Court Opinion

ID: 75423
Source: CourtListenerOpinion
Date Created: 2010-04-26 23:02:48+00
Date Added: 2024-06-11T11:23:40.542097
License: Public Domain

[PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS
                                                                              FILED
                            FOR THE ELEVENTH CIRCUIT                 U.S. COURT OF APPEALS
                                 _______________                       ELEVENTH CIRCUIT
                                                                           JUNE 12, 2001
                                      No. 00-13489                      THOMAS K. KAHN
                                                                             CLERK
                                    _______________
                              D. C. No. 00-00686-CV-KMM

DAMIANA PEREZ,
                                                                  Plaintiff-Appellee,

       versus

GLOBE AIRPORT SECURITY SERVICES, INC.

                                                                  Defendant-Appellant.

                      Appeal from the United States District Court
                         for the Southern District of Florida

                                      (June 12, 2001)

Before TJOFLAT and DUBINA, Circuit Judges, and SHAPIRO*, District Judge.

_______________
* Honorable Norma L. Shapiro, U.S. District Judge for the Eastern District of Pennsylvania,
sitting by designation.
SHAPIRO, Disttict 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
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

                                      2
      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

                                       3
      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 (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

                                         4
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 (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

                                      5
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 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.

       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.

                                           6
Randolph, — U.S. — , 121 S.Ct. 513, 522 (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 531. 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

       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.

                                            7
       “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 (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 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

                                       8
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.S. § 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

                                        9
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 & ¶ 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

       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.”

                                           10
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. 1995)(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. Autosuperstores, No. 99-802, (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

                                      11
available cannot adequately serve those functions. See id. (citing Gilmer,

500 U.S. at 28). 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.S. § 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.

                                       12
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 482, 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

                                       13
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.

                                           14