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Court Calls Strip Club's Arbitration Strategy a 'Sham'

By William Vogeler, Esq. on January 22, 2018 | Last updated on March 21, 2019

The Crazy Horse Saloon owners must have thought that they could out-lawyer Alexis Degidio, the exotic dancer who sued the strip club for wage violations.

In Degidio v. Crazy Horse Saloon and Restaurant, she alleged the company wrongly treated exotic dancers as independent contractors to avoid paying minimum wage and overtime. She also claimed the defendant improperly took dancers' tips.

But after more than a year of discovery and motions, the Crazy Horse thought of another strategy -- compel arbitration. The U.S Fourth Circuit Court of Appeals said it was a sham.

Arbitration Agreement

Degidio filed her class action under the Fair Labor Standards Act in 2013, and the defendant responded with successive motions for summary judgment and other legal maneuvers. For the most part, they failed.

In the meantime, the Crazy Horse changed its contracts with its dancers. As a condition of the working arrangement, they had to agree to arbitration regarding potential claims.

The defendant then moved to compel arbitration, but a federal district judge denied the motion. The Fourth Circuit affirmed, saying the Crazy Horse was "disdainful of orderly judicial process" and lacked the "respect that opposing parties in an adversary proceeding are due."

"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 appeals court said.

Abused, Exploited

The appeals judges said the Crazy Horse secured the arbitration agreements from potential plaintiffs through meetings with the company's chief executive office or attorney. The court called them "sham" agreements that falsely represented their effect on the litigation.

"The combination of these circumstances rendered defendant's conduct indefensible from the get-go," the panel said. "The district court was right to describe the 'circumstances here' as 'distinct and disturbing.'"

In her complaint, Degidio said the defendant required dancers to rent the "Dollhouse" stages for $25 to $100 per shirt. They also had to share their tips -- their sole source of income -- with other club workers and the company.

The Fourth Circuit remanded the case for further proceedings.

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