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Feltner v. Bluegreen Corporation, (S.D.Ind. 2002)

United States District Court, S.D. Indiana, Indianapolis Division
Oct 8, 2002
IP 02-0873-C-M/S (S.D. Ind. Oct. 8, 2002)

Opinion

IP 02-0873-C-M/S

October 8, 2002


ORDER ON MOTION TO DISMISS OR STAY PENDING ARBITRATION


This matter is before the Court on defendant's, Bluegreen Corporation ("Bluegreen"), Motion to Dismiss or Stay Pending Arbitration on the claims of plaintiff, Amy Feltner ("Feltner"). Feltner asserts unlawful employment discrimination on the basis of sex under Title VII of the Civil Rights Act of 1964 and Title I of the Civil Rights Act of 1991. Additionally, Feltner raises state law claims of discrimination, assault, battery, intentional infliction of emotional distress, negligent infliction of emotional distress, negligent hiring, negligent supervision, negligent retention of a supervisor, and wrongful termination. Bluegreen maintains that the parties contracted to arbitrate their disputes, that all of Feltner's claims are covered by the arbitration agreement, and requests that the Court dismiss the complaint, or stay the judicial proceedings pending arbitration. The parties have fully briefed their arguments, and the motion is now ripe for ruling.

I. FACTUAL BACKGROUND

Bluegreen is a Massachusetts corporation headquartered in Boca Raton, Florida. Def.'s Stmt. of Facts ¶ 1. It is engaged in the acquisition, development, and sale of land, and in the acquisition, development, and sale of timeshare and recreational properties. Id. Bluegreen also operates a vacation club, which allows its members to buy floating vacation weeks. Id. Until November 29, 2001, Bluegreen employed telemarketers to market its vacation club at two call centers in Indianapolis, Indiana. Id.

Feltner applied for employment at Bluegreen on or about April 13, 2001. Def.'s Stmt. of Facts ¶ 2. As part of Bluegreen's normal hiring and pre-employment process, Feltner signed an Applicant's Statement and Agreement on April 13, 2001, which contained an arbitration agreement. Pl.'s Ex. 1. In relevant part, the application arbitration agreement provides:

For those disputes that cannot be resolved through informal discussions, whether relating to the hiring process, employment or termination of employment, [Bluegreen] offers an arbitration procedure designed to facilitate a rapid, less costly, and fair resolution in lieu of a lawsuit. This arbitration system is a significant benefit to employees and [Bluegreen] and we are proud to offer it.
In return for Bluegreen's agreement to arbitrate legal disputes and for considering this application, I agree by signing below that any dispute of a legal nature arising under federal, state, or local law between [Bluegreen] (including any such claim regarding [Bluegreen] property, discrimination, harassment, or other legal dispute relation [sic] to my employment or arising under any labor, employment, or civil rights law) and me will be subject to final and binding arbitration under Bluegreen's Arbitration Rules. I understand that the arbitrator, who will serve as judge and jury, has the same authority to award money damages and other relief as does a court or jury. If employed, I may agree to a more detailed arbitration agreement which would then replace this one.

Pl.'s Ex. 1.

After Bluegreen hired Feltner, she signed a more detailed arbitration agreement ("Agreement") with it, replacing the application arbitration agreement. Pl.'s Ex. 2. Under paragraph B3 of the Agreement, the rules governing the arbitration proceedings are contained in Bluegreen's Company Arbitration Rules ("Rules"). According to Feltner, she never received a copy of the Rules until her attorney requested them prior to this suit. Pl.'s Stmt. of Facts ¶ 2. Feltner's last day of employment with Bluegreen was on or about August 31, 2001. Def.'s Stmt. of Facts ¶ 5. Notwithstanding the Agreement, Feltner did not submit her claims to arbitration. Id. Rather, Feltner filed a complaint with this Court on June 4, 2002, alleging sex discrimination in violation of Title VII of the Civil Rights Act of 1964, Title I of the Civil Rights Act of 1991, and the Indiana code, and alleging tort claims under state law. Comp. at 1.

A. THE ARBITRATION AGREEMENT

Paragraph 1(a) of the Agreement lists the types of disputes subject to arbitration under the Agreement. Pl.'s Ex. 2 at 2. It includes, among other types of claims, employment discrimination claims and tort claims. Id. Under paragraph 3 of the Agreement, Bluegreen's Arbitration Rules govern the arbitration proceedings. Id. Paragraph 5 of the Agreement is a severability clause, meaning that if the Court finds any provision of the Rules invalid, the remainder of the Rules can be enforced. Id. at 3.

B. THE RULES

Feltner challenges a number of Bluegreen's Arbitration Rules, and the Court will examine the relevant Rules.

To initiate arbitration, the claimant must submit a "Request for Arbitration" with the Arbitration Administrator and serve a copy on the party or parties against whom the claim is brought. Pl.'s Ex. 3, Rule 1A(1). Under Rule 13A, the party requesting arbitration must pay a filing fee equal to the prevailing fee in a United States District Court (currently $150). Pl.'s Ex. 3, Rule 13A. Under the Agreement, the statute of limitation is the same as the corresponding limitations period for filing a judicial complaint. Pl.'s Ex. 2, B6.

Under Rule 1B, a party who, like Feltner, files a judicial complaint challenging the Rules and Agreement risks having to pay Bluegreen's reasonable costs and attorney's fees incurred because of the filing of the complaint. Pl.'s Ex. 3, Rule 1B. If the Court rules in Bluegreen's favor on this Motion to Dismiss or Stay Proceedings, Bluegreen "may submit a request for payment of fees and costs to the Arbitrators, who shall award to [Bluegreen] and against [Feltner] [Bluegreen's] reasonable costs and fees incurred because of the filing of the complaint." Id.

Rule 1C provides that, "filing a judicial or agency complaint does not satisfy the notice requirement under the arbitration Agreement or these Rules, nor stay the running of the statute of limitation period." (emphasis in original). In other words, a plaintiff who, like Feltner, decides to challenge the validity of the Rules by filing a judicial complaint could be barred by the Rules' statute of limitations if a court upholds the validity of the arbitration agreement, and the relevant statute of limitations has run.

Rule 5 governs the selection of the arbitrators. Under Rule 5A, "the Arbitration Administrator shall request a list of seven (7) proposed qualified arbitrators from the arbitration/dispute resolution service used in the particular arbitration." Pl.'s Ex. 3, Rule 5A. The parties are informed of the names and employment histories of the seven arbitrators on the list. Id. The complaining party may strike the names of any proposed arbitrators as unacceptable, and then Bluegreen may strike the names of any arbitrators it deems unacceptable. Id. The arbitrator listed first of the remaining arbitrators shall arbitrate the dispute. Id. If all of the arbitrators are stricken, then the process repeats itself. Id.

The arbitrator determines the location of the arbitration, taking into account factors such as the location of the witnesses and evidence, and the parties' preferences. Pl.'s Ex. 3, Rule 7.

Rule 8A(4) identifies as one of the topics of an initial conference "the allocation of the arbitration fees and costs."

Rule 9 governs discovery. Pl.'s Ex. 3 at 9-11. Under 9C, each party may take a maximum of three depositions, twenty interrogatories, and fifteen document requests. Id.

13B provides the general rule that Bluegreen will pay the arbitrator's fees and costs. Pl.'s Ex. 3, Rule 13. However, if a party asserts a claim, position or defense not substantially justified by the law or facts, then the arbitrator shall direct that party to pay the arbitrator's fees associated with resolving that claim, position, or defense. See id. Under 13C, the prevailing party is awarded the costs of the arbitration, including the filing fee and fees associated with discovery. See id. If either party asserts "a claim, position, or defense which is not substantially justified by the law or facts, the Arbitrator shall award to the opposing party that party's reasonable attorney's fees incurred as a result of that party's defending any such claim, position or defense." Id.

Rule 17 provides the second exception to the rule that Bluegreen pays the arbitrator's fees. Under Rule 17, the party appealing the decision shall pay the Appeals arbitrator's expenses and costs. Pl.'s Ex. 3 at 15.

Rule 15 provides "[Bluegreen] may revise these procedures as it deems necessary consistent with the interests of fairness and due process. No such revision, however, will apply to any claim which has been submitted to arbitration prior to the date on which the revision is communicated to the parties." Pl.'s Ex. 3, Rule 15.

II. FEDERAL ARBITRATION ACT STANDARDS AND SCOPE

The Agreement signed by Feltner and Bluegreen called for disputes between the parties, including employment and tort claims, to be resolved by arbitration. Pl.'s Ex. 2 at 2. The issue of whether Congress intended to include employment contracts within the scope of the Federal Arbitration Act ("FAA") has engendered much debate. In Gilmer, the Supreme Court observed "that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). The move from a courtroom to an arbitration hearing, however, should only be a change of forum, without altering the complaining party's substantive rights. "By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by statute; it only submits to their resolution in an arbitral, rather than a judicial forum." Id. at 26 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). Relying on Gilmer, the Seventh Circuit concluded that Title VII claims are arbitrable. See Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 365 (7th Cir. 1999). The Supreme Court made it clear last year that arbitration clauses in employment contracts are enforceable. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001)

Federal policy strongly favors arbitration. See Gilmer, 500 U.S. at 26. "The Supreme Court has repeatedly counseled that the FAA leaves no room for judicial hostility to arbitration proceedings and that courts should not presume, absent concrete proof to the contrary, that arbitration systems will be unfair or biased." Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753, 758 (7th Cir. 2001) (citation omitted). See also Gilmer, 500 U.S. at 24 (observing that the purpose of the FAA "was to reverse the longstanding judicial hostility to arbitration agreements . . . and to place arbitration agreements upon the same footing as other contracts."). The FAA provides for stays of district court proceedings when any issue therein is referable to arbitration. 9 U.S.C. § 3. However, if all of the issues raised in the district court must be submitted to arbitration, then a court should dismiss the case because retaining jurisdiction would serve no purpose. See Sparling v. Hoffman Const. Co., Inc., 864 F.2d 635, 638 (9th Cir. 1988); Sea-Land Service, Inc. v. Sea-Land of P.R., Inc., 636 F. Supp. 750, 757 (D. Puerto Rico 1986) ("Given our ruling that all issues raised in this action are arbitrable and must be submitted to arbitration, retaining jurisdiction and staying the action will serve no purpose. Any post-arbitration remedies sought by the parties will not entail renewed consideration and adjudication of the merits of the controversy but would be circumscribed to a judicial review of the arbitrator's award in the limited manner prescribed by law.").

III. DISCUSSION

The parties dispute whether there is a valid and enforceable agreement to arbitrate. Feltner advances three arguments: (1) Bluegreen was not obligated to do anything or forbear any right under the Agreement, so the promise was illusory and the contract unenforceable; (2) the contract was unconscionable and should therefore not be enforced; and (3) the Rules for the arbitration proceedings are inadequate for a number of reasons and alter her substantive Title VII rights, and the Court should accordingly invalidate the Agreement. Bluegreen denies each allegation, and requests that the Court dismiss the complaint or stay the district court proceedings pending the arbitration. The Court will address each argument.

A. CONTRACT FORMATION UNDER INDIANA LAW

Arbitration agreements are treated as ordinary contracts. See Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997). Because Indiana was the situs of all relevant events in this action, Indiana will govern the issue of whether Feltner and Bluegreen have agreed to arbitrate. See id. Thus, the threshold question is whether the Agreement Feltner signed amounted to an enforceable contract under Indiana law.

1. Consideration/Illusory Promise

Mutuality of obligation must be present for a valid Indiana contract. "[T]here can be no contract unless both parties are bound." Rogier v. Am. Testing Eng'g Corp., 734 N.E.2d 606, 618 (Ind.Ct.App. 2000). An illusory promise, one which "makes performance entirely optional with the promisor," cannot form the basis for a valid contract, Pardieck v. Pardieck, 676 N.E.2d 359, 364 n. 3 (Ind.Ct.App. 1997), because "a contract is unenforceable if it fails to obligate [one party] to do anything." Ind.-Am. Water Co. v. Town of Seelyville, 698 N.E.2d 1255, 1260 (Ind.Ct.App. 1998).

Feltner argues that the Agreement is unenforceable because it is illusory. Feltner relies heavily on Geiger v. Ryan's Family Steak Houses, Inc., 134 F. Supp.2d 985 (S.D.Ind. 2001) and Penn v. Ryan's Family Steak Houses, Inc. 269 F.3d 753 (7th Cir. 2001). However, as Bluegreen observed, both of those cases are distinguishable from the instant case. Geiger and Penn both dealt with the same type of arbitration contract — a complicated three-party approach whereby the employee was required to sign a contract with an arbitration company prior to being employed by the employer. See Penn, 269 F.3d at 759; Geiger, 134 F. Supp.2d at 994. In the contract, the employee promised to use the arbitration company's services to arbitrate any employment-related claims he might have against the employer. See id. The Seventh Circuit, emphasizing that this was not a typical case where an employee and employer agree to arbitrate their disputes, held that the contract between the employee and the arbitration service was unenforceable because it contained an illusory promise on the part of the service. See Penn, 269 F.3d at 761. Interpreting a similar arbitration agreement, the district court judge in Geiger held that the agreement was unenforceable due to the severe limits on discovery, the potential bias in the selection of the arbitration panel, the burdensome fee structures, the lack of consideration, and because it was unconscionable. See Geiger, 134 F. Supp.2d at 996-1002.

The instant case presents the more conventional situation where an employee and employer sign an arbitration agreement to resolve any employment-related disputes. Bluegreen offered the Agreement as a condition of Feltner's employment, and Feltner accepted the Agreement by signing it and accepting employment at Bluegreen. The Agreement is clear about what Feltner is promising: she agrees that she will arbitrate any dispute rather than bringing suit in federal or state court. Bluegreen was also bound: it promised to arbitrate any disputes, to be bound by the arbitration, and also to pay for the arbitrator unless the claim was frivolous. See Gibson, 121 F.3d at 1131 ("Often, consideration for one party's promise to arbitrate is the other party's promise to do the same."). Thus, the essential elements of a contract are present.

2. Unconscionability

Feltner also maintains that the Agreement is unenforceable because it is unconscionable. A contract is unconscionable if it is one that "no sensible man not under delusion, duress or in distress would make, and [one that] no honest and fair man would accept." Weaver v. Am. Oil Co., 276 N.E.2d 144, 146 (Ind. 1971). However, a contract is not unenforceable merely because one party enjoys an advantage over the other. See Houlin v. Bremen State Bank, 495 N.E.2d 753, 758 (Ind.Ct.App. 1986).

Feltner cites Geiger as support for a finding of unconscionability here. However, Geiger is again distinguishable because, as stated earlier, the court's determination rested largely on the complex contractual situation presented there. See Geiger, 134 F. Supp.2d at 994. In the instant case, the Agreement was the typical two-party situation where an employee signed an arbitration agreement as a condition of her employment. Indiana law presumes that a party has read and understood documents she signs, Clanton v. United Skates of America, 686 N.E.2d 896, 901 (Ind.Ct.App. 1997), and although this presumption can be overcome by a showing that a plaintiff requires or seeks assistance, Feltner has made no such showing.

Feltner also argues that the Agreement was unconscionable because she was not able to negotiate the terms, and because Bluegreen has the unilateral ability to modify the Rules. Clearly this was not a case of two parties with equal bargaining power hammering out the terms of a deal. Feltner applied for a job as a telemarketer with a corporation that markets timeshare properties and vacation clubs, and signed an arbitration agreement as a condition of her employment. Feltner was unrepresented and, presumably, if she read and wanted to negotiate the terms of the arbitration contract, she would not have gotten the job. As the Seventh Circuit observed, "there ought to be realistic requirements for achieving a valid arbitration agreement in the context of employment. These requirements must recognize that we are dealing in most cases with a contract of adhesion: agree to arbitrate or lose your job." Gibson, 121 F.3d at 1132 (Cudahy, J., concurring). Nothing in the record reflects that Feltner had highly unique skills as a telemarketer that would give her more bargaining power than a typical telemarketer; this was a "take-it-or-leave-it" contract.

However, recognition that an arbitration agreement in the employment context is an adhesion contract does not render it unconscionable. Weaver establishes that there must be a "gross" inequality between bargaining parties for a contract to be unconscionable. See Weaver, 276 N.E.2d at 462. As the district court noted in Abbott v. Lexford Apartment Servs., Inc., 2002 WL 1800320 (S.D.Ind.), "if we were to find that no low-level employee can be held to an arbitration agreement due to a supposed disparity in bargaining power between the employer and employee, then most arbitration agreements to resolve employment disputes would be rendered ineffective." Id. at *5 n. 2. Moreover, the Seventh Circuit, and numerous other courts, have rejected unconscionability arguments in similar employment contexts. See, e.g., Koveleskie, 167 F.3d at 367 (concluding that a mandatory arbitration agreement for securities industry employee did not create an unconscionable contract, even if it was a "take-it-or-leave-it" deal). Mindful of the FAA's purpose "to reverse the longstanding judicial hostility to arbitration agreements," Gilmer, 500 U.S. at 24, this Court concludes that invalidating the entire Agreement as unconscionable would undermine the strong federal policy in favor of arbitration.

B. ADEQUACY OF THE ARBITRATION PROCEEDINGS

In Gilmer, the Supreme Court held that statutory claims may be subject to arbitration as "long as the prospective litigant effectively may vindicate [her] statutory cause of action in the arbitral forum," thus, allowing the statute to serve both its remedial and deterrent purposes. Gilmer, 500 U.S. at 28. Feltner challenges the adequacy of the arbitration proceedings on the following grounds: (1) Bluegreen's alleged control over the initial list of arbitrators; (2) the potential costs of the arbitration proceedings; and (3) the absence of a provision providing for attorney's fees for a prevailing plaintiff.

1. List of Proposed Arbitrators

Feltner claims that Bluegreen has the sole right to select the list of proposed arbitrators. However, Rule 5A provides, "the Arbitration Administrator shall request a list of seven (7) proposed qualified arbitrators from the arbitration/dispute resolution service used in the particular arbitration." Pl.'s Ex. 3, Rule 5A. The Court interprets this to mean that the arbitration service provides the Arbitration Administrator with a list of seven names; Bluegreen does not, as Feltner contends, control which arbitrators are on that list.

Once the Arbitration Administrator has the list, then the names on the list, along with their employment histories, are divulged to both parties. Pl.'s Ex. 3, Rule 5A. Then, the complaining party, Feltner in this case, has the first opportunity to strike names from the panel. Id. After those names are stricken, then Bluegreen can strike any names left on the list. Id. After both parties have had the chance to strike proposed arbitrators, the first name remaining of the original seven will be the arbitrator; if all seven are stricken, the process repeats itself. Id. There is no limit on the number of proposed arbitrators the parties can strike. Id. Considering the requirement of disclosure of the backgrounds of the proposed arbitrators, the unlimited ability for both parties to strike the proposed arbitrators, and the strong public policy in favor of arbitration, the Court concludes that the arbitrator selection system in Rule 5A does not prevent Feltner from vindicating her statutory cause of action in an arbitral forum.

2. Costs

Though the arbitration agreement in Green Tree was silent on the issue of arbitrator's fees and costs, the Supreme Court's decision in that case still provides guidance for the instant dispute. See Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 90-92, 121 S.Ct. 513, 148 L.Ed.2d 373. In Green Tree, the Court of Appeals held that the arbitration agreement's silence with respect to costs and fees rendered it unenforceable. See id. at 92. The Supreme Court reversed, reasoning that the "risk" that the plaintiff would "be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement." Id. at 91. However, the Court acknowledged that "the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum." Id. at 90. The Court held that "a party [seeking] to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive . . . bears the burden of showing the likelihood of incurring such costs." Id. at 92.

In Green Tree, the Supreme Court did not specify the showing required to establish that the imposition of arbitration costs prevents a party from effectively vindicating her statutory rights. See Green Tree, 531 U.S. at 92 ("How detailed the showing of prohibitive expense must be before the party seeking arbitration must come forward with contrary evidence is a matter we need not discuss; for in this case neither during discovery nor when the case was presented on the merits was there any timely showing at all on the point."). Because the Supreme Court focused on the actual plaintiff and arbitration agreement before it in Green Tree, lower courts have subsequently concluded that the appropriate inquiry is a case-by-case determination of whether the imposition of arbitration costs prevents a party from effectively vindicating his/her statutory rights. See Blair v. Scott Specialty Gases, 283 F.3d 595, 606-08 (3rd Cir. 2002) (remanding to the district court to provide plaintiff with opportunity to show, given her financial capacity, that the provision that required her to pay one-half the arbitrator's fees would deny her a forum to vindicate her statutory rights); Bradford v. Rockwell Semiconductor or Sys., Inc., 238 F.3d 549, 556 (4th Cir. 2001) ("[T]he appropriate inquiry is one that evaluates whether the arbitral forum in a particular case is an adequate and accessible substitute to litigation, i.e., a case-by-case analysis that focuses, among other things, upon the claimant's ability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether that cost differential is so substantial as to deter the bringing of claims"); Mildworm v. Ashcroft, 200 F. Supp.2d 171, 179 (E.D.N.Y. 2002) ("[B]ased on Green Tree, the appropriate inquiry requires a case-by-case determination of whether the imposition of arbitration costs prevents a party from effectively vindicating his/her federal statutory rights."). This Court agrees with the cited cases and concludes that Green Tree requires a case-by-case determination of whether the particular arbitration rules provide an adequate and accessible alternative to litigation.

Like the plaintiff in Green Tree, Feltner seeks to have the Agreement invalidated on the ground that arbitration would be prohibitively expensive; therefore, based on Green Tree, Feltner bears the burden of showing the likelihood of incurring such costs. Although Feltner has made no showing that her financial resources would render the cost of arbitration prohibitive, Feltner cites the following potential costs and maintains that they make arbitration prohibitively expensive: the filing fee; costs associated with the location of the arbitration; the award of costs (including filing fee, subpoena service and witness fees, deposition and hearing transcription costs and similar expenses) to the prevailing party; costs assessed against the non-prevailing party in a discovery dispute when the non-prevailing party's position was not substantially justified; and the award of attorney's fees incurred in defending against a position or claim that was not substantially justified.

The current Arbitration Agreement, unlike the agreements in a number of recent cases, does not require Feltner to pay for a portion of the arbitrator's fees incurred in conducting the arbitration. Under Rule 13B, the arbitrator's fees and expenses are paid by the Bluegreen, unless Feltner takes a position that is not substantially justified. Pl.'s Ex. 3, Rule 13B. Cf. Perez v. Globe Airport Sec. Serv. Inc., 253 F.3d 1280 (11th Cir. 2001), reh'g and reh'g en banc denied, 273 F.3d 1118 (invalidating an arbitration agreement that required parties to split the cost of arbitration); Shankle v. B-G Maint. Mgmt. of Co., Inc., 163 F.3d 1230 (10th Cir. 1999) (finding an arbitration agreement unenforceable where a plaintiff was required to pay one-half the costs of arbitration because such a and requirement effectively limited access to a forum for resolution of claims); Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997) (holding that where arbitration has been imposed by the employer, the employer may not pay all or part of the arbitrator's fees in order to pursue statutory claims under Title VII).

a. Filing Fee

Rule 1A requires a filing fee from the party seeking to arbitrate a dispute that is "equal to the fee for filing a civil action in the United States District Court." Pl.'s Ex. 3, Rule 1A. Because Feltner would bear this cost even if she filed her action in a district court, she cannot argue that this would make arbitration prohibitively expensive compared to a judicial setting.

b. Potential Costs

Associated with the Location of the Arbitration Under Rule 7, the arbitrator decides the location of the arbitration, considering factors such as "the location of witnesses and evidence, and the parties' preference." Pl.'s Ex. 3, Rule 7. Because Bluegreen is headquartered in Florida, Feltner argues that there is a real potential that the arbitrator will select Florida as the venue for the arbitration and this will be a significant cost barring Feltner from vindicating her rights. Bluegreen responds that Feltner has no basis for concluding that Florida is a likely venue because Feltner and other witnesses are located in Indiana and Bluegreen has indicated no preference for Florida.

In light of the foundational principal in American jurisprudence that "the plaintiff is the master of the complaint" and can thus choose where to file as long as jurisdiction and venue are proper, this Rule concerns the Court. Rule 7 takes this choice away from plaintiffs and directs the arbitrator to take into account both parties' preferences, as well as the location of witnesses. Though nothing in the record gives the Court evidence of Feltner's financial situation, it may well be that costs associated with an arbitration hearing in Florida could preclude her, a telemarketer who recently left her job due to alleged harassment, from vindicating her statutory rights.

However, Feltner has made no showing that her financial resources would preclude her from arbitrating in Florida, and this showing is required by Green Tree. See Green Tree, 531 U.S. at 92. Moreover, Bluegreen admits that significant witnesses and evidence are in Indiana, and it has given no indication that it prefers to arbitrate in Florida. Accordingly, the risk that Feltner will be precluded from arbitrating based on costs associated with the location of the arbitration "is too speculative to justify the invalidation of the arbitration agreement." Green Tree, 531 U.S. at 91.

c. Costs to the Prevailing Party

Under Rule 13C, the prevailing party is "awarded costs of the Arbitration, including filing fee, subpoena service and witness fees, deposition and hearing transcription costs and similar expenses, but not including expert fees unless the expert testimony was necessary to establishing or refuting liability." Pl.'s Ex. 3, Rule 13. Bluegreen argues that Rule 13C simply mimics the cost shifting expressly allowed in FRCP Rule 54, which provides, "[e]xcept when express provision therefor is made either in a statute of the United States or in these rules, costs other than attorneys' fees shall be allowed as of course to the prevailing party." FED. R. CIV. P. 54.

Even in Title VII cases, FRCP Rule 54(d)(1) entitles the prevailing party to costs "as of course." The Seventh Circuit has described the effect of Rule 54(d)(1) as creating a presumption in favor of costs, and a presumption that is "difficult to overcome." Congregation of the Passion, Holy Cross Province v. Touche, Ross Co., 854 F.2d 219, 221-22 (7th Cir. 1988). Therefore, Rule 13C's award of costs other than attorney's fees would not deter employees from arbitrating claims any more than Rule 54 would deter plaintiffs from filing judicial complaints.

d. Costs Associated with Losing a Discovery Dispute

Rule 9G(6) provides "the Arbitrator may assess the Arbitrators' costs and/or award reasonable attorney fees and costs incurred in hearing and resolving any discovery dispute against the losing party to such discovery dispute, if the losing party's position was not substantially justified." Feltner argues that this is another potential cost that makes arbitration prohibitively expensive. However, as Bluegreen argues, this is also a potential cost of litigation.

Under FRCP Rule 37, the court may require a party to pay reasonable expenses incurred by the other party, including attorney's fees, unless the losing party's position was "substantially justified, or . . . other circumstances make an award of expenses unjust." FED. R. CIV. P. 37. Both Rule 9G(6) and FRCP are discretionary awards of fees, use the same "substantially justified" standard, and can be awarded against either party. Thus, Rule 9G(6) does not evidence a cost differential between arbitration and litigation in court regarding discovery disputes.

e. Award of Attorney's Fees to Prevailing Party if Claim Not Substantially Justified

Under Rule 13C, the arbitrator shall award attorney's fees to a party opposing a claim or position not substantially justified by the law or facts. According to Bluegreen, this rule is similar to after FRCP Rule 11, and consequently, it provides no justification for finding the Rules unenforceable.

In the judicial setting, attorney fees may be awarded to a defendant who is a prevailing party in a case under Title VII if the district court finds that the plaintiff's action was "frivolous, unreasonable or groundless, or that the plaintiff continued to litigate after it clearly became so." Christianburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978); see also Monroe v. Children's Home Ass'n, 128 F.3d 591, 594 (7th Cir. 1997) (noting that defendants in Title VII action can recover attorney fees if plaintiff's claim is frivolous). The "frivolous" standard applied in Title VII cases and the "not substantially justified" standard applied in these Arbitration Rules appear to be very similar standards; therefore, Rule 13C does not impose any additional costs on Feltner that would not be present in court.

Summary — In sum, Feltner has made no showing that she cannot afford the costs of arbitration. In any event, the potential costs under the Arbitration Agreement are similar to the costs a litigant faces in court. Feltner has not carried her burden of showing a likelihood of prohibitive costs that would preclude her from vindicating her statutory rights in the arbitral forum.

Feltner directs the Court to a string of cases that have refused to enforce arbitration agreements, but those cases are distinguishable from the instant dispute. In many of those cases, the arbitration rules required plaintiffs to split the fees of the arbitrator with the defendant, and the plaintiffs made detailed showings that they could not afford to pay a portion of the arbitrator's fees. In this case, on the other hand, Bluegreen pays for the arbitrator unless the suit is frivolous. The other cases that Feltner cites had rules that made arbitration much more expensive than litigation; for example, some required employees to pay an initial filing fee of $2,000 rather than the $150 that federal courts and the current Agreement require.

3. Attorney Fees

Feltner asserts that the Agreement is unenforceable because it does not provide for reimbursement of attorney fees if she prevails. Bluegreen responds by arguing that although the Agreement does not provide for an award of attorney's fees to the prevailing plaintiff, it does not specifically prohibit such an award. Under Rule 13C, the prevailing party is "awarded costs of the Arbitration, including filing fee, subpoena service and witness fees, deposition and hearing transcription costs and similar expenses, but not including expert fees unless the expert testimony was necessary to establishing or refuting liability." Pl.'s Ex. 3, Rule 13. However, no provision in the Rules awards the prevailing party attorney's fees. See id. Attorney's fees are only awarded in the event that either party has to defend against a claim that is not substantially justified by the law or facts. See id.

42 § 2000e-5(k) grants district courts discretion to award the prevailing party "a reasonable attorney's fee (including expert fees) as part of the costs . . ." 42 U.S.C. § 2000e-5(k). The Supreme Court has observed that "a Title VII plaintiff . . . is the chosen instrument of Congress to vindicate a policy that Congress considered of the highest priority." Fogerty v. Fogerty, Inc., 510 U.S. 517, 523, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). Recognizing Congress' intent to cast civil rights plaintiffs in the role of private attorneys general, the Supreme Court has held that a prevailing civil rights plaintiff should ordinarily recover attorney's fees unless special circumstances would render such an award unjust. See Christianburg Garment v. EEOC, 434 U.S. 412, 416-18, 98 S.Ct. 694, 54 L.Ed.2d 648 (1978). Thus, an arbitration agreement that denies a plaintiff these statutory rights may be void against public policy.

The effect of attorney's fees provisions on the enforceability of arbitration agreements is an area of uncertainty in the Seventh Circuit. In McCaskill v. SCI Mgmt. Corp., 285 F.3d 623 (7th Cir. 2002) ("McCaskill I"), vacated on reh'g by McCaskill v. SCI Mgmt. Corp., 298 F.3d 677 (7th Cir. 2002), the Seventh Circuit concluded that an arbitration agreement that required both the employer and the employee to pay their own attorney's fees was unenforceable. See id. at 627. The provision at issue specified: "Each party shall pay its own costs and attorney's fees, regardless of the outcome of the arbitration." See id. at 625. Because this clause would forfeit the claimant's statutory right to attorney's fees under Title VII, the Court held that the entire arbitration agreement was unenforceable. See id. at 627.

However, McCaskill I was vacated by the Seventh Circuit on rehearing, and although McCaskill I was affirmed, the Court retreated from its holding that such arbitration clauses would render an arbitration agreement invalid. See McCaskill v. SCI Mgmt. Corp., 298 F.3d 677 (7th 2002). In a two-judge concurrence, Judge Bauer reversed the district court order compelling arbitration and remanded solely on the defendant's admission at oral argument that the arbitration provision would be unenforceable if it were construed to limit the plaintiff's right to recover attorney's fees under Title VII. See id. at 680. Because the defendant conceded that the agreement was unenforceable, the Court did not decide the issue of whether Title VII's fee-shifting provisions override an arbitration agreement. See id. Judge Rovner, concurring in the judgement but rejecting Judge Bauer's grounds for the decision, would have reversed and remanded on the grounds stated in McCaskill I, holding the arbitration agreement unenforceable as contrary to Title VII. See id. (Rovner, J., concurring).

While the provision in McCaskill clearly prevented an arbitrator from having either party pay the other's attorneys' fees, Bluegreen's Rules are silent on the issue. Attorney's fees are awarded if either party has to respond to a claim not substantially justified by the facts or law, but this standard is similar to the judicial standard, and does not bar an arbitrator from awarding fees to a prevailing party. No other provision in the Rules specifies whether attorney's fees will be awarded to a prevailing party. Thus, the arbitrator could, consistent with the Agreement and Rules, award a prevailing plaintiff attorney's fees. With the Seventh Circuit retreating from its holding in McCaskill I where the arbitrator would have been prevented from awarding fees to a prevailing plaintiff, this Court concludes that the silence on attorney's fees in the current arbitration Rules does not invalidate the arbitration agreement.

C. MODIFICATION AND SEVERABILITY

The Rules contain a severance clause, and Bluegreen invites the Court to sever any clause it finds unconscionable or inadequate and enforce the rest of the Agreement. Pl.'s Ex. 2 at 3 ("If any provision in this Agreement . . . is found by a court to be invalid or otherwise unenforceable, the court shall enforce the remainder of this Agreement and the Arbitration Rules."). The Court accepts the invitation, and severs Rule 1C to the extent it makes Feltner's request for arbitration untimely. Pl.'s Ex. 3, Rule 1C ("Filing a judicial or agency complaint does not satisfy the notice requirements under the Arbitration Agreement or these Rules, nor stay the running of the limitations period.").

The last day of Feltner's employment at Bluegreen was August 31, 2001. The Agreement incorporates Title VII's 300-day statute of limitations, Pl.'s Ex. 2, at 3, and Rule 1C would clearly bar Feltner from requesting arbitration of her discrimination claim because the 300 days elapsed during the time the judicial complaint was pending. However, if Feltner had requested arbitration on June 4, 2002 rather than filing a complaint in court as she did, her request would have been timely.

Though it is well-settled that arbitration agreements in the employment context are enforceable, many questions remain about the minimal requirements necessary to assure the vindication of employees' statutory rights in the arbitral forum. Courts have been placed in the difficult position of policing these agreements, and at the same time, heeding the strong federal policy in favor of arbitration. In light of the uncertain state of the law in this area, it would be unfair to punish Feltner for her challenge of the Rules and the Arbitration Agreement. Thus, the Court severs the second sentence of Rule 1C to allow Feltner to arbitrate her claims.

IV. CONCLUSION

In sum, Feltner and Bluegreen entered into a valid, enforceable contract under the laws of Indiana. Feltner has not made a sufficient showing that the Rules of the Arbitration Agreement constitute a barrier precluding her from effectively vindicating her statutory rights in the arbitral forum. Feltner, however, should not be penalized for challenging the Rules in federal court, and the Court strikes the second sentence of Rule 1C to allow her to request arbitration of this dispute. Because all of the issues raised in this Court must be submitted to arbitration, retaining jurisdiction of this dispute by staying the action would serve no purpose. Thus, the Court GRANTS Bluegreen's Motion to Dismiss.


Summaries of

Feltner v. Bluegreen Corporation, (S.D.Ind. 2002)

United States District Court, S.D. Indiana, Indianapolis Division
Oct 8, 2002
IP 02-0873-C-M/S (S.D. Ind. Oct. 8, 2002)
Case details for

Feltner v. Bluegreen Corporation, (S.D.Ind. 2002)

Case Details

Full title:AMY FELTNER, Plaintiff, vs. BLUEGREEN CORPORATION, Defendant

Court:United States District Court, S.D. Indiana, Indianapolis Division

Date published: Oct 8, 2002

Citations

IP 02-0873-C-M/S (S.D. Ind. Oct. 8, 2002)

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