Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-07103/USCOURTS-caDC-99-07103-0/pdf.json

Parties Involved:
Emmanuel Bailey
Appellee
Federal National Mortgage Association
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 22, 2000 Decided April 21, 2000

No. 99-7103

Emmanuel Bailey,

Appellee

v.

Federal National Mortgage Association,

Appellant

Appeal from the United States District Court

for the District of Columbia

(No. 98cv03095)

Juanita A. Crowley argued the cause for appellant. With

her on the briefs was John Payton.

Kelly J. Davidson argued the cause for appellee. With her

on the brief was Pamela J. White.

Before: Edwards, Chief Judge, Tatel and Garland, Circuit

Judges.

Opinion for the Court filed by Chief Judge Edwards.

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Edwards, Chief Judge: The instant litigation involves a

claim of employment discrimination filed by the appellee,

Emmanuel Bailey, against the appellant, Federal National

Mortgage Association ("Fannie Mae" or "employer"). In

response to Mr. Bailey's complaint, Fannie Mae filed a motion

to stay litigation pending arbitration. The District Court

denied the motion to stay, and Fannie Mae now appeals.

This case presents a new twist to an old problem. In Cole

v. Burns Int'l Sec. Servs., 105 F.3d 1465 (D.C. Cir. 1997), we

held that, if certain conditions are met, an employer may

compel an employee to use arbitration in lieu of litigation to

pursue a statutory claim of employment discrimination if the

employee signed an arbitration agreement as a condition of

hire. In this case, however, Fannie Mae seeks to compel

arbitration pursuant to a "Dispute Resolution Policy" that

was unilaterally promulgated by the employer after Mr.

Bailey was hired. There is a serious question under Cole

whether an employer may impose a condition of employment

requiring a current employee to use arbitration before seeking to litigate statutory employment discrimination claims for

no consideration save the employee's continued employment.

Fortunately, we do not have to decide this troublesome

question. The issue was not raised before the trial court,

because Fannie Mae disclaimed any intention of terminating

Mr. Bailey if he persisted in his refusal to arbitrate the

instant dispute. Fannie Mae contends only that its motion to

stay should be granted because Mr. Bailey implicitly agreed

to arbitrate statutory claims of employment discrimination

when he continued to work for the employer after the issuance of the Dispute Resolution Policy. Mr. Bailey, in turn,

claims that he never gave his assent to be bound by the

employer's new arbitration policy. Mr. Bailey claims further

that he made it clear to Fannie Mae that he did not subscribe

to the employer's new arbitration policy.

The District Court denied Fannie Mae's motion to stay,

finding that, because there was no meeting of minds between

the parties, there was no arbitration agreement to enforce.

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We can find no error in the judgment of the District Court.

Accordingly, we affirm.

I. Background

On March 12, 1998, Mr. Bailey filed a memorandum with

Fannie Mae's Office of Corporate Justice requesting an investigation of various allegations of race and gender discrimination. In this memorandum, labeled a "Formal Complaint,"

Mr. Bailey stated:

Pursuant to the Fannie Mae Employee Handbook, I

hereby submit a Formal Complaint with respect to the

aforementioned violations of all applicable United States

and District of Columbia Laws and the Fannie Mae

Affirmative Action Plan. Further, I hereby retain all

redress options available to me under the Equal Employment Opportunity Commissions (EEOC) [sic] and the

United States and/or Local Court System.

Request for Formal Investigation, reprinted in Joint Appendix ("J.A.") 39.

Fannie Mae had announced in January 1998 that it would

issue a new arbitration policy on March 16, 1998. Subsequently, on March 16, 1998, as promised, Fannie Mae issued a

Dispute Resolution Policy, which required employees to pursue job-related claims internally, through arbitration, before

such claims could be presented to a court of law. In particular, the Dispute Resolution Policy stated that, as of March 16,

1998,

the Policy becomes a condition of employment for all

Fannie Mae employees. This means that, by starting or

continuing work for Fannie Mae on or after that date,

each employee is indicating that he or she accepts the

Policy as a condition of employment and agrees to be

bound by it.

Dispute Resolution Policy at 1, reprinted in J.A. 106.

Mr. Bailey never said anything to any official at Fannie

Mae to indicate that he acceded to the Dispute Resolution

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Policy, and he never signed any agreement to that effect.

And Mr. Bailey never did or said anything to withdraw the

position stated in his March 12 complaint, in which he reserved the right to pursue statutory claims with the EEOC

and in federal or state court. Indeed, on March 30, 1998,

after the Policy was issued, Mr. Bailey's counsel sent a letter

to Fannie Mae asserting that

Mr. Bailey's [March 12] Complaint was directed to [the

employer] on that date specifically to avoid the effective

date on March 16 of a new corporate policy that might

have mandated arbitration of Mr. Bailey's issues.

Letter from Pamela J. White to Stasia Kelly (Mar. 30, 1998),

reprinted in J.A. 70-71. On May 8, 1998, after an exchange

of correspondence between the parties over Mr. Bailey's

refusal to be bound by the new arbitration policy, Mr. Bailey's

counsel sent another letter to Fannie Mae to reiterate her

client's position:

Mr. Bailey retained "all redress options" available to him

with the courts or EEO administrative agencies and,

thus, rejected Fannie Mae's new mandatory arbitration

policy effective March 16, 1998. Furthermore, with or

without regard to the filing date and pendency of his

Complaint, Mr. Bailey does not agree to be bound by the

new "Dispute Resolution Policy."

Letter from Pamela J. White to Dawn P. Marcelle (May 8,

1998), reprinted in J.A. 186. In response to this last letter,

Fannie Mae's counsel sent a letter to Mr. Bailey's attorney,

reiterating the employer's position and reassuring Mr. Bailey

that he was in no threat of losing his job:

Fannie Mae had not previously understood that Mr.

Bailey had already decided that he would not be bound

by the Dispute Resolution Policy. As you know, Fannie

Mae considers Mr. Bailey to be bound by that Policy

with respect to the complaint that he made on March 12,

1998. In the event that an employee disregards the

Policy, Fannie Mae would enforce it by seeking appropriate judicial relief. As Fannie Mae previously told emUSCA Case #99-7103 Document #512619 Filed: 04/21/2000 Page 4 of 13
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ployees, it will not terminate them for failing to follow

the Policy.

Letter from Fannie Mae to Pamela J. White, reprinted in

J.A. 190.

On August 6, 1998, Fannie Mae rejected Mr. Bailey's

complaint as unmeritorious. On December 14, 1998, Mr.

Bailey filed a lawsuit in the Superior Court of the District of

Columbia, alleging discrimination and retaliation in violation

of 42 U.S.C. s 1981 (1994), discrimination and retaliation in

violation of the D.C. Human Rights Act s 1-2501, and breach

of implied contract in violation of 42 U.S.C. s 1981. Fannie

Mae removed Mr. Bailey's lawsuit to the United States

District Court for the District of Columbia on December 18,

1998. Fannie Mae then moved, pursuant to 9 U.S.C. s 3

(1994), to stay litigation pending arbitration of Mr. Bailey's

claims. Because Mr. Bailey had rejected the policy of mandatory arbitration as a condition of his continued employment,

he opposed the motion to stay.

On May 21, 1999, the District Court denied Fannie Mae's

motion, finding that Mr. Bailey had effectively rejected the

possibility of arbitration when he filed his complaint with

Fannie Mae on March 12, 1998. Fannie Mae then filed this

appeal pursuant to 9 U.S.C. s 16(a)(1) (1994).

II. Discussion

A. The Standard of Review

Normally, the determination of intent is a question of fact.

See Pullman-Standard v. Swint, 456 U.S. 273, 288 (1982).

Therefore, a district court's findings on intent are subject to

deferential review under Federal Rule of Civil Procedure

52(a), and such findings may not be set aside unless clearly

erroneous. See id. at 287-88. It does not matter whether a

finding of fact is based on documentary evidence or inferences from other facts; in either event, an appellate court

must respect a trial court's finding of fact unless it concludes

that the finding is clearly erroneous. See Anderson v. Bessemer City, 470 U.S. 564, 574 (1985). "A finding is 'clearly

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erroneous' when although there is evidence to support it, the

reviewing court on the entire evidence is left with the definite

and firm conviction that a mistake has been committed."

United States v. United States Gypsum Co., 333 U.S. 364, 395

(1948). And the burden of establishing a clear error is on the

appellant. See, e.g., Case v. Morrisette, 475 F.2d 1300, 1307

(D.C. Cir. 1973).

In Pullman-Standard, the Court applied Rule 52(a) to

review a lower court's determination that the differential

impact of a seniority system reflected an intent to discriminate racially. The Court expressly repudiated the view that

facts could be put into distinguishable categories (i.e., either

subsidiary or ultimate) in determining whether Rule 52(a)'s

clearly erroneous standard of review should apply. See Pullman Standard, 456 U.S. at 287. However, the Court left

open the question of the standard of review for "mixed

questions of law and fact," that is, "questions in which the

historical facts are admitted or established, the rule of law is

undisputed, and the issue is whether the facts satisfy the

statutory standard, or to put it another way, whether the rule

of law as applied to the established facts is or is not violated."

Id. at 289 n.19. It is unclear in this case whether the District

Court's finding that Mr. Bailey never agreed to arbitration is

a simple question of fact or a mixed question of law and fact.

At first blush, the issue appears to raise a question of fact

regarding the parties' intent. Unfortunately, the question is

not so simple.

In United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir.

1998), the court observed that "[i]nterpretation of an ambiguous contract term on the basis of extrinsic evidence is generally treated as a question of fact, and the district court's

findings as to the parties' intent are reviewed deferentially,

i.e., reversed only for clear error." Id. at 945 n.7. The

majority opinion notes, however, that there are a number of

cases in which the appellate court has engaged in de novo

review of district court interpretations. See id. Microsoft

assumes that "de novo review of legal analysis is in principle

compatible with deference to factual findings"; but the opinion then expresses concern that, under a "mixed approach" in

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a case involving a question of intent, "the centrality of intent

would often make the deference swallow the de novo review, a

result our cases do not seem to contemplate." Id.

The problem here is complicated even more, because this is

not a case in which the parties disagree over the meaning of

an existing agreement. Rather, the legal battle here is over

the existence of a contract, not its meaning. In fact, both

sides seem to agree that if the Dispute Resolution Policy

constitutes an enforceable agreement, there is no disagreement over the meaning of the arbitration policy. The District

Court found that Mr. Bailey never assented to the new

arbitration policy. We must now decide whether the District

Court's decision on this question is subject to deferential

review under Rule 52(a).

One of our sister circuits has held that an appellate court

engages in de novo review when considering a district court's

order denying a stay of a federal suit pending arbitration

pursuant to 9 U.S.C. s 3. See, e.g., Riley Mfg. Co. v. Anchor

Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998).

According to the Tenth Circuit, such review requires the

appellate court to evaluate "whether the district court correctly found that no valid and enforceable agreement to

arbitrate the parties' dispute exists." Id. The Second Circuit, on the other hand, has held that a determination as to

whether the parties entered into an enforceable agreement to

arbitrate raises a mixed question of law and fact. See

Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg.

Co., 189 F.3d 289, 295 (2d Cir. 1999). Fannie Mae contends

that this court is required to review the judgment of the

District Court de novo. Mr. Bailey, citing Walker v. J.C.

Bradford & Co., 938 F.2d 575, 576-77 (5th Cir. 1991), appears

to suggest that the matter involves a mixed question of law

and fact. See Br. of Appellee at 14.

The D.C. Circuit has yet to address this precise question.

In Gardner v. Benefits Communications Corp., 175 F.3d 155

(D.C. Cir. 1999), the court reversed a trial court's decision

compelling arbitration, holding that the employee had never

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agreed to use arbitration in lieu of litigation. Gardner is

inconclusive on the standard of review, however.

Now that we must squarely face the issue, we hold in

accord with the Second Circuit

that the determination that parties have contractually

bound themselves to arbitrate disputes--a determination

involving interpretation of state law--is a legal conclusion subject to our de novo review, ... but that the

findings upon which that conclusion is based are factual

and thus may not be overturned unless clearly erroneous.

Chelsea Square, 189 F.3d at 295. As we noted in Microsoft,

"the centrality of intent" may in some cases "make the

deference swallow the de novo review." 147 F.3d at 945 n.7.

The Second Circuit recognized, however, that cases of this

genre often involve an interpretation of state law, which is a

legal conclusion subject to de novo review. See Chelsea

Square, 189 F.3d at 295.

B. The Parties Never Agreed to Contractually Bind Themselves to Arbitrate

Fannie Mae had announced in January 1998 that it would

issue the new arbitration policy on March 16, so the District

Court found that Mr. Bailey "knew this [new] arbitration

process was coming" when he filed his complaint with Fannie

Mae on March 12, 1998. Trial Tr. at 5, reprinted in J.A. 203.

The District Court therefore found that Mr. Bailey "made a

timely election against arbitration" when he filed his complaint. Id. at 2, reprinted in J.A. 200. And, most importantly, the District Court found that Mr. Bailey's internal complaint "clearly signal[ed] ... that he was intending to invoke

his rights to reject arbitration." Id. at 5, reprinted in J.A.

203. In other words, the District Court found that Fannie

Mae was "put ... on notice" that Mr. Bailey rejected the new

arbitration policy. Id. at 6, reprinted in J.A. 204. The

District Court's findings are supported by the record and

easily survive review under Rule 52(a).

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Fannie Mae, however, claims that Mr. Bailey's determination to retain his right to pursue statutory claims before the

EEOC and in the courts was not inconsistent with the

employer's policy requiring employees to use arbitration.

This assertion is simply wrong. Absent an agreement to

arbitrate, an employee is not required to exhaust arbitration

as a condition precedent to pursuing his statutory remedies

before the EEOC and the courts. Therefore, Mr. Bailey's socalled "redress options" would be dramatically changed--in

terms of cost, time delays, and, possibly, inadequate adjudicatory processes--if he were barred from litigation until after

he pursued his claims in arbitration. And, if forced to use

arbitration, there is always the possibility that a reviewing

court might give some deference to an arbitrator's findings,

arguably to the detriment of a litigant like Mr. Bailey. See

Cole, 105 F.3d at 1486-87 (discussing the scope of judicial

review and deference to arbitration); see also Harry T.

Edwards, Where Are We Heading With Mandatory Arbitration of Statutory Claims in Employment?, 16 Ga. St. U. L.

Rev. 293, 304-06 (2000) (discussing different judicial approaches to the scope of review and deference to arbitration

awards). There are many parties and their advocates who

abhor arbitration precisely because it often adversely affects

redress options. See discussion and citations in Cole, 105

F.3d at 1477-79. See generally A Focus Issue on Mandatory

Arbitration Clauses, The Consumer Advocate (Nat'l Association of Consumer Advocates, Washington, D.C.) Sept./Oct.

1999; Ethan A. Brecher, Putting the Reins on Employment

Arbitration: Courts Safeguard Employee Rights, N.Y. L.J.

Aug. 24, 1999, at 1; Harry T. Edwards, Where Are We

Heading With Mandatory Arbitration of Statutory Claims in

Employment, 16 Ga. St. U. L. Rev. 293; Morton H. Orenstein,

Mandatory Arbitration: Alive and Well or Withering on the

Vine?, 54 Disp. Resol. J. 57 (Aug. 1999); Debra Parker,

Tangled Up in Ticker Tape, 85 A.B.A. J. 44 (1999).

Quite apart from Mr. Bailey's complaint and what it signaled to Fannie Mae, there are several other telling facts in

the record of this case. It is undisputed that Mr. Bailey

never executed any written agreement with Fannie Mae to

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arbitrate statutory claims of employment discrimination. Indeed, it is uncontested that the parties never purported to

reach an understanding by oral agreement. It is also unquestioned that Mr. Bailey never said or wrote anything after

Fannie Mae issued its new arbitration policy, either to rescind

what he had said in his written complaint or to otherwise

indicate that he subscribed to the Dispute Resolution Policy.

In fact, after the new policy was issued, Mr. Bailey's counsel

wrote to officials at Fannie Mae to make it clear that Mr.

Bailey was not bound to pursue his claims in arbitration.

In short, there are no disputes between the parties over

these material facts. The only remaining question, therefore,

is whether the District Court erred in concluding that Fannie

Mae failed to fulfill its burden of proving that there was an

agreement as to all material terms and that both parties

intended to be bound by the arbitration policy. Whether we

apply a de novo standard of review or "clearly erroneous"

review under Rule 52(a), it is clear here that the judgment of

the District Court must be affirmed.

Fannie Mae persists in arguing that there was an "agreement" between the parties because Mr. Bailey did not unequivocally and effectively voice his opposition to the new

arbitration policy. There are two problems with this argument: First, the District Court found otherwise, and that

finding is not clearly erroneous. Second, the argument has a

false premise. The question here is not whether Mr. Bailey

effectively rejected what his employer proposed, for he had

no obligation even to respond to Fannie Mae's proposal. The

issue is whether Mr. Bailey did something to indicate that he

intended to enter into an agreement with Fannie Mae so as to

bind himself to pursue his statutory claims of employment

discrimination in arbitration.

The Supreme Court has instructed in First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), that "[w]hen

deciding whether the parties agreed to arbitrate a certain

matter, ... courts generally ... should apply ordinary statelaw principles that govern the formation of contracts." Id. at

944. Thus, in this case, we must look to the law of the

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District of Columbia to determine whether the employer's

Dispute Resolution Policy reflects a binding agreement between Mr. Bailey and Fannie Mae.

Under applicable District of Columbia law, "[a]rbitration is

predicated upon the consent of the parties to a dispute, and

the determination of whether the parties have consented to

arbitrate is a matter to be determined by the courts on the

basis of the contracts between the parties." Ballard &

Assocs., Inc. v. Mangum, 368 A.2d 548, 551 (D.C. 1977).

Furthermore, under District law, an enforceable contract

does not exist unless there has been a "meeting of the minds"

as to all material terms. In other words, a contract is not

formed unless the parties reach an accord on all material

terms and indicate an intention to be bound. See Jack Baker,

Inc. v. Office Space Dev. Corp., 664 A.2d 1236, 1238 (D.C.

1995). With respect to proof of intent, the D.C. Court of

Appeals has held that "the parties' intention to be bound must

be 'closely' examined." Id. at 1239. The court explained:

In evaluating contract formation, we also look closely at

the parties' intention to be bound. In order to form a

binding agreement, both parties must have the distinct

intention to be bound; without such intent, there can be

no assent and therefore no contract.

Id. (quoting Edmund J. Flynn Co. v. LaVay, 431 A.2d 543,

547 (D.C. 1981)). Finally, the party asserting the existence of

a contract has the burden of proving its existence. See

Ekedahl v. Corestaff, Inc., 183 F.3d 855, 858 (D.C. Cir. 1999)

(per curiam). In this case, Fannie Mae has not come close to

satisfying the requirements of District of Columbia law in its

attempt to prove the existence of an agreement between the

employer and Mr. Bailey.

Fannie Mae's principal claim is that Mr. Bailey agreed to

the new arbitration policy because he did not positively reject

it. This is a non sequitur. Even if we accepted the premise--which we do not, because the District Court's finding to

the contrary is not cleary erroneous--it would not follow that

Mr. Bailey's failure to reject a proposal, without more, evidenced his assent to be bound. District of Columbia law

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clearly requires a "meeting of the minds" as to all material

terms for a contract to be formed. There was no "meeting of

the minds" in this case, because Mr. Bailey did nothing

whatsoever to embrace the employer's proposal.

Fannie Mae also claims that when Mr. Bailey continued in

his job with the employer, this showed that he acceded the

Dispute Resolution Policy, because the Policy itself was proclaimed to be a "condition of employment." This, too, is a

flawed argument. First, as counsel acknowledged at oral

argument, there is a question as to whether Fannie Mae

could terminate a current employee solely because of his or

her refusal to accept the new arbitration policy. The Ninth

Circuit has held that

the unilateral promulgation by an employer of arbitration

provisions in an Employee Handbook does not constitute

a "knowing agreement" on the part of an employee to

waive a statutory remedy provided by a civil rights law.

Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 762

(9th Cir. 1997); see also Wright v. Universal Maritime Serv.

Corp., 525 U.S. 70, 79-82 (1998) (holding that a general

arbitration clause in a collective bargaining agreement does

not waive an employee's right to judicial forum for claim of

employment discrimination; an employee does not waive a

statutorily protected right unless the undertaking is "explicitly stated," and any such "waiver must be clear and unmistakable"); Mohave Elec. Coop. v. NLRB, 2000 WL 287822 (D.C.

Cir. Mar. 28, 2000) (same); Cole, 105 F.3d at 1482 (noting

that the Supreme Court's decision in "Gilmer cannot be read

as holding that an arbitration agreement is enforceable no

matter what rights it waives or what burdens it imposes").

In other words, Mr. Bailey had reason to assume that, under

existing law, his job was not in jeopardy. This being the

case, Mr. Bailey signaled nothing when he remained in the

employ of Fannie Mae following the issuance of the arbitration policy. Furthermore, to be sure that there was no

confusion on this point, Mr. Bailey's lawyer specifically raised

the issue with the employer; in response, Fannie Mae's

attorney assured Mr. Bailey that he was in no threat of losing

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his job over his refusal to subscribe to the employer's arbitration policy. Given these considerations, Mr. Bailey's continued employment with Fannie Mae surely was not an indication that he intended to be bound by the arbitration policy.

In light of the undisputed facts in this case and the

applicable law of the District of Columbia, we are constrained

to find that the District Court was correct in rejecting Fannie

Mae's motion to stay litigation pending arbitration.

III. Conclusion

For the foregoing reasons, we affirm the judgment of the

District Court.

So ordered.

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