The following e-filed documents, listed by NYSCEF document number (Motion 002) 15, 16, 17, 19, 20 were read on this motion to/for Compel Arbitration.ORDER – INTERIM This action concerns a contract dispute between Plaintiff Munch Ado, Inc. (“Munch Ado”), a company that provides a web-based dining portal and related services to restaurants, and Defendant Troy Walker (“Walker”), a former employee of Munch Ado. (Complaint 1-6). Munch Ado commenced this action alleging that Walker, upon termination from Munch Ado, defamed and disparaged the company in breach of the parties’ Confidentiality, Invention, Non-Compete, and Non-Solicitation Agreement (“confidentiality agreement,” Ex. A [NYSCEF Doc. No. 1]) (Complaint 14). Munch Ado alleges that it has lost several clients and that its business reputation has been irreparably harmed by Walker’s actions. (Complaint 20).On February 14, 2019, Walker answered and counterclaimed for breach of contract. (Answer, p. 14). Walker alleges that Munch Ado violated the parties’ Employment and Arbitration Agreement (“employment contract” or “employment agreement”) by repeatedly making late payments to Walker. (Answer, p. 15). These late payments allegedly impoverished Walker who claims he now lives in a homeless shelter and is unable to purchase essential medication. (Answer, p. 16). Walker is litigating this action pro se and asserts he continues to live in a homeless shelter (Answer, p. 1).Walker asserts that, under New York Labor Law, he is entitled to damages occasioned by Munch Ado’s late payment of wages. See Labor Law §191(1)(d); see also Belizaire v. RAV Investigate and Sec. Services Ltd., 61 F. Supp. 3d 336, 359 (S.D.N.Y. 2014) (holding that plaintiff should be awarded damages sufficient to compensate him for injuries incurred as a result of payment delay). Munch Ado has filed a motion to compel arbitration of the counterclaim contending Walker’s claim for damages must be determined by an American Arbitration Association (“AAA”) arbitrator pursuant to the broad arbitration provision in the parties’ employment contract. (Employment Agreement 4) (attached to Si-Ahmed Aff. Ex. A [NYSCEF Doc. No. 16]).DISCUSSION“Where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate.” CPLR §7503(a).Here, there can be no serious dispute that arbitration is the appropriate forum for the resolution of Walker’s claim for late payment of wages. While Munch Ado’s claims against Walker are not subject to the employment agreement’s arbitration provision,1 the arbitration clause in the parties’ employment contract broadly covers “[a]ny and all causes of action, suits, damages, claims, and/or demands whatsoever of the Employee relating to the Employee’s application or candidacy for employment, employment, and/or termination of employment with Munch Ado…including, but not limited to, breach of any employment agreement.” [Employment Agreement 4(a)]. Thus, it is clear from the plain language of the contract that any claims by Walker relating in any way to his employment or the termination of his employment must be submitted to arbitration through the AAA, while Munch Ado’s claims against Walker will continue to be litigated by this Court.The arbitration agreement also contemplates that the parties split the costs of arbitration equally. [Employment Agreement 4(c)]. The agreement provides: “the Company and the Employee shall equally split the arbitrator’s compensation and any other fees assessed by the AAA, to the extent permitted by applicable law….”“[A]rbitration is a creature of contract, and it has long been the policy of the State to ‘interfere as little as possible with the freedom of consenting parties’ in structuring their relationship.” Credit Suisse First Boston Corp. v. Pitofsky, 4 N.Y.3d 149, 154 (2005) (quoting Matter of Siegel [Lewis], 40 N.Y.2d 687, 689 (1976)). As such, any conflict between the contract and AAA rules is generally resolved in favor of the express terms of the contract. Brady v. Williams Capital Group, 64 A.D.3d 127, 132 (1st Dep’t 2009) aff’d as modified, 14 N.Y.3d 459 (2010). Thus, the contract provision — and not the AAA rules-accordingly governs the arbitration fee arrangement between the parties.Nonetheless, an otherwise valid arbitration provision may be unenforceable if the provision requires a litigant to shoulder prohibitive arbitration costs or otherwise forfeit vindication of his or her statutory rights. See Green Tree Financial Corp v. Randolf, 531 U.S. 79, 81 (2000) (holding that existence of large arbitration costs that would preclude a litigant from vindicating statutory rights may render arbitration agreement unenforceable). While New York law presumptively favors the enforcement of arbitration provisions,2 it is well settled that an arbitration agreement should be set aside where one of the parties to the agreement demonstrates that “the equal sharing of arbitration fees and costs precluded [that party] from pursuing [his] statutory rights in the arbitral forum.” Brady v. Williams Capital Group, LP, 14 N.Y.3d 459, 462 (2010). In deciding whether the costs of arbitration are unjustly prohibitive, the Court should consider (1) whether the litigant can pay the arbitration fees and costs; (2) the expected cost differential between arbitration and litigation in court; and (3) whether the cost differential is so substantial as to deter the bringing of claims in the arbitral forum. Id. at 476. If the Court determines that the costs of arbitration would preclude a litigant from vindicating his or her statutory rights, the appropriate remedy is to sever the fee-splitting portion of the contract, thus subjecting the arbitration provision to the AAA’s “employer pays” rule. Brady, 64 A.D.3d at 137-138.Here, Walker’s contract with Munch Ado expressly provides for a fee splitting structure in arbitration and that language supersedes AAA default rules. Therefore, Walker would be required to pay one half the cost of arbitration if the Court grants Munch Ado’s motion. As such, the significant cost of pursuing the breach of contract claim in arbitration, as compared to pursuing the claim in this Court as a pro se litigant, would likely deter Walker from vindicating his right to timely payment of wages under the New York Labor Law. And, in these circumstances, there may be something perverse about compelling a person living in a homeless shelter to pay half of the cost of an arbitration seeking compensation for his employer’s failure to timely pay his wages. Nonetheless, determining whether the costs of arbitration are unjustly prohibitive requires an evidentiary showing of personal financial information beyond what currently exists in the record. See Brady, 64 A.D.3d at 135 (relying on evidence of burdened party’s “precarious” financial circumstances), see also Mariglio v. Berthel Fisher & Co. Fin. Servs, 2014 WL 12613513 *6 (N.Y. Sup. 2014) aff’d 133 A.D.3d 1371 (4th Dep’t 2015) (requiring an analysis of burdened party’s monthly income and expenses in considering validity of fee-splitting provision).It is clear from the pleadings and related documents that Walker finds himself in precarious financial circumstances. He is currently living in a homeless shelter and claims to have been unable to purchase basic necessities, including essential medication, a MetroCard, or cell phone service. (Answer, p. 1, 16) It is highly unlikely that Walker can pay any arbitration cost, let alone half the cost of an entire arbitration proceeding. However, for the Court to determine whether to sever the fee-splitting arrangement from the employment contract, Walker must present testimonial evidence regarding his personal inability to bear the costs of arbitration.CONCLUSIONThe fee-splitting provision in Walker’s employment contract raises substantial issues of fact regarding Walker’s personal ability to fund half the costs of an arbitration given his seemingly dire financial situation. The parties did not brief this issue in connection with the pending motion to compel arbitration, and thus, the court exercises its discretion to orderan evidentiary hearing on whether Walker’s personal financial circumstances render the fee-splitting structure in the parties’ arbitration agreement unenforceable.Accordingly, it is herebyORDERED that the parties appear on July 2, 2019 at 11:00 a.m. for a hearing unless Munch Ado stipulates to fund the entire arbitration.Date: June 12, 2019
