Hyder v. Inova Diagnostics, Inc. et al
Filing
13
MEMORANDUM OF DECISION AND ORDER granting in part and denying in part 4 Motion to Dismiss or, Alternatively, Motion to Stay Action Pending Arbitration, granting to extent this action is STAYED as to Defts Inova Diagnostics, Inc. and Roger Ingles pending resolution of parties' arbitration; FURTHER ORDERED Pltf show good cause within 14 days of service of this Order for the failure to effect service on Deft Fred Russo; and Pltf's failure to respond in writing shall result in dismissal without prejudice of Deft Russo. Signed by District Judge Martin Reidinger on 6/15/13. (ejb)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:13-cv-00018-MR-DLH
GERALD HYDER,
)
)
Plaintiff,
)
)
)
vs.
)
)
)
INOVA DIAGNOSTICS, INC.,
)
ROGER INGLES, and FRED
)
RUSSO,
)
)
Defendants.
)
___________________________ )
MEMORANDUM OF
DECISION AND ORDER
THIS MATTER is before the Court on the Motion to Dismiss or,
Alternatively, to Stay the Action Pending Arbitration filed by Defendants
Inova Diagnostics, Inc. and Roger Ingles [Doc. 4].
I.
PROCEDURAL BACKGROUND
On December 20, 2012, the Plaintiff Gerald Hyder (“Plaintiff”) filed the
present action against Defendants Inova Diagnostics, Inc. (“Inova”), Roger
Ingles (“Ingles”) (collectively, “Defendants”) and Fred Russo (“Russo”) in
the Buncombe County General Court of Justice, Superior Court Division,
asserting claims for violations of the North Carolina Wage and Hour Act,
N.C. Gen. Stat. § 95-25.1, et seq. (“Wage and Hour Act”) and the North
Carolina Retaliatory Employment Discrimination Act, N.C. Gen. Stat. § 95240, et seq. (“REDA”), as well as for breach of contact. [Complaint, Doc. 12 at ¶¶ 31-46]. On January 22, 2013, Defendants Inova and Ingles, with
Russo’s consent, removed this matter to this Court on the grounds that
complete diversity exists between the Plaintiff and the Defendants and that
the amount in controversy exceeds $75,000.1 [Notice of Removal, Doc. 1].
On February 8, 2013, the Defendants filed the present Motion to Dismiss
or, Alternatively, to Stay the Action Pending Arbitration [Doc. 4].
II.
FACTUAL BACKGROUND
Defendant
Inova
is
a
California
corporation
that
develops,
manufacturers, and sells autoimmune diagnostic instruments and reagents.
[Complaint, Doc. 1-1 at ¶5]. At all times relevant to this matter, Defendant
Ingles was the President of Inova, and Defendant Russo was the Vice
President of Sales. [Id. at ¶¶8, 10]. From approximately November 1,
2001 until December 14, 2011, the Plaintiff was employed with Inova as a
regional sales manager based in North Carolina. [Id. at ¶15].
On October 9, 2001, the Plaintiff signed a document entitled
“Arbitration Agreement,” under which he and Inova mutually agreed to
1
While the Defendants submitted a document indicating that Russo consented to the
removal of this case, there is no indication in the record that Russo has been served
with a Summons and Complaint and therefore he has not made an appearance in this
action. The Plaintiff’s failure to effect service upon Russo is addressed later in this
opinion.
2
arbitrate certain claims, including those relating to the Plaintiff’s
employment. [Arbitration Agreement, Doc. 4-2]. Thereafter, on January 8,
2008, Plaintiff signed another agreement entitled “Agreement to Arbitrate
Claims” (hereinafter referred to as the “Agreement”). [Doc. 4-3]. Pursuant
to its terms, the January 2008 Agreement superseded any prior arbitration
agreements between the parties. [Id. at 4].
In the Agreement, the parties agreed to “arbitrate all disputes arising
out of or related to [the Plaintiff’s] employment with INOVA” except as
expressly exempted by the Agreement.2 [Id. at 1]. Specifically, the Plaintiff
agreed to submit to “binding Arbitration” any and all claims concerning his
“employment with the Company, including,
without limitation, the
termination of that employment, claims for wages or other compensation
due; claims for breach of any contract or covenant (express or implied) . . .
claims for ‘whistleblowing’ or retaliation; and claims for violation of any
federal, state or other governmental law, statute, regulation, or ordinance.”
[Id.]. Plaintiff agreed to arbitrate not only such claims against Inova but
also claims against Inova’s Board of Directors, members, officers,
managers, trustees, administrators, employees, and agents. [Id.].
2
Pursuant to the terms of the Agreement, claims for “workers’ compensation or
unemployment compensation benefits, and any matter within the jurisdiction of the
California Labor Commissioner” are exempted from arbitration. [Id. at 3-4]. None of
these exemptions appear to apply to the Plaintiff’s present claims.
3
The Agreement includes a forum selection clause mandating
arbitration proceedings be conducted in San Diego County, California. [Id.
at 2]. The Agreement further provides that arbitration will be conducted
“pursuant to the provisions of the Federal Arbitration Act, 9 U.S.C., section
1, et seq., if applicable . . . .” [Id. at 2-3]. The Agreement further states that
arbitration will be the exclusive method for resolving covered claims: “You
and Inova agree that final and binding arbitration shall be the sole and
exclusive remedy for resolving any claims covered by this Agreement
instead of any court action . . . .” [Id. at 2 (emphasis added)].
Despite the existence of this Agreement, the Plaintiff filed suit in
North Carolina Superior Court, alleging that the Defendants did not pay
required commissions on sales made to a company based in Virginia in
breach of an alleged contract and in violation of North Carolina’s Wage and
Hour Act.
[Complaint, Doc. 1-1 at ¶¶31-41].
Additionally, the Plaintiff
claims that the Defendants violated REDA by retaliating against him for
complaining about unpaid commissions. [Id. at ¶¶ 42-46]. The Defendants
now seek to dismiss the action or, alternatively, to the stay the proceedings
on the grounds that the Plaintiff is required to arbitrate his claims pursuant
to the parties’ Agreement.
4
III.
ANALYSIS
The Federal Arbitration Act (FAA) provides that any written provision
to resolve by arbitration a controversy arising pursuant to a contract
involving commerce “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any
contract.”
9 U.S.C. § 2. “As a result of this federal policy favoring
arbitration, ‘any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is the
construction of the contract language itself or an allegation of waiver, delay,
or a like defense to arbitrability.’” Patten Grading & Paving, Inc. v. Skanska
USA Bldg., Inc., 380 F.3d 200, 204 (4th Cir. 2004) (emphasis omitted)
(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25, 103 S.Ct. 927, 74 L.Ed.2d 765, 785 (1983)). The language of the
statute is clear: arbitration must be compelled if the parties have entered
into a valid arbitration agreement and the dispute falls within the scope
thereof. Id.
A party can compel arbitration under the FAA if it can demonstrate
“(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
5
agreement, to interstate or foreign commerce, and (4) the failure, neglect or
refusal of the [other party] to arbitrate the dispute.” Adkins v. Labor Ready,
Inc., 303 F.3d 496, 500-01 (4th Cir. 2002) (quoting Whiteside v. Teltech
Corp., 940 F.2d 99, 102 (4th Cir. 1991)). “Because of the strong federal
policy favoring arbitration, the burden lies with the party opposing
arbitration to demonstrate why arbitration should not be ordered.” Wake
County Bd. of Educ. v. Dow Roofing Systems, LLC, 792 F.Supp.2d 897,
900 (E.D.N.C. 2011).
A.
The Arbitration Agreement is Valid
In the present case, the Plaintiff first contends that the parties’
arbitration agreement is unenforceable because the Agreement is not a
valid contract. The validity of an agreement to arbitrate is a question of
state law governing contract formation.
Adkins, 303 F.3d at 501; First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131
L.Ed.2d 985 (1995). As a federal court sitting in diversity, this Court must
apply the choice of law principles of the forum state. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).
Under North Carolina’s choice of law rules, “the execution, interpretation,
and validity of a contract is to be determined by the law of the state . . . in
which it is made.” Ingersoll ex rel. Kehrt Revocable Living Trust v. Life
6
Indus. Corp. of S.C., 698 F.Supp.2d 552, 556 (E.D.N.C. 2010) (citation
omitted). Under this principle, North Carolina courts apply “the law of the
state where the last act occurred to form a binding contract.” Nas Sur. Grp.
v. Precision Wood Prods., Inc., 271 F.Supp.2d 776, 780 (M.D.N.C. 2003).
The Defendant contends that the “last act” necessary to form a
binding arbitration agreement occurred in North Carolina because that was
where the Plaintiff performed his work and the Defendant paid him for that
work. Under North Carolina law, however, the “last act” necessary to form
a binding contract is generally the acceptance of the agreement, not the
performance thereof. See Murray v. Ahlstrom Indus. Holdings, Inc., 131
N.C. App. 294, 296, 506 S.E.2d 724, 726 (1998); Baker v. Chizek Transp.,
Inc., No. COA10-985, 2011 WL 904271, at *5 (N.C. Ct. App. Mar. 15,
2011). The Plaintiff contends -- and the Defendant does not dispute -- that
based on the date that the Agreement was purportedly signed by the
Plaintiff, the Agreement would have been executed at a sales meeting held
in San Diego, California.3 [See Affidavit of Gerald Hyder (“Hyder Aff.”),
Doc. 9-1 at ¶¶7, 9]. Because the Plaintiff’s acceptance of the arbitration
3
As discussed in greater detail below, the Plaintiff contends that he has no recollection
of signing the Agreement.
7
agreement apparently occurred in California, the Court will therefore apply
California law in determining the validity of the Agreement.4
The Plaintiff argues that the parties’ Agreement is not valid because
he did not “knowingly and voluntarily” waive his right to pursue his claims in
a judicial forum. [Doc. 9 at 6-10]. While the Plaintiff may be correct that a
prospective waiver of the right to bring claims in a judicial forum must be
made knowingly and voluntarily, see Gilmer v. Interstate/Johnson Lane
Corp., 895 F.2d 195, 200 (4th Cir. 1990), aff’d, 500 U.S. 20, 111 S.Ct. 1647,
114 L.Ed.2d 26 (1991), there is nothing in the record to suggest that the
Plaintiff’s waiver of such right was anything other than knowing and
voluntary. By its terms, the Agreement clearly and expressly waives any
right to proceeding in a judicial forum by either party. Although the Plaintiff
contends that he has no specific recollection of ever receiving, reviewing,
or signing the Agreement [Doc. 9 at 9], he does not dispute that the
signature on the Agreement is actually his. California law recognizes that
“[o]rdinarily when a person with capacity of reading and understanding an
instrument signs it, he may not, in the absence of fraud, imposition or
excusable neglect, avoid its terms on the ground he failed to read it before
4
The Court notes, however, that there is little substantive difference between California
law and North Carolina law on these issues. Therefore, regardless of which state law is
applied in this case, the outcome in this case would be the same.
8
signing it.” Bauer v. Jackson, 15 Cal.App.3d 358, 370, 93 Cal. Rptr. 43, 50
(1971). The Plaintiff has not asserted any fraud, imposition or excusable
neglect in the formation of the Agreement, and therefore he cannot avoid
the mandatory and binding nature of its terms on the grounds that he
cannot recall reading it.
The Plaintiff further argues that he did not have an adequate
opportunity to consider the document or confer with legal counsel before
signing the document.
[Id.].
This contention, however, is directly
contradicted by the Plaintiff’s own certification contained in the body of the
Agreement itself:
I HEREBY CERTIFY THAT BY SIGNING THIS
AGREEMENT, I HAVE BEEN ADVISED TO HAVE
THIS AGREEMENT REVIEWED AND EXPLAINED
TO ME BY MY OWN INDEPENDENT LEGAL
COUNSEL.
I HEREBY REPRESENT AND
WARRANT THAT I UNDERSTAND AND AGREE
THAT BY SIGNING THIS AGREEMENT, [I] AND
INOVA ARE BOTH GIVING UP OUR RESPECTIVE
RIGHTS TO A CIVIL TRIAL AND A JURY TRIAL.
[Agreement, Doc. 4-3 at 4]. Thus, by signing the Agreement, the Plaintiff
certified that he understand the import of the document and the fact that he
could obtain counsel before signing it.
The Plaintiff additionally argues that there was no exchange of
consideration to support the formation of the 2008 Agreement, as he had
9
already been employed with the Defendant for seven years. By its terms,
however, the Agreement requires both the Plaintiff and the Defendant to
arbitrate any employment-related claims either might have. “Because no
consideration is required above and beyond the agreement to be bound by
the arbitration process for any claims brought by the employee, [the
Defendant’s] promise to arbitrate its own claims is a fortiori adequate
consideration for this agreement.” Adkins, 303 F.3d at 501. Thus, the
Plaintiff’s contention that the Agreement is not supported by adequate
consideration is without merit.
B.
The Agreement is Not Unconscionable
“[T]he FAA specifically contemplates that parties may seek revocation
of an arbitration agreement under such grounds as exist at law or in equity,
including fraud, duress, and unconscionability.” Murray v. United Food and
Commercial Workers Int’l Union, 289 F.3d 297, 302 (4th Cir. 2002).
“Unconscionability is a narrow doctrine where the challenged contract must
be one which no reasonable person would enter into, and the inequality
must be so gross as to shock the conscience.” Sydnor v. Conseco Fin.
Servicing Corp., 252 F.3d 302, 305 (4th Cir. 2001) (citation and internal
quotation marks omitted).
10
Under both North Carolina and California law, a party seeking
revocation of an arbitration agreement based on unconscionability must
demonstrate that the agreement is both procedurally and substantively
unconscionable. See Tillman v. Commercial Credit Loans, Inc., 362 N.C.
93, 102, 655 S.E.2d 362, 370 (2008); Armendariz v. Foundation Health
Psychcare Servs., Inc., 24 Cal.4th 83, 114, 99 Cal. Rptr.2d 745 (2000).
The
Plaintiff
contends
that
the
Agreement
is
procedurally
unconscionable because the parties had unequal bargaining power, and
because he did not have the opportunity to negotiate the terms of the
Agreement. [Doc. 9 at 10-13]. “[P]rocedural unconscionability involves
‘bargaining naughtiness’ in the form of unfair surprise, lack of meaningful
choice, and an inequality of bargaining power.” Tillman, 362 N.C. at 10203, 655 S.E.2d at 370. Inequality of bargaining power alone, however, is
generally not a sufficient reason to hold an arbitration agreement
unenforceable. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
33, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). As the North Carolina Court of
Appeals has noted, if bargaining inequality alone were sufficient to
establish procedural unconscionability, most contracts between an
individual and a corporation would be unenforceable. See Westmoreland
v. High Point Healthcare Inc., 721 S.E.2d 712, 717 (N.C. Ct. App. 2012).
11
Further, while the Plaintiff contends that he was not given the
opportunity to negotiate the terms of the Agreement, he offers no evidence
to support this contention. The Plaintiff does not claim that he attempted to
negotiated the Agreement and was rebuffed or that he would have
attempted to negotiate the terms if given the opportunity to do so. In any
event, the fact that the Plaintiff was presented with the Agreement without
the ability to offer input as to its terms does not render the Agreement
unconscionable under either California or North Carolina law. See Giuliano
v. Inland Empire Pers., Inc., 149 Cal. App. 4th 1276, 1292, 58 Cal.Rptr.3d
5, 17-18 (2007) (citations omitted) (“Arbitration clauses in employment
contracts have been upheld ... [when they] were presented as part of an
adhesion contract on a take-it-or-leave-it basis.”); Wilkerson ex rel.
Wilkerson v. Nelson, 395 F.Supp.2d 281, 289 (M.D.N.C. 2005) (citation
omitted) (finding that even if an arbitration agreement was one of adhesion,
the court would not invalidate agreement, but rather give it “greater
scrutiny”).
Accordingly, the Court concludes that the Agreement is not
procedurally unconscionable.
Next, the Plaintiff contends that the Agreement is substantively
unconscionable because (1) the fee splitting provision deprives the Plaintiff
12
of an arbitral forum and (2) the Agreement contains a one-year limitations
period. [Doc. 9 at 13, 16].
Under California law, an employee cannot be required to “bear any
type of expense that the employee would not be required to bear if he or
she were free to bring the action in court.” Armendariz, 24 Cal. 4th at 110111 (emphasis omitted).
Accordingly, for an employment arbitration
agreement to be valid, the employer must “pay all types of costs that are
unique to arbitration.” Id. at 113. In the present case, the Agreement
requires the Plaintiff to pay no more than he would pay to bring suit in a
judicial forum.
[See Doc. 4-3 at 2-3].
As the Plaintiff admits, the
Agreement states the Plaintiff’s total share of the arbitrator’s fee and any
filing fee shall be “no more than the then-current filing fee in the California
Superior Court (or the equivalent state court in the event the arbitration is
filed outside California).” [Id. at 3]. Thus, while the Plaintiff cites figures
regarding the cost of procuring an arbitrator and average arbitration fees
and expenses, any arbitration fees that the Plaintiff would incur are capped
at the amount required to initiate the case in a judicial forum. Further, if the
Plaintiff were unable to afford even this expense, the Agreement states that
“[t]he arbitrator may grant a waiver of [the Plaintiff’s] share of these fees
upon a showing of hardship.” [Id.]. The Court “fail[s] to see how a claimant
13
could be deterred from pursuing his statutory rights in arbitration simply by
the fact that his fees would be paid to the arbitrator where the overall cost
of arbitration is otherwise equal to or less than the cost of litigation in court.”
Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 556 (4th Cir.
2001). Accordingly, the Court concludes that the fee splitting provision
does not render the Agreement substantively unconscionable.
The Court further rejects the Plaintiff’s argument that the one-year
limitations provision renders the Agreement unenforceable. Both California
and North Carolina courts have upheld truncated contractual limitations
periods for state law claims. See Soltani v. Western & Southern Life Ins.
Co., 258 F.3d 1038, 1044-45 (9th Cir. 2001) (upholding six month limitations
period under California law); Badgett v. Fed. Express Corp., 378 F.Supp.2d
613, 622 (M.D.N.C. 2005) (“[I]t is a well-settled principle that parties may
agree to a limitations period shorter than that provided by state law.”).
In support of his argument that the one-year limitations period in the
Agreement is unconscionable, the Plaintiff cites Gadson v. SuperShuttle
International, 10-CV-01057-AW, 2011 WL 1231311 (D. Md. Mar. 30, 2011),
in which the District Court for the District of Maryland invalidated an
arbitration provision in part on the basis that the one-year limitations
provision contained in the contract was unconscionable. Id. at *8. This
14
decision, however, was recently vacated and remanded by the Fourth
Circuit Court of Appeals. See Muriithi v. Shuttle Exp., Inc., 712 F.3d 173
(4th Cir. 2013). Specifically with respect to the one-year limitations period
set forth in the contract, the Fourth Circuit held that the district court erred
in considering the limitations provision, as such provision was applicable to
the entire contract and was not specific to the arbitration clause. As such,
the Court concluded, consideration of the limitations provision was
“reserved for the forum in which the dispute ultimately will be resolved.” Id.
at 184.
In the present case, the limitations provision is specific to the
parties’ arbitration agreement, as the arbitration agreement was executed
separately from any other employment agreements between the parties.
Thus, the reasoning of Miriithi is not applicable to the present case.
The Plaintiff also cites to two California cases, in which courts
deemed arbitration agreements to be unenforceable in part due to
limitations provisions that were deemed to be unconscionable. In each of
these cases, however, the court’s determination of unconscionability was
based on numerous deficiencies in the agreement and not just the oneyear limitations provision. See Circuit City Stores, Inc. v. Adams, 279 F.3d
889, 893-94 (9th Cir. 2002); Al-Safin v. Circuit City Stores, Inc., 394 F.3d
1254, 1261-62 (9th Cir. 2005). Thus, the case law cited by the Plaintiff is
15
distinguishable and provides no grounds for concluding that the one-year
limitations period renders the Agreement unconscionable.
For the foregoing reasons, the Court concludes that the parties’
arbitration agreement is valid and enforceable. Accordingly, the Court will
grant the Defendants’ Motion and stay this action pending resolution of the
parties’ arbitration. See 9 U.S.C. § 3; Murray, 289 F.3d at 301; S. Concrete
Prods., Inc. v. ARCO Design/Build, Inc., No. 1:11cv194, 2012 WL 1067906,
at *8 (W.D.N.C. Mar. 29, 2012).
Finally, the Court notes that there is nothing in the record to indicate
that the Plaintiff has served Defendant Fred Russo. The Plaintiff is hereby
placed on notice that unless good cause is shown to the Court for its failure
to effect service of the Summons and Complaint on Defendant Russo
within fourteen (14) days from service of this Order, the Plaintiff’s action
against this Defendant shall be dismissed without prejudice. See Fed. R.
Civ. P. 4(m).
IV.
CONCLUSION
IT IS, THEREFORE, ORDERED that the Defendants’ Motion to
Dismiss or, Alternatively, to Stay the Action Pending Arbitration [Doc. 4] is
GRANTED to the extent that this action is hereby STAYED as to
16
Defendants Inova Diagnostics, Inc. and Roger Ingles pending the
resolution of the parties’ arbitration.
IT IS FURTHER ORDERED that the Plaintiff shall show good cause
within fourteen (14) days of service of this Order for the failure to effect
service on the Defendant Fred Russo; and
IT IS FURTHER ORDERED that failure of the Plaintiff to respond in
writing within fourteen (14) days shall result in the dismissal without
prejudice of Defendant Russo.
IT IS SO ORDERED.
Signed:
17
June 15, 2013
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?