Jose Vilches v. The Travelers Companies, Inc , 413 F. App'x 487 ( 2011 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 10-2888
_____________
JOSE IVAN VILCHES;
FRANCIS X SHEEHAN, JR.;
JACK COSTEIRA, Individually, and on
Behalf of All Others Similarly Situated,
Appellants
v.
THE TRAVELERS COMPANIES, INC;
TRAVELERS OF NEW JERSEY;
TRAVELERS AUTO INS CO OF NEW JERSEY;
FIRST TRENTON INDEMNITY CO.
_____________
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 2-09-cv-04630)
District Judge: Honorable Katharine S. Hayden
_____________
Argued January 11, 2011
Before: RENDELL, AMBRO and FISHER, Circuit Judges.
(Opinion Filed: February 9, 2011)
_____________
Jonathan I. Nirenberg, Esq.
Resnick & Nirenberg
100 Eagle Rock Avenue
Suite 301
East Hanover, NJ 07936
James B. Zouras, Esq. [ARGUED]
205 North Michigan Avenue
Suite 2560
Chicago, IL 60601
Counsel for Appellants
Michael T. Grosso, Esq.
William P. McLane, Esq.
Andrew J. Voss, Esq. [ARGUED]
Littler Mendelson
One Gateway Center
8th Floor
Newark, NJ 07102
Counsel for Appellees
_____________
OPINION OF THE COURT
_____________
RENDELL, Circuit Judge.
This appeal calls upon us to decide whether the District Court properly granted
summary judgment to Appellee The Travelers Companies, Inc. (“Travelers”), in
concluding that Appellants Vilches, Sheehan, and Costeira (collectively, “Vilches”)
assented to the insertion of a class arbitration waiver into an existing arbitration policy,
and that the waiver was not unconscionable. The District Court ordered the parties into
arbitration to individually resolve the claims brought by Vilches under the Fair Labor
Standards Act of 1938, 29 U.S.C. § 201, et seq. (“FLSA”), and New Jersey Wage and
Hour Law, N.J.S.A. § 34:11-4.1, et seq. (“NJWHL”). While we will find that the class
arbitration waiver is not unconscionable, we will vacate the District Court‟s order and
refer the matter to arbitration to determine whether Vilches can proceed as a class based
upon the parties‟ agreements.
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Factual & Procedural Background
We briefly summarize the allegations pertinent to our decision. Appellants
Vilches filed a class and collective action in the Superior Court of New Jersey to recover
unpaid wages and overtime allegedly withheld in violation of the FLSA and the NJWHL,
contending that Travelers consistently required its insurance appraisers to work beyond
40 hours per week but failed to properly compensate the appraisers for the additional
labor. Travelers removed the matter to the United States District Court for the District of
New Jersey, and filed a Motion for Summary Judgment seeking the dismissal of the
complaint and an order compelling Vilches to arbitrate their individual wage and hour
claims.
Upon commencing employment with Travelers, Vilches agreed to an employment
provision making arbitration “the required, and exclusive, forum for the resolution of all
employment disputes that may arise” pursuant to an enumerated list of federal statutes,
and under “any other federal, state or local statute, regulation or common law doctrine,
regarding employment discrimination, conditions of employment or termination of
employment.”1 (App‟x at 79.) The agreement did not expressly reference class or
collective arbitration or any waiver of the same. The agreement reserved to Travelers the
right to alter or amend the arbitration policy at its discretion with appropriate notice to
employees.
1
Vilches accepted employment on July 26, 2004, and was discharged in January 15,
2009. Costeira entered employment on January 23, 2003, and was terminated on
February 26, 2009. Sheehan began working on October 13, 1994, and was terminated on
December 9, 2008.
3
In April 2005, Travelers electronically published a revised Arbitration Policy. In
addition to restating the expansive scope of the Policy, the update also included an
express statement prohibiting arbitration through class or collective action:
The Policy makes arbitration the required and exclusive forum for the
resolution of all employment-related and compensation-related disputes
based on legally protected rights (i.e., statutory, contractual or common law
rights) that may arise between an employee or former employee and the
Company. . . . [T]here will be no right or authority for any dispute to be
brought, heard or arbitrated under this Policy as a class or collective
action, private attorney general, or in a representative capacity on behalf
of any person.
(App‟x at 88) (emphasis added). Travelers communicated the revised Policy to Vilches
in several electronic communications.2
Before the District Court, Vilches initially alleged that they never agreed to
arbitrate any claims against Travelers; their position changed, however, during the course
of proceedings and they ultimately conceded that all employment disputes with Travelers
must be arbitrated pursuant to the arbitration agreement they signed at commencement of
2
First, Travelers sent an e-mail to all employees on April 1, 2005, titled “Internal dispute
resolution/arbitration program,” which announced important changes to the existing
dispute resolution procedures, and included a link to the revised arbitration policy. The
email expressly stated that the arbitration policy was an essential element and condition
of continued employment. Second, Travelers required Vilches to annually view and
complete an online ethics quiz, which required employees to certify that they would abide
by “key obligations” of employment, including the Arbitration Policy. Certification
signified that the employee received, read, and understood both the content and the
location of the policies, and agreed to abide by the terms therein. Finally, Travelers sent
an e-mail to Vilches on December 31, 2007, asking them to review specified updated
policies – including the updated Arbitration Policy – and to acknowledge receipt, review,
and agreement to the documents by clicking on a link embedded in the e-mail. Vilches
do not contest that they opened, viewed, and clicked on the embedded links, nor do they
dispute that Appellants annually certified their completion of an agreement to the online
ethics quizzes.
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employment. They nevertheless insisted that the revised Arbitration Policy introduced by
Travelers in April 2005 prohibiting class arbitration, which Travelers attempted to
enforce, did not bind them because they never assented to its terms. Vilches further
argued that, even assuming that the updated Policy did bind them, the revision was
unconscionable and unenforceable.
Notwithstanding the fact that the parties agreed to arbitrate all employment
disputes, as we discuss below, the District Court addressed the question of whether
Vilches agreed to waive the right to proceed by way of class arbitration. In an oral
decision, the District Court granted Travelers‟ motion for summary judgment, finding
that the various forms of correspondence from Travelers provided sufficient notice to
Vilches of the revised Policy, and that their electronic assent and continued employment
constituted agreement to the update. As such, the Court held that Vilches waived the
ability to proceed in a representative capacity through class arbitration. The Court‟s
opinion only briefly touched upon the unconscionability claims, stating that “there was
no adhesion that was part of that process.” (App‟x at 23.) The Court ordered the parties
to individually arbitrate the employment disputes, and this appeal followed.
Jurisdiction and Standard of Review
The District Court exercised jurisdiction over Vilches‟s complaint pursuant to
28 U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C. § 1291 from the District
Court‟s grant of summary judgment to Travelers.
“We exercise plenary review over questions regarding the validity and
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enforceability of an agreement to arbitrate.” Puleo v. Chase Bank USA, N.A., 605 F.3d
172, 177 (3d Cir. 2010). A court “decides a motion to compel arbitration under the same
standard it applies to a motion for summary judgment,” Kaneff v. Del. Title Loans, Inc.,
587 F.3d 616, 620 (3d Cir. 2009) (citation omitted), because the “order compelling
arbitration is „in effect a summary disposition of the issue of whether or not there had
been a meeting of the minds on the agreement to arbitrate,‟” Century Indem. Co. v.
Certain Underwriters at Lloyd’s, London, 584 F.3d 513, 528 (3d Cir. 2009) (citation
omitted). Accordingly, “[t]he party opposing arbitration is given „the benefit of all
reasonable doubts and inferences that may arise.‟” Kaneff, 587 F.3d at 620. As with the
standard for summary judgment, “[o]nly when there is no genuine issue of fact
concerning the formation of the agreement should the court decide as a matter of law that
the parties did or did not enter into such an agreement.” Par-Knit Mills, Inc. v.
Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir. 1980).
Discussion
The parties agree that any and all disputes arising out of the employment
relationship – including the claims asserted here – are to be resolved in binding
arbitration. Accordingly, the role of the Court is limited to deciding whether the revised
Arbitration Policy introduced in April 2005 – and the class arbitration waiver included
within that revision – governed this dispute. We conclude that the District Court should
not have decided the issue presented as to the class action waiver, and, as we explain
below, we will refer the resolution of this question to arbitration in accordance with
6
governing jurisprudence. The District Court should have, however, ruled on the issue of
unconscionability and we will address it.
We have repeatedly stated that courts play a limited role when a litigant moves to
compel arbitration. Specifically, “„whether the parties have submitted a particular
dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial
determination unless the parties clearly and unmistakably provide otherwise.‟” Puleo,
605 F.3d at 178 (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002)).
“[A] question of arbitrability arises only in two circumstances-first, when there is a
threshold dispute over „whether the parties have a valid arbitration agreement at all,‟ and,
second, when the parties are in dispute as to „whether a concededly binding arbitration
clause applies to a certain type of controversy.‟” Id. (quoting Green Tree Fin. Corp. v.
Bazzle, 539 U.S. 444, 452 (2003)). In contrast, the Supreme Court has distinguished
“questions of arbitrability with disputes over arbitration procedure, which do not bear
upon the validity of an agreement to arbitrate.” Id. at 179. We noted in Puleo that
“procedural questions” – such as waiver or delay – “which grow out of the dispute and
bear on its final disposition are presumptively not for the judge.” Id.
This matter satisfies neither of the Puleo arbitrability circumstances. As stated,
neither party questions “whether the parties have a valid arbitration agreement at all.”
Id.; (see also Appellants‟ Br. at 15 (“Plaintiffs do not challenge the validity of the
arbitration agreements they entered into when they first began their employment”);
Appellees‟ Br. at 6 (“At the outset of employment, Appellants agreed to the Travelers
Employment Arbitration Policy”).) The original arbitration provision to which Vilches
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admittedly agreed provided that “the required, and exclusive, forum for the resolution of
all employment disputes” would be arbitration. (App‟x at 79 (emphasis added).) Here,
the issue of whether an employee is bound by a disputed amendment to existing
employment provisions falls within the scope of this expansive agreement to arbitrate.
Indeed, the language makes clear that the “concededly binding arbitration clause applies”
to the particular employment claims at stake here, and the parties do not advance a
cognizable argument to suggest otherwise. Puleo, 605 F.3d at 178. Accordingly, the
second Puleo arbitrability element is also unfulfilled.
While the parties framed their arguments so as to invite the Court‟s attention to the
class action waiver issue – namely, whether the revised Arbitration Policy expressly
prohibiting class arbitration governs the relationship between Travelers and Vilches – we
conclude that “the relevant question here is what kind of arbitration proceeding the
parties agreed to.” Bazzle, 539 U.S. at 452 (emphasis in original). As stated, the addition
of the disputed class arbitration waiver did not disturb the parties‟ agreement to refer “all
employment disputes” to arbitration, and, thus, “does not bear upon the validity of an
agreement to arbitrate.” Puleo, 605 F.3d at 179. Assuming binding arbitration of all
employment disputes, the contested waiver provision solely affects the type of procedural
arbitration mechanism applicable to this dispute. “[T]he Supreme Court has made clear
that questions of „contract interpretation‟ aimed at discerning whether a particular
procedural mechanism is authorized by a given arbitration agreement are matters for the
arbitrator to decide.” Id. (emphasis in original). Where contractual silence is implicated,
“the arbitrator and not a court should decide whether a contract[ was] indeed „silent‟ on
8
the issue of class arbitration,” and “whether a contract with an arbitration clause forbids
class arbitration.” Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758, 1771-72
(2010).
The Policy originally in force made no mention of class action or class arbitration,
and was entirely silent on whether the parties had a right to proceed through class or
collective arbitration.3 In contrast, the amended Policy explicitly precludes class
arbitration. Accordingly, we must “give effect to the contractual rights and expectations
of the parties,” and refer the questions of whether class arbitration was agreed upon to the
arbitrator. Stolt-Nielsen, 130 S. Ct. at 1774.
Although we offer no forecast as to the arbitrator‟s potential resolution of these
questions, assuming arguendo that the arbitrator finds the class action waiver binding, we
will address Vilches‟ alternative argument that the addition of the class action waiver was
3
Despite the parties‟ apparent concurrence that the original Policy‟s silence afforded
Vilches a “right” to proceed in class arbitration, the provision‟s language does not
actually confirm the existence of such a right. See, e.g., Champ v. Siegel Trading Co.,
55 F.3d 269, 275 (7th Cir. 1995) (“We thus adopt the rationale of several other circuits
and hold that section 4 of the FAA forbids federal judges from ordering class arbitration
where the parties' arbitration is silent on the matter”); Dominium Austin Partners, LLC v.
Emerson, 248 F.3d 720, 728-29 (8th Cir. 2001) (“[B]ecause the [ ] agreements make no
provision for arbitration as a class, the district court did not err by compelling appellants
to submit their claims to arbitration as individuals.”). Although contractual silence in the
post-Bazzle era has often been treated by arbitrators as authorizing class arbitration, Stolt-
Nielsen suggests a return to the pre-Bazzle line of reasoning on contractual silence, albeit
decided by an arbitrator, because it focuses on what the parties agreed to – expressly or
by implication. See 130 S. Ct. at 1776 (“[T]he differences between bilateral and class-
action arbitration are too great for arbitrators to presume . . . that the parties' mere silence
on the issue of class-action arbitration constitutes consent to resolve their disputes in
class proceedings.”). Although the Policy‟s silence here suggests that the addition of the
class waiver did not deprive Vilches of the asserted “right” to class arbitration, we will
refer this question to the arbitrator.
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unconscionable for the sake of judicial efficiency, and because it does concern
“arbitrabillity.” See Puleo, 605 F.3d at 179.
“In stark contrast with the question of arbitration procedure” discussed above,
“when a party challenges the validity of an arbitration agreement by contending that one
or more of its terms is unconscionable under generally applicable state contract law, a
question of arbitrability is presented.” Id. “The Courts of Appeals are unanimous in
recognizing that an unconscionability challenge to the provisions of an arbitration
agreement is a question of arbitrability that is presumptively for the court, not the
arbitrator, to decide.” Id. at 180. Here, Vilches contend that the timing, language, and
format of the class action waiver renders it unconscionable, even if it is binding. We
disagree.
The contractual doctrine of unconscionability “involves both „procedural‟ and
„substantive‟ elements,” and “requires a two-fold determination: that the contractual
terms are unreasonably favorable to the drafter and that there is no meaningful choice on
the part of the other party regarding acceptance of the provisions.” Parilla v. IAP
Worldwide Servs., VI, Inc., 368 F.3d 269, 277 (3d Cir. 2004). “In addressing a claim that
an arbitration clause is unconscionable, we apply the „ordinary state law principles . . . of
the involved state or territory.‟” Nino v. Jewelry Exchange, Inc., 609 F.3d 191, 200 (3d
Cir. 2010). New Jersey case law provides that “adhesion contracts invariably evidence
some characteristics of procedural unconscionability,” and “a careful fact-sensitive
examination into substantive unconscionability is generally required.” Moore v. Woman
to Woman Obstetrics & Gynecology, LLC, 3 A.3d 535, 540 (N.J. Sup. App. Div. 2010)
10
(internal quotations and citation omitted).
As we recently observed, the New Jersey Supreme Court has stated that “„[t]he
public interest at stake in . . . consumers[‟] [ability to effectively] pursue their statutory
rights under consumer protection laws‟ constituted the „most important‟ reason for
holding a [ ] class-arbitration waiver unconscionable.” Homa v. Amer. Ex. Co., 558 F.3d
225, 230 (3d Cir. 2009) (quoting Muhammad v. County Bank of Rehoboth Beach, De.,
912 A.2d 88, 99-101 (N.J. 2006)). Notably, however, “class action waiver becomes
„problematic when the waiver is found in a consumer contract of adhesion in a setting in
which disputes between the contract parties predictably involve small amounts of
damages.‟” Id. (citing Muhammad, 912 A.2d at 99) (emphasis added). Where a class
action waiver is not part of a consumer contract of adhesion, New Jersey courts perceive
nothing unconscionable or unfairly burdensome about an arbitration agreement. See
Delta Fund. Corp. v. Harris, 912 A.2d 104, 115 (N.J. 2006) (“[U]nder New Jersey law,
the class-arbitration waiver in [an] arbitration agreement is not unconscionable per se.”).
Indeed, “the affirmative policy of [New Jersey], both legislative and judicial, favors
arbitration as a mechanism of resolving disputes.” Martindale v. Sandvik, Inc., 800 A.2d
872, 881 (N.J. 2002).
Here, the class arbitration waiver does not concern a consumer contract with
predictably small damages, nor is the arbitration agreement in whole unconscionably
adhesive, as “„[m]ere inequality in bargaining power . . . is not a sufficient reason to hold
that arbitration agreements are never enforceable in the employment context.‟” Id. at 880(quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (1991)). “„[T]he
11
Supreme Court [in Gilmer] obviously contemplated avoidance of the arbitration clause
only upon circumstances more egregious than the ordinary economic pressure faced by
every employee who needs the job.‟” Id. (citation omitted) (alterations in original).
Echoing virtually every court to consider “the adhesive effect of arbitration provisions in
[ ] employment agreements,” id., we similarly held that “[u]nequal bargaining power is
not alone enough to make an agreement to arbitrate a contract of adhesion,” Seus v. John
Nuveen & Co., Inc., 146 F.3d 175, 184 (3d Cir. 1998), overruled on other grounds by
Green Tree Fin. Corp. Ala. v. Randolph, 531 U.S. 79 (2000)). Vilches only demonstrated
their position relative to Travelers and their interest in maintaining employment, which is
insufficient on its own to prove that the class arbitration waiver is unreasonably favorable
to Travelers. As such, we conclude that the waiver is not substantively oppressive and
unconscionable.4
Moreover, “procedural unconscionability involves a „variety of inadequacies, such
as age, literacy, lack of sophistication, hidden or unduly complex contract terms,
bargaining tactics, and the particular setting existing during the contract formation
process.‟” Estate of Ruszala v. Brookdale Living Comms., Inc., 1 A.3d 806, 819 (N.J.
Sup. App. Div. 2010) (quoting Muhammad, 912 A.2d at 96). Vilches failed to establish
4
Vilches‟s policy arguments are premised on the amorphous contention that arbitration
would undermine the deterrent function of the FLSA. This contention is unavailing,
however, since Vilches failed to substantiate the view that arbitration will not adequately
protect the financial interests of employees. Indeed, there is no “suggestion in the text,
legislative history, or purpose of the FLSA that Congress intended to confer a
nonwaivable right to a class action under that statute.” Adkins v. Labor Ready, Inc., 303
F.3d 496, 503 (4th Cir. 2002) (citing Johnson v. West Suburban Bank, 225 F.3d 366, 377
(3d Cir. 2000)).
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these inadequacies in this instance. Vilches were always aware of the existence of an
arbitration policy that could be amended, they were sophisticated employees with
significant corporate experience, and they failed to demonstrate that Travelers utilized
unduly complex contract terms or engaged in oppressive bargaining tactics when
introducing the revised Policy. Furthermore, Travelers provided several notices of the
class arbitration amendment and requested acknowledgment and agreement to the
revision on an annual basis. Moreover, Vilches presented no evidence that they could not
have negotiated the terms of the arbitration agreement or found another job, as is their
burden.
Accordingly, assuming that the arbitrator finds the revised Policy binding, we do
not find the timing and format of the class action waiver either procedurally or
substantively unconscionable.
Conclusion
For the foregoing reasons, we will vacate the District Court order, and refer the
matter to arbitration to resolve whether the parties can proceed as a class in arbitration
pursuant to the relevant arbitration provisions.
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