Opinion ID: 2639591
Heading Depth: 3
Heading Rank: 3

Heading: Bilateral Consideration

Text: Moreover, even assuming arguendo that there was mutual assent between Douglass and Pflueger to submit to binding arbitration, the alleged arbitration agreement would nonetheless fail for lack of consideration. It is well-settled that consideration is an essential element of, and is necessary to the enforceability or validity of, a contract. Consideration is defined as a bargained for exchange whereby the promisor receives some benefit or the promisee suffers a detriment. Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir.1997) (citations omitted). Shanghai Inv. Co., Inc. v. Alteka Co., 92 Hawai`i 482, 496, 993 P.2d 516, 530 (2000), overruled on other grounds by Blair v. Ing, 96 Hawai`i 327, 31 P.3d 184 (2001). The arbitration provision expressly provides that both parties agree not to institute any action in any court . . . against the other[.] On its face, the provision is supported by bilateral consideration, that is, that both Douglass and Pflueger would forego their respective rights to a judicial forum and accept the binding arbitration process. See also Brown, 82 Hawai`i at 239-40, 921 P.2d at 159-60 (concluding that the agreement is supported by bilateral consideration that [plaintiff] and KFC would forego their respective rights to a judicial forum based upon the manifestly unambiguous recitation that KFC and [plaintiff] agree to submit to binding arbitration any controversies concerning [plaintiff's] compensation, employment[,] or termination of employment). We note, however, that the second paragraph on the acknowledgment form contains the following reservation: The Company has the right to change this handbook at any time and without advance notice. Although we have yet to explicitly address the effect such a reservation of rights has upon an arbitration provision within an employee handbook or booklet, the issue had been examined by the United States District Court for the Northern District of Ohio in Trumbull v. Century Marketing Corp., 12 F.Supp.2d 683 (N.D.Ohio 1998). In that case, the employer distributed an employee handbook containing an arbitration clause and the following: [T]he company may modify, augment, delete, or revoke any and all policies, procedures, practices, and statements contained in this Handbook at any time, without notice. Id. at 686 (internal quotation marks omitted). The court determined that: To give effect to this language and hold that a valid contract exists would be to create a contract where only one party is bound. The plaintiff would be bound by all the terms of the handbook while the defendant could simply revoke any term (including the arbitration clause) whenever it desired. Without mutuality of obligation, a contract cannot be enforced. Id. at 686 (citation omitted); see also Gourley v. Yellow Transp., LLC, 178 F.Supp.2d 1196 (D.Colo.2001) (arbitration agreement that bound the employee but left the employer free to renege or to unilaterally modify the terms at any time was illusory). Thus, although the arbitration provision in this case, on its face, is supported by bilateral consideration, we conclude that the reservation of rights language contained in the acknowledgment form renders the purported arbitration agreement illusory. Consequently, without mutuality of obligation, Trumbull, 12 F.Supp.2d at 686, the third Brown requirement is also not met. Moreover, we are mindful of the fact that, in Brown, a similar statement existed in the employment application, specifically that [a]ll such materials are presented for informational purposes only and can be changed at any time by KFC, with or without notice.  82 Hawai`i at 229, 921 P.2d at 149 (emphasis added). Nonetheless, inasmuch as the Brown court severed the arbitration provision from the application and found it enforceable standing on its own, Brown is consistent with our holding today. In fact, Brown is remarkably similar to the holding in Patterson, wherein the United States Court of Appeals for the Eighth Circuit conclude[d] . . . that the arbitration clause is separate from the other provisions of the handbook and that it constitutes an enforceable contract. . . . First, the arbitration clause is separate and distinct. It is set forth on a separate page of the handbook and introduced by the heading, IMPORTANT! Acknowledgment Form. This page is removed from the handbook after the employee signed it and is stored in a file. . . . Although the preceding paragraph discusses the company's reservation of its right to amend, supplement, or rescind any handbook provisions, the arbitration clause uses contractual terms such as I understand, I agree, I agree to abide by and accept, condition of employment, final decision, and ultimate resolution. We believe that the difference in language used in the handbook and that employed in the arbitration clause would sufficiently impart to an employee that the arbitration clause stands alone, separate and distinct from the rest of the handbook. The reservation of rights language refers to the handbook provisions relating to employment, not to the separate provisions of the arbitration agreement. 113 F.3d at 835 (citations omitted) (bold emphasis in original) (underscored emphases added).