Nesbitt v. FCNH, Inc.

• Citation: 74 F.Supp.3d 1366
• Decision Date: 19 November 2014
• Docket Number: Civil Action No 14–cv–00990–RBJ
• Parties: Rhonda Nesbitt, individually, and on behalf of all others similarly situated, Plaintiff, v. FCNH, Inc., Virginia Massage Therapy, Inc., Mid–Atlantic Massage Therapy, Inc., Steiner Education Group, Inc., Steiner Leisure Ltd., SEG Cort LLC, d/b/a as the “Steiner Education Group”, Defendants.
• Court: U.S. District Court — District of Colorado

74 F.Supp.3d 1366

Rhonda Nesbitt, individually, and on behalf of all others similarly situated, Plaintiff

v.FCNH, Inc., Virginia Massage Therapy, Inc., Mid–Atlantic Massage Therapy, Inc., Steiner Education Group, Inc., Steiner Leisure Ltd., SEG Cort LLC, d/b/a as the “Steiner Education Group”, Defendants.

Civil Action No 14–cv–00990–RBJ

United States District Court, D. Colorado.

Filed November 19, 2014

David H. Miller, Rachel Graves, Sawaya Law Firm, Denver, CO, Brian David Gonzales, The Law Offices of Brian D. Gonzales, Fort Collins, CO, Leon Marc Greenberg, Attorney at Law, Las Vegas, NV, for Plaintiff.

Jeffrey Max Lippa, Natalia Solis Ballinger, Greenberg Traurig, LLP, Denver, CO, Scott David Segal, Law Offices of Scott D. Segal, PA, Miami, FL, for Defendants.

ORDER

R. Brooke Jackson, United States District Judge

This matter is before the Court on the defendants' Motion to Compel Arbitration of Individual Claims and to Stay Proceedings [ECF No. 10]. For the following reasons, the motion is denied.

BACKGROUND

The plaintiff, Ms. Nesbitt, filed this action with the Court on April 7, 2014. In her Complaint she alleges violations of the Fair Labor Standards Act (“FLSA”) and numerous state wage and hour laws. According to the Complaint, the defendants are each involved in the management or operation of, or have an ownership interest in, the Steiner Education Group; and the Steiner Education Group runs schools of massage therapy and esthetics in Arizona, Colorado, Connecticut, Florida, Maryland, Massachusetts, Illinois, Nevada, New Jersey, Pennsylvania, Texas, Utah, Virginia, and Washington. Ms. Nesbitt claims that while enrolled as students of massage therapy at one of these schools, she and the putative class members were required to perform massages for paying members of the general public without compensation. She alleges that the labor provided by herself and the putative class members established an employment relationship for purposes of the FLSA and state labor laws.

In the Complaint, Ms. Nesbitt admits that she entered into an arbitration agreement at the time of enrollment. The Arbitration Agreement provides that

[y]ou, the student, and Steiner Education Group (“SEG”) agree that any dispute or claim between you and SEG (or any company affiliated with SEG or any of its or SEG's officers, directors, employees or agents) arising out of or relating to (1) this Enrollment Agreement, or the Student's recruitment, enrollment or attendance at SEG, (2) the education provided by SEG, (3) SEG's billing, financial aid, financing options, disbursement of funds or career service assistance, (4) the enforceability, existence, scope or validity of this Arbitration Agreement, or (5) any claim relating in any manner, to any act or omission regarding Student's relationship with SEG or SEG's employees, whether such dispute arises before, during or after Student's attendance at SEG, and whether the dispute is based on contract, statute, tort, or otherwise, shall be resolved through binding arbitration pursuant to this Section (the “Arbitration Agreement”).

[ECF No. 1–1].

It continues,

Arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association applying federal law to the fullest extent possible, and the substantive and procedural provisions of the Federal Arbitration Act (9 U.S.C. §§ 1 –16 ) shall govern this Arbitration Agreement and any and all issues relating to the enforcement of the Arbitration Agreement and the arbitrability of claims between the parties. Judgment upon the award rendered by the Arbitrator may be entered in any court having competent jurisdiction.

Id.

As to costs, the Arbitration Agreement provides that “[e]ach party shall bear the expense of its own counsel, experts, witnesses, and preparation and presentation of proofs.” Id.

The agreement then issues the following warning, in capital letters:

THIS ARBITRATION AGREEMENT LIMITS CERTAIN RIGHTS, INCLUDING THE RIGHT TO MAINTAIN A COURT ACTION, THE RIGHT TO A JURY TRIAL, THE RIGHT TO PARTICIPATE IN ANY FORM OF CLASS OR JOINT CLAIM, THE RIGHT TO ENGAGE IN DISCOVERY (EXCEPT AS PROVIDED IN THE APPLICABLE ARBITRATION

RULES), AND THE RIGHT TO CERTAIN REMEDIES AND FORMS OF RELIEF. OTHER RIGHTS THAT YOU OR SEG WOULD HAVE IN COURT ALSO MAY NOT BE AVAILABLE IN ARBTRATION.

Id.

Finally, it ends with a “right to reject” provision, which states that the student

may reject this Arbitration Agreement by mailing a signed rejection notice to: Attention: Steiner Education Group Corporate Office, Compliance Department, 2001 W Sample Road, Ste. 318, Pompano Beach, FL 33064 within 30 days after the date I sign this Enrollment Agreement. Any rejection notice must include my name, address, [and] telephone number.

Id.

The question for purposes of this motion is whether the Arbitration Agreement is enforceable against Ms. Nesbitt such that this Court must compel arbitration of her claims.

LEGAL ANALYSIS

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 –16, “embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.” Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). Section 2 provides,

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2 (emphasis added). This provision reflects a “liberal federal policy favoring arbitration,” Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), as well as “the fundamental principle that arbitration is a matter of contract,” Rent–A–Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010). “By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (citing 9 U.S.C. §§ 3, 4 ) (emphasis in original). However, “[u]nlike the general presumption that a particular issue is arbitrable when the existence of an arbitration agreement is not in dispute, when the dispute is whether there is a valid and enforceable arbitration agreement in the first place, the presumption of arbitrability falls away.”Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir.1998) (internal citations omitted).

A. Is the Arbitration Agreement unconscionable?

Section 2 of the FAA includes a saving clause that allows for arbitration agreements to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “This saving clause permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 1746, 179 L.Ed.2d 742 (2011) (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ). Colorado's test for unconscionability does not explicitly favor or disfavor arbitration. See Bernal v. Burnett, 793 F.Supp.2d 1280, 1287 (D.Colo.2011).

The first question at issue in this case is whether the Arbitration Agreement is unenforceable because it is unconscionable. A federal court must apply state contract law principles when determining whether an arbitration agreement is valid and enforceable. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Under Colorado law, one of the legal grounds for revoking a contract is unconscionability. See, e.g., Davis v. M.L.G. Corp., 712 P.3d 985, 991 (Colo.1986) ; Univ. Hills Beauty Acad., Inc. v. Mountain States Tel. & Tel. Co., 38 Colo.App. 194, 554 P.2d 723, 726 (1976). Colorado courts consider a number of factors in deciding whether a contractual provision is unconscionable, including:

(1) the use of a standardized agreement executed by parties of unequal bargaining power; (2) the lack of an opportunity for the customer to read or become familiar with the document before signing it; (3) the use of fine print in the portion of the contract containing the provision in question; (4) the absence of evidence that the provision was commercially reasonable or should reasonably have been anticipated; (5) the terms of the contract, including substantive fairness; (6) the relationship of the parties, including factors of assent, unfair surprise, and notice; and (7) the circumstances surrounding the formation of the contract, including setting, purpose, and effect.

Bernal, 793 F.Supp.2d at 1286 (citing Davis, 712 P.3d at 991) [hereinafter “the Davis factors”]. The Davis factors encompass both procedural and substantive unconscionability, both of which must be shown in Colorado. See Vernon v. Qwest Commc'ns Intern., Inc., 925 F.Supp.2d 1185, 1194–95 (D.Colo.2013) ; Davis, 712 P.2d at 991. The burden of proof is on the party opposing arbitration. See Weller v. HSBC Mortg. Servs., Inc., 971 F.Supp.2d 1072, 1080 (D.Colo.2013).

The plaintiff argues that most of the Davis factors weigh in her favor, and that taken together they show that the Arbitration Agreement is both substantively and procedurally unconscionable. The Court begins with an analysis of the alleged procedural unfairness of the agreement. The first, second, third, sixth, and seventh Davis factors relate to procedural unconscionability. Looking to the first factor,...