Klinedinst v . Tiger Drylac CV-01-040-M 11/28/01
UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Kenneth Klinedinst,
Plaintiff
v. Civil N o . 01-040-M
Opinion N o . 2001 DNH 212
Tiger Drylac, U.S.A., Inc.,
Defendant
O R D E R
Plaintiff has sued his former employer under 42 U.S.C. §
2000e, et seq. (“Title VII”) and 29 U.S.C. § 623(a)(1), et seq.
(the Age Discrimination in Employment Act of 1967, hereinafter
“ADEA”), complaining of national-origin discrimination and age
discrimination. Before the court is defendant’s motion to compel
arbitration and stay the pending litigation (document n o . 1 1 ) , to
which plaintiff objects.
Factual Background
Plaintiff was employed as a salesman from December 1 , 1990
until his termination on November 1 , 1999. The relationship
between plaintiff and defendant was governed by an employment
agreement, executed in November 1990, which contained the
following provisions relevant to this case:
4 . The Employee shall comply with all standards
of performance, policies, rules, regulations and
manuals issued by Employer, receipt of which by the
Employee is hereby acknowledged (see Attachment 1 ) .
The Employee shall also comply with such future
Employer policies, rules, regulations, performance
standards and manuals as may be published or amended
from time to time.
1 1 . This Agreement and the rights and obligations
of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of
the State of California. Furthermore, in the event
that any proceeding is instituted to interpret or
enforce any term hereof such proceeding shall take
place in the West District of the County of San
Bernadino.
1 2 . All disputes arising out of this Agreement,
including disputes arising from the termination of
employment by Employer, shall be submitted to binding
arbitration in accordance with the rules of the
American Arbitration Association and within Western San
Bernadino County before a panel of three arbitrators
chosen in accordance with such rules. The arbitrators
shall be bound by the laws of the State of California
to the same extent provided in Paragraph 11 of this
Agreement. The award of the arbitrators shall be final
and binding upon all of the parties hereto and judgment
upon the award may be entered in any court of competent
jurisdiction.
1 3 . Employer may, without submitting to
arbitration as provided in Paragraph 12 of this
Agreement, seek and obtain from any court of competent
2
jurisdiction a preliminary and/or permanent injunction
with respect to any of the matters covered in this
Agreement.
1 4 . It is the desire and intent of the parties
that the terms, provisions, covenants and remedies
contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term,
provision, covenant or remedy of this Agreement or the
application thereof to any person or circumstance
shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term,
provision, covenant or remedy shall be construed in a
manner so as to permit its enforceability under the
applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement
or the application thereof to any person or
circumstance other than those to which they have been
held invalid or unenforceable, shall remain in full
force and effect.
1 5 . The failure to insist upon strict compliance
with any of the terms, covenants or conditions of this
Agreement shall not be deemed a waiver of such terms,
covenants or conditions, and the waiver or
relinquishment of any right or power under this
Agreement at any one or more times shall not be deemed
a waiver or relinquishment of such right or power at
any other time or times.
1 8 . This instrument contains the entire Agreement
between the parties with respect to the subject matter
hereof. It may not be changed orally but only by
agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or
discharge is sought.
3
(Mot. to Compel Arb., Ex. 1 (hereinafter “Tryon Aff.”) Ex. A at
2 , 7-9 (Bates stamp K0048, K0053-55).)
The National Rules for the Resolution of Employment Disputes
(Including Mediation and Arbitration Rules) used by the American
Arbitration Association (“AAA”), as amended and effective on
January 1 , 2001,1 include the following relevant provisions:
34. The Award
d. The arbitrator may grant any remedy or relief that
the arbitrator deems just and equitable, including any
remedy or relief that would have been available to the
parties had the matter been heard in court. The
arbitrator shall, in the award, assess arbitration
fees, expenses, and compensation as provided in
Sections 3 8 , 3 9 , and 40 in favor of any party and, in
the event that any administrative fees or expenses are
due the AAA, in favor of the AAA.
e . The arbitrator shall have the authority to provide
for the reimbursement of representative’s fees, in
1
These appear to be the rules cited in ¶ 12 of the
employment agreement. While the parties have submitted slightly
different versions of these rules, or parts thereof (plaintiff’s
fragmentary version is dated June 1 3 , 2001; defendant’s complete
version, from the same web site, is dated October 1 , 2001), there
seem to be no material differences between the two, and neither
party disputes the validity of the version submitted by the
other.
4
whole or in part, as part of the remedy, in accordance
with applicable law.
38. Administrative Fees
As a not-for-profit organization, the AAA shall
prescribe filing and other administrative fees to
compensate it for the cost of providing administrative
services. The AAA administrative fee schedule in
effect at the time the demand for arbitration or
submission agreement is received shall be applicable.
The filing fee shall be advanced by the initiating
party or parties, subject to final apportionment by the
arbitrator in the award.
The AAA may, in the event of extreme hardship on any
party, defer or reduce the administrative fees.
39. Expenses
Unless otherwise agreed by the parties, the expenses of
witnesses for either side shall be borne by the party
producing such witnesses. All expenses of the
arbitration, including required travel and other
expenses of the arbitrator, AAA representatives, and
any witness and the costs relating to any proof
produced at the direction of the arbitrator, shall be
borne equally by the parties, unless they agree
otherwise or unless the arbitrator directs otherwise in
the award.
The arbitrator’s compensation shall be borne equally by
the parties unless they agree otherwise, or unless the
law provides otherwise.
(Def.’s Reply Brief, Ex. B at 14-15 of 21.) The AAA rules also
provide that “[u]nless the parties agree otherwise, arbitrator
5
compensation and administrative fees are subject to allocation by
the arbitrator in the award.” (Id. at 16 of 21.) According to
the AAA rules, the filing fee for a case before a three-
arbitrator panel is $1,500 and the hearing fee is $250 per party
per day. (Id. at 16 of 21.)
On April 3 0 , 1999, plaintiff executed the “Acknowledgement
of Receipt” section of an employment handbook promulgated by
defendant. (Pl.’s Mem. Supp. O b j . to Mot. to Compel Arb., Ex. B
at 3 (Bates stamp K0039).) Portions of that handbook relevant to
this case provide as follows:
1001 Introductory Statement
This Employee Handbook sets forth the policies of
employment of all full- and part-time employees, and
supervisors. Individual written employment contracts
may supersede some of the provisions of this handbook.
This Handbook contains the policies and practices in
effect at the time of publication. All previously
issued handbooks and any inconsistent policy or benefit
statements or memoranda are superseded.
1002 Integration Clause and the Right to Revise
This employee handbook contains the employment policies
and practices of the Company in effect at the time of
publication. All previously issued handbooks and any
6
inconsistent policy statements or memoranda are
superseded.
. . .
Nothing in this employee handbook, or in any other
personnel document, including benefit plan
descriptions, creates or is intended to create a
contract or obligation to any employee.
1003 Acknowledgement of Receipt
I have received my copy of the Company’s employee
handbook. I understand and agree that it is my
responsibility to read and familiarize myself with the
policies and procedures contained in the handbook.
I understand that except for employment the Company can
change at-will status, any and all policies or
practices at any time for any reason. The Company
reserves the right to change my hours, wages and
working conditions at any time.
I understand and agree that nothing in the employee
handbook creates or is intended to create a promise or
representation of continued employment and that
employment at the Company is employment at-will;
employment may be terminated at the will of either the
Company or myself. My signature below certifies that I
have read and understood the agreement.
/s/
(Id. at 2-3.) Section 1005 of the employee handbook is titled
“Equal Employment Opportunity,” and describes: (1) how an
applicant or employee with a disability may request an
accommodation; and (2) defendant’s procedure for investigating
and remedying unlawful workplace discrimination. (Id. at 4
(Bates stamp K0021).) Section 1006 of the handbook is titled
7
“Unlawful Sexual Harassment and all other Forms of Unlawful
Harassment.” That section concludes with the following
paragraph:
The Company encourages all employees to report any
incidents of harassment forbidden by this policy
immediately so that complaints can be quickly and
fairly resolved. If you think you have been harassed
or that you have been retaliated against for resisting
or complaining of such, you may file a complaint with
the appropriate agency. The nearest office is listed
in the telephone book.
(Id. at 5 (Bates stamp K0022).)
As noted, defendant terminated plaintiff’s employment on
November 1 , 1999. Believing that his termination, as well as
some of defendant’s conduct toward him prior to his termination,
constituted unlawful discrimination based upon his age and
national origin, plaintiff filed a complaint with the New
Hampshire Commission for Human Rights (“HRC”) on April 2 4 , 2000.
He received a “Right to Sue” letter on November 2 0 , 2000.
(Compl. ¶ 5.)
This suit, alleging violations of Title VII and the ADEA,
was initiated by complaint dated January 2 9 , 2001 and filed on
8
January 3 1 , 2001 (document n o . 1 ) . Defendant filed an answer and
affirmative defenses on April 23 (document n o . 7 ) , and on May 1 1 ,
the parties submitted a joint discovery plan, which was approved
and adopted as a pretrial scheduling order on May 14 (document
no. 8 ) . The parties also jointly submitted a Stipulated
Protective Order (document n o . 10) which became an order of the
court on June 1 5 , 2001. Trial is set for the two-week period
beginning June 4 , 2002.
On June 6, defendant served interrogatories and requests for
production of documents on plaintiff. (Tryon Aff. ¶ 3.)
Plaintiff responded in due course. One of the documents produced
by plaintiff was an executed copy of his employment agreement
with defendant. (Id. ¶ 7.) Defendant filed its motion to compel
arbitration on August 3 1 .
As for the costs he has incurred litigating this matter
before the HRC, the EEOC, and this court, plaintiff claims out-
of-pocket expenses of approximately $3,500. (Pl.’s Surreply, Ex.
C . (Klinedinst Aff.) ¶ 11.) He argues that, with an annual
income of approximately $23,000 (id. ¶¶ 6 - 7 ) , he would not be
9
able to meet his monthly financial obligations if he were forced
to incur the costs of arbitrating this case under AAA rules, in
San Bernadino, California (id. ¶ 1 6 ) .
Discussion
Defendant bases its motion to compel arbitration on: ¶ 12 of
the Employment Agreement, § 2 of the Federal Arbitration Act
(“FAA”), (9 U.S.C. § 1 , et s e q . ) , and the United States Supreme
Court’s recent decision in Circuit City Stores, Inc. v . Adams,
121 S.Ct. 1302 (2001) (resolving split among the circuits and
holding that the FAA applies to all employment contracts except
those of transportation workers). Plaintiff objects on grounds
that: (1) the arbitration clause in his 1990 employment agreement
was abrogated by the 1999 employee handbook; (2) defendant waived
application of the arbitration clause by participating in the
litigation of plaintiff’s HRC complaint and this suit; (3) the
arbitration clause is invalid because it does not give plaintiff
adequate notice that his federal statutory claims are subject to
arbitration; (4) the arbitration clause is invalid because it
strips plaintiff of important statutory rights; and (5) the
10
arbitration clause is unenforceable because the arbitral forum is
inaccessible to plaintiff.
The enforceability of contractual arbitration clauses is
governed by the FAA, which provides, in pertinent part:
A written provision in . . . a contract evidencing
a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of
such contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any
contract.
9 U.S.C. § 2. 2 “When deciding whether the parties agreed to
arbitrate a certain matter . . . , courts generally . . . should
apply ordinary state-law principles that govern the formation of
contracts.” First Options of Chicago, Inc. v . Kaplan,
514 U.S.
938, 944 (1995) (citations omitted); see also KKW Enters., Inc.
v . Gloria Jean’s Gourmet Coffees Franchising Corp,
184 F.3d 4 2 ,
50 (1st Cir. 1999) (quoting Doctor’s Assocs., Inc. v . Casarotto,
517 U.S. 6 8 1 , 687 (1996) (Only “generally applicable contract
defenses, such as fraud, duress or unconscionability, may be
2
This provision applies to all employment agreements except
those of transportation workers. See Circuit City, 121 S . C t . at
1311 (construing 9 U.S.C. § 1 ) .
11
applied to invalidate arbitration agreements without contravening
§ 2 [of the FAA])); Rosenberg v . Merrill, Lynch, Pierce, Fenner &
Smith, Inc., 170 F.3d 1 , 19 (1st Cir. 1999) (citations omitted).
Furthermore:
If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable to
arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under
such an agreement, shall on application of one of the
parties stay the trial of the action until such
arbitration has been had in accordance with the terms
of the agreement, providing the applicant for the stay
is not in default in proceeding with such arbitration.
9 U.S.C. § 3 . Finally:
A party aggrieved by the alleged failure, neglect,
or refusal of another to arbitrate under a written
agreement for arbitration may petition any United
States district court which, save for such agreement,
would have jurisdiction under Title 2 8 , in a civil
action or in admiralty of the subject matter of a suit
arising out of the controversy between the parties, for
an order directing that such arbitration proceed in the
manner provided for in such agreement. . . .
9 U.S.C. § 4 . As a general matter,
courts are consistently mindful of the strong federal
policy favoring arbitration. The Supreme Court has
stated that any doubt concerning arbitrability “should
12
be resolved in favor of arbitration, whether the
problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a
like defense to arbitrability.” Moses H. Cone Mem’l
Hosp. v . Mercury Constr. Corp., 460 U.S. 1 , 25 (1983).
Creative Solutions Group, Inc. v . Pentzer Corp.,
252 F.3d 2 8 , 32
(1st Cir. 2001) (parallel citations omitted). In other words,
“[t]he FAA creates a presumption in favor of arbitrability . . .
.” Paladino v . Avnet Computer Techs., Inc.,
134 F.3d 1054, 1057
(11th Cir. 1998) (citing First Options,
514 U.S. at 9 4 5 ) . In
light of these basic rules and presumptions, the court now turns
to plaintiff’s objections to defendant’s motion to compel
arbitration.
I. Abrogation of the Employment Agreement by the Handbook
Plaintiff first argues that the arbitration clause in his
1990 employment agreement was abrogated by the 1999 employee
handbook. But, the employment agreement was negotiated between
plaintiff and defendant, while the employee handbook was not the
subject of negotiation, and plainly stated that i t : (1) was not
intended to create a contract with or obligation to any employee;
but (2) was intended to be superseded, in part, by individual
written employment agreements. Thus, in the event of conflict
13
between a provision in the handbook and a provision in a written
employment agreement, the employment agreement controls. Here,
however, there is no conflict between the two documents.
The employment agreement requires arbitration of all
disputes, while the handbook acknowledges that harassment claims
may also be filed with an appropriate agency. If plaintiff had
filed a harassment claim with HRC, then perhaps his argument for
abrogation of the arbitration clause would have merit, but
because plaintiff’s underlying claim does not allege harassment,
there is no conflict between the handbook and the employment
agreement.3 In sum, there is simply no basis for plaintiff’s
claim that the 1999 employee handbook abrogated the arbitration
clause in his employment agreement.
3
While it is plainly the case that sexual harassment is a
form of discrimination for purposes of Title V I I , see Clark
County Sch. Dist. v . Breeden, 121 S . C t . 1508, 1509 (2001)
(citations omitted), it does not follow that all discrimination
involves harassment. If defendant had intended to allow
employees to file all discrimination claims, rather than just
harassment claims, with “the appropriate agency,” it could easily
have said so in the Equal Employment Opportunity section of the
handbook (§ 1005), but it did not. Rather, under the only
reasonable reading of §§ 1005 and 1006 of the handbook, defendant
abrogated the arbitration clause with respect to discrimination
claims alleging harassment but no others.
14
II. Waiver of the Arbitration Clause
The court rejects, as well, plaintiff’s claim that defendant
waived the arbitration clause. In light of “the strong federal
policy favoring arbitration,” Creative Solutions, 252 F.3d at 3 2 ,
“[w]aiver is not to be lightly inferred, and mere delay in
seeking [arbitration] without some resultant prejudice to a party
cannot carry the day.” Id. (quoting Page v . Moseley, Hallgarten,
Estabrook & Weeden, Inc., 806 F.2d 291, 293 (1st Cir. 1986)). As
for when waiver may be inferred:
This Circuit has laid down a set of factors to guide
the determination of whether a waiver has occurred:
In determining whether a party to an arbitration
agreement, usually a defendant, has waived its
arbitration right, federal courts typically have
looked to whether the party has actually
participated in the lawsuit or has taken other
action inconsistent with his right, . . . whether
the litigation machinery has been substantially
invoked and the parties were well into preparation
of a lawsuit by the time an intention to arbitrate
was communicated by the defendant to the
plaintiff, . . . whether there has been a long
delay in seeking the stay or whether the
enforcement of arbitration was brought up when
trial was near at hand. . . .
Other relevant factors are whether the defendants
have invoked the jurisdiction of the court by
filing a counterclaim without asking for a stay of
the proceedings, . . . whether important
intervening steps (e.g., taking advantage of
15
judicial discovery procedures not available in
arbitration . . . ) had taken place, . . . and
whether the other party was affected, misled, or
prejudiced by the delay . . . .
Jones Motor Co., Inc. v . Chauffeurs, Teamsters, and
Helpers Local Union No. 633, 671 F.2d 3 8 , 44 (1st Cir.
1982) (quoting Reid Burton Constr. Inc. v . Carpenters
Dist. Council, 614 F.2d 698, 702 (10th Cir. 1980)).
Creative Solutions, 252 F.3d at 32-33 (alterations in the
original).
In Creative Solutions, the court of appeals reversed the
district court’s decision to deny a motion to compel arbitration
and stay proceedings because, inter alia: (1) the defendant
“initiated no formal discovery,” id. at 3 3 ; (2) the defendant
engaged in no litigation activities other than moving to dismiss,
in response to the complaint, id.; (3) the defendant took no
“other steps inconsistent with its right to arbitration,” id.
(quoting Williams v . Cigna Fin. Advisors, Inc., 56 F.3d 656, 661-
62 (5th Cir. 1995) (holding that removal to federal court, filing
motion to dismiss and to stay discovery and answer to complaint
including compulsory counterclaim, and exchanging Rule 26
discovery did not substantially invoke judicial process)); and
(4) the plaintiffs failed to demonstrate any prejudice resulting
16
from defendant’s failure to invoke the relevant arbitration
clause earlier. Id. at 3 4 .
In Page, the plaintiffs filed their complaint on March 1 5 ,
1984. Page, 806 F.2d at 294. “Discovery was completed on
November 7 , 1984.”
Id. The defendants filed a motion to compel
arbitration on March 2 9 , 1995, approximately twelve months after
plaintiffs filed their complaint, but only three and one half
weeks after a United States Supreme Court opinion that, in the
defendants’ view, signaled a change in the law governing the
arbitrability of the plaintiffs’ claim.
Id. The district court
required nine months to rule on the defendants’ motion,
ultimately denying it seventy-two hours before trial.
Id. The
defendants appealed, and the court of appeals ruled that because
the plaintiffs could show no prejudice from being compelled to
arbitrate, the defendants had not waived their right to invoke
the arbitration clause.
Id. at 294-95. In reaching that result,
the court of appeals: (1) discounted plaintiffs’ claim of
prejudice arising from having prepared for trial, noting that
defendants filed their motion nine months before trial (charging
the district court rather than defendants with responsibility for
17
the delay), id. at 294 n.3; and (2) noted plaintiffs’ stipulation
that they were not prejudiced by having to engage in discovery,
id.
In Jones Motor Co., where the dispute concerned the legality
of a strike called by the defendant against the plaintiff, the
court of appeals reversed the district court’s sua sponte
decision to enforce the arbitration clause in the parties’
collective bargaining agreement. Jones Motor Co., 671 F.2d at
44. When the district court dismissed the case, defendant had
already answered plaintiff’s complaint, discovery had been
completed, and both sides had moved for summary judgment.
Id. at
41-42. The plaintiff moved unsuccessfully for reconsideration,
id. at 4 1 , and then appealed, arguing, inter alia, that “the
district court erred in finding that there was no waiver by the
[defendant] of its right to insist on arbitration,”
id. The
court of appeals agreed:
Applying those standards [quoted on pages 12 and
1 3 , supra] here, the facts establish a waiver. The
Local [defendant] was tardier in “raising” its
arbitration defenses than were the defendants in [E.T.]
Simonds [Constr. C o . v . Local 1330, Int’l Hod
Carriers, 315 F.2d 291 (7th Cir. 1963)], [Bath Ma rine
Draftsmen’s Ass’n v.] Bath Iron Works [Corp., 266 F.
18
Supp. 710 (D. M e . 1967), aff’d with modifications, 393
F.2d 407 (1st Cir. 1968)], or Reid Burton [Constr.,
Inc. v . Carpenters Dist. Council, 535 F.2d 598 (10th
Cir. 1976)]. Indeed, the Local did more than simply
acquiesce in the jurisdiction of the court here; it
engaged in considerable discovery; it prepared the case
for summary judgment; and it waited until after the
district court had decided that issue before it decided
to advocate the propriety of arbitration. Thus, the
Local was ready to accept the determination of the
district court on the merits, actually moving the court
to find summarily for i t . It took actions inconsistent
with its now-asserted right, delaying the enforcement
of arbitration, and affecting, misleading, or
prejudicing the Company [plaintiff] by its delay. We
therefore hold that in this case the court should have
considered the merits of the underlying dispute.
Jones Motor Co., 671 F.2d at 44.s
The facts of this case place it somewhere on the continuum
formed by Creative Solutions, Page, and Jones Motor C o .
Defendant made a discovery request to which plaintiff responded,
but plaintiff does not claim, nor does the record suggest, that
discovery is nearly complete. Thus, defendant has undertaken
less discovery than the defendants in Page, where the court of
appeals ruled that defendants had not waived their right to
enforce the arbitration clause. And, unlike the defendant in
Jones Motor Co., defendant here has not moved for a decision on
the merits. Furthermore, while plaintiff seems to suggest that
19
he has been prejudiced by having to prepare his HRC/EEOC, case as
well as for the early stages of this litigation, he does not
claim that that preparation is without value in preparing for
arbitration.
The facts here present a somewhat close question on the
issue of waiver, but the court is persuaded that defendant has
not waived its right to invoke the arbitration clause in its
agreement with plaintiff. The strong – and seemingly
strengthening – federal policy favoring arbitration, see Creative
Solutions, 252 F.3d at 3 2 , and the following facts militate in
favor of that conclusion: (1) the parties have not yet completed
discovery; (2) defendant filed its motion to compel arbitration
approximately nine months before the scheduled trial date; (3)
defendant has filed no dispositive motions; and (4) the
employment agreement between the parties specifies that failure
to insist upon strict compliance with any term of the agreement
is not to be construed as a waiver of that term.
Finally, while plaintiff frames the waiver issue in terms of
the inequity of permitting defendant to sit back silently while
20
he pursued his HRC/EEOC action and initiated this suit, thus
“springing” arbitration on him relatively late in the game, it
would be equally inequitable – if not more so – to permit
plaintiff to pursue this litigation in clear violation of the
arbitration agreement he made. See Rosenberg v . Merrill, Lynch,
Pierce, Fenner & Smith, Inc., 170 F.3d 1 , 21 n.17 (1st Cir. 1999)
(citing Tiffany v . Sturbridge Camping Club, Inc.,
587 N.E.2d 2 3 8 ,
240 n.5 (Mass. C t . App. 1992)) for the “traditional rule of
contract law that a party to a contract is assumed to have read
and understood the terms of a contract [he or] she signs.”).
Given plaintiff’s (or his counsel’s) knowing disregard of the
arbitration clause, and given the strong federal policy favoring
such arbitration, see Creative Solutions, 252 F.3d at 3 2 , it is
not unfair for plaintiff rather than defendant to bear the
consequences – and costs – of his decision to proceed before the
HRC/EEOC and this court, rather than demanding arbitration, as
required by his employment contract. Accordingly, the court
finds that despite its delay in calling for arbitration,
defendant has not quite waived its contractual right to do s o .
21
III. Notice of Arbitration of Federal Statutory Claims
Plaintiff next argues that the arbitration clause in his
employment contract is invalid because it did not provide
sufficient notice that he was waiving his right to a jury trial
of any federal statutory claims that might arise during the
course of his employment. The court does not agree.
In Rosenberg, a case in which the defendant/employer sought
to compel arbitration of its employee’s Title VII and ADEA
claims, under the terms of an arbitration clause in an employment
agreement, the court of appeals held that as a prerequisite to
enforcement of the arbitration clause, “there [must] be some
minimum level of notice to the employee that statutory claims are
subject to arbitration.” Rosenberg, 170 F.3d at 21 (footnote
omitted). Plaintiff in this case had notice sufficient to
satisfy the Rosenberg rule.
The plaintiff in Rosenberg was subject to an employment
agreement that required arbitration of “any dispute, claim or
controversy that may arise between me and my firm . . . that is
required to be arbitrated under the rules, constitutions, or by-
22
laws of the organizations indicated in Item 10 as may be amended
from time to time . . .” Id. at 4 (quoting the so-called “U-4
Form”). The court declined to enforce the arbitration clause in
the U-4 Form because, inter alia, defendant never provided
plaintiff with copies of the rules, constitutions, or by-laws
under which arbitration was required,
id. at 2 0 , and falsely
certified that it had done s o ,
id. In reaching its decision, the
court explained:
Had the U-4 provided for arbitration of all disputes,
or given explicit notice that employment disputes were
subject to arbitration, we would have had little
difficulty in finding that [plaintiff] Rosenberg had
agreed to arbitrate her employment discrimination
claims within the meaning of the 1991 CRA.
Id. at 18 (emphasis in the original). 4 Here, the employment
agreement provided for arbitration of “[a]ll disputes arising out
of this Agreement, including disputes arising from the
termination of employment by Employer . . .” (Pl.’s Mem. Supp.
O b j . to Mot. to Compel Arb., Ex. A . at 7 (emphasis added).)
Under the Rosenberg rule, plaintiff’s employment agreement
4
The court in Rosenberg also explained, in a footnote, that
“[i]f Merrill Lynch had provided the rules to Rosenberg but she
did not read them, that would not save her [from arbitration.]”
Id. at 21 n.17 (citing Tiffany, 587 N.E.2d at 240 n . 5 ) .
23
adequately informed him that statutory claims related to his
employment were subject to arbitration because it informed him,
expressly, that all disputes arising from his employment were
subject to arbitration. The phrase “all disputes” necessarily
includes disputes over statutorily conferred rights.
IV. Surrender of Important Statutory Rights
Plaintiff further argues that the arbitration clause is
invalid because it strips him of an important statutory right,
namely his right to the remedies provided by Title VII and the
ADEA, which include punitive damages (Title V I I ) , liquidated
damages (the ADEA), and attorney’s fees (both statutes).
Plaintiff’s argument, however, misapprehends the relevant portion
of his employment agreement.
According to ¶ 1 1 , the agreement itself “and the rights and
obligations of the parties hereunder shall be governed in
accordance with the laws of the State of California.” (Tryon
Aff., Ex. A at 7 (Bates stamp K0053).) And according to ¶ 1 2 ,
the arbitrators hearing any dispute referred to them “shall be
24
bound by the laws of the State of California to the same extent
provided in Paragraph 11.” (Id.)
Those provisions, unlike the contract language at issue in
Graham Oil C o . v . ARCO Products Co., a Division of Atlantic
Richfield Co., 43 F.3d 1244 (9th Cir. 1994), do not operate to
deprive plaintiff of any statutory rights. In Graham Oil, the
Ninth Circuit struck down an arbitration clause because it
expressly denied plaintiff the benefit of certain rights to which
it was entitled under the federal Petroleum Marketing Practices
Act (“PMPA”), such as exemplary damages, attorney’s fees, and a
one-year statute of limitations.
Id. at 1247-48. In other
words, the court declined to enforce the arbitration clause
because it contravened the PMPA.
Id. at 4 8 .
Here, by contrast, the arbitration clause does not
contradict either Title VII or the ADEA. Rather, it simply
provides that California law shall apply in: (1) deciding all
employment related disputes between the parties arising under the
contract; and (2) governing the work of the arbitrators who may
decide any such disputes. No part of the employment agreement,
25
including the forum selection and choice of law provisions,
purport to limit the remedies available to plaintiff in an
arbitration proceeding, and no part of the employment agreement
bars plaintiff from submitting his federal Title VII and ADEA
claims to arbitration. All the employment agreement precludes is
application of the law of any state other than California to
resolve whatever state-law questions might arise between the
parties. Because the use of California law to decide those
state-law questions has no bearing on the remedies an arbitrator
might award plaintiff if he succeeds on his Title VII and ADEA
claims, the court finds that the arbitration clause does not
require him to “forgo the substantive rights afforded by [Title
VII and the ADEA]; [but only requires him to] . . . submit[] to
their resolution in an arbitral, rather than a judicial forum.”
Gilmer v . Interstate/Johnson Lane Corp., 500 U.S. 2 0 , 26 (1991)
(quoting Mitsubishi Motors Corp. v . Soler Chrysler-Plymouth,
Inc.,
473 U.S. 614, 628 (1985)). 5 As to the arbitration remedies
5
For plaintiff’s argument on this point to have merit, he
would have to maintain that there is some aspect of California
law that operates to bar plaintiff from maintaining his claims
under Title VII and the ADEA. But because plaintiff has made no
such argument, and because such a position is unsupportable in
the face of Graham Oil, the court cannot agree that the
employment agreement in this case requires plaintiff to give up
any of his statutory rights.
26
available to plaintiff, the AAA Rules specify that the range of
remedies available to an arbitrator is at least co-extensive with
the range of remedies available in court, and that the arbitrator
may award the reimbursement of representative’s fees as a part of
the remedy. (See Def.’s Reply Brief, Ex. B at 14 of 21.)
V. Inaccessibility of the Arbitral Forum
Finally, plaintiff contends that the arbitration clause is
unenforceable because the arbitral forum is inaccessible to him.
Specifically, he argues that three factors make the arbitral
forum inaccessible: (1) high administrative fees associated with
arbitration; (2) high costs of the arbitrator; and (3) the
requirement that arbitration be conducted in San Bernadino,
California, which entails significant travel costs as well as the
cost of retaining California counsel. Defendant counters that
plaintiff has failed to carry his burden of showing that: (1) he
is likely to incur the expenses he claims to be prohibitive; (2)
the costs of arbitration would be greater than the costs of
litigation; and (3) that he is unable to pay the costs of
arbitration. Defendant further counters that the location of
arbitration in California presents no obstacle to enforcing the
27
arbitration clause because plaintiff knew that defendant was a
California corporation when he agreed to work for it and
voluntarily agreed to the forum selection clause he now seeks to
avoid.
As a starting point, the court notes that “Gilmer, and the
cases upon which it relies, make clear that whether a federal
statutory claim can be subjected to compulsory arbitration
depends upon whether the particular arbitral forum involved
provides an adequate substitute for a judicial forum in
protecting the particular statutory right at issue.” Bradford v .
Rockwell Semiconductor Sys., Inc., 238 F.3d 549, 555 (4th Cir.
2001) (quoting Williams v . Cigna Fin. Advisors, Inc.,
197 F.3d
752, 763 (5th Cir. 1999)). Plainly, the question of cost to the
plaintiff enters into the determination of whether an arbitral
forum is an adequate substitute for a judicial forum. See Green
Tree Fin. Corp. - Ala. v . Randolph, 121 S . C t . 513, 522 (2000)
(“the existence of large arbitration costs could preclude a
litigant . . . from effectively vindicating [his or] her federal
statutory rights in the arbitral forum”); Bradford,
238 F.3d at
554; Shankle v . B-G Maint. Mgmt. of Colo., Inc.,
163 F.3d 1230,
28
1234 n.3. (10th Cir. 1999). Furthermore, the Supreme Court has
held that where “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.” Green Tree, 121 S . C t . at 522.
While acknowledging that “the existence of large arbitration
costs could preclude a litigant . . . from effectively
vindicating [his or] her federal statutory rights in the arbitral
forum,” id., the Court in Green Tree did not offer any specific
guidance as to how a party might bear its burden of proof
because, in that case, the party seeking to avoid the arbitration
clause provided “hardly any information” on the question of the
costs she was faced with as a result of pursuing arbitration,
leaving the Court to conclude that “[t]he ‘risk’ that [she] will
be saddled with prohibitive costs is too speculative to justify
the invalidation of an arbitration agreement,”
id. Neither the
Supreme Court not the First Circuit has mandated a specific test
for deciding when, and under what circumstances, an arbitration
clause in an employment agreement is unenforceable because the
costs of arbitration render the arbitral forum an inadequate
29
substitute for a judicial forum.6 In the absence of explicit
guidance from the Supreme Court, other circuits have developed
two approaches: a per se rule and case-by-case analysis.
In an opinion pre-dating Green Tree, and relied upon heavily
by plaintiff, the D.C. Circuit established a per se rule against
arbitration agreements that require an employee to pay any
portion of an arbitrator’s fees and expenses. See Cole v . Burns
6
Questions as to the enforceability of an arbitration
agreement are to be decided under state law, when those questions
involve traditional contract defenses such as fraud, duress, and
unconscionability. See 9 U.S.C. § 2 ; Dobbins v . Hawk’s Enters.,
198 F.3d 715, 717 (8th Cir. 1999) (collecting cases recognizing
“the potential that arbitration fees will make an arbitration
agreement unconscionable” and explaining that “whether or not
arbitration fees make the agreement to arbitrate unconscionable
is something that must be determined on a case-by-case basis in
light of the state law governing unconscionability”). Here,
however, plaintiff does not claim that the employment agreement
or the arbitration clause are unconscionable, which would require
a finding of “unfair surprise and oppression,” Doctor’s Assocs.,
Inc. v . Stuart,
85 F.3d 975, 980 (2d Cir. 1996) (citations
omitted), and because plaintiff has not raised that state-law
contract defense, the court considers it to be forfeited, see
Doctor’s Assocs., Inc. v . Hamilton,
150 F.3d 157, 164 (2nd Cir.
1998) (ruling that defendant had waived objection to arbitration
based upon unconscionability because, inter alia, “[he] failed to
bring New Jersey law on unconscionability to the attention of the
district court . . . ” ) . Rather, the question before the court –
whether the arbitral forum is an adequate substitute for a
judicial forum – appears to be a question of federal common law.
See Hamilton,
150 F.3d at 162-63 (quoting Perry v . Thomas,
482
U.S. 483, 492 n.9 (1987)).
30
Int’l Sec. Servs., 105 F.3d 1465, 1485 (D.C. Cir. 1997); see also
Bradford,
238 F.3d at 554 (interpreting Cole). 7 Like this case,
Cole involved a contractual arbitration clause that called for
arbitration in accordance with the rules of the American
Arbitration Association. However, the AAA rules in Cole, unlike
the AAA rules at issue here, were silent as to the allocation of
arbitrators’ fees. Cole,
105 F.3d at 1485. Given that silence,
the court found “the arbitration agreement . . . [to be] valid
and enforceable . . . [and the court] interpret[ed] the
agreement as requiring Burns Security [the defendant/employer] to
pay all of the arbitrator’s fees necessary for a full and fair
resolution of Cole’s statutory claims.” Id.8
7
The court of appeals in Cole also held that “[t]here is no
doubt that parties appearing in federal court may be required to
assume the cost of filing fees and other administrative expenses,
so any reasonable costs of this sort that accompany arbitration
are not problematic,” 105 F.3d at 1484 (footnote omitted), and
went on to “assume, for purposes of this case, that employees who
would qualify for in forma pauperis status in the federal courts
will similarly qualify for a waiver of fees under the AAA Rules,”
id. at 1484 n.12.
8
At page 10 of his Memorandum of Law Supporting Objection
to Defendant’s Motion to Compel Arbitration, plaintiff states
that the court in Cole did not enforce the arbitration clause.
That is incorrect. The court found “that the disputed
arbitration agreement is legally valid,” id. at 1483, and
enforced i t , by ordering arbitration, with the proviso that the
defendant/employer “pay all arbitrators’ fees in connection with
the resolution of [plaintiff] Cole’s claims,”
id. at 1486. Thus,
31
Cole, however, is unpersuasive for at least two reasons.
First, it appears to be the only decision advocating a per se
rule against arbitration clauses in employment agreements that
require an employee to pay part of the arbitrator’s fee. Second,
Cole predates the Supreme Court’s decision in Green Tree, which
also involved an arbitration clause that said “nothing about the
costs of arbitration.” Green Tree, 121 S . C t . at 521. While
the Supreme Court could have adopted Cole’s approach, it did not,
ruling instead that a party seeking to invalidate an arbitration
clause bears the burden of proving the likelihood of incurring
such costs. Id. at 522. The opinion in Green Tree supports a
case-by-case approach rather than the per se rule of Cole. See
Bradford, 238 F.3d at 556 (relying upon Green Tree as authority
for adopting a case-by-case approach rather than the per se rule
of Cole). Accordingly, the court declines to apply a per se
rule.
if this court were to render a decision in plaintiff’s favor,
based upon Cole, it would grant defendant’s motion, and order
arbitration, with the proviso that plaintiff could petition the
AAA for a waiver of administrative fees and that defendant pay
the arbitrator’s fees.
32
A number of cases, both pre- and post-dating Green Tree,
adopt a case-by-case approach in deciding whether the costs of
arbitration render an arbitral forum an inadequate substitute for
a judicial forum. In Shankle, the Tenth Circuit addressed the
question: “Is a mandatory arbitration agreement, which is entered
into as a condition of continued employment, and which requires
an employee to pay a portion of the arbitrator’s fees,
unenforceable under the Federal Arbitration Act?” Shankle, 163
F.3d at 1233. Following the rule stated in Cole, the court
decided that such an agreement was unenforceable, but because the
agreement in Shankle, unlike the one in Cole, was not silent
regarding allocation of arbitrator’s fees but instead specified
that they would be shared equally by the employer and the
employee,
id. at 1232, the court could not reach the same result
as in Cole. Rather than ordering arbitration, with all
arbitrator’s fees paid by the employer, see Cole,
105 F.3d at
1485, the court in Shankle found the arbitration clause to be
unenforceable because it required the employee to pay a part of
the arbitrator’s costs and fees, and ordered the plaintiff’s case
to proceed in the district court. Notably, however, the court in
Shankle did not decide that the arbitration agreement was
33
unenforceable per s e , but instead, based its decision on the
following findings:
Assuming Mr. Shankle’s arbitration would have lasted an
average length of time, he would have had to pay an
arbitrator between $1,875 and $5,000 to resolve his
claims. Mr. Shankle could not afford such a fee, and
it is unlikely other similarly situated employees could
either.
163 F.3d at 1234-35 (footnote omitted).
In Williams, the plaintiff/employee challenged an
arbitrator’s award which included, inter alia, a requirement that
“he pay $3,150 as his one-half share of the forum fees,”
Williams, 197 F.3d at 763, claiming that such an award was
against public policy,
id. The arbitration agreement in Williams
required the party filing an arbitration claim “to pay a non-
refundable filing fee and a hearing session deposit,”
id. at 7 6 4 ,
but left it to the arbitrators to “determine the amount
chargeable to the parties as forum fees and [ ] determine who
shall pay such forum fees,”
id. (citation omitted). The court
took issue with Cole and Shankle, opining that “Gilmer does not
so clearly imply that no part of arbitral forum fees may ever be
assessed against federal anti-discrimination claimants, although
34
it plainly indicates that an arbitral cost allocation scheme may
not be used to prevent effective vindication of federal statutory
claims.” Williams, 197 F.3d at 763 (citing Gilmer, 500 U.S. at
28). Based upon its interpretation of Gilmer, and the
plaintiff’s failure to prove that he was “unable to pay one-half
of the forum fees or that they [were] prohibitively expensive for
him,” Williams,
197 F.3d at 7 6 4 , the court affirmed the decision
of the district court to uphold the arbitrator’s award,
id. at
765.
Finally, in a case that post-dates Green Tree, and upon
which plaintiff relies, the Fourth Circuit rejected the per se
rule of Cole in favor of an inquiry
that evaluates whether the arbitral forum in a
particular case is an adequate and accessible
substitute to litigation, i.e., a case-by-case analysis
that focuses, among other things, upon the claimant’s
ability to pay the arbitration fees and costs, the
expected cost differential between arbitration and
litigation in court, and whether that cost differential
is so substantial as to deter the bringing of claims.
Bradford, 238 F.3d at 556 (citing Williams,
197 F.3d at 764;
Rosenberg,
170 F.3d at 1 6 ; Shankle,
163 F.3d at 1235).
Furthermore:
35
Although the Cole court framed its concern with fee-splitting partially in terms of the fact that
arbitrators’ fees are “unlike anything that [a
claimant] would have to pay to pursue his statutory
claims in court” because a claimant normally “would be
free to pursue his claims in court without having to
pay for the services of a judge,” Cole, 105 F.3d at
1484-85, we believe that the proper inquiry under
Gilmer is not where the money goes but rather the
amount of money that ultimately will be paid by the
claimant. Indeed, we fail to see how a claimant could
be deterred from pursuing his statutory rights in
arbitration simply by the fact that his fees would be
paid to the arbitrator where the overall cost of
arbitration is otherwise equal to or less than the cost
of litigation in court.
Bradford, 238 F.3d at 557 (footnote omitted).
In Bradford – unlike this case – the arbitration agreement
signed by the employee mandated that the employer and the
employee were to “share equally the fees and costs of the
Arbitrator,” id. at 5 5 1 , and provided no mechanism by which those
fees and costs could be allocated, by the arbitrator or
otherwise, in any other way. However, because the plaintiff
“offered no evidence that he was unable to pay the $4,470.88 that
he was billed by the AAA, or that the fee-splitting provision
deterred him from pursuing his statutory claim or would have
deterred others similarly situated,”
id. at 558 (citing Williams,
36
197 F.3d at 7 6 4 ) , the court affirmed the district court’s grant
of summary judgment to the defendant/employer.
As noted above, this court favors the case-by-case approach
used in Shankle, Williams, and Bradford as well as the “overall
cost” analysis outlined in Bradford. Moreover, on the facts of
the case before i t , the court does not reach the same decision as
the court in Shankle.
In Shankle, the arbitration clause stated, in pertinent
part:
I will be responsible for one-half of the arbitrator’s
fees, and the company is responsible for the remaining
one-half. If I am unable to pay my share, the company
will advance the entirety of the arbitrator’s fees;
however, I will remain liable for my one-half.
Shankle, 163 F.3d at 1232. Here, by contrast, the arbitration
clause itself does not specify which party must bear the costs,
but refers to the rules of the AAA. And those rules specify
that: (1) filing fees are advanced by the party initiating
arbitration, subject to apportionment in the award (Def.’s Reply
Brief, Ex. B at 15 of 2 1 ) ; (2) administrative fees may be reduced
37
or waived in the case of hardship on any party (id.); and (3)
“[t]he arbitrator’s compensation shall be borne equally by the
parties . . . unless the law provides otherwise,” (id. (emphasis
added)).
Under the case-by-case approach of Shankle, Williams, and
Bradford, and the “overall cost” analysis advocated by Bradford,
plaintiff’s dispute is subject to the arbitration clause in his
employment agreement. Plaintiff may of course submit the
question of costs to the arbitrator. See, e.g., Great Western
Mort. Corp. v . Peacock, 110 F.3d 222, 230 (3d Cir. 1997) (“Once a
dispute is determined to be validly arbitrable, all other issues
are to be decided at arbitration.”) By the time the arbitrator
reaches the costs and fees issues, the record will obviously be
far less vague and speculative than it is now. Because the
arbitrator is empowered to allocate costs and fees associated
with arbitration, and, indeed, is obligated to do so in
accordance with the law, and because the federal common law
provides that plaintiff cannot be forced to submit to an
arbitration process that imposes costs that render the arbitral
forum less accessible than a judicial forum, plaintiff bears no
38
risk by proceeding to arbitration. Plaintiff faces no risk
because the arbitrator may not lawfully impose costs and fees
upon plaintiff that are in excess of the costs of litigation.9
In other words, while the “default setting” in the AAA Rules
calls for the parties to share the arbitrator’s fees equally,
applicable law pertinent to arbitrating federal statutory rights
comes into play and may provide for a different allocation of
costs and fees, which is indeed contemplated by the AAA Rules.
Defendant may end up paying the lion’s share of the costs and
fees associated with arbitration, under the rule of Gilmer, as
refined by Bradford. But defendant assumed the risk of doing so
by including an arbitration clause in the employment agreement it
negotiated with plaintiff.
Finally, the court notes that while administrative costs and
arbitrators’ fees and expenses may be used to calculate
plaintiff’s overall costs of arbitration, certain of plaintiff’s
costs should not be counted. Specifically, transportation costs
pertain solely to the location of arbitration in California, but
9
Should plaintiff believe, at the conclusion of
arbitration, that costs and fees have been allocated in manifest
disregard of the relevant law, he can always move, in federal
court, to vacate the award. See 9 U.S.C. ¶ 1 0 .
39
have nothing to do with the distinction between arbitration and
adjudication in court. Plaintiff knew at the time he signed his
employment agreement that the defendant was a California
corporation and that the arbitration clause specified that
arbitration was to take place in California. See Stuart, 85 F.3d
at 980 (finding arbitration clause requiring Illinois defendants
to travel out of state to arbitrate not to be unconscionable
because “[d]efendants were aware, based on the language of the
arbitration agreement, that they would have to travel to either
Florida or Connecticut if an arbitrable dispute arose”) (citing
Volt Info. Sciences, Inc. v . Board of Trustees of Leland Stanford
Junior Univ.,
489 U.S. 468, 476 (1989)). Accordingly,
plaintiff’s transportation costs are not a factor in determining
the relative costs of arbitration. Similarly, costs associated
with plaintiff’s pursuit of the HRC/EEOC action, and this suit,
are not costs of arbitration; they are costs plaintiff assumed,
voluntarily, when he ignored the arbitration agreement. That
said, determining plaintiff’s costs of arbitration, and comparing
them to the costs he would have faced had he litigated under the
analytical scheme outlined in Bradford, is a matter properly put
before the arbitrator.
40
Conclusion
For the reasons given, defendant’s motion to compel
arbitration and stay the present proceeding (document n o . 11) is
granted. If plaintiff wishes to make the claims outlined in his
complaint, he must raise them, in the first instance, in
arbitration. He may, subject to the limitations stated above,
arbitrate the issue of costs as well.
SO ORDERED.
Steven J. McAuliffe
United States District Judge
November 2 8 , 2001
cc: Eleanor H. MacLellan, Esq.
Jill K. Blackmer, Esq.
Jon W . Tyron, Esq.
41
