J. PAUL OETKEN, District Judge:
Plaintiff Vincent Emilio ("Emilio") initially filed this action as a petition pursuant
Emilio is a New York resident and was a customer of Sprint wireless telephone service during the relevant time period. (Dkt. No. 48 ("Compl.") ¶ 7.) Sprint is a Delaware limited partnership with its principal offices located in Kansas. Sprint is wholly owned by Sprint Corporation, a Delaware corporation with its principal executive offices located in Kansas. (Id. ¶ 8.)
The customer agreement between Emilio and Sprint contains an Arbitration Agreement, which provides for mandatory arbitration of disputes and states that class-wide resolution of claims is precluded. (See Dkt. No. 1 ("Petition") Ex. A at 7-8). Under the terms of the agreement, "[t]he arbitrator's decision and award is final and binding, and judgment on the award may be entered in any court with jurisdiction." (Id. at 8.) The agreement also provides that 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.)
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 two million New York Sprint customers.
In March 2005, Kathleen A. Roberts was appointed as the arbitrator in the JAMS forum. In 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. Ann. § 50-623 et seq. (Dkt. No. 7, Ex. 1 ("Amended Demand").) The KCPA prohibits a supplier from engaging in any deceptive act or practice in connection with a "consumer transaction," Kan. Stat. Ann. § 50-626(a), 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(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
(Id. at 6 n. 1 (quoting JAMS Comprehensive Rule 11(c); JAMS Streamlined Rule 8(c) (ellipsis in original)).) 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:
(Id. at 9 & n. 2.) The arbitrator also rejected Emilio's argument that the class action waiver was unconscionable under Kansas state law. (Id. at 10-15.)
Following this decision, Sprint filed a motion for summary disposition premised on the claimed non-applicability of the KCPA and on 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 did not satisfy the constitutional requirement of adequacy of representation. (Dkt. No. 17, Ex. 5 ("July 2008 decision").) On August 8, 2008, Sprint filed a motion in the Kansas state court that had 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), modified in part, 2008 WL 4865182 (S.D.N.Y. Nov. 6, 2008), aff'd, 315 Fed.Appx. 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, 130 S.Ct. 1758, 176 L.Ed.2d 605 (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
During a conference on January 28, 2011, Sprint stated that it would not agree to participate in class arbitration, and Emilio stated that he would not agree to participate in bilateral arbitration. Accordingly, on March 10, 2011, Arbitrator Roberts issued a Partial Final Award based upon the December 2010 decision. (Petition, Ex. D ("Award").)
On May 4, 2011, Emilio filed a petition asking this Court (i) to confirm the Award, (ii) to direct, in accordance with the Award, that his claims proceed in this Court as a putative class action, and (iii) to "grant[] such other and further relief as the Court deems just and proper." (Petition at 1.)
In March 2012, Judge Jones granted Sprint's cross-petition, concluding that the enforceability of the class action waiver was a question of arbitrability for the court — not the arbitrator — to decide, and that the waiver was enforceable because the anti-waiver provision of the KCPA was preempted by the FAA under AT & T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011). Emilio v. Sprint Spectrum L.P., 11 Civ. 3041(BSJ), 2012 WL 917535 (S.D.N.Y. Mar. 16, 2012). In January 2013, the Second Circuit vacated in part. It affirmed the judgment that Sprint could not be compelled to proceed in class arbitration, which neither party challenged. However, it vacated the remainder, reasoning that although the enforceability of a class action waiver is generally a question of arbitrability for the court, here the parties had unambiguously delegated such questions to the arbitrator by incorporating JAMS Comprehensive Rule 11 and Streamlined Rule 8 into the Arbitration
In July 2013, Sprint filed a motion to vacate the arbitrator's award in part, and Emilio filed a cross-motion to confirm the award. (Dkt. Nos. 31, 34.) On February 11, 2014, the Court granted Emilio's request to confirm the arbitrator's award, denied Sprint's cross-motion to vacate, and granted Emilio leave to file a class action complaint. Emilio v. Sprint Spectrum L.P., No. 11 Civ. 3041(JPO), 2014 WL 902564 (S.D.N.Y. Feb. 11, 2014). The Second Circuit affirmed that decision by summary order in November 2014. Emilio v. Sprint Spectrum L.P., 582 Fed.Appx. 63 (2d Cir.2014). Emilio filed his complaint on February 25, 2014. (Dkt. No. 48.) On March 28, 2014, Sprint filed the present motion to dismiss the complaint or strike its class action allegations. (Dkt. No. 56.)
On a motion to dismiss pursuant to Rule 12(b)(6), a court must "accept all allegations in the complaint as true and draw all inferences in the non-moving party's favor." LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F.3d 471, 475 (2d Cir. 2009) (internal quotation marks omitted). To survive a motion to dismiss, a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A court will not consider mere conclusory allegations that lack a factual basis. Hayden v. Paterson, 594 F.3d 150, 160-61 (2d Cir.2010). A plaintiff's complaint "must at a minimum assert nonconclusory factual matter sufficient to nudge its claims across the line from conceivable to plausible to proceed." EEOC v. Port Auth. of N.Y. & N.J., 768 F.3d 247, 254 (2d Cir.2014) (quoting Iqbal, 556 U.S. at 680, 129 S.Ct. 1937) (alterations and internal quotation marks omitted).
Pursuant to Federal Rule of Civil Procedure 12(f), a court may, sua sponte or on a motion, "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). Rule 23 calls for a determination "whether to certify the action as a class action" at "an early practicable time after a person sues ... as a class representative." Fed.R.Civ.P. 23(c)(1)(A).
"[M]otions to strike are viewed with disfavor and infrequently granted." In re Merrill Lynch & Co., Research Reports Sec. Litig., 218 F.R.D. 76, 78 (S.D.N.Y.2003). "A motion to strike class allegations under Rule 12(f) is even more disfavored because it requires a reviewing court to preemptively terminate the class aspects of litigation, solely on the basis of what is alleged in the complaint, and before plaintiffs are permitted to complete the discovery to which they would otherwise be entitled on questions relevant to class certification." Blagman v. Apple Inc., No. 12 Civ. 5453(ALC)(JCF), 2013
Sprint's present motion asserts two principal challenges to Emilio's putative class action complaint. First, Sprint argues that Emilio has failed to state a claim under the KCPA. It contends that the Kansas statute does not apply to the claims in the complaint, which concern the allegedly deceptive manner in which Sprint presented a New York excise tax to wireless telephone customers in New York. Second, Sprint requests that the Court strike Emilio's class claims from the complaint, primarily because it asserts that the absent class members are subject to binding arbitration provisions that prevent them from litigating their claims on a class basis.
The resolution of Sprint's motion to dismiss turns on whether principles of collateral estoppel, also known as issue preclusion, bar Sprint from relitigating certain issues that Emilio claims were decided in his favor by the arbitrator.
"A party is collaterally estopped from raising an issue in a proceeding if: (1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits." Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 91 (2d Cir.1997) (internal quotation marks omitted).
Sprint contends that the applicable portion of the KCPA does not apply to the claims asserted by Emilio and the class, and that Emilio has accordingly failed to state a KCPA cause of action. (Dkt. No. 57 ("Sprint Br.") at 10.) The KCPA prohibits deceptive or unconscionable acts during a "consumer transaction." See Kan. Stat. Ann. §§ 50-626, -627. The statute defines a "consumer transaction" as the "sale, lease, assignment, or other disposition for value of property or services within this state ... to a consumer." Id. § 50-624(c). Sprint argues that because Emilio "seeks to recover for a New York regulatory fee, which was applied to his New York telephone bill for services that were delivered to him in York," Emilio therefore "did not engage in a consumer transaction with Sprint that was `within' the State of Kansas." (Sprint Br. at 10-11.) The main precedent that Sprint cites on this point is nonbinding — a 2007 opinion in which a Kansas federal district judge concluded that the KCPA did not extend to cover a lawsuit arising from Sprint's manner of levying a Texas regulatory fee on a wireless customer. See Montgomery v. Sprint Spectrum, L.P., No. 07-2227-JTM, 2007 WL 3274833, at *6 (D.Kan. Nov. 6, 2007).
But the views of the Kansas district court, or of this Court, concerning the KCPA's applicability are beside the point if the arbitrator's own construction of Kansas law is conclusive in this action.
Arbitrator Roberts issued three decisions during the course of the arbitration. While the first and third decisions focused on the question whether Emilio's class claims were subject to arbitration, the ultimate holdings of those decisions are not dispositive as to whether the arbitrator made a determination regarding whether the KCPA applies to Emilio's claim as part of those decisions. Indeed, "[t]he prior decision of [an] issue need not have been explicit, ... if by necessary implication it is contained in that which has been explicitly decided." Postlewaite v. McGraw-Hill, Inc., 333 F.3d 42, 48 (2d Cir.2003) (brackets and internal quotation marks omitted).
Sprint raised the issue again in a motion for summary disposition during the arbitration, when it argued that Emilio had failed to state a claim under the KCPA. (July 2008 decision at 8.) Although Sprint cited Montgomery,
This decision was also necessary to the arbitrator's judgment. As Arbitrator Roberts stated, the question underlying the October 2006 decision and the 2011 Award was whether "the arbitration clause at issue permitted the arbitration to proceed on behalf of a class." (Award at 1.) And as the Second Circuit held, "[t]he Arbitrator did nothing more than construe the parties' contract in order to decide the questions of arbitrability that the parties submitted to her." Emilio, 582 Fed.Appx. 63; see also Carlisle Power Transmission Prods., Inc. v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l Union, 725 F.3d 864, 867 (8th Cir.2013) ("The 2007 arbitration decision constituted a final judgment on the merits, because the arbitrator decided the sole legal issue presented — whether
Sprint characterizes Emilio's position as "absurd" and contends that, under Emilio's reasoning, the arbitrator's rulings "have determined the substantive merit of his... KCPA claim against Sprint." (Sprint Reply at 3.) Sprint is incorrect. Emilio does not assert, and the Court does not hold, that the arbitrator made a binding decision as to whether Emilio's claims will be successful on the merits. Rather, the arbitrator concluded that the KCPA applies to transactions like Emilio's — a conclusion that was necessary to the arbitrator's determination that another portion of the KCPA precluded the contractual waiver of Emilio's ability to bring a class action. Because the arbitrator's conclusion on this point meets the requirements for collateral estoppel, Sprint's challenge to it is unavailing.
Thus, regardless of the correctness of Arbitrator Roberts' interpretation of Kansas law, it is conclusive here. Sprint cannot now relitigate the point. Sprint's motion to dismiss for failure to state a claim under the KCPA is denied.
Sprint also requests that the Court strike the complaint's class allegations. Sprint's argument is premised on the contention that all class members other than Emilio are subject to their own bilateral contractual agreements with Sprint, and that each such agreement has its own mandatory arbitration provision. (Sprint Br. at 13.)
Sprint's argument fails. Emilio's second amended demand for arbitration stated that he brought his arbitration action "individually and on behalf of a class comprised of all persons who, during [a proposed class period], were Sprint wireless telephone service customers who paid `New York State Excise Tax' ... as part of their monthly charges." (Dkt. No. 66 ("Weinstein Decl.") Ex. 2, ¶ 1.) And the resulting Award issued by Arbitrator Roberts in 2011 expressly directed that Emilio be permitted to pursue a class action lawsuit in court. (Award at 7 (holding that Emilio "must be given the opportunity to pursue his class claims in a court action").) This Court's February 11, 2014 Opinion and Order confirmed the Award and granted Emilio leave to file a class action complaint. See Emilio, 2014 WL 902564, at *10.
According to Sprint, Emilio's class claims must be stricken because the other members of the putative class are "all bound to binding arbitration clauses" (Sprint Br. at 13), which preclude their joinder in class claims. It is true that the absent putative class members were not parties to the arbitration that resulted in the 2011 Award, but Sprint was a party to that arbitration, and it agreed that the arbitrator's Award would be "final and binding." (Petition Ex. A, at 8.) Sprint must therefore comply with the terms of the Award and this Court's judgment confirming the Award. Arbitrator Roberts' interpretation of the contract, reduced to judgment in her Award, unambiguously authorizes Emilio to file a lawsuit to assert his KCPA claim as a class action in court. Sprint is therefore precluded from raising, as a defense to class certification or otherwise, the arbitration clause of the other putative class members' agreements with Sprint. To hold otherwise would render the Arbitrator's judgment a nullity: the holding of the Award was that Emilio must be permitted, pursuant to the contract, to raise his claim on behalf of a class of similarly situated individuals.
For the foregoing reasons, it is hereby ordered that Sprint's motion to dismiss or to strike class allegations is DENIED. Pursuant to Rule 12(a)(4), Sprint shall answer Emilio's complaint within 14 days of notice of this decision.
The Clerk of the Court is directed to terminate the motion at docket number 56.
SO ORDERED.