Openshaw v. FedEx Ground Package Sys., Inc.

• Decision Date: 16 August 2010
• Docket Number: Case No. SACV 10-00689-CJC(SSx)
• Citation: 731 F.Supp.2d 987
• Court: U.S. District Court — Central District of California
• Parties: John Robert OPENSHAW, Plaintiff, v. FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.

731 F.Supp.2d 987

John Robert OPENSHAW, Plaintiff,

v.FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.

Case No. SACV 10-00689-CJC(SSx).

United States District Court,

C.D. California,

Southern Division.

Aug. 16, 2010.

Joshua M. Wolff, Irvine, CA, for Plaintiff.

Jonathan C. Arnett, Maria O. Gutierrez, Barbara J. Miller, Morgan Lewis and Bockius LLP, Irvine, CA, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO COMPEL ARBITRATION

CORMAC J. CARNEY, District Judge.

I. INTRODUCTION

Defendant FedEx Ground Package System, Inc. ("FedEx") moves to compel Plaintiff John Robert Openshaw to arbitrate his claims for wrongfully terminating his written agreement with FedEx to serve as a small package pick-up and delivery driver. FedEx's agreement with Mr. Openshaw contains several arbitration provisions that are incredibly favorable to FedEx. It has a provision drastically reducing the time by which Mr. Openshaw must file a claim for wrongful terminationagainst FedEx or forever waive the claim. It has a provision significantly limiting Mr. Openshaw's ability to conduct discovery and recover damages. And it has a provision imposing significant arbitration expenses on Mr. Openshaw and prohibiting the arbitrator from issuing a written opinion. FedEx's arbitration provisions are unconscionable. The arbitration provisions are unreasonably favorable to FedEx and unacceptably detrimental to Mr. Openshaw. The arbitration provisions deny Mr. Openshaw of the right to resolve his termination claim in a fair manner. Accordingly, FedEx's motion to compel arbitration is DENIED.¹

II. BACKGROUND

FedEx is a national provider of small package information, transportation, and pick-up and delivery services. Mr. Openshaw has a B.A. from California State University of Fullerton and has previously served as a business consultant. (Openshaw Decl. ¶ 2.) Through his consulting, he learned about the opportunity to serve as a delivery contractor for FedEx. (Openshaw Decl. ¶ 3.) Prior to his dealings with FedEx, he had no experience negotiating with large, sophisticated business entities. (Openshaw Decl. ¶ 8.)

Mr. Openshaw invested his time and life savings into becoming a FedEx contractor.² (Openshaw Decl. ¶ 3.) He purchased the business from another FedEx Ground delivery contractor for $250,000, to be paid over five years, and assumed two truck leases at $900 per month for remaining terms of four years and one year, respectively. (Openshaw Decl. ¶ 4.) He also purchased a new FedEx truck for the non-negotiable price of $77,000, which required a $6,100 down payment plus $900 per month for six years. (Openshaw Decl. ¶ 5.) In addition, Mr. Openshaw purchased a used van for $7,500, which had to be painted and to which the FedEx logo needed to be affixed. (Openshaw Decl. ¶ 5.) He also infused the business with $12,000 in capital to cover initial payroll and start up expenses. (Openshaw Decl. ¶ 5.)

After he had invested substantial time and financial resources into becoming a FedEx contractor, FedEx's regional manager, Judy Western, presented Mr. Openshaw with a "sample" of the Pick-Up and Delivery Contractor Operating Agreement ("COA") and told him that it was non-negotiable. (Openshaw Decl. ¶ 6.) A few days later, Ms. Western summoned Mr. Openshaw to the Palm Springs Terminal to sign the agreement. (Openshaw Decl. ¶ 7.) He was never given any opportunity to question or negotiate any of the COA's terms. (Openshaw Decl. ¶ ¶ 7, 8.)

Under the COA, Mr. Openshaw would be required to submit to arbitration should he wish to assert a claim of wrongful termination against FedEx. (Def.'s Req. Judicial Notice ("DRJN"), Ex. A § 12.3.) The COA included a number of provisions that were favorable to FedEx. First, the COA had a very short statute of limitations for Mr. Openshaw to file an arbitration demand. The COA required:

Written notice of a demand for arbitration must be mailed by Contractor to FedEx Ground and to the AAA by certified mail within 90 days of the occurrence of the claimed wrongful termination. Failure to mail written notice of a demand for arbitration within such 90day period and comply with all procedural requirements set forth in the Commercial Arbitration Rules of the AAA shall constitute an absolute bar to the institution of any proceedings and a waiver of the claimed wrongful termination.

(DRJN, Ex. A § 12.3(a).) The COA also curtailed discovery, with the following limitation:

Neither party shall be entitled to written or deposition discovery from the other, except with respect to damages.

(DRJN, Ex. A § 12.3(c).) The COA also imposed significant financial hurdles to initiating and participating in arbitration. Specifically, the COA dictated:

The arbitrator shall have the authority only to conclude whether the termination of Contractor was within the terms of this Agreement, to determine damages if required to do so under this subparagraph, and to provide for the division of the AAA fees and AAA assessed expenses of the arbitration between the parties; provided, however, each party shall bear the cost of attorneys, expert witnesses, or other expenses incurred by that party, and the arbitrator shall have no authority to allocate or apportion such costs.

(DRJN, Ex. A § 12.3(e).) The COA also limited Mr. Openshaw's ability to recover damages incurred as a result of a wrongful termination:

If the arbitrator concludes the termination was not within the terms of this Agreement, then, at the option of FedEx Ground: (1) the Contractor shall be reinstated within a reasonable period of time, not to exceed 90 days from the Company's receipt of the arbitrator's decision, and in that event shall be entitled to damages equal to the arbitrator's determination of what Contractor's net earnings (after payment of all expenses which are borne by Contractor pursuant to this Agreement) would have been during the period between the date of termination and the date of reinstatement; or (2) Contractor shall nevertheless be terminated, and, in that event, shall be entitled to damages equal to the arbitrator's determination of what Contractor's net earnings (after payment of all expenses which are borne by Contractor pursuant to this Agreement) would have been during the period between the date of termination to the last day of the term of this Agreement ... Contractor shall have no claim for damages in any other amount, and the arbitrator shall have no power to award punitive or any other damages.

(DRJN, Ex. A § 12.3(e).) Finally, the COA prohibited the arbitrator from issuing a written opinion explaining his or her findings. Specifically, the COA provided:

The arbitrator shall provide the parties with only a written determination of the outcome of the arbitration, without accompanying opinion, and shall have no authority to alter, amend or modify any of the terms and conditions of this Agreement ...

(DRJN, Ex. A § 12.3(f).)

Mr. Openshaw could not afford to pay an attorney to review the COA. (Openshaw Decl. ¶ 8.) He went ahead and signed the COA on May 11, 2009, clearly not understanding or appreciating the one-sided nature of the COA's arbitration provisions. (Openshaw Decl. ¶¶ 7-9.)

Just four months later, FedEx unilaterally terminated the COA. (Openshaw Decl. ¶ 9.) By this time, Mr. Openshaw was saddled with more than $346,000 in debt, which he had incurred as a result of fulfilling FedEx's requirements for the delivery contract. (Openshaw Decl. ¶ 9.) Shortly after the contract was terminated, Mr. Openshaw lost his FedEx trucks and drivers because he could not afford paying for them. (Openshaw Decl. ¶ 12.)

Mr. Openshaw, believing that his termination was wrongful, wanted to vindicate his rights and file a claim for wrongful termination. (Openshaw Decl. ¶ 10.) Since he had considerable debt and no income, Mr. Openshaw determined that he could not consult an attorney before the 90-day statute of limitations period expired. (Openshaw Decl. ¶ 10.) To avoid waiving his claim forever, Mr. Openshaw filed an arbitration claim with the American Arbitration Association ("AAA") in December 2009 as required by the COA. (Openshaw Decl. ¶ 10.) The initial filing fee was $6,000, the case service fee was $2,500. (Openshaw Decl. ¶ 11.) Mr. Openshaw was also required to pay half of the arbitrator's $300 per hour fee, which totaled to $4,200, and could be higher if the hearing extends beyond one day. (Openshaw Decl. ¶ 11.)

In March 2010, Mr. Openshaw sought the services of an attorney, Joshua Wolff. (Wolff Decl. ¶ 2.) After reviewing the COA, Mr. Wolff believed that the arbitration provisions were unfairly one-sided in favor of FedEx, and he arranged a conference with the appointed arbitrator. (Wolff Decl. ¶ 5.) On April 2, 2010, the arbitrator held a preliminary conference with the parties. (Wolff Decl. ¶ 5.) Mr. Wolff raised his concern about the limited discovery that Mr. Openshaw was permitted to conduct, and he asked whether the arbitrator would level the "playing field." (Wolff Decl. ¶ 5.) The arbitrator ruled that he did not have the power to change the parties' arbitration provision and so would enforce the provision as written. (Wolff Decl. ¶ 6.) Mr. Wolff informed the arbitrator and FedEx that he would file an action to obtain a judicial determination as to the enforceability of the arbitration provision. (Wolff Decl. ¶ 6.) The arbitrator then issued a scheduling order setting the arbitration for October 2010. (Wolff Decl., Ex. A.) Mr. Openshaw filed a complaint in state court that includes the following causes of action: (1) Breach of Contract; (2) Breach of the Covenant of Good Faith and Fair Dealing; (3) Violation of California Unfair Practices Act; and (4) Declaratory Relief. FedEx removed the case to this Court on May 28, 2010. FedEx now moves for the Court to compel Mr. Openshaw to arbitrate his claims.

III. ANALYSIS

1. The Arbitration Provisions of the COA Are Unenforceable

Under the Federal Arbitration Act, "[i]f a party challenges the validity under § 2 of the precise agreement to...