Floss v. Ryan's Family Steak Houses, Inc.

• Decision Date: 09 March 2000
• Docket Number: V,DEFENDANT-APPELLANT,DEFENDANTS-APPELLEES,No. 99-5099,PLAINTIFF-APPELLE,99-5187,PLAINTIFF-APPELLAN,99-5099
• Parties: (6th Cir. 2000) SHARON FLOSS,RYAN'S FAMILY STEAK HOUSES, INC., ET AL., KYLE DANIELS,RYAN'S FAMILY STEAK HOUSES, INC., Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 306

211 F.3d 306 (6th Cir. 2000)

SHARON FLOSS, PLAINTIFF-APPELLANT,

V.

RYAN'S FAMILY STEAK HOUSES, INC., ET AL., DEFENDANTS-APPELLEES.

KYLE DANIELS, PLAINTIFF-APPELLEE,

V.

RYAN'S FAMILY STEAK HOUSES, INC., DEFENDANT-APPELLANT.

No. 99-5099, 99-5187

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: March 9, 2000

Decided and Filed: May 1, 2000

Appeal from the United States District Court for the Eastern Districts of Kentucky at Covington and Tennessee at Knoxville. Nos. 98-00038; 98-00294--William O. Bertelsman and R. Leon Jordan, District Judges. [Copyrighted Material Omitted]

Steven L. Schiller, Newport, Kentucky, for Appellant in 99-5099

Bruce D. Fox, April D. Carroll, Ridenour, Ridenour & Fox, Clinton, Tennessee, for Appellee in 99-5187.

Stephen F. Fisher, Jackson, Lewis, Schnitzler & Krupman, Greeneville, South Carolina, for Appellees in 99-5099

Kelli L. Thompson, Baker, Donelson, Bearman, Anderson & Caldwell, Knoxville, Tennessee, Stephen F. Fisher, Jackson, Lewis, Schnitzler & Krupman, Greeneville, South Carolina, for Appellant in 99-5187.

Before: Martin, Chief Judge; Suhrheinrich, Circuit Judge; Gwin, District Judge.^*

OPINION

Gwin, District Judge.

With these appeals, consolidated for purposes of decision, the Court reviews whether employees effectively waived their rights to bring actions in federal court under the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq. ("ADA"), and the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. ("FLSA"). At the district court, the plaintiffs attempted to sue their former employer, Ryan's Family Steak Houses, Inc. ("Ryan's"). However, when applying for employment at Ryan's, both plaintiffs had signed a form indicating they would arbitrate all employment-related disputes. In both cases, Ryan's filed a motion to compel arbitration.

Finding no valid arbitration agreement, the United States District Court for the Eastern District of Tennessee refused to require Plaintiff-Appellee Kyle Daniels to arbitrate his claim under the ADA. In contrast, the United States District Court for the Eastern District of Kentucky found that Plaintiff-Appellant Sharon Floss was required to arbitrate her dispute and could thus not pursue her claim under the FLSA in federal court.

Ryan's now appeals the district court's refusal to require Daniels to arbitrate his ADA claim. Similarly, Floss appeals the district court's order requiring her to submit her FLSA claim to arbitration. Because we find neither Daniels nor Floss validly waived their right to bring an action in federal court, we REVERSE the district court's order requiring Floss to arbitrate her claim, and AFFIRM the district court's order refusing to require Daniels to submit his claim to arbitration.

I.

In support of its argument that the plaintiffs agreed to waive their right to bring an action in federal court and instead agreed to arbitrate all employment disputes, Ryan's relies upon a document identified as the "Job Applicant Agreement to Arbitration of Employment-Related Disputes." Ryan's includes this purported agreement in its employment application packet. Only those applicants who sign the agreement are considered for employment at Ryan's.¹ Both Daniels and Floss acknowledge signing the agreement.

The employee's agreement to arbitrate is not with Ryan's. Instead, the agreement runs between the employee and a third-party arbitration services provider, Employment Dispute Services, Inc. ("EDSI"). In the agreement, EDSI agrees to provide an arbitration forum in exchange for the employee's agreement to submit any dispute with his potential employer to arbitration with EDSI. Although Ryan's is not explicitly identified as a party to the agreement, the agreement says the employee's potential employer is a third-party beneficiary of the employee's agreement to waive a judicial forum and arbitrate all employment-related disputes.

The agreement gives EDSI complete discretion over arbitration rules and procedures. The agreement says that all arbitration proceedings will be conducted under "EDSI Rules and Procedures." The agreement then gives EDSI the unlimited right to modify the rules without the employee's consent.

In July 1994, Kyle Daniels applied for employment with Ryan's and received this agreement as part of the employment application packet.² Similarly, Ryan's gave Sharon Floss the agreement when she applied for employment in December 1997. Both Daniels and Floss signed the agreement and began their employment at Ryan's shortly thereafter.

Daniels ceased working at Ryan's on August 13, 1997. On that date, Daniels claims he attempted to resume his employment with Ryan's after taking a medical leave to treat his viral hepatitis. However, Daniels says Ryan's terminated him upon his return to the restaurant.

Floss ceased working at Ryan's on January 23, 1998. Floss left her position with Ryan's after a confrontation with two management employees. According to Floss, these management employees intimidated and harassed her after learning that she had complained to the United States Department of Labor regarding Ryan's pay practices.

On February 17, 1998, Floss sued Ryan's in the United States District Court for the Eastern District of Kentucky for violation of the Fair Labor Standards Act³. Floss claimed that Ryan's (1) did not pay employees legally-required minimum and overtime wages, (2) failed to pay employees for certain hours worked, and (3) retaliated against her because she complained of these practices to the United States Department of Labor. Floss sued in both her individual capacity and on behalf of similarly-situated Ryan's employees.

On May 19, 1998, Daniels filed his action against Ryan's in the United States District Court for the Eastern District of Tennessee. In this action, Daniels asserted a claim under the ADA, alleging that Ryan's terminated him on account of his handicapped status despite his ability to perform the essential functions of his job with or without reasonable accommodation.⁴

In both actions, Ryan's filed motions to compel arbitration. In ruling on these motions, the respective district courts reached different conclusions as to whether the agreements were enforceable.

In Daniels's action, the district court ruled that the agreement was not enforceable. The court reasoned that EDSI did not provide Daniels with any consideration for his promise to arbitrate his dispute with Ryan's. Though EDSI promised to provide an arbitration forum, the court found that only Ryan's and EDSI, rather than Daniels, actually benefitted from that promise. The court also found that the arbitration document did not bind EDSI. Specifically, the court noted that the agreement gave EDSI an unlimited right to unilaterally modify or amend the rules and procedures of the arbitration proceeding without providing notice to Daniels. Finally, the court noted that even if enforceable the agreement was not sufficiently clear so as to represent a knowing and intelligent waiver of Daniels's right to pursue his disability discrimination claim in federal court.

However, the district court in Floss's case enforced the agreement.⁵ The court rejected Floss's argument that claims under the FLSA could not be made subject to mandatory arbitration.

Both Ryan's and Floss now appeal the rulings adverse to them.

II.

Before turning to the merits of these appeals, we consider whether Floss timely filed her notice of appeal. Ryan's says Floss failed to file her appeal within thirty days of the issuance of the final order from which she appeals, as required by Federal Rule of Appellate Procedure 4(a)(1)(A).

On October 20, 1998, the district court issued an order staying Floss's FLSA action pending arbitration. On December 21, 1998, the court, at Floss's request, issued a final order dismissing her action. Floss filed her notice of appeal on January 21, 1999.

Ryan's says that the district court's order granting a stay constituted a final order with regard to the arbitrability of Floss's FLSA claim. The second order dismissing Floss's action was, according to Ryan's, superfluous. Because Floss did not file her notice of appeal within thirty days of the stay order, Ryan's argues that Floss's appeal is untimely.

We disagree. Floss could not have filed a notice of appeal based on the district court's stay order. An interlocutory order granting a stay pending arbitration is not appealable. See 9 U.S.C. § 16(b); Arnold v. Arnold Corp., 920 F.2d 1269, 1275 (6th Cir. 1990) (noting that interlocutory order directing parties to arbitrate dispute is not appealable). And contrary to Ryan's suggestion, the district court's stay order was interlocutory rather than final.⁶ "[A] final order is one that dismisses an action in deference to arbitration." Arnold, 920 F.2d at 1275 (internal quotations omitted). The district court's stay order did no such thing.

Floss filed her appeal within thirty days of the district court's final order dismissing her action; therefore, her appeal is timely.

III.

We review de novo a district court's decisions regarding both the existence of a valid arbitration agreement and the arbitrability of a particular dispute. See Bobbie Brooks, Inc. v. Int'l Ladies' Garment Workers Union, 835 F.2d 1164, 1170 (6th Cir. 1987) (stating that district court's finding that a contract exists is subject to de novo review); M&C Corp. v. Erwin Behr GmbH & Co., 143 F.3d 1033, 1037 (6th Cir. 1998) ("A determination of the arbitrability of a dispute is subject to de novo review.").

IV.

In deciding whether to compel arbitration of a federal statutory claim, we initially consider whether the statutory claim is generally subject to compulsory arbitration. If the statutory claim is not exempt from mandatory arbitration, we next consider whether the parties have executed a valid arbitration agreement and, if so, whether the statutory claim falls within the scope of that agreement. See Mitsubishi Motors...