Court Opinion

ID: 2972583
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:51:10.521498+00
Date Added: 2024-06-11T11:43:41.702901
License: Public Domain

No. 03-6367
                                 File Name: 05a0621n.06
                                   Filed: July 25, 2005

                       UNITED STATES COURT OF APPEALS
                            FOR THE SIXTH CIRCUIT

CAROL E. HOWELL,                                    )
                                                    )
   Plaintiff-Appellant,                             )
                                                    )   ON APPEAL FROM THE
       v.                                           )   UNITED STATES DISTRICT
                                                    )   COURT FOR THE MIDDLE
RIVERGATE TOYOTA, INC.,                             )   DISTRICT OF TENNESSEE
                                                    )
   Defendant-Appellee.                              )

Before:       NELSON and SUTTON, Circuit Judges, and WELLS, District Judge.*

       DAVID A. NELSON, Circuit Judge. This appeal is from an order that granted the

defendant’s motion to compel arbitration and dismissed the plaintiff’s employment

discrimination action without prejudice. We agree with the district court’s determination that

the parties entered an enforceable agreement to arbitrate. We also agree that arbitration in

accordance with the defendant’s procedures has not been shown to be inadequate for the

vindication of statutory rights. Accordingly, we shall affirm the challenged order.

       *
       The Honorable Lesley Wells, United States District Judge for the Northern District
of Ohio, sitting by designation.
No. 03-6367
Page 2

                                               I

       The plaintiff, Carol Howell, was an automobile salesman for the defendant, Rivergate

Toyota, Inc. In 1996, about 10 years into the parties’ employment relationship, Mr. Howell

signed an agreement to arbitrate any employment-related dispute he might have with

Rivergate. It is undisputed that acceptance of the agreement was a condition of Howell’s

continued employment.

       By signing the arbitration agreement, Mr. Howell acknowledged receipt of

Rivergate’s “Employment Dispute Resolution Procedure” (the “Procedure”) and agreed to

be bound by its terms. The Procedure requires arbitration to be initiated within 180 days

after a dispute arises. The party initiating arbitration must nominate an arbitrator, whereupon

the other party may either accept the nominee or nominate a different arbitrator. If the parties

cannot agree on an arbitrator, either party may apply to a court in Bexar County, Texas, for

an order appointing an arbitrator. The parties must split the arbitrator’s fee equally, and, in

most cases, each party must bear its own costs.

       Discovery is limited, under the Procedure, to “matters which are relevant and

admissible under the Federal Rules of Evidence.” According to its terms the Procedure may

be amended by Rivergate “as may be necessary or appropriate to give effect to the intent of

this Procedure, in light of circumstances which arise after the date hereof.”

       Rivergate terminated Mr. Howell’s employment in May of 2002. Howell sued

Rivergate in federal district court a year later. The complaint alleged violations of the Age
No. 03-6367
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Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq., the Americans with Disabilities

Act, 42 U.S.C. §§ 12101 et seq., the Employee Retirement Income Security Act, 29 U.S.C.

§§ 1001 et seq., and the statutory and common law of Tennessee.

       Rivergate moved to dismiss and to compel arbitration. The district court granted the

motion, holding that the arbitration agreement was not an unenforceable adhesion contract;

that the agreement was supported by consideration; and that the terms of the agreement were

sufficiently definite. The court also held that Mr. Howell had not carried his burden of

presenting evidence that the agreement’s fee-splitting provision would deter employees from

seeking to vindicate their statutory rights.

       After an unsuccessful motion to alter or amend the dismissal order, Mr. Howell filed

a timely notice of appeal.

                                                II

       We first address our jurisdiction to hear the appeal. Under ATAC Corp. v. Arthur

Treacher’s, Inc., 280 F.3d 1091, 1095-1101 (6th Cir. 2002), “an order deferring to

arbitration” is appealable if the order constitutes a “final decision.” The district court’s order

dismissed Mr. Howell’s action, albeit without prejudice, and the order thus constitutes a final

decision. See Zayed v. United States, 368 F.3d 902, 904-05 (6th Cir. 2004) (holding that a

dismissal without prejudice constitutes a final decision). Accordingly, appellate jurisdiction

exists under 28 U.S.C. § 1291.
No. 03-6367
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                                              III

       Mr. Howell maintains that the parties’ arbitration agreement is unenforceable. The

enforceability of an agreement to arbitrate is determined in accordance with the applicable

state law – in this case, the law of Tennessee. See Morrison v. Circuit City Stores, Inc., 317
F.3d 646, 675-76 (6th Cir. 2003) (en banc). Our review of the district court’s determination

is de novo. See id. at 675.

                                              A

       As did the district court, we reject the proposition that the arbitration agreement is an

unenforceable adhesion contract. First of all, it is not clear to us that the agreement is a

contract of adhesion. The Tennessee Supreme Court defines a contract of adhesion as “a

standardized contract form offered to consumers of goods and services on essentially a ‘take

it or leave it’ basis, without affording the consumer a realistic opportunity to bargain and

under such conditions that the consumer cannot obtain the desired product or service except

by acquiescing to the form of the contract.” Buraczynski v. Eyring, 919 S.W.2d 314, 320

(Tenn. 1996) (internal quotation marks omitted).1 As this definition makes clear, “[a]

contract is not adhesive merely because it is a standardized form offered on a take-it-or-

       1
        Although Buraczynski speaks of contracts “offered to consumers of goods and
services,” employment contracts can also be contracts of adhesion under Tennessee law. See
 Vargo v. Lincoln Brass Works, Inc., 115 S.W.3d 487, 492 & n.5 (Tenn. Ct. App. 2003).
No. 03-6367
Page 5

leave-it basis.”   See Cooper v. MRM Investment Co., 367 F.3d 493, 500 (6th Cir. 2004).

There must also be an “absence of a meaningful choice for the party occupying the weaker

bargaining position” – i.e., “the choice to ‘leave it’” must amount to “no choice at all.” Id.

at 501-02 (internal quotation marks omitted).

       In the employment context, this means that an arbitration agreement is not a contract

of adhesion unless the employee would be unable to find a suitable job if he refused to agree

to arbitrate. See id. at 502-03. The employee bears the burden of showing that other

employers would not hire him. See id. at 503.

       Mr. Howell contends that his age – 59 at the time – would have prevented him from

getting another job had he refused to sign Rivergate’s arbitration agreement. In support of

this contention he cites congressional findings on the disadvantages faced by older workers.

But “[g]eneralizations about employer practices in the modern economy cannot substitute

for” evidence relating to a particular employee’s ability to find a job in a particular locality.

Id. at 502. In the absence of specific evidence that Mr. Howell could not have found other

suitable employment, Rivergate’s arbitration agreement should not be considered an adhesion

contract. See id. at 502-03.2

       2
         In Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370, 385 (6th Cir. 2005),
petition for cert. filed, 73 U.S.L.W. 3734 (June 7, 2005) (No. 04-1672), we suggested that
“the threat of termination from one’s current employment,” as opposed to the threat of not
being hired in the first place, “would appear to be sufficient in itself to demonstrate ‘the
absence of a meaningful choice for the party occupying the weaker bargaining position.’”
But that suggestion was made in relation to employees who were presented with an
arbitration agreement shortly after beginning their employment. In those circumstances, we
No. 03-6367
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       But even if the arbitration agreement is “adhesive,” we are not persuaded that it is

unenforceable under Tennessee law. Not all adhesion contracts are unenforceable. See, e.g.,

Buraczynski, 919 S.W.2d at 320. “Enforceability generally depends upon whether the terms

of the contract are beyond the reasonable expectations of an ordinary person, or oppressive

or unconscionable.” Id.

       The terms of the arbitration agreement and the Procedure are not so one-sided, in our

view, that an ordinary person would regard them as unreasonable, oppressive, or

unconscionable. Mr. Howell suggests that the 180-day limitations period is unreasonable,

but an identical 180-day period is provided by federal law for the filing of charges of

discrimination with the Equal Employment Opportunity Commission. See 42 U.S.C. §

2000e-5(e)(1). We do not think a limitations period equal to that applicable under federal

employment discrimination law is manifestly unfair.

       Nor do we think that the provision allowing Rivergate unilaterally to amend the

Procedure is unreasonable or unconscionable. By its terms, the unilateral amendment

provision authorizes only those changes that are “necessary or appropriate to give effect to

the intent of th[e] Procedure” in the light of changed circumstances. (The “intent” of the

Procedure is expressly stated: “for arbitration . . . to be the exclusive, final and binding

said, the employees “likely had foregone other employment opportunities and would have
been severely disadvantaged by having to inform prospective employers that they were
terminated shortly after their hire.” Id. The circumstances in the case at bar are obviously
different.
No. 03-6367
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method of resolution of any [employment-related dispute].”) The provision does not, in our

view, authorize changes to the parties’ substantive rights and obligations.         Further,

Rivergate’s duty of good faith and fair dealing prohibits it from amending the Procedure for

an improper or oppressive purpose. Cf. Elliott v. Elliott, 149 S.W.3d 77, 84-85 (Tenn. Ct.

App. 2004) (stating that every party to a contract is bound by an implied duty of good faith

and fair dealing).

       Finally, although the provision requiring application to a Bexar County, Texas, court

for appointment of an arbitrator is peculiar, we do not think it is unconscionable. On the

record presented here, we have no reason to suppose that the judges of Bexar County are

likely to appoint arbitrators who are partial to Rivergate or hostile to employees’ claims.

Nor, as we shall discuss below, has Mr. Howell shown that the added expense of applying

to an out-of-state court will prevent employees from seeking to vindicate their rights.

       Overall, we are satisfied that Rivergate’s Procedure is reasonably fair and non-

oppressive. Absent some other defect, the arbitration agreement should be enforced.

                                             B

       If it is not an unconscionable adhesion contract, Mr. Howell argues, the arbitration

agreement is unenforceable because (1) the minds of the parties never met, (2) the terms of

the agreement are too indefinite, and (3) the agreement lacks mutuality. Each of these
No. 03-6367
Page 8

defects, in Mr. Howell’s submission, stems from the unilateral amendment provision. Again,

we are not persuaded that this provision renders the agreement unenforceable.

       Under Tennessee law, the requirements for an enforceable contract include “a meeting

of the minds of the parties in mutual assent” and terms that are “sufficiently definite to be

enforced.” Higgins v. Oil, Chemical & Atomic Workers International Union, Local #3-677,

811 S.W.2d 875, 879 (Tenn. 1991) (internal quotation marks omitted). The unilateral

amendment provision is not inconsistent with these requirements, in our view. By signing

the arbitration agreement Mr. Howell acknowledged that he understood and agreed to be

bound by the terms of the Procedure, including the provision authorizing Rivergate to amend

those terms as “necessary or appropriate” to give effect to the parties’ intent to arbitrate.

There is no evidence that Mr. Howell did not know or understand what he was signing.

Thus, mutual assent is not lacking. Nor does the fact that the terms of the Procedure may be

changed render the agreement too indefinite to be enforced, given the limited nature of the

changes that are permissible.

       Tennessee law also requires that a contract not be illusory – i.e., that it impose genuine

obligations on both parties. See, e.g., Parks v. Morris, 914 S.W.2d 545, 550 (Tenn. Ct. App.

1995) (“[I]f one or both parties to a contract have the right to cancel or terminate the

agreement, then the contract lacks mutuality and is unenforceable”) (internal quotation marks

omitted). The arbitration agreement and the Procedure require that all disputes between the

parties be resolved through arbitration. This reciprocal obligation to arbitrate satisfies the
No. 03-6367
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mutuality requirement. See Cooper, 367 F.3d at 505. Mr. Howell contends that Rivergate’s

authority to amend the Procedure vitiates the company’s obligation. But as we have said, the

unilateral amendment provision authorizes only procedural changes that promote the

agreement’s purpose – i.e., resolution of disputes through arbitration. It does not allow

Rivergate to avoid its obligation to arbitrate.

       Rivergate’s obligation distinguishes this case from Floss v. Ryan’s Family Steak

Houses, Inc., 211 F.3d 306 (6th Cir. 2000), cert. denied, 531 U.S. 1072 (2001), where the

court held an arbitration agreement unenforceable because one party reserved the right to

amend the arbitration procedure. The arbitration agreement at issue in Floss was between

an employee and a provider of dispute resolution services, not between the employee and his

employer. See Floss, 211 F.3d at 309. The dispute resolution firm obligated itself only to

provide an arbitral forum, not to submit its own disputes to arbitration. It was that obligation

that was rendered illusory by the firm’s unfettered right to choose the nature of the forum.

See id. at 309-10, 315-16. Floss, in our view, is not controlling here.

                                              IV

       In addition to his arguments based on Tennessee contract law, Mr. Howell presents

arguments to the effect that several provisions of the arbitration agreement and the Procedure

are unenforceable under federal law. The provisions in question are those concerning the

180-day limitations period, the limitation of discovery to materials admissible under the
No. 03-6367
Page 10

Federal Rules of Evidence, the appointment of an arbitrator, and the splitting of the

arbitrator’s fee.

       Federal statutory rights, such as those asserted by Mr. Howell in this action, “may be

subject to mandatory arbitration only if the arbitral forum permits the effective vindication

of those rights.” Morrison, 317 F.3d at 658. If a provision of an arbitration agreement

prevents the vindication of statutory rights, therefore, “those rights cannot be subject to

mandatory arbitration under that agreement.” Id. Accordingly, we must determine whether

the contractual terms identified by Mr. Howell prevent the vindication of statutory rights.

       We are not persuaded that the limitations and discovery provisions prevent potential

litigants from vindicating their rights. As we have said, a 180-day limitations period is not

unreasonably short. Cf. 42 U.S.C. § 2000e-5(e)(1) (establishing a 180-day limitations period

for filing a charge of employment discrimination with the EEOC). Nor is the scope of

discovery allowed by the Procedure so narrow that it renders the arbitral forum inadequate

to vindicate statutory rights.   The Procedure allows for document production, three

depositions of fact witnesses, and additional discovery upon a showing of good cause. The

Procedure limits discovery to matters that are admissible under the Federal Rules of

Evidence, while the Federal Rules of Civil Procedure allow discovery that “appears

reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P.

26(b)(1). This limitation is not likely, in our view, to prejudice an employee’s ability to

prove his statutory claims. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31
No. 03-6367
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(1991) (holding that “more limited” discovery does not render an arbitral forum inadequate

for resolution of statutory claims); cf. Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d
370, 387 (6th Cir. 2005) (“[T]he opportunity to undertake extensive discovery is not

necessarily appropriate in an arbitral forum . . . .”), petition for cert. filed, 73 U.S.L.W. 3734

(June 7, 2005) (No. 04-1672).

       Mr. Howell’s most promising argument, in our view, is that the provisions for

appointment of an arbitrator (by applying to an out-of-state court) and for splitting of the

arbitrator’s fee are unduly burdensome on aggrieved employees. In Morrison, this court held

that a provision of an arbitration agreement is unenforceable if it imposes costs that are likely

to deter a substantial number of employees from vindicating their rights in the arbitral forum.

See Morrison, 317 F.3d at 659, 661, 663. It seems to us that the fee-splitting provision, and

perhaps the provision for appointment of an arbitrator, might impose such costs. See id. at

657, 676-77, where we refused to enforce a provision requiring the employee to pay half of

the arbitrator’s fee in advance of the arbitral hearing.

       But Mr. Howell bears the burden of demonstrating that the provisions in question

impose costs that are likely to have an impermissible deterrent effect. See Morrison, 317
F.3d at 659-60. And unlike the plaintiffs in Morrison, Mr. Howell has not carried that

burden. He has presented no evidence of the average or typical arbitrator’s fees, no evidence

of the costs of applying to a Texas court for appointment of an arbitrator, and no evidence

of how such fees and costs compare to the costs of litigation. Cf. id. at 664 (holding that the
No. 03-6367
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deterrent effect of a cost-splitting provision must be weighed in the light of typical arbitration

costs relative to the costs of litigation). He has presented no evidence of the impact the

arbitral costs might have on a person with a “job description and socioeconomic background”

similar to his. Id. at 663 (holding that “similarly situated potential litigants” must be

considered when weighing the deterrent effect of a cost-splitting provision). In sum, Mr.

Howell has presented no evidence from which a court could find that the fee-splitting and

arbitrator-selection provisions are likely to deter employees from vindicating their statutory

rights. Given this failure of proof, we cannot say that the challenged provisions are

unenforceable under federal law.

       Accordingly, and because we find no basis in Tennessee contract law for invalidating

the arbitration agreement, the order compelling arbitration and dismissing Mr. Howell’s

action without prejudice is AFFIRMED.