82 Hawai'i 226, Brown v. KFC National Management Co.

• Decision Date: 19 July 1996
• Docket Number: No. 18319,18319
• Citation: 82 Hawaii 226,921 P.2d 146
• Court: Hawaii Supreme Court
• Parties: 82 Hawai'i 226, 12 IER Cases 1021 Larry BROWN; Angelica Brown; Drake Alabanza; and Lou Alabanza, Plaintiffs-Appellees, v. KFC NATIONAL MANAGEMENT COMPANY, a Delaware Corporation; KFC U.S.A., a Foreign Corporation; Lars Peterson, Defendants-Appellants, and Doe Defendants 1-10, Defendants.

Page 146

921 P.2d 146

82 Hawai'i 226, 12 IER Cases 1021

Larry BROWN; Angelica Brown; Drake Alabanza; and Lou

Alabanza, Plaintiffs-Appellees, v. KFC NATIONAL MANAGEMENT COMPANY, a Delaware Corporation;

KFC U.S.A., a Foreign Corporation; Lars Peterson,

Defendants-Appellants,

and

Doe Defendants 1-10, Defendants.

No. 18319.

Supreme Court of Hawai'i.

July 19, 1996.

Reconsideration Denied Aug. 27, 1996.

Matt A. Tsukazaki and Ernest C. Moore, III of Torkildson, Katz, Jossem, Fonseca, Jaffe, Moore & Hetherington, on the briefs, Honolulu, for defendants-appellants KFC National Management Company, KFC U.S.A. Incorporated, and Lars Peterson.

David F. Simons, Simons & Associates, and Davis & Levin, on the briefs, Honolulu, for plaintiffs-appellees Drake Alabanza and Lou Alabanza.

John Ishihara, Chief Counsel, Department of Labor and Industrial Relations, on the briefs, Honolulu, for amicus curiae Hawai'i Civil Rights Commission.

Before MOON, C.J., KLEIN, LEVINSON and NAKAYAMA, JJ., and Circuit Court Judge MICHAEL TOWN, in place of RAMIL, J., Recused.

LEVINSON, Justice.

The defendants-appellants KFC National Management Company, KFC U.S.A. Incorporated, and Lars Peterson (collectively, "KFC") appeal from the circuit court's decision and order denying KFC's motion to stay action and to compel arbitration of the claims asserted by the plaintiffs-appellees Drake Alabanza (Drake), a former employee of KFC, and his wife, Lou Alabanza (Lou) (collectively, "the Alabanzas") in their complaint filed in the first circuit court. The Alabanzas' claims stem from Drake's allegation that race discrimination was implicated in his termination from employment. KFC asserts its right to compel arbitration of all the claims raised by the Alabanzas based on an arbitration agreement that was reflected in an application for employment with KFC that Drake had signed.

On appeal, KFC contends that: (1) the circuit court erred in ruling, as a matter of law, that the arbitration agreement reflected in Drake's employment application was "not an enforceable arbitration clause within the scope of Chapter 658 of the Hawai'i Revised Statutes"; and (2) an arbitration agreement is not unenforceable merely because it is included in an application for employment that disclaims any implied or express contract of employment. The Alabanzas, on the other hand, urge that: (1) the arbitration agreement, if a contract at all, is an unenforceable contract of adhesion; (2) a provision in an arbitration agreement that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA), would govern the substance of controversies renders the alleged contract for arbitration unenforceable in the employment context; and (3) in any event, Lou is not bound by an arbitration agreement signed only by Drake.

For the reasons set forth below, we hold, as a matter of law: (1) that the arbitration agreement imposed upon Drake by KFC as an adjunct of his employment application is enforceable against Drake and is not an unenforceable contract of adhesion; but (2) that Lou, who did not sign the arbitration agreement, is not bound to arbitrate her claims of loss of consortium and intentional and negligent infliction of emotional distress, which are both derivative and separable.

I. BACKGROUND

In August 1992, Drake applied for a job as a cook with KFC at its Kentucky Fried Chicken store in Wahiawa, City and County of Honolulu, where he had previously worked from 1990 to 1991. As part of the application process, he completed and signed a written standard form application for employment that had been drafted by KFC. On the application, Drake supplied certain personal information, his employment interest, his educational background, and his employment history. The employment application also contained a separate section entitled "Agreement." The first two paragraphs of the Agreement stipulated that Drake, if employed, would be an "at will" employee and that the application was not an implied or express contract of employment. The text of the Agreement provided in relevant part as follows:

I agree that I am offered[ ¹] employment by KFC and accept, my employment will be employment at will and not for any specific duration, [and] that my employment and compensation can be terminated, with or without cause, with or without notice, at any time, at the option of either KFC or myself.

I am hereby informed and I understand that nothing contained in this application, any KFC manual, handbook, or other written materials shall constitute an implied or expressed contract of employment. All such materials are presented for informational purposes only and can be changed at any time by KFC, with or without notice. Furthermore, no employee or agent of KFC, other than the Chief Executive Officer, has any authority to enter into any agreement for employment for any specified period of time or to make any agreement contrary to the foregoing and that any such agreements must be in writing and must be signed by the Chief Executive Officer of KFC.

The Agreement also contained a subsection styled "Arbitration Of Employee Rights" (the Employee Rights subsection) and a signature line, which Drake executed. The application was not signed by any agent of KFC. The Employee Rights subsection, in turn, contained an arbitration agreement providing that the applicant agreed to arbitrate any dispute regarding compensation, employment, or termination from employment. The full text of the arbitration agreement was as follows:

Because of the delay and expense which results from the use of the federal and state court systems, KFC and I agree to submit to binding arbitration any controversies concerning my compensation, employment[,] or termination of employment, rather than to use such court systems. In any such arbitration, the American Arbitration Association rules shall govern the procedure[,] and the Federal Arbitration Act shall govern the substance of such controversies.

In July or August 1992, Drake was hired as a cook for the Kentucky Fried Chicken store in Wahiawa. He worked for KFC until February 25, 1993, when his employment was allegedly terminated. ² Subsequent to his alleged termination, Drake, who is an African American, filed a complaint with the Hawai'i Civil Rights Commission (HCRC), ³ alleging, inter alia, race discrimination and harassment. He received a right-to-sue letter from the HCRC, pursuant to Hawai'i Revised Statutes (HRS) § 368-12 (1993). ⁴ On December 9, 1993, the Alabanzas, along with the plaintiffs-appellees Larry Brown and his wife, Angelica Brown, ⁵ filed the lawsuit and jury demand against KFC that has given rise to this appeal, setting forth, inter alia, claims for relief arising out of Drake's alleged termination of employment with KFC.

The Alabanzas' lawsuit was premised solely on claims based on alleged violations of state law. In the complaint--which seeks compensatory and punitive damages, injunctive relief, costs, and attorneys' fees--Drake raised claims of race discrimination in violation of HRS chs. 368 (1993) and 378 (1993), including § 378-2 (first and eighth claims for relief), ⁶ breach of contract (second claim for relief), tortious breach of contract (third claim for relief), negligence (sixth claim for relief), and negligent and intentional infliction of emotional distress (fifth claim for relief). Lou raised derivative claims of loss of consortium (fourth claim for relief) and negligent and intentional infliction of emotional distress (fifth claim for relief). The Alabanzas are not parties to the seventh claim for relief, in which Larry Brown alleges a violation of the Hawai'i Whistleblowers' Protection Act, HRS § 378-61 et seq. (1993).

On January 10, 1994, KFC removed the action to the United States District Court for the District of Hawai'i on the ground of diversity jurisdiction within the meaning of 28 U.S.C. § 1332(a). The district court remanded the matter to the circuit court by order dated April 4, 1994, for lack of diversity of citizenship. See Mathewson v. Aloha Airlines, Inc., 82 Hawai'i 57, 70-71, 919 P.2d 969, 982-83 (1996) (describing the federal statutory scheme governing removal and remand).

On June 23, 1994, KFC filed a motion in the circuit court to stay the action and to compel compliance on the Alabanzas' part with the arbitration agreement (the "motion to compel"). In support of the motion to compel, KFC argued that, because Drake had been hired pursuant to the employment application that he had executed and tendered to KFC, the circuit court should, as a matter of law, enforce the arbitration agreement contained therein and stay the Alabanzas' lawsuit pursuant to HRS § 658-3 (1993). The motion to compel was heard and argued on July 14, 1994, following which the circuit court orally denied the motion, ruling from the bench in the following manner:

THE COURT: The provision in the Plaintiff Alabanza's employment application is not an enforceable arbitration clause within the scope of Chapter 658 of the Hawai'i Revised Statutes; and on that basis, the motion by Defendants KFC National Management Company, KFC U.S.A. Incorporated and Lars Peterson for stay of action by the plaintiffs in this case to compel arbitration is denied.

On August 12, 1994, the circuit court entered its written order denying the motion to compel. On the same day, KFC filed a timely notice of appeal.

II. STANDARD OF REVIEW

A petition to compel arbitration is reviewed de novo. Dines v. Pacific Ins. Co., Ltd., 78 Hawai'i 325, 326, 893 P.2d 176, 177, reconsideration denied, 78 Hawai'i 474, 896 P.2d 930 (1995). See also Shimote v. Vincent, 80 Hawai'i 96, 99, 905 P.2d 71, 74 (App.), cert. denied, 80 Hawai'i 187, 907 P.2d 773 (1995). The standard is the same as that which would be applicable to a motion for summary judgment, and the trial court's decision is reviewed "using the same standard employed by the trial court and based upon the same evidentiary materials as...