Opposition Brief — Circuit City Stores, Inc. v. Adams

99-1379, Supreme Court, U.S.

FILED

Supreme Court of the Anited SeweRK

Circurt City STORES, INC.

Petitioner,

Vv.

SAINT CLAIR ADAMS,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF IN OPPOSITION

ANGELA ALIOTO MICHAEL RUBIN

STEVEN L. ROBINSON (Counsel of Record)

LAW OFFICES OF SCOTT A. KRONLAND

JOSEPH L. ALIOTO AND ALTSHULER, BERZON,

ANGELA ALIOTO NUSSBAUM, RUBIN & DEMAIN

700 Montgomery Street 177 Post Street, Suite 300

San Francisco, California 94111 San Francisco, California 94108

(415) 434-8700 (415) 421-7151

CLIFF PALEFSKY

MCGUINN, HILLSMAN &

PALEFSKY

535 Pacific Avenue

San Francisco, California 94133

(415) 421-9292?

Attorneys for Respondent

ST

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001

TABLE OF CONTENTS

Page

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STATUTES INVOLVED ............ccscccscsscsscoscscersosssserees l

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TABLE OF AUTHORITIES

Cases Page

Asplundh Tree Expert Co. v. Bates, 71 F.3d 592

en 7

California Division of Labor Standards En-

forcement v. Dillingham Construction, 519

Side DORAN OTD cocscsscensesssccnssenmenvmnisesoonsecese 10

Circuit City Stores, Inc. v. Ahmed, 195 F.3d 1131

(9h Cir. 1999), petition for certiorari filed,

PE POTENT cnteencnicsiciantancinenininatanintinsmnastinnypendets 5

Cole v. Burns Int'l Securities Services, 105 F.3d

PRE iiss Gs UP ccscrsscsnsmnccsninsnvintesnincenemetes 7

Craft v. Campbell Soup Co., 177 F.3d 1083 (9th

Cir. 1999), pet. for reh. denied .......:cccccsseeceeeeees passim

Doctor's Associates, Inc. v. Casarotto, 517 U.S.

Se PTE diciitisctininnndaceeestemmmesnesiunenietinntibereniasenses 2

Gilmer v. Interstate/Johnson Lane_ Corp.,

a ee ee hiciesinsedesnianenessecnseptescensseseeees 5, 6

Perry v. Thomas, 482 U.S. 488 (1987) ............0006. 10

Pryner v. Tractor Supply Co., 109 F.3d 354 (7th

Cir.), cert. denied, 118 S.Ct. 295 (1997) ............ 7

Southland Corp. v. Keating, 465 U.S. 1 (1984) ... 10

STATUTES

California Government Code

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9 U.S.C.

BF OE GD sscccccenseveeernsnpnensennvesecneseeveensecnes passim

sited daihdlinssiinadinideneecsasnensvenensnceancuseenspeeet passim

MISCELLANEOUS

Matthew W. Finkin, Employment Contracts Un-

der the FAA -- Reconsidered, 48 Lab. L. J. 329

ill

TABLE OF AUTHORITIES—Continued

Matthew W. Finkin, “Workers' Contracts” Under

the United States Arbitration Act: An Essay in

Historical Clarification, 17 Berkeley J. Empl.

Si eis GED IED eeccncccncenecncsansscsscsceccscsssescens

Page

OPINIONS BELOW

In addition to the Ninth Circuit and District Court opinions

reprinted in Petitioner's Appendix (“Pet. App.”) la-1la, the

Ninth Circuit’s opinion in Craft v. Campbell Soup Co., 177

F.3d 1083 (9th Cir. 1999) (per curiam), pet. for reh. denied,

which sets forth the reasoning underlying the Ninth Circuit's

holding that the Federal Arbitration Act (“FAA”) did not ap-

ply to respondent’s employment contract, is reprinted in the

Appendix to this Brief in Opposition (“Opp. App”) 1a-27a.

JURISDICTION

Respondent agrees with petitioner’s Statement of Jurisdic-

tion.

STATUTES INVOLVED

In addition to the statutory provisions set out in the Peti-

tion, the “coverage” section of the FAA, 9 U.S.C. §2, is also

pertinent to petitioner’s first Question Presented:

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce

to settle by arbitration a controversy thereafter arising

out of such contract or transaction, or the refusal to per-

form the whole or any part thereof, or an agreement in

writing to submit to arbitration an existing controversy

arising out of such a contract, transaction, or refusal,

shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revoca-

tion of any contract.

STATEMENT

1. Respondent Saint Clair Adams (“Mr. Adams”) was a

salesperson employed by petitioner Circuit City Stores, Inc.

(“Circuit City”) at its retail electronics store in Santa Rosa,

California. Excerpts of Record (ER) 4, 5. In November

2

1997, after suffering numerous alleged incidents of on-the-job

harassment and retaliation based upon his sexual orientation,

Mr. Adams filed suit in California Superior Court against

Circuit City and three of its store managers under California’ s

Fair Employment and Housing Act, Cal. Govt. Code §12900

et seq., and state common law. ER 4, 14-26. Circuit City re-

sponded by filing a petition in federal district court to compel

arbitration of respondent's claims under the FAA, 9 U.S.C. §1

et seq. Supplemental Excerpts of Record (SER) 1-30.

2. Mr. Adams had submitted an application to work at Cir-

cuit City approximately two years earlier. Pet. App. 2a. As a

condition of seeking such employment, Mr. Adams was re-

quired by Circuit City to sign a form agreeing to arbitrate any

dispute that might later arise with Circuit City concerning his

application or his subsequent employment, and to be bound

by Circuit City's dispute resolution rules "throughout the ap-

plication process, my employment and thereafter." ER 62-67.

The application stated, “[Circuit City] will not consider your

application unless this agreement is signed.” ER 62. Al-

though Circuit City job applicants are permitted to revoke

their arbitration agreements within three days after signing,

the company's application form stated that applicants who

revoked their arbitration agreements “no longer will be eligi-

ble for employment at Circuit City.” ER 64.

The arbitration agreement signed by Mr. Adams further

stated that it did not "form a contract of employment between

Circuit City and me” and that the applicant's "signature to this

Agreement in no way guarantees that Circuit City will accept

my application for employment.” ER 63.

Mr. Adams challenged the enforceability of his employ-

ment arbitration agreement in district court on the ground that

Circuit City's mandatory pre-dispute arbitration procedures

were one-sided and unenforceable under state unconscion-

ability law. See Doctor's Associates, Inc. v. Casarotto, 517

3

U.S. 681, 686-87 (1996). He alleged that the mandatory ar-

bitration clause lacked mutuality, because while employees

are required to arbitrate all employment-related claims

against Circuit City, the employer had no corresponding obli-

gation to arbitrate claims it might have against the employee.

ER 64. He also challenged Circuit City’s dispute resolution

rules, which: 1) imposed a one-year statute of limitations on

all claims (ER 63); 2) required the employee to pay half the

cost of any arbitration, including the arbitrator's fees, subject

to later cost-shifting only at the arbitrator’s discretion (ER

77); 3) placed a cap on the amount of front pay or punitive

damages that the arbitrator may award; 4) prohibited the ar-

bitrator from deciding cases on a class action basis (ER 76,

78); 5) vested complete discretion in the arbitrator to decide

whether to award attorney's fees to a prevailing employee

(ER 78); and 6) did not require the arbitrator to provide any

findings or reasoning in support of the arbitration award (ER

76-77).

3. The district court rejected Mr. Adams’ challenges to

the Circuit City mandatory pre-dispute arbitration procedure,

compelled arbitration, and enjoined Mr. Adams’ state court

action. Pet.App. 6a-7a. The Ninth Circuit reversed, based on

its intervening holding in Craft v. Campbell Soup Co., supra,

177 F.3d 1083 (Opp. App. la-27a), that the FAA did not ap-

ply to employment contracts. In Craft, the Ninth Circuit had

undertaken a detailed textual and historical analysis of the

FAA, drawing upon newly-published academic scholarship,

in concluding, inter alia, that: 1) Congress’ limitation of cov-

erage in Section 2 of the FAA, 9 U.S.C. §2, to “contract(s]

evidencing a transaction involving commerce” was intended

to reach commercial contracts only and not employment con-

tracts, both because employment contracts were not at the

time considered “transactions” and because the scope of Con-

gress’ Commerce Clause power in 1925 was universally un-

derstood not to encompass employees unless they were di-

4

rectly working in interstate commerce; and 2) the exclusion in

Section | of the FAA, 9 U.S.C. §1, which stated that “nothing

herein contained shall apply to contracts of employment of

seamen, railroad employees, or any other class of workers

engaged in foreign or interstate commerce,” was intended to

exclude from the FAA coverage those employees who were

directly working in interstate commerce, and who might be

encompassed within the scope of Section 2's coverage provi-

sion but for the exclusion. The Ninth Circuit in the present

case based its FAA analysis on Craft and, after finding that

Mr. Adams’ arbitration agreement constituted a “contract[{] of

employment” for purposes of the FAA, reversed the district

court's order compelling arbitration on the ground that re-

spondent’s arbitration agreement was not within the scope of

the FAA. Pet. App. 4a.

ARGUMENT

Circuit City seeks certiorari review of two ques*ions: first,

whether the FAA applies to any contracts of employment;'

and second, whether the agreement that required Mr. Adams

to arbitrate all future employment disputes with his employer,

Circuit City, was part of a contract of employment within the

meaning of the FAA.

1. Petitioner’s second Question Presented should be dis-

missed as not worthy of certiorarireview. | Whether the

agreement between Mr. Adams and Circuit City is a contract

of employment as that term may have been understood by

Congress in 1925 (when it enacted the FAA) is a fact-specific

question that presents neither a conflict among the lower

courts nor an issue of general significance. Moreover, that

question was neither analyzed from a historical perspective

' Cf. Brief Amicus Curiae of the National Academy of Arbitrators at 4

n.4.

5

by the parties below nor was it the subject of significant

briefing. Additionally, the question whether Mr. Adams’

agreement constituted a “contract of employment” has little

significance beyond this case; indeed, even Circuit City ap-

parently uses different types of arbitration agreements with its

employees in different stores or regions. See Circuit City

Stores, Inc. v. Ahmed, 195 F.3d 1131 (9th Cir. 1999), petition

for certiorari filed, No. 99-1378.

The application of the FAA to employment contracts does,

as petitioner asserts, pose a question of significant importance

as to which the lower courts are presently divided. That

Question would not be reached, however, if the second Ques-

tion were resolved as petitioner urges, because if there were

no "contract of employment" in this case, it would no longer

matter, for purposes of the petition, whether the FAA applied

to employment contracts. Cf Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 25 n.2 (1991) (not reaching ques-

tion of FAA’s application to employment contracts).

Petitioner is incorrect in asserting that the Ninth Circuit’s

decision on the “contract of employment” question conflicts

with Gilmer. The reason no contract of employment was

found to be involved in Gilmer was because the arbitration

provision at issue was set forth in a separate registration

agreement between a broker and a securities exchange, not in

an agreement between an employee and his employer. See

500 U.S. at 25 n.2 ("the arbitration clause at issue is in [the

plaintiff's] securities registration application, which is a con-

tract with the securities exchanges, not with [the employer]")

(emphasis added). The arbitration agreement that Circuit

City required Mr. Adams to sign, by contrast, unquestionably

is between employer and employee, and it does, in addition,

directly regulate an important term and condition of his later

employment—whether he could pursue subsequent employ-

ment disputes in state or federal court rather than only in Cir-

cuit City’s arbitration program.

6

Circuit City nonetheless contends that its employer-

employee agreement with respondent is not a “contract of

employment” because: 1) it is contained in an employment

“application” that was executed before Mr. Adams’ employ-

ment began; 2) it applies by terms not only to persons who

become, and continue to serve as, employees, but also to ap-

plicants who are never offered, or who never accept, em-

ployment; and 3) the application states that it is not a contract

of employment (by which the application obviously means

that Mr. Adams’ signature did not guarantee that he would be

hired, see ER 63 ("my signature to this Agreement in no way

guarantees that Circuit City will accept my application for

employment")). Regardless of the merit of these arguments,

they do not give rise to a conflict between the Ninth Circuit’s

decision and Gilmer, because none of these supposedly criti-

cal factors was present in Gilmer.

Thus, while the most prudent course of action for the Court

might be to deny certiorari on both Questions—principally to

give the lower courts more time to respond to the Ninth Cir-

cuit’s decision in Craft and the new academic research ad-

dressing the issue—if the Court grants review it should limit

certiorari to the first Question only.

2. As to the first Question Presented, the scope of the FAA

as applied to “contracts of employment” is an issue that this

Court declined to address in Gilmer (see 500 U.S. at 25 n.2;

cf. id. at 39-41 (Stevens, J., dissenting)) but may eventually

choose to resolve. Rather than granting review in the present

case, however, it may be more prudent for the Court to allow

more time for the lower courts to respond to the Ninth Cir-

cuit's analysis and to digest the most recent law review schol-

arship on the issue.”

> Notably, of the post-Gilmer cases analyzing the issues presented in

the first Question Presented, the only ones containing any significant

7

a. The Ninth Circuit’s decision in Craft, and a series of law

review articles by Professor Finkin’ and others, provide a

range of reasons why earlier judicial efforts to determine the

breadth of the statutory coverage and exemption provisions

reached a profoundly ahistorical result. We highlight but a

few of these reasons:

First, the affirmative coverage of the FAA extends to "a

written provision in any maritime transaction of a contract

evidencing a transaction involving commerce." 9 U.S.C. §2.

Although this scope-of-coverage provision is nowhere men-

tioned in the Petition (or in the analysis of most lower courts

whose construction of the FAA differs from the Ninth Cir-

cuit's), it plays a critical role in elucidating what Congress

meant by its exclusion from the FAA of “contracts of em-

ployment of . .. workers engaged in . . . interstate commerce”

in Section 1, 9 U.S.C. §1. In determining the meaning of

Section 1, the relevant inquiry, as Craft correctly points out,

is not what the quoted phrase might mean in isolation, but

what it means in relation to the language to which it is ad-

dressed—namely, the affirmative coverage of the FAA, from

which it carves out a specific exclusion. Opp. App. 4a-6a, 8a,

18a-19a. The critical question addressed by the Ninth Circuit

was whether Congress in 1925 somehow understood that an

employment contract could be "a contract evidencing a trans-

action involving commerce” (i.e., within the scope of cover-

age) and yet not be a "contract of employment of seamen,

analysis, other than Craft, are: Cole v. Burns Int'l Securities Services, 105

F.3d 1465, 1470-72 (D.C. Cir. 1997); Pryner v. Tractor Supply Co., 109

F.3d 354, 358 (7th Cir.), cert. denied, 118 S.Ct. 295 (1997); and Asplundh

Tree Expert Co. v. Bates, 71 F.3d 592, 596-601 (6th Cir. 1995).

> See, e.g., Matthew W. Finkin, “Workers’ Contracts" Under the

United States Arbitration Act: An Essay in Historical Clarification, \7

Berkeley J. Empl. & Lab. L. 282 (1996); Matthew W. Finkin, Employ-

ment Contracts Under the FAA—Reconsidered, 48 Lab. L. J. 329 (1997).

8

railroad employees, or any other class of workers engaged in

foreign or interstate commerce" (i.e., not exempt from cover-

age), and thus whether Congress meant specifically to pre-

serve FAA coverage of such employment contracts.

To conclude that Congress intended employment contracts

to be in commerce for scope-of-coverage purposes yet not in

commerce for exclusion purposes would be historically

anomalous. In 1925, when the FAA was enacted, the reach of

Congress’ Commerce Clause power with respect to employ-

ment relations was thought to be quite narrow. Opp. App. 7a-

9a. At the least, any effort by Congress in 1925 to extend the

FAA to contracts of employment affecting workers other than

those who were directly involved in transporting goods in in-

terstate commerce would have been of questionable constitu-

tional validity. By contrast, a decision to extend coverage

only to employees who were directly engaged in such trans-

portation would not have been open to serious challenge.

Viewed from the perspective of 1925, the decision by Con-

gress that petitioner presumes—limiting the FAA's coverage

only to those employment contracts least evidently within the

reach of federal authority—would have been a curious choice

at best.

Second, although several of the lower court decisions cited

by petitioner focus on the linguistic difference between the

phrase “engaged in . . . commerce” (§1) and “involving

commerce” (§2), there is a perfectly good syntactical expla-

nation for the use of slightly different language in the cover-

age provision and in the exclusion, which negates any conclu-

sion that Congress must have intended thereby to draw a sub-

Stantive distinction between the types of workers engaged in

“commerce” for purposes of the two sections. Use of the

same introductory clause in both contexts would have created

a grammatical problem, since a "transaction" cannot be said

to be “engaged in" commerce, any more than a "class of

workers" can be “involving commerce." Given the historical

9

context in which these sections were drafted — i.e., a time

when the constitutional coverage of commerce was consid-

ered to be quite narrow and the distinction between various

locutions regarding the requisite connection to commerce had

not been developed — it is more logical that the different phra-

seology was driven by considerations of draftsmanship rather

than an intent to signal a major substantive distinction be-

tween the two connectives to "commerce." Those courts to

conclude otherwise have engaged in anachronistic reasoning,

projecting an understanding of modern Commerce Clause

jurisprudence onto the 1925 Congress.

Third, as the Ninth Circuit concluded in Craft, most eariier

efforts by lower courts to discern Congress’ intent “reasoned

backward and so got it wrong.” Opp. App. 19a, quoting

Finkin, 17 Berkeley J. Empl. & Lab. L. at 291. Those courts

improperly inferred from the existence of the Section | exclu-

sion that the FAA’s drafters must have intended Section 2 to

cover employment contracts in the first place. But historical

documents demonstrate that the concern of the FAA's drafters

was with commercial contracts only, and the drafters’ view at

the time was that the Section 2 coverage provision—which

was drafted before the Section | exclusion — would not reach

employment contracts, even without the exclusion. See Opp.

App. 7a-8a; Finkin, 17 Berkeley J. of Empl. & Lab. L. at 283-

86. The exclusion language in Section | was added to the bill

later, as a response to protests from organized labor that

workers’ contacts might still be covered. Opp. App. 14a-15Sa.

Nothing in the FAA’s legislative history suggests that Con-

gress ever intended the statute to reach any employment con-

tracts. If Congress excluded some workers from the FAA but

included others, that distinction escaped any notice at the

time, and there is no expression of such intention in the leg-

islative history. Finkin, 48 Lab. L. J. at 331-32.

b. Although petitioner emphasizes the urgency of prompt

certiorari review, employers in the Ninth Circuit will not be

10

left in an “intolerable” situation, as petitioner asserts, if this

Court allows the lower courts additional time to consider the

scope of the FAA exclusion. See Petition at 13. Such a re-

sult would merely leave the enforceability of arbitration pro-

visions in employment contracts to be governed by state law,

which has traditionally governed the employment relation-

ship.

What apparently concerns Circuit City is that if the Ninth

Circuit's analysis were correct, the States would have the

power to exercise their police powers to protect their workers

by barring the enforcement of arbitration agreements imposed

as a condition of employment, or by subjecting such agree-

ments to special scrutiny for unfairness. The FAA, if appli-

cable to employment contracts, would preempt the States

from exercising their police powers in this manner. See Perry

v. Thomas, 482 U.S. 488 (1987); Southland Corp. v. Keating,

465 U.S. | (1984). But the FAA’s preemptive impact on state

law provides an additional reason to ensure that the Craft

analysis receives full consideration by the lower courts. This

Court has "worked on the assumption that the historic police

powers of the States were not to be superceded by [federal

law] unless that was the clear and manifest purpose of Con-

gress." California Division of Labor Standards Enforcement

v. Dillingham Construction, 519 U.S. 316, 325 (1997) (em-

phasis added; citations and internal quotation marks omitted).

At the least, the Ninth Circuit’s analysis in Craft casts serious

doubt on whether Congress in 1925 had such a "clear and

manifest" intent to preempt state law with respect to employ-

ment contracts.

CONCLUSION

For the foregoing reasons, the petition for a writ of certio-

rari should be denied, or if granted, review should be limited

to the first Question Presented.

ANGELA ALIOTO

STEVEN L. ROBINSON

LAW OFFICES OF

JOSEPH L. ALIOTO AND

ANGELA ALIOTO

700 Montgomery Street

San Francisco, California 94111

(415) 434-8700

Respectfully submitted,

MICHAEL RUBIN

(Counsel of Record)

SCOTT A. KRONLAND

ALTSHULER, BERZON,

NUSSBAUM, RUBIN & DEMAIN

177 Post Street, Suite 300

San Francisco, California 94108

(415) 421-7151

CLIFF PALEFSKY

MCGUINN, HILLSMAN &

PALEFSKY

535 Pacific Avenue

San Francisco, California 94133

(415) 421-9292

Attorneys for Respondent

APPENDIX

la

APPENDIX

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

No. 98-15060

ANTHONY I. CRAFT,

Plaintiff-Appellee,

v.

CAMPBELL SOUP COMPANY,

Defendant-Appellant.

Argued and Submitted Aug. 10, 1998

Filed Dec. 2, 1998

Amended May 27, 1999

Appeal from the United States District Court for the Eastern

District of California Garland E. Burrell, District Judge, Pre-

siding, D.C. No. CV 96-1500-GEB.

Before: BRUNETTI, TASHIMA, and GRABER, Circuit

Judges.

ORDER

PER CURIAM.

A judge of this court called for en banc review. A vote was

taken and a majority of the non-recused active judges did not

vote in favor of en banc review. The sua sponte call for en banc

review is therefore DENIED.

The opinion filed on December 2, 1998, 161 F.3d 1199, is

amended in accordance with the amended opinion attached

hereto.

2a

OPINION

We must decide the threshold issue of whether we have ju-

risdiction to hear Campbeli Soup Company’s (“Campbell

Soup”) interlocutory appeal from the district court’s denial of its

motion for summary judgment. Because we conclude that

appellate jurisdiction is lacking, we dismiss the appeal.

As there is no final judgment or any other applicable excep-

tion to the final judgment rule, this court has jurisdiction only if

the Federal Arbitration Act (“FAA”) applies. See 9 U.S.C. § 16

(providing for interlocutory appeal under the FAA). Our juris-

diction therefore hinges on the proper interpretation of the FAA

in relation to employment contracts, which is a question of first

impression in our circuit. See Kummetz v. Tech Mold, Inc., 152

F.3d 1153, 1155 n. 2 (9th Cir. 1998) (“Whether § 1 of the FAA

broadly excludes arbitration agreements within contracts of

employment is an open question in this circuit.”) (citing Ne/son

v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 759 n. 4 (9th

Cir.1997), cert. denied, _U.S.__, 118 S.Ct. 1511, 140 L.Ed.2d

665 (1998)).

L.

Anthony I. Craft was an employee of Campbell Soup and a

member of the Food Process Workers and Warehousemen and

Helpers Local Union 228 (“Union”), The collective bargaining

agreement (“CBA”) between Campbell Soup and the Union

includes a nondiscrimination clause which provides in part that

“[d]isputes under this provision shall be subject to the grievance

and arbitration procedure [provided in the CBA].” '

' The nondiscrimination clause provides:

The Company and the Union do not and will not discriminate

against employees because of race, color, religion, sex, age, or na-

tional origin. The Company offers equal employment, transfer and

promotional opportunities regardless of race, color, religion, sex,

age or national origin. All employment practices are to be con-

3a

Craft filed a grievance alleging racial discrimination, har-

assment, health and safety concerns, and other claims. The

grievance was not resolved in the initial grievance stages and the

Union referred it to arbitration. While the grievance was still

pending, Craft filed this action in district court. He alleged

claims for race discrimination and retaliation in violation of

Title Vil of the Civil Rights Act of 1964, as amended, 42 U.S.C.

§ 2000e et seq. (“Title VII"), and state law claims for assault

and emotional distress.’

The district court granted Campbell Soup summary judgment

on Craft's state law claims. Following the majority view, how-

ever, the court held that arbitration of Craft’s Title VII claims

could not be compelled.’ Accordingly, it denied Campbell

ducted in a nondiscriminatory manner, all hiring, promotion prac-

tices, and other terms and conditions of employment shall be main-

tained and conducted in a manner which does not discriminate on

the basis of race, color, sex, religion, national origin, handicap or

service in the Armed Forces in accordance with applicable Federal

and State laws. Disputes under this provision shall be subject to the

grievance and arbitration procedure.

CBA, q 26.1.

* At the arbitration, the arbitrator was concerned about the parallel judicial

and arbitral proceedings and correctly noted a circuit split on his authority to

resolve Craft's race discrimination claims. Ultimately, the arbitrator decided

that Craft's claims under the CBA were so intertwined that the Union had to

submit the entire grievance to arbitration or withdraw it.

* See Doyle v. Raley’s, Inc., 158 F.3d 1012, 1015 n. 3 (9th Cir.1998)

(gathering cases and noting circuit split). In Wright v. Universal Maritime

Serv. Corp.,__US._,_-__, __ m. 1, 119 S.Ct. 391, 392-93, 395 n. 1, 142

L.Ed.2d 361 (1998), the Supreme Court declined to consider the applicability

of the FAA in a case which presented “the question whether a general arbi-

tration clause in a collective-bargaining agreement (CBA) requires an em-

ployee to use the arbitration procedure for an alleged violation of the Ameri-

cans with Disabilities Act of 1990 (ADA), 104 Stat, 327, 42 U.S.C. § 12101

et seq.”

4a

Soup’s summary judgment motion as to those claims. Campbell

Soup appeals that interlocutory order denying its motion for

summary judgment on Craft's Title VII claims."

Il.

A.

“When interpreting a statute, this court looks first to the

words that Congress used.” Sanchez v. Pacific Powder Co., 147

F.3d 1097, 1099 (9th Cir.1998). “Rather than focusing just on

the word or phrase at issue, this court looks to the entire statute

to determine Congressional intent.” /d. Applying those princi-

ples here, we begin with § 2 of the FAA, which provides for the

enforcement of certain arbitration provisions:

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce

to settle by arbitration a controversy thereafter arising

out of such contract or transaction, or the refusal to per-

form the whole or any part thereof, or an agreement in

writing to submit to arbitration an existing controversy

arising out of such a contract, transaction, or refusal,

shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revoca-

tion of any contract.

9 U.S.C. § 2 (emphasis added).

The FAA does not define the phrase “contract evidencing a

transaction involving commerce,” so we turn to the “ordinary,

contemporary and common meaning” of that phrase. See United

States v. Iverson, 162 F.3d 1015, 1022 (9th Cir.1998). A col-

lective bargaining agreement or an individual employment

* Both parties assume that Campbell Soup's motion for summary judg-

ment was a de facto petition under 9 U.S.C. § 4 for an order to compel

arbitration. Although Campbell Soup's motion does not mention this section,

we agree that it was functionally equivalent to a motion to compel arbitration.

Sa

contract would not seem to fall within the ordinary concept of

a contract “evidencing a transaction,” even if it involves inter-

state commerce.

As pertinent, when Congress passed the FAA in 1925, the

term “transaction” commonly meant “[a] business deal; an act

involving buying and selling.” Webster's Int'l Dictionary 2688

(2d ed. unabridged 1939). See also The Century Dictionary and

Cyclopedia 6426 (revised and enlarged ed.1911) (1. The man-

agement or settlement of an affair; a doing or performing: as, the

transaction of business.-2. A completed or settled matter or item

of business. . . .”). An employment relationship, however, is not

commonly referred to as a “business deal” or as “an act involv-

ing buying and selling.” Instead, the connotation of the phrase

“transaction involving commerce”—as Congress would have

understood it in 1925—was of a commercial deal or merchant's

sale. Therefore, the coverage section of the FAA, § 2, appears

not to encompass employment contracts at all. See Archibald

Cox, Grievance Arbitration in the Federal Courts, 67

Harv.L.Rev. 591, 599 (1954) (“It is hard enough to think of any

collective bargaining agreement or employment contract as

evidence of a transaction involving commerce.”) (internal quo-

tation marks omitted); Henry H. Drummonds, The Sister Sover-

eign States: Preemption and the Second Twentieth Century

Revolution in the Law of the American Workplace, 62 Fordham

L.Rev. 469, 557 (1993) (“[T]he FAA’s reference to ‘transaction

involving commerce’ might not have been understood in 1924

as including employment contracts.”’).

Section | of the FAA, however, contains definitions and,

with respect to “commerce,” concludes that “nothing herein

contained shall apply to contracts of employment of seamen,

railroad employees, or any other class of workers engaged in

foreign or interstate commerce.” 9 U.S.C. § 1. This latter

provision might suggest that Congress intended for § 2 to apply

to some collective bargaining agreements and employment

contracts. Viewed as a whole, the statute is ambiguous.

6a

Courts have developed two interpretations of these provi-

sions: (1) Congress did not intend for the FAA to apply to any

employment contracts; and (2) Congress intended for the FAA

to apply to all employment contracts, except for the contracts of

employees who actually transport people or goods in interstate

commerce. Craft does not actually transport people or goods in

interstate commerce. Thus, if the latter view applies, the FAA

governs this action, and we have jurisdiction to decide this

appeal. If, on the other hand, the FAA does not apply to em-

ployment contracts, then the FAA’s interlocutory appeal provi-

sion, 9 U.S.C. § 16(a)(1)(B), would not give us jurisdiction to

decide this appeal.”

B.

Courts that have adopted the latter view have relied on a

contemporary understanding of the terms used in the FAA. The

* Campbell Soup argues that §2 of the FAA contains a broad policy fa-

voring arbitration.

Thus, interpreting the FAA to exclude employment contracts would con-

flict with that policy. However, the argument is circular; the very question

to be answered is whether § 2 and its broad policy apply to employment

contracts at all. See Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 96

L.Ed.2d 426 (1987) (“Section 2, therefore, embodies a clear federal policy

of requiring arbitration unless the agreement to arbitrate is not part of a

contract” satisfying the requirements of that section.) (emphasis added). We

decline to bootstrap a policy argument to expand the scope of § 2.

© The majority of circuits have interpreted the FAA to apply to all em-

ployment contracts, except for the contracts of employees who actually

transport people or goods in interstate commerce. See McWilliams v. Logi-

con, Inc., 143 F.3d 573, 576 (10th Cir.1998) (ignoring conflicting precedent

in United Food Workers, Local Union No. 7R v. Safeway Stores, Inc., 889

F.2d 940, 943-44 (10th Cir. 1989)); O'Neil v. Hilton Head Hosp., 115 F.3d

272, 274 (4th Cir.1997) (ignoring conflicting precedent in Domino Sugar

Corp. v. Sugar Workers Local Union 392, 10 F.3d 1064, 1067-68 (4th

Cir.1993)); Pryner v. Tractor Supply Co., 109 F.3d 354, 356-58 (7th Cir.),

cert. denied, U.S. , 118 S.Ct. 295, 139 L.Ed.2d 227 (1997); Cole v.

Burns Int'l Sec. Serv., 105 F.3d 1465, 1470-72 (D.C.Cir.1997); Rojas v. TK

Ta

FAA, however, is not a modern statute. As noted above, the

FAA, including §§ 1 and 2, was enacted in 1925, before the

Supreme Court dramatically expanded the meaning of interstate

commerce in the 1930s. Thus, to understand whether Congress

intended for the FAA to apply to employment contracts, we

need to understand Congress’ commerce power in 1925.

Before Congress enacted the FAA, the Supreme Court de-

cided Hammer v. Dagenhart, 247 U.S. 251, 38 S.Ct. 529, 62

L.Ed. 1101 (1918), overruled by United States v. Darby, 312

U.S. 100, 61 S.Ct. 451, 85 L.Ed. 609 (1941). In Hammer, the

Court invalidated a federal child labor law, holding that Con-

gress’ commerce power did not extend to intrastate employees

whose work involved interstate commerce. Hammer defined the

scope of the Commerce Clause as quite limited:

Commerce consists of intercourse and traffic . . . and

includes the transportation of persons and property, as

well as the purchase, sale and exchange of commodities.

The making of goods and the mining of coal are not

commerce, nor does the fact that these things are to be

afterwards shipped or used in interstate commerce, make

their production a part thereof.

Over interstate transportation, or its incidents, the

regulatory power of Congress is ample, but the production

Communications, Inc., 87 F.3d 745, 747-48 (Sth Cir.1996); Asplundh Tree

Expert Co. v. Bates, 71 F.3d 592, 596-601 (6th Cir.1995); Erving v. Virginia

Squires Basketball Club, 468 F.2d 1064, 1069 (2d Cir.1972); Dickstein v.

duPont, 443 F.2d 783, 785 (1st Cir.1971); Tenney Eng'g, Inc. v. United Elec.

Workers, Local 437, 207 F.2d 450, 452-53 (3d Cir.1953). A few courts,

however, have held that the FAA does not apply to any employment con-

tracts. See Domino Sugar Corp., 10 F.3d at 1067-68; Pritzker v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1120 (3d Cir.1993)

(ignoring conflicting Third Circuit precedent in Tenney), United Food

Workers, 889 F.2d at 943-44.

8a

of articles, intended for interstate commerce, is a matter

of local regulation.

Id. at 272, 38 S.Ct. 529 (citation and internal quotation marks

omitted). Similarly, in Howard v. Illinois Cent. R.R., 207 U.S.

463, 28 S.Ct. 141, 52 L.Ed.2d 297 (1908) (the first employer

liability case), employees not directly working in interstate

commerce were deemed outside of Congress’ Commerce Clause

power. Howard rejected the idea that “one who engages in

interstate commerce thereby submits all his business concerns

to the regulating power of Congress,” id. at 502, 28 S.Ct. 141,

and held the employer liability act unconstitutional because it

included subjects outside of Congress’ constitutional power to

regulate, id. at 504, 28 S.Ct. 141.

This narrow understanding of Congress’ Commerce Clause

power continued through the period of the drafting and enacting

of the FAA. In United Leather Workers’ Int'l Union v. Herkert

& Meisel Trunk Co., 265 U.S. 457, 464-65, 44 S.Ct. 623, 68

L.Ed. 1104 (1924), the Court held that an illegal strike of leather

workers preventing the manufacture of goods did not interfere

with interstate commerce, as it did not interfere with the “free

transport and delivery of the products.” Thus, Congress’ Com-

merce Clause power at the time of the FAA’s enactment was

limited to employees who actually transported people or goods

in interstate commerce.

Under these circumstances, when Congress drafted § 2, that

section could only apply to those employees. Section 1, how-

ever, exempts those very same employees from the scope of the

FAA. Thus, when Congress drafted the FAA in 1925, the Act

did not apply to any labor or employment contracts. See Arce v.

Cotton Club of Greenville, Inc., 883 F.Supp. 117, 123

(N.D.Miss. 1995) (“[IJnterstate commerce at the time the FAA

was enacted was generally understood to be limited to maritime

and railroad transactions. Thus, when Congress excluded em-

ployment contracts of maritime and railroad workers, it resulted

9a

in voiding the power to enforce arbitration clauses of most

employment contracts. With the addition of the catch-all phrase

‘or any other class of worker engaged in foreign or interstate

commerce,’ all employment contracts would have been excluded

from the arbitration enforcement power of the FAA.” ) (empha-

sis added). See also Matthew W. Finkin, Employment Contracts

Under the FAA—Reconsidered, 48 Labor L.J. 329, 334 (1997)

(“[W]hen the Act was passed in 1925, Congress excluded all

contracts of employment over which it then had jurisdiction.”).’

” See also Sarah Rudolph Cole, Incentives and Arbitration; The Case

Against Enforcement of Executory Arbitration Agreements Between Employ-

ers and Employees, 64 U. Mo. K.C. Rev. 449, 468 (1996) (“[A]t the time the

FAA was passed, the language was intended to exclude contracts of employ-

ment from its purview.”); Cox, 67 Harv. L.Rev. at 598 (“At that time [1924]

no one supposed that there was federal power to regulate employment

relations in industries producing goods for commerce or industries affecting

commerce, and the phrase ‘any other class of workers engaged in interstate

commerce to foreign commerce might well have been considered broad

enough to reach every contract of employment subject to federal regulation.

Consequently, it would seem equally accurate historically and equally per-

missible textually to read the words either as coextensive with the constitu-

tional power of Congress however defined or else limited to the few types of

employment believed subject to federal regulation in 1924.”); Finkin, 48

Labor L.J. at 333 (“The reach of Congressional power over employment

contracts in 1925 was quite narrow . . . . In 1925, Congress had no power to

legislate regarding contracts of employment of accountants or secretaries

even if they worked for railroads or steamship companies, or of deliverymen.

if they did not cross state lines. It was irrelevant whether or not the statute

dealt with employees ‘in’ interstate commerce, ‘engaged in’ interstate com-

merce or who were ‘involved in,’ interstate commerce, for however the

Statute was phrased, these employees were wholly outside the power of

Congress to regulate at the time and Congress could not have intended to

include them.”); Donna Meredith Matthews, Employment Law After Gilmer:

Compulsory Arbitraton of Statutory Antidiscrimination Rights, 18 Berkeley

J. Emp. & Lab. L. 347, 368 (1997) (“Logically, one could argue that the FAA

reaches employment contracts only by way of the Commerce Clause, and that

when the FAA was enacted in 1925 commerce was still narrowly defined.

Thus, this exclusion clause was intended to assuage concerns by the very

10a

Moreover, these are not mere theoretical musings, as demon-

strated (for example) by the court’s decision in San Carlo Opera

Co. v. Conley, 72 F.Supp. 825 (S.D.N.Y.1946). In Conley, an

opera singer entered into an employment option contract that

included an arbitration clause. /d. at 826-27. The singer agreed

to work for the employer once he was released from the mili-

tary. Id. at 826. As part of his contract, the singer would perform

throughout the country. /d. at 831. Thereafter, a dispute arose

and the employee filed an action under the FAA. /d. at 827-28.

The court, however, held that the FAA did not apply to the

contract:

[P]ersonal effort, not related to production, is not a

subject of commerce. That which in its consummation is

not commerce does not become commerce among the

States because the transportation that we have mentioned

takes place.

* * %* *

Since the contract does not evidence a transaction arising

out of interstate or foreign commerce as set forth in Section

2 of the [FAA] this court would have no authority to com-

pel arbitration. .. .

Id. at 831-32, aff'd, 163 F.2d 310, 311 (2d Cir. 1947) (per cu-

rium) (“We have nothing to add to Judge Leibell’s discussion of

the question of jurisdiction. . . . We concur.”) (citations omit-

ted).

employees who might be affected—those engaging in interstate commerce.

Because the Commerce Clause did not reach other employment contracts,

they were unaffected by the FAA.”) (footnote omitted); Jeffrey W. Stempel,

Reconsidering the Employment Contract Exclusion in Section | of the

Federal Arbitration Act: Correcting the Judiciary’s Failure of Statutory

Vision, 1991 J. Disp. Resol. 259, 294 (1991) (“The evidence suggests,

however, that the 1925 Congress would have considered all workers subject

to the commerce power as within the employment exclusion.”).

lla

As is evident, the court held that the FAA did not apply to the

employment coniract because of § 2's coverage provision and

not because of § 1’s exclusion. Of course, today, the opera

singer would be within Congress’ Commerce Clause power.

Thus, the opera singer’s contract would be subject to arbitration

under the FAA if Campbell Soup’s interpretation of the Act is

correct.

But Campbell Soup’s interpretation of the FAA would require

us to hold that Congress intended to include some employment

contracts within the scope of the FAA prospectively, even

though it initially excluded all employment contracts. That

approach attributes to Congress the ability to forsee the New

Deal’s expansion of the Commerce Clause. We refuse to adopt

such an interpretation without any indication that Congress

actually had such a counterintuitive intent. As Professor Epstein

has observed:

The 1925 reading of the commerce clause gave to the

phrase “involving commerce” a reading that reached the

instrumentalities of interstate commerce, but not retail

trades and manufacturing. Because the original coverage

was so defined, it was easy to read the tag end of the em-

ployee exemption in harmony with the basic coverage pro-

vision. The only workers whose contracts were shielded

from arbitration were those who plied the narrow paths of

interstate and foreign commerce before 1937. Since the

FAA itself does not reach manufacturing and retail trades,

the exemption is coordinated with the basic provision.

Come the undeniable transformation of 1937, and what

should be done to the pre-1937 statute? The phrase “in-

volving commerce” has now been recast to cover all pro-

ductive activities. The only way to reach this conclusion

is to assume that Congress meant for the FAA to grow in

scope with the commerce power, even when Congress was

12a

quite mistaken (along with everyone else) about its pros-

pects for growth. . . .

.. . But once the FAA is (mistakenly) expanded, what

fate befalls its exclusion?

... Under current law, the right answer is that the FAA

keeps to its 1925 contours. . . . By venturing into the waters

of partial translation, both sides to the present dispute get

the arguments confused. First they wrongly expand the

coverage “involving commerce” to keep the FAA in play;

then they give the 1925 exemption its 1925 plain meaning.

Richard A. Epstein, Fidelity Without Translation, | Green Bag

2d 21, 27-29 (1997).°

® See also Robert C. Covington, Employment Arbitration After Gilmer:

Have Labor Courts Come to the United States?, 15 Hofstra Lab. & Emp. LJ.

345, 364 (1998) (“{T]}he choice Congress made in 1925 was to exclude from

the scope of the FAA all contracts of employment that they felt would lie

within their power to regulate, namely workers engaged in the movement of

goods. Viewed in this way, the exclusion from coverage should be inter-

preted to be as broad as the category of employment contracts within the

sphere of Congressional power today.”) (footnote omitted); Matthew W.

Finkin, “Workers’ Contracts” Under the United States Arbitration Act: An

Essay in Historical Clarification, 17 Berkeley J.Emp. & Lab. L. 282, 298

(1996)\(“The [FAA] exempts contracts of employment, all contracts of

employment, over which Congress had constitutional authority. The scope

of the commerce power when the [FAA] was enacted was quite narrow, in

the employment setting, it was limited largely to transportation workers.

Thus, in 1925,the [FAA] could not have applied to an arbitration provision

in the employment contract of a neo-natal physician, a manufacturing man-

ager, or a secretary in a law firm, because these employees would not have

been considered as being in interstate commerce. As the commerce power

has been expanded by the United States Supreme Court, the exemption has

expanded along with it, leaving the status of employees’ contracts in practical

effect just as they were when the Act passed. The contrary (though currently

prevailing) view produces an anomaly.”) (footnotes omitted).

13a

c.

To determine whether Congress intended for the FAA to ap-

ply prospectively to some labor and employment contracts, even

though it did not apply to any at its enactment, we next turn to

legislative history. See Moyle v. Director, Office of Workers’

Comp. Programs, \47 F.3d 1116, 1120 (9th Cir.1998) (“{I}f the

Statute is ambiguous, we consult the legislative history, to the

extent that it is of value, to aid in our interpretation.”’) (citation

and internal quotation marks omitted), cert. denied, —U.S.—,

119 S.Ct. 1454, 143 L.Ed.2d 541 (1999). We hold that the

legislative history supports the conclusion that we have tenta-

tively reached from interpreting (a) the statutory term “transac-

tion” and (b) the scope of Congress’ commerce power as under-

stood in 1925.

Specifically, the legislative history demonstrates that the

Act's purpose was solely to bind merchants who were involved

in commercial dealings. See Local 205, United Elec. Workers

v. General Elec. Co., 233 F.2d 85, 99 (1st Cir.1956) (noting that

“congressional attention was being directed at the time solely

toward the field of commercial arbitration”), aff'd on other

grounds, 353 U.S. 547, 77 S.Ct. 921, | L.Ed.2d 1028 (1957).

Before the Senate Committee on the Judiciary held hearings on

the FAA, the draft bill made valid and enforceable “a written

provision in any contract or maritime transaction or transaction

involving commerce to settle by arbitration a controversy there-

after arising.” See, e.g., Sales and Contracts to Sell in Interstate

* Section 2 of that draft bill provided in full:

That a written provision in any contract or maritime transaction or

transaction involving commerce to seitie by arbitration a controversy

thereafter arising between the parties out of such contract or transac -

tion, or the refusal to perform the whole or any part thereof, or an

agreement in writing to submit to arbitration an existing controversy

arising out of such a contract, transaction or refusal, shall be valid, en-

l4a

and Foreign Commerce, and Federal Commercial Ar>itration,

Hearings on S. 4213 and S. 4214 before a Subcomm. Of the

Senate Comm. Cn the Judiciary, 67th Cong. | (1923) (emphasis

added) (“67th Cong.”). See also Allied-Bruce Terminix Cos. v.

Dobson, 513 U.S. 265, 279, 115 S.Ct. 834, 130 L.Ed.2d 753

(1995) (citing the original wording of the FAA). That draft of

the bill thus applied to all contracts and did not contain the

employment exclusion later codified in § 1.

At the hearing, the chair of the ABA committee that drafted

the bill that became the FAA,"° W.H.H Piatt, testified that the

bill was partly in reaction to intense judiciary hostility toward

arbitration of merchants disputes. 67th Cong. at 8 (1923)

(statement of W.H.H. Piatt). Despite that purpose, concern was

expressed over whether the bill would apply to workers’ con-

tracts. /d. Piatt emphasized that the bill was not intended to

apply to those contracts:

It is not intended that this shall be an act referring to la-

bor disputes at all. It is purely an act to give the merchants

the right or the privilege of sitting down and agreeing with

each other as to what their damages are, if they want to do

it. Now that is all there is in this.

Id. at 9 (emphasis added).'' However, Piatt suggested that, if

Congress felt that “there is any danger of that,” they could add

an employment exclusion. /d.

forceable, and irrevocable, save upon such grounds as exist at law or

in equity for the revocation of any contract.

S. 4214, 67th Cong. § 2 (1922).

"© The bill that became the FAA was drafted by the ABA Committee on

Commerce, Trade and Commercial Law. See Tenney, 207 F.2d at 452 & n.

5 (citing H.R.Rep. No. 96, 68th Cong., Ist Sess., p. 1).

'' Piatt also went out of his way to state that he “would not favor any kind

of legislation that would permit the forcing a man to sign that kind of con-

15a

Before that same committee, the Secretary of Commerce,

Herbert Hoover, similarly suggested that, if Congress wanted to

ensure that “workers’ contracts” were excluded from the bill, “it

might well be amended by stating ‘but nothing herein contained

shall apply to contracts of employment of seamen, railroad

employees, or any other class of workers engaged in interstate

or foreign commerce.’ ” Jd. at 14. Thereafter, Congress

amended what became § 2 of the FAA so that it applied only to

“contracts evidencing a transaction” (not to all contracts) and

added the employment exclusion.

As can be seen from the hearing before the Senate Committee

on the Judiciary, as well as from the subsequent amendments

that Congress made to the proposed legislation, the FAA was

part of an effort to gain uniformity in the application of agree-

ments to arbitrate sales and commercial disputes. Congress

never intended for the FAA to apply to employment contracts of

any sort. See Willis v. Dean Witter Reynolds, Inc., 948 F.2d

305, 311 (6th Cir.1991) (“A review of the legislative history of

the “AA confirms that the FAA was never meant to incorporate

employment contracts . . . .”, not followed as dictum in

Asplundh, 71 F.3d at 597."

tract. ... [I}t is the primary end of this contract [sic: bill] that it is a contract

between merchants one with another, buying and selling goods.” /d. at 10.

' See also Heidi M. Hellekson, Taking the “Alternative” Out of Dispute

Resolution of Title VII Claims: The Implication of a Mandatory Enforcement

Scheme of Arbitration Agreements Arising Out of Employment Contracts,

70 N. Dak. L.Rev. 435, 446 (1994) (“This legislative history indicates that

Congress's intent when enacting the FAA was to exclude all employment

contracts from the Act’s coverage.”); Amy L. Ray, When Employers Litigate

to Arbitrate: New Standards of Enforcement for Employer Mandated Arbi-

tration Agreements, 51 SMU L.Rev. 441, 446-47 (1998) (reaching the same

conclusion).

16a

D.

While neither this court nor the Supreme Court has definitely

ruled on whether the FAA applies to labor and employment

contracts, both courts have suggested that it does not. In Textile

Workers Union v. Lincoln Mills, 358 U.S. 448, 77 S.Ct. 923

(1957), and General Elec. Co. v. United Elec. Workers, 353

U.S. 547, 77 S.Ct. 921, 1 L.Ed.2d 1028 (1957), although the

Court enforced the arbitration agreements at issue, it did so

under § 301 of the Labor Management Relations Act of 1947,

29 U.S.C. § 185(a), and not under the FAA. See Lincoin Mills,

353 U.S. at 548. In dissent, Justice Frankfurter highlighted the

importance of that distinction:

Naturally enough, | find rejection though not explicit, of

the availability of the Federal Arbitration Act to enforce

arbitration clauses in collective-bargaining agreements in

the silent treatment given that Act by the Court’s opinion.

If an Act that authorizes the federal courts to enforce arbi-

tration provisions in contracts generally, but specifically

denies authority to decree that remedy for “contracts of

employment,” were available, the Court would hardly spin

such power out of the empty darkness of § 301. I would

make this rejection explicit, recognizing that when Con-

gress passed legislation to enable arbitration agreements to

be enforced by the federal courts, it saw fit to exclude this

remedy with respect to labor contracts.

Lincoln Mills, 353 U.S. at 466-67, 77 S.Ct. 923 (Frankfurter, J.,

dissenting).

More recently, in Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), the Court

faced an arbitration clause in a New York Stock Exchange

securities form. The Court declined to address whether the FAA

applied to employment contracts, because the securities agree-

ment was not such a contract. See id .at 25 n. 2, 111 S.Ct. 1647.

However, the dissent reached that issue and concluded that

17a

Congress did not intend for the FAA to apply to employment

contracts at all. See id. at 39-41, 111 S. Ct. 1647 (Stevens, J.,

dissenting) (“[{T]he FAA specifically was intended to exclude

arbitration agreements between employees and employers.”).'?

We have repeatedly noted the Supreme Court’s reluctance to

hold the FAA applicable to labor disputes. See Local 1020 of

the United Brotherhood of Carpenters & Joiners of Am. v. FMC

Corp., 658 F.2d 1285, 1290 (9th Cir.1981) (“We note the re-

luctance of the Supreme Court to hold that the Federal Arbitra-

tion Act, 9 U.S.C.§ 1, et seq., is applicable to arbitration pro-

ceedings involving labor disputes. . . .”). See also American

Postal Workers Union of Los Angeles, AFL-CIO v. United

States Postal Serv., 861 F.2d 211, 215 n. 2 (9th Cir.1988)

(“Neither the Supreme Court nor this court has ever expressly

held the Federal Arbitration Act applicable to arbitration of

labor disputes.”’).

We have also stated our own inclination not to apply the FAA

to those disputes. See Pacific Reinsurance Mgmt. Corp. v. Ohio

Reinsurance Corp., 935 F.2d 1019, 1024 n. 2 (9th Cir.1991)

(citing Misco, 484 U.S. at 40, 108 S.Ct. 364) (noting, in dictum,

that “labor arbitration . . . is not covered by the FAA”); Ameri-

can Postal Workers, 861 F.2d at 215 (indicating that Congress

* The Supreme Court also suggested that the FAA does not apply to labor

contracts in United Paperworkers Int'l Union v. Misco, 484 U.S. 29, 108

S.Ct. 364, 98 L.Ed.2d 286 (1987). There, the Court analyzed an arbitration

Provision in a collective bargaining agreement for production and mainte-

nance employees at a paper-converting plant. /d. at 31-33, 108 S.Ct. 364.

Although the employees did not transport people or goods in interstate

commerce, the Court nevertheless relied on the FAA only by anology:

The Arbitration Act does not apply to “contracts of employment of

.. . workers engaged in foreign or interstate commerce,” 9 U.S.C. § 1,

but the federal courts have often looked to the Act for guidance in la-

Id. at 40 n. 9, 108 S.Ct. 364.

18a

did not mean the FAA to be used to review arbitration awards

involving collective bargaining agreements), Kemner v. District

Council of Painting and Allied Trades No. 36, 768 F.2d

1115,1118 n. 1 (9th Cir.1985) (stating a similar principle); San

Diego County Dist. Council of Carpenters v. Cory, 685 F.2d

1137, 1141 (9th Cir. 1982) (stating a similar priciple); FMC

Corp., 658 F.2d at 1290 (citing approvingly Justice Frank-

furter’s dissent in Lincoln Mills).

Binding precedent thus supports, albeit not strongly, the con-

clusion that we have reached from interpreting (a) the statutory

term “transaction,” (b) the scope of Congress’ Commerce power

as understood in 1925, and (c) the legislative history of the

FAA.

E.

The interpretation of the FAA has remained confused, how-

ever, because many courts (and the dissent here) have focused

on the FAA’s exclusion provision, § 1, and not its coverage

provision, § 2. However, when interpreting a statute, we logi-

cally should look first to the coverage provision (regardless of

its number).'*

As noted, the “transaction” requirement suggests that Con-

gress did not intend for § 2 to apply to any employment con-

tracts. At its broadest, however, Congress intended for § 2 to

apply only to contracts of workers who transport people or

goods in interstate commerce—the full reach of its commerce

‘4 Suppose that Section 2 of an act prohibits all federal felons from pos-

sessing a firearm, but Section | of the act excludes any person who was

convicted of a non-violent felony. If one looks at the exclusion, one might

think that the act prohibits state felons who were convicted of violent felonies

from possession of a firearm. However, if one looks at the coverage provi-

sion, it is apparent that the act does not apply to any state felons. Similarly,

here, we cannot interpret the scope of the FAA accurately without beginning

with the provision that defines its coverage. § 2.

19a

power in 1925. In § 1, Congress excluded those same workers

from the reach of the FAA. Reading § 2 and § | together, as we

must, demonstrates that Congress did not intend for the FAA to

apply to any employment contracts. See Bernhardt v. Poly-

graphic Co. of Am., 350 U.S. 198, 201, 76 S.Ct. 273, 100

L.Ed. 199 (1956) (holding that courts must read the provision of

the FAA together, because “[s]ections 1, 2, and 3 are integral

parts of a whole”).

Other circuits (and the dissent here) have refused to follow

that approach, which is why they have reached the wrong result.

In the process, they have provided anachronistic “explanations”

in support of their conclusions that the FAA applies to some

employment contracts.

One such explanation, cited by Campbell Soup, was provided

by the Third Circuit in Tenney, which concluded that the Act

excluded only those workers for whom there already was special

arbitration. 207 F.2d at 452-53. As Professor Finkin has ar-

gued, however, “the court reasoned backward and so got it

wrong.” Finkin, 17 Berkeley J. Emp. & Lab. L. at 291. Con-

gress could not have intended for the FAA to exclude oniy

employees who already had existing arbitration procedures

available, because transportation workers had no alternative

arbitration system at the time. /d. Only seamen and railroad

workers had arbitration alternatives and, if Congress wanted to

limit the exclusion clause to these groups, it would have done so

explicitly. Transportation workers were a large and important

part of interstate commerce during the early 1920s and unques-

tionably a critical subject of Congress’ interstate commerce

power. Further, the visibility of these enterprises politically was

increased by the legal contest over their regulatory status at the

time. See id. The exclusion of these workers could not be justi-

fied by an alternate arbitration system. That being so, we de-

cline to adopt that anachronistic “explanation.”

20a

Campbell Soup also relies on the rule of ejusdem generis to

interpret narrowly the employment exclusion. The rule of

ejusdem generis “limits general terms which follow specific

ones to matters similar to those specified.” Cole, 105 F.3d at

1471. Accordingly, the general phrase “any other class of work-

ers engaged in foreign or interstate commerce” in the exclusion

clause takes its meaning from the specific terms preceding it—

“seamen” and “railroad employees’ —and includes only those

other classes of workers who, similarly, are working in com-

merce. /d.

This line of reasoning, however,is inapplicable to the FAA.

As indicated above, this approach impermissibly focuses solely

on § 1, without first taking a step back and looking at § 2.

Moreover, as the dissent in Tenney convincingly argues:

Since the intention of Congress manifestly was to confine

the Act to commercial disputes, ejusdem generis has no

possible relevancy here. As said in Gooch v. United

States, 297 U.S. 124, 128, 56 S.Ct. 395 [1936], it [the rule

of ejusdem generis} may not be used to defeat the obvious

purpose of legislation.

Tenney, 207 F.2d at 458 (McLaughlin, J., dissenting) (citations

and internal quotation marks omitted). The meaning of § 2, the

1925 scope of Congress’ commerce power, and the legislative

history of the FAA demonstrate the obvious scope and purpose

of the FAA, which ejusdem generis cannot be used to defeat.

Campbell Soup also relies on the textual argument from Cole

and (a similar case from the Sixth Circuit, Asplundh) to main-

tain that the use of the term “engaged in” interstate commerce

in § | points to a much narrower construction than the use of the

term “involving” commerce, found in § 2 of the FAA. See Cole,

105 F.3d at 1471-72, Asplundh, 71 F.3d at 601. To arrive at this

distinction, the court in Cole relied on Terminix, 513 U.S. at

273-74, 115 S.Ct. 834, which held that the term “involving”

commerce is as broad as the term “affecting” commerce (i.e.,

2la

the term expresses the full reach of the Commerce Clause).

Thus, while the term “involving” interstate commerce, in § 2,

dictates the full reach of Congress’ commerce power, the phrase

“engaged in .. . interstate commerce,” in § |, has a narrower

meaning, reaching only those workers who are transporting

people or goods in interstate commerce. See Cole, 105 F.3d at

1471-72.

As Professor Finkin points out, however:

The difficulty [with this interpretation] is that the distinc-

tion has no support in either the law of the period or the

history of the Act. On the law, there is no doubt that by

the 1940s the Supreme Court had expanded the Com-

merce power to reach a class of workers who “affected”

commerce even though they were not engaged in it; but it

is dubious, at the very least, that distinction was well rec-

ognized in 1924.

Finkin, 17 Berkeley J. Emp. & Lab. L. at 294. Emphasizing the

same point, other commentators have suggested that Congress

used different terms in the two provisions solely because of

grammar:

[I]t is unlikely that the different wording of both sections,

“involving Commerce” as opposed to “engaged in com-

merce,” arose out of anything other than grammatical ne-

cessity.... [I]t would have been incorrect for Congress

to have stated that the transaction was “engaged” in com-

merce or have referred to “a class of workers involving

Commerce.”

Hellekson, 70 N. Dak. L.Rev. at 445 & n. 89 (citations omitted).

Courts that have made these kinds of textual distinctions have

relied entirely on post-New Deal cases to support the difference

between “engaged in” and “involving” commerce. See Finkin,

17 Berkeley J. Emp. & Lab. L. at 303 n. 55. Because it is ap-

parent that Congress did not intend for the FAA to apply to

22a 7

-_

employment contracts, we decline to adopt that anachronistic

“explanation.”

We also reject other circuits’ reliance on Terminix. In Ter-

minix, the Supreme Court held that Congress’ use of the term

“involving commerce” in § 2 indicated its intent for the term to

expand as Congress’ commerce power expanded. 513 U.S. at

273-75, 115 S.Ct. 834. In reaching that conclusion, the Court

held that: (1) the term is the functional equivalant of the phrase

“affecting commerce,” which defines the current scope of Con-

gress’ commerce power; (2) the Act’s legislative history sug-

gested an expansive congressional intent; (3) the Court's prece-

dent had described its reach as coinciding with that of the

Commerce Clause; and (4) a broader interpretation is consistent

with the purpose of the Act. /d.

Terminix supports our conclusion that the FAA does not ap-

ply to employment contracts. As mentioned above: (1) the

phrase that Congress used in the employment exclusion of § |

was, at enactment, the functional equivalent of excluding all

employment contracts; (2) the legislative history shows that

Congress did not intend for the FAA to apply to any employ-

ment contracts; (3) to the extent that precedent has addressed the

issue, it has suggested that Congress did not intend for the FAA

to apply to employment contracts; and (4) that interpretation is

consistent with the original scope of the FAA, which excluded

all employment contracts.

Other circuits have erred in applying Terminix, because they

have ignored the “transaction” requirement in § 2 and, thus,

have extended that section to the full reach of Congress’ com-

merce power as understood in the post-1937 world. At the same

lime, they have reduced to extend the § | employment exclusion

similarly, thereby creating a disharmony between the two provi-

sions, a disharmony that did not exist when Congress enacted

the FAA. See Epstein, | Green Bag 2d at 27-29 (so concluding).

Il.

Based on the wording of § 2, the pre-New Deal scope of

Congress’ commeice power, the legislative history of the FAA,

and the suggestions gleaned from Lincoln Mills, Misco, Gilmer,

and Terminix, we hold that the FAA does not apply to labor or

employment contracts. Thus, the FAA is inapplicable to the

CBA that governs Craft's employment. Accordingly, we have

no jurisdiction over Campbell Soup's interlocutory appeal and

this appeal is hereby

DISMISSED.

BRUNETTI, Circuit Judge, Dissenting.

Today, the majority goes against the great weight of circuit

court authority’ by holding that exciusionary clause of § | of the

Federal Arbitration Act (“FAA”) applies to all contracts of

employment within the scope of the Commerce Clause and that

we therefore lack jurisdiction to hear this interlocutory appeal.

Because I find that the plain language of statute dictates a con-

trary result, | respectfully dissent.

The majority avers that, when sections | and 2 of the FAA are

read together, the term “engaged in interstate commerce” is

ambiguous. To resolve this perceived ambiguity, it examines the

historical context and legislative history of the FAA. From these

extrinsic sources, the majority determines that Congress clearly

intended to exclude all employment contracts from the ambit of

the Act and that therefore the traditional rules of statutory inter-

pretation are inapplicable because their use would frustrate

obvious Congressional intent. In contrast to the majority's

' As the majority concedes, almost every circuit to have considered this

question directly has held that the employment exclusion clause of § | should

be interpreted narrowly. See Majority Opinion, at n. 6.

24a

approach to statutory interpretation, | believe that we have an

obligation to first analyze the text and structure of the FAA

before turning to extrinsic material. Only if these inquiries prove

unhelpful in discerning Congressional intent should we engage

in the majority's rather complex exercise in statutory interpreta.

tion. See, e.g., Shannon y. United States, 512 U.S. 573, 584, 114

S.Ct. 2419, 129 L.Ed.2d 459 (1994); Amoco Production Co. v.

Village of Gambell, 480 U.S. 531, 107 S.Ct. 1396, 94 L.Ed.2d

542 (1987); United States v. Taylor, 487 U.S. 326, 108 S.Ct.

2413, 101 L.Ed.2d 297 (1988) (Scalia, J., concurring in part).

The plain language of the exclusionary clause states that the

Act does not “apply to “contracts of employment of seaman, |

railroad employees, or any other class of worker engaged in

foreign or interstate commerce.” 9 U.S.C. § 1 (1994). A natural

reading of this language indicates that Congress intended to

exclude three specific types of employment contracts from the

scope of the FAA. If one reads, as the majority does, the final

phrase-"any other class of workers engaged in foreign or inter-

state commerce”-to exclude all contracts of employment then

the specific pronouncements that seamen and railroad workers’

employment contracts do not fall within the purview of the Act

are drained of all meaning. See Rojas v. TK Communications,

Inc., 87 F.3d 745, 748 (Sth Cir. 1996) (“[i]t is quite impossible

to apply a broad meaning to the term ‘commerce’ in Section |

and not rob the rest of the exclusionary clause of all signifi-

cance”) (internal citations omitted); Cole v. Burns International

Security Services, 105 F.3d 1465, 1470-71 (D.C.Cir. 1997).

The “cardinal principal of statutory construction” instructs

that a court has a “duty to give effect, if possible, to every clause

and word of a statute.” Bennett v. Spear, 520 U.S. 154, 173, 117

S.Ct. 1154, 137 L.Ed.2d 281 (1997) (internal citations omitted).

Here, we can fulfill this duty by concluding that the phrase

“workers engaged in interstate commerce” refers only to those

workers who are themselves engaged in the movement of goods

25a

in interstate commerce. Congress with ease could have drafted

§ | to read “nothing herein shall apply to contracts of employ-

ment.” Cole, 105 F.3d at 1471. This, however, is not the lan-

guage Congress enacted into law and I would decline to say that

Congress included the words “seamen” and “railroad employ-

ees” for no purpose.

As the majority notes, the rule of ejusdem generis also sug-

gests that § | should be interpreted narrowly. Application of this

principle here indicates that the general reference to “any other

class of workers engaged in foreign or interstate commerce” is

most reasonably construed to include only workers who, like

“seamen” and “railroad employees,” are themselves engaged

directly in the movement of goods in interstate commerce. See

Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 598 (6th

Cir.1995) (quoting Tenney Engineering Inc. v. United Electri-

cal, Radio & Machine Workers of America, Local 437, 207 F.2d

450, 452 (3d Cir.1953)).

Congress’ phraseology in § 2, the primary substantive provi-

sion of the FAA, also supports a narrow interpretation of the

employment exclusion clause. See Asplundh Tree, 71 F.3d at

601; Allied-Bruce Terminix Companies, Inc. v. Dobson, 513

U.S. 265, 273, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995); Cole,

105 F.3d at 1471-72. Section 2 states that arbitration agreements

in contracts “evidencing a transaction involving commerce” are

enforceable in federal courts. 9 U.S.C. § 2 (1994). Section 1, by

contrast, excludes employment contracts of “workers engaged

in... interstate commerce.” The fact that Congress used differ-

ent phrases to define the scope of the FAA generally on the one

hand and the transactions that are excluded from the Act on the

other indicates that Congress did not intend these sections to

have the same scope. While some commentators and the major-

ity here suggest that the distinction between the phrases “in-

volving commerce” and “engaged in commerce” was not recog-

nized in 1925 when the FAA was enacted, the Supreme Court

has indicated that the term “in commerce” when used in statutes

26a

of this era should be interpreted narrowly. See Uniited States v.

American Bldg. Maint. Industries, 422 U.S. 271,, 275-79, 95

S.Ct. 2150, 45 L.Ed.2d 177 (1975); Gulf Oil Corp. v. Copp

Paving Co., 419 U.S. 186, 195, 95 S.Ct. 392, 42 IL. Ed.2d 378

(1974). This textual argument is particularly persuasive here in

light of the fact that when Congress reenacted the FAA in 1947

it was settled law that the phrase “engaged in commerce” was

not coextensive with the limits of the power of Congress over

interstate commerce. See, e.g., FTC v. Bunte Brothers, Inc., 312

U.S. 349, 61 S.Ct. 580, 85 L.Ed. 881 (1941); Kirschbaum vy.

Walling, 316 U.S. 517, 522, 62 S.Ct. 1116, 86 L.Ed 1638

(1942); Overstreet v. North Shore Corp., 318 U.S. 125, 128-29,

63 S.Ct. 494, 87 L.Ed. 656 (1943).

By utilizing the traditional tools of statutory construction, the

plain meaning of the exclusionary clause become's clear: em-

ployment contracts for seamen, railroad workers, and other

workers actually involved in the flow of commerce iare excluded

from the scope of the FAA. “The plain meaning of legislation

should be conclusive, except in the rare case in which the literal

application of a statute will produce a result demonstrably at

odds with the intention of its drafters.” United Siates v. Ron

Pair Enters., 489 U.S. 235, 243, 109 S.Ct. 1026, 103 L.Ed.2d

290 (1989).

The majority finds that this is one of the rare cases in which

the traditional rules of statutory construction are inapplicable

because their use would defeat the “obvious scope aind purpose”

of the exclusionary clause. The majority, however, Goes not find

the indicia of congressional intent in either the text of structure

of the Act. Rather, it divines from the historical context and

legislative history that Congress clearly intended that the Act

would apply only to commercial disputes and not to labor dis-

putes. I disagree. Even assuming that the scant legislative his-

tory can be read to support such an interpretation, | agree with

the D.C. Circuit that “[i] a case such as this, where the statutory

27a

text does not admit of serious ambiguity, . . . legislative history

iS, at best, secondary and at worst irrelevant.” Cole, 105 F.3d at

1472 (citing Davis v. Michigan Dep't of Treasury, 489 U.S.

803, 808-809 n. 3, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989)).

For the foregoing reasons, | would find that, because Craft

does not work in interstate commerce, this court has jurisdiction

to hear this appeal under the FAA and would decide the case on

the merits.