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Monday, April 2, 2012

Arbitration Provision Not Unconscionable under PA Law, Says Third Circuit

3d CirJanice Quilloin (“Quilloin”) is a nurse employed by a hospital owned by Tenet Healthsystem (“Tenet”).  She was hired in 2006, quit, and was rehired in 2008.  Both times that she was hired, Quilloin signed the “Employee Acknowledgement” form (EA), acknowledging receipt of the “Fair Treatment Process” brochure (FTP).  The EA provided for arbitration of all but a few enumerated “excluded issues.”  The FTP sets out the steps an employee would need to take to resolve a dispute and provides an approximate time in which Tenet would take to respond to each step. 

In 2009, Quilloin filed a collective action suit against Tenet in the District Court for the Eastern District of Pennsylvania under the Fair Labor Standards Act of 1938, as well as several state-based class action and common law claims. Although the Third Circuit inexplicably declines to say so, the District Court opinion notes that the basis of her suit is that Tenet allegedly makes her and her co-workers work through their meal breaks without pay.

Tenet moved to compel arbitration.  Quilloin responded that the arbitration agreement was unconscionable.  The District Court found that genuine disputes of material fact remained as to whether the arbitration agreement was enforceable, and denied Tenet’s Motion to Compel.  In Quilloin v. Tenet Healthsystem Philadelphia, Inc., the Third Circuit reversed and remanded with instructions to stay litigation proceedings and compel arbitration.    

Tenet contended that because Quilloin did not direct her challenge at a specific clause within the agreement, the District Court could not inquire into arbitrability issues.  However, the Third Circuit disagreed, stating that the Federal Arbitration Act (FAA) places arbitration agreements on “an equal footing with other contracts.”  Therefore a plaintiff may challenge an arbitration agreement, like any other contract, by claiming fraud, duress, or unconsionability.  Tenet, relying on Rent-A-Center v. Jackson, about which we blogged extensively in April 2010, attempted to argue that Quilloin’s claim had to go to arbitration because she was attempting to challenge the arbitration agreement as a whole.  The Third Circuit was not persuaded, finding Rent-A-Center inapposite as that case only applied where the parties specified that the agreement to arbitrate was itself arbitrable.  There was no such provision in the EA.

The Court then proceeded to the merits of Ms. Quilloin’s claim that the arbitration provision was unconscionable.  Under Pennsylvania law, a party must show a contract to be both substantively and procedurally unconscionable.  The District Court found three bases on which the arbitration agreement might be substantively unconscionable: (1) a potential prohibition against recovery of attorney’s fees and costs, (2) potential inclusion of a class action waiver, and (3) the possibility that Tenet could “run out the clock” on the statute of limitation, because the FTP provides internal steps and procedures that Tenet could drag out until Quilloin’s claim expired.   While the Court found the arbitration agreement ambiguous on the first two issues, Supreme Court precedent clearly establishes that the arbitrator can resolve such ambiguities.  As to the Quilloin’s run-out-the clock argument, the Court found that Quilloin could prevent Tenet from doing so by filing a motion to compel arbitration.

Furthermore, the Court found no procedural unconscionability. While Quillion is the weaker party to the agreement, she did not lack meaningful choice.  She has a college degree, and twice agreed to the arbitration agreement. 

[JT and Christina Phillips]

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