In Kim v. Evergreen Adult Day Care in NY Inc., 22-CV-548 (AMD) (CLP), 2024 WL 989909 (E.D.N.Y. March 6, 2024), the court granted defendants’ motion to compel arbitration of plaintiffs’ employment discrimination and hostile work environment claims.
This decision illustrates the uphill battle faced by a plaintiff-employee seeking to avoid an arbitration agreement on the ground of fraud or related bases.
The court wrote:
The plaintiffs do not dispute that the Employment Agreements include arbitration provisions. They contend, however, that those provisions should be “declared null and void” because “[t]here [was] no meeting of the minds” between the parties to the Agreements themselves. (Id. at 5.) The plaintiffs cite their affidavits (id. at 6), in which they state that they “[had] never seen the employment agreement … prior to the commencement of this instant action” and that they “[were] not aware that [they] entered into an arbitration agreement” or into “any employment agreement with the [d]efendants.” (ECF No. 24-1 ¶¶ 2, 4; ECF No. 24-2 ¶¶ 2, 4; ECF No. 24-3 ¶¶ 2, 4.)6 Hur “had [them] sign” one to three “single pages” “[a]fter [they] started working for the [d]efendants,” but “[w]hen [they] asked [Hur] what the[ ] documents were, he refused to explain,” and “told [them] that the documents were not important, and to just sign them.” (ECF No. 24-1 ¶ 3; ECF No. 24-2 ¶ 3; ECF No. 24-3 ¶ 3.) “None of the terms of the employment agreement[s] were ever explained to them.” (ECF No. 24-1 ¶ 5; ECF No. 24-2 ¶ 5; ECF No. 24-3 ¶ 5.) Yi and Sam Kim also state that they are “unable to read English” (ECF No. 24-2 ¶ 6; ECF No. 24-3 ¶ 6), and the defendants acknowledge that they did not provide any interpretation of the agreements before the plaintiffs signed them (ECF No. 24-8 at 9–10).7
Although the plaintiffs do not explicitly claim that the Employment Agreements were fraudulently executed or induced, their arguments suggest those claims. (See ECF No. 24 at 5–7.) A fraud-in-the-execution claim is a challenge to the fact of a contract’s existence, whereas a fraud-in-the inducement claim “attacks the validity” “of a contract that is acknowledged to exist.” Delgado v. Ocwen Loan Servicing, LLC, No. 13-CV-4427, 2016 U.S. Dist. LEXIS 119069, at *31, 39 (E.D.N.Y. Sept. 2, 2016). The Court must address a fraudulent execution claim, rather than send it to arbitration. McCaddin v. S.E. Marine Inc., 567 F. Supp. 2d 373, 378 (E.D.N.Y. 2008) (“[A]ny triable issues of fact regarding fraud in the execution must be addressed by the court and not the arbitrator.”). But a “claim or defense of fraudulent inducement, when it challenges generally the enforceability of a contract containing an arbitration clause rather than specifically the arbitration clause itself, may be subject to arbitration.” ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 29 (2d Cir. 2002) (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)).
Construed liberally, the plaintiffs’ argument posits that the defendants misrepresented the significance of the Employment Agreements in order to get them to sign the Agreements without reading them.8 The Court construes this claim as a fraudulent execution claim, which arises “in those ‘rare cases’ where ‘the misrepresentation is regarded as going to the very character of the proposed contract itself, as when one party induces the other to sign a document by falsely stating that it has no legal effect.’ ” Revak v. SEC Realty Corp., 18 F.3d 81, 91 (2d Cir. 1994) (quoting E.A. Farnsworth, Contracts § 4.10 (1990)); Langley v. FDIC, 484 U.S. 86, 94, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987) (describing fraudulent execution as “the sort of fraud that procures a party’s signature to an instrument without knowledge of its true nature or contents”). To prevail on this claim, the plaintiffs must show “excusable ignorance of the contents of the writing.” Victorio v. Sammy’s Fishbox Realty Co., LLC, No. 14-CV-8678, 2015 U.S. Dist. LEXIS 61421, at *36 (S.D.N.Y. May 6, 2015) (quoting Hetchkop v. Woodlawn at Grassmere, Inc., 116 F.3d 28, 32 (2d Cir. 1997)); see Restatement (Second) of Contracts § 163 comment a (1981) (Fraud in the execution occurs where there is a “misrepresentation as to the character or essential terms of a proposed contract” and a party signs without knowing or having a “reasonable opportunity to know of its character or essential terms.”).
The plaintiffs contend that Hur “refus[ed] to explain to them what they were signing, telling them that the documents [were] not important[ ] and not to worry about them.” (ECF No. 24 at 4.) Assuming that this constitutes a “misrepresentation” “going to the very character of the proposed contract,” they have not established that their ignorance was excusable. The signature pages include the following language: “Now wherefore, with our complete knowledge and understanding, having read and reviewed this entire contractual agreement, the parties below freely and voluntarily execute this legal instrument and bind themselves willingly to it on [the day of signature],” followed by the plaintiffs’ and Ben Hur’s signatures. (See ECF Nos. 23-5 at 11, 23-9 at 11, 23-13 at 11.) “A reasonably diligent person would have asked to see the first five” or as here, nine “pages before agreeing to sign [the] document.” Dowe v. Leeds Brown Law, P.C., 419 F. Supp. 3d 748, 764 (S.D.N.Y. 2019).
The fact that the plaintiffs could not speak or understand English does not change this result. “New York courts have repeatedly ruled that even the fact that a prospective employee possesses an imperfect grasp of the English language will not relieve the employee of making a reasonable effort to have the document explained to him.” Ragone v. Atlantic Video, 595 F.3d 115, 122 (2d Cir. 2010). The plaintiffs have not alleged that they made any such effort. Although they say that they asked Hur what they were signing (ECF No. 24 at 6), “[t]here was nothing preventing [the] plaintiff[s] … from declining to sign the contract until [they] had an opportunity to read” a translation or from asking someone else to translate the contract, McCaddin, 567 F. Supp. 2d at 383. See also, e.g., Pimpinello v. Swift & Co., 253 N.Y. 159, 162–63, 170 N.E. 530 (1930) (“Ordinarily, the signer of a deed or other instrument … is conclusively bound thereby …. If the signer could read the instrument, not to have read it was gross negligence; if he could not read it, not to procure it to be read was equally negligent; in either case the writing binds him.”). Accordingly, the plaintiffs’ fraudulent execution allegation is insufficient to create a genuine issue of material fact as to the existence of the contract.
To the extent that the plaintiffs mean to claim fraudulent inducement, that is an issue for the arbitrator, because the plaintiffs’ challenge is to the contract as a whole, not the arbitration provision specifically. Campaniello Imps., Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 667 (2d Cir. 1997) (the district court properly sent the case to arbitration where there was “no fraud or misrepresentation that relates directly to the arbitration clause”); see also, e.g., Kowalewski v. Samandarov, 590 F. Supp. 2d 477, 487 (S.D.N.Y. 2008). The claim is covered by the arbitration clause, as the potential fraud “arises out of” and “relates” directly to the Employment Agreements.
[Citations omitted.]
Based on this, the court held that the parties indeed agreed to arbitrate. It proceeded to hold that the arbitration provision at issue here plainly encompasses the plaintiffs’ claims. Specifically, while the agreements “do not specify that wage and hour or discrimination claims are subject to arbitration,” the court explained that “arbitration clauses may cover statutory claims even if the clause at issue does not mention the specific statutes or statutes in general.”