ALGENON L. MARBLEY, District Judge.
This matter is before the Court on Defendant Nolan Enterprises, Inc., d/b/a Centerfold Club ("Centerfold")'s Motion to Dismiss or to Stay and Motion to Compel Arbitration. (ECF No. 15). For the reasons stated below, Centerfold's Motion is
Centerfold is an adult entertainment club in Columbus, Ohio. (ECF No. 1 at ¶ 3). Plaintiff, Ms. Stephanie De Angelis, alleges that she worked at Centerfold as a dancer from April 2016 to February 2017. (Id. at ¶¶ 16, 18). Ms. De Angelis alleges that Centerfold did not pay its dancers any wages. (Id. at ¶ 1). Instead, she avers that Centerfold misclassified all of its dancers as independent contractors, rather than employees, and that the dancers are only compensated through tips from customers. (Id. at ¶¶ 17, 21). She further alleges that at the end of each night, Centerfold took a cut from all tips made by the dancers, and the dancers were required to divide their tips with other employees. (Id. at ¶¶ 5, 30).
On June 14, 2016, Ms. De Angelis filled out a document purporting to be an application to lease space at Centerfold. (ECF No. 44 at 1-4). Two days later, on June 16, 2018, Ms. De Angelis signed a two-part agreement (the "Agreement"): Part 1 is titled "Preliminary Lease Information Agreement to Lease Space as an Entertainer Tenant and Not to Be an Employee," and Part 2 is titled "Entertainer Tenant Space Lease Agreement." (ECF No. 44 at 6-7). Part 1 states in relevant part:
(Id. at 6, ¶ 12). Part 2 contains a provision entitled "Arbitration/Waiver of Class and Collective Actions/Attorney Fees and Costs," which reads in relevant part:
(Id. at 13 ¶ 19 A.) (emphasis in original). The agreement further provides that, "[t]he arbitrator shall have the exclusive authority to resolve any and all disputes over the validity of any part of this agreement and any award by the arbitrator may be entered as a judgment in any court having jurisdiction." (the "Delegation Provision") (Id. at 14).
Finally, the Agreement contains the following relevant language at the end of Part 2:
(the "Amendment Provision") (ECF No. 44 at 15).
Ms. De Angelis filed this lawsuit as a collective and class action against Centerfold on October 23, 2017, alleging violations of the Fair Labor Standards Act of 1983 ("FLSA"), 29 U.S.C. §§ 201, et seq., the Ohio Minimum Fair Wage Standards Act ("OMFSWA"), O.R.C. §§ 4111.01, et seq., and the Ohio Semi-Monthly Payment Act, O.R.C. § 4113.15, as well as common law unjust enrichment by failing to pay dancers minimum wage for all hours worked, including failure to pay overtime. (ECF No. 1). On January 22, 2018, Centerfold filed the Motion to Dismiss or Stay and Motion to Compel Arbitration (ECF No. 15). The Motion is fully briefed and ripe for review.
Under the Federal Arbitration Act ("FAA"), arbitration contracts "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. If a party who signed an arbitration contract fails or refuses to arbitrate, the aggrieved party may petition the court for an order directing the parties to proceed in arbitration in accordance with the terms of an arbitration agreement. 9 U.S.C. § 4. The Court must then "determine whether the parties agreed to arbitrate the dispute at issue." Ackison Surveying, LLC v. Focus Fiber Sols., LLC, No. 2:15-CV-02044, 2016 WL 4208145, at *1 (S.D. Ohio Aug. 10, 2016) (citing Stout v. J.D. Byrider, 228 F.3d 09, 714 (6th Cir. 2000)). Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Id. at *1. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). In evaluating motions to compel arbitration, "courts treat the facts as they would in ruling on a summary judgment motion, construing all facts and reasonable inferences that can be drawn therefrom in light most favorable to the non-moving party." Jones v. U-Haul Co. of Massachusetts & Ohio Inc., 16 F.Supp.3d 922, 930 (S.D. Ohio 2014). The court has four tasks:
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000).
In determining whether the parties agreed to arbitrate under the first prong of the Stout test, the Court must apply state law of contract formation. Prachun v. CBIZ Benefits & Ins. Servs., Inc., No. 2:14-CV-2251, 2015 WL 5162522, at *3 (S.D. Ohio Sept. 3, 2015); see also Ackison Surveying, LLC v. Focus Fiber Sols., LLC, No. 2:15-CV-02044, 2016 WL 4208145, at *1 (S.D. Ohio Aug. 10, 2016) (Marbley, J.) ("Whether the parties' contract evinces an agreement to arbitrate is governed by principles of state contract law."). Thus, "state-law contract defenses like fraud, forgery, duress, mistake, lack of consideration or mutual obligation, or unconscionability, may invalidate arbitration agreements." Cooper v. MRM Inv. Co., 367 F.3d 493, 498 (6th Cir. 2004). The parties agree that Ohio law applies to this action. (See ECF No. 45 at 5; ECF No. 47 at 10).
Centerfold argues that the Agreement is a valid agreement to arbitrate, satisfying the first element of the Stout test. (ECF No. 15 at 9). Further, Centerfold argues that the threshold question of validity must be resolved by the arbitrator, pursuant to the Agreement's Delegation Provision. (ECF No. 15 at 10). In response, Ms. De Angelis contends that Centerfold does not specifically identify any delegation clause.
A delegation provision is an "agreement[] to arbitrate threshold issues concerning the arbitration agreement." Danley v. Encore Capital Grp., Inc., 680 Fed. Appx. 394, 395-96 (6th Cir. 2017) (quoting Rent-A-Centr., W., Inc. v. Jackson, 561 U.S. 63, 68 (2010)). Parties can agree to arbitrate "gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Centr., 561 U.S. at 68-69. In Rent-A-Center, the Supreme Court explained that such a delegation provision is "simply an additional, antecedent agreement that the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Id. at 70. Thus, a delegation provision is severable from the remainder of the contract, and "a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate"—here, the delegation provision. Id. In other words, when there is a delegation provision, the Court will only intervene if the party seeking to avoid arbitration challenges the delegation provision itself. Id. at 71-72.
Centerfold argues that because there is a delegation provision in the Agreement,
One challenge that Ms. De Angelis asserts that calls into question the formation of the delegation provision itself is that it lacks mutuality of obligation. (ECF No. 45 at 16) (Ms. De Angelis specifically attacks "any purported delegation clause" for lack of mutuality). In Ohio, "consideration is, of course, an element necessary for a binding contract." Harmon v. Philip Morris Inc., 120 Ohio App.3d 187, 190, 697 N.E.2d 270, 272 (1997). Consideration "requires mutuality of obligation." Stanich v. Hissong Grp., Inc., No. 2:09-CV-0143, 2010 WL 3732129, at *5 (S.D. Ohio Sept. 20, 2010); see also Raasch v. NCR Corp., 254 F.Supp.2d 847, 855 (S.D. Ohio 2003) (noting that mutuality of obligation "goes hand in hand with the concepts of consideration and illusory promise"). Absent "mutuality of obligation, a contract based on reciprocal promises lacks consideration." Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315 (6th Cir. 2000). In other words, "a contract must be binding on both or else it is binding on neither." Id.
A promise is not binding if it is illusory. A promise is illusory when the promisor "retains the right to decide whether or not to perform the promised act." Id. Illusory promises do not creating binding obligations, and in such a case the contract lacks consideration. See id. When one party to an agreement retains the right to modify any term of the agreement at any time, its promises are illusory and the contract is therefore void and unenforceable for lack of consideration. Day v. Fortune Hi-Tech Mktg., Inc., 536 F. App'x 600, 604 (6th Cir. 2013) (holding that "[b]ecause Defendant retained the ability to modify any term of the contract, at any time, its promises were illusory" and therefore finding the entire contract, including the arbitration clause, void and unenforceable).
Courts "have consistently held that arbitration agreements fail to bind employees where the employer reserves the unilateral right to modify or cancel the terms of the deal at any time." Stanich, 2010 WL 3732129, at *5; see also Floss, 211 F.3d 306 at 315-16 (holding that arbitration contract lacked mutuality of obligation and accordingly did not constitute an enforceable arbitration agreement when agreement gave company the unlimited right to modify the arbitration rules without the employee's consent); Stepp v. NCR Corp., 494 F.Supp.2d 826, 834 (S.D. Ohio 2007) (finding that because company reserved the right to amend unilaterally the arbitration agreement, the contract lacked mutuality of obligation, and thus there was no consideration, and therefore no contract); Trumbull v. Century Mktg. Corp., 12 F.Supp.2d 683, 686 (N.D. Ohio 1998) (finding arbitration clause in employee handbook not enforceable because handbook purported to bind plaintiff by all of its terms "while defendant could simply revoke any term (including the arbitration clause) whenever it desired"); Harmon v. Philip Morris Inc., 120 Ohio App.3d 187, 191, 697 N.E.2d 270, 272 (1997) (finding no consideration when employer reserved the right to amend or terminate the arbitration program at any time).
Here, Ms. De Angelis argues that the Amendment Provision is an attempt to retain the ability to modify the agreement at any time, making Centerfold's promises illusory. (ECF No. 45 at 16). This Court agrees. The Amendment Provision reads:
(ECF No. 44 at 15). With this language, Centerfold reserved the right to modify or cancel the terms of the Agreement at any time without notice, and its promise was therefore illusory. An illusory contract is not binding obligation, and the Agreement, including the delegation provision, thus lacks mutuality of obligation and consideration. As such, the delegation provision and the arbitration agreement are void and unenforceable.
Centerfold relies on Blakley v. UBS Fin. Servs. Inc., No. 1: 12-CV-30, 2013 WL 360378, at *7 (S.D. Ohio Jan. 30, 2013), report and recommendation adopted, No. C-1-12-30, 2013 WL 866470 (S.D. Ohio Mar. 7, 2013) to argue that the arbitration agreement is enforceable because the amendment provision appears in a separate section from the arbitration provision, and the duty of good faith and fair dealing prohibits them from actually amending the arbitration agreement. (ECF No. 47 at 11-12). In Blakley, the Magistrate Judge recommended finding that the clause giving the employer the right to modify the agreement did not make the arbitration agreement unenforceable. Blakley is distinguishable, however, because there the employer was required to provide notice of any changes by posting them on its internal intranet. 2013 WL 864470, at *7 ("[T]he amendment provision of the FMCP does not make the arbitration provision unenforceable as defendant is required to provide notice by posting any changes on its internal intranet."); see also Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 667-68 (6th Cir. 2003) (concluding that arbitration agreement was supported by sufficient consideration and mutuality of obligation when amendment provision gave the employer the authority to alter the agreement on only one day of each year and required them to provide its employees with thirty days' notice before doing so).
The Blakley court acknowledged that advanced notice, rather than just notice, was required in Morrison, but found that the lack of advanced notice in the agreement did not make the arbitration agreement unenforceable because the amendment provision was not specific to the arbitration provision and was instead contained in a different section. 2013 WL 864470, at *7. As an initial note, the Amendment Provision at issue here requires no notice, so whether mere notice is sufficient or notice must be given in advance is neither relevant nor decided here. Additionally, this Court disagrees that the location of the Amendment Provision is relevant to whether such a provision makes the employers' promise illusory under Ohio law. In Stanich, this Court held that an amendment provision on the first page of an employee handbook rendered the employer's promise illusory and the entire contract, including the arbitration provision, unenforceable under Ohio law. 2010 WL 3732129, at *6. The Northern District of Ohio came to the same result in Trumbell, invalidating an arbitration agreement contained in an employee handbook because the handbook's introduction contained an amendment provision. 12 F. Supp. 2d at 686. The Sixth Circuit reached the same conclusion in a similar case under Kentucky law, finding that an amendment provision in a contract rendered the entire contract, including the arbitration provision contained in a different section, void and unenforceable. Day, 536 Fed. Appx. at 604. The Court therefore rejects Centerfold's argument that because the amendment provision appears in a separate section as the arbitration provision, the arbitration clause should not be invalidated and finds Blakley unpersuasive.
For the reasons set forth above, the Court finds that the Amendment Provision in the Agreement renders Centerfold's promise to arbitrate (including the promise to arbitrate threshold issues) illusory, and no mutuality of obligation exists, rendering the Agreement void and unenforceable for lack of consideration. Defendants' Motion to Dismiss or Stay and Motion to Compel Arbitration (ECF No. 15) is therefore