Opinion
12 CV 9193 (VB)
12-12-2013
MICHAEL A. KATZ, individually and on behalf of all others similarly situated, Plaintiff, v. CELLCO PARTNERSHIP d/b/a VERIZON WIRELESS, Defendant.
MEMORANDUM DECISION :
Plaintiff Michael Katz brings this putative class action against defendant Cellco Partnership, doing business as Verizon Wireless ("Verizon"), asserting claims under New York state law for breach of contract and consumer fraud based on an administrative charge assessed by Verizon. Plaintiff also seeks a declaratory judgment that the arbitration agreement included in Verizon's customer agreement with plaintiff is not enforceable with respect to plaintiff's claims because, plaintiff argues, compelling plaintiff to arbitrate pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, is an improper delegation of Article III power to a non-Article III forum in violation of the United States Constitution.
Now pending are plaintiff's motion for partial summary judgment on his declaratory judgment claim (Doc. #17), and defendant's cross-motion to compel individual arbitration. (Doc. #21). For the following reasons, plaintiff's motion is DENIED, and defendant's motion is GRANTED.
The Court has subject matter jurisdiction pursuant to the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d).
BACKGROUND
The parties have submitted briefs, statements of facts, and declarations with supporting exhibits, which reflect the following factual background.
Verizon provides wireless telephone service to more than one million customers with New York State area codes. These customers have been charged and have paid a certain "Administrative Charge." The parties agree plaintiff Michael Katz was one such New York customer from at least February 2001 until at least July 2012.
According to the amended complaint, the Administrative Charge is a monthly per-line charge ranging from $0.40 when it was first implemented in October 2005 to $0.99 when this action was commenced. Plaintiff alleges Verizon's customer agreements, monthly bills, and other customer information imply the Administrative Charge is being imposed for the recovery of government-mandated or government-related costs. Plaintiff alleges the Administrative Charge is not, however, imposed for those reasons - rather, it is a discretionary pass-through of Verizon's general costs. In effect, plaintiff argues, the Administrative Charge is a concealed rate increase.
Plaintiff asserts New York state law claims for breach of contract and consumer fraud and seeks to represent a class of Verizon's New York customers.
By motion for summary judgment on his declaratory judgment claim, plaintiff "seeks a declaration that the application of the FAA to Plaintiff's state law claims violates Article III of the United States Constitution, and thus that Verizon's Arbitration Agreement is not enforceable with respect to Plaintiff's claims and Plaintiff cannot be judicially compelled to arbitrate those claims." (Plaintiff's Mem. of Law in Opp. To Verizon's Mt. to Compel (Doc. # 27) [hereinafter "P.Opp."] at 1.)
Defendant's cross-motion to compel individual arbitration is based on the following provisions in plaintiff's February 28, 2011, Verizon customer agreement:
The parties have submitted different customer agreements to their respective motions; however, plaintiff does not challenge defendant's use of the February 2011 agreement for its motion to compel arbitration. Additionally, the Court finds no material difference between the parties' respective agreements in that the customer agreements contain substantially similar arbitration agreements that preclude class arbitration.
BOTH [VERIZON AND MR. KATZ] AGREE TO RESOLVE DISPUTES ONLY BY ARBITRATION OR IN SMALL CLAIMS COURT.
. . .
WE ALSO BOTH AGREE THAT: (1) THE FEDERAL ARBITRATION ACT APPLIES TO THIS AGREEMENT. EXCEPT FOR SMALL CLAIMS COURT CASES THAT QUALIFY, ANY DISPUTE THAT RESULTS FROM THIS AGREEMENT OR FROM THE SERVICES YOU RECEIVE FROM US (OR FROM ANY ADVERTISING FOR ANY PRODUCTS OR SERVICES) WILL BE RESOLVED BY ONE OR MORE NEUTRAL ARBITRATORS BEFORE THE AMERICAN ARBITRATION ASSOCIATION ("AAA") OR BETTER BUSINESS BUREAU ("BBB").
. . .
(2) UNLESS YOU AND VERIZON WIRELESS AGREE OTHERWISE, THE ARBITRATION WILL TAKE PLACE IN THE COUNTY OF YOUR BILLING ADDRESS.
. . .
(3) THIS AGREEMENT DOESN'T ALLOW CLASS ARBITRATIONS EVEN IF THE AAA OR BBB PROCEDURES OR RULES WOULD. THE ARBITRATOR MAY AWARD MONEY OR INJUNCTIVE RELIEF ONLY IN FAVOR OF THE INDIVIDUAL PARTY SEEKING RELIEF AND ONLY TO THE EXTENT NECESSARY TO PROVIDE RELIEF WARRANTED BY THAT PARTY'S INDIVIDUAL CLAIM.
Defendant's statement of facts asserts plaintiff agreed to the above-quoted arbitration agreement and the Verizon customer agreement dated February 28, 2011, as a whole, when he purchased a new cell phone on February 28, 2011, and agreed to a twenty-four month term of service. Defendant contends plaintiff signed a statement as part of that agreement, which provides in relevant part:
I AGREE TO THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT . . . . I UNDERSTAND THAT I AM AGREEING TO . . . SETTLEMENT OF DISPUTES BY ARBITRATION AND OTHER MEANS INSTEAD OF JURY TRIALS.Plaintiff does not dispute that his signature appears at the end of the document bearing this statement, but otherwise claims he is "unable to respond to the truth of the matters asserted" by Verizon including the matters asserted in the document. Because he does not dispute he purchased a phone on February 28, 2011, or deny he signed an agreement for wireless services for a term of twenty-four months, the Court deems these facts admitted. Additionally, plaintiff agrees his claims are arbitrable pursuant to the arbitration agreement in his customer agreement if his declaratory judgment claim fails.
DISCUSSION
I. Legal Standard
"In the context of motions to compel arbitration brought under the Federal Arbitration Act, the court applies a standard similar to that applicable for a motion for summary judgment." Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (citations omitted). Accordingly, the Court must grant a motion to compel arbitration if the pleadings, discovery materials before the Court, and any affidavits show there is no genuine issue as to any material fact and it is clear the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A fact is material when it "might affect the outcome of the suit under the governing law . . . . Factual disputes that are irrelevant or unnecessary" are not material and thus cannot preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
A dispute regarding a material fact is genuine if there is sufficient evidence upon which a reasonable jury could return a verdict for the nonmoving party. See id. The Court "is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried." Wilson v. Nw. Mut. Ins. Co., 625 F.3d 54, 60 (2d Cir. 2010) (citation omitted). It is the moving party's burden to establish the absence of any genuine issue of material fact. Zalaski v. City of Bridgeport Police Dep't, 613 F.3d 336, 340 (2d Cir. 2010).
"A party to an arbitration agreement seeking to avoid arbitration generally bears the burden of showing the agreement to be inapplicable or invalid." Harrington v. Atl. Sounding Co., Inc., 602 F.3d 113, 124 (2d Cir. 2010) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91-92 (2000)).
II. Compelling Arbitration under the FAA
"The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements." AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011). Section 2 of the FAA declares that arbitration agreements are "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. "[T]he FAA does not require parties to arbitrate when they have not agreed to do so," Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989); however, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Thus, the FAA reflects "both a liberal federal policy favoring arbitration, and the fundamental principle that arbitration is a matter of contract." AT&T Mobility LLC v. Concepcion, 131 S.Ct. at 1745 (internal quotation marks and citations omitted).
"[T]he central or 'primary' purpose of the FAA is to ensure that 'private agreements to arbitrate are enforced according to their terms.' Whether enforcing an agreement to arbitrate or construing an arbitration clause, courts and arbitrators must 'give effect to the contractual rights and expectations of the parties.'" Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (quoting Volt Info. Scis., Inc. v. Bd. of Trustees, 489 U.S. at 479) (internal citations omitted). "This is because an arbitrator derives his or her powers from the parties' agreement to forgo the legal process and submit their disputes to private dispute resolution." Id.
Under Section 4 of the FAA, any party to an arbitration agreement may seek an order directing the parties to arbitrate in accordance with their agreement. See 9 U.S.C. § 4 ("A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement.").
Whether the parties have agreed to submit their dispute to arbitration is a question for the Court to decide. See Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 130 S. Ct. 2847, 2855 (2010). Here, plaintiff concedes his state-law claims are arbitrable. Thus, unless there is some reason the Court may not enforce the parties' agreement to arbitrate, the Court must direct the parties to arbitrate plaintiff's claims in accordance with their agreement. See 9 U.S.C. §§ 3-4.
S ee P.Opp. at 1 ("Plaintiff does not dispute, for the purposes of this action, that the Arbitration Agreement included in Verizon's Customer Agreement is enforceable under the FAA with respect to his and all of Verizon's other customers' state law claims for breach of contract and consumer fraud based on Verizon's Administrative Charge practices as described in Plaintiff's Complaint - but only if the application of the FAA to those state law claims does not violate Article III of the United States Constitution.").
Plaintiff argues the arbitration agreement should not be enforced because application of the FAA to his state law claims violates Article III of the United States Constitution - both the structural protections of our tripartite system of government (i.e., separation of powers) and his personal right to have his claims adjudicated before an independent Article III judge - by delegating resolution of his claims to a non-Article III forum. See Stern v. Marshall, 131 S. Ct. 2594 (2011). Plaintiff also argues the FAA imposes an unconstitutional rule of decision under United States v. Klein, 80 U.S. 128 (1871).
Defendant contends there is insufficient state action for plaintiff to maintain an action under Article III. See Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 206-07 (2d Cir. 1999) (rejecting claim that mandatory arbitration clause in National Association of Securities Dealers, Inc. registration form "unconstitutionally require[d] [plaintiff] to forfeit her . . . right to an Article III judicial forum . . . because the requisite state action [was] absent").
Notwithstanding Desiderio, defendant argues even if plaintiff could maintain this action, the FAA does not restrict the Article III jurisdiction of the federal courts because the FAA does not delegate resolution of disputes to an alternative forum created by Congress - such as was the issue in Stern v. Marshall and other cases relied on by plaintiff. See, e.g., Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 854 (1986) ("The risk that Congress may improperly have encroached on the federal judiciary is obviously magnified when Congress 'withdraw[s] from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty' and which therefore has traditionally been tried in Article III courts, and allocates the decision of those matters to a non-Article III forum of its own creation." (quoting Murray's Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272, 18 How. 272, 284 (1856))). Rather, the FAA enforces private agreements to arbitrate, which does not implicate separation of powers concerns. See id. at 855 (It is "self-evident" that "Congress may encourage parties to settle a dispute out of court or resort to arbitration without impermissible incursions on the separation of powers."). Further, because plaintiff agreed to arbitrate his claims, he waived his personal right to adjudication in an Article III court. See, e.g., Belom v. Nat'l Futures Ass'n, 284 F.3d 795, 799 (7th Cir. 2002). Last, defendant argues the FAA does not impose an unconstitutional rule of decision.
The Court agrees with defendant. There is insufficient state action for plaintiff to maintain an action under Article III; applying the FAA to compel arbitration of these claims does not violate Article III both because the FAA is not an incursion on the separation of powers and because plaintiff waived his personal right to an Article III forum by agreeing to arbitrate; and the FAA does not impose an unconstitutional rule of decision.
A. There Is Insufficient State Action for Plaintiff to Maintain His Claim
"Because the United States Constitution regulates only the Government, not private parties, a litigant claiming that his constitutional rights have been violated must first establish that the challenged conduct constitutes state action." Fabrikant v. French, 691 F.3d 193, 206 (2d Cir. 2012) (quotation marks omitted). "'Conduct that is formally 'private' may become so entwined with governmental policies or so impregnated with a governmental character that it can be regarded as governmental action.'" Id. at 206 (quoting Rendell-Baker v. Kohn, 457 U.S. 830, 847 (1982)). However, "[a]ction taken by private entities with the mere approval or acquiescence of the State is not state action." Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 52 (1999).
Private conduct becomes entwined with governmental character if there is a "sufficiently close nexus between the State and the challenged action," such that the state is "responsible for the specific conduct of which the plaintiff complains." Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc., 191 F.3d at 206 (quotation marks omitted). Courts consider many factors to determine whether private action is fairly attributable to the state, and although there is no "single test" for making this determination, "[t]hree main tests have emerged," Fabrikant v. French, 691 F.3d at 206 - the "compulsion test," the "joint action test," and the "public function test."
Plaintiff relies solely on the "joint [action]" test as applied in Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982), and Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478 (1988) to establish state action. (See Plaintiff's Reply Mem. of Law in Supp. of Plaintiff's Mt. for Decl. Judg., at 5.) Under the "joint action test," actions are attributable to the state when the state provides such significant encouragement that "the entity is a willful participant in joint activity with the state, or the entity's functions are entwined with state policies." Fabrikant v. French, 691 F.3d at 206.
The Court concludes state action is not present here under the "joint action" test, for the reasons set forth in Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc. There, plaintiff sought employment as a securities broker for a bank. Her employment was conditioned on registration with the National Association of Securities Dealers, Inc. ("NASD"). Registration with the NASD required plaintiff to sign a form with an agreement to arbitrate any potential employment disputes. Plaintiff argued the mandatory arbitration clause "unconstitutionally require[d] her to forfeit . . . her right to an Article III judicial forum." 191 F.3d at 206. The district court disagreed, and the Second Circuit affirmed, reasoning the NASD was a "private actor, not a state actor," id. at 206, and there was "no state action in the application or enforcement of the arbitration clause." Id. at 207 (no SEC rule or action encouraged the NASD to draft the arbitration clause or compel arbitration, and the SEC's mere approval of the NASD's registration form did not constitute coercive power or significant encouragement sufficient to hold the state liable); see also Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 138-39 (2d Cir. 2002); Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 368 (7th Cir. 1999); Duffield v. Robertson Stephens & Co., 144 F.3d 1182, 1202 (9th Cir. 1998), overruled on other grounds by EEOC v. Luce, 345 F.3d 742 (9th Cir. 2003).
Here, Verizon is a private actor, not a state actor, and there is no state action in the application or enforcement of the parties' private agreement to arbitrate. There is no evidence the government had anything to do with either Verizon's decision to include an arbitration agreement in its customer contracts, or Verizon's decision to compel arbitration with its customers. See Desiderio, 191 F.3d at 207. Because "the requisite state action is absent," id. at 206, plaintiff may not maintain a claim that the arbitration agreement unconstitutionally requires him to forfeit his Article III rights.
The Court rejects plaintiff's argument that the very existence of the FAA constitutes "significant encouragement" of Verizon to include an arbitration agreement in its customer contracts, and constitutes "coercive power" over Verizon's customers. Although "the FAA was designed to promote arbitration," AT&T Mobility LLC v. Concepcion, 131 S. Ct. at 1749, in terms of both enforcing private agreements and encouraging efficient dispute resolution, that promotion hardly constitutes the kind of significant encouragement necessary to a finding of state action. Rather, this type of encouragement is more akin to the "kind of subtle encouragement [that] is no more significant than that which inheres in the State's creation or modification of any legal remedy. [The Supreme Court has] never held that the mere availability of a remedy for wrongful conduct, even when the private use of that remedy serves important public interests, so significantly encourages the private activity as to make the State responsible for it." See Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. at 53 (no state action when state permitted insurers to withhold payment for disputed medical treatment pending independent review).
Further, the fact that Verizon sought a court order compelling arbitration does not transform enforcement of the parties' arbitration agreement into state action. See Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 939 n.21 (1982) ("[W]e do not hold today that 'a private party's mere invocation of state legal procedures constitutes "joint participation" or "conspiracy" with state officials satisfying the § 1983 requirement of action under color of law.'"); Koveleskie v. SBC Capital Markets, Inc., 167 F.3d at 368 ("In this case, the defendant, not the government, sought to compel arbitration, so there is no basis to find that Koveleskie was deprived of her [Article III] rights because of government action."); Duffield v. Robertson Stephens & Co., 144 F.3d at 1202 ("neither private arbitration nor the judicial act of enforcing it under the FAA constitutes state action"); United States v. Am. Soc'y. of Composers, Authors & Publ'rs, 708 F. Supp. 95, 97 (S.D.N.Y. 1989) ("The mere approval by this Court of the use of arbitration did not create any state action.").
To the extent plaintiff relies on Shelley v. Kraemer, 334 U.S. 1 (1948), the Court declines to extend the holding of that case here. See Loren v. Sasser, 309 F.3d 1296, 1303 (11th Cir. 2002) (rejecting argument relying on Shelley v. Kraemer that threat of judicial enforcement constituted state action because "Shelley has not been extended beyond race discrimination."); see also Girard v. 94th St. & Fifth Ave. Corp., 530 F.2d 66, 69 (2d Cir. 1976).
The cases relied on by plaintiff are not to the contrary. See, e.g., Tulsa Prof'l Collection Servs., Inc. v. Pope, 485 U.S. 478 (1988); Perpetual Sec., Inc. v. Tang, 290 F.3d 132 (2d Cir. 2002); Texaco Inc. v. Pennzoil Co., 784 F.2d 1133 (2d Cir. 1986), rev'd on other grounds sub nom., Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 18 (1987); Dieffenbach v. Attorney Gen. of Vt., 604 F.2d 187 (2d Cir. 1979).
Tulsa Prof'l Collection Servs., Inc. v. Pope involved a "nonclaim statute," a state statute setting forth the deadline for filing notices of claims against an estate. 485 U.S. at 479. Specifically, claims needed to be filed "within two months of the publication of a notice advising creditors of the commencement of probate proceedings." Id. The appellant creditor argued the provision of notice solely by publication was not sufficient for due process purposes. Id. at 483.
Having concluded the creditor had a protected property interest in its unsecured claim, id. at 485, the Court went on to determine whether the deprivation of that right could be attributed to state action. The Court rejected appellee's argument that there was no state action because the state's involvement was the "mere running" of a "self-executing statute of limitations." Id. 485-86. In contrast to a "self-executing statute of limitations" in which there is no role for the state beyond enactment of the statute, the Court concluded the nonclaim statute involved "significant state action." Id. at 487. The Court drew a distinction between the "[p]rivate use of state-sanctioned private remedies or procedures [which] does not rise to the level of state action [and situations] when private parties make use of state procedures with the overt, significant assistance of state officials, [in which case] state action may be found." Id. at 486 (internal citations omitted). The Court found significant state involvement based on the following:
The probate court is intimately involved throughout, and without that involvement the time bar is never activated. The nonclaim statute becomes operative only after probate proceedings have been commenced in state court. The court must appoint the executor or executrix before notice, which triggers the time bar, can be given. Only after this court appointment is made does the statute provide for any notice; § 331 directs the executor or executrix to publish notice "immediately" after appointment. Indeed, in this case, the District Court reinforced the statutory command with an order expressly requiring appellee to "immediately give notice to creditors." The form of the order indicates that such orders are routine. Record 14. Finally, copies of the notice and an affidavit of publication must be filed with the court. § 332. It is only after all of these actions take place that the
time period begins to run, and in every one of these actions, the court is intimately involved. This involvement is so pervasive and substantial that it must be considered state action subject to the restrictions of the Fourteenth Amendment.Id. at 487 (emphasis added). Because "the legal proceedings themselves trigger the time bar" for the filing of claims, the Court concluded the nonclaim statute "lack[ed] the self-executing feature" of a typical statute of limitations. Id. Further, the state's involvement in the legal proceedings triggering the time bar was substantial. Id. at 488.
Here, the involvement of this Court in issuing one order enforcing a private agreement to arbitrate is not remotely similar to the amount of "pervasive and substantial" state involvement at issue in Pope. Id. at 487.
There is also a meaningful difference between, on the one hand, a private party's use of legal proceedings to attach or foreclose on property and to enforce judgments, which also involve substantial assistance of the courts and other state actors, see, e.g., Lugar v. Edmondson Oil Co., Inc., 457 U.S. at 942 (state action found when private party invoked state-created, ex parte, prejudgment attachment procedure, which also involved using a state official to seize property); Texaco Inc. v. Pennzoil Co., 784 F.2d at 1145-47 (explaining extensive actions required to attach and seize assets and to place judgment liens on property and concluding "[e]nforcement of the state court judgment therefore necessarily involves a panoply of activities undertaken together by Pennzoil and state officials, which constitutes joint action for the purposes of § 1983"); Dieffenbach v. Attorney Gen. of Vt., 604 F.2d at 194-95 (state action present because "Vermont's strict foreclosure laws directly engage the state's judicial power in effectuating foreclosure," which includes the assistance of courts and state officials), and, on the other hand, this Court's enforcement of a private agreement to arbitrate. See Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. at 58 (explaining the holding in Lugar v. Edmondson Oil Co., Inc. cannot be divorced from the context out of which it arose and noting "[i]n the present case, of course, there is no effort by petitioners to seize the property of respondents by an ex parte application to a state official."); Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 957 F. Supp. 1460, 1469 (N.D. Ill. 1997) (same and "refus[ing] to hold that every time a Court enforces a private arrangement [such as an agreement to arbitrate] it potentially violates one party's constitutional rights"); see also Texaco Inc. v. Pennzoil Co., 784 F.2d at 1147 (distinguishing cases, such as this, "where a private party is alleged to be a state actor merely because it brought suit and sought a judicial ruling").
Plaintiff simply provides no explanation beyond mere ipse dixit as to how this Court's enforcement of an arbitration agreement bears any resemblance to the state involvement in Pope, Lugar, Texaco, and Dieffenbach. Nor is the Court persuaded by plaintiff's attempt to distinguish Desiderio based on the nature of the claims at issue (i.e., state law claims as opposed to federal law claims). It is also irrelevant that the court in Desiderio referred generally to Article III and did not specifically discuss "separation of powers."
B. Compelling Arbitration Does Not Violate Article III
"Article III, § 1, of the Constitution mandates that '[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.' The same section provides that the judges of those constitutional courts 'shall hold their Offices during good Behaviour' and 'receive for their Services[] a Compensation[] [that] shall not be diminished' during their tenure." Stern v. Marshall, 131 S. Ct. 2594, 2608 (2011) (quoting U.S. Const. art. III, § 1) (alteration in original).
Article III both protects our tripartite system of government, id. ("Article III is an inseparable element of the constitutional system of checks and balances that both defines the power and protects the independence of the Judicial Branch." (quotation marks omitted)), and "safeguard[s] litigants' right to have claims decided before judges who are free from potential domination by other branches of government." Commodity Futures Trading Comm'n v. Schor, 478 U.S. at 848 (quotation marks omitted).
The Court concludes compelling arbitration of plaintiff's claims does not violate either the structural protections of Article III or plaintiff's right to have his claim adjudicated by an independent Article III judge.
1. The FAA Is Not an Impermissible Incursion on the Separation of Powers
Plaintiff's argument is premised on a fundamental misunderstanding of the FAA. The FAA allows for the enforcement of agreements to arbitrate. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. at 682 ("[T]he central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms." (quotation marks omitted)). It neither creates alternative dispute resolution forums, nor delegates resolution of disputes to those alternative forums. Thus, the FAA does not violate the separation of powers doctrine.
When Congress creates and delegates resolution of disputes to non-Article III forums, that action raises significant concerns regarding the constitutional system of checks and balances. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 854 (1986) ("The risk that Congress may improperly have encroached on the federal judiciary is obviously magnified when Congress 'withdraw[s] from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty' and which therefore has traditionally been tried in Article III courts, and allocates the decision of those matters to a non-Article III forum of its own creation." (quoting Murray's Lessee v. Hoboken Land & Improvement Co., 59 U.S. 272, 18 How. 272, 284 (1856))); see also Stern v. Marshall, 131 S.Ct. at 2609 ("Article III could neither serve its purpose in the system of checks and balances nor preserve the integrity of judicial decisionmaking if the other branches of the Federal Government could confer the Government's 'judicial Power' on entities outside Article III. That is why we have long recognized that, in general, Congress may not 'withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty'" (quoting Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. at 284)).
In contrast, when Congress encourages or merely enforces a private agreement to resolve disputes outside Article III courts, no such concerns regarding the separation of powers are implicated because Congress is not withdrawing any matter from judicial cognizance. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. at 854-55. Rather, it is the parties who are choosing to withdraw, by agreement, certain matters from judicial cognizance.
The Supreme Court's opinion in Schor is instructive. There, the Court considered whether Congress's grant of authority to the Commodity Futures Trading Commission (CFTC) - an independent agency created by Congress - to consider state law counterclaims in reparations proceedings violated Article III. The Court held the grant of authority did not violate Article III. Id. at 857.
The Schor Court considered several factors in reaching its decision. Id. at 851. Among them was whether Congress had "withdraw[n] from judicial cognizance" the determination of a broker's counterclaim. Id. at 854-55. The Court determined Congress had not done so. Congress had given the CFTC the authority to adjudicate the claim, but left the decision to bring the claim before the agency to the parties. In that circumstance, "the power of the federal judiciary to take jurisdiction of [those] matters is unaffected." Id. at 855. To explain how, in that circumstance, "separation of powers concerns are diminished," id., the Court compared Congress's grant of authority to the CFTC to Congress's encouragement of arbitration, concluding the latter circumstance constituted no "impermissible incursion[] on the separation of powers":
Congress gave the CFTC the authority to adjudicate such matters, but the decision to invoke this forum is left entirely to the parties and the power of the federal judiciary to take jurisdiction of these matters is unaffected. In such circumstances, separation of powers concerns are diminished, for it seems self-evident that just as Congress may encourage parties to settle a dispute out of court or resort to arbitration without impermissible incursions on the separation of powers, Congress may make available a quasi-judicial mechanism through which willing parties may, at their option, elect to resolve their differences. This is not to say, of course, that if Congress created a phalanx of non-Article III tribunals equipped to handle the entire business of the Article III courts without any Article III supervision or control and without evidence of valid and specific legislative necessities, the fact that the parties had the election to proceed in their forum of choice would necessarily save the scheme from constitutional attack. See, e.g., Northern Pipeline, supra, 458 U.S., at 73-74, 102 S.Ct., at 2872-2873. But this case obviously bears no resemblance to such a scenario, given the degree of judicial control saved to the federal courts, see supra, at 3258-3259, as well as the congressional purpose behind the jurisdictional delegation, the demonstrated need for the delegation, and the limited nature of the delegation.Id. (emphasis added); see also Geldermann, Inc. v. Commodity Futures Trading Comm'n, 836 F.2d 310, 322 (7th Cir. 1987) ("To justify the reparations procedure challenged in Schor, the Court analogized to a situation in which the legislature encouraged parties to arbitrate; a situation for which the Court believed it was self-evident that no impermissible incursion on the separation of powers was involved.").
Plaintiff misreads this passage when he argues that application of the FAA to compel arbitration of his claims is the equivalent of Congress delegating those claims "not just to a 'phalanx' - but to an entire 'army' 'without any [meaningful] Article III supervision or control.'" P.Opp. at 6 (quoting Schor, 478 U.S. at 855) (alteration in original). The concern raised by the Supreme Court in Schor relates to a situation in which "Congress created a phalanx of non-Article III tribunals." 478 U.S. at 855 (emphasis added). Congress did no such thing in enacting the FAA.
Plaintiff's reliance on Thomas v. Union Carbide Agr. Prods. Co., 473 U.S. 568 (1985), is also misplaced. There, the Court addressed "whether Article III of the Constitution prohibits Congress from selecting binding arbitration with only limited judicial review as the mechanism for resolving disputes among participants in [a statutory] pesticide registration scheme." Id. at 571 (emphasis added). Here, Congress through the FAA is not "selecting binding arbitration" for the resolution of disputes; Congress is enforcing a private agreement that selects binding arbitration for the resolution of disputes.
Indeed, ultimately, "plaintiff concedes that arbitration need not be an 'impermissible incursion[n] on the separation of powers' where the parties have a choice and have willingly made it - because it is a 'basic precept' that arbitration 'is a matter of consent, not coercion.'" P.Opp at 6 (quoting Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S.Ct. at 1773) (alteration in original).
Stripped of the argument that the FAA impermissibly delegates state law claims to non-Article III forums, plaintiff is left to argue the arbitration agreement is not enforceable because he did not really agree to arbitrate - on the ground that Verizon's customer agreement is a contract of adhesion. See P.Opp at 6 ("[T]his case does not involve a voluntary and willing choice to arbitrate by Plaintiff and Verizon's other customers. As Verizon concedes . . . its standard form Customer Agreement with its included Arbitration Agreement is an 'adhesion contract' - which by definition is non-negotiable and offered on a 'take it or leave it basis.'").
However, plaintiff does nothing to develop further his contract of adhesion claim. He cites no law setting forth the standard for determining when an agreement may be considered an unenforceable contract of adhesion, and, consequently, fails to demonstrate that the facts here satisfy that standard. Rather, plaintiff merely says the customer agreement is, in fact, an adhesion contract, and, therefore, he did not "voluntarily, knowingly, and intelligently" waive his Article III rights. (See Plaintiff's Reply Mem. of Law in Supp. of Plaintiff's Mt. for Decl. Judg. (Doc. #35) at 9 ("[T]he issue is whether Verizon's adhesion arbitration agreement is valid to constitute a waiver and consent to the non-Article III forum under the Constitution.").)
Plaintiff does not make clear whether he is arguing that he did not agree to the Customer Agreement as a whole - an issue that must be decided by the arbitrator, see Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006) - or that he did not agree to the arbitration agreement specifically, an issue for the Court, Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 61 (2d Cir. 2012). The Court addresses the issue as it relates to the arbitration agreement, specifically.
It is plaintiff's burden to establish the arbitration agreement is an unenforceable contract of adhesion, and he has plainly not done so. See Harrington v. Atl. Sounding Co., Inc., 602 F.3d 113, 124 (2d Cir. 2010). Under New York law, "a form agreement . . . is not automatically one of adhesion because '[s]uch claims are judged by whether the party seeking to enforce the contract has used high pressure tactics or deceptive language in the contract and whether there is inequality of bargaining power between the parties.'" Molino v. Sagamore, 105 A.D.3d 922, 923, 963 N.Y.S.2d 355, 357 (2d Dep't 2013) (quoting Sablosky v. Edward S. Gordon Co., Inc., 73 N.Y.2d 133, 139, 538 N.Y.S.2d 513 (1989)).
Even assuming the arbitration agreement was a contract of adhesion, "[f]or an arbitration provision to be stricken as a contract of adhesion there must be a showing of unfairness, undue oppression, or unconscionability." David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd. (London), 923 F.2d 245, 249 (2d Cir. 1991) (quotation marks omitted); see also Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc., 191 F.3d at 207 ("A contract or clause is unconscionable when there is an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.") (quotation marks omitted); Klos v. Lotnicze, 133 F.3d 164, 169 (2d Cir. 1997) ("Factors to be considered in determining whether a contract of adhesion is unconscionable include whether the 'coerced' party was on notice of the offending provision, whether the 'coercing' party achieved agreement by fraud or overreaching; and whether any alternatives existed for the 'coerced' party." (internal citations omitted)).
Plaintiff admits his signature appears on the February 28, 2011, customer agreement, which includes an agreement to arbitrate, (see Lonneberg Decl., Ex. A (Doc. #23-1)), and does not deny signing the customer agreement. Nor does he dispute the accuracy of the contents of the document he signed, including the statement: "I AGREE TO THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT . . . . I UNDERSTAND THAT I AM AGREEING TO . . . SETTLEMENT OF DISPUTES BY ARBITRATION AND OTHER MEANS INSTEAD OF JURY TRIALS." He submits no evidence Verizon refused to negotiate the terms of the arbitration agreement. Instead, he argues Verizon bears the burden to show it allows customers to propose changes, and, in any event, the presence of an integration clause proves Verizon was unwilling to negotiate. (See Plaintiff's Rule 56.1 Counter Statement and Response to Defendant's Rule 56.1 Statement, ¶ 11).
The Court rejects both arguments.
Even assuming there was no opportunity to negotiate regarding the arbitration agreement and there was an absence of meaningful choice for plaintiff, plaintiff makes no argument the contract is unfair, unduly oppressive, or unconscionable and, therefore, unenforceable. See David L. Threlkeld & Co., Inc. v. Metallgesellschaft Ltd. (London), 923 F.2d at 249. Here, as in Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc., the arbitration agreement binds both Verizon and plaintiff to mandatory arbitration. Thus, the agreement "may not be said to favor the stronger party unreasonably." 191 F.3d at 207 (concluding arbitration agreement not a contract of adhesion). Based on this record, the Court concludes the arbitration agreement is enforceable. And because plaintiff concedes his claims are arbitrable, plaintiff is obligated to arbitrate his claims in accordance with the arbitration agreement.
Although defendant identifies one service provider that does not mandate arbitration as a condition of service, defendant does not dispute the thirteen major wireless telephone service providers require arbitration agreements in their customer contracts. (See Plaintiff's Rule 56.1 Counter Statement and Response to Defendant's Rule 56.1 Statement, ¶ 24.)
2. Plaintiff Waived His Personal Article III Rights
"[A]s a personal right, Article III's guarantee of an impartial and independent federal adjudication is subject to waiver, just as are other personal constitutional rights that dictate the procedures by which civil and criminal matters must be tried." Commodity Futures Trading Comm'n v. Schor, 478 U.S. 848-49. Courts have repeatedly held that when an individual consents to arbitration, he waives his right to an independent Article III judge. See, e.g., Belom v. Nat'l Futures Ass'n, 284 F.3d 795, 799 (7th Cir. 2002). By summary order, the Second Circuit, in effect, reached the same conclusion - that consenting to arbitration waives the right to an Article III forum - when the court affirmed an award of sanctions against a plaintiff for filing and maintaining a motion to enjoin defendants from pursuing arbitration. See Lawrence v. Wilder Richman Secs. Corp., 417 F. App'x 11 (2d Cir. 2010) (summary order). There, plaintiff claimed he would be injured because an arbitral forum "would not afford him the constitutional rights guaranteed civil litigants in Article III courts." Id. at 14. The court concluded there was no reasonable basis for pleading irreparable harm, explaining that "[a] party suffers no legally cognizable injury at all . . . by being compelled to engage in arbitration to which he has contractually agreed." Id.
See also Sydnor v. Conseco Fin. Servicing Corp., 252 F.3d 302, 307 (4th Cir. 2001); Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 368 (7th Cir. 1999); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994); Geldermann, Inc. v. Commodity Futures Trading Comm'n, 836 F.2d 310, 321 (7th Cir. 1987); Morrison v. Circuit City Stores, Inc., 70 F. Supp. 2d 815, 825 (S.D. Ohio 1999), aff'd, 317 F.3d 646, 668 (6th Cir. 2003) (en banc) (plaintiff "knowingly and voluntarily waived her right to pursue her employment claims in federal court"), Cremin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 957 F. Supp. 1460, 1470-71 (N.D. Ill. 1997); Illyes v. John Nuveen & Co., Inc., 949 F. Supp. 580, 584 (N.D. Ill. 1996).
Because plaintiff signed Verizon's customer agreement, which included an agreement to arbitrate, and the Court has concluded the arbitration agreement is enforceable, the Court further finds plaintiff waived his personal rights to an independent Article III judge.
The Court rejects plaintiff's argument that more is required under D.H. Overmyer Co. v. Frick Col., 405 U.S. 174 (1972), to find waiver of his Article III rights. See Morales v. Sun Constructors, Inc., 541 F.3d 218, 224 (3d Cir. 2008) ("applying a heightened 'knowing and voluntary' standard to arbitration agreements would be inconsistent with the FAA"); Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1372 & 1371 n.12 (11th Cir. 2005) (concluding "general contract principles govern the enforceability of arbitration agreements and [] no heightened 'knowing and voluntary' standard applies"); Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 711 (5th Cir. 2002) (with the exception of certain issues in collective bargaining agreements, "there is no requirement that an arbitration provision must clearly and unmistakably express the waiver of an individual's [constitutional jury trial] rights," citing Williams v. Imhoff, 203 F.3d 758, 763 (10th Cir. 2000)); Sydnor v. Conseco Fin. Servicing Corp., 252 F.3d 302, 307 (4th Cir. 2001) (declining to apply "a more demanding standard" to enforce arbitration agreement which resulted in waiver of jury trial right); see also Awuah v. Coverall N. Am., Inc., 703 F.3d 36, 44 (1st Cir. 2012) (no heightened notice requirement to enforce agreement to arbitrate). But see Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 668 (6th Cir. 2003) (en banc) (applying "knowing and voluntary waiver" standard to arbitration agreement).
C. Congress Has Not Prescribed A "Rule of Decision"
The FAA does not unconstitutionally prescribe a "rule of decision" prohibited by United States v. Klein, 80 U.S. 128 (1871). In Klein, the administrator of the estate of a former confederate rebel sued the United States under the Abandoned and Captured Property Act for the recovery of property (or proceeds of the sale of property) seized during the Civil War. Recovery under the statute was conditioned on proof that the rebel had never given any aid or comfort during the rebellion. Id. at 139. Relying on an earlier Supreme Court decision that a Presidential pardon satisfied this burden, id. at 139-42, the Court of Claims awarded Klein's estate relief. Id. at 143. While the government's appeal was pending, Congress enacted a new law providing a pardon would be taken as conclusive evidence of the opposite position - namely, that the claimant had given aid to the rebellion. Id. at 143-44. The new law also declared that upon submission of proof of a pardon, the jurisdiction of the court shall cease and the suit shall be dismissed. Id. at 144. The Supreme Court concluded the new law was unconstitutional. Id. at 146.
The Court explained that although Congress could "confer or withhold the right of appeal from its decisions," id. at 145, this law went beyond that right because it did not merely "make exceptions and prescribe regulations to the appellate power," id. at 146; rather, the effect of the law was to "prescribe a rule for the decision of a cause in a particular way." Id. In other words, under the law, "the court is forbidden to give the effect to evidence which, in its own judgment, such evidence should have, and is directed to give it an effect precisely contrary." Id. at 147.
Here, however, the legislation enacted by Congress does not decide the outcome of cases by declaring the effect of specific evidence in specific cases; thus, Klein is not implicated. See Robertson v. Seattle Audubon Soc., 503 U.S. 429, 438 (1992) (statute "compelled changes in law, not findings or results under old law"); Axel v. Johnson Inc. v. Arthur Andersen & Co., 6 F.3d 78, 82 (2d Cir. 1993) (statute did not "control courts' determinations"); see also Hadix v. Johnson, 144 F.3d 925, 940 (6th Cir. 1998) (statute did "not direct any particular evidentiary findings nor dictate a result in a specific case"), abrogated on other grounds by, Miller v. French, 530 U.S. 327 (2000).
Further, the fact that judicial review of arbitral decisions is limited and may sometimes result in a court's upholding an award even if that "court is convinced [the arbitrator] committed serious error," Eastern Assoc. Coal Corp. v. Mine Workers, 531 US. 57, 62 (2000), does not mean Congress has prescribed a rule of decision "of a cause in a particular way." United States v. Klein, 80 U.S. at 146. The FAA provides for enforcement and limited review of arbitral decisions for purposes of confirming an arbitral award; the law is neutral on the outcome of any particular decision. It merely enforces agreements to have disputes decided in a non-Article III forum, and concomitantly requires Courts to give effect to those decisions in accordance with the parties' agreement.
III. Dismissing Litigation Versus Staying Litigation Pending Arbitration
The only question that remains is whether the Court may dismiss this action or must stay the proceedings pending arbitration. Plaintiff argues the action should be dismissed so that plaintiff may take an immediate appeal. Defendants contend the Court is without discretion to dismiss the action under the plain language of the statute.
The Court concludes the action may be dismissed.
The Second Circuit has not addressed the issue of whether a district court has the discretion to dismiss an action when the court compels arbitration of all of the claims in the action. The circuits that have are divided, see Lloyd v. HOVENSA, LLC., 369 F.3d 263, 268-69 (3d Cir. 2004) (surveying case law), and district courts within this circuit are divided. Compare Reynolds v. de Silva, 2010 WL 743510, at *8-9 (S.D.N.Y. Feb. 24, 2010) (court has discretion to dismiss), and Furchtgott-Roth v. Wilson, 2010 WL 3466770, at *9 (S.D.N.Y. Aug. 31, 2010) (same), with Empire State Ethanol & Energy, LLC v. BBI Int'l, 2009 WL 790962, at *10 (N.D.N.Y. Mar. 20, 2009) (court must stay action).
When addressing a different issue under the FAA, the Second Circuit stated: "Under the Federal Arbitration Act ("FAA"), a district court must stay proceedings if satisfied that the parties have agreed in writing to arbitrate an issue or issues underlying the district court proceeding." McMahan Secs. Co. L.P. v. Forum Capital Mkts. L.P., 35 F.3d 82, 85-86 (2d Cir. 1994) (citing 9 U.S.C. § 3). "The FAA leaves no discretion with the district court in the matter." Id. (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). A review of the passage cited from Dean Witter Reynolds, Inc. v. Byrd, however, reveals that when the Supreme Court stated district courts do not have discretion, the Court was referring to the enforcement of agreements to arbitrate by compelling arbitration, not to staying cases pending arbitration:
By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. [9 U.S.C.] §§ 3, 4. Thus, insofar as the language of the Act guides our disposition of this case, we would conclude that agreements to arbitrate must be enforced, absent a ground for revocation of the contractual agreement.
The Court agrees with plaintiff that "dismissal is a proper remedy when all of the issues presented in a lawsuit are arbitrable." Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001) (citing Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992)); see also Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 372 (1st Cir. 2011); Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988). But see Lloyd v. HOVENSA, LLC., 369 F.3d at 268-71 . Accordingly, the action is dismissed.
CONCLUSION
Plaintiff's motion for partial summary judgment is DENIED.
Defendant's motion to compel individual arbitration is GRANTED, and the case is dismissed.
The Clerk is instructed to terminate the motions (Docs. #17, 21) and close this case. Dated: December 12, 2013
White Plains, NY
SO ORDERED:
/s/_________
Vincent L. Briccetti
United States District Judge
470 U.S. at 218. In light of the Supreme Court's reasoning in Dean Witter, and the fact that Second Circuit's statement in McMahan is dicta, the Court declines to read McMahan as binding as to the issue at hand.