Darrell Trigg v. Little Six Corporation

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
March 10, 2014 Session
DARRELL TRIGG v. LITTLE SIX CORPORATION ET AL.
Interlocutory Appeal from the Circuit Court for Hawkins County
No. 13CV0094 Thomas J. Wright, Judge
No. E2013-01929-COA-R9-CV-FILED-JULY 28, 2014
The issue in this wrongful termination action is the enforceability of an arbitration clause in
an agreement between the plaintiff employee and his former employer. Plaintiff executed
an employment agreement in 2007. Employer terminated plaintiff without cause in April
2012. He brought this action alleging common law retaliatory discharge and violations of
the Tennessee Public Protection Act and the Tennessee Human Rights Act. Employer filed
a motion to compel arbitration. Plaintiff argued that the arbitration clause is unenforceable
because it is unconscionable due to the “excessive” and “prohibitive” costs of arbitration.
The trial court found that the agreement had been freely negotiated and was neither a contract
of adhesion nor unconscionable. We affirm the judgment of the trial court enforcing the
agreement and ordering arbitration.
Tenn. R. App. P. 9 Interlocutory Appeal by Permission; Judgment of the
Circuit Court Affirmed; Case Remanded
C HARLES D. S USANO, J R., C.J., delivered the opinion of the Court, in which D. M ICHAEL
S WINEY and T HOMAS R. F RIERSON, II, JJ., joined.
Robert L. Arrington, Andrew T. Wampler, and Sarah B. Ellsworth, Kingsport, Tennessee,
for the appellant, Darrell Trigg.
W. Challen Walling and Wade W. Massie, Bristol, Tennessee, for the appellees, Little Six
Corporation dba Short Mountain Silica, J.D. Nicewonder, R.L. Wallen, and David Lester.
OPINION
I.
Plaintiff was employed by defendant Little Six Corporation as the general manager
and chief engineer at its Short Mountain Silica facility, an industrial sand mining and
production facility in Mooresburg. He began his employment in 1987. He testified that “[a]t
one time, I held equity in Short Mountain Silica and its sister corporation Short Mountain
Trucking” and that he had been promised he would eventually own a 10% equity position in
both corporations. In 2007, plaintiff and his employer began negotiating a new employment
agreement; according to plaintiff,
in 2007, corporate management presented me with an
Employment Agreement that changed the relationship. I played
no part in drafting the Employment Agreement, which provided
for the buy-out of my shares and for my continuing as General
Manager at an annual salary.
With respect to the employment agreement, Plaintiff dealt with David Lester, the
Secretary and Treasurer of Little Six Corporation. Lester testified in his affidavit as follows:
[Plaintiff] was the one who initiated the Agreement, not Short
Mountain. [Plaintiff] wanted cash at that time for any interest
he had in the company.
. . . In fact, [plaintiff] suggested terms for the Agreement before
it was drafted, and he reviewed and revised the drafts of the
Agreement before signing it.
As exhibits to his affidavit, Lester attached examples of correspondence, both email and
handwritten, where plaintiff proposed terms, and suggested and negotiated changes, to the
draft agreement.
The parties executed the employment agreement on August 27, 2007. The agreement
provided that plaintiff’s earlier employment agreement would be terminated, and that Little
Six Corporation would pay plaintiff $1,578,599 in full settlement of any and all claims
plaintiff might have under his previous agreement, including any claim to an equity interest
in the employer’s corporations. The new agreement provided that plaintiff would continue
to work in his same position at the same annual salary of $154,472. The agreement
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addressed other employment benefits such as health insurance and a company car, and further
stated, in relevant part, as follows:
[T]he employment relationship between Trigg and Little Six
shall be strictly at will basis. As a result, either party may
terminate the relationship by giving one (1) month’s written
notice to the other, at its or his sole discretion, without cause or
reason. In the event Little Six is the party giving such notice,
. . . Trigg shall be entitled to receive a payment of Fifty
Thousand Dollars ($50,000) only. In the event Little Six
terminates Trigg’s employment for cause, Trigg shall be entitled
to receive one (1) additional month’s salary only.
* * *
Voluntary and Knowing Action. Trigg represents and agrees:
(a) that he has had the opportunity to review this Agreement
with his own legal counsel; (b) that he has thoroughly read and
understands the terms of this Agreement, (c) that he has no
mental or physical condition that would impair his ability to
understand the terms of this Agreement, (d) that he is knowingly
and voluntarily entering into this Agreement; . . .
Opportunity to Consider and Consult Counsel. TRIGG, BY
E X E C U T IN G T H IS A G R E E M E N T , E X P R E S S L Y
ACKNOWLEDGES AND AGREES THAT HE HAS HAD
THE FULL AND REASONABLE OPPORTUNITY TO READ
AND CONSIDER THIS AGREEMENT AND WHETHER OR
NOT HE DESIRES TO ENTER INTO IT. TRIGG ALSO
ACKNOWLEDGES AND AGREES THAT HE HAS HAD
THE OPPORTUNITY TO CONSULT WITH AND HAS BEEN
ADVISED BY INDEPENDENT LEGAL COUNSEL OF HIS
OWN CHOICE CONCERNING THIS AGREEMENT. BY
E X E C U T IO N O F T H I S A G R E E M E N T , T R IG G
ACKNOWLEDGES RECEIPT OF A COPY OF THIS
AGREEMENT FOR HIS CONSIDERATION AND REVIEW
AND THAT HE HAS BEEN GIVEN UP TO TWENTY-ONE
(21) DAYS TO CONSIDER AND REVIEW IT IF HE SO
CHOOSES. TRIGG AGREES THAT HE WAS NOT
COERCED, THREATENED OR OTHERWISE FORCED TO
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SIGN THIS AGREEMENT. TRIGG AGREES HE MADE
THE CHOICE TO SIGN IT VOLUNTARILY AND OF HIS
OWN FREE WILL.
Notice of Right to Revoke. NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
TRIGG SHALL HAVE THE RIGHT TO REVOKE THIS
AGREEMENT WITHIN AT LEAST SEVEN (7) DAYS
AFTER SIGNING IT. . . .
Agreement Product of Mutual Effort. Trigg and Little Six
acknowledge and agree that this Agreement is the product of the
mutual negotiations and efforts of the parties, both of whom
have been and are represented by independent counsel of their
own choosing. Accordingly, this Agreement shall not be
interpreted or construed as if one party was its drafter or
preparer.
(Section numbering omitted; underlining, bold font, and capitalization in original.)
Little Six terminated plaintiff’s employment effective April 30, 2012. Acknowledging
that the termination was without cause, Little Six paid plaintiff $50,000 pursuant to the
employment agreement. On March 28, 2013, plaintiff filed this action alleging unlawful
discrimination based on his age – he was 53 at the time – and his religious beliefs, as
reflected in his “Christian lifestyle.” Plaintiff also alleged that his employer unlawfully
retaliated against him for reporting potential violations of state and federal environmental
regulations. The complaint alleges claims for common law retaliatory discharge; violation
of the Tennessee Public Protection Act, also known as the “Whistleblower Act,” Tenn. Code
Ann. § 50-1-304 (2008 & Supp. 2013); and violation of the Tennessee Human Rights Act,
Tenn. Code Ann. § 4-21-301 (2011).
Defendants filed a motion to dismiss or to stay and compel arbitration, invoking the
arbitration clause of the employment agreement, which provides in its entirety as follows:
Arbitration. Any dispute, controversy, or claim arising out of,
in connection, or relating to this Agreement, or any breach or
alleged breach hereof, which cannot be settled or resolved by
mutual agreement, shall be submitted to and resolved by
arbitration which shall be conducted before a three (3) member
panel in conformance with the rules of the American Arbitration
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Association then in effect for commercial disputes. The
arbitration shall be conducted in Rogersville, Tennessee or at
such other place that may be mutually acceptable to the parties.
The arbitration award shall be determined by majority vote of
the arbitration panel, [and] will be final and binding upon the
parties. The expenses of the arbitration shall be borne equally
by the parties to the arbitration, provided that each party shall
pay for and bear the cost of its own experts, evidence, and
counsel.
In response, plaintiff argued that the arbitration clause is unenforceable because his
costs to arbitrate under the agreement are unconscionably high in light of his then-current
financial situation. Plaintiff filed a sworn statement in which he stated that he had been
unable to find “an equivalent position” to his former job despite his efforts to do so. Plaintiff
further stated that “I have established a private engineering practice in which my annual
income is about twenty-five thousand dollars ($25,000.00). I have been forced to dip into
my retirement savings to make ends meet.”
After a hearing, the trial court rendered a memorandum opinion from the bench. That
opinion was incorporated by reference into its judgment:
[T]he Court finds that this is not a contract of adhesion. Even
without considering the outside information that was provided
in the defendant’s . . . reply to the plaintiff’s response on this
particular motion, by its very terms it indicates that it was
entered into with the advice of counsel. That there was a
lengthy period of time during which it was negotiated. That it
was the product of the negotiations. That there was a revocation
period after signatures.
And that it involved a highly paid, well educated, top level
company employee dealing directly with owners of the
company. It did not involve a consumer transaction. It was not
a hastily entered into, take it or leave it situation where a person
needed services, as most of those cases that discuss contracts of
adhesion relate to. This was not a contract of adhesion. This
was an arm’s length transaction and whether Mr. Trigg felt like
he had any options if he ended up disagreeing with them or not,
I don’t think makes any difference in a professional negotiated
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contract of a professional such as himself in this particular
instance.
The Court also finds that the cost of arbitration in this case will
vary depending upon the length of the arbitration and the exact
amount of the claim Mr. Trigg makes in an arbitration. But they
will likely be between $10,000 and $30,000 for Mr. Trigg’s
portion of the arbitration expenses. In Tennessee, of course, the
party is presumed to know the contents of the documents they
sign. And in this case in particular involving a well paid, well
educated, high level professional of a company negotiating an
employment contract, and a contract relating to a buyout of an
equity interest in a company, there’s not any excuse for not
knowing what the terms of it mean. These are the terms that you
bargain for, basically, whether you really bargain for them or
not.
* * *
And in this particular case, to me, that means you’re presumed
to know, whether you discussed it with your attorney or looked
into it yourself, what the rules would apply for a commercial
claim under AAA that’s referred to in your particular provision.
So the idea that it’s going to cost you [$]10[,000] to $30,000 just
for your share of the costs of arbitration is not a shock to me
because you’re not just a normal employee. That’s something
you should have known when you signed the contract because
that’s what the contract refers you to. It shouldn’t be a surprise.
It’s basically the benefit of the bargain that you made.
Plaintiff filed a motion for an interlocutory appeal pursuant to Tenn. R. App. P. 9, which the
trial court granted. We subsequently granted the same.
II.
The issue on appeal is the one stated by us in our order granting interlocutory review:
Whether Plaintiff demonstrated that the financial cost of
arbitration in this case would unreasonably impede his ability to
vindicate his statutory rights such that the arbitration provision
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contained in the employment agreement should be deemed
contrary to public policy, unconscionable and unenforceable
when said arbitration costs along with all other relevant factors
under Tennessee law are considered.
III.
Our review of a trial court’s grant or denial of a motion to compel arbitration is
governed by the same standards that apply to a bench trial. Mitchell v. Kindred Healthcare
Operating, Inc., 349 S.W.3d 492, 496 (Tenn. Ct. App. 2008). As we observed in Rosenberg
v. BlueCross BlueShield of Tenn., Inc., 219 S.W.3d 892, 903-04 (Tenn. Ct. App. 2006),
[a]s a general rule, a court’s enforcement of an arbitration
provision is reviewed de novo. See Cooper v. MRM Inv. Co.,
367 F.3d 493, 497 (6th Cir. 2004). A trial court’s order on a
motion to compel arbitration addresses itself primarily to the
application of contract law. We review such an order with no
presumption of correctness on appeal. See Pyburn v. Bill Heard
Chevrolet, 63 S.W.3d 351, 356 (Tenn. Ct. App. 2001); see also
Nelson v. Wal-Mart Stores, Inc., 8 S.W.3d 625, 629 (Tenn.
1999). However, to the extent that findings of fact are necessary
concerning the “cost-prohibitive” nature of the arbitration
sought, these findings come to us with a presumption of
correctness absent a preponderance of evidence to the contrary.
Tenn. R. App. P. 13(d); T.R. Mills Contractors v. WRH
Enterprises, LLC et al., 93 S.W.3d 861, 864 (Tenn. Ct. App.
2002).
IV.
The agreement at issue in this case recites that “[t]his Agreement shall be governed
by and construed in accordance with the laws of the State of Tennessee.” Neither party
claims that the Federal Arbitration Act (“FAA”) is applicable to this case. Consequently, this
action is governed by the Tennessee Uniform Arbitration Act (“TUAA”), Tenn. Code Ann.
§§ 29-5-301 to -320 (2012), and not the FAA. As the Tennessee Supreme Court has
observed, the issue of whether the FAA or the TUAA governs a case is an important
threshold question:
The question of whether the contract is governed by the state or
federal arbitration act is not an academic one. The resolution of
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that question generally determines whether certain issues
concerning the arbitration agreement are to be decided by an
arbitrator or by a court. See Frizzell Constr. Co. v. Gatlinburg,
L.L.C., 9 S.W.3d 79 (Tenn. 1999). Because this arbitration
agreement is to be interpreted in accordance with the Tennessee
act, contract formation questions are to be decided by the court,
not by an arbitrator. Id. at 85.
Owens v. Nat’l Health Corp., 263 S.W.3d 876, 883 (Tenn. 2007). In this case, the question
of unconscionability was properly decided by the trial court pursuant to the TUAA. Id.; see
also Hill v. NHC Healthcare/Nashville, LLC, No. M2005-01818-COA-R3-CV, 2008 WL
1901198 at *6 (Tenn. Ct. App. M.S., filed Apr. 30, 2008), perm. app. granted, Aug. 25, 2008
(noting that “[a]pplicable grounds for refusing to enforce a contract” under generally
applicable state law governing contract formation “may include the defenses of laches,
estoppel, waiver, fraud, duress and unconscionability.”).1 (Emphasis added.)
The TUAA provides, in relevant part, that “[a] written agreement to submit any
existing controversy to arbitration or a provision in a written contract to submit to arbitration
any controversy thereafter arising between the parties is valid, enforceable and irrevocable
save upon such grounds as exist at law or in equity for the revocation of any contract.” Tenn.
Code Ann. § 29-5-302(a). The Supreme Court has stated that “[i]n general, arbitration
agreements in contracts are favored in Tennessee both by statute and existing case law.”
Benton v. Vanderbilt Univ., 137 S.W.3d 614, 617 (Tenn. 2004). Despite the favored status
of arbitration agreements, Tennessee courts have refused to enforce such agreements when
they have been found to be unconscionable. See Taylor v. Butler, 142 S.W.3d 277, 287
(Tenn. 2004); Webb v. First Tenn. Brokerage, Inc., No. E2012-00934-COA-R3-CV, 2013
WL 3941782 at *18 (Tenn. Ct. App. E.S., filed June 18, 2013); Howell v. NHC Healthcare-
Fort Sanders, Inc., 109 S.W.3d 731, 735 (Tenn. Ct. App. 2003); Raiteri v. NHC
Healthcare/Knoxville, Inc., No. E2003-00068-COA-R3-CV, 2003 WL 23094413 at *8
(Tenn. Ct. App. E. S., filed Dec. 30, 2003). As the Taylor Court observed,
Enforcement of a contract is generally refused on grounds of
unconscionability where the “inequality of the bargain is so
manifest as to shock the judgment of a person of common sense,
and where the terms are so oppressive that no reasonable person
would make them on the one hand, and no honest and fair
person would accept them on the other.” An unconscionable
1
Although the Supreme Court granted permission to appeal in the Hill case, it was subsequently
settled and dismissed prior to oral argument before the High Court.
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contract is one in which the provisions are so one-sided, in view
of all the facts and circumstances, that the contracting party is
denied any opportunity for meaningful choice.
142 S.W.3d at 285 (internal citations omitted); see also Reno v. SunTrust, Inc., No. E2006-
01641-COA-R3-CV, 2007 WL 907256 at *6 (Tenn. Ct. App. E.S., filed Mar. 26, 2007).
“[A] determination of unconscionability must focus on the relative positions of the parties,
the adequacy of the bargaining position, the meaningful alternatives available to the plaintiff,
and the existence of unfair terms in the contract.” Id. (quoting Arnold v. United Cos.
Lending Corp., 511 S.E.2d 854, 862 (W. Va. 1998)). “The determination that a contract or
term is or is not unconscionable is made in the light of its setting, purpose and effect.” Id.
(quoting Restatement (Second) of Contracts, § 208, cmt. a (1981)); see also Hill, 2008 WL
1901198 at *17 (“the question of unconscionability requires courts to consider all the facts
relating to a contract’s purpose and effect as well as to the setting in which it was signed.
One particular fact may not be the determinative factor; instead, it is the overall situation that
must be considered.”).
Generally speaking, courts apply a higher degree of scrutiny to contracts of adhesion,
defined by the Supreme Court as “ ‘a standardized contract form offered to consumers of
goods and services on essentially a “take it or leave it” basis, without affording the consumer
a realistic opportunity to bargain and under such conditions that the consumer cannot obtain
the desired product or service except by acquiescing to the form of the contract.’ ”
Buraczynski v. Eyring, 919 S.W.2d 314, 320 (Tenn. 1996) (quoting Black’s Law Dictionary
40 (6th ed. 1990)). See Mitchell, 349 S.W.3d at 499 (“Courts are more likely to find that
contracts of adhesion are unconscionable.”); Estate of Mooring v. Kindred Nursing Ctrs.,
Inc., No. W2007-02875-COA-R3-CV, 2009 WL 130184 at *4 (Tenn. Ct. App. W.S., filed
Jan. 20, 2009).
This Court has recognized “two component parts” to an unconscionability analysis:
“(1) procedural unconscionability, which is an absence of the meaningful choice on the part
of one of the parties and (2) substantive unconscionability, which refers to contract terms
which are unreasonably favorable to the other party.” Philpot v. Tenn. Health Mgmt., Inc.,
279 S.W.3d 573, 579 (Tenn. Ct. App. 2007); see Reagan v. Kindred Healthcare Operating,
Inc., No. M2006-02191-COA-R3-CV, 2007 WL 4523092 at *11 (Tenn. Ct. App. W.S, filed
Dec. 20, 2007). In the present case, plaintiff does not argue that there is procedural
unconscionability, recognizing that (1) he was actively involved in bargaining for and
negotiating the terms of the employment agreement; (2) he was aware of the arbitration
clause, having read it before he signed the agreement; (3) he was given ample time to review
the agreement with the benefit of legal counsel before he signed it; (4) he was given seven
days to revoke the agreement after he signed it; and (5) as the trial court held, plaintiff was
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a “highly paid, well educated, top level company employee dealing directly with owners of
the company.” The employment agreement is not a contract of adhesion. These factors
weigh in favor of a finding that the agreement is not unconscionable, and a holding enforcing
its terms.
Plaintiff’s unconscionability argument rests on his assertion that the cost to him in
arbitrating his claims is too high, and he cannot afford these costs under his current financial
situation. The employment agreement provides that the arbitration “shall be conducted before
a three (3) member panel in conformance with the rules of the American Arbitration
Association then in effect for commercial disputes.” According to the AAA’s commercial
arbitration rules, a copy of which was filed in the trial court, the AAA fee amount is on a
sliding scale, depending on the amount of the claim. The complaint before us alleges that
plaintiff is seeking damages for “past, present and future wages and benefits, front pay, back
pay, incidental damages, attorneys fees, compensation for emotional distress, humiliation,
mental anguish, embarrassment, pain and suffering, and other nonpecuniary damages,” in
addition to punitive damages, but does not include a specific ad damnum clause. Plaintiff
states in his brief that “[h]is claims are estimated to total between two and six million
dollars.” The rules of the AAA provide that for a claim between one and five million dollars,
the total AAA fees would be $11,450. For a claim between five and ten million dollars, the
total fees would be $14,200. In accordance with the agreement providing that “[t]he
expenses of the arbitration shall be borne equally by the parties to the arbitration, provided
that each party shall pay for and bear the cost of its own experts, evidence, and counsel,” the
parties would evenly split the AAA fees. They would also split the compensation of the three
arbitrators. Neither party has taken issue with the trial court’s finding that plaintiff
demonstrated his share of costs to arbitrate his claim would likely be between $10,000 and
$30,000.
We have addressed the main issue before us, i.e., the cost of arbitration, on several
occasions. In Pyburn v. Bill Heard Chevrolet, 63 S.W.3d 351, 362 (Tenn. Ct. App. 2001),
we reversed the trial court’s decision “that arbitration costs would bar an individual plaintiff
access to a forum because the costs of arbitration were ‘potentially prohibitive’ for a small
claimant.” In Pyburn, as is the case here, “the parties agreed to utilize the Commercial Rules
of the American Arbitration Association.” Id. The Pyburn Court recognized the general rule
that “[w]hen ‘a party seeks to invalidate an arbitration agreement on the ground that
arbitration would be prohibitively expensive, that party bears the burden of showing the
likelihood of incurring such costs.’ ” Id. at 363 (quoting Green Tree Financial
Corp.-Alabama v. Randolph, 531 U.S. 79, 121 S. Ct. 513, 522, 148 L. Ed. 2d 373 (2000)).
Applying this rule, we concluded:
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In the present case, Plaintiff has failed to meet this burden.
While the initial filing fee for arbitration may indeed be higher
to Plaintiff, this in and of itself is not sufficient to make
utilization of the agreed upon forum impracticable in light of the
fact that this cost can be fully recouped if Plaintiff is successful.
Our conclusion might be different had the Agreement prohibited
shifting of these costs or contained some language requiring
Plaintiff to be responsible for all or a disproportionate share of
the costs of arbitration, but that is not the situation here. There
is no proof that the cost of arbitration in this case would be any
greater than the cost of litigation in a court, notwithstanding the
fact that Plaintiff’s claims may be relatively small. See, e.g.,
Circuit City Stores, Inc., v. Adams, 532 U.S. 105, 121 S. Ct.
1302, 1313, 149 L. Ed. 2d 234 (2001)(“Arbitration agreements
allow parties to avoid the costs of litigation, a benefit that may
be of particular importance in employment litigation, which
often involves smaller sums of money than disputes concerning
commercial contracts.”).
Id. at 363 (footnote omitted). In explaining the rationale for this ruling, we looked to the
AAA’s commercial rules and stated as follows:
While an initial filing fee may have to be advanced by a plaintiff
in a claim involving a small consumer transaction, Rule R-45 of
the Commercial Rules allows the arbitrator to assess fees,
expenses, and compensation of the arbitrator in a manner
deemed appropriate by the arbitrator. A successful plaintiff,
therefore, could have all of the “potentially prohibitive” costs
shifted to the defendant. Rule R-45 also permits the arbitrator
to award attorney’s fees to a successful plaintiff who arbitrates
a TCPA claim because an award of attorney’s fees is authorized
by law. See T.C.A. § 47-18-109(e)(1). The arbitrator can also
assess costs as he or she sees fit for expenses of the arbitration,
including the arbitrator and witnesses. Rule R-52. For all
practical purposes, an award of costs, expenses, and attorneys
fees are on the same footing in this case regardless of whether
the parties arbitrate the claim or proceed in a court of law. Even
if the Commercial Rules of the AAA specifically did not allow
a successful plaintiff to recover costs, etc., these items could
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nevertheless be recovered by Plaintiff in arbitration because they
are part of his statutory claim pursuant to the TCPA.
Id. We have subsequently applied Pyburn to reject a plaintiff’s claim of prohibitively
expensive arbitration costs on several occasions. See Philpot, 279 S.W.3d at 582; Flanary
v. Carl Gregory Dodge of Johnson City, LLC, No. E2004-00620-COA-R3-CV, 2005 WL
1277850 at *4 (Tenn. Ct. App. E.S., filed May 31, 2005); Chapman v. H & R Block Mortg.
Corp., No. E2005-00082-COA-R3-CV, 2005 WL 3159774 at *8 (Tenn. Ct. App. E.S., filed
Nov. 28, 2005).
One important distinction between the facts of the present case and those in Pyburn
is that here, the parties agreed to evenly split the costs of arbitration, so the discretion of the
arbitration panel to award costs would presumably be limited in this case. Pyburn did
observe, however, that the AAA commercial rules “permit[] deferral or reduction of
administrative costs in the event of extreme hardship.” 63 S.W.3d at 363 n.5. The current
version of the AAA commercial arbitration rules contains the same provision, and provides
plaintiff a similar avenue for possible financial relief.
In Rosenberg, this Court, again addressing a claim of prohibitively expensive
arbitration costs, cited with approval and quoted an Eighth Circuit federal Court of Appeals
decision in discussing the standard of proof required to establish such a claim:
A fee-splitting arrangement may be unconscionable if
information specific to the circumstances indicates that fees are
cost-prohibitive and preclude the vindication of statutory rights
in an arbitral forum. See Green Tree, 531 U.S. at 90, 121 S. Ct.
513, 148 L. Ed. 2d 373; Dobbins, 198 F.3d [715,] at 717 [8th Cir.
1999]. The burden of showing that arbitrators’ fees will be
cost-prohibitive falls on the party seeking to avoid arbitration.
Green Tree, 531 U.S. at 92, 121 S. Ct. 513, 148 L. Ed. 2d 373.
The Supreme Court has not established what quantum of proof
is necessary to meet that burden. Id. We require more than just
a hypothetical inability to pay, however, to overcome the federal
policy favoring arbitration. See Dobbins, 198 F.3d at 716-17.
The party seeking to avoid arbitration should present specific
evidence of likely arbitrators’ fees and its financial ability to pay
those fees so that the court can determine whether the arbitral
forum is accessible to the party. If the party does not meet its
burden, the district court must honor the arbitration agreement
and compel arbitration.
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219 S.W.3d at 910 (quoting Faber v Menard, Inc., 367 F.3d 1048, 1053-54 (8th Cir. 2004)).
In Hill, the Middle Section diverged somewhat from its earlier Pyburn opinion,
stating, in pertinent part, as follows:
[W]e do not consider as binding, as the final statement of
Tennessee law on the question, or as determinative to the case
before us, some of the Pyburn conclusions regarding costs in
arbitration provisions. We do not disagree that the party seeking
to invalidate an arbitration agreement on the ground that the
costs are too great has the burden of proving such costs.
Pyburn, 63 S.W.3d at 363. We also do not disagree that the
costs of arbitration should be compared to the costs of litigation,
Id., because an enforceable agreement to arbitrate substitutes
that forum for the judicial forum otherwise available to a
claimant. However, we disagree that a provision that allows
costs to be shifted to the drafter of the arbitration agreement if
that party loses in the arbitration makes the agreement
enforceable. Id.
Instead, we believe that up-front costs should be considered
because the arbitration agreement may unreasonably favor the
drafter of the agreement since such high up-front costs will deter
the pursuit of claims. This is particularly true when the up-front
costs of arbitration are disproportionately high compared to the
initial costs of instituting litigation. In such cases, the drafter of
the agreement stands to avoid litigation, because the other party
has agreed not to pursue it, and to avoid arbitration, because the
costs are so high as to prohibit many claimants from pursuing a
remedy in that forum. Thus, we conclude that an agreement to
arbitrate that places excessive costs on the claimant as a
precondition to arbitration may be unconscionable because of
the inequality of the bargain, the oppressiveness of the terms, or
the one-sided advantage to the drafter. Consequently, the costs
to initiate or pursue arbitration . . . in the case before us is a
factor to be considered in determining whether the agreement to
arbitrate is enforceable.
2008 WL 1901198 at *15-16. The Hill Court concluded:
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We do not disagree that a party who was fully informed of the
potential costs, having weighed all the risks and benefits, may
agree to arbitrate disputes, as many businesses have done.
However, in the situation where the arbitration agreement is a
contract of adhesion and there is no proof that the claimant had
any information upon which to make a fully informed choice, or
that any other meaningful choice was available, benefit to the
drafter calls into question the enforcement of the agreement.
Id. at *16.
In the present case, looking at the totality of the pertinent circumstances, we conclude
that plaintiff has not met his burden of showing that the costs of arbitration will be
prohibitive. The only information plaintiff presented regarding his finances is the following
two sentences in his sworn declaration:
Since my termination, I have tried hard to obtain an equivalent
position, but in the present labor market, my efforts have been
unavailing.
I have established a private engineering practice in which my
annual income is about twenty-five thousand dollars
($25,000.00). I have been forced to dip into my retirement
savings to make ends meet.
Plaintiff reaped significant financial benefits from the employment agreement, a part of
which he now challenges. He received a buyout payment of $1,578,599 for his equity
interest in his employer’s businesses. He enjoyed continuing employment at a salary of
$154,472 per year plus significant benefits such as a company car and health insurance
coverage. He also received a $50,000 severance payment at the end of his employment as
per the agreement.
Moreover, plaintiff has no legitimate argument that he was surprised by the cost of
arbitration. As already noted, plaintiff, a well-educated, high-level managerial employee, had
the opportunity to negotiate the agreement and plenty of time to read and consider the draft
agreement with the benefit of legal counsel. Plaintiff had easy access to the AAA
commercial arbitration rules and the applicable fee schedule – the appellate briefs of both
parties observe that this information is available online at www.adr.org. See Robert J.
Denley Co. v. Neal Smith Constr. Co., No. W2006-00629-COA-R3-CV, 2007 WL 1153121
at *5 (Tenn. Ct. App. W.S., filed Apr. 19, 2007) (“To permit a party, when sued on a written
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contract, to admit that he signed it but to deny that it expresses the agreement he made or to
allow him to admit that he signed it but did not read it or know its stipulations would
absolutely destroy the value of all contracts.”) (quoting Giles v. Allstate Ins. Co., Inc., 871
S.W.2d 154, 157 (Tenn. Ct. App. 1993)).
Furthermore, looking at the substance of this employment agreement, there is nothing
suggesting that the “inequality of the bargain is so manifest as to shock the judgment of a
person of common sense,” or that “the terms are so oppressive that no reasonable person
would make them on the one hand, and no honest and fair person would accept them on the
other.” Taylor,142 S.W.3d at 285. The agreement is neither manifestly one-sided nor unfair.
To be frank, however, an agreement that has the effect of imposing a $10,000 to
$30,000 price tag on having legal claims heard and decided is, in the abstract, concerning to
us. See Hill, 2008 WL 1901198 at *16 (“The proof shows that the likely costs to simply
initiate an arbitration under the agreement are very high, perhaps reaching $18,000. We, like
the trial court, find this troubling.”). But in this case, plaintiff has not shown that the
arbitration costs, imposed by an agreement he freely bargained for, are prohibitively
expensive to him. His sworn statement does not include an assertion that he is unable to pay
the arbitration expenses, nor even that they would work a significant financial hardship on
him. Moreover, the arbitration costs should be considered within the larger factual context
that plaintiff is asserting claims for damages in the range of two to six million dollars. See
Rosenberg, 219 S.W.3d at 911 (“If in fact their complaint sought to redress small claims
[which] aggregated $4,000 over a period of two years, it would be easy enough to say on very
limited proof that arbitration was cost prohibitive. . . .What might be prohibitive when a
$4,000 claim is in issue would certainly not be prohibitive when millions of dollars and vast
injunctive relief are actually in issue. . . [I]t is apparent that the costs of resolving such a
controversy will be extensive and expensive regardless of whether the forum is arbitral or
judicial.”). In summary, considering the totality of all the relevant circumstances established
in the record, we agree with the trial court’s determination that the arbitration clause in this
employment agreement is not unconscionable, because plaintiff did not meet his burden of
establishing that the arbitration fees are cost-prohibitive and would effectively preclude the
vindication of his rights as provided by statute and common law. The agreement is
consequently enforceable as written.
Finally, plaintiff argues that the arbitration clause was void as against public policy.
His only reason supporting this argument is his assertion that his statutory rights and claims
have been thwarted because of the imposition of unconscionably and the prohibitively high
cost of arbitration. We have already analyzed the merits of this argument at length above.
We addressed a similar “public policy” argument in Vintage Health Resources, Inc. v.
Guiangan, 309 S.W.3d 448, 464-65 (Tenn. Ct. App. 2009), stating:
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The determination of whether a contract is against public policy
is a question of law. Generally, parties are free to contract as
they wish; courts should carry out the terms bargained for in the
contract unless those terms violate public policy. Guiliano v.
Cleo, Inc., 995 S.W.2d 88, 100 (Tenn. 1999) (citations omitted).
A contract will not be deemed to violate public policy unless it
tends to harm the public good or conflict with Tennessee’s
constitution, laws or judicial decisions. Spiegel v. Thomas,
Mann & Smith, P.C., 811 S.W.2d 528, 530 (Tenn. 1991).
To determine whether a contract is void as violative of public
policy, we consider “the situation of the parties at the time the
contract was made and the purpose of the contract.” Hoyt v.
Hoyt, 213 Tenn. 117, 372 S.W.2d 300, 303 (1963) (citations
omitted). Courts will decline to enforce a contract on the
ground of public policy only when the impropriety is clear and
inherent in the contract, “not merely collateral.” “The principal
that contracts in contravention of public policy are not
enforceable should be applied with caution.” Home Beneficial
Ass’n v. White, 180 Tenn. 585, 177 S.W.2d 545, 546 (1944)
(quoting Twin City Pipe Line Co. v. Harding Glass Co., 283
U.S. 353, 356, 357, 51 S. Ct. 476, 75 L. Ed. 1112 (1931)). This
is particularly true where one who . . . “has had the benefit of
performance by the other party will be permitted to avoid his
own promise.”
(Some internal citations omitted.) Applying these general principles and our
unconscionability analysis articulated above, we hold that the employment contract in this
case does not violate public policy.
V.
The judgment of the trial court is affirmed. Costs on appeal are assessed to the
appellant, Darrell Trigg. The case is remanded to the trial court for enforcement of its order
compelling arbitration under the employment agreement.
_____________________________________
CHARLES D. SUSANO, JR., CHIEF JUDGE
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