Hooters of America, Inc. v. Phillips

• Decision Date: 08 April 1999
• Docket Number: No. 98-1459,98-1459
• Citation: 173 F.3d 933
• Parties: 79 Fair Empl.Prac.Cas. (BNA) 629, 75 Empl. Prac. Dec. P 45,822 HOOTERS OF AMERICA, INCORPORATED, a Georgia corporation, Plaintiff-Appellant, v. Annette R. PHILLIPS, an individual resident of South Carolina, Defendant & Third Party Plaintiff-Appellee, v. Hooters of Myrtle Beach, Incorporated, a Georgia corporation, Third Party Defendant-Appellant. National Restaurant Association; Society of Professionals in Dispute Resolution; National Academy of Arbitrators; Equal Employment Opportunity Commission, Amici Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 933

173 F.3d 933

79 Fair Empl.Prac.Cas. (BNA) 629,

75 Empl. Prac. Dec. P 45,822

HOOTERS OF AMERICA, INCORPORATED, a Georgia corporation, Plaintiff-Appellant, v. Annette R. PHILLIPS, an individual resident of South

Carolina, Defendant & Third Party Plaintiff-Appellee, v. Hooters of Myrtle Beach, Incorporated, a Georgia

corporation, Third Party Defendant-Appellant.

National Restaurant Association; Society of Professionals

in Dispute Resolution; National Academy of

Arbitrators; Equal Employment

Opportunity Commission, Amici Curiae.

No. 98-1459.

United States Court of Appeals,

Fourth Circuit.

Argued Jan. 28, 1999.

Decided April 8, 1999.

ARGUED: Mark David Halverson, Elarbee, Thompson & Trapnell, L.L.P., Atlanta, Georgia, for Appellants. Sandra C. McCallion, Debevoise & Plimpton, New York, New York, for Appellee. Robert John Gregory, Equal Employment Opportunity Commission, Washington, D.C., for Amicus Curiae EEOC. ON BRIEF: Stanford G. Wilson, Elarbee, Thompson & Trapnell, L.L.P., Atlanta, Georgia, for Appellants. John S. Kiernan, Justin S. Weddle, Debevoise & Plimpton, New York, New York; Armand G. Derfner, Charleston, South Carolina; Terry Ann Rickson, Charleston, South Carolina; Thomas J. Henderson, Richard Seymour, Teresa A. Ferrante, Lawyers Committee for Civil Rights Under Law, Washington, D.C., for Appellee. C. Gregory Stewart, General Counsel, Philip B. Sklover, Associate General Counsel, Lorraine C. Davis, Assistant General Counsel, Equal Employment Opportunity Commission, Washington, D.C., for Amicus Curiae EEOC. Peter G. Kilgore, National Restaurant Association, Washington, D.C., for Amicus Curiae Association. Daniel Bowling, Society of Professionals in Dispute Resolution, Washington, D.C., for Amicus Curiae Society. Donald T. Weckstein, University Of San Diego, San Diego, California, for Amicus Curiae Academy.

Before WILKINSON, Chief Judge, TRAXLER, Circuit Judge, and GOODWIN, United States District Judge for the Southern District of West Virginia, sitting by designation.

Affirmed and remanded by published opinion. Chief Judge WILKINSON wrote the opinion, in which Judge TRAXLER and Judge GOODWIN joined.

OPINION

WILKINSON, Chief Judge:

Annette R. Phillips alleges that she was sexually harassed while working at a Hooters restaurant. After quitting her job, Phillips threatened to sue Hooters in court. Alleging that Phillips agreed to arbitrate employment-related disputes, Hooters preemptively filed suit to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 4. Because Hooters set up a dispute resolution process utterly lacking in the rudiments of even-handedness, we hold that Hooters breached its agreement to arbitrate. Thus, we affirm the district court's refusal to compel arbitration.

I.

Appellee Annette R. Phillips worked as a bartender at a Hooters restaurant in Myrtle Beach, South Carolina. She was employed since 1989 by appellant Hooters of Myrtle Beach (HOMB), a franchisee of appellant Hooters of America (collectively Hooters).

Phillips alleges that in June 1996, Gerald Brooks, a Hooters official and the brother of HOMB's principal owner, sexually harassed her by grabbing and slapping her buttocks. After appealing to her manager for help and being told to "let it go," she quit her job. Phillips then contacted Hooters through an attorney claiming that the attack and the restaurant's failure to address it violated her Title VII rights. Hooters responded that she was required to submit her claims to arbitration according to a binding agreement to arbitrate between the parties.

This agreement arose in 1994 during the implementation of Hooters' alternative dispute resolution program. As part of that program, the company conditioned eligibility for raises, transfers, and promotions upon an employee signing an "Agreement to arbitrate employment-related disputes." The agreement provides that Hooters and the employee each agree to arbitrate all disputes arising out of employment, including "any claim of discrimination, sexual harassment, retaliation, or wrongful discharge, whether arising under federal or state law." The agreement further states that

the employee and the company agree to resolve any claims pursuant to the company's rules and procedures for alternative resolution of employment-related disputes, as promulgated by the company from time to time ("the rules"). Company will make available or provide a copy of the rules upon written request of the employee.

The employees of HOMB were initially given a copy of this agreement at an all-staff meeting held on November 20, 1994. HOMB's general manager, Gene Fulcher, told the employees to review the agreement for five days and that they would then be asked to accept or reject the agreement. No employee, however, was given a copy of Hooters' arbitration rules and procedures. Phillips signed the agreement on November 25, 1994. When her personnel file was updated in April 1995, Phillips again signed the agreement.

After Phillips quit her job in June 1996, Hooters sent to her attorney a copy of the Hooters rules then in effect. Phillips refused to arbitrate the dispute.

Hooters filed suit in November 1996 to compel arbitration under 9 U.S.C. § 4. Phillips defended on the grounds that the agreement to arbitrate was unenforceable. Phillips also asserted individual and class counterclaims against Hooters for violations of Title VII and for a declaration that the arbitration agreements were unenforceable against the class. In response, Hooters requested that the district court stay the proceedings on the counterclaims until after arbitration, 9 U.S.C. § 3.

In March 1998, the district court denied Hooters' motions to compel arbitration and stay proceedings on the counterclaims. The court found that there was no meeting of the minds on all of the material terms of the agreement and even if there were, Hooters' promise to arbitrate was illusory. In addition, the court found that the arbitration agreement was unconscionable and void for reasons of public policy. Hooters filed this interlocutory appeal, 9 U.S.C. § 16.

II.

The benefits of arbitration are widely recognized. Parties agree to arbitrate to secure "streamlined proceedings and expeditious results [that] will best serve their needs." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 633, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). The arbitration of disputes enables parties to avoid the costs associated with pursuing a judicial resolution of their grievances. By one estimate, litigating a typical employment dispute costs at least $50,000 and takes two and one-half years to resolve. Amicus Brief for Society of Professionals in Dispute Resolution at 2-3 (citing Baxter, Arbitration or Litigation for Employment Civil Rights?, 2 Individual Employment Rights 19 (1993 94); Maltby, The Projected Impact of the Model Employment Termination Act, Annals of the Am. Acad. of Pol. and Soc. Sci. (Nov. 1994)). Further, the adversarial nature of litigation diminishes the possibility that the parties will be able to salvage their relationship. For these reasons parties agree to arbitrate and trade "the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (internal quotation marks omitted).

In support of arbitration, Congress passed the Federal Arbitration Act (FAA), ch. 213, 43 Stat. 883 (1925) (codified as amended at 9 U.S.C. § 1 et seq.). "Its purpose was 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, 500 U.S. at 24, 111 S.Ct. 1647. The FAA manifests "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). When a valid agreement to arbitrate exists between the parties and covers the matter in dispute, the FAA commands the federal courts to stay any ongoing judicial proceedings, 9 U.S.C. § 3, and to compel arbitration, id. § 4.

The threshold question is whether claims such as Phillips' are even arbitrable. The EEOC as amicus curiae contends that employees cannot agree to arbitrate Title VII claims in predispute agreements. We disagree. The Supreme Court has made it plain that judicial protection of arbitral agreements extends to agreements to arbitrate statutory discrimination claims. In Gilmer v. Interstate/Johnson Lane Corp., the Court noted that " '[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.' " 500 U.S. at 26, 111 S.Ct. 1647 (alteration in original) (quoting Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. 3346). Thus, a party must be held to the terms of its bargain unless Congress intends to preclude waiver of a judicial forum for the statutory claims at issue. Such an intent, however, must "be discoverable in the text of the [substantive statute], its legislative history, or an 'inherent conflict' between arbitration and the [statute's] underlying purposes." Id.

The EEOC argues that in passing the Civil Rights Act of 1991, Pub. L. No. 102-166, 105 Stat. 1071, Congress evinced an intent to prohibit predispute agreements to arbitrate claims arising under Title VII. This circuit, however, has already rejected this argument. Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 881-82 (4th Cir.1996). The Civil Rights Act of 1991 provided that "Where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including ... arbitration, is encouraged to resolve disputes arising under [Title VII]." Pub. L. No....