Clymer v. Jetro Cash & Carry Enters., Inc.

Citation: 334 F. Supp. 3d 683Docket: CIVIL ACTION NO. 17-5530

Court: District Court, E.D. Pennsylvania; August 14, 2018; Federal District Court

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A motion to compel arbitration has been filed by Defendants Jetro Cash and Carry Enterprises, Inc. and Restaurant Depot, LLC under the Federal Arbitration Act, seeking to stay the current action initiated by Plaintiff Nadine Clymer and compel arbitration based on an Arbitration Agreement she signed during her employment. Plaintiff opposes the motion, arguing that two provisions of the Arbitration Agreement are unconscionable: the arbitration costs provision, which allows the arbitrator to order the employee to reimburse up to 50% of arbitration costs, and a one-year limitation on submitting claims to arbitration, which is a condition precedent to arbitration. 

Plaintiff filed an employment discrimination action on December 11, 2017, alleging violations of Title VII, the Pregnancy Discrimination Act, the Family Medical Leave Act, and the Pennsylvania Human Relations Act after her termination on January 10, 2017. The court finds two provisions of the Arbitration Agreement unconscionable but will sever those provisions, allowing the motion to compel arbitration to proceed. The agreement mandates that claims related to employment be submitted to arbitration, with specific timelines for filing, including a one-year period for wrongful discharge or discriminatory termination claims.

The Arbitration Agreement contains a severability clause which Defendants request the Court to apply if any provisions are deemed unconscionable. When evaluating a motion to compel arbitration, the Court must determine whether to use the standard for motions to dismiss under Federal Rule of Civil Procedure 12 or the summary judgment standard under Rule 56. If the claim's arbitrability is evident from the complaint or supporting documents, the FAA favors the motion to compel arbitration being resolved under the motion to dismiss standard. In this case, because the Plaintiff did not reference or attach the Arbitration Agreement in her complaint, the Court finds the Rule 56 summary judgment standard applicable.

Under Rule 56, summary judgment is granted when there are no genuine disputes regarding material facts, and the movant is entitled to judgment as a matter of law. A material fact is one that could affect the litigation outcome, and a genuine dispute exists if reasonable evidence could lead a jury to favor the nonmoving party. The Court must favor the nonmoving party when drawing inferences. The moving party must demonstrate the absence of a genuine issue of material fact, while the nonmoving party must provide evidence from the record to rebut the claim, showing more than mere speculation.

Defendants seek to compel arbitration based on an agreement both parties acknowledge exists and was signed by Plaintiff. However, Plaintiff contends the agreement is unenforceable due to two unconscionable provisions: one regarding arbitration costs and another imposing a one-year limit for requesting arbitration. Additionally, she claims Defendants waived their right to arbitration by not notifying her about the agreement or her obligations under it, and argues that the one-year limitation lacks mutuality. Defendants counter that even if the challenged provisions are unconscionable, the Arbitration Agreement remains enforceable.

The Court has determined that two provisions relevant to the Plaintiff's claims are unconscionable but are severable, allowing the dispute to proceed to arbitration. The Federal Arbitration Act (FAA) strongly favors arbitration, establishing that written agreements to arbitrate are valid and enforceable, barring grounds for revocation applicable to any contract. Arbitration agreements are treated on par with other contracts, subject to general contract defenses such as fraud, duress, or unconscionability. Under the FAA, if a party refuses to arbitrate as per an agreement, the aggrieved party may petition a U.S. district court for an order to compel arbitration. The court must confirm the existence of a valid arbitration agreement and ensure the dispute falls within its scope, applying a presumption in favor of arbitrability. Courts assess arbitration agreements based on state law contract formation principles, allowing for the application of defenses like unconscionability without violating FAA provisions.

Plaintiff acknowledges the existence and her signing of the Arbitration Agreement but contests its validity based on unconscionability. Unconscionability, a defense under Pennsylvania law, requires demonstrating both procedural and substantive unconscionability. Procedural unconscionability focuses on whether a party had a meaningful choice in accepting the contract, often found in contracts of adhesion where one party holds excessive bargaining power. The court finds the Arbitration Agreement to be a procedurally unconscionable adhesion contract, given the unequal bargaining power and the Plaintiff's circumstances.

Substantive unconscionability involves terms that disproportionately favor one party, requiring proof that the provisions are unreasonably favorable to the drafter. The plaintiff must show a lack of meaningful choice in accepting these terms. Although both parties primarily addressed substantive unconscionability, the court's findings on procedural unconscionability necessitate an evaluation of the substantive elements as well.

The Plaintiff contends that the Arbitration Agreement is substantively unconscionable due to its provision allowing the arbitrator to require her to pay up to 50% of the arbitration costs, which could render the arbitration prohibitively expensive for a less powerful party. To challenge the enforceability of such a provision, the Plaintiff must demonstrate both the projected arbitration costs and her inability to afford them. The Plaintiff provided unchallenged evidence of her financial situation, earning $13.70 per hour for 35 to 42 hours a week, and evidence of the projected arbitration costs, which the Defendants did not dispute. The Court found that the potential requirement to pay 50% of the arbitration costs would discourage the Plaintiff from pursuing a legitimate claim, thus meeting her burden of proving the costs would be prohibitively expensive.

In response, the Defendants argued that the provision allows the arbitrator discretion to avoid unconscionable cost-shifting and claimed that they had waived enforcement of the costs provision. However, the Court rejected these arguments, noting that the arbitrator's discretion does not mitigate the unconscionability of the provision, referencing the Third Circuit's stance that a court must assess unconscionability based on the contract's formation time, unaffected by subsequent waivers. Consequently, the Court ruled that the provision requiring the Plaintiff to pay up to 50% of the arbitration costs is unconscionable.

The one-year temporal limitation provision in the Arbitration Agreement is deemed unconscionable and unenforceable regarding the Plaintiff's FMLA claim, but enforceable for Title VII and PHRA claims. The Plaintiff argues that the provision unreasonably restricts her ability to submit FMLA claims within one year, violating her rights under the FMLA. The Defendants assert the limitation is reasonable or, if found unreasonable, severable from the Agreement. The Court concludes that the one-year limitation violates FMLA regulations, specifically 29 C.F.R. § 825.220(a)(1) and (d), which prohibit any shortening of the statutory period for asserting FMLA claims. Citing precedent, including Lewis v. Harper Hosp. and subsequent cases, the Court notes a consensus among courts that such limitations clauses are unenforceable. The Court aligns with this reasoning and finds the one-year limitation unenforceable for the FMLA claim.

The plaintiff contends that the one-year temporal limitation for filing Title VII and PHRA claims is unconscionable, asserting it hinders her ability to exhaust administrative remedies with the EEOC and PHRC. However, the defendants argue that the plaintiff mistakenly conflates the administrative exhaustion process with the arbitration required by the Arbitration Agreement. The plaintiff incorrectly believes she must exhaust administrative remedies prior to arbitration. The Supreme Court's ruling in Gilmer v. Interstate/Johnson Lane Corp. clarifies that participating in administrative proceedings does not preclude arbitration; both can coexist. An arbitration agreement allows an aggrieved party to pursue administrative remedies without affecting their obligations under the arbitration agreement. The Arbitration Agreement explicitly requires Title VII/PHRA claims to be addressed through arbitration, which is enforceable. The plaintiff retains the right to seek administrative remedies without impacting her arbitration claims. This principle was upheld in Cerna v. Prestress Services Industries LLC, where the court reinforced that the processes of arbitration and EEOC claims are not mutually exclusive, allowing simultaneous actions, and that negligence in pursuing arbitration does not invalidate the one-year limitation. Similar affirmations were made in Volpe v. Jetro Holdings, highlighting that while judicial actions require completion of administrative proceedings, arbitration rights remain intact.

Plaintiff misinterprets the Arbitration Agreement's impact on her Title VII and PHRA administrative remedies. Although the Agreement mandates arbitration of claims within one year, it does not modify her rights regarding filing with the EEOC or PHRC. Thus, the one-year limit for her claims is enforceable. The Court found two provisions in the Arbitration Agreement unconscionable but must decide if they can be severed to allow for arbitration. Under Pennsylvania law, unconscionable terms can be severed if they are not essential to the agreement. Citing Spinetti, which allowed for similar severance, the Court concluded that the essence of the Arbitration Agreement is to resolve employment disputes through arbitration. The costs provision and the one-year limitation regarding Plaintiff’s FMLA claim can be severed without undermining the agreement's central purpose. Consequently, these provisions are unenforceable and will be removed from the Agreement. The Court grants Defendants' motion to compel arbitration while striking the specified provisions. An Order will follow to formalize this decision, with the Court having considered all relevant briefs while favorably construing facts for the Plaintiff.

Both parties agree that the motion should adhere to a Rule 56 summary judgment standard. Although a party typically opposing a motion to compel arbitration can conduct limited discovery regarding arbitrability, the Plaintiff does not contest the existence or her signature on the Arbitration Agreement. Instead, she claims that the terms of the Arbitration Agreement are unconscionable. Since the Arbitration Agreement is already part of the record and is used by the Plaintiff in her argument, additional discovery is unnecessary for resolving the unconscionability issue. The Court will thus apply the Rule 56 standard to assess the motion to compel arbitration.

The Court references precedents from the Third Circuit, which have deemed certain cost provisions in arbitration agreements unconscionable when evidence shows that arbitration costs would be prohibitively expensive. For instance, in Spinetti v. Service Corp. Int'l, the Third Circuit found a cost-splitting requirement unconscionable. The Court observes that neither party has cited any regulations that would prevent an employer from shortening the timeframe for an employee to bring Title VII or PHRA claims, indicating that the analysis concerning the Plaintiff's FMLA claim does not apply to her Title VII and PHRA claims.

The Plaintiff also argues that the Defendants waived their right to arbitration by not informing her of the Arbitration Agreement and its one-year limitation during the EEOC proceedings. The Defendants counter that there was no obligation to notify her. While the Third Circuit has not ruled on this issue, several district courts maintain that participation in EEOC proceedings does not waive the right to arbitration. The Court agrees with this perspective, noting that the Plaintiff initiated EEOC proceedings shortly after the incident, yet did not file a claim until December 11, 2017, after which the Defendants promptly moved to compel arbitration.

Regarding the one-year limitation, the Plaintiff cites cases where various temporal limitations on Title VII claims were deemed unenforceable; however, those cases did not involve such limitations within an arbitration context, but rather addressed the impact of temporal limitations on a plaintiff's ability to exhaust administrative remedies before pursuing claims in federal court.

The one-year limitation for Plaintiff to submit her Title VII and PHRA claims is justified, as these claims must be filed with the EEOC/PHRA within 300/180 days of the triggering event, while the Arbitration Agreement allows a full year for arbitration submissions. Plaintiff's assertion that this limitation disproportionately favors the employer is incorrect; the Arbitration Agreement applies equally to both parties, stating that "no dispute shall be eligible for submission to arbitration under this policy where one year shall have elapsed," allowing either party to submit arbitration requests. Even if the limitation were deemed one-sided, it would remain enforceable, as established in Harris, where the Third Circuit upheld that contracts need not exhibit mutuality of obligation if supported by consideration. In this case, Plaintiff received consideration through her employment in exchange for signing the Arbitration Agreement, negating the necessity for Defendants to adhere to identical terms.