Kowalewski v. Samandarov

• Decision Date: 23 October 2008
• Docket Number: No. 07 Civ. 6706(RJS).,07 Civ. 6706(RJS).
• Citation: 590 F.Supp.2d 477
• Parties: Tadeusz KOWALEWSKI, Nicholas Klimiuk, Oleg Logunovski, and Stanislaw Puchala, Plaintiffs, v. Rudolf SAMANDAROV, Group Americar Transport LLC, and BC Leasing, Corp., Defendants.
• Court: U.S. District Court — Southern District of New York

590 F.Supp.2d 477

Tadeusz KOWALEWSKI, Nicholas Klimiuk, Oleg Logunovski, and Stanislaw Puchala, Plaintiffs, v. Rudolf SAMANDAROV, Group Americar Transport LLC, and BC Leasing, Corp., Defendants.

No. 07 Civ. 6706(RJS).

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

October 23, 2008.

COPYRIGHT MATERIAL OMITTED

Marina Trubitsky, Esq., Marina Trubitsky & Associates, PLLC, New York, New York, for Plaintiffs.

Eric B. Kaviar, Esq., Brooklyn, for Defendants.

MEMORANDUM AND ORDER

RICHARD J. SULLIVAN, District Judge.

Plaintiffs Tadeusz Kowalewski ("Kowalewski"), Nicholas Klimiuk ("Klimiuk"), Oleg Logunovski ("Logunovski"), and Stanislaw Puchala ("Puchala") bring this action against Defendants Rudolf Samandarov ("Samandarov"), Group Americar Transportation ("Americar"), and BC Leasing Corp. ("BC Leasing"), alleging a violation of the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., as well as claims under New York law for deceptive trade practices, fraudulent inducement, breach of contract, and fraud.

Before the Court is Defendants' motion to dismiss the Complaint and compel arbitration. For the reasons that follow, the Court grants Defendants' motion.

I. BACKGROUND

Defendants are engaged in the "vehicle transportation business" colloquially known as the "Black Car" industry, so called because of the black color of the sedans used for transportation. (Samandarov Aff. ¶ 3.) Samandarov formed Defendants Americar and BC Leasing in 2004, and is the president of both companies. (Id. ¶¶ 1, 3.) Americar is licensed by the New York City Taxi and Limousine Commission as a base facility to dispatch commissioned "for hire" drivers in the New York City area. (Id. ¶ 3.) BC Leasing is an affiliated company, which assists drivers in the purchase or lease of vehicles to be used in the Black Car industry. (Id.)

Plaintiffs all worked for Defendant Americar as drivers. (Pls.' Opp'n ¶ 1; Logunovski Decl. ¶ 1; Klimiuk Decl. ¶ 1; Kowalewski Decl. ¶ 1.) Americar operates as a franchisor (Compl.¶ 13), and each Plaintiff paid a fee of at least $10,000 to Americar in order to enter into a Subscription Agreement with Defendants (Compl.¶ 17). It is undisputed that all four individual Plaintiffs entered into such Subscription Agreements. (See id. ¶¶ 67 (Kowalewski); 74 (Logunovski); 80 (Klimiuk); 88 (Puchala).)¹ These Subscription Agreements entitled Plaintiffs and other subscribers to "participate in the Company's referral and dispatch network." (Samandarov Decl. Ex. C ¶ 20.)

Plaintiffs filed the complaint in this action on July 25, 2007, alleging, inter alia, that Defendants failed to distribute the franchise offering circular for prospective franchisees (Compl.¶ 22), failed to make disclosures of shareholder and financial information (id. ¶ 23), engaged in a fraudulent scheme in which "Defendants sold cars to subscribers at an inflated price, and reaped additional illegal profits when they arranged for a financing of the subscription fee and the purchase price of the car with creditors" (id. ¶ 24), transferred title to the cars purchased by the subscribers under the name BC Leasing (id. ¶ 25), confiscated cars purchased by subscribers (id. ¶ 26), and deducted money from Plaintiffs' paychecks for insurance and car loan purposes but failed to pay the deducted money towards the purported purpose (id. ¶ 27). In connection with these factual allegations, Plaintiffs assert five causes of action: (1) a violation of RICO; (2) deceptive trade practice; (3) fraudulent inducement; (4) breach of contract; and (5) fraud. (See id. ¶¶ 92-137.)

Defendants filed their Answer and counterclaims on September 6, 2007, and filed this motion to compel arbitration on October 30, 2007.

The issue presented by the instant motion is whether Defendants can compel arbitration of Plaintiffs' claims under the terms of the Subscription Agreement. Each Subscription Agreement contained a paragraph, entitled "Arbitration; Waiver of Trial by Jury" ("arbitration clause"). (See, e.g., Samandarov Decl. Ex. C ¶ 20.) The arbitration clause provides that "[t]he sole and exclusive method of resolving any claim or controversy whatsoever between the Company, its Affiliates, and their respective officers, directors, other agents, employees and shareholders on the one hand and the Subscriber, its Affiliates, officers, directors, other agents, employees and shareholders on the other hand, unless otherwise specified in this Subscription Agreement, shall be binding arbitration according to the procedures set forth in this section." (Id.) After detailing the relevant governing procedural mechanisms, a later passage in the arbitration clause sets out three specific exceptions to arbitration: "This section shall not apply to: (i) any claim or cause brought by the Company to enforce a non-competition agreement between the parties herein; (ii) any claim or cause arising from or in connection with the termination of this Subscription Agreement; and (iii) any claim or cause arising from or in connection with the suspension of the use of this Subscription by the Subscriber." (Id.)

Plaintiffs argue that this arbitration clause should not serve as the basis for compelled arbitration. First, Plaintiffs assert that they are exempt from application of the Federal Arbitration Act ("FAA" or the "Act"), 9 U.S.C. § 1 et seq., by virtue of being "workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Second, Plaintiffs claim that the entire Subscription Agreement is invalid, as it is an unconscionable contract of adhesion. Third, Plaintiffs posit that even assuming the Subscription Agreement is valid, Plaintiffs' claims are not within the scope of the arbitration clause. The Court will consider each of these arguments in turn.

II. PLAINTIFFS ARE NOT EXEMPT FROM THE FAA

The FAA governs this motion to compel arbitration. Originally enacted in 1925, the FAA's purpose "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (citations omitted). The FAA "creates a `body of federal substantive law of arbitrability' applicable to arbitration agreements, ... affecting interstate commerce." Alliance Bernstein Inv. Research & Mgmt., Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir.2006) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). Specifically, the FAA "`requires the federal courts to enforce arbitration agreements, reflecting Congress' recognition that arbitration is to be encouraged as a means of reducing the costs and delays associated with litigation.'" Vera v. Saks & Co., 335 F.3d 109, 116 (2d Cir.2003) (per curiam) (quoting Deloitte Noraudit A/S v. Deloitte Haskins & Sells, United States, 9 F.3d 1060, 1063 (2d Cir.1993)).

The principal substantive provision of the FAA is 9 U.S.C. § 2, which states that "[a] written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. In addition, 9 U.S.C. § 4 specifically contemplates that a party may obtain an order "directing that [an] arbitration proceed in the manner provided for in [an arbitration] agreement," and 9 U.S.C. § 3 provides for a stay of legal proceedings when the court is satisfied that the issue is arbitrable under an arbitration agreement. Id. at §§ 3-4.

Plaintiffs contend that the FAA is not applicable to this action. Specifically, although Plaintiffs do not dispute that the Subscription Agreement is a "contract evidencing a transaction involving commerce" under 9 U.S.C. § 2—thus conceding that they are covered under the substantive provision of the Act—Plaintiffs nevertheless claim that they are exempted from the coverage of Section 2 by Section 1 of the FAA, 9 U.S.C. § 1. (See Pls.' Opp'n ¶ 13.)

Section 1 of the FAA specifically excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Plaintiffs posit that they "drove Group Americar customers between New York, New Jersey, Pennsylvania and Connecticut" (Pls.' Opp'n ¶¶ 3; 14; Logunovski Decl. ¶ 3; Klimiuk Decl. ¶ 2), and thus fit into the third, residuary category of exclusions, that pertaining to "any other class of workers engaged in foreign or interstate commerce" (the "residuary exemption") (emphasis added). Plaintiffs cite no relevant case law in support of this contention.

The principal Supreme Court decision discussing the breadth of the residuary exemption is Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001), in which the Supreme Court rejected the interpretation that the residuary exemption excludes "all contracts of employment" from the coverage of the FAA. Id. at 112, 121 S.Ct. 1302. The Supreme Court agreed with the view endorsed by the majority of the Courts of Appeals at the time, which limited the residuary exemption to "transportation workers," defined "as those workers `actually engaged in the movement of goods in interstate commerce.'" Id. (quoting Cole v. Burns Int'l Sec. Serv., 105 F.3d 1465, 1471 (D.C.Cir.1997)).

The Court of Appeals for the Second Circuit was one of the circuits that had adopted this majority view. In Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir.1972), the Second Circuit limited the residuary exemption to workers in the "transportation industry" or those "in, or closely related to the actual movement of goods in interstate commerce." Id. at 1069. Followin...