. (Doc. No. 21, at 2.) Third and last,Defendant contends that if the Court finds that Defendant has not proven that Davis agreed to arbitrate her claims, Defendant is entitled to a jury trial on the issue of whether an agreement to arbitrate exists. (Doc. No. 21, at 2.)

A. Framework Under the FAA

The parties agree that the Federal Arbitration Act ("FAA") applies to the Arbitration Agreement. "The [FAA] provides that any written provision to resolve by arbitration a controversy arising pursuant to a contract involving commerce 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Klopfer v. Queens Gap Mt., LLC, 816 F. Supp. 2d 281, 286 (W.D.N.C. 2011) (quoting 9 U.S.C. § 2). "Under § 4, a party aggrieved by the failure of another party to arbitrate under a written agreement for arbitration may petition a federal court for an order directing that such arbitration proceed in the manner provided for in such agreement." Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010) (quotation marks omitted).

When considering a motion to compel arbitration, the court must first determine whether the court or the arbitrator decides issues of arbitrability—that is, whether an agreement to arbitrate exists between the parties and whether the specific dispute falls within the scope of that agreement. Peabody Holding Co., LLC v. United Mine Workers of Am., Int'l Union, 665 F.3d 96, 101 (4th Cir. 2012). Courts presume that the parties intended for the court, not the arbitrator, to decide issues of arbitrability. Rock-Tenn Co. v. United Paperworkers Int'l Union, 184 F.3d 330, 335 (4th Cir. 1999). This presumption can be rebutted, however, by clear andunmistakable evidence that the parties agreed that the arbitrator would determine arbitrability. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Such an agreement to arbitrate arbitrability is often referred to as a "delegation provision." See Rent-A-Center, 561 U.S. 63.

If the court concludes that the court is to decide arbitrability issues, then the court must first determine whether an agreement to arbitrate exists between the parties. Hightower v. GMRI, Inc., 272 F.3d 239, 242 (4th Cir. 2001). If the court finds that such an agreement exists, then the court must next determine whether the specific dispute falls within the scope of the arbitration agreement. Id. "A court may compel arbitration of a particular dispute only when the parties have agreed to arbitrate their disputes and the scope of the parties' agreement permits resolution of the dispute at issue." Muriithi v. Shuttle Express, Inc., 712 F.3d 173, 179 (4th Cir. 2013). In so deciding, the court is to apply the standard applicable to a motion for summary judgment—"the Court should compel arbitration [only] 'if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'" Adams v. Citicorp Credit Servs., 93 F. Supp. 3d 441, 445 (M.D.N.C. 2015) (quoting Fed. R. Civ. P. 56(a)).

B. The Court Must Decide Whether an Arbitration Agreement Was Formed

Defendant argues that the arbitrator must decide whether an arbitration agreement was formed because by incorporating the rules of the American Arbitration Association ("AAA") into the Arbitration Agreement, Defendant and Davis delegated issues of arbitrability to the arbitrator. (Doc. No. 21, at 10-13.)

Defendant is correct that when the parties' agreement delegates arbitrability issues to the arbitrator, the Court is without power to decide arbitrability issues—the arbitrator must determine issues regarding the validity, enforceability, or scope of the arbitration agreement, including its delegation provision. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019). At the same time, "where the dispute at issue concerns contract formation, the dispute is generally for courts to decide." Granite Rock Co. v. Int'l Bd. of Teamsters, 561 U.S. 287, 296 (2010). "Therefore, whether a party formed an agreement to arbitrate, including whether it agreed to arbitrate arbitrability, is a question for the court to resolve." Berkeley Cty. Sch. Dist. v. HUB Int'l Ltd., 363 F. Supp. 3d 632, 646 (D.S.C. 2019).

This is exactly the dispute in this case: Davis does not challenge the validity or enforceability of the Arbitration Agreement; rather, Davis contends that she never entered into—or formed—the Arbitration Agreement with Defendant. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1 (2006) ("The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded."); Berkeley Cty. Sch. Dist., 363 F. Supp. 3d at 641 ("The issue of whether an arbitration clause is valid under § 2 of the FAA is a different issue from whether the parties ever formed an agreement to arbitrate."); Nat'l Fed'n of the Blind v. Container Store, Inc., 904 F.3d 70, 80 (1st Cir. 2018) ("Pursuant to established Supreme Court precedent, however, there's an important distinction between arguments challenging the validity of an agreement and those challenging an agreement's formation." (emphasis in original).) Therefore,notwithstanding the delegation provision in the Arbitration Agreement, the Court must decide whether Davis entered into the Arbitration Agreement with Defendant. See Granite Rock Co., 561 U.S. at 299 (stating that courts should order arbitration only when the court is satisfied that "formation of the parties' arbitration agreement" is not in issue); Berkeley Cty. Sch. Dist., 363 F. Supp. 3d at 646 ("[R]egardless of whether a delegation provision exists, it is always within the court's province to determine whether an agreement was formed in the first place." (emphasis in original)); Edwards v. DoorDash, Inc., 888 F.3d 738, 744 (8th Cir. 2018) ("Arguments that an agreement to arbitrate was never formed, though, are to be heard by the court even where a delegation clause exists.").

C. No Arbitration Agreement Between Davis and Defendant Was Formed

In determining whether the parties entered into an agreement to arbitrate, courts apply ordinary state law principles that govern the formation of contracts. Noohi v. Toll Bros., 708 F.3d 599, 607 (4th Cir. 2013). Under North Carolina law, "[i]t is essential to the formation of any contract that there be mutual assent of both parties to the terms of the agreement so as to establish a meeting of the minds." Creech v. Melnik, 495 S.E.2d 907, 911-12 (N.C. 1998) (quotation marks omitted). "Ordinarily one party, by making an offer, assents in advance; the other, upon learning of the offer, assents by accepting it and thereby forms the contract." Schwarz v. St. Jude Med., Inc., 802 S.E.2d 783, 789 (N.C. Ct. App. 2017) (quoting Restatement (Second) of Contracts § 23 cmt. a).

The record evidence establishes that on August 26, 2012, Defendant held an employee meeting at which managers distributed copies of the Arbitration Agreementto all employees at the meeting. (Doc. No. 11-3, ¶ 8; Doc. No. 19-2, ¶ 9.) At this meeting, Defendant's General Manager and Office Manager explained to all employees that entering into the Arbitration...