Chen v. Kyoto Sushi, Inc.
2:15-cv-07398
E.D.N.YSep 22, 2017Background
- Plaintiffs (Chen, Ma, Wu) are former employees of Kyoto Sushi who signed an August 2015 Arbitration Agreement as a condition of continued employment.
- The Arbitration Agreement broadly defined “covered claims” to include wage-and-hour claims, specifically naming FLSA and state wage-law claims, and required individual binding arbitration in New York.
- Plaintiffs contend they signed under threat of job loss/wage withholding, had limited English/education, did not understand the agreement, and seek collective treatment under the FLSA; defendants moved to compel arbitration and dismiss.
- The district court considered whether the arbitration agreement was valid, encompassed the FLSA/NYLL claims, and whether federal or state law rendered it unenforceable (unconscionability, economic duress, NLRA/NLGA conflict).
- The court dismissed the separate § 7434 (fraudulent information return) claim for failure to plead that any defendant actually filed a fraudulent return, denied leave to amend, and declined supplemental jurisdiction over a state deceptive-practices claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs validly consented to arbitration | Plaintiffs say they signed under coercion, didn’t understand the agreement, lacked time to review | Defendants say plaintiffs signed the agreement and are bound even if they did not read it | Court: Plaintiffs validly consented; signature binds them under state contract law |
| Whether FLSA/NYLL claims fall within arbitration scope | Plaintiffs argue collective/FLSA rights should not be waived by the clause | Defendants argue the agreement expressly covers wage claims and mandates individual arbitration | Court: The clause clearly covers FLSA and NYLL claims; they must be arbitrated individually |
| Whether federal law (NLRA/NLGA/FLSA) precludes individual arbitration of FLSA collective claims | Plaintiffs rely on NLRB D.R. Horton and related policy that bans class/collective waivers | Defendants rely on Second Circuit precedent holding no congressional command bars arbitration of FLSA claims | Court: Federal law does not bar individual arbitration; Sutherland controls; D.R. Horton not binding here |
| Whether agreement is unenforceable under state law (unconscionability/economic duress) | Plaintiffs allege procedural unconscionability, unequal bargaining power, economic duress (threats of withholding pay/termination) | Defendants point to absence of substantive unconscionability, plaintiffs had legal remedies and did not act promptly to repudiate | Court: No substantive unconscionability; alleged duress insufficient (not extreme), plaintiffs had legal remedies—agreement enforceable |
Key Cases Cited
- Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115 (2d Cir. 2010) (FAA creates federal substantive law of arbitrability)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (FAA embodies national policy favoring arbitration)
- Preston v. Ferrer, 552 U.S. 346 (2008) (courts must enforce arbitration agreements according to their terms)
- Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013) (FLSA claims may be subject to individual arbitration; no contrary congressional command)
- CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) (statutory claims are arbitrable absent a clear congressional command)
- Genesco, Inc. v. T. Kakiuchi & Co. Ltd., 815 F.2d 840 (2d Cir. 1987) (party is bound by signed contract absent special circumstances)
- Katzman v. Essex Waterfront Owners LLC, 660 F.3d 565 (2d Cir. 2011) (§ 7434 requires willful filing of a fraudulent information return)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (complaint must plead facts that permit plausible inference of wrongdoing)