ANITA B. BRODY, District Judge.
Plaintiff Janice Quilloin ("Plaintiff" or "Quilloin") has brought a nationwide collective
Plaintiff is a Registered Nurse with an Associate Degree in the Science of Nursing. Quilloin Decl. ¶¶ 3-4, ECF No. 34. She worked at Hahnemann University Hospital from October of 2006 until February of 2008, and then again from December of 2008 until November of 2009. Id. ¶¶ 8, 11; First Am. Compl. ¶ 10, ECF No. 19. Defendant Hahnemann owns Hahnemann University Hospital. Simmons Decl. ¶ 2, ECF No. 28. Defendant Tenet Philadelphia helps manage and control two hospitals in Philadelphia, including Hahnemann University Hospital. First Am. Compl. ¶ 14, ECF No. 19. Hahnemann and Tenet Philadelphia are both subsidiaries of Defendant Tenet, a health care services company whose subsidiaries, as of December 31, 2008, operated a total of 55 hospitals with over 14,000 beds. Id. ¶¶ 12-15.
Defendants maintain a "Meal Break Deduction Policy" at all of their facilities, according to which the computerized time and attendance system automatically deducts a thirty-minute meal period per work shift. Id. ¶¶ 26, 27. However, Quilloin alleges that she and other members of the classes often performed compensable work during their uncompensated meal breaks. Id. ¶ 29.
Thus Quilloin seeks to bring the FLSA collective action on behalf of herself and "[a]ll persons employed within the three years preceding the filing of this action by
She similarly seeks to bring a state law class action on behalf of herself and "[a]ll persons employed within the three years preceding the filing of this action by Defendants at any of its Pennsylvania facilities, whose pay was subject to an automatic 30 minute meal period deduction even when they performed compensable work during the unpaid `meal break.'" Id. ¶ 46.
On December 4, 2009, Quilloin filed suit in this court against Tenet and Tenet Philadelphia. On February 19, 2010, Tenet Philadelphia answered, and asserted as an affirmative defense the existence of an agreement to arbitrate employee disputes with the employer. Answer 8-9, Feb. 19, 2010, ECF No. 9. Also on February 19, 2010, Tenet filed a motion to dismiss for lack of personal jurisdiction, alleging that it was four corporate layers removed from Quilloin's actual employer and lacked minimum contacts with Pennsylvania. Mem. Supp. Mot. Dismiss 1-2, Feb. 19, 2010, ECF No. 10. On March 15, 2010, Quilloin responded to Tenet's Motion to Dismiss, and on March 29, 2010, Tenet replied to Quilloin's response.
On April 15, 2010, the parties attended a Rule 16 conference. On April 21, 2010, the parties submitted a joint stipulation, according to which Plaintiff would voluntarily dismiss another pending case, Janice Quilloin v. Tenet HealthSystem Philadelphia, Inc. et al., No. 10-1379, and amend her complaint in this matter to include those Pennsylvania state law claims asserted in the other matter. Joint Stipulation ¶¶ 1-2, Apr. 21, 2010, ECF No. 18. The parties further stipulated that such amendment would not moot the pending motion to dismiss for lack of personal jurisdiction, and that the parties would conduct jurisdictional discovery by July 15, 2010. Id. ¶¶ 4-5.
On April 23, 2010, Plaintiff filed her first amended complaint against Tenet, Tenet Philadelphia, and Hahnemann. See First Am. Compl., ECF No. 19. On May 13, 2010, Tenet Philadelphia and Hahnemann answered, again invoking Plaintiff's agreement to arbitrate as an affirmative defense. Answer 14, May 13, 2010, ECF No. 25.
On June 10, 2010, Tenet, Tenet Philadelphia, and Hahnemann filed a motion to dismiss or, in the alternative, to stay proceedings and compel compliance with the agreement to arbitrate. Mot. Dismiss, June 10, 2010, ECF No. 28. Six days later, Defendants filed a motion for a protective order in response to allegedly extensive discovery requests from Plaintiff. Mot. Protective Order, ECF No. 29.
Following a telephone conference on August 12, 2010, Tenet withdrew its motion to dismiss for lack of personal jurisdiction, which mooted Defendants' motion for a protective order. Notice, Aug. 13, 2010, ECF No. 42. Thus, all that remains for my consideration is Defendant's June 10th motion to dismiss or, in the alternative, to stay proceedings and compel compliance with the agreement to arbitrate.
Around the time when Quilloin began her periods of employment, in October of 2006 and in January of 2009,
Reply Ex. A, ECF No. 39.
The Fair Treatment Process (FTP) states that it
Mot. Dismiss Ex. B at 1, ECF No. 28. In the "Exclusions and Restrictions" section, the FTP reads:
Id. at 7. Steps 1 through 3 require employees to proceed through the corporate hierarchy before filing a claim in arbitration. At each step, a response "will be provided... as soon as possible, usually within seven calendar days." Id. at 3. At Step 4, the dispute is heard by a committee "as soon as possible, usually within 30 days." Id. at 4. If an employee does not accept the committee's decision, he or she can submit the dispute to arbitration. Describing the arbitration process, the FTP states:
Id. at 6. The FTP further states that both company and employee "may be represented by counsel at arbitration during Step 5 at each parties' own expense." Id. at 8. However, the FTP also grants to the arbitrator "the authority to award any remedy that would have been available to you had you litigated the dispute in court under applicable law," id. at 8, and states as a preliminary matter that "no remedies that otherwise would be available to you or the company in a court of law will be forfeited by virtue of the agreement to use and be bound by the FTP," id. at 2.
Based on this agreement, Defendants assert that Quilloin must proceed with her claims via individual arbitration. Quilloin responds 1) that her claims are not within the scope of the agreement, 2) that the agreement is invalid for being unconscionable and entered into under duress, 3) that Defendants should be judicially estopped from compelling arbitration, and 4) that Defendants have waived their right to compel arbitration.
The Federal Arbitration Act ("FAA") codifies a strong federal policy in favor of arbitration. Alexander v. Anthony Int'l L.P., 341 F.3d 256, 263 (3d Cir. 2003). Section 4 states:
9 U.S.C. § 4 (2006).
However, the FAA's command that federal courts enforce arbitration agreements also assumes that "the making of the agreement for arbitration ... is not in issue." Id. When the existence of a valid agreement to arbitrate is in dispute, courts must carefully analyze claims of invalidity. Hopkins v. New Day Fin., 643 F.Supp.2d 704, 713 (E.D.Pa.2009) (citing Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir.1980)). The standard of review has been described as follows:
Hopkins, 643 F.Supp.2d at 713-14 (citing Par-Knit Mills, 636 F.2d at 54 & n. 9).
As a general principle of contract law, when a genuine issue exists on a matter of contract interpretation, the question should be submitted to a jury for resolution. On a matter of contract construction, however, the question can be resolved by the judge as a matter of law. See Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212, 229-30 (3d Cir.2007) (citing John F. Harkins Co. v. Waldinger Corp., 796 F.2d 657, 659 (3d Cir.1986) ("Contract interpretation is a question of fact .... [C]ontract construction is a question of law ....")).
As a preliminary matter, Defendants should not be judicially estopped from moving to compel arbitration, nor have they waived their right to seek arbitration. Therefore, I will consider the merits of their motion. "A motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement." Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.2005). Because further proceedings are required on several aspects of the validity issue, I will deny without prejudice Defendants' motion.
Plaintiff argues that Defendant Tenet should be judicially estopped from compelling arbitration in light of its previous argument that it was four corporate
Plaintiff correctly identifies the three typical elements of judicial estoppel
The Third Circuit has elaborated that a party generally cannot display "bad faith for judicial estoppel purposes if the initial claim was never accepted or adopted by a court or agency." Montrose, 243 F.3d at 778; see also G-I Holdings, Inc. v. Reliance Ins. Co., 586 F.3d 247, 261 (3d Cir. 2009) ("[J]udicial estoppel is generally not appropriate where the defending party did not convince the District Court to accept its earlier position."); United States v. Pelullo, 399 F.3d 197, 222-23 (3d Cir.2005); Dam Things from Denmark v. Russ Berrie & Co., 290 F.3d 548, 559 n. 16 (3d Cir.2002).
In this case, Tenet's position that it did not employ Plaintiff may admittedly be inconsistent with its argument that Plaintiff should be forced to arbitrate her disputes with Tenet pursuant to her employment contract.
However, I never accepted or adopted Tenet's position that it did not employ Plaintiff and that it was not subject to personal jurisdiction in Pennsylvania.
I also note that Tenet's arguably inconsistent positions have not affronted the dignity or authority of the court, and that it would be inappropriate to apply the "extraordinary remedy" of judicial estoppel to bar their attempt to compel arbitration at this juncture. Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 365 (3d Cir.1996).
For all of these reasons, I will not judicially estop Defendant from seeking to compel arbitration at this time.
Plaintiff also alleges that all Defendants have waived their right to seek arbitration.
As a preliminary matter, it is proper for the court to determine the waiver issue. Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 221 (3d Cir.2007) ("[W]aiver of the right to arbitrate based on litigation conduct remains presumptively an issue for the court to decide ...."). The Third Circuit has stated that "waiver of arbitration rights is not to be lightly inferred by federal courts." Palcko v. Airborne Express, Inc., 372 F.3d 588, 598 (3d Cir.2004) (internal citations and quotations omitted); see also Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ("[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay or a like defense to arbitrability."). Thus, "`merely answering on the merits, asserting a counterclaim (or cross-claim)
More specifically, the Third Circuit has set forth a non-exclusive list of factors to consider when assessing prejudice as relevant to a waiver determination. These include:
Hoxworth, 980 F.2d at 926-27 (internal citations omitted). Applying the Hoxworth factors to this case, I find that Defendants did not waive their right to arbitrate.
Defendants' motion to arbitrate was not untimely.
Time alone is not dispositive, nor is there a hard and fast boundary between reasonable and unreasonable delays in seeking to compel arbitration; nevertheless, it is instructive to examine the time frames and findings of other cases. For example, courts have found waiver after delays of eight months, S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir.1990), eleven months, Hoxworth, 980 F.2d at 925, fifteen months, Nino v. Jewelry Exch., Inc., 609 F.3d 191, 196 (3d Cir.2010), seventeen months, Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986), and two years, Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759 (9th Cir.1988). Courts have not found waiver after delays of thirty-eight days, Palcko v. Airborne Express, Inc., 372 F.3d 588, 598 (3d Cir.2004), one-and-a-half months, Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir.2000), two months, PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1069 (3d Cir.1995), six months, Tomcykoski v. Continuing Care Rx, Inc., No. 08-2014, 2009 WL 1816953, at *3, 2009 U.S. Dist. LEXIS 53961, at *8 (M.D.Pa. June 24, 2009), and ten months, Bellevue Drug Co. v. Advance PCS, 333 F.Supp.2d 318, 326 (E.D.Pa.2004).
With regard to a seven-month delay, as exists in this case, two Eastern District of Pennsylvania courts have come to different conclusions. In Peltz v. Sears, Roebuck & Co., 367 F.Supp.2d 711 (E.D.Pa.2005), the court held that Sears had not waived its right to compel arbitration. Moreover, in Peltz, the defendants had filed two motions to dismiss, both parties responded to discovery requests, and a deposition had taken place. Yet the court still submitted the dispute to arbitration. See id. at 722. In Eagle Traffic Control v. James Julian, Inc., 945 F.Supp. 834 (E.D.Pa.1996), the court found that the defendants had waived their right to compel arbitration. However, the Eagle Traffic court noted that "the seven month delay in demanding arbitration is not especially long when compared with other cases," and concluded that defendants had waived their right to compel arbitration based on the extensive discovery in which the parties had engaged. Id. at 835. Thus it seems that although a seven month delay may approach
Not only is a seven-month delay, standing alone, not automatically unreasonable, but there are also additional considerations in the time calculus weighing in favor of reasonableness here. First, the arbitration agreement was at least referenced in the initial answer to the complaint. See Answer ¶¶ 15-16, Feb. 19, 2010, ECF No. 9. Moreover, Defendants' delay in actually moving to compel arbitration was at least partially motivated by my stated preference to determine the outstanding issues of personal jurisdiction and venue first, before being presented with a request for arbitration. Reply 17. Finally, Defendants in this case also explain their delay as due in part to their desire to await the Supreme Court's ruling in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., ___ U.S. ___, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010).
Defendants have not contested the merits of Plaintiff's claims, as Plaintiff concedes in her response. Resp. 23. Therefore, the second Hoxworth factor weighs against a finding of waiver.
Defendants informed Plaintiff of their intent to seek arbitration. Defendant Tenet may not have advised Plaintiff that it sought to compel arbitration, but Defendants Tenet Philadelphia and Defendant Hahnemann both raised the arbitration provision in their affirmative defenses, see Answer ¶¶ 15-16, Feb. 19, 2010, ECF No. 9; Answer ¶¶ 17-18, May 13, 2010, ECF No. 25, as Plaintiff has conceded, Resp. 23. See also Nat'l Fin. Partners Corp. v. Cunning, No. 2008-37, 2009 WL 1939818, at *7, 2009 U.S. Dist. LEXIS 57718, at *19 (D.V.I. July 7, 2009) (finding that when one defendant raised an agreement to arbitrate as an affirmative defense, the plaintiff was put on notice, even though the other defendant did not include the same affirmative defense). Moreover, although the Rule 16 conference was not on the record, a later telephone conference memorializes Defendants' claim, and my acceptance of Defendants' claim, that the agreement to arbitrate was referenced at the Rule 16. Hr'g Tr. 6, Aug. 12, 2010. Thus, Plaintiff was put on notice of the arbitration agreement's existence and the possibility that Defendants may invoke it. The third Hoxworth factor also weighs against a finding of waiver as a result.
There has indeed been some non-merits motion practice. Defendant Tenet filed a
Defendants also consented to some pretrial orders of the court. The parties attended a Rule 16 conference and submitted various stipulations that were later signed by the court, including stipulations to the extension of time to respond to certain pleadings as well as to the conduct of jurisdictional discovery.
Finally, the parties have not significantly engaged in discovery. Although Plaintiff served interrogatories and document requests on Defendants, Defendants did not answer, Plaintiff did not have to review materials, and Defendants did not submit their own requests to Plaintiff. Thus, this discovery is not "extensive," as a finding of prejudice and therefore waiver would require. Great Western Mortg. Corp., 110 F.3d at 233.
More specifically, courts finding that the right to compel arbitration has been waived are often faced with parties who
I have also not yet issued a Rule 16 scheduling order in this case, and the discovery that I did command was limited to the issue of jurisdiction. Cf. Zimmer v. Cooper Neff Advisors, Inc., 04-3816, 2008 WL 4399012, at *4, 2008 U.S. Dist. LEXIS 74897, at *12-13 (E.D.Pa. Sept. 26, 2008) ("While the parties have engaged in some discovery and motions practice, a review of the case reveals that the discovery and motions practice was limited to the issue of preliminary relief.... None of this Court's pretrial Orders addressed the merits of the parties' claims. In fact, this Court has yet to issue a Rule 16 Order in this matter.").
Therefore, although there has been some discovery activity, it has not been of the sort that leads to the conclusion that Defendants have waived their right to seek arbitration.
A consideration of the Hoxworth factors as a whole counsels against a finding of waiver in this case. Defendants' delay was not extreme and was well reasoned, Defendants have yet to contest the merits of the case, and Defendants notified Plaintiff of their intent to seek arbitration as early as their answer. Although there has been some non-merits motions practice, some consent to court orders, and some discovery activity, none has been extensive or lengthy. Thus, on balance, there has been no waiver.
Moreover, as a general matter, the Hoxworth factors are intended to be used by courts to identify when a party has or has not been prejudiced by a delay in seeking to compel arbitration.
In their reply, Defendants submit that, based on the Supreme Court's recent decision in Rent-A-Center, West, Inc. v. Jackson, ___ U.S. ___, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010), at least some of Plaintiff's invalidity arguments are for the arbitrator. Reply 5. However, it is rather the case that I must address those arguments.
As the Third Circuit recently confirmed, "when a party challenges the validity of an arbitration agreement ..., a question of arbitrability is presented.... that is presumptively for the court, not the arbitrator, to decide." Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 179-80 (3d Cir.2010). The Third Circuit explained that the Courts of Appeals are unanimous on this point. Id. at 180.
To be clear, the Supreme Court has held that "a federal court may consider only issues relating to the making and performance of the agreement to arbitrate," and that arbitrators are to decide issues relating to the contract as a whole. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Thus, "if the claim is fraud in the inducement of the arbitration clause itself—an issue which goes to the `making' of the agreement to arbitrate— the federal court may proceed to adjudicate it. But the statutory language [of the FAA] does not permit the federal court to consider claims of fraud in the inducement of the contract generally." Id. at 403-04, 87 S.Ct. 1801.
Most recently, in Rent-A-Center, West, Inc. v. Jackson, ___ U.S. ___, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010), the Supreme Court did send an unconscionability challenge to arbitration for decision. However, in Rent-A-Center, there were two agreements to arbitrate, the first to arbitrate
The contract at issue in this case does not resemble the contract at issue in Rent-A-Center. In Rent-A-Center, there were two clear agreements to arbitrate, one to arbitrate employment disputes, one to arbitrate challenges to the validity of the agreement. There is no such agreement to arbitrate challenges to the validity of the agreement in this case. Rather, there is a single agreement to arbitrate, and challenges to that agreement to arbitrate can be decided by judges as before under the Prima Paint line of cases.
As a related point, this is not a case where an arbitration clause is embedded in a lengthy contract governing other relations between the parties, in which case courts could only adjudicate challenges to the arbitration clause specifically, and not the broader contract. Instead, this is a case with a free-standing arbitration contract. Although the word "arbitration" does not appear in every sentence of the agreement, the agreement nevertheless constitutes a single arbitration provision. In other words, rather than separate contractual provisions, the various steps of the FTP are part and parcel of one agreement to arbitrate, prerequisites to final disposition of grievances via arbitration. Thus Plaintiff's challenges to the various provisions of the FTP constitute challenges to the agreement to arbitrate, which are for a court to decide. See also Pokorny v. Quixtar, Inc., No. 07-00201, 2008 WL 850358, at *12-14, 2008 U.S. Dist. LEXIS 28439, at *39-43 (N.D.Cal. Mar. 31, 2008); Dunham v. Envtl. Chem. Corp., No. 06-03389, 2006 WL 2374703, at *7-8, 2006 U.S. Dist. LEXIS 61068, at *21-23 (N.D.Cal. Aug. 16, 2006); Allen v. Apollo Group, Inc., No. 04-3041, 2004 WL 3119918, 2004 U.S. Dist. LEXIS 26750 (S.D.Tex. Nov. 9, 2004); Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4th 1267, 16 Cal.Rptr.3d 296 (Cal.Ct.App.2004).
Finally, even if Rent-A-Center could be read to require Plaintiff to challenge only the arbitration language of the FTP, Plaintiff has done so. In Rent-A-Center, the Court noted that Jackson "challenged only the validity of the contract as a whole," that he did not "even mention the delegation provision," that "none of Jackson's substantive unconscionability challenges was specific to the delegation provision," that "he did not make any arguments specific to the delegation provision," and that "he did not contest the validity of the delegation provision in particular." Rent-A-Center, 130 S.Ct. at 2779-80. The Court hinted that "had Jackson challenged the delegation provision by arguing that ... common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court." Id. at 2780. Thus the Supreme Court continues to require simply that "the basis of challenge ... be directed specifically to the agreement to arbitrate before the court will intervene." Id. at 2778. Unlike Jackson, Quilloin certainly mentions the arbitration clause, makes substantive unconscionability challenges specific to the arbitration clause, and makes several
For all of these reasons, I may proceed to address Plaintiff's arguments that the agreement to arbitrate is invalid.
"A federal court must generally look to the relevant state law on the formation of contracts to determine whether there is a valid arbitration agreement under the FAA." Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002). The parties agree that Pennsylvania contract law is the relevant state law in this case. Mot. Dismiss 7, ECF No. 28; Resp. 11, ECF No. 33. To find a contract valid under Pennsylvania law, courts must inquire "`(1) whether both parties manifested an intention to be bound by the agreement; (2) whether the terms of the agreement are sufficiently definite to be enforced; and (3) whether there was consideration.'" ATACS Corp. v. Trans World Commc'ns, Inc., 155 F.3d 659, 666 (3d Cir. 1998). Plaintiff does not dispute that the parties manifested an intent to be bound, that the terms of the agreement were sufficiently definite, or that there was consideration, and therefore I will not rule to the contrary.
However, the Federal Arbitration Act notes that arbitration agreements are valid "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 (2006). Courts have read this clause to encompass "generally applicable contract defenses, such as fraud, duress, or unconscionability." Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). Plaintiff argues that any contract existing between her and Defendants should be deemed invalid on the grounds of unconscionability and duress.
Plaintiff first asserts that there is no valid agreement to arbitrate on the basis of unconscionability.
Plaintiff's specific claims are that any alleged agreement to arbitrate is 1) substantively unconscionable because a) it requires Plaintiff to pay her own attorneys' fees and costs; b) it forces Plaintiff to waive her right to the class action device; and c) it imposes no time constraints on the steps preliminary to arbitration under the FTP; and 2) procedurally unconscionable as a contract of adhesion. Resp. 11-12.
As stated above, substantive unconscionability arises when a contractual
Plaintiff argues that the arbitration is substantively unconscionable because it states that an employee "will be responsible for the fees and costs of your own respective legal counsel, if any, and any other expenses and costs, such as costs associated with witnesses or obtaining copies of hearing transcripts" when the FLSA clearly allows for "a reasonable attorney's fee to be paid by the defendant, and costs of the action." Resp. 12; see also 29 U.S.C. § 216(b) (2006). Thus, according to Plaintiff, the provision of the FTP requiring employees to bear their own fees and costs "is an impermissible waiver of a statutory right that Congress specifically granted to aggrieved employees, therefore making the FTP unconscionable." Id. Defendants counter that the agreement clearly allows for the award of attorney's fees and costs as a remedy, and is therefore not substantively unconscionable.
Plaintiff is correct that a waiver of the right to recover attorney's fees and costs can be substantively unconscionable. The Third Circuit recently wrote in Nino v. Jewelry Exch., Inc., 609 F.3d 191, 203 (3d Cir.2010) (quoting Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 267 (3d Cir.2003)), that "[p]rovisions in arbitration clauses requiring parties to bear their own attorney's fees, costs, and expenses work to `the disadvantage of an employee needing to obtain legal assistance'" and held that the agreement in question's "restriction on the arbitrator's ability to award attorney's fees, costs, and expenses [was] substantively unconscionable." See also Spinetti v. Serv. Corp. Int'l, 324 F.3d 212, 216 (3d Cir.2003) ("The district court properly determined that the proviso requiring each party to pay its own attorney's fees—regardless of the outcome of the arbitration—runs counter to statutory provisions under Title VII and ADEA that permit an award of attorney's fees and costs to a prevailing party."); Alexander, 341 F.3d at 267-68 ("The arbitration agreement also substantially limits the relief available to plaintiffs. Reinstatement and narrowly defined `net pecuniary damages' constitute the only available forms of relief for a successful employee. The parties also bear their own costs and expenses, including attorney's fees.... These restrictions are one-sided in the extreme.... Under such circumstances, these restrictions are substantively unconscionable."); Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269, 278 (3d Cir.2004) (following Alexander).
In this case, however, it is unclear whether the contract deprives employees of the right to recover attorney's fees and costs. For this reason, I can reach no conclusion on this unconscionability issue at this time.
Regarding contract interpretation and summary judgment, the Fourth Circuit has explained:
World-Wide Rights Ltd. P'ship v. Combe, Inc., 955 F.2d 242, 245 (4th Cir.1992) (internal quotations and citations omitted).
I find the contract before me ambiguous on the attorney's fees and costs point. Various principles of contract interpretation point in different directions in this instance, leading to the conclusion that this contract is susceptible of two reasonable interpretations. For instance, it is accepted that, in interpreting contracts, effect must be given to every part of a contract, see Newman v. Mass. Bonding & Ins. Co., 361 Pa. 587, 65 A.2d 417, 419 (1949), and "[a]n interpretation will not be given to one part of the contract which will annul another part of it," Capek v. DeVito, 564 Pa. 267, 767 A.2d 1047, 1050 (2001) (quoting Cerceo v. De Marco, 391 Pa. 157, 137 A.2d 296, 298 (1958)). Furthermore, a contract must be interpreted so as to make it lawful. See Petroleos Mexicanos Refinacion v. M/T King A, 554 F.3d 99, 113 (3d Cir.2009) (citing Restatement (Second) of Contracts § 203(a) (1981) ("[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.")). To conclude that arbitrators of Plaintiff's claim could not award her attorney's fees or costs would not give effect to, and would rather partially annul, the arbitrator's authority provision of the contract. Furthermore, that interpretation could render the contract unlawful. However, another principle of contract interpretation states that specific provisions should trump general provisions. See, e.g., Musko v. Musko, 548 Pa. 378, 697 A.2d 255, 257 (1997) (Castille, J., dissenting) (citing In re Alloy Mfg., 411 Pa. 492, 192 A.2d 394 (1963)). Thus it could be argued that the provision specifically requiring each party to bear his own legal fees and costs must trump the provision allowing arbitrators to award all remedies available at law (including attorney's fees and costs). Given that the principles of contract interpretation tug in different directions in this instance, I conclude that the contract is ambiguous on its face. See 17A Am.Jur.2d Contracts § 331 (2010) ("Ambiguity in a written contract does not appear until the application of the pertinent rules of interpretation to the face of the instrument leaves it genuinely uncertain which one of two or more meanings is the proper meaning.").
There is no extrinsic evidence in the record that clarifies the ambiguity as a matter of attorney's fees and costs by employees. For the time being, genuine issues of material fact remain as to the proper interpretation of the contract, and those will likely need to be resolved by a jury. Upon resolution, I can revisit this substantive unconscionability challenge.
Defendants state in their motion to compel arbitration that Plaintiff must proceed on an individual basis and cannot assert
A distillation of Third Circuit and Pennsylvania case law reveals that "(1) class action waivers in arbitration provisions are not per se unconscionable under Pennsylvania law, and (2) such waivers are unconscionable only when they prohibit individual consumers from obtaining relief due to prohibitive cost, and thereby insulate a defendant from liability." Clerk v. First Bank of Del., 735 F.Supp.2d 170, 187 (E.D.Pa.2010) (citing Kaneff v. Del. Title Loans, Inc., 587 F.3d 616 (3d Cir.2009); Cronin v. CitiFinancial Servs., Inc., 352 Fed.Appx. 630 (3d Cir.2009); Homa v. Am. Express Co., 558 F.3d 225 (3d Cir. 2009); Gay v. CreditInform, 511 F.3d 369 (3d Cir.2007); Thibodeau v. Comcast Corp., 912 A.2d 874 (Pa.Super.Ct.2006); Lytle v. CitiFinancial Servs., Inc., 810 A.2d 643 (Pa.Super.Ct.2002)). Although many of the cases so holding arise in the consumer context, courts reviewing employment agreements with class actions waivers have similarly "held that limiting the use of the class-action vehicle, if it raises costs to the point of effectively preventing individual redress, is substantively unconscionable" and noted that "[t]he determinative fact in finding a class action waiver unconscionable is whether the prospects of a favorable verdict create an incentive for a plaintiff to file the action individually." Hopkins v. New Day Fin., 643 F.Supp.2d 704, 718 (E.D.Pa.2009) (internal quotations and citations omitted).
When an arbitration agreement with a class action waiver provides for corporations to cover the costs of arbitration, it is less likely that the class action waiver is unconscionable. See Cronin v. CitiFinancial Servs., Inc., 352 Fed.Appx. 630, 636 (3d Cir.2009) ("We conclude that [Plaintiff's] ability to seek actual and punitive damages, costs, and attorneys' fees rendered his individual ... claim sufficiently valuable so that [Defendant] was not completely insulated from liability, even in light of [Plaintiff's] contractual waiver of the right to pursue a class action. As a result, the class action waiver is not unconscionable under the public policy of Pennsylvania....").
In this case, Defendants have contracted to pay much of the cost of arbitration. According to the FTP, although "[t]he company and [the employee] will share the cost of the AAA's filing fee and the arbitrator's fees and costs, ... [the employee's] share of such costs shall not exceed an amount equal to one day's pay (for exempt employees), or eight times [an employee's] hourly rate (for non-exempt employees), or [the] local court civil filing fee, which ever is less." Mot. Dismiss Ex. B at 6, ECF No. 28. Plaintiff has not furnished evidence of her daily pay or hourly rate, but the local civil court filing fee is $350, which therefore represents the most that Plaintiff would have to cover.
On the other hand, as stated above, the contract is ambiguous as to whether Plaintiff can recover attorney's fees and other costs. Moreover, Plaintiff has not quantified the damages she seeks, and alleges in her complaint that she needs discovery from Defendants in order to do so. Thus I cannot make a determination as to whether Plaintiff would be sufficiently incentivized to litigate as an individual, and cannot conclude whether or not any class action waiver would be substantively unconscionable under Pennsylvania law. Therefore, before definitively ruling on this issue, the attorney's fees question must be answered, and I order discovery as to the amount of damages claimed by Plaintiff individually. Then I can determine as a matter of law whether a class action waiver in this context would be substantively unconscionable.
Plaintiff also contends that the Fair Treatment Process unreasonably favors Defendants, and is therefore unconscionable, because it allows Defendants to refuse to act on Plaintiff's claims until the statute of limitations for arbitration or litigation has expired. Resp. 13.
The FTP lists four steps prior to arbitration. Step 1 can be triggered "[i]f an informal discussion with your Supervisor did not resolve your problem, concern or dispute." Mot. Dismiss Ex. B at 2, ECF No. 28. An employee can advance to "Step 2: Department Head" "[i]f [he or she] is not satisfied with the supervisor's response to the problem or dispute in Step 1." Id. at 3. An employee can advance to "Step 3: Administration" "[i]f the response from [the] Department Head in Step 2 does not resolve [his or her] problem or dispute." Id. An employee can progress to "Step 4: FTP Committee" "[i]f the response of Facility Administration in Step 3 does not resolve [his or her] problem or dispute." Id. Finally, "[i]f [the employee] does not accept the decision reached in Step 4, then [he or she] has the right to submit the problem or dispute to final and binding arbitration." Id. at 4. At each of the first three steps, the contract notes that the employee can expect a response "as soon as possible, usually within seven calendar days." See, e.g., id. at 3. At step 4, the FTP Committee is to meet "as soon as possible, usually within 30 days." Id. at 4. The Committee is to vote on the issues presented immediately after meeting, but may hear additional testimony or consider additional documents if it decides during its deliberation that it needs additional information. Finally, the FTP states that "[a]ny request for arbitration ... must be made within one year after the event giving rise to the dispute.... However, if a longer limitations period is provided by a statute governing your claim, then your claim will be subject to the longer limitations period provided by the statute." Id. at 8. Thus, on the one hand, it appears that most steps of the FTP will take only 7 days, that the Committee process will take about a month, and that by requiring employees to file their claims in arbitration within a year (or any longer statutory
As stated above, substantive unconscionability arises when a contractual provision unreasonably favors the party asserting it. See Salley v. Option One Mortg. Corp., 592 Pa. 323, 925 A.2d 115, 119 (2007). Courts are to ask "whether, in light of the general commercial background and the commercial needs of a particular trade, the clause is so one-sided that it is unconscionable under the circumstances." Jim Dan, Inc. v. O.M. Scott & Sons, Co., 785 F.Supp. 1196, 1200 (W.D.Pa.1992).
The multi-step aspect of the parties' agreement is potentially unconscionable, but I am unable to reach any conclusions at this time. It is potentially so because there are seemingly no clear or firm limitations on the amount of time that the Tenet corporate hierarchy can take at each of Steps 1 through 4 before responding to an employee's grievance and allowing him or her to move up the FTP ladder. It is also potentially unconscionable because requiring an employee to proceed through four internal layers before seeking arbitration arguably unreasonably favors Tenet, possibly stymieing an employee's path to the ultimate resolution of his or her dispute. However, I cannot definitively rule at this time. First, in determining one-sidedness in certain circumstances, precedents can be illuminating, but the parties have hardly cited any, and I have found few to none relevant to this case.
As to the other prong of the unconscionability inquiry, Plaintiff asserts that the FTP is a procedurally unconscionable contract of adhesion.
Procedural unconscionability looks to the circumstances and process surrounding parties' signing of a contract. As noted above, under Pennsylvania law, a contract is procedurally unconscionable when one party had no meaningful choice as to the acceptance of the contract's terms. See, e.g., Salley, 925 A.2d at 119. Procedural unconscionability often arises in the contract of adhesion context. A contract of adhesion is "one which is prepared by the party with excessive bargaining power who presents it to the other party for signature on a take-it-or-leave-it basis." Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269, 276 (3d Cir.2004) (quoting Alexander v. Anthony Int'l, L.P., 341 F.3d 256, 265 (3d Cir.2003)).
Third Circuit case law provides some indication of the boundaries of procedural unconscionability and contracts of adhesion. For instance, in Alexander, the court found unconscionable "an employment agreement that compelled minimally-educated crane operators in the Virgin Islands to arbitrate their claims and pay for that arbitration." Zimmer v. Cooper-Neff Advisors, Inc., 523 F.3d 224, 228-29 (3d Cir.2008) (citing Alexander, 341 F.3d at 258-60, 266-68). The Alexander court noted that "[t]he arbitration agreement... was prepared by the party with excessive bargaining power and presented to plaintiffs for signature on a take-it-or-leave-it basis," and that an employer "which conducts business throughout the nation and the world, clearly possessed more bargaining power than two long-time equipment operators with limited educational backgrounds and, at best, very narrow options for other employment." Alexander, 341 F.3d at 266.
Then in Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, the Third Circuit, applying Pennsylvania law, refused to find procedural unconscionability in the case of a Harvard-educated economist who signed an employment agreement with an arbitration clause as a condition of employment. The court explained that "Zimmer had been the manager of a two billion dollar fund at Vanguard, had multiple offers of employment at the time he accepted CooperNeff's job offer, quickly secured a new position when he decided to leave CooperNeff, and, according to counsel at oral argument, is currently working in the industry." Id. The court also faulted Zimmer for not requesting a copy of the employment agreement or seeking to negotiate its terms prior to accepting the position or starting at CooperNeff. Id. Thus, in all, the court found these circumstances to be "highly distinguishable from the crane operators in Alexander," as "Zimmer was a highly-educated party with various employment opportunities who accepted an employment offer without first examining the terms of that employment and who now seeks to nullify the contract that he ultimately signed." Id.
Most recently, in Nino v. Jewelry Exch., Inc., 609 F.3d 191 (3d Cir.2010), the Third Circuit found an employment agreement between a Jordanian gemologist and one of the world's largest jewelry retailers to be procedurally unconscionable. The court wrote that "Nino had no opportunity to negotiate with [his employer] over the contract's terms, that [the employer] was the stronger contractual party, and that the arbitration agreement [was] thus procedurally unconscionable." Id. at 201. Comparing Nino's case to Alexander and Zimmer, the court found that "Nino, as a college graduate, was better educated than were the plaintiffs in Alexander," but emphasized "that Nino's bargaining leverage
Taken together, Third Circuit precedent on procedural unconscionability suggests a fact-sensitive approach that focuses on education, bargaining power, and other employment opportunities.
In this case, the issue of procedural unconscionability cannot be determined without further factual inquiry.
Plaintiff's situation does not immediately reek of procedural unconscionability. Plaintiff has an associate degree in nursing, and thus her educational background falls somewhere within the spectrum established by the case law explored above. Defendants are large corporations, see First Am. Compl. ¶¶ 13-15, ECF No. 19, but may have less bargaining power than the multinationals present in Alexander and Nino. There is no evidence in the record as to Plaintiff having other job offers, and Plaintiff has submitted that she was in need of employment to financially support herself at the time she signed the arbitration agreement in 2009; that said, her situation may not have been as dire as Nino's, where the employee's right to remain in the country was contingent upon continued employment with his employer.
There are nevertheless indications in the record that Plaintiff's signing of the agreement may have been procedural unconscionable. With regard to the 2009 agreement to arbitrate, Plaintiff has averred,
Quilloin Decl. ¶¶ 15, 16. Plaintiff has also averred that she was not initially told that her employment would be conditional on agreeing to arbitrate any potential claims against Defendants, id. ¶ 12, that she was asked to sign this agreement after having begun work for Defendants, id. ¶ 14, and that the terms of the agreement were not explained to her, id. ¶ 17. Thus Plaintiff was not aware that there would be an employment agreement with an arbitration clause prior to accepting her position with Defendants, as Zimmer had been. Rather, she had committed herself to Defendants, and had been working for several weeks, when presented with the contract, leaving her with little choice by to accept its terms and sign. See also Lucey v. FedEx Ground Package Sys., Inc., 305 Fed.Appx. 875, 877 (3d Cir.2009) (finding financial commitment to a position a factor in the procedural unconscionability analysis). With regard to the 2006 agreement to arbitrate, Plaintiff initially claimed never to have executed one. Quilloin Decl. ¶ 9. She has since admitted to signing a similar agreement at an earlier date, but submits that her "lack of recall ... demonstrates the dearth of time and independence [she] had to review and study" the contract. Supplemental Submission 1-2, ECF No. 46.
In light of these competing considerations, I will also defer ruling on the procedural unconscionability. In subsequent discovery, motions, and hearings, parties may repursue their procedural unconscionability arguments, for resolution when I am able to resolve the substantive unconscionability questions.
As a final argument for invalidity, Plaintiff claims that any agreement to arbitrate was entered into under duress.
As a general matter, under Pennsylvania law, duress is "that degree of restraint or danger, either actually inflicted or threatened and impending, which is sufficient in severity or apprehension to overcome the mind of a person of ordinary firmness." Adams v. Adams, 848 A.2d 991, 993 (Pa.Super.Ct.2004) (internal quotations omitted). In the economic context, the important elements of the doctrine are that "(1) there exists such pressure of circumstances which compels the injured party to involuntarily or against his will execute an agreement which results in economic loss, and (2) the injured party does not have an immediate legal remedy." Litten v. Jonathan Logan, Inc., 220 Pa.Super. 274, 286 A.2d 913, 917 (Pa.Super.Ct.1971). In addition to these elements, Pennsylvania courts have held that "economic duress is present only if the defendant `bring[s] about the state of financial distress in which plaintiffs [find] themselves at the time of signing.'" Harsco Corp. v. Zlotnicki, 779 F.2d 906, 911 (3d Cir.1985) (quoting Litten, 286 A.2d at 917).
In this case, Plaintiff argues that "[n]othing less than her brand new job was on the line." Resp. 17. However, there is no indication that Defendants were the source of any financial distress Plaintiff may have been experiencing at the time she signed the contract. Therefore, the circumstances of this case do not meet the test for duress under Pennsylvania law.
Plaintiff first contends that her FLSA claims do not fall within the scope of the arbitration agreement, as they are "non-waivable" and the FTP expressly excludes "non-waivable statutory claims." Resp. 9.
Plaintiff's reading of the contract is erroneous. The FTP states that it "covers all disputes relating to or arising out of an employee's employment with the company or the termination of employment" and includes "claims for ... breach of contract,... or any other legal claims and causes [of] action recognized by local, state, or federal law or regulations." Mot. Dismiss Ex. B at 1, ECF No. 28. In the "Exclusions and Restrictions" section, the FTP does qualify that "any non-waivable statutory claims, which may include waghe [sic] claims ... are not subject to exclusive review under the FTP." Id. at 7. However, the FTP continues and explains that "you may file such non-waivable statutory claims with the appropriate agency that has jurisdiction over them if you wish, regardless of whether you decide to use the FTP to resolve them." Id. But "if such an agency completes its processing of your action against the company, you must use the FTP if you wish to pursue your
Plaintiff also submits in a footnote that not only are non-waivable claims excluded from arbitration by the agreement, but that the nature of the FLSA precludes the arbitration of claims under it, citing Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981). Resp. 9 n. 6.
The case law does not support Plaintiff's statement. Barrentine did indeed hold that previously arbitrated FLSA claims could still be pursued judicially, and comment more broadly that FLSA claims were best protected in a judicial, rather than arbitral, forum. However, more recent decisions from many circuit courts, relying on more recent Supreme Court case law, have enforced agreements to arbitrate FLSA claims. Since Barrentine, the Supreme Court has written that federal statutory claims can be arbitrated unless the party resisting arbitration can show that Congress intended to preclude the nonjudicial resolution of such claims. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). Many circuit courts to have addressed the issue have found that there is no such indication of congressional resistance to arbitration in the FLSA context. See Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297-98 (5th Cir.2004); Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 313-14 (6th Cir.2000); Kuehner v. Dickinson & Co., 84 F.3d 316, 319-20 (9th Cir.1996); Adkins v. Labor Ready, Inc., 303 F.3d 496, 506 (4th Cir. 2002); see also Tripp v. Renaissance Advantage Charter School, No. 02-9366, 2003 WL 22519433, at *12 (E.D.Pa. Oct. 8, 2003); Giordano v. Pep Boys-Manny, Moe & Jack, Inc., No. 99-1281, 2001 WL 484360, at *1 (E.D.Pa. Mar. 29, 2001). Many of these courts have also distinguished Barrentine on the grounds that Barrentine arose in the context of a collective-bargaining agreement, and was decided during a time of greater hostility towards arbitration. See, e.g., Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 298 (5th Cir.2004). In light of the persuasive precedent of other courts, the fact that Plaintiff's dispute with Defendants does not arise in the context of a collective-bargaining agreement, and the fact that courts are more favorable to arbitration today, I too will find that the FLSA claims in this case are arbitrable.
Plaintiff asserted one final argument with respect to the scope of the arbitration agreement, that the majority of her claims, those arising between 2006 and 2008, were not covered by any agreement to arbitrate, as she had signed no agreement to arbitrate for that period of employment. See Quilloin Decl. ¶ 9 ("During my employment with Defendants from October, 2006 through February, 2008, I was never requested to execute, and, indeed, did not execute, any agreement to arbitrate any claims I might have against Defendants."). Defendants subsequently produced an "Employee Acknowledge Form," stating "I hereby voluntarily agree to use the Company's Fair Treatment Process and to submit to final and binding arbitration any and all claims and disputes that are related in any way to my employment or the termination of my employment with Tenet" and signed by Janice Quilloin on October
For the foregoing reasons, I will deny Defendant's motion without prejudice. Additional discovery on the issues of procedural and substantive unconscionability is required. Certain disputed issues of material fact must be presented to a jury for resolution. Ultimately, I will entertain additional motions on unconscionability as a matter of law.
Reply Ex. B, ECF No. 39.
Id. (quoting 3 Arthur Linton Corbin, Corbin on Contracts § 534, at 9 (2d ed.1960)). The Third Circuit has also quoted Professor Patterson: "`Construction, which may be usefully distinguished from interpretation, is a process by which legal consequences are made to follow from the terms of the contract and its more or less immediate context, and from a legal policy or policies that are applicable to the situation.'" Ram Constr. Co. v. Am. States Ins. Co., 749 F.2d 1049, 1053 (3d Cir.1984) (quoting Edwin W. Patterson, The Interpretation and Construction of Contracts, 64 Colum. L.Rev. 833, 835 (1964)).
