Wednesday, May 14, 2003
Retailer’s Revised Arbitration Pact Still Unconscionable—Court
By KENNETH OFGANG, Staff Writer/Appellate Courts
An arbitration agreement used by the Circuit City electronics chain, revised after previous legal attacks, was still unconscionable and unenforceable in California, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The panel affirmed an order by Senior U.S. District Judge Edward J. Schwartz of the Southern District of California, denying Circuit City’s motion to compel arbitration of a former employee’s suit for sexual harassment and retaliation.
The plaintiff, Catherine Ingle, began work at a store in San Diego County in 1996. The arbitration agreement was part of her application for the job.
She filed suit in June 1999, and the motion to compel arbitration was denied three months later on the basis of Duffield v. Robertson, Stephens & Co., 144 F.3d 1182 (9th Cir. 1998). That case held that an agreement to arbitrate claims brought under Title VII, the Civil Rights Act of 1964, is unenforceable.
A later Ninth Circuit panel held that Duffield was no longer controlling because of Circuit City Stores v. Adams, 532 U.S. 105 (2001). But that panel’s ruling in Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps, 00-57222, is awaiting en banc review.
Judge Harry Pregerson, dissenting in Luce, argued that the Supreme Court’s Adams ruling was inapposite. Adams held that the Federal Arbitration Act applies to employment agreements, but Pregerson said it did not overrule Duffield because Adams did not deal with a Title VII claim.
Pregerson also wrote yesterday’s opinion, declaring that Ingle cannot be compelled to arbitrate her claims, even if Duffield does not control.
The jurist cited the Ninth Circuit’s opinion in Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002). On remand from the Supreme Court, the panel said that the FAA did not preclude a finding that Circuit City’s agreement was unenforceable under California contract law.
The arbitration procedures applicable to Ingle’s claim, Pregerson explained, were adopted after the procedures rejected in last year’s Adams decision, but suffered from the same deficiencies. Since the agreement is procedurally and substantively unconscionable under California law, Pregerson said, it cannot be enforced against a California-based employee, regardless of the subject of the claim.
To hold an agreement unenforceable based on unconscionability, the judge explained, it must be both procedurally and substantively unconscionable, although the California Supreme Court has held that procedural and substantive unconscionability “need not be present in the same degree.”
The arbitration agreement was procedurally unconscionable because of the inequality of bargaining power between the multi-state retailer and its would-be sales associate. The fact that Ingle had a few days to consider the agreement’s implications before starting work was irrelevant, Pregerson said, because she was in no position to reject it or negotiate its terms.
As to the substance, Pregerson said, there were numerous “one-sided” provisions written solely to benefit the employer.
The agreement, the judge noted, was implicitly limited to employee-initiated claims, required the employee to initiate arbitration within one year of occurrence, barred class actions, required the employee to pay a $75 fee to Circuit City in order to initiate arbitration, made no provision for a waiver of the fee in cases of hardship, allowed the arbitrator to award Circuit City a portion of its arbitration expenses if it prevailed, limited the arbitrator’s ability to award remedies provided by law, and allowed Circuit City to unilaterally amend the agreement’s terms on 30 days’ notice.
Pregerson also rejected Circuit City’s urging to sever the provisions the court found objectionable and allow the agreement to be enforced. Severance is not acceptable when there is an “insidious pattern” of one-sided provisions that “stack the deck” in favor of the employer, the judge said.
“Any earnest attempt to ameliorate the unconscionable aspects of Circuit City’s arbitration agreement would require this court to assume the role of contract author rather than interpreter,” Pregerson wrote. “Because that would extend far beyond the province of this court we are compelled to find the entire contract unenforceable.”
Pregerson was joined in the opinion by Judge Kim M. Wardlaw and Senior Judge David Thompson.
The case is Ingle v. Circuit City Stores, Inc., 99-56570.
Copyright 2003, Metropolitan News Company