Morrow v. Hallmark Cards, Inc.

• Decision Date: 30 June 2008
• Docket Number: DOCKET NUMBER WD67440
• Citation: 273 S.W.3d 15,104 Fair Empl. Prac. Cas. (BNA) 596
• Parties: Mary Kay Morrow, Appellant, v.Hallmark Cards, Inc., Respondent
• Court: Missouri Court of Appeals

273 S.W.3d 15,

104 Fair Empl. Prac. Cas. (BNA) 596

Mary Kay Morrow, Appellant,

v.Hallmark Cards, Inc., Respondent.

DOCKET NUMBER WD67440

COURT OF APPEALS OF

MISSOURI, WESTERN DISTRICT

June 30, 2008, Decided

June 30, 2008, Opinion Filed

Mark A. Jess, Kansas City, MO, for appellant.

Jeffrey D. Hanslick, Kansas City, MO, for respondent.

James M. Smart, Jr., Judge. Lowenstein, Spinden, Newton, Holliger, Welsh, and Dandurand, JJ., concur in the opinion of Smart, J., for the court. Ahuja, J., concurs in result, with separate opinion. Ellis, J., joins in the separate opinion of Ahuja, J.

OPINION

This case addresses the issue of whether a program adopted by Hallmark Cards, Inc., requiring employees to give up their right of access to the courts for employment-related claims, and providing arbitration as the exclusive means of resolution of those claims, is a legally enforceable contract. Mary Kay Morrow, a former employee of Hallmark, contends that the circuit court erred in finding an enforceable contract and in compelling arbitration as to her claims of age discrimination and retaliation.

Because arbitration can be compelled only when a party has agreed to arbitrate claims, Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 435 (Mo. banc 2003), the threshold issue is whether there is a legally enforceable contract to arbitrate. Although Hallmark refers to its arbitration program as a "contract," the program does not involve mutual promises because Hallmark reserves the right, in its sole discretion, to modify or revoke the provisions of the program.

There also is no other legal consideration provided to Hallmark's employees for unilaterally giving up their right of access to the courts. This is because, contrary to Hallmark's argument, "continued employment" in the at-will employment relationship does not constitute legal consideration. Ms. Morrow, as a former employee of Hallmark, now has no contractual duty to arbitrate her claims.

We reverse the rulings compelling and confirming arbitration, and remand to the trial court for further proceedings.

I. Background

Mary Kay Morrow was hired by Hallmark in 1982. At the start of 2002, while Morrow was working as an associate product manager, Hallmark adopted, effective January 5, 2002, a policy applicable to its employees called the "Hallmark Dispute Resolution Program" ("DRP" or "the program"). This policy provided that if an employee continued to work for Hallmark after the policy became effective, the employee would thereby be deemed to have agreed to submit to the company's procedures for resolving claims against the company, which included binding arbitration in lieu of litigation. Morrow received a copy of the policy. Morrow continued working for Hallmark through and after the effective date of January 5, 2002.

Fifteen months later, on April 8, 2003, Hallmark terminated Morrow's employment. Morrow claims that Hallmark discriminated against her because of her age and retaliated against her for complaining about Hallmark policies. Hallmark's position is that Morrow was terminated for poor work performance after failed attempts to improve her performance through coaching and a performance improvement plan.

Morrow contends arbitration could not be compelled in this case. For the reasons set forth below, we agree.

II. The Dispute Resolution Program

The DRP process is divided into four levels. Level One, the "Open Door Process," and Level Two, "Final Internal Review," are informal procedures for addressing the employee's complaint. In Final Internal Review, management provides the employee with a written response to the employee's concern.

If Final Internal Review does not resolve the dispute, the employee may submit a "covered claim" to Level Three, "Nonbinding Mediation." An independent, neutral mediator will attempt to help the employee and Hallmark resolve the dispute. If mediation is unsuccessful, the employee may submit the claim to Level Four, "Binding Arbitration." The employee also has the option of skipping Level Three and going straight to Level Four. The employee has thirty calendar days to initiate arbitration after the Final Internal Review, or, if there is a mediation effort, within thirty days after the mediation ceases without a resolution.

At Level Four, an independent, neutral arbitrator will determine the merits of the employee's claim. The arbitrator may decide various matters related to procedure as well as the merits of the claims themselves. The arbitrator's decision under the DRP is final and binding on the parties, subject to court review of the arbitrator's award. The arbitrator is chosen jointly by the employee and Hallmark from arbitrators recognized by the American Arbitration Association (AAA). Hallmark pays the filing fee and other administrative fees of the AAA and all the costs of the arbitrator's fees and travel expenses, except for the sum of $ 100, which is paid by the employee when initiating arbitration. The program provides that the arbitration proceedings and the results thereof, including the arbitration award, are to remain confidential.

Any employment-related dispute may be submitted to Levels One and Two, but only "covered claims" may be processed at Levels Three and Four. The "covered claims" are "employment-related claims [other than workers' compensation and unemployment compensation claims] against the company and individual managers acting within the scope of their employment…." Such covered claims include, inter alia, statutory claims of discrimination, harassment, and retaliation; Family and Medical Leave Act claims; tort claims; and claims asserting a violation of public policy.

The "excluded claims" include claims related to an alleged breach of an employee's noncompetition, nonsolicitation, fiduciary, or confidentiality obligations; claims involving patents, trademarks or intellectual property; and claims not raised in a timely manner under the DRP procedures or other applicable time limitations, including statutes of limitation. 1

The DRP states that nothing in the program is intended "to discourage or interfere with the legally protected rights of employees to file administrative claims or charges with government agencies." Hallmark concedes that this means that employees may file claims with the Missouri Human Rights Commission (MHRC) and the Equal Employment Opportunity Commission (EEOC) and await a response from the agency before being required to comply with the program deadline for invoking arbitration.

When the parties have entered into a contract to arbitrate, the Federal Arbitration Act (FAA), 9 U.S.C. sections 1-16, is applicable generally when there is an arbitration contract affecting interstate commerce. See Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 774 n.1 (Mo. banc 2005); Mueller v. Hopkins & Howard, P.C., 5 S.W.3d 182, 185 (Mo. App. 1999) (both citing 9 U.S.C. section 2).

Under Hallmark's DRP, the arbitrator has broad authority to decide all "covered claims" in accordance with the applicable substantive law. The arbitrator has no authority to change company policies, procedures, rules, or practices. Otherwise, the program states that the arbitrator may grant any remedy or relief that would have been available in court, which would include equitable relief and attorney's fees when allowed by law. The arbitrator also has broad authority to make rulings on discovery issues and other procedural matters. The arbitrator may issue subpoenas for witnesses and documents. The arbitrator must enter findings of fact and conclusions of law. The Hallmark program differs from common arbitration procedures in that the program purports to provide for judicial review of errors of law, rather than merely for the narrower statutory grounds set out in 9 U.S.C. sections 10 and 11 (1994). 2

III. Procedural History

Shortly after Morrow's employment was terminated, she proceeded unsuccessfully through Level Three and also concurrently filed a charge of discrimination under the Missouri Human Rights Act (MHRA) with the Missouri Human Rights Commission (MHRC). On November 26, 2003, the MHRC issued Morrow a "right to sue" letter, notifying her that she had ninety days from the date of the letter to sue Hallmark or her right to sue would be lost.

Morrow filed a petition in the Circuit Court of Jackson County against Hallmark, alleging age discrimination and retaliation. Hallmark filed a motion to stay the litigation and compel arbitration. The court granted Hallmark's motion to stay litigation and compel arbitration. After two unsuccessful attempts to obtain writs to compel the circuit court to hear the matter, Morrow ultimately invoked arbitration approximately eight months after arbitration had been compelled.

The arbitrator ruled that the DRP constituted a valid contract and was not unconscionable. The arbitrator dismissed Morrow's claims for lack of timeliness in invoking arbitration.

The trial court entered its judgment denying Morrow's motion to vacate. Morrow now appeals to this court.

IV. Standard of Review

Morrow does not appeal the conclusions of law of the arbitrator. However, the circuit court rulings (which she does appeal) overlap the arbitrator rulings. All of Morrow's points involve the issue of whether Hallmark's program is an enforceable contract and, therefore, whether the motion to compel arbitration was properly granted and the award was properly upheld.

The question of whether or not arbitration can properly be compelled is a question of law, which we review de novo. State ex rel. Vincent v. Schneider, 194 S.W.3d 853, 856 (Mo. banc 2006). Missouri substantive law governs the issues of the existence, validity, and enforceability of any purported arbitration contract. See id.; 9 U.S.C. sec. 2. "[I]n determining whether the parties have entered into a valid agreement to arbitrate, the usual rules of state contract law and canons of contract interpretation apply." Triarch Indus....