IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
January 20, 2011
JANICE QUILLOIN, AN INDIVIDUAL,ON
BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED, PLAINTIFF,
TENET HEALTHSYSTEM PHILADELPHIA,INC., TENET HEALTHCARE CORPORATION, AND TENET HEALTHSYSTEM HAHNEMANN, LLC, DEFENDANTS.
The opinion of the court was delivered by: Anita B. Brody, J.
January ___ , 2011
Plaintiff Janice Quilloin ("Plaintiff" or "Quilloin") has brought a nationwide collective*fn1 action under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-19 (2006), and a state-wide class action under the Pennsylvania Minimum Wage Act of 1968, 43 Pa. Cons. Stat. §§ 333.101-333.115 (2009); the Pennsylvania Wage Payment and Collection Law, 43 Pa. Cons. Stat. §§ 260.1-260.12 (2009); and Pennsylvania common law against Defendants Tenet HealthSystem Philadelphia ("Tenet Philadelphia"), Tenet Healthcare Corporation ("Tenet"), and Tenet HealthSystem Hahnemann, LLC ("Hahnemann") (collectively, "Defendants"). First Am. Compl. 1-2, ECF No. 19. Plaintiff alleges that Defendants forced her and others to work through their meal breaks without pay. Id. This court has jurisdiction pursuant to the FLSA; the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2) (2006); and 28 U.S.C. § 1367 (2006). In response, Defendants have filed a motion to dismiss or, in the alternative, to stay proceedings and compel compliance with an agreement to arbitrate. Mot. Dismiss, June 10, 2010, ECF No. 28.*fn2 For the reasons set forth below, I will deny Defendants‟ motion without prejudice.
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 Defendant whose pay was subject to an automatic 30 minute meal period deduction even when they performed compensable work during the unpaid "meal break.‟" Id. ¶ 45.
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,*fn4 she signed an acknowledgment 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. I understand that final and binding arbitration will be the sole and exclusive remedy for any such claim or dispute against Tenet or its parent, subsidiary or affiliated companies or entities, and each of its and/or their employees, officers, directors or agents, and that, by agreeing to use arbitration to resolve my dispute, both the Company and I agree to forgo any right we each may have had to a jury trial on issues covered by the Fair Treatment Process.
Reply Ex. A, ECF No. 39.*fn5 Quilloin has stated that she was given no time to review the document, that she was not permitted an opportunity to have it reviewed by counsel, that she was presented with the form on a "take it or leave it basis," and that she had no choice but to sign given her need to financially support herself. Resp. 4, ECF No. 33; Quilloin Decl. ¶¶ 15-19, ECF No. 34.
The Fair Treatment Process (FTP) states that it harassment or retaliation under the Americans With Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and its amendments or any state or local discrimination laws, tort claims, 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 reads: any non-waivable statutory claims . . . are not subject to exclusive review under the FTP. This means 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. However, if such an agency completes its processing of your action against the company, you must use the FTP if you wish to pursue your claim (although Steps 1 through 4 may be skipped).
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:
The arbitration will be administered by the American Arbitration Association ("AAA"). The company and you will share the cost of AAA‟s filing fee and the arbitrator‟s fees and costs, but your share of such costs shall not exceed an amount equal to one day‟s pay (for exempt employees), or eight times your hourly rate (for non-exempt employees), or your local court civil filing fee, whichever is less. You and the company 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.
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:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement . . . . [U]pon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.
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:
The Court, in considering a motion to compel arbitration, which is opposed on the ground that no valid agreement to arbitrate had been entered into by the parties, should view the facts in a light most favorable to the party opposing arbitration and give them the benefit of all reasonable doubts and inferences. This is the same standard used by the Court in resolving a summary judgment motion. Accordingly, the Court may consider all affidavits, exhibits and discovery in the record. If after reviewing the record, the Court finds that there is a doubt as to the existence of a valid agreement to arbitrate, the matter should be submitted to a jury upon a proper demand. . . . Accordingly, the Court must determine whether a factual dispute exists as to the validity of the agreement and, if so, allow a jury to decide whether there was a valid agreement to arbitrate.
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 . . ..")).*fn6
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.
A.Defendants should not be estopped from exercising, and have not waived, their right to compel arbitration.
Plaintiff argues that Defendant Tenet should be judicially estopped from compelling arbitration in light of its previous argument that it was four corporate layers removed from employing Plaintiff and was not subject to personal jurisdiction in Pennsylvania.
Plaintiff correctly identifies the three typical elements of judicial estoppel*fn7 1) "the party to be estopped must have taken two positions that are irreconcilably inconsistent"; 2) the inconsistent positions were taken ""in bad faith-i.e., with intent to play fast and loose with the court‟"; and 3) application of the doctrine is ""tailored to address the harm identified‟ and no lesser sanction would adequately remedy the damage done by the litigant‟s misconduct." Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 778 (3d Cir. 2001) (quoting Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 361 (3d Cir. 1996); and Klein v. Stahl GMBH & Co. Maschinefabrik, 185 F.3d 98, 108 (3d Cir. 1999)).
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).*fn8 The Montrose court also explained that "judicial estoppel is concerned with the relationship between litigants and the legal system, and not with the way that adversaries treat each other." Id. at 781. Thus, tailoring the harm done requires an inquiry into the damage inflicted upon the dignity or authority of the court, not into the damage suffered by other parties.
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.*fn9 Instead, Tenet withdrew the motion to dismiss that asserted those claims. See Notice, Aug. 13, 2010, ECF No. 42. Therefore, because I never adopted Tenet‟s first argument, I find that their second argument was not advanced in bad faith. See Montrose, 243 F.3d at 778; G-I Holdings, 586 F.3d at 261 ("Here the District Court never accepted [defendant‟s] prior position. [Defendant] withdrew that position and asserted its new one . . . before the Court ruled on its motion to dismiss. . . . Because the Court never relied on [defendant‟s] first position, we shall not bar its new one.").*fn10
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 (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) or participating in discovery, without more, will not necessarily constitute a waiver.‟" Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir. 1992) (quoting Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777, 783 (3d Cir. 1975)). But waiver can result "where the demand for arbitration came long after the suit commenced and when both parties had engaged in extensive discovery." Gavlik, 526 F.2d at 783 (emphasis added). In short, prejudice is determinative. Id.
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:  the timeliness or lack thereof of a motion to arbitrate . . . [; 2] the degree to which the party seeking to compel arbitration has contested the merits of its opponent‟s claims;  whether that party has informed its adversary of the intention to seek arbitration even if it has not yet filed a motion to stay the district court proceedings;  the extent of its non-merits motion practice;  its assent to the court‟s pretrial orders; and  the extent to which both parties have engaged in discovery.
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.
a.Timeliness or lack thereof 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 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 the borderline between reasonable and unreasonable, it still does not weigh in favor of waiver. Seven months remains on the low end of potential delays (as compared to the multi-year delays assessed in some cases), and appears almost presumptively acceptable (given the willingness of other district courts to compel arbitration even when substantial, although admittedly not extensive, discovery has taken place in the course of those seven months).
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., 130 S. Ct. 1758 (2010).*fn11 Reply 17. Thus, in light of Defendants‟ early mention of arbitration, mid-range delay in moving for arbitration, and reasons for that delay, the first Hoxworth factor does not weigh in favor of a finding of waiver in this case.
b.The degree to which Defendants contested the merits of Plaintiff's claims
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.
c.Whether Defendants informed Plaintiff of their intention to seek arbitration
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 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.
d.The extent of Defendants' non-merits motion practice
There has indeed been some non-merits motion practice. Defendant Tenet filed a (nowmooted) motion to dismiss for lack of personal jurisdiction, Plaintiff responded, and Defendant replied.*fn12 This consideration may weigh in favor of a finding of waiver. However, I note that these exchanges have likely not been the "lengthy course of litigation" typically giving rise to waiver. Great Western Mortg. Corp. v. Peacock, 110 F.3d 222, 233 (3d Cir. 1997).
e.Defendants' assent to the court's pretrial orders
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.*fn13
This factor, too, may therefore suggest waiver. However,
these orders were relatively basic and mostly triggered by routine
party stipulations as to timing.*fn14 Thus any
indication of waiver on these grounds is slight.
f.The extent to which both parties have engaged in 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.*fn15
More specifically, courts finding that the right to compel arbitration has been waived are often faced with parties who have deposed one another‟s witnesses. See Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir. 2000); Jayeff Constr. Corp. v. Laborers' Int'l Union of N. Am., No. 05-5465, 2009 U.S. Dist. LEXIS 111230, at *9 (D.N.J. Nov. 30, 2009); Yanes v. Minute Maid Co., No. 02-2712, 2006 U.S. Dist. LEXIS 8859, at *11 (D.N.J. Mar. 2, 2006). Depositions have not yet taken place in this case.
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 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.*fn16 Such prejudice can be procedural or substantive. See generally Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 224 (3d Cir. 2007). Procedural prejudice results when a party has expended significant resources in litigation before receiving notice of a request for arbitration. Substantive prejudice can result in several scenarios, such as when a party 1) has been exposed to significant discovery, which it would not have had to endure in arbitration, 2) has been forced to reveal its legal arguments in responding to motions for summary judgment and the like,*fn17 or 3) is compelled to relitigate a claim when a party, having lost in court, seeks a second chance before an arbitral panel.*fn18
Ultimately, Plaintiff has not been significantly prejudiced in this case. Although she has had to engage in some litigation over the course of a period of months, the discussion of the time and other factors above indicates that any procedural prejudice suffered as a result falls short of the procedural prejudice that has been found problematic in the past. Furthermore, Quilloin has not had to expose herself in discovery, nor has she revealed her legal arguments in motions on the merits. Finally, this is not a case where Defendants have lost on a claim in court and are seeking a second chance in arbitration. Therefore, any prejudice remains minor, and I find that Defendants have not waived their right to compel arbitration in this matter.
B.Validity and Scope
1.A court has the obligation to determine the validity of the agreement to arbitrate.
In their reply, Defendants submit that, based on the Supreme Court‟s recent decision in Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (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.*fn19
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 (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.*fn20
Most recently, in Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (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 employment disputes, and the second to arbitrate disputes as to the unconscionability of the first (the "delegation provision"). Under the Prima Paint framework, the Supreme Court found that the agreement to arbitrate employment disputes constituted the contract as a whole, while the delegation provision constituted a separate agreement to arbitrate. Therefore, the Court concluded that it could only consider the validity of the delegation provision, and could not reach the validity of the broader agreement. Because Jackson had addressed his agreements to the unconscionability of the contract as a whole, the Court referred his claims to arbitration.
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 U.S. Dist. LEXIS 28439, at *39-43 (N.D. Cal. Mar. 31, 2008); Dunham v. Envtl. Chem. Corp., No. 06-03389, 2006 U.S. Dist. LEXIS 61068, at *21-23 (N.D. Cal. Aug. 16, 2006); Allen v. Apollo Group, Inc., No. 04-3041, 2004 U.S. Dist. LEXIS 26750 (S.D. Tex. Nov. 9, 2004); Nyulassy v. Lockheed Martin Corp., 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 other arguments attacking the arbitration clause. For instance, she argues that the components of the arbitration agreement requiring parties to pay their own attorneys‟ fees and to waive their right to class actions are unconscionable. Resp. 12-13, 15-16.
For all of these reasons, I may proceed to address Plaintiff‟s arguments that the agreement to arbitrate is invalid.
2.There may not be a valid agreement to arbitrate in this case.
"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 (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.*fn21 For a contract to be unconscionable under Pennsylvania law, it must be both procedurally and substantively unconscionable. See Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 2007) ("[A] contract or term is unconscionable, and therefore avoidable, where there was a lack of meaningful choice in the acceptance of the challenged provision and the provision unreasonably favors the party asserting it. The aspects entailing lack of meaningful choice and unreasonableness have been termed procedural and substantive unconscionability, respectively." (internal citations omitted)).
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 provision unreasonably favors the party asserting it. See Salley, 925 A.2d at 119. In other words, as a general matter, "[i]n determining whether a clause is unconscionable, the court should consider 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).
Attorneys' Fees and Costs
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:
A court faces a conceptually difficult task in deciding whether to grant summary judgment on a matter of contract interpretation. Only an unambiguous writing justifies summary judgment without resort to extrinsic evidence, and no writing is unambiguous if susceptible of two reasonable interpretations. The first step for a court asked to grant summary judgment based on a contract‟s interpretation is, therefore, to determine whether, as a matter of law, the contract is ambiguous or unambiguous on its face. If a court properly determines that the contract is unambiguous on the dispositive issue, it may then properly interpret the contract as a matter of law and grant summary judgment because no interpretive facts are in genuine issue. Even where a court, however, determines as a matter of law that the contract is ambiguous, it may yet examine evidence extrinsic to the contract that is included in the summary judgment materials, and, if that evidence is, as a matter of law, dispositive of the interpretive issue, grant summary judgment on that basis. If, however, resort to extrinsic evidence in the summary judgment materials leaves genuine issues of fact respecting the contract‟s proper interpretation, summary judgment must of course be refused and interpretation left to the trier of fact.
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., 65 A.2d 417, 419 (Pa. 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, 767 A.2d 1047, 1050 (Pa. 2001) (quoting Cerceo v. DeMarco, 137 A.2d 296, 298 (Pa. 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, 697 A.2d 255, 257 (Pa. 1997) (Castille, J., dissenting) (citing In re Alloy Mfg., 192 A.2d 394 (Pa. 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 law. Thus, I order discovery as to whether the contract forbids or permits the recovery 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.
Class Action Waiver
Defendants state in their motion to compel arbitration that Plaintiff must proceed on an individual basis and cannot assert her FTP claims in a class manner. Plaintiff assumes for the sake of argument that the agreement requires individual, not class, arbitration, and then contends that the FTP represents a substantively unconscionable waiver of the right to class proceedings.*fn22
The agreement itself does not discuss the individual or class nature of the proceedings. Here, I consider only the issue presented to me, namely whether the agreement is substantively unconscionable if class arbitration is not in fact allowed.
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., No. 09-5121, 2010 WL 1253578, at *15 (E.D. Pa. Mar. 22, 2010) (citing Kaneff v. Del. Title Loans, Inc., 587 F.3d 616 (3d Cir. 2009); Cronin v. CitiFinancial Servs., Inc., 352 F. App‟x 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).*fn23
There is not currently enough evidence in the record to determine whether Plaintiff would be precluded from bringing her claim as an individual due to prohibitive cost, and whether Defendants would thereby be insulated from liability.
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 F. App‟x 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.*fn24 I thus anticipate subsequent motions on the issue, and will grant a hearing if requested by the parties and found necessary by the Court.
Running Out the Clock
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 limitations period governing the claim), the company is implicitly committing itself to progressing through the four preliminary steps before the relevant statue of limitations runs. On the other hand, there is no binding language to this effect, as the agreement repeatedly states only "as soon as possible" and "usually."
As stated above, substantive unconscionability arises when a contractual provision unreasonably favors the party asserting it. See Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 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.*fn25 Moreover, there are genuine issues of material fact pertaining to the meaning of the contract on this issue. The introduction of additional evidence as to Tenet‟s intention (in creating this multi-step process with unclear time limitations) and practice (of, timely or untimely, addressing employees‟ grievances) would be helpful to the resolution of this claim. Therefore, I order additional discovery as to the meaning and application of the contract on this point. Any disputed facts must be presented to a jury for resolution. Then I can determine as a matter of law at a later stage whether the FTP is unconscionable for allowing Defendants to run out the clock on Plaintiff‟s claims. As with the class action waiver issue, I anticipate subsequent motions on the issue, and will grant a hearing if requested by the parties and found necessary by the Court.*fn26
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. CooperNeff 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 was [not] even remotely comparable to that of the plaintiff in Zimmer." Id. at 202. Rather, "Nino was dependent upon [his employer] with respect to his immigration status at the time he accepted the job offer." Id. (internal citations omitted).
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, I was told I had to sign the Acknowledgment. I literally was not given any choice whatsoever about whether to sign this Acknowledgment, nor was I given any opportunity to discuss or negotiate any terms set forth in the Acknowledgment.
The Acknowledgement was presented to me while I was at work, and I was given no time to review it in any real detail. The first time I saw it was when I was told I had to sign it. I was not given an opportunity to review it or to consult with an attorney about it.
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 F. App‟x 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., 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).*fn27
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.
C.The FLSA dispute falls within the scope of the agreement to arbitrate.
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 claim." Id. Thus, an employee can pursue non-waivable statutory claims via the FTP; the qualification is only that alternative agency avenues for resolution of the claims also remain open to him or her as a preliminary matter.*fn28
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 (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 non-judicial resolution of such claims. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (2000). 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 9, 2006. Reply Ex. A. Upon request of the Court, Plaintiff filed a supplemental submission "acknowledging signing that document," with the result that this final scope argument is now moot. See Supplemental Submission, Dec. 1, 2010, ECF No. 46.
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.
ANITA B. BRODY, J.
Copies VIA ECF on _______ to: Copies MAILED on _______ to: