Category: Evidence

Texas Arbitration Provision Sounds Death Knell For Illinois Salesman’s Suit Against Former Employer – IL ND

(“Isn’t that remarkable…..”)

The Plaintiff in Brne v. Inspired eLearning, 2017 WL 4263995, worked in sales for the corporate publisher defendant.  His employment contract called for arbitration in San Antonio, Texas.

When defendant failed to pay plaintiff his earned commissions, plaintiff sued in Federal court in his home state of Illinois under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (“IWPCA”). Defendant moved for venue-based dismissal under Rule 12(b)(3)

The Illinois Northern District granted defendant’s motion and required the plaintiff to arbitrate in Texas.  A Rule 12(b)(3) motion is the proper vehicle to dismiss a case filed in the wrong venue. Once a defendant challenges the plaintiff’s venue choice, the burden shifts to the plaintiff to establish it filed in the proper district.  When plaintiff’s chosen venue is improper, the Court “shall dismiss [the case], or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406(a).

Upholding the Texas arbitration clause, the Illinois Federal court noted the liberal federal policy favoring arbitration agreements except when to do so would violate general contract enforceability rules (e.g. when arbitration agreement is the product of fraud, coercion, duress, etc.)

The Court then turned to plaintiff’s argument that the arbitration agreement was substantively unconscionable.  An agreement is substantively unconscionable where it is so one-sided, it “shocks the conscience” for a court to enforce the terms.

The plaintiff claimed the arbitration agreement’s cost-sharing provision and absence of fee-shifting rendered it substantively unconscionable.

Cost Sharing Provision

Under Texas and Illinois law, a party seeking to invalidate an arbitration agreement on the ground that arbitration is prohibitively expensive must provide individualized evidence to show it will likely be saddled with excessive costs during the course of the arbitration and is financially incapable of meeting those costs.  The fact that sharing arbitration costs might cut in to a plaintiff’s recovery isn’t enough: without specific evidence that clearly demonstrates arbitration is cost-prohibitive, a court will not strike down an arbitration cost-sharing provision as substantively unconscionable.  Since plaintiff failed to offer competent evidence that he was unable to shoulder half of the arbitration costs, his substantive unconscionability argument failed

Fee-Shifting Waiver

The plaintiff’s fee-shifting waiver argument fared better.  Plaintiff asserted  then argued that the arbitration agreement’s provision that each side pays their own fees deprived Plaintiff of his rights under the IWPCA (see above) which, among other things, allows a successful plaintiff to recover her attorneys’ fees. 820 ILCS 115/14.

The Court noted that contractual provisions against fee-shifting are not per se unconscionable and that the party challenging such a term must demonstrate concrete economic harm if it has to pay its own lawyer fees.  The court also noted that both Illinois and Texas courts look favorably on arbitration and that arbitration fee-shifting waivers are unconscionable only when they contradict a statute’s mandatory fee-shifting rights and the statute is central to the arbitrated dispute.

The court analogized the IWPCA to other states’ fee-shifting statutes and found the IWPCA’s attorneys’ fees section integral to the statute’s aim of protecting workers from getting stiffed by their employers.  The court then observed that IWPCA’s attorney’s fees provision encouraged non-breaching employees to pursue their rights against employers.  In view of the importance of the IWPCA’s attorneys’ fees provision, the Court ruled that the arbitration clause’s fee-shifting waiver clashed materially with the IWPCA and was substantively unconscionable.

However, since the arbitration agreement contained a severability clause (i.e. any provisions that were void, could be excised from the arbitration contract), the Court severed the fee-shifting waiver term and enforced the balance of the arbitration agreement.  As a result, plaintiff must still arbitrate against his ex-employer in Texas (and cannot litigate in Illinois).

Afterwords:

This case lies at the confluence of freedom of contract, the strong judicial policy favoring arbitration and when an arbitration clause conflicts with statutory fee-shifting language.  The court nullified the arbitration provision requiring each side to pay its own fees since that term clashed directly with opposing language in the Illinois Wage Payment and Collection Act.  Still, the court enforced the parties’ arbitration agreement – minus the fee provision.

The case also provides a useful synopsis of venue-based motions to dismiss in Federal court.

 

 

 

 

7th Circuit Takes Archaic Hearsay Exceptions to Judicial Woodshed

Decrying them as flawed “folk psychology” with dubious philosophical underpinnings, the Seventh Circuit recently took two venerable hearsay exceptions to task in the course of affirming a felon’s conviction on a Federal weapons charge.

In U.S. v. Boyce (here), the Court affirmed the trial court’s admission of a 911 call recording and transcript into evidence over defendant’s hearsay objections under the present sense impression and excited utterance exceptions.

Defendant’s girlfriend called 911 and said that the defendant was beating her and “going crazy for no reason”.  During the call, she also related how she had just run to a neighbor’s house and that the defendant had a gun. 

When the caller refused to testify against the defendant at trial, the prosecution published the call’s recording and transcript to the jury over defendant’s objection.  Defendant appealed.

The Seventh Circuit affirmed the conviction on the basis that the 911 call satisfied both the present sense impression and excited utterance hearsay exceptions, codified in FRE 803(1) and (2) respectively. 

Yet it still spent much of the opinion questioning the continued validity of the two “spontaneity” hearsay exceptions.   

Present Sense Impression

FRE 803(1) – the present sense impression – provides that an out-of-court statement describing or explaining an event while it’s happening or immediately after the declarant perceives it, is not hearsay. 

The exception is premised on the notion that the “substantial contemporaneity” of event and statement nullifies a likelihood of conscious fabrication (e.g. the speaker doesn’t have enough time to lie).

The present sense impression elements are (1) a statement that describes an event or condition with no calculated narration; (2) the speaker personally perceives the event or condition described, and (3) the statement must be made while the speaker is perceiving the event or condition, or immediately thereafter. 

The Court found it difficult to take the rationale underlying the present sense impression exception “entirely seriously” since “people are entirely capable of spontaneous lies.”  The Court bolstered its skepticism by citing to a psychological study that shows it takes less than a second for someone to fashion an impromptu lie.

Excited Utterance

The excited utterance hearsay exception is broader than the present sense impression and applies where (1) a startling event occurs, (2) the declarant makes the statement under the fresh stress of a startling event, and (3) the declarant’s statement relates to the starting event.  

It’s bottomed on the notion that a startling event will prevent a speaker from deliberation or “self-interested reflection” and likely produce an utterance free from calculation or fabrication.

 But the modern trend in psychology, according to the Court, was to recognize that while a stressor may minimize a speaker’s opportunity for reflective self-interest, it’s just as likely (if not more) that the startling event will distort the speaker’s observation and judgment.

Judge Posner’s concurrence goes even further.  He labels the hearsay rule archaic and too complex and also castigates the two “spontaneity exceptions” (present sense impression and excited utterance) as lacking sound science and psychology. 

He views the exceptions as outmoded relics of a prior era that no longer hold water in 21st century culture – especially in light of ongoing developments in cognitive psychology.  Judge Posner believes the 911 call should have come into evidence under FRE 807’s “residual” hearsay exception – a rule he would like to see swallow up FRE 801-806. 

The residual hearsay rule would allow into evidence out-of-court statements that have a sufficient degree of trustworthiness and reliability and that are dispositive of a case’s outcome.

Take-away: Boyce is interesting for its discussion and critique of the data and belief systems underlying the present sense impression and excited utterance hearsay exceptions.  Clearly, time-honored (but not tested) rationales for the rules are suspect. 

The reason: most lies are spontaneous and actually outnumber planned lies (this according to studies cited by the Court).  It will be interesting to see if and when the present sense impression and excited utterance exceptions are either updated or excised completely from Federal and state court trials.

Indirect Evidence of E-mail Authenticity Not Enough in Architect’s Defamation Suit – IL ND (Part I of II)

An Illinois Federal court recently expanded on the reach of some common business torts, the grounds to vacate a default judgment, and the evidentiary vagaries of e-mail.

Strabala v. Zhang, 318 F.R.D. 81 (Ill. N.D. 2016), pits an architect against his former partners in a defamation and tortious interference suit based on accusations of unethical conduct and the diversion of partnership assets to foreign businesses.

The plaintiff alleged the defendants e-mailed plaintiff’s professional associates and falsely accusing him of forging signatures, pilfering software and tax fraud, among other things.

After a default judgment entered against them, the former partners moved to vacate the judgment and separately moved to dismiss the plaintiff’s suit for lack of subject matter and personal jurisdiction.

The court vacated the default judgment and partially granted the defendants’ motion to dismiss.  Some highlights of the court’s opinion:

Federal Rules 55 and 60 respectively allows a court to set aside a default order and default judgment.  These rules further the policy of having cases decided on their merits and not technicalities.

A party seeking to vacate an entry of default prior to the entry of final judgment must show: (1) good cause for the default; (2) quick action to correct it; and (3) a meritorious defense to the complaint.  The court found that the defendants satisfied the three-prong standard to vacate the default.

E-mail Evidence: Foundational Rules

The defendants sought to offer two emails into evidence – one allegedly sent by the plaintiff, the other received by him.

To lay a foundation for documentary evidence, the proponent (here the defendants) must submit evidence “sufficient to support a finding that the item is what the proponent claims it is.”  FRE 901(a).  The foundational standard is lenient. The proponent must only make a prima facie showing of genuineness; it is up to the court or jury to decide whether the evidence is truly authentic.

Here, the defendants failed to lay a foundation for the e-mails.  First, the plaintiff – variously, author and recipient of the e-mails – testified that he believed the e-mails may have been altered and did not concede their authenticity.

Next, the Court rejected Defendants’ argument that the e-mails were self-authenticating under FRE 902(7) – the rule governing inscriptions, signs, tags, or labels that indicate business origin, ownership, or control.

The court found that plaintiff’s electronic e-mail signature and a company letterhead logo were not “trade inscriptions” within the meaning of Rule 902(7) citing to a Seventh Circuit case holding that a trade inscription on the cover of an owner’s manual does not authenticate the contents of the manual.

Plaintiff rebutted the emails’ authenticity by testifying via declaration that he never electronically signed one e-mail and that the other e-mail was stored on his laptop’s hard drive – which a plaintiff claimed the defendants stole from him.

The court held that if the e-mails did originate from plaintiff’s stolen laptop, the evidence would be inadmissible since the laptop would be in defendants’ possession.

Q: So what kind of evidence would have satisfied the court?

A: Direct proof of authenticity.

Q: What would qualify as “direct proof”?

A: Testimony by Plaintiff or the other sender or someone who witnessed the sending of the emails who could attest that the questioned e-mails are the actual, unchanged emails sent by the authors.

The court noted that indirect evidence of authenticity could also work.  Indirect evidence typically involves testimony from “someone who personally retrieved the e-mail from the computer to which the e-mail was allegedly sent” together with other circumstantial evidence such as the e-mail address in the header and the substance of the email itself.

Here, the court found the defendants’ indirect evidence was too flimsy. It noted that the defendants were interested parties and accused of theft (plaintiff claimed they stole his laptop).  The court also held that the defendants’ self-serving testimony that they didn’t alter the e-mails wasn’t enough to establish their authenticity especially in light of plaintiff’s claims that the defendants stole his laptop and that the e-mails appeared to have been changed.

In the end, the court granted the plaintiff’s motion to strike the two e-mail exhibits to the defendants’ motion to dismiss.

Take-aways:

Given the rampantness of e-mail, this case is instructive for litigators since most cases will involve at least some e-mail evidence.  The case also underscores that while the standard for evidence authenticity is low, it still has some teeth.

Here, the plaintiff’s belief that the emails offered against him were doctored coupled with the fact that the e-mails’ source was stolen property (a laptop), was enough to create a question as to whether the e-mails were authentic.

The next post summarizes the Court’s exhaustive analysis of subject matter and personal jurisdiction under the Illinois long-arm statue and Federal due process standards.