Brne v. Inspired eLearning

Filing 20

MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 9/26/2017:Mailed notice(kef, )

Case: 1:17-cv-02712 Document #: 20 Filed: 09/26/17 Page 1 of 13 PageID #:123

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THOMAS BRNE,

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Plaintiff,
vs.
INSPIRED eLEARNING,
Defendant.

Hon. Amy J. St. Eve

MEMORANDUM OPINION AND ORDER

Case No. 17-CV-02712

AMY J. ST. EVE, District Court Judge:
Defendant Inspired eLearning, LLC (“eLearning”) has moved to dismiss Plaintiff Tom
Brne’s Complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3)
(“Rule 12(b)(3)”). (R. 11, Mot. to Dismiss.) For the following reasons, the Court grants
Defendant’s motion.
BACKGROUND

Plaintiff Thomas Brne is a United States citizen and a citizen of Illinois. (R.1, Compl., ¶
2.) Defendant eLearning, a provider of corporate educational products, is a citizen of Texas,
with both its headquarters and principal place of business in San Antonio. (Id ¶ 3.)
Defendant hired Plaintiff at will as a Regional Enterprise Account Executive in June
2014. (Id. ¶ 7.) As a condition of his employment, Plaintiff signed an employment agreement
(the “Agreement”) that contained an arbitration provision. (R. 18, Def.’s Repl. Ex. 1,
Agreement.) The arbitration provision stated in relevant part, with key passages italicized:
(a) Arbitration.
Except as provided in subsection (b) below, I agree that any dispute, claim or
controversy concerning my employment or the termination of my employment or

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any dispute, claim or controversy arising out of or relating to any interpretation,
construction, performance or breach of this Agreement, shall be settled by
arbitration to be held in San Antonio, Texas in accordance with the rules then in
effect of the American Arbitration Association [“AAA”]. The arbitrator may
grant injunctions or other relief in such dispute or controversy. The decision of
the arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator’s decision in any court
having jurisdiction. The Company and I shall each pay one-half of the costs and
expenses of such arbitration, and each of us shall separately pay our counsel fees
and expenses.
(b) Equitable Remedies.
I agree that it would be impossible or inadequate to measure and calculate the
Company’s damages from any breach of the covenants set forth in Sections 2, 3,
5, 7 and, 9 herein. Accordingly, I agree that if I breach any of such Sections, the
Company will have available, in addition to any other right or remedy available,
the right to obtain an injunction from a court of competent jurisdiction
restraining such breach or threatened breach and to specific performance of any
such provision of this Agreement. I further agree that no bond or other security
shall be required in obtaining such equitable relief and I hereby consent to the
issuance of such injunction and to the ordering of specific performance.
(Id. § 11) (emphasis added.)
Defendant paid Plaintiff, who worked out of his home office in Illinois servicing mostly
Midwestern clients, a base salary plus commissions, with double commissions for all sales
exceeding Defendant’s quota. (Compl. ¶ 8, 10; Pl.’s Resp., Ex. A, Dec. of Tom Brne ¶¶ 3-4.)
Under Defendant’s compensation plan, Defendant paid employees their commissions during the
month that the customer’s payment was received. (Compl. ¶ 12.) In 2015, Plaintiff was
Defendant’s top salesperson with the highest annual sales in the company’s history. (Id. ¶ 1314.) In 2016, he remained in the top half of Defendant’s salespeople, and in September and
October of that year he was again Defendant’s top salesperson. (Id. ¶ 15.) Nevertheless, on
October 21, 2016, Defendant terminated him for alleged “unsatisfactory performance.” (Id. ¶
16.) Plaintiff claims that, to date, Defendant has withheld and refuses to pay him over $92,000
that he has earned or will earn by 2018 as a result of multi-year deals he booked in 2015. (Id. ¶

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17-21.)
On April 10, 2017, Plaintiff sued Defendant in the Northern District of Illinois, alleging a
violation of the Illinois Wage Payment and Collection Act (“IWPCA”), and unjust enrichment.
(Id. ¶ 22-28.) He also seeks declaratory judgment on the amount that Defendant will owe him by
2018. (Id. ¶ 29-31.) On June 12, 2017, Defendant brought the instant motion to dismiss pursuant
to Rule 12(b)(3).
LEGAL STANDARD

Under Rule 12(b)(3), a party may move for dismissal of an action that is filed in
an improper venue. See Fed. R. Civ. P. 12(b)(3). Once a defendant challenges the plaintiff’s
choice of venue, the plaintiff bears the burden of establishing that it filed its case in the proper
district. See Gilman Opco LLC v. Lanman Oil Co., No. 13-CV-7846, 2014 WL 1284499, at *2
(N.D. Ill. Mar. 28, 2014). Under Rule 12(b)(3), “the district court assumes the truth of the
allegations in the plaintiff’s complaint, unless contradicted by the defendant’s affidavits.” Deb v.
SIRVA, Inc., No. 14-2484, 2016 WL 4245497, at *5 (7th Cir. Aug. 11, 2016) (emphasis in
original); see also Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 809-10 (7th Cir.
2011) (courts may consider matters outside of the pleadings in deciding a venue motion).
Against a Rule 12(b)(3) challenge, the court must resolve any factual disputes and draw all
reasonable inferences in the plaintiff’s favor. See Gilman, 2014 WL 1284499 at *2.
When venue is improper, the Court “shall dismiss [the case], or if it be in the interest of justice,
transfer such case to any district or division in which it could have been brought.” See 28 U.S.C.
§ 1406(a).

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ANALYSIS

In its motion to dismiss, Defendant argues that the arbitration clause in the Agreement is
enforceable and covers Plaintiff’s claims, and thus, the Court must dismiss this Complaint for
improper venue. In response, Plaintiff argues (1) that Illinois law should govern the Agreement
despite its Texas choice of law provision and (2) that under Illinois law, the arbitration clause
in the Agreement is unenforceable. Here, the Court need not address whether Texas law or
Illinois law governs the Agreement because, as discussed more fully below, under both Texas
and Illinois law, the arbitration provision in the Agreement is enforceable and thus venue is
improper in this Court.
The Supreme Court has recognized that the Federal Arbitration Act (“FAA”) “declare[s]
a liberal federal policy favoring arbitration agreements,” Perry v. Thomas, 482 U.S. 483, 489
(1987), and it has affirmed that arbitration provisions are valid except for reasons that would
undermine any type of contract. AT&T Mobility v. Concepcion, 563 U.S. 333, 345-46 (2011).
Accordingly, the Supreme Court has held that “questions of arbitrability must be addressed with
a healthy regard for the federal policy favoring arbitration.” Moses H. Cone Memorial Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 25 (1983) (citing Green Tree Fin. Corp.–Ala. v.
Randolph, 531 U.S. 79, 91 (2000)).
“Arbitration agreements may be either substantively or procedurally unconscionable, or
both.” Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499 (Tex.
2015), reh’g denied (Sept. 11, 2015) (citations omitted); Davis, 26 F. Supp. 3d at 737 (applying
Illinois law and stating “[a] finding of unconscionability may be based on either procedural or
substantive unconscionability, or a combination of both.”) (citing Kinkel v. Cingular Wireless
LLC, 857 N.E.2d 250, 263 (Ill. 2006)). “Arbitration is strongly favored.” Royston, 467 S.W.3d

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at 499 (citations omitted). Accordingly, “once it is established that a valid arbitration agreement
exists and that the claims in question are within the scope of the agreement,1 a presumption
arises in favor of arbitrating those claims and the party opposing arbitration has the burden to
prove a defense to arbitration.” Id. at 499-500; Bess v. DirecTV, Inc., 381 Ill. App. 3d 229, 240
(Ill. App. 2008).
Procedural unconscionability relates to the formation of a contract and usually involves
“unfair surprise,” which may be evidenced by “overreaching or sharp practices combined with
the [challenging party’s] ignorance or inexperience.” Royston, 467 S.W.3d at 499 (internal
quotations omitted); see also Davis, 26 F. Supp. 3d at 737 (explaining that in Illinois, procedural
unconscionability involves “some impropriety during the process of forming the contract” that
deprives the challenging party of a meaningful choice). Typically, Texas and Illinois courts
require that the party claiming unconscionability show that “one of the parties was incapable of
understanding the agreement without assistance, and the other party did not provide that
assistance, such as where one of the parties was functionally illiterate or where one of the parties
did not speak English.” Velasquez v. WCA Mgmt. Co., No. 4:15-CV-02329, 2016 WL 4440332,
at *10 (S.D. Tex. Aug. 23, 2016) (citations omitted); Kinkel, 857 N.E.2d at 264 (explaining that
procedural unconscionability refers “to a situation where a term is so difficult to find, read, or
understand that the plaintiff cannot fairly be said to have been aware he was agreeing to it.”)
(citation omitted).
To demonstrate substantive unconscionability, a plaintiff must usually show that the
contract’s terms were excessively one-sided or oppressive. Velasquez, WL 4440332, at *10;
Kinkel, 857 N.E.2d at 267 (explaining that in Illinois, “substantive unconscionability refers to

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The parties do not dispute that Plaintiff’s claims are within the scope of the arbitration provision.
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terms that are inordinately one-sided in one party’s favor”) (citations and internal quotations
omitted). The standard for substantive unconscionability is demanding; a plaintiff must show
that the terms were “sufficiently shocking or gross to compel the court to intercede. . .” Ski River
Dev. v. McCalla, 167 S.W.3d 121, 136 (Tex. App. 2005).
Here, Plaintiff argues that the Agreement’s arbitration clause is unenforceable because
(1) the clause requires the parties to share the cost of arbitration and (2) the clause requires each
party to pay their own attorneys’ fees regardless of the outcome of the arbitration. Importantly,
both of Plaintiff’s arguments relate to substantive unconscionability. Plaintiff has made no
arguments and provided no evidence relating procedural unconscionability, and the parties do
not dispute that Plaintiff signed each page with his initials or that the arbitration clause was not
hidden, written in excessively small font, or buried within unrelated provisions. (See Agreement
§ 11.) Plaintiff has thus failed to show procedural unconscionability and his argument rests
entirely on substantive unconscionability. The Court addresses each of his substantive
unconscionability arguments in turn.
I.

Cost-Sharing Provision
Plaintiff argues that the arbitration’s cost-sharing provision, which states that Defendant

and Plaintiff “shall each pay one-half of the costs and expenses” of the arbitration, is
unconscionable because it would be prohibitively expensive for him to split the costs of
arbitration. Plaintiff notes that filing fees could be as much as $1,450 per party and that
arbitrators’ hourly rates run from $300 to $425 an hour, and argues that this would significantly
cut into his recovery because he is only seeking $92,000 in damages here.
Texas and Illinois courts have held that the party seeking to invalidate an arbitration
agreement on the ground that arbitration would be prohibitively expensive must “provide

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individualized evidence that [he] likely will face prohibitive costs in the arbitration at issue and
that [he is] financially incapable of meeting those costs.” Bell v. Koch Foods of Miss., LLC, 358
Fed. App’x. 498, 504 (5th Cir. 2009); Bess, 381 Ill. App. 3d at 241 (“In order to meet her burden,
the party must provide some individualized evidence to show that she is likely to face prohibitive
costs in the arbitration and that she is financially incapable of meeting those costs.”)
(citing Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 557 (7th Cir. 2003). Where the party
seeking to invalidate the arbitration provision fails to provide any individualized evidence that he
is financial incapable of paying the arbitration costs, courts will refuse to find that the provision
is unconscionable.
In Bell, for example, the plaintiffs estimated that they would have to pay between
$27,000 and $29,000 in up front arbitration costs and argued that this amount was prohibitively
expensive rendering the arbitration provision unconscionable. Id. at 503-04. The Fifth Circuit
held that the provision was not unconscionable because “while the [plaintiffs] have provided
their estimated costs of arbitration, [they] have not provided any individualized information
about their ability to pay those costs,” despite the fact that their ability to pay was within their
personal knowledge.2 Id. at 504; see also Shamrock Foods Co. v. Munn & Assocs., Ltd., 392
S.W.3d 839, 849–50 (Tex. App. 2013) (rejecting unconscionability argument because plaintiff
failed to provide any individualized evidence “regarding its ability to pay arbitration costs” or its
financial status); Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 557 (7th Cir. 2003) (rejecting
unconscionability claim in part because plaintiff failed to provide any information about her
financial status); Davis, 26 F. Supp. 3d at 739 (same); Bess, 381 Ill. App. 3d at 244 (same).

2
In Bell, the Fifth Circuit applied Mississippi law, however, the standards for substantive unconscionability
in Mississippi and Texas are the same. Carter, 362 F.3d at 300 (applying individualized evidence standard
to Texas law).
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Here, while requiring Plaintiff to pay half the costs of arbitration might reduce his
recovery, as noted above, Texas and Illinois courts require that a plaintiff not just show that
arbitration may be expensive, but also provide individualized evidence that he cannot afford the
costs of arbitration. Bell, 358 Fed. App’x. at 504; Shamrock, 392 S.W.3d at 849–50; Livingston,
339 F.3d at 557. Plaintiff has failed to provide any evidence about his financial status or his
personal, individual ability to afford the cost of arbitration. Accordingly, Plaintiff has failed to
carry his burden of showing the arbitration provision is substantively unconscionable due to its
cost-sharing requirement.
II.

Fee-Shifting Waiver
The arbitration provision also states that Plaintiff and Defendant each “shall separately

pay our counsel fees and expenses.” Plaintiff argues that this provision is unconscionable
because the IWPCA provides that any employee who succeeds on a claim in a civil action “shall
also recover . . . all reasonable attorney’s fees,” and thus a provision against fee-shifting would
deprive Plaintiff of his rights under the statute. 820 Ill. Comp. Stat. Ann. 115/14. Defendant
responds that the fee-shifting waiver provision is not unconscionable because the attorney’s fees
provision in the IWPCA is not an essential substantive right and because under AAA rules, the
arbitrator would still retain the discretion to grant Plaintiff attorney’s fees if he prevails,
regardless of the language in the arbitration clause.
“Parties are generally free to contract for attorney’s fees as they see fit,” and thus
provisions against fee-shifting are not per se unconscionable. Venture Cotton Co-Op v.
Freeman, 435 S.W.3d 222, 231 (Tex. 2014). A party alleging unconscionability on grounds of
absence of fee-shifting must therefore show concrete evidence of harm without resorting to

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speculation. Id. at 232. Moreover, any such allegation must be viewed in light of a “strong
presumption” favoring arbitration. Carter, 362 F.3d at 297. Courts in Illinois and Texas have
usually found that fee-shifting waivers in arbitration agreements were unconscionable only when
they contradicted mandatory fee-shifting rights that were a central component of the statute
invoked in the dispute. See Coronado v. DNW Houston, Inc., No. H-13-2179, 2015 WL
5781375, *10 (S.D. Tex. Sept. 30, 2015) (finding that a mandatory two-way fee-shifting
provision violated the Fair Labor Standards Act, which permits fee-shifting only for a victorious
plaintiff); Safranek v. Copart, Inc., 379 F. Supp. 2d 927, 931 (N.D. Ill. 2005) (severing
arbitration provision requiring each party to pay its own attorney’s fees because it conflicts with
Title VII’s attorney’s fee-shifting requirement, which was a critical part of the statutory
framework).
In Sec. Serv. Fed. Credit Union v. Sanders, 264 S.W.3d 292, 299–301 (Tex. App. 2008),
for example, the plaintiff brought a claim under the Texas Deceptive Trade Practices Consumer
Protection Act (“DTPA”). The plaintiffs claimed that their loan arbitration agreement was
unconscionable due to a provision stating that the parties would share attorney’s fees equally
because under that provision the plaintiff would not be able to recover attorney’s fees, as they
would have under the DTPA, even if they prevailed on their DTPA claims in arbitration. Id. at
299. The court explained that the DTPA’s primary purpose was to “to protect consumers by
encouraging them to bring consumer complaints” and that the DTPA provided for attorney’s fees
“as encouragement to those abused by certain prescribed conduct to avail themselves of the
remedies of the Act.” Id. (citations omitted). Given this purpose, the court found that the
arbitration agreement’s provision was inconsistent with the purpose of the DTPA and thus
substantively unconscionable. Id. at 300. The court explained that the plaintiffs did not forgo

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their substantive rights under the statute when they agreed to arbitrate their claims and the
attorney’s fees provision in the DTPA was essential to its purpose because it makes it “feasible
for consumers to avail themselves of the remedies of the DTPA.”
Several other courts have similarly found attorney’s fee-shifting waivers unconscionable
when they contradicted attorney’s fee-shifting provisions that were essential to the purpose of the
statute in question. See, e.g., Spinetti v. Serv. Corp. Int’l, 324 F.3d 212, 216 (3d Cir. 2003)
(“The district court properly determined that the proviso requiring each party to pay its own
attorney’s fees — regardless of the outcome of the arbitration — runs counter to statutory
provisions under Title VII and ADEA that permit an award of attorney’s fees and costs to a
prevailing party.”); Graham Oil Co. v. ARCO Prod. Co., a Div. of Atl. Richfield Co., 43 F.3d
1244, 1247–48 (9th Cir. 1994), as amended (Mar. 13, 1995) (severing arbitration clause because
it contained attorney’s fee sharing provision that expressly forfeited plaintiff’s statutorilymandated right to recover attorney’s fees, which was central to the Petroleum Marketing
Practices Act because it “deter[s] franchisors from improperly contesting meritorious claims”);
Safranek v. Copart, Inc., 379 F. Supp. 2d 927, 931 (N.D. Ill. 2005) (severing arbitration
provision requiring each party to pay its own attorney’s fees because it conflicts with Title VII’s
attorney’s fee-shifting requirement, which was a critical part of the statutory framework).
Here, while neither the parties nor the Court has identified any case law interpreting the
attorney’s fees provision of the IWPCA as it pertains to unconscionability,3 the IWPCA is
analogous to many of the statutes discussed above that have attorney’s fees provisions that courts

3
Palar v. Blackhawk Bancorporation, Inc., No. 4:11-CV-04039SLD-JEH, 2014 WL 4087436, at *3 n. 2
(C.D. Ill. Aug. 19, 2014) (noting that it is “unsurprising that there is not case law on the IWPCA’s
attorney’s fees provision because it was only added in a relatively recent July 30, 2010 amendment.

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deemed critical to their statutory framework. The Illinois General Assembly passed
the IWPCA in 1973 “to provide employees with a cause of action for the timely and complete
payment of earned wages or final compensation, without retaliation from employers.” Costello
v. BeavEx, Inc., 810 F.3d 1045, 1050 (7th Cir. 2016), cert. denied, 137 S. Ct. 2289 (2017).
“The purpose of the IWPCA is to “ensure that employees receive all earned benefits upon
leaving their employer and the evil it seeks to remedy is the forfeiture of any of those
benefits.” McGrath v. CCC Info. Servs., Inc., 731 N.E.2d 384, 390 (2000). Thus, like the
statutes discussed above, the IWPCA’s purpose is to protect workers and encourage harmed
workers to pursue claims against their employers and avail themselves of the remedies of the
statute. The IWPCA also contains an attorney’s fees provision mandating that a claimant who
prevails in a civil action receive reasonable attorney’s fees, and like the analogous statutes
discussed above, this provision serves to encourage potential claimants, and their counsel, to
pursue potential claims against their employers, even for relatively small damages, because if
they prevail they will receive attorney’s fees. Palar v. Blackhawk Bancorporation, Inc., No.
4:11-CV-04039SLD-JEH, 2014 WL 4087436, at *4 (C.D. Ill. Aug. 19, 2014) (noting that
attorney’s fees provision in IWPCA is in place to enable claimants to obtain counsel and
ensuring that they can pursue private suits). Accordingly, given the purpose of the IWPCA and
the importance of the attorney’s fees provision to ensuring the enforcement of the statute, under
either Illinois or Texas law, the Agreement’s provision requiring the parties to pay for their own
attorney’s fees is inconsistent with the IWPCA and thus substantively unconscionable.
Nevertheless, while the arbitration provision regarding attorney’s fees is substantively
unconscionable when applied to Plaintiff’s IWPCA claim, that does not mean that Plaintiff’s
claim is not be subject to arbitration. Under Texas and Illinois state-law contract principles, “a

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court is generally authorized to sever an illegal or an unenforceable provision from a contract
and enforce the remainder of the contract.” Sanders, 264 S.W.3d at 301 (Tex. App. 2008)
(citations omitted); Williams v. Williams, 569 S.W.2d 867, 871 (Tex. 1978) (an illegal provision
may be severed if it does not constitute the main purpose of the contract); Safranek, 379 F. Supp.
2d at 935 (“Under Illinois law, a court may, in its discretion, modify a contract so that it
comports with the law or sever unenforceable provisions from a contract.”) (citations omitted).
“Severability is determined by the intent of the parties as evidenced by the language of the
contract.” Sanders, 264 S.W.3d at 301; Sanchez v. CleanNet USA, Inc., 78 F. Supp. 3d 747, 757
(N.D. Ill. 2015) (severing provision in arbitration clause due to intent of parties to allow
severance as demonstrated by parties’ inclusion of clause allowing severance clause). Here, the
Agreement expressly allows the severance of unenforceable provisions. (See Agreement §
13(c)) (“If one or more of the provisions in this Agreement are deemed void by law . . . then the
remaining provisions will continue in full force and effect.”) Given the clear language in the
Agreement and the strong federal policy favoring arbitration, under both Illinois and Texas law,
severance of the attorney’s fees provision is appropriate here.
Accordingly, the Court severs the portion of the arbitration clause requiring each party to
bear its own attorney’s fees—and that portion only. Sanders, 264 S.W.3d at 301 (severing
attorney’s fees clause and finding rest of agreement enforceable); Safranek, 379 F. Supp. 2d at
935 (severing attorney’s fees provision, enforcing remainder of arbitration provision, and
ordering parties to arbitrate). The remainder of the arbitration clause is enforceable, and as such,
Plaintiff must pursue his claims through arbitration without the application of the provision
requiring each party to bear his own attorney’s fees.

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CONCLUSION

For these reasons, the Court grants Defendant’s Rule 12(b)(3) motion to dismiss and orders
Plaintiff to pursue his claims via arbitration in Texas. See Faulkenberg, 637 F.3d at 808 (“a Rule
12(b)(3) motion to dismiss for improper venue, rather than a motion to stay or to compel
arbitration, is the proper procedure to use when the arbitration clause requires arbitration outside
the confines of the district court's district.”) (citations omitted).

Dated: September 26, 2017
ENTERED

AMY J. ST. EVE
United States District Court Judge

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