Frankel v. Citicorp Insurance Services, Inc. et al
ORDER ADOPTING REPORT AND RECOMMENDATIONS: Plaintiff's objections are OVERRULED. Therefore, the court ADOPTS the R&R in its entirety. Accordingly, Defendants' motion to compel arbitration is GRANTED and the action is STAY ED pending the result of the arbitration. See Katz v. Cellco P'ship, 794 F.3d 341 (2d Cir. 2015) (holding that the FAA requires the court to stay proceedings on applica tion of a party, pending arbitration). The parties are directed to proceed to arbitration in accordance with the terms of the agreement, and to file a status report upon completion of the arbitration. So Ordered by Judge Nicholas G. Garaufis on 10/13/2015. (Lee, Tiffeny)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MARK FRANKEL, on behalf of himself and
others similarly situated,
MEMORANDUM & ORDER
11-CV-2293 (NGG) (RER)
CITICORP INSURANCE SERVICES, INC.,
CITICORP VISA, INC., CITICORP
MASTERCARD, INC., CITIBANK (SOUTH
DAKOTA), N.A., and CITIBANK, N.A.,
NICHOLAS G. GARAUFIS, United States District Judge.
On June 23, 2008, Plaintiff Mark Frankel filed in the Supreme Court of the State ofNew
York a putative, nationwide class action against Defendants Citicorp Insurance Services, Inc. and
Citibank (South Dakota), N.A. (together, "Defendants"), 1 alleging violations of New York State
General Business Law ("GBL") §§ 349 and 350, common law fraud, and breach of contract.
(Compl. (Not. of Removal (Dkt.l) at 9) iii! 60-77.) After several years of litigation in state court,
Defendants removed the action to federal court pursuant to 28 U.S.C. §§ 1332, 1441, 1446, 1453
and the Class Action Fairness Act of 2005 (codified as amended at 28 U.S.C. §§ 1332(d)
and 1453). (Not. of Removal if 7.)
On May 18, 2011, the undersigned referred Defendants' anticipated motion to compel
arbitration to Magistrate Judge Ramon E. Reyes, Jr. for a Report and Recommendation ("R&R")
pursuant to 28 U.S.C. § 636(b)(l)(B) and Federal Rule of Civil Procedure 72(b)(l). (See
Plaintiff's Complaint also named as Defendants Citicorp VISA, Inc., Citicorp Mastercard, Inc., and Citibank, N.A.
(Compl.) On July 28, 2008, the parties filed a Stipulation and Notice of Discontinuance, in which Plaintiff
discontinued the Complaint without prejudice as against Citicorp VISA, Inc., Citicorp Mastercard, Inc., and
Citibank, N.A. (See Not. of Removal (Dkt. I) ii I.)
May 18, 2011, Order.) On August 12, 2014, Judge Reyes issued his R&R, recommending that
Defendants' motion be granted. (R&R (Dkt. 53) at 19.) On September 29, 2014, Plaintiff filed
an objection to the R&R (Pl's Obj. to R&R ("Pl.'s Obj.") (Dkt. 55)), and on November 19, 2014,
Defendants filed a response to Plaintiffs objection (Resp. ofDefs. to Pl.'s Obj. ("Defs.' Resp.")
(Dkt. 59)). On December 12, 2014, Plaintiff filed a reply to Defendants' response. (Pl.'s Reply
Mem. in Further Supp. of Pl.'s Obj. to R&R ("Pl.'s Reply") (Dkt. 61).) For the reasons set forth
below, Plaintiffs objections are OVERRULED and the R&R is ADOPTED IN FULL.
The court assumes familiarity with the underlying factual record, as set forth in detail in
the R&R. (R&R at 2-5.) In the R&R, Judge Reyes determined (1) that the arbitration agreement
was valid and enforceable under the Federal Arbitration Act ("FAA") (id. at 8-17), and (2) that it
did not infringe on Plaintiffs First or Fifth Amendment rights (llL. at 17-18).
STANDARD OF REVIEW
In reviewing the R&R of a dispositive matter from a magistrate judge, the district court
"may adopt those portions of the Report to which no objections have been made and which are
not facially erroneous." La Torres v. Walker, 216 F. Supp. 2d 157, 159 (S.D.N.Y. 2000); see
also Gesualdi v. Mack Excavation & Trailer Serv., Inc., No. 09-CV-2502 (KAM) (JO), 2010
WL 985294, at* 1 (E.D.N.Y. Mar. 15, 2010) ("Where no objection to the Report and
Recommendation has been filed, the district court need only satisfy itself that there is no clear
error on the face of the record." (internal quotation marks and citation omitted)). The district
court must review de novo "those portions of the report ... to which objection is made.'' 28
U.S.C. § 636(b)(l). However, to obtain this de novo review, an objecting party "must point out
the specific portions of the report and recommendation to which they object.'' U.S. Flour Corp.
v. Certified Bakery, Inc., No. 10-CV-2522 (JS) (WDW), 2012 WL 728227, at *2 (E.D.N.Y.
Mar. 6, 2012); see also Fed. R. Civ. P. 72(b)(2) ("[A] party may serve and file specific written
objections to the [R&R]."). If a party "makes only conclusory or general objections, or simply
reiterates his original arguments, the Court reviews the Report and Recommendation only for
clear error." Pall Corp. v. Entegris, Inc., 249 F.R.D. 48, 51 (E.D.N.Y. 2008) (citations omitted);
see also Mario v. P&C Food Mkts., Inc., 313 F.3d 758, 766 (2d Cir. 2002) (holding that
plaintiff's objection to an R&R was "not specific enough" to "constitute an adequate objection
under ... Fed. R. Civ. P. 72(b)"). "A decision is 'clearly erroneous' when the Court is, 'upon
review of the entire record, left with the definite and firm conviction that a mistake has been
committed."' DiPilato v. 7-Eleven, Inc., 662 F. Supp. 2d 333, 339-40 (S.D.N.Y. 2009) (quoting
United States v. Snow, 462 F.3d 55, 72 (2d Cir. 2006)). Finally, courts "ordinarily refuse to
consider arguments, case law and/or evidentiary material which could have been, but was not,
presented to the magistrate judge in the first instance." Kennedy v. Adamo, No. 02-CV-1776
(ENV) (RML), 2006 WL 3704784, at *1 (E.D.N.Y. Sept. 1, 2006) (citation and internal
quotation marks omitted), affd, 323 F. App'x 34 (2d Cir. 2009) (summary order); see also Allen
v. United Parcel Serv., Inc., 988 F. Supp. 2d 293, 299 (E.D.N.Y. 2013); Forman v. Artuz, 211 F.
Supp. 2d 415, 418 (S.D.N.Y. 2000).
The "Exculpation Clause" Defense
In AT&T Mobility LLC v. Concepcion, the Supreme Court emphasized that the FAA
reflects a "liberal federal policy favoring arbitration." 131 S. Ct. 1740, 1749 (2011) (citations
omitted). Most recently, in American Express Co. v. Italian Colors Restaurant, the Court
commanded that "courts must 'rigorously enforce' arbitration contracts according to their
terms" 133 S. Ct. 2304, 2306 (2013) ("Italian Colors") (citations omitted). As Judge Reyes
noted in his R&R, this rule applies just as strongly to class action waivers within arbitration
agreements. (R&R at 11.)
In his original opposition to Defendants' motion, Plaintiff argued that the FAA should not
be interpreted to preempt state statutory or constitutional rules that would void de facto
exculpatory arbitration agreements. (Pl.'s Mem. in Opp'n to Mot. to Compel Arbitration ("Pl.'s
Mem.") (Dkt. 23) at 9-22; Pl.'s Ltr. Brief ("Pl.'s Ltr.") (Dkt. 50) at 2-3.) Judge Reyes rejected
this argument, finding that "[t]he FAA not only preempts state laws preventing the enforcement
of arbitration clauses and class action waivers, but also preempts standard contract doctrines that
'have been applied in a fashion that disfavors arbitration."' (R&R at 13 (quoting
Concepcion, 131 S. Ct. at 1747).) Accordingly, Judge Reyes determined that the court "may not
find the arbitration agreement unenforceable as an exculpation clause based exclusively on the
uniqueness of the arbitral forum. Such an application has been preempted." (Id. at 15.)
Furthermore, because the arbitration agreement was not so onerous as to render it unenforceable
under Section 2 of FAA, Judge Reyes found that Plaintiff's exculpation clause defense was
unavailing. (Id. (citing Ragone v. Atl. Video at the Manhattan Ctr., 595 F.3d 115, 121
(2d Cir. 2010) ("It is possible that an arbitration agreement may contain terms so onerous as to
render it unenforceable under Section 2 of the FAA.")).)
Plaintiff did not object to Judge Reyes's determination on this point. (See Pl. 's Obj.
at 3 n.4.) As a result, the court has reviewed this portion of the R&R for clear error and finds
none. See Duncanson v. N.Y. State Educ. Dep't, No. 13-CV-6030 (CBA), 2015 WL 631374,
at *1 (E.D.N.Y. Feb. 12, 2015) ("To accept those portions of the R&R to which no timely
objection has been made, 'a district court need only satisfy itself that there is no clear error on
the face of the record."' (quoting Jarvis v. N. Am. Globex Fund, L.P., 823 F. Supp. 2d 161, 163
The Public Injunction
Plaintiff next contends that the arbitration agreement prevents him from effectively
vindicating his state statutory right to seek a public injunction under GBL § 349(h). (Pl. 's Ltr.
at 3-4.) On this basis, Plaintiff argues that the "effective vindication" doctrine recognized by the
Supreme Court in Italian Colors should bar application of the FAA. (I.QJ Judge Reyes rejected
this argument, finding that the effective vindication doctrine is inapplicable to state statutory
remedies, and that federal courts have enforced arbitration agreements even when those
agreements prevent public injunctions. (R&R at 17.) Plaintiff did not object to this portion of
the R&R (see Pl.'s Obj. at 3 n.4), and the court finds no clear error in Judge Reyes's
Plaintiff's Constitutional Challenge
Plaintiffs only actual objection is to Part II.D of the R&R, in which Judge Reyes rejected
Plaintiffs argument that the arbitration agreement infringes on his First and Fifth Amendment
rights by depriving him of the "right of access to the courts." (R&R at 17 (quoting Pl.'s Ltr.
at 4).) In his supplemental letter briefing following the Supreme Court's opinion in Italian
Colors, Plaintiff argued that the Court's interpretation of the FAA in that case "does not pass
constitutional muster," because it would grant "private parties the power to use arbitration
clauses to bar Americans from exercising their constitutional right to prove a claim when they
cannot as a practical matter do so in arbitration." (Pl.'s Ltr. at 5 (emphasis added).) In sum,
Plaintiffs "constitutional" argument before Judge Reyes appears to have been an attempt to
rephrase the same "effective vindication" argument that was rejected in Italian Colors. (See
R&R at 12.) See Italian Colors, 133 S. Ct. at 2311 ("[T]he 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." (citations omitted)). Yet as Judge Reyes noted, the district court is bound by
controlling precedent. (R&R at 18.) While Plaintiff may believe strongly in a constitutional
right ''to sue in court and use any available procedural means that enable his suit to be heard,
including class action" (Pl. 's Ltr. at 5), the court is not in a position to recognize such a right in
this case given the clear direction from the Supreme Court.
In Plaintiffs objection to the R&R, however, he raises a new constitutional argument
that he did not present to Judge Reyes. Now, Plaintiff argues that judicial enforcement of all
compulsory arbitration clauses contained in contracts of adhesion violates the Petition Clause of
the First Amendment2 by depriving consumers of their "fundamental right" "to petition a
government court to redress private wrongs." (Pl. 's Obj. at 3-4.) This theory, while creative, is
not appropriately before the court. As courts in this circuit and elsewhere have held, "a litigant is
not allowed to oppose a magistrate's Report and Recommendation by suddenly asserting new
arguments that were not presented to the magistrate originally." Kennedy, 2006 WL 3704784,
at *3; see also Allen, 988 F. Supp. 2d at 299 ("[Plaintiff] did not present this argument or case
law to [the magistrate], so this Court need not consider it."); Wesley v. Alexander, No. 99CV-2168 (LAK), 2005 WL 1352593, at *6 (S.D.N.Y. June 8, 2005) ("The law is clear that when
a dispositive motion is heard before a magistrate judge, the [litigants] must make aU ...
arguments then and there, and cannot later add new arguments at subsequent stages of the
proceedings." (internal quotation marks and citation omitted)); Patterson-Leitch Co. v. Mass.
Wholesale Elec. Co., 840 F.2d 985, 991 (1st Cir. 1988) ("[l]t would be fundamentally unfair to
U.S. Const. amend. I ("Congress shall make no law ... abridging ... the right ... to petition the Government for a
redress of grievances.").
permit a litigant to set its case in motion before the magistrate, wait to see which way the wind
was blowing, and-having received an unfavorable recommendation-shift gears before the
The court is mindful of the unsettled state of the law in the Second Circuit while the
parties were briefing this motion to compel arbitration. 3 However, Judge Reyes provided ample
opportunity for both parties to file supplemental briefs in light of the Supreme Court's decision
in Italian Colors (see R&R at 6), and Plaintiff does not point to any intervening case law or other
arguments that excuse his failure to present his Petition Clause argument earlier. Defendants
also point out that, whatever one's views ofltalian Colors, the Supreme Court's decision cannot
have come as a complete surprise. (Defs.' Resp. at 11.) See Italian Colors, 133 S. Ct. at 2312
("Truth to tell, our decision in [Concepcion] all but resolves this case."). Furthermore, Plaintiff's
briefing on his objection to the R&R now runs to 40 pages,4 and he has submitted an appendix of
over 100 pages of "historical materials" in support of his new constitutional argument, none of
which were presented to Judge Reyes. (See App. of Historical Materials (Dkt. 56).) While a
In In re American Express Merchants' Litigation, the Second Circuit invalidated a mandatory class-action waiver
provision in an arbitration agreement because the plaintiffs "would incur prohibitive costs if compelled to arbitrate
under the class action waiver," and enforcement of the arbitration agreement would risk "depriv[ing] them of
substantive rights under the federal antitrust statutes." 554 F.3d 300, 315-16 (2d Cir. 2009) ("Amex I"). The
Supreme Court then vacated and remanded that decision in light of the Court's decision in Stolt-Nielsen S.A. v.
AnimalFeeds International Corp., 559 U.S. 662, 664 (2010) (holding that "a party may not be compelled under the
FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.").
See Am. Express Co. v. Italian Colors Rest., 130 S. Ct. 2401 (2010) (mem.). On remand; the Second Circuit again
held that the class-action waiver provision was unenforceable. In re Am. Express Merchants' Litig., 634 F.3d 187
(2d Cir. 2011) ("Am ex II"). Soon thereafter, the Supreme Court decided Concepcion, holding that the FAA
preempted California common law barring the enforcement of class-action waivers in consumer contracts. 131 S.
Ct. at 1753. On a panel rehearing of Amex II, the Second Circuit determined that Concepcion did not require
overturning Amex I. In re Am. Express Merchants' Litig., 667 F.3d 204 (2d Cir. 2012) ("Amex III"). On
June 20, 2013, the Supreme Court reversed the Second Circuit's decision in Amex III, finally resolving in the
negative the question of whether plaintiffs could invalidate a class-action waiver under the "effective vindication
doctrine" by showing that "they ha[d] no economic incentive to pursue their claims individually in arbitration."
Italian Colors, 133 S. Ct. at 2310.
The court notes that Federal Rule of Civil Procedure 72(b)(2) expressly authorizes only objections to an R&R and
a response to those objections. Plaintiffs Reply is therefore not authorized and the court has not considered it.
district court has discretion to consider new evidence or arguments when reviewing an objection
to an R&R, ~Fed. R. Civ. P. 72(b)(3); 28 U.S.C. § 636(b)(l)(c), Plaintiff has not made a
compelling case for the court to do so here. Accordingly, the court reviews Judge Reyes's
determination for clear error and finds none. Even under de novo review, the court finds that
Plaintiffs constitutional argument is unavailing given the Supreme Court's binding FAA
Enforceability of Class Action Waiver under South Dakota Law
Plaintiffs opposition and objection materials include an additional argument premised on
his constitutional argument-namely that, if the arbitration clause is unenforceable for
constitutional reasons, then the class-action waiver clause also becomes unenforceable under
South Dakota law, "which prohibit[s] enforcing any contract terms that work to insulate a party
from liability or deprive a party of a legal remedy." (Pl.'s Obj. at 25.) Plaintiff does not frame
this as an objection, but rather points out that the R&R did not reach this argument, given Judge
Reyes's determination that the arbitration clause was, in fact, enforceable. (Id. at 3 n.4.)
Because the court adopts Judge Reyes's determination that the FAA preempts South Dakota law
on this matter, see supra Part III. C, the court likewise need not consider Plaintiffs argument.
For the reasons set forth above, Plaintiffs objections are OVERRULED. Therefore, the
court ADOPTS the R&R in its entirety. Accordingly, Defendants' motion to compel arbitration
is GRANTED and the action is STAYED pending the result of the arbitration. See Katz v.
Cellco P'ship, 794 F.3d 341 (2d Cir. 2015) (holding that the FAA requires the court to stay
proceedings on application of a party, pending arbitration). The parties are directed to proceed to
arbitration in accordance with the terms of the agreement, and to file a status report upon
completion of the arbitration.
s/Nicholas G. Garaufis
Dated: Brooklyn, New York
nited States District Judge
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