Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221 (3d Cir. 2012)

Facts: Plaintiff Janice Quillion, a registered nurse, began working at Hahnemann University Hospital in October 2006 and resigned in February 2008. However, later that year, she reapplied for her job, and was subsequently rehired in December 2008 and continued working there until November 2009. Hahnenmann University Hospital is owned and managed by two subsidiaries of Tenet Healthcare Corporation. Around the time Quilioin began her employment, on October 9, 2006 and January 5, 2009 respectively, she signed the “Employee Acknowledgment” form, which acknowledged receipt of the “Fair Treatment Process” brochure.

Quillioin originally claimed that she only signed this from in 2009, not in 2006, but this was disproven by Tenet, when Tenet produced an “Employee Acknowledgement” form signed by Quilloin on October 9, 2006, Quilloin filed a supplemental submission “ ‘acknowledging signing that document’ but emphasizing her ‘lack of recall’ of that act.” Quiloin no longer disputes that she signed the Employment Acknowledgement or whether she received the Fair Treatment Process brochure. Quillion claims that she was never informed that she would have to commit to arbitration in order to be an employee of Tenet. Furthermore, she contends that when she was rehired in 2009, she did not remember being required to sign the “Employee Acknowledgement” form, and thus, was not expecting to sign it a second time.

On December 4, 2009, Quilloin filed suit in the United States District Court for the Eastern District of Pennsylvania, asserting a collective action against Tenet under the Fair Labor Standards Act of 1938, as well as several state-based class action and common law claims.

Procedural Posture: Tenet Healthcare Corporation, along with two of its subsidiaries, appealed the Eastern District of Pennsylvania’s denial of its motion to compel arbitration.

Issue:  Did the District Court err in finding genuine disputes of material fact, rendering the arbitration agreement unconscionable and unenforceable?

Holding: Yes. No disputes of material fact were found, thus the arbitration agreement is enforceable.

Reasoning:

Substantive Unconscionability

To prove unconscionability under Pennsylvania law, a party must show that the contract was both substantively and procedurally unconscionable. A contract or provision is substantively unconscionable where it “unreasonably favors the party asserting it.” In denying Tenet’s motion to compel arbitration, the District Court found three bases on which the arbitration agreement might be substantively unconscionable: (1) a potential prohibition against recovery of attorneys’ fees and costs, (2) potential inclusion of a class action waiver, and (3) the possibility that Tenet could “run out the clock” on the statute of limitations.

Attorney’s Fees

With regard to attorney’s fees, while this court agreed that the arbitration agreement is ambiguous, the Supreme Court has clearly established that ambiguities in arbitration agreements must be interpreted by the arbitrator. In PacifiCare Health Systems v. Book, respondents challenged the enforceability of arbitration agreements on the basis that the agreements could “be construed to limit the arbitrator’s authority to award damages . . . .”The Supreme Court ruled in favor of petitioner, holding that “since we do not know how the arbitrator will construe the remedial limitations, the questions whether they render the parties’ agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract.”  Comparing the case at hand to Pacific Health Systems, the third circuit found virtually no difference and held that the ambiguity regarding attorneys’ fees is a question for the arbitrator.

Class Action Waiver

Under Pennsylvania law, class action waivers are substantively unconscionable where “class action litigation is the only effective remedy” such as when “the high cost of arbitration compared with the minimal potential value of individual damages denie[s] every plaintiff a meaningful remedy.” In the case at hand, the arbitration agreement did not contain an express class action waiver. Silence regarding class arbitration generally indicates a prohibition against class arbitration, but the actual determination as to whether class action is prohibited is a question of interpretation and procedure for the arbitrator.

Running out the Clock

The controversy pertains to unconscionability under Pennsylvania law, which measures unconscionability at the time of the contract’s making. Time limitations in arbitration agreements are substantively unconscionable if they are “clearly unreasonable and unduly favorable” to the employer. Given the existence of reasonable time guidelines for Tenet to act, paired with the fact that Tenet could not preclude Quilloin’s claim because she always had the option to motion to compel arbitration, the time guidelines are not “clearly unreasonable and unduly favorable” to Tenet.

Procedural Unconscionability

Under Pennsylvania law, a contract is generally considered to be procedurally unconscionable if it is a contract of adhesion.  Factors considered in determining whether the contract rises to the level of procedural unconscionability include: “the take-it-or-leave-it nature of the standardized form of the document[,]” “the parties’ relative bargaining positions,” and “the degree of economic compulsion motivating the ‘adhering’ party[ .]” Here, Quilloin did not lack a meaningful choice in agreeing to arbitrate, and she thus raised no genuine dispute of material fact with regard to procedural unconscionability.

By: Stephen Warshavsky

 

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