Jena McClellan v. Midwest Machining, Inc.
Opinion of the Court
Plaintiff Jena McClellan brought suit against her former employer to enforce her rights under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. , as amended by the Pregnancy Discrimination Act, 42 U.S.C. § 2000e(k), and the Equal Pay Act,
BACKGROUND
Factual Background
In 2008, Defendant Midwest Machining, Inc., a maker of component parts for complex tools and machines, hired Plaintiff Jena McClellan as a telemarketer and quickly promoted her to work in their "inside sales" department. In late August of 2015, Plaintiff announced to her employer that she was pregnant. According to Plaintiff, her supervisor made negative comments for weeks in response to the announcement, including "commenting sardonically and jealously about her perfect life," (R. 1, Compl., PageID # 3), and was annoyed by Plaintiff's absences for pre-natal appointments. About three months later, Plaintiff was terminated "[d]espite [her] many years of service for the company in its inside sales department and no record of discipline in over six years." (R. 33, Second S. J. Order PageID # 230.)
Plaintiff testified that on the day of termination, Philip Allor, Midwest's president, called her into his office. There, he presented Plaintiff with an agreement and said that she "needed to sign then if [she] wanted any severance." (R. 17-3, McClellan Aff., PageID # 90.) As the district court explained, although the two reviewed the agreement together, "Allor did not ensure McClellan's understanding as they went along at a rapid pace." (R. 33, Second S. J. Order, PageID # 231 (citing R. 31-4, McClellan Dep., PageID # 202).) Plaintiff testified that she felt bullied throughout the meeting, that she felt she could not ask any further questions, and that Allor's tone was "raised" during the entire conversation. (R. 31-4, McClellan Dep., PageID # 203-04.) "[W]hen McClellan challenged a paragraph early on, and stated, 'I still should have had one week [of vacation] left,' Allor forcefully replied, '[you] do not,' and moved on." (R. 33, Second S. J. Order, PageID # 231 (citing R. 31-4, McClellan Dep., PageID # 202).) Plaintiff also testified that Allor shut the door and she did not feel free to leave.
"Feeling pressured," Plaintiff signed the agreement, without the benefit of a lawyer. (R. 17-3, McClellan Aff., PageID # 90.) The agreement provided that Plaintiff would waive "any and all past, current and future claims" she had against Midwest. (R. 16-1, Severance Agreement, PageID # 62.) Plaintiff would later affirm that she "did not understand that the 'claims' referred to in ... the severance agreement meant discrimination complaints." (R. 17-3, McClellan Aff., PageID # 90.) Instead, she "assumed it referred to any unpaid wages or benefits." (Id. )
Under the terms of the Severance Agreement, Defendant Midwest agreed to pay Plaintiff $4,000, payable in eight weekly installments beginning November 27, 2015. Defendant made each payment and Plaintiff accepted them.
Procedural History
Plaintiff filed a charge of discrimination with the Equal Employment Opportunity Commission, which issued her a right-to-sue letter on August 11, 2016. On November 6, 2016, Plaintiff met with an attorney and explained what had transpired during her employment with Midwest. Given that any Title VII claim was about to expire, Plaintiff's attorney "immediately drafted a lawsuit." (R. 17-2, Piper Aff., PageID # 83.)
On November 9, 2016, Plaintiff filed a complaint, naming Midwest Machining, *301Inc. and Self Lube, Inc. as defendants. The complaint alleges that Midwest "terminated Ms. McClellan because of her pregnancy." (R. 1, Compl., PageID # 4.) It also accuses Midwest of maintaining a sex-segregated workforce insofar as "all 20 or so people who worked in inside sales ... were women," and "all three people who worked in outside sales were men." (Id. at PageID # 2.) The complaint further avers that Midwest "paid male outside sales persons substantially higher commissions and paid them substantially more overall than female inside sales persons, even though the positions required substantially similar duties, requirements, equal skill, effort and responsibility, under the same or similar working conditions." (Id. at PageID # 3.) The suit brought claims for "pregnancy discrimination" under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. , as amended by the Pregnancy Discrimination Act, 42 U.S.C. § 2000e(k), under 42 U.S.C. § 1981a, and under the Michigan Elliot-Larsen Civil Rights Act, MCL 37.2101 et seq. (Count I); and for equal pay violations under the Equal Pay Act ("EPA"),
After receiving Plaintiff's complaint, Midwest's counsel informed Plaintiff's counsel of the severance agreement. On or around December 1, 2016, about three weeks after Plaintiff filed suit and before any responsive pleading was due, Plaintiff sent a letter to Midwest, at the direction of her attorney, saying that she was "rescinding the severance agreement ... because [she] want[ed] to litigate matters relating to [her] former employment and termination." (R. 17-2, McClellan Letter, PageID # 85; R. 17-2, Piper Aff., PageID # 83.) Enclosed with the letter was a check for $4,000. Midwest responded by returning the check to Plaintiff a week later, asserting that "[t]here is no legal basis for rescinding the severance agreement." (R. 17-2, Midwest Resp., PageID # 87.)
On February 24, 2016, Defendants filed a motion for summary judgment, arguing that the severance agreement barred Plaintiff's claims. They further argued that Plaintiff's claims were also barred because she did not "tender back" the monetary consideration she received under the severance agreement before commencing her lawsuit. On April 18, 2017, the district court granted in part and denied in part Defendants' motion for summary judgment. The court dismissed Defendant Self Lube, Inc., holding that there was no such legal entity known as Self Lube, which instead is a valid assumed name for Midwest Machining, Inc. The court then denied summary judgment for Defendant Midwest without prejudice and held that "at this stage and on this factual record, the Court cannot conclude the release was valid under federal law." (R. 19, First S. J. Order, PageID # 101.) The court permitted the parties to conduct discovery limited to the issue of whether Plaintiff "knowingly and voluntarily executed the agreement." (Id. at PageID # 102-04.) The court also ordered further briefing as to whether federal law required a plaintiff to tender back any consideration received under a severance agreement before commencing suit under Title VII and the EPA.
On May 30, 2017, Defendant Midwest Machining, Inc. filed a renewed motion for summary judgment. And on August 3, 2017, the court granted it. The court held that genuine disputes of material fact precluded summary judgment on the issue of whether Plaintiff "knowingly" and "voluntarily" executed the severance agreement. Indeed, the court found that on the morning *302Plaintiff signed the agreement, "she was 'blindsided' by an unexpected meeting" to terminate her employment; "she felt 'bullied,' did not feel free to leave the room, and did not feel like she could ask any questions." (R. 33, Second S. J. Order, PageID # 232.) Further, Philip Allor had "insisted [Plaintiff] sign the agreement and forcefully said if she wanted any money after her abrupt termination, she would need to sign the agreement; she had no time to consider whether to sign the release, and certainly no time to consult with a lawyer." (Id. ) The court added that Plaintiff "received a small sum of money to extinguish any claims if she truly suffered unlawful discrimination" and found that "she did not understand the broad scope of the agreement." (Id. ) Based on these facts, the district court concluded that a jury could find that Plaintiff did not enter into the agreement knowingly and voluntarily.
Nonetheless, the district court granted summary judgment for Midwest based on "the common-law doctrines of release and tender back." (Id. at PageID # 229.) The court held that, even if a severance agreement is voidable on grounds of duress or involuntariness, a plaintiff will still ratify the contract unless she "return[s] the consideration" as a precondition to filing suit, (id. at PageID # 233), and Plaintiff "did not 'tender back' [the consideration] prior to filing suit." (Id. at PageID # 232.) The court did not mention that Plaintiff had offered to tender back the money shortly after filing suit. The court declined to exercise supplement jurisdiction over her state law claims.
Plaintiff subsequently filed a timely notice of appeal.
DISCUSSION
I. Standard of Review
We review a district court's grant of summary judgment de novo. Maben v. Thelen ,
II. Analysis
A. The common law tender-back doctrine does not apply to claims brought under Title VII or the Equal Pay Act.
"Federal law controls the validity of a release of a federal cause of action."
*303Street v. J.C. Bradford & Co. ,
The district court dismissed Plaintiff's Title VII and EPA claims on the ground that she did not "tender back" the $4,000 she received under the severance agreement prior to filing her lawsuit. The court held that, under the tender-back doctrine, "even if a party signs a release under duress, she must 'as a condition precedent to suit, ... return the consideration in exchange for a release.' " (R. 33, Second S. J. Order, PageID # 233 (quoting Oubre v. Entergy Operations, Inc. ,
This "tender-back doctrine" is rooted in "general principles of state contract jurisprudence." Oubre ,
In a number of unpublished opinions, we have discussed the application of the tender-back doctrine to other federal statutes. For instance, in Samms v. Quanex Corp. ,
The only published decision from this Court identified by the parties that discusses the tender-back doctrine in the context of a release of federal claims is Raczak v. Ameritech Corp. ,
[T]o require Plaintiffs to tender back benefits would be inequitable. A tender-back requirement would deter meritorious ADEA filings. Potential Plaintiffs would be faced with the Hobsonian choice of releasing their claims and receiving payments immediately or filing an age discrimination claim that would likely take years to resolve. It is doubtful that few claimants would choose the latter. If Plaintiffs had already received release consideration they would have to recover any amounts spent before they could bring a claim. This would bar Plaintiffs from litigating their age discrimination claims in court. Rather than a bar to suit, a release should be considered as a factor that would reduce the judgment amount received by a plaintiff upon bringing suit.
In Hogue , the Supreme Court held that a plaintiff was not required to tender back payments received prior to bringing suit under the Federal Employers Liability Act ("FELA"),
In Raczak , Judge Jones held that " Hogue may be extended logically to ADEA claims" as "[b]oth statutes are designed to make employees whole again from injuries received, whether physical or emotional, during the course of employment." Id . at 1270. Notably, he too did not rely on any particular provision of the ADEA in reaching his conclusion.
Just one year later, the Supreme Court would bear out Judge Jones' reasoning in Raczak , marking the second time that the Supreme Court has disavowed the tender-back rule in the context of remedial employment statutes. In Oubre , the plaintiff signed a release as part of a termination agreement from her position with Entergy that purported to discharge Entergy from any claims arising from her employment.
Although this conclusion was specific to the OWBPA and the ADEA, it offers some guidance for other cases involving federal remedial statutes. First, the Court rejected the employer's claim that the general rule in contract law is that a plaintiff must tender back benefits received under a contract before bringing suit.
In many instances a discharged employee likely will have spent the moneys received and will lack the means to tender their return. These realities might tempt employers to risk noncompliance with the OWBPA's waiver provisions, knowing it will be difficult to repay the moneys and relying on ratification. We ought not to open the door to an evasion of the statute by this device.
Evidently, the Supreme Court was motivated in part by the remedial goals of the statute. And as Amicus , Equal Employment Opportunity Commission, points out, "[t]he same policy concerns apply with equal if not greater force here. If the district court's decision is affirmed, employers within this Circuit will have every incentive to pressure employees into executing waivers under duress, or even engage in deceptive practices to induce them to do so, knowing that it will be difficult for those employees, especially lower-paid ones, to tender back the consideration and rescind the agreement." (Brief for Amicus Curiae at 12.)
Courts have applied Oubre and Hogue to bar tender prerequisites in lawsuits involving other federal statutes. See Botefur v. City of Eagle Point ,
The Third Circuit explained that the ADEA was clearly a "federal remedial statute," and, because the purpose of the ADEA was to provide redress for discrimination, the court held that the tender-back rule should be rejected in suits under the ADEA, just as it was for suits under the *306Federal Employers Liability Act. The court explained that "[t]he mandate of Hogue is that tender back requirements imposed in connection with the release of federal rights be evaluated in light of the general policy of the statute in question."
A tender requirement in such cases would ... create a conundrum as to how much [consideration] should be tendered to restore the pre-release status quo. There is no available method of forcing the parties to agree on what an appropriate amount would be, since typically the employer does not specify how much of the consideration paid to the employee is for the retirement and how much is for the release.
Later, the Third Circuit cited Oubre to reaffirm the approach it took in Long and extended Hogue to claims brought under ERISA. See Jakimas v. Hoffmann-La Roche, Inc. ,
Returning to the instant case, the reasoning in Hogue and Oubre is clearly relevant to claims brought under Title VII and the EPA. The Supreme Court has recognized that the ADEA (the statute at issue in Oubre ) and Title VII "share common substantive features and also a common purpose: 'the elimination of discrimination in the workplace.' " McKennon v. Nashville Banner Publ'g Co. ,
Congress designed the remedial measures in these statutes to serve as a "spur or catalyst" to cause employers "to self-examine and to self-evaluate their employment practices and to endeavor to eliminate, so far as possible, the last vestiges" of discrimination. Albemarle Paper Co. v. Moody,422 U.S. 405 , 417-418 [95 S.Ct. 2362 ,45 L.Ed.2d 280 ] (1975) (internal quotation marks and citation omitted); see also Franks v. Bowman Transp. Co.,424 U.S. 747 , 763 [96 S.Ct. 1251 ,47 L.Ed.2d 444 ] (1976). Deterrence is one object of these statutes.
*307Compensation for injuries caused by the prohibited discrimination is another. Albemarle Paper Co. v. Moody,supra, at 418 ,95 S.Ct. at 2372 ; Franks v. Bowman Transp. Co., supra, at 763-64 [96 S.Ct. 1251 ]. The ADEA, in keeping with these purposes, contains a vital element found in both Title VII and the Fair Labor Standards Act: It grants an injured employee a right of action to obtain the authorized relief.29 U.S.C. § 626 (c). The private litigant who seeks redress for his or her injuries vindicates both the deterrence and the compensation objectives of the ADEA. See Alexander v. Gardner-Denver Co.,415 U.S. 36 , 45 [94 S.Ct. 1011 ,39 L.Ed.2d 147 ] (1974) ("[T]he private litigant [in Title VII] not only redresses his own injury but also vindicates the important congressional policy against discriminatory employment practices"); see also Teamsters v. United States,431 U.S. 324 , 364,97 S.Ct. 1843 , 1869,52 L.Ed.2d 396 (1977).
Like the ADEA, Congress designed Title VII so that the enforcement of its substantive measures against employers would be effected, at least in substantial part, through private individuals asserting a claim. "In such cases, the private litigant not only redresses his own injury but also vindicates the important congressional policy against discriminatory employment practices." Alexander v. Gardner-Denver Co. ,
Only the Eighth Circuit has a published, post- Oubre case that explicitly discusses the application of the tender-back rule to Title VII claims. See Richardson v. Sugg ,
[a]n inflexible application of the tender back rule would, as a practical matter, prevent courts from determining the conditions under which a release has been obtained. Plaintiffs with meritorious suits effectively would be precluded from bringing their claims. As emphasized in Hogue , supra , this would be contrary to Congress' purposes in passing statutes such as the FELA, ADEA, or Title VII.
*308Rangel v. El Paso Nat. Gas Co. ,
Defendant relies on Fleming v. United States Postal Serv. AMF O'Hare ,
In sum, we conclude that the language and reasoning of Oubre and Hogue apply equally to claims brought under Title VII and the EPA. In Oubre , the Supreme Court was worried about "tempt[ing] employers to risk noncompliance ... knowing it will be difficult to repay the moneys and rely[ ] on ratification."
*309B. Plaintiff effectively tendered back the consideration prior to bringing suit.
Assuming arguendo that Plaintiff were required to tender back in order to file her claims under Title VII and the EPA, the district court still erred by granting summary judgment for Defendant. The record is undisputed that upon Plaintiff's counsel learning that the parties *310had entered into a severance agreement, Plaintiff sent a check to Defendant for the full amount she received. Instead of accepting the check, however, Defendant returned it a week later, baldly asserting that "[t]here is no legal basis for rescinding the severance agreement." (R. 17-2, Midwest Resp., PageID # 87.)
For the district court, the timing of the return attempt was the deciding factor. The court held that Plaintiff could not pursue her federal claims because she did not tender back the consideration "prior to filing suit."
Accordingly, even if Plaintiff were required to tender back the consideration, she was required to do so not before filing suit but within a "reasonable time" after she discovered that the severance agreement revoked her right to bring a discrimination claim. And given the district court's factual finding that Plaintiff "did not understand she had given up her right to sue for discrimination" until engaging counsel to represent her in this matter, (R. 33, Second S. J. Order, PageID # 231), and that her counsel drafted a complaint immediately after speaking with her, it stands to reason that Plaintiff's offer to tender back the consideration fell "within a reasonable time after learning of her rights," Oubre ,
In sum, even if we were to hold that plaintiffs are required to tender back consideration prior to bringing claims under Title VII and the EPA, the plaintiff in this case effectively did so.
CONCLUSION
For the reasons set forth above, we REVERSE the district court's decision and REMAND for further proceedings consistent with this opinion.
*311CONCURRING IN PART AND DISSENTING IN PART
The dissent ignores the peculiarities of Title VII and claims brought under other federal remedial statutes and would treat them no differently than any other claims. Indeed, the dissent cites to numerous state commercial cases to explain how the tender-back doctrine should apply to the instant case and even admonishes the majority that "there is no federal general common law." (internal quotation marks, alteration, and citation omitted). But of course, the dissent also acknowledges that "[b]oth the Supreme Court and the Sixth Circuit have broadly stated that federal law governs the validity of an agreement to release a federal cause of action." Contrary to the dissent, the issues presented by this case require us to look to federal law, not to state law.
The dissent's refusal to look away from state law helps explain the confusion in its preferred approach to the tender-back doctrine. After presenting a largely superfluous history lesson on the doctrine's application in courts of law and courts of equity, the dissent suggests that "[t]o decide which version of the rule to apply courts should consider the requested remedy." If the requested remedy is damages, then, the dissent argues, the rule should be strict and it should require the return of consideration before initiating suit; if, however, the remedy requested is an equitable one, then the rule should be more flexible, asking whether the plaintiff returned the consideration within a reasonable time. Thus, the dissent would remand this case to the district court to analyze the remedies Plaintiff seeks and determine which rule to apply. This approach does not make sense in the context of a claim brought under Title VII.
Remedies under Title VII are different than remedies for violations of state commercial law. As the Supreme Court has highlighted, the Congressional Record regarding Title VII makes clear that:
[t]he [remedy provisions of Title VII] are intended to give the courts wide discretion exercising their equitable powers to fashion the most complete relief possible . In dealing with the present section 706(g) the courts have stressed that the scope of relief under that section of the Act is intended to make the victims of unlawful discrimination whole, and that the attainment of this objective rests not only upon the elimination of the particular unlawful employment practice complained of, but also requires that persons aggrieved by the consequences and effects of the unlawful employment practice be, so far as possible, restored to a position where they would have been were it not for the unlawful discrimination.
Albemarle Paper Co. ,
As this Court has explained, "Congress' purpose in vesting a variety of 'discretionary' powers in the courts was ... to make possible the 'fashion(ing) (of) the most complete relief possible.' " Isabel v. City of Memphis ,
It is worth noting that Fleming faulted the plaintiff's attorney for not asking the court of appeals to remand the case so that the plaintiff could offer to tender back the funds,
Concurring in Part
Congress does not write statutes on a blank slate. Instead, it legislates against the backdrop of existing common law. So, when Congress wants to displace the existing common law, it must do so clearly. See A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts § 52 (2012). Because Congress did not clearly override the common law ratification and tender-back doctrines when it passed Title VII or the Equal Pay Act, I would apply both rules in McClellan's case and remand for further fact-finding.
I.
Jena McClellan claims that she entered into a release agreement with her employer while under economic duress. She now seeks to rescind that agreement so she can sue her employer for discrimination. In a typical case, two common law doctrines would pose an obstacle to her suit. First, she would have to prove that she did not ratify the agreement with her employer. And second, she would have to tender back (i.e., return) the money she received in exchange for signing the agreement.
The majority, however, holds that neither doctrine applies in McClellan's case because she filed suit under Title VII and the Equal Pay Act. According to the majority, the ratification and tender-back doctrines are inconsistent with these remedial statutes' objectives and, as a result, we should set both rules aside for this category of plaintiffs. I respectfully disagree.
Statutes and the common law coexist in our legal system. So when Congress sets out to regulate a particular subject, chances are that some common law rules touching on that subject already exist. Courts are then left to decide how much of the common law, if any, Congress displaces when it passes new legislation. Fortunately, an age-old presumption guides us in this inquiry: Unless Congress clearly and explicitly states otherwise, courts should assume that Congress expected the existing common law to apply in conjunction with the statute. See United States v. Texas ,
Congress did not clearly and explicitly displace the common law ratification or tender-back rule in either Title VII or the Equal Pay Act. The statutes' texts contain no such displacement. And we know Congress knows how to displace the common law. Indeed, in two similar statutes, Congress specifically regulated releases. See Oubre v. Entergy Operations, Inc .,
Tellingly, Congress did not include a similar release-agreement provision in Title VII or the Equal Pay Act. See Fleming v. U.S. Postal Serv. AMF O'Hare ,
II.
Since Title VII and the Equal Pay Act do not abrogate the ratification and tender-back doctrines, several difficult questions emerge about how to apply them in McClellan's case.
Federal or state law . Should courts apply state federal or state common law to determine whether McClellan has ratified the release agreement or tendered back? At first blush, the answer appears to be federal law. Both the Supreme Court and the Sixth Circuit have broadly stated that federal law governs the validity of an agreement to release a federal cause of action. Dice v. Akron, Canton, & Youngstown R.R. ,
But in recent years, the Supreme Court has reminded courts and litigants that "[t]here is no federal general common law" and refused to apply it in contexts similar to this one. O'Melveny & Myers v. FDIC ,
Despite this tension in the case law, neither party has asked us to reconsider whether federal common law should apply. Instead, each asks us to evaluate the doctrines under federal common law. But even applying federal common law, questions remain.
*313Ratification. A party can ratify a contract in many ways, including (1) asserting a willingness to go along with the bargain, or (2) delaying filing suit while using the money received under the deal. See Restatement (Second) of Contracts § 380 cmts. a-b (Am. Law Inst. 1981). Initially, it appears that McClellan ratified the agreement through option two: she collected all of the money from her employer and may have spent it before filing suit. But the story is more complicated. McClellan claims that she signed the release agreement under economic duress. And a party who enters an agreement under economic duress cannot subsequently ratify that agreement until the duress has ended. See Oubre ,
Tender-Back. Under the tender-back doctrine, a plaintiff cannot file a lawsuit and keep the money she received in exchange for her promise not to sue . See Oubre ,
The tender-back rule is a centuries-old doctrine that emerged in an era when we still had courts at law and courts in equity.
The formal law-equity divide no longer endures. Yet both versions of the rule continue to exist today. Compare Talmer Bank & Trust v. Malek ,
To decide which version of the rule to apply, courts should consider the requested remedy. If a plaintiff asks for an equitable remedy, the equitable version of the rule should generally apply. And if a plaintiff asks for damages, the legal version should typically apply. In some cases, that inquiry will be easy. But the question is harder in release cases like McClellan's. When a plaintiff asks a court to rescind a release agreement so that she can sue under a federal statute, the plaintiff asks for two remedies: first, rescission, and second, whatever remedies she ultimately seeks under the statute. What remedy is the proper touchstone for the tender-back rule? Here, McClellan seeks equitable remedies: rescission and reinstatement. See 2 Joseph Story, Commentaries on Equity Jurisprudence §§ 688-95 (listing rescission as an equitable remedy); see also Fleming ,
*315Timing of reasonableness. Assuming the equitable rule applies (at least in part), the district court should consider whether the timing of McClellan's tender back was reasonable. See 2 James Kent, Commentaries on American Law 194 ("In the case of voidable contracts [by infants], it will depend upon [the] circumstances ... whether any overt act of assent or dissent on his part be requisite to determine the fact of his future responsibility."); see also Oubre ,
* * *
Accordingly, I agree with the majority that we should remand the case. But rather than moving forward with the merits of McClellan's Title VII and Equal Pay Act claims, I would instruct the district court to reconsider the ratification and tender-back doctrines consistent with this opinion.
The majority opinion calls my consideration of history "superfluous." But one must look at past common-law cases to understand the development of the common law . See, e.g. , Cuomo v. Clearing House Ass'n, LLC ,
The majority opinion posits that the common law approach of asking district courts to do what they do everyday-analyze complaints-is unworkable. This unworkability evidently follows from the majority opinion's belief that Title VII allows judges to provide remedies that the parties themselves do not seek. The opinion's only citation for that wide-reaching proposition is part of a footnote in an out-of-circuit case. Selgas v. Am. Airlines, Inc. ,
Reference
- Full Case Name
- Jena MCCLELLAN, Plaintiff-Appellant, v. MIDWEST MACHINING, INC., Defendant-Appellee.
- Cited By
- 16 cases
- Status
- Published