Brown v. Peregrine Enterprises, Inc. dba Rick's Cabaret New York

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

ANGELA BROWN, et al.,

Plaintiffs,

-v.-

PEREGRINE ENTERPRISES, INC. d/b/a RICK’S 22 Civ. 1455 (KPF)

CABARET NEW YORK, RCI ENTERTAINMENT

(NEW YORK) INC., RCI HOSPITALITY ORDER

HOLDINGS, INC. f/k/a RICK’S CABARET

INTERNATIONAL, INC., RCI MANAGEMENT

SERVICES, ERIC LANGAN, ED ANAKAR, DOE

MANAGERS 1-3, and DOES 4-10,

Defendants.

KATHERINE POLK FAILLA, District Judge:

On November 3, 2022, this Court granted Plaintiffs’ motion to lift the

stay in this case, after finding that Defendants had waived their arbitration

agreements, and denied Defendants’ cross-motions to strike Plaintiffs’ collective

action claims and for appointment of a substitute arbitrator. (Dkt. #54, 55 (the

“Opinion”)). Shortly thereafter, on November 14, 2022, Defendants filed an

interlocutory appeal of the Court’s decision (Dkt. #56), and then moved for a

stay of this case pending resolution of the interlocutory appeal (Dkt. #57). On

November 16, 2022, Defendants submitted their memorandum of law in

support of their motion to stay the case. (“Def. Br.” (Dkt. #58)). Plaintiffs then

filed their opposition brief on November 30, 2022, and an additional brief

response with supplemental authority on December 1, 2022. (“Pl. Opp.” (Dkt.

#65-66)). Finally, on December 9, 2022, Defendants submitted their reply

memorandum of law in support of their motion. (“Def. Reply” (Dkt. #69)). For

the reasons stated in this Order, the Court grants in part Defendants’ motion

to stay this case. Specifically, the Court finds that this case may proceed on an

individual basis as to those Plaintiffs who have appeared in the case as of the

date of this Order while the Second Circuit considers the Court’s denial of

Defendants’ cross-motion to strike Plaintiffs’ collective action claims.

The Court notes at the outset that the parties’ briefing on the instant

motion to stay is largely redundant of arguments the Court previously

considered in its Opinion on the motion to lift the stay in this case. (See, e.g.,

Def. Br. 2-13 (reiterating Defendants’ arguments from the motion to lift the

stay and Defendants’ cross-motions); Pl. Opp. 6-19 (similarly addressing issues

the Court previously decided)). Given that one of the stay factors is the

likelihood of success on the merits, this is partially unsurprising. That said,

the Court does not intend to rehash its prior analysis, and will thus refrain

from fully discussing issues it has previously decided.

A. Motions to Stay Generally

Federal courts are empowered to stay cases pending appeals, but “[a]

stay is not a matter of right, even if irreparable injury might otherwise result.

It is instead an exercise of judicial discretion, and the propriety of its issue is

dependent upon the circumstances of the particular case.” Nken v. Holder, 556

U.S. 418, 433 (2009) (internal quotation marks and citations omitted). “The

party requesting a stay bears the burden of showing that the circumstances

justify an exercise of that discretion.” Id. at 433-34. The “traditional standard

for a stay” includes four factors:

[i] whether the stay applicant has made a strong

showing that he is likely to succeed on the merits;

[ii] whether the applicant will be irreparably injured

absent a stay; [iii] whether issuance of the stay will

substantially injure the other parties interested in the

proceeding; and [iv] where the public interest lies.

Id. at 425-26 (internal quotation marks omitted). The Second Circuit has

treated these criteria somewhat like a sliding scale,

citing approvingly other circuits’ formulation that [t]he

necessary level or degree of possibility of success will

vary according to the court’s assessment of the other

stay factors and explaining that [t]he probability of

success that must be demonstrated is inversely

proportional to the amount of irreparable injury [a]

plaintiff will suffer absent the stay. Simply stated, more

of one excuses less of the other.

Thapa v. Gonzales, 460 F.3d 323, 334 (2d Cir. 2006) (alterations in Thapa)

(internal quotation marks omitted). Of potential significance to the instant

motion, a moving party may satisfy the first factor — likelihood of success on

the merits — by showing that there are “‘serious questions going to the merits

of the dispute’ and the balance of hardships tips ‘decidedly’ in the movant’s

favor.” Zachman v. Hudson Valley Fed. Credit Union, No. 20 Civ. 1579 (VB),

2021 WL 1873235, at *1 (S.D.N.Y. May 10, 2021) (quoting Citigroup Glob.

Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 35-

38 (2d Cir. 2010)).

B. Analysis of the Nken Factors in This Case

1. Likelihood of Success on the Merits1

Turning to the likelihood of success on the merits, the Court finds that

Defendants have shown that a serious question exists as to their argument

that Plaintiffs’ collective action claims should be struck, but not as to waiver of

the arbitration provisions or appointment of a substitute arbitrator. On this

point, Defendants correctly note the Court’s acknowledgement that the issues

associated with waiver of the arbitration agreements in this case are somewhat

unique. (Def. Br. 14). Specifically, the Court observed that the arbitration

agreements appear to require cost-sharing, and that the American Arbitration

Association (“AAA”) did not appear to apply that contractual provision.

(Opinion 6). That being said, in its Opinion, the Court applied the well-

established rule that a party’s failure to pay requested filing fees, and an

arbitrator’s subsequent termination of arbitration proceedings, constitute a

waiver of the right to arbitrate. (See id. at 5-10 (citing, inter alia, Nadeau v.

Equity Residential Properties Mgmt. Co., 251 F. Supp. 3d 637, 641 (S.D.N.Y.

2017) (finding that defendant breached arbitration agreement and could not

compel arbitration where AAA administratively closed case due to defendant’s

non-payment of fees); Spano v. V & J Nat’l Enters., LLC, 264 F. Supp. 3d 440,

1 The Court notes that it has considered Plaintiffs’ supplemental authority, Agerkop v.

Sisyphian LLC, No. 19 Civ. 10414 (CBM) (JPRX), 2021 WL 4348734 (C.D. Cal. July 26,

2021), in which the district court found that none of the Nken factors weighed in favor

of staying the court’s decision to lift an arbitration stay pending an interlocutory appeal.

However, because Agerkop is an out-of-circuit case and dealt with a unique California

statute, see id. at *2-3, the Court focuses its attention on cases from within the Second

Circuit.

453 (W.D.N.Y. 2017) (same); Brown v. Dillard’s, Inc., 430 F.3d 1004, 1013 (9th

Cir. 2005) (same))). And the Court discussed in detail the import of a recent

decision from a sister court on which it relied — Cota v. Art Brand Studios, LLC,

No. 21 Civ. 1519 (LJL), 2021 WL 4864588 (S.D.N.Y. Oct. 15, 2021) — dealing

with a factually analogous waiver of the right to arbitrate. (Opinion 7-9).

Further, the Court found that the arbitrations “have been had” in accordance

with the agreements (see Def. Reply 3; Pl. Opp. 13), providing an independent

reason why the arbitration stay should have been lifted.

The Court notes Defendants’ reliance on cases granting stays where a

court has previously denied an initial stay pending arbitration or motion to

compel arbitration. (See Def. Br. 8 (citing Cendant Corp. v. Forbes, 72 F. Supp.

2d 341, 343 (S.D.N.Y. 1999); Sutherland v. Ernst & Young LLP, 856 F. Supp. 2d

638 (S.D.N.Y. 2012))). However, this case is in a fundamentally different

procedural posture. This case was stayed pending the outcome of the parties’

arbitrations. The Court only lifted the stay once it determined that Defendants

had waived their right to arbitrate, relying on the established caselaw

discussed above. As such, the Court, even applying the lesser “serious

question” standard, does not find that Defendants have made a showing that

such question exists, particularly in light of the Court’s alternative holding that

the arbitrations have been had. See, e.g., Doe v. Trump Corp., No. 18 Civ. 9936

(LGS), 2020 WL 2538400, at *3 (S.D.N.Y. May 18, 2020) (“Accordingly,

[d]efendants have not shown a substantial possibility of success on appeal on

either of the independent holdings of the [o]pinion — that the doctrine of

estoppel does not apply and that, even if it did, [d]efendants waived any right to

arbitrate.” (citing In re Albicocco, No. 06 Civ. 3409 (JFB), 2006 WL 2620464, at

*5 (E.D.N.Y. Sept. 13, 2006) (observing that movant must demonstrate

likelihood of success on merits of each independent basis for the ruling))).

Although Defendants suggest that the Second Circuit is an outlier insofar as it

does not require automatic stays upon the filing of interlocutory appeals

pursuant to Section 16 of the FAA (Def. Br. 7 n.7), this Court adheres to

Second Circuit law, and does not find that this fact alone creates a serious

question regarding the merits.

Likewise, Defendants offer no meaningful argument that this Court erred

in denying their request to appoint a substitute arbitrator. The Court’s

resolution of Defendants’ cross-motion to appoint a substitute arbitrator was

simple: In re Salomon Inc. Shareholders’ Derivative Litigation, 68 F.3d 554 (2d

Cir. 1995), and Moss v. First Premier Bank, 835 F.3d 260 (2d Cir. 2016),

applied to the subject arbitration agreements, and foreclosed the appointment

of a substitute arbitrator. Defendants protest that neither of these cases

“involved an arbitral forum refusing to administer an arbitration because one

party refused to adhere to the parties’ arbitration agreement regarding payment

of fees.” (Def. Br. 12). Fair enough. But Defendants do not suggest that this is

a distinction with a difference, or that the Second Circuit would reverse those

clear precedents on this factual basis. In its decision on the cross-motion to

appoint a substitute arbitrator, the Court compared the arbitration agreements’

language regarding arbitration before the AAA with the language the Second

Circuit analyzed in Moss, and found myriad “indications of exclusivity” of the

arbitral forum. (Opinion 14-15). In light of clear Second Circuit precedent on

this issue, the Court does not believe that Defendants have shown a likelihood

of success, or even a serious question.

The Court does find, however, that a serious question exists on the

collective action waiver issue. In its prior Opinion, the Court noted that class

and collective action waivers are generally enforceable even outside of the

arbitration context. (Opinion 16-17). The Court then analyzed the specific

language of the collective action waivers here, and noted that the provisions

were “not models of clarity.” (Id. at 16). This is because the waivers contain

language suggesting they may apply outside of arbitration (id. at 17 (noting the

waiver refers to “court, arbitrator or any other tribunal”)), even as they are

located under the heading “Arbitration” (id.). The Court nonetheless found that

Defendants had breached the arbitration agreements, and thus that the

collective action waivers could not be enforced, regardless of the agreements’

severability provisions. (Id. at 18). Because of the lack of clarity regarding the

collective action waiver, as well as the fact that the severability provision may

be interpreted by the Second Circuit, there is, at a minimum, a serious

question to be considered on this issue.

2. Irreparable Injury

The Court next considers the second stay factor — irreparable injury.

Defendants argue that their interest in proceeding before an arbitrator

constitutes an irreparable injury, because “absent a stay, Defendants would be

forced to litigate the case in court, rendering any reversal of the [November 3,

2022 Order] effectively moot.” (Def. Br. 16). As before, Defendants rely on

inapposite cases where a court denied a motion to compel arbitration but

nonetheless stayed the case pending an interlocutory appeal of that decision.

See, e.g., Zachman, 2021 WL 1873235, at *1 (“Although, as plaintiff notes,

monetary harm arising from increased litigation costs is typically not

considered irreparable harm, [c]ourts have determined that defendants face a

particular risk of irreparable harm when they have appealed an order refusing

to compel arbitration of a potential class action.” (internal quotation marks and

citations omitted)); Starke v. SquareTrade, Inc., No. 16 Civ. 7036 (NGG) (SJB),

2017 WL 11504834, at *2 (E.D.N.Y. Dec. 15, 2017) (same, following denial of

motion to compel arbitration). Once again, the Court’s analysis of irreparable

injury is altered by the procedural history of this case, in which (i) the claims in

fact proceeded to arbitration and (ii) Defendants waived their right to continue

in the arbitral forum. The Court does not believe that Defendants are likely to

succeed on the merits of their arguments regarding waiver of the arbitration

agreements or appointment of a substitute arbitrator, and Defendants’

increased costs of litigating this case in federal court do not “outweigh the

strong likelihood that” they will not succeed on appeal. Trump Corp., 2020 WL

2538400, at *4. In other words, Defendants are not irreparably harmed by

losing their opportunity to arbitrate because Defendants forfeited that

opportunity. In any event, increased litigation costs alone generally do not

provide a dispositive “irreparable injury” requiring a stay. See, e.g., LifeTree

Trading Pte., Ltd. v. Washakie Renewable Energy, LLC, No. 14 Civ. 9075 (JPO),

2017 WL 4862792, at *3 (S.D.N.Y. Oct. 27, 2017) (rejecting argument that

“injury would come from the cost of [defendant] defending itself at trial”).

Further, to the extent that Defendants point to irreparable injury being

caused by allowing this case to proceed as a collective action (Def. Br. 16), the

Court can redress such issue by staying Plaintiffs’ collective action claims

pending appeal. The Court has already recognized that a serious question

exists on the Court’s decision on the cross-motion to strike the collective action

claims, thus lowering the showing required to make out irreparable injury.

Plaintiffs dedicate little briefing to the collective action waiver issue. (See Pl.

Opp. 20-21 (discussing only issues associated with the waiver of the right to

arbitrate, and distinguishing Defendants’ cases)). Instead, Plaintiffs note that,

absent a stay, “Defendants would need to defend a motion for collective

certification and a motion for equitable tolling[.]” (Id. at 21). And Plaintiffs

attempt to distinguish Zachman, in which the court found that having to

proceed on a “class-wide basis” constituted irreparable harm because the

defendant would be “forced to incur substantial costs that would otherwise be

mooted by a successful appeal[,]” 2021 WL 1873235, at *2, by noting that this

case does not involve the same complex discovery. (Pl. Opp. 20-21). But

Plaintiffs’ filing of a motion for collective certification and for equitable tolling

belies Plaintiffs’ argument that proceeding on a class-wide basis would not

entail substantial additional costs. Because the Court believes that

Defendants’ appeal involves a serious question on the collective action waiver,

and because this case would dramatically transform if it became a collective

action, the Court finds that Defendants have made a showing of irreparable

injury on the collective action issue.

3. Injury to Plaintiffs and the Public Interest

Next, the Court considers the third and fourth factors — the harm to the

Plaintiffs and the public interest. Plaintiffs rightly note that Defendants’ failure

to pay their share of the arbitration fees has already delayed this case, and that

they have a considerable interest in being promptly compensated for

Defendants’ alleged violations of the FLSA. (Pl. Opp. 22-23). Defendants only

briefly address the harm to Plaintiffs, and contend that Plaintiffs are only

prejudiced by the time it takes to appeal, which prejudice can be allayed

through a future potential award of interest. (Def. Br. 17).

There can be no question that Plaintiffs have an interest in being timely

compensated for Defendants’ violations, assuming they succeed in this case.

See, e.g., In re Elec. Books Antitrust Litig., No. 11 MD 2293 (DLC), 2014 WL

1641699, at *12 (S.D.N.Y. Apr. 24, 2014) (“Delaying the trial would also delay

any recovery due plaintiffs, should they prevail…. Likewise, the public interest

favors a speedy trial and resolution of this matter.”). At the same time, the

Court agrees with Defendants that even if Plaintiffs face harm, “it appears to be

less than overwhelming and fully reparable”; indeed, Plaintiffs’ monetary harm

could be “fully remedied by an award of pre-judgment interest.” Sutherland,

856 F. Supp. 2d at 643; see also id. (“plaintiff is not contending that the delay

in receiving an award will cause her additional practical harm, as might be the

case if she were currently in extremely straitened financial circumstances”).

Regardless, because the Court finds that the only serious question posed by

Defendants’ appeal relates to the collective action waiver, Plaintiffs will be able

to move forward with this case and seek redress, albeit only on behalf of the

current Plaintiffs of record.

The Court finds that the public interest does not weigh in favor of either

side. Plaintiffs reiterate the public interest in moving this case along, as well as

the importance of vindicating the “underlying policy of the FLSA[.]” (Pl.

Opp. 22-23). As above, the Court credits these arguments. But Plaintiffs give

unnecessarily short shrift to the interests of judicial economy implicated by an

interlocutory appeal. (Id. (noting that arguments about judicial resources come

up on every motion to stay pending appeal)). Beyond pointing to the federal

policy favoring arbitration, Defendants lean into this judicial efficiency

argument, and note that courts often find that stays pending appeal are in the

public interest. (Def. Reply 9). On the point of judicial efficiency, courts in this

District go both ways, and thus neither party is fully correct. Compare, e.g.,

Trump Corp., 2020 WL 2538400, at *6 (noting that “[a]s a general matter, the

public interest in judicial economy counsels slightly in favor of a stay[,]” but

nonetheless denying motion to stay), with, e.g., Medien Pat. Verwaltung AG v.

Warner Bros. Ent. Inc., No. 10 Civ. 4119 (CM) (GWG), 2014 WL 1169575, at *3

(S.D.N.Y. Mar. 21, 2014) (rejecting party’s public interest argument in favor of

stay, and noting that concerns about judicial resources apply “to every motion

to stay pending appeal”). Further, both sides make compelling, if dueling,

arguments about important federal legislative schemes — the FLSA and the

FAA — and the Court finds no reason to prefer the vindication of one over the

other.

4. Balancing the Factors

Considering all four factors as applied to the three motions implicated by

the Court’s Opinion — Plaintiffs’ motion to lift the stay due to Defendants’

waiver of the arbitration agreements, and Defendants’ cross-motions to appoint

a substitute arbitrator and to strike Plaintiffs’ collective action claims — the

Court finds that the stay factors only weigh in favor of staying Plaintiffs’

collective action claims. Defendants have failed to show a likelihood of success

on the merits (or even a serious question) related to Court’s findings regarding

the waiver of their arbitration agreements or the appointment of a substitute

arbitrator. So, too, have they failed to show irreparable injury, particularly in

light of their meritless appeal of these issues. The Court does find, however,

that issues related to the collective action waiver are a closer call, and that

Defendants would suffer irreparable harm in the form of litigating this case on

a collective basis beyond those Plaintiffs who have already joined the case, or

defending against Plaintiffs’ motions for collective certification and equitable

tolling.

CONCLUSION

Accordingly, Defendants’ motion to stay this case pending their

interlocutory appeal is granted in part and denied in part. The Court will stay

only issues implicated by the collective action waiver. Specifically, Plaintiffs’

motions for conditional certification (Dkt. #63) and equitable tolling (Dkt. #64)

are stayed pending the Second Circuit’s consideration of Defendants’ appeal.

In line with this decision, this case shall proceed on an individual basis.

Discovery shall proceed as to those Plaintiffs who have joined this case as of

the date of this Order, but not as to other prospective plaintiffs.

The parties are ORDERED to submit to the Court a joint letter

discussing next steps in this case by January 6, 2023. Defendants shall file

an answer to the Complaint on or before January 6, 2023. Additionally, the

parties are ORDERED to submit to the Court a proposed case management

plan for conducting discovery on an individualized basis for Plaintiffs who have

already joined this case by January 6, 2023.

The Clerk of Court is directed to terminate the pending motion at docket

entry 57.

SO ORDERED.

Dated: December 13, 2022 q ot

New York, New York Kittens fall. flr

KATHERINE POLK FAILLA

United States District Judge

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