Wednesday, January 25, 2012
The Southern District of New York recently denied a motion to reconsider a prior ruling that refused to send a matter to arbitration because an individual arbitration would prevent the plaintiff from vindicating her statutory rights. Sutherland v. Ernst & Young, 10 Civ. 3332 (MHD) (Jan. 13, 2012). Judge Wood rejected E&Y's argument that the U.S. Supreme Court's opinion in AT&T Mobility v. Concepcion (which held that California's Discover Rule, striking down class waivers as unconscionable in contracts of adhesion, was preempted by the FAA) mandated a reversal of her earlier decision. In Sutherland, the plaintiff brought a class action against her former employer charging violations of the Fair Labor Standards Act. E&Y sought to send the matter to arbitration based on an arbitration agreement that required arbitration on an individual basis only. Judge Wood had previously held that the plaintiff would be unable to vindicate her statutory rights on an indvidual basis because of the costs associated with an individual claim in relation to any expected recovery (Sutherland asserted her losses were approximately $1800.) She based her decision on the Second Circuit's opinion in Italian Colors Restaurant v. American Express Travel Related Services Co., 634 F.3d 187 (2d Cir. 2011) (AmEx II), which held that the enforceability of a class action waiver must be determined on a case-by-case basis, including the cost of vindicating the claim when compared to the plaintiff's potential recovery.
In its motion for rehearing, E&Y argued that Concepcion overruled the case-by-case analysis set forth in the Second Circuit's AmEx II opinion and required the court to give effect to the class waiver provision. Judge Wood, however, did not agree. Although she acknowledged that the applicability of Concepcion to her previous order was "a close question," she found that the facts in the present case were significantly different from those in Concepcion, because, unlike the Concepcions, Sutherland was not able to vindicate her statutory rights absent a collection action. She noted that the Supreme Court emphasized the provision in the AT&T arbitration agreement that would ensure that the Concepcions would be able to obtain redress for their claims and, in fact, were better off in arbitration than as members of a class action. In contrast, Sutherland demonstrated that she would not be able to obtain representation or vindicate her rights on an individual basis because of the small amount of her claim. Accordingly, Sutherland's case is analogous to situations where the Supreme Court has stated that it would not enforce contractual agreements that would operate "as a prospective waiver of a party's right to pursue statutory remedies."
In addition, Judge Wood relied on the fact that while the Discover Rule was a state common law contract doctrine and accordingly preempted by the FAA, the analysis under AmEx II is based on federal courts' interpretation of the FAA itself.
It is interesting to note that the Second Circuit itself may not be so confident about the continuing validity of AmEx II after Concepcion. In light of the Supreme Court's decision the Second Circuit panel that decided AmEx II announced that it "is sua sponte considering rehearing" (Aug. 2, 2011). It has not spoken on the subject since issuing that statement.