Opinion ID: 584572
Heading Depth: 3
Heading Rank: 2

Heading: The six-month limitation of actions clause

Text: 60 While the district court was not presented with Patterson 's limits on the scope of section 1981, Western-Southern did give the court a solid reason--the six month limitation of actions clause in the Taylors' employment agreements--to dismiss the Taylors' section 1981 claims. In response, the Taylors argued that the limitations clause was either invalid or inapplicable to their section 1981 claims. The district court rejected each of the Taylors' arguments; it found the clauses valid and operative. On appeal, the Taylors renew their two-pronged attack upon the limitations clauses. 61 In reviewing a grant of a motion to dismiss, we assume the truth of all well-pleaded factual allegations, draw all reasonable inferences in favor of the plaintiff, and review de novo the district court's decision. Prince v. Rescorp Realty, 940 F.2d 1104, 1106 (7th Cir.1991); Janowsky v. United States, 913 F.2d 393, 395 (7th Cir.1990); Villegas v. Princeton Farms, Inc., 893 F.2d 919, 924 (7th Cir.1990). A complaint should not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) (citation omitted). 62
63 If the district court determines that the promotions sought by the Taylors would constitute a new and distinct relation with Western-Southern for the purposes of surviving Patterson, then a separate issue arises: do claims relating to such separate contracts fall within the scope of the limitation agreement contained in the Taylors' existing contracts? 6 Once again, it is helpful to review the language of the limitations clause: Section III. Legal Proceedings You agree: 64 C. Not to commence any action or suit relating to your employment with Western-Southern more than six months after the date of termination of such employment, and to waive any statute of limitation to the contrary. 65 R.1 Ex.A at 2. The Taylors argue that their section 1981 claims regarding promotion opportunities do not relate to their employment with Western-Southern because they are based in part upon Western-Southern's refusal to allow them to enter into new employment contracts. These claims, the Taylors suggest, relate to the wrongful denial of prospective employment rather than wrongful treatment in their current employment. 7 66 We are persuaded that the clause is ambiguous with respect to promotion claims. On one hand, the phrase relating to one's employment can be read broadly to encompass any claim connected with one's affiliation with Western-Southern. On such a reading, the Taylors' failure-to-promote claims fall within the scope of the clause and would be time-barred. On the other hand, the same clause states that such claims must be brought within six-months of the date of termination of such employment. This suggests that the clause be read narrowly to encompass only claims stemming from one's current employment agreement, not on the defendant's refusal to enter a new one. On this reading, the Taylors' failure-to-promote claims would fall outside the scope of the clause and therefore survive. Thus, if the district court determines that the Taylors' failure-to-promote claims survive Patterson, it must also resolve the ambiguity in the limitations clause with respect to such claims. 67
68 The district court upheld the validity of the six-month limitation of actions clause in the Taylors' contracts. The court relied upon Illinois law, which it determined generally upholds limitation of action clauses in contracts, so long as they are knowingly accepted, reasonable, and not contrary to public policy. The court then found that the limitation of action clauses in this case met these conditions. Accordingly, the court concluded that the limitation of actions clauses were valid. On appeal, the Taylors argue that these limitations clauses are invalid under Illinois law because they are unreasonable and contrary to public policy. Depending upon the district court's resolution of the preceding two issues--surviving Patterson and exceeding the scope of the clause--the validity of the clause may become moot, or it may become the controlling issue. Because it has been fully litigated, we believe it is appropriate for this court to analyze the issue rather than increase the possibility of a second appeal. 69 A preliminary issue not discussed by the district court is whether Illinois law, rather than federal law, should be used to determine the validity of the limitations clause. When Congress fails to provide a statute of limitations for a statutory cause of action such as 42 U.S.C. § 1981, the ordinary procedure is that federal courts borrow the most closely analogous statute of limitations under state law. Reed v. United Transp. Union, 488 U.S. 319, 323-24, 109 S.Ct. 621, 624-25, 102 L.Ed.2d 665 (1989). 8 The Supreme Court has also directed federal courts to look to state law for guidance on the overtones and details of application of the state limitation period to the federal cause of action. Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 464, 95 S.Ct. 1716, 1722, 44 L.Ed.2d 295 (1975); see also Board of Regents v. Tomanio, 446 U.S. 478, 483-86, 100 S.Ct. 1790, 1794-95, 64 L.Ed.2d 440 (1980); West v. Conrail, 481 U.S. 35, 107 S.Ct. 1538, 95 L.Ed.2d 32 (1987). The Supreme Court has also noted that considerations of state law may be displaced where their application would be inconsistent with the federal policy underlying the cause of action under consideration. Johnson, 421 U.S. at 465, 95 S.Ct. at 1722; see Tomanio, 446 U.S. at 485, 100 S.Ct. at 1795. Thus, with respect to whether and when the analogous state statute of limitation can be shortened by contract, the district court was correct to look to Illinois law, unless that law would be inconsistent with the federal policy underlying section 1981. 70 As the district court properly concluded, contractual limitations of action are generally upheld under Illinois law. Village of Lake in the Hills v. Illinois Emcasco Ins. Co., 153 Ill.App.3d 815, 106 Ill.Dec. 881, 883, 506 N.E.2d 681, 683 (Parties to a contract may validly agree to set a reasonable time limit within which a suit on the contract must be filed.), appeal denied, 116 Ill.2d 560, 113 Ill.Dec. 319, 515 N.E.2d 128 (1987). 9 However, such limitations clauses must be (1) knowingly and voluntarily accepted, 10 (2) reasonable, 11 and (3) not inconsistent with public policy. 12 71 The general federal policy toward limitation of actions clauses is, much like Illinois', focused upon reasonableness and definiteness. In review of a six-month limitation of actions clause in the constitution of a fraternal benefit society, the Supreme Court stated that, 72 in the absence of a controlling statute to the contrary, a provision in a contract may validly limit, between the parties, the time for bringing an action on such contract to a period less than that prescribed in the general statute of limitations, provided that the shorter period itself shall be a reasonable period. 73 Order of United Commercial Travelers of America v. Wolfe, 331 U.S. 586, 608, 67 S.Ct. 1355, 1365, 91 L.Ed. 1687 (1947) (footnote omitted). And, in the context of a business limiting the conditions of actions brought by its customers, in The Majestic, 166 U.S. 375, 386, 17 S.Ct. 597, 602, 41 L.Ed. 1039 (1897), the Supreme Court stated that  'when a company desires to impose special and most stringent terms upon its customers, in exoneration of its own liability, there is nothing unreasonable in requiring that those terms shall be distinctly declared and deliberately accepted.'  (quoting Henderson v. Stevenson, L.R. 2 H. L. Sc. 470). 13 We note, however, that, even if it were different from the Illinois approach, this general federal policy approving reasonable and definite contractual limitations of action is not so well established, especially in the context of employment contracts, as to constitute a federal rule that must override the application of state law. Cf. West v. Conrail, 481 U.S. 35, 107 S.Ct. 1538, 95 L.Ed.2d 32 (1987) (applicable Federal Rules of Civil Procedure preempt state rule requiring service of the complaint within the limitations period); United States v. Republic Ins. Co., 775 F.2d 156, 158 (6th Cir.1985) (If there is a federal rule, it must, of course be applied.). We believe that, by enacting section 1981 without a statute of limitations, Congress implied that it is willing to live with a wide range of state statutes and rules governing limitations of action under section 1981. In Cange v. Stotler & Co., 826 F.2d 581 (7th Cir.1987), this court noted a similar policy associated with the private right of action under the Commodity Exchange Act, 7 U.S.C. § 25. We upheld a one-year limitations clause in light of this lack of stated policy to the contrary. 74 Congress' silence on a limitations period for pre-January 11, 1983, causes of action shows its willingness to accept reasonable limitations periods rather than a strong policy in favor of some particular limitations period. Because Congress did not provide an express statute of limitations applicable to this cause of action, allowing the parties to contract for a shorter limitations period than that which would be borrowed from state law is not contrary to public policy, assuming the contracted-for limitations period is reasonable, as is the case here. 75 Id. at 584. Thus, Illinois law on contractual limitations of action is not inconsistent with the federal policy underlying section 1981. 76 Applying Illinois law to the limitation of action clause in the Taylors' contracts, the district court determined, first, that the clause was clearly set forth and voluntarily accepted. R.20 at 3-4. The clause is concisely stated on the first full page of each contract, and the Taylors signed each of these contracts. E.g. R.1 Ex.A, Ex.B, Ex.C. We agree with the district court that, under Illinois law, the limitation of actions clause was understood and accepted by the Taylors. 77 The district court then determined that the clause was reasonable. In support of this conclusion, the court noted that six-month statutes of limitations apply to employees' actions under section 10(b) of the National Labor Relations Act and to hybrid contract and duty-of representation suits under section 301 of the Labor Management Relations Act. DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983). The district court also looked to Myers v. Western-Southern Life Insurance Co., 849 F.2d 259 (6th Cir.1988), in which the Sixth Circuit considered the validity, under Michigan law, of a six-month limitation of actions clause in an insurance agent's employment contract. The plaintiff-appellant in Myers argued that the clause was void as against public policy when applied to his state civil rights claims. The court noted that, with respect to the reasonableness of contractual limitations of action, Michigan law requires  'that the claimant have sufficient opportunity to investigate and file an action, that the time is not so short as to work a practical abrogation of the right of action, and that the action not be barred before the loss or damage can be ascertained.'  Id. at 262 (quoting Camelot Excavating Co. v. St. Paul Fire & Marine Ins. Co., 410 Mich. 118, 301 N.W.2d 275, 277 (1981)). Under these criteria, the Myers court found the six-month limitations period to be reasonable. Relying upon these cases, the district court found that the six-month limitation clause in the Taylors' contracts satisfied Illinois' reasonableness requirement. Again, we agree with the district court that the six-month limitations clause was reasonable. 78 With respect to public policy, the district court also addressed the Taylors' argument that if they filed their breach of contract, wrongful discharge, and § 1981 claims within the six-month period, they would be forced to litigate the facts underlying Mr. Taylor's Title VII claim before he was able to receive his right to sue. R.20 at 5. The district court rejected this argument. It noted that Mrs. Taylor's suit would not involve the same underlying facts and that, because [c]laims are not tried when filed, Mr. Taylor could have filed suit and, by the time it came to trial, he would have received his right to sue letter and could then add his Title VII claim to the suit. Alternatively, the court concluded, Mr. Taylor could have filed suit and asked the court for a stay pending the outcome of his EEOC charge. Thus, the district court concluded that the limitations clause was not contrary to public policy. We agree. Title VII's administrative filing requirements did not impede Mr. Taylor's ability to file suit against Western-Southern on his other claims, and thus Title VII provides no public policy contrary to the six-month limitation of actions clause. In sum, we conclude that the limitation clause is valid under Illinois law, and that Illinois law is not contrary to a federal policy underlying section 1981.