Joe Solo v. United Parcel Service Co. ( 2020 )

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 20a0025p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
JOE SOLO; BLEACHTECH LLC, and all others similarly ┐
situated, │
Plaintiffs-Appellees, │
│
> No. 17-2244
v. │
│
│
UNITED PARCEL SERVICE CO., │
Defendant-Appellant. │
┘
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 2:14-cv-12719—Denise Page Hood, Chief District Judge.
Decided and Filed: January 23, 2020
Before: STRANCH, DONALD, and LIPEZ, Circuit Judges.*
_________________
COUNSEL
ON BRIEF: Jill M. Wheaton, DYKEMA GOSSETT PLLC, Ann Arbor, Michigan, Deanne E.
Maynard, Joseph R. Palmore, Bryan J. Leitch, MORRISON & FOERSTER LLP, Washington,
D.C., for Appellant. Andrew J. McGuiness, ANDREW J. MCGUINNESS, ESQ., Ann Arbor,
Michigan, Daniel R. Karon, KARON LLC, Cleveland, Ohio, Sanford P. Dumain, MILBERG
LLP, New York, New York, for Appellees.
*The Honorable Kermit V. Lipez, Circuit Judge for the United States Court of Appeals for the First Circuit,
sitting by designation.
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 2
_________________
OPINION
_________________
JANE B. STRANCH, Circuit Judge. Plaintiffs Joe Solo and BleachTech LLC sued
Defendant United Parcel Service Co. (UPS) in July 2014 alleging that it had systematically
overcharged customers for insurance on their shipments. The first time this case was appealed,
we held that the contract governing the shipments was “at least ambiguous” as to the contested
charge, Solo v. UPS Co., 819 F.3d 788, 796 (6th Cir. 2016), and reversed the order granting
UPS’s motion to dismiss. After remand and several months of discovery, UPS moved to compel
arbitration, citing an arbitration provision contained in a contract effective after the contested
shipments occurred. For the reasons explained below, we AFFIRM the district court’s denial of
the motion to compel arbitration.
I. BACKGROUND
Both Solo and BleachTech purchased liability insurance for valuable packages shipped
through UPS before December 30, 2013. The price of that insurance, called “declared value
coverage,” was set by the contract governing the shipments, the UPS Tariff/Terms and
Conditions of Service (the Original UPS Terms).1 The contract lays out the rates as follows:
(R. 1, Compl., PageID 137) According to Solo and BleachTech, this language plainly states that
there is no additional charge for the first $100 of coverage whether or not a shipper purchases
1For ease of reference, we refer to all pre-December 30, 2013 iterations as the Original UPS Terms and all
post-December 30, 2013 iterations as the Amended UPS Terms. The provisions of the Original UPS Terms that are
relevant to our analysis remained consistent from January 2009 to December 2013.
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 3
additional declared value coverage. But when Solo and BleachTech shipped their packages, they
were charged $0.85 for each hundred-dollar increment, including the first.
Solo and BleachTech sued UPS on behalf of a proposed class of similarly situated UPS
customers. UPS moved to dismiss the suit in its entirety because all the claims “require a
misinterpretation” of the Terms. UPS argued that the controlling phrase was “total value
declared” and that “total” value necessarily includes the first $100.
The final paragraph of that motion stated that UPS “reserves its right to move to compel
arbitration and does not by this motion in any way waive this contractual right.” UPS referenced
an arbitration clause found in the amended contract that became effective December 30, 2013
(the Amended UPS Terms)—after the shipments at issue in this suit were mailed, though
BleachTech shipped packages with UPS under the amended terms post-December 30, 2013. The
Amended UPS Terms, unlike the Original UPS Terms in use at the time of the shipments,
provide that “any controversy or claim, whether at law or equity, arising out of or related to the
provision of services by UPS, regardless of the date of accrual of such dispute, shall be resolved
in its entirety by individual (not class-wide nor collective) binding arbitration.” UPS’s motion to
dismiss stated that because the Complaint alleges shipments only prior to the effective date of the
Amended UPS Terms, “UPS does not have sufficient information at this time to know whether
its arbitration clause could apply in this action.”
The district court granted the motion to dismiss, agreeing with UPS that the first $100 of
declared value is part of the total value declared under the plain meaning of that term, and
accordingly, an $0.85 charge applies to that declared value under the contract. Solo and
BleachTech appealed. We reversed, relying on the complaint’s allegations that UPS routinely
credits customers who complain about the overcharge and so “itself acknowledges the validity of
Solo’s reading of the contractual provision.” Solo, 819 F.3d at 795–96. We held that the
provision was “at least ambiguous,” id. at 796, and remanded for further proceedings.
On remand, UPS filed its answer, raising the obligation to arbitrate as its first affirmative
defense, and sought limited discovery focused on arbitration. The district court appears to have
rejected the proposed limitation, and after six months of full discovery, UPS moved to compel
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 4
arbitration. The district court denied the motion on the basis that UPS “waived its right to
arbitrate by taking actions inconsistent with reliance on the arbitration provision and delaying its
assertion of the need to arbitrate, to the actual prejudice of Plaintiffs.” UPS appeals.
II. ANALYSIS
This case, now in its fifth year of litigation, makes its second appearance in this court.
Having already resolved a merits-based issue about the ambiguity of the contractual terms at
issue, see id., we now confront an issue that normally precedes the merits: whether the dispute
should be resolved via arbitration.
Although an order declining to compel arbitration does not end a case, we have
jurisdiction to hear an appeal of such a denial pursuant to the Federal Arbitration Act (FAA).
See 9 U.S.C. § 16(a). The FAA manifests “a liberal federal policy favoring arbitration
agreements.” Hergenreder v. Bickford Senior Living Grp., LLC, 656 F.3d 411, 416 (6th Cir.
2011) (quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). Prompt
appellate review of orders declining to compel arbitration gives effect to that policy and to the
“two goals of the [FAA]—enforcement of private agreements and encouragement of efficient
and speedy dispute resolution.” Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985).
“Because arbitration agreements are fundamentally contracts, we review the
enforceability of an arbitration agreement according to the applicable state law of contract
formation.” Hergenreder, 656 F.3d at 416 (quoting Seawright v. Am. Gen. Fin. Servs., Inc.,
507 F.3d 967, 972 (6th Cir. 2007)).2 As with other contract disputes, we review the district
court’s decision de novo. Inland Bulk Transfer Co. v. Cummins Engine Co., 332 F.3d 1007,
1014 (6th Cir. 2003). And “[i]n this endeavor, ‘as with any other contract, the parties’ intentions
2In the prior appeal, “the parties agree[d] that the district court correctly applied Michigan law to the state
claims”; we therefore analyzed the contract and unjust enrichment claims under Michigan law. Solo, 819 F.3d at
794–96. Though UPS now asserts that we should apply Ohio law to BleachTech’s contract claim and California law
to Solo’s, it argued in the last appeal that “[t]he district court correctly applied Michigan law—the law of the forum
state—to the contract claim.” Appellee Brief at 21 n.9, Solo, 819 F.3d 788 (No. 15-1426) (D.E. 26). Having
previously conceded the issue, UPS may not reverse course now. See Meridia Prods. Liab. Litig. v. Abbott Labs.,
447 F.3d 861, 865 (6th Cir. 2006) (finding a choice-of-law argument waived where a party both “fail[ed] to
challenge the [district] court’s choice of law” and “affirmatively argued that the court need not engage in a
choice-of-law analysis”). We therefore continue to apply Michigan law.
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 5
control.’” Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682 (2010) (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). To find
that the parties intended to resolve this dispute in arbitration, we must confirm “that a valid
agreement to arbitrate exists between the parties and that the specific dispute falls within the
substantive scope of the agreement.” Hergenreder, 656 F.3d at 415–16 (quoting Mazera v.
Varsity Ford Mgmt. Servs., LLC, 565 F.3d 997, 1001 (6th Cir. 2009)).
A. The Arbitration Agreement
The arbitration agreement UPS invokes is not found in the contract in place during the
period when Solo and BleachTech assert they were charged the improper fee. The Original UPS
Terms describe a claim-filing process that serves as a prerequisite to seeking “any legal or
equitable relief whatsoever,” but the terms do not mention arbitration. The Amended UPS
Terms, enacted after the relevant shipments, require that “any controversy or claim, whether at
law or equity, arising out of or related to the provision of services by UPS, regardless of the date
of accrual of such dispute, shall be resolved in its entirety by individual (not class-wide nor
collective) binding arbitration.” The question presented is, did the parties intend the arbitration
provision in the Amended UPS Terms to govern preexisting disputes, or only disputes arising
during that contractual period?3
We have recognized that a broadly worded arbitration clause may govern disputes
predating its enactment. For example, when a contract requires the parties to arbitrate “any
dispute or claim arising from or in connection with this agreement or the services provided by
[the plaintiff],” the natural reading is that “the language covers more than claims arising ‘out of
the agreement’” and so applies outside the agreement’s timeframe. Watson Wyatt & Co. v. SBC
Holdings, Inc., 513 F.3d 646, 650 (6th Cir. 2008) (quoting the contract at issue) (quoting
Kristian v. Comcast Corp., 446 F.3d 25, 33 (1st Cir. 2006)).
But we do not imply retroactivity where it is not contemplated in the contractual
language. Thus, when a contract required arbitration of “all employment-related disputes . . .
3Solo additionally argues that he was not subject to the arbitration agreement because the UPS terms apply
only to “shippers,” and not individual consumers like Solo. For the reasons set forth below, we need not reach this
argument.
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 6
which . . . arise between [the parties],” the use of present- and future-tense language led us to
conclude that “the parties signed this agreement to head off future lawsuits, not to cut off
existing ones.” Russell v. Citigroup, Inc., 748 F.3d 677, 679–80 (6th Cir. 2014) (quoting the
contract at issue). The presumption of arbitrability, moreover, cannot bridge a textual gap.
“While ambiguities in the language of the agreement should be resolved in favor of arbitration[,]
. . . we do not override the clear intent of the parties, or reach a result inconsistent with the plain
text of the contract, simply because the policy favoring arbitration is implicated.” GGNSC
Louisville Hillcreek, LLC v. Est. of Bramer, 932 F.3d 480, 485 (6th Cir. 2019) (quoting EEOC v.
Waffle House, Inc., 534 U.S. 279, 294 (2002)). In other words, courts may not “use policy
considerations as a substitute for party agreement,” Granite Rock Co. v. Int’l Bhd. of Teamsters,
561 U.S. 287, 303 (2010), because the Supreme Court “has made consent the cornerstone of
arbitration,” GGNSC, 932 F.3d at 485.
To determine whether the parties intended the Amended UPS Terms to have retroactive
effect, we construe the two “contracts as a whole, giving harmonious effect, if possible, to each
word and phrase.” Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 781 n.11 (Mich. 2003).
Here, the critical language appears in the introduction to both versions of the Terms: “In
tendering a shipment for service, the shipper agrees that the version of the Terms . . . in effect at
the time of shipping will apply to the shipment and its transportation.” This clear instruction
answers the question before us: the parties intended all disputes about shipping to be resolved
according to the “version of the Terms . . . in effect at the time of shipping,” not an older or
newer version. See Sec. Watch, Inc. v. Sentinel Sys., 176 F.3d 369, 374 (6th Cir. 1999) (“Given
the fact that the arbitration provision in the present case arises in a later contract, much more is
needed to infer an intention to apply the provision to previous contracts.”).
Consider, as an example, a customer who ships a package on the final day the Amended
UPS Terms are in effect. That package arrives damaged three days later; she attempts to sue a
year after that. Assuming annual contracts, she shipped under one set of terms, her claim
accrued under another, and she began the suit under a third. The contract provides a clear guide
for how to proceed. The Amended UPS Terms that were “in effect at the time of shipping”
govern her claim, and “regardless of the date of accrual,” she must arbitrate her suit under those
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 7
terms. If she had sent her shipment a year earlier, just before the Amended UPS Terms went into
effect (like Solo and BleachTech), the same analysis would apply. The version “in effect at the
time of shipping” would still control, and she would not be obligated to arbitrate. As we have
recognized before, parties entering into a series of contracts can and do change dispute resolution
mechanisms over time, opting for litigation under one contract and arbitration under another.
See id. at 373.
In response, UPS first contends that the contractual focus on the version “in effect at the
time of shipping” applies only “to the shipment and its transportation”—not to dispute
resolution. But the underlying issue is whether UPS charged the correct price for the
transportation of Solo and BleachTech’s insured shipments. This provision simply clarifies that
the UPS Terms do not govern matters unrelated to shipping and transportation, such as an
employment dispute within UPS or an accident caused by UPS drivers.
Next, UPS argues that the Original UPS Terms contemplate modifications. Specifically,
the Terms “comprise the complete and exclusive agreement of the parties, except as modified by
any existing or future written agreement between the parties.” But we have already rejected the
argument that a boilerplate merger clause renders an arbitration provision from one contract
applicable to another. See Sec. Watch, 176 F.3d at 372. And while subsequent modifications to
the operative contract might be relevant if a new contract entirely subsumes the original, see
Highlands Wellmont Health Network v. John Deere Health Plan, 350 F.3d 568, 575 (6th Cir.
2003), the Amended UPS Terms reiterate that the version in effect at the time of shipping
controls.
The dispositive issue here is not whether the Amended UPS Terms amount to “a valid
agreement to arbitrate”; it is whether shipments that predate those Terms “fall[] within the
substantive scope of the agreement.” Hergenreder, 656 F.3d at 415–16 (quoting Mazera,
565 F.3d at 1001). Both contracts direct that the version of the Terms “in effect at the time of
shipping” governs. That instruction amounts to “forceful evidence” that the parties did not agree
to arbitrate disputes that predated the Amended UPS Terms. See Russell, 748 F.3d at 681
(quoting Watson Wyatt, 513 F.3d at 650). “[T]he FAA does not require parties to arbitrate when
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 8
they have not agreed to do so.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 478 (1989). They have not agreed to do so here.
B. Waiver
Even if the scope of the arbitration agreement in the Amended UPS Terms were
ambiguous, the district court properly concluded that UPS waived its right to arbitrate.
As discussed above, the FAA’s “liberal federal policy favoring arbitration agreements,”
Hergenreder, 656 F.3d at 416 (quoting Javitch, 315 F.3d at 624), encourages “efficient and
speedy dispute resolution,” Dean Witter Reynolds, 470 U.S. at 221. Because a valid arbitration
provision avoids court process, courts resolve arbitration disputes with dispatch, including via
interlocutory appeals such as this one. But the benefits of “efficient and speedy” arbitration are
lost if a party seeks arbitration only after insisting upon court process. Thus, although “we will
not lightly infer a party’s waiver of its right to arbitration,” we may find waiver if a party
(1) “tak[es] actions that are completely inconsistent with any reliance on an arbitration
agreement; and (2) ‘delay[s] its assertion to such an extent that the opposing party incurs actual
prejudice.’” Hurley v. Deutsche Bank Tr. Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010) (quoting
O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003)).
We begin with the first prong—action that is inconsistent with reliance on arbitration—
and UPS’s motion to dismiss. “Not every motion to dismiss is inconsistent with the right to
arbitration.” Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917, 922 (8th
Cir. 2009) (collecting cases). For example, the Eighth Circuit has held that a motion to dismiss
raising “jurisdictional and quasi-jurisdictional grounds” but seeking “no action with respect to
the merits of the case” is not inconsistent with later seeking arbitration. Dumont v. Sask. Gov’t
Ins., 258 F.3d 880, 886–87 (8th Cir. 2001). Similarly, where a complaint asserts a mix of
arbitrable and nonarbitrable claims, “the portions of the motion [to dismiss] addressed to
nonarbitrable claims do not constitute a waiver.” Sweater Bee by Banff, Ltd. v. Manhattan
Indus., 754 F.2d 457, 463 (2d Cir. 1985). On the other hand, a motion to dismiss that seeks “a
decision on the merits” and “an immediate and total victory in the parties’ dispute” is entirely
inconsistent with later requesting that those same merits questions be resolved in arbitration.
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 9
Hooper, 589 F.3d at 922. A party may not use a motion to dismiss “to see how the case [is]
going in federal district court,” id. (quoting Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry, Inc.,
50 F.3d 388, 391 (7th Cir. 1995)), while holding arbitration in reserve for “a second chance in
another forum,” Hurley, 610 F.3d at 339 (quoting Rush v. Oppenheimer & Co., 779 F.2d 885,
890 (2d Cir. 1985)).
UPS’s motion to dismiss was thoroughly enmeshed in the merits. It sought dismissal of
all claims on the basis that Solo and BleachTech misinterpreted contractual language. By asking
the court to decide the meaning of the key contractual language, UPS sought “immediate and
total victory.” Hooper, 589 F.3d at 922. UPS had good reason to think this strategy was sound.
The same district court had just accepted UPS’s contractual argument in a virtually identical
case, see Sivak v. United Parcel Serv. Co., 28 F. Supp. 3d 701, 712–13 (E.D. Mich. 2014), and it
then did so here.
Only after we reversed that favorable ruling did UPS change course, filing an answer
invoking arbitration and seeking to rely on the arbitration agreement to limit discovery to
arbitration-related issues. Had that been UPS’s course of conduct from the outset of the
litigation, it likely would not have waived its right to arbitrate. See Johnson Assocs. Corp. v. HL
Operating Corp., 680 F.3d 713, 718 (6th Cir. 2012) (approving the practice of raising arbitration
in the answer). But by that time, UPS had already spent two years vigorously litigating the
merits of the claims in the district court and on appeal. By waiting to “attempt to enforce [its]
arbitration rights until after the [appellate] court entered an unfavorable decision” on its merits
arguments, Hurley, 610 F.3d at 339, UPS’s actions were inconsistent with reliance on an
arbitration agreement.
UPS responds by highlighting the statement in its first motion to dismiss that UPS
“reserves its right to move to compel arbitration and does not by this motion in any way waive
this contractual right.” But “[a] statement by a party that it has a right to arbitration in pleadings
or motions is not enough to defeat a claim of waiver.” Martin v. Yasuda, 829 F.3d 1118, 1125
(9th Cir. 2016). UPS also argues that, in some circumstances, a clearly annunciated, well-
supported reservation that is otherwise consistent with a party’s litigating position might forestall
a finding of waiver. But UPS did not adopt an internally consistent position. Rather, it
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 10
simultaneously asked the district court to resolve the merits of all claims in its favor and reserved
the right to submit those same claims to an arbitrator. “A party cannot keep its right to demand
arbitration in reserve indefinitely while it pursues a decision on the merits before the district
court.” MC Asset Recovery LLC v. Castex Energy, Inc. (In re Mirant Corp.), 613 F.3d 584, 591
(5th Cir. 2010).
Similarly, a finding of waiver might be inappropriate if the party belatedly
seeking arbitration was unaware of information rendering a claim arbitrable. See Keys v. Pace,
99 N.W.2d 547, 552–53 (Mich. 1959) (“[A] litigant cannot be held estopped to assert a defense,
or to have waived his right thereto, because of facts he does not know, unless, as a matter of
judicial policy, we are ready to say he ‘should’ know them.”). UPS argues that it fits within this
proposition, pointing to the notation in its motion to dismiss that the Complaint alleges
shipments only prior to the effective date of the Amended UPS Terms, so “UPS does not have
sufficient information at this time to know whether its arbitration clause could apply in this
action.”
When evaluated in light of the arbitration arguments UPS now advances, this assertion
rings hollow. UPS submits that BleachTech is subject to arbitration because it shipped packages
and clicked assent during the period of the Amended UPS Terms. But UPS’s own declaration
explains that all that was required to make that determination is BleachTech’s account number,
and the record reflects (without contradiction from UPS) that UPS knew that account number
before this lawsuit even began. As to Solo, UPS argues that he is bound by the Amended UPS
Terms because he seeks to enforce other portions of the same contract. Once again, UPS was
aware of the basis of Solo’s claim from the moment the complaint was filed. UPS knew or
should have known all the information necessary to advance these arguments before it filed its
motion to dismiss. Its continued pursuit of legal victory based on the merits is inconsistent with
reliance on an arbitration agreement.
We turn next to the prejudice prong. We have previously found prejudice where, “in
addition to an eight-month delay and expenses involved with numerous scheduling motions and
court-supervised settlement discussions, plaintiffs also engaged in discovery.” Johnson Assocs.,
680 F.3d at 720; see also Hurley, 610 F.3d at 340 (finding prejudice based on two years of active
No. 17-2244 Solo, et al. v. United Parcel Service Co. Page 11
litigation, including extensive discovery and filing of multiple summary judgment motions).
In contrast, we have not found prejudice based on actions such as refusal to arbitrate
“substantively weak” claims before the commencement of litigation, where arbitration was
sought in the “second substantive submission in the litigation.” Shy v. Navistar Int’l Corp,
781 F.3d 820, 829–30 (6th Cir. 2015) (noting that the first litigation submission was opposing a
motion to intervene that did not address the validity of the parties’ claim). Here, the arbitration
motion was filed over two years into the suit, after the plaintiffs incurred the expenses of
defending against a merits-based motion to dismiss, appealing that decision, and then engaging
in many months of discovery. Even if we accepted UPS’s argument that some of the discovery-
related expenses were due to the plaintiffs’ refusal to limit discovery, UPS received the
necessary admissions about shipments pursuant to the Amended UPS Terms in June 2016. UPS
then allowed another five months of discovery to pass before moving to invoke its right to
arbitration. All together, these circumstances amount to actual prejudice.
As a final matter, UPS asserts that the waiver ruling cannot be extended to members of
the putative class. The district court declined to answer this question because UPS conceded that
it failed to argue the point until after the district court issued its decision. Because this question
was not presented to or decided by the district court, we decline to consider it in the first
instance. See United States v. Huntington Nat’l Bank, 574 F.3d 329, 331–32 (6th Cir. 2009)
(“[A]bsent a legitimate excuse, an argument raised for the first time in a motion for
reconsideration at the district court generally will be forfeited.”).
III. CONCLUSION
For the foregoing reasons, we AFFIRM the decision of the district court and REMAND
for further proceedings consistent with this opinion.