Hayward v. Trinity Christian Center of Santa Anna
Filing
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MEMORANDUM OPINION OF THE COURT. Signed by District Judge Aleta A. Trauger on 3/24/15. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(afs)
UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
DUANE HAYWARD,
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Plaintiff,
v.
TRINITY CHRISTIAN CENTER OF
SANTA ANA,1
Defendant.
Case No. 3:14-cv-2282
Judge Trauger
MEMORANDUM
Pending before the court is a Motion to Dismiss or, Alternatively, to Transfer (Docket
No. 7) filed by the defendant, Trinity Christian Center of Santa Ana (“Trinity”). The plaintiff
has filed a Response in opposition (Docket No. 10) to the defendant’s Motion, to which the
defendant has filed a Reply (Docket No. 15), and the plaintiff has filed a Sur-Reply with the
court’s permission (Docket No. 18). For the reasons stated herein, the court will order the parties
to submit supplemental briefing related to the enforceability of the arbitration agreement.
BACKGROUND
I.
Allegations of the Plaintiff’s Complaint
On November 20, 2014, the plaintiff, Duane Hayward, filed this action against Trinity,
his former employer. Trinity is a church and California religious non-profit corporation that
does business in Tennessee as Trinity Broadcasting Network. In his Complaint, Hayward alleges
that, between 2006 and 2008, he worked at Trinity as a production technician and, beginning in
January 2008, as a facilities supervisor. Upon his promotion to facilities supervisor, Hayward
1
It appears from the defendant’s brief that, in the plaintiff’s initial filings, the defendant’s name
was misspelled. The correct spelling appears to be “Trinity Christian Center of Santa Ana.” The
court will use the correct spelling in this Memorandum and, going forward, requests that the
parties do the same.
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and Trinity executed a Comprehensive Arbitration Agreement (the “Agreement”). (Docket No.
9, Ex. 1.) The Agreement states, in relevant part:
I [Hayward] agree and acknowledge that the Company and I will utilize binding
arbitration to resolve all disputes that may arise out of the employment context.
Both the Company and I agree that any claim, dispute, and/or controversy that I
may have . . . shall be submitted to and determined exclusively by binding
arbitration under the Federal Arbitration Act under the jurisdiction of the County
of Orange in the state of California, also in conformity with the procedures of the
California Arbitration Act (Cal. Code. Civ. Proc. Sec. 1280 et seq., including
section 1283.05 and all of the Act’s other mandatory and permissive rights to
discovery).
(Id. (emphasis added).) The Agreement sets forth additional terms for arbitration, including that
(1) the arbitrator selected shall be a retired California Superior Court Judge, or otherwise
qualified individual to whom the parties mutually agree; (2) the parties should adhere to the rules
of procedure set forth by the California Code of Civil Procedure; and (3) the Agreement should
not prevent the plaintiff from filing proceedings before California’s Department of Fair
Employment or Housing or the United States Equal Employment Opportunity Commission.
Hayward signed the Agreement on February 12, 2008. In an affidavit submitted in
support of his opposition to the pending motion, Hayward states that he does not recall signing
the Agreement, but he presumes that it was one of many documents that he was required to sign
as a condition of his employment when he was converted from part-time status to a full-time role
as facilities manager. (Docket No. 12.) Hayward further states that he signed the agreement the
same day it was given to him and that he was not given an opportunity to consider the agreement
or to consult with an attorney prior to signing it. (Id.)
According to the Complaint, as the facilities supervisor of Trinity’s Hendersonville
location, Hayward was responsible for general maintenance of about 15 buildings situated on 37
acres of land, including landscaping and electrical work. Hayward alleges that, between his
promotion to facilities manager in 2008 and December 2013, he was classified as an exempt
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employee and, therefore, he did not receive overtime pay for hours that he worked in excess of
40 hours per week. Hayward alleges further that, during this period, he regularly worked over 40
hours a week, typically working an average of 50 hours per week. Hayward alleges that, in
2013, he began to inquire whether he was properly classified as an exempt employee. Hayward
further alleges that, in December 2013, Trinity voluntarily reclassified him as a non-exempt
employee and began paying him on an hourly basis. Trinity terminated Hayward in August
2014.
II.
This Action
Hayward filed this action on November 20, 2014, alleging that Trinity failed to properly
compensate him for his overtime pay during the period that he was classified as an exempt
employee. Hayward’s Complaint alleges that Trinity was aware of Hayward’s misclassification
and, therefore, willfully violated the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.
(“FLSA”), by failing to properly compensate him.
Trinity filed the pending motion on December 16, 2014. Specifically, the defendant
argues that this action should be dismissed because the Agreement requires that the plaintiff’s
claims be arbitrated in Orange County, California.
ANALYSIS
I.
The Federal Arbitration Act
The Federal Arbitration Act (“FAA”) was enacted to overcome courts’ reluctance to
enforce arbitration agreements. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270
(1995); see also Cooper v. MRM Inv. Co., 367 F.3d 493, 498 (2004) (“Congress enacted the
Federal Arbitration Act . . . ‘to place arbitration agreements upon the same footing as other
contracts.’”). Section 2 of the FAA states: “[a] written provision in any maritime transaction or
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contract evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction. . . 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 (emphasis added).
“As a matter of federal law, any doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24-25 (1983); Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 652-53 (6th Cir. 2003)
(en banc). Nevertheless, “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the
substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather
than a judicial, forum.” Gilmer, 500 U.S. at 6. Accordingly, an agreement to arbitrate is valid
“so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action
in the arbitral forum.” Green Tree Fin. Corp.-Ala v. Randolph, 531 U.S. 79, 90 (2000) (citing
Gilmer, 500 U.S. at 28). However, even if an arbitration provision is unenforceable, it is well
settled that the unenforceable provision should be severed in favor of arbitration, unless the
provision taints the entire agreement. Morrison, 317 F. 3d at 675.
As the Sixth Circuit has noted, the Supreme Court has endorsed arbitration in the
employment law context, including claims asserted under statutes like the FLSA. Cooper, 367
F.3d at 498-99 (citing Circuit City Stores v. Adams, 532 U.S. 105, 122-23 (2001)). “The
Supreme Court has emphasized that ‘federal statutory claims may be the subject of arbitration
agreements . . . enforceable pursuant to the FAA because the agreement only determines the
choice of forum.’” Morrison, 317 F.3d at 653 (citing E.E.O.C. v. Waffle House, Inc., 534 U.S.
279, 295 n.10 (2002)).
II.
Assessing Enforceability of Arbitration Agreements, Generally
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“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 (quoting
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)). “It is similarly well settled
that where the dispute at issue concerns contract formation, the dispute is generally for courts to
decide.” Granite Rock Co., 561 U.S. at 296.
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.”
Cooper, 367 F.3d at 498 (citing Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687 (1996)). “The
federal policy favoring arbitration, however, is taken into consideration even in applying
ordinary state law.” Id. (internal citations omitted). 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.” Waffle House, 534 U.S. at 294.
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The Agreement between Hayward and Trinity was executed in Tennessee and, therefore,
Tennessee state law principles and contract defenses are relevant to the consideration of whether
or not the Agreement is enforceable. The Sixth Circuit and federal courts have routinely held
arbitration agreements invalid in circumstances where the agreements lack consideration,
mutuality of obligation, or where the record demonstrates that employees did not knowingly and
voluntarily waive their constitutional right to trial. See, e.g., Walker v. Ryan’s Family Steak
House, 289 F. Supp.2d 916, 936 (M.D. Tenn. 2003); aff’d, 400 F.3d 370, 381 (6th Cir. 2005),
cert. denied, 546 U.S. 1030 (2005); Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306,
315-16 (6th Cir. 2000).
III.
The Plaintiff’s Opposition to the Motion to Dismiss
In relevant part, the Agreement states that any claim by Hayward “shall be submitted to
and determined exclusively by binding arbitration under the Federal Arbitration Act under the
jurisdiction of the County of Orange in the state of California, and also in conformity with the
procedures of the California Arbitration Act.”
The issue briefed by the parties with respect to the defendant’s motion is fairly simple: is
the arbitration agreement between the parties unenforceable because it is cost-prohibitive to the
plaintiff? The plaintiff challenges the Agreement only on the ground that the arbitration
agreement is cost-prohibitive because it requires Hayward and the defendant to split the fees of
arbitration equally. Because of his financial circumstances and the significant costs associated
with arbitration in California, Hayward contends that the Agreement is cost-prohibitive and
would have the effect of deterring him and similarly situated individuals from seeking to
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vindicate their federal statutory rights. Consequently, the plaintiff argues, the court should hold
that the agreement is unenforceable and deny the defendant’s motion. 2
Conversely, the defendant argues that, according to a judicial exception created by the
California Supreme Court, the defendant will be responsible for the bulk of fees unique to
arbitration and, therefore, the agreement should not be deemed unenforceable on the ground of
cost-prohibition. The briefs submitted by the parties are limited to this narrow issue of whether
or not the agreement is cost-prohibitive to the plaintiff and, specifically, what provision of
California law defines the obligation that each party has to pay the costs of the arbitration.
The plaintiff’s argument presents two questions to the court: (1) what cost-splitting
provision applies to the Agreement, if any, and (2) whether the agreement is enforceable. Before
reaching these inquiries, the court must determine whether the parties agreed to arbitrate a
dispute—i.e., whether a valid contract was formed. Waffle House, 534 U.S. at 294.
IV.
Whether Hayward and Trinity Agreed to Arbitrate Employment Disputes
A. Mutual Promises under Tennessee Law
1. Elements of Formation
One of the essential elements of a contract is adequate consideration, which Tennessee
law defines as “either a benefit to the maker of a promise or a detriment to or obligation on the
promise” or “when the promise does something that he is under no obligation to do, or refrains
from doing [that] which he has a legal right to do.” Calabro v. Calabro, 15 S.W.3d 873, 876, 77
(Tenn. Ct. App. 1999) (quoting Univ. of Chattanooga v. Stansberry, 9 Tenn. App. 341, 343
(Tenn. Ct. App. 1928) and Kozy v. Werle, 902 S.W.2d 404, 411 (Tenn. Ct. App. 1995))
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The court notes that the plaintiff, in his opposition brief, did not address the principle of
severability. Morrison, 317 F.3d at 653. Consequently, neither party suggested how the court
should rule if it finds only the cost-splitting provision of the Agreement to be unenforceable.
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(alterations in original). Mutual promises may constitute ample consideration for a contract,
especially in the context of services contracts. See Buraczynski v. Eyring, 919 S.W.2d 314, 321
n.6 (Tenn. 1996); Rodgers v. Southern Newspapers, Inc., 379 S.W.2d 797, 800 (1964). Mutual
promises to be bound under an arbitration agreement can constitute adequate consideration. See
Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351, 358 (Tenn. Ct. App. 2001).
Nonetheless, “a promise constitutes consideration for another promise only when it
creates a binding obligation. Thus, absent a mutuality of obligation, a contract based on
reciprocal promises lacks consideration.” Floss, 211 F.3d at 315-16. “In other words, a promise
is legally enforceable only if the promisor receives in exchange for that promise some act or
forbearance, or the promise thereof.” Id. (internal citations omitted). One way in which a
promise may fail to create a legally binding obligation is by being illusory—essentially
promising nothing at all, or allowing the promisor to decide whether or not to perform the
promised act. Id. “A promise is also illusory when its indefinite nature defies legal
enforcement.” Id.
A court reviewing a contract must also be able to ascertain what obligations the
respective parties have in the performance of the contract, and the contract must be sufficiently
definite and certain to allow the court to make such a determination. See id.; Jamestown on
Signal, Inc. v. First Fed. Sav. & Loan Ass’n, 807 S.W.2d 559, 565 (Tenn. Ct. App. 1990); see
also Peoples Bank of Elk Valley v. ConAgra Poultry Co., 832 S.W.2d 550, 553 (Tenn. Ct. App.
1991).
2. Obligations of Hayward and Trinity under the Agreement
Here, the Agreement contains several California-specific provisions. First, the contract
notes that claims should be “submitted to and determined exclusively by binding arbitration . . .
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under the jurisdiction of the County of Orange in the state of California.” Second, the contract
specifically identifies certain remedies that the employee retains under California law, including
the right to file and pursue proceedings before the California Department of Fair Employment
and Housing. Third, the Agreement identifies a variety of other California rules that may apply
to any disputes among the parties, including rules of pleading, evidence, and judgment governed
by California’s Code of Civil Procedure. Finally, the Agreement defines its scope by referencing
a variety of California statutory claims, including claims arising under the California Workers’
Compensation Act, Employment Development Department, and the California Fair Employment
and Housing Act.3
Here, the employee, Hayward, is a Tennessee resident who signed the Agreement in
Tennessee at his employer’s Tennessee facility—the only Trinity facility at which he ever
worked. Based upon these facts, Hayward presumably has no rights under California law. The
court has no reason to believe that he could invoke the statutory protection of the California
Workers’ Compensation Act, file claims with the California Employment Development
Department claims, or initiate proceedings with the California Department of Fair Employment
and Housing. A substantial portion of the Agreement appears to be inapplicable to Hayward.
The court is also concerned regarding the Agreement’s terms as to where an arbitration
would take place. The defendant assumes that the Agreement requires that the parties arbitrate in
Orange County, California. However, the Agreement merely states that “any claim . . . shall be
submitted to and determined exclusively by binding arbitration . . . under the jurisdiction” of
Orange County, California. Although there is, in fact, a Superior Court of California located in
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Notably, the Agreement makes no mention of Tennessee or any other state.
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Orange County, California, it is unclear to the court how an arbitration falls “under the
jurisdiction” of a state trial court.
Upon review of the contract’s terms for the purpose of determining the parties’
obligations, the court concludes that the Agreement appears to be written for individuals working
for Trinity in California—not in Tennessee. Consequently, the court has concern regarding
whether the Agreement’s terms are sufficiently definite and certain so as to require the parties to
arbitrate this dispute. This concern is heightened by Hayward’s sworn affidavit, which suggests
that Hayward does not recall signing the Agreement, does not recall considering the Agreement,
and did not have a chance to carefully review the Agreement by himself or with counsel before
signing. For this reason, the court will request additional briefs from the parties related to
whether the Agreement’s terms reflect an agreement to arbitrate.
B. Enforceability of an Adhesion Contract
1. Adhesion Contracts, Generally
In addition to the Agreement’s terms, the court is similarly troubled by the circumstances
of the Agreement’s formation. Under Tennessee law, an adhesion contract is a standardized
form offered on what amounts to a “take it or leave it” basis, without affording the weaker party
a realistic opportunity to bargain, and under conditions whereby the weaker party can only obtain
the desired product, service, or employment by submitting to the form of the contract.
Buraczynski, 919 S.W.2d at 320. According to the affidavit submitted by Mr. Hayward, he does
not recall signing the Agreement, but “presume[s] it was one of those many, many documents
that he was required to sign as a condition of his employment.” (Docket No. 12.) Moreover,
given the inclusion of California-specific terms that have no applicability to Hayward (or for that
matter, any employee outside of California), it may be that the contract is a standardized form
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given to all Trinity employees. Finally, Hayward’s affidavit suggests that, if he did not sign the
agreement, he would not have been considered for employment.
2. Unconscionability
Adhesion contracts are only unenforceable in Tennessee when the terms are beyond the
reasonable expectations of an ordinary person, or oppressive or unconscionable. Buraczynski,
919 S.W.2d at 320; see also Pyburn, 63 S.W.3d at 359. Under Tennessee law, a contract is
unconscionable when “the inequality of the bargain is so manifest as to shock the judgment of a
person of common sense, and where the terms are so oppressive that no reasonable person would
make them on the one hand, and no honest and fair person would accept them on the other.”
Haun v. King, 690 S.W.2d 869, 872 (Tenn. Ct. App. 1984). Courts draw a distinction between
procedural unconscionability, which contemplates a lack of meaningful choice on the part of one
party, and substantive unconscionability, which contemplates contract terms that are
unreasonably harsh. Trinity Indus., Inc. v. McKinnon Bridge Co., 77 S.W.3d 159, 171 (Tenn. Ct.
App. 2001). The Tennessee Court of Appeals directed courts undertaking an unconscionability
inquiry to consider all of the facts and circumstances of a particular case and find a contract
unconscionable when its provisions are “so one-sided that the contracting party is denied any
opportunity for a meaningful choice.” Haun, 690 S.W.2d at 872. Such circumstances to be
considered include the method by which the employer presented the employee with the
agreement, additional oral instructions or context with respect to the agreement given by the
employer to the employee (if any), and the amount of clarity that the agreement provides to the
employee as to the exact effects of his signature thereto.
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3. Knowing and Voluntary Waiver
The question of waiver of the right to a jury trial is governed by federal, not state, law.
See Walker, 289 F. Supp.2d at 936. The Sixth Circuit has instructed that, to evaluate whether a
plaintiff has knowingly and voluntarily waived his or her right to pursue employment claims in
federal court, the following factors must be evaluated (1) the plaintiff’s experience, background,
and education; (2) the amount of time the plaintiff had to consider whether to sign the waiver,
including whether the employee had an opportunity to consult with a lawyer; (3) the clarity of
the waiver; (4) consideration for the waiver; as well as (5) the totality of the circumstances.
Morrison, 317 F.3d at 668; see also Walker, 400 F.3d at 381.
The Agreement, on its face, does not appear to explain or indicate that the parties are
giving up the right to vindicate their statutory rights in state or federal court. Unlike arbitration
agreements that have been routinely enforced by federal and state courts in Tennessee, the
Agreement here does not emphasize with bolded letters, italics, or capital letters, that by signing
the contract, Hayward was consenting to waive his right to a trial by jury. See, e.g., Owens v.
Nat’l Health Corp., 263 S.W.3d 876, 880 (Tenn. 2007). In light of the unclear language of the
agreement, its failure to emphasize its effects, and Hayward’s sworn statement indicating that he
was not given time to consider the Agreement and did not remember signing it, the court is
troubled that Hayward’s waiver of his constitutional right to a jury trial may not have been
knowing and voluntary. See Walker, 289 F. Supp.2d at 936; 400 F.3d at 381.
The court will ask the parties to address Hayward’s waiver of his right to jury trial and, in
particular, whether the waiver was knowing and voluntary as a matter of law.
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4. Mutual Assent
Courts routinely hold unenforceable arbitration agreements that do not result from a
meeting of the minds in mutual assent. “It is well-settled under Tennessee law that a contract
must result from a meeting of the minds of the parties in mutual assent to the terms.” Walker,
400 F.3d at 383. “Although the question of mutual assent involves largely an objective analysis,
the parties’ intent remains relevant, in particular the circumstances surrounding the formation of
the contract.” Id. (additional citations omitted). Tennessee courts have generally said that
parties who do not read the contracts they sign cannot be heard to complain about the contracts’
contents; they may not deny their obligations under those contracts and will be presumed by the
court to know their contents. Pyburn, 63 S.W.3d at 359. Despite this general rule, however,
courts have, at times, refused to hold parties to contracts that they have not read. See Howell v.
NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731, 735 (Tenn. Ct. App. 2003) (holding that
plaintiff was not bound by arbitration agreement that nursing home employee “pushed” in front
of him without explanation that he was waiving a right to a jury trial if a claim was brought
against the nursing home).
5. Parties’ Agreement
Here, the court is concerned that the Agreement is procedurally unconscionable. As an
initial matter, Hayward’s affidavit indicates that he was not given the opportunity to modify any
portion of the Agreement, to consider the Agreement for any length of time, or to consult with an
attorney before signing it. It is similarly unclear whether Hayward was given a copy of the
Agreement after signing it. Moreover, the court has concerns that, as in Walker, Hayward did
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not knowingly and voluntarily execute the Agreement and that the Agreement did not result from
a meeting of the minds in mutual assent.
CONCLUSION
For these reasons, the court will order the parties to submit supplemental briefs with
respect to the issues raised in this Memorandum within 20 days of the date of the accompanying
Order.
An appropriate order will enter.
_______________________________
ALETA A. TRAUGER
United States District Judge
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