Hegazy v. The Halal Guys, Inc.

Background

Plaintiffs are food servers and food-cart workers employed by The Halal Guys, Inc., and other defendants named in the complaint. They asserted claims under the Fair Labor Standards Act and New York Labor Law. The court had previously certified a collective and class action.

The defendants moved to compel arbitration for the plaintiffs identified in the opinion as the “Arbitration Plaintiffs.” Magistrate Judge Katharine H. Parker granted that motion on December 27, 2023, concluding that the defendants and those plaintiffs had formed arbitration agreements and that the agreements were enforceable. Judge Parker ordered the Arbitration Plaintiffs’ claims excluded from the class and collective action and stayed pending arbitration.

The plaintiffs objected under Federal Rule of Civil Procedure 72(a), which permits a district court to set aside a magistrate judge’s ruling on a non-dispositive pretrial matter when it is clearly erroneous or contrary to law. They argued that the arbitration agreements were unenforceable because of alleged pressure to sign, arbitration costs, the agreements’ shortened time limits, and the legal analysis used in Judge Parker’s order.

Court’s Analysis

The court rejected the plaintiffs’ challenge to the finding that the agreements were enforceable. It held that the workers’ declarations did not provide enough evidence of pressure or coercion to establish procedural unconscionability, meaning unfairness in how the agreements were formed. The court also agreed that the workers had not shown that splitting arbitration fees would prevent them from pursuing their claims because they offered only general statements about their inability to pay and did not provide financial records or other evidence.

The court found no legal error in Judge Parker’s reliance on relevant New York contract-law principles concerning unconscionability. It also upheld acceptance of the defendants’ waiver of the one-year contractual limit for the plaintiffs’ Fair Labor Standards Act claims, explaining that New York law permits enforcement of an arbitration agreement as modified by such a waiver.

The court further rejected the argument that the one-year limit for the New York Labor Law claims made the arbitration agreement substantively unconscionable, meaning unfair because of the agreement’s terms. Under the deferential Rule 72(a) standard, and because the plaintiffs cited no contrary authority distinguishing those claims, the court concluded that Judge Parker’s ruling was not clearly erroneous or contrary to law.

The court did find one clear factual error. Judge Parker’s order stated that Mahmoud Elnagar signed the arbitration agreement after notice of the litigation had been posted. The court stated that Elnagar signed on October 6, 2022, while the collective notice was promulgated on October 28, 2022. The court therefore struck that footnote but held that the correction did not change the conclusion that the arbitration agreement was enforceable.

Disposition

Judge Rearden sustained in part and overruled in part the plaintiffs’ objections. The court modified Judge Parker’s order by striking the erroneous footnote and otherwise upheld the order compelling arbitration and excluding the Arbitration Plaintiffs’ claims from the class and collective action. The court granted the plaintiffs’ application to submit a reply and treated their letter-motion as that reply. It denied as moot the plaintiffs’ motion to stay arbitration while the objections were pending. The case remained referred to Judge Parker for general pretrial management.