SMALLER v. JRK RESIDENTIAL MANAGEMENT CORP. et al

Filing 12

MEMORANDUM/OPINION THAT DEFENDANTS' MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS IS GRANTED. THE CLAIMS CONTAINED IN PLAINTIFF'S COMPLAINT SHALL BE SENT TO ARBITRATION; AND THIS MATTER SHALL BE STAYED PENDING THE COMPLETION OF THE ARBITRATION. SIGNED BY HONORABLE JEFFREY L. SCHMEHL ON 2/14/17. 2/15/17 ENTERED AND COPIES E-MAILED.(ky, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
WINIFRED SMALLER,
CIVIL ACTION
Plaintiff,
NO. 16-2066
v.
JRK RESIDENTIAL MANAGEMENT CORP.,
JRK RESIDENTIAL GROUP, INC., and JRK
RESIDENTIAL AMERICA, LLC CENTERS OF
AMERICA,
Defendants.
MEMORANDUM OPINION

Schmehl, J. /s/ JLS

February 14, 2017

Before the Court is the motion of defendants, JRK Residential Group, Inc., and
JRK Residential America, LLC to compel arbitration and stay proceedings. Plaintiff,
Winifred Smaller (“Smaller”) has opposed the motion and Defendants have filed a reply.
Having read the parties’ briefs and reviewing all exhibits, and after oral argument on the
motion, I will grant Defendants’ motion to compel arbitration and stay proceedings.
I.

BACKGROUND
Plaintiff, a former employee of JRK Residential America, LLC, filed this

employment discrimination claim against Defendants, seeking to recover for her alleged
wrongful termination. In connection with her employment with JRK Residential
America, LLC, Smaller signed a Mediation and Arbitration Agreement (the
“Agreement”) which Defendants claim requires her to arbitrate all claims against any
JRK subsidiary or affiliated entity arising out of her employment.

II.

STATEMENT OF FACTS
Plaintiff went to work for Defendant JRK Residential America, LLC, on August

4, 2011, and began to work as a property manager at one of Defendants’ properties in
Lancaster. (Compl. at ¶ 12.) Thereafter, on May 2, 2013, during the course of her
employment with Defendant, Smaller signed a mediation and arbitration agreement.
(Docket No. 4, Ex. 1-A.) The Agreement contains an arbitration clause that states that
any covered claim “arising out of or relating to [Smaller’s] employment relationship with
JRK or the termination of that relationship” shall be “submit[ted] . . . for final and
binding resolution by a private and impartial arbitrator.” (Docket No. 4, Ex. 1-A.) The
Agreement identifies the following claims as subject to arbitration:
a. Claims Covered: This Agreement to submit to mediation and (if
necessary) binding arbitration covers:
ii. Any claim that could be asserted in court or before an administrative
agency for which the employee has an alleged cause of action, including
without limitation, the following claims: (a) breach of any contract or
covenant (express or implied), (b) tort, (c) discrimination including, but
not limited to, discrimination based on sex, pregnancy, race, national or
ethnic origin, age, religion, creed, marital status, sexual orientation, mental
or physical disability or medical condition or other characteristics
protected by statute, (d) wrongful discharge, (e) violations of the Family
and Medical Leave Act (FMLA), (f) violations of confidentiality or
breaches of trade secrets, and/or (g) violation of any federal, state or other
governmental law, statute, regulation or ordinance and whether based on
statute or common law…
iii. Claims made against JRK, any of its subsidiary or affiliated entities or
its individual employees, officers or directors in an official or personal
capacity”

See id. at pg. 2, ¶ 1(a).
Smaller was terminated by Defendants on July 1, 2014. She then filed an EEOC
charge, and was issued a Notice of Right to Sue on February 1, 2016. Plaintiff filed the

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instant Complaint on April 29, 2016, alleging discrimination, harassment and retaliation
based on her race. (Compl. at ¶¶ 5, 20-56.)
III.

STANDARD OF REVIEW

The Federal Arbitration Act (“FAA”), which applies to any dispute in state or federal
court concerning contracts affecting interstate commerce, strongly favors resolving
disputes through arbitration. Hopkins v. New Day Fin., 643 F.Supp.2d 704, 713 (E.D. Pa.
2009). The FAA states that “A written provision in. . . a contract evidencing a
transaction involving commerce to settle by arbitration . . . 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. It is undisputed that there is a “liberal federal policy favoring
arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24-26
(1991). The FAA “establishes a strong policy in favor of compelling arbitration over
litigation,” Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 104 (3d Cir. 2000), and
arbitration agreements falling within the scope of the FAA “must be rigorously
enforce[d].” Perry v. Thomas, 482 U.S. 483, 490 (1987). Further, the Supreme Court has
held that employment agreements are subject to the FAA. Circuit City Stores, Inc. v.
Adams, 532 U.S. 105, 122-23 (2001).
IV.

DISCUSSION
Plaintiff in this matter does not argue that the FAA does not apply to the instant

dispute. Rather, she argues that the Agreement that she entered into with Defendants is
unconscionable and therefore unenforceable.
“Under Pennsylvania law, the test for unconscionability is whether one of the
parties lacked a meaningful choice about whether to accept the provision in question and

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the challenged provision or contract unreasonably favors the other party to the contract.”
Grant v. The Philadelphia Eagles, LLC, 2009 WL 1845231, at *6 (E.D.Pa. June 24,
2009). Unconscionability has both procedural and substantive elements. Harris v. Green
Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir.1999). Under Pennsylvania law, there must be
both procedural and substantive unconscionability in order to void an arbitration
provision. See id. at 181. Plaintiffs have the burden of proof to present facts which give
rise to unconscionability. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d
Cir.1989).
A. Substantive Unconscionability
Substantive unconscionability “refers to contractual terms that are unreasonably
or grossly favorable to one side and to which the disfavored party does not assent.” Harris
v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir.1999). An arbitration agreement
cannot be construed as substantively unconscionable where it “does not alter or limit the
rights and remedies available to [a] party in the arbitral forum....” Edwards v.
HOVENSA, LLC, 497 F.3d 355, 364 (3d Cir.2007) (construing Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)).
However, provisions requiring parties to be responsible for their own expenses, including
attorneys’ fees, are generally unconscionable because restrictions on attorneys’ fees
conflict with federal statutes providing fee-shifting as a remedy. Quilloin v. Tenet
HealthSystem Philadelphia, Inc., 673 F.3d 221, 230-31 (3d Cir. 2012).
In the instant matter, the arbitration agreement states:
All other costs and expenses associated with the mediation and/or
arbitration, including, without limitation, each party’s respective
attorneys’ fees, shall be borne by the party incurring the expense.

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(Docket No. 4, Ex. 1-A.) Plaintiff rests her substantive unconscionability argument on
this provision of the Agreement, arguing that since she would be entitled to attorneys’
fees under Title VII and the Agreement prevents her from recovering said fees, the
Agreement is substantively unconscionable under Quilloin.
However, the Agreement also states:
If any provisions of the AAA’s rules or of this Agreement are determined
by the Arbitrator or by any court of competent jurisdiction to be unlawful,
invalid or unenforceable, such provisions shall be severed or modified so
that the AAA rules or this Agreement may be enforced to the greatest
extent permissible under the law.
(Docket No. 4, Ex. 1-A.) Where the “essence of the contract . . . is an agreement to settle
. . . employment disputes through binding arbitration . . . provisions regarding payment of
arbitration costs and attorneys’ fees represent only a part of the agreement and can be
severed without disturbing the primary intent of the parties to arbitrate their disputes.”
Spinetti v. Service Corp. Intern., 324 F.3d 212, 214 (3d Cir. 2003). Therefore, the
provision of the Agreement requiring Plaintiff to pay her own costs and legal fees can be
stricken without invalidating the entire Agreement.
Further, Defendants have stated in their reply brief that “JRK stipulates that the
provisions of the Agreement requiring each party to be responsible for all of their own
costs, expenses and attorneys’ fees are severed and may be modified to provide that JRK
will pay all costs of arbitration, except the claimant’s initial appearance fee, and Smaller
retains all of her existing rights under Federal and State law to seek the recovery of
attorneys’ fees.” (Docket No. 7, p. 5.) Accordingly, the only argument that Plaintiff put
forward in support of her claim of substantive unconscionability must fail, as based upon
Defendants’ stipulation, she has identical rights and remedies in arbitration that she

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would have in Court. Therefore, I find the Agreement is not substantively
unconscionable.
B. Procedural Unconscionability
Since I have found no substantive unconscionability, the Agreement must be
permitted to stand, as a finding of unconscionability requires both substantive AND
procedural unconscionability. However, a review of the Agreement shows that is also
lacks procedural unconscionability.
Plaintiff argues that the Agreement is procedurally unconscionable as she was
already employed by JRK when she was asked to sign the Agreement and that she was
forced to sign it if she wanted to continue working for JRK, thereby causing the
Agreement to lack consideration. Plaintiff further argues that she had a two year period of
unemployment prior to working for JRK, which resulted in a “desperate employment
situation,” giving her no choice but to sign, thus making the Agreement a contract of
adhesion and therefore, procedurally unconscionable..
I find this argument to be unpersuasive. Courts in this district have repeatedly
held that continued employment provides sufficient consideration for arbitration
agreements under Pennsylvania law. See Grant v. Philadelphia Eagles LLC, 2009 WL
1845231, at *5 (E.D. Pa. June 24, 2009); Hamilton v. Travelers Prop. & Cas. Corp., 2001
WL 503387, at *2 (E.D.Pa. May 11, 2001) (finding continued employment of two years
following receipt of the employee handbook which included an arbitration agreement
sufficient to constitute acceptance and consideration); see also Gutman v. Baldwin Corp.,
2002 WL 32107938, at *4 (E.D.Pa. Nov.22, 2002); Wilson v. Darden Rests. Inc., 2000
WL 150872, at *3-4 (E.D. Pa. Feb. 11, 2000); Wetzel v. Baldwin Hardware Corp., 1999

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WL 54563, at *3 (E.D. Pa., Jan. 29, 1999). Accordingly, I find that no procedural
unconscionability exists.
C. Defendants Are Parties to the Agreement
Plaintiff argues that the Arbitration Agreement only names JRK Property
Holdings, Inc., as a party to the contract, and not defendants JRK Residential Group, Inc.
or JRK Residential America, LLC, and defendants therefore have no standing to enforce
the Agreement. I find this argument to be unavailing. The first line of the Agreement
defines “JRK” as “JRK Property Holdings, Inc., and its affiliates.” (Docket No. 4, Ex. 1A.) Defendants have submitted the affidavit of Michael Moerschbacher, Senior Vice
President of Human Resources at JRK Property Holdings, Inc., which states that JRK
Residential Group, Inc., and JRK Residential America, LLC are both affiliates of JRK
Property Holdings, Inc. (Docket No. 4, Ex. 1.) The Agreement goes on to state that it
covers all claims arising out of employment with JRK and against any subsidiary or
affiliated entities. (Docket No. 4, Ex. 1-A.) Therefore, Defendants are clearly parties to
the Agreement and are entitled to enforce it.
V.

CONCLUSION
For the foregoing reasons, Defendant’s Motion to Compel Arbitration and Stay

Proceedings is granted. This matter shall proceed to arbitration as contained in the
arbitration agreement, and this matter shall be stayed pending the completion of the
arbitration.

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