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SELECTED STATE ADR DEVELOPMENTS

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SELECTED STATE ADR DEVELOPMENTS

    SELECTED STATE ADR DEVELOPMENTS

    COMPENDIUM REPORT TO THE ABA LABOR SECTION'S COMMITTEE ON

    STATE LABOR AND EMPLOYMENT LAWS

    2005 Mid-Winter Meeting

    Ixtapa, Mexico

Submitted by:

    Richard A. Hooker

    Varnum, Riddering, Schmidt & HowlettLLP

    251 N. Rose Street, 4th Floor

    Kalamazoo, MI 49007

    Phone: 269/382-2300

    E-mail: rahooker@varnumlaw.com

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    TABLE OF CONTENTS

Procedure Trial Court Decision-making on Motions to Compel..........................................3

    Existence of Agreement to Arbitrate ........................................................................................4 Exhaustion of Procedural Requisites........................................................................................7 Mutuality of Arbitration Agreement ........................................................................................8 Unconscionability .................................................................................................................... 11

    Scope of Parties' Arbitration Agreement ............................................................................... 16 Final and Binding” Requirement ..........................................................................................17\ Choice of Laws ........................................................................................................................ 17

    State Statutory Exemptions .................................................................................................... 19

    Privately Established Statutes of Limitation .......................................................................... 20 Arbitration Costs..................................................................................................................... 22

    Selection of Arbitrator(s) ........................................................................................................ 24

    Issue or Claim Preclusion ....................................................................................................... 25

    Arbitrator Conflicts & Disclosure .......................................................................................... 27

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    Procedure Trial Court Decision-making on Motions to Compel

    Ralph’s Grocery Co., v. Massie, et. al., 2004 Cal. LEXIS 7244, 11 Cal. Rptr.3d 65, 116 Cal.

    App. 1031 (2004) (Modified on Denial of Rehrg.).

     The trial court in this case had denied Ralphs' motion to compel arbitration of plaintiffs'

    employment discrimination claims under an arbitration agreement between the parties. The

    Court of Appeals reversed and remanded, setting forth a very specific, sequential road map for

    the trial court to follow in considering such motions:

     ? First and most obviously, was there an agreement to arbitrate at all?

    ? Second, does the arbitration agreement apply to (cover) the particular dispute or

    claim between the parties?

    ? Finally, is the arbitration agreement both procedurally and substantively

    unconscionable?

Only where the answers to these questions are "Yes," "Yes," and "No" will a motion to compel

    1 be granted.

    Courts in other jurisdictions have expanded the procedural analysis to include other

    factors. In Darrah v. Friendly Ice Cream Corp., 328 F. Supp.2d 319, 2004 WL 1765132 (N.D.N.Y. 2004), for instance, the employer‟s motion to compel arbitration of an FMLA claim was denied based on the employer‟s failure to participate in its dispute resolution policy‟s “open

    2door” step, which was in turn found to be a prerequisite to arbitration.

     1th But see, Al-Safin v. Circuit City Stores, Inc, 394 F. 3d 1254 (9 Cir. 2005) (where substantive unconscionability is sufficiently severe, it alone may render arbitration agreement unenforceable, without regard to procedural

    unconscionability analysis). 2 Ironically, an employer‟s insistence on compliance with such preliminary and intermediate ADR steps can actually

    diminish the employer‟s chances of enforcing an employee‟s agreement to arbitrate claims. In Nyulassy v. thLockheed Martin Corp., 120 Cal. App. 4 1267 (2004), Rev. Den’d., 2004 Cal. LEXIS 10513 (2004), a California

    appeals court found an arbitration agreement unconscionable, in part because “…requiring plaintiff to submit to an

    employer-controlled dispute resolution mechanism…suggests that defendant would receive a „free peek‟ at

    plaintiff‟s case, thereby obtaining an advantage if and when plaintiff were to later demand arbitration.”

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    Also of potential procedural interest is the Nebraska Federal District Court‟s opinion in

    EEOC & Rollins v. Woodmen Life Ins. Society, 330 F. Supp 2d 1049, 2004 WL 1837110 (D. Neb. 2004). In that case, the employer had been sued by the EEOC on behalf of its former

    employee, Rollins. When Rollins moved to intervene separately in the litigation, the District

    Court granted her motion over Woodmen‟s objection, but proceeded to stay her claims pending

    arbitration under a fully enforceable arbitration agreement she had signed. The EEOC‟s action,

    however, was allowed to proceed as the agency was not bound by the agreement to arbitrate

    under the U.S. Supreme Court‟s Waffle House decision.

    Existence of Agreement to Arbitrate

    Reineke v. Circuit City Stores, Inc., 2004 U.S. Dist. LEXIS 3495, 2004 W.L. 442639, 9 W.H. Cases 2d 835 (N.D. Ill. 2004)

     Plaintiff filed an action alleging violations of the Americans With Disabilities Act and the

    Family and Medical Leave Act. Defendant moved to compel arbitration under a Dispute

    Resolution Agreement Plaintiff had signed at the time he had completed his employment

    application. Plaintiff contested the motion, arguing:

    1. Defendant had lost Plaintiff's personnel records, which included the original

    agreement to arbitrate;

    2. Under Illinois' Personnel Record Review Act, 820 ILS 40/1 et. seq., a personnel

    record not produced in response to an employee's proper request could not be

    used in any subsequent proceeding; and

    3. Since Defendant's motion to compel was based on a personnel document it had

    not produced in response to Plaintiff's proper request, the motion must fail.

     The Federal District Court rejected Plaintiff's argument, ruling that the state law must

    yield to the Federal Rules of Evidence, which clearly permitted Defendant to prove the existence

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    of the requisite agreement to arbitrate via other means. The District Court suggested, however, that its ruling might be different where, unlike here, the plaintiff disputes having signed or been given a copy of such arbitration agreement.

    Sapiro v. VeriSign, Inc., 310 F. Supp.2d 208, 93 F.E.P. Cases 960 (D.D.C., 3/04)

     Plaintiff in this case brought an action against her former employer alleging violations of the D.C. Human Rights Act, and Defendant moved to compel arbitration. Plaintiff had been hired in November, 2000 and had at the time signed a 17-page Dispute Resolution Guide bearing the name not of Verisign, but of another party which had previously owned the Verisign subsidiary for whom Plaintiff had gone to work. The Guide contained a complex process for resolution of employment-related claims that included multiple internal appeals, mediation and finally, an obligation to arbitrate. Six months after her hire, Plaintiff was presented and signed a new Verisign handbook which contained no arbitration procedure and indicated it "superseded" previous employment manuals.

     The Federal District Court began by ruling that the "gateway" decision as to whether a valid contract to arbitrate existed between the parties was for the court to decide, despite the existence of the following language in the arbitration agreement; "…[t]he arbitrator has the authority to resolve any dispute relating to the formation, interpretation, applicability or enforceability of the Arbitration Agreement." It then found a valid agreement to arbitrate existed. As to the absence of Verisign's name on the agreement, the District Court noted a provision that included "subsidiaries and affiliated corporations" in its identification of the employer, as well as the parties' mutual understanding at the time of signing that it was employer and employee entering into the agreement. Not surprisingly, the fact Plaintiff here was a highly-skilled attorney influenced the District Court's ruling on this point. The District Court then dismissed

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the significance of the "supersedes" language of the subsequent handbook, noting it only referred

    to previous "manuals," it had a "not all policies are set forth herein" clause, and it expressly

    stated it was not, unlike the arbitration agreement, a contract.

    Plaintiff's only other attack was on unconscionability grounds, arguing the inadequacy of

    discovery allowed in arbitration. The Federal District Court disposed of this argument, ruling the

    agreement's adoption of the American Arbitration Association's Rules, which provide for limited

    discovery, was sufficient to withstand Plaintiff's challenge.

    Of possible interest to practitioners faced with such corporate successorship issues is a

    Texas appellate court ruling in AutoNation USA Corp., et. al. v. Green, 2004 Tex. App.

    LEXIS 3273, 2004 WL 744606 (Tex. App. 4/8/04). There, Ms. Green, who brought a multi-

    count lawsuit against her former employer, had signed an arbitration agreement when originally

    hired by Mercedes-Benz of Houston-Greenway. Later, the dealership's assets were sold to

    Houston Auto Imports Greenway, Ltd. (HAIG), which some time later transferred Ms. Green to

    another location from which she was eventually fired. When the successor employer sought to

    compel arbitration of her claims, the trial court refused and the Texas Court of Appeals affirmed.

    HAIG had admitted it was only an asset purchaser and that the asset purchase agreement did not

    list the arbitration agreement with Ms. Green as one of the acquired assets. Interestingly, neither

    court was at all persuaded by HAIG's submission into evidence of an "acknowledgement" signed

    by both predecessor and successor that their mutual interpretation of the purchase agreement

    included a transfer of rights under the arbitration agreement.

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    Exhaustion of Procedural Requisites

Darrah v. Friendly Ice Cream Corp., 328 F. Supp. 2d 319, 2004 WL 1765132 (N.D.N.Y. 2004)

    The plaintiff there sued, claiming retaliation and constructive discharge in violation of the

    Family and Medical Leave Act. Defendant interposed a motion to compel arbitration and

    dismiss or stay the court proceedings. While there was no dispute a valid arbitration agreement

    existed between the parties, it was the second part of a two-part dispute resolution process. The

    first was the defendant's Open Door Policy, and the agreement provided the Open Door Policy

    "must be used before arbitration" and arbitration may only be initiated if the Open Door Policy

    "fails."

     The plaintiff there had taken her complaints regarding demotion, harassment and

    retaliation to at least two different supervisors, neither of whom spent any appreciable time with

    or responding to them. Under these facts, the District Court ruled that she had invoked the Open

    Door Policy, but that defendant had not fulfilled its duty to engage her in it. The District Court

    found, therefore, that the Policy could not have "failed" within the meaning of that term in the

    arbitration agreement. As Defendant had failed to comply with a condition prerequisite to

    arbitration, its motion to compel was denied.

    th 1267 (2004), Rev. But see, Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4Den’d., 2004 Cal. LEXIS 10513 (2004) (Arbitration agreement unconscionable, in part because “…requiring plaintiff to submit to an employer-controlled dispute resolution mechanism…suggests that defendant would receive a „free peek‟ at plaintiff‟s case, thereby

    obtaining an advantage if and when plaintiff were to later demand arbitration.”

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    Mutuality of Arbitration Agreement

    J.M. Davidson, Inc. v. Webster, 2003 Tex. LEXIS 527, 2003 W.L. 23147409, 20 I.E.R. Cases 1315, 128 S.W.3d 223 (Tex. 2003)

     In this case, Webster filed suit against Davidson, alleging wrongful termination in

    retaliation for his previous worker's compensation claim. This was a statutory cause of action

    under Texas law, Tex. Lab. Code ? 451.001. Davidson interposed a motion to compel arbitration

    under the company's alternative dispute resolution policy. The trial court had denied Davidson's

    motion and the Court of Appeals affirmed, ostensibly based upon the following language, found

    in Davidson's employment application materials immediately after reference to its alternative

    dispute resolution policy.

     The 'Company' reserves the right to unilaterally abolish or modify any personnel policy

    without prior notice.

     The Texas Supreme Court reversed and remanded the case to the Trial Court for an

    evidentiary hearing. The Court found the pre-employment documentation ambiguous, in that it

    was not certain Davidson was including the ADR policy in the term "any personnel policy,"

    regarding which it had reserved the right to abolish without notice.

     The Texas Supreme Court's opinion is interesting in other respects, as well. First, citing

    its 2002 decision in In Re Halliburton Co., 80 S.W. 3rd 566 (2002), cert. denied, 537 U.S. 1112

    (2003), it reiterated its holding that an arbitration agreement between an employer and an at-will

    employee is enforceable. Second, the Court reminded that the arbitration agreement in

    Halliburton was held enforceable despite Halliburton‟s express reservation of the right to

    unilaterally change its personnel policies, since it had also specified it would do so only

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prospectively and with advance notice to employees. The Texas Court implied alignment with

    the great weight of federal authority holding that if a party retains the unilateral, unrestricted

    right to terminate the arbitration agreement, it is indeed an illusory, unenforceable commitment.

     See also, In re Jobe Concrete Products, Inc., 2003 Tex. App. LEXIS 6582, 2003 WL

    21757512 (Tex. App. 7/31/03) (Arbitration agreement unenforceable where employer retained

    right to amend, modify or terminate agreement itself at any time); and Cheek v. United Health Care of the Mid-Atlantic, Inc., 378 Md. 139, 20 I.E.R. Cases 961 (Md. 2003) (Trial court order to compel arbitration reversed; employer promise to arbitrate is illusory where reservation

    of right to amend or revoke was part of ADR policy itself); and Hill v. Peoplesoft USA, Inc., 341 F. Supp 2d 559 (D. Md. 2004) (applying Maryland law and extending Cheek reasoning to arbitration agreement separate from ADR policy containing reservation of right to amend or

    revoke; arbitration agreement nevertheless held to be part of ADR policy, so motion to compel

    denied); but see, Cunningham-Malhoit v. Salomon Smith Barney, Inc., 2003 Ohio App. LEXIS 2515, 2003 WL 21255947 (Oh. App. 5/20/03) (even where employer handbook

    referring to arbitration policy contained employer reservation of right to amend, modify or

    terminate policies at any time, employee's signature on separate arbitration policy/agreement

    sufficient for enforceability of obligation to arbitrate claims); and Leonard v. Art Van Furniture, Inc., 2004 Mich. App. LEXIS 1441, 2004 W.L. 1254330 (Mich. App. 6/8/04) (Unpub.)

    (handbook contained "modify or amend at any time" language, but arbitration agreement

    contained in employment application, so enforceable; agreement became valid once

    employment accepted).

     See also, Lee v. Red Lobster Inns of America, Inc., 2004 U.S. App. LEXIS 1375, 2004

    WL 187564 (6th Cir., 1/27/04) (employer's unilaterally adopted arbitration policy not binding

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on employee who refused to sign tear-out "acknowledgement" sheet and told her supervisor she

    did not agree with the policy; employee's acceptance of continuing employment did not

    constitute implied-in-fact acceptance of policy, absent provision to that effect in policy itself);

    and compare, Baptist Health System, Inc. v. Mack, 860 So.2d 1265, 19 I.E.R. Cases 1574 (Ala.

    2003) (arbitration obligation enforced where policy did contain provision that "…continued employment at [the employer] will mean that employees agree to the terms of the policy); and

    May v. Higbee Co., 372 F.3d. 757, 94 F.E.P. Cases 44, 21 I.E.R Cases 587 (5th Cir. 2004)

    (Motion to compel arbitration granted; acknowledgement that acceptance of arbitration

    requirement by continuing in employment clear and parol evidence in form of supervisor's

    extraneous statements to the contrary inadmissible). In accord, Caley Gulfstream Aerospace Corp., et. al., 333 F. Supp 2d 1367, 2004 WL 1941188 (N.D. Ga. 2004) (applying Georgia law, Federal District Court not only found acceptance of arbitration obligation from continuation in

    employment, it ruled mutuality of obligation to arbitrate was sufficient consideration, standing

    alone, for agreement to arbitrate). On the other hand, an employer‟s efforts to enforce an arbitration agreement may bee doomed when it is not also bound by the obligation. Nyulassy v.

    thLockheed Martin Corp., 120 Cal. App. 4 1267 (2004) (Lack of mutuality most important factor in finding agreement substantively unconscionable).

     For the perils of attempting to communicate a new pre-dispute arbitration policy to

    employees electronically, See, Campbell v. General Dynamics Gov't. Sys. Corp., 321 F.

    Supp.2d 142, 2004 W.L. 1278034 (D. Mass.) (under both FAA and Massachusetts law,

    employer's e-mail notification to employees of new policy failed to meet notice standard where

    policy sent as link to main e-mail, it was accompanied by no paper or verbal announcement, and

    employees were not asked to assent in any way).

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