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

Heading: The Taylors' Cross-Appeal

Text: 46 The first two counts of the Taylors' complaint against Western-Southern alleged that the company violated 42 U.S.C. § 1981 when it intentionally discriminated against Mr. Taylor (count I) and Mrs. Taylor (count II) with respect to transfer, promotion, and conditions of employment. On April 9, 1989, the district court granted Western-Southern's motion to dismiss these counts on the ground that they were barred by the following clause in each of the Taylors' written employment agreements: Section III. Legal Proceedings You agree: 47 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. 48 R.1 Ex.A at 2. On cross-appeal, the Taylors argue that the district court erred in dismissing their section 1981 counts. The Taylors face two hurdles on appeal: (1) surviving Patterson v. McLean Credit Union, 491 U.S. 164, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989); and (2) proving invalid or avoiding the scope of the limitation of actions clause in their employment agreements.
49 Two months after the district court's ruling on this matter, on June 15, 1989, the Supreme Court ruled in Patterson that 42 U.S.C. § 1981 does not apply to racial discrimination under or within the terms of an employment contract. This court held in McKnight v. General Motors Corp., 908 F.2d 104, 107-08 (7th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1306, 113 L.Ed.2d 241 (1991), that Patterson applies retroactively to cases, such as this one, pending on appeal. On November 21, 1991, after oral argument in this case, Congress enacted the Civil Rights Act of 1991 and thereby overruled the relevant portion of Patterson. See Pub.L. No. 102-166, § 101(2), 105 Stat. 1071-72 (adding, in relevant part, a new subsection that defines broadly the phrase make and enforce contracts as subsection (b) to section 1981). This court recently ruled, however, that the Civil Rights Act of 1991 does not apply retroactively to cases such as this one. Mozee v. American Commercial Marine Serv. Co., 963 F.2d 929 (7th Cir.1992); see also Luddington v. Indiana Bell Tel. Co., 966 F.2d 225 (7th Cir.1992) (reaching same result). Thus, this case is one of a vanishing breed to which we must apply the Patterson standards. Unfortunately, the parties never had the opportunity to develop the record from this perspective. 50 Under Patterson, section 1981 prohibits only discrimination in the initial formation of a contract or in the enforcement of established contractual rights through legal processes. 491 U.S. at 176-77, 109 S.Ct. at 2372-73. Thus, Patterson effectively bars those portions of the Taylors' section 1981 claims dealing with the terms and conditions of their employment. Because promotions are similar to the creation of new contracts, however, Patterson noted that claims of discriminatory failure to promote may be actionable under section 1981 if 51 the nature of the change in position was such that it involved the opportunity to enter into a new contract with the employer.... Only where the promotion rises to the level of an opportunity for a new and distinct relation between the employee and the employer is such a claim actionable under § 1981. 52 491 U.S. at 185, 109 S.Ct. at 2376. Thus, in order for this court to determine whether the Taylors' discriminatory refusal to promote claims survive Patterson, we must determine whether the promotions sought by the Taylors were opportunities for new and distinct relationships with Western-Southern. 53 As this court has noted on several occasions, the new and distinct relation standard is difficult to apply. Partee v. Metropolitan Sch. Dist., 954 F.2d 454, 457 (7th Cir. January 21, 1992) (acknowledging that this court has expressed some uncertainty as to the precise meaning of Patterson 's 'new and distinct relation' test); McKnight, 908 F.2d at 109-10 (noting that the question of what constitutes a new employment relation under Patterson is difficult and unsettled); Malhotra v. Cotter & Co., 885 F.2d 1305, 1312 (7th Cir.1989) (We show no disrespect to the Supreme Court by suggesting that the scope of Patterson is uncertain.). Indeed, we have remarked that there is no simple, bright-line test to apply. McKnight, 908 F.2d at 109 (Precisely how different the new employment relation must be to make a racially motivated refusal to create it actionable under section 1981 is not susceptible of a blanket answer....). 54 Nonetheless, despite the absence of a definitive framework, a substantial body of law has developed among the circuits to provide adequate guideposts. In Sitgraves v. Allied-Signal, Inc., 953 F.2d 570, 573 (9th Cir.1992), the Ninth Circuit stated that in addition to an increase in pay and duties, an actionable promotion claim must involve a meaningful, qualitative change in the contractual relationship. That court also found two qualitative changes that were sufficient to meet the standard: 55 We conclude that the move from a non-supervisory position to a supervisory one is therefore an actionable basis for a section 1981 failure-to-promote claim under Patterson's new and distinct relation test. Similarly we conclude that the move from compensation based on hours worked to compensation based on an annual salary constitutes a sufficiently new and different contractual relationship to provide an actionable promotion claim. 56 Sitgraves, 953 F.2d at 574. In Harrison v. Associates Corp. of North America, 917 F.2d 195, 198 (5th Cir.1990), the Fifth Circuit stated that an increase in pay, by itself, is not enough: Although a raise in salary which accompanies a change in position is evidence of a new and distinct relation, a raise which is accompanied by no significant change in duties and responsibilities does not reach the level of a change in employment relationship protected by § 1981. For this reason, the Harrison court found that a promotion from C.R.T. operator to lead C.R.T. operator--a promotion that involved an increase in pay but not an addition in general supervisory responsibility--did not result in a new and distinct relationship. Id.; see also Fray v. Omaha World Herald Co., 960 F.2d 1370, 1373 (8th Cir.1992) (finding change from part-time mailroom production worker to mailroom apprentice insufficient; [E]ach step down the path of one's career does not create a new and distinct relation with the employer for purposes of the Patterson test.); Wall v. Trust Co., 946 F.2d 805, 808 (11th Cir.1991) (finding change from customer service representative to tax analyst insufficient; suggesting that an elevation from non-management to management would meet the standard); Bennun v. Rutgers State Univ., 941 F.2d 154, 168-70 (3d Cir.1991) (finding promotion from tenured associate professor to full professor insufficient; downplaying difference in prestige or public perception and focusing on duties, tenure, compensation, and essential function), cert. denied, --- U.S. ----, 112 S.Ct. 956, 117 L.Ed.2d 124 (1992); Rountree v. Fairfax County Sch. Bd., 933 F.2d 219, 223-25 (4th Cir.1991) (finding change from career level I to career level II teacher insufficient; level of responsibility remaining roughly the same); Mallory v. Booth Refrigeration Supply Co., 882 F.2d 908, 911 (4th Cir.1989) (finding promotion from clerk to supervisor sufficient). In general, we note the emphasis placed upon qualitative, rather than quantitative, changes--e.g., while an increase in pay may not suffice, a change from hourly pay to monthly salary may. 57 In applying these principles to this case, it is evident that some of the factors that have prompted other courts to find a new and distinct contractual relationship are present here. Although the record does not contain a contract for the field management consultant position sought by Mr. Taylor, the job description of that position reveals that it would entail a shift from commission-based compensation to a weekly salary. Sales Manager's Agreement, Pl. Ex. 15 at 2-3; Job Description, Def. Ex. 20 at 4. Similarly, the promotion sought by Mrs. Taylor, from sales agent to associate sales manager, would entail a shift from non-supervisory to supervisory responsibilities. Sales Representative's Agreement, Pl. Ex. 42 at 2; Sales Manager's Agreement, Pl. Ex. 15 at 2. 58 Nonetheless, the parties did not conduct discovery or develop the record with this Patterson analysis in mind. For this reason, the comparisons between the positions held by Mr. and Mrs. Taylor and the positions they sought are less than full and accurate. We note that other courts of appeals faced with this situation have required further development of the record. See, e.g., Weaver v. Casa Gallardo, Inc., 922 F.2d 1515, 1520 (11th Cir.1991); Rodriguez v. General Motors Corp., 904 F.2d 531, 534-35 (9th Cir.1990). This court did so in Malhotra, 885 F.2d at 1311-12. There are several reasons for similar circumspection in this case. First, each of the agreements contained in the record states, on its face, that the named employee is appointed to a certain position. It is not clear from this language whether these appointments presume the existence of an underlying employer-employee contract, such that the appointment agreement is simply a way of communicating to the employee the company's expectations of a person holding the position. Second, Mr. Taylor's career path, with all of the upward and downward shifts between positions, suggests that there may be a great deal of bi-directional fluidity in the occupation, in contrast to the typical ascending-step promotional scheme. Third, it is not clear whether Western-Southern uses these written agreements for all positions in the company. There is no evidence in the record that Western-Southern uses a contract for the field management consultant position, and Mrs. Taylor's position as an ordinary agent merely involved an amendment to her sales representative's agreement. Fourth, it is unclear whether Western-Southern's use of written agreements for different employment positions is atypical of the industry; i.e., whether other companies are less formal about changes between these positions. Such information would be helpful in determining whether the parties engaged in this industry--companies and employees--viewed occupancy of these various positions as necessarily involving new employment relationships. In light of these lingering questions, we remand this determination to the district court, where the parties and the court will have the opportunity to develop the record further in light of the requirements of Patterson. 59
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.