Opinion
No. 2008-CA-000398-MR.
February 12, 2010. NOT TO BE PUBLISHED
Appeal from Jessamine Circuit Court, Honorable C. Hunter Daugherty, Judge, Action No. 04-CI-00582.
Michelle D. Wyrick, Louisville, Kentucky, Brief for Appellants.
Edward Dove, Lexington, Kentucky, Brief for Appellee.
OPINION
Appellants, Donna McClellan (McClellan) and Mary Scobee (Scobee), appeal the October 26, 2007, order of the Jessamine Circuit Court, affirming the decision of Arbitrator David L. Knox. The arbitrator's decision granted summary judgment in favor of Appellee, Blue Grass Memorial Gardens (Blue Grass), a cemetery owned and operated by Service Corporation International (SCI), concerning Appellant's claims that Blue Grass violated the Kentucky Civil Rights Act (KCRA) by retaliating against them for opposing an unlawful practice or participating in a sexual harassment investigation. After thorough review of the record, the arguments of the parties, and applicable law, we affirm.
McClellan and Scobee were both formerly employed by Blue Grass. Scobee was employed as an office manager from February 28, 2002, through July 20, 2004. McClellan was employed as a sales counselor from September 21, 2002, through the date of her voluntary resignation on May 16, 2005.
On May 24, 2004, a coworker, Christina Latimer, complained about alleged sexual harassment by one of her coworkers. During the investigation of Latimer's complaint, several employees, including Scobee and McClellan were interviewed. According to the record, both Scobee and McClellan reported that they had not witnessed Latimer's coworker behave inappropriately toward Latimer or make inappropriate comments to her. Nevertheless, both Scobee and McClellan now claim that the investigation yielded obvious proof that an inappropriate touching had occurred. Blue Grass claims that after completion of the investigation, it was unable to substantiate that sexual harassment had occurred.
For purposes of clarification, we note that Latimer was an original plaintiff in this action. Her claims have now been resolved.
See R.117: Defs.' Resp. to Pls.' Supplemental Mem. In Supp. of Rev. of Arb. Decision (citing to McClellan Dep., p. 53 and Scobee Dep., pp. 47, 51).
In their brief to this Court, Scobee and McClellan describe the employee who committed the alleged harassment as a "supervisor," a description disputed by Blue Grass, who classifies the individual as a coworker, and not a supervisor. Further, they state that Latimer reported the incident to Scobee and McClellan, and that McClellan ultimately reported the incident to the management. McClellan and Scobee further state that they participated in the internal investigation along with Latimer, and that despite the promise of confidentiality, they were subject to retaliation. Scobee's employment was terminated, and McClellan asserts that she was forced to voluntarily resign.
See Appellant's Brief p. 1.
On July 20, 2004, Scobee's employment was terminated. While Scobee asserts that her termination was the result of her participation in the aforementioned investigation, Blue Grass states that Scobee's employment was terminated for performance issues, including her failure to complete computer classes in a timely manner. As previously noted, McClellan voluntarily resigned in May of 2005. To that end, McClellan asserts that she was a victim of isolation by co-employees, that she was not provided with new client leads in a manner similar to other salespeople, and was verbally belittled by the management of SCI. McClellan asserts that the foregoing led to her constructive resignation.
Thereafter, McClellan and Scobee filed suit in Jessamine Circuit Court, alleging that Blue Grass violated the Kentucky Civil Rights Act by retaliating against them for opposing an unlawful practice or participating in an internal sexual harassment investigation. Blue Grass moved to compel arbitration under the Federal Arbitration Act (FAA) based on an arbitration agreement which Scobee and McClellan both signed during the course of their employment at Blue Grass. That agreement also set forth the specific procedures which were to be utilized in the event that arbitration should be necessary.
The arbitration clause in the agreement provided as follows:
Employee and the Company agree that, except for the matters identified in Section 2 below and except as otherwise provided by law, all disputes relating to any aspect of Employee's employment with the Company shall be resolved by binding arbitration. This includes, but is not limited to, any claims against the Company, its affiliates, or their respective officers, directors, employees, or agents for breach of contract, wrongful discharge, discrimination, harassment, defamation, misrepresentation, and emotional distress, as well as any disputes pertaining to the meaning or effect of this Agreement. The arbitration shall be conducted in accordance with the procedures attached hereto as Exhibit "A." This agreement to arbitrate shall cover disputes arising both before and after the execution of this document except to the extent that any litigation has already been filed as of the date hereof.
We note that "Section 2" as referenced in the clause above excludes from arbitration claims for workers' compensation or unemployment benefits or claims brought to enforce any noncompetition or confidentiality agreement. We further note that none of those exceptions apply in the matter sub judice.
The agreement provides:
Except as otherwise provided herein, the arbitration proceedings shall be conducted in accordance with the statutes, rules or regulations governing arbitrations in the state in which Employee is or most recently was employed by Employer. In the absence of such statutes, rules, or regulations, the arbitration proceedings shall be conducted in accordance with the employment arbitration rules of the American Arbitration Association ("AAA"); provided, however, that the foregoing reference to the AAA rules shall not be deemed to require any filing with that organization, nor any direct involvement of that organization. In the event of any inconsistency between this Agreement and the statutes, rules, or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.
The parties agreed to arbitrate their dispute before Hon. David L. Knox. Following discovery, Blue Grass moved for summary judgment. McClellan and Scobee filed a response, citing KRS 417.090(2) and accompanying caselaw in support of their assertion that they were entitled to a hearing on the merits. The arbitrator granted Blue Grass's motion on both McClellan's and Scobee's claims. McClellan and Scobee subsequently moved to vacate the arbitrator's decision. On October 26, 2007, the circuit court denied the motion to vacate and affirmed the decision of the arbitrator. This appeal followed.
As part of the Kentucky Uniform Arbitration Act, this provision reads:
"Unless otherwise provided,
The parties are entitled to be heard, to present evidence material to the controversy and to cross-examine witnesses appearing at the hearing."
Prior to addressing the arguments of the parties, we note first that we are of the opinion that the FAA is applicable to the matter sub judice, as opposed to the Kentucky Uniform Arbitration Act (KUAA). Clearly, KRS 417.050 provides that the KUAA does not apply to arbitration agreements between employers and employees or between their respective representatives. Furthermore, we note that both McClellan and Scobee consented to the arbitration agreement provided by Blue Grass. Clearly, that agreement provided that in the absence of a governing statute, the arbitration proceedings would be conducted in accordance with the employment arbitration rules of the American Arbitration Association (AAA).
See 9 U.S.C. § 1 et. seq.
KRS 417.050 provides:
A written agreement to submit any existing controversy to arbitration or a provision in written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. This chapter does not apply to: (1) Arbitration agreements between employers and employees or between their respective representatives; and (2) Insurance contracts. Nothing in this subsection shall be deemed to invalidate or render unenforceable contractual arbitration provisions between two (2) or more insurers, including reinsurers.
Having so found, we note that 9 U.S.C. § 10(a), and not KRS 417.220, governs our ability to vacate an arbitration award in this instance. That provision provides as follows:
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration —
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
See also Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct. 1396, 1403 (2008).
Further, we note that it is well-established that courts should play only a limited role in reviewing the decisions of arbitrators. See Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir. 2000). Indeed, the FAA presumes that arbitration awards will be confirmed. Id. Thus, when courts are called on to review an arbitrator's decision, the review is very narrow — one of the narrowest standards of judicial review in all of American jurisprudence. See Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 643 (6th Cir. 2005). We review this matter with these standards in mind.
As their first basis of appeal to this Court, McClellan and Scobee assert that the arbitrator committed error in granting Blue Grass's motion for summary judgment, essentially stating that he was without authority to grant a dispositive motion of this nature. In so arguing, they assert that the arbitrator was required to review the motion for summary judgment under the standards set forth in Steelvest v. Scansteel, 807 S.W.2d 476, 493 (Ky. 1991), and its progeny. In making this argument, they rely upon KRS 417.090(2), which provides that, "The parties are entitled to be heard, to present evidence material to the controversy, and to cross-examine witnesses." McClellan and Scobee also rely upon Lombard v. Investment Management and Research Incorporated, 885 S.W.2d 320, 322 (1994), in support of their argument that the essential requirement to arbitration is that the parties be afforded reasonable opportunity to be heard, and Prudential Securities Inc. v. Dalton, 929 F.Supp.1411 (N.D. Okla. 1996), as their basis for arguing that an arbitrator who proceeds summarily without first giving the parties an opportunity to present evidence could be guilty of misconduct.
In an argument which we believe to be contiguous to the argument that the arbitrator was without authority to grant summary judgment, McClellan and Scobee also argue that the arbitrator's decision was procedurally flawed because it denied their right to arbitrate. Believing these arguments to be substantially similar, we address them conjunctively herein.
On the basis of the foregoing law, McClellan and Scobee assert that the granting of summary judgment deprived them of their right to be heard, and in so doing, denied their right to procedural due process. Further, McClellan and Scobee assert that they presented questions of material fact which should have been sufficient to overcome the motion for summary judgment.
In response, Blue Grass asserts that the arbitrator did not engage in misconduct by granting the motion for summary judgment. It argues that the arbitrator was within his authority to entertain and grant summary judgment motions, in light of the authority explicitly granted in Rule 27 of the AAA Employment Arbitration Rules, allowing for the filing of dispositive motions. Further, Blue Grass asserts that even if the arbitration agreement between the parties in this instance did not depend upon the AAA rules, the FAA does not require hearings in every case.
While McClellan and Scobee concede that they agreed to utilize the arbitration rules adopted by the AAA, and further concede that the AAA rules of procedure allow the arbitrator the discretion to accept dispositive motions, they nevertheless argue that prior to granting a dispositive motion, the arbitrator was required to grant them an opportunity to be heard. In so arguing, McClellan and Scobee compare the rules of procedure set forth by the AAA with KRS 417.090(2), and the aforementioned opinion in Lombardo v. Investment Management and Research Incorporated, 885 S.W.2d 320, 322 (Ky. App. 1994), which they assert establish that the essential requirement of arbitration is that the parties are afforded a reasonable opportunity to be heard.
McClellan and Scobee also cite this Court to Graham v. Wall, 938 S.W.2d 892 (Ky.App. 1997), which states that, "Where the arbitration agreement does not contain an express waiver of a hearing the parties are entitled to an opportunity to be heard, present evidence, and cross-examine witnesses." In citing that opinion, McClellan and Scobee note that in Graham, the case was remanded to the arbitrator for a hearing because the arbitration process was procedurally flawed. McClellan and Scobee now assert that in a similar manner, the arbitrator's decision on their claim was procedurally flawed, insofar as the AAA rules of procedure do not make it clear that the submission of summary pleadings will waive the right to a hearing.
Having reviewed the record and applicable law, we are compelled to agree with Blue Grass on this issue. Both the trial court and the appellants have recognized that the arbitrator was within his authority to entertain and grant summary judgment motions. Indeed, as Blue Grass correctly notes, the AAA rules expressly permit dispositive motions to be filed. Further, we note that even if the AAA rules did not apply, under the FAA, "arbitrators are not compelled to conduct hearings in every case." See In the Matter of Arbitration Between Griffin Indus. Inc. and Petrojam Ltd., 58 F.Supp.2d 212, 220 (S.D.N.Y. 1999). Indeed, an arbitrator may render a decision solely on the basis of documentary evidence. Id.
See Rule 27, AAA Employment Arbitration Rules.
In the matter sub judice, the record reveals that the arbitrator reviewed the briefs of the parties and the record, including the depositions taken in the case, before rendering his decision. We believe that the arbitrator was within his authority to render such a decision and did not engage in misconduct in doing so. Accordingly, we uphold the trial court's refusal to vacate the award of the arbitrator on this basis. Even if we did not so find, we nevertheless feel it necessary to note that an arbitrator's erroneous application of the law is an insufficient ground for overturning an arbitration award under the FAA. See 9 U.S.C. § 10, and Hall Street, supra, at 1404, wherein our United States Supreme Court rejected the proposition that a general review for an arbitrator's legal errors is available under the FAA.
See also Merrill Lynch, Pierce, Fenner Smith, Inc. v. Jaros, 70 F.Ed 418, 421 (6th Cir. 1995), holding that: "A mere error in interpretation or application of the law is insufficient" to overturn an arbitrator's decision.
In so finding, we do note that there is a distinction between whether an arbitrator has the authority to grant a dispositive motion, and whether he has correctly found that sufficient basis exists for him to do so. In the matter sub judice, McClellan and Scobee argue that even if the arbitrator had the authority to grant the motion, he was not justified in doing so, asserting that they presented sufficient questions of material fact to overcome such a motion. Again, we disagree. Our review of the arbitrator's decision in the matter sub judice reveals that he conducted a thorough review of the record prior to concluding that the actions of which McClellan and Scobee complained were not materially adverse. We are of the opinion that in so deciding, the arbitrator applied the proper summary judgment standard as set forth in Steelvest, supra. Thus, even if misapplication of the law did constitute an appropriate basis for vacating the arbitrator's award, we would not find it necessary in this instance.
As a second basis for appeal, McClellan and Scobee assert that the arbitrator's decision violated public policy. McClellan and Scobee argue that courts can refuse to enforce arbitration awards which violate well-defined public policy as embodied by federal law or legal precedents. McClellan and Scobee argue that in the matter sub judice, they presented a serious issue of public policy, namely, whether their participation in an employer's internal investigation of a violation of KRS 344.280 is a protected activity under the statute. They argue that nothing in the law supports the arbitrator's decision that they were not protected under the "opposition clause," set forth in KRS 344.280.
Until our United States Supreme Court recently rendered its opinion in Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee, 129 S.Ct. 846 (U.S. 2009), dispute existed among the circuits as to whether or not participation in a sexual harassment investigation is a protected activity. In rendering its opinion, the Supreme Court held that the protection of the opposition clause of the anti-retaliation provision of Title VII extended to an employee who spoke out about sexual harassment, not on her own initiative, but in answering questions during the employer's investigation of her coworker's complaints.
Accordingly, McClellan and Scobee now argue that because their actions should have been viewed as protected under the opposition clause, the arbitrator erred in dismissing their claim. McClellan and Scobee assert that the arbitrator rendered his decision relying only on the Sixth Circuit decision in Abbott v. Crown Motor, 348 F.3d 537 (6th Cir. 2003), in support of his conclusion that their actions were not a protected activity. McClellan and Scobee argue that the arbitrator ignored many other cases stating otherwise, and now, cite this Court to Crawford, supra, in further support of their assertion that their actions were protected.
In response, Blue Grass argues first that public policy is not a proper ground for vacating an arbitrator's decision under the FAA. In so arguing, they rely upon the United States Supreme Court's decision in Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct. 1396, 1403 (2008), stating that it "calls into doubt" the court's ability to vacate an award that is contrary to public policy. See Householder Group v. Caughran, 576 F. Supp. 2d 796, 800 (E.D. Tex. 2008). Blue Grass also relies upon Prime Therapeutics LLC v. Omnicare, Inc., 555 F. Supp. 2d 993, 999 (D. Minn. 2008), wherein the court held that a court's review of a motion to vacate an arbitration award is limited to the statutory ground listed in 9 U.S.C. § 10, and that the court cannot consider judicially created grounds. Thus, Blue Grass asserts that this Court should look only to the statutory grounds contained in the FAA to determine whether grounds for vacating the arbitrator's decision exist.
Alternatively, Blue Grass argues that even if this Court had the authority to review the arbitrator's decision on public policy grounds, there was no violation of public policy. In support thereof, Blue Grass argued in its brief to this Court that the arbitrator's decision did not conflict with existing law at the time of the decision, and that the arbitrator followed the well-settled Sixth Circuit law as set forth in Abbott, supra, when rendering his decision.
Further, Blue Grass preemptively argued that regardless of the Supreme Court decision in Crawford, said decision would not establish the type of fraud, corruption, or misconduct necessary to vacate an arbitration award under the FAA. With this contention, we are compelled to agree. When the decision was rendered in this matter, the arbitrator properly followed precedent as it existed at the time, in concluding that neither McClellan nor Scobee were engaged in a protected activity by participating in the sexual harassment investigation. See Crawford v. Metropolitan Gov't of Nashville-Davidson County, 211 Fed.Appx. 373, 376 (6th Cir. 2006), and Abbott, supra. Thus, we cannot say that the decision, at the time it was rendered, violated public policy in any way.
Holding that the plaintiff's participation in an employer's internal investigation did not constitute opposition under the opposition clause, but was more appropriately considered under the participation clause. (Since overruled by the U.S. Supreme Court in Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee, 129 S.Ct. 846 (U.S. 2009)).
Further, and perhaps more importantly, our review of the record reveals that the arbitrator did not base his decision solely on the reasoning set forth in Crawford and its supporting caselaw. In addition to concluding that the parties did not engage in protected activity by participating in the investigation, the arbitrator found, based upon a review of the record, that McClellan established no causal connection between any protected activity and an adverse employment action. Further, the arbitrator granted summary judgment on Scobee's retaliation claim because she failed to establish that she was subject to an adverse employment action under Burlington Northern Santa Fe R.R. Co. v. White, 548 U.S. 53, 126 S.Ct. 2405, 165 L.Ed. 2d (2006).
Thus, it is clear that the arbitrator reviewed the claims not only for a determination of whether the activities were protected, but also as to whether the actions of the parties, on their merits, provided sufficient evidence of retaliation to withstand a motion for summary judgment. The arbitrator concluded that they did not. Based upon our review of the record, we cannot conclude that the arbitrator went beyond his discretion in so finding, and certainly, we cannot conclude that his findings were made on the basis of fraud, corruption, or misconduct, as is required by the FAA in order for this Court to vacate an award. Accordingly, we find that the decision rendered in Crawford does not affect the outcome of this case, and we decline to overturn the arbitrator's decision on that basis.
In the matter sub judice, our review of the record reveals no evidence or allegation that the arbitration award was procured by fraud or corruption, nor that the arbitrator was impartial or corrupt, nor that the arbitrator exceeded his powers under the applicable arbitration agreement. Further, our review of the record reveals no evidence that the arbitrator was guilty of misconduct in reaching the decision that he did. Further, for the foregoing reasons, we find the decision of our United States Supreme Court in Crawford, supra, to be inapplicable to the matter sub judice.
Wherefore, for the foregoing reasons, we hereby affirm the October 26, 2007, order of the Jessamine Circuit Court, affirming the decision of Arbitrator David L. Knox.
BUCKINGHAM, SENIOR JUDGE, CONCURS.
STUMBO, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
Respectfully, I must dissent. It is true the caselaw was against Appellants when the arbitrator rendered his opinion; however, this issue has been properly preserved throughout the litigation and there is no reason that Crawford v. Metropolitan Government of Nashville and Davidson County, Tenn., 129 S.Ct. 846 (U.S. 2009), should not be applied. I would reverse and remand.