Johnson v. ACE HOME INSPECTIONS OF UPSTATE NEW YORK, 2017 NY Slip Op 50075 - NY: City Court 2017:
"This matter arises out of the Court's small claims jurisdiction (Uniform City Court Act § 1802). On August 7, 2015, Johnson entered into a home inspection agreement with Ace Home Inspections of Upstate New York. Johnson alleged that Ace failed to notice a defect in her roof that later manifested itself by leaking water into her home. She seeks damages in the amount of $600. At the commencement of the trial, Ace moved the Court to compel arbitration under the auspices of the Inspection Agreement (exhibit A). Under the heading of dispute resolution, the agreement contains the following clause: "In matters of dispute, the `client' agrees to submit to binding arbitration by mutually agreed upon party(s) [sic]" (id.).
Both state and federal law place mandates upon a court to compel arbitration under the appropriate circumstances. Initially the Court turns to New York law. CPLR 7503 provides:
A written agreement to submit any controversy thereafter arising or any existing controversy to arbitration is enforceable without regard to the justiciable character of the controversy and confers jurisdiction on the courts of the state to enforce it and to enter judgment on an award.The Court finds CPLR 7503 inapplicable. Small claims jurisdiction provides an affordable forum for litigants to resolve claims based upon substantial justice (see Carlo v Koch-Matthews, 53 Misc 3d 466, 470 [City Ct 2016]). The Legislature granted unique access to the courthouse and once a statute so opens the courthouse door, it is not easily closed by contract. In Licitra v Gateway, Inc., 189 Misc 2d 721, 728 [City Ct 2001], the court held "the defendant cannot by `contract' deny access to small claims court without a specific and agreed-to written waiver by the consumer." In others words, for an arbitration clause to eradicate small claims jurisdiction, the parties must explicitly waive the right to proceed in small claims court. That did not happen here — the clause has no effect — at least under New York law.
While precedent neatly resolves the state issue, the federal issue is not so effortlessly disposed of (see generally David D. Siegel, McKinney's Cons Law of NY, Book 29A, UCCA §1801,2002 Practice Commentary [while noting that small claims jurisdiction is not superseded by state law, the federal issue is not addressed]). The Federal Arbitration Act ("FAA") (9 U.S.C. § 2) provides:
A written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.To begin with, the Court cannot simply conclude that small claims matters trump the FAA. In a brigade of cases, the Supreme Court has made it unrelentingly clear that when state law prohibits outright the arbitration of a particular type of claim (like small claims), the analysis is straightforward: The conflicting rule is displaced by the FAA (AT & T Mobility LLC v. Concepcion, 563 U.S. 333 ; Marmet Health Care Ctr., Inc. v. Brown, ___ U.S. ___ 132 S. Ct. 1201 ; CompuCredit Corp. v. Greenwood, ___ U.S. ___ 132 S. Ct. 665 ; Am. Exp. Co. v. Italian Colors Rest., ___ U.S. ___, 133 S. Ct. 2304 ; Nitro-Lift Techs., L.L.C. v. Howard, ___ U.S. ___, 133 S. Ct. 500 ; DIRECTV, Inc. v. Imburgia, ___ U.S. ___, 136 S. Ct. 463 ).
The FAA, by its terms, applies only to transactions involving commerce. Consequently, the Court is left to inquire whether a home inspection involves interstate commerce. Congress' regulatory power extends to "those activities having a substantial relation to interstate commerce, . . . i.e., those activities that substantially affect interstate commerce" (United States v. Lopez, 514 U.S. 549, 558-559 ). The Supreme Court has held that activities that "substantially affect" commerce may be regulated so long as they substantially affect interstate commerce in the aggregate, even if their individual impact on interstate commerce is minimal (see Wickard v. Filburn, 317 U.S. 111, 125  [holding that "even if appellee's activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce"]). Here the inspection facilitates the home's purchase and without a doubt such activity affects commerce.
Although, the FAA creates no exceptions for small claims, under the particular circumstances of this case to enforce arbitration is to enforce absurdity. The cost of arbitration is prohibitive in relationship to the amount of Johnson's claim. Johnson must spend thousands of dollars to recover hundreds — she cannot win. Where the fee to arbitrate exceeds the maximum possible recovery, such clauses perpetrate an irreconcilable injustice — compelling arbitration in this case does not seem fair.
Nevertheless, while this Court may express its disagreement with an Act of Congress or a decision of the United States Supreme Court, it may not dissociate itself from federal law. The FAA is the law of the United States and must be faithfully adhered to (U.S. Const., Art. VI, cl. 2 ["The Judges in every State shall be bound" by "the Laws of the United States"]). It is the Court's hope, however, that the Congress will see fit to exempt small claims actions from the inflexible reins of the FAA. Until then however, the FAA controls. Arbitration will be compelled.
 There is a doctrine, the effective vindication doctrine, which is designed "to prevent [the] prospective waiver of a party's right to pursue statutory remedies," Italian Colors Rest., ___ U.S. at ___, 133 S Ct at 2310 (internal quotations and citations omitted). Johnson can find no relief under this doctrine. First, Johnson does not seek the invocation of a right created by statute; this is a common law contract case. Rather she seeks to invoke a forum, albeit one created by statute. The opening of a forum equates not with a substantive statutory right. Second, doctrine cannot be employed simply because it is not "economically feasible" for a plaintiff to enforce a statutory right individually (Id. at 2311 n. 4 [emphasis omitted]). Indeed, the Supreme Court has noted that "the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy" (Id. at 2311) (emphasis in the original)."