JAMES CRUMP, Plаintiff, v. METASOURCE ACQUISITIONS, LLC, METASOURCE EMPLOYEE SERVICES, LLC, METASOURCE, LLC, METASOURCE, LLC doing business as METASOURCE AND DAVID BRODECKI, Defendants.
CIVIL ACTION NO. 18-3313
IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
March 19, 2019
WENDY BEETLESTONE, J.
Plaintiff James Crump brings claims of discrimination under federal and state law against Defendants MetaSource Acquisitions, LLC, MetaSource Employee Services, LLC, MetaSource, LLC, and MetaSource, LLC d/b/a MetaSource (collectively, “MetaSource“), and Defendant David Brodecki. MetaSource is Plaintiff‘s former employer, and Brodecki his former supervisor. In separate motions, Defendants each move to compel arbitration pursuant to an agreement signed by Plaintiff near the outset of his employment. For the reasons set forth below, the motions shall be denied.
I. BACKGROUND
On February 20, 2017, Plaintiff began working for MetaSource. On March 2, 2017, he received several text messages from Brodecki, soliciting Plaintiff to come to Brodecki‘s home over lunch. Plaintiff agreed, believing that Brodecki wanted to discuss work related matters. However, when Plaintiff arrived, Brodecki began making sexual advances and ultimately performed unwаnted oral sex on Plaintiff. Plaintiff forced Brodecki to stop and left.
Afterwards, attempting to grapple with the situation, Plaintiff alleges that he asked
Plaintiff subsequently brought this suit, which Defendants move to dismiss and сompel arbitration. In support of their motion, Defendants point to the employee handbook, which Plaintiff signed near the outset of his employment. In addition to setting forth various office policies, the final page of the handbook contains an “Acknowledgement and Agreement,” which Plaintiff signed.1 The page is numbered 39, in continuation from the pagination in the remaining portions of the handbook. At the top of the page, the agreement provides that the “Employee Handbook . . . sets forth the terms and conditions of . . . employment,” and that MetaSource may terminate the employee “at any time for any reason, with or without cause or notice.” In the next paragraph, the agreement states that,
[E]xcept for the policy of at-will employment, the Company reserves the right to revise, delete, and add to the provisions of this Employee Handbook. All such revisions, deletions, or additions must be in writing and must be signed by the President of thе Company. . . . [E]xcept for the policy of at-will employment, terms and conditions of employment with the Company may be modified at the sole discretion of the Company with or without cause or notice at any time.
Under the bolded headline ”MetaSource Alternative Dispute Resolution Program,” the final paragraph of the page provides that,
[I]n the event employment disputes arise between [the signatory] and the Company, [the signatory] will be bound by the MetaSource Alternative Dispute Resolution Program which provides for final and binding arbitration for disputes relating to termination of employment, unlawful disсrimination, and alleged sexual harassment or other unlawful harassment, as defined in the MetaSource Alternative Dispute Resolution Program.
Below this paragraph, there is a space for the employee to sign and date. On Friday, February
The terms of the Alternative Dispute Resolution Program are set out in a separate document which provides that the American Arbitration Association would administer any arbitration. There are no signatures on this document.
II. PROCEDURAL POSTURE AND APPLICABLE STANDARDS
A motion to compel arbitration may be evaluated under either the motion to dismiss standard of
In this case, Defendants initially filed a motion to dismiss and compel arbitration in October of 2018. Given that it was not clear from the face of the complaint or the documents relied upon in the complaint whether the suit was subject to arbitration, in accordance with Guidotti, the parties were given an oрportunity to engage in limited discovery on the question of
Under the applicable summary judgment standard, “a motion to compel arbitration should only be granted if there is no genuine dispute as to any material fact and, after viewing facts and drawing inferences in favor of the non-moving party, the party moving to compel is entitled to judgment as a matter of law.” White v. Sunoco, Inc., 870 F.3d 257, 262 (3d Cir. 2017).
III. DISCUSSION
“[T]he Federal Arbitration Act (FAA or Act),
“Because arbitration is a matter of contract,” “[t]o determine whether the parties agreed to arbitrate, we turn to ordinary state-law principles that govern the formation of contracts.” Kirleis v. Dickie, McCamey & Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009) (internal quotation marks omitted). In Pennsylvania,2 “contract formation requires: (1) a mutual
Plaintiff asserts that MetaSource‘s reservation of the right to unilaterally change the terms аnd conditions of his employment renders the arbitration agreement illusory. In effect, Plaintiff argues that MetaSource‘s reservation of the right to modify the arbitration agreement means that MetaSource‘s promise to arbitrate cannot constitute sufficient consideration in return for Plaintiff‘s promise to arbitrate. In response, Defendants assert that its promise to arbitrate is not illusory, and that, even if it is, MetaSource‘s employment of Plaintiff constitutes sufficient consideration.
A. Whether MetaSource‘s Promise to Arbitrate is Illusory
Under Pennsylvania law, “[i]f the promise is entirely optional with the promisor, it is said to be illusory and, therefore, lacking consideration and unenforceable. The promisor has committed him/herself to nothing.” SCF Consulting, LLC v. Barrack, Rodos & Bacine, 175 A.3d 273, 278 (Pa. 2017) (Dougherty, J., concurring) (quoting Geisinger Clinic v. Di Cuccio, 606 A.2d 509, 512 (Pa. Super. 1992)); see also Maint. Specialties, Inc. v. Gottus, 314 A.2d 279, 283 n.6 (Pa. 1974) (Jones, C.J., concurring) (finding a promise to be illusory where the company‘s obligation was voidable if, in the sole discretion of the company, an employee neglected or took action that was detrimental to the company‘s interests).
As a general matter, “an arbitration agreement allowing one party the unfettered right to alter the arbitration agreement‘s existence or its scope is illusory.” Dumais v. Am. Golf Corp., 299 F.3d 1216, 1219 (10th Cir. 2002)
In Blair v. Scott Specialty Gases, the Third Circuit applied Pennsylvania law and articulated a similar rule. 283 F.3d at 604. There, an employee handbook included an arbitration provision, wherе the employee acknowledged and agreed to submit disputes to arbitration. The employer also reserved the right to modify the terms of the handbook through written amendments. The handbook further provided that if the employer “makes any material changes, it will give [the employee] a copy of them, and by remaining employed by [the employer] thereafter [the employee] will be deemed to have accepted these changes.” Id. The Court of Appeals found that the employer did not retain “unfettered discretion” to modify the handbook, in light of the notice and acceptance provisions. Accordingly, the court found that the arbitration agreement was not illusory because the employer‘s “promise to submit to arbitration serves as consideration.” Id. at 604 n.3.
Turning to the instant matter, applicаtion of the above principles demonstrates that the arbitration agreement is illusory. Though there is some squabbling about the effect of the particulars of the arbitration program being set out in a separate document, MetaSource agrees that the arbitration provision on the final page of the employee handbook contains MetaSource‘s promise to arbitrate. That page also provides that MetaSource may only makes changes to the employee handbook in writing—a fact which cuts in favor of finding the agreement not to be illusory. The remaining factors, however, cut in the opposite direction. The agreement page specifically states that MetaSource need not give “notice at any time” of any modifications. Nor is there any term providing for the employee‘s acceptance of modifications. Nor is there any statement limiting the effect of any modifiсations to future incidents. Thus, the agreement permits MetaSource to change any of its obligations (other than at-will employment) at any time, simply by putting its desired changes in writing—without so much as telling its employees of these changes. In other words, MetaSource has the “unfettered discretion,” to modify its arbitration obligations, Blair, 283 F.3d at 604, and has “committed [it]self to nothing,” SCF
Defendants do not quarrel with this analysis, but instead propose an altogether different interpretation of the contract that would render this analysis unnecessary. Specifically, they assert that the arbitration provision is separate and distinct from the remainder of the employee handbook, and thus MetaSource has not reserved the right to modify its arbitration obligations. Effectively, they claim that there are two entirely separate agreements: first, the employee handbook, which MetaSource may modify at any time without notice, and, second, the arbitration provision, which it may not. MetaSource notes that the arbitration provision is in a separate paragraph, under its own heading, and includes the language that the signatory “also” acknowledges and agrees to arbitration. Defendants argue that this visual and linguistic separation means that MetaSource‘s ability to modify the employee handbook, as provided for at the top of the page, simply does not extend to the arbitration agreement at the bottom of the page.
This argument is unavailing. The arbitration provision appears on the last page of the employee handbook, which is numbered page 39 as part of the continuous pagination throughout the handbook. The very top of page 39 contains the words ”ACKNOWLEDGEMENT AND AGREEMENT,” which are bolded, in capital letters, centered on the рage, and set above the rest of the text. There is no other heading which could be read to distinguish between portions of the page: the heading applies to the full page, including the arbitration agreement. The text near the top of the page provides for Metasource‘s right to “revise, delete, and add to the provisions of this Employee Handbook” and “the terms and conditions of employment.” The arbitration
Accordingly, MetaSource‘s promise to arbitrate is illusory, and does not serve as consideration.
B. Whether Continuing Employment Serves as Alternative Consideration
Defendants argue that, regardless of whether the arbitration agreement is illusory, MetaSource supplied sufficient consideration for Plaintiff‘s promise to arbitrate by continuing to employ Plaintiff.
The majority of the courts to have found an arbitration provision to be illusory have declined to enforce the agreement—without considering whether alternative consideration may suffice. See, e.g., Druco Restaurants, 765 F.3d at 784; Carey, 669 F.3d at 209; Dumais, 299 F.3d at 1220. However, several courts have considered whether continued employment may serve as alternative consideration. The basic idea is that,
[An employer‘s] offering initial or continued employment in consideration for the employee‘s agreement to abide by the arbitration agreement . . . is not an empty or illusory promise but an offer of continued employment, a benefit to the [employee], conditioned on a promise that the [employee] would agree to the
arbitration agreement. The [employee may] accept[] that offer by signing the arbitration agreement and by working thereafter for [the employer]. Thus, [employer]‘s agreement to employ the [employee] provides sufficient consideration for the [employee‘s] agreement to arbitrate the[] disputes with [the employer].
Martinez v. Utilimap Corp., 2015 WL 3932151, at *6 (S.D. Ill. 2015) (applying Illinois law). Some jurisdictions have adopted this view and held that, regardless of whether an employer‘s arbitration agreement is illusory, “continuation of the employee‘s employment was sufficient consideration” to uphold an arbitration agreement. See Britto v. Prospect Chartercare SJHSRI, LLC, 909 F.3d 506, 513 (1st Cir. 2018) (applying Rhode Island law) (internal punctuation omitted).
Other courts have rejected this view. In Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656, 669 (Md. 2003), the Maryland Court of Appeals held that an arbitration agreement lacked consideration because employer‘s “promisе to arbitrate was illusory,” and employment “cannot serve as consideration for the arbitration agreement.” Id. at 669. The Maryland court reasoned that the contrary outcome would “preclude[] [courts] from ever finding an arbitration agreement invalid for lack of consideration when performance of a contract has already occurred, no matter how illusory the arbitration agreement was.” Id. at 669. Similarly, in Clark v. UnitedHealth Grp., Inc., 2018 WL 2932735, at *6 (D.N.M. 2018), report and recommendation adopted, 2018 WL 3539817 (D.N.M. 2018). The court explained that “offers of new and continued at-will employment fail to place constraints on an offering employer‘s actions, leaving the employers’ decisions to commence or continue employment entirely discretionary.” Id. Accordingly, the employer had not provided any new consideration in support of the arbitration
The Pennsylvania Supreme Court is yet to resolve this precise issue, and thus this Court must predict how the Pennsylvania Supreme Court would rule on this issue.4 See Norfolk S. Ry. Co. v. Basell USA Inc., 512 F.3d 86, 91-92 (3d Cir. 2008). A recent decision from the Pеnnsylvania Supreme Court does provide some guidance, in that it dealt with the question of whether an employer‘s continued employment serves as adequate consideration to support a noncompetition clause. Socko v. Mid-Atl. Sys. of CPA, Inc., 126 A.3d 1266, 1275 (Pa. 2015). The Pennsylvania Supreme Court held that continued employment alone did not suffice. Rather the employer must provide “new” consideration:
When a non-competition clause is required after an employee has commenсed his or her employment, it is enforceable only if the employee receives “new” and valuable consideration—that is, some corresponding benefit or a favorable change in employment status. Sufficient new and valuable consideration has been found by our courts to include, inter alia, a promotion, a change from part-time to fulltime employment, or even a change to a compensation package of bonuses, insurancе benefits, and severance benefit. . . . More specifically, the mere continuation of the employment relationship at the time of entering into the restrictive covenant is insufficient to serve as consideration for the new covenant, despite it being an at-will relationship terminable by either party.
Id. While non-competition clauses—unlike arbitration provisions—are disfavored under Pennsylvania law, see id. at 1274, the Pennsylvania Supreme Court reached this conclusion by applying traditional principles of contract law, see id. at 1274-75 (deriving the above conclusions from foundational contracts tenets). Accordingly, Socko indicates that, where employers seek to impose conditions on their employees, continued employment does not demonstrate that the necessary “exchange of consideration” has taken place. Id. at 1275. Rather, “‘new’ and valuable
Socko is consonant with another line of Pennsylvania cases where an employee attempts to enforce the terms of an employee handbook against the employer. See, e.g., Braun v. Wal-Mart Stores, Inc., 24 A.3d 875, 941 (Pa. Super. 2011), aff‘d, 106 A.3d 656 (Pa. 2014); Romeo v. Precision Distribution Consulting, Inc., 2013 WL 11255502, at *7-*8 (Pa. Super. 2013). These cases shed light here because they analyze similar situations where an employer distributes a handbоok, which the employee signs sometime thereafter. See, e.g., Braun, 24 A.3d at 939 (handbooks were distributed at orientation).5 However, in these cases—unlike this one—the employee is generally seeking to obtain some type of benefit provided for in the handbook that the employer has refused to honor. As in Socko, courts have found the handbook to be enforceable contracts only if the handbook has created a new obligation on the part of the employer. Most commonly, this new obligation is to “supplant the at-will rule” of employment.6 See, e.g., Braun, 24 A.3d at 941; Romeo, 2013 WL 11255502, at *7-*8. In other instances, the employer created an obligation that is “incidental or collateral to at-will employment,” by “offer[ing] various rewards to employees who achieve a particular result or work a certain amount of overtime.” Braun, 24 A.3d at 941. Put simply, in order for the handbook to create a binding contract, the employer must agree to do something “new.” Socko, 126 A.3d at 1275. If
Extrapolating from Socko and the employee handbook cases leads to the conclusion that the arbitration agreement here was not suрported by sufficient consideration in the form of continued employment. Plaintiff had already been working at MetaSource for about a week when he signed the employee handbook with the arbitration provision (he began work on a Monday and signed the handbook that Friday). Thus MetaSource had already offered, and Plaintiff had already accepted, an at-will employment relationship. The employee handbook, with the arbitration provision, did not impоse any new obligations on MetaSource—it provided that MetaSource could change anything in the employee handbook, and thus any term or condition of Plaintiff‘s employment, other than the at-will nature of Plaintiff‘s employment. Accordingly, MetaSource did not provide any “new” consideration to Plaintiff. In the absence of such “‘new’ and valuable consideration,” the fact that MetaSource continued to employ Plaintiff at-will is insufficient consideration to supрort Plaintiff‘s agreement to arbitrate. Socko, 126 A.3d at 1275.
For the reasons given, the arbitration agreement is not supported by adequate consideration, and is thus unenforceable. Accordingly, Defendants motions to compel arbitration shall be denied.7
March 19, 2019
BY THE COURT:
/S/WENDY BEETLESTONE, J.
WENDY BEETLESTONE, J.