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June 26, 2005

Ryan's certiorari petition

The 6th Circuit refused to enforce a pre-dispute arbitration agreement signed by employees of Ryan's Family Steakhouses' multi-state restaurant chain. Walker v. Ryan's (6th Cir 03/09/2005). Ryan's has petitioned [here] the US Supreme Court for a writ a certiorari.

Ryan's lost on several issues, and the petition invites the Supreme Court to correct them. The formal "Questions Presented" section of the petition raises four main points, claiming that the Court of Appeals improperly:

  • Used a heightened "knowing and voluntary" standard for waiver of a jury trial.
  • Used extraordinary scrutiny to declare the agreements unconscionable under state law, thus showing hostility to arbitration agreements.
  • Applied the law of Tennessee to agreements that were entered into in other states.
  • Invalidated the agreements based on a perceived potential for structural bias in the arbitration system.

Lawyers on the petition: Michael S. Pitts (counsel of record) and E. Grantland Burns of Nexsen Pruet Adams Kleemeir; David E. Nagle of LeClair Ryan.

My view:

  • The real question in a petition for a writ of certiorari is whether a case merits the precious time and attention of nine Supreme Court Justices. Let's assume the 6th Circuit was wrong on all four points raised in the petition. In order to win, Ryan's must prevail on all four of them. That makes this case somewhat cumbersome for the Court, which prefers to decide single-issue cases.
  • The Court is usually looking for cases that involve a split of authority between the Circuits, and Ryan's does not make a good case for such a split.
  • Perhaps the Court will see this as case as being important because the 6th Circuit used a variety of legal devices to circumvent the core policy of the Federal Arbitration Act, which was to eliminate judicial hostility toward arbitration agreements.

Posted June 26, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

Ryan's certiorari petition

The 6th Circuit refused to enforce a pre-dispute arbitration agreement signed by employees of Ryan's Family Steakhouses' multi-state restaurant chain. Walker v. Ryan's (6th Cir 03/09/2005). Ryan's has petitioned [here] the US Supreme Court for a writ a certiorari.

Ryan's lost on several issues, and the petition invites the Supreme Court to correct them. The formal "Questions Presented" section of the petition raises four main points, claiming that the Court of Appeals improperly:

  • Used a heightened "knowing and voluntary" standard for waiver of a jury trial.
  • Used extraordinary scrutiny to declare the agreements unconscionable under state law, thus showing hostility to arbitration agreements.
  • Applied the law of Tennessee to agreements that were entered into in other states.
  • Invalidated the agreements based on a perceived potential for structural bias in the arbitration system.

Lawyers on the petition: Michael S. Pitts (counsel of record) and E. Grantland Burns of Nexsen Pruet Adams Kleemeir; David E. Nagle of LeClair Ryan.

My view:

  • The real question in a petition for a writ of certiorari is whether a case merits the precious time and attention of nine Supreme Court Justices. Let's assume the 6th Circuit was wrong on all four points raised in the petition. In order to win, Ryan's must prevail on all four of them. That makes this case somewhat cumbersome for the Court, which prefers to decide single-issue cases.
  • The Court is usually looking for cases that involve a split of authority between the Circuits, and Ryan's does not make a good case for such a split.
  • Perhaps the Court will see this as case as being important because the 6th Circuit used a variety of legal devices to circumvent the core policy of the Federal Arbitration Act, which was to eliminate judicial hostility toward arbitration agreements.

Posted June 26, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

May 24, 2005

email did not create duty to arbitrate

The company president sent an email to all employees, including Roderick Campbell, and attached a new policy containing an arbitration clause. When Campbell sued under the ADA, the company moved to compel arbitration. Motion denied. Campbell v. General Dynamics Government Systems Corp (1st Cir 05/23/2005).

The company's theory was simple. They sent an email with a new policy attached, and that was an offer which Campbell (an at-will employee) accepted by continuing to work. Presto, a contract, enforceable under the Federal Arbitration Act (FAA).

The 1st Circuit said this agreement could not be enforced as to Campbell's claim arising under the Americans with Disabilities Act (ADA).

The court assumed that the agreement would be enforceable under state law.

The ADA contains a dispute resolution provision, Section 513 (42 USC 12212):

Where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including settlement negotiations, conciliation, facilitation, mediation, factfinding, minitrials, and arbitration, is encouraged to resolve disputes arising under this Act.

The focus became the statutory word "appropriate." The court found no general problem with the use of email, and even cited the E-Sign Act (15 USC 7001-7031). The problem was that the company typically did not use email to handle personnel matters, and had never before used email as means of creating a contractual term that was to become a condition of employment. In addition, the email message did not sufficiently bring home to Campbell that the attached policy contained an arbitration clause that would bind him if he kept working. In short, the email did not provide the employee with "minimally sufficient notice by signalling to a reasonable employee that the Policy was a contractual instrument whose terms would be deemed accepted upon continued employment."

My view: The court applied federal law here, although the language is "offer-and-acceptance," suggesting state law of contract formation. The federal law is ADA Section 513.

This is an intensely fact-driven case. It does not mean employers can't use email to form contracts (including contracts to arbitrate ADA cases) that will be enforceable under the Federal Arbitration Act. It means that the email (or whatever communication method is used) must contain enough of a "red flag" to put an employee on notice that the employer intends to change the contractual relationship.

For more discussion, see Michael Fox's comments at Jottings By An Employer's Lawyer.

Posted May 24, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

May 16, 2005

Modifiable agreement supported by consideration

Lots of cases say arbitration agreements are not enforceable (for lack of consideration) when the employer retains the unilateral right to modify the arbitration rules. Courts often refer to these deals as "illusory promises," which are not promises at all, and therefore cannot be consideration for the employee's promise to arbitrate.

The agreement between La'Tia Holloman and Circuit City Stores allowed the employer to modify the arbitration rules on March 1 of any year upon giving 30 days written notice.

The fact that the employer had to give notice distinguished Holloman's case from the other cases. The employer's promise was not illusory, and there was consideration. Holloman v. Circuit City Stores (Maryland Ct App 05/05/2005).

My view: The contract-formation doctrine of "consideration" is a question of state law that is not preempted by the Federal Arbitration Act (FAA), so there can be different results from state-to-state. The Maryland case follows the analysis given in the Restatement of Contracts, and is probably the general rule (at least in cases not involving employment arbitration).

Posted May 16, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

May 08, 2005

Promise to arbitrate is consideration

One way to prevent enforcement of an agreement to arbitrate is to show that the agreement lacked consideration. If no consideration, then no contract, then no arbitration requirement.

When Shedrick Payne sued his former employer, Kinko's moved to compel arbitration under an agreement Payne had signed. Payne argued there was no consideration, the trial court bought his argument and refused to compel him to arbitrate. According to the trial court, Kinko's gave no consideration in exchange for Payne's promise to arbitrate.

The Florida Court of Appeals reversed. The legal rule is simple. Kinko's agreement to submit to arbitration is sufficient consideration for Payne's agreement to submit to arbitration. Kinko's v. Payne (Florida Ct App 05/06/2005)

The court also trashed Payne's argument that he signed the agreement by mistake. Unless he was prevented from reading it or coerced into signing it, he's bound by what's in it.

My view: One of the state law doctrines that is not preempted by the Federal Arbitration Act (FAA) is the doctrine of consideration. Being state law, the rules vary from state to state. Florida has taken the modern view that "consideration" exists if one party has agreed to do something it otherwise had a legal right not to do. In this case, the right not to arbitrate. Other states sometimes make it more difficult to establish that consideration exists, often looking for some extra payment of money.

The doctrine of consideration historically developed as a means of sorting out enforceable agreements (business deals, mainly) from non-enforceable agreements (e.g. - promises to make gifts, social promises). Arbitration agreements are business deals. However, some courts use the doctrine of consideration as a method for refusing to enforce agreements that they don't like (that is, they don't like for some other reason).

Posted May 08, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

March 09, 2005

How not to set up an arbitration system

Ryan's Family Steak Houses set up an interesting three-party arbitration arrangement. (1) Potential employees signed an agreement with Employment Dispute Services, Inc. (EDSI), an arbitration service-provider, agreeing to use EDSI as an arbitration forum. In theory, Ryan's could enforce that contract as a third-party-beneficiary. (2) Ryan's and EDSI had a contract in which Ryan's agreed to use EDSI to resolve employee disputes. In theory, an employee could enforce that contract as a third-party-beneficiary.

The 6th Circuit found so many flaws in this deal that I cannot list them all. In Walker v. Ryan's (6th Cir 03/09/2005) employees sued claiming FLSA violations, and Ryan's moved to compel arbitration. Denied; denial affirmed.

Lack of consideration - no contract

EDSI provided no consideration to the employees because EDSI retained the right to modify its arbitration rules at any time. Ryan's provided no consideration because it was not obligated to submit its employment disputes to EDSI.

No knowing and voluntary waiver - no contract

Lots of facts on this point. Plaintiffs were poorly educated, in dire financial circumstances, were hired quickly with time to read the arbitration policy, possibly got misleading information from managers. Bottom line: No waiver of the right to go to court.

Lack of mutual assent - no contract

The arbitration language was on page 10 of an 11 page contract; it was a take-it-or-leave it deal in which the employee had no bargaining power; the employee was poorly educated; and the agreement was not adequately explained. Conclusion: no mutual assent.

Biased arbitration panel

The 6th Circuit found that the EDSI arbitration forum was not neutral, and that made the agreement unenforceable. EDSI is a for-profit company and Ryan's provided 42 percent of its gross income during one year. Said the court, "Ryan's effectively determines the ... pools of arbitrators." On top of that, EDSI had no protocol for selecting potential arbitrators out of its pools of arbitrators. Usually, arbitrator bias is a matter for post-arbitration litigation, but here the court felt that this system was "fundamentally unfair."

OK Ryan's. Maybe you should try using a real arbitration system.

Posted March 09, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

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