Court Opinion

ID: 2994723
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:16:17.866958+00
Date Added: 2024-06-11T13:34:41.337196
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 00-1204

Lisa A. Smith,

Plaintiff-Appellant,

v.

American Arbitration Association, Inc.
 and Argenbright, Inc.,

Defendants-Appellees,

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 7368--John F. Grady, Judge.

Argued September 22, 2000--Decided September 25, 2000
Opinion December 1, 2000

 Before Posner, Manion, and Evans, Circuit Judges.

 Posner, Circuit Judge. The plaintiff appeals from
the dismissal under Fed. R. Civ. P. 12(b)(6) of
her far-ranging challenge to standard arbitration
procedure. She had made a contract to sell
defendant Argenbright her controlling interest in
the PIMMS Corporation for some $65 million. The
contract provided that disputes under it would be
resolved by arbitration in Chicago "in accordance
with the rules and regulations of the American
Arbitration Association" and that the contract
was to be construed in accordance with the law of
Minnesota, where PIMMS was located. Shortly after
the sale, Argenbright gave notice to Smith that
it believed that she had exaggerated PIMMS’s
revenue potential, that the exaggeration
constituted a breach of warranty, that
Argenbright had sustained damages of $14 million,
and that it wanted to arbitrate the claim. It
filed the claim with the American Arbitration
Association’s Chicago office, which responded by
sending the parties a list of 15 arbitrators
taken from the Association’s roster for "Large
and Complex Commercial Cases." The list contained
14 men and one woman. Pursuant to the
Association’s rules, the parties were asked to
strike the names of any of the persons on the
list whom they did not want to have on the
arbitration panel and to rank the remaining ones.
One of the names struck by Argenbright was that
of the woman on the list (whom Smith had listed
as her first choice), and as a result a panel of
three male arbitrators was selected--whereupon
Smith brought this suit in federal district court
against Argenbright and the Association,
complaining primarily that the lack of gender
diversity of the list, coupled with Argenbright’s
action in excluding the only woman on it, was a
breach of contract. Federal jurisdiction is thus
based primarily on diversity of citizenship, see
Caudle v. American Arbitration Ass’n, No. 00-
1423, 2000 WL 1528950, at *1 (7th Cir. Oct. 17,
2000), but there is also a federal claim, that
the defendants have denied the plaintiff the
equal protection of the laws. The parties do not
discuss which state’s law governs the state-law
claim against the AAA, as distinct from Smith’s
claim against Argenbright, but imply by their
citations that it is Illinois law. Curiously, the
Association, although served, filed no appearance
in either the district court or this court. That
was taking a chance.

 The district court rebuffed Smith’s effort to
obtain a preliminary injunction against the
arbitration and so the arbitration went forward
before the all-male panel. The court then
dismissed Smith’s suit for failure to state a
claim. Her appeal asks us to order the
arbitration rerun before a new panel that
contains at least one woman. Shortly before the
appeal was argued to us, the trial phase of the
arbitration ended and the arbitrators announced
that they would issue their decision shortly. (We
have not been told whether they have yet done
so.) Lest the pendency of the appeal influence
the arbitration in any way, we accelerated our
consideration and issued an order affirming the
district court with a notation that the opinion
would follow. This is the opinion.

 Smith expresses concern that because she is a
woman and her opponent is a corporation
presumably controlled by men (though there is no
allegation to that effect), an all-male panel
will be unsympathetic to her. No effort to
substantiate the suggestion that male judges or
arbitrators are prejudiced against wealthy women
who have purely commercial disputes with
corporations has been made; nor has Smith pointed
to any issue in this litigation to which a man
might be insensitive. The relief sought, which
seems premised on the belief that a female
litigant is entitled to be judged by a panel that
includes at least one woman, borders on the
fantastic.

 But we do not suppose that there is anything in
the law that would forbid private parties to
stipulate to a mode of private dispute resolution
that specified a particular gender composition of
the tribunal, assuming the arbitrators are not
employees of the American Arbitration Association
or of some other dispute-resolution agency
conducting the arbitration, which might bring
Title VII into play. So if Smith has a
contractual right to be judged by an arbitration
panel that contains at least one woman, she can
enforce it, though just how and when are
questions, as we’ll see; but let’s start with the
question whether there is a possible breach of
contract.

 Smith relies primarily on a "Guide to Mediation
and Arbitration for Business People," published
by the American Arbitration Association. The
guide states that the Association "monitors the
integrity of the process, the quality of roster
composition and balance in terms of gender,
racial and ethnic diversity," all aimed at a
"bottom line" consisting of "a roster of neutrals
crafted to meet the needs of the parties."
Another publication of the Association, "A Brief
Overview of the American Arbitration
Association," states that the Association
maintains "a national panel of experts, diverse
in gender and ethnicity." These statements alone
cannot support a breach of contract suit against
either the Association or Argenbright. The fact
that the contract provides for arbitration in
accordance with the Association’s rules and
regulations no more made the Association a party
to the contract than a building contract that
specifies that the builder will install Kohler
plumbing fixtures makes Kohler a party to the
building contract. The Association did agree to
administer the arbitration between Smith and
Argenbright in exchange for a fee, and by doing
so it undertook to administer the arbitration in
accordance with the Association’s rules. But the
"Guide" and the "Brief Overview" are not a part
of those rules, and the rules of the Association
(which, remember, are incorporated in the stock
purchase agreement) are explicit that the
Association’s "authority and duties . . . are
prescribed in the agreement of the parties and in
these rules."

 We doubt, moreover, that a "promise," if that is
how the statements we quoted should be read, to
"monitor . . . balance in terms of gender, racial
and ethnic diversity" or maintain "a national
panel of experts, diverse in gender and
ethnicity," is sufficiently definite to be
enforceable in a suit for breach of contract.
Shields v. Local 705, International Brotherhood
of Teamsters Pension Plan, 188 F.3d 895, 900-01
(7th Cir. 1999); Beraha v. Baxter Health Care
Corp., 956 F.2d 1436, 1441 (7th Cir. 1992). No
guidance is found in the Association’s rules, or
statements, or any place else that we can find,
on what these duties of monitoring and
maintenance consist of and how compliance or
noncompliance with them is determined. The
language is not promissory, and this
distinguishes the employee-handbook cases on
which Smith relies. See, e.g., Duldulao v. Saint
Mary of Nazareth Hospital Center, 505 N.E.2d 314,
318 (Ill. 1987); Pine River State Bank v.
Mettille, 333 N.W.2d 622, 627 (Minn. 1983); see 1
E. Allan Farnsworth, Farnsworth on Contracts sec.
2.9a, pp. 93-94 (1990). The closest analogy is to
the federal statute that seeks to prevent
discrimination in the creation of jury venires,
28 U.S.C. sec.sec. 1861-1867, but the analogy is
weak because jurors are drafted and arbitrators
are volunteers. A venire can be compared with the
population from which it was drawn to see whether
it is a representative sample of that population.
But even if a list of lawyers could be compiled
who would be capable of arbitrating large and
complex commercial cases, it would be impossible
to determine how many would be willing to serve
on AAA panels. Either the "promise" on which
Smith relies is too vague to be enforceable or
the AAA never intended (and never manifested an
intent) that the promise be legally enforceable,
or, most likely, both. See, e.g., Architectural
Metal Systems, Inc. v. Consolidated Systems,
Inc., 58 F.3d 1227, 1229 (7th Cir. 1995).

 The breach of contract claim against Argenbright
is, if anything, weaker than the claim against
the AAA. Argenbright never undertook to exercise
its discretion over arbitrator selection in a
particular way. We do not know why Argenbright
objected to the one woman on the AAA’s list; but
even if it did so for precisely the reason that
Smith suspects, this was not the breach of any
express or implied contract between Smith and
itself. We take it that Smith’s real complaint
about Argenbright is that Argenbright took
advantage of the Association’s having supplied a
list that made it easy for a party to obtain an
all-male panel. The argument in other words is
that the panel composition was contaminated to
Argenbright’s advantage and that having thus been
the beneficiary of the Association’s breach
Argenbright should, by principles of unjust
enrichment, be forced to relinquish the unfair
advantage that it obtained from that breach.

 So viewed, however, Smith’s claim against
Argenbright is premature. The time to challenge
an arbitration, on whatever grounds, including
bias, is when the arbitration is completed and an
award rendered. E.g., Dean v. Sullivan, 118 F.3d
1170 (7th Cir. 1997); Michaels v. Mariforum
Shipping, S.A., 624 F.2d 411, 414 n.4 (2d Cir.
1980). To allow a party to bring an independent
suit to enjoin the arbitration is inconsistent
with fundamental procedural principles that apply
with even greater force to arbitration than to
conventional litigation. If during jury voir dire
a Batson objection to the exercise of a
peremptory challenge is rejected by the trial
judge, the disappointed litigant cannot bring a
suit to enjoin the litigation. But that is what
Smith tried to do here. It is true that in rare
instances a litigant can interrupt the litigation
by filing an interlocutory appeal or seeking
mandamus. But a party who wants to have such an
option should not (and of course need not)
consent to arbitration, which generally and here
does not have an appellate component. The choice
of arbitration is a choice to trade off certain
procedural safeguards, such as appellate review,
against hoped-for savings in time and expense
(other than the expense of the tribunal), a
measure of procedural simplicity and informality,
and a differently constituted tribunal. Harter v.
Iowa Grain Co., 220 F.3d 544, 553 (7th Cir.
2000); see also Generica Ltd. v. Pharmaceutical
Basics, Inc., 125 F.3d 1123, 1129-30 (7th Cir.
1997). That choice would be disrupted by allowing
a party to arbitration to obtain an interlocutory
appeal to a federal district court, as Smith has
tried to do.

 The parties are of diverse citizenship, so
Argenbright if it obtains an award in the
arbitration will be able to seek confirmation
(that is, enforcement) of the award in federal
district court under the Federal Arbitration Act.
9 U.S.C. sec. 9; International Union of Operating
Engineers, Local No. 841 v. Murphy Co., 82 F.3d
185 (7th Cir. 1996); P & P Industries, Inc. v.
Sutter Corp., 179 F.3d 861, 866 (10th Cir. 1999).
Smith points out that while she will be able to
object to confirmation, the grounds for objection
permitted by the act (or by judicial extension of
it, First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 942 (1995); Cole v. Burns International
Security Services, 105 F.3d 1465, 1486 (DC Cir.
1997)) are extremely limited, and though one of
them is "evident partiality" by the arbitrators,
9 U.S.C sec. 10(a)(2); Harter v. Iowa Grain Co.,
supra, 220 F.3d at 553; Dawahare v. Spencer, 210
F.3d 666, 669 (6th Cir. 2000), this will be
impossible as a practical matter to prove;
therefore she should be permitted to sue now.
That’s a non sequitur. The right to object to the
composition of the tribunal on broader grounds
than evident partiality was one of the procedural
rights that Smith gave up when she agreed to the
arbitration clause in the stock purchase
agreement. By agreeing to arbitrate in a setting
in which Argenbright if it prevailed could seek
confirmation under the Federal Arbitration Act,
Smith bound herself to accept the limited
judicial review which that act allows. First
Options of Chicago, Inc. v. Kaplan, supra, 514
U.S. at 942; Connecticut General Life Insurance
Co. v. Sun Life Assurance Co., 210 F.3d 771, 774
(7th Cir. 2000); UHC Management Co. v. Computer
Sciences Corp., 148 F.3d 992, 997 (8th Cir.
1998).

 We mentioned the principle of Batson v.
Kentucky, 476 U.S. 79, (1986), that peremptory
challenges cannot be based on racial or other
invidious grounds, now including gender. J.E.B.
v. Alabama, 511 U.S. 127 (1994); United States v.
Brisk, 171 F.3d 514, 522-23 (7th Cir. 1999);
United States v. Tipton, 90 F.3d 861, 881 (4th
Cir. 1996). Smith argues that this principle,
which is based on the equal protection clause
(more precisely, where federal rather than state
action is concerned, on the due process clause of
the Fifth Amendment, interpreted as containing an
equal-protection component), should be extended
to arbitration, since the courts through the
Federal Arbitration Act and cognate state
statutes lend their assistance to arbitration. We
disagree. Arbitration is a private self-help
remedy. The American Arbitration Association is a
private organization selling a private service to
private parties who are under no legal obligation
to agree to arbitrate their disputes or, if they
decide to use arbitration to resolve disputes, to
use the services of the Association, which is not
the only provider of such services. Compare
Dunham v. Frank’s Nursery & Crafts, Inc., 919
F.2d 1281, 1286 (7th Cir. 1990). When arbitrators
issue awards, they do so pursuant to the
disputants’ contract--in fact the award is a
supplemental contract obligating the losing party
to pay the winner. The fact that the courts
enforce these contracts, just as they enforce
other contracts, does not convert the contracts
into state or federal action and so bring the
equal protection clause into play. Parks v. "Mr.
Ford", 556 F.2d 132, 156 (3d Cir. 1977)
(concurring opinion). This is not Shelley v.
Kraemer, 334 U.S. 1 (1948), or Marsh v. Alabama,
326 U.S. 501 (1946), cases in which the
enforcement of private contracts had the effect
of establishing private governments exercising
governmental power under delegation from the
state.

 Smith also appeals to a provision of Minnesota’s
arbitration statute that if the method for
appointing arbitrators agreed upon by the parties
fails, the court shall appoint the arbitrators.
Minn. Stat. sec. 572.10(1). Smith’s invocation of
the Minnesota statute is frivolous, first,
because the invocation is premature; second,
because the choice of law provision in the stock
purchase agreement does not appear in the
arbitration clause but is instead a direction to
the arbitrators as to what law to apply (and the
arbitrators, we are told, have so interpreted
it); and third because the agreed method of
selection did not fail, since there was never an
agreement that the list of possible arbitrators
would contain a particular number or percentage
of women.

 Finally, Smith makes two statutory claims
against the American Arbitration Association. The
first is that the Association’s representations
about gender balance violate Illinois’s Uniform
Deceptive Trade Practices Act, 815 ILCS 510/2.
The point we made earlier about the vagueness of
the representations is equally applicable here.
Laws forbidding deceptive advertising are
inapplicable to "puffing," which is to say to
general quality claims too vague to create
warranted reliance. Totz v. Continental Du Page
Acura, 602 N.E.2d 1374, 1383 (Ill App. 1992); see
also Lionel Trains, Inc. v. Albano, 831 F.Supp.
647, 651 (N.D. Ill. 1993), aff’d without opinion,
35 F.3d 568 (7th Cir. 1994). That is the nature
of the alleged "promise" of balance and
diversity. Moreover, the statutory remedy is an
injunction against the deceptive advertising, 815
ILCS 510/3; Smith v. Prime Cable of Chicago, 658
N.E.2d 1325, 1337 (Ill. App. 1995); Empire Home
Services, Inc. v. Carpet America, Inc., 653
N.E.2d 852 (Ill. App. 1995), which is not the
relief sought here. Stated otherwise, Smith being
undeceived and the arbitration conducted, her
claim for prospective relief against the
allegedly deceptive advertising, the only relief
sought, is moot.

 The second statutory claim is of a violation of
the prohibition against gender discrimination in
Illinois’ Human Rights Act, 775 ILCS 5/5-102.
Smith argues that the AAA is a "place of public
accommodation" within the meaning of the act
because it is a business whose services are
"offered, sold or otherwise made available to the
public." But there is no allegation of
discrimination by the AAA. Argenbright is accused
of having taken advantage of the opportunity that
the Association created for it to strike the
woman from the list of possible arbitrators, and
that action (depending on the company’s motive)
could conceivably be a form of gender
discrimination (by analogy to Batson), though
that we need not decide since there is no
suggestion that Argenbright is a place of public
accommodation. The charge against the AAA is that
it failed to maintain gender diversity or
balance, but such a failure, while it might
conceivably violate an undertaking by the AAA, is
not discrimination. Efforts to achieve gender
diversity can constitute reverse discrimination;
but failure to achieve diversity, failure in
other words to engage in affirmative action,
cannot. The law permits affirmative action in
some circumstances, but it does not require it
except as a remedy for discrimination by the
defendant. E.g., Texas Dept. of Community Affairs
v. Burdine, 450 U.S. 248, 259 (1981); Yatvin v.
Madison Metropolitan School District, 840 F.2d
412, 415 (7th Cir. 1988).

Affirmed.

FOOTNOTE

/* The plaintiff filed a petition for rehearing
within 14 days following the issuance of our
decision, without waiting for us to issue the
opinion explaining our decision. She cannot be
faulted for doing this, since the period for
filing a petition for rehearing runs from the
date of the judgment rather than from the date of
the opinion, Fed. R. App. P. 40(a)(1), but for
future reference we note that the court’s policy,
in cases in which decision precedes opinion, is
to allow the losing party a 14-day extension of
time following the issuance of the opinion for
seeking rehearing. We shall therefore give Smith
14 days to file a supplementary petition if she
wishes.