Smith v. AHS Oklahoma Heart, LLC
Filing
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OPINION AND ORDER by Judge Terence Kern ; staying case; granting 13 Motion to Compel Arbitration; granting 15 Motion to Stay; accepting 20 Report and Recommendation (vah, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
REBECCA SMITH, M.D.,
Plaintiff,
vs.
AHS OKLAHOMA HEART, LLC c/b/a
OKLAHOMA HEART INSTITUTE,
Defendant.
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Case No. 11-CV-691-TCK-FHM
OPINION AND ORDER
Before the Court is Magistrate Judge Frank McCarthy’s Report and Recommendation
(“Report”) (Doc. 20), wherein Judge McCarthy recommends that the Court grant Defendant’s
Motion to Compel Arbitration and Stay Proceedings (Doc. 13). Plaintiff filed an Objection (Doc.
21), which is fully briefed. In her objection, Plaintiff argues that because Section 6.20(b) of the
employment agreement mandates that fees be awarded to the prevailing party (“fee-shifting
provision”) and that any fee award is “binding, final, and conclusive,” it is inconsistent with her
statutory rights under Title VII and the Equal Pay Act (“EPA”).1 Plaintiff urges the Court to find
1
In its entirety, Section 6.20 provides:
6.20
Conflict Resolution
(a)
Physician expressly agrees to attempt in good-faith to settle any
disputes with the Group in connection with his rights and obligations under this
Agreement in the event of a material breach of this Agreement by Physician or the
Group. Physician and the Group shall, prior to resorting to litigation or other legal
recourse (except that either of them may file but not prosecute a complaint to
preserve the statute of limitations or an injunction), work with and through the POC
to resolve any disputes between them in connection with their rights and obligations
under this Agreement in the event of a material breach of this Agreement by
Physician or the Group. If any such dispute cannot be resolved by the POC to the
satisfaction of Physician and the Group within thirty (30) days of the first meeting
to address the dispute, then either Physician or the Group may request in writing that
Section 6.20 unenforceable in its entirety and deny the motion to compel arbitration or, alternatively,
to sever any unenforceable portions of Section 6.20 and compel arbitration under the remaining
terms of Section 6.20. This is a new argument that was not previously raised by Plaintiff or
addressed in the Report.2
the parties submit the dispute to arbitration as set forth below.
(b)
In the event the POC is unable to resolve the dispute between
Physician and the Group, Physician or the Group may submit the matter to
arbitration. Arbitration shall be scheduled within ninety (90) days of the date of the
selection of the arbitration panel, to take place at a mutually agreeable time and
location in Tulsa, Oklahoma. Such arbitration proceedings shall be conducted before
three (3) arbitrators (unless Physician and the Group agree in writing to one
arbitrator) in accordance with the rules of the American Health Lawyers Association.
If Physician and the Group are unable to agree on a single arbitrator, Physician and
the Group shall each appoint a person as an arbitrator designated as such by the
American Health Lawyers Association. Such appointment shall be signified by a
notice in writing by Physician and the Group. The arbitrators so appointed shall
jointly appoint a third arbitrator who shall also be designated as an arbitrator by the
American Health Lawyers Association. If either Physician or the Group fails to
appoint an arbitrator for a period of thirty (30) days after receipt of a written notice
from the other designating appointment of an arbitrator, then the arbitrator appointed
by either Physician or the Group, giving such notice shall be deemed to have been
approved by the other that failed to appoint an arbitrator and the matter shall be then
heard by the single arbitrator appointed. Attorneys’ fees in connection with the
arbitration and the other costs and expenses of arbitration shall be [shall be]
awarded to the prevailing party. The decision and award of attorneys’ fees of the
arbitrator(s) shall be binding, final and conclusive on the Group and Physician.
(Doc. 16-1 (emphasis added).)
2
Plaintiff contends that she raised this argument in her response to the motion to compel
arbitration. The Court disagrees. Plaintiff argued that Section 6.20(b)’s fee-shifting provision
demonstrated the parties’ intent to exclude her sex and pay discrimination claims from the scope of
the arbitration agreement, not that the fee-shifting provision rendered the arbitration agreement
unenforceable. Therefore, the Court does not construe the Report as addressing this argument. If
and to the extent any language in the Report could be construed as inconsistent with this Opinion
and Order, such language is overruled.
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I.
General Law
“[A]greements which require arbitration of statutory claims are enforceable under the Federal
Arbitration Act.” Shankle v. B-G Maintenance Mgmt. of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir.
1999). “[B]y submitting statutory claims to arbitration, an individual does not forgo substantive
rights provided by the statute, but merely submits their resolution to an alternate forum.” Id. “[T]he
arbitral forum, like the judicial forum, provides an adequate mechanism for furthering public policy
goals advanced by the statute.” Id. As long as the prospective litigant effectively may vindicate his
or her statutory cause of action in the arbitral forum, the statute will continue to serve both its
remedial and deterrent function. See id.
In Shankle, the Tenth Circuit addressed the distinct but related question of whether a
provision requiring an employee to split arbitration fees with the employer was unenforceable under
the Federal Arbitration Act (“FAA”). The court held that such a provision would cost the plaintiff
between $1,875 and $5,000 and would prevent him from effectively vindicating his statutory cause
of action in the arbitral forum. Id. at 1234-35. Therefore, the court held that the agreement was
unenforceable under the FAA. Id. at 1235 (“Essentially, [the employer] required [the plaintiff] to
agree to mandatory arbitration as a term of continued employment, yet failed to provide an
accessible forum in which he could resolve his statutory rights. Such a result clearly undermines
the remedial and deterrent functions of the federal anti-discrimination laws.”).
One year following Shankle, in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S.
79, 90 (2000), a plaintiff suing under the Truth in Lending Act and Equal Credit Opportunity Act
sought to invalidate an arbitration agreement that was silent as to which party would bear fees and
costs. The plaintiff argued that such silence “create[d] a ‘risk’ that she [would] be required to bear
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prohibitive arbitration costs if she pursue[d] her claims in an arbitral forum, and thereby force [] her
to forgo any claims.” Id. The Supreme Court held that a mere risk that the plaintiff would “be
saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration
agreement.” Id. at 91. Instead, the Court held that “where . . . a party seeks to invalidate an
arbitration agreement on the ground that arbitration would be prohibitively expensive, that party
bears the burden of showing the likelihood of incurring such costs.” Id. at 92.
After Green Tree, the majority of circuits addressing the specific type of provision at issue
in this case – a mandatory “loser pays” fee-shifting provisions that is contrary to fee-shifting
provisions in federal anti-discrimination statutes – have held that such provisions do not render an
arbitration agreement per se unenforceable. See, e.g., Musnick v. King Motor Co. of Ft. Lauderdale,
325 F.3d 1255, 1258-59 (11th Cir. 2003) (“After Green Tree, an arbitration agreement is not
unenforceable merely because it may involve some ‘fee-shifting.’”) (collecting cases).3 Instead,
courts have held that the question of enforceability must be answered on a case-by-case basis,
considering whether the party seeking to avoid arbitration “establish[es] that enforcement of the
agreement would ‘preclude’ him from ‘effectively vindicating [his] federal statutory right in the
arbitral forum.’” See id. at 1259 (quoting Green Tree) (“Since Green Tree, all but one of the other
Circuits that have reconsidered this issue have applied a similar case-by-case approach.”).
These cases generally conclude that, because it is entirely speculative that the defendant will
succeed and be awarded fees, the plaintiff cannot show that the fee-shifting provision prevents him
from vindicating his statutory cause of action. See, e.g., Musnick, 325 F.3d at 1260 (holding that
3
The Tenth Circuit has not addressed this specific type of provision, either before or
after the Supreme Court decided Green Tree. Musnick is the case principally relied upon by
Defendant.
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the plaintiff had “adduced no evidence whatsoever to support his claim” and that “the risk alleged
[namely – the shifting of attorney’s fees] [was] simply too ‘speculative’ to render his agreement to
arbitrate unenforceable”) (collecting cases enforcing arbitration agreements including mandatory
“loser pays” fee-shifting provisions);4 James v. Bobrick Washroom Equip., Inc., No. 09-145-KEW,
2010 WL 368727, at * 3 (E.D. Okla. Feb. 1, 2010) (holding that the plaintiff’s “speculation as to
whether he may be required to pay attorney’s fees is simply too speculative a basis to invalidate the
Agreement”). These courts further reason that the arbitrator may refuse to enforce the fee-shifting
provision as an impermissible contractual limitation on the plaintiff’s statutory remedies, which
creates yet another layer of speculation as to whether the plaintiff will actually bear prohibitive
costs. See id. at 1261 n.7; see also Thompson v. Irwin Home Equity Corp., 300 F.3d 88, 92 (1st Cir.
2002) (“Arbitration is the correct initial forum for the [plaintiffs] to air their objection to the [loser
pays] attorney’s fees provision in the arbitration agreement.”).
Finally, such courts reason, any fee award that shows manifest disregard of the law is subject
to judicial review and reversal. See, e.g., Musnick, 325 F.3d at 1261 (explaining that arbitration
award in violation of the plaintiff’s statutory right to avoid paying defendant’s fees may be vacated
if such award shows a manifest disregard for the law). However, this reasoning has been called into
question by subsequent Supreme Court decisions. See Hall Street Assocs. v. Mattel, Inc., 552 U.S.
576, 584-85 (2008) (holding that enumerated reasons in 9 U.S.C. §§ 10 and 11 constitute exclusive
grounds for judicial review of arbitrator’s decision and seeming to reject “‘manifest disregard of the
law’ as a further ground for vacatur on top of those listed in § 10”); see also Stolt-Nielsen S.A. v.
4
As explained in Musnick, “there is no record that could be made at this point” because
whether a plaintiff will incur attorneys’ fees “depends entirely on whether [she] prevails in
arbitration.” Musnick, 325 F.3d at 1261.
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AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1768 (2010) (“We do not decide whether ‘manifest
disregard’ survives our decision in Hall Street Associates . . . as an independent ground for review
or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.”). Therefore,
this particular reasoning regarding the possibility of judicial review is of less persuasive value than
at the time Musnick was decided.
In 2010, the Tenth Circuit analyzed whether the following provision rendered an arbitration
agreement unenforceable:
Each party shall pay for his/her/its own fees and expenses of arbitration except that
the cost of the arbitrator and any filing fee exceeding the applicable filing fee in
federal court shall be paid by the Company; provided, however, that all reasonable
costs and fees necessarily incurred by any party are subject to reimbursement from
the other party at the discretion of the arbitrator.
Hill v. Ricoh Am. Corp., 603 F.3d 766, 779 (10th Cir. 2010). The plaintiff argued that this provision
was inconsistent with his statutory rights under the Sarbanes-Oxley Act (“SOX”), which permits a
successful plaintiff in a whistleblower action to recover attorney fees. The court rejected this
argument, reasoning:
Unlike in Shankle, nothing in the Employment Agreement’s arbitration clause
requires the arbitrator to deny Mr. Hill his rights under SOX. The clause gives the
arbitrator discretion to award him attorney fees if he prevails on his SOX claim. And
assuming, without deciding, that Mr. Hill is correct that SOX prohibits imposing
attorney fees on an unsuccessful plaintiff, nothing in the arbitration clause requires
the arbitrator to compel him to pay Ricoh’s attorney fees if he loses. Thus, the
arbitrator has full authority to grant Mr. Hill the same SOX relief that he would
receive in court.
Id. at 779-80 (emphasis added). The court explained that the plaintiff’s fear “that his SOX rights
would not be vindicated [was] mere speculation” and was “based on an unsupported assumption that
the arbitrator will be hostile to the substantive rights created by SOX.” Id. at 780.
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II.
Analysis
In this case, Plaintiff has demonstrated that enforcement of the fee-shifting provision in
Section 6.20(b) would preclude her from effectively vindicating her Title VII and EPA claims in the
arbitral forum. Under the current terms of the arbitration clause, Plaintiff is forced to commence
arbitration subject to a mandatory “loser pays” fee-shifting provision. Such provision nullifies (1)
her right under Title VII to bring a non-frivolous suit without risking paying her opponent’s fees,
and (2) her right under the EPA to bring any suit without risking paying her opponent’s fees. This
mandatory provision is distinguishable from the silent provision in Green Tree and the discretionary
provision in Hill. Contrary to the arbitration clause at issue in Hill, the arbitration clause in this case
does “require[] the arbitrator to compel [Plaintiff] to pay [Defendant’s] attorney fees if [she] loses.”
Hill, 603 F.3d at 780. While not conclusive, this language indicates that the Tenth Circuit may have
reached a different outcome had the fee-shifting provision been mandatory.
For two reasons, the Court declines to follow cases from other circuits that have specifically
addressed mandatory “loser pays” fee-shifting provisions and reached different results. First, since
these cases were decided, the Supreme Court has potentially eliminated “manifest disregard for the
law” as grounds for judicial review of any fee award. See Hall Street Assocs., 552 U.S. at 584-85.
Second, the arbitration agreement in this case contains a contractual limitation, or at least attempted
contractual limitation, on judicial review of any fee award in favor of Defendant. There was no
similar contractual limitation in any case cited by Defendant. While the Court does not speculate
as to the scope or effectiveness of this “final, binding, and conclusive” language, this is an additional
fact that decreases Plaintiff’s ability to effectively vindicate her statutory causes of action.
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In sum, the Court finds that Plaintiff has met her burden of demonstrating unenforceability
of the fee-shifting provision because: (1) the arbitration clause requires Plaintiff to pay Defendant’s
attorneys’ fees if she does not prevail, which is inconsistent with Plaintiff’s statutory rights under
Title VII and the EPA; (2) the Supreme Court has potentially narrowed the scope of judicial review
of arbitration awards since the time Musnick and other cases were decided, rendering it questionable
whether a fee award in favor of Defendant could be overturned based on an arbitrator’s “manifest
disregard for the law;” (3) the arbitration clause contains language that limits or at least attempts to
limit any judicial review of the fee award; and (4) dicta in Tenth Circuit precedent supports this
conclusion. The Court acknowledges that it is speculative whether Defendant will prevail and
whether the arbitrator will ultimately award fees in a manner inconsistent with Title VII and/or the
EPA. However, in light of the narrow scope of judicial review and contractual limitation on judicial
review, these speculative “risks” become, in this Court’s view, so severe as to prevent Plaintiff from
effectively vindicating her statutory causes of action in the arbitral forum. Accordingly, the Court
finds that the fee-shifting provision in Section 6.20(b) is unenforceable.
Next, the Court must determine whether to sever the unenforceable term or invalidate the
entire arbitration clause. Because “federal arbitration policy must be implemented in lock-step with
a determination of contract validity under state law,” this question is governed by the state law
governing the contract. Spinetti v. Serv. Corp. Int’l, 324 F.3d 212, 219 (3d Cir. 2003). In this case,
the contract is governed by Oklahoma law. (See Doc. 16-1 at § 6.3.) The Oklahoma Supreme
Court, citing Restatement (Second) of Contracts § 184, has held that “if the discriminatory and hence
unenforceable provision is not considered essential, the offending provision will be excised and the
remaining portions of the contract will be enforced.” Hargrave v. Canadian Valley Elec. Co-op.,
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Inc., 792 P.2d 50, 60 (Okla. 1990). In contrast, “if the discriminatory and hence unenforceable
provision is not considered essential, the offending provision will be excised and the remaining
portions of the contract will be enforced.” Id. The Court finds that the fee-shifting provision is not
essential to the bargain and that severance is therefore the proper course. See Spinetti, 324 F.3d at
219 (applying similar Pennsylvania law and Restatement (Second) of Contracts § 184) (concluding
that severance was proper, even in absence of severability clause, because “the primary purpose of
the arbitration bargain . . . was not to regulate costs or attorney’s fees” but instead “was designed
to provide a mechanism to resolve employment-related disputes”).
III.
Conclusion
Upon de novo review, the Report (Doc. 20) is AFFIRMED and ADOPTED as to all
arguments previously made by the parties and addressed in the Report. Plaintiff’s Objection (Doc.
21), which raises a new argument regarding the enforceability of the arbitration agreement, is
GRANTED IN PART and DENIED IN PART for the reasons set forth in this Opinion and Order.
Defendant’s Motion to Compel Arbitration and Stay Proceedings (Doc. 13) is GRANTED.
However, the fee-shifting provision set forth in Section 6.20(b) is unenforceable and shall not be
enforced by the arbitrator. This matter shall be stayed pending arbitration, and Defendant is ordered
to submit a status report within 20 days of the conclusion of the arbitration proceedings.
DATED THIS 3rd day of August, 2012.
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