United States District Court, E.D. New York
July 22, 2004.
JOANNE DEGRAZIANO, Plaintiff,
VERIZON COMMUNICATIONS, INC. CELLCO PARTNERSHIP d/b/a VERIZON WIRELESS, VODAFONE GROUP, PLC, DISCOVER BANK, DISCOVER FINANCIAL SERVICES, INC. MORGAN STANLEY DEAN WITTER AND COMPANY, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
Joanne Degraziano ("Degraziano" or the "plaintiff") commenced
this action against Verizon Communications, Inc. ("Verizon
Communications"), Cellco Partnership d/b/a Verizon Wireless
("Verizon Wireless"), Vodafone Group, PLC ("Vodafone"), Bank of
America, N.A. (U.S.A.), Bank of America Corporation, Discover
Bank, Discover Financial Services, Inc. and Morgan Stanley Dean
Witter and Company (the "defendants") alleging various violations
of the Fair Credit Reporting Act (the "FCRA"), 15 U.S.C. § 1681,
et seq. On March 30, 2004 a stipulation was filed with the
Court dismissing the claims against the defendants Bank of
America, N.A. (USA) and Bank of America Corporation with
Presently before the Court is a motion by the defendants
Verizon Communications and Verizon Wireless (the "moving
defendants") to (1) dismiss the first and second causes of
actions and compel arbitration of those claims; and (2) dismiss
the third and fourth causes of action pursuant to Rule 12(b)(6)
of the Federal Rules of Civil Procedure ("Fed.R. Civ. P.") for
failure to state a claim.
A. As to the Motion to Compel Arbitration of the First and
Second Causes of Action
The following facts are taken from the complaint and from the
Declaration of Jeffrey Nason, the Supervisor, Customer
Satisfaction for the Northeast Area of Verizon Wireless, sworn to
on December 8, 2003, and are undisputed unless otherwise noted.
On or about May 4, 1998, the plaintiff began receiving wireless
telephone services from Verizon Wireless. As a precondition of
receiving such services, the plaintiff agreed to a Cellular
Services Agreement (the "CSA"). Among its terms and conditions,
the CSA includes an arbitration clause which states:
Independent Arbitration. INSTEAD OF SUING IN
COURT, YOU'RE AGREEING TO ARBITRATE DISPUTES ARISING
OUT OF OR RELATED TO THIS OR PRIOR AGREEMENTS. THIS
AGREEMENT INVOLVES COMMERCE AND THE FEDERAL
ARBITRATION ACT APPLIES TO IT. ARBITRATION ISN'T THE
SAME AS COURT. THE RULES ARE DIFFERENT AND THERE'S NO
JUDGE AND JURY. YOU AND WE ARE WAIVING RIGHTS TO
PARTICIPATE IN CLASS ACTIONS, INCLUDING PUTATIVE
CLASS ACTIONS BEGUN BY OTHERS PRIOR TO THIS
AGREEMENT, SO READ THIS CAREFULLY. THIS AGREEMENT
AFFECTS RIGHTS YOU MIGHT OTHERWISE HAVE IN SUCH
ACTIONS THAT ARE CURRENTLY PENDING AGAINST US OR OUR
PREDECESSORS IN WHICH YOU MIGHT BE A POTENTIAL CLASS
MEMBER. (We each retain our rights to complain to
any regulatory agency or commission.) YOU AND WE
EACH AGREE THAT, TO THE FULLEST EXTENT PROVIDED BY
(1) ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR TO ANY PRIOR AGREEMENT
FOR CELLULAR SERVICE WITH US OR, ANY OF OUR
AFFILIATES OR PREDECESSORS IN INTEREST, OR TO ANY
PRODUCT OR SERVICE PROVIDED UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR SUCH A PRIOR AGREEMENT, WILL
BE SETTLED BY INDEPENDENT ARBITRATION INVOLVING A
NEUTRAL ARBITRATOR AND ADMINISTERED BY THE AMERICAN
ARBITRATION ASSOCIATION ("AAA") UNDER WIRELESS
INDUSTRY ARBITRATION ("WIA") RULES, AS MODIFIED BY
THIS AGREEMENT. WIA RULES AND FEE INFORMATION ARE
AVAILABLE FROM US OR THE AAA;
(2) EVEN IF APPLICABLE LAW PERMITS CLASS ACTIONS OR
CLASS ARBITRATIONS, YOU WAIVE ANY RIGHT TO PURSUE ON
A CLASS BASIS ANY SUCH CONTROVERSY OR CLAIM AGAINST
US, OR ANY OF OUR AFFILIATES OR PREDECESSORS IN
INTEREST, AND WE WAIVE ANY RIGHT TO PURSUE ON A CLASS
BASIS ANY SUCH CONTROVERSY OR CLAIM AGAINST
YOU. . . .
Nason Decl. Exh. 2 (emphasis added).
At some point in time the plaintiff was unable to pay her
monthly bills for monies owed to, among other entities, Verizon
Wireless. During 2001, the plaintiff entered into a debt
reduction program with the Daly Law Center to arrange settlements
on her debts. In February 2002, Verizon Wireless provided a
report to Asset Management Outsourcing Recoveries, Inc. ("AMO
Recoveries") in which Verizon Wireless reported that the
plaintiff's account was in collection with an outstanding balance
The Daly Law Center, on behalf of the plaintiff, and AMO
Recoveries, on behalf of Verizon Wireless, settled the
outstanding balance for $340.49. Along with a letter dated
February 20, 2002, the Daly Law Center submitted a check in the
amount of $340.49 to AMO with a request that AMO report to the
credit/consumer reporting agencies that the outstanding balance
was resolved. The plaintiff alleges that Verizon Wireless failed
to inform the credit/consumer reporting agencies that the
outstanding balance was satisfied.
Thereafter, the plaintiff was unable to secure financing for
the purchase of a motor vehicle allegedly due to her credit
history. The plaintiff asserts two causes of action against
Verizon Wireless: (1) that by failing to make any updates and/or
reports to the credit/consumer reporting agencies since February
2002 or by implementing proper policies, procedures or controls,
Verizon Wireless has knowingly and in bad faith breached the
duties imposed on it by the FCRA; and (2) that by failing to make
any updates and/or reports to the credit/consumer reporting
agencies since February 2002 or by implementing proper policies,
procedures or controls, Verizon Wireless has negligently breached
the duties imposed on it by the FCRA. For these alleged
violations of law the plaintiff seeks compensatory damages for
"humiliation," actual financial damages, and punitive damages.
B. As to the Motion to Dismiss
As indicated above, Verizon Communications moves to dismiss the
third and fourth causes of action pursuant to Rule 12(b)(6) for
failure to state a claim. For purposes of this motion, the
relevant facts are taken from the complaint and accepted as true.
The plaintiff alleges that Verizon Communications and Vodafone
are the two parent companies of Verizon Wireless, holding a 56%
and 44% ownership interest, respectively.
The third cause of action alleges that because these parent
companies enjoy complete ownership of Verizon Wireless they "play
the part of the `master' with the role of the `servant/agent'
being played by Verizon Wireless." Compl. ¶ 120. As such, the
plaintiff alleges that liability for the intentional and
negligent failure of Verizon Wireless to comply with the FCRA
extends to Verizon Communications and to Vodafone. The complaint
further alleges that it was the responsibility of Verizon
Communications and Vodafone to establish quality and managerial
controls and policies to ensure that Verizon Wireless did not
violate and laws in the performance of its duties on behalf of
its "masters." Compl. ¶ 130.
The fourth cause of action seeks to pierce the corporate veil
of Verizon Wireless and impose liability on Verizon
Communications and Vodafone. In particular, the plaintiff claims
that Verizon Communications and Vodafone are responsible for any
and all illegal actions taken by Verizon Wireless because of (1)
their complete "dominion and control" over Verizon Wireless, (2)
"the closeness of the relationship" between Verizon Wireless and
its parent companies, (3) the fact that all assets and
liabilities of the company are reflected on the balance sheets of
its parent companies, and (4) as parent companies, Verizon
Communications and Vodafone failed to fulfill their duty of
establishing managerial or quality policies, procedures, or
controls to ensure that Verizon Wireless did not violate any laws
in the performance of its duties.
A. As to the Motion to Compel Arbitration
Under the Federal Arbitration Act (the "FAA"), written
provisions to arbitrate controversies included in any contract
affecting interstate commerce "shall be valid, irrevocable and
enforceable, save upon such grounds as exist under law or equity
for the revocation of any contract." 9 U.S.C. § 2. There is a
well-settled federal policy encouraging arbitration of disputes
where a contract so provides. Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52, 56, 131 L.Ed.2d 76, 115 S.Ct. 1212
(1995); see also Ace Capital Re Overseas Ltd. v. Cent. United
Life Ins. CO., 307 F.3d 24, 29 (2d Cir. 2002). Because of this
strong federal preference for arbitration as a dispute resolution
procedure, any doubts concerning whether there has been a waiver
of the right to arbitrate must be resolved in favor of
arbitration. PPG Indus., Inc. v. Webster Auto Parts, Inc.,
128 F.3d 103, 107 (2d Cir. 1997).
Before a district court may compel arbitration, it "must first
determine two threshold issues that are governed by state rather
than federal law: (1) Did the parties enter into a contractually
valid arbitration agreement? and (2) If so, does the parties'
dispute fall within the scope of the arbitration agreement?" Cap
Gemini Ernst & Young, U.S., LLC v. Nackel, 346 F.3d 360, 365 (2d
Cir. 2003) (citation omitted).
Here, it is undisputed that the parties entered into the CSA
containing the following arbitration provision:
Independent Arbitration. INSTEAD OF SUING IN
COURT, YOU'RE AGREEING TO ARBITRATE DISPUTES ARISING
OUT OF OR RELATED TO THIS OR PRIOR AGREEMENTS. . . .
(emphasis in original)
Thus, the contractual agreement to arbitrate is valid. See Cap
Gemini Ernst & Young U.S. LLC v. Arentowicz, No. 04 Civ. 0299,
2004 WL 1386145, at *4 (S.D.N.Y. June 22, 2004) ("An individual
who signs a contract is presumed to know its contents and assent
to them, unless he can show special circumstances, such as duress
or coercion, which would justify non-enforcement of the
contract." (internal quotations and citations omitted)).
Furthermore, the claims alleged in the first and second causes
of action fall within the scope of this arbitration provision.
The clause in this case which states that Verizon Wireless and
the plaintiff agree to "arbitrate disputes arising out of or
related to this or prior agreements . . ." is the "paradigm of a
broad clause." Collins & Aikman Products Co. v. Building
Systems, Inc., et al., 58 F.3d 16, 20 (2d Cir. 1995) (stating
that a "broad clause" is one which purports to refer all disputes
arising out of the contract to arbitration). In the Court's view,
the plaintiff's claims that Verizon Wireless violated the FCRA
arise out of and are related to the CSA. As such, the plaintiff's
claims are "presumptively arbitrable." Id. (finding that
contractual language which required arbitration for "[a]ny claim
or controversy arising out of or relating to th[e] agreement"
made the claims presumptively arbitrable); see also Cap Gemini
Ernst & Young U.S. LLC, 204 WL 1386145, at *6. As the party
opposing arbitration, the plaintiff has the burden of proving
that the claims are not subject to arbitration. Green Tree
Financial Corp. Alabama v. Randolph, 531 U.S. 79, 91-92,
148 L.Ed.2d 185, 121 S.Ct. 513 (2000).
The plaintiff advances numerous arguments in support of her
contention that the first and second causes of action are not
arbitrable. Although none of these contentions have merit, to
complete the record, the Court will address these arguments.
First, the plaintiff contends that Verizon Wireless "waived its
rights to arbitrate and the right cannot be revived." Plfs. Mem.
in Opp. at 2. A party may waive its right to arbitration by
expressly indicating that it wishes to resolve its claims before
a court, Gilmore v. Shearson/Amer. Express Inc., 811 F.2d 108,
112 (2d Cir. 1987), or by impliedly waiving its right to enforce
a contractual arbitration clause by "engag[ing] in protracted
litigation that results in prejudice to the opposing party." S &
R Co. Of Kingston v. Latona Trucking, 159 F.3d 80, 83 (2d Cir.
1998) (citations omitted); see also Standard Microsystems Corp.
v. Dahod, 84 F. Supp.2d 396, 398 (E.D.N.Y. 2000) (stating that
prejudice "refers to the inherent unfairness in terms of delay,
expense, or damage to a party's legal position that occurs when
the party's opponent forces it to litigate an issue and later
seeks to arbitrate that same issue). Based on the record
submitted to the Court there is no indication that Verizon
Wireless expressly waived its right to arbitrate.
The plaintiff contends that Verizon Wireless waived the right
to arbitrate by placing the plaintiff's account for collection
with AMO Recoveries. However, the plaintiff provides no legal
support for this proposition. In any event, the Court finds that
Verizon Wireless did not waive its right to arbitration by
engaging in "protracted litigation." This determination is fact
specific. Factors to consider include: (1) the time elapsed from
the commencement of litigation to the request for arbitration;
(2) the amount of any litigation (including exchanges of
pleadings, any substantive motions, and discovery); and (3) proof
of prejudice, including taking advantage of pre-trial discovery
not available in arbitration, and expense. PPG Indus., Inc. v.
Webster Auto Parts Inc., 128 F.3d 102, 107-09 (2d Cir. 1997).
Applying this analytical framework, the Court finds that (1)
the lapse in time between the commencement of litigation and the
demand for arbitration was brief as less than two months passed
between the service of the complaint and Verizon Wireless's
demand for arbitration, see PPG Indus., 128 F.3d at 108
(five-month delay in litigation is not enough, by itself, to
infer waiver); (2) because Verizon Wireless's motion to compel
arbitration was served in lieu of an answer, the parties did not
engage in meaningful litigation, but see id. (engaging in
discovery and filing substantive motions constitutes waiver); and
(3) the plaintiff has not indicated that she has been prejudiced
in any way.
Next, the plaintiff argues that the letter from AMO, in which
it was agreed that a discounted sum would be accepted in
satisfaction of the money owing, coupled with a letter from the
Daly Law Center enclosing a check for the settlement amount
constituted an "accord and satisfaction and thus a new contract
between the parties" which negated the arbitration provision.
Plf. Mem. in Opp. at 3. The Court disagrees.
"[A] party seeking to establish an accord and satisfaction must
demonstrate that there was a disputed or unliquidated claim
between the parties which they mutually resolved through a new
contract discharging all or part of their obligations under the
original contract." Reliance Ins. Co. v. Amer. Lintex Corp.,
No. 00 Civ. 5568, 2001 WL 604080, at *3 (S.D.N.Y. June 1, 2001)
(quoting Pothos v. Arvene Houses, Inc., 269 A.D.2d 377,
702 N.Y.S.2d 392, 393 (2d Dept. 2000). There is no evidence that
remotely indicates that a new contract was created by the
acceptance of a reduced payment or that the plaintiff and Verizon
Wireless discharged their obligations under the CSA.
In any event, the issue of whether there was an accord and
satisfaction negating an arbitration provision is one to be
determined by the arbitrators and not the Court. Ropner Shipping
Co., 118 F. Supp. 919, 920 (S.D.N.Y. 1954); Fener Realty Co. v.
Nico Constr. Co., 582 N.Y.S.2d 163, 164, 182 A.D.2d 436, 438
(1st Dept. 1992) ("Once the parties to a broad arbitration
clause have made a valid choice of forum, as here, all questions
with respect to the validity and effect of subsequent documents
purporting to work a modification or termination of the
substantive provisions of their original agreement are to be
resolved by the arbitrator." (internal quotations and citations
omitted)). Thus, even if meritorious, this issue is not for the
Court to decide.
In addition, the plaintiff contends that compelling arbitration
of alleged violations of the FCRA is improper because doing so
would force the plaintiff to "waive her rights under the FCRA
and all protections afforded to her by law." Plfs. Mem. in Opp.
at 9. This contention is also misplaced. It is well-settled that
statutory rights may be arbitrated "so long as the prospective
litigant effectively may vindicate his or her statutory cause of
action in the arbitral forum." Green Tree Fin. Corp Alabama v.
Randolph, 531 U.S. at 90 (internal quotations omitted). The
plaintiff has not explained why her claims cannot be advanced
Finally, the Court notes that the remaining arguments, namely
that "the defendant concedes the inapplicability of the
arbitration clause" and that the "defendants' motion qualifies as
a motion for summary judgment and fails to meet the standards for
such a decision" are patently without merit.
Accordingly, the motion by Verizon Wireless to compel
arbitration of the first and second causes of action is granted.
B. As to the Motion to Dismiss
1. Applicable Law
In reviewing a motion to dismiss for failure to state a claim
under Rule 12(b)(6), the Court should dismiss the complaint only
if it appears beyond doubt that the plaintiff can prove no set of
facts in support of his complaint which would entitle him to
relief. King v. Simpson, 189 F.3d 284, 287 (2d Cir. 1999);
Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). The court
must accept as true all of the factual allegations set out in the
complaint, draw inferences from those allegations in the light
most favorable to the plaintiff, and construe the complaint
liberally. See Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir.
2000) (citing Desiderio v. National Ass'n of Sec. Dealers,
Inc., 191 F.3d 198, 202 (2d Cir. 1999)). The issue is not
whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims.
Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d
2. As to Parent Liability of Verizon Communications and
Under New York law, "a parent company is not automatically
liable for the acts of its wholly-owned subsidiary." Manchester
Equipment Co., Inc. v. Amer. Way and Moving Co., Inc.,
60 F. Supp.2d 3, 6 (E.D.N.Y. 1999). The plaintiff asserts two theories
as to how Verizon Communications and Vodafone are liable as
The first theory, apparently arising out of agency law, is that
the parent companies "play the part of the `master' with the role
of the `servant/agent' being played by Verizon Wireless." Compl.
¶ 120. However, the plaintiff provides no factual support for
this proposition other than his contention that Verizon Wireless
is completely owned by Verizon Communications and Vodafone.
However, "liability is never imposed solely upon the fact that a
parent owns a controlling interest in the shares of a
subsidiary." Manchester Equipment Co., Inc., 60 F. Supp.2d at 6
The second theory of liability is that because of their "total,
complete ownership [of Verizon Wireless]," Compl. ¶ 146, Verizon
Communications and Vodafone are liable for any wrongful acts of
its subsidiary. In order to pierce the corporate veil and impose
liability on a parent company, the plaintiff must make a two-part
showing: "(i) that the owner exercised complete domination over
the corporation with respect to the transaction at issue; and
(ii) that such domination was used to commit a fraud or wrong
that injured the party seeking to pierce the veil." Amer. Fuel
Corp. v. Utah Energy Devel. Co., Inc., 122 F.3d 130, 134 (2d
Cir. 1997) accord Thrift Drug, Inc. v. Univ. Prescription
Adm'rs, 131 F.3d 95, 97 (2d Cir. 1997). To determine whether the
parent company has exercised "complete domination" over its
subsidiary, the Court considers:
(1) disregard of corporate formalities; (2)
inadequate capitalization; (3) intermingling of
funds; (4) overlap in ownership, officers, directors,
and personnel; (5) common office space, address and
telephone numbers of corporate entities; (6) the
degree of discretion shown by the allegedly dominated
corporation; (7) whether the dealings between the
entities are at arms length; (8) whether the
corporations are treated as independent profit
centers; (9) payment or guarantee of the
corporation's debts by the dominating entity [or
individual], and (10) intermingling of property
between the entities.
Rays Trading (H.K.) Co., Ltd. v. Judy-Philippine, Inc., No. 98
Civ. 0170, 1998 WL 355422, at * 4 (S.D.N.Y. 1998) (citing Freeman
v. Complex Computing Co., Inc., 119 F.3d 1044, 1053 (2d Cir.
Here, the plaintiff fails to plead sufficient facts
demonstrating that Verizon Wireless' corporate identity should be
disregarded. Rather, the plaintiff's allegations, taken as true
for the purposes of this motion, are couched in conclusory
statements. In particular, the plaintiff alleges that Verizon
Communications and Vodafone are liable because of (1) their
complete "dominion and control" over Verizon Wireless, (2) "the
closeness of the relationship" between Verizon Wireless and its
parent companies, (3) the fact that all assets and liabilities of
the company are reflected on the balance sheets of its parent
companies, and (4) as parent companies, Verizon Communications
and Vodafone failed to fulfill their duty of establishing
managerial or quality policies, procedures, or controls to ensure
that Verizon Wireless did not violate any laws in the performance
of its duties. None of the allegations sufficiently set forth
facts to justify piercing the corporate veil in this case. To the
extent that the plaintiff also argues that Verizon Communications
is liable as a partner and joint venturist of Verizon Wireless,
this contention was not set forth in the complaint.
Accordingly, the motion to dismiss the third and fourth causes
of action as against Verizon Communications is granted. Because
it has not appeared in this action, the causes of action as to
C. Leave to Amend
Rule 15(a) of the Federal Rules of Civil Procedure states that
a party shall be given leave to replead when justice so requires.
Branum v. Clark, 927 F.2d 698, 705 (2d Cir. 1991); see also
Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d
Cir. 1991) (it is the usual practice upon granting a motion to
dismiss to allow leave to replead). As such, the Court will grant
the plaintiff leave to amend its complaint only with respect to
those claims against Verizon Communications. However, the
plaintiffs are warned about perfunctory or cosmetic changes.
[I]t has become an all too common practice for litigants
granted leave to replead to make only minor changes in the
original complaint based on an overly restrictive reading of the
dismissing court's order, prompting a second motion to dismiss.
An amended complaint which fails to replead with sufficient
particularity after a finding of a lack of specificity may well
be regarded by the Court as a frivolous filing in violation of
Harrison v. NBD, Inc., 990 F. Supp. 179, 185 (E.D.N.Y. 1998)
(citations omitted). In regard to this amendment, the Court notes
that the plaintiff faces an uphill battle in her effort to pierce
the corporate veil and impose liability upon Verizon
Communications especially in light of the moving defendant's
contentions that "Verizon Wireless is the nation's leading
provider of wireless communications. It has the largest
nationwide wireless voice and data network and 36 million
customers, more than 40,000 employees and it generated annual
revenue in 2002 of more than $19 billion," Nason Decl. ¶ 2, and
that "Verizon Wireless . . . has a distinct and separate
existence from Verizon Communications." Erb Decl. ¶ 3.
Nevertheless, the Court will grant the plaintiff leave to
replead solely those causes of action relating to Verizon
Communications within thirty days from the date of this order.
Based on the foregoing, it is hereby
ORDERED, that the motion by Verizon Wireless to compel
arbitration of the first and second causes of action is
GRANTED; and it is further
ORDERED, that the first and second causes of action are
dismissed without prejudice and subject to the arbitration; and
it is further
ORDERED, that the plaintiff and Verizon Wireless are directed
to proceed to arbitration on the terms specified in the CSA; and
it is further
ORDERED, that the motion to dismiss the third and fourth
causes of action as to Verizon Communications complaint
isGRANTED; and it is further
ORDERED, that the third and fourth causes of action against
Verizon Communications are dismissed without prejudice with leave
to replead; and it is further
ORDERED, that the plaintiff must serve and file her amended
complaint within thirty days from the date of this order.
© 1992-2004 VersusLaw Inc.