Smith v. Chrysler Financial Corp.

• Decision Date: 30 May 2000
• Docket Number: No. 97-CV-60309-AA.,97-CV-60309-AA.
• Citation: 101 F.Supp.2d 534
• Parties: Karen SMITH, Plaintiff, v. CHRYSLER FINANCIAL CORPORATION, Chrysler Corporation, James Kozik and Allan Ronquillo, jointly and severally, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

101 F.Supp.2d 534

Karen SMITH, Plaintiff, v. CHRYSLER FINANCIAL CORPORATION, Chrysler Corporation, James Kozik and Allan Ronquillo, jointly and severally, Defendants.

No. 97-CV-60309-AA.

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

May 30, 2000.

COPYRIGHT MATERIAL OMITTED

Michael C. Curhan, Lipson, Neilson, Jacobs & Cole, PC, Troy, MI, for plaintiff.

Kenneth C. Hortop, Chrysler Motors Corporation, Auburn Hills, MI, Elizabeth Hardy, Keinbaum, Opperwall, Hardy & Pelton, PLC, Birmingham, MI, for defendants Chrysler Financial Corp., Chrysler Corp., and Allan Ronquillo.

Rae Lee Chabot, Plunkett & Cooney, PC, Detroit, MI, for defendant James Kozik.

OPINION AND ORDER DENYING DEFENDANTS' MOTION TO COMPEL ARBITRATION; DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO LIABILITY ONLY, AND; DENYING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

STEEH, District Judge.

Defendants Chrysler Financial Corporation ("CFC") and Chrysler Corporation move to compel arbitration and for summary judgment. Plaintiff Karen Smith moves for partial summary judgment as to liability only. For the reasons set forth below, defendants CFC's and Chrysler's motion to compel arbitration will be DENIED. Plaintiff's motion for partial summary judgment as to liability only will be DENIED. CFC's and Chrysler's motions for summary judgment will be DENIED.

I. Background

Plaintiff Karen Smith filed a First Amended Complaint on November 12, 1999 alleging she and Jessica Framer were employed by defendant CFC as parlalegals and were supervised by CFC's then Assistant General Counsel James Kozik. Plaintiff alleges Kozik made repeated sexual advances and comments to Farmer. Plaintiff alleges that, once others reported Kozik's misconduct to CFC, Kozik retaliated against her by recommending that she receive only marginal pay raises, and by denying her certain performance reviews. Plaintiff alleges she thereafter filed a confidential sexual harassment complaint with CFC's Sexual Harassment Committee on August 12, 1996, which determined after an internal investigation that there was "reason to believe" Kozik had committed sexual harassment. Plaintiff initially filed a sex discrimination lawsuit in state court on October 15, 1996. Six days later, on October 21, 1996, she was removed from her CFC paralegal position by CFC's then General Counsel Allan Ronquillo and was transferred to a non-paralegal position away from CFC Headquarters. Plaintiff alleges she has since been denied opportunities to apply for any CFC paralegal positions by current CFC General Counsel Christopher Taravella. Smith alleges hostile work environment sexual harassment (Count I) and retaliation and reprisal (Count II), each in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.

II. Motion to Compel Arbitration

Defendants CFC and Chrysler seek to compel arbitration of plaintiff's claims pursuant to CFC's and Chrysler's Employee Dispute Resolution Process ("EDRP"). An EDRP pamphlet was mailed to 18,000 of the defendants' non-union employees. The pamphlet reads in part:

INTRODUCTION TO THE PROCESS

This brochure explains how the Employee Dispute Resolution Process works. Please take time to read the material. IT APPLIES TO YOU. It will govern all future legal disputes between you and Chrysler that are covered under the Process. You may obtain a copy of the Process from your local Personnel Office. ....

The Employee Dispute Resolution Process (EDRP) is a method by which all U.S. non-bargaining unit employees at Chrysler Corporation and Chrysler Financial Corporation may resolve employment disputes in a fair, timely and impartial manner. If a dispute cannot be resolved informally, the EDRP provides the following levels of review:

* A Local Review

* A Corporate Review

* Final and Binding Arbitration

The EDRP covers all legal issues relating to:

* Permanent Separation of Employment

* Layoff

* Demotion (Salary Band Reduction)

* Handicap Accommodation

* Sexual Harassment

Chrysler's Sexual Harassment Policy (Policy 3-6) provides an alternative method for resolving sexual harassment allegations. If an employee attempts to resolve an allegation of sexual harassment under Policy 3-6, he or she is not required to proceed under the Local Review or Corporate Review levels of this process. If an employee wants to pursue the allegation beyond a Policy 3-6 investigation, he or she must pursue arbitration under this Process.....

ARBITRATION: If the dispute is not resolved at the corporate level, the employee may submit the EDRP Form to the American Arbitration Association (AAA), within 15 days of receipt of the Corporate Response.

The pamphlet mailing was accompanied by a letter from Chrysler's Vice President of Corporate Personnel Kathy Oswald:

Effective June 1, 1995, Chrysler is introducing a new process designed to resolve employment disputes in a fair, timely, and impartial manner.....

Since communication is a key ingredient in resolving and often preventing disputes, you are still expected and encouraged to resolve disputes through informal supervisory channels. When a resolution cannot be reached through such means, you may now seek further review through the EDRP. The enclosed pamphlet describes the EDRP in detail. Please take a moment to become familiar with the process. If you have any questions regarding the EDRP, please contact your local Personnel Representative.

Plaintiff concedes that she received both the EDRP pamphlet and May 15, 1995 letter.

Plaintiff did not, however, obtain a copy of the Process from her Personnel Office¹. This Process, or "EDRP ARBITRATION PROCEDURE", reads in part:

Chrysler reserves the right to amend, modify, suspend, or terminate all or part of this EDRP at any time in its sole discretion. This procedure may cover any employment dispute mutually agreed to by the employee and his/her management, with final concurrence by the manager of the Workforce Diversity and Economic Equity Office.

Pursuant to 9 U.S.C. § 2 of the Federal Arbitration Act ("FAA"), generally applicable state law defenses may be applied to invalidate an arbitration agreement governing by the FAA, but "[c]ourts may not ... invalidate arbitration agreements under state laws applicable only to arbitration agreements." Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) (finding Montana statute making arbitration contracts unenforceable unless notice of arbitration is "typed in underlined capital letters on the first page of the contract" was preempted by the FAA). "The [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitration issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

Under Michigan law, an arbitration provision is unenforceable if it is not a binding contract. See Heurtebise v. Reliable Business Computers, 452 Mich. 405, 413, 550 N.W.2d 243 (1996); Rembert v. Ryan's Family Steak Houses, Inc., 235 Mich.App. 118, 125, 596 N.W.2d 208 (1999) (finding "contracts providing for compulsory arbitration must, of course, meet the general rules regarding the validity of contracts."). As a general contract principle, "`[m]utuality of obligation' means that both parties to an agreement are bound or neither is bound, that is, mutuality is not present where one party is bound to perform, but not the other." Reed v. Citizens Ins. Co. of America, 198 Mich.App. 443, 449, 499 N.W.2d 22 (1993). Consequently, if an employment agreement contains an arbitration provision that may be unilaterally changed by the employer at any time in the employer's sole discretion, the arbitration provision is unenforceable for lack of mutuality of obligation; the unilateral right to change the arbitration provision demonstrates the employer's intent not to be contractually bound. See Heurtebise, 452 Mich. at 414, 550 N.W.2d 243; Stewart v. Fairlane Community Mental Health Centre, 225 Mich.App. 410, 420, 571 N.W.2d 542 (1997) ("We cannot conclude that an agreement or provision is mutual or binding where, as between a private employer and a nonunion employee, an employer may unilaterally amend at any time every policy contained in its employee manual.").

Under the EDRP, defendants CFC and Chrysler "reserve[d] the right to amend, modify, suspend, or terminate all or part of this EDRP at any time in its sole discretion." Under the general contract principle requiring mutuality of obligation for a contract to be binding, the EDRP arbitration provision is not contractually enforceable as a matter of Michigan law. This same conclusion was reached by Federal District Judge Paul D. Borman in a similar case construing the same EDRP. See Peters v. Chrysler Corporation, No. 97-74971 (E.D.Mich. May 11, 1998). Defendants' arguments that they are entitled to unilaterally implement a contractually binding arbitration policy consistent with Toussaint v. Blue Cross & Blue Shield of Michigan, 408 Mich. 579, 292 N.W.2d 880 (1980) and In re Certified Question, 432 Mich. 438, 443 N.W.2d 112 (1989), recognizing the unilateral creation of just cause employment contracts, is not well taken. Under the "contract theory" prong of Toussaint, "[a] basic requirement of contract formation is that the parties mutually assent to be bound." Rood v. General Dynamics Corp., 444 Mich. 107, 118, 507 N.W.2d 591 (1993). To determine whether mutual assent exists, Michigan applies an objective test, looking to the parties' express words and visible acts. Id. at 119, 507 N.W.2d 591. See also Horn v. Cooke, 118 Mich.App. 740, 744, 325 N.W.2d 558 (1982) ("No contract to arbitrate can arise except upon the expressed mutual assent of the...