Free Motion for Reconsideration - District Court of Arizona - Arizona

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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

J. Mark Ogden; AZ Bar No. 017018 [email protected] R. Shawn Oller; AZ Bar No. 019233 [email protected] LITTLER MENDELSON A Professional Corporation Camelback Esplanade 2425 East Camelback Road, Suite 900 Phoenix, AZ 85016 Telephone: 602.474.3600 Facsimile: 602.957.1801 Attorneys for Defendant

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Kenneth A. Batory, Plaintiff, v. Sears, Roebuck and Co., a New York corporation, dba "The Great Indoors," Defendant. I. INTRODUCTION

Case No. CIV 02 2026 PHX-JWS

DEFENDANT'S MOTION FOR RECONSIDERATION

Plaintiff admits that he signed Defendant's arbitration agreement which required him to arbitrate the underlying claims in this lawsuit. Plaintiff also concedes that he initially invoked that arbitration agreement but, later, repudiated that agreement. Initially, this Court determined that Plaintiff was bound to arbitrate his claims. However, in its October 12, 2006 Order, the Court changed course and held that Plaintiff was not required to arbitrate his underlying claims against Defendant because Defendant was not similarly bound to arbitrate its claims, if any, against Plaintiff (Dkt. 41, p. 6). Defendant respectfully requests that the Court reconsider its October 12, 2006 Order because, under Arizona law, Defendant was not required to arbitrate claims against Plaintiff in order for the parties to have an enforceable arbitration agreement. In reaching its decision,

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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

the Court overlooked well-established Arizona law which does not require that both parties agree to arbitrate their claims in order for an enforceable arbitration agreement to exist. As set forth below, Arizona ­ like the majority of jurisdictions ­ has rejected the Court's reasoning as set forth in its October 12, 2006 Order. II. LAW AND ARGUMENT A. Legal Standard for Granting a Motion for Reconsideration

A motion for reconsideration "must show two things to provide a valid ground for reconsideration." Garber v. Embry-Riddle Aeronautical Univ., 259 F. Supp. 2d 979

(D. Ariz. 2003). It "must demonstrate a credible reason why the court should reconsider its prior decisions" and "set forth facts or law of a strongly convincing nature to induce the court to reverse its prior decision." Id. As set forth below, both elements are present. B. The Court's Order

The Ninth Circuit Court of Appeals directed the Court to determine whether three (3) provisions of Defendant's Dispute Resolution Program ("DRP") agreement were substantively unconscionable under Arizona law (Dkt. 27). On July 8, 2005, the Court held a hearing to discuss the issues relating to the Ninth Circuit's order and, subsequently, issued its Order on the matter (Dkt. 41). In its Order dated October 12, 2006, the Court held that two of the three disputed provisions were substantively unconscionable under Arizona law.1 First, the Court held that because Defendant's employees are required to arbitrate "Covered Claims" while Defendant was not, the DRP was substantively unconscionable (Dkt. 41, p. 4). Second, the Court held that the DRP provision allowing Defendant, but not the Plaintiff, to modify the DRP upon 60 days notice was likewise substantively unconscionable (Id.). In its Order, however, the Court held that "Plaintiff has not argued that he has been negatively affected by the termination and modification provision. With respect to this provision, the Court would
1

The Court held that the DRP's fee provision, which required employees to pay the lesser of $150 or the filing fee if a claim was filed in court, was not prohibitively expensive and, therefore, not substantively unconscionable (Dkt. 41, p. 5).

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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

exclude it and enforce the remainder of the DRP." (Dtk. 41, pp. 5-6).2 Thus, the only impediment to the parties' arbitration agreement is the Court's holding that because Plaintiff was the only party required to arbitrate "Covered Claims," the DRP is substantively unconscionable. As set forth below, this conclusion is contrary to Arizona law and, indeed, the majority of jurisdictions have specifically addressed this issue. C. The Court Erred in Holding That the DRP was Substantively Unconscionable.

In the present case, the Court erred in holding that the DRP was substantively unconscionable because Plaintiff, but not Defendant, was required to arbitrate "Covered Claims." The Court's Order not only ignores the prevailing majority view on this issue but also, and more importantly, well-established Arizona law. In its Order, the Court held that because both parties were not required to arbitrate their claims, the DRP was substantively unconscionable (Dkt. 41, p. 4). That is, the Court imposed a "mutuality of obligation" requirement ­ that both parties must be obligated to arbitrate their claims for the DRP to be enforceable. However, the majority of courts have rejected this view. See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173, 183-84 (3d Cir. 1999) (under Pennsylvania law, "the mere fact that Green Tree retains the option to litigate some issues in court, while the Harrises must arbitrate all claims does not make the arbitration agreement unenforceable" for unconscionability); Barker v. Golf U.S.A., Inc., 154 F.3d 788 (8th Cir. 1998), cert. denied, 525 U.S. 1068 (1999); Johnson v. Circuit City Stores, Inc., 148 F.3d 373, 379 (4th Cir. 1998), cert. denied, 530 U.S. 1276 (1999); Doctor's Assocs. v. Distajo, 66 F.3d 438, 453 (2d Cir. 1995); Parker v. Green Tree Fin. Corp., 730 So.2d 168, 170-71 (Ala. 1999); Stenzel v. Dell, Inc., 870 A.2d 133, 143-45 (Maine 2005) (under Texas law, entirely one-sided arbitration agreement that also prohibited class actions not unconscionable); Walther v. Sovereign Bank, 386 Md. 412, 872 A.2d 735 (2005)
2

Plaintiff does not allege ­ because he cannot ­ that Defendant has filed any actual claims against him or intends to do so. Nor does Plaintiff allege that his potential damages are limited under the DRP. Indeed, the so-called "harm" to Plaintiff appears to be purely hypothetical.
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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

(arbitration provision in loan agreement not unconscionable, even though only the mortgagor was permitted to go to court, it prohibited class action claims, arbitration fees were not disclosed, and mortgagee was required to waive right to jury trial); Pridgen v. Green Tree Fin. Servicing Corp., 88 F.Supp.2d 655, 658-59 (S.D. Miss. 2000) (under Mississippi law, an "arbitration clause is not unenforceable solely because it is one-sided."); Wright v. Circuit City Stores, Inc., 82 F. Supp.2d 1279, 1284 (N.D. Ala. 2000) ("Circuit City's promise to be bound by the arbitration process and results of employee disputes that are initiated by employees is sufficient consideration in this case."). As one state Supreme Court noted, the "mutuality of obligation" requirement in this context is a "dead letter" in contract law. State ex rel. Vincent v. Schneider, 194 S.W.3d 853 (Mo. 2006). The Restatement of Contracts provides that "[i]f the requirement of

consideration is met, there is no additional requirement of ... `mutuality of obligation.'" RESTATEMENT (SECOND) OF CONTRACTS, § 79 (1979). "As long as the requirement of consideration is met, mutuality of obligation is present, even if one party is more obligated than the other." Harris, 183 F.3d 181. Arizona ­ like the jurisdictions cited above ­ has adopted § 79 of the RESTATEMENT (SECOND) OF CONTRACTS and its reasoning. See K-Line Builders, Inc. v. First Federal Savings & Loan Ass'n, 139 Ariz. 209, 677 P.2d 1317 (Ct. App. 1984) ("We need not decide whether there was mutuality of obligation since the existence of consideration vitiates the need for such mutuality" citing § 79). That reasoning also has been adopted by the Arizona Supreme Court which has held: When there are mutual promises between parties ... it is not necessary in order to render a particular promise by one party binding on the other party that there be a special promise on the part of the other party directed to that particular obligation. (Citations omitted). Furthermore, it is of no consequence that the parties exchanged "unlike services". Carroll v. Lee, 148 Ariz. 10, 712 P.2d 923 (Ariz. 1986). "Clearly a promise for a promise constitutes adequate consideration." Id. (quoting K-Line Builders, Inc. v. First Federal Savings & Loan Ass'n, 139 Ariz. 209, 677 P.2d 1317 (Ct. App. 1984)). In the present case,
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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

there is no dispute that both parties promised to arbitrate whatever "Covered Claims" that Plaintiff may have against Defendant. Under Arizona law, nothing further is required. As the Court noted, a federal court sitting in diversity must assess how a state's highest court would resolve the state law issue. Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001). The court must "look to existing state law without predicting potential changes in that law." Id. In its Order, the Court did not cite any Arizona authority to support its conclusion that the "Covered Claims" provision of the DRP was substantively unconscionable under Arizona law. Indeed, the Court failed to cite K-Line Builders, Carroll, or the RESTATEMENT (SECOND) OF CONTRACTS ­ all of which suggest that Arizona courts would hold that such a provision was not substantively unconscionable under Arizona law. III. CONCLUSION Contract law has never required that the precise terms of the exchange by symmetrical, beyond some minimum requirement of value being given to each side (i.e., consideration). Indeed, the nature of the exchange belies any such term-by-term requirement of symmetry. If the law required the terms of the deal to be symmetrical ­ such that the parties merely traded for the same thing, one for the other ­ no legally enforceable exchange would take place. Defendant respectfully requests that the Court reconsider its October 12, 2006 Order and, in particular, its finding that the DRP was substantively unconscionable because the parties were not required to arbitrate the claims, if any, Defendant may have had against Plaintiff, while the parties were required to arbitrate Plaintiff's "Covered Claims" against Defendant. RESPECTFULLY SUBMITTED this 23rd day of October 2006.

s/ R. Shawn Oller J. Mark Ogden R. Shawn Oller LITTLER MENDELSON, P.C. Attorneys for Defendant

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LITTLER MENDELSON
A PROFESSIONAL CORPORATION Camelback Esplanade 2425 East Camelback Road Suite 900 Phoenix, AZ 85016 602.474.3600

I hereby certify that I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following if CM/ECF registrants, and mailed a copy of same to any non-registrants this 23rd day of October, 2006: Lynn M. Laney, Jr. 934 West McDowell Road Phoenix, AZ 85007-1730 Attorney for Plaintiff

s/ Leslie Boone
Firmwide:81601531.1 016144.1070

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