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In re Papa John's Employee and Franchisee Employee Antitrust Litigation

United States District Court, W.D. Kentucky, Louisville Division

October 21, 2019



          Joseph H. McKinley Jr., Senior Judge

         This matter is before the Court on Defendants' Motion to Compel Arbitration [DN 58], Motion to Dismiss, or in the Alternative, to Strike [DN 59], and Motion for the Court to Take Judicial Notice [DN 60], as well as Plaintiffs' Motion for the Court to Take Judicial Notice [DN 73]. Fully briefed, these matters are ripe for decision. For the following reasons, the Defendants' Motion to Compel Arbitration is GRANTED, Motion to Dismiss or Strike is DENIED, and Motion for Judicial Notice is GRANTED. Plaintiffs' Motion for Judicial Notice is GRANTED.

         I. Background

         On January 28, 2019, the Court consolidated three putative class actions filed against Papa John's International, Inc. and Papa John's USA, Inc. (together, “Defendants” or “Papa John's”). [DN 39]. The Court ordered the Plaintiffs, current and former employees of Defendants, to file a consolidated amended complaint. On February 19, 2019, Plaintiffs Jay Houston, Ashley Page, and Jamiah Greer, on behalf of themselves and all others similarly situated, filed a Consolidated Amended Complaint (“CAC”). [DN 54]. According to the CAC, Defendants violated the Sherman Antitrust Act by “orchestrat[ing] an agreement between and among Papa John's restaurant franchisees, pursuant to which the franchisees agreed not to hire or solicit each other's employees or Papa John's employees.” [Id. at 1]. Because of this unlawful agreement, Plaintiffs allege that they suffered depressed wages and benefits and diminished employment opportunities. [Id. at 2].

         Papa John's franchises are independently owned and operated as separate legal entities from Defendants. [Id. at 17]. Papa John's International, Inc.-the franchising arm of Defendants-enters into a standard franchise agreement with each new franchise owner. Plaintiffs claim that every franchisee executing a franchise agreement beginning no later than 2010 and continuing through at least November 2017 agreed to a No-Hire provision. [Id. at 20]. The provision stated as follows:

You covenant that you will not, during the Term and for a period of one year after expiration or termination of the Franchise, employ or seek to employ any person who is employed by us, our Affiliates or by any of our franchisees, or otherwise directly or indirectly solicit, entice or induce any such person to leave their employment.

[Id.; DN 59-4 at 3]. Additionally, all franchisees agreed to penalties for violations of said agreement-for example, franchisees agreed that violation of the provision could result in termination of the franchise, among other things. [Id.]. Plaintiffs claim that Defendants used the franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor among themselves or the corporate-owned stores. [Id. at 9].

         Plaintiffs argue that this agreement is an unreasonable restraint of trade, violative of the Sherman Antitrust Act. More specifically, Plaintiffs maintain that the No-Hire agreement acts as a horizontal restraint of trade among competitors in the labor market and is a per se violation of the Sherman Act. [Id. at 35]. Defendants disagree and move to dismiss for failure to state a claim. [DN 59]. As grounds, Defendants argue that this is a vertical restraint and thus the rule of reason standard of review ought to apply. [59-1 at 7-12]. Applying the rule of reason, Defendants aver, the Court will easily conclude that Plaintiffs failed to adequately allege a violation of the Sherman Antitrust Act and, accordingly, the case must be dismissed. [Id. at 16-17].

         In this action, Plaintiffs seek to represent “[a]ll persons who were employed at a Papa John's restaurant located in the United States between January 1, 2010 through the present.” [DN 54 at 27]. In order to avoid the four-year statute of limitations on antitrust actions, Plaintiffs plead fraudulent concealment by Defendants. [Id. at 30-33]. Defendants Move to Strike Plaintiffs' fraudulent concealment allegations claiming that Plaintiffs failed to adequately plead each of the three requirements for tolling the statute of limitations under such a theory. [DN 59 at 2; DN 59-1 at 17-21].

         As an alternative to their Motion to Dismiss, Defendants Move to Strike Plaintiffs' class allegations. [DN 59 at 2-3; DN 59-1 at 21-25]. Defendants argue that the class allegations ought to be stricken before discovery begins because the proposed class is overbroad and fails to satisfy Federal Rule of Civil Procedure 23's requirements. [DN 59-1 at 17-21]. Plaintiffs respond that Defendants' Motion is severely premature and that the Court cannot adequately assess Rule 23's requirements at this stage. [DN 71 at 22-24].

         In addition to the Motion to Dismiss, or in the Alternative, to Strike, Defendants filed a Motion to Compel Arbitration and Dismiss Claims of Jamiah Greer, one of the named plaintiffs to this action. [DN 58]. Therein, Defendants assert that Greer affirmatively waived her right to resolution of her Sherman Act claim in a judicial forum and has limited herself to resolution of any such claim in arbitration. [DN 58-1 at 1-2]. Plaintiffs respond that the Motion to Compel arbitration must be denied because Greer's arbitration agreement only covered disputes arising out of or related to her employment with Papa John's, and her Sherman Act claim does not concern her employment but instead arises out of a conspiracy between and amongst Defendants and their franchisees. [DN 74].

         Finally, both parties filed motions for judicial notice. [DN 60; DN 73]. Defendants ask the Court to judicially notice three categories of exhibits offered in support of their Motion to Dismiss: (1) a U.S. Department of Justice (“DOJ”) Statement of Interest; (2) the fact that Defendants' Franchise Agreements are publicly filed with state agencies; and (3) the fact that Defendants' branded restaurants and other restaurants not associated with Defendants advertise job positions on various websites. [DN 60 at 2-4]. Plaintiffs in turn ask the Court to judicially notice two documents offered in support of their Opposition to the Motion to Dismiss: (1) a public letter from the American Antitrust Institute (“AAI”) to the DOJ and (2) two job postings for Papa John's delivery drivers. [DN 86 at 1].

         II. Standard of Review

         Upon a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), a court “must construe the complaint in the light most favorable to plaintiffs, ” League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), “accept all well-pled factual allegations as true, ” id., and determine whether the “complaint . . . states a plausible claim for relief, ” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Under this standard, the plaintiff must provide the grounds for its entitlement to relief, which “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when it “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. A complaint falls short if it pleads facts “merely consistent with a defendant's liability” or if the alleged facts do not “permit the court to infer more than the mere possibility of misconduct.” Id. at 679. Instead, “a complaint must contain a ‘short and plain statement of the claim showing that the pleader is entitled to relief.'” Id. at 663 (quoting Fed.R.Civ.P. 8(a)(2)). “But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

         If “matters outside the pleadings are presented to and not excluded by the court” when ruling upon a motion under Rule 12(b)(6), the Federal Rules require that “the motion must be treated as one for summary judgment under Rule 56.” Fed.R.Civ.P. 12(d). This Rule does not require the Court to convert a motion to dismiss into a motion for summary judgment every time the Court reviews documents that are not attached to the complaint. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999). “[W]hen a document is referred to in the complaint and is central to the plaintiff's claim . . . [, ] the defendant may submit an authentic copy [of the document] to the court to be considered on a motion to dismiss, and the court's consideration of the document does not require conversion of the motion to one for summary judgment.” Id. (quotation omitted). “Courts may also consider public records, matters of which a court may take judicial notice, and letter decisions of governmental agencies.” Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir. 1999), abrogated on other grounds, Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002).

         III. Discussion

         A. Motion to Compel Arbitration

         Defendants first move the Court to compel arbitration and dismiss the claim of Plaintiff Jamiah Greer. [DN 58]. Defendants argue that Greer's signing of an arbitration agreement during her hiring process precludes her participation in this lawsuit and affirmatively limits resolution of her claim to arbitration on an individual basis. [DN 58-1 at 3-4]. Plaintiffs oppose this Motion stating that Defendants misconstrue the Sherman Act claim. [DN 74 at 1]. Plaintiffs explain that the claim arises not out of Greer's employment relationship with Defendants, but from a conspiracy between and amongst Defendants and the franchisees. [Id.]. That being the case, Plaintiffs maintain that the instant action does not fall under the purview of the arbitration agreement and Greer may continue to be a part of this class. [Id. at 6].

         Defendants ask the Court to enforce an arbitration agreement. The arbitration agreement at issue provides that the FAA, 9 U.S.C. §§ 1-16, shall govern the agreement. “When asked by a party to compel arbitration under a contract, a federal court must determine whether the parties agreed to arbitrate the dispute at issue.” Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). The Sixth Circuit has explained a district court's role as follows:

When considering a motion to stay proceedings and compel arbitration under the Act, a court has four tasks: first, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the action are subject to arbitration, it must determine whether to stay the remainder of the proceedings pending arbitration.

Stout, 228 F.3d at 714 (citing Compuserve, Inc. v. Vigny Int'l Fin., Ltd., 760 F.Supp. 1273, 1278 (S.D. Ohio 1990)); see also N. Fork Collieries LLC v. Hall, 322 S.W.3d 98, 102 (Ky. 2010) (“The task of the trial court confronted with” a motion to compel arbitration “is simply to decide under ordinary contract law whether the asserted arbitration agreement actually exists between the parties and, if so, whether it applies to the claim raised in the complaint. If an arbitration agreement is applicable, the motion to compel arbitration should be granted”) (internal citations omitted).

         The parties do not dispute that a valid and enforceable arbitration agreement was signed by Greer. The crux of the disagreement is on the second point-the scope of that agreement. Although it is well-established that doubts about arbitrability in a labor agreement should be resolved in favor of arbitration, the Court may compel arbitration only over those issues the parties have agreed by contract to arbitrate. AT&T Tech., Inc. v. Commc'ns Workers of Am.,475 U.S. 643, 648 (1986) (“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not ...

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