Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
1-9-2009
Lucey v. FedEx Ground Pkg Sys
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-4372
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-4372
RICHARD LUCEY; FRANCIS DENNIS LYNCH;
DAVID MCMAHON; JAMES HOUGH;
MICHAEL MCKENZIE; FRANK CUCINOTTI
v.
FEDEX GROUND PACKAGE
SYSTEMS, INC.,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
District Court No. 06-cv-03738
District Judge: The Honorable Renee M. Bumb
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
December 12, 2008
Before: MCKEE, SMITH, and ROTH, Circuit Judges
(Filed: January 08, 2009)
OPINION
SMITH, Circuit Judge.
1
FedEx Ground Package System, Inc.1 (“FedEx”) contracted with Richard Lucey,
Francis Dennis Lynch, David McMahon, Michael McKenzie, Frank Cucinotti, and James
Hough (collectively, the “Plaintiffs”) to serve as package delivery drivers.2 An Operating
Agreement signed by each individual driver and FedEx governed the relationship. The
Operating Agreement contained, inter alia, a provision requiring the driver-signatory to
submit all claims arising from the termination of the relationship to arbitration. FedEx
terminated the contracts of each driver between 2004–2005. While three of the Plaintiffs
began arbitration proceedings, all six Plaintiffs filed suit to challenge the arbitration
provision before an arbitrator decided any claim.
An arbitration agreement will be upheld unless there is a legal or equitable ground
that would invalidate a contract. 9 U.S.C. § 2; 42 Pa. Cons. Stat. § 7303. To make this
determination, courts look to state law. Blair v. Scott Specialty Gases, 283 F.3d 595, 603
(3d Cir. 2002). Plaintiffs here argue that the arbitration provision in the Operating
1
FedEx notes that it was improperly pled as FedEx Ground Package
Systems, Inc.
2
The District Court exercised diversity jurisdiction pursuant to 28 U.S.C. §
1332(a). This Court has jurisdiction pursuant to 9 U.S.C. § 16. We exercise plenary
review over questions regarding the enforceability of the agreement to arbitrate. Lloyd v.
Hovensa, LLC, 369 F.3d 263, 273 (3d Cir. 2004). We review any findings of fact, on
which the District Court predicated its decision, pursuant to a clearly erroneous standard.
Id. (quoting Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44,
53–54 (3d Cir. 2001)).
2
Agreement is unconscionable. Under Pennsylvania law,3 an arbitration provision is
unenforceable on the grounds of unconscionability if two elements are met: (1) “the
contractual terms are unreasonably favorable to the drafter,” and (2) “there is no
meaningful choice on the part of the other party regarding acceptance of the provisions.”
Worldwide Underwriters Ins. Co. v. Brady, 973 F.2d 192, 196 (3d Cir. 1992) (citing
Koval v. Liberty Mut. Ins. Co., 531 A.2d 487, 491 (Pa. Super. Ct. 1987)). The first
element is referred to as substantive unconscionability, while the second is known as
procedural unconscionability. The District Court found that both elements were met, and
held that the arbitration agreement was unconscionable as a result.
The District Court found that the Plaintiffs lacked a meaningful choice to enter
into the arbitration provision of the Operating Agreement. It noted that FedEx presented
the Operating Agreement to the Plaintiffs shortly before they began their jobs, at which
point each driver had leased a delivery truck and was financially committed to the
position, and that Plaintiffs did not have an opportunity to read, review, or negotiate the
terms of the agreement. While FedEx does not contest that the Plaintiffs were presented
with the Operating Agreement only after each driver leased a delivery truck, it argues that
the Plaintiffs did not take “reasonable steps to obtain a copy of the arbitration agreement
3
The District Court correctly noted that “Federal courts sitting in diversity
look to the law of the forum state in making a choice of law determination.” New Jersey
law states that a contractual choice of law provision will be upheld unless doing so would
violate its public policy. In this case, the Operating Agreement contained a provision that
Pennsylvania law governs the agreement. Because there is no evidence or argument that
the application of Pennsylvania law would offend the public policy of New Jersey, the
District Court appropriately applied Pennsylvania law.
3
or reasonably avail[] themselves of the opportunity to inquire and learn about the
provisions of the arbitration agreement” prior to undertaking this financial commitment.
It argues that this Court’s decision in Zimmer v. Cooperneff Advisors, Inc., 523 F.3d 224
(3d Cir. 2008), prohibits parties from sitting on their hands prior to the enactment of an
agreement and instead requires that they actively seek to obtain and negotiate the
agreement. This argument is unavailing.
This Court’s decision in Zimmer was premised on its factual background. Zimmer
concerned an employment contract between Steven Zimmer, a Harvard-educated
economist, and a trading and investment firm. Id. at 225. Zimmer argued that he did not
make a meaningful choice to enter into the agreement because the agreement was
presented to him only after he began working for the firm. Id. at 226–27. This Court
rejected this argument, noting that Zimmer had significant bargaining power, not only
because he was highly educated, but also because he had numerous job opportunities. Id.
at 229. Our decision was also premised on the fact that Zimmer was aware that his
employment was contingent on the negotiation of an employment agreement and that
either party could terminate those negotiations. Id. We specifically distinguished this
case from one in which a party with a limited educational background, narrow options for
employment, and little bargaining power is presented with an agreement on a take-it-or-
leave it basis. Id. On the facts of the present case, where FedEx drafted the arbitration
provision and presented it to Plaintiffs with little to no bargaining power on a take-it-or-
leave it basis, we cannot equate an opportunity to review the agreement with a meaningful
4
choice to accept its terms.
Because FedEx concedes that it has not placed substantive unconscionability at
issue in its appeal, this argument is deemed waived. Accordingly, because we do not find
error in the District Court’s conclusion that the agreement is procedurally unconscionable
and there is no argument as to substantive unconscionablity, we will affirm the District
Court’s conclusion that both elements of unconscionability are met.
FedEx also argues that the District Court erred by not confirming an arbitration
award against McMahon. McMahon submitted his claim to arbitration in 2005. In April
2006, McMahon and FedEx participated in an arbitration preliminary status hearing, at
which point they agreed to an arbitration hearing in July 2006. In May 2006, McMahon
sought a stay in the arbitration proceeding, notifying the arbitrator that he was seeking a
judicial determination regarding the validity of the agreement. FedEx opposed this
request, and the arbitrator denied the stay in light of the parties’ failure to agree. The
arbitrator proceeded according to the schedule approved during the preliminary status
hearing. FedEx subsequently filed a motion to dismiss McMahon’s arbitration claim on
the ground that it was untimely, and McMahon did not respond. On June 6, 2006, the
Plaintiffs, including McMahon, filed the present federal action arguing that the arbitration
provision was unconscionable. Three days later, the arbitrator dismissed McMahon’s
claim. FedEx argues that McMahon’s failure to file a motion to vacate the arbitrator’s
decision results in the waiver of his unconscionability claim. This argument must fail.
5
In cases challenging whether an issue is subject to arbitration, we have held that a
“party [who] voluntarily submits an issue to arbitration without challenging the
arbitrability of that issue” may be deemed to have waived judicial review. Pa. Power Co.
v. Local 272, Int’l Bhd. of Elec. Workers, 886 F.2d 46, 50 (3d Cir. 1989). In this case,
however, McMahon clearly raised his objection to arbitration and the validity—and thus
arbitrability—of the agreement. Accordingly, “where a party objects to arbitrability but
nevertheless voluntarily participates in the arbitration proceedings, waiver of the
challenge to arbitral jurisdiction will not be inferred.” Kaplan v. First Options of
Chicago, Inc., 19 F.3d 1503, 1510 (3d Cir. 1994).
Finally, FedEx argues that the District Court erred by not dismissing McKenzie’s
claim. In March 2007, Plaintiffs’ attorneys notified the District Court of McKenzie’s
death. Plaintiffs have not filed a motion for substitution, and FedEx argues that
McKenzie’s claim must be dismissed as a result.
The Federal Rules of Civil Procedure state that “[i]f a motion [for the substitution
of a deceased party] is not made within 90 days after service of a statement noting the
death, the action by or against the decedent must be dismissed.” Fed. R. Civ. P. 25(a)(1).
Though FedEx did not raise this issue in its motions to the District Court, it filed those
motions during the pendency of the 90-day period for substitution. Because the Plaintiffs
notified the District Court on March 13, 2007 of McKenzie’s death and there has not been
a motion for substitution as required by Rule 25(a), we will reverse the portion of the
District Court’s order as it relates to McKenzie’s claim.
6
For the reasons discussed above, we will affirm the District Court’s judgment with
regard to the unconscionability of the arbitration proceeding and McMahon’s claim, but
we will reverse its decision as it applies to McKenzie’s claim.
7