2002-3

U.S. COURT OF APPEAL FOR THE NINTH CIRCUIT

A. Ninth Circuit Rules That Circuit City's Arbitration Agreement Is Unconscionable and Unenforceable Against Employee Asserting FEHA Claims.

Circuit City Stores, Inc. v. Saint Clair Adams, 2002 Daily Journal D.A.R. 1359 (9^th Cir. February 4, 2002). (Opinion by Judge D.W. Nelson; concurred in by Justices Fletcher and Brunetti.) The Ninth Circuit ruled that Circuit City's arbitration agreement was procedurally and substantively unconscionable and therefore unenforceable against its employee asserting claims under the California Fair Employment and Housing Act ("FEHA"). This was the second ruling in this case by the Ninth Circuit, which previously overruled the District Court for the Northern District of California which had stayed the state court proceeding and compelled arbitration. The Ninth Circuit had previously held that section 1 of the Federal Arbitration Act ("FAA") exempted plaintiff's employment contract from the FAA's coverage. The U.S. Supreme Court reversed that decision and remanded to the Ninth Circuit.

Judge Nelson previews her hard-hearted treatment of Circuit City's arbitration agreement with a portentous paragraph:

"Circuit City has devised an arbitration agreement that functions as a thumb on Circuit City's side of the scale should an employment dispute ever arise between the company and one of its employees. We conclude that such an arrangement is unconscionable under California law."

In 1995, Saint Clair Adams had applied for a sales job at Circuit City, completing the application which included a provision entitled "The Circuit City Dispute Resolution Agreement," requiring employees to submit all claims and disputes to binding arbitration. That provision incorporated into it a set of "dispute resolution rules and procedures" defining claims subject to arbitration, discovery rules, allocation of fees and available remedies. Those rules limited the amount of damages as follows: "Back pay is limited to one year, front pay to two years and punitive damages to the greater of the amount of front and back pay awarded or $5,000.00." The rules also provided that the employee was required to split the cost of the arbitration, including the daily fees of the arbitrator, the cost of a reporter to transcribe the proceedings and the expense of room rental unless the employee prevailed in the arbitration and the arbitrator decided to order Circuit City to pay the employee's share of the costs. The Court took special notice of the fact that under the agreement Circuit City was not required to arbitrate any claims against the employee.

Signing the application with the arbitration agreement is a necessary condition to working at Circuit City; applications are not considered unless that provision is signed and agreed to by the employee.

In 1997, Adams filed a FEHA action against Circuit City and three co-workers, alleging sexual harassment, retaliation, constructive discharge and intentional infliction of emotional distress. The plaintiff also asserted a claim under California Labor Code ó 1102.1 for sexual orientation discrimination and sought damages for "repeated harassment" during his entire two-year employment history with Circuit City.

Circuit City filed a petition in U.S. District, Northern District of California, to stay the state court proceedings and compel arbitration pursuant to its arbitration agreement, which the District Court granted. The plaintiff appealed and the Ninth Circuit reversed on the ground that section 1 of the FAA exempted Adams' employment contract from the FAA's coverage. The U.S. Supreme Court then reversed and remanded to the Ninth Circuit. Accepting the remand guidelines set by the U.S. Supreme Court, the Ninth Circuit noted that the applicable law was the FAA, which placed arbitration agreements on an equal footing with other contracts and also established a federal policy in favor of arbitration. The Court noted that state law principles governing the formation of contracts apply and general contract defenses such as fraud, duress or unconscionability arising from state law can invalidate arbitration agreements.

Consistent with the Amandariz v. Foundation Health PsychCare Services, Inc. decision, the Court analyzed Circuit City's agreement in terms of procedural unconscionability based upon the equality of bargaining power between the parties and the extent to which the terms are clearly disclosed, and substantive unconscionability determining whether the terms of the contract itself are unduly harsh or oppressive. The Court states in a conclusory fashion that Circuit City's arbitration agreement is procedurally unconscionable because it is a contract of adhesion offered by Circuit City on a take it or leave it basis to its employees, who are not permitted to modify the agreement.

The Court went on to analyze whether the agreement is substantively unconscionable. The Court noted initially and dramatically that Circuit City's arbitration agreement, as in Amandariz, required the employee to submit all claims relating to termination of that employment to binding arbitration, while the employer remained free to bring suit in court or arbitrate with its employees at its option. Thus, the employer was not obligated to arbitrate its claims and the Court described the agreement as a means of "maximizing employer advantage." The Court notes that Circuit City has in no way justified this provision, nor shown any business reality which would require it. The Court declares that the Supreme Court requires bilateral obligation in order for the agreement to be enforceable.

The Ninth Circuit notes the limitations described above and contrasts this with what an employee would be entitled to in a civil suit for sexual harassment under the FEHA. It then notes that the employee is required to split the arbitrator's fees with Circuit City and states that alone would render an arbitration agreement unenforceable, referring to the decision in Cole v. Burns Intern Security Services, 105 F.3d 1465 (D.C. Cir. 1997), which held that requiring an employee to share the costs of arbitration renders a mandatory arbitration agreement unlawful.

In showing how Circuit City's arbitration agreement "goes even further," the Court makes specific reference to the rules' one-year statute of limitations in arbitrating claims which the Court states would deprive plaintiff of the benefit of the continuing violation doctrine available in FEHA suits, referring specifically to Richards v. CH2M Hill, Inc., 29 P.3d 175, 176 (Cal. 2001). The Court seems to have not even considered its prior decision in August of 2001 in the Soltani v. Western and Southern Life Ins. Co., 2001 Daily Journal D.A.R. 8213 (9^th Cir. 7/01), in which it permitted an employer to require its employees to sign an agreement limiting the one-year statute of limitations to six months. Finally, the Court analyzes the Circuit City agreement under the severability provisions of California law, which provide that the courts have discretion to sever an unconscionable provision or refuse to enforce the contract in its entirety. California law does not permit severability of a contractual provision if "the central purpose of the contract is tainted with illegality." Cal Civ. Code ó 1670.5(a). The Court then notes that in the Circuit City arbitration agreement, as in Armandariz, the objectionable provisions "pervade the entire contract," and are therefore not severable.

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B. Ninth Circuit Rules An EEOC Decision And Order Not Admissible At Trial.

In Amantea-Cabrera v. John E. Potter, Postmaster General, 2002 Daily Journal D.A.R. 1133 (9^th Cir. 1/3/2002) (opinion by Judge Hawkins, concurrence by Judges Noonan and Toshima), the Ninth Circuit ruled that the District Court's exclusion of an EEOC decision and order finding were properly excluded at trial. The case concerned a U.S. Postal worker who was six and one-half months pregnant and alleged that a male co-worker maliciously and deliberately pushed a large metal cart in her direction at the San Francisco General Mail Facility. Plaintiff, fearing that additional interactions with that co-worker could affect her pregnancy, reported the incident to management and went off work two days after the episode, not returning until after she had given birth. Management investigated and disciplined the male co-worker by placing a permanent letter detailing the allegations in his personnel file.

Plaintiff filed a sex discrimination claim with the EEOC, claiming that in similar incidents where the victim and accused were of the same sex, USPS management customarily followed its internal investigative protocol and placed the alleged aggressor on emergency suspension pending the outcome of the investigation. In her case, where a woman was accusing a man, USPS had not suspend the man. The ALJ issued a recommended decision finding that USPS had discriminated against plaintiff because of her sex, but by final agency decision, the USPS rejected those findings and plaintiff appealed to the Office of Federal Operations, which upheld the ALJ's finding and awarded plaintiff back pay and benefits.

Plaintiff thereafter filed suit in District Court for a de novo jury trial on the EEOC damages award, seeking compensatory damages in addition to back pay and benefits. The parties stipulated to liability on the Title VII violation and the only issue was the amount of damages. The Postmaster General, by pre-trial motion, objected to the admission of the May 5^th EEOC decision and order on the grounds that the document was irrelevant, prejudicial and was inadmissible hearsay. The Court granted the motion, but as a substitute for the excluded evidence, required the parties to draft a stipulated statement of facts providing relevant background on the incident and the investigation. That stipulation was read to the jury at the time of trial. Furthermore, the Court twice instructed the jury that liability on the sex discrimination claim was established, and the only issue before them was whether plaintiff had suffered emotional distress as a result of the USPS's failure to conduct an adequate investigation of the alleged assault. The jury awarded plaintiff no compensatory damages. The Court then made an equitable award of back pay and lost benefits in the amount of $8,525.68. Plaintiff appealed to the Ninth Circuit on the claim that the Court erred in excluding the EEOC decision and order, by failing to grant a motion for a new trial and failing to detail how equitable damages were calculated.

The Ninth Circuit drew a distinction between the EEOC probable cause determination and the subject EEOC "decision and order," noting that the prior indicates only that there is a probable cause of a violation, while the latter is a conclusive determination of a violation of Title VII. The Court referred to its ruling in Gilcrist v. Jim Slemmons Imports, Inc. 803 F.2d 1488 (9^th Cir. 1986), that the per se admissibility rule did not apply to an EEOC "letter of violation" because the letter's conclusive determination of a Title VII violation might prejudice the jury. The same was true of the EEOC decision and order. The Ninth Circuit ruled that pursuant to Federal Rules of Evidence 402 and 403, the District Court did not abuse its discretion.

The Ninth Circuit noted that the only issue before the jury was whether plaintiff was owed compensatory damages as a result of the USPS's sexually discriminatory investigation of the alleged confrontation. The Court then noted that the award of $8,525.68 was derived from plaintiff's own damage submissions for back pay, night differential and annual sick leave, and noted that an award of more than $8,500.00 to plaintiff actually was rather generous.

C. Ninth Circuit Rules That An Employer Who Refuses To Arbitrate A Grievance Is Barred From Asserting The Defense That The Employee Failed To Exhaust His Arbitral Remedies.

In Sidhu v. Flecto Company, Inc. (2002 Daily Journal D.A.R. 1401) (opinion by Judge Rawlinson, Reinhardt and Hawkins concurring), appellant Tarlochan Sidhu ("Sidhu") was an employee of Flecto and was subject to a collective bargaining agreement. In 1995, Sidhu sustained an industrial injury and commenced a leave during which, in 1996, Flecto laid off five employees, including Sidhu. The Union grieved Sidhu's layoff and in September of 1997 filed a petition to compel arbitration. The District Court dismissed the motion because it was untimely.

In June of 1998, Sidhu presented Flecto with a medical release and asked to return to work, which was denied by the employer. The Union filed another grievance on Sidhu's behalf, alleging that Flecto violated the section of the collective bargaining agreement which governs when employees may return to work after leaving for medical reasons. Although the 1998 agreement was brought to enforce a different section of their collective bargaining agreement, both grievances involved the issue of seniority.

Flecto denied the 1998 grievance on the merits and on the basis that the collective bargaining agreement did not apply to Sidhu. Flecto refused the Union's request that the dispute be resolved pursuant to the grievance procedures in the collective bargaining agreement. Rather than seeking to compel arbitration, the Union filed a suit against Flecto under Labor Management and Relations Act section 301, claiming that when an employer repudiates the contract procedures designed to resolve the grievance, he is estopped by his own conduct to rely on the unexhausted grievance and arbitration procedures as a defense to the employee's cause of action. Finding that the employer refused to arbitrate under the collective bargaining agreement, the Court found that plaintiff was excused from the exhausting requirement based on Flecto's repudiation of the grievance procedures to his claim.

The employer argued that the plaintiff was not excused from the exhausting requirement because the Union did not file a suit to compel arbitration. The Court noted, however, that according to the terms of the CBA a request for arbitration is the final step in the grievance procedure. The decision of the arbitrator is final and binding on the employer, the Union and the employee. Plaintiff, through the Union, requested, and even demanded arbitration proceedings which were refused. Plaintiff therefore exhausted all the procedures contained in the collective bargaining agreement, which did not include legal action to compel arbitration.

Flecto also argued that in order to make a showing of repudiation, plaintiff must establish that the entire agreement was repudiated. The Court noted, however, that the "total repudiation" requirement intended to bar an employer from making a claim of failure to exhaust when exhaustion was prevented by the employer's conduct. With regard to the employee, the Court adopted a grievance-specific repudiation approach. If the employer repudiates the procedures established in the CBA to govern a particular grievance, the grieved employee is relieved of the usual requirement to exhaust administrative remedies as to that grievance.

Flecto also argued that the present suit was barred under the doctrine of res judicata, citing to the 1997 petition to compel arbitration which was dismissed as untimely. The Court ruled, however, that the 1997 suit and the 1998, although involving the same parties, did not involve the same "claim or cause of action." The claims asserted in the two actions are different. The 1997 action involved layoff rights, which were governed by one section of the collective bargaining agreement, and the 1998 suit involved the right to return to work upon tendering a doctor's note, which is the subject of a separate section. Because neither party presented evidence to show the seniority and layoff provisions interrelate, the Court indicated that it had no reason to believe that all the evidence was entered in the two suits would be the same. Finally, the two suits did not rise out of the same transactional nucleus of facts. Accordingly, the Court's decision was reversed and remanded.

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D. Ninth Circuit Reverses Summary Judgment For Employer, Finding That National Guard Duty Absences May Have Been A Motivating Factor In Firing The Employee.

In Leisek v. Brightwood Corp. 16 D.L.R. AA-1 (9^th Cir. 1/22/02) (opinion by Judge Tashima, concurred in by Judge Thompson and Judge Graber), the Ninth Circuit reversed the District Court's award of summary judgment to the employer, finding that an employee's absences from work to fulfill National Guard Duty orders may have been a "motivating factor" in the employee's termination. John Leisek, a quality assurance inspector, attended various National Guard events with his hot air balloon with a National Guard insignia. Leisek charged that his employer violated the Uniform Services Employment and Re-employment Rights Act of 1994 ("USERRA"), which prohibits discrimination against persons because of their service in the Uniformed Services. Violation of USERRA occurs when a person's membership or service is a "motivating factor" in an employer's adverse action. The District Court granted the employer's motion for summary judgment, finding that plaintiff failed to establish a prima facie case for a violation of USERRA on the basis of his termination and his employer's failure to re-employ him.

In the spring and summer of 1996, Leisek received several written Guard orders to perform temporary duty at ballooning events. He asked for a leave of absence for the summer months, but the company denied his request and told him to stop soliciting ballooning events because his absence created a hardship on the company. Leisek submitted written orders to his employer for the events in Idaho and Wisconsin, but not for an event in Colorado which he planned to attend. His plant personnel manager denied his request to attend the Colorado event and told him that if he went to Colorado, he would be regarded as having quit voluntarily. Leisek went to Colorado, understanding that his employment with Brightwood had been terminated, and applied for re-employment in the fall. When he was asked to resubmit an employment application and refused, he was not re-employed.

The Act defined "service in the Uniform Services" as performance of duty "under competent authority," the Court observed. Leisek was not acting under National Guard orders for the Colorado event, however, the Court said the record indicated that the employer may also have been motivated to fire him because of his past and planned absences under National Guard orders. The Court further noted that the employer did not show that it would have fired Leisek even if he had not been active in the Guard. Accordingly, because Leisek's Guard status may have been a "motivating factor" in the employer's decision to terminate him, it reversed summary judgment on that count. Moreover, the Court affirmed the District Court's ruling that Leisek was not entitled to re-employment rights because he attended the Colorado event without orders to do so, and therefore, his absence from work was not necessitated by his Guard duty.

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OTHER UNITED STATES COURTS OF APPEAL

A. Eighth Circuit Rules Employee's Comment Of "Depression Again" May Be Valid Request For FMLA Leave.

In Spangler v. Federal Home Loan Bank of Des Moines (8^th Cir. 1/30/02) 22 D.L.R. A-2, the Eighth Circuit ruled that a bank employee's statement that she would be absent from work because of "depression again" could satisfy the "valid request" criteria necessary under the Family Medical Leave Act ("FMLA"), especially given the Bank's notice that Spangler had suffered with depression for many years. The Court, however, affirmed summary judgment for the employer on plaintiff's Americans With Disabilities Act ("ADA") claim, finding that attendance problems related to her depression prevented her from fulfilling the essential functions, and therefore, she was not qualified under the ADA.

OTHER UNITED STATES DISTRICT COURTS

A. District Court Rules That Gay Postal Worker Can Proceed with Title VII Suit.

In Centola v. Potter (D.C. Mass. 1/29/02), the Court denied the U.S. Postal Service's motion for summary judgment on the grounds that Title VII prohibits neither discrimination based on sexual orientation nor retaliation for opposing discrimination based on sexual orientation. Plaintiff Steven Centola contended that during his seven years with the Postal Service he was constantly harassed by co-workers who portrayed him as effeminate and implied that he was a homosexual. Although Centola is homosexual, he never disclosed his sexual orientation to any of his co-workers or managers. Centola alleged that co-workers taped pictures of Richard Simmons in pink hotpants at his work station, asked him if he would march in a gay parade, asked him if he had AIDS yet, called him a "sword-swallower," and posted cartoons mocking gay men at his station.

The Court ruled that harassment of men by other men is actionable under Title VII so long as there has been discrimination because of sex, and stated that the line between discrimination because of sexual orientation and discrimination because of sex is not clear. If an employer acts upon stereotypes about sexual roles in making employment decisions or allows the use of these stereotypes in the creation of a hostile or abusive work environment then a violation of Title VII may be shown, the Court ruled.

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