Holick et al v. Cellular Sales of New York, LLC et al

Filing 38

MEMORANDUM-DECISION & ORDER that defendants motion to dismiss (Dkt. #8) pursuant to Fed. R. Civ. P. 12 (b) (1) for lack of subject matter jurisdiction is DENIED; that defendants alternative motion (Dkt. # 8) to compel arbitration is GRANTED; that the complaint is dismissed without prejudice; that in light of the Courts determination to grant defendants motion to compel arbitration and dismiss the complaint, it is further ORDERED that defendant CSOKIs motion to dismiss for lack of personal jurisd iction (Dkt. #10) is DENIED as moot; that plaintiffs motion for conditional certification of a collective action under the FLSA (Dkt. #27) is DENIED as moot; and that the parties remaining pending motions, Dkts # 18 and #37 are DENIED as moot. Signed by Judge Norman A. Mordue on 3/28/2013. (see)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
______________________________________________
JAN P. HOLICK, JR., STEVEN MOFFITT, JUSTIN
MOFFITT, GURWINDER SINGH, and JASON
MACK,
Plaintiffs, on behalf of themselves
and all others similarly situated,

1:12-CV-584

vs.
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CELLULAR SALES OF NEW YORK, LLC, and
CELLULAR SALES OF KNOXVILLE, INC.,
Defendants.
______________________________________________

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APPEARANCES

OF COUNSEL:

GLEASON DUNN WALSH & O'SHEA
40 Beaver Street
Albany, New York 12207
Counsel for Plaintiffs

Ronald G. Dunn, Esq.
Daniel A. Jacobs, Esq.

CHAMBERLAIN HRDLICKA WHITE
WILLIAMS & AUGHTRY
1200 Smith Street, Suite 1400
Houston, Texas 77002
Counsel for Defendant Cellular Sales
of New York, L.L.C.
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HINMAN STRAUB, P.C.
121 State Street
Albany, New York 12207
Counsel for Defendant Cellular Sales
of Knoxville, Inc.

Charles L. Carbo, III, Esq.

Joseph M. Dougherty, Esq.

NORMAN A. MORDUE, U.S. District Judge
MEMORANDUM-DECISION AND ORDER
I.

INTRODUCTION
The present action is one brought pursuant to the Fair Labor Standards Act (the "FLSA"),

29 U.S.C. § 201 et seq. and the New York State Labor Law (the "Labor Law"), Article 6, § 190 et
seq., and Article 19, § 650 et seq.. Plaintiffs allege that they, and similarly situated Sales
Representatives in New York, were misclassified as independent contractors in violation of the
FLSA and the Labor Law and were therefore deprived of their guaranteed compensation under
both laws. There are five motions presently pending before the Court. Both defendants move to
dismiss the complaint pursuant to Fed. R. Civ. P. 12 (b) (1) for lack of subject matter jurisdiction,
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or in the alternative to compel mediation and stay the proceedings pending mediation. Defendant
Cellular Sales of Knoxville, Inc. (“CSOKI”) moves to dismiss the complaint against it for lack of
personal jurisdiction pursuant to Fed. R. Civ. P. 12 (b) (2). Plaintiffs move, pursuant to 29 U.S.C.
§ 216(b), for this Court to conditionally certify a collective action and issue notice of the pending
claims under the FLSA to all similarly situated individuals so that these current and former Sales

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Representatives will have the opportunity to exercise their rights under the FLSA. In addition,
there are two letter motions, asking for the Court’s consideration of additional matters. Plaintiffs
oppose defendants’ motions to dismiss. Defendants oppose plaintiffs’ motion for conditional
certification.
II.

FACTUAL AND PROCEDURAL BACKGROUND
Defendants operate retail store locations throughout New York where sales

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representatives sell Verizon Wireless products and services on defendants’ behalf to customers
who enter fixed location stores. Plaintiffs assert that they were hired as sales representatives by
defendants, but misclassified as independent contractors by defendants who at the outset of their
relationship with plaintiff required plaintiffs to individually “incorporate” into limited liability
companies. According to plaintiffs, this allowed defendants to shift their federal tax payroll

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burden for sales representatives’ earnings onto each sales representative as if each was selfemployed. According to defendants, they had non-exclusive independent sales agreements with
plaintiffs agreements which specifically provided that the relationship between Cellular Sales of
New York, L.L.C. (“CSNY-LLC”) and plaintiffs was that of an independent contractor. Based
upon these sales agreements, defendants assert that plaintiffs, and anyone else the plaintiffs’ sales
companies’ hired, were employees of the sales companies, not CSNY-LLC. CSNY-LLC
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terminated its arrangement with plaintiffs’ sales companies in 2011.
Defendants first moves to dismiss the complaint based on lack of subject matter
jurisdiction. Specifically, defendants assert plaintiffs failed to comply with a condition precedent
prior to filing this lawsuit. They contend that plaintiffs and CSNY-LLC are parties to aforementioned written non-exclusive sales agreements which contain valid and non-binding

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mediation clauses. Based thereupon, defendants argue that the Court should dismiss the
complaint or stay the proceedings pending mediation of plaintiffs’ claims.
Defendant CSOKI also moves to dismiss for lack of personal jurisdiction. According to
defendants, it was CSNY-LLC, not CSOKI, that entered into non-exclusive independent sales
agreements with plaintiffs’ sales companies. According to defendants, CSOKI, has never entered
into a sales agreement, or any other type of agreement, with plaintiffs or plaintiffs’ sales

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companies. Defendants assert CSOKI has never employed plaintiffs, set their rate of pay, nor did
it ever handle or issue paychecks or any other type of payment to plaintiffs or plaintiffs’ sales
companies. In fact, defendants contend CSOKI has never had any sort of contact or
communication with plaintiffs.
Plaintiffs move, pursuant to 29 U.S.C. § 216(b), for this Court to conditionally certify a

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collective action and issue notice of the pending claims under the FLSA to all similarly situated
individuals so that these current and former Sales Representatives will have the opportunity to
exercise their rights under the FLSA.1 Plaintiffs assert that conditional certification and
Court-supervised notice are warranted in this case because the named plaintiffs and other sales
representatives in New York meet the lenient standards applied at this stage of the litigation
showing they are "similarly situated.” According to plaintiffs, these individuals performed the
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same job duties, worked under the same compensation scheme, and were all uniformly considered
independent contractors by defendants. In addition, plaintiffs assert these individuals were
exempt from overtime compensation and being paid at least a minimum wage. Plaintiffs argue
that the need for Court-supervised notice is compelling because the claims of potential "opt-in"
plaintiffs are extinguished with every passing day due to the running of the statute of limitations

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of their claims.
Plaintiffs also move to toll the running of the statute of limitations for claims of potential
"opt-in" plaintiffs because of the unavoidable delay in providing these potential plaintiffs with
notice of their claims due to the present motions pending before the Court. In addition, plaintiffs
move to toll the running of the statute of limitations to account for any stay of this action issued
by this Court.

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III.

DISCUSSION

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Defendants' Motion to Dismiss Pursuant to Fed. R. Civ. Proc. 12 (b) (1)
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Plaintiffs have also filed this lawsuit as a class action under Fed. R. Civ. P. 23 with respect to their claims under
the Labor Law. Plaintiffs plan to bring a motion for Fed. R. Civ. P. 23 class certification at a later time. In the
Second Circuit, the FLSA is held not to preempt the claims made under the Labor Law, and courts can certify
hybrid actions that include both an opt-in FLSA collective claim and an opt-out state labor law Fed. R. Civ. P. 23
class action, such as the lawsuit before this Court. See Shahriar v. Smith & Wollensky Rest. Group, Inc., 659 F.3d
234,249, 252 (2d Cir. 2011).

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Defendants assert in the first instance that plaintiffs’ complaint is subject to dismissal
pursuant to Fed. R. Civ. P. 12 (b) (1). Dismissal of a case for lack of subject matter jurisdiction
under Rule 12 (b) (1) is proper “when the district court lacks the statutory or constitutional power
to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). In resolving a
motion to dismiss for lack of subject matter jurisdiction under Rule 12 (b) (1), a district court may
refer to evidence outside the pleadings. See Kamen v. American Tel. & Tel. Co., 791 F.2d 1006,
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1011 (2d Cir. 1986). A plaintiff asserting subject matter jurisdiction has the burden of proving by
a preponderance of the evidence that it exists. See Malik v. Meissner, 82 F.3d 560, 562 (2d Cir.
1996).
Plaintiffs’ complaint asserts that jurisdiction lies in this case pursuant to 28 U.S.C. § 1331
based on a federal question in light of their claims under the FLSA. Defendants contend that

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plaintiffs have failed to comply with a condition precedent to litigation in their non-exclusive
sales agreements which required them to submit disputes to non-binding mediation. Therefore,
defendants’ assert the case is subject to dismissal for lack of subject matter jurisdiction. The
Court agrees with plaintiffs that defendants have “conflated” the concepts of subject matter
jurisdiction and “condition precedent” to litigation as discussed in N-Tron Corp. v. Rockwell
Automation, Inc., No. 09-0733-WS-C (S.D. Ala. Feb. 18, 2010). To wit, it is clear that this Court

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has subject matter jurisdiction over plaintiffs’ claims based on 28 U.S.C. § 1331 pursuant to the
FLSA. Plaintiff’s failure to have satisfied a condition precedent to litigation cannot divest this
Court of subject matter jurisdiction, “a matter that can never be forfeited or waived.” Union
Pacific R. Co. v. Brotherhood of Locomotive Engineers and Trainmen Gen. Comm. of
Adjustment, Cent. Region, --- U.S. ----, 130 S. Ct. 584, 596 (2009). Defendants’ motion to

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dismiss based upon Fed. R. Civ. P. 12 (b) (1) must be denied.
B.

Motion to Compel Mediation and/or Stay Proceedings
In the alternative, defendants move to compel mediation and for a stay of the action

pending mediation. In the context of motions to compel arbitration brought under the Federal
Arbitration Act (“FAA”), 9 U.S.C. § 4 (2000), the court applies a standard similar to that
applicable for a motion for summary judgment. Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d
Cir. 2003) (citing Par-Knit Mills v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n. 9 (3d Cir. 1980));
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Doctor's Assoc.v. Distajo, 944 F.Supp. 1010, 1014 (D.Conn.1996), aff'd, 107 F.3d 126 (2d Cir.
1997). If there is an issue of fact as to the making of the agreement for arbitration, then a trial is
necessary. 9 U.S.C. § 4. See id. The summary judgment standard is appropriate in cases where
the District Court is required to determine arbitrability, regardless of whether the relief sought is
an order to compel arbitration or to prevent arbitration. See id. The Court therefore proceeds to
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review the record to determine whether plaintiffs have raised any triable issue of fact.
It is undisputed that the non-exclusive independent sales agreements in this case each
contained a mediation clause which required the parties to submit any and all disputes to nonbinding mediation prior to instituting litigation. Section 11 of the agreements stated in relevant
part:
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If a dispute arises under this Agreement, then the parties agree that
they shall submit any dispute or seemingly unresolvable issue to
mediation. If the mediation process is unsuccessful in resolving the
matters in controversy, then in such event, the Parties shall then have
the right to pursue any appropriate legal actions against the other Party
in a court of competent jurisdiction. Each Party shall bear its own
legal expenses, including but not limited to, court costs, discretionary
costs, if any, and any other costs of protecting said Party’s interests;
provided, however, that costs and expenses incurred pursuant to
Section 8 of this Agreement shall not apply.
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Section 11 (emphasis added) There is no dispute that plaintiffs and defendants expressly agreed to
mediate disputes related to their non-exclusive independent sales agreements. Thus, the Court
need not engage in an analysis of whether the parties reached such an agreement. The only
serious argument plaintiffs raise concerning the mediation agreements is whether defendants have
waived their right to rely on them based on their failure to engage in mediation prior to this
lawsuit after initially suggesting through counsel that they might be interested in mediating.
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Waiver of a right to arbitrate “is not to be lightly inferred.” See Seguross Banvenez, S.A. v. S/S
Oliver Drescher, 761 F.2d 855, 862 (2d Cir. 1985). An examination of whether such a waiver
occurred “must be conducted in light of the strong federal policy favoring arbitration.” Rush v.
Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985). The party seeking to prove waiver has a
heavy burden, and any doubt should be resolved in favor of arbitration. Brener v. Becker

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Paribas, Inc., 628 F.Supp. 442, 451 (S.D.N.Y. 1985). Mere delay without resulting prejudice to
a party is insufficient to prove a waiver of arbitration. See Shearson Lehman Hutton, Inc. v.
Wagoner, 944 F.2d 114, 122 (2d Cir. 1991); Russo v. Simmons, 723 F.Supp. 220, 223 (S.D.N.Y.
1989). In Shearson, the Second Circuit found that a three-year delay did not constitute a waiver
of the right to arbitrate. See Shearson, 944 F.2d at 122 (and further noting even if “lost evidence”

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constituted “prejudice,” it was clearly insufficient to justify finding of waiver). As such, the
Court finds that there is insufficient evidence that defendants have waived their right to seek
arbitration in this matter.
Congressional policy, as embodied in the Federal Arbitration Act (“FAA”), favors
enforcement of arbitration clauses in commercial contracts. See Mitsubishi Motors Corp. v. Soler
Chrysler–Plymouth, Inc., 473 U.S. 614, 625 (1985); Moses H. Cone Mem. Hosp. v. Mercury
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Constr. Corp., 460 U.S. 1, 24 (1983). Section 2 of the Act expresses this preference, stating that
written agreements to arbitrate in such contracts “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. A further provision requires courts to stay judicial proceedings pending arbitration if the court
is satisfied that the issues presented are arbitrable or, in other words, contemplated by an
agreement to arbitrate. See 9 U.S.C. § 3. These statutory provisions remain mandatory, as the
Supreme Court emphasized in Dean Witter Reynolds v. Byrd, 470 U.S. 213, 218 (1985):
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[T]he [Arbitration] Act leaves no place for the exercise of discretion
by a district court, but instead mandates that district courts shall direct
the parties to proceed to arbitration on issues as to which an arbitration
agreement has been signed. Thus, insofar as the language of the Act
guides our disposition of this case, we would conclude that
agreements to arbitrate must be enforced, absent a ground for
revocation of the contractual agreement.
See also Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir. 1987). Furthermore, at
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this stage of the litigation, a court should not consider the merits of the underlying controversy.
See CB Richard Ellis, Inc. v. American Environmental Waste Management, 1998 903495, No. 98CV-4183 (JG) (E.D.N.Y. Dec 4, 1998). Rather, the only issue is whether the parties have agreed
to mediate the dispute. See Mitsubishi, 473 U.S. at 628.
Accordingly, a court considering a motion to compel arbitration or mediation must
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determine whether the issues presented are arbitrable. See First Options v. Kaplan, 514 U.S. 938,
944 (1995). First, it must determine whether the parties agreed to arbitrate. If they have, it must
then assess the scope of their agreement to determine whether it encompasses the asserted claims.
Genesco, 815 F.2d at 844. Any doubts concerning the scope of arbitrable issues “should be
resolved in favor of arbitration.” David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d
245, 248 (2d Cir.) (citing Moses H. Cone Mem. Hosp., 460 U.S. at 24–25), cert. dismissed, 501
U.S. 1267 (1991); see also Coudert v. Paine Webber Jackson & Curtis, 705 F.2d 78, 81 (2d Cir.
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1983). Next, the court must decide whether any asserted federal statutory claims were intended
by Congress to be nonarbitrable. See Genesco, 815 F.2d at 844. Finally, where some but not all
of the claims in the case are arbitrable, the court must decide whether to stay proceedings as to the
remaining claims. See id.; see also Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 824–25
(E.D.N.Y. 1995).
2.

The Scope of the Mediation Agreement
The next factor in determining whether to compel mediation concerns whether plaintiffs’

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claims fit within the terms of the mediation clause. As stated above, federal policy strongly
favors arbitration and mediation. Specifically, plaintiffs allege that due to their misclassification
as independent contractors rather than employees they were denied overtime compensation, and
in some workweeks their minimum wage, as guaranteed by the FLSA and the New York Labor
Law. In addition, plaintiffs assert that defendants made wage deductions from the pay of the
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named plaintiffs in violation of the Labor Law. Due to their misclassification of plaintiffs as
independent contractors, defendants shifted their federal payroll burden for plaintiffs and others
similarly situated and misclassified to each sales representative as though they were selfemployed.
The Supreme Court has stated that “any doubts concerning the scope of arbitrable issues
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should be resolved in favor of arbitration, whether the problem at hand is the construction of the
contract language itself or an allegation of waiver, delay, or like defense to arbitrability.” Moses
H. Cone Memorial Hosp., 460 U.S. at 24–25; see also AT & T Techs., Inc. v. Communications
Workers of America, 475 U.S. 643, 650 (1986) (stating that presence of arbitration clause creates
presumption of arbitrability). In conformity with these principles, the Second Circuit has
acknowledged that courts must “construe arbitration clauses as broadly as possible.” S.A.
Mineracao da Trindade–Samitri v. Utah Int'l, Inc., 745 F.2d 190, 194 (2d Cir. 1984). A court
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should grant a request for an order to compel arbitration “unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted
dispute.” AT & T Techs., 475 U.S. at 650 (citing Steelworkers v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 582–83 (1960)).
The presumption in favor of arbitration acquires particular significance when the
arbitration clause is broadly worded as is the mediation agreement in the present case. See AT &
T Technologies, 475 U.S. at 650; Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121
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(2d Cir. 1991) (stating that, in cases of broadly worded arbitration clauses, “the strong
presumption in favor of arbitrability applies with even greater force”). Here, the mediation clause
refers the parties to mediation should “a dispute” arise and states they will submit “any dispute”
to non-binding mediation prior to instituting litigation. Such circumstances call for arbitration of
any grievance not expressly excluded by the arbitration clause, unless there exists “the most
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forceful evidence of a purpose to exclude the claim from arbitration.” AT & T Techs., 475 U.S. at
650 (quoting Warrior & Gulf, 363 U.S. at 584–85); see also Roso–Lino Beverage Distribs., Inc. v.
Coca–Cola Bottling of New York, 749 F.2d 124, 126 (2d Cir. 1984); Wire Serv. Guild, etc. v.
United Press Int'l, Inc., 623 F.2d 257, 260 (2d Cir.1980) (stressing that language exempting
certain disputes from arbitration clause must be “clear and unambiguous” or “unmistakably
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clear”). There is no factual, practical or legal evidence upon which to distinguish the claims set
forth in the complaint from this agreement to mediate since the complaint unquestionably raises a
“dispute” between the parties.
3.

Nonarbitrable Claims
Plaintiffs in this case have asserted a federal statutory claim under the FLSA. The parties

do not address this argument, but the Court is cognizant of well settled law which holds that “if
federal statutory claims are asserted, the district court must determine whether Congress intended
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those claims to be nonarbitrable.” Genesco, Inc., 815 F.2d at 844 (citing Mitsubishi Motors Corp.,
473 U.S. at 626–29). In Ryan v JP Morgan Chase & Co., 2013 WL 646388, No. 12-CV-4844
(VB) (S.D.N.Y. Feb 12, 2013), at *3 the court held because the “plaintiff signed an employment
contract containing a “binding arbitration agreement [‘BAA’] and thus agreed to arbitration; her
claim is within the scope of the BAA because it arises out of her employment; and Congress
intended FLSA claims to be arbitrable.” 2013 WL 646388, at *3. Based thereupon, the Court
finds that Congress intended plaintiffs’ FLSA claims to be subject to arbitration under the FAA.
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D.

Motion for a Stay of the Proceedings
The only remaining issue is whether to grant defendants' motion for a stay of arbitration or

their motion to dismiss the case in favor of arbitration. Plaintiffs’ complaint raises claims under
the New York Labor Law and the FLSA, all of which are subject to arbitration under the FAA as
discussed infra. Where all of the issues raised in the complaint must be submitted to arbitration,
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the court may dismiss an action rather than stay proceedings. Rubin v. Sona Intern. Corp., 457 F.
Supp. 2d 191, 198 (S.D.N.Y. 2006) . “In making this determination, the Second Circuit urges
district courts to consider the fact that ‘dismissal renders an order appealable under [9 U.S.C.A.] §
16(a)(3), while the granting of a stay is an unappealable interlocutory order under [ 9 U.S.C.A.] §
16(b).’” Id. Under these circumstances, the Court concludes that dismissal is appropriate.
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IV.

CONCLUSION
After thorough review of the record and applicable law, it is hereby
ORDERED that defendants’ motion to dismiss (Dkt. #8) pursuant to Fed. R. Civ. P. 12 (b)

(1) for lack of subject matter jurisdiction is DENIED; and it is further
ORDERED that defendants’ alternative motion (Dkt. # 8) to compel arbitration is
GRANTED; and it is further
ORDERED that the complaint is dismissed without prejudice and it is further;
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ORDERED that in light of the Court’s determination to grant defendants’ motion to
compel arbitration and dismiss the complaint, it is further
ORDERED that defendant CSOKI’s motion to dismiss for lack of personal jurisdiction
(Dkt. #10) is DENIED as moot; and it is further
ORDERED that plaintiffs’ motion for conditional certification of a collective action
under the FLSA (Dkt. #27) is DENIED as moot; and it is further
ORDERED that the parties’ remaining pending motions, Dkts # 18 and #37 are DENIED
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as moot.
IT IS SO ORDERED.
Dated: March 28, 2013
Syracuse, New York

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