SDNY Compels Arbitration Based on Severability Doctrine, Finds Fee-Shifting Clause Not Unconscionablex
The Southern District of New York granted a motion to compel arbitration of an employment dispute between the petitioners and the respondent. The petitioners also filed a motion to dismiss or stay a concurrent proceeding that the respondent had filed in federal court in Colorado. The respondent did not dispute that the claims he asserted in the Colorado action fell within the scope of an arbitration clause in his employment agreement with the petitioners. Rather, he argued that the arbitration clause was invalid because: (1) the employment agreement limited the petitioners’ liability in certain respects; and (2) a fee-shifting clause in the arbitration provision was unconscionable. The court rejected both arguments. First, the court held that “validity” challenges under Section 2 of the Federal Arbitration Act are limited to the validity of the arbitration clause itself, which is severable from the remainder of the contract. The respondent’s “limitation of liability” argument was not premised on the validity of the arbitration provision, but on two sections of the agreement that had no bearing on the arbitration clause, including its validity. Second, the court held that the fee-shifting provision was not unconscionable, and noted that the respondent failed to identify a single federal or New York court that had invalidated an arbitration agreement based on a fee-shifting clause. As such, the court granted the petitioners’ motion to compel arbitration, but denied the petitioners’ motion to stay the Colorado action, finding it lacked jurisdiction to do so.
Crispin Porter & Bogusky LLC v. Watson, No. 1:18-mc-00384 (S.D.N.Y. Oct. 10, 2019).