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Yury Gokhberg, David Jaffe, Aliza Ofira-Okanon, Marc Seligman, Ronald Sohan, and Karen Flanagan v. Sovereign Bancorp

August 31, 2011

YURY GOKHBERG, DAVID JAFFE, ALIZA OFIRA-OKANON, MARC SELIGMAN, RONALD SOHAN, AND KAREN FLANAGAN, PLAINTIFFS,
v.
SOVEREIGN BANCORP, INC., SOVEREIGN BANK, BANCO SANTANDER, S.A. AND SANTANDER HOLDINGS USA, INC., DEFENDANTS.



The opinion of the court was delivered by: Joyner, C.J.

MEMORANDUM AND ORDER

Before this Court are Defendants' Motion to Compel Arbitration (ECF No. 2), Plaintiffs' Response in opposition thereto (ECF No. 12), Defendants' Reply in further support thereof (ECF No. 16), Defendants' Notice of Supplemental Authority (ECF No. 22), and Plaintiffs' Response thereto (ECF No. 24). For the reasons set forth in this Memorandum, the Defendants' Motion is GRANTED.

I. BACKGROUND

This case comes to the Court from the Eastern District of New York. Plaintiffs--current and former employees of Defendants--allege Defendants contravened the Fair Labor Standards Act ("FLSA") and New York Labor Laws ("NYLL") by failing to pay minimum wage and overtime compensation and failing to maintain payroll records. (Am. Compl. ¶¶ 51, 59, 64.) Defendants seek to enforce the arbitration clause contained in the employment contracts, deemed Mortgage Development Officer Agreements ("MDOA"), executed by the parties. Plaintiffs Gokhberg, Ofira-Okanon, Flanagan and Sohan signed an agreement providing:

Any controversy or claim arising out of the [Mortgage Development Officer's] employment or the termination thereof shall be resolved through final and binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes or other applicable rules of the American Arbitration Association then in effect. Such controversies and claims include, but are not limited to, those arising under this Agreement and those arising under any federal, state, or local statute relating to employment . . . . (Defs.' Mot. Compel Arbitration Exs. 2-5 at ¶ 5.04.) Plaintiffs Jaffe and Seligman signed a different draft of the MDOA but the relevant language is identical. (Defs.' Mot. Compel Arbitration Exs. 6-7 at ¶ 5.05.)

II. DISCUSSION

The Federal Arbitration Act "establishes a strong federal policy in favor of the resolution of disputes through arbitration." Nino v. Jewelry Exch., Inc., 609 F.3d 191, 200 (3d Cir. 2010) (internal quotation marks omitted). Arbitration agreements "are enforceable to the same extent as other contracts." Id. (quoting Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 263 (3d Cir. 2003)). If the Court finds that the agreement is valid and enforceable, Defendants are "entitled to a stay of federal court proceedings pending arbitration as well as an order compelling such arbitration." Alexander, 341 F.3d at 263 (citing 9 U.S.C. §§ 3-4; Seus v. John Nuveen & Co., 146 F.3d 175, 179 (3d Cir. 1998)).

To determine whether a party may be compelled to arbitrate, the Court must determine: "(1) whether there is a valid agreement to arbitrate between the parties and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement." Century Indem. Co. v. Certain Underwriters at Lloyd's, 584 F.3d 513, 527 (3d Cir. 2009). As to the latter inquiry, the parties do not contest that the dispute falls within the scope of the arbitration agreement in each Plaintiff's respective MDOA. Plaintiffs state their claims for unpaid wages pursuant to the FLSA and NYLL. This is unequivocally a case or controversy "arising out of . . . employment" and "under [] federal, state, or local statute[s] relating to employment." (Defs.' Mot. Compel Arbitration Exs. 2-5 at ¶ 5.04, Exs. 6-7 at ¶ 5.05.)

Plaintiffs challenge the validity of the arbitration agreement, contending that it is unconscionable. An otherwise valid and enforceable agreement may be revoked "upon such grounds as exist at law or in equity for the revocation of any contract."

9 U.S.C. § 2. Defendants' motion will be granted "only where there is no genuine issue of fact concerning the formation of the agreement to arbitrate"; a standard familiar as the same standard used to resolve summary judgment motions, Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 159 & n.3 (3d Cir. 2009). Plaintiffs are "entitled to the benefit of all reasonable doubts and inferences that may arise." Id. at 159 (internal quotation marks omitted).

"A federal court must generally look to the relevant state law on the formation of contracts to determine whether there is a valid arbitration agreement under the FAA." Quilloin v. Tenet Healthsystem Philadelphia, Inc., 763 F. Supp. 2d 707, 724 (E.D. Pa. 2011) (quoting Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002)). The parties agree that Pennsylvania law applies in this case. (See, e.g., Pls.' Opp'n Mem. 1-2; Defs.' Reply Mem. 2-4.) Under Pennsylvania law, a contract is unconscionable if there is a "lack of meaningful choice in the acceptance of the challenged provision and the provision unreasonably favors the party asserting it." Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 2007). For the contract to be unconscionable it must be both procedurally and substantively unconscionable. See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999); Quilloin, 763 F. Supp. 2d at 724; Salley, 925 A.2d at 119. Procedural unconscionability concerns: (a) the process leading to the agreement, and (b) the form and language of the agreement. See Zimmer v. Cooperneff Advisors, Inc., 523 F.3d 224, 228 (3d Cir. 2008) (citing Harris, 183 F.3d at 181). Substantive unconscionability arises when the agreement "unreasonably favors the party asserting it." Id. (quoting Salley, 925 A.2d at 119).

Plaintiffs argue the arbitration agreement is procedurally unconscionable because they had no meaningful choice in accepting the agreement. Plaintiffs contend Defendants had "significantly greater bargaining power" and the arbitration agreements were presented on a "take-it-or-leave-it basis." (Pls.' Opp'n Mem. 3.) Unequal bargaining power is insufficient on its own to find the arbitration agreement procedurally unconscionable. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (1991); Seus, 146 F.3d at 184. An adhesion contract is not unconscionable per se. See 146 F.3d at 184.

Plaintiffs rely entirely on Hopkins v. New Day Financial, 643 F. Supp. 2d 704 (E.D. Pa. 2009), to support their claim of procedural unconscionability. In that case, several account executives sued their employer for allegedly failing to pay overtime compensation in violation of the FLSA. See id. at 708. The employer, like Defendants in this case, moved to enforce an arbitration agreement contained in the employees' signed employment contracts and the employees asserted the contract was unconscionable. See id.

The Hopkins court relied on several facts to infer the arbitration was procedurally unconscionable. First, the employees were given the contract to sign on or after their first day of employment, see id. 717, whereas Plaintiffs were sent a copy of the MDOA at least a week---and in some cases three weeks--in advance. (See Defs.' Reply Mem. Decl. of Cecil Morgan ¶¶ 2-8 & Exs. A-F.) Each Plaintiff received the MDOA appended to a letter confirming Defendants' offer of employment and designating a prospective start date. See id. Thus, Plaintiffs, save for Mr. Seligman, had several days to review the MDOA and the arbitration agreement before they commenced their employment with Defendants.*fn1 This is in sharp contrast to the ...


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