Amicus Curiae Brief — Green Tree Financial Corp.-Ala. v. Randolph

Supreme Court. U S

@, FILED

No. 99-1235

JUV 8 2ov0

CLERK

IN THE

Supreme Court of the Ani

GREEN TREE FINANCIAL CORP.—ALABAMA,

AND GREEN TREE FINANCIAL CORPORATION,

Petitioners,

V.

LARKETTA RANDOLPH,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF AMICUS CURIAE OF THE

EQUAL EMPLOYMENT ADVISORY COUNCIL

IN SUPPORT OF PETITIONERS

ANN ELIZABETH REESMAN*

MCGUINESS NORRIS &

WILLIAMS, LLP

1015 Fifteenth Street, N.W.

Suite 1200

Washington, D.C. 20005

(202) 789-8600

Counsel for Amicus Curiae

Equal Employment Advisory

Council

June 2000 *Counsel of Record

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

——e

Fan Sig

TABLE OF CONTENTS

Page

SARE OP TERRI voces ccdiiosessiinrccessennvecsovscesnais ii

INTEREST OF THE AMICUS CURIAE o00....cccccceceseseee. 2

PUR MMOU TE COR” UES CAI oi ian ciscisiccnsecicusinesscceusees 3

SUMMARY OF ARGUMENT ....0.......c.cccccccscsceseseseeees 4

PEE sonsciespincacnentcvatiniboucecsabebsigilintahicsenasiauiiak >

I. THE VIEW OF THE MAJORITY OF THE

CIRCUIT COURTS OF APPEALS, THAT

AN ORDER COMPELLING ARBITRATION

IN AN “EMBEDDED” PROCEEDING IS

INTERLOCUTORY AND NOT AP-

PEALABLE, IS CORRECT AND SHOULD

BE ADOPTED BY THIS COURT...............0...- 5

Il. AN ARBITRATION AGREEMENT NEED

NOT ALLOCATE THE ARBITRATION

COSTS TO BE ENFORCEABLE .........0..0.0...... 9

A. The Federal Policy Favoring Arbitration

Requires That Doubts Be Resolved in

Favor of Enforcing an Agreement To

POI ciseehisnticsclctnstedbonesisnnislciascntettiwedenatieia: 9

B. It Is Common, and Appropriate, for an

Arbitration Agreement To Permit or

Require Cost-Sharing Among the Parties... 11

rN e schstnisisislibiaassicgnabuonicihiie dsccacwaiubiaadeienteanceiie 19

(i)

il

TABLE OF AUTHORITIES

FEDERAL CASES Page

Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465

(EPA, Ce Pee i eee passim

Gilmer v. Interstate/Johnson Lane Corp., 500

21.2. de? CRIS ) vinctcestennetsasemetniaiiielolaiaonn 3, 5, 9, 10

Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d

361 (7th Cir.), cert. denied, 120 S. Ct. 44

CEFF assscvessisonncnsspeticaldepeaieannamaiaiainmam tans ata a neaan tas 12, 19

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) oo... 5,6

Rosenberg v. Merrill Lynch, Pierce, Fenner &

Smith, Inc., 170 F.3d 1 (Ast Cir. 1999) wo... 11,19

Shankle v. B-G Maintenance Mgmt. Inc., 163

BS LZ CRA, Fe dcntecnsniciontieecechteminics 11

Shearson/American Express, Inc. v. McMahon,

SEZ US. THAT I sn vvcitsiehiicsinsacibeinicannlteaeens 19

Williams v. CIGNA Fin. Advisors, Inc., 197 F.3d

752 (Sth Cir. 1999}, cert. denied, 120 S. Ct.

EDD GIO) vvcncenniicsssoutitcbiiatiialademmbtaiiataaadliar aides 12

STATUTES

Age Discrimination in Employment Act of 1967,

29 UA. GET OF R: snccnciaamitaiaeieen 2

Equal Credit Opportunity Act, 15 U.S.C.

B0 BOT LOPES acnicnccccsastpniceinabdtoatiaaalens: 3

Federal Arbitration Act, 9 U.S.C. §§ 1-16 (1999

GE UD, FIO scsnnsirncoentniniinissnacharmuabiadaiataiae 4,5

F EBA in ] & cvcisnsranasiarsceecananmemaaie maaan 5-6

PUBL, GB 3 ORS ponrtcniabdemmnan 8

F ABA. & ON scnscrusnstinticinumaiicammemiiae catia 6-7

D USD.C, § FGGmpET) ate DD win sccatisticroenshecremneces 7

DUB A... G RGRAY iss cstecicicinliocinatanan. 8

DULL. § WEG eee vtecicetcctdancacnceetnees 8

F UBL. § Hi nnnncotsisneiiaguaetaiaeamaaen 4,7,8

iil

TABLE OF AUTHORITIES—Continued

Page

eM I sas nse sriciecsishsinsnesehianavesiansicsnnsonons 7

a OP MI OD cs ausonisisndcanssnuvbnasssasnandnessiii 8

Ps Be ID enics.catinsicneainossiiniicabetiivmionavednasios 8

Title VII of the Civil Rights Act of 1964, 42

NPs UO OE BID. 5 isvescovsoncccsseserecsncrdvscnisianes 2, il

Truth in Lending Act, 15 U.S.C. § 1601 et seq. .... 3

MISCELLANEOUS

A Due Process Protocol for Mediation and

Arbitration of Statutory Disputes Arising Out

of the Employment Relationship, Dispute

Resolution Journal 37 (Oct-Dec. 1995)......... 12-13, 16

Alternative Dispute Resolution: Employers’

Experiences With ADR in the Workplace,

United States General Accounting Office,

GAO/GGD-97-157 (August 1997) oo... 17, 18

American Arbitration Association, National

Rules for the Resolution of Employment

Disputes (eff. January 1, 1999) woo. i4

Administrative Fee Schedule, .................0000.. 14-15

Commission on the Future of Worker-

Management Relations, U.S. Dept. of Labor

and U.S. Dept. of Commerce, Report and

Recommendations (December 1994) ................ 12

Employment Discrimination: Most Private-

Sector Employers Use Alternative Dispute

Resolution, United States General Accounting

Office, GAO/HEHS-95-150 (July 1995) .......... 17

Expanded Use of Alternative Dispute Resolution

in Programs Administered by the Department

of Labor, 62 Fed. Reg. 6690 (February 12,

iNT cil GibdladinuhiNihkahsiivichohiidshinninjimianiniakanseeasrakincrsees 16

iV

TABLE OF AUTHORITIES—Continued

Page

JAMS Arbitration Rules and Procedures for

Employment Disputes (2000) .........:ccscceesceeeseees 15

JAMS Comprehensive Arbitration Rules and

PIE es nuntieicciestceisisictstennstaneubisnticcctinn 15

JAMS Minimum Standards of Procedural

Fairness Policy on _ Financial Services

PE SI satiiavictinicnnscteccmniietedeaen 15

JAMS Policy on Employment Arbitration —

Principles of Neutrality and Minimum

Standards of Procedural Fairness (2000) ........ 15, 16

National Academy of Arbitrators, “Guidelines on

Arbitration of Statutory Claims Under

Employer-Promulgated Systems” (May 21,

FPO D: scesisininssinisaicsnanenistpnliliabuaisieidiaaionei inicteatsnienitegiae 14

Russell Evans, Engalla vy. Permanente Medical

Group, Inc.: Can Arbitration Clauses in

Employment Contracts Survive a “Fairness”

Analysis, 50 Hastings L.J. 635 (March 1999) ... 18

IN THE

Supreme Court of the Anited States

No. 99-1235

GREEN TREE FINANCIAL CORP.—ALABAMA,

AND GREEN TREE FINANCIAL CORPORATION,

Petitioners,

Vv.

LARKETTA RANDOLPH,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Eleventh Circuit

BRIEF AMICUS CURIAE OF THE

EQUAL EMPLOYMENT ADVISORY COUNCIL

IN SUPPORT OF PETITIONERS

The Equal Employment Advisory Council respectfully

submits this brief amicus curiae.’ The written consent of all

parties has been filed with the Clerk of this Court. The brief

urges reversal of the decision below and thus supports the

position of Petitioners before this Court.

‘

' Counsel for amicus curiae authored this brief in its entirety. No

person or entity, other than the amicus curiae, its members, or its counsel,

made a monetary contribution to the preparation or submission of the

brief.

,

INTEREST OF THE AMICUS CURIAE

The Equal Employment Advisory Council (EEAC) is a

nationwide association of employers organized in 1976 to

promote sound approaches to the elimination of

discriminatory employment practices. Its membership now

includes more than 325 of the nation’s largest private sector

companies, collectively providing employment to more than

17 million people throughout the United States. EEAC’s

directors and officers include many of industry’s leading

experts in the field of equal employment opportunity. Their

combined experience gives EEAC an unmatched depth of

knowledge of the practical, as well as legal, considerations

relevant to the proper interpretation and application of equal

employment policies and requirements. EEAC’s members

are firmly committed to the principles of nondiscrimination

and equal employment opportunity.

All of EEAC’s members are employers subject to the Age

Discrimination in Employment Act of 1967 (ADEA), as

amended, 29 U.S.C. § 621 et seq., Title VII of the Civil

Rights Act of 1964 (Title VII), as amended, 42 U.S.C.

§ 2000e et seq., and other equal employment statutes and

regulations. Many of EEAC’s members have contracts with

their employees governing some or all terms and conditions

of employment. Some of these contracts include agreements

to arbitrate disputes arising out of the employment

relationship including statutory claims of discrimination.

EEAC’s members have an ongoing interest in preserving

the enforceability of agreements calling for arbitration of

employment-related disputes. Arbitration provides a fair,

efficient, and effective means of resolving discrimination

claims and other employment-related issues that otherwise

would clog the courts. Because of its interest in this subject,

EEAC has filed friend-of-the court briefs in numerous cases

3

supporting the enforceability of arbitration agreements, as

well as many other important issues of employment law.’

Thus, the issues presented in this appeal are extremely

important to the nationwide constituency that EEAC

represents. While the case arose in the context of a

commercial arbitration agreement, this Court’s decision is

likely to affect agreements to arbitrate employment-related

claims as well. EEAC thus has an interest in, and a

familiarity with, the legal and public policy issues presented

to the Court in this case. Because of its significant experience

in these matters, EEAC is uniquely situated to brief this Court

on the importance of the issues beyond the immediate

concerns of the parties to the case.

STATEMENT OF THE CASE

Respondent Larketta Randolph financed her purchase of a

mobile home through Petitioner Green Tree Financial Corp.

—Alabama, which is a wholly-owned subsidiary of Petitioner

Green Tree Financial Corporation (hereinafter collectively

“Green Tree.”). Pet. App. 2a. Her retail installment contract

with the seller of the mobile home, which names Green Tree

as the assignee, provides for binding arbitration of “[aJll

disputes, claims, or controversies arising from or relating to

this Contract... .” Pet. App. 2a-3a.

Two years later, Randolph sued Green Tree, claiming (1)

that the financing documents violated the Truth in Lending

Act, 15 U.S.C. § 1601 et seg. (TILA), because the required

TILA disclosure statement did not state that she was required

to obtain “vendor’s single interest insurance,” (2) that the

documents violated the Equal Credit Opportunity Act, 15

U.S.C. §§ 1691-1691f, by requiring arbitration of disputes,

and (3) that TILA precludes arbitration of TILA claims. Pet.

App. 4a. Green Tree moved to compel arbitration and to stay

? E.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).

4

or dismiss the action. Jd. The district court granted the

motion to compel and dismissed all of Randolph’s claims

with prejudice. Pet. App. 4a-5a. Randolph appealed, and

Green Tree moved to dismiss the appeal for lack of

jurisdiction. Pet. App. Sa.

The Eleventh Circuit heard the appeal and reversed the

district court’s ruling. First, the Court of Appeals concluded

that it had jurisdiction, holding that the district court’s order ‘

was an appealable “final decision” under § 16(a)(3) of the

Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(3). Pet.

App. 15a. Second, the Court of Appeals ruled that the

arbitration agreement was unenforceable because it was silent

as to the payment of arbitration fees and costs, making it

possible that “Randolph might be required to bear substantial

costs of the arbitration even if she were to prevail... .” Pet.

App. 19a. This Court granted certiorari. ;

SUMMARY OF ARGUMENT ~- .

The majority view, that an order compelling arbitration

under the Federal Arbitration Act, 9 U.S.C. §§ 1-16, is an

appealable order only if it is issued in an “independent”

proceeding, is the only logical approach. Under that view,

the order in the instant case, which was “embedded” in a

broader proceeding, was interlocutory and not appealable, so

that the court below lacked jurisdiction to hear the appeal.

The court below further erred in concluding that an

arbitration agreement that is “silent” on the allocation of fees

and costs is unenforceable. First, the federal policy favoring

arbitration requires that doubts be resolved in favor of

enforcing the agreement, and the court below did just the

opposite. Second, the court below mistakenly assumed that

cost-sharing among the parties, at least initially, prevents

complainants from being able to vindicate their statutory

rights. This view is contrary to the opinions of three other

Circuit courts of appeals as well as a respected government

5

Commission, a multifactional task force that issued “due

process” standards for employment arbitration, the primary

national organizations supplying arbitrators, and others.

ARGUMENT

I. THE VIEW OF THE MAJORITY OF THE

CIRCUIT COURTS OF APPEALS, THAT AN

ORDER COMPELLING ARBITRATION IN AN

“EMBEDDED” PROCEEDING IS_ INTER-

LOCUTORY AND NOT APPEALABLE, IS

CORRECT AND SHOULD BE ADOPTED BY

THIS COURT

As the court below acknowledged, a substantial majority of

the circuit courts of appeals would have concluded that they

lacked jurisdiction to hear the appeal in the instant case. By

adopting the opposite view, the Court of Appeals placed itself

in the minority and outside the realm of logic.

The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16, was

intended “to reverse the longstanding judicial hostility to

arbitration agreements that had existed at English common

law and had been adopted by American courts, and to place

arbitration agreements upon the same footing as other

contracts.” Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20, 24 (1991) (citations omitted). The FAA “was

designed to overcome an anachronistic judicial hostility to

agreements to arbitrate, which American courts had borrowed

from English common law.” Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 n.14 (1985)

(citations omitted). The Act reflects a “‘liberal federal

> The key provision of the FAA is Section 2, which provides;

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 perform the whole or any part thereof, or an

a ee Re EN gt ce ON AR ee ee ee eae

6

policy favoring arbitration agreements’ . . . guaranteeing the

enforcement of private contractual arrangements ... .” Jd. at

625 (citations omitted). Indeed, “‘[t]he preeminent concern

of Congress in passing the Act was to enforce private

agreements into which parties had entered,’ a concern which

‘requires that [this Court] rigorously enforce agreements to

arbitrate.’” Jd. at 625-26 (citation omitted).

First passed in 1925, the FAA was amended in 1988 to

specify when an appeal can and cannot be taken from a

district court order. Pub. L. 100-702, Title X, § 1019(a), Nov.

19, 1988, 102 Stat. 4671, § 15 (renumbered Pub. L. 101-650,

Title TI, § 325(a)(1), Dec. 1, 1990, Stat. 5120, now 9 U.S.C.

§ 16). The statute now provides that:

(a) An appeal may be taken from—

(1) an order—

(A) refusing a stay of any action under

section 3 of this title,

(B) denying a petition under section 4 of this

title to order arbitration to proceed,

(C) denying an application under section 206

of this title to compel arbitration,

(D) confirming or denying confirmation of an

award or partial award, or

(E) modifying, correcting or vacating an

award;

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 revocation of any contract.

9 U.S.C. § 2 (1999 & Supp. 2000).

7

(2) an interlocutory order granting, continuing, or

modifying an injunction against an arbitration

that is subject to this title; or

(3) a final decision with respect to an arbitration

that is subject to this title.

(b) Except as otherwise provided in section 1292(b) of

title 28, an appeal may not be taken from an

interlocutory order—

(1) granting a stay of any action under section 3 of

this title;

(2) directing arbitration to proceed under section 4

of this title;

(3) compelling arbitration under section 206 of this

title; or

(4) refusing to enjoin an arbitration that is subject

to this title.

9 US.C. §16 (1999 & Supp. 2000). The statute thus

authorizes an appeal in cases in which the district court has

disallowed arbitration, 9 U.S.C. § 16(a)(1) and (2), and denies

an appeal where the district court has allowed the arbitration

to proceed. 9 U.S.C. § 16(b).

As the court below observed, the courts of appeals are

divided as to the meaning of § 16(a)(3) and what constitutes a

“final decision” in this context. Indeed, the court below

acknowledged the eight circuits that have ruled that

§ 16(a)(3) does not permit an appeal of an order compelling

arbitration where the arbitration issue is “embedded” in a

broader proceeding. In the view of these circuits, an appeal is

authorized only if the order compelling arbitration is

“independent” —that is, it stands alone as the sole issue in the

case. Pet. App. 7a— 8a. Three circuits—the Sixth, the Tenth,

and now the Eleventh—read § 16(a)(3) as permitting an

appeal even in an “embedded” proceeding where the trial

8

judge has dismissed the case rather than merely granting a

Stay pending arbitration. Pet. App. 9a.

The majority view is more in keeping with the rest of § 16,

since it allows arbitration to proceed without further delay

where there are issues to be arbitrated. Moreover, the

majority view provides a logical, systematic way of

distinguishing which cases are appealable and which are not,

in a way that furthers the federal policy favoring arbitration.

In contrast, the minority’s approach effectively creates an

anomaly that depends solely on how the district court

characterizes the end of its current involvement in the case. If

the district court dismisses the action, in the minority view

the decision is “final” and therefore appealable, but if the

court merely stays the action, it is not. Since in either case

the district court has ruled in favor of arbitration, its

disposition of the remainder of the case, which should not

affect the next stage, in fact dictates how the case should

proceed. This seems illogical.

Sections 3 and 4 of the FAA, 9 U.S.C. §§ 3 and 4, are the

logical comparators here. Section 3 provides for a court to

stay a pending action if it is subject to arbitration. If the court

refuses a stay, the order is immediately appealable under

§ 16 (a)(1)(A). If the court grants the stay, the order is not

appealable, pursuant to § 16(b)(1). Similarly, Section 4

allows a party seeking to enforce an arbitration agreement to

petition the district court for an order compelling arbitration.

If arbitration is denied, the order is immediately appealable

under § 16(a)(1)(B). If the petition is granted, however, the

order is interlocutory and not appealable, pursuant to

§ 16(b)(2).

The entire thrust of the FAA is towards facilitating the

parties’ agreement to arbitrate their disputes. The common

sense interpretation of § 16(a)(3), then, is to allow arbitration

to proceed forthwith if there are merits issues for the

9

arbitrator to decide, and to allow an immediate appeal only if

arbitration has been denied, or if the only issue anywhere near

the table is whether or not to arbitrate, e.g. a declaratory

judgment proceeding concluding that an arbitration

agreement is valid and enforceable as to future disputes that

have yet to arise. The Eleventh Circuit’s decision to the

contrary is illogical, given this Court’s prior interpretations of

the FAA, and should be reversed.

II. AN ARBITRATION AGREEMENT NEED NOT

ALLOCATE THE ARBITRATION COSTS TO

BE ENFORCEABLE

The court below ruled that the arbitration agreement was

unenforceable because it was silent as to the allocation of

arbitration fees and costs. This conclusion directly con-

travenes the federal policy favoring arbitration and _ is

unsupportable.

A. The Federal Policy Favoring Arbitration

Requires That Doubts Be Resolved in Favor of

Enforcing an Agreement To Arbitrate

As this Court has recognized repeatedly, “[the FAA’s]

provisions manifest a ‘liberal federal policy favoring

arbitration agreements.’ ” Gilmer v. Interstate/Johnson Lane

Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem’l

Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

Accordingly, “ ‘questions of arbitrability must be addressed

with a healthy regard for the federal policy favoring

arbitration.’ ” Jd. at 26 (quoting Moses H. Cone Mem’! Hosp.

at 24).

This Court’s decision in Gilmer, holding that statutory

discrimination claims may be subject to compulsory

arbitration by agreement, made it clear that as a general rule,

“[hJaving made the bargain to arbitrate, the party should be

held to it unless Congress itself has evinced an intention to

10

preclude a waiver of judicial remedies for the statutory rights

at issue.” Jd. (quoting Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)). Indeed,

this Court unequivocally rejected Gilmer’s general challenges

to the arbitration process as an adequate means of vindicating

statutory rights, even those under statutes “designed to

advance important public policies.” Quoting Mitsubishi

Motors, this Court stated that “[s]o long as the prospective

litigant effectively may vindicate his or her statutory cause of

action in the arbitral forum, the statute will continue to serve

both its remedial and deterrent function.” Gilmer, 500 U.S. at

28 (quoting Mitsubishi Motors, 473 U.S. at 637).

The lesson of Gilmer and its antecedents is that if there is a

way to enforce the agreement, the court should do so,

resolving doubts in favor of arbitration. The U.S. Court of

Appeals for the District of Columbia Circuit did exactly that

in Cole v. Burns International Security Services, 105 F.3d

1465 (D.C. Cir. 1997). Despite its disapproval of the

arbitration agreement’s silence on the allocation of costs, the

D.C. Circuit enforced the agreement. Having determined that

“ambiguity in a contract should be resolved against the

drafter—here, the employer—and ambiguity should be

resolved in favor of a legal construction of the parties’

agreement,” id. at 1468, the D.C. Circuit concluded, “we

interpret the arbitration agreement at issue as requiring Burns

to pay all arbitrators’ fees associated with the resolution of

Cole’s claims,” id, and sent the case to arbitration.

The court below took the exact opposite approach. Rather

than construing the agreement in a way that allowed it to be

upheld, the court below resolved its doubts against

arbitration. For this reason alone, the decision below must be

reversed.

11

B. It Is Common, and Appropriate, for an

Arbitration Agreement To Permit or Require

Cost-Sharing Among the Parties

In reaching its erroneous conclusion, the Court of Appeals

started from the mistaken premise, shared by the D.C. Circuit

in Cole and the Tenth Circuit in Shankle v. B-G Maintenance

Mgmt. Inc., 163 F.3d 1230 (10th Cir. 1999) (holding an em-

ployment arbitration agreement unenforceable because it re-

quired the employee to pay half of the arbitrator’s fees), that

requiring complainants to shoulder some of the arbitrator’s

fee somehow trammels their statutory rights. This view is at

odds with the holdings of other courts, as well as with the

prevailing wisdom of those who have studied arbitration

systems.

For example, in Rosenberg v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 170 F.3d 1 (1st Cir. 1999), the First

Circuit found the New York Stock Exchange’s (NYSE)

arbitration procedures adequate to resolve employment

discrimination claims under Title VII of the Civil Rights Act

of 1964, 42 U.S.C. § 2000e et seg., despite the contention that

“plaintiffs are charged forum fees, which may be as high as

$3,000 per day and tens of thousands of dollars per case.”

170 F.3d at 15. In the First Circuit’s analysis (1) “(njothing

in the choice of arbitration mandates these outcomes, nor are

such outcomes necessary concomitants of the NYSE arbitral

system,” id. (2) “it does not appear to be the usual situation

that a plaintiff is asked to bear forum fees,” id., since “NYSE

arbitrators possess discretion to award costs and fees when

they decide a dispute,” id. at 16; and (3) “if unreasonable

fees were to be imposed on a particular employee, the

argument that this was inconsistent with [the underlying

Statute] could be presented by the employee to the reviewing

court.” Jd. In other words, as the First Circuit explained, just

because plaintiffs theoretically could be required to pay

forum fees is no reason to believe that they ultimately will,

12

and thus is no reason to refuse to enforce the agreement. See

also Koveleskie v. SBC Capital Mkts., Inc., 167 F.3d 361, 366

(7th Cir.) (applying Rosenberg), cert. denied, 120 S. Ct. 44

(1999); Williams v. CIGNA Fin. Advisors, Inc., 197 F.3d 752,

763 (Sth Cir. 1999) (specifically disagreeing with Cole and

Shankle and concluding that “Gilmer does not so clearly

imply that no part of arbitral forum fees may ever be assessed

against federal anti-discrimination claimants, although it

plainly indicates that an arbitral cost allocation scheme may

not be used to prevent effective vindication of federal

statutory claims”), cert. denied, 120 S. Ct. 1833 (2000).

Indeed, in the view of several respected authorities, an

arbitration program should provide for the individual to pay

part of the arbitrator’s fee in order to meet basic requirements

of fairness. The Commission on the Future of Worker-

Management Relations, known as the “Dunlop Commission,”

concluded that the fairness and quality standards it prescribed

for private arbitration mechanisms required that “[t]o ensure

impartiality of the arbitrator, both the employee and the

employer should contribute to the arbitrator’s fee. Ideally,

the employee contribution should be capped in proportion to

the employee’s pay, so as to avoid discouraging claims by

lower-wage workers.” Commission on the Future of Worker-

Management Relations, U.S. Dept. of Labor and U.S. Dept.

of Commerce, Report and Recommendations (December

1994) at 32. Perhaps even more significantly, the “Due

Process Protocol” issued in 1995 by a multifactional task

force representing dispute resolution organizations, plaintiffs,

management, labor and government, identifies equal shares as

the preferred approach:

Impartiality is best assured by the parties sharing the

fees and expenses of the mediator and arbitrator. In

cases where the economic condition of a party does not

permit equal sharing, the parties should make mutually

acceptable arrangements to achieve that goal if at all

possible. In the absence of such agreement, the

13

arbitrator should determine allocation of fees. The

designating agency, by negotiating the parties’ share of

costs and collecting such fees, might be able to reduce

the bias potential of disparate contributions by

forwarding payment to the mediator and/or arbitrator

without disclosing the parties’ share therein.

A Due Process Protocol for Mediation and Arbitration

of Statutory Disputes Arising Out of the Employment

Relationship, Dispute Resolution Journal 37, 39 (Oct-Dec.

1995).*

* Members of the Task Force and signatories to the Due Process

Protocol were:

Co-Chairs: Christopher A. Barreca, Partner, Paul, Hastings,

Janofsky & Walker, Rep., Council of Labor & Employment Section,

American Bar Association; | Max Zimny, General Counsel,

International Ladies’ Garment Workers’ Union Association, Rep.,

Council of Labor & Employment Section, American Bar

Association; Arnold Zack, President, Nat. Academy of Arbitrators.

Members: George H. Friedman, Senior Vice President, American

Arbitration Association; Joseph Garrison, President, National

Employment Lawyers Association; Michael F. Hoellering, General

Counsel, American Arbitration Association: Charles F. Ipavec,

Arbitrator, Neutral Co-Chair, Arbitration Committee of Labor &

Employment Section, ABA; Wilma Liebman, Special Assistant to

the Director, Federal Mediation & Conciliation Service; Lewis

Maltby, Director, Workplace Rights Project, American Civil

Liberties Union; Robert D. Manning, Angoff, Goldman, Manning,

Pyle, Wanger & Hiatt, P.C., Union Co-Chair, Arbitration

Committee of Labor & Employment Section, ABA; W. Bruce

Newman, Rep., Society of Professionals in Dispute Resolution;

Carl E. VerBeek, Partner, Varnum Riddering Schmidt & Howlett,

Management Co-Chair, Arbitration Committee of Labor &

Employment Section, ABA.

Dispute Resolution Journal (October-December 1995) at 39.

Interestingly, the D.C. Circuit in Cole v. Burns, dismisses this diverse

group as “[s]ome commentators” in rejecting their conclusion that fee-

splitting is a benefit rather than a detriment. 105 F.3d at 1485 (D.C. Cir.

1997).

14

Likewise, the procedural rules of the two major private

national organizations supplying arbitrators provide for an

initial split of fees, subject to modification by the parties by

agreement and ultimately subject to reallocation by the

arbitrator in the award.” With respect to the filing fee, the

current rules of the non-profit American Arbitration

Association (AAA) applicable to the arbitration of

employment discrimination claims state that “The filing fee

shall be advanced by the initiating party or parties, subject to

final apportionment by the arbitrator in the award.”

American Arbitration Association, National Rules for the

Resolution of Employment Disputes (eff. January 1, 1999) at

Rule 38.° The arbitrator’s fees “shall be borne equally by the

parties unless they agree otherwise, or unless the law provides

otherwise.” Jd. at Rule 39. Ultimately, however, all “fees,

expenses and compensation” including the arbitrator’s fees

are subject to assessment to “any party” by the arbitrator as

part of the award. Jd. at Rule 34. This point is repeated in the

Administrative Fee Schedule accompanying the AAA Rules,

which states that “Unless the parties agree otherwise,

arbitrator compensation and administrative fees are subject to

allocation by the arbitrator in the award.” Administrative Fee

Schedule, American Arbitration Association, National Rules

> While the National Academy of Arbitrators’ “Guidelines on

Arbitration of Statutory Claims Under Employer-Promulgated Systems”

do not specifically address the question of costs, it refers arbitrators to the

“Due Process Protocol” for guidance on questions of due process.

National Academy of Arbitrators, “Guidelines on Arbitration of Statutory

Claims Under Employer-Promulgated Systems” (May 21, 1997) at IL.F.

° The current filing fee for a single-arbitrator case is $500 “unless the

plan provides otherwise.” Administrative Fee Schedule, American

Arbitration Association, National Rules for the Resolution of Employment

Disputes (eff. January 1, 1999).

15

for the Resolution of Employment Disputes (eff. January 1,

1999),’

Similarly, the for-profit JAMS organization provides in its

procedural rules for employment arbitration that “Each Party

will pay its pro-rata share of JAMS fees and expenses... .

unless the parties agree on a different allocation of fees and

expenses.” JAMS Arbitration Rules and Procedures for

Employment Disputes at Rule 27(a).® While JAMS requires a

pre-hearing deposit, it “may waive the deposit requirement

upon a showing of good cause.” Jd. at Rule 27(b). JAMS

takes the position that “[a]n employee’s access to arbitration

must not be precluded by the employee’s inability to pay any

costs or by the location of the arbitration.” JAMS Policy on

Employment Arbitration—Principles of Neutrality and

Minimum Standards of Procedural Fairness at § B, Standard

No. 6.”- At the same time, JAMS clarifies that “[a]s a general

matter, the sharing of arbitration costs does not violate the

Minimum Standards unless the arrangement effectively

precludes access by the employee.” Jd. (emphasis added).

Accordingly, while JAMS “encourages employers to bear all

or most of the costs of arbitration”, it also gives employers

the responsibility to “assure the employee that the arbitrator’s

’ Notably, as the dissent in Cole v. Burns pointed out, 105 F.3d at

1490, the identical language appears in the Administrative Fee Schedule

accompanying the 1996 version of the AAA rules at issue, so that the

majority erred in concluding that “the AAA hedged on this question.”

105 F.3d at 1481.

* JAMS Comprehensive Arbitration Rules and Procedures applicable

to commercial, real estate and construction cases contain similar language

at Rule 30. http://www.jamsadr.com/comprehensive_arb rules.asp.

2 Similarly, JAMS Minimum Standards of Procedural Fairness Policy

on Financial Services Arbitrations provide that “With respect to the cost

of the arbitration, the procedure must allocate costs in a way that does not

preclude access by the consumer to the procedures” at Rule 6.

http://www.jamsadr.com/fin_minimum stds.asp.

16

neutrality will not be affected by the fee arrangements” and

tequires the employer to “make clear that the employee has

the right to contribute up to one-half of all administrative and

arbitrator fees and expenses.” Jd. (emphasis added). JAMS,

too, endorses the Due Process Protocol. Id. at § D.

Indeed, the federal government also has supported fee-

sharing for employment arbitrations. When the U.S. Depart-

ment of Labor proposed a pilot program to explore the use of

alternative dispute resolution under the laws it enforces, it

expressly supported fee-splitting and inquired whether any

other option would even be a good idea:

The Department believes that requiring the parties to

share the fees and expenses of the mediator or arbitrator

helps ensure impartiality. In cases in which the

Department is a party or a participant, DOL generally

expects that it would pay one-half of the mediator or

arbitrator’s fees and expenses. The Department invites

comment on whether permitting the negotiation of a

different arrangement is advisable. To reduce the

possibility of bias based on disparate contributions,

payment would be forwarded to the mediator or

arbitrator by the sponsor of the roster (or by the

Department, when it is not a party or participant),

without disclosing the parties’ respective shares.

Expanded Use of Alternative Dispute Resolution in Programs

Administered by the Department of Labor, 62 Fed. Reg.

6690, 6694 (February 12, 1997).

Not surprisingly, then, both reports by the U.S.-General

Accounting Office (GAO) on the degree of use of alternative

dispute resolution in private employment observe that cost-

Sharing is the norm. In preparing a 1995 report to Congress

based on a random sample of 2,000 private sector employers,

the GAO followed up with companies that reported using

arbitration, and compared those companies’ policies to the

quality standards identified by the Dunlop Commission.

17

Employment Discrimination: Most Private-Sector Employers

Use Alternative Dispute Resolution, United States General

Accounting Office, GAO/HEHS-95-150 (July 1995) at 2-3.

The GAO reported that, of the nineteen policies reviewed that

addressed costs, fifteen provided for some contribution by the

employee:

To ensure impartiality of the arbitrator, the Commission

proposes that both the employee and the employer

contribute to the arbitrator’s fee. Ideally, the employee

contribution should be capped in proportion to the

employee’s salary to avoid discouraging claims by low-

wage workers.

Seven policies do not address cost Sharing. In four

policies, the employer pays for all arbitration costs: costs

are to be shared equally in nine policies; and the

employee share is either capped or limited to less than

haif the costs in the remaining six policies. For example,

one employer pays all costs in excess of $50. Another

firm pays 80 percent of the arbitration costs, while the

employee is responsible for 20 percent.

Id. at 14.

Two years later, the GAO profiled the alternative dispute

resolution programs of five private sector employers, as well

as those of six federal agencies. Alternative Dispute

Resolution: Employers’ Experiences With ADR in the

Workplace, United States General Accounting Office,

GAO/GGD-97-157 (August 1997). The GAO reported that

all five of the companies it studied “required their employees

to share in the costs of arbitration.” Id. at 24. One requires

only a $50 processing fee, id. at 38, one requires an employee

contribution of $100 towards expenses, which is refunded if

the employee prevails, id. at 46-47, one provides for equal

Shares but will cap the cost at two weeks net pay in cases of

hardship, id. at 43, one divides costs equally but allows the

arbitrator to make the final allocation, id. at 49-50, and one

18

pays all costs if the employee prevails and shares costs

equally if the employee does not, but caps the employee’s

share at two days’ base pay. Id. at 53-54.

The D.C. Circuit in Cole scoffed at the concern that

payment of the arbitrator’s fee by the employer would

compromise the neutrality of the process. 105 F.3d at 1485.

The concern is not necessarily that all arbitrators are

potentially unethical and bound to rule in the direction of

their paychecks, although such an outcome is conceivable.

On the contrary, however, the relevant concern may be the far

likelier occurrence-that an employee will perceive the process

as biased if the employer pays the “judge.” See Russell

Evans, Engalla v. Permanente Medical Group, Inc.: Can

Arbitration Clauses in Employment Contracts Survive a

“Fairness” Analysis, 50 Hastings L.J. 635, 665 (March 1999)

(noting that “the perception of arbitrator partiality could arise

where the employer alone pays all arbitration costs and

fees’).

As a practical matter, any party who knows that the

arbitrator is being paid entirely by the other side cannot help

but question whether he or she is getting a fair hearing.

Where the rights involve statutory claims of employment

discrimination, for example, the employee undoubtedly will

view the entire process, from inception to outcome, as

dominated and controlled by the employer who from the

beginning is footing the bills. This explains, for example,

positions such as that of JAMS, which requires that the

employee be permitted to pay his or her fair share of the costs

if so inclined. So, too, the Department of Labor’s inquiry

whether allowing the parties to negotiate some payment

scheme other than fifty-fifty would ever be advisable.

The success or failure of an employer’s internal arbitration

program is dependent in large part upon both parties’ faith in

the fairness and neutrality of the process. For this reason, it

makes far more sense to provide for each party to be

ee

19

responsible at the outset for some of the cost, subject to a

final allocation by the arbitrator in the award. Only in this

way can each party feel that he or she is an equal participant

in a neutral forum.

The availability of judicial review then serves as a

safeguard against the imposition of unreasonable fees, as the

First Circuit pointed out in Rosenberg. 170 F.3d at 16. See

also Koveleskie, 167 F.3d at 366. This Court already has

concluded that “although judicial scrutiny of arbitration

awards necessarily is limited, such review is sufficient to

ensure that arbitrators comply with the requirements of the

Statute.” Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 232 (1987) (quoted in Gilmer, 500 U.S. at 32 n.4).

Given the prevailing wisdom that each party to an

arbitration agreement can reasonably be expected to bear

some of the cost, the court below erred in concluding that an

arbitration clause that does not allocate fees is unenforceable.

CONCLUSION

For the reasons set forth above, the amicus curiae EEAC

respectfully submits that the decision below should be

reversed. ;

Respectfully submitted,

ANN ELIZABETH REESMAN*

MCGUINESS NORRIS &

WILLIAMS, LLP

1015 Fifteenth Street, N.W.

Suite 1200

Washington, D.C. 20005

(202) 789-8600

Counsel for Amicus Curiae

Equal Employment Advisory

Council

June 2000 * Counsel of Record