Opinion
No. 14CV-8616-CM-JLC
06-30-2015
BRENDA EDWARDS, individually and on behalf of all others similarly situated, Plaintiff, v. MACY'S INC, and DEPARTMENT STORES NATIONAL BANK Defendant.
MEMORANDUM DECISION AND ORDER TO COMPEL ARBITRATION AND STAY ACTION
:
Before the Court is Defendants' motion to compel arbitration, or in the alternative, to stay the lawsuit pending arbitration.
For the reasons set forth below, Defendants' motion to compel arbitration is GRANTED. The decision whether arbitration will proceed on an individual or class basis is a question to be decided by the arbitrator, not the Court.
STATEMENT OF THE FACTS
Brenda Edwards ("Plaintiff") is a self-employed life coach and a resident of Springfield, Massachusetts. Defendant Macy's, Inc. ("Macy's") is a department store retailer, incorporated in Delaware, with a principal place of business in Ohio and New York. (Docket #1 at 4). Defendant Department Stores National Bank ("DSNB" ) is a subsidiary of Citibank, Inc., located in Sioux Falls, South Dakota. Id. DSNB issues credit cards for private retail account labels such as Macy's. Id.
Plaintiff opened a Macy's credit card account at a Macy's store in Springfield, Massachusetts, on August 17, 2010, at the time she made several purchases from the store. (Docket #31 at 3).
Plaintiff recalls that she provided her social security number and information about her home ownership in connection with her application. She also recalls signing a point of sales device at the time she applied for her card. Plaintiff insists that she did not know whether she was signing an agreement or simply confirming that her purchases were being charged to her new account. However, Plaintiff intended to obtain a credit card, and she understands that credit cards are generally accompanied by "some agreement." Plaintiff does not recall whether the Macys' sales representative presented her with the terms and conditions of the credit agreement at the time she opened the account. Macy's says that it sent Plaintiff a copy of the DSNB credit card agreement and the terms and conditions of use the next day on August 18, 2010.
While she was opening her new account, the Macy's sales representative asked Plaintiff if she wanted to enroll in a thirty day free trial of the Department Stores National Bank's "Credit Protection Program." (Docket #37, Ex. 1 at 17). The Credit Protection Program offers "forgiveness or cancellation of the Eligible Debt Amount [ ] portion of your New Balance due to the occurrence of a Debt Cancellation Event," subject to certain eligibility requirements. (Docket #26, Ex. 4). Debit cancellation events include involuntary unemployment, employer-approved leave of absence, disability, hospitalization, terminal illness, and critical injury protection. (Docket #26, Ex. 4). Customers may not receive debt cancellation for debt accrued after the cancellation event occurred. (Docket #26, Ex. 4). To be eligible for involuntary unemployment, the customer "must have been employed full time (but not self-employed) ..." (Docket #26, Ex. 4).
Plaintiff admits that she did not ask for clarification about the free trial, the Program's benefits, or the terms and conditions of the Program at the time she agreed to participate in the free trial. She just said, sign me up.
The Credit Protection Program Terms and Conditions are an "Amendment" to the DSNB Credit Card Agreement. Defendants claim to have mailed Plaintiff a copy of the Amendment along with the terms and conditions on August 18, 2010, and offer proof of mailing. (Docket #26 at 3). Plaintiff does not recall whether she received a copy of either the Agreement or the Amendment in the mail. (Docket #37, Ex. 1 at 23).
The Credit Protection Program is only free for thirty days; after that, a fee of $1.89 per $100 of the cardholder's New Balance at the end of each billing period is automatically charged to the credit card. (Docket #26, Ex. 4).
The Amendment contains an arbitration clause:
This Amendment to the CCA takes place in and substantially affects interstate commerce. Any dispute, controversy, benefits requests, demands, losses, damages, actions or causes of action that you or your beneficiary, including their respective heirs, personal representatives, successors and assigns (each referred to in this Arbitration section as "claimant") arising out of or relating in any way to this Amendment, or to the solicitation for and/or sale of this Amendment, shall be settled by arbitration under the provision of the Federal Arbitration Act, 9 U.S.C., Section 1, et seq. Such arbitration shall be governed by the rules of the American Arbitration Association ... If we, a claimant, or a third party have any dispute that is directly or indirectly related to a dispute governed by this arbitration provision, the claimant and we agree to consolidate all such disputes.(Docket #26, Ex. 4).
Plaintiff did not realize that she was paying a monthly fee for the Credit Protection Program until May 2014, nearly four years after she opened the account, and after she had paid $250 in fees on account of the program. (Docket #37, Ex. 1 at 55). Once she realized it, Plaintiff cancelled her enrollment in the Credit Protection Program. Plaintiff received a refund of $17.12 on May 19, 2014 for the three months of Credit Protection fees, but has since received no further refund from DSNB or Macy's. (Docket #1 at 8).
Plaintiff filed her complaint before this Court on October 29, 2014. She sued individually and on behalf of all others similarly situated, seeking damages, attorney's fees, litigation costs, and injunctive relief "enjoining Defendants from continuing to engage in the fraudulent, deceitful, unlawful and unfair common scheme alleged." (Docket #1 at 18). Plaintiff seeks certification of "Class A... [a] nationwide class consisting of all persons residing in the United States who were charged by Defendants and paid for Payment Protection." (Docket #1 at 9). Additionally, plaintiff seeks certification of two subclasses as follows:
(a) Sub-Class A1, which consists of all members of Class A who were enrolled in and charged for Payment Protection services absent the consumers' express affirmative request, consent and/or agreement; and (b) Sub-Class A2, which consists of all members of Class A who were charged for Payment Protection but were ineligible for such coverage.(Docket #1 at 9). Plaintiff alleges that she was ineligible for the coverage because she was self-employed; she does not explain how self-employment would affect her eligibility for coverage in the event of disability, tenninal illness, or critical injury. But that is for another day.
On December 17, 2014, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., Defendants filed a motion to compel arbitration. (Docket #25). Defendants asked this Court to rule that the arbitration would proceed only as to Plaintiff individually; they additionally said that if this Court does not compel arbitration with Plaintiff individually, they would rather litigate.
DISCUSSION
I. Legal Standard
The Federal Arbitration Act "is an expression of a "strong federal policy favoring arbitration as an alternative means of dispute resolution.'" Ross v. Am. Express Co., 547 F.3d 137, 142 (2d Cir. 2008) (quoting Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 226 (2d Cir. 2001)). Arbitration agreements are "valid, irrevocable, and enforceable" and are "as enforceable as other contracts, but not more so." 9 U.S.C. § 2; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S 395, 404 n. 12 (1967). Traditional contract defenses "such as fraud, duress, or unconscionability ... may be applied to invalidate arbitration agreements." Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996).
There are four factors that this Court must consider when evaluating a motion to compel arbitration:
[F]irst, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and, fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 75-76 (2d Cir. 1998).
"If there is an issue of fact as to the making of the agreement for arbitration, then a trial is necessary." Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003). However, "if the party seeking arbitration has substantiated the entitlement by a showing of evidentiary facts, the party opposing may not rest on a denial but must submit evidentiary facts showing that there is a dispute of fact to be tried." Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995).
The Credit Card Agreement stipulated that, "This Agreement is governed only by applicable federal law and the law of the State of South Dakota." (Docket #26, Ex. 1). New York courts will enforce a clear and unambiguous choice-of-law clause so as to effectuate the parties' intent. See Welsbach Elec. Corp. v. MasTec N. Am., Inc, 859 N.E.2d 498, 500 (N.Y. 2006). Neither party disputes the application of South Dakota law so a lengthy choice of law analysis is not necessary: South Dakota and appropriate federal law govern this dispute.
II. Plaintiff Entered into a Valid Arbitration Agreement
This Court finds that the arbitration agreement is valid. There is no genuine dispute of material fact to warrant the need for further fact finding. The arbitration agreement is not susceptible to a challenge on the grounds of procedural unconscionability.
a. The Court Decides Whether an Agreement to Arbitrate was Made
A district court must determine whether there is a valid arbitration agreement, but the merits of a dispute must be left to the arbitrator. See AT&T Tech. v. Communications Workers, 475 U.S. 643, 649-50, 106 S.Ct. 1415 (1986) (holding that "the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator"). See also Schnabel v. Trilegiant Corp., 697 F.3d 110, 118 (2d Cir. 2012); St. Paul Fire and Marine Ins. Co. v. Courtney Enterprises, Inc., 270 F.3d 621 (8th Cir. 2012) (finding "the court may not rule on the merits of any claim the parties have agreed to arbitrate"). There is no question that the Amendment contains an arbitration clause, and a broad one at that. However, Plaintiff claims that she never agreed to arbitrate because she never agreed to the Amendment, and also because the Amendment is invalid for a variety of reasons. Can the Plaintiff avoid the arbitration clause by arguing that the Amendment containing it is void?
The answer is no. This Court can only evaluate the validity of the arbitration agreement in the Amendment. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006). "As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." Buckeye, 546 U.S. at 447. In Buckeye, Plaintiffs entered into various deferred payment transactions and signed an arbitration agreement for each. In the lower court proceedings, the plaintiffs challenged the legality of the entire agreement (including the arbitration provision), alleging that Buckeye had charged usurious interest rales and that the agreements signed were in violation of Florida state law.
The Supreme Court held that when a challenge is made to an entire agreement containing an arbitration clause, the entire agreement's validity must be resolved by an arbitrator. Though this holding may "permit[ ] a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void ..." the Court was equally troubled by "deny[ing] effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable." Buckeye decisively resolves the conundrum in the case at bar "in favor of the separate enforceability of arbitration provisions." See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (2006). Whether an arbitration agreement was made is for the Court to decide. Everything else is for the arbitrator.
The Eighth Circuit has taken the same approach to a nearly identical situation in Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 695 (8th Cir. 1994). The Houlihan court compelled the arbitration of a dispute in which the plaintiffs challenged an agreement amending an existing brokerage contract. Houlihan, 31 F.3d at 695. Though the Plaintiffs in Houlihan argued that they never reasonably assented to the brokerage agreement that included the arbitration provision, the court held that the dispute was subject to the mandatory arbitration provision because the challenge was to the entire contract. "As counterintuitive as it may seem ... a dispute over the making of a contract can arise out of that same contract, and thus be subject to arbitration." Houlihan, 31 F.3d at 695.
In Houlihan, the Eighth Circuit emphasized the strong federal policy favoring arbitration. The same policy is followed in this circuit: any doubt regarding arbitrability should be "resolved in favor of coverage under the agreement." John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 58 (2d Cir. 2001) (quoting AT&T Tech. v. Communications Workers, 475 U.S. 643, 650 (1986)).
Therefore, the fact that Plaintiff is challenging whether she entered into the Agreement does not prevent the Court from deciding that there is a valid agreement to arbitrate. Neither does this Court's ruling on that question foreclose the arbitrator from coming to a decision in favor of the Plaintiff on the ultimate dispute.
b. Plaintiff Manifested Assent to Arbitrate.
Arbitration agreements are contracts. See, e.g., NCUA v. Goldman, Sachs & Co., 775 F.3d 145, 148 (2d Cir. 2014). To create a binding contract, there must be a meeting of the minds constituting an offer and acceptance, the validity of which is determined by the objective manifestations of the parties. See, e.g., Highland HC, LLC v. Scott, 113 A.D.3d 590, 594 (N.Y.App.Div. 2014); Vander Heide v. Boke Ranch, Inc., 736 N.W.2d 824, ¶ 20 (S.D. 2007). Conduct constituting assent "is not effective as a manifestation of [ ] assent unless [the party] intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents." RESTATEMENT (SECOND) OF CONTRACTS § 19(2) (1981).
Neither party challenges the validity of the initial credit agreement. Plaintiff intended to open a Macy's credit card account, properly assented to the terms and conditions of the agreement, and used her account for several years.
Neither does Plaintiff dispute that she signed what was displayed on the point of sale device. One who signs a contract is presumed to know its contents. See, e.g., Johnson v. Thruway Speedways, Inc.,407 N.Y.S.2d 81, 83 (N.Y.App.Div. 1978); Kernelburner, LLC v. MitchHart Mfg., Inc., 765 N.W.2d 740, 743 (S.D. 2009). Plaintiff in this case does not recall whether she was shown the terms and conditions of the Credit Protection agreement at the time she signed her name on the point of service device at the Macy's store. However, when asked if she wanted to enroll in a thirty day free trial, Plaintiff admittedly agreed to enroll. She also admittedly signed the point of sale device. (Docket #37 at 27). Plaintiff's signature is an objective manifestation that she agreed to the terms and conditions of the Credit Protection Program and the arbitration clause included therein.
Plaintiff alleges that she thought Credit Protection was a defense against someone hacking into her account, but whether she fully understood the program is of no moment; she did not seek clarification, but simply signed the point of sale device. Id. at 20. She is, therefore, presumed to know the content of the agreement.
Plaintiff claims she docs not remember if the terms and conditions were presented to her or if they were sent to her afterwards via mail. Asserting that she does not remember if she was shown the terms and conditions is of no moment; lack of memory does not create a genuine issue of fact. See F.D.I.C. v. National Union Fire Ins. Co., 205 F.3d 66, 75 (2d Cir. 2000).
c. The Agreement to Arbitrate is Valid on its Face.
Plaintiff argues that, her manifestation of consent notwithstanding, she did not agree to the Amendment as a matter of law because it was not supported by consideration.
Plaintiff claims that she could not have agreed to the terms of the Credit Protection agreement (including the arbitration term) because she does not recall having received the Amendment's terms and conditions. See S.D. CODIFIED LAWS § 54-11-10 (2010) (repealed by 2015 Sess. Laws 24). See also N.Y. PERSONAL PROPERTY LAW § 413(11)(e) (McKinney 2011).
However, Defendants are entitled to a presumption of receipt if they provide evidence that the Credit Protection agreement was properly mailed. Cox v. Brookings Intern. Ins. Co., 331 N.W.2d 299, 301-02 (S.D. 1983). See also Nassau Ins. Co. v. Murray, 46 N.Y.2d 828, 829 (N.Y. 1978). Under South Dakota law, Defendants here are entitled to the presumption of receipt if they provide testimony "as to the procedure, and mail logs that demonstrate mailing of the particular piece in question." Cox, 331 N.W.2d at 301.
Defendants in this case have submitted testimony and documents with intelligent barcodes, addressed to Plaintiff, suggesting that these documents were in the system for processing. Plaintiff docs not say that she never received these documents; she simply states she does not remember one way or another. Based on the evidence submitted before me, and applying standards set forth by South Dakota law. Defendants are entitled to the presumption of receipt, and Plaintiff has not rebutted the presumption.
Plaintiff also contends that the Credit Protection program was not a valid amendment to the Credit Card agreement because it involved a material change to the agreement without proper notice or adequate consideration.
The initial Credit Card Agreement states: "We may change any terms of this agreement ... unless prohibited by law. When required by law we will mail you prior notice of changes." (Docket #37 at 6). That constitutes notice that the agreement may be modified. Under South Dakota Jaw, consideration is not required when the valid agreement preserves the maker's right to modify. S.D. CODIFIED LAWS § 57A-2-209 (1966). Furthermore, in this case, Defendants have established that they sent Plaintiff the Amendment and she offers no refutation.
Plaintiff cites Schnabel v. Trilegiant, Corp., 697 F.3d 110 (2d Cir. 2012) for the proposition that the arbitration agreement may be invalidated if the arbitration provision was "temporally and spatially decoupled from the plaintiffs' enrollment" in the Credit Protection Program. Schnabel, 697 F.3d at 127 . In Schnabel, plaintiffs were enrolled in "Great Fun," a membership program which offers discounts for a monthly fee, while making an online purchase. The Schnabel plaintiffs clicked on a link that offered them "Cash Back" on their purchases, which subsequently enrolled them in the program. Though it was disputed whether the plaintiffs entered their own information, plaintiffs did not need to re-enter their credit card information to purchase membership to "Great Fun." An arbitration provision was contained in a hyperlink that read "See Details" on the enrollment screen. The terms and conditions of the offer were then sent to an email address.
The district court in Schnabel held that plaintiffs had not properly assented to the terms and conditions of "Great Fun" and denied the defendant's motion to compel arbitration, The Second Circuit affirmed the district court's finding, holding that a continued credit card charge and an email containing a hyperlink that was sent after plaintiffs had already enrolled "were too passive for any reasonable fact-finder to conclude that they manifested a subjective understanding of the existence of the arbitration and other emailed provisions and an intent to be bound by them in exchange for the continued benefits Great Fun offered." Schnabel v. Trilegiant, Corp., 697 F.3d 110, 128-29 (2d Cir. 2012). The plaintiffs had no reasonable opportunity to review the terms and conditions because the terms were hidden in vague hyperlink and sent in an email after plaintiffs had already enrolled.
There are several significant differences between Schnabel and the case at bar. In Schnabel, the defendant only displayed the terms in an email and through a hyperlink on which customers needed to click in order to view the full terms. Unlike in Schnabel, where the contract terms were disguised as an advertisement to receive cash back on the plaintiff's purchase, Defendants in this case sent Plaintiff a mailing that staled in bold font on the first page, "Your Enrollment is Confirmed." (Docket #30, Exhibit 4). The arbitration agreement is specifically designated in its own section of the agreement and set off from the rest of the terms and conditions.
More important, Plaintiff had thirty days to review the Amendment's terms and conditions before she was charged for the Credit Protection Program. She received the mailed copy of the terms and conditions before undertaking any financial obligation whatsoever, and she could have ended her enrollment before incurring any charges by the simple expedient of reading her mail.
In these circumstances, Plaintiff assented to a valid offer to participate in the Credit Protection Program.
d. The Agreement is Not Procedurally Unconscionable
Plaintiff next argues the manner in which she was presented with the terms void the validity of the agreement.
Plaintiff's challenge implicates the doctrine of procedural unconscionability. South Dakota looks to Gillman v. Chase Manhattan Bank N.A., 73 N.Y.2d 1, 11 (N.Y. 1988) to determine whether an agreement "lack[ed] meaningful choice." See Johnson v. John Deere, 306 N.W.2d 231, 236 (S.D. 1981). Under Gillman, procedural unconscionability is analyzed by considering: 1) the size and setting of transaction, 2) whether deceptive or high pressured tactics were used, 3) the use of fine print, 4) the experience and education of party claiming unconscionability, and 5) whether there was disparity in bargaining power. Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 11 (N.Y. 1988).
None of the Gillman factors tilts in Plaintiff's favor.
1) This was a modest transaction - one person applies for one credit card and is asked if she is interested in one thirty day free trial - that took place in a department store. Nearly everyone has had the experience of taking merchandise to a cash register, only to be asked by the sales associate, "Do you have a store credit card?"
2) There is no evidence that Plaintiff was pressured to join the Credit Protection program via high pressure tactics. While at the register, the sales clerk asked the Plaintiff if she wanted to enroll in a thirty day free trial. Without seeking any further information, Plaintiff agreed to do so. There is no indication in the record that the sales clerk misrepresented anything to Plaintiff - which might present a different case. On the facts before this Court, her enrollment was not the result high pressure sales techniques.
3) Plaintiff claims that the small print used in the agreement voids the contract, but the arbitration agreement was the same size as the rest of the text in the Amendment's terms and conditions and was sent to Plaintiff's address. Even shrunk to fit the entire form onto a single 8 ½ x 11 piece of paper, it is legible. Plaintiff had ample time to read these conditions and had thirty days to do so before her free trial expired, at which point she could still cancel her participation in the program at any time. An arbitration agreement contained in small font cannot be voided if it is the same size as the rest of the text and the customer had ample time to review the document, see Brower v. Gateway 2000, Inc., 676 N.Y.S.2d 569, 573 (N.Y. App. Div. 1998), as was the case here,
4) Plaintiff's education is of little relevance; she has sufficient experience to know that there would be terms and conditions accompanying any credit card agreement.
5) Plaintiff claims that there was a disparity in bargaining power. This would be a persuasive argument if Plaintiff had been coerced into purchasing credit protection, but she offers no such evidence. Plaintiff had no need to say yes to the free trial and she could have cancelled at any time - including during the thirty day free trial, before she was charged a dime for her enrollment.
What all this adds up to is that Plaintiff did not read her mail. This Court will not void a valid agreement based on Plaintiff's failure to read the terms and conditions that were presented to her.
III. The Dispute falls within the ambit of (be arbitration clause
The next Oldroyd factor relevant here is the scope of the arbitration agreements. "As a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983).
There is no doubt that the dispute is arbitrable. The arbitration agreement stipulates that "any dispute, controversy, benefits requests, demands, losses, damages, actions or causes of action ... arising out of or relating in any way to this Amendment, or to the solicitation for and/or sale of this Amendment, shall be settled by arbitration ..." (Docket #30, Exhibit 4). Plaintiff's claims for damages and injunctive relief from Defendant's allegedly deceitful and unfair practices fall within the scope of this broad arbitration agreement.
Therefore, the Court compels arbitration between Plaintiff and Defendant.
IV. Whether Arbitration is to Proceed on an Individual or Class Basis is a Decision Left to the Arbitrator
Defendants qualify their request for an order compelling arbitration in one respect: they ask the court to determine that the arbitration can proceed only against plaintiff, not on a class wide basis. That, I fear, I cannot do.
A party cannot be compelled to arbitrate on a class-wide basis unless there is a contractual basis for forcing him to do so. Any doubt on that score is foreclosed by the Supreme Court's decision in Stolt-Nielsen v. AnimalFeeds International Corp., 599 U.S. 662, 130 S. Ct. 1758 (2010).
Stolt came before the court in an unusual procedural posture (albeit one dictated by the very same arbitral rules that will govern the arbitration between Edwards and Defendants). The petitioner sought to arbitrate on behalf of a class. The arbitration agreement was completely silent on the availability of class arbitration, and the parties actually stipulated that they had made no agreement on the issue. Nonetheless, the arbitrators agreed that the arbitration should proceed on behalf of a class, not just on behalf of the individual petitioner. Applying the American Arbitration Association's rule - which recognizes the import of a decision to permit class arbitration - the arbitrators issued a partial final award and gave the parties thirty days to move in a court of law for its confirmation or vacatur.
The Second Circuit agreed with the arbitrators' conclusion, but the Supreme Court reversed, on the ground that the parties' stipulation that there had been no agreement about class arbitration meant precisely that - there was no agreement to arbitrate claims on behalf of a class. The foundational principle underlying the FAA is that arbitration is a matter of consent. The court held that imposing class arbitration on a party when that party had not agreed to it contravened the Federal Arbitration Act, whose "central purpose" had long been held to be ensuring that "private agreements to arbitrate are enforced according to their terms," Volt v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479 (1988). Those terms included specifying with whom the parties chose to arbitrate. EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002). Where absolutely no contractual basis for class arbitration existed, the arbitrators exceeded their powers by compelling an unwilling party to participate in such an arbitration. The court emphasized repeatedly that the parties had stipulated that they had reached no agreement on the issue of class arbitration, so there was absolutely no basis upon which the arbitrators could formally infer the necessary consent.
So Stolt stands for the principle that Macy's cannot be compelled to participate in a class arbitration if it did not consent to do so.
That much is easy to decide.
The questions that remain are less so.
First, this particular agreement - unlike the agreement in Stolt - is arguably not "silent" about whether class arbitration is contemplated. True, it does not mention the word "class" or use the phrase "class-wide arbitration." But it contains a most unusual coda. The agreement provides for arbitration of "any dispute, controversy ... arising out of or relating in any way to this Amendment ... shall be settled by arbitration ... If we, a claimant, or a third party have any dispute that is directly or indirectly related to a dispute governed by this arbitration provision, the claimant and we agree to consolidate all such disputes." (Docket #26, Exhibit 4). This reference to consolidation of Plaintiff's dispute with related third party disputes can certainly be read to authorize class-wide arbitration. The claims of putative class members arising under the identical Credit Agreement and its amendment arguably "relat[e]....directly or indirectly" to the dispute at issue between Plaintiff and Defendants, which I have just found to be arbitrable, and the phrase "consolidate" may also permit class arbitration. That is not the only way to read the agreement, but it is certainly one way to read it - and applying principles of contra preferentum to an agreement drafted by Macy's, it may be the best way to read it.
However, this Court cannot address whether this unusual language contemplates class arbitration before grappling with a predicate question: who decides whether class arbitration falls within the meaning of that clause? The court? Or the arbitrators?
The Stolt court made it very clear that it was not deciding this predicate issue - indeed, made it very clear that there was no need to address it, since the parties stipulated that they made no agreement about class arbitration. To reinforce the point, Justice Alito, writing for the Stolt majority, carefully used neutral terms like the "decisionmaker" (Stolt, 559 U.S. at 680) or "courts and arbitrators" (Stolt, 559 U.S. at 682) when explaining what must be done when "enforcing an agreement to arbitrate or construing an arbitration clause." Stolt, 559 U.S. at 664. The Stolt majority cautioned lower courts to "pause" when addressing whether to leave the availability of class arbitration to the arbitrators, but did not suggest what rule of decision should apply. As far as this court is concerned, that means we should apply the rules of decision that were in effect before Stolt.
And what are those rules?
A court's tasks when deciding a motion to compel arbitration are two. First it must decide whether there is a valid agreement to arbitrate. Mitsubishi v. Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985). If there is, then the court determines the scope of that agreement. As a practical matter, the nature of the court's determination depends on whether the agreement is a broad agreement or a narrow one. Mehler v. Terminix Int'l Co., 205 F. 3d 44, 49 (2d Cir. 2000). If the agreement is broad—that is, if it calls for arbitration of "any and all disputes"—there arises a presumption of arbitrability; and if the claim "implicates issues of contract construction or the parties' rights and obligations under it," the issue of contract construction is perforce arbitrable. Collins & Aikman Prods Co. v. Bldg. Sys., Inc., 58 F.3d 16, 23 (2d Cir. 1995). Only if the agreement is a narrow one does the court examine the possibility that contract construction might not be arbitrable. Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001). See also, Cornell Univ. v. UAW Local 2300, 942 F.2d 138, 140 (2d Cir. 1991).
Nothing in Stolt - not even its suggestion of a cautionary "pause" - has altered those long-standing rules in the slightest particular.
Applying the rules summarized above, it is clear that the issue of whether the language quoted above authorizes class-wide arbitration is for the arbitrators in the first instance, not for the court. The arbitration clause in the Terms and Conditions is a broad "any and all" clause - so broad that by its literal terms it extends beyond disputes between the parties to include related disputed involving third parties! Whether that language encompasses claims asserted on behalf of a class is an issue of contract construction. Under Collins, when an arbitration clause is broad, issues of contract construction are for arbitrators, not for the court. Collins & Aikman Prods Co. v. Bldg. Sys., Inc., 58 F.3d 16, 23 (2d Cir. 1995).
This conclusion is reinforced by the fact that the arbitration agreement between Edwards and Macy's provides that any arbitration held thereunder will be conducted in accordance with the Rules of the American Arbitration Association. There can be no question that the parties were free to agree to use the AAA Rules - Justice Alito said as much in Stolt. See Stolt, supra, 559 U.S.at 683( ""[W]e have held that parties .... may agree on rules under which any arbitration will proceed.") The AAA rules anticipate that the arbitrators "shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class." The rules permit any party to commence an immediate proceeding to confirm or vacate such a partial award; that is exactly what happened in Stolt, which also selected the AAA Rules as governing the conduct of the arbitration.
Finally, to the extent the Supreme Court can be said to have weighed in on this issue (which it has not directly decided), its statements favor submitting this issue to the arbitrators. In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) - a case decided five years prior to Stolt - a plurality of four justices considered this question in the context of a broad "any and all disputes" arbitration agreement, and concluded that it was for arbitrators to decide, in the first instance, whether a concededly binding arbitration agreement contemplated class arbitration. Justice Stevens, while not joining in the plurality opinion, indicated that "arguably" an arbitrator should have made the initial decision on the matter. While qualified, his remark does no more than reflect prevailing sentiment at the Circuit level about the proper division of labor between courts and arbitrators in the face of a broad arbitration clause.
Nonetheless, since Stolt, some courts have concluded that the decision is for courts, not arbitrators. For example, my colleague, The Hon. Victor Marrero, compelled arbitration on an individual basis for a dispute involving a broad arbitration agreement, finding that whether an arbitration provision is silent regarding class arbitration is a gateway issue for the courts to decide. See Anwar v. Fairfield Greenwich, Ltd., 950 F.Supp.2d 633, 636 (S.D.N.Y. 2013). And while the Second Circuit has not weighed in on this issue, the Third and Sixth Circuits have also decided that silence raises a question of arbitrability that rests with a court. See, e.g., Opalinksi v. Robert Half Intern., Inc., 761 F.3d 326 (3d Cir. 2014); Huffman v. Hilltop Companies, LLC, 747 F.3d 391 (6th Cir. 2014).
I agree with Judge Marrero that a court can and should decide the issue of silence. See Sanders v. Forex Capital Markets, LLC, 2011 WL 5980202 (S.D.N.Y. 2011). But a broad arbitration clause carries with it a heavy presumption that any dispute arising thereunder, including a procedural dispute, should be arbitrated. Collins & Aikman Prods. Co. v. Bldg. Sys., Inc., 58 F.3d 16, 23 (2d Cir. 1995). Where, as here, the agreement is arguably not silent - that is where there is language that is capable of being construed in one of several ways on the issue - the arbitrators, not the Court, should interpret the contract of the parties in the first instance. Under binding precedent in this Circuit, the court's role in that circumstance is limited to deciding whether those arbitrators have exceeded their powers (or, in this Circuit, have manifestly disregarded the law, Collins, 58 F.3d at 23). Unless and until the Second Circuit overturns that precedent, I have no reason to stray from it - especially in this case, where the parties have agreed to rules that by their terms remit this specific issue to the arbitrators.
No possible prejudice can accrue to Macy's as a result of this decision. Macy's cannot be heard to suggest that implementation of the very rules by which it elected to proceed will harm it. And because the AAA Rules allow for immediate judicial review of an award on this subject, there is no danger that Macy's will be subjected to a costly and procedurally cumbersome class-wide arbitration if an award forcing it to conduct such an arbitration is later found to have exceeded the arbitrators' powers.
The upshot is that this court is prepared to enter an order compelling arbitration between Plaintiff Edwards and Defendants in accordance with the terms of the arbitration agreement that I have found exists between them. That arbitration is to be conducted in accordance with the selected Rule of the American Arbitration Association. Pursuant to those rules, the arbitrators, once designated, will decide whether the phrase about "consolidate[ing] all such [third party] disputes" encompasses class arbitration.
If Macy's is not prepared to participate in such an arbitration, then it needs to advise the court, within ten business days, that it waives its right to arbitrate with Ms. Edwards. Upon receipt of such notice, we will then proceed to an answer, class discovery, and a Rule 23 class certification motion.
This constitutes the decision and order of the court.
CONCLUSION
For the foregoing reasons, the motion to compel arbitration is GRANTED. The Clerk of the Court is directed to remove Docket No. 29 from the Court's list of pending motions. Dated: June 30, 2015
/s/_________
U.S.D.J. BY ECF TO ALL COUNSEL