September 27, 2016 Practice Points

Employee Must Arbitrate, But His Suit Against Employer Will Not Be Enjoined

By Scott D. Simon

A New York federal court required a non-resident employee to arbitrate his claims in New York based on his agreement to do so. However, it refused to enjoin the lawsuit the employee filed against his employer in the employee’s home state. Hermés of Paris, Inc. v. Swain, No. 16-cv-6255(CM), 2016 WL 4990340 (S.D.N.Y. Sept. 13, 2016).

Swain, a New Jersey resident, signed an employment agreement when he took a position in a Hermés retail store located in New Jersey. Swain believed that during the course of his employment at the Hermés store, he had been a victim of sexual orientation discrimination, a hostile work environment, and retaliation. Although the employment agreement contained an arbitration provision stating that disputes arising out of Swain’s employment would be resolved by arbitration in New York City, Swain commenced litigation against Hermés in New Jersey state court.

Hermés responded by filing a petition in the United States District Court for the Southern District of New York, seeking orders compelling Swain to arbitrate and enjoining the New Jersey state-court litigation. Swain opposed the petition on the grounds that the New York court did not have personal jurisdiction over him nor subject matter jurisdiction over his claims, and that he did not knowingly enter into the agreement to arbitrate.

The court ruled that it has the authority to compel arbitration under the Federal Arbitration Act because it has subject matter and personal jurisdiction over the dispute. Subject matter jurisdiction was based upon diversity—established by virtue of Swain (a New Jersey resident) and Hermés (a French company with headquarters in New York) being citizens of different states—and the amount in controversy exceeding $75,000 because Swain might obtain a greater amount in the arbitration. The court held that it also had personal jurisdiction over Swain since the employment agreement provided that arbitration would take place in New York City and a party who agrees to arbitrate in a particular jurisdiction consents to both personal jurisdiction and venue of the courts within that jurisdiction. The court rejected Swain’s assertion that he did not consent to arbitration because the employment agreement boldly stated, directly above Swain’s signature block, that his signature meant he had read the agreement, understood it, and was voluntarily entering into it. Accordingly, the court granted Hermés’s petition to compel arbitration.

However, the court declined to grant Hermés’s request to enjoin proceedings in the New Jersey state court. Hermés pointed to two exceptions to the Anti-Injunction Statute, 28 U.S.C. § 2283, that allow federal courts to enjoin state-court proceedings “where necessary in aid of its jurisdiction” or “to protect or effectuate its judgments.” Citing case law outside the Second Circuit, the court held that these exceptions were inapplicable because the “mere existence of a parallel action in state court does not rise to the level of interference with federal jurisdiction to permit injunctive relief” and because the court had not issued or been asked to issue an order creating a judgment which required an injunction to enforce it.

Practice Pointer: Although it might be tempting to seek refuge from an improperly-filed state-court litigation in the federal court located where the arbitration should be held, it is more efficient to seek orders both compelling arbitration and dismissing the action in the state court where the litigation was filed.

Keywords: alternative dispute resolution, adr, litigation, Federal Arbitration Act, compel, enjoin, employee, non-resident

Scott D. Simon is an attorney with Goetz Fitzpatrick LLP in New York, New York.

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