Summary
enforcing an arbitration agreement signed by plaintiff, and noting that continued employment after receiving notice of the mandatory arbitration policy constituted acceptance of the offer, not the employee's signature
Summary of this case from Hoffman v. CompassusOpinion
No. 02-CV-7971
November 22, 2002
OPINION AND ORDER
Presently before this court are Defendants' Motion to Compel Arbitration filed on October 28, 2002; and Plaintiff's Memorandum in Opposition to Defendants' Motion filed on November 12, 2002. In September 2002, Plaintiff filed a complaint in state court alleging that Defendants violated the Age Discrimination in Employment Act of 1967 ("ADEA"), 29 U.S.C. § 621, and the Pennsylvania Human Relations Act, 43 PA. C.S.A. § 955 962, when Plaintiff was discharged. The action was removed to federal court on October 21, 2002. Defendants' request this court to compel arbitration pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16. Defendants' Motion to Compel Arbitration will be granted.
I. Facts
Plaintiff Leonard Gutman ("Gutman") began his employment with the Defendants' in June, 1993. His employment was "at-will." In 1997, Defendants' initiated and promulgated a "Corporate Dispute Resolution Policy" ("CDRP"). A "Questions and Answers" packet was attached to the CDRP. See Defs.' Br. Ex. A [hereinafter CDRP/QA].
The CDRP states that it was "a condition of continued employment and binding upon the Company and the employee. . . ." See CDRP/QA, at 1. It requires employees to resolve employment disputes through a three-phased process. First, employees must raise their dispute with their employer through its "Open Door Policy." if the "Open Door Policy or other internal human resource channels" prove fruitless, then the parties must attend a mediation session conducted by the American Arbitration Association ("AAA"). Id., at 2. If the mediation fails, then the parties are required to submit their dispute to a binding arbitration before an AAA arbitrator. The arbitrator's decision will be "exclusive," "final and binding upon both the Company and the employee." CDRP/QA at 2. The "Question and Answers" section specifically informs the employees that the CDRP "is the sole and exclusive remedy for all covered disputes," and that "courts and juries will not become involved in deciding any disputes covered by the Policy." CDRP/QA at 8.
The Policy did not cover claims regarding worker's compensation, unemployment compensation benefits, and claims under any of the Defendants' employee welfare benefit and pension plans. See CDRP/QA, at 2.
Defendants's specifically retained the right to modify or rescind the policy at any time upon notification to the employees. Any modification or rescission would only effect future claims because the CDRP is binding on the Defendants' and its employees for any dispute in which the operative facts occurred before the modification or rescission. See CDRP/QA, at 5.
On July 22, 1997, Gutman signed a document that stated: "I acknowledge receipt of the corporate dispute resolution policy and the questions and answers." CDRP/QA at 10; see Pl.'s Br. at 3. Instead of going through the mediation and arbitration process, Gutman filed a claim in Pennsylvania state court in September 2002.
II. Standard of Review
A motion to compel arbitration is viewed as a summary judgment motion if the parties contest the making of the agreement. Hamilton v. Travelers Property Casualty, No. CIV. A. 01-11, 2001 WL 503387, at *2 (E.D. Pa. May 11, 2001); Lepera v. ITT Corp., No. 97-1461, 1997 WL 535165, at *3 (E.D. Pa. Aug. 12, 1997) (citing Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)). In most cases, a party has a right to a jury trial on this issue. 9 U.S.C. § 4; Lepera, 1997 WL 535165, at *3 However, if there is no genuine issue of fact concerning the formation of the agreement, the court should decide whether the parties did or did not enter into the agreement. Lepera, 1997 WL 535165, at *3 "Further, the court should apply the summary judgment standard, giving the opposing party `the benefit of all reasonable doubts and inferences that may arise.'" Id. (citations omitted); see also FED. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Moreover,
if a party to a binding arbitration agreement is sued in federal court on a claim that the plaintiff has agreed to arbitrate, it is entitled under the FAA to a stay of the court proceeding pending arbitration . . . and to an order compelling arbitration. . . . If all the claims involved in an action are arbitrable, a court may dismiss the action instead of staying it.Seus v. John Nuveen Co., Inc., 146 F.3d 175, 179 (3d Cir. 1998) (citations omitted).
III. Discussion
This is the second time that this Defendant and this CDRP have come before this court on a motion to compel arbitration. In 1999, this court denied Baldwin's motion to compel arbitration in Wetzel v. Baldwin Hardware Corp., No. Civ. A. 98-3257, 1999 WL 54563 (E.D. Pa. Jan. 29, 1999) (Van Antwerpen, J.). The cases are similar but not identical. Both matters involve a former employee proceeding in court against Baldwin without adhering to the CDRP. Both former employees were given copies of the CDRP prior to filing his claim in court. Both employees continued their employment with Baldwin after receipt of the CDRP. Both parties allege that Baldwin violated the ADEA. However, we did not grant Baldwin's motion to compel in Wetzel, because David Wetzel had filed his EEOC grievance prior to the implementation of the CDRP. In the present case, Gutman filed his complaint years after the CDRP was implemented.
For a similar case involving Masco's Delta Faucet subsidiary and the same arbitration policy, see Kreimer v. delta Faucet Co., No. IP99-1507-C-TG, 2000 WL 962817 (S.D. Ind. June 2, 2000).
Although Wetzel did not sign the acknowledgment form.
Plaintiff contends that the CDRP is not a binding contract between the parties because the alleged agreement: (1) is illusory; (2) lacks consideration; and (3) lacks mutuality. Plaintiff further contends that even if an agreement exists, it is unenforceable because: (1) handbooks can not modify at-will employment contracts; (2) Defendants are only identified as "the Company" in the CDRP; (3) it is a contract of adhesion; and (4) Plaintiff must pay for his own attorney's fees. Each of Plaintiff's arguments fail.
Although all relevant sources were found, Plaintiff's counsel did not correctly cite several cases. Counsel is reminded to distinguish between the Federal Reporter and the Federal Supplement so that the court can make timely and accurate decisions.
As noted in Wilson v. Darden Restaurants Inc., No. 99-5020, 2000 WL 150872, at *2 (E.D. Pa. Feb. 11, 2000), "federal law presumptively favors the enforcement of arbitration agreements." Id. (quoting Harris v. Green Tree Fin. Corp., 183 F.3d 173, 178 (3d Cir. 1999)). Further, the FAA "directs courts towards vigorous enforcement of arbitration, requiring that an arbitration agreement `shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Id. (quoting Seus 146 F.3d at 178 (citing 9 U.S.C. § 2); and Wetzel, 1999 WL 54563, at *2 (citations omitted)). In addition, "`a federal court is authorized to compel arbitration if a party to an arbitration agreement institutes an action that involves an arbitrable issue and one party to the agreement has failed to enter arbitration.'" Id. (quoting Harris, 183 F.3d at 179);Hamilton 2001 WL 503387, at *2. Yet, the FAA does not require parties to arbitrate when they have not agreed to do so. See Phillips v. Cigna Investments, Inc., 27 F. Supp.2d 345 (D. Conn. 1998) (citing Collins Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995)).
A federal court must look to the relevant state law on the formation of contracts to determine whether there is a valid arbitration agreement under the FAA. See e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d Cir. 2002). Both parties agree that Pennsylvania law shall apply. Before concluding that there is a valid contract under Pennsylvania law, the court must "look to: (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 Communications, Inc., 155 F.3d 659, 666 (3d Cir. 1998); see also Blair, 283 F.3d at 603;Aircraft Guar. Corp. v. Strato-Lift, Inc., 103 F. Supp.2d 830, 836 (E.D. Pa. 2000) ("[C]ontracts are enforceable when parties reach a mutual agreement, exchange consideration, and have set forth the terms of their bargain with sufficient definiteness to be specifically enforced."). "Consideration `confers a benefit upon the promisor or causes a detriment to the promisee and must be an act, forbearance or return promise bargained for and given in exchange for the original promise.'" Channel Home Ctrs. v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986) (quoting Curry v. Estate of Thompson, 481 A.2d 658, 661 (Pa.Super. 1984)). Without consideration, a contract is unenforceable. Id. at 298-99.
A. Offer, Acceptance and Consideration
The first issue is whether the CDRP is an enforceable contract supported by adequate consideration. We find that it is. "Arbitration is a matter of contract between the parties and the determination of whether the agreement is enforceable is made under Pennsylvania law." Wetzel, 1999 WL 54563, at *3; see Goodwin v. Elkins Co., 30 F.2d 99, 108 (3d Cir. 1984).
In determining whether the CDRP amounts to a contract between the Defendants and Gutman, we must first examine whether there has been an offer, an acceptance of that offer, and consideration. Additionally, an employee handbook or policy can not be considered a contract that binds "at-will" employees, unless: (1) it contains a definite statement which announces the parties' intent to be bound; and (2) notice of the policy or handbook is given to employees. See Wilson, 2000 WL 150872; Martin v. Capital Cities Media, Inc., 511 A.2d 830 (Pa.Super. 1986) ("[T]o find that . . . a handbook has legally binding contractual significance, the handbook or an oral representation about the handbook must in some way clearly state that it is to have such effect."), quoted by Luteran v. Loral Fairchild Corp., 688 A.2d 211, 215 (Pa.Super. 1997) (finding a handbook non-binding because it explicitly stated that it was non-binding and merely an illustrative guide for employees); cf. Small v. Juniata College, 682 A.2d 350 (Pa.Super. 1996) ("We have held that it is for the court to interpret the handbook to discern whether it contains evidence of the employer's intention to be legally bound.") (quoting Ruzicki v. Catholic Cemeteries Assoc., 610 A.2d 495 (Pa.Super. 1992) (finding a handbook unenforceable against an employer where the handbook did not include a statement evidencing the employer's intent to convert the "at-will" relationship into a "just cause" employment contract)); but see Reilly v. Stroehmann Bros. Co., 532 A.2d 1212, 1214-15 ( Pa. Super. 1987) (finding no agreement to arbitrate when the defendant's arbitration handbook stated claims "may" be raised by employees before an arbitrator).
Defendants made an offer and gave Gutman notice of the offer. This is demonstrated by the dissemination of the CDRP to its employees and is evidenced by Gutman's signature on page 10 of his copy of the CDRP. Gutman's signature did not amount to acceptance of the offer. However, Gutman accepted the offer by continuing his employment with Defendants. The CDRP specifically states that acceptance of the CDRP is a condition of continued employment. Acceptance does not need to be in writing, but can be expressed through performance.
Additionally, continued employment fulfills the consideration requirement under Pennsylvania law. See Hamilton, 2001 WL 503387, at *2 (finding continued employment of two years following receipt of the employee handbook which included an arbitration agreement sufficient to constitute acceptance and consideration); Wilson, 2000 WL 150872, at *3-4 (finding acceptance of the arbitration agreement when plaintiff was given a copy of the arbitration policy, watched a video tape describing the arbitration policy and continued to work for two months thereafter);Wetzel, 1999 WL 54563, at *3; Lepera, 1997 WL 535165, at *3-5 (finding a binding arbitration agreement under Indiana law when plaintiff signed the receipt form; the arbitration clause was clear and definite; and acceptance and consideration requirements were met by continued employment). The CDRP was accepted by Gutman and is a binding agreement supported by adequate consideration.
B. The CDRP is Not Illusory
Under Pennsylvania law, if the provisions of a contract are optional with the promisor, the contract is termed "illusory" and the promisee is not "justified in an expectation of performance." Star v. O-I Brockway Glass, Inc., 637 A.2d 1371 (Pa.Super. 1994) (citing RESTATEMENT OF CONTRACTS § 2 cmt. e); see also Geisinger Clinic v. Di Cuccio, 606 A.2d 509 (1992) ("If the promise is entirely optional with the promisor, it is said to be illusory and, therefore, lacking consideration and unenforceable.")
Plaintiff contends that the CDRP is illusory because the CDRP can be modified by Defendants. The right to modify or rescind the contract by an employer at some future date does not automatically render a contract illusory. See Blair v. Scott Specialty Gases,, 283 F.3d 595, 604 (3d Cir. 2002) (holding that a arbitration agreement promulgated in an employee handbook is not illusory where employer's ability to modify it were limited to future disputes after: (1) proper notification to employees, and (2) acceptance by the employee as evidenced by continuing employment). The CDRP does not allow Defendants the option not to preform. The CDRP forces the Defendants to arbitrate any claim where the operative events and omissions occurred prior to notification of a new policy. A modification or recision will not allow Defendants to opt for court review in Gutman's claim. Defendants are bound by the agreement because the operative facts giving rise to Gutman's claim have already occurred. Compare id. at 604 (finding the contract non-illusory when the agreement only allowed the employer to make limited modifications to the arbitration procedure in pending disputes); with Wetzel, 1999 WL 54563, at *5 (finding that the CDRP was not enforceable because it was implemented after the plaintiff filed an EEOC grievance). The CDRP is not illusory because Defendants retained the right to alter the agreement "only after putting the agreement in writing, providing a copy to the employees, and allowing the employees to accept the change by continuing employment." Id. at 604.
C. Mutuality is Not Required When Consideration Exists
Plaintiff seems to imply that the CDRP lacks mutuality because the only disputes subjected to arbitration under the CDRP are disputes in which an employee is the potential plaintiff. This does not render the CDRP unenforceable due to a lack of mutuality. A contract need not have mutuality of obligation as long as the contract is supported by consideration. See Harris v. Green Tree Fin. Corp., 183 F.3d 173, 180 (3d Cir. 1999) (finding contract enforceable where one party had option to litigate arbitral issues in court, while the other party was required to invoke arbitration, because mutuality is not required where the requirement of consideration is met), cited by Blair, 283 F.3d at 603-04. As discussed in Section III.A. surpa, the arbitration agreement between the parties is supported by adequate consideration.
D. Handbooks Can Modfy At-Will Contracts Under Pennsylvania Law
Plaintiff argues the CDRP is not a binding contract because the CDRP contains an "at will" disclaimer. It states:
Employment Status
This Policy does not in any way alter the `at-will' status of the employee's employment. Nothing in this Policy will limit the employee's right to resign from the Company, or the Company's right to terminate the employee's employment for any reason at any time.
CDRP/QA at 4. The Plaintiff cites cases where "at-will" disclaimers in employee handbooks prevent the employee from invoking the handbook as evidence that the employer agreed to only discharge the employee for "just cause." This is not an issue in the present case. Gutman is not claiming that Defendants were only allowed to discharge him for "just cause." The CDRP does not discuss the reasons why an employee would be discharged. It is not even an employment contract. The CDRP is an agreement regarding the method for resolving disputes.
Moreover, handbooks can modify "at-will" employment contracts under Pennsylvania law as long as the handbook clearly states the employer's intent to be bound by the handbook's content. See Luteran, 688 A.2d at 214 (finding that employee handbook did not create an agreement because it did not contain clear language that the employer intended to form a contract); Ruzicki, 610 A.2d at 497 (stating that handbooks are "enforceable against an employer if a reasonable person in employee's position would interpret its provisions as evidencing the employer's intent" to be bound); Small, 682 A.2d at 353 ("We have held that it is for the court to interpret the handbook to discern whether it contains evidence of the employer's intention to be legally bound."). Here, Defendants clearly intended to form a contract with their employees. The CDRP is a binding contract because it clearly states that it is "binding on the Company and the employee. . . ." See DRP/QA, at 1.
E. The Contract is Clear Definite Regarding the Identity of the Parties
Plaintiff does not cite any authority that holds that the identity of "the Company" must be explicitly stated in a written agreement in order for it to be enforceable. Here, the document was handed directly from the employer to an employee. Any reasonable person in Gutman's position would discern that "the Company" mentioned in the CDRP is Gutman's employer and not some fictional entity.
F. The CDRP Is Not a Contract of Adhesion
In addition, this court does not find that Gutman was subject to an unenforceable adhesion contract. "Mere inequality of bargaining power . . . is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context."Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991), cited by Wetzel, 1999 WL 54563, at *5 "An adhesion contract is defined as a `standard form contract prepared by one party, to be signed by the party in a weaker position, [usually] a consumer, who has little choice about the terms.'" Huegel v. Mifflin Constr. Co., 796 A.2d 350, 357 (Pa.Super. 2002) (quoting BLACK'S LAW DICTIONARY (7th ed. 1999)); accord Robson v. EMC Ins. Cos., 785 A.2d 507, 510 (Pa.Super. 2001), appeal denied, 796 A.2d 984 (2002). Finding that a contract is one of adhesion does automatically render that it an unconscionable contract. "Even where a contract is found to be a contract of adhesion, the terms of the contract must be analyzed to determine whether the contract as a whole, or specific provisions of it, are unconscionable." Lytle v. CitiFinancial Serv., Inc., No. 00-7550, 2002 WL 31388882, at *11 (Pa.Super.Ct. Oct. 24, 2002) (citing Rudolph v. Pennsylvania Blue Shield, 717 A.2d 508, 512 (Pa. 1998) (Nigro, J. concurring). Pennsylvania law requires a two-fold examination for unconscionability: "(1) that the contractual terms are unreasonably favorable to the drafter; and (2) that there is no meaningful choice on the part of the other party regarding acceptance of the provisions." Lytle, 2002 WL 31388882, at *11 (citing Worldwide Underwriters Ins. Co. v. Brady, 973 F.2d 192, 196 (3rd Cir. 1992) (citations omitted)); see Todd Heller, Inc. v. United Parcel Service, Inc., 754 A.2d 689, 700 (Pa.Super. 2000) (finding shipping contracts printed on defendant's invoices were not adhesion contracts simply because they were non-negotiable).
Defendant does not claim that the contract is unconscionable, as is required under Pennsylvania law for a contract to be held an unenforceable contract of adhesion. Moreover, Defendant's CDRP is not so unfair or unreasonable as to offend public policy. Nor did the Defendant somehow sneak the arbitration agreement by its employees by burying it in an employee handbook. "There is simply no reason, therefore, to not find that the CDRP is valid and enforceable." See Wetzel, 1999 WL 54563, at *4.
F. The Agreement on Attorney's Fees Does Not Violate Public Policy
We find no merit in Plaintiff's argument that the CDRP violates public policy by requiring the employee to pay for his attorney's fees. See CDRP/QA, at 2. In McCaskill v. SCI management Corp., 298 F.3d 677 (7th Cir. 2002), the Seventh Circuit Court of Appeals found that the fee-splitting provision in an employee arbitration agreement violated public policy when the fee-splitting clause required the employee to pay her own attorney's fees "regardless of the outcome of the arbitration."Id. at 680. In the present case, Defendants' CDRP does not require Gutman to pay his attorney's fees "regardless of the outcome of the arbitration." The relevant text states:
Right of Representation
The employee has the right to be represented by an attorney during any phase of the mediation and arbitration proceedings. The expenses of such representation shall be the sole responsibility of the employee.
Once the CDRP is read as a whole, it becomes obvious that this clause does not deny any statutory rights to Gutman. The CDRP states that the AAA's arbitrator is free to award any damages or other relief "as would a judge in court." See CDRP/QA, at 4. The AAA arbitrator will award Gutman attorney's fees if he prevails, because a judge in court would award attorney's fees to a prevailing plaintiff in an ADEA action pursuant to 29 U.S.C. § 216(b). The CDRP does not violate public policy because the attorney's fee provision in the CDRP does not curtail Gutman's statutory rights.
The clause states in relevant part:
Upon a finding that the employee has sustained the burden of persuasion, the Arbitrator shall have the same power and authority (and no more) as would a judge in court to grant monetary damages or such other relief as may be in conformance with applicable principles of common, decisional, and statutory law in the relevant jurisdiction.
CDRP/QA, at 4.
IV. Conclusion
The CDRP is a binding arbitration agreement between Defendants and Gutman. Gutman has not adhered to the terms of the agreement. Therefore, we will grant Defendants' Motion to Compel Arbitration pursuant to 9 U.S.C. § 3 4. An appropriate order follows.
ORDER
AND NOW, this 22nd day of November, 2002, upon consideration of Defendants' Motion to Compel Arbitration filed on October 28, 2002 [2-1]; and Plaintiff's Memorandum in Opposition to Defendants' Motion filed on November 12, 2002 [4-1], it is hereby ORDERED that Defendants' Motion to Compel Arbitration [2-1] is GRANTED and Plaintiff's claims are DISMISSED; and the matter SHALL PROCEED to arbitration within the jurisdictional limits of the United States District Court for the Eastern District of Pennsylvania pursuant to 9 U.S.C. § 4, and the parties' arbitration agreement.