Court Sends Case to Arbitration Under Broad Arbitration Clause

• Posted on: Aug 12 2024

By: Jeffrey M. Haber

As readers of this Blog know, New York has a “long and strong public policy favoring arbitration … as a means of conserving the time and resources of the courts and the contracting parties.”[1] For this reason, “New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration.”[2]

The foregoing principle was at issue in McWhinney-St. Louis v. Cliftonlarsonallen LLP, 2024 N.Y. Slip Op 32747(U) (Sup. Ct., N.Y. County Aug. 6, 2024) (here).

McWhinney-St. Louis arose from allegations of employment discrimination. Defendants argued that plaintiff’s claims were subject to arbitration pursuant to the parties’ employment agreement (the “Agreement”). The Agreement included a broad arbitration clause, requiring arbitration of:

[a]ny dispute arising under this Agreement, or arising out of the circumstances, terms, conditions or termination of [Plaintiff’s] relationship with [CLA] or its officers, directors, members, employees, agents or independent contractors, and any claim by [Plaintiff] against any officer, director, member, employee, agent or independent contractor of [CLA] for any damage or harm, including but not limited to claims arising under any state or federal employment or discrimination laws.

“In deciding an application to compel arbitration pursuant to CPLR 7503[a],[3] the court is required to first make a determination whether the parties have entered into a valid arbitration agreement and, if so, whether the issue sought to be submitted to arbitration falls within the scope of that agreement.”[4]

The motion court found that the issue sought to be arbitrated fell within the scope of the Agreement because the allegations in the complaint concerned race discrimination and a hostile work environment in violation of the New York State and City Human Rights Laws.[5]

Although plaintiff’s claims fell within the scope of the parties’ agreement to arbitrate, plaintiff argued that the arbitration clause was unconscionable and therefore unenforceable.

“A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made.”[6] “Examples of procedural unconscionability include, but are certainly not limited to, high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance in the understanding and acumen of the parties.”[7] “[T]he substantive element looks to the content of the contract” to determine if any terms are unfair.[8]

Plaintiff argued that the Agreement was procedurally unconscionable because she did not have a choice in signing it when accepting the employment offer. The motion court rejected the argument, noting that an arbitration agreement being offered on a “‘take it or leave it’ basis … is not sufficient under New York law to render the [arbitration] provision procedurally unconscionable.”[9] Thus, concluded the motion court, “[t]he employment contract … [was] not procedurally unconscionable.”[10]

As for substantive unconscionability, plaintiff argued that the fee shifting and the forum selection clauses of the Agreement rendered the agreement to arbitrate unconscionable. The fee-shifting provision provided that in the event plaintiff brought an action against defendant, plaintiff “agree[d] to reimburse [defendant] for any attorneys’ fees, costs and expenses incurred” in connection with defendant’s successful defense of such action or proceeding.

Noting that “there is nothing inherently unconscionable about a nonreciprocal attorney’s fee provision in a commercial contract,”[11] the motion court held that plaintiff “should not be compelled to bear costs which would effectively preclude [her] from pursuing [her] claim.”[12]

Thus, the motion court enforced the Agreement by severing the fee-shifting provision from the Agreement, an approach the motion court said was “consistent with the state and federal policy favoring arbitration.”[13] As such, the motion court concluded that severing the fee-shifting provision from the Agreement was “the appropriate remedy … rather than void[ing] the entire agreement.”[14]

The motion court also rejected plaintiff’s contention regarding the forum selection clause, which provided that any dispute would be governed by the laws of the State of Minnesota, and any arbitration or court action commenced by plaintiff would be exclusively conducted in the federal and state courts in Minnesota.[15] The motion court held that the Agreement was enforceable because defendant had agreed to waive the provision. “Accordingly, as in Ragone,” said the motion court, “‘New York law … allow[s] for the enforcement of the arbitration agreement as modified by the defendants’ waivers.”[16]

Takeaway

The threshold question in assessing whether to compel arbitration is whether there is a valid and binding agreement to arbitrate.[17] If the court finds that a valid arbitration agreement exists, the next question to consider is whether the dispute comes within the scope of that agreement.[18]

In McWhinney-St. Louis, the parties’ agreement contained a broad arbitration provision that provided for the arbitration of “[a]ny dispute arising under this Agreement, or arising out of the circumstances, terms, conditions or termination of [Plaintiff’s]” employment. As such, the motion court found that the arbitration agreement was enforceable.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Stark v. Molod Spitz DeSantis & Stark, P.C., 9 N.Y.3d 59, 66 (2007).

[2] Id.

[3] CPLR § 7503(a) provides: “Where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate.”

[4] Edgewater Growth Capital Partners, L.P. v. Greenstar N. Am. Holdings, Inc., 69 A.D.3d 439 (1st Dept. 2010).

[5] Slip Op. at *2.

[6] Gendot Assoc., Inc. v. Kaufold, 56 A.D.3d 421, 423 (2d Dept. 2008).

[7] Simar Holding Corp. v. GSC, 87 A.D.3d 688, 689-90 (2d Dept. 2011).

[8] Eichholz v. Panzer-Eichholz, 188 A.D.3d 820, 824 (2d Dept. 2020).

[9] Slip Op. at *3 (quoting Ragone v. Atl. Video at Manhattan Ctr., 595 F.3d 115, 122 (2d Cir. 2010)).

[10] Id.

[11] Id. at *4 (quoting Lansco Corp. v. Kampeas, 87 A.D.3d 421, 422 (1st Dept. 2011) (internal quotation marks omitted).

[12] Id. (quoting Matter of Schreiber v. K-Sea Transp. Corp., 9 N.Y.3d 331, 341 (2007) (internal quotation marks omitted) and citing Ragone, 595 F.3d at 120 (because “the defendants agreed to waive the … fee shifting provisions as set out in the arbitration agreement … these provisions do not render the arbitration agreement substantively unconscionable”)).

[13] Id. (quoting Brady v. Williams Capital Grp., L.P., 64 A.D.3d 127, 137 (1st Dept. 2009)).

[14] Id. (quoting id.).

[15] Id. at *4-*5.

[16] Id. at *5 (quoting Ragone, 595 F.3d at 124).

[17] Matter of Belzberg v. Verus Invs. Holdings Inc., 21 N.Y.3d 626, 630 (2013).

[18] Zachariou v. Manios, 68 A.D.3d 539, 539 (1st Dept. 2009) (“Whether a dispute is arbitrable is generally an issue for the court to decide unless the parties clearly and unmistakably provide otherwise.”).