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Home / Case Digests / 00-2355 Penn v. Ryan's Family Steak Houses, Inc.

00-2355 Penn v. Ryan's Family Steak Houses, Inc.

“[T]his case differs from the typical case in which an employer and employee agree to arbitrate their disputes because of the complicated three-party approach by which Ryan’s sought to bind Penn to arbitration. Although Penn obviously was motivated to sign the arbitration agreement because Ryan’s otherwise would not have considered him for employment, the contract that Penn signed underscores that it is between Penn and EDS and that Ryan’s is not a party to the contract. (We add for the sake of completeness that if the Penn-EDS contract is not valid, then the claim Ryan’s has to third-party beneficiary status also falls by the wayside.) The first question is therefore whether the Penn-EDS contract contains mutual promises and commitments by each party to the other.

“We conclude that it does not; to the contrary, the arbitration agreement between EDS and Penn contains only an unascertainable, illusory promise on the part of EDS. The agreement is clear enough as to what Penn is promising: he agrees that he will bring any employment-related dispute that he has with Ryan’s in the EDS arbitration forum and not in state or federal court. The agreement restates this proposition several times in various ways, and goes into some detail as to the types of disputes that are covered by the agreement and the duration of Penn’s obligation. In marked contrast to the specificity of Penn’s obligation is the language describing the consideration EDS is obligated to provide Penn in return: EDS commits itself only ‘to provide an arbitration forum, Rules and Procedures, and a hearing and decision based on any claim or dispute’ that the employee might raise. Nothing in the contract provides any details about the nature of the forum that EDS will provide or sets standards with which EDS must comply; EDS could fulfill its promise by providing Penn and Ryan’s with a coin toss. Although Penn was given the EDS Rules along with the contract he signed, and we will assume that the Rules form part of the contract, adding the Rules to the mix does nothing to make EDS’s commitment more concrete, because the Rules specifically give EDS the sole, unilateral discretion to modify or amend them. The contract is therefore hopelessly vague and uncertain as to the obligation EDS has undertaken. For all practical purposes, EDS’s promise under this contract ‘makes performance entirely optional with the promisor.’ Pardieck, 676 N.E.2d at 364 n.3. The Sixth Circuit has recently held that these defects with identical EDS arbitration agreements render the agreements unenforceable as a matter of Tennessee and Kentucky law, see Floss v. Ryan’s Family Steak Houses, Inc., 211 F.3d 306, 315-16 (6th Cir. 2000).”


Appeal from the United States District Court for the Northern District of Indiana, Lee, J., Diane P. Wood, J.

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