A federal judge in Trenton, New Jersey, dismissed a suit claiming the American Arbitration Association allowed frequent-filing claimants to bring meritless claims against sandwich chain Jersey Mike’s for online privacy violations.
Jersey Mike’s claimed in a suit filed in 2023 that it was facing frivolous claims by three California residents who filed arbitrations with the AAA.
Those individuals—Ophelia Augustine, Cecilia Lahr and Alexander Luce—sought to arbitrate claims that their communications with Jersey Mike’s website were disclosed to Meta Platforms Inc., operator of Facebook, in violation of the federal Wiretap Act and the California Invasion of Privacy Act, according to the suit. Their claims were brought with the AAA pursuant to the terms of use on Jersey Mike’s website.
But U.S. District Judge Zahid Quraishi dismissed the case on finding that the court lacked federal-question jurisdiction and that Jersey Mike’s claims were nonjusticiable.
Jersey Mike’s argued in its suit that Augustine and Lahr had together filed frivolous claims in at least 15 cases arising from their use of various company websites, and that those claims generally ended in “nuisance value settlements.”
The company asserted that the individuals’ claims, based on allegations that their communications with Jersey Mike’s website were disclosed to Meta, were fatally flawed because every page of Jersey Mike’s website included a link to a privacy policy disclosing that the company uses tracking technology and that Meta uses data from its website.
Jersey Mike’s claimed that Augustine and Lahr had each filed Chapter 7 bankruptcy with representation from San Diego, California attorney Daniel Shay. After their bankruptcies were discharged, both began filing frivolous suits, including claims under the Fair Credit Reporting Act and the Telephone Consumer Protection Act, with representation from Swigart Law Group.
The Swigart firm has the same street address and suite number as Shay, Jersey Mike’s asserted, claiming, “Shay refers his bankruptcy clients, like Augustine and Lahr, to Swigart because recently charged debtors are more inclined to file frivolous litigation for potentially quick settlements.”
Shay and the Swigart firm did not respond to requests for comment about the case.
Defendants Augustine, Lahr and Luce argued that the court should dismiss the case for lack of subject-matter jurisdiction because Jersey Mike’s failed to adequately plead federal-question jurisdiction or diversity jurisdiction.
Quraishi found no basis for federal-question jurisdiction. He said Jersey Mike’s appears to argue in its answer to the individual defendants’ motion to dismiss that the court has federal-question jurisdiction because of the federal claims at issue in the underlying arbitrations. But the plaintiff did not make that claim in its complaint, and it cannot raise that claim with subsequent briefing, Quraishi said.
Quraishi did not reach the question of diversity jurisdiction because he first looked at the issue of justiciability of each claim in the suit.
Under Article III of the Constitution, a federal court can only exercise jurisdiction in which a case or controversy exists, Quraishi said. He found that Jersey Mike’s claims were nonjusticiable and not suited for resolution by federal courts.
Jersey Mike’s suit raises 15 counts that are “each a mix of a prayer for declaratory judgment and monetary claims against a mix of parties not always made clear by the (first amended complaint),” Quraishi wrote. Jersey Mike’s “also does not cite any legal basis for its claims other than the (Federal Arbitration Act) and a nod towards common law breach of contract claims.”
Jersey Mike’s asked the court to declare that the defendants must indemnify plaintiff and award it damages, costs and attorney fees, but it did not cite any legal authority supporting such a judgment, and relied on the common law of contract interpretation, Quraishi said.
And the terms of use portion of Jersey MIke’s website has an indemnification provision in which the user agrees to defend, indemnify and hold harmless Jersey Mike’s from any and all liabilities and costs in connection with any claim arising from any breach by you of these terms, and the indemnification. This indemnification includes attorney fees and costs.
But Quraishi said the plain text of the indemnification agreement “clearly demonstrates it is intended to apply to lawsuits involving third parties and not to suits between the contracting parties. Any other reading leaves much of the clause superfluous and otherwise nonsensical.” In addition, New Jersey state law strongly disfavors shifting attorney fees, and similar provisions have been held unenforceable in suits between contracting parties, the judge wrote.
The lawyers for Jersey Mike’s, Michael DiCicco of Maggs, McDermott & DiCicco in Wall, New Jersey, and Robert Einhorn of Zarco Einhorn Zalkowski in Miami, Florida, did not respond to requests for comment about the ruling.
Timothy Coughlan, of Maron Marvel Bradley & Anderson in Jersey City, New Jersey, who represented Augustine, Lahr and Luce, declined to comment.
The lawyer for the AAA, Paul Halasz of Day Pitney in Parsippany, New Jersey, referred a reporter’s inquiry to his client. AAA Senior Counsel Kelly Turner said in a statement, “The AAA is pleased the court properly found that AAA is subject to arbitral immunity as to its administration of the arbitrations at issue. In dismissing the AAA with prejudice, the court also quoted from the AAA’s rules, which provide that the AAA is not a necessary and proper party to disputes about an arbitration. Instead, the only proper parties to arbitrability disputes are the parties to the arbitration, and AAA will follow any court order directed to the parties regarding whether any claims are subject to arbitration, and if so, the manner in which they should be administered.”
