Proving (or Not) the Existence of an Agreement to Arbitrate

Proving (or Not) the Existence of an Agreement to Arbitrate

      In the recent decision from the Federal District Court, it considered and ultimately rejected the defendant’s assertion that the plaintiff had agreed to arbitrate all disputes. That defendant was unable to prove a copy of the signed agreement to arbitrate and the testimony it solicited was internally inconsistent as to whether or not such an agreement would have been put in place. Tassy v. Lindsay Entertainment Enterprises, Inc., Civ. Act. No. 3:16-CV-00077-TBR, 2019 WL 1455797 (W.D. Ky. April 2, 2019).

      Tassy, on behalf of herself and others similarly situated, sought to bring a class action against Lindsay Entertainment Enterprises, Inc. on the basis of her misclassification as an independent contractor in contrast to being an employee. In response to the action, Lindsay asserted that Tassy was subject to an arbitration agreement. She denied that allegation, and the trial court conditionally certified the FLSA class. At a subsequent hearing, Lindsay proffered the testimony of three individuals to support that Tassy had entered into an agreement to arbitrate. The court framed the debate as follows:

At least regarding this threshold issue, the parties’ arguments are not complicated.  Tassy claims that she never signed an agreement containing an arbitration clause. On the other hand, Lindsay Entertainment Enterprises claims that she did.  Lindsay Entertainment Enterprises [a “gentleman’s club”] claims that pursuant to its standard practice, prior to working, all their dancers [of which Tassy was one] sign lease agreements that contain an arbitration clause. However, Lindsay Entertainment Enterprises is unable to produce such paperwork for Tassy because it was allegedly lost in a flood caused by a rusted-out water heater in the backroom where Tassy’s paperwork was stored. Lindsay Entertainment Enterprises claims further that, even if Tassy never signed the lease agreement containing the arbitration clause, Tassy accepted the terms of that lease agreement by acting in accordance with the agreement’s terms and continuing her employment.

2019 WL 1455797, *2 [bracket language added].

      The court noted as well that while there is a strong presumption in enforcing arbitration agreements, that presumption is not applicable in determining whether, in the first place, there exists an agreement to arbitrate. The court noted as well the rule that a contract is enforceable only if both parties agreed to be bound thereby.

      Parsing the testimony of those individuals called by Lindsay, the court noted a number of inconsistencies as to their testimony including when the alleged meetings took place, when in the hiring process the paperwork is completed and the failure to demonstrate that, at the time the alleged paperwork was completed, that it contained an agreement to arbitrate. The three persons called upon were not able to demonstrate that Lindsay had a standard business practice as to the completion of the paperwork and the hiring process. Ultimately:

The defendants were required to make a prima facia case for the existence of an arbitration agreement. For the reasons detailed above, they have not. ….  Ultimately, after weighing all the evidence, the Court finds that Lindsay Entertainment Enterprises has failed to make out a prima facia case for the existence of an arbitration agreement between itself and Tassy. Id., *5.

      The court would go on to reject the notion that by continuing to work, Tassy agreed to arbitrate any disputes. Rather, while in certain circumstances an unsigned arbitration agreement may be enforceable, the existence of various workplace rules and regulations “provide no indication that [Tassy] was ever made aware the one of those policies was an agreement to arbitrate.”

      The court concluded by addressing the decision rendered in Northern Kentucky Area Dev. Dist. v. Snyder and recently approved Kentucky Senate Bill 7, noting:

Finally, the Court takes due note of Tassy’s Notice of Supplemental Authority. The Court is aware of the Supreme Court of Kentucky’s recent holding in Northern Kentucky Area Dev. Dist. v. Snyder, No. 2017-SC-000277-DG. Tassy was correct—at the time—to bring such authority to the Court’s attention. However, since Northern Kentucky Area Dev. Dist. v. Snyder, Kentucky State Senate Bill 7, which amends KRS 336.700 and will apply both prospectively and retroactively, was signed into law on March 25, 2019. It effectively nullifies the Supreme Court’s holding in Northern Kentucky Area Dev. Dist. v. Snyder.

Id.