Jock v. STERLING JEWELERS, INC., 08 Civ. 2875(JSR).

• Citation: 677 F. Supp.2d 661
• Decision Date: 28 December 2009
• Docket Number: No. 08 Civ. 2875(JSR).,08 Civ. 2875(JSR).
• Parties: Laryssa JOCK, et al., Plaintiffs, v. STERLING JEWELERS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

677 F.Supp.2d 661

Laryssa JOCK, et al., Plaintiffs, v. STERLING JEWELERS, INC., Defendant.

No. 08 Civ. 2875(JSR).

United States District Court, S.D. New York.

December 28, 2009.

Jenny Rae Yang, Joseph M. Sellers, Sahar Aziz, Cohen, Milstein, Hausfeld & Toll PLLC, Washington, DC Loren B. Donnell, Sam J. Smith, Burr & Smith, LLP, Tampa, FL, Lynda J. Grant, Cohen, Milstein, Hausfeld & Toll, P.L.L.C., New York, NY, Thomas Warren, Thomas A. Warren Law Offices, Tallahassee, FL, for Plaintiffs.

Gerald Leonard Maatman, Jr., Seyfarth Shaw LLP, Chicago, IL, Stephen S. Zashin, Zashin & Rich Co., L.P.A., Cleveland, OH, for Defendant.

OPINION AND ORDER

JED S. RAKOFF, District Judge.

Plaintiffs, current and former female employees of defendant Sterling Jewelers, Inc. ("Sterling"), a nationwide specialty jeweler, brought this class action alleging that Sterling discriminated against them in pay and promotion on the basis of their gender, in violation of Title VII, 42 U.S.C. § 2000e et seq., and the Equal Pay Act, 29 U.S.C. § 206(d). By summary Order dated June 18, 2008, the Court granted plaintiffs' motion to refer the dispute to arbitration and to stay the instant litigation pending conclusion of that arbitration. In a Memorandum Order dated July 15, 2008 that elucidated the reasons for that ruling, the Court determined that the arbitration agreement granted the Court discretion as to whether to decide or to refer to the arbitrator certain threshold issues, notably, whether the matter could proceed as a class action; and the Court decided that referral of such issues to the arbitrator made better sense. Jock v. Sterling Jewelers, Inc., 564 F.Supp.2d 307, 311 (S.D.N.Y.2008). Thereafter, the arbitrator, on June 1, 2009, issued a threshold ruling that the arbitration agreement did not prohibit class arbitration. After the arbitrator further clarified this ruling on June 26, 2009, Sterling moved this Court to vacate this determination or, in the alternative, to stay the arbitration proceedings. By summary Order dated August 31, 2009, the Court denied Sterling's motion in its entirety. This Opinion gives the reasons for that ruling and directs the parties to update the Court on the status of the arbitration.

By way of background, in June 1998 Sterling put in place a three-step alternative dispute resolution program called "RESOLVE." Subsequently, the named plaintiffs in this action all signed agreements requiring them to use RESOLVE for all employment disputes, including the Title VII and Equal Pay Act claims asserted here. See Aff. of Joseph L. Spagnola (Ex. B to Sterling Clause Construction Br.) ¶ 11 & Tab 2. Under RESOLVE, when an employee believes she has been subjected to an unlawful employment action, her first step is to contact the RESOLVE program administrator and file a complaint. If the employee is unsatisfied with the company's response, her second step is to file an appeal, which the program administrator may assign either to an outside administrator or to a peer review panel. Finally, if the employee is still not satisfied, she may proceed to the third step, binding arbitration. See id. ¶ 8.

The RESOLVE arbitrations are to be conducted by the American Arbitration Association ("AAA") in accordance with AAA rules, as amended or modified by certain RESOLVE-specific provisions, including the requirements, among others, that each arbitration be held near where the employee worked and that the arbitration agreements are to be construed according to Ohio law. Id. ¶¶ 14-15, 17, 19. Nowhere, however, is class arbitration expressly mentioned. Nonetheless, the arbitrator, in her ruling of June 1, 2009, determined that the RESOLVE agreements do not prohibit class arbitration. This, the arbitrator held, was because, under Ohio law, the RESOLVE agreements were contracts of adhesion that, as such, required Sterling to insert an express prohibition on class arbitration if it wished to bar resort to that procedural right. Clause Construction Award (Ex. F. to Sterling Mem. of Law in Support of Mot. to Vacate) at 4-5.

After receiving the June 1 ruling, Sterling sought clarification from the arbitrator as to, among other things, how class certification would proceed in light of the requirement that an employee exhaust RESOLVE Steps 1 and 2 before proceeding to arbitration and also in light of the provision requiring the arbitration to be held near where each employee worked. In response, the arbitrator specified that (1) "The RESOLVE Arbitration Agreements do not require that class claims be resolved separately within each local venue."; (2) "The RESOLVE Arbitration Agreements do not require that every claimant complete RESOLVE Steps 1 and 2 prior to participating in a class arbitration."; and (3) "Determination as to whether a class should be certified, and the scope of the class, will be made after the parties have had an opportunity to develop the record and brief the appropriate scope of any class that may be certified." Disposition of Application of Clarification of Clause Construction Award (Ex. J to Sterling Mem. of Law in Support of Mot. to Vacate). Sterling then filed the instant motion to vacate the award and to stay the arbitration.

Preliminarily, plaintiffs contend that, because no class has yet been certified, Sterling's motion is premature and unripe. "The ripeness doctrine is `drawn both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction' ...." Nat'l Park Hospitality Ass'n v. DOI, 538 U.S. 803, 808, 123 S.Ct. 2026, 155 L.Ed.2d 1017 (2003) (quoting Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43, 57 n. 18, 113 S.Ct. 2485, 125 L.Ed.2d 38 (1993)). A case is ripe for Article III purposes when it presents "a real or concrete dispute affecting cognizable current concerns of the parties." Simmonds v. INS, 326 F.3d 351, 357 (2d Cir.2003). However, even if a case is constitutionally ripe, it may not be prudentially ripe if it "will be better decided later and ... if the parties will not have constitutional rights undermined by the delay." Id. (emphasis omitted).

Here, allowing further proceedings before the arbitrator directed at certifying a class presents a real dispute affecting the parties; indeed, it materially transforms every aspect of how the arbitration proceeds. Indeed, this is so obvious that in the recent case of Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., involving a challenge to an arbitrator's decision to permit class certification, first, this Court, 435 F.Supp.2d 382 (S.D.N.Y.2006), and then the Second Circuit, 548 F.3d 85 (2d Cir. 2008), proceeded to review the merits of the arbitrator's ruling without even remotely suggesting that the controversy was unripe. Moreover, the Supreme Court, in subsequently granting Stolt-Nielsen's petition for a writ of certiorari, ___ U.S. ___, 129 S.Ct. 2793, 174 L.Ed.2d 289 (2009), only certified questions going to the merits of the dispute, thus implicitly making clear that the Court likewise sees no jurisdictional impediment to considering such issues.

As for "prudential" unripeness, the instant motion involves pure legal questions that will immediately impact the arbitration and, as such, is "eminently fit for judicial review." United States v. Quinones, 313 F.3d 49, 59 (2d Cir.2002) (internal quotation marks omitted).¹

Although the Court therefore chooses to exercise its jurisdiction to review the arbitrator's ruling on class certification, the scope of that review is narrow. Specifically, Sterling concedes that the arbitrator's decision to permit possible class certification may be overturned only if it exceeded the arbitrator's powers, in violation of Section 10(a)(4) of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., or if it was made "in manifest disregard of the law," a doctrine that, while still recognized in the Second Circuit, is "severely limited," Stolt-Nielsen, 548 F.3d at 91, to cases where there is not even a "barely colorable justification for the outcome reached." Telenor Mobile Commc'ns AS v. Storm, LLC, 584 F.3d 396, 407 (2d Cir. 2009).

Here, Sterling first argues that vacatur is warranted under Section 10(a)(4) of the FAA because the arbitrator "exceeded her powers" by effectively nullifying certain provisions of the RESOLVE agreements. Specifically, Sterling contends that the award permitting class arbitration disregards RESOLVE's requirements that the arbitration take place in a local venue, that the arbitrator be licensed to practice law in the applicable state, that all claimants submit to Steps 1 and 2 prior to initiating Step 3 arbitration, and that claims under RESOLVE be adjudicated under the law of the jurisdiction in which the claims arose. None of this, however, raises an issue of exceeding arbitral powers under Section 10(a)(4) of the FAA, because that section "focuses on whether the arbitrators had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue." Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 220 (2d Cir.2002) (internal quotation marks omitted). Here, where the arbitration clause was broad, the arbitrator clearly had the power to reach the issues now in question. Indeed, in its prior decision in this case, this Court already determined that the arbitrator (rather than the Court) should resolve the question of whether class arbitration should proceed. See Jock, 564 F.Supp.2d at 310-12.

Sterling's challenges under the heading of "manifest disregard" likewise rest on the assertions that class certification is irreconcilable with the RESOLVE provisions regarding venue, arbitrator licensing, pre-arbitration procedures, and choice of law. Specifically, Sterling argues that, by reading the possibility of class arbitration into an agreement that nowhere expressly authorizes such a possibility, the arbitrator "nullifies" the foregoing...