Effio v. FedEx Ground Package System, Inc. et al, No. 2:2008cv01522 - Document 18 (D. Ariz. 2009)
Court Description: ORDER denying 7 Defendant's Motion to Dismiss Case for Lack of Jurisdiction and denying 15 Plaintiff's Motion for Leave to File a Sur-Reply. Signed by Judge Roslyn O Silver on 3/20/09.(LSP)
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Effio v. FedEx Ground Package System, Inc. et al 1 Doc. 18 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Jose Alberto Effio, Plaintiff, 10 11 vs. 12 FedEx Ground Package, et al., 13 Defendants. 14 ) ) ) ) ) ) ) ) ) ) ) ) No. cv-08-1522-PHX-ROS ORDER 15 16 Defendant FedEx Ground Package System, Inc (“FedEx”) moves to dismiss the 17 Complaint, or, in the alternative, to stay proceedings and compel arbitration of the claims 18 alleged. (Doc. 7). Plaintiff moves for leave to file sur-reply (Doc. 15). For the reasons 19 stated herein, both motions will be denied. 20 BACKGROUND 21 Plaintiff contracted with FedEx as a driver for their package delivery services. As a 22 condition of employment he signed the FedEx Home Delivery Standard Contractor Operating 23 Agreement (“Agreement”) on March 1, 2007. Plaintiff’s Agreement was terminated on April 24 19, 2008. Plaintiff brings suit for Breach of Contract and Breach of the Covenant of Good 25 Faith and Fair Dealing. 26 The Agreement contained an arbitration clause which is the subject of the instant 27 dispute. That clause stated: 28 Dockets.Justia.com 1 2 3 4 9.3 Arbitration of Asserted Wrongful Termination. In the event FHD acts to terminate this Agreement (which acts shall include any claim by Contractor of constructive termination) and Contractor disagrees with such termination or asserts that the actions of FHD are not authorized under the terms of this Agreement, then each such disagreement (but no others) shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA) in accordance with the terms and conditions set forth in Addendum 7 to this Agreement. 5 Addendum 7 consisted of two pages at the end of the Agreement laying out a variety of 6 specific arbitration provisions, including limitations on damages and discovery and a 90-day 7 time limit to request arbitration after termination. 8 9 10 CHOICE OF LAW A federal court sitting in diversity applies the forum state’s choice of law rules. 11 Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Orr v. Bank of Am., 285 12 F.3d 764, 772 n.4 (9th Cir. 2002). Arizona courts apply the rules set forth in the Restatement 13 (Second) of Conflicts (1972) (“Restatement”). Bryant v. Silverman, 703 P.2d 1190, 1191 14 (Ariz. 1985). 15 Here, the parties have a contractual provision which states “[t]his Agreement shall be 16 governed by and construed in accordance with the laws of the Commonwealth of 17 Pennsylvania.” “When the parties choose the law of a particular state to govern their 18 contractual relationship and the chosen law has some nexus with the parties or the contract, 19 that law will generally be applied.” Nanini v. Nanini, 802 P.2d 438, 441 (Ariz. Ct. App. 20 1990). More specifically, the Restatement provides that that law will apply if “the particular 21 issue is one which the parties could have resolved by an explicit provision in their 22 agreement.” Restatement (Second) of Conflict of Laws, § 187 (1988). Otherwise, the law 23 chosen will be applied unless: 24 25 26 27 (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties. 28 -2- 1 Id. As the issue of unconscionability could not have been resolved through a contractual 2 provision, Pennsylvania law will apply unless this case falls under one of the two exceptions 3 provided by the Restatement. 4 Plaintiff argues that Pennsylvania, the state chosen by the contract, has no substantial 5 relationship to the parties or transaction and that there is no reasonable basis for applying 6 Arizona law. He also argues that Arizona has a fundamental policy interest in regulating 7 conduct within its borders, applicable here because the contract was negotiated and signed 8 in Arizona, Plaintiff lives in Arizona, and all deliveries under the contract were made in 9 Arizona.1 10 As to exception (a), Defendant responds by pointing out that FedEx’s corporate 11 headquarters and principle place of business are in Pennsylvania and that employees, 12 including Plaintiff, travel to Pennsylvania for training. Similarly, if a contract is to be 13 terminated (as Plaintiff’s was) it is sent to Pennsylvania for review and decision making, and 14 it was in Pennsylvania that Plaintiff’s settlement was calculated. Finally, the scanners used 15 by drivers instantly send pick-up and delivery information to Pennsylvania.2 16 The Court agrees with Defendant; while much of the activity giving rise to the case 17 was centered in Arizona, Pennsylvania’s relationship with the events cannot be considered 18 1 19 20 21 22 23 24 25 26 27 28 For the same reasons, Plaintiff argues – uncontroversially, the Court believes – that Arizona would be the proper forum under §188 had the parties not had a provision to the contrary. Section 188 of the Restatement provides that “[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties” given the choice of law principles in §6. Those principles include the policies of the forum and other interested states, the relative interests of those states, the protection of justified expectation, and certainty, predictability and uniformity of result. 2 Plaintiff has filed a separate Motion to File Sur-reply (Doc. 15), arguing that Defendant introduced new legal arguments for the first time in its Reply and supporting Affidavit which presents these facts regarding FedEx’s activities in Pennsylvania. The Court disagrees. Where Plaintiff exceeds the scope of the pleadings in his Response, Defendant may then present new evidence in his Reply. Further, Defendant has not asserted new grounds for dismissal and instead was merely responding on the topic of choice of law which was first asserted in Defendants’ Motion, then expounded upon in Plaintiff’s Response. -3- 1 insubstantial and, given the fact that Defendant has its principal place of business in 2 Pennsylvania and structures many of its day-to-day operations around Pennsylvania, it cannot 3 be said that “there is no other reasonable basis for the parties’ choice.” 4 As to exception (b), Defendant argues that “[d]etermining the enforceability of an 5 arbitration agreement under the law of Pennsylvania is not contrary to any fundamental 6 policy of the State of Arizona since both states strongly favor arbitration.”3 Plaintiff does not 7 dispute this and it bears against a finding that exception (b) applies. Both Arizona and 8 Pennsylvania have an interest in governing the behavior of entities operating within it, and 9 in protecting or vindicating the right of their citizens. Because the contract was negotiated, 10 signed, and largely carried out in Arizona, Arizona’s interest probably outweighs 11 Pennsylvania, even if daily business operations relating to the contract were carried out in 12 Pennsylvania. However, Plaintiffs have not shown that this relatively minor difference in 13 interests would result in a decision that is contrary to a fundamental policy of Arizona. 14 Accordingly, Pennsylvania law will be applied. ANALYSIS 15 16 Under Pennsylvania law, “[w]hen parties agree to arbitration in a clear and 17 unmistakable manner, the court will make every reasonable effort to favor such agreements.” 18 DiLucente Corp. v. Penn. Roofing Co., Inc., 655 A.2d 1035, 1038 (Pa. Super. Ct. 1995). 19 “When one party to an arbitration agreement seeks to prevent another from proceeding to 20 arbitration, judicial inquiry is limited to determining (1) whether a valid agreement to 21 arbitrate exists between the parties and, if so, (2) whether the dispute involved is within the 22 scope of the arbitration provision. Smith v Cumberland Group, Ltd., 687 A.2d 1171 (Pa. 23 Super. Ct. 1997). While the plain terms of the contract provision in question here require 24 25 26 27 28 3 This, the Court believes, is the real question at issue rather than, as Plaintiffs seem to suggest, which state has the greater interest in the transaction in question. See, e.g., Cardon v. Cotton Lake Holdings, 841 P.2d 198, 209 (Ariz. 1992) (concluding that the parties’ choice of law provision stands because Arizona did not have a strong public policy favoring deficiency judgments that would be frustrated by application of California law). -4- 1 arbitration, Plaintiff argues that this contract provision is unconscionable because it is a 2 contract of adhesion and the terms are contrary to the adhering party’s “reasonable 3 expectations.” 4 “Unconscionability has generally been recognized to include an absence of 5 meaningful choice on the part of one of the parties together with contract terms which are 6 unreasonably favorable to the other party.” Williams v. Walker-Thomas, “[A] contract term 7 is unsconscionable, and therefore avoidable, where there was a lack of meaningful choice in 8 the acceptance of the challenged provision and the provision unreasonably favors the party 9 asserting it.” Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 2007) (citing 10 Denlinger, Inc. v. Dendler, 608 A.2d 1061, 1068 (Pa. Super. Ct. 1992). “The aspects 11 entailing lack of meaningful choice and unreasonableness have been termed procedural and 12 substantive unconscionability, respectively.” Id. (citing 17A Am. Jur. 2d Contracts § 278 13 (2006)). The burden of proof for demonstrating both elements falls on the party challenging 14 the agreement, and at least one court has held that both elements must be met before a finding 15 of unconscionability can be made. Id. at 119-120. “[T]he ultimate determination of 16 unconscionability is for the courts,” though factfinding may be necessary. Id. at 120. 17 Parties have a high bar to meet in demonstrating that an arbitration agreement is 18 unconscionable. “[O]ur supreme court, and the federal courts of Pennsylvania, have refused 19 to hold contracts unconscionable simply because of a disparity in bargaining power.” 20 Denlinger, 608 A.2d at 1067 (internal citations and quotations omitted). “[T]he United 21 States Supreme Court has expressed the concern that allowing a party to invoke judicial 22 review to challenge the parties’ overall agreement (and therefore also an arbitration 23 component) would contravene Congress’ purpose to facilitate a just and speedy resolution 24 of controversies that is not subject to delay and/or obstruction in the courts.” Id. at 120 25 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)). 26 i. Procedural Unconscionability 27 Procedural unconscionability “pertains to the process by which an agreement is 28 reached and the form of an agreement, including the use therein of fine print and convoluted -5- 1 or unclear language.” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999) 2 (citing E. Allan Farnsworth, Contracts § 4.28 (2d ed. 1990)). Courts have rejected arguments 3 of procedural unconscionability where the language of the clause was clear and 4 unambiguous, the party was not coerced into accepting the contract, and where “[r]eading 5 the agreement would have disclosed the arbitration clause.” McCullough v. Shearson 6 Lehman Bros, Inc., 1988 U.S. Dist. Lexis 1563 at * 9 (W.D. Penn. 1988). 7 A contract of adhesion is not per se unconscionable. “Once a contract is deemed to 8 be one of adhesion, its terms must be analyzed to determine whether the contract as a whole, 9 or specific provisions of it, are unconscionable.” Denlinger, 608 A.2d at 1067. “Inequality 10 in bargaining power, alone, is not a valid basis upon which to invalidate an arbitration 11 agreement.” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183 (3d Cir. 1999). However 12 “[p]rocedural unconscionability is generally found where the agreement is a contract of 13 adhesion.” Ostroff v. Alterra Healthcare Corp., 433 F.Supp. 2d 538, 543 (E.D. Pa. 2006) 14 (citing Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 264 (3d Cir. 2003)). 15 Here, Defendant does not dispute that the contract is a contract of adhesion. The 16 agreement was apparently presented to Plaintiff without explanation or opportunity for 17 discussion, and the contract was a long one. It is true that the arbitration agreement was 18 included in the main body of the contract in a provision clearly labeled, in bold type, 19 “Arbitration of Asserted Wrongful Termination.” The type size was the same as in the rest 20 of the agreement. The language involved was clear and unambiguous, stating both that 21 arbitration would be required and specifying the type of claim for which it would be required. 22 But the provision also referenced Addendum 7, in which many of the specific terms and 23 conditions relating to arbitration were expounded upon in rather technical language. It is, 24 indeed, unrealistic to believe that a non-lawyer could review in detail the two pages of 25 detailed provisions regarding arbitration and fully understand the significance of the terms 26 therein, particularly when he is given no explanation of the Agreement or opportunity to ask 27 questions relating to it and is likely in immediate need of employment to boot. 28 -6- 1 This, given the general presumption that contracts of adhesion are procedurally 2 unconscionable, is sufficient for this Court to conclude that procedural unconscionability 3 exists. 4 ii. Substantive Unconscionability 5 Plaintiff argues that the arbitration clause is substantively unconscionable because: 6 (a) Plaintiff’s claims resulting from termination of the agreement are subject to arbitration 7 while Defendants’ are not; (b) Plaintiff has only 90 days after termination to mail written 8 notice of demand for arbitration to FedEx and the American Arbitration Association and has 9 otherwise waived any claims; (c) neither party is entitled to written or deposition discovery 10 except with respect to damages; (d) the arbitrator has no authority to allocate or apportion 11 attorneys’ fees or other fees; (e) Plaintiff’s remedies and damages are limited by the 12 Agreement and subject to decisions by FedEx; (f) the arbitrator has no authority to award 13 punitive damages, and; (g) the Agreement expressly forbids the arbitrator to explain the basis 14 for an award. 15 Defendant does not argue that the arbitration clause does not favor its own interests. 16 However, it does argue that it does not rise to the level of harm required for substantive 17 unconscionability, noting that “although it is possible, rarely will a commercial contract or 18 term be found to be unconscionable.” Denlinger, Inc., 608 A.2d at 178. 19 Defendant, however, misinterprets that finding. Commercial contracts will rarely be 20 found unconscionable where “a contract provision affects commercial entities with 21 meaningful choices at their disposal.” Id. Here, Plaintiff was an employee required to sign 22 a contract as a condition of employment. Common as such a scenario might be, it is scarcely 23 the sort of informed choice two entities with experience and equal bargaining power might 24 make when they sign a contract. The contractual provisions pointed to by Plaintiff do, indeed, 25 slant the arbitration provision heavily towards Defendant, particularly in the troublesome 26 limitations on the length of time Plaintiff has to bring a claim after termination and limits on 27 damages. Similarly, while the discovery provision is facially neutral, it seems exceedingly 28 likely that lack of access to internal FedEx documents or FedEx employees will to pose a -7- 1 greater problem for Plaintiff than any similar lack of access would pose to Defendant, who, 2 presumably, is already in possession of documents and discussion regarding Plaintiff’s 3 termination. Others, such as the attorneys’ fees provision, seem less troublesome; there is 4 no indication that Plaintiff could have recovered attorneys’ fees in the absence of such a 5 provision. 6 In some states lack of mutuality has been fatal. See, e.g., Armendariz v. Foundation 7 Health Psychare Servs., 6 P.3d 669, 692 (Cal. 2000). However, Pennsylvania has not made 8 such a finding and in fact has explicitly noted that “the United States Supreme Court has 9 made clear that parties who agree to arbitrate some claims may exclude others from the scope 10 of the arbitration agreement.” Salley, 925 A.2d at 128 (citing Dean Witter Reynolds v. Byrd, 11 470 U.S. 213, 221 (1985)). Similarly, placing limitations on damages has also been upheld, 12 albeit in commercial contexts, rather than between an employer and employee. See, e.g., 13 Borden Inc. v. Advent Ink Co., 701 A.2d 255, 264 (Pa. Super. Ct. 1997) (“In commercial 14 settings, a limitation of damages clause will rarely be found unconscionable.”). 15 Conversely, substantive unconscionability has been found where there are severe 16 restrictions on discovery, Ostroff, 433 F. Supp. 2d at 543 (citing Walker v. Ryan’s Family 17 Steak Houses, Inc., 400 F.3d 370, 387-88 (6th Cir. 2005)), curtailed judicial review, id. 18 (citing Hooters of America, Inc. v. Phillips, 39 F. Supp.2d 582, 614 (D.S.C. 1998) (3d Cir. 19 2003)), or limitations on remedies, id. (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 20 646, 670-71 (6th Cir. 2003)). 21 This case did not arise between two commercial entities, as many of the cases cited 22 above did. Instead, an employee was required to sign onto a provision highly unfavorable 23 to himself as a condition of employment. The arbitration clause does not disadvantage 24 Plaintiff in just one area, but contains a number of unfavorable provisions, creating a 25 cumulative effect that multiplies several times over the Agreement’s slant towards 26 Defendant. Ultimately, this is sufficient to judge the arbitration provision substantively 27 unconscionable. 28 Accordingly, -8- 1 IT IS ORDERED Defendant’s Motion to Dismiss (Doc. 7) is DENIED. 2 IT IS FURTHER ORDERED Plaintiff’s Motion to File a Sur-Reply (Doc. 15) is 3 4 DENIED. DATED this 20th day of March, 2009. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9-
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