Cheek v. United Healthcare of the Mid-Atlantic, Inc

In Cheek v. United Healthcare of the Mid-Atlantic, Inc., 378 Md. 139, 147, 835 A.2d 656 (2003), the Court was asked to determine whether consideration existed to support the agreement to arbitrate contained in Cheek's employment contract. Id. In declining to delve into the merits of the underlying controversy, the Court reiterated that its sole purpose was to determine whether a valid arbitration agreement existed. Id. at 155. Once the court finds that a "mutual exchange of promises to arbitrate" exists, "its inquiry ceases, as the agreement to arbitrate has been established as a valid and enforceable contract." Id. at 153-54. In Cheek v. United Healthcare of the Mid-Atlantic, Inc., the employer offered Cheek a senior sales executive position, by letter stating, inter alia, "that enclosed with it were 'summaries of the . . . Arbitration Policy which are conditions of your employment.'" See id. Cheek accepted the letter offer, replying that "'all of the terms in your employment letter are amenable to me.'" Id. at 142. On his first day, Cheek received a copy of the Employee Handbook, which summarized the company's arbitration policy and stated that "arbitration 'is the final, exclusive and required forum for the resolution of all employment related disputes.'" See id. But the summary of the arbitration policy also stated that the employer could unilaterally revoke or amend it. In refusing to enforce the arbitration clause, the Court of Appeals reviewed some principles governing contract consideration: A promise becomes consideration for another promise only when it constitutes a binding obligation. Without a binding obligation, sufficient consideration does not exist to support a legally enforceable agreement. See Tyler v. Capitol Indemnity Ins. Co., 206 Md. 129, 134, 110 A.2d 528 (1955) (recognizing that "'If an option goes so far as to render illusory the promise of the party given the option, there is indeed no sufficient consideration, and therefore no contract ....'") (quoting 1 Williston on Contracts, Sec. 141 (Rev. Ed.)). See also Restatement of Contracts 2d 77 cmt. a (1981) ("Where the apparent assurance of performance is illusory, it is not consideration for a return promise.") An "illusory promise" appears to be a promise, but it does not actually bind or obligate the promisor to anything. An illusory promise is composed of "words in a promissory form that promise nothing." Corbin on Contracts 5.28 (2003). "They do not purport to put any limitation on the freedom of the alleged promisor. If A makes an illusory promise, A's words leave A's future action subject to A's own future whim, just as it would have been had A said nothing at all." Id. (Id. at 147-49) The Cheek Court refused to enforce the arbitration policy because the employer's "promise to arbitrate was illusory." See id. at 141. Judge Battaglia explained why: United initiated the arbitration with Cheek; it has not revoked nor in any way altered the Arbitration Policy with Cheek at any time. Nonetheless, the fact that "United HealthCare reserves the right to alter, amend, modify, or revoke the Arbitration Policy at its sole and absolute discretion at any time with or without notice" creates no real promise, and therefore, insufficient consideration to support an enforceable agreement to arbitrate. Indeed, the plain and unambiguous language of the clause appears to allow United to revoke the Employment Arbitration Policy even after arbitration is invoked, and even after a decision is rendered, because United can "revoke" the Policy "at any time." Thus, we conclude that United's "promise" to arbitrate employment disputes is entirely illusory, and therefore, no real promise at all. Id. at 149.