Opinion ID: 3029863
Heading Depth: 3
Heading Rank: 1

Heading: Which DRRP Controls

Text: As a threshold issue, Circuit City contends that Rule 19 of the DRRPs permitted it to amend the arbitration agreement each year, and that under the 1998 DRRP, Al-Safin’s dispute is governed by the rules in effect when he files for arbitration. Because Al-Safin has not yet filed for arbitration, Circuit City contends that his dispute is governed by the most recent rules and procedures and that we should analyze the 2003 DRRP to determine whether the agreement is enforceable. We are not persuaded. Even if we assume that Circuit City validly amended the 1997 DRRP and is seeking to enforce Rule 19 of the 1998 DRRP, we could not conclude that the 2003 DRRP applies to Al-Safin.3 3 Al-Safin does not dispute that Circuit City effectively implemented the 1998 DRRP. Therefore, we assume that the 1997 DRRP was properly amended and that Circuit City can enforce the 1998 DRRP. 660 AL-SAFIN v. CIRCUIT CITY STORES [5] First, we have held that the modification provision of Rule 19 of the 1998 DRRP is unenforceable under California law. See Mantor, 335 F.3d at 1107; Ingle, 328 F.3d at 1179. The modification provision allows Circuit City to alter the rules and procedures governing arbitration almost at will. For example, here, Circuit City has attempted to implement new rules and procedures over three years after the onset of this litigation, and over four years after terminating Al-Safin’s employment. We conclude that Rule 19, which permits this conduct, is substantively unconscionable under Washington law and that the modification provision is therefore unenforceable. Second, even if we were to accept that the 1998 DRRP requires us to look at the DRRP in effect when Al-Safin files for arbitration, we would conclude that the 2003 DRRP is not effective as to Al-Safin. [6] Under Washington law, contract modifications are subject to the general “requisites of contract formation, offer, acceptance and consideration.” Thompson v. St. Regis Paper Co., 685 P.2d 1081, 1087 (Wash. 1984). Employers in Washington have been permitted to “unilaterally amend or revoke policies and procedures established in an employee handbook.” Gaglidari v. Denny’s Rests., Inc., 815 P.2d 1362, 1367 (Wash. 1991) (en banc). [T]he handbook language constitutes the offer; the offer is communicated by the dissemination of the handbook to the employee; the employee’s retention of employment constitutes acceptance; and by continuing to stay on the job, although free to leave, the employee supplies the necessary consideration. Id. (citing Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983)). “However, an employer’s unilateral change in policy will not be effective until employees receive reasonable notice of the change” and accept the change. Id. AL-SAFIN v. CIRCUIT CITY STORES 661 [7] Applying the principles set forth in Gaglidari, we conclude that Circuit City did not properly amend the 1998 DRRP, at least as to Al-Safin. Circuit City’s offer to amend the 1998 DRRP consisted of posting a written notice at Circuit City locations and by including a copy of the modification in its Applicant Packet. Even if this provided “reasonable notice” to current and prospective employees, it was not “reasonable notice” to former employees like Al-Safin. That is, it is not reasonable to expect former employees of Circuit City to check the postings at a Circuit City store every December, nor is it reasonable to expect that a terminated employee would review an Applicant Packet, to determine if Circuit City decided to amend its arbitration rules and procedures. Thus, as to former employees like Al-Safin, there was no valid offer to amend the 1998 DRRP. Moreover, Al-Safin did not continue his employment with Circuit City, sign an acceptance, or accept the modification of the 1998 DRRP in any other way.4 [8] Therefore, because no contract was formed between Circuit City and Al-Safin regarding the 2003 DRRP, the 2003 DRRP never went into effect as to Al-Safin and the 1998 DRRP controls the parties’ dispute.5 4 The dissent asserts that “[n]othing in Gagliardi varied the well-settled common-law principles of at-will employment: the terms of employment and of its termination are set by the employer.” Dissent, slip op. at 671. That assertion, however, does not address what happened in this case. Here, Circuit City attempted to change “the terms of employment and of its termination” after Al-Safin’s employment had been terminated. 5 Circuit City has not cited any case, and our research has revealed none, where a party was permitted unilaterally to amend a contract midway through litigation concerning that contract. Rather, courts addressing whether an arbitration agreement can be amended after it has been challenged during litigation have declined to permit the amendment. See e.g., Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 697 (Cal. 2000) (“No existing rule of contract law permits a party to resuscitate a legally defective contract merely by offering to change it.”). 662 AL-SAFIN v. CIRCUIT CITY STORES B. Substantive Unconscionability of the 1998 DRRP [9] In Mantor, Ingle, and Adams, we held that Circuit City’s arbitration agreement is substantively unconscionable under California law and rejected contract provisions: (1) forcing employees to arbitrate claims against Circuit City, but not requiring Circuit City to arbitrate claims against employees, Ingle, 328 F.3d at 1173; Adams, 279 F.3d at 893-94; (2) limiting remedies, Ingle, 328 F.3d at 1178-79; Adams, 279 F.3d at 894; (3) splitting costs and fees, Mantor, 335 F.3d at 1107; Ingle, 328 F.3d at 1177-78; Adams, 279 F.3d at 894; (4) imposing a one-year statute of limitations, Mantor, 335 F.3d at 1107; Ingle, 328 F.3d at 1175; Adams, 279 F.3d at 894; (5) prohibiting class actions, Mantor, 335 F.3d at 1107; Ingle, 328 F.3d at 1175-76; (6) regarding the filing fee and waiver of the fee, Mantor, 335 F.3d at 1107-08; Ingle, 328 F.3d at 1177; and (7) giving Circuit City the unilateral right to terminate or modify the agreement, Mantor, 335 F.3d at 1107; Ingle, 328 F.3d at 1179. [10] California applies virtually the same definition of substantive unconscionability as Washington. Compare Ingle, 328 F.3d at 1172 (stating that under California law, substantive unconscionability refers to whether terms of the agreement “are so one-sided as to shock the conscience” (quoting Kinney v. United Healthcare Servs., Inc., 83 Cal. Rptr. 2d 348, 353 (Ct. App. 1999)) with Nelson, 896 P.2d at 1262 (stating that under Washington law, substantive unconscionability refers to contract terms that are “one-sided or overly harsh” and “shocking to the conscience” (quoting Schroeder, 544 P.2d at 23)). Each of the provisions we held unconscionable under California law is present in the 1998 DRRP at issue here. Thus, we conclude that Mantor, Ingle, and Adams are persuasive authority that the arbitration agreement is substantively unconscionable under Washington law. And, in fact, the Washington Supreme Court recently cited Ingle, 328 F.3d at 1175, and Adams, 279 F.3d 894-95, with approval, in holding that a 180-day limitations provision in an employment AL-SAFIN v. CIRCUIT CITY STORES 663 arbitration agreement was substantively unconscionable. See Adler, 2004 WL 3016302, at 11 (stating that “[w]e agree with the Ninth Circuit”).6 Moreover, the United States Supreme Court has explained that “[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.” Gilmer, 500 U.S. at 26 (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). Gilmer requires arbitration agreements to embody “basic procedural and remedial protections so that claimants can effectively pursue their statutory rights.” Adams, 279 F.3d at 895. In Adams, we explained that Circuit City’s arbitration agreement does not meet these minimum requirements because it limits the remedies that would otherwise be available in a judicial forum, and fails to ensure that employees do not have to pay unreasonable fees, costs, or expenses “as a condition of access to the arbitration forum.” Id. Here, we again conclude that Circuit City’s arbitration agreement requires employees to forgo essential substantive and procedural rights and that the clauses regarding coverage of claims, remedies, arbitration fees, cost-splitting, the statute of limitations, class actions, and modifications, render the arbitration agreement excessively one-sided and unconscionable. 6 The dissent is critical of our reliance on “Ninth Circuit cases that purport to interpret California law.” Dissent, slip op. at 675. In addition to the Washington Supreme Court’s agreement with Ingle and Adams, as shown in the text, above, in Zuver, the Washington Supreme Court cited with approval Ting v. AT&T, 319 F.3d 1126, 1151-52 (9th Cir.) (construing California law), cert. denied, 540 U.S. 811 (2003), in holding a confidentiality provision substantively unconscionable, Zuver, 2004 WL 3016484, at -, and a California case, Armendariz, 6 P.3d at 694, in holding a remedies limitation provision substantively unconscionable, Zuver, 2004 WL 3016484, at -. 664 AL-SAFIN v. CIRCUIT CITY STORES