880 F.3d 135
4th Cir.2018Background
- Degidio, an exotic dancer, sued Crazy Horse in Aug 2013 alleging misclassification as independent contractors and violations of the FLSA and South Carolina Payment of Wages Act (SCPWA).
- Crazy Horse classified entertainers as independent contractors; entertainers were paid by tips. Degidio sought collective and class relief; FLSA opt-ins required written consent.
- During discovery (Nov–Dec 2014) Crazy Horse had entertainers sign facility "lease" agreements containing arbitration clauses waiving class/collective actions; Crazy Horse did not notify the court of these communications.
- Crazy Horse pursued multiple merits-based motions (several summary judgment motions, requests to certify state-law questions) over three+ years and served broad discovery on opt-ins—including those who had signed arbitration agreements—before seeking to compel arbitration.
- The district court found Crazy Horse’s pattern of late, unilateral, and misleading communications with potential plaintiffs prejudicial and declined to enforce the arbitration agreements; the Fourth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration agreements signed after suit began | Agreements are invalid because procured by misleading contacts and obtained after litigation began | Agreements are valid under FAA and should be enforced | Court: Not enforceable—defendant delayed and used agreements as a litigation backstop and procured them by misleading communications |
| Waiver / Prejudice from delay in seeking arbitration | Degidio: Crazy Horse waived arbitration by substantially invoking litigation machinery and causing prejudice | Crazy Horse: Could not move earlier because potential signatories had not yet opted in | Court: Rejected Crazy Horse—could have notified court earlier; delay (three years) and merits activity caused prejudice and waiver |
| Conduct toward opt-ins (duress/misleading communications) | Agreements procured through furtive meetings, misrepresentations about consequences of joining suit; courts must supervise FLSA opt-ins | Crazy Horse: Entered agreements lawfully as condition of performing at club | Court: Agreements misleading (suggesting tips/scheduling depended on independent-contractor status) and procured under circumstances that risked coercion; district court supervision was warranted |
| Whether NLRA invalidates class/collective-waiver clauses | Degidio argued NLRA protects concerted activity and may bar class waivers (issue pending before the Supreme Court) | Crazy Horse argued FAA governs and agreements should be enforced | Court: Declined to decide NLRA question because agreements were invalid on independent grounds (delay, prejudice, misleading procurement) |
Key Cases Cited
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (articulates FAA's pro-arbitration policy)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (arbitration agreements placed on equal footing with other contracts)
- Fraser v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250 (4th Cir. 1987) (party may waive FAA right by substantially invoking litigation machinery)
- Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727 (4th Cir. 1991) (actual prejudice inquiry considers delay and trial-oriented activity)
- Radiator Specialty Co. v. Cannon Mills, 97 F.2d 318 (4th Cir. 1938) (arbitration is meant to expedite disputes, not prolong litigation)
- Hoffmann-La Roche, Inc. v. Sperling, 493 U.S. 165 (1989) (district court supervision of FLSA notice to protect potential plaintiffs)
- Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290 (1985) (contract terms do not negate statutory protections like minimum wage)