Laurich v. Red Lobster Rests., LLC
Laurich v. Red Lobster Rests., LLC
Opinion of the Court
THIS MATTER comes before the Court on the Defendant's Motion to Compel Arbitration, filed March 2, 2017 (Doc. 5)("Motion"). The Court held a hearing on July 12, 2017. The primary issues are: (i) whether the parties' Arbitration Agreement is illusory, which depends on whether Defendant Red Lobster Restaurants, LLC ("Red Lobster") provided consideration; (ii) whether asking Plaintiff Mary Grace Laurich to sign the 2014 Dispute Resolution Process Acknowledgment, filed March 2, 2017 (Doc. 5-2)("2014 Agreement") during a work shift makes the Arbitration Agreement procedurally unconscionable; and whether (iii) Red Lobster breached the Arbitration Agreement in such a way that precludes it from enforcing the Arbitration Agreement. The Court concludes that: (i) the Arbitration Agreement is not illusory, because both parties provided consideration; (ii) the Arbitration Agreement is not unconscionable, because Laurich was not deprived of meaningful choice to enter the arbitration agreement; and (iii) whether Red Lobster breached the Arbitration Agreement in such a way that precludes it from enforcing the Arbitration Agreement is a question for the arbitrator and not for the Court. Accordingly, the Court grants the Motion, and stays the proceeding pending the arbitration's resolution.
FACTUAL BACKGROUND
The Court draws its facts from Laurich's Complaint for Violation of Title VII of the Civil Rights Act of 1964 and the New Mexico Human Rights Act, Wrongful Discharge and Negligent Hiring and Supervision, filed February 2, 2017 (Doc. 1)("Complaint"), from the Plaintiff's Response to Defendant's Motion to Compel Arbitration ¶ 1, at 2, filed March 16, 2017 (Doc. 9) ("Response"), and from the Motion hearing, Draft Hearing Transcript, taken July 12, 2017 ("Tr.").
Laurich began working as a server at a Red Lobster restaurant in Albuquerque, New Mexico in 2008. See Complaint ¶ 11, at 2; Response ¶ 1, at 2. In 2014, Red Lobster purchased the Red Lobster restaurant chain-which included the Albuquerque Red Lobster restaurant-from *1193GMRI, Inc. See Response ¶ 2, at 2. Around that time, Laurich was working a shift when one of her managers instructed Laurich to "review a lengthy employment agreement on a computer terminal." Response ¶¶ 4-5, at 3. Laurich asked for a hard copy to review, but "was told that none were available." Response ¶ 4, at 3. The manager told her that, if she did not sign the electronic document, "she would be taken off the work schedule." Response ¶ 5, at 3. Laurich then "registered her initials on the computer terminal" and returned to work. Response ¶ 6, at 3. The employment documents which Laurich electronically signed included a provision stating that both she and Red Lobster would be subject to Red Lobster's Dispute Resolution Process. See Response at 6; Motion at 3; 2014 Agreement at 1; Dispute Resolution Process, filed March 2, 2017 (Doc. 5-3)("DRP").
Starting in July, 2016, a Red Lobster cook named Willie Prather "began harassing [Laurich] based on her race and sex," Complaint ¶ 15, at 2, calling her names like "fat bitch" and "white bitch," and making threatening statements, Complaint ¶¶ 16-17, at 2-3. Laurich complained to management about Prather, but they "did nothing to address Mr. Prather's behavior or Plaintiff's work environment." Complaint ¶ 21, at 3. Laurich asserts that, on or about August 5, 2016, Prather "continued to harass her verbally" and intentionally gave her incorrect orders to serve to customers. Complaint ¶ 23, at 3. Laurich alleges that, after Laurich complained about Prather's actions, Prather "accused her of 'snitching' to the manager, and told her that 'snitches get stiches' " and then "shoved [Laurich] into a shelf." Complaint ¶ 25, at 3. Laurich was, at the time, about seven-and-a-half months pregnant. See Complaint ¶ 12, at 2. After Prather shoved Laurich, a manager intervened and told Laurich to wait outside the restaurant, near the restaurant's entrance, while, Laurich asserts, "[u]pon information and belief, the manager took Mr. Prather into an office." Complaint ¶ 26, at 3. While standing outside the restaurant, Laurich used her cellular telephone to call her boyfriend. See Complaint ¶ 27, at 3. Laurich alleges that, while she was on her cellular telephone, "Mr. Prather then emerged from the restaurant, incorrectly assumed that Plaintiff was using the cellphone to call the police, and punched Plaintiff in the face, knocking the cell phone out of her hand. Mr. Prather took the Plaintiff's phone and ran away." Complaint ¶ 27, at 3. Afterwards, Laurich told Red Lobster that she "was not comfortable returning to work unless she could be assured that Mr. Prather would not be there." Complaint ¶ 28, at 4. Laurich asserts that, "[w]hile waiting and hoping that a reasonable accommodation could be made, [Laurich] learned that she had been terminated by Defendant." Complaint ¶ 30, at 4.
PROCEDURAL BACKGROUND
Laurich filed her Complaint on February 2, 2017. First, Laurich asserts that Red Lobster violated Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq. ("Title VII"), by subjecting her to "a hostile working environment as a result of discrimination based on her sex and race." Complaint ¶ 37, at 5. Laurich asserts that Red Lobster either "knew or should have known" of Prather's history of violence, including violence against women, and had received "numerous complaints of [Prather's] threats and harassment from multiple female employees." Complaint ¶ 44, at 5. Despite this knowledge, Laurich asserts, Red Lobster "did nothing to remedy an obviously dangerous situation," and "made no good-faith effort to remedy the hostile working environment or to protect its female employees, or to otherwise comply *1194with the requirements of Title VII." Complaint ¶ 44-45, at 5. Laurich also contends that Red Lobster's decision to terminate her employment "was discriminatory and based on her sex and race," and her "late state of pregnancy," as Red Lobster knew she was "about take maternity leave." Complaint ¶ 46, at 5. Laurich contends, in summary, that Red Lobster "acted intentionally, willfully and with reckless disregard and deliberate indifference to [her] safety and well being." Complaint ¶ 48, at 6.
Second, Laurich asserts that Red Lobster's actions violate the New Mexico Human Rights Act,
Third, Laurich alleges that Red Lobster was negligent in hiring and supervising its employees. See Complaint ¶¶ 64-72, at 7-8. She argues that Red Lobster had a duty to exercise reasonable care for its employees' safety, and Red Lobster breached that duty by hiring and continuing to employ Prather "despite his criminal record, history of violence, history of violence toward women, and continued threats and acts of violence toward women during his employment." Complaint ¶¶ 65-66, at 7. Laurich asserts that, as a result of Red Lobster's negligence, she "was harassed and physically battered by Mr. Prather while she was at work." Complaint ¶ 67, at 8. Laurich also contends that Red Lobster is vicariously liable for Prather's actions, because, by "refus[ing] to address multiple complaints by multiple female employees," Red Lobster "implicitly and tacitly authorized and ratified Mr. Prather's behavior." Complaint ¶¶ 71-72, at 8.
Finally, Laurich asserts that she was wrongfully discharged. See Complaint ¶¶ 73-76, at 8. She argues that Red Lobster terminated her employment for reasons "contrary to public policy," because Red Lobster terminated her employment "based on her race, sex and pregnancy," and "in retaliation for her repeated complaints of harassment and/or pregnancy." Complaint ¶ 74, at 8.
1. Motion to Compel Arbitration.
Red Lobster moves to compel arbitration and requests that the Court "stay this proceeding pending resolution of the arbitration." Motion at 1. Red Lobster contends that Laurich's "claims are barred from this proceeding in this Court by a binding arbitration agreement" covered by the Federal Arbitration Act,
I UNDERSTAND THAT GMRI, INC. D/B/A RED LOBSTER HAS IN PLACE A DISPUTE RESOLUTION PROCEDURE, AND I FURTHER ACKNOWLEDGE AND AGREE THAT IF I AM OFFERED AND ACCEPT EMPLOYMENT, ANY DISPUTE BETWEEN ME AND GMRI, INC., RELATING TO MY EMPLOYMENT AND/OR MY SEPARATION FROM EMPLOYMENT, SHALL BE SUBMITTED WITHIN ONE (1) YEAR OF THE DAY WHICH I LEARNED OF THE EVENT AND SHALL BE RESOLVED PURSUANT TO THE TERMS AND CONDITIONS OF THE DISPUTE RESOLUTION PROCEDURE.
Motion at 2 (quoting Laurich Application Form at 2, filed March 2, 2017 (Doc. 5-1)). Red Lobster then asserts that Laurich, *1195when she was hired, signed a "Dispute Resolution Process Acknowledgment" form, which read:
I agree as a condition of my employment, to submit any eligible disputes I may have to the company's DRP and to abide by the provisions outlined in the DRP. I understand that his includes, for example, claims under state and federal laws relating to harassment or discrimination, as well as other employment-related claims as defined by the DRP. Finally, I understand that the company is equally bound to all of the provisions of the DRP.
Motion at 2 (quoting 2008 Dispute Resolution Process Acknowledgment at 1, filed March 2, 2017 (Doc. 5-2)("2008 Agreement")). Red Lobster contends that Laurich "again acknowledged the DRP as a condition of continued employment" when GRMI, Inc. "sold its Red Lobster business in 2014" to Red Lobster. Motion at 3. That acknowledgment reads:
I agree as a condition of my employment, to submit any eligible disputes I may have to the DRP and to abide by the provisions outlined in the DRP. I understand this includes, for example, claims under state and federal laws relating to harassment or discrimination, as well as other employment related claims as defined by the DRO. Finally, the Company is equally bound to all of the provisions of the DRP.
Motion at 3 (quoting 2014 Agreement). Red Lobster asserts that "[t]he Acknowledgments drew [Laurich's] attention to the DRP"; when Laurich "signed the Acknowledgments[,] ... [she] acknowledged that she had reviewed and agreed to abide by the DRP." Motion at 3.
Red Lobster asserts that the "DRP contains various steps, with arbitration identified as the final step." Motion at 3. Red Lobster contends that the DRP "expressly states that employees cannot pursue covered claims in court." Motion at 3. The DRP reads: "The DRP, instead of court actions, is the sole means for resolving covered employment-related disputes. Disputes eligible for DRP must be resolved only through DRP, with the final step being binding arbitration heard by an arbitrator. This means DRP-eligible disputes will not be resolved by a judge or a jury." Motion at 3 (quoting DRP at 1). Red Lobster contends that the DRP applies to Laurich's claims. See Motion at 3.
Next, Red Lobster argues that the FAA applies to the DRP, and, therefore, Laurich must arbitrate her claims. See Motion at 4. Red Lobster asserts that the FAA "provides that any 'written provision in ... a contract evidencing a transaction involving commerce' " to settle a controversy arising out of the contract or transaction through arbitration is valid unless the contract is revocable on some legal or equitable ground. Motion at 4 (quoting
Red Lobster also argues that the FAA applies to the DRP, because the DRP "affects commerce": with "roughly 700 locations across the United States," Red *1196Lobster "necessarily affects and involves interstate commerce." Motion at 4 (citing Citizens Bank v. Alafabco, Inc.,
Next, Red Lobster argues that a valid agreement to arbitrate binds Laurich. See Motion at 5-6. Red Lobster asserts that, under the FAA, a valid arbitration agreement does not require that the parties sign a document. See Motion at 5 (citing AT & T Mobility LLC v. Concepcion,
[Laurich] manifested assent to the DRP through both execution of the application and acknowledgments that compliance with the DRP was a condition of her initial employment, as well as through her continued employment with Red Lobster. Plaintiff explicitly certified that she understood that acceptance of the DRP was a condition and term of her employment even before Red Lobster hired her.
Motion at 5 (emphasis in original).
Red Lobster then argues that state law applies when considering whether parties form a contract, see Motion at 5-6 (citing First Options of Chi., Inc. v. Kaplan,
Finally, Red Lobster argues that the DRP covers Laurich's claims, because the DRP "applies to any dispute concerning the employment, reemployment or application for employment by an employee." Motion at 6-7 (citing DRP at 1). Red Lobster concludes by asking the Court "to enter an Order compelling [Laurich] to arbitrate her claims against Red Lobster and staying this action during the pendency of the arbitration." Motion at 7.
2. The Response.
Laurich responds in the Plaintiff's Response to Defendant's Motion to Compel Arbitration at 1, filed March 16, 2017 (Doc. 9)("Response"). Laurich begins by arguing that the arbitration clause is unconscionable. See Response at 1. Laurich argues that the FAA applies only when there is an arbitration agreement, and that the " 'presumption in favor of arbitration ... disappears' " when the parties dispute the arbitration agreement's validity or existence. Response at 2 (quoting Thompson v. THI of New Mexico at Casa Arena Blanca, LLC, No. CIV 05-1331,
*1197Response at 2 (citing Cordova v. World Fin. Corp.,
Laurich next asserts that she began working at Red Lobster in 2008. See Response at 2. In 2014, when Red Lobster took ownership from GMRI, Inc., Laurich asserts that she and her coworkers "were told that they were required to sign some new documents." Response at 2-3. Laurich avers that, during a shift, "when she was expected to continue serving her customers and perform her other usual tasks, [she] was instructed to review a lengthy employment agreement on a computer terminal." Response at 3. Laurich states that she asked to review a hard copy, but "was told that there were none available." Response at 3. Laurich asserts that she stated that, "if she did not sign the electronic document, she would be taken off the work schedule." Response at 3. Laurich states that she then "registered her initials on the computer so she could return to her shift and her customers." Response at 3. Laurich asserts that, under those circumstances, she was "not given a reasonable opportunity to read the new employment agreement," and was "simply told that she would not be allowed to work if she did not sign it." Response at 3. She contends that she was "at a disadvantage" as she was mid-shift and had customers waiting, and "she relies largely on tips to make her living." Response at 3.
Next, Laurich argues that the 2014 Agreement is "[i]llusory and [u]nenforceable." Response at 3. She argues that her case is similar to Dumais v. American Golf Corp.,
Next, Laurich contends that Red Lobster cannot enforce the DRP because it has already violated the DRP. See Response at 4-6. Laurich asserts that the DRP holds that the first step in dispute resolution is to bring one's concerns to a manager, which will prompt an " 'open and honest exchange by the people who are closest to the problem.' " Response at 4 (quoting DRP at 4). Laurich asserts that, although she was "unaware of the existence" of the DRP, she "unwittingly followed the first step" by bringing her *1198concerns to management on multiple occasions. Response at 4-5. Laurich explains:
After getting no feedback or assistance from management, she submitted a verbal complaint to the general manager of the restaurant, who summarily dismissed [Laurich's] concerns, but instructed her to submit a written statement. [Laurich] did submit a written statement on July 28, 2016 and never received any response to that complaint. ... At no time during [Laurich's] employment did any manager or representative of [Red Lobster] tell her that she should move on to the second step of the DRP, a peer review.
Response at 5 (citations omitted)(citing Complaint ¶¶ 10-17, at 2-3). Laurich argues that Red Lobster's failure to follow the DRP precludes it from enforcing the DRP because a "basic principle of contract law is that a party cannot enforce a contract after that party has breached the contract." Response at 5 (citing KidsKare, P.C. v. Mann,
3. The Reply.
Red Lobster replied on April 6, 2017. See Reply in Support of Motion to Compel Arbitration, filed April 6, 2017 (Doc. 13)("Reply"). Red Lobster states that Laurich did not agree to the 2014 Agreement under duress, because she had been working under an arbitration agreement ever since she began working at the restaurant, when GMRI owned the Red Lobster restaurant See Reply at 3. Red Lobster contends that Laurich "should not have been surprised by her new employer's requirement that she agree to its DRP, which is modeled on and almost identical to that of" GMRI, Inc.'s arbitration agreement. Reply at 3.
Red Lobster then argues that Laurich's account "of the circumstances under which she acknowledged [Red Lobster's] DRP defies logic." Reply at 3. Red Lobster asserts that it "would never require [Laurich] to acknowledge the DRP or any other policy while she simultaneously waited on customers at her tables," because that would be "contrary to [Red Lobster's] good business practices and could adversely impact customers' dining experiences." Reply at 3. Rather, Red Lobster asserts that, when employees "must review and acknowledge new policies," it "requires them to do so either before or after their shift, while on the clock." Reply at 3. Red Lobster asserts that its manager, Willie Stewart, has "no recollection of telling any employee, including [Laurich], to review policies while working a regular shift." Reply at 4 (citing Declaration of Willie Stewart ¶ 8, at 1, filed April 6, 2017 (Doc. 13-2)).
Next, Red Lobster contends that the DRP is not illusory. See Reply at 4. Red Lobster argues that Laurich's reliance on Dumais v. American Golf Corp., Thompson v. THI of New Mexico at Casa Arena Blanca, LLC, and Piano v. Premier Distributing Co. is "misplaced" because Red Lobster asked her to sign an arbitration agreement when it took over the restaurant, in 2014. Reply at 4. Red Lobster argues that, although Laurich "continued to work at the same [r]estaurant, she had a new employer who required her to agree to the DRP as a condition of her new, not her continued, employment." Reply at 4.
Finally, Red Lobster contends that it did not violate the DRP. See Reply at 4-5. Red Lobster asserts that Laurich "did not raise concerns about harassment to Red Lobster"; rather, "[s]he had a dispute regarding a loan to a co-worker and complaints about her customers' plates not being properly dressed with condiments," which she put into writing. Reply at 5 (citing Declaration of Deborah Hochsprung *1199¶ 8, at 2 (dated April 6, 2017) (Doc. 13-1)("Hochsprung Decl."). Red Lobster asserts that Hochsprung investigated the complaints, but "could not substantiate" them. Reply at 5 (citing Hochsprung Decl. ¶ 9 at 2). Nonetheless, Red Lobster contends, Hochsprung "reminded the kitchen staff, including Willie Prather, of the importance of properly dressing plates." Reply at 5 (citing Hochsprung Decl. ¶ 10, at 2). Red Lobster does not state whether it informed Laurich of DRP's second and third steps. See Reply at 5.
Red Lobster contends that, in any case, the question whether it breached the DRP is immaterial to the question at hand-whether there is a valid arbitration agreement. See Reply at 4.
4. The Hearing.
The Court held a hearing on July 12, 2017. See Tr. at 1. Red Lobster began by stating that the "limited issues before the Court [are] whether there is a valid arbitration agreement and ... whether [Laurich's] claims are covered by the agreement." Tr. at 2:17-20 (Lamont). Red Lobster stated that Laurich has not argued that the agreement does not cover the claims. See Tr. at 2:21-22 (Lamont). Rather, Red Lobster summarizes Laurich's position as comprising three arguments: (i) that the arbitration agreement is illusory, because there is no consideration; (ii) that the arbitration agreement is unconscionable, because Laurich did not have adequate time to review its terms; and (iii) that Red Lobster cannot enforce the arbitration agreement, because it did not follow the DRP. See Tr. at 2:22-3:7 (Lamont). Red Lobster addressed the first argument-that the arbitration agreement is illusory-and asserted that Laurich worked for six years at the Red Lobster restaurant when it was owned by GMRI, Inc., and was subject to a dispute resolution process that is "very, very similar" to Red Lobster's DRP. Tr. at 3:10-23 (Lamont). Red Lobster explained that, when it acquired the Red Lobster restaurant chain from GMRI, Inc., and "as part of its consideration to hire Ms. Laurich as an employee to this new corporation," Red Lobster required Laurich to agree to Red Lobster's DRP. Tr. at 3:24-4:7 (Lamont). Red Lobster then asserted that Laurich's account of how her restaurant manager asked her to agree to the DRP-i.e., "requiring her to review employment documents while waiting tables"-"defies logic if you've been a diner or server in a restaurant" given that "the last thing the management wants is for you to divert your attention from the guests." Tr. at 4:8-15 (Lamont). Red Lobster added that, although Laurich says she was denied a paper copy of the agreement, "[s]he doesn't contend that she wasn't allowed to review it on the computer if she wanted to." Tr. at 4:15-18 (Lamont).
The Court interjected, asking whether, for the purposes of the Motion, it should "go ahead and assume the plaintiff's version of events." Tr. at 4:21-23 (Court). Red Lobster replied that, "for the purposes of this case, you can," because Laurich's affidavit and pleadings "actually support the argument that she was about to be employed by a new employer, and that the consideration for her to stay on the schedule and to be employed by the new employer was to execute a DRP." Tr. at 5:4-10 (Lamont).
The Court then asked Red Lobster whether Laurich's "illusory argument is also the procedural unconscionability argument," and Red Lobster replied that "I think it all wraps together." Tr. at 6:5-11 (Court, Lamont).
*1200The Court then gave Laurich an opportunity to discuss the illusory agreement argument. See Tr. at 6:17 (Court). Laurich disputed that an ownership change means that Laurich began a new job, asserting that "there [was] no new paperwork for a new job, and there [was] no new application." Tr. at 6:19-25 (Bregman). The Court asked, "if you've got an at-will arrangement ..., what would be wrong with them saying, 'Ms. Laurich, if you don't sign this, you're going home right now'?" Tr. at 7:1-4 (Court). Laurich responded that, in this case, Red Lobster did not simply require Laurich to sign the arbitration agreement; they told her that she had to sign the agreement during a work shift, and it is not clear that anyone told Laurich that she had to sign the new agreement because of the ownership change. See Tr. at 7:12-8:1 (Bregman).
Laurich then stated: "I don't think you can sign off on arbitration without having a proper time to review the document," especially considering Laurich requested a hard copy but was not given one. Tr. at 9:3-9 (Bregman). The Court stated that it did not understand why not being given a hard copy would invalidate a contract or make it illusory. See Tr. at 9:10-16 (Court). Laurich replied that the circumstances made it illusory:
[If Red Lobster is] not giving her a fair opportunity to read it, what's her choice? ... [I]gnore all my tables out there and ... read [the entire document or] wait on the people that are sitting waiting on dinner? That's not a very good choice for her, and they put her in that situation.... [I]t's almost signing under duress because if she doesn't do it, she's going to have a lot of people mad at her out there and she's not going to make the same kind of money tips-wise if she's ignoring her customers while at the same time she's being required to sign off on a legal document ....
Tr. at 9:7-10:20 (Bregman).
Next, the Court asked Laurich about Red Lobster's argument that "she's better off than most people who sign arbitration agreements because she'd worked there for six years," and knew that "she had signed arbitration agreements before and was signing them again." Tr. at 13:4-10 (Court). Laurich stated that she does not agree with the Court's characterization, stating that "I think that's a slippery slope" to presume someone has knowledge of an agreement based on past agreements. Tr. at 13:22-14:7 (Bregman).
The Court asked whether Laurich agreed that the "illusory argument is also the same as your procedural unconscionability argument [-that they] are one and the same." Tr. at 14:8-10 (Court). Laurich agreed that they were the same arguments. See Tr. at 14:11 (Bregman).
The Court then asked Red Lobster whether it had more thoughts to share on the illusory agreement and procedural unconscionability issues. See Tr. at 14:17-18 (Court). Red Lobster noted that Laurich's employment ended in August, 2016, "two years after she electronically acknowledged the arbitration agreement." Tr. at 15:5-7 (Lamont). Red Lobster contended that "two years is plenty of time ... to get on the computer, ask a question, say I don't want to be bound by this, and it was not even brought up ... until after [Laurich] had filed suit." Tr. at 7-13 (Lamont).
The Court asked what would happen if it grants the Motion. See Tr. at 45:23-16:1 (Court). Red Lobster stated that the parties would go straight to the American Arbitration Association ("AAA"), and that Laurich would make the AAA filing. See Tr. at 16:2-24 (Lamont).
*1201The Court then switched gears to whether Red Lobster violated its DRP policies. See Tr. at 17:1-4 (Court). Red Lobster stated that Laurich had the burden to initiate the DRP's peer review process, but she did not do so. See Tr. at 17:7-9 (Lamont). Red Lobster asserted that it "would not in and of itself say, well, maybe we better have a peer review process of our decision to terminate this employee who never returned to work." Tr. at 17:9-12 (Lamont).
Laurich then returned to the podium and asserted that arbitration would be very expensive-ranging from about $7,000.00 to $20,000.00-and Laurich is unemployed. See Tr. at 18:10-13 (Bregman). Red Lobster asserted that AAA procedures hold that the company pays the fees. See Tr. at 18:16-25 (Court, Lamont). Laurich argued that Red Lobster "breach[ed] the contract" when it failed to respond to Laurich's verbal and written complaints, pursuant to the DRP's first step.
Red Lobster took to the podium and argued that the steps outlined in the DRP are not mandatory: step one-the open door step-"says that if the employee has a workplace concern or dispute, employee should bring it to the attention of his manager-should." Tr. at 23:21-25 (Lamont). Red Lobster continued: "[T]he first two steps are not musts." Tr. at 24:3-4 *1202(Lamont). The Court asked whether there is anything "that binds the company in any way," and Red Lobster answered that there was not anything that bound the company, "but the company has to participate if the employee initiates the peer review process." Tr. at 24:10-15 (Court, Lamont). Red Lobster discusses the DRP's other steps, noting that "it says that if either party doesn't like the outcome of the peer review they can request mediation," and, if a party is not satisfied with mediation, "that party must demand arbitration." Tr. at 24:12-25:6 (Court, Lamont). Red Lobster notes that step four is the first time the word "must" is used, i.e., it is "the first time it's no longer permissive." Tr. at 25:7-10 (Court, Lamont). Red Lobster summarized the process:
The Employee can do open door and peer review, and if they're dissatisfied, they can mediate, but if they wanted a final binding decision, they must request arbitration, for which it says right in the agreement that the company will pay all the costs. So there is no downside to this for Ms. Laurich, in terms of cost.
Tr. at 25:14-20 (Lamont).
The Court then asked Laurich whether there is any dispute that her claims are within the arbitration agreement's purview, and Laurich replied that there was no dispute on that issue. See Tr. at 26:1-4 (Court, Bregman).
The Court then stated: "I'm inclined to think that it's not illusory. Even taking the facts as the plaintiff has stated them, ... she knew what she was signing and ... they are binding against her and ... there is no unconscionability in enforcing it.... So I'm inclined to grant the motion to arbitrate ...." Tr. at 26:11-21 (Court).
LAW REGARDING ARBITRATION AGREEMENTS
An arbitration agreement is a contract or a provision in a contract whereby parties agree to "settle by arbitration a controversy ... arising out of such contract or transaction."
1. Federal law.
"The FAA reflects the fundamental principle that arbitration is a matter of contract." Rent-A-Center, West, Inc. v. Jackson,
*1203Rent-A-Center, West, Inc. v. Jackson,
Under § 4 of the FAA, a party "aggrieved" by another party's failure "to arbitrate under a written agreement for arbitration" may petition a federal court "for an order directing that such arbitration proceed in the manner provided for in such agreement."
Upon a finding that a matter is referable to arbitration, the FAA also indicates that the district court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement."
The United States Court of Appeals for the Tenth Circuit has cautioned that, when one of the parties petitions the court to stay an action pending compulsory arbitration,
2. New Mexico Law.
New Mexico's Uniform Arbitration Act,
Similar to the federal courts' interpretation of the FAA, New Mexico courts have viewed the NMUAA as an expression of a public policy favoring arbitration. See United Tech. & Res., Inc. v. Dar Al Islam,
When a broad and general arbitration clause is used, as in this case, the court should be very reluctant to interpose itself between the parties and the arbitration upon which they have agreed. When the parties agree to arbitrate any potential claims or disputes arising out of their relationships by contract or otherwise, the arbitration agreement will be given broad interpretation unless the parties themselves limit arbitration to specific areas or matters. Barring such limiting language, the courts only decide the threshold question of whether there is an agreement to arbitrate. If so, the court should order arbitration. If not, arbitration should be refused.
K.L. House Constr. Co. v. City of Albuquerque,
3. Public Policy Favoring Enforcement of an Arbitration Agreement.
"There is a strong federal policy encouraging the expeditious and inexpensive resolution of disputes through arbitration." Metz v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
4. A Valid Arbitration Agreement's Existence.
The Supreme Court of the United States of America has noted that "[a]rbitration is simply a matter of contract between parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration." First Options of Chi., Inc. v. Kaplan,
While "the presumption in favor of arbitration is properly applied in interpreting the scope of an arbitration agreement, ... this presumption disappears when the parties dispute the existence of a valid arbitration agreement." Dumais v. Am. Golf Corp.,
In the Tenth Circuit, and in the courts of New Mexico, the "existence *1206of an agreement to arbitrate is a threshold matter which must be established before the FAA can be invoked." Avedon Eng'g Inc. v. Seatex,
5. Consideration and Illusory Arbitration Agreements.
"To determine whether the agreement to arbitrate is valid, courts look to general state contract law, with the caveat that state laws that are specifically hostile to arbitration agreements are preempted by the FAA." Salazar v. Citadel Commc'ns Corp.,
"Consideration consists of a promise to do something that a party is under no legal obligation to do or to forbear from doing something he has a legal right to do." Talbott v. Roswell Hosp. Corp.,
*1207Several cases arising in New Mexico provide examples of illusory agreements to arbitrate. For instance, in Dumais v. American Golf Corp.,
Additionally, in Heye v. American Golf Corp., the Court of Appeals of New Mexico considered a question similar to the one that the federal court addressed in Dumais v. American Golf Corp. See Heye v. American Golf Corp.,
Next, in Piano v. Premier Distributing Co., the plaintiff worked as an administrative assistant for the defendant on an at-will employment basis. See Piano v. Premier Distrib. Co.,
In Lumuenemo v. Citigroup, Inc.,
Plaintiff cites Piano v. Premier Distributing Co.,137 N.M. 57 ,107 P.3d 11 (N.M. Ct. App. 2004), as support for her argument. However, the holding in Piano turned on the fact that the plaintiff was an at-will employee prior to signing the arbitration agreement, and therefore, the implied promise of continued at-will employment did not constitute consideration.Id. at 60 ,107 P.3d 11 . Piano is distinguishable from the facts before this Court. Here, Defendant's initial hiring of Plaintiff was conditioned on her consent to the terms of the Arbitration Agreement; thus, there was consideration in the form of employment. Further, Defendant does need Plaintiff's approval-Plaintiff had up to 30 days to contest any changes to the Arbitration Agreement and/or to decide whether to continue employment based on such changes. Moreover, the holding in Piano is not binding on this court.
Lumuenemo v. Citigroup, Inc.,
Further, in Salazar v. Citadel Communications Corp., the Supreme Court of New Mexico held that, because Citadel Communications reserved the right to modify any provision of its employee handbook at any time, including the arbitration agreement contained therein, the agreement to arbitrate was "an unenforceable illusory promise." Salazar v. Citadel Communications Corp.,
NEW MEXICO LAW REGARDING CONTRACT INTERPRETATION
In contract cases, "the role of the court is to give effect to the intention of the contracting parties." Bogle Farms, Inc. v. Baca,
The question whether an agreement contains an ambiguity is a matter of law. See Mark V., Inc. v. Mellekas,
*1210C.R. Anthony Co. v. Loretto Mall Partners,
LAW REGARDING NEW MEXICO'S UNCONSCIONABILITY DEFENSE TO CONTRACT ENFORCEMENT
In New Mexico, "unconscionability is an affirmative defense to contract enforcement ...." Strausberg v. Laurel Healthcare Providers, LLC,
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
"A contract can be procedurally or substantively unconscionable." Dalton v. Santander Consumer USA, Inc.,
" 'The weight given to procedural and substantive considerations varies with the circumstances of each case.' " Fiser v. Dell Computer Corp.,
1. Procedural Unconscionability.
"Procedural unconscionability may be found where there was inequality in the contract formation." State ex rel. King v. B & B Inv. Grp., Inc.,
"When assessing procedural unconscionability, courts should consider whether the contract is one of adhesion." Rivera v. Am. Gen. Fin. Servs., Inc.,
For example, in State ex rel. King v. B & B Investment Group, Inc., the Supreme Court of New Mexico decided whether loan contracts offered by certain payday lenders were unconscionable. See
the relative bargaining strength and sophistication of the parties is unequal. Moreover, borrowers are presented with Hobson's choice: either accept the quadruple-digit interest rates, or walk away from the loan. The substantive terms are *1213preprinted on a standard form, which is entirely nonnegotiable. The interest rates are set by drop-down menus in a computer program that precludes any modification of the offered rate. Employees are forbidden from manually overriding the computer to make fee adjustments without written permission from the companies' owners: manual overrides will be considered in violation of company policy and could result with ... criminal charges brought against the employee and or termination.
State ex rel. King v. B & B Inv. Grp., Inc.,
By contrast, in Bowlin's, Inc. v. Ramsey Oil Co., Inc., the Court of Appeals of New Mexico considered whether a clause requiring a retail gas company to notify its supplier of any delivery shortages within two days of taking delivery was unconscionable. See
In Carl Kelley Cons. LLC v. Danco Technologies, the Court determined that a contract was not unconscionable under Texas or New Mexico law, because the contract's terms were reasonably clear to the plaintiff:
[The Plaintiff] never attempted to negotiate or object to any language in the contract. It is also a business, not an individual consumer, and is sophisticated enough to be hired to do work on a sewage treatment plant for a municipality and to intelligently select among competing options for materials to use in its work. This fact tends to reduce what disparity in sophistication and bargaining power might have existed between [the parties]. Moreover, such disparities alone are not enough to show unconscionability. The terms of the contract take up only a single page, the contract is legible to the Court even with the degradation in print quality from being scanned into a .pdf file for the docket, the disclaimer of warranty includes several *1214lines of disclaimer in all capital letters, and the terms are in relatively plain English, without any overly convoluted legal jargon or confusing syntax. The provisions of the contract themselves are routine contract provisions. In these circumstances, the Court does not see a sound basis for finding the contract unconscionable.
Carl Kelley Const. LLC v. Danco Techs.,
2. Substantive Unconscionability.
Substantive unconscionability requires courts "to consider 'whether the contract terms are commercially reasonable and fair, the purpose and effect of the terms, the one-sidedness of the terms, and other similar public policy concerns" to determine "the legality and fairness of the contract terms themselves.' " Dalton v. Santander Consumer USA, Inc.,
"When its terms are unreasonably favorable to one party, a contract may be held to be substantively unconscionable." Monette v. Tinsley,
In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered "in the light of the general commercial background and the commercial needs of the particular trade or case." Corbin suggests the test as being whether the terms are "so extreme as to appear unconscionable according to the mores and business practices of the time and place."
Guthmann v. La Vida Llena,
With respect to arbitration agreements specifically, the Supreme Court of New Mexico has held that arbitration agreements are substantively unconscionable and thus unenforceable where the arbitration agreement contains a unilateral carve *1215out that explicitly exempts from mandatory arbitration those judicial remedies that a lender is likely to need, while providing no such exemption for the borrower. See Rivera v. American General Fin. Serv., Inc.,
Next, in Rivera v. American General Financial Services, Inc., the Supreme Court of New Mexico confronted a similar loan contract in which an arbitration agreement required the borrower to arbitrate any claims against the lender while exempting from mandatory arbitration the lender's "self-help or judicial remedies" concerning the property securing the transaction and any claims that the lender might have "[i]n the event of a default."
By contrast, in Dalton v. Santander Consumer USA, Inc., the Supreme Court of New Mexico held that an arbitration agreement between a lender and a borrower that included a bilateral exception for small claims less than $10,000.00 was not substantively unconscionable, "even if one party is substantively more likely to bring small claims actions ...."
ANALYSIS
The Court concludes that the parties have a valid Arbitration Agreement. The Arbitration Agreement is not illusory, because both parties provided consideration, and it is not unconscionable, because Laurich was not deprived of meaningful choice. Additionally, the Court concludes that whether Red Lobster breached the Arbitration Agreement in such a way that precludes it from enforcing the Arbitration Agreement is a question for the arbitrator and not for the Court. Accordingly, the Court grants the Motion and will stay this proceeding pending the arbitration's resolution.
I. THE PARTIES HAVE A VALID ARBITRATION AGREEMENT, BECAUSE THE AGREEMENT IS NEITHER ILLUSORY NOR PROCEDURALLY UNCONSCIONABLE.
Laurich asserts that the Arbitration Agreement is not enforceable, because it is illusory and procedurally unconscionable. See Response at 1-3. She argues that it is illusory, because Red Lobster did not provide consideration. See Response at 1-3. She also argues that it is procedurally unconscionable, because Red Lobster pressured her to enter the Arbitration Agreement during a work shift. See Response 1-3.
To determine whether an Arbitration Agreement is valid, "courts look to general state contract law." Salazar v. Citadel Commc'ns Corp.,
The Court concludes that the Arbitration Agreement is not illusory, because Red Lobster provided adequate consideration, and is not procedurally unconscionable, because Laurich was given a reasonable opportunity to review the Arbitration Agreements' terms and was not deprived of a meaningful choice.
A. THE ARBITRATION AGREEMENT IS NOT ILLUSORY, BECAUSE THERE IS ADEQUATE CONSIDERATION.
The arbitration agreement is not illusory, because both Laurich and Red Lobster provided consideration. Under New Mexico law, a legally enforceable *1217contract "requires evidence supporting the existence of an offer, an acceptance, consideration, and mutual assent." Piano v. Premier Distrib. Co.,
Laurich argues that this case's facts are comparable to cases where a contract was determined to be illusory, but those comparisons are off base. See Response at 4 (citing Dumais v. American Golf Corp.,
*1218rather, Red Lobster asked Laurich to enter the arbitration agreement as soon as Red Lobster became her employer.
B. THE ARBITRATION AGREEMENT IS NOT PROCEDURALLY UNCONSCIONABLE, BECAUSE LAURICH WAS NOT DEPRIVED OF A MEANINGFUL CHOICE.
The 2014 Agreement was not procedurally unconscionable, because Laurich had the opportunity and capacity to understand the 2014 Agreement, and its terms were not patently unfair. Under New Mexico law, unconscionability is an affirmative defense to contract enforcement, see Strausberg v. Laurel Healthcare Providers, LLC,
Here, Laurich's manager asked Laurich to read and agree to an arbitration agreement during a shift. See Response at 3. Laurich argues this is unconscionable, because: (i) she was pressured to sign it quickly, because the longer she took, the more time she would not be serving customers and earning tips; (ii) she was told that "she would be taken off the work schedule" if she did not sign; and (iii) she asked for a hard copy to read but was not given one. Response at 3. Although Laurich may have felt pressure to enter the agreement, these circumstances do not rise to the level of unconscionability, because they did not deprive her of a meaningful choice, and the terms were not patently unfair. The 2014 Agreement is not long, with the English language text taking up only half a page. See 2014 Agreement at 1. Laurich was familiar with an arbitration agreement's implications, because she had agreed to and worked under a similar arbitration agreement for six years before Red Lobster asked her to enter into a new one. See Tr. at 4:1-7 (Lamont). Furthermore, although the threat of being "taken off the work schedule" may represent a meaningful consequence, it is not permanent one; Laurich does not allege that Red Lobster threatened to fire her if she did not sign the agreement then and there. Finally, while it may have been in an adhesion contract in the sense that it was a take-it-or-leave-it offer, the terms are not so patently unfair that the agreement is unconscionable: the DRP binds both Laurich *1219and Red Lobster, and Laurich will not have to pay the arbitration fees. See Tr. at 18:25 (Laurich).
II. ONLY AN ARBITRATOR MAY DETERMINE WHETHER RED LOBSTER BREACHED ITS DRP-AND, IF SO, WHETHER THAT BREACH PRECLUDES IT FROM ENFORCING THE ARBITRATION AGREEMENT.
Laurich argues that Red Lobster may not enforce its DRP, because it already breached the DRP by not following the DRP's first step. This question is one for the arbitrator, and not for the Court. In the Tenth Circuit, a district court may determine substantive arbitrability questions-e.g., whether the parties executed a valid arbitration agreement-but only an arbitrator may consider whether one party's actions have relieved the other of its duty to perform-i.e., whether a party has waived its right to enforce the arbitration agreement. See Denhardt v. Trailways, Inc.,
Procedural arbitrability concerns such issues as "whether grievance procedures or some part of them apply to a particular dispute, whether such procedures have been followed or excused, or whether the unexcused failure to follow them avoids the duty to arbitrate." John Wiley & Sons v. Livingston,376 U.S. 543 , 557,84 S.Ct. 909 ,11 L.Ed.2d 898 ... (1964). The Court held in Wiley that because procedural questions are often inextricably bound up with the merits of the dispute, they should also be decided by the arbitrator.
Denhardt v. Trailways, Inc.,
Here, Laurich's assertions that Red Lobster breached its DRP are procedural questions for an arbitrator, because those assertions implicate issues and actions unrelated to the Arbitration Agreement's formation. Additionally, Laurich does not argue, and the pleadings do not suggest, that Red Lobster pursued a litigation strategy inconsistent with a desire to arbitrate. Red Lobster filed its Motion twenty days after Laurich filed her Complaint. Red Lobster has not filed any motions on the merits in any way. Consequently, Laurich's arguments that Red Lobster is precluded from enforcing the Arbitration Agreement, because Red Lobster failed to abide by DRP's first step, are concerns to be brought before an arbitrator, and not before *1220the Court.
III. THE ARBITRATION AGREEMENT COVERS LAURICH'S CLAIMS.
Laurich's claims fall within the arbitration agreement's purview. The DRP states:
Examples of legal claims for relief covered by DRP (and step four-Arbitration) include, but are not limited to: legal disputes arising out of or related to the employment relationship or the termination of that relationship (including post-employment defamation), compensation, classification, minimum wage, expense reimbursement, overtime, break and rest periods, claims that arise under the Civil Right Acts of 1964, Americans With Disabilities Act, Fair Labor Standards Act, Age Discrimination in Employment Act, Family Medical Leave Act, Employment Retirement Income Security Act of 1974 (except for claims for employee benefits under any benefit plan sponsored by the Company and covered by ERISA or funded insurance), Affordable Care Act, Genetic Information Non-Discrimination Act, unfair competition, violation of trade secrets, any common law right or duty, or any federal, state or local ordinance or statute.
*1221DRP at 1. Here, Laurich alleges that Red Lobster (i) violated Title VII of the Civil Rights Act of 1964; (ii) violated the New Mexico Human Rights Act; (iii) was negligent in hiring; and (iv) wrongfully discharged her. See Complaint, ¶¶ 37-76, at 5-8. Those claims are "legal disputes arising out of or related to the employment relationship or the termination of that relationship ...." DRP at 1. "[C]laims that arise under the Civil Right Acts of 1964" covers Laurich's Title VII allegation. DRP at 1. "[V]iolation of ... any common law right or duty, or any ... state ... statute" covers Laurich's negligent hiring and wrongful termination claims and her New Mexico Human Rights Act claim. DRP at 1. All four of Laurich's employment-related claims fit comfortably within the DRP's scope, and they are not among the DRP's "exceptions." DRP at 2 (listing exceptions to the DRP, which include workers compensation or unemployment insurance benefits). Moreover, Laurich agrees that her claims fall within the DRP's purview. See Tr. at 26:4 (Bregman).
IV. THE COURT WILL STAY THE PROCEEDINGS.
The Court will stay this proceeding pending the arbitration's resolution. The FAA states that, once a court determines that the parties have a valid arbitration agreement and that the parties' dispute falls within that arbitration agreement's scope, the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had ...."
IT IS ORDERED that (i) the Defendant's Motion to Compel Arbitration, filed March 2, 2017 (Doc. 5), is granted; and (ii) the Court stays this proceeding pending the arbitration's resolution.
The Court's citations to the hearing's transcript refer to the court reporter's original, unedited version. Any final transcript may contain slightly different page and/or line numbers.
The DRP's first step is the "Open Door" step:
If the Employee has a workplace concern of dispute, the Employee should bring it to the attention of the Employee's manager. ... Open Door allows for an open and honest exchange by the people who are closest to the problem and often provides the best insight and opportunity for mutual resolution.
DRP at 4.
This provision relates to the sale of goods pursuant to New Mexico's Uniform Commercial Code,
Although neither party has provided precise dates for when Red Lobster acquired the Restaurant Chain and when Laurich's manager asked her to agree to the DRP, the parties appear in agreement that the request to sign the documents happened nearly contemporaneously or near enough not to matter. See Response ¶ 3, at 3 ("When that transition occurred, Ms. Laurich and her coworkers were told that they were required to sign some new documents."); Reply at 2 ("As a condition of her new employment by Defendant, [Laurich] was required to agree to the DRP .... Otherwise Defendant would not have hired her and would have removed her from the work schedule.").
Even if the Court could consider the question whether Red Lobster is precluded from enforcing the arbitration agreement, the Court does not believe, based on the allegations before it, that Red Lobster breached its DRP, and would still send the case to arbitration. The DRP's Step One states: "If the Employee has a workplace concern or dispute, the Employee should bring it to the attention of the Employee's manager. ... Open Door allows for an open and honest exchange by the people who are closest to the problem and often provides the best insight and opportunity for mutual resolution." DRP at 4. Another section describes the Open Door step as an "[i]nformal" way to "discuss and resolve concerns with management without retaliation." DRP at 9. Here, Laurich brought her concerns to her manager, and then submitted a written complaint, which the manager considered. Red Lobster's response may not have been a model of constructive conflict resolution: Laurich states that she complained that Prather cursed at her, threatened her, called her names, threw a kitchen utensil at her, and then deliberately prepared Laurich's tables' orders incorrectly, see Written Complaint at 1-2, filed April 16, 2017 (Doc. 13-1); Red Lobster stated that the General Manager responded by attempting, unsuccessfully, to substantiate Laurich's claims, and "remind[ing] the kitchen staff, including Willie Prather, of the importance of properly dressing plates," Hochsprung Decl. ¶¶ 9-10, at 2. In her declaration, Hochsprung contends that Laurich "never raised concerns about harassment to Red Lobster Restaurants, LLC," but that she merely "had a dispute regarding a loan to a co-worker and complaints about her customers' plates not being properly dressed with condiments." Hochsprung Decl. ¶ 8, at 2. This account is at odds with Laurich's written complaint-which Red Lobster submitted along with the Hochsprung Decl.-which begins by stating:
Willie [Prather] yelled [and] cussed at me to "get the fuck out of his way" and said [that Laurich was] "a nasty [unintelligible] bitch." So we got in an argument and he threw the scoop from the [unintelligible] at me.... [T]he next day, I asked [Prather] to give me the [unintelligible] that I let him borrow the week before [and] he said "Fuck you and [your] 20 dollars, I ain't paying you shit, you snitched on me out to [unintelligible] and James, you are a bitch ass snitch, and you are going to get [what's] coming to you." I was walking away and he followed me [unintelligible] hospitality yelling and cussing.
Written Complaint at 1. Laurich then asserts that Prather deliberately messed up Laurich's customers' orders for four consecutive days. See Written Complaint at 2.
Red Lobster's apparent failure to adequately resolve an issue does not, however, represent a breach, particularly in light of the subsequent steps that the DRP contemplates in the event that Step One is not satisfactory. Additionally, the DRP does not indicate that each step must be followed before moving onto the next. See DRP at 11-12 (stating that "[i]t is recommended that the steps ... be followed in order," but not required).
Reference
- Full Case Name
- Mary Grace LAURICH v. RED LOBSTER RESTAURANTS, LLC
- Cited By
- 12 cases
- Status
- Published