Morales v. Sun Constructors Inc ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
8-28-2008
Morales v. Sun Constructors Inc
Precedential or Non-Precedential: Precedential
Docket No. 07-3806
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 07-3806
____________
JUAN MORALES
v.
SUN CONSTRUCTORS, INC.,
Appellant.
____________
Appeal from the District Court
of the Virgin Islands
(No. 07-cv-00005)
District Judge: Honorable Raymond L. Finch
Argued May 6, 2008
Before: RENDELL, FUENTES, and CHAGARES, Circuit
Judges.
____________
(Filed: August 28, 2008)
Charles E. Engeman (Argued)
Fermín E. Fontanés Gómez
Ogletree, Deakins, Nash, Smoak & Stewart, LLC
The Tunick Building, Suite 201
1336 Beltjen Road
St. Thomas, Virgin Islands 00802
Counsel for Appellant
Emile A. Henderson III (Argued)
Law Offices of Yvette D. Ross-Edwards
115 Queen Street
Frederiksted, St. Croix
U.S. Virgin Islands 00840
Counsel for Appellee
OPINION OF THE COURT
CHAGARES, Circuit Judge.
This case requires us to determine whether an arbitration
clause in an employment agreement is enforceable where one party
is ignorant of the language in which the agreement is written.
Juan Morales (Morales) was employed by Sun Constructors,
Inc. (Sun). The employment relationship between Morales and Sun
was governed by a signed employment agreement (the Agreement)
that contained an arbitration clause. Morales was terminated by
Sun, and he filed a wrongful termination suit against his former
employer in the District Court of the Virgin Islands. Sun moved to
stay the proceedings pending arbitration, but the District Court
denied the motion, finding that Morales signed the Agreement
without realizing it contained an arbitration clause. The Agreement
was written in English, a language Morales cannot understand, and
the District Court concluded that the arbitration clause was
unenforceable because Morales did not assent to the clause. On
appeal, Sun argues that Morales is bound by the entire Agreement,
even if he is ignorant of its terms. We agree and will reverse the
decision of the District Court and remand the case with instructions
to enter a stay pending arbitration.
I.
Appellee Morales is a Spanish-speaking welder who resides
in St. Croix, United States Virgin Islands. Welders like Morales
2
were in high demand by appellant Sun, and Morales acknowledged:
“[Sun] needed me. It was an emergency . . . .They needed to start
work, so they were under pressure.” Appendix (App.) 114, 121.
On April 15, 2004, after Morales had passed a written exam, in
English, Sun hired him and required him to attend a 2 1/2-hour
orientation conducted entirely in English and to sign an hourly
employment agreement. Five paragraphs of the Agreement
(paragraphs 12 through 16) pertained to arbitration and covered
nearly 8 of the 13 pages of the Agreement. App. 126-38. The Sun
employee who conducted the orientation, Mr. Langner, asked Jose
Hodge (Hodge), a bilingual applicant who was also present at the
orientation, and whom Morales knew, to explain to Morales what
Langner was saying and help him fill out the documents. App 83,
69. Hodge testified that he generally understands about eighty-five
percent of what is said and written in English. App. 94. He also
stated that Morales did not ask him what he was signing and that
he did not specifically explain the arbitration clause to Morales.
App. 69, 94. Mr. Langner stated that he did explain the arbitration
provisions in English and that, during the orientation, Hodge was
speaking to Morales in a foreign language. App. 82-83. The
Agreement governed the employment relationship between
Morales and Sun for the entirety of the relationship.
On April 6, 2005, Sun fired Morales for allegedly dumping
a bottle of urine from a great height on another contractor’s
employees in violation of safety standards. Morales filed a
wrongful termination suit against Sun in the District Court on
December 20, 2006, seeking relief under eight causes of action all
covered by the Agreement’s arbitration clause. The District Court
determined that mutual assent to the arbitration clause did not exist
and denied Sun’s motion to stay the proceedings pending
arbitration. This appeal followed.
II.
We have jurisdiction over this appeal pursuant to 28 U.S.C.
§ 1291 and 9 U.S.C. § 16 and exercise plenary review over the
District Court’s denial of Sun’s motion to stay proceedings pending
arbitration. To the extent that the District Court based its decision
on findings of fact, however, we review for clear error. See
3
Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247
F.3d 44, 53-54 (3d Cir. 2001).
III.
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16,
provides that arbitration agreements are “enforceable to the same
extent as other contracts,” and “establishes a strong federal policy
in favor of the resolution of disputes through arbitration.”
Alexander v. Anthony Int’l, L.P., 341 F.3d 256, 263 (3d Cir. 2003)
(quotation marks and citation omitted). However, “arbitration
provisions may be attacked under ‘such grounds as exist at law or
in equity for the revocation of a contract.’” Plaskett v. Bechtel
Int’l, Inc., 243 F. Supp. 2d 334, 339 (D.V.I. 2003) (quoting 9
U.S.C. § 2).
When determining “whether the parties agreed to arbitrate
a certain matter . . . courts generally . . . should apply ordinary
state-law principles that govern the formation of contracts.” First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). In
the absence of contrary Virgin Islands law, this case is governed by
the rules of the common law, as expressed in the restatements of
law approved by the American Law Institute. See 1 V.I. Code
Ann. § 4 (2007); Barclays Invs., Inc. v. St. Croix Estates, 399 F.3d
570, 577 (3d Cir. 2005).
A.
It is well-settled under the Restatement (Second) of
Contracts (the Restatement) that mutual assent between parties is
necessary for the formation of a contract. See Restatement § 17;
see also Univ. of V.I. v. Petersen-Springer, 232 F. Supp. 2d 462,
469 (D.V.I. 2002) (“[T]he formation of a contract requires ‘a
bargain in which there is a manifestation of mutual assent to the
exchange and a consideration.’”) (quoting Restatement § 17).
While mutual assent “is sometimes referred to as a ‘meeting of the
minds,’” Restatement § 17 cmt. c, this phrase must not be
construed too literally. Acceptance is measured not by the parties’
subjective intent, but rather by their outward expressions of assent.
As the Restatement explains:
4
The parties to most contracts give actual as well as apparent
assent, but it is clear that a mental reservation of a party to
a bargain does not impair the obligation he purports to
undertake. The phrase used here, therefore, is
“manifestation of mutual assent.”
Id.
The Supreme Court has observed: “It will not do for a man
to enter into a contract, and, when called upon to respond to its
obligations, to say that he did not read it when he signed it, or did
not know what it contained.” Upton v. Tribilcock, 91 U.S. 45, 50
(1875). The “integrity of contracts demands” that this principle “be
rigidly enforced by the courts.” 1 Richard A. Lord, Williston on
Contracts § 4:19 (4th ed. 2008). As one noted treatise explains:
According to the objective theory of contract formation,
what is essential is not assent, but rather what the person to
whom a manifestation is made is justified as regarding as
assent. Thus, if an offeree, in ignorance of the terms of an
offer, so acts or expresses itself as to justify the other party
in inferring assent, and this action or expression was of such
a character that a reasonable person in the position of the
offeree should have known it was calculated to lead the
offeror to believe that the offer had been accepted, a
contract will be formed in spite of the offeree’s ignorance
of the terms of the offer. The most common illustration of
this principle is the situation when one who is ignorant of
the language in which a document is written, or who is
illiterate, executes a writing proposed as a contract under a
mistake as to its contents. Such a person is bound, in the
absence of fraud, if the person does not require the
document to be read to him . . . .
Id. See New York Life Ins. Co. v. Kwetkauskas, 63 F.2d 890, 891
(3d Cir. 1933) (recognizing that “[i]t is true that an illiterate man
may bind himself by contract by negligently failing to learn the
contents of an instrument which he has executed”); Hoshaw v.
5
Cosgriff, 247 F. 22, 26 (8th Cir. 1917) (holding that every
contracting party has the duty “to learn and know the contents of
a contract before he signs and delivers it”). Arbitration agreements
in the employment context are not exempt from this principle. See,
e.g., Booker v. Robert Half Int’l, Inc., 315 F. Supp. 2d 94, 101
(D.D.C. 2004) (stating that “[f]ailure to read or understand an
arbitration agreement, or an employer’s failure to explain it, simply
will not constitute ‘special circumstances’ warranting relieving an
employee from compliance with the terms of an arbitration
agreement that she signed”).
Morales, in essence, requests that this Court create an
exception to the objective theory of contract formation where a
party is ignorant of the language in which a contract is written. We
decline to do so. In the absence of fraud, the fact that an offeree
cannot read, write, speak, or understand the English language is
immaterial to whether an English-language agreement the offeree
executes is enforceable. See Paper Express, Ltd. v. Pfankuch
Maschinen, 972 F.2d 753, 757 (7th Cir. 1992) (addressing a
contract dispute between an Illinois corporation and a German
corporation and holding that parties should be held to contracts,
even if the contracts are in foreign languages or the parties cannot
read or understand the contracts due to blindness or illiteracy);
Shirazi v. Greyhound Corp., 401 P. 559, 562 (Mont. 1965) (holding
Iranian student subject to limitation contained in baggage receipt
and stating that “[i]t was incumbent upon [the plaintiff], who knew
of his own inability to read the English language, to acquaint
himself with the contents of the ticket”); Paulink v. Am. Express
Co., 163 N.E. 740, 741 (Mass. 1928) (stating that “plaintiff was
bound by the[] terms [of foreign bills of exchange], in the absence
of deceit on the part of the defendant, even though not
understanding their purport and ignorant of the English language”);
Wilkisius v. Sheehan, 156 N.E. 5, 6 (Mass. 1927) (holding that
Lithuanian husband and wife, who did not speak or understand
English and used an interpreter to contract for an exchange of real
estate, were bound by the terms of the agreement because “their
failure to understand these details was not due to fraudulent acts on
the part of the defendant but to their own inability to read, write,
6
speak or understand the English language, and to the incapacity of
the interpreter”).
Morales is not claiming fraud, see App. 78, 95, and he is not
alleging that Sun misrepresented the contents of the Agreement to
him. Cf. Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533, 538
(5th Cir. 2003) (recognizing that “[i]t is a widely accepted principle
of contracts that one who signs or accepts a written instrument will
normally be bound in accordance with its written terms,” and that
a defendant, “illiterate or not, would be bound by the terms of the
arbitration agreements,” but remanding for adjudication of a claim
of fraud in the inducement); Pimpinello v. Swift & Co., 253 N.Y.
159, 163 (1930) (stating that “[i]f the signer is illiterate, or blind,
or ignorant of the alien language of the writing, and the contents
thereof are misread or misrepresented to him by the other party .
. . unless the signer be negligent, the writing is void”) (emphasis
added).1 Further, there is no evidence that Sun tried to hide the
arbitration clause; indeed, it comprised about one-half of the
Agreement.
It was Morales’ obligation to ensure he understood the
Agreement before signing. Morales did not ask Hodge to translate
the document word-for-word or ask to take the Agreement home
and have it translated, notwithstanding the fact that he testified that,
in the past, he had paid someone to translate documents for him.
App. 32-33. Morales did not even request a copy of the
employment contract, a demand Sun has indicated it would have
granted without dispute. App. 84. Moreover, in the almost one
year that Morales worked for Sun, he never questioned the terms
of the Agreement. Morales’ signature manifested his assent to the
1
The dissent analogizes this case to American Heritage Life
Insurance Company v. Lang. Unlike Morales, however, the
illiterate plaintiff in Lang asked the defendant’s agent to explain
each of the documents Lang signed, and he submitted evidence that
the agent deliberately mislead him as to what he was signing by
claiming that the papers were loan or insurance documents rather
than an arbitration agreement.
7
entire Agreement, and he is bound by the arbitration clause
therein.2
B.
Sun also asserts that the District Court improperly applied
a heightened standard of “knowing consent” to the Agreement’s
arbitration clause because of the valuable rights relinquished under
the provision. Sun contends that, contrary to ordinary contract law
principles, the District Court required that Morales have knowledge
and understanding of the arbitration clause’s terms in order for the
provision to be enforceable. While it is unclear whether the
District Court indeed took such action, we reiterate our holding in
Seus v. John Nuveen & Co., Inc., 146 F.3d 175 (3d Cir. 1998),
overruled on other grounds by Green Tree Financial Corp.-
Alabama v. Randolph, 531 U.S. 79 (2000), that applying a
heightened “knowing and voluntary” standard to arbitration
agreements would be inconsistent with the FAA. See Seus, 146
F.3d at 183-84 (explaining that a “knowing and voluntary”
2
We disagree with the dissent’s characterization of the
circumstances in this case. The dissent suggests that “Sun assigned
Hodge . . . to translate the [Agreement] for Morales; [ ] Hodge . .
. neglected to translate the arbitration clauses; and [ ] as a result of
Hodge’s incomplete translation, Morales was not aware that the
Agreement contained an arbitration clause.” Dissent at 3. Sun
requested that Hodge assist Morales in completing the pre-hire
documents. Morales did not ask Hodge for an explanation of the
Agreement, and Hodge testified that if Morales had asked
questions, he “would have translated to him what [a specific] page
[was] for.” App. 90. Indeed, Morales initialed each page of the
Agreement, including those containing the arbitration provisions,
without requesting any specific translations. See App. 126-38.
While we are sympathetic to Morales’ situation, Hodge did
not misread or misrepresent the Agreement to Morales, and the
“incomplete translation” was due to Morales’ failure to request any
explanation or translation. Furthermore, we reiterate that Morales
worked under this Agreement for almost a year without question or
complaint.
8
standard meaning “more than with an understanding that a binding
agreement is being entered and without fraud or duress” should not
be applied to arbitration agreements). Morales entered into the
Agreement with Sun without fraud or duress, and he is bound by its
arbitration clause.
IV.
For the foregoing reasons, the judgment of the District Court
will be reversed and the case remanded for the District Court to
enter a stay pending arbitration.
9
FUENTES, Circuit Judge, dissenting.
No one disputes that Sun asked Hodge to translate
the Employment Agreement for Morales, who did not read English.
And no one disputes that Hodge failed to translate the arbitration
clause in the Agreement. On this basis, I disagree with my
colleagues’ conclusion that the parties here manifested mutual
assent to the arbitration clause of the Agreement, and I would
therefore affirm the District Court’s decision.3
The majority opens its opinion by asserting that this
case “requires us to determine whether an arbitration clause is
enforceable where one party is ignorant of the language in which
the agreement is written.” Maj. Op. at 2. The problem, however,
is not simply Morales’ ignorance of the language. The gravamen
of this case is that Sun – the other party to the Agreement – took
upon itself the task of translating the Agreement for Morales and,
in doing so, failed to convey the entire contents of the Agreement.
What we must determine is whether this failure resulted in a lack
of mutual assent; I believe that it did.
The law is clear that a party may not be relieved of
his or her obligations pursuant to a contract solely because he or
she cannot understand the language in which that contract is
written. However, the law is also clear that there are certain
circumstances where a person’s inability to comprehend the
language in which a contract is written may result in a lack of
mutual assent. In fact, the very cases upon which the majority
relies acknowledge that such circumstances exist. For example, in
New York Life Insurance Co. v. Kwetkauskas, we noted that “an
illiterate man may bind himself by contract by negligently failing
to learn the contents of an instrument which he has executed,”
3
I join the majority in its affirmance of our ruling in Seus v.
John Nuveen & Co., Inc., 146 F.3d 175 (3d Cir. 1998), that it
would be inconsistent with the Federal Arbitration Act to apply a
heightened “knowing and voluntary” standard to arbitration
agreements.
12
suggesting that a person who had not acted negligently may not be
so bound. 63 F.2d 890, 891 (3d Cir. 1933) (emphasis added).
Similarly, in Booker v. Robert Half International, Inc., the court
stated that failure “to read or understand an arbitration agreement,
or an employer’s failure to explain it, simply will not constitute
‘special circumstances’ [that] warrant[] relieving an employee from
compliance with the terms of an arbitration agreement that she
signed,” suggesting that “special circumstances” do exist. 315 F.
Supp. 2d 94, 101 (D.D.C. 2004) (emphasis added).
The majority appears to agree that there can be such
“special circumstances,” but suggests that these circumstances exist
only in a case where a fraud has been perpetuated. Maj. Op. at 7.
I do not think that this is correct. In New York Life, the court
noted that an illiterate signer will be held to a contract if he or she
negligently failed to learn its contents; it does not automatically
follow that an illiterate signer who is unaware of the contents of a
contract but did not act in a negligent fashion will similarly be held
to that contract unless he or she was a victim of fraud. 63 F.2d at
891. In Pimpinello v. Swift & Co., another case cited by the
majority, the court found that if a signer is “illiterate, or blind, or
ignorant of the alien language of the writing” and the contents of
a contract “are misread or misinterpreted to him” or her, the writing
would be considered void unless the signer had acted negligently.
253 N.Y. 159, 163 (1930) (emphasis added). The court did not
suggest that the contents would need to be intentionally “misread
or misinterpreted” in order to void the writing.
More recently, in American Heritage Life Insurance
Co. v. Lang, the Fifth Circuit considered similar facts as those here.
321 F.3d 533 (5th Cir. 1993). In Lang, also cited by the majority,
an illiterate man executed a series of loans with a representative of
an insurance company. Id. at 535. The representative was aware
that the man was unable to read, and took on the task of explaining
each document to him. Id. at 536. The man later testified that the
representative never explained that some of the documents were
arbitration agreements, and brought suit charging both that the
arbitration clause was invalid and that the representative had
11
defrauded him. Id. The Lang court addressed the questions of
mutual assent and fraud separately. It noted that while illiteracy
alone is not a sufficient basis for the invalidation of an arbitration
agreement, the man’s “alleged ignorance of the fact that he was
signing arbitration agreements signifies that he may not have
consented to them and a meeting of the minds may not have
existed.” Id. at 538; see also id. at 539 (concluding that “there
[was] sufficient evidence to indicate that the arbitration agreements
may not have been valid under ordinary contract principles,”
including the principle that both parties must manifest mutual
assent). While the case was ultimately remanded so that the district
court could reconsider the claim of fraud, the remand did not affect
the court’s separate observation that a “meeting of the minds” may
not have not occurred. Id. at 539.
Here, although Morales does not allege that Sun
acted fraudulently, he does allege that Hodge, who was translating
the document at Sun’s direction, failed to inform Morales that the
Agreement contained an arbitration clause. Importantly, Sun does
not dispute the following factual findings made by the District
Court: (1) Morales was unable to read the contract; (2) Sun
assigned Hodge, a coworker who himself was not fluent in English,
to translate the document for Morales; (3) Hodge, in translating the
document, neglected to translate the arbitration clauses; and (4) as
a result of Hodge’s incomplete translation, Morales was not aware
that the Agreement contained an arbitration clause. (App. 3-5.) I
also note, as does the majority, that the record demonstrates that
Sun was under pressure to hire Morales in an expedient manner,
and urged him to accept Hodge’s translation and to sign the
Agreement immediately. Maj. Op. at 3.
As in Lang, Morales did not read English and Sun
was aware of his inability to understand the contents of the
Agreement. As in Lang, Sun also represented that it (via Hodge)
would explain what was contained in the Agreement. And as in
Lang, Morales’ failure to realize that an arbitration provision was
contained within the Agreement was the direct result of Hodge’s
failure to properly translate the document, just as the failure of the
12
plaintiff in Lang to realize he had signed an arbitration provision
was because the representative didn’t inform him of that fact.
Neither Morales nor the plaintiff in Lang was aware of what they
did not know about the contract, and not because they could not
read English and acted negligently by not bothering to learn the
terms of the contract; but because the translation they were
presented with by the other party to the contract, which they had no
reason to suspect and no immediate way to verify, was incorrect or
incomplete.4
If the facts of this case were different, I might adopt
the majority’s position. For example, if Sun had simply handed the
Agreement to Morales and indicated that it was Morales’
responsibility to find a translator, and Morales had employed a
incompetent translator who failed to translate the arbitration clause,
I would agree that Morales was bound by the Agreement.
However, when Sun made the decision to insert itself between
Morales and the contract, it created a situation where lack of
mutual assent could, and did, occur.5 Because I do not believe it
was negligent or otherwise improper for Morales to rely upon the
translation provided by Sun, and because Morales was not
informed in the course of that translation that the Agreement
contained an arbitration clause, I agree with the District Court that
Morales did not “manifest an intention” to be bound by the
arbitration clause.
4
The majority notes that Morales “worked under the
Agreement for almost a year without complaint.” Maj. Op. at 8
n.2. This fact is irrelevant to the analysis. Until there was an
employment dispute between Morales and Sun, Morales had no
reason to review the Agreement to determine whether it contained
clauses that had not originally been translated for him.
5
The majority opinion regrettably provides no incentive for
employers such as Sun to implement procedures that might avoid
such a situation.
11
For the foregoing reasons, I respectfully dissent.
12