Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc. Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc., 369 F.3d 263, 3rd Cir. (2004)
Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc. Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc., 369 F.3d 263, 3rd Cir. (2004)
Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc. Bruno Lloyd v. Hovensa, LLC Wyatt, V.I., Inc., 369 F.3d 263, 3rd Cir. (2004)
3d 263
Bruno Lloyd appeals from an order of the District Court of the Virgin Islands
compelling arbitration of his claims against Wyatt, V.I., Inc. ("Wyatt" or
"Cross-Appellant") and HOVENSA, LLC ("HOVENSA"; collectively,
"Appellees") pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. 1 et
seq. Wyatt cross-appeals from the District Court's order insofar as it denied
Wyatt's motion for a stay of the proceedings on Lloyd's claims pending
arbitration.
Lloyd, who applied for employment at Wyatt, brought suit against Appellees
alleging, inter alia, discriminatory conduct in violation of Title VII of the Civil
Rights Act of 1964, 42 U.S.C. 2000e et seq. Invoking the provisions of an
arbitration agreement entered into as a condition of Lloyd's application,
Appellees filed a motion to compel arbitration of Lloyd's claims and to stay the
proceedings pending arbitration. The District Court granted Appellees' motion
to compel arbitration, but dismissed the case with prejudice rather than granting
a stay. For the reasons that follow, we will reverse the District Court's order
and remand with instructions to enter an order consistent with this opinion.
I.
3
Lloyd worked for more than twelve years as a boilermaker and pipefitter for
various contractors at the HOVENSA refinery in St. Croix, Virgin Islands.
Although the contractors for maintenance and repairs changed over these years,
Lloyd remained employed at the HOVENSA refinery. In November 2001,
Lloyd was working for Jacobs/IMC, one of the contractors at the refinery. At
that time, HOVENSA awarded a contract to Wyatt, a newly created subsidiary
of Wyatt Field Services Company ("Wyatt Field Services"), for services that
Jacobs/IMC had been performing. Lloyd was then informed by Jacobs/IMC
that he would be laid-off when Jacobs/IMC's contract expired on December 31,
2001.1 After Wyatt was awarded the new contract, it filled positions in its upper
management with persons on the continental United States who were already
employed by its parent corporation, Wyatt Field Services. These persons,
according to Lloyd, were predominantly white.
In January 2002, Wyatt began to hire between 300 and 400 people in the Virgin
Islands. Also in January 2002, Wyatt began requiring all applicants to sign a
Dispute Resolution Agreement ("DRA") as a condition of having their
applications considered. App. at 196. The DRA states, in relevant part:
App. at 37.
On January 9, 2002, Lloyd applied for employment with Wyatt and signed the
DRA. He was not hired. Lloyd thereafter filed this action against both Wyatt
and HOVENSA. The complaint alleged: (1) violation of the Federal Civil
Rights Act of 1964; (2) violation of Titles 10 and 24 of the Virgin Islands Code;
(3) wrongful discharge by HOVENSA; (4) breach of an implied contract of
good faith and fair dealing by HOVENSA; and (5) negligent and/or intentional
infliction of emotional distress. Lloyd requested punitive as well as
compensatory damages.
10
After the evidentiary hearing, the District Court granted Wyatt's motion to
compel arbitration and dismissed the complaint with prejudice. The District
Court held that AAA Rules 17, 18, and 34, as incorporated into the DRA, were
unconscionable. In addition, the District Court denied Lloyd's request for
discovery on his theory that Wyatt used the DRA in a racially discriminatory
manner. The District Court noted that Lloyd had never filed a motion for an
order to conduct discovery, in accordance with Fed.R.Civ.P. 7(b) or Local R.
Civ. P. 7.1, during the nearly three months between his October 21, 2002
memorandum opposing arbitration and the evidentiary hearing. The District
Court further held that the most Lloyd had shown was that Wyatt differentiated
between applicants on the basis of residency and nothing more. Accordingly,
the District Court found that the DRA had not been used as a tool of unlawful
discrimination. Finally, the District Court severed the confidentiality provisions
of AAA Rules 17, 18 and 34 from the DRA and granted Wyatt and
HOVENSA's motion to compel arbitration. Rather than stay the proceedings
pending arbitration, however, the District Court dismissed the action with
prejudice because it found all of Lloyd's claims to be arbitrable and thus left no
claims for adjudication by the District Court.2 Lloyd filed a timely notice of
appeal and Wyatt subsequently filed a notice of cross-appeal.
II.
11
The District Court had jurisdiction over this case under 28 U.S.C. 1331 and
48 U.S.C. 1612(a), because the case arose under, inter alia, Title VII, 42
U.S.C. 2000e, et seq. The District Court exercised supplemental jurisdiction
over Lloyd's Virgin Islands claims pursuant to 28 U.S.C. 1367 and 48 U.S.C.
1612(a).
12
13
plainly dispose[s] of the entire case on the merits and le[aves] no part of it
pending before the court. The FAA does permit parties to arbitration
agreements to bring a separate proceeding in a district court to enter judgment
on an arbitration award once it is made (or to vacate or modify it), but the
existence of that remedy does not vitiate the finality of the District Court's
resolution of the claims in the instant proceeding. 9 U.S.C. 9, 10, 11. The
District Court's order was therefore "a final decision with respect to an
arbitration" within the meaning of 16(a)(3), and an appeal may be taken.
14
531 U.S. at 86, 121 S.Ct. 513. Accordingly, we have before us a final
appealable order that we may address on the merits.5
III.
15
We first address the issue of whether the District Court erred in dismissing
Lloyd's complaint with prejudice rather than staying the proceedings pending
arbitration. On cross-appeal, Wyatt argues that pursuant to 3 of the FAA, 9
U.S.C. 3, the District Court was required to grant Appellees' motion to stay
the litigation of Lloyd's claims pending the outcome of the arbitration and that
the dismissal of Lloyd's case was therefore improper.6
16
17
If any suit or proceeding be brought in any of the courts of the United States
upon any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that the
issue involved in such suit or proceeding is referable to arbitration under such
an agreement, 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, providing the applicant for the stay is not in default in proceeding
with such arbitration.
18
19
In accordance with the Supreme Court's instruction in Green Tree, we apply the
"the plain language of the statutory text" in interpreting the FAA. See 531 U.S.
at 88, 121 S.Ct. 513 (holding that the plain meaning of the term "final decision"
in 9 U.S.C. 16(a)(3) must be applied). Here, the plain language of 3 affords
a district court no discretion to dismiss a case where one of the parties applies
for a stay pending arbitration. The directive that the Court "shall" enter a stay
simply cannot be read to say that the Court shall enter a stay in all cases except
those in which all claims are arbitrable and the Court finds dismissal to be the
preferable approach. On the contrary, the statute clearly states, without
exception, that whenever suit is brought on an arbitrable claim, the Court
"shall" upon application stay the litigation until arbitration has been concluded.
In this case, Wyatt requested a stay of the proceeding as part of his motion to
compel arbitration. Accordingly, we hold that the District Court was obligated
under 9 U.S.C. 3 to grant the stay once it decided to order arbitration.
20
21
Contrary to Lloyd's suggestion, the District Court has a significant role to play
under the FAA even in those instances in which the District Court orders the
arbitration of all claims. Even in those instances, the parties are entitled to seek
the Court's assistance during the course of arbitration. For example, the FAA
allows arbitrating parties to return to court for resolution of disputes regarding
the appointment of an arbitrator or the filling of an arbitrator vacancy, 9 U.S.C.
5. Similarly, parties may ask the court to compel the attendance of witnesses,
or to punish the witnesses for contempt, 9 U.S.C. 7. Then, after an arbitration
award is rendered, a party is entitled to seek relief in the District Court in the
form of a judgment on the award or an order vacating or modifying the award.
See 9 U.S.C. 9, 10, 11. If the plaintiff's case has been dismissed rather than
stayed, the parties will have to file a new action each time the Court's assistance
is required, with the attendant risk of having their case assigned to a new judge.
On the other hand, if the court enters a stay of the action and retains
jurisdiction, then proceedings under 5, 7, 9, 10, or 11 may be expedited, as
the parties may simply return the to the same district judge presiding over the
plaintiff's case.
22
There is an even more important reason, however, to hold that Congress meant
exactly what it said. Whenever a party is subjected to litigation on any issue
and is found to be entitled to arbitrate that issue, 3 of the FAA, as we have
noted, mandates that a stay be entered by the District Court. The effect of that
stay is twofold: it relieves the party entitled to arbitrate of the burden of
continuing to litigate the issue while the arbitration process is on-going, and it
entitles that party to proceed immediately to arbitration without the delay that
would be occasioned by an appeal of the District Court's order to arbitrate.
Under 16 of the FAA, 9 U.S.C. 16, whenever a stay is entered under 3,
the party resisting arbitration is expressly denied the right to an immediate
appeal.8 The legislative scheme of the FAA thus reflects a policy decision that,
if a district court determines that arbitration of a claim is called for, the judicial
system's interference with the arbitral process should end unless and until there
is a final award.
23
24
While it is true that the suggested exception would extend only to cases where
the claim subject to arbitration is not asserted along with other non-arbitrable
claims that is, where all asserted claims are arbitrable none of the courts
that have been willing to endorse it has suggested a reason why Congress might
have wanted a party entitled to arbitration to be subjected to an immediate
appeal or not depending on how his adversary has chosen to draft his
complaint.
25
In short, a literal reading of 3 of the FAA not only leads to sensible results, it
also is the only reading consistent with the statutory scheme and the strong
national policy favoring arbitration. Accordingly, the District Court erred in
refusing to enter a stay order.
26
Although we agree with Wyatt that the District Court's order dismissing Lloyd's
case must be reversed, we reject the argument that reversal would, in turn,
IV.
28
Lloyd argues before us for the first time that HOVENSA failed to demonstrate
that it was an intended third party beneficiary of the DRA. It follows, according
to Lloyd, that HOVENSA failed to affirmatively show that it had "standing" to
compel arbitration. In his reply brief, Lloyd adds that HOVENSA clearly lacks
standing to compel arbitration of certain of his claims against it because those
claims predate the DRA and, accordingly, fall outside the scope of that
agreement. Failure to raise these matters in the District Court should be
excused, Lloyd insists, because "standing" to arbitrate is a jurisdictional matter
that can be raised at any stage of the proceedings and because, in any event,
finding a waiver would result in manifest injustice.9 We are unpersuaded.
29
It is true that our case law, as well as the decisions of other courts, has often
referred to a party's "standing" to compel arbitration. See, e.g., In re Prudential
Ins. Co. of Am. Sales Practice Litig. All Agent Actions, 133 F.3d 225, 229 (3d
Cir.1998); Britton v. Co-op Banking Group, 916 F.2d 1405, 1413 (9th
Cir.1990). Lloyd is mistaken, however, in equating the doctrine of Article III
constitutional standing with the "standing" required to compel arbitration in this
case. In order for there to be Article III standing, there must be a "case or
31
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119
L.Ed.2d 351 (1992) (citations and internal quotations and footnote omitted).
Here, the party invoking federal jurisdiction was Lloyd, and his complaint
presented the District Court with a "case or controversy" that has not yet been
resolved. Thus, the District Court properly exercised its jurisdiction. The issues
that Lloyd seeks to raise before us relate only to whether HOVENSA has or
does not have a contract-based defense requiring arbitration rather than
litigation of those claims. That issue is not a jurisdictional one. See Prudential
Ins. Co. of Am., 133 F.3d at 229 (referring to the contractual standing of a party
to arbitrate its claims); Paul Revere Variable Annuity Ins. Co. v. Zang, 248 F.3d
1, 5 n. 2 (1st Cir.2001).
32
Nor are we impressed with Lloyd's manifest injustice argument. It well may be
that some of his claims against HOVENSA are not within the scope of the
arbitration clause, but the FAA's scheme for the expeditious and efficient
disposition of disputes by arbitration would be frustrated if parties were not
required to put their arbitrability claims on the table when the District Court is
called upon to address such issues. We believe it is not manifestly unjust to
require parties to do so when the only consequence of a waiver is an alternative
form of dispute resolution and no loss of substantive rights. See Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct.
3346, 87 L.Ed.2d 444 (1985) ("By agreeing to arbitrate a statutory claim, a
party does not forgo the substantive rights afforded by the statute; it only
submits to their resolution in an arbitral, rather than a judicial, forum. It trades
the procedures and opportunity for review of the courtroom for the simplicity,
informality, and expedition of arbitration.").
33
(3d Cir.1994); Frank v. Colt Indus., Inc., 910 F.2d 90, 99-100 (3d Cir.1990)).
Accordingly, we decline to sustain Lloyd's "standing to arbitrate" arguments.10
V.
34
A.
35
36
37
38
Lloyd also cites Title VII and the Virgin Islands Civil Rights Act, 10 V.I.Code
Significantly, Lloyd does not allege that any particular promise or term in the
DRA was discriminatory. Rather, he claims that Wyatt used the DRA in a
discriminatory manner. Even assuming, however, that 178 of the Restatement
may be applied to a facially neutral contract, Lloyd's argument must still fail as
he has proffered no evidence that Wyatt's use of the DRA was in any way
discriminatory.
40
Lloyd's argument is based solely on two facts: (1) that Wyatt began using the
DRA after its upper management was hired; and (2) that Wyatt's parent
company, Wyatt Field Services, does not use the DRA. Wyatt does not contest
these facts. Instead, it admits that it began using the DRA in the Virgin Islands
in January 2002. Wyatt responds, however, that this timing explains why its
upper management employees, who were hired before January 2002, were not
required to sign the DRA. The record indicates that all persons who applied for
employment at Wyatt after January 2002 were obligated to sign the DRA.
Wyatt proffered that the reason it began using the DRA was concern for the
high cost of employee litigation claims in the Virgin Islands. It adds that its
parent does not, and has not, engaged in any business in the Virgin Islands.
Lloyd has not addressed Wyatt's explanations or claimed that they are
pretextual.
41
The burden of proving a generally applicable contract defense lies with the
party challenging the contract provision. Cf. Harris v. Green Tree Fin. Corp.,
183 F.3d 173, 181 (3d Cir.1999) ("The party challenging a contract provision as
unconscionable generally bears the burden of proving unconscionability."); E.
Allen Farnsworth, Farnsworth on Contracts 4.28 & n. 14 (3d ed. 1999) ("The
party asserting the defense of unconscionability must prove it."). Here, Lloyd
has failed to present any evidence in attempting to meet this burden. We will
therefore affirm the District Court's holding that the DRA was not
unenforceable as violative of public policy.
42
With respect to Lloyd's assignment of error regarding his request for discovery,
we review a district court's denial of a discovery motion for an abuse of
discretion. See Seus, 146 F.3d at 178 (citing Marroquin-Manriquez v. I.N.S.,
699 F.2d 129, 134 (3d Cir.1983) ("It is well established that the scope and
conduct of discovery are within the sound discretion of the trial court and that
after final judgment of the district court or final agency order, our review is
confined to determining if that discretion has been abused." (citations
omitted))). Lloyd argues that the District Court erred in not considering his
request to conduct discovery, but he does not cite any motion that the court
denied or allege that he was deprived of the opportunity to conduct discovery
on his own. The Federal Rules of Civil Procedure allow for numerous
discovery mechanisms that do not require leave of the court. See Fed.R.Civ.P.
30(a)(1) (oral depositions), 31(a)(1) (written depositions), 33(a)
(interrogatories), 34(b) (production of documents). Lloyd does not state
whether he ever attempted to use any of these avenues of discovery to support
his claim. We therefore reject his assignment of error.
B.
43
On cross-appeal, Wyatt argues that the District Court erred in holding that the
confidentiality provisions of AAA Rules 17, 18, and 34, as incorporated in the
DRA, were unconscionable and severable from the remainder of the DRA. We
recently addressed an identical issue in Parilla v. IAP Worldwide Services VI,
Inc., 368 F.3d 269, 2004 WL 1067931 (3d Cir.2004) and concluded that the
district court in that case had erred in holding these AAA Rules
unconscionable. The factual circumstances in this case are substantially the
same as those in Parilla and the parties have also presented substantially the
same arguments that were presented in that case. For the reasons given in
Parilla, we hold that the District Court's ruling on this issue was in error.
Accordingly, AAA Rules 17, 18, and 34 should not have been held
unconscionable or severed from the DRA.
VI.
44
For the reasons set forth above, we will reverse the District Court's order and
will remand with instructions to enter an order compelling arbitration pursuant
to the Dispute Resolution Agreement, as written, and staying the proceedings in
this case pending arbitration.
Notes:
1
According to Lloyd, it was the custom at the HOVENSA refinery that the
former employees of the outgoing contractor would be offered employment or
transferred to the incoming contractor, but Wyatt did not adhere to that custom
The District Court also held that (1) the DRA's fee-splitting provision, because
it provided that Lloyd would not have to pay any fees upon demonstrating
financial hardship to the arbitrator, was not unconscionable, (2) AAA Rule 7's
discovery procedures were not unconscionable, and (3) that the DRA was not
9 U.S.C. 16(a)(3) provides that "an appeal may be taken from a final decision
with respect to an arbitration that is subject to this title."
We note that although the District Court's order in this case granted the
dismissalwith prejudice, the District Court's opinion stated that the matter
would be dismissed without prejudice. See App. at 15, 16. This disparity,
however, does not affect our appellate jurisdiction. See Blair v. Scott Specialty
Gases, 283 F.3d 595, 602 (3d Cir.2002) (holding that the jurisdictional ruling in
Green Tree, where the action had been dismissed with prejudice, applies
equally to a case that was dismissed without prejudice).
Moreover, we note that, while Wyatt does not rely on it, appellate jurisdiction
over the cross-appeal may be exercised pursuant to 9 U.S.C. 16(a)(1)(A) ("An
appeal may be taken from an order refusing a stay of any action under section 3
of this title.").
In construing the language of the FAA, our review is plenarySee Shenango Inc.
v. Apfel, 307 F.3d 174, 192 n. 19 (3d Cir.2002) ("The standard of review in
cases of statutory construction is plenary.").
We have twice commented on the issue indicta, see Seus v. John Nuveen & Co.,
146 F.3d 175, 179 (3d Cir.1998) and Blair, 283 F.3d at 601. In neither of those
cases, however, did a party argue that a stay rather than a dismissal should have
been entered and the Court accordingly had no occasion to decide whether
Section 3 is mandatory. Our comments with respect to that issue are thus not
precedential. Mariana v. Fisher, 338 F.3d 189, 201 (3d Cir.2003).
Under 9 U.S.C. 16(a)(1)(A) & (B), a party may seek immediate appeal of an
order refusing a to grant a stay under 3 of the FAA or an order denying a
petition to compel arbitration under 4. Under 9 U.S.C. 16(b)(1) & (2),
however, an appeal may not be taken (except as provided by 28 U.S.C.
1292(b)) from an interlocutory order granting a stay under 3 or compelling
arbitration under 4
Lloyd also contends that he had no opportunity to raise these matters in the
District Court, pointing to the fact that HOVENSA did not join in Wyatt's
motion to compel arbitration until after Lloyd had filed his memorandum in
opposition thereto. Nearly two months elapsed, however, between HOVENSA's
initial reliance on the DRA and the oral argument on the motion to arbitrate.
Lloyd, accordingly, had ample opportunity to dispute HOVENSA's status as an
intended beneficiary of the DRA and to challenge the arbitrability of his claims
against it
10
11
12
Wyatt argues on appeal that Lloyd waived his public policy argument by not
relying on 178 of the Restatement (Second) of Contracts in the District Court.
While it is true that Lloyd never specifically relied upon the Restatement, he
nonetheless expressly argued that the DRA was applied in a discriminatory
manner and unenforceable as a matter of public policy. He therefore preserved
the argument for appeal and we will address it on the merits
13
Lloyd further cites, for the first time on appeal, 24 V.I.Code Ann. 74a(b),
which provides that "[a]n employer subject to this chapter may not require an
employee to arbitrate a dispute as a condition of employment." Section 74a was
enacted on September 18, 2002, one month before Lloyd filed his
memorandum in opposition to Wyatt's motion to compel arbitration. Lloyd did
not, however, bring this statute to the attention of the District Court as a source
of public policy and we therefore need not address it
45
46
I join Parts I, II, and III of the majority's opinion in full. I concur in Parts IV
and V with the understanding that this case, because it raises substantial and
unresolved questions of considerable importance to those involved in
employment litigation in the Virgin Islands, is the rare one in which we will
exercise our discretion to address the merits of a decision that should have
resulted in a stay pending arbitration, rather than dismissal.