Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-01522/USCOURTS-ca8-06-01522-0/pdf.json

Parties Involved:
Equal Employment Opportunity Commission
Appellee
Louella Rollins
Appellee
Woodmen of the World Life Insurance Society
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 06-1522

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Equal Employment Opportunity

Commission; Louella Rollins,

Appellees,

v.

Woodmen of the World Life

Insurance Society, and/or Omaha

Woodmen Life Insurance Society,

Appellant.

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Appeal from the United States

District Court for the

District of Nebraska.

 [PUBLISHED]

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Submitted: November 17, 2006

 Filed: March 9, 2007

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Before RILEY, HANSEN, and SMITH, Circuit Judges. 

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HANSEN, Circuit Judge.

The Woodmen of the World Life Insurance Society (Woodmen) sought to

compel its employee, Louella Rollins, to arbitrate her Title VII claims and to stay the

cross-claims she brought as an intervenor in the Equal Employment Opportunity

Commission's (EEOC) enforcement action filed against Woodmen. See 42 U.S.C.

§ 2000e-5(f). The district court ultimately denied Woodmen's motion, and it allowed

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Rollins to intervene in the EEOC action despite her agreement to arbitrate. Woodmen

appeals, and we reverse.

I.

Louella Rollins worked for Woodmen from 1989 to 2001 pursuant to a written

employment agreement that included an agreement "to resolve any and all claims,

demands, causes of action, charges and disputes of any nature whatsoever, . . . in any

way related to the relationship established by this contract, based on any theory . . .

including . . . any claims of or for . . . discrimination based on . . . sex . . . under any

state or federal law . . ." through alternative dispute resolution, including binding

arbitration. (Add. at 5.) Rollins filed a charge of sex discrimination with the EEOC

on September 20, 1999, alleging that Woodmen had failed to remedy a hostile work

environment created by her male subordinates and ultimately demoted Rollins after

she complained to Woodmen's Equal Employment Opportunity office about the

hostile environment. 

The EEOC commenced a Title VII enforcement action against Woodmen in

April 2003, and the district court granted Rollins' motion to intervene in that action

in October 2003. Concurrent with the motion to intervene, Rollins filed a cross-claim

against Woodmen that was nearly identical to the EEOC's enforcement action. In

August 2004, the district court granted Woodmen's motion to compel Rollins to

arbitrate the individual claims that she raised as an intervenor against Woodmen in the

Title VII action. The district court also stayed Rollins' participation in the EEOC's

enforcement action. Thereafter, Woodmen and Rollins entered into an agreement in

November 2004 entitled "Agreement to Binding Arbitration," which set out the

procedural details of the arbitration. Discovery proceeded concurrently in the EEOC

enforcement action and in the arbitration proceeding, and an arbitration hearing was

set to begin on May 24, 2005. Prior to the hearing, Rollins filed a motion seeking

relief from the district court's order compelling arbitration on the basis that the cost

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The district court's reasoning based on Rollins' bankruptcy filing was part of

its August 25, 2005, order. As noted, the Bankruptcy Court for the Middle District

of Pennsylvania subsequently determined that, to the extent it applied, the automatic

stay would be modified with respect to the Title VII action to the extent necessary to

litigate the case. In reinstating its August 25, 2005, order, the district court noted that

the bankruptcy stay would not prevent litigation of the case. (Add. at 26, Dist. Ct.

Order Feb. 3, 2006, at 3.) Thus, Rollins' bankruptcy proceeding could no longer form

part of the district court's reasoning for granting relief to Rollins in its February 3,

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of the arbitration made it inequitable to force her to arbitrate. Woodmen filed a

renewed motion to compel arbitration. The district court granted Rollins' motion and

denied Woodmen's renewed motion in an August 25, 2005, order, allowing Rollins

to avoid arbitration and to proceed in the EEOC suit.

 

Meanwhile, Rollins filed a Chapter 7 bankruptcy petition in July 2005 in the

Middle District of Pennsylvania. In October 2005 the district court stayed the EEOC's

current suit pending action by the Bankruptcy Court, which lifted the automatic stay

as it applied to this litigation in December 2005. On February 3, 2006, the district

court denied Woodmen's motion to amend the court's August 25, 2005, order denying

the motion to compel arbitration, and the district court reissued the August 2005 order.

Woodmen appeals. We have jurisdiction over the appeal of the denial of a motion to

compel arbitration pursuant to 9 U.S.C. § 16(a)(1)(C).

II.

The issue before this court is whether the district court properly excused Rollins

from arbitrating her individual discrimination claims and allowed her to proceed in the

EEOC's enforcement action as an intervenor. The district court granted Rollins'

requested relief on three bases: (1) because Rollins could not afford arbitration, (2)

because forcing Rollins to arbitrate would interfere with the EEOC's ability to pursue

its interests on behalf of the public, and (3) because Rollins had filed for bankruptcy

protection, listing the lawsuit in her bankruptcy schedules.1

 On appeal, Rollins asserts

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2006, order, despite reinstatement of the August 25, 2005, order, and we do not

further address the impact of Rollins' bankruptcy proceedings.

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that once the EEOC filed its enforcement action, she lost any right to litigate her

individual claims other than as an intervenor in the EEOC action, leaving nothing for

her to arbitrate. Rollins further asserts that the "external circumstances" of her

inability to pay for the arbitration proceeding foreclose enforcement of the arbitration

agreement. Woodmen contends that Rollins should be bound by her agreements to

arbitrate. 

We review de novo the district court's denial of Woodmen's motion to compel

arbitration. Suburban Leisure Ctr., Inc. v. AMF Bowling Prods., Inc., 468 F.3d 523,

525 (8th Cir. 2006). Under the Federal Arbitration Act (FAA), "[a] written provision

in any . . . contract evidencing a transaction involving commerce to settle by

arbitration a controversy thereafter arising out of such contract . . . 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. "[T]he FAA's purpose [was] 'to reverse

the longstanding judicial hostility to arbitration agreements . . . and to place arbitration

agreements upon the same footing as other contracts.'" Green Tree Fin. Corp.-Ala. v.

Randolph, 531 U.S. 79, 89 (2000) (quoting Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 24 (1991) (ellipses in original)). The federal policy manifested by the

FAA "is at bottom a policy guaranteeing the enforcement of private contractual

arrangements." Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 625

(1985) (internal marks omitted). Arbitration agreements encompassing federal

statutory claims are enforceable as long as the potential litigant can effectively

vindicate her statutory rights through arbitration. Green Tree, 531 U.S. at 90; see also

Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 946 (8th Cir. 2001) ("Title

VII claims are subject to individual consensual agreements to arbitrate."). In the Civil

Rights Act of 1991, Congress encouraged the use of alternative dispute resolution,

including arbitration, "to resolve disputes arising under the Acts or provisions of

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Federal law amended by this title," including Title VII. See Civil Rights Act of 1991,

Pub. L. No. 102-166, § 118, 105 Stat. 1071, 1081 (Congressional Note on the

interpretation of Title VII contained within the 1991 amendments to 42 U.S.C.

§ 2000e). In addressing a motion to compel arbitration then, courts generally "ask

only (1) whether there is a valid arbitration agreement and (2) whether the particular

dispute falls within the terms of that agreement." Faber v. Menard, Inc., 367 F.3d

1048, 1052 (8th Cir. 2004). 

The validity of the arbitration agreement is determined by state contract law.

Id. We construe the district court's reliance on Faber as raising a concern about the

conscionability of the arbitration agreement based on the fee structure. Id. at 1051

(noting that the arbitration agreement at issue required the parties to each pay one half

of the arbitrator's fees and their own attorney's fees). The Faber court looked to Iowa

contract law to determine whether the fee-splitting provision in the arbitration

agreement there at issue was unconscionable, thus invalidating the agreement under

state contract law. Id. at 1053. Both the original arbitration agreement contained in

Rollins' employment contract and the subsequent "Agreement to Binding Arbitration"

provide that the parties will share the costs of arbitration. Rollins introduced evidence

in the district court about the costs associated with the private arbitrator chosen to

conduct the arbitration proceeding and about her impending bankruptcy. The district

court determined that the spiraling costs, coupled with Rollins' financial situation,

relieved her of her obligation to continue the arbitration, particularly where she could

piggyback on the EEOC's discovery and litigation and avoid incurring those expenses

personally.

Under Nebraska law, "the term 'unconscionable' means manifestly unfair or

inequitable." Myers v. Neb. Inv. Council, 724 N.W.2d 776, 799 (Neb. 2006).

Further, "[a] contract is not substantively unconscionable unless the terms are grossly

unfair under the circumstances that existed when the parties entered into the contract."

Id. Nebraska courts also consider whether a contract is "procedurally

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unconscionable," an essential element of which includes "the disparity in respective

bargaining positions of parties to a contract." Id. Although Rollins signed a standard

Woodmen employment agreement, "adhesion contracts are not automatically

unconscionable or void" under Nebraska law. Kosmicki v. Nebraska, 652 N.W.2d

883, 893 (Neb. 2002); see also Faber, 367 F.3d at 1053 (holding that "inequality in

bargaining power . . . is not enough by itself to overcome the federal policy favoring

arbitration," citing Gilmer, 500 U.S. at 33). Rollins does not argue that splitting the

costs of the arbitration is fundamentally unfair, an issue to be determined based on the

circumstances that existed at the time the original employment contract was entered,

and the district court did not rely on such a conclusion. Indeed, the district court did

not analyze the contract under Nebraska contract law at all. Rollins argues only that

her current inability to afford the arbitration costs, including both the arbitration fees

and her own litigation costs, should relieve her of her agreement to arbitrate.

Considering the circumstances that existed at the time the two arbitration agreements

were entered, we conclude that neither arbitration agreement is unconscionable under

Nebraska law.

To the extent that Green Tree provides a basis for avoiding an arbitration

agreement beyond that allowed by general state contract law, Rollins has failed to

meet that standard as well. Cf. Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 873

(8th Cir. 2004) (noting that Green Tree addressed the arbitration of federal statutory

claims rather than the unconscionability of an arbitration agreement under state law).

In Green Tree, the plaintiff claimed that the potential for excessive fees she could

incur if she was required to go to arbitration prevented her from vindicating her

statutory rights. The Supreme Court recognized that "claims arising under a statute

designed to further important social policies may be arbitrated so long as the

prospective litigant effectively may vindicate [her] statutory cause of action in the

arbitral forum." Green Tree, 531 U.S. at 90 (internal marks omitted). Nonetheless,

the Court refused to invalidate an arbitration agreement based on the risk of

excessively prohibitive fees where the arbitration agreement was silent on the

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allocation of the fees and the record was devoid of any evidence of the costs that

would be imposed on the plaintiff. Id. at 90-91. To invalidate an arbitration

agreement based on speculation "would undermine the 'liberal federal policy favoring

arbitration agreements.'" Id. at 91 (quoting Moses H. Cone Mem'l Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24 (1983)). The party seeking to invalidate an arbitration

agreement based on prohibitively expensive costs that would preclude the vindication

of statutory rights "bears the burden of showing the likelihood of incurring such

costs." Id. at 92. 

The arbitration agreements here at issue allocate the costs of arbitration equally

between the parties, and Rollins has introduced evidence of what those costs will be

relative to her financial position. However, Woodmen has agreed to waive the feesplitting provision and pay the arbitrator's fees in full. Further, the arbitration

agreement contained in Rollins' employment agreement includes a severability clause,

such that the fee-splitting provision can be severed and the remainder of the arbitration

agreement enforced, even absent Woodmen's offer. See Faber, 367 F.3d at 1054

(ordering district court to sever fee-splitting provision on remand if court determines

that the provision would preclude Faber from vindicating his statutory rights);

Dobbins v. Hawk's Enters., 198 F.3d 715, 717 (8th Cir. 1999) (ordering the district

court to determine whether a reduced arbitration fee is unreasonable, and if it is, to

accept the appellant's offer to pay the fee in full). Thus, Rollins has failed to establish

that the costs of arbitration will preclude her from vindicating her statutory rights. 

We also reject Rollins' claim that the attorney's fees and litigation costs

associated with the arbitration proceeding make the agreement unconscionable. We

note first the obvious–that "attorney's fees are not unique to arbitration." Faber, 367

F.3d at 1054. Excessive arbitration costs can make an arbitration agreement

unconscionable because a litigant does not face fees for the decision-maker similar to

arbitration costs when she proceeds in federal court. She does, however, face

attorney's fees and litigation costs in court. Thus, the fact that a party will incur

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litigation costs and attorney's fees in an arbitral forum does not make that forum

unconscionable; she would generally face those fees regardless of the forum. See

Faber, 367 F.3d at 1054 (analyzing attorney's fee agreement separately from feesplitting arrangement). 

Rollins asserts that unique circumstances–the arbitrator's requirement that each

party's attorney personally guarantee payment of the arbitrator's fees–make it nearly

impossible for her to obtain the services of a contingency fee-based attorney, thus

greatly increasing her out-of-pocket costs. However, Woodmen's offer to pay the

arbitrator's fees in full negates the underlying premise of Rollins' argument. Paying

one's own attorney's fees and related litigation costs, particularly where there is no

impediment to a contingency fee arrangement, cannot be said to be unconscionable.

The district court relied on the fact that Rollins could piggyback on the EEOC's

discovery and litigation to avoid duplicative costs in relieving Rollins of her

agreement to arbitrate. While it may be more convenient and efficient to allow

Rollins to proceed in the EEOC's case as an intervenor rather than requiring her to

arbitrate, that does not make the arbitration agreement unconscionable, and thus

invalid, which is the proper standard for allowing a party to avoid her contractual

obligation. See Faber, 367 F.3d at 1054-55 (rejecting district court's reliance on policy

grounds for invalidating an arbitration agreement). We therefore hold that the

arbitration agreements are valid, and we "follow the federal presumption in favor of

arbitration." Id. at 1055. 

Rollins next argues that the dispute at issue, which she characterizes as her

rights as an intervenor in the EEOC's enforcement action, does not fall within the

terms of the arbitration agreement. She claims that she has no individual claims to

pursue in arbitration because the EEOC preempted her individual cause of action by

bringing its enforcement action. See EEOC v. Waffle House, 534 U.S. 279, 291

(2002) ("If, however, the EEOC files suit on its own, the employee has no

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Rollins is not alone in her thinking. See EEOC v. Physician Servs., P.S.C., 425

F. Supp. 2d 859, 861-62 (E.D. Ky. 2006) (relying on the same statement in Waffle

House to relieve an employee of her agreement to arbitrate Title VII disputes). For

the reasons stated herein, we respectfully disagree, and we are not alone in doing so.

See EEOC v. Hooters of Am., Inc., No. 06-CV-6138CJS, 2007 WL 64163, at *5

(W.D.N.Y. Jan. 9, 2007) (disagreeing with Physician Services, finding that the

intervening Title VII plaintiff's independent claims were subject to arbitration, and

staying the intervening action while allowing the EEOC's case to proceed); EEOC v.

Rappaport, Hertz, Cherson & Rosenthal, 273 F. Supp. 2d 260, 264-65 (E.D.N.Y.

2003) (same).

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independent cause of action . . . ."). The district court determined that requiring

Rollins to arbitrate her claims would interfere with the EEOC's ability to pursue its

enforcement action.

First, we reject the district court's conclusion that requiring Rollins to arbitrate

her claims would interfere with the EEOC's ability to pursue its enforcement action.

The Supreme Court specifically held in Waffle House that an arbitration agreement

between an employer and an employee did not prevent the EEOC from seeking all

remedies available to it in its enforcement action, including victim-specific relief. See

id. at 295-96. In this appeal, the EEOC seeks only to ensure that its enforcement

action will not be stayed in the event we reverse the district court's judgment relieving

Rollins of her obligation to arbitrate her claims. Under Waffle House, we agree that

the arbitration agreement and any related proceedings have no bearing on the EEOC's

ability to pursue its enforcement action, and we place no limitations on the EEOC's

continuation of its enforcement action. 

We also reject Rollins' assertion that once the EEOC filed its enforcement

action she lost any claim to pursue in arbitration. Rollins places more weight on a

single statement in Waffle House–that "an employee has no independent cause of

action"–than that statement can bear.2

 Cf. Comer v. Micor, Inc., 436 F.3d 1098, 1104

n.10 (9th Cir. 2006) ("We note in passing that Waffle House made a number of

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categorical statements that cannot be taken at face value."). In Waffle House, the

Supreme Court stated, in explaining the federal enforcement mechanism under Title

VII, that once the EEOC files an enforcement action, "the employee has no

independent cause of action, although the employee may intervene in the EEOC's

suit," citing § 2000e-5(f)(1). Waffle House, 534 U.S. at 291. The Supreme Court was

explaining the EEOC's importance in enforcing Title VII rights and its independent

duty to vindicate the public's interest in preventing discrimination in the workplace.

Thus, during the pendency of the EEOC's enforcement action, the statutory scheme

prevents the employee from bringing a separate federal cause of action for a violation

of Title VII. However, it is clear that the employee does not lose her substantive

statutory rights under Title VII when the EEOC files an enforcement action. Indeed,

as noted by the Supreme Court, the employee is entitled to intervene in the EEOC's

suit for the very purpose of preserving her substantive rights. Those rights, which

may be protected by intervening in the EEOC's suit, continue to exist after the EEOC

has filed its suit. Indeed, those rights formed the basis for Rollins' cross-claims

against Woodmen.

That an employee does not lose her substantive Title VII rights is made clear

by comparing the Title VII enforcement scheme to the scheme applicable to claims

under the Age Discrimination in Employment Act (ADEA). Under the ADEA, once

the EEOC files an enforcement action, "the right of any person to bring such an action

shall terminate upon the commencement of an action by the [EEOC]." 29 U.S.C.

§ 626(c)(1) (emphasis added); see also EEOC v. Pan Am. World Airways, Inc., 897

F.2d 1499, 1507 (9th Cir.) (noting that once the EEOC files suit, the employee no

longer has any ADEA rights to pursue), cert. denied, 498 U.S. 815 (1990). The same

is not true under Title VII, which does not terminate an employee's rights. See Gen.

Tel. Co. of the Nw., Inc. v. EEOC, 446 U.S. 318, 326 (1980) ("The EEOC's [Title VII]

civil suit was intended to supplement, not replace, the private action."); see also Vines

v. Univ. of La. at Monroe, 398 F.3d 700, 707 (5th Cir. 2005) ("[T]he enforcement

scheme of Title VII does not terminate the rights of the employee once the EEOC

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brings a suit."), cert. denied, 126 S. Ct. 1019 (2006); E.E.O.C. v. U.S. Steel Corp., 921

F.2d 489, 494 n.4 (3d Cir. 1990) (noting that in terminating the employee's private

cause of action in an ADEA claim once the EEOC filed suit, the framers of the ADEA

consciously departed from Title VII, which had no similar feature). Further, the

ADEA does not provide a statutory right to intervene in the EEOC enforcement

action, leaving employees to establish that their interest in the EEOC's enforcement

action meets the requirements of Federal Rule of Civil Procedure 24(a)(2). By

contrast, Title VII explicitly preserves the employee's unconditional right to vindicate

her own interests by intervening in the EEOC's enforcement action. See § 2000e-5(f);

Fed. R. Civ. P. 24(a)(1) (allowing intervention as a matter of right where a federal

statute confers an unconditional right to intervene). 

A complete reading of the Supreme Court's analysis in Waffle House convinces

us that the Supreme Court did not place the same significance on the statement upon

which Rollins relies as does Rollins. The Supreme Court recognized that an

employee's conduct, such as the failure to mitigate damages or the acceptance of a

settlement, may limit the relief that the EEOC ultimately may obtain in its

enforcement action. Waffle House, 534 U.S. at 296. The Supreme Court

contemplated that the employee retained some type of claim, or there would be

nothing for the employee to settle with the employer. Thus, even though Title VII

makes the EEOC the master of the federal cause of action, nothing in Title VII

purports to preclude an employee from entering into settlement negotiations. 

The Court also noted that "[i]t is an open question whether a settlement or

arbitration judgment would affect the validity of the EEOC's claim or the character of

relief the EEOC may seek." Id. at 297. In explaining why the arbitration agreement

at issue in Waffle House did not apply to the EEOC, which was not a party to the

arbitration agreement, the Supreme Court noted that "the FAA enables [the employer]

to compel [the employee] to arbitrate his claim, but it does not expand the range of

claims subject to arbitration beyond what is provided in the agreement." Id. at 293

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n.9. The Supreme Court also found "the statutory language [to be] clear; the EEOC

has the authority to pursue victim-specific relief regardless of the forum that the

employer and employee have chosen to resolve their disputes." Id. at 295. Had the

Supreme Court intended to preclude an employee from asserting claims in arbitration

against the employer concurrently with the EEOC enforcement action by its statement

that the employee has no independent cause of action once the EEOC filed its

enforcement action, it would not have had occasion or need to discuss the possible

ramifications of an arbitration award.

An employee indisputably has a right to intervene in an EEOC enforcement

action, see 42 U.S.C. § 2000e-5(f)(1), but she also has a right to contract for an arbitral

forum within which to litigate her claims. While employers cannot require their

employees to prospectively give up their substantive statutory rights, see Rappaport,

Hertz, Cherson & Rosenthal, P.C., 448 F. Supp. 2d 458, 460 (E.D.N.Y. 2006) ("It is

well settled that although parties may agree to arbitrate federal statutory claims, 'a

party does not forgo the substantive rights afforded by the statute. . . .'" (quoting

Gilmer, 500 U.S. at 26)), the key distinction is that intervening in the EEOC's

enforcement action is a procedural, not a substantive, right, see Canatella v.

California, 404 F.3d 1106, 1113 (9th Cir. 2005) ("Intervention as of right is merely

a procedural means for entering an existing federal action."). As noted by the

Supreme Court, arbitration agreements are merely forum selection clauses. Waffle

House, 534 U.S. at 295. 

Considering the Title VII enforcement regime as a whole, as well as the

complete analysis in the Waffle House opinion, we conclude that neither Title VII nor

Waffle House precludes Rollins from arbitrating her dispute with Woodmen, and that

the FAA compels her to arbitrate the dispute. The FAA provides that suits pending

in federal court based on issues referable to arbitration "shall [be] . . . stay[ed]. . . until

such arbitration has been had." 9 U.S.C. § 3. Rollins can bring all of the cross-claims

she asserted as an intervenor in the arbitration proceedings. In fact, by entering into

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the arbitration agreements, she has bound herself to do so. Just as an employee's

agreement to arbitrate her claims mandates that claims that could be brought in an

original Title VII federal action be decided in an arbitral rather than a judicial forum,

so too does that agreement mandate that the cross-claims that Rollins attempts to bring

as an intervenor in the EEOC's enforcement action be decided in the arbitral forum.

III.

The district court's judgment denying Woodmen's motion to compel arbitration

is reversed, and the case is remanded to the district court for entry of an order

compelling arbitration of the cross-claims and such further proceedings as are

necessary. Pursuant to § 3 of the FAA, the district court shall stay Rollins' crossclaims filed in the EEOC's action, but there is no basis for staying the EEOC's

enforcement action itself. 

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