ROBERT W CLARK V DAIMLERCHRYSLER CORPORATION
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STATE OF MICHIGAN
COURT OF APPEALS
ROBERT W. CLARK,
FOR PUBLICATION
September 13, 2005
9:00 a.m.
Plaintiff-Appellant,
v
No. 252765
Macomb Circuit Court
LC No. 2003-004042-CK
DAIMLERCHRYSLER CORPORATION,
Defendant-Appellee.
Official Reported Version
Before: Neff, P.J., and Smolenski and Talbot, JJ.
NEFF, P.J. (dissenting).
I respectfully dissent. I would hold that the contract provision is unconscionable and
violates public policy and is, therefore, unenforceable under the circumstances of this case.
Rory v Continental Ins Co1
In Rory, decided after oral argument in this case, our Supreme Court revised Michigan
law concerning contracts that shorten the legislated periods of limitations. Before Rory,
contracts such as that at issue in this case were subject to heightened judicial scrutiny to
determine the reasonableness of the shortened period of limitations. Herweyer v Clark Hwy
Services, Inc, 455 Mich 14, 20-21; 564 NW2d 857 (1997). In accordance with the general rule
applied in a majority of jurisdictions and adopted in Michigan,2 "a shortened contractual period
of limitations was 'valid if reasonable even though the period is less than that prescribed by
otherwise applicable statutes of limitation.'" Rory, supra at 466, quoting Tom Thomas Org, Inc v
Reliance Ins Co, 396 Mich 588, 592; 242 NW2d 396 (1976) (emphasis in Rory); see also
1
473 Mich 457; 703 NW2d 23 (2005).
2
"See Anno: Validity of Contractual Time Period, Shorter than Statute of Limitations, for
Bringing Action, 6 ALR3d 1197 (1966)." Tom Thomas Org, Inc v Reliance Ins Co, 396 Mich
588, 592 n 3; 242 NW2d 396 (1976).
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Camelot Excavating Co, Inc v St Paul Fire & Marine Ins Co, 410 Mich 118, 126; 301 NW2d
275 (1981).3
In Rory, the Court rejected any judicial assessment of reasonableness, stating that "the
decision in Camelot was premised upon the adoption of a 'reasonableness' test found in the dicta
of Tom Thomas." Rory, supra at 468. The Rory Court held that "an unambiguous contractual
provision providing for a shortened period of limitations is to be enforced as written unless the
provision would violate law or public policy." Id. at 470. In rejecting any judicial assessment of
reasonableness, the Court observed:
A fundamental tenet of our jurisprudence is that unambiguous contracts
are not open to judicial construction and must be enforced as written. Courts
enforce contracts according to their unambiguous terms because doing so respects
the freedom of individuals freely to arrange their affairs via contract. This Court
has previously noted that "'[t]he general rule [of contracts] is that competent
persons shall have the utmost liberty of contracting and that their agreements
voluntarily and fairly made shall be held valid and enforced in the courts.'" [Id. at
468 (citations omitted).]
The Court further cited its own recent reasoning in Wilkie v Auto-Owners Ins Co, 469 Mich 41,
52; 664 NW2d 776 (2003), quoting Corbin on Contracts:
"'One does not have "liberty of contract" unless organized society both
forbears and enforces, forbears to penalize him for making his bargain and
enforces it for him after it is made. [15 Corbin, Contracts (Interim ed), ch 79, §
1376, p 17.]'" [Rory, supra at 469-470.]
The Rory Court concluded that "[o]nly recognized traditional contract defenses may be used to
avoid the enforcement of the contract provision." Id. at 470. "Examples of traditional defenses
include duress, waiver, estoppel, fraud, or unconscionability." Id. at 470 n 23.
Unconscionability
In this case, the applicable statute of limitations permitted plaintiff 's action to be brought
within three years. That defendant exacted a shortened limitations period of six-months on the
basis of a nondescript provision included among several others in a preprinted application for
employment, which plaintiff filled out five months before he was hired, is unconscionable.
3
In Camelot, the Court recognized "that a contractually shortened limitations period is
reasonable if (1) the claimant has sufficient opportunity to investigate and file an action, (2) the
time is not so short as to work a practical abrogation of the right of action, and (3) the action is
not barred before the loss or damage can be ascertained." Rory, supra at 467 n 18, citing
Camelot, supra at 127.
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The examination of a contract for unconscionability considers both procedural and
substantive unconscionability. Hubscher & Son, Inc v Storey, 228 Mich App 478, 481; 578
NW2d 701 (1998). Our courts have applied a two-pronged test for determining whether a
contract is unenforceable as unconscionable:
"(1) What is the relative bargaining power of the parties, their relative
economic strength, the alternative sources of supply, in a word, what are their
options?; (2) Is the challenged term substantively reasonable?" [Id. (citations
omitted).]
"Reasonableness is the primary consideration." Id.
Although this two-pronged test has been used to assess unconscionability, the general
underpinnings of the defense must also be considered:
The concept of unconscionability was meant to counteract two generic
forms of abuses: the first of which relates to procedural deficiencies in the
contract formation process, such as deception or a refusal to bargain over contract
terms, today often analyzed in terms of whether the imposed-upon party had
meaningful choice about whether and how to enter into the transaction; and the
second of which relates to the substantive contract terms themselves and whether
those terms are unreasonably favorable to the more powerful party, such as terms
that impair the integrity of the bargaining process or otherwise contravene the
public interest or public policy; terms (usually of an adhesion or boilerplate
nature) that attempt to alter in an impermissible manner fundamental duties
otherwise imposed by the law, fine-print terms or provisions that seek to negate
the reasonable expectations of the nondrafting party, or unreasonably and
unexpectedly harsh terms having to do with price or other central aspects of the
transaction.
It has been said that this formulation requires a showing that the contract
was both procedurally and substantively unconscionable when made. It has often
been suggested that a finding of a procedural abuse, inherent in the formation
process, must be coupled as well with a substantive abuse, such as an unfair or
unreasonably harsh contractual term which benefits the drafting party at the other
party's expense. Another way of viewing this problem is that the fact that a
contract is one of adhesion does not itself render the contract unconscionable.
The distinction between procedural and substantive abuses, however, may
become quite blurred; overwhelming bargaining strength or use of fine print or
incomprehensible legalese may reflect procedural unfairness in that it takes
advantage of or surprises the victim of the clause, yet the terms contained in the
resulting contract—whether in fine print or legal "gobbledygook"—would hardly
be of concern unless they were substantively harmful to the nondrafting party as
well. [8 Williston, Contracts (4th ed), § 18:10, pp 57-65.]
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"'Unconscionability has generally been recognized to include an absence of meaningful choice
on the part of one of the parties together with contract terms which are unreasonably favorable to
the other party.'" Allen v Michigan Bell Tel Co, 18 Mich App 632, 637-638; 171 NW2d 689
(1969), quoting Williams v Walker-Thomas Furniture Co, 121 US App DC 315, 319; 350 F2d
445; 18 ALR3d 1297 (1965).
Given these fundamental principles underlying the defense of unconscionability, I
disagree with the majority's analysis and disposition of plaintiff 's unconscionability claim on the
basis that plaintiff failed to "present any evidence that he had no realistic alternative to
employment with defendant." Ante at ___. Such an analysis fails to give proper consideration to
whether procedural unconscionability exists in the context of this case. Unlike other contracts
contexts, "[a]n employer and employee often do not deal at arm's length when negotiating
contract terms. An employee [in plaintiff 's position] has only two options: (1) sign the
employment contract as drafted by the employer or (2) lose the job." Herweyer, supra at 21.
Defendant claims that plaintiff is contractually bound by a provision for a shortened
period of limitations in defendant's employment application form that plaintiff filled out when
applying for a job, five months before he was hired.4 The preprinted form was similar to other
preprinted job application forms and required plaintiff to provide his personal information,
educational background, employment history, positions for which he was qualified, and expected
rate/salary. On the second page, immediately above plaintiff 's signature, the employment
application contained the following provisions in a two-column format:
READ CAREFULLY BEFORE SIGNING:
1. I have read and do understand the statements contained herein and
certify that they are true.
2. I understand that false or incomplete statements herein or in any resume
I have supplied are grounds for dismissal.
3. I hereby authorize that previous employers contacted by Chrysler
Corporation or any of its subsidiaries in connection with this application fully
respond to all inquiries concerning such previous employment and specifically
waive prior written notice of disclosure of my personnel record information,
including disciplinary reports, letters of reprimand or other disciplinary action. I
also authorize educational institutions to release information relative to claimed
degrees and achievements. In consideration of the acceptance of my application, I
release Chrysler Corporation or any of its subsidiaries previous employers, and
4
Because Rory eliminated the reasonableness test for determining the validity of contract
provisions shortening the statutorily prescribed period of limitations, cases analyzed under that
test, including numerous cases cited by defendant, are no longer valid precedent.
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educational institutions of any claimed liability arising out of such response and
disclosure.
4. I understand that employment is conditioned upon the results of a
physical examination by a physician selected by Chrysler Corporation or any of
its subsidiaries conducted after an offer of employment is made or the results of a
drug test conducted in accordance with Chrysler Corporation's policy.
5. In the event that I am employed by Chrysler Corporation or any of its
subsidiaries, I agree to comply with all its orders, rules, and regulations and
acknowledge that said orders, rules, and regulations do not constitute terms of
employment contrary to paragraph 6.
6. I hereby acknowledge that this application is for an employment of
indefinite duration, terminable at will, for any reason either by myself or by
Chrysler, except as otherwise provided by the terms of a collective bargaining
agreement, if any, applicable to me.
7. I understand that the terms of paragraph 6 cannot be altered except by
written agreement executed by an Officer of Chrysler Corporation.
8. I agree that any claim or lawsuit relating to my service with Chrysler
Corporation or any of its subsidiaries must be filed no more than six (6) months
after the date of the employment action that is the subject of the claim or lawsuit.
I waive any statute of limitations to the contrary.
NOTE: A photocopy of this statement shall be as valid as the original.
Beneath the eight provisions, the application requested the applicant's signature and date.
Just below the signature line, the application stated in smaller print:
(This application will be considered active for twelve (12) months from the date
filed. If you are hired, it becomes part of your official employment record.)
Given the manner in which defendant obtained "agreement" to the terms stated in the
employment application, plaintiff clearly had no realistic alternative to the contractually
shortened limitations period. There was "an absence of meaningful choice," a hallmark of
unconscionability. Allen, supra at 637-638. Further, the provision concerning a shortened
limitations period also "takes advantage of or surprises the victim of the clause," underscoring
the procedural unfairness in this case. 8 Williston, p 65.
While the principles of freedom of contract may support upholding a bargained-for term
shortening the period of limitations, Rory, supra at 468-469, the nondescript provision imposed
in paragraph eight in defendant's employment application form cannot realistically be claimed to
be a "bargained-for" term. First, it is unlikely that an applicant seeking a job from an employer
would engage in bargaining these terms at the time of signing the application form. If the
applicant is sufficiently aware of the implications of any particular term, such as the six-month
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limitations period, the applicant is surely also aware that objection to the provision will thwart
any offer of a job from the prospective employer. Second, it is unlikely that at the time of hiring,
in this case five months after plaintiff completed the application form, an applicant would recall
the limitations provision or recognize its broad curtailment of legal rights, such that the applicant
would then negotiate different terms.
The shortened limitations-period provision in this case cannot be sanctioned as a
bargained-for term under the freedom of contract principles supporting the decision in Rory. If
any doubt remains whether this Court should sanction the use of paragraph eight under the guise
of a "bargained-for" term under Rory, one need only compare the provision to a different version
used by defendant that at least attempts to minimize any unfair surprise and deception by
informing an applicant that a statute of limitations may exist that provides for a period of
limitations longer than six months. In a 2004 case involving a job application form apparently
used by defendant after the one in this case, the provision imposing a shortened limitations
period stated:
"READ CAREFULLY BEFORE SIGNING:
* * *
"8. In consideration of Chrysler's review of my application, I agree that
any claim or lawsuit arising out of my employment with, or my application for
employment with, Chrysler Corporation or any of its subsidiaries must be filed no
more than six (6) months after the date of the employment action that is the
subject of the claim or lawsuit. While I understand that the statute of limitations
for claims arising out of an employment action may be longer than six (6) months,
I agree to be bound by the six (6) month period of limitations set forth herein, and
I WAIVE ANY STATUTE OF LIMITATIONS TO THE CONTRARY.
Should a court determine in some future lawsuit that this provision allows an
unreasonably short period of time to commence a lawsuit, the court shall enforce
this provision as far as possible and shall declare the lawsuit barred unless it was
brought within the minimum reasonable time within which the suit should have
been commenced." [Krusinski v DaimlerChrysler Corp, unpublished opinion per
curiam of the Court of Appeals, issued February 19, 2004 (Docket No. 239873),
slip op at 2 n 1 (emphasis added).]
Unlike the provision in Krusinski, the provision in this case does not indicate that an
applicant/employee is agreeing to forgo important legal rights.
Defendant does not contend that it actually bargained for the shortened limitations period
in hiring plaintiff. Defendant merely seeks to impose a contractual limitations period via the
boilerplate provisions on the job application form. It certainly cannot be said that plaintiff had a
meaningful choice about "whether and how to enter" into the agreement for a six-month
limitations period. 8 Williston, p 57. The manner in which defendant acquired plaintiff 's
acquiescence to the shortened limitations period is procedurally unconscionable.
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Defendant's imposition of a six-month limitations period for "any claim or lawsuit
relating to plaintiff 's service with" defendant is also substantively unreasonable. The Legislature
has determined that the appropriate limitations period applicable in this action is three years.
The shortened six-month period imposed by defendant places plaintiff at a severe disadvantage
in seeking redress for wrongs and is unquestionably advantageous to defendant by permitting it
to wholly avoid employee claims. The six-month limitations period does not further the purpose
of promptly apprising a defendant of claims "in order that he may protect himself against
fraudulent and unjust claims." 6 ALR3d at 1207. Defendant took advantage of plaintiff 's
situation "to drive him into an unfair bargain." Gillam v Michigan Mortgage-Investment Corp,
224 Mich 405, 410; 194 NW 981 (1923). These circumstances fall squarely within the defense
of unconscionability.
Public Policy
I also find that the across-the-board imposition of a six-month limitations period on a
preprinted employment application form violates public policy. Recent decisions of this Court
have held that a shortened limitations period of six months does not offend the public policy of
this state. In Timko v Oakwood Custom Coating, Inc, 244 Mich App 234, 241-242; 625 NW2d
101 (2001), the Court stated that it agreed with other courts that found no inherent
unreasonableness accompanies a six-month period of limitation. But it is not necessarily the
shortened limitations period that offends public policy in this case. Rather, it is the manner in
which the provision is imposed by defendant that removes the shortened limitations period from
the realm of logic in which it has been rightfully upheld.
The public policy supporting limitations periods is well established:
There are several policy reasons underlying the adoption of statutes of
limitation. They protect defendants' rights by eliminating stale claims, shielding
defendants from protracted fear of litigation, and ensuring that they have a fair
chance of defending themselves. Chase v Sabin, 445 Mich 190, 199; 516 NW2d
60 (1994); Bigelow v Walraven, 392 Mich 566, 576; 221 NW2d 328 (1974).
Statutes of limitation are also constructed to give plaintiffs a reasonable
opportunity to bring suit. Chase, supra. [Herweyer, supra at 19.]
Imposing a six-month limitations period for any and all claims, as in this case, is contrary
to the public policy underlying statutes of limitations. See Rory, supra at 470-471. The majority
decision applies Rory to employment contracts absent any safeguards such as the review for
reasonableness performed by the Commissioner of the Office of Financial and Insurance
Services. See id. at 474-475.
In many cases, shortening the period of limitations to six months in an employment
context imposes a hardship on a plaintiff, thwarting legitimate claims. In the case of a job loss,
an employee's foremost concern is maintaining a livelihood—pursuing legal action is secondary,
both in priority and time. While six months is conceivably sufficient to file certain actions, in
many cases, such as this civil rights action, it is insufficient to properly seek legal counsel,
investigate, and file a claim. On the other hand, shortening the limitations period to six months
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is extreme and unnecessary to protect employers from stale claims and to enable employers to
defend against claims.
"Historically, courts have relied on the Legislature to establish limitation periods."
Herweyer, supra at 23. By sanctioning defendant's unilateral provision for a six-month
limitations period (presumably imposed on everyone who completes the job application form),
the courts are permitting employers to effectively determine the limitations period and thereby
supplant the Legislature's determination. There is nothing in the courts' reasoning to prevent all
employers in Michigan from now simply inserting the judicially approved six-month limitations
period in preprinted employment application forms, effectively "legislating by imposition" a new
severely shortened limitations period for employment-related claims. Such legislation by
employer imposition overrides well-established contract principles that have evolved for the
orderly conduct of business and is contrary to longstanding public policy. The six-month
limitations period in this case should therefore be found unenforceable.
/s/ Janet T. Neff
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