EJP Delivery v. FedEx Ground

Filing 22

ORDER DISMISSING CASE signed by Chief Judge Pamela Pepper on 9/25/2020. 17 Defendant's motion to compel arbitration DENIED; Defendant's motion to dismiss GRANTED. Case DISMISSED under FRCP 12(b)(3) for improper venue. (cc: all counsel)(cb)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

EJP DELIVERY,
Plaintiff,
v.

Case No. 18-cv-828-pp

FEDEX GROUND,
Defendant.

ORDER DENYING DEFENDANT’S MOTION TO COMPEL ARBITRATION AND
GRANTING DEFENDANT’S MOTION TO DISMISS UNDER RULE 12(B)(3)
(DKT. NO. 17)

The plaintiff, a third-party carrier, has sued FedEx for intentional breach
of contract, tortious breach of contract and breach of an oral agreement. Dkt.
No. 1. In lieu of an answer, the defendant filed a motion to compel arbitration
under the Federal Arbitration Act and to dismiss the case under Federal Rule
of Civil Procedure 12(b)(3). Dkt. No. 17. The plaintiff objects, arguing that the
arbitration clause in a 2016 addendum to the contract between the parties was
unconscionable, illusory and made under duress. Dkt. No. 18. Because the
parties agreed to arbitrate their dispute and delegated to the arbitrator
questions of the validity of the agreement, and because the agreement requires
arbitration in a district other than this one, the court will dismiss the case for
improper venue under Rule 12(b)(3).

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A.

Legal Standard

Section 4 of the Federal Arbitration Act allows a court to compel
arbitration only within the district in which the motion to compel arbitration is
filed. Fed. R. Civ. P. 12(b)(3) allows a party to seek dismissal of a case for
improper venue. “[A] Rule 12(b)(3) motion to dismiss for improper venue, rather
than a motion to stay or to compel arbitration, is the proper procedure to use
when [an] arbitration clause requires arbitration outside the confines of the
district court’s district.” Faulkenberg v. CB Tax Franchise Systems, LP, 637
F.3d 801, 808 (7th Cir. 2011) (citing Cont’l Ins. Co. v. M/V Orsula, 354 F.3d
603, 606-07 (7th Cir. 2003)). When ruling on a Rule 12(b)(3) motion to dismiss
for improper venue, the court may consider facts outside of the complaint. Id.
at 809-810 (“on a motion to dismiss for improper venue, the district court is
not ‘obligated to limit its consideration to the pleadings [or to] convert the
motion to one for summary judgment’ if the parties submit evidence outside
the pleadings.”) (quoting Cont'l Cas. Co. v. Am. Nat'l Ins. Co., 417 F.3d 727,
733 (7th Cir. 2005)).
B.

Facts
1.

The Agreement

On June 4, 2008, the parties entered into a FedEx Home Delivery
Standard Operating Agreement. Dkt. No. 17-2. Under this agreement the
plaintiff would deliver packages to customers on behalf of the defendant and
would be compensated for each package delivered. Dkt. No. 1 at 2. Section 9.3
of the agreement was titled “Arbitration of Asserted Wrongful Termination.”

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Dkt. No. 17-2 at 22. It provided that if the defendant terminated the agreement
and the plaintiff disagreed, the dispute would be settled by arbitration. Id.
The defendants attached to their motion a document with a print date of
August 9, 2016, titled “ADDENDUM 7 FEDEX HOME DELIVERY STANDARD
CONTRACTOR OPERATING AGREEMENT ARBITRATION AND CONFIDENTIAL
INFORMATION.” Dkt. No. 17-3. The addendum purported to replace Section
9.3 of the agreement between the parties. Id. at 2, §I. The relevant portions of
that addendum read as follows:
(A)
Dispute Resolution Procedure. Any dispute, claim or
controversy between the Parties arising out of or relating in any way
to this Agreement and/or the relationship between the Parties
resulting from this Agreement, including without limitation with
respect to the interpretation of any provision of this Agreement, the
performance by Contractor or FedEx Ground, the treatment by one
Party of the other, and/or the termination of this Agreement
(“Dispute”) will be resolved in accordance with the dispute resolution
procedure provided in this Addendum.
. . . . .
(C)
Arbitration. In their mutual interest to resolve Disputes
promptly and efficiently, the Parties have agreed to abide by the
following mandatory arbitration provisions and the confidential
arbitration procedures in Paragraph (E)(5). The Parties agree that
any dispute that would be recognized in a court of appropriate
jurisdiction including any claim or controversy between the Parties
arising since the effective date of this amended Addendum 7 and out
of or relating in an way to this Agreement and/or the relationship
between the Parties resulting from this Agreement, including
without limitation the interpretation of any provision of this
Agreement, the performance by Contractor or FedEx Ground, the
treatment of one Party of the other, the termination of this
Agreement and/or the determination of the scope or applicability of
this agreement to arbitrate, shall be determined by final, binding
arbitration. Such agreement to arbitrate applies to all Disputes
between the Parties that accrued or arose on or after the effective
date of this amended Addendum 7, regardless of whether this
Agreement has been terminated by either Party. The arbitrator shall

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have exclusive authority to resolve any Disputes concerning the
formation, existence, validity, enforceability, interpretation, or scope
of this agreement to arbitrate. No suit at law or in equity based on
any Dispute or controversy shall be instituted by either Party hereto,
other than a suit to confirm enforce, vacate, modify or correct the
award of the arbitrator as provided by law. . . . THE PARTIES
ACKNOWLEDGE THAT THE RIGHT TO A COURT TRIAL AND
TRIAL BY JURY IS OF VALUE. BY SIGNING THIS AGREEMENT,
THE PARTIES KNOWINGLY AND VOLUNTARILY WAIVE SUCH
RIGHT FOR ANY DISPUTE, SUBJECT TO THE TERMS OF THE
AGREEMENT TO ARBITRATE.
. . . . .
(E)(1) Commencement of Arbitration.
* * * *
Unless the Parties agree to a different location, any hearing will take
place at the AAA [American Arbitration Association] or JAMS
[Judicial Arbitration and Mediation Services] office that is nearest to
the Primary Service Area involved in the Dispute.
Dkt. No. 17-3 at 2-3 (emphasis in original). The defendant’s “P&D Manager”
and the plaintiff’s president signed the addendum on August 24, 2016. Dkt.
No. 17-4 at 3.
2.

The Dispute

The complaint alleges that the defendant failed to treat the plaintiff and
its employees with the fairness and provide the assistance that was accorded to
other contractors operating under similar agreements. Dkt. No. 1 at 2-6. The
plaintiff asserts that this lack of cooperation and increase in volume left it
understaffed, unable to hire new employees and unable to meet delivery
quotas. Id. at ¶45. It asserts that it received notice on April 10, 2017 that the
defendant was terminating the contract, id. at ¶46, and that after termination,

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its routes were reduced in value and the plaintiff was forced to see its routes at
a steep discount, id. at ¶¶49-50.
3.

History Regarding Arbitration

On October 3, 2017 the plaintiff provided written notice to the American
Arbitration Association—one of the two arbitration organizations the addendum
specified—that “[i]n accordance with the requirements of addendum 7 of FedEx
home delivery standard contractor operating agreement,” it was providing
written notice of its pending demand for arbitration, and that it intended to
request arbitration in Milwaukee County. Dkt. No. 17-6 at 1. The plaintiff
attached to the notice a document titled Addendum 7, but it was not the same
Addendum 7 that the defendant attached to its motion to compel. This
Addendum 7 was marked “Version 2015.08.01,” and the print date was August
22, 2015. Id. at 4. It appears that this Addendum 7 pre-dated the one the
defendant attached to its motion by almost a year.
Some three weeks later, on October 27, 2017, the plaintiff sent a second
letter to the AAA, stating that “we do not intend to proceed through arbitration
at this present time.” Dkt. No. 17-7. The letter indicated that if the plaintiff
changed its mind, it would “provide full payment along with the pleadings.” Id.
The plaintiff filed this suit seven months later.
C.

Analysis

The plaintiff’s opposition brief does not argue that the plaintiff did not
sign the 2016 addendum or that the 2016 addendum does not exist. Rather, it
argues that the 2016 version of Addendum 7 is invalid—that the addendum is

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unconscionable, dkt. no. 18 at 5, that its fee provision was prohibitive toward
third-party carries such as itself, dkt. no. 18 at 8, that the plaintiff agreed to
the 2016 addendum under duress, dkt. no. 18 at 8, and that the plaintiff’s
October 3, 2017 notice to AAA maintained its right to arbitrate under “the
original arbitration clauses in the event that arbitration was compelled,” dkt.
no. 18 at 8-9.
But the 2016 addendum contains a delegation clause, which delegates to
the arbitrator the “exclusive authority to resolve any Disputes concerning the
formation, existence, validity, enforceability, interpretation, or scope of this
agreement to arbitrate.” Dkt. No. 17-3 at 2. The clause provides that “no suit at
law or in equity based on any Dispute or controversy shall be instituted by
either Party hereto, other than a suit to confirm, enforce, vacate, modify or
correct the award of the arbitrator as provided by law.” Id.
Parties can agree to arbitrate “gateway questions” of arbitrability. Rent–
A–Center, W., Inc. v. Jackson, 561 U.S. 63, 68–69 (2010). A delegation clause
gives the arbitrator authority to decide the initial question of whether the
dispute is subject to arbitration. New Prime, Inc. v. Oliveira, 139 S. Ct. 532,
539 (2019). The severability principle allows this court to treat a challenge to
the validity of the arbitration agreement or delegation clause separately from
the challenge to the validity of the entire contract. Id. The delegation clause in
this case unequivocally covers the “formation, existence, validity, enforceability,
interpretation, or scope of this agreement to arbitrate.” An arbitrator must

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resolve the parties’ dispute unless the court finds the delegation provision is
unconscionable or otherwise invalid.
The plaintiff’s opposition brief cites Wisconsin law in support of its
argument that the 2016 addendum is invalid. Dkt. No. 18 at 5-6. The June 4,
2008 agreement, however, provides that it “shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania.” Dkt. No. 172. The plaintiff bears the burden of showing unconscionability. Williams v.
Borough of W. Chester, 891 F.2d 458, 460 (3d Cir. 1989). For a contract to be
unconscionable under Pennsylvania law, it must be both procedurally and
substantively unconscionable. Gay v. CreditInform, 511 F.3d 369, 392 (3rd Cir.
2008).
Procedural unconscionability examines the process leading to the
formation of the contract and the form and the language of the agreement.
Porreca v. Rose Grp., No. 13-1674, 2013 WL 6498392, *7 (E.D. Pa. Dec. 11,
2013). The Pennsylvania Supreme Court has defined unconscionability as the
“absence of meaningful choice on the part of one of the parties.” Witmer v.
Exxon Corp., 434 A.2d 1222, 1228 (1981). Procedural unconscionability is
generally found in contracts of adhesion. Alexander v. Anthony Int’l, L.P., 341
F.3d 256, 264 (3d Cir. 2003). A contract of adhesion is prepared by a party
with excessive bargaining power and presented to the other party on a “take it
or leave it” basis. Parilla v. IAP Worldwide Servs., VI, Inc., 368 F.3d 269, 276
(3d Cir. 2004). The touchstone is whether the party challenging the agreement

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had any meaningful choice regarding acceptance of its provisions. Thibodeau v.
Comcast Corp., 912 A.2d 874, 886 (Pa. Super. Ct. 2006).
Substantive unconscionability refers to contractual terms that are
unreasonably or grossly favorable to one side and to which the disfavored party
does not assent. Harris v. Green Tree Fin. Corp., 183 F.3d 173, 179 (3rd Cir.
1999). To establish substantive unconscionability, the plaintiff must show that
the contractual terms are unreasonably favorable to the drafter, and there is no
meaningful choice on the part of the other party regarding acceptance of the
provisions. Bullick v. Sterling, Inc., No. Civ.A. 03-6395, 2004 WL 2381544, at
*10 (E.D. Pa. Oct. 21, 2004).
The plaintiff asserts both procedural and substantive unconscionability,
and Pennsylvania law requires both. But the court cannot conclude that the
delegation clause of the 2016 addendum is substantively unconscionable. The
delegation clause does not favor one party over another—it is a neutral
provision. Nothing about the delegation clause indicates that the arbitrator
would be more likely to decide disputes of validity in favor of the defendant
than in favor of the plaintiff. Because the plaintiff has not met its burden of
showing that the delegation clause is substantively unconscionable, the court
must leave to the arbitrator the determination of the validity of the 2016
addendum.
The court will not, however, grant the defendant’s request to compel
arbitration. As the court noted above, when a motion to compel asks a district
court to compel arbitration in a district other than its own, the proper

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procedure is to dismiss for improper venue. Faulkenberg, 637 F.3d at 808. The
2016 addendum provides that
[u]nless the parties agree to a different location, any hearing will
take place at the AAA or JAMS office that is nearest to the Primary
Service Area involved in the Dispute.
Dkt. No. 17-3 at 3.
Both the nearest AAA office (https://www.adr.org/OfficeLocations) and
the nearest JAMS office (https://www.jamsadr.com/locations/) are in Chicago,
Illinois (the Northern District of Illinois). Given that, if the court were to grant
the motion to compel, it would be compelling arbitration in a district other than
the Eastern District of Wisconsin, an action prohibited by Section 4 of the
Federal Arbitration Act. The court will instead grant the defendant’s motion to
dismiss for improper venue under Fed. R. Civ. P. 12(b)(3).
D.

Conclusion

The court DENIES the defendant’s motion to compel arbitration. Dkt. No.
17.
The court GRANTS the defendant’s motion to dismiss under Fed. R. Civ.
P. 12(b)(3) for improper venue. Dkt. No. 17.
The court ORDERS that this case is DISMISSED and will enter judgment
accordingly.
Dated in Milwaukee, Wisconsin this 25th day of September, 2020.
BY THE COURT:
_____________________________________
HON. PAMELA PEPPER
Chief United States District Judge

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