Cheek v. United Healthcare

Decision Date13 November 2003
Docket NumberNo. 141,141
Citation378 Md. 139,835 A.2d 656
PartiesRonnie E. CHEEK v. UNITED HEALTHCARE OF the MID-ATLANTIC, INC.
CourtMaryland Court of Appeals

Barton D. Moorstein (Blank & Moorstein, L.L.P., on brief), Rockville, for Appellant.

Kelly S. Jennings (Susan C. Benner of Seyfarth Shaw, on brief), Washington, DC, for Appellees.

Argued before BELL, C.J., and ELDRIDGE, RAKER, WILNER, CATHELL, HARRELL and BATTAGLIA, JJ.

BATTAGLIA, Judge.

The issue in this case is whether a valid and enforceable arbitration agreement exists between an employer and an employee when the employer has reserved the right to, within its sole discretion, alter, amend, modify, or revoke the arbitration agreement at any time and without notice, even though it has not exercised that option in the present case.

Appellant, Ronnie E. Cheek, filed suit in the Circuit Court for Baltimore City for breach of contract and related causes of action after his employer, appellee United Healthcare of the Mid-Atlantic, Inc.,1 terminated his employment. United responded with a motion to compel arbitration, which the Circuit Court granted. Cheek appealed, and we granted certiorari prior to any proceedings in the Court of Special Appeals. For the reasons discussed herein, we conclude that the arbitration agreement between Cheek and United is unenforceable for lack of consideration because United's promise to arbitrate is illusory and because United's employment of Cheek cannot serve as consideration for the arbitration agreement. Consequently, we shall reverse the order of the Circuit Court compelling arbitration and remand this case for further proceedings.

I. BACKGROUND

On November 17, 2000, United orally offered Cheek a position of employment as a senior sales executive, which was confirmed in writing the same day. The two-page letter set forth various conditions of United's offer of employment, including that Cheek accept United's "Employment Arbitration Policy." Specifically, the letter stated that enclosed with it were "summaries of the United Group Internal Dispute and Employment Arbitration Policy which are conditions of your employment."2

In a November 28, 2000, letter to United, Cheek wrote that he was "delighted to accept United Healthcare's generous offer" and that "[a]ll of the terms in your employment letter are amenable to me." He also indicated that he had submitted his resignation that morning to his current employer, Blue Cross/Blue Shield of the District of Columbia.

On January 2, 2001, during Cheek's first day of employment with United, he received a copy of United's Employee Handbook, which contained summaries of United's Internal Dispute Resolution Policy and Employment Arbitration Policy (hereinafter, "Arbitration Policy" or "Policy").3 The summary of the Arbitration Policy described the scope of the Policy, the rules applicable in arbitration, how an employee initiates arbitration, and the types of relief available in arbitration. Specifically, the summary of the Policy stated that United "believes that the resolution of disagreements" between employees and United "are best accomplished by an internal dispute review (IDR) and, where that fails, by arbitration based on the rules of the American Arbitration Association." Accordingly, United declared in the summary of the Policy that arbitration "is the final, exclusive and required forum for the resolution of all employment related disputes which are based on a legal claim" and that "any party to [such a dispute] may initiate the arbitration process." Particularly relevant to the disposition of this appeal, the summary of the Arbitration Policy also provided:

United HealthCare reserves the right to alter, amend, modify, or revoke the Policy at its sole and absolute discretion at any time with or without notice. The senior executive of Human Resources has the sole authority to alter, amend, modify, or revoke the Policy.

On January 2, 2001, Cheek signed an "Acknowledgment Form for the Code of Conduct and Employment Handbook." In that Form, Cheek acknowledged that he had "specifically received and reviewed," among other things, an "Internal Dispute Resolution/Employment Arbitration Policy." The Form that Cheek signed also stated:

I understand that UnitedHealth Group Employment Arbitration Policy is a binding contract between UnitedHealth Group and me to resolve all employment-related disputes which are based on a legal claim through final and binding arbitration. I agree to submit all employment-related disputes based on legal claim[sic] to arbitration under UnitedHealth Group's policy.

Within seven months, on July 27, 2001, United informed Cheek that United was eliminating his position as of August 10, 2001, when, in fact, his employment was terminated. In response, on December 31, 2001, Cheek filed a four-count complaint against United in the Circuit Court for Baltimore City. In the complaint, Cheek sought damages for breach of contract, negligent misrepresentation, and violations of Maryland Code, § 3-501 et. seq. of the Labor and Employment Article.4 Cheek also claimed under the doctrine of promissory estoppel that United should have been precluded from denying the existence of a valid employment agreement.

On February 6, 2002, United filed a "Motion to Dismiss and/or Compel Arbitration and Stay Lawsuit" with the Circuit Court. On May 15, 2002, after hearing from the parties, the Circuit Court entered an order dismissing Cheek's complaint and ordering him to submit his claims to arbitration. Thereafter, Cheek noted an appeal to the Court of Special Appeals. We issued a writ of certiorari, Cheek v. United Healthcare, 374 Md. 81, 821 A.2d 369 (2003), prior to any proceedings in the Court of Special Appeals.

Cheek presents the following questions for review, which we have restructured:

(I) Whether the arbitration agreement between Cheek and United is "unenforceable and void as against public policy" because:

(A) The rules of the arbitration can be altered, revised, or amended at the sole discretion of United;

(B) The arbitration agreement does not allow the arbitrator to conclude that an employee is anything other than an "employee at will;"

(C) The arbitration agreement was "foisted" on Cheek after an employment contract was formed.

(II) Whether United's "sole and absolute discretion" to "alter, amend, modify, or revoke" its arbitration agreement with Cheek at any time renders its promise to arbitrate illusory and the arbitration agreement, therefore, unenforceable.

For the reasons discussed herein, we conclude that the arbitration agreement in the present case is unenforceable for lack of consideration because United's promise to arbitrate is illusory and United's employment of Cheek did not act as consideration for the arbitration agreement. Consequently, we need not address Cheek's remaining questions.

II. DISCUSSION

Cheek contends that the Circuit Court erred in compelling arbitration and advances several arguments in support of that contention. Cheek claims that the Arbitration Policy "lacks mutuality" and is also "void as against public policy" because it states that United has "the right to alter, amend, modify, or revoke the Policy at its sole and absolute discretion at any time with or without notice." Additionally, Cheek argues that the Arbitration Policy "lacks consideration." In support of that claim, Cheek asserts that he agreed to the Arbitration Policy after he had already entered into a binding oral contract of employment with United. Consequently, Cheek asserts that he "received nothing that he had not already [received]." Cheek further claims that the Arbitration Policy is one of "adhesion" and that he was acting under "duress" when he signed it because he was in an inferior bargaining position, because the arbitration agreement precludes an arbitrator from finding anything other than at-will employment, and because the agreement was offered to him on a "take it or leave it" basis after he had already given up his position at Blue Cross/Blue Shield of the District of Columbia. Finally, Cheek contends that the Arbitration Policy is unenforceable because United's promise to arbitrate is "illusory." In support of that contention, Cheek relies on Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306 (6th Cir.2000), in which the United States Court of Appeals for the Sixth Circuit held, according to Cheek, that a "substantially similar arbitration scheme was [illusory and therefore] unenforceable."

United, on the other hand, contends that it and Cheek "entered into a valid and enforceable arbitration agreement." Contrary to Cheek's assertion, United claims that the Arbitration Policy is supported by "mutuality of obligation" because United "promised to provide Cheek employment for, inter alia, Cheek's promise to abide by the terms of the [arbitration agreement]," and because it promised to submit to arbitration "all employment related disputes which are based on a legal claim." That United reserved the right to modify the Arbitration Policy, it asserts, "is of no consequence to the issue of mutuality." United also claims that the Arbitration Policy was supported by "adequate consideration." In support of that claim, United rejects Cheek's assertion that the Arbitration Policy was entered into after his employment commenced, and further argues that the "mutual promise to arbitrate" and United's "continued employment" of Cheek each served as adequate consideration to support the Arbitration Policy. Additionally, United argues that the Arbitration Policy is not a contract of adhesion because it is a "simple" four-page document, because there is no evidence of any "great disparity in bargaining power between the parties," and because the Arbitration Policy does not preclude an arbitrator from finding an employment contract. Finally, United asserts that a promise is not illusory "simply because it permits one party to unilaterally...

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