Sutherland v. Llp

• Decision Date: 03 March 2011
• Docket Number: No. 10 Civ. 3332(KMW).,10 Civ. 3332(KMW).
• Citation: 768 F.Supp.2d 547
• Court: U.S. District Court — Southern District of New York
• Parties: Stephanie SUTHERLAND, on behalf of herself and all others similarly situated, Plaintiff,v.ERNST & YOUNG LLP, Defendant.

768 F.Supp.2d 547

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

v.ERNST & YOUNG LLP, Defendant.

No. 10 Civ. 3332(KMW).

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

March 3, 2011.

Leon Marc Greenberg, Leon Greenberg, Las Vegas, NV, for Plaintiff.Max Folkenflik, Folkenflik & McGerity, New York, NY.Gregory W. Knopp, Catherine A. Conway, Akin Gump Strauss Hauer & Feld LLP, Los Angeles, CA, Daniel L. Nash, Joel M. Cohn, Akin, Gump, Strauss, Hauer & Feld, LLP, Washington, DC, Estela Diaz, Akin Gump Strauss Hauer & Feld LLP, New York, NY, for Defendant.

Order

WOOD, District Judge:I. Overview

Plaintiff Stephanie Sutherland (“Sutherland”) brings this collective and putative class action against her former employer, Defendant Ernst & Young LLP (“E & Y”), pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., and Title 12 of the Compilation of Codes, Rules and Regulations of the State of New York, 12 N.Y.C.R.R. § 142–2.2. E & Y allegedly violated the FLSA and the laws of New York by failing to properly compensate Sutherland, and others similarly situated, for hours worked in excess of 40 hours per week. E & Y moves, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure and the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., to dismiss or stay the proceedings, and to compel arbitration of Sutherland's claims on an individual, rather than on a class-wide, basis in accordance with the parties' arbitration agreement.

Because the Court finds the arbitration agreement unenforceable, E & Y's motion is DENIED.

II. Background ¹

E & Y provides audit, tax and transactional advisory services, and employs over 41,000 individuals throughout the United States. (Compl. ¶ 14–15.) Sutherland was employed by E & Y as a “low level” accountant from September 2008 through December 2009. ( Id. ¶ 1, 13–15.) The “great majority” of her work involved the performance of secretarial, clerical and data-entry tasks. ( Id. ¶ 19.) Sutherland was compensated on a “salary only” basis, meaning that she was paid a fixed salary—$55,000 per year—for all hours worked. ( Id. ¶ 21; Sutherland Decl. ¶ 3.) She thus was not paid for hours worked in excess of 40 hours per week. (Compl. ¶ 16.) Sutherland concedes that she consented to the “EY Common Ground Dispute Resolution Program” (“E & Y Agreement” or “Agreement”) as a condition of employment. ( See Pl. Opp. at 7.) The Agreement, which is governed by the FAA, calls for binding arbitration on an individual, rather than a class-wide, basis. (Reece Deck Exh. D ¶ V.G.; id. ¶ IV.K.)

In this action, Sutherland alleges that E & Y wrongfully classified her as exempt from the overtime requirements of the FLSA and New York state law. Sutherland seeks compensatory damages for 151.5 hours of unpaid overtime wages, which amounts to an actual loss of $1,867.02. (Folkenflik Decl. ¶ 8.) She also seeks class and collective group certification.

E & Y moves to dismiss or to stay the proceedings, and to compel arbitration of Sutherland's claims on an individual basis in accordance with the E & Y Agreement. Sutherland contends that the class waiver provision in the Agreement is unenforceable, and that E & Y's motion must accordingly be denied. Specifically, Sutherland argues that E & Y's class waiver provision precludes her from vindicating her state and federal statutory rights. This is because, relative to her potential recovery, the enormous costs and fees attendant to prosecuting her claim on an individual basis would effectively prohibit her from bringing suit at all.²

III. Legal Standard

Courts apply a summary judgment standard when evaluating whether to compel arbitration pursuant to the FAA. See Bensadoun v. Jobe–Riat, 316 F.3d 171, 175 (2d Cir.2003). Summary judgment is appropriate only “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). “A party resisting arbitration ... must show that, if proven, [its] allegations would relieve any obligation to arbitrate, and [it] must produce some evidence to substantiate [its] factual allegations.” Town of Amherst v. Custom Lighting Servs., LLC, No. 07 Civ. 261, 2007 WL 4264608, at *4 (W.D.N.Y. Nov. 30, 2007) (internal quotations omitted). Because no material facts are in dispute, the Court proceeds to examine whether the E & Y Agreement is enforceable as a matter of law.

IV. Discussion

The Court finds that the E & Y Agreement's class waiver provision is unenforceable pursuant to In re American Express Merchants' Litigation, 554 F.3d 300 (2d Cir.2009) (“ Amex ”). There the Second Circuit invalidated a class waiver provision that, if enforced, would have precluded plaintiffs from vindicating their statutory rights. Id. at 304, 320. As discussed below, the Amex decision retains persuasive force notwithstanding the Supreme Courts summary order vacating the judgment and remanding the case to the Second Circuit in light of Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., –––U.S. ––––, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (“ Stolt–Nielsen ”). ³ In accordance with Amex and Stolt–Nielsen, this Court finds as follows: because Sutherland has shown that it would be prohibitively expensive for her to pursue her statutory claims on an individual basis, and because the arbitration agreement at issue bars the arbitration of a claim on anything other than an individual basis, (a) the class waiver provision is unenforceable; and (b) the Court must determine whether there is a remedy in the judicial forum.

A. Enforceability of Arbitration Agreements

Although federal policy strongly favors arbitration as an alternative means of dispute resolution, 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), the arbitration of a statutory claim will be compelled only if that claim can be effectively vindicated in the arbitral forum. See Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 637, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Green Tree Fin. Corp.–Ala. v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 125 (2d Cir.2010). Otherwise, the statute's “remedial and deterrent function” would be circumvented, Mitsubishi Motors Corp., 473 U.S. at 637, 105 S.Ct. 3346, and the arbitral forum would “lose[ ] its claim as a valid alternative to traditional litigation.” Kristian v. Comcast Corp., 446 F.3d 25, 37 (1st Cir.2006). Thus, where “large arbitration costs” preclude a litigant from effectively vindicating her statutory rights in the arbitral forum, the arbitral agreement at issue may be unenforceable. Randolph, 531 U.S. at 90, 121 S.Ct. 513.

B. Amex

The rule set forth in Randolph led the Second Circuit in Amex to invalidate an arbitral agreement banning class proceedings, where plaintiffs demonstrated that they otherwise would have been unable to bring their statutory claims “in either an individual or collective capacity” Amex, 554 F.3d at 314. The arbitration agreement at issue in Amex mandated the arbitration of all claims (including antitrust claims), and barred plaintiffs from representing a class. Id. at 307. The court found that each plaintiff—if forced to proceed on an individual basis—would incur discovery costs amounting to hundreds of thousands of dollars in order to recover average damages of approximately $5,000. Id. at 308. Such costs, including expert fees, were largely not compensable. Id. at 318. And although reasonable attorney's fees could have been shifted to the losing party, plaintiffs were entitled “to include the risk of losing, and thereby not recovering any fees” in evaluating the potential costs of their suit. Id. In light of the foregoing, plaintiffs' claims “could not reasonably be pursued” on an individual basis. Id. at 319. As a result, defendant would receive de facto immunity from antitrust liability. Id. at 320. The Court of Appeals held that the class waiver provision could not be enforced under such circumstances. Id.

The Court of Appeals held that the enforceability of a particular class waiver provision in an arbitration agreement should be determined by reference to

the totality of the facts and circumstances. Relevant circumstances may include, but are not limited to, the fairness of the provisions, the cost to an individual plaintiff of vindicating the claim when compared to the plaintiff's potential recovery, the ability to recover attorneys' fees and other costs and thus obtain legal representation to prosecute the underlying claim, the practical [e]ffect the waiver will have on a company's ability to engage in unchecked market behavior, and related public policy concerns.

Id. at 321 (quotations omitted).C. Viability of Amex in Light of Stolt–Nielsen

Amex retains persuasive force notwithstanding the Supreme Courts order granting certiorari, vacating the judgment, and remanding (“GVR”) the case to the Second Circuit “for further consideration in light of” Stolt–Nielsen. This is because GVR orders are not final determinations on the merits. Tyler v. Cain, 533 U.S. 656, 666 n. 6, 121 S.Ct. 2478, 150 L.Ed.2d 632 (2001). Rather, they are issued where intervening developments “reveal a reasonable probability that the decision below rests upon a premise that the lower court would reject if given the opportunity for further consideration, and where it appears that such a redetermination may determine the ultimate outcome” of the matter. Wellons v. Hall, ––– U.S. ––––, 130 S.Ct. 727, 731, 175 L.Ed.2d 684 (2010) (internal quotations omitted). On remand, then, the lower court may find the intervening decision inapplicable. See, e.g., Stutson v. United States, 516 U.S. 193, 196, 116 S.Ct. 600, 133 L.Ed.2d 571 (1996). The expressions of the court below on the...