FRANCIS v. FIRSTENERGY CORP. et al
Filing
31
MEMORANDUM OPINION re: Motions to Compel Arbitration. Signed by Chief Judge Joy Flowers Conti on 8/13/2015. (ten)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
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Plaintiff,
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v.
) Civil Action No. 15-673
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FIRSTENERGY CORP, as owner of
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dissolved subsidiaries, MID-ATLANTIC
ENERGY DEVELOPMENT COMPANY and )
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FE AEQUISITION CORP,
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FIRSTENERGY GENERATION, LLC,
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formerly known as FIRSTENERGY
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GENERATION CORP.
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Defendants.
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MICHAEL S. FRANCIS,
MEMORANDUM OPINION
This is essentially a contract dispute in which plaintiff, Michael Francis
(“Francis”), seeks to recover monies owed to him pursuant to a November 18, 1999 Stock
Purchase Agreement (the “Agreement”). (ECF No. 1; ECF No. 1-2 (Agreement).) FirstEnergy
filed a motion to compel arbitration (ECF Nos. 12-13), and after Francis amended his complaint
to add an unjust enrichment claim, filed an amended motion to compel arbitration (ECF No. 2324). Francis filed responses in opposition to both motions. (ECF Nos. 18 and 30.) The court
held a conference on July 15, 2015, about preliminary matters, at which time all discovery was
stayed until further order of the court, and the parties were excused from their ADR obligations.
For the reasons set forth below, the motions to compel arbitration will be granted.
I. Factual Background
A. The Allegations of the Complaint(s)
In his complaint, Francis asserts four claims: (1) “injunction & spoliation
remedy;” (2) intentional interference with contract; (3) negligent interference with contract; and
(4) breach of contract. (ECF No. 1.) Francis’ amended complaint is a two-page document that
adds a fifth cause of action for unjust enrichment. (ECF No. 20.)
In short, Francis alleges that under a November 18, 1999 Stock Purchase
Agreement (the “Agreement”), he was entitled to a “Residual Value Payment” for certain power
plant equipment (the “Project Equipment”) on the fifteenth anniversary of the Agreement’s
execution (i.e., November 18, 2014). (ECF No. 1 ¶ 10.) At the time the Agreement was signed,
the Project Equipment was valued at $78,400,000. (ECF No. 1 ¶ 16.) Francis contends that the
Project Equipment was installed at a power plant in Defiance, Ohio, which was sold by
FirstEnergy Corporation (“FirstEnergy”) to Richland-Stryker Generation, LLC on October 19,
2011. (ECF No. 1 ¶¶ 10-23.) Under the Agreement, because the Project Equipment was sold
more than one year before the fifteen-year anniversary of the Agreement, the Residual Value of
the Project Equipment is the fair market value of “equipment of the same model, type, and
manufacturer as the Project Equipment.” (ECF No. 1-2 at 4 (Agreement § 1.4(a)(ii)).)
Francis asked FirstEnergy for a list of the “model, type, and manufacturer of each
item of Project Equipment” and for the sales price of the equipment in 2011 so that he could
determine the fair market value of the equipment, but FirstEnergy has been unable, or unwilling,
to provide that information to him. (ECF No. 1 ¶¶ 25-26.) Under the Agreement, if Francis and
FirstEnergy cannot agree on the fair market value of the Project Equipment, then independent
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appraisers are to be hired to resolve the dispute, according to a multi-step process set forth
explicitly in the agreement. (ECF No. 1-5 at 11 (Agreement § 1.4(a)(ii)(A)-(C)).)
There is apparently no dispute that Francis is entitled to some payment under the
Agreement, but there is a dispute about the amount of money he is owed. (ECF No. 13 at 1.)
Francis claims that because FirstEnergy destroyed the documents that would allow the
equipment to be valued, it is impossible for him to determine the fair market value of the Project
Equipment and “pursu[e] his contractual remedy” of being paid the Residual Value of the
equipment on the fifteenth anniversary of the Agreement. (ECF No. 1 ¶ 33.) Francis asks that,
as a remedy, “the beginning appraisal point [be] the sum of $78,400,000” when assessing the fair
market value of the equipment. (ECF No. 1 at 9, 12.)
B. The Motion(s) to Compel Arbitration
FirstEnergy filed a motion to compel arbitration relying upon section 6.5 of the
Agreement, which reads, in part: “Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.” (ECF No. 13 at 2, ECF
No. 24 at 5; ECF No. 1-2 at 17 (Agreement § 6.5 (the “Arbitration Clause”)).) According to
FirstEnergy, none of the five claims asserted by Francis “could exist without the Agreement,”
and therefore, all fall within the scope of the Agreement’s arbitration clause. (ECF No. 13 at 5;
ECF No. 24 at 5.)
Francis advances three arguments in opposition to the motion to compel
arbitration. First, he argues that the Agreement’s Arbitration Clause does not apply to requests
for equitable relief. (ECF No. 18 at 3-4; ECF No. 30 at 3-5.) Second, he argues that the
Arbitration Clause does not apply because he “could never have contemplated such tortious
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conduct on the part of the Defendants [i.e., destruction of the valuation documents] when
entering into the agreement.” (ECF No. 18 at 4-5; ECF No. 30 at 5-6.) Third, he argues that the
Arbitration Clause is unconscionable because it was “part of [a] plan” to destroy the documents
Francis needed in order to determine the fair market value of the Project Equipment, thus
preventing a “meaningful appraisal with the purpose of preventing his full compensation.” (ECF
No. 18 at 5; ECF No. 30 at 6.)
II.
Legal Standards
A. Choice of Law
The Agreement states that “all matters of construction, validity, and performance,
shall be governed by and construed in accordance with the internal substantive laws of the State
of Ohio, without regard to principles of conflict of laws.” (ECF No. 1-2 at 17 (Agreement §
6.5).) As a court sitting in diversity, this court is to apply federal procedural law and state
substantive law. Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996).
FirstEnergy’s motion to compel arbitration raises questions of federal arbitration law, questions
of state contract law, and procedural matters. In their briefing, the parties rely upon
Pennsylvania, Ohio, and federal law, without discussing why a particular law should apply in a
particular circumstance.
As indicated in the legal authorities discussed below, there is no articulable
difference in the potentially applicable laws, thus avoiding the possibility for conflict, and the
risk that different results could be reached depending upon what law this court applies. Federal
law applies to many of the issues raised by FirstEnergy’s motion to compel arbitration, and
where state law controls, the result would not differ if Pennsylvania or Ohio law were applied.
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B. Generally-Applicable Principles of Arbitration Law
The Federal Arbitration Act (the “FAA”) “was enacted in 1925 in response to
widespread judicial hostility to arbitration agreements” and with the “principal purpose” of
“ensuring that private arbitration agreements are enforced according to their terms.” AT&T
Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1745 (2011). The FAA reflects a “‘liberal federal
policy favoring arbitration’” and the “‘fundamental principle that arbitration is a matter of
contract.’” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983);
see Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010). Accordingly, “courts must place
arbitration agreements on an equal footing with other contracts…and enforce them according to
their terms.” AT&T Mobility, 131 S.Ct. at 1746. “As a matter of federal law, any doubts
concerning the scope of arbitrable issues should be resolved in favor of arbitration.” AT & T
Techs., Inc. v. Comm'n Workers of Am., 475 U.S. 643, 650 (1986); Moses H. Cone Mem'l Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983).
C. Unconscionability
The Supreme Court has instructed that, in determining the enforceability of
arbitration agreements, federal courts “should apply ordinary state-law principles that govern the
formation of contracts.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 983, 944 (1995).
“Thus, generally applicable state-law contract defenses like fraud, forgery, duress, mistake, lack
of consideration or mutual obligation, or unconscionability, may invalidate arbitration
agreements.” Gay v. Creditinform, 511 F.3d 369, 388 (3d Cir. 2007); Cooper v. MRM
Investment Co., 367 F.3d 493, 498 (6th Cir. 2004); Blair v. Scott Specialty Gases, 283 F.3d 595,
603 (3d Cir. 2002).
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Where a party challenges the validity of an arbitration agreement on the ground
that it is unconscionable, a threshold question of arbitrability is presented, which must be decided
by the court, before arbitration can be compelled. Rent-A-Center, West, Inc. v. Jackson, 561 U.S.
63, 70-71 (2010). Federal courts are to apply state contract law, to the extent that it does not
conflict with the FAA, to determine whether an arbitration agreement is unconscionable. AT&T
Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1746-47, 1753 (2011). Nevertheless, “[w]hile
ambiguities in the language of the agreement should be resolved in favor of arbitration, [courts]
do not override the clear intent of the parties, or reach a result inconsistent with the plain text of
the contract, simply because the policy favoring arbitration is implicated. Arbitration under the
FAA is a matter of consent, not coercion.” E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 294
(2002).
To prove unconscionability under Pennsylvania law, the party challenging the
provision bears the burden of proving that the contract was both procedurally and substantively
unconscionable. Quilloin v. Tenet HealthSystem Phila., Inc., 673 F.3d 221, 230 (3d Cir. 2012);
see Harris v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999). A contract is
procedurally unconscionable where “there was a lack of meaningful choice in the acceptance of
the challenged provision.” Quilloin, 673 F.3d at 235 (citing Salley v. Option One Mortgage
Corp., 592 Pa. 323, 925 A.2d 115, 119 (2007)). Courts consider factors such as the take-it-orleave-it nature of the arbitration agreement, the bargaining power of the contracting parties, and
the degree of economic compulsion on the party signing the agreement. Id. at 235-36. An
arbitration agreement is substantively unconscionable where it is “unreasonably or grossly
favorable to one side.” Harris, 183 F.3d at 181. An arbitration agreement cannot be
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substantively unconscionable if 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).
To demonstrate that an arbitration clause is unconscionable under Ohio law, the
party asserting unconscionability must prove that the clause is both substantively and
procedurally unconscionable. Hayes v. Oakridge Home, 908 N.E.2d 408, 412-15 (Ohio 2009).
Unconscionability consists of both an absence of meaningful choice for the party opposing
enforceability of the agreement (procedural unconscionability), combined with contract terms
that are unreasonably favorable to the other party (substantive unconscionability). Id. To
determine whether an arbitration clause is procedurally unconscionable, courts have considered
factors such as whether: (1) the arbitration clause was presented on a “take-it-or-leave-it basis;”
(2) a disparity in bargaining power exists between the parties; (3) the arbitration clause was
hidden in small print within the document; and (4) one of the parties could unilaterally modify
the agreement. Stachurski v. DirecTV, Inc., 642 F. Supp. 2d 758, 767 (N.D. Ohio 2009). To
determine whether an arbitration clause is substantively unconscionable, a court must consider
the terms of the clause and whether they are commercially reasonable. Id. at 770. Because the
Supreme Court of Ohio has not adopted a “bright-line set of factors” to determine substantive
unconscionability, “factors to be considered vary with the content of the agreement at issue.” Id.
Any claim that an arbitration clause is unconscionable because it limits the remedies available to
a party is for the arbitrator to decide in the first instance. Taylor Bldg. Corp. of Am. v. Benfield,
884 N.E.2d 12, 28 (Ohio 2008).
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D. Arbitrability
Because the FAA is “at bottom a policy guaranteeing the enforcement of private
contractual arrangements,” courts must first look to whether the parties agreed to arbitrate a
dispute to determine the scope of the agreement. Waffle House, 534 U.S. at 294 (citing
Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 625 (1985)). “It is
well settled in both commercial and labor cases that whether parties have agreed to ‘submit a
particular dispute to arbitration’ is typically an ‘issue for judicial determination.’” Granite Rock
Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 296 (2010) (quoting Howsam v. Dean Witter
Reynolds, Inc., 537 U.S. 79, 83 (2002) (additional citations omitted)).
When considering a motion to compel arbitration under the FAA, a court has four
tasks: (1) it must determine whether the parties agreed to arbitrate; (2) it must determine the
scope of the arbitration agreement; (3) if federal statutory claims are asserted, it must consider
whether Congress intended those claims to be non-arbitrable; and (4) if the court concludes that
some, but not all, the claims in the action are subject to arbitration, it must determine whether to
stay the remainder of the proceedings pending arbitration. Fazio v. Lehman Bros., Inc., 340 F.3d
386, 395 (6th Cir. 2003); Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000). The first two
tasks are also described as determining whether a dispute is “arbitrable,” i.e., a valid arbitration
agreement exists and the specific dispute falls within the scope of the agreement. Hergenreder v.
Bickford Sr. Living Grp., LLC, 656 F.3d 411, 415-16 (6th Cir. 2011). The Court of Appeals for
the Third Circuit articulates the issue of arbitrability as follows: “[T]he threshold questions a
district court must answer before compelling or enjoining arbitration are these: (1) Did the
parties seeking or resisting arbitration enter into a valid arbitration agreement? (2) Does the
dispute between those parties fall within the language of the arbitration agreement?” John
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Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 137 (3d Cir. 1998). “In conducting this
limited review, the court must apply ordinary contractual principles, with a healthy regard for the
strong federal policy in favor of arbitration.” Id. To determine whether a dispute falls within the
scope of an arbitration agreement, a court is directed to ask whether the action could be
maintained without reference to the contract or relationship at issue.” Fazio, 340 F.3d at 395.
III.
Discussion
A. Unconscionability
Francis contends that the Arbitration Clause is unconscionable because it would
“effectively deny Mr. Francis access to contractual appraisal because the documents are
destroyed.” (ECF No. 18 at 5; ECF No. 30 at 6.) According to Francis, the Arbitration Clause
was (presumably from its inception in 1999) part of a fraudulent plan to destroy valuation
documents (in 2011) in order to prevent Francis (in 2015) from being fully compensated for the
Residual Value of the Project Equipment. (Id.) Francis’ allegations fail to rise to the level of
establishing unconscionability under Pennsylvania or Ohio law.
To demonstrate that an arbitration clause is unenforceable, Francis must prove
both procedural and substantive unconscionability. Quilloin, 673 F.3d at 230; see Harris, 183
F.3d at 181; Hayes, 908 N.E.2d at 412-15. A contract is procedurally unconscionable where
“there was a lack of meaningful choice in the acceptance of the challenged provision” and courts
consider the take-it-or-leave-it nature of the arbitration agreement, the bargaining power of the
contracting parties, the degree of economic compulsion on the party signing the agreement,
whether the arbitration clause was hidden in small print, and whether one of the parties could
unilaterally modify the agreement Quilloin, 673 F.3d at 235-36; Stachurski, 642 F.Supp.2d at
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767. An arbitration agreement is substantively unconscionable where it is “unreasonably or
grossly favorable to one side” or commercially unreasonable. Harris, 183 F.3d at 181.
Under Pennsylvania law, an arbitration agreement cannot be substantively
unconscionable if it “does not alter or limit the rights and remedies available to [a] party in the
arbitral forum....” HOVENSA, 497 F.3d at 364; Stachurski, 642 F.Supp.2d at 770. Ohio law
suggests that such a challenge must be made to the arbitrator; it does not prevent enforcement of
an arbitration clause. Taylor Bldg, 884 N.E.2d at 28.
Although Francis’ allegations are sparse with respect to this challenge, he appears
to contend that his rights and remedies are altered by the Arbitration Clause because he is denied
his contractual right to an appraisal because FirstEnergy destroyed the valuation documents.
(ECF No. 18 at 5; ECF No. 30 at 6.) Under Ohio law, such an argument would be made to the
arbitrator. Under Pennsylvania law, this would be a substantive unconscionability argument.
The argument is without merit.
The Arbitration Clause has no substantive effect on Francis’ right to invoke the
appraisal process or to collect a Residual Value Payment under the Agreement. He is entitled to
the payment under section 1.4 of the Agreement, and if a consensus on the amount of the
payment cannot be reached through the appraisal process, then the matter will be resolved in
arbitration. It is yet to be determined whether FirstEnergy’s alleged destruction of valuation
documents has any impact on the amount of Francis’ Residual Value Payment. But the
Arbitration Clause has no effect on that issue. Whether in a court or at arbitration, Francis can
present his arguments about the proper sanction to be imposed upon FirstEnergy for allegedly
destroying the valuation documents. An arbitrator could agree with Francis and accept his
suggestion that the value of the Program Equipment start at nearly $80,000,000, and impose the
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burden upon FirstEnergy to prove any appropriate deductions or depreciation. A court could
reach that conclusion as well. The arbitrator and a court could also entirely reject Francis’
position. Regardless of which scenario occurs, Francis’ substantive rights and remedies under
the Agreement are in no way affected by the forum in which the argument will be made. As
discussed below, as a matter of arbitration law, an arbitrator has full authority to consider
FirstEnergy’s alleged destruction of documents and award whatever equitable relief that is
deemed appropriate, including sanctions and adverse inferences. Francis’ rights and remedies
are not affected in any way by the Arbitration Clause. The Arbitration Clause is, therefore, not
substantively unconscionable for the reason advanced by Francis.
Because Francis’ allegations cannot establish substantive unconscionability,
procedural unconscionability is irrelevant. In any event, it appears that Francis contends that the
Arbitration Clause is procedurally unconscionable because it was included in the Agreement as a
vehicle intended to defraud him of his right to a Residual Value Payment. Francis presents no
evidence that the Arbitration Clause was presented as a take-it-or-leave-it proposition, he lacked
choice or bargaining power in executing the Agreement, or he was subject to economic
compulsion. The Agreement contradicts the suggestion that it was anything other than an arms’
length, commercial transaction between parties that were both represented by counsel. (ECF No.
105 at 16 (Agreement § 6.2 (Notices)).) The Arbitration Clause was not hidden in small print.
The Agreement does not reflect that FirstEnergy had the power to unilaterally modify the
Agreement. Under these circumstances, Francis failed to establish that the Arbitration Clause is
procedurally unconscionable by advancing his theory that it was the first step in a scheme to
deprive him of a Residual Value Payment.
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Francis failed to meet his burden to prove that the Arbitration Clause is
substantively and procedurally unconscionable, and it is therefore valid and enforceable.
B. Arbitrability
Because the Agreement, and its Arbitration Clause are valid, the court must
determine whether the dispute between Francis and FirstEnergy about the Residual Value
Payment falls within the language and scope of that clause. Francis acknowledges in his
complaint that this dispute, and the remedy that he seeks, are contractual. In the complaint
Francis avers that FirstEnergy is preventing him from “pursuing his contractual remedy” and
from “performing under §1.4 of the [Agreement].” (ECF No. 1 ¶¶ 36, 42, 44, and 48.) In the
amended complaint, Francis alleges that FirstEnergy is “thwarting [his] ability to be
compensated under the Residual Value provision” of the Agreement. (ECF No. 20 ¶ 52.) An
action to recover a payment that was promised in a written contract cannot be characterized as
anything other than a dispute “arising out of or related to” that contract. (ECF No. 1-5 at 17
(Agreement § 6.5).) None of the arguments Francis advances in an attempt to avoid the
Arbitration Clause can overcome his own admissions and the plain language of the Agreement.
The court will, nevertheless, address each in turn below.
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1) Equitable Relief
Francis contends that the Arbitration Clause does not apply because he seeks
equitable relief. According to Francis, because the Agreement contains a separate provision,
entitled “Injunctive Relief,” “the parties clearly did not want to subject claims for equitable relief
to the arbitration process.” (ECF No. 18 at 3; ECF No. 30 at 4.) The provision to which Francis
refers is section 6.1, which states:
In the event of a breach of this Agreement for which monetary
damages are inadequate, the non-breaching party shall be
entitled to all remedies available under applicable law or in
equity, including specific performance and other injunctive
relief and, in the event that the non-breaching party seeks an
equitable remedy, the breaching party expressly waives and
shall not raise in any action or proceeding, the defense that an
adequate remedy at law exists.
(ECF No. 1-2 at 15 (Agreement § 6.1).) This provision appears in the same Article of the
Agreement, entitled “Miscellaneous,” as does the Arbitration Clause. (Id.)
Francis claims that if he is compelled to arbitrate his claims, he will “be afforded
no meaningful remedy for [FirstEnergy’s] spoliation of evidence” because “[a]rbitration is not
meant to address equitable relief.” (ECF No. 18 at 4; ECF No. 30 at 5.) The Agreement directly
and explicitly contradicts Francis’ argument, and the legal authority cited by Francis does not
stand for the proposition that arbitration clauses do not apply when equitable relief is sought.
Subsection 6.5(g) of the Agreement, which appears in the “Dispute Resolution;
Choice of Law” section of the Agreement along with the Arbitration Clause, states that “[t]he
arbitrator(s) shall be entitled to award injunctive relief.” (ECF No. 1-2 at 18 (Agreement §
6.5(g).) Subsection 6.5(d) indicates that “[a]ny provisional remedy that would be available from
a court of law shall be available from the arbitrator… pending the arbitration hearing,” such as,
presumably, a temporary restraining order, preliminary injunction, litigation hold, or stand-still
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order. (Id. (Agreement § 6.5(d).) These provisions indicate that the parties intended to make
equitable relief available in arbitration under the Agreement.
Section 6.1, on which Francis relies, does not indicate to the contrary. That
section is silent with respect to the forum in which equitable relief can be sought, and instead
speaks to the kinds of remedies available and defenses that can be asserted. A section that is
silent with respect to the forum in which a dispute may be resolved, cannot override clear
statements made in section 6.5 and subsections 6.5(d) and (g) that equitable relief would be
available in arbitration.
The two decisions cited by Francis in support of his contention that the
Arbitration Clause does not apply because he seeks equitable relief, Green Tree Financial
Corporation v. Bazzle, 539 U.S. 444 (2003) and Granite Rock Company v. International
Brotherhood of Teamsters, 561 U.S. 287 (2010), do not stand for that proposition. (ECF No. 28
at 4; ECF No. 30 at 5.) The court is aware of no limitation on an arbitrator’s fashioning of
equitable relief, barring a contractual provision prohibiting it. To the contrary, Rule 47(a) of the
Commercial Arbitration Rules of the American Arbitration Association, which the Arbitration
Clause states will apply, provides that “the arbitrator my grant any remedy or relief that the
arbitrator deems just and equitable…including, but not limited to, specific performance of a
contract.”
Finally, Francis’ contention that the Arbitration Clause effectively denies him
relief for FirstEnergy’s alleged spoliation of the documents needed to determine the fair market
value of the Project Equipment is not well-founded. There is nothing in the Agreement
preventing Francis from apprising the arbitrator of FirstEnergy’s alleged spoliation of the
documents, and asking for the same spoliation penalty that he asks for in Count I of his
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complaint, i.e., that the valuation of the Project Equipment begin at $78,400,000. Francis is
denied no kind of relief as a result of the Arbitration Clause.
Because Francis is able to seek equitable relief through arbitration, his pleading of
a claim for “Injunction & Spoliation Remedy” in Count I does not foreclose enforcement of the
Arbitration Clause.
2) Tortious Conduct not Contemplated
Francis argues that the Arbitration Clause cannot be enforced because Francis
could not have contemplated at the time of contracting that FirstEnergy would ensure that the
Agreement was written so that it could destroy valuation documents about the Project Equipment
and then refuse to fully compensate Francis because the documents no longer exist. (ECF No. 18
at 4; ECF No. 30 at 5.) Francis does not present this as a defense to contract formation, but as a
reason why this particular dispute should not be subject to the arbitration.
To reiterate, the present dispute concerns Francis’ attempt to collect the Residual
Value Payment provided for under section 1.4 of the Agreement. Francis alleges that
FirstEnergy has “thwarted” his ability to collect that payment by destroying documents needed to
evaluate the fair market value of the Project Equipment. The documents have no inherent value,
and Francis does not claim to have a possessory interest in them. Instead, he is complaining that
FirstEnergy destroyed them as a way to prevent Francis from valuating the Project Equipment
and obtaining his Residual Value Payment. Francis contends that this matter is not subject to
arbitration because he never could have anticipated that FirstEnergy would destroy the valuation
documents.
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Whether a particular cause of action, or factual scenario, is “contemplated” at the
time an arbitration clause is signed is not the test of arbitrability. Courts are instead directed to
ask whether the action falls within the scope of the agreement to arbitrate. In this case, Francis
and First Energy agreed to arbitration “[a]ny controversy or claim arising out of or relating to
this Agreement.” (ECF No. 105 at 17 (Agreement § 6.5).) Francis’ prayers for relief all are
explicitly based upon the Agreement, and his right to receive a Residual Value Payment exists
only because of the Agreement. (ECF No. 1 ¶¶ 36, 42, 44, and 48; ECF No. 20 ¶ 52.) There can
be no doubt that this dispute arises out of and relates to the Agreement.
Francis’ allegations about FirstEnergy allegedly destroying the valuation
documents, and his assertion of a claim for “Injunction & Spoliation Remedy” do not take the
dispute outside the scope of the Agreement. Were Francis a stranger to the Agreement, he would
have no interest in what FirstEnergy did with respect to documentation about the Project
Equipment. His interest in those documents is dependent upon and derivative of his contractual
right to obtain a Residual Value Payment under the Agreement. Under the proper test, Francis
could bring no cause of action against FirstEnergy, including any cause of action based upon
FirstEnergy’s alleged destruction of valuation documents, without invoking his contractual right
to A Residual Value Payment under the Agreement. This dispute, therefore, falls within the
scope of the Arbitration Clause.
C. Summary
The Agreement states that “[a]ny controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.” (ECF No. 13 at 2, ECF
No. 24 at 5; ECF No. 1-2 at 17 (Agreement § 6.5 (the “Arbitration Clause”)).) Each of Francis’
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claims explicitly depend upon his contractual right to obtain a Residual Value Payment under
section 1.4 of the Agreement, and FirstEnergy’s purported plans and schemes to ensure that he
does not receive it. Such a dispute, regardless of the legal cause of action assigned to it, falls
within the language of the arbitration agreement. Francis failed to make any showing that the
Agreement, or its Arbitration Clause, is unconscionable. Francis’ arguments with respect to
why this dispute falls outside the scope of the Arbitration Clause lack merit. Arbitration must be
compelled.
IV.
Conclusion
For the foregoing reasons, FirstEnergy’s motions to compel arbitration (ECF Nos.
12 and 23) must be granted. This case will be stayed, and administratively closed, pending
resolution of arbitration. 9 U.S.C. § 3; Lloyd v. Hovensa, 369 F.3d 263, 270-71 (3d Cir. 2004).
An appropriate order will be filed contemporaneously with this opinion.
Dated: August 13, 2015
BY THE COURT:
/s/ Joy Flowers Conti
Joy Flowers Conti
Chief United States District Judge
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