Armstead v. Starbucks Corporation

Filing 36

MEMORANDUM AND ORDER granting in part and denying in part 27 Motion to Dismiss. Defendant's motion to compel arbitration and to stay this action is GRANTED. (Docket # 27.) Defendant's motion to partially dismiss the Complaint pursuant to Rule 12(b)(1) is DENIED. The Clerk is directed to terminate the motion (Docket # 27) and to place this case on the suspense calendar. The parties shall by July 6, 2018 file a written status of the arbitration as of June 29, 2018. If the parties fail to do so, the action will be dismissed. (As further set forth in this Order.) (Signed by Judge P. Kevin Castel on 11/17/2017) (cf)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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EBONY ARMSTEAD,
Plaintiff,
-against-

17-cv-1163 (PKC)
MEMORANDUM
AND ORDER

STARBUCKS CORPORATION,
Defendant.
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CASTEL, U.S.D.J.
Plaintiff Ebony Armstead alleges that defendant Starbucks Corporation
(“Starbucks”) had a policy of “time shaving” employee hours, in violation of the Fair Labor
Standards Act, 29 U.S.C. § 201, et seq. (“FLSA”), and the New York Labor Law (“NYLL”).
According to Armstead, while employed by Starbucks as a barista, she was required to clock out
at a fixed time but to continue working without compensation. She alleges that Starbucks
required her to work approximately 9.5 uncompensated hours each week.
Starbucks moves to stay proceedings and compel arbitration. According to
Starbucks, during the hiring process, Armstead electronically signed an arbitration agreement
(the “Arbitration Agreement”) that requires her claims to be decided by an arbitrator. Starbucks
moves to compel arbitration and stay proceedings pursuant to the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 1, et seq. It also seeks to dismiss Armstead’s allegations in support of a
collective or class action for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Fed. R.
Civ. P.

For the reasons that will be explained, the motion to compel arbitration and stay
this proceeding is granted. The motion to dismiss plaintiffs’ allegations related to her putative
class action and collective action claims is denied without prejudice.
BACKGROUND.
A. Armstead’s Claims.
Armstead alleges that in or about May 2015, Starbucks hired her to work as a
barista at its branch on Waverly Place and Sixth Avenue in Greenwich Village. (Amended
Complaint (the “Complaint”) ¶ 22.) She occasionally was assigned to shifts at other Starbucks
locations in the nearby Chelsea neighborhood. (Compl’t ¶ 23.)
According to Armstead, she worked from approximately 4 p.m. to 2 a.m. five
days a week, and from 4 p.m. until 12:30 a.m. two days per week. (Compl’t ¶ 24.) Armstead
asserts that management required employees to clock out of work at 11:30 p.m., but to continue
working off the clock until the shift ended. (Compl’t ¶ 25.) Armstead alleges that she worked
approximately 9.5 uncompensated hours every work week, and that Starbucks failed to pay
overtime for hours worked in excess of 40 per week. (Compl’t ¶¶ 25-26.) The Complaint
includes allegations in support of collective action certification under the FLSA and class action
certification for Armstead’s NYLL claims. (Agrm’t ¶¶ 11-21.)
B. The Starbucks Arbitration Agreement.
Starbucks moves to compel arbitration, stay this action, and dismiss Armstead’s
allegations in support of a class action and collective action. (Docket # 27.) Starbucks annexes a
copy of the Arbitration Agreement that it contends governs Armstead’s claims. (Kennedy Dec.
Ex. G.) The Agreement states in part:
Mutual Agreement to Arbitrate. Starbucks and I agree to use
binding individual arbitration to resolve any “Covered Claims” that
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arise between me and Starbucks, its subsidiaries and related
companies . . . . “Covered Claims” are those brought under any
statute, local ordinance, or common law relating to my employment,
including those concerning any element of compensation,
harassment, discrimination, retaliation, recovery of bonus or
relocation benefits, leaves of absence, accommodations, or
termination of employment.
Except as provided herein, I understand and agree that
arbitration is the only forum for resolving Covered claims, and
that both Starbucks and I waive the right to a trial before a
judge or jury in federal or state court. . . .
Except as provided below, Starbucks and I agree that the Arbitrator
– and not a court or agency – shall have exclusive authority to
resolve any dispute regarding the formation, interpretation,
applicability, enforceability, or implementation of this Agreement,
including any claim that all or part of this Agreement is void or
voidable.
(Kennedy Dec. Ex. G; emphasis in original.)
The Agreement also waives a plaintiff’s ability to bring claims in a class or
collective action. (Kennedy Dec. Ex. G.) It excludes certain categories of claims from
arbitration, including those involving workers’ compensation or unemployment benefits, charges
with the Equal Employment Opportunity Commission and similar agencies, or actions to enforce
or vacate an arbitration award. (Kennedy Dec. Ex. G.) It also sets forth procedures to be used
during arbitration and for the selection of an arbitrator. (Kennedy Dec. Ex. G.)
LEGAL STANDARD.
“Under the [FAA] ‘[a] written provision in . . . a contract . . . to settle by
arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable,
and enforceable.’” Meyer v. Uber Techs., Inc., 868 F.3d 66, 73 (2d Cir. 2017) (quoting 9 U.S.C.
§ 2). “[P]arties can petition the district court for an order directing that ‘arbitration proceed in
the manner provided for in such agreement.’” Nicosia v. Amazon.com, Inc., 834 F.3d 220, 229

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(2d Cir. 2016) (quoting 9 U.S.C. § 4). “The district court must stay proceedings once it is
‘satisfied that the parties have agreed in writing to arbitrate an issue or issues underlying the
district court proceeding.’” Nicosia, 834 F.3d at 229 (citing WorldCrisa Corp. v. Armstrong, 129
F.3d 71, 74 (2d Cir. 1997)).
“[B]efore an agreement to arbitrate can be enforced, the district court must first
determine whether such agreement exists between the parties. This question is determined by
state contract law.” Meyer, 868 F.3d at 73-74 (citing Nicosia, 834 F.3d at 229; see also
PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996) (“in interpreting an arbitration
agreement we apply the principles of state law that govern the formation of ordinary contracts.”).
Courts decide motions to compel arbitration using a standard “similar to that
applicable for a motion for summary judgment.” Meyer, 868 F.3d at 74 (quotation marks
omitted). Courts consider “all relevant, admissible evidence submitted by the parties and
contained in ‘pleadings, depositions, answers to interrogatories, and admissions on file, together
with . . . affidavits.’” Id. (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 155 (2d Cir.
2002)). Every reasonable inference is drawn in favor of the non-moving party. Id. If factual
issues exist concerning the formation of an arbitration agreement, a trial on the issue is required.
Id.
DISCUSSION.
A. The Motion to Compel Arbitration Is Granted.
1. Law Governing the Online Formation of an Arbitration Agreement.
Armstead asserts that she did not agree to arbitrate her claims against Starbucks.
According to Armstead, the Agreement was “hidden” and “buried” by Starbucks as part of a
complicated, multi-step application process that was misleadingly presented as a mere formality.

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“‘[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he [or she] has not agreed so to submit.’” Adams v. Metro. Transp.
Auth., 153 A.D.3d 515, 516 (2d Dep’t 2017) (alteration in original; quoting Matter of Monarch
Consulting, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 26 N.Y.3d 659, 674 (2016)).
“A party may not be compelled to arbitrate a dispute unless there is evidence affirmatively
establishing that the parties clearly, explicitly, and unequivocally agreed to arbitrate.” Adams,
153 A.D.3d at 516-17. As with any contract, “[t]o establish the existence of an enforceable
agreement, a [party] must establish an offer, acceptance of the offer, consideration, mutual
assent, and an intent to be bound. That meeting of the minds must include agreement on all
essential terms.” Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (1st Dep’t 2009).
“The creation of online contracts ‘has not fundamentally changed the principles of
contract.’” Resorb Networks, Inc. v. YouNow.com, 30 N.Y.S.3d 506, 510 (N.Y. Sup. Ct. N.Y.
Cnty. 2016) (quoting Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 403 (2d Cir. 2004)).
“Where the supposed assent to terms is mostly passive, as it usually is online, courts seek to
know ‘whether a reasonably prudent offeree would be on notice of the term at issue’, and
whether the terms of the agreement were ‘reasonably communicated’ to the user.” Id. (quoting
Schnabel v. Trilegiant Corp., 697 F.3d 110, 120 (2d Cir. 2012)). Surveying the federal courts’
interpretation of New York law, Resorb identified “three general principles” guiding the
enforceability of online agreements: first, the website must place a “reasonably prudent user” on
“inquiry notice” of the agreement’s terms; second, “the design and content of the website must
encourage the user to examine the terms clearly available through hyperlinkage”; and third,
agreements will not be enforced “where the link to the agreement is buried at the bottom of a

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webpage or tucked away in obscure corners of the website.” Id. at 511 (quotation marks
omitted).
In Meyer, which was decided while briefing for this motion was in progress, the
Second Circuit provided detailed guidance as to the online formation of an arbitration agreement.
Meyer concluded that a party has typically consented to arbitration when she agrees to a
“clickwrap” or “click-through” agreement. 1 868 F.3d at 75. In such agreements, the user clicks
“an ‘I agree’ box’ after being presented with a list of terms and conditions of use . . . .” Id.
Alternatively, a party may be bound by a web-based contract if she is placed on inquiry notice,
meaning that “the notice of the arbitration provision was reasonably conspicuous and
manifestation of assent unambiguous as a matter of law.” Id. at 76.
2. Armstead’s Hiring Process.
Armstead has submitted a sworn affidavit on her own behalf, and Starbucks has
submitted the Declaration of Matthew Kennedy, who has the job title of Director, Talent
Acquisition at Starbucks. (Docket # 33, 29.) Both Armstead and Kennedy have described a
three-step process for Armstead’s hiring. First, Armstead completed a preliminary online
application. (Kennedy Dec. ¶¶ 5-6; Armstead Aff’t ¶¶ 3, 5-7.) Second, she was interviewed at a
Starbucks branch, and subsequently received an offer. (Armstead Aff’t ¶ 3; Kennedy Dec. ¶ 10.)
Third, she completed what Kennedy calls the “Employee Onboarding” process, wherein
Armstead completed an in-store, electronic application, with guidance from a Starbucks
manager. (Kennedy Dec. ¶ 10; Armstead Aff’t ¶ 3, 9-17.) In this third step, Armstead

Meyer applied California law, but “note[d] that New York and California apply substantially similar rules for
determining whether the parties have mutually assented to a contract term.” Id. at 74 (quotation marks omitted).
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electronically signified that she agreed to the Arbitration Agreement. Armstead asserts that she
did not knowingly consent to the Arbitration Agreement. (Armstead Aff’t ¶ 17.)
On step one, Armstead submitted her initial, online application on April 13, 2015.
(Kennedy Dec. ¶ 6 & Ex. C.) Under the heading “Pre-Application Disclosures,” Starbucks stated
that it had a company policy that “all new hires shall be subject to an arbitration agreement as a
condition of employment.” (Kennedy Dec. ¶ 7 & Ex. B.) This initial application did not include
a hyperlink to the arbitration agreement or describe its terms, nor did it require Armstead to
expressly agree to arbitration. (Kennedy Dec. Ex. B.) Armstead states, “I never saw any
mention of arbitration in the online application I filled out on April 13, 2015, either because it
was not there, or because Starbucks used the design of the screen to conceal it from me, just as it
is hidden in the current online application version.” (Armstead Aff’t ¶ 7.) The Court concludes
that the passing reference to arbitration in the initial application did not bind Armstead to any
arbitration provision or provide meaningful notice of the Arbitration Agreement. See Meyer,
868 F.3d at 75 (online references to arbitration “that do not solicit an explicit manifestation of
assent” are typically non-binding) (quotation marks omitted).
On the second step of her hiring, a Starbucks manager interviewed Armstead on
May 7, 2015, and she received an offer of employment shortly thereafter. (Kennedy Dec. ¶ 10.)
As the final step in her hiring process, on May 18, 2015, Armstead completed
what Kennedy calls the “Employee Onboarding” procedure. (Kennedy Dec. ¶ 10.) At that point,
Armstead was required to electronically re-submit personal information and consent to certain
employment terms set by Starbucks. (Kennedy Dec. ¶ 10-19.) Armstead states this process took
place at a Starbucks branch, where a manager guided her through the step-by-step submission of
electronic information. (Armstead Aff’t ¶ 8.) According to Armstead, the manager told her that

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the process “was just a formality” and a “standard procedure” intended “to resubmit and confirm
information I had already submitted.” (Armstead Aff’t ¶¶ 9, 13.)
As described by Kennedy, Armstead was required to consent to receive and
respond to information in electronic form, and to agree “to use the electronic click as my
‘written’ signature” prior to clicking on assorted forms. (Kennedy Dec. ¶¶ 13-14 & Ex. E.) The
“e-Signature Acceptance” page required Armstead to agree as follows: “I intend both the
signature I inscribe with the ‘click’ signature technology and the electronic record of it to be my
legal signature to the document.” (Kennedy Dec. Ex. E.) Armstead states that the in-store
manager told her that an electronic signature was required in order to confirm that she truthfully
submitted information. (Armstead Aff’t ¶ 10.)
Armstead states, “While filling out the in-store application, I was never informed
in any way, by either the manager going through the application with me step-by-step, or the
application itself, about any agreement to arbitration.” (Armstead Aff’t ¶ 12.) She states, “I do
not remember seeing or clicking anything regarding an arbitration agreement. The only reason
for which I provided my e-signature was to verify that the information and documents I was
providing to Starbucks were true and accurate.” (Armstead Aff’t ¶ 15.) Armstead also states:
If I did provide an e-signature relating to a purported agreement to
arbitrate, I only did so because Starbucks mislead me into doing so,
by presenting the agreement to [sic] as one of several documents
that I had already prepared and submitted. I believe Starbucks
deliberately tricked me into providing my e-signature for a hidden
arbitration clause on the in-store application, by inserting the
signature box under instructions that I was signing for purposes
unrelated to arbitration. The Starbucks manager who oversaw my
application process told repeatedly me while I was filling out my instore application that the electronic signature was for purposes
unrelated to arbitration. The manager never mentioned arbitration
to me at that stage or any other.
(Armstead Aff’t ¶ 16.)
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As described in the Kennedy Declaration, once Armstead agreed to use an
electronic signature, she was required to click on various forms. (Kennedy Dec. ¶¶ 13-14.) The
“e-Signs Forms” page stated in part, “The following forms require your electronic signature . . . .
You must read each form before signing it. . . . You sign each form by clicking the ‘Sign’ link
associated with that form. . . . Throughout these web pages on electronic signature you may
click on view links that are underlined and an Adobe PDF file version of a document or form
will open for your review.” (Kennedy Dec. F.) Below that text, three identified documents are
clearly and distinctly presented, and labeled, “W-4”, “I-9” and “Arbitration Agreement.”
(Kennedy Dec. Ex. F.) Each document is presented with a hyperlink labeled “View,” and next to
the I-9 and Arbitration Agreement, parenthetical text states, “(view required before signing)”.
(Kennedy Dec. Ex. F.)
Kennedy states that Armstead could not have electronically signed the Arbitration
Agreement without first clicking a “View” button that opened a copy of the agreement.
(Kennedy Dec. ¶ 15.) He states that according to Starbucks records, Armstead electronically
signed the Arbitration Agreement at 9:43 a.m. on May 18, 2015. (Kennedy Dec. ¶ 17 & Ex. H.)
Kennedy also states that after Armstead signed the Arbitration Agreement, an automatically
generated e-mail was sent to Armstead’s e-mail address, attaching a copy of the Arbitration
Agreement. (Kennedy Dec. ¶ 17 & Ex. H.)
Starbucks also has come forward with evidence that Armstead received a copy of
the Arbitration Agreement via e-mail. Exhibit H to the Kennedy Declaration includes a
screenshot of Starbucks records titled “Email History,” which lists e-mails sent by Starbucks
related to Armstead’s job application. One line-entry states that an e-mail titled “Starbucks
Mutual Arbitration Agreement” was sent by “System” to Ebony Armstead at an aol.com e-mail

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address at 9:44 a.m. on May 18, 2015. (Kennedy Dec. Ex. H.) Exhibit H also includes a list
headed “Signed Documents,” including an entry titled “Arbitration Agreement,” which is
denoted as “Signed by Employee” on May 18, 2015 at 9:43 a.m.
3. Starbucks Has Established Armstead’s Consent to the Arbitration
Agreement.
The Court concludes that Starbucks has established as a matter of law that
Armstead electronically consented to the arbitration of her claims, and that Armstead has not
come forward with evidence that would permit a reasonable trier of fact to conclude that her
consent was not effective.
The Arbitration Agreement was presented to Armstead as a “clickwrap” or “clickthrough” agreement: Armstead was required to take two separate steps of viewing and
electronically signing the Arbitration Agreement. Meyer, 808 F.3d at 75 (“‘clickwrap’ (or
‘click-through’) agreements . . . require users to click an ‘I agree’ box after being presented with
a list of terms and conditions of use . . . . Courts routinely uphold clickwrap agreements for the
principal reason that the user has affirmatively assented to the terms of agreement by clicking ‘I
agree.’”); see also Moore v. Microsoft Corp., 293 A.D.2d 587, 587 (2d Dep’t 2002) (user agreed
to software license by clicking “I agree” icon prior to download). The “e-Sign Forms” page was
neatly organized, and the Arbitration Agreement was expressly identified, leaving no room for
doubt as to its contents. See Mallh v. Showtime Networks Inc., 2017 WL 5157247 (S.D.N.Y.
Nov. 7, 2017) (weighing absence of “extraneous material” on a web page, clear labeling of terms
of use and “reasonably conspicuous” arbitration clause when concluding that plaintiff had notice
of arbitration provision) (Cote, J.). The Court concludes that, as a matter of law, Armstead
electronically agreed to be bound by the explicitly identified Arbitration Agreement.

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The Court separately concludes that Armstead was, at a minimum, placed on
inquiry notice of the Arbitration Agreement, and is therefore bound by its terms. Armstead’s
affidavit asserts various explanations as to why she was confused about the contents of the
Arbitration Agreement. She states that the Starbucks manager who assisted her “explicitly told”
her that she was merely resubmitting and confirming previously submitted information, and that
her electronic signature was being used to confirm the information’s truthfulness. (Armstead
Aff’t ¶¶ 9-11.) She states that the manager never mentioned the Arbitration Agreement.
(Armstead Aff’t ¶¶ 12-13, 16.) She correctly notes that the introductory text of the e-Sign Forms
page does not expressly mention consent to arbitration, and instead discusses the use of an
electronic signature in the context of “information that you provided” on certain forms.
(Armstead Aff’t ¶ 16 & Kennedy Dec. Ex. F.) Armstead asserts that she was “deliberately
tricked” into electronically signing the Arbitration Agreement, that she “would never knowingly
agree” to it and that Starbucks “deceived” her. (Armstead Aff’t ¶¶ 16-17.)
“Where there is no evidence that the offeree had actual notice of the terms of the
agreement, the offeree will still be bound by the agreement if a reasonably prudent user would be
on inquiry notice of the terms.” Meyer, 868 F.3d at 74-75; accord Resorb, 30 N.Y.S.3d at 511.
“Whether a reasonably prudent user would be on inquiry notice turns on the clarity and
conspicuousness of arbitration terms . . . .” Meyer, 868 F.3d at 75. If undisputed facts establish
“reasonably conspicuous notice” of the contract terms and “unambiguous manifestation of
assent” to those terms, a contract is formed. Id. Notice is assessed from the perspective of a
“reasonably prudent” person. Id. at 77-78; Resorb, 30 N.Y.S.3d at 511. The “transactional
context” of communications and “the intention of entering into a forward-looking relationship”
are relevant considerations. Meyer, 868 F.3d at 80.

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A reasonably prudent job applicant in Armstead’s position would have understood
that a document titled “Arbitration Agreement” was, indeed, an agreement to arbitrate certain
claims. The document was expressly and conspicuously labeled. It is undisputed that Armstead
and other applicants were required to view the Arbitration Agreement prior to electronically
signing it. The agreement was presented in the context of a forward-looking employment
relationship. Armstead unambiguously consent to the agreement by electronically signing it.
Thus, accepting the truth of Armstead’s subjective confusion and the statements made by the
Starbucks branch manager, the Court concludes that, at a minimum, Armstead was on inquiry
notice that she was executing the Arbitration Agreement and consenting to be bound by it.
Lastly, Armstead argues that the Arbitration Agreement is procedurally
unconscionable, substantively unconscionable and was executed as a result of fraudulent
inducement by Starbucks. “However, it is well accepted under New York law that it is not
unconscionable to be bound by an arbitration agreement in the course of securing employment.
Moreover, the fact that there is inequality in bargaining power between an employer and a
potential employee is not a sufficient reason to hold that arbitration agreements are not
enforceable in the employment context.” Isaacs v. OCE Bus. Servs., Inc., 968 F. Supp. 2d 564,
570 (S.D.N.Y. 2013) (Koeltl, J.) (internal citations omitted).
The motion to compel arbitration is granted.
B. The Motion to Stay this Action Is Granted.
The FAA requires courts to stay proceedings when all underlying claims have
been referred to arbitration. Katz v. Cellco P’ship, 794 F.3d 341, 345 (2d Cir. 2015). This
action is therefore stayed, pending arbitration.

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C. The Motion to Dismiss Class Action and Collective Action Allegations Is
Denied without Prejudice.
Starbucks separately moves to dismiss Armstead’s allegations purporting to bring
claims as a class action under the NYLL and a collective action under the FLSA. Starbucks
asserts that because the Arbitration Agreement precludes such claims, this Court does not have
subject matter jurisdiction over them.
No motion for class certification or preliminary certification as a collective action
is pending. Armstead is currently pursuing claims only on her own behalf. The Arbitration
Agreement’s effect is better considered in the context of such certification motions, rather than
through the lens of subject matter jurisdiction at the pleading stage. The motion to dismiss
pursuant to Rule 12(b)(1) is therefore denied, without prejudice to Starbucks re-asserting its
arguments in the event that Armstead brings a certification motion in the future.
CONCLUSION
Defendant’s motion to compel arbitration and to stay this action is GRANTED.
(Docket # 27.) Defendant’s motion to partially dismiss the Complaint pursuant to Rule 12(b)(1)
is DENIED.
The Clerk is directed to terminate the motion (Docket # 27) and to place this case
on the suspense calendar. The parties shall by July 6, 2018 file a written status of the arbitration
as of June 29, 2018. If the parties fail to do so, the action will be dismissed.
SO ORDERED.

Dated: New York, New York
November 17, 2017
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