Opinion
Case No. 04-2229-JWL.
December 1, 2004
MEMORANDUM AND ORDER
Plaintiff filed this employment discrimination suit against defendant, his former employer, alleging that defendant terminated his employment on the basis of his gender in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. This matter is presently before the court on defendant's motion to dismiss and/or compel arbitration (doc. #27). As explained below, the motion is granted in part and denied in part.
I. Background
In December 2000, plaintiff Stephen Kuhn completed and signed an application for employment with defendant. On the signature page of the application, a paragraph entitled "Other Employment Terms" states that the applicant "understand[s] that [he or she] will be required to sign certain agreements including the Mutual Agreement to Arbitrate Claims." Plaintiff's signature appears just below this paragraph.
On January 10, 2001, defendant sent to plaintiff a written offer of employment. In addition to setting forth general terms of plaintiff's prospective employment with defendant, the written offer reiterated that "as a condition of employment, you will be required to sign the standard Mutual Agreement to Arbitrate Claims." The letter further explained that the agreement would be provided to plaintiff on his first day of employment, but that plaintiff could contact defendant's human resources department if he desired to review the agreement prior to accepting the offer of employment. Plaintiff signed the offer letter on January 12, 2001, indicating his acceptance of the offer. On January 15, 2001, plaintiff began his employment with defendant in defendant's Gladstone, Missouri branch office and signed the Mutual Agreement to Arbitrate Claims. The Agreement expressly provides that all claims arising out of plaintiff's employment, including gender discrimination claims arising under federal law, shall be resolved by arbitration.
In July 2003, defendant terminated plaintiff's employment. Thereafter, plaintiff filed this lawsuit asserting gender discrimination claims under Title VII. Defendant moves to dismiss and/or compel arbitration pursuant to the Agreement executed by the parties.
II. Applicable Standard Governing Defendants' Motion to Compel Arbitration
The Courts of Appeals have uniformly applied in the context of motions to compel arbitration brought under the Federal Arbitration Act (`FAA'), 9 U.S.C. § 4 (2000), a standard similar to that applicable to motions for summary judgment. See, e.g., Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (applying a summary-judgment-like standard in ruling on a motion to compel arbitration); Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th Cir. 2002) (same); Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 n. 9 (3d Cir. 1980) (same); Brown v. Dorsey Whitney, LLP, 267 F. Supp. 2d 61, 66-67 (D.D.C. 2003) (collecting case law on this issue and providing a helpful explanation of why the summary judgment standard applies); Doctor's Assoc., Inc. v. Distajo, 944 F. Supp. 1010, 1014 (D. Conn. 1996) (same), aff'd, 107 F.3d 126 (2d Cir.), cert. denied, 522 U.S. 948 (1997). Although the Tenth Circuit has not precisely addressed this issue, there is no reason to believe that it would apply a different legal standard. See, e.g., Gibson v. Wal-Mart Stores, Inc., 181 F.3d 1163, 1166 (10th Cir. 1999) (reviewing the district court's grant of a motion to compel arbitration under the summary judgment standard where the parties agreed that standard applied); Avedon Eng'g, Inc. v. Seatex, 126 F.3d 1279, 1283 (10th Cir. 1997) (holding the district court must hold a jury trial on the existence of the agreement to arbitrate where the parties raise genuine issues of material fact regarding the making of the agreement to arbitrate (citing Par-Knit Mills, 636 F.2d at 54 n. 9)); see also, e.g., SmartText Corp. v. Interland, Inc., 296 F. Supp. 2d 1257 (D. Kan. 2003) (applying summary-judgment-like standard to motion to compel arbitration).
Under this well-settled standard, summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Spaulding v. United Transp. Union, 279 F.3d 901, 904 (10th Cir. 2002) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). The movant need not negate the other party's claim, but rather must simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Adams v. Am. Guar. Liab. Ins. Co., 233 F.3d 1242, 1246 (10th Cir. 2002) (citing Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998)). In the context of a motion to compel arbitration, this requires the defendant to present evidence sufficient to demonstrate an enforceable agreement to arbitrate. See Oppenheimer Co. v. Neidhardt, 56 F.3d 352, 358 (2d Cir. 1995).
Once the defendant has done this, the burden shifts to plaintiff to demonstrate a genuine issue of material fact as to the making of the agreement to arbitrate. See Bensadoun, 316 F.3d at 175; Oppenheimer, 56 F.3d at 358. To accomplish this, the facts "must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein." Adams, 233 F.3d at 1246. If the plaintiff demonstrates a genuine issue of material fact, then a trial on this issue is required. 9 U.S.C. § 4 (if the making of the arbitration agreement is seriously disputed, then "the court shall proceed summarily to the trial thereof"); Avedon Eng'g, 126 F.3d at 1283 (holding the district court must hold a jury trial on the existence of the agreement to arbitrate where the parties raise genuine issues of material fact regarding the making of the agreement to arbitrate).
III. Discussion
Defendant moves to compel arbitration of plaintiff's claims on the grounds that the parties executed a valid and enforceable arbitration agreement. The arbitration agreement executed by the parties is governed by the Federal Arbitration Act, 9 U.S.C. § 1. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). In evaluating whether the parties have entered into a valid and enforceable arbitration agreement under the FAA, the court must look to state law contract principles. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) ("When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts . . . should apply ordinary state-law principles that govern the formation of contracts."); Perry v. Thomas, 482 U.S. 483, 492-93 n. 9 (1987) (state law governing the validity, revocability, and enforceability of contracts generally applies under the FAA). Nevertheless, in applying general state law contract principles, due regard must be given to the federal policy favoring arbitration. Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989) (citing 9 U.S.C. § 2). That is, as a matter of federal law, arbitration agreements are to be enforced unless they are invalid under principles of state law that govern all contracts. See Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 166 (5th Cir. 2004).
Because defendant employed plaintiff in Missouri (the record reflects that plaintiff worked at defendant's Gladstone, Missouri branch office) and defendant terminated plaintiff's employment in Missouri, Missouri law determines the validity of the agreement. See Michalski v. Circuit City Stores, Inc., 177 F.3d 634, 636 (7th Cir. 1999) (analyzing arbitration agreement and looking to law of the state where the employment and termination took place) (citations omitted). The court can discern no contract principles under Missouri law that would render the agreement here invalid. While "generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2," see Casarotto, 517 U.S. at 687, there is no evidence in the record before the court that the agreement is unconscionable or that it was obtained through fraud or duress.
In his pro se response to defendant's motion, plaintiff suggests that the agreement is unconscionable in that the agreement provides that defendant will bear the arbitrator's fees and costs and, thus, the arbitrator has an incentive to find in favor of defendant so that defendant will continue to hire (and pay) the arbitrator. Plaintiff's argument, however, misstates the language of the arbitration agreement. The agreement does not permit defendant to "hire" the arbitrator. Rather, the agreement provides that the arbitrator is selected as follows:
The AAA [American Arbitration Association] shall give each party a list of all arbitrators drawn from its panel of labor-management dispute arbitrators. Each party may strike all names on the list it deems unacceptable. If only one common name remains on the lists of all parties, that individual shall be designated as the Arbitrator. If more than one common name remains on the lists of all parties, the parties shall strike names alternately until only one remains. . . . If no common name remains on the lists of all parties, the AAA shall furnish an additional list or lists until the Arbitrator is selected.
The agreement, then, clearly provides for the mutual selection of an arbitrator and plaintiff would be permitted to strike any arbitrator that he believed might be biased in favor of defendant in the interest of "job security." No unconscionability is reflected in the terms or application of the provision concerning the selection of an arbitrator. Compare McMullen v. Meijer, 355 F.3d 485, 493-94 (6th Cir. 2004) (invalidating agreement to arbitrate when employer had exclusive control over the pool of potential arbitrators; financial relationship between employer and for-profit arbitration firm might foster bias in favor of the employer-client); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999) (arbitrator selection provision was unconscionable where employer controlled the selection of individuals for list of approved arbitrators; selection process was "crafted to ensure a biased decisionmaker" and employer could "punish" arbitrators who ruled against the company by removing them from the list).
There is one provision in the arbitration agreement, however, that is unconscionable under Missouri law. Specifically, the agreement provides that arbitration shall take place in Orange County, California, defendant's principal place of business. In Swain v. Auto Services, Inc., 128 S.W.3d 103 (Mo.App. 2003), the Missouri Court of Appeals held that a venue selection provision in an arbitration clause contained in a vehicle service plan was "unexpected and unconscionably unfair" where the consumer resided in Missouri and purchased the vehicle in Missouri but the service plan called for arbitration of disputes in Arkansas, the corporation's home state. As the Court of Appeals explained:
An average consumer purchasing a car in Missouri would not reasonably expect that any disputes arising under the service plan accompanying the car would have to be resolved in another state. See Hartland Computer Leasing Corp. v. Insurance Man, Inc., 770 S.W.2d 525, 528 (Mo.App. 1989). Our courts will not enforce clauses selecting a forum outside Missouri that are unfair or unreasonable. See High Life Sales Co. v. Brown-Forman Corp., 823 S.W.2d 493, 497 (Mo. banc 1992). . . . It is unconscionably unfair because it limits Auto Service's obligations and is, on its face, comparatively harsh on any consumer outside of Arkansas. See id.; see also Hartland, 770 S.W.2d at 527. Unlike a clause providing for venue in the defendant's home state — which the Supreme Court prefers because when either party initiates proceedings it "puts the lawsuit in the opponent's backyard" — this clause puts the resolution of all disputes in the corporation's backyard. High Life, 823 S.W.2d at 497; see also Burke v. Goodman, 114 S.W.3d 276, 280 (Mo.App. 2003). Arkansas, therefore, is not a neutral or reciprocal site, and the clause selecting that state as the venue for all arbitrations is unfair. We will not enforce it.Swain, 128 S.W.3d at 108.
In light of the Swain decision, the court concludes that the venue selection clause calling for arbitration of all disputes in California is unconscionably unfair. An employee working at one of defendant's branch offices in Missouri would certainly not expect that any dispute arising out of that employee's employment would have to be resolved in another state, particularly California. The provision is unduly harsh with respect to any employee residing outside of California and the court will not enforce this provision. The unenforceability of the venue provision, however, does not render the entire arbitration agreement invalid. As the court noted in Swain, "[i]f an unenforceable term is not essential to the entire agreement, then the rest of the agreement may be enforced." See id. (citing Restatement (Second) of Contracts § 183, cmt. c and § 184, cmt. a). Whether a contract is "severable in this manner depends on the circumstances of the case and is largely a question of the parties' intent." Id. (citations omitted).
As in Swain, where the court declined to invalidate the entire arbitration agreement even though it held that the venue selection provision was unenforceable, the venue provision here stands apart from the general agreement to arbitrate and the venue provision is not essential to the enforcement of the rest of the arbitration agreement, as it is certainly possible to conduct the arbitration in some place other than California. See id. Moreover, the arbitration agreement contains a severability clause which states that "[i]f any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement." These facts indicate that the parties intended the agreement to arbitrate to be severable from the provision requiring arbitration in California. In such circumstances, to invalidate the entire agreement on the basis of an unfair arbitration location would undermine the liberal federal policy favoring arbitration agreements. See id. Thus, the agreement to arbitrate is not unconscionable, but requiring arbitration in California is; however, because the unenforceable venue provision is severable from the general agreement to arbitrate, the arbitration agreement is enforceable.
Plaintiff also suggests that the agreement was obtained through duress. In that regard, plaintiff contends that the agreement is unenforceable because the agreement was not disclosed to plaintiff until his first day of work and that his branch manager, Dave Dingman, did not disclose the agreement to plaintiff during the initial interview or when he contacted plaintiff to offer him the position. According to plaintiff, then, he was essentially forced to sign the agreement because by the time the agreement was disclosed to him on his first day of work, he had already quit his previous job and, thus, his only alternative to signing the agreement was facing unemployment.
Plaintiff's argument is simply not supported by the record. Indeed, the record demonstrates beyond dispute that defendant notified plaintiff long before his first day of work that he would be required to sign an arbitration agreement. The application that plaintiff completed in December 2000 expressly advised plaintiff about this requirement. The written offer letter that plaintiff received in January 2001 also advised plaintiff about this requirement. Moreover, the written offer letter expressly advised plaintiff that he was entitled to review the agreement prior to accepting the offer and that he could contact the human resources department in that regard. The letter also provided plaintiff with the phone number for the human resources department. Plaintiff, then, had ample notice that he would be required to sign an arbitration agreement and he had such notice before he quit his previous job. There is no factual issue concerning whether the agreement was procured through duress. See Gott v. First Midwest Bank of Dexter, 963 S.W.2d 432, 440 n. 5 (Mo.App. 1998) ("Duress can be raised as a defense to a contract action in circumstances in which a party to the contract claims he or she was so oppressed by wrongful conduct of another in executing a contract that they were deprived of their own free will.").
As plaintiff has failed to raise a genuine issue of fact regarding the enforceability of the arbitration agreement, the court directs the parties to proceed to arbitration on plaintiff's claims and defendant's motion to compel is granted to that extent. The motion is denied, however, to the extent defendant seeks to arbitrate plaintiff's claims in California and arbitration shall proceed in the Kansas City metropolitan area. To the extent defendant's motion to compel also seeks dismissal of the action, the motion is denied and the court will stay the judicial proceedings against defendant in this case pending completion of the arbitration process, consistent with this court's practice to stay proceedings rather than dismiss a case in order to facilitate any future request to confirm the arbitration award. The parties are directed to report to the court in writing no later than June 1, 2005, concerning the status of that arbitration in the event that it has not been terminated earlier. As plaintiff is proceeding pro se, counsel for defendant is directed to take the lead in communicating with the court as to the status of the arbitration.
In his response to defendant's motion, plaintiff makes several arguments that are simply not relevant to the issue of arbitrability and, thus, the court need not address those arguments at any length. Plaintiff, for example, contends that defendant has consistently rejected plaintiff's attempts to settle this dispute, including rejecting various settlement offers and requests for mediation. Plaintiff also contends that defendant's counsel, during a discussion about settling this dispute, made derogatory comments about the Equal Employment Opportunity Commission. Even assuming the truth of the facts underlying these arguments, these facts do not have any bearing on the issue of whether the parties executed an enforceable arbitration agreement.
IT IS THEREFORE ORDERED BY THE COURT THAT defendant's motion to dismiss and/or compel arbitration (doc. #27) is granted in part and denied in part.
IT IS SO ORDERED.