Davis v. Joseph J. Magnolia, Inc. ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
)
BLYDEN A. DAVIS, )
)
Plaintiff, )
)
v. ) Civ. Action No. 08-290 (EGS)
)
JOSEPH J. MAGNOLIA, INC., )
)
Defendant. )
______________________________)
MEMORANDUM OPINION
Plaintiff Blyden A. Davis has filed discrimination and
retaliation claims against defendant Joseph J. Magnolia, Inc., his
former employer, pursuant to Title VII of the Civil Rights Act of
1964 (“Title VII”), 42 U.S.C. § 2000e et seq., and the District of
Columbia Human Rights Act (“DCHRA”), D.C. Code § 2-1401.01 et seq.
After conducting limited discovery, the parties filed cross-
motions for summary judgment on the question of whether they
entered a binding agreement to arbitrate plaintiff’s claims. Upon
consideration of the motions, the responses and replies thereto,
the applicable law, and the entire record, and for the reasons
stated herein, the Court GRANTS plaintiff’s motion for summary
judgment on the issue of arbitration and DENIES defendant’s cross-
motion for summary judgment and dismissal pursuant to the Federal
Arbitration Act (“FAA”).
1
I. BACKGROUND
Plaintiff, an African-American male, was employed as an
equipment operator by defendant, a for-profit Maryland corporation
headquartered in the District of Columbia. Compl. ¶¶ 2, 12. He
began his employment with defendant in March 2005 and worked
continuously for the company through his termination in May 2006.
Compl. ¶ 12. Plaintiff alleges that in July 2005, he heard his
Caucasian supervisor refer to him as a “Nigger.” Compl. ¶ 13. On
or about October 17, 2005, he complained to defendant’s human
resources office about the alleged incident and the hostile work
environment he believed he was being subjected to based on his
race. Compl. ¶ 14. Approximately one week later, plaintiff was
transferred to work under a different supervisor. Compl. ¶ 15.
Around January 6, 2006, plaintiff filed a complaint with the
District of Columbia Office of Human Rights (“OHR”) alleging
discrimination and retaliation. The complaint was cross-filed
with the U.S. Equal Employment Opportunity Commission (“EEOC”)
pursuant to a work-sharing agreement between those agencies.
Compl. ¶ 5. Plaintiff alleges that he was reprimanded and issued
warnings by defendant for unfounded reasons as a result of the
complaints he made to defendant’s human resources office and the
OHR. Compl. ¶ 17. Defendant admits that plaintiff was
reprimanded, but maintains that the warnings were performance-
related. Answer at 7.
2
Around April 20, 2006, plaintiff was summoned at the end of
the workday to collect his paycheck and sign a two-page document
titled “Receipt and Acknowledgment of The Magnolia Companies
Employment Benefits and Guidelines Manual” (“Form”). Mem. P. & A.
Supp. Pl.’s Mot. Summ. J. (“Pl.’s Mem.”) at 2. The arbitration
policy was referenced on the first page of the Form only, and
plaintiff claims that he was only shown the second page. See
Pl.’s Mem. at 3; Def.’s Mem. Supp. Summ. J. & Dismissal (“Def.’s
Mem.”) at Ex. 1. Nevertheless, plaintiff does not dispute that he
did sign the Form. Def.’s Mem. at Ex. 2; Reply Br. Further Supp.
Def.’s Mot. Summ. J. & Dismissal (“Def.’s Reply”) at 7.
Plaintiff alleges that human resources refused to release his
paycheck unless he immediately signed the Form. Pl.’s Opp’n
Def.’s Mot. Dismiss at Ex. 1 (“Davis Aff.”) ¶ 5; Pl.’s Mem. at 2.
Defendant’s human resources director and manager both state,
however, that they did not overhear their assistant, who
distributed the paychecks, demand a signature in return for the
paycheck and that plaintiff did not approach them to complain
about a withheld paycheck. Def.’s Mem. at Ex. 5 (“Tormo Aff.”) ¶
10; Def.’s Mem. at Ex. 7 (“Woldemichael Aff.”) ¶ 10.
Plaintiff contends, and defendant does not dispute, that on
all other occasions he received his paycheck at the beginning of
the day. Davis Aff. ¶ 11. Defendant asserts the late paycheck
distribution was timed to coincide with the distribution of the
3
revised Employee Manual (“Manual”) for administrative efficiency.
Tormo Aff. ¶ 5; Woldemichael Aff. ¶ 4. Moreover, defendant
asserts that, upon request, employees were given additional time
to review the Manual before signing the Form. Tormo Aff. ¶¶ 6-7;
Woldemichael Aff. ¶¶ 5-6. In support of this assertion, defendant
points to evidence of one employee who requested and received
additional time.1 Tormo Aff. ¶ 8; Woldemichael Aff. ¶ 7.
Around May 4, 2006, two weeks after plaintiff signed the
Form, defendant terminated plaintiff’s employment. Davis Aff. ¶
12. Plaintiff subsequently supplemented his OHR complaint to
include an additional retaliation claim based on his termination.
Id. at ¶ 13. In December 2006, the OHR mailed a Letter of
Determination to plaintiff dismissing his claims, and the EEOC
adopted the OHR’s decision. Compl. ¶¶ 7, 9.
On February 20, 2008, plaintiff filed a three-count complaint
in this Court alleging violations of Title VII and the DCHRA.
Defendant filed a motion to dismiss the complaint pursuant to the
FAA, which the Court denied on the basis that plaintiff was
entitled to some discovery on the issue of whether a binding
arbitration agreement exists. The parties have conducted that
1
Defendant does not indicate whether this employee’s paycheck was
withheld, but the employee apparently took approximately one month to return
the signed Form. See Woldemichael Aff. ¶ 7.
4
discovery and filed cross-motions for summary judgment.2 Those
cross-motions are now ripe for decision by this Court.
II. LEGAL FRAMEWORK
A. The FAA
The FAA provides that
[a] written provision in . . . a contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contractor
transaction, or the refusal to perform the whole or any
part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such
a contract, transaction, or refusal, 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. The FAA’s purpose was to “reverse the longstanding
judicial hostility to arbitration agreements that had existed at
English common law and had been adopted by American courts, and to
place arbitration agreements upon the same footing as other
contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,
24 (1991). As such, public policy favors arbitration. See EEOC
2
Plaintiff objects to what he describes as defendant’s late-filed
opposition to plaintiff’s motion for summary judgment, and urges the Court to
disregard any of the arguments advanced in that filing. See Pl.’s Combined
Mem. Opp’n Def.’s Mot. Summ. J. & Reply (“Pl.’s Combined Mem.”) at 2 n.1. In
addition, plaintiff points to defendant’s failure to file a separate statement
of material facts as required by Local Civil Rule 7 and Federal Rule of Civil
Procedure 56.1. The Court recognizes that - contrary to the briefing schedule
put in place by the Court, which required defendant to submit a combined
cross-motion and opposition to plaintiff’s motion - defendant filed its
opposition and cross-motion separately. Because defendant’s opposition was
filed through the electronic case filing system only ten minutes after
midnight on the date its filing was due, the Court will overlook this delay.
The Court will also reluctantly excuse defendant’s noncompliance with the
briefing schedule ordered by the Court and its failure to attach a separate
statement of material facts in dispute. Defendant is cautioned, however, that
future failures to comply with the rules and orders of this Court will not be
tolerated.
5
v. Waffle House, Inc., 534 U.S. 279, 289 (2002). Employment
contracts, moreover, are covered under the FAA. Circuit City
Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001). The FAA,
however, “does not operate without regard to the wishes of the
contracting parties.” Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 57 (1995). To the contrary, because
“[a]rbitration under the Act is a matter of consent, not
coercion,” it is well-established that “the FAA does not require
parties to arbitrate when they have not agreed to do so.” Volt
Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior
Univ., 489 U.S. 468, 478-79 (1989).
B. Standard of Review
Pursuant to Federal Rule of Civil Procedure 56, summary
judgment should be granted if the moving party has shown that
there are no genuine issues of material fact and that the moving
party is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986);
Waterhouse v. District of Columbia, 298 F.3d 989, 991 (D.C. Cir.
2002). In determining whether a genuine issue of material fact
exists, the court must view all facts in the light most favorable
to the non-moving party. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986). Likewise, in ruling
on cross-motions for summary judgment, the court shall grant
summary judgment only if one of the moving parties is entitled to
6
judgment as a matter of law upon material facts that are not
genuinely disputed. See Rhoads v. McFerran, 517 F.2d 66, 67 (2d
Cir. 1975).
III. DISCUSSION
The parties agree that Title VII claims are a legitimate
matter for arbitration, but dispute whether a valid agreement to
arbitrate exists between them and whether the existence of such an
agreement is more appropriately ascertained by a court or
arbitrator. In order to resolve these questions, the Court must
address whether (1) a judicial or arbitral forum is appropriate
for resolving the present dispute, (2) the agreement should apply
retroactively to claims plaintiff raised with the OHR before he
signed the Form, and (3) there was consideration for the agreement
to arbitrate.3
A. The Proper Forum
As a preliminary matter, defendant argues that an arbitrator,
not this Court, must resolve plaintiff’s claim that there is no
enforceable arbitration agreement. Defendant cites Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 445-46 (2006), for the
proposition that when a party challenges the validity of the
entire contract, rather than an arbitration provision
specifically, that challenge must be heard by an arbitrator. See
3
Plaintiff also argues that the agreement was either unconscionable or
the result of economic duress. But because the Court concludes that the
arbitration provision is unenforceable for other reasons, it declines to
address this issue.
7
Def.’s Mem. Opp’n Pl.’s Mot. Summ. J. (“Def.’s Opp’n”) at 6. In
Buckeye, the petitioner asserted that a contract, signed on each
occasion that he had cashed a check with respondent and which
included an arbitration provision, was illegal because of usurious
charges. 546 U.S. at 442-43. Relying on earlier cases addressing
the body of federal substantive law governing arbitration, the
Court held that “a challenge to the validity of the contract as a
whole, and not specifically to the arbitration clause, must go to
the arbitrator.” Id. at 449; see also Qwest Commc’ns Corp. v.
Ansari, No. 05-1836, 2007 WL 172318, at *3 (D.D.C. Jan. 23, 2007)
(holding that arbitration was required where the contract as a
whole, not the arbitration clause, was questioned).
Plaintiff distinguishes Buckeye and Qwest by arguing that he
is challenging both the Form and Manual as a whole and the
specific language of the arbitration policy. Pl.’s Combined Mem.
Opp’n Def.’s Mot. Summ. J. & Reply (“Pl.’s Combined Mem.”) at 7.
Furthermore, plaintiff asserts that defendant “ignores the
hundreds, if not thousands, of federal cases in this circuit and
others, which decide whether a dispute must be arbitrated.” Pl.’s
Combined Mem. at 7; see, e.g., Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 84 (2002) (“[A] gateway dispute about whether
the parties are bound by a given arbitration clause raises a
‘question of arbitrability’ for a court to decide.” (citation
omitted)); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
8
944 (1995) (“Courts should not assume that the parties agreed to
arbitrate arbitrability unless there is ‘clea[r] and
unmistakabl[e]’ evidence that they did so.” (alterations in
original) (quoting AT&T Techs., Inc. v. Commc’ns Workers of Am.,
475 U.S. 643, 649 (1986)))); AT&T Techs., 475 U.S. at 649
(explaining, in the context of a collective bargaining agreement,
that “the question of arbitrability . . . is undeniably an issue
for judicial determination. Unless the parties clearly and
unmistakably provide otherwise, the question of whether the
parties agreed to arbitrate is to be decided by the court, not the
arbitrator.”); Nur v. K.F.C., USA, Inc., 142 F. Supp. 2d 48, 50-51
(D.D.C. 2001) (noting that before ruling on a motion to dismiss,
the court had to determine whether parties entered into a binding
arbitration agreement).
The cases cited above demonstrate that disagreements between
parties over whether they intended particular issues to be
arbitrated – and whether they are bound by an arbitration clause
at all – are questions for judicial determination. This Court,
not an arbitrator, must resolve whether there was a meeting of the
minds with respect to arbitration of plaintiff’s discrimination
claims.
B. Retroactive Application of the Arbitration Policy
Plaintiff contends that he should not be obligated to
arbitrate the hostile work environment claim he filed with the OHR
9
before he signed the Form. Pl.’s Mem. at 9. Relying on Bailey v.
Federal National Mortgage Association, 209 F.3d 740, 744 (D.C.
Cir. 2000), plaintiff maintains that he “clearly signal[ed]” his
rejection of arbitration and put defendant “on notice” of his
preference for a judicial forum. Pl.’s Mem. at 9 (quoting Bailey,
209 F.3d at 744-45); see 209 F.3d at 744 (affirming the district
court’s factual finding that the parties never contractually
agreed to arbitrate where the employee filed his claims with the
EEOC before the execution of the arbitration agreement).
Moreover, plaintiff argues that it would be inequitable to expect
him to have understood that the Form would impact his rights
related to a pending matter. Id. at 10.
Defendant does not directly address the reasonableness of
applying the arbitration policy retroactively, nor does it respond
to plaintiff’s claim that the decision to file his complaint with
the OHR constituted a rejection of defendant’s contract terms.
Defendant does, however, distinguish Bailey by pointing out that
the employee in that case, in contrast to plaintiff, never
executed a written agreement with his employer to arbitrate.
Def.’s Reply at 5; see Bailey, 209 F.3d at 745.
Under District of Columbia law, “the party asserting the
existence of the contract has the burden of proving its existence”
by showing that there was a meeting of the minds as to all
material respects. Shelton v. Ritz Carlton Hotel Co., 550 F.
10Supp. 2d 74, 79 (D.D.C. 2008) (citing Bailey, 209 F.3d at 746).
Neither party cited the recent decision in Shelton, but this Court
nevertheless finds its reasoning persuasive as applied to the
present facts. In Shelton, the court considered whether an
arbitration clause in an employment agreement signed in June 2005
applied to a discrimination claim arising out of an incident that
occurred the previous month. Id. at 79-80. The Shelton court
viewed with skepticism the employer’s attempt to apply the
arbitration clause retroactively, finding no language in the
employment agreement that indicated intent to enforce the
arbitration clause in this manner. Id. As a result, the court
held that arbitration was enforceable only with respect to claims
arising after the execution of the agreement. Id.
As in Shelton, neither the Manual nor the Form contain any
language expressing an intent to apply the arbitration policy to
past claims. Likewise, plaintiff’s initial discrimination claim,
though not his retaliatory termination claim, preceded the
execution of the revised Manual containing the new arbitration
policy. The alleged incidents that gave rise to the parties’
dispute in this case, moreover, are what prompted plaintiff to
file a claim with the OHR four months before he signed the Form.
As such, the principle against retroactive application articulated
in Shelton applies with even greater force in the present case.
11
Defendant cites no case in support of the proposition that
the arbitration agreement should be applied retroactively, and the
legal principles discussed above support the contrary proposition.
See, e.g., First Options, 514 U.S. at 945 (affirming “the
principle that a party can be forced to arbitrate only those
issues it specifically has agreed to submit to arbitration”);
Shelton, 550 F. Supp. 2d at 79-80. For these reasons, this Court
concludes that the arbitration clause is unenforceable as to
plaintiff’s claims that arose prior to the signing of the Form on
April 20, 2006. As the next section demonstrates, however, the
arbitration provision is unenforceable as claims that were filed
after that date as well.
C. Consideration
Plaintiff argues that he is not required to arbitrate any of
the claims raised in his complaint because the Form and Manual
contain conflicting language that renders defendant’s promise to
arbitrate illusory and the arbitration provision void for lack of
consideration. Pl.’s Mem. at 4-7; Pl.’s Combined Mem. at 5-6.
Defendant, however, responds that its mutual agreement to
arbitrate, pay all costs, and comply with the arbitration policy
constitutes sufficient consideration to support the agreement.4
4
Only defendant’s final argument merits any extended discussion.
First, the Court rejects defendant’s contention that plaintiff has not
responded to, and thus has conceded, the argument that defendant’s promise to
participate in arbitration and abide by its arbitration policy provided
consideration. See Def.’s Reply at 1. Plaintiff devotes significant space to
arguing that this promise to arbitrate was illusory, and defendant’s assertion
that the argument is conceded is therefore wholly without merit. The Court
12
Def.’s Mem. at 3; Def.’s Reply at 3-4. The Court agrees with
plaintiff.
A contract lacks consideration when one party’s promise is
illusory, and a promise is illusory when performance of that
promise is optional. See Restatement (Second) of Contracts § 77
(1981). Defendant notes that mutual agreements to arbitrate are
not illusory; rather, they are “independently sufficient forms of
consideration.” Sapiro v. Verisign, 310 F. Supp. 2d 208, 214
(D.D.C. 2004) (citing Morrison v. Circuit City Stores, Inc., 317
F.3d 646, 667 (6th Cir. 2003)). The essential question here is
whether the language of defendant’s Form and Manual created a
mutual agreement or permitted optional performance by defendant.
The Form signed by plaintiff explicitly states under the
heading “Arbitration,” that “I understand that Magnolia and I
entered into an agreement to abide by this policy.” Def.’s Mem.
at Ex. 1. Additionally, the Manual provides:
also rejects defendant’s position – articulated in both its Manual and its
briefing on the pending motions - that its commitment to pay all costs of
arbitration supplies consideration for the arbitration policy. Plaintiff
argued in his opening brief that defendant was already obligated by law to pay
all costs of arbitration, a point that defendant did not rebut. Indeed, the
D.C. Circuit has made clear that as a matter of law, defendant was under a
pre-existing duty to pay the costs of arbitration. See Cole v. Burns Int’l
Sec. Servs., 105 F.3d 1465, 1483-84 (D.C. Cir. 1997) (holding that an employer
cannot require an employee to pay all or part of an arbitrator’s fees through
an arbitration provision). Complying with this legal obligation does not
supply consideration. Finally, the Court emphasizes that defendant does not
contend that plaintiff’s employment, which was terminated two weeks after he
acknowledged receipt of the Manual, served as consideration for the agreement
to arbitrate. Accordingly, the only question before the Court is whether
defendant’s alleged promise to be bound by the arbitration constitutes
consideration to support the agreement.
13
“Magnolia reciprocally and in consideration of same will
initiate or participate in arbitration . . . .”
* * * *
“Magnolia has agreed . . . to be bound by the
arbitration procedure set forth in this Arbitration
Policy.”
* * * *
“Unlike the other policies and procedures in this
Employee Handbook, this Arbitration Policy is a legal
agreement.”
* * * *
“Except for the Arbitration Policy, the statements and
language in this Employee Handbook are not intended to
create . . . a contract between the company and any of
its employees.”
Def.’s Mem. at Exs. 3-4.
Defendant argues that because the disclaimers clearly exclude
the arbitration policy and defendant cannot unilaterally change or
cancel its arbitration policy, as a matter of law, the agreement
to arbitrate is not illusory. Def.’s Opp’n at 5-6; Def.’s Reply
at 1-2. Plaintiff, in turn, contends that defendant’s disclaimers
in the Form and Manual constitute an “escape route” by which
defendant’s agreement to abide by its arbitration policy is
rendered illusory. Pl.’s Mem. at 5; Pl.’s Combined Mem. at 3. In
particular, plaintiff points to two provisions:
“I understand that the policies and benefits described
in it are subject to change at the sole discretion of
Magnolia at any time.”
* * * *
14
“[T]he policies contained in this employee
handbook . . . are [not] intended to create a contract
of employment or a warranty of benefits. In addition,
circumstances will obviously require that policies,
practices, and benefits described in this handbook
periodically change. As such changes occur, updated
pages of this Employee Handbook will be distributed to
you.”
Def.’s Mem. at Exs. 1, 3.
Plaintiff cites numerous cases from other circuits holding
that a disclaimer in an employee manual renders an arbitration
provision unenforceable, but defendant effectively distinguishes
most of those cases on the facts. Compare Pl.’s Mem. at 4-8, with
Def.’s Reply at 4-6. The case most analogous to the present one
is Diaz v. Arapahoe (Burt) Ford, Inc., 68 F. Supp. 2d 1193, 1193-
94 (D. Colo. 1999). In Diaz, an employer sought to enforce an
arbitration provision in its employee manual based on the
employee’s signature on an “acknowledgment and receipt” form. See
id. at 1193. The arbitration provision included a sentence that
it “does not constitute an employment agreement . . . and does not
make any other provision of the Employee Manual contractual or
otherwise legally enforceable.” Id. at 1194 (alteration and
emphasis in original). The court concluded that the “disclaimer
in the handbook that nothing other than the arbitration provision
is ‘legally enforceable’ [was] fatal to the defendant’s position,”
because an employer should not have the power to select which
representations in its manual an employee’s “acknowledgment and
receipt” will make binding. Id.15
Defendant relies on Lumuenemo v. Citigroup, Inc., No. 08-830,
2009 WL 371901, at *1 (D. Colo. Feb. 12, 2009), in which another
judge on the same court rejected the Diaz court’s reasoning. Id.
at *2. In Lumuenemo, the court held that an employer could
include in an employee manual a subset of policies not subject to
unilateral revocation or modification that would be enforceable.
See id. at *3-4. Citing Tenth Circuit caselaw, the Lumuenemo
court acknowledged that an arbitration agreement allowing one
party the unfettered right to alter the arbitration agreement’s
existence or its scope would render that agreement illusory. Id.
at *4-5. The court reasoned, however, that an arbitration
agreement permitting the drafting party to modify the agreement
only under certain restrictions might not be illusory. Id.Importantly, in Lumuenemo, the court held that the arbitration
agreement in that case was not illusory because of the employer’s
self-imposed restrictions incorporated into the contract: a
thirty-day notice period before the arbitration provision would
take effect and the explicit commitment that the arbitration
provision applied prospectively only. See id.Defendant’s reliance on Lumuenemo, therefore, is misplaced.
Defendant asserts that its disclaimers clearly indicate that
defendant is bound by the arbitration policy. But unlike the
employer in Lumuenemo, it is far from clear that defendant lacks
the power under the terms of the Form and Manual to alter its
16
arbitration policy. To the contrary, the Manual states that
policies therein may “periodically change,” and that those changes
may occur “at the sole discretion of Magnolia.” Def.’s Mem. at
Exs. 1, 3. The Manual also provides no mention of a notice period
or other safeguards that in other cases have allowed disclaimers
to exist without rendering the agreement illusory. See Lumuenemo,
2009 WL 371901, at *5 (citing cases).
For these reasons, the Court concludes that conflicting
language in the Manual makes defendant’s performance optional.
Cf. Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1468 (D.C.
Cir. 1997) (explaining that close questions in the interpretation
of contract provisions are to be resolved against the drafter).
And because no other form of consideration supports the agreement
to arbitrate, the purported agreement to arbitrate is
unenforceable for lack of consideration.
IV. CONCLUSION
For the reasons set forth above, plaintiff’s motion for
summary judgment is GRANTED. Defendant’s motion for summary
judgment and dismissal pursuant to the FAA is DENIED. An
appropriate Order accompanies this Memorandum Opinion.
Signed: Emmet G. Sullivan
United States District Judge
July 31, 2009
17