Rose v. New Day Fin., LLC

• Decision Date: 09 September 2011
• Docket Number: Civil No. WDQ–10–2761.
• Citation: 816 F.Supp.2d 245
• Parties: Headley ROSE, et al., Plaintiffs, v. NEW DAY FINANCIAL, LLC, et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

816 F.Supp.2d 245

Headley ROSE, et al., Plaintiffs,

v.NEW DAY FINANCIAL, LLC, et al., Defendants.

Civil No. WDQ–10–2761.

United States District Court,D. Maryland,Northern Division.

Sept. 9, 2011.

John Michael Singleton, Singleton Law Group, Lutherville, MD, Stephen J. Springer, Law Office of Stephen J. Springer, Philadelphia, PA, for Plaintiffs.

Howard Benjamin Hoffman, Howard B. Hoffman Esquire Attorney at Law, Rockville, MD, for Defendants.

MEMORANDUM OPINION

WILLIAM D. QUARLES, JR., District Judge.

Headley Rose, Bryan Harrison, Thomas Zwirecki, Ryan George, John Hamilton, Sean Stuart, Carmen Aumendo, and Chad Schneider (collectively “the plaintiffs”) sued New Day Financial, LLC (“New Day”), Robert Posner, and LeeAnn Rodriguez (collectively “the defendants”) for violations of the Fair Labor Standards Act (“FLSA”) and Maryland law. For the following reasons, the defendants' motion to dismiss and compel arbitration will be granted.

I. Background ¹

Rose, Harrison, Zwirecki, George, Hamilton, Aumendo, and Schneider are Maryland residents and former “Account Executives” for New Day, a Maryland corporation with offices in Maryland and Pennsylvania. Compl. ¶¶ 2–6, 8, 9, 16, 17. Stuart, a New York resident, was also an Account Executive for New Day. Id. ¶ 7. The Plaintiffs allege that New Day required them to work at least 65 hours per week, but did not pay them overtime. Id. ¶¶ 19, 20.

As a condition of employment, each Account Executive was required to sign an “Arbitration Agreement” either in mid–2005 if they had worked for New Day before that time, or soon after they began employment. Pls.' Mem. in Op. 9; id. Ex. 1. New Day did not inform any of the plaintiffs about the arbitration agreement before they were required to sign it, and provided about five minutes for each plaintiff to sign the agreement, or 40 minutes to sign a collection of forms including the agreement. Id.

Zwirecki asked if he could take the agreement home to review or redact portions that he did not understand. Id. at 11. New Day denied his requests and told Zwirecki that if he did not sign the agreement he would not be permitted to work for New Day. Id. Each plaintiff signed. Id. Although several plaintiffs requested and were promised copies of the agreement, none received a copy. Id.

The arbitration agreement states that New Day and the employee:

agree that any legal or equitable claims, disputes or controversies, between employee and NewDay, or between employee and any of NewDay's officers, directors, agents, employees, attorneys, or assigns, whether arising out of or in connection with the employment relationship, the terms and conditions of employment, or the termination of employment, will be submitted to and resolved by binding arbitration.

Defs.' Mem. in Supp. Ex. 1. The agreement states that “this agreement to arbitrate shall ... includ[e] the applicability of this arbitration agreement and the validity of the entire agreement.” Id.

The agreement prohibits the parties from participating in “a class action in court or in arbitration, ... including claims arising under the Federal Fair Labor Standards Act, 29 U.S.C. § 201 et seq.,” and from “join[ing] or consolidat[ing] claims with any other claims asserted by any other person.” Defs.' Mot. to Compel Ex. 1. It excepts either party's use of judicial “remedies in aid of arbitration ... [or for] bankruptcy, replevin, judicial foreclosure, injunction, or any other pre-judgment or provisional remedy.” Id.

The agreement states:

NewDay shall advance the fees associated with filing and arbitrating any claims subject to this agreement. If NewDay is deemed to be the prevailing party by the arbitrator, then employee shall reimburse NewDay for the arbitration fees which NewDay has advanced, in addition to any other costs or expenses which NewDay Financial, LLC may otherwise have a right to recover under law. However, if employee produces an affidavit and other relevant evidence demonstrating to the satisfaction of the arbitrator that the employee ... cannot reimburse NewDay for the arbitration fees that have been advanced, then NewDay shall pay all fees associated with arbitrating the claim.

Defs.' Mem. in Supp. Ex. 1.

The agreement states that it is governed by the Federal Arbitration Act (“FAA”). Id. A paragraph above the signature line states:

BY SIGNING BELOW, THE PARTIES ACKNOWLEDGE THAT THEY HAD A RIGHT TO LITIGATE CERTAIN CLAIMS ... AND THAT THEY WILL NOT HAVE THAT RIGHT IF EITHER PARTY ELECTS ARBITRATION PURSUANT TO THIS AGREEMENT.... THIS ARBITRATION AGREEMENT ... INVOLVES NO SURRRENDER, BY EITHER PARTY, OF ANY SUBSTANTIVE STATUTORY OR COMMON LAW BENEFIT, PROTECTION, OR DEFENSE.

Id.

In 2009, nine former employees sued New Day in Pennsylvania,² alleging the FLSA violations pled here. Hopkins v. New Day Financial, 643 F.Supp.2d 704, 708 (E.D.Pa.2009). New Day moved to dismiss and compel arbitration, relying on the arbitration agreements. Id. As here, the former employees argued that the arbitration agreement was unenforceable because it was unconscionable. Id. at 715.

Applying Pennsylvania common law,³ United States District Judge Joel H. Slomsky held that there was a “genuine issue of material fact as to whether the Arbitration Agreements are unconscionable.” Id. Judge Slomsky denied the motion to compel arbitration and ordered a trial on the issue of unconscionability. Id. at 721. At trial, the parties disputed whether the ban on class action prevented employees from resolving disputes, and the jury found that the arbitration agreements were unconscionable as applied to eight of the nine former employees. Defs.' Rep. 3–6; id. Ex. 2.

On October 5, 2010, the plaintiffs sued the defendants in this Court for violating the FLSA and the Maryland Wage and Hour Law. ECF No. 1. On November 9, 2010, the defendants moved to dismiss and compel arbitration. ECF No. 8.

II. Analysis

A. Standard of Review

Motions to compel arbitration in which the parties dispute the validity of the arbitration agreement are treated as motions for summary judgment. Shaffer v. ACS Gov't Servs., Inc., 321 F.Supp.2d 682, 683–84, 684 n. 1 (D.Md.2004).⁴ Therefore, such motions “shall [be] grant [ed] ... if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In considering the motion, “the judge's function is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248, 106 S.Ct. 2505.

The Court must “view the evidence in the light most favorable to ... the nonmovant, and draw all reasonable inferences in h[is] favor,” Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002), but it also must abide by the “affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial,” Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir.2003) (citations and internal quotation marks omitted).

B. The Defendants' Motion to Dismiss and Compel Arbitration

New Day has moved to dismiss and compel arbitration. The plaintiffs argue that New Day's Motion should be denied because the arbitration agreements are unconscionable. To compel arbitration, the movant must show:

(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the [other party] to arbitrate the dispute.

Adkins v. Labor Ready, Inc., 303 F.3d 496, 500–01 (4th Cir.2002); see also Hightower v. GMRI, Inc., 272 F.3d 239, 242 (4th Cir.2001). Only the second element is disputed. Pls.' Resp. 2.⁵

Arbitration agreements governed by the FAA are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or equity for the revocation of any contract.” 9 U.S.C. § 3 (2006). The validity of an arbitration agreement is determined under state contract formation law. AT & T Mobility, LLC v. Concepcion, ––– U.S. ––––, –––– – ––––, 131 S.Ct. 1740, 1745–46, 179 L.Ed.2d 742 (2011); Hill v. PeopleSoft USA, Inc., 412 F.3d 540 (4th Cir.2005).

1. Choice of Law

Under the FAA, the Court must apply the “federal substantive law of arbitrability,” which directs the Court to rely on “ordinary state-law principles that govern the formation of contracts” to determine whether the parties agreed to arbitrate. Hill, 412 F.3d at 543 (internal citations and quotation marks omitted); see also AT & T Mobility, LLC, 131 S.Ct. at 1745–46.

Applying Maryland choice of law rules, the Court must first determine what state law governs formation of the arbitration agreement. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Maryland uses the lex loci contractus rule: “the law of the jurisdiction where the contract was made controls its validity and construction.” Kramer v. Bally's Park Place, Inc., 311 Md. 387, 390, 535 A.2d 466, 467 (1988). Because plaintiffs Rose, Stuart, George, and Zwirecki signed the arbitration agreements in Maryland, Maryland law governs their agreements.⁶ Pls.' Mem. in Op. Ex. 1.

Neither party has addressed Schneider's statement that he signed the arbitration agreement in Pennsylvania, Id. Ex. 1, and Hamilton, Aumendo, and Harrison, have not indicated where they signed the agreements. Pls.' Mem. in Op. Ex. 1. Thus, for at least Schneider, this Court must look to Pennsylvania's law, including its choice of law rules to determine the governing law.⁷ See Am. Motorists Ins. Co. v. ARTRA...