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

Background

The court had previously lifted a stay of the case after finding that the defendants waived their arbitration agreements. It also denied the defendants’ requests to strike the plaintiffs’ collective-action claims and to appoint a substitute arbitrator. The defendants filed an interlocutory appeal—an appeal before the case had ended—and then moved to stay the case while that appeal was pending.

The underlying dispute includes claims under the Fair Labor Standards Act. The defendants’ appeal challenged the earlier rulings concerning arbitration waiver, appointment of a substitute arbitrator, and the collective-action waivers.

Stay Standard

The court applied four factors for deciding whether to pause a case during an appeal: the applicant’s likelihood of success, the risk of irreparable harm without a stay, the harm to the other parties, and the public interest. The party requesting the stay bears the burden of showing that a stay is justified. The court explained that these factors operate on a sliding scale: a stronger showing on one factor can offset a weaker showing on another.

Analysis

The court found that the defendants had not shown a likelihood of success, or even a serious question, concerning the finding that they waived arbitration. The court relied on its earlier analysis that the defendants’ failure to pay requested arbitration fees and the resulting termination of the arbitration proceedings constituted waiver. It also noted its alternative conclusion that the arbitrations had been completed under the agreements.

The court likewise found that the defendants had not shown a likelihood of success or a serious question concerning appointment of a substitute arbitrator. In the court’s view, controlling Second Circuit decisions and the arbitration agreements’ language indicating an exclusive arbitral forum foreclosed that request.

The court reached a different conclusion about the collective-action waiver issue. It had previously described the waiver provisions as unclear because they appeared under an “Arbitration” heading but referred to proceedings in court, before an arbitrator, or before another tribunal. The court determined that there was at least a serious question about how those provisions and their severability language should be interpreted on appeal.

The court rejected the defendants’ argument that the costs of litigating in federal court, by themselves, established irreparable harm. It also concluded that the defendants had forfeited their opportunity to arbitrate because of the arbitration waiver. However, the court found irreparable harm associated with proceeding on a collective basis because the case could expand substantially if additional plaintiffs joined and the plaintiffs pursued collective certification and equitable tolling.

The court recognized that the plaintiffs had an interest in being compensated promptly for alleged violations, assuming they ultimately succeeded. It found that any delay-related monetary harm could be addressed through pre-judgment interest. The court concluded that the public-interest factor favored neither side, citing competing interests in efficient judicial administration, the Fair Labor Standards Act, and the federal policy favoring arbitration.

Disposition

The court granted in part and denied in part the defendants’ motion to stay the case pending the interlocutory appeal. It stayed only issues related to the collective-action waiver. Specifically, the plaintiffs’ motions for conditional certification and equitable tolling were stayed while the Second Circuit considered the appeal.

The case was to proceed on an individual basis. Discovery could continue for plaintiffs who had joined the case by December 13, 2022, but not for prospective plaintiffs who had not yet joined. The parties were ordered to submit a joint letter and a proposed individualized-discovery plan by January 6, 2023, and the defendants were ordered to answer the complaint by that date. The clerk was directed to terminate the motion at docket entry 57.