Michele Carrone v. UnitedHealth Group Inc

• Court: Court of Appeals for the Third Circuit
• Decided: August 11, 2021
• Docket: 20-2742
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______________

No. 20-2742 ______________

MICHELE CARRONE, Appellant

v.

UNITEDHEALTH GROUP INC; LEE VALENTA; JASON DREFAHL; ABC CORPORATIONS 1-5, FICTITIOUS NAMES DESCRIBING PRESENTLY UNIDENTIFIED BUSINESS ENTITIES; JOHN DOES 1-5, FICTITIOUS NAMES DESCRIBING PRESENTLY UNKNOWN INDIVIDUALS* ______________

On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 20-cv-05138) District Judge: Honorable Freda L. Wolfson ______________

Submitted Under Third Circuit L.A.R. 34.1(a): June 25, 2021

Before: CHAGARES, PORTER, and ROTH, Circuit Judges.

(Filed: August 11, 2021) ______________

OPINION† ______________

* The Clerk of the Court is directed to amend the official caption to conform to the listing of parties above. † This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding precedent. PORTER, Circuit Judge.

Michele Carrone sued her coworkers and her employer, UnitedHealth Group, for

discrimination. The defendants moved to compel arbitration. The parties’ arbitration

agreement contains a delegation provision granting broad authority to the arbitrator to

rule on threshold questions of the agreement’s validity. Carrone had two avenues around

the provision and into court: (1) she could have argued that the arbitration agreement

lacked mutual assent, or (2) she could have challenged the validity of the delegation

provision itself. Carrone argued neither, so she must arbitrate her dispute.

I

The District Court had subject-matter jurisdiction under 28 U.S.C. § 1332(a) and 9

U.S.C. § 4. We have appellate jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C.

§ 16(a)(3). We review the District Court’s order to compel arbitration de novo. Flintkote

Co. v. Aviva PLC, 769 F.3d 215, 219 (3d Cir. 2014). We apply the summary-judgment

standard to a motion to compel arbitration. Id. That is, we will affirm the District Court if

“there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). We write primarily for the parties

and assume their familiarity with the record.

II

Under the Federal Arbitration Act (“FAA”), a federal court must compel

arbitration “upon being satisfied that the making of the agreement for arbitration or the

failure to comply therewith is not in issue.” 9 U.S.C. § 4. “When determining whether an

arbitration agreement exists, we ‘apply ordinary state-law principles’ governing contract

2 formation.” MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974 F.3d

386, 402 (3d Cir. 2020) (quoting James v. Glob. TelLink Corp, 852 F.3d 262, 265 (3d

Cir. 2017)).

Arbitration agreements typically reside in larger contracts. Because an arbitration

clause is severable from the contract that contains it, questions about the validity of the

container contract go to arbitration. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 403–04 (1967). For example, a party claiming that the container contract

lacked consideration must first adjudicate that claim in arbitration. MZM Constr., 974

F.3d at 398 n.7. But § 4 of the FAA “‘affirmatively requires’ a court to decide questions

about the formation or existence of an arbitration agreement, namely the element of

mutual assent.” Id. at 397–98 (quoting Sandvik AB v. Advent Int’l Corp., 220 F.3d 99,

109 (3d Cir. 2000)). A claim that the container contract lacked mutual assent necessarily

puts the existence of the arbitration agreement at issue. Id. Such a claim goes straight to

court. Id.

Alternatively, a party can dispute the existence of an arbitration agreement by

arguing that the arbitration clause itself is invalid. Id. at 397. For example, a party might

claim that the arbitration clause lacked consideration. That claim, because it is directed at

the arbitration clause itself, also goes straight to court. Id. at 398 n.7.

Complicating matters, parties can delegate questions of arbitrability to the

arbitrator. Sandvik, 220 F.3d at 111–12. That is, “parties may contractually bestow upon

arbitrators the power to decide their own jurisdiction.” MZM Constr., 974 F.3d at 398.

When a provision delegates arbitrability issues to the arbitrator, that provision “is simply

3 an additional, antecedent agreement the party seeking arbitration asks the federal court to

enforce, and the FAA operates on this additional arbitration agreement just as it does on

any other.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 70 (2010). “Think of a

delegation provision as a mini-arbitration agreement within a broader arbitration

agreement within a broader contract, ‘something akin to Russian nesting dolls.’” MZM

Constr., 974 F.3d at 399 (quoting Rent-A-Center, 561 U.S. at 85 (Stevens, J.,

dissenting)). So, “unless the party opposing arbitration challenges ‘the delegation

provision specifically,’ the district court ‘must treat it as valid’ and ‘must enforce it’ by

sending ‘any challenge to the validity’ of the underlying arbitration agreement to the

arbitrator.” Id. (quoting Rent-A-Center, 561 U.S. at 72).

The arbitration agreement between Carrone and UnitedHealth stands alone, not as

a part of a larger contract. But it does contain a delegation provision. The agreement

expressly incorporates the Employment Dispute Resolution Rules of the American

Arbitration Association. Rule 6(a) says that “[t]he arbitrator shall have the power to rule

on his or her own jurisdiction, including any objections with respect to the existence,

scope or validity of the arbitration agreement.” See Am. Arb. Ass’n, Employment

Arbitration Rules and Mediation Procedures 17 (2016), https://perma.cc/269R-WFSJ.

Rule 6(b) further provides that “[t]he arbitrator shall have the power to determine the

4 existence or validity of a contract of which an arbitration clause forms a part.” Id. The

parties do not dispute that the agreement validly incorporates Rule 6.1

Carrone had two avenues around arbitration. She could have claimed that the

arbitration agreement as a whole lacked mutual assent, or she could have directly

challenged the delegation provision’s validity. She raised neither argument before the

District Court and has waived the opportunity to assert them on appeal.

III

A

Carrone has waived any argument that the arbitration agreement lacked mutual

assent. To press an issue on appeal, a party must first raise it before the District Court

“with sufficient specificity to allow the court to pass on it.” In re Teleglobe Commc’ns

Corp., 493 F.3d 345, 376 (3d Cir. 2007). The only plausible mutual-assent argument was

Carrone’s claim that “[t]he policy lacks mutuality.” Supp. App. 45. That could mean

either that the policy lacked mutuality of assent or that it lacked mutuality of

consideration. Carrone’s arguments indicate she meant the latter. She argued—and

1 The District Court issued its opinion before we had decided MZM, but its analysis was prescient. In short, an arbitration agreement can incorporate an unattached and unsigned delegation provision by reference. MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974 F.3d 386, 402–03 (3d Cir. 2020). For the incorporation to be effective under New Jersey law, “the separate document must be described in such terms that its identity may be ascertained beyond doubt and . . . the party to be bound by the terms must have had knowledge of and assented to the incorporated terms.” Id. at 403 (alteration in original) (internal quotation marks omitted) (quoting Bacon v. Avis Budget Grp., 959 F.3d 590, 600 (3d Cir. 2020)).

5 continues to argue on appeal—that the agreement lacked mutuality because it was

illusory. But whether a contract is illusory is a matter of consideration, not assent.

An illusory contract is “[a]n agreement in which one party gives as consideration a

promise that is so insubstantial as to impose no obligation.” Illusory Contract, Black’s

Law Dictionary (11th ed. 2019). New Jersey courts confirm that a promise is illusory if

there is “insufficient consideration to support a counterpromise.” G. Loewus & Co. v.

Vischia, 65 A.2d 604, 606 (N.J. 1949) (internal quotation marks omitted) (quoting 2

Samuel Williston, The Law Governing Sales of Goods at Common Law and Under the

Uniform Sales Act § 464(a) (rev. ed. 1948)). In contrast, mutual assent is an “[a]greement

by both parties to a contract, [usually] in the form of offer and acceptance.” Mutual

Assent, Black’s Law Dictionary, supra. “Mutual assent requires that the parties have an

understanding of the terms to which they have agreed.” Atalese v. U.S. Legal Servs. Grp.,

L.P., 99 A.3d 306, 313 (N.J. 2014). Just as parties can assent to a promise that lacks

consideration, they can assent to a promise that is illusory. See Nau v. Chung, No. A-

5315-17T1, 2019 WL 2573281, at *5 (N.J. Super. Ct. App. Div. June 24, 2019)

(discussing arguments that the contract was illusory after finding that the parties had

assented to the contract).

Claims challenging consideration or alleging fraud in the inducement of the

arbitration agreement must be submitted to the arbitrator. MZM Constr., 974 F.3d at 398

n.7, 405–06. Likewise, Carrone’s claim that the arbitration agreement was illusory must

go to arbitration. Carrone did not argue that the arbitration agreement lacked mutual

6 assent and has waived the opportunity to press that point on appeal. See Teleglobe

Commc’ns, 493 F.3d at 376.

B

Carrone had another avenue into court. She could have challenged the delegation

provision itself. Her argument about illusoriness might have succeeded if it had been

directed to the delegation provision. See Rent-A-Center, 561 U.S. at 72. But it was not.

Carrone did not challenge the delegation provision. She argued to the District

Court that (1) the arbitration agreement’s amendment provision rendered the agreement

illusory, (2) the arbitration agreement as a whole was illusory, and (3) the arbitration

agreement was unconscionable. Indeed, she did not mention the delegation agreement at

all in her memorandum in opposition to compel arbitration. Because Carrone “did not

make any arguments specific to the delegation provision,” the arguments that she did

make are for the arbitrator, not the court.2 Id. at 74.

Because Carrone has not put the formation or existence of the delegation provision

at issue, she must abide by the arbitration contract she signed.

* * *

We will affirm the judgment of the District Court.

2 Because Carrone did not challenge the delegation provision in the District Court, we do not decide whether the alleged illusoriness of UnitedHealth’s arbitration agreement could itself render the delegation provision illusory.