Cole v. Long John Silver's Restaurants, Inc., Civil Action No. 6:05-1029-HFF.

• Decision Date: 15 September 2005
• Docket Number: Civil Action No. 6:05-1029-HFF.
• Citation: 388 F.Supp.2d 644
• Court: U.S. District Court — District of South Carolina
• Parties: Erin COLE and Nick Kaufman, Claimants/Appellees, v. LONG JOHN SILVER'S RESTAURANTS, INC. and Long John Silver's, Inc., Respondents/Appellants.

388 F.Supp.2d 644

Erin COLE and Nick Kaufman, Claimants/Appellees, v. LONG JOHN SILVER'S RESTAURANTS, INC. and Long John Silver's, Inc., Respondents/Appellants.

Civil Action No. 6:05-1029-HFF.

United States District Court, D. South Carolina, Greenville Division.

September 15, 2005.

Frank S. Holleman, III, Henry L. Parr, Jr., J. Theodore Gentry, Wyche Burgess Freeman and Parham, Greenville, SC, John F. Dienelt, Piper Rudnick, Washington, DC, for Respondents.

Brian P. Murphy, Murphy and Grow Law Offices, Greenville, SC, Morris Reid Estes, Jr., Tanya B. Spavins, Stewart Estes and Donnell, Nashville, TN, for Claimants.

MEMORANDUM OPINION AND ORDER

FLOYD, District Judge.

I. INTRODUCTION

This is an action to vacate a decision of an arbitrator which found that Claimants could arbitrate their claims against Respondents as a class. Respondents assert that this Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331, 1332, 1337(a). Claimants contend that the Court lacks jurisdiction. Currently pending before the Court is Respondents' motion to vacate the arbitrator's decision. For the reasons stated below, the Court will dismiss this action.

II. FACTUAL AND PROCEDURAL HISTORY

Claimant Erin Cole and Claimant Nick Kaufman (collectively "Claimants") are former employees of Respondent Long John Silver's Restaurants, Inc. and Respondent Long John Silver's, Inc. (collectively "Respondents"). During the tenure of Claimants' employment, Respondents instituted a mandatory arbitration procedure covering all disputes between themselves and their employees. On December 19, 2003, Claimants initiated a collective arbitration proceeding before the American Arbitration Association (AAA) in which they alleged that Respondents had violated the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., by failing to pay Claimants and similarly-situated employees overtime pay which they were due. Initially, the arbitrator necessarily conducted a "clause construction hearing" to determine whether the arbitration agreement between Claimants and Respondents permitted the former to arbitrate their claims in a collective, class proceeding. Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003) (Bazzle II) (decision of whether arbitration agreement permits class proceedings is for arbitrator not courts). While Claimants argued that the arbitration agreement was silent or, at the most, ambiguous as to whether arbitration as a class would be permitted, Respondents claimed that the language of the agreement, as well as its structure, indicated that class arbitration was not contemplated by the agreement. In addition, Respondents asserted that class arbitration would be inconsistent with the FLSA and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.

After analyzing the contentions of both parties, the arbitrator found that the arbitration agreement was silent or ambiguous as to whether class arbitration was permitted. The arbitrator next proceeded to analyze the arbitration agreement using principles of contract construction, and, in so doing, he relied on the reasoning of the Supreme Court of South Carolina in Bazzle v. Green Tree Financial Corp., 351 S.C. 244, 569 S.E.2d 349 (2002) (Bazzle I). The arbitrator concluded that, despite the United States Supreme Court's vacatur of the South Carolina Supreme Court's Bazzle I decision, that case's analysis of arbitration agreements under South Carolina law remained controlling. Thus, applying the reasoning of Bazzle I, the arbitrator found that the arbitration agreement's silence or ambiguity on the issue of proceeding as a class led to the conclusion that collective action was permitted. The arbitrator noted, however, that even without the "imprimatur" of Bazzle I, the reasoning of other courts on which Bazzle I was based carried more persuasive force than conflicting precedent which held that silence or ambiguity in an arbitration agreement necessarily meant that the right to proceed in a class action had been abandoned or negotiated away. Finally, the arbitrator also pointed out that nothing in the FLSA or the FAA precluded class arbitration of claims and that contract law principles of unconscionability favored an interpretation of the contract so as to permit collective action.

After rendering his decision, the arbitrator, pursuant to the AAA's rules governing clause construction awards, stayed the arbitration proceedings for thirty days to permit judicial review of his decision to permit Claimants to proceed as a class. Respondents subsequently filed this action seeking to vacate the arbitrator's clause construction award.

III. CONTENTIONS OF THE PARTIES

In the instant case, Respondents assert that the arbitrator acted in manifest disregard of the law by permitting Claimants to proceed collectively against Respondents. Specifically, Respondents argue that the arbitrator applied incorrect precedent in interpreting the arbitration agreement and that the FLSA and the FAA prohibit class arbitration of claims. In response to Claimants' contention that the Court lacks jurisdiction, Respondents attempt to invoke the jurisdiction of this Court based on both the presence of a federal question and diversity of citizenship. Claimants, on the other hand, oppose vacatur of the award and suggest that the Court lacks jurisdiction over this action. They contend that the arbitrator correctly applied precedent — in the form of Bazzle I — to find that class arbitration of claims was permitted. They further maintain that no substantial federal question exists and that Respondents have not satisfied the amount in controversy requirement for diversity jurisdiction.

IV. STANDARD OF REVIEW

In the instant case, Claimants have questioned the existence of the Court's jurisdiction over Respondents' motion to vacate the arbitrator's award. Although Claimants have not formally filed a motion attacking subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), the Court considers the question of whether it may exercise jurisdiction over Respondents' motion pursuant to the standards applicable to a 12(b)(1) motion. Cf. St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.1989) ("Like other challenges to a court's subject matter jurisdiction, motions raising the ripeness issue are treated as brought under Rule 12(b)(1) even if improperly identified by the moving party as brought under Rule 12(b)(6)."); see generally 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (3d ed.2004) (lack of subject matter jurisdiction may be asserted in an answer or as a suggestion to the court).

A party seeking to invoke federal jurisdiction bears the burden of demonstrating that a basis for jurisdiction exists. Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir.1999). In determining whether this burden has been satisfied, the Court may proceed in one of two ways: (1) the Court may find insufficient allegations in the pleadings or (2) the Court may conduct an evidentiary hearing and weigh the evidence to determine if jurisdiction exists. Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982). In cases where the Court considers only the allegations in the pleadings, it must view all disputed facts in a light most favorable to the party asserting jurisdiction. Lovern, 190 F.3d at 654.¹

V. DISCUSSION

Because a determination of subject matter jurisdiction at the outset of litigation promotes judicial efficiency, see id., the Court first examines Claimants' argument that subject matter jurisdiction over Respondents' motion is lacking. Respondents assert two bases for jurisdiction: the existence of a federal question and diversity of citizenship. The Court finds that neither supports federal jurisdiction.

A. Federal Question Jurisdiction

Federal question jurisdiction exists over civil actions "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Most civil actions will arise under the laws of the United States when the cause of action is created by federal law. A smaller number of claims, however, will lie where no federal cause of action is created but where a case or controversy — which would otherwise be heard by the state courts — presents a significant federal issue for adjudication. Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., ___ U.S. ___, 125 S.Ct. 2363, 2366-67, 162 L.Ed.2d 257 (2005). In the instant case, Respondents seemingly assert that the Court has jurisdiction under both "arising under" formulations, and the Court will consider each in turn.

1. Cause of action created by federal law

Respondents first contend that the FAA creates a private right of action for review of the decisions of arbitrators on the applicability and construction of arbitration agreements. Specifically, Respondents urge that the arbitrator's decision in the instant case is erroneous and was made in manifest disregard of federal law.

Although the language of the FAA appears to open the federal courts to these claims, the Supreme Court has unequivocally held that the FAA creates no federal cause of action to enforce its terms. Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (FAA "does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise." (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983))). The Fourth Circuit Court of Appeals has affirmed this rule with respect to § 4 of the FAA, Discover Bank v. Vaden, 396 F.3d 366, 368 (4th Cir.2005), and courts of appeals in other circuits have extended its reasoning to §§ 9-10 of the FAA, Peabody Coal Co. v. Navajo Nation, 373 F.3d 945, 952 n. 5 (9th Cir.2004) ("It is well settled that the provisions of 9 U.S.C. § 9 do not by themselves confer subject matter jurisdiction."); Czarina, LLC v. W.F. Poe Syndicate, 358 F.3d 1286, 1290-94 (11th...