Opinion
Civil Action No. 06-CV-00541.
September 21, 2007
DONALD P. RUSSO, ESQUIRE, On behalf of Plaintiff.
JAMES M. PENNY, JR, ESQUIRE and JACOB B. SITMAN, ESQUIRE, On behalf of Defendant.
ORDER
NOW, this 20th day of September, 2007, upon consideration of Plaintiff's Motion to Reinstate Complaint, and accompanying brief, which motion and brief were filed October 6, 2006; upon consideration of the Brief of Defendant, Harleysville National Bank, in Opposition to Plaintiff's Motion to Reinstate the Complaint, which brief was filed October 18, 2006; and for the reasons set forth in the accompanying Memorandum,
IT IS ORDERED that Plaintiff's Motion to Reinstate Complaint is denied.
MEMORANDUM
This matter is before the court on Plaintiff's Motion to Reinstate Complaint, which motion was filed together with a brief on October 6, 2006. The Brief of Defendant, Harleysville National Bank, in Opposition to Plaintiff's Motion to Reinstate the Complaint was filed October 18, 2006. For the reasons expressed below, I deny plaintiff's motion.
Defendant's brief combines its answer to plaintiff's motion with its legal argument in opposition to the motion.
Specifically, I conclude that plaintiff has failed to sustain his burden of proving the unconscionability of the arbitration agreement between plaintiff and defendant. Accordingly, my May 18, 2006 Order (which approved the parties' stipulation to submit this matter to arbitration and dismissed defendant's motion to dismiss as moot) remains in full force and effect.
On April 11, 2006 defendant moved to dismiss this action pursuant to Fed.R.Civ.P. 12(b)(6). Plaintiff subsequently agreed to a stipulation by which he withdrew his Complaint and agreed to submit to arbitration before the American Arbitration Association in accordance with paragraph 16 of his employment agreement with defendant. My May 18, 2006 Order approved the stipulation and dismissed defendant's April 11, 2006 motion to dismiss as moot.
JURISDICTION AND VENUE
Jurisdiction in this case is based upon federal question jurisdiction pursuant to 28 U.S.C. § 1331. The court has supplemental jurisdiction over plaintiff's pendent state law claims. See 28 U.S.C. § 1367. Venue is proper in accordance with 28 U.S.C. § 1441 because the case was removed from the Court of Common Pleas of Lehigh County, Pennsylvania, which is located within this judicial district.PROCEDURAL HISTORY
On December 19, 2005 plaintiff Thomas D. Oleska filed a Complaint in the Court of Common Pleas of Lehigh County, Pennsylvania. Plaintiff's Complaint avers that termination of his employment by defendant violates his written employment agreement. Plaintiff also avers claims of age discrimination pursuant to the Age Discrimination in Employment Act, and state-law violations of the Pennsylvania Human Relations Act, and the Pennsylvania Wage Payment and Collection Law. Asserting federal question jurisdiction, defendant timely removed this action to federal court on February 3, 2006.
29 U.S.C. §§ 621- 634.
Act of October 27, 1955, P.L. 744, No. 222, §§ 1-13, as amended, 43 P.S. §§ 951-963.
Act of July 14, 1961, P.L. 637 §§ 1-12, as amended, 43 P.S. §§ 260.1-260.12.
On April 11, 2006 defendant moved to dismiss Plaintiff's Complaint under Federal Rule of Civil Procedure 12(b)(6). Defendant contended that plaintiff's claims are subject to the arbitration provision of his employment agreement and that plaintiff had failed to state a claim upon which relief can be granted. Plaintiff subsequently agreed to a stipulation in which he withdrew his Complaint and agreed to submit his claims for arbitration before the American Arbitration Association ("AAA") pursuant to paragraph 16 of his employment agreement. My May 18, 2006 Order approved this stipulation and dismissed defendant's motion to dismiss as moot.
On October 6, 2006 plaintiff filed the within motion to reinstate his Complaint. In his motion, plaintiff argues that the arbitration agreement is unconscionable because he will have to pay filing fees of approximately $4,250.00 to institute arbitration before the AAA. Thereafter, defendant filed its response to plaintiff's motion to reinstate his Complaint, arguing that plaintiff's claim of unconscionability has no legal support.
STANDARD OF REVIEW
The Federal Arbitration Act, 9 U.S.C. §§ 1- 16, "embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts. . . ."Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 442, 126 S.Ct. 1204, 1207, 163 L.Ed.2d 1038, 1041 (2006). The "federal arbitration policy must be implemented in lock-step with a determination of contract validity under state law." Spinetti v. Service Corporation International, 324 F.3d 212, 217 (3d Cir. 2003) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Arbitration agreements may be unenforceable based upon contractual defenses such as unconscionability. Alexander v. Anthony International, L.P., 341 F.3d 256, 264 (3d Cir. 2003).
A potential litigant must be given the opportunity to demonstrate that arbitration costs are great enough to deter them and similarly situated individuals from seeking to vindicate their statutory rights. Spinetti, 324 F.3d 212, 217 (3d Cir. 2003) (citing Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 660 (6th Cir. 2003)). Furthermore, the party seeking to invalidate an arbitration agreement because of the expense of arbitration costs bears the burden of showing that arbitration could be prohibitively expensive. Green Tree Financial Corp. — Alabama v. Randolph, 531 U.S. 79, 92, 121 S.Ct. 513, 522-523, 148 L.Ed.2d 373, 384 (2000).
DISCUSSION
Initially, in Deibler v. The Chas. H. Elliott Co., 368 Pa. 267, 81 A.2d 557 (Pa. 1951) the Supreme Court of Pennsylvania held that if an essential term of a contract is deemed illegal, it renders the entire contract unenforceable by either party. InSpinetti, supra, the United States Court of Appeals for the Third Circuit held that in light of both the pro-arbitration federal policy and Pennsylvania contract law that the essence of an agreement to arbitrate is an agreement to settle employment disputes through binding arbitration. 324 F.3d at 214.
Furthermore, the Third Circuit held that a provision regarding payment of arbitration costs is not an essential part of an agreement to arbitrate, is only a part of the agreement, and can be severed without disturbing the primary intent of the parties to arbitrate their disputes. Id. Thus, in this case, following the holding of Spinetti (which I am required to do), even if I find that the payment by plaintiff of arbitration costs is unconscionable, I can sever that requirement, and the parties would still be required to arbitrate their dispute pursuant to their agreement to do so.
Accordingly, I deny plaintiff's motion to reinstate his Complaint. Therefore, the only determination I am required to make is whether the provision for plaintiff to pay the arbitration costs is enforceable or must be severed as unconscionable.
Unconscionability
It is uncontested that Pennsylvania law provides the applicable principles of contract law necessary to analyze this arbitration agreement. Pennsylvania law includes unconscionability as a contractual remedy to relieve a party from an unfair contract or portion of a contract. Harris v. Green Tree Financial Corporation, 183 F.3d 173, 181 (3d Cir. 1999) (quoting Germantown Manufacturing Co. v. Rawlinson, 341 Pa.Super. 42, 55, 491 A.2d 138, 145 (1985)). The party challenging a contract bears the burden of proving unconscionability. Harris, 183 F.3d at 181.
Courts recognize two types of unconscionability: (1) procedural unconscionability and (2) substantive unconscionability. Under Pennsylvania law, both aspects must be present for a contract to be deemed unconscionable. Metalized Ceramics for Electronics, Inc. v. National Ammonia Company, 444 Pa.Super. 238, 249, 663 A.2d 762, 767 (1995).
Procedural unconscionability "pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language", and typically arises in adhesion contracts.Harris, supra, at 181. Section 16 of plaintiff's employment agreement provides in pertinent part that "each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution . . . to the American Arbitration Association . . . in accordance with the Association's National Rules for Resolution of Employment Disputes. . . ."
This agreement is not an adhesion contract, and is not misleading or unclear. Plaintiff does not contend that the form or method of agreeing to his employment contract, or the stipulation to submit to arbitration, is procedurally unconscionable. Therefore, procedural unconscionability does not render this agreement void in whole or in part.
Substantive unconscionability refers to "contractual terms that are unreasonable or grossly favorable to one side and to which the disfavored party does not assent." Harris, supra, at 181 Substantive unconscionability may be found if "the transaction involved elements of deception or compulsion, or . . . that the weaker party had no meaningful choice, no real alternative, or did not in fact appear to assent to the unfair terms." Alexander, 341 F.3d at 265 (quoting Restatement (Second) of Contracts § 208 comment d.).
Plaintiff does not contend that he lacked the opportunity to make a meaningful choice regarding arbitration. Plaintiff agreed to a stipulation withdrawing his Complaint and submitting to arbitration pursuant to his employment agreement. Furthermore, plaintiff, a former bank president, was represented by counsel when he agreed to the stipulation. Therefore, it does not appear that plaintiff lacked bargaining power. Plaintiff does not aver that he was deceived or coerced into submitting to arbitration. Accordingly, plaintiff fails to demonstrate substantive unconscionability.
Ability to Pay Arbitration Costs
Plaintiff asserts that the cost of instituting an arbitration proceeding is excessive and prohibits him from pursuing his claim. The United States Supreme Court has stated that "large arbitration costs could preclude a litigant . . . from effectively vindicating [his] federal statutory rights in the arbitral forum." Green Tree Financial Corp.-Alabama, 531 U.S. at 90, 121 S.Ct at 521, 148 L.Ed.2d at 383. As noted above, the party seeking to avoid arbitration because it would be costly bears the burden of showing prohibitive expenses. Spinetti, 324 F.3d at 217.
To meet this burden, one may attempt to show the claimant's inability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether the cost differential is so substantial as to deter the bringing of claims. Blair v. Scott Specialty Gases, 283 F.3d 595, 609 (3d Cir. 2002) (quoting Bradford v. Rockwell Semiconductor Systems Inc., 283 F.3d 549, 556 (4th Cir. 2001)). In his motion, Plaintiff has not provided even the slightest indicia to demonstrate any of these elements.
Plaintiff states that he will be forced to pay a filing fee of $4,250.00 to commence arbitration. This cost is to be borne entirely by him pursuant to paragraph 16 of his employment agreement. However, plaintiff has provided no argument or evidence to suggest that he would be unable to pay this fee or that doing so would keep him or similarly situated litigants from vindicating their statutory rights. Moreover, plaintiff did not request that the court conduct a hearing so that he might attempt to establish anything beyond his bare allegations of inability to pay.
Plaintiff's employment agreement states that arbitration is to be governed by the American Arbitration Association's National Rules for the Resolution of Employment Disputes or "other applicable rules then in effect." Defendant asserts that the American Arbitration Association Rules for Disputes Arising out of Individually Negotiated Employment Agreements and Contracts, subsection (i), provides that an initial filing fee is to be payable in full by the filing party. Plaintiff has not identified any provision of the American Arbitration Association rules that would suggest otherwise.
A "searching inquiry into an employee's bills and expenses" is not necessary to make the determination of an ability to pay.Giordano v. Pep Boys — Manny, Moe Jack, Inc., 2001 WL 484360, at *6 (E.D.Pa. Mar. 29, 2001) (Pollak, J.). Nonetheless, a general assessment of the claimant's financial status must be done to assess one's ability to pay potential costs. As noted above, plaintiff has not provided even this limited information.
Plaintiff claims that arbitration costs cannot fairly be passed on to an employee. The United States Supreme Court has held that arbitration agreements that do not clearly stipulate which party will bear costs, and potentially subject a plaintiff to substantial fees, are not per se unenforceable. Green Tree Financial Corp.-Alabama, 531 U.S. at 82, 121 S.Ct. at 517, 148 L.Ed.2d at 378. In Goodman v. ESPE America, Inc., my colleague United States District Court Judge J. Curtis Joyner held that a "loser pays" provision in an arbitration agreement that would potentially require plaintiff to pay arbitration costs did not render the agreement void. 2001 WL 64749, at *4-*5 (E.D.Pa. Jan. 19, 2001) (Joyner, J.).
According to plaintiff, the initial fees to arbitrate his case are not unknown, or only potentially to be borne by him, as inGreen Tree Financial and Goodman, but are in the amount of $4,250.00. However, plaintiff has not provided any concrete evidence, such as a fee table from the AAA, to support this figure. Nor has he offered any information whatsoever regarding his ability to pay this fee. Accordingly, I conclude that plaintiff fails to even allege any facts, let alone meet his burden of proof, to establish the potential of a prohibitive expense for arbitration. Thus, I deny his motion.
CONCLUSION
For all the foregoing reasons, I deny Plaintiff's Motion to Reinstate Complaint.