Court Opinion

ID: 75422
Source: CourtListenerOpinion
Date Created: 2010-04-26 23:02:45+00
Date Added: 2024-06-11T17:21:13.802094
License: Public Domain

Damiana PEREZ, Plaintiff-Appellee,

                                                       v.
                GLOBE AIRPORT SECURITY SERVICES, INC. Defendant-Appellant.

                                                No. 00-13489.

                                       United States Court of Appeals,
                                              Eleventh Circuit.

                                                June 12, 2001.

Appeal from the United States District Court for the Southern District of Florida.(No. 00-00686-CV-KMM),
K. Michael Moore, Judge.
Before TJOFLAT and DUBINA, Circuit Judges, and SHAPIRO*, District Judge.

        SHAPIRO, District Judge:

        Defendant Globe Airport Security ("Globe") appeals an order of the district court denying its motion
to compel arbitration. Because the arbitration agreement unlawfully denies plaintiff-appellee Damiana Perez

("Perez") remedies available under Title VII, we affirm.
                                        FACTUAL BACKGROUND
        Perez worked for Globe as a pre-departure security agent at the Miami International Airport. To

obtain employment with Globe, Perez was required to sign a Pre-dispute Resolution Agreement ("arbitration
agreement" or "Agreement") calling for the arbitration of any and all disputes relating to her employment.
The Agreement states:

        In consideration of the Company employing you, you and the Company each agree that, in the event
        either party (or its representatives, successors, or assigns) brings an action in an agency or court of
        competent jurisdiction relating to you recruitment, employment with, or termination of employment
        from the Company, the party bringing such action agrees to waive his, her or its right to a trial by
        jury, and further agrees that no demand, request or motion will be made for a trial by jury. Each
        party agrees to pay the costs and attorneys' fees to the other party in the event of a breach of this
        agreement.

        In consideration of the Company employing you, you further agree that, in the event that you seek
        relief in an agency or court of competent jurisdiction for a dispute covered by this Agreement, the
        Company may, at any time within 90 days of the service of your complaint upon the Company, at
        its sole option, require all or part of the dispute to be arbitrated by one arbitrator in accordance with
        the American Arbitration Association governing labor arbitration. You agree that the option to
        arbitrate any such dispute is governed by the Federal Arbitration Act and fully enforceable. You
        understand and agree that, if the Company exercises its option, any dispute arbitrated will be heard
        solely by an arbitrator and not by a court or agency, that the decision of the arbitrator will be final
        and binding on both parties, and that such decision will bar any further relief of any kind in any

   *
     Honorable Norma L. Shapiro, U.S. District Judge for the Eastern District of Pennsylvania, sitting by
designation.
        forum of all issues that were or could have been brought, except those the Company specifically
        excluded from such arbitration. The Company and you agree that, despite any rule providing that
        any one party must bear the cost of filing and/or the arbitrator's fees, all costs of the American
        Arbitration Association and all fees imposed by any arbitrator hearing the dispute, will be shared
        equally between you and the Company. If you refuse to arbitrate after the Company has demanded
        you do so, and if a court orders arbitration, you agree to pay the Company's legal costs, including
        attorney's fees, incurred in enforcing this agreement. To insure the speedy resolution of any dispute,
        you agree that you submit your claim(s) to the American Arbitration Association within sixty (60)
        days of the Company's demand for arbitration under this agreement, and that failure to do so will
        forever bar any claim that was or could have been asserted in any forum whatsoever.
        This pre-dispute resolution agreement will cover all matters directly or indirectly related to you
        recruitment, hire, employment or termination of employment by the Company; including, but not
        limited to, claims involving laws against discrimination whether brought under federal and/or state
        law; and/or claims involving co-employees, but excluding Worker's Compensation claims. You
        further agree that this agreement covers all parties to the lawsuit to which the Company is a party,
        but only the Company has standing to enforce this agreement to avoid piecemeal litigation.

        The right to a trial, and a trial by jury, is of value.

        YOU MAY WISH TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT.
        IF SO, TAKE A COPY OF THIS FORM WITH YOU. HOWEVER, YOU WILL NOT BE
        OFFERED EMPLOYMENT UNTIL THIS AGREEMENT IS SIGNED AND RETURNED BY
        YOU.
        In February, 1999, Perez's employment with Globe ended. Perez contends she was terminated, but

Globe asserts she abandoned her job. In February, 2000, Perez filed this action alleging gender discrimination
in violation of Title VII. Globe, answering the complaint, raised the arbitration agreement as an affirmative
defense. Moving to compel arbitration under § 4 of the Federal Arbitration Act, Globe requested that the trial

court dismiss or stay the court action. Perez argued in opposition that: (1) her employment disputes were
not governed by the Federal Arbitration Act because she was an employee engaged in foreign or interstate
commerce; (2) the fee-sharing provision rendered the agreement unenforceable; and (3) the agreement was

void because she did not understand what she was signing.
        Based on evidence of the financial circumstances of Perez and the costs of arbitration, the district

court found the fee-sharing provision created an unreasonable barrier to assertion of Title VII rights because

the required arbitration would be prohibitively expensive for Perez. The district court denied Globe's motion

to compel arbitration; this appeal followed.
                             JURISDICTION AND STANDARD OF REVIEW

         This court has jurisdiction over an appeal from an order denying a motion to compel arbitration

under the Federal Arbitration Act. 9 U.S.C. § 16(a). The standard of review is de novo. See Kidd v. Equitable

Life Assur. Soc'y of Am., 32 F.3d 516, 518 (11th Cir.1994).

                                                 DISCUSSION
A.        The Applicability of the Federal Arbitration Act
          The validity of an agreement to arbitrate is generally governed by the Federal Arbitration Act

("FAA" or the "Act"), enacted in 1925 to reverse longstanding judicial hostility to arbitration. See Gilmer

v. Interstate Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). The Act requires

a court to enforce a written arbitration agreement as it would any other contract. See 9 U.S.C. § 2 ("A written

provision ... to settle by arbitration a controversy ... shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of any contract."); see also Paladino v. Avnet

Computer Technologies, Inc., 134 F.3d 1054, 1061 (11th Cir.1998). The FAA embodies a liberal federal

policy favoring arbitration agreements. See Randolph v. Green Tree Fin. Corp., 244 F.3d 814, 818 (11th

Cir.2001).

          Perez claims the FAA does not govern this dispute because § 1 exempts from the FAA's coverage

arbitration agreements contained in "contracts of employment of seamen, railroad employees, or any other
class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. Perez, a pre-departure security

agent at Miami International Airport, argues she was engaged in interstate commerce because "she inspected

goods, materials, and people that were headed to locations around the United States and, indeed, around the
world."

          The Supreme Court has now held that the FAA's "engaged in commerce" exception should be

narrowly construed to apply only to transportation workers. See Circuit City v. Adams, --- U.S. ----, 121 S.Ct.

1302, 1306, --- L.Ed.2d ---- (2001). The § 1 exception specifically names two classes of exempt workers,

seamen and railroad employees, and the final exempt group, workers engaged in commerce, must be defined

in light of the narrowness of the other two exemptions. Id. at 1311. In Circuit City, the Court cited with

approval a definition adopted by the Court of Appeals for the District of Columbia Circuit in Cole v. Burns

Int'l Security Services: workers "actually engaged in the movement of goods in interstate commerce."1 105

F.3d 1465, 1471 (D.C.Cir.1997); see Circuit City, 121 S.Ct. at 1307.

          In Cole, a security guard working in Union Station was held not "engaged in commerce" under § 1

of the FAA, because he did not participate in the actual movement of goods in commerce. See Cole, 105 F.3d

at 1472. Likewise Perez, an airport security guard, was not engaged in the transportation of goods in

     1
     This court had previously held the exception applied only to "employees actually engaged in
transportation of goods in commerce." Paladino, 134 F.3d at 1061 (citing Cole, 105 F.3d at 1470). The
recent Supreme Court decision affirmed the validity of that definition.
commerce; she merely inspected or guarded such goods prior to their transport. The "engaged in commerce"

exemption does not apply, so the FAA governs this dispute.

B.       The Expense of Arbitration
         The district court found the fee-sharing provision rendered the arbitration agreement unenforceable

because it inhibited Perez from asserting her statutory rights by requiring her to advance costs and fees she

could not afford. Subsequent to that decision, the Supreme Court held, "where a party seeks to invalidate an
arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the

burden of showing the likelihood of incurring such costs." Green Tree Fin. Corp. v. Randolph, 531 U.S. 79,

121 S.Ct. 513, 522, 148 L.Ed.2d 373 (2000). Globe asserts that Perez failed to show she would incur

prohibitive expenses by pursuing arbitration.2

         The arbitration agreement before the Court in Green Tree did not specify which party would bear the

initial costs of arbitration. See Green Tree, 121 S.Ct. at 513. Here, the arbitration agreement expressly

provides that the parties must share the fees and costs of arbitration equally, and Perez produced evidence of
her income and the costs of arbitration before the district court to prove those costs would inhibit her from

pursuing her claims. However, this court need not determine whether the evidence of arbitration expense
produced by Perez was sufficient to find arbitration prohibitively expensive. The Agreement is illegal and

unenforceable for other compelling reasons.

C.       Illegality of the Costs and Fees Provision
         "By 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." Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). Perez

claims the arbitration agreement requires her to waive substantive rights under Title VII by compelling her

to arbitrate such claims, but preventing her from receiving fees and costs if she prevails.

         A court must interpret an arbitration agreement "according to ordinary state-law rules of contract

construction." Paladino, 134 F.3d at 1061 (citations omitted). The intent of the parties governs the

     2
     At oral argument, Globe argued that the arbitration would not be prohibitively expensive because
Globe was willing to forgo use of the American Arbitration Association ("AAA"), required by the
Agreement, in favor of less expensive, private arbitration. Globe's proposal to use private arbitration
constituted an offer to modify the written agreement. Perez's rejection of that offer to modify leaves the
Agreement as originally signed. To determine whether arbitration would be prohibitively expensive for
Perez, the court would review the cost of arbitration as provided for in the Agreement, i.e., AAA
arbitration. The court could not consider Globe's unilateral offer not accepted by Perez.
interpretation, and the court must look to the words of the agreement where their meaning is unambiguous,

to determine the intent. See id.

         The arbitration agreement requires Perez to arbitrate all disputes "directly or indirectly related to

your recruitment, hire, employment or termination of employment by the Company; including, but not
limited to, claims involving laws against discrimination whether brought under federal and/or state law,

and/or claims involving co-employees, but excluding Worker's Compensation claims." This provision

unambiguously requires Perez to submit Title VII claims to arbitration. See Paladino, 134 F.3d at 1061

(arbitration clause covering "any controversy or claim arising out of or relating to employment" required

arbitration of Title VII claims).

        Title VII provides that a prevailing party may be awarded reasonable attorneys' fees, including expert

fees, and costs. See 42 U.S.C. § 2000e-5(k). The arbitration agreement states, "despite any rule providing

that any one party must bear the cost of filing and/or the arbitrator's fees, all costs of the American Arbitration
Association and all fees imposed by any arbitrator hearing the dispute, will be shared equally between you
and the Company." This provision circumscribes the arbitrator's authority to grant effective relief by

mandating equal sharing of fees and costs of arbitration despite the award of fees permitted a prevailing party
by Title VII. "The words are plain, and the intent behind them apparent. There is no need, therefore, to resort

to any other contract construction rules." Paladino, 134 F.3d at 1062.

        Globe argues such an interpretation would render the Agreement unnecessarily self-contradictory.
Globe maintains the Agreement incorporates the AAA rules governing arbitration of employment disputes;

Rule 34(e) permits an arbitrator "to assess fees, expenses, and compensation ... in favor of any party." Initial
Br. at 14 (citing AAA Employment Dispute Rules, R. 15, Ex. 4, ¶ 34(e)). But the AAA rules cited by Globe
are not incorporated in the Agreement. The arbitration agreement states any disputes between Globe and the

signatory employee shall be "arbitrated ... in accordance with the rules of the American Arbitration

Association governing labor arbitration." (emphasis added). The AAA rules governing labor arbitration are

separate and distinct from the rules governing employment disputes.

        The AAA labor arbitration rules incorporated in the Agreement provide "[t]he parties by written
agreement, may vary the procedures set forth in these rules."3 AAA Labor Dispute Rules, R. 15 Ex. 3, ¶ 44

    3
     In contrast, the AAA rules governing employment disputes provide that if "an adverse material
inconsistency exists between the arbitration agreement and these rules, the arbitrator shall apply these
rules."
& ¶1. The Globe arbitration agreement plainly requires that costs and fees be shared equally by the parties,

and supplants the arbitrator's authority to award fees and costs. The provision constitutes a written agreement
to vary the procedures adopted by incorporating the AAA rules, and supercedes the contradictory rule. The

Agreement is not self-contradictory.

D.      Enforceability of the Agreement
        Faced with arbitration agreements proscribing statutorily available remedies, courts have either

severed the illegal provision and ordered arbitration, or held the entire agreement unenforceable. Compare

Herrington v. Union Planters Bank, N.A., 113 F.Supp.2d 1026, (S.D.Miss.2000)(severing an unlawful

provision prohibiting award of punitive damages), with Graham Oil Co. v. ARCO Products Co., 43 F.3d

1244, 1249 (9th Cir.1994)(voiding the entire arbitration clause). Courts finding severance appropriate rely

on a severance provision in the arbitration agreement, or the general federal policy in favor of enforcing

arbitration agreements. See, e.g., Etokie v. Carmax Auto Superstores, 133 F.Supp.2d 390 (D.Md. Sep.20,

2000)(relying on a severance provision); see also Herrington, 113 F.Supp.2d at 1032-33(relying on policy

favoring arbitration agreements).

         The Globe arbitration agreement does not contain a severability provision, and this court has
previously rejected the contention that the policy favoring arbitration agreements requires that courts sever

unlawful provisions, rather than void the agreement. See Paladino, 134 F.3d at 1058. In Paladino, the

arbitration agreement expressly required arbitration of the plaintiff's Title VII claims, but limited the remedies

available through arbitration. See id. at 1061-62. This court recognized that federal statutory claims are

arbitrable only when arbitration can serve the same remedial and deterrent functions as litigation, and an

agreement that limits the remedies available cannot adequately serve those functions. See id. (citing Gilmer,

500 U.S. at 28, 111 S.Ct. 1647). If the arbitration agreement limits remedies Congress determined were

appropriate, it should not be enforced. See id. (citations omitted).

         The Paladino court also concluded the agreement at issue was unenforceable in part because it did

not require the employer to advance the costs of arbitration. See Paladino, 134 F.3d at 1062. The Supreme

Court recently held the opposite; the absence of a provision specifying which party must advance the

arbitration fees and costs does not render the agreement unenforceable. See Green Tree, 121 S.Ct. at 521-22.

The Court's decision in Green Tree does not cast doubt on the continuing vitality of the primary holding in

Paladino. An arbitration agreement containing provisions that defeat a federal statute's remedial purpose is
still not enforceable.
        Congress determined that to remedy and effectively deter discrimination, a party prevailing on a Title

VII claim would be permitted to receive fees and costs. See 42 U.S.C. § 2000e-5(k). By denying access to

a remedy Congress made available to ensure violations of the statute are effectively remedied and deterred,

the Agreement eroded the ability of arbitration to serve those purposes as effectively as litigation. See Robert

A. Gorman, The Gilmer Decision and the Private Arbitration of Public-Law Disputes, 1995 U.Ill. L.Rev. 635,

665 (1995)(Curtailing the availability of a statutorily available remedy reduces the potential award,
"undercut[s] the strong compensatory policy of the statute ... [and] threaten[s] the initiation of many

meritorious arbitration proceedings."). Globe's attempt to defeat the remedial purpose of Title VII taints the

entire agreement, making it unenforceable. See Paladino, 134 F.3d at 1062; Graham Oil, 43 F.3d at 1249.

        Nevertheless, Globe requests that this court reform the agreement by severing the costs and fees
provision and enforcing the remainder. To sever the costs and fees provision and force the employee to

arbitrate a Title VII claim despite the employer's attempt to limit the remedies available would reward the

employer for its actions and fail to deter similar conduct by others. C.f. Hooters of America Inc., v. Phillips,

39 F.Supp.2d 582, 627 (D.S.C.1998).
        If an employer could rely on the courts to sever an unlawful provision and compel the employee to
arbitrate, the employer would have an incentive to include unlawful provisions in its arbitration agreements.
Such provisions could deter an unknowledgeable employee from initiating arbitration, even if they would

ultimately not be enforced. It would also add an expensive procedural step to prosecuting a claim; the
employee would have to request a court to declare a provision unlawful and sever it before initiating

arbitration. Including an unlawful provision would cost the employer little, particularly where, as here, the
arbitration agreement provides the employee must bear the employer's court costs and attorneys' fees incurred

defending the agreement if arbitration is challenged and the employer prevails.4 If the court were inclined
to reform this agreement, it would be more appropriate to limit the causes of action covered and exclude

claims under Title VII and other statutes that permit an award of fees and costs to the prevailing party.
                                               CONCLUSION

        The decision of the district court denying Globe's motion to compel arbitration is AFFIRMED.

    4
     The legality of this provision is not at issue here, but the court observes that the provision
unreasonably purports to apply even if certain terms of the agreement are declared unenforceable, so long
as a court eventually orders the parties to arbitrate.