Amicus Curiae Brief — Circuit City Stores, Inc. v. Adams

——————— Oo —— — _

No. 99-1379 FILED

_~

CIRCUIT CITY STORES, INC.. Petitioner,

Vv.

SAINT CLAIR ADAMS, Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

for the NINTH CIRCUIT

BRIEF OF THE STATES OF CALIFORNIA, ARIZONA,

ARKANSAS, COLORADO, CONNECTICUT, IDAHO,

ILLINOIS, LOWA, MASSACHUSETTS, MINNESOTA,

MISSISSIPPI, MISSOURI, MONTANA, NEVADA, NEW

JERSEY, NEW YORK, NORTH DAKOTA, PENNSYLVANIA,

VERMONT, WASHINGTON, AND WEST VIRGINIA, AS

AMICI CURIAE IN SUPPORT OF RESPONDENT

BILL LOCKYER JANET NAPOLITANO

Attorney General of the Attorney General

State of California State of Arizona

RICHARD M. FRANK

Chief Assistant Attorney MARK PRYOR

General Attorney General

LOUIS VERDUGO, JR. of Arkansas

Assistant Attorney General

CATHERINE Z. YSRAEL KEN SALAZAR

Supervising Deputy Attorney General

Attorney General State of Colorado

THOMAS P. REILLY

Deputy Attorney General RICHARD BLUMENTHAL

Counsel of Record Attorney General of the

1515 Clay Street, 20th Floor State of Connecticut

Oakland, California 94612-1413

Telephone: (510) 622-2224 (Additional counsel

Fax No: (510) 622-2121 listed on inside cover)

ALAN G. LANCE

Attorney General

State of Idaho

JAMES E. RYAN

Attorney General

State of Illinois

THOMAS J. MILLER

Attorney General

of lowa

THOMAS F. REILLY

Attorney General

of Massachusetts

MIKE HATCH

Attorney General

State of Minnesota

MIKE MOORE

Attorney General

of the State of Mississippi

JEREMIAH W. (JJAY) NIXON

Attorney General

of Missouri

JOSEPH P. MAZUREK

Montana Attorney General

FRANKIE SUE DEL PAPA

Attorney General

of the State of Nevada

JOHN J. FARMER, JR.

Attorney General

of New Jersey

ELIOT SPITZER

Attorney General

of New York

HEIDI HEITKAMP

Attorney General

of North Dakota

D. MICHAEL FISHER

Attorney General

of Pennsylvania

WILLIAM H. SORRELL

Attorney General

of the State of Vermont

CHRISTINE O. GREGOIRE

Attorney General

of Washington

DARRELL V. McGRAW, JR.

Attorney General

of West Virginia

Attorneys for Amici Curiae

BEST AVAILABLE COPY

QUESTION PRESENTED

Whether the Federal Arbitration Act should be

interpreted to apply to contracts of employment when such an

interpretation will necessarily preempt a significant body of

state law intended to protect workers’ rights and to promote

the public policy of eliminating invidious employment

discrimination.

TABLE OF CONTENTS TABLE OF CONTENTS

(continued)

Page Page

INTEREST OF THE AMICI CURIAE ............ l C. The States Have a Vital Interest in

Protection of Workers and Advancement

SUMMARY OF ARGUMENT ................. l of Public Policy Through Enforcement

of Their Employment Laws; This

RES och cc cndcccvccsceccsensceear 3 Interest Is Compromised If Employment

Discrimination Claims Are Removed

EES oc ccccccatsaceveweeuenes 3 From the Jurisdiction of State Courts

PS cc ccesnoeesesecess 9

I. THE PRESUMPTION AGAINST PREEMPTION

IN AREAS OF TRADITIONAL STATE POLICE D. A Significant Number of States Have

POWER AUTHORITY ARGUES STRONGLY Addressed These Issues in Statutory

AGAINST INTERPRETING THE FAA TO Enactments and State Court Decisions;

REACH CONTRACTS OF EMPLOYMENT .... 4 If the FAA is Interpreted to Apply to

Contracts of Employment, These State

A. Our Federal System of Dual Sovereignty Laws Would Be Subject to Preemption

Leads to a Presumption Against Wherever the Employer Has a

Preemption of State Law in Areas Connection to Interstate Commerce ....... 15

Traditionally Regulated by the States in

the Absence of an Unambiguous E. The FAA Does Not Reflect the

Statement of Congressional Intent. ........ 4 Requisite Congressional Intent to

Preempt State Law In This Area. ........ 20

B. Employment Law Is An Area of

Traditional State Regulation And Il. THIS CASE ILLUSTRATES A SECOND

Preemption Should Not Be Lightly . SIGNIFICANT ISSUE OF CONCERN TO THE

RE GEGEN ccccccncecesceuss 6 STATES: THE INCREASING TENDENCY

OF FEDERAL COURTS TO ISSUE

UNWARRANTED INJUNCTIONS AGAINST

STATE COURTS, SUPPOSEDLY IN

FURTHERANCE OF THE FAA’S POLICY TO

ENCOURAGE ARBITRATION ............ 21

iv

TABLE OF CONTENTS

(continued)

Page

lil. PETITIONER’S ARGUMENT FOR A

NATIONALIZATION OF EMPLOYMENT

LAW IS INCONGRUENT WITH OUR

SYSTEM OF FEDERALISM ............. 26

Ee hare be a ewig ete de wd as 28

Vv

TABLE OF AUTHORITIES

Page(s)

Cases

A.L. Williams & Assocs., Inc. v. McMahon

697 F.Supp. 488 (N.D. Ga. 1988) ............. 23

Alamo Rent A Car, Inc. v. Galarza

306 N.J. Super. 384, 703 A.2d 961

Pn PED 66 646 dada eases ues 17

Alexander v. Gardner-Denver Co.

I oe Oo es 12-14

Allied-Bruce Terminix Cos. v. Dobson

PS Ae ere ee 5, 24

Amalgamated Clothing Workers v. Richman Bros.

RS eee 22

Armendariz v. Foundation Health Psychcare

Services, Inc.

_ Eee... Khe,

___ Cal. Rptr.2d__—- 2000 Cal. LEXIS 6120

No. S075942 (August 24, 2000) ............... 18

Atchison T. & S.F.R. Co. v. Buell

6 ee Ee nan 66's i ees 14

Atlantic Coast Line R. Co. v. Locomotive Engineers

CS ee en ee 22

Barrentine v. Arkansas-Best Freight System

Sy CEE ob wed ecteceesecenceses 14

TABLE OF AUTHORITIES

(continued)

Page(s)

California Federal S. & L. Assn. v. Guerra

Ga EE oc ce ececeeceebeaseeeances 7

California v. Thompson

SG CEE «cob eccéseanredboseeneees 7

Chick Kam Choo v. Exxon Corp.

See DEED oc eevsetodvceeeeeseoees 22

Colorado Anti-Discrimination Commission

v. Continental Air Lines, Inc.

4 Ge eee ee 7

Commodore Home Systems, Inc. v. Superior Court

32 Cal.3d 211, 649 P.2d 912,

je & |) PPT Ereree eee 19

Copley v. NCR Corp.

183 W.Va. 152, 394 S.E.2d 751 (1990) ......... 17

Correll v. Distinctive Dental Services, P.A.

607 N.W.2d 440 (Minn. 2000) ............... 17

Craft v. Campbell Soup Co.

po | 8 | Pere ee 3

Doctor’s Associates, Inc. v. Casarotto,

gee e eT ee 19, 24

EEOC v. Wyoming

i eee eS 27

el

vii

TABLE OF AUTHORITIES

(continued)

Page(s)

Erie R. Co. v. Williams

8 Er ee 7

Ex Parte Clements

Dy GT EE cc ccccccecesvbcces 16

Fort Halifax Packing Co. v. Coyne

DT <i s Cb ttbeeseuseubeansses es 8

Gilmer v. Interstate/Johnson Lane Corp.

500 U.S. 20, 36-43 (1991)... 2. ee, 3, 13

Gregory v. Ashcroft

fF Fe eee 4-6

Holden v. Hardy

DT <setbeséevsaesecaessdess 6

Knoxville Iron Co. v. Harbison

DP EE WS.5n06646460 00600086508 7

Kremer v. Chemical Constr. Corp.

SNEED Coe neccbssetiesedesers 11

McDonald v. West Branch

DD Saving oueues ee be eeeeeei 14

McLean v. Arkansas

Pc. Stone dnb boekebe ee dete. 7

Metropolitan Life Ins. Co. v. Massachusetts

See ey CEE 6 Se RSehO ee Eso coreRceNe 8

TABLE OF AUTHORITIES

(continued)

Page(s)

Moses H. Cone Hospital v. Mercury Constr. Corp.

2 FS, = ere ree ee eee 22, 24, 25

Network Cinema Corp. v. Glassburn

357 F.Supp. 169 (S.D. N.Y. 1973) ............ 23

New York State Conference of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co.

Se es ED 8 cn bee cebetnas ones ane 5

New State Ice Co. v. Liebmann

1 2 & |) rrr rrrrrrrr sees 8

Polk County v. Civil Rights Com'n,

468 N.W.2d 811 (lowa 1991) .............55. 17

Prima Paint v. Flood & Conklin

4 eS ee ee eee 12

Railway Mail Assn. v. Corsi

PPD -csée ees edeceeecienne wen 7

Rembert v. Ryan’s Steak Houses

596 N.W.2d 208 (Mich.App. 1999) ............ 18

Rice v. Santa Fe Elevator Corp.

— fs eS =Garrrreerererrrr es 5

Shaw v. Delta Airlines, Inc.

ee ee ee 7

-—_-_--- eo

ix

TABLE OF AUTHORITIES

(continued)

Page(s)

Southland Corp. v. Keating

PP ET hae ekeude ae enekaceneeuks 24

St. Louis, Iron Mountain etc. Railway v. Paul

Pa vcteueveee te veeeeewas 6

State v. Nebraska Ass'n of Public Employees

239 Neb. 653, 477 N.W.2d 577 (1991) ......... 16

Steck v. Smith Barney, Harris Upham & Co., Inc

661 F.Supp. 543 (D.N.J. 1987) .............. 17

United States v. Lopez

ee eee ee 6

Volt Info. Sciences v. Leland Stanford Jr. U.

EE 3 oan 655 4 ee 6m eee eee 20

Wertheim & Co. v. Halpert

48 N.Y.2d 681, 397 N.E.2d 386,

Se PE no cnn cusveseens se’ 17

Will v. Michigan Dept. of State Police

Cg eee a eee 6

Wright v. Universal Maritime Service Corp.

PE «ad vdecteeseand tees cee 13

Constitutional Provisions

U.S. Constitution

26

a ae a a a re

x

TABLE OF AUTHORITIES

(continued)

Page(s)

Statutes

All Writs Act

I i a Se ahd ae ie eee es eee Oe 23

Americans with Disabilities Act

oe Se eid or we oles 8

Anti-Injunction Act

ny +iCeee sees ec ceK Wee awe 23, 24

Family and Medical Leave Act of 1993

Pee eee ee 8

Federal Arbitration Act (FAA) i

a fae | Be ee eee 1, passim

National Labor Relations Act

A er eee en hee 12

DE. Js06s cena teeeesed suena aaa 7, 8, 13

Alabama Code

iD. «ts 6's 66 o0-0beeb eee eeien 16

Arizona Revised Statutes

8 ae ee eee ee 15

Arkansas Statutes Annotated

SD RD GUUED coca cece ree cccsenceee 15

TABLE OF AUTHORITIES

(continued)

Page(s)

California Government Code

«i tbb see een bee aee Se eds 9, 21

I er ara EG Gx he Nie iy aka sant ou aa 21

| Se eee ee Ty Te re ry ee rr 18

California Labor Code

I i i ig ce ne ae ee el 9

I a in i ee 9

California Unemployment Insurance Code

IY i i Gh oe ee a 9

California’s Fair Employment and Housing Act

Dc trceetese ace hk wee abe b eb Oa ke 21

Official Code of Georgia Annotated

EE Se a ee ae rer 16

Idaho Code

i 7 eh rk eas SO A ae el 16

lowa Code

ry ee ee 15

Kansas Statutes Annotated

§ 5-401 (1999) ...... PEUTe TT ee eee Te Tee eT 16

Kentucky Revised Statutes

i. + ihe ss 6 eke eae ake hoe e ke 16

en. .i yas dah ae a eee ee 15

TABLE OF AUTHORITIES

(continued)

Page(s)

Louisiana Revised Statutes

§§ 9:4216 (2000) .. 1... eee ee ee ee ees 15

Maryland Courts and Judicial Proceedings Code

Annotated

RSBIS CIID) 2. ccc cc cvecsssevessecees 16

New Hampshire Revised Statutes Annotated

Sst) Serre re eee eee eee 16

North Carolina General Statutes

8 1-967.2(19DD) ow wcrc ccccceseccsceses 16

15 Oklahoma Statutes

|) eee eee eee 15

South Carolina Code Annotated

8 15-48-10 (1999)... ccc cece cere eevee. 16

Wisconsin Statutes

) ' 0). Peers eee 15

Miscellaneous

Paul D. Carrington and Paul H. Haagen, Contract

and Jurisdiction, 1996 Sup.Ct. Rev. 331 (1996) ... 11, 12

Archibald Cox, Grievance Arbitration in the Federal

Courts, 67 Harv.L.Rev. 591 (1954) ...........---. 3

ee en

Al ee le ee Ad. ay,

Xili

TABLE OF AUTHORITIES

(continued)

Page(s)

Henry H. Drummonds, The Sister Sovereign States:

Preemption and the Second Twentieth Century

Revolution in the Law of the American Workplace,

62 Fordham L.Rev. 469 (1993)............... 6, 8

EEOC Policy Statement on Mandatory Binding

Arbitration of Employment Discrimination Disputes

as a Condition of Employment, EEOC Notice

Number 915.002, July 10,1997 ............... 11

Samuel Estreicher, Predispute Agreements to

Arbitrate Statutory Employment Claims, 72

Fs CP. CEPEETD occ cceceesececsacn 20

Matthew W. Finkin, Employment Contracts Under

the FAA -- Reconsidered, 48 Labor L.J. 329 (1997) ... 3

Matthew W. Finkin, "Workers’ Contracts" Under

the United States Arbitration Act: An Essay in

Historical Clarification, 17 Berkeley J. Emp.

COE. kc h%bGdskioee ak eee 3

Joseph R. Grodin, Arbitration of Employment

Discrimination Claims: Doctrine and Policy in

the Wake of Gilmer, 4 Hofstra Lab.

Ss Se SE 6 bs ws Wow as hs ees 3, 11, 16

Carrie Menkel-Meadow, Do the "Haves" Come Out

Ahead in Alternative Judicial Systems ?: Repeat Players

in ADR, 15 J. Disp. Resol. 19 (1999) ............ 11

xiv

TABLE OF AUTHORITIES

(continued)

Page(s)

Jean R. Sternlight, Forum Shopping for

Arbitration Decisions: Federal Courts’ Use

of Antisuit Injunctions Against State Courts, |

" . i th here rrr reer 3, passim

Stone, Employment Arbitration Under the Federal

Arbitration Act in Employment Dispute Resolution

and Worker Rights 57 (IRRA, 1989) ............ 10

Henry C. Strickland, The Federal Arbitration

Act’s Interstate Commerce Requirement:

What's Left for State Arbitration Law?,

21 Hofstra L. Rev. 385 (1992) ..........52006- 17

——— =

INTEREST OF THE AMICI CURIAE

The Attorneys General of the amici States have a vital

interest in the resolution of this case. As constitutional

officers of the States they represent, the Attorneys General

have the responsibility to oversee enforcement of employment

laws, and particularly employment discrimination laws,

within their jurisdictions. Many of the States, either through

legislation or in the decisions of their courts, have expressed

a public policy based opposition to enforcement of mandatory

arbitration agreements where individual statutory employment

rights are involved. The States’ strong interest in providing

public forums to their citizens seeking adjudication of claims

involving important statutory rights, particularly in the area

of employment discrimination, compels amici to participate

in this case.

The States strongly support the use of alternative dispute

resolution procedures when there is an extant dispute to be

resolved and when both parties voluntarily agree to resolve

the dispute via arbitration or some other alternative

procedure. Ultimately, however, each State should be

permitted to make its own determination regarding the

enforceability of mandatory arbitration agreements in the

context of employment relations. Interpretation of the Federal

Arbitration Act to include contracts of employment would

have the effect of preempting a significant body of state law.

This would deprive the amici States of their ability effectively

to regulate in an important area of traditional state police

power.

SUMMARY OF ARGUMENT

Our federal system of dual sovereignty leads to a

presumption that Congress does not preempt state law in areas

traditionally regulated by the States. To find preemption in

such areas, the Court requires a clear and manifest statement

of congressional intent.

The law of employment relations--and particularly

employment discrimination law-- is an area of traditional state

authority. The States play a vital role in the development of

employment discrimination law and they have a vital interest

in enforcing their laws in this area. In furtherance of this

interest, many States provide low-cost alternative forums for

adjudication of employment discrimination claims.

Mandatory preemployment arbitration agreements like

the one at issue in this case can frustrate the purposes of state

civil rights laws by removing employment-related disputes

from public forums and by depriving individual employees of

procedural and substantive rights. For this reason, a

significant number of States have enacted legislation

regulating the enforceability of such agreements. In other

States, such agreements have been determined to be

unenforceable as a matter of public policy.

Interpretation of the Federal Arbitration Act to reach

contracts of employment would have the effect of preempting

state law wherever the employer can demonstrate a

connection to interstate commerce. This would result in a

federalization of employment law which Congress certainly

did not intend.

This case raises an additional issue of federalism and

comity. The federal district court in this case issued an

injunction prohibiting the state court from exercising its

jurisdiction. This injunction, unaccompanied by any analysis

of the profound policy issues implicated, is an unwarranted

derogation of state courts’ ability to interpret and enforce the

law and constitutes a significant affront to federalism.

Interpreting the Federal Arbitration Act to exclude contracts

of employment will help to remedy an unfortunate trend in

this area.

Petitioner's argument that national uniformity in this area

is necessary to avoid local inconsistencies ignores the basic

federal principle that States are authorized to regulate local

matters as local conditions warrant. In particular, the States

should be free to enact and enforce laws protective of the

civil rights of their citizens.

ARGUMENT

INTRODUCTION

The amici States are persuaded by the arguments of

Justice Stevens" and by the consensus of legal scholarship ¥

that, in enacting the Federal Arbitration Act (FAA), 9 U.S.C.

§ 1 et seq., in 1925, Congress intended to and did exclude all

contracts of employment from its coverage. Respondent and

other amici have provided the Court with a thorough

1. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

36-43 (1991) (Stevens, J., dissenting.)

2. See Matthew W. Finkin, "Workers’ Contracts" Under the

United States Arbitration Act: An Essay in Historical Clarification,

17 Berkeley J. Emp. & Lab. L. 282 (1996); Matthew W. Finkin,

Employment Contracts Under the FAA -- Reconsidered, 48 Labor

L.J. 329 (1997). In addition to Professor Finkin’s two articles, the

Ninth Circuit relied upon articles by nine other commentators in

Craft v. Campbell Soup Co., 177 F.3d 1083 (9" Cir. 1999),

including Archibald Cox, Grievance Arbitration in the Federal

Courts, 67 Harv.L.Rev. 591 (1954), reaching or supporting the

same conclusion. To these can be added Joseph R. Grodin,

Arbitration of Employment Discrimination Claims: Doctrine and

Policy in the Wake of Gilmer, 14 Hofstra Lab. L.J. 1, 19 (1996)

and Jean R. Sternlight, Forum Shopping for Arbitration Decisions:

Federal Courts’ Use of Antisuit Injunctions Against State Courts,

147 U.Pa.L.Rev. 91, 193, n. 438 (1998) ("The federal courts have

typically found that the FAA applies to employment disputes

despite statutory language that would seem to preclude such

coverage.").

recapitulation of the textual analysis and legislative history

underlying these opinions. It is not necessary to repeat those

arguments here. Rather, this brief addresses important issues

of state sovereignty and federalism necessarily implicated in

the question before the Court.

The Court’s consideration of this question should be

informed by the knowledge that an interpretation of the FAA

to apply to contracts of employment will seriously impair the

States’ ability to enact and enforce laws protective of

employees by preempting a significant body of state law in an

area traditionally within the States’ police power. This case

also raises serious issues of comity and federalism relating to

the propriety of federal court injunctions prohibiting state

courts from exercising their jurisdiction in cases raising only

state law claims. In the absence of any clear and manifest

congressional intent to supersede state law, these

considerations should weigh heavily against interpreting the

FAA to include contracts of employment.

I. THEPRESUMPTION AGAINST PREEMPTION IN

AREAS OF TRADITIONAL STATE POLICE

POWER AUTHORITY ARGUES STRONGLY

AGAINST INTERPRETING THE FAA TO REACH

CONTRACTS OF EMPLOYMENT.

A. Our Federal System of Dual Sovereignty Leads

to a Presumption Against Preemption of State

Law in Areas Traditionally Regulated by the

States in the Absence of an Unambiguous

Statement of Congressional Intent.

"{Ojur Constitution establishes a system of dual

sovereignty between the States and the Federal Government."

Gregory v. Ashcroft, 501 U.S. 452, 457 (1991). Within this

system, the Federal Government is vested with limited

powers, while the States retain substantial sovereign

authority. /d.

"This federalist structure of joint sovereigns preserves to

the people numerous advantages." Jd. at 458. Among these

are a decentralized government more sensitive to the diverse

needs of society, the opportunity for more innovation and

experimentation in government, and increased responsiveness

of state governments as they compete for a mobile citizenry.

Id. at 458. This federalist system requires a proper balance

between the States and the Federal Government. "In the

tension between federal and state power lies the promise of

liberty." Jd. at 459.

These considerations counsel caution in examining

federal legislation arguabiy preemptive of state law in areas

of traditional state authority. While "Congress may legislate

in areas traditionally regulated by the States" as long as it acts

"within the powers granted it under the Constitution," the

Court "must assume Congress does not exercise [this power]

lightly." Jd. at 460.

The Court presumes that "Congress does not intend to

supplant state law," New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654

(1995). Indeed, in cases "where federal law is said to bar

state action in fields of traditional state regulation," the Court

operates “on the ‘assumption that the historic police powers

of the States were not to be superseded by the Federal Act

unless that was the clear and manifest purpose of Congress.’"

Id. at 655, quoting Rice v. Santa Fe Elevator Corp., 331 U.S.

218, 230 (1947).

"(T]he preemptive effect of a federal statute is

fundamentally a question of congressional intent." Allied-

Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 283 (1995)

(O’Connor, J., concurring). And "[i]f Congress intends to

alter the usual constitutional balance between the States and

the Federal Government, it must make its intention to do so

unmistakably clear in the language of the statute." Gregory,

501 U.S. at 460, quoting Will v. Michigan Dept. of State

Police, 491 U.S. 58, 65 (1989) (internal quotation marks

omitted).

The Court uses "special care when interpreting alleged

congressional intrusions into state sovereignty under the

Commerce Clause." /d. at 463 n. 1. In this context, the

Court "must be absolutely certain" of congressional intent.

Id. at 464. “[MJere congressional ambiguity" cannot be

allowed to displace state legislation. Jd. The Court's

deference to the principle of dual sovereignty serves to

maintain the vital "distinction between what is truly national

and what is truly local." United States v. Lopez, 514 U.S.

549, 567-68 (1995).

B. Employment Law Is An Area of Traditional

State Regulation And Preemption Should Not Be

Lightly Inferred In This Area.

In our federal system, employment law is clearly within

the traditional police power of the States.” This Court has

frequently ratified the States’ authority to regulate the

employment relationship as a valid exercise of the police

power. Pertinent examples include Holden v. Hardy, 169

U.S. 366 (1898) (upholding a Utah statute regulating the

employment of miners and mandating an eight-hour day); Sr.

Louis, Iron Mountain etc. Railway v. Paul, 173 U.S. 404

(1899) (upholding an Arkansas law requiring that discharged

3. In this brief, the term “employment law” refers to all labor

market regulation other than legal regulation of unions and the

collective bargaining process. It includes non-discrimination

statutes, wage and hour laws, regulation of workplace safety, and

wrongful discharge doctrines. See Henry H. Drummonds, The

Sister Sovereign States: Preemption and the Second Twentieth

Century Revolution in the Law of the American Workplace, 62

Fordham L.Rev. 469, 472 n.6 (1993).

railway workers receive back wages); Knaxville Iron Co. v.

Harbison, 183 U.S. 13 (1901) (upholding a Tennessee law

requiring that employer scrip for wages be redeemable in cash

rather than merchandise); and McLean v. Arkansas, 211 U.S.

539 (1909) (upholding an Arkansas law mandating that miners

be paid by the weight of coal they mine before it is screened).

In 1914, the Court upheld a New York statute requiring that

railroads pay their employees semi-monthly and prohibiting

employment contracts that would evade or nullify this

statutory requirement. Erie R. Co. v. Williams, 233 U.S. 685

(1914).

The Commerce Clause does not divest the States of their

power to regulate matters of local concern, even when the

regulation may have an effect on interstate commerce.

California v. Thompson, 313 U.S. 109, 113 (1941)

(upholding a California statute requiring licensure of

transportation agents). In Colorado Anti-Discrimination

Commission v. Continental Air Lines, Inc., 372 U.S. 714

(1963), the Court upheld a Colorado statute prohibiting

employment discrimination on enumerated bases including

race, observing that "the hiring within a State of an employee,

even for an interstate job," is a “localized matter." /d. at

721.

Discrimination in the workplace is especially a matter

suitable for state regulation. The Court has held that statutes

addressing workplace discrimination lie solidly within a

State’s "regulation of its internal affairs." Railway Mail Assn.

v. Corsi, 326 U.S. 88, 95 (1945). Indeed, both Congress and

this Court have acknowledged the special role the States have

played in the development of employment discrimination law.

The text of Title VII, for example, "reflects the importance

Congress attached to state antidiscrimination laws in

achieving Title VII’s goal of equal employment opportunity ."

California Federal S. & L. Assn. v. Guerra, 479 U.S. 272,

283 (1987). As the Court noted in Shaw v. Delta Airlines,

Inc., 463 U.S. 85, 100-104 (1983), States may extend their

anti-discrimination laws more broadly than federal law; Title

VII does not preempt state laws extending broader

employment protection.”

In short, in regulation of the employment relationship,

"[flederal law ... is interstitial, supplementing state law where

compatible, and supplanting it only when it prevents the

accomplishment of the purposes of the federal [enactment]."

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724,

756 (1985). Hence, because "the establishment of labor

standards falls within the traditional police power of the

State," "pre-emption should not be lightly inferred in this

area." Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 21

(1987).

4. In his famous dissent in New State Ice Co. v. Liebmann, 285

U.S. 262, 310 (1932), Justice Brandeis observed: "It is one of the

happy incidents of the federal system that a single courageous State

may, if its citizens choose, serve as a laboratory; and try novel

social and economic experiments without risk to the rest of the

country.” Nowhere is this argument more apt than in the area of

employment discrimination law. Many States, for example,

prohibited private-sector disability discrimination before the 1990

passage of the Americans with Disabilities Act, 42 U.S.C. §§

12101-12213. At least 35 States had some type of official policy

concerning family and medical leave prior to enactment of the

Family and Medical Leave Act of 1993, 29 U.S.C. §§ 2601 et seq.

Drummonds, supra note 3, at 490 nn. 112-113.

t

C. The States Have a Vital Interest in Protection of

Workers and Advancement of Public Policy

Through Enforcement of Their Employment

Laws; This Interest Is Compromised If

Employment Discrimination Claims Are

Removed From the Jurisdiction of State Courts

and State Agencies.

Just as the States play a special role in the development

of employment law, and particularly employment

discrimination law, so they have a particular interest in

guaranteeing their citizens protection of their legal rights and

in overseeing the vindication of public policy in this area.

These concerns have led, in many States, to the establishment

of administrative forums which provide low cost alternatives

for adjudication of employment-related claims.

In California, for example, an employee who feels he or

she has suffered illegal workplace discrimination can file a

complaint with the Department of Fair Employment and

Housing, have the matter investigated, have the case

conciliated, and, if that fails and the Department considers the

complaint meritorious, have the matter decided by the Fair

Employment and Housing Commission, ail at the State’s

expense. Cal. Gov. Code, §§ 12900 ef seq. Similar

administrative forums exist for adjudication of wage disputes,

unemployment cases, and workers’ compensation claims.

Cal. Lab. Code, §§ 98 ef seg., Cal. Unemp. Ins. Code, §§

1326 et seq., Cal. Lab. Code, §§ 5300 et seg. Under some

preemployment arbitration agreements, these administrative

10

alternatives to litigation are foreclosed.® Nor can an aggrieved

employee seek enforcement of statutory rights in state court.

It is evident that use of such binding arbitration

agreements is on the increase. In its Petition for Writ of

Certiorari, Circuit City stated that it alone employs

approximately 60,000 workers potentially subject to such

dispute resolution agreements. (Petition for Writ of Certiorari

at 13.) Circuit City also refers to "large national employers"

"who use the same arbitration agreement for their entire

workforce" and to the “many hundreds of thousands of

employees"subject to such agreements nationwide. (Jd. at

10.) Over ten years ago, it was estimated that from eight to

ten percent of the entire workforce of the United States was

covered by such agreements.”

From a public policy perspective, whether this

development is salutary or pernicious may be a subject of

legitimate debate. Certainly, however, the wholesale removal

of statute-based employment claims from public forums and

their relegation to private dispute-resolution procedures with

no provision for judicial review or public scrutiny raises

significant issues particularly pertaining to the enforcement of

civil rights laws.

The Equal Employment Opportunity Commission

(EEOC) has addressed some of these issues in its policy

statement on mandatory arbitration. As the EEOC notes, the

5. The dispute resolution agreement between Petitioner and

Respondent in this case appears to allow individual employees to

"file administrative charges" with responsible state agencies. (J.A.

at 13, 22.) It is not clear whether employees can actually take

employment discrimination charges to an administrative hearing or

judicially enforce monetary awards resulting from such

administrative proceedings. (/d.)

6. See the surveys reported in Stone, Employment Arbitration

Under the Federal Arbitration Act in Employment Dispute

Resolution and Worker Rights 57 (IRRA, 1989).

a AROS I mE ET Oe SELES

11

arbitration process is private and allows for little public

accountability. Since arbitration decisions are seldom

accompanied by written opinions, they do not foster

development of the law as the published decisions of courts

and administrative agencies do. Arbitration is generally

unsuitable for resolution of class actions or pattern and

practice claims of discrimination. Procedural protections, such

as the right to jury trial and discovery, are often unavailable

to the aggrieved employee in arbitration. Arbitration systems

also incorporate structural biases which tend to favor the more

frequent user of the system. See EEOC Policy Statement on

Mandatory Binding Arbitration of Employment Discrimination

Disputes as a Condition of Employment, EEOC Notice

Number 915.002, July 10, 1997.

Further problems of fairness can arise when statutorily

guaranteed employment rights are consigned to arbitration.

These include the inherent advantage employers have in

selection of arbitrators, potentially insurmountable financial

barriers to the arbitration process for an individual worker,

loss of the right to legal counsel, and waiver of rights

available under state law, such as a shortening of the statute

of limitations and waiver of statutory remedies. Grodin,

supra note 2, at 42-48.”

To some extent, the systemic features which make

arbitration a questionable substitute for the courts and

administrative agencies in this context are inherent in the

nature and history of the arbitration process itself.

Arbitration in the United States has generally been "a nonlegal

process, often conducted by nonlawyers...." Paul D.

7. See also Carrie Menkel-Meadow, Do the "Haves" Come Out

Ahead in Alternative Judicial Systems?: Repeat Players in ADR, 15

J. Disp. Resol. 19, 39, 44 (1999), summarizing employment

lawyers’ criticisms of mandatory agreements to arbitrate statutory

employment claims and noting that "repeat players" seem to fare

better in certain kinds of employment arbitration.

12

Carrington and Paul H. Haagen, Contract and Jurisdiction,

1996 Sup. Ct. Rev. 331, 344 (1996). The arbitrator’s task is

to “effectuate the intent of the parties rather than the

requirements of enacted legislation." Kremer v. Chemical

Constr. Corp., 456 U.S. 461, 478 (1982) (internal citations

omitted). The arbitrator’s specialized competence is "the law

of the shop, not the law of the land," and "the factfinding

process in arbitration usually is not equivalent to judicial

factfinding." /d. Even if qualified to do so, arbitrators have

been under "no duty to resolve a dispute in compliance with

the parties’ legal rights." Carrington, supra, at 345. Rather,

they tend to seek a resolution "that is equitable, minimizes

harm to either party, and enables potential adversaries to

maintain a valuable commercial relationship," often by

"halving the objects in dispute." /d. This predisposition

toward compromise rather than scrupulous attention to legal

rights, though admirable in the resolution of commercial

disputes, may be incompatible with the States’ interest in

vindication of important public policy objectives through

vigorous enforcement of statutory employment rights.

This Court’s own opinions reflect a deep skepticism that

arbitration is an appropriate mechanism for the vindication of

statutory employment rights. In 1967, the Court strongly

suggested that it did not then interpret the FAA to apply to

any contracts of employment, noting that “categories of

contracts otherwise within the Arbitration Act but in which

one of the parties characteristically has little bargaining power

are expressly excluded from the reach of the Act. See § 1."

Prima Paint v. Flood & Conklin, 388 U.S. 395, 403 n. 9

(1967). See also the National Labor Relations Act, 29

U.S.C. § 151, explicitly recognizing the disparity of

bargaining power between employers and individual

employees.

A few years later, in Alexander v. Gardner-Denver Co. .,

415 U.S. 36 (1974), the Court considered whether arbitration

could provide an adequate substitute for the federal courts in

13

the vindication of Title VII claims and concluded that it could

not. The Court noted first the public policy function implicit

in any private Title VII case: "[T]he private litigant not only

redresses his own injury but also vindicates the important

congressional policy against discriminatory employment

practices." Jd. at 45. Later, the Court commented upon the

role of the arbitrator:

He is not a public tribunal imposed upon the parties

by superior authority which the parties are obliged

to accept. He has no general charter to administer

justice for a community which transcends the

parties. He is rather part of a system of self-

government created by and confined to the parties.

Id. at 52-53 n. 16.

Finally, the Court enumerated some of the ways in which

arbitral processes are "comparatively inferior to judicial

processes in the protection of Title VII rights." /d. at 57.

These include the arbitrator’s lack of expertise in the

governing law, the lack of procedural safeguards, and the lack

of a comprehensive record. /d. at 57-58. These

considerations led to the conclusion that "there can be no

prospective waiver of an employee’s rights under Title VII."

Id. at 51.

8. More recently, the Court has noted, but has not resolved,

the "tension" between Gardner-Denver and Gilmer vy.

Interstate/Johnson Cane Corp., 500 U.S. 20 (1991) (holding that

a stockbroker’s agreement to arbitrate disputes with his employer

as required by the rules of the New York Stock Exchange was

enforceable, but explicitly reserving the question whether the FAA

excludes “contracts of employment"). Wright v. Universal

Maritime Service Corp., 525 U.S. 70, 76 (1998). Amici submit

that this tension is attributable, in part, to a natural reluctance to

deprive an individual worker of statutorily-guaranteed rights on the

strength of a contract whose terms he could not realistically

negotiate.

14

In Barrentine v. Arkansas-Best Freight System, 450 U.S.

728 (1981), both the majority and the dissenting opinions

reflected doubt that arbitration provided an appropriate

mechanism for resolution of statutory employment

discrimination claims and a conviction that Congress did not

intend that such claims would be subject to binding

arbitration. As Chief Justice Burger noted:

Plainly, it would not comport with the

congressional objectives behind a statute seeking to

enforce civil rights protected by Title VII to allow

the very forces that had practiced discrimination to

contract away the right to enforce civil rights in the

courts. For federal courts to defer to arbitral

decisions reached by the same combination of

forces that had long perpetuated invidious

discrimination would have made the foxes guardians

of the chickens.

Id. at 750 (Burger, C.J. dissenting).

In a unanimous decision in 1987, the Court said that the

presumption in favor of arbitration does not apply to statute-

based employment claims. Citing Barrentine, along with

Gardner-Denver and McDonald v. West Branch, 466 U.S.

284 (1984), Justice Stevens wrote: "[NJotwithstanding the

strong policies encouraging arbitration, ‘different

considerations apply where the employee’s claim is based on

rights arising out of a statute designed to provide minimum

substantive guarantees to individual workers.’" Atchison T. &

S.F.R. Co. v. Buell, 480 U.S. 557, 565 (1987), quoting

Barrentine, supra, at 737 (construing the Railway Labor Act,

45 U.S.C. § 151 et seq., but noting that the underlying theory

applies regardless of the particular arbitration statute under

review).

Different jurisdictions may choose to address doubts

about the appropriateness of arbitration to resolve statute-

based claims of individual workers against their employers in

a variety of different ways. Under our federal system,

15

however, the States--in the exercise of their traditional police

power authority and with their expertise regarding local

conditions--should be permitted to formulate their own

individual approaches to this problem.

D. A Significant Number of States Have Addressed

These Issues in Statutory Enactments and State

Court Decisions; If the FAA is Interpreted to

Apply to Contracts of Employment, These State

Laws Would Be Subject to Preemption Wherever

the Employer Has a Connection to Interstate

Commerce.

Many States have already addressed the issues raised by

arbitration agreements in employment contracts. Arizona, for

example, exempts such contracts from the scope of its

arbitration act; the States of Kentucky, Louisiana, Oklahoma,

and Wisconsin have similar statutory provisions.” Other

States, including Arkansas, lowa, and Kansas, allow for the

enforcement of arbitration agreements between employers and

employees generally , but preclude enforcement of agreements

to arbitrate future disputes in this context.

9. Ariz. Rev. Stat. § 12-1517 (2000) (exempting “arbitration

agreements between employers and employees or their respective

representatives” from the State’s arbitration act); Ky. Rev. Stat. §

417.050 (1998) (same); La. Rev. Stat. §§ 9:4216 (2000) (excluding

“contracts of employment of labor"); 15 Okl. St., § 818 (1999)

(excluding “employer and employee relations"); and Wis. Stats. §

788.01 (1999) (excluding “contracts between employers and

employes, or between employers and associations of employes").

10. Ark. Stat. Ann. § 16-108-201 (1999) (exempting

agreements to submit to arbitration “employer-employee disputes"

“thereafter arising between the parties" from the State’s arbitration

act); lowa Code § 679A.1 (1999) (exempting “[a] contract between

employers and employees” “to submit to arbitration a future

16

Kentucky and South Carolina prohibit imposition of an

agreement to arbitrate employment disputes as a condition of

employment. Ky. Rev. Stat. § 336.700 (1998); S.C. Code

Ann. § 15-48-10 (1999). The arbitration acts of Idaho,

Maryland, New Hampshire, and North Carolina each contain

a presumption that the act shall not apply to arbitration

agreements between employers and employees unless the

agreement provides otherwise; in Maryland, New Hampshire,

and North Carolina, to be enforceable the agreement must

make specific reference to the applicable statute. Idaho Code

§ 7-901 (1999); Md. Cts. and Jud. Proc. Code Ann. § 3-206

(1999); New Hampshire Rev. Stat. Ann. § 542:1 (1999);

N.C. Gen. Stat. § 1-567.2 (1999). In Georgia, an arbitration

agreement in a "contract relating to terms and conditions of

employment" is not enforceable unless the arbitration clause

is initialed by all signatories at the time of the contract's

execution. Off. Code Ga. Ann. § 9-9-2 (2000).

In addition, the generally-applicable arbitration law of

some States affects the enforceability of pre-dispute

agreements to arbitrate employment disputes. For example,

the laws of Alabama and Nebraska preclude the enforcement

of agreements to arbitrate future disputes.“ Vermont and a

controversy"), and Kan. Stat. Ann. § 5-401 (1999) (exempting

“contracts between an employer and employees, or their respective

representatives” "to submit to arbitration any controversy thereafter

arising").

11. Ala. Code § 8-1-41 (2000) (providing that an arbitration

agreement cannot be specifically enforced); Ex Parte Clements, 587

So.2d 317, 319 (Ala. 1991) ("[uJniess the FAA is applicable, pre-

dispute arbitration agreements are void in Alabama as against

public policy"); State v. Nebraska Ass'n of Public Employees, 239

Neb. 653, 477 N.W.2d 577, (1991) (holding the Nebraska

Uniform Arbitration Act violates the Nebraska Constitution to the

extent it requires enforcement of agreements to arbitrate future

disputes).

17

number of other States have imposed procedural prerequisites

aimed at assuring notice and consent for the enforcement of

any arbitration agreement. In the absence of preemptive

federal law, these statutory safeguards would be applied to

contracts of employment.

In several States, the courts have addressed these issues.

The courts of Iowa, Minnesota, New York, and West

Virginia, for example, have held that contracts to arbitrate

policy and are, therefore, unenforceable.

12. See Henry C. Strickland, The Federal Arbitration Act's

Interstate Commerce Requirement: What's Left for State Arbitration

Law?, 21 Hofstra L. Rev. 385, 403-404 (1992), and Grodin, supra

note 2, at 18.

13. Polk County v. Civil Rights Com’n, 468 N.W.2d 811, 816

(lowa 1991) ("[T]he arbitration of civil rights violations is against

public policy.”); Correll v. Distinctive Dental Services, P.A., 607

N.W.2d 440 (Minn. 2000) (where the FAA does not preempt state

law, the Minnesota Human Rights Act provides the exclusive

method of resolving employment discrimination claims under the

Act and voids arbitration agreements purporting to waive the right

to a judicial forum); Wertheim & Co. v. Halpert, 48 N.Y .2d 681,

397 N.E.2d 386, 387, 421 N.Y.S.2d 876 (1979) (“Although

arbitration is a favored method of dispute resolution, arbitration

agreements are unenforceable where substantive rights, embodied

by statute, express a strong public policy which must be judicially

enforced."); and Copley v. NCR Corp., 183 W.Va. 152, 394

S.E.2d 751, 756 (1990)("[U]nder West Virginia law, an arbitration

clause in an employment contract cannot defeat a human rights

action filed by the claimant pursuant to [state statute]."). See also

Steck v. Smith Barney, Harris Upham & Co., Inc., 661 F.Supp.

543, 548 (D.N.J. 1987) (suggesting that the New Jersey Supreme

Court would read that State’s Law Against Discrimination as

precluding arbitration of employment discrimination claims and, in

the absence of the FAA, an agreement to arbitrate such claims

would be unenforceable under state law.) But see Alamo Rent A

18

Michigan and California have taken a different approach.

In Michigan, pre-dispute agreements to arbitrate employment

discrimination claims are enforceable, but only so long as "the

employee does not waive any rights or remedies under the

statute and the arbitral process is fair." Rembert v. Ryan’s

Steak Houses, 596 N.W.2d 208, 230 (Mich.App. 1999).

Among other things, the Rembert decision requires that the

employee have clear notice of the agreement to arbitrate and

requires that the arbitration process provide the right to legal

counsel, reasonable discovery, a fair hearing, and a neutral

arbitrator. In addition, the arbitration decision must be in

writing and must contain findings of fact and conclusions of

law and the prevailing employee is entitled to attorney fees.

Id.

The California Supreme Court recently held a pre-

employment agreement to arbitrate employment discrimination

claims unenforceable on the grounds that it violated public

policy and was unconscionably unilateral. In Armendariz v.

Foundation Health Psychcare Services, Inc., __Cal. 4" ___,

__P.2d___,___— Cail. Rptr.2d__, 2000 Cal. LEXIS 6120,

No. $075942 (August 24, 2000), the court held that such

agreements may be valid and enforceable, but only if they

incorporate substantive and procedural protections.

Specifically, they must allow for recovery of all types of relief

otherwise available in court. They must also provide for

neutral arbitrators, adequate discovery, and written arbitration

awards. The agreement may not require the employee to pay

“either unreasonable costs or any arbitrators’ fees or expenses

as a condition of access to the arbitration forum.” (/d., slip

opinion at 18.) Finally, the agreement must evidence “a

Car, Inc. v. Galarza, 306 N.J. Super. 384, 703 A.2d 961, 964

(N.J. Super.A.D. 1997) (holding that the Law Against

Discrimination does not preclude enforcement of agreements to

arbitrate employment discrimination claims but declining to enforce

such an agreement on other grounds).

19

modicum of bilaterality,” (id. at 39), that is, the employee

cannot be bound to submit his claims to arbitration if the

employer is free to litigate its claims in court.“

If the FAA is interpreted to apply to contracts of

employment, it will necessarily preempt all the state statutes

cited above whenever the employment relationship is subject

to an arbitration agreement and the employer can show a

connection to interstate commerce. Doctor’s Associates, Inc.

v. Casarotto, 517 U.S. 681, 687 (1996) (holding that

generally applicable contract defenses may be applied to

invalidate arbitration agreements without contravening the

FAA, but “state laws applicable only to arbitration

provisions" are preempted.) (Emphasis in original.) In

addition, it will call into question most or all of the state court

decisions holding such agreements unenforceable as a matter

of public policy. This will have the effect of nullifying most

state law already in place limiting the enforceability of

arbitration agreements in the employment context and of

stifling further development of state law in this important

area. ,

14. The dispute resolution agreement at issue in this case

appears to be unilateral, binding upon the employee but not upon

Circuit City. (J.A. at 21-22.) Its damages limitations appear

inconsistent with the provisions of the State’s employment

discrimination law. (Sze J.A. at 35-36, Commodore Home Systems,

Inc. v. Superior Court, 32 Cal.3d 211, 221, 649 P.2d 912, 185

Cal. Rptr. 270 (1982), and Cal. Gov. Code § 12970.) In addition,

the agreement provides that the employee “shall pay one-half of the

costs of arbitration” unless he prevails, in which case the arbitrator

“may require that Circuit City pay the [employee’s] share of the

costs." (J.A. at 33-34.) On the other hand, if Circuit City

prevails, the employee may be required to pay all costs of

arbitration. (/d.) On these bases, this agreement would probably

be held unenforceable under California law.

At one stroke, the carefully crafted individualized

approaches the States have taken to this issue would be

supplanted by a "federal common law" of employment. Yet

Congress has never undertaken to address the difficult issues

of public policy inherent in the enforcement of arbitration

agreements between employers and their individual

employees. Consequently, once the States are divested of

their authority to enact protective legislation in this area, there

will be a void in the law, with little but an inapposite

presumption in favor of arbitration to guide the courts.

E. The FAA Does Not Reflect the Requisite

Congressional Intent to Preempt State Law In

This Area.

Neither the text nor the legislative history of the FAA

evidence the clear and manifest intent required to preempt

state authority in this vital area. Certainly, "[t}he FAA

contains no express pre-emptive provision, nor does it reflect

a congressional intent to occupy the entire field of

arbitration.” Volt Info. Sciences v. Leland Stanford Jr. U.

489 U.S. 468, 477 (1989). “More importantly, the legislative

history of the FAA reveals no indication that Congress

intended to supplant state arbitration law nor even an

awareness that state law would be affected.” Strickland,

supra note 12, at 454 n. 345.

The consensus of legal scholarship is that the exclusion

of section 1 of the FAA was intended to encompass all

contracts of employment. Even those who favor extending

the FAA to cover most employment contracts acknowledge

at Mie Dee OK Eee, wii OU ee eS Te ee Sl =

21

light of the caveat that congressional ambiguity should not be

construed as expressing an intent to preempt state law in

traditional areas of state regulation, the amici States urge the

Court to interpret the FAA to exclude contracts of

employment.

Il. THIS CASE ILLUSTRATES A SECOND

SIGNIFICANT ISSUE OF CONCERN TO THE

STATES: THE INCREASING TENDENCY OF

FEDERAL COURTS TO _ ISSUE

UNWARRANTED INJUNCTIONS AGAINST

STATE COURTS, SUPPOSEDLY IN

FURTHERANCE OF THE FAA’S POLICY TO

ENCOURAGE ARBITRATION.

One aspect of the FAA’s potential "federalization" of

employment law warrants additional discussion. In this case,

the federal district court enjoined a state court from exercising

its jurisdiction. This injunction was accompanied by virtually

no analysis and relied solely upon the authority of the FAA.

This constitutes a serious affront to comity and the principles

of cooperative federalism and illustrates another derogation of

state sovereignty which would be avoided—at least in

employment cases--by properly interpreting the FAA to

exclude contracts of employment.

In this case, a California citizen filed an action against

Circuit City and three Circuit City employees in California

superior court on November 26, 1997. (J.A. at 10.) The suit

was based upon California’s Fair Employment and Housing

Act (FEHA), Cal. Govt. Code §§ 12900 ef seq., and on state

tj i i aah 1» A 24 2 of Oe see de Bieta eee,

of action. There was no basis for federal jurisdiction over the

case!

Circuit City did not seek to remove the case to federal

court. Instead, relying upon an assertion of diversity of

citizenship between itself (but not the other defendants) and

the plaintiff, it filed a Petition to Stay State Court Action and

to Compel Arbitration in United States District Court. The

district court granted this petition and, on April 29, 1998,

with virtually no discussion or analysis of the issues involved,

issued an order staying the proceedings in the California state

court action pending completion of the arbitration of

plaintiff's dispute with defendants. (J.A. at 43-45.) This

injunction, purporting to suspend the authority of a court of

the sovereign State of California to exercise its jurisdiction

over a case properly filed before it and in which the plaintiff

asserted only state law claims, raises fundamental concerns of

comity and federalism.

Our system of federalism reflects a general policy under

which state court proceedings "should normally be allowed to

continue unimpaired by intervention of the lower federal

courts, with relief from error, if any, through the state

appel'ate courts and ultimately [the Supreme] Court." Chick

Kam Choo v. Exxon Corp., 486 U.S. 140, 146 (1988)(quoting

Atlantic Coast Line R. Co. v. Locomotive Engineers, 398 U.S.

281, 287 (1970)). As the Court has repeatedly enunciated,

American jurisprudence assumes that state courts can be relied

upon to enforce federal laws and policies. See, e.g.,

Amalgamated Clothing Workers v. Richman Bros., 348 U.S.

17. “The [FAA] is something of an anomaly in the field of

federal-court jurisdiction. It creates a body of federal substantive

law establishing and regulating the duty to honor an agreement to

arbitrate, yet it does not create any independent federal-question

jurisdiction .... [E|nforcement of the Act is left in large part to the

state courts _ Moses H. Cone Hospital v. Mercury Constr.

Corp., 460 U.S. 1, 25 n. 32 (1983) (emphasis added).

511, 518 (1955) (attesting to Congress’s confidence in the

state courts to enforce federal law).

When a federal court enjoins the exercise of a state

court’s jurisdiction, it seriously “disparages state courts’

capacity for fairness." Sternlight, supra note 2, at 101. "Such

injunctions, through which a federal entity completely shuts

down the actions of a state court, may be seen as a direct

threat to comity and federalism." Jd. at 93.

Issuance of a federal injunction against a state court

requires, at a minimum, careful consideration of the All Writs

Act, 28 U.S.C. §1651(a), traditional equitable principles, the

Anti-Injunction Act, 28 U.S.C. §2283, and various absention

doctrines, each of which is extremely complex. /d. at 96.

Yet, the federal district courts have been issuing such

injunctions on the theory that they are necessary to effectuate

the purposes of the FAA "without considering many of the

statutes and doctrines that are directly on point." Jd. at 97.

As Professor Sternlight observes, almost none of the reported

decisions examine the important policy questions raised by

these cases; instead, they consist primarily of citations to

earlier cases, themselves lacking in analysis. Jd. at 98.

That characterization is unfortunately apt in this case.

Here, after a cursory reference to the Anti-Injunction Act and

an equally cursory reference to two of the cases Professor

Sternlight cites as examples of the federal courts’ failure of

analysis,“” the district court issued a stay enjoining the

California superior court from any further activity in

18. A.L. Williams & Assocs., Inc. v. McMahon, 697 F.Supp.

488, 495 (N.D. Ga. 1988) and Network Cinema Corp. v.

Glassburn, 357 F.Supp. 169, 172 (S.D. N.Y. 1973), cited in

Sternlight, supra, at 97 n. 36. The court also made glancing

reference to “Circuit City v. Gonzales," evidently an unpublished

decision of the United States District Court for the Eastern District

of California. (J.A. at 51.) It merits noting that neither Williams

nor Network Cinema is an employment case.

plaintiff's case. (J.A. at 50-51.) The district court appeared

to believe that its injunction against the state court was

authorized by Moses H. Cone Hospital, but that case does not

support the proposition that federal courts may enjoin state

courts from exercising their jurisdiction, even when the FAA

is properly invoked.

In Moses H. Cone Hospital, the Court explicitly reserved

the question "whether a federal court might stay a state-court

suit pending arbitration under [the Anti-Injunction Act,] 28

U.S.C. 2283," recognizing that such an injunction would raise

questions of federalism and comity that were not raised in that

case. Moses H. Cone Hospital, 460 U.S. at 25 n. 32. The

Court has never revisited the issue.

In the years since Moses H. Cone Hospital, the Court has

often made it clear that state courts, as well as federal courts,

are obligated to enforce the provisions of the FAA. See, e.g.,

Southland Corp. v. Keating, 465 U.S. 1, 10-16 (1984)

(reversing a California court’s refusal to compel arbitration

under the FAA); Allied-Bruce Terminix Cos. v. Dobson, 513

U.S. 265, 269-70 (1995) (holding that an Alabama court erred

in declining to enforce an arbitration agreement in a local

contract); and Doctor’s Associates, Inc. v. Casarotto, 517

U.S. 681, 683 (1996) (reversing the Montana Supreme

Court’s decision that the trial courts of Montana need not

19. In Moses H. Cone Hospital, the question was whether the

United States District Court had erred in staying its own

proceedings in favor of a prior-filed North Carolina state-court

action arguably subject to the FAA. The Court ruled that, under

the specific facts of the case, the district court ought to have issued

an order to arbitrate the dispute between two of the contestants

under section 4 of the FAA. The federal court’s authority to stay

state court proceedings pending the outcome of arbitration was not

discussed or decided.

enforce arbitration agreements under the FAA if they do not

comport with the procedural requirements of Montana’s

statutes). At this point, it well established that state

courts have the same obligation to enforce the stay provisions

of the FAA, where it applies, as do federal courts. Sternlight,

supra, at 111. Hence, the concern expressed in Moses H.

Cone Hospital regarding "the probable inadequacy of the

state-court proceeding" to prutect the rights of the party

invoking the FAA (460 U.S. at 26) appears to have

significantly diminished. Under these circumstances, Moses

H. Cone Hospital cannot be interpreted to sanction the

issuance of the injunction in this case.

As noted previously, the present case is emblematic of a

disturbing trend. Federal courts “have been far too willing to

grant such injunctions" against state courts under the supposed

authority of the FAA. Sternlight, supra, at 198. When they

do so without carefully considering the full array of policies

and doctrines implicated, they “use the force of federal

supremacy to subordinate state interests" and damage the

relationship between federal and state courts. /d. at 203.

Amici States respectfully request that the Court take this

trend into account in its consideration of this case.

Interpreting the FAA not to apply to contracts of employment

will not entirely resolve the problem, but it will direct a

significant class of cases away from the hazards Professor

Sternlight identifies. Congress assuredly did not intend that

the FAA would become a juggernaut for eliminating state

court jurisdiction over employment disputes. By eliminating

the current uncertainty regarding the scope of the statute and

clarifying that it does not apply to.employment disputes, the

Court can significantly ameliorate a situation seriously at odds

with the principles of comity and federalism.

Il. PETITIONER’S ARGUMENT FOR A

NATIONALIZATION OF EMPLOYMENT LAW IS

INCONGRUENT WITH OUR SYSTEM OF

FEDERALISM.

Petitioner and several of the amici supporting its position

argue that it is "anomalous" that "[aJn employer operating in

several states and utilizing uniform procedures and a

standardized arbitration agreement with its employees

nationwide may find that the agreement is enforceable in some

states but not in others...." (Brief for Petitioner at 34.) One

amicus observes that state law is "quite literally, ‘all over the

map’” in regard to employment arbitrations. (Brief of Amicus

Curiae the Council for Employment Law Equity In Support of

the Petitioner at 14.) Some amici further argue that the Ninth

Circuit’s decision constitutes "[a] dangerous threat" to a

"worthwhile employment practice," advantageous to

employees and employers alike. (/d. at 2-3.) These

arguments ignore our system of federalism and are ultimately

unpersuasive. ,

First, the amici States are aware of no state law that

prohibits employers and employees from _ voluntarily

submitting their disputes to arbitration or to any other

alternative dispute resolution process they choose. If

arbitration is indeed fair and advantageous to employees,

employees will readily submit their claims to arbitration. The

State statutes and decisions cited in this brief address only the

circumstance where one party no longer believes arbitration

will be appropriate or equitable and the other party seeks to

compel arbitration via the judicial process. Under these

circumstances, some States have determined that, for reasons

of public policy, some employer-employee arbitration

agreements are unenforceable under some circumstances.

Second, the fact that the States have decided these issues

differently properly reflects the fact that, under the Tenth

Amendment, the States are free to take local conditions and

preferences into account in developing their laws. Regionai

differences will appropriately give rise to variations in

employment law. This is an integral facet of our system of

dual sovereignty. As Chief Justice Burger observed:

"Barring states from making employment decisions tailored to

meet specific local needs undermines the flexibility that has

long allowed industrial states to live under the same flag as

rural states, and small, densely populated states to coexist

with large, sparsely populated ones." EEOC v. Wyoming,

460 U.S. 226, 264 (1983) (Burger, C.J., dissenting).

The FAA reflects no congressional intent to nationalize

employment law. There is nothing unfair or inequitable in

/equiring employers who choose to do business in several

States to abide by the laws each of those States enacts to

protect its citizens. Petitioner and its amici seem to argue for

a system in which the States may be divested of their

traditional role in regulating conditions in the workplace.

Under that system, employees’ rights would no longer be

protected by state legislatures-and by the decisions of state

appellate courts; instead, the rights and duties of the

employment relationship would be determined by arbitration

agreements drafted by corporate attorneys and made

enforceable by federal law.

Congress has not made this policy decision. Heretofore,

each State’s authority to protect employment rights within its

own jurisdiction has not been questioned. Amici States urge

the Court to interpret the FAA to harmonize with, rather than

to overturn, this integral feature of our constitutional system.

CONCLUSION

For the foregoing reasons, the amici States respectfully

request that the decision of the Court of Appeals be affirmed.

Respectfully submitted,

BILL LOCKYER

Attorney General of the

State of California

RICHARD M. FRANK

Chief Assistant Attorney

General

LOUIS VERDUGO, JR.

Assistant Attorney General

CATHERINE Z. YSRAEL

Supervising Deputy

Attorney General

THOMAS P. REILLY

Deputy Attorney General

Counsel of Record

September 2000

JANET NAPOLITANO

Attorney General

State of Arizona

MARK PRYOR

Attorney General

of Arkansas

KEN SALAZAR

Attorney General

State of Colorado

RICHARD BLUMENTHAL

Attorney General of the -

State of Connecticut

(Additional counsel

listed on next page)

~

ALAN G. LANCE

Attorney General

State of Idaho

JAMES E. RYAN

Attorney General

State of Illinois

THOMAS J. MILLER

Attorney General

of lowa

THOMAS F. REILLY

Attorney General

of Massachusetts

MIKE HATCH

Attorney General

State of Minnesota

MIKE MOORE

Attorney Generai of the

State of Mississippi

JEREMIAH W. (JAY) NIXON

Attorney General

of Missouri

JOSEPH P. MAZUREK

Montana Attorney General

FRANKIE SUE DEL PAPA

Attorney General

of the State of Nevada

JOHN J. FARMER, JR.

Attorney General

of New Jersey

ELIOT SPITZER

Attorney General

of New York

HEIDI HEITKAMP

Attorney General

of North Dakota

D. MICHAEL FISHER

Attorney General

of Pennsylvania

WILLIAM H. SORRELL

Attorney General

of the State of Vermont

CHRISTINE O. GREGOIRE

Attorney General

of Washington

DARRELL McGRAW, JR.

Attorney General

of West Virginia

Attorneys for Amici Curiae