The defendant, Ryan's Family Steakhouse, Inc., d/b/a Fire Mountain Restaurant ("Ryan's"), appeals the trial court's order denying Ryan's motion to compel the plaintiff, Donna Kilpatric, to arbitrate her claims against Ryan's. We reverse and remand.
Kilpatric was an employee of Ryan's. When Kilpatric applied for employment with Ryan's, she signed an arbitration agreement with Employment Dispute Services, Inc. ("EDSI"). The arbitration agreement stated that Ryan's and EDSI had entered into a contract "to arbitrate and resolve any and all employment-related disputes between [Ryan's] employees (and job applicants) and [Ryan's] under EDSI's program." The arbitration agreement stated that "employment-related disputes
On May 18, 2004, Kilpatric sued Ryan's, seeking workers' compensation benefits and asserting a claim of retaliatory discharge. On June 24, 2004, Ryan's answered Kilpatric's complaint and began conducting initial discovery.
On August 20, 2004, Ryan's filed a motion to stay the proceedings and to compel arbitration of Kilpatric's claims pursuant to the arbitration agreement between Kilpatric and EDSI. On January 26, 2005, the trial court denied Ryan's motion to compel arbitration of Kilpatric's claims. The trial court's order stated, in pertinent part:
Ryan's timely appealed the denial of its motion to compel arbitration to the supreme court. See Rule 4(d), Ala. R.App. P. ("An order granting or denying a motion to compel arbitration is appealable as a matter of right. . . ."). The supreme court transferred the appeal to this court, pursuant to § 12-2-7(6), Ala.Code 1975. This court heard oral arguments on this case on April 4, 2006.
Standard of Review
Patriot Mfg., Inc. v. Jackson, 929 So.2d 997, 1000 (Ala.2005).
The appeal presents these issues: (1) whether the arbitration agreement is valid; (2) whether the arbitration agreement calls for the arbitration of workers' compensation claims; (3) whether Ryan's waived its right to compel arbitration; (4) whether the arbitration agreement is unconscionable; and (5) whether general public-policy arguments against the arbitration of workers' compensation claims foreclose Ryan's from compelling the arbitration of Kilpatric's workers' compensation claim. The trial court denied Ryan's motion to compel arbitration on the grounds of waiver and unconscionability. Subject to certain exceptions that are not present in this case, this court may affirm a trial court's judgment on any valid legal ground, regardless of whether it was considered
I. Existence of a Valid Arbitration Agreement
"In reviewing arbitration provisions, we apply general state-law contract principles." Capitol Chevrolet & Imports, Inc. v. Payne, 876 So.2d 1106, 1109 (Ala. 2003).
Marcrum v. Embry, 291 Ala. 400, 403, 282 So.2d 49, 51 (1973). "`[A] promise which is merely illusory, such as an agreement to buy only what the promisor may choose to buy, falls short of being a consideration for the promisee's undertaking, and neither is bound.'" Marcrum, 291 Ala. at 405, 282 So.2d at 53 (quoting Lindner v. Mid-Continent Petroleum Corp., 221 Ark. 241, 244, 252 S.W.2d 631, 632 (1952))
Kilpatric argues that the arbitration agreement between her and EDSI is unenforceable because, Kilpatric says, the arbitration agreement lacks mutuality of obligation between Kilpatric and EDSI and, therefore, lacks consideration. In support of this argument, Kilpatric relies on Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753 (7th Cir.2001). In Penn, the plaintiff employee signed an arbitration agreement with EDSI stating that employment-related disputes between the employee and Ryan's would be resolved through arbitration. 269 F.3d at 755. Applying Indiana contract law, the United States Court of Appeals for the Seventh Circuit concluded that the arbitration agreement between the employee and EDSI lacked consideration in part because the agreement contained "only an unascertainable, illusory promise on the part of
Kilpatric argues that the arbitration agreement in the present case, like the agreement in Penn, lacks mutuality of obligation and, therefore, lacks consideration. However, as Ryan's notes, the arbitration agreement in the present case is different from the agreement in Penn. In Penn, EDSI retained the right to change the arbitration rules at any time, making EDSI's obligations "unascertainable" and "illusory." 269 F.3d at 759. The rules governing the arbitration agreement between Kilpatric and EDSI state:
(Emphasis added.) This provision is identical to a provision contained in the rules governing the EDSI arbitration agreement signed by a plaintiff employee in Gardner v. Ryan's, (No. 1:01CV00030, October 31, 2001) (W.D.Va.2001) (not reported in F.Supp.2d). In Gardner, the federal district court noted that the rules of the arbitration agreement in Penn did not contain this provision allowing the employee claimant to choose which set of arbitration rules would govern the arbitration process. Id. The district court concluded that EDSI's promise to provide an arbitration forum governed by a particular set of rules was not illusory or uncertain, unlike EDSI's promise in Penn. Id. The Gardner court therefore concluded that the arbitration agreement between the plaintiff employee and EDSI was enforceable. Id.
The arbitration agreement in the present case contains mutuality of obligation and adequate consideration between EDSI and Kilpatric. Unlike the arbitration agreement in Penn, which allowed EDSI the discretion to rewrite the rules of arbitration, the present arbitration agreement allows Kilpatric the option of selecting the set of arbitration rules and procedures in place at the time the arbitration agreement was executed. The arbitration agreement provides a forum for the resolution of disputes between Kilpatric and Ryan's, and the arbitration rules and procedures in place at the time of execution provide a comprehensive framework governing the arbitration process. Unlike the promise in Penn, EDSI's promise to provide an arbitration forum with ascertainable rules and procedures is not illusory. Therefore, Kilpatric's argument that the arbitration agreement is void for lack of mutual obligation fails.
At oral argument, counsel for Kilpatric cited Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370 (6th Cir.2005), in support of her argument that the arbitration agreement in the present case lacks consideration. The court in Walker concluded that the EDSI arbitration agreements in that case lacked adequate consideration. Id. at 379. The Walker court noted, however, that the plaintiffs' arbitration agreements in that case did not incorporate the provision allowing an employee claimant the right to enforce the
II. Scope of the Arbitration Agreement
Kilpatric also argues that, even if there is a valid arbitration agreement between her and EDSI, the agreement does not call for the arbitration of workers' compensation claims. Kilpatric cites language in the arbitration agreement stating that the agreement "does not restrict [Kilpatric] from filing a claim or charge with any state or federal agency," including a "state workers' compensation commission, where applicable." The Alabama Workers' Compensation Act, § 25-5-1 et seq., Ala.Code 1975, does not provide for a "state workers' compensation commission." Kilpatric contends that, although Alabama does not have a workers' compensation commission, the provision excluding from arbitration claims filed with a "state workers' compensation commission" should be read as excluding from arbitration all workers' compensation claims, regardless of whether those claims are filed with a commission.
"`It is well settled that the words of a contract are to be given their ordinary meaning and that the intention of the parties is to be derived, if possible, from the provisions of the contract itself. Where a contract, by its terms, is plain and free from ambiguity, there is no room for construction and the contract must be enforced as written.'" Peerless Landfill Co. v. Haleyville Solid Waste Disposal Auth., 941 So.2d 312, 316 (Ala.Civ.App. 2006) (quoting Austin Apparel, Inc. v. Bank of Prattville, 872 So.2d 158, 165 (Ala. Civ.App.2003)) (citations omitted). The plain language of the arbitration agreement excludes from arbitration claims filed with a "state workers' compensation commission, where applicable." (Emphasis added.) In the present case, this exclusion is not applicable because Alabama does not have a workers' compensation commission. We cannot conclude otherwise without ignoring the plain language of the arbitration agreement.
Kilpatric also argues that the arbitration agreement, if valid, only applies to claims that would otherwise be tried by a jury and does not apply to claims that would otherwise be tried by a judge only. Typically, a workers' compensation claim is tried before a circuit court judge without a jury. See § 25-5-81, Ala.Code 1975; and 2 Terry A. Moore, Alabama Workers' Compensation § 24:38 (1998). Arguing that the arbitration agreement only applies to claims that would be tried by a jury in state or federal court, Kilpatric maintains that her workers' compensation claim is not subject to the arbitration agreement. In support of her argument, Kilpatric cites the following provision of the arbitration agreement:
However, the arbitration agreement also states:
(Capitalization and bold typeface original.)
The provision of the arbitration agreement that Kilpatric cites as limiting arbitration only to claims that would otherwise be tried by a jury merely states that Kilpatric waives her right to a trial by jury; it does not state that she waives only her right to a trial by jury. The arbitration agreement indicates an intention to arbitrate "any and all" employment-related disputes with the specific exception of claims or charges filed with, and finally resolved by, a state or federal agency. However, the agreement does not provide an exclusion from arbitration for claims tried by bench trial, such as a typical workers' compensation claim. The arbitration agreement states that "any employment-related dispute . . . which would otherwise be brought in state or federal court" must be arbitrated in the EDSI forum. (Emphasis added.) This provision indicates that workers' compensation claims such as Kilpatric's that would otherwise be tried by bench trial are subject to arbitration pursuant to the arbitration agreement.
Blue Cross Blue Shield of Alabama v. Rigas, 923 So.2d 1077, 1093 (Ala.2005).
"`Prejudice to the party opposing arbitration, not prejudice to the party seeking arbitration, is determinative of whether a court should deny arbitration on the basis of waiver.' Price [v. Drexel Burnham Lambert, Inc.], 791 F.2d [1156,] 1162 [(5th Cir.1986)] (footnote omitted). `Both delay and the extent of the moving party's participation in judicial proceedings are material factors in assessing a plea of prejudice.' Frye [v. Paine, Webber, Jackson & Curtis, Inc.], 877 F.2d [396,] 399 [(5th Cir.1989)].
Hales v. ProEquities, Inc., 885 So.2d 100, 105-06 (Ala.2003).
Voyager Life Ins. Co. v. Hughes, 841 So.2d 1216, 1219-20 (Ala.2001) (quotation marks and citations omitted).
Ryan's argues that the trial court erred by finding that Ryan's waived its right to compel arbitration of Kilpatric's claims. The dispositive issue is whether Ryan's substantially invoked the litigation process and thereby substantially prejudiced Kilpatric. Hales, 885 So.2d at 105. Because "`the determination as to whether there has been a waiver must . . . be based on the particular facts of each case,'" we will first review the pertinent procedural history of this case. Id. (quoting Companion Life Ins. Co. v. Whitesell Mfg., Inc., 670 So.2d 897, 899 (Ala.1995)). On May 18, 2004, Kilpatric sued Ryan's. On June 24, 2004, Ryan's answered, asserting arbitration as an affirmative defense to Kilpatric's retaliatory-discharge claim but not as an affirmative defense to the claim for workers' compensation benefits. Also on June 24, Ryan's served interrogatories and requests for production on Kilpatric. On June 28, 2004, Ryan's filed a motion to quash service of a third-party subpoena that had been filed by Kilpatric. On July 2, Ryan's filed a notice of intent to serve five third-party subpoenas. On August 4, the trial court ordered Kilpatric to state the information that she sought to obtain by the third-party subpoena. On August 12, Ryan's filed an objection to Kilpatric's third-party subpoena. On August 16, Kilpatric, in response to the trial court's August 4 order, filed a position statement explaining her need for the information sought to be obtained by the third-party subpoena, and she attached to this position statement a two-page affidavit.
On August 20, 2004, Ryan's moved to compel arbitration. On September 9,
Ryan's did not waive its right to arbitrate Kilpatric's claims. The record on appeal indicates that, during the period between the filing of the complaint and the denial of the motion to compel arbitration, Ryan's conducted only limited discovery and objected to Kilpatric's third-party subpoena. In response to Ryan's actions, Kilpatric produced requested documents, answered interrogatories, and responded to Ryan's objection to Kilpatric's third-party subpoena. The record does not reveal the volume of the requested documents that Kilpatric produced or the breadth of the interrogatories that she answered. Ryan's moved to compel arbitration only approximately three months after Kilpatric filed her complaint. Although Ryan's invoked the litigation process, Ryan's did not substantially invoke that process. See Hales, 885 So.2d at 105. As we have previously noted, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)(footnote omitted).
Moreover, Kilpatric does not make a showing that she was substantially prejudiced by Ryan's limited invoking of the litigation process. Significantly, some of the discovery that Ryan's conducted is provided for under the rules of the arbitration agreement. The arbitration rules allow for the service of "a written request for production of documents" that must be satisfied or objected to within 15 days of the request. The arbitration rules also state that the arbitrators and any counsel of record "shall have the power of the subpoena process as provided by law." To the extent that Ryan's conducted discovery that was provided for under the rules of the arbitration agreement, Kilpatric was not prejudiced by Ryan's invoking the litigation process. Although the rules of arbitration are silent regarding interrogatories, the record does not indicate the scope of Ryan's interrogatories to which Kilpatric was ordered to respond. Although Kilpatric in her brief to this court alleges that she expended significant time and resources responding to Ryan's discovery, the record contains no evidence supporting this allegation. Given the facts of this case, we cannot conclude that Kilpatric was substantially prejudiced by Ryan's actions. Because Ryan's did not substantially invoke the litigation process and thereby substantially prejudice Kilpatric, Ryan's did not waive its right to arbitrate Kilpatric's claims against it.
Ryan's argues that the trial court erred by finding the arbitration agreement between Kilpatric and EDSI to be unconscionable.
"612 So.2d at 408. `For ease of discussion,' this Court has at times reduced the Layne v. Garner test to two essential elements: `(1) terms that are grossly favorable to a party that has (2) over-whelming bargaining power.' American Gen. Fin., Inc. v. Branch, 793 So.2d 738, 748 (Ala.2000). In addition, this Court recognizes a distinction between `substantive unconscionability' and `procedural unconscionability.' Substantive unconscionability
Leeman v. Cook's Pest Control, Inc., 902 So.2d 641, 645 (Ala.2004).
"To avoid an arbitration provision on the ground of unconscionability, the
923 So.2d at 1087-88. In concluding that Rigas, the insured third-party plaintiff, had not demonstrated procedural unconscionability, the supreme court stated:
923 So.2d at 1090.
Similarly, Kilpatric has made no showing that the arbitration agreement is procedurally unconscionable. Kilpatric has offered no evidence indicating that she lacked a meaningful choice in signing the arbitration agreement or that Ryan's exercised overwhelming bargaining power. Kilpatric also has made no showing that she would have had considerable difficulty obtaining similar employment with another employer without signing an arbitration agreement. Cf. American Gen. Fin., Inc. v. Branch, 793 So.2d 738, 751 (Ala.2000) ("In order to meet her burden of proof [to show overwhelming bargaining power, i.e., procedural unconscionability], a consumer need not show that the market was completely closed, only that she was unable to acquire goods or services without considerable expenditure of time and resources." (emphasis omitted)). Given the record before us, we cannot conclude that the arbitration agreement is procedurally unconscionable. We need not resolve the issue whether the arbitration agreement is substantively unconscionable because both procedural and substantive unconscionability must be proven in order to establish the affirmative defense of unconscionability, and Kilpatric has failed to carry her burden of proving that the agreement is procedurally unconscionable. See Rigas, 923 So.2d at 1087.
V. Public-Policy Arguments
Kilpatric also argues that the trial court's denial of the motion to compel arbitration of her workers' compensation claim should be affirmed because, she
Moses H. Cone Mem'l Hosp., 460 U.S. at 24, 103 S.Ct. 927. The FAA does not provide an exclusion for workers' compensation claims. We therefore cannot conclude, as a general proposition, that workers' compensation claims are not subject to arbitration. Of course, an agreement to arbitrate workers' compensation claims may be held invalid if "grounds . . . exist at law or in equity for the revocation of" that agreement. 9 U.S.C. § 2. Kilpatric has not demonstrated such grounds for invalidation of the arbitration agreement in this case. To the extent that Kilpatric argues that the arbitration of workers' compensation claims conflicts with the policies of the Alabama Workers' Compensation Act, we must note that the FAA preempts contrary state law. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). See also Ex parte Colquitt, 808 So.2d 1018, 1022 (Ala.2001).
For the foregoing reasons, the trial court's order denying Ryan's motion to compel arbitration is reversed, and the cause is remanded for proceedings consistent with this opinion.
REVERSED AND REMANDED.
PITTMAN, J., concurs specially, with writing, which CRAWLEY, P.J., joins.
BRYAN, J., concurs specially, with writing.
THOMPSON, J., dissents, with writing.
MURDOCK, J., dissents, with writing.
PITTMAN, Judge, concurring specially.
I concur in the main opinion. I would only add that in 2001 a Texas appellate court addressed and soundly rejected an argument, similar to that made by Donna Kilpatric in this case, that a claim should not be deemed arbitrable, as a matter of state public policy, because it seeks an award of benefits under a state's workers' compensation act:
In re David's Supermarkets, Inc., 43 S.W.3d 94, 99-100 (Tex.App.2001) (some emphasis added; footnotes omitted).
CRAWLEY, P.J., concurs.
BRYAN, Judge, concurring specially.
I am troubled by the policy implications of today's decision. I do not believe that the Alabama Legislature intended, when it enacted the Alabama Workers' Compensation Act, § 25-5-1 et seq., Ala.Code 1975, that workers' compensation claims be arbitrated. However, as the main opinion notes, the Federal Arbitration Act ("FAA"), not the Alabama Workers' Compensation Act, controls the question whether a workers' compensation claim is arbitrable. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 272, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). As the main opinion further notes, the FAA does not exclude workers' compensation claims from the broad scope of arbitrable claims. Therefore, I am constrained to conclude that, under the current applicable law, workers' compensation claims are arbitrable.
I note also that Donna Kilpatric's failure to establish any evidence of procedural unconscionability precluded her from possibly prevailing on her affirmative defense of unconscionability. A party asserting unconscionability as a defense to arbitration must establish both procedural and substantive unconscionability. Blue Cross Blue Shield of Alabama v. Rigas, 923 So.2d 1077, 1087 (Ala.2005). Had Kilpatric established evidence of procedural unconscionability, I believe the question whether the arbitration agreement is substantively unconscionable would have been a close question for this court to decide. Other appeals will, in all likelihood, present this issue differently.
THOMPSON, Judge, dissenting.
As the main opinion notes, section 2 of the Federal Arbitration Act ("FAA") broadly requires courts to enforce arbitration provisions in contracts affecting interstate commerce, even when statutory claims such as workers' compensation claims are involved. 9 U.S.C. § 2. See also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). However, I find the arbitration agreement at issue in this particular case to be invalid because the agreement does not allow for effective adjudication of Donna
In a series of cases, federal courts have refused to enforce arbitration provisions in employment contracts that were otherwise enforceable under the FAA because the provisions were "so fundamentally unfair as to prevent [the employee] from effectively vindicating [his or] her statutory rights. . . ." McMullen v. Meijer, Inc., 355 F.3d 485, 490 (6th Cir.2004). See also Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 385 (6th Cir.2005); Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d 306, 313 (6th Cir.2000); and Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir.1999).
The arbitration agreement in this case between Employment Dispute Service, Inc. ("EDSI"), and Kilpatric contains several questionable provisions that would support a determination that this arbitration agreement should not be enforced. First, in Article VII, regarding interpretation of the arbitration rules, the agreement provides, "Prior to the appointment of an adjudication panel, the chief executive officer of EDSI, or his designee, shall interpret these Rules and Procedures and decide any issue which may arise relating to them." A later provision, Article IX, describes the process for selection of arbitrators:
I find that the above provisions unfairly favor EDSI and, by implication, Ryan's, in regard to the interpretation of the arbitration rules and the selection of arbitrators, and the federal cases on this issue are in accord.
In Floss v. Ryan's Family Steak Houses, Inc., 211 F.3d at 316, the United States Court of Appeals for the Sixth Circuit refused to enforce arbitration agreements between EDSI and several employees of Ryan's because those agreements were not supported by consideration. Notably, the agreement at issue in Floss had the same provisions as the agreement in this case regarding the selection of adjudicators and involved the same organization, EDSI, that manages arbitration for Ryan's. In Floss, one of the workers in the action brought a claim under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the court noted that, under the FAA, statutory claims like those brought under the FLSA could be subject to compulsory arbitration. However, the court stated:
Floss, 211 F.3d at 313.
The Floss court then, in dictum, expressed concern that the EDSI agreement failed to provided the "effective vindication" required under the FAA, with regard to the fee structure and potential bias of arbitrators:
Floss, 211 F.3d at 314.
Subsequently, in Walker v. Ryan's Family Steak Houses, Inc., supra, the Sixth Circuit Court of Appeals relied on the dictum in Floss to hold that the same type of "arbitral forum" at issue in Floss and in this case was "not neutral," therefore rendering the agreement unenforceable. 400 F.3d at 385-86. The court analyzed the agreement as follows:
Walker, 400 F.3d at 386-88 (footnote omitted).
The provisions of the agreement in this case are virtually, if not completely, identical in all relevant respects to those provisions at issue in Walker. I have the same concerns about this agreement as the courts in Floss, supra, and Walker, supra. Also, in addition to the observations made by the Walker court, I find that the agreement unfairly favors the employer in defining the manner in which it is to be interpreted. The agreement allows the chief executive of EDSI, or his designee, the exclusive right to resolve any dispute concerning interpretation of the arbitration rules.
Further, there is no provision in the arbitration agreement to govern or oversee a settlement agreement between the parties or to provide oversight in any subsequent proceedings should the employer seek to reopen the action at a later date. See § 25-5-57(a)(4)b, Ala.Code 1975. The agreement also fails to indicate the steps to be taken if the employee or the employer does not comply with the directives of the decision of the panel of adjudicators.
I emphasize that, in my opinion, given an unbiased agreement, workers' compensation claims can be subject to arbitration. However, I conclude that the arbitration agreement at issue in this case does not afford Kilpatric effective vindication of her workers' compensation claims as required under the FAA by federal common law. Therefore, this case is not appropriate for arbitration. Based on the foregoing, I would affirm the trial court's judgment, albeit on a different basis than that cited by the trial court. See Smith v. Equifax, 537 So.2d 463, 465 (Ala.1988).
MURDOCK, Judge, dissenting.
I agree in the main with Judge Thompson's reasoning as to why the arbitration agreement in this case should not be enforced.
881 So.2d at 1020.