Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-9-2009

Lucey v. FedEx Ground Pkg Sys
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-4372




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                                                          NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT


                                    No. 07-4372


                 RICHARD LUCEY; FRANCIS DENNIS LYNCH;
                     DAVID MCMAHON; JAMES HOUGH;
                  MICHAEL MCKENZIE; FRANK CUCINOTTI

                                          v.

                            FEDEX GROUND PACKAGE
                                SYSTEMS, INC.,

                                          Appellant


                  On Appeal from the United States District Court
                            for the District of New Jersey
                          District Court No. 06-cv-03738
                  District Judge: The Honorable Renee M. Bumb


                 Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                December 12, 2008

                Before: MCKEE, SMITH, and ROTH, Circuit Judges

                              (Filed: January 08, 2009)


                                      OPINION


SMITH, Circuit Judge.




                                         1
       FedEx Ground Package System, Inc.1 (“FedEx”) contracted with Richard Lucey,

Francis Dennis Lynch, David McMahon, Michael McKenzie, Frank Cucinotti, and James

Hough (collectively, the “Plaintiffs”) to serve as package delivery drivers.2 An Operating

Agreement signed by each individual driver and FedEx governed the relationship. The

Operating Agreement contained, inter alia, a provision requiring the driver-signatory to

submit all claims arising from the termination of the relationship to arbitration. FedEx

terminated the contracts of each driver between 2004–2005. While three of the Plaintiffs

began arbitration proceedings, all six Plaintiffs filed suit to challenge the arbitration

provision before an arbitrator decided any claim.

       An arbitration agreement will be upheld unless there is a legal or equitable ground

that would invalidate a contract. 9 U.S.C. § 2; 42 Pa. Cons. Stat. § 7303. To make this

determination, courts look to state law. Blair v. Scott Specialty Gases, 

, 603

(3d Cir. 2002). Plaintiffs here argue that the arbitration provision in the Operating




       1
                FedEx notes that it was improperly pled as FedEx Ground Package
Systems, Inc.
       2
              The District Court exercised diversity jurisdiction pursuant to 28 U.S.C. §
1332(a). This Court has jurisdiction pursuant to 9 U.S.C. § 16. We exercise plenary
review over questions regarding the enforceability of the agreement to arbitrate. Lloyd v.
Hovensa, LLC, 

, 273 (3d Cir. 2004). We review any findings of fact, on
which the District Court predicated its decision, pursuant to a clearly erroneous standard.

AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 

,
53–54 (3d Cir. 2001)).

                                               2
Agreement is unconscionable. Under Pennsylvania law,3 an arbitration provision is

unenforceable on the grounds of unconscionability if two elements are met: (1) “the

contractual terms are unreasonably favorable to the drafter,” and (2) “there is no

meaningful choice on the part of the other party regarding acceptance of the provisions.”

Worldwide Underwriters Ins. Co. v. Brady, 

, 196 (3d Cir. 1992) (citing

Koval v. Liberty Mut. Ins. Co., 

, 491 (Pa. Super. Ct. 1987)). The first

element is referred to as substantive unconscionability, while the second is known as

procedural unconscionability. The District Court found that both elements were met, and

held that the arbitration agreement was unconscionable as a result.

       The District Court found that the Plaintiffs lacked a meaningful choice to enter

into the arbitration provision of the Operating Agreement. It noted that FedEx presented

the Operating Agreement to the Plaintiffs shortly before they began their jobs, at which

point each driver had leased a delivery truck and was financially committed to the

position, and that Plaintiffs did not have an opportunity to read, review, or negotiate the

terms of the agreement. While FedEx does not contest that the Plaintiffs were presented

with the Operating Agreement only after each driver leased a delivery truck, it argues that

the Plaintiffs did not take “reasonable steps to obtain a copy of the arbitration agreement


       3
               The District Court correctly noted that “Federal courts sitting in diversity
look to the law of the forum state in making a choice of law determination.” New Jersey
law states that a contractual choice of law provision will be upheld unless doing so would
violate its public policy. In this case, the Operating Agreement contained a provision that
Pennsylvania law governs the agreement. Because there is no evidence or argument that
the application of Pennsylvania law would offend the public policy of New Jersey, the
District Court appropriately applied Pennsylvania law.

                                              3
or reasonably avail[] themselves of the opportunity to inquire and learn about the

provisions of the arbitration agreement” prior to undertaking this financial commitment.

It argues that this Court’s decision in Zimmer v. Cooperneff Advisors, Inc., 

(3d Cir. 2008), prohibits parties from sitting on their hands prior to the enactment of an

agreement and instead requires that they actively seek to obtain and negotiate the

agreement. This argument is unavailing.

       This Court’s decision in Zimmer was premised on its factual background. Zimmer

concerned an employment contract between Steven Zimmer, a Harvard-educated

economist, and a trading and investment firm. 

Zimmer argued that he did not

make a meaningful choice to enter into the agreement because the agreement was

presented to him only after he began working for the firm. 

This Court

rejected this argument, noting that Zimmer had significant bargaining power, not only

because he was highly educated, but also because he had numerous job opportunities. 

Our decision was also premised on the fact that Zimmer was aware that his

employment was contingent on the negotiation of an employment agreement and that

either party could terminate those negotiations. 

distinguished this

case from one in which a party with a limited educational background, narrow options for

employment, and little bargaining power is presented with an agreement on a take-it-or-

leave it basis. 

facts of the present case, where FedEx drafted the arbitration

provision and presented it to Plaintiffs with little to no bargaining power on a take-it-or-

leave it basis, we cannot equate an opportunity to review the agreement with a meaningful


                                              4
choice to accept its terms.

       Because FedEx concedes that it has not placed substantive unconscionability at

issue in its appeal, this argument is deemed waived. Accordingly, because we do not find

error in the District Court’s conclusion that the agreement is procedurally unconscionable

and there is no argument as to substantive unconscionablity, we will affirm the District

Court’s conclusion that both elements of unconscionability are met.

       FedEx also argues that the District Court erred by not confirming an arbitration

award against McMahon. McMahon submitted his claim to arbitration in 2005. In April

2006, McMahon and FedEx participated in an arbitration preliminary status hearing, at

which point they agreed to an arbitration hearing in July 2006. In May 2006, McMahon

sought a stay in the arbitration proceeding, notifying the arbitrator that he was seeking a

judicial determination regarding the validity of the agreement. FedEx opposed this

request, and the arbitrator denied the stay in light of the parties’ failure to agree. The

arbitrator proceeded according to the schedule approved during the preliminary status

hearing. FedEx subsequently filed a motion to dismiss McMahon’s arbitration claim on

the ground that it was untimely, and McMahon did not respond. On June 6, 2006, the

Plaintiffs, including McMahon, filed the present federal action arguing that the arbitration

provision was unconscionable. Three days later, the arbitrator dismissed McMahon’s

claim. FedEx argues that McMahon’s failure to file a motion to vacate the arbitrator’s

decision results in the waiver of his unconscionability claim. This argument must fail.




                                               5
       In cases challenging whether an issue is subject to arbitration, we have held that a

“party [who] voluntarily submits an issue to arbitration without challenging the

arbitrability of that issue” may be deemed to have waived judicial review. Pa. Power Co.

v. Local 272, Int’l Bhd. of Elec. Workers, 

, 50 (3d Cir. 1989). In this case,

however, McMahon clearly raised his objection to arbitration and the validity—and thus

arbitrability—of the agreement. Accordingly, “where a party objects to arbitrability but

nevertheless voluntarily participates in the arbitration proceedings, waiver of the

challenge to arbitral jurisdiction will not be inferred.” Kaplan v. First Options of

Chicago, Inc., 

, 1510 (3d Cir. 1994).

       Finally, FedEx argues that the District Court erred by not dismissing McKenzie’s

claim. In March 2007, Plaintiffs’ attorneys notified the District Court of McKenzie’s

death. Plaintiffs have not filed a motion for substitution, and FedEx argues that

McKenzie’s claim must be dismissed as a result.

       The Federal Rules of Civil Procedure state that “[i]f a motion [for the substitution

of a deceased party] is not made within 90 days after service of a statement noting the

death, the action by or against the decedent must be dismissed.” Fed. R. Civ. P. 25(a)(1).

Though FedEx did not raise this issue in its motions to the District Court, it filed those

motions during the pendency of the 90-day period for substitution. Because the Plaintiffs

notified the District Court on March 13, 2007 of McKenzie’s death and there has not been

a motion for substitution as required by Rule 25(a), we will reverse the portion of the

District Court’s order as it relates to McKenzie’s claim.


                                              6
       For the reasons discussed above, we will affirm the District Court’s judgment with

regard to the unconscionability of the arbitration proceeding and McMahon’s claim, but

we will reverse its decision as it applies to McKenzie’s claim.




                                             7