Opinion
Cause No. TH02-0053-C-T/H
June 4, 2002
Entry On Motion To Compel Arbitration
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
Plaintiff, Jennifer L. Curry, brought this action alleging pregnancy and disability discrimination against her former employer, Defendant, MidAmerica Care Foundation d/b/a Westridge Healthcare Center ("MidAmerica"). This cause is before the court on Defendant's Motion To Compel Arbitration.
I. Background Jennifer L. Curry was hired by MidAmerica to work as a certified nursing assistant.
MidAmerica has an employee handbook that contains an arbitration agreement. The arbitration agreement provides for binding arbitration of certain claims and disputes by Ms. Curry against MidAmerica, including "[a]ny alleged violation of federal . . . laws . . . regulations or statutes prohibiting adverse or disparate treatment, . . . or other statutorily protected right, because of a protected status, such as . . . sex, pregnancy, [or] . . . disability. . . ."
The arbitration agreement states in part:
The Facility [MidAmerica] and employee do hereby voluntarily promise, irrevocably agree, understand, agree to abide by and to accept as a condition of employment the provisions contained herein. . . . The Facility and employee (also known as the "Parties") hereby agree to voluntarily promise and irrevocably agree . . . to arbitrate any dispute or claim arising from or related to (i) employment. . . . The Parties further agree that arbitration pursuant to this Agreement shall be the final, sole and exclusive remedy for resolving any such claims or disputes. . . .
With respect to arbitration procedures the arbitration agreement states in part:
The arbitration will be conducted with the then current rules of either the Judicial Arbitration and Mediation Service, Inc. (J.A.M.S.) or the American Arbitration Association (A.A.A.). . . . The party against whom a claim is made ("Defending Party") shall select the rules to be used from the choices previously listed. The Arbitrator shall be selected by each party alternately striking from a list of five (5) employment law arbitrators supplied by the Arbitration agency chosen by the Defendant Party until only one (1) remains. The Employee shall have the first right to strike a prospective arbitrator and the Facility the last. . . . All fees and expenses of the arbitration will be borne by the parties equally, including the fee for the Arbitrator. . . . Each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of evidence. . . . [E]ach party shall have the right to take one deposition of the other party as well as the deposition of any expert witnesses designated by the other party. The parties may request permission from the Arbitrator to take the deposition of not more than two other persons not previously listed. The parties may serve on each other one set of interrogatories, not more than five (5) in number including subparts, and not more than three (3) requests for production of documents, including subparts. The parties shall be entitled to all damages provided for by state, federal or local statute, ordinance or regulation, with the exception of punitive and/or exemplary damages, including attorney's fees where those fees are provided by statute.
The arbitration agreement contains the following provision:
This is the complete agreement of the parties on the subject of employment and arbitration of disputes and claims. . . . If any provision of this Agreement is ruled invalid, the rest and remainder shall survive and be enforced. . . . The Management Company Reserves the right to alter, amend, eliminate or modify this agreement prior to the initiation of any proceeding controlled or falling under the terms of this Agreement.
The arbitration further provides that:
"the Facility and employee understand that if any other provision of this manual is deemed to violate any local, state, or federal law or regulation, that this provision stands by itself and is fully enforceable to the fullest extent provided by law. . . ."
Ms. Curry signed an employee handbook acknowledgment form contemporaneously with her employment, acknowledging receipt of the employee handbook. The final paragraph of the form states in part: "I acknowledge that this handbook is neither a contract of employment nor a legal document."
After Ms. Curry informed MidAmerica's Director of Nursing that she was pregnant, her employment was terminated. She filed a charge of discrimination, and after receiving a Notice of Right to Sue, commenced this action. Ms. Curry claims that MidAmerica discriminated against her on the basis of her pregnancy and disability in violation of Title VII of the Civil Rights Act of 1964, as amended ("Title VII"), and the Americans with Disabilities Act ("ADA") when it terminated her employment. MidAmerica made a demand for arbitration and agreed to waive the provision in the arbitration agreement which limited punitive and/or exemplary damages. Ms. Curry refused the demand. The Motion To Compel Arbitration followed.
II. Discussion MidAmerica moves to compel arbitration, contending that Ms. Curry's claims are subject to binding arbitration as provided in the arbitration agreement in the employee handbook. Ms. Curry responds that the employee handbook is not a contract and the arbitration agreement is nevertheless unenforceable because the arbitral forum does not allow her to effectively vindicate her claim.
The Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA") provides that written agreements to arbitrate controversies "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. Federal policy favors arbitration, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991); AGCO Corp. v. Anglin, 216 F.3d 589, 593 (7th Cir. 2000) ("the Federal Arbitration Act embodies a clear federal policy favoring arbitration agreements") (citation omitted), and any doubts as to arbitrability are to be resolved in favor of arbitration, ATT Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
The arbitration agreement states that the claims and disputes covered by the agreement include "[a]ny alleged violation of federal . . . laws . . . regulations or statutes prohibiting adverse or disparate treatment, . . . or other statutorily protected right, because of a protected status, such as . . . sex, pregnancy, [or] . . . disability. . . ." Thus, the arbitration agreement purports to cover the claims asserted by Ms. Curry in this case.
An arbitration agreement is only enforceable if it is a valid contract. See Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997). A federal court applies state contract law to determine whether an arbitration agreement is a valid contract. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Gibson, 121 F.3d at 1130. Under Indiana law, the party seeking to compel arbitration bears the burden of establishing an enforceable arbitration agreement. Gibson, 121 F.3d at 1130. A contract consists of an offer, acceptance and consideration. Straub v. B.M.T. by Todd, 645 N.E.2d 597, 598 (Ind. 1995). Ms. Curry contends that the arbitration agreement is not a contract because a disclaimer in the employee handbook acknowledgment form states that the handbook is neither a contract of employment nor a legal document.
MidAmerica responds that it does not claim that either the employee handbook or employee handbook acknowledgment form is a contract of employment. It argues that an arbitration agreement can be a condition of employment without establishing an employment contract. Patterson v. Tenet Healthcare, Inc., 113 F.3d 832 (8th Cir. 1997), supports this position. The issue in the case was whether a former employee's employment discrimination claims were subject to arbitration. The former employee had received a copy of the employee handbook and signed an arbitration clause on the last page of the handbook. The handbook provided that "[this handbook] is not intended to constitute a legal contract with any employee. . . ." Id. at 834. The handbook had an acknowledgment form which contained a disclaimer and reservation of rights provision:
IMPORTANT! Acknowledgment Form. . . . No written agreement concerning employment terms or conditions is valid unless signed by a facility executive director, and senior officer of AMI, and no written statement or agreement in this handbook concerning employment is binding, since provisions are subject to change, and as all AMI employees are employed on an "at will" basis. . . . The company reserves the right to amend, supplement, or rescind any provisions of this handbook as it deems appropriate in its sole and absolute discretion.
Patterson, 113 F.3d at 834. Directly following that provision was an arbitration clause, which stated:
I understand AMI makes available arbitration for resolution of grievances. I also understand that as a condition of employment and continued employment, I agree to submit any complaints to the published process and agree to abide by and accept the final decision of the arbitration panel as ultimate resolution of my complaint(s) for any and all events that arise out of employment or termination of employment.
Id. at 834-35. The district court found that this arbitration clause, signed by the plaintiff, created a binding arbitration agreement. The plaintiff argued on appeal that the handbook did not create an enforceable contract based on the language that "[the handbook] is not intended to constitute a legal contract," and "no written statement or agreement in this handbook concerning employment is binding[.]" Patterson, 113 F.3d at 835. The court recognized that under applicable state (Missouri) law, employee handbooks are not contracts and "a contract is only formed with the traditional elements of offer, acceptance, and consideration." Id. The court, however, concluded that the arbitration clause was an enforceable contract. Id. The court reasoned, first, that the arbitration clause was separate and distinct from the other provisions of the handbook-it was on a separate page and introduced by its own heading. The court also relied on the difference between the language used in the arbitration clause and the preceding paragraph — the arbitration clause used contractual language such as "I understand" "I agree" I "agree to abide by and accept" and "condition of employment". Id. The court believed that this language would sufficiently convey to an employee that the arbitration clause was separate and distinct from the rest of the handbook. Id. The court concluded that the reservation of rights provision referred to the handbook provisions relating to employment, not to the arbitration agreement. Id.
Like the arbitration agreement in Patterson, the arbitration agreement in the employee handbook is a separate and distinct section of the handbook. It is entitled "Arbitration Agreement" and repeatedly referred to as "this Agreement." In addition, the agreement contains contractual language which states that the Facility (MidAmerica) and the employee "voluntarily promise, irrevocably agree, understand, agree to abide by and to accept" the conditions contained in the agreement. This language conveys to an employee such as Ms. Curry that the arbitration agreement is a separate and distinct part of the handbook and constitutes an agreement between the parties. Moreover, the arbitration agreement further conveys this to Ms. Curry by expressly stating that "[t]his is the complete agreement of the parties on the subject of employment and arbitration of disputes and claims." Any doubt as to whether the arbitration agreement is separate from the rest of the employee handbook is resolved by the language which expressly states that "the Facility and employee understand that if any other provision of this manual is deemed to violate any local, state, or federal law or regulation, that this provision stands by itself and is fully enforceable to the fullest extent provided by law."
As under Missouri law applied by the Patterson court, under Indiana law a contract requires the elements of offer, acceptance and consideration. Straub, 645 N.E.2d at 598.
"[T]he validity of a contract is not dependent upon the signature of the parties, unless such is made a condition of the agreement." Int'l Creative Mgmt., Inc. v. D R Entm't Co., 670 N.E.2d 1305, 1312 (Ind.Ct.App. 1996) (citation omitted). "However, some form of assent to the terms of the contract is necessary. Assent may be expressed by acts which manifest acceptance." Id. (citation omitted).
The essential elements of a contract are present in the instant case. MidAmerica offered the arbitration agreement to Ms. Curry as a condition of her employment. Ms. Curry accepted the arbitration agreement by accepting employment with MidAmerica. The parties' mutual promises to arbitrate their disputes and claims as well as MidAmerica's offer of employment to Ms. Curry constitute consideration. See Gibson, 121 F.3d at 1130-31. Thus, the court finds that the arbitration agreement contained in the employee handbook is a contract between Ms. Curry and MidAmerica.
Workman v. United Parcel Service, Inc., 234 F.3d 998 (7th Cir. 2000), relied on by Ms. Curry, is inapposite. There, the plaintiff employee sued the defendant employer alleging the employer breached a contract in the employee handbook by breaking its promise not to demote him except for cause. Id. at 1000. The court held that a disclaimer that the employee handbook "is not a contract of employment and does not affect your rights as an employee" was clear and forthright and a complete defense to the breach of contract and promissory estoppel claims based on the employee handbook. Id. at 1000-01. The case does not address whether an arbitration agreement contained within an employee handbook may be an enforceable contract.
Ms. Curry contends the arbitration agreement nonetheless is unenforceable because the arbitral forum does not allow effective vindication of her claims. The Supreme Court addressed this matter in Gilmer v. Interstate Johnson Lane Corp., 500 U.S. 20 (1991). The Court held that statutory claims may be subject to arbitration as "long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum," id. at 28, thus, allowing the statute to serve both its remedial and deterrent purposes. Id.
Ms. Curry claims that the arbitration agreement gives MidAmerica the right to revise the terms of arbitration but does not give her the same right, allows MidAmerica to select the rules of arbitration and arbitrator, causes her to forfeit her right to seek punitive damages and reasonable discovery, and requires her to incur substantial fees and costs.
Ms. Curry incorrectly claims that MidAmerica has the ability to revise the arbitration agreement at any time. Rather, MidAmerica has the right to revise the arbitration agreement prior to the initiation of any preceding under the agreement, that is, prior to initiation of arbitration. Geiger v. Ryan's Family Steak Houses, Inc., 134 F. Supp.2d 985, 991, 995 (S.D.Ind. 2001), where the arbitration provider had the unlimited right to modify the rules at any time, and Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 315-16 (6th Cir. 2000), cert. denied, 531 U.S. 1072 (2001), where the arbitration provider had the right to make changes to the arbitration rules and procedures without notice to or consent of the employees, are distinguishable. Even if MidAmerica's right to revise the arbitration agreement renders its promise to arbitrate insufficient consideration for Ms. Curry's promise to arbitrate, consideration may be found in MidAmerica's promise of employment to Ms. Curry. Thus, Geiger and Floss, in which no such promises were made and the courts held that no consideration was given for the plaintiffs' promises to arbitrate, Geiger, 134 F. Supp.2d at 1000-01, Floss, 211 F.3d at 315, are inapposite.
Ms. Curry claims that MidAmerica's reservation of the right to select arbitration under the rules of the Judicial Arbitration and Mediation Service, Inc. or the American Arbitration Association and the right to choose the arbitrator suggest that the arbitral forum would be biased and inadequate. She is incorrect. The arbitration agreement does not give MidAmerica the absolute right to select the arbitration rules; rather, it provides that the party against whom a claim is made has the right to select the rules of arbitration. Ms. Curry has not shown that one or the other set of rules would prejudice her. Rather than giving MidAmerica the right to choose the arbitrator, the arbitration agreement provides that the parties shall each strike a member from a panel of arbitrators, beginning with the complaining party, in this case Ms. Curry. Geiger is again distinguishable because the court there had serious concerns about potential bias by the arbitration panel based on the relationship between the employer and arbitration provider. Geiger, 134 F. Supp.2d at 995-97. Ms. Curry has offered no evidence of such bias in this case.
Next, Ms. Curry maintains that discovery is too limited in the arbitral forum. She cites Geiger for support. In that case, it was the limited nature of discovery and the potential bias of the arbitration panel which controlled discovery that made the arbitral forum inadequate for effective vindication of the plaintiff's rights. Id. at 996. The court noted that the discovery procedures alone did not necessarily make the arbitral forum inadequate. Id. The arbitration rules in Geiger provided each party with one deposition as of right and allowed them to request to take additional depositions in extraordinary circumstances and for good cause shown. Id. at 990. Here, in contrast, the arbitration agreement gives each party the rights to take one deposition of the other party and the deposition of any expert witnesses designated by the other party, request to take the deposition of two other persons, and serve one set of five interrogatories, including subparts, and three requests for production. Further, Ms. Curry has made no showing that the discovery procedures allowed under the arbitration agreement deprive her of a reasonable opportunity to present her claims. In Gilmer, the Supreme Court rejected a challenge to the arbitration procedures based on a limitation on discovery in the arbitral forum. 500 U.S. at 31.
Ms. Curry argues that the arbitration agreement places an unfair burden on her by requiring that the parties share equally all fees and expenses of arbitration. The arbitration agreement does provide for the equal sharing of costs and expenses, and Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000), recognized that "[i]t may well be that the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum." Id. at 90. The Court concluded 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." Id. at 92. Ms. Curry has made no showing of the amount of the costs and expenses she would be likely to incur or that her financial resources would render such costs and expenses prohibitive. Green Tree requires such a showing. Id. at 91 ("The `risk' that Randolph will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.").
Ms. Curry's next argument is that the arbitration agreement denies her of her statutory right to seek punitive damages and attorneys' fees. The arbitration agreement provides that: "Each party will pay for the fees and expenses of its own attorneys. . . . The parties shall be entitled to all damages provided for by [federal law], with the exception of punitive and/or exemplary damages, including attorney's fees where those fees are provided by statute." The court agrees that this language which makes punitive damages unavailable could make the arbitration agreement unenforceable. See McCaskill v. SCI Management Corp., 285 F.3d 623, 625-26 (7th Cir. 2002) (holding that an arbitration agreement requiring each party to pay its own costs and attorney's fees regardless of the outcome of the arbitration was unenforceable because the agreement purported to forfeit the Title VII plaintiff's statutory right to attorney's fees). The arbitration agreement in this case purports to make Ms. Curry's statutory right under Title VII and the ADA to punitive damages unavailable in the arbitral forum. Because the arbitration agreement denies Ms. Curry a remedy authorized under these laws, it could prevent her from effectively vindicating her rights in arbitration.
However, MidAmerica has agreed to waive the language precluding punitive and/or exemplary damages. Thus, the language in the arbitration agreement precluding a recovery of punitive damages does not make the agreement to arbitrate unenforceable.
Cf. Arellano v. Household Fin. Corp. III, No. 01 C 2433, 2002 WL 221604, at *3 (N.D.Ill. Feb. 13, 2002) (concluding arbitration agreement not unenforceable on basis of costs of arbitration where defendant offered to pay arbitration costs); but cf. Popovich v. McDonald's Corp., 189 F. Supp.2d 772, 779 (N.D.Ill. 2002) (defendant's offer to pay arbitration fees was attempt to unilaterally modify the arbitration agreement and no basis for reconsideration of the court's earlier ruling that the prohibitive costs of arbitration made the arbitration provision unenforceable). Importantly, the arbitration agreement contains a severability provision which states that "[i]f any provision of this Agreement is ruled invalid, the rest and remainder shall survive and be enforced." Thus, the parties' agreement contemplates modification where a particular provision is unenforceable. MidAmerica's waiver of the language precluding punitive damages simply advances the parties' intent.
There was no indication in the Popovich decision that the arbitration agreement contained a severability provision, making that case distinguishable. For this same reason, Perez v. Globe Airport Security Services, Inc., 253 F.3d 1280, 1287 (11th Cir. 2001), in which the court refused to sever a costs and fees provision in an arbitration agreement without any mention of a severability provision, is also distinguishable.
As for attorney's fees, the court reads the arbitration agreement as allowing the arbitrator to award attorney's fees where allowed by statute, as they are in this case.
Therefore, the court concludes that the arbitration agreement does not require Ms. Curry to forfeit her right to attorney's fees. Furthermore, the court notes MidAmerica's position that the arbitration agreement "states unequivocally that Curry is entitled to attorney's fees where provided by statute." (Def.'s Reply at 5.) Thus, should Ms. Curry prevail on her claims in arbitration, MidAmerica would be hard pressed to argue that she is not entitled to a reasonable attorney's fee.
III. Conclusion
For the foregoing reasons, Defendant's Motion To Compel Arbitration is GRANTED. An appropriate order shall be entered.