Amicus Curiae Brief — Auto Stiegler, Inc. v. Little

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No. 02-1720 | JUN

In The

Supreme Court of the Gnited States

AUTO STIEGLER, INC.,

Petitioner,

ALEXANDER M. LITTLE,

Respondent.

On Petition For Writ Of Certiorari

To The Supreme Court Of California

BRIEF OF EMPLOYERS GROUP AS

AMICUS CURIAE IN SUPPORT OF PETITIONER

WINSTON & STRAWN

LEE T. PATERSON

Counsel of Record

333 South Grand Avenue, 38th Floor

Los Angeles, California 90071-1543

Phone: (213) 615-1700

Fax: (213) 615-1750

Attorneys for Amicus Curiae

Employers Group

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether the Federal Arbitration Act (“FAA”) preempts

the Supreme Court of California’s holding that an em-

ployer must pay all arbitration forum costs in matters

involving state law claims of wrongful termination in

violation of public policy.

TABLE OF CONTENTS

Page

QUEGTIOIN PR ee 6 Mii icccicstisnsecistectietuiaencmepeinane i

INTEREST OF THE AMICUS CURIAE.................... 1

STATEMENT OF THE CASE ..................:sccerssseeseeeees 2

SUMMARY OF THE ARGUMENT ................ cece eee 3

THE DECISION BELOW IMPLICATES A

DEEP AND MATURE CONFLICT ON THE

QUESTION OF WHETHER THE FEDERAL

ARBITRATION ACT PERMITS A COURT TO

IMPOSE A CATEGORICAL “ONE PARTY PAYS

ALL” RULE ON SOME TYPES OF ARBI-

TORE IES (RRR esctenctnnenneitaacenisttnaeeaionaiioia 5

A. THE CALIFORNIA SUPREME COURTS

DECISION IS DIRECTLY CONTRARY TO

THE BASIC PRINCIPLE OF THE FED-

ERAL ARBITRATION ACT THAT COURTS

MAY NOT REWRITE ARBITRATION

RAT sevice vinenencsnesiquinanniititemenionis 6

B. THE SUPREME COURT OF CALIFOR-

NIA’S DECISION VIOLATES THE FED-

ERAL ARBITRATION ACT BY PLACING

CONSTRAINTS ON CERTAIN ARBITRA-

TION CLAIMS WHICH ARE NOT PLACED

ON OTHER ARBITRATION CLAIMS ..... 8

IT.

ill

TABLE OF CONTENTS - Continued

Page

IN SPITE OF THE CLEAR LANGUAGE OF

THE FEDERAL ARBITRATION ACT AND

THE DECISIONS OF THIS COURT, THERE

IS A SPLIT OF AUTHORITY AMONG THE

CIRCUIT COURTS OF APPEALS, THE DIS-

TRICT COURTS AND THE CALIFORNIA SU-

PREME COURT IN REGARD TO WHETHER

COURTS MAY IMPOSE A CATEGORICAL

“ONE PARTY PAYS ALL” RULE WHICH

ONLY APPLIES TO SOME TYPES OF AR-

EEE IG SRB os ssn tiveveccnséasessestnnsnccccenee

A. THE DISTRICT OF COLUMBIA CIR-

CUIT. COURT OF APPEALS HAS IM-

POSED AN “EMPLOYER PAYS ALL” RULE

IN THE CASE OF STATUTORY EMPLOY-

MENT DISCRIMINATION CLAIMS, BUT

REFUSED TO IMPOSE AN “EMPLOYER

PAYS ALL” RULE IN THE CASE OF

WRONGFUL TERMINATION IN VIOLA-

TION OF PUBLIC POLICY CLAIMS...........

B. THE THIRD AND THE FOURTH CIRCUIT

COURTS OF APPEALS, THE FEDERAL

DISTRICT COURT FOR THE EASTERN

DISTRICT OF NEW YORK AND THE

FEDERAL DISTRICT COURT FOR THE

MIDDLE DISTRICT OF ALABAMA HAVE

REFUSED TO ADOPT A BLANKET

RULE REQUIRING ONE PARTY TO

PAY ALL COSTS OF ARBITRATION

AND INSTEAD HAVE REQUIRED

COURTS TO REVIEW EACH CASE ON

EE TET Apcnvechtnsvtetinsiesnetnscnontvevcosoveeeen

TABLE OF CONTENTS -— Continued

Page

C. THE CALIFORNIA SUPREME COURT,

THE NINTH CIRCUIT COURT OF AP-

PEALS, THE FEDERAL DISTRICT

COURT FOR THE MIDDLE DISTRICT

OF TENNESSEE AND THE FEDERAL

DISTRICT COURT FOR THE NORTH-

ERN DISTRICT OF NEW YORK HAVE ’

IMPOSED A BLANKET RULE THAT

ONE PARTY MUST PAY ALL COSTS OF

ARBITRATION FOR SOME TYPES OF

RARE IOI isnks thsxsasnscvobioniyiisaxonvinnsudsnsnbiinss 15

III. THE ISSUE OF WHETHER THE FEDERAL

ARBITRATION ACT PERMITS STATE COURTS

TO IMPOSE A “ONE PARTY PAYS ALL” RULE

ON ONLY SOME ARBITRATION CLAIMS

PRESENTS AN IMPORTANT AND RECUR-

RING ISSUE THAT WARRANTS THIS COURTS

FN IEY aisbidinntshnriecssermnnnreninniinveveanrescetins 20

TABLE OF AUTHORITIES

Page

FEDERAL CASES

Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 230

(DEEP IE: Bs OE xs nstinceiatiouaminaisinnamiadinuaniainesd 18

Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir.

I ssivassaisincncimaanibinasiebmiiuaiicamiaa aaa 14

Boyd v. Town of Hayneville, 144 F. Supp. 2d 1272

CIEE. E Be, FAD isis sisesincheccshinis stein cinedtamiatenplesnieipasaaglide 15

Bradford v. Rockwell Semiconductor Systems Inc.,

SBS FSG SED (OC Cr, BOOT) a cisecssessisccercasbsesesesessiins 14, 15

Brown v. Wheat First Securities, Inc., 257-F.3d 821

CER Ai. Ge FR icv schincsidinitinintattvinndiaiaienabaa 13

Chevron U.S.A. v. Echazabal, 536 U.S. 73 (2002).............. 1

- Circuit City Stores v. Adams, 279 F.3d 889 (9th Cir.

TED ss ciscimvonichsiesninchanasmenentibetdasatepcctitetalaatesadimasictesdcciaieiia’ 17

Circuit City Stores v. Adams, 532 U.S. 105 (2001)............. 1

Cole v. Burns International Security Services, 105

Fe DRE BOO iteisientitncciignicsmecivgilennnes 12,13

Cooper v. MRM Investment Company, 199 F. Supp.

ee Te 8 ee BIE, Ss ciratdenidcphicntniancinenineacenaebicicoets 18

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213

TUT tins dinns sisi eltansescasdtahaiicaiinseasiaden abate biaiapaaadeamoeadaad 5,8

Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681

Ci ioicsnasdbucconesisnsiuinedpncvenhanunieniabemenesivaaiseasamedaiiaaines passim

E.E.0.C. v. Waffle House, Inc., 534 U.S. 279 (2002)........... 8

First Options of Chicago, Inc. v. Kaplan, 514 U.S.

EE ine seincsiconiicicsctieiciannanbnidinleedbimabinkiabidiiaianibiaanioedamaiaiciie 6

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

Fa Ce cihni sth insnnstsie’sudeppticinnaienniiaastintehiasianabideainsdieonaaibaaliliih 5

TABLE OF AUTHORITIES - Continued

Page

Green Tree Financial Corp.-Alabama v. Randolph,

BR SAT Fe Ce iien scssenisrdinasintinreocmnciionananie 2, 11, 13, 14

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79

CRIED csi sccescessinnssixaunctcicecipneiecectadpanenaieeaaaaaecaiaias 8

Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9ti:

CFR BI dsviwcericisasessndcictnmnceinmanaceaaienaanonan 17, 18, 19

Mastrobuono v. Shearson Lehman Hutton, Inc., 514

OFT BC kititicsncckesiicscsence nee 6, 7,8

Mildworm v. Ashcroft, 200 F. Supp. 2d 171

Ee: Se priicnntcsghaimasiasenecaamanet 15

Moses H. Cone Memorial Hospital v. Mercury

Construction Corp., 460 U.S. 1 (19838)................006 cadaouns 6

Perry v. Thomas, 482 U.S. 483 (1987) ............sscssssccssssssseee 10

Southland Corp. v. Keating, 465 U.S. 1 (1984) ...3, 7, 10, 11

Volt Information Scis., Inc. v. Board of Trs. of the

Leland Stanford Junior University, 489 U.S. 468

Cee eiiviiscssivbincensouhionsionniaienitenainneninedeiipatalibiniasmammsntis passim

Wright v. Universal Mar. Service Corp., 525 U.S. 70

EIN scnccinsissnscicssciteonts icra eens Saiualibeniialdiaihackainndaanidaadaie tiie 1

STATE CASES

Armendariz v. Foundation Health Psychcare

Services, Inc., 24 Cal. 4th 83 (2000).................sseeeeeees 2, 16

Little v. Automobile Stiegler, Inc., 29 Cal. 4th 1064

Ci ccnncinisecsisscivsssnbisccihbinenipiitdeirianiiideidieaabiiosaieaiasinianasss 3, 7,9, 17

FEDERAL STATUTES

Federal Arbitration Act, 9 U.S.C. § 2............eeeeeeeeeeeees 3, 5, 8

Vii

TABLE OF AUTHORITIES -— Continued

Page

STATE STATUTES

California Arbitration Act

Cal. Code Civ. Proc. § 1284.2 (West 2003)................... 2, 6,9

INTEREST OF THE AMICUS CURIAE'

The Employers Group, formerly known as Merchants

Manufacturers Association and Federated Employers, is

one of the nation’s oldest and largest human resources

management associations. Headquartered in California, it

represents nearly 5,000 companies of all sizes and in every

industry, employing in the aggregate approximately 2.5

million employees.

Because of its collective experience in employment

matters, including its appearance as amicus curiae in

state and federal forums over many decades, the Employ-

ers Group is uniquely able to assess both the impact and

implications of the legal issues presented in employment

cases like this one. For this reason, the Employers Group

has been involved as amicus in many significant employ-

ment cases, including Wright v. Universal Mar. Serv.

Corp., 525 U.S. 70 (1999); Circuit City Stores v. Adams,

532 U.S. 105 (2001); and Chevron U.S.A. v. Echazabal, 536

U.S. 73 (2002).

' Pursuant to Rule 37.3 of the Rules of this Court, the parties have

consented to the filing of this brief amicus curiae. The letters of consent

have been filed with the Clerk of the Court.

Pursuant to Rule 37.6 of this Court, the amicus curiae states that

this brief was not authored in whole or in part by counsel for a party,

and no person or entity, other than amicus curiae, made a monetary

contribution for the preparation or submission of this brief.

STATEMENT OF THE CASE

Respondent Little worked for Petitioner Auto Stiegler,

Inc., an automobile dealership. He was terminated and

subsequently filed suit for, inter alia, tortious wrongful

termination in violation of public policy.

Little agreed to binding arbitration while employed by

Auto Stiegler. The agreement was silent as to who would |

bear the costs of arbitration. The California Arbitration

Act (the “CAA”) provides that the parties will share the

costs of arbitration unless they expressly agree otherwise.

Cal. Code Civ. Proc. § 1284.2 (West 2003). Thus, by stat-

ute, the agreement provided that the parties would share

arbitration costs.

Auto Stiegler’s initial motion to compel arbitration

was granted. Following the decision of the California

Supreme Court in Armendariz v. Foundation Health

Psychcare Servs., Inc., 24 Cal. 4th 83 (2000), which held,

among other things, that an employer must bear the costs ~

of arbitration of a statutory discrimination claim, Little

filed a request for reconsideration. On the motion for

reconsideration, the trial court denied the motion to

compel arbitration. Among the reasons the trial court gave

for denying the motion was that sharing arbitration forum

costs conflicted with the “rmendariz decision. The Court

of Appeals reversed, concluding in part that under this

Court’s decision in Green Tree Financial Corp.-Alabama v.

Randolph, 531 U.S. 79 (2000), silence as to who would

bear the costs of arbitration was not a basis for invalidat-

ing the agreement. The California Supreme Court granted |

review, reversed the Court of Appeals and held that an

employer must pay all arbitration forum costs in matters

involving state law claims of wrongful termination in

violation of public policy. Little v. Auto Stiegler, Inc., 29

Cal. 4th 1064 (2003).

SUMMARY OF THE ARGUMENT

As the nation’s oldest and largest human resources

management association, the Employers Group is vitally

concerned that judicial antagonism towards employment

arbitration claims does not result in courts rewriting

employment arbitration agreements or imposing condi-

tions on some employment arbitration claims which are

not imposed on all arbitration claims.

There is a clear-cut Congressional policy in favor of

enforcing, as written, the terms of all arbitration agree-

ments. This policy is incorporated into the FAA. The FAA

provides that arbitration agreements are “valid, irrevoca-

ble and enforceable, save upon such grounds as exist at

law or in equity for the revocation of any contract.” 9

U.S.C. §2 (West 2003). Congress enacted the FAA “to

assure those who desired arbitration ... that their expec-

tations would not be undermined ... [in the] courts.”

Southland Corp. v. Keating, 465 U.S. 1, 13 (1984).

The Supreme Court of California in this case holds

that regardless of the agreement of the parties and the

requirements of the state’s arbitration act, every employ-

ment arbitration agreement contains an implied provision

requiring employers to pay for all costs of arbitration of

claims of wrongful termination in violation of public policy.

This rule violates the FAA because it 1) does not enforce

the agreement as written, by applying the statutory

default rule, and 2) imposes a different rule on some

arbitration claims which is not imposed on other claims.

The Supreme Court of California’s decision is contrary to

this Court’s decision in Volt Info. Scis., Inc. v. Board of Trs.

of the Leland Stanford Junior Univ., 489 U.S. 468, 475-79

(1989) that private agreements to arbitrate must be

enforced according to their terms, and its decision in

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 688 (1996)

that courts may not place any restrictions on arbitration

agreements that are not also placed on all other contracts.

There is a deep and mature conflict between various

courts as to whether a court can impose on some types of

arbitration claims a “one party pays all” rule for the costs

of arbitration. The District of Columbia Circuit Court of

Appeals has imposed an “employer pays all costs” rule on

statutory employment discrimination claims but refused to

impose such a rule on wrongful termination in violation of

public policy claims. The California Supreme Court, the

Ninth Circuit Court of Appeals and District Courts for

Tennessee and New York have imposed a “one party pays

all” rule for some types of arbitration claims. However, the

Third and Fourth Circuit Courts of Appeals have rejected

a categorical rule imposing a “one party pays all” rule for

arbitration costs and found that such a rule violates the

FAA by changing the written terms of arbitration agree-

ments. This split among the courts has resulted in confu-

sion for multi-state employers and their employees whose

arbitration agreements may be enforceable as written for

one type of claim but not another and enforceable in one

court but not in another.

I. THE DECISION BELOW IMPLICATES A DEEP

AND MATURE CONFLICT ON THE QUESTION

OF WHETHER THE FEDERAL ARBITRATION

ACT PERMITS A COURT TO IMPOSE A CATE-

GORICAL “ONE PARTY PAYS ALL” RULE ON

SOME TYPES OF ARBITRATION CLAIMS.

Section 2 of the FAA provides that arbitration agree-

ments subject to the FAA “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. As

this Court has explained, Congress’s goal in enacting the

FAA was to overcome deep-seated judicial hostility to

arbitration and thereby allow private parties to choose to

resolve their disputes through arbitration rather than

litigation. See, e.g., Volt, 489 U.S. at 478; Dean Witter

Reynolds, Inc. v. Byrd, 470 U.S. 218, 219-20 (1985). Spe-

cifically, the FAA permits private parties to “‘trade[] the

procedures ... of the courtroom for the simplicity, infor-

mality, and expedition of arbitration.’” Gilmer v. Inter-

state /Johnson Lane Corp., 500 U.S. 20, 31 (1991) (quoting

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614, 628 (1985)).

The decision of the Supreme Court of California in

this case finds that every employment arbitration agree-

ment contains an implied agreement that the employer

must pay all costs of arbitration for claims of wrongful

termination in violation of public policy. The court’s

decision violates the FAA by 1) in effect rewriting the

agreement between the parties by implying a condition

that the employer pay the costs of arbitration; and 2)

singling out one type of arbitration claim for a rule which

does not apply to other types of arbitration claims.

A. THE CALIFORNIA SUPREME COURT'S DE-

CISION IS DIRECTLY CONTRARY TO THE

BASIC PRINCIPLE OF THE FEDERAL AR-

BITRATION ACT THAT COURTS MAY NOT

REWRITE ARBITRATION AGREEMENTS.

A basic Congressional goal in the FAA is the principle

that such agreements may not be rewritten by the courts.

Rather, state and federal courts must “‘rigorously enforce’

such agreements according to their terms.” Volt, 489 U.S.

at 479 (quoting Dean Witter, 470 U.S. at 221). Indeed, this

Court repeatedly has explained that “the central purpose

of the Federal Arbitration Act [is] to ensure ‘that private

agreements to arbitrate are enforced according to their

terms.’” Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52, 53-54 (1995) (quoting Volt, 489 U.S. at 479),

Doctor’s Assocs., 517 U.S. at 688 (enforcement of agree-

ment according to terms is “the very purpose of the Act”);

Volt, 489 U.S. at 476 (“[T]he federal policy is simply to

ensure the enforceability, according to their terms, of

private agreemrnts to arbitrate.”); Moses H. Cone Memo-

rial Hospital v. Mercury Construction Corp., 460 U.S. 1, 20

(1983) (footnote omitted). The “basic objective” under the

FAA is “to ensure that commercial arbitration agreements,

like other contracts, are enforced according to their terms

and according to the intentions of the parties.” First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947

(1995) (citations and internal quotation marks omitted).

The agreement here is silent as to costs. The CAA

provides that in arbitration the parties will share costs

unless they expressly agree otherwise. Cal. Code Civ. Proc.

§ 1284.2 (West 2003). Thus, by statute, each party is

required to pay a pro rata share of the arbitration costs.

Instead of applying this rule, the California Supreme

Court held that “an arbitration agreement to arbitrate a

claim of wrongful termination contrary to public policy

must be interpreted to implicitly include an agreement to

proportion costs in a manner that is reasonable for the

employee/claimant.” Little, 29 Cal. 4th at 1081. Thus, in

fact, the Court has rewritten every empleyment arbitra-

tion agreement in the State of California, whether the

agreement provides for the allegation of costs or not, to

require the employer to pay all costs for wrongful termina-

tion in violation of public policy claims. By imposing an

“employer pays all rule” on all employment arbitration

agreements, the California Supreme Court has rewritten

not only the agreement in this case, but all California

arbitration agreements in violation of the FAA.

This Court’s decisions make clear that the FAA pre-

empts state law that conflicts with the purposes of the

FAA. Southland Corp., 465 U.S. at 12-15; Doctor’s Assocs.,

517 U.S. at 685. “(T]he federal policy is simply to ensure

the enforceability, according to their terms, of private

agreements to arbitrate.” Volt, 489 U.S. at 476. That policy,

which is designed to combat long-standing judicial hostil-

ity to arbitration by ensuring enforcement of the actual

agreements entered into by the parties, has been con-

firmed repeatedly by this Court in cases reviewing state

and federal court arbitration decisions. Doctor’s Assocs.,

517 US. at 688; Mastrobuono, 514 U.S. at 53-54.

The California Supreme Court’s imposition of a one

party pays all rule “without any contractual ... directive

to do so,” unquestionably constitutes an “intrusion upon

the contractual aspects of the relationship,” and therefore

violates the “FAA’s primary purpose of ensuring that

private agreements to arbitrate are enforced according to

their terms.” Volt, 489 U.S. at 475-79; accord E.E.O.C. v.

Waffle House, Inc., 534 U.S. 279, 293-94 (2002); Doctor’s

Assocs., 517 U.S. at 688; Mastrobuono, 514 U.S. at 54;

Dean Witter, 470 U.S. at 221; Howsam v. Dean Witter

Reynolds, Inc., 537 U.S. 79 (2002) (“a party cannot be

required to submit to arbitration any dispute which he has

not agreed so to submit”); id. slip op. at 1 (Thomas, J.,

concurring in judgment) (noting Volt “held that under the

[FAA] courts must enforce private agreements to arbitrate

... in accordance with their terms”).

B. THE SUPREME COURT OF CALIFORNIA’S

- DECISION VIOLATES THE FEDERAL ARBI-

TRATION ACT BY PLACING CONSTRAINTS

ON CERTAIN ARBITRATION CLAIMS WHICH

ARE NOT PLACED ON OTHER ARBITRA-

TION CLAIMS. |

The FAA, 9 U.S.C. §2, mandates that arbitration

agreements “shall be valid, irrevocable, and enforceable,

save upon such grounds as exist at law or in equity for the

revocation of any contract.” Id.

This decision creates a special rule for one class of

arbitration claims — wrongful termination in violation of

public policy claims — in direct violation of the FAA. Other

arbitration claims, for example employment arbitration

claims for breach of express and implied contract, are not

subject to the “employer pays all” rule.

The Supreme Court of California attempts to avoid

the FAA’s requirements by claiming that an employee has

an implied-in-law unwaivable right to have the employer

pay all costs of arbitration in wrongful termination of

public policy claims:

“Thus, while we recognize that a party compelled

to arbitrate such rights does not waive them, but

merely ‘submits to their resolution in an arbitral,

rather than a judicial, forum’ (Gilmer, supra, 500

U.S. at p. 26), arbitration cannot be misused to

accomplish a de facto waiver of these rights. Ac-

cordingly, although the Armendariz requirements

specifically concern arbitration agreements, they

do not do so out of a generalized mistrust of arbi-

tration per se (see Doctor’s Associates, Inc., su-

pra, 517 U.S. at p. 687), but from a recognition

that some arbitration agreements and proceedings

may harbor terms, conditions and practices that

undermine the vindication of unwaivable rights.

The Armendariz requirements are therefore ap-

plications of general state law contract principles

regarding the unwaivability of public rights to

the unique context of arbitration, and accordingly

are not preempted by the FAA. And, as discussed

above, there is no reason under Armendariz’s logic

to distinguish between unwaivable statutory

rights and unwaivable rights derived from com-

mon law.”

Little, 29 Cal. 4th at 1079.

The Court, however, provides no support for this

proposition, nor can it, since it is expressly contrary to

California statutory law. The default rule for arbitration

costs in California, if the agreement is silent, is that the

parties share the expenses. Cal. Code Civ. Proc. § 1284.2.

The California Supreme Court ignores the default rule and

instead creates a new “unwaivable right” out of whole

cloth. Not only is pro rata sharing of costs not a violation

of an unwaivable right, it is the stated policy of California

law.

It is clear that states may not place any constraints on

some agreements to arbitrate which are not placed on all

other contractual agreements. See, Southland Corp., 465

U.S. 1; Perry v. Thomas, 482 U.S. 483 (1987). In this case,

the California Supreme Court has created a rule which on

its face can only apply to arbitration agreements. This

Court has struck down state laws which only restrict

arbitration agreements. In Doctor’s Assocs., 517 U.S. at

687, this Court stated:

“Courts may not, however, invalidate arbitration

agreements under state laws applicable only to

arbitration provisions. See Allied-Bruce, 513 U.S.

at 281, 115 S.Ct., at 843; Perry, 482 U.S. at 492,

n. 9, 107 S.Ct., at 2527, n. 9. By enacting § 2, we

have several times said, Congress precluded

States from singling out arbitration provisions _

for suspect status, requiring instead that such

provisions be placed ‘upon the same footing as

other contracts.’ Scherk v. Alberto-Culver Co., 417

U.S. 506, 511, 94 S.Ct. 2449, 2453, 41 L.Ed.2d

270 (1974) (internal quotation marks omitted).

Montana’s § 27-5-114(4) directly conflicts with § 2

of the FAA because the State’s law conditions the

enforceability of arbitration agreements on com-

pliance with a special notice requirement not ap-

plicable to contracts generally. The FAA thus

displaces the Montana statute with respect to

arbitration agreements covered by the Act. See 2

I.. Macneil, R. Speidel, T. Stipanowich, & G.

Shell, Federal Arbitration Law § 19.1.1, pp. 19:4-

._ 19:5 (1995) (under Southland and Perry, ‘state

legislation requiring greater information or

choice in the making of agreements to arbitrate

than in other contracts is preempted’).”

The Supreme Court of California’s categorical rule cannot

be justified as a legitimate application of equity law. There is

no equitable right to have one party pay all arbitration costs.

In fact, this Court recently held in Green Tree, 531 U.S. at 92,

that a plaintiff seeking to invalidate an arbitration agree-

ment on the grounds she could not afford the cost has the

burden of demonstrating that the arbitration would be

“prohibitively expensive.” It is only the California Supreme

Court's hostility to employment arbitration which makes

sharing of cost a violation of an unwaivable equitable right.

Congress passed the FAA to “overrule the judiciary’s

longstanding refusal to enforce agreements to arbitrate.”

Volt, 489 U.S. at 474. In the FAA, Congress recognized “the

widespread unwillingness of state courts to enforce arbi-

tration agreements.” Southland Corp., 465 U.S. at 13. By

singling out one type of arbitration claim and applying a

special rule which does not apply to all arbitration claims,

the California court’s decision violates the FAA’s mandate

that states may not place constraints on arbitration

agreements which are not placed on all types of contracts.

II. IN SPITE OF THE CLEAR LANGUAGE OF THE

FEDERAL ARBITRATION ACT AND THE DE-

CISIONS OF THIS COURT, THERE IS A SPLIT

OF AUTHORITY AMONG THE CIRCUIT COURTS

OF APPEALS, THE DISTRICT COURTS AND

THE CALIFORNIA SUPREME COURT IN RE-

GARD TO WHETHER COURTS MAY IMPOSE A

CATEGORICAL “ONE PARTY PAYS ALL” RULE

WHICH ONLY APPLIES TO SOME TYPES OF

ARBITRATION CLAIMS.

State and federal courts have split on whether a court

can mandate a “one party pays all” rule for arbitration

costs in some types of claims or whether they have to

consider each case based upon its own merits.

A. THE DISTRICT OF COLUMBIA CIRCUIT

COURT OF APPEALS HAS IMPOSED AN

“EMPLOYER PAYS ALL” RULE IN THE

CASE OF STATUTORY EMPLOYMENT DIS-

CRIMINATION CLAIMS, BUT REFUSED TO

IMPOSE AN “EMPLOYER PAYS ALL” RULE

IN THE CASE OF WRONGFUL TERMINA-

TION IN VIOLATION OF PUBLIC POLICY

CLAIMS.

In Cole v. Burns Int'l Security Servs., 105 F.3d 1465

(CADC 1997), decided before this Court’s decision in Green

Tree, the D.C. Circuit imposed an “employer pays all” rule,

holding that “an employee can never be required . . . to pay

an arbitrator’s compensation in order to secure the resolu-

tion of statutory claims.” Jd. at 1468. The court wrote that

there was “no reason to think that the [U.S. Supreme]

Court would have approved arbitration in the absence of

[an arrangement that employers pay all costs of arbitra-

tion].” Jd. at 1484.

After Green Tree, the D.C. Circuit in Brown v. Wheat

First Securities, Inc., 257 F.3d 821 (D.C. Cir. 2001), faced a

common law claim virtually identical to the issue here.

While not ruling directly on whether Green Tree overruled

Cole, the court refused to create an “employer pays all”

rule in cases of wrongful termination in violation of public

policy. The court reasoned that, even assuming Cole was

still good law, arguments in favor of extending the “em-

ployer pays all” rule must still fail. Id. at 824. The court

said if the public policy rationale were used to create an

exception to the FAA,

“it is hard to see what falls outside it. All claims

not based on contract ... implement values that

society has in one way or another thought

deserving. .. . In short, the proposed extension of

Cole [to violation of public policy claims] would

significantly alter the terms of the Federal Arbi-

tration Act, imposing a serious procedural limit

on a wide (but unpredictable) range of arbitra-

tion claims, all without the slightest signal from

Congress.”

Id. at 826.

B. THE THIRD AND THE FOURTH CIRCUIT

COURTS OF APPEALS, THE FEDERAL

DISTRICT COURT FOR THE EASTERN

DISTRICT OF NEW YORK AND THE FED-

ERAL DISTRICT COURT FOR THE MID-

DLE DISTRICT OF ALABAMA HAVE

REFUSED TO ADOPT A BLANKET RULE

REQUIRING ONE PARTY TO PAY ALL

COSTS OF ARBITRATION AND INSTEAD

HAVE REQUIRED COURTS TO REVIEW

EACH CASE ON ITS FACTS.

In Blair v. Scott Specialty Gases, 283 F.3d 595 (3d Cir.

2002), an employee alleged sexual harassment and dis-

crimination. The employee tried to set aside the arbitra-

tion agreement she had signed, asking the Third Circuit

Court of Appeals to find that “the mere existence of a fee-

splitting provision in an [arbitration] agreement” satisfied

the showing of “prohibitive costs” required by Green Tree.

Id. at 610. The court refused to do so, rejecting an “em-

ployer pays all costs” rule and instead requiring review of

the case on its facts. The court reasoned that to do other-

wise “would be inconsistent with Green Tree and would

run counter to the strong federal preference for arbitration

and the liberal policy regarding arbitration.” Id.

In Bradford v. Rockwell Semiconductor Systems Inc.,

238 F.3d 549 (4th Cir. 2001), the Fourth Circuit Court of

Appeals also supported the review of each case on its facts.

An employee alleged age discrimination and sought to

avoid the arbitration agreement he had signed, claiming

that the agreement’s fee-splitting provision should auto-

matically render the agreement unenforceable. Rather

than adopting an “employer pays all” rule as the employee

urged, the Fourth Circuit required a “case-by-case analysis

that focuses, among other things, upon the claimant’s

ability to pay the arbitration fees and costs, the expected

cost differential between arbitration and litigation in

court, and whether the cost differential is so substantial as

to deter the bringing of claims.” Jd. at 556.

Similarly, the Federal District Court for the Eastern

District of New York, in Mildworm v. Ashcroft, 200

F. Supp. 2d 171 (E.D.N.Y. 2002), concluded that, “based on

Green Tree, the appropriate inquiry requires a case-by-case

determination” rather than a blanket rule imposing costs

on one party. Id. at 179.

The Federal District Court for the Middle District of

Alabama held the same in Boyd v. Town of Hayneville, 144

F. Supp. 2d 1272 (M.D. Ala. 2001), noting that, in the

absence of any binding authority from the Eleventh

Circuit, the “court believes that the more prudent course,

given the Supreme Court’s recent decision in [Green Tree],

is to follow the lead of those circuit courts which have

declined to adopt [the ‘employer pays all’ rule].” Id. at

1280.

C. THE CALIFORNIA SUPREME COURT, THE

NINTH CIRCUIT COURT OF APPEALS,

THE FEDERAL DISTRICT COURT FOR

THE MIDDLE DISTRICT OF TENNESSEE

AND THE FEDERAL DISTRICT COURT

FOR THE NORTHERN DISTRICT OF NEW

YORK HAVE IMPOSED A BLANKET RULE

THAT ONE PARTY MUST PAY ALL COSTS

OF ARBITRATION FOR SOME TYPES OF

CLAIMS.

In this case, the Supreme Court of California imposed

a blanket “employer pays all” rule on the arbitration of all

terminations in violation of public policy arbitration

claims. The Court relied upon its earlier decision in

Armendariz v. Foundation Health Psychcare Servs., Inc.,

24 Cal. 4th 83 (2000) which held that any agreement to

arbitrate employment discrimination claims must meet

certain minimum standards to be enforceable. One of

those requirements is that the employer must pay all costs

of the arbitration. In relying upon that case, the court

said,

“We recognize that ‘in enacting §2 of the [FAA],

Congress declared a national policy favoring ar-

bitration and withdrew the power of the states to

require a judicial forum for the resolution of

claims which the contracting parties agreed to

resolve by arbitration.’ The object of the Armen-

dariz requirements, however, is not to compel the

substitution of adjudication for arbitration, but

rather to ensure minimum standards of fairness

so that employees subject to mandatory arbitra-

tion agreements can vindicate their public rights

in an arbitral forum.

“Specifically with regard to arbitration costs at

issue in this case and in Brown the principle that

arbitration costs may prevent arbitration claim-

ants from effectively pursing their public rights

would apply with equal force to [wrongful termi-

nation in violation of public policy] ... claims as

to [employment discrimination] ... claims or to

federal statutory claims. Nothing in the FAA

prevents states from controlling arbitration costs

imposed by adhesive contracts so that the rem-

edy of prosecuting state statutory or common law

public rights through arbitration is not rendered

illusory. The Armendariz costshifting require-

ment is unique to arbitration only to the extent

that arbitration, alone among contract provi-

sions, may potentially require litigants to expend

large sums to pay for the costs of hearing that

will decide his or her statutory other public

rights. In other words it is not the arbitration

agreement itself but the imposition of arbitration

costs that under certain circumstances violate

state law.”

Little, 29 Cal. 4th at 1080 (citations deleted).

In Circuit City Stores v. Adams, 279 F.3d 889 (9th Cir.

2002), the Ninth Circuit Court. of Appeals held that an

agreement requiring arbitration of sexual harassment,

retaliation, constructive discharge, and intentional inflic-

tion of emotional distress claims was procedurally and

substantively unconscionable. Among the reasons the

court relied upon was that the agreement required the

employee to pay for the costs of arbitration. The Ninth

Circuit said “The [arbitration agreement] ... also requires

the employee to split the arbitrator’s fees with Circuit

City. This fee allocation scheme alone would render an

arbitration agreement unenforceable.” Jd. at 894.

In Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th

Cir. 2003), the Ninth Circuit found that an arbitration

agreement requiring an employee to arbitrate statutory

discrimination claims was unconscionable for a number of

reasons. One reason was the cost sharing provisions of the

agreement; in that regard the court said:

“By itself, the fact that an employee could be held

liable for Circuit City’s share of the arbitration

costs should she fail to vindicate employment-

related claims renders this provision substan-

tively unconscionable. Combined with the fact

that Circuit City’s fee-splitting scheme would

sanction charging even a successful litigant for

her share of arbitration costs, this scheme bla-

tantly offends basic principles of fairness. See

Ting, 319 F.3d at 1151; Armendariz, 6 P.3d at

687-88, 24 Cal. 4th at 110-11. Because Circuit

City’s cost-splitting provision is harsh and unfair

to employees seeking to arbitrate legal claims we

conclude that it is substantively unconscionable.”

Ingle, 328 F.3d at n.18.

The Federal District Court for the Northern District of

New York held in Ball v. SFX Broadcasting, Inc., 165

F.Supp. 2d 230 (N.D.N.Y. 2001), where an employee

alleged discrimination on the basis of gender and preg-

nancy, that to avoid arbitration an employee need only

“show a likelihood that he or she will be responsible for

significant arbitrators fees, or other costs which would not

be incurred in a judicial forum.” Id. at 239.

The Federal District Court for the Middle District of

Tennessee in Cooper v. MRM Investment Company, 199

F. Supp. 2d 771 (M.D. Tenn. 2002), where an employee

alleged sexual harassment and constructive discharge,

similarly allowed an employee to avoid arbitration. The

court noted that employees “often cannot afford to pay the

high costs of arbitration” and that this “might prevent [an

employee] from being able to vindicate her federal statu-

tory rights.” Id. at 781-82. The court quoted with approval

the language in Ball that “an employee need only show a

likelihood that he or she will be responsible for significant

costs ... rather than focusing on that employee’s specific

financial situation.” Jd. at 781.

Ill. THE ISSUE OF WHETHER THE FEDERAL

ARBITRATION ACT PERMITS STATE COURTS

TO IMPOSE A “ONE PARTY PAYS ALL” RULE

ON ONLY SOME ARBITRATION CLAIMS PRE-

SENTS AN IMPORTANT AND RECURRING IS-

SUE THAT WARRANTS THIS COURT'S REVIEW.

Review by this Court of the decision of the Supreme

Court of California is necessary to ensure the proper and

uniform resolution of a recurring and important issue

under the FAA that has generated a substantial conflict

among federal and state appellate courts. Specifically, this

case presents the question whether the FAA permits

courts to impose a one party pays all rule on only some

types of arbitration claims.

Where, as here, a court ruling conflicts with the

express policy of Congress, as evidenced by the FAA, that

ruling must be struck down just as if it were a state

statute in conflict with a federal statute. Any other result

would expose employers to the prospect of arbitration

agreements being rewritten in various ways from circuit to

circuit and state to state. The Court should hear this case

in order to clarify this point and end the uncertainty. The

question presented here is one of great practical impor-

tance. The division of authority has created great uncer-

tainty for parties subject to arbitration agreements.

Indeed, as lower courts have recognized, arbitration

agreements often appear in form contracts that are em-

ployed or apply in more than one state. Ingle, 328 F.3d at

1171. As a result, a uniform national rule is essential to

ensure that similar cases are resolved in the same way

regardless of where the parties reside.

This Court has repeatedly acknowledged that the FAA’s

requirement that arbitration agreements be enforced according

to their terms is at the core of the FAA. Voit itself is a prime

example of the Court applying this core FAA requirement in

reviewing a decision of the California Court of Appeal. Specifi-

cally, this Court in Volt explained that ensuring enforcement of

arbitration agreements according to their terms was the

“federal policy” of the FAA, 489 U.S. at 476, “Congress’ principal

' purpose” in enacting the FAA, id. at 478, and “the FAA’s

primary purpose,” id. at 479. Similarly, in Doctor’s Associates,

Inc. v. Casarotto, this Court reviewed a decision of the Montana

Supreme Court and stated that “the very purpose of the Act

was to ‘ensurfe] that private agreements to arbitrate are

enforced according to their terms.” 517 U.S. at 688.

In short, there can be no doubt that the decision below

presents a critical issue of great practical importance

under the FAA, and that the acknowledged division on

that question warrants further review by this Court.

CONCLUSION

For the foregoing reasons, amicus curiae respectfully

asks this Court to grant the Petition for Writ of Certiorari

to the United States Supreme Court.

Respectfully submitted,

WINSTON & STRAWN

LEE T. PATERSON

' 333 South Grand Avenue

38th Floor

Los Angeles, CA 90071-1543

Phone: (213) 615-1700

Fax: (213) 615-1750

Attorneys for Amicus Curiae

Employers Group

ere

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