United States District Court, D. Arizona
Honorable Susan M. Brnovich United States District Judge.
issue is Defendants LG&M Holdings, LLC d/b/a Xplicit
Showclub, (“Defendant Company”), Fred Martori,
Kevin Owensori, Jeffrey Bertoncino, and Michael Scott's
(collectively, “Defendants”) Motion to Dismiss
for Lack of Subject Matter Jurisdiction or, alternatively,
Motion to Stay These Proceedings and Compel Arbitration.
(Doc. 23). Kristina Guglielmo (“Plaintiff”) has
filed a Response (Doc. 27, “Resp.”), to which
Defendants replied (Doc. 29, “Reply”). Plaintiff
alleges violations of state and federal employment law and
brought this action on behalf of all others similarly
situated. (Doc. 1). Six people claiming they are similarly
situated-Mehlihia Saralehui, Stacee Landenberger, Emily
Litcoff, Brandi Egnash, and Demaje Jeter (collectively,
“Plaintiffs”)-have opted into the lawsuit. (Docs.
22, 24, 25). Defendants argue the case should be dismissed
for lack of jurisdiction or, alternatively, stayed because
Plaintiffs signed arbitration agreements but have not yet
arbitrated. For the reasons that follow, the Court will deny
Defendants' motion to dismiss for lack of jurisdiction
but grant the alternative motion to stay the proceeding and
Motion at issue concerns whether Defendants can compel
Plaintiff to arbitrate her claims before bringing this
action. The Federal Arbitration Act (the “FAA”)
provides “an agreement in writing to submit to
arbitration an existing controversy arising out of such a
contract, transaction, or refusal, 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. “The Court's
role under the act is . . . limited to determining (1)
whether a valid agreement to arbitrate exists, and if it
does, (2) whether the agreement encompasses the dispute at
issue.” Chiron Corp. v. Ortho Diagnostic Sys.,
Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).
alleges she represents a class of current or former exotic
dancers that worked at Defendant Company, which is owned by
Martori, Owensori, Bertoncino, and Scott. She brings claims
under the Fair Labor Standards Act (“FLSA”), 29
U.S.C. § 201 et seq., the Arizona Wage Act
(“AWA”), A.R.S. § 23-350 et seq.,
and the Arizona Minimum Wage Act (“AMWA”), A.R.S.
§ 23-363 et seq. Defendants' motion argues
this Court does not have jurisdiction to hear the case
because Plaintiffs signed arbitration agreements.
Alternatively, Defendants ask the Court to stay the
proceeding and compel arbitration. Plaintiffs argue that the
arbitration agreements cannot be enforced because they are
unconscionable and cannot be severed from the agreements.
are two different agreements at issue in this case. Both
include arbitration clauses. All Plaintiffs signed at least
one of these agreements and some signed both. A manager
signed the agreements on behalf of the Defendant Company. The
first is titled “Xplicit Showclub Entertainment
Performance Lease” (“Contractor Lease”).
Plaintiffs Guiglielmo, Litcof, Cabiles, Landenberger,
Saralehui, and Egnash signed a Contractor Lease. The second
agreement does not have a title, but the Court will refer to
it as the “Entertainment Lease.” Plaintiffs
Guglielmo, Litcof, Cabiles, and Jeter signed an Entertainment
Lease. Defendants included a copy of Guglielmo's
agreements as attachments to their motion. Plaintiffs
submitted Gugliemo's and the other plaintiffs'
agreements as exhibits to a declaration filed with the Court.
(Doc. 28). The Contractor Lease is a short, two-page
document, and the Entertainment Lease is a more comprehensive
eight-page document. (Doc. 28).
apply state-law principles to determine whether an agreement
to arbitrate is valid. First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 944 (1995); Circuit City
Stores, Inc. v. Adams, 279 F.3d 889, 892 (9th
Cir. 2002). Neither party contests that Arizona state law
governs the agreements. “Arizona law . . . clearly
provides that the determination of unconscionability is to be
made by the court as a matter of law.” Maxwell v.
Fidelity Fin. Serv., Inc., 907 P.2d 51, 56 (Ariz. 1995).
The test for unconscionability comes from comment 1 to the
Uniform Commercial Code § 2-302:
The basic test (for unconscionability) is whether, in the
light of the general commercial background and the commercial
needs of the particular trade or case, the clauses involved
are so onesided as to be unconscionable under the
circumstances existing at the time of the making of the
contract. . . . The principle is one of the prevention of
oppression and unfair surprise and not of disturbance of
allocation of risks because of superior bargaining power.
Seekings v. Jimmy GMC of Tucson, Inc., 638 P.2d 210,
216 (Ariz. 1981); accord Maxwell, 907 P.2d at 57.
The Arizona Supreme Court in Maxwell further
explained that most jurisdictions, including Arizona, divide
the unconscionability doctrine into substantive and
procedural parts. Procedural unconscionability concerns
“‘unfair surprise,' fine print clauses,
mistakes or ignorance of important facts or other things that
mean bargaining did not proceed as it should.”
Maxwell, 907 P.2d at 57-58 (quoting Dan B. Dobbs, 2
Law of Remedies 406 (2d ed. 1993)). Substantive
unconscionability, on the other hand, considers whether a
contract is “unjust or ‘one-sided.'”
Id. If a term of a contract is unconscionable, a
court may enforce the remainder of the contract without the
unconscionable term or “refuse enforcement of the
contract altogether.” Id. at 60 (quoting
Dobbs, 2 Law of Remedies 705); accord Restatement
(Second) of Contracts § 208 (1981)).
Plaintiffs argue the agreements are substantively
unconscionable, but do not argue they are procedurally
unconscionable. While some courts require “some quantum
of both procedural and substantive unconscionability
to establish a claim, ” Arizona allows
unconscionability to be established “with a showing of
substantive unconscionability alone, especially in cases
involving either price-cost disparity or limitation of
remedies.” Id. at 58-59. Accordingly, the
Court will consider whether the agreements are substantively
actual terms of the contract” determine whether a
contract is substantively unconscionable. Id. at 58.
They must be “so one-sided as to oppress or unfairly
surprise an innocent party, [have] an overall imbalance in
the obligations and rights imposed by the bargain, [or have]
a significant cost-price disparity.” Id.
(citing Resource Mgmt. Co. v. Weston Ranch &
Livestock Co., 706 P.2d 1028, 1041 (Utah 1985)). An
example of an unconscionable provision in the context of
arbitration is if it makes the cost to arbitrate so high that
it effectively denies a person the opportunity to vindicate
her rights. Clark v. Renaissance West, LLC, 307 P.3d
77, 79 (Ariz.Ct.App. 2013).
argue that even if Plaintiffs are correct about portions of
the agreements being unconscionable, those portions are
severable. In Arizona, the “primary” determinant
of whether provisions of a contract are severable is
“the contractual language.” Kahl v.
Winfrey, 303 P.2d 526, 529 (Ariz. 1956). “If it is
clear from its terms that a contract was intended to be
severable, the court can enforce the lawful part and ignore
the unlawful part.” Olliver/Pilcher Ins., Inc. v.
Daniels, 715 P.2d 1218, 1221 (Ariz. 1986). “A
lawful promise made for lawful consideration is not invalid
merely because an unlawful promise was made at the same time
for the same consideration.” Hackin v. Pioneer
Plumbing Supply Co., 457 P.2d 312, 319 (Ariz.Ct.App.
Subject Matter Jurisdiction
preliminary matter, Defendants have not provided any
authority to support the contention that a valid arbitration
agreement divests this Court of jurisdiction. As the District
of Connecticut has explained:
While the FAA may require the Court to enforce the disputed
arbitration agreement as a matter of contract, see 9
U.S.C. § 2, Defendants have provided no authority to
support the proposition that a valid arbitration agreement
divests a federal court of its subject-matter jurisdiction.
It would be odd if a valid arbitration agreement could have
that effect, ...