Opinion
650691/2010.
Decided on November 22, 2010.
In motion sequence number 001, Petitioner JetBlue Airways Corporation ("JetBlue") petitions the court to enjoin the American Arbitration Association from setting a briefing schedule on the issue of a joint filing of claims, pursuant to CPLR § 6301. JetBlue further moves to stay arbitration as commenced by Respondents Robert M. Stephenson and Gregory T. Casamento, as counsel for and on behalf of 535 unnamed Current JetBlue Pilots and 16 named Former JetBlue Pilots, pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., or alternatively, CPLR § 7503(b). In addition, Petitioner JetBlue moves to compel individual arbitration between JetBlue and each of the pilots alleging a claim under his or her respective employment agreement.
The court addresses the applicability of the Federal Arbitration Act to the employment contracts of passenger airline pilots, the petition for preliminary injunction raised by CPLR §§ 6301 and 7502(c), as well as the motion to stay arbitration as requested by respondents and to compel individual arbitration for each pilot who has a dispute, under CPLR § 7503(a)-(c).
I. Procedural History
Respondents Robert M. Stephenson and Gregory T. Casamento, on behalf of 535 unnamed current JetBlue Pilots and 16 named former JetBlue pilots ("Pilots") served an Arbitration Demand on Petitioner JetBlue on June 4, 2010. Affidavit of Marisa Marinelli, ("Marinelli Aff."), ¶ 3, Exhibit A. The arbitration demand was filed with the American Arbitration Association ("AAA") in its Northeast Case Management Center, with a request that the AAA commence administration of the arbitration in New York, New York and under the AAA Employment Arbitration Rules. Verified Petition, ¶ 2; Marinelli Aff., Ex. A, ¶ 48. The demand further stated that the claims of 551 individual Pilots were being asserted as a group to resolve an issue of common law and fact between the parties. Marinelli Aff., Ex. 2, ¶¶ 49-51. On June 21, 2010, the AAA advised Respondent Pilots that absent party agreement to join these claims, each claim would need to be filed individually. Marinelli Aff., ¶ 4, Ex. B. The Pilots objected to the AAA, as opposed to an Arbitrator, making this determination. Id. The AAA then set a briefing schedule for Pilots and JetBlue to address this issue. Id. The following day, June 22, 2010, JetBlue served its Petition and Motion to Stay Arbitration as Demanded and to Compel Individual Arbitration on Respondent Pilots. Respondents opposed JetBlue's petition.
II. Factual Background
Petitioner JetBlue is an airline that transports passengers in interstate and international commerce. Verified Petition, ¶ 5. Respondent Pilots point out that JetBlue also transports cargo. Respondents' Memorandum of Law in Opposition to Petitioner's Application for a Stay of Arbitration ("Opposition"), p. 11. JetBlue is a non-union airline, and each of its pilots signs an individual employment contract with the airline. Petitioner's Memorandum of Law in Support of Petition ("Opening Brief"), p. 3; Opposition, p. 3. Whether that employment contract is negotiated by the parties or offered by JetBlue to each pilot on a "take-it-or-leave-it" basis is disputed by the parties, and the court does not reach this question.
Respondents Stephenson and Casamento are attorneys for the law firm of Locke Lord Bissell Liddell, who represent 535 unnamed current and 16 named former JetBlue pilots. Each of the 551 pilots represented by Stephenson and Casamento signed an employment contract with JetBlue that contained an arbitration clause. Verified Petition, ¶ 10. Each contract was signed separately by each individual pilot. The arbitration clause in each contract is identical, as is the section that is the subject of this dispute between the Pilots and JetBlue.
Applicability of the Federal Arbitration Act to
Employment Contracts of Passenger Airline Pilots
The Federal Arbitration Act ("FAA"), 9 U.S.C. Section 1 et seq., provides for the validity and enforceability of written arbitration provisions in contracts involving foreign or interstate commerce. The FAA does not apply, however, to the "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Petitioner JetBlue urges the court to apply the FAA to the employment contracts of the JetBlue pilots. Respondent Pilots argue they fall under the Section 1 residuary clause applicable to "any other class of workers engaged in foreign or interstate commerce," id., and thus are not subject to the FAA.
The Supreme Court of the United States has interpreted the residuary clause of the Section 1 exception to be limited to "transportation workers," defined as "those workers actually engaged in the movement of goods in interstate commerce." Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001), quoting Cole v. Burns Int'l Sec. Serv., 105 F. 3d 1465, 1471 [D.C. Cir. 1997]). A thorough analysis by the U.S. District Court for the Southern District of New York further limited the exception by finding "the involvement of physical goods to be an indispensable element to being engaged in commerce in the same way that seamen and railroad workers are . . . that is, being a member of an industry that primarily involves the actual, physical movement of goods through interstate commerce." Kowalewski v. Samandarov, 590 F. Supp. 2d 477, 484 (S.D.NY 2008) (internal citations omitted).
To determine whether the Pilots' employment contracts, including the arbitration agreements, are exempt from the FAA's coverage, the court must determine whether a JetBlue pilot can fit into the residuary clause of Section 1. The pilots must be: 1) transportation workers; 2) belonging to a class of workers who move physical goods in interstate commerce; and 3) in an industry that primarily involves the actual, physical movement of goods through interstate commerce. See Circuit City, 532 U.S. at 115; Kowalewski, 590 F. Supp. 2d at 484.
It is undisputed that JetBlue pilots are transportation workers. The inclusion or exclusion of these particular pilots from the FAA turns on the definition of the class of worker to which JetBlue pilots belong and the industry in which they work. The questions thus become whether the court defines the class of workers to which these pilots belong as "pilots" or as "passenger airline pilots" and whether the court defines the industry for which they work to be "airlines" or "passenger airlines."
In Kowalewski v. Samandarov, car service drivers (the "black car" drivers prominent in New York City) sought to be exempted from the FAA under the residuary exemption of Section 1. The drivers argued they were exempt because they transported passengers between New York, New Jersey, Pennsylvania and Connecticut and were thus transportation workers engaged in interstate commerce. Kowalewski, 590 F. Supp. 2d at 481. The court found that car service drivers were not exempt from the FAA. In order to reach its decision, the court drew a distinction between the car service drivers who transport passengers across state lines and truck drivers who are actually involved in the interstate transportation of goods. The court cited several cases where truck drivers have been found to be "transportation workers" for purposes of the residuary exemption in Section 1 of the FAA. See id. at 483. The court found that the actual, physical movement of goods through interstate commerce distinguished the truck drivers from the car service drivers. The court held that transporting passengers interstate as part of a car service was "too far removed from . . . being a member of an industry that primarily involves the actual, physical movement of goods through interstate commerce." Id. at 484 (emphasis added).
The Kowalewski court stratifies drivers by what they carry — truck drivers carry goods and car service drivers carry passengers. The class of workers to which the Kowalewski plaintiffs belong was not "drivers," but rather "passenger drivers." The plaintiffs were thus distinguished from the truck drivers, who are "goods drivers" and therefore exempt from the FAA. However, the Kowalewski court does not seem to recognize the stratification it has engaged in, as the court states in a footnote that its holding "avoids the absurd result' that railroad employees involved in the transportation of goods would be exempt from the FAA, while railroad employees involved in the transportation of people would not be exempt from the FAA." Id. at 484, n. 7, quoting Lepera v. ITT Corp., No. 97 Civ. 1461, 1997 WL 535165, at *7 (E.D. Pa. Aug.12, 1997).
In Lepera, the Eastern District of Pennsylvania court found that a pilot whose primary responsibility was to transport company executives throughout the world in planes from the company's private fleet was exempt from the FAA. See Lepera, 1997 WL 535165. The Lepera court acknowledged that every circuit court which has addressed the issue found that "the FAA [residuary exemption] applies only to those workers who are engaged in the actual movement of goods in interstate commerce", and yet still found Lepera to be exempt despite only transporting passengers because it would be "nonsensical" and "absurd" to exclude from coverage those workers engaged in the direct transportation of goods, but not those engaged in the direct transportation of persons. Id. at *6-7. While this court agrees that it can be difficult to distinguish between a "passenger driver" and a "goods driver" in certain instances, the pilot in Lepera was not one of those instances. It was uncontested that his "primary responsibility" was to transport passengers. Id. at *1. Furthermore, the two cases cited by the Lepera court in support of pilots being exempt from the FAA are not good law. The first case Lepera cites for this proposition is Trans World Airlines, Inc. v. Sinicropi, 887 F. Supp. 595, 609 (S.D.NY 1995), which states in footnote thirteen that "contracts of airline employees, however, are exempted from the Federal Arbitration Act." To support that footnoted statement, Trans World Airlines relies on the FAA residuary exemption itself ( 9 U.S.C. § 1) and Bates v. Long Island Railroad, 997 F. 2d 1028, 1034, cert. denied, 510 U.S. 992 (1993), neither of which mention airline employees at all. The second case cited by the Lepera court, Herring v. Delta Air Lines, Inc., 894 F. 2d 1020, 1023 (9th Cir. 1990), summarily finds that "contracts of employment" are specifically excluded from the FAA. However, the Ninth Circuit Court of Appeals' broad interpretation of § 1 as excluding all contracts of employment was overturned by the Supreme Court in Circuit City. See Circuit City, 532 U.S. at 119. The court in Lepera was misguided in finding the pilot there exempt from the FAA where he only transported passengers and not goods in interstate commerce.
The Kowalewski court recognized that car service drivers only transported passengers, and not goods, and thus correctly found them to be covered by the FAA. The absurd result it fears, where railroad workers who transport goods would be exempt from the FAA while those who transport passengers would fall under the federal statute, is not absurd at all, but in fact corresponds to the precedent established by the Circuit City court. Transportation workers are defined by the class of workers to which they belong, and the nature of the goods the industry primarily carries. How the court defines the class of workers, and the primary function of the industry, is a fact-based inquiry that the court engages in now.
JetBlue pilots transport passengers interstate. Opening Brief, p. 3. Respondents point out that JetBlue planes carries cargo in addition to passengers, so the pilots are also involved in the interstate transportation of goods. Opposition, p. 11. However, this court finds that transporting passengers is the primary function of JetBlue pilots. Respondents do not provide sufficient evidence to find that the cargo services of JetBlue rise to the level of its primary function. JetBlue's report to the Bureau of Transportation Statistics indicates that it flew 24,431,000 cargo revenue ton-miles in 2009. By way of comparison, Federal Express flew 9,685,086, 000 cargo revenue ton-miles in the same year. JetBlue's cargo operations constitute less than 1% of FedEx's cargo operations. The industry to which JetBlue pilots belong is "passenger airlines." Therefore, passenger airline pilots are "passenger drivers" rather than "goods drivers" under this court's interpretation of the Kowalewski analysis, and thus are not exempt from the Federal Arbitration Act. The FAA will govern this dispute.
Interestingly, the Bureau of Transportation Statistics categorizes airline carriers as "U.S. Cargo" and "U.S. Passenger" and JetBlue appears under the U.S. Passenger airline list. http://www.transtats.bts.gov/freight.asp?pn=1 [last visited November 17, 2010].
Procedural Questions Are Appropriately For the Arbitrator to Decide
Under CPLR § 7502(c), the court may preliminarily enjoin a pending arbitration only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief. In addition, the Article 63 criteria must be applied to a motion under Section § 7502(c). See In re Cullman Ventures, Inc., 252 AD2d 222, 230 (1st Dep't 1998) ("We apply the general criteria governing the issuance of injunctive relief to an application for a preliminary injunction under CPLR [§] 7502(c)"). Article 63 incorporates the equitable criteria traditionally required for the granting of preliminary injunctive relief: 1) likelihood of the petitioner's success on the merits; 2) danger of irreparable harm to the petitioner should preliminary relief be denied; and 3) a balancing of the equities that tips in the petitioner's favor. See SG Cowen Secs. Corp. v. Messih, 224 F. 3d 79, 81 (2d Cir. 2000).
While Petitioner JetBlue does present arguments regarding the Article 63 criteria, it ignores the "ineffectual award" requirement of CPLR § 7502(c). JetBlue does not demonstrate that an award to which it may be entitled through arbitration would be rendered ineffectual without this Court's interference with the AAA's resolution of a procedural dispute regarding whether the AAA administration or an AAA arbitrator should be the one to decide whether multiple claims can proceed in a single action or if they need to be filed individually. Even if the AAA determines that an Arbitrator is the one to make the ruling about whether the Pilots should proceed en masse or individually, this does not render JetBlue's potential award ineffectual. The award ultimately sought by JetBlue, vindication of its interpretation of the employment contract, is not impacted by allowing AAA to set its own internal procedures. In fact, the Supreme Court urges that procedural questions of this nature are not for the judge to decide.
In Stolt-Nielsen v Animal Feeds, the Supreme Court stated that "[i]n certain contexts, it is appropriate to presume that parties that enter into an arbitration agreement implicitly authorize the arbitrator to adopt such procedures as are necessary to give effect to the parties' agreement. Thus, we have said that procedural questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide." Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp., 130 S. Ct. 1758, 1775 (2010) (internal citations omitted). The Court in Stolt-Nielsen held that an arbitrator could not infer an implicit agreement to authorize class-action arbitration from the fact that the parties agreed to arbitrate. The parties' arbitration agreement was silent as to the grouping of claims, through class action or otherwise. The Court did not further abrogate the power of the arbitrator to decide procedural questions, and, indeed, firmly placed procedural decisions therewith. Id.
Similarly, a motion to stay or to compel arbitration under the FAA is not yet ripe for this court's determination. JetBlue relies exclusively on Stolt-Nielsen to explain this court's power to stay or compel arbitration under 9 U.S.C. § 4. However, Stolt-Nielsen was decided after the arbitrator "imposed its own conception of sound policy" when its proper task was to "identify the rule of law that governs in that situation." Id. at 1769. When the parties have not reached any agreement on the issue of class arbitration, which is clearly the case here as both sides dispute the meaning of the language in the arbitration provision, the arbitrator needs to engage in the process of identifying the rule of law that governs this situation.
This court will not disturb the internal procedures adopted by AAA, as the parties here entered into an arbitration agreement that implicitly authorized AAA to adopt such procedures as to give effect to the parties' agreement. Id. at 1775.
We do not reach the question of whether the Pilots' Demand for Arbitration is a class-action arbitration as decried in Stolt-Nielsen, or an alternate form of mass action that does not raise the same concerns about the differences from bilateral arbitration that the Stolt-Nielsen Court addressed. This court notes that whether individual or collective arbitration is decided appropriate, there is no change in how the arbitrator is selected, that with collective arbitration economies of scale would be achieved by both parties and that it is highly likely that any damages deemed owed would be the same on a per-Pilot basis in a group proceeding as in an individual proceeding.
In addition, the unconscionability of an arbitration clause in an adhesion contract that excludes class actions is pending before the Supreme Court this term, and the outcome of AT T v. Concepcion may have interesting repercussions for contracts where one party has the superior bargaining position. See Laster v. AT T Mobility LLC, 584 F. 3d 849 (9th Cir. 2009), cert. granted as AT T Mobility LLC v. Concepcion, 130 S. Ct. 3322 (2010). Whether the contract in the instant case qualifies as a contract of adhesion is beyond the scope of this opinion, but this court notes that the equal bargaining power in an arms-length negotiation between two business entities as existed in Stolt-Nielsen was not matched in in the contract formation between JetBlue and its pilots. If state law were to preempt the arbitration clause at issue in AT T v. Concepcion, the availability of consolidation in arbitration proceedings under New York law may control despite the pilots falling under the purview of the Federal Arbitration Act.
For cases discussing the availability of consolidation as a procedural mechanism in arbitration under New York law see Chanry Comms, Ltd v. Circulation Mgmt, Inc., 156 AD2d 633 (2d Dep't 1989); City of Schenectady v. Schenectady Patrolmen's Benev. Assoc., 138 AD2d 882 (3d Dep't 1988).
Petitioner JetBlue also requests that all filings and court records related to this Petition be filed under seal due to the "confidential and proprietary business information" contained in the employment contracts here at issue and because arbitration is designed to be confidential. In the course of litigating this matter, the parties have annexed to their papers relevant employment contracts.
Respondent Pilots do not oppose the sealing of the records.
22 N.Y.C.R.R. 216.1 provides that "a court shall not enter an order in any action or proceeding sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties." New York courts have not hesitated to authorize sealing the records of Article 75 proceedings involving arbitrable disputes, stating that "the matter properly belongs in arbitration [and] the material filed with the court belongs not in the court, but in the files of the arbitrating body." Feffer v. Goodkind, Wechsler, Labaton Rudoff, 152 Misc 2d 812, 814 (Sup. Ct. New York Co. 1991), aff'd 183 AD2d 678 (1st Dep't 1992). Sealing records may be particularly appropriate, moreover, when the parties wish to maintain the confidentiality of materials that "for the most part involve the internal finances" of a party and do not implicate any matters of public interest. Id.
Petitioners have established good cause to have the records in this proceeding sealed. The exhibits to this motion contain sensitive proprietary and business information, including employment agreements. The parties have an interest in protecting these documents and there is no countervailing public interest that would be furthered by their disclosure.
Accordingly, it is ORDERED that Petitioner's petition for a preliminary injunction is denied, and it is further
ORDERED that Petitioner's motion (sequence no. 001) to stay arbitration as demanded and to compel Respondents to arbitrate individually is denied and this case is remanded to the arbitrator to make determinations consistent with the rules of the American Arbitration Association, New York state law and the Federal Arbitration Act; and it is further
ORDERED that the Clerk of the Court is directed to seal the motion papers, excluding this decision, in this action upon service on the Clerk of a copy of this Order and Judgment with notice of entry.
This constitutes the decision and order of the court.