Sutherland v. Ernst &Amp; Young LLP

• Decision Date: 09 August 2013
• Docket Number: Docket No. 12–304–cv.
• Citation: 726 F.3d 290
• Court: U.S. Court of Appeals — Second Circuit
• Parties: Stephanie SUTHERLAND, on behalf of herself and all others similarly situated, Plaintiff–Appellee, v. ERNST & YOUNG LLP, Defendant–Appellant.

726 F.3d 290

Stephanie SUTHERLAND, on behalf of herself and all others similarly situated, Plaintiff–Appellee,

v.ERNST & YOUNG LLP, Defendant–Appellant.

Docket No. 12–304–cv.

United States Court of Appeals, Second Circuit.

Argued: March 20, 2013.

Decided: Aug. 9, 2013.

Rex S. Heinke (Gregory W. Knopp, Katharine J. Galston, Daniel L. Nash, on the brief), Akin Gump Strauss Hauer & Feld LLP, Los Angeles, CA and Washington, DC, for Defendant–Appellant Ernst & Young LLP.

Max Folkenflik (H. Tim Hoffman, Arthur W. Lazear, Ross L. Libenson, Hoffman & Lazear, Oakland, CA, on the brief), Folkenflik & McGerity, New York, NY, for Plaintiff–Appellee Stephanie Sutherland.

P. David Lopez, Lorraine C. Davis, Daniel T. Vail, Paul D. Ramshaw, Equal Employment Opportunity Commission, Office of General Counsel, Washington, DC, for Amicus Curiae U.S. Equal Employment Opportunity Commission.

M. Patricia Smith, Steven J. Mandel, Paul L. Frieden, Edward D. Sieger, Dean A. Romhilt, United States Department of Labor, Office of the Solicitor, Washington, DC, for Amicus Curiae United States Department of Labor.

Dan C. Getman, Michael J.D. Sweeney, Lesley Tse, Getman & Sweeney PLLC, New Paltz, NY; Rebecca M. Hamburg, National Employment Lawyers Association, San Francisco, CA, for Amici Curiae National Employment Lawyers Association, the National Employment Law Project, The Employee Rights Advocacy Institute for Law & Policy.

Before: WINTER, CABRANES, and STRAUB, Circuit Judges.

PER CURIAM:

The question presented in this appeal is whether an employee can invalidate a class-action waiver provision in an arbitration agreement when that waiver removes the financial incentive for her to pursue a claim under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201, et seq. In light of the supervening decision of the Supreme Court in American Express Co. v. Italian Colors Restaurant, ––– U.S. ––––, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), we answer that question in the negative, and reverse the contrary decision of the United States District Court for the Southern District of New York (Kimba M. Wood, Judge ).

Defendant-appellant Ernst & Young (“E & Y”) appeals from an order of the District Court denying its Rule 12(b)(1) motion to dismiss or stay the proceedings, and to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq. E & Y seeks to dismiss or stay this putative class action brought by its former employee, Stephanie Sutherland, on behalf of herself and others similarly situated to recover “overtime” wages pursuant to the FLSA, and the New York Department of Labor's Minimum Wage Order, N.Y. Comp.Codes R. & Regs. tit. 12, § 142–2.2, promulgated pursuant to the New York Labor Law (“NYLL”) § 650, et seq.¹

The District Court denied E & Y's motion to compel arbitration because it found that the underlying class-action waiver provision in the arbitration agreement between E & Y and Sutherland was unenforceable pursuant to our decision in In re American Express Merchants' Litigation, 554 F.3d 300 (2d Cir.2009) (“Amex I ”). In that case, we invalidated a class-action waiver provision in an arbitration agreement because (1) the plaintiffs had shown that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver,” and (2) enforcing the arbitration agreement would “deprive them of substantive rights under the federal antitrust statutes.” Id. at 315–16. But Amex I and the decisions that followed in our Circuit are no longer good law ² in light of the Supreme Court's recent decision in American Express Co. v. Italian Colors Restaurant, –––U.S. ––––, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), which held that plaintiffs could not invalidate a waiver of class arbitration under the so-called “effective vindication doctrine” by showing that “they ha[d] no economic incentive to pursue their antitrust claims individually in arbitration.” Id. at 2310;see id. at 2311 (“But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”).

Because Italian Colors abrogated the District Court's basis for invaliding the class-action waiver provision in this case, we conclude that the District Court erred in denying E & Y's motion to compel arbitration. Accordingly, we reverse the District Court's March 3, 2011 order and remand the cause for further proceedings consistent with this opinion.

BACKGROUND

Sutherland was employed by E & Y from September 2008 through December 2009. During her tenure at E & Y, she worked as a “Staff 1” and later as a “Staff 2” audit employee. Most of her responsibilities involved “pre-professional training” and “low level clerical work.” Joint App'x 23. Sutherland was compensated by E & Y on a “salary only” basis, which meant that she was paid a fixed salary of $55,000 per year, regardless of how many hours she worked. As relevant here, because Sutherland was a “salary only” employee, she did not receive any additional compensation for working “overtime”— i.e., more than 40 hours per week. Id. at 234. Sutherland alleges that she “regularly worked in excess of 40 hours in a work week, often 45 to 50 hours in one week.” Id. at 23.

When Sutherland accepted her offer of employment with E & Y, she signed a so-called offer letter. That offer letter stated, inter alia, that “if an employment related dispute arises between you and the firm, it will be subject to mandatory mediation/arbitration under the terms of the firm's alternative dispute resolution program, known as the Common Ground Program, a copy of which is attached.” Id. at 38 (emphasis omitted). Sutherland also signed a confidentiality agreement, which listed the terms of the “Alternative Dispute Resolution” policy and stated:

I further agree that any dispute, controversy or claim (as defined in the E & Y Common Ground Dispute Resolution Program (AA7521) attached) arising between myself and the Firm will be submitted first to mediation and, if mediation is unsuccessful, then to binding arbitration in accordance with the terms and conditions set forth in AA7521, which describes the Firm's Common Ground Dispute Resolution Program. I acknowledge that I have read and understand the E & Y Common Ground Dispute Resolution Program (AA7521) and that I shall abide by it.

Id. at 44.

As noted, a copy of the E & Y Common Ground Dispute Resolution Program (“Arbitration Agreement”) was attached to the offer letter and the confidentiality agreement. As relevant here, the Arbitration Agreement specifically states that “[c]laims based on federal statutes such as ... the Fair Labor Standards Act,” “[c]laims based on state statutes and local ordinances, including state and local anti-discrimination laws,” and “[c]laims concerning wages, salary, and incentive compensation programs” are subject to the terms of the Arbitration Agreement. Id. at 47. The terms of the Arbitration Agreement also include the following two relevant provisions: (1) “Neither the Firm nor an Employee will be able to sue in court in connection with a Covered Dispute,” id. (emphasis omitted); and (2) “Covered Disputes pertaining to different [e]mployees will be heard in separate proceedings,” id. at 59.³

Despite the terms of the Arbitration Agreement, which the parties agree bars both civil lawsuits and “any class or collective proceedings in the arbitration,” Sutherland's Br. 11, Sutherland filed this putative class action against E & Y to recover, inter alia, 151.5 hours of unpaid overtime wages, amounting to $1,867.02. In particular, Sutherland claimed that E & Y had wrongfully classified her as “exempt” from the overtime requirements of the FLSA and the NYLL.

After Sutherland filed her putative class action, E & Y filed a motion to dismiss, or stay the proceedings, and to compel arbitration of Sutherland's claims on an individual basis in accordance with the terms of the Arbitration Agreement. Sutherland responded by arguing that the entire provision requiring individual arbitration was unenforceable because the requirement that she arbitrate her claims individually, rather than collectively, prevented her from “effectively vindicating” her rights under the FLSA and the NYLL. In particular, she argued that the costs and fees associated with prosecuting her claims on an individual basis would dwarf her potential recovery of less than $2,000.⁴ In support of this argument, Sutherland filed an uncontested estimate that her attorney's fees during arbitration would be $160,000 and that her costs would exceed $6,000. She also claimed that expert testimony would be necessary and would cost at least $25,000. In sum, she argued that to “effectively vindicate” her claims in an individual arbitration, she would be required to expend approximately $200,000 to recover less than $2,000.

The District Court was persuaded by Sutherland's arguments and, on March 3, 2011, denied E & Y's motion to dismiss, or stay the proceedings, and to compel arbitration on an individual basis. In doing so, the District Court relied in large part on our analysis in Amex I, 554 F.3d 300, which invalidated a provision barring class actions in the antitrust context where plaintiffs demonstrated that they would be unable to vindicate their statutory rights if that provision was enforced. See Sutherland v. Ernst & Young LLP, 768 F.Supp.2d 547, 549 (S.D.N.Y.2011). Specifically, the District Court stated that “[e]nforcement of the class waiver provision in this case would effectively ban all proceedings by Sutherland against E & Y,” id. at 554, because of the nature of her “low-value, high-cost claim,” id. at 552.

On March 31, 2011, E & Y moved for reconsideration of the District Court's March 3, 2011 order in light of the Supreme Court's subsequent decision in AT & T Mobility LLC v. Concepcion, ––– U.S. ––––, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). The District Court denied that motion on January 17, 2012,...