United States District Court, S.D. New York
OPINION AND ORDER
J. PAUL OETKEN, District Judge.
This is an action pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., to confirm a Partial Arbitration Award terminating arbitration proceedings and authorizing Petitioner Vincent Emilio ("Emilio") to pursue a putative class action against Defendant Sprint Spectrum L.P. d/b/a Sprint PCS ("Sprint") in court. Before the Court are Emilio's renewed motion to confirm the award, Sprint's cross-petition to vacate the award in part, and Sprint's motion to strike Emilio's request for leave to file a proposed class action complaint. For the reasons that follow, Emilio's motion is granted and Sprint's cross-petition and motion to strike are denied.
I. Background Unless otherwise indicated, the following facts are taken from the allegations in the Petition (Dkt No. 1) and submissions made in connection therewith.
A. The Parties
Emilio is a New York resident and customer of Sprint wireless telephone service. Sprint is a Delaware limited partnership with its principal offices located in Kansas. Sprint is wholly owned by Sprint Nextel Corporation, a Kansas corporation with its principal executive offices located in Kansas.
B. The Arbitration Agreement
The Customer Agreement between Emilio and Sprint contains an Arbitration Agreement, which provides, in relevant part:
MANDATORY ARBITRATION OF DISPUTES. INSTEAD OF SUING IN COURT, YOU AND SPRINT AGREE TO ARBITRATE ANY AND ALL CLAIMS, CONTROVERSIES OR DISPUTES AGAINST EACH OTHER ARISING OUT OF OR RELATING TO THIS AGREEMENT.... THE FEDERAL ARBITRATION ACT APPLIES TO THIS AGREEMENT[, ] AND ITS PROVISIONS, NOT STATE LAW, GOVERN ALL QUESTIONS OF WHETHER A CLAIM IS SUBJECT TO ARBITRATION.
YOU AND SPRINT FURTHER AGREE THAT NEITHER SPRINT NOR YOU WILL JOIN ANY CLAIM WITH THE CLAIM OF ANY OTHER PERSON OR ENTITY IN A LAWSUIT, ARBITRATION OR OTHER PROCEEDING; THAT NO CLAIM EITHER SPRINT OR YOU HAS AGAINST THE OTHER SHALL BE RESOLVED ON A CLASS-WIDE BASIS; AND THAT NEITHER YOU NOR SPRINT WILL ASSERT A CLAIM IN A REPRESENTATIVE CAPACITY ON BEHALF OF ANYONE ELSE. IF FOR ANY REASON THIS ARBITRATION PROVISION DOES NOT APPLY TO A CLAIM, WE AGREE TO WAIVE TRIAL BY JURY.
(Petition, Ex. A ("Arbitration Agreement") at 7-8.) The agreement further provides that "[t]he arbitration will be conducted by and under the then-applicable rules of JAMS or the NAF, " and "[t]he arbitrator's decision and award is final and binding...." ( Id. at 8.) Finally, the agreement "is governed by and must be construed under federal law and the laws of the State of Kansas, without regard to choice of law principles." ( Id. )
C. The Arbitration and Judicial Proceedings
On January 4, 2005, Emilio filed a Demand for Class Arbitration, asserting that Sprint's practice of charging customers a monthly fee to satisfy the New York State Excise Tax violated New York Tax Law § 186-e and New York General Business Law § 349 and constituted unjust enrichment. He argued that the tax was imposed solely upon Sprint and could not be passed on to customers, and estimated a class of more than 2 million New York Sprint customers.
In March 2005, Kathleen A. Roberts was appointed as the arbitrator in the JAMS forum. During February 2006, the parties submitted briefing regarding the enforceability of the Arbitration Agreement's class action waiver. Emilio subsequently filed a First Amended Demand for Class Arbitration, adding a claim under Kansas's Unfair Trade and Consumer Protection Act ("KCPA"), Kan. Stat. 50-623 et seq. (Dkt. No. 7, Ex. 1.) The KCPA prohibits a supplier from engaging in any deceptive act or practice in connection with a "consumer transaction, " which is defined as "a sale, lease, assignment, or other disposition for value of property or services within this state to a consumer." Id. 50-624(c). The statute sets forth private remedies available to consumers, including class actions, and provides that "a consumer may not waive or agree to forego rights or benefits under this act." Id. 50-634(2)(d); 50-625.
On October 25, 2006, Arbitrator Roberts issued a decision holding that the class action waiver was unenforceable in light of the KCPA's anti-waiver provision. (Petition, Ex. B ("Oct. 2006 decision").) She determined that she had jurisdiction to resolve this issue because it was a "controversy or dispute" "arising out of or related to" the Arbitration Agreement, and because the agreement incorporated JAMS Comprehensive Rule 11 and Streamlined Rule 8, which both provided:
Jurisdictional and arbitrability disputes, including disputes over the existence, validity, interpretation or scope of the agreement under which Arbitration is sought, and who are proper parties to the Arbitration, shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability as a preliminary matter.
( Id. at 6 n.1.) The arbitrator rejected Sprint's argument that the KCPA did not apply to the dispute because the services provided to Emilio were not provided "within this state, " reasoning that Sprint's operations are headquartered in Kansas, and it would be "manifestly unfair" for Sprint to require customers to agree to the application of Kansas law "and at the same time deny application of its consumer protection statute." ( Id. at 9 & n.2.)
Following this decision, Sprint filed a motion raising as a defense to arbitration a settlement release (" Benney/Lundberg settlement") arising out of a Kansas state court class action. On July 16, 2008, Arbitrator Roberts denied the motion because, inter alia, the settlement could not satisfy the constitutional requirement of adequacy of representation. (Dkt. No. 17, Ex. 5 ("July 2008 decision").) On August 8, Sprint filed a motion in the Kansas state court that approved the settlement seeking to enjoin Emilio from continuing to arbitrate or litigate his claims in any forum. On August 11, Emilio filed a petition in this Court to compel Sprint to continue arbitrating and to enjoin it from proceeding in Kansas state court. On November 6, 2008, Judge Jones granted Emilio's petition. Emilio v. Sprint Spectrum, L.P., No. 08 Civ. 7147 (BSJ), 2008 WL 4865050 (S.D.N.Y. Nov. 6, 2008), aff'd, 315 Fed.App'x 322 (2d Cir. 2009).
The parties subsequently returned to arbitration, engaging in discovery and briefing related to Emilio's motion for class certification during the remainder of 2009. Decision on the issue was delayed pending settlement negotiations. On April 27, 2010, the United States Supreme Court issued its decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010), holding that under the FAA a party cannot be compelled to submit to class arbitration absent a contractual basis for finding that it had agreed to do so. On October 19, 2010, Sprint filed a motion for reconsideration of the October 2006 decision in light of Stolt-Nielsen.
On December 27, 2010, Arbitrator Roberts issued a decision holding that Stolt-Nielsen precluded Sprint from being compelled to proceed in class arbitration. (Petition, Ex. C ("Dec. 2010 decision").) At the same time, she observed that Stolt-Nielsen "says nothing about preemption or the unenforceability of class preclusion provisions based upon state law, " and that requiring Emilio to proceed in bilateral arbitration would be tantamount to enforcing the Arbitration Agreement as written "notwithstanding the finding of unenforceability" under the KCPA. ( Id. at 5-7.) Therefore, she declined to "give Sprint the benefit of a class preclusion provision that has been found unenforceable and the benefit of an arbitral forum, " and concluded that "[Emilio] cannot be compelled to proceed with a bilateral arbitration, and must be given the opportunity to pursue his class claims in a court action." ( Id. at 7.) In support of this remedy, she cited the Second Circuit's decision in Fensterstock v. Educ. Partners, which held that a class action plaintiff could not be compelled to proceed in bilateral arbitration if the arbitration agreement's class action waiver is unconscionable under state law. 611 F.3d 124 (2d Cir. 2010), vacated and remanded, Affiliated Computer Servs., Inc. v. Fensterstock, 131 S.Ct. 2989 (2011). "Had this issue arisen in the posture of the Fensterstock case, " she reasoned, "Sprint would be required to defend a putative ...