Case Information
*1 12-304-cv
Sutherland v. Ernst & Young LLP
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2012
(Argued: March 20, 2013 Decided: August 9, 2013) Docket No. 12-304-cv
_______________________________________________________________ S TEPHANIE S UTHERLAND , on behalf of herself and
all others similarly situated,
Plaintiff-Appellee ,
v.
E RNST & Y OUNG LLP,
Defendant-Appellant . _______________________________________________________________ Before: W INTER , C ABRANES , and S TRAUB , Circuit Judges :
Defendant-appellant Ernst & Young (“E&Y”) appeals from an order of the United States District Court for the Southern District of New York (Kimba M. Wood, Judge ) denying its Rule 12(b)(1) motion to dismiss or stay the proceedings, and to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq . E&Y seeks to dismiss or stay this putative class action brought by its former employee, Stephanie Sutherland, on behalf of herself and others similarly situated to recover “overtime” wages pursuant to the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201, et seq. , and the New York Department of Labor’s Minimum Wage Order, N.Y. Comp. Codes R. & Regs. tit. 12, § 142-2.2, promulgated pursuant to the New York Labor Law (“NYLL”) § 650, et seq .
The District Court denied E&Y’s motion to compel arbitration because it found that the underlying class-action waiver provision in the arbitration agreement between E&Y and Sutherland was unenforceable pursuant to our decision in In re American Express Merchants’ Litigation , 554 F.3d 300 (2d Cir. 2009) (“ Amex I ”). In that case, we invalidated a class-action waiver provision in an arbitration agreement because (1) the plaintiffs had shown that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver,” and (2) enforcing the arbitration agreement would “deprive them of substantive rights under the federal antitrust statutes.” at 315-16. But Amex I and the subsequent decisions that followed in our Circuit are no longer good law in light of the Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant , 133 S. Ct. 2304 (2013), which held that plaintiffs could not invalidate a waiver of class arbitration under the so- called “effective vindication doctrine” by showing that “they ha[d] no economic incentive to pursue their antitrust claims individually in arbitration.” at 2310; see id. at 2311 (“But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”).
Because Italian Colors abrogated the District Court’s basis for invaliding the class-action waiver provision in this case, we conclude that the District Court erred in denying E&Y’s motion to compel arbitration. Accordingly, we reverse the District Court’s March 3, 2011 order and remand the cause for further proceedings consistent with this opinion.
R EX S. H EINKE (Gregory W. Knopp, Katharine J. Galston, Daniel L. Nash, on the brief ), Akin Gump Strauss Hauer & Feld LLP, Los Angeles, CA and Washington, DC, for Defendant-Appellant Ernst & Young LLP.
M AX F OLKENFLIK (H. Tim Hoffman, Arthur W. Lazear, Ross L. Libenson, Hoffman & Lazear, Oakland, CA, on the brief ), Folkenflik & McGerity, New York, NY, for Plaintiff-Appellee Stephanie Sutherland.
P. David Lopez, Lorraine C. Davis, Daniel T. Vail, Paul D. Ramshaw, Equal Employment Opportunity Commission, Office of General Counsel, Washington, DC, for Amicus Curiae U.S. Equal Employment Opportunity Commission.
M. Patricia Smith, Steven J. Mandel, Paul L. Frieden, Edward D. Sieger, Dean A. Romhilt, United States Department of Labor, Office of the Solicitor, Washington, DC, for Amicus Curiae United States Department of Labor . Dan C. Getman, Michael J.D. Sweeney, Lesley Tse, Getman & Sweeney PLLC, New Paltz, NY; Rebecca M. Hamburg, National Employment Lawyers Association, San Francisco, CA, for Amici Curiae National Employment Lawyers Association, the National Employment Law Project, The Employee Rights Advocacy Institute for Law & Policy.
P ER C URIAM :
The question presented in this appeal is whether an employee can invalidate a class-action
waiver provision in an arbitration agreement when that waiver removes the financial incentive for
her to pursue a claim under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201,
et seq.
In light of the supervening decision of the Supreme Court in
American Express Co. v. Italian Colors
Restaurant
,
Defendant-appellant Ernst & Young (“E&Y”) appeals from an order of the District Court denying its Rule 12(b)(1) motion to dismiss or stay the proceedings, and to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq . E&Y seeks to dismiss or stay this putative class action brought by its former employee, Stephanie Sutherland, on behalf of herself and others similarly situated to recover “overtime” wages pursuant to the FLSA, and the New York *4 Department of Labor’s Minimum Wage Order, N.Y. Comp. Codes R. & Regs. tit. 12, § 142-2.2, promulgated pursuant to the New York Labor Law (“NYLL”) § 650, et seq . [1]
The District Court denied E&Y’s motion to compel arbitration because it found that the underlying class-action waiver provision in the arbitration agreement between E&Y and Sutherland was unenforceable pursuant to our decision in In re American Express Merchants’ Litigation , 554 F.3d 300 (2d Cir. 2009) (“ Amex I ”). In that case, we invalidated a class-action waiver provision in an arbitration agreement because (1) the plaintiffs had shown that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver,” and (2) enforcing the arbitration agreement would “deprive them of substantive rights under the federal antitrust statutes.” at 315-16. But Amex I and the subsequent decisions that followed in our Circuit are no longer good law [2] in light of the Supreme Court’s recent decision in American Express Co. v. Italian Colors Restaurant , 133 S. Ct. 2304 (2013), which held that plaintiffs could not invalidate a waiver of class arbitration under the so- called “effective vindication doctrine” by showing that “they ha[d] no economic incentive to pursue their antitrust claims individually in arbitration.” at 2310; see id. at 2311 (“But the fact that it is *5 not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”).
Because Italian Colors abrogated the District Court’s basis for invaliding the class-action waiver provision in this case, we conclude that the District Court erred in denying E&Y’s motion to compel arbitration. Accordingly, we reverse the District Court’s March 3, 2011 order and remand the cause for further proceedings consistent with this opinion.
BACKGROUND
Sutherland was employed by E&Y from September 2008 through December 2009. During her tenure at E&Y, she worked as a “Staff 1” and later as a “Staff 2” audit employee. Most of her responsibilities involved “pre-professional training” and “low level clerical work.” Joint App’x 23. Sutherland was compensated by E&Y on a “salary only” basis, which meant that she was paid a fixed salary of $55,000 per year, regardless of how many hours she worked. As relevant here, because Sutherland was a “salary only” employee, she did not receive any additional compensation for working “overtime”― i.e. , more than 40 hours per week. Id. at 234. Sutherland alleges that she “regularly worked in excess of 40 hours in a work week, often 45 to 50 hours in one week.” at 23.
When Sutherland accepted her offer of employment with E&Y, she signed a so-called offer letter. That offer letter stated, inter alia , that “if an employment related dispute arises between you and the firm, it will be subject to mandatory mediation/arbitration under the terms of the firm’s alternative dispute resolution program, known as the Common Ground Program, a copy of which is attached.” at 38 (emphasis omitted). Sutherland also signed a confidentiality agreement, which listed the terms of the “Alternative Dispute Resolution” policy and stated:
I further agree that any dispute, controversy or claim (as defined in the E&Y Common Ground Dispute Resolution Program (AA7521) attached) arising between myself and the Firm will be submitted first to mediation and, if mediation is unsuccessful, then to binding arbitration in accordance with the terms and *6 conditions set forth in AA7521, which describes the Firm’s Common Ground Dispute Resolution Program. I acknowledge that I have read and understand the E&Y Common Ground Dispute Resolution Program (AA7521) and that I shall abide by it. at 44.
As noted, a copy of the E&Y Common Ground Dispute Resolution Program (“Arbitration Agreement”) was attached to the offer letter and the confidentiality agreement. As relevant here, the Arbitration Agreement specifically states that “[c]laims based on federal statutes such as . . . the Fair Labor Standards Act,” “[c]laims based on state statutes and local ordinances, including state and local anti-discrimination laws,” and “[c]laims concerning wages, salary, and incentive compensation programs” are subject to the terms of the Arbitration Agreement. at 47. The terms of the Arbitration Agreement also include the following two relevant provisions: (1) “Neither the Firm nor an Employee will be able to sue in court in connection with a Covered Dispute,” id. (emphasis omitted); and (2) “Covered Disputes pertaining to different [e]mployees will be heard in separate proceedings,” id. at 59.
Despite the terms of the Arbitration Agreement, which the parties agree bars both civil lawsuits and “any class or collective proceedings in the arbitration,” Sutherland’s Br. 11, Sutherland filed this putative class action against E&Y to recover, inter alia , 151.5 hours of unpaid overtime wages, amounting to $1,867.02. In particular, Sutherland claimed that E&Y had wrongfully classified her as “exempt” from the overtime requirements of the FLSA and the NYLL.
After Sutherland filed her putative class action, E&Y filed a motion to dismiss, or stay the proceedings, and to compel arbitration of Sutherland’s claims on an individual basis in accordance *7 with the terms of the Arbitration Agreement. Sutherland responded by arguing that the entire provision requiring individual arbitration was unenforceable because the requirement that she arbitrate her claims individually, rather than collectively, prevented her from “effectively vindicating” her rights under the FLSA and the NYLL. In particular, she argued that the costs and fees associated with prosecuting her claims on an individual basis would dwarf her potential recovery of less than $2,000. In support of this argument, Sutherland filed an uncontested estimate that her attorney’s fees during arbitration would be $160,000 and that her costs would exceed $6,000. She also claimed that expert testimony would be necessary and would cost at least $25,000. In sum, she argued that to “effectively vindicate” her claims in an individual arbitration, she would be required to expend approximately $200,000 to recover less than $2,000.
The District Court was persuaded by Sutherland’s arguments and, on March 3, 2011, denied
E&Y’s motion to dismiss, or stay the proceedings, and to compel arbitration on an individual basis.
In doing so, the District Court relied in large part on our analysis in
Amex I
,
On March 31, 2011, E&Y moved for reconsideration of the District Court’s March 3, 2011
order in light of the Supreme Court’s subsequent decision in
AT&T Mobility LLC v. Concepcion
, 131
S. Ct. 1740 (2011). The District Court denied that motion on January 17, 2012, concluding,
inter alia
,
*8
that “Sutherland, unlike the [plaintiffs in
Concepcion
], is not able to vindicate her rights absent a
collective action.”
Sutherland v. Ernst & Young LLP
,
This appeal now presents the following question: May an employee invalidate a class-action waiver provision in an arbitration agreement when that waiver removes the financial incentive for her to pursue her FLSA claim?
DISCUSSION
A. Standard of Review
We have jurisdiction over this appeal because the Federal Arbitration Act (“FAA”)
authorizes interlocutory appeals from denials of motions to compel arbitration.
See
9 U.S.C.
§ 16(a)(1)(A)-(B). “We review
de novo
a district court’s refusal to compel arbitration.”
Parisi v.
Goldman, Sachs & Co.
,
B. The Class Action Waiver Must Be Enforced
The FAA, which was “enacted in 1925 in response to judicial hostility to arbitration
agreements,”
Concepcion
,
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be 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. In analyzing this provision of the FAA, the Supreme Court has remarked on several
occasions that it establishes “‘a liberal federal policy favoring arbitration agreements,’”
CompuCredit
Corp. v. Greenwood
,
Consistent with the Supreme Court’s recent analysis in Italian Colors , we first consider whether the FLSA contains a “contrary congressional command” barring waivers of class arbitration. Because no “contrary congressional command” exists, we then proceed to analyze Sutherland’s argument that she cannot “effectively vindicate” her rights in an individual arbitration, inasmuch as such a proceeding would be “prohibitively expensive.”
i. The FLSA Does Not Contain a “Contrary Congressional Command”
As in the antitrust context, “[n]o contrary congressional command requires us to reject the
waiver of class arbitration” in the FLSA context. Although we have not directly or specifically
addressed whether an employee’s ability to proceed collectively under the FLSA can be waived in an
arbitration agreement, every Court of Appeals to have considered this issue has concluded that the
FLSA does not preclude the waiver of collective action claims.
See Owen v. Bristol Care, Inc.
, 702 F.3d
1050, 1055 (8th Cir. 2013);
Carter v. Countryside Credit Indus., Inc.
,
First, the text of the FLSA does not “‘envinc[e] an intention to preclude a waiver’ of class-
action procedure.”
Italian Colors
,
Second, Supreme Court precedents inexorably lead to the conclusion that the waiver of
collective action claims is permissible in the FLSA context. In
Concepcion
, the Court held that the
FAA preempted a California judicial rule regarding the unconscionability of class arbitration waivers
in consumer contracts because “[r]equiring the availability of classwide arbitration [would]
interfere[ ] with fundamental attributes of arbitration and thus create[ ] a scheme inconsistent with
the FAA.”
For these reasons, the FLSA does not include a “contrary congressional command” that prevents the underlying arbitration agreement from being enforced by its terms. [8]
ii. Sutherland Is Not Prevented from Effectively Vindicating Her Rights by Pursuing
Arbitration on an Individual Basis
“Our finding of no ‘contrary congressional command’ does not end the case” because Sutherland invokes the “judge-made” exception to the FAA which “allow[s] courts to invalidate agreements that prevent the ‘effective vindication’ of a federal statutory right.” [9] Italian Colors , 133 S. Ct. at 2310. In particular, Sutherland argues that pursuing individual arbitration would be *12 “prohibitively expensive” because the recovery she seeks is dwarfed by the costs of individual arbitration. See Sutherland Br. 26-34.
Despite the obstacles facing the vindication of Sutherland’s claims, the Supreme Court’s
recent decision in
Italian Colors
, which reversed our decision in
In re American Express Merchants’
Litigation
,
Although the “effective vindication doctrine” could be used to invalidate “a provision in an
arbitration agreement forbidding the assertion of certain statutory rights . . . . [and] would perhaps
cover filing and administrative fees attached to arbitration that are so high as to make access to the
forum impractical,”
Italian Colors
,
Accordingly, in light of the Supreme Court’s holding that the “effective vindication doctrine” cannot be used to invalidate class-action waiver provisions in circumstances where the *13 recovery sought is exceeded by the costs of individual arbitration, we are bound to conclude that Sutherland’s arguments are insufficient to invalidate the class-action waiver provision at issue here.
CONCLUSION
To summarize, we hold that:
(1) The Fair Labor Standards Act of 1938 does not include a “contrary congressional command” that prevents a class-action waiver provision in an arbitration agreement from being enforced by its terms; and
(2) In light of the Supreme Court’s recent decision in
American Express Co. v. Italian Colors
Restaurant
,
Notes
[1] In declining to compel arbitration, the District Court did not distinguish between Sutherland’s federal and state law
claims. We need not address Sutherland’s NYLL claim in this opinion because, in light of our conclusion that
Sutherland’s FLSA claim must proceed collectively in arbitration pursuant to the Federal Arbitration Act, so too must
her NYLL claim.
See AT&T Mobility LLC v. Concepcion
,
[2] After we decided
Amex I
, the Supreme Court vacated our decision and remanded the case to us in light of its
subsequent decision in
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.
,
[3] The E&Y Common Ground Dispute Resolution Program also provided that: (1) the “Arbitrator fees and other costs of the arbitration . . . [shall] be shared equally to the extent permitted by law and the Arbitration Rules,” and (2) “[e]ach party will be responsible for the party’s own attorney’s fees and related expenses, but the Arbitrator will have authority to provide for reimbursement of the Employee’s attorney’s fees, in whole or part, in accordance with applicable law or in the interest of justice.” Joint App’x 52.
[4] E&Y stipulated before the District Court that Sutherland “is entitled to recover in arbitration any fees and costs that she could recover in court if she prevails on her claims.” Joint App’x 231-32.
[5] All but one district court in this Circuit has reached the same conclusion.
See, e.g.
,
Dixon v. NBCUniversal Media, LLC
,
--- F. Supp. 2d ----,
[6] Our conclusion that nothing in the text of the FLSA prevents an employee from waiving his or her ability to proceed
collectively under the FLSA is reinforced by our earlier decision referring to the FLSA collective action “right” as a
“procedural mechanism[ ].”
Shahriar v. Smith & Wollensky Rest. Grp., Inc.
,
[7] Although Sutherland asks us to limit the scope of
Gilmer
,
see
Sutherland Br. 51-52, we see no valid basis upon which to
do so, especially considering that the Supreme Court referred to
Gilmer
with approval in
Italian Colors
, noting that “[i]n
Gilmer
, we had no qualms in enforcing a class waiver in an arbitration agreement even though the federal statute at issue,
the [ADEA], expressly permitted collective actions. We said that statutory permission did ‘not mean that individual
attempts at conciliation were intended to be barred.’”
Italian Colors
,
[8] One of Sutherland’s alternative arguments for affirming the District Court is that the National Labor Relations Board,
in
In re D.R. Horton, Inc.
,
[9] In describing the “effective vindication doctrine,” the Court remarked that the doctrine “originated as dictum in
Mitsubishi Motors
, where we expressed a willingness to invalidate, on ‘public policy’ grounds, arbitration agreements that
‘operat[e] . . . as a prospective waiver of a party’s
right to pursue
statutory remedies.”
Italian Colors
,
[10] The Supreme Court explained that:
[t]he class action waiver merely limits arbitration to the two contracting parties. It no more eliminates
those parties’ right to pursue their statutory remedy than did federal law before its adopting of the
class action for legal relief in 1938 . . . . Or, to put it differently, the individual suit that was
considered adequate to assure “effective vindication” of a federal right before adoption of class-action
procedures did not suddenly become “ineffective vindication” upon their adoption.
Italian Colors
,
[11] We need not consider E&Y’s various arguments about the cost-sharing provisions that may be available to individuals
like Sutherland inasmuch as the Supreme Court rejected the use of the “effective vindication doctrine” in situations
where the cost of proving a statutory remedy exceeds the remedy itself.
See Italian Colors
,