Opinion
23-CV-10348 (JGLC) (KHP)
04-10-2024
MING ZENG, Plaintiff, v. ELLENOFF GROSSMAN & SCHOLE LLP, et al., Defendants
HON. JESSICA G. L. CLARKE UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION ON MOTION TO COMPEL ARBITRATION AND MOTION TO REMAND
Katharine H. Parker United States Magistrate Judge
Before the Court for a Report and Recommendation is Defendants' Motion to Compel Arbitration (ECF No. 16) and Plaintiff's Motion to Remand (ECF No. 13). For the reasons discussed below, I recommend that the motion to compel arbitration be denied and the motion to remand be granted.
BACKGROUND
Plaintiff Ming Zeng was employed in New York by Defendants Ellenoff Grossman & Schole LLP (“EGS”) and Douglas S. Ellenoff as a lawyer. She graduated from the George Washington University Law School and is admited to practice law in New York and lives in New York. However, she is not a U.S. citizen nor a lawful permanent resident. Because Zeng is a Chinese citizen, she requires special authorization to work in the United States. She received such authorization and worked for defendants from September 1, 2021 through August 5, 2022, when her work authorization expired. On or about September 15, 2022, Plaintiff became re- authorized to work in the United States and was rehired by Defendants and remained employed through April 27, 2023, when her employment was involuntarily terminated.
Zeng states she has applied for permanent residency in the United States.
In October 2023, Zeng filed an action in New York Supreme Court, New York County claiming that Defendants subjected her to sexual harassment and retaliation for complaining about that harassment in violation of the New York City Human Rights Law. Plaintiff does not assert any federal employment claims.
Defendants, who are based in New York and have an office in California, removed this action to federal court pursuant to 9 U.S.C. §§ 203 and 205. Defendants contend that Zeng is party to two arbitration agreements that cover her retaliation claim in this case, and that the arbitration agreements fall within the ambit of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). The first arbitration agreement is dated September 15, 2022, and is signed by Zeng. The other is an arbitration policy contained in EGS's employee handbook. The 2022 agreement expressly does not apply to claims covered by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”), 9 U.S.C. § 402. There is no dispute between the parties that the EFAA precludes arbitration of Plaintiff's sexual harassment claim. However, Defendants seek to compel arbitration of the retaliation claim, and moved to compel arbitration promptly after removing the case.
The Court refers to the agreement and policy as “arbitration agreements” herein.
Plaintiff moved for remand, contending that the case was not properly removed because the underlying dispute is a domestic dispute arising out of her New York-based employment that does not fall under the Convention. Plaintiff also opposes the motion to compel arbitration and seeks remand on the ground that the arbitration agreements are unenforceable as to both her sexual harassment claim and her retaliation claim by virtue of the EFAA, relying on recent case law from this District.
DISCUSSION
This case presents an unusual fact patern and novel questions under the Convention that have not been addressed by the Court of Appeals for the Second Circuit. The first question is, does the Convention apply to an arbitration agreement between a domestic partnership and its domestically employed employee merely because the employee is a citizen of another country and neither a lawful permanent resident or dual citizen of the United States? If the answer to that question is “yes,” then the next question is, does the EFAA render the arbitration agreement void as to the underlying claims in this case pursuant to the null and void clause of Article II(3) of the Convention? If the answer to that question is “yes,” then the final question is, should the claims be remanded to state court where they were initially commenced?
1. The Convention and the Federal Arbitration Act
The Convention is a treaty that was adopted by a United Nations diplomatic conference in 1958. It provides for arbitration as a means of international dispute resolution. The United States is a contracting state, as is China. See New York Arbitration Convention, Contracting States, htps://www.newyorkconvention.org/countries (last accessed April 8, 2024). In general, contracting states must recognize and enforce foreign arbitration awards and uphold valid arbitration agreements by staying court proceedings that have been commenced in violation an arbitration agreement. The purpose of the Convention is to ensure enforcement of foreign arbitration awards and to ensure that contracting states recognize and enforce valid arbitration agreements. Article 1 addresses the enforcement of awards and Article II addresses the recognition of agreements.
Article 1 of the Convention states that the Convention applies to “the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal.” T.I.A.S. No. 6997 (U.S. Treaty), 21 U.S.T. 2517 (U.S. Treaty), 1970 WL 104417 (U.S. Treaty), Convention, Article I(1). Article 1 states the Convention “also shall apply to arbitration awards not considered domestic awards in the State where their recognition and enforcement are sought.” Id.
Article II of the Convention requires contracting states to recognize an “agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject mater capable of setlement by arbitration.” When asked, the court is required to “refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” Id. Article II(3).
Chapter 2 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 201 et seq., implements the Convention. Section 202 of the FAA sets forth which agreements fall under the Convention. It provides, that “[a]n arbitration agreement. . . arising out of a legal relationship, whether contractual or not, which is considered as commercial, . . . falls under the Convention.” 9 U.S.C. § 202. It further provides that “[a]n agreement . . . arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some reasonable relation with one or more foreign states.” Id. It then states that “a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.” Id. The statute does not set forth how citizenship is to be determined for individuals.
Section 203 of the FAA gives the federal courts original jurisdiction over agreements governed by the Convention. It provides that “[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States,” and that “[t]he district courts of the United States ... shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.” 9 U.S.C. § 203.
The FAA also has a special removal provision that permits a defendant to remove an action from state court for purposes of requesting that the federal court enforce an arbitration agreement between the parties that falls under the Convention. 9 U.S.C. § 205. The provision states in relevant part:
Where the subject mater of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.9 U.S.C. § 205 (emphasis in original). Courts in this Circuit and elsewhere have read the removal provision broadly so as to treat as removable any action where the arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff's case. Schorr v. Am. Arb. Ass'n, 583 F.Supp.3d 608, 619-20 (S.D.N.Y. 2022) (collecting cases).
Finally, Section 206 provides for a motion to compel arbitration. 9 U.S.C. § 206.
2. Applicable Legal Standards
When evaluating a motion to remand, the Court must assume the truth of non-jurisdictional facts alleged in the complaint, but may consider materials outside the complaint, such as documents atached to the notice of removal or the motion to remand that convey information essential to the jurisdictional analysis. BGC Partners, Inc. v. Avison Young (Can.), Inc., 919 F.Supp.2d 310, 312 n.3 (S.D.N.Y. 2013). To hear a case removed from state court, a federal court must have both subject-mater jurisdiction and removal jurisdiction. Holzer v. Mondadori, 2013 WL 1104269, at *6 (S.D.N.Y. Mar. 14, 2013). The burden is on the removing party to demonstrate removal is proper. Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005); 28 U.S.C. § 1446(a). In their removal papers, Defendants state that jurisdiction is based on Section 203 of the FAA and removal is proper under Section 205 of the FAA.
Based on the foregoing premises, Defendants move to compel arbitration pursuant to Section 206 of the FAA, which permits courts to compel arbitration in accordance with agreements falling under the Convention when appropriate. When considering a motion to compel arbitration under Section 206, a district court's scope of inquiry is “very limited.” Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith, 198 F.3d 88, 93 (2d Cir. 1999). The Court may refuse to enforce an agreement if the agreement falls under the “null and void” clause of the Convention. See GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 590 U.S. 140 S.Ct. 1637, 207 L.Ed.2d 1 (2020) (recognizing that a motion to compel arbitration under Section 206 of the FAA is subject to the limitations in Article II(c) of the Convention). When evaluating whether an arbitration agreement is enforceable for purposes of a motion to compel, the court looks to federal law. Smith, 198 F.3d at 96.
Finally, in determining whether claims are subject to arbitration, the summary judgment standard applies “whether the relief sought is an order to compel arbitration or to prevent arbitration.” Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003). Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a mater of law.” Fed.R.Civ.P. 56(a).
3. Whether the Convention Applies
The Second Circuit has established a four-pronged test to determine whether the Convention applies: (1) there must be a writen arbitration agreement; (2) the agreement must provide for arbitration in the territory of a signatory to the Convention; (3) the subject mater must be commercial; and (4) the agreement cannot be entirely domestic in scope. Smith, 198 F.3d at 92.
Whether the Convention applies here hinges on the fourth element of the abovereferenced test, as Plaintiff does not dispute that there are writen arbitration agreements that provide for arbitration in the territory of a signatory to the Convention. Further, courts have held that employment disputes are “commercial” disputes within the meaning of the Convention. Hyegate, LLC, DAP LLC v. Boghossian, 2021 WL 2826811 *2 n.2 (S.D.N.Y. July 6, 2021) (refuting respondent's argument that the underlying dispute was not “commercial” because it was an employment dispute, and explaining that “[e]mployment contracts, except for those involving transportation workers, evidencing a transaction involving commerce are covered by the FAA.”); Branch of Citibank, N.A., established in Republic of Argentina v. De Nevares, 2022 WL 445810, at *6 (S.D.N.Y. Feb. 13, 2022), rev'd and remanded on other grounds sub nom. Branch of Citibank, N.A. v. De Nevares, 74 F.4th 8 (2d Cir. 2023) (“Arbitration agreements arising out of employment contracts are one such ‘legal relationship' subject to 9 U.S.C. Section 202.”).
Defendants contend that the Convention applies to the arbitration agreements between the parties because Plaintiff is a citizen of China a point not disputed by Plaintiff. The FAA defines coverage under the Convention broadly and by exclusionary language that is, an arbitration agreement arising out of a relationship “which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” 9 U.S.C. § 202 (emphasis added).
By implication, therefore, any agreement involving a non-citizen of the United States would be covered, whether a person or corporate entity. This reading of the statute is consistent with Second Circuit case law. See Scandinavian Reins. Co. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012) (applying the Convention because the petitioner is a foreign corporation); Pike v. Freeman, 266 F.3d 78, 85 fn.4 (2d Cir. 2001) (concluding that the District Court correctly held that the Convention applied, since three parties were citizens of the Cayman Islands); Longyan Junkai Info. Tech. Co. v. Amazon.com Servs. LLC., 2023 WL 8602839, at *4 (S.D.N.Y. Dec. 12, 2023) (“[T]he New York Convention applies when one or more parties is a foreign citizen.”); Jiakeshu Tech. Ltd. v. Amazon.com Servs., LLC, 2023 WL 4106275, at *4) (S.D.N.Y. June 21, 2023) (holding that the Convention applies because the mater is not entirely domestic in scope, since one of the parties is a foreign citizen).
Additionally, this Court's own research revealed a few employment law cases involving a domestic employment dispute where the Convention was deemed to apply solely because either the employer or the employee was not a U.S. citizen. Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983, 989 (N.D. Cal. 1996) (Convention applied because employer was Canadian entity); Costa v. Celebrity Cruises, Inc., 768 F.Supp.2d 1237, 1240 (S.D. Fla. 2011), aff'd, 470 Fed.Appx. 726 (11th Cir. 2012) (Convention applied to domestic dispute regarding alleged breach of collective bargaining agreement because employees were citizens of India).
As for who is a citizen within the meaning of the Convention, at least one case has held that in the absence of Section 202 supplying a definition, courts should look to how citizenship is defined under 28 U.S.C. § 1332(a), an analogous statute. North Motors, Inc. v. Knudsen, 2011 WL 2552573 (E.D. MO June 27, 2011) (remanding case because it was unclear whether individual was dual U.S.-Danish citizen or lawful permanent resident). 28 U.S.C. § 1332(a) refers to a litigant's official immigration status in determining citizenship. Mor v. Royal Caribbean Cruises Ltd., 2012 WL 2333730, at *1 (S.D.N.Y. June 19, 2012). Under 28 U.S.C. § 1332(a), citizens or subjects of a foreign state who have not been accorded lawful permanent residence in the United States are considered “alien[s]” or foreign citizens. Id. at *1-2; see also Kato v. County of Westchester, 927 F.Supp. 714, 715-16 (S.D.N.Y. 1996). The reasoning of Knudsen is persuasive, and this Court sees no reason to conclude that a different definition of citizen be applied for purposes of Section 202. Thus, Plaintiff is not a citizen of the United States for purposes of the Convention because she is neither a lawful permanent resident nor a dual citizen of the United States. And, because the arbitration agreements are not entirely between citizens of the United States, they are not “entirely domestic” and fall under the Convention.
Plaintiff cites two California district court cases involving similar facts to the instant case that nevertheless held that the Convention did not apply. Padilla Ayala v. Teledyne Def. Elecs., 533 F.Supp.3d 920, 925-28 (C.D. Cal. 2021) (remanding to state court; finding that the arbitration agreement in question was neither commercial in nature nor domestic in scope, and that application of the Convention would be contrary to public policy insofar as states have an interest in protecting non-discrimination laws); Pineda v. Sun Valley Packing, L.P., 2021 WL 5755586, at *2-5 (E.D. Cal. Dec. 3, 2021) (remanding to state court; holding that Convention did not apply because the arbitration agreement was not commercial in nature because it did not involve interstate commerce and was entirely domestic because it covered work to be performed exclusively in California and was governed by California law). This Court respectfully disagrees with the reasoning of these cases as discussed below.
To start, both of these cases rely on Article 1 of the Convention, which states that the Convention applies to awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought. ” N.Y. Convention, Article 1. And, because both cases involved California-based employees, arbitration agreements and disputes, the courts reasoned any arbitral award would not be enforceable under the Convention so the disputes should not be ordered to arbitration under the Convention. However, this rationale is flawed because it relies on an inapplicable provision of the Convention. The only provision of the Convention relevant in those cases - and here - was Article II, which discusses recognition of arbitration agreements and referral to arbitration.
Second, neither California case evaluated the definition of citizenship for individuals for purposes of Section 202 of the FAA when that was the key issue. As noted above, at least one Court has suggested that the definition supplied by 28 U.S.C. § 1332(a) should be used, a suggestion that makes eminent sense given that Section 1332(a) is an analogous statute, that the Convention applies to disputes between persons, and that Congress's failure to supply a definition of citizen of persons in Section 202 of the FAA suggests that its ordinary meaning should be used. See Knudsen, 2011 WL 2552573 at *3; see also Antonin Scalia and Bryan A. Garner, “Reading Law: Interpretation of Legal Texts,” 469 (2012) (discussing cannon of generalia verba sunt generaliter intelligenda i.e., the general terms cannon).
Third and more problematically, the California cases suggest that Congress intended Section 202 to cover cases involving citizens of different countries unless those disputes were entirely domestic in scope. This Court respectfully disagrees with this interpretation of the Convention because it supplies an unstated legislative intent in violation of the omited case cannon, casus omissus pro omisso habendus est. Scalia and Garner, 90. Section 202 does not contain any carve outs for disputes between citizens of different contracting states (e.g., a dispute between a citizen of the United States and a citizen of another country that is a signatory to the Convention). Rather, the only exclusion is that disputes entirely between United States citizens do not fall under the Convention unless they have specified international connections. Thus, the more obvious reading of the statute is that it applies to all disputes between citizens of different contracting states to the Convention. This interpretation is also consistent with the negative-implication cannon, expressio unius est exclusio alterius. Id. at 99. Thus, the non-controlling California cases cited by Plaintiff are not compelling.
Accordingly, the Convention applies to the arbitration agreements between Plaintiff a citizen of China and Defendants, both U.S. citizens. And, because the arbitration agreements that Defendants seek to enforce fall under the Convention, federal jurisdiction over this case is appropriate under Section 203 of the FAA for purposes of determining whether Plaintiff's retaliation claim should be referred to arbitration. See LGC Holdings, Inc. v. Julius Klein Diamonds, LLC, 238 F.Supp.3d 452, 460 (S.D.N.Y. 2017).
4. Whether the Arbitration Agreements are Void
Having determined that the Convention applies to the arbitration agreements at issue, the Court turns to the next question before it, namely whether Plaintiff's retaliation claim should be referred to arbitration or, alternatively, whether the arbitration agreements are void as to the claims in this case pursuant to the null and void clause of Article II(3) of the Convention. As noted above, the Convention provides that a court should not compel arbitration where the arbitration agreement is “null and void.”
The EFAA states:
Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute, or the named representative of a class or in a collective action alleging such conduct, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.9 U.S.C. § 402. In other words, as a mater of federal law indeed the FAA itself the arbitration agreements are void as to sexual harassment disputes filed under state law. And, one of the arbitration agreements in question expressly excludes claims covered by the EFAA. Defendants concede that one of Plaintiff's two claims her sexual harassment claim cannot be compelled to arbitration but argue that Plaintiff's retaliation claim must be compelled to arbitration.
Courts in this District have found that the EFAA precludes arbitration of not just a sexual harassment claim, but also of related claims in the case such as claims for unlawful retaliation for reporting sexual harassment. Johnson v. Everyrealm, Inc., 657 F.Supp.3d 535 (S.D.N.Y. 2023); Delo v. Paul Taylor Dance Found., Inc., 2023 WL 4883337, at *5 (S.D.N.Y. Aug. 1, 2023) (denying a motion to compel arbitration under the EFAA and using the “well-reasoned analysis [in Johnson] of the EFAA as a guiding framework”); see also Mera v. SA Hosp. Grp., LLC, 675 F.Supp.3d 442 (S.D.N.Y. 2023) (finding arbitration agreement unenforceable as to hostile work environment claims under NYCHRL but enforceable as to wage claims). The rationale of these cases is based on a plain reading of the “clear, unambiguous, and decisive” language of the EFAA, which “keys the scope of the invalidation of the arbitration clause to the entire ‘case' relating to the sexual harassment dispute,” and “does not limit the invalidation to the claim or claims in which that dispute plays a part.” Johnson, 657 F.Supp.3d at 558. This reasoning is persuasive.
Therefore, the arbitration agreements at issue in this case are void within the meaning of the Article II(3) of the Convention as to both of Plaintiff's state law claims. For this reason, I respectfully recommend that the motion to compel arbitration be denied.
5. Whether Remand is Proper
Insofar as the arbitration agreements in question are void as to Plaintiff's state law sexual harassment and retaliation claims, the Court turns to the final question before it: whether Plaintiff's claims should be remanded to state court where they were initially commenced.
Generally, the plaintiff is the “master of the claim” and may avoid federal jurisdiction by exclusive reliance on state law. Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). As discussed above, this case was properly removed by Defendants based on the Convention, which applies to the arbitration agreements between the parties. See LGC Holdings, Inc., 238 F. Supp. 3d at 460. However, also as discussed above, the arbitration agreements between the parties are void and therefore the only federal question in this case has been resolved. And, but for possible applicability of the Convention and referral to arbitration pursuant to Section 206 of the FAA, Defendants here would not be permited to remove under the plain language of 28 U.S.C. § 1441(b)(2) because they are citizens of New York for purposes of 28 U.S.C. § 1332. In other words, Defendants did not and could not remove for purposes of evoking diversity jurisdiction the limited question they properly removed to this Court to resolve was whether Plaintiff's retaliation claim should be compelled to arbitration pursuant to the Convention.
A district court may, in its discretion, decline to exercise supplemental jurisdiction over state claims if it has dismissed all claims over which it has original jurisdiction. 28 U.S.C. § 1367(c)(3). In considering whether to exercise its discretion to remand a case, the district court should consider “values of judicial economy, convenience, fairness, and comity.” Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 349-50 (1988). Where, as here, the single federal question in an action is eliminated at an early stage of the litigation, “the District Court [has] a powerful reason to choose not to continue to exercise jurisdiction.” Id.
As the only remaining claims in this case are Plaintiff's local law claims, I respectfully recommend that the Court decline to exercise supplemental jurisdiction over the claims and remand the case to the state court where it was initially filed. See Coliseum Holdings, Inc. v. Thelen Reid & Priest LLP, 2000 WL 710051, at *1 (S.D.N.Y. May 31, 2000) (after resolving the only federal questions in the case, declining to exercise supplemental jurisdiction over the remaining state claims and remanding the case to state court where it was initially filed); Ortiz v. United Food & Com. Workers Union, 2016 WL 4435216, at *2 (E.D.N.Y. Aug. 19, 2016) (same).
Defendants rely on Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002), to suggest that the Court should retain jurisdiction because the partie § 1332(a)(2). Not only is Beiser not controlling, bu would “rarely permanently deprive a state court o before it” and noting that a district court would re subject to arbitration.” 284 F.3d at 675. Thus, Bei result Defendants seek, to avoid state court, woul trumps 28 U.S.C. § 1441(c)(2), and subvert Section harassment claimant a choice of court, and the we master of her claim.
Accordingly, although this case was reasonably removed on the basis that the Convention applied to the parties' arbitration agreements, the case should be remanded because the arbitration agreements in question are void as to Plaintiff's underlying state claims and no other federal question is present.
CONCIUSION
For the above, I respectfully recommend that the motion to compel arbitration be denied and the motion to remand be granted.
Respectfully submitted,
NOTICE
The parties shall have fourteen days from the service of this Report and Recommendation to file writen objections to the Report and Recommendation, pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a), (d) (adding three additional days only when service is made under Fed.R.Civ.P. 5(b)(2)(C) (mail), (D) (leaving with the clerk), or (F) (other means consented to by the parties)).
If any party files writen objections to this Report and Recommendation, the other parties may respond to the objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Objections and responses to objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Jessica G. L. Clarke at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Clarke. The failure to file timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).