Date: 08-30-2015

Case Style: Skylar Gunn, William Harris, Candace Jowers v. NPC International, Inc.

Case Number: Case Nos. 14-6036/6040/6041/6042/6044

Judge: David McKeague

Court: UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Plaintiff's Attorney: Jackson,Gordon Ernest, Holt,James Leon Jr.,

Defendant's Attorney: Henderson,Thomas Lee, Jackson,Russell W., Calkins,Audrey Martha

Description: Defendant NPC International, a Kansas corporation, operates Pizza Hut Restaurants in
numerous states across the country. In January 2013, five separate actions were commenced
against NPC in the Western District of Tennessee. All five were assigned to the same judge.
The plaintiffs in all five cases are represented by the same counsel. Each of the actions asserts
claims under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 216(b), for unpaid minimum
wages and overtime compensation by a different class of current or former employees of NPC.
Plaintiff Skylar Gunn brought action on behalf of herself and other similarly situated tipped
employees, also classified as waiters/waitresses/servers; plaintiff William Harris proceeded on
behalf of cooks; Candace Jowers on behalf of delivery drivers; Tiffney Penley on behalf of shift
managers; and Leah Redmond on behalf of customer service representatives. In each case, NPC
is alleged to have established uniform policies and practices that denied the named plaintiff and
other similarly situated employees compensation they were entitled to, in violation of the FLSA.
In each of the five cases, NPC took various responsive actions, but it was not until April
2014 that it first asserted that the claims were subject to mandatory arbitration under the
plaintiffs’ employment contracts by moving the court to dismiss the actions for lack of
jurisdiction or alternatively, to compel arbitration. The district court considered the motions in
light of the litigation activities of the parties in all five cases as a whole. The court concluded
that NPC had “slept on its rights” too long; that its filing of several dispositive and
nondispositive motions and participation in a scheduling conference were actions completely
inconsistent with reliance on the arbitration agreement; and that plaintiffs would suffer unfair
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prejudice in expense of time and money if they were now compelled to submit their claims to
arbitration. The court thus held that NPC had waived its right to compel arbitration and denied
NPC’s motions to dismiss. The court also denied NPC’s motions for reconsideration and these
appeals followed.
II
The district court’s denial of NPC’s motion to compel is immediately appealable,
9 U.S.C. § 16(a)(1)(B), and is reviewed de novo. Johnson Associates Corp. v. HL Operating
Corp., 680 F.3d 713, 716 (6th Cir. 2012). There is a strong presumption in favor of enforcing
arbitration agreements. Glazer v. Lehman Bros., Inc., 394 F.3d 444, 450 (6th Cir. 2005).
Therefore, “waiver of the right to arbitration is not to be lightly inferred.” Id. A party may
waive the right to arbitration by engaging in a course of conduct completely inconsistent with
reliance on an arbitration agreement or delaying assertion of the right to such an extent that the
opposing party incurred actual prejudice. Shy v. Navistar Int’l Corp., 781 F.3d 820, 827–28 (6th
Cir. 2015); Johnson Associates, 680 F.3d at 717; Hurley v. Deutsche Bank Trust Co., 610 F.3d
334, 338 (6th Cir. 2010). “Both inconsistency and actual prejudice are required.” Shy, 781 F.3d
at 828.
NPC challenges the district court’s holding that both requirements are satisfied in this
case. NPC contends its actions were not “completely inconsistent” because, despite the passage
of almost fifteen months, the litigation really had not progressed very far, and plaintiffs’
prejudice was minimal in that discovery had not even commenced before NPC raised its right to
arbitration. We are not persuaded.
The parameters of our scrutiny are well defined by three recent Sixth Circuit rulings,
cited above. The district court relied on Johnson Associates and Hurley, where we affirmed
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denials of motions to compel arbitration. In Shy, decided since the district court’s ruling, we
vacated the denial of a motion to compel. Comparison of all three decisions confirms the
correctness of the district court’s ruling in this case.
In Hurley, the defendant had participated in litigation for two years before asserting its
right to arbitration. The plaintiffs’ actual prejudice consisted of their participation in extensive
discovery, defending against four summary judgment motions, and being subjected to a change
in venue at the defendant’s request. Hurley, 610 F.3d 338–40. In Johnson Associates, the
defendant delayed eight months before raising the issue of arbitration. In the meantime, the
defendant’s participation in litigation consisted of filing an answer without raising arbitration as
an affirmative defense, engaging in settlement negotiations, participating in a scheduling
conference, and serving discovery requests. Again, even absent a showing of “substantive
prejudice,” we held “actual prejudice” was made out by the delay and expenses incurred.
Johnson Associates, 680 F.3d at 718–20.
In Shy, on the other hand, we vacated the district court’s denial of a motion to compel
where arbitration was first raised ten months after a third party moved to intervene in existing
litigation, but promptly after the court granted intervention and the intervenor’s complaint was
filed. Distinguishing Johnson Associates, we held that the defendant’s “pre-litigation” (i.e.,
before intervention was allowed) conduct was not inconsistent with reliance on arbitration, that
the defendant did not actively pursue litigation during the pendency of the motion to intervene,
and that consequently, the intervenor did not incur unnecessary expenses amounting to actual
prejudice. Shy, 781 F.3d at 829–30.
Here, we assume for present purposes—although the point is not conceded by
plaintiffs—that the employment applications that form the basis for plaintiffs’ employment
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contracts contain an arbitration clause broad enough to cover the claims asserted in these five
cases.1 Given that assumption, it follows that NPC enjoys the presumption in favor of enforcing
the arbitration agreements. Yet, NPC undeniably waited almost fifteen months before raising the
arbitration issue in any of the five cases. Comparing the relevant facts in the above three cases
addressing waivers of the right to arbitrate, we find the present facts practically indistinguishable
from those in Johnson Associates. Here, in fact, the length of delay is much greater and the
resulting prejudice arguably greater. During the period of delay, NPC, not unlike the defendant
in Johnson Associates, engaged in settlement negotiations, participated in a scheduling
conference for all five cases, and filed several motions (some dispositive) without ever
mentioning the arbitration agreement.
Moreover, it was only after NPC obtained unfavorable rulings on its initial dispositive
motions that it moved to dismiss or compel arbitration. This is a factor weighing in favor of
finding waiver, for it suggests that NPC’s delay, instead of being attributable to an innocent or
otherwise excusable purpose, was deliberately motivated by some perceived tactical advantage.
See Hurley, 610 F.3d at 339; Gen. Star Nat’l Ins. Co. v. Administratia Asigurarilor de Stat,
289 F.3d 434, 438 (6th Cir. 2002). Indeed, the timing of NPC’s tardy assertion of its right tends
to corroborate the district court’s conclusion, in denying reconsideration, that NPC was
“employing dilatory tactics and creating expense for the Plaintiffs.”
Nor has NPC persuasively rebutted this conclusion on appeal. Its only explanation is that
Sixth Circuit law was materially unsettled until November 5, 2013, when Reed Elsevier, Inc. v.
Crockett, 734 F.3d 594 (6th Cir. 2013), was decided. In Reed Elsevier, the question whether an
arbitration agreement permits classwide arbitration was held to be a “gateway matter” for the 1 In fact, plaintiffs’ counsel averred in oral arguments that more than half of the potential opt-in plaintiffs’ employment contracts do not contain arbitration clauses.
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court, not the arbitrator, to decide, unless the parties clearly and unmistakably provided
otherwise. Id. at 599. But the pendency of this question until November 2013 hardly justifies
the delay. It was not cited by NPC as justification below; it does not explain why NPC waited
five more months after Reed Elsevier was decided before raising the arbitration issue; and it does
not explain why NPC should not, in any event, be required to advise the plaintiffs and the court
of its intent to rely on the arbitration clause if it wished to preserve the right. Absent any
semblance of a colorable justification, we have no reason to question the district court’s
conclusion that NPC’s course of conduct was deliberately chosen to reap some tactical advantage
at odds with reliance on the arbitration clause.
NPC maintains nonetheless that its delay caused plaintiffs minimal prejudice. Johnson
Associates is said to be distinguishable in that more discovery had been undertaken during eight
months of litigation before the right to arbitration was asserted. Here, in contrast, little if any
discovery was conducted. True enough, but here NPC deliberately undertook a course of
conduct inconsistent with reliance on arbitration for almost twice as long as the defendant in
Johnson Associates and the harm stemming from this longer protraction of proceedings was
commensurately greater than in Johnson Associates.
Nor do plaintiffs rely on delay alone to demonstrate actual prejudice. Their opposition to
NPC’s motion to compel arbitration is supported by the declaration of their lead counsel,
attesting to the fact that roughly $20,000 in expenses had been incurred on plaintiffs’ behalf in
this litigation before the motions to compel were filed, some of which would not have been
necessary had NPC timely raised the arbitration issue.2 What we held in Johnson Associates is
2 Indeed, the five district court dockets show that, cumulatively, over 370 docket entries were made before NPC first asserted the right to arbitration in any of the cases. Although more than 200 of these entries consist of notices of opt-in plaintiffs’ consents to join the actions, the dockets clearly evidence substantial litigation activity after the complaints were filed before arbitration was first raised.
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no less true in this case: “Because [defendant’s] actions were completely inconsistent with any
reliance on its right to arbitration, and because [defendant’s] belated assertion of that right
caused plaintiffs actual prejudice in the form of unnecessary delay and expense, we hold that
[defendant] waived its right to arbitration.” Johnson Associates, 680 F.3d at 721. See also O.J.
Distributing, Inc. v. Hornell Brewing Co., Inc., 340 F.3d 345, 357–59 (6th Cir. 2003) (actual
prejudice deemed established even though defendant raised arbitration issue less than three
months after complaint was filed because defendant’s pre-litigation negotiations influenced
plaintiff’s delay in filing claim until after 180-day limitation period had run).3
The instant facts stand in marked contrast to those presented in Shy, 781 F.3d at 829–30,
where defendant Navistar was held not to have waived its right to arbitration. In Shy, we
explicitly distinguished Johnson Associates, holding that Navistar did not delay in asserting its
right to arbitration once the complaint was filed; that Navistar’s pre-intervention conduct was not
inconsistent with reliance on the right; that Navistar had not caused the intervenor to incur
unnecessary expenses by actively participating in pre-intervention proceedings; and that the
intervenor did not suffer cognizable prejudice as a result of Navistar’s “allegedly untimely
request for arbitration of a dispute that was not subject to arbitration in the first place.” Id. at
830.
Accordingly, we find the district court’s denials of NPC’s motions to compel arbitration
entirely consistent with our precedents.
3 The delay occasioned by NPC’s interlocutory appeal can only have exacerbated the prejudice sustained by plaintiffs. We note that the question of equitable tolling of the FLSA statute of limitations during the pendency of this appeal was raised below and the district court denied relief without prejudice, for lack of jurisdiction. The question is not before us and we express no opinion on the applicability of equitable tolling.
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III
Apart from the merits of the above analysis, NPC also challenges its premise. Because
all five cases present putative “collective actions” under the FLSA that have not yet been
certified for class treatment, NPC contends it is error not to evaluate the waiver issue
individually as to each plaintiff. That is, instead of measuring the significance of NPC’s delay in
asserting its right to arbitration and the resulting prejudice solely from the dates the complaints
were filed, NPC contends these factors should be evaluated for each “opt-in” plaintiff from the
date he or she opted in.
This issue was first raised in NPC’s motions to alter or amend the orders denying the
motions to compel arbitration under Fed. R. Civ. P. 59(e) or to grant relief from the orders under
Fed. R. Civ. P. 60(b). The district court denied the “motions for reconsideration” for three
reasons. First, the court held the motions were not a proper vehicle to raise a new legal issue that
could have been raised prior to the original rulings. Second, the court noted that NPC failed to
identify any controlling or persuasive authority for the proposition that the waiver issue must be
determined on an individualized plaintiff-by-plaintiff basis. Third, the court held that adopting
NPC’s approach would undermine the remedial design of the FLSA collective action
mechanism, i.e., efficient vindication of employees’ rights. Again, we find no fault in the district
court’s reasoning.
The district court looked to our decision in Manasher v. NECC Telecom, 310 F. App’x
804 (6th Cir. 2009), for guidance. In Manasher, defendant NECC was held to have waived its
right to arbitrate claims asserted in a putative class action because it failed to plead arbitration as
an affirmative defense and actively participated in litigation for almost a year before asserting the
right, causing prejudice in the form of unnecessary delay and expense. Id. at 806. We rejected
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NECC’s argument that its delay in asserting the right should be measured, not from the date of
the original complaint, but from the date of the amended complaint, when plaintiffs added two
new claims. We held “that the additional claims contained in the amended complaint did not
substantially alter the scope or theory of this matter in such a way as to revive the defendant’s
right to compel arbitration.” Id. at 807.
Although Manasher involved a Rule 23 class action, not a collective action under the
FLSA, the district court concluded that the rationale employed in Manasher applied with equal
force in this case. Indeed, the “similarly situated” standard under which plaintiffs enjoy the
advantages of collective proceedings under the FLSA is actually “less stringent” than the
requirements for joinder in Rule 23 class actions. O’Brien v. Ed Donnelly Enterprises, Inc.,
575 F.3d 567, 584 (6th Cir. 2009).
Here, NPC was on notice of the nature of plaintiffs’ claims in all five cases by January
2013. NPC knew then that all five actions were brought under the FLSA as collective actions on
behalf of “similarly situated” employees for unpaid compensation allegedly denied them
pursuant to NPC’s uniform policies and practices. Yet NPC made the conscious decision not to
assert the arbitration issue until April 2014. By then, more than two hundred opt-in plaintiffs had
filed their consents to join in the collective actions against NPC at different times as the litigation
progressed. Because all five cases were brought in the same court and assigned to the same
judge, and all plaintiffs are represented by the same counsel and assert claims for violations of
FLSA rights pursuant to the same uniform policies, the effects of NPC’s failure to timely raise
arbitration—in unnecessary delay and expense—is effectively the same for all plaintiffs,
irrespective of when they opted in. In relation to the issues posed by the waiver question, all
plaintiffs are “similarly situated.” Here too, as we observed in O’Brien, “it is clear that plaintiffs
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are similarly situated when they suffer from a single FLSA-violating policy, and when proof of
that policy or of conduct in conformity with that policy proves a violation as to all the plaintiffs.”
Id. at 585. Here too, as in Manasher, each opt-in plaintiff’s filing of consent to join “did not
substantially alter the scope or theory of this matter in such a way as to revive the defendant’s
right to compel arbitration.” Manasher, 310 F. App’x at 807.
Further, the district court properly heeded “the important remedial purpose” served by the
FLSA collective action mechanism. O’Brien, 575 F.3d at 586. “Through it, a plaintiff who has
suffered only small monetary harm can join a larger pool of similarly situated plaintiffs.” Id.
And “[t]hat pool can attract effective counsel who knows that if the plaintiffs prevail, counsel is
entitled to a statutorily required reasonable fee as determined by the court.” Id. The judicial
system, too, benefits from the collective action mechanism because it allows for efficient
resolution of common issues of law and fact arising from the same alleged unlawful activity.
Hoffman-La Roche Inc. v. Sperling, 493 U.S. 165, 170 (1989). All of these advantages would,
under the facts of these cases, be unnecessarily and imprudently subverted if the waiver issue had
to be individually assessed in relation to each plaintiff.

Outcome: For the reasons set forth above, the district court’s denials of NPC’s motions to dismiss or, in the alternative, to compel arbitration are, in all five cases, AFFIRMED.

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