Quilloin v. Tenet HealthSystem Philadelphia, Inc.
673 F.3d 221, 18 Wage & Hour Cas.2d (BNA) 1563, 2012 WL 833742 (2012)
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Rule of Law:
An arbitration agreement is enforceable under the Federal Arbitration Act unless a party demonstrates it is both substantively and procedurally unconscionable under state contract law, provided the state law is not preempted by the FAA. Ambiguities in arbitration agreement terms regarding remedies or class action procedures are generally questions for the arbitrator, not the court, to resolve.
Facts:
- Janice Quilloin began working as a registered nurse at Hahnemann University Hospital, owned by Tenet, in October 2006.
- On October 9, 2006, Quilloin signed an 'Employee Acknowledgment' form, acknowledging receipt of the 'Fair Treatment Process' (FTP) brochure.
- In February 2008, Quilloin resigned from Hahnemann University Hospital to take another job.
- Quilloin later reapplied for a position at Hahnemann and was rehired in December 2008.
- On January 5, 2009, upon rehire, Quilloin again signed the 'Employee Acknowledgment' form, which stated her voluntary agreement to use the Company’s FTP and to submit to final and binding arbitration any and all employment-related claims, foregoing any right to a jury trial.
- The FTP brochure outlined a five-step internal grievance process culminating in arbitration, providing approximate timeframes for Tenet's responses (e.g., 'usually within seven calendar days') but not strict deadlines.
- The FTP included provisions stating parties would be responsible for their own legal counsel fees, but also that the arbitrator had the authority to award any remedy available in court and that no remedies would be forfeited.
- Quilloin continued working at Hahnemann until November 2009.
Procedural Posture:
- On December 4, 2009, Janice Quilloin filed a collective action lawsuit against Tenet Healthsystem Philadelphia, Inc., d/b/a Hahnemann University Hospital, Tenet Healthcare Corporation, and Tenet Healthsystem Hahnemann, LLC (collectively 'Tenet') in the United States District Court for the Eastern District of Pennsylvania, asserting claims under the Fair Labor Standards Act and various state laws.
- On February 19, 2010, Tenet filed its Answer, asserting the existence of an arbitration agreement as an affirmative defense.
- On June 10, 2010, Tenet filed a motion to compel arbitration (or, in the alternative, to stay proceedings and compel arbitration).
- On July 2, 2010, Quilloin responded to Tenet's motion, arguing that the arbitration agreement was unconscionable.
- On January 20, 2011, the District Court found that genuine disputes of material fact remained as to whether the arbitration agreement was enforceable and denied Tenet's motion to compel arbitration without prejudice.
- On February 9, 2011, Tenet, as the appellant, filed a timely notice of appeal to the United States Court of Appeals for the Third Circuit, with Quilloin as the appellee.
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Issue:
Does an arbitration agreement become unconscionable and unenforceable under Pennsylvania law if it contains ambiguous provisions regarding attorneys' fees and class action waivers, or provides estimated rather than strict time limits for internal dispute resolution, such that a court should deny a motion to compel arbitration?
Opinions:
Majority - Fisher, Circuit Judge
No, an arbitration agreement is not rendered unconscionable and unenforceable by ambiguous provisions regarding attorneys' fees or class action waivers, or by estimated internal dispute resolution time limits, as these ambiguities are for the arbitrator to resolve and such time limits are not inherently unreasonable. The court found no genuine disputes of material fact that would render the arbitration agreement unconscionable. The court first clarified that Quilloin's challenge was properly before the District Court because the agreement did not contain a 'delegation clause' clearly and unmistakably granting authority to an arbitrator to decide arbitrability, distinguishing Rent-A-Center v. Jackson. Applying Pennsylvania law, which requires a showing of both substantive and procedural unconscionability, the court found neither. Regarding substantive unconscionability, the ambiguity concerning attorneys' fees was deemed a matter for the arbitrator to interpret, not a basis for judicial invalidation, citing PacifiCare Health Sys., Inc. v. Book. The potential for a class action waiver was also held to be an arbitral interpretation issue, and any Pennsylvania law invalidating such waivers (where class action is the 'only effective remedy') was found preempted by the Federal Arbitration Act under AT&T Mobility LLC v. Concepcion and Litman v. Cellco P’ship. Lastly, the estimated time limits for Tenet's internal responses were not 'clearly unreasonable and unduly favorable' to Tenet, especially since Quilloin could have moved to compel arbitration if Tenet excessively delayed, distinguishing cases involving strict, unreasonable deadlines imposed on employees. Regarding procedural unconscionability, the court acknowledged a disparity in bargaining power but held that this alone does not establish unconscionability, referencing Witmer v. Exxon Corp. and Gilmer v. Interstate/Johnson Lane Corp. Quilloin, a nurse with an associate’s degree, voluntarily resigned and then chose to return to Tenet, re-signing the agreement. Her educational background and choice to return, coupled with the legal presumption that parties know the contents of contracts they sign, indicated a meaningful choice and no unfair surprise, likening her situation to Great Western Mortg. Corp. v. Peacock rather than cases involving minimally educated or economically dependent plaintiffs. Therefore, Quilloin failed to raise a genuine dispute of material fact regarding either prong of unconscionability, requiring reversal of the District Court's order.
Analysis:
This case significantly strengthens the enforceability of arbitration agreements in the Third Circuit, particularly in employment contexts. It affirms the broad preemptive scope of the Federal Arbitration Act over state contract defenses that are arbitration-specific or that impede bilateral arbitration, making it harder for employees to avoid arbitration. The ruling also clarifies that courts should not intervene in ambiguous contract terms that might lead to unconscionability; rather, such interpretation is delegated to the arbitrator. This decision thus encourages employers to include arbitration clauses, including class action waivers, with increased confidence that they will be upheld, even if the terms are not perfectly clear at the outset or if there is an inherent power imbalance in the employment relationship.
