Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-00715/USCOURTS-cand-3_06-cv-00715-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 29:201 Fair Labor Standards Act

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

GABE BEAUPERTHUY, et al. on behalf

of themselves and all others

similarly situated,

Plaintiffs,

 v.

24 HOUR FITNESS USA, INC., a

California corporation d/b/a 24

Hour Fitness; SPORT AND FITNESS

CLUBS OF AMERICA, INC., a

California corporation d/b/a 24

Hour Fitness,

Defendants.

 

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No. 06-0715 SC

ORDER DENYING MOTION

TO REQUIRE AMENDMENT

OF PLEADINGS BY

PLAINTIFFS

Plaintiffs Gabe Beauperthuy and others brought this action on

behalf of themselves and others similarly situated ("Plaintiffs")

against Defendants 24 Hour Fitness USA, Inc. and Sport and Fitness

Clubs of America, Inc. ("Defendants" or "24 Hour Fitness"),

alleging violations of the Fair Labor Standards Act, 29 U.S.C. §

201 et seq. ("FLSA"). See First Amended Complaint ("FAC").

Plaintiffs, additionally, seek declaratory relief under Federal

Rule of Civil Procedure 23 ("FRCP") defining the scope and

validity of the arbitration agreement published in Defendants'

employee handbook ("Arbitration Agreement"). Id. Before the

Court is Defendants' Motion for an Order Requiring Plaintiffs to

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Amend their Pleadings. For the reasons stated herein, the Motion

is hereby DENIED. The Court further HOLDS that Defendants have

WAIVED their right to compel arbitration and are therefore BARRED

from making any argument on the basis of that right.

I. BACKGROUND

The Court's April 11, 2006 Order Denying Defendants' Motion

to Dismiss and Granting Defendants' Motion for a Definite

Statement discussed the substance of the underlying dispute

between the parties, familiarity with it is assumed. It is

necessary, however, to discuss the convoluted and lengthy

procedural history of the dispute between the parties. 

The first attempt at adjudication of the dispute appears to

have been an action filed on October 29, 2003 in the Southern

District of California, Boyce v. Sports and Fitness Clubs of

America, No. 03-CV-214 (S.D. Cal.), alleging various violations of

California and federal law. See Declaration of Thomas G. Foley,

filed March 17, 2006 ("Foley Decl."), Ex. 1. The action was

brought as a "class action" under both the FLSA and Rule 23. Id.

at 3. The description of the plaintiffs in the complaint's

caption reads "Robert L. Boyce, Jr. and Stephanie Shelter,

individuals for themselves, on behalf of all others similarly

situated and on behalf of the general public." Id. at 1. 

But approximately six months later, on July 2, 2004, a group

of 24 Hour Fitness employees, which, according to Plaintiffs'

Opposition, consisted of some of the same plaintiffs in Boyce and

is coextensive with Plaintiffs in the instant action, initiated an

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arbitration at the American Arbitration Association ("AAA"). 

(Allen et al. v. Sport and Fitness Clubs of America, et al. (AAA

Case No. 11-160-03041-04)). See Plaintiffs' Memorandum of Points

and Authorities in Opposition to Defendants' Motion for Order to

Require Plaintiffs to Amend the Pleadings ("Plaintiffs'

Opposition"); Foley Decl., Ex. 4. According to a motion to

intervene and stay filed by the Allen claimants in the Boyce

action, the AAA's ultimate decision to conduct the Allen

arbitration was the result of a motion filed in state court by 24

Hour Fitness. See id. However, soon after filing that motion, 24

Hour Fitness filed another motion in the same court to have the

Allen arbitration stayed, and opposed the Allen claimants' motion

to intervene and stay in the Boyce proceedings. See id. In their

papers filed in opposition to the latter motion, 24 Hour Fitness

stated: "Just as the parties to the Court Actions had a right to

enter into a voluntary contractual agreement to arbitrate in the

first place, they continue to have the right to choose a different

forum to win approval of their settlement." Id., Ex. 5. 

Ultimately, the Boyce court denied the Allen claimants' motion and

the Boyce action was settled. Id., Ex. 8. 

The Allen claimants continued to pursue the AAA arbitration,

filing an amended statement of claim. See id.,Ex. 9. But, in the

face of 24 Hour Fitness's refusal to consent to arbitration of the

FLSA collective claim (which was added in the amended statement of

claim), the arbitrator dismissed without prejudice that part of

the amended claim. Id., Ex. 12. The arbitrator did so,

specifically, on the grounds that the proceedings before him had

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been initiated pursuant to an ad hoc agreement between the

parties, and agreement had only referred to individual and class

action claims by the claimants, not to any collective claim under

the FLSA. Id. Thus, in light of 24 Hour Fitness' stated

opposition to the arbitrator hearing the collective claim, he

lacked the authority to hear it. Id.

In making this ruling, the arbitrator expressly declined to

address whether certain terms of the underlying Arbitration

Agreement between the parties would have, on their own, prevented

the arbitrator from hearing claimants' collective claim. Id. The

terms in question state: "Unless legal authority requires

otherwise, there shall be no right or authority for any dispute to

be heard or arbitrated on a class action basis, as a private

attorney general, or on a basis involving disputes brought in a

purported representative capacity on behalf of the general public,

provided, however, that any individual claim is subject to this

agreement to arbitrate." FAC at 26.

Following the arbitrator's decision, Plaintiffs' counsel,

representing a group that appears to contain all or some of the

Allen claimants and be coextensive with Plaintiffs, see

Plaintiffs' Opposition at 6,on October 13, 2005, requested that 24

Hour Fitness consent to arbitration of their collective claim. 

See Foley Decl., Ex. 13. 24 Hour Fitness responded, initially,

with two requests for additional information; Plaintiffs' counsel

answered and reiterated their request for arbitration. See id.,

Exs. 14-19. Finally, in an email from Defendants' counsel dated

January 23, 2006, Defendants refused Plaintiffs request to consent

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to arbitration, stating that Plaintiffs' collective claim was a

class action claim, which "are impermissible under the arbitration

you seek to enforce," and that the provision in the arbitration

agreement which so provides "is not unconscionable." Id., Ex. 20.

In response, on February 1, 2006, Plaintiffs filed the

instant action in this Court. See Docket No. 1. Defendants

responded with a motion to dismiss. The motion argued that

Plaintiffs' FLSA collective claim should be dismissed on the

grounds that agreements to arbitrate exist between the parties,

and that Plaintiffs' Rule 23 claim seeking invalidation of the

anti-class action provision of arbitration agreement should be

dismissed for various reasons. See Defendants' Motion to Dismiss. 

Defendants, however, explicitly declined to request the Court

compel arbitration, arguing that if the Court did so, it would be

"highly inconvenient for the parties." Id. at 22. Rather,

Defendants suggested, the Court should dismiss Plaintiffs' FLSA

collective claim and Rule 23 class action claim, and each

Plaintiff should individually compel arbitration. Id. at 23. 

The Court denied Defendants' motion to dismiss but granted

Defendants' alternative motion for a more definite statement. See

Order Denying Defendants' Motion to Dismiss ("Order Denying

Defendants' Motion"). In its Order, the Court noted that the

vigorous dispute between the parties over whether Plaintiffs' FLSA

collective claim was covered by the Arbitration Agreement's

prohibition of class actions was a matter of contract

interpretation. Id. at 4. Such a question, assuming the

Arbitration Agreement was valid and enforceable, should be

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determined by an arbitrator rather than the Court. Id. at 4

(citing Green Tree Financial v. Bazzle, 539 U.S. 444, 447 (2000). 

The Court further noted that "Plaintiffs had consistently sought

to arbitrate these claims." Id. at 5. Thus, it was "puzzling,"

in light of the law articulated in Green Tree Financial, that

Defendants would choose to make a motion to dismiss, which was

clearly barred by Plaintiffs' colorable arguments against the

enforceability of the Arbitration Agreement, instead of compelling

arbitration. Id. at 5-6.

On June 16, 2006, a status conference was held before the

Court. Following the conference, the Court ordered the "[p]arties

to either file a Motion to Compel Arbitration or a Motion to

Certify the Class." Docket No. 42. The Order further granted

"Plaintiffs' request to proceed with limited discovery for the

Class Certification Motion." Id. On November 17, 2006,

Defendants filed the instant motion, again explicitly declining to

request the Court compel arbitration. See Defendants' Motion at

23. Plaintiffs have noticed their intent to file a motion for

preliminary certification of collective action, which will be

heard on January 12, 2007.

II. DISCUSSION

A. Defendants' Rule 23(d)(4) Motion is Not Ripe

Defendants' Rule 23(d)(4) motion is an improper attempt to

argue against class certification before the motion for class

certification has been made and while discovery regarding class

certification is not yet complete. Rule 23(d)(4) reads:

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1The cases which Defendants purport to cite for the contrary

conclusion are unavailing. See Defendants' Reply at 3. Kamm v.

California City Development Co., the only cited authority binding

on the Court, in the first place, deals with an order based on Rule

23(c) and Rule 23(d)(4), and, in the second place, its result

turned on the existence of a parallel action in state court and

thus the "superiority" of a class action, as opposed to the

constitution of the class, as does Defendants' Motion. 509 F.2d

205 (9th Cir. 1975). The other cited cases address situations in

very different procedural postures than this case, i.e. when the

issue of class certification was already independently before the

court, and thus the issue of any Rule 23(d)(4) amendment was ripe. 

See, e.g., Barbin v. Aramark Corp., 210 F.R.D. 152 (E.D. Pa. 2002)

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Orders in the Conduct of Actions. In the Conduct of

actions to which this rule applies, the court may make

appropriate orders: . . . (4) requiring that the

pleadings be amended to eliminate therefrom allegations

as to representation of absent persons, and that the

action proceed accordingly.

Fed. R. Civ. P. 23(d)(4). Rule 23 applies to class actions. See

Fed. R. Civ. P. 23. As the Court has yet to address whether the

part of Plaintiffs' action brought under Rule 23 may proceed as a

class action, Rule 23(d)(4) has no application to the present

situation before it. See Wright, Miller & Kane, Federal Practice

and Procedure: Civil 3d § 1795. 

An examination under Rule 23(c) whether to certify a class is

"procedurally inseparable" from a determination under Rule

23(d)(4) whether the Court, on the basis of that examination,

should require an amendment of the pleadings. Id. Indeed, the

bulk of Defendants' arguments in favor of its Motion are actually

arguments against class certification. See Defendants' Motion and

Reply. It would be improper to allow Defendants to slip through

the backdoor what is essentially an opposition to a motion for

class certification before Plaintiffs have made such a motion and

when discovery on the issue is still on-going.1 

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aff'd 2003 W.L. 355417 (3rd Cir. 2003)(simultaneous motions to

certify class Rule 23(b) and compel amendment of pleadings under

Rule 23(d)(4)); Cohn v. Massachusetts Mutual, 189 F.R.D. 209 (D.

Conn. 1999) (sua sponte Rule 23(d)(4) order after denial of

plaintiffs' Rule 23(b) motion to certify class); Kingsepp v.

Wesleyan Univ., 142 F.R.D. 597 (S.D.N.Y. 1992) (same). 

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B. Defendants' Prayer to the Court Regarding Plaintiffs'

FLSA Collective Action is Without Basis and Not Ripe

As an initial matter, Defendants' prayer to the Court that it

require Plaintiffs to amend the FLSA collective action portion of

their pleadings is without basis in the law. It is well

established that FLSA collective actions and Rule 23 class actions

are "mutually exclusive," and, as so, provisions of Rule 23 do not

apply to FLSA collective actions. Kinney Shoe Corp. v. Vorhes,

564 F.2d 859, 862-63 (9th Cir. 1977) overruled on other grounds. 

Thus, while the portion of Defendants' motion which addresses

Plaintiffs' Rule 23 claim could theoretically be brought before

the Court under Rule 23(d)(4), the portion dealing with

Plaintiffs' FLSA collective action claim could not. Defendants

have not offered the Court, and the Court is not aware of, any

other authority under which Defendants' motion regarding

Plaintiffs' FLSA collective could be brought. Rather, Defendants'

arguments regarding Plaintiffs' FLSA collective claim (like its

arguments regarding Plaintiffs' Rule 23 claims) are made in

theoretical opposition to a motion for certification of the FLSA

collective that has not yet been made. They are, thus unripe and

without basis in the law. 

C. Defendants have Waived any Right to Compel Arbitration

and are Barred from Making Arguments Based on this Right

As the Court noted in its order denying Defendants' motion to

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dismiss, whether the Arbitration Agreement forecloses arbitration

of the FLSA collective claim is a matter of interpretation which

should be determined by an arbitrator as opposed to the Court. 

See Order Denying Defendants' Motion at 4. However, the Court

cannot, sua sponte, order parties to arbitration. Rather, because

the duty to arbitrate arises pursuant to the operation of a

contract, as opposed to the operation of the law, "the right to

arbitration may be waived or modified by the parties," depriving

the Court of the authority to order arbitration even if it would

rather do so. Wren v. Sletten Construction Co., 654 F.2d 529, 537

(9th Cir. 1981). Defendants have consistently acted in a manner

inconsistent with an intent to utilize their right to arbitrate,

and have done so in a manner which has clearly prejudiced

Plaintiffs. The Court, therefore, in the interest of justice and

efficient resolution of the parties' disputes hereby finds that

Defendants have waived their right to compel arbitration and are

thus barred from making any arguments on the basis of such a

right.

The Ninth Circuit has laid out a three-part test to determine

whether a party has, by their actions, waived their right to

compel arbitration:

A party seeking to prove waiver of a right to arbitrate

must demonstrate (1) knowledge of an existing right to

compel arbitration; (2) acts inconsistent with that

existing right; and (3) prejudice to the party opposing

arbitration resulting from such inconsistent acts.

Brown v. Dillard's, Inc., 430 F.3d 1004, 1012 (9th Cir. 2005). 

All of these conditions are met. It is unquestionable that

Defendants know of their right to arbitrate. Plaintiffs have

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repeatedly requested that Defendants arbitrate their dispute.

Defendants accepted once, only to soon thereafter stymie the

process, and subsequently have consistently refused to consent to

arbitration. See supra Background. In turn, these consistent

refusals, along with Defendants consistent explicit refusal to

request the Court compel arbitration, constitute conduct

inconsistent with such a right. See id.

Finally, Plaintiffs have proven they were prejudiced by the

acts of Defendants which were inconsistent with Defendants' right

to compel arbitration. The Ninth Circuit has explicitly

recognized that "delay and costs incurred" by a party whose

initial attempts to initiate arbitration were rebuffed qualify as

"prejudicial for the purpose of waiver analysis." Dillard's, 430

F.3d at 1013. Very similar to the plaintiff in Dillard's,

Plaintiffs came before this Court only after unsuccessfully

pursuing Defendants' consent to arbitration for over a year and a

half. See supra Background; Dillard's, 430 F.3d at 1008-09. In

addition, since filing this action, Plaintiffs have been forced to

deal with Defendants' confusing, contradictory, and time-consuming

strategic maneuvering purportedly based on the Arbitration

Agreement but which involve simultaneous explicit refusals to

compel arbitration. See supra Background. The unnecessary delay

and expense this has caused has affected not only Plaintiffs but

also the various courts and arbitration institutions which have

been involved. The Court, therefore, has "no trouble concluding"

that Defendants have waived any right to compel arbitration and

thus also their right to make any arguments on the basis of such a

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right. Dillard's, 430 F.3d at 1013. 

III. CONCLUSION

For the foregoing reasons Defendants' Motion for an Order

Requiring Plaintiffs to Amend their Pleadings is DENIED. It is

further HELD that Defendants have WAIVED their right to compel 

arbitration and are, consequently, BARRED from making any

arguments on the basis of the existence of such a right. 

IT IS SO ORDERED.

November 28, 2006 ____________________________

UNITED STATES DISTRICT JUDGE

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