ROBBINS v. PLAYHOUSE LOUNGE

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

HEATHER ROBBINS,

No. 1:19-cv-08387-NLH-KMW

Plaintiff,

v.

OPINION

PLAYHOUSE LOUNGE and JOHN

DOES 1-10,

Defendants.

APPEARANCES:

JOSHUA S. BOYETTE

SWARTZ SWIDLER LLC

1101 KINGS HIGHWAY NORTH

SUITE 402

CHERRY HILL, NJ 08034

On behalf of Plaintiff Heather Robbins.

MARK W. CATANZARO

21 GRANT STREET

MOUNT HOLLY, NJ 08060

On behalf of Defendant Playhouse Lounge.

HILLMAN, District Judge

This case comes before the Court on Defendant Playhouse

Lounge’s Motion to Compel Arbitration and Stay Litigation (ECF

No. 28), which Plaintiff Heather Robbins has opposed. For the

reasons expressed below, Defendant’s motion will be denied

without prejudice, and the parties will be directed to engage in

limited discovery on the specific arbitrability-related question

outlined in this Opinion.

BACKGROUND

In July 2017, Plaintiff Heather Robbins began working as an

adult dancer at the Playhouse Lounge. Prior to starting,

Defendant gave Plaintiff two options: she could either work as

an employee of the club, or she could be classified as an

Independent Contractor and sign a “Dance Performance Lease,” an

agreement under which she would technically lease certain

portions of the club within which to work. Plaintiff chose the

second option, and signed both the “Business Status Selection”

agreement and the “Dance Performance Lease,” which together

serve as the central contractual agreement governing the parties

relationship here (the “Contract”).

The Contract includes a section entitled “MANDATORY

ARBITRATION/WAIVER OF CLASS AND COLLECTIVE ACTIONS/ATTORNEY FEES

AND COSTS.” (ECF No. 28-2, Ex. B at § 21). Subsection A of

that arbitration clause provides as follows:

EXCEPT FOR ANY GOVERNMENTAL ADMINISTRATIVE

PROCEEDINGS THAT ARE NOT SUBJECT TO MANDATORY

PRIVATE ARBITRATION, ANY CONTROVERSY, DISPUTE, OR

CLAIM (IN THIS PARAGRAPH 21, COLLECTIVELY “CLAIM”)

ARISING OUT OF THIS LEASE OR OUT OF ENTERTAINER

PERFORMING AT THE CLUB AT ANYTIME, WHETHER

CONTRACTUAL, IN TORT, OR BASED UPON COMMON LAW OR

STATUTE, SHALL BE EXCLUSIVELY DECIDED BY BINDING

ARBITRATION HELD PURSUANT TO THE FEDERAL ARBITRATION

ACT (THE “FAA”), AND SHALL BE ADMINISTERED BY A

NEUTRAL ARBITRATOR AGREED UPON BY THE PARTIES, WHO

SHALL BE PERMITTED TO AWARD, SUBJECT ONLY TO THE

RESTRICTIONS CONTAINED IN THIS PARAGRAPH 21, ANY

RELIEF AVAILABLE IN A COURT. EITHER PARTY MAY

REQUEST AN ARBITRATOR EXPERIENCED IN THE ADULT

ENTERTAINMENT INDUSTRY, THE PARTIES WAIVE ANY RIGHT

TO LITIGATE SUCH CLAIMS IN A COURT OF LAW, AND WAIVE

THE RIGHT TO TRIAL BY JURY. THE PROCEEDINGS SHALL

BE CONDUCTED IN ACCORDANCE WITH THAT LEVEL OF DUE

PROCESS REQUIRED FOR ARBITRATIONS. THE ARBITRATOR’S

DECISION SHALL BE FINAL, SUBJECT ONLY TO REVIEW

UNDER THE FAA. THE COSTS OF ARBITRATION SHALL BE

BORNE EQUALLY BY THE ENTERTAINER AND THE CLUB UNLESS

THE ARBITRATOR CONCLUDES THAT A DIFFERENT ALLOCATION

IS REQUIRED BY LAW. THE ARBITRATOR SHALL HAVE

EXCLUSIVE AUTHORITY TO RESOLVE ANY DISPUTES OVER THE

VALIDITY AND/OR ENFORCEABILITY OF ANY PART OF THIS

LEASE, INCLUDING THIS ARBITRATION SECTION. ANY AWARD

BY THE ARBITRATOR MAY BE ENTERED AS A JUDGMENT IN

ANY COURT HAVING JURISDICTION.

Id. (emphasis in original).

Plaintiff worked at the club from July 2017 until August

2018. During that time frame, Plaintiff worked approximately

50-60 hours a week. She alleges that Defendant improperly

classified her as an independent contractor rather than an

employee, made her pay various fees and fines associated with

her work at the Lounge, and repeatedly pressured her “to book

private ‘champagne rooms’ wherein Plaintiff was expected to

engage in sexual acts with patrons.” (ECF No. 1 at ¶¶ 45-46.

Plaintiff eventually ceased working at Playhouse Lounge in

August 2018, which she alleges was “due to the ongoing

directives to engage in prostitution.” Id. at 47.

Plaintiff then filed her complaint in this action on March

12, 2019. (ECF No. 1). Based on the factual allegations above,

Plaintiff asserts two claims for violations of the Fair Labor

Standards Act, as well as claims for violations of the New

Jersey Wage and Hour Law, the New Jersey Wage Payment Law, the

New Jersey Law Against Discrimination, the New Jersey

Conscientious Employee Protections Act, and a common law claim

for unjust enrichment.

On April 9, 2019, Defendant filed its first Answer to the

Complaint, which did not include any affirmative defenses or

reference to the arbitration clause in the Contract. (ECF No.

3). Defendant then filed a motion to amend its Answer to add an

affirmative defense related to the arbitration clause on May 9,

which Plaintiff consented to and this Court granted. (ECF No.

6, 11, and 12). Defendant followed this by filing its first

motion to compel arbitration and stay litigation on May 30,

2019. (ECF No. 14). After Plaintiff filed a motion for

discovery related to arbitration and a motion to stay the motion

to compel, (ECF No. 18 and 19), this Court denied Defendant’s

motion to compel without prejudice, pending the resolution of

the discovery motion. (ECF No. 23). The Court ultimately

denied Plaintiff’s motion for discovery related to arbitration

without prejudice on January 22, 2020. (ECF No. 26).

Finally, Defendant renewed its motion to compel arbitration

and stay litigation on September 30, 2020. (ECF No. 28).

Plaintiff opposed the motion, (ECF No. 29), and Defendant filed

a reply brief in further support. (ECF No. 30). Plaintiff

later filed a motion for leave to file sur-reply in further

opposition of motion to compel arbitration, (ECF No. 31), which

Defendant has opposed. (ECF No. 32). Both motions are now ripe

for adjudication.

DISCUSSION

I. Subject Matter Jurisdiction

This Court possesses subject matter jurisdiction over

Plaintiff’s claims pursuant to 28 U.S.C. § 1331.

II. Motion for Leave to File Sur-reply

The Court first addresses Plaintiff’s motion for leave to

file a sur-reply in further opposition to the motion to compel.

Local Rule 7.1(d) controls the filing of sur-replies in

situations such as this, and provides that “[n]o sur-replies are

permitted without permission of the Judge or Magistrate Judge to

whom the case is assigned.” Loc. R. Civ. P. 7.1(d)(6). Rule

7.1(d)(1) further states that “[n]o application will be heard

unless the moving papers and a brief ... are filed with the

Clerk .... The brief shall be separate document for submission

to the Court.”

The Court first notes that Plaintiff’s motion does not

comply with Rule 7.1(d)(1). Rather than filing a motion and a

separate brief, Plaintiff’s motion itself includes a vague, one-

paragraph explanation of why she believes she should be granted

leave to file the attached sur-reply, as well as the Declaration

of Heather Robbins and series of further exhibits that were

filed along with it. Nor does the motion truly explain exactly

why the Court should grant her leave. Plaintiff’s entire

argument in support of her motion is as follows:

Defendant raises several new points in its Reply and

requests that Plaintiff provide sworn evidence as to her

financial situation and the circumstances by which she came

to sign the agreements at issue. Plaintiff requests leave

to file this Sur-Reply in order to respond to these points

and to provide additional evidence—including her sworn

Declaration—to demonstrate that the Court should deny

Defendant’s motion to compel arbitration. Good cause exists

to grant Plaintiff’s request because it will allow for the

complete development of the record and because Defendant

will not be prejudiced by such a response. (ECF No. 31).

However, Plaintiff fails to explain which “new points”

Defendant raised in its reply. And while Plaintiff states that

Defendant “requests” that she provide sworn evidence as to

certain facts, it would be more accurate to say that Defendant

had simply emphasized, repeatedly, that she had not done so in

her opposition brief as part of its argument that she had failed

to demonstrate any question regarding arbitrability of her

claims.

The Court has reviewed Plaintiff’s proposed sur-reply, as

well as the new declaration attached to it, and finds that it

“consists substantially of arguments originally made in her

opposition brief” to Playhouse Lounge’s motion to compel and

“does not highlight any exceptional circumstances warranting the

filing of a sur-reply.” United States ex rel. Silver v.

Omnicare, Inc., No. 11-1326, 2020 WL 7022664, at *2 (D.N.J. Nov.

30, 2020). The sur-reply itself is almost entirely an extension

of her original arguments, and attempts to introduce into the

record additional evidence in support of her claims.

Plaintiff’s proposed sur-reply further pushes back on

Defendant’s interpretation of legal precedent and the case law

it cited in its reply brief, which did not put forth “new

points” but instead attempted to rebut the arguments Plaintiff

made in her own opposition brief. To the extent that the sur-

reply does put forth new substantive points and evidence, it is

in the form of citations and references to Plaintiff’s new

declaration, which introduces a host of new factual claims

regarding the signing of the Contract, Plaintiff’s financial

status, and Defendant’s alleged pressuring of employees to

engage in prostitution.

However, Plaintiff has again entirely failed to explain why

exactly she did not or could not have filed this declaration

with her opposition brief, or why she should now be permitted to

do so after the fact. Plaintiff herself raised the issue of

prostitution in her complaint, and her opposition brief relies

heavily on arguments regarding that subject, the prohibitive

cost to her of paying for arbitration, and the extent to which

she believes the situation in which she signed the Contract was

unfair. She therefore had more than sufficient reason to know

that these arguments, being made in opposition to a motion to

compel arbitration, on which plaintiffs are permitted to submit

additional evidence outside the complaint for the Court to

consider, might require evidentiary support to be found

successful. Instead of putting such evidence forward with her

properly timed opposition brief, she instead waited to do so

until after Defendant filed its final reply brief, and attempted

to undercut this fact by stating that she will consent to

Defendant itself filing yet another sur-reply itself.

The Court does have discretion to accept and consider sur-

replies when it finds doing so wise or in the interests of

justice; however, as Defendant notes, Plaintiff now “seeks to

submit a declaration that should have been submitted in her

original response.” (ECF No. 32 at 2). The local rules exist

for a reason, and the parties may not simply extend the briefing

schedule with additional briefs whenever they decide that there

were additional points, or additional pieces of evidence, that

they wish they had put forward previously. Plaintiff failed to

abide by Local Rule 7.1(d), and failed to put forth any

persuasive reason for why she should be permitted to file a sur-

reply simply because she wishes another opportunity to respond

to Defendant’s arguments. Accordingly, her motion will be

denied.1

1 The Court notes here that despite having declined to consider

the additional evidence in Plaintiff’s declaration, as explained

III. Legal Standard for Motion to Compel Arbitration

“[W]hen it is clear on the face of the complaint [or

documents relied upon by the complaint] that a validly formed

and enforceable arbitration agreement exists and a party's claim

is subject to that agreement, a district court must compel

arbitration under a Rule 12(b)(6) pleading standard ....” MZM

Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974

F.3d 386, 406 (3d Cir. 2020). But if (1) the materials subject

to review on a Rule 12(b)(6) motion are unclear as to the

arbitrability question, or (2) the parties have come forward

with facts putting the arbitrability question at issue, then the

court may order limited discovery and then consider the

arbitrability question on a summary judgment standard. Guidotti

v. Legal Helpers Debt Resol., LLC, 716 F.3d 764, 774 (3d Cir.

2013) (quotation marks and citation omitted).

IV. Motion to Compel Arbitration

Defendant has moved to stay this action and compel

arbitration of Plaintiff’s claims. Defendant bases its motion

below it will be denying Defendant’s motion to compel and

permitting Plaintiff to pursue limited discovery on the issue of

whether arbitration would be cost-prohibitive for her. This

Opinion further explains that the Court has found that the

question of the legality of the contract must be reserved for

arbitration, and therefore the Court cannot consider the

evidence Plaintiff has put forward in support of that argument.

Accordingly, its denial of the motion for leave, at the very

least, has no substantive impact on the consideration of those

challenges.

on the arbitration provision, which the Court excerpted above.

Plaintiff, unsurprisingly, opposes the motion to compel.

Defendant categorizes her opposition brief as “throwing

everything against the wall and hoping that some of it sticks;”

viewed more charitably, Plaintiff has put forward a variety of

separate arguments for why the motion must be denied, and why

her claims must either be allowed to proceed in this Court, or

alternatively why she must be permitted to pursue limited

discovery regarding the validity and enforceability of the

contract and its arbitration clause. For the sake of clarity,

the Court will address those arguments in the order in which

they are presented in Plaintiff’s opposition brief.

A. Waiver of Right to Arbitrate

Plaintiff’s opposition brief focuses for the most part on

challenges made regarding the contract and the arbitration

clause under state law. However, Plaintiff contends somewhat

fleetingly that Defendant’s motion must be denied because

Defendant has waived the right arbitrate her claims “by failing

to timely refile its motion for arbitration and by acting

inconsistently with a desire to arbitrate.” (ECF No. 29 at 3).

The Court will briefly address this contention.

While Plaintiff herself cites to no caselaw supporting this

contention, the Third Circuit has repeatedly recognized that a

court may refuse to enforce an arbitration agreement where a

“party has acted inconsistently with the right to arbitrate,”

and directed that courts “will not hesitate to hold that the

right to arbitrate has been waived where a sufficient showing of

prejudice has been made by the party seeking to avoid

arbitration.” In re Pharmacy Ben. Managers Antitrust Litig.,

700 F.3d 109, 117 (3d Cir. 2012) (quoting Nino v. Jewelry Exch.,

Inc., 609 F.3d 191, 208 (3d Cir. 2010)). “[P]rejudice is the

touchstone for determining whether the right to arbitrate has

been waived by litigation conduct.” Zimmer v. CooperNeff

Advisors, Inc., 523 F.3d 224, 231 (3d Cir. 2008). The Third

Circuit has “identified six nonexclusive factors to guide the

prejudice inquiry:”

(1) timeliness or lack thereof of the motion to

arbitrate; (2) extent to which the party seeking

arbitration has contested the merits of the opposing

party's claims; (3) whether the party seeking

arbitration informed its adversary of its intent to

pursue arbitration prior to seeking to enjoin the

court proceedings; (4) the extent to which a party

seeking arbitration engaged in non-merits motion

practice; (5) the party's acquiescence to the court's

pretrial orders; and (6) the extent to which the

parties have engaged in discovery.

Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 451 (3d Cir. 2011)

(citing Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912,

926–27 (3d Cir. 1992)).

Having reviewed the procedural posture and history of this

case, the Court finds that Defendant has not waived its right to

arbitrate. Plaintiff has made no effort to demonstrate true

prejudice, and her entire argument for waiver appears to be that

Defendant waited nine months from Judge Williams’ denial of

Plaintiff’s motion for arbitration-related discovery to file the

present motion. However, Plaintiff’s argument ignores that this

is not the first motion to compel that Defendant has filed in

this action; Defendant, in filing the present motion, renewed

its initial motion to compel, first filed over two years ago,

which was denied without prejudice by the Court subject to the

resolution of Plaintiff’s discovery motion. (See ECF No. 23).

Admittedly, Defendant did initially final an Answer to the

complaint, which did not assert arbitration as an affirmative

defense and did not pursue the right to compel arbitration.

(ECF No. 3). However, Defendant shortly after filed a motion to

amend the Answer to assert the affirmative defense of

arbitration, which Plaintiff consented to and this Court

granted, and then immediately filed its initial motion to

compel. (ECF No 6, 11, and 14). Defendant’s initial Answer to

the complaint, and delay in renewing its motion to compel

arbitration, is somewhat inconsistent with a desire to arbitrate

Plaintiff’s claims. However, as the Third Circuit has

repeatedly emphasized, prejudice is the touchstone of this

analysis, and the Court must look to the other factors outlined

above.

Since Defendant first filed its motion to amend its Answer,

it has been consistent and forthright in its desire to compel

arbitration, having filed two motions to compel and having

opposed Plaintiff’s motion for arbitration-related discovery on

that basis. Neither party has engaged in any briefing or

motions practice in this action unrelated to the question of

arbitration; every substantive motion filed in this action to

this date has been directly focused on that question. Nor have

the parties appeared to engage in any discovery to this date.

While the Court recognizes that Plaintiff may believe she has

been prejudiced by the delays in litigating the question of

arbitrability, the Third Circuit has made clear that “waiver

will normally be found only where the demand for arbitration

came long after the suit commenced and when both parties had

engaged in extensive discovery.” Nino, 609 F.3d at 126 (quoting

PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1068–69 (3d Cir.

1995)). This is not such a case, and the Court finds that

Plaintiff has not waived its right to arbitrate. The Court will

therefore turn to the various challenges Plaintiff has raised to

the contract and the arbitration clause found within.

B. Legal Framework for Assessing Threshold Arbitrability

Questions

Before the Court focuses its attention on the substance of

the parties’ arguments, it is necessary to outline the relevant

doctrine in this Circuit regarding the proper role of this Court

in ruling on questions of arbitrability, as it is central to the

proper adjudication of the present motion and a point of dispute

between the parties. Plaintiff here has put forward a multitude

of arguments aimed at different aspects of the contractual

agreement between her and Playhouse Lounge, which have put front

and center the “mind-bending” threshold question of which

arguments are appropriate for this Court to handle, and which

must be reserved for an arbitrator to assess and rule on. See

MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds,

974 F.3d 386, 392 (3d Cir. 2020).

“It is well established that the Federal Arbitration Act

(FAA) reflects a ‘strong federal policy in favor of the

resolution of disputes through arbitration.’” Kirleis v.

Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir.

2009) (quoting Alexander v. Anthony Int’l, L.P., 341 F.3d 256,

263 (3d Cir. 2003)). Before a court may implement this

preference, it generally must first determine “that (1) a valid

agreement to arbitrate exists, and (2) the particular dispute

falls within the scope of that agreement.” Id. (citing Trippe

Mfg. Co. v. Niles Audio Corp, 401 F.3d 529, 532 (3d Cir. 2005)).

However, as simple as that mandate may initially seem, courts

have long struggled to fill in the specific contours of this

area of the law.

Faced with contracts like the one here, courts have

acknowledged three related but conceptually separate forms of

contractual agreement that are directly relevant to this

analysis: (1) the container contract, which governs the parties

contractual relationship as a whole; (2) the arbitration clause,

which is contained within the contract and mandates that certain

disputes must be submitted to arbitration; and (3) the

delegation provision, which is generally contained within the

arbitration clause, and delegates to the arbitrator the ability

to decide gateway questions of arbitrability, thereby allowing

the arbitrator to “decide their own jurisdiction.” See MZM

Const., 974 F.3d at 398-99. This contractual setup therefore

exists as “something akin to Russian nesting dolls,” Rent-A-

Center, 561 U.S. at 85 (Stevens., J. dissenting), in which a

delegation provision serves as a sort of “mini-arbitration

agreement within a broader arbitration agreement within a

broader contract.” MZM Const., 974 F.3d at 399.

Each of these different agreements brings with it its own

set of threshold arbitrability questions. First, at the center

of this inquiry is what is known as the “severability doctrine.”

The Supreme Court, in Prima Paint Corp. v. Flood & Conklin Mfg.

Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967),

closely examined the Federal Arbitration Act and held that

arbitration clauses are “severable” and therefore independently

enforceable from the rest of the contracts in which they are

found. Id. at 406. At its core, this means that parties

generally cannot avoid arbitration by simply waging attacks on

the larger contract as a whole; instead, if they wish to avoid

being compelled to arbitrate their claims, they usually must put

forward a challenge to “the arbitration clause itself.” Id. at

403.

In the years since Prima Paint, our Court of Appeals has

further detailed exactly what the severability doctrine means

for the arbitrability of attacks on a container contract.

First, in Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 104 (3d

Cir. 2000), the Third Circuit was faced with the question of

“who decides whether an arbitration agreement exists when the

formation or the existence of the container contract is

disputed.” MZM Constr., 974 F.3d at 397. The Sandvik Court,

recognizing that § 4 of the FAA provides that a federal court

must compel arbitration “upon being satisfied that the making of

the agreement for arbitration ... is not in issue,” held that

courts are “affirmatively require[d] . . . to decide questions

about the formation or existence of an arbitration agreement,

namely the element of mutual assent.” Id. at 397-98 (citing

Sandvik, 220 F.3d at 108-09). Since “the doctrine of

severability presumes an underlying, existent, agreement,”

courts oftentimes must first rule on the formation or existence

of the container contract. Id. at 106. The Third Circuit

described “this threshold determination [as] ‘a necessary

prerequisite’ in fulfilling the court's gatekeeping function.”

Id. at 107.

Accordingly, in a case involving only a container contract

and an arbitration clause, courts will adjudicate only attacks

on the existence or formation of the container contract, and

attacks directed at the arbitration clause itself. However,

things are oftentimes not that simple in cases like the one

presently before this Court, where the Contract further provides

that an arbitrator will have exclusive authority to assess not

only disputes between the parties, but also shall resolve any

disputes regarding the validity or enforceability of the

arbitration provision itself. (See ECF No. 28-2, Ex. B at ¶

21(a)) (“The arbitrator shall have exclusive authority to

resolve any disputes over the validity and/or enforceability of

any part of this lease, including this arbitration section.”).

As alluded to above, the Supreme Court has made clear that

“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-Center, West, Inc. v. Jackson, 561 U.S.

63, 68–69 (2010).

The Third Circuit recently addressed the impact of such

delegation provisions on its prior holding requiring courts to

assess attacks on the formation or existence of a container

contract in MZM Constr. Co. v. N.J. Bldg. Laborers Statewide

Benefit Funds, 974 F.3d 386 (3d Cir. 2020). There, the Third

Circuit was faced with a delegation provision that explicitly

reserved for the arbitrator the authority to assess arguments

related to the existence of the container contract. Id. at 393.

The MZM Court noted that underlying its Sandvik holding was the

understanding that “[l]ack of assent to the container contract

necessarily implicates the status of the arbitration agreement,

when the container contract and the arbitration provision depend

on the same act for their legal effect.” Id. at 400 (citing

Sandvik, 220 F.3d at 109, 111). Finding that this reasoning

applied just the same to the scenario before it, the Third

Circuit found that it is “inevitable that a court will need to

decide questions about the parties’ mutual assent to the

container contract to satisfy itself that an arbitration

agreement exists and vice versa,” even “when the container

contract includes or incorporates a delegation provision.” Id.

Accordingly, MZM extended Sandvik’s holding even to cases with

delegation provisions reserving the question of the container

contract’s existence to an arbitrator — while still providing

parties an out, by acknowledging their ability to delegate such

questions to an arbitrator by clearly and unmistakably agreeing

to arbitrate questions of contract formation within their

contractual relationship in an entirely separate contract with

no underlying question regarding its formation. Id. at 402.

Delegation provisions such as the one here raise one

further point of contention: although courts generally have the

authority to adjudicate attacks specifically directed at an

arbitration clause itself, delegation provisions reserve the

question of whether an arbitration clause is valid and

enforceable for the arbitrator. When an arbitration clause

contains such a delegation provision, the court therefore cannot

reach the question of the arbitration clause’s enforceability

unless the delegation clause itself is unenforceable. MacDonald

v. CashCall, Inc., 883 F.3d 220, 226 (3d Cir. 2018).

The Supreme Court and the Third Circuit have made clear

that even though a delegation provision will normally be found

within an arbitration clause, a party cannot avoid arbitration

of the clause’s enforceability simply by attacking the

arbitration clause writ large. “[C]ontesting the validity of an

arbitration agreement as a whole, without specifically disputing

the delegation clause contained therein, is not sufficient to

challenge the delegation provision.” Id. (citing Rent-A-Center,

561 U.S. at 70-75). Instead, the party must contest the

enforceability of the delegation provision by “challeng[ing] the

delegation provision specifically.” Rent-A-Center, 561 U.S. at

70. This burden, however, is more formalistic than substantive,

as the Third Circuit has held that in “challenging a delegation

clause, a party may rely on the same arguments that it employs

to contest the enforceability of other arbitration agreement

provisions.” MacDonald, 883 F.3d at 226-27. In MacDonald, for

example, the Third Circuit held that a party had sufficiently

challenged a delegation provision simply by stating in its

briefing that challenges to the arbitration provision applied

just the same to the delegation provision. Id. at 227.

With the legal framework for assessing questions of

arbitrability laid out in stark terms, the Court will now turn

to addressing the substance of the parties’ challenges to the

contract, the arbitration clause, and the delegation provision.

While the Court will dig into certain of these points further

below, this background lays the groundwork for the analysis that

follows.

C. Plaintiff’s Unconscionability Arguments

Plaintiff initially puts forward a series of arguments that

the arbitration clause and the delegation provision are both

procedurally and substantively unconscionable. Although the

delegation provision nominally reserves ruling on such issues

regarding the arbitration provision for the arbitrator, the

Court finds that Plaintiff, through her repeated contention

throughout her opposition brief that these arguments render both

the arbitration clause and the delegation provision

unconscionable, has sufficiently challenged the delegation

provision under this Circuit’s doctrine. Accordingly, the Court

must engage in its gatekeeping duty and assess her arguments.

In determining whether a valid arbitration agreement

exists, federal courts apply applicable state contract law.

Aliments Krispy Kernels, Inc. v. Nichols Farms, 851 F.3d 283,

289 (3d Cir. 2017). Here, the contract provides that it “shall

be interpreted pursuant to the laws of the state in which the

Club is located.” (ECF No. 28-2, Ex. B at ¶ 20). Playhouse

Lounge is located in New Jersey, and both parties appear to

agree that New jersey law applies. “In applying the relevant

state contract law, a court may also hold that an agreement to

arbitrate is ‘unenforceable based on a generally applicable

contractual defense, such as unconscionability.’” Parilla v.

IAP Worldwide Servs., VI, Inc., 368 F.3d 269, 276 (3d Cir. 2004)

(citing Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687,

116 S.Ct. 1652, 134 L.Ed.2d 902 (1996)).

1. Procedural Unconscionability

First, Plaintiff contends that both the arbitration clause

and delegation provision are procedurally unconscionable because

they are contracts of adhesion. Contracts of adhesion are

“agreements that are ‘presented on a take-it-or leave-it basis,

commonly on a standardized printed form, without opportunity for

the ‘adhering’ party to negotiate....’” Uddin v. Sears, Roebuck

& Co., No. 13-6504, 2014 WL 1310292, at *7 (D.N.J. Mar. 31,

2014) (quoting Muhammad v. Cty. Bank of Rehoboth Beach,

Delaware, 189 N.J. 1, 15 (2006)). According to Plaintiff,

“[i]n New Jersey, an agreement is procedurally unconscionable if

it is a contract of adhesion. (ECF No. 29 at 10-11) (citing

Rudbart v. N. Jersey Dist. Water Supply Com., 127 N.J. 344, 354

(1992)).

However, contrary to Plaintiff’s assertion of a hard rule

against contracts of adhesion, New Jersey courts have held that

a finding that a contract is a contract of adhesion does not

necessarily, on its own, serve as proof of unconscionability.

Delta Funding Corp. v. Harris, 189 N.J. 28, 39 (2006). Instead,

identifying an agreement as a contract of adhesion represents

“the beginning, not the end, of the inquiry into whether a

contract, or any specific term therein, should be deemed

unenforceable.” Uddin, 2014 WL 1310292, at *7 (quoting

Muhammad, 912 A.2d at 96).

Rather than simply declaring all contracts of adhesion

procedurally unconscionable, the New Jersey Supreme Court has

held that the defense of unconscionability “calls for a fact-

sensitive analysis in each case, even when a contract of

adhesion is involved.” Delta Funding Corp., 189 N.J. at 39.

New Jersey courts specifically require analysis of four factors:

“(1) the subject matter of the contract, (2) the parties’

relative bargaining positions, (3) the degree of economic

compulsion motivating the ‘adhering’ party, and (4) the public

interests affected by the contract.” Uddin, 2014 WL 1310292, at

*7 (quoting Muhammad, 912 A.2d at 97). If a plaintiff fails to

adequately show that a contract of adhesion was unfairly signed

under these factors, she fails to prove procedural

unconscionability. Id.

There does not appear to be any true dispute here that the

Contract was a contract of adhesion; Defendant openly states

that “[t]here is no question that the dancer agreement was a

standardized form,” (ECF No. 30 at 4), and rather than disputing

Plaintiff’s claim that she had no opportunity to modify it or

negotiate its specific terms, Defendant simply asserts “so what?

Plaintiff has never questioned the propriety of the document.

Defendant does not have the burden to establish that they would

negotiate terms or otherwise modify the agreement.” Id. at 5.

Courts faced with similar scenarios have easily found contracts

to be contracts of adhesion. See Montgomery v. Bristol-Myers

Squibb Co., No. 3:19-cv-19948-FLW-DEA, 2020 WL 3169373, at *4

(D.N.J. June 15, 2020) (“[T]here is no dispute that the

Agreement is a contract of adhesion, because Plaintiff did not

have the opportunity to modify it.”).

However, as outlined above, such a finding does not require

the Court to hold the Contract procedurally unconscionable

unless Plaintiff has sufficiently demonstrated that the contract

was unfair under the factors outlined by the New Jersey courts.

Plaintiff has largely failed to do so. In her discussion of

procedural unconscionability, her opposition brief simply walks

through the reasons why the Contract qualifies as a contract of

adhesion, and then asserts that “the disparity in bargaining

power coupled with the fact that the contract is presented on a

take-it-or-leave-it-basis is sufficient to establish the

procedural unconscionability of the agreement.” (ECF No. 29 at

11).

But contrary to Plaintiff’s assertion, the New Jersey

Supreme Court itself has noted that “[v]irtually every court

that has considered the adhesive effect of arbitration

provisions in employment applications or employment agreements

has upheld the arbitration provision contained therein despite

potentially unequal bargaining power between employer and

employee.” Martindale v. Sandvik, Inc., 173 N.J. 76, 90, 800

A.2d 872 (2002). Plaintiff here has put forward no further

argument or evidence of procedural unconscionability. While

elsewhere in her briefing she discusses the imbalance of

financial power between her and Defendant, she has similarly

failed to demonstrate “circumstances substantially more

egregious than [] ordinary economic pressure” that might impact

the fairness the signing of the Contract. Young v. The

Prudential Ins. Co. of Am., Inc., 688 A.2d 1069, 1078 (N.J.

Super. Ct. App. Div. 1996).

The Court notes that Plaintiff does reference the factors

outlined above for assessing procedural unconscionability in the

section of her brief discussing substantive unconscionability.

In that section, she says that “[a]fter determining that an

agreement is a contract of adhesion, the court must ‘determine

as a matter of policy whether to enforce the unilaterally-fixed

terms of the [agreement].’” (ECF No. 29 at 12) (quoting

Rudbart, 127 N.J. at 354). While this statement is correct,

Plaintiff then goes forward to provide arguments for why

specific provisions are substantively unconscionable under New

Jersey law. In this way, Plaintiff appears to have conflated

the analysis for arguments of procedural unconscionability,

which “pertains to the process by which an agreement is reached

and the form of an agreement,” and substantive

unconscionability, which “refers to contractual terms that are

unreasonably or grossly favorable to one side.” Harris v. Green

Tree Financial Corp., 183 F.3d 173, 181 (3d Cir. 1999). The

Court will address Plaintiff’s arguments regarding the

substantive unconscionability of specific provisions in the next

section of this Opinion, separate and apart from its procedural

analysis. Having provided nothing further upon which the Court

could rely to find the contract to be procedurally unfair,

Plaintiff’s procedural unconscionability argument fails.

2. Substantive Unconscionability

While Plaintiff only broadly argued that the Contract was

procedurally unconscionable due to its nature as a contract of

adhesion, she has pointed to multiple specific provisions that

she argues render the arbitration clause and delegation

provision substantively unconscionable as well. “New Jersey

courts may find a contract term substantively unconscionable if

it is ‘excessively disproportionate’ and involves an ‘exchange

of obligations so one-sided as to shock the court's

conscience.’” Agrabright v. Rheem Mfg. Co., 258 F. Supp. 3d

470, 481 (D.N.J. 2017) (quoting Delta Funding Corp., 189 N.J. at

55).

Plaintiff first argues that the arbitration clause’s fee-

shifting provisions meet the standard for substantive

unconscionability. Both the United States Supreme Court and the

New Jersey Supreme Court have previously recognized that in some

situations, an arbitration agreement can be made unenforceable

by the inclusion of provisions which render arbitration

prohibitively expensive for a plaintiff. See Delta Funding

Corp., 912 A.2d at 113; Green Tree Fin. Corp.-Ala. v. Randolph,

531 U.S. 79, 90 (2000). Determining whether a specific

provision reaches that level requires a “case-by-case” analysis.

Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 216 (3d Cir. 2003).

Based on this principle, “courts in the Third Circuit and the

State of New Jersey have found an arbitration agreement

unenforceable in three scenarios: (1) the provision prohibits

fee-shifting for statutory claims that would otherwise allow for

fee-shifting, (2) the provision shifts all costs to the employee

(or risks doing so), and (3) the provision splits costs between

the employee and employer.” Tharpe v. Securitas Security

Services USA, Inc., No. 20-13267 (KM) (ESK), 2021 WL 717362, at

*5 (D.N.J. Feb. 24, 2021) (internal citations omitted).

The arbitration clause here clearly raises concerns under

both the second and third scenarios. Section 21(a) of the

arbitration clause first provides that “the costs of arbitration

shall be borne equally by the entertainer and the club.” (ECF

No. 28-2, Ex. B). Section 21(d) then goes a step further,

requiring that “any ruling arising out of a claim between the

parties shall, to the extent not precluded by law, award costs

incurred for the proceedings, including reasonable attorney

fees, to the prevailing party.” Id. Finally, if those two

provisions were not enough, Section 21(c) provides that if

Plaintiff challenges the arbitration requirements in the

contract, or forces Defendant to litigate to enforce them — as

she has here, by filing a lawsuit in federal court and opposing

the motion to compel — then “the prevailing party to such

proceedings shall be entitled to an award of all costs,

including reasonable attorney fees, incurred in litigating such

issues.” Id.

Plaintiff is correct, then, that the fee-shifting

provisions found in the contract could potentially make

arbitration so prohibitively expensive for her that the

arbitration clause and delegation provision would be rendered

unconscionable. However, based only on the current record

before it, the Court cannot truly determine at this stage

whether the costs here would reach that level for this plaintiff

in this specific case. When the latter two categories of fee-

shifting provisions are present, the Third Circuit requires

plaintiffs to provide evidence of the likely costs and their

inability to pay them. Parilla v. IAP Worldwide Servs., Inc.,

368 F.3d 269, 284–85 (3d Cir. 2004). The Third Circuit has

recognized that discovery on this question is often necessary

for a plaintiff to even have the possibility of making the

relevant showing, and has remanded multiple cases where a court

has ruled on a cost-sharing provision without an adequately

developed factual record. See Blair v. Scott Specialty Gases,

283 F.3d 595, 609-10 (3d Cir. 2002); Parilla, 368 F.3d at 284–

85; Antkowiak v. TaxMasters, 455 F. App'x 156, 160–61 (3d Cir.

2011).

As another judge in this District recently noted, courts in

the Third Circuit have “taken various approaches to the issue of

what circumstances will trigger” a plaintiff’s right to

discovery on this issue; some have ordered limited discovery

when a plaintiff simply raised the question of whether a

provision rendered arbitration cost-prohibitive in their brief,

whereas others have declined to do so without the plaintiff

having put forward some initial evidence, generally in the form

of a separate affidavit. See Tharpe, 2021 WL 717362, at *6

(citing cases). This Court, having reviewed the relevant

caselaw, agrees with the court in Tharpe that “the Third

Circuit's strong language in Blair and history of remands

indicate that factual development is required (or, at the least,

wise).” Id. Similarly, when speaking to the more general

standards for courts assessing motions to compel, the Third

Circuit has strongly emphasized the need for courts to allow for

limited discovery when a plaintiff has put forward sufficient

facts to place arbitrability in issue, or when there is

unclarity based on the complaint as to whether an agreement to

arbitrate exists. Guidotti v. Legal Helpers Debt Resolution,

L.L.C., 716 F.3d 764, 771-76 (3d Cir. 2013).

Here, the Court finds that Plaintiff has sufficiently

raised this concern, and discovery on this question is

necessary. While, as Defendant points out, she has not put

forward a specific affidavit outlining her ability to pay,

Plaintiff has explicitly argued that the costs of arbitration

would be particularly prohibitive to her, “an adult entertainer

working mainly for tips.” (ECF No. 29 at 12). Although it is a

close call, the Court believes that Plaintiff has at least

plausibly alleged that she is financially vulnerable enough that

discovery will reveal arbitration would be too costly for her to

pursue under the terms of the contract. Accordingly, the Court

will deny Defendant’s motion to compel without prejudice, and

will direct the parties to engage in limited discovery on this

specific issue.2

Plaintiff has also pointed to a series of provisions

related to the selection of the arbitrator, which she claims are

also substantively unconscionable. Specifically, Plaintiff

emphasizes that “the agreement does not designate an arbitration

service or delimit the types of arbitrators who may be retained,

limits the arbitrators to individuals with ‘experience[] in the

adult entertainment industry,’ and affords the Defendant an

2 The Court points out, however, that a finding that arbitration

would be cost-prohibitive would not necessarily preclude

arbitration of Plaintiff’s claims, as an invalid cost provision

may be severed from an agreement before compelling arbitration.

Spinetti, 324 F.3d at 214; Delta, 912 A.2d at 114–15; ECF No.

28-2, Ex. B at § 19 (“If any provision of this Lease is declared

to be illegal or unenforceable, this Lease shall, to the extent

possible, be interpreted as if that provision was not a part of

this Lease.”). The Court expects that the parties will address

the question of severability in their future briefing.

absolute veto over the choice of arbitrator.” (ECF No. 29 at

12). However, Plaintiffs’ brief fails to provide any support

for how these specific provisions are “excessively

disproportionate,” or involve an “exchange of obligations so

one-sided as to shock the court's conscience.” Agrabright, 258

F. Supp. 3d at 481 (quoting Delta Funding Corp., 189 N.J. at

55). Instead, citing no case law, Plaintiff simply asserts that

these provisions “exacerbate” the concerns raised by the fee-

shifting provisions. While the Court has already held that

Plaintiff will be allowed to seek limited discovery regarding

the fee-shifting provisions, Plaintiff has failed to raise any

sufficient arguments that the arbitrator selection provisions

sufficient are themselves individually unconscionable.

D. Lack of Mutual Assent

Plaintiff’s brief reference to the contractual provisions

governing the selection of an arbitrator in her

unconscionability discussion is not the only argument she has

raised as to those provisions. She also contends that there are

“insufficient criteria related to the selection of the

arbitration venue and arbitrator” in the agreement, which

demonstrate that there was a lack of mutual assent to the terms

of the contract. (ECF No. 29 at 13). As the Court explained

above, this Court has the threshold duty to assess questions

regarding whether there was mutual assent to the creation of an

agreement to arbitrate. MZM Constr., 974 F.3d at 398.

Plaintiff specifically refers the Court to NAACP of Camden

Cty. E. v. Foulke Mgmt. Corp., 24 A.3d 777 (N.J. Super. Ct. App.

Div. 2011), in which the New Jersey Superior Court’s Appellate

Division recognized that, under New Jersey law, courts will

invalidate arbitration agreements for lack of mutual assent when

said agreements “do not clearly and consistently express the

nature and locale of the arbitration forum itself.” Id. at 794.

This appears to be an accurate statement of New Jersey law.

However, as Defendant points out, the contractual provisions

addressed by the court in NAACP of Camden are largely dissimilar

to those found here. There, the court was faced with a series

of provisions in different agreements which were not only

inconsistent, but at times blatantly contradicted each other.

Id. at 794-95.

That is not the case here. Plaintiff has pointed to no

contradictions or inconsistencies in the arbitration agreement;

instead, she has argued that the agreement’s failure to include

additional, specific information regarding the process by which

an arbitrator and arbitration forum must be selected

necessitates a finding that there was no mutual assent to the

agreement. While NAACP of Camden is therefore not on point to

this analysis, the New Jersey Supreme Court recently addressed a

case that raised this exact issue.

In Flanzman v. Jenny Craig, Inc., 244 N.J. 119 (2020), the

lower state appellate court had held that a failure to designate

in the agreement an “arbitral institution” or to include a

description of “the general process for selecting an arbitration

mechanism or setting” meant that the parties “did not understand

[their] rights under the arbitration agreement that ostensibly

foreclosed [the plaintiff’s] right to a jury trial.” Id. at

138-39. Much like the agreement here, the parties in Flanzman

had failed to provide such information in their arbitration

agreement, and the lower court therefore found a lack of mutual

assent and refused to enforce the agreement.

The New Jersey Supreme Court, after reviewing New Jersey

law regarding arbitration agreements in detail, reversed the

lower court’s holding and reached the opposite conclusion.

First, Flanzman noted that “[n]o New Jersey statutory provision

or prior decision has elevated the selection of an ‘arbitral

institution’ or the designation of a ‘general process for

selecting an arbitration mechanism or setting’ to the status of

essential contract terms, without which an arbitration agreement

must fail.” Id. at 139. To the contrary, New Jersey law,

through the New Jersey Arbitration Act, explicitly provides

default provisions for the selection of an arbitrator, which

“may operate in the absence of contractual terms prescribing

such procedures.” Id. Those provisions, found at N.J.S.A.

2A:23B-11-15, provide a mechanism for the selection of an

arbitrator that can fill the gaps found in an arbitration

agreement.

The Flanzman Court did note, and this Court agrees, that as

a general matter a “detailed description of the contemplated

arbitration in an arbitration agreement enhances the clarity of

that agreement . . . [and] may avoid future disputes.” Id. at

140. However, it explicitly held that under New Jersey law,

“the parties’ omission of a designated arbitral institution or

general process for selecting an arbitration mechanism or

setting . . . [does] not warrant the invalidation of an

arbitration agreement. Parties who have expressed mutual assent

to the arbitration of their disputes instead of a court

proceeding may choose to defer the choice of an arbitrator to a

later stage, when they will be in a position to assess the scope

and subject of the dispute, the complexity of the proposed

arbitration, and considerations of timing and cost.” Id. at

140-41.

Accordingly, the Court finds that the lack of more specific

provisions outlining the process for selecting an arbitrator and

arbitration forum does not demonstrate a lack of mutual assent.

D. Illegality of the Container Contract

Plaintiff next argues that the container contract itself

“is illegal and void and unenforceable ab initio as a contract

of prostitution.” (ECF No. 29 at 14). Plaintiff’s argument, at

its core, is that the contract she signed with Defendant was in

reality a contract intended to promote prostitution at Playhouse

Lounge. This, she argues, renders the contract itself illegal —

an issue she believes this Court must address itself, instead of

reserving for judgment by an arbitrator.

As Plaintiff notes, New Jersey law prohibits prostitution

and the promotion of prostitution, N.J.S.A. 2C:34-1, and the

City of Burlington further prohibits operating an adult

establishment as a “house of prostitution.” Code of the City of

Burlington, Part II, Ch. 66, § 66-15(B). And “New Jersey law

has long recognized that illegal contracts are unenforceable.”

Guiuan v. Villaflor, No. 7–6064, 2012 WL 3526681, at *4 (D.N.J.

Aug. 15, 2012) (citing Naimo v. La Fianza, 369 A.2d 987, 990

(N.J. Super. Ct. App. Div. 1976) (noting “[i]t is well

established that illegal contracts are unenforceable” and “[a]ny

contract made in consideration of an act forbidden by law or

against public policy is unenforceable and the illegality of the

contract will constitute a good defense at law as well as in

equity”)).

The threshold inquiry here though, as ever, is whether a

challenge to the legality of the contract is one that must be

decided by this Court in the first instance, or one that must be

left to the arbitrator — and therefore whether this Court can

even consider or address any potential evidence regarding

promotion of prostitution that Plaintiff has put forward.

Plaintiff’s explanation for why she believes this to be an issue

for this Court to adjudicate is straightforward: her claim is

that (1) under New Jersey law, the contract was formed for an

illegal purpose and is therefore void ab initio, and (2) under

Third Circuit doctrine as outlined in MZM Constr., such

arguments must be assessed by the Court, not an arbitrator.

Defendant, alternatively, emphasizes the fact that MZM was

focused on issues of fraud in the execution, which is different

than the argument put forward by Plaintiff here.

As the Court outlined above, the Supreme Court and the

Third Circuit have put forward a general dividing line between

which issues are to be decided as threshold question by federal

courts, and which must be reserved for the arbitrator: attacks

on the contract as a whole are to be adjudicated in arbitration,

whereas attacks on the arbitration or delegation provisions

themselves are generally issues for the courts. However, as the

Third Circuit explained in MZM, this is not a universal hardline

rule. Instead, when the formation of the container contract

itself is in issue, the Court must resolve the dispute, as it

calls into question the existence of the arbitration agreement

in the first place.

In the present case, however, Plaintiff appears to have

identified a point of potential confusion generated by the Third

Circuit’s explication of this doctrinal point in MZM. Plaintiff

specifically explains the MZM opinion as generally holding “that

where a contract is challenged on formation grounds such that

the agreements contained therein are void ab initio, the Court

determines whether a valid or void contract exists,” which she

believes necessarily encompasses the question of whether the

contract was illegal. (ECF No. 29 at 2) (citing MZM, 974 F.3d

at 400).

Plaintiff’s initial description of the MZM Court’s

explanation of its holding is not necessarily incorrect. The

Court of Appeals, in explaining why courts must address claims

of fraud in the execution while claims of fraud in the

inducement are left to arbitrators, directly relied upon the

fact that fraud in the execution “renders the entire agreement

‘void ab initio’ as if it never existed,” whereas fraud in the

inducement only renders an agreement ‘voidable.’” MZM, 974 F.3d

at 405-06 (citing Sandvik, 220 F.3d at 107, 109-10). Similarly,

as explained above, the Third Circuit pointed to its earlier

holding in Sandvik that 9 U.S.C. § 4 requires courts to “pass[]

judgment on the formation or existence of the container

contract” itself. Id at 399 (citing Sandvik, 220 F.3d at 106).

And as Plaintiff notes, New Jersey law is clear that an illegal

contract is void ab initio and “it is as though the policy never

came into existence.” Sun Life Assurance Company of Canada v.

Wells Fargo Bank, N.A., 208 A.3d 839, 857 (N.J. 2019) (citing

D'Agostino v. Maldonado, 216 N.J. 168, 194 n.4, 78 A.3d 527

(2013)).

The Court recognizes that a defensible — perhaps even

somewhat persuasive — extension of this logic would be that

arguments that a container contract is illegal, and therefore

void ab initio under state contract law, are questions going to

the formation or existence of the contract which a court must

exercise its gatekeeping duty to address. However, in looking

only to the underlying logic of the MZM opinion, Plaintiff has

ignored the specific holding of Sandvik which the MZM opinion

was extending to cases where a delegation provision delegates

questions regarding the existence of the contract to an

arbitrator: that the FAA “‘affirmatively requires’ a court to

decide questions about the formation or existence of an

arbitration agreement, namely the element of mutual assent.”

MZM, 974 F.3d at 397-98 (quoting Sandvik, 220 F.3d at 108-09).

In fact, the Third Circuit panel in MZM went so far as to

explicitly state that “[w]e read Sandvik as being limited only

to claims that, if proven, would negate the element of mutual

assent.” Id. at 109 n.7.

Accordingly, MZM itself did not directly tackle the issue

put forward by Plaintiff here; nor has the Third Circuit

appeared to explicitly delineate itself where arguments that a

contract is void ab initio under state law fall within the

doctrinal framework for assessing questions of arbitrability

that our Court of Appeals has constructed. However, our Supreme

Court has addressed this exact question — and held that

Plaintiff’s arguments must be reserved for arbitration.

In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440

(2006), the Supreme Court was faced with a case in which the

trial court had held “that a court rather than an arbitrator

should resolve a claim that a contract is illegal and void ab

initio,” and the Florida Supreme Court had found that enforcing

an arbitration agreement in a contract challenged as unlawful

would violate state public policy and contract law. Id. at 443.

The Supreme Court, in addressing the specific argument before

it, divided attacks on arbitrability into two categories

reminiscent of those outlined by the Third Circuit: “One type

challenges specifically the validity of the agreement to

arbitrate . . . The other challenges the contract as a whole,

either on a ground that directly affects the entire agreement

(e.g., the agreement was fraudulently induced), or on the ground

that the illegality of one of the contract's provisions renders

the whole contract invalid.” Id. at 444 (internal citations

omitted). It then held that the plaintiff’s argument that the

contract was “criminal on its face” because it violated

Florida’s laws against usurious interest rates, and was

therefore void ab initio as an illegal contract, fell within the

second category of challenges that must be reserved for

arbitration. Id. at 443-44.

Plaintiff may wish to distinguish the facts of Buckeye from

the scenario here, where Plaintiff points not to a specific

provision of the contract, but rather argues that the general

purpose of the contract itself was illegal. However, this Court

is not alone in interpreting Buckeye Check Cashing to preclude

it from addressing the question of contract illegality presented

here. While the Third Circuit’s more recent detailed

explanations of its arbitrability doctrine have not addressed

this precise question, our Court of Appeals previously noted

that “Buckeye Check Cashing itself held that a challenge to a

contract's legality was arbitrable, even though illegality would

have rendered that contract void rather than voidable.”

SBRMCOA, LLC v. Bayside Resort, Inc., 707 F.3d 267, 274 (3d Cir.

2013). Courts of Appeals in other circuits have approached the

Buckeye Check Cashing decision in the same manner, generally

describing it as having held that the plaintiff’s argument that

the contract was void ab initio for illegality was a challenge

to the validity of the contract, rather than a challenge as to

whether the contract was ever formed. See, e.g., In re Cox

Enterprises, Inc. Set-top Cable Television Box Antitrust Litig.,

835 F.3d 1195, 1210-11 (10th Cir. 2016) (describing Buckeye as

holding that argument that contract “was void for illegality”

because it “violated state lending and consumer-protection laws”

was an arbitrable “challenge to the validity of the contract as

a whole”); Moran v. Svete, 366 F. App’x. 624, 631 (6th Cir.

2010) (describing Buckeye as holding that argument that

contracts “violated state statutes and were therefore void ab

initio” were “subject to arbitration”); Madura v. Countrywide

Home Loans, Inc., 344 F. App’x. 509, 515 (11th Cir. 2009)

(describing Buckeye in a parenthetical as “concluding that a

claim that the entire contract is illegal and void ab initio

under state law must be arbitrated”); Koch v. Compucredit Corp.,

543 F.3d 460, 464 (8th Cir. 2008) (describing Buckeye as holding

that argument that contract was “void and illegal ab initio” was

arbitrable because “[t]he issue of the contract's validity is

different from the issue whether any agreement between the

alleged obligor and obligee was ever concluded.”) (emphasis in

original); Sleeper Farms v. Agway, Inc., 506 F.3d 98, 103 (1st

Cir. 2007) (citing Buckeye and Prima Paint for the proposition

that plaintiff’s “‘void ab initio’ argument goes to the validity

of the substantive provisions of the contract, not to

arbitrability. As a matter of federal law, the arbitration

clause is unaffected even if the substance of the contract is

otherwise void or voidable”).

Plaintiff may question the wisdom of the distinction the

federal courts have drawn between claims that a contract is void

ab initio due to fraud in the execution and claims that a

contract was void ab initio due to its illegality under state

law. However, the duty of this Court is to apply the law as

directed by the Third Circuit and the Supreme Court.

Accordingly, the Court finds that Plaintiff’s challenge to the

contract on the basis that its purpose is illegal under New

Jersey law is beyond this Court’s ability to adjudicate and must

be reserved for arbitration. As the Court explained above, the

issue of arbitrability remains undecided at this stage, due to

Plaintiff’s colorable claim that the fee-shifting provisions

found in the arbitration agreement are substantively

unconscionable. The Court will therefore not address

Plaintiff’s arguments or evidence regarding promotion of

prostitution, and the final determination as to whether her

claims must be submitted to arbitration will be reserved until

after the parties have engaged in limited discovery on that

question.

E. Arguments Regarding Discovery

Finally, Defendant, at the end of its reply brief, asserts

that Plaintiff cannot now pursue discovery in this action

because Magistrate Judge Williams previously denied her motion

for discovery on these subjects. According to Defendant, if

Plaintiff still wished to seek arbitration-related discovery,

the proper avenue “would have been to seek a reconsideration or

appeal to the United States District Court Judge.” (ECF No. 30

at 8). Defendant both misunderstands the nature of Judge

Williams’ Order, and the procedural posture of this case.

Judge Williams’ Order did not purport to be the final word

on arbitration-related discovery in this action. In fact, Judge

Williams specifically clarified that “Plaintiff is not

foreclosed from seeking discovery in her response to Defendant’s

Motion and within the proceedings concerning that Motion.” (ECF

No. 26 at 18). Further, Judge Williams noted the possibility

that this Court may “determine that discovery is needed to

resolve the issue of the validity of the delegation provision

once the matter has been more fully developed and briefed.” Id.

The parties have since further developed and briefed their

arguments on that point, and the Court has made exactly that

determination. When the existence of an enforceable arbitration

agreement is put in doubt, this Court must deny a motion to

compel and allow for targeted discovery.

Accordingly, Plaintiff will be permitted to engage in

limited discovery on the question of whether pursuing

arbitration would be cost-prohibitive. While Plaintiff has

submitted specific, detailed requests regarding the specific

discovery avenues she should be permitted to pursue, and the

specific number of discovery requests she would like to make,

the Court leaves to the sound discretion of the able Magistrate

Judge assigned to this matter to address such questions.

CONCLUSION

For the reasons expressed above, Defendant’s motion to

compel arbitration and stay litigation (ECF No. 28) will be

denied without prejudice. The parties will be directed to

engage in limited discovery regarding whether the fee-shifting

provisions in the arbitration agreement would render arbitration

too cost prohibitive for Plaintiff to pursue, after which

Defendant may renew its motion to compel, which will be assessed

under the summary judgment standard.

An appropriate Order will be entered.

Date: June 21, 2021 /s Noel L. Hillman

At Camden, New Jersey NOEL L. HILLMAN, U.S.D.J.