Brown et al v. Trueblue, Inc. et al
Filing
85
MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that the 63 MOTION to Compel Arbitration is GRANTED and this action is STAYED pending arbitration. The parties are to file a joint status report by 1/31/2012. Signed by Chief Judge Yvette Kane on Nov. 22, 2011. (sc)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
STEPHEN BROWN, JR. and
MATTHEW JURY, Individually and
on behalf of all others similarly situated,
Plaintiffs
v.
TRUEBLUE, INC., f/k/a LABOR
READY, INC., and LABOR READY
NORTHEAST, INC.,
Defendants
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Civil Action No. 1:10-CV-0514
Chief Judge Yvette Kane
MEMORANDUM
Plaintiffs Stephen Brown and Matthew Jury filed suit against Defendants TrueBlue and
Labor Ready Northeast alleging violations of the Pennsylvania Minimum Wage Act, 43 Pa. Stat.
§ 333.101 et seq., Pennsylvania’s Wage Payment and Collection Law, 43 Pa. Stat. § 260.1 et
seq., Pennsylvania’s Check Casher Licensing Act, 63 Pa. Stat. § 2301 et seq., and the Fair Labor
Standards Act, 29 U.S.C. § 201 et seq. (Doc. No. 1.) Plaintiffs moved for class certification of
two classes pursuant to Rule 23 of the Federal Rules of Civil Procedure and moved for
certification of one collective action brought pursuant to the FLSA. (Doc. Nos. 27, 42.) Just
prior to the hearing on class certification, Defendants filed a motion to compel arbitration. (Doc.
No. 63.) The Court continued the hearing on class certification pending the resolution of the
motion to compel arbitration. (Doc. No. 66.) The motion to compel arbitration has been fully
briefed, and the Court held argument on the motion on September 8, 2011. For the reasons
stated more fully herein, the Court will grant Defendants’ motion to compel arbitration and stay
these proceedings pending the completion of arbitration.
I.
BACKGROUND
1
A.
Factual Background
Defendants provide temporary staffing services, whereby Defendants send their
employees to do work for a local business seeking short-term labor. (Doc. No. 1 ¶¶ 16, 23.)
Defendants’ employees report to a branch office by 7:00 a.m., where Defendants provide their
employees with a work assignment. (Id. ¶ 24.) The employees are paid each day they work
upon completion of the work day. (Id. ¶ 23.) When the employees have completed their work
for the day, they return to Defendants’ branch office where they are given the option of being
paid by check or by cash voucher. (Id. ¶ 28.) If an employee elects to use a cash voucher, the
employee is given a voucher and a pin number, which the employee may redeem for cash at one
of the cash dispensing machines located in the branch offices. (Id. ¶ 28.) Employees are
charged a fee for using the cash dispensing machines totaling one dollar plus any change in the
employee’s net pay.1 (Id. ¶¶ 28-29.) Plaintiffs, Defendants’ employees, allege that the fees
applied when using the cash dispensing machines often result in Defendants’ employees being
paid less than the prevailing minimum wage. (Id. ¶ 32.)
Both Plaintiffs Brown and Jury signed employment agreements. (Doc. Nos. 67-1, 67-2.)
Those employment agreements included an “Employment and Dispute Resolution” section.
1
For example, in the cash voucher submitted by Plaintiffs in support of their motion for
class certification, the voucher lists Plaintiff Brown’s daily gross pay at $58.00, representing
eight hours of work at $7.25 per hour. (Doc. No. 27-8.) It lists deductions totaling $6.25,
including $0.03 for Pennsylvania unemployment taxes, $0.84 for Medicare, $1.78 for
Pennsylvania state withholding, and $3.60 for social security. (Id.) Plaintiff Brown’s net pay is
listed as $51.75. (Id.) The cash dispensing machine fee is listed as $1.75, representing one
dollar plus the seventy-five cents in change in Plaintiff Brown’s net pay. (Id.) Also included on
the voucher is a statement that the cash dispensing machine charges a fee and if the employees
do not wish to accept this fee, they may request a check. (Id.) The voucher further directs them
to “[a]sk the branch employees where you may be able to cash Labor Ready payroll checks for
no fee.” (Id.)
2
That section included, as a condition of Plaintiffs’ employment, an arbitration provision
providing:
1. Arbitration, Waiver of Jury Trial. Labor Ready and I agree that
any claim arising out of or relating to this Agreement, or the breach
of this Agreement, or my application, employment, or termination of
employment, shall be submitted to and resolved by binding
arbitration under the Federal Arbitration Act. Labor Ready and I
agree that all claims shall be submitted to arbitration including, but
not limited to, claims based on any alleged violation of a constitution,
or any federal, state, or local laws; Title VII, claims of
discrimination, harassment, retaliation, wrongful termination,
compensation due or violation of civil rights; or any claim based in
tort, contract, or equity. Any arbitration between Labor Ready and
I will be administered by the American Arbitration Association under
its Employment Arbitration Rules then in effect. Labor Ready agrees
to pay for the arbiter’s fees where required by law. The award
entered by the arbitrator will be based solely upon the law governing
the claims and defenses pleaded, and will be final and binding in all
respects. In any claim or jurisdiction where this agreement to resolve
claims by arbitration is not enforceable, Labor Ready and I agree to
submit our claims for resolution by a bench trial (trial by judge)
specifically waiving a jury as the ultimate fact finder.
(Id.) Plaintiffs Brown and Jury signed and dated their employment agreements on September 23,
2008, and July 16, 2009, respectively. (Id.)
The “Employment and Dispute Resolution” sections further included agreements to
pursue relief via arbitration individually, rather than on a class basis. Specifically, Plaintiff
Brown’s agreement provides:
2. Class Actions. In any such arbitration, or in a court of competent
jurisdiction if arbitration is prohibited by law, neither Labor Ready
nor I shall be entitled to join or consolidate claims as a representative
or member of a class, representative, or collective action.
(Doc. No. 67-1.) Plaintiff Jury’s agreement, under the heading “2. Representative Actions”
provides that: “In any arbitration, or in a court of competent jurisdiction if arbitration is
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prohibited by law . . . . I must give my written consent to be represented in a lawsuit against
Labor Ready and I will not represent anyone else without their written permission.” (Doc.
No. 67-2 (emphasis in original).)
B.
Procedural History
Plaintiffs initiated this action by filing a complaint with this Court on March 7, 2010.
(Doc. No. 1.) Defendants filed an answer with affirmative defenses on May 17, 2010. (Doc. No.
16.) Notably, Defendants did not note the existence of an agreement to arbitrate in their answer.
(Id.) Plaintiffs filed their first motion for class certification on December 23, 2010. (Doc. No.
27.) Plaintiffs filed a second motion for class certification on March 8, 2011. (Doc. No. 42.) On
March 18, 2011, the Court scheduled a hearing on Plaintiffs’ two motions for class certification
to take place on June 10, 2011. (Doc. No. 52.) Briefing continued on the motions for class
certification through May 10, 2011, when Defendants filed a motion for leave to file a sur reply
brief in opposition to the second motion for class certification. (Doc. No. 61.) The Court
granted Defendants’ motion on May 26, 2011. (Doc. No. 62.)
On June 7, 2011, fifteen months after Plaintiffs filed their complaint and three days
before the hearing on class certification was scheduled to be held, Defendants filed a motion to
compel arbitration. (Doc. No. 63.) The Court issued an order continuing the hearing on the
motions for class certification on June 7, 2011. (Doc. No. 66.) The Court heard argument on the
motion to compel arbitration on September 8, 2011. (Doc. No. 78.) Following the hearing, the
Court ordered supplemental briefing on September 13, 2011. (Doc. No. 79.) The parties
submitted their supplemental briefs on September 27, 2011. (Doc. Nos. 83, 84.) The motion to
compel arbitration is now ripe for disposition.
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II.
STANDARD OF REVIEW
The Federal Arbitration Act establishes a strong federal policy in favor of the arbitration
of disputes such that any doubt regarding the scope of an arbitration agreement must be resolved
in favor of arbitration. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24-25 (1983); Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 263 (3d Cir. 2003). In spite of
this presumption of arbitrability, prior to depriving a party of his day in court, there must be a
finding that: (1) a valid agreement to arbitrate was entered; and (2) the claims at issue fall within
the scope of the agreement. Kaneff v. Del. Title Loans, 587 F.3d 616, 620 (3d Cir. 2009). In
making these determinations, the Court applies the same standard as it would when reviewing a
motion for summary judgment, granting a motion to compel only if there is “no genuine issue of
fact concerning the formation of the agreement to arbitrate.” Kirleis v. Dickie, McCamey &
Chilcote, P.C., 560 F.3d 156, 159 (3d Cir. 2009) (internal citations and quotations omitted).
Accordingly, the Court must view the evidence and reasonable inferences drawn therefrom in a
light most favorable to the non-moving party. Id. However, even if these requirements are
satisfied, Section 2 of the Federal Arbitration Act provides that an agreement to arbitrate may be
invalidated “upon such grounds as exist at law or in equity for the revocation of any contract.” 9
U.S.C. § 2. “This saving clause permits agreements to arbitrate to be invalidated by generally
applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that
apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate
is at issue.” AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011).
III.
DISCUSSION
In the present matter, Plaintiffs do not dispute that an agreement to arbitrate exists or that
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the claims at issue here fall within the scope of that agreement. Rather, Plaintiffs argue that (1)
pursuant to Section 2 of the Federal Arbitration Act, Pennsylvania’s unconscionability doctrine
serves to invalidate the arbitration agreement; and (2) Defendants have waived their right to
arbitrate the agreement by failing to move for arbitration until fifteen months after this action
was commenced. The Court will consider these arguments seriatim.
A.
Unconscionability
As previously noted, an arbitration agreement “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. “This saving clause permits agreements to arbitrate to be invalidated by
generally applicable contract defenses, such as fraud, duress, or unconscionability, but not 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. Plaintiffs argue that under
the Pennsylvania doctrine of unconscionability, as articulated in Thibodeau v. Comcast Corp.,
912 A.2d 874, 885-86 (Pa. Super. Ct. 2006), the arbitration agreement at issue here is
unenforceable. Defendants counter that pursuant the Supreme Court’s decision in Concepcion,
131 S. Ct. 1740, the Federal Arbitration Act preempts Thibodeau and Plaintiffs’ argument must
fail.
In Thibodeau, the Pennsylvania Superior Court declined to enforce an arbitration
agreement contained in a Comcast Customer Agreement, where the agreement was included in a
“take it or leave it” contract from a service provider with a government monopoly and where
damages amounted to approximately $9.60 per month. Id. at 885-86. The Superior Court
emphasized that the Federal Arbitration Act was not designed to “occupy the entire field of
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arbitration agreements.” Id. at 879. Accordingly, applying 9 U.S.C. § 2, the Superior Court
analyzed the arbitration agreement pursuant to Pennsylvania’s unconscionability doctrine. Id. at
880. The court concluded that the arbitration agreement was unenforceable because under the
laws of Pennsylvania, “where the arbitration clause is contained in an adhesion contract and
unfairly favors the drafting party, such clauses are unconscionable and must be deemed
unenforceable.” Id. To that end, Plaintiffs argue that under Thibodeau the arbitration
agreement at issue here is unenforceable.
Contrary to Plaintiffs’ assertions, however, the Thibodeau rule is no longer good law
following Concepcion. In Concepcion, the Supreme Court considered an appeal from the United
States Court of Appeals for the Ninth Circuit in which that court refused to enforce an arbitration
agreement on the grounds that it was procedurally and substantively unconscionable under the
law of the state of California as set forth in Discover Bank v. Superior Court, 113 P.3d 1100
(Cal. 2005). The Supreme Court reversed the Ninth Circuit, holding that the Federal Arbitration
Act preempted the Discover Bank rule, and held that under the Federal Arbitration Act the
arbitration clause and its class action waiver were valid and enforceable. Concepcion, 131 S. Ct.
at 1750. The Supreme Court reasoned that the Federal Arbitration Act must preempt the
Discover Bank rule because the rule required the availability of classwide arbitration, which
undermines the central purpose of the Federal Arbitration Act. Id. at 1753.
The Discover Bank rule and the rule articulated in Thibodeau are strikingly similar. The
Discover Bank rule provides that “class action waivers in consumer contracts of adhesion are
unenforceable, whether the consumer is being asked to waive the right to class action litigation
or the right to classwide arbitration.” Discover Bank, 113 P.3d at 1110; see also Concepcion,
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131 S. Ct. at 1746 (defining the Discover Bank rule as a “rule classifying most collectivearbitration waivers in consumer contracts as unconscionable”). Similarly, Thibodeau held that
“where the arbitration clause is contained in an adhesion contract and unfairly favors the drafting
party, such clauses are unconscionable and must be deemed unenforceable.” Thibodeau, 912
A.2d at 880 (concluding that mandating individual arbitration rendered the arbitration clause
unconscionable). Indeed, in Thibodeau the Superior Court expressly approved of the California
law. Relying on Szetela v. Discover Bank, 97 Cal. App. 4th 1094, 118 Cal. Rptr. 2d 862 (Cal.
Ct. App. 2002), the Pennsylvania Superior Court in Thibodeau observed that “[t]he California
Court of Appeals recently ruled on the identical issue presented in these cases, finding that
forced individual arbitration by precluding class actions is so one-sided as to be ‘blindingly
obvious’ and violated ‘fundamental notions of fairness.’ . . . The court found that because the
effect of the enforcement of the agreement was corporate immunity, preclusion of class action
litigation was unconscionable.” Thibodeau, 912 A.2d at 884.
In light of the Supreme Court’s rejection of the Discover Bank rule, a fair reading of
Concepcion must lead the Court to conclude that Thibodeau cannot serve to invalidate an
arbitration agreement. Although the Thibodeau rule appears to address “the revocation of any
contract,” the rule in fact serves to invalidate agreements for the sole reason that they are
agreements to arbitrate. The Thibodeau rule articulates a clear preference against arbitration and
in favor of class actions, concluding “[i]t is only the class action vehicle which makes small
consumer litigation possible. . . . Should the law require consumers to litigate or arbitrate
individually, defendant corporations are effectively immunized from redress of grievances.”
Thibodeau, 912 A.2d at 885. Thibodeau is, therefore, in conflict with both Concepcion and
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Perry v. Thomas, which held that a court may not “rely on the uniqueness of an agreement to
arbitrate as a basis for a state-law holding that enforcement would be unconscionable.” Perry v.
Thomas, 482 U.S. 483, 493, n.9 (1987).
The Court does pause briefly to note one possible distinction between Concepcion and
the instant action, namely, that the present action concerns an employment contract rather than a
consumer contract. However, upon a review of Concepcion, the Court is unable to discern any
basis for limiting the effect of that case to consumer contracts, and Plaintiffs have provided
none.2 The Supreme Court in Concepcion spoke in broad language about arbitration agreements
generally, without limiting its holding to the consumer contract context or carving out an
exception for employment contracts. Further, the United States Court of Appeals for the Third
Circuit has instructed that the Supreme Court’s holding in Concepcion is “both broad and clear:
a state law that seeks to impose class arbitration despite a contractual agreement for
individualized arbitration is inconsistent with, and therefore preempted by the [Federal
Arbitration Act], irrespective of whether class arbitration ‘is desirable for unrelated reasons.’”
2
The Court questioned the parties at oral argument regarding whether Concepcion could
be limited to consumer contracts. (Doc. No. 81 at 16:1-3.) In response Plaintiffs were only able
to cite to a California Superior Court case in which a divided court held that an arbitration
agreement could not preempt the state Private Attorney Generals Act. Brown v. Ralphs Grocery
Co., 197 Cal. App. 4th 489; 128 Cal. Rptr. 3d 854 (Cal. App. 2d Dist. 2011); but see Quevedo v.
Macy’s, Inc., No. 09-cv-1522, 2011 U.S. Dist. LEXIS 83046, at *49 (C.D. Cal. June 16, 2011)
(concluding plaintiff’s PAGA claims must proceed to arbitration). However, an action under the
Private Attorney Generals Act “is an enforcement action, with one aggrieved employee acting as
a private attorney general . . . . Such an action is fundamentally a law enforcement action.”
Brown, 197 Cal. App. 4th at 499 (internal citations and quotations omitted). The Superior Court
went on to explain that “a law established for a public reason cannot be contravened by a private
agreement.” Id. at 500 (quoting Cal. Civ. Code § 3513). Because this matter concerns a private
action, rather than a law enforcement action advanced by private individuals on behalf of the
state, Brown cannot serve to invalidate the arbitration agreement at issue here.
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Litman v. Cellco P’ship, No. 08-4103, 2011 U.S. App. LEXIS 17649, at *17 (3d Cir. Aug. 24,
2011) (quoting Concepcion, 131 S. Ct. at 1753)). Accordingly, the Court must agree with those
courts that have applied Concepcion to uphold arbitration agreements in employment contracts.
See, e.g., Valle v. Lowe’s HIW, Inc., No. 11-1489 SC, 2011 U.S. Dist. LEXIS 93639, at *16-17
(N.D. Cal. Aug. 22, 2011) (concluding a California case applying the Discover Bank rule to an
employment contract was no longer good law following Concepcion).
There can be little doubt that Thibodeau is no longer viable following the Supreme
Court’s decision in Concepcion. Each Court that has considered the issue has held that in light
of Concepcion the Federal Arbitration Act preempts Pennsylvania’s unconscionability doctrine.
See King v. Advance Am., No. 07-cv-237, 2011 U.S. Dist. LEXIS 98630, at *16 (E.D. Pa. Aug.
31, 2011); Black v. JP Morgan Chase & Co., 2011 U.S. Dist. LEXIS 99428, at *70 n.25 (W.D.
Pa. Aug. 25, 2011); Clerk v. Cash Cent. of Utah, LLC, No. 09-cv-4964, 2011 U.S. Dist. LEXIS
95494 (E.D. Pa. Aug. 24, 2011); Clerk v. Cash Am. Net of Nev., LLC, No. 09-cv-2245, 2011
U.S. Dist. LEXIS 95489 (E.D. Pa. Aug. 22, 2011); Alfeche v. Cash Am. Int’l, Inc., No. 09-cv0953, 2011 U.S. Dist. LEXIS 90085 (E.D. Pa. Aug. 12, 2011). In the absence of any other
argument supporting the unconscionability of the instant arbitration agreement, the Court must
conclude that the arbitration agreement at issue here is valid.
B.
Waiver
Plaintiffs’ second argument against enforcement of the agreement to arbitrate is that
Defendants have waived their right to enforce the agreement by delaying the invocation of the
arbitration agreement until well after this action was commenced. Defendants counter that their
delay was excusable in light of Concepcion because that case “changed the whole landscape of
10
arbitration agreement and class arbitration agreements.” (Doc. No. 81 at 22:14-16.)
“[A]ny 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 any
allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem’l Hosp., 460
U.S. at 24-25. Accordingly, waiver is not to be lightly inferred. See, e.g., PaineWebber Inc. v.
Faragalli, 61 F.3d 1063, 1068-69 (3d Cir. 1995) (concluding that waiver should only be found
“where the demand for arbitration came long after the suit commenced and when both parties
had engaged in extensive discovery”). In determining whether the right to arbitrate has been
waived, the central question is whether the party arguing in favor of waiver has been prejudiced
by the moving party’s conduct. See Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925
(3d Cir. 1992) (noting that “prejudice is the touchstone for determining whether the right to
arbitrate has been waived” and concluding that defendant had waived their right to arbitrate by
“actively litigating the case for almost a year prior to filing their motion to compel arbitration”).
The Third Circuit has set forth a non-exhaustive list of six factors that should guide the waiver
determination:
(1) the timeliness or lack thereof of a motion to arbitrate; (2) the
degree to which the party seeking to compel arbitration or to stay
court proceedings pending arbitration has contested the merits of its
opponent’s claims; (3) whether that party has informed its adversary
of the intention to seek arbitration even if it has not yet filed a motion
to stay the district court proceedings; (4) the extent of its non-merits
motion practice; (5) its assent to the trial court’s pretrial orders; and
(6) the extent to which both parties have engaged in discovery.
Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 223 (3d Cir. 2007) (internal citations omitted);
see also Hoxworth, 980 F.2d at 926-27. Notably, “not all the factors need be present to justify a
11
finding of waiver, and the waiver determination must be based on the circumstances and context
of the particular case.” Nino v. Jewelry Exchange, Inc., 609 F.3d 191, 209 (3d Cir. 2010)
(internal citations and quotations omitted).
At first glance Plaintiffs present a compelling case for waiver. Defendants failed to file
their motion to compel arbitration until fifteen months after the complaint was filed. The Third
Circuit has held that a fifteen month delay in filing a motion to compel arbitration “weighs
firmly in favor of waiver.” Id. at 210. Defendants failed to refer to the arbitration clause in the
answer to their complaint. (Doc. No. 16.) Defendants have also engaged in some discovery and
have fully briefed Plaintiffs’ two motions for class certification.
Plaintiffs’ argument in favor of waiver unravels, however, when one considers the impact
of Concepcion on the waiver analysis. Plaintiffs do not dispute that the delay in Defendants’
filing the motion to compel was caused by the perceived unfavorable state of the law prior to
Concepcion. (Doc. No. 81 at 3:9-15.) Although Defendants waited fifteen months after
Plaintiffs filed the complaint before filing the motion to compel arbitration, the motion to compel
was filed just weeks after the Supreme Court issued its opinion in Concepcion on April 27, 2011.
Other courts of appeals, as well as the United States District Court for the Western District of
Pennsylvania, have held that an intervening change in the law may excuse an otherwise untimely
motion to compel arbitration. See, e.g., Nesslage v. York Sec., Inc., 823 F.2d 231, 234 (8th Cir.
1987) (finding no waiver after two years of litigation where motion to compel was filed shortly
after a Supreme Court opinion holding that the plaintiff’s claims were subject to arbitration);
Benoay v. Prudential-Bache Secur., Inc., 805 F.2d 1437, 1440 (11th Cir. 1986) (concluding that
although the motion to compel was filed more than two years after the complaint was filed “the
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motion was timely in light of a change in law affecting the parties’ rights”); Fischer v. A.G.
Becker Parabis, Inc., 791 F.2d 691 (9th Cir. 1986) (finding no waiver after three years of
litigation based on intervening Supreme Court precedent); Kaliden v. Shearson Lehman Hutton,
Inc., 789 F. Supp. 179, 183 (W.D. Pa. 1991) (concluding that defendant did not “act[] in a
manner inconsistent with arbitration in light of the potential changes in the decisional law that
occurred during the pendency of the case”). Likewise, district courts in other circuits have held
that Concepcion represented an intervening change in the law justifying enforcement of an
otherwise untimely motion to compel arbitration. David v. Metron Servs., No. 4:10-cv-2052,
2011 U.S. Dist. LEXIS 101652, at *8 (E.D. Mo. Sept. 8, 2011) (finding no waiver where motion
to compel arbitration was filed on June 3, 2011, in a putative class action filed on October 28,
2010, because Concepcion represented an intervening change in law); Estrella v. Freedom Fin.,
2011 U.S. Dist. LEXIS 71606, at *14-*15 (N.D. Cal. July 5, 2011) (finding no waiver where
defendant first filed the motion to compel twenty-seven months after the complaint was filed but
only nineteen days after Concepcion).
In the present matter, there can be little doubt that Concepcion represents a change in the
law of the Third Circuit.3 See, e.g., Litman v. Cellco P’ship, No. 08-4103, 2011 U.S. App.
3
The Court invited the parties to provide supplemental briefing on the issue of whether
the Third Circuit’s decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), undermines
Defendants’ argument regarding an intervening change in law. (Doc. No. 79.) In Gay, the Third
Circuit noted that:
To the extent, then, that Lytle and Thibodeau hold that the inclusion
of a waiver of the right to bring judicial class actions in an arbitration
agreement constitutes an unconscionable contract, they are not based
“upon such grounds as exist at law or in equity for the revocation of
any contract” pursuant to section 2 of the FAA, and therefore cannot
prevent the enforcement of the arbitration provision in this case.
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LEXIS 17649 (3d Cir. Aug. 24, 2011) (noting that the court of appeals is bound by its prior
holdings regarding class action waivers in the absence of a contrary en banc opinion or Supreme
Court decision and concluding that “[t]he Supreme Court’s more recent opinion in Concepcion
works just such a change in the law”). Had Defendants filed the motion to compel arbitration
prior to Concepcion, Defendants risked this Court finding the arbitration agreement was
unconscionable under Thibodeau and either refusing to enforce the agreement or requiring
Defendants to pursue arbitration on a class basis. The former result would have been
unsatisfactory to Defendants. The latter result, for the reasons expressed in Concepcion, would
have been intolerable. See Concepcion, 131 S. Ct. at 1751-52 (explaining that “class arbitration
greatly increases risks to defendants” by eliminating the procedural safeguards of appellate
review and also greatly increases the cost of arbitration by making “the process slower, more
costly, and more likely to generate procedural morass”). Accordingly, Defendants’s delay is
excused by an intervening change in law, and their having filed the motion to compel arbitration
approximately six weeks after Concepcion weighs against a finding of prejudice. See, e.g.,
Wood v. Prudential Ins. Co. of Am., 207 F.3d 674, 680 (3d Cir. 2000) (concluding a one-andone-half month delay was not prejudicial); Painewebber Inc. v. Faragalli, 61 F.3d 1063, 1069 (3d
Gay, 511 F.3d at 394-95. The Third Circuit went on to note that “though the Pennsylvania cases
are written ostensibly to apply general principles of contract law, they hold that an agreement to
arbitrate may be unconscionable simply because it is an agreement to arbitrate.” Id. at 395.
However, because the court of appeals in Gay ultimately applied Virginia rather than
Pennsylvania law, the Third Circuit subsequently characterized Gay’s findings regarding
Thibodeau as dicta. Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 177 n.2 (3d Cir. 2010);
Homa v. Am. Express Co., 558 F.3d 225 (3d Cir. 2009). Although these characterizations of
Gay, themselves, appear to be dicta, neither party argued that Gay would have given Defendants
a basis for seeking enforcement of the arbitration agreement.
14
Cir. 1995) (concluding a two month delay was not prejudicial).
The remaining factors paint a somewhat ambiguous picture. Weighing against a finding
of prejudice is the fact that Defendants never contested the merits of Plaintiffs’ claims via a
motion to dismiss or a motion for summary judgment. Further, the only document filed by
Defendants between the date of the Concepcion opinion was entered and the date on which
Defendants moved to compel arbitration was a motion for leave to file a sur reply brief to
Plaintiffs’ motion for class certification on May 10, 2011. (Doc. No. 61.) In addition, discovery
in this case was rather limited. Defendants have represented that they have conducted
depositions of Plaintiff Brown and Plaintiff Jury and made one request for documents resulting
in thirty pages of disclosures from Plaintiffs.4 (Doc. No. 81 at 9:7-12.) Weighing in favor of a
finding of prejudice is Defendants’ failure to indicate to the Court or Plaintiffs that the
disposition of Concepcion may influence their decision to pursue arbitration. The Supreme
Court granted a writ of certiorari on May 24, 2010, two months after the complaint was filed and
one week after Defendants filed their answer. Defendants, represented by sophisticated counsel
who indicated to the Court that he practices in California and is “very familiar” with the
Discover Bank rule (Id. at 4:1-9), certainly would have been aware of the Supreme Court’s
decision to review that rule and could have informed Plaintiffs that if the Supreme Court
reversed the Ninth Circuit that Defendants would revisit their decision to not seek arbitration.
Ultimately, the Court finds that the six Hoxworth factors weigh against a finding of
prejudice. This is not a case in which the party moving for arbitration has tactically pursued a
4
Notably, the record suggests, and Plaintiffs do not dispute that they have received the
benefit of discovery in that Defendants have disclosed “thousands and thousands of pages of
documents.” (Doc. No. 81 at 9:13-18.)
15
case in court only to reverse course after availing himself of the court system proved unfruitful.
Rather, Defendants here appear to have acted in good faith, only seeking arbitration after it
became clear that, in the wake of Concepcion, that option had become available. The Court
further notes that when Plaintiffs were asked directly about the prejudice they suffered as a result
of Defendants’ delay in seeking arbitration, they failed to identify any harm. At oral argument
the Court asked Plaintiffs’s counsel, “In the time that this case has been pending in this Court,
what efforts have you undertaken on behalf of Plaintiffs that would not have been necessary had
this case gone to arbitration?” (Id. at 14:13-16.) Plaintiffs’ counsel responded, “Honestly, I
can’t think of any at this point.” (Id. at 14:17-18.) When pressed again by the Court whether he
agreed with Defendants’ regarding the lack of prejudice, Plaintiffs’ counsel responded, “I
admitted that I wouldn’t have done anything different in arbitration.” (Id. at 24:4-13.) The
Third Circuit advises that “prejudice is the touchstone for determining whether the right to
arbitrate has been waived.” Hoxworth, 980 F.2d at 925. Because Plaintiffs have failed to
demonstrate the existence of prejudice sufficient to justify a finding of waiver, the Court cannot
refuse to enforce the arbitration agreement on this basis.
IV.
CONCLUSION
Upon a review of all the arguments, the Court must grant Defendants’ motion to compel
arbitration. There is no dispute that an arbitration agreement exists and that this dispute is
governed by that agreement. Plaintiffs’ arguments regarding unconscionability are squarely
foreclosed by the United States Supreme Court’s decision in Concepcion. Moreover, although
the Court is troubled that Defendants’ motion to compel arbitration was not filed until fifteen
months after this action commenced, it is undisputed that the reason for this delay was that
16
Concepcion represented a significant change in the state of the law. Because this intervening
change in the law of this circuit excuses Defendants’ delay, and because Plaintiffs have failed to
demonstrate prejudice, the Court cannot find that Defendants waived their right to proceed to
arbitration. Accordingly, pursuant to 9 U.S.C. § 3, the Court will grant Defendants’ motion to
compel arbitration and stay all further proceedings in this matter pending the outcome of the
arbitration of Plaintiffs’ claims.
17
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
STEPHEN BROWN, JR. and
MATTHEW JURY, Individually and
on behalf of all others similarly situated,
Plaintiffs
v.
TRUEBLUE, INC., f/k/a LABOR
READY, INC., and LABOR READY
NORTHEAST, INC.,
Defendants
:
:
:
:
:
:
:
:
:
:
:
Civil Action No. 1:10-CV-0514
Chief Judge Yvette Kane
ORDER
AND NOW, on this 22nd day of November 2011, IT IS HEREBY ORDERED THAT
Defendants’ motion to compel arbitration (Doc. No. 63) is GRANTED and this action is
STAYED pursuant to 9 U.S.C. § 3, pending arbitration. The parties are directed to file a joint
status report no later than January 31, 2012, apprising the Court of the status of this case.
S/ Yvette Kane
Yvette Kane, Chief Judge
United States District Court
Middle District of Pennsylvania
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