Alexis Degidio, individually and on behalf of all others similarly situated v. Crazy Horse Saloon and Restaurant Inc, d/b/a Thee New Dollhouse

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1145
ALEXIS DEGIDIO, individually and on behalf of all others similarly situated,
Plaintiff - Appellee,
v.
CRAZY HORSE SALOON AND RESTAURANT INC, d/b/a Thee New
Dollhouse,
Defendant - Appellant,
and
JOSEPH B. HARGADON,
Third Party Defendant.
Appeal from the United States District Court for the District of South Carolina, at
Florence. Bruce H. Hendricks, District Judge. (4:13-cv-02136-BHH)
Argued: December 5, 2017 Decided: January 18, 2018
Before WILKINSON, KING, and FLOYD, Circuit Judges.
Affirmed and remanded by published opinion. Judge Wilkinson wrote the opinion, in
which Judge King and Judge Floyd joined.

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ARGUED: James Leon Holt, Jr., JACKSON, SHIELDS, YEISER & HOLT, Cordova,
Tennessee, for Appellant. Jamisen A. Etzel, CARLSON LYNCH SWEET KILPELA &
CARPENTER, LLP, Pittsburgh, Pennsylvania, for Appellee. ON BRIEF: Gary Lynch,
CARLSON LYNCH SWEET KILPELA & CARPENTER, LLP, Pittsburgh,
Pennsylvania, for Appellee.

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WILKINSON, Circuit Judge:
Plaintiff-appellee Alexis Degidio filed a putative collective and class action
against defendant-appellant Crazy Horse Saloon and Restaurant, Inc. (Crazy Horse). This
appeal concerns the enforceability of arbitration agreements that were executed more
than a year after this litigation began.1
Arbitration is a valuable means of resolving disputes expeditiously, but this case
shows that it can sometimes be abused to prolong litigation, exploit the judicial process,
and give defendants two opportunities to prevail on the merits. The district court denied
Crazy Horse’s motion to compel arbitration. For the reasons that follow, we affirm its
judgment and remand for further proceedings consistent with this opinion.
Degidio also argues on appeal that because the National Labor Relations Act
(NLRA) protects employees’ right to “engage in . . . concerted activities for . . . mutual
aid or protection,” 29 U.S.C. § 157, it invalidates arbitration agreements that prevent
employees from bringing class or collective actions against employers. This question is
currently before the Supreme Court. See Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th
Cir. 2016), cert. granted, 137 S. Ct. 809 (Jan. 13, 2017) (No. 16-285). Since we find the
1 A collective action under the Fair Labor Standards Act (FLSA) differs from a
class action under Federal Rule of Civil Procedure 23 because potential plaintiffs can join
an FLSA collective action only by affirmatively giving consent in writing to become a
party. 29 U.S.C. § 216(b). In a class action, by contrast, plaintiffs are presumed to be
members of a class unless they affirmatively opt out of the class proceeding. Fed. R. Civ.
P. 23(b)(3).

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arbitration agreements infirm for reasons quite independent of the question raised in Epic
Systems, we have no need to address that issue.
I.
Degidio performed as an exotic dancer at Crazy Horse’s gentlemen’s club in 2012
and 2013. Crazy Horse classified entertainers who performed at its club as “independent
contractors.” The entertainers were not paid by Crazy Horse, but were instead
compensated through customer tips.2
Degidio filed this class and collective action on August 8, 2013. Degidio alleged
that Crazy Horse misclassified her and other putative class members as independent
contractors and that it further violated the minimum wage and overtime provisions of the
Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. Degidio also claimed that
Crazy Horse violated the South Carolina Payment of Wages Act (SCPWA), S.C. Code
§ 41-10-10 et seq., by failing to pay entertainers the appropriate minimum wages,
improperly denying them overtime wages, and inappropriately withholding the
entertainers’ tips.
Over the course of litigation, Crazy Horse adopted three distinct strategies to
defeat Degidio’s claim. First, Crazy Horse attempted to win the judicial action on the
merits by filing multiple motions for summary judgment. Second, it repeatedly asked the
district court to certify questions of state law to the South Carolina Supreme Court. And
third, it sought to compel arbitration on agreements executed after the commencement of
2 Crazy Horse began to operate under the name “Thee New Dollhouse” on March
1, 2012.

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this suit. Only after the district court had resolved on the merits a number of legal issues
did Crazy Horse ask the court to enforce the arbitration agreements.
As the ensuing chronology makes clear, Crazy Horse was disdainful of orderly
judicial process and lacking in the respect that opposing parties in an adversary
proceeding are due. Crazy Horse began its maneuvers when it answered Degidio’s
complaint on October 8, 2013, but did not move to compel arbitration. The parties then
participated in discovery until November 2014.
In November and December 2014, at the very end of the discovery period, Crazy
Horse began entering arbitration agreements with entertainers who had worked at the
club. The arbitration provision was contained in a lease that Crazy Horse distributed to
entertainers who used its facilities. Crazy Horse told entertainers that they were required
to sign the lease as a condition of performing at the club. The agreement waived the
signatory’s right to participate in any class action against Crazy Horse, including any
class that might be certified in this case. Prior to executing the agreements, Crazy Horse
did not inform the district court that it was communicating with potential class members
about pending litigation.
In December 2014, Crazy Horse moved for summary judgment on all claims.
Crazy Horse’s motion for summary judgment relied on evidence obtained in discovery,
including deposition testimony, to argue that its entertainers were legally classified as
independent contractors and thus not entitled to the protections of the FLSA. Crazy Horse
did not mention arbitration in this motion for summary judgment. The next day, Degidio

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moved for Rule 23 class certification for the state law claims and conditional certification
of a collective action under the FLSA.
On January 19, 2015, Crazy Horse opposed Degidio’s motions for FLSA
conditional certification and Rule 23 class certification and—for the first time in the
litigation—argued that the district court should compel arbitration against any
entertainers who had signed arbitration agreements.
In support of its motion to compel arbitration, Crazy Horse submitted signed
declarations in which entertainers explained why they chose to sign the agreement. All of
the entertainers stated that they preferred to be independent contractors because they
enjoyed having the freedom to work at other clubs, set their own work schedules, and
keep the money they received in tips. Crazy Horse also filed an affidavit from its CFO
Laura Watson explaining that Crazy Horse had begun entering arbitration agreements
with entertainers in November 2014.
On September 30, 2015, the district court granted in part and denied in part Crazy
Horse’s motion for summary judgment. Specifically, the district court dismissed two of
Degidio’s three SCPWA claims, those for minimum wages and overtime pay. The court
found, however, that entertainers who performed at Crazy Horse were employees for
purposes of the FLSA. Based on this finding, the district court granted Degidio’s motion
for conditional certification of an FLSA collective action and authorized Degidio’s
counsel to send notice to putative plaintiffs. The district court also “question[ed] the
enforceability of the arbitration agreements as they pertain to this action.” J.A. 478–81
(citing Billingsley v. Citi Trends, Inc., 560 Fed. Appx. 914, 919 (11th Cir. 2014)). The

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district court expressed concern “that potential class members have been misled about the
nature of the plaintiff’s claims, the implications of being classified as an employee, and
what an employee would need to show to recover under the FLSA.” J.A. 480.
Shortly after notice had been sent to potential class members informing them of
their right to opt into Degidio’s FLSA collective action, on October 26, 2015, Crazy
Horse filed another motion for summary judgment. In the motion, Crazy Horse argued
only that it was entitled to summary judgment on Degidio’s remaining SCPWA claim. It
again did not mention arbitration.
After Crazy Horse filed that summary judgment motion, between November 2015
and January 2016, more than a dozen new plaintiffs joined this litigation. Nine of those
plaintiffs had signed the arbitration agreements Crazy Horse is trying to enforce in this
appeal.
Moreover, on November 30, 2015, only a month after it had filed a motion for
summary judgment on Degidio’s SCPWA claims, Crazy Horse began serving written
discovery on the opt-ins, including each opt-in who signed an arbitration agreement.
Crazy Horse asked the opt-ins to produce documents relating to their sources of income,
their work history, the number of hours they worked, and the remuneration they received
from defendants. See, e.g., Miller Interrogatories, J.A. 874-76. All of these questions
probe merits issues that are relevant to Degidio’s SCPWA and FLSA claims, but are
unrelated to the question of arbitrability.
The district court denied Crazy Horse’s motion for summary judgment on June 3,
2016. Seven days later, Crazy Horse moved to certify several questions of South Carolina

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law to the South Carolina Supreme Court. The district court properly denied the motion
because it had earlier ruled on the exact same questions at Crazy Horse’s request.3
Undeterred, Crazy Horse filed a second motion to certify the wages issue to the South
Carolina Supreme Court on August 11, 2016.
Before the district court had ruled on Crazy Horse’s second motion to certify state
law questions to the South Carolina Supreme Court, on October 31, 2016, Crazy Horse
filed another motion for summary judgment. The case had now been ongoing for more
than three years, and more than nine months had passed since the latest opt-in had joined
the FLSA collective action. This time, Crazy Horse sought to compel arbitration against
the nine plaintiffs who had signed arbitration agreements in November and December
2014.
On January 26, 2017, the district court entered an omnibus order denying Crazy
Horse’s second motion to certify questions of state law, rejecting the motion to compel
arbitration, and granting Degidio’s motion for conditional class certification. As to
arbitration, the court found that Crazy Horse had obtained the arbitration agreements
through a unilateral, unsupervised, and misleading pattern of communication with absent
class members initiated more than a year after the pendency of this case. J.A. 909. It thus
declined to enforce the arbitration agreements. Crazy Horse now appeals this decision.
3 Specifically, Crazy Horse argued that it was unclear whether “tips” qualified as
“wages” for purposes of South Carolina law, and that the South Carolina Supreme Court
should be given an opportunity to weigh in on this question. Crazy Horse had asked the
district court to resolve this exact same question in an earlier motion for summary
judgment. The district court did so seven days before Crazy Horse filed this motion.

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II.
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, adopted “a liberal federal
policy favoring arbitration agreements.” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983). The FAA recognizes that arbitration is an expeditious way
to resolve disputes and conserve judicial resources. Hightower v. GMRI, Inc., 272 F.3d
239, 242 (4th Cir. 2001). It accordingly requires that courts stay “any suit or proceeding”
pending arbitration of “any issue referable to arbitration under an agreement in writing
for such arbitration.” 9 U.S.C. § 3. Pursuant to this directive, courts generally respect
contractual agreements to settle disputes via arbitration. See AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 341 (2011) (“[C]ourts must place arbitration agreements on
an equal footing with other contracts.”).
However, the policy undergirding the FAA is not without limits. “A litigant may
waive its right to invoke the Federal Arbitration Act by so substantially utilizing the
litigation machinery that to subsequently permit arbitration would prejudice the party
opposing the stay.” Fraser v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250,
252 (4th Cir. 1987) (quoting Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974, 981
(4th Cir. 1985)). This is because “[a]rbitration laws are passed to expedite and facilitate
the settlement of disputes and avoid the delay caused by litigation,” not to provide “a
means of furthering and extending delays.” Radiator Specialty Co. v. Cannon Mills, 97
F.2d 318, 319 (4th Cir. 1938). “Two factors specifically inform our inquiry into actual
prejudice: (1) the amount of the delay; and (2) the extent of the moving party’s trial-
oriented activity.” Stedor Enters., Ltd. v. Armtex, Inc., 947 F.2d 727, 730 (4th Cir. 1991).

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Crazy Horse employed judicial proceedings to pursue a litigation strategy for over
three years, and it did so to the detriment of plaintiffs in this case. Instead of filing a
motion to compel arbitration at an early stage in the litigation process, Crazy Horse filed
multiple motions for summary judgment, served discovery, and twice asked the district
court to certify questions of state law to the South Carolina Supreme Court. This was
litigation activity aimed at obtaining a favorable ruling on the merits of the case. In fact,
Crazy Horse had already obtained favorable rulings from the district court to the effect
that Degidio’s claims for minimum wages and overtime under the SCPWA were
preempted.
In pursuing this merits-based strategy for three years, Crazy Horse actively sought
to obtain a favorable legal judgment. In doing so, it forced plaintiffs and the district court
to spend unnecessary time and resources on issues that might have had to be reargued
before an arbitrator. This conduct could not be more at odds with the FAA’s goal of
facilitating the expeditious settlement of disputes.
Of course, if the district court had granted any of Crazy Horse’s motions for
summary judgment, then arbitration would have been unnecessary: the district court
would already have resolved the dispute and arbitration would serve no purpose. The
only possible purpose of the arbitration agreements, then, was to give Crazy Horse an
option to revisit the case in the event that the district court issued an unfavorable opinion.
In other words, Crazy Horse did not seek to use arbitration as an efficient alternative to
litigation; it instead used arbitration as an insurance policy in an attempt to give itself a
second opportunity to evade liability.

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Crazy Horse claims that it filed its motion to compel arbitration as quickly as
possible. According to the club, it did not delay because it could not move to compel
arbitration against parties who had yet to join Degidio’s suit. And, because Degidio did
not herself sign an arbitration agreement, Crazy Horse argues that there was no party
against whom it could have moved to compel arbitration until after signatories had opted
to join the action. This argument is doubly misguided.
The first difficulty with this argument is that it misrepresents the procedural
history of the case. Crazy Horse began executing the arbitration agreements in November
2014. Crazy Horse did not need to wait to inform the district court about its arbitration
strategy until entertainers who had signed arbitration agreements joined the case. It could
instead have told the district court that it intended to compel arbitration with respect to
any entertainers who elected to sign arbitration agreements and then proceeded to join
Degidio’s lawsuit. The fact that the arbitration agreements expressly mentioned this
lawsuit suggests that Crazy Horse was well aware that the agreements were relevant to
the ongoing litigation. Had Crazy Horse informed the district court of its intention to
compel arbitration at this earlier stage of litigation, the trial judge would have been able
to monitor communications between Crazy Horse and potential plaintiffs. As a practical
matter, the district court could have waited to issue merits judgments until the prior
arbitration question had been settled. In this way, the district court would not have had to
decide legal questions that might ultimately be rehashed by the arbitrator.
As we have noted, however, rather than moving for arbitration, Crazy Horse
proceeded to make a number of legal arguments before the district court over a period of

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three years. For example, in December 2014, a few weeks after it began executing
arbitration agreements, Crazy Horse filed a summary judgment motion asking the court
to decide the case on the merits. Then, after Crazy Horse informed the court in January
2015 that many potential plaintiffs had signed arbitration agreements, the club filed two
more merits-based summary judgment motions and asked the trial judge to certify
questions of law to the South Carolina Supreme Court. Even after the opt-ins had joined
the class, Crazy Horse continued to pursue a merits-based litigation strategy before
asking the court to compel arbitration. For instance, Crazy Horse asked the district court
to reconsider its order on Degidio’s SCPWA claim and to again certify questions of law
to the South Carolina Supreme Court. In addition, Crazy Horse served discovery on all of
the opt-ins who had signed arbitration agreements. But rather than limit discovery to
questions of arbitrability, Crazy Horse included interrogatories and requests for
production on numerous details of the opt-ins’ employment history and income. In doing
so, Crazy Horse continued to act as though all of the claims would be disposed of in
litigation—not in an arbitral proceeding.
There is a second reason to reject Crazy Horse’s contention that it could not file a
motion to compel arbitration until after the district court had conditionally certified an
FLSA class. Such a ruling would give defendants a perverse incentive to wait as long as
possible to compel arbitration. Generally, arbitration agreements are signed before the
commencement of any litigation. When such agreements are executed during the
pendency of litigation, there is an increased risk that arbitration will operate not to

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expedite the resolution of disputes, but to prolong the entire process and to give
defendants a second opportunity to contest unfavorable judgments.
This all turns the arbitral process on its head. Instead of giving the parties to an
arbitration agreement one neutral arbiter, it grants defendant two bites at the apple. It is
hard to escape the impression that defendants knew exactly what they were up to, and the
district court was quite right to put a stop to it. By treating arbitration as a backstop and
as a last resort rather than as a substitute for judicial proceedings, Crazy Horse pushed
this case further and further from the FAA’s mandate of helping parties resolve disputes
expeditiously.
Moreover, the arbitration agreements that Crazy Horse presented to potential
plaintiffs painted a false picture of the entertainers’ legal posture. Specifically, the
agreements suggested that the entertainers’ ability to keep tips and set their own
schedules was a result of their designation as independent contractors, and that this
designation would be imperiled if the entertainers joined Degidio’s suit.
The proposed arbitration agreements were quite clear that entertainers would be
able to enjoy important remunerative and scheduling benefits only if they worked as
independent contractors. For example, Paragraph 7.C of the agreement, which
summarized the benefits of being an independent contractor, specified that an
entertainer’s ability to “choose the days or evenings to appear and perform at the club”
was contingent on the entertainer retaining her status as an independent contractor and

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signing the arbitration agreement.4 J.A. 78. Paragraph 7.B further emphasized that if the
entertainers were found to be employees, then Crazy Horse “would be required to collect,
and would retain, all Performance Fees paid by guests to Performer.”5 Id.
In their declarations, the entertainers appear to have been operating under the
misunderstanding that they would be able to keep their tips and flexible work schedule
only if they were independent contractors, and that they would be able to assure
themselves of that status only by signing the arbitration agreements. See J.A. 85-98. But
the benefits that seemingly led the entertainers to sign arbitration agreements are
available to both employees and independent contractors alike. See Tony & Susan Alamo
Found. v. Sec’y of Labor, 471 U.S. 290, 301-02 (1985). The FLSA requires that
4 Paragraph 7.C stated in full: “Performer is a skilled entertainer and the Club is
not responsible for providing training or instruction on performances. Since Performer
understands that for all purposes under this Agreement, Performer will operate as an
independent contractor Performer, Performer retains full independence in exercising
judgment as to the time and manner in performing at the Club. For example, Performer
shall have the sole and exclusive right to choose the days or evenings to appear and
perform at the Club, and individual choice over his/her costumes, props, or any other
equipment used during performance. Performer is solely responsible for the development
of any performances, number of hours spent performing, and the final control over any
aspect of the presentation of any performances.” J.A. 79.
5 Paragraph 7.B stated in full: “The Club and Performer acknowledge and
represent that if the relationship between them was that of employer and employee, the
Club would be required to collect, and would retain, all Performance Fees paid by guests
to Performer. Performer acknowledges and agrees that if the relationship were one of
employer/employee, all Performance Fees would be the property of the Club. THE
PARTIES ACKNOWLEDGE AND REPRESENT THAT PERFORMER’S RIGHT TO
OBTAIN AND KEEP PERFORMANCE FEES PURSUANT TO THIS LICENSE IS
SPECIFICALLY CONTINGENT UPON THE BUSINESS RELATIONSHIP OF THE
PARTIES BEING THAT OF THE CLUB BEING A LICENSOR AND TEMPORARY
SPACE LESSOR AND PERFORMER BEING AN INDEPENDENT PERFORMER
LICENSEE AND TEMPORARY SPACE LESSEE.” J.A. 79.

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employers pay a minimum wage and overtime rates to their employees. 29 U.S.C. §§
206-07. It does not prevent parties—whether they be businesses, employees, or
independent contractors—from getting together to settle most questions of wages and
scheduling to their mutual satisfaction. See Roland Elec. Co. v. Walling, 326 U.S. 657,
668 (1946). In other words, while the parties cannot circumvent the FLSA with a simple
contractual declaration, see Tony & Susan Alamo Found., 471 U.S. at 302, they remain
free to determine most features of their relationship. Insofar as the entertainers signed the
arbitration agreements because they thought that employment status would deprive them
of any say-so over the conditions of their employment, the agreements are misleading.
As a final matter, the agreements were all presented to plaintiffs in a furtive
manner. When it comes to FLSA collective actions, the mechanism by which parties join
an ongoing lawsuit reposes in district courts the responsibility to supervise and manage
contacts with potential plaintiffs. To join an FLSA class, each potential plaintiff must
consent in writing to become a party in the case. 29 U.S.C. § 216(b). This mechanism has
come to be known as the “opt-in” requirement.
The FLSA’s opt-in requirement was enacted in response “to excessive litigation
spawned by plaintiffs lacking a personal interest in the outcome.” Hoffmann-La Roche,
Inc. v. Sperling, 493 U.S. 165, 173 (1989). The requirement seeks to balance employees’
interest in pooling resources to bring collective actions and employers’ interest in
reducing baseless lawsuits. In order to strike this balance, district courts must be able to
supervise contacts between the parties and their respective counsel to ensure that
potential plaintiffs are not misled about the consequences of joining a class in an ongoing

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employment dispute. The district court’s supervisory role helps to ensure that “employees
receiv[e] accurate and timely notice . . . so that they can make informed decisions about
whether to participate.” Hoffmann-La Roche, 493 U.S. at 170; see also Kleiner v. First
Nat’l Bank of Atlanta, 751 F.2d 1193, 1201-03 (11th Cir. 1985) (“Because trial court
involvement in the notice process is inevitable in cases with numerous plaintiffs where
written consent is required by statute, it lies within the discretion of a district court to
begin its involvement early, at the point of the initial notice, rather than at some later
time.”).
The agreements in this case were all obtained after potential plaintiffs met with
Crazy Horse’s CFO or counsel. The setting here was ripe for duress: Not only were
arbitration agreements executed without knowledge of the court and in the context of an
employment relationship in which the employer alone could profess the requisite legal
expertise. They falsely suggested that participation in the lawsuit would deprive potential
plaintiffs of important professional rights. The combination of these circumstances
rendered defendant’s conduct indefensible from the get-go. The district court was right to
describe the “circumstances here” as “distinct and disturbing,” J.A. 911, and it correctly
denied enforcement of these sham agreements. We respect the admirable care and
patience of that court in the face of obviously trying circumstances.
The judgment of the district court is affirmed and the case remanded for further
proceedings consistent with this opinion.
AFFIRMED AND REMANDED

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