Flannery v. Tri-State Div.

• Decision Date: 02 December 2005
• Docket Number: No. 04-10144-BC.,04-10144-BC.
• Citation: 402 F.Supp.2d 819
• Parties: Sarah L. FLANNERY, Plaintiff, v. TRI-STATE DIVISION, Coca-Cola Enterprises, Incorporated, Coca-Cola Bottling Company of Mt. Pleasant, and Coca-Cola Enterprises Company, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

402 F.Supp.2d 819

Sarah L. FLANNERY, Plaintiff, v. TRI-STATE DIVISION, Coca-Cola Enterprises, Incorporated, Coca-Cola Bottling Company of Mt. Pleasant, and Coca-Cola Enterprises Company, Defendants.

No. 04-10144-BC.

United States District Court, E.D. Michigan, Northern Division.

December 2, 2005.

John J. Devine, Jr., Mt. Pleasant, MI, for Plaintiff.

Charles B. Lee, Miller & Martin, Chattanooga, TN, Jamie H. Nisidis, Braun, Kendrick, Saginaw, MI, for Defendants.

ORDER VACATING MAGISTRATE JUDGE'S ORDER DENYING DEFENDANTS' MOTION TO STAY PROCEEDINGS AND COMPEL ARBITRATION, AND SCHEDULING CASE MANAGEMENT AND SCHEDULING CONFERENCE

LAWSON, District Judge.

This matter is before the Court on the plaintiff's objections to the magistrate judge's order staying proceedings and granting the defendant's motion to compel arbitration. The plaintiff filed an action against her former employer in the Isabella County, Michigan circuit court alleging various violations of Michigan's Elliot-Larsen Civil Rights Act, Mich. Comp. Laws § 37.2101, et seq., based on claims of sexual discrimination and hostile work environment. Defendant Coca-Cola Enterprises Company removed the action to this Court alleging diversity of citizenship and then filed a motion to stay proceedings and compel arbitration. The Court referred the motion to Magistrate Judge Charles E. Binder, who entered an order on October 26, 2004 granting the motion. The plaintiff filed timely objections. After considering the motion de novo, the Court believes it should be denied without prejudice.

I.

A magistrate judge may be delegated authority "to hear and determine any pretrial matter pending before the court, except" motions for injunctive relief and certain enumerated dispositive motions. 28 U.S.C. § 636(b)(1)(A). The Court may reconsider any pretrial matter "where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law." Ibid. Dispositive matters may be referred to a magistrate judge for a report and recommendation, which the Court reviews de novo. 28 U.S.C. § 636(b)(1)(B), (C).

The defendant asserts that the magistrate judge's order is a nondispositive order that should be reviewed for clear error. See Fed.R.Civ.P. 72(a). However, the effect of the magistrate judge's order is to terminate the litigation in this Court and transfer the case to another forum for a determination of the merits. When choosing the appropriate standard of review for a magistrate judge's decisions, the Sixth Circuit "does not limit dispositive orders to those enumerated in § 636(b)(1)(A)." Vogel v. U.S. Office Products Co., 258 F.3d 509, 517 (6th Cir.2001). Rather, that court has adopted "a functional equivalency test to see if a particular motion has the same practical effect as a recognized dispositive motion." Ibid. The court in Vogel held that an order of remand should be reviewed as a dispositive order, much the same as a dismissal order: "The practical effect of remand orders and orders to dismiss can be the same; in both, cases are permitted to proceed in state rather than federal court." Ibid.

Likewise, an order compelling arbitration has the practical effect of allowing the case to proceed in a different forum. Therefore, the Court views the order compelling arbitration as a dispositive order that should be reviewed de novo. 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b).

II.

It does not appear that the plaintiff was working with the benefit of a written contract or other documentation concerning the terms and conditions of her employment. In any event, there was no agreement in existence to arbitrate disputes between the parties up to the time of the plaintiff's discharge.

The plaintiff alleges in her complaint that when she was fired on January 26, 2004, the defendants presented her with a "separation agreement" and told her that she had to sign it in order to receive her "separation payment," which amounted to a little more than $6,000. Upon termination, the defendants took the plaintiff's company vehicle, keys and files, and she was sent home in a taxi. She was given three days to sign the document. However, the "separation payment," she contends, consisted of money that she had already earned and to which she was entitled. Consequently, she asserts that the agreement is void because it was signed under duress.

The separation agreement contained a statement that the plaintiff was terminated "by resignation," discussed separation payments and compensation for vacation pay, reviewed employee benefits, and included a general release and confidentiality provisions. The agreement also contained an arbitration clause that states:

14. ARBITRATION. Any and all disputes arising regarding the interpretation, enforcement, or performance of this Agreement shall be resolved by binding, confidential arbitration governed by the Arbitration Rules established by the American Arbitration Association. The arbitrator shall have full authority to enforce the Agreement, including injunctive or other equitable relief.

Compl. Ex. A.

The magistrate judge believed that the motion was governed by Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), in which the Supreme Court interpreted sections 2, 3 and 4 of the Federal Arbitration Act (FAA), 9 U.S.C. §§ 2, 3, 4. In that case, the parties had bought and sold a business. One of the sale documents was a consulting agreement that contained a noncompete clause and an arbitration agreement. Shortly after the deal closed, the buyer (Prima Paint) learned that the seller filed for bankruptcy protection, and Prima Paint then brought suit claiming fraud in the inducement: it alleged that it signed the contract on the basis of representations that the defendant was solvent and able to perform its contractual obligations, when in fact it was not. Prima Paint also sought to avoid the arbitration agreement. The Court held that the matter must be arbitrated because the fraud allegation was not directed specifically to the arbitration clause but to the contract generally.

[I]f the claim is fraud in the inducement of the arbitration clause itself — an issue which goes to the "making" of the agreement to arbitrate — the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.... We hold, therefore, that in passing upon a § 3 application for a stay while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate.

. . . . .

In the present case no claim has been advanced by Prima Paint that F & C [the seller] fraudulently induced it to enter into the agreement to arbitrate "any controversy or claim arising out of or relating to this Agreement, or the breach thereof." This contractual language is easily broad enough to encompass Prima Paint's claim that both execution and acceleration of the consulting agreement itself were procured by fraud.... The question which Prima Paint requested the District Court to adjudicate preliminarily to allowing arbitration to proceed is one not intended by Congress to delay the granting of a § 3 stay.

Prima Paint, 388 U.S. at 403-04, 406, 87 S.Ct. 1801.

The magistrate judge determined that the plaintiff's challenge was directed to the entire separation agreement, and since it did not focus solely on the arbitration clause, the arbitrator must decide the duress claim. The magistrate judge also rejected the plaintiff's arguments that the Federal Arbitration Act was not applicable because the employment relationship did not involve interstate commerce.

The plaintiff wisely does not advance the latter argument again in her objections. However, she contends that Prima Paint does not bar her challenge to the separation agreement because it is void and may be attacked on the basis of conventional contract defenses, which must be decided by the Court, not the arbitrator.

III.

The Supreme Court's decision in Circuit City Stores v. Adams, 532 U.S. 105, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001), leaves little doubt that the Federal Arbitration Act applies to disputes arising from the employer-employee relationship, including those claims based on federal anti-discrimination laws. Id. at 122-23, 121 S.Ct. 1302 (upholding arbitration clause in employment agreement and stating that "[t]he Court has been quite specific in holding that arbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law"). The Act provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2.

When enacting the FAA, Congress sought "to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). However, arbitration agreements are not given special status, nor are they immune from traditional contract defenses. The Supreme Court explained in Prima Paint:

As the "saving clause" in § 2 indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so. To immunize an arbitration agreement from judicial challenge on the ground of fraud in the inducement would be to elevate it over other forms of contract — a situation inconsistent with the "saving clause."

Prima Paint, 388 U.S. at 404 n. 12, 87 S.Ct. 1801.

The FAA presupposes that the employer and employee have entered into a valid...