Opinion
21-P-1158
10-24-2022
JOSE LOURENCO v. RUSSELL CELLULAR, INC.
Unpublished Opinion
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The defendant, Russell Cellular, Inc. (Russell), appeals from a Superior Court judge's order denying, without substantive explanation, Russell's motion to compel arbitration of the employment claims asserted by the plaintiff, Jose Lourenco, and to dismiss, or in the alternative, stay the action. Applying Missouri law, we agree with Russell that two of Lourenco's arguments against arbitration -- that the arbitration agreement is unenforceable for want of consideration and as substantively unconscionable -- furnish no support for the judge's order. But Lourenco's third argument, that the agreement is procedurally unconscionable, turns on issues of disputed fact and on Missouri law that the parties have not adequately briefed. We therefore vacate the order and remand for resolution of the remaining questions.
Background. Lourenco's complaint alleged that he was employed as a store manager by Russell or its predecessor in interest since around 2012. He alleged that Russell subjected him to various adverse employment actions, and ultimately terminated his employment in May 2020, in violation of Federal and Massachusetts employment statutes. Lourenco commenced this Superior Court action in 2021. Russell then moved to compel arbitration and to dismiss (or alternatively to stay) the action. Attached to Russell's motion was an agreement for binding arbitration executed by Lourenco and Russell on May 21, 2019.
Lourenco opposed the motion on the grounds that the agreement was unenforceable because it lacked consideration and was procedurally and substantively unconscionable. Lourenco also filed an affidavit in which he asserted that he first learned of the arbitration agreement on May 21, 2019, when Russell informed him that he would be terminated if he did not sign it by the end of the day. He further asserted that he was busy working that day and was given very little time to review the agreement and no opportunity to obtain legal advice. Lourenco stated that he "had no choice but to sign the agreement right away" and so he wrote the Latin words "Vi Coactus" next to his signature to denote that he was signing the agreement under duress.
The agreement includes a clause providing that any arbitration held thereunder "shall be held in Greene County, Missouri," the State where Russell is incorporated and has its principal place of business, "unless some other location is mutually agreed upon by the [p]arties." Lourenco challenged this Missouri arbitral forum clause as substantively unconscionable. His affidavit asserted that at all relevant times he was a Massachusetts employee, he had never been to Missouri, he had no connections there, he could not afford to travel there or hire Missouri counsel to pursue his claims, and that as a result he "would be completely unable to pursue a case in Missouri."
Russell filed a reply memorandum asserting, among other things, that it "is (and was always) amenable to holding the arbitration in Massachusetts," and that in any event, the arbitration could be held by teleconference, eliminating Lourenco's concerns regarding travel and other financial hardships.
The judge conducted a brief, nonevidentiary hearing on Russell's motion, after which the judge denied the motion by a margin order that stated in its entirety: "After review and consideration the motion and requests for relief, amounting to this [c]ourt deeming, outright, the agreement between the parties binding and valid, is denied. At this stage of the litigation the [c]ourt is not inclined to compel arbitration, dismiss or stay this action." The order unfortunately gave the parties no guidance on what (if any) issues the judge had decided and what issues remained to be resolved. Russell then appealed, as authorized by G. L. c. 251, § 18 (a) (1) .
Discussion. 1. Choice of law. The agreement includes a clause stating, "The validity, enforceability, interpretation, construction, and performance of this [a]greement will be governed by the laws of the State of Missouri applicable to agreements made and to be performed in Missouri, to the extent that such laws are not preempted by the Federal Arbitration Act."
As to the issue of consideration, it is not self-evident that a contractual choice of law clause determines what law applies to the logically prior question whether the contract was supported by consideration so as to be formed in the first place. The parties have not briefed that issue, but they assert that any differences between Missouri and Massachusetts law are not dispositive here; and, as to the issue of consideration, we agree, see infra. We therefore assume without deciding that Missouri law governs that question.
See generally Restatement (Second) of Conflict of Laws §§ 187 (discussing when contractual choice of law clause will and will not be enforced); 188 (discussing what law governs in absence of effective choice by parties); 200 (providing that certain questions regarding validity of contract are governed by §§ 187188) (1971).
2. Consideration. We agree with Russell that sufficient consideration supports the agreement. We do so, however, without regard to the agreement's recitation that Lourenco's "continuing employment with [Russell] is adequate and sufficient consideration" for Lourenco to enter into the agreement. Under Missouri law, continuing at-will employment is insufficient consideration to support an arbitration agreement. See Jimenez v. Cintas Corp., 475 S.W.3d 679, 684 (Mo.Ct.App. 2015).
Russell agreed at oral argument that the courts, rather than an arbitrator, should decide the issues of consideration and unconscionability, and Lourenco has not argued otherwise.
It appears undisputed that Lourenco was an employee at will.
Under Massachusetts law, continuing employment may constitute consideration for an agreement as to the terms of employment. See Suominen v. Goodman Indus. Equities Mgt. Group, LLC, 78 Mass.App.Ct. 723, 732 n.11 (2011). Some Federal courts have gone further. See Bekele v. Lyft, Inc., 199 F.Supp. 3D 284, 294 (D. Mass. 2016) (under Massachusetts law, continuing at-will employment sufficient consideration to support arbitration agreement), aff'd on other grounds, 918 F.3d 181, 186 (1st Cir. 2019). We need not discuss the issue further, because we conclude infra that here there was other, sufficient consideration under both Missouri and Massachusetts law.
Russell's more persuasive argument is that the agreement to arbitrate is mutual; it requires Russell as well as Lourenco to submit employment-related disputes between them to arbitration. Under Missouri law, where an "arbitration clause contemplates a mutual agreement between the parties to submit to [arbitration]," it "constitutes an enforceable contract." McIntosh v. Tenet Health Sys. Hosps., Inc./Lutheran Med. Ctr., 48 S.W.3d 85, 89 (Mo.Ct.App. 2001). Lourenco's only response is that the agreement did not expressly specify that Russell's promise to arbitrate constituted consideration for Lourenco's identical promise. This argument is unavailing. "A finding of consideration does not depend on the existence of a consideration clause" (quotation and citation omitted). McRentals, Inc. v. Barber, 62 S.W.3d 684, 706 (Mo.Ct.App. 2001). Russell's promise to arbitrate its claims was sufficient consideration.
In the Commonwealth, similarly, mutual promises generally are sufficient consideration to support a contract. See Kahn v. Waldman, 283 Mass. 391, 393 (1933); Lord's & Lady's Enters., Inc. v. John Paul Mitchell Sys., 46 Mass.App.Ct. 262, 268 (1999).
The parties do not cite, and we have not found, any Massachusetts decision providing otherwise.
3. Unconscionability. Lourenco also opposed arbitration on the ground that the agreement was unconscionable. Under Missouri law, which the parties agree governs here due to the agreement's choice of law clause, the rule is that "[u]nconscionability has two aspects: procedural unconscionability and substantive unconscionability. . . . Procedural unconscionability focuses on such things as high pressure sales tactics, unreadable fine print, or misrepresentation among other unfair issues in the contract formation process. . . . Substantive unconscionability means an undue harshness in the contract terms." State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 858 (Mo. 2006) (en banc).
An agreement or provision thereof need not "be separately found to be both procedurally and substantively unconscionable to be invalid. . . .It is more accurate to state that a court will look at both the procedural and substantive aspects of a contract to determine whether, considered together, they make the agreement or provision in question unconscionable." Eaton v. CMH Homes, Inc., 461 S.W.3d 426, 432-433 (Mo. 2015) (en banc). See State ex rel. Hewitt v. Kerr, 461 S.W.3d 798, 809810, 812-813 (Mo. 2015) (en banc) (although arbitration agreement not procedurally unconscionable, its provision designating particular arbitrator was substantively unconscionable); Millennium Anesthesiology Consultants, LLC v. Walsh, 562 S.W.3d 373, 380 (Mo.Ct.App. 2018) (one party's interpretation of arbitration clause was unconscionable based on substantive unconscionability alone).
Missouri case law formerly provided that "[g]enerally there must be both procedural and also substantive unconscionability before a contract or a clause can be voided," although "it ha[d] been suggested . . . that there be a balancing between the substantive and procedural aspects, and that if there exists gross procedural unconscionability then not much be needed by way of substantive unconscionability, and that the same 'sliding scale' be applied if there be great substantive unconscionability but little procedural unconscionability" (quotations and citation omitted). Whitney v. Alltel Communications, Inc., 173 S.W.3d 300, 308 (Mo.Ct.App. 2005) . Although Massachusetts law does not govern the unconscionability issue here, it is worth noting that in the Commonwealth, both types of unconscionability must be shown in order to invalidate a contract or one of its terms. See Machado v. System4 LLC, 471 Mass. 204, 218 (2015); Boursiquot v. United Healthcare Servs. Of Delaware, Inc., 98 Mass.App.Ct. 624, 630 (2020).
a. Substantive unconscionability. Here, Lourenco asserts that the agreement's Missouri arbitral forum clause is substantively unconscionable because travelling to Missouri and obtaining Missouri counsel would be prohibitively expensive.Russell replies that the clause requires arbitration in Missouri "unless some other location is mutually agreed upon by the [p]arties." And, before the motion judge and at oral argument before us, Russell has affirmed its willingness to conduct the arbitration in the Commonwealth or by teleconference. The difficulty with Russell's argument is that substantive unconscionability "examines the relative fairness of the obligations assumed at the time the contract was made" (quotation and citation omitted). Manfredi v. Blue Cross and Blue Shield of Kansas City, 340 S.W.3d 126, 133-134 (Mo.Ct.App. 2011). At the time this agreement was made, Russell had the unilateral power, by refusing to agree to arbitration elsewhere, to insist that the arbitration be held in Missouri -where Russell is incorporated and has its principal place of business, but which may be logistically impossible for Lourenco.
At oral argument, Lourenco suggested that the agreement might be substantively unconscionable on one additional ground: that it requires Missouri law to be applied to the parties' employment relationship, thus preventing Lourenco from asserting his claims based on Massachusetts law. The agreement, however, says no such thing. Its choice of law clause provides that Missouri law governs only the "validity, enforceability, interpretation, construction, and performance of this [a]greement," not the entire employment relationship.
That Russell now agrees to arbitration in Massachusetts does not bear on whether the Missouri arbitral forum clause was substantively unconscionable when the parties entered the agreement. Nevertheless, even if that clause were substantively unconscionable, it would not invalidate the entire agreement, because the agreement also includes a severability clause."Generally, [Missouri courts] will give effect to a severability clause when the clause being severed is not a necessary part of the contract." Eaton, 461 S.W.3d at 436. This principle applies to arbitration agreements. See id. Neither party here argues, nor can we conclude, that the Missouri arbitral forum clause is a necessary part of the agreement.
The clause provides:
"In the event that any paragraph or provision of this [a]greement is determined by the arbitrator or by any court of competent jurisdiction to be unlawful, invalid, or unenforceable, the parties to this [a]greement specifically and expressly agree that such provisions (including subsections of provisions) shall be severed or modified so that the rest of the [a]greement may be enforced to the greatest extent permissible under the law. A court or other entity construing this [a]greement should administer, modify, or interpret it to the extent and in such a manner as to render it enforceable."
Moreover, "[w]hen an arbitration agreement is valid, but specific provisions are silent or unconscionable, the failure of the terms is remedied by implying the terms from statutes within the Missouri Uniform Arbitration Act (MUAA)." State ex rel. Hewitt, 461 S.W.3d at 811. As relevant here, the MUAA provides that, "[u]nless otherwise provided by the agreement . . . [t]he arbitrators shall appoint a time and place for the hearing." Mo. Rev. Stat. § 435.370(1) (2016). Cf. G. L. c. 251, § 5 (a) (same). We need not now determine whether, if arbitration is ultimately ordered in this case, it must be held in Massachusetts or instead at some place determined by the arbitrator(s). For now, it suffices to say that any substantive unconscionability of the Missouri arbitral forum clause does not render the remainder of the agreement unenforceable.
b. Procedural unconscionability. Lourenco also argues, on two related grounds, that the agreement is procedurally unconscionable. First, he asserts that he was not given adequate time to review the agreement before having to choose between signing it and having his employment terminated. Second, he asserts that, when asked to sign the agreement on short notice, he was not furnished with a copy of the "Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association," which the agreement provides are to govern arbitration proceedings thereunder unless inconsistent with the agreement itself.
Lourenco, however, cites no Missouri law in support of his specific claims of procedural unconscionability, relying instead on decisions from other jurisdictions. Russell does little better. Instead it responds primarily with assertions that, as a factual matter, Lourenco was given an entire workday to review the agreement before deciding whether to sign it, and that Lourenco's use of the "Vi Coactus" notation indicates that he has "sophisticated contract knowledge."
Russell does cite Missouri cases to argue that Lourenco has not sufficiently alleged he signed under duress. But Russell cites no case suggesting that proof of duress is necessary to prove procedural unconscionability. In Eaton, the Missouri Supreme Court appeared to accept a distinction between the contract defenses of duress and unconscionability. See Eaton, 461 S.W.3d at 432. Also, after ruling on arguments that various provisions of an arbitration agreement were unconscionable, including that the agreement was a contract of adhesion, the court noted that the issue of duress had not been sufficiently developed but remained open on remand. See id. at 438-439 & n.9. Russell also cites Missouri cases for the unremarkable proposition that matters may be incorporated into a contract by reference. But none of those cases deals with whether it is procedurally unconscionable to give a party a short time to decide whether to sign a contract where potentially important terms thereof are only incorporated by reference. See, e.g., State ex rel. Hewitt, 461 S.W.3d at 810-811.
In these circumstances, we are unable to resolve Lourenco's claims of procedural unconscionability. They require further analysis under applicable Missouri law, and they may turn on disputed facts. Where there is a factual dispute regarding the existence of an arbitration agreement, Missouri law requires the judge to ""proceed summarily" to conduct an evidentiary hearing to determine the issue. Theroff v. Dollar Tree Stores, Inc., 591 S.W.3d 432, 436 &n.3 (Mo. 2020) (en banc), quoting Mo. Rev. St. § 435.355.1 (2016). See Kunzie v. Jack-In-The-Box, Inc., 330 S.W.3d 476, 481 (Mo.Ct.App. 2010).
The cited Missouri statute, Mo. Rev. St. § 435.355.1, is part of the Missouri Uniform Arbitration Act. See Kunzie, 330 S.W.3d at 481. Insofar as relevant here, § 435.355.1 is substantively identical to G. L. c. 251, § 2 (a), part of the Commonwealth's Uniform Arbitration Act, enacted by St. 1960, c. 374. The Supreme Judicial Court, following courts in other States that have adopted the Uniform Arbitration Act, interprets "'proceed summarily' to mean that a judge determines whether there is a dispute as to a material fact; and, if there is not such a dispute, the judge resolves the issue as a matter of law; but, if there is such a dispute, the judge conducts an expedited evidentiary hearing on the matter and then decides the issue." St. Fleur v. WPI Cable Sys./Mutron, 450 Mass. 345, 353 (2008).
Conclusion. The order denying the defendant's motion to compel arbitration and to dismiss, or in the alternative, stay the action is vacated, and the matter is remanded for further proceedings consistent with this memorandum and order.
So ordered.
Sacks, Hand &Grant, JJ. 12