James v. McDonald's Corp.
| Citation | 417 F.3d 672 |
| Decision Date | 02 August 2005 |
| Docket Number | No. 04-2383.,04-2383. |
| Parties | Linda JAMES, Plaintiff-Appellant, v. McDONALD'S CORPORATION, Simon Marketing, Incorporated, and Ante Enterprises LLC, doing business as McDonald's Restaurant, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Douglas H. Morris (argued), Oldfather & Morris, Louisville, KY, for Plaintiff-Appellant.
David J. Doyle (argued), Winston & Strawn, Chicago, IL, for Defendants-Appellees.
Before POSNER, RIPPLE and ROVNER, Circuit Judges.
Linda James filed this action in the United States District Court for the Western District of Kentucky alleging state law contract and tort claims against McDonald's Corporation, Simon Marketing, Inc. and the owner-operators of two McDonald's restaurants (collectively "McDonald's"). The action was transferred to the Northern District of Illinois, under 28 U.S.C. § 1407(a), as part of the In re McDonald's Corporation Promotional Game Litigation, No. MDL 1437, 2004 WL 549265 (N.D.Ill.2004), multi-district proceeding. The district court granted McDonald's motion to compel Ms. James to arbitrate her claims and to stay judicial proceedings pending the outcome of arbitration. Ms. James did not pursue arbitration; instead, nearly a year later, she asked the district court to reconsider its order. The district court denied the motion and later dismissed the case for failure to prosecute. Ms. James has appealed. For the reasons set forth in the following opinion, we now affirm the judgment of the district court.
In 2001, McDonald's was promoting sales of its food products by sponsoring a game called "Who Wants to be a Millionaire." Ms. James obtained a game card in May of 2001 when she purchased an order of french fries at the drive-thru window of a McDonald's restaurant in Franklin, Kentucky. She believed the game card to be a grand prize winner worth one million dollars. In order to redeem her prize, Ms. James sent in the original game card to the McDonald's redemption center. On June 14, 2001, however, the redemption center sent her a letter explaining that, R.1.
In August 2001, the Federal Bureau of Investigation arrested eight employees of Simon Marketing who allegedly had stolen the winning game cards from the "Who Wants to be a Millionaire" game and another McDonald's promotion. Ms. James filed suit alleging that McDonald's induced her to purchase its food products by the chance to win the "Who Wants to be a Millionaire" game when it knew that, due to the theft of winning game cards, the odds of winning were less than represented. She also alleged that, as part of its fraud scheme, McDonald's had used a false pretense to refuse to honor her winning game card.
McDonald's filed a motion to compel Ms. James to arbitrate her claims. It relied on an arbitration clause contained in the rules for the "Who Wants to be a Millionaire" game ("Official Rules"), which stated:
Except where prohibited by law, as a condition of participating in this Game, participant agrees that (1) any and all disputes and causes of action arising out of or connected with this Game, or any prizes awarded, shall be resolved individually, without resort to any form of class action, and exclusively by final and binding arbitration under the rules of the American Arbitration Association and held at the AAA regional office nearest the participant; (2) the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings at such arbitration; and (3) judgment upon such arbitration award may be entered in any court having jurisdiction.
R.1, Ex.A at 12. McDonald's presented evidence, credited by the district court, that the Official Rules were posted openly in participating restaurants. The rules were posted near the food counter, on the back of in-store tray liners and near the drive-thru window. Also, the french fry cartons to which game cards were affixed had language directing participants to see the Official Rules for details.
On February 4, 2003, the district court granted McDonald's motion to compel Ms. James to arbitrate her claims. Applying Kentucky law, the district court concluded that Ms. James could not avoid the arbitration clause by claiming that she never saw or read the Official Rules. Next, the court determined that arbitration, not the court, was the appropriate forum for resolving Ms. James' claim that the arbitration clause should not be enforced because McDonald's fraudulently had induced her to participate in the game. This was because the alleged fraud related to the entire contract, as opposed to the agreement to arbitrate in particular. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Finally, the district court found unavailing Ms. James' claim that it should not enforce the arbitration clause because the costs of arbitration were prohibitive. The district court noted that Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), and the other cases upon which Ms. James relied, concerned a party's ability to pursue federal statutory claims. In contrast, Ms. James submitted no authority to support the proposition that prohibitive costs could defeat an agreement to arbitrate common law or state law claims.
Despite the district court's order, Ms. James did not file a demand for arbitration. At a status hearing held in August 2003, her counsel informed the district court that Ms. James had not initiated arbitration because she could not afford to advance the necessary costs. On December 15, 2003, Ms. James' counsel explained that Ms. James still had not proceeded to arbitration due to the costs. At that time, counsel requested the district court to transfer the case back to the Western District of Kentucky. Counsel sought to file in the transferor court a motion for reconsideration of the district court's order compelling arbitration. The district court denied the motion on the ground that granting it would defeat the purpose of the multi-district litigation process. The district court set a deadline of January 15, 2004, for Ms. James to file any requests for reconsideration.
On January 15, 2004, Ms. James filed a motion for reconsideration; in the alternative, she requested that her case be dismissed "so that she may exercise her right of appeal." R.28 at 9. The district court denied the motion as untimely. In essence, the court explained that Ms. James merely reiterated her original arguments and was "not entitled to forego arbitration, wait nearly a year, and only then seek reconsideration." R.32 at 3. The court further held that, even if the motion was deemed timely, it had no merit. Among other things, the court explained that no genuine factual issue existed as to whether a contract was entered:
Ms. James has not contradicted the factual showing made by McDonald's that the french fry carton that contained her game piece made specific reference to the contest rules and told her what she needed to do to review them. Her only contention is that she did not actually see the rules. Under the circumstances, this amounts to a claim that she did not read the rules even though they were clearly and undisputably identified to her as being part of the contest.
Id. at 4. In concluding its order, the district court expressed that "[i]t is clear from the events since our February 2003 order that James does not intend to pursue her claim in arbitration." Id. at 6. Therefore, the court granted Ms. James one week to file a motion to show cause why her case should not be dismissed for failure to prosecute in arbitration.
Three weeks later, Ms. James filed a one-page submission containing the same arguments previously raised. The district court concluded that Ms. James R.34 at 1. Accordingly, the court dismissed Ms. James' case with prejudice.
We review a district court's decision, under the Federal Arbitration Act ("FAA"), to compel parties to arbitrate their disputes de novo. See Fyrnetics (Hong Kong) Ltd. v. Quantum Group, Inc., 293 F.3d 1023, 1027 (7th Cir.2002). We review the district court's findings of fact for clear error. Id.
Ms. James contends that the district court erred by ordering her to submit her claims to arbitration on three grounds: (1) that she did not enter into a valid agreement to arbitrate her claims; (2) that she cannot afford the costs of arbitration; and (3) that the contract is invalid because it was induced by fraud.
The FAA provides that a "written provision in any . . . contract . . . to settle by arbitration" any future controversy arising out of such contract "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. § 2.1 The FAA was designed "to reverse the longstanding judicial hostility to arbitration agreements . . . and to place [them] on 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). The FAA embodies a "liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Any doubts with respect to arbitrability therefore should be resolved in favor of arbitration. Id.
However, a party can be compelled to arbitrate only those matters that she has agreed to submit to arbitration. First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 945, ...
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