Noe v. Smart Mortg. Ctrs.
| Decision Date | 21 September 2021 |
| Docket Number | 21 CV 1668 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Brian Noe, et al., Plaintiffs, v. Smart Mortgage Centers, Inc., et al., Defendants. |
Brian Noe and Eileen Pruitt worked as loan officers for Smart Mortgage Centers. They filed this lawsuit against Smart and two of its officers, alleging that defendants failed to pay them minimum and overtime wages and deducted money from their commissions in violation of the Fair Labor Standards Act, the Illinois Minimum Wage Act, and Illinois's Wage Payment Collection Act. Defendants filed a motion to dismiss based on improper venue, but actually want to compel arbitration.[1]For the reasons discussed below, the motion is granted in part, denied in part.
To compel arbitration, a party must show “(1) an agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal by the opposing party to proceed to arbitration.” Druco Restaurants, Inc. v. Steak N Shake Enter., Inc., 765 F.3d 776, 781 (7th Cir. 2014) (quoting Zurich Am. Ins Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir. 2006)). The Federal Arbitration Act requires courts “to enforce covered arbitration agreements according to their terms, ” Lamps Plus, Inc. v. Varela, 139 S.Ct 1407, 1412 (2019) (citing 9 U.S.C. § 2), and put arbitration agreements on “equal footing” with other contracts. A.D. v. Credit One Bank, N.A., 885 F.3d 1054, 1060 (7th Cir. 2018) (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). The act reflects “a liberal federal policy favoring arbitration.” Concepcion, 563 U.S. at 339 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). State-law principles of contract formation decide the validity and scope of an arbitration agreement. Gupta v. Morgan Stanley Smith Barney, LLC, 934 F.3d 705, 710-11 (7th Cir. 2019) (citing Gore v. Alltel Commc'ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012)).
As inside sales loan officers for Smart, Noe and Pruitt sold residential mortgage loans to borrowers from inside the company's offices. [1] ¶¶ 6-7.[2] Noe had the job for six years; Pruitt worked for Smart for less than a year. Id. ¶¶ 16-17. Both plaintiffs signed written employment contracts, which are largely identical. See [7-1]; [7-2]; [7-3].[3] These contracts include a choice of law provision selecting Illinois law, [7-1] ¶ 19(c); [7-2] ¶ 19(c); [7-3] ¶ 19(c), and a provision requiring that certain disputes be arbitrated at Smart's discretion. [7-1] ¶ 19(i); [7-2] ¶ 19(i); [7-3] ¶ 19(i). The arbitration paragraph reads:
DISPUTES: Loan Officer agrees that any disputes of the Loan Officer arising under this Agreement shall be handled through arbitration at the election of Smart. Loan Officer agrees that no litigation, suit or other proceeding shall be filed against Smart until such arbitration is concluded in all respects.
Id. The contracts include a provision authorizing Smart to make certain deductions from amounts due the loan officer, [7-1] ¶ 7; [7-2] ¶ 7; [7-3] ¶ 7, a compensation plan, [7-1] at 11; [7-2] at 10; [7-3] at 10, and a rider addressing the officer's status under federal and state minimum wage and overtime laws. [7-1] at 12-13; [7-2] at 11-12; [7-3] at 11-12. Noe and Pruitt were paid on commission alone. [1] ¶ 23. From plaintiffs' commissions, Smart deducted costs for filing and penalties for alleged billing, processing, and data entry errors. Id. ¶ 27. Plaintiffs routinely worked more than forty hours in a workweek, but Smart failed to track their hours or to pay them minimum and overtime wages. Id. ¶¶ 25-26.
Plaintiffs filed this lawsuit against Smart seeking unpaid minimum and overtime wages and other damages under the FLSA and Illinois's Minimum Wage Act and Wage Payment and Collection Act. [1] at 19. Noe and Pruitt want to represent two classes of similarly situated loan officers. Id. ¶¶ 34-60. Plaintiffs also named as defendants Richard and Brian Birk, the president and vice president of Smart. [1] ¶¶ 9-10. The Birks are not parties to the contracts. See [7-1]; [7-2]; [7-3].[4]
Plaintiffs refuse to proceed to arbitration, [15] at 1-2, 9, [5] and so the issues here are the enforceability and scope of the arbitration clause in Pruitt's and Noe's contracts. See Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir. 2006). Arbitration agreements are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Plaintiffs contend that the arbitration clause can't be enforced because it is unconscionable. [15] at 11- 14. According to Noe and Pruitt, the provision is impermissibly vague since it doesn't spell out the cost, timing, or manner of arbitration, allows defendants to choose when and whether to arbitrate, and was “designed to unfairly surprise.” Id. Plaintiffs also object to an application of the provision that would bar them from asserting class action claims. Id.
In Illinois, a contract does not fail for vagueness “if the court is able from the terms and provisions thereof, under proper rules of construction and applicable rules of equity, to ascertain what the parties have agreed to do.” Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 716 (7th Cir. 1987) (quoting Gale v. York Center Cmty. Coop., Inc., 21 Ill.2d 86 (1961)). Plaintiffs are correct that the disputes provision is skimpy on the details. See [7-1] ¶ 19(i); [7-2] ¶ 19(i); [7-3] ¶ 19(i). But the FAA fills in some gaps, see Schulze, 831 F.2d at 716, and the contract is clear that Noe, Pruitt, and Smart agreed to arbitrate a broad swath of issues. [7-1] ¶ 19(i); [7-2] ¶ 19(i); [7-3] ¶ 19(i). That's enough to survive a vagueness challenge. See Schulze, 831 F.2d at 715-16 (); see also Green v. U.S. Cash Advance Illinois, LLC, 724 F.3d 787, 793 (7th Cir. 2013) ().
Is the arbitration agreement otherwise unconscionable? A contract can be unconscionable based on procedure, substance, or both. See Kinkel v. Cingular Wireless LLC, 223 Ill.2d 1, 20-28 (2006). A contract is procedurally unconscionable “where a term is so difficult to find, read, or understand that the plaintiff cannot fairly be said to have been aware he was agreeing to it, and also takes into account a lack of bargaining power.” Jackson v. Payday Fin., LLC, 764 F.3d 765, 777 (7th Cir. 2014) (quoting Razor v. Hyundai Motor Am., 222 Ill.2d 75 (2006)). Substantive unconscionability refers to terms “which are inordinately one-sided in one party's favor.” Razor, 222 Ill.2d at 100.
Plaintiffs' arguments for unconscionability mostly turn on a misunderstanding about what defendants are seeking. Noe and Pruitt are convinced that defendants want to bar class action claims by requiring them to arbitrate on an individual basis, [15] at 11-14, but that's not the issue here. No. class has been certified in this case, and defendants are trying to compel the plaintiffs-Noe and Pruitt-to arbitrate their claims, not to enforce a class action waiver. [7]. Plaintiffs' other arguments for unconscionability don't add up.[6] The provision isn't procedurally unconscionable because Noe and Pruitt have not alleged a lack of bargaining power or shown why the provision was difficult to understand. [15] at 11-14. True, the clause is short on detail, but that doesn't mean that plaintiffs weren't aware that they were agreeing to arbitrate issues that might arise with their employer. See Jackson, LLC, 764 F.3d at 781; Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 716 (7th Cir. 1987). Concerning the substance of the provision, Smart may choose whether to arbitrate certain claims, but the agreement does not give it control over the process. Neither the vagueness of the arbitration procedures nor the discretion given to Smart constitutes terms that are “inordinately one-sided.” Razor, 222 Ill.2d at 100; see Carter v. SSC Odin Operating Co., LLC, 976 N.E.2d 344, 350-53 (2012) (); Morgan v. Bill Kay Chrysler Plymouth, No. 01 C 3871, 2002 WL 31133102, at *4 (N.D. Ill. July 17, 2002) (). The arbitration agreement is not impermissibly vague or unconscionable, and is enforceable.
Plaintiffs' contracts include an enforceable arbitration clause. Do their claims against Smart fall within the scope of that agreement? Noe and Pruitt say no for two reasons: first, because their disputes arise under federal and state statutes, not the employment contracts, [15] at 4-7; second, because plaintiffs are asserting class action claims, and the agreement is silent as to such claims. Id. at 8-9.[7]
Illinois contract law decides whether the arbitration clause in plaintiffs' contracts extends to a given dispute. See Gore v. Alltel Commc'ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012) (citing Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 662 (7th Cir. 2002)). Whether plaintiffs' statutory claims are arbitrable depends on “the relationship of the [claims] to the subject matter of the arbitration clause, ” Gore, 666 F.3d at 1036 (quoting In re Oil Spill by the “Amoco Cadiz” Off the Coast of France March 16, 1978, 659 F.2d 789, 794 (7th Cir. 1981)), and I must compel arbitration “unless...
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