Salazar v. Citadel Communications Corp.

• Decision Date: 19 April 2004
• Docket Number: No. 28277.,28277.
• Citation: 2004 NMSC 13,90 P.3d 466,135 N.M. 447
• Parties: Kathleen SALAZAR, Plaintiff-Appellee, v. CITADEL COMMUNICATIONS CORP., Defendant-Appellant.
• Court: New Mexico Supreme Court

90 P.3d 466

135 N.M. 447

2004 NMSC 13

Kathleen SALAZAR, Plaintiff-Appellee, v. CITADEL COMMUNICATIONS CORP., Defendant-Appellant.

No. 28277.

Supreme Court of New Mexico.

April 19, 2004.

Rodey, Dickason, Sloan, Akin & Robb, P.A., Edward Ricco, Thomas L. Stahl, Albuquerque, Eckert Seamans Cherin & Mellott, L.L.C., John J. Myers, Allan W. Brown, Pittsburgh, PA, for Appellant.

Foster, Johnson, McDonald, Lucero & Koinis, L.L.P., J. Douglas Foster, Kathryn D. Lucero, Albuquerque, for Appellee.

OPINION

CHÁVEZ, Justice.

{1} Defendant-Appellant Citadel Communications (Company) provided Plaintiff-Appellee Kathleen Salazar (Salazar) with an Employment Handbook which, among other things, required binding arbitration of all disputes with the Company. According to the Handbook, the arbitration is to proceed in accordance with an Agreement to Arbitrate that is "annexed," or appended, to the Handbook. The Company simultaneously reserved the right to modify, unilaterally and at any time, any of the Handbook's provisions save the employee's at-will status. Because we conclude that this reservation extended to the arbitration provision of the Handbook, we further conclude that it and the annexed Agreement to Arbitrate represent an illusory and unenforceable promise. The District Court having reached the same conclusion, we affirm.

I. Background

{2} Salazar filed a de novo appeal in District Court from an order of the New Mexico Human Rights Commission which denied her discrimination claim. She had alleged to the Commission that she was terminated from her employment at the Company because of her ethnicity and gender. The Company subsequently filed a motion to stay the District Court action and compel arbitration. The Company attached to that motion what it alleged to be a valid and enforceable agreement to arbitrate, signed by Salazar.

{3} The scope of this agreement would seem to cover Salazar's current claims against the Company. The agreement, made "in consideration of continued employment and the mutual agreement to arbitrate claims," provides that "[a]ll disputes, as defined below, between Employee and the Company ... shall be resolved by final and binding arbitration in accordance with the provisions of this agreement." Disputes, in turn, are defined to "include all claims for legal or equitable relief based upon state, federal or local common or statutory laws." Although the agreement recognizes certain exceptions, none apply to this case.

{4} As the Company acknowledges, this Agreement was attached to the Employee Handbook, which sets forth many of the terms and conditions of employment. For example, the Handbook has sections on hours, pay, attendance, benefits, safety, conduct, and termination of employment. Additionally, the Handbook discusses the Company's dispute resolution policy and procedure, which includes a subsection on arbitration. That arbitration subsection provides, in part: "As a condition of employment with the Company, all employees and the Company agree to submit all disputes ... to arbitration in accordance with the Agreement to Arbitrate Claims entered into between the Company and its employees, the form of which is annexed to this Handbook." (Emphasis added.)

{5} Although the Handbook instructs the employee to read it "so that you will know what the Company expects from you and what you can expect from the Company," it takes great pains to avoid creating a contractual relationship. The beginning of the Handbook, under a heading entitled "Important: Read Carefully" (emphasis omitted), informs the employee that the Handbook "is not intended to constitute a contract of employment between [the employee] and the Company." Furthermore, that same section states that the Handbook "supersedes and revokes all previous practices, procedures, policies, and other statements of the Company... that modify, supplement or conflict with this Handbook," but that it, in turn, "may be amended at any time, with or without advance notice." The Receipt and Acknowledgment form, signed by Salazar, repeats the assertions that the Handbook is not a contract and can be unilaterally modified at any time. Both the Handbook and the Receipt and Acknowledgment form, however, provide one exception to the Company's unfettered and unilateral right to alter the terms and conditions of Salazar's employment as set forth in the Handbook: the employee's at-will status can only be modified "by an express written employment agreement executed by a regional president of the Company or the general manager of the station" and the employee. (Emphasis omitted.) Nothing in the Agreement to Arbitrate expressly states that it, having been "annexed" to the Employee Handbook, is not also subject to the Company's right to unilaterally modify its provisions or that modifying the arbitration provision in the Handbook would not affect the annexed Agreement to Arbitrate.

{6} Salazar filed a brief in opposition to the Company's motion to compel arbitration, arguing that the Agreement to Arbitrate was illusory, that it lacked consideration, and that it was unconscionable. The District Court issued a letter decision, finding the Agreement to Arbitrate unenforceable. In that letter, the Court concluded that, "given all the language of the employee handbook and the Receipt and Acknowledgment form, the arbitration agreement was subject to unilateral modification and is, therefore, invalid." The Court noted that the Company limited its ability to modify the employee's at-will status, but provided no such limitation on the agreement to arbitrate or any of the other terms and conditions of Salazar's employment. Alternatively, she concluded that the documents were ambiguous as to whether the Company could unilaterally modify the Agreement and construed the ambiguity against it. She denied the other grounds for invalidating the agreement asserted by Salazar, finding them to be without merit.

{7} The Company appealed to the Court of Appeals. See NMSA 1978, § 44-7A-29(a)(1) (2001) (providing for an appeal following an order denying a motion to compel arbitration). The Court of Appeals, in turn, transferred the case to this Court sua sponte. See NMSA 1978, § 28-1-13(C) (1987); Martinez v. City of Grants, 1996-NMSC-061, ¶ 3, 122 N.M. 507, 927 P.2d 1045 (noting that this Court has exclusive jurisdiction over appeals from district court orders involving the New Mexico Human Rights Act). We affirm the District Court.

II. Discussion

{8} Under the Federal Arbitration Act (FAA), a pre-dispute agreement to arbitrate is "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 (2000). Under recent United States Supreme Court cases, such agreements can even require a party to arbitrate statutory claims. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). Of course, a prerequisite to compelling arbitration is the existence of a valid agreement to arbitrate. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Heye v. Am. Golf Corp., 2003-NMCA-138, ¶ 8, 134 N.M. 558, 80 P.3d 495. To determine whether the agreement to arbitrate is valid, courts look to general state contract law, Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), with the caveat that state laws that are specifically hostile to arbitration agreements are preempted by the FAA, Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996).

{9} Under general New Mexico contract law, an agreement that is subject to unilateral modification or revocation is illusory and unenforceable. Bd. of Educ. v. James Hamilton Constr. Co., 119 N.M. 415, 420, 891 P.2d 556, 561 (Ct.App.1994). This principle applies equally to agreements to arbitrate. Heye, 2003-NMCA-138, ¶¶ 11-12, 134 N.M. 558, 80 P.3d 495. The party that reserves the right to change the agreement unilaterally, and at any time, has not really promised anything at all and should not be permitted to bind the other party. The Employee Handbook undoubtedly qualifies as such an illusory promise; by its own terms it is not a contract, should not be interpreted as a contract, and can be unilaterally altered by the Company at any time, with or without notice. Thus, the exceedingly narrow question for us to decide is whether the Agreement to Arbitrate, the "form of which" was "annexed to" the Employee Handbook, is part of the Employee Handbook or whether, as the Company argues, it is an entirely separate agreement. If the Agreement to Arbitrate is part of the Employee Handbook, then it too is subject to the Company's unfettered right to unilaterally alter it and is, for that reason, illusory. The District Court concluded that, as a matter of law, the Agreement to Arbitrate is part of the Employee Handbook. Reviewing that legal determination de novo, id. ¶ 4, we affirm. See also DeArmond v. Halliburton Energy Servs., Inc., 2003-NMCA-148, ¶ 4, 134 N.M. 630, 81 P.3d 573, cert, denied, 2003-NMCERT-003, 135 N.M. 51, 84 P.3d 668.

{10} We primarily rely on the terms of the Employee Handbook itself. The Handbook, which covers most aspects of Salazar's employment, also provides for binding arbitration of disputes. That arbitration is to be accomplished "in accordance with the Agreement to Arbitrate Claims entered into between the Company and its employees." The "form" of this Agreement to Arbitrate is "annexed to" the Employee Handbook. We think it fair to say...