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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1624%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2003
- **Citation:** 540 U.S. 818

## Text

. aa
No. 02-1720 | JUN

In The
Supreme Court of the Gnited States

¢

AUTO STIEGLER, INC.,

Petitioner,

4

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.

il

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

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 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

12

12

iv

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

vi

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

1

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).

4

' 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.

|

2

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

3

violation of public policy. Little v. Auto Stiegler, Inc., 29
Cal. 4th 1064 (2003).

42
v

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.

4

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.

5

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.

6

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

7

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

8

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:

9

“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.

10

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’).”

11

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.

12

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.

13

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.

14

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

15

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

16

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

17

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

18

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.

19

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

20

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.

@
v

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1624%3A3. Public record. Not legal advice.