Mould v. NJG Food Service, Inc. et al

Filing 95

MEMORANDUM AND ORDER DENYING 22 Motion of Defendants to Compel Arbitration in case 1:13-cv-02183-JKB. Signed by Judge James K. Bredar on 12/11/13. Associated Cases: 1:13-cv-01305-JKB, 1:13-cv-02183-JKB(hmls, Deputy Clerk)

FI:"ED

u.s. DIS TRIC r Cullin
IN THE UNITED STATES DISTRI€IpEOOJi..f
FOR THE DISTRICT OF MARYLAND

. zon

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JEFFREY

B. MOULD

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Defendants

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CIVIL NO. JKB-13-130S

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NJG FOOD SERVICE INC., et al.

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OFFICE

.AT E,\LT!r10RE

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v.

DEC 12 P Il.~3W

CLERK'S

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Plaintiff

!1I\RY!..A.HD

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MEMORANDUM

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AND ORDER

Plaintiff Scott Clempner brought this suit against Defendants NJG Food Service, Inc., OC
Crabbag, LLC, Albert Levy, and Nolen Grave (collectively, "Defendants") for violations of the
Fair Labor Standards Act of 1928 ("FLSA"), 19 U.S.C.

SS 201 et seq.

and Hour Law ("MWHL"), Md. Code Ann., Labor & Employment

and the Maryland Wage

SS 3-401

et seq. Presently

before the Court is a motion by Defendants to dismiss Plaintiff Scott Clempner from this action
and compel him to submit his claims to arbitration, pursuant to the Federal Arbitration Act, 9
U.S.C.
I.

S 1, el seq.

(JKB-13-2183, ECF No. 22)'.

BACKGROUND

Clempner, along with Plaintiffs Jeffrey B. Mould, Kathleen Yanek, Julianne Lodowski, and
Taylor ScWette, was a server at the Crab Bag. (ECF No. 33 'lI3;ECF No. 91 'lI'lI3,4, 5,6.)
Clempner was employed there from March 2011 until his resignation on September 29,2013.
Plaintiff Mould filed his complaint in the present case on May 1, 2013. (ECF No. 1.) On
July 26, 2013, Plaintiffs Yanek and Lodowski filed their complaint against Defendants. (JKBI Citations to the docket in JKB-13-2183
refer to documents filed in the matter of Yanek v. NJG Food Services,
JKB-13-2183, prior to its consolidation with the instant matter. (ECF No. 74.)

I

----------:---.~.-w
....
13-2183.) On November 12,2013, Plaintiff Mould's action and PlaintiffYanek

and Lodowski's

action were consolidated under this caption for all purposes, including trial. (ECF No. 74).
On October 3, 2013, Plaintiffs Yanek and Lodowski filed a motion for leave to file a second
amended complaint that added Clempner as a named plaintiff. (JKB-13-2183, ECF No. 18.) On
November 5, this Court granted Plaintiffs Yanek and Lodowski's motion. (ECF No. 90). On the
basis of Plaintiffs Yanek and Lodowski's motion, on October 21,2013, Defendants filed the
motion to compel arbitration with regard to Clempner that is presently before the Court. (JKB13-2183, ECF No. 22.)
Both parties agree that on June 24, 2013, Clempner signed an "arbitration policy" with
Defendants. (JKB-13-2183, ECF No. 22-1.) In relevant part, this arbitration contract provides
that:
As a condition of continued employment, and in exchange for One U.S. Dollar
($1.00) and the mutual promises expressed herein, both Scott Clempner ("employee")
and NJ Food Service, Inc. and OC Crab Bag, LLC ("d/b/a the Crab Bag") collectively
agree that is [sic] preferable to choose to arbitrate any dispute that we may have instead
oflitigating in court before a judge or jury.
Therefore, we agree that [sic] to arbitrate any and all claims between employee and
The Crab Bag, arising out ofthe employment relationship, except such claims arising
under criminal laws, and worker compensation or unemployment insurance statutes.
(Id.) On the basis of this arbitration policy, Defendants argue that this Court should dismiss
Clempner from this action and compel him to arbitrate his claims.
II.

LEGAL STANDARD

Under the Federal Arbitration Act ("FAA"), 9 U.S.C.

9 4, "[a]

party aggrieved by the alleged

failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may
petition ... for an order directing that such arbitration proceed in the manner provided for in
such agreement." PC Canst. Co. v. City of Salisbury, 871 F. Supp. 2d 475, 478 (D. Md. 2012).
A petitioner must demonstrate:
2

(1) the existence of a dispute between the parties, (2) a written agreement that includes an
arbitration provision which purports to cover the dispute, (3) the relationship of the
transaction, which is evidenced by the agreement, to interstate or foreign commerce, and
(4) the failure, neglect[,] or refusal of the defendant to arbitrate the dispute.
Id. (quoting Adkins v. Labor Ready, Inc., 303 F.3d 496,500-01 (4th Cir. 2002)). "[C]ourts must
be mindful that the FAA reflects' a liberal federal policy favoring arbitration agreements.'"

Id.

(quoting Moses H Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,24 (1983)). Either
a stay and order to compel arbitration or dismissal may be the appropriate remedy where a party
has failed to arbitrate under a valid agreement. Aggarao v. MOL Ship Management Co., Ltd.,
675 F.3d 355,376 n.l8 (4th Cir. 2012).
Before dismissing a suit or compelling arbitration, however, the court must determine
whether the arbitration agreement that is claimed to govern the dispute between the parties is
valid and enforceable. See Noohi v. Toll Bros., Inc., 708 F.3d 599, 603, 605-06 (4th Cir. 2013);
Hooters of America, Inc. v. Phillips, 173 F.3d 933, 937-38 (4th Cir. 1999). Under the FAA,
"courts must place arbitration agreements on an equal footing with other contracts, and enforce
them according to their terms." Noohi, 708 F.3d at 606 (quoting AT&T Mobility LLC v.
Concepcion, 131 S.Ct. 1740, 1745 (2011)). Arbitration agreements are "unenforceable 'upon
such grounds as exist at law or in equity for the revocation of any contract.'"
9 U.S.C.

S 2).

Id. (quoting

Thus, although the judicial inquiry is "highly circumscribed," it is focused both

on ensuring there was adequate contractual formation in the agreement, including valid
consideration, and that the agreement itself is not unfair, unconscionable, or otherwise defective
in ensuring the claimant can "effectively ... vindicate his or her statutory cause of action in the
arbitral forum." See Murray v. United Food & Commercial Workers Int'l Union, 289 F.3d 297,
302 (4th Cir. 2002) (quoting Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 89
(2000)); see also Hooters, 173 F.3d at 938. Agreements to arbitrate may not be invalidated,
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however, "by defenses that apply only to arbitration or that derive their meaning from the fact
that an agreement to arbitrate is at issue." Concepcion, 131 S. Ct. at 1746.
III.

ANALYSIS

Applying these principles to the arbitration agreement between Clempner and Defendants, a
first issue is whether this agreement "cover[ s 1 the dispute."

PC Const. Co" 871 F. Supp. 2d at

478. Indeed, it is unclear whether an agreement "to arbitrate any dispute that we may have" and
"to arbitrate any and all claims . . . arising out of the employment

relationship"

applies

retrospectively or not. Here, the cause of action accrued prior to June 24, 2013, when Clempner
signed the arbitration policy. However, Plaintiffs Vanek and Lodowski both filed their original
complaint and sought to add Clempner as a named plaintiff after June 24.
In interpreting the arbitration agreement, this Court is guided by the fact that "due regard
must be given to the federal policy favoring arbitration and ambiguities as to the scope of the
arbitration clause itself resolved in favor of arbitration."
Info. Sciences, Inc, v. Bd. ofTr.

Adkins, 303 F.3d at 500 (quoting Volt

of Leland Stanford Jr, Univ" 489 U.S. 468, 475-76 (1989)).

Therefore, this Court interprets the arbitration agreement as applying to causes of action that
accrued prior to the date of the arbitration policy.
The Court now turns to the issue of whether any "generally applicable contract defenses,
such as fraud, duress, or unconscionability, may be applied to invalidate" the arbitration policy.
Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996). In particular, here, Plaintiff
has challenged the arbitration policy on the grounds of unconscionability.

(ECF No. 28 at 14-

16.) The Court's analysis with regard to this issue is governed by the substantive law of
Maryland. Hill v, Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th Cir. 2005).

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In Walther v. Sovereign Bank, the Maryland Court of Appeals defined an unconscionable
contract as one "characterized by 'extreme unfairness,' which is made evident by '(I) one party's
lack of meaningful choice, and (2) contractual terms that unreasonably favor the other party.'''
872 A.2d 735, 743-44 (Md. 2005) (quoting Black's Law Dictionary 1560 (8th ed. 2004)). Thus,
a contract is unconscionable only if it is both procedurally and substantively unconscionable.
The Walther Court held that where a contract is one of adhesion, it is not "automatically
deemed per se unconscionable."

Id. at 746.

However, a finding that a contract is one of

adhesion is sufficient to establish procedural unconscionability
substantive

unconscionability.

Id. at 746-47 ("[A]ssuming

and continue the inquiry into
arguendo

that the Disclosure

Agreement signed by petitioners is in fact a contract of adhesion, that is not the end of the
inquiry-we

must examine the substance of the particular provision at issue, the arbitration

clause, to decide whether it is unconscionable.")
A contract of adhesion is an agreement "that is drafted unilaterally by the dominant party and
then presented on a 'take-it-or-Ieave-it'

basis to the weaker party who has no real opportunity to

bargain about its terms." Id. at 756 (quoting Restatement (Second) of Conflict of Laws

S 187 em!.

b (1971). Here, the Court finds that Plaintiff was presented the arbitration policy on a 'take-it-orleave-it' basis by his employer and had no real opportunity to bargain about its terms. In fact,
although Defendants take issue with Plaintiffs

allegation that "Defendants told Mr. Clempner

and his co-workers that they either agree to the terms of the arbitration policy or be fired" (ECF
No. 86-1 at 9, quoting ECF No. 28 at 15), they do not appear to contest that the arbitration policy
was presented on a 'take-it-or leave-it' policy.

Therefore, the Court finds that the arbitration

policy was procedurally unconscionable.

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With regard to substantive unconscionability,

the Court notes that arbitration agreements

agreements, like all contracts "ordinarily require consideration."
Mid-Atlantic,

Inc., 835 A.2d 656, 661 (Md. 2003).

Cheek v. United Healthcare of

"In Maryland, consideration

may be

established by showing a benefit to the promisor or a detriment to the promisee. In particular ...
the forebearance to exercise a right or pursue a claim can constitute sufficient consideration to
support an agreement." Id. However, "employment or continued employment [of the employee]
does not act as consideration in return for [the employee's]

promise to arbitrate."

Id. at 666;

Raglani v. Ripken Professional Baseball, 939 F. Supp.2d 517,522 (D. Md. 2013). Rather, in an
enforceable arbitration agreement "each party has promised to arbitrate disputes arising from an
underlying

contract."

Cheek, 835 A,2d at 665.

Thus, an arbitration policy must contain

sufficient consideration, in the form of "a mutual exchange of promises to arbitrate." Id. ; Noohi,
708 F.3d at 609; Raglani, 939 F. Supp.2d at 522-23.
In Noohi v. Toll Bros., Inc., the Fourth Circuit, applying Cheek, found that an arbitration
policy was unenforceable for lack of consideration where it "unambiguously [bound] only the
buyer." 708 F.3d at 611.
Here, the arbitration agreement unambiguously binds both Clempner and the OC Crab Bag,
LLC with regard to prospective causes of action. Indeed, it reads that both parties "collectively
agree that [sic] is preferable to choose to arbitrate any dispute that we may have." (JKB-132183, ECF No. 22-1.) It further provides that "we agree that to [sic] arbitrate any and all claims
between employee and The Crab Bag, arising out of the employment relationship."

(Id.)

However, the Court finds that there is no meaningful exchange of promises to arbitrate with
regard to causes of action that had already accrued at the date of the contract. Here, at the time
of the contract, Clempner already had a cause of action against Defendants-namely

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the FLSA

and MWHL claims that form the basis of this action. However, Defendants had no cause of
action against Clempner. As a result, the terms of this contract are unreasonably favorable to
Defendants. The contract requires Clempner to arbitrate his already-accrued FLSA and MWHL
claims. However, Defendants-having

no accrued causes of action--offer

nothing in exchange.

As a result, the Court finds that with regard to causes of action that had already accrued at the
time of the contract, the arbitration policy is substantively unconscionable.
The Court recognizes the Fourth Circuit's instruction that "[i]n examining whether an
arbitration agreement is a valid contract, [a court is to] examine only the language of the
arbitration agreement itself." Hill, 412 F.3d at 543 (citing Cheek, 835 A.2dat 664-65). In
particular, the court in Hill found that "the court below, per Cheek, was not allowed to look
beyond the separate Arbitration Agreement, signed by the parties, to determine whether the
agreement was supported by consideration." Id. at 543. However, here, the Court is not looking
to other contractual provisions or employer policies to interpret the provisions of the arbitration
policy. Indeed, the Court's interpretation of the policy is limited to the four corners of the
documents. Rather, the Court simply takes note of the fact that, in light of the party's legal
claims at the time of the contract, its "terms are unreasonably favorable to the more powerful
party." Walther, 872 A.2d at 426-27 (quoting 8 Richard A. Lord, Williston on Contracts

S 18:10

(4th ed. 1998)). The very purpose of the doctrine of unconscionability is to provide relief from
such "one-sided terms of a contract." Carlson v. General Motors Corp. 883 F.2d 287, 296 n.12
(4th Cir. 1989). Therefore, the Court finds that the contract is both procedurally and
substantively unconscionable.

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IV.

CONCLUSION

Based on the reasons stated above, the Court finds that the arbitration policy is
unconscionable and therefore unenforceable with regard to causes of action that accrued prior to
June 24, 2013. Clempner's claims in the present action accrued prior to June 24, 2013.
Therefore, Defendants' motion to compel arbitration is DENIED.

Dated this

L day of December, 2013.
BY THE COURT:

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James K. Bredar
United States District Judge

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